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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 (I.R.S. 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
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The aggregate market value of the common stock (its only voting stock)
held by non-affiliates of the Company, as of April 12, 1999, was $5,906,230.
(Reference is made to the final paragraph of Part I herein for a statement of
the assumptions upon which the calculation is based.)
As of April 12, 1999, there were 3,000,000 shares of the Company's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
In Part II of this report, information is incorporated by reference
from the Company's Annual Report to Shareholders for the year ended December 31,
1998. In Part III of this report, information is incorporated by reference to
the proxy statement for the annual meeting of shareholders to be held May 25,
1999.
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Ridgeview, Inc.
Index to Form 10-K
For the Year Ended December 31, 1998
Page
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PART I
Item 1 - Business 4
Item 2 - Properties 27
Item 3 - Legal Proceedings 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 28
Item 6 - Selected Financial Data 28
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 29
Item 8 - Financial Statements and Supplementary Data 29
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 29
PART III
Item 10 - Directors and Executive Officers of the Registrant 30
Item 11 - Executive Compensation 30
Item 12 - Security Ownership of Certain Beneficial Owners and Management 30
Item 13 - Certain Relationships and Related Transactions 30
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 31
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PART I
ITEM 1 - BUSINESS
GENERAL
Ridgeview, Inc. ("Ridgeview" or the "Company") designs, manufactures
and markets a complete range of sports, rugged outdoor and heavyweight casual
socks as well as a wide variety of women's hosiery products, including tights,
trouser socks, pantyhose and knee-highs. Management believes that the Company is
one of the leading vendors of sports socks to sporting goods and active apparel
stores. The Company also sells its products to department stores, discount
stores and a variety of other retailers. In addition, the Company produces
sports socks for sale by others under such widely-recognized brand names as
adidas, ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and Reebok
and women's hosiery products for sale under the Liz Claiborne and Elisabeth
brand names. Under license agreements, the Company produces and sells socks and
women's hosiery directly to retailers under the brand names Coleman, Ellen
Tracy, Evan-Picone, Rockport and Woolrich. The Company estimates that
approximately two-thirds of its net sales in the current fiscal year will be
derived from sales of socks with the balance derived from sales of women's
hosiery products. As of April 12, 1999, the Company had approximately 3,500
customers in the United States, Europe and other parts of the world.
The Company was founded in 1912 in Newton, North Carolina by a group of
individuals, including Joseph Albert Gaither, grandfather of the Company's
Chairman and great grandfather of the Company's President and Chief Executive
Officer, as a manufacturer of women's hosiery. In the mid-1970's the Company
began diversifying its product line to include sports socks, and during the past
twelve years the Company has diversified geographically and modernized its
production capacity, increased its domestic customer base, expanded its contract
manufacturing business, acquired the rights to manufacture and sell socks and
women's hosiery under several widely-recognized brand names and increased its
marketing activities and sales in Europe and other foreign markets. In 1986, the
Company established a manufacturing facility in the Republic of Ireland to serve
European customers and in 1992 established a manufacturing facility in Ft.
Payne, Alabama to produce promotionally-priced, multi-pair pack sports socks. In
June 1995, the Company expanded its manufacturing capacity and customer base by
acquiring Seneca Knitting Mills Corporation ("Seneca"), which has been engaged
exclusively in designing, manufacturing and marketing rugged outdoor and
heavyweight casual socks since 1954. In 1995, the Company also completed a major
expansion of its manufacturing facility in the Republic of Ireland to
accommodate growth from a new sports sock manufacturing program for adidas. In
July 1998, the Company again added to its customer base and finishing capacity
by acquiring Tri-Star Hosiery Mills, Inc. ("Tri-Star"). The acquisition of
Tri-Star strategically positioned the Company to become an even more efficient
low-cost producer of multi-pair pack socks by integrating a substantial portion
of Tri-Star's production into the Company's knitting and finishing facility in
Ft. Payne, Alabama. Also, in January 1999, the Company announced plans to
relocate the manufacturing
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operations of Seneca to its knitting and finishing facility in Ft. Payne,
Alabama. The relocation of the manufacturing of rugged outdoor and heavyweight
casual socks is expected to significantly reduce the manufacturing costs of this
product category.
OPERATING STRATEGIES
In recent years, manufacturers of socks and women's hosiery have
experienced a period of rapid technological change and encountered a demanding
retail environment characterized by customers' expectations of immediate order
fulfillment and depth in all product categories. The Company has adopted the
following operating strategies to respond to these industry developments.
PRODUCING HOSIERY PRODUCTS FOR SALE UNDER BRAND NAMES. The
Company produces socks for sale under its own brand names and for sale
by athletic footwear companies and others under such widely-recognized
brand names as adidas, ASICS, Bass, Brooks, Fila, Head Sportswear,
IZOD, New Balance and Reebok. Under licensing arrangements, the Company
produces and sells women's hosiery products directly to retailers under
the Ellen Tracy and Evan-Picone brand names and socks under the
Coleman, Rockport and Woolrich brand names. The Company also
manufactures women's hosiery products for Liz Claiborne, Inc. under its
brand names. Management believes that the Company's reputation as a
producer of well-known branded products, including its own branded
products in the sporting goods retail industry, distinguishes the
Company from many of its competitors that manufacture socks and women's
hosiery for sale only under retailers' private labels.
INVESTING TO BECOME A LOWER-COST MANUFACTURER. In recent years
the Company has made significant capital investments in manufacturing
technology with the goal of becoming a lower-cost, higher-volume
producer of a broad range of products. Most of these investments have
been made to replace existing mechanical knitting machinery for socks
with higher speed, more flexible electronic knitting machines that
require less maintenance and result in significant productivity
increases. The Company has also invested in sophisticated machinery
that automates the finishing operations at certain of its facilities,
significantly reducing the labor inputs required. The Company will
continue making capital investments in manufacturing and distribution
technology when appropriate to remain competitive.
OUTSOURCING MANUFACTURING TO INCREASE OPERATING EFFICIENCIES.
To meet peak demand, the Company regularly outsources the manufacturing
of certain products. As a result, the Company has been able to operate
its own manufacturing facilities at more efficient production levels.
MANUFACTURING A BROAD RANGE OF PRODUCTS. For a number of years
the Company has manufactured a complete range of sports socks and
produced a wide variety of women's hosiery products, including tights,
trouser socks, pantyhose and
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knee-highs. With the Seneca acquisition in 1995, the Company added
rugged outdoor and heavyweight casual socks to its product lines.
MAINTAINING A LARGE AND DIVERSE CUSTOMER BASE. As of April 12,
1999, the Company had approximately 3,500 customers in the United
States, Europe and other parts of the world. Only one of such
customers, Target, accounted for more than 10% of the Company's 1998
net sales and is expected to account for more than 10% of the Company's
1999 net sales. Management believes that maintaining a large and
diverse customer base puts the Company in a stronger position to
recover increased raw material and manufacturing costs through price
increases than many of the Company's competitors who are dependent on a
small number of major customers.
PROVIDING RAPID ORDER FULFILLMENT. The Company maintains
finished inventory of many of its products that allows the Company to
fill and deliver customer orders for those products generally within
three days of the date the order is placed. In recent years, the
Company has made capital investments in information technology to
develop and implement its Quick Response Inventory System, which
coordinates its manufacturing and order fulfillment systems with the
sophisticated electronic inventory management control systems employed
by an increasing number of the Company's larger customers.
FOCUSING ON CONSISTENT, HIGH QUALITY. The Company believes
that consistent product quality is as important to its customers as
rapid order fulfillment. The Company maintains a rigorous quality
assurance program for its manufacturing operations and enjoys a good
reputation among its customers for product quality.
OPERATIONS
SPORTS SOCKS. The Company manufactures an extensive collection of
sports specific, active sport and sports promotional socks for men, women and
children. The socks are knitted from a variety of natural and synthetic fibers
and are manufactured in a wide array of styles, including tubes, crews,
half-crews, quarters, rolldowns, slouches and cuffs.
"Sports specific socks," which allow a team or individual athlete to
match their socks to their activity, contain extra cushioning and differ
according to where the protective cushioning is placed (ball, toes, instep,
heel, arch, shin), how thick the cushioning is and the materials used to
construct the socks. The Company produces most of its sports specific socks for
athletic footwear and apparel companies that design, contract for the
manufacture of and market sports socks under such widely-recognized brand names
as adidas, ASICS, Bass, Brooks, Fila, Head Sportswear, IZOD, New Balance and
Reebok. Through its vendor relationships with these athletic footwear and
apparel companies, the Company not only increases its sales but also gains
access to changes in styling trends in the sporting goods industry. The Company
also produces its own collection of sports specific socks, which are sold to
retailers under the Company's SportSox brand name (in packaging and on displays
that also bear the Ridgeview name and trademark). This collection includes socks
for seven different sports, including in-line skating, tennis, cross-training,
cycling and aerobics.
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The Company's "team collection" of sports specific socks is designed
for sale to sporting goods dealers that outfit school and recreational athletic
teams. The collection includes basketball, baseball, soccer and football socks.
The baseball socks include the traditional nylon stirrup and sanitary socks worn
under the stirrups as well as several styles of one piece, knitted-in stirrup
socks. The soccer socks include acrylic soccer socks for recreational play and
heavier, more expensive nylon socks for the serious soccer player.
Under the brand name Kidsox, the Company manufactures several styles of
basic cushion socks specifically for children that are made with the same
quality features found in their adult-sized counterparts. The Kidsox line
includes a feature the Company calls "dirt defender," which is a grey color
blend on the bottom of the sock that helps keep that portion of the sock
color-fast despite rough use and repeated washings.
"Active sport socks" are specifically designed for the serious athlete
who participates in active sports such as basketball, tennis, running, cycling
and aerobics. They offer high performance features like special fibers and
triple layer construction to provide cushioning in high impact areas and
protection against abrasion and blisters. The Company's premium line of active
sport socks, which includes socks for eight different sports, is sold at premium
prices under the Company's LINEOne brand name in packaging and on displays that
also bear the Ridgeview name and trademark. The natural and synthetic fibers
used in these socks include mercerized cotton (cotton yarn processed in a
caustic solution to increase the fiber's strength and luster), wool, silk,
Duraspun (a Monsanto synthetic fiber that allows for maximum shock absorbency
and offers excellent wicking properties), CoolMax (a DuPont synthetic fiber that
breathes, while wicking perspiration away from the skin) and Thermastat (a
DuPont cold-weather synthetic fiber that traps warmth while allowing moisture to
escape).
Under the brand name SportSox and under private labels of various
sporting goods and discount stores, the Company manufactures and sells in
multi-pair packs a variety of styles of lightweight basic cushion socks designed
to be sold at promotional prices. These socks, which include tubes, crews,
quarters, rolldowns, slouches and cuffs and offer many of the features that are
found in the Company's premium-line socks, are knitted from a cotton-rich blend
of yarns.
RUGGED OUTDOOR AND HEAVYWEIGHT CASUAL SOCKS. The Company's collection
of rugged outdoor and heavyweight casual socks, which expanded significantly
with the acquisition of Seneca, is designed for hikers and other outdoor
enthusiasts as well as consumers who appreciate the value of heavyweight casual
socks. The collection of rugged outdoor and heavyweight casual socks includes
varying styles of thermal insulated, hiking and trekking, general outdoor wear
and heavyweight casual socks, sold under private labels, the Company's Ridgeview
name or licensed brands such as Coleman and Woolrich.
In June 1995, Seneca began manufacturing rugged outdoor and heavyweight
casual socks under the licensed brand name Woolrich. Under an agreement with
Woolrich, Inc., the Company has the right to manufacture and sell rugged outdoor
and heavyweight casual socks under the Woolrich name in the United States. The
Company must meet minimum annual sales
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thresholds that increase during the license term and pay a royalty equal to the
greater of 5% of its net sales of Woolrich brand socks or the applicable minimum
annual sales amount. The license agreement with Woolrich, Inc. expires on
December 31, 2001. An additional three-year renewal option is available to the
Company provided its performance as licensee has been satisfactory.
The Company also manufactures and sells a collection of outdoor socks
specifically designed for downhill and cross-country skiers, which includes nine
styles of bright, colorful skiing socks and liners. These socks are sold under
the Ridgeview name or private labels to several large retailers with national
distribution as well as to smaller, resort-oriented ski merchandise shops. The
skier-oriented outdoor collection also includes several styles of thermal
underwear/leggings as well as glove liners and gators.
The fibers used in manufacturing the rugged outdoor and heavyweight
casual and ski sock collections include wool, wool blend, cotton and silk. They
also include such synthetic fibers as polypropylene (which when blended with
wool or cotton provides a superior level of durability and serves to effectively
wick moisture away from the skin, keeping feet dry), turbo hi-bulk acrylic (a
premium grade of acrylic that provides high bulk, softness and loft), Thermax (a
hollow core fiber used in cold weather socks that traps warmth while wicking
moisture away from the skin) and CoolMax. The thermal underwear/leggings are
constructed from a blend of DuPont's newest cold weather resistant polyester
fiber, Thermostat, and spandex fiber, Lycra.
WOMEN'S HOSIERY PRODUCTS. The Company manufactures a complete line of
women's private label hosiery, including more than 600 styles of tights, trouser
socks, pantyhose and knee-highs available in all popular colors and textures.
The Company's largest customer for these private label products is Target. In
1994, the Company entered the designer segment of the women's hosiery market
through the negotiation of the license to manufacture and sell women's hosiery
under the Ellen Tracy brand name in the United States and Canada. The licensor,
Ellen Tracy, Inc., is a designer and manufacturer of "upmarket" women's
ready-to-wear fashions. In return, the Company must meet certain quality
standards, distribute primarily to better department and specialty stores, sell
only limited quantities of Ellen Tracy hosiery at discounted prices and pay a
royalty equal to 7% of its net sales of Ellen Tracy products. In addition, the
Company is required to expend in each year the agreement is in effect an amount
equal to 3% of the annual sales targets on advertising and promotions of Ellen
Tracy products. Approximately one-half of that amount is required to be made in
the form of a contribution to the national advertising budget of the licensor.
The Company has broadened the Ellen Tracy product line beyond the original
limited product category of high-end tights and trouser socks to include dress
pantyhose and casual socks and improved the packaging of the entire line of
Ellen Tracy products. Ellen Tracy hosiery products are available in tights,
trouser socks, casual sock and pantyhose sold at premium retail prices.
The Company has sold women's hosiery products under the Ellen Tracy
brand name since 1994, meeting the minimum annual sales thresholds established
by Ellen Tracy, Inc. in two out of the four years ended December 31,1997. As a
result of the otherwise satisfactory relationship between the Company and Ellen
Tracy, Inc., in June 1998, the Company was
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awarded an extension of the original license agreement for a three-year period
beginning January 1998 and concluding in December 2000. Under the terms of the
extension, Ellen Tracy, Inc. established guaranteed minimum royalty payments of
$400,000, $475,000 and $525,000 for each of the three years ending December 31,
1998, 1999 and 2000, respectively.
On May 28, 1996, the Company negotiated a license to manufacture and
sell women's sheer hosiery and medium-weight tights under the Evan-Picone brand
name, a widely-recognized and established brand of women's hosiery. The initial
term of the license agreement ends December 31, 1999, but the license is
renewable at the Company's option for another three years, provided the Company
has satisfied the minimum annual sales threshold of $14.0 million for the
twelve-month period ending June 30, 1999. Although the Company has failed to
achieve the minimum annual sales threshold, the licensor, Jones Investment Co.,
Inc., has revised the minimum guaranteed royalty amount for the annual period
ending December 31, 1999 to $400,000. Additionally, the Company successfully
re-launched the entire Evan-Picone line of women's hosiery in 1998, with
favorable response from its customer base. As a result of the Company's
investment in re-launching the program, the licensor has offered the Company the
option of renewing the license agreement for either a one-year or three-year
period. Guaranteed minimum royalty payments associated with the renewal options
are $500,000 for the one-year period, or $500,000, $600,000 and $700,000 for
each of the three-years ended December 31, 2001. The Company is currently
evaluating both options and expects to extend the license agreement for not less
than one year.
SALES AND MARKETING
The following table provides an overview of the sales and marketing of
the Company's finished products by product category, pricing approach, selected
brand names, market segment, major customers and method of distribution.
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SELECTED
PRICING BRAND DISTRIBUTION MAJOR
PRODUCT CATEGORY GENERAL DESCRIPTION APPROACH NAMES CHANNELS USED CUSTOMERS
SOCKS
Sports specific Functional, high Moderate adidas, Sporting goods The Sports
quality socks with Reebok, Fila, stores, Authority, Just
extra cushioning Converse, athletic for Feet,
that allow an IZOD, Head, footwear Sports, Champs,
individual to match ASICS, stores, Oshman's
socks to a Ridgeview, Pro athletic SuperSports
particular sport AM, Coleman footwear and USA, J.C.
activity apparel Penney, The
manufacturers Gap, Reebok,
Fila
Sports promotional Lightweight, basic Value SportSox, Sporting goods The Sports
cushion socks for a GAMEsocks, stores, Authority, Just
variety of uses Coleman, athletic for Feet,
Reebok footwear Champs,
stores, mass Footlocker,
market and Lady
discount stores Footlocker,
Oshman's,
SuperSports
USA, Wal-Mart
Rugged outdoor and Heavyweight socks Moderate Woolrich, Mass market and Kmart, J.C.
heavyweight casual with true rib to Premium Oyster Bay, discount Penney, The
construction made Winchester, stores, outdoor Gap, Lands'
with wool and Seneca, Coleman specialty End, Eddie
cotton blends for stores, Bauer, Wal-Mart
hiking, skiing, department Stores, Target
hunting and other stores, mail
active outdoor uses order
retailers,
sporting goods
stores
Active sport Cushion-engineered Premium LineOne Sporting goods The Sports
socks with fiber stores, Authority,
and construction athletic Champs,
elements intended footwear Oshman's
to provide high stores, SuperSports
performance athletic USA, J.C. Penney
features for the footwear and
serious athlete apparel
manufacturers
WOMEN'S HOSIERY
Tights and trouser
socks Opaque, durable Moderate Ellen Tracy, Department Target, J.C.
pantyhose and to Premium Liz Claiborne stores, mass Penney, The
trouser socks made market and Marmaxx Group,
with heavy-weight discount Wal-Mart,
nylon yarns and stores, women's Mercantile,
with spandex in fashions Dillard's,
either half or all specialty stores Federated
of the knitted (Macy's,
courses Rich's), Neiman
Marcus,
Parisian,
Nordstrom
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Selected
Pricing Brand Distribution Major
Product Category General Description Approach Names Channels Used Customers
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Sheer pantyhose and Basic ladies Value to Ellen Tracy, Mass market, Target, J.C.
knee-highs pantyhose and Premium Liz Claiborne, discount and Penney,
knee-highs made Evan-Picone department Wal-Mart, The
with lightweight stores Marmaxx Group,
nylon yarns and Mercantile,
nylon/spandex yarns Dillard's,
for everyday and Federated
special uses (Macy's,
Rich's), Neiman
Marcus,
Parisian,
Nordstrom
SPORTS, RUGGED OUTDOOR AND HEAVYWEIGHT CASUAL SOCKS. Management
believes the Company is one of the leading vendors of sports socks to sporting
goods and active apparel stores. The Company also sells its own and licensed
brand name socks to athletic footwear stores, sporting goods dealers, department
stores and mass merchandisers throughout the United States and Canada. Among the
Company's leading customers for its own sports sock brands are Just for Feet,
The Sports Authority and Oshman's Sporting Goods. Among the Company's leading
customers for its rugged outdoor and heavyweight casual socks, most of which are
sold under various retailers' private labels, are Kmart, J.C. Penney and The
Gap.
The Company also sells sports specific socks to many of the large
athletic footwear and apparel companies, including Adidas AG, Reebok
International, Ltd., New Balance, Inc. and Fila Holdings SpA, which design,
contract for the manufacture of and market sports socks under their
widely-recognized brand names. The Company is the primary manufacturer of sport
socks bearing the adidas brand name to fill orders from distributors of adidas
branded products located throughout Europe.
In conjunction with its retailers, the Company employs a sophisticated
marketing program for its own footwear collection designed to increase sales by
educating consumers about the benefits of its active sports, sports specific and
rugged outdoor and heavyweight casual socks. For example, the Company's LINEOne
brand of active sports socks are packaged in bright, colorful, attention-getting
sleeves printed with extensive information about the benefits of the extra
cushioning in high impact areas, the unique qualities and benefits of the
natural and synthetic fibers used and other features of the LINEOne brand that
are designed to help consumers appreciate the value of these premium-priced
socks. The marketing program includes offering retailers a variety of
merchandising aids such as floor and counter unit displays equipped with signage
bearing the Ridgeview name as well as the Company's brand names. For the
Company's promotionally-priced socks, which are typically sold in packages of
three or six pairs each, the Company offers retailers free-standing,
wire-constructed package bins equipped with similar signage. For most of its
socks, the Company also offers a `tier' unit sock display system equipped with
Ridgeview and brand name specific signage designed to fit into retailers'
existing pegboard or slat wall product display systems.
Approximately 45% of the Company's sock sales in 1998 were made by a
nationwide network of approximately 15 independent sales representatives, most
of whom specialize in sporting goods and athletic apparel, who earn commissions
on sales of the Company's
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products. The Company decided in 1998 to minimize its dependence on these
independent sales representatives, substantially reducing the number of
representatives from approximately 55 at the beginning of the year, to 15 by the
end of 1998. This decision allows internal sales personnel to handle the large
sporting goods customers in-house, the result of which should be a reduction in
commissions paid for sales to those customers. As such, the Company has added
additional resources and currently has an internal sales force of eleven
employees located at the Company's headquarters. Two of these sales employees
work exclusively with large athletic footwear and apparel companies for which
the Company serves as a manufacturing source and major private label accounts.
Sales of sports socks manufactured at the Company's facility in the Republic of
Ireland, which are sold primarily to Adidas AG and Reebok International Ltd. for
distribution by them to retail outlets in Europe, are handled by a small group
of employees located at that facility.
Since the Seneca acquisition in June 1995, the Company has been selling
rugged outdoor and heavyweight casual socks under the licensed brand name
Woolrich. Sales of Woolrich socks are made primarily by the 40-person direct
sales force employed by Woolrich, Inc., who earn commissions from the Company.
In both its branded and private label sock business, the Company
engages in cooperative advertising with major retail accounts, whereby the
Company pays a percentage of the cost of advertising and promotional expenses.
In most instances, the percentage of the Company's contribution to the
retailer's advertising budget is related to the volume of the Company's sales to
the retail account.
INTERNATIONAL SALES AND MARKETING OF SOCKS. In 1998, approximately 15%
of the Company's sock sales were attributable to sales to customers located
outside of the United States. Among the principal countries to which the Company
exports socks are the United Kingdom, France, Japan, Singapore and Finland. All
of the production at the Company's manufacturing facility in the Republic of
Ireland is sold in Europe.
WOMEN'S HOSIERY PRODUCTS. The Company sells private label women's
hosiery products to approximately 150 department stores, specialty retailers,
mass market and discount stores throughout the United States in over 5,000
locations. Among the Company's leading customers for its private label products
are Target, J.C. Penney, Nordstrom, The Gap and Liz Claiborne, Inc., which
designs, contracts for the manufacture of and markets women's hosiery packaged
under various trademarks, including Liz Claiborne and Elisabeth, to better
department and specialty stores. The Company sells Ellen Tracy women's hosiery
to more than 100 department and specialty stores in over 1,000 locations
throughout the United States and Canada. Principal customers for the Ellen Tracy
line of hosiery products include Saks Fifth Avenue, Neiman Marcus, Nordstrom,
Macy's, Bloomingdale's and Dillard's.
In July 1996, the Company began selling the line of Evan-Picone women's
hosiery products, which is distributed through more than 200 department and
specialty stores in over 1,500 locations throughout the United States and
Canada. Principal customers for the Evan-Picone product line include The Marmaxx
Group, Inc., which includes T.J. Maxx and Marshalls, May Department Stores Co.,
Dillard's, J.C. Penney and Federated Department
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Stores. The Company began selling Evan-Picone products through a nationwide
network of sales representatives, most of whom sold Evan-Picone products for the
Company that previously held the license for the Evan-Picone women's hosiery
program. On January 1, 1997, this group of sales representatives became part of
the Company's internal sales force.
In 1997, the Company contracted with a marketing, advertising and
public relations firm to develop a series of marketing initiatives aimed at
positioning Evan-Picone as a significant competitor in the sheer hosiery
marketplace. The initiatives, which included comprehensive consumer focus group
studies, new point of sale materials, design and creation of new Evan-Picone
packaging and direct mail to consumers, concluded in July 1998, and has
effectively transformed the existing line of Evan-Picone products into a newly,
redesigned line. The re-launch was completed at a cost of approximately
$900,000, which was incurred in 1998. These initiatives have proven to be
successful to date, with the majority of the Company's customers for the
Evan-Picone program continuing with the newly, redesigned line.
With the addition of the sales representatives from the Evan-Picone
women's hosiery program, the Company's internal sales force for women's hosiery
products has grown to 14 employees. This reorganized sales force is now
responsible for the private label, Ellen Tracy and Evan-Picone hosiery business.
Senior management is actively involved in selling to major accounts and
participates during market weeks and at other times in presentations to
department stores and specialty retailing customers.
The Company works closely with retailers, placing special emphasis on
packaging and design, to develop attractive and economical private label hosiery
programs that will meet with consumer acceptance and generate increased sales
for the retailer as well as the Company. For example, the Company has made
significant changes in product construction and pricing update for its private
label programs with Target and took steps to control product costs by making
additional investments in knitting and automated finishing and packaging
machinery to increase the efficiency of the Company's manufacturing operations.
In both its private label and branded business, the Company engages in
cooperative advertising with major retail accounts, whereby the Company pays a
percentage of the cost of advertising and promotional expenses. In most
instances, the percentage of the Company's contribution to the retailer's
advertising budget is related to the volume of the Company's sales to the retail
account. From time to time, the Company's major yarn suppliers also contribute
to the cost of such cooperative advertising and promotions. The Company is
required to devote 3% of its Ellen Tracy sales to advertising. In 1998,
approximately one-half of that amount was used for cooperative advertising with
retail accounts, and the remainder was paid to Ellen Tracy, Inc. to support
general advertising of the Ellen Tracy brand name in fashion magazines and other
national media.
The Company intends to expand its private label women's hosiery
business, sales of which have increased in each of the last three years, by
augmenting sales under private label programs with existing customers, improving
customer service and pursuing additional private label program business with
major retailers. With the completion of the installation of 84 new
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knitting machines in 1997, together with the investments in technology recently
made to strengthen women's hosiery manufacturing and the ability to contract
with other manufacturers for finished product when necessary, the Company will
have the capability to expand sales of its private label business without making
significant additional capital expenditures. The Company intends to expand the
sales of Ellen Tracy and Evan-Picone women's hosiery by adding to the existing
styles offered, increasing its sales and marketing effort and continuing major
product development.
MANUFACTURING
The discussion below provides an overview of the Company's
manufacturing facilities by product categories:
SPORTS, RUGGED OUTDOOR AND HEAVYWEIGHT CASUAL SOCKS. The Company
manufactures socks primarily for inventory requirements based on estimated
demand but also in response to customer orders on private label business. The
Company maintains finished inventory of its own and licensed brand products
under the Company's Quick Response Inventory System. Products maintained in
finished inventory are generally shipped within three days of receipt of an
order, which in the case of the Company's larger customers is typically received
and processed by the Company electronically. Orders for socks not maintained in
finished goods inventory are typically shipped within ten to thirty days of
receipt of the customer's order, depending upon the size of the order.
The Company manufactures socks at its facilities in Newton, North
Carolina, Ft. Payne, Alabama and the Republic of Ireland. At its facility
located in Newton, the Company has 60 knitting machines, all of which are
electronic. In its facility located in Ft. Payne, where substantially all of the
Company's promotionally-priced, multi-pair pack lightweight cushion socks are
made, the Company has 96 electronic knitting machines. At its facility located
in the Republic of Ireland, where the Company makes sports specific socks
primarily for sale to major athletic footwear and apparel companies, the Company
has 80 knitting machines, 50 of which were installed in the last three years.
The Company currently plans to relocate 20 electronic knitting machines and
approximately 14 mechanical knitting machines from Seneca to its Ft. Payne,
Alabama knitting facility. The relocation is expected to be completed by June
1999.
The Company's electronic, CAD/CAM-driven machines allow the Company to
vary its manufacturing runs to adjust quickly to changing patterns in demand
without traditional high change-over or retooling costs. They also allow the
Company to maintain a computer library of pattern and texture designs that can
be electronically transmitted to these knitting machines. When the appropriate
yarns have been installed to feed into them, the machines will automatically
adjust to knit socks conforming to the new pattern and texture design.
The Company generally operates its sock knitting machinery at each
facility five days a week, 24 hours a day, except in Newton where the Company
operates its sock knitting machinery seven days a week, 24 hours a day.
Finishing socks, which includes toe closing, bleaching, scouring and dyeing,
boarding, pairing and packaging, is generally accomplished at each facility by
one shift of labor working five days a week and overtime when necessary. To
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meet peaks in demand for finished inventory that cannot be met from its own
production, the Company from time to time purchases greige goods from other
manufacturers.
Although the Company expects to continue making regular, and in some
years significant, investments in technology that will increase the productive
capacity, efficiency and competitive position of its sock manufacturing
operations, the Company believes that its sock manufacturing operations,
supplemented by the purchase of greige goods from others when necessary, will be
able to meet current and projected demand for the Company's products.
WOMEN'S HOSIERY PRODUCTS. The Company manufactures its women's hosiery
products in response to customer orders and for inventory requirements based on
estimated demand. The Company maintains finished inventory of certain private
label and Ellen Tracy hosiery under the Company's Quick Response Inventory
System. Products maintained in finished inventory are generally shipped within
three days of receipt of an order from a retail account, which in the case of
the Company's larger customers, such as Target, is typically received and
processed by the Company electronically. Orders for women's hosiery not
maintained in finished goods inventory are typically shipped within ten to
thirty days of receipt of the customer's order.
The Company manufactures women's hosiery products at its facility in
Newton, North Carolina, where the Company has 90 new electronic knitting
machines, 84 of which were installed in 1997, automated assembly equipment and
static dyeing machines. The electronic knitting machines are CAD/CAM-driven and
allow the Company to vary its manufacturing runs to adjust quickly to changing
patterns in demand without traditional high changeover or retooling costs. The
Evan-Picone hosiery program and certain other women's hosiery products are
outsourced to other manufacturers. The Company generally operates its women's
hosiery-knitting machinery 24 hours a day, five days a week. The finishing of
women's hosiery which, includes toe closing, fabricating, boarding and
packaging, is generally accomplished by one shift of labor working five days a
week. Overtime work is scheduled when necessary to respond to increased product
demand. The Company recently purchased new boarding and folding machinery, which
by automating certain steps in the finishing process, has reduced the Company's
labor requirements for this traditionally labor intensive part of the
manufacturing process.
For its electronic CAD/CAM-driven knitting machinery, the Company is
able to maintain a computer library of hosiery patterns and texture designs that
can be electronically transmitted to the knitting machines. When the appropriate
yarns have been installed to feed into them, these machines will automatically
adjust to knit hosiery conforming to the new pattern and texture design. The
Company has a small in-house product development staff which includes an
experienced fashion designer that develops original designs on the Company's
CAD/CAM system.
The Company regularly contracts with other manufacturers for greige
goods as well as finished hosiery when orders for the Company's women's hosiery
products exceed its production capacity. Although management expects to make
continuing, significant investments in technology to increase the production
capacity and efficiency of its women's hosiery manu-
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facturing operations, the Company believes that, with the exception of the
Evan-Picone program and a limited number of other styles of women's hosiery
products that will be outsourced from time to time to other manufacturers, it
will have sufficient technologically advanced production capacity to meet
current and projected demand for its women's hosiery products for the next
several years.
QUALITY ASSURANCE PROGRAM
The Company maintains a rigorous quality assurance program for its
manufacturing operations that begins with the purchase of only high-quality
yarns and a program of regular maintenance and constant monitoring, some of
which is done by computer, of the Company's knitting machinery. Greige goods
produced by the Company or purchased from others are carefully inspected prior
to finishing, and randomly selected samples of finished goods are inspected
prior to being packaged and shipped. The Company also emphasizes strong
interaction with its major customers on quality assurance issues and employee
education on the importance of quality assurance. During each of the past five
years, the Company has achieved high-quality standards with less than 1% of its
products in each of such years being returned as defective. Based on their
collective years of experience, management of the Company believes this record
compares favorably with those of others in the industry.
RAW MATERIALS
The Company's products are manufactured from yarns spun from either
synthetic (e.g., nylon and acrylic) or natural (e.g., cotton and wool) fibers,
or a blend of both. The principal yarns used in the manufacture of sports,
outdoor and casual socks are cotton, wool and a variety of synthetic fibers. The
principal yarns used in the manufacture of women's hosiery products are textured
nylon of varying weights and spandex, principally DuPont's Lycra. As the Company
has achieved greater manufacturing efficiencies through investments in modern
knitting machinery and automated finishing and packaging equipment that reduce
labor inputs and as the prices of yarns spun from both natural and synthetic
fibers have increased, the cost of raw materials as a percentage of the
Company's cost of goods sold has increased.
The Company and other major users of cotton and wool yarns typically
enter into fixed-price contracts, having terms ranging from six to twelve
months, during the fall of the year when much of the cotton crop is being
harvested worldwide. By doing so, the Company and its competitors are able to
avoid making significant purchases of cotton and wool on the spot market and are
able to establish and maintain pricing for their products using large amounts of
these natural fibers throughout the year with only minor adjustments.
The Company purchases its requirements for textured nylon, polyester,
polypropylene and other yarns made from synthetic fibers from a variety of
suppliers at prevailing prices that are influenced both by changes in demand and
the producers' costs. Many synthetic fibers, such as polyester, are
petrochemical-based, and prices for them are influenced by changes in the price
of petroleum. The Company has reduced the adverse effect of price increases for
synthetic fiber yarns in recent years by negotiating rebates with its major
synthetic yarn suppliers based on the Company's volume of purchases.
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The Company generally has been successful in recovering increased raw
material costs on its branded products, many of which include significant
amounts of wool and cotton yarn as well as yarns made from synthetic fibers.
Recovering higher costs for raw materials on the Company's private label women's
hosiery products is generally more difficult because of the highly competitive
nature of this business.
QUICK RESPONSE INVENTORY SYSTEM
The Company has developed its sophisticated Quick Response Inventory
System to enable the Company to coordinate its manufacturing operations and
order fulfillment system with the electronic inventory control systems employed
by most of the Company's women's hosiery customers and an increasing number of
its major sport socks customers. The system, which combines bar code technology
with electronic data interchange ("EDI"), provides a link between the customers'
and the Company's computers, eliminates inefficiencies by automating receipt and
processing of customers' orders and allows the Company to respond with
"just-in-time" manufacturing techniques to the tighter shipment schedules
demanded by large retailers. Using EDI technology, the Company receives from
certain major customers, via electronic interchange, weekly updates of sales and
inventory levels from store locations nationwide. For certain customers, such as
Target and The Sports Authority, this information automatically generates orders
which the Company then fills.
For some time, the Company has been planning to construct a
distribution center at its manufacturing facility in Newton, North Carolina.
Management has postponed indefinitely the construction of this new facility,
however, until the Company has successfully completed the implementation of its
enterprise-wide management information system, which is currently underway. When
completed, this new system will incorporate sophisticated inventory control and
order fulfillment technology and become an integral component of the Company's
Quick Response Inventory System. The Company has continued to make significant
capital investments in new information technology, as evidenced by its
implementation of a new management information system, in order to maintain and
strengthen its inventory system. Management believes the system the Company is
currently implementing will be adequate for its current and future business
needs.
MAJOR CUSTOMERS
In 1998, sales of women's hosiery products and socks to Target
accounted for approximately 14% of the Company's total net sales. During such
year, no other single customer accounted for more than 10% of the Company's
consolidated net sales. The Company's business relationship with Target began
more than 20 years ago when Target had less than 100 stores. As the number of
stores operated by Target has increased to over 700, the Company's sales to this
customer have increased commensurately. The Company's five largest women's
hosiery customers, including Target, accounted for approximately 60% of the
Company's total women's hosiery business in 1998. During the same year, the
Company's five largest sock customers accounted for approximately 35% of the
Company's sock business.
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CREDIT AND COLLECTIONS
The Company's credit and collection functions are managed by the
Company's credit department at its corporate headquarters, except for credit and
collection on sales of socks distributed from its facilities located in Seneca
Falls, New York, sales of socks distributed out of Mebane, North Carolina and in
the Republic of Ireland, which are handled by employees at those facilities. The
credit of the Company's customers is evaluated regularly by monitoring of
accounts receivable and through reports obtained from major business credit
evaluation services. In the case of smaller retail outlets for sports socks, the
Company relies in part on credit evaluation information available through a
variety of credit information sources. The Company is currently seeking to
centralize the credit and collection management functions for all domestic
operations. Management expects that with the completion of this integration, its
credit and collection management will be greatly enhanced and significant
reductions in the Company's days sales outstanding benchmark will occur.
SEASONALITY
The Company's sales of rugged outdoor and heavyweight casual socks, ski
socks and thermal underwear/leggings are highly seasonal and generally occur
during the fall and winter selling seasons, which begin in August and end in
December. The Company's women's hosiery business is also somewhat seasonal with
hosiery sales, particularly sales of tights (which sell for higher wholesale
prices than women's sheer hosiery) increasing in the fall and winter months.
Historically, the majority of the Company's sales have been generated, and most
of the Company's profits have been earned, in the third and fourth quarters of
its fiscal year.
BACKLOG
As a result of the seasonality of certain products, the Company
accumulates a temporary backlog of orders primarily during the summer and early
fall months. At April 12, 1999, the Company's order book reflected unfilled
customer orders for approximately $6.0 million of products as compared to $9.0
million at the same date in the prior year. Order book data at any given date is
also materially affected by the timing of recording orders and of shipments, as
well as the status of major private label programs. Recently, certain large
customers who formerly placed firm orders with the Company began instead
providing projections of their demand for the Company's products and
transmitting smaller firm orders on a more frequent basis. Accordingly, order
book data should not be taken as indicative of eventual actual shipments or net
sales, or as providing meaningful period-to-period comparisons. Excluding those
products which are seasonal in nature and major private label programs, the
Company receives orders fairly evenly throughout the year and generally ships
within three to thirty days after receipt of a customer's order.
COMPETITION
The sock manufacturing segment of the hosiery industry is highly
fragmented and competitive. The Company is subject to competition from a number
of these companies that
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manufacture and sell a complete range of sports socks or, in many cases,
specific categories of sports socks, such as active sports socks, that are
competitive with one or more of the Company's products. Management believes that
the Company is one of the leading vendors of sports socks to sporting goods and
active apparel stores. The number of competitors in the manufacture and sale of
rugged outdoor and heavyweight casual socks is considerably smaller because the
number of "double cylinder" knitting machines required to make these socks is
limited.
The women's hosiery industry is highly competitive and is currently
experiencing excess capacity and flat demand for sheer hosiery products. The
women's hosiery industry is dominated by the industry leader, Sara Lee Hosiery,
and by Kayser-Roth. Sara Lee Hosiery not only sells private label and brand name
women's hosiery to department stores, specialty stores and mass merchandisers,
it also sells substantial quantities of its brand name products directly to
consumers through its outlet catalog. Sara Lee Hosiery and Kayser-Roth, as well
as several other large domestic manufacturers of women's hosiery, have
substantially greater market share and financial resources than the Company. The
Company is also subject to competition from a large number of smaller domestic
competitors, which compete primarily based on price for private label business.
Sara Lee Hosiery manufactures and sells women's hosiery in the designer segment
of the market under the licensed Donna Karan brand name in competition with the
Company's Ellen Tracy hosiery. Other women's hosiery manufacturers sell similar
designer name brand women's hosiery with equal or greater consumer recognition,
which is marketed to the same group of fashion-conscious consumers to which the
Company's Ellen Tracy hosiery is marketed.
Competition among manufacturers of all categories of the Company's
products is primarily on the basis of customer service, product quality,
pricing, order fulfillment capability and relationships forged over time between
sales personnel and buyers for the large national retailers and other major
customers. Management believes that the most important of these are order
fulfillment and product quality, which encompass the ability to service the
customer's needs by fulfilling and shipping orders for products that are of a
consistent quality on a timely basis. Management believes the Company's
reputation for complete and timely order fulfillment and consistent product
quality gives it a competitive advantage over many of its competitors, including
some competitors whose prices are lower than the Company's prices for similar
products.
Management believes that the Company's increased size, which has
occurred as the result of internal sales growth and acquisition growth, as well
as its diversified product lines, give the Company an increasing competitive
advantage. Management believes a manufacturer's size will be particularly
important during the current period of consolidation in the sock and women's
hosiery industry that is being driven in part by increased retail concentration.
In this regard, the Company is expected to benefit from an industry trend for
retailers to align with a fewer number of major manufacturers who can provide a
significant share of a major retailer's total sock and women's hosiery
requirements, have the capability of assisting the retailer in managing its
hosiery business and are able to meet increased logistical demands imposed by
major retailers.
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REGULATION
The Company's business is subject to regulation by federal, state and
local governmental agencies dealing with various aspects of conducting a sock
and women's hosiery manufacturing business such as work place safety, protection
of the environment, wage and hour policies, product labeling, family and medical
leave policies and product flammability standards. Certain of these regulations,
particularly those relating to air quality, water quality and disposal of waste
products, are technical in nature, involve substantial penalties in the event of
breach and require extensive controls to assure compliance with their
provisions. While management believes that the Company has operated in full
compliance with these regulations, such compliance may result in significant
additional costs.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age Position
---- --- --------
Albert C. Gaither 67 Chairman and Director
Hugh R. Gaither 48 President, Chief Executive Officer and
Director
Barry F. Tartarkin 44 President - Hosiery Business Group
Joseph G. Royall 38 President - Sock Business Group
Albert C. Gaither has been a director since 1958 and Chairman of the
Company since January 1992. From January 1980 through December 1991 he served as
the Company's President, and from January 1992 until September 1995 was the
Company's Chief Executive Officer. He received a B.A. from Davidson College in
1956 and has been employed with the Company since 1956. Mr. Gaither is Susan
Gaither Jones' father and a cousin of Hugh R. Gaither and J. Michael Gaither.
Hugh R. Gaither has been a director since 1977 and President of the
Company since January 1992. Since September 1995, he also has served as the
Company's Chief Executive Officer. Mr. Gaither served as Vice President of the
Company from January 1980 to January 1992. He joined the Company in 1975 after
having received a B.A. from Davidson College and a M.B.A. from the University of
North Carolina at Chapel Hill. During 1994 and 1995, Mr. Gaither served as
Chairman of the National Association of Hosiery Manufacturers. Mr. Gaither is J.
Michael Gaither's brother and a cousin of Albert C. Gaither and Susan Gaither
Jones.
Barry Tartarkin, who was named to his current position in September
1998, has been employed by the Company since March 1993, serving as Executive
Vice President - Sales and Marketing from January 1997 until September 1998, and
as Vice President of Sales for the Company's women's hosiery division from March
1993 until January 1997. From 1980 until 1993, Mr. Tartarkin served as president
of two different women's hosiery sales companies.
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Mr. Tartarkin received a B.S. in Economics and Finance from the University of
Hartford in 1976.
Joseph G. Royall, who was named to his current position in September
1998, has been employed by the Company since 1989, serving as the Company's cost
accounting manager from October 1989 until June 1992 and as General Manager for
the Company's sports sock operation in Ft. Payne, Alabama from June 1992 until
January 1996, when he was named Vice-President of Operations. Mr. Royall
received a B.S. in Accounting and Business Management from Tennessee Wesleyan
College in 1984.
EMPLOYEES
As of April 12, 1999, the Company employed approximately 970 persons,
47 of whom, employed at Seneca, were covered by a collective bargaining
agreement with the Union of Needletrades, Industrial and Textile Employees
("UNITE"). As a result of the shutdown of Seneca, the number of union employees
has been greatly reduced. The employees at the Company's facility in the
Republic of Ireland are not covered by a collective bargaining agreement, but
the Company does recognize Services Industrial Professional Technical Union as
their representative. The Company's current collective bargaining agreement
covering wages and benefits for the remaining employees at Seneca expires March
31, 2001. None of the Company's employees represented by a union has engaged in
any kind of work stoppage in the last ten years. The Company considers its
relationships with its employees to be good.
At its manufacturing facility in Newton, North Carolina, the Company
operates a day care center for the benefit of its employees with space for
approximately 75 children. The operating costs of the center that are not
covered by payments made by employees using the center, grants received or funds
from other sources are paid by the Company. Approximately 75% of the Company's
hourly employees at this facility are female. For the past three years, Working
Mother magazine has named the Company to the magazine's annual list of "100 Best
Companies for Working Mothers," citing the availability of this day care center
and the Company's other family-friendly policies for its employees. Management
believes these policies foster employee morale and loyalty, help the Company
attract and retain talented people and contribute to a stable and productive
work force.
ITEM 2 - PROPERTIES
The Company's corporate offices, all of its women's hosiery and a
significant portion of its sports sock manufacturing operations are located in
Newton, North Carolina in five Company-owned buildings containing approximately
170,000 square feet of space. Warehouse and distribution facilities are leased
in Newton and Hickory, North Carolina for the sock operation and hosiery
operations, respectively. Total aggregate square footage of these leased
facilities approximates 130,000 square feet. The Company's facilities in Newton
also include a 4,000 square foot building housing a Company-sponsored child care
center.
The Company owns an approximately 60,000 square foot sock finishing and
shipping facility and leases on a month-to-month basis an approximately 24,000
square foot sock
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knitting and sewing facility in Ft. Payne, Alabama. The Company also owns a
manufacturing facility located in Tralee, Republic of Ireland. With the
assistance of a grant from the Irish Development Authority equal to
approximately one-third of the total capital investment required, the Company
expanded the size of this facility in 1995 to approximately 45,000 square feet.
The Company also owns an approximately 100,000 square foot, three-story building
at Seneca that recently housed the knitting, sewing and finishing operations for
the Company's production of rugged outdoor and heavyweight casual socks. These
manufacturing operations are currently being relocated to the 24,000 square foot
leased knitting facility and 60,000 square foot finishing facility in Ft. Payne,
Alabama. The Company owns a nearby 80,000 square foot building on 37 acres of
land that will continue to serve as a warehouse and distribution center.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
* * * * * * *
For the purposes of calculating the aggregate market value of the
shares of Common Stock held by non-affiliates, as shown on the cover page of
this report, the Company has assumed that all outstanding shares are held by
non-affiliates except for shares outstanding that are beneficially owned by
directors or executive officers of the Company. However, this should not be
deemed to constitute an admission that all directors and executive officers of
the Company are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning shareholdings of directors, executive officers and principal
shareholders is included in the Company's proxy statement for the annual meeting
of shareholders to be held May 25, 1999. The Company expects to file its proxy
statement with the U.S. Securities and Exchange Commission (the "Commission")
not later than April 30, 1999.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's common stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "RIDG." The following table sets forth for
the period indicated the high and low sale prices for the Company's
common stock as reported by Nasdaq.
Price Range
----------------------
High Low
1997
First Quarter 8.000 6.625
Second Quarter 7.875 6.500
Third Quarter 8.375 7.000
Fourth Quarter 8.000 5.750
1998
First Quarter 6.250 5.438
Second Quarter 6.125 5.250
Third Quarter 5.500 3.000
Fourth Quarter 4.500 2.125
(b) Holders
As of April 12, 1999, there were 117 holders of record of the Company's
Common Stock.
(c) Dividends on the Company's Common Stock.
The Company ceased paying dividends on its Common Stock immediately
prior to the initial public offering in November 1996 and does not
intend to pay any cash dividends in the foreseeable future. In
connection with the initial public offering of its Common Stock, the
Company issued a stock dividend, effective October 8, 1996, of
approximately 129 additional shares of Common Stock for each
outstanding share of Common Stock.
ITEM 6 - SELECTED FINANCIAL DATA
The information required to be furnished in response to this
item appears in and is incorporated by reference from the Company's 1998 Annual
Report to Shareholders. Relevant portions of the Company's 1998 Annual Report to
Shareholders have been filed as Exhibit 13.1 to this report.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required to be furnished in response to this
item appears in and is incorporated by reference from the Company's 1998 Annual
Report to Shareholders. Relevant portions of the Company's 1998 Annual Report to
Shareholders have been filed as Exhibit 13.1 to this report.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this item
appears in and is incorporated by reference from the Company's 1998 Annual
Report to Shareholders. Relevant portions of the Company's 1998 Annual Report to
Shareholders have been filed as Exhibit 13.3 to this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished in response to this item with
respect to directors appears under the heading "Election of Directors" in the
Company's proxy statement for the annual meeting of shareholders to be held May
25, 1999, which information is incorporated by reference. The Company expects to
file its proxy statement with the Commission not later than April 30, 1999.
Information relating to the Company's executive officers is contained in Part I
of this report under the heading "Executive Officers of the Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
The information required to be furnished in response to this item
appears under the heading "Election of Directors" in the Company's proxy
statement for the annual meeting of shareholders to be held May 25, 1999, which
information is incorporated by reference. The Company expects to file its proxy
statement with the Commission not later than April 30, 1999.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished in response to this item
appears under the heading "Security Ownership of Certain Beneficial Owners and
Management" in the Company's proxy statement for the annual meeting of
shareholders to be held May 25, 1999, which information is incorporated by
reference. The Company expects to file its proxy statement with the Commission
not later than April 30, 1999.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished in response to this item
appears under the heading "Election of Directors" in the Company's proxy
statement for the annual meeting of shareholders to be held May 25, 1999, which
information is incorporated by reference. The Company expects to file its proxy
statement with the Commission not later than April 30, 1999.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Company has included the following Consolidated Financial
Statements with this 10-K Report:
o Consolidated Balance Sheets at December 31, 1997 and 1998 are
incorporated by reference from the Company's 1998 Annual Report to
Shareholders. Relevant portions of the Company's 1998 Annual Report to
Shareholders have been filed as Exhibit 13.3 to this report.
o Consolidated Statements of Operations -- For the Years Ended December
31, 1996, 1997 and 1998 are incorporated by reference from the
Company's 1998 Annual Report to Shareholders. Relevant portions of the
Company's 1998 Annual Report to Shareholders have been filed as Exhibit
13.3 to this report.
o Consolidated Statements of Comprehensive Income (Loss) -- For the Years
Ended December 31, 1996, 1997 and 1998 are incorporated by reference
from the Company's 1998 Annual Report to Shareholders. Relevant
portions of the Company's 1998 Annual Report to Shareholders have been
filed as Exhibit 13.3 to this report.
o Consolidated Statements of Shareholders' Equity -- For the Years Ended
December 31, 1996, 1997 and 1998 are incorporated by reference from the
Company's 1998 Annual Report to Shareholders. Relevant portions of the
Company's 1998 Annual Report to Shareholders have been filed as Exhibit
13.3 to this report.
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26
o Consolidated Statements of Cash Flows -- For the Years Ended December
31, 1996, 1997 and 1998 are incorporated by reference from the
Company's 1998 Annual Report to Shareholders. Relevant portions of the
Company's 1998 Annual Report to Shareholders have been filed as Exhibit
13.3 to this report.
o Notes to Consolidated Financial Statements -- For the Years Ended
December 31, 1996, 1997 and 1998 are incorporated by reference from the
Company's 1998 Annual Report to Shareholders. Relevant portions of the
Company's 1998 Annual Report to Shareholders have been filed as Exhibit
13.3 to this report.
(a)(2) The Company has included the following Consolidated Financial Statement
schedules with this 10 -K Report:
o Report of independent certified public accountants on Supplemental
Schedule filed as Exhibit 23 to this report.
o Schedule II -- Valuation and Qualifying Accounts
We have omitted all other schedules for which provision is made in the
applicable accounting regulations of the Commission because they are either not
required under the related instructions or are inapplicable.
(b) Reports on Form 8-K
None.
(c) Exhibits
PREVIOUSLY FILED AND
INCORPORATED HEREIN BY
REFERENCE
- ----------------------------------------
DOCUMENT WITH WHICH AS
EXHIBIT EXHIBIT WAS EXHIBIT
NO. PREVIOUSLY FILED NO. EXHIBIT DESCRIPTION
- ----------------------------------------------------------------------------------------------------------------
3.1 (1) 3.1 Articles of Incorporation of Ridgeview, Inc., as amended
and restated.
3.2 (1) 3.2 Bylaws of Ridgeview, Inc., as amended and restated.
4.1 (1) 4.1 Form of Common Stock Certificate.
10.1 (1) 10.1 License Agreement dated as of January 1, 1994 by and
between Ellen Tracy, Inc. and the Company
10.1(a) (2) 10.1(a) Form of letter dated October 22, 1996 from Ellen Tracy,
Inc. extending license agreement until December 31, 1997
10.2 (1) 10.2 License Agreement dated May 28, 1996 between Jones
Investment Co., Inc. and Ridgeview, Inc.
26
27
DOCUMENT WITH WHICH AS
EXHIBIT EXHIBIT WAS EXHIBIT
NO. PREVIOUSLY FILED NO. EXHIBIT DESCRIPTION
- ----------------------------------------------------------------------------------------------------------------
10.16 (1) 10.19 Salary Continuation Agreement dated March 1, 1983 by and
between Ridgeview Mills, Inc. and Albert C. Gaither.*
10.17 (1) 10.20 Salary Continuation Agreement dated March 1, 1983 by and
between Ridgeview, Mills, Inc. and Hugh R. Gaither.*
10.18 (1) 10.21 First Amendment to Salary Continuation Agreement by and
between Ridgeview, Inc. and Hugh R. Gaither dated June 8,
1992.*
10.19 (1) 10.22 Salary Continuation Agreement dated March 1, 1983 by and
between Ridgeview Mills, Inc. and William D. Durrant.*
10.20 (1) 10.23 First Amendment to Salary Continuation Agreement by and
between Ridgeview, Inc. and William D. Durrant dated June
8, 1992.*
10.21 (1) 10.24 Salary Continuation Agreement dated June 8, 1992 by and
between Ridgeview, Inc. and Susan Gaither Jones.*
10.22 (1) 10.26 Split Dollar Life Insurance Agreement dated January 1, 1992
between Ridgeview, Inc. and Albert C. Gaither.*
10.23 (1) 10.27 Ridgeview, Inc. 1995 Omnibus Stock Option Plan as amended
and restated.*
10.24 (1) 10.28 Description of Incentive Bonus Arrangement for Named
Executive Officers.*
10.25 (1) 10.29 Ridgeview, Inc. Stock Option Plan for Outside Directors.*
10.26 N/A N/A Loan and Security Agreement, dated as of February 11, 1999,
Between Ridgeview, Inc., Seneca Knitting Mills Corporation,
Tri-Star Hosiery Mills, Inc., BankBoston, N.A. and General
Electric Capital Corporation
10.27 N/A N/A Letter agreement, dated June 17, 1998, amending the License
Agreement between Ellen Tracy, Inc. and the Company
13.1 N/A N/A Selected Financial Data incorporated by reference from the
Company's 1998 Annual Report to Shareholders
13.2 N/A N/A Management's Discussion and Analysis of Financial Condition and
Results of Operation incorporated by reference from the
Company's 1998 Annual Report to Shareholders
13.3 N/A N/A Consolidated Financial Statements incorporated by reference
from the Company's 1998 Annual Report to Shareholders
21 N/A N/A Subsidiaries of Ridgeview, Inc.
23 N/A N/A Consent of BDO Seidman, LLP, independent certified public
accountants.
23.1 Report of independent certified public accountants on
Supplemental Schedule.
27 N/A N/A Financial Data Schedule (included in the EDGAR filing only.)
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(1) Registration Statement on Form S-1, file No. 333-11111 filed August 30,
1996.
(2) Annual Report on Form 10-K for the year ended December 31, 1996, filed
March 31, 1997.
27
28
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
RIDGEVIEW, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED BALANCE
BEGINNING OF TO COSTS OTHER AT END
DESCRIPTION PERIOD AND EXPENSES CHANGES DEDUCTIONS OF PERIOD
- ----------- ------------ ------------ ------- ---------- ---------
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 371 $ 131 $ -- $ -- $ 502
----- ------ ----- ------- -------
Inventory obsolescence reserve $ 270 $ 200 $ -- $ -- $ 470
----- ------ ----- ------- -------
YEAR ENDED DECEMBER 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 502 $ 103 $ -- $ -- $ 605
----- ------ ----- ------- -------
Inventory obsolescence reserve $ 470 $ 104 $ -- $ -- $ 574
----- ------ ----- ------- -------
YEAR ENDED DECEMBER 31, 1998:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 605 $1,279 $ -- $(1,279) $ 605
----- ------ ----- ------- -------
Inventory obsolescence reserve $ 574 $ 973 $ -- $ -- $ 1,547
----- ------ ----- ------- -------
28
29
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Hugh R. Gaither
------------------------------
Hugh R. Gaither, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons signed this report in the capacities indicated on the 12th
day of April 1999.
SIGNATURE TITLE
- --------- -----
/s/ Hugh R. Gaither President, Chief Executive
- ---------------------------- Officer and Director
Hugh R. Gaither (Principal Executive Officer)
/s/ Albert C. Gaither Chairman and Director
- ----------------------------
Albert C. Gaither
/s/ P. Douglas Yoder Corporate Controller
- ---------------------------- (Principal Accounting Officer)
P. Douglas Yoder
/s/ Susan Gaither Jones Director
- ----------------------------
Susan Gaither Jones
/s/ J. Michael Gaither Director
- ----------------------------
J. Michael Gaither
/s/ Claude S. Abernethy, Jr. Director
- ----------------------------
Claude S. Abernethy, Jr.
/s/ George Watts Carr, III Director
- ----------------------------
George Watts Carr, III
/s/ Joseph D. Hicks Director
- ----------------------------
Joseph D. Hicks
/s/ Charles M. Snipes Director
- ----------------------------
Charles M. Snipes
29