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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, 1999
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, 1999, 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,
1999 1998
----------- -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 316,894 $ 189,183
Accounts receivable (less allowance for doubtful
accounts of $735,970 and $564,112) 16,044,813 16,114,970
Inventories 26,132,302 27,678,728
Refundable income taxes 1,027,533 1,074,668
Deferred income taxes 469,012 75,925
Prepaid expenses 40,046 97,044
----------- -----------
Total current assets $46,030,600 $45,230,518
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation 15,418,772 14,763,127
OTHER ASSETS 1,759,274 1,408,366
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization 2,908,568 3,014,981
----------- -----------
Total assets $64,117,214 $64,416,992
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,977,410 $ 1,639,845
Accounts payable 7,515,348 6,883,130
Accrued expenses and other liabilities 2,258,436 1,309,269
Deferred income taxes -- 88,408
Current portion of long-term debt 1,852,181 1,342,901
Current portion of deferred compensation 300,000 264,000
------------ ------------
Total current liabilities $ 13,903,375 $ 11,527,553
LONG-TERM DEBT, less current portion (Note 4) 32,975,303 32,830,218
DEFERRED COMPENSATION, less current portion 1,692,496 1,678,367
DEFERRED CREDIT 613,081 736,654
DEFERRED INCOME TAXES 574,628 571,327
------------ ------------
Total liabilities $ 49,758,883 $ 47,344,119
------------ ------------
SHAREHOLDERS' EQUITY (Note 5)
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
$776,100 and $886,127 4,193,847 6,494,395
Accumulated other comprehensive income (Note 6) (515,534) (101,540)
------------ ------------
Total shareholders' equity $ 14,358,331 $ 17,072,873
------------ ------------
Total liabilities and shareholders' equity $ 64,117,214 $ 64,416,992
============ ============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
NET SALES $ 23,838,678 $ 21,252,925 $ 47,745,004 $ 41,591,351
COST OF SALES 19,636,209 18,763,488 39,750,205 34,892,936
------------ ------------ ------------ ------------
GROSS PROFIT $ 4,202,469 $ 2,489,437 $ 7,994,799 $ 6,698,415
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,164,179 4,264,516 8,550,452 7,943,968
LOSS FROM SHUT DOWN OF
SUBSIDIARY -- -- 917,000 --
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) $ 38,290 $ (1,775,079) $ (1,472,653) $ (1,245,553)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (823,359) $ (540,990) $ (1,612,838) $ (1,027,963)
Other, net 50,526 (20,958) 60,866 (5,823)
------------ ------------ ------------ ------------
Total other expense $ (772,833) $ (561,948) $ (1,551,972) $ (1,033,786)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES $ (734,543) $ (2,337,027) $ (3,024,625) $ (2,279,339)
BENEFIT FROM INCOME TAXES (389,781) (876,053) (724,060) (885,652)
------------ ------------ ------------ ------------
NET LOSS $ (344,762) $ (1,460,974) $ (2,300,565) $ (1,393,687)
============ ============ ============ ============
EARNINGS PER SHARE $ (0.11) $ (0.49) $ (0.77) $ (0.47)
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,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 47,548,501 $ 41,883,948
Cash paid to suppliers and employees (44,378,116) (44,130,089)
Interest paid (1,755,875) (1,110,480)
Income taxes paid, net of refunds 302,825 (392,464)
Other cash disbursements (435,591) (824,218)
------------ ------------
Net cash provided by (used in) operating activities $ 1,281,744 $ (4,573,303)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ -- $ (52,509)
Proceeds from sale of property and equipment -- 170,459
Payments for purchase of property, plant and
equipment (2,187,137) (1,560,853)
------------ ------------
Net cash used in investing activities $ (2,187,137) $ (1,442,903)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings $ 321,321 $ 421,230
Proceeds from long-term debt 74,374,857 44,113,883
Repayments of long-term debt (73,659,737) (38,571,965)
------------ ------------
Net cash provided by financing activities $ 1,036,441 $ 5,963,148
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (3,337) $ (6,027)
------------ ------------
Net increase (decrease) in cash $ 127,711 $ (59,085)
CASH, beginning of period 189,183 481,674
------------ ------------
CASH, end of period $ 316,894 $ 422,589
============ ============
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,
1999 1998
----------- -----------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Net loss $(2,300,565) $(1,393,687)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 1,095,273 $ 925,804
Provision for doubtful accounts receivable 347,787 306,957
Capital grants recognized (34,036) (36,863)
Increase (decrease) in deferred compensation
liability (50,129) 116,025
Increase in deferred income taxes (383,945) (505,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (223,265) (303,080)
(Increase) decrease in inventories 1,323,998 (5,089,791)
Increase in prepaid expenses and
other assets (405,190) (912,759)
Increase in accounts payable 793,829 2,206,147
Increase (decrease) in income taxes
payable 89,750 (773,116)
Increase in accrued expenses and other
liabilities 1,028,237 886,060
----------- -----------
Total adjustments to net loss $ 3,582,309 $(3,179,616)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 1,281,744 $(4,573,303)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and 1998 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 six and three months ended June 30, 1999, necessary
to present fairly the financial position of the Company as of June 30, 1999 and
the results of operations for the six and three months ended June 30, 1999 and
1998. 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, 1998, filed with the Securities and
Exchange Commission (the "Form 10-K"). The results of operations for the six and
three months ended June 30, 1999 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, 1999 and December 31, 1998
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, 1999 and 1998 is unaudited)
NOTE 3 - INVENTORIES
A summary of inventories by major classification is as follows:
June 30, December 31,
1999 1998
------------ ------------
Raw materials $ 3,018,811 $ 4,176,873
Work-in-process 8,070,549 10,151,902
Finished goods 15,247,942 13,554,953
(LIFO Reserve) (205,000) (205,000)
------------ ------------
Total inventories $ 26,132,302 $ 27,678,728
============ ============
NOTE 4 - LONG-TERM DEBT
On February 11, 1999, the Company entered into a $41.0 million
senior credit facility (the "Credit Facility") with BankBoston, N.A., which
provides the Company with a term credit facility of $6.0 million and a revolving
credit facility of $35.0 million. The provisions of the Credit Facility contain
certain covenants which, among other things, require the maintenance of minimum
amounts of tangible net worth, as amended effective March 31, 1999, fixed charge
and minimum interest coverage ratios and Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"), calculated on quarterly and annual
periods. At the option of the Company, borrowings under the Credit Facility bear
interest based on the bank's prime rate or the London InterBank Offered Rate
("LIBOR") plus a margin adjustment (10.00% at August 11, 1999) that varies based
on achievement of an interest coverage ratio, calculated quarterly. At June 30,
1999, the Company was in compliance with the minimum EBITDA and the tangible net
worth covenants established by the lender. This facility is collateralized by
substantially all assets of the Company.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of June 30, 1999 and 1998 is unaudited)
NOTE 5 - 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.
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 board of directors has not yet activated the employee stock purchase
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 will be nonqualified stock options,
will vest in increments of 33 1/3% on each anniversary of the option grant and
will expire ten years after the date they are granted. The Company has reserved
15,000 shares for issuance under this plan. 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 were granted in May 1997 and May 1998 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, 1999 and 1998 is unaudited)
NOTE 6 - 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,
1999 1998
----------- -----------
Net loss $(2,300,565) $(1,393,687)
Other comprehensive loss, net of tax (413,994) (91,076)
----------- -----------
Comprehensive loss $(2,714,559) $(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,
1999 1998
----------- -----------
Beginning balance $ (101,540) $ (219,546)
Current period change, net of taxes (413,994) (91,076)
----------- -----------
Ending balance $ (515,534) $ (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, 1999 and its
results of operations for the six and three 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 six and three months
ended June 30, 1999 are not indicative of results expected for the year ending
December 31, 1999. See "Seasonality" in discussion below.
RESULTS OF OPERATIONS
The following table presents the Company's consolidated results of
operations as a percentage of net sales for the six and three months ended June
30, 1999 and 1998.
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.4 88.3 83.3 83.9
------- ------- ------- -------
Gross profit 17.6% 11.7% 16.7% 16.1%
Selling, general and administrative
expenses 17.5 20.1 17.9 19.1
Loss from shut down of subsidiary -- -- 1.9 --
------- ------- ------- -------
Operating income (loss) 0.1% (8.4)% (3.1)% (3.0)%
Interest expense (3.4) (2.5) (3.4) (2.5)
Other, net 0.2 (0.1) 0.1 0.0
------- ------- ------- -------
Loss before income taxes (3.1)% (11.0)% (6.4) % (5.5)%
Benefit from income taxes (1.6) (4.1) (1.5) (2.1)
------- ------- ------- -------
Net loss (1.5)% (6.9)% (4.9)% (3.4)%
======= ======= ======= =======
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COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THREE MONTHS ENDED JUNE 30,
1998
Net sales were $23.8 million for the three months ended June 30, 1999,
compared to $21.3 million the same period a year ago, an increase of 11.7%.
Revenues from the Company's hosiery business unit, which include tights and
trouser socks under the Ellen Tracy brand name and sheer pantyhose under the
Evan-Picone brand name, increased by approximately $2.5 million for the second
quarter compared to the same period last year. Sales of Evan-Picone sheer
hosiery accounted for nearly half of the increase in revenues for the hosiery
unit, primarily resulting from the sale of substantially all the discontinued
and seasonal inventory bearing the Evan-Picone name, and the introduction of a
new program for a major discount retailer in May 1999. The July 1998 acquisition
of Tri-Star Hosiery Mills, Inc. provided approximately $4.3 million in
incremental revenues for the quarter ended June 30, 1999. Tri-Star's revenues
are derived primarily from the sale of promotionally-priced sport socks, the
same type product Ridgeview manufactures at its Ft. Payne, Alabama operation.
Net sales of sport socks from Ft. Payne decreased significantly, however, for
the three months ended June 30, 1999, primarily resulting from substantial
reductions in customer forecasted order activity for one of the Company's larger
sporting goods customer. Net sales of rugged outdoor and heavyweight casual
socks were only $967,000 for the quarter, compared to $1.9 million for the same
period a year ago. The reduction in revenues for this product category are
directly related to the Company's decision in January 1999 to relocate the
manufacturing operations for this product that were previously located in Seneca
Falls, New York to its manufacturing facility located in Ft. Payne, Alabama.
Gross profit for the quarter ended June 30, 1999 was $4.2 million,
compared to $2.5 million for the same period in 1998, an increase of $1.7
million, or 68.0%. Gross profit for the second quarter of 1998 was negatively
impacted by the non-recurring charge of $900,000 relating to the Evan-Picone
re-launch. As a percentage of net sales, gross profit increased to 17.6% for the
three months ended June 30, 1999, compared to 11.7% during the same period in
1998. The Tri-Star acquisition accounted for approximately $500,000 of the
increase in gross profit for the quarter. A $2.5 million increase in revenues
for the Company's hosiery business unit also contributed to the increase in
profitability.
Selling, general and administrative expenses for the three months ended
June 30, 1999 and 1998 were $4.2 million and $4.3 million, respectively. As a
percentage of net sales, selling, general and administrative expenses were 17.5%
for the quarter ended June 30, 1999, compared to 20.1% for the same period in
1998. Included in selling, general and administrative expenses for the second
quarter of 1998 are certain additional non-recurring charges, which totaled
$700,000 in the aggregate, taken by the Company during the quarter. No such
charges were taken during the second quarter of 1999.
Operating income for the quarter was $38,290, compared to an operating
loss of $(1.8) million for the same period a year ago, an increase of $1.8
million. The profitability generated by the Tri-Star acquisition and the absence
of the approximately $1.6 million of non-recurring charges taken during the
second quarter of 1998 account for the increase in operating income.
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Interest expense for the quarter ended June 30, 1999 increased 52.1% to
$823,000 from $541,000 for the three months ended June 30, 1998. The increase in
interest expense was the result of the increase in the rate of interest charged
by the Company's new lender.
Income tax benefit for the three months ended June 30, 1999 and 1998
was $390,000 and $876,000, respectively. The income tax benefit for the three
months ended June 30, 1999 and 1998 is the result of the operating losses posted
by the Company for each of the quarters then ended.
Net loss for the three months ended June 30, 1999 was $(345,000),
compared to a net loss of $(1.5) million for the three months ended June 30,
1998. The decrease in the net loss is primarily attributable to the inclusion of
the profitable Tri-Star business in the quarter ended June 30, 1999 and the net
effect of the one-time charges taken by the Company during the same period in
1998. Had the Company not taken the one-time charges during the second quarter
last year, the net loss would have been $(441,000) compared to $(34,000) for the
same quarter in 1999.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30, 1998
Net sales for the six months ended June 30, 1999 were $47.7 million,
compared to $41.6 million for the six months ended June 30, 1998. Revenues for
the Company's hosiery business unit increased by approximately $4.0 million for
the first six months of 1999, compared to the same period in 1998. Several
factors stimulated this increase, including a new program in a discount retailer
for the successfully re-launched Evan-Picone sheer hosiery program, new private
label programs with several large mass merchants and a focused effort by the
Company to dispose of discontinued and seasonal inventories within this business
unit. Net sales in the Company's sock business unit increased by approximately
$2.1 million during the first six months, with the Tri-Star acquisition adding
approximately $6.7 million in net sales. The additional revenues added by
Tri-Star were offset, however, by a $600,000 reduction in revenues for the
Company's operation in the Republic of Ireland, an approximate $3.0 million
reduction in revenues from the Ft. Payne operation and a $1.8 million reduction
in sales for the Seneca Falls operation. The decrease in revenues for the Irish
operation was expected based on projections from that operation's largest
customer, addias. Less than expected sales of promotionally priced sport socks
to several of the Company's largest sporting goods customers, including Just for
Feet and The Sports Authority, and a general softness in the sporting goods
market, account for the reduction in revenues at the Ft. Payne operation. Net
sales of rugged outdoor and heavyweight casual socks were negatively impacted by
the Company's announcement in January 1999 to shut down the manufacturing
operation in Seneca Falls and relocate the manufacturing to other locations.
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Gross profit for the six months ended June 30, 1999 was $8.0 million,
compared to $6.7 million for the same period in 1998, an increase of $1.3
million, or 19.4%. As a percentage of net sales, gross profit increased to 16.7%
for the six months ended June 30, 1999, compared to 16.1% during the same period
in 1998. Included in gross profit for the six months ended June 30, 1999 and
1998 are charges of $381,000 for manufacturing variances created by
inefficiencies at Seneca Falls and $900,000 for the re-launch of Evan-Picone,
respectively. Without giving effect to the charges taken in each of the two
periods, gross profit as a percentage of net sales would have been 17.5% and
17.9% for the six months ended June 30, 1999 and 1998, respectively. The
Company's determined effort at inventory reduction, which was accomplished
largely by the sale of discontinued and irregular products, has impacted
otherwise improved margins, causing the overall gross profit margin to remain
relatively flat compared to last year.
For the six months ended June 30, 1999 and 1998 selling, general and
administrative expenses were $8.6 million and $7.9 million, respectively. As a
percentage of net sales, selling, general and administrative expenses decreased
from 19.1% for the first six months of 1998, compared to 17.9% for the same
period the in 1999. The reduction in the percentage of net sales is due
primarily to the $700,000 of charges taken by the Company during the second
quarter of 1998 relating to costs associated with the management information
systems implementation and increases in the Company's allowance for doubtful
accounts. The increase in selling, general and administrative expenses for the
six months ended June 30, 1999 is attributable to Tri-Star.
The operating loss for the six months ended June 30, 1999 and 1998 was
$(1.5) million and $(1.2) million, respectively. Charges taken during the first
quarter of 1999 for the Seneca shut down totaling $1.3 million and the $1.6
million in charges taken by the Company during the second quarter of 1998, each
contributed to the operating loss for the six-month periods ending June 30, 1999
and 1998. Had the Company not taken these charges, operating income for the six
months ended June 30, 1999 and 1998 would have been $20,000 and $374,000,
respectively.
Interest expense for the six months ended June 30, 1999 was $1.6
million, compared to $1.0 million for the same period in the prior year, an
increase of 60.0%. The increase in interest expense is attributable to an
increase in the average borrowings for the six months ended June 30, 1999,
compared to the same period a year ago, as well as the difference in the
interest rate charged by the Company's respective lenders during those same
periods.
Income tax benefit for the six months ended June 30, 1999 was $724,000,
compared to $886,000 for the six months ended June 30, 1998. The operating
losses incurred as the result of charge taken in 1998 to re-launch the
Evan-Picone hosiery program and the charge taken for the shut down and
relocation of Seneca's manufacturing operation gave rise to the income tax
benefits.
Net loss for the first six months of 1999 was $(2.3) million, compared
to $(1.4) million for the same period in 1998, a decrease in earnings of
$900,000 for the six-month period. In addition to the charge taken in the first
quarter of 1999 for the shut down and relocation of Seneca's manufacturing
operation, the disposal of discontinued inventory at lower gross profit margins,
revenue reductions in promotionally priced sport socks and rugged outdoor and
heavyweight casual socks and increased costs of borrowed funds each contributed
to the net loss for the first half of 1999.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by (used in) operating activities during the six
months ended June 30, 1999 and 1998 were $1.3 million and $(4.6) million,
respectively. The operating cash flow generated during the first six months of
1999 was primarily the result of a $1.3 million decrease in inventories since
December 31, 1998 and an increase in accounts payable of approximately $794,000.
Although the Company has historically built its inventory levels during the
first half of the year to fill orders in the fall shipping season, the reduction
of inventory is the result of the Company's focused effort to reduce
discontinued and slower-moving inventory. Management expects to achieve a
significant reduction in its inventory levels by the end of the year.
The Company satisfies its working capital needs and, on a temporary
basis, finances its capital expenditures, through borrowings under the Company's
revolving credit facility. On February 11, 1999, the Company obtained a $41.0
million senior credit facility (the "Credit Facility") with BankBoston, N.A.
("BankBoston"). The Credit Facility provides the Company with a revolving line
of credit of up to $35.0 million and a term loan facility of $6.0 million. At
the option of the Company, funds borrowed under the Credit Facility with
BankBoston, bear interest at a rate based on the bank's prime rate or London
Interbank Offered Rates ("LIBOR"), plus a margin adjustment based on the
Company's achievement of an interest coverage ratio, calculated quarterly
(10.00% as of August 11, 1999). As of August 11, 1999, $24.5 million was
outstanding under the revolving credit line, and there was approximately $3.6
million available for additional borrowings, based on the Company's collateral
availability.
As of August 11, 1999, the term loan with BankBoston had an outstanding
principal balance of $6.0 million, and bears interest at the same prime based or
LIBOR-based rate applicable to the revolving line of credit (10.00% at August
11, 1999).
The Company also has approximately $4.3 million outstanding in notes
payable to banks and other finance companies with rates of interest ranging from
6.9% to 12.5% and payable in monthly installments through 2004.
Management believes that the newly secured Credit Facility, other
financing arrangements described herein and anticipated cash flows from
operations, will be adequate to fund the Company's working capital requirements
and planned capital expenditures for a period of at least 24 months. There can
be no assurance, however, that acquisitions, adverse economic or competitive
conditions or other factors will not result in the need for additional financing
or have an adverse impact on the availability and reasonableness of such
additional financing, if required.
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YEAR 2000 COMPLIANCE
For many months, the Company's Year 2000 Project team has been
reviewing and assessing the Company's management information system and its
compliance with the Year 2000. The project team, selected by executive
management and comprised of senior managers from relevant functional areas, has
been managing the implementation of the Company's new enterprise-wide management
information system. 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
new system will address the issues regarding Year 2000 compliance and date
driven applications. The Company's suppliers and customers are being informed of
the Company's Year 2000 compliance plan, and have been asked to provide the
Company with their Year 2000 compliance plans.
Because the Company's Year 2000 compliance plan involves a complete
overhaul of its management information system, the total cost of the project is
expected to be approximately $3.1 million. Approximately $2.6 million had been
disbursed as of August 11, 1999. An additional $500,000 is expected to be
expended over the next six months. As of August 11, 1999, the project was
substantially complete. Management expects the Company's new management
information system to become operational at its locations in Newton, North
Carolina and Ft. Payne, Alabama just after the end of the third quarter of 1999.
Outside locations at the Seneca Falls, New York distribution facility and the
Mebane, North Carolina finishing and distribution facility are currently
completing Year 2000 conversions and are expected to become integrated
electronically to the Company's new information system by the first quarter of
2000. The Company's operation in the Republic of Ireland is upgrading its
information system as well, and upon completion, will be Year 2000 compliant.
Financing of the project has been provided under the Credit Facility, a leasing
arrangement for certain hardware and additional term loans of approximately
$470,000.
Although significant resources are being directed towards reducing
interruptions that may be caused by the Year 2000 issue, no assurance can be
given that the internal systems of the Company's suppliers and customers will be
corrected and that there will be no material adverse impact on the Company's
operations as a result of their failure to achieve full Year 2000 compliance.
Although management expects the Company's internal systems to be Year 2000
compliant as described above, the Company has developed a contingency plan that
management believes will allow the Company to continue doing business until
compliance can be achieved.
SEASONALITY
The Company's business is impacted by the general seasonal trends that
are characteristic of the apparel and retail industries. The Company generally
has higher net sales and greater profitability in the third and fourth quarters.
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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of any gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized as income
(loss) in the period of change. SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. Historically, the
Company has not entered into derivative contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company does not expect the
adoption of the new standard on January 1, 2000, to affect its financial
statements.
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PART I - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Shareholders was held on May 25, 1999.
(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
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Albert C. Gaither 2,429,567 91,850
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Hugh R. Gaither 2,431,267 90,150
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Susan Gaither Jones 2,431,267 90,150
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J. Michael Gaither 2,431,267 90,150
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Claude S. Abernethy, Jr. 2,431,267 90,150
-------------------------------------------------------
George Watts Carr, III 2,431,267 90,150
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Joseph D. Hicks 2,431,267 90,150
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Charles M. Snipes 2,431,267 90,150
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(2) The shareholders voted 2,520,717 shares in the affirmative and
200 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, 1999. There
were 500 votes withheld.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) 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, 1999 By: /s/ P. Douglas Yoder
--------------------
P. Douglas Yoder
Corporate Controller
and Chief Accounting Officer
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