1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 15, 1999, the registrant had 3,000,000 shares of common
stock, $.01 par value per share, outstanding.
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 66,925 $ 189,183
Accounts receivable (less allowance for doubtful
accounts of $840,610 and $564,112) 18,321,511 16,114,970
Inventories (Note 3) 22,641,794 27,678,728
Refundable income taxes -- 1,074,668
Deferred income taxes 703,867 75,925
Prepaid expenses 43,810 97,044
----------- -----------
Total current assets $41,777,907 $45,230,518
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation 16,162,104 14,763,127
OTHER ASSETS 1,921,374 1,408,366
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated amortization 2,829,662 3,014,981
----------- -----------
Total assets $62,691,047 $64,416,992
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,827,955 $ 1,639,845
Accounts payable 6,862,056 6,883,130
Accrued expenses and other liabilities 2,541,092 1,309,269
Income taxes payable 147,438 88,408
Current portion of long-term debt (Note 4) 2,227,863 1,342,901
Current portion of deferred compensation 306,000 264,000
------------ ------------
Total current liabilities $ 13,912,404 $ 11,527,553
LONG-TERM DEBT, less current portion (Note 4) 30,892,131 32,830,218
DEFERRED COMPENSATION, less current portion 1,740,763 1,678,367
DEFERRED CREDIT 627,675 736,654
DEFERRED INCOME TAXES 659,593 571,327
------------ ------------
Total liabilities $ 47,832,566 $ 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
$813,114 and $886,127 4,551,745 6,494,395
Accumulated other comprehensive income (Note 6) (373,282) (101,540)
------------ ------------
Total shareholders' equity $ 14,858,481 $ 17,072,873
------------ ------------
Total liabilities and shareholders' equity $ 62,691,047 $ 64,416,992
============ ============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
NET SALES $ 28,251,953 $ 32,028,738 $ 75,996,957 $ 73,620,089
COST OF SALES 22,644,461 26,006,018 62,394,666 60,898,954
------------ ------------ ------------ ------------
GROSS PROFIT $ 5,607,492 $ 6,022,720 $ 13,602,291 $ 12,721,135
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,137,221 4,623,051 12,687,673 12,567,019
LOSS FROM SHUT DOWN OF
SUBSIDIARY -- -- 917,000 --
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) $ 1,470,271 $ 1,399,669 $ (2,382) $ 154,116
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (899,365) $ (786,248) $ (2,512,203) $ (1,814,211)
Other, net 35,528 (9,695) 96,394 (15,518)
------------ ------------ ------------ ------------
Total other income (expense) $ (863,837) $ (795,943) $ (2,415,809) $ (1,829,729)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES $ 606,434 $ 603,726 $ (2,418,191) $ (1,675,613)
PROVISION (BENEFIT)
FOR INCOME TAXES 248,519 274,449 (475,541) (611,203)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 357,915 $ 329,277 $ (1,942,650) $ (1,064,410)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE (Note 2) $ 0.12 $ 0.11 $ (0.65) $ (0.35)
============ ============ ============ ============
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)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 73,068,347 $ 69,113,202
Cash paid to suppliers and employees (67,264,498) (72,144,783)
Interest paid (2,617,168) (1,863,228)
Income taxes refunded (paid) 1,077,262 (389,749)
Other cash disbursements (568,698) (216,583)
------------- -------------
Net cash provided by (used in) operating activities $ 3,695,245 $ (5,501,141)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ -- $ --
Payment for purchase of Tri-Star -- (3,500,000)
Proceeds from sale of property and equipment -- 170,713
Payments for purchase of property, plant and
equipment (2,623,029) (2,462,792)
------------- -------------
Net cash used in investing activities $ (2,623,029) $ (5,792,079)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (repayments) $ 268,512 $ (3,269,103)
Proceeds from long-term debt 99,676,159 80,813,046
Repayments of long-term debt (101,139,098) (66,511,930)
------------- -------------
Net cash provided by (used in) financing activities $ (1,194,427) $ 11,032,013
------------- -------------
EFFECT OF EXCHANGE RATE ON CASH $ (47) $ 1,566
------------- -------------
Net decrease in cash $ (122,258) $ (259,641)
CASH, beginning of period 189,183 481,674
------------- -------------
CASH, end of period $ 66,925 $ 222,033
============= =============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------- -----------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Net loss $(1,942,650) $(1,064,410)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 1,734,369 $ 1,541,914
Provision for doubtful accounts receivable 355,298 458,193
Capital grants recognized (48,434) (53,363)
Increase in deferred compensation liability 104,396 173,740
Increase in deferred income taxes (535,800) (446,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (2,686,427) (5,147,368)
(Increase) decrease in inventories 4,890,683 (2,621,090)
Increase (decrease) in prepaid
expenses and other assets (553,488) 252,244
Increase in accounts payable 82,549 1,084,353
Increase (decrease) in income
taxes payable 1,137,521 (554,952)
Increase in accrued expenses and
other liabilities 1,157,228 875,598
----------- -----------
Total adjustments to net loss $ 5,637,895 $(4,436,731)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 3,695,245 $(5,501,141)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 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 nine and three months ended September 30, 1999,
necessary to present fairly the financial position of the Company as of
September 30, 1999 and the results of operations for the nine and three months
ended September 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 nine and three months ended September 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 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 September 30, 1999 and December 31,
1998 have not been included in diluted earnings per share due to their
anti-dilutive nature.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of September 30, 1999 and 1998 is unaudited)
NOTE 3 - INVENTORIES
A summary of inventories by major classification is as follows:
September 30, December 31,
1999 1998
------------ ------------
Raw Materials $ 3,524,148 $ 4,176,873
Work-in-process 6,073,360 10,151,902
Finished goods 13,249,286 13,554,953
(LIFO Reserve) (205,000) (205,000)
------------ ------------
Total inventories $ 22,641,794 $ 27,678,728
============ ============
NOTE 4 - LONG-TERM DEBT
The Company has 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, fixed
charge and minimum interest coverage ratios and minimum 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 (which resulted in an
interest rate of 10.25% at November 12, 1999) that varies based on achievement
of an interest coverage ratio, calculated quarterly. At September 30, 1999, the
Company was not in compliance with either the minimum tangible net worth or the
minimum EBITDA covenant for the quarter ended September 30, 1999. The Company's
lender has agreed, however, to waive these covenant violations for the quarter.
The credit facility is collateralized by substantially all assets of the
Company.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of September 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. To date, two grants of incentive stock
options totaling 101,600 shares have been granted to certain of the Company's
salaried employees at exercise prices ranging from $1.50 per share to $7.50 per
share. All of such options are outstanding and unexercised.
The board has also authorized an employee stock purchase plan that will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85 percent of the market value of the shares. The Company
has reserved 75,000 shares for issuance under this plan.
The Company also has an Outside Directors' Stock Option Plan (the
"Directors' Plan"), which provides that each outside director, at the time of
initial election, shall automatically be granted an option to purchase 500
shares of common stock at the fair market value on the date of election. On each
anniversary date of an outside director's election, an option to purchase 500
additional shares of common stock will automatically be granted, provided that
the director shall have continuously served and the number of shares of common
stock available under the Directors' Plan is sufficient to permit such grant.
Options granted under the Directors' Plan are nonqualified stock options, vest
in increments of 33 1/3% on each anniversary of the option grant and expire ten
years after the date they are granted. The Company has reserved 15,000 shares
for issuance under this plan. In November 1996, options to purchase 500 shares
each were granted to the Company's three new members of the board of directors
at an exercise price of $8.00 per share. Additional grants totaling 4,000 shares
have been granted to the outside directors. All of such options are outstanding
and unexercised.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of September 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 Nine Months Ended
September 30,
1999 1998
----------- -----------
Net loss $(1,942,650) $(1,064,410)
Other comprehensive income (loss), net of tax (271,742) 205,394
----------- -----------
Comprehensive loss $(2,214,392) $ (859,016)
=========== ===========
Accumulated other comprehensive income consists solely of foreign
currency translation adjustments, and is presented below as follows:
For the Nine Months Ended
September 30,
1999 1998
--------- ---------
Beginning balance $(101,540) $(219,546)
Current period change, net of taxes (271,742) 205,394
--------- ---------
Ending balance $(373,282) $ (14,152)
========= =========
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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 September 30,
1999 and its results of operations for the nine 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 nine and
three months ended September 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 three and nine months ended
September 30, 1999 and 1998.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------- ----- -----
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 80.1 81.2 82.1 82.7
------- ------- ----- -----
Gross profit 19.9 % 18.8 % 17.9 % 17.3 %
Selling, general and
administrative expenses 14.6 14.4 16.7 17.1
Loss from shut down of subsidiary -- -- 1.2 --
------- ------- ----- -----
Operating income (loss) 5.3 % 4.4 % (0.0)% 0.2 %
Interest expense (3.2) (2.5) (3.3) (2.5)
Other income, net 0.1 0.0 0.1 0.0
------- ------- ----- -----
Income (loss) before income taxes 2.2 % 1.9 % (3.2)% (2.3)%
Income tax provision (benefit) 0.9 0.9 (0.6) (0.8)
------- ------- ----- -----
Net income (loss) 1.3 % 1.0 % (2.6)% (1.5)%
======= ======= ===== =====
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COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales for the three months ended September 30, 1999 were $28.3
million, compared to $32.0 million for the same period a year ago, a decrease of
$3.7 million, or 11.6%. The decrease in net sales is primarily attributable to
loss of revenues in the Company's rugged outdoor and heavyweight casual sock
product category. Net sales of socks in this product category decreased for the
third quarter of 1999 by approximately $2.5 million when compared to the same
quarter a year ago. The decrease in revenues for this product category resulted
from the loss of customers after the Company announced in January 1999 that it
intended to relocate the manufacturing operations for its rugged outdoor and
heavyweight casual socks from Seneca Falls, New York to Ft. Payne, Alabama. This
loss of customers had a greater impact in the third quarter because of the
seasonal nature of those type products. Continuing softness in some retail
sectors, particularly the sporting goods markets, also contributed to the
reduction in net sales for the quarter.
Gross profit for the quarter ended September 30, 1999 was $5.6 million,
compared to $6.0 million for the same period in 1998, a decrease of $0.4
million, or 6.7%. As a percentage of net sales, gross profit increased, however,
to 19.9% for the three months ended September 30, 1999, compared to 18.8% during
the same period in 1998. The reduction of revenues during the quarter from sales
of the Company's rugged outdoor and heavyweight casual sock product category
adversely impacted gross profit. Also, the Company's continued efforts at
inventory reduction, which have been accomplished largely by the sale of
discontinued and irregular products, reduced the Company's gross margin dollars
for the quarter. The successful re-launch in 1998 of women's hosiery products
under the Evan-Picone brand name was apparent in the operating results for the
third quarter of 1999, contributing approximately $1.0 million of gross profit
for the quarter, an increase of $275,000 over the same period a year ago. The
Company's sock operations in Ft. Payne also contributed approximately $1.0
million of gross profit for the quarter, an increase of $440,000 compared to
last year. The Company has gained synergies in this sock operation by
consolidating part of the manufacturing operations of Tri-Star Hosiery Mills,
Inc. ("Tri-Star"), which the Company acquired in July 1998, into the Ft. Payne
facility.
Selling, general and administrative expenses for the three months ended
September 30, 1999 and 1998 were $4.1 million and $4.6 million, respectively, a
decrease of $0.5 million, or 10.9%. As a percentage of net sales, however,
selling, general and administrative expenses increased to 14.6% for the quarter
ended September 30, 1999, compared to 14.4% for the same period a year ago.
Selling, general and administrative expenses associated with the Evan-Picone
branded women's hosiery program decreased during the third quarter, compared to
the prior year, primarily as the result of fewer sales personnel and a
negotiated reduction in the amount of royalty expense associated with the
program. Also, the lower sales volume of rugged outdoor and heavyweight casual
sock products, coupled with a reduction in the administrative staff located in
Seneca Falls, enabled the Company reduce its selling, general and administrative
expenses for the quarter.
13
Operating income for the three months ended September 30, 1999 was $1.5
million, compared to $1.4 million for the same quarter in 1998, an increase of
$0.1 million, or 7.1%. The increase in operating income is attributable to the
profitability associated with the Evan-Picone women's hosiery program and
synergies from consolidating in Ft. Payne part of the manufacturing operations
of Tri-Star.
Interest expense for the quarter ended September 30, 1999 increased
14.4% to $900,000 from $786,000 for the three months ended September 30, 1998.
The increase in interest expense is primarily the result of a higher rate of
interest charged by the Company's lender during the quarter ended September 30,
1999, compared to the same period a year ago.
Income tax expense for the three months ended September 30, 1999 and
1998 was $249,000 and $274,000, respectively.
Net income for the quarter ended September 30, 1999 was $358,000,
compared to $329,000 for the same period a year ago. Although gross profit
increased, both in dollars and as a percent of net sales, and selling, general
and administrative expenses decreased lower sales volume when compared to a year
ago and increased interest costs prevented the Company from dramatically
improving net income during the quarter ended September 30, 1999.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales for the nine months ended September 30, 1999 were $76.0
million, compared to $73.6 million for the nine months ended September 30, 1998.
Net sales of women's hosiery products increased by approximately $4.2 million
for the nine months ended September 30, 1999, compared to the same period a year
ago. The Company's successful re-launch of the branded Evan-Picone sheer hosiery
program accounted for more than half of the increase in net sales for this
business unit. New private label business with several large mass merchants also
fueled the revenue increase for the hosiery business unit. The Company's
acquisition in July 1998 of Tri-Star provided additional revenues of
approximately $5.9 million for the period. Revenues for the first nine months of
1999 for the Company's domestic sport sock operations, which include sport
specific and promotionally-priced sport sock product categories, decreased $1.7
million, reflecting the general softness in sporting goods retail. The increase
in revenues provided by the Tri-Star acquisition was offset by a $4.7 million
reduction in net sales of the Company's rugged outdoor and heavyweight casual
sock product category. Although the Company's decision in January 1999 to
relocate the manufacturing of its rugged outdoor and heavyweight casual sock
products from New York to Alabama caused some of its customers to seek other
suppliers, management believes the current revenue base can be profitable and
become a foundation for growth in this product category. Net sales of sport
socks from the Company's operation in the Republic of Ireland decreased $1.2
million for the nine months ended September 30, 1999; primarily the result of
expected sales reductions to that facility's major customer, adidas.
14
Gross profit for the nine months ended September 30, 1999 was $13.6
million, compared to $12.7 million for the same period in 1998, an increase of
$0.9 million, or 7.1%. As a percentage of net sales, gross profit increased to
17.9% for the nine months ended September 30, 1999, compared to 17.3% during the
same period in 1998. The profitability of the Evan-Picone sheer hosiery program
increased by approximately $1.3 million in 1999 compared to the prior year.
Gross profit for the nine months ended September 30, 1998 was adversely impacted
by the charge taken in the second quarter of 1998 to re-launch the Evan-Picone
product line. Gross profit in the Company's sport sock product categories
increased by approximately $800,000 during the first nine months of 1999. This
increase was offset, however, by a decrease in gross profit for the Company's
rugged outdoor and heavyweight casual sock product category.
For the nine months ended September 30, 1999 and 1998, selling, general
and administrative expenses were $12.7 million and $12.6 million, respectively.
As a percentage of net sales, selling, general and administrative expenses
decreased to 16.7% for the first nine months of 1999, compared to 17.1% for the
same period in 1998. The acquisition of Tri-Star added approximately $500,000 to
the Company's selling, general and administrative expenses. This increase was
offset, however, by reductions in selling, general and administrative expenses
in the women's hosiery business unit and at Seneca.
For the nine months ended September 30, 1999, the Company had a loss
from operations of $2,382, compared to income from operations of $154,116 for
the same period in 1998. The Company took a charge of $1.3 million in the first
quarter of 1999 for costs related to the shut down of the Company's operations
at Seneca Falls, New York. In the second quarter of 1998, the Company recorded a
charge of $1.6 million related to the re-launch of Evan-Picone and for costs
associated with the Company's management information system implementation and
write-off of accumulated, unresolved chargebacks. Had the Company not taken
these charges, operating income for the nine months ended September 30, 1999 and
1998 would have been $1.3 million and $1.7 million, respectively.
Interest expense for the nine months ended September 30, 1999 was $2.5
million, compared to $1.8 million for the same period in the prior year, an
increase of 38.9%. The increase in interest expense is attributable to an
increase in the average borrowings for the nine months ended September 30, 1999,
compared to the same period a year ago, as well the higher interest rate charged
by the Company's lender under its new credit facility.
Income tax benefit for the nine months ended September 30, 1999 was
$476,000, compared to $611,000 for the nine months ended September 30, 1998.
Net loss for the nine months ended September 30, 1999 was $1.9 million,
compared to a net loss of $1.1 million for the same period in 1998. The greater
loss in the 1999 period resulted primarily from the charge taken in the first
quarter for the shut down and relocation of the Company's manufacturing facility
in Seneca Falls, New York and the associated loss of customer revenues.
Additionally, the softness in the sporting goods markets and the Company's
ongoing disposal of discontinued inventory adversely affected the Company's
results during the current year.
15
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by (used in) operating activities during the nine
months ended September 30, 1999 and 1998 were $3.7 million and $(5.5) million,
respectively. The increase in cash flows is the result of a decrease in
inventory of approximately $4.9 million from December 31, 1998 until September
30, 1999, an improvement of approximately $7.4 million when compared to the same
period a year ago. The Company has also improved its liquidity by managing its
accounts receivable better. For the nine months ended September 30, 1998, the
Company had an increase in accounts receivable of $5.1 million. By comparison,
accounts receivable for the same nine-month period in 1999 increased by only
$2.7 million.
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 with BankBoston, N.A. ("BankBoston"). The credit
facility, which the Company entered into in February 1999 to replace its credit
facility with Bank of America, N.A., 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 (which
resulted in an interest rate of 10.25% as of November 12, 1999). As of November
12, 1999, $22.8 million was outstanding under the revolving credit line, and
there was approximately $2.8 million available for additional borrowings, based
on the Company's collateral availability.
As of November 12, 1999, the term loan with BankBoston had an
outstanding principal balance of $5.7 million, and bears interest at the same
prime based or LIBOR-based rate applicable to the revolving line of credit.
The Company also has approximately $3.8 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 credit facility with BankBoston, 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 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.
16
YEAR 2000 COMPLIANCE
Approximately two and a half years ago, the Company's chief executive
officer appointed a Year 2000 Project team comprised of senior managers from all
functional areas of the Company to evaluate and assess the Company's own Year
2000 compliance. The predominant focus of this team was to identify and
implement a Year 2000 compliant business enterprise information system to
replace the Company's legacy system. With assistance from the Company's software
vendor, the project team and an extended group of functional users began the
process of developing and designing the Company's business processes to conform
to the software for the new system. On November 4, 1999, the Company entered
into the "cut over" phase of this enterprise resource planning system that, when
fully-installed, will link each of the Company's facilities electronically,
provide operational improvements in manufacturing, forecasting, planning,
distribution and financial reporting. In addition to addressing the Company's
need to become Year 2000 compliant, the new system will also provide an
enterprise resource planning foundation with a flexible infrastructure that will
allow the Company to easily modify, extend or replace its business processes
without disruption. As of November 15, 1999, the Company was operating its
manufacturing facilities and distribution centers located in Newton, North
Carolina and Ft. Payne, Alabama under the new system. The Company's Seneca
Falls, New York distribution facility and Mebane, North Carolina finishing and
distribution facility are currently completing their own 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 has upgraded its information system as well, and is Year
2000 compliant.
Implementing the new system has had a negative impact on the Company's
operations, however, which were shut down for ten days during the "cut over"
phase. Since restarting its operations, a number of the Company's shipments
have been late and, in many cases, incomplete. The Company has also experienced
delay in invoicing its customers for those shipments, which will reduce the
Company's cash generated from operating activities and will reduce its
outstanding borrowings under the credit facility.
Consulting expenses have also been and continue to be higher than
originally anticipated. As a result, the Company expects that it will report
lower than originally expected earnings for the fourth quarter.
For a period that will extend into the first part of 2000, the Company
will continue to require the assistance of its software vendor to resolve issues
inherent in implementing a system with the scope and complexity of this one. The
total cost of the project is expected to be approximately $3.5 million.
Approximately $3.1 million had been disbursed as of November 15, 1999.
Additional amounts of up to $400,000 might reasonably be expected to be
incurred, in the next several months, to resolve issues that may arise.
Financing 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 would 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, a contingency plan has been developed that will allow the Company to
continue to operate.
SEASONALITY
Although the Company generally experiences higher net sales and greater
profitability in the third and fourth quarters, management expects the trend of
lower than expected sales and reduced gross profit margins to continue through
the end of the year.
17
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
The Company is filing the following exhibits with this report:
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
No current Reports on Form 8-K were filed by the Company during the
quarter for which this report is filed.
18
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: November 15, 1999 By: /s/ P. Douglas Yoder
--------------------
P. Douglas Yoder
Corporate Controller
and Chief Accounting Officer