<PAGE> 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 March 31, 1997
Commission File Number: 0-21469
RIDGEVIEW, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0377410
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(Address of principal executive offices) (Zip Code)
(704) 464-2972
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
As of May 12, 1997, the registrant had 3,000,000 shares of common stock,
$.01 par value per share, outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 94,930 $ 315,559
Accounts receivable (less allowance for doubtful
accounts of $632,270 and $501,867) 13,212,926 13,271,680
Inventories 23,309,289 20,624,069
Prepaid expenses 554,194 127,841
----------- -----------
Total current assets $37,171,339 $34,339,149
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 11,081,676 11,499,185
OTHER ASSETS 1,546,558 1,214,682
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
depreciation and amortization 1,699,315 1,731,265
----------- -----------
Total assets $51,498,888 $48,784,281
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,362,459 $ 1,093,513
Accounts payable 6,053,160 5,904,783
Accrued expenses and other liabilities 1,714,586 1,631,446
Income taxes payable 208,033 464,636
Deferred income taxes 370,261 442,253
Current portion of long-term debt (Note 4) 1,314,498 1,345,793
Current portion of deferred compensation 101,493 100,727
----------- -----------
Total current liabilities $12,124,490 $10,983,151
LONG-TERM DEBT, less current portion (Note 4) 17,010,747 15,671,893
DEFERRED COMPENSATION, less current portion 1,561,967 1,533,606
DEFERRED CREDIT 939,767 1,020,224
DEFERRED INCOME TAXES 214,304 218,251
----------- -----------
Total liabilities $31,851,275 $29,427,125
----------- -----------
SHAREHOLDERS' EQUITY (Note 5)
Common stock; authorized 20,000,000 shares of
$.01 par value; issued 3,000,000 $ 30,000 $ 30,000
Additional paid-in capital 10,650,018 10,650,018
Retained earnings, including amounts reserved of
$943,260 and $1,002,960 8,912,934 8,450,034
Foreign currency translation adjustments 54,661 227,104
----------- -----------
Total shareholders' equity $19,647,613 $19,357,156
----------- -----------
Total liabilities and shareholders' equity $51,498,888 $48,784,281
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
<S> <C> <C>
NET SALES $ 19,542,743 $ 15,710,550
COST OF SALES 15,129,872 12,753,736
------------ ------------
GROSS PROFIT $ 4,412,871 $ 2,956,814
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,575,581 2,398,471
------------ ------------
OPERATING INCOME $ 837,290 $ 558,343
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (367,767) $ (583,642)
Other, net 23,151 88,890
------------ ------------
Total other income (expense) $ (344,616) $ (494,752)
------------ ------------
INCOME BEFORE INCOME TAXES $ 492,674 $ 63,591
PROVISION FOR INCOME TAXES 131,174 6,312
------------ ------------
NET INCOME $ 361,500 $ 57,279
============ ============
EARNINGS PER SHARE $ 0.12 $ 0.04
============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,000,000 1,591,072
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 19,412,227 $ 14,511,414
Cash paid to suppliers and employees (21,032,515) (15,462,840)
Interest paid (337,174) (566,886)
Income taxes paid, net of refunds (526,852) 16,774
Other cash receipts (disbursements) (22,191) 70,705
------------ ------------
Net cash used in operating activities $ (2,506,505) $ (1,430,833)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ (34,788) $ (34,068)
Payments for purchase of property, plant and equipment (372,088) (430,654)
------------ ------------
Net cash used in investing activities $ (406,876) $ (464,722)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (payments) $ 1,298,259 $ 388,789
Proceeds from long-term debt 20,321,749 14,963,099
Repayments of long-term debt (18,918,297) (13,520,071)
Dividends paid -- (42,244)
Proceeds from issuance of common stock -- 15,241
------------ ------------
Net cash provided by financing activities $ 2,701,711 $ 1,804,814
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (8,959) $ (2,281)
------------ ------------
Net (decrease) in cash $ (220,629) $ (93,022)
CASH, beginning of period 315,559 261,567
------------ ------------
CASH, end of period $ 94,930 $ 168,545
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 361,500 $ 57,279
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization $ 431,980 $ 414,099
Provision for doubtful accounts receivable 131,934 85,437
Capital grants recognized (19,883) (19,684)
Increase (decrease) in deferred compensation liability 29,127 (8,127)
Increase (decrease) in deferred income taxes (73,161) 12,079
Changes in operating assets and liabilities:
(Increase) in accounts receivable (130,503) (1,182,184)
(Increase) in inventories (2,638,205) (2,043,967)
(Increase) in prepaid expenses and other assets (417,021) (66,293)
Increase (decrease) in accounts payable 57,103 1,000,787
Increase (decrease) in income taxes payable (322,517) 11,007
Increase in accrued expenses and other liabilities 83,141 308,734
----------- -----------
Total adjustments to net income $(2,868,005) $(1,488,112)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(2,506,505) $(1,430,833)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments consisting of normal
recurring accruals for the three months ended March 31, 1997, necessary to
present fairly the financial position of the Company as of March 31, 1997 and
the results of operations for the three months ended March 31, 1997 and 1996.
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, 1996, filed with the Securities and Exchange
Commission (the "Form 10-K"). The results of operations for the three months
ended March 31, 1997 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, after giving retroactive effect to a stock split effected
in the form of a stock dividend (see Note 5).
NOTE 3 - INVENTORIES
A summary of inventories by major classification is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Raw Materials $ 4,199,541 $ 4,113,736
Work-in-process 7,545,227 6,127,331
Finished goods 11,704,521 10,523,002
(LIFO reserve) (140,000) (140,000)
------------ ------------
Total inventories $ 23,309,289 $ 20,624,069
============ ============
</TABLE>
NOTE 4 - LONG-TERM DEBT
On December 20, 1996, the Company restructured its existing bank loan
agreements. The restructured agreement provides a $14,000,000 revolving line of
credit due January 10, 1999, temporarily extended the due date on the $5,000,000
term loan until March 31, 1997 and consolidates a second term loan payable to
bank under one agreement. On March 13, 1997, the bank amended the loan
agreement, combining the two term loans into one loan and extending the due date
to January 10, 1999. At the option of the Company, borrowings under these loans
bear interest at a rate based on the bank's prime rate or the London InterBank
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of March 31, 1997 and 1996 is unaudited)
Offered Rates ("LIBOR"). The rates vary based on achievement of certain ratios
of total liabilities to tangible net assets, calculated monthly, and range from
prime to prime plus 1%, or LIBOR plus 2% to LIBOR plus 3.25% (7.6875% as of May
1, 1997 under the LIBOR option). These loans are collateralized by substantially
all assets of the Company.
NOTE 5 - CAPITAL STOCK
The Company's authorized capital stock consists of 22,000,000 shares,
divided into 20,000,000 shares of common stock, par value $.01 per share, and
2,000,000 shares of preferred stock. On November 5, 1996, the Company completed
an initial public offering of 1,400,000 shares of its common stock. In
anticipation of the Company's initial public offering, the Board of Directors
declared a stock dividend, effective October 8, 1996, that resulted in the
issuance of approximately 129 additional shares of common stock for each share
of common stock then outstanding. To reflect this split-up of the Company's
outstanding common stock into a greater number of shares, all share numbers and
per share amounts in these financial statements have been adjusted
retroactively.
The Company has an Omnibus Stock Plan (the "Omnibus Plan") which permits
the issuance of options, stock appreciation rights ("SARS"), limited SARS,
restricted stock, performance awards and other stock-based awards to selected
employees and independent contractors of the Company. The Company has reserved
230,000 shares of common stock for issuance under the Omnibus Plan, which
provides that the term of each award shall be determined by a committee of the
board of directors charged with administering the Plan, but no longer than ten
years after the date they are granted. Under the terms of the Plan, options
granted may be either nonqualified or incentive stock options. SARS and limited
SARS granted in tandem with an option shall be exercisable only to the extent
the underlying option is exercisable. On March 11, 1997, incentive stock options
totaling 49,900 shares were granted to certain of the Company's salaried
employees at an exercise price of $7.50 per share. All of such options are
outstanding and unexercised.
The board has also authorized an employee stock purchase plan that will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85 percent of the market value of the shares at the time
of purchase. The Company has reserved 75,000 shares for issuance under this
plan. The 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 to him or her,
provided that the director shall have continuously served as a director of the
Company and the number of shares of common stock available under the Directors'
Plan is sufficient to permit such grant. Options granted under the Directors'
Plan will be nonqualified stock options, will vest in increments of 33 1/3% on
each anniversary of the option grant and will expire ten years after the date
they are granted. The Company has reserved 15,000 shares for issuance under this
plan. In November 1996, options to purchase 500 shares each were granted to
three new members of the Company's board of directors at an exercise price of
$8.00 per share. All of such options are outstanding and unexercised.
<PAGE> 9
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 March 31, 1997 and its results
of operations for the 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 three months ended March 31, 1997 are
not indicative of results expected for the year ending December 31, 1997. See
"Seasonality" in discussion below.
GENERAL
The following table presents the Company's net sales by product category
for the three-month periods ended March 31, 1996 and 1997, expressed in
thousands of dollars and as a percentage of total net sales.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------
1996 1997
------------------ ---------------------
Amount % Amount %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
SOCKS:
Sports specific $ 5,251 33.4% $ 4,967 25.4%
Sports promotional 4,142 26.4 3,856 19.7
Active sport 487 3.1 458 2.4
Rugged outdoor and
heavyweight casual 1,820 11.6 2,324 11.9
Other 221 1.4 38 0.2
------- ----- ------- -----
Total socks $11,921 75.9% $11,643 59.6%
------- ----- ------- -----
WOMEN'S HOSIERY:
Sheer pantyhose and knee-highs $ 1,891 12.0% $ 4,498 23.0%
Tights and trouser socks 1,899 12.1 3,402 17.4
------- ----- ------- -----
Total women's hosiery $ 3,790 24.1% $ 7,900 40.4%
------- ----- ------- -----
Total net sales $15,711 100.0% $19,543 100.0%
======= ===== ======= =====
</TABLE>
The net sales by product category for the three months ended March 31,
1997 are not indicative of the net sales by product category expected for the
year ending December 31, 1997, because sales of rugged outdoor and heavyweight
casual socks and tights and trouser socks typically are higher during the third
and fourth quarters.
<PAGE> 10
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales for the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1997
----- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 81.2 77.4
----- ----
Gross profit 18.8 22.6
Selling, general and administrative expenses 15.3 18.3
----- ----
Operating income 3.5 4.3
Interest expense (3.7) (1.9)
Other income, net 0.6 0.1
---- ---
Income before income taxes 0.4 2.5
Income tax expense 0.0 0.7
---- ---
Net income 0.3% 1.8%
===== ===
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED
MARCH 31, 1996
Net sales for the three months ended March 31, 1997 were $19.5 million,
compared to $15.7 million for the same period in 1996, an increase of 24.2%.
During the quarter, net sales of women's hosiery products increased $4.1
million, or 108.4%, over the same period in 1996. Sales of women's sheer hosiery
under the licensed Evan-Picone brand name, which did not begin until July 1996,
made up the majority of this increase. But sales of spring tights under the
Ellen Tracy brand name and private label names also contributed to the increase
in net sales of women's hosiery products. Sales of rugged outdoor and
heavyweight casual socks increased 27.7% primarily because of the introduction
of spring styles in this category during the quarter ended March 31, 1997.
Gross profit for the quarter ended March 31, 1997 was $4.4 million, an
increase of $1.4 million, or 46.7%, from the same period in the prior year. As a
percentage of net sales, gross profit increased to 22.6% for the three months
ended March 31, 1997, compared to 18.8% during the same period in 1996. Sales of
Evan-Picone women's sheer hosiery products, which the Company did not sell in
the first quarter of 1996, and sales of tights under the Ellen Tracy brand name
and brand names of other private label customers were the major factors
contributing to the increase in gross profit. There were also moderate price
increases in the Company's sock product categories, both domestically and in
Europe, which helped increase overall gross profit margins.
Selling, general and administrative expenses for the three months ended
March 31, 1997 were $3.6 million, compared to $2.4 million for the same period
in the prior year. Sales expenses associated with the Evan-Picone hosiery
program accounted for over two-thirds of the $1.2 million increase in selling,
general and administrative expenses. Licensing arrangements for brand names such
as Evan-Picone and Ellen Tracy generally result in higher selling, general and
administrative costs due to royalty payments, cooperative advertising and
marketing requirements imposed by licensors.
Operating income for the three months ended March 31,1997 increased 50.0%
from $558,000 to $837,000. The increase in operating income is primarily
attributable to increased profitability in the women's hosiery division
resulting from the favorable sales mix mentioned above. Operating income for the
<PAGE> 11
Company's sock operations in Ft. Payne, Alabama and the Republic of Ireland also
increased during the first quarter, primarily because of moderate price
increases.
Interest expense decreased 37.0% to $368,000 from $584,000 for the three
months ended March 31, 1996. The repayment of debt with proceeds from the
Company's initial public offering in November 1996 and a reduction in the
interest rate charged by the Company's primary lender explain the decrease in
interest expense.
Other income for the three months ended March 31, 1997 was $23,000,
compared to $89,000 for the same period in 1996. Gains on the sale of equipment
are included in other income for the first quarter of 1996.
Income tax expense for the three months ended March 31, 1997 and 1996 was
$131,000 and $6,300, respectively. The generally higher profitability
experienced by each of the Company's operating divisions, with the exception of
Seneca, account for the increase in income tax expense. The net operating loss
associated with Seneca reduced the overall effective tax rate for the three
month period ended March 31, 1997.
Net income for the three months ended March 31, 1997 was $361,500 compared
to $57,000 for the three months ended March 31, 1996. The increase in net income
is attributable to the increased sales volume in the women's hosiery division,
moderate price increases in the Company's sock operations and reduced borrowing
costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities during the three months ended
March 31, 1996 and 1997 were $(1.4) million and $(2.7) million, respectively.
The negative cash flows from operating activities during the first three months
of 1997 were the result of a $2.6 million increase in inventories since December
31, 1996. During the first and second quarters of the year, the Company
typically builds inventory levels to fill orders during the fall shipping
season.
In addition to a revolving credit facility, the Company has one term loan
outstanding with NationsBank. This loan was restructured in March 1997. See Note
6 to the condensed consolidated financial statements. As of May 1, 1997, the
term loan had a principal balance of approximately $4.8 million. This loan was
entered into as a source of permanent financing for the Company's capital
equipment modernization program and to partially fund the acquisition of Seneca.
This loan bears interest at LIBOR plus 2.0% (7.6875% at May 1, 1997). The loan
is payable in monthly installments of $53,667 each, with the remaining balance
due in January 1999 and is secured by the same collateral as the Revolving
Credit Facility and imposes similar restrictive covenants on the Company.
The Company is currently examining the logistical and physical
requirements necessary for the construction of a distribution facility on
property the Company currently owns. As part of this process, the Company is
evaluating the feasibility of purchasing an existing facility, instead of
constructing a new building. As of May 1, there were no firm commitments
regarding this capital expenditure.
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.
<PAGE> 12
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 establishes new standards for computations of earnings
per share. SFAS 128 will be effective for periods ending after December 15, 1997
and will require presentation of: (1) "Basic earnings per share," computed by
dividing income available to common stockholders 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. Had SFAS 128 been effective
for the three months ended March 31, 1997 and 1996, basic and diluted earnings
per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Basic and diluted earnings per share $0.12 $0.04
===== =====
</TABLE>
<PAGE> 13
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: May 12, 1997 By: /s/ Walter L. Bost, Jr.
-------------------------------
Walter L. Bost, Jr.
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 94,930
<SECURITIES> 0
<RECEIVABLES> 13,845,196
<ALLOWANCES> 632,270
<INVENTORY> 23,309,289
<CURRENT-ASSETS> 37,171,339
<PP&E> 24,120,246
<DEPRECIATION> 13,038,570
<TOTAL-ASSETS> 51,498,888
<CURRENT-LIABILITIES> 12,124,490
<BONDS> 17,010,747
0
0
<COMMON> 30,000
<OTHER-SE> 19,617,613
<TOTAL-LIABILITY-AND-EQUITY> 51,498,888
<SALES> 19,542,743
<TOTAL-REVENUES> 19,542,743
<CGS> 15,129,872
<TOTAL-COSTS> 15,129,872
<OTHER-EXPENSES> 3,598,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367,767
<INCOME-PRETAX> 492,674
<INCOME-TAX> 131,174
<INCOME-CONTINUING> 361,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,500
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
