<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 June 30, 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 August 11, 1997, the registrant had 3,000,000 shares of common
stock, $.01 par value per share, outstanding.
1
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 64,986 $ 315,559
Accounts receivable (less allowance for doubtful
accounts of $643,692 and $501,867) 17,456,802 13,271,680
Inventories (Note 3) 25,606,320 20,624,069
Prepaid expenses 560,766 127,841
----------- -----------
Total current assets $43,688,874 $34,339,149
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 11,551,190 11,499,185
OTHER ASSETS 1,841,254 1,214,682
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
depreciation and amortization 1,667,365 1,731,265
----------- -----------
Total assets $58,748,683 $48,784,281
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,887,756 $ 1,093,513
Accounts payable 8,002,900 5,904,783
Accrued expenses and other liabilities 1,394,909 1,631,446
Income taxes payable -- 464,636
Deferred income taxes 349,241 442,253
Current portion of long-term debt (Note 4) 1,350,273 1,345,793
Current portion of deferred compensation 102,268 100,727
------------ -----------
Total current liabilities $ 14,087,347 $10,983,151
LONG-TERM DEBT, less current portion (Note 4) 22,034,770 15,671,893
DEFERRED COMPENSATION, less current portion 1,590,131 1,533,606
DEFERRED CREDIT 878,559 1,020,224
DEFERRED INCOME TAXES 242,850 218,251
------------ -----------
Total liabilities $38,833,657 $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 9,303,720 8,450,034
Foreign currency translation adjustments (68,712) 227,104
------------ -----------
Total shareholders' equity $ 19,915,026 $19,357,156
------------ -----------
Total liabilities and shareholders' equity $ 58,748,683 $48,784,281
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $ 21,258,171 $ 17,001,183 $ 40,800,914 $ 32,711,733
COST OF SALES 16,945,253 13,484,106 32,075,125 26,237,842
------------ ------------ ------------ ------------
GROSS PROFIT $ 4,312,918 $ 3,517,077 $ 8,725,789 $ 6,473,891
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,252,302 2,553,834 6,827,883 4,952,305
------------ ------------ ------------ ------------
OPERATING INCOME $ 1,060,616 $ 963,243 $ 1,897,906 $ 1,521,586
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (446,546) $ (546,640) $ (814,313) $ (1,130,282)
Other, net 16,200 (59,952) 39,351 28,938
------------ ------------ ------------ ------------
Total other income (expense) $ (430,346) $ (606,592) $ (774,962) $ (1,101,344)
------------ ------------ ------------ ------------
INCOME BEFORE
INCOME TAXES $ 630,270 $ 356,651 $ 1,122,944 $ 420,242
PROVISION FOR
INCOME TAXES 239,484 142,895 370,658 149,207
------------ ------------ ------------ ------------
NET INCOME $ 390,786 $ 213,756 $ 752,286 $ 271,035
============ ============ ============ ============
EARNINGS PER SHARE $ 0.13 $ 0.13 $ 0.25 $ 0.17
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 3,000,000 1,600,000 3,000,000 1,595,560
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 36,386,278 $ 29,717,840
Cash paid to suppliers and employees (41,198,702) (31,439,711)
Interest paid (731,040) (1,072,468)
Income taxes paid, net of refunds (1,083,994) (53,999)
Other cash receipts (disbursements) (414,605) (74,108)
------------ ------------
Net cash used in operating activities $ (7,042,063) $ (2,922,446)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ (69,576) $ (64,667)
Proceeds from sale of property and equipment -- 28,272
Payments for purchase of property, plant and equipment (1,486,913) (624,325)
------------ ------------
Net cash used in investing activities $ (1,556,489) $ (660,720)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings $ 1,833,035 $ 303,516
Proceeds from long-term debt 41,205,460 30,589,031
Repayments of long-term debt (34,677,894) (27,393,054)
Dividends paid -- (42,244)
Proceeds from issuance of common stock -- 30,482
------------ ------------
Net cash provided by financing activities $ 8,360,601 $ 3,487,731
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (12,622) $ (288)
------------ ------------
Net decrease in cash $ (250,573) $ (95,723)
CASH, beginning of period 315,559 261,567
------------ ------------
CASH, end of period $ 64,986 $ 165,844
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 752,286 $ 271,035
----------- -----------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization $ 870,241 $ 868,568
Provision for doubtful accounts receivable 144,605 28,384
Capital grants recognized (39,624) (39,325)
Increase (decrease) in deferred compensation liability 58,066 11,828
Increase (decrease) in deferred income taxes (63,691) 46,821
Changes in operating assets and liabilities:
(Increase) in accounts receivable (4,328,747) (1,934,203)
(Increase) in inventories (5,025,905) (4,168,042)
(Increase) in prepaid expenses and other assets (657,791) (385,096)
Increase in accounts payable 2,169,230 1,453,602
Increase (decrease) in income taxes payable (649,645) 251,222
Increase in accrued expenses and other liabilities (271,088) 672,760
----------- -----------
Total adjustments to net income $(7,794,349) $(3,193,481)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(7,042,063) $(2,922,446)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<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 six and three months ended June 30, 1997, necessary
to present fairly the financial position of the Company as of June 30, 1997 and
the results of operations for the six and three months ended June 30, 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 six and
three months ended June 30, 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>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw Materials $ 4,497,097 $ 4,113,736
Work-in-process 8,311,064 6,127,331
Finished goods 12,938,159 10,523,002
(LIFO reserve) (140,000) (140,000)
------------ ------------
Total inventories $ 25,606,320 $ 20,624,069
============ ============
</TABLE>
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of June 30, 1997 and 1996 is unaudited)
NOTE 4 - LONG-TERM DEBT
On August 4, 1997, the Company amended its existing bank loan agreement to
increase its revolving line of credit from $14,000,000 to $18,000,000 and to
provide an additional $2,500,000 capital expenditure facility, both of which are
due 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
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% (7.6250% as of July
31, 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. As of August
7, 1997, incentive stock options totaling 53,200 shares have been granted 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. On May 27, 1997, 2,000 shares were granted under the Director's
Plan at an exercise price of $6.87 per share. All of such options are
outstanding and unexercised.
8
<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 June 30, 1997 and its results
of operations for the three and six months then ended. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K, and the
unaudited interim consolidated financial statements and notes thereto included
elsewhere in this report. The results of operations for the three and six months
ended June 30, 1997 are not indicative of results expected for the year ending
December 31, 1997. See "Seasonality" below.
GENERAL
The following table presents the Company's net sales by product category
for the three-month and six-month periods ended June 30, 1996 and 1997,
expressed in thousands of dollars and as a percentage of total net sales.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------------------- ---------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Socks:
Sports specific $ 5,202 24.5% $ 5,036 29.6% $10,169 24.9% $10,287 31,4%
Sports promotional 6,174 29.0 4,790 28.2 10,030 24.6 8,932 27.3
Active sport 557 2.6 251 1.5 1,015 2.5 738 2.3
Rugged outdoor and heavyweight casual 1,936 9.1 2,478 14.5 4,261 10.4 4,298 13.1
Other 322 1.5 692 4.1 359 0.9 913 2.8
------- ----- ------- ----- ------- ----- ------- -----
Total socks $14,191 66.7% $13,247 77.9% $25,834 63.3% $25.168 76.9%
======= ===== ======= ===== ======= ===== ======= =====
Women's Hosiery:
Sheer pantyhose and knee-highs $ 3,542 16.7% $ 1,496 8.8% $ 8,023 19.7% $ 3,395 10.4%
Tights and trouser socks 3,525 16.6 2,258 13.3 6,944 17.0 4,149 12.7
------- ----- ------- ----- ------- ----- ------- -----
Total women's hosiery $ 7,067 33.3% $ 3,754 22.1% $14,967 36.7% $ 7,544 23.1%
------- ----- ------- ----- ------- ----- ------- -----
Total net sales $21,258 100.0% $17,001 100.0% $40,801 100.0% $32,712 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The net sales by product category for the three and six months ended June
30, 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales for the three and six months ended June 30, 1996 and
1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 79.7 79.3 78.6 80.2
------ ------ ------ ------
Gross profit 20.3% 20.7% 21.4% 19.8%
Selling, general and administrative expenses 15.3 15.0 16.7 15.1
------ ------ ------ ------
Operating income 5.0% 5.7% 4.7% 4.7%
Interest expense (2.1) (3.2) (2.0) (3.5)
Other income, net 0.1 (0.4) 0.1 0.1
------ ------ ------ ------
Income before income taxes 3.0% 2.1% 2.8% 1.3%
Income tax expense 1.2 0.8 1.0 0.5
------ ------ ------ ------
Net income 1.8% 1.3% 1.8% 0.8%
====== ====== ====== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED
JUNE 30, 1996
Net sales for the three months ended June 30, 1997 were $21.3 million,
compared to $17.0 million for the same period in 1996, an increase of 25.3%. Net
sales of women's hosiery products, which includes private label sales as well as
sales under the Ellen Tracy and Evan-Picone brand names, increased $3.2 million,
or 84.9%, 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. Sales of sport socks increased $1.6 million for
the three months ended June 30, 1997, while sales of rugged outdoor and
heavyweight casual socks decreased $500,000.
Gross profit for the quarter ended June 30, 1997 was $4.3 million, an
increase of $800,000, or 22.9%, from the same period in the prior year. As a
percentage of net sales, gross profit remained flat at 20.3%, compared with
20.7% during the same period in 1996. The Company's Ft. Payne, Alabama
operation, which manufactures sports promotional socks, and Seneca Falls, New
York operation, which manufactures rugged outdoor and heavyweight casual socks,
experienced a reduction in gross profit margins for the three months ended June
30, 1997. Although revenues from sales of sports promotional socks increased for
the quarter ended June 30, 1997, the increase came from products with lower
gross profit margins. Also, price decreases on two programs at Seneca enabled
the Company to continue a business relationship with two of its customers,
although at lower gross profit margins. Management believes that in order to
maximize its production facilities, increase its operating efficiencies and more
easily absorb its fixed costs, the Company must, at times, accept new business,
even at lower gross profit margins.
Selling, general and administrative expenses for the three months ended
June 30, 1997 were $3.3 million, compared to $2.6 million for the same period in
the prior year. Sales expenses associated with the Evan-Picone hosiery program
account for the $700,000 increase in selling, general and administrative
expenses. Licensing arrangements for brand names such as Evan-Picone and Ellen
Tracy generally result in
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<PAGE> 11
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 June 30,1997 increased only
slightly from $963,000 to $1.1 million. The increase in operating income is
primarily attributable to increased profitability in the women's hosiery
division resulting from the increase in revenues and price increases for
selected product categories of sport socks.
Interest expense decreased 18.3% to $447,000 from $547,000 for the three
months ended June 30, 1997. 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 after the public offering
explain the decrease in interest expense.
Other income (expense) for the three months ended June 30, 1997 was
$16,200, compared to $(60,000) for the same period in 1996. Losses on the
disposal of equipment are included in other income (expense) for the three
months ended June 30, 1996.
Income tax expense for the three months ended June 30, 1997 and 1996 was
$239,000 and $143,000, 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.
Net income for the three months ended June 30, 1997 was $390,800 compared
to $213,800 for the three months ended June 30, 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.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
Net sales for the six months ended June 30, 1997 were $40.8 million,
compared to $32.7 million for the same period in 1996, an increase of 24.8%. Net
sales of women's hosiery products accounted for $7.4 million of the $8.1 million
increase. Sales of women's sheer hosiery under the licensed Evan-Picone brand
name, which did not begin until July 1996, sales of spring tights under the
Ellen Tracy brand name and sales of various private label customers contributed
to this increase. As a result of this $8.1 million increase, the Company's net
sales of women's hosiery products represented approximately 37% of the total net
sales for the first six months of the current fiscal year compared to 23% of
total net sales in the first six months of the prior fiscal year.
Gross profit for the six months ended June 30, 1997 was $8.7 million, an
increase of $2.2 million, or 33.8% from the same period in the prior year. As a
percentage of net sales, gross profit increased to 21.4% for the six months
ended June 30, 1997, compared to 19.8% for the same period in 1996. Moderate
price increases in the Company's sock product categories, sales of tights under
the Ellen Tracy brand name and brand names of other private label customers, as
well as sales of sheer hosiery under the Evan-Picone brand name, which the
Company did not sell in the first two quarters of 1996, were factors
contributing to the increase in the gross profit margin.
Selling, general and administrative expenses for the six months ended June
30, 1997 were $6.8 million, compared to $5.0 million for the same period in the
prior year. The increase for the first six months of 1997 is associated with the
Evan-Picone hosiery program, which began in July 1996. Sales expenses relating
to this program accounted for $1.5 million of the $1.8 million increase.
Operating income for the six months ended June 30,1997 increased 26.7%
from $1.5 million to $1.9 million. The increase in operating income is
attributable to increased profitability in the women's hosiery
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<PAGE> 12
division resulting from increase sales of higher margin products such as tights
and trouser socks. Also, moderate price increases for the Company's sock product
categories helped improve operating income compared with the prior period.
Interest expense decreased to $814,000 from $1.1 million for the six
months ended June 30, 1997. The repayment of debt with proceeds from the
Company's initial public offering in November 1996 reduced total debt. A
reduction in the interest rate charged by the Company's primary lender has also
enabled the Company to reduce its cost of borrowing.
Other income for the six months ended June 30, 1997 was $39,400, compared
to $28,900 for the same period in 1996. The increase in other income for the six
months ended June 30, 1997 is the result of losses on the disposal of equipment
included in other income for the six months ended June 30, 1996.
Income tax expense for the six months ended June 30, 1997 was $370,700,
compared with $149,200 for the same period in 1996. Income tax expense for the
six-month period ended June 30, 1997 was reduced by a net operating loss benefit
from Seneca.
Net income for the six months ended June 30, 1997 was $752,300 compared to
$271,000 for the six months ended June 30, 1996. The increase in net income is
attributable to an increase in revenues for each of the Company's operating
divisions, improvements in the gross profit margin on sales in the women's
hosiery division, moderate price increases in the Company's sock operations and
the reduction in the interest rate charged by the Company's lender.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities during the six months ended June
30, 1997 and 1996 were $(7.0) million and $(2.9) million, respectively. The
negative cash flows from operating activities during the first six months of
1997 were the result of both a $4.3 million increase in accounts receivable and
a $5.0 million increase in inventories since December 31, 1996. The growth in
accounts receivable is due to the sales growth experienced by the Company for
the six months ended June 30, 1997. The higher inventory levels are consistent
with both the increase in sales volume and the seasonal inventory buildup to
support the typically heavier fall shipping season.
In addition to cash flow from operations, the Company obtains working
capital through borrowings under the Company's revolving credit facility (the
"Revolving Credit Facility"). The Revolving Credit Facility, which was recently
increased by $4.0 million to fund additional working capital needed to support
the increase in sales volume, provides for borrowings of up to $18.0 million
through January 1999. As of August 7, 1997, $17.3 million was outstanding under
the Revolving Credit Facility, and there was $.7 million available for
additional borrowings. The Company typically experiences the majority of its
working capital needs during the second and third quarters. Funds borrowed under
the Revolving Credit Facility bear interest at a rate based on London Interbank
Offered Rates ("LIBOR"). The LIBOR-based rate available to the Company ranges
from LIBOR plus 2% to LIBOR plus 3.25%, depending upon the Company's leverage
ratio (as defined)(7.6250% at July 31, 1997). See Note 4 to the condensed
consolidated financial statements.
The Company is continuing to examine 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. The Company is leasing warehouse space, under a
short term lease, to house a portion of its distribution needs. While this space
is not intended to satisfy all of the Company's distribution requirements, it
does allow for more space from which to work with. More importantly, with the
immediate need of
12
<PAGE> 13
additional space temporarily filled, the Company can take more time to determine
its needs and requirements in a centralized distribution center. As of August 7,
1997, there were no firm commitments regarding this capital expenditure.
As of August 7, 1997, the installation of 84 electronic knitting machines
in the women's hosiery division (to replace 100 existing mechanical machines),
20 additional electronic knitting machines in the Company's sports sock knitting
operation in Ft. Payne, Alabama and 10 additional electronic knitting machines
at Seneca, was substantially complete. The Company had planned to fund these
capital expenditures from the proceeds of the Company's initial public offering
and an additional term loan. The Company has decided, however, to fund the
majority of this equipment through an operating lease. The lease has a five year
term with a two year renewal option and allows the Company to either purchase
the machines at the end of the lease term or upgrade to newer, replacement
machinery. Five of the machines installed at Seneca were funded with proceeds
from an industrial development authority loan.
SEASONALITY
The Company's business is impacted by the general seasonal trends that are
characteristic of the apparel and retail industries. Historically, the Company
has had higher net sales and greater profitability in the third and fourth
quarters.
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 and six months ended June 30, 1997 and 1996, basic and diluted
earnings per share would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
----- ----- ----- --------
<S> <C> <C> <C> <C>
Basic and diluted earnings per share $0.13 $0.13 $0.25 $0.17
===== ===== ===== =====
</TABLE>
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Shareholders was held on May 27, 1997.
(b) The matters voted upon and the results of the voting were as follows:
(1) The shareholders voted to re-elect the nine members of the
Company's Board of Directors for one year terms, and, in each
case, until their successors are elected and qualified. The
result of the vote for election of directors was as follows:
For Abstain
Albert C. Gaither 2,486,982 5,600
Hugh R. Gaither 2,491,182 1,400
William D. Durrant 2,486,982 5,600
Susan Gaither Jones 2,473,382 19,200
J. Michael Gaither 2,473,382 19,200
Claude S. Abernethy, Jr. 2,486,982 5,600
George Watts Carr, III 2,486,982 5,600
Joseph D. Hicks 2,483,782 8,800
Charles M. Snipes 2,487,282 5,300
(2) The shareholders voted 2,486,482 shares in the affirmative and
5,000 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, 1997. There were
1,100 votes withheld.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
14
<PAGE> 15
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 12, 1997 By: /s/ Walter L. Bost, Jr.
-------------------------------
Walter L. Bost, Jr.
Executive Vice President
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 64,986
<SECURITIES> 0
<RECEIVABLES> 18,100,494
<ALLOWANCES> 643,692
<INVENTORY> 25,606,320
<CURRENT-ASSETS> 43,688,874
<PP&E> 24,801,648
<DEPRECIATION> 13,250,458
<TOTAL-ASSETS> 58,748,683
<CURRENT-LIABILITIES> 14,087,347
<BONDS> 22,034,770
0
0
<COMMON> 30,000
<OTHER-SE> 19,885,026
<TOTAL-LIABILITY-AND-EQUITY> 58,748,683
<SALES> 21,258,171
<TOTAL-REVENUES> 21,258,171
<CGS> 16,945,253
<TOTAL-COSTS> 16,945,253
<OTHER-EXPENSES> 3,236,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,546
<INCOME-PRETAX> 630,270
<INCOME-TAX> 239,484
<INCOME-CONTINUING> 390,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,786
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
