<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 September 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 November 12, 1997, the registrant had 3,000,000 shares of common
stock, $.01 par value per share, outstanding.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 15,028 $ 315,559
Accounts receivable (less allowance for doubtful
accounts of $690,084 and $501,867) 20,403,343 13,271,680
Inventories (Note 3) 24,475,163 20,624,069
Prepaid expenses 223,088 127,841
----------- -----------
Total current assets $45,116,622 $34,339,149
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 11,437,438 11,499,185
OTHER ASSETS 1,613,571 1,214,682
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
depreciation and amortization 1,635,415 1,731,265
----------- -----------
Total assets $59,803,046 $48,784,281
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,210,853 $ 1,093,513
Accounts payable 7,926,906 5,904,783
Accrued expenses and other liabilities 1,475,317 1,631,446
Income taxes payable 272,849 464,636
Deferred income taxes 304,318 442,253
Current portion of long-term debt (Note 4) 1,273,531 1,345,793
Current portion of deferred compensation 103,052 100,727
------------ -----------
Total current liabilities $ 13,566,826 $10,983,151
LONG-TERM DEBT, less current portion (Note 4) 22,520,597 15,671,893
DEFERRED COMPENSATION, less current portion 1,618,095 1,533,606
DEFERRED CREDIT 833,083 1,020,224
DEFERRED INCOME TAXES 295,523 218,251
------------ -----------
Total liabilities $ 38,834,124 $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
$871,620 and $1,002,960 10,448,384 8,450,034
Foreign currency translation adjustments (159,480) 227,104
------------ -----------
Total shareholders' equity $ 20,968,922 $19,357,156
------------ -----------
Total liabilities and shareholders' equity $ 59,803,046 $48,784,281
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 25,889,396 $ 23,234,525 $ 66,690,310 $ 55,946,258
COST OF SALES 20,156,894 18,516,754 52,232,019 44,754,596
------------ ------------ ------------ ------------
GROSS PROFIT $ 5,732,502 $ 4,717,771 $ 14,458,291 $ 11,191,662
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,400,923 2,973,919 10,228,806 7,926,224
------------ ------------ ------------ ------------
OPERATING INCOME $ 2,331,579 $ 1,743,852 $ 4,229,485 $ 3,265,438
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (547,142) $ (643,760) $ (1,361,455) $ (1,774,042)
Other, net 28,481 (7,258) 67,832 21,680
------------ ------------ ------------ ------------
Total other income (expense) $ (518,661) $ (651,018) $ (1,293,623) $ (1,752,362)
------------ ------------ ------------ ------------
INCOME BEFORE
INCOME TAXES $ 1,812,918 $ 1,092,834 $ 2,935,862 $ 1,513,076
PROVISION FOR
INCOME TAXES 668,253 316,992 1,038,911 466,199
------------ ------------ ------------ ------------
NET INCOME $ 1,144,665 $ 775,842 $ 1,896,951 $ 1,046,877
============ ============ ============ ============
EARNINGS PER SHARE $ 0.38 $ 0.48 $ 0.63 $ 0.66
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 3,000,000 1,600,000 3,000,000 1,594,894
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 59,249,535 $ 49,182,984
Cash paid to suppliers and employees (62,811,314) (50,582,811)
Interest paid (1,235,355) (1,670,926)
Income taxes paid, net of refunds (1,349,387) (260,736)
Other cash disbursements (201,291) (104,836)
------------ ------------
Net cash used in operating activities $ (6,347,812) $ (3,436,325)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ (104,372) $ (84,667)
Proceeds from sale of property and equipment -- 28,272
Payments for purchase of property, plant and equipment (1,986,894) (910,097)
------------ ------------
Net cash used in investing activities $ (2,091,266) $ (966,492)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings $ 1,329,482 $ 740,799
Proceeds from long-term debt 65,324,283 48,547,313
Repayment of long-term debt (58,500,619) (44,974,100)
Dividends paid -- (42,244)
Proceeds from issuance of common stock -- 30,482
------------ ------------
Net cash provided by financing activities $ 8,153,146 $ 4,302,250
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (14,599) $ (1,369)
------------ ------------
Net decrease in cash $ (300,531) $ (101,936)
CASH, beginning of period 315,559 261,567
------------ ------------
CASH, end of period $ 15,028 $ 159,631
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 1,896,951 $ 1,046,877
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization $ 1,283,319 $ 1,357,731
Provision for doubtful accounts receivable 192,066 62,431
Capital grants recognized (56,224) (59,412)
Loss on sale of assets -- 25,386
Increase in deferred compensation liability 86,814 63,850
Increase (decrease) in deferred income taxes (54,552) 78,611
Changes in operating assets and liabilities:
Increase in accounts receivable (7,354,885) (6,560,473)
Increase in inventories (3,943,775) (3,654,630)
(Increase) decrease in prepaid expenses and
other assets (156,467) 100,087
Increase in accounts payable 2,170,992 2,893,134
Increase (decrease) in income taxes payable (255,925) 126,852
Increase (decrease) in accrued expenses and
other liabilities (156,126) 1,083,231
----------- -----------
Total adjustments to net income $(8,244,763) $(4,483,202)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(6,347,812) $(3,436,325)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments consisting of normal
recurring accruals for the nine and three months ended September 30, 1997 and
1996, necessary to present fairly the financial position of the Company as of
September 30, 1997 and the results of operations for the nine and three months
ended September 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 nine and three months ended September 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>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw Materials $ 4,217,104 $ 4,113,736
Work-in-process 8,459,562 6,127,331
Finished goods 11,938,497 10,523,002
(LIFO reserve) (140,000) (140,000)
------------ ------------
Total inventories $ 24,475,163 $ 20,624,069
============ ============
</TABLE>
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<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of September 30, 1997 and 1996 is unaudited)
NOTE 4 - LONG-TERM DEBT
On July 31, 1997, the Company amended certain of its existing bank loan
agreements. The amended agreement provides an $18,000,000 revolving line of
credit and 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%
(8.0184% as of October 31, 1997 under the LIBOR option). These loans are
collateralized by substantially all assets of the Company. There were no
amendments to or affecting the Company's term loan.
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 50,500 shares were granted to certain of the Company's salaried
employees at an exercise price of $7.50 per share. On July 23 1997, additional
incentive stock options totaling 2,700 shares were also granted at an exercise
price of $7.50 per share. The total number of shares granted under the Omnibus
Plan is 53,200 shares. 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
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<PAGE> 9
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 three new members of the Company's
board of directors at an exercise price of $8.00 per share. On May 27, 1997,
options totaling 2,000 shares were issued under the Director's Plan at an
exercise price of $6.87 per share. All of such options are outstanding and
unexercised.
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<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis provides information regarding the
Company's consolidated financial condition as of September 30, 1997 and its
results of operations for the three and nine 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 nine
months ended September 30, 1997 are not indicative of results expected for the
year ending December 31, 1997. See "Seasonality" in discussion below.
Results of Operations
The following table presents the Company's net sales by product category
for the three-month and nine-month periods ended September 30, 1996 and 1997,
expressed in thousands of dollars and as a percentage of total net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Amount % Amount % Amount % Amount %
------- ----- ------- ----- --------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOCKS:
Sports specific $ 5,303 20.5% $ 4,846 20.9% $ 15,472 23.2% $15,133 27.1%
Sports promotional 5,156 19.9 5,188 22.3 15,186 22.8 14,120 25.2
Active sport 594 2.2 662 2.8 1,608 2.4 1,400 2.5
Rugged outdoor and
heavyweight casual 5,794 22.4 5,464 23.5 10,055 15.1 9,762 17.4
Other 326 1.3 87 0.4 685 1.0 999 1.8
------- ----- ------- ----- --------- ----- ------- -----
Total socks $17,173 66.3% $16,247 69.9% $ 43,006 64.5% $41,414 74.0%
------- ----- ------- ----- --------- ----- ------- -----
WOMEN'S HOSIERY:
Sheer pantyhose and knee-highs $ 2,634 10.2% $ 2,689 11.6% $ 10,658 16.0% $ 7,694 13.8%
Tights and trouser socks 6,082 23.5 4,299 18.5 13,026 19.5 6,838 12.2
------- ----- ------- ----- --------- ----- ------- -----
Total women's hosiery $ 8,716 33.7% $ 6,988 30.1% $ 23,684 35.5% $14,532 26.0%
------- ----- ------- ----- --------- ----- ------- -----
Total net sales $25,889 100.0% $23,235 100.0% $ 66,690 100.0% $55,946 100.0%
======= ===== ======= ===== ========= ===== ======= =====
</TABLE>
The net sales by product category for the three and nine months ended
September 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.
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<PAGE> 11
The following table presents the Company's results of operations as a
percentage of net sales for the three and nine months ended September 30, 1996
and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 77.9 79.7 78.3 80.0
----- ----- ----- -----
Gross profit 22.1% 20.3% 21.7% 20.0%
Selling, general and administrative expenses 13.1 12.8 15.4 14.2
----- ----- ----- -----
Operating income 9.0% 7.5% 6.3% 5.8%
Interest expense (2.1) (2.8) (2.0) (3.2)
Other income, net 0.1 (0.0) 0.1 0.1
----- ----- ----- -----
Income before income taxes 7.0% 4.7% 4.4% 2.7%
Income tax expense 2.6 1.4 1.6 0.8
----- ----- ----- -----
Net income 4.4% 3.3% 2.8% 1.9%
===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the three months ended September 30, 1997 were $25.9
million, compared to $23.2 million for the same period in 1996, an increase of
11.6%. Revenues increased in each of the Company's operating divisions for the
quarter ended September 30, 1997. Net sales of women's hosiery products, which
includes sales under the Ellen Tracy and Evan-Picone brand names, accounted for
$1.8 million of the increase in revenues. The increase in sales of women's
hosiery products was less than anticipated due to lower than expected sales of
products in the Evan-Picone program, a trend the Company expects will continue
through the end of 1997. The performance of the Evan-Picone program is expected
to improve in 1998 as a result of new marketing initiatives presently being
undertaken by the Company. Contributing to the increase in sales of women's
hosiery products were sales of tights under the Ellen Tracy brand name and other
private label programs. Domestically, sales of sports specific, sports
promotional and active sport socks increased 7.9% for the three months ended
September 30, 1997, while sales of sports socks in Europe increased 5.2% for the
same period. Sales of rugged outdoor and heavyweight casual socks increased 6.0%
for the three months ended September 30, 1997.
Gross profit for the quarter ended September 30, 1997 was $5.7 million,
an increase of $1.0 million, or 21.3%, from the same period in the prior year.
As a percentage of net sales, gross profit increased to 22.1%, compared with
20.3% during the same period in 1996. Price increases and improved operating
efficiencies in knitting and distribution for the Company's sports sock
operation in Newton, North Carolina accounted for approximately 40% of the
increase in gross profit. The Company's Seneca Knitting Mills Corporation
("Seneca") subsidiary, which manufactures rugged outdoor and heavyweight casual
socks, experienced an increase in gross profit of $600,000 for the quarter ended
September 30, 1997, compared to the same period the prior year. Several factors
contributed to this improvement. A combination of a price increase and savings
incurred through product enhancements made to core styles purchased by Seneca's
largest customer allowed the Company to improve margins for this program. (Sales
for this program were approximately $1.0 million during the third quarter.)
There also was a more favorable mix of higher margin products shipped during the
third quarter of 1997, including sales of rugged outdoor and heavyweight socks
under the licensed Coleman brand name, that were not a part of Seneca's product
mix for the same period last year. Gross profit for each of the Company's other
operating divisions remained flat.
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<PAGE> 12
Selling, general and administrative expenses for the three months ended
September 30, 1997 were $3.4 million, compared to $3.0 million for the same
period in the prior year. As a percentage of net sales, selling, general and
administrative expenses increased to 13.1% for the third quarter, compared to
12.8% for the quarter ended September 30, 1996. Royalty payments, cooperative
advertising and marketing requirements associated with the Evan-Picone hosiery
program accounted for approximately 70% of this increase.
Operating income for the three months ended September 30,1997 increased
$600,000 to $2.3 million. The increase in operating income is attributable to
increased profitability in the Company's sports sock division and Seneca,
resulting from higher revenues, price increases for selected product categories
and programs and improved operational efficiencies.
Interest expense decreased $97,000 for the three months ended September
30, 1997, to $547,000 from $644,000 for the same three month period in 1996. A
reduction in the interest rate charged by the Company's primary lender explains
the decrease in interest expense.
Other income (expense) for the three months September 30, 1997 was
$28,500, compared to $(7,000) for the same period in 1996. Gains on the disposal
of equipment and collections of previously written-off bad debts account for the
increase in other income for the quarter ended September 30, 1997.
Income tax expense for the three months ended September 30, 1997 and 1996
was $668,000 and $317,000 respectively. The generally higher profitability
experienced by each of the Company's operating divisions, with the exception of
the Evan-Picone women's hosiery program, account for the increase in income tax
expense.
Net income for the three months ended September 30, 1997 was $1.1 million,
compared to $776,000 for the three months ended September 30, 1996. The increase
in net income is attributable to the increased sales volume, moderate price
increases in the Company's sports sock and rugged outdoor and heavyweight casual
sock product categories, operational efficiencies gained as a result of
investments in capital improvements and reduced borrowing costs.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 were $66.7 million,
compared to $55.9 million for the same period in 1996, an increase of 19.3%.
While revenues for the nine months ended September 30, 1997 increased 3.0% to
6.0% in each of the Company's sock product categories, net sales of women's
hosiery products accounted for $9.1 million of the $10.8 million increase.
Women's sheer hosiery sales under the licensed Evan-Picone brand name and sales
of tights under the Ellen Tracy brand name and brand names of other private
label customers contributed to this increase, which was less than anticipated
due to the factors discussed above for the quarter ended September 30, 1997.
Gross profit for the nine months ended September 30, 1997 was $14.5
million, an increase of $3.3 million, or 29.5% from the same period in the prior
year. As a percentage of net sales, gross profit increased to 21.7% for the nine
months ended September 30, 1997, compared to 20.0% 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, improved operational efficiencies, 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 nine months ended
September 30, 1997 were $10.2 million, compared to $7.9 million for the same
period in the prior year. During the nine month period ended September 30, 1997,
royalty payments, cooperative advertising and marketing requirements associated
with the Evan-Picone hosiery program, which began in July 1996, represented $1.8
million of the $2.3 million increase in selling, general and administrative
expenses.
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<PAGE> 13
Operating income for the nine months ended September 30,1997 increased
27.3% from $3.3 million to $4.2 million. The increase in operating income is
attributable to increased profitability in the women's hosiery division
resulting from an increase in sales of higher margin products such as tights and
trouser socks. Price increases for the Company's sock product categories and
efficiency gains from investment in new knitting equipment in each if the
Company's operating divisions were also factors in the increase in operating
income.
Interest expense decreased to $1.4 million from $1.8 million for the nine
months ended September 30, 1997. At September 30, 1997, the Company's total debt
was $1.6 million lower than the same period in 1996. Debt was reduced with
proceeds from the Company's initial public offering in November 1996. A
reduction in the interest rate charged by the Company's primary lender has also
reduced the Company's borrowing costs.
Other income for the nine months ended September 30, 1997 was $67,800,
compared to $21,700 for the same period in 1996. The increase in other income
for the nine months ended September 30, 1997 is the result of losses on the
disposal of equipment included in other income for the nine months ended
September 30, 1996.
Income tax expense for the nine months ended September 30, 1997 was
$1.0 million, compared with $466,000 for the same period in 1996.
Net income for the nine months ended September 30, 1997 was $1.9
million, compared to $1.0 million for the nine months ended September 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 margins
in the women's hosiery division, the sports sock operation in Newton, North
Carolina and Seneca, moderate price increases in the Company's sock product
categories 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 nine months ended
September 30, 1997 and 1996 were $(6.3) million and $(3.4) million,
respectively. The negative cash flows from operating activities during the first
nine months of 1997 were the result of a $7.4 million increase in accounts
receivable and a $3.9 million increase in inventories since December 31, 1996.
The significant growth in accounts receivable is due to the sales growth
experienced by the Company for the nine months ended September 30, 1997. The
higher inventory levels are consistent with both the increase in sales volume
and the seasonal inventory build to support the 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 October 31, 1997, $16.5 million was outstanding
under the Revolving Credit Facility, and there was $1.5 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 equal to 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)(8.0184% at October 31, 1997). See Note 4 to the condensed
consolidated financial statements.
-13-
<PAGE> 14
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. As of October 31, 1997, the Company had leased, on
a temporary basis, warehouse space 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 additional space temporarily filled, the
Company can take more time to determine its needs and requirements in a
centralized distribution center. As of October 31, 1997, there were no firm
commitments regarding this capital expenditure.
As of October 31, 1997, the installation of 84 knitting machines for
women's hosiery division (to replace 100 existing mechanical machines), 20
additional electronic knitting machines for its sports sock knitting operation
in Ft. Payne, Alabama and 10 additional electronic knitting machines at Seneca,
was substantially complete. Initially, the funding for these planned capital
expenditures was expected to be advances under the Revolving Credit Facility
that had been temporarily repaid with a portion of the proceeds of the Company's
initial public offering in November 1996 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 through a low interest industrial development authority
loan.
The Company is implementing a new enterprise-wide management information
system that will link each of the Company's facilities electronically and
provide operational improvements in manufacturing, forecasting, planning and
distribution. This project, which will take place over the next 18-24 months,
will involve a complete overhaul of the Company's current management
information system and address any issues relating to the Year 2000 concerning
date driven applications. The Company anticipates the cost of this project to
be approximately $2.1 million over the next 18-24 months, with the majority of
costs associated with the project to be disbursed in 1998. Management expects
to finance the cost of the project through borrowings under the Company's
Revolving Credit Facility, supplemented by a leasing arrangement for certain
hardware. As of October 31, 1997, the Company had spent approximately $75,000
on the initial phase of the project and expects to spend approximately $300,000
by year end.
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.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board 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 nine months ended September 30, 1997 and 1996, basic and diluted
earnings per share would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic and diluted earnings per share $0.38 $0.48 $0.63 $0.66
===== ===== ===== =====
</TABLE>
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 requires that
all items recognized under accounting standards as components of comprehensive
income, be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 131 establishes standards
for public business enterprises to report information about operating segments
in annual financial statements. Both pronouncements are effective for years
beginning after December 15, 1997. The Company intends to adopt both
pronouncements beginning January 1, 1998.
-14-
<PAGE> 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 - Amendment No. 3 to Amended and Restated Loan and
Security Agreement dated as of December 20, 1996
(b) Exhibit 27 - Financial Data Schedule (for SEC use only)
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 12, 1997 By: /s/ Walter L. Bost, Jr.
-----------------------
Walter L. Bost, Jr.
Executive Vice President
and Chief Financial Officer
-15-
<PAGE> 1
EXHIBIT 10
EXECUTION COPY
AMENDMENT NO. 3
to
Amended and Restated
Loan and Security Agreement
dated as of December 20, 1996
AMENDMENT NO. 3 entered into as of July 31, 1997 among RIDGEVIEW,
INC., a North Carolina corporation (for itself and as successor by merger to
InterKnit, Inc., an Alabama corporation), SENECA KNITTING MILLS CORPORATION, a
New York corporation (collectively, the "Borrowers"), and NATIONSBANK, N.A.
(f/k/a NationsBank, N.A. (South)), a national banking association (the
"Lender").
Preliminary Statement
The Borrowers and the Lender are parties to that certain Amended and
Restated Loan and Security Agreement dated as of December 20, 1996, as amended
by Amendment No.1 dated as of January 31, 1997 and as further amended by
Amendment No.2 dated as of March 13, 1997 (the "Loan Agreement"; terms defined
therein, unless otherwise defined herein, being used herein as therein defined).
The Borrower has requested an increase in the amount of the Revolving
Credit Loan, the extension of a separate capital expenditures credit line, an
increase in the Letter of Credit Facility (which is currently zero),
modifications to the financial reporting requirements set forth in the Loan
Agreement and certain conforming changes to other provisions of the Loan
Agreement, and the Lender has agreed to such request, upon and subject to all of
the terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the Loan Agreement, the mutual
covenants set forth therein and herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Amendment to Loan Agreement. Subject to the provisions of
Section 2, the Loan Agreement is hereby amended:
(a) by amending the provisions of Section 1.1 Definitions as follows:
(i) by adding the following definitions, to read in their
entirety as follows:
"Amendment No.3 Effective Date" means the date on which
Amendment No.3 dated as of July 31, 1997 to this Agreement
became effective in accordance with its terms.
<PAGE> 2
"CAPEX Loan" means each loan made to the Borrowers under the
CAPEX Loan Facility pursuant to SECTION 2C, and all such loans
collectively.
"CAPEX Loan Facility" means the credit facility providing for
CAPEX Loans up to an aggregate original principal amount not
to exceed the principal sum of $2,500,000.
"CAPEX Lock-in Date" means December 31, 1997.
"CAPEX Note" means the Note made by the Borrowers payable to
the order of the Lender evidencing the joint and several
obligation of the Borrowers to pay the aggregate unpaid
principal amount of all CAPEX Loans made to them by the Lender
(and any promissory note or notes that may be issued from time
to time in substitution, renewal, extension, replacement or
exchange therefor, whether payable to the Lender or a
different lender, whether issued in connection with a Person
becoming a lender after the Effective Date or otherwise),
substantially in the form of EXHIBIT A-3 hereto, with all
blanks properly completed.
"Hard Cost Capital Expenditures" means Capital Expenditures
made for the acquisition of fixed assets, including Equipment
used in connection with the applicable Borrower's business,
exclusive of costs for delivery, installation, consultation
and similar "soft costs".
(ii) by amending the definition "Applicable Margin" in its
entirety to read as follows:
"Applicable Margin" means, (a) as to Prime Rate Loans during
the period from the Effective Date to and including December
31, 1996, the margin over the Prime Rate in effect under the
Existing Revolving Agreement on the date immediately preceding
the Effective Date, and (b) as to Eurodollar Rate Loans
effective on the Effective Date and as to Prime Rate Loans
effective on January 1, 1997, the rate per annum set forth
opposite the applicable ratio of total Liabilities to Tangible
Net Worth (calculated in accordance with the provisions of
SECTION 10.1(A)(I)) as of the last day of the fiscal quarter
of the Borrowers ending nearest October 31, 1996 as reflected
in the financial statements of the Borrowers delivered to the
Lender pursuant to SECTION 9.1(B), and thereafter effective as
of the first day of the month following the month in which
timely delivery of quarterly financial statements is made, the
Applicable Margin shall be equal to the rate per annum set
forth opposite the applicable ratio:
2
<PAGE> 3
<TABLE>
<CAPTION>
Ratio Applicable Margin
----- -----------------
Prime Rate Loans Eurodollar Rate Loans
---------------- ---------------------
<S> <C> <C>
less than or equal 0% 2.00%
to 2.0 to 1
greater than 2.0 0.25% 2.37%
to 1 but less than
or equal to 2.5 to 1
greater than 2.5 0.50% 2.75%
to 1 but less than
or equal to 3.0 to 1
greater than 3.0 0.75% 3.00%
to 1 but less than
or equal to 3.5 to 1
greater than 3.5 to 1 1.00% 3.25%
</TABLE>
In the event that the applicable financial statements of the
Borrowers have not been timely delivered in accordance with
SECTION 9.1(B) and, therefore, the applicable ratio cannot be
determined, the Applicable Margin for the three-month period
beginning on the first day of the month following the month in
which such financial statements should have been delivered
shall be equal to the sum of the then effective Applicable
Margin and the Default Rate.
(iii) deleting from the definition "Letter of Credit Facility"
the figure "$0" and substituting therefor the figure "$250,000";
(iv) by amending the definition "Loan" by inserting after the
phrase "any Revolving Credit Loan" appearing therein, the phrase ",
CAPEX Loan"; and
(v) by amending the definition "Revolving Credit Facility" by
deleting the figure "$14,000,000" appearing therein and substituting
therefor the figure "$18,000,000";
(b) by amending Section 2B.4(b) Mandatory Prepayment in its entirety to
read as follows:
(b) Mandatory Prepayment. (i) Any and all amounts received by
a Borrower as proceeds from the sale of any Equipment or Real Estate to
the extent such proceeds exceed (i) $5,000 in the case of any single
item of Equipment or parcel of Real Estate, or (ii)
3
<PAGE> 4
$25,000 in the aggregate for all such Equipment and Real Estate sold
during any twelve-month period shall be paid, immediately upon receipt
by the applicable Borrower to the Lender and shall be applied to the
principal installments of the Term Loan in the inverse order of their
maturities, with any balance remaining after prepayment in full of the
Term Loan to be applied to repay any amounts due under the CAPEX Loan.
The Borrowers shall also be obligated to prepay the Term Loan in full
together with accrued and unpaid interest thereon upon any termination
of this Agreement pursuant to SECTION 3.5 or otherwise or upon any
acceleration of the Term Loan pursuant to ARTICLE 11.
(c) by amending Section 7.14 Information and Reports by amending
subsections (a) and (d) thereof in their entireties to read, respectively, as
follows:
(a) Schedule of Receivables. The Borrowers shall
deliver to the Lender not later than the 15th day of each
month, a Schedule of Receivables for each Borrower as of the
last day of the preceding accounting month of the Borrowers,
setting forth (i) a detailed aged trial balance of all of such
Borrower's Receivables, specifying the name of and the balance
due from (and any rebate due to) each Account Debtor obligated
on a Receivable so listed and (ii) a reconciliation to the
Borrowing Base Certificate as of the same date and to the
Schedule of Receivables delivered in respect of the next
preceding month.
. . . .
(d) Borrowing Base Certificate. The Borrowers shall
deliver to the Lender not later than the 15th day of each
month, a Borrowing Base Certificate prepared as of the close
of business on the last day of the preceding accounting month
of the Borrowers.
(d) by amending Section 9.1 Financial Statements in its entirety to
read as follows:
Section 9.1 Financial Statements.
(a) Audited Year-End Statements. As soon as
available, but in any event within 90 days after the end of
each fiscal year, copies of the consolidated and consolidating
balance sheet of Ridgeview and its consolidated Subsidiaries
as at the end of such fiscal year and the related statements
of income, shareholders' equity and cash flow for such fiscal
year, in each case setting forth in comparative form the
figures for the previous fiscal year and reported on, without
qualification, by Whisnant Company or other independent
certified public accountants selected by the Borrowers and
acceptable to the Lender.
4
<PAGE> 5
(b) Monthly Financial Statements. As soon as
available, but in any event within 30 days after the end of
each accounting month of the Borrowers (other than any such
month that is the final month of a fiscal quarter of the
Borrowers), copies of (i) the unaudited balance sheet of each
of Ridgeview, Seneca and Interknit as at the end of such
accounting month and the related unaudited income statement
for each Borrower for such accounting month and for the
portion of the accounting year of the Borrowers through such
accounting month, certified by the chief financial officer of
Ridgeview to the best of his knowledge as presenting fairly
the financial condition and results of operations of
Ridgeview, Seneca and Interknit, respectively, as at the date
thereof and for the periods ended on such date, subject to
normal year end adjustments, and (ii) the unaudited balance
sheet of Ridgeview, Ltd. as at the end of each such month and
the related unaudited income statement for Ridgeview, Ltd. for
such month and for the portion of the fiscal year of
Ridgeview, Ltd. through such month, certified by the chief
financial officer of Ridgeview to the best of his knowledge as
presenting fairly the financial condition and results of
operations of Ridgeview, Ltd. as at the date thereof and for
the periods ended on such date, subject to normal year end
adjustments.
(c) Quarterly Financial Statements. As soon as
available, but in any event within 45 days after the end of
each fiscal quarter of the Borrowers, (i) copies of the
consolidated and consolidating unaudited balance sheet of
Ridgeview and its consolidated domestic Subsidiaries as at the
end of such fiscal quarter and the related unaudited
consolidating and consolidated income statements and
statements of cash flow of Ridgeview and its consolidated
domestic Subsidiaries for the portion of the accounting year
of the Borrowers through such fiscal quarter, certified by the
chief financial officer of Ridgeview to the best of his
knowledge as presenting fairly the financial condition and
results of operations of Ridgeview and its consolidated
domestic Subsidiaries as at the date thereof and for the
periods ended on such date, subject to normal year end
adjustments, and (ii) the unaudited balance sheet of
Ridgeview, Ltd. as at the end of such fiscal quarter and the
related unaudited income statement for Ridgeview, Ltd. for the
portion of the fiscal year of Ridgeview, Ltd. through such
fiscal quarter, certified by the chief financial officer of
Ridgeview to the best of his knowledge as presenting fairly
the financial condition and results of operations of
Ridgeview, Ltd. as at the date thereof and for the periods
ended on such date, subject to normal year end adjustments.
All such financial statements shall be complete and correct in
all material respects and prepared in accordance with GAAP
(except, with respect to interim financial statements, for the
omission of notes) applied consistently throughout the periods
reflected therein. Notwithstanding the foregoing, if at any
time the excess of the
5
<PAGE> 6
Borrowing Base over the aggregate outstanding principal amount
of Revolving Credit Loans is less than $2,000,000, the Lender
shall have the absolute right to require, and upon such
request the Borrowers shall provide, monthly consolidating and
consolidated financial statements for Ridgeview and its
consolidated Subsidiaries and an appropriate officer's
certificate substantially in the form of EXHIBIT E hereto,
properly completed.
(e) by amending Section 9.3 Officer's Certificate by deleting therefrom
the reference to "Section 9.1(a) and (b)" and substituting therefor a reference
to "Sections 9.1(a) and (c)"; and
(f) by amending Section 9.4 Copies of Other Reports by redesignating
subsections (a), (b) and (c) thereof as subsections (b), (c) and (d) and adding
thereto a new subsection (a) to read as follows:
(a) Immediately after delivery thereof to the
Securities and Exchange Commission (the "SEC"), copies of all
reports on Forms 10-K, 10-Q, 8-K and any other reports,
delivered by the Borrowers (or any of them) to the SEC.
(g) by amending Section 10.5 Capital Expenditures in its entirety to
read as follows:
Section 10.5 Capital Expenditures. Make or incur any Capital
Expenditures, except that Ridgeview and its Subsidiaries may make or
incur Capital Expenditures in Fiscal Year 1997 in an amount not to
exceed, in the aggregate, $4,100,000, and in any subsequent Fiscal Year
in an amount not to exceed, in the aggregate, $1,000,000.
(h) by adding Section 2C. CAPEX LOAN FACILITY to read in its entirety
as follows:
C. CAPEX LOAN FACILITY
Section 2C.1 CAPEX Loan. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties
made under this Agreement, the Lender shall make one or more CAPEX
Loans to the Borrowers as requested by the Borrowers in accordance with
the terms of SECTION 2C.2, from the Amendment No.3 Effective Date until
the CAPEX Lock-in Date, each in an original principal amount which,
when added to all CAPEX Loans previously made hereunder, does not
exceed eighty percent (80%) of the aggregate Hard Cost Capital
Expenditures incurred during the period beginning on the Amendment No.3
Effective Date and ending on the date of the relevant CAPEX Loan,
PROVIDED that the aggregate original principal amount of all CAPEX
Loans shall not exceed the amount of the CAPEX Loan Facility.
Section 2C.2 Manner of Borrowing CAPEX Loans. (a) Subject to
satisfaction of the conditions set forth in SECTION 2C.3, borrowings
under the CAPEX Loan Facility
6
<PAGE> 7
shall be made prior to the CAPEX Lock-in Date as Prime Rate Loans or
Floating Eurodollar Rate Loans upon notice as set forth in and subject
to the other provisions of SECTION 2A.2 applicable to borrowings of
Loans of the same Types under the Revolving Credit Facility. CAPEX
Loans outstanding on or after the CAPEX Lock-in Date may, subject to
the applicable provisions of this Agreement, be of any Type.
(b) Disbursement of Loans. The Borrowers hereby irrevocably
authorize the Lender to disburse the proceeds of each borrowing
requested pursuant to this SECTION 2C.2 in lawful money of the United
States of America in immediately available funds by credit to the
Controlled Disbursement Account or to such other account as may be
agreed upon by the Borrowers and the Lender from time to time.
Section 2C.3 Conditions Precedent to CAPEX Loans.
Notwithstanding any other provision of this Agreement to the contrary,
no CAPEX Loans will be made hereunder until the fulfillment of each of
the following conditions prior to or contemporaneously with the making
of each such Loan:
(a) The Lender shall have received each of the following, all
of which shall be satisfactory in form and substance to the Lender and
its counsel:
(i) A receipt or invoice for any Hard Cost Capital
Expenditures for which CAPEX Loan funds are disbursed to the
Borrowers; and
(ii) Evidence satisfactory to the Lender that the
Equipment (or other goods in question) to which such receipt
or invoice relates has been delivered to and is located on the
premises of a Borrower, is subject to the Security Interest
and that all actions required pursuant to ARTICLE 6 in respect
of such Equipment (or other goods in question) have been
taken; and
(b) Satisfaction of all applicable conditions set forth in
ARTICLE 4.
Section 2C.4 Repayment of CAPEX Loan. The CAPEX Loan is due
and payable, and shall be repaid in full by the Borrowers in twelve
(12) substantially equal consecutive monthly installments payable on
the first of each month beginning February 1, 1998 through and
including January 1, 1999, each in an amount equal to 1/84th of the
aggregate principal balance of the CAPEX Loans outstanding on the CAPEX
Lock-in Date, and a thirteenth and final installment in the amount of
the entire remaining principal balance payable on January 10, 1999.
Section 2C.5 CAPEX Note. The CAPEX Loan Facility and the joint
and several obligation of the Borrowers to repay such Loan shall be
evidenced by a single
7
<PAGE> 8
CAPEX Note payable to the order of the Lender. Such Note shall be dated
the Amendment No.3 Effective Date and be duly and validly executed and
delivered by the Borrowers.
Section 2C.6 Prepayment of CAPEX Loan.
(a) Voluntary Prepayment. The Borrowers shall have the right
at any time and from time to time, upon at least 60 days' prior written
notice to the Lender in the case of a prepayment in full and upon at
least five days' prior written notice to the Lender in the case of a
partial prepayment, to prepay the CAPEX Loan in whole or in part on any
Business Day. Each partial prepayment of the CAPEX Loan shall be in a
principal amount equal to $100,000 or any integral multiple thereof and
shall be applied to the principal installments of the CAPEX Loan in the
inverse order of their maturities. On the prepayment date, the
Borrowers shall pay interest on the amount prepaid, accrued to the
prepayment date and any amounts which may become due pursuant to
SECTION 3.10 as a result of such prepayment. Any notice of prepayment
given by the Borrowers hereunder shall be irrevocable, and the amount
to be prepaid (including accrued interest and any fees) shall be due
and payable on the date designated in the notice.
(b) Mandatory Prepayment. The Borrowers shall prepay the CAPEX
Loan in full, together with accrued and unpaid interest thereon, upon
any termination of this Agreement pursuant to SECTION 3.5 or otherwise
or upon any acceleration of the CAPEX Loan pursuant to ARTICLE 11, and
shall make any other mandatory prepayments provided for in SECTION
2B.4(b).
(f) by further amending the Loan Agreement to add Exhibit A-3 in the
form attached hereto as Annex 1.
Section 2. Effectiveness. The provisions of Section 1 shall become
effective as of the date hereof on the date (the "Amendment Effective Date") on
which the Lender shall have received each of the following, in form and
substance satisfactory to the Lender:
(a) payment by the Borrowers of the following fees, which amounts the
Borrowers hereby irrevocably authorize the Lender to charge to any account of
the Borrowers (or an individual Borrower) maintained with the Lender:
(i) a $12,500 origination fee with respect to the CAPEX Loan
Facility (as such term and other capitalized terms used hereinafter are
defined in the Loan Agreement, as amended by this Amendment),
(ii) a $5,000 fee with respect to the overadvance facility
made available to the Borrowers prior to the Amendment No.3 Effective
Date, and
8
<PAGE> 9
(iii) a $5,000 fee with respect to the increase in the
Revolving Credit Facility effected by this Amendment, in accordance
with terms of SECTION 3.2(f) of the Loan Agreement;
(b) counterparts of this Amendment duly executed by the Borrower,
together with the Consent and Confirmation attached hereto duly executed by the
Guarantor;
(c) a certificate of the chief operating officer or president of each
Borrower stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement:
(i) all of the representations and warranties made or deemed
to be made under the Loan Agreement are true and correct as of the
Amendment Effective Date, and
(ii) after giving effect to this Amendment, no Default or
Event of Default exists;
(d) a signed opinion of Isenhower, Wood & Cilley, P.A., counsel for the
Borrower, and such local counsel as the Lender shall deem necessary and
desirable, opining as to such matters in connection with this Amendment as the
Lender or its counsel may reasonably request;
(e) documentation in a form satisfactory to Lender evidencing the
merger, effective as of June 30, 1997, of InterKnit, Inc. and Ridgeview, Inc.,
with Ridgeview, Inc. as the surviving entity; and
(f) such other documents and instruments as the Lender may reasonably
request.
Section 3. Effect of Amendment. Upon and after the effectiveness of
this Amendment as provided in Section 2 hereof, all references to the Loan
Agreement in the Loan Agreement or in any other Loan Document shall mean the
Loan Agreement as amended by this Amendment. Except as expressly provided in
this Amendment, the execution and delivery of this Amendment does not, and will
not, amend, modify or supplement any provision of or constitute a consent to or
a waiver of any noncompliance with the provisions of the Loan Agreement and,
except as specifically provided in this Amendment, the Loan Agreement shall
remain in full force and effect.
Section 4. Representations and Warranties. Each Borrower hereby makes
the following representations and warranties to the Lender, which
representations and warranties shall survive the delivery of this Amendment and
the making of Loans under the Loan Agreement as amended hereby:
9
<PAGE> 10
(a) Organization; Power; Qualification. Each Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted and is duly qualified and authorized to do business in each
jurisdiction in which failure to be so qualified and authorized would have a
Materially Adverse Effect.
(b) Authorization of Agreements. Each Borrower has the right and power
and has taken all necessary action to authorize it to execute, deliver and
perform this Amendment in accordance with its terms. This Amendment has been
duly executed and delivered by the duly authorized officers of each Borrower and
is a legal, valid and binding obligation of such Borrower, enforceable in
accordance with its terms.
(c) Compliance of Agreements with Laws. The execution and delivery of
this Amendment, and performance of the Loan Agreement as amended by this
Amendment in accordance with its terms, do not and will not, by the passage of
time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
applicable law relating to such Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (1) the articles of incorporation or by-laws or any
shareholders' agreement of such Borrower, (2) any indenture, agreement
or other instrument to which such Borrower is a party or by which any
of its property may be bound or (3) any Governmental Approval relating
to such Borrower, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by such Borrower other than the Security Interest.
(d) Effect of Failure to Deliver Financial Statements, Etc., Timely.
The Borrowers acknowledge that pursuant to the provisions of the Loan Agreement,
a consequence, among others, of the Borrowers' failure to deliver Collateral
reports provided in Section 7.14 of the Loan Agreement (as amended by this
Amendment) or financial statements or related certificates provided in Sections
9.1, 9.2, 9.3 and 9.4 of the Loan Agreement (as amended by this Amendment) in a
timely manner in accordance with said provisions is that the Lender may decline
to make Loans to the Borrowers at an interest rate determined with reference to
the Eurodollar Rate. The Borrowers further acknowledge that they understand that
it is the Lender's present intention to so decline to make Eurodollar Rate Loans
to the Borrowers in the event of such failure(s).
10
<PAGE> 11
(e) Merger. The merger, effective as of June 30, 1997, of InterKnit,
Inc. and Ridgeview, Inc. with Ridgeview, Inc. as the surviving entity, was duly
authorized by each such Person and was consummated in compliance with all
applicable laws. As a result of such merger, all assets, liabilities and
obligations formerly of InterKnit, Inc. have become assets, liabilities and
obligations of Ridgeview, Inc.
Section 5. General Provisions.
(a) Expenses. (i) The Borrowers agree to pay or reimburse on demand all
costs and expenses incurred by the Lender, including, without limitation, the
reasonable fees and disbursements of counsel, in connection with (a) the
negotiation, preparation, execution, delivery, administration, enforcement and
termination of this Amendment, the Loan Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including, without
limitation, the out-of-pocket costs and expenses incurred in connection with the
administration and interpretation of this Amendment, the Loan Agreement and the
other Loan Documents, (b) sums paid or obligations incurred in connection with
the payment of any amount or taking any action required of a Borrower under this
Amendment, the Loan Agreement and the other Loan Documents that such Borrower
fails to pay or take, and (c) any other obligations or expenses of the Borrowers
under Section 12.2 of the Loan Agreement.
(ii) The foregoing shall not be construed to limit any other provisions
of the Loan Documents regarding costs and expenses to be paid by the Borrowers.
The Borrowers hereby irrevocably authorize the Lender to charge to any account
of the Borrowers (or any individual Borrower) maintained with the Lender in the
amount of any costs and expenses owed by the Borrowers , as set forth in this
Section or otherwise, when such costs and expenses are due to the Lender and to
deem such amounts (but not in duplication) a request for a borrowing under the
Revolving Credit Facility pursuant to the provisions of Section 2A.2(a)(iii) of
the Loan Agreement.
(b) Governing Law. This Amendment shall be construed in accordance with
and governed by the law of the State of Georgia.
(c) Counterpart Execution. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
-------------------
Hugh R. Gaither
By: /s/ Doug Yoder President
--------------
Name: Doug Yoder
Title: Asst. Secretary
SENECA KNITTING MILLS
CORPORATION
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
-------------------
Hugh R. Gaither
By: /s/ Walter L. Bost, Jr. President
-----------------------
Name: Walter L. Bost, Jr.
Title: Secretary
NATIONSBANK, N.A.
By: /s/ Scott K. Goldstein
----------------------
Scott K. Goldstein
Vice President
12
<PAGE> 13
CONSENT AND CONFIRMATION
The undersigned, GPM Corporation, as the maker of the Subsidiary
Guaranty, hereby acknowledges receipt of the foregoing Amendment No. 3 and
confirms, for the benefit of the Borrowers and the Lender, that the Subsidiary
Guaranty remains in full force and effect, in accordance with its terms, as to
Secured Obligations of the Borrower under the Loan Agreement as amended by the
said Amendment No. 3 and is hereby in all respects ratified and confirmed.
Dated: As of July 31, 1997
GPM CORPORATION
By: /s/ Hugh R. Gaither
-------------------
Hugh R. Gaither
President
13
<PAGE> 14
CAPEX NOTE
$2,500,000.00 Atlanta, Georgia
July 31, 1997
FOR VALUE RECEIVED, the undersigned, RIDGEVIEW, INC., a North Carolina
corporation ("Ridgeview", for itself and as successor by merger to InterKnit,
Inc., an Alabama corporation) and SENECA KNITTING MILLS CORPORATION, a New York
corporation (collectively, the "Borrowers"), hereby jointly and severally
unconditionally promise to pay to the order of NATIONSBANK, N.A., a national
banking association (the "Lender"), at the offices of the Lender located at 600
Peachtree Street, N.E., Atlanta, Georgia, 30308, or at such other place within
the United States as shall be designated from time to time by the Lender, in
accordance with the terms of the Loan Agreement, as hereinafter defined, the
principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000.00), or such lesser principal amount as may then constitute the
aggregate principal balance of the CAPEX Loan made by the Lender to the
Borrowers pursuant to the Loan Agreement, in lawful money of the United States
of America in federal or other immediately available funds, in such amounts and
on the dates specified in the Loan Agreement applicable from time to time in
accordance with the provisions thereof.
The Borrowers also jointly and severally unconditionally promise to pay
interest on the unpaid principal amount of this Note outstanding from time to
time for each day from the date of disbursement until such principal amount is
paid in full at the rates per annum and on the dates specified in the Loan
Agreement applicable from time to time in accordance with the provisions
thereof. Nothing contained in this Note or in the Loan Agreement shall be deemed
to establish or require the payment of a rate of interest in excess of the
maximum rate permitted by any applicable law. In the event that any rate
of interest required to be paid hereunder exceeds the maximum rate permitted by
applicable law, the provisions of the Loan Agreement relating to the payment
of interest under such circumstances shall control.
This Note is the CAPEX Note referred to in that certain Amended and
Restated Loan and Security Agreement dated as of December 20, 1996 (as amended,
modified, supplemented or restated from time to time, the "Loan Agreement";
terms defined therein being used in this Note as therein defined) between the
Borrowers and the Lender, is subject to, and entitled to, all provisions and
benefits of the Loan Documents, is secured by the Collateral and other property
as provided in the Loan Documents, is subject to optional and mandatory
prepayment in whole or in part and is subject to acceleration prior to maturity
upon the occurrence of one or more Events of Default, all as provided in the
Loan Documents.
14
<PAGE> 15
Presentment for payment, demand, protest and notice of demand, notice of
dishonor, notice of non-payment and all other notices are hereby waived by the
Borrowers, except to the extent expressly provided in the Loan Agreement. No
failure to exercise, and no delay in exercising, any rights hereunder on the
part of the holder hereof shall operate as a waiver of such rights.
The Borrowers hereby jointly and severally agree to pay on demand all
costs and expenses incurred in collecting the Secured Obligations hereunder
or in enforcing or attempting to enforce any of the Lender's rights hereunder,
including, but not limited to, reasonable attorneys' fees and expenses if
collected by or through an attorney, whether or not suit is filed.
The provisions of Section 12.5 of the Loan Agreement are hereby expressly
incorporated by reference herein.
This Note shall be governed by, and construed in accordance with, the laws
of the State of Georgia without giving effect to the conflict of laws
principles thereof.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
15
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have executed this Note as of the
day and year first above written.
RIDGEVIEW, INC.
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
-------------------------------------
By: /s/ Doug Yoder Name: Hugh R. Gaither
------------------------------ Title: President and CEO
Name: Doug Yoder
Title: Asst. Secretary
SENECA KNITTING MILLS CORPORATION
[CORPORATE SEAL]
Attest: By: /s/ Hugh R. Gaither
-------------------------------------
By: /s/ Walter L. Bost, Jr. Name: Hugh R. Gaither
------------------------------ Title: President and CEO
Name: Walter L. Bost, Jr.
Title: Secretary
16
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,028
<SECURITIES> 0
<RECEIVABLES> 21,093,427
<ALLOWANCES> 690,084
<INVENTORY> 24,475,163
<CURRENT-ASSETS> 45,116,622
<PP&E> 24,242,988
<DEPRECIATION> 12,805,550
<TOTAL-ASSETS> 59,803,046
<CURRENT-LIABILITIES> 13,566,826
<BONDS> 22,520,597
0
0
<COMMON> 30,000
<OTHER-SE> 20,938,922
<TOTAL-LIABILITY-AND-EQUITY> 59,803,046
<SALES> 66,690,310
<TOTAL-REVENUES> 66,690,310
<CGS> 52,232,019
<TOTAL-COSTS> 52,232,019
<OTHER-EXPENSES> 10,160,974
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<INTEREST-EXPENSE> 1,361,455
<INCOME-PRETAX> 2,935,862
<INCOME-TAX> 1,038,911
<INCOME-CONTINUING> 1,896,951
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,896,951
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
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