<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File Number: 0-21469
RIDGEVIEW, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0377410
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(Address of principal executive offices) (Zip Code)
(828) 464-2972
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
As of May 12, 1999, the registrant had 3,000,000 shares of common stock,
$.01 par value per share, outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 317,323 $ 189,183
Accounts receivable (less allowance for doubtful
accounts of $691,432 and $564,112) 15,007,385 16,114,970
Inventories 27,493,813 27,678,728
Refundable income taxes 975,426 1,074,668
Deferred income taxes 425,287 75,925
Prepaid expenses 29,244 97,044
----------- -----------
Total current assets $44,248,478 $45,230,518
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation 14,414,501 14,763,127
OTHER ASSETS 2,100,267 1,408,366
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization 2,936,074 3,014,981
----------- -----------
Total assets $63,699,320 $64,416,992
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,015,806 $ 1,639,845
Accounts payable 8,426,386 6,883,130
Accrued expenses and other liabilities 2,772,165 1,309,269
Income taxes payable 49,277 88,408
Current portion of long-term debt 1,255,997 1,342,901
Current portion of deferred compensation 282,000 264,000
------------ ------------
Total current liabilities $ 13,801,631 $ 11,527,553
LONG-TERM DEBT, less current portion (Note 4) 32,188,242 32,830,218
DEFERRED COMPENSATION, less current portion 1,656,029 1,678,367
DEFERRED CREDIT 662,012 736,654
DEFERRED INCOME TAXES 533,074 571,327
------------ ------------
Total liabilities $ 48,840,988 $ 47,344,119
------------ ------------
SHAREHOLDERS' EQUITY (Note 5)
Common stock - authorized 20,000,000 shares of
$.01 par value; issued and outstanding
3,000,000 shares $ 30,000 $ 30,000
Additional paid-in capital 10,650,018 10,650,018
Retained earnings, including amounts reserved of
$811,920 and $854,367 4,538,610 6,494,395
Accumulated other comprehensive income (Note 6) (360,296) (101,540)
------------ ------------
Total shareholders' equity $ 14,858,332 $ 17,072,873
------------ ------------
Total liabilities and shareholders' equity $ 63,699,320 $ 64,416,992
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------- ------------
<S> <C> <C>
NET SALES $ 23,906,326 $ 20,338,426
COST OF SALES 20,113,996 16,191,986
------------ ------------
GROSS PROFIT $ 3,792,330 $ 4,146,440
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,386,273 3,616,914
LOSS FROM SHUT-DOWN OF SUBSIDIARY 917,000 --
------------ ------------
OPERATING INCOME (LOSS) $ (1,510,943) $ 529,526
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (789,479) $ (486,973)
Other, net 10,340 15,135
------------ ------------
Total other income (expense) $ (779,139) $ (471,838)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES $ (2,290,082) $ 57,688
BENEFIT FOR INCOME TAXES (334,279) (9,599)
------------ ------------
NET INCOME (LOSS) $ (1,955,803) $ 67,287
============ ============
EARNINGS PER SHARE $ (0.65) $ 0.02
============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,000,000 3,000,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 24,785,951 $ 20,451,105
Cash paid to suppliers and employees (21,188,615) (21,163,550)
Interest paid (970,609) (601,592)
Income taxes paid, net of refunds -- 19,660
Other cash disbursements (706,016) (248,115)
------------ ------------
Net cash provided by (used in) operating activities $ 1,920,711 $ (1,542,492)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ -- $ (6,452)
Payments for purchase of property, plant and
equipment (613,951) (1,278,179)
------------ ------------
Net cash used in investing activities $ (613,951) $ (1,284,631)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term payments $ (514,717) $ (367,188)
Proceeds from long-term debt 51,092,125 21,499,740
Repayments of long-term debt (51,755,563) (18,540,702)
------------ ------------
Net cash provided by (used in) financing activities $ (1,178,155) $ 2,591,850
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (466) $ (8,528)
------------ ------------
Net increase (decrease) in cash $ 128,139 $ (243,801)
CASH, beginning of period 189,184 481,674
------------ ------------
CASH, end of period $ 317,323 $ 237,873
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) $(1,955,803) $ 67,287
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization $ 615,006 $ 462,972
Provision for doubtful accounts receivable 236,404 89,192
Capital grants recognized (17,785) (18,375)
Increase (decrease) in deferred
compensation liability (14,076) 58,111
Decrease in deferred income taxes (174,775) (22,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 879,625 112,679
(Increase) decrease in inventories 38,102 (2,449,946)
Increase in prepaid expenses and
other assets (639,388) (763,166)
Increase in accounts payable 1,834,120 983,234
Increase (decrease) in income taxes
payable (159,504) 32,061
Increase (decrease) in accrued expenses
and other liabilities 1,278,785 (94,541)
----------- -----------
Total adjustments to net income $ 3,876,514 $(1,609,779)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 1,920,711 $(1,542,492)
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and March 31, 1998 is unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments consisting of normal
recurring accruals for the three months ended March 31, 1999, necessary to
present fairly the financial position of the Company as of March 31, 1999 and
the results of operations for the three months ended March 31, 1999 and 1998.
The financial statements are presented in condensed form as permitted by the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accounting policies
followed by the Company are set forth in the Company's audited financial
statements, which are included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission (the "Form 10-K"). The results of operations for the three months
ended March 31, 1999 are not indicative of the results to be expected for the
full year. The Company's net sales and profitability generally experience
stronger performance in the third and fourth quarters. These unaudited condensed
financial statements should be read in conjunction with the Company's audited
financial statements included in the Form 10-K.
NOTE 2 - EARNINGS PER SHARE
Earnings per share are calculated using the weighted average number of
shares outstanding of common stock and dilutive common stock equivalents during
each period presented. The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which requires the
presentation of: (1) "Basic Earnings per Share," computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period and (2) "Diluted Earnings per Share," which gives
effect to all dilutive potential common shares that were outstanding during the
period, by increasing the denominator to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. The options outstanding at March 31, 1999 and December 31, 1998
have not been included in diluted earnings per share due to their anti-dilutive
nature.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of March 31, 1999 and 1998 is unaudited)
NOTE 3 - INVENTORIES
A summary of inventories by major classification is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Raw Materials $ 3,351,296 $ 4,176,873
Work-in-process 9,861,922 10,151,902
Finished goods 14,485,595 13,554,953
(LIFO Reserve) (205,000) (205,000)
------------- --------------
Total inventories $ 27,493,813 $ 27,678,728
============= ==============
</TABLE>
NOTE 4 - LONG-TERM DEBT
On February 11, 1999, the Company entered into a $41.0 million senior
credit facility (the "Credit Facility") with BankBoston, N.A., which provides
the Company with a term credit facility of $6.0 million and a revolving credit
facility of $35.0 million. This Credit Facility fulfills the Company's
obligation under a forbearance agreement entered into in September 1998 to
replace its debt with NationsBank, N.A. The provisions of the Credit Facility
contain certain covenants which, among other things, require the maintenance of
minimum amounts of tangible net worth, as amended effective March 31, 1999,
fixed charge and minimum interest coverage ratios and Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA"), calculated on quarterly and
annual periods. At the option of the Company, borrowings under the Credit
Facility bear interest based on the bank's prime rate or the London InterBank
Offered Rate ("LIBOR") plus a margin adjustment (9.75% at May 12, 1999) that
varies based on achievement of an interest coverage ratio, calculated quarterly.
At March 31, 1999, the Company was not in compliance with the minimum EBITDA
covenant; however, the Company's lender has agreed to waive the covenant
violation. This facility is collateralized by substantially all assets of the
Company.
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of March 31, 1999 and 1998 is unaudited)
NOTE 5 - CAPITAL STOCK
The Company has an Omnibus Stock Plan (the "Omnibus Plan") which
permits the issuance of options, stock appreciation rights ("SARS"), limited
SARS, restricted stock, performance awards and other stock-based awards to
selected employees and independent contractors of the Company. The Company has
reserved 230,000 shares of common stock for issuance under the Omnibus Plan,
which provides that the term of each award shall be determined by a committee of
the board of directors charged with administering the Plan, but no longer than
ten years after the date they are granted. Under the terms of the Plan, options
granted may be either nonqualified or incentive stock options. SARS and limited
SARS granted in tandem with an option shall be exercisable only to the extent
the underlying option is exercisable.
The board has also authorized an employee stock purchase plan that will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85 percent of the market value of the shares at the time
of purchase. The Company has reserved 75,000 shares for issuance under this
plan. The board of directors has not yet activated the employee stock purchase
plan.
The Company also has an Outside Directors' Stock Option Plan (the
"Directors' Plan"), which provides that each outside director, at the time of
initial election, shall automatically be granted an option to purchase 500
shares of common stock at the fair market value on the date of election. On each
anniversary date of an outside director's election, an option to purchase 500
additional shares of common stock will automatically be granted, provided that
the director shall have continuously served and the number of shares of common
stock available under the Directors' Plan is sufficient to permit such grant.
Options granted under the Directors' Plan will be nonqualified stock options,
will vest in increments of 33 1/3% on each anniversary of the option grant and
will expire ten years after the date they are granted. The Company has reserved
15,000 shares for issuance under this plan. In November 1996, options to
purchase 500 shares each were granted to the Company's three new members of the
board of directors at an exercise price of $8.00 per share. Additional grants
totaling 4,000 shares were granted in May 1997 and May 1998 to the outside
directors. All of such options are outstanding and unexercised.
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of March 31, 1999 and 1998 is unaudited)
NOTE 6 - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires that all components of comprehensive income and total
comprehensive income be reported on one of the following: a statement of income
and comprehensive income, a statement of comprehensive income or a statement of
stockholders' equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity, except those due to investments by owners
(changes in paid in capital) and distributions to owners (dividends). For
interim reporting purposes, SFAS No. 130 requires disclosure of total
comprehensive income.
Total comprehensive income is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1998 1999
-------------- ------------
<S> <C> <C>
Net income (loss) $ 361,500 $ (1,955,803)
Other comprehensive income (loss), net of tax (172,443) (258,756)
-------------- ------------
Comprehensive income (loss) $ 189,057 $ (2,214,559)
============== ============
</TABLE>
Accumulated other comprehensive income consist solely of foreign
currency translation adjustments, and is presented below as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1998 1999
-------------- -----------
<S> <C> <C>
Beginning balance $ 227,104 $ (101,540)
Current period change, net of taxes (172,443) (258,756)
-------------- -----------
Ending balance $ 54,661 $ (360,296)
============== ===========
</TABLE>
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
the Company's consolidated financial condition as of March 31, 1999 and its
results of operations for the three months then ended. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K, and the unaudited
interim consolidated financial statements and notes thereto included elsewhere
in this report. The results of operations for the three months ended March 31,
1999 are not indicative of results expected for the year ending December 31,
1999. See discussion of the $1.3 million charge taken in the first quarter and
"Seasonality" in discussion below.
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales for the three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 83.5 79.6
------ ------
Gross profit 16.5 20.4
Selling, general and administrative expenses 19.0 17.8
Loss from shut-down of subsidiary (4.0) 0.0
------ ------
Operating income (loss) (6.5) 2.6
Interest expense (3.4) (2.4)
Other income, net 0.0 0.1
------ ------
Income (loss) before income taxes (9.9) 0.3
Income tax expense (benefit) (1.4) 0.0
------ ------
Net income (loss) (8.5)% 0.3%
====== ======
</TABLE>
11
<PAGE> 12
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
1998
Net sales for the three months ended March 31, 1999 were $23.9 million,
compared to $20.3 million for the same period in 1998, an increase of 17.7%. The
acquisition of Tri-Star Hosiery Mills, Inc. ("Tri-Star") in July 1998 added
approximately $2.4 million in revenues for the quarter ended March 31, 1999.
Sales of women's hosiery products, which includes tights, trouser socks and
sheer hosiery, increased 20.0%, from $8.0 million in 1998 to $9.6 million in
1999. Sales of seasonal and discontinued women's hosiery products during the
quarter, as well as the roll-out of a new program for Evan-Picone sheer hosiery
products, account for the increase in sales of women's hosiery products. Net
sales of sports specific and active sports socks increased by approximately
$700,000, primarily the result of new sports specific and active sports sock
programs with department store and sporting goods customers during the first
quarter of 1999. The increase in revenues in the sock product category were
offset by reductions in net sales from the Company's subsidiary in the Republic
of Ireland whose net sales decreased by approximately $264,000 in the first
quarter of 1999. Net sales of rugged outdoor and heavyweight casual socks,
however, decreased from $1.6 million in 1998, to $772,000 for the same period in
1999, a decrease of approximately 52%. In January 1999, the Company announced
plans to relocate the manufacturing operations located in Seneca Falls to its
manufacturing facility located in Ft. Payne.
Gross profit for the quarter ended March 31, 1999 was $3.8 million, a
decrease of $400,000, or 9.9%, from the same period in the prior year. As a
percentage of net sales, gross profit decreased to 16.5% for the three months
ended March 31, 1999, compared to 20.4% during the same period in 1998. Gross
profit decreased primarily as the result of an increase in the volume of sales
of seasonal and closeout goods to discount retailers. During the first three
months of 1999, the Company made a concerted effort to dispose of excess
seasonal and discontinued inventory in each of its product lines. Sales of these
products through discount retail channels generally carry lower gross profit
margins than sales to department stores and national chain stores. Also
affecting gross profit for the quarter were manufacturing inefficiencies of
approximately $380,000 at the Company's manufacturing operation in Seneca Falls
resulting from the loss of personnel and productivity after the announcement in
January 1999 of plans to relocate the manufacturing operations there to Ft.
Payne.
Selling, general and administrative expenses for the three months ended
March 31, 1999 and 1998 were $4.4 million and $3.7 million, respectively. As a
percentage of net sales, selling, general and administrative expenses increased
to 19.0% for the first quarter of 1999, compared to 17.8% for the quarter ended
March 31, 1998. The acquisition of Tri-Star added approximately $270,000 of
selling, general and administrative expenses for the quarter ended March 31,
1999. Increased advertising and markdown allowances associated with the
introduction of new sport specific and active sports sock programs also
contributed to the increase in these expenses for the quarter.
12
<PAGE> 13
Operating loss for the three months ended March 31,1999 was $1.5
million, compared to operating income of $530,000 for the same period in 1998.
Pursuant to the Company's previously announced plans to relocate the
manufacturing of its rugged outdoor and heavyweight casual socks to Ft. Payne,
approximately $1.3 million of charges associated with the shut-down and
relocation of the Seneca Falls operations were recorded during the first
quarter. The $1.3 million charge taken in the first quarter included employee
severance and benefits of approximately $370,000, legal fees of approximately
$100,000, moving and relocation costs of $247,000 and approximately $200,000 for
the accrual of a contingent liability with respect to the currently under-funded
status of the multi-employer, defined-benefit pension plan the Company has been
contributing to for its employees at Seneca Falls. In addition to the costs
outlined above, manufacturing inefficiencies of approximately $380,000 resulting
from the loss of personnel and productivity associated with the announcement of
the relocation have been recognized as a component of cost of goods sold during
the first quarter. The results of operations for the quarter ended March 31,
1999 were also negatively impacted by the sales of seasonal and closeout goods
to discount retailers during the quarter.
Interest expense for the quarter ended March 31, 1999 increased 62.0%
to $789,000 from $487,000 for the three months ended March 31, 1998. Increased
borrowings associated with the Tri-Star acquisition and an increase in the
Company's effective interest rate on its bank loans account for the increase in
interest expense.
Income tax benefit for the three months ended March 31, 1999 and 1998
was $334,000 and $10,000, respectively. The income tax benefit for the quarter
ended March 31, 1999 is the result of the operating loss incurred.
Net loss for the three months ended March 31, 1999 was $2.0 million,
compared to net income of $67,000 for the three months ended March 31, 1998. The
net loss for the quarter ended March 31, 1999 is attributable primarily to the
charge taken during the quarter for costs associated with the shut-down and
relocation of the manufacturing operations in Seneca Falls. Also contributing to
the net loss are the increased volume of sales of seasonal and closeout goods to
discount retailers during the quarter and the increase in selling, general and
administrative expenses incurred for the period.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the three months ended
March 31, 1999 and 1998 were $1.9 million and $(1.5) million, respectively. The
operating cash flow generated during the first three months of 1999 was
primarily the result of a $880,000 reduction in accounts receivable and a $1.8
million increase in accounts payable since December 31, 1998.
The Company obtains working capital and, on a temporary basis, finances
its capital expenditures for equipment modernization, through borrowings under
the Company's revolving credit facility. On February 11, 1999, the Company
obtained a $41.0 million senior credit facility (the "Credit Facility") with
BankBoston, N.A. ("BankBoston"). The Credit Facility provides the Company with a
revolving line of credit of up to $35.0 million and a term loan facility of $6.0
million. At the option of the Company, funds borrowed under the Credit Facility
with BankBoston, bear interest at a rate based on the bank's prime rate or
London Interbank Offered Rates ("LIBOR"), plus a margin adjustment based on the
Company's achievement of an interest coverage ratio, calculated quarterly (9.75%
as of May 12, 1999). As of May 12, 1999, $22.4 million was outstanding under the
revolving credit line, and there was approximately $1.1 million available for
additional borrowings, based on the Company's collateral availability.
As of May 12, 1999, the term loan with BankBoston had an outstanding
principal balance of $6.0 million, and bears interest at the same prime based or
LIBOR-based rate applicable to the revolving line of credit (9.75% at May 12,
1999).
14
<PAGE> 15
The Company also has approximately $4.2 million outstanding in notes
payable to banks and other finance companies with rates of interest ranging from
6.9% to 12.5% and payable in monthly installments through 2004.
Management believes that the newly secured Credit Facility, other
financing arrangements described herein and anticipated cash flows from
operations, will be adequate to fund the Company's working capital requirements
and planned capital expenditures for a period of at least 24 months. There can
be no assurance, however, that acquisitions, adverse economic or competitive
conditions or other factors will not result in the need for additional financing
or have an adverse impact on the availability and reasonableness of such
additional financing, if required.
YEAR 2000 COMPLIANCE
For some time, the Company's Year 2000 Project team has been reviewing and
assessing the Company's management information system and its compliance with
the Year 2000. The project team, selected by executive management and comprised
of senior managers from relevant functional areas, has been managing the
implementation of the Company's new enterprise-wide management information
system. Once completed, the system will link each of the Company's facilities
electronically and provide operational improvements in manufacturing,
forecasting, planning, distribution and financial reporting. Additionally, the
new system will address the issues regarding Year 2000 compliance and date
driven applications. The Company's suppliers and customers are being informed of
the Company's Year 2000 compliance plan, and have been asked to provide the
Company with their Year 2000 compliance plans.
Because the Company's Year 2000 compliance plan involves a complete
overhaul of its management information system, the expected total cost of the
project is expected to be approximately $3.1 million. Approximately $2.1 million
had been disbursed as of May 12, 1999. An additional $1.0 is expected to be
expended over the next six months. As of May 12, 1999, the project was
approximately 75% complete. Management expects the Company's new management
information system to become operational at its locations in Newton, North
Carolina and Ft. Payne, Alabama just after the end of the second quarter of
1999. Outside locations at the Seneca Falls, New York distribution facility and
the Mebane, North Carolina finishing and distribution facility are currently
completing Year 2000 conversions and are expected to become electronically
linked to the Company's new information system in the latter part of 1999. The
Company's operation in the Republic of Ireland is upgrading its information
system as well, and upon completion, will be Year 2000 compliant. Financing of
the project has been provided under the Credit Facility, a leasing arrangement
for certain hardware and additional term loans of approximately $470,000.
Although significant resources are being directed towards reducing
interruptions that may be caused by the Year 2000 issue, no assurance can be
given that the internal systems of the Company's suppliers and customers will be
corrected and that there would be no material adverse impact on the Company's
operations as a result of their failure to achieve full Year 2000 compliance.
Although management expects the Company's internal systems to be Year 2000
compliant as described above, a contingency plan will be developed during 1999.
15
<PAGE> 16
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 June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of any gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized as income
(loss) in the period of change. SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. Historically, the
Company has not entered into derivative contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company does not expect the
adoption of the new standard on January 1, 2000, to affect its financial
statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
Exhibit No. Description
----------- -----------
10 Amendment No. 1 and Waiver to Loan and Security
Agreement
27 Financial Data Schedule
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDGEVIEW, INC.
Date: May 17, 1999 By: /s/ P. Douglas Yoder
-------------------------
P. Douglas Yoder
Corporate Controller
and Chief Accounting Officer
<PAGE> 1
AMENDMENT NO. 1 AND WAIVER
to
LOAN AND SECURITY AGREEMENT
This AMENDMENT NO. 1 entered into as of May __, 1999 by and among
RIDGEVIEW, INC., a North Carolina corporation, SENECA KNITTING MILLS
CORPORATION, a New York corporation, and TRI-STAR HOSIERY MILLS, INC., a North
Carolina corporation (the "Borrowers"), the financial institutions party thereto
from time to time (the "Lenders") and BANKBOSTON, N.A., a national banking
association (the "Agent").
Preliminary Statement
The Borrowers, the Lenders and the Agent are parties to the Loan and
Security Agreement dated as of February 11, 1999 (the "Loan Agreement"; terms
defined therein, unless otherwise defined herein, being used herein as therein
defined). The Borrowers have requested that the Lenders waive compliance and the
effect of non-compliance by the Borrowers with certain financial covenant of the
Loan Agreement and modify one such financial covenant, and the Lenders have
agreed, upon and subject to the terms and conditions of this Amendment, to such
requests.
Statement of Agreement
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 3 hereof, the Loan Agreement is hereby amended by
(a) amending subsection (a) of Section 12.1 Financial Ratios in its
entirety to read as follows:
(a) Minimum Tangible Net Worth. Permit Tangible Net Worth (i)
from the Effective Date through the end of the first Fiscal Quarter of
Fiscal Year 1999 to be less than $8,150,000, (ii) during the second
Fiscal Quarter of Fiscal Year 1999 to be less than $7,900,000, (iii)
during the third Fiscal Quarter of Fiscal Year 1999 to be less than
$8,900,000, and (iv) at any time thereafter to be less than $9,400,000,
PLUS, from and after the delivery of Ridgeview's financial statements
referred to in SECTION 11.1(A) for each Fiscal Year beginning with
Fiscal Year 1999, an amount equal to 100%, on a cumulative basis, of
consolidated Net Income (but without deduction for any Net Loss) of
Ridgeview and its Consolidated Subsidiaries for such Fiscal Year.
<PAGE> 2
Section 2. Waiver. Subject to the provisions of SECTION 3, the Lenders
hereby waive compliance and the effect of non-compliance by the Borrowers with
the provisions of Section 12.1(a) of the Loan Agreement to the extent that
Tangible Net Worth was not less than $8,150,000 during the period from the
Effective Date through March 31, 1999 and Section 12.1(d) of the Loan Agreement
to the extent that EBITDA was not less than ($150,000) for the Fiscal Quarter
ended March 31, 1999.
Section 3. Conditions to Effectiveness. The provisions of SECTIONS 1
AND 2 shall become effective as of March 31, 1999 on the date on which the Agent
shall have received six copies of this Amendment duly executed by the Borrowers
and the Lenders.
Section 4. Effect of Amendment. Upon and after the effectiveness of
this Amendment as provided in SECTION 3 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 5. General Provisions.
(a) Governing Law. This Amendment shall be construed in accordance
with and governed by the law of the State of Georgia.
(b) 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.
<PAGE> 3
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.
[Corporate Seal] BORROWERS:
Attest: RIDGEVIEW, INC.
By: By:
-------------------------- ---------------------------------
Name: Name:
-------------------- -------------------------------
Title: Title:
------------------ ------------------------------
[Corporate Seal]
Attest: SENECA KNITTING MILLS
CORPORATION
By: By:
-------------------------- ---------------------------------
Name: Name:
-------------------- -------------------------------
Title: Title:
------------------ ------------------------------
[Corporate Seal]
Attest: TRI-STAR HOSIERY MILLS, INC.
By: By:
-------------------------- ---------------------------------
Name: Name:
-------------------- -------------------------------
Title: Title:
------------------ ------------------------------
AGENT:
BANKBOSTON, N.A.
By:
--------------------------------
Name:
-------------------------
Title:
------------------------
3
<PAGE> 4
CO-AGENT:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
LENDERS:
BANKBOSTON, N.A.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
CITIZENS BUSINESS CREDIT, a Division of Citizens
Leasing Corporation, a Rhode Island corporation
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 317,323
<SECURITIES> 0
<RECEIVABLES> 15,698,817
<ALLOWANCES> 691,432
<INVENTORY> 27,493,813
<CURRENT-ASSETS> 44,248,478
<PP&E> 29,301,910
<DEPRECIATION> 14,887,409
<TOTAL-ASSETS> 63,699,320
<CURRENT-LIABILITIES> 13,801,631
<BONDS> 32,188,242
0
0
<COMMON> 30,000
<OTHER-SE> 14,828,332
<TOTAL-LIABILITY-AND-EQUITY> 63,699,320
<SALES> 23,906,326
<TOTAL-REVENUES> 23,906,326
<CGS> 20,113,996
<TOTAL-COSTS> 20,113,996
<OTHER-EXPENSES> 5,303,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 789,479
<INCOME-PRETAX> (2,290,082)
<INCOME-TAX> (334,279)
<INCOME-CONTINUING> (1,955,803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,955,803)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
