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EXHIBIT 13.2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Ridgeview derives its revenue from the manufacture and sale of sports,
rugged outdoor and heavyweight casual socks and women's hosiery products. The
Company has manufacturing facilities in Newton, North Carolina, Ft. Payne,
Alabama and the Republic of Ireland and finishing and distribution facilities in
each of the aforementioned locations, Mebane, North Carolina and Seneca Falls,
New York. Management believes the Company is one of the leading vendors of
sports socks to sporting goods and active apparel stores. Ridgeview also sells
its products to department stores, discount stores and a variety of other
retailers. In addition, the Company produces sports socks for sale by others
under such widely-recognized brand names as adidas, ASICS, Bass, Brooks, Fila,
Head Sportswear, IZOD, New Balance and Reebok and women's hosiery products for
sale under the Liz Claiborne and Elisabeth brand names. Under license
agreements, the Company produces and sells socks and women's hosiery directly to
retailers under the brand names Coleman, Ellen Tracy, Evan-Picone, Rockport and
Woolrich.
RESULTS OF OPERATIONS
INDUSTRY AND BUSINESS TRENDS
Management believes that Ridgeview's recent operating results have
been, and its future operating results may be, affected by certain industry and
business trends. The impact of these trends on historical operating results can
be difficult to identify and measure and, with respect to future operating
results, difficult to predict. The following discussion of such trends includes
forward-looking statements that are subject to inherent risks and uncertainties.
Accordingly, the Company's performance in future periods may differ materially
from those suggested by such statements.
Pricing Pressure Resulting from Competitive Market Conditions.
Increasing consolidation among retailers and overcapacity in certain segments of
the industry have resulted in increasing competition in the sock and women's
hosiery manufacturing industry. Manufacturers in this industry compete on the
basis of price, quality and service. Ridgeview faces competition in both its
sock and women's hosiery businesses from a large number of manufacturers, many
of whom have substantially greater market share and financial and other
resources than the Company. During 1998, pricing pressures resulting from
competitive market conditions contributed to declining margins in the Company's
rugged outdoor and heavyweight casual sock and multi-pair pack sock and women's
hosiery product categories. Ridgeview attempted to adjust to these pricing
pressures by taking certain steps to reduce costs and increase operating
efficiencies, including the following:
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- the acquisition of Tri-Star Hosiery Mills, Inc. ("Tri-Star")
and the transition of a substantial portion of its knitting
and finishing requirements from independent manufacturers to
excess capacity at the Company's Ft. Payne facility;
- a decision to discontinue manufacturing operations in Seneca
Falls and redeploy a portion of its knitting machinery and
equipment to vacant manufacturing space in the Company's Ft.
Payne facility;
- the addition of a new operations manager for the women's
hosiery division and the implementation of an efficiency plan
that included elimination of all temporary labor, unnecessary
overtime, simplification of outsourcing procedures and
reduction of greige goods inventory; and
- implementation of an inventory reduction plan on a
division-by-division basis.
The highly competitive conditions in the industry are expected to continue for
the foreseeable future. While management believes that the steps taken by the
Company to reduce costs and improve operating efficiencies, including those
listed above, will improve the margins during 1999, no assurance can be given
that this will occur or that these efforts will not be offset by further pricing
pressure resulting from competitive conditions in the industry.
Fashion Trends and the Retail Product Cycle. Ridgeview's success
depends in part on its ability to anticipate and respond to changing customer
demands and fashion trends. For example, the trend toward more casual dress and
active wear had a favorable impact on sales of the Company's rugged outdoor and
heavyweight casual socks in 1995 and 1996 because socks typically are an
integral part of a more casual, sports-oriented wardrobe. Women's hosiery
products continue to be affected by the trend toward more casual dress, which
has contributed to a shift from traditional sheer products to more durable,
heavyweight products such as tights and trouser socks. While the Company
attempts to mitigate the risk of changing fashion trends and product acceptance
by closely monitoring retail sales trends, there can be no assurance that the
Company will be able to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner and thereby avoid any adverse
impact on its results of operations in future periods. Failure to make such
adjustments could result in excess finished goods inventory, higher levels of
retailer charge-backs and lost sales opportunities.
Impact of Licensed Brands. As the market for socks and women's hosiery
products has become more fashion conscious, association with brand names has
become an increasingly important marketing tool. The Company has responded to
this trend by entering into certain licensing agreements to use designer brand
names such as Ellen Tracy and Evan-Picone in its women's hosiery product lines
and Coleman, Rockport and Woolrich in its sports sock and rugged outdoor and
heavyweight casual product lines.
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Because many of these licensing agreements typically involve higher margin
products, most of them have had a positive impact on the Company's revenue and
gross profit margins. Licensing agreements also tend to result in higher
selling, general and administrative costs due to royalty payments, cooperative
advertising and marketing requirements imposed by licensors. Management expects
to continue to pursue licensing arrangements for brand names that complement the
Company's existing product lines.
Sales to Large Retailers. Sock and women's hosiery manufacturers have
been affected by the trend toward consolidation of apparel retailers into large
regional or national chains. This trend has been particularly prevalent among
the sporting goods retailers and discount department stores where the bulk of
the Company's products are sold. The centralized purchasing departments for
these chains have the leverage to demand preferential pricing and tend to favor
vendors who can supply a variety of related products in large quantities,
accommodate strict packaging and shipping requirements and maintain substantial
finished goods inventories managed by computerized information networks that are
compatible with electronic ordering systems. These chains also expect
manufacturers to play a significant role in the marketing and managing of their
product lines. In order to maintain and increase sales to such retailers,
Ridgeview has modernized and expanded its production facilities, developed
outsourcing relationships with other manufacturers, updated its information
systems and hired key sales people who are familiar with the preferences and
practices of such retailers. Implementation of this strategy has resulted in
substantial increases in revenues over the last five years, narrower gross
profit margins on higher production volumes and increased selling, general and
administrative expenses. This trend also has lead to more volatility in
revenues, because the acquisition or loss of a single customer's business can
have a material impact on the Company's operating results for the affected
period. Moreover, in recent periods a number of large retailers, including
certain of Ridgeview's customers, have adopted the aggressive practice of
classifying items of slow moving inventory as either outdated, damaged or
otherwise unwanted and subsequently taking the position that the Company should
either take them back or give credits to the retailer in amounts which reflect
the markdowns made by the retailer to sell the merchandise. The claims retailers
make to justify these unauthorized deductions are typically vague and difficult
for Ridgeview to challenge. Disputes regarding the legitimacy of the claims are
not easily resolved, and any delay in resolving them tends to benefit the
retailer and hurts the Company, which is incurring financing costs in connection
with the unpaid portion of the accounts receivable it created when it initially
made the sale. In response to this trend, the Company has expanded its staff to
manage the increased volume of deductions. No assurance can be given that
additional steps will not be required in order to effectively administer its
accounts receivable in response to this trend, which is expected to continue for
the foreseeable future.
Revised Evan-Picone Women's Hosiery Program. Ridgeview holds a license
to manufacture and sell women's sheer hosiery and medium-weight tights under the
Evan-Picone brand name, a widely-recognized and established brand of women's
hosiery.
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The initial term of the license agreement ends December 31, 1999, but the
license is renewable at the Company's option for another three years, provided
the Company has satisfied certain minimum annual sales thresholds. Under the
license agreement, the Company is required to pay royalties on sales of
Evan-Picone products, meet certain minimum sales requirements and guaranty
certain amounts of minimum royalty payments and advertising expenditures. To
date, the Company has not achieved the minimum sales amounts provided under the
agreement and, therefore, the licensor has the right to terminate the agreement
but has not exercised its right to do so. However, the licensor has revised the
guaranteed minimum royalty amount for the annual period ending December 31, 1999
to $400,000. Additionally, the licensor has offered the Company the option of
renewing the license agreement for either a one-year or three-year period, which
the Company is currently evaluating. In order to rebuild the sales volume of
Evan-Picone products, the Company developed a series of marketing initiatives
aimed at re-establishing the brand as a significant competitor in the sheer
hosiery marketplace. All of these efforts were designed to prepare the hosiery
marketplace for the introduction of a new Evan-Picone women's hosiery program,
which took place in July 1998. Although management expects the revised
Evan-Picone program to approach a break-even point in 1999 and become profitable
in 2000, no assurance can be given that the revised program will obtain these
goals or that the license agreement can be renegotiated on terms favorable to
the Company.
Relocation of Seneca Operations. In January 1999, Ridgeview announced
its intentions to discontinue manufacturing operations in Seneca Falls, New York
and relocate certain knitting machinery and other equipment located there to the
Company's facility in Ft. Payne, Alabama. The distribution of rugged outdoor and
heavyweight casual socks is expected to be managed at its current location in
Seneca Falls. Management expects the consolidation of these two manufacturing
operations will eliminate a significant amount of overhead expense and allow the
rugged outdoor and heavyweight casual sock product category to return to
profitability during the year 2000. While $1.6 million in charges associated
with the estimated reduction of the carrying value of certain long-lived assets
associated with the Seneca Falls operation were recorded in the fourth quarter
of 1998, management estimates that approximately $400,000 in expenses associated
with employee severance arrangements and relocation of equipment will be
incurred during the first half of 1999 and an unfunded pension plan liability in
connection with the union's employee benefit plan, may be incurred in future
periods as a result of discontinuing operations in Seneca Falls.
Industry Consolidation. Management believes a trend toward
consolidation in the sock and women's hosiery industry has developed in recent
years, due in part to powerful incentives for manufacturers to become low cost,
high volume producers. Smaller companies that have not modernized their
production facilities, focused on profitable niche markets and developed
effective channels of distribution are finding it increasingly difficult to
survive as independent manufacturers. This consolidation trend periodically
creates attractive acquisition opportunities for manufacturers, such as
Ridgeview, that
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may have the commitment and resources to remain independent. While any future
acquisitions by the Company will be designed to contribute to the Company's
long-term profitability by expanding capacity and adding complementary product
lines, they may initially have a negative impact on the Company's gross profit
and selling, general and administrative expenses as the operations of the
acquired company are integrated into the Company's existing operations. To the
extent any future acquisitions are financed by or involve the assumption of
additional debt, interest expense also will increase.
RESULTS OF OPERATIONS AS A PERCENTAGE OF NET SALES
The following table presents the Company's results of operations as a
percentage of net sales for the periods indicated.
Year Ended December 31,
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1996 1997 1998
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Net sales 100.0% 100.0% 100.0%
Cost of goods sold 79.8 79.3 84.0
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Gross profit 20.2 20.7 16.0
Selling, general and administrative expenses 13.8 14.9 17.0
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Operating income (loss) before loss from
impairment 6.4 5.8 (1.0)
Loss from impairment of assets 0.0 0.0 (1.7)
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Operating income (loss) 6.4 5.8 (2.7)
Interest expense (2.9) (2.0) (2.7)
Other income, net 0.1 0.0 0.0
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Income (loss) before income taxes 3.6 3.8 (5.4)
Provision (benefit) for income taxes 1.3 1.4 (1.1)
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Net income (loss) 2.3% 2.4% (4.3)%
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COMPARISON OF 1998 TO 1997
Net sales for 1998 were $97.8 million, compared to $91.5 million in
1997, an increase of $6.3 million, or 6.9%. The acquisition of Tri-Star in July
1998, provided revenues of $6.8 million for the year ended December 31, 1998.
Sales of sport specific and active sports socks increased $4.1 million, or
22.4%, in 1998, while net sales of women's hosiery, sports promotional and
rugged outdoor and heavyweight casual sock product categories decreased $4.6
million for the same period. Net sales for the year were adversely impacted by a
one-time charge of $900,000 recorded by the Company during the second quarter
relating to the re-launch of the Evan-Picone women's hosiery program.
Gross profit for 1998 decreased to $15.7 million from $18.9 million in
1997, a decrease of $3.2 million, or 16.9%. As a percentage of net sales, gross
profit decreased to 16.0% in 1998, compared to 20.7% in 1997. Gross profit
margins have declined in each of the Company's product categories. Although the
Company had planned to accept certain sales programs in 1998 at lower margins
than historically had been achieved, other
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circumstances magnified the decline in margins. The Company's women's hosiery
operation failed to manufacture at budgeted levels of production for the
majority of the year, resulting in greater than expected negative manufacturing
variances and poor shipping execution. Although the Company took measures to
improve the execution of its manufacturing plan during the latter part of 1998,
the operational issues, nevertheless, negatively impacted the results of
operations. Additionally, the gross profit margin for the rugged outdoor and
heavyweight casual sock product category fell from 15.9% in 1997, to 10.4% in
1998. The Company's mix of products sold in the rugged outdoor and heavyweight
casual sock product category included a higher concentration of items with lower
margins, resulting in the decline of gross profit in 1998. Gross profit also was
adversely affected by the charge taken during the second quarter relating to the
Evan-Picone re-launch.
Selling, general and administrative expenses for 1998 were $16.7
million, compared to $13.6 million in 1997, an increase of $3.1 million, or
22.8%. As a percentage of net sales, selling, general and administrative
expenses increased from 14.9% for 1997, compared to 17.0% for 1998. During the
year, the Company recorded charges of approximately $1.1 million to selling,
general and administrative expenses for the write-off of accumulated customer
chargebacks deemed to be uncollectible and to expense costs associated with the
implementation of its management information system. The acquisition of Tri-Star
in July 1998 added approximately $600,000 of selling, general and administrative
expenses.
Operating loss for 1998 was $2.6 million, compared to operating income
of $5.3 million in 1997. In December 1998, management began to assess the
viability of its rugged outdoor and heavyweight casual sock manufacturing
operations in Seneca Falls, New York. The Company announced in January 1999, its
intention to shutdown and relocate substantially all of its manufacturing
operations in Seneca Falls to its facility in Ft. Payne, Alabama. In connection
with the shutdown, the Company determined that the projected future cash flows
provided by certain long-lived assets were less than the net book value of such
assets. Accordingly, the Company adjusted the carrying amount of these assets by
approximately $1.6 million. Without regard to the impairment loss, the Company
would have shown an operating loss of $1.0 million, primarily the result of a
general decline in gross profit margins and increased selling, general and
administrative expenses.
Interest expense increased from $1.9 million in 1997 to $2.6 million in
1998, an increase of $700,000, or 36.8%. The funding of the Tri-Star acquisition
with new and assumed debt in July 1998 and an increase in average borrowings for
the year account for the increase in interest expense.
Income tax expense (benefit) for the year ended December 31, 1998 was
$(1.1) million, compared to income tax expense of $1.3 million for the same
period in 1997. The income tax benefit for 1998 is the result of the operating
loss incurred to date. The effective tax rate for 1998 differed from the federal
statutory rate due to the increase in the deferred tax valuation allowance and
the nondeductibility of the write-down of goodwill attributable to the Seneca
impairment.
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Net loss for 1998 was $(4.2) million, compared to net income of $2.2
million for 1997, a decrease in earnings of $6.4 million for the year. The
erosion of gross profit margins, increased selling, general and administrative
expenses, costs associated with the relaunch of the Evan-Picone women's hosiery
program and the write-down of certain long-lived assets at the Seneca Falls
facility negatively impacted the Company's profitability for the year.
COMPARISON OF 1997 TO 1996
Net sales for 1997 were $91.5 million, compared to $76.8 million in
1996, an increase of $14.7 million, or 19.1%. Revenues increased in each of the
Company's operating divisions for the year ended December 31, 1997. Net sales of
women's hosiery products, which include sales of tights and trouser socks under
the Ellen Tracy brand name and sales of sheer pantyhose under the Evan-Picone
brand name, accounted for $9.4 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. Revenues for the
Company's sports sock product categories increased approximately 8.4% in 1997,
while sales of rugged outdoor and heavyweight casual socks increased 14.1%.
Gross profit for 1997 increased to $18.9 million from $15.5 million in
1996, an increase of $3.4 million, or 21.9%. As a percentage of net sales, gross
profit increased to 20.7% in 1997, compared to 20.2% in 1996. Approximately 65%
of the $3.4 million increase in gross profit resulted from the increase in sales
volume of women's hosiery products, which includes tights, trouser socks and
sheer pantyhose. Selected price increases and improved operational efficiencies
in knitting for the Company's sports sock operation in Newton, North Carolina
also contributed to the increase in gross profit. Gross profit for each of the
Company's other operating divisions remained flat.
Selling, general and administrative expenses for 1997 were $13.6
million, compared to $10.6 million in 1996, an increase of $3.0 million, or
28.3%. Selling expenses associated with the Evan-Picone women's hosiery program,
including royalty payments, cooperative advertising and mark-down allowances
accounted for $2.0 million of the $3.0 million increase.
Operating income for 1997 was $5.3 million, compared to $4.9 million in
1996. Increased profitability in the women's hosiery division, primarily
associated with the increase in sales of tights and trouser socks under the
licensed Ellen Tracy brand name, as well as the profitability associated with
the sales of sports specific and active sports socks contributed to the increase
in operating income for 1997.
Interest expense decreased from $2.2 million in 1996, to $1.9 million
in 1997. Although total debt at December 31, 1997 was $4.9 million higher than
the same period in 1996, interest expense decreased as a result of a reduction
in the interest rate charged by the Company's primary lender.
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Other income for 1997 was $103,000, compared to $108,000 for 1996.
Grant income, or the amortization of deferred credits granted by the Republic of
Ireland, account for the majority of other income for both 1997 and 1996.
Income tax expense for 1997 was $1.3 million, compared to $992,000 in
1996. The effective tax rates for both 1997 and 1996 were approximately 36%.
Net income for 1997 was $2.2 million, compared to $1.8 million in 1996,
an increase of $400,000, or 22.2%. The increase in net income for 1997 is
primarily attributable to increases in sales volume for each of the Company's
operating divisions, selected price increases in the sports socks and rugged
outdoor and heavyweight casual socks and the reduction in the interest rate
charged by the Company's primary lender.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the years ended December 31,
1996, 1997 and 1998 were $(3.3) million, $(2.6) million and $(1.4) million,
respectively. The negative cash flows for 1998 primarily resulted from the
Company's loss from operations and an increase of inventory for the year ended
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. The closing of the Credit Facility in February 1999 fulfilled the
Company's obligation to replace its existing debt extended by NationsBank, N.A.
("NationsBank"). In September 1998, the Company entered into a forbearance
agreement with NationsBank resulting from the Company's failure to meet certain
restrictive covenants. 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 April 9, 1999). The Company's first available margin
adjustment date is September 30, 1999, subject to the achievement of the
interest coverage ratio. As of April 9, 1999, $23.7 million was outstanding
under the revolving credit line, and there was approximately $1.2 million
available for additional borrowings, based on the Company's collateral
availability. The Credit Facility is secured by the Company's accounts
receivable, inventory, equipment and certain real property. Amounts borrowed
under the revolving line of credit may not exceed the sum of specified
percentages of the Company's accounts receivable and inventory.
The Credit Facility imposes several financial and other covenants that
the Company must satisfy including, among other things, maintenance of a
specified tangible net worth, a fixed charge coverage ratio and a minimum
interest coverage ratio. A short-
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term financial covenant also exists for the first three quarters of 1999,
requiring the Company to meet a specified minimum level of Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA"). The covenants also
impose limits on capital expenditures and dividends. Pursuant to grant
agreements with the Republic of Ireland, the retained earnings of the Company's
Irish subsidiary are subject to certain restrictions based upon the amount of
government grants received to date.
In addition to the financial covenants imposed under the provisions of
the Credit Facility, the Company is required to report changes in its borrowing
base on a daily basis and provide a monthly reconciliation of its accounts
receivable to the borrowing base. The Company also is required to provide
consolidating and consolidated balance sheet and statements of income and cash
flows for the Company and its subsidiaries on a monthly basis. The frequency and
timing of these reporting requirements are considerably more burdensome than
those required under the Company's prior financing arrangements. In order to
meet these reporting requirements the Company has outsourced certain accounting
functions and is seeking to add additional personnel resources to assist in
their preparation. To date, the Company has encountered some difficulties in
satisfying the lender's timing requirements, but management believes adequate
steps have been taken to ensure compliance in future periods.
In addition to the revolving line of credit, the Company also has a
term loan outstanding with BankBoston. As of April 9, 1999, the term loan 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 April 9, 1999). This loan is payable in seventeen consecutive
quarterly installments of $266,667 each, with a balloon payment of approximately
$1.5 million due in December 2003. The loan is secured by the same collateral as
the revolving line of credit and imposes similar restrictive covenants on the
Company.
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.
As of April 9, 1999, the Company had commitments of approximately
$450,000 to purchase 20 electronic knitting machines for its sports sock
knitting operation in Ft. Payne, Alabama, to expand the current production
capacity of that facility. The source of funding for these capital expenditures
is expected to be proceeds from an additional term loan.
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
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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 $3.0 million. Approximately $2.0 million
had been disbursed as of April 12, 1999. An additional $1.0 is expected to be
expended over the next six months. As of April 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 by the Company's Revolving Credit Facility, a
leasing arrangement for certain hardware and additional term loans of
approximately $470,000.
Although resources are being directed towards reducing interruptions
that may be caused by the Year 2000 issue, there is no guarantee the internal
systems of the Company's business partners will be corrected and that there
would be no material adverse impact on the Company's operations. Although
management expects internal systems to be Year 2000 compliant as described
above, a contingency plan will be developed during 1999.
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.
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EFFECTS OF INFLATION
Management believes that inflation has not had a material impact on the
Company's results of operations for the years ended December 31, 1997 and 1998.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards ("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 charges 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 charge. 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.
STATEMENT ON FORWARD-LOOKING INFORMATION
The foregoing discussion and other sections of this report include
certain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. In addition, the Company's Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and subsequently filed Annual Reports on Form
10-K may include forward-looking statements. Other written or oral statements
which constitute forward-looking statements have been made and may in the future
be made by or on behalf of Ridgeview, including statements regarding anticipated
future operating results and sources of liquidity and capital resources and
changes in customer demand, fashion trends or consumer dress habits. These
statements are identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "estimates" or "anticipates,"
the negative thereof or comparable terminology or by discussions of strategy
that involve risks and uncertainties. These forward-looking statements are based
on a number of assumptions concerning future events and are subject to a number
of trends, uncertainties and risks, many of which are outside of Ridgeview's
control that could cause actual results to differ materially from such
statements.
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