UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 April 1, 2000.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ______ to _______.
Commission File No. 000-20201
HAMPSHIRE GROUP, LIMITED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-0967107
(State of Incorporation) (I.R.S. Employer Identification No.)
215 COMMERCE BOULEVARD
ANDERSON, SOUTH CAROLINA 29625
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (864) 225-6232
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
Of Securities As of May 5, 2000
------------------------------ -----------------------------
Common Stock, $0.10 Par Value 4,117,007
1
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
April 1, 2000
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Unaudited Consolidated Balance Sheets as of April 1, 2000,
April 3, 1999 and audited December 31, 1999 3
Unaudited Consolidated Statements of Operations for the Three
Month Periods Ended April 1, 2000 and April 3, 1999 5
Unaudited Consolidated Statements of Comprehensive Loss
for the Three Month Periods Ended April 1, 2000 and
April 3, 1999 6
Unaudited Consolidated Statements of Cash Flows for the
Three Month Periods Ended April 1, 2000 and April 3, 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signature Page 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
April 1, April 3, Dec. 31,
2000 1999 1999*
------------------------------
Current assets:
Cash and cash equivalents ................ $ 20,053 $ 7,116 $ 23,831
Available-for-sale securities ............ 253 456 207
Accounts receivable trade - net .......... 9,876 17,029 16,732
Other accounts receivable ................ 1,795 4,202 2,294
Inventories .............................. 22,533 27,899 17,400
Deferred tax asset ....................... 4,185 4,066 4,202
Hosiery assets held for sale - net ....... -- 774 --
Other current assets ..................... 430 705 704
------------------------------
Total current assets ................ 59,125 62,247 65,370
Property, plant and equipment - net ........... 9,361 12,956 10,149
Real property investments - net ............... 17,512 9,012 16,538
Long-term investments - net ................... 4,890 5,502 4,537
Trading securities held in retirement trust ... 2,342 1,270 2,101
Deferred tax asset ............................ 1,969 2,416 1,969
Intangible assets - net ....................... 2,435 3,290 2,553
Other assets .................................. 796 133 377
------------------------------
Total assets ......................... $ 98,430 $ 96,826 $103,594
==============================
<FN>
* Derived from the December 31, 1999 audited consolidated balance sheet.
(The accompanying notes are an integral part of these unaudited financial
statements.)
</FN>
3
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
April 1, April 3, Dec. 31,
2000 1999 1999*
------------------------------
Current liabilities:
Current portion of long-term debt ........ $ 1,088 $ 1,590 $ 1,418
Accounts payable ......................... 3,074 5,335 3,787
Accrued expenses and other liabilities ... 2,805 5,539 4,024
-------------------------------
Total current liabilities .............. 6,967 12,464 9,229
Long-term debt ............................. 23,701 20,390 24,170
Deferred compensation ...................... 2,435 1,943 2,869
-------------------------------
Total liabilities ...................... 33,103 34,797 36,268
-------------------------------
Commitments and Contingencies
Stockholders' equity:
Common stock ............................. 418 425 418
Additional paid-in capital ............... 27,762 28,276 27,762
Retained earnings ........................ 38,221 34,558 40,182
Accumulated other comprehensive loss ..... (395) (289) (334)
Treasury stock ........................... (679) (941) (702)
--------------------------------
Total stockholders' equity ............ 65,327 62,029 67,326
--------------------------------
Total liabilities and stockholders'
equity ............................. $98,430 $96,826 $103,594
================================
<FN>
* Derived from the December 31, 1999 audited consolidated balance sheet.
(The accompanying notes are an integral part of these unaudited financial
statements.)
</FN>
4
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Month Periods Ended
April 1, April 3,
2000 1999
------------------------------
Net sales ........................... $14,580 $20,392
Cost of goods sold .................. 12,219 16,299
------------------------------
Gross profit .................... 2,361 4,093
Rental revenue ...................... 574 168
------------------------------
2,935 4,261
Selling, general and
administrative expenses......... 5,770 5,343
------------------------------
Loss from operations ................ (2,835) (1,082)
Other income (expense):
Interest expense ................ (478) (305)
Interest income ................. 377 153
Other ........................... 475 119
------------------------------
Loss before income taxes ............ (2,461) (1,115)
Benefit from income taxes ........... 500 175
------------------------------
Net loss ............................ ($ 1,961) ($ 940)
==============================
- -------------------------------------------------------------------------------
Net loss per share .................. ($0.48) ($0.22)
==============================
Weighted average number
of shares outstanding.............. 4,115 4,182
==============================
- -------------------------------------------------------------------------------
<FN>
(The accompanying notes are an integral part of these unaudited financial
statements.)
</FN>
5
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Three Month Periods Ended
April 1, April 3,
2000 1999
---------------------------
Net loss .................................... ($1,961) ($ 940)
Other comprehensive income (loss):
Foreign currency translation adjustment .. (91) --
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on
securities arising during periods... $ 47 ($152)
Reclassification adjustment for amounts
included in net income -- (9)
------ ------
Other comprehensive gain (loss) on
securities.......................... 47 (161)
Income tax benefit (expense) on
securities ......................... (17) 60
------ ------
Unrealized gains (losses) on securities -
net of tax................................. 30 (101)
------ ------
Comprehensive (loss) ........................ ($2,022) ($1,041)
====== ======
<FN>
(The accompanying notes are an integral part of these unaudited financial
statements.)
</FN>
6
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Month Periods Ended
April 1, 2000 April 3, 1999
-----------------------------
Cash flows from operating activities:
Net loss ($ 1,961) ($ 940)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............. 1,151 1,092
Loss on sales of property and equipment ... -- 1
Gain on sales of available-for-sale securities -- (9)
Deferred compensation costs for executive
officers ................................ 40 34
Net change in operating assets and liabilities,
net of effects of acquired or disposed
companies:
Receivables ................................ 7,005 5,148
Inventories ................................ (5,133) (7,110)
Accounts payable ........................... (713) (437)
Accrued expenses and other liabilities ..... (1,166) (1,992)
Other assets ............................... 278 (108)
-------------------------
Net cash used in continuing operations ..... (499) (4,321)
Net cash provided by discontinued operations -- 451
-------------------------
Net cash used in operating activities ...... (499) (3,870)
-------------------------
Cash flows from investing activities:
Capital expenditures.......................... (70) (368)
Proceeds from sales of property and equipment 13 2
Purchases of available-for-sale securities ... -- (93)
Proceeds from sales of available-for-sale
securities ................................. -- 34
Purchase of real property and other investments (1,596) (660)
Loans and advances to investees .............. (899) (935)
Repayments of loans and advances by investees. 51 --
-------------------------
Net cash used in investing activities ...... (2,501) (2,020)
-------------------------
Cash flows from financing activities:
Repayment of long-term debt .................. (799) (545)
Payments of deferred compensation to executive
officers ............................. (2) (2)
Proceeds from issuance of treasury stock ..... 23 43
Purchases of treasury stock .................. -- (376)
-------------------------
Net cash used in financing activities ...... (778) (880)
-------------------------
Net decrease in cash and cash equivalents ...... (3,778) (6,770)
Cash and cash equivalents - beginning of
period....................................... 23,831 13,886
-------------------------
Cash and cash equivalents - end of period....... $20,053 $ 7,116
=========================
- -------------------------------------------------------------------------------
Supplementary cash flow information:
Cash paid during the period for:
Interest..................................... $198 $668
Income taxes................................. $ 87 ($600)
Sale of investments to related party, settled by
forgiveness of certain liabilites owed by the
Company....................................... 775 --
<FN>
(The accompanying notes are an integral part of these unaudited financial
statements.)
</FN>
7
HAMPSHIRE GROUP, LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The consolidated financial statements are unaudited and include the accounts of
Hampshire Group, Limited and its subsidiaries, substantially all of which are
wholly-owned (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. These financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and the
instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by such generally accepted accounting
principles for complete financial statements.
In the opinion of the management of the Company, the unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair statement of the results
of operations for the interim periods presented. The results of operations for
interim periods are not indicative of the results that may be expected for a
full year due to the seasonality of the business. These interim unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1999, included in the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to data from the previous year to
conform with the presentation of the current year.
NOTE 2. INVENTORIES
- --------------------
A summary of inventories by component is as follows:
- -------------------------------------------------------------------------------
(in thousands)
April 1, 2000 April 3, 1999 Dec. 31, 1999
------------- ------------- -------------
Finished goods $18,265 $22,195 $14,072
Work-in-progress 2,310 3,898 2,503
Raw materials and supplies 3,648 3,745 2,626
------------- ------------- -------------
24,223 29,838 19,201
Less - LIFO reserve (1,690) (1,939) (1,801)
------------- ------------- -------------
Net inventories $22,533 $27,899 $17,400
============= ============= =============
- -------------------------------------------------------------------------------
NOTE 3. TRADING ASSETS HELD IN RETIREMENT TRUST
- ------------------------------------------------
Under a plan adopted by the Company in 1997, senior executives are permitted to
defer annually a portion of their compensation. These deferrals are invested in
certain mutual funds that have been classified as trading securities, classified
as a long-term asset, in equal amount to the related long- term deferred
compensation liability.
NOTE 4. CREDIT FACILITIES
- --------------------------
The Company has a revolving credit facility (the "Revolving Credit Agreement")
with three participating commercial banks. The credit facility consists of a $55
million combined line of credit and letter of credit facility through May 24,
2000, which the Company is currently in the process of re-negotiating. Advances
under the facility are limited to the lesser of: (1) $55 million, or (2) the sum
8
of (a) 85% of the eligible accounts receivable, and (b) a seasonal adjustment,
based on inventory levels, of up to $12 million from March 1 to October 31.
Advances under the facility bear interest at the bank's prime rate or, at the
option of the Company, a fixed rate for a fixed term. The loan is collateralized
by the trade accounts receivable of Hampshire Designers, Inc. and its
subsidiaries, excluding certain factored trade accounts receivable. In addition,
letters of credit issued under the facility are collateralized by the inventory
shipped pursuant to the letters of credit. The Company has pledged as collateral
the common stock of its subsidiaries and such subsidiaries guarantee the
performance of the Company. The Revolving Credit Agreement contains covenants
which require certain financial performance and restrict certain payments by the
Company and the Restricted Subsidiaries, defined as Hampshire Designers, Inc.
and its subsidiaries. At April 1, 2000, the Company had approximately $21.7
million available under this facility, however no amounts were outstanding as of
this date.
The Company has other credit facilities, which in the aggregate allow the
Company to borrow up to $4.5 million. As of April 1, 2000 there were no amounts
outstanding against these lines. Additionally, the Company has available credit
facilities restricted in use for international letters of credit in the amount
of $8.5 million.
NOTE 5. SENIOR NOTES
- ---------------------
In June 1998, the Company sold senior notes (the "Senior Notes") in the
principal amount of $15 million to two insurance companies. The Senior Notes,
which bear interest at a rate of 7.05% per annum, are payable in equal annual
installments beginning January 2, 2002 through January 2, 2008. The Senior Notes
are collateralized pari passu with the Company's revolving credit facilities.
The Senior Notes agreement contains covenants which require certain financial
performance and restrict certain payments by the Company and the Restricted
Subsidiaries, defined as Hampshire Designers, Inc. and its subsidiaries.
NOTE 6. RECENT ACCOUNTING STANDARDS
- ------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 requires all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. SFAS No.
137 delayed implementation of the statement and as a result, it will not become
effective for the Company until January 1, 2001. Management of the Company has
not yet evaluated the effects of SFAS 133 on the Company's financial position,
results of operations or cash flows.
NOTE 7. SUBSEQUENT EVENTS
- --------------------------
On April 28, 2000 (the "Closing Date"), Hampshire Group, Limited (the "Company")
concluded a transaction whereby it sold all of its sweater manufacturing assets
to Glamourette/OG, Inc., a Puerto Rican corporation ("Glamourette/OG"), with its
principal executive offices at Guaynabo, Puerto Rico. Glamourette/OG is a
subsidiary of Olympic Mills Corporation, a Delaware corporation ("Olympic
Mills"), both of which are unrelated to the Company.
The assets sold include the sweater manufacturing facilities of the Company's
subsidiary Glamourette Fashion Mills, Inc., located in Quebradillas, Puerto Rico
9
and the machinery and equipment of its subsidiaries San Francisco Knitworks,
Inc., located in San Francisco, California; and two plants owned by Hampshire
Designers, Inc., Natalie Knitting Mills, located in Chilhowie, Virginia and
Winona Knitting Mills, located in Winona, Minnesota; and certain of the
machinery and equipment on consignment to a contract manufacturer located in
Mexico. In addition to the machinery and equipment, assets sold include the
inventories, other than finished goods, and certain other assets of the
respective operations.
The sales price for the machinery and equipment was $10,460,500 consisting of
$4,000,000 cash and a promissory note in the amount of $6,460,500, bearing
interest at 8.75% per annum and due April 28, 2005 (the 8.75% Note"). The 8.75%
Note is payable by a deduction of $0.67 per sweater pur- chased from
Glamourette/OG or is payable in cash and is partially collateralized by the
machinery and equipment which was sold pursuant thereto and by the pledge of the
common stock of Glamourete/OG, Inc. Approximately $750,000 of the proceeds was
used to pay off loans out- standing against the machinery and equipment sold.
In order to avoid interruption of supply, Glamourette/OG took possession of only
the Puerto Rico facility on the Closing Date. The Asset Purchase Agreement
provides that the Company will continue to operate the three domestic
manufacturing facilities for a period of up to ten months. During the transition
period, the Company will continue to pay all related operating expenses and as
compensation for the use of the machinery and equipment, will credit the 8.75%
Note $0.67 per sweater manufactured in the facilities.
The inventories in Puerto Rico on the Closing Date, including work in process,
raw materials and supplies totaling $2,321,500, were transferred to
Glamourette/OG at standard cost and were paid 50% in cash and the balance to be
paid by deduction of 50% of purchase price of sweaters shipped to the Company in
May and June, 2000, after deduction of the $0.67 to be applied as a reduction of
the 8.75% Note.
Concurrently, the Company purchased a 1% equity interest in Glamourette/OG, Inc.
for $40,000, which purchase price was paid in full by an offset against the
balance of the 8.75% Note. The Company has an option to put its 1% interest at
anytime to Olympic Mills at cost and Olympic Mills has a right to purchase the
Company's 1% interest at cost at any time after the 8.75% Note is paid in full.
NOTE 8. INDUSTRY SEGMENTS AND DATA BY GEOGRAPHICAL AREAS
- ---------------------------------------------------------
The Company operates in two industry segments - Apparel and Investments. The
Apparel segment includes sales of apparel, primarily women's and men's tops,
both knitted and woven. The products are sold to customers throughout the United
States of America including major department stores, specialty retail stores and
catalog companies. Although the Company sells sweaters throughout the year, the
sweater business is highly seasonal, with approximately 75% of sales occurring
in the third and fourth quarters. The Investments segment makes investments both
domestically and internationally, principally in real property.
10
Industry Segment Data
Three Month Periods Ended
April 1, 2000 April 3, 1999
------------------------------
Net sales Apparel $14,580 $20,392
Rental revenue Investments 574 168
-----------------------------
$15,154 $20,560
- -------------------------------------------------------------------------------
Gross profit Apparel $ 2,361 $4,093
(as percent of net sales) 16.2% 20.1%
- -------------------------------------------------------------------------------
Interest expense Apparel $ 42 $ 69
Investments 148 47
Corporate 288 189
-----------------------------
$478 $305
- -------------------------------------------------------------------------------
Income (loss) from operations Apparel ($2,311) ($597)
Investments 162 72
Corporate (686) (557)
-----------------------------
($2,835) ($1,082)
- -------------------------------------------------------------------------------
Total identifiable assets Apparel $45,009 $61,745
Investments 25,020 17,024
Corporate 28,402 13,525
-----------------------------
$98,430 $92,294
Discontinued
business -- 4,532
-----------------------------
$98,430 $96,826
- -------------------------------------------------------------------------------
Capital expenditures Apparel $66 $364
Corporate 4 4
-----------------------------
$70 $368
- -------------------------------------------------------------------------------
Depreciation and amortization Apparel $919 $1,023
Investments 183 63
Corporate 49 6
-----------------------------
$1,151 $1,092
- -------------------------------------------------------------------------------
Revenue by geographic area United States $14,901 $20,539
Russia 86 21
Europe 167 --
----------------------------
$15,154 $20,560
- -------------------------------------------------------------------------------
Long-lived assets United States $21,265 $18,885
Russia 2,897 2,381
Europe 2,711 702
----------------------------
$26,873 $21,968
- -------------------------------------------------------------------------------
Long-term investments - net United States $2,621 $2,147
Russia 131 131
Europe 2,138 3,224
----------------------------
$4,890 $5,502
- -------------------------------------------------------------------------------
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This quarterly report on Form 10-Q contains forward-looking information and
statements that involve risks and uncertainties. Such forward-looking statements
include, but are not limited to, statements regarding the results of operations.
The Company's actual results, performance or achievements could differ
materially from the results expressed in or implied by these forward-looking
statements which are made only as of the date hereof.
RESULTS OF OPERATIONS
Three months ended April 1, 2000 and April 3, 1999
- --------------------------------------------------
Consolidated net sales of the Company for the three month period ended April 1,
2000, were $14,580,000 compared with $20,392,000 for the same period in 1999. Of
the 28.5% decrease, 21.2% resulted from reduced volume and 7.3% from lower
prices in a very competitive market. Influencing the decrease in volume, in all
lines of our sweater business, is the continuing shift of shipments of sweaters
to our customers in the third and fourth quarters. This concentration of
shipments in the second half of the year is due to the retailers' efforts to
have all of their suppliers in the "Quick Response" mode to maximize sales with
a quick inventory turn. Also, significantly impacting the amount of net sales
was the unusually warm winter experienced throughout the country. This led to a
very soft market and low demand for the Spring sweater season, experienced
equally across the Company in both the men's and women's lines. The final
primary factor contributing to the decline in sales during the first quarter of
2000 was the decision by the Company not to pursue branded knit shirt business
for the Spring season. This decision was based on the limited success due to
delivery problems and low margin experienced by the Company in the preceding
year.
Revenues of Hampshire Investments, Limited were $574,000 for the first quarter
of 2000, an increase of 242% from the $168,000 in revenues reported for the
first three month period of 1999. The increase resulted from additional property
acquisitions made after the first quarter of 1999 and the larger percentage of
the real estate units being renovated and leased in 2000, compared with the same
time period for 1999.
Gross margin for the Company's Apparel segment for the first quarter of 2000 was
16.2% percent of net sales, off 3.9 percentage points from the gross margin
achieved in the prior year for the same time period. The unusually low demand
for spring sweater products led to even more price pressure in an already very
competitive market, significantly reducing achieved margin. With lower volume,
the gross margin also deteriorated from the continued needs and costs related to
maintaining work flow in the Company's manufacturing facilities.
Selling, general and administrative expenses ("SG&A") for the Apparel segment of
the Company were $4,672,000 in 2000 compared with $4,690,000 in 1999. Variable
selling and shipping expenses were down due to the reduced sales volume. The
fixed general and administrative expenses and the increased expenses in the
Brands Division, related primarily to the launching of the Dockers line,
accounted for the 9 percentage points increase, as a percentage of net sales, to
32% for the first quarter of 2000, compared to 23% for the same period last
year.
SG&A expenses for the corporate office for the first quarter of 2000 were
$686,000 compared to $557,000 for the same quarter in 1999, an increase of
$129,000. In the first quarter of 1999, the Company recognized an expense for
the unrealized gain on the market value of securities held in the Company's
Deferred Compensation Plan in the amount of $62,000. For the same period in
2000, the Company reported an expense of $219,000, an increase of $157,000 from
the preceding year. An offsetting entry was reported as miscellaneous income for
both time periods, in the respective amounts, accounting for a significant
portion of the increase in miscellaneous income.
12
Income from operations for Hampshire Investments was $162,000 in the first
quarter of 2000, compared with $72,000 for the same period in 1999. SG&A
expenses in the Investment segment were $412,000 and $96,000, for the first
quarters of 2000 and 1999, respectively. The increase resulted primarily from
additional operating expenses for acquired property and depreciation expense.
Depreciation in the first quarter of 2000 was $183,000, compared to $63,000 for
the same period in 1999.
Other income for the first quarter of 2000 was $475,000, compared to $119,000
for the first quarter of 1999. Other income for the first quarter of 2000
consisted primarily of the gains on market value of securities held in the
Company's Deferred Compensation Plan as indicated above, and income received and
recognized from the building and equipment leases to Vision Legwear, LLC, which
was not sold until June 1, 1999.
For the first quarter of 2000, the Company has reported a net loss of
$1,961,000, compared with a $940,000 net loss for the first quarter of 1999. The
loss was ($0.48) per share in the first quarter of 2000 and ($0.22) per share
for the same period in 1999.
SEASONALITY
- -----------
Approximately 75% of the Company's sweater sales occur in the second half of the
year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The liquidity and capital requirements of the Company relate to funding working
capital for current operations, principally to fund the buildup in inventories
and accounts receivable, which reach their maximum seasonal requirements in the
third quarter, servicing long-term debt and funding the investments of Hampshire
Investments. The primary resources to meet the liquidity and capital
requirements include funds generated by operations and borrowings under the
Company's revolving credit facilities and long-term notes.
Net cash used in operations for the three month period ended April 1, 2000
totaled $499,000, which was primarily for the build-up of inventory for planned
shipments later in the year. Capital expenditures for the first quarter of 2000
were $70,000, as compared to an annual budget of $650,000.
The Company, through its investment subsidiary, Hampshire Investments, Limited,
makes investments in assets unrelated to the Company's sweater business, for the
intended purpose of diversifying the earnings base of the Company. During the
first quarter of 2000 the Company, through Hampshire Investments, made
$1,596,000 of additional investments in such assets.
The Company is in the process of renewing its principal credit line which is
shared with three commercial banks. The credit facility consists of a $55
million line of credit and letter of credit facility. Advances under the line of
credit are limited to the lesser of: (1) $55 million; or (2) the sum of 85% of
the eligible accounts receivable and a seasonal adjustment of $12 million during
the period from March 1 to October 31. The facility is subject to renegotiation
on or before May 24, 2000. The Company expects to renew or replace the current
facility prior to its expiration with similar terms and conditions. At April 1,
2000, there were no amounts outstanding under this line of credit facility. As
of May 11, 2000, the Company had approximately $21.7 million available under
this line of credit.
Advances under the facility bear interest at the bank's prime rate or, at the
option of the Company, a fixed rate for a fixed term. The loans are
collateralized pari passu with the Senior Notes by the trade accounts receivable
of Hampshire Designers and the common stock of all the subsidiaries of the
Company. Letters of credit issued under the facility are collateralized by the
inventory shipped pursuant to the letters of credit.
The Company has other credit facilities, which in the aggregate allow the
Company to borrow up to $4.5 million. As of April 1, 2000 there were no amounts
outstanding against these lines. Additionally, the Company has available credit
facilities restricted in use for international letters of credit in the amount
of $8.5 million.
13
During 1998, the Company sold $15 million of 7.05% long-term notes to two
insurance companies (the "Senior Notes") with repayment terms of seven equal
annual installments commencing January 2002. Interest is payable semi-annually
and the loan is collateralized pari passu with the Company's revolving credit
facility.
The Company's credit facility and Senior Notes contain certain covenants which
require certain financial performance, including minimum net worth and specified
current ratio and fixed charge coverage ratios, and which restrict the sale of
assets and certain payments, including dividends and investments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The long term debt of the Company is at fixed interest rates which were at
market when the debt was issued, but are primarily below market at April 1,
2000. The short-term debt of the Company has variable rates based on the prime
interest rate of the lending institution. As of April 1, 2000 there was no
short-term indebtedness.
In purchasing sweaters from foreign manufacturers, the Company uses letters of
credit which require the payment of dollars upon receipt of bills of lading for
the sweaters. Prices are fixed at the time the letters of credit are issued.
With the exception of its 70% owned subsidiary, Hampshire Praha in the Czech
Republic, the Company does not issue or own foreign indebtedness. Hampshire
Investments either purchases foreign-based assets with dollars or with foreign
currency purchased with dollars. Real properties which are owned by Hampshire
Investments and which are located outside the United States are leased for
dollars and not in a foreign currency. The primary market risk which Hampshire
Investments has with respect to foreign currencies is the impact that
fluctuations in such currencies have on the businesses of the lessees of such
real property and on the foreign- based businesses and the foreign based funds
in which Hampshire Investments owns equity securities.
Hampshire Investments limits its risk in the common stock of publicly traded
apparel companies primarily by limiting the amount of its investments. In
addition to following all of its investments closely, Hampshire Investments
limits the market risk of its investments by limiting the amount of the
aggregate investments such that investments may not exceed 50% of annual net
income of the Company on a cumulative basis.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes that no currently pending
litigation, to which it is a party, will have a material adverse effect on its
consolidated financial condition, results of operations, or cash flows.
Item 2 and 3 are not applicable and have been omitted.
Item 4 - Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the quarter
ended April 1, 2000.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
--------------- ----------------------------------------------------
(10)(V) Asset Purchase Agreement between Glamourette Fashion
Mills, Inc., San Francisco Knitworks, Inc. and
Hampshire Designers, Inc. (as "Seller") and
Glamourette/OG, Inc. (as "Purchaser"), dated
April 28, 2000
(27) Financial Data Schedule (electronic filing only)
b) Reports on Form 8-K filed during the quarter
There were no reports filed on Form 8-K during the quarter ended April 1, 2000.
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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.
HAMPSHIRE GROUP, LIMITED
(Registrant)
Date May 11, 2000 /s/ Ludwig Kuttner
- ----------------------- ------------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
Date May 11, 2000 /s/ Charles W. Clayton
- ----------------------- ------------------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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