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 March 31, 2001.
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
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(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 7, 2001
- ------------------------------ ----------------------------------
Common Stock, $0.10 Par Value 4,665,351
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
March 31, 2001
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2001 and audited December 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Month Periods Ended March 31, 2001 and
April 1, 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 2001 and
April 1, 2000 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
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 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000*
ASSETS: ---------- ------------
- ------
Current assets:
Cash and cash equivalents $ 13,025 $ 10,517
Accounts receivable trade - net 25,690 32,898
Notes and other accounts receivable - net 2,278 3,864
Inventories 29,294 33,222
Other current assets 4,381 4,302
-------- --------
Total current assets 74,668 84,803
Property, plant and equipment - net 2,545 2,644
Real property investments - net 24,321 22,793
Long-term investments - net 4,926 5,350
Intangible assets - net 9,480 9,692
Other assets 6,813 7,370
-------- --------
Total assets $122,753 $132,652
======== ========
LIABILITIES:
- -----------
Current liabilities:
Current portion of long-term debt $ 5,654 $ 5,428
Accounts payable 7,877 11,148
Accrued expenses and other liabilities 5,391 10,043
-------- --------
Total current liabilities 18,922 26,619
Long-term debt 22,015 22,777
Subordinated notes payable 1,625 1,863
Deferred compensation 1,638 1,753
-------- --------
Total liabilities 44,200 53,012
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 467 465
Additional paid-in capital 30,931 30,816
Retained earnings 47,317 48,501
Accumulated other comprehensive loss (149) (75)
Treasury stock (13) (67)
-------- --------
Total stockholders' equity 78,553 79,640
-------- --------
Total liabilities and stockholders' equity $122,753 $132,652
======== ========
*Derived from the December 31, 2000 audited consolidated balance sheet.
(The accompanying notes are an integral part of these unaudited
financial statements.)
3
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Month Periods Ended
-------------------------
March 31, April 1,
2001 2000
-------- --------
Net sales $37,434 $14,580
Cost of goods sold 30,172 12,219
------- -------
Gross profit 7,262 2,361
Rental revenue 562 574
------- -------
7,824 2,935
Selling, general and
administrative expenses 9,052 5,770
Net investment transactions
and impairment charges 38 8
------- -------
Loss from operations (1,266) (2,843)
Other income (expense):
Interest expense (611) (478)
Interest income 246 377
Other (77) 483
------- -------
Loss before income taxes (1,708) (2,461)
Benefit from income taxes 545 500
------- -------
Net loss ($ 1,163) ($ 1,961)
======= =======
- ------------------------------------------------------------------------------
Net loss per share - basic and diluted ($0.25) ($0.48)
===== =====
Weighted average number of shares
Outstanding - basic and diluted 4,642 4,115
===== =====
(The accompanying notes are an integral part of these unaudited
financial statements.)
4
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Month Periods Ended
-------------------------
March 31, April 1,
2001 2000
-------- --------
Cash flows from operating activities:
Net loss ($1,163) ($1,961)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 597 1,151
Deferred compensation costs 26 40
Change in operating assets and liabilities:
Receivables 8,204 7,005
Inventories 3,928 (5,133)
Accounts payable (3,271) (713)
Accrued expenses and other liabilities (4,652) (1,166)
Other assets (46) 278
------- -------
Net cash provided by (used in) operating
activities 3,623 (499)
------- -------
Cash flows from investing activities:
Capital expenditures (87) (70)
Proceeds from long-term investments 424 13
Purchase of real property and other investments (1,801) (1,596)
Loans and advances to investees (3) (899)
Repayments of loans and advances by investees 977 51
------- -------
Net cash used in investing activities (490) (2,501)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (773) (799)
Payments of deferred compensation (2) (2)
Proceeds from issuance of common stock 196 -
Proceeds from issuance of treasury stock 60 23
Purchases of treasury stock (106) -
------- -------
Net cash used in financing activities (625) (778)
------- -------
Net increase (decrease) in cash and cash equivalents 2,508 (3,778)
Cash and cash equivalents - beginning of period 10,517 23,831
------- -------
Cash and cash equivalents - end of period $13,025 $20,053
======= =======
- ------------------------------------------------------------------------------
Supplementary cash flow information:
Cash paid during the period for: Interest $ 844 $198
Income taxes 1,449 87
Sale of investments to related party, settled by
forgiveness of certain liabilities owed to a
related party - 775
(The accompanying notes are an integral part of these unaudited
financial statements.)
5
HAMPSHIRE GROUP, LIMITED
NOTES TO UNAUDITED CONDENSED 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, 2000, included in the Company's Annual Report on Form 10-K.
The effect of outstanding stock options was not included in the weighted average
number of shares or earnings per share computation in the three months ended
March 31, 2000 and April 1, 2000 because their effect would be anti-dilutive.
Certain reclassifications have been made to data from the previous year to
conform with the presentation of the current year.
NOTE 2. ACQUISITION OF ASSETS
- ------------------------------
Effective August 20, 2000, the Company, acquired substantially all the assets
and business of Item-Eyes, Inc. ("Item-Eyes"), a privately held sportswear
company. The acquired assets included trade accounts receivable, inventories,
machinery and equipment, furniture and fixtures and leasehold improvements used
in the operation of the business, and all intangible assets of Item-Eyes.
Item-Eyes is a manufacturer and marketer of moderate-price "missy" related
separates under its labels, Requirements(R), Nouveaux(R) and private labels of
retailers such as May Company, Federated Department Stores, Kohl's and JC
Penney.
The assets were acquired for a total of $57,288,000, which was paid as follows:
Cash, including repayment of revolving credit line of
$31,069,000 $44,069,000
Assumed liabilities - trade accounts payable, etc. 8,396,000
Issuance of Subordinated Notes payable 2,100,000
Issuance of Hampshire Group, Limited Common Stock 2,723,000 (1)
(1) Hampshire Group Limited issued 395,382 unregistered shares of its
Common Stock.
The Company has accounted for the Item-Eyes acquisition as a "purchase",
applying the provisions of Accounting Principles Board Opinion No. 16, "Business
Combinations". The purchase price was allocated to the net assets acquired,
including the liabilities assumed as of August 20, 2000, based upon their
6
estimated fair values as of that date with the remainder of approximately
$8,650,000 being recorded as goodwill.
A portion of the consideration paid by the Company was obtained through loans
under the Company's Amended and Restated Credit Agreement and Guaranty, dated
September 5, 2000 ("Revolving Credit Facility"), as discussed in Note 4 herein.
The Company also obtained a $3 million, five-year term loan from Merchants
National Bank, Winona, Minnesota, which was closed on September 20, 2000. This
loan was part of the long-term financing of the acquisition.
NOTE 3. INVENTORIES
- --------------------
A summary of inventories by component is as follows:
(in thousands)
March 31, 2001 December 31, 2000
-------------- -----------------
Finished goods $21,753 $26,414
Work-in-progress 2,336 3,905
Raw materials and supplies 5,868 3,813
------- -------
29,957 34,132
Less - LIFO reserve (663) (910)
------- -------
Net inventories $29,294 $33,222
======= =======
NOTE 4. BORROWINGS
- -------------------
Revolving Credit Facilities
- ---------------------------
The Revolving Credit Facility is with a consortium of six commercial banks, with
The Chase Manhattan Bank, New York, as agent. The Company's three-year Revolving
Credit Facility, dated September 5, 2000 provides a secured credit facility up
to $97.9 million in revolving line of credit and letters of credit. Advances
under the line of credit are limited to the lesser of: (1) $97.9 million less
outstanding letters of credit; or (2) the sum of 85% of eligible account
receivables, 50% of eligible inventory (subject to seasonal limits), 50% of
outstanding eligible letters of credit issued through this credit facility plus
a seasonal supplemental amount of up to $24 million from April 1, 2001 through
September 29, 2001.
Advances under the facility bear interest at either the bank's prime rate or, at
the option of the Company, a fixed rate of LIBOR plus 2.25%, for a fixed term.
Additionally, the Company is required to pay the banks a commitment fee at a
rate equal to one eighth of one percent for amounts that the Revolving Credit
Facility exceeds the sum of the outstanding loans and the letter of credit
obligations. The loan is collateralized, pari passu with the Senior Notes, by
the trade accounts receivable and inventories of the Company's Restricted
Subsidiaries (defined as Hampshire Designers and Item-Eyes), a pledge of the
outstanding balance due from the Company's factor and the Common Stock of all
subsidiaries. The Company has also pledged as collateral two insurance policies,
a $5 million policy on the life of its Chairman and a $1 million policy on the
life of the Chief Executive Officer of Item-Eyes, Inc. At the end of the first
quarter, the Company did not have an outstanding balance against the credit
line, outstanding letters of credit were $25.5 million, and the Company had
approximately $4.6 million available under the facility.
7
Additionally, the Company has available two credit facilities, which provide for
international letters of credit in the aggregate amount of $2.0 million. The
terms of the Revolving Credit Facility restricts the Company from having no more
than $2.0 million, in total, outstanding against these lines. As of March 31,
2001 the letters of credit outstanding against these two line of credit
facilities was approximately $182,000. The aggregate amount of all letters of
credit outstanding at March 31, 2001 was approximately $25.7 million.
Senior Notes Agreement
- ----------------------
The Senior Notes are collateralized pari passu with the Revolving Credit
Facility, by the trade accounts receivable and inventories of the Company's
Restricted Subsidiaries, a pledge of the outstanding balance due from the
Company's factor and the Common Stock of all subsidiaries. The Company has also
pledged as collateral two insurance policies, a $5 million policy on the life of
its Chairman and a $1 million policy on the life of the Chief Executive Officer
of Item-Eyes, Inc.
As a result of the disposal of the manufacturing facilities on April 28, 2000
(see Note 5) and the acquisition of Item-Eyes, the Company entered into
Amendment No. l to the Senior Notes Agreement on September 5, 2000. The
Amendment provides for, among other things, changes in: i) the applicable
interest rate from 7.05% to an adjustable rate, 8% effective September 5, 2000;
and ii) the principal amortization schedule from seven annual installments of
$2,142,857 commencing January 2, 2002, to a payment of $937,500 upon closing and
15 semi-annual installments of $937,500 each, commencing January 2, 2001.
Financial Covenants
- -------------------
Both the Revolving Credit Facility and the Senior Notes Agreement (the
"Agreements") contain covenants which require certain financial performance and
restrict certain payments by the Company and the Restricted Subsidiaries,
including advances to the Company's Non-Restricted Subsidiary (defined as
Hampshire Investments, Limited and it subsidiaries).
The financial performance covenants require, among other things, that the
Company maintain specified levels of consolidated net worth, not exceed a
specified consolidated leverage ratio, achieve a specified fixed charge ratio
and limit capital expenditures to a specified maximum amount. The Company was in
compliance with the financial performance covenants at March 31, 2001.
The Agreements also require a short-term debt cleanup of 45 days during any
12-month period and restrict the sale of assets and restricts payments by the
Company of cash dividends to stockholders, prepayment of Subordinated Notes, the
repurchase of Company stock and investments in and loans or advances to the
Non-Restricted Subsidiary. The Company was in compliance with these provisions
at March 31, 2001.
Other Debt
- ----------
The Company's other debt includes the Subordinate Notes and $3 million loan from
Merchants National Bank, both from the financing of the Item-Eyes acquisition.
The Company, through its Non-Restricted Subsidiary, finances real property
investments through mortgages and construction loans. The Company's Chief
Executive Officer has guaranteed the Subordinated Notes and certain indebtedness
relating to the purchase of real property.
NOTE 5. SALE OF ASSETS
- -----------------------
On April 28, 2000 (the "Closing Date"), the Company concluded a transaction
whereby it sold all of its sweater manufacturing assets to Glamourette/OG, Inc.,
8
a Puerto Rican corporation ("Glamourette/OG"). Glamourette/OG is a subsidiary of
Olympic Mills 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 and machinery and equipment located in California, Virginia, Minnesota and
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 $8,000,000, discounted to
$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
purchased 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 Glamourette/OG, Inc.
NOTE 6. COMPREHENSIVE LOSS
- --------------------------
Comprehensive loss consists of net loss, plus certain changes in assets and
liabilities that are not included in net loss but are instead reported within a
separate component of stockholders' equity under accounting principles generally
accepted in the United States of America. The Company's comprehensive loss was
as follows:
(in thousands)
Three Month Periods Ended
-------------------------
March 31, 2001 April 1, 2000
-------------- -------------
Net loss ($1,283) ($1,961)
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains on securities
Arising during periods - 47
Income tax provision on securities - (17)
------ ------
Unrealized gains on securities - 30
Foreign currency translation adjustment (74) (91)
------ ------
Comprehensive loss ($1,357) ($2,022)
====== ======
NOTE 7. RECENT ACCOUNTING STANDARDS
- ------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued in June 1998 and
was amended in June 2000 by SFAS 138, "Accounting for Certain 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. The
adoption of SFAS 133 on January 1, 2001 had no effect on the Company's financial
position, results of operations or cash flows.
9
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 men's and women's sweaters
and related separates. 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 apparel throughout the year, the
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.
Industry Segment Data Three Month Periods Ended
-------------------------
March 31, 2001 April 1, 2000
-------------- -------------
Net sales Apparel $37,434 $14,580
Rental revenue Investments 562 574
-------- -------
$37,996 $15,154
- -------------------------------------------------------------------------------
Gross profit Apparel $7,262 $2,361
(as percent of net sales) 19.4% 16.2%
- -------------------------------------------------------------------------------
Interest expense Apparel $ 69 $ 42
Investments 208 148
Corporate 334 288
----- ----
$611 $478
- -------------------------------------------------------------------------------
Income (loss) from operations Apparel ($ 772) ($2,311)
Investments 53 154
Corporate (547) (686)
-------- -------
($1,266) ($2,843)
- -------------------------------------------------------------------------------
March 31, 2001 Dec. 31, 2000
-------------- -------------
Total identifiable assets Apparel $ 72,445 $ 85,021
Investments 30,280 29,510
Corporate 20,028 18,121
-------- -------
$122,753 $132,652
- -------------------------------------------------------------------------------
10
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 March 31, 2001 and April 1, 2000
- ---------------------------------------------------
Consolidated net sales for the Company's Apparel Segment for the three month
period ended March 31, 2001, were $37,434,000, compared with $14,580,000 for the
same period in 2000, an increase of $22,854,000. The acquisition of Item-Eyes
Inc., a privately held sportswear company, effective August 2000, accounted for
98% or $22,451,000 of the increase in net sales.
Gross margin for the Company's Apparel segment for the first quarter of 2001 was
19.4% of net sales, an increase of 3.2 percentage points over the gross margin
achieved in the prior year for the same period. The increase in margin percent
resulted from discontinuing certain less profitable product lines, no longer
incurring manufacturing costs and during the Company's off-season due to the
sale of manufacturing operations in the prior year and the Item-Eyes
acquisition. The Company reported a gross margin of $7,262,000 for the three
months ended March 31, 2001, compared to $2,361,000 for the same period in the
prior year, an increase of $4,901,000. The increase resulted from the added
sales of Item-Eyes, which resulted in a gross margin of $3,908,000, and the more
profitable mix of products shipped from the Company's other apparel product
lines.
Selling, general and administrative expenses ("SG&A") for the Company were
$9,052,000 for the first three months of 2001, compared with $5,770,000 for the
first three months of 2000. The increase of $3,282,000, resulted primarily from
the SG&A expenses for Item-Eyes of $3,400,000.
Loss from operations decreased by $1,577,000 from $2,843,000, for the first
three months of 2000, to $1,266,000 for the same reporting period in 2001.
Income from operations of Item-Eyes accounted for $508,000 of the decrease, and
the balance resulted primarily from the higher margin achieved from the
Company's other apparel product lines. The Company's apparel business,
particularly the sale of sweaters, is highly seasonal with the majority of sales
occurring in the third and fourth quarters.
Interest expense was $611,000 for the first quarter of 2001, an increase of
$133,000, or 27.8%, from $478,000 for the same period in 2000. This increase can
be attributed primarily to higher rates and the additional financing of real
properties.
In 2001 the Company reported other expense of $77,000, compared to other income
of $483,000 in 2000 for the first quarter. During the first quarter of 2000, the
Company had an unrealized gain in the market value of trading securities held in
retirement trust of $219,000, and for the same period in 2001 the market value
of trading securities held in retirement trust decreased by $90,000. Offsetting
entries were reported under SG&A as additional deferred compensation expense in
2000 and a reduction to deferred compensation expense in 2001, accordingly there
11
was no effect to the net income in either period. Additionally, reported in the
first quarter of 2000 as other income was income received from the building and
equipment leased to Vision Legwear, LLC. The lease was terminated at the end of
2000 when Vision Legwear sold its assets.
SEASONALITY
- -----------
The Company's apparel business, particularly the sale of sweaters to its
customers, is highly seasonal with the majority of sales occurring in the third
and forth quarters of the year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations, consisting of funding the build-up in
inventories and accounts receivable (which historically reach their maximum
requirements in the third quarter), servicing long-term debt, funding capital
expenditures and making investments, through its investment subsidiary, in
assets not used in the apparel business of the Company. The primary sources to
meet the liquidity and capital requirements include funds generated from
operations, revolving credit lines and long-term borrowing.
Net cash provided by operating activities was $3,623,000 for the three month
period ended March 31, 20001, as compared to net cash used in operating
activities of $499,000 for the comparable period of the prior year. The increase
in cash provided by operating activities in the three month period ended March
31, 2001 as compared to the prior year principally resulted from reductions in
inventory levels, partially offset by increased payments to settle accounts
payable and accrued expenses.
Cash used for investing activities totaled $490,000 for the three-month period
ended March 31, 2001. The Company, through its investment subsidiary, Hampshire
Investments, Limited makes investments in assets unrelated to the Company's
apparel business, for the intended purpose of diversifying the earnings base of
the Company. During the first quarter of 2001 the Company made $1,801,000 of
such investments. Capital expenditures for the quarter ended March 31, 2001 were
$87,000. Offsetting the use of cash in investing activities was the collection
of $977,000 of notes receivable.
The Company, in conjunction with the acquisition of Item-Eyes, negotiated a new
Revolving Credit Facility, dated September 5, 2000, with six participating
commercial banks. The three-year credit agreement provides a $97.9 million
combined line of credit and letter of credit facility. Advances under the line
of credit are limited to the lesser of: (1) $97.9 million less outstanding
letters of credit; or (2) the sum of 85% of eligible account receivables, 50% of
eligible inventory (subject to seasonal limits), 50% of outstanding eligible
letters of credit issued through this credit facility plus a seasonal
supplemental amount up to $24 million from April 1, 2001 through September 29,
2001.
Advances under the facility bear interest at the bank's prime rate, or at the
option of the Company, a fixed rate of LIBOR plus 2.25% for a fixed term.
Additionally the Company is required to pay to the banks a commitment fee at a
rate equal to one eighth of one percent for amounts that the Revolving Credit
Facility exceeds the sum of the outstanding loans and the letter of credit
obligations. The loan is collateralized, pari passu with the Senior Notes, by
the trade accounts receivable and inventories of the Company's Restricted
Subsidiaries, a pledge of the outstanding balance due from the Company's factor
12
and the Common Stock of all subsidiaries. The Company has also pledged as
collateral two insurance policies, a $5 million policy on the life of its
Chairman and a $1 million policy on the life of the Chief Executive Officer of
Item-Eyes, Inc. Letters of credit issued under the facility are collateralized
by the inventory shipped pursuant to the letters of credit. At the end of the
first quarter, the Company did not have an outstanding balance against the
credit line, outstanding letters of credit were $25.5 million and the Company
had approximately $4.6 million available under the facility.
On September 20, 2000, the Company obtained a five-year term loan with Merchants
National Bank, Winona, Minnesota for $3 million. The $3 million loan was part of
the long-term financing of the Item-Eyes acquisition. The note bears interest at
the bank's prime rate plus 0.25% per annum, adjustable annually on the
anniversary of the loan. The agreement provides for repayment of the loan in
nine semi-annual installments of $301,941 each, commencing March 20, 2001 but
may be prepaid without penalty. The loan covenants for this loan are the
same as for the Revolving Credit Facility.
Additionally, the Company has available two credit facilities restricted in use
for international letters of credit in the aggregate amount of $2.0 million. By
terms of the Revolving Credit Facility the Company is restricted to having no
more than $2.0 million, in total, outstanding against these lines. As of March
31, 2001, the letters of credit balance outstanding against these two line of
credit facilities was approximately $182,000.
Hampshire Group and its subsidiaries, including Item-Eyes, also entered into
Amendment No. 1, dated September 5, 2000 (the "Amendment"), to the Note Purchase
Agreements, dated as of May 15, 1998, among Hampshire Group Limited, Hampshire
Group's subsidiaries, Phoenix Home Life Mutual Insurance Company and the Ohio
National Life Insurance Company, with respect to the $15,000,000 aggregate
principal amount, Senior Secured Notes due January 2, 2008 (the "Insurance
Notes"). The Amendment provides for, among other things, changes in: i) the
applicable interest rate from 7.05% to an adjustable rate, 8% effective
September 5, 2000; and ii) the principal amortization schedule from seven annual
installments of $2,142,857 commencing January 2, 2002, to a payment of $937,500
upon closing and 15 semi-annual installments of $937,500 each, commencing
January 2, 2001. The Senior Notes are collateralized pari passu with the
Revolving Credit Facility, by the trade accounts receivable and inventories of
the Company's Restricted Subsidiaries, a pledge of the outstanding balance due
from the Company's factor and the Common Stock of all subsidiaries. The Company
has also pledged as collateral two insurance policies, a $5 million policy on
the life of its Chairman and a $1 million policy on the life of the Chief
Executive Officer of Item-Eyes, Inc.
COMPANY STRATEGY
- ----------------
The Company believes it has made major progress in positioning itself for the
future from both the sale of the manufacturing facilities and the acquisition of
Item-Eyes.
With the sale of the manufacturing facilities, the Company believes it has
enhanced its flexibility in the product lines that can be offered to its
customers. With the established international sourcing network and supply
agreement with the Purchaser of the manufacturing facilities, the Company
believes it will be able to provide its customers with a diversified, cost
competitive product line.
The acquisition of Item-Eyes complements the Company's long-term strategy in
diversification of apparel product line.
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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 on March 31, 2001. The short-term debt of the
Company has variable rates based on the prime interest rate of the lending
institution, or at the option of the Company, a fixed rate based on LIBOR for a
fixed term.
In purchasing apparel from foreign manufacturers, the Company uses letters of
credit that require the payment of dollars upon receipt of bills of lading for
the products. Prices are fixed in U.S. dollars at the time the letters of credit
are issued.
With the exception of Hampshire Praha, the Company's 70% owned subsidiary,
Hampshire Investments does not issue or own foreign indebtedness. Further, such
foreign indebtedness is insignificant to the Company's financial statements.
Hampshire Investments either purchases foreign based assets with U.S. dollars or
with foreign currency purchased with U.S. dollars, on or near the purchase date.
Real property owned by Hampshire Investments and located outside the United
States is leased for either U.S. dollars or other stable currency. The primary
foreign currency risk for Hampshire Investments is the impact of fluctuations
that such currencies have on the businesses of the lessees of real property
owned by Hampshire Investments.
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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 - Changes in Securities and Use of Proceeds
Not applicable.
Item 3 - Defaults in Senior Securities
Not applicable.
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 March 31, 2001.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
----------- ---------------------------------------------------
The exhibits required to be filed by Item 601 of Regulation S-K are
incorporated herein by reference to the Company Report on form 10-K for
the fiscal year ended December 31, 2000 and Part IV, Item (a)(3)
therein.
b) Reports on Form 8-K filed during the quarter
There were no reports filed on Form 8-K during the quarter
ended March 31, 2001.
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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 14, 2001 /s/ Ludwig Kuttner
- ---------------------------- --------------------------------------
Ludwig Kuttner
Chairman of the Board of Directors
President and Chief Executive Officer
(Principal Executive Officer)
Date May 14, 2001 /s/ William W. Hodge
- ---------------------------- --------------------------------------
William W. Hodge
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16