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 June 29, 2002.
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 August 5, 2002
------------------------------ -----------------------------
Common Stock, $0.10 Par Value 4,715,902
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 29,
2002 and December 31, 2001 3
Unaudited Condensed Consolidated Statements of Operations for
the Six-Month and Three-Month Periods Ended June 29, 2002 and
June 30, 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the Six-Month Periods Ended June 29, 2002 and June 30, 2001 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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 17
- 2 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 29, Dec. 31,
2002 2001*
------- -------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 26,887 $ 28,686
Accounts receivable trade - net 16,343 34,691
Notes and other accounts receivable - net 1,024 1,429
Inventories 36,381 26,739
Other current assets 7,228 5,623
--------------------
Total current assets 87,863 97,168
Property, plant and equipment - net 2,260 2,170
Real property investments - net 31,549 29,380
Long-term investments - net 4,414 3,806
Goodwill 8,020 8,020
Other assets 3,998 4,393
--------------------
Total assets $138,104 $144,937
====================
LIABILITIES
- -----------
Current liabilities:
Current portion of long-term debt $ 2,995 7,721
Accounts payable 11,298 5,418
Accrued expenses and other liabilities 6,339 16,714
--------------------
Total current liabilities 20,632 29,853
Long-term debt 22,758 21,738
Deferred compensation 2,223 2,117
--------------------
Total liabilities 45,613 53,708
--------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 472 471
Additional paid-in capital 31,330 31,229
Retained earnings 60,150 59,581
Accumulated other comprehensive gain 540 76
Treasury stock (1) (128)
--------------------
Total stockholders' equity 92,491 91,229
--------------------
Total liabilities and stockholders' equity $138,104 $144,937
====================
<FN>
*Derived from the December 31, 2001 audited consolidated balance sheet.
(The accompanying notes are an integral part of these
unaudited financial statements.)
</FN>
- 3 -
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Six-Month Three-Month
Periods Ended Periods Ended
------------------- -------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net sales $74,395 $63,123 $31,536 $25,847
Cost of goods sold 53,038 50,089 22,562 20,596
------------------ ------------------
Gross profit 21,357 13,034 8,974 5,251
Rental revenue 1,479 1,148 749 586
------------------ ------------------
22,836 14,182 9,723 5,837
Selling, general and
administrative expenses 21,117 18,365 10,210 8,792
Net investments transactions
and impairment charges 12 (41) 9 (79)
------------------ ------------------
Income (loss) from operations 1,707 (4,142) (496) (2,876)
Other income (expense):
Interest expense (978) (1,239) (457) (628)
Interest income 312 393 171 147
Other (128) (14) (126) 63
------------------ ------------------
Income (loss) before income taxes 913 (5,002) (908) (3,294)
Provision (benefit) for income taxes 340 (1,725) (385) (1,180)
------------------ ------------------
Net income (loss) $ 573 $ (3,277) $ (523) $(2,114)
================== ==================
Net income (loss) per share - Basic $0.12 $(0.70) $(0.11) $(0.45)
================ =================
Diluted $0.12 $(0.70) $(0.11) $(0.45)
================ =================
Weighted average number of
shares outstanding - Basic 4,705 4,654 4,714 4,665
================ =================
Diluted 4,819 4,654 4,714 4,665
================ =================
<FN>
(The accompanying notes are an integral part of these
unaudited financial statements.)
</FN>
- 4 -
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six-Month Periods Ended
-----------------------
June 29, June 30,
2002 2001
------- -------
Cash flows from operating activities:
Net income (loss) $ 573 $(3,277)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 970 1,189
Loss on disposal of property 108 -
Net deferred compensation costs and other 281 49
Net impairment and other investments activity 12 (41)
Net change in operating assets and liabilities:
Receivables 18,748 17,045
Inventories (9,642) (23,987)
Other assets (1,510) 461
Accounts payable 5,880 (4,449)
Accrued expenses and other liabilities (10,375) (6,427)
------------------
Net cash provided by (used in) operating activities 5,045 (19,437)
------------------
Cash flows from investing activities:
Capital expenditures (470) (115)
Proceeds from sale of real property and other investments - 495
Purchase of real property and other investments (2,048) (4,121)
Net proceeds from loans and advances to investees 130 1,291
------------------
Net cash used in investing activities (2,388) (2,450)
------------------
Cash flows from financing activities:
Net borrowings under line of credit - 11,880
Proceeds from issuance of long-term debt 697 1,164
Repayment of long-term debt (5,378) (1,347)
Proceeds from issuance of common stock 102 196
Proceeds from issuance of treasury stock 123 65
Purchases of treasury stock - (106)
------------------
Net cash provided by (used in) financing activities (4,456) 11,852
------------------
Net decrease in cash and cash equivalents (1,799) (10,035)
Cash and cash equivalents - beginning of period 28,686 10,517
------------------
Cash and cash equivalents - end of period $26,887 $ 482
==================
- -----------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Cash paid during the period for: Interest $ 541 $1,093
Income taxes 6,620 2,084
<FN>
(The accompanying notes are an integral part of these
unaudited financial statements.)
</FN>
- 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, with no material retroactive
adjustments. 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 condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2001, 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)
June 29, Dec. 31,
2002 2001
-------- --------
Finished goods $31,438 $21,922
Work-in-progress 1,155 1,697
Raw materials and supplies 3,884 3,774
------------------
36,477 27,393
Less - Excess of current cost
over LIFO carrying value (96) (654)
------------------
Total $36,381 $26,739
==================
NOTE 3. COMPREHENSIVE INCOME
- -----------------------------
Comprehensive income consists of net income, plus certain changes in assets and
liabilities that are not included in net income, but are instead reported within
a separate component of stockholders' equity under accounting principles
generally accepted in the United States of America. At June 29, 2002 and June
30, 2001, the Company had one item, unrealized gain or loss on foreign currency
translation, that remains a component of other comprehensive income (loss) as
set forth on the following page:
- 6 -
(in thousands)
Six-Month Three-Month
Periods Ended Periods Ended
------------------ ------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net income (loss) $ 573 $(3,277) $(523) $(2,114)
Foreign currency translation
adjustment 464 (101) 451 (27)
---------------- ----------------
Comprehensive income (loss) $1,037 $(3,378) $ (72) $(2,141)
================ ================
NOTE 4. RECENT ACCOUNTING STANDARDS
- ------------------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets", on January 1, 2002. SFAS 142
discontinues the practice of amortizing goodwill and intangible assets that have
indefinite useful lives and initiates an annual review for impairment. As of the
date of adoption, the Company had unamortized goodwill of $8,020,000 and will no
longer record amortization expense of goodwill. A reconciliation of the
previously reported net loss and loss per share for the six-month and
three-month periods ended June 30, 2001 to the amounts adjusted for the
reduction of amortization expense, net of the related income tax effect, is as
follows:
(in thousands, except for per share data)
Net Loss Basic EPS Diluted EPS
Six-month period ended June 30, 2001 -------- --------- -----------
- ------------------------------------
As previously reported $(3,277) $(0.70) $(0.70)
Add: amortization adjustment 278 0.06 0.06
------- ------ ------
Adjusted $(2,999) $(0.64) $(0.64)
======= ====== ======
Three-month period ended June 30, 2001
- --------------------------------------
As previously reported $(2,114) $(0.45) $(0.45)
Add: amortization adjustment 142 0.03 0.03
------- ------ ------
Adjusted $(1,972) $(0.42) $(0.42)
======= ====== ======
During the second quarter of 2002, the Company completed its testing of goodwill
for impairment in accordance with SFAS 142 and determined that there was no
impairment. In accordance with SFAS 142, goodwill will be tested for impairment
at least annually and more frequently if circumstances indicate it may be
impaired. The Company anticipates performing the annual impairment test during
the fourth quarter of each year.
The Company adopted SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS 144 addresses financial reporting
for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS
121 and the accounting and reporting provisions of APB 30 related to the
disposal of a segment of a business. The adoption of SFAS 144 had no effect on
the Company's financial position, results of operations or cash flows.
The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
- 7 -
vendor for assets or services received from the reseller and, therefore
should be included as a cost or an expense when recognized in the vendor's
income statement. The adoption of EITF 01-9 requires reclassification of
cooperative advertising expenses from Selling, General and Administrative
("SG&A") expense as a reduction from revenues. As a result of such retroactive
reclassification of cooperative advertising, net sales, gross profit and SG&A
expenses each decreased by $574,000 and $319,000 for the six-month periods of
2002 and 2001, and decreased by $272,000 and $161,000 for the three-month
periods of 2002 and 2001, respectively, with no effect on net income.
NOTE 5. INDUSTRY SEGMENTS DATA
- -------------------------------
The Company operates in two industry segments - Apparel and Investments. The
Apparel segment includes sales of apparel, whose principal products are women's
and men's sweaters and women's related separates. The products are sold to
customers throughout the United States of America, including major department
stores, specialty retail stores and catalog companies. Some of the Company's
major customers operate both retail and mail order businesses; therefore, it is
not possible for the Company to determine sales to the individual markets. The
Investments segment makes investments both domestically and internationally,
principally in real property. Costs associated with the Company's rental
activities are included in selling, general, and administrative expenses and
amounted to $1,175,000 and $920,000 for the six-month periods ended June 29,
2002 and June 30, 2001, respectively, and $651,000 and $449,000 for the
three-month periods then ended, respectively.
(in thousands)
Industry Segments Data Six-Month Three-Month
Periods Ended Periods Ended
------------------ ------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net sales Apparel $74,395 $63,123 $31,536 $25,847
Rental revenue Investments 1,479 1,148 749 586
------- ------- ------- -------
$75,874 $64,271 $32,285 $26,433
- ----------------------------------------------------------------------------
Gross profit Apparel $21,357 $13,034 $8,974 $5,251
(as percent of net sales) 28.7% 20.6% 28.5% 20.3%
- ----------------------------------------------------------------------------
Income (loss) from Apparel $2,524 $(3,218) $(220) $(2,446)
operations Investments 292 269 89 216
Corporate (1,109) (1,193) (365) (646)
------- ------- ------- -------
$1,707 $(4,142) $(496) $(2,876)
- ----------------------------------------------------------------------------
Interest expense Apparel $ 49 $ 128 $ 4 $ 59
Investments 394 410 182 202
Corporate 535 701 271 367
------- ------- ------- -------
$978 $1,239 $457 $628
- ----------------------------------------------------------------------------
June 29, Dec. 31,
2002 2001
-------- --------
Total identifiable Apparel $ 65,066 $ 74,903
assets Investments 37,427 34,527
Corporate 35,611 35,507
-------- --------
$138,104 $144,937
======== ========
- 8 -
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.
SEASONALITY
- -----------
The Company's apparel business is highly seasonal with the majority of sales
occurring in the third and fourth quarters of the year. Accordingly, the Company
historically experiences losses or minimal operating profits during the first
and second quarters of the year.
RESULTS OF OPERATIONS
- ---------------------
Six-month Periods Ended June 29, 2002 and June 30, 2001
- -------------------------------------------------------
Net Sales
- ---------
Net sales for the six-month period ended June 29, 2002 were $74,395,000,
compared to $63,123,000 for the same period last year, an increase of
$11,272,000 or 17.9%. Units shipped in the six-month period ended June 29, 2002
exceeded units shipped during the same period last year by approximately 22.6%.
The increase was primarily due to an increase in sales of women's cotton
sweaters. A shift in product mix and the discontinuation of a product line
resulted in a 3.9% decrease in the average sales price.
Gross Profit
- ------------
Gross profit for the six-month period ended June 29, 2002 was $21,357,000,
compared to $13,034,000 for the same period last year, an increase of $8,323,000
or 63.9%. As a percentage of net sales, gross profit margins were 28.7% for the
six-month period of 2002, compared with 20.6% for the same period last year. The
increase in gross profit is attributed primarily to discontinuation of a less
profitable product line, an increase in unit volume of sweaters shipped and cost
reductions.
Rental Revenue
- --------------
Rental revenue from the Investments segment for the six-month period ended June
29, 2002 was $1,479,000, compared to $1,148,000 for the same period last year,
an increase of $331,000 or 28.8%. The increase in revenues resulted primarily
from leasing recently renovated domestic rental property.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the Company were
$21,117,000 for the six-month period ended June 29, 2002, compared to
$18,365,000 for the same period last year, an increase of $2,752,000 or 15.0%.
SG&A expenses for the Apparel segment were $18,658,000 for the six-month period
ended June 29, 2002, compared to $16,252,000 for the same period last year, an
increase of $2,406,000 or 14.8%. The increase primarily resulted from additional
marketing, designing, shipping and related expenses caused by the increased
sales volume in the six-month period ended June 29, 2002. The six-month period
- 9 -
ended June 30, 2001 included $423,000 amortization of goodwill; the
six-month period ended June 29, 2002 did not include any amortization of
goodwill as a result of the adoption of SFAS 142 on January 1, 2002, there was
no amortization in the current year. SG&A expenses for the Investments segment
were $1,175,000 for the six-month period ended June 29, 2002, compared to
$920,000 for the same period last year, an increase of $255,000 or 27.7%. The
increase resulted primarily from additional depreciation expense, which
increased to $591,000 for the six-month period in 2002, compared to $398,000 for
the same period in 2001.
Operating Income/Loss
- ---------------------
Operating income for the Company for the six-month period ended June 29, 2002
was $1,707,000, compared to an operating loss of $4,142,000 for the same period
last year, an increase of $5,849,000. This increase resulted primarily from the
increased sales, elimination of the less profitable line and the cost
reductions.
Interest Expense
- ----------------
Interest expense for the six-month period ended June 29, 2002 was $978,000,
compared to $1,239,000 for the same period last year, a decrease of $261,000 or
21.1%. The decrease primarily resulted from reduced borrowings outstanding
during the period ended June 29, 2002.
Interest Income
- ---------------
Interest income for the six-month period ended June 29, 2002 was $312,000,
compared to $393,000 for the same period last year, a decrease of $81,000 or
20.6%. The decrease primarily resulted from lower interest rates on short term
investments during the period ended June 29, 2002.
Income Taxes
- ------------
The Company's income tax provision for the six-month period ended June 29, 2002
was $340,000, compared to a tax benefit of $1,725,000 for the same period last
year. The effective income tax rate increased to 37.2% for the six-month period
ended June 29, 2002, compared to 34.5% for the same period last year, due to
changes in composition of income among the Company's consolidated entities.
Net Income/Loss
- ---------------
Net income for the six-month period ended June 29, 2002 was $573,000, or $0.12
per diluted share, compared to a net loss of $3,277,000, or $0.70 per diluted
share, for the same period last year, an increase of $3,850,000. This increase
resulted from the factors previously discussed.
Three-Month Periods Ended June 29, 2002 and June 30, 2001
- ---------------------------------------------------------
Net Sales
- ---------
Net sales for the three-month period ended June 29, 2002 were $31,536,000,
compared to $25,847,000 for the same period last year, an increase of $5,689,000
or 22.0%. Units shipped in the three-month period ended June 29, 2002 exceeded
units shipped during the same period last year by approximately 16.8%. The
increase was primarily due to an increase in sales of women's cotton sweaters. A
shift in product mix resulted in a 4.4% increase in the average sales price.
Gross Profit
- ------------
Gross profit for the three-month period ended June 29, 2002 was $8,974,000,
compared to $5,251,000 for the same period last year, an increase of $3,723,000
or 70.9%. As a percentage of net sales, gross profit margins were 28.5% for the
three-month period of 2002, compared with 20.3% for the same period last year.
- 10 -
The increase in gross profit is attributed primarily to an increase in unit
volume of sweaters shipped and cost reductions.
Rental Revenue
- --------------
Rental revenue from the Investments segment for the three-month period ended
June 29, 2002 was $749,000, compared to $586,000 for the same period last year,
an increase of $163,000 or 27.8%. The increase in revenues resulted primarily
from leasing recently renovated domestic rental property.
Selling, General and Administrative Expenses
- --------------------------------------------
SG&A expenses for the Company were $10,210,000 for the three-month period ended
June 29, 2002, compared to $8,792,000 for the same period last year, an increase
of $1,418,000 or 16.1%. SG&A expenses for the Apparel segment were $10,210,000
for the six-month period ended June 29, 2002, compared to $8,792,000 for the
same period last year, an increase of $1,410,000 or 18.3%. The increase
primarily resulted from additional marketing, designing, shipping and related
expenses caused by the increased sales volume in the three-month period of 2002.
The three-month period ended June 30, 2001 included $211,000 amortization of
goodwill; with the adoption of SFAS 142 on January 1, 2002, the three-month
period ended June 29, 2002 did not include any amortization of goodwill as a
result of the adoption of SFAS 142 on January 1, 2002. SG&A expenses for the
Investments segment were $651,000 for the three-month period ended June 29,
2002, compared to $449,000 for the same period last year, an increase of
$202,000 or 45.0%. The increase resulted primarily from additional depreciation
expense, which increased to $322,000 for the three-month period in 2002,
compared to $197,000 for the same period in 2001.
Operating Loss
- --------------
Operating loss for the Company for the three-month period ended June 29, 2002
was $496,000, compared to an operating loss of $2,876,000 for the same period
last year, a decrease of $2,380,000. The improvement resulted primarily from the
increased sales and the cost reductions.
Interest Expense
- ----------------
Interest expense for the three-month period ended June 29, 2002 was $457,000,
compared to $628,000 for the same period last year, a decrease of $171,000 or
27.2%. The decrease primarily resulted from reduced borrowings outstanding
during the period ended June 29, 2002.
Interest Income
- ---------------
Interest income for the three-month period ended June 29, 2002 was $171,000,
compared to $147,000 for the same period last year, an increase of $24,000 or
16.3%. The increase primarily resulted from increased amounts of short term
investments during the period ended June 29, 2002, partially offset by lower
interest rates.
Income Taxes
- ------------
The Company's income tax benefit for the three-month period ended June 29, 2002
was $385,000, compared to a tax benefit of $1,180,000 for the same period last
year. The effective income tax rate increased to 42.4% for the three-month
period ended June 29, 2002, compared to 35.8% for the same period last year, due
to changes in composition of income among the Company's consolidated entities.
Net Loss
- --------
Net loss for the three-month period ended June 29, 2002 was $523,000, or $0.11
per diluted share, compared to a net loss of $2,114,000, or $0.45 per diluted
share, for the same period last year, a decrease of $1,591,000. The improvement
resulted from the factors previously discussed.
- 11 -
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 buildup in
inventories and accounts receivable (which historically reach their maximum
requirements in the third quarter), servicing long-term debt and funding capital
expenditures and investments. The primary sources to meet the liquidity and
capital requirements include funds generated from operations, revolving credit
lines and long-term borrowing.
At June 29, 2002 the Company had cash and cash equivalents of $26,887,000.
Net cash provided by operating activities was $5,045,000 for the six-month
period ended June 29, 2002, as compared to $19,437,000 used in the same period
last year. Net cash provided by operating activities during the six-month period
ended June 29, 2002 resulted primarily from net income of $573,000 and from net
changes in the working capital accounts of $3,101,000. Net cash used in
operating activities during the six-month period ended June 30, 2001 resulted
from $17,357,000 of net changes in the working capital accounts and a net loss
of $3,277,000. The difference in the net changes in working capital accounts
were primarily the result of a continuing shift from manufacturing inventory
from raw material to purchasing inventory as a finished product and acquiring
the inventory closer to the date of shipment.
Net cash used in investing activities was $2,388,000 for the six-month period
ended June 29, 2002, as compared to net cash used in investing activities of
$2,450,000 for the same period last year. During the six-month periods ended
June 29, 2002 and June 30, 2001, the Company used $2,048,000 and $4,121,000,
respectively, to purchase real property and make other investments.
Additionally, during the six-month period ended June 30, 2001, the Company
received payments of $1,291,000 against notes receivable and received $495,000
of proceeds from the sale of Hampshire Investment assets.
Net cash used in financing activities was $4,456,000 for the six-month period
ended June 29, 2002, as compared to net cash provided by financing activities of
$11,852,000 for the same period last year. During the six-month periods ended
June 29, 2002 and June 30, 2001, the Company used $5,378,000 and $1,347,000,
respectively, for the re-payment of long-term debt. Additionally during the
six-month period ended June 30, 2001, the Company had net borrowings under lines
of credit of $11,880,000.
The Company's Revolving Credit Facility, which matures on September 5, 2003,
provides a secured credit facility up to $97.9 million in revolving line of
credit borrowings and letters of credit. At June 29, 2002, no advances were
outstanding under the line of credit and there were $39.2 million outstanding
letters of credit. At June 29, 2002, based on a borrowing formula, the Company
had availabile for borrowing approximately $11.3 million under the Revolving
Credit Facility.
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 its subsidiaries). The Company was in
compliance with all financial performance covenants and restrictions at June 29,
2002.
- 12 -
The Company's trade account receivables and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Agreements.
Certain real property serve as collateral to mortgages in the Company's
Non-Restricted Subsidiary. The Agreements restrict the sale of assets, payments
by the Company of cash dividends to stockholders, the repurchase of Company
common stock and investments in and loans to the Non-Restricted Subsidiary. The
Senior Notes Agreement also requires that during any 12-month period there must
be a period of 45 consecutive days where there is no outstanding short-term
debt. The Company was in compliance with these provisions at June 29, 2002.
The Company, through its Non-Restricted Subsidiary, finances real property
investments through mortgages and construction loans. The Company's Chief
Executive Officer has guaranteed certain indebtedness of the Non-Restricted
Subsidiary, for which he is paid a fee on the same.
NEW ACCOUNTING STANDARDS
- ------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets", on January 1, 2002. SFAS 142
discontinues the practice of amortizing goodwill and intangible assets that have
indefinite useful lives and initiates an annual review for impairment. As of the
date of adoption, the Company had unamortized goodwill of $8,020,000 and will no
longer record amortization expense of goodwill. A reconciliation of the
previously reported net loss and loss per share for the six-month and
three-month periods ended June 30, 2001 to the amounts adjusted for the
reduction of amortization expense, net of the related income tax effect, is as
follows:
(in thousands, except for per share data)
Net Loss Basic EPS Diluted EPS
Six-month period ended June 30, 2001 -------- --------- -----------
- ------------------------------------
As previously reported $(3,277) $(0.70) $(0.70)
Add: amortization adjustment 278 0.06 0.06
------- ------ ------
Adjusted $(2,999) $(0.64) $(0.64)
======= ====== ======
Three-month period ended June 30, 2001
- --------------------------------------
As previously reported $(2,114) $(0.45) $(0.45)
Add: amortization adjustment 142 0.03 0.03
------- ------ ------
Adjusted $(1,972) $(0.42) $(0.42)
======= ====== ======
During the second quarter of 2002, the Company completed its testing of goodwill
for impairment in accordance with SFAS 142 and determined that there was no
impairment. In accordance with SFAS 142, goodwill will be tested for impairment
at least annually and more frequently if circumstances indicate it may be
impaired. The Company anticipates performing the annual impairment test during
the fourth quarter of each year.
The Company adopted SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS 144 addresses financial reporting
for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS
121 and the accounting and reporting provisions of APB 30 related to the
disposal of a segment of a business. The adoption of SFAS 144 had no effect on
the Company's financial position, results of operations or cash flows.
- 13 -
The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore should
be included as a cost or an expense when recognized in the vendor's income
statement. The adoption of EITF 01-9 requires reclassification of cooperative
advertising expenses from Selling, General and Administrative ("SG&A") expense
as a reduction from revenues. As a result of such retroactive reclassification
of cooperative advertising, net sales, gross profit and SG&A expenses each
decreased by $574,000 and $319,000 for the six-month periods of 2002 and 2001,
and decreased by $272,000 and $161,000 for the three-month periods of 2002 and
2001, respectively, with no effect on net income.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company due to adverse changes in
financial and product market prices and rates. The Company is exposed to market
risk in the areas of changing interest rates and fluctuations of currency
exchange rates. The Company is also exposed to market risk due to changes in
costs for raw materials for the Company's products.
The long-term debt of the Company is at fixed interest rates, which were at
market when the debt was issued, but are primarily above market on June 29,
2002. The short-term debt of the Company has variable rates based on the prime
interest rate of the lending institutions, or at the option of the Company, a
fixed rate based on LIBOR for a fixed term on the Revolving Credit Facility.
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, the
foreign indebtedness of Hampshire Praha is not material to the Company's
consolidated operations. 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 currencies. 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
(a) The Annual Meeting of Stockholders was held on May 16, 2002.
(b) All director nominees were elected.
(c) The proposals submitted to the vote of stockholders and the results
of the votes were as follows:
Broker
Election of Directors For Against Withheld Abstained Non-Votes
- --------------------- --------- ------- -------- --------- ---------
Ludwig Kuttner 4,385,531 7,050 - 10,300 -
Michael Jackson 4,392,581 - - 10,300 -
Dr. Joel Goldberg 4,392,581 - - 10,300 -
Harvey L. Sperry 4,392,531 50 - 10,300 -
Eugene Warsaw 4,322,152 70,429 - 10,300 -
Peter W. Woodworth 4,329,202 63,379 - 10,300 -
Ratification of the
appointment of Deloitte
& Touche LLP as the
Company's independent
accountants 4,335,502 65,879 - 1,500 -
Item 5-Other Information
Not applicable.
Item 6-Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits required to be filed by Item 601 of Regulation S-K are
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 and Part IV,
Item (a)(3) therein.
- 15 -
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbones-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbones-Oxley Act of 2002.
b) Reports on Form 8-K filed during the quarter
There were no reports filed on Form 8-K during the quarter ended
June 29, 2002.
- 16 -
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 August 9, 2002 /s/ Ludwig Kuttner
--------------------------------
Ludwig Kuttner
Chairman of the Board of Directors
President and Chief Executive Officer
(Principal Executive Officer)
Date August 9, 2002 /s/ William W. Hodge
--------------------------------
William W. Hodge
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
- 17 -