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 28, 2003.
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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 4, 2003
----------------------------- ----------------------------
Common Stock, $0.10 Par Value 4,745,876
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 28, 2003 and December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations
for the Six-Month and Three-Month Periods Ended
June 28, 2003 and June 29, 2002 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 28, 2003 and June 29, 2002 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2-Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3-Quantitative and Qualitative Disclosures About Market Risk 15
Item 4-Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1-Legal Proceedings 16
Item 4-Submission of Matters to a Vote of Security Holders 16
Item 6-Exhibits and Reports on Form 8-K 17
Signatures 17
Certifications:
Pursuant to Section 302 of the Sarbanes-Oxley Act 18
Pursuant to Section 906 of the Sarbanes-Oxley Act 20
-2-
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 28, December 31,
2003 2002*
--------------------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 44,433 $ 67,620
Accounts receivable trade - net 16,629 27,474
Notes and other accounts receivable - net 1,283 2,189
Inventories 29,506 14,732
Other current assets 10,083 9,098
------------------------
Total current assets 101,934 121,113
Property, plant and equipment - net 2,279 2,315
Real property investments - net 31,780 28,200
Long-term investments - net 3,748 4,315
Goodwill 8,020 8,020
Other assets 1,892 2,514
------------------------
Total assets $149,653 $166,477
========================
LIABILITIES
- -----------
Current liabilities:
Current portion of long-term debt $ 2,798 $ 2,823
Accounts payable 8,182 6,408
Accrued expenses and other liabilities 9,850 28,382
------------------------
Total current liabilities 20,830 37,613
Long-term debt 17,754 17,302
Deferred compensation 2,286 2,575
------------------------
Total liabilities 40,870 57,490
------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 475 472
Additional paid-in capital 31,778 31,484
Retained earnings 75,868 76,526
Accumulated other comprehensive gain 831 532
Treasury stock (169) (27)
------------------------
Total stockholders' equity 108,783 108,987
------------------------
Total liabilities and stockholders' equity $149,653 $166,477
========================
<FN>
*Derived from the December 31, 2002 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 28, June 29, June 28, June 29,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $83,128 $74,395 $31,961 $31,536
Cost of goods sold 63,054 53,038 24,453 22,562
----------------------------------------
Gross profit 20,074 21,357 7,508 8,974
Rental revenue 1,711 1,479 884 749
----------------------------------------
21,785 22,836 8,392 9,723
Selling, general and
administrative expenses 21,869 21,117 9,934 10,210
Net investment transactions
and impairment charges (382) 12 31 9
----------------------------------------
Income (loss) from operations 298 1,707 (1,573) (496)
Other income (expense):
Interest expense (719) (978) (352) (457)
Interest income 556 312 321 171
Other 105 (128) 67 (126)
----------------------------------------
Income (loss) before income taxes 240 913 (1,537) (908)
Provision (benefit) for income taxes 90 340 (585) (385)
----------------------------------------
Net (loss) income $ 150 $ 573 $ (952) $ (523)
========================================
Net income (loss) per share - Basic $0.03 $0.12 $(0.20) $(0.11)
========================================
Diluted $0.03 $0.12 $(0.20) $(0.11)
========================================
Weighted average number of
shares outstanding - Basic 4,709 4,705 4,730 4,714
========================================
Diluted 4,840 4,819 4,730 4,714
========================================
<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 28, June 29,
2003 2002
-------- --------
Cash flows from operating activities:
Net income $ 150 $ 573
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,104 970
(Gain) loss on disposal of property (1) 108
Net deferred compensation costs and other 107 281
Net impairment and other investments activity (382) 12
Net change in operating assets and liabilities:
Receivables 11,554 18,748
Inventories (14,774) (9,642)
Other assets (1,030) (1,510)
Accounts payable, accrued expenses and other
liabilities (16,758) (4,495)
-------------------
Net cash (used in) provided by operating activities (20,030) 5,045
-------------------
Cash flows from investing activities:
Capital expenditures (418) (470)
Proceeds from sale of real property and other investments 1,213 -
Purchase of real property and other investments (3,728) (2,048)
Net proceeds from loans and advances to investees 468 130
-------------------
Net cash used in investing activities (2,465) (2,388)
-------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,282 697
Repayment of long-term debt (3,321) (5,378)
Proceeds from issuance of common stock 297 102
Proceeds from issuance of treasury stock 276 123
Purchases of treasury stock (1,226) -
-------------------
Net cash used in financing activities (692) (4,456)
-------------------
Net decrease in cash and cash equivalents (23,187) (1,799)
Cash and cash equivalents - beginning of period 67,620 28,686
-------------------
Cash and cash equivalents - end of period $44,433 $26,887
===================
- ------------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Cash paid during the period for: Interest $ 727 $ 541
Income taxes 5,380 6,620
<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, 2002, 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. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The Company's significant accounting policies are the same as those applied at
December 31, 2002 and disclosed in the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 2002, included in
the Company's Annual Report on Form 10-K.
Stock Based Compensation
- ------------------------
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The additional disclosure requirements of SFAS 148 are effective for
fiscal years ending after December 15, 2002. The Company has elected to continue
to follow the intrinsic value method of accounting as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), to account for employee stock options. Under APB 25, no compensation
expense is recognized unless the exercise price of the Company's employee stock
options is less than the market price of the underlying stock on the date of
grant. The Company has not recorded compensation expense in the periods
presented because stock options were granted at the fair market value of the
underlying stock on the date of grant.
-6-
The following information regarding net income and earnings per share prepared
in accordance with SFAS 123 has been determined as if the Company had accounted
for its employee stock options under the fair value method prescribed by SFAS
123. The resulting effect on net income and earnings per share pursuant to SFAS
123 is not likely to be representative of the effects on net income and earnings
per share pursuant to SFAS 123 in future periods, due to subsequent periods
including additional grants and periods of vesting. The fair value of options
was estimated at the date of grant using a Black-Scholes option valuation model
with the following weighted-average assumptions for the six-month period ended
June 28, 2003: risk-free interest rates of 4.1%; dividend yield of 0%; expected
volatility of 39.7; expected life of 4.2 years; and a weighted-average fair
value of options granted of $7.02. During the six-month period ended June 28,
2003, 1,000 options were granted and no options were granted during the
three-month period ended June 28, 2003. There were no options granted during the
six-month and three-month periods ended June 29, 2002.
For purposes of disclosures pursuant to SFAS 123 as amended by SFAS 148, the
estimated fair value of options is amortized to expense over the options'
vesting period.
The following table illustrates the effect on reported net income and earnings
per share had the Company applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation (in thousands, except per share
amounts):
Six-Month Three-Month
Periods Ended Periods Ended
----------------- -----------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Net income (loss) As reported $150 $573 $(952) $(523)
Less - Compensation cost net of tax 26 46 13 23
-------------------------------------
Pro forma 124 527 (965) (546)
- -------------------------------------------------------------------------------
Basic earnings (loss)
per share: As reported $0.03 $0.12 $(0.20) $(0.11)
=====================================
Pro forma $0.03 $0.11 $(0.20) $(0.12)
=====================================
- -------------------------------------------------------------------------------
Diluted earnings (loss)
per share: As reported $0.03 $0.12 $(0.20) $(0.11)
=====================================
Pro forma $0.03 $0.11 $(0.20) $(0.12)
=====================================
- -------------------------------------------------------------------------------
NOTE 3. INVENTORIES
- --------------------
A summary of inventories by component is as follows:
(in thousands)
June 28, December 31,
2003 2002
------- -----------
Finished goods $28,698 $13,246
Work-in-progress 46 205
Raw materials and supplies 999 1,518
---------------------
29,743 14,969
Less - Excess of current cost
over LIFO carrying value (237) (237)
---------------------
Total $29,506 $14,732
=====================
-7-
NOTE 4. COMPREHENSIVE INCOME (LOSS)
- ------------------------------------
Comprehensive income (loss) consists of net income (loss), plus certain changes
in assets and liabilities that are not included in net income (loss), but are
instead reported within a separate component of stockholders' equity under
accounting principles generally accepted in the United States of America. At
June 28, 2003 and June 29, 2002, the Company had one item, unrealized gain on
foreign currency translation, that is a component of other comprehensive income
(loss) as follows:
(in thousands)
Six-Month Three-Month
Periods Ended Periods Ended
------------------- -------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Net income (loss) $150 $ 573 $(952) $(523)
Foreign currency translation
adjustment 299 464 251 451
-------------------------------------------
Comprehensive income (loss) $449 $1,037 $(701) $ (72)
===========================================
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 requires that its provisions are effective
immediately for all arrangements entered into after January 31, 2003. As of June
28, 2003, the adoption did not have any impact on the Company's operating
results or financial position, since the Company had not entered into such
arrangements.
NOTE 6. REVOLVING CREDIT FACILITY
- ----------------------------------
The Company's Revolving Credit Facility, which matures on August 31, 2003,
provides a secured credit facility of up to $97,938,000 for borrowings and
letters of credit. At June 28, 2003, the Company had no outstanding borrowings
under the credit facility and $63,555,000 outstanding letters of credit. At June
28, 2003, based on the specified borrowing formula, the Company had
approximately $4,200,000 available for borrowing under the credit facility. The
Company is currently negotiating a proposal for a $100,000,000 secured credit
facility with the existing bank group having a maturity date of April 30, 2007;
and it is expected to be in place by the end of August 2003.
-8-
NOTE 7. INDUSTRY SEGMENTS DATA
- -------------------------------
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 wovens. 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 Investment rental activities are included in
selling, general and administrative expenses and amounted to $1,184,000 and
$1,175,000 for the six-month periods ended June 28, 2003 and June 29, 2002,
respectively, and $691,000 and $651,000 for the three-month periods then ended,
respectively.
(in thousands)
Industry Segments Data Six-Month Three-Month
Periods Ended Periods Ended
------------------- -------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Net sales Apparel $83,128 $74,395 $31,961 $31,536
Rental revenue Investments 1,711 1,479 884 749
-------------------------------------------
$84,839 $75,874 $32,845 $32,285
- -------------------------------------------------------------------------------
Gross profit Apparel $20,074 $21,357 $ 7,508 $ 8,974
(as percent of net sales) 24.1% 28.7% 23.5% 28.5%
- -------------------------------------------------------------------------------
Income (loss) from Apparel $ 661 $ 2,524 $(1,250) $ (220)
operations Investments 909 292 162 89
Corporate (1,272) (1,109) (485) (365)
-------------------------------------------
$ 298 $ 1,707 $(1,573) $ (496)
- -------------------------------------------------------------------------------
Interest expense Apparel $ 14 $ 49 $ 1 $ 4
Investments 319 394 158 182
Corporate 386 535 193 271
-------------------------------------------
$ 719 $ 978 $ 352 $ 457
===============================================================================
June 28, December 31,
2003 2002
------- -----------
Total identifiable Apparel $ 58,880 $ 59,380
assets Investments 37,201 34,048
Corporate 53,572 73,049
--------------------
$149,653 $166,477
- -------------------------------------------------------------------------------
-9-
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
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.
Substantially all the Company's products are purchased from independent foreign
suppliers. The failure of these suppliers to ship products to the Company in a
timely manner or to meet required standards could cause the Company to miss
delivery date requirements from its customers. The failure to make timely
deliveries could expose the Company to liability from its customers or cause
customers to cancel orders, refuse to accept delivery of products or demand
reduced prices. During the fourth quarter of 2002, the Company was informed that
a major foreign supplier was under investigation for customs violations and
would no longer deliver products, including products in transit at that time.
The Company has replaced the supplier; however, the effect of replacing this
supplier did impact the results of the first six-month period of 2003.
SEASONALITY
- -----------
The Company's apparel business is highly seasonal with the majority of sales
occurring in the third and fourth quarters of the year.
RESULTS OF OPERATIONS
- ---------------------
Six-month Periods Ended June 28, 2003 and June 29, 2002
- -------------------------------------------------------
Net Sales
- ---------
Net sales for the six-month period ended June 28, 2003 were $83,128,000,
compared to $74,395,000 for the same period last year, an increase of $8,733,000
or 11.7%. Sales increases occurred across all product lines. Units shipped in
the six-month period ended June 28, 2003 exceeded units shipped during the same
period last year by approximately 154,000 dozen, or 24.6%. The average net sales
price per unit declined 6.3% primarily due to higher allowances granted to
customers in a difficult retail market and a shift in product mix.
Gross Profit
- ------------
Gross profit for the six-month period ended June 28, 2003 was $20,074,000,
compared to $21,357,000 for the same period last year, a decrease of $1,283,000
or 6.0%. As a percentage of net sales, gross profit margins were 24.1% for the
six-month period of 2003, compared with 28.7% for the same period last year. The
decrease in gross profit margins primarily resulted from higher allowances
granted to customers in a difficult retail market and additional costs related
to the necessity of obtaining replacement products because of the failure of a
significant supplier, as discussed above, in the fourth quarter of 2002.
-10-
Rental Revenue
- --------------
Rental revenue from the Investments segment for the six-month period ended June
28, 2003 was $1,711,000, compared to $1,479,000 for the same period last year,
an increase of $232,000 or 15.7%. The increase in revenues resulted primarily
from leasing recently renovated rental property.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses were $21,869,000 for the
six-month period ended June 28, 2003, compared to $21,117,000 for the same
period last year, an increase of $752,000 or 3.6%. As a percentage of net sales,
SG&A expenses were 26.3% for the six-month period of 2003, compared with 28.4%
for the same period last year. SG&A expenses for the Apparel segment were
$19,413,000 for the six-month period ended June 28, 2003, compared to
$18,658,000 for the same period last year, an increase of $755,000 or 4.0%. The
increase primarily resulted from additional marketing, designing, shipping and
related expenses caused by the increased unit volume in the six-month period
ended June 28, 2003 and costs related to the development of two new product
lines to be launched in the fall of 2003, offset in part by the reversal of a
litigation reserve in the amount of $453,000. SG&A expenses for the Investments
segment were $1,184,000 for the six-month period ended June 28, 2003, compared
to $1,175,000 for the same period last year, an increase of $9,000 or 0.8%.
Net Investment Transactions and Impairment Charges
- --------------------------------------------------
Net investment transactions and impairment charges for the six-month period
ended June 28, 2003 were a gain of $382,000 compared to a loss of $12,000 for
the same period last year, an increase of $394,000. During the six-month ended
June 28, 2003 the Investment segment realized a gain on the sale of an
investment of $310,000 and a net gain from the sale of real property of
$132,000.
Interest Expense
- ----------------
Interest expense for the six-month period ended June 28, 2003 was $719,000,
compared to $978,000 for the same period last year, a decrease of $259,000 or
26.5%. The decrease primarily resulted from lower average borrowings during the
period ended June 28, 2003. Average borrowings during the six-month period ended
June 28, 2003 were $20,346,000, compared to $26,440,000 for the same period last
year.
Interest Income
- ---------------
Interest income for the six-month period ended June 28, 2003 was $556,000,
compared to $312,000 for the same period last year, an increase of $244,000 or
78.2%. The increase primarily resulted from higher cash balances during the
period ended June 28, 2003.
Income Taxes
- ------------
The Company's income tax provision for the six-month period ended June 28, 2003
was $90,000, compared to $340,000 for the same period last year. The effective
income tax rate increased to 37.5% for the six-month period ended June 28, 2003,
compared to 37.2% for the same period last year.
Net Income
- ----------
For the reasons stated herein, net income for the six-month period ended June
28, 2003 was $150,000, or $0.03 per diluted share, compared to $573,000, or
$0.12 per diluted share, for the same period last year, a decrease of $423,000.
-11-
Three-Month Periods Ended June 28, 2003 and June 29, 2002
- ---------------------------------------------------------
Net Sales
- ---------
Net sales for the three-month period ended June 28, 2003 were $31,961,000,
compared to $31,536,000 for the same period last year, an increase of $425,000
or 1.3%. Units shipped in the three-month period ended June 28, 2003 exceeded
units shipped during the same period last year by approximately 64,000 dozen, or
25.7%. The average net sales price per unit declined 10.3% primarily due to
higher allowances granted to customers in a difficult retail market and a shift
in product mix.
Gross Profit
- ------------
Gross profit for the three-month period ended June 28, 2003 was $7,508,000,
compared to $8,974,000 for the same period last year, a decrease of $1,466,000
or 16.3%. As a percentage of net sales, gross profit margins were 23.5% for the
three-month period of 2003, compared with 28.5% for the same period last year.
The decrease in gross profit margins primarily resulted from higher allowances
granted to customers in a difficult retail market.
Rental Revenue
- --------------
Rental revenue from the Investments segment for the three-month period ended
June 28, 2003 was $884,000, compared to $749,000 for the same period last year,
an increase of $135,000 or 18.0%. The increase in revenues resulted primarily
from leasing recently renovated rental property.
Selling, General and Administrative Expenses
- --------------------------------------------
SG&A expenses were $9,934,000 for the three-month period ended June 28, 2003,
compared to $10,210,000 for the same period last year, a decrease of $276,000 or
2.7%. As a percentage of net sales, SG&A expenses were 31.1% for the three-month
period of 2003, compared with 32.4% for the same period last year. SG&A expenses
for the Apparel segment were $8,758,000 for the three-month period ended June
28, 2003, compared to $9,107,000 for the same period last year, a decrease of
$349,000 or 3.8%. The decrease resulted primarily from the reversal of a
litigation reserve in the amount of $453,000, offset in part by additional
marketing, designing, shipping and related expenses caused by the increased unit
volume in the three-month period ended June 28, 2003. SG&A expenses for the
Investments segment were $691,000 for the three-month period ended June 28,
2003, compared to $651,000 for the same period last year, an increase of $40,000
or 6.1%. The increase primarily resulted from expenses related to the additional
rented properties.
Interest Expense
- ----------------
Interest expense for the three-month period ended June 28, 2003 was $352,000,
compared to $457,000 for the same period last year, a decrease of $105,000 or
23.0%. The decrease primarily resulted from lower average borrowings during the
period ended June 28, 2003. Average borrowings during the three-month period
ended June 28, 2003 were $20,526,000, compared to $24,249,000 for the same
period last year.
Interest Income
- ---------------
Interest income for the three-month period ended June 28, 2003 was $321,000,
compared to $171,000 for the same period last year, an increase of $150,000 or
87.7%. The increase primarily resulted from higher cash balances during the
period ended June 28, 2003.
-12-
Income Taxes
- ------------
The Company's income tax benefit for the three-month period ended June 28, 2003
was $585,000, compared to $385,000 for the same period last year. The effective
income tax rate decreased to 38.1% for the three-month period ended June 28,
2003, compared to 42.4% for the same period last year, due to changes in
composition of income among the Company's consolidated entities.
Net Loss
- --------
For the reasons stated herein, net loss for the three-month period ended June
28, 2003 was $952,000, or $0.20 per diluted share, compared to a loss of
$523,000, or $0.11 per diluted share, for the same period last 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 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, borrowings under
revolving credit lines and long-term debt.
At June 28, 2003, the Company had cash and cash equivalents of $44,433,000.
Net cash used in operating activities was $20,030,000 for the six-month period
ended June 28, 2003, as compared to net cash provided by operating activities of
$5,045,000 in the same period last year. Net cash used in operating activities
during the six-month period ended June 28, 2003 resulted primarily from net
changes in the working capital accounts of $21,008,000. Net cash provided by
operating activities during the six-month period ended June 29, 2002 resulted
primarily from $3,101,000 of net changes in the working capital accounts, and
net income of $573,000. The changes in working capital accounts for the
six-month period ended June 28, 2003 resulted primarily from the increase in
inventory of $14,774,000 and reduction of accounts payable, accrued expenses and
other liabilities of $16,758,000, offset in part by a reduction in accounts
receivable of $11,554,000. The reduction of accounts payable, accrued expenses
and other liabilities included, among other things, the payment of 2002
incentive bonus compensation and income taxes. These changes are fully
consistent with the seasonal nature of the Company's business.
Net cash used in investing activities was $2,465,000 for the six-month period
ended June 28, 2003, as compared to net cash used in investing activities of
$2,388,000 for the same period last year. During the six-month periods ended
June 28, 2003 and June 29, 2002, the Company used $3,728,000 and $2,048,000,
respectively, to purchase or renovate real property and make other investments.
Additionally, during the six-month period ended June 28, 2003, the Company
received payments of $468,000 against notes receivable, and received $1,213,000
from the sale of real property and other investments. During the six-month
period ended June 29, 2002 the Company received payments of $130,000 against
notes receivable.
Net cash used in financing activities was $692,000 for the six-month period
ended June 28, 2003, as compared to $4,456,000 for the same period last year.
During the six-month periods ended June 28, 2003 and June 29, 2002, the Company
used $3,321,000 and $5,378,000, respectively, for the repayment of long-term
debt. During the six-month periods ended June 28, 2003 and June 29, 2002, the
Company received proceeds of $3,282,000 and $697,000, respectively, from the
issuance of long-term debt. Additionally during the six-month period ended June
28, 2003, the Company used $1,226,000 to purchase its common stock.
-13-
The Company's Revolving Credit Facility, which matures on August 31, 2003,
provides a secured credit facility of up to $97,938,000 for borrowings and
letters of credit. At June 28, 2003, the Company had no outstanding borrowings
under the credit facility and $63,555,000 outstanding letters of credit. At June
28, 2003, based on the specified borrowing formula, the Company had
approximately $4,200,000 available for borrowing under the credit facility. The
Company is currently negotiating a proposal for a $100,000,000 secured credit
facility with the existing bank group having a maturity date of April 30, 2007;
and it is expected to be in place by the end of August 2003.
Both the Revolving Credit Facility and the Senior Notes contain covenants which
require certain financial performance and restrict certain payments by the
Company, including advances to Hampshire Investments, Limited and its
subsidiaries (the "Non-Restricted Subsidiary"). The Company was in compliance
with all financial performance covenants and restrictions at June 28, 2003.
The Company's trade accounts receivable and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Senior
Notes. Certain real properties of the Non-Restricted Subsidiary are pledged as
collateral for mortgages. The Revolving Credit Facility and the Senior Notes
restrict the sale of assets, payments by the Company of cash dividends to
stockholders, the purchase of Company common stock and investments in and loans
to the Non-Restricted Subsidiary. The Senior Notes also require 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 28, 2003.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". SFAS 148
amends SFAS 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to
require more prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
additional disclosure requirements of SFAS 148 are effective for fiscal
years ending after December 15, 2002. The Company has elected to continue
to follow the intrinsic value method of accounting as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), to account for employee stock options. Under
APB 25, no compensation expense is recognized unless the exercise price of
the Company's employee stock options is less than the market price of the
underlying stock on the date of grant. The Company has not recorded
compensation expense in the periods presented because stock options were
granted at the fair market value of the underlying stock on the date of
grant. See Note 2, "Significant Accounting Policies", in the Notes to
Unaudited Condensed Consolidated Financial Statements in Part I, Item I
of the Form 10-Q for the required disclosures under SFAS 148.
-14-
In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 requires that its provisions are effective
immediately for all arrangements entered into after January 31, 2003. As of June
28, 2003, the adoption did not have any impact on the Company's operating
results or financial position, since the Company had not entered into such
arrangements.
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.
Substantially all of 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 28, 2003. 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 85% 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 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.
Item 4 - Controls and Procedures
- --------------------------------
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and related forms, and
that such information is accumulated and communicated to the Company's Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Within the 90 days prior to the filing date of this quarterly report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective.
-15-
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls and procedures
subsequent to the date the Company completed its evaluation. Therefore, no
corrective actions were required to be taken.
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 flow.
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 22, 2003.
(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 4,515,596 - 94,660 - -
Dr. Joel Goldberg 4,607,346 - 2,910 - -
Michael Jackson 4,491,031 - 119,225 - -
Richard V. Romer 4,571,781 - 38,475 - -
Harvey L. Sperry 4,607,346 - 2,910 - -
Eugene Warsaw 4,480,031 - 130,225 - -
Irwin W. Winter 4,607,346 - 2,910 - -
Peter W. Woodworth 4,607,346 - 2,910 - -
Ratification of the
appointment of Deloitte
& Touche LLP as the
Company's independent
accountants 4,461,633 148,323 - 300 -
Item 5 - Other Information
- --------------------------
Not applicable
-16-
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, 2002 and Part IV, Item (a)(3)
therein.
b) Reports on Form 8-K filed during the quarter
On May 13, 2003, the Company filed a current report on Form 8-K reporting
an Item 9 Regulation FD disclosure regarding the release of the Company's
financial results for the quarter ended March 29, 2003.
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 7, 2003 /s/ Ludwig Kuttner
- ----------------------- ------------------------------
Ludwig Kuttner
Chairman of the Board of Directors
President and Chief Executive Officer
(Principal Executive Officer)
Date August 7, 2003 /s/ William W. Hodge
- ----------------------- -------------------------------
William W. Hodge
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-17-
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
---------------------------------------------------------------
I, Ludwig Kuttner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hampshire Group,
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 7, 2003
- -----------------------
/s/ Ludwig Kuttner
- -----------------------
Ludwig Kuttner
Chief Executive Officer
-18-
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
---------------------------------------------------------------
I, William W. Hodge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hampshire Group,
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date August 7, 2003
- ---------------------
/s/ William W. Hodge
- ---------------------
William W. Hodge
Chief Financial Officer
-19-
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hampshire Group, Limited (the
"Company") on Form 10-Q for the period ended June 28, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ludwig
Kuttner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: August 7, 2003
- ----------------------
/s/ Ludwig Kuttner
- ----------------------
Ludwig Kuttner
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hampshire Group, Limited (the
"Company") on Form 10-Q for the period ended June 28, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
W. Hodge, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date August 7, 2003
- ---------------------
/s/ William W. Hodge
- ---------------------
William W. Hodge
Chief Financial Officer
-20-