UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D C 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934. For the fiscal year ended December 31, 1996.
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. 33-47577
HAMPSHIRE GROUP, LIMITED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-0967107
(State of Incorporation) (I.R.S. Employer Identification No.)
POST OFFICE BOX 2667
215 COMMERCE BOULEVARD
ANDERSON, SOUTH CAROLINA 29621
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (864) 225-6232
Securities registered pursuant to Section 12(b) of the Act: (Title of class)
None
Securities registered pursuant to Section 12(g) of the Act: (Title of class)
Common Stock, $.10 Par Value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock (which consist solely of shares
of Common Stock) held by non-affiliates of the Registrant as of March 17, 1997,
computed by reference to the closing sale's price of the Registrant's Common
Stock as reported by the NASDAQ National Market System, was approximately
$23,152,000. Shares of Common Stock held, directly or indirectly, by each
director and executive officer and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 25, 1997, the Registrant had outstanding 3,872,830 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
1997 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
1
HAMPSHIRE GROUP, LIMITED
Table of Contents
Page
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management 15
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 16
Signatures 19
Consolidated Financial Statements F-1
Financial Statement Schedules F-20
Quarterly Financial and Stock Data F-24
2
"Cautionary Disclosure Regarding Forward-Looking Statements"
When used in this document in general and in the outlook section of Item 7
Management's Discussion and Analysis in particular, the words "expects",
"anticipates" and similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrences of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, in this report, as well as the Company's
other filings under the Securities Exchange Act of 1934.
PART I
------
ITEM 1 - BUSINESS
GENERAL
Hampshire Group, Limited ("Hampshire Group" or the "Company") operates three
business segments. Hampshire Designers, Inc. is the largest manufacturer of
sweaters in North America and is a manufacturer of hosiery and other legwear;
and Hampshire Investments, Ltd. was organized in March 1997, for the purpose of
making investments in businesses not related to the sweater and hosiery
businesses of the Company.
Information with respect to sales, operating income and identifiable assets
attributable to the business segments appears in Management's Discussion and
Analysis of Financial Condition commencing on Page 10 hereof.
Hampshire Group, through a predecessor firm, has been engaged in manufacturing
of hosiery since 1917 and of sweaters since 1956. On June 24, 1992, the Company
completed its initial public offering of one million shares of its common stock.
STRENGTHS AND STRATEGY
The Company's primary strength is its ability to manufacture and deliver quality
products within a given price range, while providing superior levels of customer
service.
Quality is achieved in the Company's sweater business through the use of
full-fashion and electronically controlled, knitting machines, which the Company
believes produce a better fitting and more durable product; through the use of
superior quality yarns; and through a rigorous quality assurance program.
Hosiery quality is achieved through the use of high-speed knitting machines, the
use of premium yarns, and an intensive quality control program.
The Company provides superior customer service from its domestic manufacturing
facilities through the Company's Quick Response program and an Electronic Data
Interchange ("EDI") system that links the Company's computers electronically to
those of many of its major customers. By helping retailers reduce inventory
carrying costs through the location of its distribution facilities, and through
sophisticated order fulfillment techniques, the Company provides an important
service to its customers.
The Company maintains a strong position in the women's sweater moderate-price
category. In addition, the Company has expanded into the higher-priced segment
of the women's sweater market, the men's market and has acquired worldwide
sweater sourcing capabilities.
The acquisitions of San Francisco Knitworks and Segue, Ltd. expanded the
Company's business into women's and men's better sweater market. In addition,
Segue provides worldwide sourcing of manufacturing for sweaters. The merger with
The Winona Knitting Mills, Inc. in the fourth quarter of 1995, expanded the
sweater business through the production of more intricate patterns and provided
a strong customer base in the men's sweater market.
3
The two key strategies with respect to the hosiery segment are (i) to produce a
limited number of high volume styles to be marketed as customized private-label
hosiery programs for chains and mass merchandisers and other large customers and
(ii) to increase the share of the specialty market including tights and cotton
tights for children.
SWEATER OPERATIONS
The Company is the largest manufacturer of sweaters in North America. The
sweater business consists of Designers Originals and private-label women's
sweaters, novelty imported women's sweaters, designer-branded women's sweaters
and men's private-label and branded sweaters.
Designers Originals
- -------------------
Designers Originals sweaters, which generally sell in the $30-$40 range, are
full-fashion (knit-to-body shape) and dyed slowly in an open vat process. Most
are made of the Company's own branded, cashmere-like acrylic yarn called
Luxelon(R) and are styled mainly in classic designs which have changed little
since first introduced.
Designers Originals sweaters are sold in the moderate-price women's market, but
possess manufacturing details usually found only on more expensive sweaters.
Sales are consistently strong because of the demand for classic-styled sweaters.
Retail customers, many of which the Company has a long history with, number
approximately 1,900 and include department stores such as J.C. Penney, Dillard's
Department Stores, the May Company and Federated Department Stores. The sweaters
are sold through a sales force of two employees and 12 independent sales
representatives throughout the United States with senior management
participating in the presentations to the larger accounts. The Company also
meets with customers during the ten market weeks conducted in the apparel
industry each year.
The Company manufactures the sweaters in its facilities located in Puerto Rico
using undyed yarn for assembly and then dying the full garments according to
demand. This affords the Company flexibility in the production planning process.
The Company maintains rigorous quality control in order to satisfy the strict
standards required by its customers. Quality control consists of light
inspection by photospectrometer of each dye lot for shade consistency and lamp
examination of all sweaters after assembly for knitting defects. In addition,
there are three full inspections of all sweaters - after dying, after finishing,
and during folding and packaging.
Private-Label
- -------------
The Company's private-label sweaters are designed in collaboration with
customers and are produced to desired specifications for sale under labels of a
number of retailers and apparel companies. These sweaters consist primarily of
full-fashion, cotton sweaters manufactured domestically in the Company's
facilities in Virginia and San Francisco, as well as Puerto Rico, utilizing the
same processes employed for manufacture of the branded Designers Originals line.
The Company maintains the high quality standards required by its private-label
customers including Lands' End, Lord & Taylor and Sears.
Novelty Import Line
- -------------------
The Company through its international sourcing capability designs and imports
patterned and novelty sweaters for sale primarily for the women's moderate-price
market. This is accomplished through the use of several brand names including
Designers Originals Studio(R), Designers Originals Sport(R), and Moving Bleu(R).
The use of "Designers Originals" in the new brand names has increased the
acceptability of the new products to existing customers of the Company.
Designer-Branded Women's Line
- -----------------------------
The Company has the exclusive right to market products designed by Mary Jane
Marcasiano which bears the Marcasiano label. Mary Jane Marcasiano designs
fashionable classic sweaters of exceptional quality which sell to the designer,
bridge and better markets. She works closely with her customers, including
prestigious boutiques, department stores and catalogues to develop specific
products for their customers. Major customers include Saks Fifth Avenue, Neiman
Marcus, Bergdorf Goodman and Nordstroms.
The sweaters are manufactured by domestic contractors, as well as the sourcing
contacts in Southeast Asia established through the Company's import business.
4
Men's Branded and Private-Label Line
- ------------------------------------
In October 1995, the Company acquired The Winona Knitting Mills, a private-label
manufacturer of men's sweaters since 1943. Thereby, it acquired three strong
brand names - The Lake Harmony Rowing Club(TM), Berwick(TM) and American
Portrait(TM).
The men's sweaters are manufactured in the Company's facilities in Minnesota
from natural fibers including wool and cotton. The sweaters are sold primarily
under private-labels for retailers and apparel companies including Lands' End,
L.L. Bean, Woolrich and Pendleton Woolen Mills. The branded men's line,
including a new brand, Landscape(TM), are sold to retailers including Dillard's
Department Stores and Federated Department Stores.
Competition
- -----------
The sweater industry competition is intense and based on price, quality and
service. While the Company faces competition from a large number of sweater
manufacturers located in the United States, its primary competition comes from
manufacturers located in Southeast Asia. The foreign competitors benefit from
production cost advantages which are offset in part by United States import
quota and tariff protection. The Company competes with the Southeast Asian
suppliers by supplementing its domestic manufacturing with imports that allow it
to compete aggressively in terms of price while providing superior service.
HOSIERY OPERATIONS
The Company, through its hosiery business operates in a highly competitive
market which is dominated by two major competitors. Within this market,
Hampshire Hosiery provides customized private-label hosiery and tights programs
for chains and mass merchandisers and other large customers.
Hampshire Hosiery sells a limited number of high-volume styles utilizing its
manufacturing facilities in North Carolina and foreign contractors. The hosiery
business provides a high level quality and service through the use of
state-of-the-art machinery including electronically controlled knitting
machines, automated assembly machines, computerized color assurance machines and
automated packaging machines. In addition, the use of electronic data processing
utilizing EDI assists reducing the inventory required to be carried by its
customers.
Hampshire Hosiery sells its hosiery and tights to customers throughout the
United States including Kids `R' Us, Kmart, Nordstroms, Loehmann's Department
Stores and US Shoe Corp. The hosiery business has a sales force of eight
employees located in the Company's showrooms in New York, Boston and other sales
locations throughout the United States.
Hampshire Hosiery will concentrate on providing customized private-label hosiery
programs by offering a relatively small number of high-volume styles which are
profitable for both the retailer and the Company. These programs will be
marketed aggressively at prices which will produce reasonable profit margins.
The Company will also offer niche products, including cotton tights and Diahann
Carrol(R) brand hosiery products, in order to seek out new areas that can help
it grow in both volume and profits.
INVESTMENT OPERATIONS
Hampshire Investments Ltd. ("Hampshire Investments") has been created by the
Company for the purpose of diversifying the sources of the revenues and income
of the Company. In 1997, the Company intends to provide $5 million to Hampshire
Investments to make investments, no single one of which is expected to exceed $1
million. It is expected that the investments will initially be made in the
apparel industry and in real estate, with emphasis on long-term as opposed to
short term. Hampshire Investments intends to primarily make investments in
operating businesses over which influence, but not control, can be exercised by
the Company.
The employees of Hampshire Investments who will make the investment decisions
will have experience both in managing businesses and managing such investments:
Ludwig Kuttner, Chairman and Chief Executive Officer of the Company, has
privately invested both in operating businesses and in real estate over a number
of years. He will actively participate in the investment decisions of Hampshire
Investments.
Whether Hampshire Investments will provide revenue and income to the Company
will depend both on the skills of the Hampshire Investments employees making the
investment decisions and the success of the businesses in which the investments
are made. There can be no assurance that Hampshire's investments will produce
income for the Company.
5
SEASONALITY
Sweaters: Although the Company sells sweaters throughout the year, the sweater
business is highly seasonal, with approximately 75% of sales occurring during
the fall and winter months. The sweaters which are sold during the spring and
summer are of lighter weight. The Company continues its research and development
efforts to bring the market more products for spring and summer.
Hosiery: The hosiery business is not seasonal; although, hosiery sales increase
slightly in the fall and winter months.
BACKLOG
Sweaters: The sales order backlog for the sweater segment was approximately
$38.5 million as of March 7, 1997, compared with approximately $26.2 as of March
8, 1996. The timing of the placement of seasonal orders by customers affects the
backlog; accordingly, a comparison of backlog from year to year is not
indicative of a trend in sales for the year.
Hosiery: Hampshire Hosiery receives orders throughout the year. Approximately
90% of the hosiery orders are received by EDI with about half being shipped in
two to five days and the remaining half being shipped the next week after
receipt of order. As a result, Hampshire Hosiery has no significant sales order
backlog.
TRADEMARKS
All significant trademarks of the Company are registered and the Company
considers its trademarks to have value in the marketing of its products.
ELECTRONIC INFORMATION SYSTEMS
In order to schedule manufacturing, fill customer orders, transmit shipment data
to the customers' distribution centers and invoice electronically, the Company
has developed a number of EDI applications. Approximately 60% of all orders are
received electronically. These orders are automatically generated by the
customers' computer systems based on their inventory levels. The Company's
advance ship notices and invoices are sent to customers electronically, which
results in the updating of the inventory systems of the customers.
CUSTOMER CONCENTRATION
One customer accounted for approximately 14% and 13% of consolidated sales for
1996 and 1995, respectively. The Company's five largest sweater customers and
five largest hosiery customers accounted for approximately 39% and 12%,
respectively, of the Company's total consolidated sales in 1996, compared with
39% and 13% in 1995.
CREDIT AND COLLECTION
The Company manages its credit and collection functions on a consolidated basis
by evaluating, approving and monitoring the credit lines of its customers.
Credit exposure is determined by past payment history and financial information
obtained from credit agencies and other sources. The Company believes that its
credit and collection management has been a significant factor in maximizing
sales opportunities while minimizing bad debt losses.
EMPLOYEES
As of March 1, 1997, the Company had approximately 2,400 full-time employees and
40 part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for hourly employees of San Francisco
Knitworks, Inc. The UNITE Labor Union represents approximately 90 such employees
under an agreement through May 1998.
GOVERNMENTAL REGULATION
The Company's business is subject to regulation by federal, state and local
governmental agencies dealing with the protection of the environment. Certain of
these regulations, which include provisions regulating air quality, water
quality, disposal of waste products and employee safety, are technical in nature
and require extensive controls to assure compliance with their provisions. The
Company believes that it has operated, and intends to continue to operate, in
full compliance with these regulations.
6
As a result of various bilateral agreements between the United States and
certain foreign countries negotiated under the framework established by the
Arrangement Regarding International Trade in Textiles, Hampshire Designers
benefits from import quota and tariff protection in certain categories of its
sweater business, which quotas and tariffs are expected to continue in some form
for the foreseeable future. The bilateral agreements impose quotas on the amount
and type of competing goods which may be shipped into the United States.
In 1994, the General Agreement on Trade and Tariffs ("GATT") was approved by the
United States and over 140 foreign countries. This Agreement, over time,
gradually reduces tariffs and expands quotas between member countries. The
profitability of the sweater business could be adversely affected if the quotas
and tariffs were substantially reduced or eliminated.
The North American Free Trade Agreement ("NAFTA"), approved in 1993 by the
United States, Canada and Mexico, will, over time, eliminate quota and tariffs
among these three countries. Management is positioning the Company to benefit
from NAFTA.
ITEM 2 - PROPERTIES
The Company leases its Anderson, South Carolina corporate offices and its sales
offices. Hampshire Designers, San Francisco Knitworks and Winona Knitting Mills
lease all of their sweater manufacturing and distribution facilities. Hampshire
Hosiery owns its manufacturing and distribution facilities.
The Company believes that all of its properties are well maintained, in good
condition and are generally suitable for their intended use. The Company's
principally owned and leased properties are described in the table below.
Square Lease
Property Footage Expiration(1)
- ------------------------------------------------- --------- ------------
Corporate Offices - Anderson, South Carolina 10,500 04/30/06
Sales Office - New York, New York 24,000 08/31/06
Hampshire Designers
Distribution Facility - Anderson, South Carolina 57,000 04/30/01
Knitting and Finishing Plant - Chilhowie, Virginia 92,500 08/30/08
Knitting Plant - Quebradillas, Puerto Rico 193,200 06/30/02
Finishing Plant - Quebradillas, Puerto Rico 23,050 06/30/06
Hampshire Hosiery
Knitting and Sewing Plant-Spruce Pine, North Carolina 37,000 Owned
Finishing Plant and Distribution Facility
Spruce Pine, North Carolina 132,700 Owned
San Francisco Knitworks
Manufacturing Plant - San Francisco, California 27,500 08/01/06
Winona Knitting Mills
Knitting and Finishing Plant-Winona, Minnesota 110,000 06/01/07
Sewing Plant - La Crescent, Minnesota 12,000 10/31/99
(1) Assuming the exercise of all options to renew.
ITEM 3 - 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 or results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
7
PART II
-------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the NASDAQ National
Market System ("NASDAQ") under the symbol "HAMP". The quarterly high and low bid
quotations on NASDAQ for 1996 and 1995 are presented on Page F-25 of this Annual
Report on Form 10-K. These quotations reflect the inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
The approximate number of stockholders of record on March 1, 1997 was 985.
The Company has not declared any dividends with respect to its Common Stock,
subsequent to the effective date of its initial public offering, June 24, 1992.
Any determination to pay dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors may deem relevant. No cash dividends may be paid on the Company's
Common Stock unless all dividends on the Series A and Series D Convertible
Preferred Stock for all past dividend dates have been paid.
8
ITEM 6 - SELECTED FINANCIAL DATA Selected Consolidated Financial Data (in
thousands, except per share data)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 1995(1) 1994(2) 1993 1992
-------- -------- -------- ------- -------
Net sales ................... $148,305 $112,450 $83,595 $93,843 $96,057
Cost of goods sold........... 114,475 85,553 63,925 74,884 75,563
-------- -------- -------- ------- -------
Gross profit................. 33,830 26,897 19,670 18,959 20,494
Commission revenue........... 942 1,357 - - -
-------- -------- -------- ------- -------
34,772 28,254 19,670 18,959 20,494
Selling, general and
administrative expenses.... 23,691 20,464 12,486 15,158 15,191
-------- -------- -------- ------- -------
11,081 7,790 7,184 3,801 5,303
Hosiery restructuring
gain (provision)........... - - 818 (7,500) -
-------- -------- -------- ------- -------
Income (loss) from operations. 11,081 7,790 8,002 (3,699) 5,303
Other income (expense)
Interest income............. 216 310 39 - -
Interest expense............ (1,319) (944) (797) (1,089) (1,654)
Other....................... (82) 312 254 (324) (246)
-------- -------- -------- ------- -------
Income (loss) before income taxes 9,896 7,468 7,498 (5,112) 3,403
Provision for income taxes
Current..................... (1,900) (1,028) (1,109) (500) (341)
Deferred.................... 3,900 278 109 - -
-------- -------- -------- ------- -------
Net income (loss) ........... $11,896 $ 6,718 $ 6,498 ($5,612) $ 3,062
======= ======= ======= ======== =======
Net income (loss) applicable to
common stock .............. $11,712 $ 6,577 $ 6,375 ($4,435) $ 2,774
======= ======= ======= ======== =======
Net income (loss) per common and
common equivalent share .... $2.97 $1.77 $1.80 ($1.72) $0.96
===== ===== ===== ======= =====
Net income (loss) per common
share-assuming full dilution $2.70 $1.63 $1.74 ($1.72) $0.93
===== ===== ===== ======= =====
- -------------------------------------------------------------------------------
BALANCE SHEET
DECEMBER 31, 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
Cash and cash equivalents..... $20,385 $10,034 $10,712 $ 2,433 $ 402
Working capital............... 37,013 29,675 22,349 15,344 17,498
Total assets.................. 71,930 66,438 42,966 41,132 44,581
Long-term debt (less current
portion) and redeemable
preferred stock............. 10,562 13,817 7,270 6,223 5,979
Total debt (3)................ 14,057 18,569 8,860 8,782 14,702
Common stockholders' equity... 47,275 34,755 25,863 18,489 22,756
Book value per share.......... $12.18 $9.21 $7.47 $5.57 $6.90
<FN>
(1) Includes the results of operations of Segue from January 1, 1995 and of
Winona from October 11, 1995.
(2) Includes the results of operations of San Francisco Knitworks from
January 1, 1994.
(3) Includes long-term debt, current portion thereof, borrowings under lines
of credit, related party debt and redeemable preferred stock.
(4) There were no cash dividends declared on common stock during any of the
above-presented periods.
</FN>
9
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF COMPANY SEGMENTS
The following table sets forth information with respect to the two segments of
the Company's business Sweaters and Hosiery.
YEAR ENDED DECEMBER 31, (in thousands)
1996 1995 1994
-------- -------- --------
Net sales Sweaters $117,575 $84,924 $55,984
Hosiery 30,730 27,526 27,611
-------- -------- --------
148,305 112,450 83,595
- ---------------------------------------------------------------------------
Gross profit Sweaters 29,180 22,763 16,921
Hosiery 4,650 4,134 2,749
-------- -------- --------
33,830 26,897 19,670
- ---------------------------------------------------------------------------
Commission revenue Sweaters 942 1,357 -
- ---------------------------------------------------------------------------
Selling, general and Sweaters 17,707 14,727 7,291
administrative Hosiery 3,530 3,603 3,092
expenses Corporate 2,454 2,134 2,103
-------- -------- --------
23,691 20,464 12,486
- ---------------------------------------------------------------------------
Restructuring gain Hosiery - - 818
- ---------------------------------------------------------------------------
Operating profit Sweaters 12,415 9,393 9,630
Hosiery 1,120 531 (343)
Corporate (2,454) (2,134) (2,103)
Hosiery restructuring - - 818
-------- -------- --------
Income from operations 11,081 7,790 8,002
Interest income 216 310 39
Interest expense (1,319) (944) (797)
Other income (expense) (82) 312 254
-------- -------- --------
Income before income taxes $ 9,896 $ 7,468 $ 7,498
- ---------------------------------------------------------------------------
Depreciation and Sweaters $3,445 $2,556 $1,685
amortization Hosiery 408 451 661
Corporate 26 25 68
--------- -------- --------
$3,879 $3,032 $2,414
- ---------------------------------------------------------------------------
Capital expenditures Sweaters $2,829 $2,824 $3,024
Hosiery 837 108 47
Corporate 18 3 45
-------- -------- --------
$3,684 $2,935 $3,116
- ---------------------------------------------------------------------------
Identifiable Sweaters $41,277 $48,270 $32,762
assets Hosiery 8,455 9,341 8,669
Corporate 22,198 8,827 1,535
-------- -------- --------
$71,930 $66,438 $42,966
- ---------------------------------------------------------------------------
10
The following table sets forth selected operating data as a percentage of net
sales for the periods indicated.
YEAR ENDED DECEMBER 31,
1996 1995 1994
- ----------------------------------------------------------------------
Net sales Sweaters 79.3% 75.5% 67.0%
Hosiery 20.7 24.5 33.0
-----------------------------------
Consolidated 100.0 100.0 100.0
- ----------------------------------------------------------------------
Gross profit Sweaters 24.8 26.8 30.2
Hosiery 15.1 15.0 10.0
-----------------------------------
Consolidated 22.8 23.9 23.5
- ----------------------------------------------------------------------
Commission revenue Sweaters 0.8 1.6 -
- ----------------------------------------------------------------------
Selling, general and
administrative Consolidated 16.0 18.2 14.9
Restructuring gain Hosiery - - 1.0
- ----------------------------------------------------------------------
Operating profit Consolidated 7.5% 6.9% 9.6%
- ----------------------------------------------------------------------
RESULTS OF OPERATIONS
1996 Compared To 1995
- ---------------------
The consolidated net income of the Company, excluding the net tax benefit of
$3.9 million was $7,996,000 or $1.81 per share on a fully diluted basis. This
represents an increase of $1,278,000 or 19% when compared to the $6,718,000 or
$1.63 per share earned in 1995. Including the deferred tax benefit, the net
income of the Company was $11,896,000 or $2.70 per share.
The consolidated net sales of the Company increased 31.9% to $148,305,000 in
1996 as a result of increased sales in both segments of the business.
Net sales for the sweater segment increased 38.4% in 1996 to $117,575,000.
Approximately 60% of this increase is attributable to the sales of the men's
(Winona) division acquired in October 1995. The sweater business segment sales
increased by 16.8% with substantially all of the increase resulting from an
increase in units of 16.3% over the prior year while average selling prices
remained constant.
Net sales of the hosiery segment increased by $3,204,000 or 11.6% in 1996 as
higher sales volume was offset by a shift in mix to lower priced items. Sales
volume increased by 16.8% with higher volume in the tights business accounting
for approximately 40% of the increase. A shift in product mix to lower priced
goods resulted in a decrease in average selling price of 3.2%.
Gross profit for the Company for 1996 increased $6,933,000 or 25.8% compared to
the previous year. As a percentage of net sales, however, gross profit decreased
to 22.8% verses 23.9% for 1995. This overall decrease as a percentage of sales
is attributable to the decrease in the sweater segments gross profit percentage
discussed below.
Sweater segment gross profit increased $6,417,000 for 1996, and was 24.8% of net
sales compared to 26.8% for the prior year. Excluding the sales of the men's
sweater business, gross profit would have been 28.9% in 1996 compared to 28.7%
in 1995. The men's sweater business had an adverse impact on overall segment
gross profit, resulting primarily due to the expense of consolidating the
manufacturing facilities and cost of introducing the branded men's sweater
business.
Hosiery segment gross profit increased by $516,000 but, as a percentage of net
sales, increased 0.1% above the percentage attained in 1995. This limited
increase reflects the intense price competition within the industry.
11
A subsidiary of the Company has received commission revenue as agent for certain
of its customers in arranging for the sourcing and importation of sweaters
through independent manufacturers in the Far East. The commission revenue
totaled $942,000 and $1,357,000 in 1996 and 1995, respectively. In 1997, the
Company will perform substantially all of the importation responsibility through
a wholly-owned subsidiary.
Selling, general and administrative (SG&A) expenses as a percentage of sales
decreased by 2.2% for 1996. This decrease was the direct result of the Company's
management effort to grow the level of sales of both segments while keeping
fixed overhead at the minimum levels required to support such sales. Included in
the 1996 amount is a $667,000 charge against income for the recognition of an
impairment of goodwill of the San Francisco Knitworks division in accordance
with FAS 121 as more fully explained in Note 7 to the consolidated financial
statements. Absent this charge, SG&A would have decreased 2.7%.
Income from operations increased $3,291,000 in 1996 to $11,081,000. As a
percentage of net sales, income from operations increased to 7.5% from 6.9% in
1995. The sweater segment accounted for the majority of the increase.
A provision for current income taxes of $1,900,000 was recorded in 1996 compared
with $1,028,000 in 1995. The provision included U.S. federal alternative minimum
taxes (AMT), state income taxes where applicable and income taxes on the taxable
earnings of the Puerto Rican subsidiary. This provision, however, was offset by
a credit of $3,900,000, or $0.89 per share, relating to an adjustment of the
Company's deferred tax asset, which produced a net tax benefit of $2,000,000 for
1996.
At December 31, 1996, the Company has recorded deferred tax assets of
$5,271,000, net of a valuation allowance of $1,869,000. At December 31, 1995,
the deferred tax assets totaled $1,371,000, net of a valuation allowance of
$6,487,000. The benefit associated with the decrease in the valuation allowance
is a result of both the utilization of deferred tax assets for which a valuation
allowance was previously provided and management's determination of the amount
of deferred tax benefits of net operating loss (NOL) carryforwards and AMT
credit carryforwards which are "more likely than not" to be realized.
Certain NOL carryforwards are available to the Company to offset future taxable
income. Subject to certain restrictions resulting from the sale of the Company's
stock during its initial public offering, approximately $1.7 million of the NOL
carryforwards are available for use in any single tax year. The amount of future
taxable income required to fully realize the deferred tax assets associated with
these NOL carryforwards, based on currently enacted tax rates, is approximately
$7.0 million.
The Company, through its Puerto Rican subsidiary, has made an election under
Section 936 of the Internal Revenue Code pursuant to which the subsidiary's
earnings are exempt from federal regular income taxes. This election has had the
effect of generating deferred tax assets in the form of AMT credit carryforwards
for the Company for which an offsetting valuation allowance was recorded. Due to
the repeal of Section 936 and phase-out of its provision by the year 2005,
management has determined that it is "more likely than not" that the Company
will realize the full amount of the deferred tax assets relating to the AMT
credit carryforwards and therefore no valuation allowance is required for such
carryforwards.
All of the income of the Company's Puerto Rican operations are effectively
exempt from Puerto Rican income taxes which reduces the Company's effective
income tax rate as more fully described in Note 10 to the consolidated financial
statements.
1995 Compared To 1994
- ---------------------
Consolidated net sales increased 34.5% to $112,450,000 in 1995, compared with
$83,595,000 in 1994. The increase was primarily due to the acquisition of
sweater businesses.
Sweater segment net sales were $84,924,000 in 1995, a $28,940,000 increase over
1994. Approximately two-thirds of this increase was attributable to increased
sales associated with the acquisition of sweater businesses. During 1995, price
increases and a shift in mix to lower-priced items reduced average selling
prices by approximately 3.0% while unit volume increased approximately 14.0%.
This volume increase occurred despite the weak retail environment for apparel in
1995.
Hosiery segment net sales in 1995 were $27,526,000, compared with $27,611,000 in
1994. The decrease was due primarily to the restructuring of the hosiery
operations, including fewer close-out sales. During 1995, average selling prices
increased by approximately 1.0%. Unit volume of continuing products increased by
approximately 5.9% while unit volume for close-out items decreased by 65.5%.
12
Gross profit for 1995 was $26,897,000, compared with $19,670,000 in 1994. The
increase occurred principally from increased sweater segment sales and the
improved operating efficiencies associated with the hosiery segment. As a
percentage of net sales, the 1995 gross profit was 23.9% as compared to 23.5% in
1994.
Sweater segment gross profit increased by $5,842,000 in 1995 to $22,763,000
compared with 1994. As a percentage of net sales, however, the gross profit of
the Sweater segment was 26.8% in 1995, compared with 30.2% in 1994. The
reduction was primarily the result of lower gross margin on sales of the
acquired sweater businesses.
Hosiery segment gross profit increased by $1,385,000 in 1995 to $4,134,000
compared to $2,749,000 in 1994. As a percentage of net sales, the gross profit
was 15.0% in 1995, as compared with 10.0% in 1994. The increase resulted
primarily from fewer close-out sales and improved manufacturing efficiencies.
Selling, general and administrative expenses in 1995 were $20,464,000, 18.2% of
net sales, compared to $12,486,000, 14.9% of net sales, in 1994. The increase
was primarily a result of increased expenses from newly acquired sweater
companies.
The $7,436,000 increase in selling, general and administrative expenses in the
sweater segment over 1994 was primarily due to increases in fixed expenses and
selling commissions arising from the newly acquired sweater businesses. As a
percentage of net sales, the expenses of the sweater segment increased to 17.3%
in 1995 compared to 13.0% in 1994.
The selling, general and administrative expenses of the hosiery segment
increased $511,000 when compared with 1994. The increase was partly due to the
expense of starting up the sock product line. As a percentage of net sales, the
expenses of the hosiery segment increased to 13.1% in 1995 versus 11.2% in 1994.
Income from operations was $7,790,000 for 1995 as compared with $7,184,000 for
1994, excluding the reversal of a restructuring charge of $818,000. The 8.4%
improvement was primarily attributable to improvement in the performance of the
hosiery segment.
Operating income of the sweater segment was $9,393,000 in 1995, compared with
$9,630,000 in 1994. The reduction is attributable to the acquired sweater
businesses which were adversely affected by a weak retail environment during
1995 for their sweater products.
The hosiery segment had operating income of $531,000 in 1995 compared with a
loss of $343,000 in 1994 (before the $818,000 restructuring gain). The
improvement was primarily the result of higher volume and manufacturing
efficiencies.
A provision for income taxes of $750,000 was recorded in 1995. The provision
included U.S. Federal alternative minimum taxes, state income taxes where
applicable and income taxes on the taxable earnings of the Puerto Rican
subsidiary. The Company's operations in Puerto Rico are largely exempt from
income taxes which reduces the Company's effective income tax rate as more
fully explained in Note 10 to the consolidated financial statements.
As of December 31, 1995, the Company has recorded deferred tax assets of
$1,371,000, net of a valuation allowance of $6,487,000. At December 31, 1994,
the deferred tax assets totaled $1,373,000, net of a valuation allowance of
$7,083,000.
13
LIQUIDITY AND CAPITAL RESOURCES
The primary liquidity and capital requirements of the Company relate to funding
working capital for current operations (primarily funding the buildup in
inventories and accounts receivable which reach their maximum seasonal
requirements in the third quarter), servicing long-term debt , funding capital
expenditures for the improvement and replacement of machinery and equipment and
certain other equity investments made from time to time. The primary resources
to meet the liquidity and capital requirements include funds generated by
operation, long-term equipment financing and revolving credit lines. The Company
ended 1996 with cash and cash equivalents totaling $20,385,000 as compared to
$10,034,000 for 1995. The primary source of this increase came from cash flows
from operations which increased by $8,280,000 in 1996. This increase was due to
the substantial reductions in inventory and the acceleration of collections from
accounts receivable when compared to the prior year.
With respect to capital expenditures, it is the Company's policy generally to
reinvest an amount approximating current year depreciation charges in improving
and replacing machinery and equipment and operating facilities. During 1996,
capital expenditures amounted to $3,684,000. In 1997, management plans to invest
approximately $3.0 million in new machinery and equipment with emphasis being
placed on improving manufacturing efficiencies in all manufacturing areas of the
Company.
The Company is negotiating a renewal of its revolving credit facility to
accommodate it present financing needs. The new facility, which will become
effective April 1, 1997, will be limited to 85% of eligible accounts receivable,
plus a seasonal overadvance of $6.0 million from March through October, not to
exceed $25.0 million at any time. The line will be secured by the accounts
receivable of the Company.
The Company also has other credit facilities which in the aggregate allow the
Company to borrow an additional $9.5 million of which $4.5 million is limited to
use for international letters of credit. The maximum amount outstanding under
all lines of credit during 1996 was $16,405,000 and the average amount
outstanding was approximately $4,672,000.
The Company's current and long-term debt was $10,763,000 at December 31, 1996
compared to $14,967,000 at December 31, 1995. The decrease was the result of
scheduled amortization of long-term debt more fully described in Note 9 to the
consolidated financial statements. It is the Company's policy to finance
material capital expenditures on a long-term basis when possible.
The common stockholders' equity at December 31,1996 was $47,275,000 and total
debt and redeemable preferred stock was $24,881,000 for a debt-to-equity ratio
of .53 at year end compared to .91 at the end of 1995.
During 1996, the Company paid cash dividends of $184,000 on its preferred stock
and redeemed, as required by the terms of the preferred stock agreement, 6,156
shares of Preferred Stock Series "D" ($308,000) which was 15% of the amount
originally outstanding. See note 12 to the consolidated financial statements for
a more detailed discussion of the terms and requirements of the preferred stock
of the Company still outstanding.
Management believes cash flow from operations and available borrowings under
credit facilities will provide adequate resources to meet the Company's capital
requirements and operational needs for the foreseeable future.
OUTLOOK
On a consolidated basis, the Company has experienced substantial increases in
net sales over the past two years due to both the growth of existing businesses
and the 1995 acquisitions. While the Company feels that it will continue to be
able to generate the increases in sales necessary to grow at an acceptable rate,
it cautions that the expectation of continued sales growth consistent with
recent history is not realistic.
Within the sweater segment, the Company anticipates sales growth in the 7%-10%
range by expanding its women's branded sweater business and men's sweater
business. In the hosiery segment, sales growth is expected to remain at or below
current levels due to the extremely competitive nature of the hosiery business
in general and the private-label business in particular.
The Company continues to believe that a primary reason for its success in recent
years has been it ability to offer the highest level of quality and services
through its domestic manufacturing and its ability to be an in-stock resource
for its customers. Management is committed to continuing to offer such quality
and services to its customers.
14
The Company expects profits to be in line with the increases in sales volume
based on historical levels of 5% of net sales. It should be noted, however, as
more fully discussed in Note 10 to the consolidated financial statements the
effective current tax rate of the Company increased in 1996 to 19% . While this
amount was distorted in 1996 due to the benefit of the realization of the
deferred tax assets discussed above, for 1997 and beyond, the effective rate is
expected to be in the 20%-22% range.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be presented in this Item 8 is presented commencing
on Page F-1 of this Annual Report on Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
Certain information required to be presented in this Part III of this Annual
Report on Form 10-K is omitted in that the Registrant will file a Definitive
Proxy Statement pursuant to Regulation 14A (the "Proxy Statement") not later
than 120 days after the end of the fiscal year and is incorporated herein by
reference thereto.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required to be presented in this Item 10 is incorporated herein by reference to
the Company's 1997 Proxy Statement.
ITEM 11 - EXECUTIVE COMPENSATION
The information concerning executive compensation required to be presented in
this Item 11 is incorporated herein by reference to the Company's 1997 Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management required to be presented in this Item 12 is incorporated herein by
reference to the Company's 1997 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required to be presented in this Item 13 is incorporated herein by reference to
the Company's 1997 Proxy Statement.
15
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Annual Report on Form 10-K.
(1) Financial Statements
(2) Financial Statement Schedules
The financial statements and financial statement schedules are listed
on the Index to the Consolidated Financial Statements on Page F-1 of
this Annual Report on Form 10-K. All other schedules have been omitted
because the required information is shown in the consolidated financial
statements or notes thereto or they are not applicable.
(3) Exhibits:
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
Exhibits Incorporated by References:
(3)(A) Restated Certificate of Incorporation of
Hampshire Group, Limited 1
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited 2
(3)(A)(2) Agreement of Merger between Hampshire Hosiery,
Inc. and Hampshire Designers, Inc.
dated June 26, 1995 6
(3)(A)(3) Agreement of Merger between Segue (America)
Limited and H.G. Knitwear, Inc. dated
December 29, 1995 6
(3)(A)(4) Agreement and Plan of Merger among Hampshire
Group, Limited, The Winona Knitting Mills,
Inc. and Pete and Joyce Woodworth
dated June 5, 1995 6
(3)(B) By-Laws of Hampshire Group, Limited 1
(3)(B)(1) Amended and Restated By-Laws of Hampshire
Group, Limited 2
(4)(B) Form of Certificate of Stock Designation for
Hampshire Group, Limited Series D
Convertible Preferred Stock 1
(4)(B)(1) Amended Form of Certificate of Stock
Designation for Hampshire Group, Limited
Series D Convertible Preferred Stock 2
(4)(C) Form of Certificate of Stock Designation for
Hampshire Group, Limited Series A
Convertible Preferred Stock 6
(10)(A)(2)(a) Employment Agreement between Hampshire Group,
Limited and Ludwig Kuttner dated May 6, 1992 2
(10)(A)(5) Employment Agreement between Hampshire Group,
Limited and Eugene Warsaw dated
December 29, 1986 1
(10)(A)(7) Employment Agreement between Hampshire
Designers, Inc. and Pete Woodworth
dated October 10, 1995 6
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock
Option Plan Amended and Restated
effective June 7, 1995 6
(Exhibits continued on next page)
16
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
(Exhibits continued from previous page)
(10)(C)(1) Form of Hampshire Group, Limited and
Affiliates Common Stock Purchase Plan for
Directors and Executives Amended and
Restated effective June 7, 1995 6
(10)(F) Form of Hampshire Group, Limited and
Subsidiaries 401(k) Retirement Savings Plan 1
(10)(J)(1) Lease Agreements between Hampshire Designers,
Inc. and Commerce Center Associates for the
Company's corporate offices dated May 1, 1994 5
(10)(J)(2) Lease Agreements between Hampshire Designers,
Inc. and Commerce Center Associates for the
Company's distribution center dated May 1, 1994 6
(10)(J)(3) Lease Agreement between Hampshire Designers,
Inc. and Leslie R. Woodworth, et al for the
Winona, Minnesota manufacturing plant
dated October 10, 1995 6
(10)(J)(4) Lease Agreement between the Hampshire Designers,
Inc, and Pete Woodworth and Joyce Woodworth
for the La Crescent, Minnesota manufacturing
plant dated October 10, 1995 6
(10)(K) Loan and Security Agreement between Hampshire
Hosiery, Inc. and MetLife Capital Corporation,
dated July 30, 1993 4
(10)(K)(1) Loan and Security Agreement between San
Francisco Knitworks, Inc., Hampshire Designers,
Inc. and MetLife Capital Corporation
dated May 13, 1994 5
(10)(K)(2) Loan and Security Agreement between San
Francisco Knitworks, Inc., Hampshire Designers,
Inc. and MetLife Capital Corporation dated
October 12, 1994 5
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated
September 22, 1995 6
(10)(M) Agreement on Repatriation of Earnings between
Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico (the "Closing
Agreement"), dated June 30, 1993 4
(10)(N) Loan and Security Agreement between
Hampshire Designers, Inc. and SouthTrust Bank of
Alabama, N.A. dated May 1, 1994 5
(10)(O) Loan and Security Agreement between Hampshire
Designers, Inc. and Central Fidelity National
Bank dated February 8, 1995 6
(10)(P) Loan Agreement between Glamourette Fashion
Mills, Inc. and Banco Popular de Puerto Rico
dated June 1, 1995 6
(10)(Q) Loan Agreement between Hampshire Designers,
Inc. and NationsBank of South Carolina, N.A.
dated June 27, 1995 6
(10)(R) Asset Purchase Agreement between H.G.
Knitwear, Inc. and Babette & Partners, Ltd.
dated March 2, 1995 6
(Exhibits continued on next page)
17
Exhibit No. Description Footnote
---------- --------------------------------------------- --------
(Exhibits continued from previous page)
(10)(R)(2) Asset Purchase Agreement among Segue (America)
Limited (formally Vintage, Inc.), Segue, Ltd.
and Neil Friedman dated February 15, 1995 6
1. Incorporated by reference to the Company's Registration Statement
on Form S-1, No. 33-47577
2. Incorporated by reference to the Company's Registration Statement
on Form S-1, Amendment No. 1, No. 33-47577
3. Incorporate by reference to the Company's 1992 Annual Report on
Form 10-K
4. Incorporated by reference to the Company's 1993 Annual Report on
Form 10-K
5. Incorporated by reference to the Company's 1994 Annual Report on
Form 10-K
6. Incorporated by reference to the Company's 1995 Annual Report on
Form 10-K
Exhibits filed herewith:
------------------------
(10)(H)(10) Fourth Amended and Restated Loan Agreement
between Hampshire Designers, Inc. and NatWest Bank
N.A. dated as of March 31, 1996
(10)(L)(1) Industrial Tax Exemption between Glamourette
Fashion Mills, Inc. and the Commonwealth of Puerto
Rico, Office of Industrial Tax Exemption, dated
September 17, 1996
(10)(P)(1) Revolving Line of Credit Agreement between
Banco Popular and Glamourette Fashion Mills, Inc.
dated May 23, 1996.
(10)(P)(2) First Amendment to Financing Agreement between
Banco Popular and Glamourette Fashion Mills, Inc.
dated September 16, 1996.
(10)(S) Revolving Line of Credit Agreement between
Merchants National Bank and Hampshire Group, Limited
dated April 1, 1996.
(10)(T) Amendment to Credit Agreement between MTB and
Segue (America) Limited dated June 19, 1996.
(11) Statement Re Computation of Income per Share
(21) Subsidiaries of the Company
(23) Consent of Price Waterhouse LLP
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed in the fourth quarter of 1996.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson
and the State of South Carolina on this 25th day of March 1997.
HAMPSHIRE GROUP, LIMITED
By: /s/ LUDWIG KUTTNER
-----------------------------
Ludwig Kuttner
President and Chief Executive
Officer
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ LUDWIG KUTTNER Chairman of the Board of Directors March 25, 1997
Ludwig Kuttner President and Chief Executive Officer
(Principal Executive Officer)
/s/ CHARLES W. CLAYTON Vice President, Secretary, Treasurer March 25, 1997
Charles W. Clayton and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ HERBERT ELISH Director March 25, 1997
Herbert Elish
/s/ MICHAEL C. JACKSON Director March 25, 1997
Michael C. Jackson
/s/ HARVEY L. SPERRY Director March 25, 1997
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 25, 1997
Eugene Warsaw
/s/ PETER W. WOODWORTH Director March 25, 1997
Peter W. Woodworth
19
HAMPSHIRE GROUP, LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Income F-4
Consolidated Statement of Cash Flows F-5
Consolidated Statement of Changes in
Common Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7 - F-19
Financial Statement Schedules
I Condensed Financial Information of Registrant F-20 - F-22
II Valuation and Qualifying Accounts F-23
Quarterly and Financial Stock Data F-24
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders
of Hampshire Group, Limited
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Hampshire Group, Limited and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
requires that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ----------------------
PRICE WATERHOUSE LLP
Atlanta, Georgia
February 18, 1997
F-2
HAMPSHIRE GROUP, LIMITED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
DECEMBER 31, 1996 1995
---------------------------------------------------------
ASSETS Current assets:
Cash and cash equivalents $20,385 $10,034
Accounts receivable trade - net 13,101 16,761
Other receivables 412 722
Inventories 14,873 19,380
Deferred tax asset - current 1,631 409
Other current assets 704 235
------- -------
Total current assets 51,106 47,541
Property, plant and equipment - net 13,596 13,469
Deferred tax asset 3,640 962
Intangible assets - net 3,161 4,320
Other assets 427 146
------- -------
$71,930 $66,438
======= =======
---------------------------------------------------------
LIABILITIES Current liabilities:
Current portion of long-term debt $ 2,618 $ 2,627
Current portion of notes payable to
related parties 877 2,125
Accounts payable 3,722 4,714
Accrued liabilities and
other liabilities 6,876 8,400
------- -------
Total current liabilities 14,093 17,866
Long-term debt 6,643 8,590
Notes payable to related parties 625 1,625
Commitments and contingencies - -
------- -------
PREFERRED STOCK Redeemable, convertible preferred stock,
at redemption value:
Series A, 124,000 shares outstanding 1,550 1,550
Series D, 34,883 and 41,039 shares
outstanding 1,744 2,052
------- -------
COMMON Common stock, $.10 par value; 3,885,503
STOCKHOLDERS' and 3,771,624 shares issued and 3,879,503
EQUITY and 3,771,624 outstanding 389 377
Additional paid-in capital 23,853 22,979
Retained earnings 23,111 11,399
Treasury stock (78) -
------- -------
47,275 34,755
------- -------
$71,930 $66,438
======= =======
---------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
F-3
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1996 1995 1994
-----------------------------------------------------------------
Net sales $148,305 $112,450 $83,595
Cost of goods sold 114,475 85,553 63,925
-------- -------- -------
Gross profit 33,830 26,897 19,670
Commission revenue 942 1,357 -
-------- -------- -------
34,772 28,254 19,670
Selling, general and
administrative expenses 23,691 20,464 12,486
Hosiery restructuring gain - - 818
-------- -------- -------
Income from operations 11,081 7,790 8,002
Interest income 216 310 39
Interest expense (1,319) (944) (797)
Other (expense) income (82) 312 254
-------- -------- -------
Income before provision for
income taxes 9,896 7,468 7,498
Provision for income taxes
Current (1,900) (1,028) (1,109)
Deferred 3,900 278 109
-------- -------- -------
Net income 11,896 6,718 6,498
Preferred dividend requirements (184) (141) (123)
-------- -------- -------
Net income applicable to common
stock $11,712 $ 6,577 $ 6,375
======== ======== =======
------------------------------------------------------------------
Net income per share:
Primary $2.97 $1.77 $1.80
----- ----- -----
Assuming full dilution $2.70 $1.63 $1.74
----- ----- -----
Weighted average number of
shares outstanding:
Primary 3,939 3,710 3,542
----- ----- -----
Assuming full dilution 4,408 4,124 3,740
----- ----- -----
-----------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
F-4
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31, 1996 1995 1994
------------------------------------------------------------------
Cash flows from operating activities:
Net income $11,896 $ 6,718 $ 6,498
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 3,879 3,032 2,414
Loss on impairment of asset 667 - -
Loss (gain) of sale on assets 50 (37) (241)
Deferred income taxes (3,900) (278) (109)
Hosiery restructuring gain - - (818)
Net change in operating assets and
liabilities, net of effects of
acquired companies:
Receivables 3,784 (300) 1,835
Inventories 4,507 (1,144) 5,997
Other current assets 82 (240) (4)
Accounts payable (992) 701 (603)
Accrued liabilities (1,518) 1,681 1,350
Accrued restructuring - (92) (3,202)
Other (139) (5) -
-------- ------- -------
Net cash provided by
operating activities 18,316 10,036 13,117
-------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,684) (2,935) (3,116)
Proceeds from sales of
property and equipment 110 852 855
Other investments (503) - -
Pre-acquisition advances to Winona - (3,060) -
Cash used for business acquisitions (2,631) (2,539) -
-------- ------- -------
Net cash used in investing
activities (4,077) (7,774) (4,800)
-------- ------- -------
Cash flows from financing activities:
Net repayments under lines of credit - (5,527) -
Proceeds from issuance of
long-term debt 711 4,640 3,354
Repayment of long-term debt (2,667) (1,921) (3,277)
Repayment of related party debt (2,248) - -
Redemption of preferred stock (308) - -
Cash dividends on preferred stock (184) (141) (123)
Net proceeds from issuance of
common stock 764 9 8
Tax benefit from employee stock plans 122 - -
Purchase of treasury stock - net (78) - -
------- ------- -------
Net cash used in financing
activities (3,888) (2,940) (38)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 10,351 (678) 8,279
Cash and cash equivalents -
beginning of year 10,034 10,712 2,433
------- ------- -------
Cash and cash equivalents - end of
year $20,385 $10,034 $10,712
======= ======= =======
------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
F-5
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(in thousands, except share data)
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- ------ ------- -------- ----- -------
YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996
Balance December 31, 1993 3,321,163 $333 $19,763 ($1,553) ($54) $18,489
Issuance of common stock
for business acquisition 90,625 9 716 - - 725
Shares issued under the
Stock Purchase Plan 47,295 4 208 - 54 266
Shares issued under
Stock Option Plan 1,500 - 8 - - 8
Net income for the year - - - 6,498 - 6,498
Dividends on preferred stock - - - (123) - (123)
- ------------------------------------------------------------------------------
Balance December 31, 1994 3,460,583 346 20,695 4,822 - 25,863
Issuance of common stock
for business acquisition 240,000 24 1,761 - - 1,785
Shares issued under the
Stock Purchase Plan 69,541 7 514 - - 521
Shares issued under Stock
Option Plan 1,500 - 9 - - 9
Net income for the year - - - 6,718 - 6,718
Dividends on preferred stock - - - (141) - (141)
- ------------------------------------------------------------------------------
Balance December 31, 1995 3,771,624 377 22,979 11,399 - 34,755
Shares issued under the
Stock Option Plan 119,879 12 752 - - 764
Purchase of treasury stock (62,500) - - - (746) (746)
Transfer of shares to
Stock Purchase Plan 56,500 - - - 668 668
Tax benefit from employee
stock plans - - 122 - - 122
Net income for the year - - - 11,896 - 11,896
Dividends on preferred stock - - - (184) - (184)
- ------------------------------------------------------------------------------
Balance December 31, 1996 3,885,503 $389 $23,853 $23,111 ($ 78) $47,275
========= ==== ======= ======= ====== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
F-6
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Hampshire Group, Limited (the "Company"), through its subsidiaries, is engaged
primarily in the manufacture and sale of knitted sweaters and legwear. The
significant accounting policies used in the preparation of the accompanying
consolidated financial statements are as follows:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiary, Hampshire Designers, Inc. and its subsidiaries (collectively,
"Hampshire Designers"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash Equivalents
- ----------------
Cash equivalents consist of highly liquid investments with initial maturities of
ninety days or less.
Fair Value of Financial Instruments
- -----------------------------------
Management believes that the fair value of financial instruments does not
materially differ from their carrying values.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out ("LIFO") method for domestic inventories of Hampshire
Designers and Hampshire Hosiery and using the first-in, first-out ("FIFO")
method for all other domestic inventory and inventory located in Puerto Rico.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. Additions and major replacements or improvements are capitalized,
while maintenance costs and minor replacements are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or retired are
removed from the accounts and any gain or loss is included in results of
operations.
Intangibles
- -----------
Intangible assets consist primarily of goodwill which is being amortized over 10
years on a straight-line basis. The Company continually monitors conditions that
may affect the carrying value of its intangible assets. When conditions indicate
potential impairment of such assets, the Company will undertake the necessary
studies and evaluate projected future earnings associated with the asset. When
projected future cash flows, not discounted for the time value of money, are
less than the carrying value of the asset, the impaired asset is written down to
its estimated fair value.
Revenue Recognition
- -------------------
The Company recognizes revenue upon shipment of goods to customers.
Income Taxes
- ------------
Income taxes are recognized during the year in which transactions enter into the
determination of income for financial reporting purposes, with deferred taxes
being provided for temporary differences between the basis of assets and
liabilities for financial reporting purposes and the basis for income tax
reporting purposes.
Per Share Data
- --------------
Income per common and common equivalent share is computed by dividing net income
applicable to common stock by the weighted average number of common and dilutive
common equivalent shares outstanding during each period. The dilutive effect of
stock options and warrants is computed using the modified treasury stock method.
F-7
Income per common share assuming full dilution is computed by dividing net
income applicable to common stock, adjusted for dividends accruing on preferred
stock, by the sum of the weighted average number of common and dilutive common
equivalent shares outstanding during the period determined using the modified
treasury stock method and the number of common shares assumed to have been
issued had the convertible preferred stock been converted into common stock as
of the beginning of the year; conversion of the convertible preferred stock has
been assumed only if such conversions are dilutive.
Use of Estimates
- ----------------
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to use estimates and assumptions which
affect the amounts reported for assets, liabilities, revenue, expenses and
disclosure of contingent liabilities in the financial statements. Actual results
could differ from those estimates. The more significant accounts affected by
estimates are allowances for doubtful accounts, returns and allowances, obsolete
and slow moving inventory and the deferred tax asset valuation allowance.
Reclassification
- ----------------
Certain accounts previously reported have been reclassified to conform to
classifications used in 1996.
Note 2 - Acquisitions
Effective January 1, 1995, the Company, through an 80%-owned subsidiary, Segue
(America) Limited ("Segue"), acquired substantially all of the assets and
business of Segue, Ltd., a privately held corporation. Segue designs and imports
ladies' and men's sweaters which are marketed in the middle and upper price
categories. Additionally, Segue provides sourcing services and functions as a
buying agent for certain of its customers for which it receives commissions. The
assets were acquired for $1,937,000 in cash and $479,000 in assumed liabilities.
Additional contingent purchase price consisted of 26,000 shares of restricted
Common Stock of the Company, which was to be delivered upon Segue achieving
certain financial goals. As of December 31, 1996, the shares were forfeited
because the financial objectives were not achieved. In connection with this
transaction, the Company recorded goodwill in the amount of approximately
$512,000.
In January 1995, the Company formed a wholly-owned subsidiary, H.G. Knitwear,
Inc. ("Knitwear"), that acquired certain assets, principally accounts receivable
and inventories of Babette & Partners, Ltd. Knitwear was organized to engage in
the business of selling better sweaters to major department stores, specialty
retailers and a variety of well-known catalog retailers. The assets were
purchased for $200,000 in cash and $690,000 in assumed liabilities. The
liabilities included a $500,000 note which was owed to the Chairman and Chief
Executive Officer of the Company. (The note was paid in full in February 1997.)
Results of operations of Knitwear were not material to the Company and as a
result, no pro forma data is presented. On December 30, 1995, Knitwear was
merged into Segue.
In October 1995, The Winona Knitting Mills, Inc. (Winona), principally a
private-label manufacturer of better men's sweaters, was merged with the Company
in exchange for approximately $500,000 in cash, $2,287,000 in short-term
obligations, $1,250,000 in long-term debt, 124,000 shares of convertible
preferred stock valued at $1,550,000 and 240,000 restricted shares of the
Company's common stock valued at $1,785,000. Additionally, payments of up to
$1,333,000 are contingent upon the future financial performance of the acquired
business for the years 1996 through 1998 of which no additional amount was
earned in 1996. Such payments will be made one-half in cash and one-half in
restricted common stock of the Company. In connection with the acquisition, the
Company recorded goodwill in the amount of $2,288,000.
All of the above transactions were accounted for using the purchase method. The
operating results of Segue, Knitwear and Winona are included in the consolidated
financial statements of the Company from their respective dates of acquisitions.
Had the acquisition of Segue and Winona been consummated as of January 1, 1994,
the Company's unaudited consolidated pro forma results of operations for the
years ended December 31, 1995 and 1994 would have been:
F-8
(in thousands, except per share data)
Pro Forma Pro Forma
Unaudited Unaudited
Year ended December 31 1995 1994
- ----------------------------------------------------------------------
Net sales $130,545 $116,567
- ----------------------------------------------------------------------
Net income applicable to common stock $4,724 $6,557
- ----------------------------------------------------------------------
Net income per share
Primary $1.21 $1.73
- ----------------------------------------------------------------------
Full dilution $1.12 $1.65
- ----------------------------------------------------------------------
Effective January 1, 1994, Hampshire Designers, Inc. purchased the assets of San
Francisco Knitworks, a manufacturer of sweaters for the designer and better
markets. The purchase price consisted of $2,539,000 in cash, paid at the
closing, and $725,000 payable on or prior to January 31, 1996 in cash, or at the
Company's option, in Company Common Stock valued at the mean selling price at
January 31, 1996. The Company escrowed 90,625 shares of restricted common stock
of the Company in connection with this transaction and these shares have not
been released from escrow pending final resolution of the purchase price. The
acquisition was accounted for using the purchase method and the results of
operations of San Francisco Knitworks were included with those of the Company
for 1994.
Note 3 - Hosiery Restructuring
The Company recorded a pre-tax restructuring charge of $7.5 million in 1993 for
the estimated costs required to consolidate its hosiery operations into the
Spruce Pine, North Carolina facilities and to discontinue production of certain
hosiery products. During 1994, the Company ceased manufacturing in the knitting
plant located in Belmont, North Carolina and closed the distribution center also
located in Belmont, with the discontinuation of a branded product line. The
licensing agreement for the branded product line was transferred to another
manufacturer resulting in a favorable settlement of a minimum royalty
obligation. The provision for the settlement of the licensing agreement exceeded
the actual payment by $818,000, which in the opinion of management was not
required for other expenses of the restructuring; therefore, the provision was
reduced as a credit to income in 1994.
Note 4 - Accounts Receivable and Major Customers
The Company sells principally to department stores, specialty stores, mail-order
catalog businesses, chain stores, mass merchandisers and other retailers located
in the United States. The Company had sales to one major customer (sales in
excess of 10% of total sales) which as a percentage of total sales accounted for
approximately 14%, 13% and 14% for 1996, 1995 and 1994, respectively. At
December 31, 1996, and 1995, 53% and 39%, respectively, of the trade receivables
were due from five customers .
The Company performs ongoing evaluations of its customers' credit worthiness and
maintains allowances for potential credit losses. The Company generally does not
require collateral to secure its trade receivables. The accounts receivable are
stated net of allowances for doubtful accounts and returns and allowances of
$2,847,000 and $2,031,000 at December 31, 1996 and 1995, respectively.
Note 5 - Inventories
The components of inventories are as follows:
(in thousands)
December 31 1996 1995
------------------------------------
Finished goods $ 8,767 $10,954
Work in-progress 6,063 7,341
Raw materials and
supplies 4,176 5,082
------------------------------------
19,006 23,377
Less - Excess of
current cost
over LIFO
carrying value (4,133) (3,997)
------------------------------------
$14,873 $19,380
====================================
Approximately 49% and 50% of total inventories were valued using the LIFO method
at December 31, 1996 and 1995, respectively.
F-9
During 1994 certain inventory quantities were reduced. This reduction resulted
in liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of such years' purchases, the effect of
which increased net income by approximately $553,000 in 1994; there was no
material effect on income in 1996 and 1995.
Note 6 - Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
Estimated (in thousands)
Useful Lives 1996 1995
---------------------------------------------------------------
Land $ 83 $ 83
Buildings and improvements 15-45 years 1,310 1,289
Leasehold improvements 5-10 years 4,683 4,206
Machinery and equipment 3-7 years 23,648 25,767
Furniture and fixtures 3-7 years 907 668
Transportation equipment 3-5 years 219 171
Construction in progress 673 620
---------------------------------------------------------------
33,642 30,685
Less - Accumulated depreciation (20,046) (17,216)
---------------------------------------------------------------
$13,596 $13,469
===============================================================
Depreciation expense was $3,387,000, $2,519,000, and $2,192,000, respectively,
for the years ended December 31, 1996, 1995 and 1994.
Note 7 - Intangible Assets
In the fourth quarter of 1996, management made an evaluation of the goodwill
recorded on the books of the Company and concluded that the carrying value of
the goodwill recorded in the acquisition of the assets of San Francisco
Knitworks had become impaired. The carrying value was written down to its
estimated fair value.
Activity in intangible assets for the years ended December 31, 1996 and 1995
is summarized in the table below:
(in thousands) 1996 1995
-------------------------------------------
Balance beginning of year $ 4,320 $1,687
Addition from acquisition
of assets of Segue, Ltd. - 512
Addition from merger of
Winona Knitting Mills - 2,288
Amortization during year (492) (167)
Impairment write-down of
goodwill of San Francisco
Knitworks (667) -
-------------------------------------------
Balance at end of year $3,161 $4,320
===========================================
Note 8 - Accrued Liabilities
Accrued liabilities are summarized in the table below:
December 31 (in thousands) 1996 1995
-------------------------------------------
Accrued compensation $2,210 $2,889
Income taxes 1,434 1,380
Accrued medical claims 764 768
Other accrued liabilities 2,468 3,363
-------------------------------------------
$6,876 $8,400
===========================================
F-10
Note 9 - Borrowings
Revolving Credit Facility
- -------------------------
The Company maintains a $19.5 million combined credit facility for Hampshire
Designers. The credit facility consists of an $18 million line of credit and a
$1.5 million letter of credit facility. Advances under the line of credit are
limited to the lesser of: (1) the amount available set forth above; or (2) the
sum of (i) 85% of the eligible accounts receivable of Hampshire Designers
excluding the Winona Division, and (ii) a seasonal adjustment of $6 million
during the period from March 1 to October 31. Advances under the line bear
interest, at the option of the Company, at the bank's prime rate or a fixed rate
of LIBOR plus 1.5% and are secured by the accounts receivable of Hampshire
Designers and are guaranteed by Hampshire Group, Limited. No advances were
outstanding under the line of credit at December 31, 1996 or 1995. Outstanding
letters of credit under this facility totaled approximately $0.9 million at
December 31, 1996. The credit facility is subject to annual renewal in the first
quarter of each year.
The $19.5 million credit facility contains certain covenants which, among other
things, limit the amount of additional funded indebtedness, investments and
capital leases. In addition, the credit facility requires, among other things,
that Hampshire Designers, Inc. maintain tangible net worth of $14.5 million and
limits dividends and loans to Hampshire Group, Limited (excluding distributions
in the ordinary course of business for operating expenses and payment of
management fees) to amounts not in excess of Hampshire Designers current year
earnings.
The Company maintains a $3.0 million facility with a bank for Segue which may be
used to fund letters of credit. Advances on the facility are at the bank's prime
rate and are secured by the inventory purchased subject thereto and are
guaranteed by Hampshire Group, Limited. Outstanding letters of credit totaled
approximately $1.9 million at December 31, 1996.
At December 31, 1996, Glamourette Fashion Mills, Inc. ("Glamourette") a
subsidiary of Hampshire Designers, had available an unsecured $2 million line of
credit with a commercial bank which is guaranteed by Hampshire Designers. The
line is available for short-term borrowing not to exceed 180 days and bears
interest at the lower of prime rate or the LIBOR rate plus 1.75%. No advances
were outstanding under the line at December 31, 1996 or 1995.
The Company maintains an unsecured $3.0 million credit facility for the Winona
Division for peak period financing. The line is available for short-term
borrowing not to exceed one year and bears interest at the option of the Company
at the bank's prime rate or the LIBOR rate plus 1.87%. No advances were
outstanding under the line at December 31, 1996 or 1995.
The Company also maintains standby letters of credit, in the amount of $802,000
at December 31, 1996, for the purposes of guaranteeing payment for a
self-insured workers' compensation program.
Factoring Agreement
- -------------------
The Winona Division has a factoring agreement pursuant to which it sells
approximately 30% of its accounts receivables to a factor, without recourse. The
accounts are factored on a 45 day maturity basis, but the Company may request
advances up to 80% of the uncollected balance of the receivables, with such
advances bearing interest at prime rate plus 1%. The agreement requires a
commission rate of 1% of the factored accounts receivable.
Notes Payable to Related Parties
- --------------------------------
Notes payable to related parties at December 31, 1996 and 1995 (all of which
were part of acquisition purchase price) are set forth below:
(in thousands)
1996 1995
- -------------------------------------------------------------------------------
Unsecured note payable to a director of the Company and his
spouse, in ten equal quarterly installments of principal
plus accrued interest at 9.8% per annum, commencing
October 1, 1996 $1,125 $1,250
Unsecured note payable to the Company's Chairman and Chief
Executive Officer, interest payable quarterly at 9.5% per
annum (balance paid in full in February 1997) 377 500
Unsecured note payable to a director of the Company and his
spouse, interest and principal due February 9, 1996,
with interest at prime - 2,000
- -------------------------------------------------------------------------------
1,502 3,750
Less - Amount payable within one year (877) (2,125)
- -------------------------------------------------------------------------------
Amount payable after one year $ 625 $1,625
===============================================================================
F-11
Maturities of these related party notes for the two years ending December 31,
1998 to 1999 are $500,000 and $125,000, respectively.
Long -Term Debt
- ---------------
Long-term debt at December 31, 1996 and 1995 is comprised of:
(in thousands)
1996 1995
- --------------------------------------------------------------------------------
Notes payable to insurance company in monthly installments
of $96,000, including interest at various rates from 7.55%
to 9.03%, through 2000 $4,882 $6,100
Note payable to bank in monthly installments of approximately
$31,800, including interest at 7.70% through 1999 840 1,144
Note payable to bank, in monthly installments of approximately
$20,500, plus interest at LIBOR rate plus 1.75%,
adjusted quarterly 887 1,134
Note payable to bank in monthly installments of approximately
$31,100, including interest at 7.97% through 1999 723 1,025
Note payable to bank in monthly installments of $9,650 plus
interest at LIBOR plus 1.75%, adjusted quarterly,
through 2001 551 -
Note payable to Economic Development Division of the State of
Minnesota in monthly installments of approximately $4,400
including interest at 4.0% through 2007, unsecured 450 481
Notes payable in monthly installments of approximately $1,750
including interest at 7.25% through 2000, secured by certain
real estate 254 256
Other notes payable in monthly installments of approximately
$28,000, including interest ranging from 5.88% to 10.4%,
through 2001 674 1,077
- -------------------------------------------------------------------------------
9,261 11,217
Less - Amount payable within one year (2,618) (2,627)
- -------------------------------------------------------------------------------
Amount payable after one year $6,643 $ 8,590
===============================================================================
Unless otherwise disclosed, the notes are secured by certain machinery and
equipment of the respective companies.
(in thousands)
----------------
Maturities of long-term debt as of December 31, 1996 1997 $2,618
are summarized in the table to the right: 1998 2,714
1999 2,073
2000 1,215
2001 144
Thereafter 497
----------------
$9,261
================
Note 10 - Income Taxes (in thousands) 1996 1995 1994
-------------------------------------
The components of income tax Current:
expense are set forth in the Federal $1,430 $ 504 $ 744
table to the right: State 290 300 163
Puerto Rico 180 224 202
-------------------------------------
1,900 1,028 1,109
Deferred:
Federal (3,900) (278) (109)
-------------------------------------
Total ($2,000) $ 750 $1,000
=====================================
The domestic and Puerto Rico (in thousands) 1996 1995 1994
components of income before income --------------------------------------
taxes are set forth in the table Domestic $4,161 $1,187 $1,649
to the right: Puerto Rico 5,735 6,281 5,849
--------------------------------------
Income before
income taxes $9,896 $7,468 $7,498
======================================
F-12
A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income before income taxes and
the Company's actual provision for income taxes is set forth in the table below:
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Tax provision at federal statutory rate $3,365 $2,539 $2,549
Increase (decrease) in tax arising from:
Effect of exemption of Puerto Rico earnings
from United States tax (2,136) (2,136) (1,989)
Puerto Rico taxes on income, including
withholding taxes 224 224 202
State taxes, less federal income tax benefit 191 199 108
Change in valuation allowance (4,618) (596) (1,738)
Other 832 520 1,868
- -------------------------------------------------------------------------------
($2,000) $ 750 $1,000
===============================================================================
A summary of the temporary differences and carryforwards giving rise to
deferred income tax assets and liabilities as of December 31, 1996 and
1995 is set forth in the table below:
(in thousands) 1996 1995
-------------------------------------------------
Deferred income tax assets:
Inventories - $ 149
Allowances for receivables $ 996 801
Accrued liabilities and other
temporary differences 1,221 1,394
Net operating loss carryforwards 4,227 5,749
AMT credit carryforwards 1,116 462
-------------------------------------------------
Gross deferred income tax
assets 7,560 8,555
-------------------------------------------------
Deferred income tax liabilities:
Inventories (8) -
Property, plant and equipment (412) (697)
Gross deferred income tax
liabilities (420) (697)
-------------------------------------------------
Valuation allowance for deferred
income tax assets (1,869) (6,487)
-------------------------------------------------
$5,271 $1,371
-------------------------------------------------
The net operating loss carryforwards for income tax purposes expire as set
forth in the table below:
(in thousands)
Year Regular Tax AMT
-------------------------------------
1997 $2,762 -
1998 1,095 -
1999 648 -
2000 164 -
2001 1,344 -
2002 - 2009 7,435 $1,341
-------------------------------------
$13,448 $1,341
=====================================
As a result of the sale of the Company's common stock pursuant to the Offering,
the Company generally is not permitted to utilize more than approximately $1.7
million of the net operating loss carryovers existing as of the completion of
the Offering in any single tax year, provided that to the extent such net
operating loss carryforward limitation is not utilized in any tax year, it may
be carried forward to subsequent tax years and consequently will increase the
subsequent years' limitation.
All of Glamourette's income was effectively exempt from Puerto Rico income tax
by an extended tax grant under the Puerto Rico Tax Incentives Act of 1987 (the
"Act"). The grant allows partial exemption from income, property and municipal
taxes. Under this extension of the grant, the Company enjoys 90% exemption from
Puerto Rico income taxes, and 75% exemption from property taxes and municipal
taxes through the year 2002 and will be subject to tollgate taxes on dividends
ranging from 0 to 5%. Absent this exemption, Glamourette's earnings would be
subject to Puerto Rican income tax at rates of up to 39%.
Glamourette has made an election under Section 936 of the Internal Revenue code
pursuant to which Glamourette's earnings are exempt from US taxes. However,
dividends received from Glamourette, together with certain other items, enter
into the computation of the US alternative minimum tax (AMT). Due to the 936
exemption and the relative portion of Glamourette's earnings to other US taxable
income in prior years, management estimated that the Company would more likely
than not be a perpetual AMT taxpayer. Accordingly, since NOL deductions are
limited in calculating AMT, the Company had, prior to 1996, determined that a
valuation allowance was required with respect to NOL carryforwards and AMT
credit carryforwards. During 1996, Section 936 was repealed and is being phased
out over a 10-year period. As a result, the Company believes that during this
phase-out period it will incur regular US tax liabilities and therefore receive
the benefit of a significant portion of the NOL and AMT credit carryforwards.
The Company reduced the valuation allowance in the fourth quarter of 1996 to
adjust deferred tax assets to an amount management believes more likely than not
will be realized.
F-13
The Company has not provided deferred taxes on approximately $9.0 million of
Glamourette's undistributed earnings generated prior to 1993. Deferred taxes are
required to be provided for earnings of Glamourette in 1993 and future years
under FAS 109 regardless of management's intent to indefinitely reinvest these
earnings. The Company received dividends from Glamourette of approximately $5.0
million, $5.5 million and $9.5 million in 1996, 1995 and 1994, respectively, and
paid withholding taxes where applicable.
Note 11 - Commitments and Contingencies
The Company leases premises and equipment (in thousands)
under operating (in leases having terms ------------------
thousands) from monthly to 12 years. At 1997 $1,484
December 31, 1996, future minimum lease 1998 1,316
payments under leases having an initial 1999 1,241
or remaining non-cancelable term in 2000 1,093
excess of one year were as set forth in 2001 912
the table to the right: Thereafter 730
-----------------
$6,776
=================
Rent expense on operating leases was $1,636,000, $1,475,000 and $1,053,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
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 or results of operations.
Note 12 - Capitalization
The Company's authorized capital stock consists of 10,000,000 shares of common
stock and 1,000,000 shares of serial preferred stock (the "Preferred Stock"),
each having a par value of $.10 per share. The Board of Directors is authorized
to provide for the issuance of Preferred Stock in such series and having such
designations, voting powers, preferences and other rights and restrictions as
the Board of Directors shall determine.
In connection with the acquisition of the stock of The Winona Knitting Mills
described in Note 2 , the Company issued 124,000 shares of 5% cumulative
nonvoting Series A Convertible, Preferred Stock ("Series A" stock) having a
liquidation preference and stated value of $12.50 per share. Accrued dividends
on the Series A stock are payable quarterly on March 31, June 30, September 30
and December 31, to the holders of record as of the fifteenth day of the month
during which the dividend payment is to be made.
The Series A stock is convertible, at the option of the holder, in whole or in
part, into common stock at the conversion rate of one share of common stock for
one share of the Series A stock. The Series A stock is also subject to mandatory
redemption by the Company at its stated value plus any accrued but unpaid
dividends in 20 equal quarterly installments beginning on January 1, 2001.
The Company has also issued 41,039 shares (including 36,039 held by the
Company's Chairman) of 6% cumulative nonvoting Series D Convertible, Preferred
Stock ("Series D" stock) having a liquidation preference and stated value of $50
per share. The Series D stock is convertible, at the option of the holder, in
whole or in part, into common stock at a price of $11.40 per common share. The
Series D stock is also subject to mandatory redemption at its stated value plus
any accrued but unpaid dividends in 20 equal quarterly installments beginning
April 1, 1996. During 1996, the Company redeemed 6,156 shares of Series D stock
at its stated value.
Both the Series A and Series D stock are redeemable, subject to their respective
conversion rights, in whole or in part, at the option of the Company at any
time. For the Series A stock, the redemption price equals 104%, 103%, 102% and
101% of the stated value of the stock during the years beginning October 12,
1996, 1997, 1998 and 1999, respectively, and thereafter at the stated value
thereof. The redemption price for the Series D stock is equal to 102% and 101%
of the stated value of the stock during the years beginning May 6, 1996, 1997,
respectively, and thereafter at the stated value thereof.
F-14
No dividends may be paid or declared on the Company's common stock unless all
dividends on the Series A and Series D stock, for all past dividend dates have
been paid in full and the dividends thereon for the most recent dividend date
have been paid or declared and amounts sufficient for payment thereof set apart.
The aggregate redemption requirements of the Series A and Series D stock,
assuming there are no accrued but unpaid dividends thereon, and assuming there
are no conversions of the shares into common stock, will be $410,000 in 1997
through 2000, $414,000 in 2001 and $310,000 per year from 2002 through 2005.
Summary of the activity in redeemable preferred stock for the three years
ended December 31, 1996 is set forth in the table below:
Preferred Stock
(in thousands) Series A Series D
--------------------------------------------------
Balance December 31, 1993 - $2,052
Preferred dividend accrued - 123
Preferred dividends paid - (123)
--------------------------------------------------
Balance December 31, 1994 - 2,052
Issuance of preferred stock $1,550 -
Preferred dividends accrued 18 123
Preferred dividends paid (18) (123)
--------------------------------------------------
Balance December 31, 1995 1,550 2,052
Preferred dividends accrued 78 106
Preferred dividends paid (78) (106)
Redemption of preferred stock - (308)
--------------------------------------------------
Balance December 31, 1996 $1,550 $1,744
==================================================
Note 13 - Stock Options, Warrants and Compensation Plans
The Company has reserved 750,000 shares of common stock for issuance upon
exercise of options granted under the Stock Option Plan. Options are granted
at the direction of the Company's Board of Directors to executives and key
employees of the Company. No option may have an exercise price less than fair
market value per share of the common stock at the date of grant. All options
have a maximum term of 10 years and vest and become dully exercisable after a
maximum of 5 years from the date of grant.
The stock option activity is set forth in the table below:
Number of Weighted Average
Options Exercise Price
---------------------------------------------------------------
Outstanding December 31, 1993 375,728 $ 7.75
Granted 182,623 6.58
Exercised (1,500) 5.75
Canceled or expired (111,692) 9.82
---------------------------------------------------------------
Outstanding December 31, 1994 445,159 7.12
Granted 108,067 7.71
Exercised (1,500) 5.98
Canceled or expired (15,000) 7.50
---------------------------------------------------------------
Outstanding December 31, 1995 536,726 7.42
Granted 63,466 11.28
Exercised (119,879) 6.37
Canceled or expired (24,500) 8.86
---------------------------------------------------------------
Outstanding December 31, 1996 $455,813 $ 7.87
===============================================================
F-15
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995,
respectively: dividend yields of 0% and 0%, expected volatility of 21.4% and
25.9%, risk-free interest rates of 5.37% and 7.56% and expected life of the
option of 5.11 and 4.16 years. The weighted average fair value of the options
granted during 1996 and 1995 respectively were $3.38 and $2.40. Had compensation
cost been determined on the basis of fair value pursuant to FAS 123, the impact
on income would have been immaterial.
The following is a summary of the status of options outstanding at December 31,
1996:
Options Outstanding Options Exercisable
- --------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ---------------------------------------------------- -------------------------
$5.750 - $5.750 5,729 2.00 $5.7500 5,729 $5.7500
5.812 - 5,813 77,092 3.00 5.8125 77,092 5.8125
6.000 - 6.190 65,909 4.08 6.1179 55,909 6.1390
7.500 - 7.500 54,380 4.20 7.5000 54,380 7.5000
7.870 - 7.870 65,909 2.53 7.8700 39,546 7.8700
8.250 - 8.250 15,000 4.00 8.2500 15,000 8.2500
9.900 - 9.900 114,328 2.91 9.9000 114,328 9.9000
10.625 - 11.750 49,466 6.39 11.1554 12,899 11.1744
12.100 - 12.100 7,500 4.10 12.1000 1,875 12.1000
12.500 - 12.500 500 6.00 12.5000 0 0.0000
------- ------- ------- -------
455,813 $8.1507 376,758 $7.8718
======= ======= ======= =======
In December 1990 the Company issued warrants to purchase 338,182 shares of the
Company's common stock at an exercise price of $6.19 per share through December
31, 2000. The aggregate consideration for such warrants was $250,000 cash. The
warrants remain outstanding at December 31, 1996.
F-16
In 1992, the Company adopted a Common Stock Purchase Plan for nonemployee
directors and key executives. Pursuant to the amended plan, nonemployee
directors may elect to use their fees as directors to purchase common stock of
the Company. Key executives may elect to use from 4% to 10% of their annual
salaries and 10% to 40% of their annual bonuses to purchase common stock of the
Company. The Company has established a trust to which it delivers shares of the
Company's common stock to satisfy such elections following the end of each plan
year.
The number of shares of common stock to be delivered is determined, with respect
to nonemployee directors, by dividing the amount of director fees elected to be
used to purchase common stock in each calendar quarter by 95% of the fair market
value of the Company's common stock at the end of each calendar quarter. The
number of shares of common stock to be delivered with respect to key executives
is determined by dividing the amount so elected to be used for the purchase of
common stock by 90% of the lower of: (1) the average of the fair market value of
the Company's common stock at the end of each calendar quarter, or (2) the fair
market value of the Company's common stock as of the end of the plan year.
Alternatively, the Company may contribute cash to the trust in an amount
sufficient to enable the trustee to purchase in the open market, the number of
shares of common stock which the Company would be required to deliver.
Each of the three nonemployee directors received a director's fee of $25,000 in
1996 and 1995, and $22,500 in 1994. The nonemployee directors elected to use
$50,000 in 1996, $75,000 in 1995 and $67,500 in 1994 of their compensation to
purchase common stock of the Company. The key executives elected to use
approximately $501,000, $520,000 and $357,000 of their compensation for 1996,
1995 and 1994, respectively, to purchase common stock of the Company under the
Hampshire Group, Limited Common Stock Purchase Plan.
In November 1994, the Company registered 700,000 shares of common stock under
the Securities Act of 1933, as amended. This action was in regards to the
Hampshire Group, Limited Common Stock Purchase Plan for Directors and Executives
and the Hampshire Group, Limited 1992 Stock Option Plan. Of these shares,
278,000 have been issued under these Plans.
Note 14 - Retirement Savings Plan
The Company has a 401(k) Retirement Savings Plan under which all employees,
other than employees of the Winona Division, having completed at least one year
of service and having reached the age of twenty may participate. The Company's
matching contribution is determined annually at the discretion of the Board of
Directors and was $272,000, $225,200 and $143,000 in 1996, 1995 and 1994,
respectively. Such matching contributions vest fully over seven years of
employment.
The Company also maintains a 401(k) Retirement Savings Plan under which all
employees of the Winona Division having completed at least one year of service
and having reached the age of twenty-one may participate. The Company's matching
contribution is determined annually by the plan sponsor and was $41,000 for the
year ended December 31, 1996. Such matching contributions become fully vested
upon meeting the eligibility requirements of the plan. The Winona Division
employees will become participants in the Hampshire Group, Limited 401(k)
Retirement Savings Plan on January 1, 1997.
Note 15 - Related Party Transactions
The Company leases certain buildings from an affiliated company. Rent expense
under such leases was $192,000, $184,000 and $178,000 in 1996, 1995 and 1994,
respectively. The Company also leases certain buildings from a director of the
Company and certain of his relatives. Rent expense under such leases was
$135,000 and $28,500 for 1996 and 1995.
F-17
The Company has notes receivable from certain key employees of a subsidiary
amounting to $109,000 and $128,000 at December 31, 1996 and 1995, respectively.
The notes are secured by subsidiary preferred stock owned by the executives. The
Company also has a note receivable, bearing interest at prime, from an employee
of a subsidiary totaling $70,000 at December 31, 1996. The note is secured by
subsidiary stock.
The Company has granted an option to the key executives of Hampshire Hosiery
Division to purchase 20% of the equity interest of the division for $1,200,000.
In management's opinion, the option price currently meets or exceed the fair
market value. The option terminates the earlier of: a) December 31, 1999, or b)
upon the termination of the employment of the executive for any reason.
During 1995 and 1994, the Company incurred consulting fees totaling $24,000 each
year payable to a Director of the Company for professional services rendered.
Note 16 - Supplementary Disclosure of Cash Flow Information
(in thousands)
------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------
Cash paid during the year for:
Interest $1,304 $974 $877
Income taxes 1,952 551 621
------------------------------------------------------------
Schedule of non-cash investing and
financial activities:
Issuance of stock under the
Common Stock Purchase
Plan for Directors and Executives - $521 $266
------------------------------------------------------------
The Company purchased all of the capital stock of The Winona Knitting Mills,
Inc. in October, 1995. In conjunction with the acquisition, liabilities
were assumed as set forth in the table below:
(in thousands)
------------------------------------------------------------
Fair value of assets acquired $17,346
Cash paid for capital stock (500)
Notes and other short-term obligations (3,537)
Preferred stock exchanged (1,550)
Common stock exchanged (1,785)
------------------------------------------------------------
Liabilities assumed $9,974
============================================================
The Company purchased the assets of Segue, Ltd. and Babette & Partners, Ltd.
in January 1995. In conjunction with theses acquisitions, liabilities were
assumed as set forth in the table below:
(in thousands)
------------------------------------------------------------
Fair value of assets acquired $3,350
Cash paid for the net assets (2,131)
------------------------------------------------------------
Liabilities assumed $1,219
============================================================
F-18
In January 1994, the Company purchased the assets of San Francisco Knitworks for
$2,539,000 cash and, additionally, $725,000 payable on or prior to January 31,
1996 in cash or, at the Company's option, in the Company's common stock. The
Company placed 90,625 shares of its common stock in escrow to secure the
transaction with a value assigned of $725,000. These shares have not been
released from escrow pending resolution of the final purchase price.
Note 17 - Financial Information About Industry Segments
Business segment information appears on Pages 10 and 11 of this Annual Report on
Form 10-K.
F-19
SCHEDULE I
1 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(in thousands)
December 31,
-----------------------
Assets 1996 1995
- ------ ---- ----
Current assets:
Cash $16,211 $ 7,290
Due from subsidiaries 20,612 19,859
Deferred tax asset - current 1,631 409
Other current assets 412 113
------- -------
Total current assets 38,866 27,671
Notes receivable from and investments in
subsidiaries 12,101 16,135
Deferred tax asset 3,640 962
Other assets 304 53
------- -------
$54,911 $44,821
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable - related parties $ 877 $ 2,125
Accounts payable and accrued expenses 2,840 2,714
------- -------
Total current liabilities 3,717 4,839
Note payable - related parties 625 1,625
Redeemable preferred stock 3,294 3,602
------- -------
Common stock and other stockholders' equity:
Common stock 389 377
Additional paid-in capital 23,853 22,979
Retained earnings 23,111 11,399
Treasury stock (78) -
------- -------
$54,911 $44,821
======= =======
F-20
SCHEDULE I
2 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(in thousands)
Year ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
Revenue
Management fees charged to subsidiaries $2,241 $1,707 $1,255
Interest charged to subsidiaries 2,717 1,589 845
------ ------ ------
4,958 3,296 2,100
General and administrative expenses 2,454 2,134 2,103
------ ------ ------
Income (loss) from operations 2,504 1,162 (3)
Other income (expense)
Equity in earnings of subsidiaries 5,980 5,586 6,410
Interest income 141 152 -
Interest expense (149) - (20)
Other - 3 2
------ ------ ------
Income before income taxes 8,476 6,903 6,389
Benefit (provision) for income taxes 3,420 (185) 109
------ ------ ------
Net income 11,896 6,718 6,498
Preferred dividend requirements (184) (141) (123)
------ ------ ------
Net income applicable to common stock $11,712 $6,577 $6,375
====== ====== ======
F-21
SCHEDULE I
3 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Net income $11,896 $ 6,718 $ 6,498
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of consolidated
subsidiaries (5,980) (5,586) (6,410)
Dividends received from subsidiaries 8,629 9,492 6,094
Depreciation and amortization 26 25 68
Deferred income taxes (3,900) (278) (109)
Gain on sales of assets - - (2)
Net change in operating assets and
liabilities:
Receivables from subsidiaries 632 (534) (5,076)
Receivables (76) (133) -
Other assets 21 (345) (82)
Accounts payable and accrued expense 126 1,608 406
------- ------- -------
Net cash provided by operating activities 11,374 10,967 1,387
------- ------- -------
Cash flows from investing activities:
Investments (503) - -
Proceeds from sale of assets - - 14
Capital expenditures (18) (3) (45)
Pre-acquisition advances to Winona - (3,060) -
Cash paid in business acquisition - (500) -
Investment in and advances to subsidiaries - - (1,000)
------- ------- -------
Net cash used in investing activities (521) (3,563) (1,031)
------- ------- -------
Cash flows from financing activities
Repayment of long-term debt (2,248) - (275)
Proceeds from issuance of common stock 764 9 8
Redemption of preferred stock (308) - -
Purchase of treasury stock (78) - -
Tax benefits from employee stock plans 122 - -
Cash dividends on preferred stock (184) (141) (123)
------- ------- -------
Net cash used in financing activities (1,932) (132) (390)
------- ------- -------
Net increase (decrease) in cash 8,921 7,272 (34)
Cash at beginning of period 7,290 18 52
------- ------- -------
Cash at end of period $16,211 $7,290 $ 18
======= ======= =======
F-22
SCHEDULE II
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Charged
Balance to Charged
at sales to Balance
beginning and other Deduc- end of
of year expenses accounts tions year
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful
accounts $248 $332 - ($166) $414
Allowance for returns
and adjustments 634 975 - (781 828
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful
accounts $414 $ 375 $50 ($135) $704
Allowance for returns
and adjustments 828 1,081 83 (665) 1,327
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful
accounts $ 704 $ 269 - ($176) $ 797
Allowance for returns
and adjustments 1,327 2,564 - (1,841) 2,050
- -------------------------------------------------------------------------------
F-23
Quarterly Financial and Stock Data (unaudited)
(in thousands, except per share data and stock prices)
Quarter Ended Mar. 30 Jun. 29 Sept. 28 Dec. 31
- -------------------------------------------------------------------------------
Net sales $26,430 $21,243 $49,593 $51,039
Gross profit 4,878 3,748 12,059 13,145
Commission revenue 41 284 579 38
Income (loss) from operations (262) (373) 5,916 5,800
Income (loss) applicable to
common stock (574) (642) 4,819 8,109
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share ($0.15) ($0.17) $1.17 $1.96
Income (loss) per common
share assuming full dilution ($0.15) ($0.17) $1.10 $1.84
- -------------------------------------------------------------------------------
Common stock
High price $12.00 $13.00 $12.75 $13.50
-----------------------------------------
Low price $10.38 $10.75 $11.50 $12.25
- -------------------------------------------------------------------------------
In 1995 (in thousands, except per share data and stock prices)
Quarter Ended Apr. 1 Jul. 1 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------
Net sales $14,111 $13,580 $39,278 $45,481
Gross profit 3,032 3,251 10,548 10,066
Commission revenue 73 222 884 178
Income (loss) from operations (210) (236) 4,941 3,295
Income (loss) applicable to
common stock (299) (93) 4,264 2,705
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share ($0.08) ($0.03) $1.13 $0.66
Income (loss) per common
share assuming full dilution ($0.08) ($0.03) $1.07 $0.63
- -------------------------------------------------------------------------------
Common stock
High price $9.25 $9.25 $11.00 $13.00
----------------------------------------
Low price $7.00 $8.25 $8.50 $10.00
- -------------------------------------------------------------------------------
F-24