UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended March 29, 1997.
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) (803) 225-6232
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
Of Securities May 7, 1997
----------------------------- ----------------------------
Common Stock, $.10 Par Value 3,862,143
1
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
March 29, 1997
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheet as of March 29, 1997, March 30, 1996
and December 31, 1996 3
Consolidated Statement of Operations for the three months
ended March 29, 1997 and March 30, 1996 5
Consolidated Statement of Cash Flows for the three months
ended March 29, 1997 and March 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signature Page 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
ASSETS
March 29, March 30, December 31,
1997 1996 1996
(Unaudited) (Unaudited)
----------- ----------- ------------
Current assets:
Cash and cash equivalents $11,080 $ 3,098 $20,385
Accounts receivable trade - net 14,293 14,442 13,101
Other receivables 788 653 412
Inventories 22,284 23,855 14,873
Deferred tax asset 1,631 409 1,631
Other current assets 762 448 704
------- ------- -------
Total current assets 50,838 42,905 51,106
Property, plant and equipment - net 13,255 13,325 13,596
Deferred tax asset 3,640 962 3,640
Intangible assets - net 3,083 4,195 3,161
Other assets 591 123 427
------- ------- -------
$71,407 $61,510 $71,930
======= ======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
3
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
March 29, March 30, December 31,
1997 1996 1996
(Unaudited) (Unaudited)
----------- ----------- ------------
Current liabilities:
Current portion of long-term debt $ 2,599 $ 2,476 $ 2,618
Notes payable to related parties 375 375 877
Accounts payable 5,120 4,649 3,722
Accrued liabilities 7,015 7,172 6,876
------- ------- -------
Total current liabilities 15,109 14,672 14,093
Long-term debt 5,989 8,167 6,643
Notes payable to related parties 500 1,375 625
------- ------- -------
Total liabilities 21,598 24,214 21,361
------- ------- -------
Redeemable, convertible preferred
stock, at redemption value:
Series A 1,550 1,550 1,550
Series D 1,642 1,744 1,744
------- ------- -------
Total preferred stock 3,192 3,294 3,294
------- ------- -------
Common stockholders' equity:
Common stock, 392 379 389
Additional paid-in capital 24,043 23,071 23,853
Retained earnings 22,785 10,825 23,111
Treasury stock (603) (273) (78)
------- ------- -------
Total common stockholders' equity 46,617 34,002 47,275
------- ------- -------
$71,407 $61,510 $71,930
======= ======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
4
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
----------------------
March 29, March 30,
1997 1996
--------- ---------
(Unaudited) (Unaudited)
Net sales $23,580 $26,430
Cost of goods sold 18,889 21,552
------- -------
Gross profit 4,691 4,878
Commission revenue - 41
------- -------
4,691 4,919
Selling, general & administrative
expenses 4,783 5,181
------- -------
Loss from operations (92) (262)
Other income (expense):
Interest expense (221) (279)
Miscellaneous (11) 107
------- -------
Loss before income taxes (324) (434)
Benefit (provision) for income taxes 64 (92)
------- -------
Net loss (260) (526)
Preferred dividend requirements (44) (48)
------- -------
Net loss applicable to common stock ($ 304) ($ 574)
======= =======
Net loss per common share ($0.07) ($0.15)
====== ======
Weighted average number of shares
outstanding 3,851 3,751
====== ======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
5
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended
----------------------
March 29, March 30,
1997 1996
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss ($ 260) ($ 526)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 923 960
Loss on sale of assets (2) (2)
Net change in operating assets and liabilities:
Receivables (1,468) 2,392
Inventories (7,410) (4,475)
Other current assets (55) (63)
Accounts payable 1,396 (67)
Accrued liabilities 143 (1,224)
Other - 50
------- -------
Net cash used in operating activities (6,733) (2,955)
------- -------
Cash flows from investing activities:
Capital expenditures (544) (872)
------- -------
Proceeds from sales of property and equipment 40 -
Cash used for investments (267) -
------- -------
Net cash used in investing activities (771) (872)
Cash flows from financing activities:
Repayment of long-term debt (672) (574)
Repayment of related party debt (627) (2,000)
Treasury stock purchased (548) (273)
Proceeds from issuance of common stock 90 94
Redemption of preferred stock - (308)
Payment of preferred stock dividends (44) (48)
------- -------
Net cash used by financing activities (1,801) (3,109)
------- -------
Net decrease in cash and cash equivalents (9,305) (6,936)
Cash and cash equivalents at beginning of period 20,385 10,034
------- -------
Cash and cash equivalents at end of period $11,080 $ 3,098
======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
6
BASIS OF PRESENTATION
- ---------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
In the opinion of the management of the Company, the unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods presented. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for a full year due
to the seasonality of the business. These interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1996, included in
the Company's Annual Report on Form 10-K.
Net loss per share is computed by dividing net loss by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Conversion of the convertible preferred stock into common stock has not
been assumed because inclusion would be antidilutive.
Certain accounts previously reported have been reclassified to conform to
classifications used in 1997.
REVOLVING CREDIT FACILITY
- -------------------------
The Company is in process of renewing its principal credit facility which will
extend through May 31, 1998. The credit facility consists of a $20 million line
of credit and an $8 million letter of credit facility, not to exceed $25 million
in the aggregate. 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 and (ii) a seasonal adjustment of $6 million during
the period from March 1 to October 31.
Advances under the facility 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
trade accounts receivable of Hampshire Designers and are guaranteed by Hampshire
Group, Limited. Letters of credit issued under the facility are secured by the
inventory shipped pursuant to the letters of credit.
7
INVENTORIES
- -----------
A summary of inventories by component is as follows:
(in thousands)
March 29, March 30, December 31,
1997 1996 1996
-------- -------- -----------
Finished goods $14,390 $15,667 $8,767
Work-in-progress 7,793 8,030 6,063
Raw materials and supplies 4,591 4,517 4,176
------- ------- ------
26,774 28,214 19,006
Less-LIFO reserve (4,490) (4,359) (4,133)
------- ------- ------
Net inventories $22,284 $23,855 $14,873
======= ======= =======
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
BUSINESS SEGMENT DATA
- ---------------------
Set forth below are the Company's results of operations by business segment for
the three months ended March 29, 1997 and March 30, 1996:
(in thousands)
Three Months Ended
-----------------------
March 29, March 30,
1997 1996
-------- --------
Net sales:
Sweaters $18,850 $20,735
Hosiery 4,730 5,695
------- -------
$23,580 $26,430
======= =======
Gross profit:
Sweaters $ 4,244 $ 3,987
Hosiery 447 891
------- -------
$ 4,691 $ 4,878
======= =======
Commission revenue:
Sweaters $ - $ 41
======= =======
Operating profit (loss):
Sweaters $ 702 $ 91
Hosiery (330) 47
------- -------
372 138
Less - Corporate expenses (464) (400)
------- -------
Loss from operations $ (92) $ (262)
======= =======
9
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 29, 1997 Compared With Three Months Ended March 30,
1996.
The Company's net sales for the quarter ended March 29, 1997 were $23,580,000,
as compared with $26,430,000 for the quarter ended March 30, 1996. The decrease
of $2,850,000 was attributable to reduced sales in both the sweater and hosiery
segments.
Sweater segment net sales were $18,850,000 for the three months ended March 29,
1997, as compared with $20,735,000 for the three months ended March 30, 1996.
The 9% decrease resulted from shipments of close-out sales of women's products
in January 1996 from the year 1995 and shipments in December 1996 of close-out
sales for 1996, as requested by the customer; and the close-out sales prior to
the consolidation of two men's sweater manufacturing facilities in the first
quarter of 1996. These reductions were partially offset by higher sales of
imported products sold under the labels Designers Originals Sport(R) and
Designers Original Studio(R).
Hosiery segment net sales were $4,730,000 for the three months ended March 29,
1997, as compared to $5,695,000 for the three months ended March 30, 1996. The
16.9% decrease was principally attributable to the loss of a major customer
resulting from their decision to reduce the number of vendors.
Gross profit for the three months ended March 29, 1997 was $4,691,000 compared
with $4,878,000 for the three months ended March 30, 1996. The decrease was
principally due to a decrease in the segment sales; however, as a percent of net
sales the gross margin increased to 19.9% from 18.5%.
Sweater segment gross profit increased by $257,000 for the three months
ended March 29, 1997 as compared with the same period for 1996. As a percentage
of net sales, gross profit was 22.5% for the three months ended March 29, 1997
versus 19.2% for the three months ended March 30, 1997. The improved performance
year to year resulted from the reduction of low margin close-out sales and the
absence of the start-up costs for Mycrolon(R) products which were incurred in
the prior year.
Hosiery segment gross profit for the three months ended March 29, 1997
decreased $444,000 from the same period last year. The decrease was primarily
attributable to the 16.9% decrease in net sales. As a percentage of net sales,
gross profit was 9.5% for the three months ended March 29, 1997 as compared with
15.6% for the three months ended March 30, 1996.
Selling, general and administrative expense for the three months ended
March 29, 1997 were $4,783,000, as compared with $5,181,000 for the same period
in 1996. The decrease of $398,000 was due principally to reduced selling,
general and administrative expenses on reduced sales.
Loss from operations for the three months ended March 29, 1997 totaled
$92,000 as compared with a loss of $262,000 for the same period in 1996. The
reduction was due principally to improved gross margin on sweater sales and
reduced selling, general and administrative expenses.
Interest expense for the three months ended March 29, 1997 decreased to
$221,000 as compared with $279,000 for the same period ended March 30, 1996. The
decreases were attributable to reduced debt.
10
SEASONALITY
- -----------
Approximately two-thirds of sweater sales occur in the second half of the
year. The hosiery segment sales are not highly seasonal.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations consisting of funding the buildup in
inventories and accounts receivable which reach their maximum requirements in
the third quarter, servicing long-term debt and funding capital expenditures for
machinery and equipment. Excess cash in the business, in management's opinion
approximately $5 million, will be invested in assets not used directly in the
operations of the business of the Company. The primary sources to meet the
liquidity and capital requirements include funds generated from operations,
revolving credit lines and long-term equipment financing.
Net cash used in operations for the three months ended March 29, 1997
totaled $6,733,000 of which the primary use was to build inventory for shipments
later in the year. Capital expenditures for 1997 are currently planned to be
approximately $3,000,000, of which $544,000 has been expended through March 29,
1997. The planned expenditures are primarily for manufacturing equipment and
facility improvements.
The net cash used in financing activities for the three months ended March 29,
1997 was $1,801,000. The principal use was the repayment of debt of $1,299,000.
Other uses were the purchase of investment of $267,000 and the purchase of
common stock in the amount of $548,000 for funding of employee benefit programs
and redemption of preferred stock.
At March 30, 1997, the Company is in process of renewing its principal
credit facility which will extend through May 31, 1998. The credit facility
consists of a $20 million line of credit and an $8 million letter of credit
facility, not to exceed $25 million in the aggregate. The Company also has two
other credit facilities of $5 million in the aggregate with no balance
outstanding at March 30, 1997. The Company had letters of credit outstanding at
March 30, 1997 in the aggregate amount of $2,150,000.
The Company believes its cash flow from operations and borrowings under its
credit lines will provide adequate resources to meet its operational needs and
capital requirements for the foreseeable future.
11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
Item 2 and 3 are not applicable and have been omitted.
Item 4 - Submission of matters to a vote of security holders.
There were no matters submitted to a vote of security holders during the
quarter.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit Description
No.
------- ------------------------------------------------
(10)(D) Form of Hampshire Group, Limited Voluntary
Deferred Compensation Plan for Directors and
Executives
(11) Statement Re Computation of Loss Per Share
(27) Financial Data Schedule
b) Reports on Form 8-K filed during the quarter.
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAMPSHIRE GROUP, LIMITED
(Registrant)
Date: May 9, 1997 /s/ Ludwig Kuttner
--------------------- -------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1997 /s/ Charles W. Clayton
--------------------- -------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13