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 September 27, 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) (864) 225-6232
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
Of Securities November 3, 1997
- ------------------------------ -----------------------------
Common Stock, $.10 Par Value 3,878,253
1
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
September 27, 1997
PART I - FINANCIAL INFORMATION Page
----
Item 1-Financial Statements
Consolidated Balance Sheet as of September 27, 1997,
September 28, 1996 and December 31, 1996 3
Consolidated Statement of Operations for the three months and
nine months ended September 27, 1997 and September 28, 1996 5
Consolidated Statement of Cash Flows for the nine months
ended September 27, 1997 and September 28, 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
Sept. 27, Sept. 28, Dec. 31,
1997 1996 1996
-------- -------- -------
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents ............. $ 713 $ 614 $20,385
Securities available for sale ......... 709 - 303
Accounts receivable trade - net ....... 37,267 33,743 13,101
Other receivables ..................... 914 1,126 412
Inventories ........................... 33,801 27,433 14,873
Deferred tax asset - current .......... 1,631 409 1,631
Other current assets .................. 437 675 401
------- ------- -------
Total current assets ............. 75,472 64,000 51,106
Property, plant and equipment - net ........ 14,286 13,816 13,596
Long-term investments ...................... 3,550 - 200
Deferred tax asset ......................... 3,640 962 3,640
Intangible assets - net .................... 2,930 3,943 3,161
Other assets ............................... 107 121 227
------- ------- -------
$99,985 $82,842 $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
Sept. 27, Sept. 28, Dec. 31,
1997 1996 1996
-------- -------- -------
(unaudited) (unaudited)
Current liabilities:
Borrowings under lines of credit ........ $21,370 $15,445
Current portion of long-term debt ....... 2,716 2,397 $ 2,618
Notes payable to related parties ........ 500 375 877
Accounts payable ........................ 6,031 4,832 3,722
Accrued liabilities ..................... 10,430 9,481 6,876
------- ------- -------
Total current liabilities ............. 41,047 32,530 14,093
Long-term debt ............................ 5,348 7,480 6,643
Notes payable to related parties .......... 250 1,127 625
------- ------- -------
Total liabilities ..................... 46,645 41,137 21,361
------- ------- -------
Redeemable, convertible preferred stock,
at redemption value
Series A ................................ 1,550 1,550 1,550
Series D ................................ 1,436 1,744 1,744
------- ------- -------
Total preferred stock ................. 2,986 3,294 3,294
------- ------- -------
Common stockholders' equity:
Common stock, 3,933,503, 3,871,321 and
3,891,503 shares issued and 3,875,269,
3,821,321 and 3,885,503 outstanding ... 393 387 389
Additional paid-in capital .............. 23,997 23,605 23,853
Retained earnings ....................... 26,800 15,002 23,111
Treasury stock .......................... (836) (583) (78)
------- ------- -------
Total common stockholders' equity...... 50,354 38,411 47,275
------- ------- -------
$99,985 $82,842 $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 Nine months ended
------------------ -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited) (unaudited)
Net sales ........................... $61,008 $49,593 $106,085 $97,266
Cost of goods sold .................. 47,239 37,534 83,251 76,581
------- ------- -------- -------
Gross profit ...................... 13,769 12,059 22,834 20,685
Other revenue ....................... 6 579 6 904
------- ------- -------- -------
13,775 12,638 22,840 21,589
Selling, general & administrative
expenses .......................... 6,964 6,722 16,376 16,308
------- ------- -------- -------
Income from operations .............. 6,811 5,916 6,464 5,281
Other income (expense):
Interest expense................... (566) (493) (998) (1,015)
Interest income ................... 59 4 300 139
Miscellaneous ..................... 72 (13) (8) (32)
------- ------- -------- -------
Income before income taxes .......... 6,376 5,414 5,758 4,373
Provision for income taxes .......... 1,265 550 1,143 632
------- ------- -------- -------
Net income .......................... 5,111 4,864 4,615 3,741
Preferred dividend requirements
42 45 128 138
------- ------- -------- -------
Net income applicable to common stock $ 5,069 $ 4,819 $ 4,487 $ 3,603
======= ======= ======== =======
Net income per common share:
Primary ........................... $1.21 $1.17 $1.13 $0.93
===== ===== ===== =====
Fully diluted ..................... $1.15 $1.10 $1.03 $0.85
===== ===== ===== =====
Weighted average number
of shares outstanding:
Primary ........................... 4,174 4,106 3,963 3,871
===== ===== ===== =====
Fully diluted ..................... 4,463 4,406 4,473 4,381
===== ===== ===== =====
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
5
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Nine months ended
-----------------
Sept. 27, 1997 Sept. 28, 1996
-------------- --------------
(unaudited)
Cash flows from operating activities:
Net income .................................... $ 4,615 $ 3,741
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ................ 2,888 2,855
Gain on sale of assets........................ (2) (9)
Net change in operating assets and liabilities:
Marketable securities ...................... (406) -
Receivables ................................ (24,668) (17,299)
Inventories ................................ (18,928) (8,055)
Other current assets ....................... 84 (372)
Accounts payable ........................... 2,309 92
Accrued liabilities ........................ 3,557 1,158
Other - 22
------- -------
Net cash used in operating activities ...... (30,551) (17,867)
------- -------
Cash flows from investing activities:
Long-term investment .......................... (3,350) -
Capital expenditures .......................... (3,412) (3,027)
Proceeds from sales of property and equipment 66 10
------- -------
Net cash used in investing activities ...... (6,696) (3,017)
------- -------
Cash flows from financing activities:
Net borrowings under lines of credit .......... 21,370 15,445
Proceeds from long-term borrowings ........... 776 711
Repayment of long-term debt ................... (1,973) (2,051)
Repayment of related party debt ............... (752) (2,248)
Treasury stock purchased ...................... (808) (583)
Proceeds from issuance of common stock ........ 90 636
Redemption of preferred stock ................. - (308)
Purchase of stock warrants .................... (1,000) -
Payment of preferred stock dividends .......... (128) (138)
------- -------
Net cash provided by financing activities .. 17,575 11,464
------- -------
Net decrease in cash and cash equivalents ....... (19,672) (9,420)
Cash and cash equivalents at beginning of period 20,385 10,034
------- -------
Cash and cash equivalents at end of period ...... $ 713 $ 614
======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
6
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 treasury stock method.
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 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.
Certain accounts previously reported have been reclassified to conform to
current classifications.
INVENTORIES
- -----------
A summary of inventories by component is as follows:
(in thousands)
Sept. 27, Sept. 28, Dec. 31,
1997 1996 1996
-------- -------- -------
Finished goods $24,079 $18,871 $ 8,767
Work-in-progress 9,629 8,231 6,063
Raw materials and supplies 4,709 4,690 4,176
------- ------- -------
38,417 31,792 19,006
Less - LIFO reserve (4,616) (4,359) (4,133)
------- ------- -------
Net inventories $33,801 $27,433 $14,873
======= ======= =======
7
REVOLVING CREDIT FACILITY
- -------------------------
The Company has renewed its principal credit facility 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.
Loans under the facility bear interest at the bank's prime rate or, at the
option of the Company, a fixed rate for a fixed term. The loans 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.
The Company also has two other credit facilities of $5 million in the aggregate
and an additional letter of credit facility in the amount of $3 million.
STOCK OPTIONS
- -------------
In May 1997, pursuant to the Hampshire Group, Limited 1992 Stock Option Plan,
the Company granted to certain key employees options to acquire 50,000 shares
of the Company's common stock at a price of $14.50 per share, including the
Chief Executive Officer who received non-qualified options to acquire 5,000
shares. The option price was equal to the fair market value as of the date of
the grant.
CAPITALIZATION
- --------------
As of July 1, 1997, the Company purchased from a former director, for $1 million
($7.534 per share), warrants to purchase 132,728 shares of the Company's common
stock with an exercise price of $6.19 per share. Hampshire's common stock closed
at $15.375 on July 7, 1997. The Board of Directors has also authorized the
Company to purchase from time to time in the open market up to 100,000 shares
of its common stock. The Company intends to use 50,000 of such shares for
employee benefit programs.
RECENT PRONOUNCEMENTS
- ---------------------
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share and requires dual presentation
of basic and diluted earnings per share for all entities with complex capital
structures. SFAS 128 is effective for financial statements issued for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted; however, if this pronouncement had been adopted, basic
earnings per share for the third quarters of 1997 and 1996 would have been $1.31
and $1.27, respectively, and for the first nine months of 1997 and 1996 would
have been $1.16 and $0.96, and diluted earnings per share for the third quarters
of 1997 and 1996 would have been $1.16 and $1.11, respectively, and for the
first nine months of 1997 and 1996 would have been $1.03 and $0.86,
respectively.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company currently has one item, unrecognized gains or losses on
available-for-sale securities, that would be considered a component of
comprehensive income. SFAS 130 is effective for the Company in 1998. SFAS 131,
which is also effective in 1998, requires that public business enterprises
report financial and descriptive information about its reportable operating
segments using the "management approach." This approach focuses on financial
information that an enterprise's management uses to make decisions about
operating matters. Management has not yet determined the impact SFAS 131 will
have on the Company.
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 periods presented:
(in thousands)
Three months ended Nine months ended
------------------ -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales:
Sweaters $53,755 $40,406 $ 88,691 $74,837
Hosiery 7,253 9,187 17,394 22,429
------- ------- -------- -------
$61,008 $49,593 $106,085 $97,266
======= ======= ======== =======
Gross profit:
Sweaters $12,574 $10,874 $20,346 $17,341
Hosiery 1,195 1,185 2,488 3,344
------- ------- ------- -------
$13,769 $12,059 $22,834 $20,685
======= ======= ======= =======
Operating profit:
Sweaters $ 7,196 $ 6,452 $ 8,187 $ 6,250
Hosiery 361 234 65 623
------- ------- ------- -------
7,557 6,686 8,252 6,873
Less - Corporate expenses (746) (770) (1,788) (1,592)
------- ------- ------- -------
Income from operations $ 6,811 $ 5,916 $ 6,464 $ 5,281
======= ======= ======= =======
9
RESULTS OF OPERATIONS
Nine Months Ended September 27, 1997
- ------------------------------------
Net sales for the nine months ended September 27, 1997 increased 9.1% over the
same period of the previous year due to increases in sales of the sweater
segment.
Net sales in the sweater segment increased 18.5% over the previous year due to
increased sales of imported products sold under the Designers Original Studio
and Designers Originals Sport labels and sales of men's sweaters. Of the 18.5%,
increases in unit volume accounted for 16.1% and an improved product mix which
resulted in higher priced goods accounted for the remaining 2.4%.
Net sales in the hosiery segment for the nine months decreased 22.4% from the
previous year, resulting from the loss of a major customer earlier in the year
and the continued over-capacity in the hosiery industry. The loss of unit volume
accounted for 16.6% of the decrease with a shift in product mix to lower priced
goods accounting for the remaining 5.8%.
Gross profit as a percentage of net sales increased by 0.2% for the nine months
ended September 27, 1997. In absolute dollars, gross profit increased $2,149,000
to $22,834,000.
Gross profit in the sweater segment increased by $3,005,000 but, as a percentage
of net sales, it decreased 0.3%. The percentage reduction is attributable to a
shift in mix of goods offset by the efficiencies resulting from higher sales
dollars.
Gross profit in the hosiery segment decreased in both absolute dollars and as a
percentage of sales to 14.3% from 14.9% for the same period of the previous
year. The hosiery segment continues to suffer from the industry-wide pricing
pressures which are the result of over-capacity in the industry.
Income from operations for the nine months increased from 5.4% of net sales to
6.1% principally due to improvement in the operating performance of the sweater
segment.
Operating income of the sweater segment for the nine months increased 31% over
the same period of the previous year, or 9.2% of net sales versus 8.4% for the
previous year. The improvement is primarily the result of the economies of
scale which accompany the increase in sales volume.
Operating income of the hosiery segment decreased from $623,000 for the first
nine months of 1996 to $65,000 for the same period of 1997 as a result of
decreased unit volume.
Selling, general and administrative expenses increased $68,000, due primarily to
inflation, to $16,376,000 for the first nine months of 1997; but as a percentage
of net sales, the expenses decreased to 15.4% versus 16.8% for the previous
year.
10
Three Months Ended September 27, 1997
- -------------------------------------
Net sales for the three months ended September 27, 1997 increased 23.0% over the
same period of the previous year due to increases of the sweater segment,
notwithstanding decreases in the sales of hosiery segment.
Net sales of the sweater segment increased 33.0% over the prior year due to
sales increases in both the men's sweater line and the imported novelty lines
sold under the Designers Originals Sport and Designers Original Studio labels.
Unit volume accounted for 26.9% of the increase with a change in product mix
accounting for the remaining 6.1%.
Net sales of the hosiery segment for the three months ended September 27, 1997
decreased 21.1% compared to the same period of the previous year. This decrease
is due to the loss of a customer and the inability of the company to replace
those sales due to competitive industry pressures. Of the 21.1% decrease,
reduction in overall unit volume accounted for 17.0% with the remaining 4.1%
relating to a shift in product mix to lower priced goods.
Gross profit for the quarter increased $1,710,000 but as a percentage of net
sales, it decreased from 24.3% to 22.6%. This percentage decrease is primarily
attributable to a decrease in the sweater segment gross profit.
Sweater segment gross profit decreased, as a percentage of net sales, by 3.5% to
23.4%. The decrease resulted from lower profit margin of the Designers Original
and private label sweater lines.
Gross profit in the hosiery segment increased, as a percentage of net sales, by
3.6% to 16.5%. This increase is due primarily to the elimination of low margin
sales that were in the sales amount in 1996.
SEASONALITY
- -----------
The results of operations for the period are not necessarily indicative of
results for the year as a whole. Over two-thirds of sweater sales occur in the
second half of the year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations consisting of funding the build-up in
inventories and accounts receivable, servicing long-term debt, funding capital
expenditures for machinery and equipment and investing in 1997 approximately
$7.0 million in assets not used in the operation 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 nine months ended September 27, 1997 totaled
$30,551,000 of which the primary use was to fund inventory and accounts
receivable build-ups which reach their peak in the third and fourth quarters.
The net cash provided by financing activities for the nine months was
$17,575,000. Besides funding the working capital needs, the primary uses of the
funds included capital expenditures of $3,412,000, purchase of long-term
investments of $3,350,000 and the repayment of long-term debt of $2,725,000.
The Company currently has in place a credit facility which consist of $20.0
million line of credit and an $8.0 million letters of credit facility, not to
exceed $25.0 million in the aggregate. The Company also has two other credit
facilities of $5.0 million in the aggregate and a letter of credit facility of
$3.0 million. The Company had letter of credit outstanding at September 27, 1997
in the aggregate amount of $3,129,000.
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
ended September 27, 1997.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
----------- -------------------------------------------------------
(10)(H)(12) Amendment No. 3 to Fourth Amended and Restated
Loan Agreement between Hampshire Designers, Inc.,
The Chase Manhattan Bank and Fleet Bank, N.A.
dated June 30, 1997
(11) Statement Re Computation of Income Per Share
(27) Financial Data Schedule
b) Reports on Form 8-K filed during the quarter.
There were no reports filed by the Company on Form 8-K during the quarter ended
September 27, 1997.
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: November 10, 1997 /s/ Ludwig Kuttner
- ------------------------- ---------------------------
Ludwig Kuttner
President and Chief
Executive Officer
(Principal Executive Officer)
Date: November 10, 1997 /s/ Charles W. Clayton
- ------------------------- ---------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
13