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 28, 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.)
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 1, 1996
---------------------------- -----------------------------
Common Stock, $.10 Par Value 3,830,821
1
<PAGE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
INDEX TO FORM 10-Q
September 28, 1996
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements
Consolidated Balance Sheet as of September 28, 1996,
September 30, 1995 and December 31, 1995 3 - 4
Consolidated Statement of Income for the Three Months and
Nine Months Ended September 28, 1996 and September 30, 1995 5
Consolidated Statement of Cash Flows for the Nine Months
Ended September 28, 1996 and September 30, 1995 6
Consolidated Statement of Changes in Common Stockholders'
Equity for the Nine Months Ended September 28, 1996 7
Notes to Consolidated Financial Statements 7 - 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signature Page 15
2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands, except share data)
<CAPTION>
Sept. 28, Sept.30, Dec. 31,
1996 1995 1995
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............. $ 614 $ 742 $10,034
Accounts receivable trade - net ....... 33,743 25,605 16,761
Other receivables ..................... 1,039 266 722
Inventories ........................... 27,433 20,538 19,380
Deferred tax asset .................... 409 216 409
Other current assets .................. 762 3,937 235
------- ------- -------
Total current assets .............. 64,000 51,304 47,541
Property, plant and equipment - net ..... 13,816 8,546 13,469
Deferred tax asset ...................... 962 1,157 962
Intangible assets - net ................. 3,943 2,303 4,320
Other assets ............................ 121 178 146
------- ------- -------
$82,842 $63,488 $66,438
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
(In thousands, except share data)
<CAPTION>
Sept. 28, Sept.30, Dec. 31,
1996 1995 1995
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current liabilities:
Borrowings under lines of credit.......... $15,445 $ 9,530 -
Current portion of long-term debt......... 2,397 1,549 $ 2,627
Notes payable to related parties ......... 375 - 2,125
Accounts payable ......................... 4,832 5,369 4,714
Accrued liabilities ...................... 9,481 8,447 8,400
------- ------- -------
Total current liabilities .............. 32,530 24,895 17,866
Long-term debt ............................ 7,480 5,784 8,590
Notes payable to related parties .......... 1,127 500 1,625
------- ------- -------
Total liabilities ...................... 41,137 31,179 28,081
------- ------- -------
Redeemable, convertible preferred stock,
at redemption value:
Series A ................................. 1,550 - 1,550
Series D ................................. 1,744 2,052 2,052
------- ------- -------
Total preferred stock .................. 3,294 2,052 3,602
------- ------- -------
Common stockholders' equity:
Common stock, 3,871,321, 3,530,124 and
3,771,624 shares issued and 3,821,321,
3,530,124 and 3,771,624 outstanding ..... 387 353 377
Additional paid-in capital ............... 23,605 21,210 22,979
Treasury stock ........................... (583) - -
Retained earnings ........................ 15,002 8,694 11,399
------- ------- -------
Total common stockholders' equity ...... 38,411 30,257 34,755
------- ------- -------
$82,842 $63,488 $66,438
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ --------------------
Sept. 28, Sept.30, Sept. 28, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ........................ $49,593 $39,278 $97,266 $66,969
Cost of goods sold ............... 37,534 28,730 76,581 50,138
------- ------- ------- -------
Gross profit ................. 12,059 10,548 20,685 16,831
Commission revenue ............... 579 884 904 1,179
------- ------- ------- -------
12,638 11,432 21,589 18,010
Selling, general and
administrative expenses ...... 6,722 6,491 16,308 13,515
------- ------- ------- -------
Income from operations ........... 5,916 4,941 5,281 4,495
Interest expense ................. (493) (334) (1,015) (643)
Interest income .................. 4 83 139 265
Other income (expense) ........... (13) 1 (32) 373
------- ------- ------- -------
Income before income taxes ....... 5,414 4,691 4,373 4,490
Provision for income taxes ....... 550 397 632 526
------- ------- ------- -------
Net income ................... 4,864 4,294 3,741 3,964
Preferred dividend requirements 45 30 138 92
------- ------- ------- -------
Net income applicable to common stock $ 4,819 $ 4,264 $ 3,603 $ 3,872
======= ======= ======= =======
Net income per share
Primary ...................... $1.17 $1.13 $0.93 $1.07
===== ===== ===== =====
Fully diluted ................ $1.10 $1.07 $0.85 $0.98
===== ===== ===== =====
Weighted average number of
shares outstanding
Primary ...................... 4,106 3,789 3,871 3,618
===== ===== ===== =====
Fully diluted ................ 4,406 4,028 4,381 4,026
===== ===== ===== =====
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended
-----------------
Sept. 28, 1996 Sept. 30, 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................ $ 3,741 $ 3,964
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization ............ 2,855 1,868
Gain on sale of assets ................... (9) (52)
Net change in operating assets and
liabilities, net of effects of acquired
businesses:
Receivables ............................ (17,535) (14,759)
Inventories ............................ (8,055) (9,241)
Other current assets ................... (136) (3,653)
Accounts payable ....................... 92 2,787
Accrued liabilities .................... 1,158 2,898
Other .................................. 22 (82)
------- -------
Net cash used in operating activities (17,867) (16,270)
------- -------
Cash flows from investing activities:
Capital expenditures ..................... (3,027) (2,302)
Proceeds from sales of property and equipment 10 852
Cash used for business acquisitions ...... - (2,076)
------- -------
Net cash used in investing activities ... (3,017) (3,526)
------- -------
Cash flows from financing activities:
Net borrowings under lines of credit ..... 15,445 9,503
Proceeds from issuance of long-term debt . 711 1,790
Repayment of related party debt .......... (2,248) -
Repayment of long-term debt .............. (2,051) (1,375)
Proceeds from issuance of common stock ... 636 -
Treasury stock purchased ................. (583) -
Redemption of preferred stock ............ (308) -
Payment of preferred stock dividends ..... (138) (92)
------- -------
Net cash provided by financing activities 11,464 9,826
------- -------
Net decrease in cash and cash equivalents .. (9,420) (9,970)
Cash and cash equivalents at beginning of period 10,034 10,712
------- -------
Cash and cash equivalents at end of period .. $ 614 $ 742
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury Total
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 .... 3,771,624 $377 $22,979 $11,399 - $34,755
Shares issued under
Stock Option Plan .... 99,697 10 626 - - 636
Purchase of treasury
stock ................ (50,000) - - - ($583) (583)
Net income for the period - - - 3,741 - 3,741
Dividends on
preferred stock ...... - - - (138) - (138)
------------------------------------------------------
Balance at
September 28, 1996 ... 3,821,321 $387 $23,605 $15,002 ($583) $38,411
======================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
- -----------------------------------------------------------------------------
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
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
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, 1995, included in the Company's
Annual Report on Form 10-K.
</TABLE>
7
<PAGE>
Net income per share is computed by dividing net income applicable to common
stock by the weighted average number of common shares outstanding plus the
effect of outstanding options and warrants computed using the modified treasury
stock method. Net income per share assuming full dilution is computed by
dividing net income by the sum of the weighted average number of common shares
outstanding; the effect of outstanding options and warrants computed using the
modified treasury stock method; and the dilutive effect of the assumed
conversion of the convertible preferred stock.
Certain accounts previously reported have been reclassified to conform to
classifications used in 1996.
Inventories
- -----------
A summary of inventories by component is as follows:
(In thousands)
Sept. 28, Sept. 30, Dec. 31,
1996 1995 1995
---- ---- ----
Finished goods...................... $18,871 $15,236 $10,954
Work-in-progress.................... 8,231 5,887 7,341
Raw materials and supplies.......... 4,690 3,681 5,082
------- ------- -------
31,792 24,804 23,377
Less - LIFO reserve................. (4,359) (4,266) (3,997)
------- ------- -------
Net inventories................... $27,433 $20,538 $19,380
======= ======= =======
Acquisition
- -----------
In October 1995, The Winona Knitting Mills, Inc. (Winona Mills), 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 shares of the Company's common
stock valued at $1,785,000. Additionally, payments of up to $1,333,000 are
contingent upon the financial performance of Winona Mills during 1996 through
1998. Such payments will be made one-half in cash and one-half in common stock
of the Company. In connection with the acquisition, the Company recorded
goodwill in the amount of $2,288,000.
Had the acquisition of Winona Mills been consummated as of January 1, 1995, the
Company's unaudited consolidated pro forma results of income would have been as
follows:
(In thousand, except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
(Actual) (Pro Forma) (Actual) (Pro Forma)
Net sales ................ $49,593 $48,636 $97,266 $83,753
======= ======= ======= =======
Net income applicable to
common stock ........... $4,819 $4,020 $3,603 $1,743
====== ====== ====== ======
Net income per share
Primary ................ $1.17 $1.00 $0.93 $0.45
===== ===== ===== =====
Full Dilution .......... $1.10 $0.93 $0.85 $0.43
===== ===== ===== =====
Revolving Credit Facility
- -------------------------
The Company has a credit facility which extends through March 31, 1997. This
facility, which is limited to $25 million in the aggregate, makes available to
the Company $21 million in revolving credit and $6.5 million in letters of
credit. Advances under the revolving credit line are limited to the lesser of
(i) the sum of 85% of the eligible accounts receivable plus a seasonal
over-advance, not to exceed $6 million, during the period March 1 to October 31,
or (ii) $21 million.
8
<PAGE>
Loans under the facility, at the option of the Company, bear interest at a
variable rate of prime or a fixed rate based on the bank's cost of funds. The
loans are secured by accounts receivable of the subsidiaries and are guaranteed
by the Company. Letters of credit issued under the facility are secured by the
inventory shipped pursuant to the letter of credit.
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.
Stock Option and Purchase Plans
- -------------------------------
In February 1996, pursuant to the Hampshire Group, Limited 1992 Stock Option
Plan, the Company granted to certain key employees options to acquire 34,966
shares of the Company's common stock at a price of $11.00 per share, the fair
market value as of the date of the grant. In May 1996, pursuant to certain
employment agreements, the Company also granted options to acquire 12,000 shares
of the Company's common stock at $11.75 per share. In February 1996, the Company
also granted to its Chief Executive Officer options to acquire 7,500 shares of
the Company's common stock at a price of $12.10 per share, which was 110 percent
of the fair market value as of the date of the grant. The options vest 25%
annually beginning December 31, 1996.
Capitalization
- --------------
The Company is obligated to redeem the Series D Convertible Preferred Stock in
twenty equal quarterly installments commencing April 1, 1996. During March 1996,
the Company redeemed the three installments due in 1996.
During 1996, the Company purchased an aggregate of 50,000 shares of its common
stock in the market. This purchase was made as part of a plan to repurchase up
to 100,000 shares of common stock to be used primarily to fund certain employee
benefit plans.
9
<PAGE>
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 and nine months ended September 28, 1996 and September 30,
1995.
(In thousands)
Three Months Ended Nine Months Ended
---------------------- ---------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales:
Sweaters ................. $40,406 $31,012 $74,837 $47,457
Hosiery ................. 9,187 8,266 22,429 19,512
------- ------- ------- -------
$49,593 $39,278 $97,266 $66,969
======= ======= ======= =======
Gross profit:
Sweaters ................. $10,874 $ 9,386 $17,341 $13,987
Hosiery .................. 1,185 1,162 3,344 2,844
------- ------- ------- -------
$12,059 $10,548 $20,685 $16,831
======= ======= ======= =======
Commission revenue:
Sweaters.................. $ 579 $ 884 $ 904 $ 1,179
======= ======= ======= =======
Income from operations:
Sweaters ................. $ 6,452 $ 5,472 $ 6,250 $ 5,651
Hosiery .................. 234 185 623 254
------- ------- ------- -------
6,686 5,657 6,873 5,905
Less - Corporate expenses .. (770) (716) (1,592) (1,410)
------- ------- ------- -------
Income from operations ..... $ 5,916 $ 4,941 $ 5,281 $ 4,495
======= ======= ======= =======
Three Months Ended September 28, 1996 Compared With Three Months Ended
- ----------------------------------------------------------------------
September 30, 1995
- ------------------
Consolidated net sales of the Company increased by 26.3% to $49,593,000 for the
third quarter of 1996 as compared with $39,278 for the third quarter of 1995.
Approximately 90% of the increase occurring in the sweater segment.
Net sales for the sweater segment increased 30.3% to $40,406,000 with
approximately 89% of the increase being attributable to sales of Winona Mills
sweater business. The principal factor in the increase in sales, which does not
reflect sales of Winona Mills, was an increase in unit sales volume with a
nominal impact due to shifts in product price and mix.
10
<PAGE>
Net sales in the hosiery segment increased 11.1% in the third quarter of 1996,
as compared with the previous year. This increase, which amounts to $921,000,
relates to a 17.4% increase in unit volume offset by an unfavorable product mix.
Gross profit for the Company increased by $1,511,000 to $12,059,000 for the
third quarter of 1996. The sweater segment gross profit, as a percentage of
sales, decreased to 26.9% from 30.3% for the prior year. Excluding the sales of
Winona Mills, gross profit was 30.5%, which is an increase over last year.
Operating primarily as a contract manufacturer, the sales of Winona Mills
produced a gross profit margin of 13.2%.
The hosiery segment gross profit, as a percentage of net sales decreased from
14.1% for the third quarter of 1995 to 12.9%, because of a shift in sales mix to
lower priced and lower margin items.
Segue (America) Limited, a subsidiary of Hampshire Designers, Inc., receives
commission revenue as agent for certain of its customers in arranging for the
importation of sweaters. The commission revenue totaled $579,000 and $884,000
for the third quarter 1996 and 1995, respectively. The reduction is primarily
due to agency sales being shifted to regular sales.
Selling, general and administrative expenses for the third quarter of 1996
increased by $231,000 to $6,722,000. The increase was attributable to the
addition of the Winona Mills. As a percentage of net sales, selling, general and
administrative expenses for the third quarter of 1996 was 13.6% of net sales for
the period compared with 16.5% for the third quarter of the preceding year.
Income from operations for the third quarter increased by $975,000 to $5,916,000
from the prior year level of $4,941,000. This increase is attributable to the
sweater segment which experienced an 17.9% increase over the comparable period
last year. The sweater segment increase was due to improved operating
efficiencies.
Interest expense for the third quarter increased by $159,000. This increase was
principally attributable to higher levels of long-term debt incurred in
connection with the acquisition of Winona Mills and higher levels of borrowings
under the revolving credit facilities to support the seasonal sweater business.
Nine Months Ended September 28, 1996 Compared With Nine Months Ended
- --------------------------------------------------------------------
September 30, 1995
- ------------------
Consolidated net sales of the Company for the nine months ended September 28,
1996, increased by 45.2% to $97,266,000 with approximately 90% occurring in the
sweater segment.
Net sales for the sweater segment increased 57.7% to $74,837,000 for the first
nine months of 1996, with approximately 67% of the increase being attributable
to sales of Winona Mills. In respect to the sales increase not related to Winona
Mills, unit volume increases accounted for approximately 80% of the increase and
a shift in mix to higher priced goods accounted for the remainder.
Net sales in the hosiery segment for the nine months ended September 28, 1996,
increased 14.9% compared with the previous year. This increase, which amounts to
$2,917,000, relates to a 18.0% increase in unit volume offset by an unfavorable
product mix.
11
<PAGE>
Gross profit for the Company for the nine months ended September 28, 1996,
increased $3,854,000 to $20,685,000. The sweater segment gross profit, as a
percentage of sales, decreased to 23.2% from 29.5% for the prior year. Excluding
the Winona sales, gross profit was 29.3% which is a 0.2% decrease compared with
last year. The Winona sales associated with the newly acquired sweater business,
however, had a detrimental impact on gross profit by generating margins of only
3.5% on sales of $18.5 million.
In contrast to the results of the third quarter for the hosiery segment, gross
profit as a percentage of sales increased to 14.9% for the first nine months
1996. The primary reason was the benefit derived from a reduction in closeout
sales from the comparable period in 1995.
Segue (America) Limited, a subsidiary of Hampshire Designers, Inc. receives
commission revenue as agent for certain of its customers in arranging for the
importation of sweaters. The commission revenue totaled $904,000 and $1,179,000
for the first nine months of 1996 and 1995, respectively.
Selling, general and administrative expenses increased by $2,793,000 to
$16,308,000. Approximately 85% of the increase is attributable to the expenses
associated with the Winona acquisition with the remainder being general
increases necessary to support the higher level of sales experienced during the
period. As a percentage of net sales, selling, general and administrative
expenses for the first nine months of 1996 were 16.8% of net sales for the
period compared with 20.2% for the preceding year.
Income from operations for the nine months ended September 28, 1996, increased
by $786,000 to $5,281,000. This increase is due in part to the sweater segment,
which had a 10.6% increase due to improved manufacturing efficiencies, and the
hosiery segment where sales increases coupled with cost containment resulted in
an increase, as a percentage of sales, from 1.3% to 2.8% for 1996.
Interest expense for the nine months ended September 28, 1996, increased by
$372,000 to $1,015,000. This increase is principally attributable to higher
levels of long-term debt incurred in connection with the Winona acquisition and
higher levels of borrowings under the revolving credit facilities to support the
seasonal sweater business.
Income Taxes
- ------------
Income tax expense for each of the periods presented reflects provisions for
federal and state income taxes on taxable earnings and estimated income taxes on
the earnings of the Puerto Rican subsidiary.
Seasonality
- -----------
The Company's business is seasonal with over 70% of net sales occurring in the
last half of the year. The sweater segment experiences a marked increase in
sales in the July to November period and the hosiery segment, while not as
seasonal, experiences modest increases in the second half of the year. Due to
this seasonality, the results of operations for interim periods are not
indicative of results that may be expected for a full year.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The primary liquidity and capital requirements of the Company relate to funding
of the working capital needs to support 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. The primary sources to meet the liquidity and capital requirements
include funds generated by operations, revolving credit lines and long-term
equipment financing.
Net cash used in operations for the nine months ended September 28, 1996 totaled
$17,867,000 of which the primary use was an increase in receivables due to large
shipments in the seasonally heavy third quarter.
Capital expenditures for 1996, planned to be approximately $3,000,000, have been
$3,027,000 through September 28, 1996. The expenditures were primarily for
manufacturing equipment; facility expansion and improvements; and the expansion
of the sweater distribution center.
The net cash provided by financing activities for the nine months was
$11,464,000. The primary source of funds consisted of net borrowings totaling
$15,445,000 under the Company's revolving credit facilities. The primary usage
of funds was to repay $4,299,000 of debt. Other uses were the redemption of
preferred stock and the purchase of common stock as more fully discussed in the
Notes to the Consolidated Financial Statements. The Company also has the
availability to issue up to $11,000,000 in letters of credit of which $2,327,000
was outstanding at September 28, 1996.
Management of the Company believes that cash flow from operations and borrowings
under its credit lines will provide adequate resources to meet capital
requirements and operational needs for the foreseeable future.
13
<PAGE>
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 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 28, 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
---------- -------------------------------------------------------
(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.
(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 28, 1996.
14
<PAGE>
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 7, 1996 /s/ Ludwig Kuttner
--------------------- --------------------------------
Ludwig Kuttner
President and Chief Executive Officer
Date: November 7, 1996 /s/ Charles W. Clayton
--------------------- --------------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer,
Chief Financial Officer and
Principal Accounting Officer
15
GOVERNMENT OF THE
COMMONWEALTH OF PUERTO RICO
DEPARTMENT OF STATE
Grant of Industrial Tax Exemption to GLAMOURETTE FASHION MILLS, INC.
(hereinafter referred to as "applicant" or "grantee"), Case No. 95-8-I-97,
pursuant to the terms of Act No. 8 of January 24, 1987, as amended.
DECREE
WHEREAS, Act No. 8 of January 24, 1987, as amended (hereinafter referred to
as "the Act"), empowers the Secretary of State of the Commonwealth of Puerto
Rico to grant tax exemption from specified taxes to eligible industries when it
is proved to the satisfaction of the Secretary of State that the applicant has
established, or will establish, an eligible industry as defined in the Act and
that the same will be in the best interests of the Commonwealth of Puerto Rico.
WHEREAS, the Secretary of State of the Commonwealth of Puerto Rico, after
having examined the findings of fact and conclusions of the Special Examiner,
the report of the Acting Director of the Office of Industrial Tax Exemption, and
other documents relative to this case, is of the opinion that the applicant has
proved that it will operate an eligible industry within the meaning of the Act
and that the same will be in the best interests of the Commonwealth of Puerto
Rico.
NOW, THEREFORE, BE IT DECREED BY THE SECRETARY OF STATE OF THE COMMONWEALTH
OF PUERTO RICO, that the applicant, Glamourette Fashion Mills, Inc., be hereby
granted tax exemption in accordance with the applicable terms of the Act,
covering the production of full fashioned and circular knit sweaters and other
related products, such as, but not limited to, dresses, skirts and pants,
provided that the operations shall be carried out substantially as described in
the application;
BE IT FURTHER DECREED, that pursuant to Section 9(j)(5) of the Act, the
Secretary of State of the Commonwealth of Puerto Rico hereby authorize the
Director of the Office of Industrial Tax Exemption to carry on administrative
duties of all nature, with respect to grants of tax exemption issued under the
provisions of the Acts No. 6 of December 15, 1953, 57 of June 13, 1963, 26 of
June 2, 1978, and 8 of January 24, 1987, as amended, including with respect to
Act No. 8, supra, the approval or denial of any amendment of tax exemption or
grants for property devoted to industrial development, but excluding the
authority to approve or deny tax exemptions grants to manufacturing or service
units and any other duty specifically bestowed upon her by the aforementioned
Acts;
BE IT FURTHER DECREED, that the grantee herein shall be entitled to an
exemption period of fifteen (15) years in view of the location of the exempted
business at the municipality of Quebradillas, Puerto Rico, and that the
effective dates of said tax exemption shall be December 31, 1995 for income tax
purposes, and January 1, 1996 for property tax purposes.
BE IT FURTHER DECREED, that the effective date of this grant for municipal
license tax purposes will be July 1, 1996. Accordingly, on July 1, 1996, grantee
will pay municipal license tax on forty percent (40%) of the volume of business
derived during its preceding accounting year (or part thereof) and reflected in
the volume of business declaration required to be filed on April 15, 1996;
BE IT FURTHER DECREED, that this grant shall be subject to the condition
that grantee reaches a minimum annual dollar volume of production of full
fashioned and circular knit sweaters and other related products, such as, but
not limited to, dresses, skirts and pants of not less than $18,000,000.00 within
one (1) year after the approval of the grant;
BE IT FURTHER DECREED, that this grant shall be subject to the condition
that if grantee generates industrial development income of more than one million
dollars ($1,000,000) during any taxable year, it shall pay a special surtax of
.00075 of the exempted business' sales volume which shall never be greater than
one-half of one percent (.005) of the net industrial development income and the
same shall form a part and be remitted to the Secretary of the Treasury together
with their annual income tax return;
BE IT FURTHER DECREED, that the grantee shall make all possible efforts to
buy from local manufacturers all the products, components, equipment, machinery
and materials necessary for its operations;
BE IT FURTHER DECREED, that this grant of tax exemption shall become
retroactively null and void unless the grantee shall file with the Office of
Industrial Tax Exemption, within ninety (90) days after the receipt of this
grant by the grantee, a duly notarized and sworn declaration wherein the grantee
expresses its unconditional acceptance of this grant and of all the conditions,
provisions, and findings which are an integral part hereof;
BE IT FURTHER DECREED, that grantee must surrender its grant in Case No.
92-8-IT-2(77-57-I-80) as of December 30, 1995 for income tax purposes, December
31, 1995 for property tax purposes and June 30, 1996 for municipal license
taxes;
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BE IT FURTHER DECREED, that as an essential condition to the issuance and
continuance of this decree, the grantee must comply with an employment
requirement of a minimum of one thousand one hundred and thirty-three (1,133)
direct employees within twenty-four (24) months from the effective date of this
grant in its location, by December 31, 1997; provided, that commencing with
calendar year 1998, compliance with said employment requirement shall be
determined on an average annual basis, using the weekly employment level and the
calendar year for this purpose, and the average employment level shall likewise
apply during the partial calendar year of operations prior to the date of
ceasing operations under the grant; and, further provided, that anything herein
to the contrary notwithstanding, if a reduction of employment occurs below said
employment requirement, during the time compliance is determined by average
annual employment or average employment as aforesaid, the Grantee shall give the
appropriate notices or file an application requesting approval, as the case may
be, within a reasonable time after the end of the calendar year in which such
reduction occurred;
BE IT FURTHER DECREED, that the grantee must always comply with the
employment requirement of the preceding clause, except in cases of unforeseen
circumstances, which may cause a reduction of employment beyond the control of
the grantee, at which occurrence or at the earliest date when such occurrence is
contemplated, the grantee is subject to one of the following alternatives.
1. If the reduction represents less than 10% of the employment requirement,
grantee has no obligation to notify the Office of Industrial Tax Exemption of
said reduction.
2. If the reduction represents 10% or more but less than 25% of the
employment requirement, grantee shall notify the Office of Industrial Tax
Exemption, with copy to the Department of Labor and Human Resources of Puerto
Rico and the Economic Development Administration, of said reduction of employees
on a sworn statement sent by certified mail with return receipt requested, or in
the alternative, should file said sworn statement personally at the Office of
Industrial Tax Exemption with copy to the Department of Labor and Human
Resources of Puerto Rico and the Economic Development Administration.
3. If the reduction represents 25% or more of the employment requirement,
the grantee must file to the satisfaction and acceptance, which acceptance shall
not be unreasonably withheld, with the Office of Industrial Tax Exemption a
sworn application, with copy to the Department of Labor and Human Resources of
Puerto Rico and the Economic Development Administration, requesting approval of
the Office of Industrial Tax Exemption for said reduction; PROVIDED, that the
Office of Industrial Tax Exemption shall make a written determination within
sixty (60) days of the date of receipt and acceptance of such application as to
whether the grantee shall be deemed to be in compliance with the employment
requirement taking into consideration such reasonable grounds for reduction of
employment, as for example, but not limited to, strikes, war, action of a
government or the elements, or any other reasonable cause beyond the control of
the grantee, and if the grantee is not given notice of such determination by the
Office of Industrial Tax Exemption within said sixty (60) days, the grantee
shall without further action or formality, be deemed to be in compliance with
such employment requirement; PROVIDED FURTHER, that it may, in lieu of the
cancellation of the decree in those cases in which the reduction of 25% or more
of the employment requirement is not approved:
a) reduce the rate of tax exemption proportionately in a ratio which
bears the relation between the reduced employment to the employment
requirement; and/or
b) approve a temporary reduction of the employment requirement when
the circumstances so merit by negotiating any other reasonable condition
satisfactory both to the grantee and the Government of Puerto Rico, and, a
waiver of the employment requirement will be granted when in the judgment
of the pertinent Government agencies such terms of the negotiation further
the purposes of industrial development under this Act;
BE IT FURTHER DECREED, that the grantee shall make all possible efforts to
hire its production workers from the unemployed labor force listed in the
Employment Service Division of the Bureau of Employment Security of the
Department of Labor and Human Resources of the Commonwealth of Puerto Rico;
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8,
supra, be and they hereby are waived with respect to the products heretofore
manufactured by the grantee in the industrial unit covered by the grants in
Cases Nos. 77-57-I-80 and 92-8-IT-2(77-57-I-80);
2
<PAGE>
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8,
supra, be, and they hereby are, waived, and that the grantee be authorized, and
the grantee hereby is, authorized to utilize the land buildings, machinery and
equipment, inventory, supplies, trademarks and marketing outlets previously
utilized by the industrial unit of the grantee in Case Nos. 77-57-I-80 and
92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that pursuant to Section 2(g) of Act No. 8, supra,
the Secretary of State of the Commonwealth of Puerto Rico authorizes the grantee
to enter into subcontracting agreement under which subcontractors in Puerto Rico
or in qualified countries in the Caribbean Basin, as defined in Section
936(d)(4)(B) of the Internal Revenue Code of 1986, as amended, may undertake
assembly, stitching, and finishing operations relating to the grantee's
products; provided, however, that such subcontracting agreement shall not affect
or reduce the grantee's employment obligations under this grant.
BE IT FURTHER DECREED, that any industrial development income accumulated
prior to July 30, 1992 shall be taxed upon distribution or in the event of
liquidation in accordance without the provisions of Act No. 57 of June 13, 1963,
as amended, and in accordance with the terms and conditions of a Closing
Agreement with the Secretary of the Treasury dated June 30, 1993;
BE IT FURTHER DECREED, that any industrial development accumulated from
July 30, 1992 to December 30, 1995, shall be taxed upon distribution or in the
event of liquidation in accordance with the provisions of Section 3(m) of Act
No. 8, supra, and the provisions of the Order in Case No. 92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that from the effective date of this grant on
December 31, 1995 and until December 31, 1997, the grantee shall enjoy a
reduction equal to 1% in the basic tollgate tax rate with respect to the
industrial development income earned in any year for every additional fifty (50)
direct workers employed during said year in excess of the annual average of 784
persons required by the terms of this grant, according to the following chart:
Average Annual Tollgate Without Tollgate With
Employment 25% Investment 25% Investment
- --------------------- -------------------- -------------------
784 to 833 persons 5% 2%
834 to 883 persons 4% 1%
884 to 933 persons 3% 0%
934 to 983 persons 2%
984 to 1,033 persons 1%
1,034 or more persons 0%
BE IT FURTHER DECREED, that upon distribution of dividends from the
industrial development income accumulated by the grantee after December 31, 1997
and during the balance of the exemption period under this grant, the grantee
shall be exempted from the requirement that it withhold any pay to the Secretary
of the Treasury ten percent (10%) of said distributions pursuant to the
provisions of Section 4(a) of Act No. 8, supra; PROVIDED, that should the
grantee fail to maintain in any year after December 31, 1997 an average
employment level of not less than one thousand one hundred and thirty-three
(1,133) direct employees, computed as provided herein, the grantee shall not be
entitled to distribute dividends from the industrial development income earned
in said year at the zero tollgate tax rate provided in this clause, but the same
shall be subject to tollgate taxes in increments of 1% for progressive
reductions in the grantee's employment level below the required annual average
of not less than one thousand one hundred thirty three (1,133) direct workers,
and will continue to enjoy zero tollgate treatment at certain employment levels
if it invest 25% of its industrial development income, in accordance with the
following chart;
Average Annual Tollgate Tax Tollgate With
Employment Rate 25% Investment
- --------------------- -------------------- -------------------
1,033 to 1,132 persons 1% 0%
933 to 1,032 persons 2% 0%
884 to 932 persons 3% 0%
834 to 883 persons 4% 1%
784 to 833 persons 5% 2%
BE IT FURTHER DECREED, that the continuance of this grant of tax exemption
shall be conditional upon compliance by the grantee with such regulations and
requirements as the Environmental Quality Board of the Commonwealth of Puerto
Rico has heretofore promulgated and may hereafter promulgate, relative to the
control of water, air, ground and any other environmental pollution, and which
may be applicable to the manufacturing operations of the grantee;
3
<PAGE>
BE IT FURTHER DECREED, that the tax exemption granted herein shall be
applicable only to the property directly used in connection with the production
of the manufactured products hereinbefore listed and to the industrial
development income (as defined in the Act) derived from the production of said
manufactured products which gives rise to the exemption provided by this decree,
and such other property specifically declared exempt by the Act;
BE IT FURTHER DECREED, that said tax exemption shall include exemption to
the extent provided in the Act from all commonwealth taxes, and from license
fees and other municipal taxes levied by any ordinance of any municipality,
except as otherwise hereinbefore provided in this decree;
BE IT FURTHER DECREED, that there shall be excluded from the scope of the
tax exemption the operation of retail stores; all wholesale transactions other
than the original sale at the factory price of the product manufactured; and,
the providing of any services in connection with the sales of the products;
BE IT FURTHER DECREED, that the tax exemption shall not include exemption
from:
a. Workman's compensation premiums as provided by law;
b. Fees for motor vehicle licenses or plates;
c. Taxes levied under Act No. 286, of April 6, 1946;
d. License fees or excises levied under the Excise Tax Act of Puerto
Rico, approved October 8, 1987; PROVIDED, that the attention of
the grantee hereof is called to the fact that it may avail itself,
to the extent applicable and while in force or otherwise modified,
of certain exemptions contained in the Excise Act of Puerto Rico
such as, among others, those contained in Section 3.012 thereof;
BE IT FURTHER DECREED, that as a condition to the continuance of the tax
exemption hereby granted the grantee shall be required, in conformance with
Section 10 of Act No. 8 supra, to file with the Secretary, regardless of its
gross or net income, an annual income tax return, separate from any other return
it is required to file, in relation to the business operations of the trade that
is the object of the exemption and in accordance with the Income Tax Act in
force; the exempted business shall also be required to keep in Puerto Rico the
accounting records relative to its operations separately, as well as the
necessary records and files, and to make and submit such sworn statements, and
comply with the rules and regulations in force for the proper fulfillment of the
purposes of this Act and that the Secretary may prescribe from time to time in
connection with the levying and collection of all kinds of taxes; every exempted
business shall file duly completed reports and surveys for the preparation of
statistic and economic studies that from time to time may be requested by the
administrator in the performance of his duties; Provided further, that the
grantee shall file duly completed reports that may be requested by the Office of
the Commissioner of Financial Institutions;
BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico shall determine for each taxable year covered by
this exemption what property and what income the grantee has used in, or derived
from the industrial operations hereby declared tax exempt, PROVIDED, that
nothing obtained herein shall deprive the grantee of it right to administrative
and judicial review of such determinations of the Secretary of the Treasury of
the Commonwealth of Puerto Rico available by Constitution, Law or Regulation;
BE IT FURTHER DECREED, that this grant of tax exemption shall be subject to
the continuing condition that grantee shall be required to keep its corporate
books and accounts in Puerto Rico;
BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico, in determining what property has been used in and
that income has been derived from the industrial operations of the grantee
hereby declared tax exempt, may review the accounts and records of the grantee
to determine that all purchase prices, sales prices, rates of lease, overhead or
any other cost allocations, and all other prices, rates, and cost allocations
are fixed on the basis of normal business operations and not for the purposes of
avoiding taxes ordinarily chargeable to activities not within the scope of the
industrial operations hereby declared tax exempt or of charging to the
operations hereby declared tax exempt or of charging to the operations carried
on outside of Puerto Rico; PROVIDED, that wherever the Secretary of the Treasury
of the Commonwealth of Puerto Rico finds that such rates or charges are made for
the purposes of extending the coverage of the tax exemption beyond the scope of
the industrial operations hereby declared tax exempt he shall make such
seasonable adjustments as necessary for the purpose of calculating the amount
of taxes payable by the grantee, if any, and he shall make such recommendations
to the Secretary of State as to such other action as may be taken under the
4
<PAGE>
provisions of Section 8(c)(1) of the Act and the Rules and Regulations
promulgated hereunder; PROVIDED, that nothing contained herein shall deprive the
grantee of its right to administrative and judicial review of such determination
of the Secretary of the Treasury of the Commonwealth of Puerto Rico available by
constitution, Law, or Regulation;
BE IT FURTHER DECREED, that the grantee shall operate the business covered
by this grant in good faith and in accordance with the principles of normal
business operations, and shall not willfully attribute to the operations and
accounts for the activities covered by this grant, activities carried on in
Puerto Rico or any other place which are not part of the operations of the tax
exempt business covered by this grant;
BE IT FURTHER DECREED, that the tax exemption hereby granted shall expire
according to the effective date fixed in the grant in accordance with the
provisions of the Act, unless previously terminated by revocation in accordance
with the applicable provisions of the Act;
BE IT FURTHER DECREED, that upon acceptance of this grant of tax exemption,
the grantee recognizes that it shall be required to comply with all the relevant
provisions of the Act, and all rules and regulations promulgated by the Director
of the Office of Industrial Tax exemption and approved by the Governor and/or
the Secretary of State in accordance with the provisions of Section 9(I) of the
Act, regardless of whether or not said provisions are specifically mentioned in
this grant of tax exemption; PROVIDED, however, that this decree shall upon its
acceptance by grantee constitute a contract between the Commonwealth of Puerto
Rico and the grantee;
BE IT FURTHER DECREED, that upon receipt of properly certified copies of
this grant of tax exemption, the Director of the Office of Industrial Tax
exemption shall immediately forward a copy to the grantee.
SIGNED AND ACKNOWLEDGED: R.F. NO. 96-118
/s/ Norma E. Burgos
- -------------------
Norma E. Burgos
Secretary of State
/s/ Lourdes I. De Pierluisi
- ---------------------------
Lourdes I De Pierluisi
Assistant Secretary for Services
THIS 17TH DAY OF SEPTEMBER OF 1996
5
<PAGE>
GOVERNMENT OF THE
COMMONWEALTH OF PUERTO RICO
OFFICE OF INDUSTRIAL TAX EXEMPTION
Report of the Special Examiner on the application for industrial tax
exemption of GLAMOURETTE FASHION MILLS, INC., Case No. 95-8-I-97, pursuant to
the terms of Act No. 8 of January 24, 1987, as amended.
On December 26, 1995, an application for industrial tax exemption was filed
by Glamourette Fashion Mills, Inc., requesting a grant of tax exemption under
the provisions of Act No. 8 of January 24, 1987, as amended, covering the
production of full fashioned and circular knit sweaters and other related
products, such as, but not limited to, dresses, skirts and pants.
Petitioner is currently a grantee of tax exemption, as extended in Case No.
92-8-IT-2(77-57-I-80), for the production of ladies', girls', men's and boys
full fashioned and circular knit sweaters and leotards. The date of commencement
of operations of the original grant was July 30, 1977, for a period of fifteen
(15) years; then the grant was extended for ten (10) additional years pursuant
to Section 3(m) of Act No. 8 of January 24, 1987, as amended (the Act). The
extension was effective on July 30, 1992 for income and property tax purposes,
and on July 1, 1992 for municipal license tax purposes. It has an average
employment requirement of 784 persons in Quebradillas, Puerto Rico.
Copies of the application were referred to the government agencies in the
regular manner.
Proper notices of the filing of the application have been published in the
January 18, 1995 and January 21, 1995 issues of the daily newspapers "El Nuevo
Dfa" and The San Juan Star, respectively. No one appeared within the time
provided by said notices to raise any objection to the granting of the
application and no written opposition has been filed with the Special Examiner.
Based on the sworn application, the evidence, affidavits and other papers
submitted by the applicant, as well as the investigations and report of the
Economic Development Administration, the Special Examiner hereby makes the
following findings of fact and conclusions of law:
FINDINGS OF FACT
1. Organization and Ownership
The applicant, Glamourette Fashion Mills, Inc., is a corporation organized
under the laws of Delaware and duly qualified to do business in Puerto Rico. It
is a wholly-owned subsidiary of Hampshire Designers, Inc. of South Carolina,
which in turn is a wholly owned subsidiary of Hampshire Group, Limited.
2. Land and Buildings
The applicant utilizes four (4) buildings at the municipality of
Quebradillas, Puerto Rico, with a total area of 199,766 square feet and it
requires another building with an area of 23,051 square feet, for a total of
222,817 square feet.
3. Machinery and Equipment
The machinery and equipment currently utilized in the proposed operation of
the industrial unit of the applicant is valued at approximately $2,796,228 and
for the proposed expansion it will acquire new machinery and equipment valued at
$973,760.00 within a year.
4. Description of Products - Manufacturing Process - Production - Market
The applicant will engage in the production of full fashioned and circular
knit sweaters and other related products, such as, but not limited to, dresses,
skirts and pants.
The manufacturing process involved in the production of said products is
fully described in the report of the Economic Development Administration,
Finding of Fact No. 7, hereof.
The present annual sales value of the products is $31,232,000.00 and it is
expected to increase to $37,018,000.00 within one (1) year.
The products will be sold in the United States.
5. Employment
The applicant expects to employ approximately 784 persons, and under the
proposed new grant it commit to employ 1,133 persons at an annual payroll of
$13,412,000.00 within twenty-four (24) months from its effective date.
6. Effect on U.S. Economy - Other Considerations
6
<PAGE>
According to the sworn application, no enterprise under common or related
ownership with the applicant corporation has had any substantial labor relations
problems within the past two years; the applicant nor any of its stockholders
has or has had in the past any proprietary interest in the amount of 25% or more
in any tax exempt enterprise which was or is engaged in a substantially similar
economic activity, except as stated in Findings of Fact No. 7, hereof; the
applicant will not use any physical facilities including, but not limited to
land, buildings, machinery, equipment, inventories, supplies, trademarks,
patents and marketing outlets having a value of $25,000 or more previously used
by a predecessor exempted business, except as stated in findings of Fact No. 7,
hereof; and, finally, the proposed operation in Puerto Rico will not
substantially and adversely affect the employees of an enterprise in the United
States under common or related ownership.
7
<PAGE>
February 8, 1996
REPORT THE ECONOMIC DEVELOPMENT ADMINISTRATION ON THE REQUEST FOR
INDUSTRIAL TAX EXEMPTION OF GLAMOURETTE FASHION MILLS, INC.
CASE NO. 95-8-I-97
Petitioner is a Delaware corporation, duly authorized to do business in
Puerto Rico on June 24, 1977 pursuant to File No. 5152-F. It is a wholly-owned
subsidiary of Hampshire Designers, Inc., of South Carolina, which in turn is a
wholly owned subsidiary of Hampshire Group, Limited.
Petitioner is currently a grantee of tax exemption, as extended in Case
92-8-IT-2(77-57-I-80), for the production of ladies', girls', men's and boys'
full fashioned and circular knit sweaters and leotards. The date of commencement
of operations of the original grant was July 30, 1977, for a period of 15 years;
then the grant was extended for 10 additional years pursuant to Section 3(m) of
Act No. 8 of January 24, 1987, as amended (the Act). The extension was effective
on July 30, 1992 for income and property tax purposes, and on July 1,1992 for
municipal license tax purposes. It has an average employment requirement of 784
persons in Quebradillas, Puerto Rico.
On this occasion petitioner requests a new grant of tax exemption to
continue the production of full fashioned and circular knit sweaters and other
related products, such as but not limited to, dresses, skirts and pants, under
the provisions of Section 2(e)(11) and 7(b)(3) of the Act.
The manufacturing process of the above products is described by petitioner
in the ANNEX.
The present annual sales value of the products is $31,232,000 and it is
expected to increase to $37,018,000 within one year. Petitioner's employment
requirement under its present grant is 784 persons, and under the proposed new
grant it commits to employ 1,133 persons with an annual payroll of $13,412,000
within 24 months from its effective date. The machinery and equipment currently
utilized is valued at approximately $2,796,228 but it has indicated that for the
proposed expansion it will acquire new machinery and equipment valued at
$973,760 within one year. Petitioner occupies four PRIDCO's buildings with an
area of 199,766 square feet in Quebradillas and it requires another building
with an area of 23,051 square feet, for a total of 222,817 square feet.
This Administration confirms that the above products comply with the
definition of Section 2(g) and are covered under the provisions of Section
2(e)(11) of the Act.
In view of the above described expansion of petitioner's operations, the
substantial increase in employment, the additional investment and location of
these operations, this Administration recommends that petitioner be granted a
new grant of tax exemption, for the production of full fashioned and circular
knit sweaters and other related products, such as but not limited to, dresses,
skirts and pants, under the provisions of Section 2(e)(11) of the Act, since it
will be in the best social and economic interest of Puerto Rico, effective on
December 31, 1995 for income, January 1, 1996 for property, and July 1, 1996 for
municipal license taxes.
This Administration further recommends that pursuant to Section 7(a)(4) and
(b)(3) of the Act, petitioner be waived from compliance without the provisions
of said Section 7 with regard to its previous products and to the machinery and
equipment of the industrial units previously exempted.
Petitioner further indicates that it requires the flexibility of being able
to subcontract the assembling and finishing of the products to contract
manufacturers, not only in Puerto Rico but also in Caribbean Basin Countries
designated as eligible countries pursuant to Section 936(d)(4)(B) of the U.S.
Internal Revenue Code of 1986, as amended. Wherefore, it requests that the
following special clause be included in its new grant:
"Be it further decreed, that pursuant to Section 2(g) of Act No. 8,
the Secretary of State authorizes the grantee to enter into subcontracting
agreements under which subcontractors in Puerto Rico or in qualified
countries in the Caribbean Basin, as defined in Section 936(d)(4)(B) of the
Internal Revenue Code of 1986, as amended, may undertake assembly,
stitching, and finishing operations relating to the grantee's products;
provided however, that such subcontracting agreements shall not affect or
reduce the grantee's employment obligations under this grant;"
This Administration recommends that petitioner be authorized to subcontract
in Puerto Rico and the Caribbean Basin countries, and that the above special
clause be included in its grant, since it is in the best interest and furthers
the policy of economic development and regional cooperation of Puerto Rico.
8
<PAGE>
Petitioner also requests that its grant include several special clauses
regarding the withholding ('tollgate') taxes of Section 4(a) of the Act, by
which it will enjoy a zero tollgate tax rate, without investment if its annual
average employment is 1,133, effective December 31, 199l7. It also requests that
the sliding scale approved in its current grant in Case 92-8-IT-2 be
incorporated to this new grant and remain in effect from December 31, 1995 to
December 31, 1997. Wherefore, petitioner has submitted the following clauses
regarding the above tollgate tax treatment:
"Be it further decreed, that from the effective date of this grant on
December 31, 1995 and until December 31, 1997, the grantee shall enjoy a
reduction equal to 1% in the basic tollgate tax rate with respect to the
industrial development income earned in any year for every additional 50
direct workers employed during said year in excess of the annual average of
784 persons required by the terms of this grant, according to the following
chart:
Average Annual
Employment Tollgate Without Tollgate With
(Persons) 25% Investment 25% Investment
------------------- -------------------- --------------------
784 to 833 5% 2%
834 to 883 4% 1%
884 to 933 3% 0%
934 to 983 2%
984 to 1,033 1%
1,034 or more 0%
Be it further decreed, that upon distribution of dividends from the
industrial development income accumulated by the grantee after December 31, 1997
and during the balance of the exemption period under this grant, the grantee
shall be exempted from the requirement that it withhold and pay to the Secretary
of the Treasury 10% of said distributions pursuant to the provisions of Section
4(a) of Act No. 8, provided, that should the grantee fail to maintain in any
year after December 31, 1997 an average employment level of not less than 1,133
direct employees, computed as provided herein, the grantee shall not be entitled
to distribute dividends from the industrial development income earned in said
year at the zero tollgate tax rate provided in this clause, but the same shall
be subject to tollgate taxes in increments of 1% for progressive reductions in
the grantee's employment level below the required annual average of not less
than 1,133 direct workers, and will continue to enjoy zero tollgate treatment at
certain employment levels if it invest 25% of its industrial development income,
in accordance with the following chart:
Average Annual
Employment Tollgate Tollgate With
(Persons) Tax Rate 25% Investment
------------------- -------------------- -------------------
1,033 to 1,132 1% 0%
933 to 1,032 3% 0%
884 to 932 3% 0%
834 to 883 4% 1%
784 to 833 5% 2% "
Petitioner wants also to clarify that both current and liquidating
distributions of industrial development income (IDI) accumulated prior to July
30, 1992 would be taxed upon liquidation in accordance with the provisions of
Act No. 57 of June 13, 1963, as amended (Act No. 57), and in accordance with the
terms and conditions of a Closing Agreement with the Secretary of the Treasury
dated June 30, 1993.
During the extension period, and in accordance with the provisions of
Section 3(m) of the Act, both current and liquidating distributions of IDI
accumulated during this period are subject to a 5% tollgate tax rate, which can
be reduced at higher employment levels, with or without 25% investment. In the
event petitioner's industrial unit maintained an average employment level in
excess of 1,034 direct workers during this period, distributions are fully
exempted from tollgate taxes, without any investment required. Complying with a
25% investment requirement, distributions are fully exempted from tollgate taxes
at an employment level of between 884 and 933 direct workers.
Pursuant to the above, petitioner requests that the following clauses be
included in its new grant:
"Be it further decreed, that any industrial development income
accumulated prior to July 30, 1992 shall be taxed upon distribution or in
the event of liquidation in accordance with the provisions of Act No. 57,
and with the terms and conditions of a Closing Agreement with the Secretary
of the Treasury dated June 30, 1993;
"Be it further decreed, that any industrial development income
accumulated from July 30, 1992 to December 30 1995, shall be taxed upon
distribution or, in the event of liquidation, in accordance with the
provisions of Section 3(m) of the Act, and the provisions of the Order in
Case 92-8-IT-2(77-57-I-80);"
9
<PAGE>
After evaluating the above four special clauses related to the withholding
or tollgate taxes, pursuant to the provisions of Section 4(a)(7) of the Act,
this administration recommends that same be included in petitioners new grant.
This Administration further recommends that a special employment clause
submitted by petitioner be included in the new decree to be granted. Finally,
since petitioner is a going concern in operation, the special clause regarding
commencement of production is not applicable to this case.
/s/ Jaime Morgan-Stubbe
- ------------------------------
Jaime Morgan-Stubbe
Administrator
10
<PAGE>
Manufacturing processes: ANNEX
GLAMOURETTE FASHION MILLS, INC.
CASE NO. 95-8-I-97
"FULL FASHIONED/CIRCULAR KNIT SWEATERS/RELATED PRODUCTS.
Natural and man-made yarns (Dralon and Mycrolon yarns, both acrylic and
cotton) are received at the plant and stored in the yarn warehouse.
Yarn is distributed to flat knitting machines as required. Ribs, cuffs,
placket and collar are produced by these machines.
Yarn is also received in the full fashion knitting operations, as well as
ribs and cuffs. Sweater bodies and sleeves are knitted to shape in the Full
Fashion Knitting Department.
Bodies, sleeves, collars and trimming are assembled and 100% inspected in
the Greige Assembly Department.
The dye operation includes bagging sweaters for dyeing, piece dyeing
sweaters, washing sweaters (when dyed yarn is used), and drying sweaters.
Dyeing inspection operations consists of 100% inspection for dyeing
defects.
All necessary trimming that cannot be set to sweaters in the company's
Assembly department are added in the Stitching Department.
Lamp Examine-the company inspects 100% again for stitching and knitting
defects. After Lamp Examine, the sweaters are transferred for final pressing.
Once they are final pressed, they are 100% inspected for dimension and other
defects. Hang tags are added, and the sweaters are bagged as per specification
and packed.
The sweaters are then forwarded to the Port of San Juan for shipping to
final destination in the United States.
ALL PRODUCTS.
Because of technological advances, market changes, changes in the
customers' needs and specifications, style and model changes and variations, and
other factors, from time to time (a) there may be changes in the materials used
involving the use of additional material, elimination of materials, replacement
of materials, and/or performing of additional operations on such materials, and
(b) any of the above-described materials may be obtained from outside sources,
contracted out to the other parties or produced in-plant or elsewhere, as the
company's needs require, and (c) the above manufacturing processes and
operations may vary with operations being added, modified or eliminated as is
appropriate for the company's needs, and (d) machinery and equipment may be
used, modified, added or eliminated as the processing and needs require.
Products may be sold at various stages of the processing, as is appropriate for
use as replacement parts, repair parts or for other uses.
The company may produce the products covered by the grant as a contractor,
with title to the materials and finished products being held by other parties,
or as manufacture, with the company holding title to the materials and the
finished products, or a combination of both methods."
CONCLUSIONS OF LAW
The applicant in the present case has requested tax exemption covering the
production of full fashioned and circular knit sweaters and other related
products, such as, but no limited to, dresses, skirts and pants, pursuant to the
provisions of Sections 2(d)(2), 2(e)(11) and 7(b)(3) of Act No. 8 of January 24,
1987, as amended (hereinafter referred to as the "Act").
The applicant's manufacturing activities will fall within the definition of
Designated Article No. (11) of Section 2(e) of the Act.
It has been determined that the products under consideration qualify as
"manufactured products" within the definition of Section 2(g) of the Act.
In view of the foregoing, the Special Examiner is of the opinion that the
present applicant is eligible for tax exemption under the provisions of Sections
2(d)(2) and 2(e) Designated Article No. (11) and 7(b)(3) of the Act, covering
the production of the above mentioned products, subject to the condition that
the applicant reaches an annual dollar volume of production of full fashioned
and circular knit sweaters and other related products, such as, but not limited
to, dresses, skirts and pants, of not less than $18,000,000.00 within one (1)
year after the approval of the grant.
Petitioner requests its grant includes the following clauses:
11
<PAGE>
"BE IT FURTHER DECREED, that this grant of tax exemption shall be null and
void and without any effect whatsoever unless the grantee begins the manufacture
on a commercial scale of any of the products within one (1) year after the date
this grant is approved by the Governor of the Commonwealth of Puerto Rico, or
such longer period of time as may be allowed by the governor of the Commonwealth
of Puerto Rico, at the request of the grantee;
BE IT FURTHER DECREED, that as an essential condition to the issuance and
continuance of this decree, the grantee must comply with an employment
requirement of a minimum of one thousand one hundred and thirty-three (1,133)
direct employees within twenty-four (24) months from the effective date of this
grant in its location, by December 31, 1997; provided, that commencing with
calendar year 1998, compliance with said employment requirement shall be
determined on an average annual basis, using the weekly employment level and the
calendar year for this purpose, and the average employment level shall likewise
apply during the partial calendar year of operations prior to the date of
ceasing operations under the grant; and, further provided, that anything herein
to the contrary notwithstanding, if a reduction of employment occurs below said
employment requirement, during the time compliance is determined by average
annual employment or average employment as aforesaid, the Grantee shall give the
appropriate notices or file an application requesting approval, as the case may
be, within a reasonable time after the end of the calendar year in which such
reduction occurred;
BE IT FURTHER DECREED, that the grantee must always comply with the
employment requirement of the preceding clause, except in cases of unforeseen
circumstances, which may cause a reduction of employment beyond the control of
the grantee, at which occurrence or at the earliest date when such occurrence is
contemplated, the grantee is subject to one of the following alternatives:
1. If the reduction represents less than 10% of the employment requirement,
grantee has no obligation to notify the Office of Industrial Tax Exemption of
said reduction;
2. If the reduction represents 10% or more but less than 25% of the
employment requirement, grantee shall notify the Office of Industrial Tax
Exemption, with copy to the Department of Labor and Human Resource of Puerto
Rico and the Economic Development Administration, of said reduction of employees
on a sworn statement sent by certified mail with return receipt requested, or in
the alternative, should file said sworn statement personally at the Office of
Industrial Tax Exemption with copy to the Department of Labor and Human
Resources of Puerto Rico and the Economic Development Administration;
3. If the reduction represent 25% or more of the employment requirement,
the grantee must file to the satisfaction and acceptance, which acceptance shall
not be unreasonably withheld, with the Office of Industrial Tax Exemption a
sworn application, with copy to the Department of Labor and Human Resources of
Puerto Rico and the Economic Development Administration, requesting approval of
the Office of Industrial Tax Exemption for said reduction; PROVIDED, that the
Office of Industrial Tax Exemption shall make a written determination within
sixty (60) days of the date of receipt and acceptance of such application as to
whether the grantee shall be deemed to be in compliance with the employment
requirement taking into consideration such reasonable grounds for reduction of
employment, as for example, but not limited to, strikes, war, action of a
government or the elements, or any other reasonable cause beyond the control of
the grantee, and if the grantee is not given notice of such determination by the
Office of Industrial Tax Exemption within said sixty (60) days, the grantee
shall without further action or formality, be deemed to be in compliance with
such employment requirement; PROVIDED FURTHER, that it may, in lieu of the
cancellation of the decree in those cases in which the reduction of 25% or more
of the employment requirement is not approved:
a) reduce the rate of tax exemption proportionately in a ratio which
bears the relation between the reduce employment to the employment
requirement; and/or
b) approve a temporary reduction of the employment requirement when
the circumstances so merit by negotiating any other reasonable condition
satisfactory both to the grantee and the Government of Puerto Rio, and, a
waiver of employment requirement will be granted when in the judgment of
the pertinent Government agencies such terms of the negotiation further the
purposes of industrial development under this Act;
BE IT FURTHER DECREED, that the grantee shall make all possible efforts to
hire its production workers from the unemployed labor force listed in the
Employment Service Division of the Bureau of Employment Security of the
Department of Labor and Human Resources of the Commonwealth of Puerto Rico;
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8 supra,
be and they hereby are waived with respect to the products heretofore
manufactured by the grantee in the industrial unit covered by the grants in
Cases Nos. 77-57-I-80 and 92-8-IT-2(77-57-I-80);
12
<PAGE>
BE IT FURTHER DECREED, that the provisions of Section 7 of Act No. 8,
supra, be, and they hereby are, waived, and that the grantee be authorized, and
the grantee hereby is, authorized to utilize the land, buildings, machinery and
equipment, inventory, supplies, trademarks and marketing outlets previously
utilized by the industrial unit of the grantee in Case Nos. 77-57-I-80 and
92-8-IT-2(77-57-I-80);
BE IT FURTHER DECREED, that pursuant to Section 2(g) of Act No. 8, supra,
the Secretary of State of the Commonwealth of Puerto Rico authorizes the grantee
to enter into subcontracting agreements under which subcontractors in Puerto
Rico or in qualified countries in the Caribbean Basin, as defined in Section
936(d)(4)(B) of the Internal Revenue Code of 1986, as amended, may undertake
assembly, stitching, and finishing operations relating to the grantee
products; provided, however, that such subcontracting agreements shall no
affect or reduce the grantee's employment obligations under this grant
BE IT FURTHER DECREED, that any industrial development income accumulated
prior to July 30, 1992 shall be taxed upon distribution or in the event of
liquidation in accordance with the provisions of Act No. 57 of June 13, 1963, as
amended, and in accordance with the terms and conditions of a Closing Agreement
with the Secretary of the Treasury dated June 30, 1993
BE IT FURTHER DECREED, that any industrial development accumulated from
July 30, 1992 to December 30, 1995, shall be taxed upon distribution or in the
event of liquidation in accordance with the provisions of Section 3(m) of Act
No. 8, supra, and the provisions of the Order in Case No. 92-8-IT-2(77-57-I-80);
"BE IT FURTHER DECREED, that from the effective date of this grant on
December 31, 1995 and until December 31, 1997, the grantee shall enjoy a
reduction equal to 1% in the basic tollgate tax rate with respect to the
industrial development income earned in any year for every additional fifty (50
direct workers employed during said year in excess of the annual average of 784
persons required by the terms of this grant, according to the following chart
Average Annual Tollgate Without Tollgate With
Employment 25% Investment 25% Investment
- ---------------------- -------------------- -------------------
784 to 833 persons 5% 2%
834 to 883 persons 4% 1%
884 to 933 persons 3% 0%
934 to 983 persons 2%
984 to 1,033 persons 1%
1,034 or more persons 0%
BE IT FURTHER DECREED, that upon distribution of dividends from the
industrial development income accumulated by the grantee after December 31, 1997
and during the balance of the exemption period under this grant, the grantee
shall be exempted from the requirement that it withhold any pay to the Secretary
of the Treasury ten percent (10%) of said distributions pursuant to the
provisions of Section 4(a) of Act No. 8, supra; PROVIDED, that should the
grantee fail to maintain in any year after December 31, 1997 an average
employment level of not less than one thousand one hundred and thirty-three
(1,133) direct employees, computed as provided herein, the grantee shall not be
entitled to distribute dividends from the industrial development income earned
in said year at the zero tollgate tax rate provided in this clause, but the same
shall be subject to tollgate taxes in increments of 1% for progressive
reductions in the grantee's employment level below the required annual average
of not less than one thousand one hundred thirty three (1,133) direct workers
and will continue to enjoy zero tollgate treatment at certain employment level
if it invests 25% of its industrial development income, in accordance with the
following chart
Average Annual Tollgate Tax Tollgate With
Employment Rate 25% Investment
- ---------------------- -------------------- -------------------
1,033 to 1,132 persons 1% 0%
933 to 1,032 persons 2% 0%
884 to 932 persons 3% 0%
834 to 883 persons 4% 1%
784 to 833 persons 5% 2% "
The Office of Industrial Tax Exemption concurs with the Economic
Development Administration and recommends the inclusion of the clause, as
requested; except the special clause regarding commencement of production which
is not applicable because petitioner is a going concern operation.
WHEREAS, on February 2, 1996, petitioner amended its application to
substitute this clause
"BE IT FURTHER DECREED, that from effective date of this grant on December
31, 1995 and until December 31, 1997, the grantee shall enjoy a reduction equal
to 1% in the basic tollgate tax rate with respect to the industrial development
income earned in any year for every additional fifty (50) direct workers
employed during said year in excess of the annual average of 784 persons
required by the terms of this grant, according to the following chart;
13
<PAGE>
Average Annual Tollgate Without Tollgate With
Employment Investment 25% Investment 25% Investment
- ----------------------- -------------------- --------------
784 to 833 persons 5% 2%
834 to 883 persons 4% 1%
884 to 933 persons 3% 0%
934 to 983 persons 2%
984 to 1,033 persons 1%
1,034 or more persons 0%
In view of the location of the industrial unit, the applicant is eligible
for a tax exemption period of fifteen (15) years, pursuant to the terms of
Section 3(d) and (e) of the Act.
14
<TABLE>
EXHIBIT 11
Page 1 of 2
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF INCOME PER SHARE
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- --------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average number of
common and common equivalent
shares outstanding:
Common stock ................ 3,797 3,530 3,767 3,530
Accrued shares earned under
Directors' and Executives'
Stock Purchase Plan ......... - 5 - 3
Additional shares assumed to
be outstanding resulting
from the exercise of options
and warrants (computed using
the treasury stock method) .. 309 254 104 85
------ ------ ------ ------
Total common shares - primary 4,106 3,789 3,871 3,618
====== ====== ====== ======
Net income .................... $4,864 $4,294 $3,741 $3,964
Less - Preferred dividend
requirements ................ 45 30 138 92
------ ------ ------ ------
Net income applicable to
common stock ................ $4,819 $4,264 $3,603 $3,872
====== ====== ====== ======
Net income per share - primary $1.17 $1.13 $0.93 $1.07
===== ===== ===== =====
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
Page 2 of 2
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF INCOME PER SHARE
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- --------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average number of
common and common equivalent
shares outstanding per above .. 4,106 3,789 3,871 3,618
Additional shares assumed to be
outstanding resulting from the
exercise of options and warrants
(computed using the treasury
stock method) .................. 23 59 229 228
Assumed conversion of
preferred stock ................ 277 180 281 180
------ ------ ------ ------
Total common shares -
assuming full dilution ..... 4,406 4,028 4,381 4,026
====== ====== ====== ======
Net income applicable to
common stock ................... $4,819 $4,264 $3,603 $3,872
Plus - Preferred dividend
requirement .................... 45 30 138 92
------ ------ ------ ------
Net income ....................... $4,864 $4,294 $3,741 $3,964
====== ====== ====== ======
Net income per share -
assuming full dilution ......... $1.10 $1.07 $0.85 $0.98
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENT OF INCOME
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1
<CASH> 614
<SECURITIES> 0
<RECEIVABLES> 38,196
<ALLOWANCES> 4,453
<INVENTORY> 27,433
<CURRENT-ASSETS> 64,000
<PP&E> 33,078
<DEPRECIATION> 19,262
<TOTAL-ASSETS> 82,842
<CURRENT-LIABILITIES> 32,530
<BONDS> 8,607
3,294
0
<COMMON> 387
<OTHER-SE> 38,024
<TOTAL-LIABILITY-AND-EQUITY> 82,842
<SALES> 97,266
<TOTAL-REVENUES> 98,170
<CGS> 76,581
<TOTAL-COSTS> 76,581
<OTHER-EXPENSES> 16,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,015
<INCOME-PRETAX> 4,373
<INCOME-TAX> 632
<INCOME-CONTINUING> 3,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,741
<EPS-PRIMARY> .93
<EPS-DILUTED> .85
</TABLE>
