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 26, 1998 .
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 29625
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (864) 225-6232
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate 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 2, 1998
- ------------------------------ ----------------------------
Common Stock, $0.10 Par Value 4,159,741
1
<PAGE>
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
September 26, 1998
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheet as of September 26, 1998,
September 27, 1997 and December 31, 1997 3
Consolidated Statement of Operations for the Three Months and
Nine Months Ended September 26, 1998 and September 27, 1997 5
Consolidated Statement of Comprehensive Income for the Three
Months and Nine Months Ended September 26, 1998 and
September 27, 1997 6
Consolidated Statement of Cash Flows for the Nine Months
Ended September 26, 1998 and September 27, 1997 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signature Page 16
2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<CAPTION>
Sept. 26, Sept. 27, Dec. 31,
1998 1997 1997
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 878 $ 713 $12,003
Available-for-sale securities 530 709 914
Accounts receivable trade - net 41,654 37,267 16,227
Other receivables 4,150 914 434
Inventories 49,856 33,801 18,728
Deferred tax asset 3,265 1,631 3,198
Other current assets 754 437 508
-------- ------- -------
Total current assets 101,087 75,472 52,012
Property, plant and equipment - net 14,759 14,286 15,093
Deferred tax asset 2,326 3,640 2,326
Real property investments - net 7,142 2,473 4,127
Intangible assets - net 3,069 2,930 3,385
Long-term investments 5,085 1,077 3,051
Trading assets held in retirement trust 776 - 547
Other assets 150 107 44
-------- ------- -------
$134,394 $99,985 $80,585
======== ======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
3
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<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands)
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
<CAPTION>
Sept. 26, Sept. 27, Dec. 31,
1998 1997 1997
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Current liabilities:
Borrowings under lines of credit $ 35,380 $21,370 -
Current portion of long-term debt 2,511 2,716 $ 2,911
Notes payable to related parties 250 500 500
Accounts payable 7,472 6,031 4,068
Accrued liabilities 10,126 10,022 8,230
-------- ------- -------
Total current liabilities 55,739 40,639 15,709
Long-term debt 21,210 5,348 6,084
Notes payable to related parties - 250 125
Deferred compensation 776 - 547
Other deferred compensation 506 408 410
-------- ------- -------
Total liabilities 78,231 46,645 22,875
-------- ------- -------
Redeemable, convertible preferred stock,
at redemption value - 2,986 -
-------- ------- -------
Common stockholders' equity:
Common stock 423 393 419
Additional paid-in capital 27,845 23,997 27,474
Retained earnings 29,372 26,800 30,886
Accumulated other comprehensive
income (loss) (203) - (89)
Treasury stock (1,274) (836) (980)
-------- ------- -------
Total common stockholders' equity 56,163 50,354 57,710
-------- ------- -------
$134,394 $99,985 $80,585
======== ======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
4
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<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $60,215 $61,008 $114,994 $106,085
Cost of goods sold 48,079 47,239 93,368 83,251
------- ------- -------- --------
Gross profit 12,136 13,769 21,626 22,834
Other revenue 110 6 288 6
------- ------- -------- --------
12,246 13,775 21,914 22,840
Selling, general and administrative
expenses 7,476 6,964 19,458 16,376
Non-recurring expenses 2,500 - 2,500 -
------- ------- -------- --------
Income (loss) from operations 2,270 6,811 (44) 6,464
Other income (expense):
Interest expense (990) (566) (1,596) (998)
Interest income 42 59 169 300
Miscellaneous 66 72 326 (8)
------- ------- -------- --------
Income (loss) before income taxes 1,388 6,376 (1,145) 5,758
Provision for income taxes 725 1,265 150 1,143
------- ------- -------- --------
Net income (loss) 663 5,111 (1,295) 4,615
Preferred dividend requirements - 42 - 128
------- ------- -------- --------
Net income (loss) applicable to
common stock $ 663 $ 5,069 ($ 1,295) $ 4,487
======= ======= ======== ========
Net income (loss) per common share:
Basic $0.16 $1.31 ($0.31) $1.16
===== ===== ===== =====
Diluted $0.15 $1.16 ($0.31) $1.03
===== ===== ===== =====
Weighted average number of
shares outstanding:
Basic 4,138 3,856 4,127 3,857
===== ===== ===== =====
Diluted 4,466 4,424 4,127 4,469
===== ===== ===== =====
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
5
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<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
<CAPTION>
Three Months Ended
------------------
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income for the period $663 $5,111
Other comprehensive income, net of taxes:
Unrealized holding gains (losses)
on securities arising during periods ($167) -
Plus reclassification adjustment for
losses included in net income 11 -
---- -----
Other comprehensive income (loss) (156) -
---- ------
Comprehensive income $507 $5,111
==== ======
Nine Months Ended
------------------
Sept. 26, 1998 Sept. 27, 1997
-------------- --------------
(unaudited) (unaudited)
Net income (loss) for the period ($1,295) $4,615
Other comprehensive income, net of taxes:
Unrealized holding gains (losses)
on securities arising during periods ($196) -
Plus reclassification adjustment for
losses included in net income 82 -
---- -----
Other comprehensive income (loss) (114) -
------ -------
Comprehensive income (loss) ($1,409) $4,615
======= ======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
6
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<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
Nine Months Ended
-----------------
Sept. 26, Sept. 27,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 1,295) $ 4,615
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,633 2,888
Gain on sale of assets
(19) (2)
Non-recurring expenses 2,500 -
Net change in operating assets and liabilities:
Receivables (29,228) (24,547)
Inventories (31,128) (18,928)
Other assets (537) (40)
Accounts payable 3,404 2,309
Accrued liabilities 1,896 3,560
Deferred compensation 365 -
-------- --------
Net cash used in operating activities (50,409) (30,145)
-------- --------
Cash flows from investing activities:
Real property and other investments (7,336) (3,350)
Marketable securities (89) (406)
Capital expenditures (2,916) (3,412)
Proceeds from sales of property and equipment 28 66
-------- --------
Net cash used in investing activities (10,313) (7,102)
-------- --------
Cash flows from financing activities:
Net borrowings under lines of credit 35,380 21,370
Proceeds from long-term borrowings 16,891 776
Repayment of long-term debt (2,165) (1,973)
Repayment of related party debt (375) (752)
Treasury stock purchased (134) (808)
Proceeds from issuance of common stock - 90
Purchase of stock warrants - (1,000)
Payment of preferred stock dividends - (128)
-------- --------
Net cash provided by financing activities 49,597 17,575
-------- --------
Net decrease in cash and cash equivalents (11,125) (19,672)
Cash and cash equivalents at beginning of period 12,003 20,385
-------- --------
Cash and cash equivalents at end of period $ 878 $ 713
======== ========
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
7
<PAGE>
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
- ---------------------
The consolidated financial statements include the accounts of Hampshire Group,
Limited (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 of
operations 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, 1997, included in the Company's Annual Report on Form 10-K.
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period.
Certain accounts previously reported have been reclassified to conform to
classifications used in 1998.
INVENTORIES
- -----------
A summary of inventories by component is as follows:
(in thousands)
Sept. 26, Sept. 27, Dec. 31,
1998 1997 1997
---- ---- ----
Finished goods $38,994 $24,079 $11,512
Work-in-progress 10,530 9,629 6,938
Raw materials and supplies 4,721 4,709 4,393
------- ------- -------
54,245 38,417 22,843
Less-LIFO reserve (4,389) (4,616) (4,115)
------- ------- -------
Net inventories $49,856 $33,801 $18,728
======= ======= =======
REVOLVING CREDIT FACILITY
- -------------------------
The Company has renewed its principal credit facility through May 26, 1999 with
three participating commercial banks. The credit facility consists of a $42
million combined line of credit and letter of credit facility. Advances under
the facility are limited to the lesser of: (1) the amount set forth above; or
(2) the sum of (i) 85% of the eligible accounts receivable; and (ii) a seasonal
adjustment of up to $12 million from March 1 to October 31.
Advances 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 loan is collateralized
by the trade accounts receivable of Hampshire Designers, Inc. and its
subsidiaries, other than certain factored trade accounts receivable. In
addition, letters of credit issued under the facility are secured by the
inventory shipped pursuant to the letters of credit. The Company has pledged as
security the common stock of its subsidiaries and such subsidiaries guarantee
the performance of the Company.
8
<PAGE>
The Company also has two other credit facilities of $4.5 million in the
aggregate and an additional letter of credit facility in the amount of $4
million.
SALE OF SENIOR NOTES
- --------------------
In June of 1998, the Company sold senior notes ("Senior Notes") in the principal
amount of $15 million to two insurance companies. The Senior Notes, which bear
interest at a rate of 7.05% per annum and are payable in equal annual
installments beginning January 2, 2002 through January 2, 2008. The Senior Notes
are secured pari passu with the Company's revolving credit facilities.
SALE OF MARCASIANO DIVISION
- ---------------------------
In July 1998, the Company sold its designer-branded women's line marketed under
the Mary Jane Marcasiano label. The consideration consisted of $549,000 in cash
and the assumption of production contracts. The employees of the division became
employees of the buyer. The transaction will not have a material impact on the
Company or its operations.
RECENT ACCOUNTING STANDARDS
- ---------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which applies to all entities
and establishes accounting and reporting standards for derivative instruments.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999; however, earlier adoption is encouraged. Upon adoption the effect
must be recognized as a cumulative effect of an accounting change in either
income or other comprehensive income, depending upon whether the derivative is
designated and effective as a hedge and, if so, the type of hedge. The Company,
upon adoption beginning in 2000, does not expect that adoption of SFAS 133 will
have a material impact upon the consolidated financial statements.
TRADING ASSETS HELD IN RETIREMENT TRUST
- ---------------------------------------
Under a plan adopted by the Company in 1997, senior executives are permitted to
defer annually a portion of their compensation. These deferrals are invested in
certain mutual funds that have been classified as trading securities and shown
in the long-term asset section to match the corresponding deferred compensation
liability.
RISK FACTORS
- ------------
As outlined in the 1997 Annual Report to Shareholders, the Company through its
subsidiary, Hampshire Investments, Limited, is investing a portion of its
financial resources in diversified businesses that are not owned solely by the
Company. The investment objective is to make a substantial contribution to
earnings of the Company over the long term. A portion of these investments are
in foreign countries, including Russia, and therefore carry with them certain
risks that are inherent in all investments in countries with developing free
market economies. These risks include the possible currency devaluations and
governmental control of the economy. The profitability of the Company could be
adversely affected by such developments.
9
<PAGE>
YEAR 2000
- ---------
The Company uses a significant number of computer software programs and embedded
operating systems that were not originally designed to process dates beyond
1999. The Company has implemented a project to ensure that the Company's systems
will function properly in the year 2000 and thereafter. The Company anticipates
completing this project for substantially all key systems in early 1999 and
believes that, with modifications to its existing software and systems and/or
conversions to new software, the year 2000 issue will not post significant
operational problems. Most of the Company's information technology projects over
the last several years have made the affected systems Year 2000 compliant. The
direct costs of projects solely intended to correct year 2000 problems are
currently estimated at less than $1 million. The Company does not expect any
cost increases above its current estimates to have a material effect on its
financial results. The Company is also in contact with its significant suppliers
and customers with which its systems interface regarding year 2000 compliance.
10
<PAGE>
<TABLE>
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:
<CAPTION>
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Sweaters $53,929 $53,755 $ 98,885 $ 88,691
Hosiery 6,286 7,253 16,109 17,394
------- ------- -------- --------
$60,215 $61,008 $114,994 $106,085
======= ======= ======== ========
Gross profit:
Sweaters $11,262 $12,574 $19,670 $20,346
Hosiery 874 1,195 1,956 2,488
------- ------- ------- -------
$12,136 $13,769 $21,626 $22,834
======= ======= ======= =======
Operating profit (loss):
Sweaters $ 5,297 $ 7,196 $ 4,525 $ 8,187
Hosiery 90 361 (347) 65
Investments (2,478) - (2,508) -
------- ------- ------- -------
2,909 7,557 1,670 8,252
Less - Corporate expenses (639) (746) (1,714) (1,788)
------- ------- ------- -------
Income (loss) from operations $ 2,270 $ 6,811 $ (44) $ 6,464
======= ======= ======= =======
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended September 26, 1998 and September 27, 1997
- -----------------------------------------------------------
Net sales for the first nine months of 1998 increased 8.4% to $114,994,000. The
increase was attributable to sales of the sweater segment offset by a reduction
in sales of the hosiery segment.
Net sales in the sweater segment increased 11.5% over the same period the
previous year. This increase was attributable to sales of the Hampshire Brands
Division under the Jantzen, Geoffrey Beene, Robert Stock and Ron Chereskin
labels. This division commenced operations in 1998 and had no sales in 1997.
Excluding sales of the newly formed Hampshire Brands Division, unit volume for
the sweater segment increased 8.2% for the nine months of 1998, but was offset
by a 7.7% decrease in sales due to a shift in the mix to lower priced goods.
Hosiery segment net sales were $16,109,000 for the nine months as compared with
$17,394,000 for the comparable period of the previous year. The 7.4% decrease
was the result of a shift in mix to lower priced goods. During the period, unit
volume was up 11.9%, but was offset by a shift in mix of 19.3%.
Gross profit for the first nine months of 1998 decreased by $1,208,000 and, as a
percentage of net sales, decreased from 21.5% to 18.8%. This was the result of
lower gross profit percentages in both segments.
Sweater segment gross profit decreased from 22.9% of net sales for the first
nine months of 1997 to 19.9% for the same period in 1998. This decrease was
caused by production inefficiencies in two domestic manufacturing facilities and
the competitive sweater market as a whole.
In the hosiery segment, gross profit decreased 2.2% to 12.1% for the first nine
months of 1998 compared with 14.3% for the first nine months of 1997. The
decrease resulted from unfavorable variances from lower than expected
manufacturing levels.
Selling, general and administrative expenses for the nine months ended September
26, 1998 were $19,416,000, as compared with $16,376,000 for the same period in
1997. This increase is principally attributable to the operating expenses
associated with the Hampshire Brands Division.
The Company through its investment subsidiary, Hampshire Investments, Limited,
("Hampshire Investments") incurred a $2,500,000 charge in the third quarter of
1998 to recognize the devaluation of the ruble with respect to real property
located in St. Petersburg, Russia. Excluding this one-time charge, Hampshire
Investments lost $44,000 for the nine months September 26, 1998.
Three Months Ended September 26, 1998 and September 27, 1997
- ------------------------------------------------------------
The Company's net sales for the three months ended September 26, 1998 were
$60,215,000 compared with $61,008,000 for the three months ended September 27,
1997. The 1.3% decrease was attributable to the hosiery segment.
Net sales in the sweater segment increased 0.3% over the same period the
previous year. Sales for Hampshire Brands Division accounted for an 11.5%
increase with sales of the other divisions accounting for the off- setting
decrease. The majority of this decrease is a result of sales being deferred to
the fourth quarter when compared to the same period the previous year. Excluding
sales for the Hampshire Brands Division, unit volume for the sweater segment
decreased 5.5% for the third quarter of 1998 and a shift in mix to lower priced
goods accounted for an additional 5.9% decrease.
12
<PAGE>
Hosiery segment net sales were $6,286,000 for the three months as compared with
$7,253,000 for the comparable period a year ago. The 13.3% decrease was a result
of a shift in mix to lower priced goods. During the period, unit volume was up
22.4%, but was offset by a shift in mix of 35.7%.
Gross profit for the three months ended September 26, 1998 decreased by
$1,633,000 and, as a percentage of net sales, decreased 2.4% to 20.2% from
22.6%. This was the result of lower gross profit percentages in both segments.
Sweater segment gross profit decreased to 20.9% of net sales for the three
months ended September 26, 1998 from 23.4% for the same period in 1997. This
decrease was caused by production inefficiencies in two domestic manufacturing
facilities and the effects of the competitive sweater market as a whole.
In the hosiery segment, gross profit was down to 13.9% in the third quarter of
1998 compared with 16.5% in the third quarter of 1997. This decrease was the
result of lower than expected manufacturing levels.
Selling, general and administrative expenses for the three months ended
September 26, 1998 were $7,434,000 as compared with $6,964,000 for the same
period in 1997. This increase is attributable to the operating expenses
associated with the Hampshire Brands Division offset by a reduction in
compensation expenses in the sweater segment.
The Company recorded a $2,500,000 charge to earnings in the third quarter of
1998 to recognize the devaluation of the ruble with respect to real property
investments. The impairment is shown in the statement of operations under the
caption "Non-recurring expenses". Hampshire Investments had a loss of $61,000
for the three months ended September 26, 1998.
SEASONALITY
- -----------
Over two-thirds of sweater segment sales occur in the second half of the year.
The hosiery segment sales are not seasonal.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations consisting of funding the build-up in
inventories and accounts receivable (which reach their maximum requirements in
the third quarter), servicing long-term debt, funding capital expenditures for
machinery and equipment and investing in 1998 approximately $10 million in
assets not used in the apparel business of the Company. The primary sources to
meet the liquidity and capital requirements include funds generated from
operations, revolving credit lines and long-term borrowing.
Net cash used in operations for the nine months ended September 26, 1998 totaled
$50,409,000 of which the primary uses were the build-up of inventory for
shipments later in the year and account receivables. Net cash used by investing
activities for the nine months totaled $10,313,000 of which the primary uses
were to fund capital expendi- tures and fund the purchase of real property
investments and other investments. Capital expenditures for the period, planned
to be approximately $4,000,000 for the year, were $2,916,000. Hampshire
Investments used funds during the period of $4,943,000 as the purchase price for
real property and $2,393,000 for capital stock.
Cash flow provided by financing activities was $49,597,000 with the primary
sources being the revolving credit facility and the sale of the $15,000,000
Senior Notes.
13
<PAGE>
The Company renewed its principal credit facility through May 26, 1999 with
three participating commercial banks. The facility consists of a combined $42
million line of credit and letter of credit facility subject to applicable
sublimits of 85% of eligible account receivables, plus a seasonal overadvance of
up to $12 million from March 1 through October 31. Advances 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 loan is secured by the trade accounts receivable of
Hampshire Designers, Inc. and its subsidiaries, other than certain factored
trade accounts receivable. The Company has pledged as security the common stock
of its subsidiaries and such subsidiaries guarantee the performance of the
Company. In addition, letters of credit issued under the facility are secured by
the inventory shipped pursuant to the letters of credit.
In the second quarter of 1998, the Company sold Senior Notes in the principal
amount of $15 million to two insurance companies. The Senior Notes bear interest
at a rate of 7.05% per annum and are payable in equal annual installments
beginning January 2, 2002 through January 2, 2008. The Senior Notes are secured
pari passu with the Company's revolving credit facility.
Management of the Company believes its cash flow from operations and borrowings
under its credit facilities and proceeds from the sale of the Senior Notes will
provide adequate resources to meet its operational needs and capital
requirements for the foreseeable future.
14
<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 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 26, 1998.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
(10)(R) Restated Term Note between MetLife Capital Corporation and
Hampshire Designers, Inc., dated July 30, 1998
(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 26, 1998.
15
<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 6, 1998 /s/ Ludwig Kuttner
--------------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 6, 1998 /s/ Charles W. Clayton
--------------------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer and
Chief Financial
(Principal Financial and Accounting Officer)
16
METLIFE CAPITAL
Amount: $1,249,197.92
Date: July 30, 1998
WHEREAS, the parties herein, previously executed that certain Term Promissory
Note No. One dated July 30, 1993 in the Original Loan Amount of $3,500,000.00
(Ref. No. 5027993-001) ("Original Note"),
WHEREAS, HAMPSHIRE DESIGNERS, INC. ("Borrower") now desires to restructure said
original Note (Ref. No. 5027993-002); and
WHEREAS, MetLife Capital Corporation, holder of the Original Note, ("MetLife")
is agreeable to restructure said Original Note by applying $1,249,197.92 to said
attached Original Note for principal and interest, provided the Borrower
executes this Restated Term Note.
NOW THEREFORE, for value received the Borrower promises to pay to MetLife
Capital Corporation or order, the principal sum of ONE MILLION, TWO HUNDRED
FORTY-NINE THOUSAND, ONE HUNDRED NINETY-SEVEN AND 92/100 DOLLARS ($1,249,197.92)
("Loan") together with interest from JULY 30, 1998, until payment in full, on
the principal balance from time to time remaining unpaid thereon at the rate of
7.450% per annum (computed on the basis of a 360-day year of twelve consecutive
30-day months) in installments as follows:
THIRTY-SIX (36) installment including both principal and interest, each in the
amount of $38,829.14, payable commencing AUGUST 30, 1998 AND MONTHLY THEREAFTER
UNTIL July 30, 2001 on which date the entire balance of principal and interest
unpaid shall be due and payable. It is agreed that each installment, when paid,
shall be applied by the holder hereof, first so much as shall be required to the
payment of interest accrued as specified hereto, and the balance thereof to the
repayment of the principal sum.
If any payment shall not be paid when due and shall remain unpaid for ten (10)
days, the Borrower agrees to pay an additional charge equal to five percent (5%)
of the delinquent payment or the highest additional charge permitted by law,
whichever is less. All payments of the principal and interest on the Restated
Term Note shall be made in coin or currency of the United States of America
which at the time shall be the legal tender for the payment of public and
private debts.
Upon not less than thirty (30) days prior written notice to MetLife, Borrower
shall have the right to prepay all, but not less than all, of the outstanding
principal balance on any regularly scheduled principal and interest payment date
without any prepayment fee.
In the event the Restated Term Note is placed in the hands of an attorney for
collection or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings then the Borrower agrees and promises
to pay a reasonable attorney's fee for collections, plus all out-of-pocket
expenses. The Restated Term Note shall be governed and construed in accordance
with the laws of the State of Washington. The Borrower hereby irrevocably
submits to the jurisdiction of and state of federal court sitting in Seattle,
King County, Washington, in any action or proceeding brought to enforce or
otherwise arising out of or relating to the Restated Term Note, and thereby
waives any objection to venue in any such court and any claim that such forum is
an inconvenient forum.
<PAGE>
The Restated Term Note may be declared due prior to its expressed maturity date,
all in the events, on the terms, and in the manner provided for in the Loan and
Security Agreement dated February 27, 1993, as amended and supplemented.
The undersigned waives presentment, notice of intention to accelerate, demand
and notice of dishonor.
HAMPSHIRE DESIGNERS, INC., BORROWER
By: /s/ Charles W. Clayton
- ---------------------------
Its: Vice President
<PAGE>
TERM PROMISSORY NOTE NO. ONE
No. 5027993
$3,500,000.00
July 30, 1993
FOR VALUE RECEIVED, the undersigned, HAMPSHIRE HOSIERY, INC. ("Maker") promise
to pay to the order of MetLife Capital Corporation ("Payee"), at its office at
10900 N.E. 4th St., Suite 500, Box C-97550, Bellevue, Washington 98009, the
principal sum of Three Million Five Hundred Thousand ($3,500,000.00) Dollars
together with interest on unpaid principal from the date of disbursement of such
principal amount until payment in full at a rate of Seven and Fifty Nine
Hundredths percent (7.59%) per annum ("Rate") computed on the basis of a 360 day
year of twelve consecutive thirty day months. Interest hereunder shall be paid
on the unpaid principal, together with principal, in Sixty (60) installments of
Fifty Three Thousand Eight Hundred Thirty Nine and fifty-six cents ($56,839.56)
with an amortization of the loan over Eighty-Four (84) months, or Seven (7)
years commencing on August 30, 1993 and monthly thereafter until July 30, 1998
on which date the entire balance of $1,249,197.92, including principal and
interest unpaid shall be due and payable. It is agreed that each installment,
when paid, shall be applied by the holder hereof, first so much as shall be
required to the payment of interest accrued as specified hereto, and the balance
thereof to the repayment of the principal sum.
Except as may be otherwise expressly provided herein, this Note may not be
prepaid in whole or in part, except with the prior written consent of Payee.
Maker shall have the privilege of prepaying all (but not part) of the then
outstanding balance under this Note on July 30, 1995 or on any installment due
date thereafter, subject to giving thirty (30) days prior written notice to
Payee specifying the date of prepayment and further subject to payment of a
prepayment premium equal to the amount, if any, required to offset the adverse
impact to Payee of any decline in interest rates. The prepayment premium is
determined by (i) calculating the decrease, expressed in basis points (but not
less than zero) in the current weekly average yield for Three (3) year U.S.
Treasury Notes as published in Federal Reserve Statistical Release H. 15(519)
(the "Index") from the weekly average yield of 4.50% as of June 22, 1993 to the
Friday (or, if Friday is not a business day, the last business day) of the week
immediately preceding the prepayment date (ii) dividing the difference by 100,
(iii) multiplying the result by the applicable "Premium Factor" set forth below,
and (iv) multiplying the product by the principal to be prepaid. Any prepayment
shall be applied first to the prepayment premium, if any, next to accrued
interest and late charges (if any), and thereafter to the principal then
outstanding. The Premium Factor shall be the amount shown on the following chart
for the month in which payment occurs.
Number of Months Remaining (Years) Premium Factor
- -------------------------- ------- --------------
36 - 25 (3) .022
24 - 13 (2) .017
12 - 1 (1) .011
In the event the Federal Reserve Board ceases to publish Statistical Release H.
15(519), then the decrease in Three (3) - Year U.S. Treasury Notes will be
determined from another source designated by Payee.
If Maker shall have given to Payee notice of Maker's intention to so prepay,
Maker shall not then be entitled to withdraw such notice, and the indebtedness
proposed to be prepaid in such notice together with the aforesaid prepayment
fee, if applicable, shall be due and payable upon the date specified for such
<PAGE>
prepayment in such notice. Upon the occurrence of an Event of Default and
acceleration of payment of indebtedness evidenced hereby during a period open to
prepayment, Maker shall pay to Payee, in addition to any and all other sums due
and payable hereunder, as liquidated damages for the loss of Payee's investment
and not as a penalty, an amount equal to the prepayment fee which would have
been payable hereunder on such date of acceleration in the event of a voluntary
prepayment. Maker and Payee agree that the foregoing amounts do not constitute
penalties but rather constitute reasonable calculations of the investment loss
that would be sustained by Payee in the event of such prepayment.
It is specifically understood and agreed by Maker that, in the event of a
default under this Note or under any instrument securing the Note, a tender of
payment of the unpaid principal and accrued interest then outstanding shall be
deemed a prepayment, and accordingly, said tender must include the premium
herein above required, or if said tender is made prior to the time this
privilege is operative, then said tender must include a premium equal to six (6)
months' interest at the Rate computed on the principal amount so tendered. It is
further understood and agreed by Maker that Payee shall not be obligated to
accept said tender, and said tender shall for all purposes be deemed ineffectual
and deficient, unless said tender shall include the premium herein above
required.
In the event that Payee does not receive any payment on the date due, Maker will
pay Payee a late charge of five percent (5%) of the payment outstanding together
with the payment and, provided said sum is received within ten (10) days of the
date due, Payee agrees not to demand immediate payment of the whole sum of
principal and interest as otherwise permitted herein.
If, from any circumstances whatsoever, payment of any obligation due under this
Note at the time such performance shall be due shall involve exceeding the
maximum amount currently prescribed by any applicable usury statue or any other
applicable law, then such obligation shall be reduced to such maximum amount, so
that in no event shall any payment be possible under this Note, or under any
other instrument evidencing or securing the indebtedness evidenced hereby, that
is in excess of such maximum amount.
In the event that an Event of Default shall occur under the Loan and Security
Agreement (as hereinafter defined) or any other instrument now or hereafter
securing repayment hereof, following any required notice and/or the expiration
of any applicable period of grace, then, and in such event, the principal
indebtedness evidenced hereby, and any other sums advanced hereunder, together
with all unpaid interest accrued thereon, shall, at the option of Payee, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE.
Interest shall accrue on the outstanding principal for so long as such default
continues, regardless of whether or not there has been an acceleration of the
indebtedness evidenced hereby as set forth herein, at the rate equal to the
lesser of fifteen percent (15%) per annum or the maximum rate allowable under
law. All such interest shall be paid at the time of and as a condition precedent
to the curing of any such default should Payee, at its sole option, allow such
default to be cured. In the event this Note, or any part thereof, is collected
by or through an attorney-at-law. Maker agrees to pay all costs of collection
including, but not limited to, reasonable attorneys' fees, whether or not suit
is filed.
This Note is one of the notes referred to in and is secured by the Loan and
Security Agreement dated July 30, 1993 between Maker and Payee. The terms of the
Loan and Security Agreement are incorporated herein by reference
This Note consolidates the following interim Notes executed by Maker in favor of
Payee
Interim Note Number Date Principal Amount
- --------------------- ----------- ---------------------
REQUEST FOR ADVANCE OF DATED: $3,500,000.00
LOAN PROCEEDS NO. ONE July 27, 1993
<PAGE>
Maker waives any right of exemption and waives presentment, protest and demand
and notice of protest, demand and of dishonor and nonpayment of this Note, and
consents that any holder hereof shall have the right, without notice, to grant
any extension or extensions of time for payment of this Note or any part thereof
or any other indulgences or forbearances whatsoever, or may release any of the
security for this Note without in any way affecting the liability of any other
party for the payment of this Note.
The due payment and performance of Maker's obligations hereunder shall be
without regard to any counterclaim, right of offset, or any other counterclaim
whatsoever which Maker may have against Payee and without regard to any other
obligations of any nature whatsoever which Payee may have to Maker, and no such
counterclaim or offset shall be asserted by Maker in any action, suite or
proceeding instituted by Payee for Payment of Maker's obligations hereunder.
This Note and the Loan and Security Agreement shall be governed by and construed
in accordance with the laws of the State of Washington.
Maker acknowledges that there is no presumption that the value of the property
securing this note is equal to the face amount of the Note, and that a
deficiency judgment many be necessary in proceedings taken for enforcement
hereof.
No amendment to this Note shall be binding upon Payee unless it is in writing
and duly signed by Payee.
IN WITTINESS WHEREOF, the Maker has caused these presents to be duly signed the
date first above written.
Borrower: HAMPSHIRE HOSIERY, INC.
By: /s/ Charles W. Clayton
- ------------------------------------------
Witness: /s/ Lanna M. West
(Print name): Charles W. Clayton
Title: Vice President/Treasurer
<TABLE>
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. 26, Sept. 27, Sept. 26, Sept. 27,
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average number of
common and common equivalent
shares outstanding: 4,138 3,856 4,127 3,857
Net income (loss) $663 $5,111 ($1,295) $4,615
Less-Preferred dividend
requirements - 42 - 128
----- ------ ------ ------
Net income (loss) applicable to
common stock $663 $5,069 ($1,295) $4,487
==== ====== ====== ======
Net income (loss) per share-basic $0.16 $1.31 ($0.31) $1.16
===== ===== ===== =====
- -------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares
outstanding per above 4,138 3,856 4,127 3,857
Additional shares assumed to be
outstanding from the exercise
of options and warrants
(computed using the treasury
stock method) 328 250 - 258
Assumed conversion of preferred
stock - 318 - 353
----- ----- ----- -----
Total common shares-diluted 4,466 4,424 4,127 4,469
===== ===== ===== =====
Net income (loss) applicable
to common stock $663 $5,069 ($1,295) $4,487
Plus-Preferred dividend requirement - 42 - 128
---- ------ ------ ------
Net income (loss) $663 $5,111 ($1,295) $4,615
==== ====== ====== ======
Net income (loss) per share-diluted $0.15 $1.16 ($0.31) $1.03
===== ===== ===== =====
</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 a part of the quarterly report on Form 10Q and is qualified in its
entirety by reference to such quarterly report of Form 10-Q.
</LEGEND>
<CIK> 0000887150
<NAME> Charles Clayton
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-26-1998
<EXCHANGE-RATE> 1
<CASH> 761
<SECURITIES> 530
<RECEIVABLES> 50,561
<ALLOWANCES> (4,757)
<INVENTORY> 49,856
<CURRENT-ASSETS> 101,087
<PP&E> 40,753
<DEPRECIATION> (25,994)
<TOTAL-ASSETS> 134,493
<CURRENT-LIABILITIES> 55,739
<BONDS> 21,210
0
0
<COMMON> 423
<OTHER-SE> 55,740
<TOTAL-LIABILITY-AND-EQUITY> 134,394
<SALES> 114,994
<TOTAL-REVENUES> 115,282
<CGS> 93,368
<TOTAL-COSTS> 93,368
<OTHER-EXPENSES> 21,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,596
<INCOME-PRETAX> (1,145)
<INCOME-TAX> 150
<INCOME-CONTINUING> (1,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
