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 July 3, 1999.
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 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 August 9, 1999
------------------------------ ----------------------------
Common Stock, $0.10 Par Value 4,054,517
1
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HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
July 3, 1999
PART I - FINANCIAL INFORMATION Page
----
Item 1-Financial Statements
Consolidated Balance Sheet as of July 3, 1999, June 27, 1998
and December 31, 1998 3
Consolidated Statement of Operations for the Three Months and
Six Months Ended July 3, 1999 and June 27, 1998 5
Consolidated Statement of Comprehensive Income for the Six
Months and Three Months Ended July 3, 1999 and June 27, 1998 6
Consolidated Statement of Cash Flows for the Six Months
Ended July 3, 1999 and June 27, 1998 7
Notes to Consolidated Financial Statements 8
Item 2-Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II-OTHER INFORMATION
Item 1-Legal Proceedings 16
Item 4-Submission of Matters to a Vote of Security Holders 16
Item 6-Exhibits and Reports on Form 8-K 16
Signature Page 17
2
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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
<CAPTION>
July 3, June 27, December 31,
1999 1998 1998
------ ------- ------------
(unaudited)(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,125 $ 438 $ 13,886
Available-for-sale securities 525 1,011 549
Accounts receivable trade - net 15,636 18,490 24,194
Other account receivables 1,995 1,234 1,428
Inventories 35,651 47,157 20,789
Deferred tax asset 3,992 3,173 4,006
Hosiery assets held for sale - net - - 774
Other current assets 1,368 964 597
------- -------- --------
Total current assets 60,292 72,467 66,223
Property, plant and equipment - net 12,239 15,224 13,677
Real property investments - net 10,842 5,728 8,679
Long-term investments 5,482 5,420 5,238
Trading securities held in retirement trust 1,394 901 1,087
Deferred tax asset 2,416 2,326 2,416
Intangible assets - net 2,813 3,212 3,390
Other assets 125 150 138
------- -------- --------
$95,603 $105,428 $100,848
======= ======== ========
<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 AND STOCKHOLDERS' EQUITY
<CAPTION>
July 3, June 27, December 31,
1999 1998 1998
------ ------- ------------
(unaudited)(unaudited)
<S> <C> <C> <C>
Current liabilities:
Borrowings under lines of credit $ 890 $ 9,968 -
Current portion of long-term debt 1,470 3,728 $ 1,782
Accounts payable 4,416 8,282 5,772
Accrued expenses and other liabilities 5,725 7,010 7,386
------- -------- --------
Total current liabilities 12,501 28,988 14,940
Long-term debt 21,349 19,316 20,777
Deferred compensation 2,096 1,374 1,728
------- -------- --------
Total liabilities 35,946 49,678 37,445
------- -------- --------
Stockholders' equity:
Common stock 418 423 425
Additional paid-in capital 27,713 27,845 28,276
Retained earnings 33,028 28,710 35,459
Accumulated other comprehensive loss (163) (47) (188)
Treasury stock (1,339) (1,181) (569)
------- -------- --------
Total stockholders' equity 59,657 55,750 63,403
------- -------- --------
$95,603 $105,428 $100,848
======= ======== ========
<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 Six Months Ended
--------------------- ---------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
------ ------- ------ -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $19,184 $23,241 $39,576 $44,934
Cost of goods sold 15,972 18,852 32,271 36,526
------- ------- ------- -------
Gross profit 3,212 4,389 7,305 8,408
Other revenue 230 102 398 178
------- ------- ------- -------
3,442 4,491 7,703 8,586
Selling, general and
administrative expenses 4,855 5,253 10,198 10,463
------- ------- ------- -------
Loss from operations (1,413) (762) (2,495) (1,877)
Other income (expense):
Interest expense (382) (290) (687) (374)
Miscellaneous 242 237 514 372
------- ------- ------- -------
Loss before income taxes (1,553) (815) (2,668) (1,879)
Benefit for income tax 180 147 355 333
------- ------- ------- -------
Net loss from continuing operations (1,373) (668) (2,313) (1,546)
Loss from discontinued operations - (132) - (412)
------- ------- ------- -------
Net loss applicable to common stock($ 1,373) ($ 800) ($ 2,313) ($ 1,958)
======= ====== ======= =======
Net loss per share -
continuing operation ($0.34) ($0.16) ($0.56) ($0.38)
===== ===== ===== =====
Net loss per common share ($0.34) ($0.19) ($0.56) ($0.48)
===== ===== ===== =====
Weighted average number
of shares outstanding 4,078 4,137 4,150 4,122
===== ===== ===== =====
<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>
Six Months Ended
------------------------------
July 3, 1999 June 27, 1998
------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss for the period ($2,313) ($1,958)
Other comprehensive income, net of taxes:
Unrealized holding gains (losses)
on securities arising during periods $53 ($29)
Plus reclassification adjustment for net
gains included in net loss (28) 71
--- ---
Other comprehensive income 25 42
------ ------
Comprehensive loss ($2,288) ($1,916)
====== ======
Three Months Ended
------------------------------
July 3, 1999 June 27, 1998
------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss for the period ($1,373) ($800)
Other comprehensive income, net of taxes:
Unrealized holding gains (losses)
on securities arising during periods $163 ($55)
Plus reclassification adjustment for net
gains (losses) included in net loss (37) 21
---- ----
Other comprehensive income (loss)
126 (34)
------ ------
Comprehensive loss ($1,247) ($834)
====== ======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
6
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<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
Six Months Ended
------------------------------
July 3, 1999 June 27, 1998
------------ -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 2,313) ($ 1,958)
Loss from discontinued operations - 412
------- -------
Loss from continuing operations (2,313) (1,546)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,244 2,090
Loss on disposition of equipment (14) (10)
Net change in operating assets and liabilities:
Receivables 6,399 (1,967)
Inventories (14,863) (27,347)
Other assets (1,917) (659)
Accounts payable (1,356) 3,763
Accrued liabilities (1,661) (934)
Deferred compensation 368 417
------- -------
Net cash used in continuing operations (13,113) (26,193)
Net cash provided by (used in)
discontinued operations 3,673 (2,512)
------- -------
Net cash used in operating activities (9,440) (28,705)
------- -------
Cash flows from investing activities:
Real property and other investments (2,542) (4,011)
Trading securities held in retirement trust (244) (385)
Capital expenditures (672) (2,162)
Proceeds from sales of property and equipment 22 12
------- -------
Net cash used in investing activities (3,436) (6,546)
------- -------
Cash flows from financing activities:
Net borrowings under lines of credit 890 9,968
Proceeds from issuance of long-term debt 1,279 15,260
Repayment of long-term debt (947) (1,500)
Common stock (375) -
Treasury stock purchased (732) (42)
------- ------
Net cash provided by financing activities 115 23,686
------- ------
Net decrease in cash and cash equivalents 12,761 (11,565)
Cash and cash equivalents at beginning of period 13,886 12,003
------- ------
Cash and cash equivalents at end of period $ 1,125 $ 438
======= =======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
7
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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. The results of
operations and assets of the Hosiery Division have been accounted for as
discontinued operations.
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, 1998, 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 reclassifications have been made to data of the previous year to conform
with the presentation of the current year and to recognize the discontinuation
of the Hosiery Division.
INVENTORIES
- -----------
A summary of inventories by component is as follows:
- -----------------------------------------------------------------------------
(in thousands)
July 3, June 27, December 31,
1999 1998 1998
------- -------- ------------
Finished goods $28,710 $30,249 $14,904
Work-in-progress 4,514 7,114 3,460
Raw materials and supplies 4,366 6,719 4,126
------- ------- -------
37,590 44,082 22,490
Less-LIFO reserve (1,939) (1,755) (1,701)
------- ------- -------
35,651 42,327 20,789
Inventory of discontinued operation - 4,830 -
------- ------- -------
Net inventories $35,651 $47,157 $20,789
======= ======= =======
- ------------------------------------------------------------------------------
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. (Notes continued)
8
<PAGE>
(Notes continued)
REVOLVING CREDIT FACILITY
- -------------------------
The Company has a credit facility with three participating commercial banks
through May 24, 2000. The credit facility consists of a $55 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 (a)
85% of the eligible accounts receivable, and (b) 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, excluding certain factored trade accounts receivable. In addition,
letters of credit issued under the facility are collateralized by the inventory
shipped pursuant to the letters of credit. The Company has pledged as collateral
the common stock of its subsidiaries and such subsidiaries guarantee the
performance of the Company.
The Company also has two other credit facilities of $5 million in the aggregate
and an additional letter of credit facility in the amount of $4 million.
SALE OF SENIOR NOTES
- --------------------
In June of 1998, the Company sold senior notes (the "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, are payable in equal annual
installments beginning January 2, 2002 through January 2, 2008. The Senior Notes
are collateralized pari passu with the Company's revolving credit facilities.
DISCONTINUED OPERATIONS
- -----------------------
On June 1, 1999, Hampshire Designers, Inc. ("Designers"), a subsidiary of the
Company, sold assets of its Hosiery Division, as of January 1, 1999, consisting
of inventory, certain machinery and equipment and prepaid expenses, to Vision
Legwear, LLC, a North Carolina limited liability company ("Purchaser"), for a
purchase price of $4,600,000. The purchase price consisted of $500,000 in cash
paid at the Closing; a note in the amount of $1,883,000 bearing interest at
8.25% per annum, due January 1, 2006, and collateralized by the machinery and
equipment which was sold (the "8.25% Note"); a Class A redeemable, non-voting
unit of the Purchaser in the amount of $175,000; a Class B non-voting unit of
the Purchaser in the amount of $100,000; the assumption by the Purchaser of
current liabilities of Designers in the amount of $850,000; and the assumption
by the Purchaser of a note of Designers in the amount of $1,092,000, bearing
interest at 7.45% per annum and due July 1, 2002, for which the Company remains
primarily liable. Designers also remains contingently liable with respect to the
obligations of Designers which were assumed by the Purchaser as part of the
purchase price.
In addition, Designers leased two manufacturing plants to the Purchaser for a
period of three years on a triple net basis with annual rent of $126,000. The
Purchaser has an option to purchase the plants for $840,000 at the end of the
lease or to extend the lease for three additional years at an increased annual
9
<PAGE>
(Notes continued)
rent. Designers also leased to the purchaser machinery and equipment, required
for the manufacture of hosiery and located at the two plants, for a period of
four years at an annual rent of $324,000. The Purchaser has an option at the end
of the lease to either renew the lease at fair market rental value for one year,
or purchase the machinery and equipment at fair market value. The Company has
agreed to provide consulting services to the Purchaser for three years, not
exceeding 20 hours per month, for a monthly fee of $8,333.
Designers has agreed with The CIT Group/Commercial Services, Inc., which is
providing working capital financing to the Purchaser, to subordinate its rights
under the two leases and the 8.25% Note for a period of 120 days after any
default under the leases or the 8.25% Note which would otherwise permit
Designers to terminate the leases or enforce the obligation of the Purchaser to
pay the unpaid principal of the 8.25% Note.
VL Holdings, LLC, a North Carolina limited liability company, owned by Fritz
Schulte, President of the Hosiery Division at the date of sale, and six other
management employees of the Hosiery Division at the time of sale, owns 67.08% of
the Class B voting units of the Purchaser.
The difference between the book basis of the assets sold and the selling price
has been established as a reserve against the 8.25% Note, and no gain on the
sale will be recognized until such time as the Note is collected and the Company
has been relieved of its primary responsibilities under the $1,092,000 note
assumed by the Purchaser.
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, as amended by SFAS 137, which delayed SFAS 133's effective date be one
year, 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 2001, does not expect that adoption of SFAS 133 will have
a material impact upon the consolidated financial statements.
INDUSTRY SEGMENTS AND DATA BY GEOGRAPHICAL AREAS
- ------------------------------------------------
The Company operates in two industry segments - Sweaters and Investments. The
Sweater segment includes sales of apparel, primarily women's and men's tops,
both knitted and woven. The products are sold to customers throughout the United
States of America including major department stores, specialty retail stores and
catalog companies. The Investments segment makes investments both domestically
and internationally, principally in real property and common stock of apparel
companies.
9
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<TABLE>
(Notes continued)
Industry Segment Data
<CAPTION>
Quarter Ended Six Months Ended
--------------------------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales Sweaters $19,184 $23,241 $39,576 $44,934
Other revenue Investments 230 102 398 178
-------------------------------------
$19,414 $23,343 $39,974 $45,112
- -------------------------------------------------------------------------------
Gross profit Sweaters 3,212 4,389 7,305 8,408
16.7% 18.9% 18.5% 18.7%
- -------------------------------------------------------------------------------
Revenue by geographic area United States$19,397 $23,327 $39,936 $45,076
Europe 17 36 38 36
-------------------------------------
$19,414 $23,363 $39,974 $45,112
- -------------------------------------------------------------------------------
Income (loss) before income Sweaters ($2,198) ($1,416) ($3,848) ($3,200)
tax from continuing Corporate 713 586 1,314 1,304
operations Investments (68) 15 (134) 17
-------------------------------------
($1,553) ($ 815) ($2,668) ($1,879)
- -------------------------------------------------------------------------------
Depreciation and amortization Sweaters $1,074 $1,046 $2,097 $2,036
Corporate 6 7 12 12
Investments 72 24 135 42
-------------------------------------
$1,152 $1,077 $2,244 $2,090
- -------------------------------------------------------------------------------
Capital expenditures Sweaters $ 303 $ 939 $ 667 $2,154
Corporate 1 3 5 3
Investments - 5 - 5
-------------------------------------
$ 304 $ 947 $ 672 $2,162
- -------------------------------------------------------------------------------
<CAPTION>
July 3, June 27, Dec. 31,
1999 1998 1998
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-lived assets United States $19,946 $ 17,242 $ 19,464
Europe 3,135 3,710 2,892
------------------------------
$23,081 $ 20,952 $ 22,356
- -------------------------------------------------------------------------
Total identifiable Sweaters $67,773 $ 77,103 $ 60,080
assets Corporate 8,620 7,535 21,566
Investments 19,210 12,788 15,505
------------------------------
95,603 97,426 97,151
Assets of discontinued operation - 8,002 3,697
------------------------------
$95,603 $105,428 $100,848
- -------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Six Months Ended July 3, 1999 and June 27, 1998
- -----------------------------------------------
Net sales for the Company from continuing operations for the six months ended
July 3, 1999, were $39,576,000, compared with $44,934,000 for the same period in
1998. Of the 12% decline, approximately 10% is attributed to reduced sales due
to competitive market conditions. The balance of the decline resulted from the
loss of sales of a designer sweater business sold in mid-1998.
For the first six months of 1999 compared with the same period of the prior
year, excluding sales of a business sold in 1998, aggregate unit volume of sales
was approximately level. Increased volume was experienced in the ladies import
lines while the other lines experienced reductions. The decrease in volume for
the first half of 1999 resulted primarily from competitive pricing in the
marketplace.
A shift in product mix to lower priced merchandise resulted in a 10.9% decrease
in the average sales price. The Company has responded to the price competition
by increasing its purchases of sweaters from foreign sources. More than half of
the sweaters sold by the Company are produced by foreign contractors.
Gross profit, as a function of net sales, for the first six months of 1999 was
18.5%, compared with 18.7% for the prior year. While competition has caused
reduced prices, the Company has been successful in maintaining its gross margin.
The stable gross margin can be attributed primarily to two factors: the Company
has increased its reliance on foreign contractors and achieved improved
operating efficiencies in its own manufacturing facilities.
Selling, general and administrative expenses for continuing operations for the
six months ended July 3, 1999, were $10,198,000, compared with $10,463,000 for
the same period of 1998, a decrease of 2.5%. The decrease resulted from reduced
volume but was offset by continued overhead costs on those lines that the volume
did not achieve last year's results. The elimination of the designer sweater
business had a positive impact on the expenses of the current period.
Interest expenses for the first six months of 1999 was $687,000 compared with
$374,000 for the same period of the previous year. The Senior Notes, outstanding
in the current year, were sold in June 1998. The interest on these notes for the
first six months of 1999 was $528,750. This interest expense was partially
offset by reduced borrowing against revolving credit lines. In the current year,
the Company first borrowed against its revolving credit lines on July 1, and
then an amount less than one million dollars. In the prior year, at the end of
the second quarter, the Company had outstanding against its revolving lines of
credit approximately $10 million. Interest expense was further offset by
increased interest income, which is included in other miscellaneous income.
The Company, through its investment subsidiary, Hampshire Investments, Limited
("Hampshire Investments"), as of July 3, 1999, had invested $16.3 million in
long-term investments. Rental revenues for the six months ending July 3, 1999,
were $398,000, which resulted in an operating profit of $116,000 for the period.
Hampshire Investments makes investments in real property, publicly traded
apparel stocks and long-term investments in private companies for
diversification of the Company's earning base.
Three Months Ended July 3, 1999 and June 27, 1998
- -------------------------------------------------
Net sales for the Company from continuing operations for the quarter ended July
3, 1999, were $19,184,000, compared with $23,241,000 for the same period in
1998. Of the 17.5% decline, approximately 14.5% is attributed to reduced sales
and pricing due to competitive market conditions. The balance of the decline
results from the loss of sales of a designer sweater business sold in mid-1998.
12
<PAGE>
For the second quarter of 1999 compared with the same period of the prior year,
excluding the sales of a business sold in 1998, aggregate unit volume of sales
declined approximately 8.2%. The average sales price decreased 9.9% primarily
due to a shift in product mix to lower-priced merchandise in a soft retail
market.
Gross profit, as a function of net sales, for the second quarter of 1999 was
16.7% compared with 18.9% for the prior year, primarily as a result of the
reduced volume and reduced selling prices.
Selling, general and administrative expenses for continuing operations for the
quarter ended July 3, 1999, were $4,855,000, compared with $5,253,000 for the
same period of 1998, a decrease of 7.6%. The decrease is a direct result of the
reduced volume.
Interest expenses for the second quarter of 1999 was $382,000 compared with
$290,000 for the same period of the previous year. The increase resulted from
the interest expense of the Senior Notes sold in June 1998, offset by reduced
borrowing in the current year against the revolving credit lines.
The Company, through its investment subsidiary, Hampshire Investments, as of
July 3, 1999, had invested $16.3 million in long-term investments. Rental
revenues for the quarter ending July 3, 1999, were $230,000 which resulted in an
operating profit of $44,000 for the quarter.
SEASONALITY
- -----------
More than seventy percent of the Company's sweater sales occur in the second
half of the year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquidity and capital requirements of the Company are to fund
working capital for current operations consisting of funding the build-up in
inventories and accounts receivable (which reach their maximum requirements in
the third quarter), servicing long-term debt, funding capital expenditures and
making investments, through its investment subsidiary, 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 six months ended July 3, 1999 totaled
$12,761,000, which was used primarily for the build-up of inventory for
shipments later in the year. Capital expenditures for the six months were
$672,000 against an annual budget for 1999 of approximately $2.2 million. The
budgeted expenditures are for the replacement and upgrade of manufacturing
equipment and facility improvements.
The Company, through Hampshire Investments, continues to make investments in
unrelated assets intended to diversify the earning base of the Company. During
the first half of 1999, Hampshire Investments used $3,700,000 for investment in
such assets. Hampshire Investments made two real property investments in the
U.S. in the second quarter.
The Company has finalized the terms of its principal credit facility with three
participating commercial banks for 1999. The credit facility was increased to
support the higher level of letters of credit for imported sweaters projected
for 1999. The credit facility consists of a $55 million combined line of credit
and letter of credit facility. Advances under the line of credit are limited to
the lesser of: (1) $55 million; or (2) the sum of 85% of eligible account
receivables, plus a seasonal over-advance 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 of LIBOR plus 1.5% for a fixed term. The
loan is collateralized pari passu with the Senior Notes by the trade accounts
receivable of Hampshire Designers and its subsidiaries, excluding certain
factored trade accounts receivable. The Company has pledged as additional
13
<PAGE>
collateral, the common stock of its subsidiaries and such subsidiaries guarantee
the performance of the Company. Letters of credit issued under the facility are
collateralized by the inventory shipped pursuant to the letters of credit. At
the end of the second quarter, the Company had an outstanding balance against
the credit line of $0.9 million and outstanding letters of credit of $20.6
million against all lines.
In December 1998, the Board of Directors of the Company approved a plan to
discontinue the operations and sell the assets of the Hosiery Division, which
was engaged in the manufacture and sale of ladies' and children's hosiery and
socks. Accordingly, the operating results of the Hosiery Division have been
presented as discontinued operations in the accompanying financial statements.
In June 1999, the Company sold substantially all of the assets and business of
the Hosiery Division to Vision Hosiery, LLC, a company controlled by the former
president of the Hosiery Division. Collection of trade accounts receivable
retained by the Company plus proceeds received at closing totaled $3.6 million.
In June 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 collateralized pari passu
with the Company's revolving credit facility. The Board of Directors of the
Company have authorized management to purchase from time-to-time, in the open
market, up to 140,000 shares of its common stock. During the first six months of
1999, the Company purchased 97,430 shares of common stock for $820,500.
Management believes its cash flow from operations and borrowings under its
revolving and long-term credit lines will provide adequate resources to meet its
operational needs and capital requirements for the foreseeable future.
YEAR 2000 READINESS
- -------------------
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 has
completed an on-site test of the operating systems by rolling forward the
computer clock. Minimal problems were found, which were corrected immediately or
are in the process of correction. Final testing is expected to be completed by
September 30, 1999.
The Company believes that the conversion of all critical operating systems has
been completed and that its customers are aware of and are addressing their Year
2000 issues. However, in the Company's most reasonably likely worse case
scenario, some portion of a critical system may not function properly. If a
critical system temporarily fails to perform properly, the Company will invoke
its contingency plan to correct the problem. The Company will incur extra costs
for salaries and for independent expert assistance.
The direct costs of projects solely intended to correct Year 2000 problems are
estimated at less than $1 million, of which approximately $900,000 has been
expended to date. With the exception of approximately $100,000 for outside
purchases of software enhancement, all other costs have been expensed as
incurred. The Company does not expect any cost increases above its current
estimates to have a material effect on its financial results. The Company has
been in contact with its significant suppliers and customers with which its
systems interface regarding Year 2000 compliance and does not anticipate any
problems relating to the exchange of data.
14
<PAGE>
The preceding discussion of the Year 2000 issue includes forward-looking
statements reflecting management's current assessments and estimates and which
involve risks and uncertainties. Various factors could cause actual results to
materially vary from those expected by such assessments and forward-looking
statements. Factors that might affect the timely and satisfactory completion of
the Year 2000 project include, but are not limited to, vendor representations
and timely corrections of hardware or software problems, the readiness of key
utilities, suppliers and customers, and similar uncertainties. The Company's
management of the project is an ongoing process involving continual evaluation.
Unanticipated problems could emerge or anticipated problems could be difficult
to solve than anticipated.
15
<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.
At the Annual Meeting of Stockholders held on May 5, 1999, pursuant to the
Notice of Annual Meeting of Stockholders and Proxy Statement dated April 5,
1999:
Each of the six nominees standing for reelection (Ludwig Kuttner, Herbert Elish,
Harvey L. Sperry, Eugene Warsaw, Joel Goldberg and Peter W. Woodworth) were
elected as Directors of the Company by a majority of the votes cast in the
election.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
------------ ------------------------------------------------------------
(10)(H)(3) Third Amendment to Credit Agreement and Guarantee between
Hampshire Group, Limited and The Chase Manhattan Bank,
Republic National Bank of New York and NationsBank
N.A. dated June 22, 1999
(10)(T)(1) Amendment to Credit Agreement between MTB Bank and
Segue (America) Limited dated July 14, 1999
(27) Financial Data Schedule
b) Reports on Form 8-K filed during the quarter
A report on Form 8-K was filed on June 15, 1999 regarding the sale of the assets
and business of Hampshire Hosiery Division to a group of former executives of
the Division headed by Mr. Fritz Schulte, former President of the Division.
16
<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: August 11, 1999 /s/ Ludwig Kuttner
----------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1999 /s/ Charles W. Clayton
-----------------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
MTB Bank
90 Broad Street
New York, NY 10004-2290
(212) 858-3300
Fax: 858-3449
July 14, 1999
Segue (America) Limited
c/o Hampshire Group Limited
215 Commerce Boulevard
Anderson, South Carolina 29621
Attention: Mr. Charles Clayton
Re: Renewal of Credit Facility
Dear Mr. Clayton:
Reference is made to the Credit Agreement dated February 15, 1995 executed by
and between Segue (America) Limited, formerly named Vintage, Inc., a Delaware
corporation (the "Borrower") and MTB Bank (the "Bank") and the Letter of Credit
and Security Agreement, the Corporate Guarantee executed by Hampshire Group
Limited (the "Corporate Guarantor") and other related loan documents executed in
connection therewith (collectively, the "Loan Documents"). All capitalized terms
used herein and not defined shall have the meanings set forth in the Credit
Agreement.
Effective July 14, 1999, the Borrower and the Bank hereby agree to amend the
Credit Agreement as follows:
The definition of Termination Date set forth in Section I(f) of the Credit
Agreement is hereby amended by deleting the date "April 30, 1999" therefrom
and inserting the date "April 30, 2000" in its place.
Each of the Loan Documents is hereby amended to give effect to the foregoing and
except as amended hereby, each such Loan Document remains in full force and
effect in accordance with its terms.
The Corporate Guarantor acknowledges and confirms that the term "Obligations"
referred to in the Corporate Guarantee executed by it includes, without
limitation, the indebtedness, liabilities and obligations of the Borrower under
the Credit Agreement, as amended hereby. The foregoing amendment shall not
affect or impair in any way the validity, binding effect or enforceability of
any Loan Document to which the Borrower or the Corporate Guarantor is party, and
the Borrower's and Guarantor's obligations and the Bank's rights and remedies
thereunder shall continue in full force and effect, notwithstanding such
amendment.
1
<PAGE>
If the foregoing is acceptable to you, kindly execute both copies of this
letter, returning it to MTB Bank, 90 Broad Street, New York, New York
10004-2290, Attn: Mr. Richard Assaf no later than July 31, 1999. Upon receipt by
the Bank of counterparts of this letter duly executed by all the parties listed
below by such date, this letter shall become a binding agreement between the
Bank and the other signatories hereto as of the date first above written.
Very truly yours,
MTB BANK
/s/ Saul M. Langer
- -------------------------------
Saul M. Langer
Senior Vice President
Chief Lending Officer
Accepted and Agreed:
SEGUE (AMERICA) LIMITED,
formerly named VINTAGE, INC.
By: /s/ Horace D. Padgett, Jr.
- ----------------------------------------
Name: Horace D. Padgett, Jr.
Title: Vice President - Finance
HAMPSHIRE GROUP LIMITED,
as Corporate Guarantor
By: /s/ Charles W. Clayton
- ---------------------------------------
Name: Charles W. Clayton
Title: Chief Financial Officer
2
THIRD AMENDMENT TO CREDIT AGREEMENT AND GUARANTY
This Third Amendment to the Credit Agreement and Guaranty ("Third
Amendment") dated as of June 22, 1999 amends the Credit Agreement and Guaranty
(the "Credit Agreement") dated as of May 28, 1998, as amended from time to time,
by and among Hampshire Group, Limited ("Borrower"), Hampshire Designers, Inc.,
Hampshire Investments, Limited, Glamourette Fashion Mills, Inc., San Francisco
Knitworks, Inc. and Segue (America), Limited (individually a "Guarantor" and
collectively the "Guarantors"), The Chase Manhattan Bank, Republic National Bank
of New York and NationsBank, N.A. (collectively the "Banks") and The Chase
Manhattan Bank ("Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and Agent are parties to
the Credit Agreement, and
WHEREAS, Borrower, the Guarantors, the Banks and Agent desire to amend the
Credit Agreement as set forth herein;
NOW THEREFORE, in consideration of the promises and the mutual agreements
contained herein, the sufficiency of which is hereby acknowledged, and intending
to be legally bound, the parties agree that the Credit Agreement shall be
amended as follows:
1. All capitalized terms not otherwise defined herein shall the meaning
given such terms in the Credit Agreement.
2. The definition of Revolving Credit Commitment in Section 1.01 of the
Credit Agreement shall be amended in its entirety by substituting the following:
"'Revolving Credit Commitment' means the commitment of the Banks to lend
pursuant to their Pro Rata Share, Fifty-Five Million ($55,000,000.00)
Dollars to the Borrower pursuant to the terms of this Agreement"
3. The definition of Revolving Credit Termination Date in Section 1.01 of
the Credit Agreement shall be amended in its entirety by substituting the
following:
<PAGE>
"'Revolving Credit Termination Date' means May 24, 2000 unless earlier
extended by Borrower and Banks in accordance with the letter in form of
Exhibit D annexed hereto."
4. The definition of Pro Rata Share in Section 1.01 of the Credit Agreement
shall be amended by adding to said definition the following paragraph and chart
and in no other way shall it be amended:
As of June 22, 1999, the amount of each Bank's revolving credit commitment
and its pro rata share of such revolving credit commitment is as follows:
"Bank Commitment Pro Rata Share
---------- ---------------------- -------------------
Chase $22,000,000 40%
NationsBank $18,150,000 33%
Republic $14,850,000 27%"
5. Section 4.01 of the Credit Agreement shall be amended by substituting
the following for the chart after the colon in that section and in no other way
shall it be amended:
"Bank Pro Rata Share
--------------- -----------------
NationsBank 33%
Republic 27%"
6. Section 9.01(5) of the Credit Agreement shall be amended in its entirety
by substituting the following:
"(5) Unsecured Debt owing to the parties listed on Schedule 9.01 or to such
other institutional lenders, from time to time, approved by the Agent, in
writing prior to the making of any loan, advance or issuing a letter of
credit, which Agent's approval shall not be unreasonably withheld and will
be based on the financial strength of such lender at the time of the
request in an aggregate amount not to exceed $10,965,000 at any one time
outstanding, provided however that the Borrower and each Guarantor shall
not incur loans and advances in an amount exceeding $5,000,000."
7. The representations and warranties contained in the Credit Agreement are
correct, on and as of the date of this Third Amendment as though made on and as
of the date of the Third Amendment (except to the extent such representations or
warranties expressly relate to an earlier date) and no Event of Default has
occurred and is continuing on and as of the date of this Third Amendment, except
those that have been waived, if any, by the Banks and the Agent in writing.
<PAGE>
8. Simultaneously with the execution of this Agreement, Borrower shall
execute promissory notes to each of the Banks to evidence the Revolving Credit
Loans, as amended.
9. Except as herein specifically provided, no other amendment, changes, or
modifications to the Credit Agreement or any of the Loan Documents are intended
or implied.
10. Borrower and each Guarantor confirms and agrees that the Credit
Agreement, as hereby amended, and each Loan Document to which Borrower and each
Guarantor is a party is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects.
11. This Third Amendment shall be governed by and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed by the respective officers hereunder duly authorized as of the day
and year first above written.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
HAMPSHIRE INVESTMENTS LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
<PAGE>
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Charles W. Clayton
- -----------------------------
Title: Vice President
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
- -----------------------------
Title: Vice President
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
----------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Abby Parsonnet
- -----------------------------
Title:
THE CHASE MANHATTAN BANK
By: /s/ Abby Parsonnet
- -----------------------------
Title:
REPUBLIC NATIONAL BANK OF NEW YORK
By: /s/ George Commander
- -----------------------------
Title:
NATIONSBANK N.A.
By: /s/ Richard Stanland
- -------------------------------
Title: Sr. Vice President
<PAGE>
PROMISSORY NOTE
$22,000,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to the order of
THE CHASE MANHATTAN BANK (the "Lender") at its office at 270 Park Avenue, New
York, NY 10017, the principal sum of Twenty Two Million ($22,000,000.00) Dollars
or, if less, the amount loaned by the Lender to the Borrower pursuant to the
Credit Agreement and Guaranty referred to below, in lawful money of the United
States of America and in immediately available funds, on the date(s) and in the
manner provided in said Credit Agreement and Guaranty. The Borrower also
promises to pay interest on the unpaid principal balance hereof, for the period
such balance is outstanding at said office in like money, at the rates of
interest as provided in the Credit Agreement described below, on the date(s) and
in the manner provided in said Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<PAGE>
PROMISSORY NOTE
$18,150,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to- the order
of NATIONSBANK, N.A. (the "Lender") at its office at 3005 North Main Street,
Anderson, South Carolina 29621 the principal sum of Eighteen Million, One
Hundred Fifty Thousand ($18,150,000.00) Dollars or, if less, the amount loaned
by the Lender to the Borrower pursuant to the Credit Agreement and Guaranty
referred to below, in lawful money of the United States of America and in
immediately available funds, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty. The Borrower also promises to pay interest on the
unpaid principal balance hereof, for the period such balance is outstanding at
said office in like money, at the rates of interest as provided in the Credit
Agreement described below, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- --------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<PAGE>
PROMISSORY NOTE
$14,850,000.00 June 22, 1999
HAMPSHIRE GROUP, LIMITED (the "Borrower"), a corporation organized under
the laws of Delaware, for value received, hereby promises to pay to the order of
REPUBLIC NATIONAL BANK OF NEW YORK (the "Lender") at its office at 452 Fifth
Avenue, New York, NY 10018, the principal sum of Fourteen Million, Eight Hundred
Fifty Thousand ($14,850,000.00) Dollars or, if less, the amount loaned by the
Lender to the Borrower pursuant to the Credit Agreement and Guaranty referred to
below, in lawful money of the United States of America and in immediately
available funds, on the date(s) and in the manner provided in said Credit
Agreement and Guaranty. The Borrower also promises to pay interest on the unpaid
principal balance hereof, for the period such balance is outstanding at said
office in like money, at the rates of interest as provided in the Credit
Agreement described below, on the date(s) and in the manner provided in said
Credit Agreement and Guaranty.
The date and amount of each type of Loan made by the Lender to the Borrower
under the Credit Agreement referred below, and each payment of principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note (or, at the discretion of the Lender, at any other time), endorsed
by the Lender on the schedule attached hereto or any continuation thereof and
all such notations by Lender shall be conclusive on Borrower absent manifest
error.
This the Note referred to in that certain Credit Agreement and Guaranty (as
amended from time to time the "Credit Agreement") dated as of May 28, 1998,
among the Borrower, The Chase Manhattan Bank, Republic National Bank of New
York, NationsBank, N.A. and The Chase Manhattan Bank, as Agent and the
Guarantors described therein and evidences the Loans made by the Lender
thereunder. All terms not defined herein shall have the meanings given to them
in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- ---------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
Schedule to Promissory Note
Date Amount Interest Interest Amount Total Notation
of Loan Rate Period of Loan Made By
Payment Balance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet and the consolidated statement of
operations 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 1,125
<SECURITIES> 525
<RECEIVABLES> 19,466
<ALLOWANCES> (1,835)
<INVENTORY> 35,651
<CURRENT-ASSETS> 60,292
<PP&E> 37,579
<DEPRECIATION> (25,340)
<TOTAL-ASSETS> 95,603
<CURRENT-LIABILITIES> 12,501
<BONDS> 21,349
0
0
<COMMON> 418
<OTHER-SE> 59,239
<TOTAL-LIABILITY-AND-EQUITY> 95,603
<SALES> 39,576
<TOTAL-REVENUES> 39,974
<CGS> 32,271
<TOTAL-COSTS> 32,271
<OTHER-EXPENSES> 9,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> (2,668)
<INCOME-TAX> (355)
<INCOME-CONTINUING> (2,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,313)
<EPS-BASIC> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
