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 30, 2000.
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. 000-20201
---------
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 As of November 8, 2000
----------------------------- ----------------------------
Common Stock, $0.10 Par Value 4,521,548
<PAGE>
HAMPSHIRE GROUP, LIMITED
INDEX TO FORM 10-Q
September 30, 2000
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Unaudited Consolidated Balance Sheets as of September 30,
2000, October 2, 1999 and December 31, 1999 3
Unaudited Consolidated Statements of Income for the Three
Months and Nine Months Ended September 30, 2000 and
October 2, 1999 5
Unaudited Consolidated Statements of Comprehensive Income
for the Three Months and Nine Months Ended September 30,
2000 and October 2, 1999 6
Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and October 2, 1999 7
Notes to Unaudited Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 22
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 6 - Exhibits and Reports on Form 8-K 22
Signature Page 23
2
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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<CAPTION>
September October December
30, 2000 2, 1999 31, 1999*
----------- --------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 1,724 $ 993 $ 23,831
Available-for-sale securities ............... 72 368 207
Accounts receivable trade - net ............. 69,533 38,646 16,732
Other accounts receivable ................... 1,106 1,718 1,028
Notes receivable - current portion .......... 2,327 2,098 1,266
Inventories ................................. 53,796 39,110 17,400
Deferred tax asset .......................... 4,232 4,030 4,202
Other current assets ........................ 668 972 704
-------- -------- --------
Total current assets ...................... 133,458 87,935 65,370
Property, plant and equipment - net ........... 3,076 11,414 10,149
Real property investments - net ............... 20,553 11,793 16,538
Long-term investments - net ................... 5,495 5,422 4,537
Notes receivable - long term - net ............ 2,946 -- 267
Trading securities held in retirement trust ... 2,126 1,438 2,101
Deferred tax asset ............................ 1,969 2,416 1,969
Intangible assets - net ....................... 9,963 2,699 2,553
Other assets .................................. 1,209 28 110
-------- -------- --------
Total assets .............................. $180,795 $123,145 $103,594
======== ======== ========
<FN>
* Derived from the December 31, 1999 audited consolidated balance sheet.
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
3
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<TABLE>
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September October December
30, 2000 2, 1999 31, 1999*
----------- --------- ---------
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt .......... $ 3,142 $ 1,425 $ 1,418
Borrowings under lines of credit ........... 47,015 21,177 --
Accounts payable ........................... 13,512 6,552 3,787
Accrued expenses and other liabilities ..... 8,266 7,422 4,024
-------- -------- --------
Total current liabilities ................ 71,935 36,576 9,229
Long-term debt ............................... 32,304 21,022 24,170
Long-term subordinated debt .................. 2,100 -- --
Deferred compensation ........................ 2,266 2,173 2,869
-------- -------- --------
Total liabilities ........................ 108,605 59,771 36,268
-------- -------- --------
Commitments and Contingencies
Stockholders' equity:
Common stock ............................... 458 418 418
Additional paid-in capital ................. 30,445 27,713 27,762
Retained earnings .......................... 42,449 36,804 40,182
Accumulated other comprehensive loss ....... (576) (229) (334)
Treasury stock ............................. (586) (1,332) (702)
-------- -------- --------
Total stockholders' equity ............... 72,190 63,374 67,326
-------- -------- --------
Total liabilities and stockholders' equity $180,795 $123,145 $103,594
======== ======== ========
<FN>
* Derived from the December 31, 1999 audited consolidated balance sheet.
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
4
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<TABLE>
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
------------------- ------------------
September October September October
30, 2000 2, 1999 30, 2000 2, 1999
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Net sales ......................... $109,251 $94,001 $81,839 $54,425
Cost of goods sold ................ 89,760 75,657 66,317 43,386
--------- ------- ------- -------
Gross profit .................... 19,491 18,344 15,522 11,039
Rental revenue .................... 1,639 794 471 396
Gain on sale of real estate
investments ..................... 735 -- 5 --
--------- ------- ------- -------
21,865 19,138 15,998 11,435
Selling, general and
administrative expenses ......... (19,416) (16,880) (8,999) (6,587)
Gain on sale of manufacturing
facilities, net of impairment
and exit costs .................. 1,326 -- -- --
Gain on other sales of property
and equipment ................... 385 15 1 1
--------- ------- ------- -------
Income from operations ............ 4,160 2,273 7,000 4,849
Other income (expense):
Interest expense ................ (2,023) (1,448) (1,119) (761)
Interest income ................. 990 447 227 188
Miscellaneous ................... 262 601 (86) 265
--------- ------- ------- -------
Income before provision for income
taxes ........................... 3,389 1,873 6,022 4,541
Provision for income taxes ........ 1,100 375 950 730
--------- ------- ------- -------
Net income ...................... $ 2,289 $ 1,498 $ 5,072 $ 3,811
========= ======= ======= =======
Net income per share Basic ..... $0.55 $0.36 $1.18 $0.94
===== ===== ===== =====
Diluted ... $0.54 $0.35 $1.16 $0.90
===== ===== ===== =====
Weighted average number Basic ..... 4,177 4,116 4,299 4,055
===== ===== ===== =====
of shares outstanding Diluted ... 4,259 4,292 4,366 4,249
===== ===== ===== =====
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
5
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<TABLE>
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<CAPTION>
Nine Months Ended
-----------------------------------
September 30, 2000 October 2, 1999
------------------ ---------------
<S> <C> <C> <C> <C>
Net income ............................... $2,289 $1,498
Other comprehensive income (loss):
Foreign currency translation
adjustment ........................... (191) --
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on
securities arising during periods... ($113) $29
Reclassification adjustment for amounts
included in net income ............. 32 (93)
----- ---
Other comprehensive loss on securities (81) (64)
Income tax benefit on securities ..... 30 23
----- ---
Unrealized losses on securities -
net of tax....................... (51) (41)
------ ------
Comprehensive income ............. $2,047 $1,457
====== ======
Three Months Ended
-----------------------------------
September 30, 2000 October 2, 1999
------------------ ---------------
Net income ............................... $5,072 $3,811
Other comprehensive income (loss):
Foreign currency translation
adjustment ........................... (112) --
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on
securities arising during periods... ($49) ($56)
Reclassification adjustment for amounts
included in net income ............. 32 (48)
----- ---
Other comprehensive loss on securities (17) (104)
Income tax benefit on securities ..... 5 38
----- ---
Unrealized losses on securities -
net of tax....................... (12) (66)
------ ------
Comprehensive income ............. $4,948 $3,745
====== ======
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
6
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Nine Months Ended
------------------------
September October
30, 2000 2, 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income for periods .......................... $ 2,289 $ 1,498
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................. 2,586 3,462
Gain on sale of real estate investment ........ (735) --
Net gain on sale of manufacturing facilities .. (1,326) --
Gain on other sales of property and equipment . (385) (15)
Loss (gain) on sales of available-for-sale
securities .................................. 32 (93)
Deferred compensation costs for executive officers 91 100
Net change in operating assets and liabilities,.
net of effects of acquired/disposed companies:
Receivables ................................. (35,813) (17,902)
Inventories ................................. (8,631) (18,321)
Other assets ................................ (201) (370)
Accounts payable ............................ 3,447 780
Accrued expenses and other liabilities ...... 444 (82)
-------- --------
Net cash used in continuing operations ........ (38,202) (30,943)
Net cash provided by discontinued operations... -- 3,812
-------- --------
Net cash used in operating activities ......... (38,202) (27,131)
-------- --------
Cash flows from investing activities:
Cash used for business acquisition .............. (44,069) --
Capital expenditures ............................ (166) (798)
Proceeds from the sale of real estate investment. 990 --
Purchase of real property and other investments . (6,497) (3,646)
Proceeds from sale of manufacturing facilities .. 5,220 --
Proceeds from other sales of property and equipment 1,151 24
Purchases of available-for-sale securities ...... -- (307)
Proceeds from sales of available-for-sale securities 20 516
Loans and advances to investees ................. (1,807) (1,780)
Repayments of loans and advances by investees ... 2,161 196
Business purchase price adjustment -- (375)
-------- --------
Net cash used in investing activities (42,997) (6,170)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit - current.... 47,015 21,177
Proceeds from issuance of long-term debt ........ 14,101 1,257
Repayment of long-term debt ..................... (2,112) (1,260)
Payments of deferred compensation ............... (6) (6)
Proceeds from issuance of treasury stock ........ 94 226
Purchases of treasury stock ..................... -- (986)
-------- --------
Net cash provided by financing activities ..... 59,092 20,408
-------- --------
Net decrease in cash and cash equivalents ......... (22,107) (12,893)
Cash and cash equivalents - beginning of period ... 23,831 13,886
-------- --------
Cash and cash equivalents - end of period ......... $ 1,724 $ 993
======== ========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
September October
30, 2000 2, 1999
------------ -----------
<S> <C> <C>
Supplementary disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest ........................................... $1,463 $1,573
Income taxes ....................................... 367 (449)
Sale of investments to related party, settled by
forgiveness of certain liabilities owed to related
party by the Company ............................... 775 --
Settlement of purchase price dispute -
return of stock held in escrow ..................... -- 725
Long-term debt payment - sale of real property ....... 1,376 --
Long term debt payment - sale of manufacturing
facilities ......................................... 754 --
Note receivable from sale of manufacturing
facilities - net ................................... 4,828 --
Issuance of common stock for business acquisition .... 2,722 --
Issuance of subordinated notes payable for
business acquisition ............................... 2,100 --
<FN>
(The accompanying notes are an integral part of these financial statements.)
</FN>
</TABLE>
8
<PAGE>
HAMPSHIRE GROUP, LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 1. BASIS OF PRESENTATION
------------------------------
The unaudited consolidated financial statements include the accounts of
Hampshire Group, Limited and its subsidiaries, substantially all of which are
wholly-owned ("Hampshire Group" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by such generally accepted accounting principles for complete financial
statements.
In the opinion of the management of the Company, the unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair statement of the results
of operations for the interim periods presented. The results of operations for
interim periods are not indicative of the results that may be expected for a
full year due to the seasonality of the business. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 1999,
included in the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to data from the previous year to
conform with the presentation of the current year.
NOTE 2. ACQUISITION OF ASSETS AND BUSINESS OF ITEM-EYES, INC.
--------------------------------------------------------------
Hampshire Group, Limited, through its wholly owned subsidiary Vintage III, Inc.
("Vintage"), concluded the acquisition of substantially all of the assets and
business of Item-Eyes, Inc. ("Item-Eyes"), effective August 20, 2000.
Item-Eyes, a privately held sportswear company founded in 1978 by its former
owners, is a manufacturer and marketer of moderate-price, "missy" related
separates under its label, Requirements, and private labels of prestige
retailers. Net sales for 1999 were in excess of $100 million. Item-Eyes will
continue operating in an operational center and sales offices/showroom in New
York City and an administrative office in Hauppauge, New York. Under separate
five-year employment agreements, the three principals will remain with the
Company in similar capacities as they previously served: Mr. Martin Axman,
President and Chief Executive Officer; Mr. Marc Abramson, Vice President Sales;
and Ms. Ellen Becker, Vice President Design.
The acquired assets include all the machinery and equipment, furniture and
fixtures and leasehold improvements used in the operation of the business (other
than the New York corporate condominium owned by Item-Eyes); all current assets;
and all intangible assets of Item-Eyes (the "Assets"). The Company does not
intend to change the use of the acquired Assets.
The Company has accounted for the Item-Eyes acquisition as a purchase, applying
the provisions of Accounting Principles Board Opinion No. 16, Business
Combinations. The purchase price was allocated to the net assets acquired,
including the liabilities assumed as of August 20, 2000, based upon their
estimated fair values as of that date with the remainder being recorded as
9
<PAGE>
goodwill. An appraisal of the fair values of the assets acquired was not deemed
necessary considering that 96.6% of the tangible assets acquired were current
assets, primarily accounts receivable and inventories in trade. Additionally,
1.5% of the assets acquired were represented by cash surrender value of officers
life insurance policies. Of the $862,000 remaining tangible assets acquired,
more than 50% represented leasehold improvements which will be amortized over
the remaining life of the respective leases.
The assets were acquired for a total of $57,288,000 which was paid as follows:
Cash $13,000,000
Assumed liabilities - revolving credit line 31,069,000
Assumed liabilities - trade accounts payable, etc. 8,397,000
Issuance of subordinated notes payable 2,100,000
Issuance of Hampshire Group common stock 2,722,000
The Company also assumed the purchase commitments of Item-Eyes, which included
open orders for the purchase of inventory of approximately $5.8 million secured
by open letters of credit.
The issuance of 395,382 unregistered shares of Hampshire Group was recorded at
the fair value as of the date of issue based on the average closing price five
days prior to and five days subsequent to the acquisition date discounted 15%
due to the lack of marketability of the unregistered shares.
The allocation of the purchase price is subject to final determination based on
changes in certain estimates of the asset valuations and determination of
liabilities assumed that may occur within the first year of operations.
Management believes that there will not be material changes to the allocation of
the purchase price.
The cash portion of the consideration paid by the Company and the balance due
under the revolving credit line was obtained through loans under Hampshire
Group's senior secured revolving credit facility pursuant to the Amended and
Credit Agreement and Guaranty, dated September 5, 2000 and a term loan from
Merchants National Bank as more fully described in Note 7 below.
NOTE 3. SALE OF MANUFACTURING FACILITIES
-----------------------------------------
On April 28, 2000, Hampshire Group concluded a transaction whereby it sold all
of its sweater manufacturing assets to Glamourette/OG, Inc., a corporation
organized under the laws of the state of Puerto Rico ("Glamourette/OG"), with
its principal executive offices in Guaynabo, Puerto Rico. Glamourette/OG is a
subsidiary of Olympic Mills Corporation, a Delaware corporation ("Olympic
Mills"), neither of which are related to the Company.
The assets sold include the sweater manufacturing facilities of the Company's
subsidiary Glamourette Fashion Mills, Inc., located in Quebradillas, Puerto Rico
and the machinery and equipment of San Francisco Knitworks, Inc., located in San
Francisco, California, Natalie Knitting Mills, located in Chilhowie, Virginia
and Winona Knitting Mills, located in Winona, Minnesota. The Company also sold
certain equipment located at a contractors plant in Mexico and property located
in Winona, Minnesota, which resulted in gains totaling approximately $385,000.
In addition to the machinery and equipment, assets sold include the inventories,
other than finished goods, and certain other assets of the respective
operations.
10
<PAGE>
The sales price for the machinery and equipment was $10,468,000 and was paid
$4,000,000 cash and a non-interest bearing promissory note in the amount of
$8,000,000 discounted to $6,468,000 at 8.75% per annum for imputed interest
("the 8.75% Note"). The 8.75% Note is payable over a five-year period by a
deduction of $0.67 per sweater purchased from Glamourette/OG or is payable in
cash. The 8.75% Note is partially collateralized by the machinery and equipment
which was sold pursuant thereto and by the pledge of the common stock of
Glamourette/OG, Inc. The machinery and equipment sold had a net book value of
approximately $3,956,000. Of the proceeds received approximately $754,000 was
used to pay off loans outstanding against the machinery and equipment sold. Due
to the term of this note and related factors, the Company has established a
valuation reserve of $1,600,000 for the 8.75% Note.
In order to avoid interruption of supply, an orderly transition was planned and
Glamourette/OG took possession only of the Puerto Rico facility on the Closing
Date. The Asset Purchase Agreement provides that the Company will continue to
operate the three domestic manufacturing facilities for varying periods of up to
ten months. During the transition period, the Company will continue to pay all
related operating expenses and as compensation for the use of the machinery and
equipment, will credit the 8.75% Note for $0.67 per sweater manufactured in the
domestic facilities. Management expects to complete the transfer of the domestic
facilities by December 31, 2000.
The inventories in Puerto Rico on the Closing Date, including work in process,
raw materials and supplies totaling $2,321,000, were sold to Glamourette/OG at
cost, which was paid 50% cash and the balance to be paid by deduction of 50% of
purchase price of sweaters shipped to the Company in the second quarter of the
year, after deduction of the $0.67 to be applied as a reduction of the 8.75%
Note.
Concurrently, the Company purchased a 1% equity interest in Glamourette/OG, Inc.
for $40,000, which purchase price was paid in full by reduction of the 8.75%
Note. The Company has an option to "put" its interest at anytime to Olympic
Mills for $40,000; and Olympic Mills has a right to purchase the Company's
interest for $40,000 at any time after the 8.75% Note is paid in full.
Collection of the 8.75% Note is largely conditional on a long term "supply
agreement" whereby the Company can purchase manufactured sweaters from
Glamourette/OG at a defined price for up to five years and/or 12,000,000
sweaters. Due to the competitive market in the sweater industry and potential
changes to international trade policies, the Company has established a $1.6
million valuation allowance against the 8.75% Note.
From the sale of the manufacturing equipment, the Company has recognized a net
gain of $1,326,000. The reported gain is after establishing the previously
referenced reserve on the 8.75% Note and reserves for estimated costs and
expenses that will be incurred as the Company exits the domestic manufacturing
facilities. Included in the exit costs and expense reserve, totaling $1,912,000,
are estimated severance and benefit costs, future lease obligation and other
commitments, net of estimated subleases, and other projected costs related to
the shut-down of these facilities. Additionally, netted against the gain, is an
asset impairment charge in the amount of $1,674,000 for the impairment of
certain leasehold improvements and goodwill of the facilities to be exited.
11
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NOTE 4. INVENTORIES
---------------------
A summary of inventories by component is as follows:
(in thousands)
September October December
30, 2000 2, 1999 31, 1999
-------- ------- --------
Finished goods $44,667 $32,403 $14,072
Work-in-progress 6,768 3,945 2,503
Raw materials and supplies 3,768 4,701 2,626
------- ------- -------
55,203 41,049 19,201
Less - LIFO reserve (1,407) (1,939) (1,801)
------- ------- -------
Inventories - net $53,796 $39,110 $17,400
======= ======= =======
NOTE 5. TRADING SECURITIES HELD IN RETIREMENT TRUST
----------------------------------------------------
Under a plan adopted by the Company in 1997, senior executives of the Company
are permitted to defer annually a portion of their compensation. These deferrals
are invested in certain mutual funds which have been classified as non-current
trading securities to correspond with the related long-term deferred
compensation liability.
NOTE 6. INTANGIBLE ASSETS
--------------------------
Intangible assets consist primarily of goodwill which is being amortized over
ten to fifteen years on the straight-line basis.
Activity in intangible assets for the nine months ended September 30, 2000 and
October 2, 1999 is summarized in the table below.
(in thousands) September 30, 2000 October 2, 1999
------------------ ---------------
Balance - beginning of periods ............ $2,553 $3,390
Addition from Item-Eyes acquisition ....... 8,651 --
Purchase price adjustment ................. -- (350)
Amortization during periods ............... (422) (341)
Write-off of goodwill related to disposal
of manufacturing facilities ............. (819) --
------ -------
Balance - end of periods $9,963 $2,699
====== ======
NOTE 7. CREDIT FACILITIES
--------------------------
To provide a portion of the purchase price for the acquisition of Item-Eyes and
additional working capital necessary to operate the combined business, the
Company, on September 5, 2000, signed a three-year credit agreement (the
"Revolving Credit Agreement") with a consortium of six participating commercial
banks, The Chase Manhattan Bank ("Chase"), HSBC Bank of USA, The CIT
Group/Commercial Services, Inc., Fleet National Bank, Israel Discount Bank of
New York and Bank of America, N.A. (collectively the "Banks"). Chase serves as
agent for the Banks. The credit facility, with a termination date of August 31,
2003, consists of a $97.9 million combined line of credit and letter of credit
facility, with a termination date of August 31, 2003.
Advances under the line of credit are limited to the lesser of: (1) $97,937,500
less outstanding letters of credit; or (2) an amount equal to the sum of 85% of
eligible account receivables, 50% of eligible inventory (subject to seasonal
12
<PAGE>
limits), 50% of outstanding eligible letters of credit issued pursuant to the
credit facility, plus a seasonal supplemental amount of up to $17 through
October 31, 2000 and up to $24 million from April 1, 2001 through September 29,
2001.
Advances under the facility bear interest at either the bank's prime rate or, at
the option of the Company, a fixed rate of LIBOR, plus 2.25%, for a fixed term,
in increments of $2,500,000. Additionally the Company shall pay to the Banks a
commitment fee at a rate equal to one eighth of one percent for the unused
portion of the line under the credit facility. The loan is collateralized pari
passu with the Senior Notes by the trade accounts receivable and inventories of
Hampshire Designers and its subsidiaries and Item-Eyes (formerly Vintage III).
The Company has also pledged as collateral a $5 million insurance policy on the
life of its Chairman and 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.
The Revolving Credit Agreement contain covenants which require certain financial
performance and restrict certain payments by the Company and the Restricted
Subsidiaries (defined as Hampshire Designers, Inc. and its subsidiaries and
Item-Eyes), including advances to the Company's non-restricted subsidiary,
defined as Hampshire Investments, Limited. The covenants require the Company and
the Restricted Subsidiaries to maintain, among other things; (1) a minimum
consolidated tangible net worth; (2) a consolidated leverage ratio; (3) a
consolidated fixed charge coverage ratio; (4) a minimum consolidated interest
coverage ratio. The agreement also limits the Company and it's Restricted
Subsidiaries capital expenditures to $1 million per fiscal year, the repurchase
of treasury stock in an aggregate amount of $600,000 and limits the Company's
investment in the unrestricted subsidiary to $25.6 million.
At the end of the third quarter, the Company had cash advances against the
credit line of $55,015,000 and outstanding letters of credit of $19.5 million.
The Company had approximately $19.7 million available for advances or letters of
credit, under the facility. Of the outstanding balance the Company has
classified $8.0 million as long term, which is the amount the Company expects to
be the minimum outstanding balance for the next twelve months. The Company was
in compliance with all loan covenants at September 30, 2000.
The Company maintains, with two other banks, credit facilities of $2.0 million
each. These lines are restricted for use as international letters of credit and
are limited to an outstanding balance of a combined aggregate amount of $2.0
million by the Revolving Credit Agreement. As of September 30, 2000 the balance
outstanding against these two credit facilities was approximately $1.3 million.
Based on a term sheet approved on June 2, 2000, Hampshire Group closed on a
five-year term loan with Merchants National Bank, Winona, Minnesota for $3
million on September 20, 2000. The $3 million loan was part of the long-term
financing of the acquisition of Item-Eyes. The note bears interest at the bank's
prime rate plus 0.25% per annum, adjustable annually on the anniversary of the
loan. The agreement provides for repayment of the loan in nine semi-annual
installments of $301,941 each, commencing March 20, 2001 but may be prepaid
without penalty. The loan covenants for this loan are the same Revolving Credit
Agreement with which, as of September 30, 2000, the Company was in compliance.
13
<PAGE>
NOTE 8. SENIOR NOTES
---------------------
Hampshire Group and its subsidiaries, including Item-Eyes, on September 5, 2000,
entered into Amendment No. 1 (the "Amendment") to the Note Purchase Agreements,
dated as of May 15, 1998, among Hampshire Group Limited, Hampshire Group's
subsidiaries, Phoenix Home Life Mutual Insurance Company and the Ohio National
Life Insurance Company, with respect to the $15,000,000 aggregate principal
amount, Senior Secured Notes due January 2, 2008 (the "Senior Notes").
The Amendment provides for, among other things, changes in i) the applicable
interest rate from 7.05% per annum to an adjustable rate of 8% effective
September 5, 2000 (which rate shall be increased to 9% per annum in the event of
a default under either the Senior Note Agreement or the Revolving Credit
Agreement), and ii) the principal amortization schedule from seven annual
installments of $2,142,857 commencing January 2, 2002, to a payment of $937,500
upon closing pursuant to the Amendment and 15 semi-annual installments of
$937,500 each, commencing January 2, 2001. In consideration of the above, the
Senior Note holders waived receipt of any portion of the proceeds from the
Company's sale of its manufacturing facilities on April 28, 2000. The amended
agreement limits the Company and its restricted subsidiaries to repurchase
treasury stock in the amount of $600,000 and restricts additional investments in
the unrestricted subsidiary in the same amount as the Revolving Credit
Agreement.
The Senior Notes are collateralized pari passu with the Company's Amended Credit
Agreement and Guaranty. The Senior Notes agreement, as amended, contains
covenants which require certain financial performance and restrict certain
payments by the Company and the Restricted Subsidiaries, defined as Hampshire
Designers, Inc. and its subsidiaries. The Company was in compliance with these
covenants at September 30, 2000.
NOTE 9. RECENT ACCOUNTING STANDARDS
------------------------------------
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. SFAS No. 137 delayed implementation of the statement and as a
result, it will become effective for the Company for the year commencing January
1, 2001. Management of the Company has not yet completed its evaluation of the
effects of SFAS 133 on the Company's financial position, results of operations
or cash flows; however, the Company does not presently believe that there will
be any significant effect from the adoption of this new standard.
14
<PAGE>
<TABLE>
NOTE 10. INDUSTRY SEGMENTS AND DATA BY GEOGRAPHICAL AREAS
----------------------------------------------------------
The Company operates in two industry segments - Apparel and Investments. The
Apparel 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. Although the Company sells sweaters throughout the year, the
sweater business is highly seasonal, with more than 70% of sales occurring in
the third and fourth quarters. The Investments segment makes investments both
domestically and internationally, principally in real property.
<CAPTION>
Industry Segment Data Nine Months Ended
------------------
September October
30, 2000 2, 1999
--------- -------
<S> <C> <C> <C>
Net sales Apparel.......... $109,251 $94,001
Rental revenue and gain
on real estate investment Investments ..... 2,374 794
------------------------
$111,625 $94,795
------------------------------------------------------------------------------
Gross profit Apparel ......... 19,491 18,344
(as a percent of net sales) 17.8% 19.5%
------------------------------------------------------------------------------
Revenue by geographic area United States ... $110,938 $94,612
Russia .......... 299 183
Europe .......... 388 --
------------------------
$111,625 $94,795
------------------------------------------------------------------------------
Income (loss) from operations Apparel.......... $2,948 $3,620
Investments ..... 1,239 210
Corporate ....... (1,738) (1,572)
Gain on sale of equipment
& plant closings ................................. 1,711 15
------------------------
$4,160 $2,273
------------------------------------------------------------------------------
Capital expenditures Apparel ......... $157 $789
Investments ..... 3 --
Corporate ....... 6 9
------------------------
$166 $798
------------------------------------------------------------------------------
Depreciation and amortization Apparel ......... $1,884 $3,096
Investments ..... 531 348
Corporate ....... 171 18
------------------------
$2,586 $3,462
------------------------------------------------------------------------------
15
<PAGE>
(continued)
Industry Segment Data Three Months Ended
------------------
September October
30, 2000 2, 1999
--------- -------
<S> <C> <C> <C>
Net sales Apparel.......... $81,839 $54,425
Rental revenue and gain
on real estate investment Investments ..... 476 396
------------------------
$82,315 $54,821
------------------------------------------------------------------------------
Gross profit Apparel ......... 15,522 11,039
(as a percent of net sales) 19.0% 20.3%
------------------------------------------------------------------------------
Revenue by geographic area United States ... $82,115 $54,676
Russia .......... 92 145
Europe .......... 108 --
------------------------
$82,315 $54,821
------------------------------------------------------------------------------
Income (loss) from operations Apparel.......... $7,603 $5,247
Investments ..... 100 94
Corporate ....... (704) (493)
(Gain) loss on sale of equipment
& plant closings ................................. 1 1
------------------------
$7,000 $4,849
------------------------------------------------------------------------------
Capital expenditures Apparel ......... $18 $122
Investments ..... 2 --
Corporate ....... -- 4
------------------------
$20 $126
------------------------------------------------------------------------------
Depreciation and amortization Apparel ......... $386 $999
Investments ..... 184 213
Corporate ....... 57 6
------------------------
$627 $1,218
------------------------------------------------------------------------------
Industry Segment Data (continued) Sept. 30, Oct. 2, Dec. 31,
2000 1999 1999
-------- ------ -------
<S> <C> <C> <C> <C>
Long-lived assets United States.. $16,366 $19,925 $20,970
Russia ........ 4,073 2,476 2,766
Europe ........ 4,190 806 2,951
----------------------------
$23,629 $23,207 $26,687
-------------------------------------------------------------------------------
Long-term investments - net United States . $3,226 $2,789 $2,268
Russia ........ 131 131 131
Europe ........ 2,138 2,502 2,138
----------------------------
$5,495 $5,422 $4,537
-------------------------------------------------------------------------------
Total identifiable assets Apparel .......$143,529 $94,242 $52,212
Investments ... 28,113 20,248 24,015
Corporate ..... 9,153 8,655 27,367
----------------------------
$180,795 $123,145 $103,594
-------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This quarterly report on Form 10-Q contains forward-looking information and
statements that involve risks and uncertainties. Such forward-looking statements
include, but are not limited to, statements regarding the results of operation.
The Company's actual results, performance or achievements could differ
materially from the results expressed in or implied by these forward-looking
statements which are made only as of the date hereof.
RESULTS OF OPERATIONS
Nine Month Periods Ended September 30, 2000 and October 2, 1999
---------------------------------------------------------------
Effective August 20, Hampshire Group, Limited (the "Company"), through its
wholly owned subsidiary Vintage III, Inc., concluded the acquisition of
substantially all the assets and business of Item-Eyes, Inc., a privately held
sportswear company; and accordingly the operating results of this subsidiary
(the "Acquired Business") have been included in the reported results of the
Company subsequent to that date. The previously owned business is referred to
herein as the existing business ("Existing Business"). Refer to Note 2 to the
enclosed financial statements for more detail on the specifics of the
transaction.
Consolidated net sales for the Company for the nine months ended September 30,
2000, were $109,251,000, compared with $94,001,000 for the same period in 1999.
The Acquired Business accounted for $22,878,000 of the increase in net sales,
while the net sales of the Existing Business of the Company declined 8.1%. Of
the decrease 1.7% resulted from decline in unit volume and 6.4% from lower unit
prices. Industry wide, the retail sweater market was soft during the Spring
season due to the unusually warm winter experienced throughout the country. The
low sweater demand during the Spring season, experienced equally across the
Company in both the men's and women's lines, coupled with the decision by the
Company not to pursue the branded knit shirt business for the Spring season,
were the primary causes for the reduction in volume in the Company's Existing
Business. Shipments for the fall season for the Acquired Business are strong
with both basic and novelty product showing strong sell-through at retail.
The flat market and increased competition negatively affected product pricing
for the Company's existing business. While this had a significant impact during
the first two quarters, price pressure from the retail community continued to
result in lower sales prices in the third quarter.
Revenues of Hampshire Investments, Limited were $1,639,000 for the nine months
ended September 30, 2000, an increase of $845,000 from the $794,000 reported for
the same period in 1999. The increase resulted primarily from the larger
percentage of real property units being renovated and leased in late 1999 and
during 2000. Additionally the investment segment, during the second quarter of
2000, reported a gain of approximately $735,000 from the sale of a domestic real
property investment.
Gross margin for the Company's apparel segment for the first nine months of 2000
was 17.8% of net sales, compared with 19.5% in the prior year for the same time
period. The weak demand for sweater products during the first six months of the
16
<PAGE>
year, and continued price pressure in an already very competitive market,
contributed significantly to the lower gross margin. Additionally, decreased
volume during the first two quarters resulted in manufacturing inefficiencies
adversely impacting margins and are expected to continue to have an impact
throughout the remainder of 2000, as the manufacturing facilities are closed.
Management expects that the domestic manufacturing facilities will be closed by
the end of the year.
Selling, general and administrative expenses ("SG&A") for the apparel segment of
the Company were $16,543,000 for the first nine months in 2000, compared with
$14,724,000 for the same period in 1999. The SG&A of the Acquired Business
during the third quarter and the expenses of launching the Dockers line were
the primary reasons for the increase. As a function of net sales, operating
expenses for the apparel segment were 17.8% for the nine months ended September
30, 2000 compared with 18.0% for the same period of the previous year.
During the second quarter of 2000, the Company consummated a transaction to sell
its sweater manufacturing assets to Glamourette/OG, Inc., a Puerto Rican
corporation. The accounting for this sale resulted in a gain of $1,326,000,
after recognizing $1,912,000 of estimated exit costs associated with closing the
domestic manufacturing facilities and recording of impairment charges of
$855,000 for fixed assets and $819,000 for goodwill. (This transaction is
explained in more detail in Note 3 of the financial statements filed herewith.)
The Company also sold certain equipment located at a contractors plant in Mexico
and property located in Winona, Minnesota, which resulted in gains totaling
approximately $385,000.
SG&A expenses of the investment segment were $1,093,000 and $584,000 for the
first nine months of 2000 and 1999, respectively. The increase resulted
primarily from added operating expenses for acquired property and additional
depreciation expense. Depreciation in the investment segment for the first nine
months of 2000 was $531,000, compared with $348,000 for the same period in 1999.
Interest expense for the Company during the first nine months of 2000 was
$2,023,000, compared with $1,448,000 for the same period in 1999. Approximately
$317,000 of this increase resulted from the additional financing on investment
properties acquired subsequent to the third quarter of 1999. The balance of the
increase in interest expense related primarily to the financing costs for the
acquisition of Item-Eyes.
Interest income for the Company was $990,000 for the first nine months of 2000,
compared with $447,000 for the same period in 1999. The additional interest
income resulted principally from the increase in cash position the Company
during the first eight months of 2000. Also reflected in the interest income is
approximately $240,000 of interest on payments made against the promissory note
received in connection with the sale of the manufacturing facilities, explained
in more detail in Note 3 of the financial statements filed herewith.
The Company reported other income for the nine months ending September 30, 2000
of $262,000, compared to other income for the same period in 1999 of $601,000.
The difference of approximately $339,000 resulted primarily from a $26,000
unrealized market loss on the securities held in the Company's Deferred
Compensation Plan reported during the first nine months of 2000 compared to a
$176,000 unrealized market gain for the same period in 1999, a decrease of
$200,000, and the realized gain in 1999 of approximately $210,000 on a collected
note.
The effective income tax rate of 32.5% for the first nine months of the current
year, as compared to an effective rate of 20% for the same period of the prior
year resulted primarily from two factors. Firstly, a larger percentage of the
taxable income being generated in the United States during 2000 versus 1999 when
a larger percentage of the taxable income was generated by Glamourette Fashion
Mills in Puerto Rico and such income was exempt from US federal income tax.
Secondly, the Company is subjected to taxes on the gain on sale of the
manufacturing facilities in 2000.
17
<PAGE>
Three Month Periods Ended September 30, 2000 and October 2, 1999
----------------------------------------------------------------
Net sales for the Company for the third quarter of 2000, were $81,839,000,
compared to $54,425,000 for the same period in 1999. Of this increase
$22,878,000 resulted from the net sales generated by the Acquired Business. The
remaining $4,536,000 increase resulted from a 13.6% increase in unit volume,
offset by a 5.2% decrease in unit price of the Existing Business of the Company.
The increase in volume, in all lines of the Company's Existing Business,
reflects the continuing shift of shipments of product to customers in the third
and fourth quarters of the year. This concentration of shipments in the second
half of the year is due to the retailers' efforts to have all of their suppliers
in the "Quick Response" mode to maximize sales with a quick inventory turn.
Revenues of Hampshire Investments, Limited for the third quarter of 2000 were
$471,000 compared to $396,000 for the third quarter of 1999, a 18.9% increase.
The increase resulted primarily from the larger percentage of the real property
units being leased in 2000 and from additional real property acquisitions made
after the end of the third quarter in 1999.
Gross profit, as a function of net sales, for the third quarter of 2000 was
19.0% compared with 20.3% for the prior year. For the third quarter, the
Acquired Business contributed a gross margin of 21.0%. Strong sales in their
novelty lines and success achieved in sourcing apparel in overseas markets
favorably influenced the gross margin. The gross margin of the Company's
previously Existing Business decreased 1.9%, due primarily to the manufacturing
inefficiencies of the domestic manufacturing facilities and delayed shipment of
higher margin holiday apparel historically shipped in the third quarter.
SG&A expenses for the Apparel segment for the quarter ended September 30, 2000,
were $7,919,000, compared with $5,792,000 for the same period of 1999. The
increase primarily resulted from the SG&A expenses of the Acquired Business. The
balance of the increase relates primarily to variable expenses from the
increased volume achieved by the Company's previously Existing Business.
For the quarter ending September 30, 2000, the Company reported other expenses
of $86,000, compared to other income for the same period in 1999 of $265,000.
The difference of approximately $351,000, resulted primarily from a $85,000
unrealized market loss on the securities held in the Company's Deferred
Compensation Plan reported in the third quarter of 2000 compared to a $17,000
unrealized market gain for the same period in 1999, a change of $119,000, and
the realized gain in 1999 of approximately $210,000 on a collected note.
SEASONALITY
-----------
Historically the Company has experienced more than seventy percent of its
apparel sales during the second half of the year. With the acquisition of the
Acquired Business, the Company believes that the seasonality of sales will
continue to 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
18
<PAGE>
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 nine months ended September 30, 2000,
totaled $38,202,000, which was used primarily for the accumulation of inventory
for shipments to occur later in the year and accounts receivable from shipments
made late in the third quarter.
Cash used for investing activities totaled $42,997,000, primarily used for the
acquisition of Item-Eyes in the amount of $44,069,000 (also see Note 2), offset
by $5,220,000 received from the previously discussed sale of the manufacturing
facilities. The Company had proceeds from the sale of other assets of
$2,141,000, including the proceeds from the sale of real property in the
investment segment of the business. Capital expenditures for the first nine
months of 2000, were $162,000 and there are no significant outstanding
commitments for capital expenditures.
During the first nine months of 2000, Hampshire Investments made real property
and long-term investments of $6,497,000. Long-term financing was arranged during
the second quarter for some of the investment projects, which resulted in
proceeds from long-term debt in the amount of $2,526,000.
Partially to finance the acquisition of Item-Eyes and to fund the operating
capital, the Company negotiated a three-year revolving credit facility with a
consortium of commercial banks headed by The Chase Manhattan Bank ("Chase"). The
three-year credit facility, which expires August 31, 2003, provides a secured
combined line of credit and letter of credit facility of a $97,937,500. Advances
under the line of credit are limited to the lesser of: (1) $97,937,500 less
outstanding letters of credit; or (2) the sum of 85% of eligible account
receivables, 50% of eligible inventory (subject to seasonal limits), 50% of
outstanding eligible letters of credit issued through this credit facility plus
a seasonal supplemental amount of up to $17 million through October 31, 2000 and
up to $24 million from April 1, 2001 through September 29, 2001.
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 2.25% for a fixed term.
Additionally the Company shall pay to the banks a commitment fee at a rate equal
to one eighth of one percent for the unused portion of the line under the credit
facility. The loan is collateralized pari passu with the Senior Notes by the
trade accounts receivable and inventories of Hampshire Designers and Item-Eyes.
The Company has pledged as additional collateral, a $5 million insurance policy
on the life of its Chairman and 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 third quarter, the Company had an
outstanding balance against the credit line of approximately $55 million,
outstanding letters of credit were approximately $19.5 million and the Company
had approximately $19.7 million available under the facility. Of the outstanding
balance the Company has classified $8.0 million as long term, the amount deemed
to be outstanding in excess of twelve months. The Company was in compliance with
all loan covenants at September 30, 2000.
Based on a term sheet approved on June 2, 2000, Hampshire Group closed on a
five-year term loan with Merchants National Bank, Winona, Minnesota for $3
million on September 20, 2000. The $3 million loan was part of the long-term
financing of the acquisition of Item-Eyes. The note bears interest at the bank's
prime rate plus 0.25% per annum, adjustable annually on the anniversary of the
loan. The agreement provides for repayment of the loan in nine semi-annual
installments of $301,941 each, commencing March 20, 2001 but may be prepaid
without penalty. The loan covenants for this loan are the same as for the
Revolving Credit Agreement
19
<PAGE>
with which, as of September 30, 2000, the Company was in compliance. The Company
maintains, with two other banks, credit facilities of $2.0 million each. These
lines are restricted for use as international letters of credit and are limited
to an outstanding balance of a combined aggregate amount of $2.0 million by the
Revolving Credit Agreement. As of September 30, 2000 the balance outstanding
against these two credit facilities was approximately $1.3 million.
Hampshire Group and its subsidiaries, including Item-Eyes, also entered into
Amendment No. 1, dated September 5, 2000 (the "Amendment"), to the Note Purchase
Agreements, dated as of May 15, 1998, among Hampshire Group Limited, Hampshire
Group's subsidiaries, Phoenix Home Life Mutual Insurance Company and the Ohio
National Life Insurance Company, with respect to the $15,000,000 aggregate
principal amount, Senior Secured Notes due January 2, 2008 (the "Senior Notes").
The Amendment provides for, among other things, changes in i) the applicable
interest rate from 7.05% to an adjustable rate of 8% effective September 5,
2000, (which rate shall be increased to 9% per annum in the event of a default
under either the Senor note Agreement or the Revolving Credit Agreement), and
ii) the principal amortization schedule from seven annual installments of
$2,142,857 commencing January 2, 2002, to a payment of $937,500 upon closing and
15 semi-annual installments of $937,500 each, commencing January 2, 2001. In
consideration of the above, the Senior Secured Note Holders waived receipt of
any portion of the proceeds from the sale of the Company's manufacturing
facilities on April 28, 2000. The agreement's covenants were amended, requiring
a minimum fixed charged coverage ratio and a provision in the funded debt to
capitalization ratio to include a minimum on the Revolving Credit Debt of 45
consecutive days during any twelve consecutive calendar months.
RECENT ACCOUNTING STANDARDS
---------------------------
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. SFAS No. 137 delayed implementation of the statement and as a
result, it will become effective for the Company for the year commencing January
1, 2001. Management of the Company has not yet completed its evaluation of the
effects of SFAS 133 on the Company's financial position, results of operations
or cash flows; however, the Company does not presently believe that there will
be any significant effect from the adoption of this new standard.
COMPANY STRATEGY
----------------
The Company believes it has made major progress in positioning itself for the
future from both the completed sale of the manufacturing facilities and the
acquisition of Item-Eyes.
With the sale of the manufacturing facilities and finalizing the exit from these
operations, the Company believes it has enhanced its flexibility to utilize any
of a number of worldwide manufacturing sources to enhance the product lines that
can be offered to its customers. With the established international sourcing
network and negotiated supply agreement with the purchaser of the manufacturing
facilities, the Company believes it will be able to provide its customers with
better service and a diversified, cost competitive product line.
The acquisition of Item-Eyes complements the Company's long-term strategy in
diversification of apparel product line, while broadening the Company's
international sourcing network.
20
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The long term debt of the Company is at fixed interest rates which were at
market when the debt was issued, but are primarily below market at September
30,2000. The short-term debt of the Company has variable rates based on the
prime interest rate of the lending institution, or at the option of the Company,
a fixed rate based on LIBOR for a fixed term. As of September 30, 2000,
$47,000,000 of the $55,015,000 outstanding loans under the revolving credit
agreement had been borrowed under LIBOR rates from 8.19% to 8.91% for a fixed
term.
In purchasing sweaters from foreign manufacturers, the Company uses letters of
credit which require the payment of dollars upon receipt of bills of lading for
the sweaters. Prices are fixed in US dollars at the time the letters of credit
are issued.
With the exception of its 70% owned subsidiary, Hampshire Praha in the Czech
Republic, the Company does not issue or own foreign indebtedness. Hampshire
Investments either purchases foreign-based assets with US dollars, or with
foreign currency purchased with US dollars. All real properties owned by
Hampshire Investments and located outside the United States, with the exception
of properties owned by Hampshire Praha in the Czech Republic which are leased in
German DM, are leased for US dollars and not in a foreign currency. Hampshire
Praha lease proceeds are received in German DM. The primary market risk which
Hampshire Investments has with respect to foreign currencies is the impact that
fluctuations in such currencies have on the businesses of the lessees of such
real property and on the foreign-based businesses and the foreign-based funds in
which Hampshire Investments owns equity securities.
<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, results of operations, or cash flows.
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 30, 2000.
Item 5 is not applicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
----------- ---------------------------------------------------
(27) Financial Data Schedule (electronic filing only)
b) Reports on Form 8-K filed during the quarter.
A report on Form 8-K/A was filed on July 10, 2000 regarding
"Disposition of Assets" of the manufacturing facilities, amending a
report on Form 8-K filed on May 11, 2000.
A report on Form 8-K was filed on July 10, 2000 regarding "Other
Events" announcement of the acquisition of Item-Eyes, Inc.
A report on Form 8-K was filed on September 15, 2000 regarding
"Acquisition of Assets" of Item-Eyes, Inc.
A report on Form 8-K/A was filed on November 9, 2000 regarding
"Acquisition of Assets" and "Financial Statements" of Item-Eyes, Inc.,
amending the report on Form 8-K filed on September 15, 2000
22
<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 10, 2000 /s/ Ludwig Kuttner
----------------- -------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 2000 /s/ Charles W. Clayton
----------------- -------------------------------
Charles W. Clayton
Vice President, Secretary, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
23
