UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934. For the fiscal year ended December 31, 2003.
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 29625-1303
------------------------------------------------------------------------
(Address, Including Zip Code, of Registrant's Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code ) (864) 225-6232.
Securities registered pursuant to Section 12(b) of the Act: (Title of class)
None.
Securities registered pursuant to Section 12(g) of the Act: (Title of class)
Common Stock, $0.10 Par Value.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates based on the closing price of $30.11 on the last business day of the
second fiscal quarter (June 27, 2003), was approximately $72,000,000. Shares of
Common Stock held, directly or indirectly, by each director and executive
officer of the Company have been excluded in that such persons are deemed to be
affiliates.
As of March 22, 2004, the Registrant had outstanding 4,081,971 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
HAMPSHIRE GROUP, LIMITED
2003 ANNUAL REPORT
Table of Contents
Page
----
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 20
Item 9A. Controls and Procedures 20
Part III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 21
Item 13. Certain Relationships and Related Transactions 21
Item 14. Principal Accountant Fees and Services 21
Part IV
Item 15. Exhibits, Financial Statement Schedule
and Reports on Form 8-K 22
Signature Page 24
Certifications 25
Independent Auditors' Report F-2
Consolidated Financial Statements F-3
Notes to Consolidated Financial Statements F-7
Quarterly Financial Data F-23
Financial Statement Schedule F-24
2
PART I
ITEM 1 - BUSINESS
GENERAL
- -------
Hampshire Group, Limited ("Hampshire Group" or the "Company"), a Delaware
corporation, is an apparel company that operates through its wholly-owned
subsidiaries Hampshire Designers, Inc. ("Hampshire Designers") and Item-Eyes,
Inc. ("Item-Eyes"). Hampshire Designers is the largest designer and marketer of
sweaters in North America and Item-Eyes is a leading designer and marketer of
related separates. Both Hampshire Designers and Item-Eyes source the manufacture
of their products through an international network of quality manufacturers.
Hampshire Group, through a predecessor firm, has been engaged in the design,
manufacture (until the sale of all manufacturing facilities in 2000), and
marketing of sweaters since 1956. Item-Eyes has been engaged in the apparel
business since 1978.
On October 8, 2003, the Company disposed of its investment subsidiary, Hampshire
Investments, Limited ("HIL") after the Board of Directors (the "Board")
determined that the Company should concentrate on the apparel business. The
transaction was handled by a special committee of the Board, consisting solely
of independent directors, because Ludwig Kuttner, Chairman and Chief Executive
Officer, and other members of management of the Company participated as
purchasers of HIL. HIL made investments both domestically and internationally,
principally in real property. (See Item 7 for Discontinued Operations.)
STRENGTHS AND STRATEGY
- ----------------------
The Company's primary strength is its ability to design, develop, source and
deliver quality products within a given price range, while providing superior
levels of customer service. The Company has developed an international sourcing
abilities to broaden its product lines and to deliver quality merchandise at a
competitive price.
The process for the design and development of the Company's products depends on
whether the product is branded or private-label. In the branded business, the
products first are designed by the Company's experienced design team,
incorporating aspects of the latest fashion trends together with the consistent
appeal of the brand name. These products are further refined in collaboration
with manufacturers, resulting in a high-quality product to meet specified price
levels. For private-label business, the products are designed by the Company for
approval by the retailers under whose brand the products will be marketed.
- -------------------------------------------------------------------------------
Cautionary Disclosure Regarding Forward-Looking Statements
When used in this document in general and in the Outlook Section of Management's
Discussion and Analysis in particular, the words "expects", "anticipates" and
similar expressions are intended to identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company, (including the risks that results from the expiration of quota system
on products entering the US as set forth in "Governmental Regulation and Trade
Agreements" under Item I on page 6 hereof) which attempt to advise interested
parties of the factors that affect the Company's business, in this report, as
well as the Company's other filings under the Securities Exchange Act of 1934.
- -------------------------------------------------------------------------------
3
The quality of the Company's garments is ensured in a variety of ways. Each
garment is manufactured using the finest quality yarns and each must undergo a
rigorous quality assurance program. In some instances, multi-staged inspection
processes, including direct field audits, are performed by Company personnel,
and from time to time by customers' quality control personnel. In international
sourcing, the Company, in addition to its own personnel, utilizes factory
personnel, sourcing agents, inspection agencies and independent test labs to
assure that the products meet our high quality standards and the standards
required by our customers.
The Company's domestic distribution facilities, using the Company's Quick
Response program and an Electronic Data Interchange ("EDI") system, are linked
electronically to most of the Company's customers. All distribution is
coordinated through domestic facilities, including goods sourced from the Far
East, which are distributed primarily through public warehouses strategically
located in California, improving delivery time. By providing just-in-time
delivery of merchandise through the strategically located distribution
facilities in the United States and through sophisticated order fulfillment
techniques, the Company provides an essential service to its customers.
The acquisition of the Item-Eyes business in August 2000 fit within the
Company's long-term strategies of building a more diversified apparel company.
With a broad line of women's woven and knit related separates, the Item-Eyes
acquisition expanded the Company's product lines, moved the Company into new
market areas with its customers, and increased the Company's global sourcing
capabilities through inclusion of a Central America sourcing network.
ORGANIZATION
- ------------
The Company is an apparel company whose principal products are women's and men's
branded and private-label sweaters and women's woven and knit related separates.
The Company is a major supplier to the moderate-price sector of department
stores and sells to mass merchandisers, specialty retail stores and catalog
companies.
Product Lines
- -------------
The Company has significantly expanded its product lines. A decade ago, the
Company's product line was primarily focused on women's full-fashion, Luxelon(R)
(acrylic yarn) sweaters marketed under the Designers Originals label. Although
Designers Originals sweaters remain an important product line, the expanded
product line permits the Company to supply many more departments of the
Company's customers. Through the 1995 acquisition of Segue Limited, the Company
added a business-casual line for women and through the 2000 acquisition of
Item-Eyes, a broad line of woven and knit related separates, including
classic-woven apparel, was added.
A line of men's sweaters has also been developed over the past seven years
through strategic expansion of brand name licensing. Hampshire Brands is
licensed to manufacture and market men's sweaters under the Geoffrey Beene(R),
Dockers(R) and Levi's(R) labels. During 2002 Hampshire Brands created and
introduced two new brands, Spring + Mercer(R) and Mercer Street Studio(TM).
These brands cover the entire range of men's department store offerings, from
middle-of-the-road, "main floor" styles to fashion-forward, designer sweaters
for the "better" departments of our customers.
The Company's product lines are sold by both the Company's sales force and
independent sales representatives with senior management participating in the
presentations to the larger accounts.
Products
- --------
Designers Originals sweaters include the Company's traditional product for women
- - classically designed, full-fashioned, fine-gauge, Luxelon(R) (acrylic yarn)
4
sweaters with cashmere feel and look. Designers Originals sweaters also include
a line of fine-gauge, full-fashion, cotton sweaters and a variety of other
novelty sweaters.
Under the Designers Originals Studio label, the Company sells a business-casual
line for women which incorporates woven fabrics in related separates, such as
blouses, pants, skirts and sweaters, in the moderate-price category. The Company
also sells solid and jacquard chenille sweaters and seasonal theme sweaters.
Related sportswear, including blazers, pants, shirts and sweaters, and "soft
dressing", is sold by Item-Eyes under its Requirements(R) and Nouveaux(R) labels
and the private-labels of some of the Company's customers.
With its established international manufacturing sources, the Company has the
ability to respond expediently to market demands.
Customers
- ---------
The Company has historical relationships with many of its approximately 250
customers, which include most major department stores, mass merchants, specialty
retail stores and catalog companies. Over the past few years the Company's
customer base has decreased due to the consolidation of the retail industry;
however, management does not believes that the number of retail stores serviced
by the Company has decreased.
Competition
- -----------
The apparel market remains highly competitive. Competition is primarily based on
product design, price, quality and service. While the Company faces competition
from manufacturers and distributors located in the United States, its primary
competition comes from manufacturers located in Southeast Asia. The Company also
competes for private label programs with the internal sourcing departments of
many of its own customers.
The ability of the Company to compete is enhanced by the strength of its
financial position, significant liquid assets and low debt.
Seasonality
- -----------
Although the Company sells apparel throughout the year, the business is highly
seasonal, with approximately 72% of annual net sales occurring during the third
and fourth quarters of fiscal 2003.
Effects of Changing Prices
- --------------------------
The Company is subject to the effects of changing prices. It has generally been
able to pass along a majority of inflationary increases in its costs by
increasing the prices for its products.
BACKLOG
- -------
The sales order backlog for the Company was approximately $95 million as of
March 1, 2004, compared to approximately $111 million as of March 1, 2003. The
timing of the placement of seasonal orders by customers affects the backlog;
accordingly, a comparison of backlog from year to year is not indicative of a
trend in sales for the year.
TRADEMARKS AND LICENSES
- -----------------------
The Company considers its own trademarks to have value in the marketing of its
products. The Company has entered into licensing agreements to manufacture and
market sweaters under certain trademarks for which it pays a royalty fee based
5
on sales. The licensing agreements are normally for a three-year initial term
with an option to renew, provided the Company achieves a specified sales level
during the term.
ELECTRONIC INFORMATION SYSTEMS
- ------------------------------
In order to schedule production, fill customer orders, transmit shipment data to
the customers' distribution centers and invoice electronically, the Company has
developed a number of integrated electronic information systems applications.
Approximately 80% of all orders are received electronically. These orders are
generated by the customers' computer systems based on sales and inventory
levels. The Company electronically sends advance ship notices and invoices to
customers, which results in the timely updating of the customers' inventory
systems.
CREDIT AND COLLECTION
- ---------------------
The Company manages its credit and collection functions by approving and
monitoring the credit lines of its customers. Credit limits are determined by
past payment history and financial information obtained from credit agencies and
other sources. The Company believes that its credit and collection staff has
been a significant factor in minimizing both lost sales and bad debt losses.
CUSTOMERS
- ---------
For each of the years, 2003, 2002 and 2001, more than 99% of the Company's sales
were to customers located in the United States. Sales outside of the United
States were to customers in Mexico and Canada. The Company had sales to three
major customers (defined as sales in excess of 10% of total sales) during 2003,
J.C. Penney Company, Kohl's Corporation and May Department Stores, which
represented 15%, 14% and 10% of total sales. These same three customers
represented 14%, 11% and 11% of total sales during 2002; and 14%, 11% and 10% of
total sales during 2001. The Company's five largest customers accounted for
approximately 52% of the Company's consolidated sales in 2003, compared to 49%
in both 2002 and 2001.
EMPLOYEES
- ---------
As of March 2, 2004, the Company had approximately 206 full-time employees and 4
part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for 16 hourly employees of Item-Eyes,
Inc., who are represented by Unite Labor Union under an agreement expiring in
August 2004. The Company's relationship with its employees is predicated on open
communications and fairness to all employees. In the opinion of the Company's
management, this method is essential to having a productive relationship with
the employees.
GOVERNMENTAL REGULATION AND TRADE AGREEMENTS
- --------------------------------------------
The apparel industry and the Company's business are subject to a wide variety of
international trade agreements as well as federal, state and local regulations.
The Company believes it has operated and intends to continue to operate in
compliance in all material respects with these agreements and regulations.
International trade agreements in particular can have a significant impact on
the apparel industry and the Company. These agreements generally provide for
tariffs, which impose a duty charge on the product being imported, and quotas,
which limit the amount of the product that may be imported, to be placed on
certain products as they move between certain countries. Both raise the total
cost of importing a product. Primary among the many multilateral and bilateral
trade associations and agreements existing between the United States and certain
foreign countries is the World Trade Organization (WTO) which was established in
1995 as the governing body for international trade between the 140 originating
member countries, including the United States. The resulting General Agreement
on Trade and Tariffs (GATT) of 1995 provides a ten year schedule, 1995 - 2004,
for the general reduction of tariffs and the elimination of quotas on products
6
entering the United States from these WTO countries. The next phase of agreement
among these WTO countries is still being negotiated. Until a new agreement is
reached, the 2005 tariffs will continue to apply.
Beyond the WTO, the United States has entered into several significant trade
agreements, including the North American Free Trade Agreement (NAFTA) in 1993,
which generally has eliminated all apparel tariffs and quotas between Canada,
Mexico and the United States, the Caribbean Basin Initiative (CBI) in 2000,
which generally grants NAFTA-like trade privileges to an additional 23 Caribbean
Basin countries, and the African Growth and Opportunity Act (AGOA) in 2000,
which allows 38 countries in sub-Saharan Africa to qualify for dramatic
reductions in their tariffs and quota restrictions with the United States.
ITEM 2 - PROPERTIES
The Company leases its corporate office and all of its sales offices, showrooms
and distribution center. The Company believes that all of its properties are
well maintained, in good condition and are generally suitable for their intended
use. The Company's principal properties are described in the table below.
Square Lease
Properties Footage Expiration(1)
- -------------------------------------------------------------------------------
Administrative Offices - Anderson, South Carolina 10,500 06/30/06
Hampshire Designers
Sales Office and Showroom - New York, New York 24,000 08/31/11
Distribution Center - Anderson, South Carolina 57,000 04/30/04(2)
Item-Eyes
Sales Office and Showroom - New York, New York 6,000 06/30/07
Operations Center - New York, New York 16,000 06/30/05
Administrative Offices - Hauppauge, New York 6,000 05/31/05
(1) Assuming the exercise of all options to renew.
(2) Hampshire Designers has transferred the distribution of all products to
California effective February 2004.
- -------------------------------------------------------------------------------
The Company primarily utilizes public warehouses in New Jersey and California to
receive and distribute its merchandise.
ITEM 3 - LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which the Company is a party will have a material adverse effect
on its consolidated financial condition, results of operations or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Stockholders during the fourth quarter of
fiscal 2003.
7
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Stock Market under the symbol
"HAMP".
The following table sets forth the high and low sales prices of shares of Common
Stock for each of the quarters of 2002 and 2003 as reported by the Nasdaq Stock
Market.
Common Stock
High Low
--------------------
Year Ended December 31, 2002:
First Quarter $19.45 $12.10
Second Quarter 22.98 16.75
Third Quarter 26.50 15.25
Fourth Quarter 22.48 16.00
Year Ended December 31, 2003:
First Quarter $23.00 $19.58
Second Quarter 31.09 20.67
Third Quarter 33.80 28.02
Fourth Quarter 35.50 29.52
As of March 22, 2004, the Company had 36 stockholders of record. The Company
believes there are in excess of 1,000 beneficial owners of its Common Stock.
The Company has not declared or paid dividends with respect to its Common Stock.
The determination to pay dividends will be made by the Board of Directors and
will be dependent upon the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors may deem
relevant. The Company's Senior Notes and Revolving Credit Facility contain
restrictive covenants placing limitations on "restricted payments", which
includes payment of cash dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in Item 7 hereof.
In April and August 2003, in connection with the Company's Common Stock Benefit
Plans, the Company issued 30,000 shares and 10,000, shares respectively, to meet
the obligations of these Plans. Additional shares required to fund these Plans
were provided from the Company's Treasury stock. During 2002 approximately
14,700 shares were issued to meet the obligations of these Plans.
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
appearing elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data under the captions "Income Statement Data" and
"Balance Sheet Data" for, and as of the end of, each of the years in the
five-year period ended December 31, 2003, are derived from our audited
consolidated financial statements included in this Annual Report on Form 10-K.
Our historical results are not necessarily indicative of results to be expected
in any future period.
8
Selected Consolidated Financial Data
(in thousands, except per share data)
Year Ended December 31, 2003 2002 2001 2000(2) 1999
- ------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (1)
Net sales $292,651 $293,268 $261,361 $195,372 $150,394
Cost of goods sold 218,454 210,336 192,546 155,721 120,748
----------------------------------------------------
Gross profit 74,197 82,932 68,815 39,651 29,646
Selling, general and administrative
expenses 54,903 51,816 45,482 29,542 23,815
Net loss (gain) on sale of plant and
equipment and impairment charges (3) - - 2,618 (2,308) 285
----------------------------------------------------
Income from operations 19,294 31,116 20,715 12,417 5,546
Other income (expense):
Interest expense (909) (1,359) (2,563) (2,687) (1,453)
Interest income 683 420 514 1,201 502
Other 155 (271) (133) (205) 1,448
----------------------------------------------------
Income from continuing operations
before provision for income taxes 19,223 29,906 18,533 10,726 6,043
Income tax (provision) benefit:
Current (6,821) (12,525) (7,700) (2,113) (509)
Deferred (979) 664 770 (14) (337)
----------------------------------------------------
Income from continuing operations (4)$ 11,423 $ 18,045 $ 11,603 $ 8,599 $ 5,197
====================================================
Income per share from Basic $2.50 $3.83 $2.49 $2.02 $1.27
continuing operations: ====================================================
Diluted $2.43 $3.73 $2.48 $1.98 $1.22
====================================================
Weighted average number Basic 4,573 4,711 4,661 4,265 4,100
of shares outstanding: ====================================================
Diluted 4,696 4,834 4,674 4,341 4,257
====================================================
- -----------------------------------------------------------------------------------------
December 31, 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------
BALANCE SHEET DATA (1)
Cash and cash equivalents $ 63,292 $ 66,893 $ 28,151 $ 9,902 $23,267
Working capital 87,902 82,626 70,713 60,456 54,340
Total assets 133,174 130,051 109,128 102,465 79,097
- -------------------------------------====================================================
Long-term liabilities $ 8,375 $ 10,158 $13,797 $18,763 $19,664
Total debt (5) 10,239 12,088 18,167 21,236 20,785
Stockholders' equity 90,422 108,455 91,153 79,715 67,660
- -----------------------------------------------------------------------------------------
Book value per share $22.23 $22.97 $19.42 $17.16 $16.44
- -------------------------------------====================================================
(1) The financial information previously presented for the years 1999 through 2002 has
been restated to present Hampshire Investments, Limited as a discontinued operation
in all periods. Accordingly, the Income Statement Data represents only continuing
operations and assets and liabilities of the discontinued operations have been excluded
for the years 1999 through 2002 in the Balance Sheet Data.
(2) Includes the results of operations of Item-Eyes, Inc. from August 20, 2000, the date of
acquisition.
(3) Gains and losses on sale of plant and equipment included herein are related to the sale
of the Company's manufacturing operations. Gains and losses on sales of plant and
equipment in the normal course of business are included in selling, general and
administrative expenses.
(4) Fiscal years 2001, 2000 and 1999 include goodwill amortization, net of income taxes, of
$543,000, $546,000 and $415,000, respectively. Effective January 1, 2002, the Company is
no longer permitted to amortize goodwill as result of adoption of SFAS No. 142. (See Note
1 to the consolidated financial statements).
(5) Includes long-term debt, current portion thereof, borrowing under the credit facility,
related party debt, subordinated notes and deferred compensation.
9
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
- ------------------
After the disposal of the investment subsidiary on October 8, 2003, as discussed
below, the only business of the Company is the apparel business. The business is
conducted through two wholly owned subsidiaries - Hampshire Designers, which
primarily designs and sells women's and men's sweaters, and Item-Eyes, which
designs and sells a broad line of women's woven and knit separates. The Company
sells to approximately 250 retail customers, primarily in the United States,
including most major department stores, mass merchants, specialty retail stores
and catalog companies. The Company's three major customers, each representing
more than 10% of sales, are J.C.Penney Company, Kohl's Corporation and May
Department Stores.
The Company outsources the manufacture of its products, principally due to lower
labor costs available through the Company's international sources. Substantially
all of the products sold by the Company, including the products sold by
Item-Eyes, are supplied by international manufacturing sources.
Women's sweaters are marketed under the Company's own labels, Designers
Originals and Designers Originals Studio, licensed labels and private labels of
its customers. The Company historically produced and marketed a classic styled
sweater; however, demand has shifted over the past several years with the
majority of growth occurring in fashion design and embellished sweaters and tops
that can only be sourced internationally due to the extensive hand labor
required to manufacture such garments. Sales of women's sweaters, including
sweaters marketed by Item-Eyes, accounted for approximately 54% of the Company's
net sales in 2003.
Men's sweaters, accounting for approximately 22% of net sales of the Company in
2003, are primarily manufactured through the Company's international sources.
The products are marketed under Company owned labels Spring + Mercer and Mercer
Street Studio and under well known designer's labels including Geoffrey Beene,
Dockers and Levi's. During 2003, the market demand for men's sweaters declined
approximately 13% from 2002. Management believes this decline reflects the
industry-wide conditions which will reverse itself in the future.
Item-Eyes produces only women's products. The trend in product mix for Item-Eyes
over the past three years has been a decrease in the demand for blazers, which
has been offset by an almost equal increase in the sale of sweaters. In 2001
blazers represented approximately 24% of Item-Eyes' net sales while the sweater
category was insignificant. Sales of blazers by Item-Eyes during 2003 decreased
to less than 6% of annual net sales while sweaters accounted for approximately
26% of annual sales. Management believes the demand for blazers will increase as
fashion trends change.
The Company believes its greatest risk is the uncertainty arising from the
scheduled elimination on December 31, 2004 of the quota system established by
the World Trade Organization (see discussion under "Governmental Regulation and
Trade Agreements" above) and the impact that the elimination of the quota system
will have on international trade, particularly the apparel industry. The
uncertainty includes any action that may be taken by the United States
government in the event that the quantity of imported apparel is determined to
be a market disruption in the United States.
The results in 2003 were affected by the highly competitive conditions in the
retail apparel market. In the women's sweater business, both sales and earnings
increased despite strong competition, but reduced gross margins in the men's
sweater business and women's related separates' business resulted in a decline
in earnings. The declining margins were in large part due to increased customer
allowances, enabling customers to markdown products in the competitive market
environment. Customer allowances, including provision for returned product and
other adjustments, increased to 8.8% in 2003 from 7.3% in 2002. Management
analyzed these allowance requests from customers on a case-by-case basis and
grants allowances where deemed important in the long-term interest of the
Company's relationship with its customers. The Company expects pressure on
margins to continue throughout 2004 as apparel retailers continue to recover
from the economic downturn.
10
DISPOSAL OF INVESTMENT COMPANY IN 2003
- --------------------------------------
On October 8, 2003, the Company disposed of its investment subsidiary, Hampshire
Investments, Limited ("HIL") after the Board of Directors (the "Board")
determined that the Company should concentrate on the apparel business. A
special committee of the Board, consisting of independent directors, was
responsible for the disposal of HIL because Ludwig Kuttner, Chairman and Chief
Executive Officer, and other members of management of the Company participated
as purchasers. HIL made investments both domestically and internationally,
principally in real property.
Certain assets of HIL were sold to K Holdings, LLC, a company controlled by Mr.
Kuttner, for a purchase price consisting of 250,000 shares of the Company's
common stock. The Company then exchanged all of the outstanding shares of
capital stock of HIL with an investor group including Mr. Kuttner, Peter
Woodworth, a Director of the Company, and Charles Clayton, Secretary/Treasurer
of the Company, for 450,000 shares of the Company's common stock. Mr. Clayton
subsequently was appointed interim Chief Financial Officer.
The fair market value of the Company's common stock received in the two
transactions was $23,905,000 based on a price of $34.15 per share, as reported
by NASDAQ as of the close of the market on October 7, 2003, the trading day
prior to the date on which the transactions were consummated. The transactions
resulted in a loss from the disposal of approximately $6,433,000, including the
related income tax expense of $192,000. This loss, including disposal costs, was
recognized as a loss from disposal of discontinued operations in the
consolidated statement of operations for the third quarter and the year ended
December 31, 2003. Of the reported loss, approximately $5,560,000 is
attributable to the disposition of the capital stock of Hampshire Investments,
Limited, the Company's investment subsidiary. Pursuant to Internal Revenue Code
Section 355, the transaction is characterized as a tax-free spin off and the
Company is not entitled to deduct this loss because it represents a loss on
disposition of property by the Company in exchange for its own Common Stock.
Therefore, no tax benefit has been provided for this loss in the consolidated
financial statements.
The disposal of HIL has been accounted for as a discontinued operation and,
accordingly, the financial information for all prior periods presented has been
reclassified to report HIL as a discontinued operation.
RESULTS OF CONTINUING OPERATIONS
- --------------------------------
2003 Compared With 2002
Net Sales
- ---------
Net sales for the year ended December 31, 2003 were $292,651,000, compared to
$293,268,000 for 2002, a decrease of $617,000 or 0.2%. Units shipped for the
year ended December 31, 2003 exceeded units shipped during the same period last
year by approximately 101,000 dozen or 4.2%. The increase was due to an increase
in sales of women's sweaters, offset in part by a decline in sales of men's
sweaters. The average sales price per unit declined 4.2% primarily due to a
shift in product mix and higher allowances granted to customers.
Gross Profit
- ------------
Gross profit for the year ended December 31, 2003 was $74,197,000, compared to
$82,932,000 for 2002, a decrease of $8,735,000 or 10.5%. As a percentage of net
sales, gross profit margin was 25.4% for 2003, compared to 28.3% for 2002. The
decrease in gross profit margins primarily resulted from higher allowances
granted to customers in a highly competitive retail market.
11
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the Company were
$54,903,000 for the year ended December 31, 2003, compared to $51,816,000 for
2002, an increase of $3,087,000 or 6.0%. As a percentage of net sales, SG&A
expenses were 18.8% for 2003, compared to 17.7% for 2002. The increase primarily
resulted from additional marketing, designing, shipping and related expenses
caused by the increased unit volume for the year ended December 31, 2003, costs
related to the development of two new product lines launched in the fall of
2003, and approximately $1,800,000 of non-recurring costs associated with
resolving a vendor royalty audit and an employment agreement. During 2002 and
2003, the Company successfully defended a lawsuit brought by a former supplier,
Glamourette, and recorded $450,000 in 2003 and $550,000 in 2002 both as a
reduction of the reserve for the claim and a reduction of SG&A expenses in each
year.
Interest Expense
- ----------------
Interest expense for the year ended December 31, 2003 was $909,000, compared to
$1,359,000 for 2002, a decrease of $450,000 or 33.1%. The decrease primarily
resulted from lower average borrowings and lower interest rates on the credit
facility borrowings during the year ended December 31, 2003. Average borrowings
during the year ended December 31, 2003 were $13,038,000, compared to
$19,011,000 for 2002.
Interest Income
- ---------------
Interest income for the year ended December 31, 2003 was $683,000, compared to
$420,000 for the 2002, an increase of $263,000 or 62.6%. The increase primarily
resulted from higher average cash balances during the year ended December 31,
2003.
Income Tax on Continuing Operations
- -----------------------------------
The income tax provision for the year ended December 31, 2003 was $7,800,000,
compared to $11,861,000 for 2002. The effective income tax rate was 40.6% for
the year ended December 31, 2003, compared to 39.7% for 2002. In 2002 the
Company benefited from a charitable contribution of real property.
Income from Continuing Operations
- ---------------------------------
As a result of the foregoing, net income from continuing operations for the year
ended December 31, 2003 was $11,423,000, or $2.43 per share on a diluted basis,
as compared to $18,045,000, or $3.73 per share on a diluted basis, for 2002.
Income (Loss) of Discontinued Operations
- ----------------------------------------
Income from discontinued operations for the year ended December 31, 2003 was
$637,000, net of a provision for income tax of $408,000, compared to a loss of
$997,000, net of a benefit for income tax of $1,761,000, for the preceding year.
The results of the Company's investment subsidiary for the year ended December
31, 2002 included an impairment charge on real property in the amount of
$3,140,000. For the year ended December 31, 2002, the Company reported an income
tax benefit of approximately $1,761,000. This benefit resulted primarily from
the impairment charge recorded on a domestic real property investment in the
amount of $3,140,000 and the benefit from the utilization of a capital loss
carryforward.
The net loss from the disposal of $6,433,000 resulted from the charge to reduce
the investment segment to its fair market value, plus disposal expenses of
approximately $950,000. The disposal of the investment segment was consummated
on October 8, 2003.
Loss from discontinued operations for the year ended December 31, 2003,
including the loss on disposal, was $1.23 per share on a diluted basis, as
compared with a loss of $0.20 per share on a diluted basis, for 2002.
12
Net Income
- ----------
Net income of the Company for the year ended December 31, 2003 was $5,627,000,
or $1.20 per share on a diluted basis, as compared to $17,048,000, or $3.53 per
share on a diluted basis, for 2002.
RESULTS OF CONTINUING OPERATIONS
- --------------------------------
2002 Compared With 2001
Net Sales
- ---------
Net sales for the year ended December 31, 2002 were $293,268,000, compared to
$261,361,000 for 2001, an increase of $31,907,000 or 12.2%. Units shipped for
the year ended December 31, 2002 exceeded units shipped during the same period
the prior year by approximately 429,000 dozen or 21.6%. The increase was
primarily due to an increase in sales of women's sweaters. The average sales
price per unit declined 7.7% primarily due to a shift in product mix.
During the fourth quarter of 2002, suppliers of the Company failed to deliver
product pursuant to agreed purchase contracts. Due to the failure the Company
lost sales where product could not be replaced, negotiated settlements with
these customers for non-delivery penalties, and incurred additional costs
related to securing replacement product for the timely delivery to other
customers. Costs and expenses related to the dispute with these suppliers were
fully reserved pending final resolution of the dispute.
Gross Profit
- ------------
Gross profit for the year ended December 31, 2002 was $82,932,000, compared to
$68,815,000 for 2001, an increase of $14,117,000 or 20.5%. As a percentage of
net sales, gross profit margin was 28.3% for 2002, compared to 26.3% for 2001.
The increase in gross profit is attributed primarily to an increase in unit
volume of products sold, reduced costs associated with sourcing and product mix.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the Company were
$51,816,000 for the year ended December 31, 2002, compared to $45,482,000 for
2001, an increase of $6,334,000 or 13.9%. As a percentage of net sales, SG&A
expenses were 17.7% for 2002, compared to 17.4% for 2001. The higher SG&A
expenses resulted primarily from additional marketing, designing, shipping and
related expenses caused by the increased sales volume and higher incentive
bonuses due to the increased income in 2002. During 2002, the Company
successfully defended a lawsuit brought by a former supplier and recorded
$550,000 both as a reduction of the reserve for claim and a reduction of SG&A.
With the adoption of SFAS No. 142 on January 1, 2002, the Company did not
amortize goodwill for the year ended December 31, 2002, while goodwill
amortization was $847,000 in 2001.
Impairment Charges and Provision for Uncollectible Note
- -------------------------------------------------------
During the year ended December 31, 2000, the Company sold its sweater
manufacturing assets to Glamourette/OG, Inc. ("Glamourette"), a Puerto Rican
corporation. As partial payment of the purchase price, the Company accepted a
promissory note in the discounted amount of $6,468,000, due April 28, 2005.
During the fourth quarter of 2001, the Company notified Glamourette that it was
in default under the loan agreement with respect to the sale of the sweater
manufacturing assets and that the Company would recoup approximately $1,100,000
owed to Glamourette for merchandise received by the Company. Subsequent to the
notice of default Glamourette filed for bankruptcy and accordingly, the Company
wrote off the balance of the note in the amount of $1,793,000. Additionally, for
the year ended December 31, 2001, the Company recognized impairment of goodwill,
in the amount of $825,000, due to the permanent decline in one of the divisional
operations and its estimated deficiencies in future cash flows.
13
Interest Expense
- ----------------
Interest expense for the year ended December 31, 2002 was $1,359,000, compared
to $2,563,000 for 2001, a decrease of $1,204,000 or 47.0%. The decrease was
primarily due to lower average borrowings and lower interest rates during the
year ended December 31, 2002. Average borrowings during the year ended December
31, 2002 were $19,011,000, compared to $31,267,000 for 2001. Interest Income
Interest income for the year ended December 31, 2002 was $420,000, compared to
$514,000 for the year ended December 31, 2001, a decrease of $94,000 or 18.3%.
The decrease resulted from there being no interest income for the year ended
December 31, 2002 on the Glamourette promissory note, on which interest income
of $229,000 had been recognized during the year ended December 31, 2001.
Income Tax on Continuing Operations
- -----------------------------------
The income tax provision for the year ended December 31, 2002 was $11,861,000,
compared to $6,930,000 for 2001. The effective income tax rate increased to
39.7% for the year ended December 31, 2002, compared to 37.4% for 2001, due to
changes in composition of income among the Company's consolidated entities.
Net Income from Continuing Operations
- -------------------------------------
As a result of the foregoing, income from continuing operations for the year
ended December 31, 2002 was $18,045,000, or $3.73 per share on a diluted basis,
as compared to $11,603,000, or $2.48 per share on a diluted basis, for the
preceding year.
Loss from Discontinued Operations
- ---------------------------------
The operations of HIL are classified as a discontinued operation for all periods
presented, as previously discussed. Loss from discontinued operations for the
year ended December 31, 2002 was $997,000, net of a benefit for income tax of
$1,761,000, or $0.20 per share on a diluted basis, compared to a loss of
$523,000, net of a provision for income tax of $730,000, for 2001, or $0.11 per
share on a diluted basis, a decrease of $970,000.
For the year ended December 31, 2002, the Company reported an income tax benefit
of approximately $1,761,000. This benefit resulted primarily from the impairment
charge recorded on a domestic real property investment in the amount of
$3,140,000 and the benefit from the utilization of a capital loss carryforward.
For the year ended December 31, 2001, the Company reported an income tax benefit
of approximately $730,000. This benefit resulted primarily from impairment
charges recorded on certain foreign investments and real property assets and the
benefit of a capital loss.
Net Income
- ----------
As a result of the foregoing, net income of the Company for the year ended
December 31, 2002 was $17,048,000, or $3.53 per share on a diluted basis, as
compared to $11,080,000, or $2.37 per share on a diluted basis, for the
preceding year.
INFLATION
- ---------
The Company believes that inflation has not had a material effect on its costs
and net revenues during the past three years.
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 buildup in
inventories and accounts receivable, servicing long-term debt and funding
capital expenditures. Due to the seasonality of the business, the Company
14
generally reaches its maximum borrowing under its revolving credit facility
during the third quarter of the year. The primary sources to meet the liquidity
and capital requirements include funds generated from operations and borrowings
under the revolving credit facility and long-term debt.
On August 15, 2003, the Company entered into a new Revolving Credit Facility
(the "Revolving Credit Facility") with six participating commercial banks, with
HSBC Bank USA as agent. The Revolving Credit Facility, which matures on April
30, 2007, provides for secured borrowings up to $100,000,000 in revolving line
of credit borrowings and letters of credit. Advances under the line of credit
are limited to the lesser of: (1) $100,000,000 less outstanding letters of
credit; or (2) the sum of 85% of eligible accounts receivable, 50% of eligible
inventory (subject to seasonal limits) of the Company's operating subsidiaries
(defined as Hampshire Designers and Item-Eyes), and 50% of outstanding eligible
letters of credit issued through the Revolving Credit Facility, plus seasonal
overadvances in the periods of highest borrowing requirements.
Advances under the Revolving Credit Facility bear interest at either the bank's
prime rate minus 0.25%, or at the option of the Company, a fixed rate of LIBOR
plus 1.80%, for a fixed term. The loan is collateralized, pari passu with the
Senior Notes, principally by the trade accounts receivable and inventories of
the Company's operating subsidiaries and a pledge of the common stock of such
subsidiaries. No advances were outstanding under the Revolving Facility at
December 31, 2003 or 2002. At December 31, 2003 there were letters of credit
outstanding in the amount of $24,037,000 which resulted in availability for
borrowing of approximately $21,930,000 under the Revolving Credit Facility.
Both the Revolving Credit Facility and the Senior Notes contain covenants which
require certain financial performance and restrict certain payments. The
financial performance covenants require, among other things, that the Company
maintain specified levels of consolidated net worth, not exceed a specified
consolidated leverage ratio, achieve a specified fixed charge ratio and limit
capital expenditures to a specified maximum amount. The Company was in
compliance with the financial performance covenants and restrictions at December
31, 2003.
The Company's trade account receivables and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Senior
Notes. The Revolving Credit Facility and the Senior Notes restrict certain sales
of assets, payments by the Company of cash dividends to stockholders and the
repurchase of Company Common Stock. The Senior Notes also require that during
any 12-month period there must be a period of 45 consecutive days where there is
no outstanding short-term debt. The Company was in compliance with these
provisions at December 31, 2003. The Company is charged 0.125% on the unused
balance of the credit facility.
The maximum amount of advances outstanding during 2003 under the credit facility
was $30,465,000. The average amount outstanding during 2003 was approximately
$4,557,000. Outstanding letters of credit under the credit facility totaled
approximately $24,037,000 at December 31, 2003.
The Company, in the normal course of business, issues binding purchase orders to
secure product for future sales to its customers. At December 31, 2003, these
open purchase orders amounted to approximately $25,100,000 of which
approximately $17,700,000 were covered by open letters of credit. The majority
of the product is scheduled to be received during the first six months of 2004,
at which time these commitments will be fulfilled.
Future contractual obligations related to long-term debt and non-cancelable
operating leases at December 31, 2003 were as follows:
Total 2004 2005 2006 2007 2008 Thereafter
--------------------------------------------------------------
Long term debt $ 7,583 $1,932 $1,901 $1,875 $1,875 - -
Operating leases 4,679 1,110 867 681 543 $403 $1,075
--------------------------------------------------------------
Total $12,262 $3,042 $2,768 $2,556 $2,418 $403 $1,075
==============================================================
15
The Company has deferred compensation agreements with certain key executives as
more fully discussed in Note 10 of the Consolidated Financial Statements
enclosed herewith. The $2,656,000 liability is recorded on the consolidated
balance sheet as long-term since payments commence only upon the retirement of
the executives and are scheduled to be paid in incremental amounts over several
years.
At December 31, 2003, the Company had cash and cash equivalents totaling
$63,292,000.
Net cash provided by operating activities of continuing operations was
$5,420,000 for the year ended December 31, 2003, as compared to net cash
provided by operating activities of $49,831,000 in the same period last year.
Net cash provided by operating activities of continuing operations during the
year ended December 31, 2003 resulted primarily from income from continuing
operations of $11,423,000, offset by an increase in inventory of $7,317,000. Net
cash provided by operating activities of continuing operations during the year
ended December 31, 2002 resulted primarily from decreases in inventory of
$12,007,000 and accounts receivable of $6,290,000, an increase in accounts
payable, accrued expenses and other liabilities of $12,776,000, and income from
continuing operations of $18,045,000. Inventory for the year ended December 31,
2002 was unusually low due to a vendor supply problem, the primary reason for
the $12,007,000 decrease. During 2003 the supplier was replaced and the
inventory balance returned to a more normal level resulting in an increase of
$7,317,000 for the year ended December 31, 2003.
Net cash used in investing activities of continuing operations was $560,000 for
the year ended December 31, 2003, as compared to net cash used in investing
activities of continuing operations of $658,000 for 2002. During the years ended
December 31, 2003 and 2002, the Company used $840,000 and $916,000,
respectively, on capital expenditures.
Net cash used in financing activities of continuing operations was $2,742,000
for the year ended December 31, 2003, as compared to $6,364,000 for 2002. During
the years ended December 31, 2003 and 2002, the Company used $1,930,000 and
$6,537,000, respectively, for the repayment of long-term debt. During the year
ended December 31, 2003 the Company purchased approximately 51,500 shares of its
Common Stock for $1,194,000 and for the year ended December 31, 2002 the Company
purchased approximately 13,100 shares of its Common Stock for $265,000. As of
December 31, 2003 and 2002, the Company had no borrowings under the credit
facility.
Net cash used in discontinued operations for the year ended December 31, 2003
was $5,719,000, compared with net cash used for 2002 of $4,067,000. Hampshire
Investments, Limited, the discontinued operation, made investments, both
domestically and internationally, primarily in real property. The cash used in
the discontinued operations during the year ended December 31, 2003 (through
October 8, 2003, the date of disposition) and 2002 primarily was the funding for
such investments and repayment of long-term debt, offset by cash received from
sale of assets and long-term financing.
Management believes that cash flow from operations, available borrowings under
the credit facility and long-term borrowings will provide adequate resources to
meet the Company's capital requirements and operational needs for the
foreseeable future.
OUTLOOK
- -------
The Company believes that the primary reason for its success in recent years has
been its ability to offer new products and classics with a high level of quality
and services to its customers. Management is committed to continuing to offer
16
such quality and services to its customers. Management recognizes that price
competition in the apparel market can adversely affect earnings of the Company.
The ability of the Company to compete is enhanced by the strength of its
financial position, significant liquid assets and low debt.
Over the past five years, the retail industry has consolidated through
acquisitions and mergers. Further, retailers have concentrated more volume with
a fewer number of vendors. The Company has responded by expanding its product
line in the sweater business and adding related separates through the
acquisition of Item-Eyes. By increasing its utilization of foreign sources, the
Company can offer greater variety in yarns, styling and surface treatment at
competitive prices.
OFF-BALANCE SHEET ARRANGEMENTS
- ------------------------------
The Company does not have any arrangements that are not recorded on the balance
sheet of the Company other than liability for delivery of shares of the
Company's Common Stock under the Hampshire Group, Limited Common Stock Purchase
Plan, which is fully funded, as described in Note 12 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis management evaluates its estimates, including those related to the
allowance for doubtful accounts, allowances for customer returns and adjustments
and, inventory reserves. Management bases its estimates on historical experience
and on various other assumptions that management believes to be reasonable under
the circumstances, the results of which form a basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, management believes that its estimates,
including those for the above described items, are reasonable and that the
actual results will not vary significantly from the estimated amounts.
The following critical accounting policies relate to the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:
Allowances for Customer Returns and Adjustments
- -----------------------------------------------
The Company maintains allowances for customer returns, trade discounts, customer
chargebacks, and for sales and markdown allowances given to the customer,
typically at the end of the selling seasons, which enable customers to markdown
the retail sales prices of any remaining goods on hand. The estimates for these
allowances and discounts are based on a number of factors, including: (1)
historical experience, (2) aging of the trade accounts receivable, (3) specific
information obtained by the Company on the financial condition and current
credit worthiness of customers or other parties, and (4) specific agreements
with customers.
If the financial condition of the Company's customers were to deteriorate and
reduce the ability of the customers to make payments on their accounts, the
Company may be required to increase its allowances by recording additional bad
debt reserves. Further, while the Company believes that it has negotiated all
substantial sales and markdown allowances with its customers for the season
recently completed, additional allowances for the spring season are anticipated
and have been provided for. Additional allowances may be requested by customers
17
at the conclusion of the season. Likewise, should the financial condition of the
Company's customers or other parties improve and result in payments or favorable
settlements of previously reserved amounts, the Company may be required to
record a reduction in recorded allowances.
Inventory Reserves
- ------------------
The Company analyzes out-of-season merchandise on an individual SKU basis to
determine reserves, if any, that may be required. Factors considered in
evaluating the requirement for reserves include product styling, color, current
fashion trends and quantities on hand. Many of the Company's products are
"classics" and remain saleable from one season to the next and therefore no
reserves are generally required on these products. An estimate is made of the
market value, costs to dispose and a normal profit margin, of products whose
value is determined to be impaired. If these products are ultimately sold at
less than estimated amounts, additional reserves may be required. Likewise, if
these products are sold for more than estimated amounts, reserves may be
reduced.
Recent Accounting Standards
- ---------------------------
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", on
January 1, 2002. SFAS No. 142 discontinues the practice of amortizing goodwill
and intangible assets that have indefinite useful lives and initiates an annual
review for impairment. As of the date of adoption, the Company had unamortized
goodwill of $8,020,000. A reconciliation of the reported income from continuing
operations and income per share from continuing operations for the years ended
December 31, 2003, 2002 and 2001, to the amounts adjusted for the reduction of
amortization expense, net of the related income tax effect, is as follows:
(in thousands, except per share data) 2003 2002 2001
- --------------------------------------------------------------------------------------------
Income from continuing operations, as reported $11,423 $18,045 $11,603
Add back amortization of goodwill, net of tax effect of ($304) - - 543
- --------------------------------------------------------------------------------------------
Adjusted income from continuing operations $11,423 $18,045 $12,146
- --------------------------------------------------------------------------------------------
Basic income per share from continuing operations, as reported $2.50 $3.83 $2.49
Adjustment for add back of amortization expense, net of tax effect - - 0.12
- --------------------------------------------------------------------------------------------
Adjusted basic income per share from continuing operations $2.50 $3.83 $2.61
- --------------------------------------------------------------------------------------------
Diluted income per share from continuing operations, as reported $2.43 $3.73 $2.48
Adjustment for add back of amortization expense, net of tax effect - - 0.12
- --------------------------------------------------------------------------------------------
Adjusted diluted income per share from continuing operations $2,43 $3.73 $2.60
- --------------------------------------------------------------------------------------------
In accordance with SFAS No. 142, goodwill is tested for impairment at least
annually and more frequently if circumstances indicate it may be impaired. The
Company performs its annual impairment test during the fourth quarter of each
year. During the fourth quarters of 2003 and 2002, the Company completed its
annual assessment of goodwill for impairment in accordance with SFAS No. 142 and
determined that there was no impairment.
The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS No. 144 addresses financial
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30 related to the disposal of a
segment of a business. The adoption of SFAS No. 144 had no material effect on
the Company's financial position, results of operations or cash flows.
The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of
18
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore should
be included as a cost or an expense when recognized in the vendor's income
statement. The adoption of EITF 01-9 required reclassification of cooperative
advertising expenses from selling, general and administrative expenses to a
reduction from revenues. As a result of such retroactive reclassification of
cooperative advertising, net sales, gross profit and selling, general and
administrative expenses for the year ended December 31, 2001 decreased by
$2,123,000, with no effect on net income.
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS
No. 146 requires that a liability for the cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146
also established that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 had no effect on the Company's financial position, results of operations and
cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123". SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amended the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to
require disclosure in both interim and annual financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Certain disclosures required by the statement
are effective for years ending after December 15, 2002 and other disclosures are
effective for the first quarter beginning after December 15, 2002. The Company
continues to use the intrinsic value method as more fully described in Note 1 to
the Consolidated Financial Statements included in this Annual Report on Form
10-K.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". Interpretation No. 45 requires an entity
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provision are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 had no effect on the Company's financial position and results of operations.
Interpretation No. 45 also provides guidance on the disclosure to be made by the
guarantor about its obligation under certain guarantees that it has issued. The
disclosure requirements are effective for the financial statements of periods
ending after December 15, 2002. At December 31, 2003 and 2002, the Company and
various consolidated subsidiaries of the Company are borrowers under the
Revolving Credit Facility and Senior Notes (the "Credit Facilities") (see Note 6
to the Consolidated Financial Statements). The Credit Facilities are guaranteed
by either the Company and/or various consolidated subsidiaries of the Company in
the event that the borrower(s) default under the provisions of the Credit
Facilities. The guarantees are in effect for the period of the related Credit
Facilities.
In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46, among other things, provides guidance on identifying variable interest
entities ("VIE") and determining when assets, liabilities, non-controlling
interests, and operating results of a VIE should be included in a company's
consolidated financial statements, and also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. In
December 2003, the FASB issued a revision to FIN 46 to clarify some of the
provisions of the original interpretation and to exempt certain entities from
its requirements. The additional guidance explains how to identify a VIE and how
an enterprise should assess its interest in an entity to decide whether to
consolidate that entity. Application of revised FIN 46 is required for public
companies with interest in "special purpose entities" for periods ending after
19
December 15, 2003. Application for public entities for all other types of
entities is required in financial statements for periods ending after March 15,
2004. The Company's adoption of FIN 46 is not expected to significantly impact
the Company's financial statements or disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial position, certain financial instruments with characteristics of
both liabilities and equities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 had no effect on the Company's financial
position, results of operations and cash flows.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company due to adverse changes in
financial and product market prices and rates. The Company is exposed to market
risk in the area of changing interest rates. The Company is also exposed to
market risk due to increased costs of raw materials for the Company's products.
The long-term debt of the Company is at fixed interest rates, which were
primarily at market when the debt was issued, but were primarily above market on
December 31, 2003. 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. The impact of a 100
hypothetical basis point increase in interest rates on the Company's variable
rate debt would be to increase interest expense for 2003 and 2002 by
approximately $45,000 and $57,000, respectively.
In purchasing apparel from foreign manufacturers, the Company uses letters of
credit that require the payment of dollars upon receipt of bills of lading for
the products. Prices are fixed in U.S. dollars at the time the letters of credit
are issued.
The Company does not currently engage in derivative financial instruments to
mitigate these market risks.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be presented in Item 8 is presented commencing on
Page F-1 of this Annual Report on Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in, or disagreements with the independent accountants on
accounting or financial disclosure issues.
ITEM 9A - CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
----------------------------------
The Company, under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, carried out an evaluation
20
of the effectiveness of its disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as of December 31, 2003 (the "Evaluation Date"). Based on the evaluation
performed, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective in recording, processing, summarizing and
reporting in the periods specified in the SEC's rules and forms the information
required to be disclosed by the Company in its reports filed or furnished under
the Exchange Act.
(b) Changes in Internal Control Over Financial Reporting
----------------------------------------------------
There have not been any changes in the Company's internal control over financial
reporting during the fiscal year ended December 31, 2003 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
Certain information required to be presented in Part III of this Annual Report
on Form 10-K is omitted as the Registrant will file a Definitive Proxy Statement
pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after
the end of the fiscal year, which is incorporated herein by reference thereto.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required to be presented in Item 10 is incorporated herein by reference to the
Company's 2004 Proxy Statement.
Code of Ethics
- --------------
The Company has adopted a Code of Ethics for its directors and officers
(including its principal executive officer, principal financial officer, chief
accounting officer, controller and treasurer). The Code of Ethics has been filed
as an exhibit to this Annual Report on Form 10-K. It is also available at the
Company's website at www.hamp.com; or a copy may be received free of charge by
submitting a written request to:
Hampshire Group, Limited
Attn: Corporate Secretary
215 Commerce Boulevard
Anderson, SC 29625-1303
ITEM 11 - EXECUTIVE COMPENSATION
The information concerning executive compensation required to be presented in
Item 11 is incorporated herein by reference to the Company's 2004 Proxy
Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information concerning security ownership of certain beneficial owners and
management and related stockholder matters required to be presented in Item 12
are incorporated herein by reference to the Company's 2004 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required to be presented in Item 13 is incorporated herein by reference to the
Company's 2004 Proxy Statement.
21
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information regarding accounting fees and services of the principal
accountant to be presented in Item 14 is hereby incorporated by reference to the
Company's 2004 Proxy Statement.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K.
(1) Financial Statements
Reference is made to the Index to the Consolidated Financial Statements on
Page F-1 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
The financial statement schedules are listed on the Index to the Consoli-
dated Financial Statements on Page F-1 of this Annual Report on Form 10-K.
All other schedules have been omitted because the required information is
shown in the consolidated financial statements or notes thereto, or they
are not applicable.
(3) Exhibits
Exhibit No. Description Footnote
---------- --------------------------------------------------- --------
Exhibits Incorporated by References:
(3)(A) Restated Certificate of Incorporation of
Hampshire Group, Limited. 1
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited. 1
(3)(A)(2) Amended and Restated By-Laws of Hampshire Group,
Limited. 1
(10)(A)(3)* Employment Agreement between Hampshire Group, Limited
and Ludwig Kuttner dated as of January 1, 1998. 2
(10)(B)(1)* Form of Hampshire Group, Limited 1992 Stock Option
Plan Amended and Restated effective June 7, 1995. 1
(10)(C)(1)* Form of Hampshire Group, Limited and Affiliates Common
Stock Purchase Plan for Directors and Executives
Amended June 7, 1995. 1
(10)(D)(1)* Form of Hampshire Group, Limited and Subsidiaries
401(k) Retirement Savings Plan. 1
(10)(D)(2)* Form of Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Directors and Executives Amended
and Restated December 30, 1997. 1
(10)(H)(1) Note Purchase Agreement between Hampshire Group,
Limited Phoenix Home Life Mutual Insurance Company
and The Ohio National Life Insurance Company dated
May 15, 1998. 2
(1) Incorporated by reference to the Company's 1997 Annual Report on Form
10-K.
(2) Incorporated by reference to the Company's 1998 Annual Report on Form
10-K.
(*) Management contract or compensatory plan or arrangement.
(Exhibits continued on next page.)
22
(Exhibit continued from previous page.)
Exhibit No. Description
----------- ------------------------------------------------------
Exhibits filed herewith:
-----------------------
10.4 Asset Purchase Agreement dated October 8, 2003 by and between
Hampshire Investments, Limited and K Holdings, L.L.C.
10.5 Stock Purchase Agreement dated October 8, 2003 by and between
Hampshire Group, Limited and Ludwig Kuttner, et al.
10.6 Credit Agreement among HSBC Bank USA as agent, the Banks
named therein and Hampshire Group, Limited, dated August 15,
2003.
10.7 Amendment No. 3, dated August 19, 2003, to the Note Purchase
Agreement, among the Company, the Guarantors named therein,
Phoenix Life Insurance Company and Ohio National Life
Insurance Company.
10.8 Renewed Lease Agreement between Hampshire Designers, Inc.
and Commerce Center Associates, Inc. for the Company's
Anderson, South Carolina administrative offices dated
March 18, 2004.
14 Code of Ethics
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulations S-K as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulations S-K as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K filed during the quarter ended December 31, 2003.
1. On October 23, 2003, the Company filed a Current Report on Form 8-K
reporting an Item 2, Acquisition and Disposition of Assets, regarding
the October 8, 2003 sale of certain assets and all of the outstanding
shares of capital stock of Hampshire Investments, Limited, a
subsidiary of Hampshire Group, Limited.
2. On November 7, 2003, the Company filed a Current Report on Form 8-K
reporting an Item 9, Regulation FD disclosure regarding the release of
the Company's financials results for the quarter ended October 1,
2003.
3. On November 21, 2003, the Company filed a Current Report on Form 8-K
reporting an Item 5, Other Events, regarding the resignation of the
Company's Chief Financial Officer.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
HAMPSHIRE GROUP, LIMITED
Date: March 22, 2004 By: /s/ LUDWIG KUTTNER
- --------------------- ---------------------------------
Ludwig Kuttner
President and Chief Executive Officer
(Principal Executive Officer)
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ LUDWIG KUTTNER Chairman of the Board of Directors, March 22, 2004
- ---------------------- President and Chief Executive Officer --------------
Ludwig Kuttner
/s/ JOEL GOLDBERG Director March 22, 2004
- ---------------------- --------------
Joel Goldberg
/s/ MICHAEL C. JACKSON Director March 22, 2004
- ---------------------- --------------
Michael C. Jackson
/s/ RICHARD ROMER Director March 22, 2004
- ---------------------- --------------
Richard V. Romer
/s/ HARVEY L. SPERRY Director March 22, 2004
- ---------------------- --------------
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 22, 2004
- ---------------------- --------------
Eugene Warsaw
/s/ IRWIN W. WINTER Director March 22, 2004
- ---------------------- --------------
Irwin W. Winter
/s/ PETER W. WOODWORTH Director March 22, 2004
- ---------------------- --------------
Peter W. Woodworth
/s/ CHARLES W. CLAYTON Chief Financial Officer March 22, 2004
- ---------------------- (Principal Financial Officer) --------------
Charles W. Clayton
/s/ ROGER B. CLARK Vice President Finance March 22, 2004
- ---------------------- (Principal Accounting Officer) --------------
Roger B. Clark
24
HAMPSHIRE GROUP, LIMITED
Index To Consolidated Financial Statements
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
Quarterly Financial Data F-23
Financial Statement Schedule
II. Valuation and Qualifying Accounts and Reserves F-24
F-1
Deloitte Deloitte & Touche LLP
1200 Bank of America Plaza
7 N Laurens Street
Greenville, SC 29601
USA
Tel: 1 864 240 5700
Fax: 1 864 235 8563
www.deloitte.com
Independent Auditors' Report
To the Board of Directors and Stockholders
of Hampshire Group, Limited
Anderson, South Carolina
We have audited the accompanying consolidated balance sheets of Hampshire Group,
Limited and its Subsidiaries (the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2003.
Our audits also included the financial statement schedule listed in the index on
F-1. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
March 26, 2004
F-2
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, 2003 2002
- ------------------------------------------------------------------------------
ASSETS Current assets:
Cash and cash equivalents $ 63,292 $ 66,893
Accounts receivable trade - net 29,450 27,474
Notes and other receivables 646 1,619
Inventories - net 22,049 14,732
Deferred tax assets 6,349 6,564
Assets of discontinued operations - net - 35,894
Other current assets 493 764
----------------------
Total current assets 122,279 153,940
Fixed assets - net 1,667 1,679
Trading securities held in
retirement trust 507 833
Deferred tax assets - 696
Goodwill 8,020 8,020
Other assets 701 777
----------------------
$133,174 $165,945
======================
- ------------------------------------------------------------------------------
LIABILITIES Current liabilities:
Current portion of long-term debt $ 1,932 $ 1,930
Accounts payable 12,599 6,172
Accrued expenses and other liabilities 19,846 27,318
Liabilities of discontinued operations - 11,912
----------------------
Total current liabilities 34,377 47,332
Long-term debt, less current portion 5,651 7,583
Deferred tax liability 68 -
Deferred compensation 2,656 2,575
----------------------
Total liabilities 42,752 57,490
----------------------
Commitments and contingencies
- ------------------------------------------------------------------------------
STOCKHOLDERS'Common Stock, $0.10 par value;
EQUITY 4,761,911 (2003) and 4,721,911
(2002) shares issued and 4,067,721
(2003) and 4,720,591 (2002)shares
outstanding 476 472
Additional paid-in capital 32,685 31,484
Retained earnings 80,964 76,526
Treasury stock, 694,190 (2003) and
1,320 (2002) shares at cost (23,703) (27)
----------------------
Total stockholders' equity 90,422 108,455
----------------------
$133,174 $165,945
======================
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31, 2003 2002 2001
- --------------------------------------------------------------------------------------
Net sales $292,651 $293,268 $261,361
Cost of goods sold 218,454 210,336 192,546
------------------------------------
Gross profit 74,197 82,932 68,815
Selling, general and administrative expenses 54,903 51,816 45,482
Impairment charges and provision
for uncollectible note - - 2,618
------------------------------------
Income from operations 19,294 31,116 20,715
Other income (expense):
Interest expense (909) (1,359) (2,563)
Interest income 683 420 514
Other - net 155 (271) (133)
------------------------------------
Income from continuing operations before
income taxes 19,223 29,906 18,533
Income tax (provision) benefit:
Current (6,821) (12,525) (7,700)
Deferred (979) 664 770
------------------------------------
Income from continuing operations 11,423 18,045 11,603
Income (loss) from discontinued operations
- net of income taxes of $408, ($1,761)
and ($730) 637 (997) (523)
Loss from disposal of discontinued operations
- net of income taxes of $192 (6,433) - -
------------------------------------
Net income $ 5,627 $17,048 $11,080
====================================
- --------------------------------------------------------------------------------------
Income per share from Basic $2.50 $3.83 $2.49
continuing operations: =================================
Diluted $2.43 $3.73 $2.48
=================================
Loss per share from Basic ($1.27) ($0.21) ($0.11)
discontinued operations: =================================
Diluted ($1.23) ($0.20) ($0.11)
=================================
Net income per share: Basic $1.23 $3.62 $2.38
=================================
Diluted $1.20 $3.53 $2.37
=================================
Weighted average number Basic 4,573 4,711 4,661
of shares outstanding: =================================
Diluted 4,696 4,834 4,674
=================================
- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, 2003 2002 2001
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 5,627 $17,048 $11,080
(Income) loss from discontinued operations (637) 997 523
Loss from disposal of discontinued operations 6,433 - -
----------------------------
Income from continuing operations 11,423 18,045 11,603
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 823 704 1,560
Asset impairment charges and provision
for uncollectible note - - 2,618
(Gain) loss on sale of fixed assets (1) 109 25
Deferred income tax provision (benefit) 979 (664) (770)
Deferred compensation costs for executive
officers 415 775 579
Tax benefit relating to Common Stock Plans 726 73 6
Net change in operating assets and liabilities:
Receivables (982) 6,290 (1,115)
Inventories (7,317) 12,007 6,483
Accounts payable, accrued expenses
and other liabilities (1,045) 12,776 1,030
Other assets 399 (284) 761
----------------------------
Net cash provided by operating activities 5,420 49,831 22,780
--------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (840) (916) (294)
Proceeds from sales of fixed assets 30 8 11
Repayments of loans and advances 250 250 1,970
----------------------------
Net cash (used in) provided by investing activities (560) (658) 1,687
--------------------------------------------------------------------------------------
Cash flows from financing activities:
Debt issuance costs (323) - -
Repayment of long-term debt (1,930) (6,537) (3,433)
Payments of deferred compensation (8) (8) (8)
Proceeds from issuance of Common Stock
under the Company Stock Plans 479 183 413
Proceeds from issuance of treasury stock
under the Company Stock Plans 234 263 77
Purchases of treasury stock (1,194) (265) (138)
----------------------------
Net cash (used in) financing activities (2,742) (6,364) (3,089)
- ---------------------------------------------------------------------------------------
Discontinued operations:
Net cash (used in) discontinued operations (5,719) (4,067) (3,129)
- ---------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,601) 38,742 18,249
Cash and cash equivalents - beginning of year 66,893 28,151 9,902
----------------------------
Cash and cash equivalents - end of year $63,292 $66,893 $28,151
- -----------------------------------------------------------============================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Supplementary disclosure of cash flow information
Year ended December 31, 2003 2002 2001
- ----------------------------------------------------------------------------------------
Cash paid during the year for: Interest $ 884 $ 1,393 $3,010
Income taxes 6,253 12,541 4,914
Non-cash investing and financing activities:
Treasury stock received from the disposal of
discontinued operations - fair value 23,905 - -
Treasury stock acquired from options exercised
under the Company Stock Plans 731 73 -
- ----------------------------------------------------------------------------------------
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Additional
Years Ended December 31, Common Stock Paid-In Retained Treasury
2001, 2002 and 2003 Shares Amount Capital Earnings Stock Total
- -----------------------------------------------------------------------------------------
Balance - December 31, 2000 4,644,993 $465 $30,816 $48,501 ($ 67) $79,715
Net income for the year - - - 11,080 - 11,080
Purchase of treasury stock (16,760) - - - (138) (138)
Shares issued under the
Common Stock plans 64,909 6 407 - 77 490
Tax benefit relating to
Common Stock plans - - 6 - - 6
Deferred compensation payable
in Company shares 364,958 - - - 3,229 3,229
Shares held in trust for deferred
compensation liability (364,958) - - - (3,229) (3,229)
- -----------------------------------------------------------------------------------------
Balance - December 31, 2001 4,693,142 471 31,229 59,581 (128) 91,153
Net income for the year - - - 17,048 - 17,048
Purchase of treasury stock (13,136) - - - (265) (265)
Shares issued under the
Common Stock plans 40,585 1 182 (103) 366 446
Tax benefit relating to
Common Stock plans - - 73 - - 73
Deferred compensation payable
in Company shares 376,765 - - - 3,394 3,394
Shares held in trust for deferred
compensation liability (376,765) - - - (3,394) (3,394)
- -----------------------------------------------------------------------------------------
Balance - December 31, 2002 4,720,591 472 31,484 76,526 (27) 108,455
Net income for the year - - - 5,627 - 5,627
Treasury stock received in disposal
of discontinued operations (700,000) - - - (23,905) (23,905)
Purchase of treasury stock (50,519) - - - (1,194) (1,194)
Shares issued under the
Common Stock plans 97,649 4 475 (1,189) 1,423 713
Tax benefit relating to
Common Stock plans - - 726 - - 726
Deferred compensation payable
in Company shares 278,014 - - - 2,502 2,502
Shares held in trust for deferred
compensation liability (278,014) - - - (2,502) (2,502)
- -----------------------------------------------------------------------------------------
Balance - December 31, 2003 4,067,721 $476 $32,685 $80,964 ($23,703) $90,422
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
HAMPSHIRE GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Summary of Critical and Other Significant
Accounting Policies
Organization
- ------------
Hampshire Group, Limited ("Hampshire Group" or the "Company"), through its
wholly owned subsidiaries Hampshire Designers, Inc. ("Hampshire Designers") and
Item-Eyes, Inc. ("Item-Eyes"), engages in the apparel business. The Company's
corporate offices are in Anderson, South Carolina and its sales offices and
showrooms are in the apparel district of New York City. Both Hampshire Designers
and Item-Eyes source the manufacture of their products through a worldwide
network of quality manufacturers and their products are sold primarily in the
United States through various retail and catalog companies.
Summary of Critical and Other Significant Accounting Policies
- -------------------------------------------------------------
The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues,
and expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis management evaluates its estimates, including those related to
allowances for customer returns and adjustments and inventory reserves.
Management bases its estimates on historical experience and on various other
assumptions that management believes to be reasonable under the circumstances,
the results of which form a basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions; however, management believes that its estimates, including those for
the above described items, are reasonable and that the actual results will not
vary significantly from the estimated amounts.
The following critical accounting policies relate to the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:
Allowances For Customer Returns and Adjustments
- -----------------------------------------------
The Company maintains allowances for customer returns, trade discounts, customer
chargebacks, and for sales and markdown allowances given to the customer,
typically at the end of the selling seasons, which enable customers to markdown
the retail sales prices of any remaining goods on hand. The estimates for these
allowances and discounts are based on a number of factors, including: (1)
historical experience, (2) aging of the trade accounts receivable, (3) specific
information obtained by the Company on the financial condition and current
credit worthiness of customers or other parties, and (4) specific agreements or
negotiated amounts with customers.
If the financial condition of the Company's customers were to deteriorate and
reduce the ability of the customers to make payments on their accounts, the
Company may be required to increase its allowances by recording additional bad
debt reserves. Further, while the Company believes that it has negotiated all
substantial sales and markdown allowances with its customers for the season
recently completed, additional allowances for the spring season are anticipated
and have been provided for and others may be requested by customers for the
concluded seasons. Likewise, should the financial condition of the Company's
customers or other parties improve and result in payments or favorable
settlements of previously reserved amounts, the Company may be required to
record a reduction in recorded allowances.
Inventory Reserves
- ------------------
The Company analyzes out-of-season merchandise on an individual SKU basis to
determine reserves, if any, that may be required. Factors considered in
evaluating the requirement for reserves include product styling, color, current
F-7
fashion trends and quantities on hand. Many of the Company's products are
"classics" and remain saleable from one season to the next and therefore no
reserves are generally required on these products. An estimate is made of the
market value, less costs to dispose and a normal profit margin, of products
whose value is determined to be impaired. If these products are ultimately sold
at less than estimated amounts, additional reserves may be required. Likewise,
if these products are sold for more than estimated amounts, reserves may be
reduced.
Also, the following accounting policies significantly affect the preparation of
the consolidated financial statements:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries, including Hampshire Designers and Item-Eyes.
Hampshire Investments, Limited and its subsidiaries, (collectively, "Hampshire
Investments") have been reported as discontinued operations for all periods
presented due to the disposal of the investment segment on October 8, 2003. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
- ----------------
Cash equivalents consist of highly liquid investments with initial maturities of
ninety days or less. At December 31, 2003 and 2002, interest bearing amounts
were approximately $60.2 million and $62.6 million, respectively. A significant
amount of the Company's cash and cash equivalents are on deposit in financial
institutions and exceed the maximum insurable deposit limits.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method ("FIFO") for all inventory except for
approximately 5% of the inventory at both December 31, 2003 and 2002, for which
cost is determined using the last-in, first-out method ("LIFO").
Fixed Assets
- ------------
Fixed assets are recorded at cost. The Company provides for depreciation using
the straight-line method over the estimated useful lives of the assets.
Additions and major replacements or improvements are capitalized, while minor
replacements and maintenance costs are charged to expense as incurred. The cost
and accumulated depreciation of assets sold or retired are removed from the
accounts and any gain or loss is included in the results of operations for the
period of the transaction.
Impairment of Long-Lived Assets
- -------------------------------
The Company follows the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which addresses financial reporting for the impairment or
disposal of such assets. There has not been any impairment of assets of
continuing operations since adoption of the standard. See "Recent Accounting
Standards".
Goodwill
- --------
Goodwill represents the excess of cost over net assets acquired in connection
with the acquisition of certain businesses. Beginning January 1, 2002, in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
amortization ceased. Prior to January 1, 2002, goodwill was amortized under the
straight-line method over the estimated useful life of 20 years or less, and in
2001, the Company recognized an impairment of $825,000 due to the permanent
decline in the business of one of the divisional operations. In addition,
goodwill is reviewed for impairment during the fourth quarter of each year or
more often should impairment indicators exist. See "Recent Accounting
Standards".
F-8
Financial Instruments
- ---------------------
The Company's financial instruments primarily consist of cash and cash
equivalents, accounts and notes receivable, accounts payable, accrued expenses
and other liabilities and long-term debt. The fair value of long-term debt is
disclosed in Note 6. The carrying amounts of the other financial instruments are
considered a reasonable estimate of their fair value at December 31, 2003 and
2002, due to the short-term nature of the items.
Revenue Recognition
- -------------------
The Company recognizes sales revenue upon shipment of goods to customers, net of
the Company's estimate of returns and allowances.
Advertising Costs
- -----------------
Advertising costs are expensed as incurred and are included in selling, general
and administrative expenses. Total advertising costs for the years ended
December 31, 2003, 2002 and 2001 totaled approximately $1,425,000, $459,000 and
$812,000, respectively. See "Recent Accounting Standards".
Shipping Costs
- --------------
Costs to ship products to customers are expensed as incurred and are included in
selling, general and administrative expenses. Total shipping costs for the years
ended December 31, 2003, 2002 and 2001 totaled approximately $1,066,000,
$1,011,000 and $713,000, respectively.
Income Taxes
- ------------
Income taxes are recognized for financial reporting purposes during the year in
which transactions enter into the determination of income, with deferred taxes
being provided for temporary differences between the basis for financial
reporting purposes and the basis for income tax reporting purposes.
Earnings Per Common Share
- -------------------------
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares outstanding for the year. Diluted earnings per
common share are computed similarly; however, it is adjusted for the effects of
the assumed exercise of the Company's outstanding options.
Presentation of Prior Years Data
- --------------------------------
Certain reclassifications have been made to prior years' data to conform to the
current-year presentation.
Recent Accounting Standards
- ---------------------------
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", on
January 1, 2002. SFAS No. 142 discontinues the practice of amortizing goodwill
and intangible assets that have indefinite useful lives and initiates an annual
review for impairment. As of the date of adoption, the Company had unamortized
goodwill of $8,020,000. A reconciliation of the reported income from continuing
operations and income per share from continuing operations for the years ended
December 31, 2003, 2002 and 2001, to the amounts adjusted for the reduction of
amortization expense, net of the related income tax effect, is as follows:
F-9
(in thousands, except per share data) 2003 2002 2001
- -----------------------------------------------------------------------------------------------
Income from continuing operations as reported $11,423 $18,045 $11,603
Add back amortization of goodwill, net of tax effect of ($304) - - 543
- -----------------------------------------------------------------------------------------------
Adjusted income from continuing operations $11,423 $18,045 $12,146
- -----------------------------------------------------------------------------------------------
Basic income per share from continuing operations as reported $2.50 $3.83 $2.49
Adjustment for add back of amortization expense, net of tax effect - - 0.12
- -----------------------------------------------------------------------------------------------
Adjusted basic income per share from continuing operations $2.50 $3.83 $2.61
- -----------------------------------------------------------------------------------------------
Diluted income per share from continuing operations as reported $2.43 $3.73 $2.48
Adjustment for add back of amortization expense, net of tax effect - - 0.12
- -----------------------------------------------------------------------------------------------
Adjusted diluted income per share from continuing operations $2.43 $3.73 $2.60
- -----------------------------------------------------------------------------------------------
In accordance with SFAS No. 142, goodwill is tested for impairment at least
annually and more frequently if circumstances indicate it may be impaired. The
Company performs its annual impairment test during the fourth quarter of each
year. During the fourth quarters of 2003 and 2002, the Company completed its
annual assessments of goodwill for impairment in accordance with SFAS No. 142,
and determined that there was no impairment.
The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on January 1, 2002. SFAS No. 144 addresses financial
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions of
Accounting Principles Board Opinion ("APB") No. 30 related to the disposal of a
segment of a business. The adoption of SFAS No. 144 had no material effect on
the Company's financial position, results of operations or cash flows.
The Company adopted Emerging Issues Task Force ("EITF") 01-9, "Accounting for
Consideration by a Vendor to a Customer or a Reseller of the Vendor's Products",
on January 1, 2002. EITF 01-9 addresses whether consideration from a vendor to a
reseller of the vendor's product is (a) an adjustment to the selling prices of
the vendor's products and, therefore should be deducted from revenue when
recognized in the vendor's income statement, or (b) a cost incurred by the
vendor for assets or services received from the reseller and, therefore should
be included as a cost or an expense when recognized in the vendor's income
statement. The adoption of EITF 01-9 required reclassification of cooperative
advertising expenses from selling, general and administrative expenses to a
reduction from revenues. As a result of such retroactive reclassification of
cooperative advertising, net sales, gross profit and selling, general and
administrative expenses for the year ended December 31, 2001 decreased by
$2,123,000, with no effect on net income.
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS
No. 146 requires that a liability for the cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146
also established that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 had no effect on the Company's financial position, results of operations and
cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amended the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure
in both interim and annual financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. Certain disclosures required by the statement are effective
F-10
for years ending after December 15, 2002 and other disclosures are effective for
the first quarter beginning after December 15, 2002. The Company continues to
use the intrinsic value method.
SFAS No. 123, as amended by SFAS No. 148, allows companies to adopt the fair
value based method of accounting or to continue using the intrinsic value based
method of accounting prescribed by APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options. Under APB No. 25 (the "intrinsic method"), which the Company continues
to use, the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant. Therefore, no
compensation expense was recognized in 2003, 2002, or 2001. Additionally, in
accordance with SFAS No. 123 as amended, the Company is required to disclose
fair value information about its stock-based employee compensation plans for all
periods presented. If compensation expense for the Company's stock-based
compensation plans had been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No. 123,
the Company's income from continuing operations and basic and diluted earnings
per share from continuing operations would have been reduced as per the "pro
forma" amounts in the following table.
The compensation costs and effect on income from continuing operations and basic
and diluted earnings per share from continuing operations had compensation cost
been determined in accordance with SFAS No.123 are set forth below:
(in thousands, except for per share data) 2003 2002 2001
- --------------------------------------------------------------------------------
Income from continuing operations As reported $11,423 $18,045 $11,603
Compensation cost - net of tax 4 78 92
--------------------------------
Pro forma $11,419 $17,967 $11,511
================================================================================
Basic income per share from As reported $2.50 $3.83 $2.49
continuing operations: --------------------------------
Pro forma $2.50 $3.81 $2.47
================================================================================
Diluted income per share from As reported $2.43 $3.73 $2.48
continuing operations: --------------------------------
Pro forma $2.43 $3.72 $2.46
===============================================================================
In order to estimate compensation cost under SFAS No. 123, the Black-Scholes
model was employed using the assumptions set forth below:
2003 2002(1) 2001
- -------------------------------------------------------------------------------
Expected life (years) 4.2 - 5.9
Expected volatility 39.7% - 24.3%
Dividend yield 0.0% - 0.0%
Risk-free interest rate 4.1% - 4.8%
- -------------------------------------------------------------------------------
Weighted-average fair value of options granted $7.02 - $3.02
===============================================================================
(1)There were no options granted during the year ended December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". Interpretation No. 45 requires an entity
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provision are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 had no effect on the Company's financial position and results of operations.
Interpretation No. 45 also provides guidance on the disclosure to be made by the
guarantor about its obligation under certain guarantees that it has issued. The
disclosure requirements are effective for the financial statements of periods
ending after December 15, 2002. At December 31, 2003 and 2002, the Company and
F-11
various consolidated subsidiaries of the Company are borrowers under the
Revolving Credit Facility and Senior Notes (the "Facilities") (see Note 6). The
Facilities are guaranteed by either the Company and/or various consolidated
subsidiaries of the Company in the event that the borrower(s) default under the
provisions of the Facilities. The guarantees are in effect for the period of the
related Facilities.
In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46, among other things, provides guidance on identifying variable interest
entities ("VIE") and determining when assets, liabilities, non-controlling
interests, and operating results of a VIE should be included in a company's
consolidated financial statements, and also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. In
December 2003, the FASB issued a revision to FIN 46 to clarify some of the
provisions of the original interpretation and to exempt certain entities from
its requirements. The additional guidance explains how to identify a VIE and how
an enterprise should assess its interest in an entity to decide whether to
consolidate that entity. Application of revised FIN 46 is required for public
companies with interest in "special purpose entities" for periods ending after
December 15, 2003. Application for public entities for all other types of
entities is required in financial statements for periods ending after March 15,
2004. The Company's adoption of FIN 46 is not expected to significantly impact
the Company's financial statements or disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial position, certain financial instruments with characteristics of
both liabilities and equities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 had no effect on the Company's financial
position, results of operations and cash flows.
Note 2 - Accounts Receivable and Major Customers
The Company performs ongoing evaluations of the credit worthiness of its
customers and maintains allowances for potential credit losses. The Company
generally does not require collateral for its trade receivables. At December 31,
2003 and 2002, the accounts receivable are stated net of allowances for doubtful
accounts, customer returns, customer chargebacks, and for sales and markdown
allowances of approximately $15,494,000 and $13,057,000, respectively (See Note
1).
The Company sells principally to department stores, catalog companies, specialty
stores, mass merchants and other retailers located in the United States. The
Company had sales to three major customers (defined as sales in excess of 10% of
total sales) for the year ended December 31, 2003 which represented 15%, 14% and
10% of total sales. For the year ended December 31, 2002 the three major
customers represented 14%, 11% and 11% of total sales, and for the year ended
December 31, 2001 the three major customers represented 14%, 11% and 10% of
total sales. At December 31, 2003 and 2002, 48% and 55%, respectively, of the
total trade receivables were due from these major customers.
F-12
Note 3 - Inventories
Inventories at December 31, 2003 and 2002 consist of the following:
(in thousands) 2003 2002
- ------------------------------------------------------------------------
Finished goods $20,823 $13,246
Work-in-progress 465 205
Raw materials and supplies 879 1,518
- ------------------------------------------------------------------------
22,167 14,969
Less - Excess of current cost
over LIFO carrying value (118) (237)
- ------------------------------------------------------------------------
Total $22,049 $14,732
========================================================================
At both December 31, 2003 and 2002, approximately 5% of total inventories were
valued using the LIFO method.
Note 4 - Fixed Assets
Fixed assets at December 31, 2003 and 2002 consist of the following:
Estimated
(in thousands) Useful Lives 2003 2002
- ------------------------------------------------------------------------
Leasehold improvements 5-10 years $1,095 $1,050
Machinery and equipment 3-7 years 3,335 2,881
Furniture and fixtures 3-7 years 910 714
Vehicles 3-5 years 141 141
- ------------------------------------------------------------------------
Total cost 5,481 4,786
Less - Accumulated depreciation (3,814) (3,107)
- ------------------------------------------------------------------------
Total $1,667 $1,679
========================================================================
Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $823,000, $704,000 and $713,000, respectively.
Note 5 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 2003 and 2002 consist of
the following:
(in thousands) 2003 2002
- ------------------------------------------------------------------------
Compensation $ 4,156 $ 8,182
Reserve for disputes 7,297 7,515
Income taxes 2,991 4,552
Co-op advertising 1,450 1,450
Royalties 489 1,306
Other 3,463 4,313
- ------------------------------------------------------------------------
Total $19,846 $27,318
========================================================================
During the fourth quarter of 2002, the Company was advised that certain of its
suppliers would not be able to deliver finished product as agreed. As a result
of the failure to meet these obligations to the Company, the Company established
a reserve in the amount of $7,515,000 for costs of inventory purchases and
estimated losses for matters arising from these events. At December 31, 2003,
these matters remain unresolved and the reserve balance is $7,297,000.
F-13
Note 6 - Borrowings
Revolving Credit Facility
- -------------------------
On August 15, 2003, the Company entered into a new Revolving Credit Facility
("Revolving Credit Facility") with six participating commercial banks, with HSBC
Bank USA as agent. The Revolving Credit Facility, which matures on April 30,
2007, provides for secured borrowings up to $100,000,000 in revolving line of
credit borrowings and letters of credit. Advances under the line of credit are
limited to the lesser of: (1) $100,000,000 less outstanding letters of credit;
or (2) the sum of 85% of eligible accounts receivable, 50% of eligible inventory
(subject to seasonal limits) of the Company's subsidiaries (defined as Hampshire
Designers and Item-Eyes), and 50% of outstanding eligible letters of credit
issued through this Revolving Credit Facility, plus seasonal overadvances in the
periods of highest requirements.
Advances under the Revolving Credit Facility bear interest at either the bank's
prime rate minus .25% or, at the option of the Company, a fixed rate of LIBOR
plus 1.80%, for a fixed term. The loan is collateralized, pari passu with the
Senior Notes, principally by the trade accounts receivable and inventories of
the Company's subsidiaries and a pledge of the common stock of the subsidiaries.
At December 31, 2003 there was $24.0 million outstanding under letters of
credit. No advances were outstanding under the Revolving Credit Facility at
December 31, 2003 or 2002, which resulted in availability for borrowing of
approximately $21.9 million under the Revolving Credit Facility at December 31,
2003.
Long-Term Debt - Long-term debt at December 31, 2003 and 2002 consists of the
following:
(in thousands) 2003 2002
- -------------------------------------------------------------------------------
Senior Notes payable to two insurance companies due in semi-
annual installments of $937,500 commencing January 2, 2001
through 2008, plus interest at 8% per annum, collateralized
pari passu with the Revolving Facility $7,500 $9,375
Debt collateralized by machinery and equipment
Note payable in monthly installments of approximately
$5,030, including interest at 4.875% through 2005 83 138
- -------------------------------------------------------------------------------
Total long-term debt 7,583 9,513
Less - Amount payable within one year (1,932) (1,930)
- -------------------------------------------------------------------------------
Amount payable after one year $5,651 $7,583
===============================================================================
Financial Covenants
- -------------------
Both the Revolving Credit Facility and the Senior Notes contain covenants that
require certain financial performance and restrict certain payments by the
Company. The financial performance covenants require, among other things, that
the Company maintain specified levels of consolidated net worth, not exceeding a
specified consolidated leverage ratio, achieve a specified fixed charge ratio
and limit capital expenditures to a specified maximum amount. The Company was in
compliance with the financial performance covenants and restrictions at December
31, 2003.
The Company's trade account receivables and inventories are pledged as
collateral, pari passu, under the Revolving Credit Facility and the Senior
Notes. The Revolving Credit Facility and the Senior Notes restrict certain sales
of assets, payments by the Company of cash dividends to stockholders and the
repurchase of Company common stock. The Senior Notes also require that during
any 12-month period there must be a period of 45 consecutive days where there is
no outstanding short-term debt. The Company was in compliance with these
provisions at December 31, 2003. The Company is charged 0.125% on the unused
balance of the Revolving Credit Facility.
F-14
Other
- -----
Maturities of long-term debt as of December 31, 2003 are as follows:
Year (in thousands)
- ----------------------------------------------------------------------------
2004 $1,932
2005 1,901
2006 1,875
2007 1,875
- ----------------------------------------------------------------------------
Total $7,583
============================================================================
The fair value of the long-term debt at December 31, 2003 and 2002, based on
current market interest rates discounted to present value, was approximately
$8.0 million and $10.1 million, respectively.
Note 7 - Income Taxes
The domestic and Puerto Rico components of income (loss) from continuing
operations before income taxes are as follows:
(in thousands) 2003 2002 2001
- ----------------------------------------------------------------------------
Domestic $19,223 $29,906 $19,002
Puerto Rico - - (469)
- ----------------------------------------------------------------------------
Income before income taxes $19,223 $29,906 $18,533
============================================================================
The components of income tax provision (benefit) consist of the following:
(in thousands) 2003 2002 2001
- ----------------------------------------------------------------------------
Current:
Federal $5,349 $10,481 $6,777
State 1,472 2,044 1,123
Puerto Rico - - (200)
- ----------------------------------------------------------------------------
6,821 12,525 7,700
- ----------------------------------------------------------------------------
Deferred:
Federal 995 (455) (590)
State (16) (209) (180)
- ----------------------------------------------------------------------------
979 (664) (770)
- ----------------------------------------------------------------------------
Total $7,800 $11,861 $6,930
============================================================================
A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income from continuing
operations before income taxes and the Company's actual provision for income
taxes is as follows:
(in thousands) 2003 2002 2001
- ----------------------------------------------------------------------------
Tax provision at federal statutory rate $6,728 $10,467 $6,487
Increase (decrease) in tax arising from:
State taxes, less federal income
tax benefit 946 1,193 613
Tax benefit of charitable contribution - (515) -
Other 126 716 (170)
- ----------------------------------------------------------------------------
Total $7,800 $11,861 $6,930
============================================================================
F-15
A summary of the temporary differences and carryforwards giving rise to deferred
income tax assets as of December 31, 2003 and 2002 is as follows:
(in thousands) 2003 2002
- -----------------------------------------------------------------------------
Deferred income tax assets:
Allowances for receivables $2,363 $1,596
Inventories 1,487 1,197
Accrued liabilities and other temporary differences 2,498 3,771
Net operating loss carryforwards 372 939
Discontinued operations - 1,812
- -----------------------------------------------------------------------------
Gross deferred income tax assets 6,720 9,315
- -----------------------------------------------------------------------------
Deferred income tax liabilities:
Fixed assets (33) (13)
Intangible assets (406) (230)
- -----------------------------------------------------------------------------
Gross deferred income tax liabilities (439) (243)
- -----------------------------------------------------------------------------
Net deferred income tax assets $6,281 $9,072
=============================================================================
The deferred tax assets and liabilities are recognized in the accompanying
consolidated balance sheets as follows:
(in thousands) 2003 2002
- -----------------------------------------------------------------------------
Deferred tax asset - current $6,349 $6,564
Deferred tax asset of discontinued operations - current - 1,812
Deferred tax asset - noncurrent - 696
Deferred tax liability - noncurrent (68) -
- -----------------------------------------------------------------------------
Total $6,281 $9,072
=============================================================================
The net operating loss carryforwards for federal income tax purposes, totaling
$935,000, will expire in 2009. State net operating loss carryforwards totaling
$1,119,000 begin to expire in 2010.
As discussed in Note 13, the Company incurred a loss in 2003 from the disposal
of certain discontinued operations of approximately $6,400,000. Of the reported
loss, approximately $5,560,000 is attributable to the disposition of the capital
stock of Hampshire Investments, Limited, the Company's former investment
subsidiary. Pursuant to Internal Revenue Code Section 355, the transaction is
characterized as a tax-free spin-off and the Company is not entitled to deduct
this loss because it represents a loss on disposition of property by the Company
in exchange for its own Common Stock. Therefore, no tax benefit has been
provided for this loss in the consolidated financial statements.
For the year ended December 31, 2002, the Company reported an income tax benefit
of approximately $1,761,000. This benefit resulted primarily from the impairment
charge recorded on a domestic real property investment in the amount of
$3,140,000 and the benefit from the utilization of a capital loss carryfoward.
For the year ended December 31, 2001, the Company reported an income tax benefit
of approximately $730,000. This benefit resulted primarily from impairment
charges recorded on certain foreign investments and real property assets and the
benefit of a capital loss.
Note 8 - Commitments and Contingencies
The Company leases premises and equipment under operating leases having terms
from month-to-month to three years. At December 31, 2003, including those leases
which have been renewed subsequent to year-end, future minimum lease payments
under leases having an initial or remaining non-cancelable term in excess of one
year were as set forth below:
F-16
Year (in thousands)
- --------------------------------------------------------------------------
2004 $1,110
2005 867
2006 681
2007 543
2008 403
Thereafter 1,075
- --------------------------------------------------------------------------
Total $4,679
==========================================================================
For the years ended December 31, 2003, 2002 and 2001, rent expense for operating
leases was approximately $1,206,000, $1,274,000 and $1,420,000, respectively.
The Company, in the normal course of business, issues binding purchase orders to
secure product for future sales to its customers. At December 31, 2003 these
open purchase orders commitments amounted to approximately $25,100,000, of which
approximately $17,700,000 was covered by open letters of credit. The majority of
the product is scheduled to be received during the first six months of 2004, at
which time these commitments will be fulfilled.
The Company is, from time to time, involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on the
Company's consolidated financial condition, results of operations, or cash flow.
Note 9 - Capitalization
The Company's authorized capital stock consists of 10,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock each having a par value of $0.10
per share. No preferred stock has been issued by the Company. As discussed in
Note 13, the Company received in the disposal of its discontinued operations
700,000 shares of its Common Stock, recorded as Treasury Stock in the Company's
financial statements.
Note 10 - Stock Options, Compensation Plans and Retirement Savings Plan
The Company registered 1,500,000 shares of its Common Stock under the Securities
Act of 1933, as amended, to be issued with regards to the Hampshire Group,
Limited 1992 Stock Option Plan, as amended, and the Hampshire Group, Limited
Common Stock Purchase Plan for Directors and Executives. Of these shares,
904,000 have been issued under these plans.
The Board of Directors of the Company has from time to time authorized the
repurchase of shares of the Company's Common Stock, some of which would be used
to offset the dilution caused by the issuance of shares under the Stock Option
Plan and Stock Purchase Plan. During 2003, the Company purchased 54,519 shares
of its Common Stock for $1,254,000. Of the amounts authorized approximately
64,000 shares remain available for repurchase.
The Company's purchases of shares of Common Stock are recorded at cost as
"Treasury Stock" and result in a reduction of "Stockholders' Equity". When
treasury shares are reissued, the Company uses a weighted average cost method
and the excess of outstanding repurchased costs over reissue price is treated as
a reduction of "Retained Earnings".
Stock Options
- -------------
Options to purchase Hampshire Group, Limited Common Stock are granted at the
discretion of the Company's Board of Directors to executives and key employees
of the Company and its subsidiaries. No option may be granted with an exercise
F-17
price less than the fair market value per share of Common Stock at the date of
grant. The vesting of options varies from immediate vesting to vesting 5 years
from date of grant and have a maximum term of 10 years. Stock option activity is
as follows:
Number of Weighted Average
Options Exercise Price
- -------------------------------------------------------------------------------
Outstanding - December 31, 2000 383,866 $12.26
Granted 61,500 9.37
Exercised (34,360) 6.85
Canceled or expired (18,365) 11.60
- -------------------------------------------------------------------------------
Outstanding - December 31, 2001 392,641 12.32
Granted - -
Exercised (28,156) 9.78
Canceled or expired (35,790) 10.15
- -------------------------------------------------------------------------------
Outstanding - December 31, 2002 328,695 12.71
Granted 1,000 21.15
Exercised (116,070) 11.42
Canceled or expired (77,850) 13.93
- -------------------------------------------------------------------------------
Outstanding - December 31, 2003 135,775 $13.18
===============================================================================
A summary of the status of options outstanding at December 31, 2003 is set forth
in the table below.
Options Outstanding Options Exercisable
- ---------------------------------------------------------- --------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise Prices 12/31/03 Remaining Life Exercise Price 12/31/03 Exercise Price
- --------------- ----------- -------------- -------------- ----------- --------------
$ 8.00 - $ 8.63 28,956 3.35 $ 8.58 21,000 $ 8.60
9.49 - 11.75 7,669 2.04 10.22 4,625 10.70
12.00 - 12.00 27,000 4.26 12.00 27,000 12.00
12.13 - 14.00 31,275 4.22 13.56 27,175 13.78
14.50 - 18.00 28,750 5.40 16.93 14,750 15.92
18.13 - 22.69 12,125 2.78 18.80 11,375 18.64
- ----------------------------------------------------------- -------------------------
$ 8.00 - $22.69 135,775 4.04 $13.18 105,925 $12.99
=========================================================== =========================
At December 31, 2003, 2002 and 2001, the number of options exercisable was
105,925, 94,995 and 97,141, respectively.
Common Stock Purchase Plan
- --------------------------
Pursuant to the Hampshire Group, Limited 1992 Common Stock Purchase Plan for
Directors and Executives ("Stock Purchase Plan"), key executives were permitted
to use a portion of their annual compensation to purchase Common Stock of the
Company. Non-employee Directors were permitted to defer their fees to purchase
Common Stock of the Company. The right to purchase shares under the Stock
Purchase Plan was terminated on December 31, 2002.
For the years ended December 31, 2002 and 2001, approximately $193,000 and
$128,000, respectively, of participants' compensation was used by the Stock
Purchase Plan to purchase Common Stock of the Company. The Company has
established a trust to which it delivers the shares of the Company's Common
Stock following the end of each plan year to satisfy such elections. The
deferred compensation liability and the Company's shares are presented as
offsetting amounts in the stockholders' equity section.
Distributions from the plan commenced on January 15, 2003 with distribution of
104,755 shares valued at approximately $2,095,000. The remaining 278,014 shares
will be distributed to the participants in accordance with their elections.
F-18
Voluntary Deferred Compensation Plan
- ------------------------------------
In 1997, the Company adopted the Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Executives (the "Top Hat Plan"). The Plan was established
to permit key executives to defer up to 20% of the total compensation in each
year for retirement with such deferrals being invested in mutual funds. The Top
Hat Plan had a "sunset provision" for deferral of December 31, 2000.
Distributions from the plan of approximately $440,000 on January 15, 2003 and
approximately $310,000 on January 15, 2004 were made.
Company Deferred Compensation Plans
- -----------------------------------
The Company accrues $200,000 annually to a deferred compensation plan on behalf
of Ludwig Kuttner. At the option of the Mr. Kuttner, the cumulative amount may
be invested in the Company, accruing interest at 110% of the Applicable Federal
Long-Term Interest Rate.
In accordance with an unfunded deferred compensation agreement with Eugene
Warsaw, the President of Hampshire Designers, Inc., the Company accrued for the
years ended December 31, 2003, 2002 and 2001, approximately $89,000, $561,000,
and $471,000, respectively.
As part of his employment arrangement, the Company has agreed that Charles
Clayton, Chief Financial Officer, Secretary and Treasurer of the Company, may
defer up to 60% of his incentive compensation to be invested in the Company,
accruing interest at 110% of the Applicable Federal Long-Term Interest Rate.
Such amounts will be distributed at a rate of $25,000 per quarter after his
retirement from the Company.
Retirement Savings Plan
- -----------------------
The Company has a "Hampshire Group, Limited and Subsidiaries 401(k) Retirement
Savings Plan" under which employees may participate after having completed at
least one year of service and having reached the age of twenty years. The
Company's matching contribution is determined annually at the discretion of the
Board of Directors. Matching contributions for the years ended December 31,
2003, 2002 and 2001 were approximately $168,000, $142,000 and $125,000,
respectively. Such matching contributions vest fully after six years of
employment.
Note 11 - Related Party Transactions
The Company leases certain buildings from a company that Ludwig Kuttner,
Chairman and Chief Executive Officer of the Company, has beneficial ownership of
58% and Charles W. Clayton, Chief Financial Officer, Secretary and Treasurer of
the Company, has an ownership of 4%, of the voting stock. Rent expense under
such leases for the years ended December 31, 2003, 2002 and 2001 was
approximately $251,000, $243,000 and $234,000, respectively. The Company also
leased certain buildings from Peter Woodworth, a director of the Company,
through June 2003. Rent expense under these leases for the years ended December
31, 2003, 2002 and 2001 was approximately $59,000, $96,000 and $158,000,
respectively. The terms of these leases were approved by the Board of Directors
of the Company based on independent confirmation that the leases are fair and
reasonable and are at market terms. Mr. Kuttner received a fee for guaranteeing
certain of the Company's debt and for the years ended December 31, 2003, 2002
and 2001 these fees were approximately $31,000, $49,000 and $59,000,
respectively. With the disposal of the discontinued operations there are no
other guarantees by Mr. Kuttner of debt for the Company.
Mr. Harvey L. Sperry, a director of the Company, is a retired partner in the law
firm of Willkie Farr & Gallagher LLP. The firm has served as legal counsel to
the Company since 1977 and in such capacity, for the years ended December 31,
2003, 2002 and 2001, the firm was paid approximately $262,000, $96,000 and
$33,000, respectively.
F-19
Dr. Joel Goldberg, a director of the Company, is a principal of Career
Consultants, Inc., which has provided human resource consulting services to the
Company since 1997. In such capacity this firm was paid fees of approximately
$5,000 for the year ended December 31, 2001.
Mr. Michael Jackson, a director of the Company, is a principal of Ironwood
Partners LLC, which has provided financial consulting services to the Company.
In such capacity this firm was paid a fee, for the years ended December 31, 2003
and 2002, of approximately $150,000 and $75,000, respectively.
The Company entered into a service agreement with an affiliated company, owned
by certain officers of Item-Eyes, Inc., to warehouse and distribute its women's
related separates products. The service agreement provides that a fee be paid on
a per unit shipped basis. The service agreement expires August 31, 2005, however
it may be terminated by the Company at any time upon 30 days written notice.
Fees paid for the years ended December 31, 2003, 2002, and 2001 were $2,496,000,
$2,765,000 and $2,800,000, respectively, and are included in selling, general
and administrative expenses in the accompanying consolidated statements of
income.
Note 12 - Sale of Assets
During the year ended December 31, 2000, the Company sold its sweater
manufacturing assets to Glamourette/OG, Inc. ("Glamourette"), a Puerto Rican
corporation. As partial payment of the purchase price the Company accepted a
promissory note in the discounted amount of $6,468,000, due April 28, 2005.
During the fourth quarter of 2001, the Company notified Glamourette it was in
default under the note and agreement with respect to the sale of the sweater
manufacturing assets and that the Company would recoup approximately $1,100,000
owed to Glamourette for merchandise received by the Company. Subsequent to this
notice, Glamourette filed for bankruptcy and accordingly the Company has written
off the note, net of the $1,100,000 recouped. During 2002, Glamourette
unsuccessfully challenged the recoupment against its note to the Company,
accordingly, the amount recouped was recognized as income, net of related
expenses, in the amount of $450,000 and $550,000, respectively, for the years
ended 2003 and 2002 as the liability for the claim was resolved.
Note 13 - Discontinued Operations
On October 8, 2003, the Company completed the disposition of Hampshire
Investments, Limited ("HIL"), the investment subsidiary of the Company. A
special committee of the Board of Directors ("Board"), comprised of the
independent directors was responsible for the disposal because Ludwig Kuttner,
Chairman and Chief Executive Officer, and other members of management of the
Company participated as purchasers of HIL. HIL made investments both
domestically and internationally, principally in real property.
Certain HIL assets were sold to K Holdings, LLC, a company controlled by Ludwig
Kuttner, for a purchase price of 250,000 shares of the Company's Common Stock.
Subsequently, all of the outstanding shares of capital stock of HIL were
exchanged with an investor group consisting of Mr. Kuttner, Peter Woodworth, a
Director of the Company, and Charles Clayton, Secretary and Treasurer of the
Company, for 450,000 shares of the Company's Common Stock.
The fair market value of the Company's common stock received in the two
transactions was $23,905,000 based on a price of $34.15 per share, as reported
by NASDAQ at the market close on October 7, 2003, the trading day prior to the
date on which the transactions were consummated. The transactions resulted in a
loss from disposal of approximately $6,433,000, including the related income tax
expense of $192,000. This loss, including disposal costs of $950,000, was
recognized as a loss from disposal of discontinued operations in the
consolidated statement of operations for the year ended December 31, 2003. Of
the reported loss from the disposal of the discontinued operations,
approximately $5,560,000 is attributable to the disposal of the capital stock of
F-20
HIL. Under the Internal Revenue Code Section 355, the transaction is
characterized as a tax-free spin-off and accordingly, the Company is not
entitled to deduct this loss because it represents a loss on the distribution of
property by the Company in exchange for its own Common Stock. Therefore, no tax
benefit has been provided for this loss in the consolidated financial
statements.
In accordance with the guidance of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", HIL has been accounted for as a discontinued
operation, and the financial information for all prior periods presented have
been reclassified to report HIL as a discontinued operation.
The major classes of discontinued assets and liabilities as of October 8, 2003,
disposition date and December 31, 2002 are summarized as follows (in thousands):
Oct. 8, Dec. 31,
2003 2002
- ---------------------------------------------------------------------------
Current assets $ 6,498 $ 3,067
Real property investments - net 30,918 27,668
Long-term investments - net 3,877 4,315
Other assets 709 844
Impairment on disposal (5,291) -
- ---------------------------------------------------------------------------
Total assets $36,711 $35,894
===========================================================================
Current liabilities $ 2,687 $ 2,193
Long-term liabilities 10,918 9,719
- ---------------------------------------------------------------------------
Total liabilities $13,605 $11,912
===========================================================================
At October 8, 2003 current liabilities include amounts incurred but unpaid for
the disposition of the discontinued operations. The rental revenue and pretax
income for HIL, which are included in the income (loss) from discontinued
operations in the consolidated statements of operations through October 8, 2003,
the date of disposition of HIL, are summarized as follows (in thousands):
Oct. 8, Dec. 31, Dec. 31,
2003 2002 2001
- ---------------------------------------------------------------------------
Rental Revenue $2,614 $3,194 $2,594
Pre-tax income (loss) 1,045 (2,758) (1,253)
F-21
Note 14 - Earnings Per Share
Set forth in the table below is a reconciliation by year of the numerator
(income) and the denominator (shares) of the basic and diluted earnings per
share ("EPS") computations.
For the Year 2001 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- ------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations $11,603 - $2.49
Loss from discontinued operations (523) - (0.11)
- ------------------------------------------------------------------------------
Net income $11,080 4,661 $2.38
Effect of dilutive securities-options - 13 (0.01)
==============================================================================
Diluted EPS:
Net income $11,080 4,674 $2.37
==============================================================================
For the Year 2002 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- ------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations $18,045 - $3.83
Loss from discontinued operations (997) - (0.21)
-----------------------------------------------------------------------------
Net income $17,048 4,711 $3.62
Effect of dilutive securities-options - 123 (0.09)
==============================================================================
Diluted EPS:
Net income $17,048 4,834 $3.53
==============================================================================
For the Year 2003 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- ------------------------------------------------------------------------------
Basic EPS:
Income from continuing operations $11,423 - $2.50
Loss from discontinued operations, net (5,796) - (1.27)
- ------------------------------------------------------------------------------
Net income $ 5,627 4,573 $1.23
- ------------------------------------------------------------------------------
Effect of dilutive securities-options - 123 (0.03)
==============================================================================
Diluted EPS:
Net income $ 5,627 4,696 $1.20
==============================================================================
F-22
Quarterly Financial Data (unaudited)
(in thousands, except per share data)
Annual
In 2002 Quarter Ended Mar. 30 Jun. 29 Sept. 28 Dec. 31 Total
- --------------------------------------------------------------------------------------------------------
Net sales $42,859 $31,536 $109,134 $109,739 $293,268
Gross profit 12,383 8,974 30,090 31,485 82,932
Operating income (loss) from continuing operations 2,000 (585) 14,713 14,988 31,116
---------------------------------------------------
Income (loss) from continuing operations 1,092 (462) 8,823 8,592 18,045
Income (loss) from discontinued operations 4 (61) 210 (1,150) (997)
---------------------------------------------------
Net income (loss) $1,096 ($ 523) $ 9,033 $ 7,442 $ 17,048
===================================================
Income (loss) per common share from
continuing operations - Basic $0.23 ($0.10) $1.87 $1.82 $3.83
===================================================
- Diluted $0.23 ($0.10) $1.82 $1.78 $3.73
===================================================
Net income (loss) per common share - Basic $0.23 ($0.11) $1.92 $1.58 $3.62
===================================================
- Diluted $0.23 ($0.11) $1.86 $1.54 $3.53
===================================================
Annual
In 2003 Quarter Ended Mar. 29 Jun. 28 Sept. 27 Dec. 31 Total
- --------------------------------------------------------------------------------------------------------
Net sales $51,167 $31,961 $97,036 $112,487 $292,651
Gross profit 12,566 7,508 24,368 29,755 74,197
Operating income (loss) from continuing operations 1,124 (1,735) 7,991 11,914 19,294
---------------------------------------------------
Income (loss) from continuing operations 711 (948) 4,865 6,795 11,423
Income (loss) from discontinued operations 391 (4) (5,730) (453) (5,796)
---------------------------------------------------
Net income (loss) $ 1,102 ($ 952) ($ 865) $ 6,342 $ 5,627
===================================================
Income (loss) per common share from
continuing operations - Basic $0.15 ($0.20) $1.02 $1.64 $2.50
===================================================
- Diluted $0.15 ($0.20) $1.00 $1.60 $2.43
===================================================
Net income (loss) per common share - Basic $0.23 ($0.20) ($0.18) $1.53 $1.23
===================================================
- Diluted $0.23 ($0.20) ($0.18) $1.49 $1.20
===================================================
Differences from amounts previously reported on the Company's filings on Form
10-Q are due to reclassifications resulting from the disposal of the
discontinued operations.
F-23
SCHEDULE II
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Balance at Charged to
beginning sales and Other Balance at
of year expenses Deductions adjustments end of year
-------------------------------------------------------------
Year Ended December 31, 2001
- ----------------------------
Allowance for doubtful accounts $ 469 ($ 53) ($ 156) - $ 260
Allowance for returns and adjustments 6,573 11,140 (11,143) - 6,570
Year Ended December 31, 2002
- ----------------------------
Allowance for doubtful accounts $ 260 $ 354 ($ 164) - $ 450
Allowance for returns and adjustments 6,570 21,457 (15,420) - 12,607
Year Ended December 31, 2003
- ----------------------------
Allowance for doubtful accounts $ 450 ($ 57) ($ 56) - $ 337
Allowance for returns and adjustments 12,607 25,858 (23,308) - 15,157
- ---------------------------------------------------------------------------------------------------
F-24