##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-20201
 HAMPSHIRE GROUP, LIMITED
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    06-0967107
(I.R.S. Employer
Identification No.)1924 Pearman Dairy Road, Anderson, South Carolina
    
    29625-1303(Address of principal executive offices)
    
    (Zip Code)
 (864) 231-1200  Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



HAMPSHIRE GROUP, LIMITED
 QUARTERLY REPORT ON FORM 10-Q
 For the Quarterly Period Ended March 29, 2008
 SAFE HARBOR STATEMENT
    
    
    iiPART IFINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART IIOTHER INFORMATION
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  Risk
Factors
    ii




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
 (In thousands, except par value and shares)
    
    March 29, 2008
    
    
    December 31, 2007Current assets:Cash and cash equivalents
    
    $
    38,132
    
    
    $
    48,431Accounts receivable, net
    
    
    22,259
    
    
    
    26,535Other receivables
    
    
    12,079
    
    
    
    7,384Inventories, net
    
    
    10,481
    
    
    
    17,462Deferred tax assets, net
    
    
    7,151
    
    
    
    9,485Other current assets
    
    
    2,127
    
    
    
    2,144Assets of discontinued operations
    
    
    17,821
    
    
    
    20,408Total current assets
    
    
    110,050
    
    
    
    131,849Fixed assets, net
    
    
    13,889
    
    
    
    8,060Goodwill
    
    
    8,162
    
    
    
    8,162Deferred tax assets, net
    
    
    4,580
    
    
    
    4,231Other assets
    
    
    4,300
    
    
    
    4,166Total assets
    
    $
    140,981
    
    
    $
    156,468Current liabilities:Current portion of long-term debt
    
    $
    29
    
    
    $
    41Accounts payable
    
    
    8,090
    
    
    
    15,062Accrued expenses and other liabilities
    
    
    12,684
    
    
    
    14,871Liabilities of discontinued operations
    
    
    2,621
    
    
    
    6,418Total current liabilities
    
    
    23,424
    
    
    
    36,392Long-term debt less current portion
    
    
    26
    
    
    
    33Other long-term liabilities
    
    
    14,679
    
    
    
    13,499Total liabilities
    
    
    38,129
    
    
    
    49,924Commitments and contingencies (Note 5)
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.10 par value, 1,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $0.10 par value, 10,000,000 shares authorized; 8,243,784 shares
issued at March 29, 2008 and December 31, 2007
    
    
    824
    
    
    
    824Additional paid-in capital
    
    
    36,062
    
    
    
    35,977Retained earnings
    
    
    74,412
    
    
    
    78,189Treasury stock, 384,279 shares at cost at March 29, 2008 and December 31, 2007
    
    
    (8,446
    )
    
    
    (8,446
    )Total stockholders equity
    
    
    102,852
    
    
    
    106,544Total liabilities and stockholders equity
    
    $
    140,981
    
    
    $
    156,468
   1




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##### Table of Contents



Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
 Three Months Ended(In thousands, except per share data)
    
    March 29, 2008
    
    
    March 31, 2007Net sales
    
    $
    39,763
    
    
    $
    40,568Cost of goods sold
    
    
    30,428
    
    
    
    30,202Gross profit
    
    
    9,335
    
    
    
    10,366Selling, general, and administrative expenses
    
    
    14,706
    
    
    
    14,092Special costs
    
    
    478
    
    
    
    2,101Loss from operations
    
    
    (5,849
    )
    
    
    (5,827
    )Other income (expense):Interest income
    
    
    457
    
    
    
    814Interest expense
    
    
    (38
    )
    
    
    (9
    )Other, net
    
    
    (25
    )
    
    
    78Loss from continuing operations before income taxes
    
    
    (5,455
    )
    
    
    (4,944
    )Income tax benefit
    
    
    2,121
    
    
    
    1,990Loss from continuing operations
    
    
    (3,334
    )
    
    
    (2,954
    )Loss from discontinued operations, net of taxes
    
    
    (443
    )
    
    
    (813
    )Net loss
    
    $
    (3,777
    )
    
    $
    (3,767
    )Basic loss per share:Loss from continuing operations
    
    $
    (0.42
    )
    
    $
    (0.38
    )Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    (0.10
    )Net loss
    
    $
    (0.48
    )
    
    $
    (0.48
    )Diluted loss per share:Loss from continuing operations
    
    $
    (0.42
    )
    
    $
    (0.38
    )Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    (0.10
    )Net loss
    
    $
    (0.48
    )
    
    $
    (0.48
    )Weighted average number of shares outstanding:Basic weighted average number of common shares outstanding
    
    
    7,860
    
    
    
    7,860Diluted weighted average number of common shares
outstanding
    
    
    7,860
    
    
    
    7,860
   2




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##### Table of Contents



Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statement of Stockholders Equity
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury Stock
    
    
    Stockholders(In thousands, except shares)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at December 31, 2007
    
    
    8,243,784
    
    
    $
    824
    
    
    $
    35,977
    
    
    $
    78,189
    
    
    
    384,279
    
    
    $
    (8,446
    )
    
    $
    106,544Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,777
    )
    
    
    
    
    
    
    
    
    
    
    (3,777
    )Tax benefits from
share-based payment
arrangements
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Balance at March 29, 2008
    
    
    8,243,784
    
    
    $
    824
    
    
    $
    36,062
    
    
    $
    74,412
    
    
    
    384,279
    
    
    $
    (8,446
    )
    
    $
    102,852
   3




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##### Table of Contents



Hampshire Group, Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
 Three Months Ended(In thousands)
    
    March 29, 2008
    
    
    March 31, 2007Cash flows from operating activities:Net loss
    
    $
    (3,777
    )
    
    $
    (3,767
    )Less: Loss from discontinued operations, net of taxes
    
    
    (443
    )
    
    
    (813
    )Loss from continuing operations
    
    
    (3,334
    )
    
    
    (2,954
    )Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    317
    
    
    
    198Loss (gain) on sale of fixed assets
    
    
    93
    
    
    
    (18
    )Deferred income tax provision (benefit)
    
    
    1,985
    
    
    
    (269
    )Deferred compensation expense, net
    
    
    
    
    
    
    4Excess tax benefits from share-based payment
arrangements
    
    
    (85
    )
    
    
    (227
    )Changes in operating assets and liabilities:Receivables, net
    
    
    (334
    )
    
    
    (2,806
    )Inventories, net
    
    
    6,981
    
    
    
    (592
    )Other assets
    
    
    (150
    )
    
    
    471Liabilities
    
    
    (7,262
    )
    
    
    (7,370
    )Net cash provided by (used in) continuing operating
activities
    
    
    (1,789
    )
    
    
    (13,563
    )Net cash provided by (used in) discontinued operations
    
    
    (1,695
    )
    
    
    (33
    )Net cash provided by (used in) operating activities
    
    
    (3,484
    )
    
    
    (13,596
    )Cash flows from investing activities:Capital expenditures
    
    
    (6,877
    )
    
    
    (158
    )Proceeds from sales of fixed assets
    
    
    
    
    
    
    18Net cash provided by (used in) continuing investing
activities
    
    
    (6,877
    )
    
    
    (140
    )Net cash provided by (used in) discontinued operations
    
    
    (4
    )
    
    
    (186
    )Net cash provided by (used in) investing activities
    
    
    (6,881
    )
    
    
    (326
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (19
    )
    
    
    (15
    )Excess tax benefits from share-based payment arrangements
    
    
    85
    
    
    
    227Net cash provided by (used in) financing activities
    
    
    66
    
    
    
    212Net increase (decrease) in cash and cash equivalents
    
    
    (10,299
    )
    
    
    (13,710
    )Cash and cash equivalents at beginning of quarter
    
    
    48,431
    
    
    
    70,210Cash and cash equivalents at end of quarter
    
    $
    38,132
    
    
    $
    56,500
   4




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Note 1
 Basis of Presentation
   Special Costs
   Commitments and Contingencies
  Stock Options
  Presentation of Prior Years Data
  Recent Accounting Standards
   5




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Level
1
 Level 2
 Level 3
  Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable(In thousands)
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    March 29,Description
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2008Cash and cash equivalents
    
    $
    38,132
    
    
    $
    
    
    
    $
    
    
    
    $
    38,132
     6




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##### Table of Contents



Note 2
 Inventories
  (In thousands)
    
    March 29, 2008
    
    
    December 31, 2007Total cost of finished goods
    
    $
    13,178
    
    
    $
    20,427Less: reserves
    
    
    (2,697
    )
    
    
    (2,965
    )Inventories, net
    
    $
    10,481
    
    
    $
    17,462
 Note 3
 Revolving Credit Facility
      Dispositions and Discontinued
Operations
   7




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##### Table of Contents



Note 4
 Loss Per Share
  Numerator
    
    
    Denominator
    
    
    Per Share(In thousands, except per share data)
    
    Income (Loss)
    
    
    Shares
    
    
    AmountThree months ended March 29, 2008:Basic loss from continuing operations
    
    $
    (3,334
    )
    
    
    7,860
    
    
    $
    (0.42
    )Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    Diluted loss from continuing operations
    
    $
    (3,334
    )
    
    
    7,860
    
    
    $
    (0.42
    )Three months ended March 31, 2007:Basic loss from continuing operations
    
    $
    (2,954
    )
    
    
    7,860
    
    
    $
    (0.38
    )Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    Diluted loss from continuing operations
    
    $
    (2,954
    )
    
    
    7,860
    
    
    $
    (0.38
    )
  Note 5  Commitments and Contingencies
     8




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Note 6
 Taxes
   Note 7
 Dispositions and Discontinued Operations
         9




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##### Table of Contents



(In thousands)
    
    2008
    
    
    2007Accounts receivable, net
    
    $
    14,041
    
    
    $
    13,504Other receivables
    
    
    63
    
    
    
    264Inventories, net
    
    
    3,054
    
    
    
    4,664Other current assets
    
    
    404
    
    
    
    377Fixed assets, net
    
    
    216
    
    
    
    284Intangible assets, net
    
    
    
    
    
    
    1,270Other assets
    
    
    43
    
    
    
    45Assets of discontinued operations
    
    $
    17,821
    
    
    $
    20,408Accounts payable
    
    $
    2,283
    
    
    $
    3,166Accrued expenses and other liabilities
    
    
    296
    
    
    
    3,198Other long-term liabilities
    
    
    42
    
    
    
    54Liabilities of discontinued operations
    
    $
    2,621
    
    
    $
    6,418
  (In thousands)
    
    2008
    
    
    2007Net sales
    
    $
    15,076
    
    
    $
    10,310Gross profit
    
    $
    3,727
    
    
    $
    3,523Loss on discontinued operations before income taxes
    
    $
    (762
    )
    
    $
    (1,446
    )Income tax benefit
    
    
    319
    
    
    
    633Loss from discontinued operations, net of taxes
    
    $
    (443
    )
    
    $
    (813
    )
 Note 8
 Subsequent Events
 Restructuring and Cost Reduction Plan
   10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion contains statements that are forward looking. These statements are based
on expectations and assumptions that are subject to risks and uncertainties. Actual results could
differ materially because of factors discussed elsewhere in this report. This discussion should be
read in conjunction with the discussion of forward-looking statements, the financial statements,
and the related notes and the other statistical information included in this report.
 DISCUSSION OF FORWARD-LOOKING STATEMENTS
 Risk
Factors
 
    
    Decreases in business from or the loss of any one of our key customers;
 
    
    Financial instability experienced by our customers;
 
    
    Loss of or inability to renew certain licenses;
 
    
    Change in consumer preferences and fashion trends, which could negatively affect
acceptance of our products by retailers and consumers;
 
    
    Use of foreign suppliers for raw materials and manufacture of our products;
 
    
    Failure of our manufacturers to use acceptable ethical business practices;
 
    
    Failure to deliver quality products in a timely manner;
 
    
    Problems with our distribution system and our ability to deliver products;
 
    
    Labor disruptions at port, our suppliers, manufacturers, or distribution facilities;
 
    
    Chargebacks and margin support payments;
 
    
    Failure, inadequacy, interruption, or security lapse of our information technology;
 
    
    Failure to compete successfully in a highly competitive and fragmented industry;
 
    
    Challenges integrating any business we may acquire;
 
    
    Ownership of a significant portion of our common stock by Ludwig Kuttner and our
dispute with and lawsuit against him;
 
    
    Unanticipated expenses beyond the amount reserved on our balance sheet or
unanticipated cash payments related to the ultimate resolution of income and other
possible tax liabilities;
 
    
    Future defaults under our credit facility;
 
    
    Loss of certain key personnel which could negatively impact our ability to manage
our business;
 
    
    Investigations by the SEC and the United States Attorney of the Southern District of
New York (U.S. Attorneys Office); and
 
    
    Potential future restatements of our prior financial statements.
   11




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OVERVIEW
        Special Costs
   Legal and Compliance Matters
  12




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Legal and Compliance Matters
    Amended and Restated Revolving Credit Facility
     13




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Dispositions, Discontinued Operations, and
Related Matters
 Dispositions, Discontinued Operations, and Related Matters
         14




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##### Table of Contents



(In thousands)
    
    2008
    
    
    2007Accounts receivable, net
    
    $
    14,041
    
    
    $
    13,504Other receivables
    
    
    63
    
    
    
    264Inventories, net
    
    
    3,054
    
    
    
    4,664Other current assets
    
    
    404
    
    
    
    377Fixed assets, net
    
    
    216
    
    
    
    284Intangible assets, net
    
    
    
    
    
    
    1,270Other assets
    
    
    43
    
    
    
    45Assets of discontinued operations
    
    $
    17,821
    
    
    $
    20,408Accounts payable
    
    $
    2,283
    
    
    $
    3,166Accrued expenses and other liabilities
    
    
    296
    
    
    
    3,198Other long-term liabilities
    
    
    42
    
    
    
    54Liabilities of discontinued operations
    
    $
    2,621
    
    
    $
    6,418
  (In thousands)
    
    2008
    
    
    2007Net sales
    
    $
    15,076
    
    
    $
    10,310Gross profit
    
    $
    3,727
    
    
    $
    3,523Loss on discontinued operations before income taxes
    
    $
    (762
    )
    
    $
    (1,446
    )Income tax benefit
    
    
    319
    
    
    
    633Loss from discontinued operations, net of taxes
    
    $
    (443
    )
    
    $
    (813
    )
 Restructuring and Cost Reduction Plan
   15




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##### Table of Contents



RESULTS OF OPERATIONS
 Quarterly Comparison  First Quarters of 2008 and 2007
 Net Sales
  First Quarter Rate/VolumePercentage(In thousands)
    
    Dollars
    
    
    of 2007Net sales quarter ended March 31, 2007
    
    $
    40,568
    
    
    
    100.0
    %Volume
    
    
    (1,251
    )
    
    
    (3.1
    %)Average selling prices
    
    
    446
    
    
    
    1.1
    %Net sales quarter ended March 29, 2008
    
    $
    39,763
    
    
    
    98.0
    %
  Gross Profit
  Restructuring and Cost Reduction Plan.
 Special Costs
  Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
    16




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Amended
and Restated Revolving Credit Facility
 Amended and Restated Revolving Credit Facility
  OFF-BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENT ACCOUNTING PRONOUNCEMENTS
    Level
1
 Level 2
 Level
3
  17




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Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable(In thousands)
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    March 29,Description
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2008Cash and cash equivalents
    
    $
    38,132
    
    
    $
    
    
    
    $
    
    
    
    $
    38,132
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   18




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PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Commitments and Contingencies Legal and Compliance Matters
 
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK, $0.10 PAR VALUE
 MaximumTotal Number of
    
    
    Number of SharesTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    that May Yet beNumber of
    
    
    Average
    
    
    as Part of Publicly
    
    
    Purchased UnderShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Such Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsJan. 1  Feb. 2, 2008
    
    
    
    
    
    $
    
    
    
    
    Feb. 3  Mar. 1, 2008
    
    
    
    
    
    
    
    
    
    
    Mar. 2  Mar. 29, 2008
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,036,490
  
 Item 3. Defaults Upon Senior Securities.
 
 
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
 Restructuring and Cost Reduction Plan
   19




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##### Table of Contents



Item 6. Exhibits.
 (a) The following exhibits are filed as part of this Report:
 10.1
    
    Amended and Restated Credit Agreement and Guaranty, dated as of February 15, 2008,
among Hampshire Group, Limited, Hampshire Designers, Inc., Item-Eyes, Inc., SB
Corporation, and Shane Hunter, Inc.; HSBC Bank USA, National Association (HSBC),
JPMorgan Chase Bank, N.A., Israel Discount Bank of New York, Wachovia Bank, National
Association, Bank Leumi USA and Sovereign Bank, as Banks; and HSBC, as Letter of Credit
Issuing Bank and as Agent for the Banks (incorporated by reference to Exhibit 10.1 to the
Companys Current Report (File No. 000-20201) on Form 8-K filed on February 19, 2008).10.2
    
    The Hampshire Group, Limited Long-Term Bonus Plan (incorporated by reference to Exhibit
10.1 to the Companys Current Report (File No. 000-20201) on Form 8-K filed on March 4,
2008).31.1
    
    Certification of Chief Executive Officer pursuant to Item 601(b) (31) of Regulation
S-K as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Item 601(b) (31) of Regulation
S-K as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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##### Table of Contents



SIGNATURES
  Hampshire Group, LimitedDate: May 8, 2008
    
    By:
    
    /s/ Michael S. Culang

Michael S. CulangChief Executive Officer and President(Principal Executive Officer)/s/ Jonathan W. Norwood

Jonathan W. NorwoodVice President and Chief Financial Officer(Principal Financial and Accounting Officer)
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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    
    Certification of Chief Executive Officer pursuant to Item 601(b) (31) of Regulation S-K
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Item 601(b) (31) of Regulation S-K
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002