<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 28, June 29, December 28,
1997 1996 1996
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 347,087 $ 22,660 $ 310,520
Accounts receivable - net 14,473,039 14,627,238 18,967,447
Inventories 45,844,381 56,698,465 30,748,132
Deferred income tax assets 567,078 1,896,463 532,078
Refundable income taxes 1,178,320 1,220,291 905,833
Other current assets 29,612 - 132,933
----------- ----------- ------------
Total current assets 62,439,517 74,465,117 51,596,943
Property, plant and equipment - net 18,559,160 18,014,916 19,185,350
Assets held for disposal - net 1,234,532 1,087,312 1,200,684
Investments in and advances to
unconsolidated affiliates 821,859 1,628,439 823,771
Other assets 1,957,208 1,053,096 1,613,792
----------- ----------- ------------
$85,012,276 $96,248,880 $74,420,540
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks and current
maturities of long-term debt $12,851,263 $18,719,925 $ 593,332
Accounts payable 7,926,787 9,126,774 8,412,730
Accrued liabilities 2,636,681 2,104,871 2,432,776
----------- ----------- ------------
Total current liabilities 23,414,731 29,951,570 11,438,838
Deferred income tax liabilities 1,034,519 817,962 1,034,519
Long-term debt 4,406,681 12,750,012 5,102,991
Retirement plan obligations 3,900,720 4,066,084 4,024,561
----------- ----------- ------------
32,756,651 47,585,628 21,600,909
Stockholders' equity 52,255,625 48,663,252 52,819,631
----------- ----------- ------------
$85,012,276 $96,248,880 $74,420,540
========== ========== ==========
Note: The condensed consolidated balance sheet at December 28, 1996
has been taken from the audited financial statements.
See notes to consolidated condensed financial statements.
</TABLE>
- -1-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $26,111,436 $25,295,098 $62,467,758 $61,231,250
Cost and expenses:
Cost of products sold 20,164,501 20,728,133 47,580,336 48,965,326
----------- ----------- ----------- -----------
Gross margin 5,946,935 4,566,965 14,887,422 12,265,924
Selling, general and
administrative 7,666,157 6,534,107 15,195,609 14,304,697
Rental income - net (243,938) (166,544) (418,862) (333,091)
Equity in (earnings)
loss of unconsolidated
affiliates (41,338) 58,874 (87,987) 49,066
Gain on disposal of
fixed assets (23,673) (653,096) (30,908) (785,090)
Other (income) expense
- net (20,953) - 32,931 -
----------- ----------- ----------- -----------
Operating (loss) income (1,389,320) (1,206,374) 196,639 (969,658)
Interest 553,999 744,821 1,076,644 1,398,403
----------- ----------- ----------- -----------
Loss before income tax
benefit (1,943,319) (1,951,195) (880,005) (2,368,061)
Income tax benefit (759,000) (767,300) (316,000) (920,200)
----------- ----------- ----------- -----------
Net loss $(1,184,319) $(1,183,895) $ (564,005) $(1,447,861)
========== ========== ========== ==========
Loss per common share $(.26) $(.26) $(.12) $(.32)
==== ==== ==== ====
Average common shares
outstanding 4,585,629 4,585,629 4,585,629 4,585,629
======== ======== ======== ========
See notes to consolidated condensed financial statements.
</TABLE>
- -2-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Twenty-six Weeks Ended
----------------------
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (564,005) $ (1,447,861)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 198,913 13,988
Depreciation 1,076,976 1,243,354
Deferred income taxes (35,000) (920,200
Reserve for doubtful accounts and
allowances (107,000) (607,967)
Retirement plan obligations (123,841) 6,797
Gain on sale of fixed assets (30,908) (785,090)
Equity in (earnings) loss of
unconsolidated affiliates (87,987) 49,066
Provision for restructuring costs - (530,899)
Changes in current assets and current
liabilities:
Accounts receivable 4,601,408 8,264,000
Inventories (15,096,249) (10,383,534)
Other current assets (169,166) 70,532
Accounts payable (485,943) (1,769,786)
Accrued liabilities 203,905 345,863
Income taxes - (48,183)
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (10,618,898) (6,499,920)
------------ -----------
INVESTING ACTIVITIES:
Additions to fixed assets (455,159) (226,553)
Proceeds received from sale of
fixed assets 26,447 1,188,890
(Increase) decrease in investments
in and advances to unconsolidated
subsidiaries (7,874) 14,623
Increase in other assets (469,570) (359,086)
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES: (906,156) 617,874
------------ ------------
FINANCING ACTIVITIES:
Additions to debt - Banks - net 11,858,287 6,111,189
Payments on debt - Other (296,666) (558,465)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 11,561,621 5,552,724
------------ ------------
INCREASE (DECREASE) IN CASH 36,567 (329,322)
CASH AT BEGINNING OF PERIOD 310,520 351,982
------------ ------------
CASH AT END OF PERIOD $ 347,087 $ 22,660
========= =========
Cash paid during the period - Interest 1,016,000 $ 1,208,000
========= =========
- Income taxes $ 407,500 $ 76,000
========= =========
See notes to consolidated condensed financial statements.
</TABLE>
- -3-
HAMPTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 28, 1997 and June 29, 1996 is unaudited.)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets as of June 28, 1997 and
June 29, 1996 and the consolidated statements of operations for the
thirteen and twenty-six week periods then ended have been prepared by
the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at June 28, 1997 and June 29, 1996 have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and notes thereto
included in the Company's December 28, 1996 Annual Report to
shareholders. The results of operations for the period ended June 28,
1997 are not necessarily indicative of the operating results for the
full year.
Certain reclassifications have been made to the consolidated
financial statements of June 29, 1996 to conform to classifications
used at June 28, 1997.
2. CREDIT FACILITY
The credit facility ("Credit Facility") between Hampton
Industries, Inc. and BNY Financial Corporation, as Agent, provides for
a maximum line of credit of $100,000,000, which includes both direct
loans and letters of credit. Availability under the Credit Facility
is based on a formula of eligible accounts receivable and eligible
inventory and provides for seasonal overadvances of up to $17,500,000
within the $100,000,000 maximum line of credit. Direct borrowings
bear interest at the London Interbank Offered Rate, plus the
applicable margin (as defined in the Credit Facility) or the Prime
Rate, at the option of the Company. Borrowings are collateralized by
accounts receivable, inventory and general intangibles of the Company
and its subsidiaries and expires in May 1999.
The Credit Facility contains financial covenants, including but
not limited to, tangible net worth and interest coverage, restricts
fixed asset purchases and does not allow for the payment of cash
dividends. As of June 28, 1997, the Company failed to meet the
interest expense coverage ration required by the Credit Facility. On
July 24, 1997, the Company received waiver for this covenant
violation. The Company is not required to maintain compensating
balances, however, it is required to pay a fee of 1/4 of 1% per annum on
the unused portion of the total facility and certain other
administrative costs.
- -4-
3. STOCK OPTIONS
In 1992, the stockholders approved a non-qualified stock option
plan (the "Plan") under which there are presently reserved 963,000
shares of common stock. The Plan is administered by a committee
designated by the board of directors. Options granted to eligible
employees are exercisable in increments of 20% annually. The exercise
price may be paid in cash, common stock of the Company, or a
combination thereof. Stock to be offered under the Plan consists of
shares of the common stock of the Company, whether authorized but
unissued or reacquired by the Company.
<TABLE>
The exercise price of the options granted was the fair market
value on the date of grant. A summary of the changes in common stock
options is as follows:
<CAPTION>
Price
Number of Range per
Shares Share
------ -----
<S> <C> <C>
Outstanding at December 30,1995 - -
Granted - May 30, 1996 279,500 $4.50
Canceled (4,500) $4.50
------- -----
Outstanding at December 28, 1996 275,000 $4.50
Granted - March 19, 1997 73,000 $6.75
Granted - May 22, 1997 6,500 $7.25
Canceled (4,500) $4.50 - $6.75
------- ------------
Outstanding at June 28, 1997 350,000 $4.50 - $7.25
======= ============
</TABLE>
An additional 613,000 shares are reserved for future grants. At
June 28, 1997, there are 54,400 of the stock options exercisable.
<TABLE>
The Company applies the provisions of APB Opinion 25 and related
Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for the foregoing options. The
excess, if any, of the fair market value of shares on the measurement
date over the exercise price is charged to operations each year as the
options become exercisable. Had compensation cost for these options
been determined using the Black-Scholes option-pricing model described
in FASB Statement 123, the Company would have recorded aggregate
compensation expense of approximately $490,100 for the May 30, 1996
grants and $221,300 for the March 19, 1997 grants and $18,500 for the
May 22, 1997 grants. These amounts would be expensed at the rate of
20% per annum over the option's vesting period. The assumptions used
in the option-pricing model include a risk-free interest rate of 6.7%,
expected life of 3 years and ten
- -5-
months and expected volatility of 39.25%.
The pro forma impact of following the provisions of FASB Statement 123 on
the Company's operations and loss per share would be as follows:
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
June 28, 1997 June 28, 1997
------------- -------------
<S> <C> <C>
Net loss - as reported $ 1,184,319 $ 564,005
========= =======
- pro forma $ 1,186,009 $ 645,605
========= =======
Net loss per common share - as reported $.26 $.12
===== =====
- pro forma $.26 $.14
===== =====
</TABLE>
Net loss per share has been calculated using the weighted average
shares outstanding during the periods. Common stock equivalents have
been excluded from the computation because they are anti-dilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
<TABLE>
The following table summarizes the operating data for the periods
indicated:
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.2 81.9 76.2 80.0
-------- -------- -------- --------
Gross margin 22.8 18.1 23.8 20.0
Selling, general and
administrative 29.4 25.9 24.3 23.3
Rental income - net ( .9) ( .7) ( .7) ( .5)
Equity in (earnings) loss
of unconsolidated
affiliates ( .2) .3 ( .1) .1
Gain on asset sales ( .1) ( 2.6) ( .1) ( 1.3)
Other (income) expense -
net ( .1) - .1 -
-------- ------- -------- -------
Operating (loss) income ( 5.3) ( 4.8) .3 ( 1.6)
Interest 2.1 2.9 1.7 2.3
-------- ------- -------- -------
Loss before income tax benefit ( 7.4) ( 7.7) ( 1.4) ( 7.7)
Net loss ( 4.5)% ( 4.7)% ( .9)% ( 2.4)%
====== ====== ====== ======
</TABLE>
- -6-
THIRTEEN WEEKS ENDED JUNE 28, 1997 AS COMPARED TO
THE THIRTEEN WEEKS ENDED JUNE 29, 1996
Net sales increased by $816,000 or 3.2% for the quarter as
compared to June 29, 1996. The increase is principally due to an
increase in net dozens shipped of 1.5% and an increase in average
price per dozen due to a change in product mix. Sales of "branded"
apparel decreased slightly for the period primarily due to earlier
shipments of spring merchandise in December 1996. The comparable
shipments occurred in January 1996 in the prior year.
Gross profit increased by $1,380,000 during the quarter ended
June 28, 1997 or 22.8% of net sales as compared to 18.1% for the
corresponding prior period. This improvement in margins continues to
reflect the emphasis on higher margin sales and an emphasis on cost
reductions.
Selling, general and administrative expenses increased by
$1,132,000, or 17.3% during the quarter ended June 28, 1997, as
compared to the prior year. Increased expenditures for samples,
travel, advertising and freight on samples are the primary factors
accounting for this increase.
Interest expense declined by $191,000 due to the lower level of
borrowings.
The effective tax rate for 1997 was 39.1% as compared to 41.7% in
the prior period.
During the quarter ended June 29, 1996, a gain of $653,000 on the
sale of property held for sale was realized.
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 AS COMPARED TO
THE TWENTY-SIX WEEKS ENDED JUNE 29, 1996
Net sales increased by $1,237,000 or 2.0% for the twenty-six
weeks as compared to June 29, 1996. The increase is principally due
to a increase of .9% in net dozens shipped combined with a slight
increase in average price per dozen as a result of a change in product
mix. Sales of "branded" apparel decreased slightly for the period
because spring 1997 merchandise began shipping in December of the
prior year, whereas, spring 1996 merchandise did not begin shipping
until January 1996.
Gross profit increased by $2,621,000 during the twenty-six weeks
ended June 28, 1997, or 23.8% of net sales, as compared to 20.0% for
the corresponding prior period. This improvement in margins continues
to reflect the emphasis on higher margin sales and an emphasis on cost
reductions.
Selling, general and administrative expenses increased by
$891,000, or 6.2% during the twenty-six weeks ended June 28, 1997, as
compared to the prior period due to increased expenditures for
samples, travel, advertising and freight on samples.
Interest expense declined by $322,000 due to the lower level of
borrowings.
- -7-
The effective tax rate for 1997 was 35.9% as compared to 41.7% in
the prior period.
During the twenty-six weeks ended June 29, 1996, a gain on the
sale of property held for sale of $758,000 was realized.
Liquidity and Capital Resources
Outstanding borrowings under the Credit Facility amounted to
$12,258,000 at June 28, 1997 as compared to $25,711,000 at June 29,
1996 and $400,000 at December 28, 1996. Outstanding letters of credit
amounted to $28,715,000 at June 28, 1997 as compared to $21,321,000 at
June 29, 1996 and $21,908,000 at December 28, 1996. The increase in
the outstanding letters of credit from the prior year relates to
having received a greater amount of inventories prior to June 29, 1996
as compared to the current year.
The credit facility ("Credit Facility") between Hampton
Industries, Inc. and BNY Financial Corporation, as Agent provides for
a maximum line of credit of $100,000,000, which includes both direct
loans and letters of credit. Availability under the Credit Facility
is based on a formula of eligible accounts receivable and eligible
inventory and provides for seasonal overadvances of up to $17,500,000
within the $100,000,000 maximum line of credit. Direct borrowings
bear interest at the London Interbank Offered Rate, plus the
applicable margin (as defined in the Credit Facility) or the Prime
Rate, at the option of the Company. Borrowings are collateralized by
accounts receivable, inventory and general intangibles of the Company
and its subsidiaries and expires in May 1999.
The Credit Facility contains financial covenants, including but
not limited to, tangible net worth and interest coverage, restricts
fixed asset purchases and does not allow for the payment of cash
dividends. As of June 28, 1997, the Company failed to meet the
interest expense coverage ratio required by the Credit Facility. On
July 24, 1997, the Company received waiver for this covenant
violation. The Company is not required to maintain compensating
balances, however, it is required to pay a fee of 1/4 of 1% per annum on
the unused portion of the total facility and certain other
administrative costs.
At June 28, 1997, the Company's working capital approximated
$39,025,000 as compared to $44,514,000 in the prior year. The current
ratio was 2.67 to 1 in the current period as compared to 2.49 to 1 in
the prior year. In 1996, $7,750,000 of the outstanding borrowings
under the Credit Facility was classified as long term debt which had
the effect of improving both working capital and the current ratio in
that year. In the current year, all borrowings under the Credit
Facility are classified as a current liability.
Net cash used by operating activities of $10,619,000 increased in
the current twenty-six week period as compared to the same period in
the prior year. For the period ending June 28, 1997, an increase in
inventories of $15,096,000 was partially offset by a decrease in
accounts receivables of $4,601,000. At December 30, 1995, the
balances of inventories and receivables were such that the Company
instituted programs to improve inventory turns and collection of
receivables. During 1996 these efforts made a significant improvement
in cash flow generated from operations. The current period reflects a
more normal operating use of cash as measured against the balances as
of December 28, 1996, with a normal increase in inventories to support
future sales and a normal increase in receivables due to seasonal
sales.
- -8-
Investing activities include normal replacements of machinery and
equipment and building improvements. There are no major expenditures
planned for the remainder of 1997 and to the extent that normal
investments are made, they will be financed from operations. During
1996, proceeds received from the sale of fixed assets was $1,189,000.
Financing activities report the changes in bank borrowings and
other debt which support inventory and accounts receivable levels and
other investments. Cash provided by financing activities during the
twenty-six weeks ended June 28, 1997 was $11,562,000 which principally
relates to borrowings under the Company's Credit Facility. The
increase in borrowings was used to support the normal growth in
inventories and accounts receivable.
On May 30, 1996, options were granted for 279,500 shares at $4.50
per share, the fair market value on the date of grant. On March 19,
1997 and May 22, 1997, options were granted for 73,000 shares at $6.75
per share and 6,500 shares at $7.25, respectively, the fair market
value on the dates of the grants. The exercise price may be paid in
cash, common stock of the Company, or a combination thereof. A total
of 350,000 options were outstanding at June 28, 1997 and 54,400 of the
stock options are exercisable.
The Company applies the provisions of APB Opinion 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for the foregoing options. The
excess, if any, of the fair market value of shares on the measurement
date over the exercise price is charged to operations each year as the
options become exercisable. Had compensation cost for these options
been determined using the Black-Scholes option-pricing model described
in FASB Statement 123, the Company would have recorded aggregate
compensation expense of approximately $490,100 for the May 30, 1996
grants and $221,300 for the March 19, 1997 grants and $18,500 for the
May 22, 1997 grants. These amounts would be expensed at the rate of
20% per annum over the option's vesting period. The assumptions used
in the option-pricing model include a risk-free interest rate of 6.7%,
expected life of 3 years and ten months and expected volatility of
39.25%.
The Company's backlog of orders at June 28, 1997 was approximately
$96,860,000 as compared to $96,607,000 in the prior year. Management
believes that the sales to date, the order backlog and anticipated new
orders will be sufficient to meet sales goals for the Company.
Management believes that the credit available under the Credit
Facility together with the cash expected to be generated from
operations, is adequate to meet the Company's financing requirements
for the foreseeable future.
Impact of Inflation
General inflation in the economy has increased operating expenses
of most businesses. The Company has provided compensation increases
generally in line with the inflation rate and incurred higher prices
for materials, goods and services. The Company continually seeks
methods of reducing cost and streamlining operations while maximizing
efficiency through improved internal operating procedures and controls.
While the Company is subject to inflation as described above, management
believes that inflation currently does not have a material effect on
the Company's operating results, but there can be no assurance that
this will continue to be so in the future.
- -9-
New Accounting Principles
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, effective for interim and annual periods ending
after December 15, 1997, establishes standards for computing and
presenting earnings per share ("EPS") and simplifies the standards for
computing EPS currently found in Accounting Principles Board Opinion
No. 15, Earnings Per Share. Common stock equivalents under APB No.
15, with the exception of contingently issuable shares (shares
issuable for little or no cash consideration), will no longer be
included in the calculation of primary, or basic EPS. Under SFAS No.
128, contingently issuable shares are included in the calculation of
primary EPS. There will be no impact on reported EPS of adopting this
statement.
Forward Looking Statements
Except for the historical information contained herein, the
matters outlined in the management's discussion and analysis above
include forward looking statements that involve risks and
uncertainties, including quarterly fluctuation in results, retail sell
through rates for the Company's products which may result in more or
less orders than those anticipated and the impact of competitive
products and pricing. In addition, other risks and uncertainties are
detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission, including the report on Form 10-K
for the year ended December 28, 1996.
- -10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunder duly authorized.
HAMPTON INDUSTRIES, INC.
Registrant
S/STEVEN FUCHS
_____________________________________
Steven Fuchs, President
S/ROBERT J. STIEHL, JR.
_____________________________________
Robert J. Stiehl, Jr., Executive Vice
President - Operations, Chief Financial
Officer and Treasurer
Date: July 31, 1997
- -11-
14<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 347,087
<SECURITIES> 0
<RECEIVABLES> 14,473,039
<ALLOWANCES> 0
<INVENTORY> 45,844,381
<CURRENT-ASSETS> 1,207,932
<PP&E> 18,559,160
<DEPRECIATION> 0
<TOTAL-ASSETS> 85,012,277
<CURRENT-LIABILITIES> 23,414,731
<BONDS> 0
<COMMON> 5,191,454
0
0
<OTHER-SE> 42,186,827
<TOTAL-LIABILITY-AND-EQUITY> 85,012,277
<SALES> 62,467,758
<TOTAL-REVENUES> 62,467,758
<CGS> 47,580,336
<TOTAL-COSTS> 47,580,336
<OTHER-EXPENSES> 14,690,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,076,644
<INCOME-PRETAX> (880,006)
<INCOME-TAX> (316,000)
<INCOME-CONTINUING> (564,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (564,006)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
