<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September September December
27, 28, 28,
1997 1996 1996
----------- ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 516,171 $ 374,681 $ 310,520
Accounts receivable - net 30,119,110 36,225,590 18,967,447
Inventories 41,772,526 41,201,949 30,748,132
Deferred income tax assets 581,078 613,463 532,078
Refundable income taxes 622,139 1,232,010 905,833
Other current assets - - 132,933
------------ ------------ ------------
Total current assets 73,611,024 79,647,693 51,596,943
Property, plant and
equipment - net 18,269,419 17,780,584 19,185,350
Assets held for
disposal - net 1,223,920 1,087,312 1,200,684
Investments in and
advances to
unconsolidated affiliates 795,560 1,634,606 823,771
Other assets 2,406,195 1,366,870 1,613,792
------------ ------------ ------------
$ 96,306,118 $101,517,065 $ 74,420,540
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks
and current maturities
of long-term debt $ 23,166,416 $ 22,308,229 $ 593,332
Accounts payable 5,854,038 7,775,586 8,412,730
Accrued liabilities 3,183,061 2,011,022 2,432,776
Income taxes 683,336 539,376 -
------------ ------------ ------------
Total current liabilities 32,886,851 32,634,213 11,438,838
Deferred income
tax liabilities 1,034,519 791,962 1,034,519
Long-term debt 4,341,681 12,685,013 5,102,991
Retirement plan
obligations 3,892,072 4,024,899 4,024,561
------------ ------------ ------------
42,155,123 50,136,087 21,600,909
Stockholders' equity 54,150,995 51.380.978 52,819,631
------------ ------------ ------------
$ 96,306,118 $101,517,065 $ 74,420,540
========== ========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
- -1-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
September September September September
27, 28, 27, 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $46,151,076 $54,225,688 $108,618,834 $115,456,938
Cost of products sold 33,218,907 41,195,963 80,799,243 90,161,289
----------- ----------- ------------ ------------
Gross margin 12,932,169 13,029,725 27,819,591 25,295,649
Selling, general and
administrative expenses 9,371,503 7,718,814 24,567,112 22,023,511
Rental income - net (210,531) (166,545) (629,393) (499,636)
Equity in (earnings)
loss of unconsolidated
affiliates (45,619) (42,613) (133,606) 6,453
Gain on disposal
of fixed assets (4,127) (10,809) (35,035) (795,899)
Other income - net (47,020) - (14,089) -
----------- ----------- ------------ ------------
Operating income 3,867,963 5,530,878 4,064,602 4,561,220
Interest expense 764,358 1,103,152 1,841,002 2,501,555
----------- ----------- ------------ ------------
Income before provision
for income taxes 3,103,605 4,427,726 2,223,600 2,059,665
Provision for income
taxes 1,213,000 1,710,000 897,000 789,800
----------- ----------- ------------ ------------
Net income $ 1,890,605 $ 2,717,726 $ 1,326,600 $ 1,269,865
========== ========== ========== ==========
Net income per common
share $.41 $.59 $.29 $.28
=== ==== ==== ====
Weighted average common
shares outstanding 4,586,429 4,585,629 4,585,896 4,585,629
======= ======= ======= =======
</TABLE>
See notes to consolidated condensed financial statements.
- -2-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirty-nine Weeks Ended
September September
27, 28,
1997 1996
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,326,600 $1,269,865
Adjustments to reconcile net earnings to
net cash used in operating activities:
Amortization 345,338 20,997
Depreciation 1,628,648 1,808,760
Deferred income taxes (49,000) 336,800
Reserve for doubtful accounts and
allowances 142,000 (630,002)
Retirement plan obligations (132,489) (34,388)
Gain on sale of fixed assets (35,035) (795,899)
Equity in (earnings) loss of
unconsolidated affiliates (133,606) 6,453
Provision for restructuring costs - (391,959)
Changes in current assets and current
liabilities:
Accounts receivable (11,293,663) (13,312,317)
Inventories (11,024,396) 5,112,982
Other current assets 416,629 58,813
Accounts payable (2,558,692) (3,120,974)
Accrued liabilities 750,288 113,074
Income taxes 683,336 491,194
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (19,934,042) (9,066,601)
------------ ------------
INVESTING ACTIVITIES:
Additions to fixed assets (696,170) (559,089)
Proceeds received from sale of 17,286 1,193,022
fixed assets
Decrease in investments in and
advances to unconsolidated
subsidiaries 71,787 59,207
Increase in other assets (1,064,984) (679,869)
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES: (1,672,081) 13,271
------------ ------------
FINANCING ACTIVITIES:
Additions to debt - Banks - net 22,173,440 9,828,389
Payments on debt - Other (361,666) (752,360)
------------ ------------
NET CASH PROVIDED BY FINANCING 21,811,774 9,076,029
ACTIVITIES
------------ ------------
INCREASE IN CASH 205,651 22,699
CASH AT BEGINNING OF PERIOD 310,520 351,982
------------ ------------
CASH AT END OF PERIOD $ 516,171 $ 374,681
========= =========
Cash paid during the period
- Interest $ 1,465,000 $ 2,480,000
========= =========
- Income taxes $ 407,500 $ (463,000)
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
- -3-
HAMPTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 27, 1997 and September 28, 1996 is
unaudited.)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets as of September 27, 1997
and September 28, 1996 and the consolidated statements of operations for
the thirteen and thirty-nine 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 September 27, 1997 and September 28, 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 September
27, 1997 are not necessarily indicative of the operating results for the
full year.
Certain reclassifications have been made to the consolidated
financial statements of September 28, 1996 to conform to classifications
used at September 27, 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 EBITDA, tangible net worth and interest coverage, restricts fixed
asset purchases and does not allow for the payment of cash dividends. 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. As of September 27,
1997, the Company failed to meet the minimum EBITDA coverage required by the
Credit Facility. On November 3, 1997, the Company received waiver for this
covenant violation.
- -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
Exercised - July 1997 (800) $4.50
Canceled (4,500) $4.50 - $6.75
---------- -------------
Outstanding at September 27, 1997 349,200 $4.50 - $7.25
======== ==========
</TABLE>
An additional 613,000 shares are reserved for future grants. At
September 27, 1997, there are 53,600 of the stock options 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
- -5-
months and expected volatility of approximately 39%. The pro forma impact
of following the provisions of FASB Statement 123 on the Company's
operations and income per share would be as follows:
<TABLE>
<CAPTION>
Thirty-nine
Weeks Ended
September 27,
1997
<S> <C>
Net income - as reported $ 1,326,600
=============
- pro forma $ 1,245,000
=============
Net income per common share
- as reported $.29
=====
- pro forma $.27
=====
</TABLE>
Net income per share has been calculated using the weighted average
shares outstanding and the common stock equivalents during the periods.
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 Thirty-nine Weeks Ended
September September September September
27, 28, 27, 28,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 72.0 76.0 74.4 78.1
-------- -------- -------- --------
Gross margin 28.0 24.0 25.6 21.9
Selling, general and
administrative
expenses 20.3 14.2 22.6 19.1
Rental income - net ( .5) ( .3) ( .6) ( .4)
Equity in earnings
of unconsolidated
affiliates ( .1) ( .1) ( .1) -
Gain on asset sales - - - ( .7)
Other income - net ( .1) - - -
-------- -------- -------- --------
Operating income 8.4 10.2 3.7 3.9
Interest expense 1.7 2.0 1.7 2.2
-------- -------- -------- --------
Income before provision
for income taxes 6.7 8.2 2.0 1.8
Provision for income taxes 2.6 3.2 .8 .7
-------- -------- -------- --------
Net income 4.1% 5.0% 1.2% 1.1%
====== ====== ====== ======
</TABLE>
- -6-
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997 AS COMPARED TO
THE THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996
Net sales decreased by $8,075,000 or 14.9% for the quarter as
compared to September 27, 1996. The decrease is principally due to late
deliveries of product from suppliers, delays in transportation logistics
and delays of customer orders due to the warm weather. Sales of
branded apparel represented 30.1% of total sales in the current period
as compared to 21.0% in the prior comparable period.
Gross profit decreased in absolute dollars by $98,000 during the quarter
ended September 27, 1997 as compared to September 28, 1996. Gross margin
percent improved to 28.0% from 24.0% for the respective periods. This
improvement in margins continues to reflect the emphasis on higher
margin sales, sales of branded apparel and an emphasis on cost
reductions.
Selling, general and administrative expenses increased by
$1,653,000, or 21.4% during the quarter ended September 27, 1997, as
compared to the prior year. As a percent of sales it increased to
20.3% from 14.2% for the respective periods. Increased expenditures for
samples, travel, advertising, freight on samples and higher compensation
expense are the primary factors accounting for the increase. Additional
sales and marketing personnel is the primary factor in increased
compensation, the benefits of these additional associates should be
realized in future periods.
Interest expense declined by $339,000 due to the lower level of
borrowings.
The effective tax rate for 1997 was 39.1% as compared to 38.6% in
the prior period.
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AS COMPARED TO
THE TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1996
Net sales decreased by $6,838,000 or 5.9% for the thirty-nine weeks
as compared to September 28, 1996. The decrease is principally due to
late deliveries of product from suppliers, delays in transportation
logistics and delays of customer orders due to the warm weather which
occurred in the third quarter. Sales of branded apparel increased to
29.2% of total sales as compared to 27.2% in the period.
Gross profit increased in absolute dollars by $2,524,000 during the
thirty-nine weeks ended September 27, 1997. As a percent of net sales, it
improved to 25.6% as compared to 21.9% for the corresponding prior period.
This improvement in margins continues to reflect the emphasis on higher
margin sales, sales of branded apparel and an emphasis on cost reductions.
- -7-
Selling, general and administrative expenses increased by
$2,544,000, or 11.6% during the thirty-nine weeks ended September 27,
1997, as compared to the prior period. As a percent of sales, they
increased to 22.6% of sales as compared to 19.1% in the prior period.
Increased expenditures for samples, travel, advertising, freight on
samples and higher compensation expense are the primary factors
accounting for the increase. Additional sales and marketing personnel
is the primary factor in increased compensation, the benefits of these
additional associates should be realized in future periods.
Interest expense declined by $661,000 due to the lower level of
borrowings.
The effective tax rate for 1997 was 40.3% as compared to 38.3% in
the prior period.
During the thirty-nine weeks ended September 28, 1996, a gain on
the sale of property held for sale of $796,000 was realized.
Liquidity and Capital Resources
Outstanding borrowings under the Credit Facility amounted to
$22,573,000 at September 27, 1997 as compared to $29,428,000 at September 28,
1996 and $400,000 at December 28, 1996. Outstanding letters of credit
amounted to $26,123,000 at September 27, 1997 as compared to $15,878,000
at September 28, 1996 and $21,908,000 at December 28, 1996. The increase in
the outstanding letters of credit from the prior year relates to late
deliveries of product and a greater portion of inventory being sourced
overseas.
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 EBITDA, tangible net worth and interest coverage, restricts fixed
asset purchases and does not allow for the payment of cash dividends. 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. As of September
27, 1997, the Company failed to meet the minimem EBITDA coverage required
by the Credit Facility. On November 3, 1997, the Company received a waiver
for this covenant violation.
At September 27, 1997, the Company's working capital approximated
$40,724,000 as compared to $47,013,000 in the prior year. The current
ratio was 2.24 to 1 in the current period as compared to 2.44 to 1 in
the prior year. All borrowings under the Credit Facility are classified as
a current liability as management anticipates that outstanding borrowings
at year-end will not be significant.
- -8-
Net cash used by operating activities of $19,933,000 increased in
the current thirty-nine week period as compared to $9,067,000 in the same
period in the prior year. For the period ending September 27, 1997, an
increase in inventories of $11,024,000 and an increase in accounts
receivables of $11,294,000 comprised the primary uses of operating cash
and reflects expected seasonal levels.
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 were $1,193,000.
Other assets primarily comprise fixtures to support retail sales and
computer software.
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
thirty-nine weeks ended September, 1997 was $21,812,000 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.
The Company's backlog of orders at October 31, 1997 was approximately
$68,167,000 which includes advance orders of $37,106,000 for 1998 as
compared to $58,433,000 which included advance orders for 1997 of
$30,061,000 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 of 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.
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
349,200 options were outstanding at September 27, 1997 and 53,600 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 approximately 39%.
- -9-
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.
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 fluctuations 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: November 10, 1997
- -11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 516,171
<SECURITIES> 0
<RECEIVABLES> 30,119,110
<ALLOWANCES> 0
<INVENTORY> 41,772,528
<CURRENT-ASSETS> 622,137
<PP&E> 18,269,419
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,306,118
<CURRENT-LIABILITIES> 32,886,852
<BONDS> 0
0
0
<COMMON> 5,192,254
<OTHER-SE> 44,081,396
<TOTAL-LIABILITY-AND-EQUITY> 96,306,118
<SALES> 108,618,834
<TOTAL-REVENUES> 108,618,834
<CGS> 80,799,243
<TOTAL-COSTS> 80,799,243
<OTHER-EXPENSES> 23,754,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,841,002
<INCOME-PRETAX> 2,223,600
<INCOME-TAX> 897,000
<INCOME-CONTINUING> 1,326,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,326,600
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
