UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
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 number 1-6105
Hampton Industries, Inc.
(Exact name of registrant as specified in its charter)
North Carolina 56-0482565
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2000 Greenville Hwy., P. O. Box 614, Kinston, NC 28502-0614
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (252) 527-8011
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock $1.00 par value per share American Stock Exchange
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 (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X No _____
As of October 22, 1998 there were 5,048,663 shares of common
stock outstanding.
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 26, September 27, December 27,
1998 1997 1997
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 240,583 $ 516,171 $ 171,944
Accounts receivable - net 40,190,056 30,119,110 24,313,827
Inventories 50,432,973 41,772,526 30,356,997
Deferred income tax assets 409,145 581,078 405,145
Refundable income taxes - 622,139 -
Other current assets 847,178 - 514,303
------------ ------------ ------------
Total current assets 92,119,935 73,611,024 55,762,216
Property, plant and equipment
- net 17,647,010 18,269,419 17,702,668
Assets held for disposal - net 504,928 1,223,920 1,200,387
Investments in and advances to
unconsolidated affiliates 756,576 795,560 703,155
Other assets 3,351,545 2,406,195 2,673,453
------------- ------------ ------------
$ 114,379,994 $ 96,306,118 $ 78,041,879
============= ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable - banks and
current maturities of
long-term debt $ 37,385,573 $ 23,166,416 $ 5,701,573
Accounts payable 7,872,745 5,854,038 5,642,107
Accrued liabilities 3,945,804 3,183,061 3,702,083
Income taxes 1,158,346 683,336 68,346
------------- ------------ ------------
Total current liabilities 50,362,468 32,886,851 15,114,109
Deferred income tax liabilities 996,793 1,034,519 996,793
Long-term debt 3,748,349 4,341,681 4,110,015
Retirement plan obligations 3,733,580 3,892,072 3,913,480
------------- ------------ ------------
58,841,190 42,155,123 24,134,397
Stockholders' equity 55,538,804 54,150,995 53,907,482
------------- ------------ ------------
$ 114,379,994 $ 96,306,118 $ 78,041,879
============= ============ ============
</TABLE>
Note: The consolidated balance sheet at December 27, 1997 has been
taken from the audited financial statements and condensed.
See notes to consolidated financial statements.
- -1-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
September September September September
26, 27, 27, 27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $60,454,140 $46,151,076 $128,942,333 $108,618,834
Cost of products sold 45,634,208 33,218,907 96,678,973 80,799,243
----------- ----------- ------------ ------------
Gross margin 14,819,932 12,932,169 32,263,360 27,819,591
Selling, general
and administrative 10,453,736 9,371,503 27,830,043 24,567,112
Rental income - net (220,387) (210,531) (696,788) (629,393)
Equity in earnings
of unconsolidated
affiliates (67,259) (45,619) (121,321) (133,606)
Loss (gain) on
disposal of fixed
assets 47 (4,127) (1,751) (35,035)
Other (income)
expense - net 46,271 (47,020) (43,248) (14,089)
----------- ----------- ------------ ------------
10,212,408 9,064,206 26,966,935 23,754,989
----------- ----------- ------------ ------------
Operating income 4,607,524 3,867,963 5,296,425 4,064,602
Interest expense 1,158,425 764,358 2,597,541 1,841,002
----------- ----------- ------------ ------------
Income before income
tax provision 3,449,099 3,103,605 2,698,884 2,223,600
Income tax provision 1,368,000 1,213,000 1,086,000 897,000
----------- ----------- ------------ ------------
Net income $ 2,081,099 $ 1,890,605 $ 1,612,884 $ 1,326,600
=========== =========== ============ ============
Basic earnings per
common share $.41 $.37 $.32 $.26
==== ==== ==== ====
Weighted average
common shares
outstanding 5,048,388 5,044,703 5,047,049 5,044,037
========= ========= ========= =========
Diluted earnings per
share $.41 $.37 $.31 $.26
==== ==== ==== ====
Weighted average
common shares
outstanding and
common share
equivalents 5,131,011 5,113,125 5,133,366 5,102,016
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- -2-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock paid-in
Shares Amount capital
--------- ---------- -----------
<S> <C> <C> <C>
Balance December 27,1997 5,192,254 $5,192,254 $34,022,873
Stock options exercised 3,450 3,450 16,058
Stock dividend 519,365 519,365 3,181,111
Net income
--------- ---------- -----------
Balance September 26, 1998 5,715,069 $5,715,069 $37,220,042
========= ========== ===========
Total
Retained Treasury Stock at Cost Stockholders'
earnings Shares Amount Equity
----------- ------- ---------- -----------
Balance December 27,1997 $19,569,699 605,825 $4,877,344 $53,907,482
Stock options exercised 19,508
Stock dividend (3,701,546) 60,581 (1,070)
Net income 1,612,884 1,612,884
----------- ------- ---------- -----------
Balance September 26, 1998 $17,481,037 666,406 $4,877,344 $55,538,804
=========== ======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
- -3-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Thirty-nine Weeks Ended
-----------------------
September 26, September 27,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,612,884 $ 1,326,600
Adjustments to reconcile net income to
net cash
Used in operating activities:
Amortization 598,155 345,338
Depreciation 1,469,221 1,628,648
Deferred income taxes (4,000) (49,000)
Reserve for doubtful accounts and
allowances (430,000) 142,000
Retirement plan obligations (179,900) (132,489)
Gain on sale of fixed assets 1,751 (35,035)
Equity in earnings of
unconsolidated affiliates (121,321) (133,606)
Changes in current assets and current
liabilities:
Accounts receivable (15,446,229) (11,293,663)
Inventories (20,075,976) (11,024,396)
Other current assets (332,875) 416,629
Accounts payable 2,230,637 (2,558,692)
Accrued liabilities 243,722 750,288
Income taxes 1,090,000 683,336
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (29,343,931) (19,934,042)
------------ ------------
INVESTING ACTIVITIES:
Additions to fixed assets (1,389,657) (696,170)
Proceeds from sale of fixed assets 669,802 17,286
Decrease in investments in and
advances to unconsolidated
affiliates 67,900 71,787
Increase in other assets (1,276,247) (1,064,984)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,928,202) (1,672,081)
------------ ------------
FINANCING ACTIVITIES:
Stock options exercised 18,438
Additions to debt - Banks - net 31,684,000 22,173,440
Payments on debt - Other (361,666) (361,666)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 31,340,772 21,811,774
------------ ------------
INCREASE IN CASH 68,639 205,651
CASH AT BEGINNING OF PERIOD 171,944 310,520
------------ ------------
CASH AT END OF PERIOD $ 240,583 $ 516,171
============ ============
Cash paid during the period - Interest $ 1,930,204 $ 1,465,000
============ ============
- Income taxes $ 41,050 $ 407,500
============ ============
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Stock Dividend $ 3,701,546
============
</TABLE>
See notes to consolidated financial statements.
- -4-
HAMPTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 26, 1998 and September 27, 1997 is unaudited.)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of September 26, 1998 and
September 27, 1997 and the consolidated statements of operations and
cash flows 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 26, 1998 and
September 27, 1997 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 27, 1997 Annual Report to
shareholders. The results of operations for the period ended
September 26, 1998 are not necessarily indicative of the operating
results for the full year.
2. CREDIT FACILITY
The credit facility ("Credit Facility") between the Company 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 $13,500,000 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. Management is confident that the facility
will be either renewed or replaced.
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 26, 1998, the Company was not in
compliance with financial covenants relating to minimum tangible net
worth and the fixed charge coverage ratio. On October 21, 1998 the
Company received a waiver with respect to non-compliance with these
covenants.
3. STOCKHOLDERS' EQUITY
The Board of Directors declared a 10% stock dividend which was
paid on July 2, 1998 to stockholders of record on June 2, 1998. Basic
and diluted earning per share and outstanding stock options have been
restated for all periods presented to reflect the stock dividend.
- -5-
4. STOCK OPTIONS
In 1992, the stockholders approved a non-qualified stock option
plan (the "Plan") under which there are presently reserved 363,000 shares
of common stock. The Plan was amended in 1997 to increase the reserved
shares of common stock to 963,000 shares and the expiration date of 2002
was eliminated. 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. Stock to be offered under
the Plan consists of shares, whether authorized but unissued or
reacquired by the Company, of common stock of the Company.
The exercise price of options is equal to the fair market value
on the date of each grant. The exercise price may be paid in cash,
common stock of the Company, or a combination thereof. A summary of
the changes in common stock options during 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Price Weighted Average
Number of Range per Price per
Shares Share Share
------ ----- -----
<S> <C> <C> <C>
Outstanding at December 28, 1996 302,500 $4.09 $4.09
Granted 133,650 $6.14 - $8.64 $6.91
Exercised (880) $4.09 $4.09
Canceled (6,600) $4.09 - $6.14 $4.60
------- ------------- -----
Outstanding at December 27, 1997 428,670 $4.09 - $8.64 $4.96
Granted 363,550 $6.59 - $6.70 $6.60
Exercised (3,740) $4.09 $4.09
Canceled (19,910) $4.09 - $8.64 $5.34
------- ------------- -----
Outstanding at September 26, 1998 768,570 $4.09 - $8.41 $5.73
</TABLE>
As of September 26, 1998, 133,210 shares were 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 grants prior to
1996, $234,300 for the 1997 grants and $896,000 for the 1998 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
- -6-
model includes risk-free interest rates from 5.5% to 6.7%, expected
volatility of 30.9% to 39.3% and a 5 year expected life. 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 Thirty-nine Weeks Ended
September 26, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
Net income - as reported $1,612,884 $1,326,600
========== ==========
- pro forma $1,505,326 $1,245,000
========== ==========
Basic net income
per common share - as reported $0.32 $0.26
===== =====
- pro forma $0.30 $0.25
===== =====
Diluted net income
per common share - as reported $0.31 $0.26
===== =====
- pro forma $0.29 $0.24
===== =====
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the operating data for the periods
indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
September September September September
26, 27, 26, 27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 75.5 72.0 75.0 74.4
----- ----- ----- -----
Gross margin 24.5 28.0 25.0 25.6
Selling, general and
administrative 17.3 20.3 21.6 22.6
Rental income - net ( .4) ( .5) ( .5) ( .6)
Equity in earnings of
unconsolidated
affiliates ( .1) ( .1) ( .1) ( .1)
Gain on disposal of
fixed assets - - - -
Other (income) expense
- net .1 ( .1) ( .1) -
----- ----- ----- -----
Operating income 7.6 8.4 4.1 3.7
Interest expense 1.9 1.7 2.0 1.7
----- ----- ----- -----
Income before income
tax provision 5.7 6.7 2.1 2.0
Net income 3.4% 4.1% 1.3% 1.2%
===== ===== ===== =====
</TABLE>
- -7-
THIRTEEN WEEKS ENDED SEPTEMBER 26, 1998 AS COMPARED TO
THE THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997
Net sales increased by $14,303,000 or 31.0% for the quarter.
Sales of branded product increased by $13,634,000 to 49.1% of total
sales from 34.8% of total sales in the 1997 quarter. Sales of the
Nautica, Spalding, Dickies and Rawlings brands were the principal
contributors to the increased sales volume. Non branded product
accounted for $669,000 of the total sales increase. The total
increase in sales was split equally between national department stores
and discounters. The Company attributes the increase in sales to an
increase in the number of stores where product is sold, the addition
of new brands and the increased demand for value oriented branded
products.
Gross profit increased by $1,888,000 during the quarter ended
September 26, 1998. As a percent of sales, gross margin percent
declined to 24.5% from 28.0% in the prior period. An increase in customer
allowances of $1,058,000 and inventory markdowns of $347,000 were the
primary factors contributing to this decline.
Selling, general and administrative expenses increased by
$1,083,000 or 11.6% during the quarter ended September 26, 1998, as
compared to the prior year. Increase in royalties of $537,000
and advertising of $387,000 were the primary factors accounting for
this increase. As a percent of sales, selling, general and
administrative expenses decreased to 17.3% from 20.3% in the 1997
period.
Operating profit before interest and income taxes improved from
$3,868,000 in the prior period to $4,608,000 for the thirteen weeks
ending September 26, 1998.
Interest expense increased by $394,000 in the current quarter due
to higher borrowing in 1998 to support higher inventory and customer
receivable levels.
THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1998 AS COMPARED TO
THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997
Net sales increased by $20,323,000 or 18.7% for the thirty-nine
weeks ended September 26, 1998 as compared to the comparable 1997
period. Sales of branded product increased by $19,751,000 to 44.0% of
total sales from 34.1% in the prior period. Increased sales of the
Nautica, Spalding, Dickies and Flip-Box brands were the principal
contributors to the increased sales volume. Non branded product
accounted for $572,000 of the total sales increase. Increased sales
to national discounters were the primary source of additional volume
and national department stores were also a significant contributor.
The Company attributes the increase in sales to an increase in the
number of stores where product is sold, the addition of new brands and
the increased demand for value oriented branded products.
Gross profit increased in absolute dollars by $4,444,000 during
the thirty-nine weeks ended September 26, 1998. As a percent of
sales, gross margin percent declined from 25.6% to 25.0% for the
respective periods. An increase in customer allowances of $1,255,000
is the primary factor contributing to this decline. An offsetting
positive factor was the improvement in operating efficiencies of
Company-owned factories which increased gross profit by approximately
$580,000 for the current thirty-nine week period.
Selling, general and administrative expenses increased by
$3,263,000 or 13.3% during the thirty-nine weeks ended September 26,
1998 as compared to the comparable 1997 period. The additional
expenses were principally due to increases in compensation and related
benefits of $1,332,000, royalties of $759,000, samples of $528,000
- -8-
and advertising of $498,000. As a percent of sales, selling, general
and administrative expenses decreased to 21.6% from 22.6% in the prior
year.
Operating profit before interest and income taxes increased from
$4,065,000 in the prior thirty-nine week period to $5,296,000 for the
thirty-nine weeks ending September 26, 1998.
Interest expense increased by $757,000 due to higher borrowing in
1998 to support higher inventory and customer receivable levels.
Liquidity and Capital Resources
Outstanding borrowings under the Credit Facility totaled
$36,792,000 at September 26, 1998 as compared to $22,573,000 at
September 27, 1997 and $5,108,000 at December 27, 1997. Outstanding
letters of credit were $23,108,000 at September 26, 1998 as compared
to $26,123,000 at September 27, 1997 and $33,402,000 at December 27,
1997. The Company had unused lines of credit of $11,441,000 at
September 26, 1998 for either direct borrowings or letters of credit.
At September 26, 1998, the Company's working capital approximated
$41,757,000 as compared to $40,724,000 in the prior year. The current
ratio was 1.83 in the current period as compared to 2.24 in the prior
year.
The credit facility ("Credit Facility") between the Company 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 $13,500,000 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. Management is confident that the facility
will be either renewed or replaced.
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 26, 1998, the Company was not
in compliance with financial covenants relating to minimum tangible
net worth and the fixed charge coverage ratio. On October 21, 1998
the Company received a waiver with respect to non-compliance with
these covenants.
Net cash used in operating activities amounted to $29,344,000 for
the thirty-nine week period ended September 26, 1998. Cash used in
operating activities relates principally to an increase in inventories
of $20,076,000 and accounts receivable of $15,446,000 offset by
reductions in accounts payable of $2,231,000. Cash used in operating
activities in the comparable prior-year period amounted to $19,934,000
and relates primarily to an increase in inventories of $11,024,000 and
accounts receivable of $11,294,000.
Net cash used in investing activities in the current thirty-nine
week period ended September 26, 1998 was $1,928,000. This amount
principally consists of additions to fixed assets of $1,390,000 and
other assets of $1,276,000 which was offset by the proceeds from the
sale of assets held for resale of $670,000. Net cash used in
- -9-
investing activities for the comparable prior year period amounted to
$1,672,000 and related to additions to fixed assets of $696,000 and
other assets of $1,065,000.
Net cash provided by financing activities in the current thirty-
nine week period ended September 26, 1998 was $31,341,000. This
amount principally consists of increased bank debt of $31,684,000.
Net cash provided by financing activities for the prior year's
comparable period amounted to $21,812,000 and principally consists of
increased bank debt of $22,173,000.
During the second quarter ending June 27, 1998 the Company
granted 363,550 options at an average exercise price of $6.60 per
option. The Board of Directors declared a 10% stock dividend which
was paid on July 2, 1998 to stockholders of record on June 2, 1998.
For the nine months ended September 26, 1998, 3,740 options have been
exercised and 19,910 were canceled. As of September 26, 1998, 133,210
options were exercisable.
The Company's backlog of orders at September 26, 1998 was
approximately $103,680,000, of which approximately $74,776,000 is
scheduled to be shipped in 1998 as compared to $84,274,000, of which
approximately $61,242,000 was scheduled to be shipped in 1997. Actual
sales in the fourth quarter of 1997 were $54,421,000. Management
believes that the sales to date, the order backlog and anticipated new
orders will be sufficient to meet the Company's 1998 sales goals.
Management believes that the credit available under the Credit
Facility together with the cash expected to be generated from
operations, will be adequate to support the Company's operating
requirements for the foreseeable future.
Year 2000 Issues
The Company has been in the process of assessing various
issues related to the year 2000 for the past two years. As a result
of its initial studies, management has elected to convert all information
systems to new computer hardware and software which has been certified
as year 2000 compliant. Beginning in the fall of 1996 the process of
converting systems was begun. To date, the financial, accounts payable,
accounts receivable, payroll and human resources functions have been
completed. The Company's internal network of LAN's, WAN's and other
communication systems have also been converted to year 2000 compliant
systems.
In the fall of 1997, systems were identified and purchased that would
meet the Company's requirements and be year 2000 compliant in regards
to the maintenance and management of customer orders, inventory and
production which are critical to the Company's success. In the
first quarter of 1998 testing began on these new systems. All significant
functions have been successfully tested. Starting in the third quarter
of 1998 and continuing into the fourth quarter, the process of converting
data onto the new systems began. During late November and December 1998,
a complete "parallel" of the new systems will be performed to insure that
all critical functions are addressed. It is expected that during the
first quarter of 1999 the conversion process will be completed.
Over this time period approximately $1,000,000 has been spent on
hardware systems, which includes computer hardware, infared scanners,
printers and telephone systems. Expenditures for software has
approximated $500,000. It is expected that an additional $200,000 will
be incurred for the remainder of the conversion.
Non-information technology systems, which include items such as
burglar and fire alarms, copiers, elevators and various sewing
equipment are being addressed by an internal team. It is expected
- -10-
that all of these systems will be year 2000 compliant by the end of the
first quarter of 1999. This project is approximately 50% complete.
No major expenditures are anticipated for these areas.
The Company is also reviewing its external relationships to
address potential year 2000 impacts arising from interfaces with
customers, suppliers and service providers. The Company is currently
communicating with its significant suppliers and key customers to
assess their ability to meet their sales and purchasing obligations
despite the year 2000 issue, and will continue to monitor this into
the year 2000. By the end of the second quarter of 1999, the Company
will have verified that all suppliers which will have Company
production in process at the end of 1999, will be year 2000 compliant.
The Company sells to approximately 3,300 customers. Forty of
these customers account for approximately 70% of the total sales.
These customers represent the largest retailers in the United States.
A majority of these customers maintain a trading partnership with the
Company through E.D.I. transactions. As a result, the Company has
continual dialogue with these customers in order to insure that they
will be year 2000 compliant. Surveys are being sent to the remaining
customers to attempt to determine the extent of their compliance with
year 2000 issues. Risk associated with this group of customers would
be excess bad debts or lower sales volume if they cease operations but
no single customer would have a material adverse affect on the Company
if it ceased operations. However, if a large group of these customers
ceased operations the Company would be negatively impacted.
Management is unable to quantify this risk at this time.
While there can be no absolute assurance that the Company will
successfully address all year 2000 issues on a timely basis, it is
anticipated that the Company will have all of its systems in
compliance by the end of the second quarter of 1999. Contingency
plans are being considered and will be in place, as required, by the
third quarter of 1999 in the event that the Company is at risk in
regard to suppliers, customers or its own internal hardware and
software. Contingency plans will include, but will not be limited to
consideration of alternative sources of supply, customer communication
plans and plant and business response plans.
The Company believes the complete year 2000 project will be completed
prior to the year 2000. However, considerable work remains to be
accomplished in a limited period of time and unforeseen difficulties
may arise which could adversely affect the Company's ability to
complete its systems modifications correctly, completely, on time
and/or within its cost estimate. In addition, there can be no
assurance that customers, suppliers and service providers on which the
Company relies will resolve their year 2000 issues accurately,
thoroughly and on time. Failure to complete the year 2000 project by
the year 2000 could have a material adverse affect on future operating
results and financial condition.
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 costs 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.
- -11-
New Accounting Principles
During Fiscal 1997, the Financial Accounting Standards Board
issued the following accounting standards: Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131) and Statement of Financial Accounting Standards No. 132
"Employers Disclosures about Pension and other Post Retirement Benefit
Plans" (SFAS No. 132). With regard to SFAS No. 130, the Company does
not have any items that would be reportable as a component of
comprehensive income other than its profit from operations. The
Company does not expect any material effect from adoption of SFAS
No.131 and 132. The Company will report comprehensive income as a
component of equity.
Except for the historical information contained herein, the
matters outlined in the management's discussion and analysis include
forward looking statements that involve risks and uncertainties,
including quarterly fluctuation in results, retail sell 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 SEC reports, including the report on Form 10-K for
the year ended December 27, 1997.
- -12-
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/FRANK E. SIMMS
_____________________________________
Frank E. Simms, Chief Financial Officer
Date: October 22, 1998
- -13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> SEP-26-1998
<CASH> 240,583
<SECURITIES> 0
<RECEIVABLES> 40,190,056
<ALLOWANCES> 0
<INVENTORY> 50,432,973
<CURRENT-ASSETS> 92,119,936
<PP&E> 17,647,010
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,379,994
<CURRENT-LIABILITIES> 50,362,466
<BONDS> 0
0
0
<COMMON> 5,715,069
<OTHER-SE> 54,701,080
<TOTAL-LIABILITY-AND-EQUITY> 114,379,994
<SALES> 128,942,333
<TOTAL-REVENUES> 128,942,333
<CGS> 96,678,973
<TOTAL-COSTS> 96,678,973
<OTHER-EXPENSES> 28,693,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,597,541
<INCOME-PRETAX> 2,698,884
<INCOME-TAX> 1,086,000
<INCOME-CONTINUING> 1,612,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,612,884
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>