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 June 26, 1999
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 July 31, 1999 there were 5,553,374 shares of common stock
outstanding.
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 26, June 27, December 26,
1999 1998 1998
------------ ------------ ------------
(Unaudited) (Unuadited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 3,163,340 $ 201,870 $ 282,375
Accounts receivable - net 23,648,604 22,263,601 32,322,955
Inventories 67,514,178 54,819,181 35,593,471
Deferred income tax assets 361,062 431,195 361,062
Other current assets 2,752,512 1,023,596 944,952
------------ ------------ ------------
Total current assets 97,439,696 78,739,443 69,504,815
Property, plant and equipment - net 20,152,599 18,816,357 19,866,851
Assets held for disposal - net 566,849 1,195,063 566,849
Investments in and advances to
unconsolidated affiliates 936,453 745,309 761,384
Other assets 2,605,103 2,224,437 2,103,008
------------ ------------ ------------
$121,700,700 $101,720,609 $ 92,802,907
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks and
current maturities of
long-term debt $ 30,880,867 $ 28,558,324 $ 18,923,100
Uncleared checks 2,672,968 863,352 2,110,149
Accounts payable 12,200,622 7,528,451 6,164,437
Accrued liabilities 2,250,050 2,607,49 3,570,372
Income taxes (35,347) 118,346 -
------------ ------------ ------------
Total current liabilities 47,969,160 39,675,970 30,768,058
Deferred income tax liabilities 1,401,916 996,793 1,401,916
Long-term debt 14,302,420 3,813,349 302,420
Retirement plan obligations 3,925,687 3,779,557 3,988,847
------------ ------------ ------------
67,599,183 48,265,669 36,461,241
Stockholders' equity 54,101,517 53,454,940 56,341,666
------------ ------------ ------------
$121,700,700 $101,720,609 $ 92,802,907
============ ============ ============
</TABLE>
Note: The consolidated balance sheet at December 26, 1998 has been
derived from the audited financial statements and condensed.
See notes to consolidated financial statements.
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------- ------------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $30,936,690 $34,177,577 $67,850,321 $68,488,193
Cost of products sold 22,244,981 25,638,588 48,958,587 51,045,949
----------- ----------- ----------- -----------
Gross margin 8,691,709 8,538,989 18,891,734 17,442,244
----------- ----------- ----------- -----------
Selling, general and
administrative 10,783,255 8,357,849 21,388,234 17,375,124
Equity in earnings of
unconsolidated
affiliates (36,355) (34,653) (64,530) (54,062)
------------ ------------ ----------- -----------
Operating (loss) income (2,055,191) 215,793 (2,431,970) 121,182
------------ ------------ ------------ -----------
Other (income) expense:
Rental income (198,414) (226,830) (465,200) (476,401)
Loss (gain) on disposal
of fixed assets 36,641 (7,383) 83,527 (1,798)
Other expense(income)-net 29,650 (71,052) (19,275) (89,519)
Interest expense 842,303 857,195 1,578,440 1,439,115
------------ ------------ ------------ -----------
(710,180) (551,930) (1,177,492) (871,397)
------------ ------------ ------------ -----------
Loss before income
tax benefit (2,765,371) (336,137) (3,609,462) (750,215)
Income tax benefit (1,033,000) (134,000) (1,370,000) (282,000)
------------ ------------ ------------ -----------
Net loss $(1,732,371) $ (202,137) $(2,239,462) $ (468,215)
============ ============ ============ ===========
Basic loss per
common share $(.31) $(.04) $(.40) $(.08)
Weighted average common
shares outstanding 5,553,374 5,552,375 5,553,374 5,551,490
Diluted loss per share $(.31) $(.04) $(.40) $(.08)
Weigghhtteedd aavveerage common
shares outstanding and
other potential common
shares 5,553,374 5,552,375 5,553,374 5,551,490
</TABLE>
See notes to consolidated financial statements
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance December 26,1998 5,715,069 $5,715,069 $37,220,042 $18,283,899
Stock options exercised - - - -
Stock dividend 571,350 571,350 1,928,307 (2,500,344)
Net loss (2,239,462)
--------- ---------- ----------- ------------
Balance June 26,1999 6,286,419 $6,286,419 $39,148,349 $13,544,093
========= ========== =========== ============
<CAPTION>
Total
Treasury Stock at Cost Stockholders'
Shares Amount Equity
--------- ---------- ------------
<S> <C> <C> <C>
Balance December 26,1998 666,406 $4,877,344 $56,341,666
Stock options exercised - - -
Stock dividend 66,639 (687)
Net loss (2,239,462)
--------- ---------- ------------
Balance June 26,1999 733,045 $4,877,344 $54,101,517
========= ========== ============
</TABLE>
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Twenty-six Weeks Ended
--------------------------
June 26, June 27,
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,239,462) $ (468,215)
Adjustments to reconcile net loss to
net cash used in operations:
Amortization 424,837 389,787
Depreciation 1,086,833 957,836
Deferred income taxes - (26,050)
LIFO debit (credit) 16,662 (20,336)
Reserve for doubtful accounts and
allowances (601,000) (1,075,000)
Retirement plan obligations (63,160) (133,923)
Loss (gain) on sale of fixed
assets 83,527 (1,798)
Equity in earnings of
unconsolidated affiliates (64,530) (54,062)
Changes in current assets and current
liabilities:
Accounts receivable 9,275,351 3,125,226
Inventories on a FIFO basis (31,937,369) (24,441,848)
Other current assets (1,807,560) (509,292)
Uncleared Checks 562,819 (480,870)
Accounts payable 6,036,185 3,230,566
Accrued liabilities (1,321,009) (1,094,586)
Income taxes (35,347) 50,000
------------- ------------
NET CASH USED IN OPERATIONS: (20,583,223) (20,552,565)
------------- ------------
INVESTING ACTIVITIES:
Additions to fixed assets (907,527) (1,221,819)
Additions to software (555,979) (572,927)
Proceeds received from sale of
fixed assets 7,398 25,027
(Increase) decrease in
investments in and advances to
unconsolidated affiliates (110,539) 11,908
Increase in other assets (926,932) (235,455)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES: (2,493,579) (1,993,266)
------------- ------------
FINANCING ACTIVITIES:
Exercise of stock options - 15,672
Additions-Revolving Credit
Facility-net 26,254,433 22,856,751
Payments on debt-Long-term debt (296,666) (296,666)
------------- ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES: 25,957,767 22,575,757
------------- ------------
INCREASE IN CASH 2,880,965 29,926
CASH AT BEGINNING OF PERIOD 282,375 171,944
------------- ------------
CASH AT END OF PERIOD $ 3,163,340 $ 201,870
============= ============
Cash paid during the period-Interest $ 1,285,453 $ 1,266,030
============= ============
-Income taxes $ 38,284 $ 41,050
============= ============
</TABLE>
See notes to consolidated financial statements.
HAMPTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 26, 1999 and June 27, 1998 is unaudited.)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of June 26,1999 and June 27,1998
and the consolidated statements of operations and cash flows for
the twenty-six week period 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 26, 1999 and June 27, 1998 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 26, 1998 Annual Report to
shareholders. The results of operations for the period ended
June 26,1999 are not necessarily indicative of the operating results for
the full year.
Certain reclassifications have been made to the consolidated
financial statements of June 27, 1998 to conform to classifications
used at June 26,1999.
2. CREDIT FACILITY
On May 5, 1999, the Company entered into a new credit facility
with The Chase Manhattan Bank, as Agent ("New Facility"). The New
Facility provides for a maximum line of credit of $100,000,000, which
includes both direct loans and letters of credit. The initial
proceeds of the New Facility were used to repay the outstanding
indebtedness under the Company's previously existing bank line of
credit.
Availability under the New Facility is based on a formula of
eligible accounts receivable and eligible inventory, determined
monthly, and provides for a seasonal overadvance of up to $10,000,000
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 New Facility) or the Prime Rate, at the
option of the Company. The applicable margin is determined by a ratio
of adjusted E.I.B.I.T.A. to interest expense. Borrowings are
collateralized by accounts receivable, inventory, and general
intangibles of the Company and its subsidiaries. The New Facility
expires in May 2002.
The New Facility contains financial covenants relating to minimum
levels of net income, interest coverage, capital expenditures, and
leverage, 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 .1875 of 1% per annum on the unused
portion of the total facility plus certain other administrative costs.
Outstanding borrowings under the current facility amounted to
$41,000,000 at June 26, 1999 as compared to $27,965,000 at the same
time in 1998, under the previous facility agreement. A total of
$14,000,000 of the outstanding borrowings under the New Facility have
been classified as Long Term Debt. Net working capital at June 26,1999
was $49,471,000 as compared to $39,063,000 in 1998. The working
capital ratio as of June 26, 1999 was 2.0:1 as compared to 2.0:1 at
the same time in 1998.
3. STOCKHOLDERS' EQUITY
The Board of Directors declared a 10% stock dividend in 1998 and
1999. The dividends were payable on July 2nd to stockholders of record
on June 2nd of both years. Basic and diluted earnings per share have
been restated for all periods presented to reflect the stock
dividends. Stock options have also been restated to reflect the stock
dividends.
4. STOCK OPTIONS
The Company has a non-qualified stock option plan (the "Plan")
under which there are presently reserved 1,164,900 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. 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 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Price Weighted
Number of Range per Average Price
Shares Share per Share
--------- ------------- -------------
<S> <C> <C> <C>
Outstanding at December 27,1997 471,537 $3.72 - $7.85 $4.51
Granted 399,905 $5.99 - $6.09 $6.00
Exercised (4,114) $3.72 $3.72
Canceled (23,716) $3.72 - $7.85 $4.95
-------- ------------- -------------
Outstanding at December 26,1998 843,612 $3.72 - $7.64 $5.21
Granted 4,950 $4.20 $5.21
Exercised 0 $0.00 $0.00
Canceled (15,730) $5.99 - $7.23 $6.13
--------- -------------- ------------
Outstanding June 26, 1999 832,832 $3.72 - $7.64 $5.18
========= ============== ============
</TABLE>
As of June 26, 1999, there were 304,799 shares 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 $724,400 for the
grants prior to 1998, $896,000 for the 1998 grants, and $4,700 for the
1999 grants. These amounts would be expensed at the rate of 20% per
annum over the options' vesting period. The assumptions used in the
option-pricing 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
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>
Twenty-six Weeks Ended Twenty-six Weeks Ended
June 26,1999 June 27,1998
-------------- -------------
<S> <C> <C>
Net loss - as reported ($2,239,462) ($468,215)
============== =============
- pro forma ($2,330,574) ($531,915)
============== =============
Basic net loss per common share
- as reported ($0.40) ($0.08)
======= =======
- pro forma ($0.42) ($0.10)
======= =======
Diluted net loss per common share
- as reported ($0.40) ($0.08)
======= =======
- pro forma ($0.42) ($0.10)
======= =======
</TABLE>
Common share equivalents have been excluded 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 26, June 27, June 26, June 27,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 71.9 75.0 72.2 74.5
--------- --------- --------- ---------
Gross margin 28.1 25.0 27.8 25.5
Selling, general and
administrative 34.9 24.5 31.5 25.4
Equity in earnings of
unconsolidated affiliates ( .1) ( .1) ( .1) ( .1)
--------- --------- --------- ---------
Operating (loss) income (6.7) .6 (3.6) .2
Other expense (income):
Rental income - net ( .6) ( .7) ( .7) ( .7)
Loss on disposal of fixed
assets .1 - .1 -
Other income - net ( .1) ( .2) - ( .1)
Interest expense 2.7 2.5 2.3 2.1
--------- --------- --------- --------
Net loss before provision
for income taxes (8.8) (1.0) (5.3) (1.1)
Net loss (5.6)% ( .6)% (3.3)% ( .7)
========= ========= ========== =========
</TABLE>
THIRTEEN WEEKS ENDED JUNE 26,1999 AS COMPARED TO
THE THIRTEEN WEEKS ENDED JUNE 27, 1998
Net sales decreased by $3,241,000 or 9.5% for the quarter. Cancellation
of customer orders has amounted to approximately $3,000,000, as a result
of the conversion. Sales of branded product increased by $3,755,000 to 55.5%
of total salesfrom 39.3% of total sales in the 1998 quarter. Sales of Spalding
and Kaynee were the principal contributors to the increased sales volume.
Non-branded product accounted for a sales decrease of $6,996,000
for the second quarter as compared to the prior year. Sales of non-
branded product are primarily a direct result of production for
customer specific orders received in advance. This decline is in line
with the decline in advance bookings for the second quarter for non-
branded product.
Gross profit increased in absolute dollars by $153,000 during the
quarter ended June 26,1999. As a percent of sales, gross margin
percent increased to 28.1% from 25.0% in the prior period. Increased
sales of branded product were the primary reason for the increased
gross margin.
Selling, general and administrative expenses increased by
$2,425,000 or 29.0% during the quarter ended June 26, 1999, as
compared to the prior year. As a percent of sales, it increased
to 34.9% from 24.5% for the respective periods. Compensation, royalties,
advertising, freight, and amortization expenses increased by $522,000,
$148,000, $142,000, $121,000,and $108,000 respectfully from the prior period
An additional physical inventory was taken in the 2ND quarter due to
conversion to new software in the operations and warehousing segments of the
business. This, associated with inherent inefficiencies in the conversion of
the new operating systems, resulted in increased shipping expenses of
$549,000. In 1998, $517,000 of conversion related expenses were capitalized,
as compared to $0 in the second quarter of 1999.
Operating results before interest and income taxes changed from
a profit of $521,000 in the prior period to loss of $1,923,000 for the
thirteen weeks ending June 26,1999.
TWENTY-SIX WEEKS ENDED JUNE 26, 1999 AS COMPARED TO
THE TWENTY-SIX WEEKS ENDED JUNE 27, 1998
Net sales decreased by $638,000 or .9% for the twenty-six weeks
ended June 26, 1999 as compared to the comparable 1998 period. Sales
of branded product increased by $11,218,000 from 39.5% of net sales in
the prior year's period to 56.4% in the current period.
Gross profit increased in absolute dollars by $1,449,000 or 8.3%
for the twenty-six weeks ended June 26, 1999 as compared to the
comparable 1998 period. Gross margin percent improved to 27.8% from
25.5% for the respective periods. The improvement in margins
continues to reflect the emphasis on sales of branded product.
Selling, general and administrative expenses increased by
$4,013,000 or 23.1% during the twenty-six weeks ended June 26, 1999 as
compared to the comparable 1998 period. As a percent of sales, it
increased to 31.5% from 25.4% for the respective periods.
Compensation, royalties and advertising expenses increased by
$735,000, $568,000, and $505,000 respectfully from the prior period.
An additional physical inventory was taken in the 2ND quarter due to
conversion to new software in the operations and warehousing segments
of the business. This associated with inherent inefficiencies in the
conversion of the new operating systems resulted in increased shipping
expenses of $597,000. For the twenty-six weeks ended June 26, 1999, $88,000
of conversion related expenses were capitalized as compared to $517,000
in the comparable 1998 period.
Operating losses before interest and income taxes changed from
a profit of $689,000 in 1998 to a loss of $2,031,000 for the twenty-
six weeks ending June 27, 1998.
Liquidity and Capital Resources
On May 5, 1999, the Company entered into a new credit facility
with The Chase Manhattan Bank, as Agent ("New Facility"). The New
Facility provides for a maximum line of credit of $100,000,000, which
includes both direct loans and letters of credit. The initial
proceeds of the New Facility were used to repay the outstanding
indebtedness under the Company's previously existing bank line of
credit.
Availability under the New Facility is based on a formula of
eligible accounts receivable and eligible inventory, determined
monthly, and provides for a seasonal over-advance of up to $10,000,000
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 New Facility) or the Prime Rate, at the
option of the Company. The applicable margin is determined by a ratio
of adjusted E.I.B.I.T.A. to interest expense. Borrowings are
collateralized by accounts receivable, inventory and general
intangibles of the Company and its subsidiaries. The New Facility
expires in May 2002.
The New Facility contains financial covenants relating to minimum
levels of net income, interest coverage, capital expenditures, and
leverage 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 .1875 of 1% per annum on the unused
portion of the total facility plus certain other administrative costs.
Outstanding borrowings under the new facility amounted to
$41,000,000 at June 26, 1999 as compared to $27,965,000 at the same
time in 1998 and $14,708,000 at December 26, 1998. Net working
capital at June 26, 1999 was $49,471,000 as compared to $39,063,000 in
1998. The working capital ratio as of June 26, 1999 was 2.0:1 as
compared to 2.0:1 at the same time in 1998. Outstanding letters of
credit amounted to $25,338,000 at June 26, 1999 as compared to
$29,419,000 at June 27, 1998 and $18,465,000 at December 26, 1999.
Net cash used in operating activities amounted to $20,583,000 for
the twenty-six week period ended June 26, 1999. Cash used in
operating activities relates principally to an increase in inventories
of $31,937,000 which was offset by a decline in accounts receivable,
and an increase in accounts payable of $9,275,000 and $6,036,000
respectfully. Cash used in operating activities in the comparable
prior-year period amounted to $20,553,000 and relates primarily to an
increase in inventories of $24,442,000 offset by a decline in accounts
receivable of $3,125,000 and an increase in accounts payable of
$3,231,000.
Net cash used in investing activities in the current twenty-six
week period ended June 26, 1999 was $2,494,000. This amount
principally consists of additions to fixed assets of $908,000, software
of $556,0000, and other assets of $927,000. The additions to fixed assets
and software were primarily in support of the systems conversion. The
increase in other assets is due to unamortized in-store fixture costs,
which are being amortized over 36 months, and the cash value of the company
owned insurance policies. During the twenty-six weeks ended June 26,1999,
$552,000 was spent on fixtures and the realted amortization cost was
$425,000. The cash value of the company owned life insurance polices
increased by $200,000. Net cash used in investing activities for the
comparable prior year period amounted to $1,993,000.
Net cash provided by financing activities in the current twenty-
six week period ended June 26, 1999 was $25,958,000. This amount
principally consists of increased bank debt of $26,254,000. Net cash
provided by financing activities forr the prior years comparable period
amounted to $22,576,000 and principally consists of increased bank
debt of $22,857,000.
The Company's backlog of orders at July 31,1999 was approximately
$116,371,000 as compared to $105,188,000 at the time in the prior
year. Management believes that the sales to date, the order backlog
and anticipated new orders will be sufficient to meet the Company's
1999 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 the various
issues related to the year 2000 system problems for the past two
years. As a result of its initial studies, management decided to
convert all information systems to new computer hardware and software.
All hardware and software have been certified as year 2000 compliant
by the providers. Beginning in the fall of 1996 the process of
converting systems was begun and was completed during the second
quarter of 1999. During 1997 and 1998 conversion of the financial
systems, accounts payable, accounts receivable, payroll and human
resources was completed. Also, the Company's internal network of
LAN's, WAN's and other communication systems have been converted to
new year 2000 compliant systems.
The systems that maintain and manage customer orders, inventory
and production are critical to the Company's success. In the fall of
1997, systems were identified and purchased that would meet the
Company's requirements and were determined to be year 2000 compliant.
In the first quarter of 1998 testing began on these systems. Starting
in the third quarter of 1998 and continuing into the first quarter of
1999, the process of converting data onto the new systems began. On
March 28, 1999 conversion to these new systems was made. Customer
orders are being received, production is being issued, inventory is
being tracked and customer orders are being shipped and invoiced on
the new systems. Certain inefficiencies were encountered as a result
of this conversion. Currently, additional labor is required to ship
customer orders. During the second quarter, significant expenses were
incurred for the new systems training of warehouse personnel.
While a second physical inventory was taken during April, continual cycle
counts have been required to insure inventory accuracy. Progress and
productivity are being measured on a daily basis and improvements are
continually being made. Consultants have been retained to provide
recommendations to improve the efficiency of the shipping operations.
An internal team is addressing non-information technology
systems, which include items such as burglar and fire alarms, copiers,
elevators and various sewing equipment. It is expected that all of
these systems will be year 2000 compliant by end of the third quarter
of 1999. This project is approximately 95% complete. No major
expenditures are anticipated for these areas.
The Company has been 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 third quarter of 1999, the Company
expects that it will have received verification from active suppliers
that will be year 2000 compliant.
The Company sells to approximately 3,300 customers. Forty of
these customers account for approximately 70% of 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 had
ongoing 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. Risks associated with these non-compliant customers
would be excess bad debts or lower sales volume if such customers were
to 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 in a timely basis, the
Company is operating all of its systems in year 2000 compliance based on
certification by the providers. 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 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 whom 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.
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 26, 1998.
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: August 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUN-26-1999
<CASH> 3,163,340
<SECURITIES> 0
<RECEIVABLES> 23,648,604
<ALLOWANCES> 0
<INVENTORY> 67,514,178
<CURRENT-ASSETS> 97,439,696
<PP&E> 20,152,599
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,700,700
<CURRENT-LIABILITIES> 47,969,161
<BONDS> 0
0
0
<COMMON> 5,553,374
<OTHER-SE> 48,548,143
<TOTAL-LIABILITY-AND-EQUITY> 121,700,700
<SALES> 67,850,321
<TOTAL-REVENUES> 67,850,321
<CGS> 48,958,587
<TOTAL-COSTS> 48,958,587
<OTHER-EXPENSES> 20,922,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,578,442
<INCOME-PRETAX> (3,609,462)
<INCOME-TAX> (1,370,000)
<INCOME-CONTINUING> (2,239,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,239,462)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)
</TABLE>
