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 March 27, 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 principle 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 April 30, 1999 there were 5,048,663 shares of common stock
outstanding.
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 27, March 28, December 28,
1999 1998 1998
---------- ---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 182,019 $ 149,835 $ 282,375
Accounts receivable-net 26,998,328 23,084,873 32,322,955
Inventories 45,779,074 37,390,785 35,593,471
Deferred income tax assets 361,062 546,595 361,062
Other current assets 1,199,055 527,702 944,952
----------- ----------- -----------
Total current assets 74,519,538 61,699,790 69,504,815
Property, plant and equipment-net 20,217,326 17,553,476 19,866,851
Assets held for disposal - net 566,849 1,197,542 566,849
Investments in and advances to
unconsolidated affiliates 849,820 707,974 761,384
Other assets 2,371,833 2,724,429 2,103,008
----------- ----------- -----------
$98,525,366 $83,883,211 $92,802,907
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks and current
maturities of long-term debt $12,195,632 $11,799,178 $18,923,100
Uncleared checks 720,705 1,537,411 2,110,149
Account payable 7,896,148 5,505,811 6,164,437
Accrued liabilities 2,297,434 2,609,167 3,570,372
----------- ----------- -----------
Total current liabilities 23,109,919 21,451,567 30,768,058
Deferred income tax liabilities 1,401,916 996,793 1,401,916
Long-term debt 14,302,420 3,961,682 302,420
Retirement plan obligations 3,876,536 3,822,313 3,988,847
----------- ----------- -----------
42,690,791 30,232,355 36,461,241
Stockholders' equity 55,834,575 53,650,856 56,341,666
----------- ----------- -----------
$98,525,366 $83,883,211 $92,802,907
=========== =========== ===========
</TABLE>
Note: The consolidated balance sheet at December 28, 1998 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
---------------------------
March 27, March 28,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 36,913,631 $ 34,310,616
Cost of products sold 26,713,606 25,407,361
------------- ------------
Gross Margin 10,200,025 8,903,255
------------- ------------
Selling, general and administrative 10,604,979 9,017,275
Equity in earnings of
unconsolidated affiliates (28,175) (19,409)
------------- ------------
Operating loss (376,779) (94,611)
------------- ------------
Other expense:
Rental income (266,786) (249,571)
Loss on disposal of fixed assets 46,886 5,585
Other income - net (48,925) (18,467)
Interest expense 736,137 581,920
------------- ------------
(467,312) (319,467)
------------- ------------
Loss before income tax benefit (844,091) (414,078)
Income tax benefit (337,000) (148,000)
------------- ------------
Net loss $ (507,091) $ (266,078)
============= ============
Basic loss per common share $(.10) $(.05)
Weighted average common shares
outstanding 5,048,663 5,046,078
Diluted loss per share $(.10) $(.05)
Weighted average common shares
outstanding and other potential
common shares 5,048,663 5,046,078
</TABLE>
See notes to consolidated financial statements
- -2-
<TABLE>
HAMPTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Thirteen Weeks Ended
-----------------------------
March 27, March 28,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (507,091) $ (266,078)
Adjustments to reconcile net loss to
net cash used in operations:
Amortization 201,511 190,760
Depreciation 496,255 472,721
Deferred income taxes - (141,450)
LIFO debit (credit) 190,662 (71,674)
Reserve for doubtful accounts and allowances (660,000) (768,000)
Retirement plan obligations (112,311) (91,167)
Loss on sale of fixed assets 46,886 5,585
Equity in earnings of unconsolidated affiliates (28,175) (19,409)
Changes in current assets and current liabilities:
Accounts receivable 5,984,627 1,996,954
Inventories on a FIFO basis (10,376,265) (6,962,114)
Other current assets (254,103) (13,399)
Uncleared Checks (1,389,444) 176,976
Accounts payable 1,731,711 1,224,139
Accrued liabilities (1,237,889) (1,138,913)
Income taxes (35,050) (22,346)
------------ ------------
NET CASH USED IN OPERATIONS: (5,948,676) (5,427,415)
------------ ------------
INVESTING ACTIVITIES:
Additions to fixed assets (317,366) (343,914)
Additions to software (582,448) -
Proceeds received from sale of fixed assets 6,198 17,644
(Increase) decrease in investments in and
advances to unconsolidated affiliates (60,261) 14,590
Increase in other assets (470,335) (241,736)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES: (1,424,212) (553,416)
------------ ------------
FINANCING ACTIVITIES:
Exercise of stock options - 9,450
Additions-Revolving Credit Facility-net 7,420,865 6,097,605
Payments on debt-Long-term debt (148,333) (148,333)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 7,272,532 5,958,722
------------ ------------
DECREASE IN CASH (100,356) (22,109)
CASH AT BEGINNING OF PERIOD 282,375 171,944
------------ ------------
CASH AT END OF PERIOD $ 182,019 $ 149,835
============ ============
Cash paid during the period -Interest $ 720,593 $ 624,506
============ ============
-Income Taxes $ 35,050 $ 41,000
============ ============
</TABLE>
See notes to consolidated financial statements.
- -3-
HAMPTON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 27, 1999 and March 28, 1998 is unaudited.)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of March 27,1999 and March 28,
1998 and the consolidated statements of operations and cash flows for
the thirteen 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 March
27,1999 and March 28, 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 March
27,1999 are not necessarily indicative of the operating results for
the full year.
Certain reclassifications have been made to the consolidated
financial statements of March 28, 1998 to conform to classifications
used at March 27,1999.
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,
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 previous facility amounted to
$22,129,000 at March 27, 1999 as compared to $11,206,000 at the same
time in 1998. 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 March 27, 1999 was $51,410,000 as compared to
$40,248,000 in 1998. The working capital ratio as of March 27, 1999
was 3.2:1 as compared to 2.9:1 at the same time in 1998.
- -4-
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.
4. STOCK OPTIONS
The Company has a non-qualified stock option plan (the "Plan")
under which there are presently reserved 1,059,000 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. 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.
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 options granted under
the Plan. 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 $896,000 for
the 1998 grants. This amount 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
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 based on options granted in 1998 and in prior years:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirteen Weeks Ended
March 27,1999 March 28, 1998
-------------------- --------------------
<S> <C> <C>
Net loss - as reported ($507,091) ($266,078)
========== ==========
- pro forma ($553,576) ($286,922)
========== ==========
Basic net loss per common share
- as reported ($0.10) ($0.05)
======= =======
- pro forma ($0.11) ($0.06)
======= =======
Diluted net loss per common share
- as reported ($0.10) ($0.05)
======= =======
- pro forma ($0.11) ($0.06)
======= =======
</TABLE>
- -5-
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
---------------------------
March 27, March 28,
1999 1998
--------- ---------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of products sold 72.4 74.1
------- ------
Gross margin 27.6 25.9
Selling, general and adminstrative 28.7 26.3
Equity in earnings of unconsolidated
affiliates ( .1) ( .1)
------- ------
Operating income (1.0) ( .3)
Other expense (income):
Rental income -net ( .7) ( .7)
Loss on disposal of fixed assets .1 -
Other (income) expense -net ( .1) ( .1)
Interest expense 2.0 1.7
------- ------
Net earnings before provision
for income taxes (2.3) (1.2)
Net earnings (1.4)% ( .8)%
======= ======
</TABLE>
THIRTEEN WEEKS ENDED MARCH 27,1999 AS COMPARED TO
THE THIRTEEN WEEKS ENDED MARCH 28, 1998
Net sales increased by $2,603,000 or 7.6% for the quarter. Sales
of branded product increased by $7,174,000 to 57.9% of total sales
from 39% of total sales in the 1998 quarter. Sales of Nautica
and Spalding were the principal contributors to the increased sales
volume. Non branded product accounted for a sales decrease of
$4,571,000 for the first 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
first quarter for non branded product. Total dozen shipped increased
by 47,000, or 12.7%, for the period as compared to the prior year.
Gross profit increased in absolute dollars by $1,297,000 during
the quarter ended March 27,1999. As a percent of sales, gross margin
percent increased to 27.6% from 25.9% in the prior period. Increased
sales of branded product were the primary reason for the increased
gross margin offset by an increase in customer allowances of $432,000
and sales of older product at lower margins.
Selling, general and administrative expenses increased by
$1,588,000 or 17.6% during the quarter ended March 27, 1999, as
compared to the prior year. Increases in royalty expenses of
$420,000, advertising of $364,000 and compensation of $213,000 are the
primary factors accounting for this increase. No other individual
item changed by more than $100,000. As a percent of sales selling,
general and administrative expenses increased to 28.7% from 26.3% in
the 1998 period.
- -6-
Operating loss before interest and income taxes increased from
$95,000 in the prior period to $377,000 for the thirteen weeks ending
March 27,1999.
Interest expense increased by $154,000 in the current quarter
principally due to higher borrowing in 1999 to support higher
inventory and customer receivable levels.
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 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,
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 previous facility amounted to
$22,129,000 at March 27, 1999 as compared to $11,206,000 at the same
time in 1998. 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 March 27, 1999 was $51,410,000 as compared to
$40,248,000 in 1998. The working capital ratio as of March 27, 1999
was 3.2:1 as compared to 2.9:1 at the same time in 1998.
Net cash used in operating activities amounted to $5,949,000 for
the thirteen week period ended March 27, 1999. Cash used in operating
activities relates principally to an increase in inventories of
$10,376,000 which was offset by a decline in accounts receivable of
$5,985,000. Cash used in operating activities in the comparable
prior-year period amounted to $5,427,000 and relates primarily to an
increase in inventories of $6,962,000.
11
Net cash used in investing activities in the current thirteen
week period ended March 27, 1999 was $1,424,000. This amount
principally consists of additions to fixed assets of $900,000 primarily in
support of the systems conversion. Net cash used in investing activities for
the comparable prior year period amounted to $553,000.
Net cash provided by financing activities in the current thirteen
week period ended March 27, 1999 was $7,273,000. This amount
principally consists of increased bank debt of $7,421,000. Net cash
provided by financing activities for the prior years comparable period
amounted to $5,959,000 and principally consists of increased bank debt
of $6,098,000.
- -7-
The Company's backlog of orders at May 2,1999 was approximately
$122,765,000 as compared to $120,275,000 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. 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 are being encountered as a result of
this conversion. Currently additional labor is required to ship
customer orders and some orders are being shipped late. No
significant cancellation of orders has been received at this point.
Progress and productivity are being measured on a daily basis and
improvements are continually being made. Management anticipates that
by the end of the second quarter these difficulties will be
eliminated.
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 that
all of these systems will be year 2000 compliant by end of the second
quarter of 1999. This project is approximately 75% 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 second 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 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 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
- -8-
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, 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 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.
Except for the historical information contained herein, the
matters outlined in the management's discussion and analysis includes
forward looking statements that involve risks and uncertainties including
quarterly fluctuations 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 nd 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.
- -9-
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: May 11,1999
- -10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> MAR-27-1999
<CASH> 182,019
<SECURITIES> 0
<RECEIVABLES> 26,998,328
<ALLOWANCES> 0
<INVENTORY> 45,779,074
<CURRENT-ASSETS> 74,519,538
<PP&E> 20,217,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,525,366
<CURRENT-LIABILITIES> 23,109,920
<BONDS> 0
5,715,069
0
<COMMON> 0
<OTHER-SE> 37,220,043
<TOTAL-LIABILITY-AND-EQUITY> 98,525,366
<SALES> 36,913,631
<TOTAL-REVENUES> 36,913,631
<CGS> 26,713,606
<TOTAL-COSTS> 26,713,606
<OTHER-EXPENSES> 10,307,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 736,137
<INCOME-PRETAX> (844,091)
<INCOME-TAX> (337,000)
<INCOME-CONTINUING> (507,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (507,091)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
