PART I
ITEM 1. BUSINESS
(a) General Development of Business
Hampton Industries, Inc. and its subsidiaries and divisions
(herein referred to as "Hampton" or "Company") are engaged in the
business of manufacturing and selling apparel.
Hampton, a North Carolina Corporation, is the successor of
several predecessor corporations, the first of which was incorporated
in 1925 in the State of New York under the name of Hampton Shirt Co.
(b) Financial Information about Industry Segments
Hampton has been engaged in one line of business in excess of
five years; reference is made to the financial statements included
herein under ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(c) Narrative Description of Business
The Company is engaged in the business of manufacturing and
selling apparel and operates in one industry segment. Substantially
all sales to third party customers are made to destinations in the
United States. The products consist principally of men's and boys'
shirts and men's and women's sleepwear, which are produced domestically
and in Central America. In addition, sport and dress shirts, sweaters,
activewear, outerwear and swimtrunks, for both men and boys are
imported from unaffiliated sources located primarily in the Far East.
Hampton's products are principally sold at retail under private
labels. Branded apparel is becoming an increasingly
important part of the Company's business and is manufactured and sold
under the following licenses:
LICENSE PRODUCT CATEGORY
Nautica for Boys' Boys' apparel
Rawlings Men's and boys' activewear
Spalding (1) Men's activewear
Dickies Men's casual and rugged
sportshirts
Justin (1) Men's and boys' western wear
Bugle Boy Men's and boys' sleepwear and
robes
Charles Goodnight (1) Ladies sleepwear and robes
Warner Brothers Men's sleepwear and robes and
children's robes and novelty
apparel
Joe Boxer (2) Boys', girls' and children's
apparel
(1) Initial sales occurred in 1998.
(2) Initial sales will occur in 1999.
Hampton owns the following trademarks:
TRADEMARK PRODUCT CATEGORY
Kaynee Boys' and girl's school
uniforms
Le Tigre Men's and boys' sportswear
Campus Men's and boys' sportswear
Flipbox Boys' sportswear
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Hampton designs its line of apparel which is
manufactured from various combinations of man-made and natural fibers
which are readily available from a number of sources both domestically
and imported. Hampton has no long-term contracts with any supplier.
The average domestic production cycle is approximately five weeks from
the time the fabric is scheduled for cutting until the finished
product is received at the Company's distribution centers. The
production cycle for goods imported or manufactured in Central America
is approximately ten weeks, while the lead time for goods imported
from the Far East can be as long as six months. The design and
production specifications for imported products are provided to the
manufacturers by Hampton.
Hampton's products are sold throughout the United States, to
approximately 2,620 customers including most of the country's leading
national and regional retail chains and department stores. Sales are
made by a nationwide sales staff of 69 salesmen, including 49 field
representatives at the end of 1998. Sales offices are located in New
York, and at the Company's executive and administrative headquarters
in Kinston, North Carolina. As of December 26, 1998 the Company had
approximately 925 full-time associates domestically and approximately
600 associates in the Caribbean. Hampton is not a party to any
collective bargaining agreements, has never experienced a strike or
work stoppage, and believes that it maintains satisfactory
relationships with its associates.
Hampton's largest customers accounted for approximately 26% and
31% of consolidated sales volume in 1998 and 1997, respectively. Wal-
Mart Stores, Inc. and J.C. Penney Co. are large multi-outlet retail
chains who purchase a broad range of Hampton's products through a
variety of their merchandising departments. There are no
contracts with either customer for continued business. The following
is a breakdown of their respective sales volume:
1998 1997 1996
J.C. Penney Co. 14% 16% 15%
Wal-Mart Stores, Inc. 12% 15% 16%
The following is a breakdown of sales by apparel categories:
1998 1997 1996
Men's shirts and sportswear 31% 34% 40%
Boys' shirts and sportswear 31% 30% 26%
Ladies' sleepwear 12% 13% 13%
Men's sleepwear 13% 13% 12%
Activewear 12% 9% 7%
Other 1% 1% 2%
Sales of licensed products accounted for 41%, 31% and 23% of the
consolidated sales for 1998 and the prior two years, respectively.
The following reflects the Company's sourcing of its products:
1998 1997 1996
Imports 58% 51% 56%
Caribbean 24% 29% 24%
Domestic 18% 20% 20%
All foreign purchases are contracted for in U.S. Dollars;
therefore, there is no currency risk.
- -2-
As of February 28, 1999, Hampton's backlog of orders was
approximately $108,524,000 as compared to $109,105,000 on the same
date in 1998. The orders are believed to be firm and are expected to
be shipped during the current fiscal year.
The apparel industry is highly competitive as to style, quality
and price. Hampton competes with many other manufacturers and
suppliers in each of its products.
EXECUTIVE OFFICERS OF REGISTRANT
First year
appointed to
Name and age Office current office
David Fuchs(74) Chairman and Chief Executive
Officer 1975
Steven Fuchs(39) President 1996
Roger M. Eichel(50) Senior Vice President and
Secretary 1993
Robert J. Stiehl,Jr.(63) Executive Vice President-
Operations, Treasurer, and
Assistant Secretary 1995
Frank E. Simms(50) Chief Financial Officer and
Vice President of Finance 1997
Each of the above named was appointed for one year or until the
election of a successor. Immediately following the Annual Meeting of
Shareholders to be held on May 18, 1999, the board will elect officers
for the following year term. There is no arrangement or understanding
between any of the above pursuant to which they were appointed as
Officers. Steven Fuchs has an employment contract that, among other
things, determines compensation due to separation of employment.
All of the Executive Officers above named, except Robert J.
Stiehl, Jr. and Frank Simms are related family members. Steven Fuchs
is the son of David Fuchs, and Roger Eichel is David Fuchs' son-in-
law.
David Fuchs has held his current executive position for in
excess of five years. Steven Fuchs was elected to his present
position in January, 1996. From 1993 to January 1996, Steven
Fuchs was the President of Hampton Shirt Co. (a subsidiary). Prior to
1993, he held various positions with the Company. Roger Eichel
was elected to his present position in May, 1993 and prior thereto, he
was Secretary of the Company. Robert J. Stiehl, Jr. was elected
to his present position in January 1995. For in excess of five years
prior thereto, he was Vice President - Finance. Frank
Simms was elected Chief Financial Officer in November 1997 and had
previously been Vice President of Finance since May 1995. Prior to
joining Hampton he was the Chief Financial Officer of Riverside
Manufacturing Co. for in excess of five years.
David Fuchs, Steven Fuchs and Roger Eichel are also Directors of
the Company.
ITEM 2. PROPERTIES
Hampton operates three domestic manufacturing plants, one
manufacturing plant in the Caribbean and three domestic distribution
centers. The Company's sales and merchandising personnel occupy a
building located in New York City. Hampton's principal executive and
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administrative offices are located in North Carolina. All of these
properties are owned by the Company. The New York office is
subject to a mortgage loan. The executive and administrative offices
located in North Carolina are financed through an Industrial Revenue
Bond issued by a state governmental agency. All bonds and mortgages
are guaranteed by the Company and are secured by the underlying assets.
The Company believes that its plants and facilities are in good
repair and adequate in respect to its foreseeable needs. The
machinery and equipment utilized in its facilities are considered by
management to be modern and efficient.
ITEM 3. LEGAL PROCEEDINGS
There are no significant legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market
The principal market on which Hampton's Common Stock is traded is
the American Stock Exchange under the symbol HAI.
(b) Stock Price and Dividend Information
<TABLE>
The table below presents the high and low market prices for
Hampton's Common Stock.
QUARTER ENDED
1998 1997
<CAPTION>
3/28 6/27 9/26 12/26 3/29 6/28 9/27 12/27
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 8 3/16 6 13/16 7 1/2 7 5/8 6 9/16 7 3/4 9 5/16 9 9/16
Low 6 3/8 6 6 1/8 6 5 5/16 6 7 1/16 7 5/8
</TABLE>
The Company has not paid a cash dividend on its common stock
since 1973. The Board of Directors declared a 10% common stock
dividend which was paid on July 2, 1998 to stockholders of record on
June 2, 1998. Market prices per share have been restated for all
periods presented to reflect the stock dividend. The present credit
agreement includes restrictive covenants which, among other things,
prevent the payment of cash dividends.
(c) Approximate Number of Holders of Common Stock
The number of holders of record of Hampton's Common Stock as of
December 26, 1998 was approximately 306, including, as a single holder
of record, brokerage firms having more than one stockholder account.
- -5-
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
(In thousands except per common share amounts)
<CAPTION>
YEAR ENDED: 1998 1997 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
Net Sales $190,330 $163,040 $160,684 $184,593 $172,024
Net earnings(loss) 2,416 1,083 2,709 (2,164) 1,002
Basic earnings
(loss) per
common share $.48 $.22 $.54 $(.43) $.20
Diluted earnings
(loss) per
common share $.47 $.21 $.53 $(.43) $.20
AT YEAR END:
Total Assets $ 92,803 $ 78,042 $ 74,421 $ 94,271 $ 90,616
Long-term debt 302 4,110 5,103 5,305 17,002
Working capital 38,737 40,648 40,158 37,501 49,206
Stockholders'
equity $ 56,342 $ 53,907 $ 52,820 $ 50,111 $ 52,275
*(53 Weeks)
</TABLE>
The Company has not paid cash dividends on its common stock since
1973. The Board of Directors declared a 10% common stock dividend
which was paid on July 2, 1998 to stockholders of record on June 2,
1998. Basic and diluted earnings per share and outstanding stock
options have been restated for all periods presented to reflect the
stock dividend.
The Company uses the LIFO method of costing principally all of
its inventories to more fairly present the results of operations by
matching current costs with current revenues. The LIFO method had the
effect of increasing net earnings by $514,500 ($.10 per share) in
1998, decreasing net earnings by $404,900 ($.08 per share) in 1997 and
increasing net earnings by $553,900 ($.11 per share) in 1996.
Inventories increased in 1998. Income realized as a result of
inventory liquidation was not significant in 1997 and $668,200
($.13 per share) in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analyses of the consolidated results
of operations and financial conditions should be read in conjunction
with the accompanying financial statements and related notes to
provide additional information concerning the Company's financial
activities and conditions.
- -6-
Results of Operations
<TABLE>
The following table summarizes the operating data (as a percent
of net sales) for the periods indicated:
<CAPTION>
YEAR ENDED
December December December
26, 27, 28,
1998 1997 1996
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of products sold 76.5 77.3 78.2
------ ------ ------
Gross margin 23.5 22.7 21.8
Selling, general and
administrative 20.2 20.8 18.2
Equity in earnings of
unconsolidated affiliates (0.1) (0.1) -
------ ------ ------
Operating income 3.4 2.0 3.6
Other expense (income):
Rental income - net (0.5) (0.6) (0.4)
Gain on disposal of
fixed assets - - (0.4)
Other income - net - (0.1) (0.1)
Interest expense 1.9 1.7 2.0
------ ------ ------
Earnings before provision
for income tax 2.0 1.0 2.5
Net earnings 1.3% 0.7% 1.7%
====== ====== ======
</TABLE>
The Company is engaged in the business of manufacturing and
selling apparel and operates in one industry segment. Substantially
all sales to third party customers are made to destinations in the
United States. The products consist principally of men's and boys'
shirts and men's and women's sleepwear, which are produced domestically
and in Central America. In addition, sport and dress shirts, sweaters,
activewear, outerwear and swimtrunks, for both men and boys are
imported from unaffiliated sources located primarily in the Far East.
Fiscal 1998 Versus Fiscal 1997
Net sales for 1998 increased by $27,290,000 or 16.7%. An increase
of 1.9% in the average selling price per dozen is primarily reflective
of a small change in product mix. Total dozens shipped increased by
14.6%. Branded product represented 40.7% of net sales in 1998 as
compared to 31.2% in 1997. The increase in sales of branded product
was $26,606,000 for 1998.
Gross profit increased by $7,602,000 for 1998. As a percent of
sales this represented an increase of 0.8%, from 22.7% in 1997 to
23.5% in 1998. The improvement in the gross profit was due primarily
to the increased sales. Sales of branded products generally have
higher margins than non-branded products. However, gross profit was
negatively impacted by an increase in allowances of approximately
$859,000. Late deliveries of product resulted in an increase of
- -7-
allowances of approximately $400,000 and the unseasonable warm weather
resulted in an additional increase of approximately $275,000 to major
department stores.
Selling, general and administrative expenses increased by
$4,426,000 in 1998. As a percent of sales there was a decrease from
20.8% in 1997 to 20.2% in 1998. Increases in royalty expense of
$1,223,000 and advertising expenses of $849,000 were primarily due to
the increase in sales of branded product. As a result of the
introduction of new brands for 1998 and planned expanded offerings in
1999, sample expense increased by $940,000 during 1998. During 1998,
compensation and related fringe benefits increased by approximately
$1,556,000 as a result of the Company expanding its management team
in a variety of supporting roles and the effect of the costs related
to certain individuals that were hired in 1997 who were on the payroll
for the full year of 1998.
A portion of the Company's corporate office building in New York
is leased to third parties. Operations related to this are classified
as Rental Income - net.
Interest expense increased by $878,000 from 1997. This is the
result of an increased level of borrowing during the year in order to
support higher levels of receivables and inventory to support the
increased sales volume.
The effective tax rate increased to 36.7% in 1998 from 34.0% in
1997. The rate in 1997 was favorable impacted by the utilization of
net operating loss carryfowards for which reserves had been previously
established in 1996.
Fiscal 1997 Versus Fiscal 1996
Net sales for 1997 increased by 1.4%. An increase of 2.4% in the
average selling price was partially offset by a decline of 1.0% in
units shipped. The increase in average selling price is primarily due
to the greater influence of the "branded" product sales.
Gross profit margins increased by $2,093,000 for 1997. As a
percent of sales this represented an increase of 0.9%, from 21.8% in
1996 to 22.7% in 1997, which is primarily attributable to increase
sales of branded product. Gross profit was negatively impacted in
1997 due to an increase in allowances provided to customers of
approximately $761,000. Also, as a result of late delivery of
product, approximately $963,000 was incurred for air shipments which
occurred primarily in the fourth quarter.
Selling, general and administrative expenses increased by
$4,698,000 in 1997. As a percent of sales there was an increase from
18.2% in 1996 to 20.8% in 1997. Royalty and advertising expenses were
2.4% as compared to 2.1% of sales in 1996, increasing by $541,000 in
1997. Sales of "Branded" product, for which royalty expense is
recorded, increased from 23.3% of sales in 1996 to 27.5% in 1997.
During 1997, the Company expanded its management team. Three new
divisional presidents were hired as well as a new Vice President of
Corporate Marketing. Certain other individuals were hired in design,
sales and sales administration. These new positions along with
certain related terminations resulted in an increase in recruiting and
severance expenses of $744,000. Compensation and related fringe
benefits increased by approximately $1,815,000 in 1997 as compared to
1996.
During 1997 several new license agreements were entered into
which will not contribute to sales until 1998. The development of
these new brands negatively impacted 1997 by $1,129,000.
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A portion of the Company's corporate office building in New York
is leased to third parties. Operations related to this are classified
as Rental Income - net.
During 1996 gains on sale of property were $656,191. In 1997
losses on sale of property were $64,279.
Interest expense decreased by $495,000 from 1996. This decline
is the result of a lower level of borrowing during the year which
resulted from lower average levels of receivables and inventory.
The effective tax rate increased to 34.0% in 1997 from 31.6% in
1996. The rate differential is impacted by the utilization of jobs
credit carryovers and reversal of prior year over accruals and the
equity in earnings of the unconsolidated subsidiary which is not
subject to U. S. federal taxation until such earnings are repatriated.
Liquidity and Capital Resources
On May 3, 1996, the Company entered into a credit facility with
BNY Financial Corporation, as Agent ("Existing Facility"). The
Existing 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 Existing Facility were used to repay the
outstanding indebtedness under the Company's previously existing bank
line of credit.
Availability under the Existing Facility is based on a formula of
eligible accounts receivable and eligible inventory and provides for a
seasonal overadvance 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
Existing 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 the
Existing Facility expires in May 1999. Amounts outstanding at
December 26, 1998 have been classified as short-term since the
facility expires on May 3, 1999.
The Existing Facility contains financial covenants, including but
not limited to, tangible net worth and interest coverage, restricts
fixed asset purchases and does not allow for the payment of cash
dividends. 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.
On January 29, 1999, the Company entered into an agreement with
the Chase Manhattan Bank, as agent for a new credit facility ("New
Facility"). It is anticipated that this New Facility will close on
May 3, 1999 at the time the Existing Facility expires. The term of
the New Facility is for a period of three years and provides for a
line of credit of $80,000,000. However, at the Company's option, the
line may be increased to $100,000,000 during the period of May1
through October 31 of each year. Direct borrowings will bear interest
at the London Interbank Offered Rate, plus the applicable margin
(as defined) or the Prime Rate, at the option of the Company.
Borrowings will be collateralized by accounts receivable, inventory
and general intangibles of the Company. The New Facility will contain
financial covenants, including but not limited to a restriction on the
payment of dividends, minimum levels of earnings, maintenance of
certain ratios and a monthly measure of credit usage as compared to a
formula based on collateral. Seasonal overadvances of up to
$10,0000,000 will be allowed.
- -9-
At December 26, 1998 the Company did not meet the Minimum tangible
net worth, Fixed charge coverage ratio and the minimum E.B.I.T.D.A.
covenants of its Existing Facility. A wavier for these violations was
received on March 11, 1999. Management is confident that the new credit
facility will close on or before May 3, 1999, when the existing credit
facility expires. Management believes that the line of credit that will
become available under the New Facility, together with the cash expected
to be generated from operations, will be adequate to meet the Company's
financing needs for the foreseeable future.
Outstanding borrowings under the Existing Facility amounted to
$14,708,000 at December 26, 1998 as compared to $5,108,000 in 1997.
The increased borrowings were primarily used to finance the increased
level of accounts receivable and inventories. At December 26, 1998,
the Company had unused lines of credit of $19,634,000 for direct
borrowings or the issuance of letters of credit. This availability
is in addition to the outstanding direct borrowings of $14,708,000 and
letters of credit of $18,465,000 outstanding at the end of 1998. Net
working capital as of the end of 1998 was $38,737,000 as compared to
$40,648,000 in 1997. The working capital ratio at the end of 1998 was
2.3:1 as compared to 3.7:1 in 1997.
During 1998, cash used in operations approximated $5,600,000
which primarily related to higher levels of accounts receivables and
inventories. In 1997, cash used by operations was approximately
$2,000,000. In 1997, an increase in inventory levels was the primary
reason for the use of funds.
Additions to fixed assets, which represented normal replacement
and upgrading of equipment, were approximately $1,700,000 funded from
operations and $408,000 funded from capitalized leases in 1998 as
compared to $1,033,000 in 1997. Expenditures for software cost were
approximately $2,100,000 in 1998 as compared to $294,000 in the prior
year. The 1998 amount is comprised of $1,061,000 of personnel cost
related to the new computer systems and $1,039,000 of software cost.
These costs will be amortized over a period of five years beginning in
1999. Capital expenditures for fixed assets in 1999 are expected to
be equal to the 1998 levels while expenditures for software and
related personnel costs are expected to decrease substantially.
Management anticipates such expenditures will be financed from
operations.
The increase in other assets in 1998 is due to unamortized in-
store fixture costs which are being amortized over 36 months. During
1998, $496,000 was spent on fixtures as compared to $1,217,000 in
1997. Amortization of these costs was $731,000 in 1998 as compared to
$470,000 in 1997. Also, personnel costs related to the design and
implementation of the new computer systems of $1,061,000 is included
in fixed assets and will be amortized over a period of five years
beginning in 1999. During 1998 approximately $1,075,000 was
spent on purchased software which is primarily related to the
conversion of the business systems. These costs are amortized over
five years. In order to provide funding for the Supplemental
Retirement Plan for Key Employees, the Company began a program of
purchasing life insurance policies on the lives of the participants.
Beginning January 1998 the Company instituted a Nonqualified
Deferred Compensation Plan for Key Executive Employees which is also
funded by Company owned life insurance policies. The cash surrender
value of these policies was $601,000 at December 26, 1998.
During the second quarter ending June 27, 1998, the Company granted
363,550 common stock 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
- -10-
the twelve months ended December 26, 1998, 3,740 options have been
exercised and 19,910 options were cancelled. As of December 26, 1998,
133,210 options were exercisable.
In 1993, the Company entered into two joint ventures in Central
America for the purpose of producing apparel under the Caribbean Basin
Incentive program or as imports. Effective December 1, 1996, the
Company purchased the 50% ownership interest of its joint venture
partner in one of the ventures for $1,267,000. This entity has been
consolidated since the date of acquisition. This transaction resulted
in recording goodwill of $240,000 which is being amortized over 10
years. The Company continues to maintain a 50% interest in the other
joint venture.
Year 2000 Issues
The Company has been in the process of assessing the various
issues related to the year 2000 for the past two years. As a result
of its initial studies, in 1996 management decided to convert all
information systems to new computer hardware and software. All new
hardware and software have been certified by the appropriate vendors
as being year 2000 compliant. To date, the financial systems;
accounts payable, accounts receivable, payroll and human resources
have been completed. Also, the Company's internal network of LAN's,
WAN's and other communication systems have been converted to 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 be year 2000 compliant. 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 was begun to
insure that all critical functions are addressed. It is expected that
on March 31, 1999 the conversion process will be completed and all
information systems will have been successfully installed.
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 $750,000. The personnel cost related to the design and
implementation of the systems is approximately $1,060,000 and has been
included in fixed assets.
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 and 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 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 significant suppliers which
will have Company production in process at the end of 1999, will be
year 2000 compliant. This process is approximately 75% complete.
- -11-
The Company sells to approximately 2,600 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
continuous dialogue with these customers in order to determine whether
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 and
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.
For 1998 the Company imported approximately 58% of its total
product and 24% was manufactured in the Caribbean area. These areas
are critical to the Company's success. Both sources of product require
that the product is shipped on the ocean, then clear U.S. Customs and
then utilize domestic transportation systems. Should the year 2000
problem significantly affect either the U.S. Customs or transportation
systems, disruption of receiving product would occur which would
result in material adverse affect on the operating results or
financial condition. It is not feasible for the Company to assess the
ability of these entities to be year 2000 compliant.
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.
Management does not plan to develop contingency plans that relate
to key systems. Contingency plans will be developed in the event
that the Company determines that it is at risk with suppliers, customers
or manufacturing systems. Contingency plans will include, but will not
be limited to consideration of alternative sources of supply, customer
communication plans, 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.
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.
- -12-
New Financial Accounting Standards
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); and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). The Company has adopted SFAS No. 130 and SFAS No. 131
in the current fiscal year. Neither standard has had a material
impact on the Company.
Forward Looking Statements
This report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 as
amended. As such, final results could differ from estimates or
expectations due to factors such as, information currently available
is preliminary and incomplete, government regulation and policies may
change from that anticipated in present business decisions, business
conditions in the retail environment and market prices for raw
materials may change to a degree that existing plans may have to be
substantially revised. For any of these factors, the Company claims
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, as
amended.
- -13-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Hampton Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Hampton Industries, Inc. and subsidiaries as of December 26, 1998 and
December 27, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended
December 26, 1998, December 27, 1997 and December 28, 1996. Our
audits also included the financial statement schedule listed in the
index at Item 14 (a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Hampton Industries, Inc.
and subsidiaries as of December 26, 1998 and December 27, 1997, and
the results of their operations and their cash flows for the years
ended December 26, 1998, December 27, 1997 and December 28, 1996 in
conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
S/Deloitte & Touche LLP
________________________
February 26, 1999 (March 11, 1999 as to Note F)
New York, New York
- -14-
<TABLE>
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 282,375 $ 171,944
Accounts receivable, less reserves
for doubful accounts and customer
allowances of $2,389,000 in 1998
and $2,304,000 in 1997 32,322,955 24,313,827
Inventories (Note B) 35,593,471 30,356,997
Deferred income tax assets (Note E) 361,062 405,145
Other current assets 944,952 514,303
------------ ------------
Total current assets 69,504,815 55,762,216
Fixed assets-net (Notes C and F) 19,866,851 17,997,352
Assets held disposal-net 566,849 1,200,387
Investments in and advances to
unconsolidated affiliates 761,384 703,155
Other assets (Note D) 2,103,008 2,378,769
------------ ------------
$92,802,907 $78,041,879
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable-banks and current
maturities of long-term debt (Note F) $18,923,100 $ 5,701,573
Uncleared Checks 2,110,149 1,344,223
Accounts Payable 6,164,437 4,297,884
Accrued liabilities (Notes L) 3,570,372 3,702,083
Income taxes (Note E) - 68,346
------------ ------------
Total current liabilities 30,768,058 15,114,109
Deferred income tax liabilities (Note E) 1,401,916 996,793
Long-term debt (Note F) 302,420 4,110,015
Retirement plan obligations (Note H) 3,988,847 3,913,480
------------ ------------
36,461,241 24,134,397
Commitments and contingencies
(Notes F, G, H, J and K)
Stockholders' equity (Note G)
Common stock, $1 par value-authorized
10,000,000 shares; issued 5,715,069 5,715,069 5,192,254
Additional paid-in capital 37,220,042 34,022,873
Retained earnings 18,283,899 19,569,699
------------ ------------
61,219,010 58,784,826
Less cost of common stock held in
treasury-666,406 shares 4,877,344 4,877,344
------------ ------------
Total stockholders' equity 56,341,666 53,907,482
------------ ------------
$92,802,907 $78,041,879
============ ============
</TABLE>
See notes to consolidated financial statements
- -15-
<TABLE>
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED
December 26, December 27, December 28,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $190,330,346 $163,040,212 $160,683,890
Cost of products sold (Note B) 145,654,492 125,966,826 125,703,090
------------- ------------- -------------
Gross margin 44,675,854 37,073,386 34,980,800
------------- ------------- -------------
Selling, general and
administrative 38,387,710 33,962,059 29,264,129
Equity in (earnings) loss of
unconsolidated affiliates (103,355) (164,633) 12,574
------------- ------------- -------------
Operating income 6,391,499 3,275,960 5,704,097
------------- ------------- -------------
Other (income) expense:
Rental income: (929,210) (935,216) (666,181)
Loss (gain) on disposal of
fixed assets 1,751 64,279 (656,191)
Other income-net (56,748) (182,853) (108,638)
Interest expense 3,559,961 2,681,664 3,176,589
------------- ------------- -------------
2,575,754 1,627,874 1,745,579
------------- ------------- -------------
Earnings before provision for
income tax 3,815,745 1,648,086 3,958,518
Provision for income tax (Note E) 1,400,000 565,000 1,250,000
------------- ------------- -------------
Net earnings $ 2,415,745 $ 1,083,086 $ 2,708,518
============= ============= =============
Basic earnings per common share $.48 $.22 $.54
Weighted average common shares
outstanding 5,047,699 5,044,483 5,044,192
Diluted earnings per share $.47 $.21 $.54
Weighted average common shares
outstanding and other potential
common shares 5,132,618 5,108,358 5,054,737
</TABLE>
See notes to consolidated financial statements.
- -16-
<TABLE>
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Additional
Common Stock paid-in Retained
Shares Amount Capital Earnings
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 30,1995 5,191,454 $5,191,454 $34,018,908 $15,778,095
Net earnings 2,708,518
--------- ---------- ----------- ------------
Balance, December 28,1996 5,191,454 $5,191,454 $34,018,908 $18,486,613
Stock options exercised 800 800 3,965
Net earnings 1,083,086
--------- ---------- ----------- ------------
Balance, December 27, 1997 5,192,254 $5,192,254 $34,022,873 $19,569,699
Stock options exercised 3,450 3,450 16,058
Stock dividend 519,365 519,365 3,181,111 (3,701,545)
Net earnings 2,415,745
--------- ---------- ----------- ------------
Balance, December 26, 1998 5,715,069 $5,715,069 $37,220,042 $18,283,899
========= ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Treasury stock Total
at cost Stockholders'
Shares Amount Equity
--------- ------------ -----------
<S> <C> <C> <C>
Balance, December 30, 1995 (605,825) $(4,877,344) $50,111,113
Net earnings 2,708,518
--------- ------------ -----------
Balance, December 26, 1996 (605,825) $(4,877,344) $52,819,631
Stock options exercised 4,765
Net earnings 1,083,086
--------- ------------ -----------
Balance, December 27, 1997 (605,825) $(4,877,344) $53,907,482
Stock options exercised 19,508
Stock dividend (60,581) (1,069)
Net earnings 2,415,745
--------- ------------ -----------
Balance, December 26, 1998 (666,406) $(4,877,344) $56,341,666
</TABLE>
See notes to consolidated financial statements.
- -17-
<TABLE>
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED
December 26, December 27, December 28,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 2,415,745 $ 1,083,086 $ 2,708,518
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities:
Amortization 806,538 549,555 264,751
Depreciation 2,007,424 2,210,009 2,326,723
Deferred income taxes 449,206 89,207 660,742
LIFO (credit) debit (805,116) 616,129 (737,743)
Reserve for doubtful accounts
and allowances 192,000 1,030,000 (381,002)
Retirement plan obligations 75,367 (111,081) (34,726)
Loss (gain) on sale of fixed
assets 1,751 64,279 (656,191)
Equity in (earnings) loss of
unconsolidated affiliates (103,355) (164,633) 12,574
Provision for restructuring
costs - - (587,000)
Change in current assets and
current liabilities:
Accounts receivable (8,201,128) (6,376,380) 3,756,816
Inventories on a FIFO basis (4,431,358) (224,994) 16,348,512
Other current assets (430,649) 524,463 259,986
Uncleared checks 765,926 535,479 (691,257)
Accounts payable 1,866,552 (3,306,102) (1,858,978)
Accrued liabilities (131,711) 1,269,308 729,867
Income taxes (68,346) 68,346 (48,183)
------------ ------------ -------------
NET CASH (USED IN) PROVIDED BY
OPERATIONS: (5,591,154) (2,143,329) 22,073,409
------------ ------------ -------------
INVESTING ACTIVITIES:
Additions to fixed assets (1,702,924) (1,033,327) (582,009)
Additions to fixed assets
- capitalized leases (407,623) - -
Additions to software (2,099,073) (294,684) (1,038,293)
Proceeds received from sale
of fixed assets 669,802 211,043 1,183,222
Decrease (increase) in investments
in and advances to unconsolidated
subsidiaries 45,126 202,963 (185,835)
Increase in other assets (236,093) (1,201,273) (4,066)
Joint venture purchase - - (1,267,000)
------------ ------------ -------------
NET CASH USED IN INVESTING
ACTIVITIES: (3,730,785) (2,115,278) (1,893,981)
------------ ------------ -------------
FINANCING ACTIVITIES:
Additions (payments) - Revolving
Credit Facility 9,599,640 4,708,597 (19,200,356)
Additions - capitalized leases 407,623 - -
Payments on debt - Long-term debt (593,332) (593,332) (1,020,534)
Exercise of stock options 18,439 4,766 -
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES: 9,432,370 4,120,031 (20,220,890)
------------ ------------ -------------
INCREASE (DECREASE) IN CASH 110,431 (138,576) (41,462)
CASH - BEGINNING OF PERIOD 171,944 310,520 351,982
------------ ------------ -------------
CASH - END OF PERIOD $ 282,375 $ 171,944 $ 310,520
============ ============ =============
Cash paid during the period
-Interest $ 3,222,788 $ 2,480,000 $ 2,700,000
-Income taxes $ 1,248,650 $ 412,390 $ 1,485,000
</TABLE>
See notes to consolidated financial statements.
- -18-
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
1997 AND DECEMBER 28, 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company is engaged in the business of manufacturing and
selling apparel and operates in one industry segment. Substantially
all sales to third party customers are made to destinations in the
United States. The products consist principally of men's and boys'
shirts and men's and women's sleepwear, which are produced
domestically and in Central America. In addition, sport and dress
shirts, sweaters, activewear, outerwear and swimtrunks, for both men
and boys are imported from unaffiliated sources located primarily in
the Far East.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany profits, transactions and balances have been
eliminated.
The Company has an investment in a 50% owned but not controlled
entity which is accounted for by the equity method.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Inventories
Inventories are carried at the lower of cost or market value. As
described in Note B, the cost of substantially all inventory is
determined by the last-in, first-out (LIFO) method.
Fixed Assets
Expenditures for buildings, equipment and improvements are
capitalized and depreciated or amortized on a straight-line basis over
their estimated useful lives. Estimated useful lives of assets are
based upon the following ranges: land improvements, 30 years,
buildings and leasehold improvements, 30 to 35 years, machinery and
equipment, 3 to 15 years and furniture and fixtures, 5 to 10 years.
In-Store Displays
The costs for in-store point of sale displays for certain
customers are borne by the Company in whole or in part. Such costs
are capitalized as other assets and amortized over a thirty-six month
period.
Deferred Financing Costs
The costs associated with obtaining the Company's Existing Credit
facility have been deferred and are being amortized over the term of
the agreement.
- -19-
Capitalized Conversion Costs
As a result of the conversion of the Company's computer systems,
incremental personnel and related fringe benefit expense of those
individuals directly involved in this process have been capitalized in
accordance with the provisions of Statement of Position ("S.O.P.")
98-1. Such costs are capitalized as software costs along with other
software purchased from third parties and are amortized over a five
year period.
Evaluation of Long-Lived Assets
Long-lived assets are assessed for recoverability on an ongoing
basis. In evaluating the fair value and future benefits of long-lived
assets, their carrying value would be reduced by the excess, if any,
of the long-lived asset over management's estimate of the anticipated
undiscounted future net cash flows of the related long-lived asset.
There were no adjustments to the carrying amount of long-lived assets
in the years ended December 26, 1998 and December 27, 1997 resulting
from the Company's evaluation.
Revenue Recognition
Sales are recognized upon shipment of product, which is when
title passes to the customer. No sales made on consignment. All
returns are required to be authorized by the Company and reserves are
provided for estimated returns.
Income Taxes
Deferred income taxes are provided to reflect the tax effect of
temporary differences between financial statement income and taxable
income in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Basic and Diluted Earnings per Common Share
The Company has adopted the provisions of Statement of Financial
Accounting Standard No. 128 "Earnings per share" (the "Statement").
The Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common
stock or potential common stock such as employee stock options. The
Statement replaces the presentation of primary earnings per share with
a presentation of basic earnings per share and also requires, among
other things, dual presentation of basic and diluted earnings per
share for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed by dividing net
earnings by the weighted-average number of shares outstanding for each
period presented. Diluted earnings per share is computed by dividing
net earnings by the weighted average number of shares outstanding plus
dilutive potential common shares which will result from the exercise
of stock options.
<TABLE>
The following is a reconciliation of the weighted average shares
used in the computations of basic and dilutive earnings per common
shares:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average common shares
outstanding used for basic
earnings per share 5,047,699 5,044,483 5,044,192
Dilutive stock options 84,919 63,875 10,545
--------- --------- ---------
Weighted average common shares
outstanding used for
dilutive earnings per share 5,132,618 5,108,358 5,054,737
========= ========= =========
</TABLE>
- -20-
Stock Options and Warrants
Financial Accounting Standards Board Statement Number 123,
"Accounting for Stock-Based Compensation" which encourages, but does
not require, companies to recognize compensation expense of grants for
stock, stock options and other equity instruments to employees based
on fair value. The Company has elected to continue to follow the
provisions of APB Opinion 25 and related Interpretations in
accounting for employee stock options.
Fair Value of Financial Instruments
For financial instruments including cash, accounts receivable and
payable, accruals, notes payable - banks and current maturities of
long-term debt, it was assumed that the carrying amount approximated
fair value because of their short maturity.
The carrying amount of the non-current portion of mortgage notes
due through the year 2000, all of which bear interest at floating
rates, are also assumed to approximate their fair values.
Investments In and Advances to Unconsolidated Affiliate
The investment in the remaining joint venture is carried on the
equity basis, which approximates the Company's equity in the
unconsolidated entity's underlying net book value. Advances due from
the unconsolidated entity were $261,844 and $284,130 at December 26,
1998 and December 27, 1997 respectively.
<TABLE>
B. INVENTORIES
<CAPTION>
1998 1997
<S> <C> <C>
Finished goods $26,073,123 $21,731,568
Work-in-process 4,447,059 4,215,569
Piece goods 4,443,906 3,926,422
Supplies and other 629,383 483,438
----------- -----------
$35,593,471 $30,356,997
=========== ===========
</TABLE>
Principally all inventories are valued at the lower of last-in,
first-out (LIFO) cost or market. Information related to the first-in,
first-out (FIFO) method may be useful in comparing operating results
to those of companies not on the LIFO method. On a supplemental
basis, if inventories had been valued at the lower of FIFO cost or
market, inventories at December 26, 1998 and December 27,
1997 would have been approximately $39,800,000 and $35,300,000,
respectively. The LIFO valuation method had the effect of increasing
net earnings by $514,500 ($.10 per share) in1998, decreasing net
earnings by $404,900 ($.08 per share) in 1997 and increasing net
earnings by $553,900 ($.11 per share) in 1996. Inventories increased
in 1998. Income realized as a result of inventory liquidation was not
significant in 1997 and was $668,200 ($.13 per share) in 1996.
Inventory in transit of $1,934,496 in 1998 and $4,675,046 in
1997 are included in finished goods.
- -21-
<TABLE>
C. FIXED ASSETS
<CAPTION>
1998 1997
<S> <C> <C>
Land and land improvements $ 2,613,578 $ 2,608,387
Buildings and leasehold improvements 22,823,241 21,960,680
Machinery and equipment 18,351,967 17,120,832
Furniture and fixtures 1,388,575 1,388,575
Software cost 2,099,074 294,684
----------- -----------
47,276,435 43,373,158
Less accumulated depreciation 27,409,584 25,375,806
----------- -----------
19,866,851 17,997,352
=========== ===========
</TABLE>
<TABLE>
D. OTHER ASSETS
The following are the major components of other assets:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
In-store fixtures (net of
accumulated amortization
of $731,000, $470,000 and
$193,000) $1,103,810 $1,338,937 $ 591,688
Cash surrender value of life
insurance 601,393 176,182 116,929
Other 397,805 872,294 895,763
---------- ---------- ----------
$2,103,008 $2,387,413 $1,604,380
========== ========== ==========
</TABLE>
<TABLE>
E. INCOME TAXES
Components of income tax provision reflected in the consolidated
statements of operations are as follows:
<CAPTIONS>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 888,000 $412,893 $ 491,700
State and local 63,000 62,900 97,600
---------- -------- ----------
951,000 475,793 589,300
Deferred:
Federal 357,000 84,207 665,200
State and local 92,000 5,000 (4,500)
---------- -------- ----------
449,000 89,207 660,700
---------- -------- ----------
$1,400,000 565,000 $1,250,000
========== ======== ==========
</TABLE>
- -22-
<TABLE>
The following is a reconciliation of the statutory federal income
tax rate applied to pre-tax accounting earnings compared to the
provision for income tax in the consolidated statements of operations:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income tax expense at the
statutory rate $1,297,000 $ 560,400 $1,345,900
Increase (decrease) resulting
from:
State and local income
taxes, net of
federal income tax 102,000 29,800 61,400
Nontaxable foreign income (35,000) (56,000) -
Utilization of jobs credit
carryovers - - (216,100)
Utilization of AMT credit
carryovers - - 31,000
Prior year over accruals - - (82,400)
Other, net 36,000 30,800 110,200
---------- ---------- -----------
$1,400,000 $ 565,000 $1,250,000
========== ========== ===========
</TABLE>
<TABLE>
The components of deferred taxes included in the balance sheet as
of December 26, 1998 and December 27, 1997 are as follows:
<CAPTION>
1998 1997
<S> <C> <C>
Deferred income tax assets:
State operating loss carryforwards $ 341,278 $ 548,912
Allowance for doubtful accounts 90,203 120,579
Inventory and other 257,394 238,168
Deferred compensation 1,375,014 1,452,400
Trademarks and other 143,536 218,958
------------ -----------
2,207,425 2,579,017
Valuation allowance (327,813) (502,514)
------------ -----------
$ 1,879,612 $2,076,503
Deferred income tax liabilities:
Depreciation $ 2,534,639 $2,668,151
Conversion costs capitalized 385,827 -
------------ ----------
2,920,466 2,668,151
------------ ----------
Net deferred tax liabilities $(1,040,854) $ (591,648)
============ ==========
</TABLE>
Net operating loss carryforwards for state income tax purposes
expire as follows:
[CAPTION]
Year Amount
[S] [C]
1999 $1,088,704
2000 2,115,777
2001 1,529,629
2002 64,688
Thereafter 1,291,382
----------
$6,090,180
==========
<TABLE>
- -23-
F. LONG TERM DEBT
<CAPTION>
1998 1997
<S> <C> <C>
Revolving credit facility (i) $14,707,881 $5,108,241
Capitalized lease obligations (ii) 1,250,016 1,583,347
Mortgage note, due quarterly to 2000 (ii) 2,860,000 3,120,000
Other 407,623 -
----------- ----------
19,225,520 9,811,588
Less amount due in one year 18,923,100 5,701,573
----------- ----------
$ 302,420 $4,110,015
=========== ==========
</TABLE>
Annual maturities of debt are as follows:
1999 $18,923,100
2000 73,320
Thereafter 229,100
-----------
$19,225,520
===========
(i) On May 3, 1996, the Company entered into a credit facility with
BNY Financial Corporation, as Agent ("Existing Facility"). The
Existing Facility provvides for a maximum line of credit of
$100,000,000, which includes both direct loans and letters of credit.
The initial proceeds of the Existing Facility were used to repay the
outstanding indebtedness under the Company's previously existing bank
line of credit.
Availability under the Existing Facility is based on a formula of
eligible accounts receivable and eligible inventory and provides for a
seasonal overadvance 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
Existing 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 the
Existing Facility expires in May 1999. Amounts outstanding at
December 26, 1998 have been classified as short-term since the
facility expires on May 3, 1999.
The Existing Facility contains financial covenants, including but
not limited to, tangible net worth and interest coverage, restricts
fixed asset purchases and does not allow for the payment of cash
dividends. 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.
On January 29, 1999, the Company entered into an agreement with
the Chase Manhattan Bank, as agent for a new credit facility ("New
Facility"). It is anticipated that this New Facility will close on
May 3, 1999 at the time the Existing Facility expires. The term of
the New Facility is for a period of three years and provides for a
line of credit of $80,000,000. However, at the Company's option, the
line may be increased to $100,000,000 during the period of May1
through October 31 of each year. Direct borrowings will bear interest
at the London Interbank Offered Rate, plus the applicable margin
(as defined) or the Prime Rate, at the option of the Company.
Borrowings will be collateralized by accounts receivable, inventory
and general intangibles of the Company. The New Facility will contain
- -24-
financial covenants, including but not limited to a restriction on the
payment of dividends, minimum levels of earnings, maintenance of
certain ratios and a monthly measure of credit usage as compared to a
formula based on collateral. Seasonal overadvances of up to
$10,0000,000 will be allowed.
At December 26, 1998 the Company did not meet the Minimum
tangible net worth, Fixed charge coverage ratio and the minimum
E.B.I.T.D.A. covenants of its Existing Facility. A wavier for
these violations was received on March 11, 1999. Management is
confident that the new credit facility will close on or before
May 3, 1999, when the existing credit facility expires. Management
believes that the line of credit that will become available under the
New Facility, together with the cash expected to be generated
from operations, will be adequate to meet the Company's financing
needs for the foreseeable future.
(ii) The mortgage notes and capitalized lease obligations are
collateralized by building and property having a carrying value at
December 26, 1998 of approximately $5,190,078. The effective interest
rate on the aggregate amount of capitalized leases at December 26,
1998 was 6%. The effective interest rate on the mortgage note due in
2000 at December 26, 1998 was 7.41%.
At December 26, 1998, letters of credit amounting to
approximately $18,644,539 were outstanding which relate to purchase
commitments issued to foreign suppliers of approximately $29,364,169.
G. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has authorized 14,140.5 shares of $7 cumulative First
Preferred Stock, par value of $100, none of which is issued.
In addition, the Company has authorized 1,000,000 shares of
Second Preferred Stock, par value of $1, none of which has been
issued. The Board of Directors is authorized to fix designations,
relative rights, preferences and limitations on the stock at the time
of issuance.
Common Stock
The Board of Directors declared a 10% common stock dividend which
was paid on July 2, 1998 to stockholders of record on June 2, 1998.
Basic and diluted earnings per share and outstanding stock options
have been restated for all periods presented to reflect the stock
dividend.
The Company has a non-qualified stock option plan (the "Plan")
under which there are presently reserved 1,059,000 shares of 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.
- -25-
<TABLE>
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:
<CAPTION>
Number of Price Weighted
Shares Range per Average
Share Price per
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 (21,560) $4.09-$8.64 5.44
Outstanding at
December 26,1998 766,920 $4.09-$8.41 $5.73
</TABLE>
As of December 26, 1998, 135,850 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
model include 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>
Fifty-two Fifty-two
Weeks Ended Weeks Ended
December 26, December 27,
1998 1997
<S> <C> <C>
Net income -as reported $2,415,745 $1,083,086
-pro forma $2,253,039 $1,014,086
Net income per common share
-as reported $.48 $.22
-pro forma $.45 $.20
Diluted net income per common share
-as reported $.47 $.21
-pro forma $.44 $.20
</TABLE>
- -26-
H. PROFIT SHARING PLANS
The Company has a Qualified Profit Sharing and Retirement Plan (the
"Plan") that covers all associates of the Company. During 1996, 1997 and
1998, the Company made a matching contribution of 40% of the deferral
amount that the associates elect to make (as limited by the Internal
Revenue Service Code) and has set the matching contribution rate for
1999 at 40%. The Company has the option of changing the matching
contribution each year, the right to amend, modify or terminate the
Plan.
The Company also maintains a Supplemental Retirement Plan for Key
Employees (the Supplemental Plan) to permit certain key associates to
defer receipt of current compensation in order to provide retirement
and death benefits on behalf of such associates. Company profit
sharing credits are determined at the discretion of the Board of
Directors. Amounts of profit sharing credits are vested in the same
manner as vesting occurs under the Company's Qualified Profit Sharing
and Retirement Savings Plan. An annual return equal to the Moody's
AAA Corporate bond rate is added to each participant deferred
compensation account balance and employer profit sharing credit
account balance. The Company may provide supplemental profit sharing
credits to one or more active participants in the Supplemental Plan,
the amount of which shall be determined by the Board of Directors in
its sole and absolute discretion. The participants in this
Supplemental Plan are no longer able to make salaried deferral
contributions to this plan.
The Supplemental Plan is not intended to be a qualified plan
under the provisions of the Internal Revenue Code. It is intended to
be unfunded and, therefore, all compensation deferred under the
Supplemental Plan is held by the Company and commingled with its
general assets. However, in 1998, the Company purchased life
insurance policies on the lives of the participants of which it is the
beneficiary. It is the intention of the Company that distributions
under the Supplemental Plan will continue to be made from general
assets of the Company until such time that the cash surrender value of
these policies will provide the funding necessary for the payment of
future benefits to the participants.
Effective January 1, 1998, the Company adopted a Nonqualified
Deferred Compensation Plan for Key Executives (the "Deferred Executive
Plan") to permit certain key executives to defer a portion
of compensation in order to provide retirement and death benefits on
behalf of such employees. The Company may provide a matching
contribution to the Deferred Executive Plan. The Company may provide
supplemental profit sharing credits which are determined at the
discretion of the Board of Directors. Amounts of matching
contributions and profit sharing credits are vested in the same manner
as vesting occurs under the Company's Qualified Profit Sharing and
Retirement Savings Plan. For 1998 the Company established a matching
rate of 20% of the executives' deferrals. For 1999 the Company has
established a matching rate of 40% of the executives' deferrals. The
Deferred Executive Plan is not intended to be a qualified plan under
the provisions of the Internal Revenue Code. It is intended to be
unfunded and, therefore, all compensation deferred under the Deferred
Executive Plan is held by the Company and commingled with its general
assets. However, executives' deferrals and the Company's match are
deposited each month in Company owned insurance contracts. Within
these contracts the employees have the option of selecting a variety
of investments. The return on these underlying investments will
determine the amount of earnings credit. The Company has the option of
changing the matching contribution each year and the right to amend,
modify or terminate the Deferred Executive Plan.
- -27-
Effective January 1, 1999, the Company adopted a Nonqualified
Deferred Compensation Plan for Key Employees (the "Deferred Key Plan")
to permit certain key employees to defer receipt of current
compensation up to a maximum of $10,000 per year in order to provide
retirement and death benefits on behalf of such employees. The
Company may provide a matching contribution to the Deferred Key Plan.
The Company may provide supplemental profit sharing credits which are
determined at the discretion of the Board of Directors. Amounts of
matching contributions and profit sharing credits are vested in the
same manner as vesting occurs under the Company's Qualified Profit
Sharing and Retirement Savings Plan. For 1999 the Company has
established a matching rate of 40% of the employees deferrals. The
Deferred Plan is not intended to be a qualified plan under the
provisions of the Internal Revenue Code. It is intended to be
unfunded and, therefore, all compensation deferred under the Deferred
Key Plan is held by the Company and commingled with its general
assets. However, employee deferrals and the Company's match are
deposited each month in Company owned insurance contracts. Within
these contracts the employees have the option of selecting a variety
of investments. The return on these underlying investments will
determine the amount of earnings credit. The Company has the option of
changing the matching contribution each year and the right to amend,
modify or terminate the Deferred Key Plan.
<TABLE>
The Company credited interest and Company matches to the plans
are as follows:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
401K Plan - Company Match $386,800 $362,000 $160,500
Interest - Supplemental Plan 241,300 273,000 287,000
Deferred Key Plan - Company
Match 36,200 - -
-------- -------- --------
Total $664,300 $635,000 $447,500
</TABLE>
I. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
The following table sets forth selected quarterly financial
information for the fiscal years 1998 and 1997 (in thousands of
dollars, except per share amounts):
<CAPTION>
NET EARNINGS
---------------------------
NET BASIC DILUTED
NET GROSS (LOSS) PER PER
QUARTER ENDED SALES MARGIN INCOME SHARE SHARE
<S> <C> <C> <C> <C> <C>
3-28-98 $ 34,311 $ 8,925 $ (266) $(.05) $(.05)
6-27-98 34,177 8,518 (202) (.04) (.04)
9-26-98 60,454 14,820 2,081 .41 .41
12-26-98 61,388 12,413 803 .16 .15
-------- ------- --------
YEAR $190,330 $44,676 $ 2,416
<CAPTION>
NET EARNINGS
---------------------------
NET BASIC DILUTED
NET GROSS (LOSS) PER PER
QUARTER ENDED SALES MARGIN INCOME SHARE SHARE
<S> <C> <C> <C> <C> <C>
3-29-97 $ 36,356 $ 8,940 $ 620 $.12 $.12
6-28-97 26,111 5,947 (1,184) (.23) (.23)
9-27-97 46,151 12,932 1,891 .37 .37
12-28-97 54,422 9,254 (244) (.05) (.05)
-------- ------- --------
YEAR $163,040 $37,073 $ 1,083
</TABLE>
- -28-
J. CONCENTRATION OF CREDIT RISK
Trade receivables potentially subject the Company to credit risk.
The Company extends credit to its customers based upon an evaluation
of the customer's financial condition and credit history and generally
does not require collateral. The Company has historically incurred
minimal credit losses.
The Company's broad range of customers includes many large multi-
outlet retail chains, two of which account for a significant
percentage of sales volume, as follows:
J.C. Penney Co., Inc. 14% 16% 15%
Wal-Mart Stores, Inc. 12% 15% 16%
K. LITIGATION
The Company and its subsidiaries are party to various legal actions
arising in the ordinary course of business. In management's opinion,
the ultimate disposition of these matters will not have a material
adverse effect on its financial condition or results of operations.
<TABLE>
L. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<CAPTION>
1998 1997
<S> <C> <C>
Accrued expenses $2,473,522 $2,264,405
Accrued payroll 834,013 1,230,259
Other 262,837 207,419
---------- ----------
3,570,372 3,702,083
</TABLE>
ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
None
- -29-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Election of Directors" on page 2 of the Proxy Statement for
Registrant's 1999 Annual Meeting of Shareholders, which information is
incorporated herein by reference. Also see information contained
under the caption "Executive Officers of Registrant" on page 2 hereof.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Officers and Directors" on page 4 of the
Registrant's 1999 Proxy Statement, which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See "Voting Securities" on page 1 of the Registrant's 1999 Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Transactions with Management" on page 9 of the
Registrant's 1999 Proxy Statement, which information is incorporated
herein by reference.
- -30-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(A)1. Financial Statements
The following consolidated financial statements of Hampton
Industries, Inc. and its subsidiaries are included in Part II, Item 8:
Independent Auditors' Report ___________________________________14
Consolidated balance sheets - December 26, 1998 and December 27,
1997 _________________________________________________________15
Consolidated statements of operations - years ended December 26,
1998,
December 27, 1997 and December 28, 1996 ____________________16
Consolidated statements of stockholders' equity - years ended
December 26, 1998,
December 27, 1997 and December 28, 1996 ___________________17
Consolidated statements of cash flows - years ended December 26,
1998,
December 27, 1997 and December 28, 1996 ___________________18
Notes to consolidated financial statements __________________19-29
(a)2. Financial Statement Schedule
Schedule II - Valuation and qualifying accounts_________________32
All other schedules have been omitted because they are
inapplicable or not required, or the information is included elsewhere
in the financial statements or notes thereto.
(a)3. Exhibits
Exhibit No. 21 - Subsidiaries of the Company ___________________33
(b) Reports on Form 8-K
None
- -31-
HAMPTON INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to
beginning costs and other
Description of period expenses accounts
RESERVE FOR DOUBTFUL
ACCOUNTS AND CUSTOMER
ALLOWANCE:
<S> <C> <C> <C> <C>
Year ended
December 26, 1998 $2,304,000 $ (77,000) $162,000 (A)
Year ended
December 27, 1997 $ 819,000 $1,470,531 $ 57,305 (A)
Year ended
December 28, 1996 $1,200,000 $ 393,465 $ 7,183 (A)
<CAPTION>
Balance at
end
Description Deductions of period
<S> <C> <C> <C>
Year ended
December 26, 1998 - (B) $2,389,000
Year ended
December 27, 1997 $ 42,836 (B) $2,304,000
Year ended
December 28, 1996 $781,648 (B) $ 819,000
</TABLE>
NOTES:
(A) Recoveries of accounts previously written off.
(B) Uncollectible accounts written off.
- -32-
Exhibit 21
HAMPTON INDUSTRIES, INC.
Subsidiaries
Name State of Incorporation
Hamptex, Inc. North Carolina
IGM CORP., S.A. DE C.V. El Salvador
Hampton owns 100% of the outstanding stock of each subsidiary and
they are included in the consolidated financial statements.
- -33-
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Hampton Industries, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HAMPTON INDUSTRIES, INC.
S/DAVID FUCHS
_____________________________________
David Fuchs, Chairman and Director
S/STEVEN FUCHS
_____________________________________
Steven Fuchs, President and Director
S/ROGER M. EICHEL
_____________________________________
Roger M. Eichel, Senior Vice President
and Secretary
S/ROBERT J. STIEHL, JR.
_____________________________________
Robert J. Stiehl, Jr., Executive Vice
President - Operations and Treasurer
S/FRANK E. SIMMS
_____________________________________
Frank E. Simms, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report had been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated:
S/HERBERT L. ASH S/SOL SCHECHTER
______________________________ _____________________________________
Herbert L. Ash, March 12, 1999 Sol Schechter, March 12, 1999
(Director) (Director)
S/PAUL CHUSED S/BARBARA HENAGAN
______________________________ _____________________________________
Paul Chused, March 12, 1999 Barbara Henagan, March 12, 1999
(Director) (Director)
The Company's annual report to stockholders and proxy material is
to be furnished to its security holders subsequent to the filing of
the annual report on this form. Copies of such material will be
furnished to the Commission when it is sent to security holders.
- -34-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 282,375
<SECURITIES> 0
<RECEIVABLES> 32,322,955
<ALLOWANCES> 0
<INVENTORY> 35,593,471
<CURRENT-ASSETS> 1,306,014
<PP&E> 19,866,851
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,802,907
<CURRENT-LIABILITIES> 30,768,058
<BONDS> 0
0
0
<COMMON> 5,715,069
<OTHER-SE> 50,626,597
<TOTAL-LIABILITY-AND-EQUITY> 92,802,907
<SALES> 190,330,346
<TOTAL-REVENUES> 190,330,346
<CGS> 144,849,376
<TOTAL-COSTS> 144,849,376
<OTHER-EXPENSES> 37,300,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,559,962
<INCOME-PRETAX> 3,815,745
<INCOME-TAX> 1,400,000
<INCOME-CONTINUING> 2,415,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,415,745
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
