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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 July 1, 2000
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) |
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North Carolina (State or other jurisdiction of incorporation or organization) |
56-0482565 (Exact name of registrant as specified in its Charter) |
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2000 Greenville Hwy, P. O. Box 614, Kinston, NC (Address of principal executive offices) |
28502-0614 (ZIP Code) |
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Registrant's telephone number, including area code: |
(252) 527-8011 |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on 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 August 21, 2000 there were 5,553,374 shares of common stock outstanding.
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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July 1, 2000 |
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June 26, 1999 |
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January 1,2000 |
ASSETS |
(Unaudited) |
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(Unaudited) |
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Current assets: |
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Cash |
$ 382,562 |
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$ 3,163,340 |
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$ 627,179 |
Accounts receivable - net |
23,713,141 |
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23,648,604 |
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32,229,509 |
Inventories |
67,064,099 |
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67,514,178 |
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54,714,782 |
Income tax receivable |
- |
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- |
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1,181,132 |
Income tax assets |
6,231,718 |
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361,062 |
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3,048,718 |
Other current assets |
1,143,528 |
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2,752,512 |
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848,335 |
Total current assets |
98,535,048 |
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97,439,696 |
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92,649,655 |
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Property, plant and equipment - net |
19,647,300 |
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20,152,599 |
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18,901,529 |
Assets held for disposal - net |
1,635,871 |
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566,849 |
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1,842,389 |
Investments in and advances to unconsolidated affiliates |
491,073 |
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936,453 |
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711,084 |
Other assets |
3,560,130 |
2,605,103 |
4,030,178 |
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$123,869,422 |
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$121,700,700 |
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$118,134,835 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Notes payable - banks and current maturities of long-term debt |
$ 45,917,681 |
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$ 30,880,867 |
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$ 35,269,433 |
Uncleared checks |
2,683,416 |
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2,672,968 |
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2,910,146 |
Accounts payable |
9,299,860 |
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12,200,622 |
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5,996,976 |
Accrued liabilities |
2,371,356 |
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2,250,050 |
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4,408,307 |
Income taxes |
- |
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(35,347) |
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67,480 |
Total current liabilities |
60,272,313 |
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47,969,160 |
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48,652,342 |
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Deferred income tax liabilities |
2,721,283 |
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1,401,916 |
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2,721,283 |
Long-term debt |
11,079,756 |
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14,302,420 |
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11,201,058 |
Retirement plan obligations |
3,445,360 |
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3,925,687 |
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3,975,382 |
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77,518,712 |
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67,599,183 |
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66,550,065 |
Stockholders' equity |
46,350,710 |
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54,101,517 |
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51,584,770 |
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$123,869,422 |
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$121,700,700 |
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$118,134,835 |
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Note: The consolidated balance sheet at January 1, 2000 has been derived from the audited financial statements and condensed. |
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See notes to consolidated financial statements. |
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Thirteen Weeks Ended |
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Twenty-six Weeks Ended |
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July 1, 2000 |
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June 26, 1999 |
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July 1, 2000 |
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June 26, 1999 |
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Net sales |
$32,637,747 |
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$30,936,690 |
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$75,567,368 |
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$67,850,321 |
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Cost of products sold |
26,598,181 |
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22,244,981 |
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58,826,829 |
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48,958,587 |
Gross margin |
6,039,566 |
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8,691,709 |
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16,740,539 |
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18,891,734 |
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Selling, general and administrative |
10,891,816 |
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10,783,255 |
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22,584,229 |
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21,388,234 |
Equity in earnings of unconsolidated affiliates |
(70,003) |
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(36,355) |
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(94,456) |
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(64,530) |
Restructuring charge |
300,000 |
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- |
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300,000 |
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- |
Operating loss |
(5,082,247) |
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(2,055,191) |
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(6,049,234) |
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(2,431,970) |
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Other (income) expense: |
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Rental income |
(154,507) |
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(198,414) |
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(419,380) |
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(465,200) |
Loss on disposal of fixed assets |
162,456 |
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36,641 |
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117,161 |
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83,527 |
Other (income) expense - net |
(53,769) |
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29,650 |
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(29,513) |
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(19,275) |
Interest expense |
1,524,738 |
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842,303 |
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2,724,743 |
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1,578,440 |
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1,478,918 |
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710,180 |
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2,393,011 |
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1,177,492 |
Loss before income tax benefit |
(6,561,165) |
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(2,765,371) |
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(8,442,245) |
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(3,609,462) |
Income tax benefit |
(2,498,185) |
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(1,033,000) |
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(3,208,185) |
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(1,370,000) |
Net loss |
$(4,062,980) |
$(1,732,371) |
$(5,234,060) |
$(2,239,462) |
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Basic loss per common share |
$(.73) |
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$(.31) |
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$(.94) |
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$(.40) |
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Weighted average common shares outstanding |
5,553,374 |
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5,553,374 |
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5,553,374 |
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5,553,374 |
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Diluted loss per share* |
$(.73) |
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$(.31) |
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$(.94) |
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$(.40) |
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Weighted average common shares outstanding and other potential common shares* |
5,553,374 |
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5,553,374 |
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5,553,374 |
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5,553,374 |
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*Diluted loss per common share equivalents has been excluded because they are anti-dilutive |
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See notes to consolidated financial statements |
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock at Cost |
Total Stockholders' Equity |
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Shares |
Amount |
Shares |
Amount |
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Balance January 1, 2000 |
6,286,419 |
$6,286,419 |
$39,148,350 |
$11,027,346 |
733,045 |
$4,877,344 |
$51,584,770 |
Net loss |
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(5,234,060) |
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(5,234,060) |
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---------------- |
--------------- |
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Balance July 1, 2000 |
6,286,419 |
$6,286,419 |
$39,148,349 |
$ 5,793,286 |
733,045 |
$4,877,344 |
$46,350,710 |
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HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Twenty-six Weeks Ended |
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July 1, 2000 |
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June 26, 1999 |
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OPERATING ACTIVITIES: |
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Net loss |
$ (5,234,060) |
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$ (2,239,462) |
Adjustments to reconcile net loss to net cash used in operations: |
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Amortization |
515,516 |
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424,837 |
Depreciation |
1,286,274 |
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1,086,833 |
Deferred income taxes |
(3,183,000) |
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- |
Reserve for doubtful accounts and allowances |
(3,576,000) |
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(601,000) |
Retirement plan obligations |
(530,022) |
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(63,160) |
Loss on sale of fixed assets |
117,161 |
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83,527 |
Equity in earnings of unconsolidated affiliates |
(94,456) |
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(64,530) |
Changes in current assets and current liabilities: |
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Accounts receivable |
12,092,368 |
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9,275,351 |
Inventories |
(12,349,317) |
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(31,954,031) |
Other current assets |
885,938 |
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(1,807,560) |
Uncleared Checks |
(226,730) |
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562,819 |
Accounts payable |
3,302,884 |
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6,036,185 |
Accrued liabilities |
(2,036,951) |
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(1,321,009) |
Income taxes |
(67,480) |
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(35,347) |
NET CASH USED IN OPERATIONS |
(9,097,874) |
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(20,583,223) |
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INVESTING ACTIVITIES: |
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Additions to fixed assets |
(1,642,633) |
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(771,582) |
Additions to software |
(116,934) |
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(555,979) |
Additions to building |
(581,854) |
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(135,945) |
Proceeds received from sale of fixed assets |
398,734 |
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7,398 |
Decrease (increase) in investments in and advances to |
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unconsolidated affiliates |
314,467 |
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(110,539) |
Increase in other assets |
(45,468) |
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(926,932) |
NET CASH USED IN INVESTING ACTIVITIES |
(1,673,688) |
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(2,493,579) |
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FINANCING ACTIVITIES: |
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Net changes in debt - Credit facility |
10,526,945 |
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25,957,767 |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
10,526,945 |
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25,957,767 |
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(DECREASE) INCREASE IN CASH |
(244,617) |
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2,880,965 |
CASH AT BEGINNING OF PERIOD |
627,179 |
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282,375 |
CASH AT END OF PERIOD |
$ 382,562 |
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$ 3,163,340 |
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Cash paid during the period - Interest |
$ 2,438,921 |
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$ 1,285,453 |
- Income taxes |
$ 84,105 |
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$ 38,284 |
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See notes to consolidated financial statements. |
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of July 1, 2000 and June 26, 1999 is unaudited.)
1. BASIS OF PRESENTATION
The consolidated balance sheets as of July 1, 2000 and June 26, 1999 and the consolidated statements of operations and cash flows for the twenty-six week period then ended have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at July 1, 2000 and June 26, 1999 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 January 1, 2000 Annual Report to shareholders. The results of operations for the period ended July 1, 2000 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the consolidated financial statements of June 26, 1999 to conform to classifications used at July 1, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In November 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition." This Bulletin sets forth the SEC Staff's position regarding the point at which it is appropriate for Registrant to recognize revenue. The Staff believe that revenue is realizable and earned when all of the following criteria are met:
The Company uses the above criteria to determine whether revenue can be recognized, and therefore believes that the issuance of this Bulletin does not have a material impact on these financial statements.
3. CREDIT FACILITY
On May 5, 1999, the Company entered into a new credit facility with The Chase Manhattan Bank, as Agent ("The Facility"). The Facility was amended in March of 2000. The Facility provides for a maximum line of credit of $80,000,000, which includes both direct loans and letters of credit. The initial proceeds of The Facility were used to repay the outstanding indebtedness under the Company's previously existing bank line of credit.
Availability under The Facility is based on a formula of eligible accounts receivable and eligible inventory, and provides for a seasonal over-advance of up to $13,000,000 within the $80,000,000 maximum line of credit. Direct borrowings bear interest at the London Interbank Offered Rate plus the applicable margin (as defined in The Facility) or the Prime Rate plus .75%, 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 Facility expires in May 2002.
The 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 .50 of 1% per annum on the unused portion of the total facility plus certain other administrative costs.
Outstanding borrowings under the current facility amounted to $45,786,000 at July 1, 2000 as compared to $41,000,000 at the same time in 1999. Net working capital at July 1, 2000 was $38,263,000 as compared to $49,504,000 in 1999. The working capital ratio as of July 1, 2000 was 1.6:1 as compared to 2.0:1 at the same time in 1999.
At the end of June 2000, The Company was in violation of covenants related to interest coverage and maximum leverage. The Credit Facility was amended to remedy these violations in August.
4. STOCKHOLDERS' EQUITY
The Board of Directors declared a 10% stock dividend in 1999. The dividend was payable on July 2 to stockholders of record on June 2nd. Basic and diluted loss per share has been restated for all periods presented to reflect the stock dividends. Stock options have also been restated to reflect the stock dividends.
5. STOCK OPTIONS
The Company has a non-qualified stock option plan (the "Plan") under which there are presently reserved 1,165,230 shares of common stock. The Plan is administered by a committee designated by the Board of Directors. Options granted to eligible employees are exercisable in increments of 20% annually. Stock to be offered under the Plan consists of shares, whether authorized but unissued or reacquired by the Company, of common stock of the Company. The exercise price of options is equal to the fair market value on the date of each grant. The exercise price may be paid in cash, common stock of the Company, or a combination thereof. A summary of the change in common stock options during 1999 and 2000 is as follows:
Number of Shares |
Price Range per Share |
Weighted Average Price per Share |
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Outstanding at December 26, 1999 |
843,612 |
$3.72 - $7.64 |
$5.21 |
Granted |
34,950 |
$4.13 - $4.20 |
$4.14 |
Exercised |
0 |
$0.00 |
$0.00 |
Canceled |
(153,142) |
$3.72 -$7.23 |
$5.14 |
Outstanding at January 1, 2000 |
725,420 |
$3.72 - $7.64 |
$5.17 |
Granted |
10,000 |
$2.44 |
$2.44 |
Exercised |
0 |
$0.00 |
$0.00 |
Canceled |
(99,333) |
$3.72 - $7.64 |
$5.32 |
Outstanding July 1, 2000 |
636,087 |
$2.44 - $7.23 |
$5.10 |
As of July 1, 2000, there were 354,222 shares exercisable. |
The Company applies the provisions of APB Opinion 25 and related Interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for the foregoing options. The excess, if any, of the fair market value of shares on the measurement date over the exercise price is charged to operations each year, as the options are exercised. 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 $1,659,300 for the grants prior to 1999, $11,000 for the 2000 grants. These amounts would be expensed at the rate of 20% per annum over the options' vesting period. The assumptions used in the option-pricing model includes risk-free interest rates from 5.5% to 6.7%, expected volatility of 30.9% to 52.6% 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:
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Twenty-six Weeks Ended July 1, 2000 |
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Twenty-six Weeks Ended June 26, 1999 |
Net loss |
- as reported |
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($5,234,060) |
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($2,239,462) |
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- pro forma |
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($5,300,498) |
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($2,330,574) |
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Basic net loss per common share |
- as reported |
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($0.94) |
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($0.40) |
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- pro forma |
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($0.95) |
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($0.42) |
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Diluted net loss per common share |
- as reported |
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($0.94) |
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($0.40) |
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- pro forma |
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($0.95) |
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($0.42) |
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Common share equivalents have been excluded because they are anti-dilutive. |
6. RESTRUCTURING CHARGE
In November of 1999, the Board of Directors of the Company approved a restructuring plan that resulted in the announcement to close two domestic sewing factories located in Warrenton, NC, and Martinsville, VA, leaving one remaining factory in Washington, NC. These closures were due to an increasing shift to sales of branded product, which is primarily imported. The closure in Martinsville was completed in December 1999, and the Warrenton closure was completed in March 2000. This plan also included the elimination of certain positions within the selling and administrative functions of the Company. The restructuring charge amounted to $936,000, which includes only the direct termination benefits along with the related fringe benefits. This plan resulted in the reduction of approximately 298 full time associates or 30% of the domestic work force. This plan was completed during the first quarter of 2000. In addition, this plan included the decision to no longer offer for sale the ladies sleepwear product line. This product line was primarily private label and was the only ladies offerings by the Company.
In June 2000, the Board of Directors of the Company also approved an additional restructuring plan that included the closure of the one remaining sewing facility in Washington, NC, the consolidation of the distribution center in Martinsville, VA, and the cutting operation in Kinston, NC. This plan resulted in the reduction of approximately 197 full-time associates, or 20% of the domestic workforce. All owned and unsold facilities have been classified as "Assets held for resale" on the Balance Sheet and are being actively marketed by Management.
Following is a summary of the restructuring charges and reserves:
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Severance and other Employee costs |
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Restructuring charges at November 1999 |
$935,627 |
Cash payments in 1999 |
(224,357) |
Restructuring reserves at January 1, 2000 |
711,270 |
Cash payments in 2000 |
(553,358) |
Restructuring reserve established June 2000 |
300,000 |
Restructuring reserve at July 1, 2000 |
$457,912 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the operating data for the periods indicated:
PRIVATE
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