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 wearing 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
Hampton's principal products consist 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. However, the company also manufactures and sells apparel under the following licenses: LICENSE PRODUCT CATEGORY Nautica for Boys' Boys' shirts, pants, outerwear and swimwear Rawlings Men's and boys' activewear Spalding (2) Men's and boys' activewear Dickies (1) Men's casual and rugged sportshirts Justin (2) Men's and boys' western wear Ron Chereskin (1) Men's sleepwear and robes Bugle Boy (1) Men's and boys' sleepwear and robes Charles Goodnight (2) Ladies sleepwear and robes Warner Brothers Men's sleepwear and robes and children's robes and novelty apparel (1) Initial sales occurred in 1997. (2) Initial sales will occur in 1998.
TRADEMARK PRODUCT CATEGORY Kaynee Boys' and girl's shirts and school uniforms Le Tigre Men's and boys' sportshirts and sportswear Campus Men's and boys' sportshirts and sportswear
Branded apparel is becoming a more important part of the success of the Company's business. - -1-
Hampton designs its own line of apparel as well as produces apparel under private label to customers specifications. The Company's products are 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 2,750 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 72 salesmen, including 33 field representatives at the end of 1997. Sales offices are located in New York, and at the Company's executive and administrative headquarters in Kinston, North Carolina. As of December 27, 1997 the Company had approximately 903 full-time associates domestically and approximately 434 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.
Sales of licensed products accounted for 31%, 23% and 14% of the consolidated sales for 1997 and the prior two years, respectively. - -2-
All foreign purchases are contracted for in U.S. Dollars; therefore, there is no currency risk.
As of February 28, 1998, Hampton's backlog of orders was approximately $109,105,000 as compared to $87,146,000 on the same date in 1997. The orders are believed to be firm and are expected to be shipped during the current fiscal year.
The Company relies on various computer applications for the operation of its business. Several current computer applications could have a significant impact on the Company if not modified prior to the year 2000. As part of an reengineering effort and a conversion to a new computer system, the Company is converting all business applications to new hardware and software. This conversion will address all issues related to Year 2000 and is expected to be completed in the early part of 1999. It is anticipated that the expenditure for this effort will approximate $500,000 of which a portion has already been spent in 1997. Management does not believe that this will have a significant impact on the Company.
The apparel industry is highly competitive as to style, quality and price. Hampton competes with many other manufactures and suppliers as to each of its products.
Each of the above named was elected for one year or until the election of a successor. The next election shall take place immediately following the Annual Meeting of Shareholders to be held on May 18, 1998. There is no arrangement or understanding between any of the above pursuant to which they were elected as Officers.
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. - -3-
Mr. David Fuchs has held his current executive position for in excess of five years. Mr. Steven Fuchs was elected to his present position in January, 1996. From 1993 to January 1996, Mr. Steven Fuchs was the President of Hampton Shirt Co. (a subsidiary). Prior to 1993, he held various positions with the Company. Mr. Roger Eichel was elected to his present position in May, 1997 and prior thereto, he was Secretary of the Company. Mr. 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. Mr. 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.
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 as well as certain executive officers occupy a building located in New York City. Hampton's principal executive and administrative offices are located in North Carolina. All of these properties are owned by the Company. The New York office is collateralized by a related 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.
ITEM 3. LEGAL PROCEEDINGS
There are no significant legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None - -4-
PART II
ITEM 5.
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
The Company has not paid a cash dividend on its common stock since 1973. 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 27, 1997 was approximately 332, including, as a single holder of record, brokerage firms having more than one stockholder account.
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The Company has not paid cash dividends on its common stock since 1973.
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 decreasing net earnings by $404,900 ($.09 per share) in 1997, increasing net earnings by $504,800 ($.11 per share) in 1996 and $153,800 ($.03 per share) in 1995. Income realized as a result of inventory liquidation was not significant in 1997, $668,200 ($.15 per share) in 1996 and was not significant in 1995.
ITEM 7.
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.
Results of Operations
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. - -6-
Gross profit margins increased by $2,093,000 for 1997. As a percent of sales this represented an increase of .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.
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.
Fiscal 1996 Versus Fiscal 1995
Net sales for 1996 declined by 13.0%. A decline of 17.4% in units shipped was partially offset by an increase of 5.5% in the average selling price. The increase in average selling price is primarily due to the greater influence of the "branded" product sales.
Gross profit margins increased by $3,806,000 for 1996. As a percent of sales this represented an increase of 4.9% from 16.9% in 1995 to 21.8% in 1996. Two programs that generated approximately $16,000,000 in sales during 1995 were discontinued by the Company. These programs were not profitable and their elimination contributed to the improvement in the margin. - -7-
Selling, general and administrative expenses declined by $957,000 in 1996. However, as a percent of sales, there was an increase from 16.4% in 1995 to 18.2% in 1996. Certain costs in this category are of a fixed nature. Royalty and advertising expenses were 2.1% of sales in 1996 and 1.4% in 1995 increasing by $823,000 in 1996. "Branded" product, for which royalty expense is recorded, increased from 14.2% of sales in 1995 to 23.3% in 1996.
In 1995 the Company closed two manufacturing facilities which completed the Company's program of reducing excess domestic production capacity begun in 1991. The closing costs related thereto are included in the statement of operations as Provision for restructuring costs. The restructuring reduced the work force by approximately 400 associates or 25% of total employees. Plant closing costs totaled approximately $1,211,000 representing severance pay, payroll taxes and a noncash charge of $610,000 relating to the write-down of manufacturing equipment to estimated realizable value.
A portion of the Company's corporate office building in New York is leased to third parties. Rental income (net of related expenses) is classified separately.
Interest expense decreased by $908,000 from 1995. This decline is the result of a lower level of borrowing during the year which occurred from better management of receivables and inventory levels.
The effective tax rate increased to 31.6% in 1996 from a benefit rate of 24.9% in 1995. The effective rate in 1995 was impacted by the loss of certain future state tax benefits. The 1996 effective rate is less than the statutory rate due primarily to the utilization of certain carryover job tax credits and alternative minimum tax carryovers.
Liquidity and Capital Resources On May 3, 1996, the Company entered into a new credit facility with BNY Financial Corporation, as Agent ("New Facility"). The New Facility provides for a maximum line of credit of $100,000,000, which includes both direct loans and letters of credit. The initial proceeds of the New Facility were used to repay the outstanding indebtedness under the Company's previously existing bank line of credit.
Availability under the New Facility is based on a formula of eligible accounts receivable and eligible inventory 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 New 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. The New Facility expires in May 1999.
The New Facility contains financial covenants, including but not limited to, tangible net worth and interest coverage, limits fixed asset purchases and does not allow for the payment of cash dividends. The Company is not required to maintain compensating balances, - -8-
however, it is required to pay a fee of 1/4 of 1% per annum on the unused portion of the total facility plus certain other administrative costs. As of December 27, 1997, the Company failed to meet financial covenants relating to minimum tangible net worth, fixed charge coverage ratio and minimum EBITDA. On February 25,1998, the bank waived non compliance with respect to these provisions.
Outstanding borrowings under the New Facility amounted to $5,108,000 at December 27, 1997 as compared to $400,000 in 1996. Net working capital as of the end of 1997 was $40,648,000 as compared to $40,158,000 in 1996. The working capital ratio as of the end of 1997 was 3.7:1 as compared to 4.5:1 in 1996.
During 1997, cash used in operations approximated $2,000,000 which primarily related to higher levels of accounts receivables. In 1996, cash provided by operations was approximately $22,000,000. In 1996, a significant reduction in inventory levels is the primary reason for the generation of cash from operations.
Additions to plant, property and equipment, which represented normal replacement and upgrading of equipment, were approximately $1,000,000 in 1997 as compared to $600,000 in 1996. Capital expenditures for 1998 are expected to be higher than 1997 and are expected to be financed from operations.
The increase in other assets in 1997 is primarily due to unamortized in-store fixture cost which are being amortized over 36 months.
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.
At December 27, 1997, the Company had unused lines of credit of $11,215,000 for direct borrowings or the issuance of letters of credit. This availability is in addition to the outstanding direct borrowings of $5,108,000 and letters of credit of $33,402,000 outstanding at the end of 1997.
Management believes that the line of credit that is available under the New Facility, together with the cash expected to be provided from operations, is adequate to meet the Company's financing needs for the foreseeable future.
The Company relies on various computer applications for the operation of its business. Several current computer applications could have a significant impact on the Company if not modified prior to the year 2000. As part of an reengineering effort and a conversion to a new computer system, the Company is converting all business applications to new hardware and software. This conversion will address all issues related to Year 2000 and is expected to be completed in the early part of 1999. It is anticipated that the expenditure for this effort will approximate $500,000 of which a portion has already been spent in 1997. Management does not believe that this will have a significant impact on the Company. - -9- 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), Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) and Statement of Financial Accounting Standards No. 132 "Employers Disclosures about Pension and other Post retirement Benefit Plans" (SFAS No. 132). The Company will adopt SFAS No. 130 and SFAS No. 131 in the fiscal year beginning December 28, 1997. The Company does not expect any material effect from adoption of these statements. - -10-
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. - -11-
ITEM 8.
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 27, 1997 and December 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 27, 1997, December 28, 1996 and December 30, 1995. 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 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for the years ended December 27, 1997, December 28, 1996 and December 30, 1995 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 17, 1998 (February 25, 1998 as to Note E) New York, New York - -12-
See notes to consolidated financial statements. - -13-
See notes to consolidated financial statements. - -14-
See notes to consolidated financial statements.
- -15-
See notes to consolidated financial statements. - -16-
HAMPTON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 30, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business The Company is engaged in the business of manufacturing and selling wearing apparel. 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.
Property, Plant and Equipment 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 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 New Credit facility have been deferred and are being amortized over the term of the agreement. - -17-
Long-Lived Assets Financial Accounting Standards Board Statement Number 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" requires that they be segregated and stated at the lower of the expected net realizable value or cost. The carrying value of long-lived assets is periodically reviewed to determine whether impairment exists. The review is based on comparing the carrying amount of the asset to the undiscounted estimated cash flows over the remaining useful lives. No impairment is indicated as of December 31, 1997. The Company has adopted this statement and the impact has not been significant.
Revenue Recognition Sales are recognized upon shipment of product, which is when title passes to the customer.
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 (Loss) 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 (loss) by the weighted-average number of shares outstanding for each period presented. Diluted earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of shares outstanding plus dilutive potential common shares which will result from the exercise of stock options. Prior periods have been restated to reflect the requirements of the new statement.
- -18-
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 $284,130 and $478,764 at December 27, 1997 and December 28, 1996 respectively.
- -19-
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 27, 1997 and December 28, 1996 would have been approximately $35,300,000 and $35,100,000, respectively. The LIFO valuation method had the effect of decreasing net earnings by $404,900 ($.09 per share) in 1997, increasing net earnings by $504,800 ($.11 per share) in 1996, and $153,800 ($.03 per share) in 1995. Income realized as a result of inventory liquidation was not significant in 1997, $668,200 ($.15 per share) in 1996 and was not significant in 1995. Inventory in transit of $4,675,046 in 1997 and $4,453,000 in 1996 are included in finished goods.
- -20-
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting earnings (loss) compared to the provision (benefit) for income tax in the consolidated statements of operations:
- -21-
- -22-
(i) On May 3, 1996, the Company entered into a new credit facility with BNY Financial Corporation, as Agent ("New Facility"). The New facility provides for a maximum line of credit of $100,000,000, which includes both direct loans and letters of credit. The initial proceeds of the New Facility were used to repay the outstanding indebtedness under the Company's previously existing bank line of credit. Availability under the New Facility is based on a formula of eligible accounts receivable and eligible inventory 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 New 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 New Facility expires in May 1999. The borrowings of $5,108,241 outstanding at December 27, 1997 have been classified as short term. The New 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. As of December 27, 1997, the Company failed to meet financial covenants relating to minimum tangible net worth, fixed charge coverage ratio and minimum EBITDA. On February 25,1998, the bank waived non compliance with respect to these provisions.
- -23-
(ii) The mortgage notes and capitalized lease obligations are collateralized by building and property having a carrying value at December 27, 1997 of approximately $5,976,000. The effective interest rate on the aggregate amount of capitalized leases at December 27, 1997 was 6.34%. The effective interest rate on the mortgage note due in 2000 at December 27, 1997 was 7.87%.
At December 27, 1997, letters of credit amounting to approximately $33,402,076 were outstanding which relate to purchase commitments issued to foreign suppliers of approximately $40,289,775.
F. 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 In 1992, the stockholders approved a non-qualified stock option plan (the "Plan") under which it has reserved 363,000 shares of common stock and expires in 2002. The Plan was amended in 1997 to increase the reserved shares of common stock to 963,000 shares and the expiration date of 2002 was eliminated. The Plan is administered by a committee designated by the Board of Directors. Options granted to eligible employees are exercisable in increments of 20% annually. Stock to be offered under the Plan consists of shares, whether authorized but unissued or reacquired by the Company, of the common stock of the Company.
- -24-
As of December 27, 1997, 53,300 shares were exercisable.
G. PROFIT SHARING PLANS
On December 31, 1995, the Company merged two qualified profit sharing plans into a single plan (the Plan) that is in compliance with the regulations of the Internal Revenue Service Code for qualification as a 401-K plan. The Plan covers all associates of the Company. During 1996 and 1997, 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 1998 at 40%. The Company has the option of changing the matching contribution each year, the right to amend, modify or terminate the Plan. Company contributions to the Plan were $362,000 for 1997 and $160,475 for 1996. Under the predecessor plans, the Company contribution aggregated $248,000 for 1995.
- -25-
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 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 instituted a Nonqualified Deferred Compensation Plan for Key Employees (the Deferred Plan) to permit certain key employees to defer receipt of current compensation in order to provide retirement and death benefits on behalf of such employees. The Company may provide a matching contribution to the Deferred 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 has established a matching rate of 20% 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 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, the right to amend, modify or terminate the Deferred Plan.
- -26-
H. SELECTED QUARTERLY DATA (UNAUDITED)
I. 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.
- -27-
J. RESTRUCTURING COSTS
In 1995 the Company closed two manufacturing facilities which completed the Company's program of reducing excess domestic production capacity begun in 1991. The closing costs related thereto are in the statement of operations as Provision for restructuring costs. The restructuring reduced the work force by approximately 400 associates or 25% of total employees. Plant closing costs totaled approximately $1,211,000 representing severance pay, payroll taxes and a noncash charge of $610,000 relating to the write-down of manufacturing equipment to estimated realizable value.
K. ACCRUED LIABILITIES
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Election of Directors" on page 2 of the Proxy Statement for Registrant's 1998 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.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Officers and Directors" on page 4 of the Registrant's 1998 Proxy Statement, which information is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Voting Securities" on page 1 of the Registrant's 1998 Proxy Statement, which information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Transactions with Management" on page 9 of the Registrant's 1998 Proxy Statement, which information is incorporated herein by reference.
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PART IV
ITEM 14.
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 ____________________________________ 12
Consolidated balance sheets - December 27, 1997 and December 28, 1996 ________________________ 13
Consolidated statements of operations - years ended December 27, 1997, December 28, 1996 and December 30, 1995 _____________________________________________ 14
Consolidated statements of stockholders' equity - years ended December 27, 1997, December 28, 1996 and December 30, 1995 ____ 15
Consolidated statements of cash flows - years ended December 27, 1997, December 28, 1996 and December 30, 1995 _________________ 16
Notes to consolidated financial statements ___________________ 17-28
(a)2. Financial Statement Schedule
Schedule II - Valuation and qualifying accounts _________________ 31
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 ____________________ 32
(b) Reports on Form 8-K
None
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NOTES:
(A) Recoveries of accounts previously written off.
(B) Uncollectible accounts written off.
NOTES:
(A) Recoveries of accounts previously written off.
(B) Uncollectible accounts written off.
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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.
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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/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 ______________________________ ____________________________ Herrbert L. Ash, March 10, 1998 Sol Schechter,March 10, 1998 (Director) (Director)
S/PAUL CHUSED _______________________________ Paul Chused, March 10, 1998 (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.
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