-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PRuoNidmP8GkC36aP1YMTD3Q0CC4eUJkHUJevi0+oW4d4PCIOOlzW6WTnBWPBPRy 03PWuutrfPmMGoQQZ/fFyQ== 0000950137-96-001369.txt : 19960813 0000950137-96-001369.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950137-96-001369 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960812 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE OF CAROLINA INC CENTRAL INDEX KEY: 0000312840 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 132999480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07909 FILM NUMBER: 96609061 BUSINESS ADDRESS: STREET 1: 5150 LINTEN BLVD CITY: DEL RAY BEACH STATE: FL ZIP: 33484 BUSINESS PHONE: 4074984000 MAIL ADDRESS: STREET 1: P O BOX 4000 CITY: TARBORO STATE: NC ZIP: 27886 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Amendment No. 1 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 No. 1-7909 EMPIRE OF CAROLINA, INC. (Exact name of Registrant as specified in its charter) Delaware 13-2999480 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 5150 LINTON BOULEVARD, 5TH FLOOR, DELRAY BEACH, FL 33484 (Address of principal executive office) (Zip Code) (407) 498-4000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) 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 - -- The number of shares outstanding of the issuer's Common Stock, $.10 par value, as of April 15, 1996 was 5,205,200. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS - --------------------------------------------------------------------------------
March 31, December 31, 1996 1995 --------- ------------ (Unaudited) ---------------- ---------------- ASSETS (In Thousands) CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . $339 $2,568 Marketable securities . . . . . . . . . . . . . . 173 189 Accounts receivable, less allowances and other deductions (1996-$4,560 ; 1995-$4,290) . . . . . 29,336 48,957 Inventories, net . . . . . . . . . . . . . . . . . 39,367 30,178 Prepaid expenses and other current assets . . . . 4,174 2,046 Deferred income taxes . . . . . . . . . . . . . . 4,503 5,596 ------------- ------------ Total current assets . . . . . . . . . . . . 77,892 89,534 PROPERTY, PLANT AND EQUIPMENT, NET . . . . . . . . . 22,894 23,640 EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED . . . . . . . . . . . . . . . . . 14,965 15,174 TRADEMARKS, PATENTS, TRADENAMES AND LICENSES . . . . . . . . . . . . . . . . . . . 10,052 10,253 OTHER NONCURRENT ASSETS . . . . . . . . . . . . . . . 1,664 1,552 ------------- ------------ $ 127,467 $ 140,153 ============= ============
3 EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Concluded) - --------------------------------------------------------------------------------
March 31, December 31, 1996 1995 ---------------- ---------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (In Thousands) CURRENT LIABILITIES: Notes payable and current portion of long-term debt . . $46,510 $49,206 Accounts payable - trade . . . . . . . . . . . . . . . . 13,828 17,516 Accrued liabilities . . . . . . . . . . . . . . . . . . 11,576 15,975 ------- ------- Total current liabilities . . . . . . . . . . . . 71,914 82,697 ------- ------- LONG-TERM LIABILITIES: Convertible subordinated debentures . . . . . . . . . . 13,923 13,851 Senior subordinated notes . . . . . . . . . . . . . . . 8,148 7,959 Deferred income taxes . . . . . . . . . . . . . . . . . 2,057 2,083 Other noncurrent liabilities . . . . . . . . . . . . . . 3,054 3,101 ------- ------- Total long-term liabilities . . . . . . . . . . . 27,182 26,994 ------- ------- Total liabilities . . . . . . . . . . . . . . . . 99,096 109,691 ------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.10 par value, 30,000,000 shares authorized, shares issued and outstanding: 1996 - 5,205,000; 1995 - 5,195,000 . . . . . . . . . . 521 519 Preferred stock, $.01 par value, 5,000,000 shares authorized - 442,264 shares of Series A cumulative convertible preferred stock authorized, issued and outstanding ($3,206,000 involuntary liquidation preference) . . . . . . . . . . . . . . . . . . . . . 4 4 Additional paid-in capital . . . . . . . . . . . . . . . 33,256 33,193 Retained earnings (deficit) . . . . . . . . . . . . . . (4,815) (2,659) Stockholders' loans . . . . . . . . . . . . . . . . . . (595) (595) ------- ------- Total stockholders' equity . . . . . . . . . . . . 28,371 30,462 ------- ------- $127,467 $140,153 ------- -------
See notes to the consolidated condensed financial statements. -3- 4 EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended March 31, ------------------------------- 1996 1995 ---------- ----------- (In Thousands Except Per Share Amounts) NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,186 $ 19,088 COST OF GOODS SOLD . . . . . . . . . . . . . . . . . . . . . . . . . 16,217 12,937 --------- --------- GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,969 6,151 SELLING AND ADMINISTRATIVE EXPENSES . . . . . . . . . . . . . . . . . 7,298 6,804 NONRECURRING RESTRUCTURING AND RELOCATION CHARGES . . . . . . . . . . . . . . . . . . . . . . . . -- 150 --------- --------- OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,329) (803) OTHER INCOME (EXPENSES): Interest income, dividends and net realized gains . . . . . . . . 13 54 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (2,132) (667) --------- --------- Total other income (expenses) . . . . . . . . . . . . . . . (2,119) (613) LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . (3,448) (1,416) INCOME TAX BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . 1,292 410 --------- --------- NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,156) $ (1,006) ========== ========== LOSS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . . . $(0.41) $(0.24) ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,201 4,191 ========== ==========
See notes to the consolidated condensed financial statements. -4- 5 EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 1996 1995 -------- --------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,156) $ (1,006) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash adjustments . . . . . . . . . . . . . . . . . . . . . . 1,713 2,316 Changes in assets and liabilities . . . . . . . . . . . . . . . 1,815 (5,596) ----------- ------------ Net cash provided by (used in) operating activities 1,372 (4,286) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (970) (1,118) Proceeds from sale of marketable securities . . . . . . . . . . . -- 2,099 ----------- ------------ Net cash provided by (used in) financing activities . . . . (970) 981 CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under lines-of-credit . . . . . . . . (1,428) 7,178 Repayment of notes payable . . . . . . . . . . . . . . . . . . . . (1,268) (2,925) Proceeds from issuance of common stock . . . . . . . . . . . . . . 65 -- ----------- ------------ Net cash provided by (used in) financing activities . . . . (2,631) 4,253 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,229) 948 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . 2,568 2,738 ----------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . $ 339 $ 3,686 ============ ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,554 $ 611 Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 43 110
See notes to the consolidated condensed financial statements. -5- 6 EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) THREE MONTHS ENDED MARCH 31, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The consolidated condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report, as amended, on Form 10-K/A. In the opinion of management, the information contained in this report reflects all adjustments necessary to present fairly the results for the interim periods presented. Earnings per share - For the calculation of earnings per share for the first quarter of 1996 and 1995, all of the various outstanding stock options and warrants and convertible debentures are excluded from primary and fully-diluted earnings per share since they are anti-dilutive. Accounting for Stock-Based Compensation - In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which was effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share for the year ending December 31, 1996. 2. INVENTORIES
March 31, December 31, 1996 1995 --------------- --------------- (unaudited) Finished goods $21,204 $14,418 Raw materials 10,980 13,591 Work-in-process 7,183 2,169 ------------ ------------ $39,367 $30,178 ============ =============
Inventories are net of writedowns for lower of cost or market reserves of $3,332,000 and $3,141,000 at March 31, 1996 and December 31, 1995, respectively. -6- 7 3. COMMITMENTS AND CONTINGENCIES Letters of credit - The Company had outstanding commitments under letters of credit totaling $1,184,000 at March 31, 1996 compared to $1,246,000 at December 31, 1995. Leases - Subsequent to March 31, 1996, the Company entered into an operating lease with a commencement date of June 15, 1996 for new molding machines having monthly lease payments of $25,000 for 120 months. Indemnifications - In connection with the sale of the assets used in the businesses of its wholly-owned subsidiaries, Isaly Klondike Company and Popsicle Industries Ltd. to Thomas J. Lipton Company and its affiliates in 1993, the Company agreed to certain indemnification obligations. The Company has established reserves for all claims known to it and for other contingencies in connection with the sale. During the quarter ended March 31, 1996, the Company reduced the reserves by $600,000 due to the expiration of certain time limitations. Although there can be no assurance that claims and other contingencies related to the sale will not exceed established reserves, the Company believes that additional exposure related to the indemnification obligations will not be material to the consolidated financial statements. During 1995, the Company and its majority-owned subsidiary, CLR Corporation ("CLR"), were released from substantially all indemnification obligations including certain tax matters arising from the December 23, 1988 sale of General Defense Corporation to Olin Corporation by CLR's predecessor, Clabir Corporation. In exchange for the release, the Company paid $475,000 and extended the expiration date of the options granted to Olin Corporation from September 30, 1996 to September 30, 1997. The Company believes future obligations, if any, related to the indemnification will not have a material adverse effect on its consolidated financial statements. Litigation - An action was commenced on October 19, 1994 in the Court of Chancery of the State of Delaware (New Castle County) against the Company as a nominal defendant. The action named Maurice A. Halperin, Barry S. Halperin, Carol A. Minkin, and Halco Industries, Inc. (collectively, the "Halperin Group"), Jeffrey Swersky, Carl Derman and Steven Geller as defendants. The complaint in the action included class and derivative claims and alleged, among other things, that the redemption of the Halperin Group's Common Stock in connection with the change of control occurred at a substantial premium; that the transfer of control from the Halperin Group to Mr. Geller was inequitable; that the Halperin Group exercised its control of the Company to appropriate its assets for its own benefit to the detriment of the plaintiffs; and that certain loans between the Company and Halco were on terms unfavorable to the Company. The Company was only a nominal defendant in the derivative claims, but the Company has agreed to indemnify the Halperin Group to the extent permitted by law, with certain exceptions. A motion to dismiss the claims was granted on February 5, 1996. The plaintiff filed a notice of appeal, and on May 2, 1996 filed a voluntary dismissal of his appeal. If the indemnification obligations of the Company to the Halperin Group discussed above were triggered, substantial liabilities by the Company could result. The Company is unable at this time to determine if the indemnification agreement will be triggered, and, if so, the extent of financial exposure on the part of the Company to the Halperin Group. There are two suits claiming infringement of various intellectual property rights which have been filed against Marchon, Inc., a wholly-owned subsidiary of the Company. These claims are in various stages of litigation. The Company believes that it has meritorious defenses to the open claims and has provided reserves for its estimated costs to settle these matters. The Company does not believe that any -7- 8 additional amounts required to ultimately resolve these matters will have a material adverse effect on the Company's consolidated financial statements. The Company's operating subsidiaries and its former operating subsidiaries are subject to various types of consumer claims for personal injury from their products. The Company's subsidiaries maintain product liability insurance. Various product liability claims, each of which management believes is adequately covered by insurance and/or reserves, are currently pending. The Company does not believe the outcome of any of this litigation either individually or in the aggregate would have a material adverse effect on the Company's consolidated financial statements. Contingencies - The Company has been identified as a potentially responsible party, along with numerous other parties, at various U.S. Environmental Protection Agency ("EPA") designated superfund sites. It is the Company's policy to accrue remediation costs when it is probable that such costs will be incurred and when they can be reasonably estimated. As of December 31, 1995 and March 31, 1996, the Company had reserves for environmental liabilities of $360,000 and $400,000, respectively. Estimates of costs for future remediation are necessarily imprecise due to among other things, the allocation of costs among potentially responsible parties. Although it is possible that additional environmental liability related to these matters could result in amounts that could be material to the Company's consolidated financial statements, a reasonably possible range of such amounts cannot presently be estimated. Based upon the facts presently known, the large number of other potentially responsible parties and potential defenses that exist, the Company believes that its share of the costs of cleanup for its current remediation sites will not, in the aggregate, have a material adverse impact on its consolidated financial statements. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales of the Company's products are seasonal in nature. Generally, the Company's largest sales occur in the third and fourth quarters of the year when it ships its toys for the Christmas shopping season and holiday products for the Christmas and Halloween shopping seasons. The Company's production generally is heaviest in the period from June through September. Management expects that the Company's quarterly operating results will vary significantly throughout the year. Recent Events On August 7, 1996, the Company issued a press release announcing the Company's second quarter results of operations and certain developments relating to operations at the Company's Tarboro, North Carolina facility. Such press release is an exhibit to a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 7, 1996. For further information, reference is made to the Form 8-K filed by the Company with the Securities and Exchange Commission on August 7, 1996. Results of Operations - March 31, 1996 vs. March 31, 1995 The results of operations for the three months ended March 31, 1996 reflects the impact of the Buddy L acquisition (which acquisition occurred on July 7, 1995). See 1995 Annual Report on Form 10-K for further information regarding this acquisition. -8- 9 Net sales for the three months ended March 31, 1996 increased by 16% to $22.2 million from $19.1 million for the three months ended March 31, 1995. The increase in sales was due primarily to the acquisition of the Buddy L(R) line of products in July 1995, sales of new products, and an increase in holiday product sales. The net loss for the quarter ended March 31, 1996 increased to $2.2 million from $1.0 million for the quarter ended March 31, 1995. The increase in the net loss is due primarily to higher selling and administrative ("S&A") expenses and higher interest expense, partially offset by the resulting income tax benefit. The following table shows sales and operating income from continuing operations by the Company's industry segments (in thousands):
Three Months Ended March 31, Net Sales: 1996 1995 ---------- ---------- Toys . . . . . . . . . . . . . . . . . . . . . . . . . . $18,285 $16,463 Holiday Products . . . . . . . . . . . . . . . . . . . . 3,901 2,625 ---------- ---------- Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,186 $19,088 ========== =========== Operating Loss: Toys . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,207) $ (484) Holiday Products . . . . . . . . . . . . . . . . . . . . (122) (169) Nonrecurring restructuring and relocation charges . . . -- (150) ---------- ---------- Operating Loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,329) $ (803) ========== ===========
Toy sales increased $1.8 million to $18.3 million for the three months ended March 31, 1996 from $16.5 million for the three months ended March 31, 1995. The increase was primarily due to approximately $9.1 million of sales from acquired Buddy L(R) toy lines, sales of new products such as Big Wheelie(TM), and increased sales of ride-on products. This increase was partially offset by decreased sales of other products, including the virtual elimination of Power Ranger(TM) sales, which were approximately $7.1 million during the first quarter of 1995, due to the Company's decision to de-emphasize production of these products. The Company's sales of holiday products increased 49% to $3.9 million for the three months ended March 31, 1996 from $2.6 million for the three months ended March 31, 1995 due to increased sales volume in the Easter product category. Gross profit margins were lower for the three months ended March 31, 1996 as compared to the three months ended March 31, 1995, due to loss of Power Ranger(TM) sales, which products sold at higher margins than the Company's existing lines. However, the impact of the loss of the Power Ranger(TM) sales on the current quarter's operating income is reduced by the corresponding decrease in royalties on the sales of Power Ranger(TM) products. For the quarter ended March 31, 1996, royalties -9- 10 which are included in selling expenses, were approximately 1% of sales as compared to approximately 6% of sales for the quarter ended March 31, 1995. Despite lower royalty expense, S&A expenses were higher for the three months ended March 31, 1996 as compared to the three months ended March 31, 1995 primarily due to the continuing integration of Buddy L, including certain duplicate facilities costs of approximately $493,000, and the incremental cost of approximately $567,000 for staffing of four strategic business units ("SBUs"). SBU's are accountable for the sales and marketing for specific product categories: ride-ons, outdoor activities and games, girls and boys toys and holiday products. S&A expenses for the three months ended March 31, 1996 reflect the reversal of approximately $600,000 of certain indemnification reserves due to the expiration of certain time limitations and the reversal of $200,000 of environmental reserves. Excluding the impact of the reversal of the indemnification reserves, S&A expenses were approximately 36% of sales for the three months ended March 31, 1996 as compared to 36% of sales for the three months ended March 31, 1995. In the toy segment, the operating loss was $1.2 million for the quarter ended March 31, 1996 as compared to an operating loss of $484,000 for the quarter ended March 31, 1995. The increase in operating loss was due primarily to higher S&A expenses. In the holiday product segment, operating loss was $122,000 for the quarter ended March 31, 1996 as compared to an operating loss of $169,000 for the quarter ended March 31, 1995. The decrease in operating loss was due to higher sales and gross profit margins. Nonrecurring restructuring and relocation charges were $150,000 for the quarter ended March 31, 1995 and related primarily to establishment of corporate headquarters in Delray Beach, Florida. Interest expense was $2.1 million for the three months ended March 31, 1996 as compared to $667,000 for the three months ended March 31, 1995. Interest expense was approximately $456,000 higher due to the issuance of $7.6 million of senior subordinated notes during the third quarter of 1995 to finance the Buddy L acquisition, and approximately $815,000 higher due to higher balances of the Company's revolving credit lines resulting from increased sales, inventory, and accounts receivable levels. The tax benefit for the three months ended March 31, 1996 and the three months ended March 31, 1995 approximates the federal statutory rate net of certain nondeductible expenses, primarily amortization of goodwill. Liquidity and Capital Resources During May 1996, the Company entered into a new secured bank facility which provides up to $85 million in financing. The financing is for a three-year term at an interest rate of prime plus 1% or LIBOR plus 2.75%. Of the $85 million, $12 million is in the form of a three-year term loan secured by the Company's domestic machinery, equipment and real property. The balance of the availability of borrowings under the proposed loan agreement is revolving borrowings based on the Company's domestic accounts receivable and inventory balances as defined. The collateral under the loan agreement is substantially all of the domestic assets of the Company. The facility will replace two existing domestic facilities of $25 million each. As of May 31, 1996, approximately $52 million of borrowings were outstanding under the new bank facility and an additional $4 million of borrowings were available thereunder. -10- 11 During June 1996, the Company completed a public offering of its Common Stock which resulted in net proceeds to the Company of approximately $17.9 million (including proceeds to the Company upon the exercise by certain Selling Stockholders of stock options and warrants to acquire 356,100 shares of Common Stock). It is anticipated that approximately $7.5 million of the net public offering proceeds will be used to repay bank debt under the Company's bank facility. The Company used approximately $8.3 million of the net proceeds to the Company from the public offering to redeem all of the outstanding senior subordinated notes on July 7, 1996 (for 110% of the original principal amount) and thereby retire the related warrants to purchase common stock. The Company's accounts receivable decreased by $19.6 million during the three months ended March 31, 1996. The cash generated from accounts receivable primarily funded the increase in inventory of $9.2 million, the decrease in accounts payable of $3.7 million, and the decrease of notes payable and current portion of long-term debt of $2.7 million. The Company's inventory, accounts receivable, accounts payable, and notes payable and current portion of long-term debt vary significantly by quarter due to the seasonal nature of the Company's business. Capital expenditures, principally for the purchase of tooling for new products and equipment, were $970,000 for the first quarter of 1996 as compared to $1.1 million for the first quarter of 1995. Subsequent to March 31, 1996, the Company entered into an operating lease with a commencement date of June 15, 1996 for new molding machines having monthly lease payments of $25,000 for 120 months. At March 31, 1996, the Company had letters of credit outstanding totaling $1.2 million. The Company is subject to various actions and proceedings, including those relating to intellectual property matters, environmental matters and product liability matters. See Note 3 of Notes to Consolidated Condensed Financial Statements. The Company believes that cash generated from operations, amounts available under the new bank credit facility and the net proceeds to the Company from the public offering of common stock will be adequate to finance its anticipated operating needs for the next 12 to 24 months, including the implementation of the Company's growth strategy other than significant acquisitions and the July 1996 repayment of approximately $4.8 million of notes issued in connection with the Buddy L acquisition. In addition to the sources described above, consummation of any significant acquisitions in the future may require additional debt or equity financing. -11- 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index and Exhibits
EXHIBIT NO. DESCRIPTION - --- ----------- 3.1 - Restated Certificate of Incorporation of the Company.(1) 3.2 - Amended and Restated By-Laws of the Company.(2) 3.3 - Certificate of Designation, Preference and Rights of the Company filed June 30, 1995.(1) 4.1 - Form of specimen certificate representing the Company's Common Stock.(3) 4.2 - Excerpts from the Company's amended By-Laws and the Company's amended Certificate of Incorporation relating to rights of holders of the Company's Common Stock.(1) 4.3 - Form of 9% Convertible Debentures, issued December 22, 1994.(4) 4.4 - Form of Warrant Certificate of purchase common stock of the Company, issued December 22, 1994. (5)
_____________________________________ 1 Previously filed as an exhibit to the Company's Current Report on Form 8-K dated July 21, 1995, and incorporated by reference. 2 Previously filed as an exhibit to Amendment No. 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3 Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 2-73208), dated July 13, 1981 and incorporated by reference. 4 Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated by reference. 5 Previously filed as an exhibit to the Company's Current Report on Form 8-K for December 22, 1994 and incorporated by reference. (b) No reports on Form 8-K were filed by the Company during the period covered by this report. -12- 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMPIRE OF CAROLINA, INC. By: /s/ J. Artie Rogers J. Artie Rogers Senior Vice President - Finance, Assistant Secretary, Principal Accounting Officer Dated: August 9, 1996 -13- -----END PRIVACY-ENHANCED MESSAGE-----