SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File number 1-7909
EMPIRE OF CAROLINA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2999480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5150 Linton Boulevard, Delray Beach, Florida 33484
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(Address of principal executive offices) (Zip Code)
(561) 498-4000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.10 per share American Stock Exchange
(including the associated Preferred
Stock Purchase Rights)
Securities registered pursuant to Section 12(g) of the Act:
None.
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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in the proxy statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K
[ ].
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, as of March 14, 1997, was
$15,750,568 (assuming solely for the purpose of this calculation
that all directors and officers of the Registrant are
"affiliates").
The number of shares outstanding of the Registrant's Common
Stock, par value $.10 per share, as of March 14, 1997, was
7,403,564.
Documents Incorporated by Reference: None.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Empire of Carolina, Inc., a Delaware corporation and its
subsidiaries ("Empire" or the "Company") design, manufacture and
market a broad variety of toys and plastic decorative holiday
products. The Company manages its business through two strategic
business units ("SBUs") which are accountable for specific
product categories. One SBU is responsible for ride-on products,
including Big Wheel(R) and Power Driver(R) brands, outdoor
activities and games such as Snow Works(TM) winter sleds and
Water Works(TM) water slides and pools (including Crocodile
Mile(TM) water slides), and holiday products featuring plastic
decorative holiday display items. The other SBU is comprised of
girls and boys toys featuring Buddy L(R) vehicles, Real Bugs(TM)
and Grand Champions(R) collectible horses.
Empire has been a toy manufacturer for approximately 40
years. The Company's business experienced significant change in
1993 when substantial non-toy operations were sold. Following
the divestitures of non-toy businesses, Empire's operations were
focused on its toy business, including the Big Wheel(R) non-
powered ride-on product line which has been sold throughout the
United States since 1970, and its plastic decorative holiday
products business. Since mid-1994 the Company has undergone a
change of control and management, established a new business
strategy, and effected two acquisitions which added established
core toy product lines to the Company's business.
In the third quarter of 1994, current principal stockholders
of the Company, led by Steven Geller, the current Chairman and
Chief Executive Officer of the Company, acquired control of
Empire as a base from which to build a diversified toy and
plastic products manufacturing company. In October 1994, Empire
acquired Marchon, Inc. ("Marchon") a toy designer, marketer and
manufacturer. Marchon's core toy products included Grand
Champions(R) collectible horses and Crocodile Mile(R) water
slides. Marchon had substantial experience at sourcing toy
products in the Far East. In July 1995, Empire acquired
substantially all of the toy assets of Buddy L Inc. and its Hong
Kong subsidiary ("Buddy L"), one of the oldest toy brands in the
United States whose core toy products included plastic and metal
toy cars, trucks and other vehicles and battery-operated ride-
ons.
The Company's net sales were $148.9 million, $153.7 million
and $58.0 million, respectively, for the years ended December 31,
1996, 1995 and 1994. The Company's toy business net sales were
$119.7 million, $121.6 million and $33.0 million, respectively,
for the years ended December 31, 1996, 1995 and 1994, and
contributed 80%, 79%, and 57%, respectively, of the Company's
consolidated net sales. Net sales of decorative holiday products
were $29.2 million, $32.2 million and $25.0 million,
respectively, for the years ended December 31, 1996, 1995, and
1994, and contributed approximately 20% of the Company's
consolidated net sales in 1996, 21% in 1995 and 43% in 1994.
The Company's executive offices are located at 5150 Linton
Boulevard, Delray Beach, Florida 33484, telephone (561) 498-4000.
RECENT DEVELOPMENTS
FISCAL 1996 OVERVIEW
On March 31, 1997, the Company announced that its net sales
for the year ended December 31, 1996 were $148.9 million as
compared to $153.7 million for the prior year. The Company
incurred a loss before interest and taxes of $47.3 million. This
loss included nonrecurring and special charges of $21.0 million.
The net loss after interest and taxes was $46.2 million. For
fiscal 1995, the loss before interest and taxes and net loss were
$1.9 million and $4.5 million, respectively.
The $21.0 million charge is comprised of restructuring
charges, nonrecurring inventory changes and the write down of
certain intangible assets. The restructuring charge includes
costs resulting from the shutdown of the Buddy L facility in
Gloversville, New York, costs related to staff reductions and
other related costs. The non-recurring inventory charge results
from the previously disclosed difficulties encountered during the
second half of 1996. The remaining charges are the result of the
Company's decision to change the mix of its product lines.
Reference is made to the press release filed as Exhibit 99 to
this Form 10-K, which press release is incorporated by reference
herein.
PROPOSED PRIVATE INVESTMENT
The Company continues to experience the significant cash
flow difficulties previously disclosed, and management believes
that cash generated from operations may not be sufficient to
properly fund the Company's operations past April 1997. As
previously announced, Empire is required under the terms of its
amended senior credit agreement to receive an equity contribution
of at least $6 million by April 30, 1997 and has engaged
investment bankers to secure the additional financing required by
the Company and to evaluate strategic alternatives for enhancing
stockholder value.
The Company and its investment bankers, Gerard Klauer
Mattison & Co. ("GKM"), examined various strategic alternatives,
including the possible sale of the Company or certain of its
businesses. GKM contacted numerous potential financial and
strategic investors, and received several preliminary indications
of interest in a possible transaction with the Company. Certain
potential investors entered into a confidentiality agreement with
the Company and reviewed financial and other information
regarding the Company. The Company and its advisers evaluated
proposals from certain of such persons, considering such matters
as the Company in consultation with its advisers deemed
appropriate. The Company or GKM engaged in further discussions
with potential investors whose proposals were deemed to be
potentially viable and in the interests of the Company. The
Board of Directors, after presentations by the Company's legal
and financial advisors and consideration of the Company's
liquidity and operational requirements, concluded that pursuing
the proposed investment described below was in the best interests
of the Company.
The Company has entered into a non-binding letter of intent
with an investor that proposes to invest $50 million by
purchasing from the Company a combination of exchangeable
convertible preferred stock and senior convertible debentures.
The preferred stock and debentures would be convertible into
common stock at a price equal to the market price of the stock on
the date on which management and the investor established the
terms of the letter of intent. Upon consummation of the
transaction the investor would own securities convertible into a
substantial majority of the Company's outstanding stock and would
have immediate control of the Board. The Company has also
agreed, subject to the Board's ability to satisfy its fiduciary
duties, to a "no shop" provision which expires on April 13, 1997.
In the event that the Company breaches that provision or enters
into a definitive agreement with the proposed investor and elects
not to complete the transaction, the Company would pay a breakup
fee of $2.5 million.
The American Stock Exchange has advised the Company that the
proposed transaction does not require stockholder approval under
applicable Exchange rules and that the terms of the proposed
series of Preferred Stock do not violate Exchange rules with
respect to stockholder voting rights. GKM will be asked to issue
a fairness opinion that the proposed investment is fair to the
Company from a financial point of view.
The proposal is subject to substantial conditions, including
the satisfactory completion by the investor of its due diligence
and the negotiation and execution of a mutually satisfactory
definitive agreement. There can be no assurance that the
proposed transaction will be consummated or, if consummated, that
it will be on the terms and conditions described above, or as to
the timing or impact on the Company of consummating the proposed
transaction. In the event that the proposed transaction is not
consummated, there can be no assurance that the Company will
obtain the $6 million of additional financing required by the
December 6, 1996 amendment to its senior loan agreement or that
cash generated from operations will be sufficient to fund the
Company's continued operations. The failure to receive
additional financing may have a material adverse effect on the
Company's business, financial condition and results of
operations. This summary of the proposed transaction contains
various forward-looking statements and information that are based
on management's beliefs as well as assumptions made by and
information currently available to management. Such statements
are subject to various risks and uncertainties, including those
described in this paragraph and under the caption "Forward
Looking Information May Prove Inaccurate" below, which could
cause actual results to vary materially from those stated.
Reference is made to the press release filed as Exhibit 99 to
this Form 10-K, which press release is incorporated by reference
herein.
INDUSTRY
THE TOY INDUSTRY
According to the Toy Manufacturers of America, Inc. ("TMA"),
an industry trade group, total domestic shipments of toys,
excluding video games and accessories, were approximately $13.9
billion in 1996. According to the TMA, the United States is the
world's largest toy market, followed by Japan and Western Europe.
The Company estimates that the three largest U.S. toy companies
in 1996, Mattel, Inc. ("Mattel"), Hasbro, Inc. ("Hasbro") and
Tyco Toys, Inc. ("Tyco"), collectively were responsible for less
than half of total domestic toy shipments in 1996. In addition,
hundreds of smaller companies compete in the design and
development of new toys, the procurement of licenses, the
improvement and expansion of previously introduced products and
product lines and the marketing and distribution of toy products.
Many factors influence the success of a given toy or product
line including product design, play value, pricing, marketing,
in-store exposure and product availability. While the success of
some toy categories vary, other categories generally perform well
from year to year. The perennial best sellers, which form the
backbone of the toy business, are referred to as "core" or
"staple" toys. Products with relatively short life cycles are
referred to as "fad" or "promotional" items. Along with
providing opportunities for fun and learning, toys traditionally
mirror scientific progress, changes in social attitudes and
topical customs and values from the adult world. Many of the
toys which garner the most attention reflect the latest
technological advances, incorporate characters made popular in
other mediums or are innovative extensions of core products.
Toy production is a labor intensive process requiring
molding and shaping or cutting and sewing, coloring, painting or
detailing, assembling, inspecting, packaging and warehousing.
Management believes that the substantial majority of the toys
sold in the U.S. are manufactured, either in whole or in part,
overseas where labor rates are comparatively low. The largest
foreign producer markets are China and, to a lesser extent, other
countries in the Far East. Most foreign production is performed
by independent contractors which utilize tools, molds and designs
provided by U.S. toy companies and which manufacture products
under exclusive contracts. While foreign manufacturing
operations generally have relatively inexpensive labor costs,
such operations require greater lead times than domestic
manufacturing and also result in greater shipping costs,
particularly for larger toys. The design, production and sale of
toy products in the U.S. are subject to various regulations. See
"Business - Regulation."
Toy manufacturers sell their products either directly to
retailers or to wholesalers who carry the product lines of many
manufacturers. There are thousands of retail outlets in the
United States which sell toys and games. These outlets include:
small, independent toy stores; large toy specialty retailers;
general merchandise discount chains; department, drug and variety
stores; gift and novelty shops; price clubs and mail order
catalogues. Despite the broad number of toy outlets, retail toy
sales have become increasingly concentrated through a small
number of large chains, such as Toys "R" Us, Inc. ("Toys "R"
Us"), Wal-Mart Stores, Inc. ("Wal-Mart"), Kmart Corporation
("Kmart") and Target Stores, Inc., a division of Dayton-Hudson
Corp. ("Target"), which generally feature a large selection of
toys, some at discount prices, and seek to maintain lean
inventories to reduce their own inventory risk. This
concentration has tended to favor larger manufacturers which are
able to offer these retail chains broader product offerings,
higher levels of advertising and marketing support, and
consistent product support through electronic data interchange
and just-in-time delivery programs. The Company believes that
the leading toy retailers desire to have a greater number of toy
suppliers which offer a variety of quality, branded product lines
and which have the financial strength to support the retailers'
product distribution requirements.
While toys are sold year round, toy industry retail sales
are heavily weighted toward the fourth quarter when many toys are
purchased as holiday gifts. Each calendar year begins with a
major international toy fair held in Hong Kong in the first week
in January. This trade show is expanded and repeated in New York
in the middle of February. During the January/February period,
additional toy fairs are held in London, Paris, Milan, Nuremberg
and Valencia. The toy fairs allow manufacturers to display their
current lines and begin the process of generating purchase orders
for the important holiday season. Due to the seasonality and
long lead times required for foreign production, retailer buying
activity tends to significantly lead production and shipment.
Licensing is a major influence on the toy industry affecting
virtually all product categories. Licensing is the business of
leasing the right to use a legally protected name, graphic, logo,
saying or likeness in conjunction with a product, promotion or
service. Licensing is usually accomplished by a formal agreement
between the owner or agent of the licensed property (the
licensor) and the prospective licensee and typically defines the
limits of the license, the standards to be maintained and the
compensation (royalties) to be paid the licensee.
PLASTIC DECORATIVE HOLIDAY PRODUCTS INDUSTRY
Plastic decorative holiday products, such as Santa Clauses,
snowmen, pumpkins, and Easter baskets, and lighted home and lawn
decorative items, generally are sold through retail outlets
including mass merchants, home improvement chains and lawn and
garden chains. While the decorative holiday products industry is
generally highly fragmented with no dominant market leader, the
Company believes that it has a leading market position in several
of the product categories in which it participates.
PRODUCTS
The Company produces and sells over 300 items which are
grouped into four distinct product categories: Ride-ons, Outdoor
Activities and Games, Holiday Products and Girls and Boys Toys.
RIDE-ONS
Big Wheel(R), an internationally recognized branded product,
is a three-wheeled, pedal-driven ride-on targeted to appeal to
children seven and under and has been marketed in the United
States since 1970. Big Wheels(R) are manufactured in a variety
of sizes and designs. Power Drivers products are battery
operated ride-on vehicles that resemble off-road and domestic
passenger vehicles. These vehicles are targeted at children ages
1 1/2 through seven and are powered by D Cell or rechargeable
batteries. Power Drivers(TM) are designed for either one or two
passengers and travel at speeds ranging from one to five miles
per hour. Several models travel in both forward and reverse and
certain models are designed for multi-surface use - hard
surfaces, grass and small hills.
OUTDOOR ACTIVITIES
Snow Works(TM) winter products consist of plastic sleds,
toboggans, snowboards and saucers that come in a variety of
styles, sizes and colors. While considered toys, they are also
distributed in the traditional sporting goods market and are
targeted to the toddler to teen age groups. Water Works(TM)
spring and summer products include above ground pools, water
slides and smaller plastic wading pools targeted to toddlers
through adult groups and plastic sand boxes targeted to children.
Crocodile Mile(R) water slides, long plastic mats over which
water is run, are targeted to the five to teen age groups.
Seasonal toys also include spring and summer items such as T-ball
sets, junior golf sets, plastic slides and other outdoor plastic
toys. The product lines in this SBU generally favor domestic
production where the Company can take advantage of weather
conditions which stimulate reorder business.
HOLIDAY PRODUCTS
This family of highly decorated plastic products come in a
range of colors, styles and sizes for three major holidays:
Easter, Halloween and Christmas. These products include Easter
baskets and bunnies, Halloween pumpkin baskets, scarecrows and
ghosts, and Christmas nativity scenes, Santa Clauses, snowmen and
outdoor candles. Certain of these products are illuminated. In
1996, the Company introduced Light Toppers(R) brand Halloween and
Christmas decorations, an innovative new way to decorate walkways
and trees.
GIRLS AND BOYS TOYS
BOYS TOYS. Empire's boys toy lines consist of Buddy L(R)
vehicles, Buddy L(R) preschool products and Real Bugs(TM). Buddy
L(R) vehicles consist of a wide variety of plastic and metal
cars, trucks, airplanes and helicopters in multiple sizes
featuring electronic voice, lights, sounds and in some models
motorization. The Company recently introduced Record 'N Play, a
new Buddy L(R) vehicle category which enables young children to
record their own sound effects and rescue scenarios. In the
preschool category, the Company recently introduced an assortment
of Big Bruiser Adventure Playsets which combine vehicles pulling
trailers, drivers and animals. Real Bugs(TM) is a new line of
five items of toy bugs of various shapes, sizes and features
which contain replaceable simulated blood and guts fluid and are
designed to appeal to young boys.
GIRLS TOYS. Grand Champions(R) is a branded line of
collectible horses and accessories which includes realistically
sculpted and detailed horses. The Grand Champions(R) line has
been offered by the Company for nine years, and has grown through
introductions of new breeds, poses, colors, features and
packaging. The Feed N' Nuzzle(TM) collection features realistic
stallions, mares and foals that eat and nuzzle like live horses.
Fantasy Fillies(TM) is a line of colorful horses which were
introduced at the 1996 New York Toy Fair. Unicorn and Pegasus
Fantasy Fillies(TM) have long manes and tails while Star Prancers
have sparkling lights on their manes which can be activated by
pulling on their reins.
STRATEGIC BUSINESS UNITS
In order to exploit the available market opportunities in
each of the Company's four major product categories, the
Company's products are managed through two strategic business
units, each of which has a general manager accountable for its
discrete product lines. SBUs operate across functional lines
within the Company to facilitate the design, development,
marketing, and manufacturing of products within their SBUs. The
SBU manager is supported by a direct team of employees as well as
support services from other departments, including product
development, sales and manufacturing. Management believes that
the SBUs create a highly focused, entrepreneurial environment
within the Company, and enable each SBU to tailor its products
and services to the needs of major customers and to respond
quickly and efficiently to changes in the competitive
environment.
MARKETING AND SALES
TOYS
The Company's toy products are sold throughout the world,
with the United States representing approximately 86% of 1996
sales. The balance is sold primarily in Western Europe and South
America. In the United States, the Company's products are
distributed directly to large retailers, including independent
toy stores, toy specialty retailers, general merchandise chain
stores, department stores, gift and novelty shops and other
retail outlets and, to a lesser extent, to wholesalers who carry
the product lines of many manufacturers. In international
markets, the Company's Far East produced items are sold primarily
by Tyco Toys, Inc., pursuant to an agreement completed in
September 1996. International sales of the Company's domestic
products are made primarily through distributors and, to a lesser
extent, through direct sales to retailers.
Although the Company sells to over 1,000 accounts, the
Company's three largest customers accounted for an aggregate of
approximately 54% of its toy sales in 1996. Sales to Toys "R"
Us, Wal-Mart and Kmart accounted for 23%, 23% and 9% of toy
sales, respectively, in 1996; 23%, 15% and 13% of toy sales
respectively, in 1995; 18%, 17% and 11% of toy sales,
respectively, in 1994. Of the Company's 1996 consolidated sales,
including sales of holiday products, Toys "R" Us accounted for
18%, Wal-Mart accounted for 24% and Kmart accounted for 8% of
such sales. No other customer accounted for more than 10% of the
Company's consolidated sales in those years. The loss of, or
deterioration of the Company's relationship with, one or more of
the Company's largest customers would have a material adverse
effect on the Company's business, financial condition and results
of operations.
In general, the Company's major customers review its product
lines and product concepts for the upcoming year at showings
beginning in January and February. By the end of June, the
Company has historically received orders or order indications for
a substantial majority of its full year's toy business. As is
customary in the toy industry, these orders generally may be
canceled without penalty at any time prior to shipment.
Historically, the greatest proportion of shipments of products to
retailers occurs during the third and fourth quarters of each
year.
The Company markets its toys principally through a full-time
sales and marketing staff that covers most of the United States.
In addition, the Company uses several independent sales
organizations to serve selected customers or territories. The
Company maintains sales offices and showrooms in New York City
and Hong Kong for its toy products, as well as a Hong Kong office
to oversee the sourcing of foreign production.
Historically, the Company's principal mode of advertising
has been cooperative advertising. Starting in 1995, the Company
selectively expanded its marketing budget to include television
advertising, which generally focuses on the promotion of
individual products, such as the Big Wheelie(TM), Real Bugs(TM)
and Super Crocodile Mile(TM), which reinforce and strengthen core
product lines.
HOLIDAY PRODUCTS
The Company markets its holiday items through an in-house
sales force of full-time salaried employees and approximately 10
independent sales organizations. Senior sales management
supervises an independent sales network, with management
controlling the largest accounts as house accounts. The Company
maintains sales offices and showrooms in New York City for its
holiday products along with its toy business. Holiday products
are sold to a national market of large retail store chains and to
numerous other customers, including wholesalers, distributors and
retailers. The Company's marketing strategy also reflects
changes in the retailing industry which have created significant
new channels of distribution for decorative holiday products,
such as home improvement and lawn and garden chains.
Wal-Mart, Target and Menard, Inc. accounted for
approximately 31%, 14% and 10%, respectively, of the Company's
holiday product sales in 1996. No other holiday product customer
accounted for more than 10% of the Company's total holiday sales
in 1996. The loss of any of these major customers could have a
material adverse effect on the Company's holiday product sales
and on the Company as a whole.
The Company advertises its holiday items through cooperative
advertising allowances to its customers. Management believes
that because the Company produces primarily staple products that
have achieved market acceptance, it has been able to keep its
advertising costs as percentage of holiday products sales low.
NEW PRODUCT DEVELOPMENT AND LICENSING
Through its product design and development group, the
Company regularly refreshes, redesigns and extends existing
product lines and develops new product lines. Product design and
development are principally conducted by a group of professional
designers and engineers employed by the Company. The Company
will also enter into licensing agreements to utilize the name,
character or product of a licensor in its product line. The
Company generally focuses on a licensing agreement as an
extension of one of its core product categories. Management
recognizes the importance of licensing and continues to
conservatively participate in this marketing strategy. The
Company's current licenses include certain rights to Harley-
Davidson(R), Disney(R) characters, Chevrolet(R), Chrysler/Jeep(R)
and Goodyear(R) trademarks.
The Company devotes substantial resources to product design
and development. During the year ended December 31, 1996 the
Company spent approximately $3.2 million in connection with the
design and development of products, exclusive of royalty
payments, as compared to approximately $3 million during 1995 and
approximately $1.1 million during 1994. The timing and extent of
future research and development expenditures will depend to a
significant extent upon the availability of additional capital
resources and the Company's business strategy. See "Recent
Developments."
Recent efforts have focused the product design group on
developing items to be sourced in the Far East, such as Real
Bugs(TM) and the 101 Dalmatians Sprinkler, and are intended to
improve the Company's profit margins and decrease new
introductions to the Tarboro facility until existing operations
are fully integrated and functioning satisfactorily. Before
tools, dies and molds for new products are produced, the Company
generally prepares mock-ups of such products for exhibition to
its customers. The decision to include a new product and to
build or have built the necessary tools, dies and molds generally
requires preliminary acceptance of the new product by major
customers. With respect to new product introductions, the
Company's strategy is to begin production on a limited basis
until a product's initial success has been proven in the
marketplace. The production schedule is then modified to meet
demand.
The Company uses licenses with third parties to permit the
Company to manufacture and market toys based on properties which
have developed their own popular identity, often through exposure
in various media such as television programs, movies and
cartoons. The Company focuses on licensing agreements to extend
its core product categories. Management recognizes the
importance of licensing and continues to conservatively
participate in this marketing strategy. No license involved more
than 5% of the Company s toy sales in 1996.
The Company makes selective use of independent toy designers
and developers, who bring products to the Company and are
generally paid a royalty on the net selling price of any products
licensed by the Company. These independent toy designers may
also create different products for other toy companies. Sales of
products developed by outside inventors were approximately 17% of
toy sales and 14% of consolidated sales in 1996.
MANUFACTURING
The Company has substantial domestic manufacturing and
international sourcing capabilities. Approximately 72% of the
Company's consolidated net sales in 1996 were attributable to
products manufactured in the United States. In contrast, the
products of many toy companies are principally manufactured by
third parties in the Far East. The Company also has considerable
experience in sourcing products through the Far East, which has
enabled the Company to develop extensive contacts and expertise
in dealing with foreign sources of production. The Company
evaluates a number of factors when determining whether to
manufacture domestically or source through the Far East,
including the available lead time and shipping and labor costs.
DOMESTIC
The Company believes that its 1.2 million square foot
manufacturing facility in Tarboro, North Carolina is one of the
largest plastic toy manufacturing facilities in the United
States, and offers a broad array of manufacturing capabilities,
including extrusion, vacuum, blow and injection plastic molding
processes, as well as assembly, sealing and warehousing
operations. The Company has concentrated production of its
domestically manufactured products in the Tarboro facility.
In February 1997, the Company terminated its month-to-month
lease on a factory and warehouse facility located in
Gloversville, New York where some of the Buddy L(R) products were
manufactured. The Company had previously decided not to acquire
the Gloversville facility in connection with the Buddy L
acquisition and instead decided to integrate certain Buddy L
production equipment into the Tarboro facility.
The Company expects the machinery and equipment at its
Tarboro facility to have a relatively high level of capacity
utilization during peak production periods. However, such
facility will continue to have substantial additional capacity
during non-peak production periods, which may be used to reduce
demand during peak periods. The Company's ongoing long-term
capital investment program for the Tarboro facility includes the
purchase of new equipment, the reconditioning and refurbishing of
machines and tools, and the rearrangement of production flows in
order to optimize worker efficiency and plant capacity. The
Company invested approximately $4.2 million in the Tarboro
facility in 1996. Management believes these steps will
ultimately yield additional manufacturing efficiencies and cost
savings. However, recoupment of the Company's expenditures on
this modernization program will require more than one year, and
no assurance can be given as to the timing of or the Company's
ability to achieve any level of utilization or increased
productivity. The timing and extent of any future investments in
the Tarboro facility will depend to a significant extent upon the
availability of additional capital resources and the Company's
business strategy. See "Recent Developments."
The Company bases its production schedules on customer
orders, historical trends, the results of market research and
current market information. The actual shipments of products
ordered and the order cancellation rate are affected by consumer
acceptance of the product line, the strengths of competing
products, marketing strategies of retailers and overall economic
conditions. Unexpected changes in these factors can result in a
lack of product availability or excess inventory in a particular
product line. Accordingly, the Company closely monitors market
activity and adjusts production schedules accordingly.
The Company manufactures its products chiefly from plastic
resins. The Company purchases certain plastic and non-plastic
component parts and accessories from various sources, including
several located in Asia. Products are assembled, painted,
decorated and packaged at the Company's facilities and stored
there for shipment.
FOREIGN
The Company sources products from various manufacturers in
the Far East through its facilities in Hong Kong. Approximately
40 manufacturers are utilized for this purpose, with over 98% of
this production taking place in China. The Company' owns most of
the tooling used in manufacturing its toys. Items sourced by the
Company in the Far East generally are sold under letters of
credit to U.S. and international customers. However,
approximately 22% of the Company's foreign production (based on
cost) is sold in inter-company transactions to Empire in the
United States which in turn sells it to U.S. customers.
The inability to obtain its products from foreign
manufacturers because of trade restrictions, work stoppages or
otherwise, or a material rise in tariffs, could have a material
adverse effect upon the Company's business, financial condition
and results of operations.
RAW MATERIALS
The basic raw materials used by the Company are
petrochemical resin derivatives such as high density polyethylene
and high impact polystyrene. Petrochemical plastic resin
derivatives were the single largest raw material component in
cost of goods sold in 1996. Costs of petrochemical derivatives
are affected by demand and supply as well as the value of the
United States dollar in relation to foreign currencies, and have
been subject to volatility in recent years. There can be no
assurance as to the timing or extent to which the Company will be
able to pass on any raw material price increases to its
customers. Due to the time lag between the purchase of raw
materials and the sale of finished goods, results of operations
may be only partially affected in the period in which such prices
change. The Company does not enter into any hedging or similar
transactions with respect to its raw materials.
In 1996, the Company obtained approximately 54% of its
petrochemical derivatives from two major domestic chemical
companies and the balance from several other sources. The
Company generally does not have long-term supply contracts. The
Company believes that an adequate supply of petrochemical
derivatives is available from existing and alternate suppliers.
There can be no assurance, however, that there will not be
disruptions in the availability of such supply. The other
materials necessary to the various aspects of the Company's
business are generally available in the marketplace from numerous
suppliers.
COMPETITION
The toy industry is highly competitive, with competition
based primarily on product design, promotion, price, quality and
play value. In recent years, the toy industry has experienced
rapid consolidation driven, in part, by the desire of industry
competitors to offer a range of products across a broader variety
of categories. The Company competes with several larger toy
companies, such as Mattel, Hasbro and Tyco, and many smaller
companies in the design and development of new toys, the
procurement of licenses, the improvement and expansion of
previously introduced products and product lines and the
marketing and distribution of its product. The larger toy
companies, which generally have greater financial resources than
the Company, have generally pursued a strategy of focusing on
core product lines. Core product lines are those lines which are
expected to be marketed for an extended period of time, and which
historically have provided relatively consistent growth in sales
and profitability. By focusing on core product lines, such toy
manufacturers have been able to reduce their reliance on new
product introductions and the associated risk and volatility.
The Company also competes with various foreign toy manufacturers
and marketers. Toy manufacturers such as the Company also
compete with recreational products and services that are
alternatives or substitutes for toys, including video games and
computer software entertainment products. It is common in the
toy industry for companies to market products which are similar
to products being successfully marketed by competitors. Further,
the introduction of new products and product lines by the Company
makes its operations susceptible to the risks associated with new
products, such as production, distribution and quality control
problems and the need to gain customer acceptance.
The sale of holiday products is also competitive. The
primary competitive factors in the sale of holiday products are
price, design and product quality. The decorative holiday
products industry is generally highly fragmented with no dominant
market leader. However, the Company believes that it has a
leading market position in several of the product categories in
which it participates and the Company is not aware of any other
major manufacturer with a significant market share in most of the
product categories in which the Company participates.
REGULATION
The Company's toys are subject to the provisions of the
Consumer Product Safety Act, the Federal Hazardous Substances Act
(including the Federal Child Protection and Toy Safety Act of
1969) and the Flammable Fabrics Act, and the regulations
promulgated thereunder. The Consumer Product Safety Act and the
Federal Hazardous Substances Act enable the Consumer Product
Safety Commission ("CPSC") to exclude from the market consumer
products that fail to comply with applicable product safety
regulations or otherwise create a substantial risk of injury, and
articles that contain excessive amounts of a banned hazardous
substance. The Flammable Fabrics Act enables the CPSC to
regulate and enforce flammability standards for fabrics used in
consumer products.
In addition, the Company may be required to give public
notice of any hazardous or defective products and to repair,
replace or repurchase any such products previously sold. The
Company is also required to report to the CPSC any information
which reasonably supports the conclusion that any of its products
may be defective or entail a substantial risk of injury to the
public. The Company is also subject to various state, local and
foreign laws designed to protect children from hazardous or
potentially hazardous products. If any of the Company s products
materially contributing to its dollar volume of sales were found
to be hazardous to the public health and safety or to contain a
defect which created a risk of injury to the public, it could
have a material adverse effect on the Company's business,
financial condition and results of operations.
The CPSC has recently requested that the Company
provide it with information regarding specified products. The
Company does not believe that these products are defective, or
that any repair, replacement or repurchase will be required. If,
however, products contributing materially to the Company s dollar
volume of sales were to require repair, replacement or
repurchase, the Company s business, financial condition and
results of operations could be materially adversely affected.
The Company maintains a quality control program to comply
with the various federal, state, local and international product
safety requirements, as well as to maintain appropriate quality
and reliability standards of its products.
The Company uses paint and other raw materials classified as
hazardous substances and generates waste in the manufacture of
its products. The Company is subject to federal and state
regulations in the emission, storage and disposal of such
materials.
TRADEMARKS AND PATENTS
The Company believes that selective use of patent, copyright
and trademark protection is significant in protecting the
Company's rights in its products and establishing product
recognition. The Company has registered more than 60 trademarks
in the U.S., including Big Wheel(R), Crocodile Mile(R), Zig Zag
Zoom(R), Grand Champions(R), Power Drivers(R) and Buddy L(R), and
owns approximately 30 U.S. patents, including several relating to
features of its Crocodile Mile(R) water slides. Other U.S.
trademark and patent applications are pending. The Company has
also sought and obtained trademark protection with respect to
certain of its product lines in selected countries outside of the
United States in which such products are sold.
EMPLOYEES
At January 20, 1997, the Company had approximately 600
employees in the United States approximately 100 of whom were
salaried, and approximately 40 employees in Hong Kong and China.
This represents a significant reduction in both full-time and
temporary employees from December 1996 levels reflecting the
seasonality of the Company's business and a reduction in the
Company's permanent work force. If required by the Company's
future operations, the Company believes it could supplement its
work force through the recall of hourly production employees and
the hiring of temporary employees. Two employees of the Company
who work in the Company's button, buckle and novelty item
business are covered by a collective bargaining agreement which
expires on September 30, 1997. The Company is seeking to effect
a sale of such button, buckle and novelty item business. There
can be no assurance as to the timing, terms or consummation of
any such sale transaction. The Company generally considers its
employee relations to be good.
OTHER
The Company also manufactures and sells apparel buttons,
buckles and novelty items for use in the garment industry. While
the Company is seeking to effect a sale of such button, buckle
and novelty item business, there can be no assurance as to the
timing, terms or consummation of any such sale transaction.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Annual Report contains various forward-looking
statements and information, including under the caption "Recent
Developments," that are based on management's beliefs as well as
assumptions made by and information currently available to
management, including statements regarding future economic
performance and financial condition, liquidity and capital
resources and management's plans and objectives. When used in
this document, the words "expect," "anticipate," "estimate,"
"believe," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to
various risks and uncertainties which could cause actual results
to vary materially from those stated. Should one or more of
these risks or uncertainties materialize or should underlying
assumptions prove incorrect actual results may vary materially
from those anticipated, estimated, expected or projected. Such
risks and uncertainties include the Company's ability to close
the proposed transaction described above under "Recent
Developments," manage inventory production and costs, to meet
potential increases or decreases in demand, potential adverse
customer impact due to delivery delays including effects on
existing and future orders, competitive practices in the toy and
decorative holiday products industries, changing consumer
preferences and risks associated with consumer acceptance of new
product introductions, potential increases in raw material
prices, potential delays or production problems associated with
foreign sourcing of production and the impact of pricing policies
including providing discounts and allowances, reliance on key
customers, the seasonality of the Company's business, the ability
of the Company to meet existing financial obligations in the
event of adverse industry or other developments, and the
Company's ability to obtain additional capital to fund future
commitments and operations. Certain of these as well as other
risks and uncertainties are described in more detail in the
Company's Registration Statement on Form S-1 filed under the
Securities Act of 1933, Registration No. 333-4440. The Company
undertakes no obligation to update any such factors or to
publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future
events or developments.
ITEM 2. PROPERTIES.
<TABLE>
<CAPTION>
BUSINESS GENERAL CHARACTER
LOCATION USING PREMISES AND USE OF PROPERTY
-------- -------------- -------------------
<S> <C> <C>
OWNED:<F1>
Tarboro, NC Toy & Holiday 1,200,000 sq. ft. of
Business factory, warehouse
and office space
Tarboro, NC Toy Business/ 24,000 sq. ft. of
Button factory space
LEASED:
Gloversville, NY<F5> Toy Business 636,000 sq. ft. of
warehouse and factory
space
New York, NY Toy & Holiday 29,000 sq. ft. of
Business showroom space<F4>
Delray Beach, FL Executive Offices 16,000 sq. ft. office
space
Hong Kong Toy Business 2,600 sq. ft. office
space
Hong Kong Toy Business 1,200 sq. ft.
showroom
Hong Kong Toy Business Warehouse space
New York, NY <F3> 3,500 sq. ft.
showroom
New York, NY Toy Business/ 3,000 sq. ft. sales
Buttons and distribution
facility
St. Louis, MO <F2> 100,000 sq. ft.
warehouse space
<FN>
<F1>
The real property owned by the Company is subject to liens in
favor of its senior lenders.
<F2>
Marchon leased this property from an affiliate of a director.
This facility has not been occupied by the Company since Marchon
moved operations to the main Tarboro plant in the first quarter
of 1995. There is currently a dispute between the Company and
the landlord regarding the lease and there can be no assurance
that the Company will not be obligated for the lease payments.
<F3>
This location is vacant.
<F4>
Approximately 11,000 square feet of the location is sub-leased.
<F5>
The lease on this location was terminated in February 1997.
</FN>
</TABLE>
In the opinion of management, the Company's various
properties used in operations are generally in good condition and
adequate for the purposes for which they are utilized.
ITEM 3. LEGAL PROCEEDINGS.
INTELLECTUAL PROPERTY LITIGATION. George Delaney and
Rehkemper I.D., Inc. v. Marchon, Inc., is an action pending in
the Circuit Court of Cook County, Illinois, which was commenced
on December 3, 1990, arising from a business arrangement between
the plaintiffs and Marchon, alleging an interest in one of
Marchon's products. On November 22, 1991, the trial court judge
issued an opinion and dismissed plaintiff's complaint with
prejudice. Plaintiffs appealed and, on September 23, 1993, the
Appellate Court reversed the dismissal and remanded the case for
further proceedings. The plaintiffs have received permission
from the court to file an amended complaint against the Company.
Although the Company believes it has meritorious defenses against
the complaint when filed, the Company is unable at this time to
determine the extent of its financial exposure.
On August 4, 1992, a patent infringement action was filed
against Marchon and Toys "R" Us, entitled Dennis Merino v.
Marchon, Inc. Damages were originally determined by the jury to
be $175,802. Subsequently, the Court overturned the jury verdict
in part. The Court then entered an amended judgment, which
included prejudgment interest in the amount of $33,472; damages
in the amount of $112,956; Merino's expenses, which were
eventually found to be $39,336; and an injunction against the
manufacture, use or sale in the United States of Marchon s Surf
City and Super Surf Slide Waterslides or any waterslides merely
colorably different therefrom, by Marchon and Toys "R" Us. On
June 3, 1994, Merino filed a Notice of Appeal on the issues of
whether Marchon's Crocodile Mile(R) and Super Crocodile Mile(R)
waterslides infringe plaintiff s patent. On June 17, 1994,
Marchon cross-appealed on the issues of invalidity, patent non-
use, non-infringement of the Surf City and Super Surf Slide
waterslides and the scope of the injunction. On August 5, 1994,
the court entered an order granting Marchon a stay of enforcement
of the judgment pending appeal. Empire's present and past
Crocodile Mile(R) waterslides were found non-infringing, and the
two products alleged to be infringing are no longer marketed.
On January 16, 1996, the U.S. Court of Appeals affirmed the lower
court's finding. In August 1996, the Company paid Merino
$198,767 in full satisfaction of the amended judgment.
ENVIRONMENTAL MATTERS. CLR Corporation ("CLR"), a 75%-owned
subsidiary of the Company, is alleged by the EPA to be
responsible for disposal activities of two former subsidiaries at
two Superfund sites, located in Southington, Connecticut and
Bennington, Vermont. CLR is among numerous potentially
responsible parties identified by the EPA in connection with each
site. The Company intends to vigorously contest each of these
matters.
On or about May 28, 1996, a complaint was filed in the
United States District Court for the Middle District of
Pennsylvania in a Superfund lawsuit captioned United States of
America v. Keystone Sanitation Company, Inc., et al., and naming
as a third-party defendant, among 178 others, Empire of Carolina,
Inc., as a successor to or d/b/a or f/d/b/a Isaly Klondike
Company. The complaint also names the Hanover Klondike Company
(a predecessor by merger to Isaly Klondike), Isaly Klondike and
Good Humor Corporation (as a successor to Isaly Klondike). This
Superfund suit seeks recovery of clean-up costs associated with
the Keystone Sanitation site in Pennsylvania. The Isaly Klondike
Company is alleged to have sent materials to the site. Isaly
Klondike and Empire sold certain assets to an affiliate or
subsidiary of Good Humor Corporation in 1993. The complaint
seeks relief under CERCLA and its Pennsylvania state equivalent,
the Pennsylvania Hazardous Site Clean-Up Act, claiming that all
of the third-party defendants are liable directly as potentially
responsible parties and/or in contribution for the costs incurred
by the third-party plaintiffs in investigation and cleaning up
the Keystone Site. The Company intends to vigorously contest
this matter.
The Company may be subject to various other potential
environmental claims by the EPA and state environmental
regulatory authorities with respect to other sites. Other than
the Keystone Sanitation matter, neither the EPA nor any state
environmental regulatory authorities have initiated or threatened
litigation regarding any of these sites to date. 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, 1996, the Company had reserves for
environmental liabilities of approximately $500,000. Estimates
of costs of 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 business,
financial position and results of operations, a reasonably
possible range of such amounts cannot presently be estimated.
PRODUCT LIABILITY MATTERS. Due to the nature of its
business, the Company at any particular time is a defendant in a
number of product liability lawsuits involving personal injury
allegedly related to the Company's products. Many of these
claims allege damages for injuries suffered from the use of the
Company s products. Typical product liability claims might
include allegations of failure to warn, design defects or defects
in the manufacturing process. While the Company maintains
product liability insurance, no assurance can be given that such
insurance will cover all such product liability claims, that an
insurer will seek to deny or limit coverage or that an insurer
will be solvent at the time of any covered loss. Further, there
can be no assurance that the Company will be able to obtain
insurance coverage at acceptable levels, costs and coverages in
the future. Successful assertion against the Company of one or a
series of large uninsured claims, or of one or a series of claims
exceeding any insurance coverage, could have a material adverse
effect on the Company's business, financial condition and results
of operations. It is also likely that, due to deductible and
self-retention levels under the Company's insurance policies, the
assertion in any given year of a large number of claims against
the Company could have a similar effect on the Company.
TAX MATTERS. On November 13, 1996, the Internal Revenue
Service ("IRS") issued the Company a notice of an asserted income
tax deficiency in the amount of $1.3 million. The alleged
deficiency relates to the taxable year ended December 31, 1993
and involves the disallowance of deductions for officers'
compensation, country club dues and a state intangible tax paid
by Empire on behalf of two former officers. The Company filed a
petition in U.S. Tax Court on February 7, 1997 asking for a
redetermination of the asserted deficiency. After the IRS files
its answer in the case, the case will be forwarded to the Appeals
division of the IRS. Although the Company intends to vigorously
contest the proposed tax deficiency, it is not possible to
determine the outcome of this dispute at this time.
CERTAIN OTHER MATTERS. Marvin Smollar, a director of the
Company, is the defendant in a separate suit filed by the Company
in January 1997 which seeks to enforce a certain guarantee by Mr.
Smollar of debt owed to the Company by 555 Corporate Woods
Parkway, Inc. Mr. Smollar has denied the allegations in the
Company's complaint. On February 24, 1997, Mr. Smollar commenced
an action in the Circuit Court of Palm Beach County, Florida
captioned Marvin Smollar v. Empire of Carolina, Inc. claiming (a)
breach of his employment agreement, (b) breach of a Marchon
phantom stock plan agreement and (c) breach of an oral agreement
to pay relocation expenses, and seeking injunctive relief
enjoining the Executive Committee of the Board of Directors from
taking certain actions. Mr. Smollar's claims arise in part from
his termination as President and Chief Operating Officer of the
Company in January 1997. The complaint seeks unspecified damages
in excess of $1 million in respect of his employment agreement,
certain amounts alleged to be owed by reason of such stock plan
and relocation expenses, and an injunction prohibiting the
Company from utilizing the Executive Committee in certain
circumstances. The Company has not yet filed its response to
such complaint. The Company believes that it has meritorious
defenses against Mr. Smollar's claims and intends to contest such
allegations.
ROUTINE MATTERS. In addition, the Company is involved from
time to time in routine litigation incidental to its business.
Although no assurance can be given as to the outcome or expense
associated with any of these routine proceedings, the Company
believes that none of such proceedings, either individually or in
the aggregate, will have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
<TABLE>
The common stock of the Company, par value $.10 per share
("Common Stock"), is listed on the American Stock Exchange under
the symbol EMP. The following table sets forth, for the fiscal
quarters indicated, the high and low sale prices for the Common
Stock on the American Stock Exchange.
<CAPTION>
Quarter 1996 1995
------- ------------------- ------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st $12.25 $ 6.88 $12.88 $6.50
2nd 15.00 11.88 12.13 8.50
3rd 12.13 3.56 11.50 7.88
4th 6.81 3.75 9.75 6.00
</TABLE>
As of March 14, 1997, the number of holders of record of
Common Stock was approximately 2,000.
The Company has not paid any cash dividends since 1990 and
does not anticipate paying cash dividends in the foreseeable
future. The Company's current policy is to retain earnings to
provide funds for the operation and expansion of its business and
for the repayment of indebtedness. Any determination in the
future to pay dividends will depend upon the Company's financial
condition, capital requirements, results of operations and other
factors deemed relevant by the Company's Board of Directors,
including any contractual or statutory restrictions on the
Company's ability to pay dividends. The Company's bank facility
does not restrict the payment of dividends by the Company;
however, that agreement limits the dividends which Empire
Industries, Inc. ("EII"), the Company's principal operating
subsidiary, may pay to the Company. Under the bank facility, EII
may not pay dividends to the Company in excess of the lesser of
$3.6 million or 30% of EII's cumulative net income (except for
certain items specifically permitted for purposes other than the
payment of dividends by the Company, such as the payment of
taxes). Such restrictions could limit the funds available for
the payment of dividends by the Company.
ITEM 6. SELECTED FINANCIAL DATA.
Information with respect to this item will be included in an
amendment to this Annual Report on Form 10-K filed with the
Commission no later than April 15, 1997 in accordance with Rule
12b-25 under the Securities Exchange Act of 1934, as amended.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information with respect to this item will be included in an
amendment to this Annual Report on Form 10-K filed with the
Commission no later than April 15, 1997 in accordance with Rule
12b-25 under the Securities Exchange Act of 1934, as amended.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this item will be included in an
amendment to this Annual Report on Form 10-K filed with the
Commission no later than April 15, 1997 in accordance with Rule
12b-25 under the Securities Exchange Act of 1934, as amended.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
* * *
The information with respect to Items 6, 7 and 8 (including
related exhibits and schedules) of Part II of this Annual Report
on Form 10-K are the subject of a Form 12b-25 dated March 31,
1996 filed by the Company with the Commission, which filing is
hereby incorporated by reference. The information set forth
herein should be read in conjunction with the financial and other
information responsive to Items 6 through 8 (including related
exhibits and schedules) of Form 10-K, which the Company has
undertaken to file with the Commission as soon as reasonably
practicable and no later than April 15, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to this item will be set forth or
incorporated by reference in an amendment to this Annual Report
on Form 10-K filed with the Commission no later than April 30,
1997.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to this item will be set forth or
incorporated by reference in an amendment to this Annual Report
on Form 10-K filed with the Commission no later than April 30,
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to this item will be set forth or
incorporated by reference in an amendment to this Annual Report
on Form 10-K filed with the Commission no later than April 30,
1997.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS.
Information with respect to this item will be set forth or
incorporated by reference in an amendment to this Annual Report
on Form 10-K filed with the Commission no later than April 30,
1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 10-K.
(a) Documents filed as a part of this Report.
(1) Financial Statements. Information with respect to this
item will be included in an amendment to this Annual
Report on Form 10-K filed with the Commission no later
than April 15, 1997 in accordance with Rule 12b-25
under the Securities Exchange Act of 1934, as amended.
(2) Financial Statement Schedules. Information with
respect to this item will be included in an amendment
to this Annual Report on Form 10-K filed with the
Commission no later than April 15, 1997 in accordance
with Rule 12b-25 under the Securities Exchange Act of
1934, as amended.
(3) Exhibits filed as part of this Report:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated July 29, 1988, by and
among Clabir, Clabir Corporation (California), HMW
Industries, Inc. and Olin Corporation.<F2>
2.2 Agreement and Plan of Merger, dated as of November 14,
1989, between AmBrit, Inc. ("AmBrit") and Empire of
Carolina, Inc. (the "Company"), including amendment
thereto, dated as of December 4, 1989.<F3>
2.3 Agreement and Plan of Merger, dated as of November 14,
1989, by and among the Company, Clabir Corporation
("Clabir") and CLR Corporation, including amendment
thereto, dated as of December 4, 1989.<F3>
2.4 Sale and Purchase Agreement between the Company and
Cargill, Incorporated, dated September 30, 1992.<F5>
2.5 Purchase Agreement among Conopco, Inc., the Company,
The Isaly Klondike Company, Inc., The Isaly Company,
Popsicle Industries, Ltd., Ice Cream Novelties, Inc.
and Smith & O'Flaherty Limited, dated as of January 27,
1993.<F7>
2.6 Agreement and Plan of Reorganization, dated October 13,
1994, by and among the Company, Marchon, Inc.
("Marchon") and the stockholders of Marchon.<F9>
2.7 Amended and Restated Asset Purchase Agreement (the
"Asset Purchase Agreement") dated as of May 19, 1995 by
and among the Company, Buddy L Inc., Debtor-in-
Possession ("Buddy L") and Buddy L (Hong Kong) Limited
("BLHK").<F14>
2.8 Agreement dated June 2, 1995 amending the Asset
Purchase Agreement, by and among the Company and Buddy
L and acknowledged and agreed to by BLHK.<F4>
2.9 Second Amendment dated June 30, 1995 further amending
the Asset Purchase Agreement.<F4>
2.10 Third Amendment dated July 7, 1995 further amending the
Asset Purchase Agreement.<F4>
2.11 Agreement dated August 31, 1995, among the Company, CLR
Corporation, Clabir Corporation, Olin Corporation and
General Defense Corporation.<F16>
3.1 Restated Certificate of Incorporation of the
Company.<F4>
3.2 First Amendment to Restated Certificate of
Incorporation of the Company.
3.3 Amended and Restated By-Laws of the Company.<F13>
3.4 Certificate of Designation of the Series B Junior
Participating Preferred Stock <F18>
4.1 Form of specimen certificate representing the Company's
Common Stock.<F1>
4.2 Excerpts from the Company s amended By-Laws and the
Company's Restated Certificate of Incorporation
relating to rights of holders of the Company s Common
Stock.<F4>
4.3 Form of 9% Convertible Debentures, issued December 22,
1994.<F12>
4.4 Form of Warrant Certificate of purchase common stock of
the Company, issued December 22, 1994.<F10>
4.5 Rights Agreement, dated as of September 11, 1996,
between Empire of Carolina, Inc. and American Stock
Transfer & Trust Company as Rights Agent, which
includes (i) as Exhibit A thereto the form of
Certificate of Designation of the Series B Junior
Participating Preferred Stock, (ii) as Exhibit B
thereto the form of Right certificate (separate
certificates for the Rights will not be issued until
after the Distribution Date) and (iii) as Exhibit C
thereto the Summary of Stockholder Rights
Agreement.<F18>
9.1 Voting Agreement, dated September 30, 1994, by and
between Halco Industries, Inc. ("Halco") and Steven
Geller.<F9>
10.1 Empire Industries, Inc. ("EII") Incentive Plan for
1993. <F6>
10.2 Corporate Incentive Plan for 1993.<F6>
10.3 Stock Option Agreement, dated July 15, 1994, between
Steven Geller and the Halperin Group.<F9>
10.4 Stock Option Agreement, dated July 18, 1994, between
the Company and Steven Geller.<F8>
10.5 Stock Option Agreement, dated July 18, 1994, between
the Company and Neil Saul.<F8>
10.6 Amended and Restated 1994 Stock Option Plan of the
Company.<F13>
10.7 Empire of Carolina, Inc. 1996 Outside Directors Stock
Option Plan.<F19>
10.8 Empire of Carolina, Inc. 1996 Employee Stock Purchase
Plan.<F19>
10.9 Employment Agreement, dated July 15, 1994, by and among
the Company, EII and Steven Geller.<F8>
10.10 Employment Agreement, dated July 15, 1994, by and among
the Company, EII and Neil Saul.<F8>
10.11 Employment Agreement, dated October 13, 1994, between
the Company and Marvin Smollar.<F9>
10.12 Settlement and Termination Agreement with Neil
Saul.<F16>
10.13 Stock Purchase Agreement, dated July 15, 1994, among
Steven Geller, Maurice A. Halperin, individually and as
custodian for the benefit of Lauren Halperin and
Heather Halperin, Carol A. Minkin, individually and as
custodian for the benefit of Joshua Minkin and Rebecca
Minkin, and Halco (the Halperins and Minkins,
collectively, the "Halperin Group").<F9>
10.14 Redemption Agreement, dated September 30, 1994, between
the Company and the Halperin Group.<F12>
10.15 Omnibus Agreement, dated September 30, 1994, by and
among the Halperin Group, Steven Geller, the Company
and EII.<F9>
10.16 Stockholders' Agreement, dated October 13, 1994, by and
among Steven Geller, Marvin Smollar and Neil Saul.<F9>
10.17 Investor s Rights Agreement, dated October 13, 1994, by
and among the Company, Marvin Smollar, Kar Ye Yeung,
Tyler Bulkley and Harvey Katz.<F9>
10.18 Stockholders' Agreement dated October 13, 1994, among
Steven Geller, Marvin Smollar and Neil Saul.<F9>
10.19 Debenture Purchase Agreement, dated as of December 2,
1994, among the Company, WPG Corporate Development
Associates IV (Overseas), Ltd., Westpool Investment
Trust PLC, Glenbrook Partners, L.P., Eugene Matalene,
Jr., Richard Hockman, Weiss, Peck & Greer, as Trustee
under Nora E. Kerppola IRA, Peter B. Pfister and Weiss,
Peck & Greer, as Trustee under Craig S. Whiting IRA and
WPG Corporate Development Associates IV, L.P. (all of
such parties, other than the Company, collectively, the
"WPG Group").<F11>
10.20 Registration Rights Agreement, dated as of December 22,
1994, by and between the Company and the WPG
Group.<F11>
10.21 Shareholders' Agreement, dated December 22, 1994, by
and among the WPG Group, Steven Geller, Neil Saul,
Marvin Smollar and Champ Enterprises Limited
Partnership.<F11>
10.22 Stock Purchase Agreement, dated as of December 22,
1994, between WPG Corporate Development Associates IV
(Overseas), Ltd. and Steven Geller.<F11>
10.23 Asset Purchase Agreement, dated as of March 3, 1995, by
and among the Company, Buddy L Inc. and Buddy L (Hong
Kong) Limited.<F12>
10.24 Bid Protection Agreement, dated as of March 3, 1995,
between the Company and Buddy L Inc.<F12>
10.25 Assignment and Assumption Agreement dated as of June
21, 1995 between the Company and EAC.<F4>
10.26 Assignment dated as of May 22, 1995 between the Company
and Carnichi Limited.<F4>
10.27 Lease dated July 7, 1995 between Buddy L and EAC.<F4>
10.28 Access Agreement dated as of July 7, 1995 between Buddy
L, BLHK, SLM, and Buddy L Canada Inc., and EAC.<F4>
10.29 Assignment and Assumption of Lease dated as of July 7,
1995 between Buddy L and EAC.<F4>
10.30 Form of Subscription Agreement executed in connection
with subscription of Common Stock and Preferred Stock
by WPG Corporate Development Associates IV (Overseas),
L.P., Westpool Investment Trust PLC, Glenbrook
Partners, L.P., and WPG Corporate Development
Associates IV, L.P.<F4>
10.31 Shareholders' agreement ("Shareholders' Agreement")
dated December 22, 1994 among WPG Corporate Development
Associates IV, L.P., WPG Corporate Development
Associates IV (Overseas), Ltd., Weiss, Peck & Greer, as
Trustee of Craig S. Whiting IRA, Peter Pfister, Weiss,
Peck & Greer, as Trustee of Nora E. Kerppola IRA
Westpool Investment Trust, PLC, Glenbrook Partners, L.
P., Steve Geller, Neil Saul, Marvin Smollar and Champ
Enterprises Limited Partnership.<F15>
10.32 Amendment No. 1 to Shareholders Agreement dated as of
April 10, 1995 among WPG Corporate Development
Associates IV, L.P., WPG Corporate Development
Associates IV (Overseas), Ltd., as the exempt
transferee of WPG Corporate Development Associates IV
(Overseas), Ltd., certain persons identified on
Schedule I of Amendment No. 1 to the Shareholders'
Agreement, Steven E. Geller ("Geller"), Neil B. Saul
("Saul") and The Autumn Glory Trust, a Cook Islands
Registered International Trust ("Trust") as the
permitted transferee of Champ Enterprises Limited
Partnership.
10.33 Amendment No. 2 to Shareholders Agreement dated as of
June 29, 1995 among WPG Corporate Development
Associates IV, L.P., WPG Corporate Development
Associates IV (Overseas), Ltd., as the exempt
transferee of WPG Corporate Development Associates IV
(Overseas), Ltd., certain persons identified on
Schedule I of Amendment No. 2 to the Shareholders'
Agreement, Steven E. Geller ("Geller"), Neil B. Saul
("Saul") and The Autumn Glory Trust, a Cook Islands
Registered International Trust ("Trust") as the
permitted transferee of Champ Enterprises Limited
Partnership.<F4>
10.34 Registration Rights Agreement ("Registration Rights
Agreement") dated as of December 22, 1994 by and
between Empire of Carolina, Inc., WPG Corporate
Development Associates IV, L.P., WPG Corporate
Development Associates IV (Overseas), Ltd., Weiss Peck
& Greer, as Trustee under Craig Whiting IRA, Peter B.
Pfister, Weiss, Peck & Greer, as Trustee under Nora
Kerppola IRA, Westpool Investment Trust PLC and
Glenbrook Partners, L. P.<F15>
10.35 Amendment No. 1 to Registration Rights Agreement.<F4>
10.36 Loan and Security Agreement dated May 29, 1996 between
LaSalle National Bank ("LaSalle"), BT Commercial
Corporation ("BTCC") and EII, with exhibits and
security instruments.<F17>
10.37 First Amendment to Loan and Security Agreement among
LaSalle, BTCC, Congress Financial Corporation (Central)
and EII, with exhibits.<F20>
10.38 Consent and Second Amendment to Loan and Security
Agreement among LaSalle, BTCC, Congress Financial
Corporation (Central) and EII.<F21>
11* Statement re Computation of per Share Earnings
21 Subsidiaries of the Company.<F17>
23.1* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
99 Press Release dated March 31, 1997
* To be filed by amendment
<FN>
<FN1>
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.
<FN2>
Previously filed as an exhibit to Clabir's Current Report on Form
8-K, dated December 23, 1988 (File No. 1-7769) and incorporated
by reference.
<FN3>
Previously filed as an exhibit to the Company's Registration
Statement on Form S-4 (File No. 33-32186), dated November 17,
1989 and incorporated by reference.
<FN4>
Previously filed as an Exhibit to the Company's Current Report on
Form 8-K dated July 21, 1995, and incorporated by reference.
<FN5>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated October 6, 1992 and incorporated by reference.
<FN6>
Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 and incorporated
by reference.
<FN7>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated February 1, 1993 and incorporated by reference.
<FN8>
Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994 and incorporated
by reference.
<FN9>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for September 30, 1994 and incorporated by reference.
<FN10>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for December 22, 1994 and incorporated by reference.
<FN11>
Previously filed as an exhibit to Amendment No. 1 to Schedule 13D
filed by the WPG Group, dated December 23, 1994 and incorporated
by reference.
<FN12>
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.
<FN13>
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 and incorporated by reference.
<FN14>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for May 19, 1995 and incorporated by reference.
<FN15>
Previously filed as an exhibit to Amendment No. 1 to Schedule 13D
filed by WPG Corporate Development Associates IV, L.P., WPG
Private Equity Partners, L. P., WPG Corporate Development
Associates IV (Overseas), L.P., WPG Private Equity Partners
(Overseas), L.P., Steven Hutchinson, Wesley Lang, Peter Pfister,
Craig Whiting, Nora Kerppola, Glenbrook Partners, L.P., Prim
Ventures, Inc., Westpool Investment Trust PLC and Weiss, Peck &
Greer with the Securities and Exchange Commission on December 23,
1994, and incorporated by reference.
<FN16>
Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
by reference herein.
<FN17>
Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 for (Reg. No. 333-4440) declared effective
by the Commission on June 25, 1996 and incorporated by reference
herein.
<FN18>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for September 12, 1996 and hereby incorporated by
reference.
<FN19>
Previously filed as an appendix to the Company's definitive Proxy
Statement filed with the Commission on August 27, 1996 and
incorporated by reference herein.
<FN20>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for December 11, 1996 and hereby incorporated by
reference.
<FN21>
Previously filed as an exhibit to the Company's Current Report on
Form 8-K for February 7, 1997 and hereby incorporated by
reference.
(b) The following reports on Form 8-K have been filed by the
Company during the last quarter of the period covered by
this report:
Form 8-K filed December 11, 1996 (filing the First
Amendment to Loan and Security Agreement among LaSalle
National Bank, BT Commercial Corporation, Congress
Financial Corporation (Central) and Empire Industries,
Inc., with exhibits)
(c) The exhibits to this Form 10-K appear following the
Signature Page of this Form 10-K.
(d) Information with respect to this item will be included in an
amendment to this Annual Report on Form 10-K filed with the
Commission no later than April 15, 1997 in accordance with
Rule 12b-25 under the Securities Exchange Act of 1934, as
amended.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Empire of Carolina, Inc. has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 31, 1997.
EMPIRE OF CAROLINA, INC.
By: /s/ Steven Geller
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C>
/s/ Steven Geller Chairman of the March 31, 1997
Steven Geller Board of Directors
and Chief Executive
Officer (Principal
Executive Officer)
/s/ Jeffrey Currier Executive Vice March 31, 1997
Jeffrey Currier President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
/s/ Marvin Smollar Director March 31, 1997
Marvin Smollar
/s/ Steven N. Hutchinson Director March 31, 1997
Steven N. Hutchinson
/s/ Eugene Matalene Director March 31, 1997
Eugene Matalene
Peter Pfister Director
<PAGE>
INDEX TO EXHIBITS
The following exhibits are attached hereto.
</TABLE>
<TABLE>
<S> <C>
3.2 First Amendment to Restated Certificate of
Incorporation of the Company.
99 Press Release dated March 31, 1997
</TABLE>
EXHIBIT 3.2
AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EMPIRE OF CAROLINA, INC.
EMPIRE OF CAROLINA, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby certify:
FIRST: That on August 5, 1996, the Board of Directors of
said Corporation duly adopted the following resolution setting
forth a proposed amendment to the Restated Certificate of
Incorporation of said Corporation, declaring said amendment to be
advisable and recommending such amendment for adoption by
stockholders of said Corporation. The resolution setting forth
the proposed amendments is as follows:
RESOLVED, that Article Eleventh of the Restated
Certificate of Incorporation of this Corporation is hereby
amended by deleting the phrase "eighty percent (80%)" from
the first sentence thereof and substituting the phrase "two-
thirds (66 %)" therefor and inserting the phrase "(including
for this purpose directors who are not present or abstain
from voting)" immediately after the phrase "of the directors
then in office" in the first sentence thereof.
SECOND: That thereafter such amendment was approved and
adopted by the stockholders of the Corporation at a meeting duly
held on September 11, 1996.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, this Amendment to the Restated
Certificate of Incorporation of Empire of Carolina, Inc. is
executed on behalf of the Company by its Chairman of the Board of
Directors and attested by its Secretary as of the 11th day of
September, 1996.
/s/ Steven Geller
Chairman of the Board of Directors
Attest:
/s/ Lawrence Geller
Secretary
EXHIBIT 99
EMPIRE OF CAROLINA ANNOUNCES
1996 YEAR-END RESULTS, POTENTIAL FINANCING
DELRAY BEACH, FL, MARCH 31, 1997 -- Empire of Carolina, Inc.
(AMEX: EMP) today announced that its net sales for the year ended
December 31, 1996 were $148.9 million as compared to $153.7
million for the prior year. The Company incurred a loss before
interest and taxes of $47.3 million. This loss included
nonrecurring and special charges of $21.0 million. The net loss
after interest and taxes was $46.2 million. For fiscal 1995, the
loss before interest and taxes and net loss were $1.9 million and
$4.5 million, respectively.
The $21.0 million charge is comprised of previously
disclosed restructuring charges, nonrecurring inventory charges
and the write down of certain intangible assets. The
restructuring charge includes costs resulting from the shutdown
of the Buddy L facility in Gloversville, NY, costs related to
staff reductions and other related costs. The non-recurring
inventory charge results from the previously announced
difficulties encountered during the second half of 1996. The
remaining charges are the result of the Company's decision to
change the mix of its product lines to emphasize higher margin
products.
As previously announced, the Company had engaged investment
bankers to secure the additional financing required by the
December 6, 1996 amendment to its senior loan agreement and to
evaluate strategic alternatives for enhancing shareholder value.
The Company was presented with a variety of alternative
transactions with potential investors, including sales of certain
product lines, sales of certain assets, and the potential
recapitalization of the Company. Each of these transactions was
explored by the Company along with its investment bankers and
advisors.
The Company also announced that it entered into a non-
binding letter of intent with an investor that proposes to invest
$50 million by purchasing from the Company a combination of
exchangeable convertible preferred stock and senior convertible
debentures. The preferred stock and debentures would be
convertible into common stock at a price equal to the market
price of the stock on the date on which management and the
investor established the terms of the letter of intent. Upon
consummation of the transaction the investor would own securities
convertible into a substantial majority of the Company's
outstanding stock and would have immediate control of the Board.
The potential transaction is subject to a number of
substantial conditions, including satisfactory completion of due
diligence by the proposed investor and the negotiation and
execution of a definitive agreement. The Company can give no
assurance that the transaction will be consummated, or, if
consummated, that it will be on the terms and conditions
described above. In the event that this transaction is not
consummated, there is no assurance that the Company will obtain,
by April 30, 1997, the $6 million required by the December 1996
amendment to its senior loan agreement or that cash generated
from operations will be sufficient to fund the Company's
continued operations.
Steven Geller, Chairman and Chief Executive Officer,
commented, "I am obviously disappointed in our financial
performance during 1996. The costs resulting from the
difficulties encountered last year were greater than expected.
We believe that the proposed transaction would not only provide
us with working capital to finance the Company's operations, it
would give us the ability to further assure our customers of our
ability to fulfill their orders, fund new research and
development projects, and focus on our goal of developing Empire
into the next major player in the toy industry."
Mr. Geller continued, "We believe that the proposed
transaction, which is recommended by our investment bankers, is
the best alternative for Empire and its shareholders. We are
working diligently to complete this transaction, and, although no
assurances can be given, we are optimistic that we will close
during April, 1997."
This press release contains various forward-looking
statements and information that are based on management's beliefs
as well as assumptions made by and information currently
available to management, including statements regarding future
economic performance and financial condition, liquidity and
capital resources, and management's plans and objectives. Such
statements are subject to various risks and uncertainties which
could cause actual results to vary materially from those stated.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected
or projected. Such risks and uncertainties include the Company's
ability to close the proposed transaction, the Company's ability
to manage inventory, production and costs, to meet potential
increases or decreases in demand, potential adverse customer
impact due to delivery delays including effects on existing and
future orders, competitive practices in the toy and decorative
holiday products industries, changing consumer preferences and
risks associated with consumer acceptance of new product
introductions, potential increases in raw material prices,
potential delays or production problems associated with foreign
sourcing of production and the impact of pricing policies
including providing discounts and allowances. Certain of these
as well as other risks and uncertainties are described in more
detail in the Company's Registration Statement on Form S-1 filed
under the Securities Act of 1933, Registration No. 333-4440. The
Company undertakes no obligation to update any such factors or to
publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future
events or developments.
Empire of Carolina, Inc. designs, develops, manufactures and
markets a broad range of basic plastic children's toys. Its
Holiday products Division produces and markets decorative
seasonal items including Christmas, Halloween and Easter
illuminated products. The Company's full line of basic toys
includes the Big Wheel(R) line of ride-on toys, Grand
Champions(R) collectible horses, Buddy L(R) cars and trucks, and
Power Driver(R) ride-ons.
<PAGE>
<TABLE>
<CAPTION>
EMPIRE OF CAROLINA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ --------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 42,847 $ 61,404 $148,908 $153,744
COST OF GOODS SOLD 50,322 46,383 133,464 111,905
NONRECURRING INVENTORY
CHARGES 1,860 0 12,185 0
-------- -------- -------- --------
GROSS PROFIT (LOSS) (9,335) 15,021 3,259 41,839
SELLING AND
ADMINISTRATIVE EXPENSES 16,043 10,178 41,751 36,183
RESTRUCTURING AND OTHER
CHARGES 1,303 6,451 8,800 7,550
-------- -------- -------- --------
OPERATING INCOME (LOSS) (26,681) (1,608) (47,292) (1,894)
OTHER INCOME (EXPENSES):
Interest income,
dividends and net
realized gains (21) 55 (5) 514
Interest expense (4,737) (2,593) (11,236) (5,996)
-------- -------- -------- --------
Total other income
(expenses) (4,758) (2,538) (11,241) (5,482)
-------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (31,439) (4,146) (58,533) (7,376)
-------- -------- -------- --------
INCOME TAX EXPENSE
(BENEFIT) (1,978) (1,860) (12,332) (2,875)
-------- -------- -------- --------
NET INCOME (LOSS) $(29,461) $ (2,286) $(46,201) $ (4,501)
======== ======== ======== ========
INCOME (LOSS) PER
COMMON SHARE $ (3.98) $ (0.44) $ (7.89) $ (0.96)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,404 5,195 5,859 4,681
======== ======== ======== ========
</TABLE>
