<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 COMMISSION FILE NO. 0-23082
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
CARLYLE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-1574754
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE PALMER TERRACE
CARLSTADT, NJ 07072
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 935-6220
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT:
BELDING HEMINWAY COMPANY, INC.,
1430 BROADWAY
NEW YORK, NY 10018
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.
[X] YES [ ] NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF MAY 14, 1997, 7,388,282 SHARES OF COMMON STOCK WERE OUTSTANDING.
<PAGE> 2
CARLYLE INDUSTRIES, INC.
ONE PALMER TERRACE
CARLSTADT, NJ 07072
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
Part I -- Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996................................. 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996......................... 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996......................... 5
Notes to Unaudited Consolidated Financial Statements - March 31, 1997...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 9
Part II -- Other Information
Item 1. Legal Proceedings.......................................................... Not Applicable
Item 2. Changes in Securities...................................................... Not Applicable
Item 3. Defaults upon Senior Securities............................................ 10
Item 4. Submission of Matters to a Vote of Security Holders........................ 11
Item 5. Other Information.......................................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K........................................... 11
Signatures........................................................................... 12
</TABLE>
PAGE 2 OF 12
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1997 DECEMBER 31, 1996
Current Assets: (UNAUDITED) (NOTE)
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 11,512 $ 131
Accounts receivable trade, net 2,337 2,847
Inventories 3,277 2,838
Net assets of discontinued operations -- 52,504
Current deferred tax asset 5,385 2,688
Other current assets 99 330
----------- --------
Total current assets 22,610 61,338
----------- --------
Property, plant and equipment, at cost 3,076 3,344
Less: Accumulated depreciation and amortization (772) (694)
----------- --------
Net property, plant and equipment 2,304 2,650
----------- --------
Goodwill, net 2,222 2,246
Other assets -- 935
----------- --------
Total Assets $ 27,136 $ 67,169
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,802 $ 3,100
Current maturities of long-term debt 77 4,091
Federal and state income taxes payable 8,493 --
Other current liabilities 3,203 3,155
----------- --------
13,575 10,346
Long-Term debt 117 33,058
Other Liabilities 10,637 11,692
----------- --------
Total Liabilities 24,329 55,096
Redeemable Preferred Stock, par value $0.01 per share
21,305,055 shares authorized;
Shares issued and outstanding:
Series A - None
Series B - 20,805,060 20,805 20,805
Accumulated dividends on preferred stock 3,087 2,739
----------- --------
23,892 23,544
----------- --------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding:
March 31, 1997: 7,388,282 74
December 31, 1996: 7,388,282 74
Paid in Capital 19,858 19,858
Retained Earnings (41,017) (31,403)
----------- --------
Total Common Stockholders' Equity (21,085) (11,471)
----------- --------
Total Liabilities and Stockholders' Equity $ 27,136 $ 67,169
=========== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
PAGE 3 OF 12
<PAGE> 4
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- -------
<S> <C> <C>
Net Sales $ 5,005 $ 4,871
Cost of Sales 2,352 2,452
-------- -------
2,653 2,419
Selling, general & administrative expenses 1,287 1,742
Other (income) expense -- net (6) (5)
-------- -------
Income from continuing operations before
interest and income taxes 1,372 682
Interest expense 33 --
-------- -------
Income from continuing operations before
provision for income taxes 1,339 682
Provision for income taxes 488 268
-------- -------
Income from continuing operations 851 414
Less dividends on preferred stock 348 332
-------- -------
Income applicable to common stock
from continuing operations 503 82
Results of discontinued operations net of
income tax provision:
Income (loss) from operations (316) 429
Loss on disposition (9,801) --
-------- -------
(10,117) 429
-------- -------
Net incomes $ (9,614) $ 511
======== =======
Earnings per common share:
Continuing operations $ .07 $ .01
Discontinued operations (1.37) .06
-------- -------
Total $ (1.30) $ .07
======== =======
Weighted average common shares
outstanding (in thousands) 7,388 7,399
======== =======
Total depreciation and amortization $ 117 $ 119
======== =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
PAGE 4 OF 12
<PAGE> 5
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 851 $ 414
Reconciliation of net income from continuing
operations to net cash provided by operations:
Depreciation and amortization 117 119
Deferred tax provision 447 225
Changes in operating assets and liabilities:
Accounts receivable, trade 510 388
Merchandise inventories (439) 282
Federal income taxes receivable -- 565
Other current assets 231 384
Accounts payable 98 (49)
Other current liabilities (333) 1,269
Other liabilities (192) (446)
Other operating assets and liabilities -- 86
Cash flow from discontinued operations (4,813) (2,641)
-------- -------
(3,523) 596
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operation 51,924 --
Capital expenditures (65) (19)
Investments in other assets -- (216)
-------- -------
51,859 (235)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility and capitalized
lease obligations 20,279 7,800
Repayment of long term debt and capital lease
obligations (57,234) (7,738)
Payment of long term liabilities -- (307)
-------- -------
(36,955) (245)
-------- -------
Increase (decrease) in cash and cash equivalents 11,381 116
Cash and cash equivalents beginning of period 131 996
-------- -------
Cash and cash equivalents end of period $ 11,512 $ 1,112
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 783 $ 1,011
======== =======
Income taxes $ 35 $ 38
======== =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
PAGE 5 OF 12
<PAGE> 6
CARLYLE INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Certain reclassifications have been made to prior year amounts in
order to present them on a basis consistent with the current year. Operating
results for the three-month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operation: The Company and its subsidiary distributes a line of home
sewing and craft products, principally buttons. During the quarter, the Company
sold its Thread division. (See Note 5).
Consolidation: The accompanying consolidated financial statements include the
accounts of the Company and all subsidiaries after elimination of intercompany
items and transactions.
Depreciation and Amortization: Depreciation and amortization are computed
principally by the straight-line method for each class of depreciable and
amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 5-25 and 5-10
years, respectively.
Revenue Recognition: Revenue is recognized upon shipment of merchandise.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: EARNINGS PER SHARE
Earnings per common share for the Company have been computed on the basis of
weighted average common shares outstanding after providing for quarterly
preferred dividend requirements.
PAGE 6 OF 12
<PAGE> 7
NOTE 4: INVENTORIES:
The components of inventories, net of reserves, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials $ 2,126 $ 1,932
Work in Progress 10 10
Finished goods 1,141 896
-------- --------
$ 3,277 $ 2,838
======== ========
</TABLE>
NOTE 5: DISCONTINUED OPERATIONS
On March 26, 1997, the Company sold the assets and specified liabilities of the
Company's Thread Division to Hicking Pentecost PLC. The aggregate cash
consideration was $54.9 million of which $3.0 million was placed in escrow
subject to certain post-closing adjustments.
In connection with this sale, the Company repaid all of its outstanding bank
debt using proceeds received in the transaction. No penalties were incurred by
the Company in connection with this prepayment. In addition, the Company will be
obligated to pay approximately $8.5 million of income taxes related to the tax
gain resulting from this transaction. Nondeductible goodwill associated with the
Thread division amounting to approximately $18.0 million was written-off as of
the date of sale. Operating results of the Thread division for 1997 through the
date of disposition and for all prior periods have been presented as
discontinued operations. In addition, the operating results related to the
Company's former Home Furnishings division which was sold on July 31, 1996, are
also included in discontinued operations through the date of its sale in 1996.
In connection with this transaction, the Company changed its name to Carlyle
Industries, Inc.
NOTE 6: PREFERRED STOCK
Under the terms of the Company's charter, dividends are payable upon the
Preferred Stock and the Preferred Stock is required to be redeemed by the
Company, to the extent of legally available funds, in installments on or prior
to March 1999, subject among other things to the approval of the Company's
banks. Prior to March 27, 1997, the Company did not make any payments on account
of the Preferred Stock (either dividend or redemption, as the Company's lenders
declined to approve such payments, however, as of that date, the Company
discharged the last of its credit facilities. Consequently, the Company is now
in default of its obligations to the holders of its Preferred Stock to the
extent of its legally available funds. As of March 31, 1997 the accrued but
unpaid dividends and redemption payments aggregate $15,507,693. Accrued but
unpaid amounts continue to accrue interest at a compound rate of 6% per annum.
In addition, the Company has agreed to notify the Pension Benefit Guaranty
Corporation ("PBGC") thirty days prior to taking certain actions, including any
dividend or redemption payments with respect to the Preferred Stock.
The Company expects to enter into discussion with The Noel Group, Inc. ("Noel"),
with a view of satisfying its obligations to the Preferred Stockholders in
accordance with the terms of its charter to the extent consistent with the
Company's resources. The Company may also enter into negotiations to modify the
terms of the Preferred Stock, although the Company has not yet determined to do
so. If such negotiations are commenced, they may result in an acceleration of
the redemption of the Preferred Stock or
PAGE 7 OF 12
<PAGE> 8
other modifications to the terms of the Preferred Stock, provided the Company
determines that such modifications are in its interest.
The Company intends to fulfill its obligation to the Preferred Stockholders as
required by the Company's charter to the extent that the Company has cash
resources in excess of those required to operate its business. As the Company
does not currently have such excess resources, its ability to make payments on
account of the Preferred Stock in the future will depend on the Company's
future cash flow, the timing of the settlement of the liabilities recorded in
the financial statements of the Company, the outcome of the negotiations with
Noel described above, and the ability of the Company to obtain financing, which
it has not yet determined to seek. In addition, as the Company has agreed to
notify the PBGC prior to making any redemption payments; the Company's decision
to make any such payments will depend on the successful resolution of any
issues which may arise with the PBGC relating to the Company's unfunded
liability to its defined benefit plan.
PAGE 8 OF 12
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
Sales during the first quarter of 1997 totaled $5.0 million. Sales in the first
quarter of 1996 totaled $4.9 million for an increase of $.1 million.
Gross margin during the first quarter of 1997 totaled $2.7 million as compared
with $2.4 million in the first quarter of 1996.
Selling, general and administrative expenses in the first quarter of 1997
totaled $1.3 million as compared to $1.7 million in the first quarter of 1996.
The decrease in selling, general and administrative costs are primarily the
result of head count reductions at corporate headquarters during the second half
of 1996.
Interest expense incurred in connection with the credit facility outstanding as
of December 31, 1996 has been included in results of discontinued operations
for the first quarters of 1997 and 1996 as that credit facility was required to
be repaid in full in connection with the sale of the Thread division. Interest
expense in 1997 represents an interest accrual related to the pension
obligation.
The provision for income taxes during the first quarter of 1997 totaled $.5
million as compared to $.3 million during the same period last year. The
combined effective income tax rate in 1997 totaled 36.5% as compared to 39.3% in
1996. The combined effective income tax rates are higher than combined statutory
rates because of nondeductible goodwill.
Preferred dividends during the first quarter of 1997 totaled $.3 million as
compared to $.3 million during the same period in 1996. Preferred dividends are
accrued and compound at a rate of 6%. No dividend payments have been made by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's principal sources of liquidity included cash
and cash equivalents of $11.5 million and trade accounts receivable of $2.3
million.
In connection with the sale of the Thread division, all outstanding bank
indebtedness was repaid and the existing bank credit facility was terminated
without penalty.
PAGE 9 OF 12
<PAGE> 10
Under the terms of the Company's charter, dividends are payable upon the
Preferred Stock and the Preferred Stock is required to be redeemed by the
Company, to the extent of legally available funds, in installments on or prior
to March 1999, subject among other things to the approval of the Company's
banks. Prior to March 27, 1997, the Company did not make any payments on account
of the Preferred Stock (either dividend or redemption), as the Company's lenders
declined to approve such payments. However, as of that date, the Company
discharged the last of its credit facilities. Consequently, the Company is now
in default of its obligations to the holders of its Preferred Stock to
the extent of its legally available funds. As of March 31, 1997 the accrued but
unpaid dividends and redemption payments aggregated $15,507,693. Accrued but
unpaid amounts continue to accrue interest at a compound rate of 6% per annum.
In addition, the Company has agreed to notify the Pension Benefit Guaranty
Corporation ("PBGC") thirty days prior to taking certain actions, including any
dividend or redemption payments with respect to the Preferred Stock.
The Company expects to enter into discussion with The Noel Group, Inc. ("Noel"),
with a view of satisfying its obligations to the Preferred Stockholders in
accordance with the terms of its charter to the extent consistent with the
Company's resources. The Company may also enter into negotiations to modify the
terms of the Preferred Stock, although the Company has not yet determined to do
so. If such negotiations are commenced, they may result in an acceleration of
the redemption of the Preferred Stock or other modifications to the terms of the
Preferred Stock, provided the Company determines that such modifications are in
its interest.
The Company intends to fulfill its obligation to the Preferred Stockholders as
required by the Company's charter to the extent that the Company has cash
resources in excess of those required to operate its business. As the Company
does not currently have such excess resources, its ability to make payments on
account of the Preferred Stock in the future will depend on the Company's
future cash flow, the timing of the settlement of the liabilities recorded in
the financial statements of the Company, the outcome of the negotiations with
Noel described above, and the ability of the Company to obtain financing, which
it has not yet determined to seek. In addition, as the Company has agreed to
notify the PBGC prior to making any redemption payments, the Company's decision
to make any such payments will depend on the successful resolution of any
issues which may arise with the PBGC relating to the Company's unfunded
liability to its defined benefit plan.
IMPACT OF INFLATION
The Company's results are affected by the impact of inflation on operating
costs. Historically, the Company has used selling price adjustments, cost
containment programs and improved operating efficiencies to offset the otherwise
negative impact of inflation on its operations.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a) None
b) REDEEMABLE SERIES B PREFERRED STOCK
Scheduled dividend payments totaling $1,316,018 in 1995,
$1,361,230 in 1996 and an additional $347,409 on March 15,
1997 remain unpaid and continue to accrue at a compounded
rate of 6% per annum. Additionally, the Company has not
given effect to
PAGE 10 OF 12
<PAGE> 11
certain previously scheduled redemption payments. See
"Liquidity and Capital Resources" for a detailed discussion
of the Preferred Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of Stockholders was held on March 26, 1997 (the
"Meeting"). At the Meeting, the Company's stockholders voted upon
and approved the sale of the Company's Thread division to Hicking
Pentecost PLC (See Note 5).
The holders of the Company's Common Stock and Series B Preferred
Stock voted as a single class. The number of votes cast for,
against or withheld, as well as the number of abstentions is set
forth below:
Proposal to approve (a) the asset purchase and sale agreement dated December 12,
1996 between the Company and Hicking Pentecost, PLC (b) the sale of
substantially all the business operations and assets of the Company related to
the manufacturing, marketing and sale of thread and (c) the amendment to the
Company's restated certificate of incorporation to change the name of the
Company to Carlyle Industries, Inc.:
<TABLE>
<CAPTION>
Common Stock Series B Preferred Stock Total
-------------------------------- -------------------------------- ---------------------------------
For Against Abstain For Against Abstain For Against Abstain
--- ------- ------- --- ------- ------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4,988,587 26,363 28,266 20,780,557 -- -- 25,769,144 26,363 28,266
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<S> <C> <C> <C>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
</TABLE>
(b) REPORTS ON FORM 8-K.
During the first quarter of 1997, the Company did not file
a Current Report on Form 8-K.
PAGE 11 OF 12
<PAGE> 12
SIGNATURES
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.
CARLYLE INDUSTRIES, INC.
(Registrant)
/S/ Karen Brenner
- --------------------------------------------------------------
Karen Brenner, Chairman, President and Chief Executive Officer
/S/ Edward F. Cooke
- --------------------------------------------------------------
Edward F. Cooke, Vice President and Chief Financial Officer
Date: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,512
<SECURITIES> 0
<RECEIVABLES> 2,337
<ALLOWANCES> 0
<INVENTORY> 3,277
<CURRENT-ASSETS> 22,610
<PP&E> 3,076
<DEPRECIATION> 772
<TOTAL-ASSETS> 27,136
<CURRENT-LIABILITIES> 13,575
<BONDS> 0
0
23,892
<COMMON> (21,085)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,136
<SALES> 5,005
<TOTAL-REVENUES> 5,005
<CGS> 2,352
<TOTAL-COSTS> 2,352
<OTHER-EXPENSES> 1,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33)
<INCOME-PRETAX> 1,339
<INCOME-TAX> (488)
<INCOME-CONTINUING> 851
<DISCONTINUED> (10,117)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,614)
<EPS-PRIMARY> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
