<PAGE> 1
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 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, 1997 Commission file number: 1-3462
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.)
1 Palmer Terrace, Carlstadt, New Jersey 07072
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (201)935-6220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Not applicable
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes__ No X
As of March 9, 1998, 7,382,782 shares of Registrant's Common Stock were
outstanding, and the aggregate market value of the voting stock held by
non-affiliates of Registrant was approximately $7,654,871. This figure was
calculated on the basis of the closing price of a share of Common Stock of
Registrant on the New York Stock Exchange on March 9, 1998. As used herein,
non-affiliates means all stockholders of Registrant other than executive
officers, directors and 5% shareholders.
The information required by Part III of Form 10-K is incorporated by
reference to the Registrant's definitive proxy statement to be distributed to
stockholders in connection with its annual meeting scheduled for May 14, 1998.
Page 1 of 44
<PAGE> 2
This Annual Report on Form 10-K (the "Annual Report") contains
statements which constitute forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Those statements appear in a number of places in this Annual Report and
include statements regarding the intent, belief or current expectations of the
Company, its Directors or its Officers with respect to, among other things: (i)
the Company's financing plans; (ii) trends affecting the Company's financial
condition or results of operations; (iii) the Company's growth strategy and
operating strategy;(iv) customer concentration and the increasing consolidation
of the Company's customer base and (v) the declaration and payment of dividends.
Shareholders are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risk and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors.
PART I
ITEM 1. BUSINESS OF THE COMPANY
Carlyle Industries, Inc. (the "Company" f/k/a Belding Heminway Company,
Inc.) and its subsidiaries distribute a line of home sewing and craft products,
principally buttons. The Company currently operates in one industry segment. For
additional information on Industry Segments, see "Note 18 of the Company's
Consolidated Financial Statements".
The Company was the surviving corporation in a merger (the "Merger")
with BH Acquisition Corporation, a Delaware corporation wholly-owned by Noel
Group, Inc. ("Noel"). The Merger, completed on October 29, 1993, was the second
step of a transaction pursuant to which Noel acquired the entire equity interest
in the Company. References herein to the "Predecessor" shall be deemed to refer
to the Company, as it existed prior to October 1, 1993. The Company's principal
executive offices are located in 7,307 square feet of leased premises at One
Palmer Terrace, Carlstadt, New Jersey and its telephone number is 201-935-6220.
On March 26, 1997, the Company sold the assets and specified
liabilities of its former Thread division to an affiliate of Hicking Pentecost
PLC ("HP") for an aggregate cash consideration of $54.9 million of which $3.0
million was placed in escrow subject to certain post-closing adjustments, plus
the assumption of approximately $6.8 million of liabilities.
The Company's button business is conducted through the
Blumenthal/Lansing Company, which was formed from the merger of B. Blumenthal &
Co., Inc., a wholly-owned subsidiary of the Company, and Lansing Company, B.
Blumenthal's wholly-owned subsidiary. The corporate name was changed to
Blumenthal/Lansing Company on January 1, 1995.
Products. The Company packages and distributes an extensive variety of
buttons and embellishments for home sewing and crafts to mass merchandisers,
specialty chains and independent retailers and wholesalers throughout the United
States. Buttons, embellishments and buckles, sold under the La Mode (R) and Le
Chic (R) registered trademarks and the Le Bouton, La Petite, Classic and
Boutique brand names, are available in thousands of styles, colors, materials
and sizes to meet every consumer need. The Company also produces and distributes
a private-label line for one of the nation's best-known retailers. The Company
also markets complimentary product lines, including appliques, craft kits and
fashion and jewelry accessories to its home sewing and craft customers.
Page 2 of 44
<PAGE> 3
Markets. The Company's products are sold primarily for use in the home
sewing market where buttons are used for garment construction, replacement and
the upgrading and/or restyling of ready-to-wear clothing. More modest button
usage is found in craft projects, home decorating and garment manufacturing on a
small scale and done by dressmakers and other cottage industry consumers. The
market is concentrated and is served by large fabric specialty chains, mass
merchandisers, local and regional fabric specialty chains of 4 to 25 stores,
independent fabric stores, notions wholesalers and craft stores and chains.
During the years ended December 31, 1997 and 1996 sales to three major customers
(Wal-Mart, Fabri-Centers of America and Hancock Fabrics) accounted for 78% and
75% respectively of the Company's aggregate sales volume. A reduction in sales
among any of these customers could adversely impact the financial condition and
results of operations of the Company.
Product Sourcing, Distribution and Sales. The button lines are sourced
from more than 75 button manufacturers around the world, with most buttons
coming from the traditional markets of Holland, Italy and the Orient. Button
manufacturers specialize in different materials (plastic, wood, glass, leather,
metal, jewel, pearl, etc.) and have varying approaches to fashion, coloration,
finishing and other factors.
All imported and domestically purchased buttons are shipped to the
Lansing, Iowa facility for carding and distribution to customers. As thousands
of button styles are received in bulk, computerized card printing systems enable
Blumenthal/Lansing to economically imprint millions of button cards with such
necessary data as style number, price, number of buttons, bar code, country of
origin and care instructions. The Company also blister-packages and shrink-wraps
some products. Shipments are made primarily to individual stores with a small
percentage to warehouse locations.
The Company's accounts include major fabric specialty chains, most mass
merchandisers carrying buttons, most regional fabric specialty chains and many
independent stores. Mass merchandisers and specialty chain customers are
characterized by the need for sophisticated electronic support, rapid
turn-around of merchandise and direct-to-store service for hundreds to thousands
of locations nationwide. The Company enjoys long-standing ties to all of its key
accounts and the average relationship with its ten largest customers extends
over 20 years. Due to the large account nature of its customer base, most
customer contact is coordinated by management; additional sales coverage is
provided by regional sales managers. Certain retailers are serviced by
independent representatives and representative organizations.
Competitive Factors. The retail button market is served by several
competitors. The Company competes primarily with full-line button packagers and
distributors in the general button market and several smaller competitors in the
promotional button market. Management believes that the principal bases for
competition are product innovation, range of selection, brand names, price,
display techniques and speed of distribution.
Management believes that retail button distribution depends on trends
in the home-sewing market, which management believes is mature. The retail
customer base for buttons has changed substantially over the past two decades as
department stores and small independent fabric stores have been replaced by mass
merchandisers and specialty retail chains which have continued to consolidate
recently through mergers and store closings. In response to this trend, the
Company has broadened its button product line to include embellishments and
novelty buttons used now in the craft industry which is not viewed as a mature
market.
Page 3 of 44
<PAGE> 4
The bulk of the Company 's revenues are derived in the United States.
In 1997, less than 1% of revenues related to export sales. Inventory levels
remain relatively constant throughout the year. The Company's policies related
to merchandise return and payment terms are in accordance with industry
standards.
Employees; Labor Relations. The Company has approximately 140
employees, none of whom are covered by a collective bargaining agreement.
Management believes relations with employees are satisfactory.
Properties. The Company operates from a 104,000 square foot packaging
and distribution facility located in Lansing, Iowa which is owned by the
Company. Corporate headquarters and divisional management, sales and marketing,
product development, fashion and purchasing are headquartered in a 7,307 square
foot office facility in Carlstadt, New Jersey which is leased by the Company.
Management believes that the Company's facilities are in good condition and
adequate for the Company's present and reasonably foreseeable future needs.
The Company owns a former dye facility that is currently in disrepair
located in Emporia, Virginia, which is leased to the purchaser of the Company's
former Home Furnishings division under a triple net fifty-year lease with a
nominal base rent. In addition, the Company also owns two facilities no longer
used in operations: a 100,000 square foot former production facility at
Watertown, Connecticut of which approximately 48,000 square feet are leased to
unrelated third parties and a former production facility at North Grosvenordale,
Connecticut, that is currently in disrepair.
Current Backlog. The Company fills at least 95% of its orders within 48
hours and as a result had no backlog of any significance at either December 31,
1997 or 1996.
DISCONTINUED OPERATIONS
In March 1997 the Company completed the sale of its Thread division.
Proceeds received on the sale adjusted for closing costs and changes in working
capital of the division subsequent to September 30, 1996 totaled $54.9 million
cash (of which $3.0 million was placed in escrow) plus the assumption of
approximately $6.8 million of liabilities. A portion of the proceeds was used to
pay down the Company's outstanding bank debt. Consequently, the results of
operations of the Thread division for 1997 and all prior periods have been
classified as discontinued operations. (See ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
Following is a summarized description of the Thread division operation:
The business of the Company's Thread division which was headquartered
in Charlotte, North Carolina, was conducted through various subsidiaries,
including a wholly-owned subsidiary, The Carlyle Thread Group, LLC, a
Connecticut limited liability company ("CTG"), which was formed through the
transfer of the net assets of the Belding Corticelli Thread Company, a division
of the Company ("BCTC"), and the Carlyle Manufacturing Company, Inc., a
wholly-owned subsidiary of the Company ("CM"). The Thread division also included
the business of Carlyle Threads, Inc. ("CTS") which was acquired in June 1994
and Carlyle International, Inc. and Culver Textile Corp. (together, "Culver")
which was acquired in August 1995. CTS and Culver were merged in August 1996
with CTS continuing as the surviving corporation. The Thread division
manufactured and marketed industrial thread and special engineered yarn
Page 4 of 44
<PAGE> 5
used in non-sewing products. CTS's and Culver's main products were specialty
threads marketed primarily to the wholesale bedding and embroidery market.
In July 1996 the Company completed the sale of its Home Furnishings
division. Proceeds received on the sale adjusted for closing costs and changes
in net asset value of the division subsequent to the contract date totaled $8.2
million, which proceeds were used to pay down the Company's revolving bank loan.
The Company had previously announced its decision to divest the Home Furnishings
division during the fourth quarter of 1995. Consequently, the results of
operations of the Home Furnishings division for 1996 and all prior periods have
been classified as discontinued operations. (See ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
The Home Furnishings division operated under the name Belding Hausman,
was vertically integrated and produced low to medium priced natural and
synthetic, woven, patterned and solid fabrics for use in decorative home
furnishing products such as draperies, upholstery, slipcovers and pillows.
ITEM 2. PROPERTIES
See ITEM 1.
ITEM 3. LEGAL PROCEEDINGS
General. The Company is not currently a party to any significant
litigation except as indicated below.
Environmental Matters. The Company is subject to a number of federal,
state and local environmental laws and regulations, including those concerning
the treatment, storage and disposal of waste, the discharge of effluents into
waterways, the emissions of substances into the air and various health and
safety matters. In addition, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes generally impose joint and several liability on present and
former owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. These parties are typically
identified as "potentially responsible parties" or PRP.
Several years ago a property owned by the Carlyle Manufacturing
Company, Inc. ("CM") located at 30 Echo Lake Road in Watertown, Connecticut was
being investigated by the United States Environmental Protection Agency ("EPA")
for possible inclusion on the National Priorities List promulgated pursuant to
CERCLA but no such listing has occurred. A Site Inspection conducted at this
location detected certain on-site soil and groundwater contamination, as well as
contamination of nearby water. This site is listed on the Connecticut State
Hazardous Waste Disposal Site list, but remediation activity has not been
required by the Connecticut Department of Environmental Protection ("CTDEP").
CM owns an inactive facility located in North Grosvenordale,
Connecticut at which soil contamination has been found. The Company reported
this contamination to the CTDEP in 1989 and is presently working with the CTDEP
to define remedial options for the site, which it expects will focus
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<PAGE> 6
primarily on removal and possible stabilization of contaminated soil on site.
The Company estimates the cost of remediation at this site to be approximately
$100,000 based upon information on the costs incurred by others in remediating
similar contamination at other locations. As the actual cost of remediation at
this site will depend on the areal extent of soil contamination and the
remediation options approved for this site in the future by the CTDEP, no
assurances can be given that the actual cost will not be higher than the
Company's current estimate.
In or about June 1992 the Company received notices from the EPA that
the Company, Belding Corticelli Thread Co. ("BCTC") and CM had been identified,
along with 1,300 other parties, as PRPs in connection with the alleged release
of hazardous substances from the Solvents Recovery Service of New England
Superfund Site in Southington, Connecticut (the "SRS site").
The Company settled its alleged liability in this matter by paying one
thousand six hundred twenty six dollars ($1,626) in connection with a settlement
offered to de minimis parties at the SRS site in 1994. BCTC and CM, along with
other PRPs, committed to perform the Remedial Investigation and Feasibility
Study ("RIFS") and two Non-Time Critical Removal Actions ("NTCRA") at the SRS
site. The RIFS and the first NTCRA have been completed. The aggregate cost to
complete the second NTCRA is estimated at approximately $3 million. BCTC and CM
have been allocated .03% and 1.19%, respectively, of costs incurred to date,
based on their alleged volume of waste shipped to the SRS site. The EPA is
expected to issue its "Record of Decision" concerning the final remedy at the
SRS site during 1998. The Company is unable, at this time, to estimate the
ultimate cost of the remedy for this site.
By letter dated January 21, 1994, the EPA gave notice to CM that it had
been identified as a PRP along with about 335 other parties in connection with
the alleged release of hazardous waste at the Old Southington Landfill Superfund
site located in Southington, Connecticut (the "OSL site"). The EPA's claim is
predicated on the allegation that certain waste sent to the SRS site prior to
October 1967 was commingled and transshipped to the OSL site.
On September 3, 1996, CM entered into an agreement (with the EPA and
other members of the SRS PRP Group) to settle its liability in connection with
the First Operable Unit of work ("OU#1") at the OSL site for two thousand
dollars ($2,000). The foregoing settlement is contingent upon court approval of
the OU#1 Consent Decree.
In September 1997, Pratt and Whitney and the Town of Southington
proposed a de minimis settlement which would allow CM and certain other members
of the SRS PRP Group (as well as certain Direct Shippers) to settle their future
OSL site liability for a sum certain (subject to certain reservation of rights
by the U.S.) Under this proposal, it is anticipated that CM's required payment
will be no greater than five thousand dollars ($5,000). CM has accepted the de
minimis offer.
The U.S. and the other parties to the above de minimis settlement are
presently negotiating the terms of a Consent Decree which will memorialize the
settlement. The de minimis settlement will be contingent upon court approval of
this Consent Decree.
By letter dated October 30, 1987, the Department of Environmental
Protection of the State of New Jersey ("DEP") notified the Company that CM,
together with 122 other parties, had been identified as a party responsible for
cleanup costs and damage claims paid in connection with the Chemical Control
Corporation hazardous waste site located in Elizabeth, New Jersey (the "CCC
site"). Pursuant to the New
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<PAGE> 7
Jersey Spill Compensation and Control Act, the DEP and the Spill Compensation
Fund (the "Fund") have demanded payment of $34 million. The DEP and the Fund
reserved the right to collect any costs and damages incurred during the ongoing
cleanup of the CCC site. The Company has cooperated with the committees
established to represent the interest of the parties in negotiations with the
DEP. The committees have advised the Company that there may be defenses to the
claim.
Negotiations with the State of New Jersey concerning the settlement of
the State's past costs for the CCC site have been ongoing since March of 1995. A
draft settlement agreement has been prepared and negotiations concerning the
terms and conditions of such settlement are continuing.
Given the de minimis nature of CM's alleged contribution of waste
disposed of at the CCC site (less than 1%), the Company currently believes that
its liability for this site shall not exceed $200,000, although no assurance can
be given that the ultimate cost will not exceed such amount.
By third-party summons and complaint dated November 27, 1991, CM was
named as a third-party defendant in an action pending in the United States
District Court for the District of Rhode Island entitled United States v. Davis.
In addition to CM, approximately 60 other companies were joined as third-party
defendants. Amended third-party complaints have named additional third-party
defendants. The third-party complaint against CM alleges claims for contribution
under CERCLA, common law indemnification and state law contribution. The
third-party complaint alleges that CM (and the majority of the other third-party
defendants) shipped waste to the CCC site, which waste was commingled and then
shipped to the Davis Liquid Waste site located in Smithfield, Rhode Island.
CM has entered into an agreement to settle liability in connection with
the above claims for payment of the sum of $200,000. The foregoing settlement
agreement is contingent upon Court approval of Consent Decrees between (i) the
U.S., CM and other settling parties and (ii) the state of Rhode Island, CM and
other settling parties. The United States District Court approved the Consent
Decree involving the U.S. in February 1998 but it remains subject to appeal. As
of December 31, 1997, payments totaling $176,000 have been made in connection
with this settlement.
The estimates provided above do not include costs that the Company or
its subsidiaries may incur for consultants' or attorneys' fees or for
administrative expenses in connection with their participation as part of the
PRP group at the SRS, OSL and CCC sites. The reserve the Company has established
for environmental liabilities, in the amount of $1.9 million, represents the
Company's best current estimate of the costs of addressing all identified
environmental problems, including the obligations of the Company and its
subsidiaries relating to the Remedial Investigation and two Non-Time Critical
Removal Actions at the Solvents Recovery Superfund site, based on the Company's
review of currently available evidence, and takes into consideration the
Company's prior experience in remediation and that of other companies, as well
as public information released by EPA and by the PRP groups in which the Company
or its subsidiaries are participating. Although the reserve currently appears to
be sufficient to cover these environmental liabilities, there are uncertainties
associated with environmental liabilities, and no assurances can be given that
the Company's estimate of any environmental liability will not increase or
decrease in the future. The uncertainties relate to the difficulty of estimating
the ultimate cost of any remediation that may be undertaken, including any
operating costs associated with remedial measures, the duration of any
remediation required, the amount of consultants' or attorneys' fees that may be
incurred, the administrative costs of participating in the PRP groups, and any
additional regulatory requirements that may be imposed by the federal or state
environmental agencies.
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<PAGE> 8
Escrow Agreement. In connection with the sale of the Thread division to
an affiliate of HP, $3.0 million of the proceeds were placed in escrow. Pursuant
to an indemnification obligation arising from the sale of the Thread division,
the Company has assumed the defense and indemnity of Barbour Threads, Inc.
("Barbour"), as the successor in interest to Carlyle Threads, Inc., Barbour
Industries, Inc. and Blue Mountain Industries, Inc. and an individual, H.D.
Whitlow ("Whitlow"), in an adversary proceeding which relates to a Chapter 11
reorganization, In re Needlecraft Industries, Inc. ("Needlecraft"), Case No. LA
97-41233 LF (the "Needlecraft Claim"). The Company has no role in the bankruptcy
or the prosecution of Barbour's claims against Needlecraft. In the adversary
proceeding, Needlecraft seeks compensatory damages of $600,000 and punitive
damages of $1 million, reformation of contract, and declaratory relief from
Barbour for alleged breach of an oral contract, detrimental reliance, and
negligent and intentional interference with prospective economic advantage. At a
hearing on January 6, 1998, the Bankruptcy Court dismissed the claims against
Whitlow for lack of subject matter jurisdiction. Needlecraft has recently filed
a notice of appeal from the dismissal. No discovery has occurred.
It is HP's position that any amounts payable to Needlecraft as a result
of the Needlecraft Claim would be recoverable by HP or its affiliates from the
escrowed portion of the purchase price paid for the Thread division. The Company
believes that there are meritorious defenses to the Needlecraft Claim and has
reserved its rights with respect to HP's indemnification claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) Market Information. The Company's Common Stock has been trading on
the NYSE, under the symbol CRL since March 27, 1997 and as BHY from February 15,
1995 to March 26, 1997. The following table sets forth certain information as to
the high and low sales prices per share of the Company's Common Stock as quoted
on the NYSE for each of the last two years.
<TABLE>
<CAPTION>
CALENDAR YEAR COMMON STOCK
------------- ------------
1996 Low High
---- --- ----
<S> <C> <C>
First Quarter $ 2.00 $ 3.125
Second Quarter $ 1.75 $ 2.50
Third Quarter $ 1.125 $ 2.375
Fourth Quarter $ 1.125 $ 3.125
<CAPTION>
1997
----
<S> <C> <C>
First Quarter $2.00 $3.00
Second Quarter $1.843 $2.25
Third Quarter $1.625 $2.25
Fourth Quarter $1.1875 $2.0625
</TABLE>
(B) New York Stock Exchange. As of December 31, 1997, the Company
failed to meet certain of the New York Stock Exchange (the "Exchange") continued
listing requirements. The Exchange and the Company have had discussions
concerning the Company's circumstances and the Company will presently be
submitting to the Exchange its plans to bring itself into compliance. Although
the Exchange has not informed the Company that it will be delisted, there can be
no assurance that it will not be delisted.
(C) Holders. There were 201 record holders of the Company's Common
Stock as of March 2, 1998. The Company believes that, as of such date, there
were in excess of 2,013 beneficial holders, including those stockholders whose
shares are held of record by depository companies.
(D) Dividends. No cash dividends on the Common Stock have been paid to
date and the Company has no intention of paying dividends in the foreseeable
future. In addition, dividends on the Common Stock are subject to the prior
right of holders of the Preferred Stock to receive cumulative dividends at the
rate of $.06 per annum per share (or, if the Company defaults on its obligation
to redeem shares of Preferred Stock on the mandatory redemption dates, at the
rate of 6% per annum on the principal amount of the Preferred Stock then
outstanding plus accrued and unpaid dividends thereon). In addition, the holders
of Preferred Stock are entitled, upon a dissolution, liquidation or winding up
of the Company, to a liquidation preference of $1 per share plus all accrued and
unpaid dividends. As the Company has not made any preferred dividend payments in
1995, 1996 or 1997, additional dividends are accruing on the scheduled but
unpaid dividends at a rate of 6% per annum.
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<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the
Company and its subsidiaries have been taken or derived from the financial
statements and other records of the Company and the Predecessor. Such selected
consolidated financial data are qualified in their entirety by, and should be
read in conjunction with, the consolidated financial statements of the Company
and its Predecessor.
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------------------------------------- -----------
THREE MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1996 1995 1994 1993 1993
----------------------------------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales (1) $ 19,641 $ 22,162 $ 20,352 $ 18,949 $ 5,295 $ 20,335
======== ======== ======== ======== ======== ========
Income from continuing operations 3,727 2,758 932 4,551 513 (20,945)
Income (loss) from continuing
operations applicable to common stock (2) 2,282 1,393 (350) 2,209 (94) (20,945)
Income (loss) from discontinued
operations, net of taxes (316) 2,080 (22,502) 3,072 1,037 3,521
Loss on disposal of discontinued
operations, net of taxes (9,801) -- (17,983) -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) applicable to common stock
before extraordinary item (7,835) 3,473 (40,835) 5,281 943 (17,424)
Extraordinary loss on debt prepayment,
net of tax benefit -- (266) -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) applicable to common
stock $ (7,835) $ 3,207 $(40,835) $ 5,281 $ 943 $(17,424)
======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA:
Continuing operations $ .31 $ .19 $ (.05) $ .42 $ (.02) $ (10.66)
Discontinued operations (1.37) .28 (5.46) .58 .21 1.79
Extraordinary item -- (.04) -- -- -- --
-------- -------- -------- -------- -------- --------
Total $ (1.06) $ .43 $ (5.51) $ 1.00 $ .19 $ (8.87)
======== ======== ======== ======== ======== ========
Cash dividend per common share None None None None None $ .32
======== ======== ======== ======== ======== ========
<CAPTION>
COMPANY AT DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 10,646 $ (1,512) $ (323) $ (84) $ 20
Total assets $ 25,062 $ 67,169 $ 75,727 $ 113,531 $ 105,006
Long-term debt, capital
lease obligations and
redeemable preferred stock $ 25,067 $ 56,647 $ 66,845 $ 61,262 $ 81,085
Common stockholders' equity $ (19,306) $ (11,471) $ (14,677) $ 26,162 $ 1,943
</TABLE>
(1) Predecessor amounts for the nine months ended September 30, 1993 include
sales and net loss of $4.572 million and $992 thousand respectively related to
Pentapco, a division which was sold in April 1993.
(2) Net income in 1994 includes $4.099 million or $.78 per share of gain on
preferred stock redemption.
Page 10 of 44
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales during the year ended December 31, 1997 totaled $19.6 million as
compared to $22.2 million during the comparable period in 1996. During the year
ended December 31, 1996 sales were favorably impacted by the initial placement
of a new program with two major customers.
Gross margin during the year ended December 31, 1997 totaled $10.1
million as compared to $11.5 million during the comparable period in 1996. The
gross margin percentage during 1997 was 51.6% compared to 52.0% for 1996.
Selling, general and administrative expense during the year ended
December 31, 1997 totaled $4.6 million as compared to $7.0 million during the
year ended December 31, 1996. The reduction in selling, general and
administrative expense in 1997 as compared to 1996 was primarily the result of
the lower corporate administrative headcount and expense.
Interest expense related to outstanding debt under former credit
facilities is classified as discontinued operations during the years ended
December 31, 1997 and 1996, as the outstanding debt under such credit facilities
was required to be repaid in connection with the sales of the discontinued
operations.
During March 1997 the Company completed the sale of its Thread
division. $37.0 million of the proceeds received on the sale were used to repay
outstanding bank indebtedness. The results of the Thread division for the period
January 1, 1997 through March 26, 1997 and for all prior periods have been
presented as results of discontinued operations.
Summarized condensed operating results of the Thread division through
date of sale in 1997 and for the years ended December 31, 1996 and 1995 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 9,671 $ 66,845 $ 68,832
========= ========= =========
Gross margin 1,589 13,945 12,220
Selling, general and administrative 1,271 6,376 7,426
--------- --------- ---------
Operating income $ 318 $ 7,569 $ 4,794
========= ========= =========
</TABLE>
The provision for income taxes during 1997 totaled $2.1 million as
compared to $1.7 million during the comparable period in 1996. The effective
income tax rate in 1997 was 36.3% as compared to 38.7% during 1996.
Preferred dividends accrued during the year ended December 31, 1997
totaled $1.445 million as compared to $1.365 million during the year ended
December 31, 1996.
Page 11 of 44
<PAGE> 12
1996 COMPARED TO 1995
Sales for the year ended December 31, 1996 totaled $22.2 million as
compared to $20.4 million in 1995 for an increase of $1.8 million. During the
year ended December 31, 1996, sales were favorably impacted by the initial
placement of a new program with two major customers.
Gross margin in 1996 was $11.5 million or 52% of sales as compared to
$9.8 million or 47.9% of sales in 1995 for an increase of $1.8 million.
Selling, general and administrative expense totaled $7.0 million during
the year ended December 31, 1996 as compared to $8.4 million in 1995. The
reduction in selling, general and administrative expenses was primarily the
result of reduced corporate spending.
During the fourth quarter of 1995 the Company announced its decision to
divest the Home Furnishings division. On July 31, 1996, the Company completed
the sale of the division. Proceeds received on the sale, adjusted for closing
costs and changes in net asset value of the division subsequent to the contract
date totaling $8.2 million were used to repay outstanding bank indebtedness. The
results of the Home Furnishings division for the period January 1, 1996 through
July 31, 1996 and for all prior periods have been presented as results of
discontinued operations.
Summarized condensed operating results of the Home Furnishings division
through date of sale in 1996 and for the years ended December 31, 1995 and 1994
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net sales 19,206 30,084 40,734
Gross margin 1,690 3,380 6,585
Selling, general and administrative 1,543 3,298 4,307
Operating income 76 82 2,287
</TABLE>
The effective combined income tax rate for 1996 was 38.7%. The primary
reason for the higher than statutory rate was the non-deductible goodwill
amortization during 1996.
On December 30, 1996, the Company refinanced its outstanding bank debt
with a new bank group. As a result, $.4 million of unamortized deferred
financing costs associated with the old facility was written off as an
extraordinary item. A related tax benefit of $.2 was also recorded.
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.
Page 12 of 44
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's principal sources of liquidity
included cash and cash equivalents of $12.5 million and trade accounts
receivable of $3.0 million. In connection with the sale of the Thread division,
the Company estimates that it will be obligated to pay approximately $7.3
million of Federal and state income taxes in March 1998.
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.
Under the terms of the Company's charter, dividends are payable upon
the Preferred Stock when, as and if declared by the Board of Directors out of
legally available funds. In addition, the Preferred Stock is required to be
redeemed by the Company in annual installments of $4.2 million beginning March
15, 1995 through March 1999, subject among other things to the extent of legally
available funds as determined by the Board of Directors and the approval of the
Company's senior lenders, if any. 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 redeem the
Preferred Stock to the extent of its legally available funds. As of December 31,
1997, the Preferred Stock payment arrearages aggregated $16.7 million including
accrued but unpaid preferred dividends of $4.2 million. Accrued but unpaid
dividends are added to the redemption value of the Preferred Stock and the total
continues to accrue interest at a compound rate of 6% per annum.
The Company is engaged in discussions with Noel Group, Inc. ("Noel"),
with a view of satisfying its obligations to the holders of the Preferred Stock
in accordance with the terms of its charter and to the extent consistent with
the Company's resources. Discussions have dealt with the amount and timing of
payments and possible modifications of the Preferred Stock agreement. Any such
modifications would require the agreement of the Company and the holders of the
Preferred Stock.
The Company intends to fulfill its obligation to the holders of the
Preferred Stock as required by the Company's charter to the extent the Company
has cash resources in excess of those required to operate its business. As the
Company believes that it 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 additional financing. In addition, as the Company has agreed to notify
the Pension Benefit Guaranty Corporation ("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. In December 1997,
the Company notified the PBGC that it intends to redeem $10 million of Preferred
Stock as soon after year end as is practicable, but only to the extent of
legally available funds as determined by the Board of Directors and after
appropriate bank financing has been satisfactorily obtained. Following such
notice, the PBGC indicated that it would not take any action with respect to
such payments. The Company is currently exploring the possibility of securing
bank financing which would enable such payments to be made, assuming the Board
of Directors
Page 13 of 44
<PAGE> 14
determines there are sufficient legally available funds. The Company is also
exploring strategic alternatives to such financing.
The reserve the Company has established for environmental liabilities,
in the amount of $1.9 million, represents the Company's best current estimate of
the costs of addressing all identified environmental problems, based on the
Company's review of currently available evidence, and takes into consideration
the Company's prior experience in remediation and that of other companies, as
well as public information released by EPA and by the PRP groups in which the
Company or its subsidiaries are participating. Although the reserve currently
appears to be sufficient to cover these environmental liabilities, there are
uncertainties associated with environmental liabilities, and no assurances can
be given that the Company's estimate of any environmental liability will not
increase or decrease in the future. The uncertainties relate to the difficulty
of estimating the ultimate cost of any remediation that may be undertaken,
including any operating costs associated with remedial measures, the duration of
any remediation required, the amount of consultants' or attorneys' fees that may
be incurred, the administrative costs of participating in the PRP groups, and
any additional regulatory requirements that may be imposed by the federal or
state environmental agencies.
Cash used by operations during the year ended December 31, 1997 totaled
$2.7 million which included income from continuing operations of $3.7 million,
depreciation and amortization of $.5 million and deferred tax provision of $2.5
million offset by $3.0 million of changes in operating assets and liabilities,
principally resulting from a decrease in other liabilities and cash used by
discontinued operations totaling $6.5 million.
Net cash provided by investing activities during the year ended
December 31, 1997 totaled $52.1 million which included net proceeds of $51.9
million from the sale of the Thread division and $.5 million from the sale of a
former operating facility in West New York, New Jersey, offset by $.3 million of
capital expenditures.
Net cash used by financing activities during the year ended December
31, 1997 totaled $37.0 million as all outstanding bank debt at March 26, 1997
was repaid.
At December 31, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $.1 million and trade accounts receivable
of $2.8 million. At December 31, 1996 the Company had $2.9 million of unused
availability under its revolving credit facility (the "Revolving Facility").
Cash provided by operations in 1996 totaled $2.5 million and represents
principally net income from continuing operations of $2.8 million, adjusted by
$.5 million of depreciation and amortization and $1.6 million of deferred tax
provision. These cash inflows were reduced by changes in operating assets of
$1.3 million and discontinued operations cash outflows of $1.1 million.
Net cash provided by investing activities during 1996 totaled $8.1
million and represents principally proceeds received from the sale of
discontinued Home Furnishings division.
Net cash used by financing activities totaled $11.5 million. Proceeds
from the sale of the Home Furnishings division were used to repay bank debt.
Page 14 of 44
<PAGE> 15
YEAR 2000 ISSUES
Management is currently in the process of working with its software
vendors to obtain year 2000 compliant systems. Based on information currently
available, management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
system improvements to be year 2000 compliant, however, the Company is still in
the preliminary stages of analyzing its systems and requirements. To the extent
the Company's systems are not fully year 2000 compliant, there can be no
assurance that potential systems interruptions or the cost necessary to update
software would not have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. The Company
does not currently have any information concerning the year 2000 compliance
status of its suppliers and customers. In the event that any of the Company's
significant suppliers or customers do not successfully and timely achieve year
2000 compliance, the Company's business or operations could be adversely
affected.
Page 15 of 44
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Public Accountants.................................. 17
Consolidated Balance Sheets- December 31, 1997 and 1996................... 18
Consolidated Statements of Operations -
Years Ended December 31, 1997, 1996 and 1995..................... 20
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995 .................... 21
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995............ 22
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1997, 1996 and 1995............. 23
Consolidated Financial Statements Schedule
Schedule II - Valuation, Qualifying Accounts and Reserves........ 36
Page 16 of 44
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Carlyle Industries, Inc.
We have audited the accompanying consolidated balance sheets of Carlyle
Industries, Inc. [formerly Belding Heminway Company, Inc. ] (a Delaware
corporation) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Carlyle
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The 1997, 1996 and 1995 schedule listed
in the index to financial statements and schedule are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. The 1997, 1996 and 1995 schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 6, 1998
Page 17 of 44
<PAGE> 18
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,475 $ 131
Accounts receivable trade (net of allowance
of $879 and $1,935 respectively) 3,040 2,847
Inventories, net 2,541 2,838
Current deferred tax asset 2,740 2,688
Other current assets 118 330
Net assets of discontinued operations -- 53,439
-------- --------
Total current assets 20,914 62,273
-------- --------
Property, plant and equipment, at cost:
Land 40 32
Building and improvements 1,852 2,341
Machinery and equipment 617 971
-------- --------
2,509 3,344
Less: Accumulated depreciation and amortization (739) (694)
-------- --------
Net property, plant and equipment 1,770 2,650
-------- --------
Goodwill (net of amortization of $656 and $562 respectively) 2,152 2,246
Other assets 226 --
-------- --------
Total Assets $ 25,062 $ 67,169
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 18 of 44
<PAGE> 19
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 731 $ 3,100
Current maturities of long-term debt 51 4,111
Federal income taxes payable 6,514 --
Other current liabilities 2,972 3,135
-------- --------
10,268 10,346
-------- --------
Long-Term Debt 78 33,058
Other Liabilities 9,033 11,692
-------- --------
Total Liabilities 19,379 55,096
-------- --------
Redeemable Preferred Stock, par value $0.01 per share
Shares authorized at December 31, 1997 and
1996: 21,305,055
Shares issued and outstanding at
December 31, 1997 and December 31, 1996: 20,805,060 20,805 20,805
Accumulated dividends on preferred stock 4,184 2,739
-------- --------
24,989 23,544
-------- --------
Common Stock, par value $0.01 per share
Shares authorized: 20,000,000 at December 31, 1997
and December 31, 1996
Shares issued and outstanding at December 31, 1997:
7,382,782; December 31, 1996: 7,388,282 74 74
Paid in Capital 19,858 19,858
Retained Earnings (39,238) (31,403)
-------- --------
Total Common Stockholders' Equity (19,306) (11,471)
-------- --------
Total Liabilities and Stockholders' Equity $ 25,062 $ 67,169
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 19 of 44
<PAGE> 20
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 19,641 $ 22,162 $ 20,352
Cost of sales 9,497 10,638 10,602
-------- -------- --------
10,144 11,524 9,750
Selling, general & administrative expenses 4,612 7,022 8,419
Other income, net (12) (52) (229)
-------- -------- --------
Income from continuing operations before
interest and income taxes 5,544 4,554 1,560
Interest income (expense) 304 (52) --
-------- -------- --------
Income from continuing operations before taxes 5,848 4,502 1,560
Provision for income taxes 2,121 1,744 628
-------- -------- --------
Income from continuing operations 3,727 2,758 932
Less dividends on preferred stock 1,445 1,365 1,282
-------- -------- --------
Income (loss) from continuing operations applicable
to common stock 2,282 1,393 (350)
Income (loss) from discontinued operations,
net of income tax provision (316) 2,080 (22,502)
Loss on disposal of discontinued operations,
net of income tax (9,801) -- (17,983)
-------- -------- --------
Income (loss) applicable to common stock
before extraordinary item (7,835) 3,473 (40,835)
Extraordinary loss on debt prepayment, net of tax
benefit of $178 in 1996 -- (266) --
-------- -------- --------
Net income (loss) applicable to common stock $ (7,835) $ 3,207 $(40,835)
======== ======== ========
Basic earnings (loss) per common share:
Continuing operations $ .31 $ .19 $ (.05)
Discontinued operations (1.37) .28 (5.46)
Extraordinary item -- (.04) --
-------- -------- --------
Total $ (1.06) $ 0.43 $ (5.51)
======== ======== ========
Diluted earnings (loss) per common share:
Continuing operations $ .31 $ .19 $ (.05)
Discontinued operations (1.37) .28 (5.46)
Extraordinary item -- (.04) --
-------- -------- --------
Total $ (1.06) $ .43 $ (5.51)
======== ======== ========
Dividend declared per common share None None None
======== ======== ========
Weighted average common shares
outstanding (in thousands) 7,386 7,395 7,414
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 20 of 44
<PAGE> 21
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 3,727 $ 2,758 $ 932
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 452 480 543
Deferred tax provision 2,521 1,609 417
Changes in operating assets and liabilities:
Accounts receivable (193) 275 821
Inventory 297 682 1,698
Federal income taxes receivable -- 675 (150)
Other current assets -- (2,031) 1,968
Accounts payable (790) 198 1,433
Other current liabilities 80 (273) (1,473)
Other operating assets and liabilities (509) (334) (227)
Other liabilities (1,854) (220) (2,676)
Cash flow from extraordinary item -- (266) --
Cash flow from discontinued operations (5,968) (1,093) (3,184)
-------- -------- --------
(2,237) 2,460 102
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations 51,924 8,190 --
Capital expenditures (323) (56) (973)
-------- -------- --------
51,601 8,134 (973)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility and
capitalized lease obligations 20,279 31,809 40,551
Repayment of long-term debt and capital lease obligations (57,299) (43,268) (39,219)
-------- -------- --------
(37,020) (11,459) 1,332
-------- -------- --------
Increase (decrease) in cash and cash equivalents 12,344 (865) 461
Cash and cash equivalents beginning of year 131 996 535
-------- -------- --------
Cash and cash equivalents end of year $ 12,475 $ 131 $ 996
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 856 $ 4,321 $ 4,349
======== ======== ========
Income taxes $ 152 $ 185 $ 1,146
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 21 of 44
<PAGE> 22
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PAID IN RETAINED
SERIES B PREFERRED STOCK COMMON STOCK CAPITAL EARNINGS
-------------------------------------- ------------------------ ---------- ----------
Accum.
Shares Amount Dividend Shares Amount
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 20,805,060 $ 20,805 $ 92 7,429,032 $ 74 $ 19,863 $ 6,225
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss (39,553)
Dividends accrued on
preferred stock 1,282 (1,282)
Common stock returned (19,750) (4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1995 20,805,060 $ 20,805 $ 1,374 7,409,282 $ 74 $ 19,859 $ (34,610)
========== ========== ========== ========== ========== ========== ==========
Net income 4,572
Dividends accrued on
preferred stock 1,365 (1,365)
Common stock returned (21,000) (1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1996 20,805,060 $ 20,805 $ 2,739 7,388,282 $ 74 $ 19,858 $ (31,403)
========== ========== ========== ========== ========== ========== ==========
Net loss (6,390)
Dividends accrued on
preferred stock 1,445 (1,445)
Common stock returned (5,500)
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1997 20,805,060 $ 20,805 $ 4,184 7,382,782 $ 74 $ 19,858 $ (39,238)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
Page 22 of 44
<PAGE> 23
Carlyle Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operation: Carlyle Industries, Inc. and its Subsidiaries (the
"Company" formerly Belding Heminway Company, Inc. ) distribute a line of home
sewing and craft products, principally buttons. The Company was organized under
the laws of the State of Delaware in 1947.
Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and all subsidiaries after elimination of
intercompany items and transactions.
Reclassifications and Discontinued Operations: In order to conform to
the 1997 presentation, certain reclassifications were made to the prior years'
financial statements. See Note 2 regarding discontinued operations.
Revenue Recognition: Revenue is recognized upon shipment of
merchandise.
Sales Returns: The Company estimates an allowance for sales returns
based on historical sales and sales returns and records a related allowance, if
significant.
Allowance for Doubtful Accounts: The Company maintains a reserve for
doubtful accounts which includes 100% of all invoices past due 61 days or more
and other items that management deems doubtful of collection.
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.
Income Taxes: Deferred income taxes are determined using the liability
method following the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109 (Accounting for Income Taxes) whereby the future expected
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements are
recognized as deferred tax assets and liabilities.
Impairment: Long term assets are reviewed for impairment following the
provisions of SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of). Goodwill not associated with
particular assets is reviewed for impairment based on an analysis of
undiscounted future cash flows associated with the related operation.
Goodwill: Goodwill is amortized on a straight line basis over a
thirty-year period.
Environmental Liabilities: The Company accrues for losses associated
with environmental remediation obligations when such losses are probable and
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances
Page 23 of 44
<PAGE> 24
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.
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.
2. DISCONTINUED OPERATIONS:
On March 26, 1997, the Company sold the assets and specified
liabilities of the Company's Thread division to an affiliate of Hicking
Pentecost PLC ("HP"). The aggregate cash consideration was $54.9 million, of
which $3.0 million was placed in escrow subject to certain post-closing
adjustments, plus the assumption of approximately $6.8 million of long term
liabilities. The proceeds from the $3.0 million held in escrow, if any, will be
recognized as income from discontinued operations, net of related income taxes
when, and if, the funds become receivable by the Company.
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 $7.3 million of income taxes related to the
tax gain resulting from this transaction in March 1998. Nondeductible goodwill
associated with the Thread division amounting to approximately $18.0 million was
charged to discontinued operations in connection with the 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. The Thread
division had revenues of $9.8 million through the date of disposition in 1997
and $66.8 million and $68.8 million during the years ended December 31, 1996 and
1995 respectively.
During the fourth quarter of 1995, the Company announced its decision
to divest the Home Furnishings division. Consequently, the results of operations
of the Home Furnishings division for 1995 and for 1996 through the date of its
sale on July 31, 1996 are classified as discontinued operations.
In connection with the divestiture of the Home Furnishings division,
the Company recorded an estimated loss on disposition in the amount of $18
million net of income tax benefit during the fourth quarter of 1995, including
$7.6 million of goodwill write-off. Proceeds of $8.2 million were received on
the sale of this division and were used to pay down the Company's revolving bank
loan. Such net proceeds approximated the amount that had been borrowed under the
revolving loan in support of the Home Furnishings division's inventories and
receivables. The repayment of bank debt was sufficient in amount to avoid bank
fees that would have been payable had the Company not completed the sale within
the time frame prescribed by the Company's Credit Agreement dated October 29,
1993, as amended ("Credit Agreement"), or in an amount sufficient to repay
amounts borrowed against the division's inventories and receivables. The Home
Furnishings division had revenues of $19.2 million through the date of
disposition in 1996 and $30.1 million during the year ended December 31, 1995.
Page 24 of 44
<PAGE> 25
3. THREAD DIVISION ASSET IMPAIRMENT:
During 1995, the Thread division's results were substantially below
historical levels and the levels expected when the Company was acquired in 1993.
Based on the performance and expected future levels of operations, management
determined that the book value of certain property, plant, and equipment, which
was adjusted to reflect the 1993 acquisition, was impaired. As a result, the
Company recorded an impairment charge of $6.4 million to adjust the book value
of the equipment to its estimated December, 1995 fair value. Fair value was
based on estimated realizable value in a sale. Among other factors, the write
down reflects the failure of plant consolidations made in connection with the
acquisition to achieve expected results and the estimated effect of future cost
reduction activities on the revenues associated with those assets. A
proportionate amount of goodwill allocated to the Thread division in connection
with the 1993 acquisition was also written-off following the principles in SFAS
No. 121. The goodwill write-off was $17.4 million and other related charges were
$1.2 million. The Company's adoption of SFAS No. 121 (Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of) was
effective January 1, 1995, and the adoption had no impact on the consolidated
financial statements as of that date. Both the impairment adjustment and the
goodwill write-off are classified as results of discontinued operations.
4. INVENTORIES:
The components of inventories as of December 31, net of reserves are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials $ 1,976 $ 1,932
Work in progress 10 10
Finished goods 555 896
--------- ---------
$ 2,541 $ 2,838
========= =========
</TABLE>
At December 31, 1997 and 1996, inventories were valued by the last-in
first-out ("LIFO") method. If the first-in, first-out ("FIFO") method (which
approximates replacement costs) of inventory accounting had been used by the
Company, inventories would not have been materially affected.
Inventories are stated at lower of cost or market with cost determined on
a LIFO basis. Cost elements included in inventory are material, labor and
factory overhead, primarily using standard cost, which approximates actual cost.
Page 25 of 44
<PAGE> 26
5. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES:
Other liabilities as of December 31 consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
CURRENT 1997 1996
--------- ---------
<S> <C> <C>
Insurance............................................ $ 725 $ 1,495
Salaries, wages, bonuses and other compensation...... 570 993
State income taxes................................... 731 --
Other................................................ 946 647
--------- ---------
$ 2,972 $ 3,135
========= =========
<CAPTION>
LONG TERM 1997 1996
--------- ---------
<S> <C> <C>
Pension liabilities.................................. $ 2,855 $ 3,319
Environmental accruals............................... 1,911 2,003
Other post-retirement benefits....................... 2,873 2,771
Unfavorable lease.................................... -- 1,746
Other................................................ 1,394 1,853
--------- ---------
$ 9,033 $ 11,692
========= ========
</TABLE>
6. DEBT:
On March 26, 1997, 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.
Debt obligations as of December 31 consist of (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Senior Bank Facilities
Term Loan (a)................................... $ -- $ 22,000
Revolving credit facility (a)................... -- 14,929
Capitalized lease obligations........................ 129 220
Note Payable Connecticut Development Authority....... -- 65
--------- ---------
129 37,214
Less: Current maturities............................ 51 4,111
--------- ---------
$ 78 $ 33,103
========= =========
</TABLE>
(a) The Senior Bank Facilities under the Loan and Security Agreement
dated December 30, 1996, consisted of (i) two term loans, Term Loan A and Term
Loan B in the amounts of $14.0 million and $8.0 million, respectively and (ii) a
$20.0 million senior revolving credit facility (the "Revolving Facility") up to
which $2.0 million was available for trade letters of credit (which letters of
credit are subject to certain fees).
Page 26 of 44
<PAGE> 27
7. LEASE PAYMENTS:
The following is a schedule of future minimum lease payments under
capital and non-cancelable operating leases with initial or remaining terms of
one year or more at December 31, 1997 (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 62
1999 62
2000 26
-------
Total minimum lease payments 150
Amount representing interest 21
-------
Present value of future minimum lease
payments (including current portion of $51) $ 129
=======
</TABLE>
Rental expense for premises and machinery and equipment leased by the
Company under operating leases was as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Premises $ 101 $ 374 $ 345
Machinery $ 8 $ 8 $ 53
</TABLE>
8. FINANCIAL INSTRUMENTS:
The Company's financial instruments are comprised of cash, cash
equivalents, accounts receivable and Series B Preferred Stock at December 31,
1997. The carrying amounts of cash, cash equivalents and accounts receivable
approximate fair values due to the short-term maturity of the instruments. It
was not practicable to obtain an estimate of the fair value of the Company's
Series B Preferred Stock.
9. CUSTOMER CONCENTRATION:
During the years ended December 31, 1997, 1996 and 1995, the Company
conducted business with three customers whose aggregate sales volume represented
approximately 78%, 75% and 67% of the Company's net revenues, respectively.
These customers also represented approximately 87% and 85% of the total
outstanding accounts receivable as of December 31, 1997 and 1996 respectively. A
reduction in sales to any of these customers could adversely impact the
financial condition and results of operations of the Company.
10. PENSION PLAN:
The Company sponsors a defined benefit plan which requires no
contribution from the employees. The plan was frozen as of December 31, 1994,
and no new employees have been eligible to join this plan after that date. Prior
to December 31, 1994, the Plan covered substantially all employees. The
employees covered under this plan do not receive any additional accruals for
service rendered after December 31, 1994. Plan assets consist principally of
common stocks and U.S. Government and corporate obligations.
Page 27 of 44
<PAGE> 28
Net periodic pension cost of the pension plan was as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Service cost on benefits earned
during the year.............................. $ -- $ -- $ --
Interest costs on projected benefit obligations 1,481 1,473 1,455
Actual return on plan assets................... (4,153) (3,239) (3,558)
Net amortization and deferral.................. 2,337 1,606 2,271
-------- --------- ---------
Net periodic pension (credit) expense.......... $ (335) $ (160) $ 168
========= ========== =========
</TABLE>
The benefits under this plan are determined based on formulas which
reflect the employees' years of service and compensation during their employment
period. The projected unit credit method is used to determine pension cost.
Funding requirements for the plan are based on the unit credit method. The
Company's policy is to fund pension cost as required by ERISA.
The following table sets forth information on the plan as of December
31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested.................................. $ 20,672 $ 19,488
========= =========
Accumulated ............................ $ 20,704 $ 19,525
========= =========
Projected............................... $ 20,704 $ 19,525
Fair value of plan assets................... 22,542 19,877
--------- ---------
Fair value of plan assets in excess of
projected benefit obligation........... (1,838) (352)
Unrecognized gain........................... 2,864 1,854
--------- ---------
Accrued pension cost........................ $ 1,026 $ 1,502
========= =========
</TABLE>
Assumptions used in measuring the pension obligation at December 31
were:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Weighted average discount rate 7.25% 7.75%
Rate of increase of compensation levels N/A N/A
Expected long-term rate of return on assets 9.5% 9.5%
</TABLE>
In addition to its liability for the Company sponsored plan, the
Company also had an additional pension liability in the amount of $1.8 million
as of December 31, 1997 in connection with two terminated multi-employer plans
which the Company is required to fund over a period of nineteen years.
11. OTHER POST-RETIREMENT BENEFITS:
The Company provides certain health and life insurance benefits for
eligible retirees and their dependents. The Company accounts for post retirement
benefits in accordance with SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions," whereby the cost of
post-retirement benefits are accrued during employees' working careers. The plan
is not funded. The Company's policy is to pay the cost of benefits as incurred.
Page 28 of 44
<PAGE> 29
Certain benefits are available to full-time employees who were over age
30, as of January 1, 1992, provided such employees work for the Company for 25
years and reach certain ages, but not less than age 55. Employees hired after
January 1, 1993 are not eligible to receive benefits under this Plan.
The present value of the postretirement benefit accrual at December 31,
1997 and 1996 measured in accordance with the standard at a 7.25% and 7.75%
discount rate, respectively, is estimated as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Retirees.................................. $ 3,149 $ 3,833
Fully eligible active plan participants... 190 299
Other active participants................. 17 371
-------- --------
Subtotal.............................. 3,356 4,503
Unrecognized net loss..................... 483 133
-------- --------
$ 2,873 $ 4,370
======== ========
</TABLE>
A 7.75% discount rate was used to measure expense for the year ended
December 31, 1997. For the years ended December 31, 1996 and 1995 discount rates
of 7.5% and 8.5% respectively were used to measure the expense.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Service Cost....................... $ -- $ 25 $ 33
Interest Cost...................... 251 355 367
Amortization of Transition Obligation 54 20 --
------- ------- -------
$ 305 $ 400 $ 400
======= ======= =======
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation at December 31, 1997 was 8% for
1998, decreasing gradually to 4% by the year 2001. A one-percentage point
increase in the assumed health care cost trend rate would not change the
actuarial present value of accumulated postretirement benefit obligation due to
annual limitations of Company contributions per employee.
12. PENSION BENEFIT GUARANTY CORPORATION:
In January 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified the Company that it was considering whether the sale of the Thread
division to HP would create an obligation under ERISA to immediately fund, in
whole or in part, the Company's unfunded liability to its defined benefit plan.
In February 1997, at the request of the PBGC, the Company agreed to provide the
PBGC with at least thirty (30) days advance notice of any proposed dividend,
stock redemption, stockholder buyback or other distribution to shareholders of
any class of equity which is projected to occur at any time prior to March 31,
2002. In consideration of such agreement, the PBGC agreed not to take action
solely with respect to the proposed sale transaction. In December 1997, the
Company notified the PBGC that it intends to redeem $10 million of Preferred
Stock as soon after year end as is practicable, but only to the extent of
legally available funds as determined by the Board of Directors and if
appropriate bank financing has been satisfactorily obtained. Following such
notice, the PBGC indicated that it would not take any action with respect to
such payments.
Page 29 of 44
<PAGE> 30
If the PBGC had taken the position that the Company should fund, in
whole or in part, the unfunded liability to the defined benefit plan, after
receiving notice of a proposed dividend, stock redemption, stockholder buyback
or other distribution to shareholders, and if such position were upheld, the
ability of the Company to take any such proposed action could be adversely
affected. The Company's liability to its defined benefit plan is recorded, in
accordance with financial accounting standards, at $1.0 million as of December
31, 1997. Were the plan to be terminated or were the PBGC to require that the
plan be funded according to different standards, the Company's obligation to
transfer cash to the plan could be larger than the liability reflected on the
balance sheet. Based on an actuarial estimate, the obligation to transfer cash
in the event of a termination would be $2.2 million in excess of the balance
sheet liability. Any actual amounts transferred in the event of a plan
termination would depend on PBGC action and market conditions at the time of
transfer and could differ significantly from this estimate. For information with
respect to the Company's liability to its defined benefit plan, see Note 10.
13. DEFAULT ON PREFERRED STOCK
Under the terms of the Company's charter, dividends are payable upon
the Preferred Stock when, as and if declared by the Board of Directors out of
legally available funds. In addition, the Preferred Stock is required to be
redeemed by the Company in annual installments of $4.2 million beginning March
15, 1995 through March 1999, subject among other things to the extent of legally
available funds as determined by the Board of Directors and the approval of the
Company's senior lenders, if any. 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 redeem the
Preferred Stock to the extent of its legally available funds. As of December 31,
1997, the Preferred Stock payment arrearages aggregated $16.7 million including
accrued but unpaid preferred dividends of $4.2 million. Accrued but unpaid
dividends are added to the redemption value of the Preferred Stock and the total
continues to accrue interest at a compound rate of 6% per annum.
The Company is engaged in discussions with Noel Group, Inc. ("Noel"),
with a view of satisfying its obligations to the holders of the Preferred Stock
in accordance with the terms of its charter and to the extent consistent with
the Company's resources. Discussions have dealt with the amount and timing of
payments and possible modifications of the Preferred Stock agreement. Any such
modifications would require the agreement of the Company and the holders of the
Preferred Stock.
The Company intends to fulfill its obligation to the holders of the
Preferred Stock as required by the Company's charter to the extent the Company
has cash resources in excess of those required to operate its business. As the
Company believes that it 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 additional financing. In addition, as the Company has agreed to notify
the Pension Benefit Guaranty Corporation ("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. In December 1997,
the Company notified the PBGC that it intends to redeem $10 million of Preferred
Stock as soon after year end as is practicable, but only to the extent of
legally available funds as determined by the Board of Directors and after
appropriate
Page 30 of 44
<PAGE> 31
bank financing has been satisfactorily obtained. Following such notice, the PBGC
indicated that it would not take any action with respect to such payments. The
Company is currently exploring the possibility of securing bank financing which
would enable such payments to be made, assuming the Board of Directors
determines there are sufficient legally available funds.
14. STOCKHOLDERS' EQUITY:
COMMON STOCK
Each share of Common Stock is entitled to one vote per share. As of
December 31, 1997 there were 20,000,000 shares of Common Stock authorized and
7,382,782 shares outstanding.
PREFERRED STOCK
Each share of Series B Preferred Stock is entitled to one vote per
share. As of December 31, 1997 there were 21,305,055 shares of Preferred Stock
authorized and 20,805,060 shares of Series B Preferred Stock issued and
outstanding. The Series B Preferred Stock is entitled to a preference on
liquidation equal to $1 per share plus accrued and unpaid dividends at the rate
of $.06 per annum per share. There remain 499,995 shares of authorized but
unissued shares of blank check Preferred Stock.
Twenty percent of the shares of Series B Preferred Stock amounting to
approximately $4.2 million or $.57 per common share are scheduled to be redeemed
by the Company, from funds legally available therefore, on March 15th of each
year commencing in 1995 and ending in 1999. Such shares may also be redeemed at
any time at the Company's option. To date, no such redemption payments have been
made.
Dividends on the Series B Preferred Stock accrue at an annual rate of
6% and are payable quarterly on March 15, June 15, September 15, and December
15. To date, no such dividend payments have been made. Additional dividends
accrue on all scheduled but unpaid dividends at a rate of 6% per annum.
The amount of accrued but unpaid dividends at December 31, 1997 was
approximately $4.2 million or $.57 per common share. The amount of scheduled but
unpaid Preferred Stock redemptions as of December 31, 1997 was approximately
$12.5 million. In addition, the availability of resources to make payments to
the holders of 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; and the ability of the Company to obtain
financing. In addition, as described in Note 12, the Company has agreed to
notify the PBGC thirty (30) days prior to taking certain actions, including the
payment of any dividend on or any redemption of stock. The Company's decision to
make any such payments will depend on the successful resolution of any issues
which may arise with the PBGC as discussed in Note 13.
Because of its holdings of Preferred Stock, Noel has approximately
68.5% of the vote with respect to the Company's capital stock.
Page 31 of 44
<PAGE> 32
15. INCOME TAXES:
The income (loss) before income taxes for the periods ended December
31, 1997, 1996 and 1995 are substantially all domestic in origin.
The components of the income tax provision or benefit are (dollars in
thousands):
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Current provision (benefit) $ (400) $ 135 $ 211
Deferred provision (benefit) 2,521 1,609 417
--------- --------- --------
$ 2,121 $ 1,744 $ 628
========= ========= ========
</TABLE>
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Current provision $ 7,503 $ 111 $ 151
Deferred provision (benefit) (2,162) 1,324 (7,733)
---------- --------- --------
$ 5,341 $ 1,435 $ (7,582)
========= ========= ========
</TABLE>
The Company's tax provision or benefit differed from that which would
have been provided at a 34% rate as follows (dollars in thousands):
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Federal provision at 34% $ 1,988 $ 1,531 $ 530
State and local provision, net 95 170 65
Amortization of goodwill 32 31 32
Other, net 6 12 1
--------- --------- --------
$ 2,121 $ 1,744 $ 628
========= ========= ========
</TABLE>
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Federal provision at 34% $ (1,624) $ 1,160 $(16,343)
Foreign loss (income) --- --- 30
State and local provision, net 352 15 (578)
Amortization/write-off of goodwill 6,119 257 9,278
Other, net 494 3 31
--------- --------- --------
$ 5,341 $ 1,435 $ (7,582)
========= ========= ========
</TABLE>
The income tax benefit applicable to discontinued operations as of
December 31, 1995 (in thousand of dollars) consisted of $6,603 from loss on
disposal and $979 from loss from operations.
Page 32 of 44
<PAGE> 33
At December 31, 1997 and 1996, the components of the net deferred tax
asset are (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Book value of fixed assets over tax basis $ (536) $ (5,065)
Pension liabilities 1,056 1,271
Other post-retirement benefit liability 1,063 1,719
Environmental accruals 707 2,052
Operating and capital loss carryforwards 402 1,960
Other, net 48 751
--------- ---------
$ 2,740 $ 2,688
========= =========
</TABLE>
Based on the Company's business plan for the future, management is of
the opinion that it is more likely than not that the deferred tax asset at
December 31, 1997 will be realized.
16. INCENTIVE PROGRAM:
As of December 6, 1994, the Company's voting stockholders adopted the
1994 Incentive Program (the "Program"). Grants under the Program may consist of
incentive stock options, non-qualified stock options, stock appreciation rights
in tandem with stock options or freestanding, restricted stock grants, or
restored options. In connection with the Program, 500,000 shares of Common Stock
were available for grants at the start of the Program. In addition, on April 22,
1997, the stockholders voted to amend the Program by increasing the number of
shares available for grant by 500,000.
SFAS No. 123 (Accounting for Stock-Based Compensation) modifies the
accounting and reporting standards for the Company's stock-based compensation
plans. SFAS 123 provides that stock-based awards be measured at their fair value
at the grant date in accordance with a valuation model. This measurement may
either be recorded in the Company's basic financial statements or the pro forma
effect on earnings may be disclosed in its financial statements. The Company has
elected to provide the pro forma disclosures. The Company's reported and pro
forma net income and earnings per share are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Income (loss):
As Reported $ (7,835) $ 3,207 $ (40,835)
Pro Forma $ (7,917) $ 3,017 $ (40,866)
Basic EPS:
As Reported $ (1.06) $ .43 $ (5.51)
Pro Forma $ (1.07) $ .41 $ (5.51)
Diluted EPS:
As Reported $ (1.06) $ .43 $ (5.51)
Pro Forma $ (1.07) $ .41 $ (5.51)
</TABLE>
The Company may grant options for up to 1,000,000 shares under the
Program. The Company has granted options on 813,000 shares through December 31,
1997. Under the Program the option exercise price equals the stock's market
price on date of grant. Program options vest over a three to four-year period
and expire after ten years.
Page 33 of 44
<PAGE> 34
A summary of the status of the Program's outstanding grants and
weighted average exercise prices at December 31, 1997, 1996 and 1995 and changes
during the years then ended is presented in the table and narrative below
(shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 448 $ 5.38 246 $ 8.54 190 $10.00
Granted 330 2.00 217 2.11 76 5.29
Exercised -- -- -- -- --
Forfeited (45) 7.42 (15) 10.00 (20) 10.00
Expired -- -- -- -- -- --
------ ------ ------ ------ ------ ------
End of year 733 $ 3.74 448 $5.385 246 $ 8.54
====== ====== ====== ====== ====== ======
Shares exercisable at end
of year 427 123 83
====== ====== ======
Weighted average exercise
price of exercisable options $ 4.38 $ 8.83 $ 9.13
====== ====== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.5, 6.7 and 6.4 percent, expected dividend yields of zero
percent; expected lives of 5.4, 4.9 and 6.1 years; expected volatility of 35, 83
and 35 percent.
17. EARNINGS PER COMMON SHARE:
In 1997, the Company adopted SFAS No. 128 (Earnings per Share). The
adoption of SFAS No. 128 had no effect on previously reported earnings per
share. Options to purchase shares of common stock of the Company had no effect
on earnings per share because the exercise price of such options exceeded the
market price of the Company's common stock in each of the years ended December
31, 1997, 1996 and 1995. Basic earnings per common share have been presented as
earnings from continuing operations, earnings from discontinued operations, and
earnings from extraordinary item. Basic earnings per share from continuing
operations have been calculated as net income from continuing operations after
preferred dividend requirements of $1,445,000, $1,365,000, and $1,282,000 for
1997, 1996 and 1995 respectively, divided by weighted average common shares
outstanding during the period. Basic earnings per common share from discontinued
operations have been calculated as income (loss) from discontinued operations
plus net loss on disposition of discontinued operations divided by the weighted
average number of common shares outstanding.
18. INDUSTRY SEGMENT DATA:
The Company operates in one industry segment as a distributor of
buttons, notions and braids to major retail chains and outlets.
Button sales are made predominantly to retailers, general merchandisers
and specialty fabric and craft stores. Almost all of the Company's customers are
located in the United States. The Company grants credit and performs periodic
credit evaluations of its customers' financial conditions.
Page 34 of 44
<PAGE> 35
19. COMMITMENT AND CONTINGENCIES:
Although there can be no assurances, based on information currently
available, the Company does not believe that the outcome of all known or
threatened litigation and other claims will have a material adverse effect on
the Company's financial condition, liquidity or operating results.
20. QUARTERLY RESULTS OF OPERATIONS: (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1997 1997 1997 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 5,116 $ 5,050 $ 4,470 $ 5,005
Cost of sales 2,638 2,568 1,939 2,352
-------- -------- -------- --------
Gross Profit $ 2,478 $ 2,482 $ 2,531 $ 2,653
======== ======== ======== ========
Income (loss) from continuing operations
applicable to common stock $ 615 $ 589 $ 575 $ 503
Income (loss) from discontinued operations -- -- -- $(10,117)
-------- -------- -------- --------
Income (loss) applicable to common stock $ 615 $ 589 $ 575 $ (9,614)
======== ======== ======== ========
Basic and diluted income (loss) per common share:
Continuing operations $ .08 $ .08 $ .08 $ .07
Discontinued operations -- -- -- (1.37)
-------- -------- -------- --------
$ .08 $ .08 $ .08 $ (1.30)
======== ======== ======== ========
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1996 1996 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 5,966 $ 6,702 $ 4,623 $ 4,871
Cost of sales 2,698 3,175 2,313 2,452
-------- -------- -------- --------
Gross profit $ 3,268 $ 3,527 $ 2,310 $ 2,419
======== ======== ======== ========
Income from continuing operations
applicable to common stock $ 540 $ 723 $ 48 $ 82
Income from discontinued operations 380 716 555 429
Extraordinary item (266) -- -- --
-------- -------- -------- --------
Income applicable to common stock $ 654 $ 1,439 $ 603 $ 511
======== ======== ======== ========
Basic and diluted income (loss) per common share:
Continuing operations $ .07 $ .10 $ .01 $ .01
Discontinued operations .06 .09 .07 .06
Extraordinary item (.04) -- -- --
-------- -------- -------- --------
$ .09 $ .19 $ .08 $ .07
======== ======== ======== ========
</TABLE>
Page 35 of 44
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
Pursuant to instruction (G) 3 to Form 10-K, the information required in
Items 10-13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed by the Company pursuant to regulation
14A on or before April 9, 1998.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------
Additions
- -----------------------------------------------------------------------------------------------------------------
Description Balance at (1) (2) Deductions Balance at End
Beginning of Period Charged Charged to of Period
to Costs Other
and Accounts
Expenses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance deducted from assets
to which they apply:
Allowance for doubtful accounts $ 379 $ -- $ -- $ (271) $ 108
========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996
Allowance deducted from assets
to which they apply:
Allowance for doubtful accounts $ 433 $ -- $ $ (54) $ 379
========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1995
Allowances deducted from assets
to which they apply:
Allowance for doubtful accounts $ 887 $ -- $ $ (454) $ 433
========== ========== ========== ========== ==========
</TABLE>
Page 36 of 44
<PAGE> 37
EXHIBIT LIST
14 (a) Documents filed as part of this Form 10-K:
1. Financial Statements. A list of financial statements
included herein is set forth in the Index to Financial Statements, Schedules and
Exhibits appearing in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
2. Financial Statement Schedules. A list of financial
statement schedules included herein is set forth in the Index to Financial
Statements, Schedules and Exhibits appearing in "ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA." All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore
have been omitted.
3. Exhibits Filed Under Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company *
incorporated by reference to Exhibit 3.1 to the Company
Statement on Form 10/A (Amendment No. 4), as filed with
the Commission on March 3, 1994, Commission File No.
0-23082.
3.2 By-laws of the Company incorporated by reference to *
Exhibit 3.2 to the Registration Statement on Form 10/A
(Amendment No. 3), as filed with the Commission on
February 18, 1994, Commission File No. 0-23082.
4.1 See Exhibit 3.1 *
10.1 Agreement dated as of April 13, 1993 between Belding *
Heminway Company, Inc., Pentapco, Inc. and ConAgra Pet
Products Company, incorporated by reference to Exhibit 2
to the Current Report on Form 8-K of Belding Heminway
Company, Inc. filed on April 28, 1993, Commission File
No. 1-3462.
10.2 Letter Agreement dated as of July 21, 1993 between *
Gregory H. Cheskin and Belding Heminway Company, Inc.
incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form 10, as filed with the
Commission on December 15, 1993, Commission File No.
0-23082.
10.3 Letter Agreement dated as of August 9, 1993 between *
Winton J. Tolles and Belding Heminway Company, Inc.
incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form 10, as filed with the
Commission on December 15, 1993, Commission File No.
0-23082.
Page 37 of 44
<PAGE> 38
10.4 Agreement and Plan of Merger dated as of June 16, 1993 *
among Noel Group, Inc., BH Acquisition Corporation and
Belding Heminway Company, Inc. incorporated by reference
to Exhibit A to the Schedule 14C Information Statement
of Belding Heminway Company filed on October 8, 1993,
Commission File No. 1-3462.
10.5 Credit Agreement among Belding Heminway Company, Inc., *
NationsBank of North Carolina, N.A., Fleet Bank, The
Bank of New York and the Daiwa Bank, Ltd. dated as of
October 29, 1993 incorporated by reference to Exhibit
10.5 to the Registration Statement on Form 10, as filed
with the Commission on December 15, 1993, Commission
File No. 0-23082.
10.6 Stock Purchase Agreements dated as of December 17, 1993 *
between Noel Group, Inc., Belding Heminway Company, and
the Purchasers listed on the signature pages therein
incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form 10/A (Amendment No. 3),
as filed with the Commission on February 18, 1994,
Commission File No. 0-23082.
10.7 Amendment No. 1 to Credit Agreement dated as of March *
23, 1994 between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York and the Daiwa Bank Limited,
incorporated by reference to exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 1994, as filed with the
Commission on May 16, 1994, Commission File No. 0-23082.
10.8 Stock Acquisition Agreement dated June 10, 1994, by and *
among Belding Heminway Company, Inc., Danfield Threads,
Inc., The Bridge Realty Company, Alexander H. Dankin and
Dorothy B. Dankin incorporated by reference to exhibit
7(b)(1) the Company's current report on Form 8-K filed
with the Commission on June 15, 1994, Commission File
No. 0-23082.
10.9 First Amendment to Stock Acquisition Agreement dated *
June 30, 1994 by and among Belding Heminway Company,
Inc., Danfield Threads, Inc., The Bridge Realty Company,
Alexander H. Dankin and Dorothy B. Dankin incorporated
by reference to exhibit 7(b)(2) the Company's current
report on Form 8-K filed with the Commission on June 15,
1994, Commission File No. 0-23082.
10.10 Non-Competition Agreement dated June 30, 1994 between *
Belding Heminway Company, Inc. and Alexander H. Dankin.
incorporated by reference to exhibit 7(b)(3) the
Company's current report on Form 8-K filed with the
Commission on June 15, 1994, Commission File No.
0-23082.
Page 38 of 44
<PAGE> 39
10.11 Amendment No. 2 to Credit Agreement dated as of June 30, *
1994 between the Company and NationsBank of North
Carolina , N.A., individually and as agent for Fleet
Bank, The Bank of New York and the Daiwa Bank Limited,
incorporated by reference to exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended June 30, 1994, as filed with the
Commission on August 15, 1994, Commission File No.
0-23082.
10.12 Belding Heminway Company Restated 1994 Voluntary *
Recapitalization Plan dated as of November 14, 1994, as
amended, incorporated by reference to exhibit 7(c)(1) to
the Company's current report on Form 8-K filed with the
Commission on December 15, 1994, Commission File No.
0-23082.
10.13 Belding Heminway Company, Inc. 1994 Incentive Program, *
effective as of December 6, 1994, as amended,
incorporated by reference to exhibit 7(c)(2) to the
Company's current report on Form 8-K filed with the
Commission on December 15, 1994, Commission File No.
0-23082.
10.14 Exchange Agreement dated as of November 14, 1994 between *
Belding Heminway Company and the holders of its
Preferred Stock as amended, incorporated by reference to
exhibit 7(c)(3) to the Company's current report on Form
8-K filed with the Commission on December 15, 1994,
Commission File No. 0-23082.
10.15 Amendment to Restated Certificate of Incorporation of *
Company filed on December 13, 1994, as amended,
incorporated by reference to exhibit 7(c)(4) to the
Company's current report on Form 8-K filed with the
Commission on December 15, 1994, Commission File No.
0-23082.
10.16 Sale - Purchase Agreement dated as of November 24, 1993 *
by and between Corticelli Real Estate Corporation and
Akwa Inc. , incorporated by reference to the
corresponding exhibit on Company's annual report on Form
10-K for the fiscal year ended December 31, 1993, as
filed with the Commission on March 31, 1994, Commission
File No. 1-3462.
10.17 Amendment No. 3 to Credit Agreement, dated as of *
February 1, 1995, between the Company and NationsBank of
North Carolina, N.A., individually and as agent for
Fleet Bank, The Bank of New York, and the Daiwa Bank,
Limited, incorporated by reference to exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 1995, as filed with the
Commission on May 10, 1995, Commission File No. 0-23082.
10.18 Amendment No. 4 to Credit Agreement dated as of March *
29, 1995, between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and
Page 39 of 44
<PAGE> 40
the Daiwa Bank, Limited, incorporated by reference to
exhibit 10.2 to the Company's quarterly report on Form
10-Q for the fiscal quarter ended March 31, 1995, as
filed with the Commission on May 10, 1995, Commission
File No. 0-23082.
10.19 Amendment No. 5 to Credit Agreement dated as of April *
17, 1995, between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and the Daiwa Bank, Limited,
incorporated by reference to exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 1995, as filed with the
Commission on May 10, 1995, Commission File No. 0-23082.
10.20 Amendment No. 6 to Credit Agreement dated as of August *
30, 1995, between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and the Daiwa Bank, Limited,
incorporated by reference to exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1995, as filed with the
Commission on November 14, 1995, Commission File No.
0-23082.
10.21 Amendment No. 7 to Credit Agreement dated as of October *
31, 1995, between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and the Daiwa Bank, Limited,
incorporated by reference to exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1995, as filed with the
Commission on November 14, 1995, Commission File No.
0-23082.
10.22 Letter Agreement dated October 31, 1995 between the *
Company and NationsBank of North Carolina, N.A.,
incorporated by reference to exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1995, as filed with the
Commission on November 14, 1995, Commission File No.
0-23082.
10.23 Amendment No. 8 to Credit Agreement dated as of March
15, 1996, between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and the Daiwa Bank, Limited,
incorporated by reference to the corresponding exhibit
to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1996, as filed with the
Commission on March 14, 1997, Commission File No.
1-3462.
10.24 Consulting Agreement, dated March 22, 1996 between the *
Company and Karen Brenner incorporated by reference to
Exhibit 10.1 to the Company's quarterly report on Form
10-Q for the fiscal quarter ended March 31, 1996, as
filed with the Commission on March 15, 1996, Commission
File No. 0-23082.
10.25 Stock Purchase Agreement, dated July 12, 1996, between *
the Company and Lewis Textiles Corporation incorporated
by reference
Page 40 of 44
<PAGE> 41
to Exhibit (a) (1) to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended June 30, 1996, as
filed with the Commission on August 12, 1996, Commission
File No. 0-23082.
10.26 Amendment, dated as of November 12, 1996 to Credit *
Agreement, dated as of October 29, 1996 (as previously
amended) between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York, and The Daiwa Bank, Limited,
incorporated by reference to Exhibit 10.23A to the
Company's Form 10-Q/A for the quarterly period ended
September 30, 1996, as filed with the Commission on
November 25, 1996, Commission File No. 0-23082.
10.27 Loan and Security Agreement, among the Company, *
Blumenthal/Lansing Company, The Belding Thread Group
LLC, Culver International Inc., Danfield Threads, Inc.,
American Collars, Inc., The Bridge Realty Company, Sanwa
Business Credit Corporation and Heller Financial, Inc.,
dated as of December 30, 1996, incorporated by reference
to the corresponding exhibit and Company's annual report
on Form 10-K for the fiscal year ended December 31,
1996, as filed with the Commission on March 14, 1997,
Commission File No. 1-3462.
10.28 Separation Agreement, between the Company and Gregory H. *
Cheskin dated as of October 7, 1996, incorporated by
reference to the corresponding exhibit and Company's
annual report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Commission on March
14, 1997, Commission File No. 1-3462.
10.29 Separation Agreement, between the Company and Winton J. *
Tolles dated as of June 20, 1996, incorporated by
reference to the corresponding exhibit and Company's
annual report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Commission on March
14, 1997, Commission File No. 1-3462.
10.30 Separation Agreement, between the Company and Gary P. *
Silverman, dated as of January 31, 1997, incorporated by
reference to the corresponding exhibit and Company's
annual report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Commission on March
14, 1997, Commission File No. 1-3462.
10.31 Selected provisions of the Registrant's Definitive Proxy *
Statement filed with the Commission on March 3, 1997,
incorporated by reference to the corresponding exhibit
and Company's annual report on Form 10-K for the fiscal
year ended December 31, 1996, as filed with the
Commission on March 14, 1997, Commission File No.
1-3462.
10.32 Letter Agreement dated as of February 25, 1998 between +
Karen Brenner and Carlyle Industries, Inc.
Page 41 of 44
<PAGE> 42
10.33 Letter Agreement dated as of March 24, 1998 between +
Edward F. Cooke and Carlyle Industries, Inc.
16 Letter from Ernst & Young with respect to change in *
accountants incorporated by reference to Exhibit 16 to
the Registration Statement
21 Subsidiaries of Carlyle Industries, Inc.
* INCORPORATED BY REFERENCE
+ MANAGEMENT CONTRACT
14(b). Reports on Form 8-K. None.
14(c). See item 14 (a)(3), above.
14(d). See item 14 (a)(2), above.
Page 42 of 44
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ Karen Brenner
Karen Brenner, Chairman, President
and Chief Executive Officer
Date: March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registration in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ Karen Brenner Karen Brenner, Chairman, President March 23, 1998
Karen Brenner and Chief Executive Officer
/S/ Joseph S. DiMartino Director March 23, 1998
Joseph S. DiMartino
/S/ Robert A. Levinson Director March 23, 1998
Robert A. Levinson
/S/ Edward F. Cooke Vice President, March 23, 1998
Edward F. Cooke Chief Financial Officer
/S/ Robin R. Hoy Vice President, March 23, 1998
Robin R. Hoy Chief Accounting Officer
Page 43 of 44
<PAGE> 1
Exhibit 10.32
Carlyle Industries, Inc.
c/o Noel Group, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
February 25, 1998
Karen Brenner
Carlyle Industries, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
Dear Ms. Brenner:
This letter sets forth and confirms the agreement between Carlyle
Industries, Inc. (the "Company") and you regarding the terms of your continued
employment with the Company, which terms were approved by the Company's Board
of Directors at a meeting held on December 18, 1997. The agreement between you
and the Company is as follows:
1. Employment. The Company hereby agrees to continue your employment as
Chairman, President and Chief Executive Officer of the Company. You will report
to and be responsible to the Board of Directors of the Company.
2. Salary. The Company agrees to pay you an annual salary at the rate of
$250,000 per annum payable in accordance with the payroll practices of the
Company, plus any accrued and unpaid bonus. Your annual salary shall be
reviewed annually and may be increased in the discretion of the Board or the
Compensation Committee thereof. You shall also be entitled to participate in
the Company's Management Incentive Plan and all health insurance, profit
sharing, employee stock option and similar plans and benefits afforded by the
Company to its management employees generally, if and to the extent that you
are eligible to participate in such plans and benefits in accordance with their
terms.
3. Severance.
a. In the event of a Change in Control (as defined below) of the Company,
the Company shall pay you, in a single lump sum payment, within 30 days after
such occurrence, an amount equal to your entire annual base salary then in
effect (i.e., $250,000 at the compensation rate in effect on the date hereof or
such larger amount as may reflect the compensation rate in effect at a later
date due to annual salary increases). For purposes hereof, a
<PAGE> 2
"Change of Control" of the Company shall be deemed to have occurred upon the
occurrence of any of the following events:
(i) A change in control of the direction and administration of the
Company's business of a nature that if any securities of the Company were
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported in response to (a) Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
or (b) Item 1(a) of Form 8-K under the Exchange Act as each is in effect on
the date hereof and any successor provision of such regulations under the
Exchange Act, whether or not the Company is then subject to such reporting
requirements; or
(ii) Any "person" or "group" (as such term is used in connection with
Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Company or any "affiliate" or "associate" of the
Company (as defined in Regulation 12b-2 under the Exchange Act) (a) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily (and apart from rights
accruing under special circumstances) to vote for the election of directors
or (b) acquires by proxy or otherwise 50% or more of the combined voting
securities of the Company having the right to vote for the election of
directors of the Company, for any merger or consolidation of the Company,
for the election of Directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Company or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at
least a majority thereof. For purposes of this Agreement, "Continuing
Directors" shall mean the directors of the Company in office on the date
hereof and any successor to any such director and any additional director
who after the date hereof (i) was nominated or selected by a majority of
the Continuing Directors in office at the time of his nomination or
selection and (ii) who is not an "affiliate" or "associate" (as defined in
Regulation 12b-2 under the Exchange Act) of any person who is the
beneficial owner, directly or indirectly, of securities representing ten
percent (10%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily to vote for the election of
directors; or
(iv) The Company shall cease to meet the basic conditions of listing
on the New York Stock Exchange in respect of the number of the Company's
Common Stock (as hereinafter defined) held by the public; or
(v) There shall be consummated (A) any consolidation, merger or
recapitalization of the Company or any similar transaction involving the
2
<PAGE> 3
Company, whether or not the Company is the continuing or surviving
corporation, pursuant to which shares of the Company's common stock, par
value $.01 per share ("Common Stock"), would be converted into cash,
securities or other property, other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportion and ownership of common stock of the surviving corporation
immediately after the merger, (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company or (C) the adoption of a
plan of complete liquidation of the Company (whether or not in connection
with the sale of all or substantially all of the Company's assets) or a
series of partial liquidations of the Company that is de jure or de facto
part of a plan of complete liquidation of the Company; provided, that the
divestiture of less than substantially all of the assets of the Company in
one transaction or a series of related transactions, whether effected by
sale, lease, exchange, spin-off, sale of the stock or merger of a
subsidiary of the Company or otherwise, or a transaction solely for the
purpose of reincorporating the Company in another jurisdiction, shall not
constitute a "Change in Control"; or
(vi) The Board of Directors of the Company shall approve any
merger, consolidation or like business combination or reorganization of
the Company, the consummation of which would result in the occurrence of
any event described (i), (ii) or (v) above.
The Company hereby reaffirms that, as set forth in the minutes of the
Compensation Committee meeting dated May 16, 1997, you shall also be entitled
to receive a "transaction bonus" in the amount of $100,000 in the event of a
sale of all, or substantially all, of the capital stock or assets of the
Company.
b. In the event that the Company terminates your employment for any
reason whatsoever, whether with or without cause, other than in connection with
a Change in Control of the Company, the Company shall pay you, in a single lump
sum payment, within 30 days after such termination, an amount equal to six
months of your annual base salary in effect on the date of such termination
(i.e., $125,000 at the compensation rate in effect on the date hereof or such
larger amount as may reflect the compensation rate in effect at a later date
due to annual salary increases). The Company agrees to present the foregoing
provision to the Board at the first full Board meeting after February 1, 1998
for consideration of increasing the sum payable in event of such termination to
an amount equal to your entire annual base salary then in effect (i.e.,
$250,000 at the compensation rate in effect on the date hereof or such larger
amount as may reflect the compensation rate in effect at a later date due to
annual salary increases).
4. General. This Agreement may not be modified except by a written
instrument duly executed by both parties. This Agreement and the performance
hereunder shall be governed by and construed in accordance with the laws of the
State of New York. The failure of either party to exercise in any respect any
right provided for herein shall not be deemed a waiver of any right hereunder.
This Agreement and the rights and duties hereunder shall not be assignable by
either party hereto except upon the written consent of the other party. This
3
<PAGE> 4
Agreement may be executed in counterparts, each of which shall be deemed one
and the same instrument.
Please confirm that the foregoing accurately sets forth our
understanding by executing the enclosed copy of this letter and returning it to
us.
CARLYLE INDUSTRIES, INC.
By: /s/ Edward F. Cooke
-------------------------
AGREED TO AND ACCEPTED
as of the date of the signature below.
/s/ Karen Brenner
- ----------------------
Karen Brenner
Dated: Feb. 25, 1998
----------------
4
<PAGE> 1
Exhibit 10.33
Carlyle Industries, Inc.
c/o Noel Group, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
March 25, 1998
Edward F. Cooke
Carlyle Industries, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
Dear Mr. Cooke:
This letter sets forth and confirms the agreement between Carlyle
Industries, Inc. (the "Company") and you regarding, among other things, the
terms under which your employment with the Company may be terminated, which
terms were approved by the Company's Board of Directors at a meeting held on
February 25, 1998. The agreement between you and the Company is as follows:
1. Severance. If within one year after a Change in Control (as
defined below) of the Company your employment with the Company shall terminate
for any reason, including, without limitation, a voluntary termination or
resignation by you or the termination by the Company for cause or otherwise,
the Company shall pay you, in a single lump sum payment, within 30 days after
such termination, an amount equal to your entire annual base salary then in
effect. For purposes hereof, a "Change of Control" of the Company shall be
deemed to have occurred upon the occurrence of any of the following events:
(i) A change in control of the direction and administration of the
Company's business of a nature that if any securities of the Company were
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported in response to (a) Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
or (b) Item 1(a) of Form 8-K under the Exchange Act as each is in effect
on the date hereof and any successor provision of such regulations under
the Exchange Act, whether or not the Company is then subject to such
reporting requirements; or
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any
employee benefit plan of the Company or any "affiliate" or "associate"
of the Company (as
<PAGE> 2
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's outstanding securities then
entitled ordinarily (and apart from rights accruing under special circumstances)
to vote for the election of directors or (b) acquires by proxy or otherwise 50%
or more of the combined voting securities of the Company having the right to
vote for the election of directors of the Company, for any merger or
consolidation of the Company, for the election of Directors, or for any other
matter; or
(iii) During any period of twenty-four (24) consecutive months,
the individuals who at the beginning of such period constitute the Board of
Directors of the Company or any individuals who would be "Continuing Directors"
(as hereinafter defined) cease for any reason to constitute at least a majority
thereof. For purposes of this Agreement, "Continuing Directors" shall mean the
directors of the Company in office on the date hereof and any successor to any
such director and any additional director who after the date hereof (i) was
nominated or selected by a majority of the Continuing Directors in office at the
time of his nomination or selection and (ii) who is not an "affiliate" or
"associate" (as defined in Regulation 12b-2 under the Exchange Act) of any
person who is the beneficial owner, directly or indirectly, of securities
representing ten percent (10%) or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily to vote for the
election of directors; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Company or any similar transaction involving the
Company, whether or not the Company is the continuing or surviving corporation,
pursuant to which shares of the Company's common stock, par value $.01 per share
("Common Stock"), would be converted into cash, securities or other property,
other than a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportion and ownership of common
stock of the surviving corporation immediately after the merger, (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company or (C)
the adoption of a plan of complete liquidation of the Company (whether or not in
connection with the sale of all or substantially all of the Company's assets) or
a series of partial liquidations of the Company that is de jure or de facto part
of a plan of complete liquidation of the Company; provided, that the divestiture
of less than substantially all of the assets of the Company in one transaction
or a series of related transactions, whether effected by sale, lease, exchange,
spin-off, sale of the stock or merger of a subsidiary of the Company or
otherwise, or a transaction solely for the purpose of reincorporating the
Company in another jurisdiction, shall not constitute a "Change in Control"; or
(v) The Board of Directors of the Company shall approve any
merger, consolidation or like business combination or reorganization of the
2
<PAGE> 3
Company, the consummation of which would result in the occurrence of any
event described (i), (ii) or (iv) above.
2. Stock Options. The Company confirms that on February 25, 1998 it
granted to you options to purchase 22,222 shares of Common Stock at an exercise
price of $1.3125, which options will become exercisable in five equal annual
increments beginning on the date of grant. The terms of such options are more
fully set forth in the stock option agreement between the Company and you
entered into on the date hereof.
3. General. This Agreement may not be modified except by a written
instrument duly executed by both parties. This Agreement and the performance
hereunder shall be governed by and construed in accordance with the laws of the
State of New York. The failure of either party to exercise in any respect any
right provided for herein shall not be deemed a waiver of any right hereunder.
This Agreement and the rights and duties hereunder shall not be assignable by
either party hereto except upon the written consent of the other party. This
Agreement may be executed in counterparts, each of which shall be deemed one
and the same instrument.
Please confirm that the foregoing accurately sets forth our
understanding by executing the enclosed copy of this letter and returning it to
us.
CARLYLE INDUSTRIES, INC.
By: /s/ Karen Brenner
---------------------------------
AGREED TO AND ACCEPTED
as of the date of the signature below.
/s/ Edward F. Cooke
- -------------------------------------
Edward F. Cooke
Dated: March 24, 1998
-------------------------------
3
<PAGE> 1
SUBSIDIARIES OF CARLYLE INDUSTRIES, INC.
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Blumenthal/Lansing Company Delaware
Carlyle Manufacturing Company, Inc. Connecticut
Page 44 of 44
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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0
24,989
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</TABLE>
