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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 COMMISSION FILE NO. 1-3462
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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CARLYLE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1574754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Palmer Terrace
Carlstadt, NJ 07072
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 935-6220
Former name, former address and former fiscal year, if changed since last
report:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 1, 1999, 7,382,782 shares of Common Stock were outstanding.
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CARLYLE INDUSTRIES, INC.
One Palmer Terrace
Carlstadt, NJ 07072
TABLE OF CONTENTS
PAGE NO.
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998..........................................3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and 1998..................................4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 1998..................................5
Notes to Unaudited Consolidated Financial Statements - March 31, 1999...............6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................................8
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................Not Applicable
ITEM 2. Changes in Securities..................................................Not Applicable
ITEM 3. Defaults upon Senior Securities....................................................11
ITEM 4. Submission of Matters to a Vote of Security Holders................................11
ITEM 5. Other Information......................................................Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K...................................................11
Signatures.........................................................................12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS MARCH 31, 1999
Current Assets: (UNAUDITED) DECEMBER 31, 1998
----------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 97 $ 55
Accounts receivable trade, net 4,221 4,701
Inventories, net 4,185 4,592
Current deferred tax asset 2,239 2,646
Other current assets 215 219
----------- -----------
Total current assets 10,957 12,213
Property, plant and equipment, at cost 2,808 2,751
Less: Accumulated depreciation and amortization (968) (922)
----------- -----------
Net property, plant and equipment 1,840 1,829
Goodwill, net 2,826 2,955
Other assets 797 827
----------- -----------
Total Assets $ 16,420 $ 17,824
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 858 $ 1,296
Current maturities of long-term debt 61 56
Federal income taxes payable -- 390
Other current liabilities 841 1,283
----------- -----------
1,760 3,025
Long-Term debt 9,756 10,421
Other Liabilities 7,896 8,034
----------- -----------
Total Liabilities 19,412 21,480
Redeemable Preferred Stock, par value $0.01 per share
11,187,451 shares authorized; Shares issued and
outstanding at March 31, 1999 and December 31, 1998 10,687,456 10,687 10,687
Accumulated dividends on preferred stock 3,138 2,942
----------- -----------
13,825 13,629
----------- -----------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding at March 31, 1999
and December 31, 1998: 7,382,782 74 74
Paid in Capital 19,858 19,858
Retained Earnings (36,749) (37,217)
----------- -----------
Total Common Stockholders' Equity (16,817) (17,285)
----------- -----------
Total Liabilities and Stockholders' Equity $ 16,420 $ 17,824
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 12
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CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
1999 1998
------- -------
Net Sales $ 6,613 $ 5,057
Cost of Sales 3,357 2,500
------- -------
3,256 2,557
Selling, general & administrative expenses 2,010 1,098
Other income -- net (4) --
------- -------
Income before interest and income taxes 1,250 1,459
Interest expense (income) 198 (97)
------- -------
Income before income taxes 1,052 1,556
Provision for income taxes 388 569
------- -------
664 987
Less dividends on preferred stock 197 370
------- -------
Net income applicable to common stock $ 467 $ 617
======= =======
Basic and diluted earnings per common share $ .06 $ .08
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Weighted average common shares
outstanding (in thousands) 7,383 7,383
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 12
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CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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THREE MONTHS ENDED MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 664 $ 987
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 166 159
Deferred tax provision 407 448
Changes in operating assets and liabilities:
Accounts receivable, trade 480 257
Inventories 407 138
Other assets 43 (375)
Accounts payable (438) (84)
Federal and state income taxes payable (416) (7,117)
Other current liabilities (257) (1,163)
Other liabilities (138) (202)
Cash flow from discontinued operations (151) --
-------- --------
767 (6,952)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (57) (14)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility 650 --
Repayment of long term debt and capital lease
obligations (1,318) (12)
-------- --------
(668) (12)
-------- --------
Increase (decrease) in cash and cash equivalents 42 (6,978)
Cash and cash equivalents beginning of period 55 12,475
-------- --------
Cash and cash equivalents end of period $ 97 $ 5,497
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 237 $ --
======== ========
Income taxes $ 391 $ 7,237
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 12
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CARLYLE INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Certain reclassifications have been made to prior year amounts in
order to present them on a basis consistent with the current year. Operating
results for the three-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATION: Carlyle Industries, Inc. ("The Company") and its
subsidiaries distribute a line of buttons, craft and gift products.
CONSOLIDATION: The accompanying consolidated financial statements include the
accounts of the Company and all subsidiaries after elimination of intercompany
items and transactions.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
principally by the straight-line method for each class of depreciable and
amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 5-25 and 5-10
years, respectively.
REVENUE RECOGNITION: Revenue is recognized upon shipment of merchandise.
CASH EQUIVALENTS: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: EARNINGS PER SHARE
Earnings per common share for the Company have been computed on the basis of
weighted average common shares outstanding after providing for quarterly
preferred dividend requirements.
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NOTE 4: INVENTORIES:
The components of inventories, net of reserves, are as follows (dollars in
thousands):
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Raw materials $ 1,789 $ 1,790
Work in Progress 10 10
Finished goods 2,386 2,792
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$ 4,185 $ 4,592
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NOTE 5: ARREARS 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 by its terms was
required to be redeemed by the Company in annual installments beginning March
15, 1995 through March 15, 1999, subject among other things to the approval of
the Company's senior lenders, if any and to the extent of legally available
funds as determined by the Board of Directors. 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 its credit facility.
Consequently, the Company was in arrears of its obligations to redeem the
Preferred Stock to the extent of its legally available funds.
On June 23, 1998 the Company paid $12.5 million to holders of its Series B
Preferred stock of record as of June 22, 1998. $10.1 million of this amount
represented the original redemption amount and $2.4 million represented the
increase in the required redemption payment resulting from accumulated and
unpaid dividends.
As of March 31, 1999, the Preferred Stock payment arrearages aggregated $13.8
million including accrued but unpaid preferred dividends of $3.1 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 the principal holder of the preferred
stock, Noel Group, Inc. ("Noel"), with a view to satisfying the balance of 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 terms and conditions. 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 consolidated financial statements of the Company, the outcome of
the negotiations with Noel described above, the ability of the Company to obtain
additional financing and compliance with the Company's new Credit Facility which
presently permits only specified payment amounts including 25% of "excess cash
flow", as defined in the agreement. In addition, as the Company has agreed to
notify the Pension Benefit Guaranty Corporation ("PBGC") prior to making any
redemption payment, 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, if any, to its defined benefit
plan. The Company is also exploring strategic alternatives to redemption of the
Preferred Stock.
Page 7 of 12
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
Sales during the first quarter of 1999 totaled $6.6 million. Sales in the first
quarter of 1998 totaled $5.1 million for an increase of $1.5 million.
Incremental sales contributed by acquired businesses totaled $2.2 million during
the first quarter of 1999. Somewhat offsetting this favorable comparison was the
effect of lower sales in existing lines of business during the first quarter of
1999. Approximately $.5 million of this reduction was the result of timing on
certain orders which were shipped in 1998 during the first quarter but which in
1999 are being shipped in subsequent quarters; in addition, approximately $.2
million of this reduction was due to an opening order shipment which occurred
during the first quarter of 1998.
Gross margin during the first quarter of 1999 totaled $3.3 million as compared
with $2.6 million in the first quarter of 1998. Incremental gross margin
contributed by the acquired businesses totaled $.9 million. The gross margin
percent during the first quarter of 1999 was 49.2% as compared to 50.6% during
the first quarter of 1998. The decrease in gross margin percent was primarily
the result of the lower margins in the Westwater business.
Selling, general and administrative expenses in the first quarter of 1999
totaled $2.0 million as compared to $1.1 million in the first quarter of 1999.
Incremental selling, general and administrative expense incurred by the acquired
businesses totaled $.7 million; in addition, the Company incurred $159 thousand
of consolidation costs in connection with the acquired businesses, which costs
were expensed during the quarter.
Net interest expense during the first quarter of 1999 totaled $198 thousand as
compared to net interest income of $97 thousand during the first quarter of
1998. The increase in interest expense in 1999 as compared to 1998 was the
result of bank debt outstanding beginning June 23, 1998 in connection with the
Preferred stock payment and also the subsequent acquisitions.
The provision for income taxes during the first quarter of 1999 totaled $.4
million as compared to $ .6 million during the same period last year. The
combined effective income tax rate totaled 36.9% in the first quarter of 1999
and 36.6% in the first quarter of 1998. The combined effective income tax rates
are higher than combined statutory rates because of nondeductible goodwill.
Preferred dividends during the first quarter of 1999 totaled $197 thousand as
compared to $370 thousand during the same period in 1998. The reduction from
1998 was due to the partial redemption of preferred stock in June 1998.
First quarter results may not be indicative of future quarterly results due to
programs with major customers which may vary as to timing and amount from
quarter to quarter. In addition, consolidation within the Company's customer
base may put further pressure on the Company's revenue and operating results in
subsequent quarters.
Page 8 of 12
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company's principal sources of liquidity included cash
and cash equivalents of $97 thousand and trade accounts receivable of $4.2
million
Cash provided by operations during the three months ended March 31, 1999 totaled
$767 thousand.
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 by its terms was
required to be redeemed by the Company in annual installments beginning March
15, 1995 through March 15, 1999, subject among other things to the approval of
the Company's senior lenders, if any and to the extent of legally available
funds as determined by the Board of Directors. 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 its credit facility.
Consequently, the Company was in arrears of its obligations to redeem the
Preferred Stock to the extent of its legally available funds.
On June 23, 1998 the Company paid $12.5 million to holders of its Series B
Preferred stock of record as of June 22, 1998. $10.1 million of this amount
represented the original redemption amount and $2.4 million represented the
increase in the required redemption payment resulting from accumulated and
unpaid dividends.
As of March 31, 1999, the Preferred Stock payment arrearages aggregated $13.8
million including accrued but unpaid preferred dividends of $3.1 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, with a view to satisfying the
balance of 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 terms and conditions. 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 consolidated financial statements of the Company, the outcome of
the negotiations with Noel described above, the ability of the Company to obtain
additional financing and compliance with the Company's new Credit Facility which
presently permits only specified payment amounts including 25% of "excess cash
flow", as defined in the agreement. In addition, as the Company has agreed to
notify the PBGC prior to making any redemption payment, 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, if
any, to its defined benefit plan. The Company is also exploring strategic
alternatives to redemption of the Preferred Stock.
Page 9 of 12
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In connection with the acquisition of Westwater Enterprises LLP, contingent
payments of up to $2 million may become payable upon the achievement of
specified earnings levels or in the event of a change of control of the Company,
as defined in the Westwater acquisition agreement. The contingent payment period
covers the three years ended December 31, 2000 at which time the contingent
payment period expires.
YEAR 2000 ISSUES
The Company has implemented a plan to address year 2000 issues. The Company's
plan includes the identification and testing of its information technology
components and imbedded technology. In connection with this plan a detailed list
of hardware, software and other micro-processing technology has been compiled.
The Company's plan includes an evaluation of each identified item as compliant
or not compliant and the testing of each component. Certain noncompliant systems
have been upgraded or replaced and others are scheduled to be replaced. In
addition, the Company's plan includes confirmation with its significant
customers and suppliers regarding their state of readiness with respect to year
2000 issues. The Company does not currently have complete information concerning
the year 2000 compliance status of all of its major customers and vendors. In
the event that any of the Company's significant customers or vendors do not
successfully and timely achieve year 2000 compliance, the Company's business or
operations could be adversely affected.
The Company's primary risks related to year 2000 issues are associated with the
failure of its management information systems, which include billing, production
scheduling, raw material ordering and financial reporting. In addition, the
Company may be at risk if any of its significant customers or vendors experience
risk of failures related to year 2000 issues.
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. The cost
associated with the Company's year 2000 compliance is estimated to be less than
$50,000. 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.
IMPACT OF INFLATION
The Company's results are affected by the impact of inflation on operating
costs. Historically, the Company has used selling price adjustments, cost
containment programs and improved operating efficiencies to offset the otherwise
negative impact of inflation on its operations.
Page 10 of 12
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THIS QUARTERLY REPORT ON FORM 10-Q (THE "QUARTERLY 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 QUARTERLY 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 (V) THE DECLARATION AND PAYMENT OF DIVIDENDS;
(VI) IMPACT OF YEAR 2000 ISSUES. 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 II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a) None
b) REDEEMABLE SERIES B PREFERRED STOCK
Scheduled dividend payments totaling $3,101,080.31, including
$200,590 in 1999, remain unpaid and continue to accrue at a
compounded rate of 6% per annum. Additionally, the Company
has not made certain previously scheduled redemption
payments. See Note 5 to the unaudited consolidated financial
statements for a detailed discussion of the Preferred Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
b) REPORTS ON FORM 8-K.
During the first quarter of 1999, the Company did not file a
Current Report on Form 8-K.
Page 11 of 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLYLE INDUSTRIES, INC.
(Registrant)
/s/ ROBERT A. LEVINSON
- ---------------------------------------------------------
Robert A. Levinson,
Chairman, President and Chief Executive Officer
/s/ EDWARD F. COOKE
- ---------------------------------------------------------
Edward F. Cooke,
Vice President, Secretary and Chief Financial Officer
Date: May 14, 1999
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000011027
<NAME> Carlyle Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 4,221
<ALLOWANCES> 0
<INVENTORY> 4,185
<CURRENT-ASSETS> 10,957
<PP&E> 2,808
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<CURRENT-LIABILITIES> 1,760
<BONDS> 0
0
13,825
<COMMON> (16,817)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,420
<SALES> 6,613
<TOTAL-REVENUES> 6,613
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<INTEREST-EXPENSE> 198
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<INCOME-TAX> (388)
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