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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 JUNE 30, 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 August 1, 1999, 7,382,782 shares of Common Stock were outstanding.
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Page 1 of 15
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CARLYLE INDUSTRIES, INC.
ONE PALMER TERRACE
CARLSTADT, NJ 07072
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
Part I -- Financial Information
- -------------------------------
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998...........................................3
Consolidated Statements of Operations
for the Six Months Ended June 30, 1999 and 1998.....................................4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998.....................................5
Notes to Unaudited Consolidated Financial Statements - June 30, 1999................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................................9
Part II -- Other Information
- ----------------------------
ITEM 1. Legal Proceedings......................................................Not Applicable
ITEM 2. Changes in Securities..................................................Not Applicable
ITEM 3. Defaults upon Senior Securities....................................................13
ITEM 4. Submission of Matters to a Vote of Security Holders................................13
ITEM 5. Other Information......................................................Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K...................................................14
Signatures.........................................................................15
</TABLE>
Page 2 of 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, 1999
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 69 $ 55
Accounts receivable trade, net 4,836 4,701
Inventories, net 4,639 4,592
Current deferred tax asset 2,266 2,646
Other current assets 689 219
----------- -----------
Total current assets 12,499 12,213
----------- -----------
Property, plant and equipment, at cost 2,821 2,751
Less: Accumulated depreciation and amortization (1,014) (922)
----------- -----------
Net property, plant and equipment 1,807 1,829
----------- -----------
Goodwill, net 2,813 2,955
Other assets 751 827
----------- -----------
Total Assets $ 17,870 $ 17,824
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,526 $ 1,296
Current maturities of long-term debt 50 56
Federal income taxes payable -- 390
Other current liabilities 1,073 1,283
----------- -----------
2,649 3,025
----------- -----------
Long-term debt 9,625 10,421
Other liabilities 7,817 8,034
----------- -----------
Total Liabilities 20,091 21,480
----------- -----------
Redeemable Preferred Stock, par value $0.01 per share
11,187,451 shares authorized;
Shares issued and outstanding at June 30, 1999
and December 31, 1998 10,687,456 10,687 10,687
Accumulated dividends on preferred stock 3,345 2,942
----------- -----------
14,032 13,629
----------- -----------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding at June 30, 1999
and December 31, 1998: 7,382,782 74 74
Paid in Capital 19,858 19,858
Retained Earnings (36,185) (37,217)
----------- -----------
Total Common Stockholders' Equity (16,253) (17,285)
----------- -----------
Total Liabilities and Stockholders' Equity $ 17,870 $ 17,824
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
Page 3 of 15
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS
----------------- -----------------
1999 1998 1999 1998
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales $ 6,912 $ 3,835 $13,525 $8,892
Cost of sales 3,529 1,882 6,886 4,382
------- ------ ------- ------
3,383 1,953 6,639 4,510
Selling, general & administrative expenses 1,965 1,042 3,971 2,141
------- ------ ------- ------
Income before interest and income taxes 1,418 911 2,668 2,369
Interest expense (income) 208 (40) 406 (138)
------- ------ ------- ------
Income before provision for income taxes 1,210 951 2,262 2,507
Provision for income taxes 439 351 827 920
------- ------ ------- ------
Income before preferred dividends 771 600 1,435 1,587
Less dividends on preferred stock 206 362 403 732
------- ------ ------- ------
Income applicable to common stock $ 565 $ 238 $ 1,032 $ 855
======= ====== ======= ======
Basic earnings (loss) per common share $ 0.08 $ .03 $ 0.14 $ .12
======= ====== ======= ======
Diluted earnings (loss) per common share $ 0.08 $ .03 $ 0.14 $ .12
======= ====== ======= ======
Weighted average common shares
outstanding (in thousands) 7,383 7,383 7,383 7,383
======= ====== ======= ======
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
Page 4 of 15
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CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 1,435 $ 1,587
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 332 287
Deferred tax provision 380 712
Changes in operating assets and liabilities:
Accounts receivable, trade (135) 976
Inventories (47) (534)
Other assets (456) (874)
Income taxes payable (266) (6,437)
Accounts payable 230 297
Other current liabilities (169) (1,476)
Other liabilities (217) (441)
Cash flow from discontinued operations (157) --
-------- --------
930 (5,903)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in net assets of acquired business -- (3,556)
Capital expenditures (70) (23)
Investment in other assets (36) --
-------- --------
(106) (3,579)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility 1,850 10,194
Repayment of long term debt and capital lease
obligations (2,660) (24)
Preferred stock payment -- (12,500)
-------- --------
(810) (2,330)
-------- --------
Increase (decrease) in cash and cash equivalents 14 (11,812)
Cash and cash equivalents beginning of period 55 12,475
-------- --------
Cash and cash equivalents end of period $ 69 $ 663
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 400 $ 28
======== ========
Income taxes $ 1,150 $ 7,375
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 15
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CARLYLE INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1: BASIS OF PRESENTATION
Carlyle Industries, Inc. ("The Company") and its subsidiaries distribute a line
of buttons, craft and gift products. 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 six-month
period ended June 30, 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
CONSOLIDATION: The accompanying consolidated financial statements include the
accounts of the Company and all subsidiaries after elimination of intercompany
items and transactions.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
principally by the straight-line method for each class of depreciable and
amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 5-25 and 5-10
years, respectively.
REVENUE RECOGNITION: Revenue is recognized upon shipment of merchandise.
CASH EQUIVALENTS: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: EARNINGS PER SHARE
Earnings per common share for the Company have been computed on the basis of
weighted average common shares outstanding after providing for quarterly
preferred dividend requirements.
Page 6 of 15
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NOTE 4: INVENTORIES:
The components of inventories, net of reserves, are as follows (dollars in
thousands):
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Raw materials $ 2,214 $ 1,790
Work in progress 10 10
Finished goods 2,415 2,792
-------- --------
$ 4,639 $ 4,592
======== ========
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 June 30, 1999, the Preferred Stock payment arrearages aggregated $14.0
million including accrued but unpaid preferred dividends of $3.3 million.
Accrued but unpaid dividends are added to the redemption value of the Preferred
Stock and the total continues to accrue dividends at a compound rate of 6% per
annum.
The Company intends to fulfill its obligation to the holders of the Preferred
Stock as required by the Company's charter to the extent that the Company has
cash resources in excess of those required to operate its business. As the
Company 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 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, 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.
Page 7 of 15
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NOTE 6: SUBSEQUENT EVENT
On July 30, 1999 the Company announced that its Board had adopted a voluntary
Plan of Recapitalization (the "Plan") to provide for the issuance of shares of
common stock in exchange for accrued and unpaid preferred stock dividends and
the exchange of additional shares of common stock for preferred stock. Pursuant
to the Plan the Board has authorized the issuance of 2,757,363 shares of common
stock in exchange for $3,446,704 accrued dividends through August 13, 1999, on
its Series B preferred stock. The dividend exchange offer values the common
stock at $1.25 per share. The offer was made to holders of record as of July 16,
1999. At that date there were 12 holders of preferred stock holding a total of
10,687,456 shares.
Issuance of the common stock to a preferred stockholder is conditioned on the
stockholder agreeing to accept the shares of common stock in place of cash and
to refrain from resale of the common stock until a registration statement
covering such resale has become effective under the Securities Act of 1933, as
amended (the "Securities Act").
Pursuant to the Plan, the Company's Board also approved an offer to the
preferred stockholders to exchange their shares of preferred stock for shares of
the Company's common stock at the rate of .620911 of a share of common stock for
each share of preferred stock. Each preferred stockholder will be free to accept
or reject the exchange offer. Preferred stockholders, who do not accept the
preferred stock exchange offer by August 13, 1999, will continue to hold their
preferred stock.
Approximately 9.9 million shares or approximately 93% of the issued and
outstanding preferred stock is held by Noel Group, Inc. Noel's preferred stock
holding represents approximately 55% of the aggregate voting power of all
capital stock of the Company. Noel has accepted common stock in exchange for its
accrued preferred stock dividends and the preferred stock exchange offer under
the conditions that immediately prior to such exchange (1) Swenvest Corporation,
an entity controlled by Robert Levinson, Chairman and CEO of the Company,
purchases approximately 3,865,000 shares of Preferred Stock from Noel for cash
of approximately $3 million, and (2) that the Company agree to file a
registration statement covering the shares of common stock issued in payment of
the dividend and in the preferred stock exchange offer under the Securities Act
following completion of the offers and use all reasonable efforts to have such
registration statement declared effective. Swenvest has offered to purchase for
cash the same percentage, 38.96104%, of shares of preferred stock from holders
of the preferred stock other than Noel as it is purchasing from Noel. If all the
other holders accept the Swenvest offer, Swenvest will purchase an additional
176,545 shares of preferred stock for approximately $137,000. Swenvest has also
made an alternative offer to all holders of preferred stock other than Noel for
$.60 per share. If all such holders accept the alternative Swenvest offer,
Swenvest will purchase an additional 276,587 shares for approximately $166
thousand.
Swenvest has stated that it will not exchange its shares of preferred stock for
common stock. If all preferred stockholders (other than Swenvest) accept the
preferred stock exchange offer, the Company would issue approximately 3.9
million shares of common stock in respect of the preferred stock outstanding.
Following the exchange offers Swenvest and Mr. Levinson will hold a total of
4,355,249 shares of preferred stock and 293,790 shares of common stock,
representing approximately 25% of the total voting shares issued and outstanding
consisting of approximately 13,990,517 million shares of common stock and
4,355,249 shares of preferred stock.
Page 8 of 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER
Net sales during the second quarter of 1999 totaled $6.9 million as compared to
net sales of $3.8 million in the second quarter of 1998, for an increase of $3.1
million. Incremental sales contributed by acquired businesses totaled $ 2.7
million. The Company estimates that approximately $.5 million of this amount
represented the filing of backlog orders related to the acquired Streamline
business. Initial placements with customers also represented $ .2 million of the
increase in net sales.
Gross margin during the second quarter of 1999 totaled $3.4 million as compared
to $ 2.0 million in the second quarter of 1998. Incremental gross margin
contributed by acquired businesses totaled $ 1.2 million. The gross margin
percent during the second quarter of 1999 was 48.9% as compared to 50.9% in the
second quarter of 1998. The decrease in gross margin percent was primarily the
result of the lower margins on product lines of acquired businesses.
Selling, general and administrative expense in the second quarter of 1999
totaled $2.0 million as compared to $1.0 million in the second quarter of 1998.
Incremental selling, general and administrative expense incurred by the acquired
businesses totaled $ .7 million.
Net interest expense during the second quarter of 1999 totaled $206 thousand as
compared to net interest income of $40 thousand during the second 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 subsequent acquisitions.
The provision for income taxes during the second quarter of 199 totaled $439
thousand as compared to $351 thousand during the same period last year. The
combined effective income tax rate totaled 36.2% in the second quarter of 1999
and 36.9% in the second quarter of 1998. The combined effective income tax rates
are higher than combined statutory rates because of nondeductible goodwill.
Preferred dividends during the second quarter of 1999 totaled $206 thousand as
compared to $362 thousand during the same period in 1998. The reduction from
1998 was due to the partial redemption of preferred stock in June 1998.
YEAR TO DATE
Net sales during the six months ended June 30, 1999 totaled $ 13.5 million as
compared to $ 8.9 million during the year to date period for 1998 for an
increase of $ 4.6 million. The Company estimates that approximately $.5 million
of this amount represented the filing of backlog orders related to the acquired
Streamline business. Incremental sales contributed by acquired businesses
totaled $ 4.7 million.
Page 9 of 15
<PAGE>
Gross margin during the six months ended June 30, 1999 totaled $ 6.6 million or
49.1% as compared to $4.5 million or 50.7% during the comparable period in 1998.
Incremental gross margin contributed by acquired businesses totaled $ 2.4
million. The decrease in gross margin percent was primarily the result of lower
margins on product lines of acquired businesses.
Selling, general and administrative expense during the six months ended June 30,
1999 totaled $4.0 million as compared to $2.1 million for the first six months
of 1998. Incremental selling, general and administrative expense incurred by
acquired businesses totaled $1.4 million. In addition, the Company incurred $186
thousand of consolidation costs in connection with the acquired businesses,
which costs were expensed during the first six months.
Net interest expense during the six months ended June 30, 1999 totaled $406
thousand as compared to net interest income of $138 thousand for the first six
months 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 for the six months ended June 30, 1999 totaled
$827 thousand as compared to $920 thousand for the same period last year. The
combined effective income tax rate totaled 36.6% for the six months ended June
30, 1999 as compared to 36.7% for the six months ended June 30, 1998. The
combined effective income tax rates are higher than combined statutory rates
because of nondeductible goodwill.
Preferred dividends accrued during the first six months of 1999 totaled $403
thousand as compared to $732 thousand during the first six months of 1998. The
reduction from 1998 was due to the partial redemption of preferred stock in June
1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's principal sources of liquidity included cash and
cash equivalents of $69 thousand and trade accounts receivable of $4.8 million
Cash provided by operations during the six months ended June 30, 1999 totaled
$930 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
Page 10 of 15
<PAGE>
million represented the increase in the required redemption payment resulting
from accumulated and unpaid dividends.
As of June 30, 1999, the Preferred Stock payment arrearages aggregated $14.0
million including accrued but unpaid preferred dividends of $3.3 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.
On July 30, 1999 the Company announced that its Board had adopted a voluntary
Plan of Recapitalization (the "Plan") to provide for the issuance of shares of
common stock in exchange for accrued and unpaid preferred stock dividends and
the exchange of additional shares of common stock for preferred stock. Pursuant
to the Plan the Board has authorized the issuance of 2,757,363 shares of common
stock in exchange for $3,446,704 accrued dividends through August 13, 1999, on
its Series B preferred stock. The dividend exchange offer values the common
stock at $1.25 per share. The offer is being made to holders of record as of
July 16, 1999. At that date there were 12 holders of preferred stock holding a
total of 10,687,456 shares.
Issuance of the common stock to a preferred stockholder is conditioned on the
stockholder agreeing to accept the shares of common stock in place of cash and
to refrain from resale of the common stock until a registration statement
covering such resale has become effective under the Securities Act of 1933, as
amended (the "Securities Act").
Pursuant to the Plan, the Company's Board also approved an offer to the
preferred stockholders to exchange their shares of preferred stock for shares of
the Company's common stock at the rate .620911 of a share of common stock for
each share of preferred stock. Each preferred stockholder will be free to accept
or reject the exchange offer. Preferred stockholders who do not accept the
preferred stock exchange offer by August 13, 1999, will continue to hold their
preferred stock.
Approximately 9.9 million shares or approximately 93% of the issued and
outstanding preferred stock is held by Noel Group, Inc. Noel's preferred stock
holding represents approximately 55% of the aggregate voting power of all
capital stock of the Company. Noel has accepted common stock in exchange for its
accrued preferred stock dividends and the preferred stock exchange offer under
the conditions that immediately prior to such exchange (1) Swenvest Corporation,
an entity controlled by Robert Levinson, Chairman and CEO of the Company,
purchases approximately 3,865,000 shares of Preferred Stock from Noel for cash
of approximately $3 million, and (2) that the Company agrees to file a
registration statement covering the shares of common stock issued in payment of
the dividend and in the preferred stock exchange offer under the Securities Act
following completion of the offers and use all reasonable efforts to have such
registration statement declared effective. Swenvest has stated that it will
offer to purchase for cash the same percentage, 38.96104%, of shares of
preferred stock from holders of the preferred stock other than Noel as it is
purchasing from Noel. If all the other holders accept the Swenvest offer,
Swenvest will purchase an additional 176,545 shares of preferred stock for
approximately $137,000. Swenvest has also made an alternative offer to all
holders of preferred stock other than Noel for $.60 per share. If all such
holders accept the alternative Swenvest offer, Swenvest will purchase an
additional 276,587 shares for approximately $166 thousand.
Swenvest has stated that it will not exchange its shares of preferred stock for
common stock. If all preferred stockholders (other than Swenvest) accept the
preferred stock exchange offer, the Company would issue approximately 3.9
million shares of common stock in respect of the preferred stock outstanding.
Following the exchange offers Swenvest and Mr. Levinson will hold a total of
4,355,249 shares of preferred stock and
Page 11 of 15
<PAGE>
293,790 shares of common stock, representing approximately 25% of the total
voting shares issued and outstanding consisting of approximately 13,990,517
million shares of common stock and 4,355,249 shares of 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 ability of
the Company to obtain additional financing and compliance with the Company's
Credit Facility, which presently permits only specified payment amounts
including 25% of "excess cash flow", as defined in the agreement. In addition,
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.
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 "agreement"), which
definition provides, among other things, that a change in control will take
place if an entity other than Noel Group, Inc. obtains a greater than 50% voting
ownership of the Company. The transaction described in Note 6 would not result
in a change in control as defined in the 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
Page 12 of 15
<PAGE>
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.
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 $3,309,162, including
$408,671 in 1999, remain unpaid and continue to accrue at
a compounded rate of 6% per annum. Such dividends are
payable as and when declared by the Board of Directors out
of legally available funds. 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 and restrictions on redemption payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Carlyle Industries, Inc. was
held on May 18, 1999 for the following purposes:
Page 13 of 15
<PAGE>
1) To elect four directors to serve until the next Annual
Meeting of Stockholders and until their successors are
elected.
2) To ratify the selection of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 1999.
3) To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The holders of the Company's Common Stock and Series B Preferred
Stock voted as a single class. The number of votes cast for,
against or withheld, as well as the number of abstentions is set
forth below:
<TABLE>
<CAPTION>
Total Shares Voted: 5,858,074 Shares eligible to Vote: 7,382,782
Proposal No. 1 Proposal No. 2
--------------------------------------------------------------------------------------------
Nominee For Withheld For Against Abstain
------- --- -------- --- ------- -------
<S> <C> <C> <C> <C> <C>
Joseph S. DiMartino 4,238,964 1,619,110 4,285,689 12,333 1,560,052
Herbert Friedman 4,237,991 1,620,083 58.05% 0.16% 21.13%
Ralph Langer 4,249,191 1,608,883
Robert A. Levinson 4,247,436 1,610,638
</TABLE>
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 second quarter of 1999, the Company did not file
a Current Report on Form 8-K.
Page 14 of 15
<PAGE>
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: August 9, 1999
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000011027
<NAME> Carlyle Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 4,836
<ALLOWANCES> 0
<INVENTORY> 4,639
<CURRENT-ASSETS> 12,499
<PP&E> 2,821
<DEPRECIATION> 1,014
<TOTAL-ASSETS> 17,870
<CURRENT-LIABILITIES> 2,649
<BONDS> 0
0
14,032
<COMMON> (16,253)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,870
<SALES> 13,525
<TOTAL-REVENUES> 13,525
<CGS> 6,886
<TOTAL-COSTS> 6,886
<OTHER-EXPENSES> 3,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406
<INCOME-PRETAX> 2,262
<INCOME-TAX> (827)
<INCOME-CONTINUING> 1,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
