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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
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
CARLYLE INDUSTRIES, INC.
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(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
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(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 November 1, 2000, 13,934,858 shares of Common Stock were outstanding.
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<PAGE>
CARLYLE INDUSTRIES, INC.
One Palmer Terrace
Carlstadt, NJ 07072
TABLE OF CONTENTS
PAGE NO.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999.................3
Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
2000 and 1999..................................................4
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30,
2000 and 1999..................................................4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999..........5
Notes to Unaudited Consolidated Financial Statements -
September 30, 2000.............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................12
Signatures....................................................13
Page 2 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
ASSETS ------------ ------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 164 $ 433
Accounts receivable trade, net 5,388 4,301
Inventories, net 5,190 4,488
Current deferred tax asset 2,305 2,615
Other current assets 244 217
------------ ------------
Total current assets 13,290 12,054
Property, plant and equipment, at cost 3,895 3,714
Less: Accumulated depreciation and amortization (1,308) (1,116)
------------ ------------
Net property, plant and equipment 2,587 2,598
Goodwill, net 2,722 3,147
Other assets 861 713
------------ ------------
Total Assets $ 19,460 $ 18,512
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,207 $ 1,235
Current maturities of long-term debt -- 21
Income taxes payable 324 460
Other current liabilities 1,136 1,774
------------ ------------
Total current liabilities 2,667 3,490
Long-term Debt 8,550 7,200
Other Liabilities 7,241 7,506
------------ ------------
Total Liabilities 18,458 18,196
------------ ------------
Redeemable Preferred Stock, par value $0.01 per share
11,187,451 shares authorized;
Shares issued and outstanding
Series A - None
Series B - 4,555,007 at September 30, 2000 4,555
and December 31, 1999 4,555
Accumulated dividends on preferred stock 12 12
------------ ------------
Total Redeemable Preferred Stock 4,567 4,567
------------ ------------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding at September 30, 2000 139
and December 31, 1999: 13,934,858 139
Paid in Capital 26,345 26,345
Retained Earnings (29,935) (30,735)
Accumulated Other Comprehensive Income (114) --
------------ ------------
Total Common Stockholders' Equity (3,565) (4,251)
------------ ------------
Total Liabilities and Stockholders' Equity $ 19,460 $ 18,512
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
Page 3 of 13
<PAGE>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 8,206 $ 8,065 $ 21,388 $ 21,590
Cost of sales 5,156 4,849 12,615 11,735
--------- --------- --------- ---------
3,051 3,216 8,773 9,855
Selling, general & administrative expenses 2,134 2,153 6,600 6,124
--------- --------- --------- ---------
Income before interest and income taxes 917 1,063 2,173 3,731
Interest expense 203 201 562 607
--------- --------- --------- ---------
Income before provision for income taxes 714 862 1,611 3,124
Provision for income taxes 261 320 606 1,147
--------- --------- --------- ---------
Income before preferred dividends 452 542 1,005 1,977
Less dividends on preferred stock 68 127 205 530
--------- --------- --------- ---------
Income applicable to common stock 384 415 800 1,447
Gain on preferred stock redemption -- 3,011 -- 3,011
--------- --------- --------- ---------
Net income applicable to common stockholders $ 384 $ 3,426 $ 800 $ 4,458
========= ========= ========= =========
Basic and diluted earnings per common share:
Operations $ 0.03 $ 0.04 $ 0.06 $ 0.17
Gain on preferred stock redemption -- .28 -- .35
--------- --------- --------- ---------
Total $ 0.03 $ 0.32 $ 0.06 $ 0.52
========= ========= ========= =========
Weighted average common shares
outstanding (in thousands) 13,935 10,801 13,935 8,535
========= ========= ========= =========
</TABLE>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income before dividends on preferred stock $ 452 $ 542 $ 1,005 $ 1,977
Other comprehensive income (loss):
Foreign currency translation adjustment (61) -- (114) --
--------- --------- --------- ---------
Comprehensive income $ 391 $ 542 $ 891 $ 1,977
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
Page 4 of 13
<PAGE>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 1,005 $ 1,977
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 622 320
Deferred tax provision 310 359
Changes in operating assets and liabilities:
Accounts receivable, trade (1,087) (909)
Inventories (776) 977
Other assets (142) (635)
Accounts payable (28) (266)
Federal and state income taxes payable (136) 216
Other current liabilities (638) 88
Other liabilities (265) (100)
Cash flow from discontinued operations -- (163)
--------- ---------
Cash (used in) provided by operating activities (1,135) 1,864
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (214) (127)
Investment in other assets (36) (48)
--------- ---------
Cash used in investing activities (250) (175)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility 4,625 2,825
Repayment of long term debt and capital lease obligations (3,296) (4,399)
Preferred stock payment -- (9,563)
Gain on preferred stock redemption -- 3,011
Common stock issuance -- 6,552
Dividends on preferred stock (205) --
--------- ---------
Cash provided by (used in) financing activities 1,124 (1,574)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (8) --
Increase (decrease) in cash and cash equivalents (269) 115
Cash and cash equivalents beginning of period 433 55
--------- ---------
Cash and cash equivalents end of period $ 164 $ 170
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 577 $ 572
========= =========
Income taxes $ 635 $ 1,290
========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
Page 5 of 13
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CARLYLE INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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 and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
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 13
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NOTE 4: INVENTORIES:
The components of inventories, net of reserves, are as follows (dollars in
thousands):
September 30, December 31,
2000 1999
--------- ---------
Raw materials $ 1,794 $ 2,503
Work in progress 99 10
Finished goods 3,297 1,975
--------- ---------
$ 5,190 $ 4,488
========= =========
NOTE 5: PREFERRED STOCK
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. The
availability of resources to make dividend payments to the holders of Preferred
Stock in the future will depend on the Company's future cash flow and the timing
of the settlement of the liabilities recorded in the financial statements of the
Company.
In addition, the Preferred Stock by its terms was required to be fully 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. The Company expects to stay current with respect to
Preferred Stock dividends. However, the Company's redemption payments, if any,
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 Revolving
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 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER
Sales during the third quarter of 2000 totaled $8.2 million as compared to $8.1
million during the third quarter of 1999. The net incremental increase in sales
provided by the Company's new European subsidiary, Button Fashion B.V., offset a
decline in domestic sales.
Gross margin during the third quarter of 2000 totaled $3.1 million as compared
with $3.2 million in the third quarter of 1999. The gross margin percent during
the third quarter of 2000 was 37% as compared to 40% during the third quarter of
1999. The decline in gross margin dollars and percent was the result of higher
variable costs of sales on certain gift and craft product lines.
Selling, general and administrative expenses in the third quarter of 2000
totaled $2.1 million as compared to $2.2 million in the third quarter of 1999.
Income before interest and income taxes totaled $917 thousand during the third
quarter of 2000 as compared to $1.1 million during the comparable period last
year. The reduction was the result of the lower gross margin.
Net interest expense during the third quarter of 2000 totaled $203 thousand as
compared to net interest expense of $201 thousand during the third quarter of
1999. The increase in interest expense in 2000 as compared to 1999 was the
result of a higher average level of bank debt outstanding during the third
quarter of 2000 as compared to the third quarter of 1999.
The provision for income taxes during the third quarter of 2000 totaled $261
thousand as compared to $320 thousand during the same period last year. The
combined effective income tax rate totaled 36.5% in the third quarter of 2000
and 37.1% in the third quarter of 1999. The combined effective income tax rates
are higher than combined statutory rates because of nondeductible goodwill.
Preferred dividends during the third quarter of 2000 totaled $68 thousand as
compared to $127 thousand during the same period in 1999. The reduction from
1999 was due to the partial redemption of preferred stock in August 1999.
Third 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 13
<PAGE>
YEAR TO DATE
Sales during the nine months ended September 30, 2000 totaled $21.4 million as
compared with $21.6 million during the comparable period in 1999. Improved sales
of gift and craft products during the nine months ended September 30, 2000 in
addition to incremental sales contributed by Button Fashion B. V. were
insufficient to fully offset a decline in the sales of buttons. This softness in
button sales was the result of, among other things, the current fashion cycle
which places less emphasis on buttons and embellishments. In addition, a change
was made by one of our largest customers in their re-order quantities in an
effort to reduce store inventory levels. The change in re-order quantities will
have the temporary effect of lowering sales volumes until the customer's desired
inventory levels are achieved.
Gross margin during the nine months ended September 30, 2000 totaled $8.8
million as compared with $9.9 million in the comparable period of 1999. The
gross margin percent during nine months ended September 30, 2000 was 41.0% as
compared to 45.6% during the nine months ended September 30, 1999. The gross
margin declines, in both dollars and percent, were the result of a change in
sales mix as revenues from new, lower margin product lines grew during the
quarter while higher margin lines contracted for the reasons noted above.
Selling, general and administrative expenses during the nine months ended
September 30, 2000 totaled $6.6 million as compared to $6.1 million in the
comparable period of 1999. The increase in selling, general and administrative
expenses was primarily the result of costs associated with new product lines
introduced during the second half of 1999.
Income before interest and income taxes totaled $2.2 million during the nine
months ended September 30, 2000 as compared to $3.7 million during the
comparable period last year. The reduction was the result of a combination of
lower gross margins and higher selling, general and administrative expenses as
described above.
Net interest expense during the nine months ended September 30, 2000 totaled
$562 thousand as compared to net interest expense of $607 thousand during the
comparable period in 1999. The decrease in interest expense in 2000 as compared
to 1999 was the result of a lower average level of bank debt outstanding during
the first nine months of 2000 as compared to the first nine months of 1999.
The provision for income taxes during the nine months ended September 30, 2000
totaled $606 thousand as compared to $1.147 million during the same period last
year. The combined effective income tax rate totaled 37.6% in the first nine
months of 2000 and 36.7% in the comparable period in 1999. The combined
effective income tax rates are higher than combined statutory rates because of
nondeductible goodwill.
Preferred dividends during the nine months ended September 30, 2000 totaled $205
thousand as compared to $530 thousand during the same period in 1999. The
reduction from 1999 was due to the partial redemption of preferred stock in
August 1999.
Results of the first three quarters of 2000 may not be indicative of future
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 9 of 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's principal sources of liquidity included
cash and cash equivalents of $164 thousand and trade accounts receivable of $5.4
million. In addition, the Company had $1.45 million available under its
revolving credit facility as of September 30, 2000. Cash used by operations
during the nine months ended September 30, 2000 totaled $1.1 million.
On June 30, 1998, the assets and business of Westwater Enterprises LP were
acquired by Westwater Industries, Inc. ("Westwater"), a wholly-owned subsidiary
of the Company. Contingent payments related to this acquisition of up to $2
million may become payable upon the achievement of specified cumulative earnings
levels through December 31, 2000, or in the event of an acquisition of more than
50% voting control of the Company during the contingent payment period. Based on
current earnings levels, the Company does not that a contingent payment will be
required.
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. The
availability of resources to make dividend payments to the holders of Preferred
Stock in the future will depend on the Company's future cash flow and the timing
of the settlement of the liabilities recorded in the financial statements of the
Company.
In addition, the Preferred Stock by its terms was required to be fully 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. The Company expects to stay current with respect to
Preferred Stock dividends. However, the Company's redemption payments, if any,
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 Revolving
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 10 of 13
<PAGE>
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 and
(vi) negotiations with its lenders. 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.
Page 11 of 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
------ ------- -------------
None
b) REPORTS ON FORM 8-K.
During the third quarter of 2000, the Company did not file a
Current Report on Form 8-K.
Page 12 of 13
<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: November 14, 2000
Page 13 of 13
