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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
December 31, 2003
Commission File Number
0-50186
LEVCOR INTERNATIONAL, INC.
(Exact name of the registrant as specified in its charter)
Delaware 06-0842701
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
462 Seventh Avenue, New York, New York 10018
(Address of principal executive offices)
(212) 354-8500
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the issuer: (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-B 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-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 2003:
$30,784,000
At March 23, 2004, approximately 5,157,289 shares of common stock, par
value $0.01 per share, of the issuer were outstanding and the aggregate market
value of the voting common stock held by non-affiliates was approximately
$12,899,816.
Documents incorporated by reference: Portions of Registrant's Proxy
Statement for the 2004 Annual Meeting of Stockholders are incorporated into Part
III of this Form 10-KSB.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
INDEX TO ANNUAL REPORT ON FORM 10-KSB FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2003
ITEMS IN FORM 10-KSB
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Page
PART I. ....................................................................2
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Item 1. DESCRIPTION OF BUSINESS........................................2
Item 2. DESCRIPTION OF PROPERTY.......................................10
Item 3. LEGAL PROCEEDINGS.............................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........11
PART II. ...................................................................12
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Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES..........12
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....12
Item 7. FINANCIAL STATEMENTS..........................................21
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................44
Item 8A. CONTROLS AND PROCEDURES.......................................44
PART III. ..................................................................46
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Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............46
Item 10. EXECUTIVE COMPENSATION........................................46
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................46
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................46
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.......................46
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES........................50
PART I.
This 2003 Annual Report on Form 10-KSB contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent and belief
or current expectations of the Company and its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among other things, future
revenue opportunities, development and growth of the Company's contract garment
manufacturing business, the future growth of the Company's customer base and
strategic and distribution relationships, future capital, marketing and sales
force needs, the possible acquisition of complementary products and businesses,
and other risks and uncertainties that may be detailed herein, and from
time-to-time, in the Company's other reports filed with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Item 1. DESCRIPTION OF BUSINESS.
General
Levcor International, Inc. ("Levcor" or the "Company") was incorporated in 1964
as Pantepec International, Inc. under the laws of the Islands of Bermuda and was
reorganized in 1967 under the laws of the State of Delaware. In 1995, Pantepec
International, Inc. changed its name to Levcor International, Inc.
In 1995, the Company acquired a woven fabric converting business that converts
cotton, synthetics and blended fabrics for sale to domestic apparel
manufacturers. In 1999, the Company purchased a knit fabric and processing
business that produces knit fabrics used in the production of apparel. These
acquisitions formed the basis of the Company's current Textile business.
On January 6, 2003, the Company completed its acquisition of Carlyle Industries,
Inc. ("Carlyle"). In the merger, each five shares of Carlyle common stock were
converted into one share of Company common stock, par value $0.01 per share, and
each share of Carlyle Series B preferred stock was converted into one share of
Company Series A preferred stock, par value $0.01 per share. In addition, the
Company assumed Carlyle stock options which became options to purchase
approximately 220,000 shares of Company common stock. The merger was accounted
for as a reverse acquisition. The purchase price, exclusive of assumed
liabilities, was valued at approximately $6.8 million. Liabilities of
approximately $5.7 million were also assumed. This acquisition formed the basis
of the Company's current Craft business.
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During 2003, the Textile division results were adversely affected due to ongoing
competitive pressures in the fabric converting industry. As a result of
operating losses incurred by the Textile division, the Company recorded a
$5,367,000 charge to fiscal 2003 earnings to reflect the impairment of goodwill
associated with the Textile division. As a result, the Company took steps to
transition the focus of its Textile division from fabric converting to garment
manufacturing, which the Company believes offers greater potential for growth.
Strategy
The Company's strategy to expand its business and improve profitability
includes, among other things:
o expanding the distribution channels for its textile products into
retail markets;
o expanding the sales of its new garment manufacturing product lines and
introduction of additional garment lines;
o expanding its craft distribution product offerings, business and
customer base within retail and wholesale markets, including an
expansion into international markets, primarily in Canada and Europe;
o reducing the risks of continuing as a relatively small independent
company in industries that are increasingly competitive; and
o increasing its access to credit markets.
Products and Customers
Textile Division
The Textile division converts woven textile fabrics and processes woven and knit
textile fabrics. These fabrics are either sold for production principally to
domestic manufacturers of women's apparel or Levcor contracts construction of
garments by third party manufacturers according to customer's orders.
Sales related to contract garment manufacturing represented 57% of the Textile
division's sales in 2003 as compared to none in previous periods. The Company
anticipates that sales related to contract garment manufacturing by the Textile
division will continue to expand in 2004, and fabric converting will continue to
contract, primarily as a result of foreign competition. The Company anticipates
that as garment manufacturing becomes a bigger component of textile sales,
future gross margin percentages in the Textile division could continue to
decrease.
Garment manufacturing consists of producing a finished garment according to
customer specifications. The Company contracts with off-shore production
facilities to make the specified garment and directs the flow of production and
quality control.
The textile fabric converting process consists of (i) designing fabrics, (ii)
purchasing yarns both dyed and undyed and commissioning knitting mills to knit
the yarns into greige (unfinished) fabric according to the Company's
specifications, and (iii) commissioning fabric finishers to finish the fabrics
through a process of washing, bleaching, dyeing and applying certain chemical
finishes to greige fabric according to the Company's specifications. Finished
apparel fabric is fabric that is ready to be cut and sewn into garments. The
Company contracts with commercial transporters to deliver greige fabric from
textile mills to the fabric finishers. The Company receives orders for the sale
of finished fabrics through its sales personnel and independent commissioned
agents.
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The principal raw materials used by the Textile division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and acrylic. National Spinning Company and Fairfield
Textile Corp. supplied approximately 24% and 10% respectively of the Textile
division's raw materials in 2003.
The average customer of the Textile division has been purchasing textile fabrics
from the Company for over 20 years. During fiscal 2003, the Textile division's
two largest customers accounted for approximately 78% of the division's sales.
During 2003, the Textile division results were adversely affected by ongoing
competitive pressures in the fabric converting industry, including reduced
margins and significant foreign competition. As a result, the Company took steps
to transition the focus of its Textile division from fabric converting to
garment manufacturing, which the Company believes offers greater potential for
growth. The Company also initiated a series of cost savings initiatives in the
Textile division, including reducing headcount, in an effort to achieve future
improved results.
As a result of operating losses incurred by the Textile division during 2003,
the Company recorded a $5,367,000 charge to fiscal 2003 earnings to reflect the
impairment of goodwill associated with the Textile division. The charge was
based upon on a third party goodwill impairment evaluation conducted in
connection with the fiscal 2003 audit. As a result of the charge, the Company's
2003 pre-tax loss totaled $5,478,000 and net loss applicable to common stock
totaled $6,114,000, or $1.20 per share.
Craft Division
The Craft division manufactures, packages and distributes buttons,
embellishments, craft products and complimentary product lines, including
appliques, craft kits and fashion and jewelry accessories. These products are
marketed to the home sewing and craft customers. The Craft division's products
are sold to mass merchandisers, specialty chains and independent retailers and
wholesalers. Products are sold under the La Mode (R), Le Chic (R), Streamline
(R), Westwater Enterprises (R), Favorite Findings (R), and Button Fashion (R)
registered trademarks and the Le Bouton, La Petite, Classic, Boutique Elegant
and Mill Mountain brand names. The Craft division also produces and distributes
a private-label button line for one of the nation's best-known retailers.
The button 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. The domestic market is
concentrated and is served by national and regional fabric specialty chains,
mass merchandisers, independent fabric stores, notions wholesalers and craft
stores and chains.
The Craft division's button product lines are sourced from more than 75 button
manufacturers from around the world, with most buttons coming from the
traditional markets of Europe and Asia. Button manufacturers specialize in
different materials (e.g., plastic, wood, glass, leather, metal, jewel and
pearl) and have varying approaches to fashion, coloration, finishing and other
factors. Craft products are developed by the Craft division's product
development team and most of these products are sourced and produced in the U.S.
and Asia.
-4-
All imported and domestically purchased buttons for sale in the North American
market are shipped to the Company's 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 Company, LLC 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.
Domestic shipments are made primarily to individual stores with a smaller
percentage to warehouse locations. Craft products are also distributed from the
Lansing, Iowa facility. The European business is primarily serviced by
distributors from the Company's manufacturing and distribution facility in the
Netherlands.
The Craft division's accounts include fabric and craft specialty chains, mass
merchandisers carrying buttons and crafts, distributors 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 to customers with hundreds to thousands of locations
nationwide. The Crafts division enjoys long-standing ties to all of its key
accounts and the average relationship with its ten largest customers extends
over 30 years. Due to the large account nature of its customer base, most
customer contact is coordinated by management and additional sales coverage is
provided by regional sales managers. Many smaller retailers are serviced by
independent representatives and representative organizations.
During the years ended December 31, 2003 and 2002, the Craft division conducted
business with four customers whose aggregate sales volume represented
approximately 78% and 79% of the division's net revenues, respectively. These
customers also represented approximately 96% of the Craft division's outstanding
accounts receivable as of December 31, 2003.
The Company believes that its crafts business depends on trends within the craft
market including the more mature home-sewing market. 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.
In response to this trend, the Company has broadened its lines to include
embellishments, novelty buttons and products used in the craft industry which
are not viewed by management as mature markets. In addition, the Company has
sought to expand its markets beyond the traditional U.S. retail outlets by
expansion into the major European countries.
Competition
The textile fabric converting business in which the Company competes is
extremely competitive, and it competes on the basis of the price and uniqueness
in styling of its fabrics. The Company competes with numerous domestic and
foreign fabric manufacturers, including companies that are larger in size and
have financial resources that are greater than that of the Company. The Company
also has significant competition, including foreign competition and competition
with much larger competitors, in connection with its new garment manufacturing
business, where it competes on the basis of price, quality and on-time delivery.
Foreign competition, in particular, is a significant factor in the textile
business, as the United States textile industry has been and continues to be
negatively impacted by existing worldwide trade practices.
The bulk of the Company's craft revenues are derived in the United States. The
craft market in the United States is served by many competitors. The Company
competes on the basis of product innovation, range of selection, brand names,
-5-
price, display techniques and speed of distribution. 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. The
craft market is served by many and varied competitors with innovation and
competitive pricing being of major importance.
Backlog
The Textile division has no backlog as it converts and processes fabric to
order. The Craft division fills at least 95% of its orders within 48 hours and
as a result, had no backlog of any significance at either December 31, 2003 or
2002.
Employees
The Company currently employs 150 persons, all of whom are employed full time,
and none of its employees are represented by a collective bargaining agreement.
The Company believes relations with employees are satisfactory.
Factors That Could Affect Our Future Results
The Company May Be Dependent Upon Its Principal Stockholder To Fund Its Future
Operations.
Losses sustained in prior years have adversely affected the Company's liquidity.
Robert A. Levinson has agreed to continue to personally support the Company's
cash requirements through January 1, 2006. Levcor has successfully implemented
several actions to reduce losses and improve cash flow. There can be no
assurance that Mr. Levinson will continue to personally support the Company's
cash requirements, or that these measures will otherwise continue to be
successful.
Expansion of Garment Manufacturing Business.
During 2003, the Textile division results were adversely affected by ongoing
competitive pressures in the fabric converting industry, including reduced
margins and significant foreign competition. As a result, the Company took steps
to transition the focus of its Textile division from fabric converting to
garment manufacturing, which the Company believes offers greater potential for
growth. The Company also initiated a series of cost savings initiatives in the
Textile division, including reduced headcount, in an effort to achieve future
improved results. There is no assurance that the Company will be able to
successfully expand its garment manufacturing business or that such expansion
and cost saving initiatives will improve results in the Textile division.
The Company's Business Is Extremely Competitive.
In the event the Company is unable to continue to be competitive in its product
offerings and services, the Company's business, results of operations and
financial condition may suffer. Competition in the domestic textile fabric
converting business is based on price, uniqueness in styling of fabrics and the
ability to quickly respond to customers' orders. Competition in garment
manufacturing is based on price, quality and on-time delivery. Competition in
the craft business is based on product innovation, range of selection, brand
names, price, display techniques and speed of distribution. We cannot assure you
that our domestic or foreign competitors will not be able to offer products that
are more attractive to our customers or potential customers than what we are
able to provide. A large number of domestic and foreign manufacturers supply
-6-
apparel and craft products to the United States market, many of which have a
much more significant market presence than does the Company. Some of the
Company's competitors also have substantially greater financial, marketing,
personnel and other resources than the Company. This may enable the Company's
competitors to compete more aggressively in pricing and marketing and to react
more quickly to market trends and to better weather market downturns. Increased
competition by existing and future competitors could result in reductions in
sales or reductions in prices of the Company's products. There is no assurance
that the Company will be able to compete successfully against present or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on the Company's results of operations or financial
condition.
The Textile Division Depends On Third Parties For Crucial Raw Materials And
Services.
The principal raw materials used by the Textile division are cotton, rayon and
polyester. Cotton is available from a large number of suppliers. The quantity of
plantings, crop and weather conditions, agricultural policies, domestic uses,
exports and market conditions can significantly affect the cost and availability
of cotton. The price of polyester varies and is determined by supply and demand
as well as the price of petroleum used to produce polyester. The Company depends
on third party knitters, finishers and transporters in the production and
delivery of the finished fabrics it sells and markets to apparel manufacturers.
If any of its third party knitters, finishers and transporters fail to timely
produce quality products and in sufficient quantity or fail to timely deliver
finished products, the Company's results would suffer. National Spinning Company
and Fairfield Textile Corp. supplied approximately 24% and 10% respectively of
the Textile division's raw materials in 2003.
The Company's Business Is Subject To The Seasonal Nature Of The Industry.
The textile business is seasonal and the Company expects to realize higher
revenues and operating income in the third quarter. Such seasonality takes into
account the standard lead-time required by the fashion industry to manufacture
apparel, which corresponds to the respective retail selling seasons. Standard
lead-time is the period of time commencing when the Company receives an order
from a customer and ending when the order ships. In response to this
seasonality, the Company generally increases its inventory levels, and thereby
has higher working capital needs during the first and second quarters of its
fiscal year. The Company and the U.S. apparel industry in general are sensitive
to the business cycle of the national economy. Moreover, the popularity, supply
and demand for particular apparel products can change significantly from year to
year based on prevailing fashion trends and other factors. Reflecting the
cyclical nature of the apparel industry, many apparel producers tend to increase
capacity during years in which sales are strong. These increases in capacity
tend to accelerate a general economic downturn in the apparel markets when
demand weakens. These factors have contributed historically to fluctuations in
the Company's results of operations and they are expected to continue to occur
in the future. The Company may be unable to compete successfully in any industry
downturn.
The craft business is largely based on reorders from its retail customers and on
its ability to place new programs with retail customers; as a result, the
business is influenced by the buying habits of consumers. Home sewing and craft
activities take place on a year-round basis; however, they are generally indoor
activities and as a result they experience an increased participation level
during the fall, winter and early spring months. Anticipating this pattern, the
Company's retail customers place somewhat larger reorders during the July
through March period.
-7-
Sales are influenced by the introduction of new programs and the discontinuance
of existing programs. A successful new program requires the retail customer to
add the program and experience an acceptable level of sell-through. The Company
develops and introduces new program ideas on a regular basis. However, there is
no assurance that its retail customers will buy the new programs and if they do,
there is no assurance the consumer will purchase the new product at an
acceptable level.
The Company's seasonality, along with other factors that are beyond its control,
including general economic conditions, changes in consumer behavior, weather
conditions, availability of import quotas and currency exchange rate
fluctuations, could adversely affect the Company and cause its results of
operations to fluctuate. Results of operations in any period should not be
considered indicative of the results to be expected for any future period. The
sale of the Company's products can be subject to substantial cyclical
fluctuation. Sales may decline in periods of recession or uncertainty regarding
future economic prospects that affect consumer spending, particularly on
discretionary items. This cyclicality and any related fluctuation in consumer
demand could have a material adverse effect on the Company's results of
operations and financial condition.
The Future Of The Company Will Depend On Key Personnel That It May Not Be Able
To Retain.
If the Company does not succeed in retaining and motivating existing personnel,
its business will be affected, and the loss of such personnel might result in
the Company not being able to retain customer accounts, generate new business or
maintain sales. The Company depends on the continued services of its key
personnel particularly its employees comprising its sales and marketing
department and purchasing/distribution group as well as its two executive
officers, Robert A. Levinson and Edward F. Cooke. Each of these individuals has
acquired specialized knowledge and skills with respect to the Company's lines of
businesses and their respective operations. As a result, if any of these
individuals were to leave the Company, the Company could face substantial
difficulty in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary training and
experience.
The Craft Business Is In An Industry That Is Subject To Significant Fluctuations
In Operating Results That May Result In Unexpected Reductions In Revenue.
The craft business is in an industry that is subject to significant fluctuations
in operating results, which may lead to unexpected reductions in revenues.
Factors that may influence the Company's operating results include:
o the volume and timing of customer orders received;
o the timing and magnitude of customers' marketing campaigns;
o the loss or addition of a major customer;
o the availability and pricing of materials for our products;
o the increased expenses incurred in connection with the introduction of
new products;
o currency fluctuations;
o delays caused by third parties; and
o changes in our product mix.
-8-
Because the Company Generally Does Not Enter Into Long-Term Sales Contracts With
Its Customers, Its Sales May Decline If Its Existing Customers Choose Not To Buy
Its Products.
Customers are not required to purchase its products on a long-term basis. As a
result, a customer that generates substantial revenue for the Company in one
period may not be a substantial source of revenue in a future period. In
addition, customers generally have the right to terminate their relationship
with the Company without penalty and with little or no notice. Without long-term
contracts with the majority of its customers, the Company cannot be certain that
its customers will continue to purchase its products or that it will be able to
maintain a consistent level of sales.
The Company Is Impacted By Environmental Laws And Regulations.
The Company is subject to a number of federal, state and local environmental
laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes that impose joint and several liability on present and former
owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. In addition, the Company is subject
to laws concerning 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. The Company's operations must meet extensive federal,
state and local regulatory standards in the areas of safety, health and
environmental pollution controls. Although the Company believes that its
business is operating in compliance in all material respects with such laws,
statutes and regulations, many of which provide for substantial penalties for
violations, there can be no assurance that future changes in federal, state, or
local regulations, interpretations of existing regulations or the discovery of
currently unknown problems or conditions will not require substantial additional
expenditures.
The Company May Not Have The Necessary Funds To Finance A Required Mandatory
Redemption Of The Series A Preferred Stock.
The Company Series A preferred stock is subject to mandatory redemption, in
three equal annual installments on June 15, 2007, June 15, 2008 and June 15,
2009, at a price per share of Series A preferred stock equal to $1 per share,
together with an amount representing accrued and unpaid dividends, whether or
not declared, to the date of redemption. This represents a significant future
liability of the Company. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future borrowings
will be available in sufficient amounts to enable the Company to redeem the
Series A preferred stock when required to do so. In the event that the Company
fails to redeem the Series A preferred stock on any of the mandatory redemption
dates, the Series A preferred stockholders will be entitled to receive
cumulative cash dividends, and no distribution or dividend in cash, shares of
capital stock or other property will be paid or declared on the common stock.
Similarly, if the redemption on the Series A preferred is not met, and should
the Company liquidate or dissolve, no payment of any kind may be made to the
common stockholders without first satisfying the accrued cash dividends owed to
the Series A preferred stockholders. In addition, Series A preferred stock
payments are currently restricted under the Company's financing arrangements
with its lenders.
-9-
Item 2. DESCRIPTION OF PROPERTY.
The Company's principal offices are located at 462 Seventh Avenue, 20th Floor,
New York, New York 10018. The Company leases this property, approximately 6,500
square feet, at approximately $169,000 per year. The lease expires on January
31, 2007.
The Company also leases an 11,000 square foot office facility in Carlstadt, New
Jersey and owns a 104,000 square foot packaging and distribution facility
located in Lansing, Iowa and a 35,000 square foot manufacturing and distribution
facility located in Veendam, the Netherlands.
The Company owns a former dye facility located in Emporia, Virginia, which is
leased at a nominal amount to the purchaser of the Company's former Home
Furnishings division under a triple net fifty-year lease which lease has
forty-two years remaining. In addition, the Company owns one facility no longer
used in operations: a 104,000 square foot former production facility at
Watertown, Connecticut of which approximately 26,650 square feet are leased to
unrelated third parties.
The Company believes that the facilities are adequate and suitable to service
its present and reasonably foreseeable needs.
Item 3. LEGAL PROCEEDINGS.
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,
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 "PRPs."
A property owned by the Carlyle Manufacturing Company, Inc. ("CM") (a
non-operating subsidiary) located at 30 Echo Lake Road in Watertown, Connecticut
was being investigated by the United States Environmental Protection Agency
("EPA") during the early 1990's for possible inclusion on the National
Priorities List promulgated pursuant to CERCLA but no such listing ever
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").
On or about June 1992, Carlyle received notices from the EPA that Carlyle,
Belding Corticelli Thread Co. ("BCTC") (a discontinued operation) 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"). Carlyle
settled its alleged liability in connection with the SRS sites by paying $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 (except for
certain maintenance activities) have been completed. BCTC and CM have been
allocated approximately 0.04% and 1.26%, respectively, of costs incurred to
date, based on their alleged volume of waste shipped to the SRS site. It is
presently anticipated that the EPA will issue the record of decision for this
site sometime between the third quarter of 2004 and third quarter of 2005. The
Company is unable, at this time, to estimate the ultimate cost of the remedy for
the SRS site.
-10-
The amounts referred to 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 the Company's participation as part of a PRP group.
The reserve the Company has established for environmental liabilities, in the
amount of $1.2 million, represents the Company's best current estimate of the
costs of addressing all identified environmental problems, including the
obligations 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During 2003 no matters were submitted to stockholders for a vote.
-11-
PART II.
Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
The Company's common stock is traded on the Over The Counter Bulletin Board
under the symbol "LEVC.OB." The par value of the Company's common stock was
changed from $0.56 to $0.01 per share, on January 6, 2003 in connection with its
merger with Carlyle. The common stock is traded sporadically, and no established
liquid trading market currently exists therefor.
The following table sets forth the range of high and low bids of the Company's
common stock for the calendar quarters indicated.
2003 High Low
---- ---
First Quarter $ 3.00 $ 1.55
Second Quarter 2.80 1.75
Third Quarter 3.50 2.40
Fourth Quarter 4.00 2.60
2002 High Low
---- ---
First Quarter $ 2.25 $ 1.85
Second Quarter 3.15 1.61
Third Quarter 1.61 1.26
Fourth Quarter 2.50 .90
Holders of Record
As of March 5, 2004, there were approximately 6,500 holders of record of Company
common stock.
Dividend Policy
The Company has not paid any cash dividends on shares of its common stock and
has no present intention to declare or pay cash common stock dividends in the
foreseeable future. The Company is restricted under the financing arrangements
it has with CIT Group/Financial Services, Inc. ("CIT") from declaring or paying
dividends on its common stock without first obtaining CIT's consent. For a
description of the financing arrangements, see "Liquidity and Capital
Resources."
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Critical Accounting Policies And Estimates
The following is a brief discussion of the critical accounting policies used in
the preparation of the Company's financial statements, including those
accounting policies and methods used by the Company which require subjective
judgments and are considered very important to the understanding of the
Company's financial condition.
-12-
Receivables
Because the Textile segment factors substantially all of its accounts
receivable, the amount shown on the Consolidated Balance Sheet is primarily
related to the Company's Craft segment.
The Company extends credit to Craft segment customers that satisfy established
credit criteria. The Craft segment has a significant concentration of credit
risk due to the large volume of business with major retail customers. Most of
these retail customers are public companies and as such, the Company monitors
their financial reports on a regular basis and obtains accounts receivable
insurance in certain circumstances.
Accounts receivable, trade, is reported net of a reserve for returns, allowances
and bad debts. A reserve for bad debts is determined through analysis of the
aging of accounts receivable at the date of the financial statements and
assessments of collectability based on historical trends. The reserve for bad
debts includes 100% of all invoices that management deems doubtful of
collection. The Company also estimates a reserve for sales returns and
allowances based on historical experience.
Inventories
Inventories are stated at the lower of cost (principally average cost) or
market. Inventories consist of loose buttons, unpackaged craft products, yarn
and greige goods (collectively considered raw materials), packaged craft and
button products, finished fabric and garments (collectively considered finished
goods). The Company estimates markdowns required for inventories based upon
future marketability as well as general economic conditions. The Company
regularly reviews inventory quantities on hand, by item, and records a provision
for excess inventory based primarily upon the Company's historical experience
and estimated forecast of product demand using historical and recent ordering
data relative to the quantity on hand for each item. A significant decrease in
demand for the Company's products could result in an increase in the amount of
excess inventory quantities on hand; however, the Company manages inventory and
monitors product purchasing to minimize this risk.
Intangible Assets
Goodwill and other intangible assets such as trademarks are evaluated by an
independent consultant for impairment at least annually and, if necessary,
impairment is recorded. Goodwill and other intangible assets are not amortized.
Pension Liabilities
The Company used an estimated rate of return of 8.00% and a discount rate of
6.25% in computing its pension liabilities.
-13-
Revenue Recognition
The Company recognizes revenue when goods are shipped to customers. Shipment is
made by UPS or common carrier. Deliveries generally take place within three days
of shipment. Standard terms for shipments are F.O.B. shipping point, at which
time the Company has completed all performance obligations to consummate the
sale. In some circumstances, shipments are made F.O.B. destination, in which
case the Company insures the sales value of most shipments. Revenue is reported
net of a reserve for sales returns and allowances. Sales returns and allowances
are estimated based upon specific agreements and historical patterns with major
accounts and are accrued in the period in which a customer becomes entitled to
an allowance or return of product.
Shipping and Handling Costs
Shipping and handling costs are included in the cost of sales.
Results Of Operations
Introduction
Effective January 6, 2003, the merger of Carlyle and Levcor was completed. The
merger has been accounted for as a reverse acquisition whereby Carlyle is
treated as the acquiror. For that reason, Carlyle's historical results are
reported as the Company's historical results for periods prior to 2003 in the
accompanying Consolidated Statement of Operations on page 24. However, for
purposes of comparability in the discussion of operating results in this
Management's Discussion of Results of Operations, the 2003 results are compared
to the 2002 pro forma results, which assume Carlyle acquired Levcor on January
1, 2002, which are shown in the following table:
Actual December 31, 2003:
Craft Textile Unallocated Total
----------- ----------- ----------- -----------
Net revenues $ 22,348 $ 8,436 -- $ 30,784
Cost of goods sold 14,108 7,141 -- 21,249
----------- ----------- ----------- -----------
Gross profit 8,240 1,295 -- 9,535
Selling, general and administrative 5,124 2,459 1,401 8,984
Impairment of goodwill 5,367 5,367
----------- ----------- ----------- -----------
Income (loss) before preferred dividends, interest
and provision for income taxes 3,116 (6,531) (1,401) (4,816)
Interest Expense (203) (183) (140) (526)
Preferred dividends -- -- (273) (273)
Benefit (provision) for income taxes (1,086) 227 360 (499)
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock $ 1,827 $ (6,487) $ (1,454) $ (6,114)
=========== =========== =========== ===========
-14-
Pro Forma December 31, 2002:
Craft Textile Unallocated Total
----------- ----------- ----------- -----------
Net revenues $ 23,728 $ 10,497 -- $ 34,225
Cost of goods sold 14,751 8,430 -- 23,181
----------- ----------- ----------- -----------
Gross profit 8,977 2,067 -- 11,044
Selling, general and administrative 5,415 2,552 941 8,908
Loss on impairment of asset held for sale -- 169 -- 169
----------- ----------- ----------- -----------
Income (loss) before preferred dividends, interest
and provision for income taxes 3,562 (654) (941) 1,967
Interest Expense (260) (202) (148) (610)
Preferred dividends -- -- (272) (272)
Benefit (provision) for income taxes (1,189) 308 392 (489)
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock $ 2,113 $ (548) $ (969) $ 596
=========== =========== =========== ===========
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Net sales for the year ended December 31, 2003 totaled $30.8 million, compared
to pro forma net sales of $34.2 million for the year ended December 31, 2002.
Net sales in the textile division declined $2.1 million and net sales in the
Craft division declined $1.4 million. The textile division sales decline was the
result of a loss of traditional fabric converting business due to continued
foreign competition, which was not fully offset by new business in contract
garment manufacturing. The sales decline in the Craft division was the result of
lower sales of certain discontinued product lines.
Gross profit during 2003 totaled $9.5 million as compared to pro forma gross
profit of $11.0 during the year ended December 31, 2002. The gross margin
percent during the year ended December 31, 2003 was 31% as compared to a pro
forma gross margin percent of 32% during the year ended December 31, 2002. The
gross margin dollar decrease in 2003 as compared to pro forma 2002 was the
result of incremental sales declines in both divisions as described above. The
gross margin percent in the textile division was 15% during the year ended
December 31, 2003 as compared to 20% in 2002. The decline in gross margin
percent in the textile division was the result of higher costs associated with
off shore production of constructed garments in 2003 as compared to on shore
converting of fabric in 2002. The Company anticipates that as garment
manufacturing becomes a bigger component of textile sales, future gross margin
percentages in the Textile division could continue to decrease. The gross margin
percent in the craft division was 37% during the year ended December 31, 2003 as
compared to 38% in 2002. The decline in gross margin percent in the Craft
division was the result of higher raw material costs and higher shipping costs
in 2003 as compared to 2002.
Selling, general and administrative expenses totaled $9.0 million during the
year ended December 31, 2003 and was $8.9 million on a pro forma basis during
the year ended December 31, 2002.
As a result of operating losses incurred by the Textile division during 2003,
the Company has recorded a $5,367,000 charge to fiscal 2003 earnings to reflect
the impairment of goodwill associated with the Textile division. The charge is
based upon on a third party goodwill impairment evaluation conducted in
connection with the fiscal 2003 audit. As a result of the charge, the Company's
2003 pre-tax loss totaled $5,478,000 and net loss applicable to common stock
totaled $6,114,000 or $1.20 per share. There was no impairment of Craft division
goodwill in 2003 and there was no impairment of goodwill in the pro forma
results for the year ended December 31, 2002.
A loss on impairment of asset held for sale in the amount of $169,000 was
recorded in the fourth quarter of 2002. There was no such impairment of asset
held for sale in 2003.
-15-
Net interest expense during the year ended December 31, 2003 totaled $526,000 as
compared to pro forma interest expense of $610,000 during the year ended
December 31, 2002. The decrease in interest expense was the result of lower
interest rates in effect in 2003 as compared to 2002.
Income before income taxes for the year ended December 31, 2003 was reduced by
the accrual of the Series A Redeemable Preferred Stock dividends that totaled
$137,000 due to the Company's adoption of the provisions of SFAS 150 during the
third quarter of 2003. The accrual of preferred stock dividends was previously
reported as an adjustment to Net Income to arrive at Net Income Available to
Common Stock and the provisions of SFAS 150 preclude the restatement of prior
year and prior quarter financial statements. The adoption of SFAS 150 does not
affect the Company's earnings (loss) per share.
The income tax provision during the year ended December 31, 2003 totaled
$499,000 as compared to a proforma income tax provision of $489,000 during the
year ended December 31, 2002. The goodwill impairment is not deductible for
income tax purposes. The income tax provision in 2003 is a deferred provision as
a result of the Company's net operating loss carryforward for income tax
purposes and will not result in a cash payment.
Series A Preferred Stock dividends during the year ended December 31, 2003 and
2002 totaled $137,000 and $272,000 respectively.
Results of operations may vary from year to year due to programs with major
customers, which may vary as to timing and amount from year to year. In
addition, consolidation within the Company's customer base and inventory
reduction efforts by major retail customers may affect the Company's revenue and
operating results in subsequent years.
Liquidity And Capital Resources
In early 2003, the Company's Textile division began providing contract garment
manufacturing services for a major customer. The nature of this type of business
is such that a significant working capital investment is required in the early
phases of the business cycle in the form of inventory. The Company's factoring
agreement with CIT does not provide funding for inventory located outside of the
United States, where the production takes place, but does provide funding once
the goods are received in the United States. As a result, Robert A. Levinson, a
stockholder, officer and director of the Company, made temporary advances to the
Company during the second and third quarters of 2003 totaling $1.730 million to
fund these operations. This off-shore production was completed, shipped and
billed to the customer during the third and fourth quarters of 2003. At the time
of billing, the Company's factoring agreement with CIT provided funding for
working capital at which time the advances from Robert A. Levinson were repaid
in full.
At December 31, 2003 the Company's principal sources of liquidity included cash
of $44,000 and trade accounts receivable of $2.8 million.
The Company's principal sources of cash flow are from internally generated
funds, borrowings under revolving credit facilities, advances under the
factoring agreement and advances from Robert A. Levinson, a stockholder, officer
and director.
Net cash flow used in operating activities totaled $740,000 during the year
ended December 31, 2003, as compared to $1.3 million cash provided by operations
during the same period last year. The increase in cash flow used by operating
activities was the result of a significant decrease in net income as compared to
2002.
-16-
Net cash flow used in investing activities totaled $239,000 during the year
ended December 31, 2003, as compared to $293,000 during 2002. The decrease in
net cash flows used in investing activity was primarily the result of lower
capital expenditures made by the Craft division.
Net cash provided by financing activities totaled $947,000 during the year ended
December 31, 2003, as compared to $1.3 million of net cash used in financing
activities for the year ended December 31, 2002. Net repayments under the
Company's credit facilities during the year ended December 31, 2003 totaled
$79,000 as compared to repayments of $997,000 during the same period last year.
Net amount borrowed from factor during the year ended December 31, 2003 totaled
$1.2 million versus none during the year ended December 31, 2002. Cash used for
preferred stock dividend payments during the year ended December 31, 2003
totaled $136,000 as compared to $273,000 during the year ended December 31,
2002. The reduction in cash flows used in preferred stock dividend payments was
due to the effect of the adoption of SFAS 150 in the third quarter of 2003 as
the preferred stock dividend payment of $137,000 was included in the
determination of net income. Deferred financing costs totaling $30,000 were
capitalized in connection with the CIT Facility during the year ended December
31, 2002. There were no such costs in 2003.
Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.50% at December 31, 2003). The Company pledged
its Textile segment's accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.
In connection with the merger of Levcor and Carlyle, the Company assumed a $3.0
million note payable to JPMorgan Chase Bank ("JPMorgan") pursuant to a
promissory note due May 2, 2005 as amended. The note bears interest at a fixed
rate per annum equal to the Adjusted LIBO Rate applicable to such note plus
0.75% (a "Eurodollar Loan"). The interest on the note at December 31, 2003 was
1.9375%. In addition, Robert A. Levinson a stockholder, officer and director of
the Company has provided certain additional collateral guaranteeing the note.
Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2006, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement.
As of December 31, 2003, the Company owes Mr. Levinson $814,000, including
accrued interest. The long-term loans, which total $500,000, together with
accrued interest of $314,000, have been classified as a long-term obligation
because Mr. Levinson has promised not to demand payment until at least January
-17-
1, 2006. The Company believes its reliance on such written undertaking is
reasonable. In the event that Mr. Levinson did demand repayment prior to January
1, 2006, the Company believes that such demand would be unenforceable and that
the Company would have the right to sue Mr. Levinson for breach of his
agreement. Mr. Levinson reaffirmed this undertaking in writing on March 12,
2004.
The Company believes that cash generated from operations, the advances under the
CIT factoring agreement, the proceeds from its term note with JPMorgan and loans
from Mr. Levinson (if needed) will be sufficient to fund operations for the next
twelve months.
The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with each of the Company and its wholly-owned subsidiaries,
Blumenthal Lansing Company LLC ("Blumenthal") and Westwater Industries LLC
("Westwater").
The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.7 million of which was outstanding at
December 31, 2003, (ii) revolving credit advances to the Company in an amount up
to $500,000 and (iii) revolving credit advances to Blumenthal and Westwater
based upon eligible accounts receivable and inventory, and a Letter of Credit
facility with a limit of $500,000. The Term Loan amortizes $12,000 per month
followed by a final installment payment of $1.6 million due on January 1, 2006.
The revolving credit advances are also due on January 1, 2006. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.
In connection with the CIT Facility, the Company and its subsidiaries have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiaries. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.
The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions and the use of proceeds from the sales of assets, and the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that,
except for the Term Loan, all obligations shall, at CIT's option, be immediately
due and payable without notice or demand upon the occurrence of any change in
the Company's condition or affairs (financial or otherwise) that, in CIT's sole
discretion exercised by CIT in accordance with CIT's business judgment,
materially impairs the collateral or increases CIT's risk. In the case of the
Term Loan, CIT may accelerate the maturity in the event of a default by the
Company after thirteen months notice of such acceleration. Management of the
Company believes that the likelihood of CIT accelerating the payment of any of
the obligations under the CIT Facility in 2004 is remote.
During the period ended December 31, 2003, the Company was in compliance with
all debt covenants.
In connection with the merger, the Company issued 4,555,007 shares of its Series
A Preferred Stock for 4,555,007 shares of Carlyle's Series B preferred stock.
The Series A Preferred Stock is subject to mandatory redemption, to the extent
the Company may lawfully do so, in three equal annual installments on June 15,
2007, June 15, 2008 and June 15, 2009, in each case, from funds legally
available therefor, at a price per share of Series A Preferred Stock equal to $1
per share, together with an amount representing accrued and unpaid dividends,
-18-
whether or not declared, to the date of redemption. Dividends on the Series A
Preferred Stock accrue at a rate of $0.06 per annum per share when, as and if
declared by the Company and are payable quarterly on March 15, June 15,
September 15 and December 15. Quarterly dividends which are not paid in full in
cash on any dividend payment date will accumulate without interest. Under the
terms of the CIT Facilities, preferred stock redemption payments are prohibited
and preferred stock dividend payments are limited to $300,000 per year.
Seasonality And New Programs
The Company's Textile business is seasonal and as such the Company realizes
significantly higher revenues and operating income in the third quarter. Such
seasonality takes into account the standard lead-time required by the fashion
industry to manufacture apparel, which corresponds to the respective retail
selling seasons. Standard lead-time is the period of time commencing when the
Company receives an order from a customer and ending when the Company ships the
order to the customer. In response to this seasonality, the Company generally
increases its inventory levels, and thereby has higher working capital needs
during the first and second quarters of its fiscal year. The Company and the
U.S. apparel industry in general are sensitive to the business cycle of the
national economy. Moreover, the popularity, supply and demand for particular
apparel products can change significantly from year to year based on prevailing
fashion trends and other factors. Reflecting the cyclical nature of the apparel
industry, many apparel producers tend to increase capacity during years in which
sales are strong. These increases in capacity tend to accelerate a general
economic downturn in the apparel markets when demand weakens. These factors have
contributed historically to fluctuations in the Company's results of operations
and they are expected to continue to occur in the future.
The Company's Craft business is largely based on its ability to fulfill reorders
of existing programs and to place new programs with its retail customers. The
business is fundamentally influenced by the buying habits of consumers. Home
sewing and craft activities take place on a year-round basis; however, they are
generally indoor activities and as a result they experience an increased
participation level during the fall, winter and early spring months.
Anticipating this pattern, the Company's retail customers place somewhat larger
reorders during the July through March period.
Sales are influenced by the introduction of new programs and the discontinuance
of existing programs. A successful new program requires the retail customer to
add the program and experience an acceptable level of sell-through. The Company
develops and introduces new program ideas on a regular basis. However, there is
no assurance that its retail customers will buy the new programs and if they do,
there is no assurance the consumer will purchase the new product at an
acceptable level.
The sale of the Company's products can be subject to substantial cyclical
fluctuation. Sales may decline in periods of recession or uncertainty regarding
future economic prospects that affect consumer spending, particularly on
discretionary items. This cyclicality and any related fluctuation in consumer
demand could have a material adverse effect on the Company's results of
operations and financial condition.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN 46"), to clarify when a company should
consolidate in its financial statements the assets, liabilities and activities
of a variable interest entity. In December 2003, the FASB issued FIN 46R with
-19-
respect to variable interest entities created before January 31, 2003, which,
among other things, revised the implementation date to the first fiscal year or
interim period ending after March 15, 2004, with the exception of Special
Purpose Entities. The adoption of FIN 46 did not have an impact on the Company's
financial reporting and disclosures, because the Company did not have any
transactions with variable interest entities.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, SFAS No. 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. The
guidance in SFAS No. 150 generally is effective for all financial instruments
entered into or modified after May 31, 2003, and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has evaluated SFAS No. 150 and determined that beginning July 1, 2003 the new
pronouncement required its Redeemable Preferred Stock and accumulated dividends
of $4.6 million to be included in total liabilities. This treatment is currently
reflected in the Company's financial statements.
In December 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 updates
portions of the interpretive guidance included in Topic 13 of the codification
of Staff Accounting Bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The Company believes it is following the guidance of SAB
104.
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.
-20-
Item 7. FINANCIAL STATEMENTS
LEVCOR INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited Consolidated Financial Statements
Report of Independent Certified Public Accountants...........................22
Consolidated Balance Sheet at Year Ended December 31, 2003 ..................23
Consolidated Statements of Operations for the Years Ended
December 31, 2003, and 2002 .................................................24
Consolidated Statements of Stockholders' Deficit at December 31,
2003, and 2002...............................................................25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, and 2002..................................................26
Notes to Consolidated Financial Statements...................................27
-21-
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-842-7000
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS FAX 212-842-7001
www.nyccpas.com
---------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LEVCOR INTERNATIONAL, INC.
We have audited the accompanying consolidated balance sheet of LEVCOR
INTERNATIONAL, INC. AND SUBSIDIARIES as of December 31, 2003, and the related
consolidated statements of operations, changes in cash flows and stockholders'
deficit for the years ended December 31, 2003 and 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES as of December 31, 2003,
and the results of their operations and their cash flows for the years ended
December 31, 2003 and 2002 in conformity with accounting principles generally
accepted in the United States of America.
Friedman Alpren & Green LLP
New York, New York
March 11, 2004
-22-
LEVCOR INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
(In thousands except share and per share data)
ASSETS
Current Assets:
Cash $ 44
Accounts receivable trade, net 2,775
Inventories, net 6,563
Deferred income taxes 842
Other current assets 231
----------
Total current assets 10,455
----------
Property, Plant and Equipment, at cost 4,622
Less: Accumulated Depreciation and Amortization 2,157
----------
Net property, plant and equipment 2,465
Goodwill 4,843
Deferred income taxes 4,171
Other assets 1,743
----------
Total Assets $ 23,677
==========
LIABILITIES
Current Liabilities:
Accounts payable $ 1,827
Due to factor 845
Revolving loan and current maturities of long-term debt 3,008
Other current liabilities 1,638
----------
Total current liabilities 7,318
----------
Long-term debt, less current maturities 4,587
Loan payable to stockholder, less current maturities 814
Other liabilities 10,341
Redeemable Preferred Stock, par value $0.01 per share
8,000,000 shares authorized:
Shares issued and outstanding:
Series A - 4,555,007 4,555
Accumulated dividends on preferred stock 12
----------
Total Liabilities 27,627
----------
STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
15,000,000 shares authorized;
5,157,289 shares issued and outstanding 52
Paid in Capital 33,246
Accumulated Deficit (34,194)
Accumulated Other Comprehensive Loss (2,881)
Treasury stock, 57,600 shares, at cost (77)
Unearned compensation (96)
----------
Total Stockholders' Deficit (3,950)
----------
Total Liabilities and Stockholders' Deficit $ 23,677
==========
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
LEVCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Years Ended December 31,
------------------------
2003 2002
---------- ----------
Net sales $ 30,784 $ 23,728
Cost of sales 21,249 14,751
---------- ----------
Gross profit 9,535 8,977
Selling, general and administrative expenses 8,984 6,340
Goodwill impairment - textile segment 5,367 --
---------- ----------
(Loss) income before interest, preferred dividends and income taxes (4,816) 2,637
Interest expense, net 526 408
Dividends on mandatory redeemable preferred stock 136 --
---------- ----------
(Loss) income before income taxes (5,478) 2,229
Provision for income taxes (499) (800)
---------- ----------
Net (loss) income (5,977) 1,429
Less dividends on mandatory redeemable preferred stock 137 272
---------- ----------
(Loss) income applicable to common stock $ (6,114) $ 1,157
========== ==========
(Loss) income per common share:
Basic and diluted $ (1.20) $ .42
========== ==========
Weighted average common shares outstanding - basic and diluted 5,104 2,787
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
LEVCOR INTERNATIONAL, INC.
CONSOLIDATED STAEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands except per share data)
Accumulated
Compre- Other
hensive Additional Compre- Common Stock Treasury Stock
Income Accumulated Paid in hensive -------------------- -------------------- Unearned
Total (Loss) Deficit Capital Losses Amount Shares Amount Shares Compensation
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
January 1, 2002 $ (4,115) $ (29,237) $ 26,345 $ (1,362) $ 139 2,786,972 $ -- -- $ --
========= ========= ========= ========= ========= ========= ========= ========= =========
Net income before
preferred stock
activity $ 1,429 $ 1,429 $ 1,429
Preferred stock
dividends (272) (272) (272)
Foreign
translation
adjustment 58 58 58
Pension adjustment (2,181) (2,181) (2,181)
---------
Total
comprehensive
loss $ (966)
=========
--------- --------- --------- --------- --------- --------- --------- --------- ---------
December 31, 2002 $ (5,081) $ (28,080) $ 26,345 $ (3,485) $ 139 2,786,972 $ -- -- $ --
========= ========= ========= ========= ========= ========= ========= ========= =========
Acquisition of
Levcor 6,588 $ 6,864 $ (87) 2,338,280 $ (77) (57,600) $ (112)
Common stock issued 6 6 17,800
Stock-based
compensation 31 31 14,237
Net loss before
preferred stock
activity (5,978) (5,978) (5,978)
Preferred stock
dividends (137) (137) (137)
Foreign
translation
adjustment 42 42 42
Amortization
unearned
compensation 16 16 16
Pension adjustment 562 562 562
---------
Total
comprehensive
loss $ (5,494)
=========
--------- --------- --------- --------- --------- --------- --------- --------- ---------
December 31, 2003 $ (3,950) $ (34,194) $ 33,246 $ (2,881) $ 52 5,157,289 $ (77) (57,600) $ (96)
========= ========= ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
LEVCOR INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31
------------------------
2003 2002
---------- ----------
Cash Flows From Operating Activities:
Net (loss) income $ (5,977) $ 1,429
Reconciliation of net income to net cash provided by
(used in) operations:
Goodwill impairment - textile segment 5,367 --
Depreciation and amortization 470 571
Deferred tax provision 557 (72)
Stock based compensation 31 --
Changes in operating assets and liabilities:
Accounts receivable (146) 227
Inventories 85 (675)
Other current assets 72 --
Other assets (121) (491)
Accounts payable (528) 334
Other current liabilities (345) 359
Other liabilities (205) (416)
---------- ----------
Net cash (used in) provided by operating activities (740) 1,266
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures (158) (247)
Cash acquired from acquisition 4 --
Investment in other assets (85) (46)
---------- ----------
Net cash used in investing activities (239) (293)
---------- ----------
Cash Flows From Financing Activities:
Revolving loan and long-term debt, net (79) (997)
Due to factor 1,162 --
Dividends on redeemable preferred stock (137) (273)
Deferred financing costs -- (30)
---------- ----------
Net cash provided by (used in) financing activities 947 (1,300)
---------- ----------
Decrease in cash (27) (327)
Cash at beginning of year 71 398
---------- ----------
Cash at end of year $ 44 $ 71
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 526 $ 415
========== ==========
Dividends on redeemable preferred stock $ 137 $ 272
========== ==========
Income taxes $ 299 $ 441
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
Levcor International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Liquidity:
- ----------------------------------
Levcor International, Inc. (the "Company") (i) operates a textile business that
produces fabrics and garments for sale in the apparel industry and (ii)
manufactures, packages and distributes a line of buttons and other craft
products for sale in the home sewing and craft retail industry. The Company
sells its products to customers primarily in the United States and also has
distribution in Canada and Europe. Effective January 6, 2003 Carlyle Industries,
Inc. was merged into Levcor International, Inc. as discussed in note 2.
Consolidation:
- -------------
The Consolidated Financial Statements include the accounts of the Company and
all subsidiaries after elimination of intercompany items and transactions.
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.
Cash Equivalents:
- ----------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property, Plant and Equipment:
- -----------------------------
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are computed principally by the straight-line
method for each class of depreciable and amortizable assets 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.
Accounts Receivable
- -------------------
Accounts receivable are stated at the amount management expects to collect. An
allowance for doubtful accounts is recorded based on a combination of historical
experience, aging analysis and information on specific accounts. Accounts
balances are written off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
Accounts Receivable Factored:
- ----------------------------
Under a factoring agreement with CIT Group/Financial Services, Inc. ("CIT" or
the "factor"), the factor purchases the Textile division's trade accounts
receivable without recourse and assumes substantially all credit risks with
respect to such accounts. The factoring agreement allows the Company to obtain
advances, computed on a borrowing base formula from the factor at 4.50% (prime
rate plus 0.5%). The amounts due to the Company from the factor earn no
interest. The Company has pledged its accounts receivable and property and
equipment as collateral under the factoring agreement.
-27-
Impairment:
- ----------
Long-term assets are reviewed for impairment following the provisions of SFAS
Number 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and discontinued operations.
Goodwill:
- --------
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") as of January 1, 2002. Under
SFAS 142, goodwill is reviewed for impairment annually, or more frequently if
impairment indicators arise.
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
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 change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value.
Foreign Currency Translation:
- ----------------------------
For translation of its non-U.S. dollar currencies, the Company has determined
that the local currency of its international subsidiary is the functional
currency. In consolidating the international subsidiary, balance sheet currency
effects are recorded as a component of accumulated other comprehensive income.
This equity account includes the results of translating all balance sheet assets
and liabilities at current exchange rates. Net currency transaction and
translation gains and losses included in income were not material
Financial Instruments:
- ---------------------
The Company's financial instruments are comprised of revolving debt, long-term
debt, loans payable to Robert A. Levinson and Series A Redeemable Preferred
Stock at December 31, 2003. The fair values of the revolving debt, long-term
debt and loans payable to Robert A. Levinson approximate the carrying values
because these obligations had market-based interest rates.
Revenue Recognition:
- -------------------
Revenue is recognized when goods are shipped to customers. Usual sales terms are
F.O.B. shipping point, at which time the Company has performed all obligations
to consummate the sale.
-28-
Classification of Expenses:
- --------------------------
The significant components of cost of sales are raw materials, labor, shipping
and handling and depreciation. The significant components of selling, general
and administrative expenses are commissions, sales salaries, trade and consumer
advertising, trade show costs, management salaries, costs associated with
product development activities, office rent and professional fees.
Stock-Based Compensation Plans:
- ------------------------------
The Company maintains a stock option plan, as more fully described in Note 16 to
the financial statements, accounted for using the "intrinsic value" method
pursuant to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The fair value of options granted
and the pro forma effects on the Company's net income (loss) and net income
(loss) per share are disclosed pursuant to SFAS 123.
Earnings (Loss) Per Common Share:
- --------------------------------
The computation of basic net income (loss) per share of common stock is based
upon the weighted average number of common shares outstanding during the period.
Diluted net income per common share reflects additional shares from the assumed
exercise of stock options (see Note 15), if dilutive. Prior periods outstanding
shares and earnings per share have been adjusted for the 1 for 5 reverse split
which was effective January 6, 2003 as a result of the merger.
Reclassifications:
- -----------------
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period presentation.
New Accounting Pronouncements:
- -----------------------------
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN 46"), to clarify when a company should
consolidate in its financial statements the assets, liabilities and activities
of a variable interest entity. In December 2003, the FASB issued FIN 46R with
respect to variable interest entities created before January 31, 2003, which,
among other things, revised the implementation date to the first fiscal year or
interim period ending after March 15, 2004, with the exception of Special
Purpose Entities. The adoption of FIN 46R did not have an impact on the
Company's financial reporting and disclosures, because the Company did not have
any transactions with variable interest entities.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150 changes the
accounting for certain financial instruments that, under previous guidance,
could be classified as equity or "mezzanine" equity, by now requiring those
instruments to be classified as liabilities (or assets in some circumstances) in
the statement of financial position. Further, SFAS No. 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. The
guidance in SFAS No. 150 generally is effective for all financial instruments
entered into or modified after May 31, 2003, and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has evaluated SFAS No. 150 and determined that beginning July 1, 2003 the new
pronouncement required its Redeemable Preferred Stock and accumulated dividends
of $4.6 million to be included in total liabilities. This treatment is currently
reflected in the Company's financial statements. (See Note 14.)
In December 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB" No. 104, "Revenue Recognition." SAB 104 updates
portions of the interpretive guidance included in Topic 13 of the codification
of Staff Accounting Bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The Company believes it is following the guidance of SAB
104.
-29-
2 - MERGER WITH CARLYLE INDUSTRIES, INC.
On January 6, 2003, the Company completed its acquisition of Carlyle, which was
effected as a merger of Carlyle with and into the Company. In the merger, each
five shares of Carlyle common stock were converted into one share of Company
common stock, par value $0.01 per share ("Common Stock"), and each share of
Carlyle Series B preferred stock was converted into one share of Company Series
A preferred stock, par value $0.01 per share ("Series A Preferred Stock" or
"Redeemable Preferred Stock"). In addition, the Company assumed Carlyle stock
options, which became options to purchase approximately 220,000 shares of
Company Common Stock. The purchase price was valued at approximately $6.8
million.
The transaction has been accounted for as a reverse acquisition under the
purchase method of accounting in accordance with SFAS No. 141, "Business
Combinations." As a reverse acquisition, Carlyle is treated as the acquiror and
the continuing entity for financial accounting and reporting purposes. Under
reverse acquisition accounting rules, Carlyle is treated as if it declared a
1-for-5 reverse stock split of its common stock and subsequently exchanged its
common stock for the Company's Common Stock on a one-to-one ratio and its stock
options for the Company's stock options on a one-to-one ratio. The aggregate
estimated purchase price plus liabilities assumed totaled $12,542,000, based
upon the fair value of the Common Stock and options deemed acquired for similar
Carlyle instruments. The purchase price reflects Carlyle's acquisition of the
Company's net assets, which are total assets less the assumption of $5,730,000
of the Company's debt and liabilities. The merger agreement did not require any
contingent consideration to be issued.
The pro forma purchase price allocation is presented below. During the third
quarter of 2003, the Company obtained an appraisal of the trademark and adjusted
the carrying value accordingly. The calculation of the purchase price and the
allocation to assets and liabilities are as follows (dollars in thousands):
Purchase price allocation:
Fair value of shares of Carlyle common stock deemed issued $ 5,986
Fair value of outstanding vested and unvested options,
net of unearned compensation of $112 601
Direct acquisition costs incurred by Carlyle 225
----------
Total purchase price 6,812
Fair value of Levcor liabilities deemed assumed by Carlyle 5,730
----------
Total purchase price plus liabilities deemed
assumed by Carlyle $ 12,542
==========
Fair value of Levcor assets deemed acquired:
Current assets $ 1,972
Fixed assets 59
Deferred tax asset 2,100
Other assets 35
Trademark 709
Goodwill 7,667
----------
Total assets deemed acquired 12,542
----------
Current liabilities (1,945)
Long term debt (3,785)
----------
Total liabilities deemed assumed (5,730)
----------
Net assets deemed acquired $ 6,812
==========
-30-
Pro Forma Financial Information
The results of operations of Carlyle are included in the Company's Consolidated
Statements of Operations as of the acquisition date of January 6, 2003. Because
there was no material business conducted by Carlyle in the two business days
before the merger, the results of operations for the year ended December 31,
2003 represent the results of operations of the combined entities for the full
year.
The following pro forma income statement for the year ended December 31, 2002
has been prepared assuming the merger was consummated on January 1, 2002. All
pro forma information is based on estimates and assumptions deemed appropriate
by the Company. The pro forma information is presented for illustrative purposes
only. The pro forma information should not be relied upon as an indication of
the operating results that the Company would have achieved if the transaction
had occurred on January 1, 2002. The pro forma information also should not be
used as an indication of the future results that the Company will achieve after
the transaction.
Year Ended
December 31, 2002
(Dollars in
thousands)
-----------
Net revenue $ 34,225
Cost of goods sold 23,181
-----------
Gross profit 11,044
-----------
Selling, general and administrative expenses 8,908
Loss on impairment of assets held for sale 169
-----------
Income before interest and income taxes 1,967
Interest expense 610
-----------
Income before income taxes 1,357
Provision for income taxes 489
-----------
Income before preferred dividends 868
Dividends on mandatory preferred stock 272
-----------
Net income applicable to common stock $ 596
===========
Earnings per common share:
Basic earnings per common share $ .12
===========
Diluted earnings per common share $ .11
===========
Weighted average number of common shares outstanding:
Basic 5,123
Potential common shares 72
-----------
Diluted 5,195
===========
3 - SEGMENT INFORMATION
The Company operates in two reportable segments: Textile and Craft. Prior to the
merger of Carlyle and Levcor, the Company operated only the Craft segment.
Accounting policies of the two segments are substantially the same as those
described in the summary of significant accounting policies as presented in Note
1. All revenues generated in the segments are external. The following table sets
forth information regarding operations and assets by reportable segment (dollars
in thousands):
-31-
Year Ended December 31,
------------------------
2003 2002
---------- ----------
Revenue:
Textile $ 8,436 $ --
Craft 22,348 23,728
---------- ----------
$ 30,784 $ 23,728
========== ==========
Operating income (loss):
Textile $ (6,531) $ --
Craft 3,116 3,562
---------- ----------
$ (3,415) $ 3,562
========== ==========
Corporate general and
administrative expense $ (1,401) $ (925)
Interest expense, net (526) (408)
Dividends on mandatory redeemable
preferred stock (273) (272)
Provision for income taxes (499) (800)
---------- ----------
Net (loss) income applicable to common stock $ (6,114) $ 1,157
========== ==========
Depreciation and amortization:
Textile $ 34 $ --
Craft 420 571
---------- ----------
$ 454 $ 571
========== ==========
Capital expenditures:
Textile $ 62 $ --
Craft 96 247
---------- ----------
$ 158 $ 247
========== ==========
4 - INVENTORIES
The components of inventories as of December 31, net of reserves are as follows
(dollars in thousands):
2003
---------
Raw materials $ 2,715
Work in progress 69
Finished goods 3,779
---------
$ 6,563
=========
At December 31, 2003 inventories were valued on a weighted-average cost method
basis. Inventories are stated at the lower of cost or market. Cost elements
included in inventory are material, labor and overhead, primarily using standard
cost, which approximates actual cost.
-32-
5 - GOODWILL AND OTHER INTANGIBLE ASSETS
In 2002, the Company adopted SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations completed after June 30, 2001 to be accounted for using the
purchase method of accounting. Under SFAS No. 142, an impairment evaluation of
goodwill and other intangible assets is conducted annually, or more frequently
if events or changes in circumstances indicate that an asset might be impaired.
The evaluation is performed by using a two-step process. In the first step, the
fair value of each reporting unit is compared with the carrying amount of the
reporting unit, including goodwill. The estimated fair value of the reporting
unit is generally determined on the basis of discounted future cash flows. If
the estimated fair value of the reporting unit is less than the carrying amount
of the reporting unit, then a second step must be completed in order to
determine the amount of the goodwill impairment that should be recorded. In the
second step, the implied fair value of that reporting unit's goodwill is
determined by allocating the reporting unit's fair value to all of its assets
and liabilities other than goodwill (including any unrecognized intangible
assets) in a manner similar to a purchase price allocation. The resulting
implied fair value of the goodwill that results from the application of this
second step is then compared to the carrying amount of the goodwill and an
impairment charge is recorded for the difference. As a result of this third
party evaluation, $5.4 million of impairment was recorded in the fourth quarter
of 2003.
A summary of the change in the carrying amount of goodwill by reportable segment
for the period ended December 31, 2003 is as follows (dollars in thousands):
Textile Craft Total
---------- ---------- ----------
Balance as of January 1, 2003 $ -- $ 2,543 $ 2,543
Goodwill acquired 7,667 -- 7,667
Impairment recorded (5,367) -- (5,367)
---------- ---------- ----------
Balance as of December 31, 2003 $ 2,300 $ 2,543 $ 4,843
========== ========== ==========
6 - OTHER CURRENT LIABILITIES AND OTHER LIABILITIES
Other current liabilities and other liabilities as of December 31 consist of the
following (dollars in thousands):
Current 2003
------- ---------
Salaries, wages, bonuses and other compensation...... $ 862
Other................................................ 776
---------
$ 1,638
=========
Long Term 2003
--------- ---------
Pension liabilities.................................. $ 5,710
Environmental accruals............................... 1,239
Other post-retirement benefits....................... 2,386
Other liabilities.................................... 1,006
---------
$ 10,341
=========
-33-
7 - LEASE PAYMENTS
The following is a schedule of future minimum lease payments under
non-cancelable operating leases at December 31, 2003 (dollars in thousands):
2004 $ 407
2005 398
2006 274
2007 32
---------
$ 1,111
=========
Rental expense for premises leased by the Company under operating leases totaled
$362,000 and $195,000 during the years ended December 31, 2003 and 2002.
8 - SHORT TERM AND LONG TERM DEBT
The Company has a credit facility with the CIT Group, Inc. ("CIT") and a
promissory note payable to JPMorgan Chase Bank ("JPMorgan"). In addition, the
Company has borrowings and advances outstanding from Robert A. Levinson, a
stockholder, officer and director of the Company.
The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with each of the Company and its wholly-owned subsidiaries,
Blumenthal Lansing Company, LLC ("Blumenthal") and Westwater Industries, LLC
("Westwater").
The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.7 million of which was outstanding at
December 31, 2003, (ii) revolving credit advances to the Company in an amount up
to $500,000 and (iii) revolving credit advances to Blumenthal and Westwater
based upon eligible accounts receivable and inventory, and a Letter of Credit
facility with a limit of $500,000. The Term Loan amortizes $12,000 per month
followed by a final installment payment of $1.6 million due on January 1, 2006.
The revolving credit advances are also due on January 1, 2006. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.
In connection with the CIT Facility, the Company and its subsidiaries have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiaries. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.
The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions and the use of proceeds from the sales of assets, and the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that,
except for the Term Loan, all obligations shall, at CIT's option, be immediately
due and payable without notice or demand upon the occurrence of any change in
the Company's condition or affairs (financial or otherwise) that, in CIT's sole
discretion exercised by CIT in accordance with CIT's business judgment,
materially impairs the collateral or increases CIT's risk. In the case of the
Term Loan, CIT may accelerate the maturity in the event of a default by the
Company after thirteen months notice of such acceleration. Management of the
Company believes that the likelihood of CIT accelerating the payment of any of
the obligations under the CIT Facility in 2004 is remote.
-34-
Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's trade accounts receivable without recourse and assumes
substantially all credit risk with respect to such accounts. The amounts due to
the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate. The Company pledged its Textile segment's accounts
receivable and property and equipment as collateral under the factoring
agreement. There is no set limit on borrowings. The amount available for
borrowing is based on a formula consisting of 90% of eligible accounts
receivable increased by side collateral and reduced by both the current loan
balance and outstanding letters of credit.
The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of May 2, 2005, as amended. The note bears
interest at a fixed rate per annum equal to the Adjusted LIBO Rate applicable to
such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
December 31, 2003 was 1.9375%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note.
Robert A. Levinson has made long-term loans totaling $500,000 to the Company.
Mr. Levinson has agreed not to require payment of these loans and $314,000 of
related accrued interest at December 31, 2003 prior to January 1, 2006.
Robert A. Levinson has also agreed to continue to personally support the
Company's cash requirements as necessary, up to a maximum amount of $3.0
million, to enable the Company to meet its current obligations through January
1, 2006 and to fund future operations. In connection with this agreement, Mr.
Levinson advanced $1.730 million to the Company during 2003, and all such
advances were repaid by the Company to Mr. Levinson during the third and fourth
quarters of 2003.
During the period ended December 31, 2003, the Company was in compliance with
all debt covenants.
9 - PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
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 since that date. Prior to December 31,
1994, the plan covered substantially all employees. The employees covered under
the 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.
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 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 Number 106, "Employers' Accounting for Post-retirement
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. Certain benefits are
-35-
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 prepaid pension balance of $537,000 at December 31, 2003 is included in
Other Assets on the Company's consolidated balance sheets. A decrease in the
minimum pension liability in the amount of $878,000 has been recorded on the
December 31, 2003 balance sheet in connection with this plan and a corresponding
credit to stockholders' equity net of a deferred tax expense of $316,000 has
also been recorded. These adjustments were recognized and credited to
"Accumulated Other Comprehensive Earnings". The minimum pension liability as of
December 31, 2003 was based on the plan's portfolio investments as of such date
which totaled $17.5 million, and the actuarially determined accumulated benefit
obligation.
Pension Benefits Other Benefits
Years Ended Years Ended
December 31, December 31,
------------------------- -------------------------
Dollars in thousands: 2003 2002 2003 2002
---------- ---------- ---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $ 21,056 $ 20,634 $ 1,981 $ 1,925
Service cost -- -- (1) --
Interest costs 1,356 1,422 123 126
Actuarial (gain) loss 820 740 (91) 174
Benefits paid (1,780) (1,740) (144) (244)
---------- ---------- ---------- ----------
Benefit obligation at end of year $ 21,452 $ 21,056 $ 1,868 $ 1,981
========== ========== ========== ==========
Change in plan assets:
Fair value of plan assets at beginning of year $ 16,251 $ 19,236 $ -- $ --
Actual return on plan assets 3,035 (1,245) -- --
Employer contribution -- -- -- --
Benefits paid (1,780) (1,740) -- --
---------- ---------- ---------- ----------
Fair value of plan assets at end of year $ 17,506 $ 16,251 $ -- $ --
========== ========== ========== ==========
Funded status $ (3,946) $ (4,806) $ (1,868) $ (1,981)
Unrecognized net actuarial loss (gain) 4,483 5,361 (418) (367)
Unrecognized prior service cost -- -- (100) (115)
---------- ---------- ---------- ----------
Accrued benefit (cost) prepaid $ 537 $ 555 $ (2,386) $ (2,463)
========== ========== ========== ==========
Weighted average assumptions as of December 31:
Discount rate 6.25% 6.75% 6.25% 6.75%
Expected return on plan assets 8.00% 8.00% N/A N/A
Rate of compensation increase N/A N/A N/A N/A
Components of net periodic benefit cost:
Service $ -- $ -- $ (1) $ --
Interest cost 1,356 1,422 123 126
Expected return on plan assets (1,408) (1,560) -- --
Amortization of prior service cost -- -- (15) (15)
Recognized net actuarial loss (gain) 70 138 (40) (120)
---------- ---------- ---------- ----------
Net periodic benefit cost (gain) $ 18 $ -- $ 67 $ (9)
========== ========== ========== ==========
-36-
The Company's accumulated benefit obligation under its defined benefit plan at
December 31, 2003 and 2002 was $21,452,054 and $21,056,455 respectively. The
Company does not anticipate a contribution to this plan in 2004.
The Company's defined benefit plan asset target allocation for 2004, the actual
allocation as of December 31, 2003 and 2002, and the expected long-term rates of
return by asset category for 2003 are as follows:
Weighted Average
Percentage of Plan Expected Long-term
Target Allocation Asset as of December 31, Rates of Return
Asset Category 2004 2003 2002 2003
----------------- ----------------- ----------------------- ------------------
Equity securities 40-85% 78% 74% 9%
Debt securities 15-16% 21% 25% 5%
Other 0-10% 1% 1% --
---- ---- ----
Total 100% 100% 8%
==== ==== ====
A one-percentage-point change in assumed health care cost trend rates would not
change the actuarial present value of the accumulated post-retirement benefit
obligations due to annual limitations of Company contributions per employee.
Estimated future benefit payments under the Company's post retirement medical
plan are as follows (in thousands of dollars):
2005 $ 230
2006 225
2007 220
2008 211
2009 195
Thereafter 779
On December 8, 2003, the President of the United States signed into law the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
"Act"). The Act introduces a prescription drug benefit under Medicare ("Medicare
Part D") as well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent to Medicare
Part D. The accumulated benefits obligation or net periodic post-retirement
benefits cost in the consolidated financial statements and accompanying notes do
not reflect the effects of the Act on the Company's post-retirement benefit
plan.
10 - EMPLOYEE BENEFIT PLAN
The Company's eligible employees may participate in a Company-sponsored 401(k)
benefit plan. This Plan covers substantially all employees and permits employees
to defer up to 15% of their salary up to statutory maximums. The plan also
provides for matching contributions by the Company of up to 75% of the first 2%
of salary deferral and 50% of the next 2% of salary deferral. Total Company
matching contributions in 2003 were $82,243. During 2003, 114 employees
participated in the plan.
-37-
11 - CUSTOMER AND SUPPLIER CONCENTRATIONS
During the years ended December 31, 2003 and 2002, the Company conducted
business with four customers whose aggregate sales volume represented
approximately 79%, and 71% of the Company's net revenues, respectively. These
customers also represented approximately 82% of the total outstanding accounts
receivable as of December 31, 2003. A reduction in sales to any of these
customers could adversely impact the financial condition and results of
operations of the Company.
The principal raw materials used by the Textile division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and acrylic. National Spinning Company and Fairfield
Textile Corp. supplied approximately 24% and 10% respectively of the Textile
division's raw materials in 2003.
12 - RELATED PARTY TRANSACTION
Robert A. Levinson has provided long-term loans of $500,000 to the Company,
pledged collateral in support of certain Company obligations and in the second
and third quarters of 2003 made cash advances to the Company totaling $1.730
million. Mr. Levinson's outstanding advances and long-term loans accrue interest
at a rate of 6% per annum. See Note 8 for a description of these transactions.
In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Zavis Rosenman, New York, New York, legal counsel to
the Company. During the year ended December 31, 2003, fees for services provided
to the Company by Katten Muchin Zavis Rosenman totaled $486,000 of which
$357,000 was related to the Carlyle merger transaction and had been accrued and
expensed as of December 31, 2002. Mr. Cohen does not share in the fees that the
Company pays to such law firm and his compensation is not based on such fees.
13 - INCOME TAXES
(Loss) income before income taxes for the years ended December 31 consisted of
the following components (dollars in thousands):
2003 2002
---------- ----------
United States $ (5,238) $ 2,382
Foreign (240) (153)
---------- ----------
$ (5,478) $ 2,229
========== ==========
The components of the income tax provision or (benefit) are (dollars in
thousands):
Years Ended December 31,
------------------------
2003 2002
---------- ----------
Current provision (benefit) $ (34) $ 872
Deferred provision (benefit)
-Temporary differences 533 (72)
---------- ----------
Income tax provision as per
Consolidated Statement of Operations $ 499 $ 800
========== ==========
Deferred provision (benefit)
-Tax effect of other comprehensive
income (loss) 340 (1194)
---------- ----------
Total provision $ 839 $ (394)
========== ==========
-38-
The Company's tax provision differed from that which would have been provided at
a 34% rate as follows (dollars in thousands):
Years Ended December 31,
----------------------
2003 2002
--------- ---------
Federal (benefit) provision at 34% $ (1,863) $ 733
State and local provision, net -- 67
Increase in net operating loss 1,863 --
Overaccrual in prior year (34) --
Deferred tax provision 533 --
--------- ---------
$ 499 $ 800
========= =========
At December 31, 2003, the components of the net deferred tax asset are (dollars
in thousands):
2003
---------
Book value of fixed assets over tax basis $ (436)
Pension liabilities 2,391
Other post-retirement benefit liability 859
Environmental accruals 526
Operating and capital loss carryforwards 1,434
Other, net 239
---------
$ 5,013
=========
The Company had a net operating loss carryforward of $5,184,000 expiring through
2023. 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, 2003 will be realized.
14 - REDEEMABLE PREFERRED STOCK
Dividends on the Series A Preferred Stock accrue at an annual rate of 6% and are
payable quarterly. The availability of resources to make dividend payments to
the holders of Series A Preferred Stock in the future will depend on the
Company's future cash flow. Under the terms of the CIT Facility, preferred stock
redemption payments are prohibited and preferred stock dividend payments are
limited to $300,000 per year.
Effective July 1, 2003, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities" ("SFAS 150").
Accordingly, the redeemable preferred stock has been classified as a liability
in the balance sheet at redemption value as of December 31, 2003. The Statements
of Operations for year ended December 31, 2003 include $137,000 of preferred
stock dividends paid during the third and fourth quarters of 2003 which have
been included in the determination of operating income. For periods prior to
July 1, 2003, such redeemable preferred stock dividend payments are reported as
an adjustment to net income to arrive at net income available to common stock.
In accordance with SFAS 150, dividend payments made in the first and second
quarters of 2003 and all comparable quarters of 2002 are not permitted to be
reclassified to the current accounting treatment and as a result they continue
to be presented on a separate line.
-39-
15 - COMMON STOCK AND (LOSS) EARNINGS PER COMMON SHARE
Between January 1, 2003 and December 31, 2003, the Company issued an aggregate
of 14,237 shares of common stock to Directors in lieu of cash for Directors'
fees and recorded such issuance as stock based compensation expense.
Loss (earnings) per common share have been computed on the basis of weighted
average common shares outstanding after providing for preferred dividend
requirements. Diluted earnings per common share includes the effect of stock
options. There were no dilutive options outstanding during the years ending
December 31, 2003 and 2002.
The following is a reconciliation of the numerators and denominators of the
basic and diluted (loss) earnings per common share computations for the years
ended December 31, 2003 and 2002 (dollars in thousands, except per share
amounts):
Income
Year ended December 31, 2003: (Loss) Shares Per Share
---------- ---------- ----------
Basic (loss) applicable to common stock $ (6,114) 5,103,520 $ (1.20)
Effect of dilutive options -- 249,795 --
---------- ---------- ----------
Diluted (loss) applicable to common stock $ (6,114) 5,353,315 $ (1.20)
========== ========== ==========
Year ended December 31, 2002:
Basic income available to common stock $ 1,157 2,786,972 $ .42
Effect of dilutive options -- -- --
---------- ---------- ----------
Diluted income available to common stock $ 1,157 2,786,972 $ .42
========== ========== ==========
16 - STOCK OPTION PLAN
As of December 31, 2002, the Company's stockholders adopted the 2002 Stock
Option Plan (the "Plan"). Grants under the Plan 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 Plan, 550,000 shares of Common Stock were available for
grants at the start of the Plan. The Company granted options on 200,000 shares
through December 31, 2003 in connection with the Plan. Under the Plan, the
option exercise price equals the stock's market price on date of grant. Plan
options vest over a three-year period and expire after ten years.
In connection with the merger as discussed in Note 2, there are 262,400 options
outstanding under a previous Levcor stock option plan which has terminated, at a
weighted average exercise price of $.81 per option as of December 31, 2002.
Also, in connection with the Levcor and Carlyle merger, 220,000 options which
were outstanding at December 31, 2002 were assumed by Levcor and became fully
vested.
The Company accounts for stock options in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation". 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 (loss) and related
per share amounts are as follows (dollars in thousands, except per share
amounts):
-40-
2003 2002
---------- ----------
(Loss) income applicable to common stock
As Reported $ (6,114) $ 1,157
Pro Forma $ (6,302) $ 1,103
Basic EPS:
As Reported $ (1.20) $ .42
Pro Forma $ (1.23) $ .40
Diluted EPS:
As Reported $ (1.20) $ .42
Pro Forma $ (1.23) $ .40
A summary of the status of outstanding grants and weighted average exercise
prices at December 31, 2003 and 2002 and changes during the years then ended is
presented in the table and narrative below (shares in thousands):
2003 2002
-------------------- -------------------
Shares Price Shares Price
-------- -------- -------- --------
Beginning of year 220 $ 6.05 183 $ 7.05
Issued in merger 262 .81 -- --
Granted 200 2.45 37 .95
Exercised (18) .34 -- --
Forfeited -- -- -- --
Expired (3) .50 -- --
-------- -------- -------- --------
End of year 661 $ 3.05 220 $ 6.05
======== ======== ======== ========
Shares exercisable at year-end 447 176
======== ========
Weighted average exercise
price of exercisable options $ 3.38 $ 7.10
======== ========
The fair value of each option grant in 2003 and 2002 was estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions, risk-free interest rates of 3.93 and 4.50 percent,
expected dividend yields of zero percent; expected lives of 10 years; expected
volatility of 45 and 120 percent. During 2003 and 2002, the Company issued
200,000 and 37,000 options with an estimated fair value of $296,000 and $100,
respectively.
Summary information about the Company's stock options outstanding at December
31, 2003 is as follows:
-41-
Options o/s Options o/s
Date Options Exercise X Contractual X
Granted Outstanding Price Exerc. Price Periods C.P
--------------------------------------------------------------------------------
12/14/1994 12,000 50.00 600,000 .9 11,375
12/01/1995 1,900 15.63 29,688 1.1 2,056
05/09/1996 400 10.63 4,250 2.4 940
05/16/1997 29,056 10.00 290,560 3.4 97,915
02/11/1998 50,000 .63 31,250 4.1 205,616
02/25/1998 4,444 6.56 29,164 4.2 18,446
12/10/1998 10,000 5.00 50,000 4.9 49,397
01/04/1999 1,500 2.00 3,000 5.0 7,512
12/29/1999 105,000 2.50 262,500 6.0 629,137
01/03/2000 2,700 1.11 3,000 6.0 16,215
12/13/2000 150,000 .81 121,875 7.0 1,042,603
01/02/2001 2,400 1.25 3,000 7.0 16,813
01/09/2001 30,000 1.10 33,000 7.0 210,740
12/13/2001 20,000 1.15 23,000 8.0 159,014
02/14/2002 37,000 .95 35,340 8.1 302,186
02/15/2002 5,000 2.10 10,500 8.1 40,630
07/14/2003 200,000 2.45 490,000 9.5 1,906,849
-------------------------------------------------------------------
661,600(2) 2,020,126(1) 4,717,445(3)
Weighted Average
Exercise Price (1)/(2) 3.05
=====
Weighted Average
Contractual Periods (3)/(2) 7.13
=====
17 - COMMITMENT AND CONTINGENCIES
The Company may be involved in various legal actions from time to time arising
in the normal course of business. In the opinion of management, there are no
matters outstanding that would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
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's".
A property owned by the Carlyle Manufacturing Company, Inc. ("CM") (a
non-operating subsidiary) located at 30 Echo Lake Road in Watertown, Connecticut
was being investigated by the United States Environmental Protection Agency
("EPA") during the early 1990's for possible inclusion on the National
Priorities List promulgated pursuant to CERCLA but no such listing ever
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"). The Company has accrued approximately
$400,000 in connection with the estimated cost to remediate the site.
-42-
On or about June 1992 the Company received notices from the EPA that the
Company, Belding Corticelli Thread Co. ("BCTC") (a discontinued operation) 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 connection with the SRS
sites by paying $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 (except for certain maintenance activities) have been completed.
BCTC and CM have been allocated approximately .04% and 1.26%, respectively, of
costs incurred to date, based on their alleged volume of waste shipped to the
SRS site. It is presently anticipated that EPA will issue the record of decision
for this site sometime between the third quarter of 2004 and the third quarter
of 2005. The Company is unable, at this time, to estimate the ultimate cost of
the remedy for the SRS site. The Company has accrued approximately $800,000 in
connection with this site.
The amounts referred to 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 the Company's participation as part of a PRP group.
The reserve the Company has established for environmental liabilities, in the
amount of $1.2 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.
-43-
18 - UNAUDITED QUARTERLY RESULTS OF OPERATIONS: (IN THOUSANDS EXCEPT FOR PER
SHARE DATA)
December 31, September 30, June 30, March 31,
Quarter Ended 2003 2003 2003 2003
---------- ---------- ---------- ----------
Net sales $ 6,666 $ 10,781 $ 6,106 $ 7,231
Cost of sales 5,070 7,689 4,074 4,416
---------- ---------- ---------- ----------
Gross profit $ 1,596 $ 3,092 $ 2,032 $ 2,815
========== ========== ========== ==========
(Loss) income applicable to common stock $ (6,602) $ 445 $ (176) $ 219
========== ========== ========== ==========
Basic and diluted (loss) income per common share $ (1.29) $ .08 $ (.03) $ .04
========== ========== ========== ==========
December 31, September 30, June 30, March 31,
Quarter Ended 2002 2002 2002 2002
---------- ---------- ---------- ----------
Net sales $ 6,214 $ 5,912 $ 6,344 $ 5,258
Cost of sales 3,823 3,860 4,096 2,972
---------- ---------- ---------- ----------
Gross profit $ 2,391 $ 2,052 $ 2,248 $ 2,286
========== ========== ========== ==========
Income applicable to common stock $ 504 $ 152 $ 262 $ 239
========== ========== ========== ==========
Basic and diluted income per common share $ .18 $ .05 $ .09 $ .09
========== ========== ========== ==========
Per share amounts in 2002 have been adjusted to reflect the 1 for 5 reverse
stock split which was deemed to have occurred on January 6, 2003.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
Item 8A. CONTROLS AND PROCEDURES.
The Company's senior management is responsible for establishing and maintaining
a system of disclosure controls and procedures (as defined in Rule 13a-15 and
15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act")) designed
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out
an evaluation, with the participation of the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
-44-
Officer concluded that the Company's disclosure controls and procedures were
effective, as of the end of the period covered by this report, to provide
reasonable assurance that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
In designing and evaluating the Company's disclosure and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurances of achieving the desired control objectives,
as ours are designed to do, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. We believe that our disclosure controls and procedures provide such
reasonable assurance.
No change occurred in the Company's internal controls concerning financial
reporting during the fourth quarter of the fiscal year ended December 31, 2003
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.
-45-
PART III.
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.
Item 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
--------------------
The information required by this item is included in Item 7 of Part II
of this Form 10-KSB.
-46-
(2) Exhibits:
--------
The following exhibits are included in this report:
Exhibit
Number Description of Document
2.1 Agreement and Plan of Merger, dated as of May 24, 2002, by and among
Levcor International, Inc. ("Levcor") and Carlyle Industries, Inc.
(incorporated herein by reference to Amendment No. 6 to Levcor's
Registration Statement on Form S-4 filed on November 26, 2002).
2.2 Asset Purchase Agreement, dated as of September 2, 1999, between Levcor
and Andrex Industries Corp. (incorporated herein by reference to
Levcor's Current Report on Form 8-K filed on September 17, 1999).
2.3 Amendment to Asset Purchase Agreement, dated August 3, 2000, effective
as of April 1, between Levcor and Andrex Industries Corp. (incorporated
herein by reference to Levcor's Form 10-KSB filed on April 1, 2002).
3.1 Amended and Restated Certificate of Incorporation filed January 7, 2003
(incorporated herein by reference to Amendment No. 6 to Levcor's
Registration Statement on Form S-4 filed on November 26, 2002).
3.2 By-Laws (incorporated herein by reference to Amendment No. 6 to
Levcor's Registration Statement on Form S-4 filed on November 26,
2002).
4.1 Specimen form of Levcor's Common Stock certificate (incorporated herein
by reference to Levcor's Form 10-KSB filed on March 24, 1997).
10.1 1992 Stock Option Plan (incorporated herein by reference to Levcor's
Form 10-K filed on March 30, 1993). +
10.2 Factoring Agreement, dated September 17, 1998, between Levcor and the
CIT Group/Commercial Services, Inc. (incorporated herein by reference
to Levcor's Form 10-QSB filed on November 16, 1998).
10.3 Amendment dated December 31, 2001 to the Factoring Agreement dated
September 17, 1998 between Levcor and the CIT Group/Commercial
Services, Inc. (incorporated herein by reference to Levcor's Form
10-KSB filed on April 1, 2002).
10.4 Guaranty dated April 30, 2002, executed by Robert A. Levinson in favor
of JPMorgan Chase Bank (incorporated herein by reference to Levcor's
Form 10-QSB filed on May 15, 2002).
10.5 Pledge Agreement dated April 30, 2002, executed by Robert A. Levinson
in favor of JPMorgan Chase Bank (incorporated herein by reference to
Levcor's Form 10-QSB filed on May 15, 2002).
10.6 Promissory Note dated May 3, 2002 executed by Levcor in favor of
JPMorgan Chase Bank (incorporated herein by reference to Levcor's Form
10-QSB filed on May 15, 2002).
-47-
10.7 Letter dated February 28, 2002 from Mr. Robert A. Levinson
(incorporated herein by reference to Levcor's Amendment No. 2 to
Registration Statement on Form S-4 filed on October 4, 2002).
10.8 Letter dated September 27, 2002 from Mr. Robert A. Levinson
(incorporated herein by reference to Levcor's Amendment No. 2 to
Registration Statement on Form S-4 filed on October 4, 2002).
10.9 2002 Stock Option Plan (incorporated herein by reference to Amendment
No. 6 to Levcor's Registration Statement on Form S-4 filed on November
26, 2002). +
10.10 Financing Agreement dated January 24, 2002, among Carlyle and The CIT
Group/Commercial Services, Inc. (incorporated herein by reference to
Exhibit 99.1 to Carlyle's Current Report on Form 8-K/A filed on March
14, 2002).
10.11 Accounts Receivable Financing Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.2 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.12 Accounts Receivable Financing Agreement dated January 24, 2002, among
Westwater Industries, Inc., and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.3 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.13 Guaranty dated January 24, 2002, executed by Blumenthal/Lansing Company
in favor of The CIT Group/Commercial Services, Inc. (incorporated
herein by reference to Exhibit 99.4 to Carlyle's Current Report on Form
8-K/A filed on March 14, 2002).
10.14 Guaranty dated January 24, 2002, executed by Carlyle in favor of The
CIT Group/Commercial Services, Inc. (incorporated herein by reference
to Exhibit 99.5 to Carlyle's Current Report on Form 8-K/A filed on
March 14, 2002).
10.15 Guaranty dated January 24, 2002, executed by Westwater Industries, Inc.
in favor of The CIT Group/Commercial Services, Inc. (incorporated
herein by reference to Exhibit 99.6 to Carlyle's Current Report on Form
8-K/A filed on March 14, 2002).
10.16 Guaranty dated January 24, 2002, executed by Button Fashion BV in favor
of The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.7 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
10.17 Guaranty dated January 24, 2002 executed by Robert Levinson in favor of
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.8 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
10.18 Inventory Security Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.9 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.19 Inventory Security Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.10 to Carlyle's Current
Report on Form 8-K/A dated January 24, 2002, as filed on March 14,
2002).
-48-
10.20 Inventory Security Agreement dated January 24, 2002, among Carlyle and
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.11 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
10.21 Equipment Security Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.12 to Carlyle's current
report on Form 8-K/A filed on March 14, 2002).
10.22 Equipment Security Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.13 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.23 Equipment Security Agreement dated January 24, 2002, among Carlyle and
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.14 to Carlyle's current report on Form 8-K/A
filed on March 14, 2002).
10.24 Letter of Credit Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.15 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.25 Letter of Credit Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.16 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.26 Patent and Trademark Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.17 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.27 Patent and Trademark Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.18 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.28 1994 Carlyle Industries, Inc. 1994 Incentive Program, as Amended
(incorporated herein by reference to Levcor's Registration Statement on
Form S-8 filed on January 20, 2004). +
21 * Subsidiaries of the Company.
23 * Consent of Independent Auditors.
31.1 * Chief Executive Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 * Chief Financial Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 * Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 * Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------
+ Indicates that exhibit is a management contract or compensatory plan or
arrangement.
* Indicates that exhibit is filed as an exhibit hereto.
(b) Reports on Form 8-K:
None.
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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated herein by
reference from the portion of the Company's Proxy Statement to be filed with the
Securities and Exchange Commission on or prior to 120 days following the end of
the Company's fiscal year.
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SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEVCOR INTERNATIONAL, INC.
Date: March 22, 2004 By: /s/ ROBERT A. LEVINSON
------------------------------------
Robert A. Levinson,
Chairman of the Board,
President and Chief Executive
Officer
Date: March 22, 2004
By: /s/ EDWARD F. COOKE
------------------------------------
Edward F. Cooke,
Chief Financial Officer,
Vice President, Secretary, Treasurer
and Director
In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ ROBERT A. LEVINSON 3/22/04 /s/ EDWARD F. COOKE 3/22/04
- ------------------------------------- ------------------------------------
Robert A. Levinson Date Edward F. Cooke Date
Chairman of the Board, Chief Chief Financial Officer,
Executive Officer and President Vice President, Secretary, Treasurer
(Principal Executive Officer) and Director
(Principal Financial Officer)
/s/ EDWARD H. COHEN 3/22/04 /s/ JOSEPH S. DIMARTINO 3/22/04
- ------------------------------------- ------------------------------------
Edward H. Cohen Date Joseph S. DiMartino Date
Director Director
/s/ JOHN McCONNAUGHY 3/22/04 /s/ GIANDOMENICO PICCO 3/22/04
- ------------------------------------- ------------------------------------
John McConnaughy Date Giandomenico Picco Date
Director Director
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Exhibit Index
Exhibit
Number Description of Document
2.1 Agreement and Plan of Merger, dated as of May 24, 2002, by and among
Levcor International, Inc. ("Levcor") and Carlyle Industries, Inc.
(incorporated herein by reference to Amendment No. 6 to Levcor's
Registration Statement on Form S-4 filed on November 26, 2002).
2.2 Asset Purchase Agreement, dated as of September 2, 1999, between Levcor
and Andrex Industries Corp. (incorporated herein by reference to
Levcor's Current Report on Form 8-K filed on September 17, 1999).
2.3 Amendment to Asset Purchase Agreement, dated August 3, 2000, effective
as of April 1, between Levcor and Andrex Industries Corp. (incorporated
herein by reference to Levcor's Form 10-KSB filed on April 1, 2002).
3.1 Amended and Restated Certificate of Incorporation filed January 7, 2003
(incorporated herein by reference to Amendment No. 6 to Levcor's
Registration Statement on Form S-4 filed on November 26, 2002).
3.2 By-Laws (incorporated herein by reference to Amendment No. 6 to
Levcor's Registration Statement on Form S-4 filed on November 26,
2002).
4.1 Specimen form of Levcor's Common Stock certificate (incorporated herein
by reference to Levcor's Form 10-KSB filed on March 24, 1997).
10.1 1992 Stock Option Plan (incorporated herein by reference to Levcor's
Form 10-K filed on March 30, 1993). +
10.2 Factoring Agreement, dated September 17, 1998, between Levcor and the
CIT Group/Commercial Services, Inc. (incorporated herein by reference
to Levcor's Form 10-QSB filed on November 16, 1998).
10.3 Amendment dated December 31, 2001 to the Factoring Agreement dated
September 17, 1998 between Levcor and the CIT Group/Commercial
Services, Inc. (incorporated herein by reference to Levcor's Form
10-KSB filed on April 1, 2002).
10.4 Guaranty dated April 30, 2002, executed by Robert A. Levinson in favor
of JPMorgan Chase Bank (incorporated herein by reference to Levcor's
Form 10-QSB filed on May 15, 2002).
10.5 Pledge Agreement dated April 30, 2002, executed by Robert A. Levinson
in favor of JPMorgan Chase Bank (incorporated herein by reference to
Levcor's Form 10-QSB filed on May 15, 2002).
10.6 Promissory Note dated May 3, 2002 executed by Levcor in favor of
JPMorgan Chase Bank (incorporated herein by reference to Levcor's Form
10-QSB filed on May 15, 2002).
10.7 Letter dated February 28, 2002 from Mr. Robert A. Levinson
(incorporated herein by reference to Levcor's Amendment No. 2 to
Registration Statement on Form S-4 filed on October 4, 2002).
-52-
10.8 Letter dated September 27, 2002 from Mr. Robert A. Levinson
(incorporated herein by reference to Levcor's Amendment No. 2 to
Registration Statement on Form S-4 filed on October 4, 2002).
10.9 2002 Stock Option Plan (incorporated herein by reference to Amendment
No. 6 to Levcor's Registration Statement on Form S-4 filed on November
26, 2002). +
10.10 Financing Agreement dated January 24, 2002, among Carlyle and The CIT
Group/Commercial Services, Inc. (incorporated herein by reference to
Exhibit 99.1 to Carlyle's Current Report on Form 8-K/A filed on March
14, 2002).
10.11 Accounts Receivable Financing Agreement dated January 24, 2002, among
Blumenthal/Lansing Company, and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.2 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.12 Accounts Receivable Financing Agreement dated January 24, 2002, among
Westwater Industries, Inc., and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.3 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.13 Guaranty dated January 24, 2002, executed by Blumenthal/Lansing Company
in favor of The CIT Group/Commercial Services, Inc. (incorporated
herein by reference to Exhibit 99.4 to Carlyle's Current Report on Form
8-K/A filed on March 14, 2002).
10.14 Guaranty dated January 24, 2002, executed by Carlyle in favor of The
CIT Group/Commercial Services, Inc. (incorporated herein by reference
to Exhibit 99.5 to Carlyle's Current Report on Form 8-K/A filed on
March 14, 2002).
10.15 Guaranty dated January 24, 2002, executed by Westwater Industries, Inc.
in favor of The CIT Group/Commercial Services, Inc. (incorporated
herein by reference to Exhibit 99.6 to Carlyle's Current Report on Form
8-K/A filed on March 14, 2002).
10.16 Guaranty dated January 24, 2002, executed by Button Fashion BV in favor
of The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.7 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
10.17 Guaranty dated January 24, 2002 executed by Robert Levinson in favor of
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.8 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
10.18 Inventory Security Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.9 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.19 Inventory Security Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.10 to Carlyle's Current
Report on Form 8-K/A dated January 24, 2002, as filed on March 14,
2002).
10.20 Inventory Security Agreement dated January 24, 2002, among Carlyle and
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.11 to Carlyle's Current Report on Form 8-K/A
filed on March 14, 2002).
-53-
10.21 Equipment Security Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.12 to Carlyle's current
report on Form 8-K/A filed on March 14, 2002).
10.22 Equipment Security Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.13 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.23 Equipment Security Agreement dated January 24, 2002, among Carlyle and
The CIT Group/Commercial Services, Inc. (incorporated herein by
reference to Exhibit 99.14 to Carlyle's current report on Form 8-K/A
filed on March 14, 2002).
10.24 Letter of Credit Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.15 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.25 Letter of Credit Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.16 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.26 Patent and Trademark Agreement dated January 24, 2002, among
Blumenthal/Lansing Company and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.17 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.27 Patent and Trademark Agreement dated January 24, 2002, among Westwater
Industries, Inc. and The CIT Group/Commercial Services, Inc.
(incorporated herein by reference to Exhibit 99.18 to Carlyle's Current
Report on Form 8-K/A filed on March 14, 2002).
10.28 1994 Carlyle Industries, Inc. 1994 Incentive Program, as Amended
(incorporated herein by reference to Levcor's Registration Statement on
Form S-8 filed on January 20, 2004). +
21 * Subsidiaries of the Company.
23 * Consent of Independent Auditors.
31.1 * Chief Executive Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 * Chief Financial Officer's Certificate pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 * Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 * Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------
+ Indicates that exhibit is a management contract or compensatory plan or
arrangement.
* Indicates that exhibit is filed as an exhibit hereto.
-54-