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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-19737
NOEL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2649262
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
667 Madison Avenue, New York, New York 10021-8029
(Address of principal executive offices) (Zip Code)
(212) 371-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 1996
Common Stock - $.10 Par Value 20,187,705
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NOEL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 3. Defaults upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
NOEL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,974 $ 10,446
Short-term investments 9,384 18,378
Accounts receivable, less allowances of $2,806 and $2,867 25,345 21,111
Inventories 34,848 30,460
Other current assets 3,274 4,294
--------- ---------
76,825 84,689
Equity investments 38,762 34,520
Other investments 28,258 20,174
Property, plant and equipment, net 37,407 40,563
Intangible assets, net 46,379 44,562
Net assets of discontinued operations 268 779
Other assets 5,419 14,470
--------- ---------
$ 233,318 $ 239,757
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt $ 485 $ -
Current portion of long-term debt 38,816 5,233
Trade accounts payable 14,040 12,339
Accrued compensation and benefits 6,856 5,769
Other current liabilities 13,012 19,201
--------- ---------
73,209 42,542
Long-term debt 29,767 69,197
Other long-term liabilities 28,380 28,913
Minority interest 7,070 6,185
--------- ---------
138,426 146,837
--------- ---------
Stockholders' Equity:
Preferred stock, $.10 par value, 2,000,000 shares
authorized, none outstanding - -
Common stock, $.10 par value, 48,000,000 shares
authorized, 20,222,642 and 20,203,233 issued, respectively 2,022 2,020
Capital in excess of par value 213,099 204,466
Accumulated deficit (118,936) (112,466)
Cumulative translation adjustment (602) (613)
Treasury stock at cost, 34,937 and 11,000 shares, respectively (691) (487)
--------- ---------
94,892 92,920
--------- ---------
$ 233,318 $ 239,757
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NOEL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended September 30,
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Sales $ 50,266 $ 44,694
Cost and Expense Items:
Cost of sales 27,859 25,654
Selling, general, administrative and other expenses 18,133 17,424
Depreciation and amortization 902 239
---------- ----------
46,894 43,317
---------- ----------
Operating income 3,372 1,377
---------- ----------
Other Income (Expense):
Other income 109 6,873
Income (Loss) from equity investments (7,140) 1,285
Interest expense (2,043) (1,953)
Minority interest (477) (185)
---------- ----------
(9,551) 6,020
---------- ----------
Income (Loss) from continuing operations before income taxes (6,179) 7,397
Provision for income taxes (1,043) (471)
---------- ----------
Income (Loss) from continuing operations (7,222) 6,926
Loss from discontinued operations - (517)
---------- ----------
Net income (loss) ($7,222) $ 6,409
========== ==========
Earnings (Loss) per common and common equivalent share from:
Continuing operations ($ 0.36) $ 0.33
Discontinued operations - (0.02)
---------- ----------
Net income (loss) ($ 0.36) $ 0.31
========== ==========
Weighted average common and common equivalent shares 20,187,705 20,991,789
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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NOEL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended September 30,
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION
1996 1995
---------- ----------
<S> <C> <C>
Sales $140,524 $134,059
Cost and Expense Items:
Cost of sales 79,624 75,901
Selling, general, administrative and other expenses 52,222 54,459
Depreciation and amortization 2,620 3,157
---------- ----------
134,466 133,517
---------- ----------
Operating income 6,058 542
---------- ----------
Other Income (Expense):
Other income 734 7,562
Income (loss) from equity investments (4,215) 2,331
Interest expense (6,096) (5,927)
Minority interest (875) (309)
---------- ----------
(10,452) 3,657
---------- ----------
Income (Loss) from continuing operations
before income taxes (4,394) 4,199
Provision for income taxes (2,408) (1,967)
---------- ----------
Income (Loss) from continuing operations (6,802) 2,232
Income (Loss) from discontinued operations 332 (1,310)
---------- ----------
Net income (loss) ($6,470) $922
========== ==========
Earnings (Loss) per common and common equivalent share from:
Continuing operations ($0.34) $0.11
Discontinued operations 0.02 (0.06)
---------- ----------
Net income (loss) ($0.32) $0.05
========== ==========
Weighted average common and common equivalent shares 20,187,705 21,003,153
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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NOEL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided from (used for) operating activities $1,300 ($1,331)
Cash Flows from Investing Activities:
Payments for companies purchased, net of cash acquired (6,495) (2,800)
Cash of deconsolidated subsidiary - (4,303)
Sales of short-term investments, net 8,998 4,822
Purchases of investments (8,090) (112)
Sales of investments - 371
Sales of discontinued operations 8,190 2,623
Purchases of property, plant and equipment (2,744) (3,775)
Sales of property, plant and equipment 1,799 1,724
Other, net (1,135) (949)
------------- -------------
Net cash provided from (used for) investing activities 523 (2,399)
------------- -------------
Cash Flows from Financing Activities:
Borrowings from revolving credit line and long-term debt 110,846 105,503
Repayments under revolving credit line and long-term debt (116,476) (104,383)
Reductions of long-term liabilities (1,090) (2,427)
Other, net (1,576) -
------------- -------------
Net cash used for financing activities (8,296) (1,307)
Effect of exchange rates on cash 1 8
------------- -------------
Net decrease in cash and cash equivalents ($6,472) ($5,029)
============= =============
Supplemental Disclosure of Cash Flow Information:
Interest paid $6,326 $5,247
============= =============
Taxes paid $685 $1,111
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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NOEL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION:
Noel Group, Inc. ("Noel") is proposing for approval by its shareholders
a Plan of Complete Liquidation and Dissolution (the "Plan"). If the Plan is
approved by the shareholders, Noel will be liquidated (i) by the sale of such of
its assets as are not to be distributed in kind to its shareholders, and (ii)
after paying or providing for all its claims, obligations and expenses, by cash
and in-kind distributions to its shareholders pro rata and if required by the
Plan or deemed necessary by the Board of Directors, by distributions of its
assets from time to time to one or more liquidating trusts established for the
benefit of the then shareholders, or by a final distribution of its then
remaining assets to a liquidating trust established for the benefit of the then
shareholders. Should the Board of Directors determine that one or more
liquidating trusts are required by the Plan or are otherwise necessary,
appropriate or desirable, adoption of the Plan will constitute shareholder
approval of the appointment by the Board of Directors of one or more trustees to
any such liquidating trusts and the execution of liquidating trust agreements
with the trustees on such terms and conditions as the Board of Directors, in its
absolute discretion, shall determine.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The consolidated financial statements for Noel and its subsidiaries
(the "Company") included in this Form 10-Q have been prepared by Noel without
audit. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. It is recommended that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in Noel's 1995 annual
report. In the opinion of management, the information furnished reflects all
adjustments which are necessary to present fairly such information. These
adjustments, except as otherwise disclosed, consist only of normal recurring
adjustments.
CONSOLIDATION
The consolidated financial statements include the accounts of Noel and
its subsidiaries, Belding Heminway Company, Inc. ("Belding"), Curtis Industries,
Inc. ("Curtis"), and Lincoln Snacks Company ("Lincoln") after the elimination of
significant intercompany transactions. The September 30, 1995, financial
statements have been restated to reflect Simmons Outdoor Corporation, Belding's
home furnishings division, Curtis' retail division, and TDX Corporation as
discontinued operations due to their sale in 1995 or anticipated or actual sale
in 1996.
7
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HealthPlan Services Corporation ("HPS") was acquired by Noel on
September 30, 1994. Following HPS's initial public offering on May 19, 1995 and
Noel's simultaneous exchange of its entire holding of HPS preferred stock and
accrued dividends into HPS common stock, Noel's voting interest dropped below
50%. Therefore, Noel has accounted for HPS's results of operations through
September 30, 1995, under the equity method of accounting as if HPS had been an
equity investment from January 1, 1995.
Summarized income statement information for HPS is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenue $ 67,006 $24,116 $ 129,876 $70,889
========= ======= ========= =======
Gross profit n/a n/a n/a n/a
========= ======= ========= =======
Income from continuing operations $(19,169) $ 2,624 $(12,395) $ 6,551
========= ======= ========= =======
Net income $(19,169) $ 2,624 $(12,395) $ 6,551
========= ======= ========= =======
Net income available to common
shareholders $(19,169) $ 2,624 $(12,395) $ 6,266
========= ======= ========= =======
Noel's share of net income available to
common shareholders $ (7,194) $ 1,096 $ (4,652) $ 2,617
========= ======= ========= =======
</TABLE>
HPS' third quarter 1996 results include a $38 million restructuring
charge which comprises approximately $4 million for contract write-offs, $14
million for integration expenses associated with combining acquisitions, and a
$20 million write-off of goodwill incurred through HPS' acquisitions.
SEASONALITY
The results of operations for the three and nine months ended September
30, 1996, may not be indicative of the operating results for the full year.
Lincoln's business is seasonal, with the third and fourth calendar quarters
historically showing higher sales.
8
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INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw material and supplies $ 8,160 $ 6,088
Work in process 5,231 6,033
Finished goods 21,457 18,339
------- -------
$34,848 $30,460
======= =======
</TABLE>
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (Loss) per share is computed based on the weighted average
number of shares of Noel Common Stock and dilutive equivalents outstanding
during the respective periods. When dilutive, stock options and warrants are
included as share equivalents using the treasury stock method. In computing
dilutive equivalents under the treasury stock method, the average price of
common stock during the period is used for primary earnings per share and the
period-end price is used for fully diluted earnings per share. For the three and
nine months ended September 30, 1996, earnings per share is based on outstanding
shares since the effect of common stock equivalents is antidilutive. For the
three and nine months ended September 30, 1995, fully diluted earnings per share
is not presented since the additional dilution is immaterial.
3. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal proceedings generally
incidental to its businesses. While the result of any litigation contains an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding or claim, or all of them combined, will
not have a material adverse effect on the Company's consolidated financial
position.
4. OTHER INVESTMENTS:
On March 5, 1996, a consortium led by Noel and Chase Capital Partners,
formerly Chemical Venture Partners, purchased by auction the concession for the
Brazilian federal railroad's western network for approximately $63.6 million.
The purchase of the network consists of a 30-year concession and a lease of the
federal railroad's equipment. Noel invested $8.0 million in the concession,
which investment is included in other investments on the September 30, 1996,
balance sheet.
9
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5. SUBSIDIARY STOCK TRANSACTION:
Effective July 1, 1996, HPS issued 1,508,090 new shares of common stock,
with a value of approximately $32.7 million, in conjunction with acquisitions.
Noel recorded its proportionate share of the capital increase as a subsidiary
stock transaction, with an increase of $8.5 million recorded directly to capital
in excess of par value. As a result of HPS' share issuance, Noel's ownership
percentage of HPS decreased from approximately 42% to approximately 38%.
6. DISCONTINUED OPERATIONS:
On July 31, 1996, Belding completed the sale of its home furnishings
division for net proceeds of approximately $8.2 million. Proceeds received on
the sale, adjusted for closing costs and changes in the net asset value of the
division subsequent to the contract date, were used to pay down Belding's
revolving bank loan. Such net proceeds approximated the amount that had been
borrowed under the revolving loan in support of the home furnishings division's
inventories and receivables. The repayment of bank debt was sufficient in amount
to avoid bank fees that would have been payable had Belding not completed the
sale as prescribed by Belding's credit agreement dated October 29, 1993, as
amended.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
Noel Group, Inc. ("Noel") is proposing for approval by the shareholders
a Plan of Complete Liquidation and Dissolution (the "Plan"). If the Plan is
approved by the shareholders, Noel will be liquidated (i) by the sale of such of
its assets as are not to be distributed in kind to its shareholders, and (ii)
after paying or providing for all its claims, obligations and expenses, by cash
and in-kind distributions to its shareholders pro rata and if required by the
Plan or deemed necessary by the Board of Directors, by distributions of its
assets from time to time to one or more liquidating trusts established for the
benefit of the then shareholders, or by a final distribution of its then
remaining assets to a liquidating trust established for the benefit of the then
shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Noel Group, Inc.
On September 30, 1996, Noel had cash and cash equivalents and short-term
investments of $11.2 million. The future cash needs of Noel will be dependent on
the adoption of the Plan. It is management's intention that Noel's liquidity
will be available to fund Noel's working capital requirements and, subject to
the restrictions set forth in the Plan if approved by the shareholders, to
support Noel's operating companies.
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Noel believes that its cash and cash equivalents and short-term
investments are sufficient to fund its working capital requirements for the
foreseeable future. Except as discussed below under Belding Heminway Company,
Inc. ("Belding"), Noel also expects that its operating companies will be able to
meet their own working capital requirements, including debt service. Subject to
the restrictions set forth in the Plan if approved by the shareholders, if an
operating company requires additional funding for the purpose of making
acquisitions at the operating company level or to otherwise support growth, or
suffers operating or cash flow deficits, a portion of Noel's liquidity may be
utilized to fund such requirements.
Sources of potential liquidity include the sale or refinancing of
current holdings, dividends and preferred stock redemptions from current
holdings and the issuance of debt or equity securities. Noel does not currently
receive, nor expect to receive in the immediate future, cash dividends from any
of its subsidiaries. Noel's subsidiaries are currently prohibited from paying
dividends by existing borrowing agreements.
Belding Heminway Company, Inc.
Belding's Senior Bank Facilities consist of (i) a $25 million amortizing
senior term loan facility (the "Term Facility") and (ii) a $29 million senior
revolving credit facility (the "Revolving Facility").
At December 31, 1995, Belding was in default on certain of its loan
covenants under the Senior Bank Facilities. On March 15, 1996, Belding's credit
agreement was amended so that (i) the defaults at December 31, 1995, were
waived; (ii) the maturity of the Senior Bank Facilities was changed to July 1,
1997, from December 31, 1999; (iii) the interest rate on the loans was changed
to NationsBank prime rate plus 1 3/4% (from at Belding's option: (a) 1 3/4% plus
the higher of (1) NationsBank prime rate and (2) the federal funds rate plus 1/2
of 1%, or (b) a rate based on certain rates offered for U.S. dollar deposits in
the London interbank market plus 2 3/4%); (iv) if Belding has not refinanced or
repaid the Term Facility in full by December 31, 1996, Belding will be obligated
to demonstrate progress towards disposition of assets and complete a sale of
those assets by December 31, 1996, at sufficient levels to repay the Term
Facility by the due date in order to avoid the payment of the fees as follows:
$300,000 on September 30, 1996, $700,000 on November 15, 1996 and $1,500,000 on
December 31, 1996; (v) the requirement for Belding to maintain an interest rate
cap agreement was deleted; (vi) the financial covenant tests were revised; and
(vii) the terms of the Revolving Facility were revised to reduce advances
available against work in process inventory, effective September 30 and December
31, 1996.
On July 31, 1996, Belding sold its home furnishings division and used
the net proceeds to repay all existing Revolving Facility advances against
Belding's home furnishings division receivables and inventories and thus avoided
fees otherwise payable under the amended credit agreement. The banks
participating in Belding's credit facility have agreed, based on Belding's
circumstances, to postpone the due date (the "Deadline") for payment of $1.0
million of the $2.5 million in fees required by the most recent amendment to the
credit agreement to December 31, 1996, subject to certain contingencies. No
assurances can be given that circumstances will not change and that such
postponement will remain in force. In addition, Belding is currently in
discussions with the banks to further postpone the Deadline to March 31, 1997
for all of the $2.5 million of fees, however, there can be no assurance that the
Deadline will be further postponed and if it is, at what cost.
In order to meet the requirements of the Term Facility and thus avoid
fees payable by the Deadline, Belding expects that it will have to refinance the
Term Facility by the Deadline, or sell assets.
11
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If Belding is not successful in refinancing the Term Facility by the Deadline,
it will be obligated to demonstrate progress toward the sale of assets and
complete a sale of these assets at sufficient levels to repay the Term Facility
by the Deadline, in order to avoid the payment of fees. If Belding refinances
the Term Facility, the new borrowing arrangements may carry higher rates of
interest and increased administrative costs. If Belding raises funds through
assets sales to discharge the Term Facility, the reduction in interest expense
resulting therefrom may not be sufficient to offset the diminution in income
that would result from such asset sales. There can be no assurance that Belding
will be able to refinance the Term Facility on commercially acceptable terms or
demonstrate sufficient progress toward asset sale(s) by the dates fees are due
and/or complete a transaction sufficient to discharge the Term Facility by the
Deadline. If Belding cannot satisfy those conditions, Belding would be obligated
to pay fees under the credit agreement. There is no assurance that Belding's
cash flow would be sufficient to pay those fees. If Belding is unable to pay any
of the fees when due, it will be in default under the Term Facility. Belding has
engaged a financial advisor in order to assist it in the evaluation of strategic
alternatives.
Belding's ability to make interest and installment principal payments on
outstanding debt also depends on generating sufficient cash flow from operations
as well as maintaining certain levels of receivables and inventory. However,
there can be no assurance that Belding will have sufficient cash flow or that
working capital levels will be sufficient to make such payments. If Belding is
unable to make installment principal and interest payments when due, it will be
in default of the credit agreement.
If Belding is not successful in refinancing the credit facility and
thereby does not repay all of the amounts outstanding under the credit facility
on its final maturity date of July 1, 1997, or meet other covenant provisions,
it will be in default under the credit facility.
Any such default or non-compliance with the credit facility would
entitle the lender to require immediate payment of the outstanding indebtedness
and to refuse advances and to exercise various rights against Belding,
including, without limitation, the right to foreclose its security interest in
Belding's assets. If such default or non-compliance occurred and the lender
demanded payment or refused to make further loans and Belding was unable to
obtain alternative financing, the lack of appropriate liquidity would have a
material adverse effect on Belding's results of operations and its ability to
continue as a going concern.
Based on discussions with several banks, Belding has received
preliminary proposals to refinance all of its existing debt at commercially
acceptable terms. However, there can be no assurance that Belding will be able
to complete a refinancing of the Term Facility or demonstrate sufficient
progress towards asset sales(s) by the dates fees are due and or complete a
transaction sufficient to discharge the Term Facility by the Deadline.
Pursuant to the terms of Belding's Series B preferred stock, 20% of such
shares were scheduled to be redeemed by Belding on March 15 of each year
commencing in 1995 and ending in 1999. Dividends on the preferred stock accrue
at an annual rate of 6% and are payable quarterly on March 15, June 15,
September 15 and December 15. Both the preferred stock redemptions and the
quarterly dividend payments are subject to the approval of the banks
participating in Belding's
12
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credit facility. Belding was notified on March 15, 1995, that the banks declined
approval of the dividend and redemption payments and no such payments have been
made. As a result, additional dividends are accruing on the scheduled but unpaid
dividends at a rate of 6% per annum.
Noel does not guarantee any of Belding's borrowings and Noel is not
liable for any of Belding's obligations. Noel's interest in Belding consists
solely of its holding of shares of preferred and common stock of Belding which
is carried at $14.0 million on Noel's books at September 30, 1996.
RESULTS OF OPERATIONS
General
The results of operations for the three and nine months ended September
30, 1996, may not be indicative of the operating results for the full year. The
business of Lincoln Snacks Company ("Lincoln") is seasonal, with the third and
fourth calendar quarters historically showing higher sales.
The results of operations for the three and nine months ended September
30, 1995, have been restated to reflect Simmons Outdoor Corporation, Belding's
home furnishings division, Curtis Industries, Inc.'s ("Curtis") retail division,
and TDX Corporation as discontinued operations due to their sale in 1995 or
their expected or actual sale in 1996 and to account for HealthPlan Services
Corporation ("HPS") under the equity method of accounting from January 1, 1995.
Noel's voting interest in HPS dropped below 50% following HPS' initial public
offering on May 19, 1995 and Noel's simultaneous exchange of its holding of HPS
preferred stock and accrued dividends into HPS common stock.
THREE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
Sales increased by $5.6 million to $50.3 million primarily due to
increased sales at Curtis and Belding of $2.9 million and $2.3 million,
respectively. Cost of sales increased by $2.2 million to $27.9 million from
$25.7 million in 1995. Selling, general, administrative and other expenses
increased by $.7 million to $18.1 million in 1996 from $17.4 million in 1995.
Other income decreased by $6.8 million primarily due to a 1995 gain recognized
by Noel on the receipt of payment for a subordinated note and note interest from
Brae Group, Inc. ("Brae note") in the form of shares of common stock of Staffing
Resources, Inc.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
Sales increased by $6.5 million to $140.5 million due to an increase in
sales at Curtis and Belding of $5.0 million and $1.4 million, respectively. Cost
of sales increased by $3.7 million to $79.6 million from $75.9 million in 1995,
related to increases at Curtis, Lincoln and Belding of $2.1 million, $1.1
million and $.6 million, respectively. Selling, general, administrative and
other expenses decreased to $52.2 million in 1996 from $54.5 million in 1995.
The decrease of $2.2 million primarily relates to decreased expenses at Lincoln
and Belding of $3.2 million and $.9 million, respectively, offset by increased
expenses at Curtis of $2.0 million. Other income decreased $6.8 million
primarily due to a 1995 gain recognized by Noel on the receipt of payment for
the Brae note.
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COMPARISON OF SEGMENTS:
GENERAL
Noel and its subsidiaries are collectively referred to as the "Company".
The discussion which follows analyzes the results for each of the Company's
segments.
THREE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
INDUSTRIAL THREADS AND BUTTONS (BELDING)
Sales during the third quarter of 1996 sales increased by $2.3 million
to $22.9 million as compared with $20.6 million during the third quarter of
1995. Sales in the consumer product segment increased to $12.9 million as
compared with $10.5 million during the same period in 1995. This increase was
primarily due to improved sales in Belding's button division and incremental
sales contributed by Culver Textile Company ("Culver") which was acquired in the
third quarter of 1995. Sales in the industrial product segment totaled $10.0
million as compared with $10.1 million during the second quarter of 1995.
The gross margin during the third quarter of 1996 increased by $1.6
million to $7.0 million or 30.5% as compared with $5.4 million or 26.2% during
the third quarter of 1995. Gross margin in the consumer product segment totaled
$4.6 million or 35.7% as compared to $3.7 million or 35.0% in the third quarter
of 1995. The increase in gross margin dollars was primarily attributable to
improved sales in Belding's button division and incremental sales of Culver
which was acquired during the third quarter of 1995. Gross margin in the
industrial product segment totaled $2.4 million or 24.0% during the third
quarter of 1996 as compared with $1.7 million or 17.0% % during the third
quarter of 1995. The improvement over 1995 margins is attributable to cost and
headcount reductions implemented beginning in September 1995.
Selling, general, and administrative expenses totaled $3.5 million as
compared with $3.4 million during the same period in 1995. Selling, general, and
administrative expenses in the consumer product segment totaled $1.3 million
during the third quarter of 1996 as compared with $1.1 million during the third
quarter of 1995. Selling, general and administrative expenses in the industrial
product segment totaled $2.2 million during the third quarter of 1996 as
compared with $2.3 million during the third quarter of 1995.
FASTENERS AND SECURITY PRODUCTS DISTRIBUTION (CURTIS)
On May 13, 1996, Curtis acquired the Mechanics Choice business of Avnet,
Inc. for $6.5 million. Mechanics Choice is a distributor selling industrial
maintenance and repair operations products similar to the existing Curtis
product line offering.
Sales for the third quarter of 1996 increased $2.9 million or 16.5% to
$20.5 million from $17.6 million in the third quarter of 1995. Sales from the
Mechanics Choice division accounted for $2.6 million of the increase.
14
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<PAGE>
The gross margin percentage decreased to 64.6% in 1996 from 66.4% in
1995. Lower margins incurred by the Mechanics Choice division are responsible
for the majority of the third quarter decline.
For the third quarter of 1996, selling, general and administrative
expenses increased $1.7 million from the comparable 1995 quarter. The majority
of the third quarter increase is due to the added selling and distribution costs
of the Mechanics Choice division.
SNACK FOODS (LINCOLN)
On June 6, 1995, Lincoln entered into an exclusive distribution
agreement (the "Distribution Agreement") with Planters Company, a division of
Nabisco, Inc. ("Planters"), commencing on July 17, 1995, for the sales and
distribution of Fiddle Faddle and Screaming Yellow Zonkers ("the Products" ).
Under the Distribution Agreement, which requires Planters to purchase a minimum
number of equivalent cases during each year ending on June 30, Lincoln sells the
Products to Planters at prices which are less than historical selling prices.
Planters in turn is responsible for the sales and distribution of the Products
to its customers and therefore Lincoln does not have any selling, marketing and
distribution costs on the Products. The financial impact of the Distribution
Agreement versus historical results is a reduction in revenue and gross profit
which is offset by reduced selling, marketing and distribution costs.
Sales increased approximately 6% or $.4 million to $6.9 million for the
quarter versus $6.5 million in the corresponding period of 1995. The increase in
sales is due to increased sales related to the Distribution Agreement and sales
of Lincoln's other branded product which were consistent with those of a year
ago. The increase was offset by declines in Lincoln's nut division and
liquidation sales. Sales to Planters represented 50% and 27% of sales for the
quarter ended September 30, 1996 and 1995, respectively.
Gross profit increased $.2 million to $2.2 million for the three months
of 1996 versus $2.0 million in the corresponding period of 1995 as a result of
the increase in sales.
Selling, general, and administrative expenses decreased approximately 7%
or $.1 million to $1.6 million in the quarter versus $1.7 million in the same
period in 1995. These expenses decreased during this period primarily due to
cost reductions resulting from the Distribution Agreement.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SEPTEMBER 30, 1995
INDUSTRIAL THREADS AND BUTTONS (BELDING)
Sales during the nine month period ended September 30, 1996, increased
$1.4 million to $67.2 million as compared with $65.8 million during the same
period of 1995. Sales in the consumer product segment totaled $36.0 million
during the first nine months of 1996 as compared with $29.7 million during the
first nine months of 1995. The increase in consumer product segment sales was
primarily the result of sales contributed by Culver. Sales in the industrial
product segment
15
<PAGE>
<PAGE>
totaled $31.2 million in 1996 as compared to $36.1 million during the first nine
months of 1995. All of this year to year reduction occurred during the first two
quarters of 1996.
The gross margin during the first nine months of 1996 totaled $19.1
million as compared to $18.3 million during the same period in 1995. The gross
margin percentage during the first nine months of 1996 was 28.4% versus 27.8% in
1995. Gross margin in the consumer product segment during the first nine months
of 1996 totaled $11.6 million as compared with $10.1 million during 1995.
Additional margin dollars were contributed as the result of the Culver
acquisition and increased sales by Belding's button division. The gross margin
percentage during 1996 in the consumer product segment was 32.3% % as compared
to 33.9% during the same period in 1995. The decline in the gross margin
percentage in the consumer product segment was due to the lower Culver margins.
Gross margin in the industrial segment during 1996 totaled $7.5 million as
compared to $8.2 million for the same period in 1995. The decline in the gross
margin was directly attributable to the decline in the sales volume of this
segment. The gross margin percentage during 1996 for the industrial segment was
24.0% as compared to 22.3% during 1995.
Selling, general and administrative expenses during 1996 totaled $10.5
million as compared with $11.7 million during 1995. Selling, general and
administrative expenses in the consumer product segment in 1996 totaled $3.9
million as compared to $3.3 million in 1995. The increase in selling, general
and administrative expenses in the consumer product segment was the result of
the additional expenses attributable to Culver operations. Selling, general and
administrative expenses in the industrial segment totaled $6.6 million during
the nine months ended September 30, 1996, as compared to $8.4 million in the
first nine months of 1995. The decline in selling, general and administrative
expenses in the industrial product segment was the result of reduced spending
totaling $1.6 million, principally from headcount reductions.
FASTENERS AND SECURITY PRODUCTS DISTRIBUTION (CURTIS)
On May 13, 1996, Curtis acquired the Mechanics Choice business of Avnet,
Inc. for $6.5 million. Mechanics Choice is a distributor selling industrial
maintenance and repair operations products similar to the existing Curtis
product line offering.
For the nine month period in 1996, Curtis' sales of $57.0 million were
$5.1 million or 9.8% higher than the same period in 1995. Sales by Curtis'
Mechanics Choice division accounted for $4.5 million of the increase. Sales of a
new key code cutting machine utilizing state of the art technology contributed
an additional $1.0 million of sales in 1996. The sales gain from the new code
cutter was offset by the loss of the sales of the Puerto Rican branch totaling
$.6 million and of an emergency key cutting program of $.3 million. Both of
these businesses were discontinued as a result of the sale of the retail
division and the shutdown of manufacturing operations.
For the first nine months of 1996, Curtis' gross margin percentage of
65.6% decreased .7% from the comparable period in 1995. The decline in margins
can be attributed to the lower margins recognized by the Mechanics Choice
Division.
16
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<PAGE>
For the nine month period of 1996, Curtis' selling, general and
administrative expenses, exclusive of the $.7 million reserve recorded for the
1995 manufacturing shutdown, increased by $2.5 million. The majority of the
increase is selling and distribution costs of the Mechanics Choice division.
SNACK FOODS (LINCOLN)
Sales of $16.4 million were unchanged for the nine months ended
September 30, 1996, versus the corresponding period of 1995. Sales related to
the Distribution Agreement represented 56% and 47% of sales for the nine months
ended September 30, 1996 and 1995, respectively.
Gross profit decreased $1.1 million to $4.4 million for the nine months
ended September 30, 1996, versus $5.5 million in the corresponding period of
1995. Gross profit decreased as a result of lower selling prices under the
Distribution Agreement.
Selling, general and administrative expenses decreased $2.7 million to
$3.7 million in the nine months ended September 30, 1996, versus $6.4 million
the same period in 1995. These expenses decreased during this period primarily
due to cost reductions resulting from the Distribution Agreement.
17
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
There are no pending material legal proceedings to which Noel or its
subsidiaries is a party or to which any of their property is subject, other than
ordinary routine litigation incidental to their respective businesses, other
than as disclosed in Noel's Form 10-K for the year ended December 31, 1995.
Item 3. - Defaults upon Senior Securities
a) None
b) Redeemable series B preferred stock of Belding Heminway Company, Inc.
Scheduled dividend payments totaling $1,316,018 in 1995, $330,907 on
March 15, 1996, $339,548 on June 15, 1996, and $345,533 on September 15,
1996, were subject to the approval of Belding's bank lenders. Such
approval was not granted by the banks and the dividend payments were not
made. As a result, additional dividends are accruing on the scheduled
but unpaid dividends at a rate of 6% per annum.
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Item No. Item Title Exhibit No.
- -------- ---------- -----------
<S> <C> <C>
(2) Not Applicable.
(3) Articles of Incorporation and By-Laws.
(A) Certificate of Incorporation, as amended. (a)
(B) Composite copy of the Certificate of Incorporation, (b)
as amended.
(C) By-Laws, as amended and restated. (c)
(4) Instruments defining the rights of security holders, including indentures.
(A) Excerpts from Certificate of Incorporation, as amended. (a)
(B) Excerpts from By-Laws, as amended and restated. (c)
(10) Not Applicable.
(11) Statement re: computation of per share earnings is not required
because the relevant computations can be clearly determined from
the material contained in the financial statements included herein.
</TABLE>
18
<PAGE>
<PAGE>
(15) Not Applicable.
(18) Not Applicable.
(19) Not Applicable.
(22) Not Applicable.
(23) Not Applicable.
(24) Not Applicable.
(27) Not Applicable.
(99) Not Applicable.
- -------------------------
(a) These exhibits were filed as exhibits to the Company's
Registration Statement on Form S-1, Registration No. 33-44178,
effective January 29, 1992, and are incorporated herein by
reference.
(b) This exhibit was filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992,
and is incorporated herein by reference.
(c) These exhibits were filed as exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994,
and are incorporated herein by reference.
(d) This exhibit was filed as an exhibit to the Quarterly Report on
Form 10-Q of Belding Heminway Company, Inc. for the period ended
March 31, 1996, and is incorporated herein by reference.
b) Reports on Form 8-K
None.
Signature
NOEL GROUP, INC.
Date: November 14, 1996
By: \s\ Todd K. West
-----------------------------
Todd K. West
Vice President - Finance and
Secretary (As both a duly
authorized officer of
Registrant and as chief
financial officer of
Registrant).
19
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,974
<SECURITIES> 9,384
<RECEIVABLES> 28,151
<ALLOWANCES> 2,806
<INVENTORY> 34,848
<CURRENT-ASSETS> 76,825
<PP&E> 37,407
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,318
<CURRENT-LIABILITIES> 73,209
<BONDS> 29,767
<COMMON> 2,022
0
0
<OTHER-SE> 92,870
<TOTAL-LIABILITY-AND-EQUITY> 233,318
<SALES> 140,524
<TOTAL-REVENUES> 140,524
<CGS> 79,624
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<INCOME-PRETAX> (4,394)
<INCOME-TAX> 2,408
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<EXTRAORDINARY> 0
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