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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 June 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 August 12, 1996
- ------------------------------ ------------------------------
Common Stock - $.10 Par Value 20,187,705
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NOEL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
Three Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Operations
Six Months Ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 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 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
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>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $5,683 $10,446
Short-term investments 9,144 18,378
Accounts receivable, less allowances of $2,685 and $2,867 25,962 21,111
Inventories 35,398 30,460
Other current assets 2,232 4,294
-------- -------
78,419 84,689
Equity investments 37,362 34,520
Other investments 28,258 20,174
Property, plant and equipment, net 37,741 40,563
Intangible assets, net 45,927 44,562
Net assets of discontinued operations 268 779
Other assets 9,808 14,470
-------- --------
$237,783 $239,757
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt $556 $ --
Current portion of long-term debt 5,797 5,233
Trade accounts payable 14,715 12,339
Accrued compensation and benefits 5,293 5,769
Other current liabilities 14,294 19,201
-------- -------
40,655 42,542
Long-term debt 72,192 69,197
Other long-term liabilities 25,092 28,913
Minority interest 6,570 6,185
-------- -------
144,509 146,837
-------- -------
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 204,559 204,466
Accumulated deficit (112,004) (112,466)
Cumulative translation adjustment (612) (613)
Treasury stock at cost, 34,937 and 11,000 shares, respectively (691) (487)
-------- -------
93,274 92,920
-------- -------
$237,783 $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 June 30,
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales $47,139 $44,286
Cost and Expense Items:
Cost of sales 27,170 25,073
Selling, general, administrative and other expenses 17,373 18,034
Depreciation and amortization 734 1,736
---------- ----------
45,277 44,843
---------- ----------
Operating income (loss) 1,862 (557)
---------- ----------
Other Income (Expense):
Other income 366 377
Income (Loss) from equity investments 1,556 (171)
Interest expense (2,118) (1,870)
Minority interest (225) 286
---------- ----------
(421) (1,378)
---------- ----------
Income (Loss) from continuing operations
before income taxes 1,441 (1,935)
Provision for income taxes (724) (622)
---------- ----------
Income (Loss) from continuing operations 717 (2,557)
Loss from discontinued operations - (341)
---------- ----------
Net income (loss) $717 ($2,898)
========== ==========
Earnings (Loss) per common and common equivalent share from:
Continuing operations $0.03 ($0.12)
Discontinued operations 0.00 (0.02)
---------- ----------
Net income (loss) per common and comon equivalent share $0.03 ($0.14)
========== ==========
Weighted average common and common equivalent shares 22,024,198 20,192,233
========== ==========
</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
Six Months Ended June 30,
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales $90,258 $89,365
Cost and Expense Items:
Cost of sales 51,765 50,247
Selling, general, administrative and other expenses 34,089 37,035
Depreciation and amortization 1,718 2,918
---------- ----------
87,572 90,200
---------- ----------
Operating income (loss) 2,686 (835)
---------- ----------
Other Income (Expense):
Other income 625 689
Income from equity investments 2,925 1,046
Interest expense (4,053) (3,974)
Minority interest (398) (124)
---------- ----------
(901) (2,363)
---------- ----------
Income (Loss) from continuing operations
before income taxes 1,785 (3,198)
Provision for income taxes (1,365) (1,496)
---------- ----------
Income (Loss) from continuing operations 420 (4,694)
Income (Loss) from discontinued operations 42 (793)
---------- ----------
Net income (loss) $462 ($5,487)
========== ==========
Earnings (Loss) per common and common equivalent share from:
Continuing operations $0.02 ($0.23)
Discontinued operations 0.00 (0.04)
---------- ----------
Net income (loss) per common and comon equivalent share $0.02 ($0.27)
========== ==========
Weighted average common and common equivalent shares 21,905,187 20,192,233
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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NOEL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net cash used for operating activities ($ 2,310) ($ 1,499)
Cash Flows from Investing Activities:
Payments for companies purchased, net of cash acquired (6,495)
Cash of deconsolidated subsidiary -- (4,303)
Sales of short-term investments, net 9,238 15,686
Purchases of investments (8,090) (98)
Sales of investments -- 60
Purchases of property, plant and equipment (1,648) (1,454)
Sales of property, plant and equipment 1,799 862
Other, net (451) (924)
-------- --------
Net cash provided from (used for) investing activities (5,647) 9,829
-------- --------
Cash Flows from Financing Activities:
Borrowings from revolving credit line and long-term debt 68,033 70,145
Repayments under revolving credit line and long-term debt (64,097) (70,829)
Change in other long-term liabilities (716) -
Other, net 13 (1,244)
-------- --------
Net cash provided from (used for) financing activities 3,233 (1,928)
Effect of exchange rates on cash (39) 7
-------- --------
Net increase (decrease) in cash and cash equivalents ($4,763) $ 6,409
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 4,072 $ 4,096
======== ========
Taxes paid $ 658 $ 911
======== ========
</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 JUNE 30, 1996 AND FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The consolidated financial statements for Noel Group, Inc. ("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 June 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.
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 June
30, 1995, under the equity method as if HPS had been an equity investment from
January 1, 1995.
7
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Summarized income statement information for HPS is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenue $31,863 $23,198 $62,871 $46,773
======= ======= ======= =======
Gross profit n/a n/a n/a n/a
======= ======= ======= =======
Income from continuing operations $ 3,440 $ 2,072 $ 6,774 $ 3,927
======= ======= ======= =======
Net income $ 3,440 $ 2,072 $ 6,774 $ 3,927
======= ======= ======= =======
Net income available to common
shareholders $ 3,440 $ 2,072 $ 6,774 $ 3,642
======= ======= ======= =======
Noel's share of net income available to
common shareholders $ 1,437 $ 865 $ 2,830 $ 1,521
======= ======= ======= =======
</TABLE>
SEASONALITY
The results of operations for the three and six months ended June 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.
INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- ------------
<S> <C> <C>
Raw material and supplies $ 8,728 $ 6,088
Work in process 5,585 6,033
Finished goods 21,085 18,339
======= =======
$35,398 $30,460
======= =======
</TABLE>
8
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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. Fully diluted earnings per common and common
equivalent share have not been presented since the computation would be
antidilutive.
2. 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.
3. 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 June 30, 1996, balance
sheet.
4. PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION:
Noel is proposing for adoption by the shareholders a Plan of Complete
Liquidation and Dissolution of the Company (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.
5. SUBSEQUENT EVENT:
On July 31, 1996, Belding completed the sale of its home furnishings
division at a contract price of $9.6 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 paydown 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.
9
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PROPOSED PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
Noel is proposing for adoption by the shareholders a Plan of Complete
Liquidation and Dissolution of the Company (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 June 30, 1996, Noel had unrestricted cash and liquid investments of
$12.9 million. The future cash needs of Noel Group, Inc., the parent company
("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 restrictions set forth in the Plan if adopted by
shareholders, to support Noel's operating companies.
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
restrictions set forth in the Plan if adopted by 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").
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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 in addition to the home
furnishings division 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. Belding has
engaged a financial advisor in order to assist it in evaluation of strategic
alternatives. Belding is actively evaluating alternatives to refinancing.
On July 31, 1996, Belding sold its home furnishings division and used
the net proceeds to repay existing credit facility advances against Belding's
home furnishings division receivables and inventories and thus avoided fees
otherwise payable under the amended credit facility.
There can be no assurance that Belding will be successful through the
sale of assets or through refinancing or otherwise to avoid future default under
its Senior Bank Facilities and to repay the facilities at the due dates. Any
such default or non-compliance would entitle the lender to require immediate
payment of the outstanding indebtedness, to refuse further advances and to
exercise various rights against Belding, including, without limitations, 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 sale(s) by the dates fees are due and or complete a
transaction sufficient to discharge the Term Facility by December 31, 1996.
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 credit facility. Belding was notified on March 15,
1995, that the bank declined approval of the dividend and redemption payments
and no such payments have been made. As a result, additional
11
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dividends are accruing on the scheduled but unpaid dividends at a rate of 6% per
annum. The carrying amount of Noel's entire holding in Belding is $12.4 million
at June 30, 1996.
RESULTS OF OPERATIONS
General
The results of operations for the three and six months ended June 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 six months ended June 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 JUNE 30, 1996 VERSUS JUNE 30, 1995
Sales increased by $2.9 million to $47.1 million primarily due to
increased sales at Curtis of $2.6 million. Cost of sales increased by $2.1
million to $27.2 million from $25.1 million in 1995. Selling, general,
administrative and other expenses decreased to $17.4 million in 1996 from $18.0
million in 1995.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS JUNE 30, 1995
Sales increased by $.9 million to $90.3 million due to an increase in
sales at Curtis of $2.2 million, offset by a decline in sales at Belding and
Lincoln. Cost of sales increased by $1.5 million to $51.8 million from $50.2
million in 1995, primarily related to increases at Curtis and Lincoln. Selling,
general, administrative and other expenses decreased to $34.1 million in 1996
from $37.0 million in 1995. The decrease of $2.9 million primarily relates to
decreased expenses at Lincoln of $3.1 million.
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.
12
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THREE MONTHS ENDED JUNE 30, 1996 VERSUS JUNE 30, 1995
INDUSTRIAL THREADS AND BUTTONS (BELDING)
Sales during the second quarter of 1996 totaled $22.2 million as
compared to $21.8 million during the second quarter of 1995. Sales in the
consumer product segment increased to $11.4 million as compared with $9.3
million during the same period in 1995. This increase was primarily due to sales
contributed by Culver Textile Company ("Culver") which was acquired in the third
quarter of 1995. Sales in the industrial products segment totaled $10.8 million
as compared with $12.6 million during the second quarter of 1995. A weakness
that began last year in Belding's customers' primary markets continued to have a
direct impact on industrial thread sales during the second quarter of 1996.
The gross margin during the second quarter of 1996 totaled $6.0 million
or 27.0% as compared $5.9 million or 26.9% during the second quarter of 1995.
Gross margin in the consumer product segment totaled $3.4 million or 29.4% as
compared to $3.0 million or 32.1% in the second quarter of 1995. The increase in
gross margin dollars was primarily attributable to the gross margin contribution
of Culver which was acquired during the third quarter of 1995. Gross margin in
the industrial product segment totaled $2.6 million or 24.4% during the second
quarter of 1996 as compared with $2.9 million or 23.1% during the second quarter
of 1995.
Selling, general, and administrative expenses declined to $3.3 million
as compared to $3.9 million during the same period in 1995. Selling, general,
and administrative expenses in the consumer product segment totaled $1.3 million
during the second quarter of 1996 as compared with $1.1 million during the
second quarter of 1995. Selling, general and administrative expenses in the
industrial product segment totaled $1.1 million during the second quarter of
1996 as compared to $2.0 million during the second quarter of 1995 for a
reduction of $.9 million, primarily due to headcount reductions made during the
second half of 1995. Selling, general and administrative expenses at the
corporate level were unchanged from second quarter 1995 levels.
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 second quarter of 1996 increased $2.6 million or 15.3% to
$19.6 million from $17.0 million in the second quarter on 1995. Sales from the
Mechanics Choice division accounted for $1.9 million of the increase.
The gross margin percentage decreased to 64.9% in 1996 from 66.7% in
1995. Lower margins incurred by the Mechanics Choice division are responsible
for the majority of the second quarter decline.
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For the second quarter of 1996, selling, general and administrative
expenses increased $.8 million from the comparable 1995 quarter. The majority of
the second 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 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 agreement, which requires
Planters to purchase a minimum number of 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 agreement versus historical results is a reduction in
revenue and gross profit which is offset by reduced selling, marketing and
distribution costs.
Lincoln's fiscal year end is June 30, 1996. The results for the three
months ended June 30, 1996, are preliminary, pending the completion of Lincoln's
year-end audit. Sales decreased approximately 2% or $.1 million to $5.3 million
for the quarter versus $5.4 million in the corresponding period of 1995.
Combined case sales related to the Planters agreement were approximately 38%
higher than the corresponding period in 1995, while revenue for the Products
decreased $.4 million or approximately 11% due to lower selling prices resulting
from the Planters agreement. In addition, non-Planters sales decreased
approximately 11% or $.2 million primarily due to decreased liquidation sales.
Gross profit decreased $.7 million to $1.2 million for the three months
of 1996 versus $2.0 million in the corresponding period of 1995 as a result of
lower selling prices under the Planters agreement.
Selling, general, and administrative expenses decreased $1.4 million to
$1.1 million in the quarter versus $2.5 million in the same period in 1995.
These expenses decreased during this period primarily due to cost reductions
resulting from the Planters agreement.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS JUNE 30, 1995
INDUSTRIAL THREADS AND BUTTONS (BELDING)
Sales during the six month period ended June 30, 1996, totaled $44.4
million as compared to $45.2 million during the same period of 1995. Sales in
the consumer product segment totaled $23.1 million during the first half of 1996
as compared to $19.2 million during the first six months of 1995. The increase
in sales was the result of sales contributed by Culver. Sales in the industrial
product segment totaled $21.1 million in 1996 as compared to $26.0 million
during the first six months of 1995. Weakness in Belding's customers' primary
markets continued to have a direct impact on industrial thread sales throughout
the first half of 1996.
14
<PAGE>
<PAGE>
The gross margin during the first six months of 1996 totaled $12.1
million as compared to $12.9 million during the same period in 1995. The gross
margin percentage during the first half of 1996 was 27.3% versus 28.5% in 1995.
Gross margin in the consumer product segment during the first six months of 1996
totaled $7.0 million as compared with $6.4 million during the first half of
1995. Additional margin dollars were contributed primarily as the result of the
Culver acquisition. The gross margin percentage during the first half of 1996 in
the consumer product segment was 30.4% as compared to 33.4% 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 the first half of 1996 totaled $5.1 million as
compared to $6.5 million for the same period in 1995. The decline in margin
dollars was directly attributable to the decline in the sales volume of this
segment. The gross margin percentage during the first half of 1996 for the
industrial segment was 24.0% as compared to 25.0% during the first half of 1995.
Selling, general and administrative expenses during the first six months
of 1996 totaled $7.0 million as compared to $8.2 million during the first half
of 1995. Selling, general and administrative expenses in the consumer product
segment in the first six months of 1996 totaled $2.6 million as compared to $2.1
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 $2.7 million during the six months ended June
30, 1996, as compared to $4.0 million in the first half of 1995. The decline in
selling, general and administrative expenses in the industrial product segment
was principally the result of reduced spending totaling $1.0 million as a result
of headcount reductions. Selling, general and administrative expenses at the
corporate level totaled $1.8 million in the first half of 1996 as compared with
$2.1 million during the first half 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.
For the six month period in 1996, Curtis' sales of $36.5 million were
$2.2 million or 6.3% higher than the same period in 1995. Sales by Curtis'
Mechanics Choice division accounted for $1.9 million of the increase. Sales of a
new key code cutting machine utilizing state of the art technology contributed
an additional $.6 million of sales in the first half of 1996. The sales gain
from the new code cutter was offset by the loss of the sales of the Puerto Rican
branch totaling $.4 million and of the 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 six months of 1996, Curtis' gross margin percentage of
66.2% was unchanged from the comparable period in 1995.
For the six month period of 1996, Curtis' selling, general and
administrative expenses, exclusive of the $.7 million reserve recorded for the
1995 manufacturing shutdown, increased by $.9 million. The majority of the
increase is selling and distribution costs of the Mechanics Choice division.
15
<PAGE>
<PAGE>
SNACK FOODS (LINCOLN)
Lincoln's fiscal year end is June 30, 1996. The results for the year
ended June 30, 1996, are preliminary pending the completion of Lincoln's
year-end audit. Sales decreased approximately 4% or $.4 million to $9.5 million
for the six months ended June 30, 1996, versus $9.9 million in the corresponding
period of 1995. Combined case sales related to the Planters agreement were
approximately 64% higher than the corresponding period in 1995 while revenue
increased $.1 million or 2% due to lower selling prices resulting from the
Planters agreement. Non-Planters sales decreased 11% or $.5 million primarily
due to decreased liquidation sales over the prior period and reduced Nut
division sales.
Gross profit decreased $1.3 million to $2.3 million for the six months
ended June 30, 1996, versus $3.5 million in the corresponding period of 1995.
Gross profit decreased as a result of lower selling prices under the Planters
agreement.
Selling, general and administrative expenses decreased $2.5 million to
$2.1 million in the six months ended June 30, 1996, versus $4.7 million the same
period in 1995. These expenses decreased during this period primarily due to
cost reductions resulting from the Planters agreement.
16
<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 and $339,548 on June 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 4. - Submission of Matters to a Vote of Security-Holders
The Annual meeting of Shareholders (the "Meeting") was held on May 21,
1996. At the Meeting the shareholders voted upon the election of fourteen
directors, with all fourteen nominees being elected. The election of directors
was the only matter voted upon at the Meeting, with the votes being cast as set
forth below. No other director's term of office continued after the Meeting. The
following directors have resigned since the adoption by the Board of Directors
on May 21, 1996, of a Plan of Complete Liquidation and Dissolution of the
Company: Thomas C. Israel, John A. MacDonald, and Louis Marx, Jr.
<TABLE>
<CAPTION>
NUMBER OF VOTES NUMBER OF VOTES
NAME FOR WITHHELD
- -------------------- --------------- ---------------
<S> <C> <C>
William L. Bennett 16,080,557 137,993
Livio M. Borghese 16,080,878 137,692
Joseph S. DiMartino 16,081,077 137,493
Vincent D. Farrell, Jr. 16,080,678 137,892
Herbert M. Friedman 16,055,877 162,693
Thomas C. Israel 16,056,077 162,493
John A. MacDonald 16,080,877 137,693
Louis Marx, Jr. 16,055,878 162,692
James K. Murray, Jr. 16,080,878 137,692
James G. Niven 16,081,077 137,493
Samuel F. Pryor, III 16,055,678 162,892
Stanley R. Rawn, Jr. 16,055,878 162,692
James A. Stern 16,081,077 137,493
Edward T. Tokar 16,078,077 140,493
</TABLE>
17
<PAGE>
<PAGE>
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) (A) Consulting Agreement, dated March 22, 1996, between
Belding Heminway Company, Inc. and Karen Brenner. (d)
(B) Letter Agreement dated March 1, 1996, by and between the
Company and Karen Brenner relating to her employment by
the Company, as amended by letter dated March 21, 1996.
(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.
(15) Not Applicable.
(18) Not Applicable.
(19) Not Applicable.
(22) Not Applicable.
(23) Not Applicable.
(24) Not Applicable.
</TABLE>
18
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(27) Not Applicable.
(99) Not Applicable.
</TABLE>
- -------------------------
(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
A report on Form 8-K dated May 21, 1996, was filed on May 30, 1996,
reporting under Item 5 the adoption by the Board of Directors of a Plan of
Complete Liquidation and Dissolution.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOEL GROUP, INC.
Date: August 12, 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>
<PAGE>
March 1, 1996
Ms. Karen Brenner
Managing Director
Noel Group, Inc.
Suite 2500
667 Madison Avenue
New York, New York 10021
Dear Karen:
Please refer to the letter agreement of March 22, 1995 and any
and all amendments thereto between yourself and Noel Group, Inc. ("Noel") (the
"Letter Agreement").
Noel is highly satisfied with your performance under the Letter
Agreement. At Noel's request, you have recently undertaken additional
responsibility and it is important that Noel be assured of continuity in
connection with those responsibilities for at least two years. We recognize that
a firm commitment of this duration may require you to forego attractive
opportunities that may come your way in the future. Therefore, we mutually agree
to modify the arrangement embodied in the Letter Agreement as follows:
1. Except for the provisions of the Letter Agreement relating to
the vesting of options (the "Retained Provisions"), which will remain in full
force and effect, the Letter Agreement is hereby terminated.
2. Subject to the terms and conditions of this Letter, Noel
hereby employs you in an executive capacity for a fixed period of two years from
the date hereof unless sooner terminated by your death, disability or discharge
for "Cause" (as defined below) (the "Term"). We both anticipate that the Term
may be extended by mutual written consent from time to time. You hereby agree to
accept such employment and serve subject to such terms and conditions.
3. During the Term you will perform such executive services in
connection with Noel and entities in which Noel now, or at the time of
performance, holds interests (collectively, the "Noel Entities"), as shall
reasonably be assigned to you by the Board of Directors or the Chief Executive
Officer of Noel. You
<PAGE>
<PAGE>
- 2 -
shall devote an average of four days a week to such duties. You have previously
informed us that other commitments may occupy all or part of the remainder of
your business time, including possible separately compensated services to Noel
Entities other than Noel, and your meeting those commitments will be permitted
provided that they are not competitive with the Noel Entities nor otherwise
contrary to their best interests.
4. (a) During the Term Noel will pay or cause to be paid to you a
salary at the annual rate of $350,000 and you will be eligible for all benefits
available to Noel executives generally. Your salary hereunder shall be in
addition to, and shall not be reduced by or offset against, any compensation
paid or payable to you by any Noel Entity other than Noel. You will be
reimbursed for documented expenses reasonably incurred in the performance of
your duties. You shall also be eligible for such bonuses as Noel, in its sole
discretion, may award you.
(b) The payment due in 1999 under your split dollar life
insurance agreement dated as of May 17, 1995 will be paid by Noel to the Insurer
no later than December 31, 1998 except for approximately $2,580 which will be
paid no later than May 17, 1999. Except for such acceleration, our mutual
covenants concerning the split dollar life insurance policy remain in full force
and effect.
(c) To facilitate your work, Noel will continue to provide you
during the Term with an office and related office services similar to the office
and services currently being provided to you.
5. Since the firm commitment embodied in this Letter may deprive
you of other career opportunities, at the conclusion of the Term (including any
mutually agreed extensions thereof), Noel will pay to you an amount equal to
twelve months' base pay at your then current rate, payable in equal installments
over the twelve months following the conclusion of the Term (the "Twelve Month
Period"). It is our mutual intention that to the extent practicable, you will
continue to receive during the Twelve Month Period the same benefits that would
have been available to you had you remained a Noel employee during that time. To
the extent that such benefits, including medical insurance and 401(k)
contributions are not available to you, Noel will provide you with the cash
equivalent or funds which, as nearly as may be practicable and reasonable,
enable you (after the payment of any applicable income taxes thereon which would
not have been payable had the actual benefits been furnished to you) to obtain
reasonably equivalent benefits. The determination of reasonableness and of
practicability and equivalency in connection with the preceding sentence shall
be made by the Board
<PAGE>
<PAGE>
- 3 -
of Directors of Noel at its reasonable discretion. The foregoing provisions
relating to the receipt of payments, benefits or their equivalents shall
not apply from and after any date during the Term on which you shall have
been discharged for Cause or if you voluntarily resign. However, you shall be
entitled to such payments, benefits and equivalents if the Term is ended due to
your death or disability. For purposes of this Letter the term "Cause" shall
mean: your conviction of a felony; or your conviction of any crime involving any
of the Noel Entities; or the willful performance of or failure to perform any
act, which at the time of such performance or non performance, as the case may
be, you knew would have a materially adverse effect on any of the Noel Entities.
6. This Letter Agreement is intended to be binding upon Noel and
its successors and assigns.
7. Except for the Retained Provisions of the Letter Agreement,
this Letter contains the sole agreement between us relating to services to be
performed by you for any of the Noel Entities. It cannot be altered or amended
except by a writing duly executed by the party against whom such alteration or
amendment is sought to be enforced. The agreements contained in this Letter
shall be construed and enforced under the laws of the State of New York,
applicable to contracts made and to be performed entirely within that state and
any proceedings related to this Letter or your employment may be brought only in
the federal and state courts sitting in the City of New York, to the
jurisdiction and venue of which we both submit.
Noel looks forward to continuing to receive the benefits of your
skill and judgment and to the continuation of a mutually beneficial arrangement.
If this Letter meets with your understanding of our mutual agreement, would you
please so indicate by signing the enclosed copy and returning it to us.
Very truly yours,
NOEL GROUP, INC.
By:/s/Stanley R. Rawn, Jr.
-----------------------
Stanley R. Rawn, Jr.
Accepted and Agreed:
/s/Karen Brenner
- ----------------
Karen Brenner
<PAGE>
<PAGE>
March 21, 1996
Ms. Karen Brenner
Managing Director
Noel Group, Inc.
Suite 2500
667 Madison Avenue
New York, New York 10021
Dear Karen:
Please refer to Paragraph 3 of the letter agreement of March 1,
1996 between yourself and Noel Group, Inc. ("Noel").
This will confirm that duties performed by you for Belding
Heminway Company, Inc. and/or Lincoln Snacks Company, two companies in which
Noel holds substantial interests, in any capacity, shall be counted as services
in connection with the Noel Entities, within the meaning of that paragraph.
Very truly yours,
NOEL GROUP, INC.
By:/s/Stanley R. Rawn, Jr.
-----------------------
Stanley R. Rawn, Jr.
Chief Executive Officer
Accepted and Agreed:
/s/Karen Brenner
- ----------------
Karen Brenner
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,683
<SECURITIES> 9,144
<RECEIVABLES> 28,647
<ALLOWANCES> 2,685
<INVENTORY> 35,398
<CURRENT-ASSETS> 78,419
<PP&E> 37,741
<DEPRECIATION> 0
<TOTAL-ASSETS> 237,783
<CURRENT-LIABILITIES> 40,655
<BONDS> 72,192
<COMMON> 2,022
0
0
<OTHER-SE> 91,252
<TOTAL-LIABILITY-AND-EQUITY> 237,783
<SALES> 90,258
<TOTAL-REVENUES> 90,258
<CGS> 51,765
<TOTAL-COSTS> 51,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,053
<INCOME-PRETAX> 1,785
<INCOME-TAX> 1,365
<INCOME-CONTINUING> 420
<DISCONTINUED> 42
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462
<EPS-PRIMARY> .02
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