<PAGE>
<PAGE>
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, 1997
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 July 31, 1997
- ------------------------------ ----------------------------
Common Stock - $.10 Par Value 20,567,757
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Statement of Net Assets in Liquidation (Liquidation Basis)
June 30, 1997 3
Statement of Changes in Net Assets in Liquidation (Liquidation Basis)
Three Months Ended June 30, 1997 4
Consolidated Balance Sheet (Going-Concern Basis)
December 31, 1996 5
Consolidated Statements of Operations (Going-Concern Basis)
Three Months Ended March 31, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows (Going-Concern
Basis) Three Months Ended March 31, 1997 and 1996 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
2
<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
NOEL GROUP, INC.
STATEMENT OF NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30,
1997
-----------
<S> <C>
Assets
Cash and cash equivalents $ 20,343
Short-term investments 11,755
-----------
Total cash and short-term investments 32,098
Investments (Note 2) 92,279
Other assets 2,216
-----------
Total assets 126,593
-----------
Liabilities
Accounts payable 58
Accrued expenses (Note 5) 8,396
Income taxes (Note 4) 10,384
-----------
Total liabilities 18,838
-----------
Net assets in liquidation before options and warrants $ 107,755
===========
Number of common shares outstanding 20,421,039
===========
Net assets in liquidation per outstanding share $ 5.28
===========
Dilution for Options and Warrants (Note 7):
Net assets in liquidation after options and warrants $ 100,545
===========
Number of diluted common shares outstanding 20,567,757
===========
Net assets in liquidation per diluted share $4.89
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
<PAGE>
NOEL GROUP, INC.
Statement of Changes in Net Assets in Liquidation (Liquidation Basis)
Three Months Ended
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
June 30,
1997
---------
<S> <C>
Net assets in liquidation at April 1 (Note 6) $ 158,353
Changes in estimated liquidation values of assets and liabilities (Note 3) 3,375
Distribution to shareholders (Note 9) (53,973)
---------
Net assets in liquidation at June 30 $ 107,755
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (GOING-CONCERN BASIS)
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
December 31,
1996
----------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,117
Short-term investments 8,983
Accounts receivable, less allowance of $3,718 24,023
Inventories 34,157
Other current assets 4,232
---------
Total Current Assets 72,512
Equity investments 68,026
Other investments 639
Property, plant and equipment, net 37,671
Intangible assets, net 46,015
Other assets 5,658
---------
Total Assets $ 230,521
=========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ 4,719
Trade accounts payable 13,226
Accrued compensation and benefits 5,567
Net liabilities of discontinued operations 3,597
Other current liabilities 8,417
---------
Total Current Liabilities 35,526
Long-term debt 60,983
Other long-term liabilities 29,085
Minority interest 7,567
---------
Total Liabilities 133,161
---------
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 issued 2,022
Capital in excess of par value 211,633
Accumulated deficit (115,123)
Cumulative translation adjustment (481)
Treasury stock at cost, 34,937 shares (691)
---------
Total Stockholders' Equity 97,360
---------
Total Liabilities and Stockholders' Equity $ 230,521
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (GOING-CONCERN BASIS)
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
---------------- --------------
<S> <C> <C>
Sales $38,473 $43,119
Cost and Expense Items:
Cost of sales 20,711 24,595
Selling, general, administrative and other expenses 17,201 16,716
Depreciation and amortization 862 984
------------ ------------
38,774 42,295
------------ ------------
Operating income (loss) (301) 824
------------ ------------
Other Income (Expense):
Gain on sale of investment 15,098 --
Loss on disposal of Carlyle's thread division (4,364) --
Other income 218 259
Income from equity investments (354) 1,369
Interest expense (1,670) (1,935)
Minority interest 501 (173)
------------ ------------
9,429 (480)
------------ ------------
Income from continuing operations before income taxes 9,128 344
Provision for income taxes (10,437) (641)
------------ ------------
Loss from continuing operations (1,309) (297)
Income from discontinued operations -- 42
------------ ------------
Net loss ($1,309) ($255)
============ ============
Earnings (Loss) per common and common equivalent share from:
Continuing operations ($0.06) ($0.01)
Discontinued operations 0.00 0.00
------------ ------------
Net loss ($0.06) ($0.01)
============ ============
Weighted average common and common equivalent shares 20,421,039 20,192,233
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<PAGE>
NOEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING-CONCERN BASIS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------------- --------------
<S> <C> <C>
Net cash used for operating activities ($5,973) ($4,508)
Cash Flows from Investing Activities:
Sales (Purchases) of short-term investments, net (2,752) 4,582
Sales (Purchases) of investments 26,400 (3,922)
Proceeds from sale of Carlyle's thread division 51,924 --
Purchases of property, plant and equipment (722) (667)
Other, net (148) (706)
-------- --------
Net cash provided from (used for) investing activities 74,702 (713)
-------- --------
Cash Flows from Financing Activities:
Borrowings from revolving credit line and long-term debt 41,146 32,107
Repayments under revolving credit line and long-term debt (76,659) (30,329)
Reductions of long-term liabilities (37) (229)
Issuance of common stock, net 886 --
-------- --------
Net cash provided from (used for) financing activities (34,664) 1,549
Effect of exchange rates on cash (11) (3)
-------- --------
Net increase (decrease) in cash and cash equivalents $34,054 ($3,675)
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid $1,993 $2,178
======== ========
Taxes paid $43 $600
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED)
LIQUIDATION BASIS STATEMENTS
1. PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION:
On March 19, 1997, the shareholders of Noel Group, Inc. ("Noel")
approved a Plan of Complete Liquidation and Dissolution (the "Plan"), which was
adopted by Noel's Board of Directors on May 21, 1996. Under the Plan, 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.
As a result, Noel adopted the liquidation basis of accounting as of
March 31, 1997. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. See Note 2 for a specific discussion of the
methods used to determine estimated net realizable values of investments.
The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are substantial uncertainties in carrying
out the provisions of the Plan. The actual value of any liquidating
distributions will depend upon a variety of factors including, but not limited
to, the actual market prices of any securities distributed in-kind when they are
distributed, the actual proceeds from the sale of any of Noel's assets, the
ultimate settlement amounts of Noel's liabilities and obligations, actual costs
incurred in connection with carrying out the Plan, including administrative
costs during the liquidation period, the amount of income earned on Noel's cash
and cash equivalents and short-term investments during the liquidation period,
and the actual timing of distributions.
The valuations presented in the accompanying Statement of Net Assets in
Liquidation represent estimates, based on present facts and circumstances, of
the net realizable values of assets and costs associated with carrying out the
provisions of the Plan based on the assumptions set forth in the accompanying
notes. The actual values and costs are expected to differ from the amounts shown
herein and could be higher or lower than the amounts recorded. Accordingly, it
is not possible to predict the aggregate net values ultimately distributable to
shareholders and no assurance can be given that the amount to be received in
liquidation will equal or exceed the price or prices at which the Common Stock
has generally traded or is expected to trade in the future.
8
<PAGE>
<PAGE>
2. INVESTMENTS:
Investments are recorded at their estimated net realizable value in
liquidation. For investments where a public market exists, and the entity is
subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended, the estimated liquidation-basis amount is calculated by
multiplying the market price by the number of shares owned without adjustment
for whether the shares owned are registered for sale, any other restriction on
transfer, control premiums, or whether the market has sufficient liquidity to
support the sale of the volume of securities owned at the quoted prices.
This valuation may not be reflective of actual amounts obtained when and
if these investments are distributed or of prices that might be obtained in
actual future transactions. Because of the inherent uncertainty of the valuation
of securities both where a public market exists and where it does not exist, the
amounts shown may materially differ from actual amounts which may be received in
the future.
Noel's holding of the common shares of Carlyle Industries, Inc.
("Carlyle"), Lincoln Snacks Company ("Lincoln") and Staffing Resources, Inc.
("Staffing") are unregistered except for 421,000 shares of Lincoln which are
subject to restrictions under Rule 144.
HealthPlan Services Corporation ("HPS") and Carlyle trade on the New
York Stock Exchange under the symbols HPS and CRL, respectively. Lincoln trades
on the Nasdaq Stock Market's Small Cap Market under the symbol SNAX.
<TABLE>
<CAPTION>
Estimated Liquidation-
Common Price Per Basis Amount
Shares Share June 30,1997
------ ----- ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
HPS (a) 412,601 $ 18.875 $ 7,788
HPS (for Noel options and warrants) (b) 108,570 18.6875 2,029
Staffing (c) 2,026,104 11.000 22,287
Carlyle preferred stock (d) 22,343
Carlyle common stock (a) 2,205,814 2.125 4,687
Curtis Industries, Inc. (e) 18,456
Ferrovia Novoeste, S.A. (f) 8,000
Lincoln (a) 3,769,755 1.3125 4,948
Other holdings 1,741
----------
Estimated liquidation-basis amount $92,279
==========
</TABLE>
- -------------
9
<PAGE>
<PAGE>
(a) Recorded based on the closing price of the common stock on June 30,
1997. Using the closing market prices on August 7, 1997, these
investments would have been valued as follows (dollars in thousands
except per share amounts):
<TABLE>
<CAPTION>
Estimated
Closing Price Liquidation-Basis Amount
August 7, 1997 August 7, 1997
-------------- --------------
<S> <C> <C>
HPS $22.000 $9,077
Carlyle 2.000 4,412
Lincoln 1.125 4,241
</TABLE>
(b) Recorded based upon the market price on July 7, 1997, the date of the
settlement of Noel's options and warrants. (See Note 7).
(c) Recorded based upon Noel's review of the analysis completed by Staffing
and its independent advisors. This analysis determined Staffing's value
based upon actual and projected results in relation to comparable
companies. Compared to the quoted price on the limited trading market
for Staffing shares, Noel believes that, at the present time, this
analysis is a better estimate of the value in liquidation of its
Staffing shares at June 30, 1997, because the trading market for
Staffing is so limited, Staffing is not subject to periodic reporting
requirements under the Securities Exchange Act of 1934, as amended and
Noel's shares of Staffing are not registered to trade in this market.
This valuation may not be reflective of actual amounts obtained when and
if this investment is distributed or of prices that might be obtained
in an actual future transaction. The closing over-the-counter bid
price on June 30, 1997 and August 7, 1997, was $10.00 per common share
of Staffing.
(d) Recorded at the liquidation preference of the preferred shares which
includes accumulated, unpaid dividends of $3,031,000 through June 30,
1997. Noel management currently estimates that the Carlyle preferred
stock will be realized at its liquidation preference in connection with
the execution of the Plan. Realization of the liquidation preference is
dependent upon the preferred stock being redeemed by the issuer which
may take more than one year from the date the Plan was approved.
Carlyle is currently in default of its obligations to the holders of its
preferred stock to the extent of its legally available funds. Carlyle
expects to enter into discussions with Noel with a view to satisfying
its obligations to Carlyle's preferred stockholders in accordance with
the terms of its charter to the extent consistent with Carlyle's
resources. Carlyle may also enter into negotiations to modify the terms
of preferred stock, although Carlyle has not yet determined to do so. If
such negotiations are commenced, they may result in an acceleration of
the redemption of the preferred stock or other modifications to the
terms of the preferred stock.
10
<PAGE>
<PAGE>
Carlyle intends to fulfill its obligations to its preferred stockholders
as required by Carlyle's charter to the extent that Carlyle has cash
resources in excess of those required to operate its business. Carlyle
does not currently have such excess resources. Its ability to make
payments on its preferred stock obligations in the future will depend on
Carlyle's future cash flow, the timing of the settlement of its
liabilities, the outcome of the negotiations with Noel described above,
and the ability of Carlyle to obtain financing. In addition, as Carlyle
has agreed to notify the Pension Benefit Guarantee Corporation ("PBGC")
prior to making any dividend or redemption payments, Carlyle's decision
to make any such payments will depend on the successful resolution of
any issues which may arise with the PBGC relating to Carlyle's unfunded
liability to its defined benefit plan.
(e) Recorded at the liquidation preference of the Curtis Industries, Inc.,
("Curtis") preferred shares which includes accumulated, unpaid dividends
of $4,446,000 through March 31, 1997. Noel management currently
estimates that the Curtis preferred stock will be realized at its
liquidation preference, in connection with the execution of the Plan.
However, Curtis' loan covenants currently limit payments on the
preferred stock, including a mandatory redemption of principal and
accrued dividends of approximately $7,600,000 due on July 15, 1997.
Realization of the liquidation preference is dependent upon the
preferred stock being redeemed by Curtis which may take more than one
year from the date the Plan was approved. However, based on Curtis'
current financial position and results of operations, Noel management
believes that the loan restrictions will be satisfied and that the
liquidation value will be realized in a reasonable period of time from
the date the Plan was approved. There can be no assurance that a lesser
amount will not be realized. Curtis preferred stock is redeemable in
five equal annual installments commencing July 15, 1997. If Noel
management determines that cash realization in a shorter time frame is
financially prudent, a lesser amount may be realized. If it is not
possible to satisfy the loan restrictions in a reasonable period of
time from the date the Plan was approved, it is likely that a lesser
amount will be realized.
No value has been assigned to Noel's holding of approximately 62% of the
outstanding shares of Curtis common stock. Curtis has a history of
operating losses, the common stock has a negative book value, and there
is no public market for Curtis common stock. As a result of these
factors, management is unable to reliably estimate the value, if any, of
the Curtis common stock.
(f) Recorded at cost. This investment was made in March and June of 1996.
Ferrovia Novoeste, S.A., ("Novoeste") was organized to acquire a
railroad in Brazil via a privatization transaction. In the absence of a
ready market, Noel management believes that cost is the best indicator
of the value of this investment. Realization of this investment is
dependent upon establishing successful operations as a private company
in Brazil or a sale by Noel of its interest in Novoeste and is subject
to the risks of operations in Brazil, including foreign currency risks.
The actual amount realized for this investment could be lower or higher
than the amount recorded.
11
<PAGE>
<PAGE>
3. CHANGES IN NET ASSETS IN LIQUIDATION:
The changes in the estimated liquidation values of assets and
liabilities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997
------------------
<S> <C>
To adjust investments to estimated
liquidation value, net $4,545
To adjust estimated accrued expenses (429)
To adjust estimated income taxes (745)
To adjust other assets 4
-------
Total adjustments $3,375
=======
</TABLE>
4. INCOME TAXES:
The Income tax liability at June 30, 1997, reflects the liquidation
basis of accounting. The estimated tax liability reflects income taxes at a 35%
rate which would become payable if the assets were realized and liabilities
settled at the amounts shown. The estimate is subject to significant variation
if, among other things, the actual values of assets distributed or sold varies
from current estimates. The components of the income tax liability at June 30,
1997, are as follows (dollars in thousands):
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997
------------------
<S> <C>
Net unrealized capital loss $(6,392)
Net realized capital gain 23,166
Net operating loss carryforwards (3,284)
Net operating loss projected (3,106)
--------
Total income taxes $10,384
========
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses include estimates of costs to be incurred in carrying
out the Plan and provisions for known liabilities. These costs include a
provision for costs to be incurred in connection with the distribution and sale
of Noel's investments including legal and investment banking fees and salaries
and related expenses of officers and employees assigned to effect the sale or
distribution of specific investments.
The actual costs incurred could vary significantly from the related
accrued expenses due to uncertainty related to the length of time required to
complete the Plan, the exact method by which each of Noel's assets will be
realized and contingencies. Projected operating costs through the completion of
Noel's final liquidation are included in accrued expenses, net of estimated
interest income of $500,000 on Noel's cash and cash equivalents and short-term
investments. However, reductions in interest rates, the timing of future
distributions and other factors may reduce the amount of interest and investment
income such that an additional accrual for operating expenses may be required in
the future.
For the quarter ended June 30, 1997, the return on Noel's cash and
cash equivalents and short-term investments was exceeded by operating expenses
by $1,417,000. Noel's operating expenses for the quarter were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997
------------------
<S> <C>
Salaries and benefits $522
Rent and other office expenses 488
Insurance 687
Professional fees 177
------
$1,874
======
</TABLE>
6. ADJUSTMENTS FROM GOING-CONCERN TO LIQUIDATION BASIS OF ACCOUNTING:
<TABLE>
<S> <C>
Shareholders' equity at March 31, 1997, (Going-Concern Basis) $98,603
---------
To increase investments to estimated net realizable values 71,307
To increase liabilities to anticipated settlement amounts (8,939)
To adjust other assets (2,618)
---------
Total adjustments 59,750
---------
Net assets in liquidation at March 31, 1997 (Liquidation Basis) $158,353
=========
</TABLE>
7. OPTIONS AND WARRANTS:
At June 30, 1997, there were 2,840,107 options and warrants outstanding
for the purchase of Noel Common Stock.
13
<PAGE>
<PAGE>
The calculation of the net assets in liquidation per diluted share at
June 30, 1997, reflects the settlement and exercise of all of the outstanding
in-the-money options and warrants on July 7, 1997, as authorized by the Stock
Option and Compensation Committee of the Board of Directors. As a result of the
settlement and exercise of the options and warrants, Noel issued 146,718 shares
of Noel Common Stock, transferred 108,570 shares of HPS common stock, paid
$10,121,000 in cash for payroll taxes and settlement amounts and received
$722,000 in cash exercise proceeds. Noel's federal income tax benefit for the
compensation expense related to the settlement was $4,218,000.
8. COMMITMENTS AND CONTINGENCIES:
Certain of Noel's holdings are involved in various legal proceedings
generally incidental to their 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 Noel's financial position.
9. DISTRIBUTION:
Pursuant to the Plan, on April 25, 1997, Noel distributed 3,754,675
shares of HPS common stock valued at $14.375 per share for a total value of
$53,973,000 to shareholders of record on April 18, 1997. The distribution rate
was 0.1838631 share of HPS common stock per share of Noel Common Stock and the
value of the distribution was $2.64 per share of Noel Common Stock.
On the date of this distribution, Noel retained 521,171 shares of HPS
common stock, the pro rata number of HPS common shares which would have been
distributed had the outstanding options and warrants to purchase Noel Common
Stock been exercised prior to the record date of the distribution. The shares of
HPS common stock were retained for possible transfer to certain option and/or
warrant holders in connection with the exercise or settlement of the outstanding
options and warrants. The settlement of the outstanding options and warrants to
purchase Noel Common Stock on July 7, 1997, required 108,570 shares of HPS
common. The remaining 412,601 shares of HPS common stock will be either sold or
distributed to Noel shareholders.
GOING CONCERN BASIS STATEMENTS
10. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The consolidated financial statements 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
14
<PAGE>
<PAGE>
1996 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, Carlyle, Curtis, and Lincoln, after the elimination of
significant intercompany transactions.
SEASONALITY
The results of operations for the three months ended March 31, 1997, 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.
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
months ended March 31, 1997 and 1996, earnings per share is based on outstanding
shares since the effect of common stock equivalents is antidilutive.
11. SUBSIDIARIES AND INVESTMENTS:
On March 26, 1997, pursuant to an asset purchase agreement dated as of
December 12, 1996, Carlyle sold its thread division to Hicking Pentecost PLC for
aggregate cash consideration of approximately $54,900,000, of which
approximately $3,000,000 was placed in escrow subject to certain post-closing
adjustments. The loss on disposal on the sale of this division was $4,364,000.
In connection with this sale, Carlyle repaid all of its outstanding bank debt
using proceeds received in the transaction. No penalties were incurred by
Carlyle in connection with this prepayment. In addition, Carlyle will be
obligated to pay approximately $8,500,000 of income taxes related to the tax
gain resulting from this transaction. Nondeductible goodwill associated with the
thread division amounting to approximately $18,000,000 was written off as of the
date of sale.
On February 7, 1997, pursuant to an agreement dated December 18, 1996,
by and among Noel, Automated Data Processing, Inc. ("ADP") and HPS, Noel sold to
ADP 1,320,000 shares of common stock of HPS for an aggregate purchase price of
$26,400,000 in cash. Following the transaction, Noel's ownership percentage of
HPS dropped to approximately 26%.
15
<PAGE>
<PAGE>
Summarized income statement information for HPS for the three months
ended March 31, 1997 and 1996 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Revenue from services $73,593 $31,008
======= =======
Operating costs and expenses $67,355 $25,527
======= =======
Net income $2,799 $3,334
====== ======
</TABLE>
Summarized income statement information for Novoeste for the three
months ended March 31, 1997 is as follows (dollars in thousands):
<TABLE>
<S> <C>
Revenue $ 6,858
=======
Operating costs and expenses $ 7,877
=======
Net loss $(2,705)
=======
</TABLE>
Summarized income statement information for Staffing for the three
months ended March 31, 1997 is as follows (dollars in thousands):
<TABLE>
<S> <C>
Revenue $73,711
=======
Operating costs and expenses $74,370
=======
Net loss $(1,527)
=======
</TABLE>
16
<PAGE>
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Noel Group, Inc.
On June 30, 1997, Noel had cash and cash equivalents and short-term
investments of $32.1 million. The future cash needs of Noel will be dependent on
the implementation of the Plan. It is management's intention that Noel's
liquidity will be available to fund Noel's working capital requirements and to
meet its other obligations.
Pursuant to the Plan, subject to the payment or the provision for
payment of the Company's indebtedness and other obligations, the cash proceeds
of any asset sales together with other available cash will be distributed from
time to time pro rata to the holders of the Common Stock on record dates
selected by the Board of Directors with respect to each such distribution.
Noel believes that its cash and cash equivalents and short-term
investments are sufficient to fund its working capital requirements through the
completion of the Plan. Noel expects that its operating subsidiaries will be
able to meet their own working capital requirements, including debt service.
Subject to the restrictions set forth in the Plan, if an operating company
requires additional funding for the purpose of making an acquisition 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. Noel does not currently receive, nor expect to receive in the
immediate future, cash dividends from any of its subsidiaries. Except for
Carlyle Industries, Inc. ("Carlyle"), Noel's subsidiaries are currently
prohibited from paying dividends by existing borrowing agreements. Carlyle's
ability to pay dividends may be adversely affected by an agreement with the
Pension Benefit Guarantee Corporation, which requires at least 30 days advance
notice of any proposed dividend, stock redemption, stockholder buyback or other
distribution to shareholders at any time prior to March 31, 2002.
RESULTS OF OPERATIONS
General
The results of operations for the three months ended March 31, 1997, 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.
HealthPlan Services Corporation ("HPS"), Ferrovia Novoeste, S.A.
("Novoeste") and Staffing Resources, Inc. ("Staffing") have no impact on the
Company's liquidity and capital resources, since Noel has no obligation to fund
their operations and they do not anticipate paying cash dividends in the
foreseeable future. While these companies are included in the Company's
17
<PAGE>
<PAGE>
financial statements on the equity method of accounting, the Company will record
its proportional share of their income or loss. Noel's share of the income or
losses for HPS, Novoeste and Staffing for the three months ended March 31, 1997
were $1.0 million, $.9 million and $.4 million, respectively.
Noel and each of its subsidiaries file a separate federal income tax
return. As a result, the income tax provisions recorded by certain subsidiaries
cannot be offset by the losses reported by other entities on the Company's
consolidated financial statements.
THREE MONTHS ENDED MARCH 31, 1997 VERSUS MARCH 31, 1996
Sales decreased by $4.6 million to $38.5 million primarily due to
increased sales at Curtis Industries, Inc. ("Curtis") of $2.7 million offset by
decreased sales at Carlyle of $7.4 million. Cost of sales decreased by $3.9
million to $20.7 million from $24.6 million in 1996, primarily due to increased
cost of sales at Curtis of $1.5 million offset by decreased cost of sales at
Carlyle of $5.5 million. Selling, general, administrative and other expenses
increased by $.5 million to $17.2 million in 1997 from $16.7 million in 1996.
Other income increased by $16.6 million primarily due to a gain recognized by
Noel in 1997 on the sale of 1.3 million shares of HPS. Provision for income
taxes increased $9.8 million due to increased tax provisions at Noel and Carlyle
of $4.6 million and $5.2 million, respectively.
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 MARCH 31, 1997 VERSUS MARCH 31, 1996
INDUSTRIAL THREADS AND BUTTONS (CARLYLE)
As a result of the sale of Carlyle's thread division (See Note 10) on
March 26, 1997, only two months of operating results from Carlyle's thread
division are included in the first quarter results of operations in 1997 as
compared to three full months during this same period in 1996.
Sales during the first quarter of 1997 totaled $14.7 million as compared
with $22.0 million during the first quarter of 1996. Sales in the consumer
product segment decreased to $8.3 million as compared with $11.7 during the same
period in 1996. Sales in the industrial product segment totaled $6.3 million as
compared with $10.3 million during the first quarter of 1996. The decrease in
both segment's sales was attributable to the sale of the thread division.
18
<PAGE>
<PAGE>
The gross margin during the first quarter of 1997 totaled $4.2 million
or 29.0% as compared with $6.1 million or 27.7% during the first quarter of
1996. Gross margin in the consumer product segment totaled $3.1 million or 36.9%
as compared to $3.7 million or 31.5% in the first quarter of 1996. Gross margin
in the industrial product segment totaled $1.2 million or 18.5% during the first
quarter of 1997 as compared with $2.4 million or 23.4% during the first quarter
of 1996. The decrease in both segment's gross margin dollars was primarily
attributable to the sale of the thread division.
Selling, general, and administrative expenses totaled $2.6 million as
compared with $3.6 million during the same period in 1996. Selling, general, and
administrative expenses in the consumer product segment totaled $1.1 million
during the first quarter of 1997 as compared with $1.2 million during the first
quarter of 1996. Selling, general and administrative expenses in the industrial
product segment totaled $1.5 million during the first quarter of 1997 as
compared with $2.5 million during the first quarter of 1996. The decrease in
these expenses was primarily attributable to the sale of Carlyle's thread
division.
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 first quarter of 1997 increased $2.7 million or 15.8% to
$19.5 million from $16.8 million in the first quarter of 1996. Sales from the
Mechanics Choice division accounted for approximately $3 million of the
increase.
The gross margin percentage decreased to 64.6% in 1997 from 68.9% in
1996. Lower margins incurred by the Mechanics Choice division are responsible
for the majority of the first quarter decline.
For the first quarter of 1997, selling, general and administrative
expenses, net of the IRS settlement discussed below, increased $.9 million from
the comparable 1996 quarter. The majority of the first quarter increase is due
to the added selling and distribution costs of the Mechanics Choice division.
Following a field examination in 1995, the Internal Revenue Service
("IRS") alleged that as a result of certain tax law changes enacted in 1989 and
1991 Curtis' expense reimbursement policy for the field sales force did not meet
the definition of an accountable plan, and thus contended all reimbursed expense
for 1993 and 1994 should be treated as taxable wages. In April 1997, Curtis
reached a settlement with the IRS in connection with the expense reimbursement
policy requiring the payment of $1.0 million of taxes for 1993 through 1996. A
$.9 million charge to record this settlement, net of reserves, was recorded in
the first quarter of 1997.
19
<PAGE>
<PAGE>
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'r'
and Screaming Yellow Zonkers'r' ("the Products"). Under the agreement, Planters
is required to purchase a minimum number of cases during each year ending on
June 30.
On February 28, 1997, this agreement was amended, extending the term
until December 31, 1997, at which time the distribution arrangement will
terminate. Under the amendment, Lincoln will resume sales and distribution of
Screaming Yellow Zonkers on May 1, 1997. Although the amendment and extension
contain provisions designed to effect a smooth transfer of the distribution
business back to Lincoln, there can be no assurance as to the long-term effects
of this transition.
Sales of $4.3 million for the quarter ended March 31, 1997 were equal to
sales in the corresponding period of 1996. Sales to Planters represented
approximately 68% and 64% of sales for the quarter ended March 31, 1997 and
1996, respectively.
Gross profit decreased $.1 million to $.9 million for the three months
of 1997 versus $1.0 million in the corresponding period of 1996 due to the mix
of products sold.
Selling, general, and administrative expenses decreased approximately
13% or $.2 million to $.8 million in the quarter versus $1.0 million in the same
period in 1996. These expenses decreased during this period primarily due to
lower variable selling expenses relating to the mix of products sold.
20
<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, 1996.
Item 3. - Defaults upon Senior Securities
a) None
b) Noel is the holder of 19,312,837.5 shares (approximately 93%) of Series
B Preferred Stock of Carlyle. Carlyle is in default of its obligations
to the holders of such Preferred Stock to the extent of its legally
available funds. As of June 30, 1997, the accrued but unpaid dividends
amounted to $3,444,000.
Item 4. - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Meeting") was held on May 20,
1997. At the Meeting the shareholders voted upon the election of ten directors,
with all ten nominees being elected. The election of directors was the only
matter voted upon at the Meeting, with the votes being cast as set for the
below. No other director's term of office continued after the Meeting.
There were no abstentions and broker non-votes.
<TABLE>
<CAPTION>
Name Number of Votes For Number of Votes Withheld
- ---- ------------------- ------------------------
<S> <C> <C>
Livio M. Borghese 13,566,728 839,070
Joseph S. DiMartino 14,311,271 94,527
Vincent D. Farrell, Jr. 13,566,728 839,070
Herbert M. Friedman 14,307,583 98,215
James K. Murray, Jr. 14,310,883 94,915
James G. Niven 14,294,971 110,827
Samuel F. Pryor, III 14,289,883 115,915
Stanley R. Rawn, Jr. 14,307,583 98,215
James A. Stern 14,310,883 94,915
Edward T. Tokar 14,311,971 93,827
</TABLE>
21
<PAGE>
<PAGE>
Item 6. - Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Item No. Item Title Exhibit No.
- -------- ---------- -----------
<C> <S> <C>
(2) Plan of Complete Liquidation and Dissolution of Noel Group, Inc. (a)
(3) Articles of Incorporation and By-Laws.
(A) Certificate of Incorporation, as amended. (b)
(B) Composite copy of the Certificate of Incorporation, (c)
as amended.
(C) By-Laws, as amended and restated. (d)
(4) Instruments defining the rights of security holders, including
indentures.
(A) Excerpts from Certificate of Incorporation, as amended. (b)
(B) Excerpts from By-Laws, as amended and restated. (d)
(10) None.
(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) None.
(18) None.
(19) None.
(22) None.
(23) None.
(24) None.
(27) Financial Data Schedule.
(99) None.
</TABLE>
- -------------------------
22
<PAGE>
<PAGE>
(a) This exhibit was filed as an exhibit to Noel's Proxy Statement
for the Special Meeting of Shareholders held on March 19, 1997.
(b) These exhibits were filed as exhibits to Noel's Registration
Statement on Form S-1, Registration No. 33-44178, effective
January 29, 1992, and are incorporated herein by reference.
(c) This exhibit was filed as an exhibit to Noel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, and is
incorporated herein by reference.
(d) These exhibits were filed as exhibits to Noel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and are
incorporated herein by reference.
b) Reports on Form 8-K
A report on Form 8-K dated April 25, 1997 was filed on May 12, 1997,
reporting information with respect to Item 2 - "Acquisition or
Disposition of Assets", i.e., the distribution pro rata to its
shareholders by Noel of certain of its shares of common stock of
HealthPlan Services Corporation. The following financial statements and
pro forma financial information required by Item 7 of Form 8-K were
provided:
(a) Financial statements of business acquired: Not applicable.
(b) Pro Forma financial information:
Unaudited Pro Forma Statement of Net Assets in Liquidation as of
March 31, 1997.
Notes to Unaudited Pro Forma Financial Statements as of March 31,
1997.
Signature
NOEL GROUP, INC.
Date: August 14, 1997
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).
23
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as......................'r'
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0<F1>
<SECURITIES> 0<F1>
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 0<F1>
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 0<F1>
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0<F1>
<COMMON> 0<F1>
0<F1>
0<F1>
<OTHER-SE> 0<F1>
<TOTAL-LIABILITY-AND-EQUITY> 0<F1>
<SALES> 0<F2>
<TOTAL-REVENUES> 0<F2>
<CGS> 0<F2>
<TOTAL-COSTS> 0<F2>
<OTHER-EXPENSES> 0<F2>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> 0<F2>
<INCOME-TAX> 0<F2>
<INCOME-CONTINUING> 0<F2>
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 0<F2>
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>See June 30, 1997 Statement of Net Assets in Liquidation.
<F2>See June 30, 1997 Statement of Changes in Net Assets in Liquidation.
</FN>
</TABLE>
