SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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 0-23048
LINCOLN SNACKS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0758569
(State of incorporation) (I.R.S. Employer Identification No.)
30 Buxton Farm Road, Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 329-4545
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None Not applicable
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 par value per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant on September 11, 2000, was approximately $1,974,005. On such
date, the closing price of registrant's common stock was $2.094 per share.
Solely for the purposes of this calculation, shares beneficially owned by
directors, executive officers and stockholders of the registrant that
beneficially own more than 10% of the registrant's voting stock have been
excluded, except shares with respect to which such directors, officers and
10% beneficial owners disclaim beneficial ownership. Such exclusion should
not be deemed a determination or admission by the registrant that such
individuals are, in fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 11, 2000 was 6,331,790.
DOCUMENTS INCORPORATED BY REFERENCE:
The Company's definitive Proxy Statement to be issued in conjunction
with the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
This Annual Report on Form 10-K contains, in addition to historical
information, certain forward- looking statements regarding future financial
condition and results of operations. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions are intended to
identify forward-looking statements. Such statements involve certain risks
and uncertainties. Should one or more of these risks or uncertainties
materialize, actual outcomes may vary materially from those indicated.
PART I
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Item 1. Business
- ------- --------
(a) General Development of Business
-------------------------------
Lincoln Snacks Company ("Lincoln Snacks" or the "Company") is one of
the leading manufacturers and marketers in the United States and Canada of
caramelized pre-popped popcorn. The primary product line includes glazed
popcorn/nut mixes and sweet glazed popcorn sold under the brand names
Poppycock (Registered Trademark), Fiddle Faddle (Registered Trademark) and
Screaming Yellow Zonkers (Registered Trademark).
The Company was formed in August 1992, at which time the Company
acquired the business and certain assets of Lincoln Snacks Company, a
division of Sandoz Nutrition Corporation, an indirect subsidiary of the
Swiss-based drug, pharmaceutical and hospital care company, Sandoz Ltd. In
March 1993, Carousel Nut Company, a newly formed wholly owned subsidiary of
the Company ("Carousel"), acquired the business and certain assets of
Carousel Nut Products, Inc., a producer and marketer of roasted, dry
roasted, coated, raw and mixed nuts. In December 1993, Carousel was merged
with and into the Company, and the operations of Carousel were integrated
with the Company's plant in Lincoln, Nebraska in the first calendar quarter
of 1994. In March 1998, the Company acquired certain assets of Iroquois
Popcorn Company ("Iroquois"), a private label manufacturer of caramelized
popcorn. In June 1998, Brynwood Partners III, L.P. ("Brynwood") purchased a
controlling interest in the Company from Noel Group, Inc. ("Noel").
The Company markets its Poppycock, Fiddle Faddle and Screaming Yellow
Zonkers directly through independent brokers to grocery stores,
supermarkets, convenience stores, drug stores, mass merchandise outlets,
warehouse clubs, vending channels, military commissaries and other military
food outlets, and other retailers.
Planters Company, a unit of Nabisco, Inc. ("Planters"), exclusively
distributed the Company's Fiddle Faddle and Screaming Yellow Zonkers
products pursuant to a Distribution Agreement dated June 6, 1995 (the
"Distribution Agreement"), for an initial term which was originally
scheduled to expire on June 30, 1997. The Distribution Agreement required
Planters to purchase an annual minimum number of equivalent cases of Fiddle
Faddle and Screaming Yellow Zonkers during the initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement (the "Amendment"), which was further
modified on May 9, 1997 (the "Letter Agreement"), pursuant to which the
exclusive distribution arrangement with respect to the Company's Fiddle
Faddle product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated. Effective
January 1, 1998 and May 1, 1997, Planters ceased, and the Company resumed,
marketing and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to purchase a
specified number of manufactured cases of the Products and for Planters to
compensate the Company for the remaining contract minimums for the twelve
month period ended June 30, 1997. The Amendment and Letter Agreement
required Planters to compensate the Company for contract minimums for the
six month period ended December 31, 1997 (six month minimums). Planters
compensated the Company in fiscal year 1998 for contract minimums, which
were 27% less than case sales made to Planters for the six month period
ended December 31, 1996.
The Amendment required Planters to compensate the Company in the event
that certain sales levels were not achieved during the calendar year ending
December 31, 1997. These sales levels were not achieved during the calendar
year ending December 31, 1997 resulting in Planters compensating the Company
$1.9 million which is partially offset on the Company's Statement of
Operations by approximately $500,000 in non-recurring charges associated
with initial efforts to rebuild the Fiddle Faddle brand ("Net Planters Other
Income").
See Management's Discussion and Analysis of Financial Condition and
Results of Operations with respect to the transition of the Fiddle Faddle
distribution back to the Company.
(b) Financial Information about Industry Segments
---------------------------------------------
The Company is engaged principally in one line of business: the
manufacturing, marketing and distribution of pre-popped caramel popcorn.
(c) Narrative Description of Business
---------------------------------
Products
- --------
The Company manufactures and markets three nationally-recognized
branded products. Poppycock is a premium priced mixture of nuts and popcorn
in a deluxe buttery glaze. Fiddle Faddle is a more moderately priced brand
of popcorn and peanut clusters with a candied glaze; a fat free version of
Fiddle Faddle consists of popcorn with a caramel glaze. Screaming Yellow
Zonkers is produced by coating popcorn clusters with a sweet buttery glaze.
The Company also manufactures private label caramel popcorn.
Marketing, Sales and Distribution
- ---------------------------------
Lincoln Snacks' brands are broadly distributed through grocery stores,
supermarkets, convenience stores, drug stores, mass merchandise outlets,
warehouse clubs, vending channels, military commissaries and other military
food outlets, and other retailers. Selling responsibilities for Poppycock,
Fiddle Faddle, Screaming Yellow Zonkers and the nut products in the U.S. are
currently handled by four regional business managers located strategically
across the U.S. These regional business managers manage approximately 80
brokers across the U.S. in all classes of trade. These brokers receive a
commission on net sales plus incentive payments. Certain exports and large
volume customers are handled directly by Lincoln Snacks' personnel.
Pursuant to the Amendment, Lincoln Snacks resumed the sales and distribution
of its Fiddle Faddle product as of January 1, 1998.
Seasonality
- -----------
Sales of Lincoln Snacks' products are seasonal, peaking during the
third and fourth calendar quarters.
Competition
- -----------
Lincoln Snacks' primary products participate in the pre-popped caramel
popcorn segment of the snack food market. Poppycock competes with other
premium quality snack products, while Fiddle Faddle and Screaming Yellow
Zonkers compete directly with Crunch N' Munch (International Home Foods,
Inc., Food Division), Cracker Jack (Frito Lay, Inc.) Orville Redenbacher
(Hunt Wesson) and a number of other regional and local brands. The
Company's products also compete indirectly with traditional confections and
other snack food products.
Significant Customers
- ---------------------
In the fiscal years ended June 30, 2000, 1999 and 1998, the Company
made sales to Wal-Mart representing 40%, 33% and 12% of the Company's sales,
respectively. Although the Company believes its relationship with Wal-Mart
is good, the loss of such customer could have a material adverse effect on
the Company. In the fiscal year ended June 30, 1999, the Company copacked
product for Golden Valley Microwave Foods, which represented approximately
10% of fiscal 1999 net sales. Golden Valley Microwave Foods terminated the
copack agreement with the Company in the third quarter of fiscal 1999.
Raw Materials and Manufacturing
- -------------------------------
Substantially all of the raw materials used in Lincoln Snacks'
production process are commodity items, including corn syrup, butter,
margarine, brown and granulated sugar, popcorn, various nuts and oils.
These commodities are purchased directly from various suppliers. The
Company believes that such materials are in good supply and are available
from multiple sources.
The Company's manufacturing facility located in Lincoln, Nebraska
includes, among other things, continuous process equipment for enrobing
popcorn and nuts, as well as four distinct high speed filling and packing
lines for canisters, single serving packs and bag-in-box packages. The
manufacturing and packaging equipment is sufficiently flexible to allow for
the manufacture of other similar product lines or packaging formats. The
facility was operated during fiscal 2000 at an overall rate varying from
approximately 42% to 53% of capacity depending on the season. Lincoln
Snacks' management believes that the facility is generally in good repair
and does not anticipate capital expenditures other than normal maintenance
and selected equipment modernization programs.
Trademarks
- ----------
Poppycock, Fiddle Faddle and Screaming Yellow Zonkers are registered
trademarks of Lincoln Snacks. The Company believes all its trademarks enjoy
a strong market reputation denoting high product quality.
Governmental Regulation
- -----------------------
The production, distribution and sale of the Company's products are
subject to the Federal Food, Drug and Cosmetic Act; the Occupational Safety
and Health Act; the Lanham Act; various federal environmental statutes; and
various other federal, state and local statutes regulating the production,
packaging, sale, safety, advertising, ingredients and labeling of such
products. Compliance with the above described governmental laws and
regulations has not had and is not anticipated to have a material adverse
effect on the Company's capital expenditures, earnings or competitive
position.
Employees
- ---------
As of June 30, 2000, Lincoln Snacks had 82 full-time employees and no
part-time employees. Employment at the Lincoln plant varies according to
weekly and seasonal production needs, and averaged approximately 87
employees during fiscal 2000. None of Lincoln Snacks' work force is
unionized. Lincoln Snacks' management believes that Lincoln Snacks'
relationship with its employees is good.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
----------------------------------------------------------------------
Foreign operations accounted for less than 10% the Company's sales,
assets and net income in each of the Company's last three fiscal years.
Item 2. Properties.
- ------- -----------
The Company's principal executive offices are located at 30 Buxton
Farm Road, Stamford, Connecticut 06905. The initial term of the lease on
this space expires on March 31, 2006. The Company expects that it will be
able to obtain other satisfactory lease space upon expiration of the current
lease.
Lincoln Snacks manufactures and packages all of its products at its
owned Lincoln, Nebraska manufacturing facility. The Lincoln plant,
constructed in 1968, is a modern 74,000 square foot one-story building on a
10.75 acre site in a light industrial area in the city of Lincoln.
Approximately 67,000 square feet of the facility is dedicated to production
with the balance utilized for administration. In October 1996, the Company
sold land adjacent to its manufacturing facility in Lincoln, Nebraska. At
the same time, the Company entered into a ten year lease agreement for
50,000 square feet of a new warehouse which was constructed on the land.
This facility accommodates all of Lincoln Snacks' current warehousing needs.
The Company's lease on this facility expires in July 2006, and there is a
five year renewal option beyond 2006.
The Company believes its properties are sufficient for the current and
anticipated needs of its business.
Item 3. Legal Proceedings.
- ------- ------------------
The Company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not Applicable.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------- Matters.
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A. Market Information.
-------------------
The shares of Common Stock of the Company are traded on the OTC
Bulletin Board under the symbol "SNAX". The range of high and low reported
sales prices for the Common Stock as reported by NASDAQ for fiscal 1999 and
the first and second quarters of fiscal 2000 and as reported by the OTC
Bulletin Board for the third and fourth quarter of fiscal 2000 were as
follows:
Fiscal Year Fiscal Year
Ended Ended
June 30, 1999 June 30, 2000
------------- -------------
High Low High Low
First Fiscal Quarter $2.44 $1.09 $2.13 $1.03
Second Fiscal Quarter 1.88 1.19 1.75 0.50
Third Fiscal Quarter 1.50 0.88 1.88 0.13
Fourth Fiscal Quarter 1.38 1.00 2.13 0.44
- ----------------------
The public market for the Company's Common Stock is limited, and the
foregoing quotations should not be taken as necessarily reflective of prices
which might be obtained in actual market transactions or in transactions
involving substantial numbers of shares.
B. Holders.
--------
On September 11, 2000, as reported by the Company's transfer agent,
shares of Common Stock were held by 30 persons, based on the number of
record holders, including several holders who are nominees for an
undetermined number of beneficial owners.
C. Dividends.
----------
The Company has not declared or paid a cash dividend since its
inception, and its present policy is to retain any earnings for use in its
business. Payment of dividends is dependent upon the earnings and financial
condition of the Company and other factors which its Board of Directors may
deem appropriate. The Company expects to use any future earnings in its
operations and consequently does not intend to pay dividends on its Common
Stock in the foreseeable future.
Item 6. Selected Financial Data
- ------- -----------------------
(In thousands, except per share data)
12 Months 12 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
Statement of
Operations Data:
- ----------------
Net sales $23,846 $23,102 $24,278(F1) $27,081(F1) $29,703
Gross profit 6,621 7,576 8,872(F1) 9,167(F1) 11,174
Income (loss)
from operations 897 1,609 1,668(F2)(F3) (1,412)(F4)(F5) 1,041
Net income (loss) 511 1,443 1,667(F2)(F3) (1,378)(F4)(F5) 1,072
Basic net income (loss)
per common share $.08 $.23 $.26 $(.22) $.17
Diluted net income (loss)
per common share .08 .23 .26 (.22) .14
Weighted average number of
shares outstanding
Basic 6,335 6,332 6,332 6,332 6,332
Diluted 6,335 6,332 6,342 6,332 9,987
June 30, June 30, June 30, June 30, June 30,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital
(deficit) $(237) $2,042 $3,500 $8,356 $9,269
Total assets 13,979 13,290 16,073 19,753 20,901
Total long term debt 309 --- --- 5,000 5,000
Stockholders' equity 8,506 9,949 11,616 10,238 11,310
- ----------------
<FN>
(F1) The Planters Distribution Agreement was terminated on December 31,
1997. The financial impact of the termination of the Agreement on
Fiscal 1998 and 1999 versus Fiscal 1996 and Fiscal 1997 was an
increase in revenue and gross profit which were offset by increased
selling, distribution and marketing costs. Reference is made to
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(F2) Amount includes a non-recurring charge of $484,000 (or $.08 per share)
which represents severance and other compensation costs in connection
with the resignation of the Company's former Chairman and Chief
Executive Officer. All amounts were paid as of June 30, 1998.
(F3) Amount includes Net Planters Other Income of $1.4 million (or $.22 per
share) which represents Planters compensation of $1.9 million to the
Company for failing to achieve certain sales levels during the
calendar year ending December 31, 1997 which was partially offset by
approximately $.5 million in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand.
(F4) Amount includes a non-recurring charge of $287,000 (or $.05 per share)
which represents $177,000 of severance related to the Company's former
President and Chief Operating Officer, $50,000 of costs incurred
during the relocation of the Company's new Chief Executive Officer,
and $60,000 of severance related to former employees. All amounts
were paid as of June 30, 1999.
(F5) Amount includes a non-cash write down of $590,000 (or $.09 per share)
of nut division assets.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- Results of Operations
---------------------------------------------------------------
Introduction
- ------------
The Company's net sales are subject to significant seasonal variation,
with results from operations fluctuating due to these trends. This
seasonality is due to customers' buying patterns of Poppycock products
during the traditional holiday season. As a result, third and fourth
calendar quarter sales account for a significant portion of the Company's
annual sales.
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle Faddle and
Screaming Yellow Zonkers products (the "Products") pursuant to a
distribution agreement dated June 6, 1995 (the "Distribution Agreement") for
an initial term which was originally scheduled to expire on June 30, 1997.
The Distribution Agreement required Planters to purchase an annual minimum
number of equivalent cases of the Products during the initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement (the "Amendment"), which was further
modified on May 9, 1997 (the "Letter Agreement"), pursuant to which the
exclusive distribution arrangement with respect to the Company's Fiddle
Faddle product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated. Effective
January 1, 1998 and May 1, 1997, Planters ceased, and the Company resumed,
marketing and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to compensate the
Company for contract minimums for the six month period ended December 31,
1997 (six month minimums).
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar year
ending December 31, 1997. These sales levels were not achieved during the
calendar year ending December 31, 1997 resulting in Planters compensating
the Company $1.9 million which is partially offset on the Company's
Statement of Operations by approximately $500,000 in non-recurring charges
associated with initial efforts to rebuild the Fiddle Faddle brand ("Net
Planters Other Income"). Net sales to Planters were 9% of net sales for the
twelve months period ended June 30, 1998.
Under the Distribution Agreement, which required Planters to purchase
a minimum number of cases during the fiscal year, the Company sold the
Products to Planters at a selling price which was reduced from the Company's
historical customer selling prices. Planters in turn was responsible for
the sales and distribution of the Products to its customers. Therefore, the
Company did not have any selling, marketing or distribution costs associated
with these Products. The financial impact of results under the Distribution
Agreement during fiscal 1997 and 1998 versus historical results was
reflected in reductions in revenue and gross profit which were offset by
reduced selling, marketing and distribution costs.
Upon the termination of the Distribution Agreement on December 31,
1997, the Company resumed distribution of Fiddle Faddle at its historical
selling prices. The financial impact of the termination of the Distribution
Agreement versus the results under the Distribution Agreement was reflected
in an increase in revenue which was offset by increased selling, marketing
and distribution costs.
Twelve months ended June 30, 2000 versus June 30, 1999
- ------------------------------------------------------
Overall net sales increased 10% or $2.6 million to $29.7 million for
the twelve months ended June 30, 2000 versus $27.1 million in the
corresponding period of fiscal 1999. Branded sales increased to 77% of net
sales versus 69% a year ago and private label sales increased to 23% of net
sales versus 20% the same period last year. The Company has terminated its
contract manufacturing business, and as a result, copack sales represent 0%
of net sales versus 12% the same period last year.
Gross profit increased $2.0 million to $11.2 million for the twelve
months ended June 30, 2000 versus $9.2 million in the corresponding period
of 1999. The improvement in gross profit is due to increases in branded and
private label sales which have higher gross margins than copack sales.
Selling, general and administrative expenses increased 4% or $.4
million to $10.1 million for the twelve months ended June 30, 2000 versus
$9.7 million for the same period in 1999. The increase is primarily due to
variable selling costs associated with increases in branded sales, increases
in consumer marketing programs and slotting fees for new distribution of
branded products.
In fiscal 1999, the non-recurring charge of $.3 million represents $.2
million of severance related to the Company's former President and Chief
Operating Officer, $.05 million of costs incurred during the relocation of
the Company's new Chief Executive Officer and $.05 million of severance
related to former employees of the Company.
In fiscal 1999, management discontinued its nut product line which
consisted of honey roasted and dry roasted peanuts in canisters. Goodwill
of $.4 million relating to the nut product lines was written off. The
manufacturing equipment relating to the discontinued nut products was
written down to the expected liquidation value which resulted in a $.2
million charge.
Provision for income taxes represents estimated taxes due after giving
effect to the utilization of the Company's NOL carryforwards.
The net income of $1.1 million versus a net loss of $1.4 million in
the same period in 1999 represents an increase in earnings of $2.5 million.
The improvement in earnings is attributable to increases in branded and
private label sales, which were partially offset by higher marketing costs.
Additionally, the non-recurring charge and the nut division write-down
contributed to the loss in 1999.
Twelve months ended June 30, 1999 versus June 30, 1998
- ------------------------------------------------------
Overall net sales increased 12% or $2.8 million to $27.1 million for
the twelve months ended June 30, 1999 versus $24.3 million for the
corresponding period of 1998. The sales increase was attributable to higher
private label sales which were partially offset by declines in copack sales.
Branded sales increased in dollars while case sales declined due to the
Company resuming distribution of Fiddle Faddle at historical selling prices
which are higher than its selling prices to Planters during the same period
in fiscal 1998. The Planters Agreement was in effect from July 17, 1995 to
December 31, 1997, at which time the agreement terminated. Sales dollars of
branded products represent 69% and 76%, private label products of 19% and 6%
and copack products of 12% and 18% for the fiscal years ended June 30, 1999
and 1998, respectively.
During the twelve months ended June 30, 1998, the Company's sales to
Planters represented payments, in lieu of manufactured cases, at
predetermined rates which were lower than the Company's historical selling
rates. The Company's case sales of Fiddle Faddle declined during the twelve
months ended June 30, 1999 primarily due to the termination of the
Distribution Agreement. The decline in case sales was offset by a $2.0
million increase in Fiddle Faddle sales dollars due to the Company's
resumption of Fiddle Faddle distribution at historical selling prices which
are higher than its selling prices to Planters. The dollar increase in
sales is offset by increases in cost of sales and variable selling costs
relating to the Company's resumed distribution of Fiddle Faddle. Net sales
to Planters were 9% of net sales for the twelve months ended June 30, 1998.
As part of its business, the Company copacked products for other
entities. One of its copack customers, which accounted for approximately
10% and 18% of the Company's net sales during the twelve months ended June
30, 1999 and 1998, respectively, terminated its copack agreement with the
Company.
Gross profit increased 3% or $.3 million to $9.2 million for the
twelve months ended June 30, 1999 versus $8.9 million in the corresponding
period of 1998. The increase is due to higher private label case sales
which were partially offset by declines in branded and copack case sales.
Selling, general and administrative expenses increased 20% or $1.6
million to $9.7 million for the twelve months ended June 30, 1999 versus
$8.1 million for the same period in 1998. This increase was primarily due
to increases in selling costs associated with the Company's resumption of
the marketing and distribution of the Fiddle Faddle business, an increase in
marketing costs associated with development of new products, and an increase
in selling overhead.
The non-recurring charge of $.3 million represents $.2 million of
severance related to the Company's former President and Chief Operating
Officer, $.05 million of costs incurred during the relocation of the
Company's new Chief Executive Officer and $.05 million of severance related
to former employees. All amounts were paid as of June 30, 1999.
The Company discontinued its nut division operations during the fiscal
quarter ended December 31, 1998. Management determined that the nut
division product lines were no longer viable because of continued sales
declines resulting from increased competitive activity. Nut division sales
were $.1 million and $1.0 million for the twelve months ended June 30, 1999
and 1998, respectively.
As a result, all of the goodwill related to the nut division ($.4
million) was written off. Similarly, manufacturing equipment (book value of
$.3 million) was written down to $50,000, the expected liquidation value.
The write-downs of goodwill and manufacturing equipment comprise the "Nut
Division Write-Down" of $.6 million in the statement of operations. The
equipment was sold during fiscal 2000 with no additional charges with
respect to the discontinuance of nut division operations.
The nut division's operating loss, excluding the "nut division write-
down" was $28,000 including depreciation of $29,000 and goodwill
amortization of $8,000 for the twelve months ended June 30, 1999. The nut
division's operating loss was $6,000 including depreciation of $64,000 and
goodwill amortization of $15,000 for the twelve months ended June 30, 1998.
In fiscal 1998, the Company recognized Net Planters Other Income of
$1.4 million which represents Planters compensation of $1.9 million to the
Company for failing to achieve certain sales levels during the calendar year
ended December 31, 1997 which was partially offset by approximately $.5
million in non-recurring charges associated with initial efforts to rebuild
the Fiddle Faddle brand.
The net loss of $1.4 million versus a profit of $1.7 million in the
same period in 1998 represents a decrease in earnings of $3.0 million. The
earnings decline is primarily attributable to lower branded case sales, an
increase in marketing costs associated with the development of new products
and an increase in selling overhead. Additionally, there were several non-
recurring items contributing to the earnings decline: Net Planters Other
Income of $1.4 million recognized in fiscal 1998, the Nut Division write-
down of $.6 million, and the non-recurring charge of $.3 million.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 2000, the Company had working capital of $9.3 million
compared with a working capital of $8.4 million at June 30, 1999, an
increase of $.9 million. The increase in working capital is attributable to
the increase in net income.
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture (the "Debenture") in favor of Brynwood Partners III
L.P., ("Brynwood III"), in the principal amount of $5,000,000. The
Debenture bears interest at the rate of 6% per annum, matures on December
31, 2001 and is convertible, at the option of Brynwood III, into shares of
Common Stock of the Company at any time after a Convertability Event (as
defined in the Debenture). The note is convertible at $1.37 per share into
shares of common stock.
The Company currently meets its short-term liquidity needs from its
cash on hand. The Company also has a revolving credit facility which is
secured by a first priority, perfected security interest in substantially
all of the Company's existing and after-acquired assets. There were no
amounts outstanding under the revolving credit facility at June 30, 2000.
Management continues to focus on increasing product distribution and
continues to review all operating costs with the objective of increasing
profitability and ensuring future liquidity. However, there can be no
assurance that any of these objectives will be achieved in future periods.
The Company's short-term liquidity is affected by seasonal increases
in inventory and accounts receivable levels and seasonality of sales.
Inventory and accounts receivable levels increase substantially during the
latter part of the third calendar quarter and during the remainder of the
calendar year.
The Company has approximately $2.4 million in NOL carryforwards. A
valuation allowance has been recorded due to the uncertainty of realizing
certain loss carryforwards and other deferred tax assets because of the
Company's brief operating history and limitations on the ability to use the
carryforwards resulting from Brynwood's purchase in 1998.
The following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as indicated.
Twelve Months Ended
(in thousands)
----------------------------------------------
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
Cash provided by
(used in) operating
activities $3,863 $(1,404) $3,508
Cash provided by
(used in) investing
activities (913) (207) (1,222)
Cash provided by
(used in) financing
activities -- 4,667 (167)
Twelve months ended June 30, 2000 versus June 30, 1999
- ------------------------------------------------------
Cash provided by operating activities increased to $3.9 million during
the twelve months ended June 30, 2000 compared to cash used in operating
activities of $1.4 million in 1999. The increase in cash provided by
operating activities is primarily due to the increase in the Company's net
profit coupled with the timing of accounts receivable and accounts payable.
Net cash used in investing activities of $.91 million during the
twelve months ended June 30, 2000 is comprised of a $.2 million acquisition
payment for Iroquois and $.7 million of capital expenditures. Net cash used
in investing activities of $.2 million for the twelve months ended June 30,
1999 represents capital expenditures.
Net cash provided by financing activities of $4.7 million for the
period ended June 30, 1999 consisted of $5.0 million of proceeds from the
Brynwood convertible debenture partially offset by $.3 million of payments
under the short term note relating to the Iroquois acquisition.
Twelve months ended June 30, 1999 versus June 30, 1998
- ------------------------------------------------------
Cash used in operating activities increased to $1.4 million during the
twelve months ended June 30, 1999 compared to cash provided by operating
activities of $3.5 million in 1998. The increase in cash used in operating
activities is primarily due to the decrease in the Company's net profit
coupled with the timing of accounts receivable.
Net cash used in investing activities of $.2 million during the twelve
months ended June 30, 1999 represents capital expenditures. Net cash used
in investing activities of $1.2 million for the twelve months ended June 30,
1998 is primarily comprised of the $.8 million acquisition of certain assets
of Iroquois and $.4 million in capital expenditures.
Net cash provided by financing activities for the period ended June
30, 1999 was $4.7 million, which consisted of $5.0 million proceeds from the
Brynwood convertible debenture partially offset by $.3 million of payments
under the short term note relating to the Iroquois acquisition. Net cash
used in financing activities for the period ended June 30, 1998 represents
payments under the short term note relating to the Iroquois acquisition.
New Accounting Pronouncements Not Yet Effective
- -----------------------------------------------
In July 2000, the Financial Accounting Standards Board's Emerging
Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting
for Certain Sales Incentives." This issue addresses the recognition,
measurement, and income statement classification for various types of sales
incentives including discounts, coupons, rebates and free products. The
Company will adopt this consensus in the second quarter of 2001. While the
impact of this consensus on the Company's financial statements is still
being evaluated, it is expected to only impact revenue and expense
classifications and not change reported net income.
Y2K Disclosure
- --------------
The Company implemented a formal plan to address issues associated
with the Year 2000 as it related to its critical management information
systems hardware and software, as well as its other systems that are
dependent on microprocessor components. Additionally, the Company
implemented a formal program to address such issues with respect to its
suppliers, customers and other business partners. The Company experienced
no significant problems as January 1, 2000 passed, and is not aware of any
problems experienced by such third parties. The total cost for achieving
compliance including hardware and software updates was not material.
Although the transition to the Year 2000 did not have any significant
impact on the Company or its reporting systems and operations, the Company
will continue to assess the impact of the Year 2000 transition on its
systems and those of its suppliers, customers and other business partners.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------- ---------------------------------------------------------
Not Applicable
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The financial information required by Item 8 is included elsewhere in
this report. See Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- Financial Disclosure
---------------------------------------------------------------
None.
PART III
---------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 11. Executive Compensation
- -------- ----------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
PART IV
--------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) (1) Financial Statements.
---------------------
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this annual report.
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(2) Exhibits.
The exhibits listed in the accompanying Index of Exhibits.
(b) Reports on Form 8-K.
--------------------
None
SIGNATURES
------------
Pursuant to the requirements of Section 13 or 15(d) 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.
LINCOLN SNACKS COMPANY
(Registrant)
By: /s/ Hendrik J. Hartong III
-----------------------------
Hendrik J. Hartong III
Director, President and Chief
Executive Officer
Date: September 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Hendrik J. Hartong III September 22, 2000
- ----------------------------------------
Hendrik J. Hartong III
Director, President and Chief Executive
Officer
/s/ Kristine A. Crabs September 22, 2000
- ----------------------------------------
Kristine A. Crabs
Vice President and Chief Financial Officer,
Secretary and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
/s/ Hendrik J. Hartong, Jr. September 22, 2000
- ----------------------------------------
Hendrik J. Hartong, Jr.
Director
/s/ John T. Gray September 22, 2000
- ----------------------------------------
John T. Gray
Director
/s/ C. Alan MacDonald September 22, 2000
- ----------------------------------------
C. Alan MacDonald
Director
/s/ Ian B. MacTaggart September 22, 2000
- ----------------------------------------
Ian B. MacTaggart
Director
/s/ Robert Zwartendijk September 22, 2000
- ----------------------------------------
Robert Zwartendijk
Director
LINCOLN SNACKS COMPANY
------------------------
INDEX TO FINANCIAL STATEMENTS
------------------------------
Financial Statements: Page(s)
- --------------------- -------
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 2000 and 1999 F-2 to F-3
Statements of Operations for the Years Ended
June 30, 2000, 1999 and 1998 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 2000, 1999 and 1998 F-5
Statements of Cash Flows for the Years Ended
June 30, 2000, 1999 and 1998 F-6 to F-7
Notes to Financial Statements F-8 to F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Lincoln Snacks Company:
We have audited the accompanying balance sheets of Lincoln Snacks Company (a
Delaware corporation) as of June 30, 2000 and 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows
for the years ended June 30, 2000, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lincoln Snacks Company
as of June 30, 2000 and 1999, and the results of its operations and its cash
flows for the years ended June 30, 2000, 1999 and 1998 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 1, 2000
F-1
LINCOLN SNACKS COMPANY
----------------------
BALANCE SHEETS
---------------
ASSETS
-------
June 30, June 30,
2000 1999
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash $ 9,731,679 $ 6,781,556
Accounts receivable, net of
allowances for doubtful accounts
and cash discounts of $396,326
and $384,875 1,527,740 3,304,003
Inventories 2,522,311 2,682,434
Prepaid and other current assets 946 13,696
----------- -----------
Total current assets 13,782,676 12,781,689
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,792,352 1,789,809
Machinery and equipment 4,856,937 4,714,683
Construction in process 507,848 100,044
----------- -----------
7,527,137 6,974,536
Less-accumulated depreciation (3,797,491) (3,349,176)
----------- -----------
3,729,646 3,625,360
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of
$1,135,522 and $937,123 3,388,735 3,346,359
----------- -----------
Total assets $20,901,057 $19,753,408
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-2
LINCOLN SNACKS COMPANY
-----------------------
BALANCE SHEETS
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
June 30, June 30,
2000 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 770,851 $ 674,388
Accrued expenses 1,741,319 1,677,855
Accrued trade promotions 1,988,394 2,059,854
Deferred gain (Note 10) 13,434 13,434
----------- -----------
Total current liabilities 4,513,998 4,425,531
LONG TERM DEBT (Note 7) 5,000,000 5,000,000
DEFERRED GAIN (Note 10) 77,019 89,941
----------- -----------
Total liabilities 9,591,017 9,515,472
----------- -----------
COMMITMENTS (Notes 8 and 11)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 outstanding at June 30,
2000 and 1999 64,501 64,501
Special stock, $0.01 par value,
300,000 shares authorized,
none outstanding -- --
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit (6,739,072) (7,811,176)
----------- -----------
11,336,066 10,263,962
Less - cost of common stock in
treasury; 118,300 shares
at June 30, 2000 and 1999 (26,026) (26,026)
----------- -----------
Total stockholders' equity 11,310,040 10,237,936
----------- -----------
Total liabilities and
stockholders' equity $20,901,057 $19,753,408
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-3
LINCOLN SNACKS COMPANY
-----------------------
STATEMENTS OF OPERATIONS
--------------------------
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
2000 1999 1998
----------- ----------- -----------
NET SALES $29,702,542 $27,080,509 $24,277,772
COST OF SALES 18,528,633 17,913,770 15,405,319
Gross profit 11,173,909 9,166,739 8,872,453
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,132,943 9,701,671 8,096,238
NON-RECURRING CHARGE (Note 13) -- 286,633 484,388
NUT DIVISION WRITE DOWN (Note 12) -- 590,459 --
NET PLANTERS OTHER INCOME
(Note 17) -- -- (1,376,000)
----------- ----------- -----------
Income (loss) from
operations 1,040,966 (1,412,024) 1,667,827
OTHER:
Interest income, net 108,760 78,136 128,452
Other expense (17,622) -- (19,441)
----------- ----------- -----------
Income (loss) before
provision for income taxes 1,132,104 (1,333,888) 1,776,838
PROVISION FOR INCOME TAXES 60,000 44,000 110,000
----------- ----------- -----------
Net income (loss) $ 1,072,104 $(1,377,888) $ 1,666,838
=========== =========== ===========
BASIC NET INCOME (LOSS)
PER SHARE (Note 2) $ .17 $ (.22) $ .26
=========== =========== ===========
DILUTED NET INCOME (LOSS)
PER SHARE (Note 2) $ .14 $ (.22) $ .26
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic 6,331,790 6,331,790 6,331,790
=========== =========== ===========
Diluted 9,987,223 6,331,816 6,341,804
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
F-4
LINCOLN SNACKS COMPANY
------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------
Additional
Common Special Paid-in Accumulated Treasury
Stock Stock Capital (Deficit) Stock
-------- ------- ----------- ------------ ---------
June 30, 1997 $ 64,501 $ -- $18,010,637 $ (8,100,126) $ (26,026)
Net income -- -- -- 1,666,838 --
-------- ------- ----------- ------------ ---------
June 30, 1998 64,501 -- 18,010,637 (6,433,288) (26,026)
Net (loss) -- -- -- (1,377,888) --
-------- ------- ----------- ------------ ---------
June 30, 1999 64,501 -- 18,010,637 (7,811,176) (26,026)
Net income -- -- -- 1,072,104 --
-------- ------- ----------- ------------ ---------
June 30, 2000 $64,501 $ -- $18,010,637 $ (6,739,072) $ (26,026)
======== ======= =========== ============ =========
The accompanying notes to financial statements
are an integral part of these statements.
F-5
LINCOLN SNACKS COMPANY
-----------------------
STATEMENTS OF CASH FLOWS
--------------------------
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,072,104 $(1,377,888) $ 1,666,838
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 615,724 671,546 645,305
Amortization 198,399 192,356 159,856
Nut division write down -- 590,459 --
Loss on sale of equipment 17,622 -- 19,441
Provision for doubtful
accounts and cash
discounts, net 11,450 62,367 39,198
Changes in assets and liabilities:
(Increase) decrease in
accounts receivable 1,764,813 (1,662,942) 686,620
(Increase) decrease in
inventories 160,123 (319,147) (460,182)
(Increase) decrease in
prepaid and other assets (53,025) 47,861 (32,534)
Increase (decrease) in
accounts payable 96,463 (523,056) (159,726)
Increase (decrease) in
accrued trade promotions (71,460) 631,185 753,084
Increase (decrease) in
accrued expenses 50,542 283,004 190,406
----------- ----------- -----------
Net cash provided by
(used in) operating
activities 3,862,755 (1,404,255) 3,508,306
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition payment $ (175,000) $ -- $ (800,160)
Capital expenditures (807,365) (207,256) (488,782)
Proceeds from sale of
fixed assets 69,733 -- 67,346
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (912,632) (207,256) (1,221,596)
----------- ----------- -----------
F-6
LINCOLN SNACKS COMPANY
-----------------------
STATEMENTS OF CASH FLOWS
--------------------------
(Continued)
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under note
payable $ -- $ (333,333) $ (166,667)
Borrowings from Brynwood
note -- 5,000,000 --
----------- ----------- -----------
Net cash provided by
(used in) financing
activities -- 4,666,667 (166,667)
----------- ----------- -----------
Net increase in cash 2,950,123 3,055,156 2,120,043
CASH, beginning of period 6,781,556 3,726,400 1,606,357
----------- ----------- -----------
CASH, end of period $ 9,731,679 $ 6,781,556 $ 3,726,400
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 302,236 $ 86,353 $ 13,010
=========== =========== ===========
Income taxes paid $ 73,550 $ 37,174 $ 105,672
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
F-7
LINCOLN SNACKS COMPANY
----------------------
NOTES TO FINANCIAL STATEMENTS
------------------------------
(1) The Company:
------------
Lincoln Snacks Company ("Lincoln" or the "Company"), formerly Lincoln
Foods Inc., is a Delaware corporation and is a majority-owned
subsidiary of Brynwood Partners III, L.P. ("Brynwood"). Prior to June
1998, the Company was a majority-owned subsidiary of Noel Group, Inc.
("Noel"). Lincoln is engaged in the manufacture and marketing of
caramelized pre-popped popcorn and glazed popcorn/nut mixes primarily
throughout the United States and Canada. Sales of the Company's
products are subject to seasonal trends with a significant portion of
sales occurring in the third and fourth quarter of the calendar year.
(2) Summary of Significant Accounting Policies:
-------------------------------------------
Use of estimates-
-----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Revenue recognition-
--------------------
Revenue is recognized by the Company when products are shipped and
title passes to the customer.
Advertising and promotion-
--------------------------
Advertising costs are expensed in the period in which the related
advertisements occur. The estimated cost of the total ultimate
redemptions of various coupon programs are expensed immediately at
the time a coupon program is distributed to the public.
Inventories-
------------
Inventories, which include material, labor and manufacturing
overhead, are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
Impairment of long-lived assets-
--------------------------------
The Company follows the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
This statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In general,
this statement requires recognition of an impairment loss when the
sum of undiscounted expected future cash flows is less than the
carrying amount of such assets. The measurement for such impairment
loss is then based on the fair value of the asset.
The Company periodically reviews the carrying value of its long
lived assets including property, plant, and equipment and intangible
and other assets, in order to determine whether an impairment in the
value of its long-lived assets may exist. The Company considers
relevant cash flow, estimated future operating results, trends,
management's strategic plans, competition, and other available
information, in assessing whether the carrying value of the assets
can be recovered. Except for the long lived assets discussed in
Note 12, the Company has determined that there has been no further
impairment in its long lived assets as of June 30, 2000.
Property, plant and equipment-
------------------------------
Property, plant and equipment is stated at cost and is depreciated
on the straight-line method based upon the estimated useful lives of
the assets. The estimated useful lives of assets are as follows:
Building and leasehold improvements 10-30 years
Machinery and equipment 3-10 years
Furniture and fixtures 7-10 years
Expenditures for maintenance and repairs are charged against income
as incurred. Significant expenditures for betterments are
capitalized. Capital expenditures which are not able to be put into
use immediately are included in construction in process. As these
programs are completed, they are transferred to depreciable assets.
Intangible assets-
------------------
Intangible assets are carried at cost, less accumulated amortization
which is calculated on a straight-line basis over the estimated
useful lives as follows:
Excess of purchase price over net assets acquired 10-30 years
Intellectual property and other 1-20 years
The Company believes no impairment of intangible assets exists at
June 30, 2000.
Income taxes-
-------------
The Company follows SFAS No. 109, "Accounting for Income Taxes",
under which deferred income taxes are determined based on the
differences between the financial statement and tax bases of assets
and liabilities using presently enacted tax rates and regulations.
The Company does not believe that it is more likely than not that
the Company's deferred tax assets will be utilized and accordingly, a
valuation allowance is required.
Net income per share-
---------------------
The Company follows the provisions of SFAS No. 128. This statement
establishes standards for computing and presenting basic and diluted
earnings per share.
Below is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
June 30, June 30, June 30,
2000 1999 1998
---------- ---------- ----------
Basic earnings per share
weighted average number of
shares outstanding 6,331,790 6,331,790 6,331,790
Dilutive effect:
Stock options 5,798 26 10,014
Convertible debt 3,649,635 -- --
----------- ----------- -----------
Diluted earnings per share
weighted average number of
shares outstanding 9,987,223 6,331,816 6,341,804
=========== =========== ===========
Net Income (loss) $ 1,072,104 $(1,377,888) $ 1,666,838
Effect of assumed conversion of
convertible debt $ 288,000 -- --
----------- ----------- -----------
Net income (loss) plus assumed
conversion of convertible debt $ 1,360,104 $(1,377,888) $ 1,666,838
=========== =========== ===========
Basic earnings (loss) per share $ .17 $(.22) $ .26
=========== =========== ===========
Diluted earnings (loss) per share $.14 $(.22) $ .26
=========== =========== ===========
Options to purchase 23,000 shares of common stock were outstanding
at June 30, 2000 and included in the computation of diluted earnings
per share for the twelve months ended June 30, 2000. Additional
options to purchase approximately 735,500 shares of common stock
were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average
market price of the common shares. In addition, diluted earnings
per share reflect the issuance of 3,649,635 shares upon the assumed
conversion of the Brynwood debenture (see Note 5).
Options to purchase approximately 519,750 shares of common stock
were outstanding at June 30, 1999 but were not included in the
computation of diluted earnings per share as the effect would be
anti-dilutive for the twelve months ended June 30, 1999. In
addition, the issuance of 3,649,635 shares upon the assumed
conversion of the Brynwood debenture (see Note 5) were not included
in the computation of diluted earnings per share as the effect would
be anti-dilutive.
Options to purchase 65,329 shares of common stock were outstanding
at June 30, 1998 and included in the computation of diluted earnings
per share for the twelve months ended June 30, 1998. Additional
options and warrants to purchase approximately 812,221 shares of
common stock were not included in the computation of diluted
earnings per share because the effect would be anti-dilutive.
New Accounting Pronouncements Not Yet Effective
-----------------------------------------------
In July 2000, the Financial Accounting Standards Board's Emerging
Issues Task Force (EITF) reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives." This issue addresses the
recognition, measurement, and income statement classification for
various types of sales incentives including discounts, coupons,
rebates and free products. The Company will adopt this consensus in
the second quarter of 2001. While the impact of this consensus on
the Company's financial statements is still being evaluated, it is
expected to only impact revenue and expense classifications and not
change reported net income.
(3) Balance Sheet Components:
-------------------------
The components of certain balance sheet accounts are as follows:
June 30, June 30,
2000 1999
----------- -----------
Inventories-
------------
Raw and packaging materials $ 1,686,028 $ 1,828,542
Finished goods 836,283 853,892
----------- -----------
$ 2,522,311 $ 2,682,434
=========== ===========
Intangible and other assets-
----------------------------
Excess of purchase price over
net assets acquired $ 4,302,631 $ 4,127,631
Intellectual property and other 170,697 155,851
Deferred Financing Costs 50,929 --
----------- -----------
4,524,257 4,283,482
Less: accumulated amortization (1,135,522) (937,123)
----------- -----------
Intangible assets, net $ 3,388,735 $ 3,346,359
=========== ===========
(4) Income Taxes:
-------------
The income tax provisions for the years ended June 30, 2000, 1999 and
1998 consist primarily of state taxes and federal alternative minimum
taxes.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
June 30, June 30, June 30,
2000 1999 1998
---------- ---------- ----------
Statutory federal income
(benefit) tax rate 34.0% (34.0)% 34.0%
State income and franchise
taxes, net of federal benefit 2.8 2.1 2.9
Utilization of loss
carryforwards, net (31.9) -- (31.1)
Losses and temporary differences
not benefited -- 34.9 --
Non-deductible meals and
entertainment 0.4 0.3 0.4
---------- ---------- ----------
Effective income tax rate 5.3% 3.3% 6.2%
========== ========== ==========
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
June 30, June 30, June 30,
2000 1999 1998
----------- ----------- -----------
Net operating loss
carryforward $ 954,000 $ 1,370,000 $ 1,386,000
Depreciation and amortization (783,000) (772,000) (985,000)
Accrued expenses not yet
deductible 867,000 915,000 660,000
All other 505,000 619,000 456,000
----------- ----------- -----------
Net deferred tax asset
unrecognized 1,543,000 2,132,000 1,517,000
Less: valuation reserve 1,543,000 (2,132,000) (1,517,000)
----------- ----------- -----------
Net deferred tax asset
recognized $ -- $ -- $ --
=========== =========== ===========
At June 30, 2000, the Company had a pre-tax net operating loss
carryforward ("NOLs") for income tax purposes, subject to Internal
Revenue Service review, of approximately $2,385,000 which expire in
2009 through 2019 if not utilized. The above NOLs include those NOLs
generated subsequent to deconsolidating from Noel in 1994.
A valuation allowance has been recorded due to the uncertainty of
realizing certain loss carryforwards and other deferred tax assets
because of the Company's brief operating history and the annual
limitation on the amount of NOLs that can be used following the
Brynwood purchase discussed below.
Under section 382 of the Internal Revenue Code, if the Company
undergoes an ownership change, the amount of its pre-change losses
that may be utilized to offset future taxable income generally will be
subject to an annual limitation. In general, the annual limitation
would be based on the fair market value of the Company's outstanding
stock immediately before the ownership change and multiplied by the
adjusted Federal long-term interest rate in effect for the month in
which the ownership change occurs. Any unused portion of the annual
limitation would be available in subsequent years.
On June 8, 1998, the Company underwent an ownership change as a result
of the acquisition of Noel's interest in the Company by Brynwood. As
a result of the ownership change, utilization of the Company's NOL
will be subject to an annual limitation of approximately $650,000.
(5) Stock Options:
--------------
In November 1993, the Company adopted the 1993 Stock Option Plan and
the Non-Employee Directors' Stock Option Plan. A total of 1,050,000
shares of common stock are reserved for issuance under the 1993 Stock
Option Plan, as amended, and 200,000 shares of common stock are
reserved for issuance under the Non-Employee Directors' Stock Option
Plan. The Company has granted options to purchase 678,500 shares and
80,000 shares, respectively, through June 30, 2000. Under both Plans,
the option exercise price equals the stock's market price on date of
grant. The 1993 Stock Option Plan options normally vest 20% annually
over a five year period. The Non-Employee Director's Stock Option
Plan options vest immediately upon grant. All options expire ten
years from date of grant. The Company accounts for these plans under
APB Opinion No. 25, under which no compensation cost has been
recognized.
Under the Non-Employee Directors' Stock Option Plan, each individual
subsequently elected to the Board of Directors who is not an employee
of the Company will receive a grant of stock options covering 20,000
shares of common stock, with an exercise price equal to the fair
market value of a share of common stock as of the date of grant. In
addition, each non-employee director of the Company will receive a
stock option covering 5,000 shares of common stock immediately
following each annual meeting of stockholders of the Company during
the ten-year term of the Non-Employee Directors' Stock Option Plan,
with an exercise price equal to the fair market value of a share of
common stock as of the date of grant.
Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the following pro forma amounts:
June 30, June 30, June 30,
2000 1999 1998
----------- ----------- -----------
Net income (loss):
As reported $ 1,072,104 $(1,377,888) $ 1,666,838
Pro forma $ 992,801 $(1,492,331) $ 1,218,607
Basic net income (loss) per share:
As reported $.17 $(.22) $.26
Pro forma $.16 $(.24) $.19
Diluted net income (loss) per share:
As reported $.14 $(.22) $.26
Pro forma $.13 $(.24) $.19
Because the SFAS No. 123 method of accounting is not applicable to
options granted prior to July 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be experienced in
future years.
A summary of the status of the Company's two stock option plans at June
30, 2000, 1999 and 1998 and changes during the years then ended is
presented in the table and narrative below:
June 30, June 30, June 30,
2000 1999 1998
------------------ ------------------ ------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------- ---------
Outstanding at
beginning of year 503,861 $1.62 557,059 $3.16 822,550 $2.73
Granted 332,500 1.66 379,000 1.64 116,800 1.81
Cancelled -- -- (431,309) 3.63 (380,200) 1.81
Forfeited (77,861) 1.55 (889) 1.50 (2,091) 1.54
Expired -- -- -- -- -- --
------- --------- ------- --------- ------- ---------
Outstanding at
end of year 758,500 $1.64 503,861 $1.62 557,059 $3.16
======= ========= ======= ========= ======= =========
Exercisable at
end of year 192,800 170,746 181,217
======= ======= =======
Weighted average
fair value of
options granted $1.60 $1.18 $1.37
========= ========= =========
The following table summarizes information about stock options
outstanding at June 30, 2000:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of At Remaining Average At Average
Exercise June 30, Contractual Exercise June 30, Exercise
Prices 2000 Life (Years) Price 2000 Price
------------- ----------- ------------ -------- ----------- --------
$1.03 - $2.12 758,500 8.71 $1.64 192,800 $1.60
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2000, 1999 and 1998,
respectively: risk-free interest rates of 6.56%, 4.87% and 6.25%, no
expected dividend yields, expected lives of ten years and expected
volatility of 115%, 57% and 61%.
(6) Debt Facilities:
----------------
In April 2000, the Company entered into a three year revolving credit
facility ("credit facility") which provides for up to $4 million in
revolver borrowings. Borrowings under the revolver are limited to a
percentage of eligible receivables and inventory. The credit facility
bears interest at prime and has a commitment fee of 0.25% on the
unused portion of the facility. The credit facility is collateralized
by substantially all of the Company's assets. There were no amounts
outstanding under the revolving credit facility at June 30, 2000.
(7) Brynwood Convertible Subordinated Debenture:
--------------------------------------------
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture (the "Brynwood Debenture") in favor of
Brynwood, in the principal amount of $5,000,000. The Brynwood
Debenture bears interest at the rate of 6% per annum, matures on
December 31, 2001 and is convertible, at the option of Brynwood III,
for shares of common stock of the Company at any time after a
Convertability Event (as defined in the Brynwood Debenture). The note
is convertible at $1.37 per share into shares of common stock.
Interest is payable quarterly.
(8) Commitments:
------------
In the normal course of business, Lincoln enters into purchase
commitments with certain of its raw material suppliers generally for
periods up to one year. Amounts to be purchased under these
arrangements are not anticipated to exceed raw material requirements
for the period to which the commitments apply. The total remaining
amount of inventory to be purchased under these commitments as of June
30, 2000 is approximately $5 million. These purchase commitments
expire primarily through June 30, 2001.
(9) Acquisition:
------------
In 1998, the Company acquired certain assets of Iroquois Popcorn
Company ("Iroquois"), a private label manufacturer of caramelized
popcorn, for approximately $1,300,000, of which $800,000 was paid in
cash and $500,000 in a non-interest bearing note. Additionally there
are two contingent payments of $175,000 to be paid on December 31,
1999 and December 31, 2000. The payments are to be paid if the
Company maintains 70% of the sales volume to Iroquois' largest
customer during each twelve month period respectively. The Company
paid the first contingent payment of $175,000 in December 1999. The
payment was accounted for as an addition to the excess of purchase
price over net assets acquired and is being amortized over the
remaining life of the asset (originally 10 years).
The acquisition was accounted for as a purchase with the assets
acquired recorded at their fair values at the date of acquisition.
The excess of purchase price over net assets acquired is being
amortized over a period of 10 years. The purchase price has been
allocated as follows:
Accounts receivable $ 477,000
Inventory 223,000
Excess of purchase price over
net assets acquired 775,000
-----------
$ 1,475,000
===========
The following is unaudited pro forma information as if the Company's
acquisition of Iroquois had occurred at the beginning of fiscal 1998.
The incremental revenue reflected below consists primarily of sales to
one customer. These results may not be indicative of what the actual
results would have been or may be in the future.
1998
---------------
Net sales $27,859,707
Net income $ 2,594,054
Net income per share $0.41
(10) Deferred Gain:
--------------
In October 1996, the Company sold land adjacent to its manufacturing
facility in Lincoln, Nebraska. The agreement for the sale and
purchase of the land was contingent upon the Company leasing back from
the purchaser of the land 50,000 square feet of a new warehouse
facility to be constructed on the property by the buyer.
The Company entered into a 10-year minimum term lease with the
purchaser to lease 50,000 square feet of warehouse space,
approximately 57% of the facility. Accordingly, the gain on the sale
of the land, $129,218, was deferred and is being amortized over the
term of the lease in accordance with SFAS No. 13 and SFAS No. 28 since
the Company retained more than a minor part of the property sold and
the present value of the lease payments related to the land exceeded
the gain on the sale of the land.
(11) Leases:
-------
At June 30, 2000, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as
follows:
2001 $ 333,000
2002 325,000
2003 348,000
2004 346,000
2005 and thereafter 853,000
Rent expense for operating leases amounted to approximately $317,000,
for the years ended June 30, 2000 and 1999, and $310,000 for the year
ended June 30, 1998.
(12) Write Down of Fixed Assets:
---------------------------
The Company discontinued its nut division operations during the fiscal
quarter ended December 31, 1998. Management determined that the nut
division product lines were no longer viable because of continued
sales declines resulting from increased competitive activity. Nut
division sales were $61,814 and $907,863 for the twelve months ended
June 30, 1999 and 1998, respectively.
As a result, all of the goodwill related to the nut division
($367,800) was written off. Similarly, manufacturing equipment (book
value of $272,659) was written down to the estimated net realizable
value. The write-downs of goodwill and manufacturing equipment
comprise the "Nut Division Write-Down" of $590,459 in the fiscal 1999
statement of operations. The Company sold the equipment during fiscal
2000 with no additional charges with respect to the discontinuance of
the nut division operations.
The division's operating income (loss) was ($28,489), excluding the
"nut division write-down," and $6,049, for the twelve months ended
June 30, 1999 and 1998, respectively. These amounts include
depreciation of $28,941 and $64,310 and goodwill amortization of
$7,500 and $15,000, for the twelve months ended June 30, 1999 and
1998, respectively.
During the year ended June 30, 1997, the Company wrote down $269,498
of fixed assets. Management ceased producing and selling certain nut
product lines and wrote down $227,566 in manufacturing equipment
relating to such product lines. The Company also wrote down $41,932
of leasehold improvements relating to the termination of its warehouse
lease.
(13) Non-recurring Charge:
---------------------
The non-recurring charge of $286,633 for the twelve months ended June
30, 1999 represents $177,000 of severance related to the Company's
former president and chief operating officer, $50,000 costs incurred
during the relocation of the Company's new Chief Executive Officer,
and $59,633 of severance related to former employees. All amounts were
paid as of June 30, 1999.
During the year ended June 30, 1998, the Company recorded a
non-recurring charge of $484,388 relating to severance and other
compensation costs in connection with the resignation of the Company's
former chairman and chief executive officer. All amounts were paid as
of June 30, 1998.
(14) Related Party Transactions:
---------------------------
During the year ended June 30, 1999, the Company received proceeds
from a $5 million convertible debenture from Brynwood, the Company's
majority stockholder. During the year ended June 30, 2000, the
Company paid interest of $302,236 relating to the convertible
debenture from Brynwood. Two of the Company's directors are general
partners of the general partner of Brynwood; a third director of the
Company is a principal of Brynwood.
During the year ended June 30, 1998, the Company paid legal fees of
approximately $38,000 to a law firm of which one of its partners was a
director of Noel.
(15) Employee Benefit Plans:
-----------------------
The Company sponsors a defined contribution savings plan (401(k)).
Participation in the plan is available to substantially all salaried
and hourly employees. Company contributions to the plan are based on
a percentage (2%) of employee contributions. During the years ended
June 30, 2000, 1999 and 1998, Company contributions to the plan
totaled $47,000, $48,000, and $52,000, respectively.
(16) Sales Data:
-----------
Export sales-
-------------
During the years ended June 30, 2000, 1999 and 1998, export sales
were approximately $960,000, $1,414,000 and $1,520,000,
respectively.
Significant customer-
---------------------
For the years ended June 30, 2000, 1999 and 1998, one customer
represented 40%, 33% and 12% of net sales, respectively. For the
year ended June 30, 1999, another customer represented 10% of net
sales. For the year ended June 30, 1998, Planters (see Note 17)
represented approximately 9% of net sales.
(17) Net Planters Other Income:
--------------------------
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle
Faddle and Screaming Yellow Zonkers products (the "Products") pursuant
to a distribution agreement dated June 6, 1995 (the "Distribution
Agreement") for an initial term which was originally scheduled to
expire on June 30, 1997 unless renewed for additional one year
periods. The Distribution Agreement required Planters to purchase an
annual minimum number of equivalent cases of the Products during the
initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement, which was further modified on
May 9, 1997 (the "Amendment"), pursuant to which the exclusive
distribution arrangement with respect to the Company's Fiddle Faddle
product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated.
Effective January 1, 1998 and May 1, 1997, Planters ceased, and
Lincoln resumed, marketing and distributing the Company's Fiddle
Faddle and Screaming Yellow Zonkers products, respectively.
The Amendment required Planters to compensate the Company for contract
minimums for the six month period ended December 31, 1997.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar
year ending December 31, 1997. These sales levels were not achieved
during the calendar year ending December 31, 1997, resulting in
Planters compensating the Company approximately $1,880,000 which is
partially offset on the Company's statement of operations by
approximately $500,000 in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand ("Net Planters
Other Income").
(18) Valuation and Qualifying Accounts:
----------------------------------
Balance at Charged to Balance
Beginning Costs and at end
Description of Period Expenses Deductions of Period
------------ ---------- ---------- ---------- ----------
Year ended June 30, 1998:
Allowances for doubtful
accounts and cash
discounts $237,778 $315,526 $(230,795) $322,509
Inventory reserves 284,665 168,852 (91,019) 362,498
Year ended June 30, 1999:
Allowances for doubtful
accounts and cash
discounts $322,509 $316,806 $(254,440) $384,875
Inventory reserves 362,498 151,742 (261,346) 252,894
Year ended June 30, 2000:
Allowances for doubtful
accounts and cash
discounts $384,875 $365,257 $(353,806) $396,326
Inventory reserves 252,894 13,000 (49,545) 216,349
INDEX OF EXHIBITS
Exhibit Title Exhibit No.
------------- -----------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession; Not Applicable
(3) Articles of Incorporation and By-Laws
(A) Certificate of Incorporation, as amended and
as currently in effect (Incorporated by
reference to Exhibit 3(A), filed by the Company
with the Registration Statement on Form S-1
(33-71432)) *
(B) By-laws as currently in effect (Incorporated by
reference to Exhibit 3(B) filed by the Company with
the Registration Statement on Form S-1 (33-71432)) *
(4) Instruments defining the rights of security holders,
including indentures
(A) Excerpts from Certificate of Incorporation, as
amended, (Incorporated by reference to Exhibit 4(A)
filed by the Company with the Registration Statement
on Form S-1 (33-71432)) *
(B) Excerpts from By-Laws, as amended, (Incorporated by
reference to Exhibit 4(B) filed by the Company with
the Registration Statement on Form S-1 (33-71432)) *
(C) Credit Agreement dated as of April 27, 2000 between
Lincoln Snacks Company and The Bank of New York 4(C)
(9) Voting Trust Agreement; Not Applicable
(10) Material Contracts
Brynwood Note (Incorporated by reference to the Company's
current report on Form 8-K filed on April 4, 1999) *
(11) Statement of computation of per share earnings: Not
required because the relevant computations can be clearly
determined from the material contained in the financial
statements included herein
(12) Statement re: computation of ratios; Not applicable
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders; Not applicable
(16) Letter re: change in certifying accountant; Not Applicable
(18) Letter re: change in accounting principles; Not Applicable
(21) Subsidiaries of Registrant; Not Applicable
(22) Published report regarding matters submitted to vote of
security holders; Not Applicable
(23) Consents of Experts and Counsel
(A) Consent of Arthur Andersen LLP 23A
(24) Power of Attorney; Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits; Not Applicable