SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 0-23048
LINCOLN SNACKS COMPANY
(exact name of registrant as specified in its charter)
Delaware 47-0758569
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
4 High Ridge Park, Stamford, Connecticut 06905
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code) (203) 329-4545
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
on October 30, 1997 was 6,331,790 shares.
LINCOLN SNACKS COMPANY
INDEX TO FORM 10-Q
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1997
and June 30, 1997 3-4
Statements of Operations for the
three months ended September 30, 1997
and September 30, 1996 5
Statements of Changes in Stockholders'
Equity for the three months ended
September 30, 1997 and September 30, 1996 6
Statements of Cash Flows for the
three months ended September 30, 1997
and September 30, 1996 7
Notes to Financial Statements 8-10
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 11-13
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 13
Part II. OTHER INFORMATION
Item 1-4. OTHER INFORMATION 14
Item 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
- 2 -
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF SEPTEMBER 30, 1997 AND JUNE 30, 1997
September 30, June 30,
1997 1997
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 1,933,244 $ 1,606,357
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $267,768 and $237,778 respectively) 2,280,198 1,951,937
Inventories 2,180,307 1,680,253
Prepaid and other current assets 74,823 29,023
------------ ------------
Total current assets 6,468,572 5,267,570
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,769,904 1,526,705
Machinery and equipment 4,823,807 4,800,284
Construction in process 12,254 122,319
------------ ------------
6,975,965 6,819,308
Less: accumulated depreciation
and amortization (2,417,297) (2,263,689)
------------ ------------
4,558,668 4,555,619
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$702,075 and $667,111 3,431,407 3,466,371
------------ ------------
TOTAL ASSETS $ 14,458,647 $ 13,289,560
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 3 -
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1997 AND JUNE 30, 1997
September 30, June 30,
1997 1997
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,836,557 $ 1,357,170
Accrued expenses 1,079,009 1,178,601
Accrued trade promotions 868,646 675,585
Deferred gain-short term 13,434 13,434
------------ ------------
Total current liabilities 3,797,646 3,224,790
Deferred Gain 112,554 115,784
------------ ------------
TOTAL LIABILITIES 3,910,200 3,340,574
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
September 30, 1997 and June 30, 1997 64,501 64,501
Special stock, $0.01 par value, 300,000
shares authorized, none outstanding 0 0
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit (7,500,665) ( 8,100,126)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,548,447 9,948,986
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,458,647 $ 13,289,560
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 4 -
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
1997 1996
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 5,740,211 $ 6,868,040
COST OF SALES 3,337,783 4,683,284
------------ ------------
Gross profit 2,402,428 2,184,756
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,805,730 1,562,719
------------ ------------
Income from operations 596,698 622,037
INTEREST (INCOME) EXPENSE (12,763) 66,340
------------ ------------
Income before provision
for income taxes 609,461 555,697
PROVISION FOR INCOME TAXES 10,000 10,000
------------ ------------
Net income $ 599,461 $ 545,697
============ ============
NET INCOME PER SHARE $ 0.10 $ 0.09
============ ============
Weighted Average Number of
Shares Outstanding 6,331,790 6,331,790
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
- 5 -
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
Common Special Paid In Accumulated Treasury
Stock Stock Capital Deficit Stock
------- ------- ----------- ------------ ---------
June 30, 1996 $64,501 $0 $18,010,637 ($ 9,542,721) ($26,026)
Net income 545,697
------- ------- ----------- ------------ ---------
September 30, 1996 $64,501 $0 $18,010,637 ($ 8,997,024) ($26,026)
======= ======= =========== ============ =========
June 30, 1997 $64,501 $0 $18,010,637 ($ 8,100,126) ($26,026)
Net income 599,461
------- ------- ----------- ------------ ---------
September 30, 1997 $64,501 $0 $18,010,637 ($ 7,500,665) ($26,026)
======= ======= =========== ============ =========
The accompanying notes to financial statements
are an integral part of these statements.
- 6 -
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1997
<CPATION>
1997 1996
----------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 599,461 $ 545,697
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 188,572 217,075
Allowance for doubtful accounts and
cash discounts, net 29,990 29,032
Changes in Assets and Liabilities:
(Increase) decrease in accounts
receivable (358,251) 425,214
Decrease in inventories (500,054) (903,260)
(Increase) decrease in prepaid and
other current assets (45,800) 67,179
Increase (decrease) in accounts
payable and accrued expenses 569,626 (93,911)
------------ ------------
Net cash provided by
operating activities 483,544 287,026
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (156,657) (16,162)
------------ ------------
Net cash used in investing activities (156,657) (16,162)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under revolver, net 0 ( 70,722)
Repayments under term loan 0 (200,001)
------------ ------------
Net cash used in financing
activities 0 (270,723)
------------ ------------
Net increase in cash 326,887 141
CASH, beginning of period 1,606,357 58,538
------------ ------------
CASH, end of period $ 1,933,244 $ 58,679
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 0 $ 69,989
============ ============
Income taxes paid $ 31,773 $ 5,918
============ ============
- 7 -
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
(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 Noel Group, Inc. (the "Parent"). Lincoln is engaged in the
manufacture and marketing of caramelized pre-popped popcorn and glazed
popcorn/nut mixes. Sales of the Company's products are subject to
seasonal trends with a significant portion of sales occurring in the
last four months of the calendar year.
(2) Basis of Presentation:
----------------------
The balance sheet as of September 30, 1997, and the related statements
of operations for the three months ended September 30, 1997 and
September 30, 1996, changes in stockholders' equity and cash flows for
the three months ended September 30, 1997 and September 30, 1996, have
been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at September 30, 1997 and
September 30, 1996 have been made. During the interim periods reported
on, the accounting policies followed are in conformity with generally
accepted accounting principles and are consistent with those applied for
annual periods and described in the Company's Annual Report on Form 10-K
for the twelve months ended June 30, 1997 filed with the Securities and
Exchange Commission on September 15, 1997 (the "Annual Report").
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements included in the Annual Report. The results of operations for
the three months ending September 30, 1997 and September 30, 1996 are
not necessarily indicative of the operating results for the full year.
(3) New Accounting Pronouncement:
-----------------------------
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
Earnings Per Share ("EPS"), which establishes standards for computing and
presenting EPS, is effective for both interim and annual periods ending
after December 15, 1997. SFAS No. 128 does not permit early application
of its provisions. The Statement replaces the presentation of primary
EPS with a presentation of basic EPS, as defined. Had EPS been
determined in accordance with SFAS No. 128, the Company's basic and
diluted income (loss) per share for the three months and six months
ended June 30, 1997 and 1996 would be unchanged from the reported net
income (loss) per share.
(4) Credit Facility:
----------------
The Company has a revolving credit and term loan facility, as amended,
which provides for up to $6.0 million in revolver borrowings and a $1.9
million term loan. No amounts were outstanding under the revolver and
term loan, as of September 30, 1997. This facility is collateralized by
substantially all of the Company's assets.
(5) Inventory:
----------
Inventory consists of the following:
September 30, June 30,
1997 1997
------------ ------------
Raw materials and supplies $ 1,384,918 $ 1,293,280
Finished Goods 795,389 386,973
------------ ------------
$ 2,180,307 $ 1,680,253
============ ============
(6) Significant Customer:
---------------------
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 (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 distribution arrangement will
terminate. Effective May 1, 1997, Planters ceased, and Lincoln resumed,
marketing and distributing the Company's Screaming Yellow Zonkers
product. The Company does not expect to further extend the term of the
Distribution Agreement beyond December 31, 1997.
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 requires reduced
minimums for the six month period ended December 31, 1997 (six month
minimums). Planters has agreed to compensate the Company in the event
that Planters fails to purchase the six month minimums by December 31,
1997. The Amendment also requires Planters to compensate the Company in
the event that certain sales levels are not achieved during the calendar
year ending December 31, 1997.
The Amendment, among other things, eliminates Planters' right to
terminate the contract in the event of a change of control, eliminates
Planters' right of first refusal on Poppycock granted in the original
contract, and allows Lincoln to enter into co-pack arrangements relating
to ready-to-eat popcorn.
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be
no assurance as to the long term effects of the transition.
On October 7, 1997, the Company entered into a Canadian Trademark
License Agreement with Nabisco Ltd pursuant to which Nabisco Ltd granted
the Company the right to use the Planters trademarks in connection with
the sale and marketing of the Company's Fiddle Faddle product in Canada
for a period of five years commencing on January 1, 1998. In July,
1997, the Company entered into a five year United States Trademark
License Agreement with Nabisco, Inc. granting the Company the right to
use the Planters' trademarks in connection with the sales and marketing
of the Company's Fiddle Faddle products in the United States.
Sales to Planters represented 22% and 50% of net sales for the quarter
ended September 30, 1997 and 1996, respectively.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------------
Results of Operations:
- ----------------------
Introduction
- ------------
The Company's net sales are subject to significant seasonal variation,
consequently, results from operations will fluctuate due to these trends. The
Company's business is seasonal due to customers' buying patterns of Poppycock
and nut 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 began exclusively distributing the Company's
Fiddle Faddle and Screaming Yellow Zonkers products pursuant to 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 Fiddle Faddle and Screaming Yellow Zonkers during the
initial term.
On February 28, 1997, Lincoln Snacks and Planters entered into the
Amendment, which was further modified by the Letter Agreement, pursuant to
which the exclusive distribution arrangement with respect to the Company's
Fiddle Faddle product was extended for an additional period of six months
expiring December 31, 1997 at which time the distribution arrangement will
terminate. Effective May 1, 1997, Planters ceased, and Lincoln Snacks resumed,
marketing and distributing the Company's Screaming Yellow Zonkers product. The
Company does not expect to further extend the term of the Distribution
Agreement beyond December 31, 1997.
The Amendment and Letter Agreement require Planters to purchase a
specified number of manufactured cases and for Planters to compensate the
Company for the remaining contract minimums for the twelve month period ended
June 30, 1997. The Amendment requires reduced minimums for the six month
period ended December 31, 1997 (six month minimums). Planters has agreed to
compensate the Company in the event that Planters fails to purchase the six
month minimums by December 31, 1997. The Amendment also requires Planters to
compensate the Company in the event that certain sales levels are not achieved
during the calendar year ending December 31, 1997.
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be no
assurance as to the long term effects of the transition.
Sales to Planters represented 22% and 50% of net sales for the quarter ended
September 30, 1997 and 1996, respectively.
Three months ended September 30, 1997 versus September 30, 1996
- ---------------------------------------------------------------
Net sales decreased 16% or $1.13 million to $5.7 million for the quarter
ended September 30, 1997 versus $6.87 million in the corresponding period of
1996. Sales made by Lincoln of its branded products increased, versus a year
ago, as did sales related to new copacking business. These increases were
offset by decreased Planters sales. During the quarter, Planters compensated
the Company, at a pre-determined rate which is lower than Planters' transfer
prices, for failing to purchase the quarterly minimum. Sales to Planters
represented 22% and 50% of net sales for the quarter ended September 30, 1997
and 1996, respectively, due to the reduced six month minimums.
Gross profit increased 10% or $.22 million to $2.40 million for the
quarter ended September 30, 1997 versus $2.18 million in the corresponding
period of 1996. Gross profit increased due to new co-packing profits and lower
raw material costs which were partially offset by decreased Planters gross
profits resulting from decreased case volume.
Selling, general and administrative expenses increased 16% or $.24
million to $1.81 million in the quarter ended September 30, 1997 versus $1.56
million the same period in 1996. These expenses increased during this period
primarily due to timing of promotional spending.
The increase in gross profit and the decrease in interest expense was
partially offset by the increase in selling, general and administrative
expenses and resulted in an increase in the net income of $.05 million to $.60
million for the quarter ended September 30, 1997 versus $.55 million in the
corresponding period in 1996.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1997, the Company had working capital of $2.67
million compared to a working capital of $2.0 million at June 30, 1997 (the
Company's fiscal year end), an increase in working capital of $.67 million.
The increase in working capital is primarily attributable to the Company's net
profit of $.60 million for the three months ended September 30, 1997.
The Company currently meets its short-term liquidity needs from its
revolving credit facility which facility is secured by a first priority,
perfected security interest in substantially all of the Company's existing and
after-acquired assets. The Company presently believes that this facility is
adequate to meet its needs for the next twelve months.
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.
Although the Amendment contains provisions designed to effect a smooth transfer
of the distribution of the Fiddle Faddle business back to the Company, there
can be no assurance as to the long term effects of the transition.
The Company's short term liquidity is affected by seasonal increases in
inventory and accounts receivable levels, payment terms in excess of 60 days
granted in some situations during certain months of the year, 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 following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as indicated.
Three Months Ended
----------------------------
September 30, September 30,
1997 1996
------------- -------------
(in thousands)
Net cash provided by
operating activities $ 484 $ 287
Net cash used in investing activities (157) (16)
Net cash provided by (used in)
financing activities 0 (270)
Net cash provided by operating activities increased to $.48 million
during the three months ended September 30, 1997 compared to $.29 million in
1996. The increase is primarily due to an increase in accounts payables due
to the timing of expenses coupled with a decrease in inventories which is
partially offset by an increase in accounts receivables due to the timing of
sales.
Net cash used in investing activities of $.16 million and $.01 million
for the three months ended September 30, 1997 and September 30, 1996,
respectively, represents capital expenditures.
No cash was used in or provided by financing activities for the three
months ended September 30, 1997. Net cash provided by financing activities for
the period ended September 30, 1996 was $.27 million, which consisted of
revolver repayments under its credit agreement of $.07 million and term loan
repayments of $.20 million.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -----------------------------------------------------------------------
Not Applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities and Use of Proceeds Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters
to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a Exhibits
(2) 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) Not Applicable
(10) (a) Letter dated September 5, 1997 between Lincoln
Snacks Company and Planters relating to
agreement for the Company to sell Fiddle Faddle
to Target Stores.
(b) Trademark Licensing Agreement for Canada dated
October 6, 1997 between Lincoln Snacks Company
and Nabisco, Ltd.
(11) Statement regarding computation of per share earnings
is not required because the relevant computation can
be determined from the material contained in the
Financial Statements included herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
b Reports on Form 8-K Not Applicable
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 30, 1997 Lincoln Snacks Company
(Registrant)
By: /s/Karen Brenner
-------------------------------------
Name: Karen Brenner
Title: Chairman of the Board and
Chief Executive Officer; Director
(Principal Executive Officer)
By: /s/Kristine A. Crabs
-------------------------------------
Name: Kristine A. Crabs
Title: Vice President and Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)