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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-23048
LINCOLN SNACKS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0758569
(State of incorporation) (I.R.S. Employer Identification No.)
4 High Ridge Park, 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. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant on September 16, 1996, was approximately $2,673,661. On such
date, the closing price of registrant's common stock was $1.25 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 and officers
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 16, 1996 was 6,331,790.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
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(R), Fiddle Faddle(R) and Screaming Yellow Zonkers(R). In
addition, the Company processes, markets and distributes ten different
nut varieties.
The Company markets its Poppycock and nut products 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. Commencing on July 17, 1995, the Company's Fiddle Faddle and
Screaming Yellow Zonkers products are being distributed exclusively by the
Planters Company ("Planters"), a unit of Nabisco, Inc., pursuant to an
exclusive distribution agreement (the "Distribution Agreement") certain of
the terms of which are described below under the section entitled "Recent
Developments." The Company continues to market its Poppycock and nut
products directly.
The Company was formed in August 1992 by Noel Group, Inc. ("Noel"), a
publicly held company conducting its principal operations through small
and medium-sized operating companies in which it holds controlling and
other significant equity interests, and a management team of former
executives of Nestle Foods Corporation. On August 31, 1992, the Company
acquired the business and certain assets of Lincoln Snack 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.
(b) Recent Developments
On June 6, 1995 the Company entered into an exclusive Distribution
Agreement with Planters pursuant to which, Planters is exclusively
distributing the Company's Fiddle Faddle and Screaming Yellow Zonkers
products in the United States (including Puerto Rico and United States
territories and possessions). The Distribution Agreement requires
Planters to purchase a minimum number of equivalent cases of Fiddle Faddle
and Screaming Yellow Zonkers during the initial term. The initial term
of the Distribution Agreement expires on June 30, 1997 but is
automatically renewable for additional one year periods unless terminated
by either party upon prior written notice. Each party has the right to
terminate the Distribution Agreement by written notice in the event of a
"change of control" (as defined therein) of the Company. The foregoing
description of the Distribution Agreement does not purport to be complete.
Reference is made to the Distribution Agreement a copy of which was filed
as Exhibit 10(A) to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
Net sales to Planters for the year ended June 30, 1996 were equal to the
minimum number of equivalent cases required to be purchased during the
fiscal year as part of the Distribution Agreement. If Planters or the
Company does not renew the Distribution Agreement, the termination thereof
could have a material adverse effect on the Company's financial condition
and results of operations. Sales to Planters represented 43% of net sales
for the year ended June 30, 1996.
(c) 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
and snack nuts.
(d) 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. In addition the Company processes, markets and distributes ten
different nut varieties. The finished products comprise a full line of
nuts for the retail market: raw, roasted and salted, dry roasted, and
specially coated (honey roasted).
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 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. Commencing on July 17,
1995, Planters is exclusively distributing the Company's Fiddle Faddle
and Screaming Yellow Zonkers products in the United States (including
Puerto Rico and United States territories and possessions). The
Distribution Agreement requires Planters to purchase a minimum number of
equivalent cases of Fiddle Faddle and Screaming Yellow Zonkers during the
initial term. The Company continues to market its Poppycock and nut
products directly.
Seasonality
Sales of Lincoln Snacks' products are seasonal, peaking during the third
and fourth calendar quarters. During the fiscal year ended June 30, 1996,
Planters accounted for 43% of Lincoln Snacks' sales.
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 (American Home Products
Corp., Food Division), Cracker Jack (Borden, Inc.) and a number of other
regional and local brands. The Company's products also compete indirectly
with traditional confections and other snack food products.
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 Lincoln manufacturing facility 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, jars,
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 is
being operated at an overall rate varying from approximately 40% to 75% 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, including recently adopted nutritional
labeling requirements with which the Company is complying. Compliance
with the above described governmental entities and regulations have not
had and are not anticipated to have a material adverse effect on the
Company's capital expenditures, earnings or competitive position.
Employees
As of June 30, 1996 Lincoln Snacks had 79 full-time employees and 1 part-
time employee. Employment at the Lincoln plant varies according to weekly
and seasonal production needs, and is expected to average approximately 90
employees during the remainder of 1996. None of Lincoln Snacks' work
force is unionized. Lincoln Snacks' management believes that Lincoln
Snacks' relationship with its employees is good.
(e) 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 4 High Ridge
Park, Stamford, Connecticut 06905. The initial term of the lease on this
space expires on September 30, 1999.
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. Also in Lincoln, Nebraska is Lincoln
Snacks' 66,500 square foot leased warehousing facility, which is located
near Lincoln Snacks' plant. This modern facility can accommodate all of
Lincoln Snacks' current warehousing needs. The Company's lease on this
facility has been extended until January 31, 1998, and there is a five
year renewal option beyond 1998.
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
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
A. Market Information.
The shares of Common Stock of the Company commenced trading on the
NASDAQ Stock Market (Small Cap) under the symbol "SNAX" on January
14, 1994. The range of high and low reported sales prices for the Common
Stock as reported by NASDAQ for each full quarterly period within the
two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
June 30, 1995 June 30, 1996
- -----------------------------------------------------------------------
High Low High Low
<S> <C> <C> <C> <C>
First Fiscal Quarter 2 1 5/8 3 1/4 2 1/4
Second Fiscal Quarter 2 1/8 1 7/8 2 7/8 1 3/4
Third Fiscal Quarter 2 3/4 1 7/8 1 7/8 1 1/4
Fourth Fiscal Quarter 4 1/8 2 7/16 2 1/8 1 1/4
</TABLE>
Such prices reflect inter dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. The
public market for 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 16, 1996, as reported by the Company's transfer agent, shares
of Common Stock were held by 39 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. In addition, the Company is
currently prohibited from declaring or paying any cash dividends on its
capital stock by the terms of its bank loan agreement, as amended.
Item 6. Selected Financial Data
All amounts labeled Lincoln Snacks Company represent actual results of the
Company. The amounts labeled Lincoln Division represent data of Lincoln
Snack Company, Division of Sandoz Nutrition Corporation ("Lincoln
Division"). Certain assets of this entity were acquired by the Company on
August 31, 1992 for $13.0 million.
<TABLE>
<CAPTION>
(In thousands, except per share data)
LINCOLN LINCOLN SNACKS COMPANY
DIVISION
8 Months 4 Months 12 Months 6 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended Ended Ended
Aug. 31, Dec. 31, Dec. 31, June 30, June 30, June 30, June 30,
1992 1992 1993 1994 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales $14,584 $9,949 $28,368 $10,038 $29,497 $27,136 $23,846<F3>
Gross profit 7,591 4,067<F1> 10,683 2,846 10,320 10,916 6,621<F3>
Income (loss)
from operations (552)<F1> (678) (5,273) (5,003) (1,082)<F2> 897
Net income (loss)
prior to dividends
on preferred stock (675) (1,337) (5,660) (5,810) (1,602)<F2> 511
Net income (loss)
per common share ($0.17)<F1> ($0.34) ($0.92) ($1.41) ($.25)<F2> $.08
Weighted average
number of shares
outstanding 3,978 3,978 6,123 4,113 6,340 6,335
<CAPTION>
Dec. 31, Dec. 31, June 30, June 30, June 30,
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 2,409 $(2,371) $ 327 $ (691) $ (237)
Total assets 14,443 19,492 16,318 13,850 13,979
Total long term debt 5,200 3,200 1,909 1,109 309
Stockholders' equity (deficit) (462) (2,299) 9,354 7,985 8,506
<FN>
<F1> Amount includes a $750,000 charge to cost of sales related to the
acquired gross profit assigned to the value of inventory purchased
from the Lincoln Division and subsequently sold, resulting in a
lower gross profit for the four months ended December 31, 1992.
<F2> Amount includes a non-recurring charge of $726,000 (or $.11 per share)
relating to the Distribution Agreement with Planters.
<F3> The financial impact of the Distribution Agreement versus historical
results is reductions in revenue and gross profit which are offset by
reduced selling, marketing and distribution costs. Reference is made
to Management's Discussion and Analysis of Financial Condition and
Results of Operations.
</FN>
</TABLE>
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.
Consequently, results from operations will fluctuate due to these trends.
The Company's business is seasonal due to customer 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 June 6, 1995, the Company entered into the Distribution Agreement,
commencing on July 17, 1995, for the sale and distribution of Fiddle
Faddle and Screaming Yellow Zonkers. Under the Distribution Agreement,
which requires Planters to purchase a minimum number of equivalent cases
during each twelve month period ending June 30, 1996 and June 30, 1997,
the Company sells the products to Planters at a selling price which is
reduced from the Company's historical customer selling prices. Planters
in turn is responsible for the sale and distribution of the products to
its customers, therefore, the Company does not have any selling,
marketing or distribution costs associated with these products. The
financial impact of the Distribution Agreement versus historical results
is reductions in revenue and gross profit which are offset by reduced
selling, marketing and distribution costs.
Twelve months ended June 30, 1996 versus June 30, 1995
Net sales decreased 12% or $3.3 million to $23.9 million for the twelve
months ended June 30, 1996 versus $27.1 million in the corresponding
period of 1995. Combined case sales of Fiddle Faddle and Screaming Yellow
Zonkers related to the Distribution Agreement were 38% higher than the
corresponding period in 1995 while revenue dollars declined $2.0 million
primarily due to the lower selling prices resulting from the Distribution
Agreement. Lincoln Snacks sales, excluding sales relating to the
Distribution Agreement, decreased 8% or $1.3 million versus the same
period in 1995 primarily due to a decline in export sales attributable to
changing market conditions in the Far East and a decrease in liquidation
sales.
Gross profit decreased $4.3 million to $6.6 million for the twelve months
ended June 30, 1996 versus $10.9 million in the corresponding period of
1995. Gross profit primarily decreased as a result of lower selling
prices under the Distribution Agreement.
Selling, general and administrative expenses decreased $5.6 million to
$5.7 million in the twelve months ended June 30, 1996 versus $11.3 million
the same period in 1995. These expenses decreased during this period
primarily due to cost reductions resulting from the Distribution
Agreement.
The decline in gross profits, more than offset by significantly lower
selling, general and administrative expenses coupled with a decrease in
non-recurring charges of $.7 million, resulted in an increase in net
income of $2.1 million to $.5 million for the twelve months ended June 30,
1996 versus a $1.6 million net loss in the corresponding period in 1995.
Twelve months ended June 30, 1995 versus June 30, 1994
Net sales decreased 8% or $2.4 million to $27.1 million for the twelve
months ended June 30, 1995 versus $29.5 million in the corresponding
period of 1994. Net sales of the Company's Nut Division ("Nut Division")
decreased by $1.8 million which is primarily due to the loss of one large
Nut Division customer (acquired by another company which is not a customer
of the Nut Division) as well as declines in sales with other customers
associated with increased competitive pressures.
Gross profit increased 5.8% or $.6 million to $10.9 million for the twelve
months ended June 30, 1995 from $10.3 million in the corresponding period
of 1994. Gross profits improved as a result of reduced factory costs,
lower raw material costs, and formula refinement.
Selling, general and administrative expenses decreased 26% or $4.1 million
to $11.3 million in the twelve months ended June 30, 1995 versus $15.3
million in the same period in 1994. These expenses decreased during this
period primarily due to lower freight costs, reduced trade and consumer
promotional spending, and reduced administrative expenses.
A non-recurring charge of $.7 million is related to the Company's
Distribution Agreement with Planters for Fiddle Faddle and Screaming
Yellow Zonkers. The charge is primarily comprised of a $.5 million write-
off of the covenant not to compete, a $.1 million severance expense
relating to a reduction in headcount, and a $.1 million write-off of
packaging relating to discontinued items.
The improvement in gross profit and lower selling, general and
administrative expenses contributed to a net loss decrease of $4.2 million
to $1.6 million for the twelve months ended June 30, 1995 versus $5.8
million in the corresponding period in 1994. The net loss, excluding the
non-recurring charge, is $.9 million for the twelve months ended June 30,
1995 versus $5.8 million in the corresponding period in 1994.
Six months ended June 30, 1994 versus July 3, 1993
Net sales increased 13% or $1.1 million to $10.0 million for the six
months ended June 30, 1994 from $8.9 million in 1993. Net sales for the
Company's Snacks Division ("Snacks Division") increased 28%. The sales
increase for the Snacks Division is primarily attributable to having
promotional programs in place for the retail buying activity in the first
half of 1994. Nut Division sales in 1994 reflect a full six months of
sales while 1993 amounts include only sales from March 15, 1993 (date of
acquisition) to July 3, 1993. Nut Division sales in 1994 were
insignificant due to the loss of one large customer resulting in a revenue
decline of $.4 million (which was acquired by another company which is not
a customer of the Nut Division) and $.3 million resulting from delays in
presentations of new programs. Sales were also affected by the moving of
the Nut Division operations from Kentucky to Nebraska during the first
calendar quarter of 1994 which precipitated the accelerating of $.1
million sales during the last quarter of 1993 from the first calendar
quarter of 1994.
Gross profit decreased 9% or $.3 million to $2.9 million for the six
months ended June 30, 1994 from $3.2 million in 1993. The 1994 gross
margins were negatively impacted by increased commodity (nut) prices,
formula and packaging changes which resulted in the Company selling
product in discontinued packaging at discounted prices, and the decision
to change the fiscal year-end to June 30, which resulted in the absorption
of additional overhead costs.
Selling, general and administrative expenses increased 98% or $4.0 million
to $8.1 million for the six months ended June 30, 1994 from $4.1 million
in 1993. Selling expenses increased $3.6 million versus the same period
last year primarily due to $2.0 million of new consumer sales and
marketing programs and $1.2 million of increased trade expense. Trade
expense is a discount offered to all the Company's customers from time to
time for promotion of the Company's products. General expenses increased
$.4 million versus the same period last year.
The net loss for the six months ended June 30, 1994 was $5.5 million, an
increase of $4.3 million over the same period in 1993. This increase is a
result of the higher costs and expenses discussed above, while revenue and
gross margins were lower than expected.
Liquidity and Capital Resources
As of June 30, 1996, the Company had a working capital deficit of $.2
million compared with working capital deficit of $.7 million at June 30,
1995, a decrease of $.5 million. The increase in working capital is
primarily attributable to a $1.3 million increase in earnings before
depreciation and amortization, offset by term loan repayments of $.8
million and capital expenditures of $.1 million.
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. The execution of
the Distribution Agreement is intended to be consistent with management's
objectives.
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.
<TABLE>
<CAPTION>
Twelve Months Ended
(in thousands)
- ----------------------------------------------------------------------------------------------
June 30, 1996 June 30, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided (used) by operating activities $ 1,273 $ 603
Cash used in investing activities (119) (474)
Cash provided (used) by financing activities (1,174) (101)
</TABLE>
Cash from operating activities increased to $1.3 million during the twelve
months ended June 30, 1996 compared to $.6 million in 1995. The increase
in cash from operations is primarily due to the increase in the Company's
net profit of $2.1 million.
Cash used in investing activities of $.1 million and $.5 million for the
twelve months ended June 30, 1996 and June 30, 1995, respectively,
represents a reduction in capital expenditures consistent with the
Company's efforts to reduce cash expenditures.
Cash used for financing activities for the twelve months ended June 30,
1996 was attributable to term loan repayments of $.8 million and revolver
repayments of $.4 million. Cash used for financing activities for the
twelve months ended June 30, 1995 was attributable to term loan repayments
of $.8 million which were financed by revolver borrowings of $.5 million
and, a Noel payment under its tax agreement with the Company of $.2
million.
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
<TABLE>
The directors and executive officers of the Company are as follows:
<CAPTION>
Name Age Position
<S> <C> <C>
Karen Brenner 40 Chairman and Chief Executive Officer;
Director<F1><F3>
C. Larry Davis 55 Director<F2><F4>
Alexander P. Lynch 44 Director<F1><F3>
James G. Niven 50 Director<F2><F4>
Kristine A. Crabs 33 Vice President and
Chief Financial Officer,
Secretary and Treasurer
R. Scott Kirk . . . . . . 44 Executive Vice President and
Chief Operating Officer
<FN>
<F1> Member of the Executive Committee.
<F2> Member of the Audit Committee.
<F3> Member of the Compensation Committee.
<F4> Member of the Long Term Equity Incentive Committee.
</FN>
</TABLE>
No family relationship exists among any of the executive officers and
directors of the Company.
Directors hold office until the next annual meeting of shareholders of the
Company and until their successors have been elected and qualified or
until their earlier resignation or removal. Officers serve at the
discretion of the Board of Directors.
The following sets forth the principal occupations of each of the
Company's executive officers and directors during the previous five years,
as well as the names of any other public or affiliated companies or
registered investment companies of which they are directors.
Karen Brenner has served as Chairman and Chief Executive Officer since
June 20, 1994. Ms. Brenner has also served as a director of Lincoln
Snacks since its inception and has served as a director of Noel Group,
Inc., a company which conducts its principal operations through small and
medium-sized operating companies (including Lincoln) in which it holds
controlling or other significant equity interests, from October 1989 until
November 1991, and as a Vice President of Noel from April 1989 until
November 1991, when she became a Managing Director. Prior to joining
Noel, Ms. Brenner was a principal in a management and financial consulting
business, specializing in managing turnaround situations for venture
capital and leveraged buyout companies. In February 1996, Ms. Brenner was
elected Vice Chairman, director and consultant of Belding Heminway
Company, Inc., ("Belding Heminway") and on May 9, 1996, she was elected
Chairman of the Board. Belding Heminway manufactures and markets
industrial threads and consumer threads and is a distributor of home
sewing and crafts products, principally buttons. Ms. Brenner is a
director of On Assignment, Inc., a leading nationwide provider of science
professionals on temporary assignments to laboratories in the
biotechnology, environmental, chemical, pharmaceutical, food and beverage
and petrochemical industries. Ms. Brenner is currently a member of the
Board of Trustees of Prep for Prep, a charitable organization dedicated to
providing preparatory education to disadvantaged children, and a trustee
of the City Parks Foundation of New York.
C. Larry Davis has served as a director of Lincoln Snacks since its
inception. He is Chairman of the Board, Chief Executive Officer and a
principal of Farmhouse Foods Company. Mr. Davis has a broad food and
beverage industry background with over 25 years experience at Nestle S.A.
(1973-1992) and PepsiCo Inc. (1967-1973) in both domestic and
international business operations. During the period from 1984 through
1991, Mr. Davis served as Group Vice President and President of the $500
million Nestle Specialty Products Company where he was primarily involved
in the successful turnaround of under-performing businesses, the creation
of new business growth divisions, and acquisitions and divestitures.
Alexander P. Lynch has served as a director of Lincoln Snacks since
November 1993. Mr. Lynch has been Co-President and Co-Chief Executive
Officer of The Bridgeford Group ("Bridgeford"), a financial advisory firm,
since January 1995. From April 1991 to December 1994 he served as a
Senior Managing Director of Bridgeford. From 1985 until April 1991, Mr.
Lynch was a Managing Director of Lehman Brothers, a division of Shearson
Lehman Brothers Inc. Mr. Lynch is also a director of Illinois Central
Corporation, a railroad holding company, and a member of the Board of
Directors of Patina Oil & Gas Corporation, an independent oil and gas
company engaged in exploration and development.
James G. Niven has served as a director of Lincoln Snacks since October
1992. He is currently a Managing Director of Burson-Marsteller, a public
relations firm, and, since 1982, has been a general partner of Pioneer
Associates, a venture capital investment company. He is also a director
and Co-Chairman of The Lynton Group, Inc., a company engaged in aircraft
charter and maintenance, a Chairman of Omar Torres, Inc., a jewelry design
company, and is also a director of Noel Group, Inc., The Prospect Group,
Inc., a company which prior to its adoption in 1990 of a Plan of Complete
Liquidation and Distribution conducted its major operations through
subsidiaries acquired in leveraged buyout transactions, Global Natural
Resources, Inc., a company engaged in the exploration, development and
production of oil and gas, Tatham Offshore, Inc., an independent energy
company engaged in the development, exploration and production of offshore
oil and gas reserves, HealthPlan Services Corporation, a leading managed
healthcare service company, Hudson River Capital LLC, a limited liability
company which conducts its operations through medium and large sized
entities in which it holds either controlling or non-controlling equity
interests, CBT Bancshares, Inc., a multi-financial holding company, and an
advisory director of Houston National Bank, a commercial bank. He is a
member of the Board of Managers of Memorial Sloan-Kettering Cancer Center,
and a trustee of the Museum of Modern Art and the National Center for
Learning Disabilities, Inc.
R. Scott Kirk has served as Executive Vice President and Chief Operating
Officer since May 26, 1995. Prior to this appointment Mr. Kirk served as
Vice President-General Manager of Lincoln Snacks since September 14, 1992.
Mr. Kirk began his career with Amstar Corporation (Domino Sugar) in New
York as an internal auditor in 1974 and held various positions of
increasing responsibility culminating in his appointment as Assistant
Manager of General Credit. In 1982, Mr. Kirk joined Continental Grain
Company, in New York as Director-Corporate Credit with worldwide
responsibility for credit granting and trade finance. Joining Nestle in
1985 as General Credit Manager, Mr. Kirk was responsible for managing the
credit exposure of a $2 billion in sales and a $100 million receivables
portfolio. In 1987, Mr. Kirk became Business Controller for the
Developing Business Group within Nestle; a mixture of seven diverse
businesses with total sales in excess of $400 million. In August 1990,
Mr. Kirk was promoted to Vice President-Finance and Chief Financial
Officer of Nestle Dairy Systems.
Kristine A. Crabs joined Lincoln Snacks in January 1993 as Vice President
of Finance and Administration, and on July 18, 1996 was promoted to Vice
President and Chief Financial Officer. Prior to joining Lincoln Snacks,
Ms. Crabs was a Senior Audit Manager with KPMG Peat Marwick, specializing
in the food and consumer products industries.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of such
reports.
Based solely on its review of the copies of such forms furnished to the
Company by such reporting persons during the fiscal year ended June 30,
1996, or written representations from such reporting persons that no Forms
5 were required for those persons with respect to such period, the Company
believes that during the fiscal year ended June 30, 1996 all filing
requirements applicable to its officers, directors, and greater than ten-
percent beneficial owners were complied with.
Item 11. Executive Compensation - Summary Compensation Table
The following table sets forth certain information regarding compensation
awarded or paid to, or earned by, during each of the last three fiscal
years, the person who served as the Chairman and Chief Executive Officer
during the fiscal year ended June 30, 1996, and the Company's executive
officers (other than the Chairman and Chief Executive Officer) who were
serving as executive officers at June 30, 1996 and whose total salary and
bonus during the fiscal year ended June 30, 1996 exceeded $100,000 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Bonus sation Award(s) Options/ Payouts sation
Position Year<F1> Salary ($) ($) ($)<F2> ($) SARs(#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karen Brenner 1996 - - - - 5,000<F3> - 175,000<F4>
Chairman and 1995 - - - - 2,500<F3> - 175,000<F4>
Chief Executive 1994 - - - - 200,000<F5> - 5,966<F6>
Officer
R. Scott Kirk<F7> 1996 160,000 30,000 - - - - 3,200<F8>
Executive Vice 1995 143,000 4,000 - - 7,000<F9> - 2,860<F8>
President and 1994 141,667 - - - - - 2,833<F8>
Chief Operating
Officer
Kristine A. Crabs 1996 105,400 20,000 - - - - 2,108<F10>
Vice President and 1995 95,400 4,000 - - 5,000<F9> - 1,908<F10>
Chief Financial 1994 92,700 - - - - - 1,854<F10>
Officer
<FN>
<F1> Reference to 1996, 1995 and 1994 herein means each fiscal year ending
June 30, respectively.
<F2> The dollar value of perquisites and other personal benefits for each of
the Named Executive Officers was less than established reporting
thresholds.
<F3> Awarded to Ms. Brenner pursuant to the Company's Non-Employee Directors'
Stock Option Plan.
<F4> Consists of $175,000 paid by Noel. Reference is made to "Employment
Contracts and Termination of Employment and Change in Control
Arrangements" for a description of Ms. Brenner's employment
arrangement with Noel.
<F5> Effective June 20, 1994, Noel granted Ms. Brenner an option to
purchase 200,000 shares of the Company's Common Stock held by
Noel (the "Noel Option").
<F6> Consists of $5,966 paid by Noel.
<F7> On May 23, 1995, Mr. Kirk was appointed Executive Vice President
and Chief Operating Officer by the Board of Directors. Mr. Kirk
had served as Vice-President - General Manager since September 14, 1992.
<F8> Consists of amounts contributed by the Company to Mr. Kirk's account
under the Company's 401(k) plan.
<F9> Awarded on December 15, 1994 pursuant to the Company's 1993 Stock
Option Plan.
<F10> Consists of amounts contributed by the Company to Ms. Crabs' account
under the Company's 401(k) plan.
</FN>
</TABLE>
Option/SAR Grants During the Fiscal Year Ended June 30, 1996
The following table sets forth, information regarding individual grants of
stock options made during the fiscal year ended June 30, 1996 to each of
the Named Executive Officers, and their potential realizable values.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- ------------------------------------------------------------------------------------------- ------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Shares Options/SAR's
Underlying Granted to Exercise or
Options/SAR's Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Karen Brenner 5,000<F1> - $2.70 11/14/06 - $4,332
R. Scott Kirk - - - - - -
Kristine A. Crabs - - - - - -
<FN>
<F1> Granted on November 14, 1995 pursuant to the Company's Non-Employee
Director Stock Option Plan.
</FN>
</TABLE>
Aggregate Option/SAR Exercises During the Fiscal Year
and Fiscal Year End Option/SAR Values
The following table provides information related to options exercised by
the Named Executive Officers during the fiscal year ended June 30, 1996
and the number and value of unexercised stock options held by the Named
Executive Officers at that date. The Company does not have any
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs
Fiscal Year-End (#) at Fiscal Year-End<F1>($)
- ------------------------------------------------------------------------------------- ----------------------------
(a) (b) (c) (d) (e)
Shares Acquired
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Karen Brenner - - 185,067 33,333 0 0
R. Scott Kirk - - 32,050 23,700 0 0
Kristine A. Crabs - - 9,500 8,000 0 0
<FN>
<F1> Based on a closing price of Common Stock on June 30, 1996 of
$1.375 per share.
</FN>
</TABLE>
Compensation of Directors
A director who was not an employee of the Company was paid an annual
retainer of $5,000 for serving as a director of the Company until
November, 1995 at which time the directors elected not to receive an
annual retainer for calendar 1996. Directors of the Company are also
reimbursed for their out-of-pocket expenses incurred in connection with
their service as directors, including travel expenses. Pursuant to the
Company's Non-Employee Directors' Stock Option Plan, as amended, each non-
employee director, following initial election to the Board, automatically
receives an option to purchase 20,000 shares of Common Stock at an exercise
price equal to the fair market value per share on the date of grant, and
each non-employee director automatically receives an option to purchase
5,000 shares of Common Stock immediately following such director's re-
election at an exercise price equal to the fair market value of a share of
Common Stock on the date of grant.
Prior to September, 1995, the Company engaged C. Larry Davis, a director
of the Company, on a year-to-year basis, to act as export agent for all of
the Company's export business other than Canada. Mr. Davis was paid a fee
of 2% of net billings, i.e. the price to the Company paid by customers
after deduction of returns and allowances. The Company now handles all
export customers internally and an export broker commission is no longer
being paid to Mr. Davis. During the period from July 1, 1995 through June
30, 1996, the Company paid Mr. Davis approximately $9,200 pursuant to this
agreement as well as $1,900 in director's fees. The Company believes that
the terms of the arrangement with Mr.Davis were no less favorable to the
Company than those that would have been available from an unrelated party.
Employment Contracts and Termination of Employment and
Change in Control Arrangements
Pursuant to a letter agreement dated March 1, 1996 by
and between Ms. Brenner and Noel, as amended by letter dated March 21,
1996, Ms. Brenner is employed in an executive capacity by Noel for a
period of two years. The term may be extended by mutual agreement.
Pursuant to the agreement, Ms. Brenner has agreed to perform such
executive services in connection with Noel and entities in which Noel
holds interests, including Lincoln Snacks, as shall reasonably be assigned
to Ms. Brenner by the Board of Directors or Chief Executive Officer of
Noel. $175,000 of the salary paid to Ms. Brenner pursuant to this
agreement is deemed to be paid for services rendered to Lincoln.
In addition, as evidenced by a letter agreement dated March 22, 1995 in
consideration for Ms. Brenner agreeing to serve as Chairman and Chief
Executive Officer, effective June 20, 1994, Noel granted Ms. Brenner an
option to purchase 200,000 shares of the Company's Common Stock held by
Noel at a price of $1.50 per share. Options to purchase 166,667 of such
shares are currently exercisable. The balance is exercisable on the
earlier to occur of (x) the eighth anniversary of the date of grant,
provided that Ms. Brenner shall have continued to serve as Chief Executive
Officer continuously through such date, and (y) from and after the date
the stock price reaches $5.00. The vested options will terminate on the
fourth anniversary of the date Ms. Brenner ceases to so serve as Chief
Executive Officer or the tenth anniversary of the date of grant whichever
is earlier. The shares purchasable by Ms. Brenner pursuant to the forgoing
options have been registered under the Securities Act of 1933, as amended,
permitting the resale of such shares to the public following exercise of
such options by Ms. Brenner.
Compensation Committee Interlocks and Insider Participation
In February 1993, the Board of Directors formed a Compensation Committee,
the current members of which are Alexander P. Lynch and Karen Brenner. In
addition to Mr. Lynch and Ms. Brenner, William L. Bennett served thereon
during the fiscal year ended June 30, 1996 with Mr. Bennett ceasing to
serve thereon effective November 14, 1995. Except for Ms. Brenner, none
of the members of the Compensation Committee during the last completed
fiscal year was an officer or employee of the Company. In November 1993,
the Board of Directors formed a Long Term Equity Incentive Committee to
administer the 1993 Stock Option Plan and the Non-Employee Directors'
Stock Option Plan, the current members of which are James G. Niven and C.
Larry Davis. Mr. Niven was appointed to such committee by the Board of
Directors on November 14, 1995 replacing Mr. Bennett, and Mr. Davis served
thereon throughout the fiscal year ended June 30, 1996. None of the
members of the Long Term Equity Incentive Committee during the fiscal year
ended June 30, 1996 was an officer or employee of the Company. During the
fiscal year ended June 30, 1996, no executive officer of the Company
served as a director or a member of the Compensation Committee (or other
board committee performing equivalent functions) of another entity one of
whose executive officers served on the Compensation Committee, the Long
Term Equity Incentive Committee or the Board of Directors of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 16,
1996 as to the beneficial ownership of the Common Stock and the common
stock, par value $.10 per share, of Noel ("Noel Common Stock") by (i) each
person known by the Company to own beneficially more than 5% of the issued
and outstanding shares of Common Stock, (ii) each director, (iii) each of
the Named Executive Officers, and (iv) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
Noel Common Stock Lincoln Common Stock
- ----------------------------------------------------------------------------------------------
Name and Address of Number of Percentage Number of Percentage
Beneficial Owner Shares<F1> Owned<F2> Shares<F3> Owned<F4>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5% Stockholders
Noel Group, Inc. - - 3,769,755 59.5%
667 Madison Avenue
New York, New York 10021
Lawrence, Kamin, Saunders - - 489,000<F5> 7.7%
& Uhlenhop on behalf of
Gofen & Glossberg, Inc.
208 S. LaSalle St., Suite 1750
Chicago, IL 60604
Directors
Karen Brenner 233,334<F6> 1.1% 210,834<F7> 3.2%
C. Larry Davis 0 - 73,000<F8> 1.1%
Alexander P. Lynch 0 * 27,500<F9> *
James G. Niven 22,223<F10> * 27,500<F11> *
Named Executive Officers
Karen Brenner 233,334<F6> * 210,834<F7> 3.2%
R. Scott Kirk 0 - 77,578<F12> 1.2%
Kristine A. Crabs 0 - 26,694<F13> *
All executive officers and
directors as a group
(includes 6 persons) 255,557<F14> 1.3% 443,106<F15> 6.7%
* Less than 1%
<FN>
<F1> Unless otherwise indicated, each of the parties listed has sole voting
and investment power over the shares of Noel Common Stock owned. The
number of shares of Noel Common Stock indicated includes in each case
the number of shares of Noel Common Stock issuable upon exercise of
options to purchase Noel Common Stock to the extent that such options
are currently exercisable. For purposes of this table, such options
are deemed to be "currently exercisable" if they may be exercised within
60 days following the date of filing of this Annual Report on Form 10-K.
<F2> Based on 20,187,705 shares of Noel Common Stock issued and outstanding
on September 16, 1996. In addition, treated as outstanding for the
purpose of computing the percentage ownership of each director or
named executive officer and of all executive officers and directors as
a group are shares of Noel Common Stock issuable to such individual or
group upon exercise of options to purchase Noel Common Stock to the
extent currently exercisable.
<F3> Unless otherwise indicated, each of the parties listed has sole voting
and investment power over the shares of Common Stock owned. The number
of shares of Common Stock indicated includes in each case the number
of shares of Common Stock issuable upon exercise of outstanding stock
options, to the extent that such options are currently exercisable.
<F4> Based on 6,331,790 shares of Common Stock issued and outstanding on
September 16, 1996. In addition, treated as outstanding for the purpose
of computing the percentage ownership of each director or named
executive officer and of all executive officers and directors as a
group are shares of Common Stock issuable to such individual or group
upon exercise of options to purchase Common Stock to the extent
currently exercisable.
<F5> The information set forth in the table and in this footnote regarding
shares beneficially owned by Gofen & Glossberg, Inc. ("Gofen &
Glossberg") is based on a Schedule 13G dated February 12, 1996 filed
with the Securities and Exchange Commission by Gofen & Glossberg.
<F6> Consists of shares issuable upon exercise of options to purchase Noel
Common Stock.
<F7> Consists of 9,100 shares held by Ms. Brenner directly, 35,067 shares
issuable upon exercise of options granted by the Company and 166,667
shares issuable shares upon exercise of the Noel Option, but does
not include an additional 33,333 shares issuable pursuant to the
Noel Option which are not currently exercisable.
<F8> Consists of 25,500 shares held by Mr. Davis directly, 20,000 shares held
by Mr. Davis' wife as trustee for Mrs. Davis' children, with respect to
which shares Mr. Davis disclaims beneficial ownership, and 27,500 shares
issuable upon exercise of options granted by the Company.
<F9> Consists of 27,500 shares issuable upon exercise of options to purchase
Common Stock granted by the Company.
<F10> Consists of 22,223 shares issuable upon exercise of options to purchase
Noel Common Stock granted by Noel.
<F11> Consists of 9,100 shares held by Mr. Niven directly and 18,400 shares
issuable upon exercise of options to purchase Common Stock granted by
the Company.
<F12> Consists of 68,250 shares held by Mr. Kirk directly and 9,328 issuable
upon exercise of options to purchase Common Stock granted by the Company
which are currently exercisable. The number indicated does not include
an additional 56,422 shares issuable pursuant to options granted by the
Company which are not currently exercisable.
<F13> Consists of 22,750 shares held by Ms. Crabs directly and 3,944 shares
issuable upon exercise of options to purchase Common Stock granted by
the Company which are currently exercisable. The number indicated
does not include an additional 18,556 shares issuable pursuant to options
to purchase Common Stock granted by the Company which are not currently
exercisable.
<F14> Consists of 255,557 shares issuable upon exercise of options granted
by Noel.
<F15> Includes 288,406 shares issuable upon exercise of options granted by the
Company and Noel and certain shares with respect to which beneficial
ownership is disclaimed.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
Reference is made to the caption "Compensation of Directors" in Item 11.
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 and Financial Statement Schedules
are filed as part of this annual report
(2) Exhibits.
Financial statement schedules are omitted because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
(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/ Karen Brenner
Karen Brenner
Chairman of the Board and
Chief Executive Officer
Date: September 24, 1996
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/ Karen Brenner September 24, 1996
Karen Brenner
Chairman of the Board and Chief Executive Officer;
Director (Principal Executive Officer)
/s/ Kristine A. Crabs September 24, 1996
Kristine A. Crabs
Vice President and Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ C. Larry Davis September 24, 1996
C. Larry Davis
Director
/s/ Alexander P. Lynch September 24, 1996
Alexander P. Lynch
Director
/s/ James G. Niven September 24, 1996
James G. Niven
Director
LINCOLN SNACKS COMPANY
FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND 1995
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEX TO FINANCIAL STATEMENTS
Page(s)
Financial Statements:
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1996 and 1995 F-2 to F-3
Statements of Operations for the Years Ended June 30, 1996
and 1995, the Six Months Ended June 30, 1994 and
the Year Ended December 31, 1993 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1996 and 1995,
the Six Months Ended June 30, 1994 and the Year Ended
December 31, 1993 F-5
Statements of Cash Flows for the Years Ended June 30, 1996
and 1995, the Six Months Ended June 30, 1994 and
the Year Ended December 31, 1993 F-6 to F-7
Notes to Financial Statements F-8 to F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lincoln Snacks Company:
We have audited the accompanying balance sheets of Lincoln Snacks Company (a
Delaware corporation) as of June 30, 1996 and 1995, and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
ended June 30, 1996 and 1995, the six months ended June 30, 1994, and the year
ended December 31, 1993. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of its operations and its cash flows
for the years ended June 30, 1996 and 1995, the six months ended June 30,
1994, and the year ended December 31, 1993 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 2, 1996
F-1
LINCOLN SNACKS COMPANY
<TABLE>
BALANCE SHEETS
ASSETS
JUNE 30, 1996 AND 1995
(CAPTION>
June 30, June 30,
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 58,538 $ 80,212
Accounts receivable, net of allowances for doubtful
accounts and cash discounts of $173,524 and $257,963 2,693,875 1,522,222
Inventories 2,083,528 2,363,481
Prepaid and other current assets 90,336 99,028
- ------------------------------------------------------------------------------------------
Total current assets 4,926,277 4,064,943
- ------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 610,000 610,000
Building and leasehold improvements 1,555,985 1,460,888
Machinery and equipment 5,147,886 4,922,241
Furniture and fixtures 62,291 62,291
Construction in process 8,161 209,059
- ------------------------------------------------------------------------------------------
7,384,323 7,264,479
Less-accumulated depreciation (1,975,357) (1,338,414)
- ------------------------------------------------------------------------------------------
5,408,966 5,926,065
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $780,337 and $558,637 3,643,487 3,859,170
- ------------------------------------------------------------------------------------------
Total assets $13,978,730 $13,850,178
==========================================================================================
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-2
</TABLE>
LINCOLN SNACKS COMPANY
<TABLE>
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1996 AND 1995
<CAPTION>
June 30, June 30,
1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of term loan $ 800,004 $ 800,004
Borrowings under revolving line of credit 556,115 941,591
Accounts payable 1,830,054 775,540
Accrued trade promotions 860,180 1,000,964
Accrued expenses 1,116,664 1,238,060
- ------------------------------------------------------------------------------------------
Total current liabilities 5,163,017 4,756,159
TERM LOAN PAYABLE 309,322 1,109,326
- ------------------------------------------------------------------------------------------
Total liabilities 5,472,339 5,865,485
- ------------------------------------------------------------------------------------------
COMMITMENTS (Notes 9 and 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000 shares authorized,
6,450,090 outstanding at June 30, 1996 and 1995 64,501 64,501
Special stock, $0.01 par value, 300,000 shares authorized,
none outstanding - -
Additional paid-in capital 18,010,637 17,997,746
Accumulated deficit (9,542,721) (10,053,530)
- ------------------------------------------------------------------------------------------
8,532,417 8,008,717
Less - cost of common stock in treasury; 118,300 and
109,200 shares at June 30, 1996 and 1995, respectively (26,026) (24,024)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 8,506,391 7,984,693
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,978,730 $13,850,178
==========================================================================================
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-3
</TABLE>
LINCOLN SNACKS COMPANY
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995, THE SIX MONTHS ENDED
JUNE 30, 1994 AND THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Six Months Year Ended
Year Ended Year Ended Ended December 31,
June 30, 1996 June 30, 1995 June 30, 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $23,845,844 $27,136,404 $10,037,537 $28,368,003
COST OF SALES 17,224,348 16,220,495 7,191,333 17,684,633
- ---------------------------------------------------------------------------------------------
Gross profit 6,621,496 10,915,909 2,846,204 10,683,370
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,724,777 11,271,544 8,119,247 11,361,287
NON-RECURRING CHARGE (Note 13) - 726,019 - -
- ---------------------------------------------------------------------------------------------
Income (loss) from operations 896,719 (1,081,654) (5,273,043) (677,917)
OTHER:
Interest expense (356,910) (519,144) (232,624) (610,661)
Other income (expense), net - 12,415 (110,133) (32,327)
- ---------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 539,809 (1,588,383) (5,615,800) (1,320,905)
PROVISION FOR INCOME TAXES 29,000 14,000 44,491 16,000
- ---------------------------------------------------------------------------------------------
Net income (loss) $ 510,809 $(1,602,383) $(5,660,291) $(1,336,905)
==============================================================================================
ACTUAL AND PRO-FORMA NET INCOME
(LOSS) PER SHARE (Note 3) $ .08 $ (.25) $ (.92) $ (.34)
==============================================================================================
Weighted average number of shares
outstanding 6,334,757 6,340,890 6,122,719 3,977,590
==============================================================================================
The accompanying notes to financial statements are an integral part of
these statements.
F-4
</TABLE>
LINCOLN SNACKS COMPANY
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1,1993 TO JUNE 30, 1996
<CAPTION>
Cumulative Loans
Redeemable Additional Receivable
Preferred Common Special Paid-in From Accumulated Treasury
Stock Stock Stock Capital Stockholders (Deficit) Stock
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993 $7,000,000 $18,200 $ - $ 381,800 $ - $ (861,729) $ -
Net loss - - - - - (1,336,905) -
Dividends on preferred stock - - - - - (560,000) -
Issuance of common stock - 4,288 - 89,962 (35,000) - -
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1993 7,000,000 22,488 - 471,762 (35,000) (2,758,634) -
Net loss - - - - - (5,660,291) -
Dividends on preferred stock - - - - - (32,222) -
Exchange of preferred stock and
accrued dividends for common stock (7,000,000) 17,000 - 7,762,000 - - -
Collection of loans receivable - - - - 35,000 - -
Issuance of common stock, net of
underwriters commissions and
expenses of $1,569,000 - 25,013 - 9,530,984 - - -
Purchase of 109,200 shares of treasury - - - - - - (24,024)
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1994 - 64,501 - 17,764,746 - (8,451,147) (24,024)
Net loss - - - - - (1,602,383) -
Noel payment under tax agreement - - - 233,000 - - -
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1995 - 64,501 - 17,997,746 - (10,053,530) (24,024)
Net income - - - - - 510,809 -
Purchase of 9,100 shares of treasury - - - - - - (2,002)
Noel payment under tax agreement - - - 12,891 - - -
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1996 $ - $64,501 $ - $18,010,637 $ - $(9,542,721) $(26,026)
==============================================================================================================================
The accompanying notes to financial statements are an integral part of
these statements.
F-5
</TABLE>
LINCOLN SNACKS COMPANY
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995, THE SIX MONTHS ENDED
JUNE 30, 1994 AND THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Six Months
Year Ended Year Ended Ended Year Ended
June 30, June 30, June 30, December 31,
1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 510,809 $(1,602,383) $(5,660,291) $(1,336,905)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation 636,943 569,565 244,016 440,131
Amortization 221,700 627,842 316,234 530,721
Write-off of covenant not-to-compete - 466,667 - -
(Gain) loss on disposal of equipment - (5,415) 110,133 -
Provision for doubtful accounts and cash
discounts, net (84,439) 33,711 (11,748) 44,000
Changes in assets and liabilities
(net of assets acquired in 1993):
(Increase) decrease in accounts receivable (1,087,214) 95,027 2,177,345 (1,670,971)
(Increase) decrease in inventories 279,953 1,157,390 625,132 (1,123,505)
(Increase) decrease in prepaid and
other current assets 8,692 58,582 118,789 (77,619)
Increase in other assets (6,017) (33,452) (23,989) (250,832)
Increase (decrease) in accounts payable 1,054,514 (434,188) (355,289) 829,397
Increase (decrease) in due to Parent - - (374,620) 17,925
Increase (decrease) in accrued interest
- due to Parent - - (636,957) 524,439
Increase (decrease) in accrued trade promotions (140,784) (5,058) 667,235 (354,791)
Increase (decrease) in accrued expenses (121,396) (325,536) 721,242 (87,863)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,272,761 602,752 (2,082,768) (2,515,873)
- ------------------------------------------------------------------------------------------------------------
F-6
</TABLE>
LINCOLN SNACKS COMPANY
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995, THE SIX MONTHS ENDED
JUNE 30, 1994 AND THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Six Months
Year Ended Year Ended Ended Year Ended
June 30, June 30, June 30, December 31,
1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Carousel Nut business - - - (1,604,000)
Capital expenditures (119,844) (474,307) (563,714) (738,766)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (119,844) (474,307) (563,714) (2,342,766)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - - 9,555,597 59,250
Noel payment under tax agreement 12,891 233,000 - -
Purchase of treasury stock (2,002) - (24,024) -
Collection of loans receivable from stockholders - - 35,000 -
Borrowings from Parent - - - 6,968,422
Payments to Parent - - - (12,168,422)
Borrowings (repayments) under revolver, net (385,476) 466,010 (5,810,976) 6,286,557
Borrowings (repayments) under term loan (800,004) (800,006) (1,290,664) 4,000,000
Cost incurred related to financing activities - - - (397,903)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,174,591) (100,996) 2,464,933 4,747,904
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (21,674) 27,449 (181,549) (110,735)
CASH, beginning of period 80,212 52,763 234,312 345,047
- ------------------------------------------------------------------------------------------------------------
CASH, end of period $ 58,538 $ 80,212 $ 52,763 $234,312
============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 279,582 $ 438,430 $ 872,659 $ 18,482
============================================================================================================
Income taxes paid $ 22,140 $ 6,129 $ 39,993 $ 10,134
============================================================================================================
The accompanying notes to financial statements are an integral
part of these statements.
F-7
</TABLE>
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 Noel Group, Inc. (the "Parent"). 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 last four months of the calendar year. The Company
was formed in August 1992 and in 1994, changed its fiscal year end
from December 31 to June 30 for financial reporting purposes.
In January 1994, the Company sold 2,472,500 shares of common stock
as part of an initial public offering. The Company received net
proceeds of approximately $9,600,000 from the sale of this stock.
On June 6, 1995, the Company entered into an exclusive
distribution agreement (the "Distribution Agreement") with Planters
Company ("Planters"), a division of Nabisco, Inc., commencing on
July 17, 1995, for the sale and distribution of Fiddle Faddle and
Screaming Yellow Zonkers (the "Products"). Under the Distribution
Agreement, which requires Planters to purchase a minimum number of
equivalent cases during each twelve month period ending June 30,
1996 and June 30, 1997, the Company sells the Products to Planters
at a selling price which is reduced from the Company's historical
customer selling prices. Planters in turn is responsible for the
sale and distribution of the Products to its customers, therefore,
the Company does not have any selling, marketing, or distribution
costs associated with these Products. The financial impact of the
Distribution Agreement versus historical results is reductions in
revenue and gross profit which are offset by reduced selling,
marketing and distribution costs.
Net sales to Planters for the year ended June 30, 1996 were equal to
the minimum number of equivalent cases required to be purchased during
the fiscal year as part of the Distribution Agreement. If Planters or
the Company does not renew the Distribution Agreement, the termination
thereof could have a material adverse effect on the Company's financial
condition and results of operations. Sales to Planters represented
43% of net sales for the year ended June 30, 1996 and amounts due from
Planters represents 85% of accounts receivable at June 30,1996.
(2) Acquisitions:
Pursuant to the asset purchase agreement (the "Agreement") between
Sandoz Nutrition Corporation ("Sandoz") and Lincoln, effective August
31, 1992, Lincoln acquired certain assets of the Lincoln Snack Company
Division of Sandoz ("Lincoln Division") for approximately $12,100,000.
Approximately $900,000 of fees and expenses were incurred related to the
acquisition and are included as part of the cost allocated to the assets
acquired.
The acquisition was accounted for as a purchase with the assets acquired
recorded at their fair values at the date of acquisition. The purchase
price has been allocated as follows:
<TABLE>
<S> <C>
Current assets $3,249,000
Property, plant and equipment 4,573,000
Covenant not to compete (see Note 13) 1,600,000
Other assets 50,000
Excess of purchase price over net assets acquired 3,528,000
</TABLE>
On March 15, 1993, the Company acquired certain assets of Carousel Nut
Products, Inc. ("Carousel") for approximately $2,048,000 of which
$1,604,000 was paid in cash and $444,000 was financed through a
mortgage note. Approximately $488,000 of expenses were incurred
related to the acquisition and have been included as part of the
cost allocated to the assets acquired.
The acquisition was accounted for as a purchase with the assets acquired
recorded at their fair values at the date of acquisition. The purchase
price was allocated as follows:
<TABLE>
<S> <C>
Inventory $ 694,000
Property, plant and equipment 1,392,000
Excess of purchase price over net assets acquired 450,000
</TABLE>
The following is pro-forma information as if the Company's acquisition
of Carousel had occurred at January 1, 1993. This data may not be
indicative of what the actual results would have been or may be in the
future.
<TABLE>
<CAPTION>
Year Ended
December 31,
1993
--------------------------------------------
(unaudited)
<S> <C>
Revenues $ 29,132,000
============================================
Net loss $ (1,603,000)
============================================
Net loss per share $ (0.40)
============================================
</TABLE>
(3) Summary of Significant Accounting Policies:
Use of Estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles 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).
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:
<TABLE>
<S> <C>
Building and leasehold improvements 10-30 years
Machinery and equipment 3-10 years
Furniture and fixtures 7-10 years
</TABLE>
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:
<TABLE>
<S> <C>
Excess of purchase price over net assets acquired 30 years
Intellectual property and other 1-20 years
Covenant not to compete (see Note 13) 4 years
</TABLE>
As required under Accounting Principle Board No. 17, "Intangible
Assets", the Company periodically evaluates the periods over which
intangible assets are amortized to determine if events have occurred
which would require modification to the amortization period. The Company
reviews anticipated future operating results and cash flows on an
undiscounted basis in determining whether there has been an impairment in
the value of the excess of purchase price over net assets acquired.
In March 1995, 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," was issued. The Company plans to
adopt SFAS No. 121 in fiscal 1997, and believes that this accounting
standard will not have a material effect on the Company's financial
position and results of operations.
Earnings (loss) per common share-
Earnings (loss) per common share is computed based upon the weighted
average number of common shares outstanding. The common shares
outstanding reflect the 45.5 to 1 stock split effected in November
1993. The common shares outstanding used in the computation of earnings
(loss) per common share for all periods presented include 1,728,755
shares issued upon the exchange of the preferred stock for common stock
which occurred at the consummation of the registration of common stock in
January 1994 as discussed in Note 1.
Pursuant to Securities and Exchange Commission Staff Bulletin No. 55,
common stock and common stock equivalents issued within one year of an
initial public offering (see Note 7) have been included in the
calculation of earnings (loss) per share as if they were outstanding for
all periods presented.
Since the weighted average number of shares outstanding included the
assumed exchange of the preferred stock, earnings (loss) per common share
is calculated on earnings (loss) before preferred stock dividend.
Reclassifications-
Certain amounts have been reclassified in the prior year statements to
conform with current year presentation.
(4) Balance Sheet Components:
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------
<S> <C> <C>
Inventories-
Raw and packaging materials $1,616,673 $1,505,497
Finished goods 466,855 857,984
------------------------------------------------------------------
$2,083,528 $2,363,481
==================================================================
<CAPTION>
1996 1995
------------------------------------------------------------------
<S> <C> <C>
Intangible and other assets-
Excess of purchase price over
net assets acquired $3,977,631 $3,977,631
Intellectual property and other 446,193 440,176
------------------------------------------------------------------
4,423,824 4,417,807
Less: accumulated amortization (780,337) (558,637)
------------------------------------------------------------------
Intangible assets, net $3,643,487 $3,859,170
==================================================================
</TABLE>
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," was issued. The
Company plans to adopt SFAS No. 121 in fiscal 1997, and believes that
this accounting standard will not have a material effect on the Company's
financial position and its results of operations.
(5) Income Taxes:
Lincoln follows the accounting for income taxes required under SFAS No.
109, "Accounting for Income Taxes".
For the periods prior to the sale of stock in January 1994, discussed in
Note 1, the Company is included in the consolidated United States Federal
income tax return of its Parent. The Parent agreed not to allocate a tax
charge or benefit to the Company which is greater than the income taxes
that would have been generated if the Company computed its income taxes
on a separate return basis during these periods. The Company was not
included in the state income and franchise tax returns filed by its
Parent.
Upon completion of the registration and sale of stock in January 1994 the
Company became less than 80% owned by its Parent and is no longer
included in the United States Federal income tax return of its Parent.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income
(benefit) tax rate 34.0% (34.0%) (34.0%) (34.0%)
State income and
franchise taxes,
net of federal benefit 3.6 0.6 0.5 0.8
Net loss not benefited 14.6 30.1 30.0 49.2
Depreciation and
amortization (27.5) 3.3 (1.3) (9.0)
Accrued expenses (13.4) (0.3) 5.2 (7.3)
Other temporary differences (8.4) 0.7 0.1 -
Non-deductible meals
and entertainment 0.7 0.2 - 1.1
----------------------------------------------------------------------------------
Effective income tax rate 3.6% 0.6% 0.5% 0.8%
==================================================================================
</TABLE>
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30, December 31,
1996 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss
carryforward, net of
amount utilized
by Parent $3,079,000 $2,259,000 $1,710,000 $ -
Depreciation and
amortization (662,000) (264,000) (59,000) (111,000)
Accrued expenses
not yet deductible 476,000 545,000 498,000 70,000
All other 192,000 194,000 217,000 72,000
----------------------------------------------------------------------------------
Net deferred tax
asset unrecognized 3,085,000 2,734,000 2,366,000 31,000
Less: valuation
reserve (3,085,000) (2,734,000) (2,366,000) (31,000)
----------------------------------------------------------------------------------
Net deferred tax
asset recognized $ - $ - $ - $ -
==================================================================================
</TABLE>
At June 30, 1996, the Company had a net operating loss carryforward
("NOL's") for income tax purposes, subject to Internal Revenue
Service review, of approximately $7,700,000 which expire in 2009
through 2011 if not utilized. The above NOL's include those NOL's
generated subsequent to deconsolidating from its Parent and
approximately $1,600,000 of unutilized NOL's generated by the
Company that were included in the Parent's tax return prior to
deconsolidation in fiscal 1996. The Company has been reimbursed for
the portion of the Company's fiscal 1994 and 1995 NOL's utilized by
the Parent prior to deconsolidating. This reimbursement resulted in
a payment of $233,000 and $12,891, respectively, to the Company,
which was recorded by the Company as additional paid-in capital.
Under the United States Internal Revenue Code, future utilization
of NOL's may be limited when certain ownership changes occur. As a
result, future changes in ownership may limit the Company's ability
to fully utilize its available NOL's.
(6) Preferred Stock Subject to Redemption:
All preferred stock was owned by the Parent. The Parent converted all
of the preferred stock and accrued dividends into common stock upon
consummation of the offering of common stock in January 1994. The Parent
received 1,728,755 shares of common stock upon conversion.
(7) Stockholders' Deficit:
In January 1993, the Company issued and sold 383,335 shares of common
stock to certain key management personnel and directors for $84,250,
the estimated fair market value at date of issuance. In addition,
45,500 common shares were issued to a director as part of his
finders fee in connection with the acquisition of the Company.
The Company's certificate of incorporation authorizes the issuance
of special stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors.
In November 1993, the Company adopted the 1993 Stock Option Plan
and the Non-Employee Directors' Stock Option Plan. A total of
550,000 shares of common stock is reserved for issuance under the
1993 Stock Option Plan and 200,000 shares of common stock is
reserved for issuance under the Non-Employee Directors' Stock Option
Plan. In November 1993 and December 1994, stock options covering a
total of 240,000, of which 150,000 have expired, and 31,000 shares,
of which 7,000 have expired, respectively, of common stock were
granted to officers and employees of the Company under the 1993
Stock Option Plan. These options will be exercisable at $4.50 and
$1.875 per share, respectively, and vest 20% upon grant and 20% on
each anniversary date. In March 1995, stock options to purchase
20,000 shares of common stock were granted to an outside consultant
to the Company and are exercisable at $2.375 per share. In April
1996, stock options to purchase 35,000 shares of common stock were
granted to two outside consultants to the Company and are
exercisable at $1.75 per share.
Stock options covering a total of 123,600 shares of common stock were
issued in November 1993, under the Non-Employee Directors' Stock Option
Plan. Such options vested upon the consummation of the stock sale in
January 1994 and are exercisable at $4.50 per share. Under this 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 such
non-employee directors re-election at 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. In November 1995 and
1994, options covering a total of 20,000 and 17,500 shares were granted
to directors of the Company, vesting immediately, exercisable at $2.70
and $1.875 per share.
In connection with the offering of common stock in January 1994, the
Company issued to the underwriters warrants to purchase 215,000 shares of
common stock. These warrants are exercisable for a period of five years
beginning in January 1994 at an exercise price of $5.40 per share.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. The Company plans to adopt SFAS No. 123 in fiscal 1997. The
Company currently does not plan to change its method of accounting for
stock based compensation; however, SFAS No. 123 will require additional
footnote disclosures relating to the effect of using a fair value based
method of accounting for stock-based compensation cost.
(8) Credit Facility:
In December 1993, the Company entered into a bank loan agreement, as
amended, which currently provides for up to $6 million in revolver
borrowings and a $1.9 million term loan. The facilities require the
maintenance of various financial and other covenants including, but not
limited to, earnings (loss) before interest, taxes, depreciation and
amortization ("EBITDA"), tangible net worth and debt coverage. The
financial covenants are to be met on a quarterly basis and the minimum
requirements vary by quarter.
In March and June of 1995, the credit and term loan facilities were
amended as the Company would not have been in compliance with the EBITDA
covenant as it existed prior to the amendments. Since June 30, 1995, the
Company has been in compliance with the terms of the bank loan agreement.
Borrowings under the revolver are limited to a percent of eligible
receivables and inventory. The revolving credit facility and term loan
bear interest at a rate equal to the sum of the average monthly
Eurodollar rate plus 3.0% and 3.25%, respectively. In addition to this
rate, the Company does have the option to pay interest on the revolving
credit facility and term loan at (1) the Alternate Base Rate, as defined,
plus 1.5% and 1.75%, respectively, or (2) the Eurodollar rate, as
defined, plus 3.0% and 3.25%, respectively. At June 30, 1996 and 1995,
the interest rate was 8.94% and 9.375%, respectively. Interest is
payable monthly, in arrears, and is calculated on the basis of a 360 day
year and actual days elapsed, with the applicable rate adjusting on each
change of the Eurodollar rate. Effective September 1996, the Company's
interest rate for its revolving credit facility and term loan will
decrease 0.5% since the Company achieved certain financial ratios at June
30, 1996. The Company's interest rates may decrease a further 0.5% if
certain financial ratios are achieved at September 30, 1996.
The facility requires an annual monitoring fee of $12,000 and an unused
facility fee of 0.5% on the unused portion of the revolver. The
facilities are collateralized by substantially all of the Company's
assets. All borrowings under the revolving credit facility are reflected
as a current liability.
The credit facility is available through December 2, 1999. At that time,
any borrowing under the credit facility becomes due. The term loan is
repayable in monthly installments of $66,667 which began in January 1994.
The term loan classified as long term debt matures in fiscal 1998.
Through January 1994, Lincoln had a credit facility with its Parent that
allowed for borrowings up to $14,100,000. In December 1993, the Company
repaid its indebtedness to the Parent under the Note Payable to Parent
from borrowings under this bank facility.
(9) 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, 1996 is approximately
$3,248,000. These purchase commitments expire primarily through December
31, 1996.
(10) Leases:
At June 30, 1996, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as follows:
1997 $266,000
1998 183,000
1999 72,000
2000 19,000
Rent expense for operating leases amounted to approximately
$283,000 and $338,000 for the years ended June 30, 1996 and 1995,
respectively, $167,000 for the six months ended June 30, 1994, and
$255,000 for the year ended December 31, 1993.
(11) Related Party Transactions:
In connection with the acquisition of the Company, a finders fee of
$175,000 was paid to a director of Lincoln and legal fees of $106,000
were paid to a law firm of which one of its partners is a director of
the Parent. In the years ended June 30, 1996 and 1995, the six months
ended June 30, 1994, and the year ended December 31, 1993, legal fees
of approximately $86,000, $75,000, $267,000 and $108,000, respectively,
were paid to this law firm.
For the years ended June 30, 1996 and 1995, the six months ended
June 30, 1994, and the year ended December 31, 1993, this director
was paid the following: $9,000, $42,000, $19,000 and $47,000,
respectively, for services under this agreement, $0, $35,000, $0 and
$33,000 respectively, for consulting services, and $2,000, $3,000,
$9,000 and $15,000, respectively in director fees.
One of the Company's executives is paid by the Parent. Lincoln did not
receive any allocation of expenses from its Parent relating to this
charge.
During the year ended June 30, 1995, an investment banking firm rendered
certain financial services to the Company. A director of the Company is
Co-President and Co-Chief Executive Officer of this investment banking
firm.
(12) 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, 1996 and 1995, the six months ended June 30, 1994, and the year ended
December 31, 1993, Company contributions to the plan totaled $51,000,
$48,000, $27,000 and $46,000, respectively.
(13) Non-recurring Charge Related to Distribution Agreement:
On June 6, 1995, the Company entered into an exclusive Distribution
Agreement with Planters for the sale and distribution of the Products,
see Note 1.
As a result of this Distribution Agreement, the Company recorded a non-
recurring pre-tax charge to operations of $726,019 for estimated costs
associated with implementing the Distribution Agreement for the year
ended June 30, 1995. The largest portion of this charge represents a
$466,667 write-off of the unamortized balance of the covenant not to
compete previously acquired from Sandoz (see Note 2) as the Company
determined the net realizable value of the covenant to be insignificant.
In addition, the charge was also for estimated severance payments and
inventory obsolescence costs associated with the Distribution Agreement.
(14) Sales Data:
Export sales-
During the years ended June 30, 1996 and 1995, the six months ended
June 30, 1994, and the year ended December 31, 1993, export sales were
approximately $1,422,000, $2,259,000, $900,000, and $2,288,000,
respectively.
Significant customer-
For the year ended June 30, 1996, Planters represented approximately
43% of net sales. For the period ended June 30, 1994 one customer
represented approximately 10% of net sales. No one customer
accounted for 10% or more of net sales during the periods ended
December 31, 1993 and June 30, 1995.
(15) Unaudited Financial Information for
the Six Months Ended July 3, 1993:
The following summarizes the income statement information for the six
months ended July 3, 1993.
<TABLE>
<CAPTION>
Six Months
Ended
July 3, 1993
--------------------------------------------------
(Unaudited)
<S> <C>
Net sales $ 8,907,000
Cost of sales 5,697,000
--------------------------------------------------
Gross profit 3,210,000
Selling, general and
administrative expenses 4,158,000
--------------------------------------------------
Loss from operations (948,000)
Interest expense (246,000)
Other income 7,000
--------------------------------------------------
Net loss $(1,187,000)
==================================================
Net loss per share $ (.30)
==================================================
</TABLE>
(16) Valuation and Qualifying Accounts:
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
Description of Period Expenses Deductions of Period
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
December 31, 1993,
allowances for
doubtful accounts
and cash discounts $192,000 $509,000 $(465,000) $236,000
Six months ended
June 30, 1994,
allowances for
doubtful accounts
and cash discounts $236,000 $135,000 $(146,748) $224,252
Year ended
June 30, 1995,
allowances for
doubtful accounts
and cash discounts $224,252 $439,050 $(405,339) $257,963
Year ended
June 30, 1996,
allowances for
doubtful accounts
and cash discounts $257,963 $242,673 $(327,112) $173,524
</TABLE>
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))
(9) Voting Trust Agreement; Not Applicable
(10) Material Contracts
(A) Amendment No. 5, dated as of November 7, 1995, to *
Revolving Credit, Term Loan and Security Agreement dated
December 3, 1993, by and between Lincoln Snacks Company
and The Bank of New York Commercial Corporation
(Incorporated by reference to Exhibit 10(a) filed by the
Company with the Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996)
(B) Letter dated December 18, 1995 between Lincoln Snacks *
Company and Planters relating to the revised production
schedule (Incorporated by reference to Exhibit 10(b) filed
by the Company with the Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996)
(C) Letter dated November 30, 1995 between Lincoln Snacks *
Company and Planters relating to the revised territories
covered by the Planters Agreement (Incorporated by reference
to Exhibit 10(c) filed by the Company with the Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996)
(D) Letter dated February 5, 1996 between Lincoln Snacks *
Company and Planters relating to the revised production
schedule (Incorporated by reference to Exhibit 10(a) filed
by the Company with the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)
(E) Amendment No. 6 dated May 8, 1996, to Revolving Credit, *
Term Loan and Security Agreement dated December 3, 1993,
by and between Lincoln Snacks Company and The Bank of
New York Commercial Corporation (Incorporated by reference
to Exhibit 10(b) filed by the Company with the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996)
(F) Letter agreement dated March 1, 1996 by and between Noel *
Group, Inc. and Karen Brenner relating to Ms. Brenner's
employment by Noel Group, Inc. (Incorporated by reference
to Exhibit 10(B) to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed by Noel Group, Inc.)
(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; Not Applicable
(24) Power of Attorney; Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits; Not Applicable
* Incorporated by reference
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 58,538
<SECURITIES> 0
<RECEIVABLES> 2,867,399
<ALLOWANCES> 173,524
<INVENTORY> 2,083,528
<CURRENT-ASSETS> 4,926,277
<PP&E> 7,384,323
<DEPRECIATION> 1,975,357
<TOTAL-ASSETS> 13,978,730
<CURRENT-LIABILITIES> 5,163,017
<BONDS> 309,322
0
0
<COMMON> 64,501
<OTHER-SE> 8,441,890
<TOTAL-LIABILITY-AND-EQUITY> 13,978,730
<SALES> 23,845,844
<TOTAL-REVENUES> 23,845,844
<CGS> 17,224,348
<TOTAL-COSTS> 17,224,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46,000
<INTEREST-EXPENSE> 356,910
<INCOME-PRETAX> 539,809
<INCOME-TAX> 29,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 510,809
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
