SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-23048
LINCOLN SNACKS COMPANY
(exact name of registrant as specified in its charter)
Delaware 47-0758569
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
4 High Ridge Park, Stamford, Connecticut 06905
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code) (203) 329-4545
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
on April 30, 1997 was 6,331,790 shares.
<PAGE>
LINCOLN SNACKS COMPANY
INDEX TO FORM 10-Q
PAGE
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1997
and June 30, 1996 3-4
Statements of Operations for the
Three Months Ended March 31, 1997
and March 30, 1996 5
Statements of Operations for the
Nine Months Ended March 31, 1997
and March 30, 1996 6
Statements of Changes in Stockholders'
Equity for the Nine Months Ended
March 31, 1997 and March 30, 1996 7
Statements of Cash Flows for the
Nine Months Ended March 31, 1997
and March 30, 1996 8
Notes to Financial Statements 9-10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11-13
Part II. OTHER INFORMATION
Item 1-4. OTHER INFORMATION 14
Item 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF MARCH 31, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 686,545 $ 58,538
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $217,264 and $173,524 respectively) 2,279,491 2,693,875
Inventories 1,828,796 2,083,528
Prepaid and other current assets 42,298 90,336
------------ ------------
Total current assets 4,837,130 4,926,277
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 610,000
Building and leasehold improvements 1,567,106 1,555,985
Machinery and equipment 5,290,430 5,147,886
Furniture and fixtures 62,291 62,291
Construction in process 2,567 8,161
------------ ------------
7,292,394 7,384,323
Less: accumulated depreciation
and amortization (2,451,851) (1,975,357)
------------ ------------
4,840,543 5,408,966
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$681,084 and $780,337 3,514,694 3,643,487
------------ ------------
TOTAL ASSETS $ 13,192,367 $ 13,978,730
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF MARCH 31, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of term loan $ 249,623 $ 800,004
Borrowings under revolving
line of credit 0 556,115
Accounts payable 1,371,034 1,830,054
Accrued trade promotions 763,944 860,180
Accrued expenses 963,278 1,116,664
------------ ------------
Total current liabilities 3,347,879 5,163,017
Term Loan Payable 0 309,322
Deferred gain (note 6) 115,784 0
------------ ------------
TOTAL LIABILITIES 3,463,663 5,472,339
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
March 31, 1997 and June 30, 1996 64,501 64,501
Special stock, $0.01 par value, 300,000
shares authorized, none outstanding 0 0
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit (8,320,408) ( 9,542,721)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,728,704 8,506,391
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,192,367 $ 13,978,730
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
NET SALES $ 4,309,514 $ 4,266,652
COST OF SALES 3,396,964 3,240,675
------------ ------------
Gross profit 912,550 1,025,977
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 870,563 994,979
------------ ------------
Income from operations 41,987 30,998
OTHER:
Interest Expense 16,292 69,242
Other Income (1,554) 0
------------ ------------
Income (loss) before provision
for income taxes 27,249 (38,244)
PROVISION FOR INCOME TAXES 10,000 2,000
------------ ------------
Net income (loss) $ 17,249 $ (40,244)
============ ============
NET INCOME (LOSS) PER SHARE $ 0.003 $ (0.01)
============ ============
Weighted Average Number of
Shares Outstanding 6,331,790 6,331,790
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
NET SALES $ 18,424,690 $ 18,579,534
COST OF SALES 12,658,925 13,186,000
------------ ------------
Gross profit 5,765,765 5,393,534
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,390,220 4,602,770
------------ ------------
Income from operations 1,375,545 790,764
OTHER:
Interest Expense 124,786 281,818
Other Income (1,554) 0
----------- -------------
Income before provision
for income taxes 1,252,313 508,946
PROVISION FOR INCOME TAXES 30,000 27,000
------------ ------------
Net income $ 1,222,313 $ 481,946
============ ============
NET INCOME PER SHARE $ 0.19 $ 0.08
============ ============
Weighted Average Number of
Shares Outstanding 6,331,790 6,335,757
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Special Paid In Accumulated Treasury
Stock Stock Capital Deficit Stock
------- ------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
June 30, 1995 $64,501 $0 $17,997,746 $(10,053,530) $(24,024)
Net income 481,946
Noel payment
under tax
agreement 12,891
Purchase of
9,100 shares
of Treasury (2,002)
------- ------- ----------- ------------ ---------
March 30, 1996 $64,501 $0 $18,010,637 $( 9,571,584) $(26,026)
======= ======= =========== ============ =========
June 30, 1996 $64,501 $0 $18,010,637 $( 9,542,721) $(26,026)
Net income 1,222,313
------- ------- ----------- ------------ --------
March 31, 1997 $64,501 $0 $18,010,637 $( 8,320,408) $(26,026)
======= ======= =========== ============ ========
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 30, 1996
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,222,313 $ 481,946
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 617,584 635,405
Allowance for doubtful accounts and
cash discounts, net 43,740 (78,051)
Changes in Assets and Liabilities:
(Increase) decrease in accounts
receivable 370,644 (1,460,422)
Decrease in inventories 254,732 327,294
Increase (decrease) in prepaid and
other current assets 35,741 (59,855)
Increase (decrease) in accounts
payable and accrued expenses (722,076) 754,078
------------ ------------
Net cash provided by operating
activities 1,822,678 600,395
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (148,071) (101,232)
Proceeds from sale of land 369,218 0
------------ ------------
Net cash provided by (used in)
investing activities 221,147 (101,232)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under
revolver, net (556,115) 62,897
Repayments under term loan (859,703) (600,003)
Noel payment under tax agreement 0 12,891
Repurchase of treasury shares 0 (2,002)
------------ ------------
Net cash used in financing activities (1,415,818) (526,217)
------------ ------------
Net increase (decrease) in cash 628,007 (27,054)
CASH, beginning of period 58,538 80,212
------------ ------------
CASH, end of period $ 686,545 $ 53,158
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 114,941 $ 245,535
============ ============
Income taxes paid $ 17,751 $ 16,860
============ ============
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
(1) The Company:
Lincoln Snacks Company ("Lincoln" or the "Company"), formerly Lincoln
Foods Inc., is a Delaware corporation and is a majority-owned subsidiary
of Noel Group, Inc. (the "Parent"). Lincoln is engaged in the
manufacture and marketing of caramelized pre-popped popcorn and glazed
popcorn/nut mixes. Sales of the Company's products are subject to
seasonal trends with a significant portion of sales occurring in the
last four months of the calendar year.
(2) Basis of Presentation:
The balance sheet as of March 31, 1997, and the related statements of
operations for the three and nine months ended March 31, 1997 and March
30, 1996, changes in stockholders' equity and cash flows for the nine
months ended March 31, 1997 and March 30, 1996, have been prepared by
the Company without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position, results
of operations and cash flows at March 31, 1997 and March 30, 1996 have
been made. During the interim periods reported on, the accounting
policies followed are in conformity with generally accepted accounting
principles and are consistent with those applied for annual periods and
described in the Company's Annual Report on Form 10-K for the twelve
months ended June 30, 1996 filed with the Securities and Exchange
Commission on September 24, 1996 (the "Annual Report").
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements included in the Annual Report. The results of operations for
the nine months ending March 31, 1997 and March 30, 1996 are not
necessarily indicative of the operating results for the full year.
(3) Credit Facility:
The Company has a revolving credit and term loan facility, as amended,
which provides for up to $5.9 million in revolver borrowings and a $1.9
million term loan (no amount was outstanding under the revolver and $.2
million was outstanding under the term loan, as of March 31, 1997).
This facility is collateralized by substantially all of the Company's
assets.
(4) Inventory:
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 1,338,226 $ 1,616,673
Finished goods 490,570 466,855
------------- ------------
$ 1,828,796 $ 2,083,528
============= ============
</TABLE>
(5) Significant Customer:
On June 6, 1995, the Company entered into an exclusive distribution
agreement (the "Distribution Agreement") with Planters Company, a
division of Nabisco, Inc. ("Planters"), commencing on July 17, 1995, for
the sale and distribution of Fiddle Faddle and Screaming Yellow Zonkers
(the "Products"). The Distribution Agreement requires Planters to
purchase a minimum number of equivalent cases during each year of the
initial term.
On February 28, 1997, the Company and Planters amended the Distribution
Agreement ("Amendment") extending the term of the Distribution Agreement
for an additional six month period expiring on December 31, 1997. The
initial term of the Distribution Agreement would have expired on June
30, 1997.
The Amendment requires Planters to pay for the original contract
minimums for the twelve month period ended June 30, 1997 and requires
new minimums for the six month period ended December 31, 1997 (six month
minimums). Planters has agreed to purchase 87% of the original contract
minimums and to compensate the Company in the event that Planters fails
to purchase the remaining 13% of the original contract minimums by June
30, 1997. Planters has agreed to compensate the Company in the event
that Planters fails to purchase the six month minimums by December 31,
1997. The Amendment also requires Planters to compensate the Company in
the event that certain sales levels are not achieved during the calendar
year ending December 31, 1997.
The Amendment, among other things, eliminates Planters right to
terminate the contract in the event of a change of control, Planters
right of first refusal on Poppycock granted in the original contract,
and allows Lincoln to enter into co-pack arrangements relating to
ready-to-eat popcorn. Under the Amendment, Lincoln will resume sales and
distribution of Screaming Yellow Zonkers on May 1, 1997, one of the two
products that Planters has distributed since the original agreement took
effect.
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be
no assurance as to the long term effects of the transition.
The Company's sales to Planters for the nine month period ended March 31,
1997 increased over the same period ended March 30, 1996 due to the
increase in the minimum number of equivalent cases required to be
purchased as part of the Distribution Agreement in fiscal 1997. Sales
to Planters represented 68% and 64% of net sales for the three months
ended March 31, 1997 and 1996, respectively; 47% and 40% of net sales
for the nine months period ended March 31, 1997 and March 30, 1996,
respectively.
(6) Sale of Land:
In October 1996, the Company sold land adjacent to its manufacturing
facility in Lincoln, Nebraska. At the same time, the Company entered
into a ten year lease agreement for 50,000 square feet of a new
warehouse to be constructed on the land. The proceeds from the sale, of
$369,218, were used to pay down the Company's term loan. The sale
resulted in a net gain of $129,218 which has been deferred, and will be
recognized as income over the ten year lease term.
<PAGE>
LINCOLN SNACKS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Results of Operations:
Introduction
The Company's net sales are subject to significant seasonal variation,
consequently, results from operations will fluctuate due to these trends. The
Company's business is seasonal due to customers' buying patterns of Poppycock
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 an exclusive distribution
agreement ("the Distribution Agreement") with Planters Company, a division of
Nabisco, Inc. ("Planters"), commencing on July 17, 1995, for the sale and
distribution of Fiddle Faddle and Screaming Yellow Zonkers (the "Products").
The Distribution Agreement requires Planters to purchase a minimum number of
equivalent cases during each year of the initial term.
On February 28, 1997, the Company and Planters amended the Distribution
Agreement ("Amendment") extending the term of the Distribution Agreement for
an additional six month period expiring on December 31, 1997. The initial term
of the Distribution Agreement would have expired on June 30, 1997.
The Amendment requires Planters to pay for the original contract minimums
for the twelve month period ended June 30, 1997 and requires new minimums for
the six month period ended December 31, 1997 (six month minimums). Planters
has agreed to purchase 87% of the original contract minimums and to compensate
the Company in the event that Planters fails to purchase the remaining 13% of
the original contract minimums by June 30, 1997. Planters has agreed to
compensate the Company in the event that Planters fails to purchase the six
month minimums by December 31, 1997. The Amendment also requires Planters to
compensate the Company in the event that certain sales levels are not achieved
during the calendar year ending December 31, 1997.
The Amendment, among other things, eliminates Planters right to terminate
the contract in the event of a change of control, Planters right of first
refusal on Poppycock granted in the original contract, and allows Lincoln to
enter into co-pack arrangements relating to ready-to-eat popcorn. Under the
Amendment, Lincoln will resume sales and distribution of Screaming Yellow
Zonkers on May 1, 1997, one of the two products that Planters has distributed
since the original agreement took effect.
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be no
assurance as to the long term effects of the transition.
The Company's sales to Planters for the nine month period ended March 31,
1997 increased over the same period in 1996 due to the increase in the minimum
number of equivalent cases required to be purchased as part of the Distribution
Agreement in fiscal 1997. Sales to Planters for the nine months period ended
March 31, 1997 and March 30, 1996 represented 70% and 73%, respectively, of the
minimum number of equivalent cases required to be purchased annually as part
of the Distribution Agreement.
Three months ended March 31, 1997 versus March 30, 1996
Net sales of $4.31 million for the quarter ended March 31, 1997 were
essentially equal to sales of $4.27 million in the corresponding period of
1996. Sales to Planters increased while Lincoln's other branded product and
other sales were essentially equal to a year ago. Sales to Planters
represented 68% and 64% of net sales for the quarter ended March 31, 1997 and
1996, respectively.
Gross profit decreased $.11 million to $.91 million for the quarter ended
March 31, 1997 versus $1.03 million in the corresponding period of 1996. The
decrease in gross profit is due to the mix of products sold.
Selling, general and administrative expenses decreased 13% or $.12
million to $.87 million for the quarter ended March 31, 1997 versus the same
period in 1996 of $.99 million. The decrease is attributable to lower variable
selling expenses relating to the mix of products sold.
The decrease in selling, general, administrative and interest expense
resulted in an increase in net income of $.06 million to $.02 million for the
quarter ended March 31, 1997 versus a loss of $.04 million in the corresponding
period in 1996.
Nine months ended March 31, 1997 versus March 30, 1996
Net sales remained essentially equal to a year ago of $18.42 million for
the nine months ended March 31, 1997 versus $18.58 million in the corresponding
period of 1996. Sales to Planters and of Lincoln's other branded product
increased for the nine months period ended March 31, 1997 versus the same
period in 1996. Such increases were offset by declines in Nut Division sales.
Sales to Planters represented 47% and 40% of net sales for the nine months
ended March 31, 1997 and March 30, 1996, respectively.
Gross profit increased $.37 million to $5.77 million for the nine months
ended March 31, 1997 versus $5.39 million in the corresponding period of 1996.
The gross profit increase is the result of increased sales to Planters and of
Lincoln's other branded product and increased manufacturing efficiencies.
These increases were partially offset by a decrease in Nut Division gross
profits resulting from declines in sales.
Selling, general and administrative expenses decreased $.21 million to
$4.39 million for the nine months ended March 31, 1997 versus $4.60 million in
the corresponding period in 1996. The decrease is attributable to lower
variable selling expense relating to the mix of products coupled with a
reduction in headcount.
The increase in gross profit and the decrease in interest expense,
resulted in an increase in net income of $.74 million to $1.22 million for the
nine months ended March 31, 1997 versus $.48 million in the corresponding
period in 1996.
Liquidity and Capital Resources
As of March 31, 1997, the Company had working capital of $1.49 million
compared to a working capital deficit of $.24 million at June 30, 1996 (the
Company's fiscal year end), an increase in working capital of $1.73 million.
The increase in working capital is primarily attributable to the Company's net
income of $1.22 million for the nine months ended March 31, 1997.
The Company currently meets its short-term liquidity needs from its
revolving credit facility, which facility is secured by a first priority,
perfected security interest in substantially all of the Company's existing and
after-acquired assets. The Company presently believes that this facility is
adequate to meet its needs for the next twelve months.
Management continues to focus on increasing product distribution and
continues to review all operating costs with the objective of increasing
profitability and ensuring future liquidity. However, there can be no
assurance that any of these objectives will be achieved. The execution of the
Distribution Agreement and its Amendment is intended to be consistent with
management's objectives. Although the Amendment contains provisions designed
to effect a smooth transfer of the distribution business back to the Company,
there can be no assurance as to the long term effects of the transition.
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>
Nine Months Ended
------------------------
March 31, March 30,
1997 1996
--------- ----------
(in thousands)
<S> <C> <C>
Net cash provided by operating
activities $ 1,823 $ 600
Net cash provided by (used in)
investing activities 221 (101)
Net cash used in financing activities (1,416) (526)
</TABLE>
Net cash provided by operating activities increased to $1.8 million
during the nine months ended March 31, 1997 compared to $.6 million in 1996.
The increase is primarily due to the increase in net income coupled with an
increase in cash provided by account receivable balances due to the timing of
Planters receipts which was partially offset by decreases in cash due to the
timing of payments of account payables and accrued expenses.
Net cash provided by investing activities increased to $.22 million
during the nine months ended March 31, 1997 compared to use of cash of $.10
million for the nine months ended March 30, 1996. Net cash used by investing
activities as of March 31, 1997 of $.22 million represents proceeds from the
sale of land and is offset by capital expenditures. Net cash used by investing
activities as of March 30, 1996 of $.10 million represents capital
expenditures.
Net cash used in financing activities was $1.4 million for the nine
months ended March 31, 1997, which consisted of repayments of revolver
borrowings under the Company's credit agreement of $.56 million and term loan
repayments of $.86 million. The proceeds of $.37 million from the sale of land
were used to pay down the term loan and revolver. Net cash used by financing
activities for the period ended March 30, 1996 was $.53 million, which
primarily consisted of revolver payments under the Company's credit agreement
of $.06 million and by term loan repayments of $.60 million.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters
to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a Exhibits
(2) Not Applicable
(3) Articles of Incorporation and By-Laws
(a) Certificate of Incorporation, as amended and as
currently in effect (Incorporated by reference
to Exhibit 3(A), filed by the Company with the
Registration Statement on Form S-1 (33-71432)).
(b) By-Laws as currently in effect (Incorporated by
reference to Exhibit 3(B) filed by the Company
with the Registration Statement on Form S-1
(33-71432)).
(4) Not Applicable
(10) (a) Amendment to the Distribution Agreement dated
February 28, 1997 between Lincoln Snacks Company
and Planters relating to extension of the
Distribution Agreement until December 31, 1997.
(11) Statement regarding computation of per share earnings
is not required because the relevant computation can
be determined from the material contained in the
Financial Statements included herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
b Reports on Form 8-K Not Applicable
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 5, 1997 Lincoln Snacks Company
(Registrant)
By: /s/Karen Brenner
Name: Karen Brenner
Title: Chairman of the Board and
Chief Executive Officer; Director
(Principal Executive Officer)
By: /s/Kristine A. Crabs
Name: Kristine A. Crabs
Title: Vice President and Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 686,545
<SECURITIES> 0
<RECEIVABLES> 2,496,755
<ALLOWANCES> 217,264
<INVENTORY> 1,828,796
<CURRENT-ASSETS> 4,837,130
<PP&E> 7,292,394
<DEPRECIATION> 2,451,851
<TOTAL-ASSETS> 13,192,367
<CURRENT-LIABILITIES> 3,347,879
<BONDS> 0
0
0
<COMMON> 64,501
<OTHER-SE> 9,664,203
<TOTAL-LIABILITY-AND-EQUITY> 13,192,367
<SALES> 18,424,690
<TOTAL-REVENUES> 18,424,690
<CGS> 12,658,925
<TOTAL-COSTS> 12,658,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46,000
<INTEREST-EXPENSE> 124,786
<INCOME-PRETAX> 1,252,313
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,222,313
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10-A
AMENDMENT TO EXCLUSIVE DISTRIBUTION AGREEMENT
AMENDMENT dated as of February 28, 1997 (the "Amendment") to
EXCLUSIVE DISTRIBUTION AGREEMENT dated June 6, 1995, as heretofore amended
(the "Pre-Amendment Agreement"), between LINCOLN SNACKS COMPANY, a Delaware
corporation with a principal place of business at 4 High Ridge Park,
Stamford, Connecticut 06905 (hereinafter "Lincoln"), and PLANTERS COMPANY, a
unit of NABISCO, INC., a New Jersey corporation with a principal place of
business at 100 DeForest Avenue, East Hanover, New Jersey 07936 (hereinafter
"Planters").
W I T N E S S E T H:
WHEREAS, except to the extent contemplated by the Amendment,
Planters and Lincoln do not intend to renew the Initial Term of the
Pre-Amendment Agreement and Lincoln and Planters desire to effect a smooth
transfer back to Lincoln of the business of the distribution of the
Products; and
WHEREAS, for the purposes of effectuating the foregoing, the
parties desire to amend the Pre-Amendment Agreement to effect the changes
set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and
promises hereinafter set forth, it is hereby agreed as follows:
1. Effective Date of the Amendment.
The Amendment shall take effect on March 1, 1997 (the "Effective
Date").
2. Defined Terms.
For the purposes of the Amendment, unless the context otherwise
requires or unless otherwise amended by the Amendment, terms used herein
which are defined in the Pre-Amendment Agreement, shall have the respective
meanings ascribed to them in the Pre-Amendment Agreement.
3. Termination of Right to Distribute Screaming Yellow
Zonkers.
Effective May 1, 1997, Planters shall have no further right or
obligation to distribute Lincoln's product known as Screaming Yellow
Zonkers ("Screaming Yellow Zonkers Product"), provided, however, that until
August 1, 1997 Planters shall have the right to liquidate any Screaming
Yellow Zonkers Product at the liquidation outlets set forth on Exhibit A
attached hereto (and such other outlets as shall be mutually agreed in
writing), with the shelf life of such units to be no older than 270 days.
Planters shall use reasonable efforts to prevent diversion of such Screaming
Yellow Zonkers Product into non-liquidation channels.
4. Amendment of Definition of "Territory" and "Product".
All references to Planters' right to distribute the Product on
and after the Effective Date shall mean the product known as Fiddle Faddle
and, with respect to the remainder of the Term, as extended by the Extension
Period, all references to the "Territory" shall mean the United States of
America (including Puerto Rico and United States territories and
possessions).
5. Term
The exclusive right granted to Planters by the Pre-Amendment
Agreement to distribute the Product during the Term shall be extended for an
additional six month period ending on December 31, 1997 (the "Extension
Period") and accordingly the Term shall expire on December 31, 1997. All
references in the Pre-Amendment Agreement to a Renewal Term following
expiration of the Initial Term are hereby deleted, no Renewal Term is
contemplated by the parties hereto.
6. Purchase Requirements
Planters minimum purchase obligations set forth in Section 2.2
of the Pre-Amendment Agreement are hereby replaced with the purchase
obligations hereinafter set forth.
(a) During the six month period commencing January 1, 1997
and ending June 30, 1997, Planters agrees to purchase, and
acknowledges that it shall be billed at the transfer price for,
an aggregate of not less than 926,674 Equivalent Cases of
Product as follows: (x) at least 375,000 Equivalent Cases shall
be manufactured within each quarter and billed and paid for
within 15 days of production and (y) the additional 176,674
Equivalent Cases (which Equivalent Cases represent Product
previously manufactured) to the extent not purchased prior to
the Effective Date shall be purchased and paid for within 15
days following the Effective Date. Accordingly, the parties
hereto acknowledge and agree that a total of 1,950,000
Equivalent Cases shall have been purchased at the transfer price
during the twelve month period commencing on July 1, 1996 and
ending on June 30, 1997, which amount represents a shortfall of
300,000 Equivalent Cases from the 2,250,000 Equivalent Cases
required to have been purchased during such period pursuant to
the Pre-Amendment Agreement. With respect to such shortfall,
Planters acknowledges and agrees that it shall be billed for and
shall pay Lincoln on June 30, 1997 a non-reimbursable amount of
$720,000 (which amount represents $2.40 times 300,000) and such
amount shall not be applied against any other amount due under
this Amendment.
(b) Pursuant to the terms of this paragraph, during the
six month period commencing July 1, 1997 and ending December 31,
1997, Planters agrees to pay for an aggregate of 750,000
Equivalent Cases to be billed at a rate of 125,000 Equivalent
Cases per month. With respect to its obligations under this
paragraph (b), Lincoln will bill Planters on the first day of
each month during such period, and Planters will pay Lincoln
within 15 days thereof, an amount of $300,000 (which amount
represents $2.40 times 125,000). On the last day of each month,
Lincoln will bill Planters (at the transfer price per Equivalent
Case less $2.40) and Planters will pay Lincoln, within 15 days,
for the number of cases manufactured during such month in
accordance with the monthly production schedule. In the event
Lincoln produces less than 375,000 Equivalent Cases in the third
quarter, Lincoln shall be under no obligation to make up for any
such shortfall in the subsequent quarter. In the event that
Lincoln is required to vary its production schedule to meet
Planters' desired inventory level of approximately 250,000
Equivalent Cases of Product on December 31, 1997, such that
Planters fails to purchase an aggregate of 750,000 Equivalent
Cases during this six month period, Planters hereby agrees to
reimburse Lincoln within 15 days of receipt of invoice for any
raw materials and packaging obligations entered into on behalf
of Planters pursuant to and in accordance with the 90 Day
Rolling Forecast. Lincoln will not bill Planters at the end of
the Term for any raw materials and packaging obligations entered
into on behalf of Planters pursuant to the 90 Day Rolling
Forecast which Lincoln subsequently intends to use or
reasonably could use within the following three month period.
(c) In the event that during the calendar year ending
December 31, 1997, Planters has not sold at least 1,500,000
Equivalent Cases in non-liquidation channels, Planters shall pay
Lincoln, prior to January 15, 1998, an amount equal to (x)
1,500,000 minus (y) the amount of Equivalent Cases sold through
non-liquidation channels times (z) $3.20. Lincoln and Planters
agree that the amount contemplated by the previous sentence to
be paid by Planters, to the extent Planters fails to sell at
least 1,500,000 Equivalent Cases in non-liquidation channels, is
a reasonable estimate of the amount of damages Lincoln would
suffer as a result of Planters failure to sell such cases and
constitutes a fair and reasonable amount of compensation for any
such failure.
(d) Lincoln and Planters hereby agree that title to the
Product will pass upon completion of production of the Product.
7. Liquidation of Product.
For a period of six months following expiration or termination
of the Term (the "Liquidation Period"), Planters shall have the right to
liquidate up to 250,000 Equivalent Cases of Fiddle Faddle at the liquidation
outlets set forth on Exhibit A attached hereto, the shelf life of such
Product shall be no older than 270 days. Planters shall use reasonable
efforts to prevent diversion of such Product into non-liquidation channels.
Planters will not sell, ship or consign any such Product for export from the
Territory, and will use efforts to avoid an unintentional sale, shipment or
consignment for export comparable to the efforts used by Planters in
connection with its other products. All other inventory remaining unsold at
the termination or expiration of the Term shall be destroyed or donated to
Second Harvest. Lincoln shall be permitted to enter into an inventory
liquidation agreement during the Term. In the event that Lincoln enters
into such an agreement, Planters' will be permitted to liquidate the Product
thereunder during the Term and will be permitted to liquidate up to 250,000
Equivalent Cases thereunder during the Liquidation Period.
8. Right to Use Planters Trademarks.
Planters, through its parent company and affiliated companies,
agrees to negotiate in good faith with Lincoln an agreement under which
Lincoln will be licensed to use the Planters Trademarks. The parties will
use their best efforts to cause such agreement to be signed and delivered on
or before March 14, 1997, and such agreement shall contain normal and
customary provisions relating to quality control and the protection of the
Planters Trademarks and shall embody economic terms including the following:
(a) Lincoln shall be granted, for a five year period following
termination or expiration of the Term, the right to use the Planters
Trademarks in the United States (including Puerto Rico and United States
territories and possessions) in connection with ready-to-eat caramelized
popcorn. In consideration of the grant of such rights to Lincoln, Lincoln
shall agree to pay the trademark owner a royalty of 0% of annual Net Sales
(as hereinafter defined), for two years, through normal retail channels of
distribution in the United States, 1% of annual Net Sales, for years three
to five, through normal retail channels of distribution in the United States
to the extent that sales have not exceeded 2,250,000 Equivalent Cases in any
year, 2% of annual Net Sales, for years three to five, through normal retail
channels of distribution in the United States to the extent that sales have
exceeded 2,250,000 Equivalent Cases in any year. For the purposes of this
section 8 the term "Net Sales" shall mean sales less cash discounts and
returns. Lincoln and the trademark owner may in their unfettered discretion
mutually agree to any extension of the five year period contemplated by this
section for additional five year periods at least 30 days prior to the time
when the five year period (or extended period, as the case may be) would
otherwise expire.
(b) Lincoln shall be granted, for a five year period following
termination or expiration of the Term, the right to use the Planters
Trademarks in Canada in connection with ready-to-eat caramelized popcorn.
In consideration of the grant of such rights to Lincoln, Lincoln shall agree
to pay the trademark owner a royalty of 0% with respect to annual Net Sales,
for two years, through normal retail channels of distribution in Canada, 1%
of annual Net Sales, for years three to five, through normal retail channels
of distribution in Canada to the extent that sales have not exceeded 500,000
Equivalent Cases in any year, 2% of annual Net Sales, for years three to
five, through normal retail channels of distribution in Canada to the extent
that sales have exceeded 500,000 Equivalent Cases in any year. Lincoln and
the trademark owner may in their unfettered discretion mutually agree to any
extension of the five year period contemplated by this section for
additional five year periods at least 30 days prior to the time when the
five year period (or extended period, as the case may be) would otherwise
expire.
(c) In the event royalty payments are due pursuant to
paragraphs (a) or (b) of this Section 8, Lincoln shall be obligated to
provide the trademark owner, within thirty (30) days after the end of each
calendar quarter with respect to which royalties are due, a complete and
accurate statement of its Net Sales for that quarter, which statement shall
be accompanied by any payment due.
(d) Lincoln shall have no obligation to use the Planters'
Trademarks at any time after the termination of the Term.
9. Elimination of Right to Terminate in Event of Change of
Control.
The right to terminate the Term in the event of a Change of
Control as set forth in Section 2.7 of the Pre-Amendment Agreement is hereby
deleted and shall be of no force or effect. Notwithstanding anything to the
contrary contained in Section 11.2 of the Pre-Amendment Agreement, Lincoln
may assign, convey or transfer the Pre-Amendment Agreement and the Amendment
and its rights and obligations hereunder and thereunder in the event of a
Change of Control, provided that Lincoln may not assign, convey or transfer
any of its rights under the trademark license agreements contemplated by
Section 8 hereof without the prior approval of the trademark owner.
10. Sales and Marketing
(a) Planters reaffirms its obligations set forth in Section
3.1 of the Pre-Amendment Agreement and agrees that it will use efforts to
market and develop sales and distribution of the Product during the
remainder of the Term comparable to the efforts it uses in connection with
its other businesses, such efforts shall take into account Lincoln's
paramount interest in maintaining the value of Lincoln's business, the image
of high quality and value of the Product and the Lincoln Trademarks.
Planters shall continue to use such efforts until the expiration of the Term
(as extended by the Extension Period) notwithstanding the impending
expiration of the Term on December 31, 1997.
(b) For the purpose of effecting an orderly transfer back to
Lincoln of the business of the distribution of the Product, Planters will
promptly respond to any requests from Lincoln for customer review contact
and will beginning April 1, 1997 provide Lincoln with (a) a monthly status
report and list, in the form of Exhibit B attached hereto, of Planters top
20 accounts in each region for the most recent month with respect to the
sales of Product during the Term, (b) a monthly report and list of all
accounts in the form currently provided pursuant to the Pre-Amendment
Agreement. Lincoln shall have the right to contact any customer not set
forth in such list of all accounts and not contemplated to be contacted by
Planters and to engage in sales of the Product to such customers, with all
orders obtained by Lincoln to be credited to the amount to be purchased by
Planters with respect to that month.
(c) Planters shall continue to process and handle all consumer
inquiries connected with or relating to the Product until the expiration of
the Term.
(d) On March 15, 1997, Planters shall submit for Lincoln's
prior written approval an Annual Marketing Plan relating to the remainder of
the Term with respect to the Product, which marketing plan shall be in
compliance with Section 3.4 of the Pre-Amendment Agreement and as set forth
on Exhibit C attached hereto.
(e) Planters' obligation, set forth in Section 4.4 of the
Pre-Amendment Agreement, to deliver to Lincoln a written non-binding
semi-annual forecast of Planters' requirements of the Product is hereby
eliminated. Planters will continue to provide a written ninety (90) day
rolling forecast of its expected purchase of the Product for the next ninety
(90) days. In addition, Planters shall be required to deliver a monthly
production schedule which schedule shall be consistent with and sufficient
to meet Planters' minimum monthly purchase obligations set forth herein and
shall facilitate consistent and even production of the Product. Planters
agrees to accept shipment of the volume of Product set forth in the monthly
schedule within 30 days of production. Lincoln and Planters hereby agree
that title to the Product will pass upon completion of production of the
Product by Lincoln. If Lincoln is required to store Product beyond 30 days
after production, Planters shall pay Lincoln for storage at then prevailing
market rates. Planters may increase the volume of Product contemplated in
the monthly schedule by up to 20% or decrease the such volume by up to 10%
at any time up to forty-eight (48) hours prior to production, in which event
any additional costs incurred by Lincoln associated with any such
modification shall be borne by Planters.
11. Elimination of Lincoln's Covenant Not to Compete
Section 9.2 (a) of the Pre-Amendment Agreement is hereby deleted
and shall be of no force and effect. Notwithstanding anything to the
contrary contained in the Pre-Amendment Agreement or in the Amendment,
Lincoln shall at all times have the right to enter into any and all
manufacturing agreements and co-pack arrangements relating to ready-to-eat
popcorn. Lincoln agrees, however, not to manufacture prior to September 30,
1997 any private label product on behalf of a retailer, if and only if such
retailer was not previously selling such product.
12. Elimination of Right of First Refusal
The provisions relating to a "Right of First Refusal" set forth
in Section 13.1 of the Pre-Amendment Agreement and any other references to
such a right set forth in the Pre-Amendment Agreement are hereby deleted and
shall be of no force and effect.
13. Miscellaneous
(a) Notwithstanding anything to the contrary contained herein
or in the Pre-Amendment Agreement, Lincoln shall at all times after the
Effective Date have the right to market and distribute the Product in tins.
(b) All provisions of the Pre-Amendment Agreement to the extent
not amended or superseded by and not inconsistent with the Amendment shall
remain in full force and effect.
(c) The headings contained herein are inserted for convenience
only and shall not be deemed to have any substantive meaning.
(d) The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
(e) The "Planters Non-Competition Period" set forth in Section
9.1(a) and (b) shall be co-terminous with the term of the license of the
Planters' Trademarks granted to Lincoln hereby.
(f) This Amendment is intended to resolve any issues Lincoln
may have regarding Planters performance under the Pre-Amendment Agreement,
as amended. Lincoln agrees that if Planters performs in accordance with the
terms set forth in this Amendment, Lincoln will release Planters from all
liability stemming from any failure by Planters to perform under the
Pre-Amendment Agreement, as amended. Lincoln further agrees that it shall have
no claim or cause of action against Planters, including, but not limited to,
any claim for damages or compensation for losses or expenses incurred,
including attorneys fees, or for lost profits, arising in any fashion from
the lawful and proper termination of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their duly authorized officials on the day and
year first above written.
LINCOLN SNACKS COMPANY
By: /s/Karen Brenner
Name: Karen Brenner
Title: Chairman and Chief Executive Officer
PLANTERS COMPANY, a unit of
NABISCO, INC.
By: /s/Wynn A. Willard
Name: Wynn A. Willard
Title: President
<PAGE>
EXHIBIT A
------------
Approved Liquidators
- --------------------
Canned Foods
2000 Fifth Street
Berkeley, CA 94710
West Coast Liquidators (MacFrugal's)
12434 Fourth Street
Rancho Cucamonga, CA 91730
T P I - Dollar Bill's
2500 International Parkway
Woodridge, IL 60517
Marden's, Inc.
184 College Avenue
Waterville, ME 04901
Bargain Wholesale/99 cent Stores
4000 & Union Pacific
City of Commerce, CA 90023
Odd Lots/Big Lots
Consolidated Stores Corp.
300 Phillipi Road
Columbus, OH 43228
EXHIBIT B
-----------
Blank matrix for Fiddle Faddle Top 25 Accounts showing current listings
indicating size and promotional activity.
EXHIBIT C
-----------
Blank matrix for Fiddle Faddle and Screaming Yellow Zonkers 5oz. Trade and
10oz. Trade showing January through December 1997 Promotional Plan.
