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 December 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 February 9, 1998 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 December 31, 1997
and June 30, 1997 3-4
Statements of Operations for the
three months ended December 31, 1997
and December 31, 1996 5
Statements of Operations for the
six months ended December 31, 1997
and December 31, 1996 6
Statements of Changes in Stockholders'
Equity for the six months ended
December 31, 1997 and December 31, 1996 7
Statements of Cash Flows for the
six months ended December 31, 1997
and December 31, 1996 8
Notes to Financial Statements 9-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 15
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 16
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16-17
SIGNATURES 18
- 2 -
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,915,642 $ 1,606,357
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $287,341 and $237,778 respectively) 3,503,771 1,951,937
Inventories 1,516,631 1,680,253
Prepaid and other current assets 44,152 29,023
------------ ------------
Total current assets 8,980,196 5,267,570
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,757,026 1,526,705
Machinery and equipment 4,760,746 4,800,284
Construction in process 187,866 122,319
------------ ------------
7,075,638 6,819,308
Less: accumulated depreciation
and amortization (2,543,439) (2,263,689)
------------ ------------
4,532,199 4,555,619
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$737,039 and $667,111 3,396,443 3,466,371
------------ ------------
TOTAL ASSETS $ 16,908,838 $ 13,289,560
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 3 -
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,175,385 $ 1,357,170
Accrued expenses 1,197,910 1,178,601
Accrued trade promotions 1,676,641 675,585
Deferred gain-short term 13,434 13,434
------------ ------------
Total current liabilities 4,063,370 3,224,790
Deferred Gain 109,323 115,784
------------ ------------
TOTAL LIABILITIES 4,172,693 3,340,574
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
December 31, 1997 and June 30, 1997 64,501 64,501
Special stock, $0.01 par value, 300,000
shares authorized, none outstanding 0 0
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit ( 5,312,967) ( 8,100,126)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,736,145 9,948,986
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 16,908,838 $ 13,289,560
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 4 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 7,131,550 $ 7,247,136
COST OF SALES 3,808,023 4,578,677
------------ ------------
Gross profit 3,323,527 2,668,459
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,435,336 1,956,938
------------ ------------
Income from operations 888,191 711,521
Net Planters Other Income (1,376,000) 0
Interest (Income) Expense (22,939) 42,151
Other Expenses 19,441 0
------------ ------------
Income before provision
for income taxes 2,267,689 669,370
PROVISION FOR INCOME TAXES 80,000 10,000
------------ ------------
Net income $ 2,187,689 $ 659,301
============ ============
BASIC AND DILUTED
NET INCOME PER SHARE $ 0.35 $ 0.10
============ ============
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,331,790 6,331,790
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 5 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 12,871,761 $ 14,115,176
COST OF SALES 7,145,806 9,261,961
------------ ------------
Gross profit 5,725,955 4,853,215
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,241,066 3,519,657
------------ ------------
Income from operations 1,484,889 1,333,558
Net Planters Other Income (1,376,000) 0
Interest (Income) Expense (35,708) 108,493
Other Expenses 19,438 0
------------ ------------
Income before provision
for income taxes 2,877,159 1,225,065
PROVISION FOR INCOME TAXES 90,000 20,000
------------ ------------
Net income $ 2,787,159 $ 1,205,065
============ ============
BASIC AND DILUTED
NET INCOME PER SHARE $ 0.44 $ 0.19
============ ============
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,331,790 6,331,790
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 6 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Special Paid In Accumulated Treasury
Stock Stock Capital Deficit Stock
------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
June 30, 1996 $64,501 $0 $18,010,637 ($9,542,721) ($26,026)
Net income 1,205,065
------- ------ ----------- ----------- -----------
December 31,
1996 $64,501 $0 $18,010,637 ($8,337,656) $(26,026)
======= ====== =========== =========== ===========
June 30, 1997 $64,501 $0 $18,010,637 ($8,100,126) ($26,026)
Net income 2,787,159
------- ------ ----------- ----------- -----------
December 31,
1997 $64,501 $0 $18,010,637 ($5,312,967) $(26,026)
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 7 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,787,159 $ 1,205,065
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 349,678 429,379
Allowance for doubtful accounts and
cash discounts, net 49,563 43,151
Changes in Assets and Liabilities:
Increase (decrease) in accounts
receivable (1,601,397) 24,055
Increase in inventories 163,622 215,801
Increase (decrease) in prepaid and
other current assets (15,129) 19,178
Increase (decrease) in accounts
payable and accrued expenses 832,119 (939,342)
------------ ------------
Net cash provided by
operating activities 2,565,615 997,287
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (256,330) (93,009)
Proceeds from sale of land 0 369,218
------------ ------------
Net cash provided by (used in)
investing activities (256,330) 276,209
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under
revolver, net 0 (556,115)
Repayments under term loan 0 (659,702)
------------ ------------
Net cash used in
financing activities 0 (1,215,817)
------------ ------------
Net increase in cash 2,309,285 57,679
CASH, beginning of period 1,606,357 58,538
------------ ------------
CASH, end of period $ 3,915,642 $ 116,217
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 0 $ 95,898
============ ============
Income taxes paid $ 43,173 $ 11,767
============ ============
</TABLE>
- 8 -
<PAGE>
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1997, and the related statements of
operations for the three and six months ended December 31, 1997 and
December 31, 1996, changes in stockholders' equity and cash flows for
the three and six months ended December 31, 1997 and December 31, 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 December 31, 1997 and
December 31, 1996 have been made. During the interim periods reported
on, the accounting policies followed are in conformity with generally
accepted accounting principles and are consistent with those applied for
annual periods and described in the Company's Annual Report on Form 10-K
for the twelve months ended June 30, 1997 filed with the Securities and
Exchange Commission on September 15, 1997 (the "Annual Report").
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements included in the Annual Report. The results of operations for
the three and six months ending December 31, 1997 and December 31, 1996
are not necessarily indicative of the operating results for the full
year.
(3) New Accounting Pronouncement:
As required, during the interim period ended December 31, 1997, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"). This statement establishes standards
for computing and presenting basic and diluted earnings per share.
Options to purchase 622,550 shares of common stock were outstanding at
December 31, 1997 but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than
the average market price of the common shares.
(4) Credit Facility:
The Company has a revolving credit facility, as amended, which provides
for up to $6.0 million in revolver borrowings. No amounts were
outstanding under the revolver as of December 31, 1997. The term loan
facility was extinguished upon the Company's final term loan payment in
fiscal 1997. This facility is collateralized by substantially all of
the Company's assets.
On January 13, 1998 the revolving credit facility was amended reducing
the revolver borrowing to $4.0 million. The amendment reduced the
facility's interest rate and certain bank fees. The amendment, among
other things, allows the Company to acquire other companies or to
repurchase its stock, subject to bank approval.
(5) Inventory:
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 1,040,571 $ 1,293,280
Finished goods 476,060 386,973
------------- ------------
$ 1,516,631 $ 1,680,253
============= ============
</TABLE>
(6) Significant Customer:
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle Faddle
and Screaming Yellow Zonkers products (the "Products") pursuant to a
distribution agreement dated June 6, 1995 (the "Distribution Agreement")
for an initial term which was originally scheduled to expire on June 30,
1997 unless renewed for additional one year periods. The Distribution
Agreement required Planters to purchase an annual minimum number of
equivalent cases of the Products during the initial term.
On February 28, 1997, the Company and Planters entered into an amendment
to the Distribution Agreement (the "Amendment"), which was further
modified on May 9, 1997 (the "Letter Agreement"), pursuant to which the
exclusive distribution arrangement with respect to the Company's Fiddle
Faddle product was extended for an additional six month period expiring
on December 31, 1997, at which time the arrangement terminated.
Effective January 1, 1998 and May 1, 1997, Planters ceased, and Lincoln
resumed, marketing and distributing the Company's Fiddle Faddle and
Screaming Yellow Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to purchase a
specified number of manufactured cases of the Products and for Planters
to compensate the Company for the remaining contract minimums for the
twelve month period ended June 30, 1997. The Amendment and Letter
Agreement required Planters to compensate the Company for contract
minimums for the six month period ended December 31, 1997 (six month
minimums). Planters has compensated the Company for contract minimums,
which were 24% and 27% less than case sales made to Planters for the
quarter and the six month period ended December 31, 1996, respectively.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar
year ending December 31, 1997. These sales levels were not achieved
during the calendar year ending December 31, 1997 resulting in Planters
compensating the Company $1.88 million which is partially offset by
approximately $500,000 in non-recurring charges associated with initial
efforts to rebuild the Fiddle Faddle brand ("Net Planters Other Income").
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.
In July and October, 1997, the Company entered into five year Trademark
License Agreements with Nabisco, Inc. granting the Company, subject to
the terms of the License Agreements, the right to use, commencing
January 1, 1998, the Planters' trademarks in connection with the sales
and marketing of the Company's Fiddle Faddle products in the United
States and Canada.
Sales to Planters, excluding Net Planters Other Income, represented 9%
and 32% of net sales for the three months ended December 31, 1997 and
1996, respectively; 14% and 41% of net sales for the six months period
ended December 31, 1997 and 1996, respectively. Sales to Planters
during the quarter and the six months period ended December 31, 1997
represented payments, in lieu of manufactured cases, at predetermined
rates which are lower than the rates Planters paid for manufactured
cases. Sales to Planters during the quarter and the six month period
ended December 31, 1996 represented manufactured cases.
- 11 -
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
Results of Operations:
Introduction
- -------------
The Company's net sales are subject to significant seasonal variation,
consequently, results from operations will fluctuate due to these trends. The
Company's business is seasonal due to customers' buying patterns of Poppycock
and nut products during the traditional holiday season. As a result, third and
fourth calendar quarter sales account for a significant portion of the
Company's annual sales.
On July 17, 1995, Planters Company, a unit of Nabisco, Inc. ("Planters"),
began exclusively distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products (the "Products") pursuant to a distribution agreement dated
June 6, 1995 (the "Distribution Agreement") for an initial term which was
originally scheduled to expire on June 30, 1997 unless renewed for additional
one year periods. The Distribution Agreement required Planters to purchase an
annual minimum number of equivalent cases of the Products during the initial
term.
On February 28, 1997, the Company and Planters entered into an amendment
to the Distribution Agreement (the "Amendment"), which was further modified on
May 9, 1997 (the "Letter Agreement"), pursuant to which the exclusive
distribution arrangement with respect to the Company's Fiddle Faddle product
was extended for an additional six month period expiring on December 31, 1997,
at which time the arrangement terminated. Effective January 1, 1998 and May
1, 1997, Planters ceased, and Lincoln resumed, marketing and distributing the
Company's Fiddle Faddle and Screaming Yellow Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to purchase a
specified number of manufactured cases of the Products and for Planters to
compensate the Company for the remaining contract minimums for the twelve month
period ended June 30, 1997. The Amendment and Letter Agreement required
Planters to compensate the Company for contract minimums for the six month
period ended December 31, 1997 (six month minimums). Planters has compensated
the Company for contract minimums, which were 24% and 27% less than case sales
made to Planters for the quarter and the six month period ended December 31,
1996, respectively.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar year
ending December 31, 1997. These sales levels were not achieved during the
calendar year ending December 31, 1997 resulting in Planters compensating the
Company $1.88 million which is partially offset by approximately $500,000 in
non-recurring charges associated with initial efforts to rebuild the Fiddle
Faddle brand ("Net Planters Other Income").
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.
In July and October, 1997, the Company entered into five year Trademark
License Agreements with Nabisco, Inc. granting the Company, subject to the
terms of the License Agreements, the right to use, commencing January 1, 1998,
the Planters' trademarks in connection with the sales and marketing of the
Company's Fiddle Faddle products in the United States and Canada.
Sales to Planters, excluding Net Planters Other Income, represented 9%
and 32% of net sales for the three months ended December 31, 1997 and 1996,
respectively; 14% and 41% of net sales for the six months period ended December
31, 1997 and 1996, respectively. Sales to Planters during the quarter and the
six months period ended December 31, 1997 represented payments, in lieu of
manufactured cases, at predetermined rates which are lower than the rates
Planters paid for manufactured cases. Sales to Planters during the quarter and
the six month period ended December 31, 1996 represented manufactured cases.
Three months ended December 31, 1997 versus December 31, 1996
- --------------------------------------------------------------
Overall net sales decreased 2% or $.12 million to $7.13 million for the
quarter ended December 31, 1997 versus $7.25 million in the corresponding
period of 1996. Net sales made by Lincoln of its branded products and sales
related to new copacking business increased 32% versus a year ago. These
increases were offset by decreased Planters sales attributable to lower
minimums and revenue rates versus the prior period. During the quarter,
Planters compensated the Company in lieu of purchasing manufactured cases, at
predetermined rates which are lower than the rates Planters paid for
manufactured cases.
Sales to Planters, excluding Net Planters Other Income, represented 9%
and 32% of net sales for the three months ended December 31, 1997 and 1996,
respectively, due to the reduced six month minimums. Sales to Planters during
the quarter ended December 31, 1997 represented payments, in lieu of
manufactured cases, at predetermined rates which are lower than the rates
Planters paid for manufactured cases. Sales to Planters during the quarter
ended December 31, 1996 represented manufactured cases.
Gross profit increased 25% or $.66 million to $3.32 million for the
quarter ended December 31, 1997 versus $2.67 million in the corresponding
period of 1996. Gross profit increased due to sales increases associated with
Lincoln's branded products and new copacking business coupled with lower raw
material costs which were partially offset by decreased Planters gross profits
resulting from decreased case volume.
Selling, general and administrative expenses increased 24% or $.48
million to $2.44 million in the quarter ended December 31, 1997 versus $1.96
million the same period in 1996. These expenses increased during this period
primarily due to increased consumer promotions.
Net Planters Other Income of $1.38 million represents Planters
compensation of $1.88 million to the Company for failing to achieve certain
sales levels during the calendar year ending December 31, 1997 which was
partially offset by approximately $.50 million in non-recurring charges
associated with initial efforts to rebuild the Fiddle Faddle brand.
The increase in gross profit coupled with Net Planters Other Income and
the decrease in interest expense was partially offset by the increase in
selling, general and administrative expenses and resulted in an increase in the
net income of $1.53 million to $2.19 million for the quarter ended December 31,
1997 versus $.66 million in the corresponding period in 1996.
Six months ended December 31, 1997 versus December 31, 1996
- ------------------------------------------------------------
Overall net sales decreased 9% or $1.24 million to $12.87 million for the
six months ended December 31, 1997 versus $14.12 million in the corresponding
period of 1996. Net sales made by Lincoln of its branded products and sales
related to new copacking business increased 31% versus a year ago. These
increases were offset by decreased Planters sales attributable to lower
minimums and revenue rates versus the prior period. During the six months
ended December 31, 1997, Planters compensated the Company, in lieu of
purchasing manufactured cases, at predetermined rates which are lower than the
rates Planters paid for manufactured cases.
Sales to Planters, excluding Net Planters Other Income, represented 14%
and 41% of net sales for the six months ended December 31, 1997 and 1996,
respectively, due to the reduced six month minimums. Sales to Planters during
the six months period ended December 31, 1997 represented payments, in lieu of
manufactured cases, at predetermined rates which are lower than the rates
Planters paid for manufactured cases. Sales to Planters during the six months
period ended December 31, 1996 represented manufactured cases.
Gross profit increased 18% or $.87 million to $5.73 million for the six
months ended December 31, 1997 versus $4.85 million in the corresponding period
of 1996. Gross profit increased due to sales increases associated with
Lincoln's branded products and new copacking business coupled with lower raw
material costs which were partially offset by decreased Planters gross profits
resulting from decreased case volume.
Selling, general and administrative expenses increased 20% or $.72
million to $4.24 million for the six months ended December 31, 1997 versus
$3.52 million the same period in 1996. These expenses increased during this
period primarily due to increased consumer promotions.
Net Planters Other Income of $1.38 million represents Planters
compensation of $1.88 million to the Company for failing to achieve certain
sales levels during the calendar year ending December 31, 1997 which was
partially offset by approximately $.50 million in non-recurring charges
associated with initial efforts to rebuild the Fiddle Faddle brand.
The increase in gross profit coupled with Net Planters Other Income and
the decrease in interest expense was partially offset by the increase in
selling, general and administrative expenses and resulted in an increase in the
net income of $1.58 million to $2.79 million for the six months ended December
31, 1997 versus $1.21 million in the corresponding period in 1996.
Liquidity and Capital Resources
- --------------------------------
As of December 31, 1997, the Company had working capital of $4.92 million
compared to a working capital of $2.04 million at June 30, 1997 (the Company's
fiscal year end), an increase in working capital of $2.87 million. The
increase in working capital is primarily attributable to the Company's net
profit of $2.79 million for the six months ended December 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 in future periods.
Although the Amendment contains provisions designed to effect a smooth transfer
of the distribution of the Fiddle Faddle business back to the Company, there
can be no assurance as to the long term effects of the transition.
The Company's short term liquidity is affected by seasonal increases in
inventory and accounts receivable levels, payment terms in excess of 60 days
granted in some situations during certain months of the year, and seasonality
of sales. Inventory and accounts receivable levels increase substantially
during the latter part of the third calendar quarter and during the remainder
of the calendar year.
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
December 31, December 31,
1997 1996
----------------------------
(in thousands)
<S> <C> <C>
Net cash provided by operating
activities $ 2,566 $ 997
Net cash provided by (used in)
investing activities (256) 276
Net cash used in financing activities 0 (1,216)
</TABLE>
Net cash provided by operating activities increased to $2.57 million
during the six months ended December 31, 1997 compared to $1.0 million in 1996.
The increase is primarily due to an increase in net income of $1.58 million for
the six months ended December 31, 1997 versus December 31, 1996. The increase
in cash provided from increased net income is partially offset by an increase
in accounts receivable due to the timing of sales coupled with an increase in
accounts payable due to the timing of expenses.
Net cash used in investing activities of $.26 million for the six months
ended December 31, 1997 represents capital expenditures. Net cash provided by
investing activities of $.28 million during the six months ended December 31,
1996 represents proceeds from the sale of land and is partially offset by
capital expenditures.
No cash was used in or provided by financing activities for the six
months ended December 31, 1997. Net cash used in financing activities for the
period ended December 31, 1996 was $1.2 million, which consisted of revolver
repayments under its credit agreement of $.56 million and term loan repayments
of $.66 million.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
- 15 -
<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
The Annual Meeting of the Shareholders of the Registrant was held
on November 20, 1997, pursuant to notice, at which meeting the
following persons were elected directors of the Registrant to hold
office until the next Annual Meeting of Stockholders and until
their respective successors are duly elected and qualified, and
who received the number of votes indicated opposite their names:
<TABLE>
<CAPTION>
NAME: NUMBER OF VOTES FOR: NUMBER OF VOTES WITHHELD:
---------------- -------------------- -------------------------
<S> <C> <C>
Karen Brenner 5,923,613 15,600
C. Larry Davis 5,932,713 6,500
Alexander P. Lynch 5,932,713 6,500
James G. Niven 5,932,713 6,500
</TABLE>
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 No. 8 dated January 13, 1998 To
Revolving Credit, Term Loan and Security
Agreement.
(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
- 17 -
<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.
February 10, 1998 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)
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Lincoln Snacks Company financial statements
and is qualified in its entirety by reference to such
financial statements.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,915,642
<SECURITIES> 0
<RECEIVABLES> 3,791,112
<ALLOWANCES> 287,341
<INVENTORY> 1,516,631
<CURRENT-ASSETS> 8,980,196
<PP&E> 7,075,638
<DEPRECIATION> 2,543,439
<TOTAL-ASSETS> 16,908,838
<CURRENT-LIABILITIES> 4,063,370
<BONDS> 0
0
0
<COMMON> 64,501
<OTHER-SE> 12,671,644
<TOTAL-LIABILITY-AND-EQUITY> 16,908,838
<SALES> 12,871,761
<TOTAL-REVENUES> 12,871,761
<CGS> 7,145,806
<TOTAL-COSTS> 7,145,806
<OTHER-EXPENSES> 4,241,066
<LOSS-PROVISION> 37,000
<INTEREST-EXPENSE> (35,708)
<INCOME-PRETAX> 2,877,159
<INCOME-TAX> 90,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,787,159 <F1>
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<FN>
<F1> Net income includes $1,376,000 of Net Planters Other Income, see
financial statements.
</FN>
</TABLE>
EXHIBIT 10(A)
AMENDMENT NO. 8
TO
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
---------------------------------------------------------
THIS AMENDMENT NO. 8 ("Amendment") is entered into as of January
13, 1998, by and between Lincoln Snacks Company, a Delaware corporation,
having its principal place of business at 4 High Ridge Park, Stamford,
Connecticut 06905 ("Borrower") and BNY Financial Corporation, as
successor in interest to The Bank of New York Commercial Corporation,
having offices at 1290 Avenue of the Americas, New York, New York 10104
("Lender").
BACKGROUND
Borrower and Lender are parties to a Revolving Credit, Term Loan
and Security Agreement dated December 3, 1993, as amended by Amendment
No. 1 to Revolving Credit, Term Loan and Security Agreement dated as of
March 24, 1994, Amendment No. 2 to Revolving Credit, Term Loan and
Security Agreement dated as of September 14, 1994, Amendment No. 3 to
Revolving Credit and Term Loan Security Agreement dated as of March 31,
1995, Amendment No. 4 to Revolving Credit, Term Loan and Security
Agreement dated as of June 29, 1995, Amendment No. 5 to Revolving
Credit, Term Loan and Security Agreement dated as of November 7, 1995,
Amendment No. 6 to Revolving Credit, Term Loan and Security Agreement
dated as of May 8, 1996 and Amendment No. 7 to Revolving Credit, Term
Loan and Security Agreement dated as of October 8, 1996 (as further
amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement") pursuant to which Lender provided Borrower with
certain financial accommodations.
Borrower has requested that Lender amend the Loan Agreement and
Lender is willing to do so on the terms and conditions hereafter set
forth.
NOW, THEREFORE, in consideration of any loan or advance or grant
of credit heretofore or hereafter made to or for the account of Borrower
by Lender, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan Agreement is
hereby amended as follows:
(a) The following defined term in Section 1.2 of the Loan
Agreement is hereby amended in its entirety to provide as follows:
"Applicable Margin" shall mean (i) for Domestic Rate
Loans one quarter of one percent (.25%) and (ii) for
Eurodollar Rate Loans one and one-half percent
(1.50%), in each case subject to Section 3.1(b)
hereof.
"Applicable Margin Reduction Requirement" shall mean
the compliance by Borrower with each of the following
conditions: (x) no Event of Default shall have
occurred and be continuing, (y) Tangible Net Worth of
Borrower at June 30, 1998 is equal to or greater than
$7,500,000, less the amount of any stock repurchase
permitted pursuant to Section 7.7 of this Agreement
after the effective date of Amendment No. 8, and (z)
EBITDA for the period July 1, 1997 to June 30, 1998 is
equal to or greater than $1,500,000.
"Maximum Loan Amount" shall mean $4,000,000.
"Maximum Revolving Advance Amount" shall mean
$4,000,000.
"Original Owner" shall mean Noel, shareholders of Noel
or management of Borrower.
"Term" shall mean the Closing Date through December 2,
2000 as the same may be extended in accordance with
the provisions of Section 13.1.
(b) The following defined term is inserted in the
appropriate alphabetical order to provide as follows:
"Amendment No. 8" shall mean Amendment No. 8 to
Revolving Credit, Term Loan and Security Agreement
dated as of January 13, 1998 by an between Borrower
and Lender.
(c) Section 2.1(a)(y)(ii) of the Loan Agreement is hereby
amended by deleting "$1,500,000" in the proviso contained therein and
inserting "$2,000,000" in its place and stead.
(d) Section 2.11 of the Loan Agreement is hereby amended
by (i) deleting "$750,000" and inserting "$500,000" in its place and
stead; and (ii) deleting "$300,000" and inserting "$150,000" in its
place and stead.
(e) Section 3.1(b) of the Loan Agreement is hereby amended
in its entirety to provide as follows:
"(b) The Applicable Margin shall be reduced by (i) one
quarter of one percent (.25%) with respect to Domestic
Rate Loans, and (ii) one half of one percent (.50%)
with respect to Eurodollar Rate Loans, in each case
effective five (5) Business Days following receipt by
Lender of the June 30, 1998 audited financial
statements in the event the Applicable Margin
Reduction Requirement has occurred."
(f) Section 3.2(b) of the Loan Agreement is hereby amended
by (i) deleting "one-half of one percent (.50%)" and inserting "three-eighths
of one percent (.375%)" in its place and stead; and (ii) adding
the following at the end of the first sentence thereof:
"; provided, however, that if the Applicable Margin is
reduced pursuant to Section 3.1(b) hereof, then the
fee payable under this Section 3.2(b) shall be reduced
to one-quarter of one percent (.25%)."
(g) Section 3.3(a) of the Loan Agreement is hereby amended
by deleting "$1,000" and inserting "$500" in its place and stead.
(h) Section 3.3(b) of the Loan Agreement is hereby amended
in its entirety to provide as follows:
"(b) Collateral Monitoring Fee. Borrower shall pay to
Lender on the first day of each month following any
month in which Lender performs any collateral
monitoring - namely any field examination, collateral
analysis or other business analysis the need for which
is to be determined by Lender in good faith and which
monitoring is undertaken by Lender or for Lender's
benefit - a collateral monitoring fee in an amount
equal to Lender's then standard collateral monitoring
fee (which as of the effectiveness of Amendment No. 8
is $750 per day) for each person performing such
monitoring, plus all reasonable out-of-pocket costs
and disbursements incurred by Lender in the
performance of such examination or analysis. Lender
shall not perform more than one (1) audit in any year
unless there are no outstanding Advances during the
twelve (12) month period ended the month preceding the
next scheduled audit (which would be in June 1998), in
which event no audit will be required unless any
Default or Event of Default shall thereafter occur or
any Advances shall thereafter be outstanding."
(i) Section 7.1(a) of the Loan Agreement is hereby amended
by adding the following at the end thereof:
"; provided, however, that Borrower may finance an
acquisition of the assets or stock of any Person
(other than Borrower), subject to obtaining the prior
written consent of Lender to such acquisition, by
utilizing all cash available to Borrower plus, without
duplication, fifty percent (50%) of Undrawn
Availability."
(j) Section 7.7 of the Loan Agreement is hereby amended by
adding the following at the end thereof:
"; provided, however, so long as no Default or Event
of Default exists or would exist after giving effect
thereto, Borrower may purchase, redeem or otherwise
retire any common or preferred stock by utilizing all
cash available to Borrower plus, without duplication,
fifty percent (50%) of Undrawn Availability."
(k) Section 9.2 of the Loan Agreement is hereby amended by
(i) deleting "and" in the third line thereof and inserting a comma in
its place and stead, and (ii) adding at the end of the first sentence
thereof the following:
", and (d) a monthly borrowing base certificate in
substantially the form of Exhibit 9.2 hereto."
(l) Exhibit 9.2 attached to this Amendment shall be
Exhibit 9.2 to the Loan Agreement.
(m) Section 13.1 is hereby amended in its entirety to
provide as follows:
Term. This Agreement, which shall inure to the
benefit of and shall be binding upon the respective
successors and permitted assigns of each of Borrower
and Lender, shall become effective on the date hereof
and shall continue in full force and effect until
December 2, 2000 unless sooner terminated as herein
provided. The Term shall be automatically extended
for successive periods of one (1) year each unless
terminated by either party at the end of such initial
Term or any successive Term by giving the other party
ninety (90) days prior written notice. Borrower may
terminate this Agreement at any time upon ninety (90)
days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid
in full prior to the last day of the Term (the date of
such prepayment hereinafter referred to as the
"Prepayment Date") Borrower shall pay an early
termination fee in an amount equal to (x) 1.2% of the
amount repaid if the Prepayment Date occurs to and
including December 1, 1998, (y) .8% of the amount
repaid if the Payment Date occurs from December 2,
1998 to and including December 1, 1999 and (z) .3% of
the amount repaid if the Prepayment Date occurs from
December 2, 1999 to and including December 1, 2000.
3. Conditions of Effectiveness. This Amendment shall become
effective (including, without limitation, the reduction in the
Applicable Margin) upon receipt by Lender of (x) four (4) copies of this
Amendment executed by Borrower, and (y) an extension fee of $2,500
(which may be charged to Borrower's account).
4. Representations and Warranties. Borrower hereby represents
and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their respective
terms.
(b) No Event of Default has occurred and is continuing or
would exist after giving effect to this Amendment.
(c) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement or the Obligations thereunder.
5. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder,"
"hereof," or words of like import shall mean and be a reference to the
Loan Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed
and/or delivered in connection therewith, shall remain in full force and
effect, and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
Lender, nor constitute a waiver of any provision of the Loan Agreement,
or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
6. Governing Law. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns and shall be governed by and construed in
accordance with the laws of the State of New York.
7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an
original and which taken together shall be deemed to constitute one and
the same agreement.
IN WITNESS WHEREOF, this Amendment No. 8 has been duly executed as
of the day and year first written above.
LINCOLN SNACKS COMPANY
By: /s/ Kristine A. Crabs
Name: Kristine A. Crabs
Title: Chief Financial Officer
BNY FINANCIAL CORPORATION
By: /s/ Anthony Viola
Name: Anthony Viola
Title: Vice President
EXHIBIT 9.2
Description: Monthly Reports of Assigned Accounts, Credit
Adjustment Reports and Accounts Receivable Reports
