Snyder's-Lance, Inc.
LANCE INC (Form: 10-Q, Received: 11/03/2010 17:01:23)
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
 of the Securities Exchange Act of 1934

For the quarter ended September 25, 2010

Commission File Number 0-398

LOGO
LANCE, INC.
 (Exact name of registrant as specified in its charter)
     
North Carolina
 (State or other jurisdiction of
 incorporation or organization)
 
56-0292920
 (I.R.S. Employer Identification No.)
     
13024 Ballantyne Corporate Place
   
Suite 900
   
Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
704-554-1421
 (Registrant’s telephone number, including area code)

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 þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ              Accelerated filer ¨              Non-accelerated filer ¨              Smaller reporting company ¨
             (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No þ

The number of shares outstanding of the registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock as of October 29, 2010, was 32,474,995 shares.

 
 

 


 
LANCE, INC. AND SUBSIDIARIES
 
 
 
 
Page
 
 
     
 
3
     
 
4
     
 
5
     
 
6
     
 
11
     
 
17
     
 
 17
     
     
 
  18
     
 
  18
     
 
  19
     
 
19
     
 
  19
     
 
20
     
21







PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)
For the Quarters and Nine Months Ended September 25, 2010 and September 26, 2009
(in thousands, except share and per share data)

   
Quarter Ended
   
Nine Months Ended
 
   
September 25,
2010
   
September 26,
2009
   
September 25,
2010
   
September 26,
2009
 
                         
Net revenue
  $ 237,683     $ 234,902     $ 694,717     $ 687,065  
Cost of sales
    142,764       140,129       418,812       411,171  
Gross margin
    94,919       94,773       275,905       275,894  
                                 
Selling, general and administrative
    78,416       80,019       236,517       233,996  
Other expense, net
    221       644       4,006       1,252  
Earnings before interest and income taxes
    16,282       14,110       35,382       40,646  
                                 
Interest expense, net
    841       796       2,563       2,518  
Income before income taxes
    15,441       13,314       32,819       38,128  
                                 
Income tax expense
    5,055       4,511       10,929       13,345  
Net income
  $ 10,386     $ 8,803     $ 21,890     $ 24,783  
                                 
Basic earnings per share
  $ 0.32     $ 0.28     $ 0.68     $ 0.79  
Weighted average shares outstanding – basic
    32,140,000       31,622,000       31,962,000       31,526,000  
                                 
Diluted earnings per share
  $ 0.32     $ 0.27     $ 0.67     $ 0.77  
Weighted average shares outstanding – diluted
    32,672,000       32,519,000       32,462,000       32,286,000  
                                 
Cash dividends declared per share
  $ 0.16     $ 0.16     $ 0.48     $ 0.48  

See Notes to the Condensed Consolidated Financial Statements (Unaudited).


LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
As of September 25, 2010 (Unaudited) and December 26, 2009
(in thousands, except share data)

   
September 25,
2010
   
December 26, 2009
 
ASSETS
           
             
Current assets:
           
  Cash and cash equivalents
  $ 14,040     $ 5,418  
  Accounts receivable, net of allowances of $1,353 and $972, respectively
    90,414       87,172  
  Inventories
    58,811       58,037  
  Prepaid income taxes
    1,032       238  
  Deferred income taxes
    6,475       9,790  
  Prepaid expenses and other current assets
    12,457       18,227  
Total current assets
    183,229       178,882  
                 
Other assets:
               
  Fixed assets, net of accumulated depreciation of $296,124 and $281,191, respectively
    218,855       225,981  
  Goodwill, net
    91,911       90,909  
  Other intangible assets, net
    34,619       35,154  
  Other noncurrent assets
    5,611       5,365  
    Total assets
  $ 534,225     $ 536,291  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
  Accounts payable
  $ 33,230     $ 29,777  
  Other payables and accrued liabilities
    59,559       66,589  
Total current liabilities
    92,789       96,366  
                 
Other liabilities:
               
  Long-term debt
    106,000       113,000  
  Deferred income taxes
    36,624       35,515  
  Other noncurrent liabilities
    13,355       16,723  
Total liabilities
    248,768       261,604  
                 
Commitments and contingencies
    -       -  
                 
Stockholders’ equity:
               
  Common stock, 32,459,835 and 32,093,193 shares outstanding, respectively
    27,049       26,743  
  Preferred stock, no shares outstanding
    -       -  
  Additional paid-in capital
    63,092       60,829  
  Retained earnings
    182,702       176,322  
  Accumulated other comprehensive income
    12,614       10,793  
Total stockholders' equity
    285,457       274,687  
    Total liabilities and stockholders’ equity
  $ 534,225     $ 536,291  

 
See Notes to the Condensed Consolidated Financial Statements (Unaudited).


LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 25, 2010 and September 26, 2009
(in thousands)

   
Nine Months Ended
 
   
September 25,
2010
   
September 26,
2009
 
             
Operating activities
           
Net income
  $ 21,890     $ 24,783  
  Adjustments to reconcile net income to cash provided by operating activities:
               
    Depreciation and amortization
    28,629       25,945  
    Stock-based compensation expense
    5,635       5,490  
    Provision for doubtful accounts
    872       1,012  
    Loss on sale of fixed assets
    214       529  
    Impairment of long-lived assets
    584       -  
    Changes in operating assets and liabilities
    (5,834 )     (12,664 )
  Net cash provided by operating activities
    51,990       45,095  
                 
Investing activities
               
  Purchases of fixed assets
    (21,163 )     (28,667 )
  Proceeds from sale of fixed and intangible assets
    389       667  
  Proceeds from sale of assets held for sale
    1,843       -  
Net cash used in investing activities
    (18,931 )     (28,000 )
                 
Financing activities
               
  Dividends paid
    (15,510 )     (15,280 )
  Issuances of common stock
    2,551       3,806  
  Repurchases of common stock and net-settlement of restricted stock units
    (4,668 )     (127 )
  Net (repayments)/proceeds on existing credit facilities
    (7,000 )     2,000  
Net cash used in financing activities
    (24,627 )     (9,601 )
 
               
Effect of exchange rate changes on cash
    190       328  
                 
Increase in cash and cash equivalents
    8,622       7,822  
Cash and cash equivalents at beginning of period
    5,418       807  
Cash and cash equivalents at end of period
  $ 14,040     $ 8,629  
                 
Supplemental information:
               
Cash paid for income taxes, net of refunds of $23 and $154, respectively
  $ 7,042     $ 9,911  
Cash paid for interest
  $ 2,552     $ 2,699  

See Notes to the Condensed Consolidated Financial Statements (Unaudited).

 
5

 
LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)
 

1.  

The accompanying unaudited condensed consolidated financial statements of Lance, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  These condensed financial statements should be read in conjunction with the audited financial statements and notes included in our Form 10-K for the year ended December 26, 2009, filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2010.  In our opinion, these condensed consolidated financial statements reflect all adjustments, consisting of only normal, recurring accruals, necessary to present fairly our condensed consolidated financial statements for the interim periods presented herein.  The consolidated results of operations for the quarter and nine months ended September 25, 2010, are not necessarily indicative of the results to be expected for the full year.

On September 30, 2010, the Board of Directors approved a change in our fiscal year end from the last Saturday of December to the Saturday nearest to December 31.  The results of this change will be reported in our Annual Report on Form 10-K for the fiscal year ending January 1, 2011, which will be a 53-week year.

Preparing financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.  Examples include customer returns and promotional activity, allowances for doubtful accounts, inventory valuations, self-insurance reserves, impairment analysis of goodwill and other intangible assets, useful lives and impairment of fixed assets, incentive compensation, and income taxes.  Actual results may differ from our estimates.

Prior year amounts shown in the accompanying condensed consolidated financial statements have been reclassified for consistent presentation.

2.  
NEW ACCOUNTING PRONOUNCEMENT

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASC) No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which amends the Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.”  ASU No. 2010-06 amends the ASC to require disclosure of transfers into and out of Level 1 and Level 2 fair value measurements, and requires more detailed disclosure about the activity within Level 3 fair value measurements.  We adopted the guidance in ASU No. 2010-06 on December 27, 2009, except for the requirements related to Level 3 disclosures, which will be effective for our annual and interim reporting periods beginning after January 2, 2011.  The guidance requires expanded disclosures only, and will not have any impact on our consolidated financial statements.
 
3.  
EARNINGS PER SHARE

The following table provides a reconciliation of the common shares used for basic earnings per share and diluted earnings per share:

   
Quarter Ended
   
Nine Months Ended
 
 
(in thousands)
 
September 25,
2010
   
September 26,
2009
   
September 25,
2010
   
September 26,
2009
 
                         
Weighted average number of common
  shares used for basic earnings per share
    32,140       31,622       31,962       31,526  
Effect of potential dilutive shares
    532       897       500       760  
Weighted average number of common
  shares and potential dilutive shares used
  for diluted earnings per share
    32,672       32,519       32,462       32,286  
Anti-dilutive shares excluded from the
  above reconciliation
    776       25       716       30  

 
6

 
LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)
 

4.  
EQUITY-BASED INCENTIVES

Compensation expense related to equity-based incentive plans of $2.0 million was recognized for both the third quarters of 2010 and 2009.  Compensation expense related to equity-based incentive plans of $5.6 million and $5.5 million was recognized for the nine months of 2010 and 2009, respectively.  During the first quarter of 2009, we granted 73,356 restricted shares related to a long-term incentive plan for key employees that were previously accounted for as a liability.  This resulted in an increase in equity and a decrease in accrued liabilities of $1.6 million during the first quarter of 2009.

During the second quarter of 2010, 300,000 restricted stock units vested, which were originally granted in 2005.  We net-settled 172,650 of these units as common stock shares and withheld the remaining 127,350 units to cover the payment of $2.5 million of employee withholding taxes.  Accrued dividends on these restricted stock units of $0.9 million were settled in cash.

During the first quarter of 2010, we repurchased 56,152 shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of restricted stock.  No repurchases were made during the second and third quarters of 2010.
 
5.  
INVENTORIES

 
(in thousands)
 
September 25,
2010
   
December 26,
2009
 
             
Finished goods                                                                                                      
  $ 34,868     $ 33,060  
Raw materials                                                                                                      
    12,123       11,732  
Supplies, etc.                                                                                                      
    17,682       19,081  
  Total inventories at FIFO cost.                                                                                                      
    64,673       63,873  
Less adjustments to reduce FIFO cost to LIFO cost                                                                                                      
    (5,862 )     (5,836 )
   Total inventories                                                                                                      
  $ 58,811     $ 58,037  

6.  
EQUITY INVESTMENT

We own a non-controlling equity interest in Late July Snacks LLC (“Late July”), an organic snack food company.  Equity losses, which are not material, are included in Other expense, net.  We also manufacture products for Late July.  Contract manufacturing revenue from Late July was approximately $1.0 million and $1.2 million during the third quarters of 2010 and 2009, respectively, and $2.8 and $3.3 during the first nine months of 2010 and 2009, respectively.  Accounts receivable due from Late July totaled $0.5 million at both September 25, 2010 and December 26, 2009.

7.  
INCOME TAXES
 
We have recorded gross unrecognized tax benefits as of September 25, 2010 totaling $0.7 million and related interest and penalties of $0.3 million in Other noncurrent liabilities on the Condensed Consolidated Balance Sheet.  Of this amount, $0.7 million would affect the effective tax rate if subsequently recognized.  Various taxing authorities’ statutes of limitations related to the computation of our unrecognized tax benefits have expired since the beginning of 2010 and reduced the unrecognized tax benefits amount by $0.2 million.  We classify interest and penalties associated with income tax positions within income tax expense.

We have open years for income tax audit purposes in our major taxing jurisdictions according to statutes as follows:

Jurisdiction
Open Years
US federal
2007 and forward
Canada federal
2006 and forward
Ontario provincial
2005 and forward
Massachusetts
2001 and forward
North Carolina
2006 and forward
Iowa
2006 and forward
 
 
7

 
LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)
 
 
8.  
FAIR VALUE MEASUREMENTS

We have classified assets and liabilities required to be measured at fair value into the fair value hierarchy as set forth below:

Level 1
-   quoted prices in active markets for identical assets and liabilities.
Level 2
-   observable inputs other than quoted prices for identical assets and liabilities.
Level 3
-   unobservable inputs in which there is little or no market data available, which requires us to develop our own assumptions.
 
We measure our derivative instruments at fair value using Level 2 inputs.  There were no changes among the levels during the first nine months of 2010.

The carrying amount of cash and cash equivalents, receivables and accounts payable approximates fair value due to their short-term nature.  The carrying amount of debt approximates fair value since its variable interest rate is based on current market rates and interest payments are made monthly.

During the first quarter of 2010, recent market value declines for commercial real estate resulted in an impairment charge of $0.6 million related to assets held for sale in Little Rock, Arkansas.  This property was sold in the second quarter of 2010 for net proceeds of $1.8 million.
 
9.  
DERIVATIVE INSTRUMENTS

We are exposed to certain risks relating to our ongoing business operations.  We use derivative instruments to manage interest rate and foreign exchange rate risks.

Interest Rate Swaps
Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian prime rate and U.S. base rate interest.  To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable-rate debt.  The notional amount of interest rate swaps as of both September 25, 2010 and December 26, 2009, was $65.0 million.

Foreign Currency Forwards
We are exposed to foreign exchange rate fluctuations through the operations of our Canadian subsidiary.  A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations’ costs, such as raw materials and direct labor, are denominated in Canadian dollars.  We have entered into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure.  These contracts have maturities through December 2010.  The notional amount for foreign currency forwards increased from $7.2 million at December 26, 2009, to $9.3 million at September 25, 2010.

All of our derivative instruments are accounted for as cash flow hedges.  The effective portion of the change in fair value is included in Accumulated other comprehensive income, net of related tax effects, with the corresponding asset or liability recorded in the Condensed Consolidated Balance Sheets.

The pre-tax income/(expense) effect of derivative instruments on the Condensed Consolidated Statements of Income is as follows:
   
Quarter Ended
   
Nine Months Ended
 
 
(in thousands)
 
September 25,
2010
   
September 26,
2009
   
September 25,
2010
   
September 26,
2009
 
                         
Interest rate swaps (included in Interest
   expense, net)
  $ (600 )   $ (605 )   $ (1,818 )   $ (1,737 )
Foreign currency forwards (included in Net
    revenue)
    88       93       1,191       (1,169 )
Foreign currency forwards (included in Other
   expense, net)
    (8 )     1       (110 )     (52 )
     Total net pre-tax expense from
        derivative instruments
  $ (520 )   $ (511 )   $ (737 )   $ (2,958 )
 

 
8

 
LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)
 

The fair value of derivative instruments in the Condensed Consolidated Balance Sheets using Level 2 inputs is as follows:

   
Fair Value of Asset/(Liability) at
 
 
(in thousands)
 
September 25,
2010
   
December 26, 2009
 
             
Interest rate swaps (included in Other noncurrent liabilities)
  $ (2,535 )   $ (3,461 )
Foreign currency forwards (included in Prepaid expenses and other current assets)
    201       839  
   Total fair value of derivative instruments
  $ (2,334 )   $ (2,622 )

The change in unrealized pre-tax gains/(losses) included in other comprehensive income due to fluctuations in interest rates and foreign exchange rates were as follows:

   
Quarter Ended
   
Nine Months Ended
 
 
(in thousands)
 
September 25,
2010
   
September 26,
2009
   
September 25,
2010
   
September 26,
2009
 
                         
Interest rate swaps
  $ 330     $ 42     $ 926     $ 627  
Foreign currency forwards
    79       596       (638 )     2,732  
 Total change in unrealized pre-tax
   gains from derivative instruments
   (effective portion)
  $ 409     $ 638     $ 288     $ 3,359  

The counterparty risk associated with our derivative instruments in an asset position is considered to be low, because we limit our exposure to strong, creditworthy counterparties.

10.  
COMMITMENTS AND CONTINGENCIES
 
Contractual Obligations
In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections, and expected usage levels.  Purchase commitments for inventory increased from $88.2 million as of December 26, 2009, to $116.0 million as of September 25, 2010, due to varying contractual obligations.  Our practice is to contract at least six months in advance for all major ingredients and packaging.

Customer Concentration
Sales to our largest customer, Wal-Mart Stores, Inc., were 25% and 22% of revenue for quarters ended September 25, 2010 and September 26, 2009, respectively, and 24% and 21% of revenue for the nine months ended September 25, 2010 and September 26, 2009, respectively.  Accounts receivable at September 25, 2010 and December 26, 2009, included receivables from Wal-Mart Stores, Inc. totaling $26.6 million and $22.6 million, respectively.

Contingencies
On July 21, 2010, Lance, Inc. (“Lance”) entered into a merger agreement with Snyder’s of Hanover, Inc. (“Snyder’s”), as discussed in Note 12.  The merger agreement, as amended, contains certain termination rights for both Lance and Snyder’s, including termination rights if the merger is not consummated on or before April 1, 2011 and if the approval of the stockholders of either Lance or Snyder’s is not obtained.  The merger agreement further provides that, upon termination of the merger agreement under specified circumstances, including termination of the merger agreement by Lance or Snyder’s as a result of an adverse change in the recommendation of the other party’s board of directors, Lance may be required to pay to Snyder’s, or Snyder’s may be required to pay to Lance, a termination fee of $25 million.
 
 
9

 
LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)
 
 
11.  
COMPREHENSIVE INCOME

Comprehensive income consisted of the following:

   
Quarter Ended
   
Nine Months Ended
 
 
(in thousands)
 
September 25,
2010
   
September 26,
2009
   
September 25,
2010
   
September 26,
2009
 
                         
Net income
  $ 10,386     $ 8,803     $ 21,890     $ 24,783  
Foreign currency translation adjustment
    790       3,322       1,691       6,649  
Net unrealized gain on derivatives, net of tax
    257       436       130       2,317  
Actuarial loss recognized in net income, net of tax
    -       (36 )     -       (109 )
 Total comprehensive income
  $ 11,433     $ 12,525     $ 23,711     $ 33,640  

12.  
MERGER AGREEMENT WITH SNYDER'S
 
On July 21, 2010, Lance entered into a merger agreement with Snyder’s, a privately-held company that is currently one of our customers and distributors, providing for a “merger of equals” business combination of Lance and Snyder’s.  The merger agreement, as amended, provides that, upon the terms and subject to the conditions set forth in the merger agreement, Snyder’s will merge with and into a wholly-owned subsidiary of Lance, and each outstanding share of capital stock of Snyder’s will be converted into the right to receive 108.25 shares of Lance common stock.  The merger is expected to result in Snyder’s stockholders and Lance stockholders holding approximately 50.1% and 49.9%, respectively, of the combined company.  In connection with the merger, Lance will change its name to Snyder’s-Lance, Inc.

Under the terms of the merger agreement, if the merger is completed, Lance stockholders prior to the merger will receive a special cash dividend of $3.75 per share, and Lance will issue approximately 32.7 million shares to the holders of outstanding common stock of Snyder’s.  The transaction, which is intended to be structured as a tax-free exchange of shares, is expected to close during the fourth quarter of 2010, and is subject to customary closing conditions, including obtaining certain regulatory approvals and approvals from the stockholders of both companies.

In August 2010, we received clearance from the U.S. Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act.  In connection with the merger, Lance filed a registration statement, which includes a joint proxy statement/prospectus, with the Securities and Exchange Commission.  The registration statement became effective on October 29, 2010, and a special meeting of the stockholders of Lance is scheduled for December 2, 2010 for the consideration by the stockholders of approvals required for the merger.

We expect to incur significant expenses in connection with the merger.  While we have assumed that a certain level of expenses will be incurred, there are many factors that could affect the total amount or the timing of the expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate.  These expenses could result in the combined company taking significant charges against earnings following the completion of the merger.  The amount and timing of such charges are uncertain at the present time.  The shareholder approval of the issuance of shares necessary to effect the merger will result in a “change in control” for purposes of outstanding awards under our equity and incentive plans, which would result in accelerated vesting of all outstanding equity-based awards granted under the our equity and incentive plans and pro rata cash payouts of outstanding annual and long-term incentive awards assuming target performance under such awards.  We incurred $3.2 million in professional fees associated with the proposed merger during the second and third quarters of 2010.
 
 
10

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

Forward -Looking Statements and Risk Factors

We, from time to time, make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include statements about our estimates, expectations, beliefs, intentions, or strategies for the future, and the assumptions underlying such statements.  We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements.  Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations.  Factors that could cause these differences include, but are not limited to, the risk and uncertainties set forth in Part II, “Item 1A Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 26, 2009, and those described from time to time in our other reports filed with the Securities and Exchange Commission.

Caution should be taken not to place undue reliance on our forward-looking statements, which reflect our management’s expectations only as of the time such statements are made.  Except as required by law, we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Proposed Merger with Snyder’s of Hanover, Inc.

On July 21, 2010, Lance, Inc. (“Lance”) entered into a definitive merger agreement with Snyder’s of Hanover, Inc. (“Snyder’s”), a privately-held company, providing for a “merger of equals” business combination of Lance and Snyder’s.  The merger agreement, as amended, provides that, upon the terms and subject to the conditions set forth in the merger agreement, a wholly-owned subsidiary of Lance will merge with and into Snyder’s, with Snyder’s surviving as a wholly-owned subsidiary of Lance.  Upon completion of the merger, Lance’s name will be changed to Snyder’s-Lance, Inc.  Subject to the terms and conditions of the merger agreement which was approved by the boards of directors of Lance and Snyder’s, each outstanding share of Snyder’s common stock will be converted into the right to receive 108.25 shares of Lance common stock, if the merger is completed.  See Note 12, “Merger Agreement with Snyder’s,” to the Condensed Consolidated Financial Statements for additional information.

Results of Operations

Management’s discussion and analysis of our financial condition and results of operations are based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Future events and their effects cannot be determined with absolute certainty.  Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances.  We routinely evaluate our estimates, including those related to customer returns and promotional activity, allowance for doubtful accounts, inventory valuations, self-insurance reserves, impairment analysis of goodwill and other intangible assets, useful lives and impairment of fixed assets, incentive compensation, and income taxes.  Actual results may differ from these estimates.


 
11

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

Quarter Ended September 25, 2010 Compared to Quarter Ended September 26, 2009

   
Quarter Ended
       
 
(In thousands)
 
September 25, 2010
   
September 26, 2009
   
Favorable/
(Unfavorable)
Variance
 
                                     
Net revenue
  $ 237,683       100.0 %   $ 234,902       100.0 %   $ 2,781       1.2 %
Cost of sales
    142,764       60.1 %     140,129       59.7 %     (2,635 )     -1.9 %
  Gross margin
    94,919       39.9 %     94,773       40.3 %     146       0.2 %
Selling, general and administrative
    78,416       33.0 %     80,019       34.1 %     1,603       2.0 %
Other expense, net
    221       0.1 %     644       0.3 %     423       65.7 %
  Earnings before interest and taxes
    16,282       6.9 %     14,110       6.0 %     2,172       15.4 %
Interest expense, net
    841       0.4 %     796       0.3 %     (45 )     -5.7 %
Income tax expense
    5,055       2.1 %     4,511       1.9 %     (544 )     -12.1 %
  Net income
  $ 10,386       4.4 %   $ 8,803       3.7 %   $ 1,583       18.0 %
   
Third Quarter Summary
During the third quarter of 2010, net revenue increased $2.8 million or 1% over the third quarter of 2009 due to higher sales volume in both branded and private brands, which was partially offset by significantly higher promotional pricing activity.  Given the economic environment, more consumers are demanding value offerings, which is driving the industry to provide deeper and more frequent promotions.  In addition, our non-branded product categories continue to experience pressure from increased and deeper promotions from competitive branded companies.  These pressures have created a highly competitive environment requiring increases in our own promotional pricing activity to maintain market share in the branded product category, which is expected to continue for the remainder of 2010.

During the third quarter of 2010, net income increased $1.6 million, or 18%, compared to the third quarter of 2009.  These results reflect lower advertising and other controllable operating expenses, lower ingredient costs, and increased efficiencies from our direct store delivery (“DSD”) system transformation initiative, partially offset by higher promotional costs.  In addition, we incurred $2.9 million of pre-tax expenses related to the recently announced proposed merger with Snyder’s.

Revenue
Total revenue increased $2.8 million, or 1%, from the third quarter of 2009 as follows:

(dollars in millions)
 
Quarter Ended
September 25, 2010
   
Change from Quarter Ended September 26, 2009
 
             
Branded Products
  $ 138.0       1 %
Non-Branded Products
    99.7       1 %
   Total Revenue
  $ 237.7       1 %

As a percentage of total revenue, revenue by product category was as follows:
   
Quarter Ended
 
   
September 25, 2010
   
September 26, 2009
 
             
Branded Products
    58 %     58 %
Non-Branded Products
    42 %     42 %
   Total Revenue
    100 %     100 %
 
 
12

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

Compared to the third quarter of 2009, revenue from branded products increased 1%.  Sales of certain branded products to distributors, mass merchandisers and dollar stores increased compared to the same quarter of last year due to acquisitions, new product offerings and growth with new and existing customers.  These increases were partially offset by revenue declines from certain channels, including up-and-down the street and food service establishments resulting from our DSD transformation initiative, as well as revenue declines in convenience store and grocery stores resulting from the impact of lower consumer spending and competitive pressures in these channels.  Sales of branded products were also significantly impacted by increased promotional pricing for certain core product categories during the third quarter of 2010.

Non-branded products consist of private brands and contract manufacturing.  Revenue from private brand products increased approximately 4% compared to the third quarter of 2009.  Growth in this category was driven by new product offerings and new customers.  We continued to experience competitive pressures from higher promotional pricing from branded competitors, especially where branded competitor’s products closely compete with our premium private brand products.  Contract manufacturing revenue decreased compared to the third quarter of 2009 primarily due to the expected completion of a short-term manufacturing contract in the first quarter of 2010.

Gross Margin
Gross margin increased $0.1 million, but decreased 0.4% as a percentage of revenue, compared to the third quarter of 2009.  The decrease in gross margin as a percentage of sales was due to increased promotional spending for branded products and an unfavorable distribution channel mix.  These unfavorable impacts were partially offset by lower commodity prices and improved manufacturing efficiencies.

Selling, General and Administrative Expenses
Selling, general, and administrative expenses decreased $1.6 million, or 1.1% as a percentage of revenue, as compared to the third quarter of 2009.  Lower discretionary advertising expenses of approximately $2.6 million favorably impacted our results, as well as reduced employee salary, incentive and benefit costs and cost reduction efforts from our DSD transformation initiative.  Higher shipping and distribution costs partially offset these favorable impacts.  In addition, we incurred $2.9 million of costs related to the proposed merger with Snyder’s during the third quarter of 2010.

Other Expense, Net
Other expense, net decreased $0.4 million due to losses on fixed assets and higher foreign currency losses experienced during the third quarter of 2009 as compared to the third quarter of 2010.

Income Tax Expense
Our effective income tax rate was 32.7% in the third quarter of 2010 compared to 33.9% in the third quarter of 2009.  The decrease in the effective income tax rate was the result of the increased utilization of tax credits and domestic manufacturing deductions.

Nine Months Ended September 25, 2010 Compared to Nine Months Ended September 26, 2009

   
Nine Months Ended
       
 
(In thousands)
 
September 25, 2010
   
September 26, 2009
   
Favorable/
(Unfavorable)
Variance
 
                                     
Net revenue
  $ 694,717       100.0 %   $ 687,065       100.0 %   $ 7,652       1.1 %
Cost of sales
    418,812       60.3 %     411,171       59.8 %     (7,641 )     -1.9 %
  Gross margin
    275,905       39.7 %     275,894       40.2 %     11       0.0 %
Selling, general and administrative
    236,517       34.0 %     233,996       34.1 %     (2,521 )     -1.1 %
Other expense, net
    4,006       0.6 %     1,252       0.2 %     (2,754 )     -220 %
  Earnings before interest and taxes
    35,382       5.1 %     40,646       5.9 %     (5,264 )     -13.0 %
Interest expense, net
    2,563       0.4 %     2,518       0.4 %     (45 )     -1.8 %
Income tax expense
    10,929       1.6 %     13,345       1.9 %     2,416       18.1 %
  Net income
  $ 21,890       3.2 %   $ 24,783       3.6 %   $ (2,893 )     -11.7 %
   


 
13

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Nine Months Summary
During the first nine months of 2010, net income decreased $2.9 million, or 12%.  Significant drivers included pre-tax expenses of $3.2 million related to the proposed merger with Snyder’s, $3.0 million related to workforce reductions announced during the second quarter of 2010, and $2.9 million related to an unsuccessful bid for a targeted acquisition during the first quarter of 2010.  Additional significant drivers included higher shipping and distribution costs from higher fuel rates and higher infrastructure costs as compared to the first nine months of last year, offset by lower advertising spending and improved DSD efficiencies.

Furthermore, economic pressures continued to negatively impact our net revenues across many channels and product categories.  The geographic regions hit the hardest by unemployment overlap significantly with our core markets.  This drove revenue softness in our convenience store channel.  In addition, as more retailers drive value offerings to consumers, our promotional pricing activity increased significantly as compared to the first nine months of 2009.  Our non-branded product categories continued to experience pressure from increased and deeper promotions from competitive branded companies.  These pressures created a highly competitive environment requiring increases in our own promotional pricing activity to maintain market share in the branded product category.

Revenue
Total revenue increased $7.7 million, or approximately 1%, from the first nine months of 2009 as follows:

  (dollars in millions)
 
Nine Months Ended
September 25, 2010
   
Change from Nine Months Ended September 26, 2009
 
             
Branded Products
  $ 404.9       0 %
Non-Branded Products
    289.8       2 %
   Total Revenue
  $ 694.7       1 %

As a percentage of total revenue, revenue by product category was as follows:
   
Nine Months Ended
 
   
September 25, 2010
   
September 26, 2009
 
             
Branded Products
    58 %     59 %
Non-Branded Products
    42 %     41 %
   Total Revenue
    100 %     100 %

Compared to the first nine months of 2009, revenues from branded products increased slightly.  Net sales of branded products were significantly impacted by increased promotional pricing for certain core product categories during the first nine months of  2010.  Sales of branded products to distributors, dollar stores and mass merchandisers increased compared to the first nine months of 2009 due to acquisitions, new product offerings and growth with new and existing customers.  These increases were largely offset by revenue declines from certain channels, including convenience stores, up-and-down the street customers and food service establishments, resulting from the impact of lower consumer spending in these channels as well as the planned impact of our DSD transformation initiative.  We also experienced higher sales to club stores in the first six months of 2009 due to the impact of the peanut butter recall on our competitors’ products.

Non-branded products consist of private brands and contract manufacturing.  Net sales from private brand products increased approximately 5% compared to the first nine months of 2009.  Growth in this category was driven by new product offerings but has experienced competitive pressures from higher promotional pricing from branded competitors, especially where branded competitor’s products closely compete with our premium private brand products.  Contract manufacturing revenue was lower than the first nine months of 2009 primarily due to the expected completion of a short-term manufacturing contract.
 
 
14

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

Gross Margin
Gross margin decreased 0.5% as a percentage of revenue, compared to the first nine months of 2009.  The decrease was largely due to higher promotional spending, a higher mix of non-branded revenue and $1.1 million of costs related to workforce reductions announced during the second quarter of 2010, partially offset by lower ingredient costs compared to the first nine months of 2009.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.5 million, but decreased 0.1% as a percentage of revenue, as compared to the first nine months of 2009.  Shipping and distribution expenses increased due to increases in fuel costs.  Additionally, certain fixed infrastructure costs, such as rent and depreciation, as well as medical costs, increased compared to the first nine months of 2009.  Approximately $3.2 million of costs were incurred in the second and third quarters 2010 related to the recently announced proposed merger with Snyder’s and $1.9 million of costs were incurred in the second quarter 2010 related to workforce reductions.  Offsetting these costs was $3.4 million less of advertising spending as compared to the first nine months of 2009, as well as lower salaries and incentives.

Other Expense, Net
Other expense, net increased $2.8 million primarily due to financing commitment fees in the first quarter of 2010 of $2.7 million associated with an unsuccessful bid for a targeted acquisition.  Additionally, we recorded an impairment charge of $0.6 million in the first quarter of 2010 related to assets in Little Rock, Arkansas.

Income Tax Expense
Our effective income tax rate was 33.3% in the first nine months of 2010 compared to 35.0% in the first nine months of 2009.  The decrease in the effective income tax rate was the result of the increased utilization of tax credits and domestic manufacturing deductions.

Liquidity and Capital Resources

Liquidity
Liquidity represents our ability to generate sufficient cash flows from operating activities to meet our obligations as well as our ability to obtain appropriate financing.  Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives.  Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures and dividends.  Sufficient liquidity is expected to be available to enable us to meet these demands.

We have a universal shelf registration statement that, subject to our ability to consummate a transaction on acceptable terms, provides the flexibility to sell up to $250 million of debt or equity securities.

Operating Cash Flows
Net cash provided by operating activities was $52.0 million during the first nine months of 2010 and $45.1 million during the first nine months of 2009.  Cash used from changes in operating assets and liabilities decreased from $12.7 million during the first nine months of 2009 to $5.8 million in the first nine months of 2010, mostly due to a larger increase in accounts receivable in the first nine months of 2009.

Investing Cash Flows
Net cash used in investing activities was $18.9 million for the first nine months of 2010.  Capital expenditures for fixed assets, principally manufacturing equipment and building improvements, totaled $21.2 million during the first nine months of 2010, partially funded by proceeds from the sale of fixed assets and assets held for sale of $2.2 million.  Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs.  Capital expenditures for 2010 are projected to be between $28 million and $31 million and funded by net cash flow from operating activities, cash on hand, and our existing credit facilities.

Net cash used in investing activities during the first nine months of 2009 represented capital expenditures of $28.7 million, partially offset by proceeds from the sale of fixed assets of $0.7 million.  Capital expenditures for purchases of fixed assets were $40.7 million for the year ended December 26, 2009.
 
 
15

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Financing Cash Flows
During both of the first nine months of 2010 and 2009, we paid dividends of $0.48 per common share totaling $15.5 million and $15.3 million, respectively.  We received cash and related tax benefits of $2.6 million and $3.8 million during the first nine months of 2010 and 2009, respectively, as a result of stock option exercises.  During the first nine months of 2010, we repurchased 56,152 shares of common stock from employees and net-settled 172,650 of the 300,000 restricted stock units that vested in May 2010, to cover $3.8 million of withholding taxes payable by employees upon the vesting of restricted stock and restricted stock units.  We also paid $0.9 million of accrued dividends on restricted stock units.  Net repayments on our existing credit facilities were $7.0 million.  On November 2, 2010, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on November 23, 2010, to stockholders of record on November 15, 2010.

Debt
Additional borrowings available under our existing U.S. and Canadian credit facilities totaled $58.6 million as of September 25, 2010.  We have complied with all financial covenants contained in the credit agreement.  We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims.  The total amount of these letters of credit, which was $15.7 million as of September 25, 2010, no longer reduces our available borrowings under our credit facilities because they were transferred to another banking institution outside of our credit group.

Contractual Obligations
In order to fix a portion of our ingredient, packaging and energy costs, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels.  Purchase commitments increased from $88.2 million as of December 26, 2009, to $116.0 million as of September 25, 2010, due to varying contractual obligations.  We are currently contracted at least six months in advance for all major ingredients and packaging.

Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations or cash flows.

Market Risks

The principal market risks that may adversely impact results of operations and financial position relate to ingredient, packaging and energy costs, interest and foreign exchange rates, and credit risks.

See the “ Contractual Obligations” section above for a discussion of market risks associated with ingredient, packaging and energy costs.

Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian prime rate and U.S. base rate interest.  To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable-rate debt.

In November 2006, we entered into an interest rate swap agreement on $35 million of debt in order to fix the interest rate at 4.99%, plus applicable margin.  The applicable margin on September 25, 2010 was 0.40%.  In July 2008, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 3.87%, plus applicable margin.  The applicable margin on this agreement on September 25, 2010, was 0.40%.  In February 2009, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 1.68%, plus applicable margin.  The applicable margin on this agreement on September 25, 2010, was 0.32%.

While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $1.8 million lower without these agreements during the first nine months of 2010.

We are exposed to foreign exchange rate fluctuations through the operations of our Canadian subsidiary.  A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations’ costs, such as raw materials and direct labor, are denominated in Canadian dollars.  We have entered into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure.  These contracts have maturities through June 2011.

 
16

 
LANCE, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
During the first nine months of 2010, foreign currency fluctuations unfavorably impacted pre-tax earnings by $2.2 million compared to the first nine months of 2009.  However, the decrease in pre-tax earnings was more than offset by the favorable effect of derivative forward contracts of $2.3 million during the first nine months of 2010 compared to the first nine months of 2009, resulting in a net favorable impact of foreign currency of $0.1 million.  Due to foreign currency fluctuations during the first nine months of 2010 and 2009, we recorded gains of $1.7 million and $6.6 million, respectively, in other comprehensive income because of the translation of the subsidiary’s financial statements into U.S. dollars.

We are exposed to credit risks related to our accounts receivable.  We perform ongoing credit evaluations of our customers to minimize the potential exposure.  For the first nine months of 2010 and 2009, net bad debt expense was $0.9 million and $1.0 million, respectively.  Allowances for doubtful accounts were $1.4 million at September 25, 2010 and $1.0 million at December 26, 2009.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about these market risks are included under “Market Risks” in Item 2 above, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4.  Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting during the quarter ended September 25, 2010, that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.

 
17

 
LANCE, INC. AND SUBSIDIARIES
 

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

We are currently subject to various routine legal proceedings and claims incidental to our business.  In our opinion, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole.

We are also subject to two purported class action petitions related to the proposed merger with Snyder’s.  On August 5, 2010, Albert A. Ward filed a class action complaint on behalf of Lance’s stockholders against Lance, the members of Lance’s board of directors and Snyder’s in the Superior Court of Mecklenburg County, North Carolina, which is referred to as the “Ward suit.” The Ward suit generally alleges that the valuation of the proposed merger unfairly overvalues the relative contribution of Snyder’s and that the defendants breached their fiduciary duties by failing to maximize stockholder value in connection with the proposed merger and their duty of candor by distributing an offering document related to the proposed merger that was incomplete or incorrect. The Ward suit seeks: (i) injunctive relief preventing consummation of the proposed merger, unless and until Lance adopts and implements a procedure or process to obtain a transaction that provides the best possible terms for stockholders; (ii) injunctive relief preventing consummation of the proposed merger, unless and until Lance’s disclosure of all material facts concerning the proposed merger, its terms, and valuation; (iii) a directive to the individual defendants to exercise their fiduciary duties to obtain a transaction which is in the best interests of Lance stockholders; and (iv) rescission of, to the extent already implemented, the proposed merger agreement and any of the terms thereof. The lawsuit is in a preliminary stage and has been removed to the North Carolina Business Court. Lance, the Lance board of directors and Snyder’s believe that the lawsuit is without merit and intend to defend it vigorously.

On September 3, 2010, David Shaev filed a class action complaint on behalf of Lance’s stockholders in the United States District Court for the Western District of North Carolina, Charlotte Division, against Lance, the members of Lance’s board of directors and Snyder’s, which is referred to as the “Shaev complaint.” The Shaev complaint generally alleges that (i) the preliminary joint proxy statement/prospectus filed with the SEC on August 13, 2010 by Lance contained material omissions and misrepresentations and (ii) the board of directors of Lance, aided and abetted by Lance and Snyder’s, breached its state-law fiduciary duties to Lance stockholders by failing to maximize shareholder value by agreeing to sell Lance for inadequate consideration and disseminating an inadequate joint proxy statement/prospectus. The Shaev complaint seeks, among other things: (i) injunctive relief to prevent proceeding with, consummating or closing the proposed merger, unless and until the disclosures requested in the Shaev complaint are made and, (ii) in the event the proposed merger is consummated, rescission of the proposed merger or the award of rescissory damages. The lawsuit is in a preliminary stage. Lance, the Lance board of directors and Snyder’s believe that the lawsuit is without merit and intend to defend it vigorously.

Item 1A.  Risk Factors

In addition to the risk factors disclosed in Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 26, 2009, the following additional risks related to the proposed merger with Snyder’s should be carefully considered.

The merger may present certain risks to our business prior to the closing of the merger, including, among other things, risks that:
·  
employees may experience uncertainty, which might adversely affect our ability to retain, recruit and motivate key personnel;
·  
management’s attention and other company resources may be directed toward the completion of the merger and may be diverted from day-to-day business operations, including pursuing other opportunities beneficial to Lance;
·  
vendors, suppliers, customers and other third parties with business relationships with us may seek to terminate and/or renegotiate their relationships as a result of the merger;
·  
the outcomes of any legal proceedings to the extent initiated against Lance or Snyder’s or its respective directors or officers following the announcement of the merger are uncertain; and
·  
failure to complete the merger may require us to pay a termination fee or negatively impact our stock price.


 
18

 
LANCE, INC. AND SUBSIDIARIES
 


In addition, certain risks may continue to exist after the closing of the merger, including, among other things, risks that:
·  
we may not be able to fully realize the anticipated synergies and benefits of the merger;
·  
we may incur significant expenses or charges in connection with the closing of the merger, including expenses under our employee incentive plans if a change in control is deemed to occur under those plans;
·  
we may be unable to integrate our businesses and workforce successfully;
·  
the completion of the merger will require us to obtain a waiver under or refinance our existing credit facilities, and we may be forced to raise funds in an alternative manner which could be more costly or unavailable;
·  
the merger will result in changes to our board of directors and management that may affect the combined company’s strategy; and
·  
we may not be able to retain key employees after the merger.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Our Credit Agreement dated October 20, 2006, restricts our payment of cash dividends and repurchases of common stock if, after payment of any dividends or any repurchases of common stock, our consolidated stockholders’ equity would be less than $125.0 million.  At September 25, 2010, our consolidated stockholders’ equity was $285.5 million.

In December 2008, the Board of Directors approved the repurchase of up to 100,000 shares of common stock from employees.  On July 21, 2010, the Board of Directors approved the repurchase of up to an additional 100,000 shares, or up to $2.4 million, of common stock from employees.  The purpose of the repurchase is to acquire shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of shares of restricted stock.  There were no repurchases of common shares during the third quarter of 2010.  The maximum number of shares remaining to be purchased at September 25, 2010 was 137,107.

Item 3.  Defaults Upon Senior Securities

None.

Item 5.  Other Information

None.


 
19

 
LANCE, INC. AND SUBSIDIARIES
 

Item 6.  Exhibits

Exhibit Index

No.
 
Description
     
2.1
 
Agreement and Plan of Merger, dated as of July 21, 2010 among Lance, Inc., Lima Merger Corp. and Snyder’s, Inc., incorporated herein by reference to Exhibit 2.1 to Amendment No. 2 of the Registrant’s Registration Statement on Form S-4 filed on October 21, 2010 (File No. 333-168849).
     
2.2
 
Amendment No. 1 to Agreement and Plan of Merger among Lance, Inc., Lima Merger Corp. and Snyder’s of Hanover, Inc., dated as of September 30, 2010, incorporated herein by reference to Exhibit 2.2 to Amendment No. 2 of the Registrant’s Registration Statement on Form S-4 filed on October 21, 2010 (File No. 333-168849).
     
3.1
 
Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998 (File No. 0-398).
     
3.2
 
Bylaws of Lance, Inc., as amended through September 30, 2010, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2010 (File No. 0-398).
     
10.1
 
Voting Agreement, dated as of July 21, 2010, among Lance, Inc., Michael A. Warehime, Patricia A. Warehime and Charles E. Good, incorporated herein by reference to Exhibit 10.1 to Amendment No. 2 of the Registrant’s Registration Statement on Form S-4 filed on October 21, 2010 (File No. 333-168849).
     
10.2
 
Standstill Agreement, dated as of July 21, 2010, among Lance, Inc., Michael A. Warehime and Patricia A. Warehime, incorporated herein by reference to Exhibit 10.2 to Amendment No. 2 of the Registrant’s Registration Statement on Form S-4 filed on October 21, 2010 (File No. 333-168849).
     
10.3
 
Amendment No. 1 to Standstill Agreement among Lance, Inc., Michael A. Warehime and Patricia A. Warehime, effective as of September 30, 2010, incorporated herein by reference to Exhibit 10.3 to Amendment No. 2 of the Registrant’s Registration Statement on Form S-4 filed on October 21, 2010 (File No. 333-168849).
     
10.4
 
Lance Inc. 1995 Nonqualified Stock Option Plan for Non-Employee Directors, as amended through September 30, 2010, filed herewith.
     
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith.
     
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith.
     
32
 
Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
101
 
Financial Statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.
     

 
20

 
LANCE, INC. AND SUBSIDIARIES
 


 
 
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.
   
 
LANCE, INC.
   
   
 
By:
/s/ Rick D. Puckett
 
 
Rick D. Puckett
 
 
Executive Vice President, Chief Financial Officer,
 
 
Treasurer and Secretary
 
 
Dated:  November 3, 2010

 
21

 

EXHIBIT 10.4

LANCE, INC.

1995 NONQUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As amended through September 30, 2010)


1.            Purpose .  This Plan is intended to provide Directors who are not employees of the Company a sense of proprietorship and personal involvement in the development and financial success of the Company and to encourage such Directors to remain with and to devote their best efforts to the Company.

2.            Definitions .  Whenever used in the Plan, unless the context clearly indicates otherwise, the following terms shall have the following meanings:

(a)           “Act” means the Securities Exchange Act of 1934, as amended.

(b)           “Board” or “Board of Directors” means the Board of Directors of the Company.

(c)           “Common Stock” means the Common Stock, $.83-1/3 par value, of the Company and any other stock or securities resulting from the adjustment thereof or substitution therefor as described in Section 8 below.

(d)           “Company” means Lance, Inc., a North Carolina corporation, and any corporation succeeding to the Company’s rights and obligations hereunder.

(e)           “Director” means a member of the Board of Directors of the Company who is not a regular employee of the Company or its subsidiaries.

(f)           “Disability” means the condition which results when an individual has become permanently and totally disabled within the meaning of Section 105(d)(4) of the Internal Revenue Code of 1986.

(g)           “Fair Market Value”, with respect to a share of the Common Stock on a particular date, shall be (i) if such Common Stock is listed on a national securities exchange or a foreign securities exchange or traded on the National Market System, the closing sale price of the Common Stock on said date on the national securities exchange, the foreign securities exchange or the National Market System on which the Common Stock is principally traded, or, if no sales occur on said date, then on the next preceding date on which there were such sales of Common Stock, or (ii) if the Common Stock shall not be listed on a national securities exchange or a foreign securities exchange or traded on the National Market System, the mean between the closing bid and asked prices last reported by the National Association of Securities Dealers, Inc. for the over-the-counter market on said date or, if no bid and asked prices are reported on said date, then on the next preceding date on which there were such quotations, or (iii) if at any time quotations for the Common Stock shall not be reported by the National Association of Securities Dealers, Inc.  for the over-the-counter market and the Common Stock shall not be listed on any national securities exchange or any foreign securities exchange or traded on the National Market System, the fair market value based on quotations for the Common Stock by market makers or other securities dealers as determined by the Board of Directors in such manner as the Board may deem reasonable.

(h)           “Option” means a stock option granted pursuant to this Plan.

(i)           “Optionee” means the person to whom an Option is granted.

(j)           “Option Price” is defined in Section 6.

(k)           “Plan” means this 1995 Nonqualified Stock Option Plan for Non-Employee Directors, as in effect from time to time.

(l)           “Retirement” means retirement as a member of the Board of Directors as provided in its Governance Principles that no person shall be nominated for election to the Board of Directors for a term beginning after the Director’s 70 th birthday.

(m)           “Stock Option Agreement” means the written agreement between an Optionee and the Company evidencing the grant of an Option under the Plan and setting forth or incorporating the terms and conditions thereof.

3.            Administration .  The Plan shall be administered by the Board of Directors.  The Board shall have all of the powers necessary to enable it properly to carry out its duties under the Plan, including but not limited to the power and duty to construe and interpret the Plan and to determine all questions that shall arise under the Plan, which interpretations and determinations shall be conclusive and binding upon all persons.  Subject to the express provisions of the Plan, the Board may establish from time to time such regulations, provisions and procedures which in its opinion may be advisable in the administration of the Plan.

Notwithstanding the foregoing or any other provision of this Plan to the contrary, no discretion concerning decisions regarding the Plan shall be afforded to a person who is not a “disinterested person” (as defined in the rules and regulations of the Securities and Exchange Commission under Section 16 of the Act, as in effect from time to time).  In the event that it is necessary for the proper administration of the Plan to exercise any such discretion, and the Board is so precluded from exercising such discretion, the Board may delegate any authority to exercise such discretion to a person or committee of persons, each of whom is a “disinterested person” as so defined.

4.            Eligibility; Option Grants .  Each Director serving on May 1 of each calendar year beginning May 1, 1995 shall automatically be granted an option to purchase shares of the Common Stock on May 1 of such calendar year.  The first such Option for a Director shall be for 2,500 shares and each subsequent Option shall be for 4,000 shares with the number of shares being subject to adjustment or substitution as provided in Section 8 hereof; provided, however, that such automatic grants shall be made pro rata to all Directors if on the date of a grant there shall not be a sufficient number of shares of Common Stock available under the Plan to make all such grants.

5.            Shares Available for Option .  The Board of Directors shall reserve for the purposes of the Plan, and by adoption of the Plan does hereby reserve, out of the authorized but unissued Common Stock, a total of 300,000 shares of Common Stock of the Company, subject to adjustment or substitution as provided in Section 8 hereof.  In the event that an Option expires or is terminated unexercised as to any shares covered thereby, such shares shall not thereafter be available for the granting of Options under the Plan and the reserve for such shares shall be terminated.

6.            Option Price .  The price at which each share of Common Stock, subject to adjustment as provided in Section 8 hereof, may be purchased upon the exercise of an Option (the “Option Price”) shall be the Fair Market Value of the shares of Common Stock subject to the Option on the date such Option is granted.

7.            Exercise of Options .

(a)           Each Option by its terms shall require the Optionee granted such Option to remain available to serve as a Director of the Company for one year from the date of the grant of such Option before the right to exercise any part of such Option will accrue; provided, however, the first such Option granted to a Director by its terms shall require the Optionee to remain available to serve as a Director of the Company for only six months from the date of grant of such Option before the right to exercise any part of such Option will accrue.  The Optionee may thereafter exercise any or all of such option until the expiration or termination of the option; provided, that not less than 100 shares may be purchased at any one time unless the number of shares purchased is the total number at such time purchasable under the Option.  Subject to earlier termination as provided herein, all Options granted shall expire ten years from the date of grant thereof.

(b)           If an Optionee shall cease to be a Director otherwise than by such Optionee’s death, Disability or Retirement, then, subject to Subsection 7(a) hereof, the Option shall be exercisable at any time prior to the earlier of (i) the expiration date of such Option or (ii) that date which is three months from the date such Optionee ceases to be a Director, such three month period to include the date on which such termination occurs.  If an Optionee ceases to be a Director as a result of such Optionee’s death or Disability, then, subject to Subsection 7(a) hereof, the Option shall be exercisable at any time prior to the earlier of (i) the expiration date of such option or (ii) that date which is one year from the date such Optionee ceases to be a Director.  If an Optionee ceases to be a Director as a result of such Optionee’s Retirement, then, subject to Subsection 7(a) hereof, the Option shall be exercisable  at any time prior to the earlier of (i) the expiration date of such Option or (ii) that date which is three years from the date such Optionee ceases to be a Director.

(c)           Each Option by its terms shall not be transferable by the Optionee otherwise than by will, or if the Optionee dies intestate, by the laws of descent and distribution, and such Option shall be exercisable during such Optionee’s lifetime only by such Optionee.  In the event of the death of an Optionee, then such Optionee’s Options shall be exercisable to the extent herein provided by the executor or personal representative of the Optionee’s estate or by any person who acquired the right to exercise such Option by bequest under the Optionee’s will or by inheritance.

(d)           Each Option shall be confirmed by a Stock Option Agreement.

(e)           The Option Price for each share of Common Stock purchased pursuant to the exercise of each Option shall, at the time of the exercise of the Option, be paid in full in cash or equivalent.  An Option shall be deemed exercised only when written notice of such exercise, together with payment of the Option Price, is received from the Optionee by the Company at its principal office.  No Optionee shall have any rights as a shareholder of the Company with respect to Common Stock issuable pursuant to such Optionee’s Option until such Option is duly exercised.

(f)           To the extent that an Option is not exercised within the period of time prescribed therefor as set forth in the Plan, the Option shall lapse and all rights of the Optionee thereunder shall terminate.

8.            Adjustment of Number of Shares .  In the event that a dividend shall be declared on the Common Stock payable in shares of the Common Stock, the number of shares of Common Stock subject to grant to each Director each calendar year, the number of shares then subject to any Option and the number of shares reserved for issuance pursuant to the Plan shall be adjusted by adding to each such share the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend.  In the event that the outstanding shares of Common Stock generally shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, or changed into or exchanged for cash or property or the right to receive cash or property (but not including any regular cash dividend), whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of Common Stock subject to grant to each Director each calendar year and subject to any Option, and for each share of Common Stock reserved for issuance pursuant to the Plan, the number and kind of shares of stock or other securities or cash or property or right to receive cash or property into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged.  In the case of any such substitution or adjustment as provided for in this Section 8, the Option Price for each share covered thereby prior to such substitution or adjustment shall be the Option Price for all shares of stock or other securities or cash or property or right to receive cash or property which shall have been substituted for such share or to which such share shall have been adjusted pursuant to this Section 8.  No adjustment or substitution provided for in this Section 8 shall require the Company in any Stock Option Agreement to issue a fractional share and the total substitution or adjustment with respect to each Stock Option Agreement shall be limited accordingly.

9.            Amendment of Plan .  The Board of Directors shall have the right to amend, suspend or terminate the Plan at any time; provided that, except as and to the extent authorized and permitted by Section 8 above, (a) no amendment, suspension or termination shall adversely affect the rights of any Optionee as to any outstanding Option without the consent of such Optionee, subject to any limitation on such rights set forth in the Plan or such Optionee’s Stock Option Agreement except for any amendment the Board deems necessary to preserve or provide exemptions from the applicability of Section 16(b) of the Act to the grant, lapse, disposition, cancellation or exercise of Options; and (b) no amendment relating to the determination of the Optionees or of the grant dates or of the number of Options granted to any Optionee, or of the requirement that no discretion concerning decisions regarding the Plan shall be afforded to a person who is not a “disinterested person,” shall be made more than once every six months, other than to comport with changes in the Internal Revenue Code of 1986 or the rules thereunder.

10.            Resales of Shares .  The Company may impose such restrictions on the sale or other disposition of shares issued pursuant to the exercise of Options as the Board deems necessary to comply with applicable securities laws.  Certificates for shares issued upon the exercise of Options may bear such legends as the Company deems necessary to give notice of such restrictions.

11.            Compliance with Law and Other Conditions .  No shares shall be issued pursuant to the exercise of any Option prior to compliance by the Company, to the satisfaction of its counsel, with any applicable laws.  The Company shall not be obligated to (but may in its discretion) take any action under applicable federal or state securities laws (including registration or qualification of the Plan, the Options or the Common Stock) necessary for compliance therewith in order to permit the issuance of shares upon the exercise of Options or the immediate resale thereof by Optionees, except for actions (other than registration or qualification) that may be taken by the Company without unreasonable effort or expense and without the incurrence of any material exposure to liability.

12.            Nonqualified Options .  Options granted under the Plan will not be treated as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986.

13.            Effective Date .  The Plan shall be effective on February 21, 1995, subject to approval of the Plan by a plurality of the shares voting on the approval of the Plan at the 1995 Annual Meeting of Stockholders.  Until such approval shall be obtained, no Options shall be exercisable and if such approval shall not be obtained prior to the completion of the 1995 Annual Meeting of Stockholders, this Plan and all Options granted hereunder shall be void.
 
 
LANCE, INC. AND SUBSIDIARIES


EXHIBIT 31.1

MANAGEMENT CERTIFICATION

I, David V. Singer, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date:  November 3, 2010



  /s/ David V. Singer  
David V. Singer
 
President and Chief Executive Officer
 
 
 
LANCE, INC. AND SUBSIDIARIES


EXHIBIT 31.2

MANAGEMENT CERTIFICATION

I, Rick D. Puckett, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date:  November 3, 2010



  /s/ Rick D. Puckett  
Rick D. Puckett
 
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
 


 
 
LANCE, INC. AND SUBSIDIARIES


EXHIBIT 32


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Lance, Inc. (the “Company”) on Form 10-Q for the period ended September 25, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David V. Singer, President and Chief Executive Officer of the Company, and Rick D. Puckett, Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Lance, Inc. and will be retained by Lance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.



  /s/ David V. Singer     /s/ Rick D. Puckett
David V. Singer
 
Rick D. Puckett
President and Chief Executive Officer
 
Executive Vice President, Chief Financial
November 3, 2010
 
Officer, Treasurer and Secretary
   
November 3, 2010