Snyder's-Lance, Inc.
SNYDER'S-LANCE, INC. (Form: 10-Q, Received: 08/06/2013 17:19:14)
Table of Contents




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 June 29, 2013
Commission File Number 0-398
SNYDER’S-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 ¨
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 ¨
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 ¨         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 July 25, 2013 , was 69,400,835 shares.



Table of Contents

SNYDER'S-LANCE, INC. AND SUBSIDIARIES

INDEX

   
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

INDEX

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This document includes “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 risks 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 29, 2012 , 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.  

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

SNYDER'S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Quarters and Six Months Ended June 29, 2013 and June 30, 2012
(in thousands, except per share data)
 
 
 
Quarter Ended
 
Six Months Ended
 
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Net revenue
 
$
439,051

 
$
399,400

 
$
857,623

 
$
792,243

Cost of sales
 
293,081

 
267,482

 
566,857

 
532,942

Gross margin
 
145,970

 
131,918

 
290,766

 
259,301

 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
123,504

 
107,649

 
234,500

 
218,352

Impairment charges
 
1,900

 
127

 
1,900

 
127

Gain on sale of route businesses, net
 
(1,482
)
 
(10,882
)
 
(1,592
)
 
(20,169
)
Other income, net
 
(2,028
)
 
(572
)
 
(3,504
)
 
(661
)
Income before interest and income taxes
 
24,076

 
35,596

 
59,462

 
61,652

 
 
 
 
 
 
 
 
 
Interest expense, net
 
3,521

 
2,303

 
6,960

 
4,566

Income before income taxes
 
20,555

 
33,293

 
52,502

 
57,086

 
 
 
 
 
 
 
 
 
Income tax expense
 
7,525

 
13,828

 
19,564

 
23,296

Net income
 
13,030

 
19,465

 
32,938

 
33,790

Net income attributable to noncontrolling interests
 
51

 
140

 
116

 
251

Net income attributable to Snyder’s-Lance, Inc.
 
$
12,979

 
$
19,325

 
$
32,822

 
$
33,539

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.19

 
$
0.28

 
$
0.47

 
$
0.49

Weighted average shares outstanding – basic
 
69,279

 
68,294

 
69,136

 
68,103

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.19

 
$
0.28

 
$
0.47

 
$
0.49

Weighted average shares outstanding – diluted
 
70,086

 
69,319

 
69,922

 
69,086

 
 
 
 
 
 
 
 
 
Cash dividends declared per share
 
$
0.16

 
$
0.16

 
$
0.32

 
$
0.32

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



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SNYDER'S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
For the Quarters and Six Months Ended June 29, 2013 and  June 30, 2012
(in thousands)
 
 
Quarter Ended
 
Six Months Ended
 
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Net income
 
$
13,030

 
$
19,465

 
$
32,938

 
$
33,790

 
 
 
 
 
 
 
 
 
Net unrealized losses on derivative instruments, net of income tax
 
(5
)
 
(427
)
 
(18
)
 
(293
)
Foreign currency translation adjustment
 
(2,347
)
 
(1,263
)
 
(3,905
)
 
326

Total other comprehensive (loss)/income
 
(2,352
)
 
(1,690
)
 
(3,923
)
 
33

 
 
 
 
 
 
 
 
 
Total comprehensive income
 
10,678

 
17,775

 
29,015

 
33,823

Comprehensive income attributable to noncontrolling interests, net of income tax of $83, $66, $121 and $96 respectively
 
(51
)
 
(140
)
 
(116
)
 
(251
)
Total comprehensive income attributable to Snyder’s-Lance, Inc.
 
$
10,627

 
$
17,635

 
$
28,899

 
$
33,572

See Notes to Condensed Consolidated Financial Statements (Unaudited).



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SNYDER'S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of June 29, 2013 (Unaudited) and December 29, 2012  
(in thousands, except share data)
 
 
June 29, 2013
 
December 29, 2012
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
6,282

 
$
9,276

Accounts receivable, net of allowances of $2,697 and $2,159, respectively
 
152,942

 
141,862

Inventories
 
124,158

 
118,256

Prepaid income taxes
 
5,715

 

Deferred income taxes
 
11,334

 
11,625

Assets held for sale
 
15,032

 
11,038

Prepaid expenses and other current assets
 
27,308

 
28,676

Total current assets
 
342,771

 
320,733

 
 
 
 
 
Noncurrent assets:
 
 
 
 
Fixed assets, net of accumulated depreciation of $349,431 and $331,053, respectively
 
344,864

 
331,385

Goodwill
 
537,419

 
540,389

Other intangible assets, net
 
526,148

 
531,735

Other noncurrent assets
 
22,971

 
22,490

Total assets
 
$
1,774,173

 
$
1,746,732

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
18,704

 
$
20,462

Accounts payable
 
64,831

 
54,791

Accrued compensation
 
23,602

 
31,037

Accrued selling and promotional costs
 
20,038

 
16,240

Income tax payable
 

 
1,263

Other payables and accrued liabilities
 
34,325

 
30,830

Total current liabilities
 
161,500

 
154,623

 
 
 
 
 
Noncurrent liabilities:
 
 
 
 
Long-term debt
 
516,665

 
514,587

Deferred income taxes
 
179,210

 
176,037

Other noncurrent liabilities
 
28,299

 
29,310

Total liabilities
 
885,674

 
874,557

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Common stock, 69,359,846 and 68,863,974 shares outstanding, respectively
 
57,798

 
57,384

Preferred stock, no shares outstanding
 

 

Additional paid-in capital
 
755,418

 
746,155

Retained earnings
 
61,533

 
50,847

Accumulated other comprehensive income
 
11,195

 
15,118

Total Snyder’s-Lance, Inc. stockholders’ equity
 
885,944

 
869,504

Noncontrolling interests
 
2,555

 
2,671

Total stockholders’ equity
 
888,499

 
872,175

Total liabilities and stockholders’ equity
 
$
1,774,173

 
$
1,746,732

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

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 29, 2013 and  June 30, 2012
(in thousands)
 
 
Six Months Ended
 
 
June 29, 2013
 
June 30, 2012
Operating activities:
 
 
 
 
Net income
 
32,938

 
$
33,790

Adjustments to reconcile net income to cash from operating activities:
 
 
 
 
Depreciation and amortization
 
29,641

 
25,956

Stock-based compensation expense
 
2,826

 
2,266

Gain on sale of fixed assets, net
 
(272
)
 
(123
)
Gain on sale of route businesses
 
(1,592
)
 
(20,169
)
Impairment charges
 
1,900

 
127

Changes in operating assets and liabilities
 
(12,847
)
 
(11,412
)
Net cash provided by operating activities
 
52,594

 
30,435

 
 
 
 
 
Investing activities:
 
 
 
 
Purchases of fixed assets
 
(39,869
)
 
(33,106
)
Purchases of route businesses
 
(21,353
)
 
(26,683
)
Proceeds from sale of fixed assets
 
2,213

 
6,803

Proceeds from sale of route businesses
 
17,533

 
80,055

Proceeds from sale of investments
 
921

 

Net cash (used in)/provided by investing activities
 
(40,555
)
 
27,069

 
 
 
 
 
Financing activities:
 
 
 
 
Dividends paid to stockholders
 
(22,135
)
 
(21,815
)
Dividends paid to noncontrolling interests
 
(232
)
 
(234
)
Issuances of common stock
 
7,549

 
9,260

Repurchases of common stock
 
(709
)
 
(333
)
Repayments of long-term debt
 
(16,029
)
 
(1,127
)
Net proceeds/(repayments) from revolving credit facilities
 
16,870

 
(38,805
)
Net cash used in financing activities
 
(14,686
)
 
(53,054
)
 
 
 
 
 
Effect of exchange rate changes on cash
 
(347
)
 
19

 
 
 
 
 
(Decrease)/increase in cash and cash equivalents
 
(2,994
)
 
4,469

Cash and cash equivalents at beginning of period
 
9,276

 
20,841

Cash and cash equivalents at end of period
 
$
6,282

 
$
25,310

 
 
 
 
 
Supplemental information:
 
 
 
 
Cash paid for income taxes, net of refunds of $36 and $12,329, respectively
 
$
21,257

 
$
249

Cash paid for interest
 
$
8,021

 
$
5,125

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

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)



1.    BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Snyder’s-Lance, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles in the United States 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 consolidated 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 29, 2012 , filed with the Securities and Exchange Commission on February 25, 2013. 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 six months ended June 29, 2013 , are not necessarily indicative of the results to be expected for the full year.
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 sales and promotional allowances, customer returns, allowances for doubtful accounts, inventory valuations, useful lives of fixed assets and related impairment, long-term investments, hedge transactions, goodwill and intangible asset valuations and impairments, incentive compensation, income taxes, self-insurance, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.
Prior year amounts shown in the accompanying condensed consolidated financial statements have been reclassified for consistent presentation.
Our significant accounting policies are summarized in Note 1 to the consolidated financial statements included in our Form 10-K for the year ended December 29, 2012 . An update to these accounting policies is below.

Self-Insurance Reserves
We maintain reserves for the self-funded portions of employee medical insurance benefits. Our portion of employee medical claims is generally limited to $0.3 million per participant annually by stop-loss insurance coverage. Due to the significance of certain historical claims, our 2013 stop-loss insurance coverage limit was increased to $5.0 million in aggregate for a specific portion of our self-funded claims.  For the six months ended June 29, 2013, we have recorded $4.6 million in pre-tax expenses associated with these claims.

2.    NEW ACCOUNTING STANDARDS
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under the standard, an entity is required to disclose items reclassified in their entirety out of accumulated other comprehensive income, the effect of the reclassification on each affected net income line item and for items that are not classified out of accumulated other comprehensive income in their entirety, a cross reference to other required U.S. GAAP disclosures. The requirements were effective and adopted by the Company during the first quarter of 2013.
3.     BUSINESS ACQUISITIONS
2012 Acquisition
On October 11, 2012, we completed the acquisition of all of the issued and outstanding shares and membership interests of Snack Factory, LLC and certain affiliates ("Snack Factory"), for $343.4 million .

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)


The following unaudited pro forma results for the quarter and six months ended June 30, 2012 , include estimates and assumptions regarding increased amortization of intangible assets related to the acquisition, increased interest expense related to debt acquired in order to fund the acquisition and the related tax effects. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future for various reasons including the potential impact of revenue and cost synergies on the business.
 
 
Quarter Ended June 30, 2012
 
Six Months Ended June 30, 2012
(in thousands, except per share data)
 
 
Net revenue
 
$
428,930

 
$
842,918

Income before interest and income taxes
 
39,206

 
66,055

Net income attributable to Snyder's-Lance, Inc.
 
20,516

 
34,478

Weighted average diluted shares
 
69,319

 
69,086

Diluted earnings per share
 
$
0.30

 
$
0.50

Merger and Integration Activities
On December 6, 2010, Lance, Inc. and Snyder’s of Hanover, Inc. completed a merger (“Merger”) to create Snyder’s-Lance, Inc.
In connection with this Merger, we converted our company owned distribution routes to an independent business owner ("IBO") distribution structure.
During the quarter and six months ended June 30, 2012 , we incurred $0.2 million and $1.7 million , respectively, in severance costs and professional fees related to the Merger and integration activities, which are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Income. There were no such costs incurred during the quarter and six months ended June 29, 2013 .
4.     EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to Snyder’s-Lance, Inc. by the weighted average number of shares outstanding during each period. Diluted earnings per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. In the calculation of diluted earnings per share, the denominator includes the number of additional common shares that would have been outstanding if our outstanding dilutive stock options had been exercised, as determined pursuant to the treasury stock method.
For the quarter and six months ended June 29, 2013 , approximately 24,000 and 44,000 shares, respectively, were excluded from the calculation of diluted earnings per share because their effects were antidilutive. No shares were excluded from the calculation of diluted earnings per share for the quarter and six months ended June 30, 2012 .
On May 3, 2013, an amendment to the Restated Articles of Incorporation of Snyder's-Lance, Inc. was approved at the annual meeting of stockholders to increase the number of authorized shares of common stock from 75,000,000 to 110,000,000 .
5.    STOCK-BASED COMPENSATION
Compensation expense related to equity-based incentive plans of $1.6 million and $1.3 million was recognized for the quarters ended June 29, 2013 , and June 30, 2012 , respectively, and was $2.8 million and $2.3 million , respectively, for the six months then ended. During the six months ended June 29, 2013 , we issued 442,493 non-qualified stock options at a weighted-average exercise price of $25.61 per share and 151,737 restricted shares to employees and directors. During the six months ended June 30, 2012 , we issued 533,994 non-qualified stock options at a weighted-average exercise price of $22.41 per share and 159,867 restricted shares to employees and directors.
For the quarters ended June 29, 2013 , and June 30, 2012 , we repurchased 265 and 467 shares, respectively, of common stock from employees to cover withholding taxes payable by employees upon the vesting of restricted stock. For the six months ended June 29, 2013 , and June 30, 2012 , we repurchased 27,755 and 14,803 shares, respectively.
In addition, we recorded $0.4 million and $0.8 million , in incentive compensation expense for a performance-based cash incentive plan for the six months ended June 29, 2013 , and June 30, 2012 , respectively.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)


6.     INVENTORIES
Inventories as of June 29, 2013 , and December 29, 2012 , consisted of the following:
(in thousands)
 
June 29, 2013
 
December 29, 2012
Finished goods
 
$
80,751

 
$
74,627

Raw materials
 
18,521

 
19,307

Maintenance parts, packaging and supplies
 
24,886

 
24,322

Inventories
 
$
124,158

 
$
118,256

7.     FIXED ASSETS
Fixed assets as of June 29, 2013 , and December 29, 2012 , consisted of the following:
(in thousands)
 
June 29, 2013
 
December 29, 2012
Land and land improvements
 
$
28,149

 
$
28,501

Buildings and building improvements
 
142,618

 
135,491

Machinery, equipment and computer systems
 
453,105

 
416,767

Trucks and automobiles
 
31,415

 
32,042

Furniture and fixtures
 
12,719

 
12,158

Construction in progress
 
29,041

 
41,257

 
 
$
697,047

 
$
666,216

Accumulated depreciation
 
(349,431
)
 
(331,053
)
 
 
347,616

 
335,163

Fixed assets held for sale
 
(2,752
)
 
(3,778
)
Fixed assets, net
 
$
344,864

 
$
331,385

Depreciation expense related to fixed assets was $12.4 million and $11.9 million during the quarters ended June 29, 2013 , and June 30, 2012 , respectively. For the six months ended June 29, 2013 , and June 30, 2012 , depreciation expense was $24.8 million and $23.6 million , respectively. There were no fixed asset impairment charges during the quarter and six months ended June 29, 2013 , as compared to $0.1 million recorded during the second quarter and first six months of 2012 .
During the fourth quarter of 2012, we made the decision to close our Cambridge, Ontario manufacturing facility in May 2013 in order to consolidate the operations of our two Canadian manufacturing facilities. In conjunction with this decision, an asset impairment charge of $2.5 million was recorded in the fourth quarter of 2012. No further impairment charges have been necessary during 2013. However, additional expenses of $1.0 million were incurred in the second quarter of 2013 associated with the relocation of assets and start-up costs in order to consolidate the two manufacturing facilities.
The closure of the Corsicana, Texas manufacturing facility was completed during the quarter ended March 31, 2012. Upon closure of the facility, many of the assets were relocated to other manufacturing locations. Expenses incurred as part of the relocation process were $0.6 million and $2.0 million in the quarter and six months ended June 30, 2012, respectively, and were included in cost of sales in the Condensed Consolidated Statements of Income. The land and building in Corsicana, Texas comprise the majority of the $2.8 million fixed assets held for sale in the Condensed Consolidated Balance Sheets as of June 29, 2013 .

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)


8.     GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the six months ended June 29, 2013 , are as follows:
(in thousands)
 
Carrying Amount    
Balance as of December 29, 2012
 
$
540,389

Goodwill acquired in the purchase of route businesses
 
6,805

Goodwill attributable to the sale of route businesses
 
(5,581
)
Change in goodwill reclassified to assets held for sale
 
(1,976
)
Change in foreign currency exchange rate
 
(2,218
)
Balance as of June 29, 2013
 
$
537,419

As of June 29, 2013 , and December 29, 2012 , other intangible assets consisted of the following:
(in thousands)
 
    Gross
    Carrying
    Amount
 
Accumulated
Amortization
 
Net    
Carrying    
Amount    
As of June 29, 2013:
 
 
 
 
 
 
Customer and contractual relationships – amortized
 
$
148,956

 
$
(14,746
)
 
$
134,210

Non-compete agreement – amortized
 
100

 
(35
)
 
65

Reacquired rights – amortized
 
3,100

 
(738
)
 
2,362

Patents – amortized
 
8,600

 
(556
)
 
8,044

Routes businesses – unamortized
 
21,306

 

 
21,306

Trademarks – unamortized
 
360,687

 
(526
)
 
360,161

Balance as of June 29, 2013
 
$
542,749

 
$
(16,601
)
 
$
526,148

 
 
 
 
 
 
 
As of December 29, 2012:
 
 
 
 
 
 
Customer and contractual relationships – amortized
 
$
148,956

 
$
(10,524
)
 
$
138,432

Non-compete agreement – amortized
 
100

 
(10
)
 
90

Reacquired rights – amortized
 
3,100

 
(544
)
 
2,556

Patents – amortized
 
8,600

 
(165
)
 
8,435

Routes businesses – unamortized
 
20,161

 

 
20,161

Trademarks – unamortized
 
362,587

 
(526
)
 
362,061

Balance as of December 29, 2012
 
$
543,504

 
$
(11,769
)
 
$
531,735

Amortization expense related to intangibles was $2.4 million and $1.2 million for the quarters ended June 29, 2013 , and  June 30, 2012 , respectively, and $4.8 million and $2.4 million , respectively, for the six months then ended.
Route businesses and trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. Although not amortized, they are reviewed for impairment as conditions change or at least on an annual basis. During the second quarter of 2013, we recorded a $1.9 million impairment charge to write off one of our trademarks. The impairment charge was necessary due to the decision to replace future sales of associated products with a more recognizable brand. The majority of our remaining trademarks, predominately those acquired through recent transactions, have a fair value which approximates the book value. Any changes in the use of these trademarks or the sales volumes of the associated products could result in an impairment charge. In addition, the valuation of trademarks acquired in the Snack Factory acquisition in the fourth quarter of 2012 assumes significant revenue growth in current and future years. Although we believe this rate of revenue growth is reasonable, any reduction in growth or growth expectations could result in impairment of the associated trademarks.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in the carrying amount of route businesses for the six months ended June 29, 2013 , are as follows:
(in thousands)
 
Carrying Amount    
Balance of route businesses as of December 29, 2012
 
$
20,161

Purchases of route businesses, exclusive of goodwill acquired
 
14,548

Sales of route businesses
 
(10,360
)
Change in route businesses reclassified to assets held for sale
 
(3,043
)
Balance of route businesses as of June 29, 2013
 
$
21,306

We recorded net gains from the sale of route businesses of $1.5 million and $10.9 million , respectively, for the quarters ended June 29, 2013, and June 30, 2012, and $1.6 million and $20.2 million , respectively, for the six months then ended.
Route businesses and associated goodwill allocated to assets held for sale represent assets available for sale in their present condition and for which actions to complete a sale have been initiated. As of June 29, 2013 , $8.0 million of route businesses and $4.3 million of goodwill are included in assets held for sale in the Condensed Consolidated Balance Sheets. As of December 29, 2012 , $4.9 million in route businesses and $2.3 million of goodwill were included in assets held for sale.
9 .     LONG-TERM DEBT
Long-term debt outstanding as of June 29, 2013 , and December 29, 2012 , consisted of the following:
(in thousands)
 
June 29, 2013
 
December 29, 2012
Revolving credit facilities
 
$
117,997

 
$
101,127

Other long-term debt
 
417,372

 
433,922

Total debt
 
535,369

 
535,049

Less: Current portion of long-term debt
 
(18,704
)
 
(20,462
)
Total long-term debt
 
$
516,665

 
$
514,587

Our primary credit agreement allows us to make revolving credit borrowings of up to $265 million through December 2015. As of June 29, 2013 , and December 29, 2012 , we had available $148 million and $165 million , respectively, of unused credit on this credit facility. The credit agreement requires us to comply with certain defined covenants. We are currently in compliance with all covenants.
The fair value of outstanding debt, including current maturities, was approximately $542 million and $544 million at June 29, 2013 , and December 29, 2012 , respectively. The Level 2 fair value estimates were based on similar debt with comparable maturities, credit ratings and interest rates.
10.     INCOME TAXES
We have recorded gross unrecognized tax benefits as of June 29, 2013 , totaling $6.6 million and related interest and penalties of $2.5 million in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. Of this total amount, $7.4 million would affect the effective tax rate if subsequently recognized. As of December 29, 2012 , we recorded gross unrecognized tax benefits totaling $6.0 million and related interest and penalties of $2.3 million in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. We expect that certain income tax audits will be settled or various tax authorities’ statutes of limitations will expire during the next twelve months resulting in a poten tial $2.9 million red uction of the unrecognized tax benefit amount. We classify interest and penalties associated with income tax positions within income tax expense.
The effective tax rate decrease d from 41.5% for the second quarter of 2012 to 36.6% for the second quarter of 2013 and decreased from 40.8% for the first six months of 2012 to 37.3% for the first six months of 2013 . The decrease in the effective income tax rate was due to less non-tax deductible expenses, primarily related to goodwill associated with the sale of route businesses.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)


11.     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 derivative instruments at fair value using Level 2 inputs. See Note 12 for additional information about our derivative instruments. The fair value of our outstanding debt is measured using Level 2 inputs and is disclosed in Note 9 to the condensed consolidated financial statements. There were no changes among the levels during the first six months of 2013 .
The carrying amount of cash equivalents, receivables and accounts payable approximates fair value due to their short-term nature.
12 .     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 risks.
The fair value of the derivative instrument liability in the Condensed Consolidated Balance Sheets using Level 2 inputs was as follows:  
(in thousands)
 
Balance Sheet Location
 
June 29, 2013
 
December 29, 2012
Interest rate swaps
 
Other payables and accrued liabilities
 
$
(3
)
 
$
(15
)
Interest rate swaps
 
Other noncurrent liabilities
 
(994
)
 
(1,575
)
  Foreign currency forwards
 
Other payables and accrued liabilities
 
(360
)
 

Total fair value of derivative instruments
 
 
 
$
(1,357
)
 
$
(1,590
)
Interest Rate Swaps
Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar 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 fair value of interest rate swaps is determined utilizing a market approach model using the notional amount of the interest rate swaps and the observable inputs of time to maturity and interest rates. The notional amount of the interest rate swaps designated as hedging instruments as of June 29, 2013 and December 29, 2012 , was $50.4 million and $54.3 million , respectively.
Foreign Currency Forwards
We have exposure 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 its costs, such as raw materials and labor costs, are denominated in Canadian dollars. We enter into derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2013 . The notional amount for foreign currency forwards was $12.4 million as of June 29, 2013 . There were no contracts outstanding at December 29, 2012 .

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Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in unrealized (losses)/gains, net of income tax, included in other comprehensive income due to fluctuations in interest rates and foreign exchange rates were as follows:
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Interest rate swaps, net of income tax (expense)/benefit of ($101), $145, ($144) and $169, respectively
 
$
161

 
$
(232
)
 
$
230

 
$
(269
)
Foreign currency forwards, net of income tax benefit of $75, $89, $112 and $11, respectively
 
(166
)
 
(195
)
 
(248
)
 
(24
)
Total change in unrealized (losses)/gains from derivative instruments, net of income tax (effective portion)
 
$
(5
)
 
$
(427
)
 
$
(18
)
 
$
(293
)
13.     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 certain ingredients, packaging materials and energy decreased from $158.5 million as of December 29, 2012 to $155.4 million as of June 29, 2013 , due primarily to ingredient usage during the six months and the timing of new purchase agreements. In addition to these commitments, we have contracts for certain ingredients and packaging materials where we have secured a fixed price but do not have a minimum purchase quantity. We currently contract from approximately three to twelve months in advance for certain major ingredients and packaging.
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 was $13.9 million as of June 29, 2013 , and $18.9 million as of December 29, 2012 .
Guarantees
We currently provide a partial guarantee for loans made to IBOs by third party financial institutions for the purchase of distribution routes and trucks. The outstanding aggregate balance on these loans was approximately $110.8 million as of June 29, 2013 , compared to approximately $109.7 million as of December 29, 2012 . The annual maximum amount of future payments we could be required to make under the guarantee equates to 25% of the outstanding loan balance on the first day of each calendar year plus 25% of the amount of any new loans issued during such calendar year. These loans are collateralized by the routes and trucks for which the loans are made. Accordingly, we have the ability to recover substantially all of the outstanding loan value upon default, and our liability associated with this guarantee is not material.
Legal Matters
We are currently subject to various lawsuits and environmental matters arising in the normal course of business. In our opinion, such claims should not have a material effect upon our consolidated financial statements taken as a whole.
14.     RELATED PARTY TRANSACTIONS
We own 51% of Patriot Snacks Real Estate, LLC (“Patriot”) and consolidate its balance sheet and operating results into our consolidated financial statements. The remaining 49% is owned by an employee.
We own 80% of Michaud Distributors, Inc. (“Michaud”), which distributes our products in the northeastern United States, and consolidate its balance sheet and operating results into our condensed consolidated financial statements. The remaining 20% is owned by two employees. We have notes receivable from stockholders and employees of Michaud of $0.2 million as of June 29, 2013 and December 29, 2012 . The notes are unsecured, due upon demand, and bear interest at the best rate available to Michaud by its primary commercial lenders.
We own a noncontrolling equity interest in Late July Snacks LLC (“Late July”), an organic snack food company. This investment is reflected in other noncurrent assets on the Condensed Consolidated Balance Sheets. Equity earnings, which are not material, are included in other income, net on the Condensed Consolidated Statements of Income. We also manufacture products for Late July. Contract manufacturing revenue from Late July was approximately $0.9 million and $1.2 million during the second quarter of 2013 and 2012, respectively, and $1.8 million and $2.5 million , for the first six months of 2013 and 2012, respectively. Accounts receivable due from Late July totaled $0.3 million and $0.5 million at June 29, 2013 , and December 29, 2012 , respectively.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)


ARWCO Corporation, MAW Associates, LP and Warehime Enterprises, Inc. are owned or controlled by the Chairman of the Board of Snyder’s-Lance, Inc. or family members. Among other unrelated business activities, these entities provide financing to IBOs for the purchase of trucks and routes. We have entered into loan service agreements with these related parties that allow us to repurchase certain distribution assets in the event an IBO defaults on a loan with the related party. We are required to repurchase the assets 30 days after default at the value as defined in the loan service agreement which approximates fair market value. As of June 29, 2013 , there were outstanding loans made to IBOs by the related parties of approximately $33.7 million compared to $37.0 million in loans outstanding as of December 29, 2012 . Our Chairman of the Board also serves as an officer and/or director of these entities. Transactions with these related parties are primarily related to the collection and remittance of loan payments on notes receivable held by the related parties. We are reimbursed for certain overhead and administrative services associated with the services provided to these related parties. The receivables from, payables to and administrative fees from these entities are not significant for any period presented.
A Connecticut warehouse used to support our distribution network is leased from a company partially owned by an employee. There were $0.1 million in lease payments made to this company during the first six months of 2013 and 2012 .
One of our directors, C. Peter Carlucci, Jr., is a member of Eckert Seamans Cherin & Mellott, LLC (“Eckert”), which serves as one of our outside legal firms. Expenses incurred for services provided by Eckert were $0.1 million in each of the second quarter s of 2013 and 2012 , and $0.4 million and $0.2 million for the first six months of 2013 and 2012, respectively.
15 .     OTHER COMPREHENSIVE INCOME
Total comprehensive income attributable to Snyder's-Lance, Inc., determined as net income adjusted by total other comprehensive income, was $10.6 million and $17.6 million for the quarters ended June 29, 2013 , and June 30, 2012 , respectively, and $28.9 million and $33.6 million , respectively, for the six months then ended. Total other comprehensive income presently consists of foreign currency translation adjustments and unrealized gains and losses from our derivative financial instruments accounted for as cash flow hedges.
Amounts reclassified out of total other comprehensive income, net of tax, consisted of the following:
 
 
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
Income Statement Location
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Gains/(losses) on cash flow hedges reclassified out of total other comprehensive income:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps, net of tax of $56, $74, $125 and $147, respectively
 
Interest expense, net
 
$
(89
)
 
$
(119
)
 
$
(200
)
 
$
(237
)
Foreign currency forwards, net of tax of $60, ($32), $85 and ($71), respectively
 
Net revenue
 
(134
)
 
72

 
(190
)
 
159

Foreign currency forwards, net of tax of $6, $9, $10 and $8, respectively
 
Other income, net
 
(14
)
 
(18
)
 
(22
)
 
(17
)
Total cash flow hedge reclassifications, net of tax
 
 
 
$
(237
)
 
$
(65
)
 
$
(412
)
 
$
(95
)
During the six months ended June 29, 2013 , changes to the balance in accumulated other comprehensive income were as follows:
(in thousands)
 
Gains/(Losses) on Cash Flow Hedges
 
Foreign Currency Translation Adjustment
 
Total
Balance as of December 29, 2012
 
$
(842
)
 
$
15,960

 
$
15,118

Other comprehensive income/(loss) before reclassifications
 
(430
)
 
(3,905
)
 
(4,335
)
Losses reclassified from comprehensive income
 
412

 

 
412

Net other comprehensive loss
 
(18
)
 
(3,905
)
 
(3,923
)
Balance as of June 29, 2013
 
$
(860
)
 
$
12,055

 
$
11,195


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Notes to the Condensed Consolidated Financial Statements (Unaudited)


Income taxes on the foreign currency translation adjustment in other comprehensive income are not recognized because these earnings are considered to be permanently reinvested and, accordingly, no provision for U.S. federal and state income taxes is required.
16.     SEGMENT REPORTING
We operate in one business segment: the manufacturing, distribution, marketing and sale of snack food products. We define business segments as components of an organization for which discrete financial information is available and operating results are evaluated on a regular basis by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources. Our CODM is the Company's President and Chief Executive Officer. Characteristics of our organization which were relied upon in making this determination include the similar nature of all of the products that we sell, the functional alignment of our organizational structure and the reports that are regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
Revenue by Product Category
Net revenue by product category was as follows:
 
 
Quarter Ended
 
Six Months Ended
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Branded
 
$
269,669

 
$
233,573

 
$
527,856

 
$
464,350

Partner brands
 
77,630

 
72,849

 
148,039

 
142,829

Private brands
 
68,552

 
68,904

 
137,233

 
138,260

Other
 
23,200

 
24,074

 
44,495

 
46,804

Net revenue
 
$
439,051

 
$
399,400

 
$
857,623

 
$
792,243

Significant Customers
Sales to our largest retailer, Wal-Mart Stores, Inc., were approximately 16% of net revenues for the quarter and six months ended June 29, 2013 , and 17% of net revenue for the quarter and six months ended June 30, 2012 . In addition, third-party distributors, which account for approximately 12% of sales, purchase and resell our products to retailers including Wal-Mart Stores, Inc. thereby increasing our sales attributable to Wal-Mart Stores, Inc. by an amount we are unable to estimate. Accounts receivable at June 29, 2013 , and December 29, 2012 , included receivables from Wal-Mart Stores, Inc. totaling $24.4 million and $25.9 million , respectively.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

The following discussion provides an assessment of our financial condition, results of operations, and liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements and notes to the financial statements. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under 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 29, 2012 , and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Management’s discussion and analysis of our financial condition and results of operations are based on the condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles 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. The consolidated results of operations for the quarter and six months ended June 29, 2013 , are not necessarily indicative of the results to be expected for the full year. 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 sales and promotional allowances, customer returns, allowances for doubtful accounts, inventory valuations, useful lives of fixed assets and related impairment, long-term investments, hedge transactions, goodwill and intangible asset valuations and impairments, incentive compensation, income taxes, self-insurance, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.
Overview
During the second quarter of 2013 , we continued to implement our strategic plan, which provides for growth of our core branded products (Snyder's of Hanover ® pretzels, Lance ® sandwich crackers, Cape Cod ® kettle potato chips and Snack Factory ® Pretzel Crisps ® pretzel crackers) through expanded distribution, innovation and advertising. During the quarter, we increased our marketing and advertising in order to support this effort, including a new television advertising campaign for Snyder's of Hanover ® pretzels, the launch of several new products, and increased social media promotional activities for the 100-year anniversary of the Lance ® brand, a significant milestone for both the brand and the Company. In addition, we continued to benefit from our acquisition of Snack Factory, LLC and certain affiliates ("Snack Factory"). Our newest core brand, Pretzel Crisps ® has realized significant revenue and market share growth consistently throughout the first six months of 2013.
For our allied brands (Tom's ® , Jays ® , Archway ® , Stella D'oro ® , O-Ke-Doke ® , Krunchers! ® , EatSmart ® and Padrinos ® ), we continued to focus on improving margins through pricing strategies, enhanced packaging and product configuration. Net revenue increased compared to the first quarter of 2013 primarily due to increased distribution of certain brands through the convenience store channel and other retail channels.
In addition, during the second quarter of 2013, we experienced the following:
Higher costs of $1.2 million associated with consolidation of our Canadian manufacturing facilities to one location and start-up costs associated with the completion of certain major capital projects;
Certain self-funded medical claims that resulted in $4.3 million in incremental expenses for the quarter, of which $2.5 million was recorded in cost of sales and $1.8 million was recorded in selling, general and administrative expenses;
Impairment charges of $1.9 million associated with one of our trademarks;
Net gains from the sale of route businesses of $1.5 million, which was a significant decrease from prior year net gains of $10.9 million.

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

Quarter Ended June 29, 2013 Compared to Quarter Ended June 30, 2012  
 
 
 
 
 
 
Favorable/
 
 
Quarter Ended
 
(Unfavorable)
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
Variance
Net revenue
 
$
439,051

 
100.0
 %
 
$
399,400

 
100.0
 %
 
$
39,651

 
9.9
 %
Cost of sales
 
293,081

 
66.8
 %
 
267,482

 
67.0
 %
 
(25,599
)
 
(9.6
)%
Gross margin
 
145,970

 
33.2
 %
 
131,918

 
33.0
 %
 
14,052

 
10.7
 %
Selling, general and administrative
 
123,504

 
28.1
 %
 
107,649

 
27.0
 %
 
(15,855
)
 
(14.7
)%
Impairment charges
 
1,900

 
0.4
 %
 
127

 
 %
 
(1,773
)
 
nm

Gain on sale of route businesses, net
 
(1,482
)
 
(0.3
)%
 
(10,882
)
 
(2.7
)%
 
(9,400
)
 
(86.4
)%
Other income, net
 
(2,028
)
 
(0.5
)%
 
(572
)
 
(0.2
)%
 
1,456

 
254.5
 %
Income before interest and income taxes
 
24,076

 
5.5
 %
 
35,596

 
8.9
 %
 
(11,520
)
 
(32.4
)%
Interest expense, net
 
3,521

 
0.8
 %
 
2,303

 
0.5
 %
 
(1,218
)
 
(52.9
)%
Income tax expense
 
7,525

 
1.7
 %
 
13,828

 
3.5
 %
 
6,303

 
45.6
 %
Net income
 
$
13,030

 
3.0
 %
 
$
19,465

 
4.9
 %
 
$
(6,435
)
 
(33.1
)%
nm - not meaningful

Net Revenue
Net revenue by product category for the quarter ended June 29, 2013 , and June 30, 2012 , was as follows:
 
 
 
 
 
 
 
 
 
 
Favorable/
 
 
Quarter Ended
 
(Unfavorable)
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
Variance
Branded
 
$
269,669

 
61.4
%
 
$
233,573

 
58.5
%
 
$
36,096

 
15.5
 %
Partner brands
 
77,630

 
17.7
%
 
72,849

 
18.2
%
 
4,781

 
6.6
 %
Private brands
 
68,552

 
15.6
%
 
68,904

 
17.3
%
 
(352
)
 
(0.5
)%
Other
 
23,200

 
5.3
%
 
24,074

 
6.0
%
 
(874
)
 
(3.6
)%
Net revenue
 
$
439,051

 
100.0
%
 
$
399,400

 
100.0
%
 
$
39,651

 
9.9
 %
Net revenue increase d $39.7 million , or 9.9% , for the quarter ended June 29, 2013 , compared to the quarter ended June 30, 2012 . A significant portion of the increase in net revenue compared to the prior year was driven by the incremental net revenue from Snack Factory, which was acquired in the fourth quarter of 2012.
Compared to the quarter ended June 30, 2012 , net revenue from our branded products increase d $36.1 million , or 15.5% . The majority of this increase was due to the Snack Factory acquisition, which has continued to generate significant revenue growth as was our expectation when the acquisition was consummated. Combined net revenue from our core branded products increased approximately 22% compared to the prior year and each of our core brands realized market share gains during the quarter. We also realized increased net revenue from our allied branded products in the second quarter compared to the first quarter of 2013 as net revenue from these products was relatively flat with the prior year as opposed to declines experienced in recent quarters.
Partner brand net revenue increase d $4.8 million , or 6.6% , compared to the second quarter of 2012. The increase in net revenue from partner brands was primarily due to the addition of new products and expanded distribution.
Net revenue from private brand products declined $0.4 million , or 0.5% , in the second quarter of 2013 compared to the second quarter of 2012. During the second quarter of 2013, net revenue decreased as we experienced volume declines from certain customers due to price competition from branded products, which was substantially offset by volume gains from other existing customers.
Other net revenue declined $0.9 million , or 3.6% , from the second quarter of 2012 to the second quarter of 2013 primarily because of the planned loss of net revenue from certain contract manufactured products produced in the prior year.

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

Gross Margin
Gross margin increase d $14.1 million during the second quarter of 2013 compared to the second quarter of 2012 . The increase in gross margin was primarily due to increased net revenue resulting from the Snack Factory acquisition. We continued to see higher gross margin as a percentage of net revenue resulting primarily from improved manufacturing efficiencies and a higher mix of branded products, primarily Snack Factory's Pretzel Crisps ® , when compared to the second quarter of 2012. This was partially offset by increased promotional spending, incremental expenses incurred in 2013 associated with certain self-funded medical claims, planned start-up costs associated with the completion of major capital projects and additional expenses incurred to consolidate our Canadian manufacturing facilities to one location.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increase d $15.9 million in the second quarter of 2013 compared to the second quarter of 2012 , and increase d 1.1% as a percentage of net revenue. The increase in selling, general and administrative expenses was due to the additional expenses for Snack Factory, increased marketing, advertising and sampling costs to support our core brands and incremental expenses incurred in 2013 associated with certain self-funded medical claims.

Impairment Charges
We incurred $1.9 million in impairment charges in the second quarter of 2013 compared to only $0.1 million in the second quarter of 2012. The impairment charge for one of our trademarks was driven by the decision to replace future sales of associated products with a more recognizable brand.

Gain on the Sale of Route Businesses, Net
During the second quarter of 2013, we recognized $1.5 million in gains on the sale of route businesses compared with gains of $10.9 million during the second quarter of 2012. The decrease was due to completion of activities associated with the conversion to an independent business owner ("IBO") distribution structure during the second quarter of 2012. Although we continue to routinely purchase and sell route businesses, we do not expect significant net gains from this activity during the remainder of 2013.
Other Income, Net
We recognized other income of $2.0 million in the second quarter of 2013 compared with $0.6 million in the second quarter of 2012. The increase is primarily due to additional gains on foreign exchange rates associated with our Canadian subsidiary and fee income associated with route transfers.
Interest Expense, Net
Interest expense increase d $1.2 million during the second quarter of 2013 compared to the second quarter of 2012 as a result of a higher amount of long-term debt outstanding during the quarter. The additional $325 million of long-term debt incurred in the fourth quarter of 2012 and used to fund the Snack Factory acquisition increased interest expense by $1.6 million in the second quarter of 2013 when compared to the second quarter of 2012.
Income Tax Expense
The effective income tax rate decrease d to 36.6% for the second quarter of 2013 from 41.5% for the second quarter of 2012 . The decrease in the effective income tax rate was due to less non-tax deductible expenses, primarily related to goodwill associated with the sale of route businesses. We expect the lower effective tax rate to continue through the remainder of the year.


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

Six Months Ended June 29, 2013 Compared to Six Months Ended June 30, 2012
 
 
 
 
 
 
Favorable/
 
 
Six Months Ended
 
(Unfavorable)
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
Variance
Net revenue
 
$
857,623

 
100.0
 %
 
$
792,243

 
100.0
 %
 
$
65,380

 
8.3
 %
Cost of sales
 
566,857

 
66.1
 %
 
532,942

 
67.3
 %
 
(33,915
)
 
(6.4
)%
Gross margin
 
290,766

 
33.9
 %
 
259,301

 
32.7
 %
 
31,465

 
12.1
 %
Selling, general and administrative
 
234,500

 
27.3
 %
 
218,352

 
27.6
 %
 
(16,148
)
 
(7.4
)%
Impairment charges
 
1,900

 
0.2
 %
 
127

 
 %
 
(1,773
)
 
nm

Gain on sale of route businesses, net
 
(1,592
)
 
(0.2
)%
 
(20,169
)
 
(2.5
)%
 
(18,577
)
 
(92.1
)%
Other income, net
 
(3,504
)
 
(0.3
)%
 
(661
)
 
(0.2
)%
 
2,843

 
430.1
 %
Income before interest and income taxes
 
59,462

 
6.9
 %
 
61,652

 
7.8
 %
 
(2,190
)
 
(3.6
)%
Interest expense, net
 
6,960

 
0.8
 %
 
4,566

 
0.6
 %
 
(2,394
)
 
(52.4
)%
Income tax expense
 
19,564

 
2.3
 %
 
23,296

 
2.9
 %
 
3,732

 
16.0
 %
Net income
 
$
32,938

 
3.8
 %
 
$
33,790

 
4.3
 %
 
$
(852
)
 
(2.5
)%
nm - not meaningful
Net Revenue
Net revenue by product category for the six months ended June 29, 2013 , and June 30, 2012 , was as follows:
 
 
 
 
 
 
 
 
 
 
Favorable/
 
 
Six Months Ended
 
(Unfavorable)
(in thousands)
 
June 29, 2013
 
June 30, 2012
 
Variance
Branded
 
$
527,856

 
61.5
%
 
$
464,350

 
58.6
%
 
$
63,506

 
13.7
 %
Partner brands
 
148,039

 
17.3
%
 
142,829

 
18.0
%
 
5,210

 
3.6
 %
Private brands
 
137,233

 
16.0
%
 
138,260

 
17.5
%
 
(1,027
)
 
(0.7
)%
Other
 
44,495

 
5.2
%
 
46,804

 
5.9
%
 
(2,309
)
 
(4.9
)%
Net revenue
 
$
857,623

 
100.0
%
 
$
792,243

 
100.0
%
 
$
65,380

 
8.3
 %

Net revenue increase d $65.4 million , or 8.3% compared to the first six months of 2012. A significant portion of the increase in net revenue compared to the prior year was driven by the incremental net revenue from Snack Factory, which was acquired in the fourth quarter of 2012.

Branded net revenue increase d $63.5 million , or 13.7% , compared to the first six months of 2012. The majority of this increase was due to the acquisition of Snack Factory. Net revenue from branded products for the first six months was also positively impacted by continued revenue growth in our core branded products, but this growth was partially offset by volume declines in our allied branded products.
Partner brand net revenue increase d $5.2 million , or 3.6% , for the first six months of 2013 compared to the first six months of 2012. The increase in net revenue from partner brands was primarily due to the addition of new products and expanded distribution.

Private brand net revenue declined $1.0 million , or 0.7% , in the first six months of 2013 as compared to the same period in 2012. During the first six months of 2013, net revenue decreased as we experienced volume declines from certain customers due to price competition from branded products, which was substantially offset by volume gains from other existing customers.
Other net revenue declined $2.3 million , or 4.9% , from the first six months of 2012 to the first six months of 2013 primarily because of the planned loss of net revenue from certain contract manufactured products produced in the prior year.


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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Gross Margin
Gross margin increase d $31.5 million , or 1.2% as a percentage of net revenue, during the first six months of 2013 compared to the same period last year. The increase in gross margin was primarily due to increased net revenue resulting from the Snack Factory acquisition. The higher gross margin as a percentage of net revenue was primarily a result of improved manufacturing efficiencies, increased selling prices and a higher mix of branded products, primarily Snack Factory's Pretzel Crisps ® , when compared to the first half of 2012.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increase d $16.1 million during the first six months of 2013 primarily as a result of the Snack Factory acquisition. As a percentage of net revenue, selling, general and administrative expenses decrease d 0.3% primarily as a result of reduced infrastructure costs and lower compensation and benefit expenses due to the conversion to an IBO distribution structure and synergies recognized as a result of our Merger integration activities. This favorability was offset by increased marketing, advertising and sampling costs, and incremental expenses incurred in 2013 associated with certain self-funded medical claims.

Impairment Charges
We incurred $1.9 million in impairment charges in the first six months of 2013 compared to only $0.1 million in the first six months of 2012. The impairment charge for one of our trademarks was driven by the decision to replace future sales of associated products with a more recognizable brand.

Gain on Sale of Route Businesses, Net
During the first six months of 2013, we recognized gains of $1.6 million from the sale of route businesses compared to gains of $20.2 million during the first six months of 2012. Gains on the sale of route businesses were significantly higher in the first six months of 2012 as compared to the same period in 2013 as the conversion to an IBO distribution structure began in the second quarter of 2011 and continued through the first six months of 2012.
Other Income, Net
We recognized other income of $3.5 million in the first six months of 2013 compared with $0.7 million in the first six months of 2012. The increase is primarily due to additional gains on foreign exchange rates associated with our Canadian subsidiary and fee income associated with route transfers.
Interest Expense
Interest expense increase d $2.4 million during the first six months of 2013 compared to the first six months of 2012 primarily as a result of a higher amount of long-term debt outstanding during the quarter. The additional $325 million of long-term debt incurred in the fourth quarter of 2012 and used to fund the Snack Factory acquisition increased interest expense by $3.3 million in the first six months of 2013 when compared to the first six months of 2012.
Income Tax Expense
The effective income tax rate decrease d from 40.8% for the first six months of 2012 to 37.3% for the first six months of 2013. The decrease in the effective income tax rate was due to less non-tax deductible expenses, primarily related to the goodwill associated with the sale of route businesses.
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 should not 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 for fixed assets, purchases of route businesses, acquisitions and dividends. We believe we have sufficient liquidity 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, which is effective through February 27, 2015.
We permanently reinvest earnings from our Canadian subsidiary. As of June 29, 2013 , $3.5 million of our cash and cash equivalents balance is held by our Canadian subsidiary and cannot be repatriated without unfavorable tax consequences.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Operating Cash Flows
Cash flow provided by operating activities increase d $22.2 million in the first six months of 2013 compared to the first six months of 2012 . The increase in cash flow provided by operations was primarily due to higher net income provided by operations in the first six months of 2013 compared to 2012 when a significant portion of net income was generated by gains on the sale of route businesses.

Investing Cash Flows
Cash used in investing activities in the first six months of 2013 totaled $40.6 million compared with cash provided by investing activities of $27.1 million in the first six months of 2012 . The primary cause of the decrease in cash generated from investing activities was the reduction in net proceeds from the sale of route businesses. As the conversion to an IBO distribution network was completed in the first six months of 2012, net proceeds from the sale of route businesses have slowed considerably in 2013. Proceeds from the sale of route businesses generated cash flows of $17.5 million in the first six months of 2013 ; this was more than offset by purchases of route businesses of $21.4 million . This compared to proceeds of $80.1 million in the first six months of 2012 which were only partially offset by purchases of route businesses of $26.7 million . We anticipate additional proceeds and purchases of route businesses during the remainder of 2013 as we continue to optimize and expand our IBO distribution network. By the end of 2013, proceeds from the sale of route businesses are expected to exceed purchases.

Capital expenditures for fixed assets, principally manufacturing equipment, increased from $33.1 million in the first six months of 2012 to $39.9 million in the first six months of 2013 . These expenditures were partially offset by proceeds received from the sale of fixed assets of $2.2 million in the first six months of 2013 , as compared to $6.8 million in the first six months of 2012 . We continue to project capital expenditures of approximately $78 million to $83 million for the full year, which is higher than our historical rate of capital expenditures necessary to maintain equipment and operate the business. The additional capital expenditures are being used to upgrade equipment, enhance capacity and provide innovative new product capabilities.
Financing Cash Flows
Net cash used in financing activities was $14.7 million in the first six months of 2013 compared to $53.1 million in the first six months of 2012. The additional cash used in 2012 was primarily due to higher net repayments of debt. Net proceeds from debt was $0.8 million for the first six months of 2013 compared to net repayments of debt of $39.9 million for the first six months of 2012, with the repayments in 2012 funded by the greater amount of cash generated by investing activities in that year. For the remainder of 2013, we plan to utilize cash provided by operations to repay the current portion of long-term debt and reduce the balance on our revolving credit facilities.

Dividends of $0.32 per common share totaling $22.1 million and $21.8 million were paid in the first six months of 2013 and 2012, respectively, with the slight increase in 2013 due to the change in number of shares outstanding.
On August 2, 2013 , our Board of Directors declared a quarterly cash dividend of $0.16 per share payable on August 30, 2013 to stockholders of record on August 21, 2013 .
Debt
As of June 29, 2013 , additional borrowings available under our primary credit facility were $148.0 million . 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 was $13.9 million as of June 29, 2013 .
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 certain ingredients, packaging materials and energy totaled $155.4 million as of June 29, 2013 compared to $158.5 million as of December 29, 2012 . The decrease in purchase commitments was due primarily to ingredient usage during the six months and the timing of new purchase agreements. In addition to these commitments, we have contracts for certain ingredients and packaging materials where we have secured a fixed price but do not have a minimum purchase quantity. We currently contract from approximately three to twelve months in advance for certain 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, liquidity or cash flows.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Update to Critical Accounting Estimates
Our critical accounting estimates are summarized in Item 7 of our Form 10-K for the year-ended December 29, 2012 . An update to these critical accounting estimates is included below.
Self-Insurance Reserves
We maintain reserves for the self-funded portions of employee medical insurance benefits. Our portion of employee medical claims is generally limited to $0.3 million per participant annually by stop-loss insurance coverage. Due to the significance of certain historical claims, our 2013 stop-loss insurance coverage limit was increased to $5.0 million in aggregate for a specific portion of our self-funded claims.  For the six months ended June 29, 2013, we have recorded $4.6 million in pre-tax expenses associated with these claims.
Market Risks
The principal market risks that may adversely impact result 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 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. While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.1 million lower without these swaps during the second quarter of 2013 and $0.3 million lower during the first six months of 2013 .
We have exposure 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 its costs, such as raw materials and direct labor, are denominated in Canadian dollars. We entered into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2013. Foreign currency fluctuations, net of the effect of derivative forward contracts, unfavorably impacted the second quarter of 2013 by $0.1 million but favorably impacted the first six months by $0.2 million compared to 2012 .
We do not have or use market risk sensitive instruments for trading or speculative purposes. See Note 12 to our condensed consolidated financial statements for additional information about our derivative instruments.
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 six months ended June 29, 2013 , and June 30, 2012 , bad debt expense was $1.3 million and $0.4 million , respectively. Allowances for doubtful accounts were $2.7 million at June 29, 2013 and $2.2 million at December 29, 2012 .

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about 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, and pursuant to Rule 13a–15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), we conducted an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a–15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 29, 2013 .
There have been no changes in our internal control over financial reporting during the quarter ended June 29, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

23


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION
Item 1.  Legal Proceedings
We are currently subject to various lawsuits and environmental matters arising in the normal course of business. In our opinion, such matters should not have a material effect upon our consolidated financial statements taken as a whole.  
Item 1A.  Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2012 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our revolving credit agreement restricts our payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $200 million . As of June 29, 2013 , our consolidated stockholders’ equity was $888.5 million and we were in compliance with this covenant. The private placement agreement for $100 million of senior notes assumed as part of the Merger and the new term loan acquired to fund the acquisition of Snack Factory have provisions no more restrictive than the revolving credit agreement.
The following table presents information with respect to purchases of common stock of the Company made during the quarter ended June 29, 2013 , by the Company or any “affiliated purchaser” of the Company as defined in Rule 10b-18(a)(3) under the Exchange Act:
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
March 31, 2013 -- April 30, 2013
 

 
$

 

 
157,644

May 1, 2013 -- May 31, 2013
 
265

 
26.68

 

 
157,379

June 1, 2013 -- June 29, 2013
 

 

 

 
157,379

Total
 
265

 
$
26.68

 

 
157,379

(1)
In November 2011, the Board of Directors authorized the repurchase of up to 200,000 shares of common stock from employees. The purpose of the repurchase program is to permit the Company to acquire shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of shares of restricted stock. The repurchase program expires in February 2014. All of the shares reflected in the table were repurchased pursuant to the repurchase program.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4.  Mine Safety Disclosures
Not applicable.
Item 5.  Other Information
Not applicable.

24

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Item 6. Exhibits
Exhibit Index
 
 
No.
Description
 
 
 
 
3.1
Restated Articles of Incorporation of Snyder's-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
Articles of Amendment to Amended and Restated Articles of Incorporation of Snyder's-Lance, Inc., incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on December 6, 2010 (File No. 0-398).
 
 
 
 
3.3
Articles of Amendment to the Restated Articles of Incorporation of Snyder's-Lance, Inc., incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 6, 2013 (File No. 0-398).
 
 
 
 
3.4
Articles of Restatement of Snyder's-Lance, Inc., dated May 3, 2013, filed herewith.
 
 
 
 
3.5
Restated Articles of Incorporation of Snyder's-Lance, Inc., as amended through May 3, 2013, filed herewith.
 
 
 
 
3.6
Bylaws of Snyder's-Lance, Inc., as amended through December 6, 2010, incorporated herein by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed on December 6, 2010 (File No. 0-398).
 
 
 
 
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
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Condensed Consolidated Financial Statements.


25

Table of Contents

SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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.
 
 
SNYDER’S-LANCE, INC.
 
 
 
 
 
 
Dated: August 6, 2013
By:
 
/s/ Rick D. Puckett
 
 
 
Rick D. Puckett
 
 
 
Executive Vice President, Chief Financial Officer and Treasurer

26

ARTICLES OF RESTATEMENT
Exhibit 3.4
OF
SNYDER’S-LANCE, INC.


The undersigned Corporation hereby submits these Articles of Restatement for the purpose of integrating into one document its original Articles of Incorporation and all amendments thereto:

1.
The name of this Corporation is SNYDER’S-LANCE, INC.

2.
Attached hereto are the Restated Articles of the Incorporation of the Corporation.

3. The Restated Articles of Incorporation do not contain any amendments to the Articles of Incorporation requiring stockholder approval and the Restated Articles of Incorporation were adopted by the Board of Directors of the Corporation.

This the 3rd day of May, 2013.


SNYDER’S-LANCE, INC.



By     /s/ Rick D. Puckett        
Rick D. Puckett
Executive Vice President


 




RESTATED ARTICLES OF INCORPORATION
OF
SNYDER’S-LANCE, INC.

(As amended through May 3, 2013)

1.    The name of this Corporation is SNYDER’S-LANCE, INC.

2.    The address of the registered office of the Corporation in the State of North Carolina is 13024 Ballantyne Corporate Place, Suite 900, Charlotte, North Carolina, Mecklenburg County, North Carolina and the mailing address is Post Office Box 32368, Charlotte, North Carolina 28232 and the name of its registered agent at such address is A. Zachary Smith III.

3.    The purposes for which the Corporation is organized are:

(a)    To manufacture, process, pack, purchase, distribute and sell, both at wholesale and retail, and generally trade and deal in and with peanuts, peanut products, crackers, sandwiches, cracker sandwiches, candies, cookies, confectioneries, cakes, potato and corn chips, snacks, goods, commodities, wares, merchandise and food products of every kind, nature and description,

(b)    To sell, merchandise and otherwise distribute food products of every kind, nature and description with mechanical, electronic, automatic and automated vending machines, devices and equipment of every kind, nature and description,

(c)    To purchase, own, lease, maintain and operate a fleet of motor vehicles to transport, distribute and deliver food products, equipment, raw materials, supplies, machinery, goods, commodities, wares and merchandise,

(d)    To buy, sell, own, lease as lessor or lessee, develop, improve and deal in and with real estate of all kinds and for all purposes, and to engage in any business directly or indirectly related thereto,

(e)    To engage in any other lawful activity, including but not limited to, (i) buying, selling, leasing as lessor or lessee, brokering, factoring, and dealing in or with real, personal and mixed property of all kinds and for all uses and purposes; (ii) constructing, manufacturing, raising or otherwise producing and repairing, servicing, storing or otherwise caring for any type of building, structure, product, commodity or livestock whatsoever; (iii) extracting and processing natural resources; (iv) transporting freight or passengers by land, sea or air; (v) collecting and disseminating information, opinion or advertisement through any medium whatsoever; (vi) performing personal services of any nature; and (vii) entering into or serving in any type of management, investigative, advisory, promotional, protective, insurance, guarantyship, suretyship, fiduciary or representative capacity or relationship for or with any persons, firms or corporations whatsoever,

(f)    To carry out all or any part of the foregoing objects and purposes in any part of the world or universe as principal, agent, contractor, or otherwise, either alone or in conjunction with any entity or entities, and either directly or indirectly through one or more subsidiaries or controlled entities organized or utilized for the purpose; and in carrying on its business and for the purpose of attaining or furthering any of its objects or purposes, to make and perform such contracts, to do such acts and things, and to exercise such powers, as a natural person could lawfully make, perform, do or exercise, all in the manner and to the extent, now or hereafter authorized or permitted by law, and

(g)    To carry on all or any of its operations or business in the State of North Carolina and/or in any or all other territories, states, possessions, colonies and dependencies of the United States of America, and in the District of Columbia, in any or all foreign countries and in any other




jurisdiction throughout the world or universe; to have one or more offices within or without the State of North Carolina; to do any and all things necessary, suitable, convenient or proper for, or in connection with, or incidental to, the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the Corporation; and in general to do any and all things and exercise any and all powers which it may now or hereafter be lawful for the Corporation to do or exercise under the laws of the State of North Carolina; provided, however, that the Corporation shall not in any possession, country or other jurisdiction carry on any business or exercise any powers except such as the Corporation may be entitled to carry on or exercise under the laws of said possession, country or other jurisdiction.

4.    The number of shares the Corporation is authorized to issue is 115,000,000 divided into shares as follows:

(a)    5,000,000 shares of Preferred Stock with a par value of $1 per share, with the Preferred Stock to be issued in such series and with such preferences, limitations and relative rights as shall be determined from time to time by the Board of Directors; and

(b)    110,000,000 shares of Common Stock with a par value of $.83-1/3 per share.

5.    Except as provided in the North Carolina Business Corporation Act, the Board of Directors of this Corporation shall have the power, without the assent or vote of the shareholders, to make, alter, amend and rescind the Bylaws of this Corporation.

6.    The period of duration of the Corporation is perpetual.

7.    No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation.

8.    The affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding shares of the Corporation entitled to vote shall be necessary for the following corporate actions:

(a)    Merger or consolidation of the Corporation;

(b)    Sale, lease or exchange of all or substantially all of the property or assets of the Corporation; or

(c)    Dissolution of the Corporation.

This paragraph shall not require approval of the shareholders of the Corporation on any of the above corporate actions for which shareholder approval is not required under the North Carolina Business Corporation Act.

9.    To the fullest extent permitted by applicable law, no director of the Corporation shall have any personal liability arising out of any action whether by or in the right of the Corporation or otherwise for monetary damages for breach of his or her duty as a director. This Paragraph shall not impair any right to indemnity from the Corporation which any director may now or hereafter have. Any repeal or modification of this Paragraph shall be prospective only and shall not adversely affect any limitation hereunder on the personal liability of a director with respect to acts or omissions occurring prior to such repeal or modification.



RESTATED ARTICLES OF INCORPORATION
Exhibit 3.5
OF
SNYDER’S-LANCE, INC.

(As amended through May 3, 2013)

1.    The name of this Corporation is SNYDER’S-LANCE, INC.

2.    The address of the registered office of the Corporation in the State of North Carolina is 13024 Ballantyne Corporate Place, Suite 900, Charlotte, North Carolina, Mecklenburg County, North Carolina and the mailing address is Post Office Box 32368, Charlotte, North Carolina 28232 and the name of its registered agent at such address is A. Zachary Smith III.

3.    The purposes for which the Corporation is organized are:

(a)    To manufacture, process, pack, purchase, distribute and sell, both at wholesale and retail, and generally trade and deal in and with peanuts, peanut products, crackers, sandwiches, cracker sandwiches, candies, cookies, confectioneries, cakes, potato and corn chips, snacks, goods, commodities, wares, merchandise and food products of every kind, nature and description,

(b)    To sell, merchandise and otherwise distribute food products of every kind, nature and description with mechanical, electronic, automatic and automated vending machines, devices and equipment of every kind, nature and description,

(c)    To purchase, own, lease, maintain and operate a fleet of motor vehicles to transport, distribute and deliver food products, equipment, raw materials, supplies, machinery, goods, commodities, wares and merchandise,

(d)    To buy, sell, own, lease as lessor or lessee, develop, improve and deal in and with real estate of all kinds and for all purposes, and to engage in any business directly or indirectly related thereto,

(e)    To engage in any other lawful activity, including but not limited to, (i) buying, selling, leasing as lessor or lessee, brokering, factoring, and dealing in or with real, personal and mixed property of all kinds and for all uses and purposes; (ii) constructing, manufacturing, raising or otherwise producing and repairing, servicing, storing or otherwise caring for any type of building, structure, product, commodity or livestock whatsoever; (iii) extracting and processing natural resources; (iv) transporting freight or passengers by land, sea or air; (v) collecting and disseminating information, opinion or advertisement through any medium whatsoever; (vi) performing personal services of any nature; and (vii) entering into or serving in any type of management, investigative, advisory, promotional, protective, insurance, guarantyship, suretyship, fiduciary or representative capacity or relationship for or with any persons, firms or corporations whatsoever,

(f)    To carry out all or any part of the foregoing objects and purposes in any part of the world or universe as principal, agent, contractor, or otherwise, either alone or in conjunction with any entity or entities, and either directly or indirectly through one or more subsidiaries or controlled entities organized or utilized for the purpose; and in carrying on its business and for the purpose of attaining or furthering any of its objects or purposes, to make and perform such contracts, to do such acts and things, and to exercise such powers, as a natural person could lawfully make, perform, do or exercise, all in the manner and to the extent, now or hereafter authorized or permitted by law, and

(g)    To carry on all or any of its operations or business in the State of North Carolina and/or in any or all other territories, states, possessions, colonies and dependencies of the United




States of America, and in the District of Columbia, in any or all foreign countries and in any other jurisdiction throughout the world or universe; to have one or more offices within or without the State of North Carolina; to do any and all things necessary, suitable, convenient or proper for, or in connection with, or incidental to, the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the Corporation; and in general to do any and all things and exercise any and all powers which it may now or hereafter be lawful for the Corporation to do or exercise under the laws of the State of North Carolina; provided, however, that the Corporation shall not in any possession, country or other jurisdiction carry on any business or exercise any powers except such as the Corporation may be entitled to carry on or exercise under the laws of said possession, country or other jurisdiction.

4.    The number of shares the Corporation is authorized to issue is 115,000,000 divided into shares as follows:

(a)    5,000,000 shares of Preferred Stock with a par value of $1 per share, with the Preferred Stock to be issued in such series and with such preferences, limitations and relative rights as shall be determined from time to time by the Board of Directors; and

(b)    110,000,000 shares of Common Stock with a par value of $.83-1/3 per share.

5.    Except as provided in the North Carolina Business Corporation Act, the Board of Directors of this Corporation shall have the power, without the assent or vote of the shareholders, to make, alter, amend and rescind the Bylaws of this Corporation.

6.    The period of duration of the Corporation is perpetual.

7.    No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation.

8.    The affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding shares of the Corporation entitled to vote shall be necessary for the following corporate actions:

(a)    Merger or consolidation of the Corporation;

(b)    Sale, lease or exchange of all or substantially all of the property or assets of the Corporation; or

(c)    Dissolution of the Corporation.

This paragraph shall not require approval of the shareholders of the Corporation on any of the above corporate actions for which shareholder approval is not required under the North Carolina Business Corporation Act.

9.    To the fullest extent permitted by applicable law, no director of the Corporation shall have any personal liability arising out of any action whether by or in the right of the Corporation or otherwise for monetary damages for breach of his or her duty as a director. This Paragraph shall not impair any right to indemnity from the Corporation which any director may now or hereafter have. Any repeal or modification of this Paragraph shall be prospective only and shall not adversely affect any limitation hereunder on the personal liability of a director with respect to acts or omissions occurring prior to such repeal or modification.


2



EXHIBIT 31.1
MANAGEMENT CERTIFICATION
I, Carl E. Lee, Jr., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Snyder’s-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: August 6, 2013
 
/s/ Carl E. Lee, Jr.
Carl E. Lee, Jr.
President and Chief Executive Officer




EXHIBIT 31.2
MANAGEMENT CERTIFICATION
I, Rick D. Puckett, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Snyder’s-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: August 6, 2013
 
/s/ Rick D. Puckett
Rick D. Puckett
Executive Vice President, Chief Financial Officer and Treasurer




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 Snyder’s-Lance, Inc. (the “Company”) on Form 10-Q for the period ended June 29, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Carl E. Lee, Jr., President and Chief Executive Officer of the Company, and Rick D. Puckett, Executive Vice President, Chief Financial Officer and Treasurer 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 Snyder’s-Lance, Inc. and will be retained by Snyder’s-Lance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ Carl E. Lee, Jr.
 
 
 
/s/ Rick D. Puckett
Carl E. Lee, Jr.
 
 
 
Rick D. Puckett
President and Chief Executive Officer
 
 
 
Executive Vice President, Chief Financial
August 6, 2013
 
 
 
Officer and Treasurer
 
 
 
 
August 6, 2013