Snyder's-Lance, Inc.
SNYDER'S-LANCE, INC. (Form: 10-K, Received: 02/25/2014 16:16:50)

Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2013
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission file number 0-398
SNYDER’S-LANCE, INC.
(Exact name of Registrant as specified in its charter)
North Carolina
 
56-0292920
(State of incorporation)
 
(I.R.S. Employer Identification Number)
13024 Ballantyne Corporate Place, Suite 900, Charlotte, North Carolina 28277
(Address of principal executive offices) (zip code)
Post Office Box 32368, Charlotte, North Carolina 28232-2368
(Mailing address of principal executive offices) (zip code)
Registrant’s telephone number, including area code:     (704) 554-1421
Securities Registered Pursuant to Section 12(b) of the Act: 
Title of Each Class
 
Name of Each Exchange on Which Registered
$0.83-1/3 Par Value Common Stock
 
The NASDAQ Stock Market LLC
Securities Registered Pursuant to Section 12(g) of the Act:   NONE
Indicate by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company   o  
 
 
 
 
(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 Act). Yes o No þ
The aggregate market value of shares of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of voting or nonvoting common equity, held by non-affiliates as of June 29, 2013 , the last business day of the Registrant’s most recently completed second fiscal quarter, was $1,476,022,316 .
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 February 18, 2014 , was 69,937,134 shares.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 2014 are incorporated by reference into Part III of this Form 10-K.
 



Table of Contents

FORM 10-K
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item X
 
 
 
 
 
Item 5
Item 6
Item 7
Item 7A
Item 8
 
 
 
Item 9
Item 9A
Item 9B
 
 
 
 
 
Item 10
Directors, Executive Officers and Corporate Governance
 
Item 11
Executive Compensation
 
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 13
Certain Relationships and Related Transactions and Director Independence
 
Item 14
Principal Accountant Fees and Services
 
 
 
 
 
 
Item 15
 
 
 
 
Exhibit 12
Ratio of Earnings to Fixed Charges
 
Exhibit 21
Subsidiaries of Snyder’s-Lance, Inc.
 
Exhibit 23
Consent of Independent Registered Public Accounting Firm
 
Exhibit 31.1
Section 302 Certification of the CEO
 
Exhibit 31.2
Section 302 Certification of the CFO
 
Exhibit 32
Section 906 Certification of the CEO and CFO
 
Note: Items 10-14 are incorporated by reference to the Proxy Statement and Item X of Part I.



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PART I
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 factors set forth under Part I, Item 1A - Risk Factors.
Caution should be taken not to place undue reliance on our forward-looking statements, which reflect the expectations of management 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.  
Item 1.  Business
General
Snyder's-Lance, Inc., a North Carolina corporation, was formed from the merger of Lance, Inc. (“Lance”) and Snyder’s of Hanover, Inc. (“Snyder’s”) in 2010 ("Merger"), and further expanded with the acquisition of Snack Factory, LLC and certain affiliates ("Snack Factory") in 2012. We are a national snack food company with well-recognized brands, an expansive branded product portfolio, complementary manufacturing capabilities, and a national distribution network. Our successful history dates back to the early 1900s. Snyder’s-Lance, Inc. is headquartered in Charlotte, North Carolina. References to “Snyder’s-Lance,” the “Company,” “we,” “us” or “our” refer to Snyder’s-Lance, Inc. and its subsidiaries, as the context requires.
Products
We operate in one business segment: the manufacturing, distribution, marketing and sale of snack food products. These products include pretzels, sandwich crackers, kettle chips, pretzel crackers, cookies, potato chips, tortilla chips, other salty snacks, sugar wafers, nuts and restaurant style crackers. Additionally, we purchase certain cakes and meat snacks sold under our brands and partner brand products for resale in order to broaden our product offerings. Products are packaged in various single-serve, multi-pack and family-size configurations.
Our branded products are principally sold under trade names owned by the Company. Partner brands consist of other third-party brands that we sell through our Independent Business Owner ("IBO") based Direct-Store-Delivery ("DSD") distribution network ("DSD network"). We sell private brand products directly to retailers and third-party distributors using certain store brands or our own control brands. In addition, we contract with other branded food manufacturers to produce their products and periodically sell certain semi-finished goods to other manufacturers.
Overall sales of our products are relatively consistent throughout the year, although demand for certain products may be influenced by holidays, changes in seasons, or other annual events. In 2013 , branded products represented approximately 61% of net revenue, while partner brand, private brand and other products represented approximately 18% , 16% and 5% of net revenue, respectively. In 2012 , branded products represented approximately 59% of net revenue, while partner brand, private brand and other products represented approximately 17% , 18% and 6% of net revenue, respectively. Branded products represented approximately 58% of net revenue in 2011 , while partner brand, private brand and other products represented approximately 17% , 19% and 6% of net revenue, respectively.

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Intellectual Property
Trademarks that are important to our business are protected by registration or other means in the United States and most other markets where the related products are sold. We own various registered trademarks for use with our branded products including Snyder’s of Hanover ® , Lance ® , Cape Cod ® and Snack Factory ® Pretzel Crisps ® ("Core" brands), and Krunchers! ® , Tom’s ® , Archway ® , Jays ® , Stella D’oro ® , EatSmart , O-Ke-Doke ® and Quitos ("Allied" brands) and a variety of other marks and designs. We license trademarks, including those for limited use on certain products that are classified as branded products. We also own registered trademarks including Brent & Sam’s ® , Vista ® and Delicious ® that are used in connection with our private brand products.
Overall Strategy
Our strategy is to win as a provider of premium, differentiated snacks, driven by our national distribution network, which includes our DSD network and our direct sales organization ("National Distribution Network"). We do this by focusing our efforts on four strategic imperatives:
Lead with Quality. Lead with quality by continuously improving our products and service to our retailers and third-party distributors.
Grow our Core. Grow our Core brands by leveraging our National Distribution Network and improving brand awareness.
Reach More Consumers. Reach more consumers by securing new retailers with a significant focus on innovation.
Maximize Shareholder Return. Maximize shareholder return through revenue growth, margin enhancements and optimizing returns on invested capital.
Research and Development
We consider research and development of new products to be a significant part of our overall philosophy, and we are committed to developing innovative, high-quality products that exceed consumer expectations. A team of professional product developers, including microbiologists, food scientists, chefs and chemists, work in collaboration with innovation, marketing, manufacturing and sales leaders to develop products to meet changing consumer demands. Our research and development staff incorporates product ideas from all areas of our business in order to formulate new products. In addition to developing new products, the research and development staff routinely reformulates and improves existing products based on advances in ingredients and technology, and conducts value engineering to maintain competitive price points. In 2013, we utilized our newly constructed 60,000 square foot Research and Development Center ("R&D Center") in Hanover, Pennsylvania, to conduct much of our research and development. Accordingly, as we move into 2014, our pipeline of new product innovation is stronger than it has ever been.
Distribution
We distribute snack food products throughout the United States using our DSD network. Our DSD network is made up of approximately 3,000 routes that are primarily operated by IBOs. We also ship products directly to third-party distributors in areas where our DSD network does not operate. Through our direct sales organization ("Direct") we distribute products directly to retailers or to third-party distributors using our own transportation fleet or other freight carriers. In 2013 , approximately 62% of net revenue was distributed through our DSD network while Direct made up the remaining 38%. Direct revenue increased in 2013 primarily due to the full year impact of Snack Factory ® Pretzel Crisps ® pretzel crackers.
Capital Expenditures
We have invested significant capital in our facilities to ensure sufficient capacity, efficient production, effective use of technology, excellent quality, and a positive working environment for our associates. In 2013 , 2012 and 2011 , we had capital expenditures of $75 million , $80 million and $58 million , respectively. We increased our investment in capital expenditures in 2012 and 2013 to upgrade equipment, increase capacity at our manufacturing facilities, and construct our new R&D Center in order to enhance our competitive position. 
Customers
Through our DSD network, we sell our branded and partner brand products to IBOs that distribute to grocery/mass merchandisers, club stores, discount stores, convenience stores, food service establishments and various other retailers including drug stores, schools, military and government facilities and “up and down the street” outlets such as recreational facilities, offices and other independent retailers. In addition, we sell our branded products direct to retailers and third-party distributors. Private brand customers include grocery/mass merchandisers and discount stores. We also contract with other branded food manufacturers to produce their products or provide semi-finished goods.

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Substantially all of our revenue is from sales to customers in the United States. Revenue from our largest retailer, Wal-Mart Stores, Inc., was approximately 16% of net revenue in 2013 , as compared to 18% of net revenue in both 2012 and 2011 . Our sales to Wal-Mart Stores, Inc. do not include sales from third-party distributors. Sales to these third-party distributors represent approximately 11% of our net revenue and may increase sales to Wal-Mart Stores, Inc. by an amount we are unable to estimate. Our top ten retailers accounted for approximately 53% of our net revenue during 2013 , excluding the impact of third-party distributors.
Raw Materials
The principal raw materials used to manufacture our products are flour, vegetable oil, sugar, peanuts, potatoes, chocolate, other nuts, cheese and seasonings. The principal packaging supplies used are flexible film, cartons, trays, boxes and bags. These raw materials and supplies are normally available in adequate quantities in the commercial market and are currently contracted from three to twelve months in advance, depending on market conditions.
Competition and Industry
Our products are sold in highly competitive markets. Generally, we compete with manufacturers, some of whom have greater revenue and resources than we do. The principal methods of competition are price, service, product quality, product offerings and distribution. The methods of competition and our competitive position vary according to the geographic location, the particular products and the activities of our competitors.
Environmental Matters
Our operations in the United States and Canada are subject to various federal, state (or provincial) and local laws and regulations with respect to environmental matters. The Company was not a party to any material proceedings arising under these laws or regulations for the periods covered by this Form 10-K. We believe the Company is in compliance with all material environmental regulations affecting our facilities and operations and that continued compliance will not have a material impact on our capital expenditures, earnings or competitive position.
Employees
At the beginning of February 2014, we had approximately 5,700 active employees in the United States and Canada. At the beginning of February 2013, we had approximately 5,900 active employees in the United States and Canada. None of our employees are covered by a collective bargaining agreement.
Other Matters
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are available on our website free of charge. The website address is www.snyderslance.com. All required reports are made available on the website as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.
Item 1A.  Risk Factors
In addition to the other information in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations may be adversely affected by any of these risks. Additional risks and uncertainties, including risks that we do not presently know of or currently deem insignificant, may also impair our business, financial condition or results of operations.
Our performance may be impacted by general economic conditions and an economic downturn.
An overall decline in U.S. economic activity could adversely impact our business and financial results. Economic uncertainty may reduce consumer spending as consumers make decisions on what to include in their food budgets. This could also result in a shift in consumer preference toward private label products. While our product portfolio includes both branded and private label offerings which mitigates certain exposure, shifts in consumer spending could result in increased pressure from competitors or customers to increase promotional spending or reduce the prices of some of our products and/or limit our ability to increase or maintain prices, which could lower our revenue and profitability.
Instability in financial markets may impact our ability or increase the cost to enter into new credit agreements in the future. Additionally, it may weaken the ability of our customers, suppliers, IBOs, third-party distributors, banks, insurance companies and other business partners to perform in the normal course of business, which could expose us to losses or disrupt the supply of inputs we rely upon to conduct our business. If one or more of our key business partners fail to perform as expected or contracted for any reason, our business could be negatively impacted.

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Volatility in the price or availability of the inputs we depend on, including raw materials, packaging, energy and labor, could adversely impact our financial results.
Our financial results could be adversely impacted by changes in the cost or availability of raw materials and packaging. While we often obtain substantial commitments for future delivery of certain raw materials, continued long-term increases in the costs of raw materials and packaging, including but not limited to cost increases due to the tightening of supply, could adversely affect our financial results.
Our transportation and logistics system is dependent upon gasoline and diesel fuel, and our manufacturing operations depend on natural gas. While we may enter into forward purchase contracts to reduce the price risk associated with some of these costs, continued long-term changes in the cost or availability of these energy sources could adversely impact our financial results.
Our continued growth requires us to hire, retain and develop a highly skilled workforce and talented management team. Our financial results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs.
We operate in a highly competitive food industry.
Price competition and industry consolidation could adversely impact our financial results. The sales of most of our products are subject to significant competition primarily through promotional discounting and other price cutting techniques by competitors, some of whom are significantly larger and have greater resources than we do. In addition, there is a continuing consolidation in the snack food industry, which could increase competition. Significant competition increases the possibility that we could lose one or more major customers, lose existing product authorizations at customer locations, lose market share and/or shelf space, increase expenditures or reduce selling prices, which could have an adverse impact on our business or financial results.
Sales price increases initiated by us may negatively impact our financial results. Price changes driven by higher input costs may not occur, or may not occur in a timely manner which may reduce our operating profit. Future price increases, such as those to offset increased input costs, may reduce our overall sales volume, which could reduce our revenue and operating profit. Additionally, if market prices for certain inputs decline significantly below our contracted prices, customer pressure to reduce prices could lower our revenue and operating profit.
Changes in our top retail customer relationships could impact our revenue and profitability.
We are exposed to risks resulting from several large retailers that account for a significant portion of our revenue. Our top ten retailers accounted for approximately 53% of our net revenue during 2013 , with our largest retailer representing approximately 16% of our 2013 net revenue. The loss of one or more of our large retailers could adversely affect our financial results. These customers typically make purchase decisions based on a combination of price, service, product quality, product offerings, consumer demand, as well as distribution capabilities and generally do not enter into long-term contracts. In addition, these significant retailers may change their business practices related to inventories, product displays, logistics or other aspects of the customer-supplier relationship. Our results of operations could be adversely affected if revenue from one or more of these customers is significantly reduced or if the cost of complying with customers’ demands is significant. If receivables from one or more of these customers become uncollectible, our financial results may be adversely impacted.
Our failure to successfully integrate acquisitions into our existing operations could adversely affect our financial results.
There are risks associated with our ability to integrate acquired businesses in an efficient and effective manner. Any inability of management to successfully integrate the operations could have an adverse effect on the business and financial results. Additional potential risks associated with acquisitions include additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, failure to achieve expected revenue growth and anticipated synergies which could result in the impairment of goodwill or other acquisition-related intangible assets.
The loss of key personnel could have an adverse effect on our financial results and growth prospects.
There are risks associated with our ability to retain key employees. If certain key employees terminate their employment, it could negatively impact sales, marketing or development activities. Further, management’s attention might be diverted from operations to recruiting suitable replacements and our financial condition, results of operations and growth prospects could be adversely affected. In addition, we may not be able to locate suitable replacements for key employees or offer employment to potential replacements on acceptable terms.

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Efforts to execute and accomplish our strategy could adversely affect our financial results.
We utilize several operating strategies to increase revenue and improve operating performance. If we are unsuccessful due to our execution, unplanned events, ability to manage change or unfavorable market conditions, our financial performance could be adversely affected. If we pursue strategic acquisitions, divestitures, or joint ventures, we may incur significant costs and may not be able to consummate the transactions or obtain financing. Further, the success of our acquisitions will depend on many factors, such as our ability to identify potential acquisition candidates, negotiate satisfactory purchase terms, obtain loans at satisfactory rates to fund acquisitions and successfully integrate and manage the growth from acquisitions. Integrating the operations, financial reporting, disparate technologies and personnel of newly acquired companies involves risks. As a result, we may not be able to realize expected synergies or other anticipated benefits of acquisitions.
Future acquisitions also could result in potentially dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our financial results. In the event we enter into strategic transactions or relationships, our financial results may differ from expectations. We may not be able to achieve expected returns and other benefits as a result of potential acquisitions or divestitures.
Concerns with the safety and quality of certain food products or ingredients could cause consumers to avoid our products.
We could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of certain products or ingredients. Negative publicity about these concerns, whether or not valid, may discourage consumers from buying our products or cause disruptions in production or distribution of our products and negatively impact our business and financial results.
If our products become adulterated, misbranded or mislabeled, we might need to recall those items and we may experience product liability claims if consumers are injured or become sick.
Product recalls or safety concerns could adversely impact our market share and financial results. We may be required to recall certain of our products should they be mislabeled, contaminated or damaged. We also may become involved in lawsuits and legal proceedings if it is alleged that the consumption of any of our products causes injury or illness. A product recall or an adverse result in any such litigation could have an adverse effect on our operating and financial results. We may also lose customer confidence for our entire branded portfolio.
Disruption of our supply chain or information technology systems could have an adverse impact on our business and financial results.
Our ability to manufacture, distribute and sell products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities or the supply and delivery of key inputs, such as raw materials, finished goods, packaging, labor and energy, could impair our ability to conduct our business. Examples include, but are not limited to, weather, natural disasters, fires, terrorism, pandemics and strikes. Certain warehouses and manufacturing facilities are located in areas prone to tornadoes, hurricanes and floods. Any business disruption due to natural disasters or catastrophic events in these areas could adversely impact our business and financial results if not adequately mitigated. We also rely on a certain supplier for the manufacturing of one of our Core branded products. Although we have secured back-up suppliers in the case of emergency, any damage or disruption to this supplier's manufacturing or distribution capabilities could impair our ability to sell and deliver our products.
Also, we increasingly rely on information technology systems to conduct our business. These systems can enhance efficiency and business processes but also present risks of unauthorized access to our networks or data centers. If unauthorized parties gain access to our systems, they could obtain and exploit confidential business, customer, or employee information and harm our competitive position. Further, these information systems may experience damage, failures, interruptions, errors, inefficiencies, attacks or suffer from fires or natural disasters, any of which could have an adverse effect on our business and financial results if not adequately mitigated by our security measures and disaster recovery plans.
Furthermore, given our multiple information technology systems as a result of the Merger, we may encounter difficulties assimilating or integrating data. In addition, we are currently in the process of consolidating systems which could provide additional security or business disruption risks which could have an adverse impact on our business and financial results.
Improper use or misuse of social media may have an adverse effect on our business and financial results.
Consumers are moving away from traditional means of electronic mail towards new forms of electronic communication, including social media. We support new ways of sharing data and communicating with customers using methods such as social networking. However, misuse of social networking by individuals, customers, competitors, or employees may result in unfavorable media attention which could negatively affect our business. Further, our competitors are increasingly using social media networks to market and advertise products. If we are unable to compete in this environment it could adversely affect our financial results.

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Demand for our products may be adversely affected by changes in consumer preferences and tastes or if we are unable to innovate or market our products effectively.
We are a consumer products company operating in highly competitive markets and rely on continued demand for our products. To generate revenue and profits, we must sell products that appeal to our customers and consumers. Any significant changes in consumer preferences or any inability on our part to anticipate or react to such changes could result in reduced demand for our products and erosion of our competitive and financial position. Our success depends on the ability to respond to consumer trends, including concerns of consumers regarding health and wellness, obesity, product attributes and ingredients. In addition, changes in product category consumption or consumer demographics could result in reduced demand for our products. Consumer preferences may shift due to a variety of factors, including the aging of the general population, changes in social trends, changes in travel, vacation or leisure activity patterns, or negative publicity resulting from regulatory action or litigation against companies in the snack food industry. Any of these changes may reduce consumers’ willingness to purchase our products and negatively impact our financial results.
Our continued success also is dependent on product innovation, including maintaining a robust pipeline of new products, and the effectiveness of advertising campaigns, marketing programs and product packaging. Although we devote significant resources to meet this goal, there can be no assurance as to the continued ability to develop and launch successful new products or variants of existing products, or to effectively execute advertising campaigns and marketing programs. In addition, both the launch and ongoing success of new products and advertising campaigns are inherently uncertain, especially as to their appeal to consumers. Further, failure to successfully launch new products could decrease demand for existing products by negatively affecting consumer perception of existing brands, as well as result in inventory write-offs, trademark impairments and other costs, all of which could negatively impact our financial results.
Our DSD network relies on a significant number of IBOs, and such reliance could affect our ability to efficiently and profitably distribute and market products, maintain existing markets and expand business into other geographic markets.
Our DSD network relies on approximately 2,700 IBOs for the sale and distribution of manufactured products and the products of other manufacturers.
IBOs must make a commitment of capital and/or obtain financing to purchase their routes and other equipment to conduct their business. Certain financing arrangements, through third-party lending institutions, are made available to IBOs and require us to repurchase routes if the IBOs default on their loans and we then are required to collect any shortfalls from the IBOs to the extent possible. The inability of IBOs, in the aggregate, to make timely payments could require write-offs of accounts receivable or increased provisions made against accounts receivable, either of which could adversely affect our financial results.
The ability to maintain a DSD network depends on a number of factors, many of which are outside of our control. Some of these factors include: (i) the level of demand for the brands and products which are available in a particular distribution area; (ii) the ability to price products at levels competitive with those offered by other competing producers; and (iii) the ability to deliver products in the quantity and at the time ordered by IBOs and retailers. There can be no assurance that we will be able to mitigate the risks related to all or any of these factors in any of the current or prospective geographic areas of distribution. To the extent that any of these factors have an adverse effect on the relationships with IBOs, thus limiting maintenance and expansion of the sales market, our revenue and financial results may be adversely impacted.
Identifying new IBOs can be time-consuming and any resulting delay may be disruptive and costly to the business. There also is no assurance that we will be able to maintain current distribution relationships or establish and maintain successful relationships with IBOs in new geographic distribution areas. There is the possibility that we will have to incur significant expenses to attract and maintain IBOs in one or more geographic distribution areas. The occurrence of any of these factors could result in increased expense or a significant decrease in sales volume of our branded products and the products which we distribute for others through our DSD network and harm our business and financial results. Our contracts with certain IBOs are the subject of litigation, which could negatively impact our financial results.
Continued success depends on the protection of our trademarks and other proprietary intellectual property rights.
We maintain numerous trademarks and other intellectual property rights, which are important to our success and competitive position, and the loss of or our inability to enforce trademark and other proprietary intellectual property rights could harm our business. We devote substantial resources to the establishment and protection of our trademarks and other proprietary intellectual property rights on a worldwide basis. Efforts to establish and protect trademarks and other proprietary intellectual property rights may not be adequate to prevent imitation of products by others or to prevent others from seeking to block sales of our products. In addition, the laws and enforcement mechanisms of some foreign countries may not allow for the protection of proprietary rights to the same extent as in the United States and other countries.


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Impairment in the carrying value of goodwill or other intangible assets could have an adverse impact on our financial results.
The net carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities, and the net carrying value of other intangibles represents the fair value of trademarks, customer relationships and other acquired intangibles. Pursuant to generally accepted accounting principles in the United States, we are required to perform impairment tests on our goodwill and indefinite-lived intangible assets annually or at any time when events occur which could impact the value of our reporting unit or our indefinite-lived intangibles. These values depend on a variety of factors, including the success of our business, market conditions, earnings growth and expected cash flows. Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, changes in discount rates based on changes in cost of capital or lower than expected sales and profit growth rates. Significant and unanticipated changes could require a non-cash charge for impairment in a future period which may significantly affect our financial results in the period of such charge. In addition, if we see the need to consolidate certain brands, we could experience impairment of our trade name intangible assets.
New regulations or legislation could adversely affect our business and financial results.
Food production and marketing are highly regulated by a variety of federal, state and other governmental agencies. New or increased government regulation of the food industry, including but not limited to areas related to food safety, chemical composition, production processes, traceability, product quality, packaging, labeling, school lunch guidelines, promotions, marketing and advertising (particularly such communications that are directed toward children), product recalls, records, storage and distribution could adversely impact our results of operations by increasing production costs or restricting our methods of operation and distribution. These regulations may address food industry or society factors, such as obesity, nutritional and environmental concerns and diet trends.
We are exposed to interest and foreign currency exchange rate volatility, which could negatively impact our financial results.
We are exposed to interest rate volatility since the interest rates associated with portions of our debt are variable. While we mitigate a portion of this volatility by entering into interest rate swap agreements, those agreements could lock our interest rates above the market rates.
We also are exposed to foreign exchange rate volatility primarily through the operations of our Canadian subsidiary. We mitigate a portion of the volatility impact on our results of operations by entering into foreign currency derivative contracts. Because our consolidated financial statements are presented in U.S. dollars, we must translate the Canadian subsidiary’s financial statements at the then-applicable exchange rates. Consequently, changes in the value of the U.S. dollar may impact our financial results, even if the value has not changed in the original currency.
A significant portion of our outstanding shares of common stock is controlled by a few individuals, and their interests may conflict with those of other stockholders.
As of December 28, 2013 , Michael A. Warehime and his wife, Patricia A. Warehime, beneficially owned in the aggregate approximately 15% of the outstanding common stock of the Company. Mr. and Mrs. Warehime serve as directors of the Company, with Mr. Warehime serving as the Chairman of the Board. As a result, the Warehimes may be able to exercise significant influence over the Company and certain matters requiring approval of its stockholders, including the approval of significant corporate transactions, such as a merger or other sale of the Company or its assets. This could limit the ability of other stockholders of the Company to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control of the Company. In addition, the Warehimes may have actual or potential interests that diverge from the interests of the other stockholders of the Company.
As a condition to the execution of the Merger agreement, the Warehimes entered into a standstill agreement, which expired on December 6, 2013. Effective December 6, 2013, all of the Warehimes’ shares may be sold by the Warehimes in the public market (to the extent the Warehimes remain affiliates of the Company), subject to volume, manner of sale and other limitations under Rule 144 of the Securities Act of 1933, with no contractual restrictions on the Warehimes’ ability to acquire additional shares of the Company’s stock or influence the governance structure of the Company. As such, the Warehimes may have the ability to obtain or exercise increased control of the Company. Sales by the Warehimes of their shares into the public market could cause the market price of our common stock to decline.
Item 1B.  Unresolved Staff Comments 
None.

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Item 2.  Properties
Our corporate headquarters is located in Charlotte, North Carolina. We have an additional administrative office in Hanover, Pennsylvania. Our manufacturing operations are located in Charlotte, North Carolina; Hanover, Pennsylvania; Goodyear, Arizona; Burlington, Iowa; Columbus, Georgia; Jeffersonville, Indiana; Hyannis, Massachusetts; Perry, Florida; Ashland, Ohio; and Guelph, Ontario. Additionally, our newly constructed R&D Center is located in Hanover, Pennsylvania.
We also own or lease stockrooms, warehouses, sales offices and administrative offices throughout the United States to support our operations and DSD network. A map of our distribution warehouse locations is included below. For areas where we do not have a DSD network, our products are distributed using third-party distributors.
The facilities and properties that we own, lease and operate are maintained in good condition and are believed to be suitable and adequate for present needs. We believe that we have sufficient production capacity or the ability to increase capacity to meet anticipated demand in 2014.
Item 3.  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 4.  Mine Safety Disclosures
Not applicable.

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Item X.  Executive Officers of the Registrant
Information about each of our “executive officers,” as defined in Rule 3b-7 of the Securities Exchange Act of 1934, is as follows:
Name
 
Age
 
Information About Officers
Carl E. Lee, Jr.
 
54
 
President and Chief Executive Officer of Snyder's-Lance, Inc. since May 2013; President and Chief Operating Officer of Snyder’s-Lance, Inc. from December 2010 to May 2013; President and Chief Executive Officer of Snyder’s of Hanover, Inc. from 2005 to December 2010. From 2001 to 2005, Mr. Lee worked for First Data Corporation as President and Chief Executive Officer of WFMS. Served as Regional President for Nabisco International from 1997 to 2001. From 1986 to 1997, he served in a variety of senior roles with Frito-Lay domestically and internationally.
Rick D. Puckett
 
60
 
Executive Vice President, Chief Financial Officer and Treasurer of Snyder’s-Lance, Inc. since December 2010; Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Lance, Inc. from 2006 to December 2010; Executive Vice President, Chief Financial Officer, Secretary and Treasurer of United Natural Foods, Inc., a wholesale distributor of natural and organic products, from 2005 to January 2006; and Senior Vice President, Chief Financial Officer and Treasurer of United Natural Foods, Inc. from 2003 to 2005.
Kevin A. Henry
 
46
 
Senior Vice President and Chief Human Resources Officer of Snyder’s-Lance, Inc. since December 2010; Senior Vice President and Chief Human Resources Officer of Lance, Inc. from January 2010 to December 2010; Chief Human Resources Officer of Coca-Cola Bottling Co. Consolidated, a beverage manufacturer and distributor, from September 2007 to 2009; and Senior Vice President of Human Resources at Coca-Cola Bottling Co. Consolidated from February 2001 to 2007.
Margaret E. Wicklund
 
53
 
Vice President, Corporate Controller, Principal Accounting Officer and Assistant Secretary of Snyder’s-Lance, Inc. since December 2010; Vice President, Corporate Controller, Principal Accounting Officer and Assistant Secretary of Lance, Inc. from 2007 to December 2010; Corporate Controller, Principal Accounting Officer and Assistant Secretary of Lance, Inc. from 1999 to 2006.
Charles E. Good
 
65
 
President, S-L Distribution Company, Inc. and Senior Vice President of Snyder’s-Lance, Inc. since December 2010; Chief Financial Officer, Secretary and Treasurer of Snyder’s of Hanover, Inc. from 2006 to December 2010.

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PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our $0.83-1/3 par value Common Stock is traded on the NASDAQ Global Select Market under the symbol LNCE. We had 3,481 stockholders of record as of February 18, 2014.
The following table sets forth the high and low sales prices and dividends paid during the interim periods in fiscal 2013 and 2012 :
2013 Interim Periods
 
High
Price
 
Low
Price
 
Dividend
Paid
First quarter (13 weeks ended March 30, 2013)
 
$
26.29

 
$
23.48

 
$
0.16

Second quarter (13 weeks ended June 29, 2013)
 
28.62

 
24.15

 
0.16

Third quarter (13 weeks ended September 28, 2013)
 
32.49

 
26.53

 
0.16

Fourth quarter (13 weeks ended December 28, 2013)
 
30.52

 
26.73

 
0.16

 
 
 
 
 
 
 
2012 Interim Periods
 
High
Price
 
Low
Price
 
Dividend
Paid
First quarter (13 weeks ended March 31, 2012)
 
$
26.20

 
$
21.64

 
$
0.16

Second quarter (13 weeks ended June 30, 2012)
 
27.09

 
24.25

 
0.16

Third quarter (13 weeks ended September 29, 2012)
 
25.96

 
22.24

 
0.16

Fourth quarter (13 weeks ended December 29, 2012)
 
26.07

 
22.59

 
0.16

On February 5, 2014, our Board of Directors declared a quarterly cash dividend of $0.16 per share payable on March 5, 2014 to stockholders of record on February 26, 2014. Our Board of Directors will consider the amount of future cash dividends on a quarterly basis.
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 December 28, 2013 , our consolidated stockholders’ equity was $917.9 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 $325 million term loan used to fund the acquisition of Snack Factory have provisions no more restrictive than the revolving credit agreement.
In November 2011, the Board of Directors authorized the repurchase of up to 200,000 shares of common stock, which authorization expires as of the end of February 2014. In February 2014, the Board of Directors authorized the repurchase of up to 300,000 shares of common stock, which authorization expires in March 2016. The primary 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 following table presents information with respect to purchases of common stock of the Company made during the quarter ended December 28, 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
 
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
September 29, 2013 - October 31, 2013
 

 
$

 

 
157,379

November 1, 2013 - November 30, 2013
 
2,037

 
29.58

 

 
155,342

December 1, 2013 - December 28, 2013
 

 

 

 
155,342

Total
 
2,037

 
$
29.58

 

 
155,342


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On October 25, 2013, we acquired the remaining 20% of Michaud Distributors (“Michaud”), which distributes our products in the northeastern United States, in exchange for 342,212 of newly issued unregistered shares of our common stock and we now own all of the outstanding equity. Prior to this acquisition, we had an 80% ownership interest in Michaud, with the remaining 20% ownership held by two employees of the Company. The shares of common stock were not registered under the Securities Act of 1933 (the “Securities Act”) in reliance upon the exemption contained in Section 4(a)(2) of the Securities Act. The common stock was offered to and sold to two individual accredited investors who were afforded the opportunity to examine such records of the Company as they desired and acknowledged that they were receiving securities which were not registered under the Securities Act and that certificates for such securities would be subject to a legend restricting the transfer, sale or other disposition of such securities.
Item 6.  Selected Financial Data
The following table sets forth selected historical financial data for the five-year period ended December 28, 2013 . The selected financial data set forth below should be read in conjunction with “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the audited financial statements. The prior year amounts have been reclassified for consistent presentation.
 
 
2013
 
2012
 
2011
 
2010
 
2009
Results of Operations (in thousands):
 
 
 
 
 
 
 
 
 
 
Net revenue (1) (2) (3) (4)
 
$
1,761,049

 
$
1,618,634

 
$
1,635,036

 
$
979,835

 
$
918,163

Income before income taxes (5) (6) (7) (8)
 
124,559

 
99,653

 
59,845

 
8,162

 
53,331

Net income
 
79,084

 
59,510

 
38,741

 
2,531

 
35,028

Net income attributable to noncontrolling interests,
net of income tax
 
364

 
425

 
483

 
19

 

Net income attributable to Snyder’s-Lance, Inc.
 
$
78,720

 
$
59,085

 
$
38,258

 
$
2,512

 
$
35,028

 
 
 
 
 
 
 
 
 
 
 
Average Number of Common Shares
Outstanding (in thousands):
 
 
 
 
 
 
 
 
 
 
Basic (9)
 
69,383

 
68,382

 
67,400

 
34,128

 
31,565

Diluted  (9)
 
70,158

 
69,215

 
68,478

 
34,348

 
32,384

 
 
 
 
 
 
 
 
 
 
 
Per Share of Common Stock:
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.13

 
$
0.86

 
$
0.57

 
$
0.07

 
$
1.11

Diluted earnings per share
 
$
1.12

 
$
0.85

 
$
0.56

 
$
0.07

 
$
1.08

Cash dividends declared (10)
 
$
0.64

 
$
0.64

 
$
0.64

 
$
4.39

 
$
0.64

 
 
 
 
 
 
 
 
 
 
 
Financial Status at Year-end (in thousands):
 
 
 
 
 
 
 
 
 
 
Total assets (11)(12)
 
$
1,764,594

 
$
1,746,732

 
$
1,466,790

 
$
1,462,356

 
$
540,114

Long-term debt, net of current portion (11)(12)
 
$
480,082

 
$
514,587

 
$
253,939

 
$
227,462

 
$
113,000

Total debt  (11)(12)
 
$
497,373

 
$
535,049

 
$
258,195

 
$
285,229

 
$
113,000

Footnotes:
(1)
2013 net revenue increase included the full year impact of the acquisition of Snack Factory in October 2012.
(2)
2012 net revenue included approximately $30 million as a result of acquisitions, including the acquisition of Snack Factory in October 2012. The completion of the conversion to an IBO-based DSD network ("IBO conversion") reduced net revenue by approximately $53 million compared to 2011.
(3)
2011 net revenue is not comparable to prior years as a result of the Merger and the IBO conversion. Additionally, 2011 net revenue included approximately $8 million from the acquisition of George Greer Company Inc. in August 2011.
(4)
2010 net revenue included approximately $49 million as a result of the Merger with Snyder’s in December 2010 and approximately $18 million from the acquisition of Stella D’oro in October 2009. In addition, 2010 was a 53-week year. There was approximately $11 million of incremental net revenue related to the additional week.

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(5)
2013 pre-tax income was impacted by certain self-funded medical claims that resulted in $4.7 million in incremental expenses as well as impairment charges of $1.9 million associated with one of our trademarks, offset by $2.3 million in gains on the sale of fixed assets associated with the consolidation of our Canadian manufacturing facilities.
(6)
2012 pre-tax income included the impact of approximately $6 million in severance costs and professional fees related to Merger integration activities, approximately $12 million in impairment charges offset by approximately $22 million in gains on the sale of route businesses associated with the IBO conversion.
(7)
2011 pre-tax income was significantly impacted by approximately $20 million in severance costs and professional fees related to Merger and integration activities, approximately $10 million in asset impairment charges related to the IBO conversion, approximately $3 million in charges related to closing the Corsicana, Texas manufacturing facility, approximately $10 million in expense reductions related to a change in the vacation plan and approximately $9 million in gains on the sale of route businesses associated with the IBO conversion.
(8)
2010 pre-tax income included the significant impacts of the change-in-control and other Merger-related expenses incurred in connection with the Merger, totaling approximately $38 million, as well as incremental costs of approximately $3 million for an unsuccessful bid for a targeted acquisition, $3 million for severance costs relating to a workforce reduction, $2 million for a claims buy-out agreement with an insurance company and a pre-tax loss for the additional fifty-third week of approximately $2 million.
(9)
2011 basic and diluted shares outstanding include the full-year impact of shares issued in connection with the Merger.
(10)
2010 includes a special dividend of $3.75 per share in connection with the Merger.
(11)
2010 total assets, long-term debt and total debt increased substantially from 2009 primarily because of the Merger.
(12)
2012 total assets, long-term debt and total debt increased from 2011 primarily because of the acquisition of Snack Factory.

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Item 7.  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 I, Item 1A—Risk Factors and other sections in this report.
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. We routinely evaluate our estimates, including those related to 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.
Executive Summary
During 2013, we continued executing our strategic plan, which provides for growth of our existing Core brands through expanded distribution, innovation and advertising, as well as improving margins for our Allied brands through pricing strategies, enhanced packaging and product configurations. In addition, we continued to benefit from our acquisition of Snack Factory, LLC and certain affiliates ("Snack Factory"). Our newest Core brand, Pretzel Crisps ® , realized significant revenue and market share growth throughout the year.
Our most significant accomplishments during 2013 included the following:
Snack Factory - We experienced strong revenue growth from our Snack Factory ® Pretzel Crisps ® pretzel crackers and gained an additional 2.3 points of market share in the deli snacks category, as determined by an independent third party, and realized approximately 25% in year over year retail sales growth. We expanded the distribution of this brand significantly and were able to drive increased consumer awareness through our marketing efforts. In addition, we successfully integrated the business during 2013.
Innovation efforts - We introduced new flavors of our Cape Cod ® waffle-cut kettle chips, gluten free Snyder’s of Hanover ® pretzels, and late in 2013, introduced Snyder’s of Hanover ® Korn Krunchers. We also introduced Quitos™, a new Allied brand product line to be distributed primarily through our DSD network. We made significant improvements to our Lance ® and Archway ® brands by increasing the quality of the products through ingredient changes, along with upgrades in packaging that provide better consumer messaging.
Lance ® anniversary - We achieved a significant milestone in 2013 with the 100-year anniversary of the Lance ® brand.
Expansion of our DSD network - We further developed our DSD network with acquisitions of regional third-party distributors and continued to optimize and expand our reach to customers.
Michaud Distributors - On October 25, 2013, we acquired the remaining 20% equity in Michaud Distributors ("Michaud") and now own all of the outstanding equity. We exchanged 342,212 newly issued unregistered shares of our common stock for the remaining equity.
An overview of changes by income statement line item for 2013 when compared to 2012 is as follows:
Net revenue - Net revenue increased approximately 9%. This revenue increase was led by strong Core brand growth, primarily related to the full year impact of sales of our Snack Factory ® Pretzel Crisps ® pretzel crackers. We realized increased distribution and market share growth for most of our Core brands. However, increased promotional spending was necessary in order to mitigate increased competition, changing consumer buying habits and shifts with major retailers compared to 2012.

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Partner brand revenue continued to grow as we expanded our distribution footprint and added new partner brands to our product portfolio. We experienced softness in private brand sales volume.
Gross margin - We experienced a slightly higher gross margin percentage compared to 2012, primarily as a result of a higher mix of branded product sales.
Selling, general and administrative expenses - We experienced increases in selling, general and administrative expenses as a result of the additional costs of a full year of Snack Factory operating expenses.
Gain on the sale of route businesses - Our net gains from the sale of route businesses to IBOs declined significantly in 2013 compared to 2012, due to the completion of the IBO conversion during 2012.
For 2013, we recognized the following items:
Impairment charges of $1.9 million were incurred associated with one of our trademarks.
Certain self-funded medical claims resulted in $4.7 million in incremental expenses for the year, of which $2.7 million was recorded in cost of sales and $2.0 million was recorded in selling, general and administrative expense.
We recognized $2.3 million in gains on the sale of fixed assets associated with the consolidation of our Canadian manufacturing facilities.
In addition, some of the items that impacted our results for 2012 were as follows:
As a result of our strategy to focus on Core brands, we made the decision to replace a portion of net revenue from Allied brands with other, more recognizable, Core branded products. This decision resulted in our recognition of an impairment of trademark intangible assets of $7.6 million.
Impairment of fixed assets and severance expenses totaling $4.8 million were recorded in the fourth quarter, as a result of the decision to close our Cambridge, Ontario manufacturing facility.
Professional fees and severance of $3.8 million was incurred in order to accomplish certain Merger related activities.
Expenses of $2.0 million were recorded in cost of sales due to the relocation of assets from our Corsicana, Texas facility to other manufacturing locations.
Snack Factory acquisition costs of $1.8 million were incurred and recognized as selling, general and administrative expenses.
Related to our business outlook for 2014, our cash flows and financial position may be impacted due to the following items:
We expect revenue to grow between three and five percent, with an increased focus on consumer and retailer trends. We are introducing over 60 new products or product flavors, including Snyder’s of Hanover ® Sweet and Salty pretzel pieces and Pretzel Spoonz , as well as Lance ® Bolds sandwich crackers. Our continued focus on "better-for-you" products and brands is also important to our growth plans.
We expect ingredient costs in 2014 to be reasonably consistent with 2013 and there are currently no significant planned price increases.
We will continue to make investments in marketing and advertising, including television, digital campaigns and social media, to support our Snyder’s of Hanover ® , Lance ® , Cape Cod ® and Pretzel Crisps ® brands. This is expected to increase costs associated with marketing and advertising 15% to 20% compared to 2013, with the majority of the increase occurring during the first quarter of 2014.
Fiscal year 2014 will include 53 weeks as compared to 52 weeks for both fiscal year 2013 and 2012, but we expect that the additional week will have very little impact on our earnings.

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Results of Operations
Year Ended December 28, 2013 Compared to Year Ended December 29, 2012  
(in millions)
 
2013
 
2012
 
Favorable/
(Unfavorable)
Variance
Net revenue
 
$
1,761.0

 
100.0
 %
 
$
1,618.6

 
100.0
 %
 
$
142.4

 
8.8
 %
Cost of sales
 
1,163.0

 
66.0
 %
 
1,079.7

 
66.7
 %
 
(83.3
)
 
(7.7
)%
Gross margin
 
598.0

 
34.0
 %
 
538.9

 
33.3
 %
 
59.1

 
11.0
 %
Selling, general and administrative
 
470.5

 
26.7
 %
 
440.6

 
27.2
 %
 
(29.9
)
 
(6.8
)%
Impairment charges
 
1.9

 
0.1
 %
 
11.9

 
0.7
 %
 
10.0

 
84.0
 %
Gain on sale of route businesses, net
 
(2.6
)
 
(0.1
)%
 
(22.3
)
 
(1.3
)%
 
(19.7
)
 
(88.3
)%
Other income, net
 
(10.8
)
 
(0.6
)%
 
(0.4
)
 
 %
 
10.4

 
2,600.0
 %
Income before interest and income taxes
 
139.0

 
7.9
 %
 
109.1

 
6.7
 %
 
29.9

 
27.4
 %
Interest expense, net
 
14.4

 
0.8
 %
 
9.5

 
0.5
 %
 
(4.9
)
 
(51.6
)%
Income tax expense
 
45.5

 
2.6
 %
 
40.1

 
2.5
 %
 
(5.4
)
 
(13.5
)%
Net income
 
$
79.1

 
4.5
 %
 
$
59.5

 
3.7
 %
 
$
19.6

 
32.9
 %

Net Revenue
Net revenue by product category was as follows:
(in millions)
 
2013
 
2012
 
Favorable/
(Unfavorable)
Variance
Branded
 
$
1,071.4

 
60.8
%
 
$
955.5

 
59.0
%
 
$
115.9

 
12.1
 %
Partner brand
 
308.4

 
17.5
%
 
283.1

 
17.5
%
 
25.3

 
8.9
 %
Private brand
 
287.8

 
16.4
%
 
291.1

 
18.0
%
 
(3.3
)
 
(1.1
)%
Other
 
93.4

 
5.3
%
 
88.9

 
5.5
%
 
4.5

 
5.1
 %
Net revenue
 
$
1,761.0

 
100.0
%
 
$
1,618.6

 
100.0
%
 
$
142.4

 
8.8
 %
Branded revenue increased $116 million, or 12.1%, compared to 2012, led by strong Core brand growth, primarily driven by the full-year impact of our recent acquisition of Snack Factory ® . Compared to 2012 pro forma results, Snack Factory ® Pretzel Crisps ® pretzel crackers branded revenue grew more than 25% as a result of new market activations and new product offerings, and the brand increased market share in the deli snacks category by 2.3 points. We also had double-digit revenue growth and increased our market share in our Snyder’s of Hanover ® brand products. Cape Cod ® Kettle Potato chips also achieved growth in both revenue and market share. Our Lance ® branded sandwich cracker revenue was negatively impacted by significantly higher promotional spending necessary to mitigate the impact of increased competition, which resulted in a decline in revenue compared to 2012, but this brand maintained its market share leader position in the sandwich cracker category. We also experienced a decline in revenue in certain Allied brands.
Partner brand net revenue grew 8.9% compared to 2012. This increase was due to the acquisition of new third-party distributors and new product offerings to support our DSD network. Adding strong regional partner brands to our portfolio provides an opportunity for us to continue to grow our DSD network in order to expand the geographic footprint for our own branded products.
Net revenue from private brand products declined $3.3 million, or 1.1%, from 2012 to 2013. Much of this revenue decrease was due to lower volume as a result of necessary price increases.
Other revenue increased $4.5 million, or 5.1%, from 2012 to 2013, primarily because of increased sales of certain semi-finished goods.

In 2013, approximately 62% of net revenue was generated through our DSD network as compared to 66% in the prior year. The decline as a percentage of revenue was due to a higher mix of Snack Factory ® Pretzel Crisps ® pretzel crackers, which are sold Direct.

15



Gross Margin
Gross margin increased $59.1 million during 2013 compared to 2012, and increased 0.7% as a percentage of net revenue. The majority of the increase in gross margin was due to the full year impact of sales of our Snack Factory ® Pretzel Crisps ® pretzel crackers. In addition, we benefited from the full year impact of certain price increases secured in 2012 to offset increased ingredient costs. Much of the favorability in gross margin as a percentage of revenue was due to a higher mix of branded product sales, offset by increased promotional spending to support our branded portfolio, costs related to the consolidation of our Canadian plants and start-up costs associated with the installation of two major capital projects that provided additional capacity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $29.9 million in 2013 compared to 2012, but decreased 0.5% as a percentage of net revenue. A majority of the increase was due to incremental expenses associated with the operations of Snack Factory, which included additional investment in advertising and marketing to support this as well as our other Core brands. The decrease as a percentage of revenue was due to the full-year impact of the IBO conversion, which resulted in lower compensation, benefits and other route related expenses. However, we did have certain items that unfavorably impacted selling, general and administrative expenses, which included higher display costs to support our new product offerings, sales development and incremental expenses associated with certain self-funded medical claims. In 2012, we recognized severance charges and professional fees associated with the Merger and integration activities and costs associated with the acquisition of Snack Factory.
Impairment Charges
Impairment charges decreased $10.0 million from 2012 to 2013. In 2013, we recorded an impairment of $1.9 million to write-off the remaining value of a trade name for which we have substantially discontinued use. The $11.9 million of impairment expense in 2012 consisted primarily of a $7.6 million impairment of two of our trademarks and a $2.5 million impairment of machinery and equipment at our Cambridge, Ontario manufacturing facility. The impairment of trademarks was necessary as the Company continued to optimize its brand portfolio following the Merger and made a decision to replace a portion of the sales of these branded products with other, more recognizable, brands in our portfolio. The impairment of the machinery and equipment was recorded in 2012 to write down assets that would no longer be used after the plant closed in May 2013.
Gain on the Sale of Route Businesses, Net
During 2013, we recognized $2.6 million in gains on the sale of route businesses compared with gains of $22.3 million in 2012. The gains in 2012 primarily represented gains as a result of the IBO conversion which was completed during 2012. In 2013, the gains reflected ongoing routine route business sales activity.
Other Income, Net
Other Income increased $10.4 million from 2012 to 2013 due primarily to a settlement of a business interruption claim for lost profits during the fiscal year of approximately $4.0 million. We also recognized approximately $2.3 million as a result of gains on sale of fixed assets in connection with the Canadian plant consolidation. The remaining increase is primarily the result of gains on sales of fixed assets, certain cost method investments as well as foreign exchange gains.
Interest Expense, Net
Interest expense increased $4.9 million during 2013 compared to 2012, primarily due to the full-year impact of the additional debt used to fund the Snack Factory acquisition.
Income Tax Expense
The effective income tax rate decreased to 36.5% for 2013 from 40.3% for 2012. In 2012, the effective tax rate was higher than usual due to goodwill associated with the sale of route businesses which had no tax basis. The impact on the effective tax rate was an increase of 4.8% in 2012. As expected, the effective tax rate declined as subsequent route sale activity decreased.


16



Year Ended December 29, 2012 Compared to Year Ended December 31, 2011
(in millions)
 
2012
 
2011
 
Favorable/
(Unfavorable)
Variance
Net revenue
 
$
1,618.6

 
100.0
 %
 
$
1,635.0

 
100.0
 %
 
$
(16.4
)
 
(1.0
)%
Cost of sales
 
1,079.7

 
66.7
 %
 
1,065.1

 
65.1
 %
 
(14.6
)
 
(1.4
)%
Gross margin
 
538.9

 
33.3
 %
 
569.9

 
34.9
 %
 
(31.0
)
 
(5.4
)%
Selling, general and administrative
 
440.6

 
27.2
 %
 
495.2

 
30.3
 %
 
54.6

 
11.0
 %
Impairment charges
 
11.9

 
0.7
 %
 
12.7

 
0.8
 %
 
0.8

 
6.3
 %
Gain on sale of route businesses, net
 
(22.3
)
 
(1.3
)%
 
(9.4
)
 
(0.6
)%
 
12.9

 
137.2
 %
Other (income)/expense, net
 
(0.4
)
 
 %
 
1.0

 
0.1
 %
 
1.4

 
140.0
 %
Income before interest and income taxes
 
109.1

 
6.7
 %
 
70.4

 
4.3
 %
 
38.7

 
55.0
 %
Interest expense, net
 
9.5

 
0.5
 %
 
10.6

 
0.6
 %
 
1.1

 
10.4
 %
Income tax expense
 
40.1

 
2.5
 %
 
21.1

 
1.3
 %
 
(19.0
)
 
(90.0
)%
Net income
 
$
59.5

 
3.7
 %
 
$
38.7

 
2.4
 %
 
$
20.8

 
53.7
 %

Net Revenue
Net revenue by product category was as follows:
(in millions)
 
2012
 
2011
 
Favorable/
(Unfavorable)
Variance
Branded
 
$
955.5

 
59.0
%
 
$
943.2

 
57.7
%
 
$
12.3

 
1.3
 %
Partner brand
 
283.1

 
17.5
%
 
283.4

 
17.3
%
 
(0.3
)
 
(0.1
)%
Private brand
 
291.1

 
18.0
%
 
312.5

 
19.1
%
 
(21.4
)
 
(6.8
)%
Other
 
88.9

 
5.5
%
 
95.9

 
5.9
%
 
(7.0
)
 
(7.3
)%
Net revenue
 
$
1,618.6

 
100.0
%
 
$
1,635.0

 
100.0
%
 
$
(16.4
)
 
(1.0
)%
Net revenue for 2012 declined $16.4 million, or 1.0%, compared to 2011. The decline in revenue compared to the prior year, was driven primarily by lower revenue per unit sold as a result of the IBO conversion, as well as planned private brand volume declines. The declines were partially offset by additional revenue from acquired businesses during 2012 of approximately $29.5 million. Compared to 2011, net revenue from our branded products declined approximately 1.5% when excluding the impact of acquisitions. However, approximately 5.5% of the net revenue decline was a direct result of the IBO conversion.
Branded revenue increased approximately 3.9% when excluding the impact of Snack Factory and the conversion to an IBO-based DSD distribution network, due primarily to increased product distribution and the introduction of new products resulting in increased revenue and market share of all our Core brands, including double-digit growth in our Lance ® brands. The branded volume growth was partially offset by substantial net revenue declines in our Allied brands which were primarily related to replacement of Allied brands with Core brands in certain areas.
Partner brand net revenue was largely consistent with 2011.
Net revenue from private brand products declined $21.4 million, or 6.8%, from 2011 to 2012. Much of this decline was anticipated as we recognized that necessary price increases would not be accepted by all retailers. In addition, there was a decline in volume with certain large retailers, as the gap between private and branded pricing narrowed for a portion of the year, which resulted in additional net revenue declines when compared to the prior year.
Other revenue declined $7.0 million, or 7.3%, from 2011 to 2012 primarily because of decreased sales of certain semi-finished goods in 2012.
In 2012, approximately 66% of net revenue was generated through our DSD network as compared to 2011, where approximately 65% of net revenue was generated through our DSD network while the remaining revenue was generated through Direct distribution.
Gross Margin

17



Gross margin decreased $31.0 million during 2012 compared to 2011 and declined 1.6% as a percentage of net revenue. The overall decrease in gross margin and as a percentage of net revenue was driven by the IBO conversion, which accounted for a decline of approximately 3.3% as a percentage of net revenue. This decline was partially offset by price increases on certain products and improved manufacturing efficiencies. Gross margin for 2012 was also favorably impacted by acquisitions, which contributed approximately $13.3 million in additional gross margin. Costs that negatively impacted gross margin in 2012 included severance expense associated with the closure of our Cambridge, Ontario manufacturing facility and additional expenses due to the relocation of assets from our Corsicana, Texas facility to other manufacturing locations. In 2011, gross margin was favorably impacted by a $4.9 million adjustment to our vacation accrual due to a vacation policy change.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $54.6 million in 2012 compared to 2011 and decreased 3.1% as a percentage of net revenue. The decrease was primarily driven by reduced infrastructure costs and lower compensation and benefit expenses due to IBO conversion, as well as synergies recognized as a result of the Merger and integration activities. During 2012, we recognized severance charges and professional fees associated with the Merger and integration activities and costs associated with the acquisition of Snack Factory. In addition, we incurred incremental costs for the operations of Snack Factory and increased advertising expenses associated with new marketing campaigns.
In 2011, we adopted a new vacation plan, which reduced selling, general and administrative expenses by $5.0 million, but this was more than offset by $18.5 million in severance charges and professional fees associated with the Merger and integration activities.
Impairment Charges
Impairment charges decreased $0.8 million from 2011 to 2012. The $11.9 million of impairment expense in 2012 consisted primarily of a $7.6 million impairment of two of our trademarks and a $2.5 million impairment of machinery and equipment at our Cambridge, Ontario manufacturing facility. The impairment of trademarks was necessary as the Company continued to optimize its brand portfolio following the Merger and made the decision to replace a portion of the sales of these branded products with other, more recognizable, brands in our portfolio. The impairment of the machinery and equipment was recorded to write down the value of assets no longer used when the facility closed in May 2013. In order to determine the fair market value of this equipment, we reviewed market pricing for similar assets from external sources. The $12.7 million of impairment expense in 2011 consisted primarily of $10.1 million associated with our planned disposition of route trucks and $2.3 million in connection with the closure of our Corsicana, Texas manufacturing facility.
Gain on the Sale of Route Businesses, Net
During 2012, we recognized $22.3 million in gains on the sale of route businesses compared with gains of $9.4 million in 2011. The increase was due to increased activity associated with the IBO conversion in 2012 as compared to 2011.
Interest Expense, Net
Interest expense decreased $1.1 million during 2012 compared to 2011 as a result of lower outstanding long-term debt throughout the majority of the year. The additional debt used to fund the Snack Factory acquisition increased interest expense by $1.6 million in the last quarter of 2012.
Income Tax Expense
The effective income tax rate increased to 40.3% for 2012 from 35.3% for 2011. During 2011, the Company undertook a comprehensive restructuring of the legal entities within the Snyder’s-Lance consolidated group to align the legal entity structure with the Company’s business. As a result of this restructuring, our net deferred tax liability is expected to reverse at a state rate which is lower than the rate at which the liabilities were established. This resulted in a benefit recorded to our deferred state tax expense in 2011 that did not repeat in 2012.
In 2011 and 2012 the effective tax rate was higher than usual due to goodwill associated with the sale of route businesses which had no tax basis. 

18



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 acquisitions, working capital requirements, capital expenditures for fixed assets, purchases of route businesses, 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.
Prior to December of 2013, we permanently reinvested earnings from our Canadian subsidiary. As of December 28, 2013, $4.4 million of our cash and cash equivalents balance was held by our Canadian subsidiary.
Operating Cash Flows
Cash flow provided by operating activities increased $48.0 million in 2013 when compared to 2012. The increase was largely driven by an increase in cash generating net income, which excludes gains on both the sale of route businesses and fixed assets.
Investing Cash Flows
Cash used in investing activities totaled $64.9 million in 2013 compared with cash used in investing activities of $348.3 million in 2012. The significant reduction in cash used in investing activities was due to the acquisition of Snack Factory for $343.4 million in 2012.
Capital expenditures for fixed assets, principally manufacturing equipment, decreased from $80.3 million in 2012 to $74.6 million in 2013. Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs and are projected to be between $70 and $75 million in 2014. Approximately half of these expenditures are expected to support ongoing maintenance, with the remaining projects focused on adding capacity or providing production efficiencies.
Proceeds from the sale of route businesses, net of purchases, generated cash flows of $1.1 million in 2013, compared to net proceeds of $65.4 million in 2012. While we continued the purchase and sale of route businesses in 2013, these activities slowed substantially to a more normal level when compared to 2012 due to the completion of the IBO conversion.
Financing Cash Flows
Net cash used in financing activities of $71.0 million in 2013 was principally due to dividends paid of $44.4 million, as well as the continued debt repayment of $36.6 million. Cash provided by financing activities in 2012 was $243.8 million, principally due to proceeds from a $325 million term loan used to acquire Snack Factory, partially offset by dividends paid of $43.8 million and total repayments of debt of $47.3 million. During 2014, we plan to continue to utilize cash provided by operations to pay the current portion of long-term debt and reduce the balance on our revolving credit facilities.
On February 5, 2014, our Board of Directors declared a quarterly cash dividend of $0.16 per share payable on March 5, 2014 to stockholders of record on February 26, 2014.
Debt
Our existing credit agreement allows us to make revolving credit borrowings of up to $265 million through December 2015. As of December 28, 2013 , and December 29, 2012 , we had $85.0 million and $100.0 million outstanding under the revolving credit agreement, respectively.
Unused and available borrowings were $180 million under our existing credit facilities at December 28, 2013 , as compared to $165 million at December 29, 2012 . Under certain circumstances and subject to certain conditions, we have the option to increase available credit under the credit agreement by up to $100 million during the life of the facility. 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 $14.0 million as of December 28, 2013 .

19



The credit agreement requires us to comply with certain defined covenants, such as a maximum debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.25 , or 3.50 for four consecutive periods following a material acquisition, and a minimum interest coverage ratio of 2.50 . At December 28, 2013 , our debt to EBITDA ratio was 2.65 , and our interest coverage ratio was 9.22 . In addition, 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 December 28, 2013 , our consolidated stockholders’ equity was $917.9 million . We were in compliance with these covenants at December 28, 2013 . The private placement agreement for $100 million of senior notes assumed as part of the Merger and the $325 million term loan used to fund the acquisition of Snack Factory have provisions no more restrictive than the revolving credit agreement. Total interest expense under all credit agreements for 2013 , 2012 and 2011 was $14.7 million , $9.7 million and $10.7 million , respectively.
Contractual Obligations
We lease certain facilities and equipment classified as operating leases. We also have entered into agreements with suppliers for the purchase of certain ingredients, packaging materials and energy used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. These purchase commitments range in length from three to twelve months.
Contractual obligations as of December 28, 2013 were:  
(in thousands)
 
 
 
Payments Due by Period
 
 
Total    
 
2014
 
2015-2016
 
2017-2018
 
Thereafter
Purchase commitments
 
$
117,575

 
$
117,575

 
$

 
$

 
$

Debt, including interest payable  (1)
 
533,055

 
30,331

 
400,169

 
102,555

 

Operating lease obligations
 
59,973

 
17,979

 
25,427

 
13,024

 
3,543

Unrecognized tax benefits  (2)
 
13,370

 

 

 

 

Other noncurrent liabilities  (3)
 
21,285

 

 

 

 

Total contractual obligations
 
$
745,258

 
$
165,885

 
$
425,596

 
$
115,579

 
$
3,543

Footnotes:
(1)
Variable interest will be paid in future periods based on the outstanding balance at that time.
(2)
Unrecognized tax benefits relate to uncertain tax positions recorded under accounting guidance that we have adopted and include associated interest and penalties. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the "Payments Due by Period" section of the table.
(3)
Amounts represent future cash payments to satisfy other noncurrent liabilities recorded on our Consolidated Balance Sheets, including the short-term portion of these long-term liabilities. Included in noncurrent liabilities on our Consolidated Balance Sheets as of December 28, 2013 were $11.8 million in accrued insurance liabilities, $5.9 million in accrued incentives, and $3.6 million in other liabilities. As the specific payment dates for these liabilities is unknown, the related balances have not been reflected in the "Payments Due by Period" section of the table.
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.
We currently provide a partial guarantee for loans made to IBOs by third-party financial institutions for the purchase of route businesses. The outstanding aggregate balance on these loans was approximately $117.9 million as of December 28, 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 route businesses 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 significant.


20



Critical Accounting Estimates
Preparing the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We believe the following estimates and assumptions to be critical accounting estimates. These assumptions and estimates may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and may have a material impact on our financial condition or operating performance. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Our policy on revenue recognition varies based on the types of products sold and the distribution method. We recognize revenue when title and risk of loss passes to our customers. Allowances for sales returns, stale products, promotions and discounts are also recorded as reductions of revenue in the consolidated financial statements.
Revenue for products sold to IBOs in our DSD network is recognized when the IBO purchases the inventory from our warehouses. Revenue for products sold to retailers through routes operated by company associates is recognized when the product is delivered to the customer.
Revenue for products shipped directly to the customer from our warehouse is recognized based on the shipping terms listed on the shipping documentation. Products shipped with terms FOB-shipping point are recognized as revenue at the time the product leaves our warehouses. Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer.
We allow certain customers to return products under agreed upon circumstances. We record a returns allowance for damaged products and other products not sold by the expiration date on the product label. This allowance is estimated based on a percentage of historical sales returns and current market information.
We record certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as off-invoice allowances, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. We record the amount of the deduction as a reduction to revenue when the transaction occurs. Rebates are offered to retailers based on the quantity of product purchased over a period of time. Based on the nature of these allowances, the exact amount of the rebate is not known at the time the product is sold to the customer. An estimate of the expected rebate amount is recorded as a reduction to revenue at the time of the sale and a corresponding accrued liability is recorded. The accrued liability is monitored throughout the time period covered by the promotion, and is based on historical information and the progress of the customer against the target amount. We also record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue. The accrued liabilities for these allowances are monitored throughout the time period covered by the coupon or promotion.
Total allowances for sales returns, rebates, coupons, scan-backs and other promotional activities decreased from $26.5 million at the end of 2012 to $22.4 million at the end of 2013 due to the timing of promotional activities.
Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or up to a maximum of three years and recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis.
Allowance for Doubtful Accounts
The determination of the allowance for doubtful accounts is based on management’s estimate of uncollectible accounts receivable. We record a general reserve based on analysis of historical data and aging of accounts receivable. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. The assumptions for this determination are reviewed quarterly to ensure that business conditions or other circumstances are consistent with the assumptions. The allowance for doubtful accounts was $1.6 million and $2.2 million as of December 28, 2013 and December 29, 2012 , respectively. The decrease from 2012 to 2013 was primarily due to improved collection trends from our customers compared to the prior year.
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. The entire $5.0 million associated with these claims was recorded in pre-tax expenses during 2013. This specific stop-loss of $5.0 million for 2013 has decreased to $3.3 million for 2014. The accrual for incurred but not reported medical insurance claims was $4.4 million in both 2013 and 2012 .

21



We maintain self-insurance reserves for workers’ compensation and auto liability for individual losses up to the deductibles which are currently $350,000 per individual loss and $250,000 for auto physical damage per accident. In addition, certain general and product liability claims are self-funded for individual losses up to the $100,000 insurance deductible. Claims in excess of the deductible are fully insured up to $100 million per individual claim. We evaluate input from a third-party actuary in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, we use various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. In 2013, we used a discount rate of 2.0%, an increase from 1.5% used in 2012, based on projected investment returns over the estimated future payout period. A change in the discount rate by one percentage point would not materially impact this liability. We also use historical information for claims frequency and severity in order to establish loss development factors. For 2013 and 2012, we had accrued liabilities related to the retained risks of $10.1 million and $12.3 million, respectively, included in the accruals for casualty insurance claims in our Consolidated Balance Sheets.
In December 2010, we assumed a liability for workers’ compensation relating to claims that had originated prior to 1992 and been insured by a third-party insurance company. Due to the uncertainty of that insurer’s ability to continue paying claims, we entered into an agreement where we assumed the full liability of insurance claims under the pre-existing workers’ compensation policies. The net liability for these claims was $1.7 million and $2.2 million for 2013 and 2012 , respectively, and was included in the accruals for casualty insurance claims in our Consolidated Balance Sheets.
Impairment Analysis of Goodwill and Intangible Assets
The annual impairment analysis of goodwill and other indefinite-lived intangible assets requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital.
The impairment analysis of goodwill, as of December 28, 2013 , assumes combined average annual revenue growth of approximately 3.9% during the valuation period. This compares to a combined average annual revenue growth of approximately 4.4% in the calculation as of December 29, 2012 . These projections rely upon historical performance, anticipated market conditions and forward-looking business plans.
We use a combination of internal and external data to develop the weighted average cost of capital, which was 8.0% for both 2013 and 2012. Significant investments in fixed assets and working capital to support the assumed revenue growth are estimated and factored into the analysis. If the assumed revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with a significant amount of excess fair value over carrying value, major changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future.
Our trademarks are valued using the relief-from-royalty method under the income approach, which requires us to estimate a royalty rate, identify relevant projected revenue, and select an appropriate discount rate. In the second quarter of 2013, we incurred $1.9 million in impairment charges related to one of our trademarks. We incurred $7.6 million in impairment charges related to two of our trademarks during 2012. These impairments were necessary as the Company made a decision to replace future sales of associated products with a more recognizable brand. While our annual impairment testing did not result in any additional impairment in 2013, there continue to be certain trademarks, predominately those acquired through recent transactions, that 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.
Our route intangible assets are valued by comparing the current fair market value for the route assets to the associated book value. The fair market value is computed using the route sales average for each route multiplied by the market multiple for the area in which the route is located. No impairments were recognized in 2013 as a result of this analysis.
Other intangible assets, primarily customer and contractual relationships and patents, are tested for impairment if events or changes in circumstances indicate that it is more likely than not that fair value is less than book value. No event-driven impairment assessments were deemed necessary for 2013, 2012 or 2011.
Impairment of Fixed Assets
Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or asset groups to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During 2013 , there were no fixed asset impairment charges, compared to impairment charges of $4.3 million and $12.7 million during 2012 and 2011 , respectively. The majority of asset impairments recorded in 2012 were due to our decision to close our Cambridge, Ontario manufacturing facility in order to consolidate the operations of our two Canadian manufacturing facilities. During 2011, we recorded impairment charges primarily related to the

22



decisions to sell route trucks prior to the end of their useful lives, as well as close the Corsicana, Texas manufacturing facility. See Note 6 to the consolidated financial statements in Item 8 for additional information regarding these impairment charges.
Equity-Based Incentive Compensation Expense
Determining the fair value of share-based awards at the grant date requires judgment, including estimating the expected term, expected stock price volatility, risk-free interest rate and expected dividends. Judgment is required in estimating the amount of share-based awards that are expected to be forfeited before vesting. In addition, our long-term equity incentive plans require assumptions and projections of future operating results and financial metrics. Actual results may differ from these assumptions and projections, which could have a material impact on our financial results. Information regarding assumptions can be found in Note 1 to the consolidated financial statements in Item 8.
Provision for Income Taxes
Our effective tax rate is based on the level and mix of income of our separate legal entities, statutory tax rates, business credits available in the various jurisdictions in which we operate and permanent tax differences. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are established when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain. We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage.
New Accounting Standards
See Note 2 to the consolidated financial statements included in Item 8 for a summary of new accounting standards.
Item 7A.  Quantitative and Qualitative Disclosure About Market Risk
We are exposed to certain commodity, interest rate and foreign currency exchange rate risks as part of our ongoing business operations. We may use derivative financial instruments, where appropriate, to manage some of these risks related to interest and exchange rates. We do not use derivatives for trading purposes.
In order to mitigate the risks of volatility in commodity markets to which we are exposed, in the normal course of business, we enter into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels. Amounts committed under these forward purchase agreements are discussed in Note 13 to the consolidated financial statements.
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. See Note 11 to the consolidated financial statements in Item 8 for further information related to our interest rate swap agreements. While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.6 million lower without these swaps during 2013 . Including the effect of interest rate swap agreements, the weighted average interest rate was 2.72% and 2.70% , respectively, as of December 28, 2013 and December 29, 2012 . A 10% increase in variable interest rates would not have significantly impacted interest expense during 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 periodically enter into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts had maturities through March 2014. For 2013 and 2012 , foreign currency fluctuations, net of the effect of derivative forward contracts, favorably impacted pre-tax income by $0.6 million and $0.1 million, respectively.
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 years ended December 28, 2013 and December 29, 2012 , net bad debt expense was $1.8 million and $1.5 million , respectively. Allowances for doubtful accounts were $1.6 million at December 28, 2013 and $2.2 million at December 29, 2012 .

23




Item 8.  Financial Statements and Supplementary Data
SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Fiscal Years Ended December 28, 2013 December 29, 2012 and December 31, 2011
 
(in thousands, except per share data)
 
2013
 
2012
 
2011
Net revenue
 
$
1,761,049

 
$
1,618,634

 
$
1,635,036

Cost of sales
 
1,163,034

 
1,079,777

 
1,065,107

Gross margin
 
598,015

 
538,857

 
569,929

 
 
 
 
 
 
 
Selling, general and administrative
 
470,561

 
440,597

 
495,267

Impairment charges
 
1,900

 
11,862

 
12,704

Gain on sale of route businesses, net
 
(2,590
)
 
(22,335
)
 
(9,440
)
Other (income)/expense, net
 
(10,823
)
 
(407
)
 
993

Income before interest and income taxes
 
138,967

 
109,140

 
70,405

 
 
 
 
 
 
 
Interest expense, net
 
14,408

 
9,487

 
10,560

Income before income taxes
 
124,559

 
99,653

 
59,845

 
 
 
 
 
 
 
Income tax expense
 
45,475

 
40,143

 
21,104

Net income
 
79,084

 
59,510

 
38,741

Net income attributable to noncontrolling interests
 
364

 
425

 
483

Net income attributable to Snyder’s-Lance, Inc.
 
$
78,720

 
$
59,085

 
$
38,258

 
 
 
 
 
 
 
Basic earnings per share
 
$
1.13

 
$
0.86

 
$
0.57

Weighted average shares outstanding – basic
 
69,383

 
68,382

 
67,400

 
 
 
 
 
 
 
Diluted earnings per share
 
$
1.12

 
$
0.85

 
$
0.56

Weighted average shares outstanding – diluted
 
70,158

 
69,215

 
68,478

 
 
 
 
 
 
 
Cash dividends declared per share
 
$
0.64

 
$
0.64

 
$
0.64

See Notes to consolidated financial statements.



24


Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Fiscal Years Ended December 28, 2013 December 29, 2012 and December 31, 2011
 
(in thousands)
 
2013
 
2012
 
2011
Net income
 
$
79,084

 
$
59,510

 
$
38,741

 
 
 
 
 
 
 
Net unrealized gains/(losses) on derivative instruments, net of income tax
 
268

 
(372
)
 
382

Foreign currency translation adjustment
 
(5,215
)
 
1,771

 
(1,767
)
Total other comprehensive (loss)/income
 
(4,947
)
 
1,399

 
(1,385
)
 
 
 
 
 
 
 
Total comprehensive income
 
74,137

 
60,909

 
37,356

Comprehensive income attributable to noncontrolling interests, net of income tax of $261, $263 and $322
 
(364
)
 
(425
)
 
(483
)
Total comprehensive income attributable to Snyder’s-Lance, Inc.
 
$
73,773

 
$
60,484

 
$
36,873

See Notes to consolidated financial statements.



25


Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 28, 2013 and December 29, 2012  
(in thousands, except share data)
 
2013
 
2012
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
14,080

 
$
9,276

Accounts receivable, net of allowances of $1,579 and $2,159, respectively
 
144,988

 
141,862

Inventories
 
113,750

 
118,256

Prepaid income taxes
 
9,094

 

Deferred income taxes
 
15,391

 
11,625

Assets held for sale
 
15,314

 
11,038

Prepaid expenses and other current assets
 
23,649

 
28,676

Total current assets
 
336,266

 
320,733

 
 
 
 
 
Noncurrent assets:
 
 
 
 
Fixed assets, net
 
349,256

 
331,385

Goodwill
 
537,141

 
540,389

Other intangible assets, net
 
519,669

 
531,735

Other noncurrent assets
 
22,262

 
22,490

Total assets
 
$
1,764,594

 
$
1,746,732

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
17,291

 
$
20,462

Accounts payable
 
54,510

 
52,753

Accrued compensation
 
29,792

 
31,037

Accrued casualty insurance claims
 
6,262

 
4,779

Accrued selling and promotional costs
 
13,257

 
16,240

Income tax payable
 

 
1,263

Other payables and accrued liabilities
 
25,092

 
28,089

Total current liabilities
 
146,204

 
154,623

 
 
 
 
 
Noncurrent liabilities:
 
 
 
 
Long-term debt
 
480,082

 
514,587

Deferred income taxes
 
190,393

 
176,037

Accrued casualty insurance claims
 
5,567

 
9,759

Other noncurrent liabilities
 
24,448

 
19,551

Total liabilities
 
846,694

 
874,557

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Common stock, $0.83 1/3 par value. 110,000,000 and 75,000,000 shares authorized, respectively; 69,891,890 and 68,863,974 shares outstanding, respectively
 
58,241

 
57,384

Preferred stock, $1.00 par value. Authorized 5,000,000 shares; no shares outstanding
 

 

Additional paid-in capital
 
765,172

 
746,155

Retained earnings
 
85,146

 
50,847

Accumulated other comprehensive income
 
10,171

 
15,118

Total Snyder’s-Lance, Inc. stockholders’ equity
 
918,730

 
869,504

Noncontrolling interests
 
(830
)
 
2,671

Total stockholders’ equity
 
917,900

 
872,175

Total liabilities and stockholders’ equity
 
$
1,764,594

 
$
1,746,732


See Notes to consolidated financial statements.

26


Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the Fiscal Years Ended December 28, 2013 December 29, 2012 and December 31, 2011
 
(in thousands, except share and per share data)
 
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Non-controlling
Interests
 
Total
Balance, January 1, 2011
 
66,336,807

 
$
55,278

 
$
722,007

 
$
40,199

 
$
15,104

 
$
4,027

 
$
836,615

Total comprehensive income
 
 
 
 
 
 
 
38,258

 
(1,385
)
 
483

 
37,356

Acquisition of remaining interest in Melisi Snacks, Inc.
 
 
 
 
 
(1,157
)
 
 
 
 
 
(2,343
)
 
(3,500
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(281
)
 
(281
)
Dividends paid to stockholders ($0.64 per share)
 
 
 
 
 
 
 
(42,918
)
 
 
 
 
 
(42,918
)
Purchase price adjustments
 
 
 
 
 
 
 
 
 
 
 
594

 
594

Amortization of non-qualified stock options
 
 
 
 
 
1,372

 
 
 
 
 
 
 
1,372

Stock options exercised, including $49 tax benefit
 
1,295,589

 
1,080

 
7,111

 
 
 
 
 
 
 
8,191

Issuance and amortization of restricted stock, net of cancellations
 
188,402

 
157

 
1,005

 
 
 
 
 
 
 
1,162

Balance, December 31, 2011
 
67,820,798

 
$
56,515

 
$
730,338

 
$
35,539

 
$
13,719

 
$
2,480

 
$
838,591

Total comprehensive income
 
 
 
 
 
 
 
59,085

 
1,399

 
425

 
60,909

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(234
)
 
(234
)
Dividends paid to stockholders ($0.64 per share)
 
 
 
 
 
 
 
(43,777
)
 
 
 
 
 
(43,777
)
Amortization of non-qualified stock options
 
 
 
 
 
2,132

 
 
 
 
 
 
 
2,132

Stock options exercised, including $2,618 tax benefit
 
908,751

 
757

 
11,571

 
 
 
 
 
 
 
12,328

Issuance and amortization of restricted stock, net of cancellations
 
149,291

 
124

 
2,437

 
 
 
 
 
 
 
2,561

Repurchases of common stock
 
(14,866
)
 
(12
)
 
(323
)
 
 
 
 
 
 
 
(335
)
Balance, December 29, 2012
 
68,863,974

 
$
57,384

 
$
746,155

 
$
50,847

 
$
15,118

 
$
2,671

 
$
872,175

Total comprehensive income
 
 
 
 
 
 
 
78,720

 
(4,947
)
 
364

 
74,137

Acquisition of remaining interest in Michaud Distributors
 
342,212

 
285

 
3,109

 
 
 
 
 
(3,394
)
 

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(471
)
 
(471
)
Dividends paid to stockholders ($0.64 per share)
 
 
 
 
 
 
 
(44,421
)
 
 
 
 
 
(44,421
)
Amortization of non-qualified stock options
 
 
 
 
 
2,444

 
 
 
 
 
 
 
2,444

Stock options exercised, including $1,500 tax benefit
 
601,672

 
501

 
10,775

 
 
 
 
 
 
 
11,276

Issuance and amortization of restricted stock, net of cancellations
 
113,824

 
96

 
3,434

 
 
 
 
 
 
 
3,530

Repurchases of common stock
 
(29,792
)
 
(25
)
 
(745
)
 
 
 
 
 
 
 
(770
)
Balance, December 28, 2013
 
69,891,890

 
$
58,241

 
$
765,172

 
$
85,146

 
$
10,171

 
$
(830
)
 
$
917,900

See Notes to consolidated financial statements.

27


Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Fiscal Years Ended December 28, 2013 December 29, 2012 and December 31, 2011
(in thousands)
 
2013
 
2012
 
2011
Operating activities:
 
 
 
 
 
 
Net income
 
$
79,084

 
$
59,510

 
$
38,741

Adjustments to reconcile net income to cash from operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
59,631

 
53,764

 
55,337

Stock-based compensation expense
 
5,944

 
4,693

 
2,535

(Gain)/loss on sale of fixed assets, net
 
(2,640
)
 
597

 
1,851

Gain on sale of route businesses
 
(2,590
)
 
(22,335
)
 
(9,440
)
Impairment charges
 
1,900

 
11,862

 
12,704

Change in vacation plan
 

 

 
(9,916
)
Deferred income taxes
 
10,360

 
(15,279
)
 
6,026

Provision for doubtful accounts
 
1,828

 
1,479

 
402

Changes in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments:
 
 
 
 
 
 
Accounts receivable
 
(5,266
)
 
9,869

 
(15,773
)
Inventory
 
4,461

 
(2,598
)
 
(8,680
)
Other current assets
 
(3,083
)
 
19,496

 
17,022

Accounts payable
 
1,893

 
(5,393
)
 
11,665

Other accrued liabilities
 
(6,960
)
 
(18,539
)
 
12,585

Other noncurrent assets
 
1,830

 
(103
)
 
(2,882
)
Other noncurrent liabilities
 
(5,656
)
 
(4,255
)
 
(649
)
Net cash provided by operating activities
 
140,736

 
92,768

 
111,528

 
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
 
Purchases of fixed assets
 
(74,579
)
 
(80,304
)
 
(57,726
)
Purchases of route businesses
 
(29,692
)
 
(28,523
)
 
(31,418
)
Proceeds from sale of fixed assets
 
9,448

 
9,324

 
4,351

Proceeds from sale of route businesses
 
30,745

 
93,896

 
42,294

Proceeds from sale of investments
 
2,298

 
1,444

 
960

Proceeds from federal grant for solar farm
 

 

 
4,212

Business acquisitions, net of cash acquired
 
(3,131
)
 
(344,181
)
 
(15,394
)
Net cash used in investing activities
 
(64,911
)
 
(348,344
)
 
(52,721
)
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
Dividends paid to stockholders
 
(44,421
)
 
(43,777
)
 
(42,918
)
Dividends paid to noncontrolling interests
 
(471
)
 
(234
)
 
(281
)
Acquisition of remaining interest in Melisi Snacks, Inc.
 

 

 
(3,500
)
Debt issuance costs
 

 
(2,028
)
 

Issuances of common stock
 
9,776

 
9,710

 
8,142

Excess tax benefits from stock-based compensation
 
1,500

 
2,618

 
49

Repurchases of common stock
 
(770
)
 
(335
)
 

Repayments of long-term debt
 
(20,508
)
 
(2,476
)
 
(62,309
)
Proceeds from long-term debt
 

 
325,211

 

Net (repayments)/proceeds from existing credit facilities
 
(16,127
)
 
(44,841
)
 
35,098

Net cash (used in)/provided by financing activities
 
(71,021
)
 
243,848

 
(65,719
)
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
 

 
163

 
(124
)
 
 
 
 
 
 
 
Increase/(decrease) in cash and cash equivalents
 
4,804

 
(11,565
)
 
(7,036
)
Cash and cash equivalents at beginning of fiscal year