Snyder's-Lance, Inc.
SNYDER'S-LANCE, INC. (Form: 10-Q, Received: 11/05/2014 15:24:51)
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 27, 2014
Commission File Number 0-398
SNYDER’S-LANCE, INC.
(Exact name of registrant as specified in its charter)
 
North Carolina
(State or other jurisdiction of
incorporation or organization)
  
56-0292920
(I.R.S. Employer Identification No.)
 
13024 Ballantyne Corporate Place
Suite 900
Charlotte, North Carolina
  
28277
(Address of principal executive offices)
  
(Zip Code)
704-554-1421
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ         No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ         No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer  þ
Accelerated filer 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 Exchange Act).
Yes ¨         No þ

The number of shares outstanding of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock, as of October 27, 2014 , was 70,271,392 shares.



Table of Contents

SNYDER'S-LANCE, INC. AND SUBSIDIARIES

INDEX


  
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

SNYDER'S-LANCE, INC. AND SUBSIDIARIES

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This document includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, the risks and uncertainties set forth in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 28, 2013 , and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Caution should be taken not to place undue reliance on our forward-looking statements, which reflect our management’s expectations only as of the time such statements are made. Except as required by law, we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.



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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Quarters and Nine Months Ended September 27, 2014 and  September 28, 2013

 
 
Quarter Ended
 
Nine Months Ended
(in thousands, except per share data)
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Net revenue
 
$
409,308

 
$
385,242

 
$
1,181,920

 
$
1,122,272

Cost of sales
 
266,088

 
243,767

 
760,625

 
714,005

Gross margin
 
143,220

 
141,475

 
421,295

 
408,267

 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
116,659

 
115,945

 
354,035

 
339,356

Impairment charges
 

 

 
7,503

 
1,900

Loss/(gain) on sale of route businesses, net
 
22

 
(465
)
 
(1,438
)
 
(2,057
)
Other expense/(income), net
 
61

 
(4,541
)
 
642

 
(7,158
)
Income before interest and income taxes
 
26,478

 
30,536

 
60,553

 
76,226

 
 
 
 
 
 
 
 
 
Interest expense, net
 
2,984

 
3,742

 
10,485

 
10,702

Income before income taxes
 
23,494

 
26,794

 
50,068

 
65,524

 
 
 
 
 
 
 
 
 
Income tax expense
 
9,809

 
10,174

 
17,719

 
25,184

Income from continuing operations
 
13,685

 
16,620

 
32,349

 
40,340

Discontinued operations, net of income tax (Note 3)
 
124,097

 
6,492

 
133,942

 
15,710

Net income
 
137,782

 
23,112

 
166,291

 
56,050

Net income attributable to noncontrolling interests
 
16

 
213

 
32

 
329

Net income attributable to Snyder’s-Lance, Inc.
 
$
137,766

 
$
22,899

 
$
166,259

 
$
55,721

 
 
 
 
 
 
 
 
 
Amounts attributable to Snyder's-Lance, Inc.:
 
 
 
 
 
 
 
 
Continuing operations
 
$
13,669

 
$
16,407

 
$
32,317

 
$
40,011

Discontinued operations
 
124,097

 
6,492

 
133,942

 
15,710

Net income
 
$
137,766

 
$
22,899

 
$
166,259

 
$
55,721

 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.19

 
$
0.24

 
$
0.46

 
$
0.58

Discontinued operations
 
1.77

 
0.09

 
1.91

 
0.22

Net income
 
$
1.96

 
$
0.33

 
$
2.37

 
$
0.80

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - Basic
 
70,266

 
69,459

 
70,142

 
69,243

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.19

 
$
0.24

 
$
0.46

 
$
0.58

Discontinued operations
 
1.75

 
0.09

 
1.89

 
0.22

Net income
 
$
1.94

 
$
0.33

 
$
2.35

 
$
0.80

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - Diluted
 
71,001

 
70,294

 
70,869

 
70,013

 
 
 
 
 
 
 
 
 
Cash dividends declared per share
 
$
0.16

 
$
0.16

 
$
0.48

 
$
0.48

See Notes to the condensed consolidated financial statements (unaudited).


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Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
For the Quarters and Nine Months Ended September 27, 2014 and  September 28, 2013
 
 
 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Net income
 
$
137,782

 
$
23,112

 
$
166,291

 
$
56,050

 
 
 
 
 
 
 
 
 
Net unrealized gains on derivative instruments, net of income tax
 
91

 
247

 
218

 
229

Foreign currency translation adjustment
 
(11,706
)
 
1,432

 
(11,345
)
 
(2,473
)
Total other comprehensive (loss)/income
 
(11,615
)
 
1,679

 
(11,127
)
 
(2,244
)
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
126,167

 
24,791

 
155,164

 
53,806

Comprehensive income attributable to noncontrolling interests
 
(16
)
 
(213
)
 
(32
)
 
(329
)
Total comprehensive income attributable to Snyder’s-Lance, Inc.
 
$
126,151

 
$
24,578

 
$
155,132

 
$
53,477

See Notes to condensed consolidated financial statements (unaudited).



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Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
As of September 27, 2014 and December 28, 2013

(in thousands, except share data)
 
September 27,
2014
 
December 28,
2013
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
113,244

 
$
14,080

Accounts receivable, net of allowances of $1,718 and $1,535, respectively
 
133,567

 
121,599

Inventories
 
123,807

 
100,447

Prepaid income taxes
 

 
9,094

Deferred income taxes
 
15,056

 
15,391

Assets held for sale
 
13,179

 
15,314

Prepaid expenses and other current assets
 
19,445

 
22,925

Current assets of discontinued operations (Note 3)
 

 
37,416

Total current assets
 
418,298

 
336,266

 
 
 
 
 
Noncurrent assets:
 
 
 
 
Fixed assets, net
 
421,896

 
312,527

Goodwill
 
484,387

 
422,318

Other intangible assets, net
 
508,661

 
516,607

Other noncurrent assets
 
19,727

 
22,250

Noncurrrent assets of discontinued operations (Note 3)
 

 
154,626

Total assets
 
$
1,852,969

 
$
1,764,594

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
8,561

 
$
17,291

Accounts payable
 
56,826

 
45,966

Accrued compensation
 
28,064

 
27,530

Accrued casualty insurance claims
 
4,443

 
6,262

Accrued selling and promotional costs
 
18,172

 
12,636

Income tax payable
 
29,544

 

Other payables and accrued liabilities
 
23,641

 
22,016

Current liabilities of discontinued operations (Note 3)
 

 
14,503

Total current liabilities
 
169,251

 
146,204

 
 
 
 
 
Noncurrent liabilities:
 
 
 
 
Long-term debt
 
442,406

 
480,082

Deferred income taxes
 
163,563

 
190,393

Accrued casualty insurance claims
 
7,715

 
5,567

Other noncurrent liabilities
 
21,559

 
24,143

Noncurrent liabilities of discontinued operations (Note 3)
 

 
305

Total liabilities
 
804,494

 
846,694

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Common stock, $0.83 1/3 par value. Authorized 110,000,000 shares; 70,269,682 and 69,891,890 shares outstanding, respectively
 
58,556

 
58,241

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

 

Additional paid-in capital
 
773,934

 
765,172

Retained earnings
 
217,739

 
85,146

Accumulated other comprehensive (loss)/income
 
(956
)
 
10,171

Total Snyder’s-Lance, Inc. stockholders’ equity
 
1,049,273

 
918,730

Noncontrolling interests
 
(798
)
 
(830
)
Total stockholders’ equity
 
1,048,475

 
917,900

Total liabilities and stockholders’ equity
 
$
1,852,969

 
$
1,764,594

See Notes to the condensed consolidated financial statements (unaudited).

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Table of Contents

SNYDER’S-LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 27, 2014 and  September 28, 2013

 
 
Nine Months Ended
(in thousands)
 
September 27,
2014
 
September 28,
2013
Operating activities:
 
 
 
 
Net income
 
$
166,291

 
$
56,050

Adjustments to reconcile net income to cash from operating activities:
 
 
 
 
Depreciation and amortization
 
46,084

 
44,805

Stock-based compensation expense
 
4,962

 
4,397

Loss/(gain) on sale of fixed assets, net
 
827

 
(1,022
)
Gain on sale of route businesses
 
(1,438
)
 
(2,057
)
Gain on sale of Private Brands, excluding transaction costs
 
(229,322
)
 

Impairment charges
 
7,503

 
1,900

Deferred income taxes
 
(26,899
)
 
8,962

Provision for doubtful accounts
 
1,413

 
1,812

Changes in operating assets and liabilities, excluding business acquisition and disposal
 
29,163

 
(40,374
)
Net cash (used in)/provided by operating activities
 
(1,416
)
 
74,473

 
 
 
 
 
Investing activities:
 
 
 
 
Purchases of fixed assets
 
(52,990
)
 
(55,874
)
Purchases of route businesses
 
(19,102
)
 
(26,798
)
Proceeds from sale of fixed assets
 
1,843

 
4,552

Proceeds from sale of route businesses
 
21,072

 
25,004

Proceeds from sale of investments
 

 
921

Proceeds from sale of Private Brands
 
430,017

 

Business acquisition, net of cash acquired
 
(202,230
)
 
(1,513
)
Net cash provided by/(used in) investing activities
 
178,610

 
(53,708
)
 
 
 
 
 
Financing activities:
 
 
 
 
Dividends paid to stockholders
 
(33,666
)
 
(33,243
)
Dividends paid to noncontrolling interests
 

 
(232
)
Debt issuance costs
 
(1,854
)
 

Issuances of common stock
 
5,442

 
10,514

Repurchases of common stock
 
(1,328
)
 
(709
)
Repayments of long-term debt
 
(11,624
)
 
(16,279
)
Net (repayments)/proceeds from existing credit facilities
 
(35,000
)
 
26,805

Net cash used in financing activities
 
(78,030
)
 
(13,144
)
 
 
 
 
 
Effect of exchange rate changes on cash
 

 
(195
)
 
 
 
 
 
Increase in cash and cash equivalents
 
99,164

 
7,426

Cash and cash equivalents at beginning of period
 
14,080

 
9,276

Cash and cash equivalents at end of period
 
$
113,244

 
$
16,702

 
 
 
 
 
Supplemental information:
 
 
 
 
Cash paid for income taxes, net of refunds of $192 and $36, respectively
 
$
113,246

 
$
29,056

Cash paid for interest
 
$
8,976

 
$
9,806

See Notes to the condensed consolidated financial statements (unaudited).


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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)


NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Snyder’s-Lance, Inc. (the Company ) have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in our Form 10-K for the year ended December 28, 2013 , filed with the Securities and Exchange Commission on February 25, 2014. The year-end condensed consolidated financial statement data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In our opinion, these condensed consolidated financial statements reflect all adjustments necessary to present fairly our condensed consolidated financial statements for the interim periods presented herein. The consolidated results of operations for the quarter and nine months ended September 27, 2014 , are not necessarily indicative of the results to be expected for the full year.

The preparation of these financial statements requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. We routinely evaluate our estimates, including those related to sales and promotional allowances, customer returns, allowances for doubtful accounts, inventory valuations, useful lives of fixed assets and related impairment, long-term investments, hedge transactions, goodwill and intangible asset valuations and impairments, incentive compensation, income taxes, self-insurance, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Our significant accounting policies are summarized in Note 1 to the consolidated financial statements included in our Form 10-K for the year ended December 28, 2013. An update to these accounting policies is below.

Route Intangible Purchase and Sale Transactions
We purchase and sell route businesses as a normal part of maintenance of our Direct-Store-Delivery ("DSD") network. Our route territories subject to purchase and sale transactions represent integrated sets of inputs, activities and processes that are capable of being conducted and managed for the purpose of providing a return directly to the Independent Business Owner ("IBO") and meet the definition of a business in accordance with FASB ASC 805, Business Combinations . Upon acquisition of a route business, we allocate the purchase price based on the fair value of the indefinite-lived route intangible, representing our perpetual and exclusive distribution right in the route territory, with any excess purchase price attributed to goodwill. We recognize a gain or a loss on the sale of a route business upon completion of the sales transaction and signing of the relevant documents. We recognize a gain or loss on the sale by comparing the basis of the route business sold, which includes a relative fair value allocation of goodwill in accordance with ASC 350, Intangibles-Goodwill and Other , to the proceeds received from the IBO.

Discontinued Operations Presentation
As discussed in Note 3 , amounts included in the Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets for prior periods have been reclassified to separate amounts related to discontinued operations from continuing operations. Current year balances also separately present amounts associated with discontinued operations. Accordingly, unless otherwise stated, amounts disclosed within the notes to the condensed consolidated financial statements exclude amounts related to discontinued operations.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 2. NEW ACCOUNTING STANDARDS
In March 2013, the FASB issued Accounting Standards Update No. 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This accounting standard clarifies the application of GAAP for the release of cumulative translation adjustments related to changes of ownership in or within foreign entities, including step acquisitions. This new guidance became effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. This standard has been properly applied in our condensed consolidated financial statements.
On April 10, 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this accounting standard raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This accounting standard update is effective for annual periods beginning on or after December 15, 2014, and related interim periods with early adoption allowed. We are currently evaluating the impact of this standard and plan to adopt this standard on its stated effective date in fiscal year 2015.
On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This accounting standard creates common revenue recognition guidance for U.S. GAAP and IFRS. The guidance also requires improved disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. This accounting standard update is effective for annual reporting periods beginning after December 15, 2016, and related interim periods. Early adoption is not permitted. We are currently evaluating the impact of this standard.
NOTE 3 . DISCONTINUED OPERATIONS
On May 6, 2014, we entered into a definitive agreement to sell two of our subsidiaries, S-L Snacks IA, LLC and S-L Snacks Private Brands, LLC, as well as certain assets of our Canadian subsidiary, Tamming Foods Ltd., which included the exclusive rights to manufacture and sell the majority of our private brand products and certain contract manufactured products (“Private Brands”) to Shearer’s Foods, LLC (“Shearer’s”). The manufacturing facilities included in the sale were located in Burlington, Iowa and Guelph, Ontario. On June 30, 2014 , we completed the sale of Private Brands for $430 million in cash with after-tax proceeds of approximately $303 million .
Beginning in the second quarter of 2014, revenues and expenses that no longer continued after the sale of Private Brands, and where we had no substantial continuing involvement, were reclassified to discontinued operations in the Condensed Consolidated Statements of Income. All prior period results were retrospectively adjusted to ensure comparability and consistent presentation of continuing and discontinued operations.
For the quarter and nine months ended September 27, 2014 and September 28, 2013 , income statement amounts associated with discontinued operations were as follows:

 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Net revenue
 
$

 
$
67,781

 
$
124,256

 
$
188,374

Cost of sales
 

 
51,662

 
94,396

 
148,281

Gross margin
 

 
16,119

 
29,860

 
40,093

Selling, general and administrative
 

 
6,165

 
11,886

 
17,254

Gain on sale of Private Brands
 
(222,963
)
 

 
(222,963
)
 

Other (income)/expense, net
 

 
(558
)
 
205

 
(1,445
)
Discontinued operations before income taxes
 
$
222,963

 
$
10,512

 
$
240,732

 
$
24,284

Income tax expense
 
98,866

 
4,020

 
106,790

 
8,574

Discontinued operations, net of income tax
 
$
124,097

 
$
6,492

 
$
133,942

 
$
15,710



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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

We recorded a pretax gain in discontinued operations of approximately $223 million on the sale of Private Brands as follows:
(in thousands)
 
Total
Cash proceeds
 
$
430,017

 
 
 
Less carrying value of net assets transferred:
 
 
Transaction related expenses
 
6,359

Total current assets
 
40,219

Fixed assets, net
 
39,123

Goodwill (1)
 
141,404

Other intangible assets, net
 
2,938

Total Liabilities
 
(11,883
)
Derecognition of cumulative translation adjustment (2)
 
(11,106
)
Gain on sale of Private Brands
 
$
222,963

(1)
The component of goodwill included in the carrying amount of net assets transferred was based on the fair value of Private Brands relative to the fair value of the remaining business in accordance with ASC 350, Intangibles - Goodwill and Other.

(2)
The majority of our cumulative translation adjustment was derecognized as a result of the sale of Private Brands due to the sale of substantially all of the assets and liabilities of our Canadian subsidiary. We have no remaining operations in Canada and plan to liquidate the legal entity following the payment of outstanding tax liabilities associated with the gain on the sale.
Income tax expense recognized on the sale of domestic operations in the third quarter of 2014 was approximately $86 million .  The total effective tax rate on discontinued operations is higher than the statutory rate of 35% primarily due to the disposal of goodwill allocated to discontinued operations which has no tax basis and for which no deferred tax liability was recorded.
In the quarter ended June 28, 2014, we recorded additional deferred tax liabilities related to historic earnings of our Canadian subsidiary. Income tax on discontinued operations for the nine months ended September 27, 2014 included $1.3 million of discrete expense related to the reversal of the indefinite reinvestment assertion. The total tax expense associated with the sale of the Canadian assets, including amounts recorded in the second quarter of 2014, was approximately $15 million .
Beginning in the second quarter of 2014, the assets and liabilities of the Private Brands disposal group were considered held-for-sale and presented as discontinued operations in the Company's Condensed Consolidated Balance Sheets as the Company did not have any continuing involvement with the assets included in the disposal group. All prior period results of the Private Brands disposal group have been retrospectively adjusted as discontinued operations. This transaction was treated as an asset sale for tax purposes in both the United States and Canada. Therefore, deferred tax assets and liabilities were not included in the carrying amount of the assets and liabilities held for sale because they were not transferred to the buyer and are not a part of the disposal group.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The major classes of assets reclassified to discontinued operations included in the Company's Condensed Consolidated Balance Sheets were as follows:
(in thousands)
 
September 27,
2014
 
December 28,
2013
 Accounts receivable, net
 
$

 
$
23,389

 Inventories
 

 
13,303

 Prepaid expenses and other current assets
 

 
724

Total current assets of discontinued operations
 

 
37,416

 Fixed assets, net
 

 
36,729

 Goodwill
 

 
114,823

 Other intangible assets, net
 

 
3,062

 Other noncurrent assets
 

 
12

Total noncurrent assets of discontinued operations
 

 
154,626

Total assets of discontinued operations
 
$

 
$
192,042


 

 

 Accounts payable
 
$

 
$
8,544

 Accrued compensation
 

 
2,262

 Accrued selling and promotional costs
 

 
621

 Other payables and accrued liabilities
 

 
3,076

Total current liabilities of discontinued operations
 

 
14,503

 Other noncurrent liabilities
 

 
305

Total noncurrent liabilities of discontinued operations
 

 
305

Total liabilities of discontinued operations
 
$

 
$
14,808


As the sale of Private Brands was completed during the third quarter of 2014, there were no remaining assets or liabilities associated with discontinued operations as of September 27, 2014.
In connection with the sale of Private Brands, we entered into a Manufacturing and Supply Agreement ("Supply Agreement") to contract manufacture certain products as requested by Shearer's for an initial term of two years subsequent to the sale transaction for which we expect to realize revenue and incur expenses from the products sold to Shearer's. Under this agreement, certain manufacturing facilities that were not included in the disposal group will continue to produce certain products for Shearer’s. Accordingly, previous revenues earned for the production and sale of these products were not included in discontinued operations given the continued involvement and length of the Supply Agreement. Additionally, the Company entered into a transition services agreement ("TSA") effective on the first day of the third quarter to provide certain finance, accounting, information technology, supply chain, and other general services to facilitate the orderly transfer of the business operations to Shearer's. The impact to income associated with the TSA has not been material and work associated with the TSA is expected to be completed in the fourth quarter of 2014.
NOTE 4 . BUSINESS ACQUISITIONS
On June 13, 2014 , we completed the acquisition of Baptista's Bakery, Inc. ("Baptista's") and related assets for approximately  $204 million , subject to capital expenditure, working capital and other customary adjustments. Baptista’s is an industry leader in snack food development and innovation, the manufacturer of our fast growing Snack Factory ®  Pretzel Crisps ®  brand and has unique capabilities consistent with our innovation plans.


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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the preliminary allocation among the assets acquired and liabilities assumed. We are working to assess the fair value of the assets and liabilities acquired and we plan to complete the purchase price allocation in the fourth quarter of 2014. Accordingly, the allocation of values to assets and liabilities represents management's best estimate at this time.

(in thousands)
 
Preliminary Purchase Price Allocation
Cash and cash equivalents
 
$
2,028

Accounts receivable
 
8,324

Inventories
 
9,222

Prepaid expenses and other current assets
 
385

Fixed assets
 
102,176

Goodwill
 
88,712

Other intangible assets
 
3,600

Total assets acquired
 
$
214,447


 

Current portion of long-term debt
 
$
333

Accounts payable
 
6,748

Accrued compensation
 
1,227

Other payables and accrued liabilities
 
1,217

Long-term debt
 
667

Total liabilities assumed
 
$
10,192


 


Net assets acquired
 
$
204,255

Of the $3.6 million of acquired intangible assets, $2.7 million was assigned to developed technology, $0.6 million to a non-compete agreement and $0.3 million to customer relationships. The fair value of all assets acquired is deductible for income tax purposes. We incurred pre-tax acquisition-related transaction and other costs of $0.5 million in selling, general and administrative expense in the second quarter of 2014.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is attributable to the general reputation, assembled workforce, acquisition synergies and the expected future cash flows of the business.
Adjustments have been made to our preliminary purchase price allocation that was presented in our filing on Form 10-Q in the second quarter of 2014. The adjustments to our preliminary valuation primarily consisted of a $6.4 million increase in goodwill and a $5.1 million decrease in fixed assets. These adjustments did not result in material changes to our Condensed Consolidated Statements of Income or our Condensed Consolidated Balance Sheets presented in our previous filing.
Baptista's results were included in our Condensed Consolidated Statements of Income beginning June 13, 2014. The majority of Baptista's net revenue is internal and therefore eliminated in consolidation. In addition, profit margins on this internal net revenue are deferred and not realized until the products are sold to third party customers. External net revenue from Baptista’s of $19.8 million and $22.1 million was included for the quarter and nine months ended September 27, 2014 , respectively. Baptista’s contributions to income before income taxes for the quarter and nine months ended September 27, 2014 were $1.7 million and $1.3 million , respectively.
On October 25, 2013, we acquired the remaining 20% of Michaud Distributors ( Michaud ) and now own all of the outstanding equity. We exchanged 342,212 newly issued unregistered shares of our common stock, approximately $10.2 million in equity consideration, for the remaining 20% equity in Michaud.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

On July 29, 2013, we acquired substantially all the assets of a snack food distributor in Massachusetts. Additionally, on November 5, 2013, we acquired substantially all the assets of a snack food distributor in Connecticut. These acquisitions were part of our plans to continue growing and strengthening our DSD network.
NOTE 5. MARGIN IMPROVEMENT AND RESTRUCTURING PLAN
On June 27, 2014, we initiated a margin improvement and restructuring plan (the "Restructuring Plan") to reduce overhead costs that remained after the sale of Private Brands (See Note 3 ) and established an initial liability of $3.1 million . The Restructuring Plan includes a combination of operational initiatives and headcount reductions. Severance expenses of $2.8 million were recognized in selling, general and administrative and $0.8 million were recognized in cost of sales during the nine months ended September 27, 2014 in conjunction with the Restructuring Plan. The remaining liability of $2.1 million was included in accrued compensation on the Condensed Consolidated Balance Sheets as of September 27, 2014 . The changes in the liability associated with the Restructuring Plan for the quarter ended September 27, 2014 , were as follows:
(in thousands)
 
Amount
Balance as of June 28, 2014
 
$
3,059

Additional expense incurred
 
512

Payments made
 
(1,519
)
Balance as of September 27, 2014
 
$
2,052

We plan to complete activities associated with the Restructuring Plan by the end of the second quarter of 2015.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share from continuing and discontinued operations is computed by dividing net income from continuing and discontinued operations attributable to Snyder’s-Lance, Inc., respectively, by the weighted average number of shares outstanding during each period. Diluted earnings per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. In the calculation of diluted earnings per share, the denominator includes the number of additional common shares that would have been outstanding if our outstanding dilutive stock options had been exercised, as determined pursuant to the treasury stock method.
For the quarters and nine months ended September 27, 2014 and September 28, 2013 , no shares were excluded from the calculation of diluted earnings per share.
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense recorded in the Condensed Consolidated Statements of Income was $2.0 million and $1.5 million for the quarters ended September 27, 2014 and  September 28, 2013 , respectively. Stock-based compensation expense was $5.0 million and $4.3 million for the nine months ended September 27, 2014 and  September 28, 2013 , respectively. During the nine months ended September 27, 2014 , we issued 418,272 non-qualified stock options at a weighted average exercise price of $26.66 per share and 149,490 restricted shares to employees and directors. During the nine months ended September 28, 2013 , we issued 442,493 non-qualified stock options at a weighted average exercise price of $25.61 per share and 151,737 restricted shares to employees and directors.
During the quarter ended September 27, 2014 , we repurchased 6,220 shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of restricted stock. No shares were repurchased during the quarter ended September 28, 2013 . During the nine months ended September 27, 2014 and September 28, 2013 , we repurchased 49,607 and 27,755 shares, respectively.
In addition, we recorded $1.3 million and $1.2 million in incentive compensation expense for a performance-based cash incentive plan for the nine months ended September 27, 2014 and September 28, 2013 , respectively.

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 8. INVENTORIES
Inventories as of September 27, 2014 and December 28, 2013 , consisted of the following:
(in thousands)
 
September 27,
2014
 
December 28,
2013
Finished goods
 
$
76,726

 
$
64,616

Raw materials
 
16,297

 
12,532

Maintenance parts, packaging and supplies
 
30,784

 
23,299

Total inventories
 
$
123,807

 
$
100,447

NOTE 9. FIXED ASSETS
Fixed assets as of September 27, 2014 and December 28, 2013 , consisted of the following:
(in thousands)
 
September 27,
2014
 
December 28,
2013
Land and land improvements
 
$
27,771

 
$
25,544

Buildings and building improvements
 
146,720

 
129,427

Machinery, equipment and computer systems
 
459,019

 
361,481

Trucks, trailers and automobiles
 
33,785

 
30,629

Furniture and fixtures
 
11,717

 
11,971

Construction in progress
 
27,296

 
21,745

 
 
$
706,308

 
$
580,797

Accumulated depreciation
 
(284,103
)
 
(265,342
)
 
 
422,205

 
315,455

Fixed assets held for sale
 
(309
)
 
(2,928
)
Fixed assets, net
 
$
421,896

 
$
312,527

The increase in the value of our fixed assets is primarily attributable to the acquisition of Baptista's.
Depreciation expense was $13.9 million for the quarter ended September 27, 2014 with none attributed to discontinued operations. This compared to depreciation expense of $12.8 million during the quarter ended September 28, 2013 with $1.5 million attributed to discontinued operations. For the nine months ended September 27, 2014 and September 28, 2013 , depreciation expense was $38.8 million and $37.6 million , respectively, with $2.8 million and $4.5 million attributed to discontinued operations, respectively. There were no fixed asset impairment charges recorded during the third quarter of 2014. There were $3.9 million in fixed asset impairment charges recorded during the first nine months of 2014 . Fixed asset impairment charges of $2.9 million were recorded in the second quarter of 2014 primarily to write off certain machinery and equipment where expected future cash flows were not expected to support the carrying value due to the sale of Private Brands. These assets were not part of the sale transaction, so the impairment was included in continuing operations. The remaining $1.0 million impairment charge was incurred in the first quarter of 2014 and related to our former Corsicana, Texas facility. There were no fixed asset impairment charges recorded during the third quarter and first nine months of 2013 .
The reduction in assets held for sale in the Condensed Consolidated Balance Sheets was primarily due to the sale of the land and building in Corsicana, Texas in the third quarter of 2014.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 10 . GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the nine months ended September 27, 2014 , were as follows:
(in thousands)
 
Carrying Amount    
Balance as of December 28, 2013
 
$
422,318

Goodwill acquired in the purchase of Baptista's (Note 4)
 
88,712

Change in goodwill attributable to discontinued operations (1)
 
(26,581
)
Goodwill acquired in the purchase of route businesses
 
5,287

Goodwill attributable to the sale of route businesses
 
(5,809
)
Change in goodwill reclassified to route assets held for sale
 
283

Change in foreign currency exchange rate
 
177

Balance as of September 27, 2014
 
$
484,387


(1)
Represents the difference between the amount of goodwill disposed of in the third quarter of 2014 and the amount of goodwill attributable to discontinued operations as of December 28, 2013. Refer to Note 3 for further discussion.
As of September 27, 2014 and December 28, 2013 , other intangible assets consisted of the following:
(in thousands)
 
    Gross
    Carrying
    Amount
 
Accumulated
Amortization
 
Net    
Carrying    
Amount    
As of September 27, 2014:
 
 
 
 
 
 
Customer and contractual relationships – amortized
 
$
145,656

 
$
(23,695
)
 
$
121,961

Non-compete agreements – amortized
 
710

 
(138
)
 
572

Reacquired rights – amortized
 
3,100

 
(1,222
)
 
1,878

Patents – amortized
 
8,600

 
(1,534
)
 
7,066

Developed technology – amortized
 
2,700

 
(52
)
 
2,648

Routes – unamortized
 
18,875

 

 
18,875

Trademarks – unamortized
 
355,661

 

 
355,661

Balance as of September 27, 2014
 
$
535,302

 
$
(26,641
)
 
$
508,661

 
 
 
 
 
 
 
As of December 28, 2013:
 
 
 
 
 
 
Customer and contractual relationships – amortized
 
$
145,356

 
$
(17,531
)
 
$
127,825

Non-compete agreement – amortized
 
110

 
(62
)
 
48

Reacquired rights – amortized
 
3,100

 
(932
)
 
2,168

Patents – amortized
 
8,600

 
(947
)
 
7,653

Routes – unamortized
 
19,652

 

 
19,652

Trademarks – unamortized
 
359,261

 

 
359,261

Balance as of December 28, 2013
 
$
536,079

 
$
(19,472
)
 
$
516,607

The increase in goodwill, developed technology, non-compete agreements, and customer relationships during the first nine months of 2014 related to the acquisition of Baptista's.
Amortization expense related to intangibles was $2.5 million and $2.4 million for the quarters ended September 27, 2014 and  September 28, 2013 , and $7.2 million and $7.1 million for the nine months then ended, respectively.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

Routes and trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. During the second quarter of 2014 , we recorded a $3.6 million impairment to write down one of our trademarks to its fair value of $2.5 million . The write down was necessary due to a reduction in projected future cash flows for this trademark, which was determined using a level 3 fair value measurement. This fair value determination was made using the relief from royalty method under the income approach, which required us to estimate unobservable factors such as a royalty rate and discount rate and identify relevant projected revenue. There were no additional impairments of intangible assets recorded during the quarter and nine months ended September 27, 2014 .
During the second quarter of 2013 , we recorded a $1.9 million impairment charge to write off one of our trademarks. The impairment charge was necessary due to the decision to replace future sales of associated products with a more recognizable brand. There were no additional impairments of intangible assets recorded during the quarter and nine months ended September 28, 2013 .
The majority of our trademarks, predominately those acquired in more recent transactions, have a fair value which approximates the book value. Any adverse changes in the use of these trademarks or the sales volumes of the associated products could result in an impairment charge.
The changes in the carrying amount of route businesses for the nine months ended September 27, 2014 , were as follows:
(in thousands)
 
Carrying Amount    
Balance as of December 28, 2013
 
$
19,652

Purchases of route businesses, exclusive of goodwill acquired
 
13,815

Sales of route businesses
 
(13,825
)
Change in route businesses reclassified to assets held for sale
 
(767
)
Balance as of September 27, 2014
 
$
18,875

Route businesses and associated goodwill allocated to assets held for sale represent assets available for sale in their present condition and for which actions to complete a sale have been initiated. As of September 27, 2014 , $9.1 million in route businesses and $3.8 million of goodwill were included in assets held for sale. As of December 28, 2013 , $8.3 million of route businesses and $4.1 million of goodwill were included in assets held for sale.
NOTE 11 . LONG-TERM DEBT
Long-term debt outstanding as of September 27, 2014 and December 28, 2013 , consisted of the following:
(in thousands)
 
September 27,
2014
 
December 28,
2013
Revolving credit facility
 
$
50,000

 
$
85,000

Other long-term debt
 
400,967

 
412,373

Total debt
 
450,967

 
497,373

Less: Current portion of long-term debt
 
(8,561
)
 
(17,291
)
Total long-term debt
 
$
442,406

 
$
480,082

During the second quarter of 2014, we entered into an Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement provides for borrowings under credit facilities consisting of:
a $375 million five -year revolving credit facility;
a $150 million five -year term loan; and
a $150 million ten -year term loan.
Subject to compliance with certain conditions, we have the ability to increase the size of the revolving credit facility by up to $200 million . The revolving credit facility and five-year term loan mature on May 30, 2019, and the ten-year term loan matures on May 30, 2024.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

In accordance with the Amended and Restated Credit Agreement, we terminated our prior term loan agreement. A payment of approximately $0.6 million was made to pay the difference between the amount owed on the prior term loan and the amount borrowed under the five-year and ten-year term loans.
Borrowings under the new credit facilities will bear interest at rates equal to a Eurodollar rate plus an applicable margin or a base rate plus applicable margin. The applicable margin on Eurodollar rate loans for the revolving credit facility began at 1.10% . In addition, a facility fee of 0.15% is also assessed on the entire $375 million revolving credit facility. The applicable margin on Eurodollar rates for the five-year term loan and ten-year term loan began at 1.25% and 1.625% , respectively. The applicable margin is subject to quarterly adjustment based on changes in our adjusted net debt-to-EBITDA ratio.
We are required to repay the aggregate principal amount of (a) all loans under the revolving credit facility by May 30, 2019, (b) the five-year term loan in quarterly principal installments of $1.9 million beginning June 30, 2014 with the balance due on May 30, 2019, and (c) the ten-year term loan in quarterly principal installments of $7.5 million beginning September 30, 2019 with the balance due on May 30, 2024. The Amended and Restated Credit Agreement also contains optional prepayment provisions and has financial covenants that are similar to those that were included in the prior credit agreement and term loan agreement. We are currently in compliance with all debt covenants.
During the nine months ended September 27, 2014 , we repaid $286.0 million and received proceeds of $321.0 million from our revolving credit facility. The net repayments were made primarily from cash received from the sale of Private Brands.
Debt issuance costs associated with the new credit facility and term loans of approximately $1.9 million were deferred in the second quarter of 2014 and will be amortized over the life of the loans. In addition, we recognized $0.8 million in additional interest expense in the second quarter of 2014 due to the write-off of certain unamortized debt issuance costs associated with the previous amendment to the revolving credit facility in 2010 and the prior term loan.
The fair value of outstanding debt, including current maturities, was approximately $456 million and $504 million for September 27, 2014 and December 28, 2013 , respectively. The Level 2 fair value estimates were based on similar debt with the same maturities, company credit rating and interest rates.
NOTE 12. INCOME TAXES
As of September 27, 2014 , we recorded gross unrecognized tax benefits for uncertain tax positions totaling $9.4 million and related interest and penalties of $2.4 million in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. Of this total amount, $4.6 million , which includes interest and penalties, would affect the effective tax rate if subsequently recognized. As of December 28, 2013 , we recorded gross unrecognized tax benefits totaling $10.9 million and related interest and penalties of $2.5 million in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. We expect certain income tax audits will be settled, positions will be resolved through administrative procedures or statutes of limitations will expire for various tax authorities during the next twelve months, resulting in a potential $6.9 million reduction of the unrecognized tax benefit amount. Of the $6.9 million reduction, approximately $1.5 million would impact the effective tax rate. We classify interest and penalties associated with uncertain tax positions within income tax expense.
The unrecognized tax benefit balance, as of September 27, 2014 and December 28, 2013 , includes $5.4 million for tax positions for which the ultimate deductibility was certain, but the timing of the deductibility was uncertain.
The effective tax rate for continuing operations increase d from 38.0% for the third quarter of 2013 to 41.8% for the third quarter of 2014 . The increase in the effective income tax rate in the third quarter of 2014 was primarily due to the revaluation of deferred tax assets and liabilities due to the sale of Private Brands and the associated impact on various consolidated and unitary state income tax rates.
The effective tax rate for continuing operations decreased from 38.4% for the first nine months of 2013 to 35.4% for the first nine months of 2014 . The decrease in the effective income tax rate in the first nine months of 2014 was primarily due to the recognition of previously established unrecognized tax benefits in the first quarter of 2014 .

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 13. FAIR VALUE MEASUREMENTS
We have classified assets and liabilities required to be measured at fair value into the fair value hierarchy as set forth below:
Level 1
quoted prices in active markets for identical assets and liabilities.
Level 2
observable inputs other than quoted prices for identical assets and liabilities.
Level 3
unobservable inputs for which there is little or no market data available, which required us to develop our own assumptions.
We measure derivative instruments at fair value using Level 2 inputs. See Note 14 for additional information about our derivative instruments. The fair value of our outstanding debt is measured using Level 2 inputs and is disclosed in Note 11 to the condensed consolidated financial statements. Due to an impairment in the second quarter of 2014, the fair value of one of our trademarks was measured using the Level 3 inputs disclosed in Note 10 . There were no changes among the levels during the first nine months of 2014 .
The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximated fair value due to their short-term nature.
NOTE 14 . DERIVATIVE INSTRUMENTS
We are exposed to certain risks relating to our business operations. We use derivative instruments to manage interest rate and foreign exchange risks.
The fair value of the derivative instrument liability in the Condensed Consolidated Balance Sheets using Level 2 inputs was as follows:
(in thousands)
 
Balance Sheet Location
 
September 27,
2014
 
December 28,
2013
Interest rate swaps
 
Other noncurrent liabilities
 
$
(578
)
 
$
(898
)
Foreign currency forwards
 
Current liabilities of discontinued operations
 

 
(31
)
Total fair value of derivative instruments
 
 
 
$
(578
)
 
$
(929
)
Interest Rate Swaps
Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable-rate debt. The fair value of interest rate swaps was determined utilizing a market approach model using the notional amount of the interest rate swaps and the observable inputs of time to maturity and interest rates. The notional amount of the interest rate swaps designated as hedging instruments as of September 27, 2014 and December 28, 2013 was $50.0 million . The debt modification in the second quarter of 2014 did not result in any changes to our hedge accounting for the interest rate swaps.
Foreign Currency Forwards
We had exposure to foreign exchange rate fluctuations through the operations of our Canadian subsidiary which is included within discontinued operations (see Note 3). A majority of the revenue of our Canadian operations was denominated in U.S. dollars and a substantial portion of its costs, such as raw materials and direct labor, were denominated in Canadian dollars. We previously entered into derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. The notional amount for foreign currency forwards was zero and $5.6 million as of September 27, 2014 and December 28, 2013 , respectively. We do not anticipate entering into any additional foreign currency forward contracts, as we disposed of our Canadian operations in the third quarter of 2014.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

The changes in unrealized losses, net of income tax, included in other comprehensive income due to fluctuations in interest rates and foreign exchange rates were as follows:
 
 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Gains on interest rate swaps, net of income tax expense of ($57), $0, ($123) and ($144), respectively
 
$
91

 
$
1

 
$
197

 
$
231

Gains/(losses) on foreign currency forwards, net of income tax (expense)/benefit of $0, ($111), ($10) and $1, respectively
 

 
246

 
21

 
(2
)
Total change in unrealized losses from derivative instruments, net of income tax (effective portion)
 
$
91

 
$
247

 
$
218

 
$
229

NOTE 15. COMMITMENTS AND CONTINGENCIES
Contractual Obligations
In order to mitigate the risks of volatility in commodity markets to which we are exposed, we entered into forward purchase agreements with certain suppliers based on market prices and expected usage levels. Purchase commitments for certain ingredients, packaging materials and energy totaled $111.4 million as of September 27, 2014 , as compared to $117.6 million as of December 28, 2013 . In addition to these commitments, we have contracts for certain ingredients and packaging materials where we have secured a fixed price but do not have a minimum purchase quantity. We currently contract from approximately three to twelve months in advance for certain major ingredients and packaging.
We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims. The total amount of these letters of credit was $11.6 million as of September 27, 2014 and $14.0 million as of December 28, 2013 . The reduction was due to the lower collateral requirements of our insurance providers.
Guarantees
We currently provide a partial guarantee for loans made to independent business owners ( IBO ) by third-party financial institutions for the purchase of route businesses. The outstanding aggregate balance on these loans was approximately $130.5 million as of September 27, 2014 compared to approximately $117.9 million as of December 28, 2013 . 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.
Legal Matters
We are currently subject to various lawsuits and environmental matters arising in the normal course of business. In our opinion, such claims should not have a material effect upon our consolidated financial statements taken as a whole.
NOTE 16. RELATED PARTY TRANSACTIONS
During the fourth quarter of 2013, we acquired the remaining 20% of Michaud and 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.
Prior to October 30, 2014 (see subsequent event discussion in Note 19), we owned a noncontrolling equity interest in Late July Snacks LLC (“Late July”), an organic snack food company. This investment has been reflected in other noncurrent assets on the Condensed Consolidated Balance Sheets. Equity earnings, which are not material, are included in other income, net on the Condensed Consolidated Statements of Income. We also manufacture and distribute products for Late July. Contract manufacturing revenue from Late July was approximately $1.2 million and $1.3 million , respectively, for each of the quarters ended September 27, 2014 and September 28, 2013 , and $3.2 million and $3.1 million , respectively, for each of the nine months then ended. In addition, we purchase products from Late July to sell through our DSD network. Purchases from Late July were $1.8 million and $1.5 million during the third quarter of 2014 and 2013 , respectively, and $5.7 million and $3.3 million for the first nine months of 2014 and 2013, respectively. Accounts receivable due from Late July totaled $0.6 million and $0.4 million at September 27, 2014 and December 28, 2013 , respectively.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

ARWCO Corporation, MAW Associates, LP and Warehime Enterprises, Inc. are significantly owned or controlled by Patricia A. Warehime, a member of the Board of Directors of Snyder’s-Lance, Inc., or her family members. Among other unrelated business activities, these entities provide financing to IBOs for the purchase of trucks and routes. We have entered into loan service agreements with these related parties that allow us to repurchase certain distribution assets in the event an IBO defaults on a loan with the related party. We are required to repurchase the assets 30 days after default at the value as defined in the loan service agreement which approximates fair market value. As of September 27, 2014 , there were outstanding loans made to IBOs by the related parties of approximately $27.2 million , compared to $30.6 million as of December 28, 2013 . Michael A. Warehime, our former Chairman of the Board, who passed away in August 2014, served as an officer and/or director of these entities. Patricia A. Warehime is the executrix, trustee and principal beneficiary of Mr. Warehime's estate and trust. Transactions with these related parties are primarily related to the collection and remittance of loan payments on notes receivable held by the affiliates. We are reimbursed for certain overhead and administrative services associated with the services provided to these related parties. The receivables from, payables to and administrative fees from these entities are not significant for any period presented.
One of our directors, C. Peter Carlucci, Jr., is a member of Eckert Seamans Cherin & Mellott, LLC (“Eckert”), which serves as one of our outside legal firms. Expenses incurred for services provided by Eckert were $0.2 million in the third quarter of 2014 and $0.2 million in the third quarter of 2013, and $0.5 million and $0.6 million for the first nine months of 2014 and 2013, respectively.
We own 51% of Patriot Snacks Real Estate, LLC (“Patriot”) and consolidate its balance sheet and operating results into our consolidated financial statements. The remaining 49% is owned by an officer of the Company.
NOTE 17 . OTHER COMPREHENSIVE INCOME
Total comprehensive income attributable to Snyder’s-Lance, Inc., determined as net income adjusted by total other comprehensive income, was $126.2 million and $24.6 million for the quarters ended September 27, 2014 and September 28, 2013 , respectively, and $155.1 million and $53.5 million , respectively, for the nine months then ended. Total other comprehensive income presently consists of foreign currency translation adjustments and unrealized gains and losses from our derivative financial instruments accounted for as cash flow hedges.
Amounts reclassified out of accumulated other comprehensive income, net of tax, consisted of the following:
 
 
 
 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
Income Statement Location
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Losses on cash flow hedges reclassified out of accumulated other comprehensive income:
 
 
 
 
 
 
 
 
 
 
Interest rate swaps, net of tax of $56, $56, $163 and $181, respectively
 
Interest expense, net
 
$
(91
)
 
$
(90
)
 
$
(262
)
 
$
(290
)
Foreign currency forwards
 
Discontinued operations, net of income tax
 

 
(95
)
 
(191
)
 
(307
)
Total cash flow hedge reclassifications, net of tax
 
 
 
$
(91
)
 
$
(185
)
 
$
(453
)
 
$
(597
)
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments reclassified from accumulated other comprehensive income
 
Discontinued operations, net of income tax
 
$
11,106

 
$

 
$
11,106

 
$

Total amounts reclassified from accumulated other comprehensive income
 
 
 
$
11,015

 
$
(185
)
 
$
10,653

 
$
(597
)

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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

During the nine months ended September 27, 2014 , changes to the balance in accumulated other comprehensive income were as follows:
(in thousands)
 
Gains/(Losses) on Cash Flow Hedges
 
Foreign Currency Translation Adjustments
 
Total
Balance as of December 28, 2013
 
$
(574
)
 
$
10,745

 
$
10,171

 
 
 
 
 
 
 
Other comprehensive (loss)/income before reclassifications
 
(235
)
 
(239
)
 
(474
)
Losses/(gains) reclassified from accumulated other comprehensive income
 
453

 
(11,106
)
 
(10,653
)
Net other comprehensive income/(loss)
 
218

 
(11,345
)
 
(11,127
)
 
 
 
 
 
 
 
Balance as of September 27, 2014
 
$
(356
)
 
$
(600
)
 
$
(956
)
During the nine months ended September 28, 2013 , changes to the balance in accumulated other comprehensive income were as follows:
(in thousands)
 
Gains/(Losses) on Cash Flow Hedges
 
Foreign Currency Translation Adjustments
 
Total
Balance as of December 29, 2012
 
$
(842
)
 
$
15,960

 
$
15,118

 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
 
(368
)
 
(2,473
)
 
(2,841
)
Losses reclassified from accumulated other comprehensive income
 
597

 

 
597

Net other comprehensive income/(loss)
 
229

 
(2,473
)
 
(2,244
)
 
 
 
 
 
 
 
Balance as of September 28, 2013
 
$
(613
)
 
$
13,487

 
$
12,874

NOTE 18. SEGMENT REPORTING
We operate in one business segment: the manufacturing, distribution, marketing and sale of snack food products. We define business segments as components of an organization for which discrete financial information is available and operating results are evaluated on a regular basis by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources. Our CODM is the Company’s President and Chief Executive Officer. Characteristics of our organization which were relied upon in making this determination include the similar nature of all of the products that we sell, the functional alignment of our organizational structure, and the reports that are regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
Revenue by Product Category
Net revenue by product category was as follows:
 
 
Quarter Ended
 
Nine Months Ended
(in thousands)
 
September 27,
2014
 
September 28,
2013
 
September 27,
2014
 
September 28,
2013
Branded
 
$
273,184

 
$
273,923

 
$
807,438

 
$
801,779

Partner brand
 
88,555

 
79,949

 
258,453

 
227,988

Other
 
47,569

 
31,370

 
116,029

 
92,505

Net revenue
 
$
409,308

 
$
385,242

 
$
1,181,920

 
$
1,122,272


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SNYDER'S-LANCE, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Due to the sale of Private Brands and the reclassification of associated revenues to discontinued operations, the Private brand product category was removed and Private brand revenues not included in the sale transaction were reclassified to Other. The Other product category primarily consists of contract manufactured products.
Significant Customers
Sales to our largest retailer, Wal-Mart Stores, Inc., were approximately 13% and 14% of net revenue for the quarter and nine months ended September 27, 2014 , respectively, and 15% and 16% of net revenue for the quarter and nine months ended September 28, 2013 , respectively. Our sales to Wal-Mart Stores, Inc. do not include sales from third-party distributors outside our DSD network. Sales to third-party retail distributors represent approximately 5% of our net revenue and may increase sales to Wal-Mart Stores, Inc. by an amount we are unable to estimate. Accounts receivable as of September 27, 2014 and December 28, 2013 , included receivables from Wal-Mart Stores, Inc. of $15.2 million and $16.9 million , respectively.
NOTE 19 . SUBSEQUENT EVENTS
On October 30, 2014, our Board of Directors declared a quarterly cash dividend of $0.16 per share payable on November 28, 2014 to stockholders of record on November 18, 2014 .
Previously, we held a 19% ownership interest in Late July which was accounted for using the equity method. On October 30, 2014 , we made an additional investment in Late July of approximately $59.5 million which increased our total ownership interest to 80% . Late July is a leader in organic and non-GMO baked and salty snacks and in just a few years has become the industry leader having the number one organic and non-GMO tortilla chip. The investment supports our goal of having a stronger presence in healthier, more sustainable foods.
Additional disclosures relating to this investment, including the purchase price allocation, will be provided in our 2014 Form 10-K as there was not sufficient time to complete the initial accounting prior to the filing of this Form 10-Q. As this investment occurred subsequent to the end of the third quarter of 2014, the effect of the transaction is not reflected in the condensed consolidated financial statements as of or for the quarter or nine months ended September 27, 2014. Subsequent to the date of the additional investment, Late July's balance sheet and results of operations will be consolidated.


22


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

The following discussion provides an assessment of our financial condition, results of operations, and liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements and notes to the financial statements. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under Part II, Item 1A—Risk Factors and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 28, 2013, and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Management’s discussion and analysis of our financial condition and results of operations are based 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.
Overview
In accordance with our strategic plan, we closed on the sale of Private Brands for approximately $430 million on June 30, 2014. We also completed the acquisition of Baptista's Bakery, Inc. ("Baptista's") on June 13, 2014 for approximately $204 million. Early in the fourth quarter, we completed the purchase of an additional 61% ownership interest in Late July Snacks LLC ("Late July"). All of these actions are aligned with our strategic plan by supporting long-term focus on branded revenue growth and profitability through investing in advertising, capital expenditures and innovation. The following describes in more detail the steps taken during 2014 :
On June 13, 2014, we completed the acquisition of Baptista’s, an industry leader in highly-differentiated snack food development, innovation and manufacturing including organic, non GMO, all-natural and gluten-free products. As the manufacturer of our fast-growing Snack Factory ® Pretzel Crisps ® brand, they have unique capabilities consistent with our own innovation plans that will complement our family of brands. This transaction will benefit our Company through increased gross margin on our Snack Factory ® Pretzel Crisps ® products as well as through incremental product development and innovation while leveraging our marketing and product distribution capabilities. During the third quarter, we began to integrate Baptista's into our operations. As a result of the acquisition, we recognized $19.8 million in additional contract manufacturing net revenue during the third quarter.
Beginning in the second quarter of 2014, the assets and liabilities of the Private Brands disposal group were considered held-for-sale and presented as discontinued operations in our Condensed Consolidated Balance Sheets because we will not have continuing involvement with the assets included in the disposal group. In addition, the revenues and expenses that will no longer continue after the sale of Private Brands, and where we have no substantial continuing involvement, were reclassified to discontinued operations in the Condensed Consolidated Statements of Income. All prior period results were retrospectively adjusted to consistently present continuing and discontinued operations.
At the beginning of the third quarter, we completed the sale of two of our subsidiaries, S-L Snacks IA, LLC, S-L Snacks Private Brands, LLC, as well as certain assets of our Canadian subsidiary, Tamming Foods Ltd. ("Private Brands"), to Shearer's Foods, LLC ("Shearer's") for approximately $430 million. This transaction included the sale of manufacturing facilities located in Burlington, Iowa and Guelph, Ontario as well as the exclusive right to manufacture and sell the majority of our private brand products and certain contract manufactured products. We recognized a pretax gain on the sale of approximately $223 million as part of discontinued operations during the third quarter.

23


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Early in the fourth quarter, we made an additional investment in Late July of approximately $59.5 million which increased our total ownership interest to 80%. Late July is a leader in organic and non-GMO baked and salty snacks and in just a few years has become the industry leader having the number one organic and non-GMO tortilla chip. The investment supports our goal of having a stronger presence in healthier, more sustainable foods.
Our overall third quarter performance was mixed across our portfolio of products. Net revenue from our Cape Cod ® kettle-cooked chips continued to increase when compared to the third quarter of 2013. The increase was driven by organic growth in core markets, new consumers due to trial and innovation, quality improvements, digital advertising and west coast expansion. Snack Factory ® Pretzel Crisps ® continued to show strong growth in net revenue and market share from expanded distribution in the grocery channel and new product offerings. The success of our new product offerings continued, including strong results from our Snyder’s of Hanover ® Sweet and Salty pretzel pieces, new flavors of Cape Cod ® kettle-cooked potato chips and Cape Cod ® popcorn, Lance ® Bolds ® sandwich crackers, as well as Snack Factory ® Pretzel Crisps ® Minis. Net revenue from our Lance ® sandwich crackers continued to decline when compared to the prior year. Throughout the year, we have been renovating our Lance ® sandwich cracker brand by reconfiguring our packaging for the entire sandwich cracker portfolio. We have also experienced competition from other brands in the sandwich cracker category as well as competition from other snack food products. We are working to address these volume declines with new product launches, radio advertising and an aggressive coupon program which began in the fourth quarter of this year. We continued to show growth in Partner brand revenues through the addition of new partner brand products and increased distribution. The Other product category also showed strong revenue growth as a result of the acquisition of Baptista's.
The effective income tax rate in the third quarter of 2014 increased compared to the prior year primarily due to $1.8 million in additional income tax expense associated with the revaluation of deferred tax assets and liabilities due to the sale of Private Brands and the associated impact on various consolidated and unitary state income tax rates.

24


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Quarter Ended September 27, 2014 Compared to Quarter Ended September 28, 2013  
 
 
Quarter Ended
 
Favorable/
(Unfavorable)
Variance
(in thousands)
 
September 27, 2014
 
September 28, 2013
 
Net revenue
 
$
409,308

 
100.0
%
 
$
385,242

 
100.0
 %
 
$
24,066

 
6.2
 %
Cost of sales
 
266,088

 
65.0
%
 
243,767

 
63.3
 %
 
(22,321
)
 
(9.2
)%
Gross margin
 
143,220

 
35.0
%
 
141,475

 
36.7
 %
 
1,745

 
1.2
 %
Selling, general and administrative
 
116,659

 
28.5
%
 
115,945

 
30.1
 %
 
(714
)
 
(0.6
)%
Loss/(gain) on sale of route businesses, net
 
22

 
%
 
(465
)
 
(0.1
)%
 
(487
)
 
nm

Other expense/(income), net
 
61

 
%
 
(4,541
)
 
(1.2
)%
 
(4,602
)
 
nm

Income before interest and income taxes
 
26,478

 
6.5
%
 
30,536

 
7.9
 %
 
(4,058
)
 
(13.3
)%
Interest expense, net
 
2,984

 
0.8
%
 
3,742

 
1.0
 %
 
758

 
20.3
 %
Income tax expense
 
9,809

 
2.4
%
 
10,174

 
2.6
 %
 
365

 
3.6
 %
Income from continuing operations
 
13,685

 
3.3
%
 
16,620

 
4.3
 %
 
(2,935
)
 
(17.7
)%
Discontinued operations, net of income tax
 
124,097

 
30.4
%
 
6,492

 
1.7
 %
 
117,605

 
nm

Net income
 
137,782

 
33.7
%
 
23,112

 
6.0
 %
 
114,670

 
496.1
 %
nm = not meaningful
Net Revenue
Net revenue by product category was as follows:
 
 
Quarter Ended
 
Favorable/
(Unfavorable)
Variance
(in thousands)
 
September 27, 2014
 
September 28, 2013
 
Branded
 
$
273,184

 
66.7
%
 
$
273,923

 
71.1
%
 
$
(739
)
 
(0.3
)%
Partner brand
 
88,555

 
21.6
%
 
79,949

 
20.8
%
 
8,606

 
10.8
 %
Other
 
47,569

 
11.7
%
 
31,370

 
8.1
%
 
16,199

 
51.6
 %
Net revenue
 
$
409,308

 
100.0
%
 
$
385,242

 
100.0
%
 
$
24,066

 
6.2
 %
Branded net revenue decreased $0.7 million , or 0.3% , compared to the third quarter of 2013 . Net revenue increases in Cape Cod ® kettle-cooked potato chips and Snack Factory ® Pretzel Crisps ® were offset by continued net revenue declines in Lance ® sandwich crackers. The growth in our Cape Cod ® kettle-cooked potato chips was driven by organic growth in core markets, new consumers due to trial and innovation, quality improvements, digital advertising and west coast expansion. Increased net revenue from Snack Factory ® Pretzel Crisps ® was primarily a result of market share gains due to increased distribution in the grocery channel. The growth of these Core brands was also supported by product innovation and the release of new flavors and products in 2014. The most successful new products included Snyder’s of Hanover ® Sweet and Salty pretzel pieces, Lance ® Bolds ® sandwich crackers, new flavors of Cape Cod ® kettle-cooked potato chips and Snack Factory ® Pretzel Crisps ® Minis. The decrease in net revenue from Lance ® sandwich crackers was primarily a result of volume declines due to packaging changes, competition from other brands in the sandwich cracker category and competition from other snack food products. We are working to address these volume declines with new product launches, radio advertising and an aggressive coupon program which began in the fourth quarter of this year and will continue into 2015. Net revenue from Snyder's of Hanover ® pretzels and our Allied branded products was relatively flat compared with the prior year.
Partner brand net revenue grew $8.6 million or 10.8% compared to the third quarter of 2013 . The increase was primarily due to volume growth in our existing product portfolio. In addition, our distributor acquisitions in the second half of 2013 brought in additional Partner brand revenue. Adding strong regional partner brands to our portfolio continues to provide opportunities for geographic expansion of our DSD network, which in turn benefits geographic expansion of our Branded products.

25


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Due to the sale of Private Brands and the reclassification of associated revenues to discontinued operations, the Private brand product category was removed and Private brand revenues not included in the sale transaction were reclassified to Other. Other net revenue increased $16.2 million , or 51.6% , from the third quarter of 2013 due to approximately $19.8 million in new contract manufacturing revenue obtained through our acquisition of Baptista's, partially offset by a reduction in orders from a major contract manufacturing customer.
Gross Margin
Gross margin increased $1.7 million in the third quarter of 2014 compared to the third quarter of 2013 but decreased 1.7% as a percentage of revenue. The majority of the dollar increase in gross margin was due to increased sales volume compared to the prior year. However, the decrease in gross margin as a percentage of revenue was driven by a greater mix of revenues from Partner brand and Other products which generally have lower margins than our manufactured Branded products. In addition, we realized manufacturing inefficiencies in the third quarter of 2014 related to the lower production volume for certain Branded products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.7 million in the third quarter of 2014 compared to the third quarter of 2013 , but decreased 1.6% as a percentage of net revenue. These expenses remained relatively consistent with the prior year despite $3.6 million in incremental expenses from Baptista's due to lower freight costs and salaries and benefit expenses, in part due to our Restructuring Plan.
Gain on the Sale of Route Businesses, Net
Net losses on the sale of route businesses for the third quarter of 2014 consisted of $0.6 million in gains and $0.6 million in losses on the sale of route businesses. For the third quarter of 2013 net gains on the sale of route businesses consisted of $1.3 million in gains and $0.8 million in losses on the sale of route businesses. Most of the route business sales activity in both years was due to the resale of routes purchased because of IBO defaults or route reengineering projects that were initiated in order to maximize the efficiency of route territories for the IBOs.
Other Income, Net
Other income declined approximately $4.6 million from the third quarter of 2013 to the third quarter of 2014 due primarily to $4.0 million in income from a business interruption claim which was recognized in 2013.
Interest Expense, Net
Interest expense decreased approximately $0.8 million in the third quarter of 2014 compared to the third quarter of 2013 . The decrease was primarily due to lower average debt outstanding during the third quarter of 2014 when compared to 2013 as a portion of the proceeds from the sale of Private Brands was used to pay down our outstanding debt.
Income Tax Expense
Our effective income tax rate increase d to 41.8% for the third quarter of 2014 compared to 38.0% for the third quarter of 2013 . The increase in the effective income tax rate in the third quarter of 2014 was primarily due to the revaluation of deferred tax assets and liabilities due to the sale of Private Brands and the associated impact on various consolidated and unitary state income tax rates.

Discontinued Operations, Net of Income Tax
Income from discontinued operations, net of income tax, reflects results of operations of the Private Brands disposal group for the current quarter. The income recognized in the third quarter of 2014 included the gain on the sale of Private Brands. This accounts for the significant variance from the third quarter of 2013 which represents the results of operations of Private Brands.


26


SNYDER'S-LANCE, INC. AND SUBSIDIARIES

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

Nine Months Ended September 27, 2014 Compared to Nine Months Ended September 28, 2013  
 
 
Nine Months Ended
 
Favorable/
(Unfavorable)
Variance
(in thousands)
 
September 27, 2014
 
September 28, 2013
 
Net revenue
 
$
1,181,920

 
100.0
 %
 
$
1,122,272

 
100.0
 %
 
$
59,648

 
5.3
 %
Cost of sales
 
760,625

 
64.4
 %
 
714,005

 
63.6
 %
 
(46,620
)
 
(6.5
)%
Gross margin
 
421,295

 
35.6
 %
 
408,267

 
36.4
 %
 
13,028

 
3.2
 %
Selling, general and administrative
 
354,035

 
30.0
 %
 
339,356

 
30.2
 %
 
(14,679
)
 
(4.3
)%
Impairment charges
 
7,503

 
0.6
 %
 
1,900

 
0.2
 %
 
(5,603
)
 
(294.9
)%
Gain on sale of route businesses, net
 
(1,438
)
 
(0.1
)%
 
(2,057
)
 
(0.2
)%
 
(619
)
 
(30.1
)%
Other expense/(income), net
 
642

 
 %
 
(7,158
)
 
(0.6
)%
 
(7,800
)
 
nm

Income before interest and income taxes
 
60,553

 
5.1
 %
 
76,226

 
6.8
 %
 
(15,673
)
 
(20.6
)%
Interest expense, net
 
10,485

 
0.9
 %
 
10,702

 
1.0
 %
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