Snyder's-Lance, Inc.
LANCE INC (Form: 10-Q, Received: 07/28/2006 16:08:25)
 

 
 
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 quarterly (thirteen week) period ended July 1, 2006
Commission File Number 0-398
LANCE, INC.
(Exact name of registrant as specified in its charter)
     
North Carolina   56-0292920
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    
     
8600 South Boulevard    
P.O. Box 32368    
Charlotte, North Carolina   28232
(Address of principal executive offices)   (Zip Code)
704-554-1421
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ       No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
         
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No þ
The number of shares outstanding of the registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock as of July 24, 2006, was 30,787,447 shares.
 
 


 

LANCE, INC. AND SUBSIDIARIES
INDEX
         
    Page  
PART I. FINANCIAL INFORMATION
       
 
       
Item 1. Financial Statements
       
 
       
Condensed Consolidated Balance Sheets – July 1, 2006 (Unaudited) and December 31, 2005
    3  
 
       
Condensed Consolidated Statements of Income (Unaudited) – Thirteen And Twenty-Six Weeks Ended July 1, 2006 and June 25, 2005
    4  
 
       
Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited) – Twenty-Six Weeks Ended July 1, 2006 and June 25, 2005
    5  
 
       
Condensed Consolidated Statements of Cash Flows (Unaudited) – Twenty- Six Weeks Ended July 1, 2006 and June 25, 2005
    6  
 
       
Notes to Condensed Consolidated Financial Statements (Unaudited)
    7  
 
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    13  
 
       
Item 3. Quantitative and Qualitative Disclosures about Market Risk
    20  
 
       
Item 4. Controls and Procedures
    21  
 
       
PART II. OTHER INFORMATION
       
 
       
Item 1. Legal Proceedings
    21  
 
       
Item 1A. Risk Factors
    21  
 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    21  
 
       
Item 4. Submission of Matters to a Vote of Security Holders
    22  
 
       
Item 6. Exhibits
    22  
 
       
SIGNATURE
    24  

2


 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of July 1, 2006 (Unaudited) and December 31, 2005

(In thousands, except share data)
                 
    July 1,     December 31,  
    2006     2005  
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 1,279     $ 3,543  
Accounts receivable (less allowance for doubtful accounts)
    67,598       59,088  
Inventories
    41,829       36,409  
Deferred income tax asset
    12,669       10,160  
Assets held for sale
          3,020  
Prepaid expenses and other
    8,933       7,405  
 
           
Total current assets
    132,308       119,625  
 
               
Other assets
               
Property, plant & equipment, net
    201,555       186,093  
Goodwill, net
    50,636       49,169  
Other intangible assets, net
    10,163       10,704  
Other assets
    3,485       3,488  
 
           
Total assets
  $ 398,147     $ 369,079  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities
               
Current portion of long-term debt
  $ 53,791     $ 36,000  
Accounts payable
    27,534       20,378  
Accrued compensation
    23,075       23,270  
Accrued profit-sharing and retirement plan contributions
    2,822       3,971  
Accrual for medical and casualty insurance claims
    7,048       7,500  
Other payables and accrued liabilities
    25,269       24,931  
 
           
Total current liabilities
    139,539       116,050  
 
           
 
               
Other liabilities and deferred credits
               
Long-term debt
          10,215  
Deferred income taxes
    25,536       26,739  
Accrued postretirement health care costs
    2,151       2,711  
Accrual for casualty insurance claims
    8,581       8,227  
Other long-term liabilities
    3,473       3,428  
 
           
Total other liabilities and deferred credits
    39,741       51,320  
 
           
 
               
Stockholders’ equity
               
Common stock, $0.83 1/3 par value (authorized: 75,000,000 shares; 30,783,697 and 29,808,705 shares outstanding at July 1, 2006 and December 31, 2005)
    25,902       24,964  
Preferred stock, $1.00 par value (authorized: 5,000,000 shares; 0 shares outstanding at July 1, 2006 and December 31, 2005)
           
Additional paid-in capital
    29,056       13,747  
Unamortized portion of restricted stock awards
          (2,490 )
Retained earnings
    156,124       160,407  
Accumulated other comprehensive income
    7,785       5,081  
 
           
Total stockholders’ equity
    218,867       201,709  
 
           
Total liabilities and stockholders’ equity
  $ 398,147     $ 369,079  
 
           
See Notes to Condensed Consolidated Financial Statements (Unaudited).

3


 

LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Thirteen and Twenty-Six Weeks Ended July 1, 2006 and June 25, 2005

(In thousands, except share and per share data)
                                 
    Thirteen     Thirteen     Twenty-Six     Twenty-Six  
    Weeks     Weeks     Weeks     Weeks  
    Ended     Ended     Ended     Ended  
    July 1,     June 25,     July 1,     June 25,  
    2006     2005     2006     2005  
Net sales and other operating revenue
  $ 192,814     $ 166,768     $ 380,254     $ 313,572  
 
                       
 
Cost of sales and operating expenses/(income):
                               
 
Cost of sales
    106,409       89,748       212,680       169,170  
Selling, marketing and delivery
    61,834       54,904       129,721       107,337  
General and administrative
    11,901       11,412       23,540       19,327  
Provisions for employees’ retirement plans
    1,846       1,381       3,868       2,822  
Amortization of intangibles
    61             99        
Other, net
    237       (82 )     356       (50 )
 
                       
Total costs and expenses
    182,288       157,363       370,264       298,606  
 
                       
 
                               
Earnings before interest and income taxes
    10,526       9,405       9,990       14,966  
 
                               
Interest expense, net
    828       550       1,496       1,094  
 
                       
 
                               
Earnings before income taxes
    9,698       8,855       8,494       13,872  
 
                               
Income taxes
    3,539       3,219       3,100       4,966  
 
                       
 
                               
Net income
  $ 6,159     $ 5,636     $ 5,394     $ 8,906  
 
                       
 
                               
Earnings per share
                               
Basic
  $ 0.20     $ 0.19     $ 0.18     $ 0.30  
Diluted
  $ 0.20     $ 0.19     $ 0.18     $ 0.30  
 
                               
Weighted average shares outstanding — basic
    30,462,000       29,834,000       30,197,000       29,767,000  
Weighted average shares outstanding — diluted
    30,935,000       30,146,000       30,622,000       30,076,000  
See Notes to Condensed Consolidated Financial Statements (Unaudited).

4


 

LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited)
For the Twenty-Six Weeks Ended July 1, 2006 and June 25, 2005

(In thousands, except share data)
                                                         
                            Unamortized                      
                            Portion of             Accumulated        
                    Additional     Restricted             Other        
            Common     Paid-in     Stock     Retained     Comprehensive        
    Shares     Stock     Capital     Awards     Earnings     Income(Loss)     Total  
     
Balance, December 25, 2004
    29,747,596     $ 24,788     $ 11,500     $ (534 )   $ 160,993     $ 1,968     $ 198,715  
     
 
                                                       
Comprehensive income:
                                                       
Net income
                            8,906             8,906  
Unrealized gain on interest rate swap, net of tax effect of $(183)
                                  310       310  
Unrealized loss on forward exchange contracts, net of tax effect of $11
                                  (20 )     (20 )
 
                                                       
Foreign currency translation adjustment
                                  (15 )     (15 )
 
                                                     
Total comprehensive income
                                                    9,181  
 
                                                     
 
                                                       
Cash dividends paid to stockholders
                            (9,495 )           (9,495 )
 
                                                       
Stock options exercised
    247,136       206       3,227                         3,433  
 
                                                       
Cancellation and amortization of restricted stock
    (18,275 )     110       2,124       (2,113 )                 121  
 
                                                       
     
 
                                                       
Balance, June 25, 2005
    29,976,457     $ 25,104     $ 16,851     $ (2,647 )   $ 160,404     $ 2,243     $ 201,955  
                 
 
                                                       
Balance, December 31, 2005
    29,808,705     $ 24,964     $ 13,747     $ (2,490 )   $ 160,407     $ 5,081     $ 201,709  
     
 
                                                       
Comprehensive income:
                                                       
Net income
                            5,394             5,394  
Foreign currency translation adjustment
                                  2,565       2,565  
Unrealized gain on forward exchange contracts, net of tax effect of $(77)
                                  139       139  
 
                                                     
Total comprehensive income
                                                    8,098  
 
                                                     
 
                                                       
Cash dividends paid to stockholders
                            (9,677 )           (9,677 )
 
                                                       
Stock options exercised
    946,567       790       16,246                         17,036  
 
                                                       
Conversion of liability to equity instrument
                634                         634  
 
                                                       
Stock based compensation (FAS 123R)
                (2,097 )     2,490                   393  
 
                                                       
Cancellation, issuance and amortization of restricted stock
    28,425       148       526                         674  
 
                                                       
     
 
                                                       
Balance, July 1, 2006
    30,783,697     $ 25,902     $ 29,056     $     $ 156,124     $ 7,785     $ 218,867  
                 
     See Notes to Condensed Consolidated Financial Statements (Unaudited).

5


 

LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Twenty-Six Weeks Ended July 1, 2006 and June 25, 2005

(In thousands)
                 
    Twenty-Six     Twenty-Six  
    Weeks Ended     Weeks Ended  
    July 1, 2006     June 25, 2005  
Operating activities
               
Net income
  $ 5,394     $ 8,906  
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation and amortization
    13,388       13,889  
Loss on sale of property, net
    (4 )     (47 )
Deferred income taxes
    (3,796 )     (1,598 )
Changes in operating assets and liabilities
    (7,894 )     (14,265 )
 
           
Net cash from operating activities
    7,088       6,885  
 
           
 
               
Investing activities
               
Purchases of property and equipment
    (27,198 )     (15,803 )
Acquisition of business, net of cash acquired
          (4,829 )
Proceeds from sale of property
    2,762       669  
 
           
Net cash used in investing activities
    (24,436 )     (19,963 )
 
           
 
               
Financing activities
               
Dividends paid
    (9,677 )     (9,495 )
Issuance of common stock
    17,036       2,968  
Net proceeds from revolving credit facilities
    7,505        
 
           
Net cash flow from/(used in) financing activities
    14,864       (6,527 )
 
           
 
               
Effect of exchange rate changes on cash
    220       (56 )
 
           
 
               
Decrease in cash and cash equivalents
    (2,264 )     (19,661 )
Cash and cash equivalents at beginning of period
    3,543       41,466  
 
           
Cash and cash equivalents at end of period
  $ 1,279     $ 21,805  
 
           
 
               
Supplemental information:
               
Cash paid for income taxes, net of refunds of $2 and $424, respectively
  $ 3,430     $ 4,706  
Cash paid for interest
  $ 1,676     $ 1,245  
Stock option exercise tax benefit included in stockholders’ equity
          $ 465  
See Notes to Condensed Consolidated Financial Statements (Unaudited).

6


 

LANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.   The accompanying unaudited condensed consolidated financial statements of Lance, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed financial statements should be read in conjunction with the audited financial statements and notes included in our Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2006. In our opinion, these condensed consolidated financial statements reflect all adjustments (consisting of only normal, recurring accruals) necessary to present fairly our condensed consolidated financial position as of July 1, 2006 and December 31, 2005 and the condensed consolidated statements of income for the thirteen and twenty-six weeks ended July 1, 2006 and June 25, 2005 and the condensed consolidated statements of stockholders’ equity and comprehensive income and cash flows for the twenty-six weeks ended July 1, 2006 and July 25, 2005. Prior year amounts shown in the accompanying condensed consolidated financial statements have been reclassified for consistent presentation.
2.   The consolidated results of operations for the thirteen and twenty-six weeks ended July 1, 2006 are not necessarily indicative of the results to be expected for the fifty-two week fiscal year ending December 30, 2006.
3.   Preparing financial statements requires management to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Examples include customer returns and promotions, provisions for bad debts, inventory valuations, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible asset valuations, incentive compensation, income taxes, insurance, post-retirement benefits, contingencies and legal proceedings. Actual results may differ from these estimates under different assumptions or conditions.
4.   The principal raw materials used in the manufacture of our snack food products are flour, vegetable oil, sugar, potatoes, peanut butter, nuts, cheese and seasonings. The principal supplies used are flexible film, cartons, trays, boxes and bags. These raw materials and supplies are generally available in adequate quantities in the open market either from sources in the United States or from other countries. These raw materials are generally contracted up to a year in advance.
5.   We utilize the dollar value last-in, first-out (“LIFO”) method of determining the cost of approximately 40% of our inventories. Because inventory calculations under the LIFO method are based on annual determinations, the determination of interim LIFO valuations requires estimating year-end costs and levels of inventories. The possibility of variation between estimated year-end costs and levels of LIFO inventories compared to the actual year-end amounts may materially affect the results of operations as finally determined for the full year.

7


 

LANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Inventories consist of ( in thousands ):
                 
    July 1,     December 31,  
    2006     2005  
Finished goods
  $ 23,936     $ 22,658  
Raw materials
    8,442       7,630  
Supplies, etc.
    14,157       11,041  
 
           
Total inventories at FIFO cost
    46,535       41,329  
Less adjustments to reduce FIFO cost to LIFO cost
    (4,706 )     (4,920 )
 
           
Total inventories
  $ 41,829     $ 36,409  
 
           
6.   The following tables provide a reconciliation of the common shares used for basic earnings per share and diluted earnings per share for the thirteen and twenty-six weeks ended July 1, 2006 and June 25, 2005 (there are no adjustments to reported net income required when computing diluted earnings per share for the numerator amounts of basic and diluted earnings per share):
                 
    Thirteen Weeks Ended
    July 1,   June 25,
(in thousands)   2006   2005
         
Weighted average number of common shares used for basic earnings per share
    30,462       29,834  
Effect of dilutive potential shares
    473       312  
 
               
Weighted average number of common shares and dilutive potential shares used for diluted earnings per share
    30,935       30,146  
 
               
Anti-dilutive shares excluded from the above reconciliation
          529  
 
               
                 
    Twenty-Six Weeks
    Ended
    July 1,   June 25,
(in thousands)   2006   2005
         
Weighted average number of common shares used for basic earnings per share
    30,197       29,767  
Effect of dilutive potential shares
    425       309  
 
               
Weighted average number of common shares and dilutive potential shares used for diluted earnings per share
    30,622       30,076  
 
               
Anti-dilutive shares excluded from the above reconciliation
          529  
 
               

8


 

LANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
7.   During the twenty-six weeks ended July 1, 2006 and June 25, 2005, we included in accumulated other comprehensive income unrealized gains/(losses) of $2.6 million and ($15,000), respectively, due to foreign currency translation. Income taxes on the foreign currency translation adjustment in other comprehensive income were not recognized because the earnings are intended to be reinvested indefinitely in those operations. Also included in accumulated other comprehensive income for the twenty-six weeks ended July 1, 2006 and June 25, 2005, were unrealized gains of $139,000, net of tax effect of $77,000, and $290,000, net tax effect of $172,000, respectively, related to an interest rate swap and forward exchange contracts accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133.
 
8.   In 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually. The criteria provided in SFAS No. 142 require the testing of impairment based on fair value. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values. We test goodwill and intangible assets for impairment no less than annually as required under the provisions of SFAS No. 142. These tests indicated that there was no impairment of goodwill or intangible assets.
 
    The change in the carrying amount of goodwill for the twenty six weeks ended July 1, 2006 is as follows:
         
    Net Carrying  
(in thousands)   Amount  
Balance as of December 31, 2005
  $ 49,169  
Foreign currency exchange rate changes
    1,467  
 
     
Balance as of July 1, 2006
  $ 50,636  
 
     
    As of July 1, 2006, we had trademarks with a carrying value of $9.6 million. Trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Therefore, under the provisions of SFAS 142, the trademarks are no longer amortized. Other intangible assets are amortized over their useful lives.
 
9.   Sales to our largest customer, Wal-Mart Stores, Inc., were 19% and 22% of revenue for the thirteen weeks ended July 1, 2006 and June 25, 2005, respectively, and 19% and 21% of revenue for the twenty-six weeks ended July 1, 2006 and June 25, 2005, respectively. Accounts receivable at July 1, 2006 and December 31, 2005 included receivables from Wal-Mart Stores, Inc. totaling $16.8 million and $11.8 million, respectively.
 
10.   For the thirteen weeks ended July 1, 2006 and June 25, 2005, net bad debt expense/(benefit) was $12,000 and ($74,000), respectively, and for the twenty-six weeks ended July 1, 2006 and June 25, 2005, net bad debt expense/(benefit) was ($0.1 million) and $0.4 million, respectively. Net bad debt expense is included in selling, marketing and delivery expenses.

9


 

LANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
11.   Beginning January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment,” which requires the measurement of the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. We elected the modified prospective application method in adopting SFAS 123(R), and prior period amounts have not been restated. In accordance with SFAS 123(R), we have calculated the fair value of our stock options issued to employees using the Black-Scholes model at the time the options were granted. That amount is amortized over the vesting period of the option.
 
    Prior to the effective date, we followed Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations for stock options granted to employees and directors. Because the exercise price of our stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense was recognized. We had adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.”
 
    The following illustrates the pro-forma information, as required under SFAS 123, determined as if we had applied the fair value method of accounting for stock options, during the thirteen and twenty-six weeks ended June 25, 2005:
                 
    Thirteen   Twenty-Six
    Weeks Ended   Weeks Ended
(in thousands, except per share data)   June 25, 2005   June 25, 2005
 
Net income as reported
  $ 5,636     $ 8,906  
Earnings per share as reported — basic
    0.19       0.30  
Earnings per share as reported — diluted
    0.19       0.30  
Additional stock based compensation costs, net of income tax, that would have been included in net income if the fair value method had been applied
    42       84  
Pro-forma net income
    5,594       8,822  
Pro-forma earnings per share — basic
    0.19       0.30  
Pro-forma earnings per share — diluted
  $ 0.19     $ 0.29  
 
There were not any options granted during the thirteen weeks ended July 1, 2006. The following assumptions were used in valuing under SFAS 123(R) our options granted during the twenty-six weeks ended July 1, 2006:
         
    For the Twenty-Six
    Weeks Ended
    July 1, 2006
 
Stock option grants
    108,652  
Weighted average risk-free interest rate
    4.54 %
Expected life
  6.5 years
Expected volatility
    31.2 %
Weighted average dividend yield
    3.21 %

10


 

LANCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The weighted-average fair value of stock options granted during the twenty-six weeks ended July 1, 2006 was $5.50 per option granted. The additional stock-based compensation expense, as compared to the prior year, related to the adoption of SFAS 123(R) was $0.4 million and $1.0 million for the thirteen and twenty-six weeks ended July 1, 2006, respectively, which includes both the effects of the issuance of non-qualified stock options and long-term plans with future grant dates.
Prior to the adoption of SFAS 123(R), we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the condensed consolidated statements of cash flows. SFAS 123(R) requires the cash flows resulting from tax deductions in excess of the compensation cost recognized for those stock options (excess tax benefits) to be classified as financing cash flows. Prior to the adoption of SFAS 123(R), the unamortized portion of restricted stock was presented as a separate item on the condensed consolidated balance sheet. Under FAS 123(R) it is included as a reduction in additional paid-in capital as of January 1, 2006.
12.   Net periodic benefit cost/(benefit) for our post-retirement medical benefit plan for the thirteen weeks ended July 1, 2006 and June 25, 2005 consists of the following:
                 
    For the Thirteen Weeks Ended
(in thousands)   July 1, 2006   June 25, 2005
 
Components of net periodic benefit cost/(benefit):
               
Service cost
  $ 1     $ 10  
Interest cost
    12       18  
Recognition of prior service costs
           
Recognized net gain
    (181 )     (173 )
 
Net periodic benefit
  $ (168 )   $ (145 )
 
                 
    For the Twenty-Six Weeks Ended
(in thousands)   July 1, 2006   June 25, 2005
 
Components of net periodic benefit cost/(benefit):
               
Service cost
  $ 1     $ 21  
Interest cost
    25       36  
Recognition of prior service costs
           
Recognized net gain
    (362 )     (347 )
 
Net periodic benefit
  $ (336 )   $ (290 )
 
For the thirteen and twenty-six weeks ended July 1, 2006, we paid $0.3 million and $0.4 million in retiree benefit claims and received $0.1 million and $0.2 million in plan participant contributions, respectively. For the thirteen and twenty-six weeks ended June 25, 2005, we paid $0.2 million and $0.4 million in retiree benefit claims and received $0.1 million and $0.2 million in plan participant contributions, respectively.

11


 

LANCE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
13.   At July 1, 2006 and December 31, 2005, we had the following debt outstanding:
                 
    July 1,   December 31,
(in thousands)   2006   2005
 
Unsecured revolving credit facility $60 million and Cdn $25 million due February 8, 2007
  $ 10,791     $ 10,215  
Unsecured short-term revolving credit facility $50 million due October 20, 2006
    43,000       36,000  
 
 
               
Total debt
    53,791       46,215  
Less current portion of long-term debt
    53,791       36,000  
 
 
               
Total long-term debt
  $     $ 10,215  
 
14.   Lance, Inc. was one of nine companies sued in August 2005 in the Superior Court for the State of California for the County of Los Angeles by the Attorney General of the State of California for alleged violations of California Proposition 65. California Proposition 65 is a state law that, in part, requires Companies to warn California residents if a product contains chemicals listed within the statute. The plaintiff seeks injunctive relief and penalties but has made no specific demands. We intend to vigorously defend this suit. A related Complaint filed by the Environmental Law Foundation, as previously disclosed in our Form 10-K for the year ended December 31, 2005, was dismissed in the first quarter of 2006.
15.   The Company issued 300,000 restricted stock units in May 2005, of which 150,000 are to be settled in cash and 150,000 were to be settled in stock. During the thirteen weeks ended July 1, 2006, the Compensation Committee of the Board of Directors approved an amendment re-designating the 150,000 units that were to be settled in cash to units settled in stock. Pursuant to SFAS 123(R), these restricted units are now classified as equity as opposed to a liability. Accordingly, there was a $0.6 million increase to additional paid-in capital recorded on the condensed consolidated balance sheet with an offsetting reduction in long-term liabilities during the quarter ended July 1, 2006.
16.   At December 31, 2005, we had $3.0 million of assets held for sale primarily related to a plant that was closed subsequent to acquiring substantially all of the assets of Tom’s Foods Inc. During the twenty-six week period ended July 1, 2006, certain assets have been sold; however, the real property related to the plant closure, although actively marketed, is no longer classified as current assets held for sale. Accordingly, as of July 1, 2006 these assets are included in Property, Plant and Equipment.
17.   In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes – an Interpretation of FASB Statement 109”. It is effective for fiscal years beginning after December 15, 2006. We are still evaluating the impact that it will have on our financial condition, results of operations and cash flows.

12


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Thirteen Weeks Ended July 1, 2006 Compared to Thirteen Weeks Ended June 25, 2005
                                                 
                                    Variance
    Thirteen Weeks Ended   Favorable/
($ In thousands)   July 1, 2006   June 25, 2005   (Unfavorable)
 
Revenue
  $ 192,814       100.0 %   $ 166,768       100.0 %   $ 26,046       15.6 %
Cost of sales
    106,409       55.2 %     89,748       53.8 %     (16,661 )     (18.6 %)
 
Gross margin
    86,405       44.8 %     77,020       46.2 %     9,385       12.2 %
Selling, marketing and delivery expenses
    61,834       32.0 %     54,904       32.9 %     (6,930 )     (12.6 %)
General and administrative expenses
    11,901       6.2 %     11,412       6.8 %     (489 )     (4.3 %)
Provisions for employees’ retirement plans
    1,846       1.0 %     1,381       0.8 %     (465 )     (33.7 %)
Amortization of intangibles
    61       0 %           0.0 %     (61 )   NM
Other, net
    237       0.1 %     (82 )     (0.0 %)     (319 )   NM
 
Earnings before interest and taxes
    10,526       5.5 %     9,405       5.6 %     1,121       11.9 %
Interest expense, net
    828       0.4 %     550       0.3 %     (278 )     (50.5 %)
Income taxes
    3,539       1.8 %     3,219       1.9 %     (320 )     (9.9 %)
 
Net income
  $ 6,159       3.2 %   $ 5,636       3.4 %   $ 523       9.3 %
 
Results of operations for the thirteen weeks ended July 1, 2006 were significantly impacted by the acquisition of substantially all of the assets of Tom’s Foods Inc. (“TFI”), which occurred during the fourth quarter of 2005. Integration of the TFI acquisition continued through the second quarter of 2006 and resulted in carrying incremental overhead costs during this stage of the integration plan, which is expected to be completed by the end of 2006. Included in these costs was an expense of approximately $0.4 million related to retention incentives for employees important to the integration process and impairment costs of $0.2 million for equipment related to the Knoxville, Tennessee plant closure that began during the second quarter. For the thirteen weeks ended June 25, 2005, we recorded a $2.5 million charge for executive severance related expenses.
For the thirteen weeks ended July 1, 2006, revenue increased $26.0 million or 16% compared to the thirteen weeks ended June 25, 2005. Our branded product revenue increased $19.9 million or 19% and non-branded product revenue increased $6.1 million or 10%. The branded product revenue growth was driven by increased revenue from salty snacks of $15.6 million, sandwich crackers and cookies of $5.2 million and nuts of $1.4 million, partially offset by declines in cake and food service products. The increase in salty snack revenue reflected the impact of the addition of Tom’s branded products and an approximately 15% increase in Cape Cod product revenue. The $6.1 million increase in non-branded product revenue consisted of a $6.5 million increase in contract manufacturing revenue primarily due to additional volume from the TFI acquisition and a $1.4 million increase in private label revenue, partially offset by a $1.8 million decline in sales of third-party brands.
For the thirteen weeks ended July 1, 2006, branded product revenue represented 64% of total revenue compared to 62% for the thirteen weeks ended June 25, 2005. For the thirteen weeks ended July 1, 2006, non-branded product revenue, as a percent of total revenue consisted of private label sales (26%), contract manufacturing revenue (9%) and sales of third-party brands

13


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(1%). For the same period last year, non-branded product revenue, as a percent of total revenue, consisted of private label sales (30%), contract manufacturing revenue (6%) and sales of third-party brands (2%).
Gross margin increased $9.4 million compared to the prior year principally due to increased volume but declined 1.4 percentage points as a percentage of net revenue due to higher conversion costs of the acquired TFI facilities, $1.2 million of higher commodity and natural gas prices, and a $0.5 million unfavorable impact of foreign currency. These increases in expenses as compared to the same prior year thirteen-week period were partially offset by net price increases and improved operating efficiencies at the facilities operated prior to the TFI acquisition.
Selling, marketing and delivery expenses increased $6.9 million compared to the prior year, principally due to higher sales volume. As a percentage of net revenue, these costs decreased 90 basis points driven by better efficiencies. The increased expenses compared to the prior year include higher wages, salary and commission expense of approximately $3.6 million and freight expense increases of $2.9 million of which $1.0 million was related to fuel rate increases.
General and administrative expenses increased $0.5 million compared to prior year. During the same period in the prior year a $2.5 million charge was recorded for executive severance. Excluding this charge, general and administrative expenses would have increased $3.0 million compared to the prior year, or an increase of 80 basis points relative to net revenue. The increase was primarily the result of higher salaries and benefits of $1.3 million, an increase in equity incentive compensation of $0.8 million which includes a $0.4 million increase due to the adoption of SFAS 123(R), and costs relating to retention agreements of approximately $0.4 million.
Provisions for employees’ retirement plans increased $0.5 million due to an increase in the number of employees covered under the retirement plans and changes in one of the employee retirement plans.
Other, net expenses increased $0.3 million primarily as a result of a $0.2 million impairment of equipment recorded in the current thirteen week period as compared to gains on property and equipment recorded in the prior year thirteen week period.
Net interest expense increased $0.3 million due mainly to higher interest income from short-term investments in the prior year compared to the current year.
The effective income tax rate increased slightly from 36.4% for the thirteen weeks ended June 25, 2005 to 36.5% for the thirteen weeks ended July 1, 2006.

14


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Twenty-Six Weeks Ended July 1, 2006 Compared to Twenty-Six Weeks Ended June 25, 2005
                                                 
    Twenty-Six Weeks Ended   Variance
                                    Favorable/
($ In thousands)   July 1, 2006   June 25, 2005   (Unfavorable)
 
Revenue
  $ 380,254       100.0 %   $ 313,572       100.0 %   $ 66,682       21.3 %
Cost of sales
    212,680       55.9 %     169,170       53.9 %     (43,510 )     (25.7 %)
 
Gross margin
    167,574       44.1 %     144,402       46.1 %     23,172       16.0 %
Selling, marketing and delivery expenses
    129,721       34.1 %     107,337       34.2 %     (22,384 )     (20.9 %)
General and administrative expenses
    23,540       6.2 %     19,327       6.2 %     (4,213 )     (21.8 %)
Provisions for employees’ retirement plans
    3,868       1.0 %     2,822       0.9 %     (1,046 )     (37.1 %)
Amortization of intangibles
    99       0.0 %           0.0 %     (99 )   NM
Other, net
    356       0.1 %     (50 )     (0.0 %)     (406 )   NM
 
Earnings before interest and taxes
    9,990       2.6 %     14,966       4.8 %     (4,976 )     (33.2 %)
Interest expense, net
    1,496       0.4 %     1,094       0.3 %     (402 )     (36.7 %)
Income taxes
    3,100       0.8 %     4,966       1.6 %     1,866       37.6 %
 
Net income
  $ 5,394       1.4 %   $ 8,906       2.8 %   $ (3,512 )     (39.4 %)
 
Results of operations for the twenty-six weeks ended July 1, 2006 were significantly impacted by the TFI acquisition, which occurred during the fourth quarter of 2005. Integration of the TFI acquisition continued through the second quarter of 2006 and resulted in carrying incremental overhead costs during this stage of the integration plan, which is expected to be completed by the end of 2006. Included in these costs for the twenty-six week period was an expense of approximately $2.3 million primarily related to retention incentives for employees important to the integration process. For the twenty-six weeks ended June 25, 2005, we recorded a $2.5 million charge for executive severance related expenses.
For the twenty-six weeks ended July 1, 2006, revenue increased $66.7 million or 21% compared to the twenty-six weeks ended June 25, 2006. Our branded product revenue increased $48.2 million or 25% and non-branded product revenue increased $18.5 million or 16%. The branded product revenue growth was driven by increased revenue from salty snacks of $30.1 million, sandwich crackers and cookies of $12.6 million and nuts of $2.6 million, partially offset by declines in cake and food service products. The increase in salty snack revenue reflected the impact of the addition of Tom’s branded products and approximately 15% increase in Cape Cod product revenue. The $18.5 million increase in non-branded product revenue consisted of an $11.4 million increase in contract manufacturing revenue primarily as a result of the TFI acquisition and a $9.9 million increase in private label revenue due to continued revenue growth from new and existing customers partially offset by a $2.8 million decline in sales of third-party brands.
For the twenty-six weeks ended July 1, 2006, branded product revenue represented 64% of total revenue compared to 62% for the twenty-six weeks ended June 25, 2005. For the twenty-six weeks ended July 1, 2006, non-branded product revenue, as a percent of total revenue consisted of private label sales (26%), contract manufacturing revenue (9%) and sales of third-party brands (1%). For the same period last year, non-branded product revenue, as a percent

15


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
of total revenue consisted of private label sales (29%), contract manufacturing revenue (7%) and sales of third-party brands (2%).
Gross margin increased $23.2 million principally due to increased volume but declined 2.0 percentage points as a percentage of net revenue due to higher conversion costs of the acquired TFI facilities, $2.8 million higher commodity and natural gas prices, and a $0.9 million unfavorable impact of foreign currency as compared to the prior year. These increased expenses compared to the same prior year twenty-six week period were partially offset by net price increases and improved operational efficiencies at the facilities owned prior to the TFI acquisition.
Selling, marketing and delivery expenses increased $22.4 million compared to the prior year principally due to higher sales volume. As a percentage of net revenue, these costs decreased 10 basis points year over year. The increase in expenses compared to the prior year includes increases in wages, salary and commission expense of approximately $10.3 million, increased freight expenses of $5.9 million, of which approximately $1.7 million related to fuel rate increases. Other increases compared to the prior year include costs related to employee retention agreements of approximately $1.5 million, increased spending for advertising of $1.2 million and various other volume related expenses.
General and administrative expenses increased $4.2 million compared to prior year. During the same period in the prior year a $2.5 million charge was recorded for executive severance. Excluding this charge, general and administrative expenses would have increased $6.7 million compared to the prior year, or an increase of 80 basis points relative to net revenue. The increase was primarily the result of higher salary related costs of $2.7 million, increases in equity incentive compensation of $1.8 million, which includes a $1.0 million increase due to the adoption of SFAS 123(R) and costs relating to retention agreements of approximately $0.8 million. Other increases compared to the prior year include severance costs, relocation expenses and professional fees.
Provisions for employees’ retirement plans increased $1.0 million due to an increase in the number of employees covered under the retirement plans as well as changes in one of the employee retirement plans.
Other, net expenses increased $0.4 million primarily as a result of a $0.2 million impairment of equipment recorded in the current twenty-six week period as compared to gains on property and equipment recorded in the prior year twenty-six week period.
Net interest expense increased $0.4 million due mainly to higher interest income from short-term investments in the prior year.
The effective income tax rate increased slightly from 35.8% for the twenty-six weeks ended June 25, 2005 to 36.5% for the twenty-six weeks ended July 1, 2006. The increase was the result of unfavorable tax differences as compared to the prior year.

16


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Liquidity
For the twenty-six weeks ended July 1, 2006, the principal sources of liquidity for operating needs were provided by financing activities, operating activities and cash on hand. Cash flow from operating activities, cash on hand and existing borrowing facilities are believed to be sufficient for the foreseeable future to enable us to meet our obligations, fund capital expenditures and pay cash dividends. As of July 1, 2006, cash and cash equivalents totaled $1.3 million.
Cash Flow
Net cash flow provided by operating activities was $7.1 million and $6.9 million for the twenty-six weeks ended July 1, 2006 and July 25, 2005, respectively. Working capital other than cash and cash equivalents and current portion of long-term debt increased to $45.3 million from $36.0 million at December 31, 2005.
Net cash flow used in investing activities was $24.4 million for the twenty-six weeks ended July 1, 2006. Cash expenditures for fixed assets, principally manufacturing equipment, step-vans for field sales representatives and sales displays, totaled $27.2 million, partially funded by proceeds from the sale of assets of $2.8 million.
Cash provided by financing activities for the twenty-six weeks ended July 1, 2006 totaled $14.9 million. Cash used in financing activities for the twenty-six weeks ended June 25, 2005 totaled $6.5 million. During the twenty-six weeks ended July 1, 2006 and June 25, 2005, we paid dividends of $0.32 per share totaling $9.7 million and $9.5 million, respectively. In addition, we received cash of $17.0 million and $3.0 million during the twenty-six weeks ended July 1, 2006 and June 25, 2005, respectively, as a result of the exercise of stock options by employees. Net proceeds from our revolving credit facility totaled $7.5 million during the twenty-six weeks ended July 1, 2006.
Stock Repurchases
On February 9, 2006, the Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock through February 2007. For the twenty-six weeks ended July 1, 2006, we did not repurchase any shares of our common stock but we regularly evaluate our share repurchase opportunities.
Dividends
On July 27, 2006, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on August 18, 2006 to stockholders of record on August 10, 2006.

17


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investing Activities
Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs. Capital expenditures and other investing activities for 2006 are projected to range between $45 and $55 million funded by net cash flow from operating activities, cash on hand and borrowing facilities. Capital expenditures for purchases of property and equipment were $27.6 million for the year ended December 31, 2005.
Debt
Under the unsecured revolving credit facility, as of July 1, 2006 we had the ability to borrow up to $60 million and Canadian (“Cdn”) $25 million through February 8, 2007. Under the unsecured short-term revolving credit facility we had the ability to borrow up to $50 million through October 20, 2006. At July 1, 2006 and December 31, 2005 there was $53.8 million and $46.2 million outstanding, respectively on these revolving credit facilities.
At July 1, 2006 and December 31, 2005, we had the following debt outstanding:
                 
    July 1,   December 31,
(in thousands)   2006   2005
 
Unsecured revolving credit facility $60 million and Cdn $25 million due February 8, 2007
  $ 10,791     $ 10,215  
Unsecured short-term revolving credit facility $50 million due October 20, 2006
    43,000       36,000  
 
 
               
Total debt
    53,791       46,215  
Less current portion of long-term debt
    53,791       36,000  
 
 
               
Total long-term debt
  $     $ 10,215  
 
As of July 1, 2006, cash and cash equivalents totaled $1.3 million. Additional borrowings available under all credit facilities totaled $78.6 million. We have complied with all financial covenants contained in the financing agreements.
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 $20.6 million as of July 1, 2006.
Commitments and Contingencies
We lease facilities and equipment classified as operating leases. The future minimum lease commitments for operating leases as of July 1, 2006 were $4.3 million.

18


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We have entered into agreements with suppliers for the purchase of certain commodities and packaging materials used in the production process. These agreements arise in the normal course of business and consist of agreements to purchase specific quantities over a period of time. As of July 1, 2006, outstanding purchase commitments totaled approximately $66.2 million. These commitments range in length from a few weeks to 18 months.
Market Risks
The principal market risks that may adversely impact results of operations and financial position are changes in raw material prices, energy and fuel costs, interest and foreign exchange rates and credit risks. We selectively use derivative financial instruments to manage these risks. There are no market risk sensitive instruments held for trading purposes.
At times, we may enter into commodity futures and option contracts to manage fluctuations in prices of anticipated purchases of commodities. Our policy is to use these commodity derivative financial instruments only to the extent necessary to manage these exposures. We do not use these financial instruments for trading purposes. As of July 1, 2006, there were no outstanding commodity futures or option contracts.
Debt obligations and additional borrowings available under our credit facilities incur interest at floating rates, based on changes in U.S. Offshore rate, U.S. base rate, Canadian Bankers’ Acceptance discount rate, and Canadian prime 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. As of July 1, 2006, we had no outstanding interest rate swap agreements. As of July 1, 2006, the weighted average interest rate was 5.62%. A 10% increase in the underlying interest rate would have had an immaterial impact on interest expense for the thirteen and twenty-six weeks ended July 1, 2006 and June 25, 2005.
We are exposed to credit risks related to our accounts receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. As of July 1, 2006 and December 31, 2005, we had allowances for doubtful accounts of $3.4 million and $5.3 million, respectively.
Through the operations of our Canadian subsidiary, there is an exposure to foreign exchange rate fluctuations, primarily between U.S. dollars and Canadian dollars. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations’ costs, such as raw materials and direct labor, are denominated in Canadian dollars. We have entered into a series of forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2007. As of July 1, 2006, the fair value of liability related to the forward contracts as determined by a third party financial institution was $0.2 million. The impact of foreign exchange on the results of operations was $1.1 million unfavorable as compared to the prior year twenty-six week period.

19


 

LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Due to foreign currency fluctuations during the twenty-six weeks ended July 1, 2006 and June 25, 2005, we recorded a gain of $2.6 million and a loss of $15,000, respectively, in other comprehensive income as a result of the translation of the subsidiary’s financial statements into U.S. dollars.
Forward-Looking Statements and Risk Factors
We, from time to time, make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects’” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, those set forth under Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2005.
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. 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 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which we are exposed that may adversely impact results of operations and financial position include changes in raw material prices, energy and fuel costs, interest and foreign exchange rates and credit risks. Quantitative and qualitative disclosures about these market risks are included under “Market Risks” in Item 2 above, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

20


 

LANCE, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
There have been no changes in our internal controls over financial reporting during the quarter ended July 1, 2006 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Lance, Inc. was one of nine companies sued in August 2005 in the Superior Court for the State of California for the County of Los Angeles by the Attorney General of the State of California for alleged violations of California Proposition 65. California Proposition 65 is a state law that, in part, requires Companies to warn California residents if a product contains chemicals listed within the statute. The plaintiff seeks injunctive relief and penalties but has made no specific demands. We intend to vigorously defend this suit. A related Complaint filed by the Environmental Law Foundation, as previously disclosed in our Form 10-K for the year ended December 31, 2005, was dismissed in the first quarter of 2006.
In addition, we are subject to routine litigation and claims incidental to our business. In the opinion of management, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole.
Item 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Second Amended and Restated Credit Agreement dated February 8, 2002, restricts our payment of cash dividends and repurchases of common stock if, after payment of any dividends or any repurchases of common stock, our consolidated stockholders’ equity would be less than $125.0 million. At July 1, 2006, our consolidated stockholders’ equity was approximately $219.0 million.

21


 

LANCE, INC. AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on April 27, 2006, the following proposals were submitted to a vote of the stockholders:
1.   Election of nominees to the Board of Directors:
                 
For Term Ending in 2009   Shares Voted in Favor   Shares Withheld
Jeffery A. Atkins
    27,807,545       114,768  
J.P. Bolduc
    27,723,459       198,854  
William R. Holland
    27,436,003       486,309  
Isaiah Tidwell
    27,428,382       493,931  
2.   Ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2006; approved by a vote of 27,453,286 shares in favor, 447,237 shares against and 21,788 shares abstaining.
The 2006 Annual Meeting of Stockholders was held on April 27, 2006 and the 2007 Annual Meeting of Stockholders is scheduled for April 26, 2007.
Item 6. Exhibits
          (a) Exhibits
  3.1   Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998 (File No. 0-398).
 
  3.2   Articles of Amendment of Lance, Inc. dated July 14, 1998 designating rights, preferences and privileges of the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 1998 (File No. 0-398).
 
  3.3   Bylaws of Lance, Inc., as amended through April 25, 2002, incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 29, 2002 (File No. 0-398).
 
  10.1*   Lance, Inc. 2006 Three-Year Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).
 
  10.2*   Lance, Inc. 2006 Annual Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).

22


 

LANCE, INC. AND SUBSIDIARIES
  10.3*   Restricted Stock Unit Award Agreement Amendment dated April 27, 2006 between the Company and David V. Singer, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).
 
  31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).
 
  31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
 
  32   Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*   Management Contract
 
    Items 3 and 5 are not applicable and have been omitted.

23


 

LANCE, INC. AND SUBSIDIARIES
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  LANCE, INC.
 
 
  By:   /s/ Rick D. Puckett    
    Rick D. Puckett   
    Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary 
   
 
Dated: July 28, 2006

24


 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
Item 6(a)
FORM 10-Q
QUARTERLY REPORT
     
For the quarterly period ended
  Commission File Number
July 1, 2006
  0-398
LANCE, INC.
EXHIBIT INDEX
     
Exhibit    
No.   Exhibit Description
 
               
3.1
  Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998 (File No. 0-398).
 
   
3.2
  Articles of Amendment of Lance, Inc. dated July 14, 1998 designating rights, preferences and privileges of the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 1998 (File No. 0-398).
 
   
3.3
  Bylaws of Lance, Inc., as amended through April 25, 2002, incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 29, 2002 (File No. 0-398).
 
   
10.1*
  Lance, Inc. 2006 Three-Year Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).
 
   
10.2*
  Lance, Inc. 2006 Annual Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).
 
   
10.3*
  Restricted Stock Unit Award Agreement Amendment dated April 27, 2006 between the Company and David V. Singer, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398).

 


 

     
Exhibit    
No.   Exhibit Description
 
               
31.1
  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a).
 
   
31.2
  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
 
   
32
  Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*   Management Contract

 

 

EXHIBIT 31.1
MANAGEMENT CERTIFICATION
I, David V. Singer certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 28, 2006
/s/ David V. Singer         
David V. Singer
President and Chief Executive Officer

 

 

EXHIBIT 31.2
MANAGEMENT CERTIFICATION
I, Rick D. Puckett, certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 28, 2006
/s/ Rick D. Puckett         
Rick D. Puckett
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary

 

 

EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lance, Inc. (the “Company”) on Form 10-Q for the period ended July 1, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David V. Singer, President and Chief Executive Officer of the Company, and Rick D. Puckett, Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Lance, Inc. and will be retained by Lance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
         
   
/s/ David V. Singer
  /s/ Rick D. Puckett    
 
David V. Singer
 
 
Rick D. Puckett
   
President and Chief
  Executive Vice President,    
Executive Officer
  Chief Financial Officer,    
July 28, 2006
  Treasurer and Secretary    
 
  July 28, 2006