Snyder's-Lance, Inc.
LANCE INC (Form: 10-K, Received: 03/13/2007 07:10:37)
 

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 0-398
LANCE, INC.
 
(Exact name of Registrant as specified in its charter)
     
North Carolina   56-0292920
     
(State of Incorporation)   (I.R.S. Employer Identification Number)
8600 South Boulevard, Charlotte, North Carolina 28273
 
(Address of principal executive offices)
Post Office Box 32368, Charlotte, North Carolina 28232
 
(Mailing address of principal executive offices)
Registrant’s telephone number, including area code: ( 704) 554-1421
Securities Registered Pursuant to Section 12(b) of the Act:
     
Title of Each Class   Name of Each Exchange on Which Registered
$0.83-1/3 Par Value Common Stock
  The NASDAQ Stock Market LLC
 
   
Rights to Purchase $1 Par Value Series A Junior Participating Preferred Stock
  The NASDAQ Stock Market LLC
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   o   No   þ
Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes   o   No   þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   þ   No   o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
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 Act). Yes  o  No  o
The aggregate market value of shares of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of voting stock, held by non-affiliates as of July 1, 2006, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $697,981,000
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 March 2, 2007, was 30,872,266 shares.
 
 

 


 

Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 26, 2007 are incorporated by reference into Part III of this Form 10-K.

 


 

PART I
Item 1. Business
General
Lance, Inc. was incorporated as a North Carolina corporation in 1926. We operate in one segment, snack food products. Our corporate offices and principal manufacturing facilities are located in Charlotte, North Carolina. We also have manufacturing operations in Burlington, Iowa; Waterloo, Ontario; Guelph, Ontario; Cambridge, Ontario; Hyannis, Massachusetts; Columbus, Georgia; Perry, Florida; and Corsicana, Texas. In April 2005, we acquired a sugar wafer plant in Cambridge, Ontario, Canada. In October 2005, we acquired substantially all of the assets of Tom’s Foods Inc. (Tom’s), including bakery operations in Columbus, Georgia and potato chip plants in Perry, Florida; Fresno, California; Corsicana, Texas and Knoxville, Tennessee. We closed the Fresno, California plant shortly after the acquisition in 2005. During 2006, we closed and sold the Knoxville, Tennessee plant. The Fresno, California plant and certain properties in Columbus, Georgia are currently held for sale.
Products
We manufacture, market and distribute a variety of snack food products. We manufacture products including sandwich crackers and cookies, restaurant style crackers, potato chips, tortilla chips, cookies, sugar wafers, nuts, candy and other salty snacks. In addition, we purchase certain cakes, candy, meat snacks, restaurant style crackers, salty snacks and cookies for resale in order to broaden our product offerings. We use third-party manufacturers to produce certain products that we also manufacture based on production commitments and the location of customers. Products are packaged in various single-serve, multi-pack and family-size configurations. We manufacture approximately 90% of all of the products we sell and the remainder is purchased for resale.
We sell both branded and non-branded products. Our branded products are principally sold under the Lance, Cape Cod Potato Chips and Tom’s brands. During 2006 and 2005, branded products represented approximately 64% and 62% of total revenue, respectively. Non-branded products represented approximately 36% and 38% of total 2006 and 2005 revenue, respectively. Non-branded products consist of private label, contract manufacturing and products sold under third-party brands. Private label products are sold to retailers and distributors using a controlled brand. Contract manufacturing products are produced for other branded manufacturers. Third-party brands consist of products we distribute for other branded companies.
Intellectual Property
Trademarks that are important to our business are protected by registration or other means in the United States and most other markets where the related products are sold. We own various registered trademarks for use with our branded products including LANCE, CAPE COD POTATO CHIPS, TOM’S, TOASTCHEE, TOASTY, NEKOT, NIPCHEE, CHOC-O-LUNCH, VAN-O-LUNCH, GOLD-N-CHEES, CAPTAIN’S WAFERS, THUNDER, OUTPOST, and a variety of other marks and designs. We license trademarks, including DON PABLO’s and BUGLES, for limited use on certain products that are classified as branded product sales.
We also own registered trademarks including VISTA, JODAN and CARRIAGE HILL that are used in connection with our private label, non-branded products.

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Distribution
Distribution through our direct-store delivery (DSD) route sales system accounted for approximately 47% of 2006 revenues. At December 30, 2006, the DSD system consisted of approximately 1,500 sales routes in 25 states, mostly located within the southeastern and Mid-Atlantic United States. Each sales route is served by one sales representative. We use our own fleet of tractors and trailers to make weekly deliveries of products throughout our DSD system. Each route maintains stockroom space for inventory through either individual stockrooms or distribution facilities. The sales representatives load step-vans from these stockrooms for delivery to customers. As of December 30, 2006, we owned approximately 90% of the step-vans with the balance owned by employees.
Approximately 53% of our total revenues in 2006 were generated from direct sales. These sales are generally distributed by direct shipments or customer pick-ups. Direct sales are shipped through third-party carriers and our own transportation fleet. Direct sales are shipped to customer locations throughout most of the United States and other parts of North America. We utilize our own personnel, independent distributors and brokers to solicit direct sales.
Customers
The customer base for our branded products include convenience stores, grocery stores, distributors, mass merchandisers, food service establishments, club stores, discount stores and various other customers including drug stores, schools, military, government facilities and “up and down the street” outlets such as recreational facilities, offices and other independent retailers. Private label customers include grocery stores, mass merchandisers and discount stores. We also manufacture products for branded manufacturers. At the end of 2006, a plan was implemented to discontinue all company-owned vending operations by the middle of 2007.
Revenue from our largest customer, Wal-Mart Stores, Inc., was approximately 18% of revenue in 2006, 21% in 2005 and 18% in 2004. While we enjoy a continuing business relationship with Wal-Mart Stores, Inc., the loss of this business or a substantial portion of this business could have a material adverse effect on our results of operations.
Raw Materials
The principal raw materials used to manufacture our products are vegetable oil, flour, peanuts, sugar, potatoes, peanut butter, other nuts, cheese and seasonings. The principal packaging 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 and are often contracted up to a year in advance.

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Competition and Industry
Our products are sold in highly competitive markets. Generally, we compete with manufacturers, many of whom have greater total revenues and resources than we do. The principal methods of competition are price, service, product quality and product offerings. The methods of competition and our competitive position vary according to the geographic location, the particular products and the activities of our competitors.
Employees
At the end of February 2007, we had approximately 4,800 active employees in the United States and Canada, as compared to approximately 5,500 active employees at the beginning of March 2006. None of our employees are covered by a collective bargaining agreement. The decrease in employees primarily relates to the efficiencies gained through the integration of the Tom’s acquisition that were realized during 2006.
Other Matters
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are available on our website free of charge. The website address is www.lance.com. All required reports are made available on the website as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.
Item 1A. Risk Factors
In addition to the other information in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Additional risks and uncertainties, including risks that we do not presently know of or currently deem immaterial, may also impair our business or results of operations.
Price competition and industry consolidation could adversely impact our performance
The sales of most of our products are subject to significant competition primarily through discounting and other price cutting techniques by competitors, many of whom are significantly larger and have greater resources than we do. In addition, there is a continuing consolidation by the major companies in the food industry, which could increase competition. Significant competition increases the possibility that we could lose one or more major customers, lose market share, increase expenditures or reduce pricing, which could have an adverse impact on our business or results of operations.
Inability to anticipate changes in consumer preferences may result in decreased demand for products, which could have an adverse impact on our future growth and operating results
Our success depends in part on our ability to respond to current market trends and to anticipate the tastes and dietary habits of consumers. Changes in consumer preferences, and our failure to anticipate, identify or react to these changes could result in reduced demand for our products, which could in turn cause our operating results to suffer.

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Future product recalls or safety concerns could adversely impact our results of operations
We may be required to recall certain of our products should they be mislabeled, contaminated or damaged. We also may become involved in lawsuits and legal proceedings if it is alleged that the consumption of any of our products causes injury or illness. A product recall or an adverse result in any such litigation could have a material adverse effect on our operating and financial results. We also could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of our products.
Any business disruption due to natural disasters catastrophic events could adversely impact our financial performance
If natural disasters or catastrophic events occur in the U.S. or other locations, such events may disrupt manufacturing, labor and other aspects of our business. In the event of such incidents, our business and financial performance could be adversely affected.
Increases in prices of primary ingredients and other commodities could cause our costs to increase
Our cost of sales could be adversely impacted by changes in the cost of raw materials, principally vegetable oil, flour, sugar, potatoes, peanuts, peanut butter, other nuts, cheese and seasonings. While we often obtain substantial commitments for future delivery of certain raw materials and may engage in limited hedging to reduce the price risk of these raw materials, continuing long-term increases in the costs of raw materials, including cost increases due to the tightening of supply, could adversely impact our cost of sales. We could also be adversely impacted by changes in the cost of natural gas and other fuel. While we may engage in limited hedging to reduce the price risk associated with these costs, continuing long-term increases in the cost of natural gas and fuel could adversely impact our cost of sales and selling, marketing and delivery expenses.
Food industry and regulatory factors could adversely affect our revenues and costs
Food industry factors including obesity, nutritional concerns and diet trends could adversely affect our revenues and cost of sales. New or increased government regulation of the food industry could result in increased costs, restrictions on our methods of operation, and could adversely impact our results of operations.
We are exposed to risks resulting from several large customers
We have several large customers that account for a significant portion of our revenue. Our top ten customers accounted for approximately 37% of our revenue during 2006 with our largest customer representing 18% of our 2006 revenue. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts, but make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. If our revenue from one or more of these customers is significantly reduced, this reduction could adversely affect our business. If receivables from one or more of these customers become uncollectible, our results of operations may be adversely impacted.
We are exposed to interest rate volatility, foreign exchange rate volatility and credit risks
We are exposed to interest rate volatility with regard to variable rate credit facilities. We are exposed to foreign exchange rate volatility primarily through the operations of our Canadian subsidiary. This volatility may adversely impact our results of operations. In addition, we are exposed to certain customer credit risks related to the collection of our accounts receivable.

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Acquisitions and divestitures may result in financial results that are different than expected
In the normal course of business, we engage in discussions relating to possible acquisitions and divestitures. As a result of entering into such transactions, our financial results may differ from expectations in a given quarter, or over a long-term period. Our future operating results are dependent on our ability to integrate the operations of acquired businesses into our existing operations. The inability to effectively integrate the acquired assets or effectively divest of operations, including our vending operations, could adversely impact our revenues and results of operations.
There are other factors not described above that could also cause actual results to differ materially from those in any forward-looking statement made by us or on our behalf.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Our corporate offices and principal manufacturing facilities are located in Charlotte, North Carolina. We also own manufacturing plants in Burlington, Iowa; Waterloo, Ontario; Guelph, Ontario; Cambridge, Ontario; Hyannis, Massachusetts; Columbus, Georgia; Perry, Florida; Fresno, California; and Corsicana, Texas. We closed the Fresno, California plant during 2005, which is currently being held for sale. We closed and sold the Knoxville, Tennessee plant during 2006.
We lease office space for administrative support and sales offices in 12 states. We also own or lease approximately 1,650 stockroom locations and 7 distribution facilities.
The plants and properties that we own and operate are maintained in good condition and are believed to be suitable and adequate for present needs. We added additional production capacity for our products through the acquisition of the Tom’s facilities and the acquisition of the additional sugar wafer manufacturing plant during 2005. We believe that we have sufficient production capacity to meet anticipated demand in 2007.
Item 3. Legal Proceedings
We were 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 lawsuit. 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 our opinion, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole.

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Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Separate Item. Executive Officers of the Registrant
Information as to each of our executive officers is as follows:
             
Name   Age   Information About Officer
H. Dean Fields
    65    
Vice President of Lance, Inc. since 2002; President of Vista Bakery, Inc. (subsidiary of Lance, Inc.) since 1996
 
           
Earl D. Leake
    55    
Senior Vice President – Human Resources of Lance, Inc. since February 2007; Vice President – Human Resources of Lance, Inc. since 1995
 
           
Frank I. Lewis
    54    
Senior Vice President – Sales of Lance, Inc. since February 2007; Vice President – Sales of Lance, Inc. since 2000
 
           
Glenn A. Patcha
    43    
Senior Vice President, Sales and Marketing of Lance, Inc. since January 2007; Senior Vice President of Marketing ConAgra Grocery Products Division, a packaged foods company, 2003 to June 2006; various executive positions with Eastman Kodak including, VP of Marketing for Kodak’s North American Consumer Imaging Division from 1998 to 2003
 
           
Rick D. Puckett
    53    
Executive Vice President, Chief Financial Officer and Secretary of Lance, Inc. since January 2006 and Treasurer of Lance, Inc. since April 2006; Executive Vice President, Chief Financial Officer and Treasurer of United Natural Foods, Inc., a wholesale distributor of natural and organic products from 2005 to January 2006; Vice President, Chief Financial Officer and Treasurer of United Natural Foods, Inc. from 2003 to 2005; and various executive positions at Suntory Water Group, Inc, a bottled water distribution company, including Chief Financial Officer, Chief Information Officer, Vice President, Corporate Controller and Vice President Business Development and Planning from 1998 to 2002
 
           
David V. Singer
    51    
President and Chief Executive Officer of Lance, Inc. since 2005; Executive Vice President and Chief Financial Officer of Coca-Cola Bottling Co. Consolidated, a beverage manufacturer and distributor, from 2001 to 2005
 
           
Blake W. Thompson
    51    
Senior Vice President – Supply Chain of Lance, Inc. since February 2007; Vice President – Supply Chain of Lance, Inc. since 2005; Senior Vice President, Supply Chain of Tasty Baking, a snack food manufacturer and distributor, from 2004 to 2005; Region Vice President of Operations, Northeast Region of Frito Lay (a division of PepsiCo, Inc.) a snack food manufacturer and distributor, from 2001 to 2004
 
           
Margaret E. Wicklund
    46    
Corporate Controller, Principal Accounting Officer and Assistant Secretary of Lance, Inc. since 1999

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All of the executive officers were appointed to their current positions at the Annual Meeting of the Board of Directors on April 27, 2006 with the exception of Mr. Patcha who was appointed on January 8, 2007, and Messrs. Leake, Lewis, and Thompson who were appointed Senior Vice Presidents on February 8, 2007. All of our executive officers’ terms of office extend until the next Annual Meeting of the Board of Directors and until their successors are duly elected and qualified.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
We had 3,184 stockholders of record as of March 2, 2007.
The $0.83-1/3 par value of our Common Stock is traded in the over-the-counter market under the symbol LNCE and transactions in the Common Stock are reported on the NASDAQ Stock Market. The following table sets forth the high and low sales prices and dividends paid during the interim periods in fiscal years 2006 and 2005.
                         
    High   Low   Dividend
2006 Interim Periods   Price   Price   Paid
 
First quarter (13 weeks ended April 1, 2006)
  $ 22.66     $ 17.91     $ 0.16  
Second quarter (13 weeks ended July 1, 2006)
    26.40       21.22       0.16  
Third quarter (13 weeks ended September 30, 2006)
    24.00       20.50       0.16  
Fourth quarter (13 weeks ended December 30, 2006)
    22.95       18.35       0.16  
                         
    High   Low   Dividend
2005 Interim Periods   Price   Price   Paid
 
First quarter (13 weeks ended March 26, 2005)
  $ 19.53     $ 14.02     $ 0.16  
Second quarter (13 weeks ended June 25, 2005)
    19.00       15.33       0.16  
Third quarter (13 weeks ended September 24, 2005)
    18.94       15.45       0.16  
Fourth quarter (14 weeks ended December 31, 2005)
    19.12       16.62       0.16  
On February 9, 2007, the Board of Directors of Lance, Inc. declared a quarterly cash dividend of $0.16 per share payable on February 28, 2007 to stockholders of record on February 20, 2007. Our Board of Directors will consider the amount of future cash dividends on a quarterly basis.
Our Credit Agreement dated October 20, 2006 restricts payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $125.0 million. At December 30, 2006, our consolidated stockholders’ equity was $222.4 million.

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Item 6. Selected Financial Data
The following table sets forth selected historical financial data for the five-year period ended December 30, 2006. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements. The prior year amounts have been reclassified for consistent presentation, including the reclassification of the vending operations to discontinued operations for all years presented.
                                         
    2006   2005   2004   2003   2002
 
Results of Operations (in thousands):
                                       
Net sales and other operating revenue
  $ 730,116     $ 651,437     $ 564,734     $ 516,994     $ 488,771  
Income from continuing operations before income taxes
    28,187       26,499       33,298       21,977       23,813  
Net income from continuing operations
    18,378       17,476       22,627       14,049       15,126  
Income from discontinued operations before income taxes
    153       1,506       3,276       6,607       7,535  
Net income from discontinued operations
    100       994       2,228       4,229       4,787  
Net income
  $ 18,478     $ 18,470     $ 24,855     $ 18,278     $ 19,913  
 
                                       
Average Number of Common Shares Outstanding
(in thousands):
                               
Basic
    30,467       29,807       29,419       29,015       28,981  
Diluted
    30,844       30,099       29,732       29,207       29,231  
 
                                       
Per Share of Common Stock:
                                       
Earnings per share from continuing operations — basic
  $ 0.61     $ 0.59     $ 0.77     $ 0.48     $ 0.52  
Earnings per share from discontinued operations — basic
          0.03       0.07       0.15       0.17  
Earnings per share from continuing operations — diluted
    0.60       0.58       0.77       0.48       0.52  
Earnings per share from discontinued operations — diluted
          0.03       0.07       0.15       0.16  
Cash dividends declared
  $ 0.64     $ 0.64     $ 0.64     $ 0.64     $ 0.64  
 
                                       
Financial Status at Year-end (in thousands):
                                       
Total assets
  $ 385,452     $ 369,079     $ 341,740     $ 323,647     $ 305,865  
Long-term debt, net of current portion
  $ 50,000     $ 10,215     $     $ 38,168     $ 36,089  
Total debt
  $ 50,000     $ 46,215     $ 40,650     $ 43,738     $ 36,152  
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides an assessment of our financial condition, results of operations, liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements.

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Management’s discussion and analysis of our financial condition and results of operations are based upon consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. We routinely evaluate our estimates, including those related to customer returns and promotions, provisions for bad debts, inventory valuations, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible asset valuations, incentive compensation, income taxes, self-insurance, post-retirement benefits, contingencies and legal proceedings. Actual results may differ from these estimates under different assumptions or conditions.
Executive Summary
Fiscal 2006 represented a year of foundation building for our company. Our efforts focused on integrating the Tom’s business, building and reorganizing our management team, and developing and executing our plan for growth and operational efficiency.
One of our most significant initiatives during 2006 was the integration of the Tom’s acquisition into our operations. Integration of the acquisition consumed a significant amount of focus and resources throughout the Company and had a negative impact on our financial results for the year. During 2006, we successfully:
   
Consolidated Tom’s products and customers into our DSD system,
 
   
Secured relationships with independent distributors outside of our DSD geography,
 
   
Rationalized product offerings,
 
   
Closed the Knoxville manufacturing operation and consolidated production at our other manufacturing facilities,
 
   
Established a cost effective distribution footprint that is closer to our customers by installing kettle chip capacity in our Florida and Texas facilities and bringing production of previously outsourced Don Pablo’s brand tortilla chips into existing facilities,
 
   
Integrated the new facilities onto our existing computer systems, and
 
   
Eliminated redundant functions within the combined entity.
The integration phase of the Tom’s acquisition was largely completed in 2006. However, we will continue to focus on realizing the full benefits of the Tom’s acquisition, which will require additional refinements in our product offerings, pricing strategy and capacity utilization in 2007.

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During 2006, management began the process of developing the strategic plan which will provide the foundation for future growth. One of our key priorities is to improve our infrastructure to enable us to efficiently, effectively and profitably grow our company. These improvements include:
   
Organizational alignment,
 
   
Supply chain efficiencies,
 
   
Improved information technology systems, and
 
   
Enhanced DSD operations.
The foundation of our strategic plan is our people and how they influence the changes needed in our organization. During 2006, we strengthened our management team and attracted new members of management that will drive positive changes necessary for the future. We realigned our organizations to support our focus on the total business and improve communication, teamwork and execution. We also changed our employee compensation structure to be more in line with the market in order to attract and retain key employees.
Supply chain leverage is critical to efficient operations. The changes that were made during 2006 included centralizing procurement, logistics and manufacturing, opening remote distribution centers and improving the distribution fleet by investing in higher capacity trailers. In addition, we focused on implementing best practices at all locations. By consolidating our supply chain, we can take advantage of our manufacturing and logistics resources based on customer needs and locations. In addition, by centralizing procurement we will be able to capitalize on volume pricing. During 2006, we spent over $25.0 million to improve manufacturing and logistic efficiencies to support the consolidated supply chain.
An integrated information technology system is vital to support future growth of the organization by providing necessary information for decision-making. In addition, a standardized system will promote consistent and improved practices and processes. We spent approximately $4.0 million on information and handheld computer technology expenditures in 2006. The handheld computer project is expected to be completed by the second quarter of 2007, while the common integrated information system project will continue through 2007.
Our DSD system has been a focus of our organization over an extended period of time and much improvement has been made to increase the average drop size per customer and route profitability. However, our route fleet was considerably aged and our handheld computers were not up-to-date technologically. In 2006, we increased our capital spending to improve our route fleet by purchasing new trucks for $7.1 million and began the roll-out of new handheld computers as discussed above.
Based on our business strengths and plans for the future, we decided late in 2006 to discontinue our vending business and focus our attention on more profitable areas of our business. Accordingly, our vending operations are included in discontinued operations, and we recognized related earnings per diluted share of less than $0.01 on revenue of $17.8 million in 2006.

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Revenue from continuing operations in 2006 increased 12.1% as compared to 2005. Branded revenue increased 15.7% and non-branded revenue increased 6.2%. The increase in revenue was favorably impacted by the Tom’s acquisition as well as continued growth in Lance and Cape Cod Potato Chips branded products, but was negatively impacted by declining revenue from a major private label customer and the shorter 52-week year in 2006 compared to a 53-week year in 2005.
Net income from continuing operations in 2006 increased $0.9 million as compared to 2005. The change in net income from continuing operations included $2.8 million in 2006 for pre-tax expenses related to the integration of the Tom’s facilities as compared to $3.4 million in 2005 as well as $2.5 million of executive severance charges expensed in 2005. Excluding these charges, net income would have decreased $2.2 million compared to prior year. Commodity and packaging rates increased $10.3 million in 2006 compared to 2005, primarily due to the increased cost of flour and sugar. Fuel and natural gas prices increased $3.9 million, and the impact of foreign currency negatively impacted pre-tax earnings $1.7 million. In addition, in 2006 we adopted Statement of Financial Accounting (SFAS) No. 123R, “Accounting for Stock Based Compensation” (SFAS 123R), which increased pre-tax stock based compensation expense $1.3 million as compared to fiscal 2005. Offsetting these increases in expenses in 2006 were reductions in expenses for casualty losses and bad debts of $1.2 million and $1.6 million, respectively as compared to 2005.
During 2006, we entered into a new debt agreement that provides for revolving credit of up to US$100.0 million and CDN$15.0 million, and a US$50.0 million term loan. As of December 30, 2006, we had $50.0 million outstanding in debt and $5.5 million in cash and cash equivalents.
Critical Accounting Policies
We believe the following to be critical accounting policies. That is, they are both important to the financial condition and results of operations and require management to make judgments and estimates about matters that are inherently uncertain.
Revenue Recognition
Our policy on revenue recognition varies based on the types of products sold and the distribution method. We recognize operating revenue when title and risk of loss passes to our customers. Allowances for sales returns, stale products, promotions and discounts are also recorded as reductions of revenue in the consolidated financial statements.
Revenue for products sold through our DSD system is recognized when the product is delivered to the retailer. Our sales representative creates the invoice at time of delivery using a handheld computer. The invoice is transmitted electronically each day and sales revenue is recognized. Customers purchasing products through the DSD system have the right to return product if it is not sold by the expiration date on the product label. We have recorded an estimated allowance for product that may be returned as a reduction to revenue. We estimate the number of days until product is sold through the customer’s location and the percent of sales returns using historical information. This information is reviewed on a quarterly basis for significant changes and updated no less than annually.
Revenue for products shipped directly to the customer from our warehouse is recognized based on the shipping terms listed on the shipping documentation. Products shipped with terms FOB-shipping point are recognized as revenue at the time the shipment leaves our warehouses.

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Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer.
We sell products through our company-owned vending machines using two methods. The first method is the wholesale method, with the customer managing the vending machine and purchasing products from us. Under this method, revenue is recognized when product is delivered. The second method is the full-service method, with our sales representatives managing the vending machines and commissions being paid to each customer based on sales. Revenue is recognized under this method when inventory is restocked and cash is collected from the machine and is recorded net of commissions and sales tax. Revenues using both methods are included in discontinued operations.
We record certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as off-invoice allowances, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. We record the amount of the deduction as a reduction to revenue when the transaction occurs. Rebates are offered to customers based on the quantity of product purchased over a period of time. Based on the nature of these allowances, the exact amount of the rebate is not known at the time the product is sold to the customer. An estimate of the expected rebate amount is recorded as a reduction to revenue and an accrued liability at the time the sale is recorded. The accrued liability is monitored throughout the time period covered by the promotion. The accrual is based on historical information and the progress of the customer against the target amount. Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or three years and recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis.
We also record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue. The accrued liability is monitored throughout the time period covered by the coupon or promotion.
Insurance Reserves
We maintain reserves for the self-funded portions of employee medical insurance and for post-retirement healthcare benefits. In addition, we maintain insurance reserves for the self-funded portions of workers’ compensation, auto, product and general liability insurance. Self-insured accruals are based on claims filed and estimated claims incurred but not reported. Workers’ compensation, automobile and general liability costs are covered by standby letters of credit with our claims administrators.
For casualty insurance obligations, we maintain self-insurance reserves for workers’ compensation and auto liability for individual losses up to $0.5 million. In addition, general and product liability claims are self-funded for individual losses up to $0.1 million. We use a third-party actuary to assist in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, the third-party actuary uses various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. The third-party actuary also uses historical information for claims frequency and severity in order to establish loss development factors. The actuarial calculation determines an estimated range of loss reserves. Consistent with prior periods, the 75 th percentile of this range represents our best estimate of the ultimate outstanding casualty liability. During 2006 and 2005, we used a 4.5% investment rate to discount the estimated claims based on the historical payout pattern.

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We have a post-retirement healthcare plan which currently provides medical insurance benefits for retirees and their spouses to age 65. The plan was amended in 2001, and we began to phase out the post-retirement healthcare plan. The post-retirement healthcare plan will be phased-out over the next five years. We use a third-party actuary to assist in the estimation of the post-retirement healthcare plan obligation on an annual basis. This obligation requires assumptions regarding participation, healthcare cost trends, employee contributions, turnover, mortality and discount rates.
Claims in excess of the self-insured levels, which vary by type of insurance, are fully insured up to $100.0 million per individual claim.
Actual losses could vary from those estimated by the third-party actuary. We believe the reserves established are reasonable estimates of the ultimate liability based on historical trends.
Accounts Receivable
We record accounts receivable at the time revenue is recognized. Amounts for bad debt expense are recorded in selling, marketing and delivery expenses on the consolidated statements of income. The determination of the allowance for doubtful accounts is based on management’s estimate of uncollectible accounts receivables. We record a general reserve based on analysis of historical data. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. We have a formal policy for determining the allowance for doubtful accounts. The assumptions for this determination are reviewed quarterly to ensure that business conditions or other circumstances are consistent with the assumptions. Failure of a major customer to pay amounts owed to us could have a material impact on our consolidated financial statements. Bad debt expense (benefit) for the fiscal years 2006, 2005 and 2004 was ($0.8) million, $2.5 million and $1.1 million, respectively. The bad debt benefit in 2006 resulted from unanticipated collections of accounts receivable previously reserved for or written-off.
At December 30, 2006 and December 31, 2005, we had accounts receivable of $61.7 million and $59.1 million, net of an allowance for doubtful accounts of $1.0 million and $5.3 million, respectively. The $4.3 million decrease in the allowance for doubtful accounts was primarily due to write-offs of uncollectible accounts that were either part of the opening balance sheet of the Tom’s acquisition or previously expensed in 2005.
The following table summarizes our customer accounts receivable profile as of December 30, 2006:
         
Accounts Receivable Balance   # of Customers
 
Less than $1,000
    8,791  
$1,001 - $10,000
    1,922  
$10,001 - $100,000
    476  
$100,001 - $500,000
    58  
$500,001 - $1,000,000
    11  
$1,000,001 - $2,500,000
    7  
Greater than $2,500,000
    2  
 

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Goodwill and Other Intangible Assets
The annual impairment analysis of goodwill requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital. These projections rely upon historical performance, anticipated market conditions and forward-looking business plans.
The analysis of goodwill as of December 30, 2006 assumes combined average annual revenue growth of approximately 2.5% during the valuation period. Significant investments in fixed assets and working capital to support this growth are factored into the analysis. If the forecasted revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with the excess fair value over carrying value, changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future.
Amortizable intangible assets are amortized using the straight-line method over their useful lives, which is the estimated period over which economic benefits are expected to be provided. Intangible assets with indefinite lives are not amortized, but are tested for impairment on an annual basis.
Depreciation and Impairment of Property, Plant and Equipment
Property, plant and equipment are stated at historical cost, and depreciation is computed using the straight-line method over the lives of the assets. The lives used in computing depreciation are based on estimates of the period over which the assets will provide economic benefits. Such lives may be the same as the physical lives of the assets, but they can be shorter or longer. Estimated lives are based on historical experience, maintenance practices, technological changes and future business plans. Our policies require the periodic review of remaining depreciable lives based upon actual experience and expected future utilization.
Property, plant and equipment are tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Recoverability of property, plant and equipment are evaluated by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If this comparison indicates that an asset’s carrying amount is not recoverable, an impairment loss is recognized, and the adjusted carrying amount is depreciated over the asset’s remaining useful life.
Assets that are to be disposed of by sale are recognized in the financial statements at the lower of carrying amount or fair value, less cost to sell, and are not depreciated once they are classified as held for sale. In order for an asset to be classified as held for sale, the asset must be actively marketed, available for immediate sale and meet certain other specified criteria.

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New Accounting Standards
We adopted SFAS 123R at the beginning of 2006. SFAS 123R establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, such as when an entity obtains employee services in share-based payment transactions. The revised statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the required service period are to be recognized as compensation cost over that period. In addition, SFAS 123R amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. When we adopted SFAS 123R, we elected the modified prospective application method and prior period amounts have not been restated. The impact of the adoption of SFAS 123R for the year ended December 30, 2006 was a decrease in pre-tax income of $1.3 million.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is expected not to have a material impact on our results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a material impact on our financial condition, results of operations or cash flows.
The FASB also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” in September 2006. SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a single-employer defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet, with limited exceptions. We adopted the provisions of SFAS No. 158 that are effective at the end of the fiscal year ending after December 15, 2006, which resulted in a reclassification of the unrealized gain component of the accrued post-retirement healthcare costs liability to accumulated other comprehensive income, net of tax, at December 30, 2006. The year-end measurement requirement will be effective for fiscal years ending after December 15, 2008.

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In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities: Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to measure many financial instruments and certain other items at fair value with changes in fair value reported in earnings. The FASB issued SFAS No. 159 to mitigate earnings volatility that arises when financial assets and liabilities are measured differently, and to expand the use of fair value measurement for financial instruments. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007.
Results of Operations
                                                 
                                    Favorable/
2006 Compared to 2005 (in millions)   2006   2005   (Unfavorable)
 
Revenue
  $ 730.1       100.0 %   $ 651.4       100.0 %   $ 78.7       12.1 %
Cost of sales
    415.6       56.9       369.3       56.7       (46.3 )     (12.5 )
 
Gross margin
    314.5       43.1       282.1       43.3       32.4       11.5  
Selling, marketing and delivery expenses
    240.1       32.9       216.1       33.2       (24.0 )     (11.1 )
General and administrative expenses
    42.9       5.9       37.6       5.8       (5.3 )     (14.1 )
Other expense/(income), net
    0.2             (0.1 )           (0.3 )     (300.0 )
 
Earnings before interest and taxes
    31.3       4.3       28.5       4.4       2.8       9.8  
Interest expense, net
    3.1       0.4       2.0       0.3       (1.1 )     (55.0 )
Income tax expense
    9.8       1.3       9.0       1.4       (0.8 )     (8.9 )
 
Net income from continuing operations
    18.4       2.5       17.5       2.7       0.9       5.1  
Income from discontinued operations
    0.2             1.5       0.2       (1.3 )     (86.7 )
Income tax expense
    0.1             0.5       0.1       0.4       80.0  
 
Net income from discontinued operations
    0.1             1.0       0.2       (0.9 )     (90.0 )
 
Net income
  $ 18.5       2.5 %   $ 18.5       2.8 %   $        
 
Revenue from continuing operations for the fifty-two weeks ended December 30, 2006 increased $78.7 million or 12.1% compared to the fifty-three week period ended December 31, 2005. The additional week in 2005 from continuing operations generated $8.1 million in revenue.
Branded sales represented 64% of total revenue in 2006 as compared to 62% in 2005. In 2006, private label sales represented 26% of total revenue and contract manufacturing was 10% of total revenue. For 2005, private label sales were 29% of revenue and contract manufacturing was 9% of total revenue.
Branded revenue increased $63.3 million or 15.7% and non-branded revenue increased $15.4 million or 6.2%. The increase in branded revenue was favorably impacted by the Tom’s acquisition in late 2005 as well as growth in both Lance branded sandwich crackers and Cape Cod Potato Chips. Branded revenue from sales in convenience stores grew approximately 25% followed by revenue growth in sales through distributors and grocery stores of 22% and 17%, respectively. Branded revenue from mass merchandisers and club stores also showed strong growth offset somewhat by declines in DSD food service revenue.
Our DSD system generated approximately 74% of the branded revenue in both 2006 and 2005. The remaining 26% was made up of branded revenue through distributors and direct shipments to customers. Of the 2006 branded revenue, approximately 25% was sold to convenience stores, 25% to grocery stores, 15% to distributors, 10% to mass merchandisers and the remaining to food service establishments, club stores, discount stores and various other retail and institutional outlets.

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The non-branded revenue increase of $15.4 million included a $13.8 million increase in contract manufacturing revenue and a $2.5 million increase in private label revenue, partially offset by declines in sales of third-party brands. The increase in contract manufacturing was favorably impacted by the Tom’s acquisition and increased sales to existing customers.
Cost of sales increased 0.2% as a percentage of revenue due to higher commodity and packaging costs of $10.3 million, increased natural gas costs of $1.8 million and an unfavorable impact of foreign currency of $1.4 million.
Gross margin increased $32.4 million principally due to higher sales volume and improved product pricing, but decreased 0.2% as a percentage of revenue as a result of the increased costs of goods sold.
Selling, marketing and delivery expenses increased $24.0 million but decreased 0.3% as a percentage of revenue. Included in selling, marketing and delivery expenses were charges of $1.3 million related to the integration of the Tom’s operations for 2006 as compared to $1.1 million in 2005. Approximately two-thirds of the $24.0 million increase was due to increased salaries and commission expense. Fuel costs in 2006 increased approximately $2.1 million compared to 2005. In addition, travel expenses increased $1.0 million partially as a result of increased rates for reimbursed employee business mileage. Offsetting the increased expenses were reductions in bad debt expense of $1.6 million.
General and administrative costs increased $5.3 million or 14.1% in 2006 as compared to 2005. Included in 2005 were severance charges of $2.5 million for the prior CEO. Excluding these charges, general and administrative expenses would have increased $7.8 million or 22.2%. The increase in 2006 was driven by higher compensation of $2.7 million due to additional employees in 2006 and changes in compensation structure as compared to 2005. In addition, equity incentive expense increased $2.3 million due in part to the adoption of SFAS 123R in 2006 which resulted in additional expenses of $0.9 million. Integration costs relating to the Tom’s acquisition were $0.8 million in 2006 as compared to $0.7 million in 2005. Other increases in expenses in 2006 as compared to 2005 include higher information technology expenses, utility costs, and relocation costs.
Interest expense increased $1.1 million as a result of higher average debt levels in 2006 as compared to 2005. Higher debt levels were a result of the Tom’s acquisition.
In 2006, net income from discontinued operations was $0.1 million as compared to $1.0 million in 2005. This decline was driven by $10.0 million less revenue in 2006 and relatively flat operating expenses as a percentage of revenue when compared to 2005.
Our effective income tax rate was 34.8% in 2006 as compared to 34.0% in 2005. The increase in the income tax rate is due primarily to a combination of an increase in state income tax expense and reductions in items deductible for income tax purposes but not for financial reporting.

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                                    Favorable/
2005 Compared to 2004 (in millions)   2005   2004   (Unfavorable)
 
Revenue
  $ 651.4       100.0 %   $ 564.7       100.0 %   $ 86.7       15.4 %
Cost of sales
    369.3       56.7       314.3       55.7       (55.0 )     (17.5 )
 
Gross margin
    282.1       43.3       250.4       44.3       31.7       12.7  
Selling, marketing and delivery expenses
    216.1       33.2       184.4       32.7       (31.7 )     (17.2 )
General and administrative expenses
    37.6       5.8       30.8       5.5       (6.8 )     (22.1 )
Other income, net
    (0.1 )           (0.6 )     (0.1 )     (0.5 )     (83.3 )
 
Earnings before interest and taxes
    28.5       4.4       35.8       6.3       (7.3 )     (20.4 )
Interest expense, net
    2.0       0.3       2.5       0.4       0.5       20.0  
Income tax expense
    9.0       1.4       10.7       1.9       1.7       15.9  
 
Net income from continuing operations
    17.5       2.7       22.6       4.0       (5.1 )     (22.6 )
Income from discontinued operations
    1.5       0.2       3.3       0.6       (1.8 )     (54.5 )
Income tax expense
    0.5       0.1       1.0       0.2       0.5       50.0  
 
Net income from discontinued operations
    1.0       0.2       2.3       0.4       (1.3 )     (56.5 )
 
Net income
  $ 18.5       2.8 %   $ 24.9       4.4 %   $ (6.4 )     (25.7 %)
 
Revenue for the fifty-three weeks ended December 31, 2005 increased $86.7 million or 15.4% compared to the fifty-two weeks ended December 25, 2004. The increase was driven by a $53.7 million or 15.4% increase in branded revenue and a $33.0 million or 15.3% increase in non-branded revenue. The additional week generated revenue of $8.1 million or an increase of 1.4% compared to the prior year.
The branded revenue increase was favorably impacted by the Tom’s acquisition. In addition, branded revenue from Lance branded sandwich crackers and cookies increased approximately 20% and branded revenue from Lance and Cape Cod Potato Chips branded snacks increased 10% compared to the prior year. The branded growth was driven by growth in the mass merchandise, club and grocery store channels. These increases were slightly offset by declines in food service revenue.
The non-branded revenue increase of $33.0 million was driven by a $27.8 million increase in private label revenue and a $6.9 million increase in contract manufacturing revenue offset by a $1.8 million reduction in sales of third-party brands.
Branded revenue represented 62% of total revenue in both 2005 and 2004. Non-branded revenue represented 38% of revenue, which consisted of 29% private label and 9% contract manufacturing revenue for 2005 and 2004.
Gross margin increased $31.7 million compared to the prior year as a result of increased volume of $30.1 million, pricing improvements of $9.5 million, favorable commodity pricing of $2.0 million and favorable mix of $3.0 million, offset by unfavorable foreign exchange impact of $1.5 million, natural gas rate increase of $2.4 million, increases in medical and casualty costs of $2.3 million and other costs (including higher labor costs, repairs and maintenance, depreciation expense and machinery start-up costs) of $6.7 million.

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Selling, marketing and delivery expenses increased $31.7 million or 17.2% due to higher volume related expenses for salaries and commissions and additional delivery expenses. In addition, other non-volume related cost increases included fuel and freight surcharges of $3.4 million, medical and casualty expenses of $3.2 million, additional brand building advertising and sampling of $3.7 million and costs relating to the Tom’s acquisition including increased bad debt expense of $1.3 million and acquisition integration related costs of $1.1 million.
General and administrative expenses increased $6.8 million compared to the prior year. The increase was the result of $2.5 million of severance related costs for the prior Chief Executive Officer, increased expenses for equity incentive compensation of $1.3 million, $0.8 million in higher employee benefit costs and increased professional fees of $0.5 million. In addition, during 2005 there were incremental administrative costs of $0.4 million and integration costs of $0.7 million, as a result of the Tom’s acquisition.
Other income decreased $0.5 million as compared to the prior year as a result of net losses on asset disposition in 2005.
Interest expense, net, decreased $0.5 million in 2005 due to lower average debt and borrowing rates as well as higher investment income offset slightly by the unfavorable impact of foreign exchange.
Income tax expense from continuing operations decreased $1.7 million as a result of lower earnings. However, the effective tax rate increased to 34% from 32% in 2004. The lower rate in 2004 represented favorable utilization of net operating losses and favorable state income tax adjustments.
Liquidity and Capital Resources
Liquidity
During 2006, the principal source of liquidity for our operating needs was provided from operating activities. Cash flow from operating activities, available credit from credit facilities and cash on hand is believed to be sufficient for the foreseeable future to meet obligations, fund capital expenditures and pay dividends to our stockholders. As of December 30, 2006, cash and cash equivalents totaled $5.5 million.
Cash Flow
Net cash from operating activities was $39.1 million in 2006, $47.1 million in 2005 and $60.6 million in 2004. Working capital (other than cash and cash equivalents and current portion of long-term debt) increased to $46.7 million at December 30, 2006 from $36.0 million at December 31, 2005 primarily due to higher accounts receivable, an increase in assets held for sale, and lower liabilities as a result of the Tom’s integration.
Net cash flow used in investing activities was $39.6 million in 2006 as compared to $70.0 million in 2005. Cash used in investing activities in 2006 represented capital expenditures of $47.0 million partially offset by proceeds from the sale of property of $7.3 million. Cash used in investing activities in 2005 represented capital expenditures of $27.6 million and acquisition of businesses, net of cash acquired of $43.8 million, partially offset by proceeds from sale of property of $1.4 million. Capital expenditures for fixed assets include manufacturing equipment, step-vans for field sales representatives, sales displays, company vehicles and information technology.

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In 2006, net cash generated from financing activities totaled $2.3 million, while net cash used in financing activities in 2005 was $14.9 million. During 2006 and 2005, we paid dividends of $0.64 per share each year totaling $19.6 million and $19.1 million, respectively. As a result of the exercise of stock options by employees, we received cash of $18.1 million in 2006 and $4.4 million in 2005. During 2006 and 2005, proceeds from debt, net of repayments was $3.8 million and $5.0 million, respectively.
Stock Repurchases
During 2006, we did not repurchase any shares of common stock. During 2005, we repurchased 304,236 shares of our common stock for $5.2 million. We currently have no active plans for the repurchase of shares of our common stock.
Dividends
On February 9, 2007, the Board of Directors declared a $0.16 quarterly cash dividend payable on February 28, 2007 to stockholders of record on February 20, 2007.
Investing Activities
On April 8, 2005, we purchased a sugar wafer manufacturing facility in Ontario, Canada. The facility was purchased for $4.8 million. On October 21, 2005, we purchased substantially all the assets of Tom’s Foods Inc. pursuant to a Bankruptcy Court order issued on September 23, 2005 for $39.0 million, net of cash acquired. During 2006, an additional $0.8 million was included in the purchase price of Tom’s for legal and other acquisition costs.
Capital expenditures for 2007 are projected to be approximately $48.0 million, funded primarily by net cash flow from operating activities, cash on hand, and available credit from credit facilities. There were no material long-term commitments for capital expenditures as of December 30, 2006.
Debt
In October 2006, we entered into a new unsecured revolving Credit Agreement, terminating and replacing the then existing Second Amended and Restated Credit Agreement and Bridge Credit Agreement. The Credit Agreement allows us to make revolving credit borrowings of up to US$100.0 million and CDN$15.0 million through October 2011. Also under the Credit Agreement, we entered into a $50.0 million term loan due in October 2011.
At December 30, 2006 and December 31, 2005, we had the following debt outstanding:
                 
(in thousands)   2006   2005
 
Unsecured revolving credit facility
  $     $ 10,215  
Unsecured short-term revolving credit facility
          36,000  
Unsecured term loan due October 2011
    50,000        
 
Total debt
    50,000       46,215  
Less current portion of long-term debt
          36,000  
 
Total long-term debt
  $ 50,000     $ 10,215  
 
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 $18.5 million as of December 30, 2006. These letters of credit reduce the total available borrowings under the Credit Agreement. Unused and available borrowings were $94.4 million under the Credit Agreement at December 30, 2006.

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Commitments and Contingencies
We lease certain facilities and equipment classified as operating leases. The future minimum lease commitments for operating leases as of December 30, 2006 were $3.9 million.
We have entered into agreements with suppliers for the purchase of certain commodities and packaging materials used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. As of December 30, 2006, outstanding purchase commitments totaled $52.7 million. These commitments range in length from a few weeks to 12 months.
Additionally, we provide supplemental retirement benefits to certain retired and active officers. The undiscounted obligation was $1.4 million as of December 30, 2006.
Contractual obligations as of December 30, 2006 were:
                                         
    Payments Due by Period
(in thousands)   Total   < 1 year   1-3 years   3-5 years   Thereafter
 
Debt, including interest payable*
  $ 64,388     $ 2,973     $ 5,946     $ 55,469     $  
Operating lease obligations
    3,918       2,116       1,766       36        
Purchase commitments
    52,722       52,722                    
Benefit obligations
    1,422       191       298       183       750  
 
Total contractual obligations
  $ 122,450     $ 58,002     $ 8,010     $ 55,688     $ 750  
 
*  
Variable interest will be paid in future periods based on the outstanding balance at that time. The amounts due include the estimated interest payable on debt instruments through October 2011.
Forward-Looking Statements
We occasionally make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, the factors set forth under Part I, Item 1A — Risk Factors.
Caution should be taken not to place undue reliance on our forward-looking statements, which reflect the expectations of management only as of the time such statements are made. 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 7A.  
Quantitative and Qualitative Disclosure About Market Risk
The principal market risks to which we are exposed that may adversely impact results of operations and financial position are changes in certain raw material prices, interest and foreign exchange rates and credit risks. We selectively use derivative financial instruments to enhance our ability to manage these risks. We have no market risk sensitive instruments held for trading purposes.

21


 

We are exposed to the impact of changing commodity prices for raw materials. We may enter into commodity futures and option contracts to manage fluctuations in prices of anticipated purchases of certain raw materials. Our policy is to use such 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 December 30, 2006 and December 31, 2005, we had no outstanding commodity futures or option contracts.
Our debt obligations incur interest at floating rates, based on changes in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian prime rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable rate debt. In November 2006, we entered into an interest rate swap agreement in order to manage the risk associated with variable interest rates. The variable-to-fixed interest rate swap was accounted for as a cash flow hedge, with the effectiveness assessment based on changes in the present value of interest payments on the underlying debt. The notional amount, interest payment and maturity date of the swap matched the principal, interest payment and maturity dates of the related debt. The interest rate on the swap was 5.4%, including applicable margin of the interest rate swap. The underlying notional amount of the swap agreement was $35.0 million. The fair value of the interest rate swap as determined by a third-party financial institution was less than $0.1 million on December 30, 2006.
At December 30, 2006, we had a $50.0 million term loan with a weighted average interest rate of 5.50%. At December 31, 2005, our total debt was $46.2 million with a weighted average interest rate of 4.73%. A 10% increase in the underlying interest rate would not have had a material impact on interest expense during 2006.
We are exposed to certain credit risks related to our accounts receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. As of December 30, 2006 and December 31, 2005, we had allowances for doubtful accounts of $1.0 million and $5.3 million, respectively. The $4.3 million decrease in the allowance for doubtful accounts was primarily due to the write-offs of uncollectible accounts that were either part of the opening balance sheet of the Tom’s acquisition or previously expensed in 2005.
We have an exposure to foreign exchange rate fluctuations, primarily between U.S. and Canadian dollars. In 2006, foreign exchange rate fluctuations negatively impacted our pre-tax earnings by $1.7 million.
The majority of revenue from our Canadian operations is denominated in U.S. dollars and a substantial portion of the operational costs, such as raw materials and direct labor, are denominated in Canadian dollars. We have entered into a series of forward currency contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2007. As of December 30, 2006, the fair value of the liability related to the forward contracts as determined by a third-party financial institution was $0.3 million. The unrealized loss recorded in accumulated other comprehensive income at December 30, 2006 was $0.2 million, net of tax related to the forward currency contracts. Net cash settlements under the forward contracts are reflected in revenue in the consolidated statements of income in the applicable period.

22


 

During 2004, the indebtedness used to finance the acquisition of our Canadian subsidiary was denominated in Canadian dollars and served as an economic hedge of the net asset investment in the subsidiary. The debt was repaid during 2005, thus eliminating the hedge of the net asset investment in the subsidiary. We recorded a gain in other comprehensive income of less than $0.1 million in 2006, $2.7 million in 2005 and $0.8 million in 2004 as a result of the translation of the subsidiary’s financial statement into U.S. dollars.
Net commodity and packaging costs had an unfavorable impact on pre-tax earnings in 2006 of $10.3 million primarily due to increases in sugar and flour costs.
During 2006, pre-tax earnings were negatively impacted by increases in natural gas prices of $1.8 million and increases in gasoline and diesel fuel costs of $2.1 million as compared to 2005.

23


 

Item 8.  
Financial Statements and Supplementary Data
Consolidated Statements of Income
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2006, December 31, 2005 and December 25, 2004
(in thousands, except share and per share data)
                         
    2006   2005   2004
 
 
                       
Net sales and other operating revenue
  $ 730,116     $ 651,437     $ 564,734  
 
                       
Cost of sales and operating expenses/(income):
                       
Cost of sales
    415,576       369,331       314,314  
Selling, marketing and delivery
    240,092       216,054       184,387  
General and administrative
    42,914       37,605       30,767  
Other expense/(income), net
    191       (37 )     (546 )
 
Total cost and expenses
    698,773       622,953       528,922  
 
 
                       
Income from continuing operations before interest and income taxes
    31,343       28,484       35,812  
 
                       
Interest expense, net
    3,156       1,985       2,514  
 
 
                       
Income from continuing operations before income taxes
    28,187       26,499       33,298  
 
                       
Income tax expense
    9,809       9,023       10,671  
 
 
                       
Net income from continuing operations
    18,378       17,476       22,627  
 
 
                       
Income from discontinued operations
    153       1,506       3,276  
Income tax expense
    53       512       1,048  
 
 
                       
Net income from discontinued operations
    100       994       2,228  
 
                       
 
Net income
  $ 18,478     $ 18,470     $ 24,855  
 
 
                       
Basic earnings per share:
                       
Earnings per share from continuing operations
  $ 0.61     $ 0.59     $ 0.77  
Earnings per share from discontinued operations
          0.03       0.07  
Basic earnings per share
  $ 0.61     $ 0.62     $ 0.84  
Weighted average shares outstanding — basic
    30,467,000       29,807,000       29,419,000  
 
                       
Diluted earnings per share:
                       
Earnings per share from continuing operations
  $ 0.60     $ 0.58     $ 0.77  
Earnings per share from discontinued operations
          0.03       0.07  
Diluted earnings per share
  $ 0.60     $ 0.61     $ 0.84  
Weighted average shares outstanding — diluted
    30,844,000       30,099,000       29,732,000  
 
See Notes to Consolidated Financial Statements.

24


 

Consolidated Balance Sheets
LANCE, INC. AND SUBSIDIARIES
December 30, 2006 and December 31, 2005
(in thousands, except share data)
                 
    2006     2005  
 
Assets
               
 
Current assets
               
Cash and cash equivalents
  $ 5,504     $ 3,543  
Accounts receivable (less allowance for doubtful accounts of $994 and $5,337, respectively)
    61,690       59,088  
Inventories
    36,838       36,409  
Deferred income taxes
    8,811       10,160  
Assets held for sale
    6,552       3,020  
Prepaid expenses and other current assets
    6,298       7,405  
 
Total current assets
    125,693       119,625  
 
Property, plant and equipment, net
    193,009       186,093  
Goodwill, net
    49,091       49,169  
Other intangible assets, net
    13,209       10,704  
Other assets
    4,450       3,488  
 
Total assets
  $ 385,452     $ 369,079  
 
 
               
Liabilities and Stockholders’ Equity
               
 
Current liabilities
               
Current portion of long-term debt
  $     $ 36,000  
Accounts payable
    18,194       20,378  
Accrued compensation
    22,299       23,270  
Accrued profit-sharing retirement plan
    5,192       3,971  
Accrual for casualty insurance claims
    6,783       7,500  
Accrual for medical insurance claims
    3,488       4,190  
Accrued selling costs
    4,522       4,628  
Other payables and accrued liabilities
    12,970       16,113  
 
Total current liabilities
    73,448       116,050  
 
Long-term debt
    50,000       10,215  
Deferred income taxes
    26,562       26,739  
Accrual for casualty insurance claims
    9,418       8,227  
Other long-term liabilities
    3,624       6,139  
 
Total liabilities
    163,052       167,370  
 
Commitments and contingencies Stockholders’ equity
               
Common stock, 30,855,891 and 29,808,705 shares outstanding, respectively
    25,714       24,841  
Preferred stock, no shares outstanding
           
Additional paid-in capital
    32,129       13,870  
Unamortized portion of restricted stock awards
          (2,490 )
Retained earnings
    159,329       160,407  
Accumulated other comprehensive income
    5,228       5,081  
 
Total stockholders’ equity
    222,400       201,709  
 
Total liabilities and stockholders’ equity
  $ 385,452     $ 369,079  
 
See Notes to Consolidated Financial Statements.

25


 

Consolidated Statements of Stockholders’ Equity and Comprehensive Income
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2006, December 31, 2005, and December 25, 2004
(in thousands, except share data)
                                                         
                            Unamortized           Accumulated    
                    Additional   Portion of           Other    
            Common   Paid-in   Restricted   Retained   Comprehensive    
    Shares   Stock   Capital   Stock Awards   Earnings   Income   Total
 
 
                                                       
 
Balance, December 27, 2003
    29,156,957     $ 24,296     $ 3,690     $ (1,116 )   $ 155,007     $ 723     $ 182,600  
 
 
                                                       
Comprehensive income:
                                                       
Net income
                                    24,855               24,855  
Unrealized gain on interest rate swap, net of tax effect of $269
                                            456       456  
Foreign currency translation adjustment
                                            789       789  
 
                                                       
Total comprehensive income
                                                    26,100  
 
                                                       
Cash dividends paid to stockholders
                                    (18,869 )             (18,869 )
Stock options exercised
    601,889       501       7,856                               8,357  
Cancellation, issuance and amortization of restricted stock
    (11,250 )     (9 )     (46 )     582                       527  
 
                                                       
 
Balance, December 25, 2004
    29,747,596     $ 24,788     $ 11,500     $ (534 )   $ 160,993     $ 1,968     $ 198,715  
 
 
                                                       
Comprehensive income:
                                                       
Net income
                                    18,470               18,470  
Unrealized gain on interest rate swap, net of tax effect of $232
                                            394       394  
Foreign currency translation adjustment
                                            2,719       2,719  
 
                                                       
Total comprehensive income
                                                    21,583  
 
                                                       
Cash dividends paid to stockholders
                                    (19,056 )             (19,056 )
Repurchase of common stock
    (304,236 )     (253 )     (4,907 )                             (5,160 )
Stock options exercised
    373,970       311       4,825                               5,136  
Cancellation, issuance and amortization of restricted stock
    (8,625 )     (5 )     2,452       (1,956 )                     491  
 
                                                       
 
Balance, December 31, 2005
    29,808,705     $ 24,841     $ 13,870     $ (2,490 )   $ 160,407     $ 5,081     $ 201,709  
 
 
                                                       
Comprehensive income:
                                                       
Net income
                                    18,478               18,478  
Net unrealized losses on derivative instruments, net of tax effect of $106
                                            (193 )     (193 )
Adoption of SFAS 158, net of tax effect of $167
                                            313       313  
Foreign currency translation adjustment
                                            27       27  
 
                                                       
Total comprehensive income
                                                    18,625  
 
                                                       
Cash dividends paid to Stockholders
                                    (19,556 )             (19,556 )
Stock based compensation expense
                    (1,159 )     2,490                       1,331  
Conversion of liability to equity instrument
                    634                               634  
Stock options exercised, including tax benefit of $3,223
    1,018,761       850       17,278                               18,128  
Issuance and amortization of restricted stock, net of cancellations
    28,425       23       1,506                               1,529  
 
                                                       
 
Balance, December 30, 2006
    30,855,891     $ 25,714     $ 32,129     $     $ 159,329     $ 5,228     $ 222,400  
 
See Notes to Consolidated Financial Statements.

26


 

Consolidated Statements of Cash Flows
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2006, December 31, 2005 and December 25, 2004
(in thousands)
                         
    2006     2005     2004  
 
Operating activities:
                       
Net income
  $ 18,478     $ 18,470     $ 24,855  
Adjustments to reconcile net income to cash from operating activities:
                       
Depreciation and amortization
    26,897       28,539       28,641  
Stock based compensation expense
    1,331              
Loss (gain) on sale of property, net
    591       467       (812 )
Deferred income taxes
    1,182       (3,518 )     1,438  
Imputed interest on deferred notes
                97  
Changes in assets and liabilities, excluding the effects of business acquisitions:
                       
Accounts receivable
    (2,683 )     (1,450 )     (4,369 )
Inventory
    246       (4,371 )     541  
Prepaid expenses and other current assets
    1,695       869       712  
Accounts payable
    (2,108 )     748       4,262  
Accrued income taxes
    (1,311 )     (74 )     2,240  
Accrued compensation
    (611 )     2,377       2,550  
Accrued insurance claims
    474       1,241       430  
Other payables and accrued liabilities
    (1,727 )     5,343       (545 )
Other noncurrent assets
    (963 )     (436 )      
Other noncurrent liabilities
    (2,394 )     (1,088 )     527  
 
Net cash flow from operating activities
    39,097       47,117       60,567  
 
 
                       
Investing activities:
                       
Purchases of property and equipment
    (46,965 )     (27,624 )     (28,961 )
Acquisitions of businesses, net of cash acquired
          (43,797 )      
Proceeds from sale of property
    7,340       1,449       1,591  
 
Net cash used in investing activities
    (39,625 )     (69,972 )     (27,370 )
 
 
                       
Financing activities:
                       
Dividends paid
    (19,556 )     (19,056 )     (18,869 )
Issuances of common stock
    18,128       4,353       7,380  
Repayments of debt
          (41,237 )     (5,649 )
Net repayments under revolving credit facilities
    (46,238 )     (7,500 )      
Proceeds from debt
    50,000       53,715        
Repurchase of common stock
          (5,160 )      
 
Net cash from (used in) financing activities
    2,334       (14,885 )     (17,138 )
 
Effect of exchange rate changes on cash
    155       (183 )     (72 )
 
Increase (decrease) in cash and cash equivalents
    1,961       (37,923 )     15,987  
Cash and cash equivalents at beginning of fiscal year
    3,543       41,466       25,479  
 
Cash and cash equivalents at end of fiscal year
  $ 5,504     $ 3,543     $ 41,466  
 
 
                       
Supplemental information:
                       
Cash paid for income taxes, net of refunds of $165, $611 and $1,564, respectively
  $ 6,679     $ 13,581     $ 8,120  
Cash paid for interest
  $ 3,471     $ 2,018     $ 2,419  
Stock option exercise tax benefit included in operating activities
          $ 783     $ 977  
See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements
LANCE, INC. AND SUBSIDIARIES
December 30, 2006 and December 31, 2005
 
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
The aggregated operating units of Lance, Inc. and subsidiaries manufacture, market and distribute a variety of snack food products. Our corporate offices and principal manufacturing facilities are located in Charlotte, North Carolina. We also have manufacturing operations in Burlington, Iowa; Waterloo, Ontario; Guelph, Ontario; Cambridge, Ontario; Hyannis, Massachusetts; Columbus, Georgia; Perry, Florida; and Corsicana, Texas. In April 2005, we acquired a sugar wafer plant in Cambridge, Ontario, Canada. In October 2005, we acquired substantially all of the assets of Tom’s Foods Inc. (Tom’s), including bakery operations in Columbus, Georgia and potato chip plants in Perry, Florida; Fresno, California; Corsicana, Texas and Knoxville, Tennessee. We closed the Fresno, California plant shortly after the acquisition in 2005. During 2006, we closed and sold the Knoxville, Tennessee plant. The Fresno, California plant and certain properties in Columbus, Georgia are currently being held for sale. We manufacture products including sandwich crackers and cookies, restaurant style crackers, potato chips, tortilla chips, cookies, sugar wafers, nuts, candy and other salty snacks. In addition, we purchase certain cakes, candy, meat snacks, restaurant style crackers, salty snacks and cookies for resale in order to broaden our product offerings.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Lance, Inc. and subsidiaries. All significant inter-company items have been eliminated.
Reclassifications
Certain prior year amounts shown in the consolidated financial statements have been reclassified for consistent presentation. Previously, the profit-sharing plan utilized reported net income as the basis for determining the related expense provision. Effective for 2006, the profit-sharing plan was amended, and the related expense provision is now calculated as a percentage of employees’ eligible earnings. In addition, we reclassified equity incentive expense as compensation expense due to the adoption of SFAS 123R. Therefore, the related provision for employees’ retirement plans and equity incentive expense in the current and prior periods have been classified on the consolidated financial statements, consistent with other employee benefit expenses, as cost of sales, selling, marketing and delivery, and general and administrative. These reclassifications had no impact on net income, financial position, or cash flows.
Revenue Recognition
We recognize operating revenue when title and risk of loss pass to our customers. Allowances for sales returns, stale products, promotions, and discounts are recorded as reductions of revenue in the consolidated financial statements.
Fiscal Year
Our fiscal year ends on the last Saturday of December. While most of our fiscal years are 52 weeks, some may be 53 weeks. The fiscal years ended December 30, 2006 and December 25, 2004 were 52 weeks, while the fiscal year ended December 31, 2005 was 53 weeks.

28


 

Use of Estimates
Preparing the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include customer returns and promotions, provisions for bad debts, inventories, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible assets, incentive compensation, income taxes, insurance, post-retirement benefits, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, receivables, accounts payable and short and long-term debt approximate their fair values.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 95, “Statement of Cash Flows,” cash flow from our operations in Canada is determined based on their reporting currency, the Canadian dollar. As a result, amounts related to assets and liabilities reported in the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. The effect of exchange rate changes on cash balances held in the Canadian dollar is reported below cash flows from financing activities.
Inventories
The principal raw materials used in the manufacturing of our snack food products are vegetable oil, flour, sugar, potatoes, peanut butter, nuts, cheese and seasonings. The principal supplies used are flexible film, cartons, trays, boxes and bags. Inventories are valued at the lower of cost or market. Cost was determined using the last-in, first-out method (LIFO) for approximately 41% and 40% of inventories as of December 30, 2006, and December 31, 2005, respectively. The first-in, first-out method (FIFO) was used for all other inventories.
We may enter into various forward purchase agreements and derivative financial instruments to reduce the impact of volatility in raw material ingredient prices. As of December 30, 2006 and December 31, 2005, we had no outstanding raw material commodity futures or option contracts.
Property, Plant and Equipment
Depreciation is computed using the straight-line method over the estimated useful lives of depreciable property ranging from 3 to 45 years. Property is recorded at cost less accumulated depreciation with the exception of assets held for disposal, which are recorded at the lesser of book value or fair value. Major renewals and betterments are capitalized, maintenance and repairs are expensed as incurred, and gains and losses on dispositions are reflected in other expense/(income). Assets under capital leases are amortized over the estimated useful life of the related property.

29


 

The following table summarizes the majority of our estimated useful lives of depreciable property:
     
    Useful Life
 
Buildings
  45 years
Land and building improvements
  20-45 years
Machinery and equipment
  3-20 years
Furniture and fixtures
  5-12 years
Vending machines
  8-12 years
Trucks and automobiles
  3-10 years
 
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount or fair value less cost to sell.
Goodwill and Other Intangible Assets
The annual goodwill impairment analysis requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital. These projections rely upon historical performance, anticipated market conditions and forward-looking business plans.
The analysis of goodwill as of December 30, 2006 assumes combined average annual revenue growth of approximately 2.5% during the valuation period. Significant investments in fixed assets and working capital to support this growth are factored into the analysis. If the forecasted revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with the excess fair value over carrying value, changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future.
Amortizable intangible assets are amortized using the straight-line method over their useful lives, which is the estimated period over which economic benefits are expected to be provided. Intangible assets with indefinite lives are not amortized, but are tested for impairment on an annual basis.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date.

30


 

Insurance Reserves
We maintain reserves for the self-funded portions of employee medical insurance and for post-retiree healthcare benefits. In addition, we maintain insurance reserves for the self-funded portions of workers’ compensation, auto, product and general liability insurance. Self-insured accruals are based on claims filed and estimated claims incurred but not reported. Workers’ compensation, automobile and general liability costs are covered by standby letters of credit with our claims administrators.
We have a defined benefit healthcare plan which currently provides medical insurance benefits for retirees and their spouses to age 65. The plan was amended in 2001, and we began the phase out of the post-retirement healthcare plan. The post-retirement healthcare plan will be phased-out over the next five years. We use a third-party actuary to assist in the estimation of the post-retirement healthcare plan obligation on an annual basis. This obligation requires assumptions regarding participation, healthcare cost trends, employee contributions, turnover, mortality and discount rates.
For casualty insurance obligations, we maintain self-insurance reserves for workers’ compensation and auto liability for individual losses up to $0.5 million. In addition, general and product liability claims are self-funded for individual losses up to $0.1 million. We use a third-party actuary to assist in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, the third-party actuary uses various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. The third-party actuary also uses historical information for claims frequency and severity in order to establish loss development factors. The actuarial calculation determines an estimated range of loss reserves. Consistent with prior periods, the 75 th percentile of this range represents our best estimate of the ultimate outstanding casualty liability. During 2006 and 2005, we used a 4.5% investment rate to discount the estimated claims based on the historical payout pattern. Claims in excess of the self-insured levels, which vary by type of insurance, are fully insured up to $100.0 million per individual claim.
Derivative Financial Instruments
We are exposed to certain market, commodity and interest rate risks as part of our ongoing business operations and may use derivative financial instruments, where appropriate, to manage these risks. We do not use derivatives for trading purposes.
Foreign Currency Translation
All assets and liabilities of our Canadian subsidiary are translated into U.S. dollars using current exchange rates and income statement items are translated using the average exchange rates during the period. The translation adjustment is included as a component of stockholders’ equity. Gains and losses on foreign currency transactions are included in earnings. Foreign currency transactions resulted in losses of less than $0.1 million in 2006, $0.3 million in 2005, and $0.1 million in 2004.

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Stock Compensation Plans
We adopted SFAS 123R at the beginning of 2006. SFAS 123R establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, such as when an entity obtains employee services in share-based payment transactions. The revised statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the required service period are to be recognized as compensation cost over that period. In addition, SFAS 123R amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. When we adopted SFAS 123R, we elected the modified prospective application method and prior period amounts have not been restated. The impact of the adoption of SFAS 123R for the year ended December 30, 2006 was a decrease in pre-tax income of $1.3 million.
Prior to the effective date of SFAS 123R, 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 equaled the fair market value of the underlying stock on the date of grant, no compensation expense was recognized. We 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 No. 123, determined as if we had applied the fair value method of accounting for stock options, during the years ended December 31, 2005 and December 25, 2004:
                 
(in thousands, except per share data)   2005   2004
 
 
Net income as reported
  $ 18,470     $ 24,855  
Earnings per share as reported — basic
    0.62       0.84  
Earnings per share as reported — diluted
    0.61       0.84  
 
               
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
    160       320  
Pro-forma net income
    18,310       24,535  
Pro-forma earnings per share — basic
    0.61       0.83  
Pro-forma earnings per share — diluted
  $ 0.61     $ 0.83  
 
None of the pro-forma stock based compensation costs shown above were attributable to the discontinued vending business. There were 108,652 options granted during the year ended December 30, 2006. The additional stock based compensation expense related to the adoption of SFAS 123R was $1.3 million, which includes both the effects of non-qualified stock options and long-term plans with future grant dates.

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Prior to the adoption of SFAS 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. SFAS 123R 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. The excess tax benefit for the year ended December 30, 2006 was $3.2 million. Prior to the adoption of SFAS 123R, the unamortized portion of restricted stock was presented as a separate item on the consolidated balance sheets. Under SFAS 123R, the unamortized portion of restricted stock is included as a reduction in additional paid-in capital as of January 1, 2006.
Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.
Diluted earnings per share are calculated by including all dilutive common shares such as stock options and restricted stock. Dilutive potential shares were 377,000 in 2006, 292,000 in 2005 and 313,000 in 2004. There were no anti-dilutive shares in 2006. In 2005 and 2004, anti-dilutive shares totaled 378,000 and 949,000, respectively, and were excluded from the dilutive earnings calculation. No adjustment to reported net income is required when computing diluted earnings per share.
Advertising and Consumer Promotion Costs
We promote our products with certain marketing activities, including advertising, consumer incentives and trade promotions. All advertising costs are expensed as incurred. Consumer incentive and trade promotions are recorded as expense based on amounts estimated as being due to customers and consumers at the end of the period, based principally on our historical utilization and redemption rates. Consumer promotion costs are recorded in accordance with Emerging Issues Task Force Issue (EITF) 00-14, “Accounting for Certain Sales Incentives.” EITF 00-14 provides guidance on the proper classification of certain promotion costs on the income statement. Advertising costs included in selling, marketing and delivery costs on the consolidated statements of income was $4.4 million, $4.6 million and $2.0 million for the fiscal years 2006, 2005 and 2004, respectively.
Shipping and Handling Costs
We do not bill customers separately for shipping and handling of product. These costs are included as part of selling, marketing and delivery expenses on the consolidated statements of income. For the years ended December 30, 2006, December 31, 2005 and December 25, 2004, shipping and handling costs were $68.9 million, $55.1 million and $44.8 million, respectively.
Concentration of Credit Risk
Sales to our largest customer, Wal-Mart Stores, Inc., were approximately 18% of revenues in 2006, 21% in 2005 and 18% in 2004. Accounts receivable at December 30, 2006 and December 31, 2005, included receivables from Wal-Mart Stores, Inc. totaling $13.6 million and $11.8 million, respectively.
Other Charges
During the fifty-three weeks ended December 31, 2005, we announced the appointment of David V. Singer as President and Chief Executive Officer to succeed Paul A. Stroup, III, the former Chairman, Chief Executive Officer and President. The related pre-tax severance charges for Mr. Stroup were $2.5 million and were included in general and administrative expenses in 2005.

33


 

New Accounting Standards
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 will be adopted in the first quarter of 2007 and is expected not to have a material impact on our results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a material impact on our financial condition, results of operations or cash flows.
The FASB also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” in September 2006. SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a single-employer defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet, with limited exceptions. We adopted the provisions of SFAS No. 158 that are effective at the end of the fiscal year ending after December 15, 2006, which resulted in a reclassification of the unrealized gain component of the accrued post-retirement healthcare costs liability to accumulated other comprehensive income, net of tax, at December 30, 2006. The year-end measurement requirement will be effective for fiscal years ending after December 15, 2008.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities: Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to measure many financial instruments and certain other items at fair value with changes in fair value reported in earnings. The FASB issued SFAS No. 159 to mitigate earnings volatility that arises when financial assets and liabilities are measured differently, and to expand the use of fair value measurement for financial instruments. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007.
NOTE 2. DISCONTINUED OPERATIONS
During 2006, we analyzed the different areas of our business and determined that our vending operations were becoming increasingly less competitive in the marketplace. Near the end of 2006, we committed to a plan to discontinue our vending operations and sell all remaining vending machines and related assets. A plan was designed to identify potential buyers and dispose of substantially all of the vending assets by the middle of 2007. At December 30, 2006, we had $3.4 million of vending assets, comprised mostly of vending machines, which were classified as held for sale in current assets on the 2006 consolidated balance sheet. An asset impairment of $0.1 million was recorded in discontinued operations on the 2006 consolidated statement of income related to this decision.

34


 

Revenue and pre-tax income related to the discontinued vending operations is as follows:
                         
(in millions)   2006   2005   2004
 
Revenue
  $ 17.8     $ 27.8     $ 35.7  
Pre-tax income
  $ 0.2     $ 1.5     $ 3.3  
 
NOTE 3. ACQUISITIONS
On April 8, 2005, we acquired a sugar wafer facility in Ontario, Canada for $4.8 million. No amount of the purchase price was assigned to intangible assets. The acquisition did not have a material impact on our financial position or results of operations.
On October 21, 2005, we purchased substantially all the assets of Tom’s Foods Inc. pursuant to a Bankruptcy Court order issued on September 23, 2005. The results of operations of the acquired entity for the period of October 22, 2005 through December 31, 2005 are included in the consolidated statements of income for the year ended December 31, 2005. The Tom’s assets were purchased for $39.0 million, net of cash acquired. During 2006, an additional $0.8 million was added to the purchase price for legal and other acquisition costs.
The consolidated balance sheets include allocations of the purchase price of the acquisition to the assets and liabilities acquired based on their estimated fair market values at the date of acquisition, including the allocation of the excess fair value of assets acquired over cost. Once the final appraisal was obtained during 2006, adjustments were made to the carrying values of property, plant and equipment, intangible assets, and assets held for sale to reflect the final appraised values and, for certain assets, the allocation of the excess of fair value of assets acquired over purchase price.
The final purchase price has been allocated as follows:
         
    Final Purchase
(in millions)   Price
 
Cash
  $ 1.3  
Current assets, including assets held for sale
    30.9  
Property, plant and equipment
    15.4  
Intangible assets
    5.7  
Current liabilities
    (12.2 )
 
Purchase price
    41.1  
Cash acquired
    (1.3 )
 
Purchase price, net of cash acquired
  $ 39.8  
 
Of the $5.7 million of purchase price related to intangible assets, $5.3 million was allocated to trademarks that have indefinite lives, and $0.4 million was allocated to non-contractual customer relationships that will be amortized over 10 years.

35


 

NOTE 4. INVENTORIES
Inventories at December 30, 2006 and December 31, 2005 consisted of the following:
                 
(in thousands)   2006   2005
 
 
               
Finished goods
  $ 18,630     $ 22,658  
Raw materials
    7,968       7,630  
Supplies, etc.
    14,077       11,041  
 
Total inventories at FIFO cost
    40,675       41,329  
Less: adjustment to reduce FIFO cost to LIFO cost
    (3,837 )     (4,920 )
 
Total inventories
  $ 36,838     $ 36,409  
 
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 30, 2006 and December 31, 2005 consisted of the following:
                 
(in thousands)   2006   2005
 
 
               
Land and land improvements
  $ 14,764     $ 15,199  
Buildings
    83,409       85,061  
Machinery, equipment and systems
    278,444       263,175  
Vending machines
    19,167       40,853  
Trucks and automobiles
    58,198       50,734  
Furniture and fixtures
    2,065       2,479  
Construction in progress
    8,870       3,712  
 
 
    464,917       461,213  
Accumulated depreciation and amortization
    (265,356 )     (272,100 )
 
 
  $ 199,561     $ 189,113  
Assets held for sale
    (6,552 )     (3,020 )
 
Property, plant and equipment, net
  $ 193,009     $ 186,093  
 
Depreciation expense related to property, plant and equipment was $26.8 million during 2006, and $28.3 million during both 2005 and 2004, respectively.
There are three facilities in Canada which accounted for $21.2 million and $23.1 million of the total net property, plant and equipment in 2006 and 2005, respectively.
At December 30, 2006, assets held for sale consists of $1.4 million of land and $1.8 million of buildings related to the Fresno, California plant and certain properties in Columbus, Georgia; and $3.4 million of vending machines and other vending assets related to the discontinued vending operations.

36


 

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the fiscal year ended December 30, 2006 are as follows:
         
(in thousands)   Carrying Amount
 
Balance as of December 31, 2005
  $ 49,169  
Changes in foreign currency exchange rates
    (78 )
 
Balance as of December 30, 2006
  $ 49,091  
 
As of December 30, 2006 and December 31, 2005, acquired intangible assets consisted of the following:
                         
    Gross        
    Carrying   Accumulated   Net
(in thousands)   Amount   Amortization   Carrying Amount
 
 
                       
As of December 30, 2006:
                       
 
Customer relationships — amortized
  $ 378     $ (44 )   $ 334  
Trademarks — unamortized
    12,875             12,875  
 
Total other intangible assets as of December 30, 2006
  $ 13,253     $ (44 )   $ 13,209  
 
 
                       
As of December 31, 2005:
                       
 
Customer relationships — amortized
  $ 790     $ (26 )   $ 764  
Trademarks — unamortized
    9,940             9,940  
 
Total other intangible assets as of December 31, 2005
  $ 10,730     $ (26 )   $ 10,704  
 
The intangible asset for customer relationships is being amortized over a useful life of ten years and will be amortized through 2015. Amortization expense was less than $0.1 million for identified intangibles for each of the years ended December 30, 2006 and December 31, 2005. No amortization expense was recorded during the year ended December 25, 2004. Changes in the carrying values of the intangible assets for customer relationships and trademarks from 2005 to 2006 resulted from the final purchase price allocation of the Tom’s acquisition.
The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Therefore, the trademarks are not amortized.
NOTE 7. LONG-TERM DEBT
Long-term debt at December 30, 2006 and December 31, 2005 consisted of the following:
                 
(in thousands)   2006   2005
 
Unsecured revolving credit facility
  $     $ 10,215  
Unsecured short-term revolving credit facility
          36,000  
Unsecured term loan due October 2011
    50,000        
 
Total debt
    50,000       46,215  
Less current portion of long-term debt
          36,000  
 
Total long-term debt
  $ 50,000     $ 10,215  
 

37


 

In October 2006, we entered into a new unsecured revolving Credit Agreement, terminating and replacing the then existing Second Amended and Restated Credit Agreement and Bridge Credit Agreement. The Credit Agreement allows us to make revolving credit borrowings of up to US$100.0 million and CDN$15.0 million through October 2011. Also under the Credit Agreement, we entered into a $50.0 million term loan due in October 2011. Interest on U.S. denominated revolving borrowings of 30 days or more is payable at a rate based on the Eurodollar rate plus the applicable margin of 0.28% to 0.63%. Interest on other U.S. denominated revolving borrowings is payable based on the U.S. base rate. Interest on the $50.0 million U.S. term loan is based on the Eurodollar rate plus the applicable margin of 0.35% to 0.75%. Interest on Canadian borrowings of 30 days or more is payable at a rate based on the Canadian Bankers’ Acceptance discount rate, plus the applicable margin and an additional 0.13% fee. Interest on other Canadian denominated borrowings is payable based on the Canadian prime rate. The applicable margin for the Eurodollar rate and Canadian Bankers’ Acceptance discount rate based borrowings, which was 0.32%, and for the U.S. term loan, which was 0.40% at December 30, 2006, is determined by certain financial ratios. The Credit Agreement also requires us to pay a facility fee on the entire US$100.0 million and CDN$15.0 million revolvers ranging from 0.07% to 0.13% based on certain financial ratios. At December 30, 2006 we had $50.0 million of term loans outstanding with a weighted average interest rate of 5.50%.
The carrying value of all long-term debt approximates fair value. At December 30, 2006 and December 31, 2005, we had available $94.4 million and $85.3 million respectively, of unused credit facilities. The Credit Agreement requires us to comply with certain covenants, such as debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and an interest coverage ratio. In addition, our revolving credit agreement restricts payment of a cash dividend and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $125.0 million. At December 30, 2006, our consolidated stockholders’ equity was $222.4 million. We were in compliance with these covenants at December 30, 2006. Interest expense for 2006, 2005, and 2004 was $3.3 million, $2.5 million, and $2.8 million, respectively.
NOTE 8. DERIVATIVE INSTRUMENTS
In November 2006, we entered into an interest rate swap agreement in order to manage the risk associated with variable interest rates. The variable-to-fixed interest rate swap was accounted for as a cash flow hedge, with the effectiveness assessment based on changes in the present value of interest payments on the underlying debt. The notional amount, interest payment and maturity dates of the swap matched the principal, interest payment and maturity dates of the related debt. The interest rate on the swap was 5.4%, including applicable margin.
The underlying notional amount of the swap agreement was $35.0 million. The fair value of the interest rate swap as determined by a third-party financial institution was less than $0.1 million on December 30, 2006.

38


 

Through the operations of our Canadian subsidiary, there is an exposure to foreign exchange rate fluctuations, primarily between U.S. dollars and Canadian dollars. The majority of revenue from 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 currency contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2007. As of December 30, 2006, the fair value of the liability related to the forward contracts as determined by a third-party financial institution was $0.3 million.
The unrealized loss recorded in accumulated other comprehensive income at December 30, 2006 was $0.2 million, net of tax related to the forward currency contracts. Net cash settlements under the forward contracts as reflected in revenue in the consolidated statements of income in the applicable period.
NOTE 9. INCOME TAXES
Income tax expense (benefit) consists of the following:
                         
(in thousands)   2006   2005   2004
 
Current:
                       
Federal
  $ 8,517     $ 12,833     $ 9,770  
State and other
    671       855       512  
Foreign
    (523 )     (512 )     (160 )
 
 
    8,665       13,176       10,122  
 
Deferred:
                       
Federal
    838       (3,957 )     2,546  
State and other
    112       90       (477 )
Foreign
    247       226       (472 )
 
 
    1,197       (3,641 )     1,597  
 
Total income tax expense
  $ 9,862     $ 9,535     $ 11,719  
 
A reconciliation of the federal income tax rate to our effective income tax rate for the years ended December 30, 2006, December 31, 2005 and December 25, 2004 follows:
                         
    2006   2005   2004
 
 
                       
Statutory income tax rate
    35.0 %     35.0 %     35.0 %
State and local income taxes, net of federal income tax benefit
    2.0       1.2       1.2  
Net favorable foreign income taxes as a result of tax adjustments and tax rate differences
    (2.5 )     (2.6 )     (1.4 )
Resolution of foreign and state income tax claims
                (1.8 )
Changes in deferred taxes for effective state rate changes
    (0.1 )     1.1       (0.4 )
Miscellaneous items, net
    0.4       (0.7 )     (0.6 )
 
Effective income tax rate
    34.8 %     34.0 %     32.0 %
 

39


 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 30, 2006 and December 31, 2005 are presented below:
                 
(in thousands)   2006   2005
 
Deferred tax assets:
               
Reserves for employee compensation, deductible when paid for income tax purposes, accrued for financial reporting purposes
  $ 5,380     $ 5,199  
Reserves for insurance claims, deductible when paid for income tax purposes, accrued for financial reporting purposes
    5,885       6,392  
Other reserves deductible when paid for income tax purposes, accrued for financial reporting purposes
    2,810       4,291  
Unrealized losses deductible when realized for income tax purposes, included in other comprehensive income
    106        
Inventories, principally due to additional costs capitalized for income tax purposes
    1,400       983  
Unrealized capital loss deductible when realized for income taxes, accrued for financial reporting purposes
    192       192  
Net state and foreign operating loss carryforwards (expiring beginning 2011)
    1,145       341  
 
Total gross deferred tax assets
    16,918       17,398  
Less valuation allowance
    (417 )     (460 )
 
Net deferred tax assets
    16,501       16,938  
 
 
               
Deferred tax liabilities:
               
Property, plant and equipment, principally due to differences in depreciation, net of impairment reserves
    (29,847 )     (29,098 )
Trademark amortization
    (2,885 )     (2,971 )
Unrealized gains includible when realized for income tax purposes, included in other comprehensive income
    (167 )      
Prepaid expenses and other costs deductible for tax, amortized for financial statement purposes.
    (1,353 )     (1,448 )
 
Total gross deferred tax liabilities
    (34,252 )     (33,517 )
 
Total net deferred tax liabilities
  $ (17,751 )   $ (16,579 )
 
The valuation allowance as of December 30, 2006 and December 31, 2005 was $0.4 million and $0.5 million, respectively. The valuation allowance relates to a state net operating loss carryforward, which management does not believe will be fully utilized due to the limited nature of our activities in the state where the state net operating loss exists and a capital loss that may not be fully utilized based on prior years history. Based on historical and current earnings, management believes it is more likely than not that we will realize the benefit of the remaining deferred tax assets that are not covered by the valuation allowance.
Our effective tax rate is based on the level and mix of income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in determining the annual tax rate and in evaluating tax positions. Reserves are established when, despite the fact that the tax return positions are supportable, we believe these positions are likely to be challenged and may not be successful. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit.

40


 

In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The FASB issued FSP 109-1 and 109-2 to provide accounting and disclosure guidance for companies that are eligible for the tax deduction resulting from “qualified production activities income” as defined in the Act. FSP 109-1 requires this deduction to be treated as a special deduction, which does not require a revaluation of deferred taxes. The Act provided a tax benefit of $0.3 million and reduced our effective tax rate by approximately one percentage point for fiscal 2005.
Deferred U.S. income taxes are not provided on undistributed earnings of our foreign subsidiary since we have no plans to repatriate the earnings.
NOTE 10. POST-RETIREMENT BENEFITS PLANS
In 2001, we began the phase out of our post-retirement healthcare plan. This plan currently provides post-retirement medical benefits for retirees who were age 55 or older on June 30, 2001 and their spouses for medical coverage between the ages of 60 and 65. Retirees pay contributions toward medical coverage based on the medical plan and coverage they select. The post-retirement healthcare plan will be phased-out over the next five years. The post-retirement healthcare plan is not funded.
At December 30, 2006, we adopted the effective portions of SFAS No. 158. SFAS No. 158 requires us to recognize the unfunded status as a liability and reclassify unrecognized components of net periodic benefit cost to accumulated other comprehensive income, net of tax. We reclassified $0.5 million ($0.3 million, net of tax) of unrecognized net actuarial gains to accumulated other comprehensive income at December 30, 2006. We expect $0.3 million ($0.2 million, net of tax) to be recognized in net periodic benefit cost during 2007.
The following table sets forth the plan’s benefit obligations, funded status, and net periodic benefit costs for the last three years:
                         
(in thousands)   2006   2005   2004
 
 
                       
Change in benefit obligation:
                       
Benefit obligation at beginning of year
  $ 1,189     $ 2,123     $ 2,471  
Service cost
          42       92  
Interest cost
    18       72       136  
Plan participants’ contributions
    386       400       389  
Actuarial gain
    (290 )     (464 )     (131 )
Benefits paid
    (871 )     (984 )     (834 )
 
Benefit obligation at end of year
    432       1,189       2,123  
 
Funded status
    (432 )     (1,189 )     (2,123 )
Unrecognized net actuarial gain
          (1,522 )     (1,751 )
 
Net amount recognized
  $ (432 )     (2,711 )     (3,874 )
 
Unrecognized net actuarial gain included in accumulated other comprehensive income
  $ 480              
 
Components of net periodic benefit cost:
                       
Service cost
          42       92  
Interest cost
    18       72       136  
Recognition of prior service costs
                (250 )
Recognized net gain
    (1,331 )     (693 )     (915 )
 
Net periodic benefit
  $ (1,313 )   $ (579 )   $ (937 )
 
Weighted average discount rates used in determining accumulated post-retirement benefit obligation:
                       
Beginning of year
    4.95 %     3.75 %     6.00 %
 
End of year
    5.30 %     4.95 %     3.75 %
 

41


 

The post-retirement healthcare plan was valued using a December 30, 2006 measurement date. The discount rate was increased from 4.95% to 5.30% to better reflect the short duration of the liabilities related to remaining participants in this closed group. For measurement purposes, an 8% annual rate of increase in the per capita cost of covered healthcare benefits for the self-insured plan was assumed for 2006. This rate was assumed to decrease gradually to 5.5% in 2011. Of the total benefit obligation at December 30, 2006, $0.2 million is included in other payables and accrued liabilities for benefit payments expected to be made during the next 12 months.
A one percentage point change in assumed healthcare cost trend rates would have an immaterial impact on the accumulated post-retirement benefit obligation and net periodic benefit cost (benefit).
Future benefit payments during the next five years, net of expected contribution from retirees are as follows:
         
    Expected
(in thousands)   Benefit Payments
 
2007
  $ 241  
2008
  $ 142  
2009
  $ 50  
2010
  $ 27  
2011 and thereafter
  $  
 
In addition to the post-retirement healthcare plan described above, we have a defined contribution retirement plan (known as the Lance, Inc. Profit-Sharing “PSR” and 401(k) Retirement Saving Plan) that covers substantially all of our employees. Effective the beginning of 2006, the PSR plan was amended to provide contributions equal to 3.25% or 3.5% of qualified employee wages. Prior to 2006, company contributions to the PSR plan were based on net income before income tax and PSR expense. In 2006 and 2005, the 401(k) plan provided a 50% match of the first 4% of employee contribution not to exceed 2% of the employee’s salary. In 2004, the 401(k) plan provided a 50% match on the first 2% of employee contributions. Total expenses for these employee retirement plans were $7.3 million, $5.6 million and $4.4 million, in 2006, 2005 and 2004, respectively.
NOTE 11. STOCK-BASED COMPENSATION
Effective January 1, 2006, we adopted SFAS 123R, which requires that the value of stock options and similar awards be expensed. SFAS 123R applies to any unvested awards that were outstanding on the effective date and to all new awards granted or modified after the effective date. We adopted SFAS 123R using the modified prospective transition method. Therefore, our income statements for the years ended December 31, 2005 and December 25, 2004 have not been restated to reflect the impact of SFAS 123R. Under this transition method, compensation expense recognized during 2006 included: (i) compensation expense for share-based awards granted prior to, but not vested as of, December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (ii) compensation expense for share-based awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

42


 

In accordance with FASB Staff Position FAS 123R-3, “Transition Election to Accounting for the Tax Effects of Share Based Payment Awards,” we applied the short-cut method for determining our Capital in Excess of Par Value Pool (“APIC Pool”). This includes simplified methods to establish the beginning balance of the APIC Pool related to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC Pool and consolidated statements of cash flows of the tax effects of share-based awards that were outstanding upon adoption of SFAS 123R. The cash tax windfall benefit realized for the tax deductions from option exercises was $3.2 million, $0.8 million and $1.0 million, respectively, during fiscal 2006, fiscal 2005 and fiscal 2004. The total intrinsic value of stock options exercised during 2006, 2005, and 2004 was $8.6 million, $2.1 million, and $2.6 million, respectively.
As of December 30, 2006, we had stock plans under which 4,500,000 shares of common stock could be issued to key employees, as defined in the plans. The plans authorize the grant of incentive stock options, non-qualified stock options, stock appreciation rights (SARs), restricted stock and performance shares. The plans also authorize other awards denominated in monetary units or shares of common stock payable in cash or shares of common stock. The plans include 3,000,000 shares under the 1997 Incentive Equity Plan (the 1997 Plan), which expires in March 2007, and 1,500,000 shares under the 2003 Key Employee Stock Plan (the 2003 Plan), which expires in April 2008. At December 30, 2006, there were no SARs outstanding.
As of December 30, 2006, there was $0.5 million of total unrecognized compensation expense related to outstanding stock options. This cost is expected to be recognized on a straight-line basis over a weighted-average period of 2.3 years. Cash received from option exercises during fiscal 2006, fiscal 2005 and fiscal 2004 was $14.9 million, $4.4 million and $7.4 million, respectively.
As of December 30, 2006, there was $7.8 million of total unrecognized compensation expense related to outstanding restricted stock awards. This cost is expected to be recognized on a straight-line basis over a weighted-average period of 3.6 years.
Employee Stock Purchase Plan
We have an employee stock purchase plan under which shares of common stock are purchased on the open market with employee and company contributions. The plan provides for us to contribute an amount equal to 10% of the employees’ contributions, and up to 25% for certain employees who are not executive officers. We contributed less than $0.1 million to the employee stock purchase plan during each of 2006, 2005, and 2004.
Employee Stock Options
Stock options generally become exercisable in three or four installments from six to forty-eight months after date of grant. The option price, which equals the fair market value of our common stock at the date of grant, ranges from $7.65 to $21.06 per share for the outstanding options as of December 30, 2006. The weighted average exercise price of exercisable options was $13.74 as of December 30, 2006.

43


 

                         
            Outstanding    
    Options   Weighted Average   Options
    Outstanding   Exercise Price   Exercisable
 
Balance at December 27, 2003
    2,959,800     $ 13.20       1,695,038  
Granted
    161,850       17.15          
Exercised
    (570,389 )     12.23          
Expired/Forfeited
    (212,974 )     14.02          
 
Balance at December 25, 2004
    2,338,287       13.61       1,472,298  
Granted
    18,800       15.84          
Exercised
    (390,794 )     11.86          
Expired/Forfeited
    (136,001 )     13.78          
 
Balance at December 31, 2005
    1,830,292       13.99       1,396,698  
Granted
    108,652       19.97          
Exercised
    (1,006,261 )     14.59          
Expired/Forfeited
    (15,199 )     11.59          
 
Balance at December 30, 2006
    917,484     $ 14.08       629,300  
 
 
Weighted average contractual term
  5.2 years           4.0 years
 
 
Aggregate intrinsic value
  $5.5 million           $4.0 million
 
The following assumptions were used to determine the weighted average fair value of options granted during the years ended December 30, 2006, December 31, 2005, and December 25, 2004:
                         
    2006   2005   2004
 
 
                       
Assumptions used in Black Scholes pricing model:
                       
Expected dividend yield
    3.21 %     3.52 %     5.19 %
Risk-free interest rate
    4.54 %     4.39 %     3.86 %
Weighted average expected life
  6.5 years   6.5 years   6.5 years
Expected volatility
    31.20 %     31.20 %     33.45 %
Weighted average fair value per share of options granted
  $ 5.50     $ 4.75     $ 3.69  
 
Employee Restricted Stock and Restricted Stock Unit Awards
During 2005, we awarded 300,000 restricted stock units; half of which would be settled in common stock shares and half of which would be settled in cash. Compensation costs associated with the restricted stock units that are settled in common stock shares are amortized over the vesting period. The deferred portion of these restricted stock unit awards that are settled in common stock is included in the 2005 consolidated balance sheet as unamortized portion of restricted stock awards. The restricted stock units that will be settled in cash are marked to market every period and amortized over the vesting period. During 2006, the Compensation Committee of the Board of Directors approved an amendment that re-designated the 150,000 units that were to be settled in cash to units settled in stock. Pursuant to SFAS 123R, these restricted units are now classified as equity as opposed to a liability. Accordingly, there was an increase to additional paid-in capital of $0.6 million with an offsetting reduction in other long-term liabilities during 2006. These 300,000 restricted stock units will be settled in common stock equally between the 1997 Plan and the 2003 Plan. During 2006 and 2005, we awarded 20,000 shares and 15,000 shares of common stock, respectively, under the 1997 Plan to new officers, subject to vesting restrictions. Compensation costs associated with these restricted shares are amortized over the vesting period.
Also during 2006, the Compensation Committee of the Board of Directors approved the 2006 Five-Year Performance Equity Plan for Officers and Senior Managers, which provided 302,000 performance equity units to be paid in common stock to key employees in 2011. The number of awards ultimately issued under this plan is contingent upon our relative stock price compared to the Russell 2000 Index and can range from zero to 100% of the awards granted. The fair value of the award was calculated using the Monte Carlo valuation method. This method estimates the probability of the potential payouts using the historical volatility of our common stock compared to the Russell 2000 Index. Included in our assumptions was a risk-free interest rate of 4.53%, expected volatility of 35.08%, and an expected dividend rate of 2.8%. Based on these assumptions, a discount rate of 33.4% was applied to the market value on the grant date.

44


 

                 
            Weighted Average
    Restricted Stock   Grant Date Fair
    Awards Outstanding   Value
 
Balance at December 31, 2005
    184,875       16.77  
Granted
    331,000       15.18  
Re-designated
    150,000       24.41  
Exercised
    (14,750 )     7.65  
Expired/Forfeited
    (575 )     7.65  
 
Balance at December 30, 2006
    650,550     $ 17.69  
 
The deferred portion of these restricted shares is included in the consolidated balance sheet as unamortized portion of restricted stock awards at December 31, 2005, and as additional paid-in capital at December 30, 2006.
Non-Employee Director Stock Option Plan
In 1995, we adopted a Nonqualified Stock Option Plan for Non-Employee Director (Director Plan). The Director Plan requires among other things that the options are not exercisable unless the optionee remains available to serve as a director until the first anniversary of the date of grant, except that the initial option shall be exercisable after six months. The options under this plan vest on the first anniversary of the date of grant. Options granted under the Director Plan expire ten years from the date of grant. Beginning after December 28, 2002, there were no additional awards made under this plan. The option price, which equals the fair market value of our common stock at the date of grant, ranges from $10.50 to $21.63 per share. There were 94,500 options outstanding at December 30, 2006. At December 30, 2006, the weighted average remaining contractual term was 2.9 years, and the aggregate intrinsic value was $0.5 million.
                         
    Options   Weighted Average   Options
    Outstanding   Exercise Price   Exercisable
 
Balance at December 27, 2003
    201,500     $ 15.56       201,500  
Granted
                   
Exercised
    (31,500 )     13.05          
Expired/Forfeited
    (15,500 )     18.15          
 
Balance at December 25, 2004
    154,500       15.81       154,500  
Granted
                   
Exercised
    (2,000 )     15.76          
Expired/Forfeited
    (12,500 )     17.50          
 
Balance at December 31, 2005
    140,000       15.67       140,000  
Granted
                   
Exercised
    (12,500 )     17.66          
Expired/Forfeited
    (33,000 )     16.37          
 
Balance at December 30, 2006
    94,500     $ 15.16       94,500  
 
Non-Employee Director Restricted Stock Awards
In 2003, we adopted the Lance, Inc. 2003 Directors Stock Plan (2003 Director Plan). With the adoption of the 2003 Director Plan, no further awards will be made under our 1995 Nonqualified Stock Option Plan for Non-Employee Directors. The 2003 Director Plan is intended to attract and retain persons of exceptional ability to serve as Directors and to further align the interests of Directors and stockholders in enhancing the value of our common stock and to encourage such Directors to remain with and to devote their best efforts to us. The Board of Directors has reserved 50,000 shares of common stock for issuance under the 2003 Director Plan. This number is subject to adjustment in the event of stock dividends and splits, recapitalizations and similar transactions. The 2003 Director Plan is administered by the Board of Directors.

45


 

In both 2006 and 2005, we awarded 9,000 shares of common stock to our directors, subject to certain vesting restrictions. Compensation costs associated with these restricted shares are amortized over the vesting period, at which time the earned portion is charged against current earnings. The deferred portion of these restricted shares is included in the consolidated balance sheet as unamortized portion of restricted stock awards at December 31, 2005, and as additional paid-in capital as of December 30, 2006. At December 30, 2006, there were 9,000 unvested restricted shares outstanding with a remaining contractual term of 3 months and a grant date fair value $24.85.
Long Term Incentive Plans
During 2006, we adopted the Lance, Inc. 2006 Three-Year Incentive Plan for Officers (2006 Officer Plan). With the adoption of the plan, incentives granted to officers and key management are earned over a cumulative three-year period. The 2006 Officer Plan provides for incentive payments in the form of cash, stock grants and/or non-qualified stock option awards after the three-year period has expired and based upon the attainment of certain performance measures.
We adopted the Lance, Inc. 2005 and 2004 Long-Term Incentive Plans for Officers during 2005 and 2004, respectively. With the adoption of these plans, incentives granted to officers and key management are earned over a cumulative three-year period. These plans provide for incentive payments in the form of cash, stock grants and non-qualified stock option awards after the three-year period has expired and based upon the attainment of certain performance measures.
Equity incentive expense recorded in the consolidated statements of income for the long-term incentive plans was $4.9 million, $2.2 million and $0.9 million for the years ended December 30, 2006, December 31, 2005 and December 25, 2004, respectively. The impact of the adoption of SFAS 123R for the year ended December 30, 2006 was an increase in equity incentive expense of $1.3 million as compared to 2005.
NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES
We have entered into contractual agreements providing severance benefits to certain key employees in the event of a change in control. Commitments under these agreements totaled $18.4 million at December 30, 2006.
We have entered into contractual agreements providing severance benefits to certain key employees in the event of termination without cause. Commitments under these agreements were $6.3 million as of December 30, 2006. The maximum commitment for both the change in control and severance agreements as of December 30, 2006 was $20.2 million.
We lease certain facilities and equipment under contracts classified as operating leases. Rental expense was $6.6 million in 2006, $5.3 million in 2005 and $5.1 million in 2004. Future minimum lease commitments for operating leases at December 30, 2006 were as follows:
         
(in thousands)   Amount
 
2007
  $ 2,116  
2008
    1,766  
2009
    36  
 
Total operating lease commitments
  $ 3,918  
 

46


 

We also maintain standby letters of credit in connection with our self insurance reserves for casualty claims. These letters of credit amounted to $18.5 million as of December 30, 2006.
We entered into agreements with suppliers for certain commodities and packaging materials used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. As of December 30, 2006, outstanding purchase commitments totaled $52.7 million. These commitments range in length from a few weeks to 12 months.
We were 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 lawsuit. Due to the inherent uncertainties of litigation, the outcome of this unresolved matter cannot be predicted at this time, nor can the amount of any potential loss be reasonably estimated. Consequently, we have not recorded a liability related to this potential contingency at December 30, 2006. 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 other routine litigation and claims incidental to our business. In our opinion, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole.
NOTE 13. STOCKHOLDERS’ EQUITY
Capital Stock
Our Restated Charter, as amended, authorizes 75,000,000 shares of common stock with a par value of $0.83-1/3 and 5,000,000 shares of preferred stock, par value of $1.00 per share, to be issued in such series and with such preferences, limitations and relative rights as the Board of Directors may determine from time to time. There were 30,855,891 and 29,808,705 shares of common stock outstanding at December 30, 2006 and December 31, 2005, respectively. There were no preferred shares outstanding.
Stockholder Rights Plan
On July 14, 1998, our Board of Directors adopted a Preferred Shares Rights Agreement (Rights Agreement), designed to protect all of our stockholders and ensure that they receive fair and equal treatment in the event of an attempted takeover or certain takeover tactics. Pursuant to the Rights Agreement, each common stockholder received a dividend distribution of one Right for each share of common stock held.
If any person or group acquires beneficial ownership of 20% or more of our outstanding common stock, or commences a tender or exchange offer that results in that person or group acquiring such level of beneficial ownership, each Right (other than the Rights owned by such person or group, which become void) entitles its holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock for an exercise price of $100.

47


 

Each Right, under certain circumstances, entitles the holder to purchase the number of shares of our common stock which have an aggregate market value equal to twice the exercise price of $100. Under certain circumstances, the Board of Directors may exchange each outstanding Right for either one share of our common stock or one one-hundredth of a share of Junior Participating Preferred Stock.
In addition, if a person or group acquires beneficial ownership of 20% or more of our common stock and we merge into another entity, another entity merges into Lance, Inc. or we sell 50% or more of its assets or earning power to another entity, each Right (other than those owned by acquirer, which become void) entitles its holder to purchase, for the exercise price of $100, the number of shares of our common stock (or share of the class of stock of the surviving entity which has the greatest voting power) which has a value equal to twice the exercise price.
If any such person or group acquires beneficial ownership of between 20% and 50% of our common stock, the Board of Directors may, at its option, exchange for each outstanding and not voided Right either one share of common stock or one one-hundredth of a share of Series A Junior Participating Preferred Stock.
The Board of Directors may redeem the Rights at a price of $0.01 per Right at any time prior to a specified period of time after a person or group has become the beneficial owner of 20% or more of its common stock. The Rights will expire on July 14, 2008 unless redeemed earlier.
Other Comprehensive Income
Accumulated other comprehensive income presented in the consolidated balance sheets consists of:
                 
(in thousand)   2006   2005
 
                 
Foreign currency translation adjustment
  $ 5,108     $ 5,081  
Adoption of SFAS 158, net of tax
    313        
Net unrealized losses on derivative instruments, net of tax
    (193 )      
 
Total accumulated other comprehensive income
  $ 5,228     $ 5,081  
 
Income taxes on the foreign currency translation adjustment in other comprehensive income were not recognized because the earnings are intended to be indefinitely reinvested in those operations.

48


 

NOTE 14. INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands, except per share data):
                                 
 
    2006 Interim Period Ended
    April 1   July 1   September 30   December 30
    (13 Weeks)   (13 Weeks)   (13 Weeks)   (13 Weeks)
 
 
                               
Net sales and other operating revenues
  $ 180,745     $ 188,341     $ 188,628     $ 172,402  
Cost of sales
    104,866       105,660       106,768       98,282  
Selling, marketing and delivery
    65,045       60,285       60,571       54,191  
General and administrative
    11,458       11,771       9,296       10,389  
Other expense/(income), net
    162       517       (243 )     (245 )
 
(Loss)/income from continuing operations before interest and taxes
    (786 )     10,108       12,236       9,785  
Interest expense, net
    669       828       901       758  
 
(Loss)/income from continuing operations before taxes
    (1,455 )     9,280       11,335       9,027  
Income tax (benefit)/expense
    (531 )     3,386       3,940       3,014  
 
Net (loss)/income from continuing operations
    (924 )     5,894       7,395       6,013  
Income/(loss) from discontinued operations
    250       418       129       (644 )
Income tax expense/(benefit)
    91       153       45       (236 )
 
Net income/(loss) from discontinued operations
    159       265       84       (408 )
 
Net (loss)/income
  $ (765 )   $ 6,159     $ 7,479     $ 5,605  
 
 
                               
From continuing operations:
                               
Net (loss)/income per common share — basic
  $ (0.03 )   $ 0.19     $ 0.24     $ 0.19  
Net (loss)/income per common share — diluted
    (0.03 )     0.19       0.24       0.19  
From discontinued operations:
                               
Net income/(loss) per common share — basic
          0.01             (0.01 )
Net income/(loss) per common share — diluted
          0.01             (0.01 )
 
                               
Dividends declared per common share
  $ 0.16     $ 0.16     $ 0.16     $ 0.16  
 
                                 
 
    2005 Interim Period Ended
    March 26   June 25   September 24   December 31
    (13 Weeks)   (13 Weeks)   (13 Weeks)   (14 Weeks)
 
 
                               
Net sales and other operating revenues
  $ 138,592     $ 159,832     $ 166,173     $ 186,840  
Cost of sales
    77,311       88,029       94,632       109,359  
Selling, marketing and delivery
    48,415       51,602       52,138       63,899  
General and administrative
    7,872       11,384       7,668       10,681  
Other expense/(income), net
    14       66       (246 )     129  
 
Income from continuing operations before interest and taxes
    4,980       8,751       11,981       2,772  
Interest expense, net
    543       550       358       534  
 
Income from continuing operations before taxes
    4,437       8,201       11,623       2,238  
Income tax expense
    1,545       2,981       3,917       580  
 
Net income from continuing operations
    2,892       5,220       7,706       1,658  
Income/(loss) from discontinued operations
    580       654       480       (208 )
Income tax expense/(benefit)
    202       238       162       (90 )
 
Net income/(loss) from discontinued operations
    378       416       318       (118 )
 
Net Income
  $ 3,270     $ 5,636     $ 8,024     $ 1,540  
 
 
                               
From continuing operations:
                               
Net income per common share — basic
  $ 0.10     $ 0.18     $ 0.26     $ 0.05  
Net income per common share — diluted
    0.10       0.18       0.26       0.05  
From discontinued operations:
                               
Net income per common share — basic
    0.01       0.01       0.01        
Net income per common share — diluted
    0.01       0.01       0.01        
 
                               
Dividends declared per common share
  $ 0.16     $ 0.16     $ 0.16     $ 0.16  
 

49


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lance, Inc.:
We have audited the accompanying consolidated balance sheets of Lance, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 30, 2006. These consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lance, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 2006, in conformity with U.S. generally accepted accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. As discussed in Notes 1, 10 and 13 to the consolidated financial statements, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards, No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 30, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Lance, Inc.’s internal control over financial reporting as of December 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 8, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
(-S- KPMG LLP)
Charlotte, North Carolina
March 8, 2007

50


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lance, Inc.:
We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”, that Lance, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

51


 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lance, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 30, 2006, and our report dated March 8, 2007 expressed an unqualified opinion on those consolidated financial statements.
(-S- KPMG LLP)
Charlotte, North Carolina
March 8, 2007

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MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or instances of fraud. As such, a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 30, 2006.
Our independent registered public accounting firm has issued an attestation report on management’s assessment of our internal control over financial reporting. That report begins on page 51.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. 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 management, including the 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-15b of the Securities and Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the 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 the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Our management assessed the effectiveness of our internal controls over financial reporting as of December 30, 2006. See page 53 for “Management’s Report on Internal Control over Financial Reporting.” Our independent registered public accounting firm has issued an attestation report on management’s assessment of our internal control over financial reporting. The report of the independent registered public accounting firm appears on page 51.
There have been no changes in our internal control over financial reporting during the quarter ended December 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Items 10 through 14 are incorporated by reference to the sections captioned Principal Stockholders and Holdings of Management, Election of Directors, The Board of Directors and its Committees, Compensation Committee Interlocks and Insider Participation, Compensation Committee Report, Equity Compensation Plans, Director Compensation, Section 16(a) Beneficial Ownership Reporting Compliance, Executive Officer Compensation and Ratification of Selection of Independent Public Accountants in our Proxy Statement for the Annual Meeting of Stockholders to be held on April 26, 2007 and to the Separate Item in Part I of this Annual Report captioned Executive Officers of the Registrant.

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Item 10. Directors and Executive Officers of the Registrant
Code of Ethics
We have adopted a Code of Conduct and Ethics which covers our officers and employees. In addition, we have adopted a Code of Ethics for Directors and Senior Financial Officers which covers the members of the Board of Directors and Senior Financial Officers, including the Chief Executive Officer, Chief Financial Officer, Corporate Controller and Principal Accounting Officer. These Codes are posted on our website at www.lance.com. We will disclose any substantive amendments to, or waivers from, our Code of Ethics for Directors and Senior Financial Officers on our website or in a report on Form 8-K.

55


 

PART IV
Item 15. Exhibits and Financial Statement Schedules
  (a) 1.  
Financial Statements.
 
     
The following financial statements are filed as part of this report:
         
    Page  
 
       
Consolidated Statements of Income for the Fiscal Years Ended December 30, 2006, December 31, 2005 and December 25, 2004
    24  
 
       
Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005
    25  
 
       
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Fiscal Years Ended December 30, 2006, December 31, 2005 and December 25, 2004
    26  
 
       
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2006, December 31, 2005 and December 25, 2004
    27  
 
       
Notes to Consolidated Financial Statements
    28  
 
       
Reports of Independent Registered Public Accounting Firm
    50  

56


 

     2. Financial Schedules.
          Schedules have been omitted because of the absence of conditions under which they are required or because information required is included in financial statements or the notes thereto.
     3. Exhibits.
          2.1 Asset Purchase Agreement, dated October 17, 2005, by and between Tom’s Foods Inc., a Delaware Corporation, Columbus Capital Acquisitions, Inc., a North Carolina Corporation and wholly-owned subsidiary of Registrant and, solely for purposes of Section 5.7 of the Asset Purchase Agreement, the Registrant, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 21, 2005 (File No. 0-398).
          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).
          4.1 See 3.1, 3.2 and 3.3 above.
          4.2 Preferred Shares Rights Agreement dated July 14, 1998 between the Registrant and Wachovia Bank, N.A., together with the Form of Rights Certificate attached as Exhibit B thereto, incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-A filed on July 15, 1998 (File No. 0-398).
          4.3 First Supplement to Preferred Shares Rights Agreement dated as of July 1, 1999 between the Registrant and First Union National Bank, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 26, 1999 (File No. 0-398).
          4.4 Second Supplement to Preferred Shares Rights Agreement dated as of November 1, 2006 between the Registrant and American Stock Transfer & Trust Company, filed herewith.
          10.1 Lance, Inc. 1995 Nonqualified Stock Option Plan for Non-Employee Directors, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 2005 (File No. 0-398).
          10.2 Lance, Inc. 1997 Incentive Equity Plan, as amended, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2006 (File No. 0-398).

57


 

          10.3 Lance, Inc. 2003 Key Employee Stock Plan, as amended, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 24, 2005 (File No. 0-398).
          10.4 Lance, Inc. 2003 Director Stock Plan, incorporated herein by reference to Exhibit 4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-104961).
          10.5* Lance, Inc. Compensation Deferral and Benefit Restoration Plan, as amended, filed herewith.
          10.6* Lance, Inc. 2003 Long-Term Incentive Plan for Officers, as amended, incorporated herein by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004 (File No. 0-398).
          10.7* Lance, Inc. 2004 Annual Performance Incentive Plan for Officers, as amended, incorporated herein by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004 (File No. 0-398).
          10.8* Lance, Inc. 2004 Long-Term Incentive Plan for Officers, as amended, incorporated herein by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004 (File No. 0-398).
          10.9* Lance, Inc. 2005 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 February 1, 2005 (File No. 0-398).
          10.10* Lance, Inc. 2005 Long-Term Incentive Plan for Officers, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended September 24, 2005 (File No. 0-398).
          10.11* 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).
          10.12* 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).
          10.13* Lance, Inc. 2006 Five-Year Performance Equity Plan for Officers and Senior Managers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 22, 2006 (File No. 0-398).
          10.14* Lance, Inc. 2005 Employee Stock Purchase Plan, as amended and restated, filed herewith.
          10.15* Executive Employment Agreement dated May 11, 2005 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No. 0-398).

58


 

          10.16* Compensation and Benefits Assurance Agreement dated May 11, 2005 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No. 0-398).
          10.17* Restricted Stock Unit Award Agreement dated May 11, 2005 between the Registrant 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 16, 2005 (File No. 0-398).
          10.18* Restricted Stock Unit Award Agreement Amendment dated April 27, 2006 between the Registrant 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).
          10.19* Agreement dated June 15, 2005 between the Registrant and Paul A. Stroup, III, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 17, 2005 (File No. 0-398).
          10.20* Offer Letter, effective as of December 19, 2005, between the Registrant and Blake W. Thompson, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly report on Form 10-Q filed on December 23, 2005 (File No. 0-398).
          10.21* Offer Letter, effective as of January 30, 2006, between the Registrant and Rick D. Puckett, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2006 (File No. 0-398).
          10.22* Form of Compensation and Benefits Assurance Agreement between the Registrant and each of Earl D. Leake, H. Dean Fields, Frank I. Lewis, Rick D. Puckett and Blake W. Thompson, incorporated herein by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (File No. 0-398).
          10.23* Executive Severance Agreement dated November 7, 1997 between the Registrant and Earl D. Leake, incorporated herein by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (File No. 0-398).
          10.24* Amendment to Executive Severance Agreement dated July 26, 2001 between the Lance, Inc. and Earl D. Leake, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended September 29, 2001 (File No. 0-398).
          10.25* Second Amendment to Executive Severance Agreement dated October 21, 2004 between Lance, Inc. and Earl D. Leake, incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004 (File No. 0-398).
          10.26* Form of Executive Severance Agreement between the Registrant and each of Frank I. Lewis, H. Dean Fields, Rick D. Puckett, Blake W. Thompson and Margaret E. Wicklund, incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (File No. 0-398).

59


 

          10.27 Second Amended and Restated Credit Agreement dated as of February 8, 2002 among the Registrant, Lanfin Investments Inc., Bank of America, N.A., First Union National Bank, Fleet National Bank, et al incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 30, 2002 (File No. 0-398).
          10.28 Bridge Credit Agreement, dated as of October 21, 2005, between the Registrant and Bank of America, National Association, as agent and sole initial lender, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 24, 2005 (File No. 0-398).
          10.29 Credit Agreement, dated as of October 20, 2006, among the Registrant, Tamming Foods, Ltd., Bank of America, National Association, Wachovia Capital Markets, LLC and the other lenders named therein, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006 (File No. 0-398)
          21 List of the Subsidiaries of the Registrant, filed herewith.
          23 Consent of KPMG LLP, filed herewith.
          31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith.
          31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith.
          32 Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
*  
Management contract.

60


 

SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  LANCE, INC.
 
 
Dated: March 8, 2007  By:   /s/ David V. Singer   
    David V. Singer   
    President and Chief Executive Officer   
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
         
Signature   Capacity   Date
 
       
/s/ David V. Singer 
 
David V. Singer
  President and Chief Executive Officer (Principal Executive Officer)   March 8, 2007
 
       
/s/ Rick D. Puckett 
 
Rick D. Puckett
  Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)   March 8, 2007
 
       
/s/ Margaret E. Wicklund 
 
Margaret E. Wicklund
  Corporate Controller and Assistant Secretary (Principal Accounting Officer)   March 8, 2007
 
       
/s/ W. J. Prezzano 
 
W. J. Prezzano
  Chairman of the Board of Directors   March 8, 2007
 
       
/s/ Barbara R. Allen 
 
Barbara R. Allen
  Director   March 8, 2007
 
       
/s/ Jeffrey A. Atkins 
 
Jeffrey A. Atkins
  Director   March 8, 2007

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Signature   Capacity   Date
 
       
 
       
/s/ J.P. Bolduc
 
J.P. Bolduc
  Director   March 8, 2007
 
       
 
       
/s/ William R. Holland
 
William R. Holland
  Director   March 8, 2007
 
       
 
       
/s/ Robert V. Sisk
 
Robert V. Sisk
  Director   March 8, 2007
 
       
 
       
/s/ Dan C. Swander
 
Dan C. Swander
  Director   March 8, 2007
 
       
 
       
/s/ Isaiah Tidwell
 
Isaiah Tidwell
  Director   March 8, 2007
 
       
 
       
 
S. Lance Van Every
  Director    

62

 

Exhibit 4.4
SECOND SUPPLEMENT TO PREFERRED SHARES RIGHTS AGREEMENT
     This SECOND SUPPLEMENT TO PREFERRED SHARES RIGHTS AGREEMENT (this “SUPPLEMENT”) is dated as of November 1, 2006, by and between LANCE, INC., a North Carolina corporation (the “COMPANY”) and AMERICAN STOCK TRANSFER & TRUST COMPANY (“AST”).
Recitals
     Wachovia Bank, N.A. (“WACHOVIA”) and the Company entered into a Preferred Shares Rights Agreement (the “AGREEMENT”), dated as of July 14, 1998, as supplemented by First Supplement to Preferred Shares Rights Agreement dated as of July 1, 1999 between the Company and First Union National Bank (by merger, now Wachovia) whereby Wachovia agreed to act as Rights Agent for the Company under the Agreement. Pursuant to Section 21 of the Agreement, the Company gave notice on October 18, 2006 of the removal of Wachovia as Rights Agent effective November 1, 2006. This Supplement is to confirm the appointment of AST as successor Rights Agent under the Agreement and to amend certain Sections of the Rights Agreement.
     NOW, THEREFORE, in consideration of the promises and the mutual agreements herein set forth, the parties hereby agree as follows:
      SECTION 1. Certain Definitions . All capitalized terms used but not defined herein shall have the meanings assigned to them in the Agreement.
      SECTION 2. Appointment of Rights Agent . The Company hereby appoints AST as successor Rights Agent to act as agent for the Company in accordance with the terms of the Agreement, and AST hereby accepts such appointment, pursuant to Section 21 of the Agreement.
      SECTION 3. Modification of Legend for Common Stock Certificate . The legend required pursuant to Section 3(c) of the Agreement is hereby modified and restated in its entirety as follows:
      This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Preferred Shares Rights Agreement between Lance, Inc. and American Stock Transfer & Trust Company as the successor Rights Agent, dated as of July 14, 1998, as supplemented, (the “RIGHTS AGREEMENT”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Lance, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Lance, Inc.

 


 

will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.
      SECTION 4. Amendment to Section 21: Change of Rights Agent. Section 21 of the Rights Agreement is hereby amended to provide that any successor Rights Agent shall, at the time of appointment as Rights Agent, have a combined capital and surplus of at least $25 million, rather than $50 million.
      SECTION 5. Change of Notice Address . AST’s address for notice or demand pursuant to Section 26 of the Agreement is as follows:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Attn: Corporate Trust Department
     IN WITNESS WHEREOF, the parties hereto have caused this Second Supplement to Preferred Shares Rights Agreement to be duly executed as of the day and year first above written.
         
  LANCE, INC.
 
 
  By   /s/ Rick D. Puckett    
    Rick D. Puckett   
    Executive Vice President   
 
  AMERICAN STOCK TRANSFER & TRUST COMPANY
 
  By   /s/ Herbert J. Lemmer    
    Name:   Herbert J. Lemmer   
    Title:   Vice President   
 

 

 

Exhibit 10.5
LANCE, INC.
COMPENSATION DEFERRAL AND BENEFIT RESTORATION PLAN
(as amended and restated effective January 1, 2005)
1. Name:
     This plan shall be known as the “Lance, Inc. Compensation Deferral and Benefit Restoration Plan” (the “Plan”).
2. Purpose and Intent:
     Lance, Inc. (the “Corporation”) established the Plan for the purposes of (i) providing certain employees with the opportunity to defer payment of a portion of base salary and certain annual incentives and (ii) providing benefits to certain employees whose benefits under the Savings Plan are adversely affected by the limitations of Sections 401(a)(17) and 415 of the Internal Revenue Code. The Corporation is hereby amending and restating the Plan effective as of January 1, 2005 (the “Restatement Date”) to reflect certain design changes in order for the Plan to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and to otherwise meet current needs. It is the intent of the Corporation that amounts deferred under the Plan shall not be taxable to the employee for income tax purposes until the time actually received by the employee. The provisions of the Plan shall be construed and interpreted to effectuate that intent.
3. Definitions:
     For purposes of the Plan, the following terms have the following meanings:
     “ Account ” means the account established and maintained on the books of the Corporation to record a Participant’s interest under the Plan attributable to amounts credited to the Participant pursuant to the Plan.
     “ Annual Incentive Award ” means, with respect to a Participant, any annual incentive award payable to the Participant pursuant to any incentive compensation plan of a Participating Employer approved for purposes of this Plan by the Plan Administrator.
     “ Beneficiary ” means any person or trust designated by a Participant in accordance with procedures adopted by the Plan Administrator to receive the Participant’s Account in the event of the Participant’s death. If the Participant does not designate a Beneficiary, the Participant’s Beneficiary is his or her spouse, or if not then living, his or her estate.
     “ CEO ” means the Chief Executive Officer of the Corporation.

 


 

     “ Class Year Deferrals ” means, for each Plan Year beginning on or after January 1, 2006, the deferrals under Paragraph 5(b) of a Participant’s base salary for the Plan Year plus the deferral of any portion of the Participant’s Annual Incentive Award earned for services rendered during the Plan Year, including any related adjustments for deemed investments in accordance with Paragraph 5(e) below.
     “ Compensation Committee ” means the committee of individuals who are serving from time to time as the Compensation Committee of the Board of Directors of the Corporation.
     “ Eligible Employee ” means an Employee designated as an Eligible Employee pursuant to Paragraph 5(a).
     “ Employee ” means an individual employed by a Participating Employer.
     “ Participant ” means an Eligible Employee who has elected to defer compensation under the Plan as provided in Paragraph 5(b) or has received restoration credits to his Account pursuant to Paragraph 5(c).
     “ Participating Employer ” means the Corporation and any other incorporated or unincorporated trade or business that adopts the Plan.
     “ Payment Sub-Account ” means a portion of a Participant’s Account established by the Plan Administrator to facilitate the administration of distributions under the Plan, including without limitation Payment Sub-Accounts representing (i) each separate set of Class Year Deferrals, (ii) each separate set of deferrals covered by a “Life Event” election made prior to the Restatement Date and (iii) restoration credits under Paragraph 5(c) below.
     “ Plan Administrator ” means the person or entity designated as the “Plan Administrator” by the Compensation Committee.
     “ Plan Year ” means the calendar year.
     “ Savings Plan ” means the defined contribution profit-sharing plan maintained by the Company known as the “Lance, Inc. Profit-Sharing and 401(k) Retirement Savings Plan,” as amended from time to time.
4. Administration:
     The Plan Administrator shall be responsible for administering the Plan. The Plan Administrator shall have all of the powers necessary to enable it to properly carry out its duties under the Plan. Not in limitation of the foregoing, the Plan Administrator shall have the power to construe and interpret the Plan and to determine all questions that arise thereunder. The Plan

2


 

Administrator shall have such other and further specified duties, powers, authority and discretion as are elsewhere in the Plan either expressly or by necessary implication conferred upon it. The Plan Administrator may appoint any agents that it deems necessary for the effective performance of its duties, and may delegate to those agents those powers and duties that the Plan Administrator deems expedient or appropriate that are not inconsistent with the intent of the Plan. All decisions of the CEO, the Plan Administrator and the Compensation Committee upon all matters within the scope of his or its authority shall be made in the CEO’s, Plan Administrator’s or Compensation Committee’s sole discretion and shall be final and conclusive on all persons, except to the extent otherwise provided by law.
5. Eligibility, Deferrals and Account Adjustments:
     (a)  Eligibility . For each Plan Year, (i) the Compensation Committee shall designate which Employees who are “named executive officers” in the Corporation’s annual proxy statement shall be Eligible Employees for the Plan Year, and (ii) the CEO shall designate which Employees other than the “named executive officers” shall be Eligible Employees for the Plan Year; provided , however , that the determination of Eligible Employees shall be made consistent with the requirement that the Plan be a “top hat” plan for purposes of the Employee Retirement Income Security Act of 1974, as amended. An Employee may be designated as an Eligible Employee separately with respect to deferrals pursuant to Paragraph 5(b) or restoration credits to his Account pursuant to Paragraph 5(c) for a Plan Year, or the Employee may be designated as an Eligible Employee with respect to both deferrals and restoration credits for the Plan Year. An Employee designated as an Eligible Employee with respect to one Plan Year need not be designated as an Eligible Employee for any subsequent Plan Year.
     (b)  Elections to Defer . A person who is an Eligible Employee for a Plan Year may elect to defer from one percent (1%) to forty percent (40%), in one percent (1%) increments, of the Eligible Employee’s base salary for the Plan Year. In addition, the Eligible Employee may elect to defer from ten percent (10%) to ninety percent (90%), in ten percent (10%) increments, of the Eligible Employee’s Annual Incentive Award for the Plan Year. Elections to defer base salary or Annual Incentive Awards for a Plan Year must be made before the first day of the Plan Year, provided that a newly hired Eligible Employee who first becomes eligible to participate in the Plan after the start of the Plan Year may make such deferral election within thirty (30) days after first becoming eligible to participate in the Plan as notified by the Plan Administrator. All elections made under this Paragraph 5(b) shall be made in writing on a form, or pursuant to other non-written procedures, as may be prescribed from time to time by the Plan Administrator and shall be irrevocable for the Plan Year. An election to defer made by an Eligible Employee with respect to any base salary or Annual Incentive Award payable for a Plan Year shall not automatically apply with respect to any base salary or Annual Incentive Award payable for any subsequent Plan Year. Amounts deferred under the Plan shall not be taken into account for purposes of determining contributions or allocations under the Savings Plan. Notwithstanding any provision herein to the contrary, Eligible Employees who made an election to defer Annual Incentive Awards earned for performance during 2005 and otherwise payable in 2006 shall be given the opportunity during 2005 to rescind or reduce such deferral election at such time and pursuant to such procedures as adopted by the Plan Administrator for such purpose.

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     (c)  Restoration Credits . An Eligible Employee’s Account shall be credited with an amount equal to the excess, if any, of:
     (A) the aggregate amount of the “Profit-Sharing Contribution” that would have been allocated to the Participant’s “Individual Account” under the Savings Plan for the applicable Plan Year had (i) the limitation imposed by Section 415 of the Code not been in effect, (ii) had the amount of the Participant’s compensation used in calculating the amount of said Profit-Sharing Contribution so allocated to said account under the terms of the Savings Plan not been limited by Section 401(a)(17) of the Code, and (iii) had the Participant’s compensation for such purpose included the amounts, if any, deferred by the Participant under this Plan, over
     (B) the amount of the “Profit-Sharing Contribution” actually allocated to the Participant’s “Individual Account” under the Savings Plan for the applicable Plan Year.
     (d)  Establishment of Accounts . A Participating Employer shall establish and maintain on its books an Account for each Participant employed by the Participating Employer. Each Account shall be designated by the name of the Participant for whom established. The amount of any base salary or Annual Incentive Award deferred by a Participant pursuant to Paragraph 5(b) shall be credited to the Participant’s Account as of the date the base salary or Annual Incentive Award would have otherwise been paid to the Participant. The amount of any restoration credit shall be credited to the Participant’s Account pursuant to Paragraph 5(c) as of the date such amounts would have been allocated to the Participant’s “Individual Account” under the Savings Plan.
     (e)  Account Adjustments for Deemed Investments . The Plan Administrator shall from time to time designate one or more investment vehicle(s) in which the Accounts of Participants shall be deemed to be invested. The investment vehicle(s) may be designated by reference to the investments available under other plans sponsored by a Participating Employer. Each Participant may designate the investment vehicle(s) in which his or her Account shall be deemed to be invested according to the procedures developed by the Plan Administrator, except as otherwise required by the terms of the Plan. No Participating Employer shall be under an obligation to acquire or invest in any of the deemed investment vehicle(s), and any acquisition of or investment in a deemed investment vehicle by a Participating Employer shall be made in the name of the Participating Employer and shall remain the sole property of the Participating Employer. The Plan Administrator shall also establish from time to time a default investment vehicle into which a Participant’s Account shall be deemed to be invested if the Eligible Employee fails to provide investment instructions to the Plan Administrator. Account adjustments shall be applied pro rata among a Participant’s various Payment Sub-Accounts.
     (f)  Timing of Adjustments . The adjustments to Accounts for deemed investments as provided in Paragraph 5(e) shall be made from time to time at such intervals as determined by the Plan Administrator. The Plan Administrator may determine the frequency of account adjustments by reference to the frequency of Account adjustments under another plan sponsored by a

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Participating Employer. The amount of the adjustment shall equal the amount that the Participant’s Account would have earned (or lost) for the period since the last adjustment had the Account actually been invested in the deemed investment vehicle(s) designated by the Participant for the period.
     (g)  Statements of Account . Each Participant shall receive an annual statement of the Participant’s Account balance.
6. Distribution Provisions for 2005:
     (a)  In-Service Withdrawals . Each Participant who is in the active service of a Participating Employer shall be given the opportunity to elect up through December 10, 2005 (or such other date during 2005 as selected by the Plan Administrator) (i) a distribution of the entire balance of each of the Participant’s Payment Sub-Accounts as of such date, other than the Payment Sub-Account comprised of restoration credits under Paragraph 5(c) above, and (ii) to cancel any deferral election that would otherwise apply to the Annual Incentive Award earned for 2005 performance. Such distribution shall be made on or before December 31, 2005. In addition, Participants shall be eligible during 2005 to make in-service withdrawals for unforeseeable emergency in accordance with the provisions of Paragraph 7(g) below.
     (b)  Special Payment Elections . Each Participant who has an Account balance on any date during 2005 shall be given the opportunity during 2005 to make a payment election applicable separately to each Payment Sub-Account maintained under the Plan for the Participant, in each case to the extent such amounts are not otherwise withdrawn during 2005 pursuant to Paragraph 6(a) above. The Participant may in each case elect from among the payment options set forth in Paragraph 7(b) below, and such election shall be immediately effective. In the event a Participant covered by this Paragraph 6(b) fails to make a payment election with respect to any Payment Sub-Account, the payment method shall be (x) the payment method most recently elected by the Participant under the Plan according to the records of the Plan Administrator, even if that prior payment election had not yet become effective, or (y) in the absence of any such prior payment election, a lump sum payment following termination of employment as set forth in Paragraph 7(b) below. Any subsequent change to such payment election must comply with the requirements of Paragraph 7(c) below. Payments pursuant to such election shall otherwise be subject to the requirements of Paragraph 7 below.
7. Distribution Provisions After 2005:
     (a)  Class Year Payment Elections . A Participant for a Plan Year beginning on or after January 1, 2006 shall elect from among the available forms of payment set forth in Paragraph 7(b) below the form of payment that shall apply to the Payment Sub-Account comprised of the Class Year Deferrals for such Plan Year. The payment election shall be made coincident with the deferral elections under Paragraph 5(b) above for such Plan Year. In addition, as to the Payment Sub-Account comprised of restoration credits under Paragraph 5(c) above, the applicable payment election for that Payment Sub-Account shall be made by the Participant either in accordance with Paragraph 6(b) above, or for a Participant who was not

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eligible to make a payment election under Paragraph 6(b) above, within thirty (30) days after first becoming eligible to participate in the Plan as notified by the Plan Administrator.
     (b)  Available Forms of Payment . A Participant shall select from among the following forms of payment for each Payment Sub-Account to which separate payment elections are made available pursuant to Paragraphs 6(b) and 7(a) above. The Participant must select a single form of payment applicable to each Payment Sub-Account (i.e., a Payment Sub-Account may not be “split” among more than one form of payment):
  (i)  
Lump Sum Payment Following Termination of Employment . The balance of the applicable Payment Sub-Account shall be payable in a single cash payment on or as soon as administratively practicable after the beginning of the seventh month following the Participant’s termination of employment with the Participating Employers.
 
  (ii)  
Lump Sum Payment In Specified Year . The balance of the applicable Payment Sub-Account shall be payable in a single cash payment during the first 90 days of the calendar year elected by the Participant; provided , however , that the payment shall be made no later than the beginning of the seventh month following the Participant’s termination of employment with the Participating Employers. This payment option shall not be available for the Payment Sub-Account comprised of restoration credits under Paragraph 5(c) above.
 
  (iii)  
Annual Installments Following Termination of Employment . The balance of the applicable Payment Sub-Account shall be payable in annual installments over a period of years selected by the Participant not to exceed ten (10) commencing on or as soon as administratively practicable after the beginning of the seventh month following the Participant’s termination of employment with the Participating Employers.
 
  (iv)  
Annual Installments Commencing In Specified Year . The balance of the applicable Payment Sub-Account shall be payable in annual installments over a period of years selected by the Participant not to exceed ten (10) commencing during the first 90 days of the calendar year elected by the Participant; provided , however , that the installments shall commence no later than on or as soon as administratively practicable after the beginning of the seventh month following the Participant’s termination of employment with the Participating Employers. This payment option shall not be available for the Payment Sub-Account comprised of restoration credits under Paragraph 5(c) above.

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     A Participant who fails to make a payment election for a Payment Sub-Account in accordance with the provisions of this Paragraph 7(b) shall be deemed to have elected for such Payment Sub-Account a lump sum payment following termination of employment.
     (c)  Subsequent Changes to Payment Elections . A Participant may change the timing or form of payment elected under Paragraph 7(b)(ii) or (iv) above, or the timing or form of payment subsequently elected under this Paragraph 7(c), with respect to a Payment Sub-Account only if (i) such election is made at least twelve (12) months prior to the date the payment of the Payment Sub-Account would have otherwise commenced, and (ii) the effect of such election is to defer commencement of such payments by at least five (5) years.
     (d)  Default Lump Sum Payment . Notwithstanding any provision herein to the contrary, a Participant’s entire Account balance shall be payable in a single cash payment on or as soon as administratively practicable after the beginning of the seventh month following the Participant’s termination of employment with the Participating Employers if, as of the Participant’s date of termination of employment with the Participating Employers, the amount of the Participant’s Account balance equals Twenty Thousand Dollars ($20,000) or less.
     (e)  Installments . If amounts are payable to a Participant in the form of annual installments, the first annual installment shall be paid commencing per the applicable election set forth in Paragraph 7(b) above, and each subsequent annual installment shall be paid on or about the anniversary of the first installment. The amount payable on each payment date shall be equal to the balance of the applicable Sub-Account Account on the applicable payment date divided by the number of remaining installments (including the installment then payable).
     (f)  Death . If a Participant dies after having commenced installment payments, any remaining unpaid installment payments shall be paid to the Participant’s Beneficiary as and when they would have otherwise been paid to the Participant had the Participant not died. If a Participant terminates employment due to death, the Participant’s Account shall be payable to the Participant’s Beneficiary commencing as soon as administratively practicable after the Participant’s death in the form of either a single cash payment or five annual installments as elected by the Participant pursuant to this Paragraph 7(f). Such payment method election shall be made by the Participant at such time or times and pursuant to such procedures as the Plan Administrator may establish from time to time. If a Participant fails to make a payment method election under this Paragraph 7(f), the method of payment to the Beneficiary shall be a single cash payment.
     (g)  Withdrawals on Account of an Unforeseeable Emergency . A Participant who is in active service with a Participating Employer may, if permitted by the Plan Administrator, receive a refund of all or any part of the amounts previously credited to the Participant’s Account in the case of an “unforeseeable emergency.” A Participant requesting a payment pursuant to this Paragraph 7(g) shall have the burden of proof of establishing, to the Plan Administrator’s satisfaction, the existence of an “unforeseeable emergency,” and the amount of the payment needed to satisfy the same. In that regard, the Participant must provide the Plan Administrator with such financial data and information as the Plan Administrator may request. If the Plan Administrator determines that a payment should be made to a Participant under this Paragraph 7(g), the payment shall be made within a reasonable time after the Plan Administrator’s

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determination of the existence of the “unforeseeable emergency” and the amount of payment so needed. As used herein, the term “unforeseeable emergency” means a severe financial hardship to a Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that constitute an “unforeseeable emergency” shall depend upon the facts of each case, but, in any case, payment may not be made to the extent that the hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, or (ii) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. Examples of what are not considered to be “unforeseeable emergencies” include the need to send a Participant’s child to college or the desire to purchase a home. Withdrawals of amounts because of an “unforeseeable emergency” may not exceed an amount reasonably needed to satisfy the emergency need.
     (h)  Other Payment Provisions . To be effective, any elections under Paragraphs 6 or 7 herein shall be made on such form, at such time and pursuant to such procedures as determined by the Plan Administrator in its sole discretion from time to time. Any deferral or payment hereunder shall be subject to applicable payroll and withholding taxes. In the event any amount becomes payable under the provisions of the Plan to a Participant, Beneficiary or other person who is a minor or an incompetent, whether or not declared incompetent by a court, such amount may be paid directly to the minor or incompetent person or to such person’s fiduciary (or attorney-in-fact in the case of an incompetent) as the Plan Administrator, in its sole discretion, may decide, and the Plan Administrator shall not be liable to any person for any such decision or any payment pursuant thereto.
8. Amendment, Modification and Termination of the Plan:
     The Compensation Committee shall have the right and power at any time and from time to time to amend the Plan in whole or in part and at any time to terminate the Plan; provided , however , that no amendment or termination may reduce the amount actually credited to a Participant’s Account on the date of the amendment or termination, or further defer the due dates for the payment of the amounts, without the consent of the affected Participant. Notwithstanding any provision of the Plan to the contrary but subject to the requirements of Code Section 409A, in connection with any termination of the Plan the Compensation Committee shall have the authority to cause the Accounts of all Participants (and Beneficiaries of any deceased Participants) to be paid in a single cash payment as of a date determined by the Compensation Committee or to otherwise accelerate the payment of all Accounts in such manner as the Compensation Committee determines in its discretion.
9. Claims Procedures:
     Claims for benefits under the Plan shall be addressed pursuant to the claims procedures applicable under the Savings Plan. Any decision pursuant to such claims procedures shall be final and conclusive upon all persons interested therein, except to the extent otherwise provided by applicable law.

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10. Indemnity of Plan Administrator:
     The Participating Employers shall indemnify and hold harmless the Plan Administrator and any Employee to whom the duties of the Plan Administrator may be delegated from and against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to the Plan, except in the case of willful misconduct by the Plan Administrator or any such Employee.
11. Applicable Law:
     The Plan shall be governed and construed in accordance with the laws of the State of North Carolina, except to the extent such laws are preempted by the laws of the United States of America.
12. Compliance With Code Section 409A
     The Plan is intended to comply with Code Section 409A. Notwithstanding any provision of the Plan to the contrary, the Plan shall be interpreted, operated and administered consistent with this intent.
13. Miscellaneous:
     A Participant’s rights and interests under the Plan may not be assigned or transferred by the Participant. In that regard, no part of any amounts credited or payable hereunder shall, prior to actual payment, (i) be subject to seizure, attachment, garnishment or sequestration for the payment of debts, judgments, alimony or separate maintenance owed by the Participant or any other person, (ii) be transferable by operation of law in the event of the Participant’s or any person’s bankruptcy or insolvency or (iii) be transferable to a spouse as a result of a property settlement or otherwise. The Plan shall be an unsecured and unfunded arrangement. To the extent the Participant acquires a right to receive payments from the Participating Employers under the Plan, the right shall be no greater than the right of any unsecured general creditor of the Participating Employers. Nothing contained herein may be deemed to create a trust of any kind or any fiduciary relationship between a Participating Employer and any Participant. Designation as an Eligible Employee or Participant in the Plan shall not entitle or be deemed to entitle the person to continued employment with the Participating Employers. The Plan shall be binding on the Corporation and any successor in interest of the Corporation.
APPROVED BY THE COMPENSATION COMMITTEE OF THE BOARD ON DECEMBER 16, 2005

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Exhibit 10.14
LANCE, INC.
2005 EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated effective January 1, 2007)
     1.  Establishment of Plan . Lance, Inc. (the “Company”) previously established the Employee Stock Purchase Plan of Lance, Inc. (the “Prior Plan”). The Company established a new plan, to be known as the Lance, Inc. 2005 Employee Stock Purchase Plan (the “Plan”), which superseded and replaced the Prior Plan upon the Plan becoming effective pursuant to Paragraph 25 below. This document constitutes an amendment and restatement of the Plan to reflect (i) a change in the timing of purchases under the Plan and (ii) a change in the Agent under the Plan since the Plan was originally effective.
     2.  Purpose . The purpose of the Plan is to give employees of the Company and its subsidiaries wishing to do so a means of purchasing stock in the Company through payroll deductions. The Company believes that ownership of stock by employees will foster increased employee interest in the Company’s success, growth and development. The class of stock which is to be purchased under the Plan is the $.83-1/3 par value Common Stock of the Company (the “Stock”).
     3.  Available Shares . Subject to the provisions of this Paragraph 3, the aggregate number of shares of Stock that may be purchased by Participants under the Plan shall not exceed 300,000 shares. Notwithstanding the foregoing, in the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Internal Revenue Code) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of shares of Stock which may be purchased by Participants under the Plan as may be determined to be appropriate and equitable by the Administrative Committee (appointed by the Board of Directors of the Company), in its sole discretion.
     4.  Eligibility . All regular full-time employees over 18 years of age with l full year of service are eligible to participate in the Plan on a voluntary payroll deduction basis. For purposes of the Plan, “regular full-time employee” means an employee of the Company or its subsidiaries with customary employment for at least 20 hours per week and five months per calendar year. However, when an employee who has become a participant in the Plan subsequently withdraws from the Plan, the employee is ineligible to rejoin the Plan for 24 full weeks from the Withdrawal Date (as defined in Paragraph 16). Notwithstanding any provision herein to the contrary, no employee of the Company who beneficially owns five percent (5%) or more of the Stock shall be eligible to participate in the Plan.
     5.  Participation . Participation in the Plan is entirely voluntary. An eligible employee may become a participant in the Plan (“Participant”) by completing a Payroll Deduction Authorization Form and submitting it to the Corporate Benefits Department of the Company or the

 


 

Human Resources Department of the Company’s subsidiaries at least five business days before the date on which the employee’s pay is to be subject to the first deduction. The employee incurs no fee on becoming a Participant.
     6.  Employee Contribution . Each Participant shall make a contribution under the Plan each pay period in an amount determined by the Participant ranging from a minimum of $5 per week to a maximum of 10% of the Participant’s base pay for the pay period (or in the case of a commission sales representative, a maximum of 10% of the amount equal to the quotient of the Participant’s total sales commissions for the preceding calendar year divided by the number of pay periods in such year). The contribution for each pay period shall be a multiple of $1. Payroll deduction of contributions shall be made each pay period.
     Subject to the above limitations, the Participant may at any time change the amount of his or her payroll deduction by completing in duplicate a Change in Payroll Deduction Form and forwarding it to the Corporate Benefits Department of the Company or the Human Resources Department of the Company’s subsidiaries. This change will be effective for the pay period following the pay period in which the Change in Payroll Deduction Form is received.
     7.  Employer Contribution . The Company shall make a contribution under the Plan every pay period in an amount equal to 10% of the payroll deductions of a Participant for that pay period; provided, however, that the President and Chief Executive Officer of the Company may establish a Company contribution rate of up to 25% for any Participant as may be selected from time to time by the President and Chief Executive Officer of the Company, provided such Participant is not an officer of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934.
     8.  The Agent. AST Equity Plan Solutions, Inc., or such other third party administrator as may be selected from time to time by the Company (the “Agent”), shall administer the Plan and receive and hold funds and Stock in the Plan. The Agent, with the consent of the Administrative Committee of the Company, shall have the power and authority to establish such procedures as the Agent deems necessary to effect equitably the provisions and intent of the Plan.
     9.  Initiation of Participation in the Plan . The employee initiates his or her participation in the Plan by completing the Payroll Deduction Authorization Form and submitting it to the Corporate Benefits Department of the Company or the Human Resources Department of the Company’s subsidiaries at least five business days before the pay day on which the first payroll deduction is to be made. Upon timely receipt of the Payroll Deduction Authorization Form, and until the Participant withdraws from the Plan, the Company shall deduct the authorized deduction from the Participant’s paycheck each pay period and pay this amount to the Agent as soon as administratively practicable after the pay period.
     10.  Stock Purchases . With the funds then available, the Agent shall purchase shares of Stock on the open market at the then current market price. The Company shall bear the expenses of such purchases. Purchases shall be made as soon as administratively practicable after each pay period, but no later than 30 days after the pay period except as otherwise provided herein, if the following three conditions are met: (a) prior to the date of purchase the Agent shall have received

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the employer and employee contributions for such pay period, (b) during such 30-day period , there shall be a trading day for the Stock, and (c) during such 30-day period purchases of the Stock shall be permitted under the Federal Securities laws and all other applicable laws. In the event that these three conditions are not met during the 30 days after the pay period, the Agent shall make purchases on the first day after such 30-day period on which these three conditions are met. The shares purchased by the Agent shall be allocated to the “Stock Position” in each Participant’s Account on a proportionate basis. No fractional shares shall be purchased in the market, but the Stock Position in each Participant’s “Account” shall reflect an allocation of fractional shares up to three decimal places. Shares may be purchased on any securities exchange on which the Stock is traded, in the over-the-counter market or in negotiated transactions; provided, however, that no purchases may be made from the Company or any affiliate of the Company. In making purchases, the Agent may commingle the Participant’s funds with those of other Participants. Neither the Company nor the Agent shall have any liability in connection with the timing of such purchases or the price at which the Stock is purchased.
     11.  Agent’s Custody of Stock . Stock allocated to a Participant’s Account is fully vested in the Participant, notwithstanding the fact that the Stock may be held in the name of the Plan, the Agent or the Agent’s nominee. Until otherwise notified in writing as provided in Paragraph 12, the Agent will hold the certificates for the shares of Stock held in each Participant’s Account and any cash dividends received by the Agent with respect to such shares will be used to purchase additional Stock for each Participant’s Account.
     Any stock dividend or shares issued pursuant to a stock split which are received by the Agent with respect to shares of Stock held in a Participant’s Account shall be credited to the Participant’s Stock Position on a proportionate basis. The Agent shall sell any stock rights or warrants applicable to any Stock held in a Participant’s Stock Account and add the proceeds to the “Cash Position” in the Participant’s Account. If such rights or warrants do not have a market value, the Agent may allow them to expire.
     12.  Participant’s Rights in the Stock . Stock certificates shall be issued to a Participant for full shares in his or her Account upon written request to the Agent. After the issuance of such certificates, the Participant shall have all rights therein, and neither the Agent nor the Company shall have any responsibility with respect to such certificates or such Stock.
     The Agent will not vote shares held for the Participant’s Account. A proxy form will be forwarded to each Participant of record to be voted in his or her own discretion. All other communications from the Company to its stockholders will be forwarded to each Participant of record.
     13.  Expenses . The Company will bear the expense of administering the Plan and having the Agent purchase shares of the Stock and hold them until certificates are issued to the Participants, including any brokerage commissions and transfer taxes in transferring the Stock from the Plan to the Participants.
     If a Participant requests that Stock in his or her Account be sold pursuant to Paragraph 15 or Paragraph 23, the Participant shall bear the expenses which a person would normally pay if he or

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she sold shares through a broker. Such expenses, which shall include any broker’s fees, commissions and postage actually incurred, shall be deducted from the Participant’s proceeds from the sale of such shares.
     14.  Reports to Participants . The Agent shall render a report to each Participant as soon as practicable after the end of each month in which any change occurs in such Participant’s Account. The report shall show for the month then ended: (a) employee payroll deductions, (b) employer contributions, (c) dividends credited, (d) shares allocated or credited to the Participant’s Stock Position, (e) the cost per share of allocated shares, (f) the number of shares for which certificates have been issued and (g) the beginning and ending balances of the Stock Position and Cash Position in the Participant’s Account.
     15.  Withdrawal From Plan . A Participant may withdraw from the Plan upon written notice to the Company and the Agent.
     Upon withdrawal, the Participant’s Account shall be closed and certificates for all full shares of Stock in his or her Account shall be issued to the Participant. No fractional shares shall be issued to the Participant, but the value of any such fractional interest which has been credited to his or her Stock Position shall be credited to the Cash Position in his or her Account. Such fractional interest shall be valued in proportion to the market value (as determined in accordance with Paragraph 16) of one share of the Stock at the close of trading on the Withdrawal Date (as defined in Paragraph 16).
     If the Participant requests in his or her notice of withdrawal, the Agent shall sell all (but not less than all) of the full shares of Stock held in the Participant’s Account; provided, however, that no Participant who is a Director of the Company or an officer of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, or who is the holder of 10% or more of the Company’s Common Stock, may request the Agent to sell any of the shares of Stock held in his or her Account. The shares shall be sold “at market” on the Withdrawal Date and the net proceeds of such sale (proceeds less the costs of sale) will be remitted to the Participant in lieu of issuing certificates for such full shares. If the Participant does not specifically so request, the Agent will not sell any full shares but will issue the certificates for such shares to the Participant in his or her own name.
     As soon as practicable after the Withdrawal Date, the Agent will forward to the Participant the certificates for any full shares of Stock in the Participant’s Account (as shown by his or her ending Stock Position) and a check for the amount of uninvested funds in his or her Account, including credit for the value of any fractional interest and the net proceeds of any sale of full shares (as shown by his or her ending Cash Position).
     An employee who withdraws from participation in the Plan is ineligible to rejoin the Plan for at least 24 weeks from the Withdrawal Date. An employee may cease having payroll deductions made under the Plan without withdrawing from the Plan so long as the employee does not request that Stock or funds held in his or her Account be distributed to him or her.

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     16.  Determination of “Market Value” and “Withdrawal Date” . For purposes of Paragraph 15, “market value” shall be (a) if the Stock is listed on a national securities exchange or traded on The NASDAQ Global Select Market, the mean between the highest price and the lowest price at which the Stock shall have been sold regular way on a national securities exchange or The NASDAQ Global Select Market on said date, or, if no sales occur on said date, then on the next preceding date on which there were such sales of the Stock, or (b) if the Stock shall not be listed on a national securities exchange or traded on The NASDAQ Global Select Market, the mean between the bid and asked prices last reported by the National Association of Securities Dealers, Inc. for the over-the-counter market on said date or, if no bid and asked prices are reported on said date, then on the next preceding date on which there were such quotations, or (c) if at any time quotations for the Stock shall not be reported by the National Association of Securities Dealers, Inc. for the over-the-counter market and the Stock shall not be listed on any national securities exchange or traded on The NASDAQ Global Select Market, the fair market value determined by the Administrative Committee in such manner as it may deem reasonable.
     The “Withdrawal Date” shall be the tenth business day after the completion of purchases under the Plan for the pay period in which the Participant’s notice of withdrawal from participation in the Plan is received by the Company; provided, however, that for purposes of determining the “market value” of fractional interests in shares, if there has been no reported trading in the Stock on the Withdrawal Date, then such fractional interests shall be valued in proportion to the “market value” of the Stock on the first date preceding the Withdrawal Date on which trades in the Stock were reported.
     17.  Retirement, Death or Termination of Employment . Notice of the retirement, death or termination of employment of an employee constitutes notice of withdrawal from the Plan. If the termination is by reason of death, settlement will be made to the Participant’s duly appointed personal legal representative after the satisfaction of any applicable requirements of law.
     18.  Administration of the Plan . The Plan is to be administered by the Agent subject to the supervision of the Administrative Committee of the Company. The Administrative Committee may adopt rules, regulations and procedures to resolve matters not specifically covered by the Plan. The Board of Directors of the Company retains all power and right to amend or terminate the Plan, as set forth in Paragraph 19.
     19.  Amendment and Termination of the Plan . The Company reserves the right to amend or terminate this Plan at any time upon 30 days written notice to Participants and to the Agent setting forth the effective date of the amendment or termination. The Company, with the consent of the Agent, may also terminate or amend the Plan at any time upon immediate notice to the Participants in order to correct any noncompliance of the Plan with any applicable law. Any amendments or termination, however, will not affect any Participant’s interest in the Plan which has accrued before the date of the amendment or termination.
     In the event of termination of the Plan, the Agent will make a distribution of Stock and cash as if each Participant had withdrawn from the Plan. As soon as practicable, the Agent will issue to each Participant certificates for all of the full shares held in his or her Account plus a check in an amount equal to the Cash Position in his or her Account.

5


 

     20.  Risk of Stock Ownership . The Participant assumes all risks inherent in any stock purchase with respect to any Stock purchased under the Plan, whether or not the actual stock certificate has been issued to the Participant. A Participant has no guarantee against a decline in the price or value of the Stock, and the Company assumes no obligation for repurchase of the Participant’s Stock purchased under the Plan. A Participant has all the rights of any other stockholder of the Stock with respect to the full shares of Stock issued to him or her under the Plan.
     21.  Liability of Company and Agent . Neither the Company nor the Agent shall be liable for any act done in good faith or for any omission to act, including without limitation any claims of liability (a) with respect to the prices at which shares are purchased or sold for a Participant’s Account and the times when such purchases or sales are made, (b) for any fluctuation in the market value after purchase or sale of shares, or (c) for continuation of a Participant’s Account until receipt by the Company and Agent of notice in writing of such Participant’s death.
     22.  Tax Consequences . The Plan is established as a “non-qualified” stock purchase plan. Neither the Company nor the Agent makes any representation as to the tax consequences of an individual employee’s participation in the Plan. The amount of the payroll deduction for each Participant will be included in his or her gross income with the rest of his or her compensation and the employer contributions allocated to each Participant will constitute compensation income to him or her. The Company will compute withholding taxes and employment taxes by including employer contributions in compensation and without excluding any payroll deduction pursuant to the Plan. Cash dividends credited to the Participant’s Cash Account will generally be included in the gross income of the Participant for Federal income tax purposes. A Participant may also realize taxable gain or loss on the sale of his or her Stock by the Agent. The Participant retains all responsibility for all reports and payments required by any applicable tax laws.
     23.  Nonassignability; Sale of Stock Other Than by Withdrawal . Except as expressly provided herein, a Participant shall have no right to sell, assign, encumber or otherwise dispose of his or her rights in his or her individual Account. No Participant shall have any right to draw checks or drafts against his or her individual Account or to instruct the Agent to perform any act not expressly provided for herein.
     If the Participant wishes to dispose of his or her shares of Stock held in his or her Account without withdrawing from participation, he or she may request the Agent pursuant to Paragraph 12 of the Plan to issue directly to him or her stock certificate(s) for a designated number of the full shares of Stock held in his or her Account and then dispose of such shares himself or herself.
     In addition, a Participant (other than a Director of the Company, an officer of the Company, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, or any holder of more than 10% of the Company’s Common Stock) who wishes to sell his or her shares of Stock held in his or her Account without withdrawing from participation may request the Agent to sell on the Participant’s behalf a designated number of the full shares of Stock held in the Participant’s Account pursuant to the terms of this Paragraph. The Participant shall bear the expenses of such sale. The shares to be sold on behalf of the Participant shall be sold “at market” on the next Friday following receipt of the Participant’s request to sell if the following three conditions are met: (a)

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prior to that Friday the Agent shall have received a request from the Participant to sell a designated number of his or her full shares, (b) there shall be trading in the Stock, and (c) sales of the Stock shall be permitted under the Federal Securities laws and all other applicable laws. In the event that these three conditions are not met on the next Friday following receipt of the Participant’s request to sell, the Agent shall endeavor to sell the Participant’s Stock on the first day after that Friday on which the three conditions are met. The shares sold on behalf of the Participant shall be deducted from the “Stock Position” in that Participant’s Account. No fractional shares shall be sold in the market. In arranging for the sale, the Agent may commingle the selling Participant’s Stock with the Stock of other selling Participants. Neither the Company nor the Agent shall have any liability in connection with the timing of such sale or the price at which the Stock is sold.
     As soon as practicable after the sale of the Participant’s Stock, the Agent will forward to the Participant the net proceeds of such sale (proceeds less the costs of sale and any commissions or other fees involved).
     24. Notices . All notices required to be sent to the Agent shall be sent to:
          AST Equity Plan Solutions, Inc.
          123 South Broad Street, 11 th Floor
          Philadelphia, PA 19109
All notices required to be sent to the Company shall be sent to:
          Lance, Inc.
          Post Office Box 32368
          Charlotte, North Carolina 28232
          Attention: Secretary
All notices to Participants shall be sent to the address shown on the Participant’s Payroll Deduction Authorization Form, or such new address as the Participant provides in writing to the Agent and the Company. All notices to Participants shall be deemed to have been given at the earlier of (i) the date on which the Participant actually receives notice or (ii) two days after notice is mailed, postage prepaid, to the address at which notices to the Participant are to be sent in accordance with this Section.
     25.  Effective Date; Coordination With Prior Plan . The Plan became effective upon approval by the stockholders of the Company. After approval by the stockholders, participation in the Plan and payroll deductions thereunder began at such times as the Administrative Committee directed. Upon the Plan becoming effective, the Account (as described in the Prior Plan) of each Participant in the Prior Plan became an Account administered under the terms and provisions of this Plan.

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EXHIBIT 21
SUBSIDIARIES OF LANCE, INC.
         
Name of Subsidiary   State/Province of Incorporation
 
       
Lance Mfg. LLC (1)
    North Carolina  
 
       
Caronuts, Inc. (1)
    North Carolina  
 
       
Vista Bakery, Inc. (1)
    North Carolina  
 
       
Cape Cod Potato Chip Company LLC (1)
    Massachusetts  
 
       
Lanhold Investments, Inc. (1)
    Delaware  
 
       
Tamming Foods Ltd. (2)
    Ontario  
 
       
Fresno Ventures, Inc. (1)
    North Carolina  
 
(1)  
Lance, Inc. owns 100% of the outstanding voting equity securities.
 
(2)  
Subsidiary of Lanhold Investments, Inc., which owns 100% of the outstanding voting equity securities.

 

EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Lance, Inc.:
We consent to the incorporation by reference in the Registration Statements, No. 33-58839, No. 333-25539, No. 333-35646, No. 333-104960, No. 333-104961 and No. 333-124472 of Lance, Inc. on Form S-8 of our reports dated March 8, 2007, with respect to the consolidated balance sheets of Lance, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for each of the fiscal years in the three-year period ended December 30, 2006, and management’s assessment of the effectiveness of internal control over financial reporting as of December 30, 2006 and the effectiveness of internal control over financial reporting as of December 30, 2006, which reports appear in the December 30, 2006 annual report on Form 10-K of Lance, Inc.
(-S- KPMG LLP)
Charlotte, North Carolina
March 8, 2007

 

 

EXHIBIT 31.1
MANAGEMENT CERTIFICATION
I, David V. Singer, certify that:
1.  
I have reviewed this annual report on Form 10-K 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: March 8, 2007
         
     
/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 annual report on Form 10-K 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: March 8, 2007
         
     
/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 Annual Report of Lance, Inc. (the “Company”) on Form 10-K for the period ended December 30, 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 Officer
  Executive Vice President, Chief Financial  
March 8, 2007
  Officer, Treasurer and Secretary  
 
  March 8, 2007