Snyder's-Lance, Inc.
LANCE INC (Form: 10-Q, Received: 04/25/2008 14:28:09)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 29, 2008
Commission File Number 0-398
LANCE, INC.
(Exact name of registrant as specified in its charter)
     
     
North Carolina
(State or other jurisdiction of
incorporation or organization)
  56-0292920
(I.R.S. Employer Identification No.)
     
     
14120 Ballantyne Corporate Place
Suite 350
Charlotte, North Carolina
(Address of principal executive offices)
   
 
28277
(Zip Code)
704-554-1421
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ             No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
      Large accelerated filer þ               Accelerated filer o                         Non-accelerated filer o                         Smaller reporting company o
                                        (do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No þ
The number of shares outstanding of the registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock as of April 18, 2008, was 31,368,182 shares.
 
 

 


 

LANCE, INC. AND SUBSIDIARIES
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  Exhibit 10.1
  Exhibit 10.2
  Exhibit 31.1
  Exhibit 31.2
  Exhibit 32

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Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Quarters Ended March 29, 2008 and March 31, 2007

(in thousands, except share and per share data)
                 
    Quarter Ended  
    March 29,     March 31,  
    2008     2007  
Net sales and other operating revenue
  $ 197,968     $ 182,426  
 
               
Cost of sales and operating expenses/(income):
               
Cost of sales
    123,460       102,976  
Selling, general and administrative
    72,857       69,616  
Other income, net
    (4 )     (90 )
 
           
Total costs and expenses
    196,313       172,502  
 
           
 
               
Income from continuing operations before interest
    1,655       9,924  
Interest expense, net
    606       604  
 
           
Income from continuing operations before income taxes
    1,049       9,320  
Income tax expense
    404       3,448  
 
           
Net income from continuing operations
    645       5,872  
 
               
Income from discontinued operations
          537  
Income tax expense
          199  
 
           
Net income from discontinued operations
          338  
 
           
 
               
Net income
  $ 645     $ 6,210  
 
           
 
               
Basic earnings per share:
               
From continuing operations
  $ 0.02     $ 0.19  
From discontinued operations
  $     $ 0.01  
Basic earnings per share
  $ 0.02     $ 0.20  
Weighted average shares outstanding – basic
    31,103,000       30,805,000  
 
               
Diluted earnings per share:
               
From continuing operations
  $ 0.02     $ 0.19  
From discontinued operations
  $     $ 0.01  
Diluted earnings per share
  $ 0.02     $ 0.20  
Weighted average shares outstanding – diluted
    31,608,000       31,131,000  
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of March 29, 2008 (Unaudited) and December 29, 2007

(in thousands, except share data)
                 
    March 29,     December 29,  
    2008     2007  
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 1,156     $ 8,647  
Accounts receivable, net
    73,843       64,081  
Inventories
    40,319       38,659  
Deferred income taxes
    9,831       9,335  
Prepaid expenses and other current assets
    14,070       12,367  
 
           
Total current assets
    139,219       133,089  
 
               
Other assets
               
Fixed assets, net
    205,371       205,075  
Goodwill and other intangible assets, net
    87,318       69,127  
Other noncurrent assets
    5,742       5,712  
 
           
Total assets
  $ 437,650     $ 413,003  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Accounts payable
  $ 32,518     $ 21,169  
Other payables and accrued liabilities
    48,178       53,468  
Current maturities of long-term debt
    42        
 
           
Total current liabilities
    80,738       74,637  
 
               
Other liabilities
               
Long-term debt
    74,703       50,000  
Deferred income taxes
    26,352       26,874  
Other noncurrent liabilities
    15,388       14,395  
 
           
Total liabilities
    197,181       165,906  
 
           
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity
               
Common stock, 31,365,666 and 31,214,743 shares outstanding, respectively
    26,137       26,011  
Preferred stock, no shares outstanding
           
Additional paid-in capital
    43,286       41,430  
Retained earnings
    158,982       163,356  
Accumulated other comprehensive income
    12,064       16,300  
 
           
Total stockholders’ equity
    240,469       247,097  
 
           
Total liabilities and stockholders’ equity
  $ 437,650     $ 413,003  
 
           
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income/(Loss) (Unaudited)
For the Quarters Ended March 29, 2008 and March 31, 2007

(in thousands, except share data)
                                                 
                    Additional             Accumulated Other        
            Common     Paid-in     Retained     Comprehensive        
    Shares     Stock     Capital     Earnings     Income     Total  
     
Balance, December 30, 2006
    30,855,891     $ 25,714     $ 32,129     $ 159,329     $ 5,228     $ 222,400  
 
                                               
Comprehensive income:
                                               
Net income
                      6,210             6,210  
Foreign currency translation adjustment
                            640       640  
Net unrealized losses on derivatives, net of $24 tax effect
                            (34 )     (34 )
Actuarial gains recognized in net income, net of $17 tax effect
                            (58 )     (58 )
 
                                             
Total comprehensive income
                                            6,758  
 
                                             
 
                                               
Cash dividends paid to stockholders
                      (4,935 )           (4,935 )
 
                                               
Stock options exercised, including $110 excess tax benefit
    50,394       42       787                   829  
 
                                               
Cumulative adjustment from adoption of FIN 48
                      61             61  
 
                                               
Equity-based incentive expense previously recognized under a liability plan
    54,900       46       1,220                   1,266  
 
                                               
Amortization of nonqualified stock options
                104                   104  
 
                                               
Issuances and amortization of restricted stock and units, net of forfeitures
    19,100       15       758                   773  
 
                                               
     
Balance, March 31, 2007
    30,980,285     $ 25,817     $ 34,998     $ 160,665     $ 5,776     $ 227,256  
     
 
                                               
Balance, December 29, 2007
    31,214,743     $ 26,011     $ 41,430     $ 163,356     $ 16,300     $ 247,097  
 
                                               
Comprehensive income/(loss):
                                               
Net income
                      645             645  
Foreign currency translation adjustment
                            (3,041 )     (3,041 )
Net unrealized losses on derivatives, net of $669 tax effect
                            (1,168 )     (1,168 )
Actuarial gains recognized in net income, net of $16 tax effect
                            (27 )     (27 )
 
                                             
Total comprehensive loss
                                            (3,591 )
 
                                             
 
                                               
Cash dividends paid to stockholders
                      (5,019 )           (5,019 )
 
                                               
Stock options exercised, including $16 excess tax benefit
    5,016       4       66                   70  
 
                                               
Equity-based incentive expense previously recognized under a liability plan
    39,250       33       876                   909  
 
                                               
Amortization of nonqualified stock options
                247                   247  
 
                                               
Issuances and amortization of restricted stock and units, net of forfeitures
    106,657       89       667                   756  
 
                                               
     
Balance, March 29, 2008
    31,365,666     $ 26,137     $ 43,286     $ 158,982     $ 12,064     $ 240,469  
     
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Quarters Ended March 29, 2008 and March 31, 2007

(in thousands)
                 
    Quarters Ended  
    March 29,     March 31,  
    2008     2007  
Operating activities
               
Net income
  $ 645     $ 6,210  
Adjustments to reconcile net income to cash from operating activities:
               
Depreciation and amortization
    7,925       6,981  
Stock-based compensation expense
    1,003       876  
Loss/(gain) on sale of fixed assets
    102       (140 )
Changes in operating assets and liabilities, excluding business acquisition
    (3,738 )     (5,916 )
 
           
Net cash from operating activities
    5,937       8,011  
 
           
 
               
Investing activities
               
Purchases of fixed assets
    (7,057 )     (7,073 )
Proceeds from sale of fixed assets
    230       802  
Business acquisition, net of cash acquired
    (24,123 )      
 
           
Net cash used in investing activities
    (30,950 )     (6,271 )
 
           
 
               
Financing activities
               
Dividends paid
    (5,019 )     (4,935 )
Issuance of common stock
    70       829  
Proceeds from long-term debt
    24,000        
Repayments of debt from business acquisition
    (1,495 )      
 
           
Net cash from/(used in) financing activities
    17,556       (4,106 )
 
           
 
               
Effect of exchange rate changes on cash
    (34 )     108  
 
           
 
               
Decrease in cash and cash equivalents
    (7,491 )     (2,258 )
Cash and cash equivalents at beginning of period
    8,647       5,504  
 
           
Cash and cash equivalents at end of period
  $ 1,156     $ 3,246  
 
           
 
               
Supplemental information:
               
Cash paid for income taxes
  $ 92     $ 32  
Cash paid for interest
  $ 655     $ 718  
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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LANCE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
1.   The accompanying unaudited condensed consolidated financial statements of Lance, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed financial statements should be read in conjunction with the audited financial statements and notes included in our Form 10-K for the year ended December 29, 2007 filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2008. In our opinion, these condensed consolidated financial statements reflect all adjustments (consisting of only normal, recurring accruals) necessary to present fairly our condensed consolidated financial position as of March 29, 2008 and December 29, 2007 and the condensed consolidated statements of income for the quarters ended March 29, 2008 and March 31, 2007 and the condensed consolidated statements of stockholders’ equity and comprehensive income/(loss) and cash flows for quarters ended March 29, 2008 and March 31, 2007. Prior year amounts shown in the accompanying condensed consolidated financial statements have been reclassified for consistent presentation.
 
2.   The consolidated results of operations for the quarter ended March 29, 2008 are not necessarily indicative of the results to be expected for the year ending December 27, 2008.
 
3.   Preparing financial statements requires management to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Examples include customer returns and promotions, provisions for bad debts, inventory valuations, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible asset valuations, incentive compensation, income taxes, insurance, post-retirement benefits, contingencies and legal proceedings. Actual results may differ from these estimates under different assumptions or conditions.
 
4.   On March 14, 2008, we paid $24.1 million in cash to acquire 100% of the outstanding common stock of Brent & Sam’s, Inc. Brent & Sam’s is a producer of branded and private label premium gourmet cookies with operations in North Little Rock, Arkansas. This acquisition enhances our portfolio of branded products and extends our product offering into the premium private label category.
 
    The acquisition of Brent & Sam’s was funded from borrowings under our existing Credit Agreement. At March 29, 2008 the revolving portion of our Credit Agreement had an annualized interest rate of approximately 3.1% that fluctuates based on changes in the Eurodollar rate.
 
    The purchase price allocation will be finalized upon the completion of the fixed asset and intangible asset appraisals. The final purchase price allocation may differ from those included in the condensed consolidated balance sheet.
 
    Two weeks of Brent & Sam’s operations are included in the condensed consolidated statement of operations for the first quarter of 2008 and are not material to the combined revenues or operating results. During these two weeks, we repaid approximately $1.5 million of the $2.2 million assumed debt with cash from operations.
 
5.   We own a non-controlling equity interest in Late July, an organic snack food company. We also manufacture products for Late July. During the first quarter of 2008, non-branded sales to Late July were approximately $1.0 million. As of March 29, 2008, accounts receivable due from Late July totaled $0.6 million.
 
6.   The following tables provide a reconciliation of the common shares used for basic earnings per share and diluted earnings per share:
                 
    Quarters Ended
    March 29,   March 31,
(in thousands)   2008   2007
Weighted average number of common shares used for basic earnings per share
    31,103       30,805  
Effect of potential dilutive shares
    505       326  
 
               
Weighted average number of common shares and potential dilutive shares used for diluted earnings per share
    31,608       31,131  
 
               
Anti-dilutive shares excluded from the above reconciliation
    706       108  
 
               

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LANCE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
7.   During the first quarter of 2008, we granted approximately 175,000 vested nonqualified stock options, 19,500 restricted shares and 19,750 shares of common stock related to a long-term incentive plan for key employees that were previously accounted for as a liability. This resulted in an increase in equity and a decrease in accrued liabilities of $0.9 million during the first quarter of 2008. During the same quarter last year, we granted 114,000 vested nonqualified stock options, 27,450 restricted shares and 27,450 of common stock related to a long-term incentive plan for key employees that were previously accounted for as a liability. This resulted in an increase in equity and a decrease in accrued liabilities of $1.3 million during the first quarter of 2007.
 
8.   Sales to our largest customer, Wal-Mart Stores, Inc., were 20% of revenue for both quarters ended March 29, 2008 and March 31, 2007. Accounts receivable at March 29, 2008 and December 29, 2007 included receivables from Wal-Mart Stores, Inc. totaling $18.5 million and $14.7 million, respectively.
 
9.   In accordance with FIN 48, “ Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109, ” we have recorded gross unrecognized tax benefits as of March 29, 2008 totaling $1.5 million and related interest and penalties of $0.4 million in other noncurrent liabilities of the condensed consolidated balance sheet. Of this amount, $1.6 million would affect the effective tax rate if subsequently recognized. Various taxing authorities’ statutes of limitations related to the computation of our unrecognized tax benefits will expire within twelve months of our prior year-end resulting in a potential $0.5 million reduction of the unrecognized tax benefit amount. We classify interest and penalties associated with income tax positions within income tax expense. The interest and penalty component of the unrecognized tax benefits as of March 29, 2008 was $0.4 million.
 
    We have open years for income tax audit purposes in our major taxing jurisdictions according to statutes as follows:
         
Jurisdiction   Open years
US federal
  2004 and forward
Canada federal
  2003 and forward
Ontario provincial
  2001 and forward
Massachusetts
  2001 and forward
North Carolina
  2004 and forward
Iowa
  2004 and forward
10.   At March 29, 2008 and December 29, 2007, we had $2.3 million and $0.5 million, respectively, of assets held for sale included in other current assets on the condensed consolidated balance sheets. The assets at March 29, 2008 primarily consist of land and buildings to be sold related to the consolidation of sugar wafer facilities in Ontario, Canada, and certain properties in Columbus, Georgia.
 
11.   The principal raw materials used in the manufacture of our products are flour, vegetable oil, sugar, potatoes, peanuts, other nuts, cheese and seasonings. The principal supplies used are flexible film, cartons, trays, boxes, and bags. These raw materials and supplies are generally available in adequate quantities in the open market either from sources in the United States or from other countries. These raw materials may be contracted up to a year in advance.
 
    We utilize the dollar value last-in, first-out (“LIFO”) method of determining the cost of approximately 36% of our inventories. Because inventory valuations under the LIFO method are based on annual determinations, the interim LIFO valuations require management to estimate year-end costs and levels of inventories. The variation between estimated year-end costs and levels of LIFO inventories compared to the actual year-end amounts may materially affect the results of operations for the full year. Inventories consist of:
                 
    March 29,     December 29,  
(in thousands)   2008     2007  
Finished goods
  $ 21,075     $ 21,910  
Raw materials
    9,409       7,701  
Supplies, etc.
    15,435       14,297  
 
           
Total inventories at FIFO cost
    45,919       43,908  
Less adjustments to reduce FIFO cost to LIFO cost
    (5,600 )     (5,249 )
 
           
Total inventories
  $ 40,319     $ 38,659  
 
           

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LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Risk Factors
We, from time to time, make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, beliefs, intentions, or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, those set forth under Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 29, 2007.
Caution should be taken not to place undue reliance on our forward-looking statements, which reflect our management’s expectations only as of the time such statements are made. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Results of Operations
Management’s discussion and analysis of our financial condition and results of operations are based upon the condensed 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, insurance, post-retirement benefits, contingencies and legal proceedings. Actual results may differ from these estimates under different assumptions or conditions.
Quarter Ended March 29, 2008 Compared to Quarter Ended March 31, 2007
                                                 
                                    Favorable/
    Quarter Ended   (Unfavorable)
(dollars in thousands)   March 29, 2008   March 31, 2007   Variance
     
Revenue
  $ 197,968       100.0 %   $ 182,426       100.0 %   $ 15,542       8.5 %
Cost of sales
    123,460       62.4 %     102,976       56.4 %     (20,484 )     (19.9 %)
     
Gross margin
    74,508       37.6 %     79,450       43.6 %     (4,942 )     (6.2 %)
Selling, general and administrative
    72,857       36.8 %     69,616       38.2 %     (3,241 )     (4.7 %)
Other income, net
    (4 )           (90 )           (86 )     (95.6 %)
     
Earnings before interest and taxes
    1,655       0.8 %     9,924       5.4 %     (8,269 )     (83.3 %)
Interest expense, net
    606       0.3 %     604       0.3 %     (2 )     (0.3 %)
Income tax expense
    404       0.2 %     3,448       1.9 %     3,044       88.3 %
     
Income from continuing operations
  $ 645       0.3 %   $ 5,872       3.2 %   $ (5,227 )     (89.0 )%
     
For the first quarter of 2008, revenue increased $15.5 million or 8.5%, but income from continuing operations decreased $5.2 million compared to the first quarter of 2007. The results of operations were significantly impacted by the unprecedented increase in ingredient costs, which have not been offset by price increases. During the first quarter of 2008, we acquired Brent & Sam’s, a producer of branded and private label premium gourmet cookies located in North Little Rock, Arkansas. Brent & Sam’s operations are included in our results for the last two weeks of the quarter but did not have a significant impact on our combined revenue or income from operations. This acquisition is expected to generate approximately $10 million to $15 million in revenue during the remainder of 2008.

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LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Branded product revenue increased $6.2 million or 5% compared to the first quarter of last year. Approximately 4% of this percentage growth was due to price increases and the remaining 1% was due to higher unit volume. From a product line perspective, Lance® home pack sandwich crackers and Cape Cod® potato chips product revenue experienced strong growth, which was partially offset by declines in cakes and certain salty snacks. Branded product revenue represented 62% and 63% of total revenue for the first quarter of 2008 and 2007, respectively.
From a trade channel perspective, sales to grocery stores/mass merchandisers, distributors, and club stores generated the majority of the growth in branded product revenues. Sales to convenience stores also increased somewhat as compared to the first quarter of 2007. These increases in revenue were partially offset by planned declines in the “up and down the street,” food service and other, less profitable trade channels.
Non-branded product revenue, which also includes contract manufacturing, increased $9.3 million or 14% compared to the first quarter of 2007. Increased volume from new and existing customers and new product offerings generated approximately 8% of the percentage growth with the remaining 6% due to price increases. A portion of the higher volume of non-branded product sales is due to the timing of orders ahead of certain planned price increases that will go into effect during the second quarter of 2008. Non-branded product revenue represented 38% and 37% of total revenue for the first quarter of 2008 and 2007, respectively.
Gross margin decreased $4.9 million or 6.0% as a percentage of revenue compared to the first quarter of 2007. The impact of higher ingredient costs and unfavorable foreign exchange reduced gross margin approximately 8% as a percentage of revenue and unfavorable product mix accounted for an additional 2% decline in gross margin. This decline was partially offset by a 4% increase in gross margin as a percent of revenue as a result of price increases compared to the first quarter of 2007. Although planned price increases will continue to be implemented through the second quarter of 2008, ingredient costs will remain at unprecedented levels through the second quarter of 2008, and potentially through the remainder of the year. Accordingly, we will continue to evaluate and implement future price increases as necessary to restore our profit margin.
Selling, general and administrative costs increased $3.2 million but decreased 1.4% as a percentage of revenue compared to the first quarter of 2007. These increased costs were driven by a number of different factors: strategic growth initiatives generated $2.3 million in higher employee, market research, and information technology costs; gasoline and diesel costs increased $0.7 million; and depreciation expense was $0.7 million higher from recently purchased equipment for transportation efficiency and DSD system improvements. These cost increases were partially offset by lower shipping expenses of $0.4 million due to improved supply chain efficiencies and other various cost reductions.
Compared to the first quarter of 2007, the effective tax rate increased from 37.0% to 38.5% due to a combination of lower earnings and the impact of accounting for uncertain tax positions.
Liquidity and Capital Resources
Liquidity
The principal sources of liquidity for operations during the first quarter of 2008 were provided by operating activities and cash on hand. Cash flow from operating activities, cash on hand and existing borrowing facilities are believed to be sufficient for the foreseeable future to enable us to meet obligations, fund capital expenditures and pay cash dividends to our stockholders.
Operating Cash Flows
Net cash from operating activities was $5.9 million and $8.0 million for the first quarters of 2008 and 2007, respectively. Working capital, excluding cash and the current maturities of long-term debt, increased to $57.4 million from $49.8 million at December 29, 2007.

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LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investing Cash Flows
Net cash used in investing activities was $31.0 million for the first quarter of 2008. On March 14, 2008, we acquired Brent and Sam’s, Inc. for approximately $24.1 million. Capital expenditures for fixed assets, principally tractors, trailers, manufacturing equipment, delivery vans for field sales representatives, and information system implementation costs totaled $7.1 million during the first quarter of 2008, partially funded by proceeds from the sale of assets of $0.2 million. Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs. Capital expenditures for fiscal 2008 are projected to be between $45 million and $50 million and funded by net cash flow from operating activities, cash on hand, and borrowing facilities.
Net cash used in investing activities during the first quarter of 2007 represented capital expenditures of $7.1 million, partially offset by proceeds from the sale of fixed assets of $0.8 million. Capital expenditures for purchases of property and equipment were $39.5 million for the full year ended December 29, 2007.
Financing Cash Flows
During the first quarter of 2008, net cash from financing activities was impacted by $24 million of additional borrowings under our existing Credit Agreement for the acquisition of Brent & Sam’s. Shortly after completing this acquisition, we repaid $1.5 million of Brent & Sam’s existing debt with cash from operations. During the first quarters of 2008 and 2007, we paid dividends of $0.16 per share totaling $5.0 million and $4.9 million, respectively. In addition, we received cash and related tax benefits of $0.1 million and $0.8 million during the first quarters of 2008 and 2007, respectively, as a result of stock option exercises. On April 24, 2008, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on May 20, 2008 to stockholders of record on May 12, 2008.
Debt
Additional borrowings available under all existing credit facilities totaled $70.4 million as of March 29, 2008. We have complied with all financial covenants contained in the credit facilities. We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims. The total amount of these letters of credit was $20.2 million as of March 29, 2008.
Contractual Obligations
Purchase commitments for inventory increased from $58.9 million as of December 29, 2007, to approximately $87.3 million as of March 29, 2007 due to the increased cost of certain raw materials and the duration of purchase contracts.
Market Risks
The principal market risks that may adversely impact results of operations and financial position are changes in raw material prices, energy and fuel costs, interest and foreign exchange rates and credit risks. We selectively use derivative financial instruments to manage these risks. There are no market risk sensitive instruments held for trading purposes.
At times, we may enter into commodity futures and option contracts to manage fluctuations in prices of anticipated purchases of ingredients. Our policy is to use these commodity derivative financial instruments only to the extent necessary to manage these exposures. We do not use these financial instruments for trading purposes. As of March 29, 2008, there were no outstanding commodity futures or option contracts. For the first quarter of 2008, increases in ingredients costs reduced our gross margin by $12.8 million as compared to the first quarter of 2007.
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 5.3%, including applicable margin. The underlying notional amount of the swap agreement was $35.0 million. The fair value of the interest rate swap liability as determined by a third-party financial institution was $2.5 million on March 29, 2008. While this swap fixed our interest rate at a predictable level, interest expense would have been $0.1 million lower without this swap during the first quarter of 2008.

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LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are exposed to credit risks related to our accounts receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. For the first quarter of 2008, net bad debt expense was less than $0.1 million. Net bad debt income was $0.1 million for the first quarter of 2007. Allowances for doubtful accounts were $0.5 million at March 29, 2008 and December 29, 2007.
Through the operations of our Canadian subsidiary, there is an exposure to foreign exchange rate fluctuations, primarily between U.S. dollars and Canadian dollars. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations’ costs, such as raw materials and direct labor, are denominated in Canadian dollars. We have entered into a series of forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2008. As of March 29, 2008, the fair value of the liability related to the forward contracts as determined by a third party financial institution was $0.1 million. During the first quarter of 2008, foreign exchange rate fluctuations negatively impact the results of operations by $1.0 million compared to the first quarter of 2007.
Due to foreign currency fluctuations during the first quarters of 2008 and 2007, we recorded losses of $3.0 million and gains of $0.6 million, respectively, in other comprehensive income because of the translation of the subsidiary’s financial statements into U.S. dollars.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The principal market risks to which we are exposed that may adversely impact results of operations and financial position include changes in raw material prices, energy and fuel costs, interest and foreign exchange rates and credit risks. Quantitative and qualitative disclosures about these market risks are included under “Market Risks” in Item 2 above, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
There have been no changes in our internal control over financial reporting during the quarter ended March 29, 2008 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Lance, Inc. was one of several 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 continue to vigorously defend this lawsuit.
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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LANCE, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 29, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Credit Agreement dated October 20, 2006, restricts our payment of cash dividends and repurchases of common stock if, after payment of any dividends or any repurchases of common stock, our consolidated stockholders’ equity would be less than $125.0 million. At March 29, 2008, our consolidated stockholders’ equity was $240.5 million.
Item 6. Exhibits
Exhibit Index
     
No.   Description
3.1
  Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998 (File No. 0-398).
 
   
3.2
  Articles of Amendment of Lance, Inc. dated July, 14 1998 designating rights, preferences and privileges of the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 1998 (File No. 0-398).
 
   
3.3
  Bylaws of Lance, Inc., as amended through November 1, 2007, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 7, 2007 (File No. 0-398).
 
   
10.1*
  Lance, Inc. 2008 Annual Performance Incentive Plan for Officers, filed herewith.
 
   
10.2*
  Lance, Inc. 2008 Three-Year Performance Incentive Plan for Officers and Key Managers, 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.
 
Items 3, 4 and 5 are not applicable and have been omitted.

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LANCE, INC. AND SUBSIDIARIES
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  LANCE, INC.
 
 
  By:   /s/ Rick D. Puckett    
    Rick D. Puckett   
    Executive Vice President, Chief Financial Officer,
Treasurer and Secretary 
 
 
Dated: April 25, 2008

14

 

Exhibit 10.1
LANCE, INC.
2008 Annual Performance Incentive Plan for Officers
     
Purposes and Introduction
  The 2008 Annual Performance Incentive Plan provides for Performance Awards under the Lance, Inc. 2007 Key Employee Incentive Plan (the “Incentive Plan”). Except as otherwise expressly defined herein, capitalized terms shall be as defined in the Incentive Plan.
 
   
 
  The primary purposes of the 2008 Annual Performance Incentive Plan for Officers (the “2008 Plan”) are to:
    Motivate behaviors that lead to the successful achievement of specific sales, financial and operations goals that support Lance’s stated business strategy and to align officers’ interests with those of stockholders.
 
    Emphasize link between participants’ performance and rewards for meeting predetermined, specific goals.
 
    Focus participant’s attention on operational effectiveness from both an earnings and an investment perspective.
 
    Promote the performance orientation at Lance and communicate to employees that greater responsibility carries greater rewards.
     
 
  For 2008, participants will be eligible to earn incentive awards based on the performance measures listed on Exhibit A hereto and defined as follows:
  1.   Net Sales Dollars is defined as sales and other operating revenue, net of returns, allowances, discounts and other sales deduction items for the 2008 fiscal year, as audited and reported in the Company’s Form 10-K for the 2008 fiscal year.
 
  2.   Corporate Earnings Per Share (“Corporate EPS”) is defined as the fully diluted earnings per share of the Company for the 2008 fiscal year, excluding special items, which are significant one-time income or expense items, as audited and reported in the Company’s Form 10-K for 2008 fiscal year.
 
  3.   Net Sales Per Route Improvement is defined as the percentage improvement in net sales through the direct-store-delivery (“DSD”) system divided by 52 and divided by the average number of routes in the DSD system for the 2008 fiscal year over that for the 2007 fiscal year.

 


 

  4.   Supply Chain Costs Reduction is defined as the percentage reduction, expressed in percentage points or basis points (bps), in total manufacturing conversion costs plus total costs of shipping and distribution, excluding DSD costs, divided by total net sales for the 2008 fiscal year over that for the 2007 fiscal year.
     
 
  To achieve the maximum motivational impact, plan goals and the awards that will be received for meeting those goals will be communicated to participants as soon as practical after the 2008 Plan is approved by the Compensation Committee of the Board of Directors.
 
   
 
  Each participant will be assigned a Target Incentive, stated as a percent of base salary. The Target Incentive Award, or a greater or lesser amount, will be earned at the end of the Plan Year based on the attainment of predetermined goals.
 
   
 
  Base salary shall be the annual rate of base compensation for the Plan Year which is set no later than April of such Plan Year; provided that for any award intended to satisfy the Performance-Based Exception, base salary shall be the annual rate of base compensation for the Plan Year which is set no later than March 31 of such Plan Year.
 
   
 
  Not later than 75 days after fiscal year-end, 100% of the awards earned will be payable to participants in cash.
 
   
Plan Year
  The period over which performance will be measured is the Company’s 2008 fiscal year (the “Plan Year”).
 
   
Eligibility and Participation
  Eligibility in the Plan is limited to Officers of Lance who are key to Lance’s success. The Compensation Committee of the Board of Directors will review and approve participants nominated by the President and Chief Executive Officer. Participation in one year does not guarantee participation in a following year, but instead will be reevaluated and determined on an annual basis.
 
   
 
  Participants in the Plan may not participate in any other annual incentive plan (e.g., sales incentives, etc.) offered by Lance or its affiliates. Exhibit B includes the list of 2008 participants approved by the Compensation Committee at its February 11, 2008 meeting.
 
   
Target Incentive
Awards
  Each participant will be assigned a Target Incentive expressed as a percentage of his or her base salary. Participants may be assigned Target Incentives by position, by salary level or based on other factors as determined by the Compensation Committee.

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  Target Incentives will be reevaluated at least every other year, if not annually. If the job responsibility of a position changes during the year, or base salary is increased significantly, the Target Incentive shall be revised as appropriate.
 
   
 
  Exhibit B lists the Target Incentive for each participant for the Plan Year. Target Incentives will be communicated to each participant as close to the beginning of the year as practicable, in writing. Final awards will be calculated by multiplying each participant’s Target Incentive by the appropriate percentage (based on performance for the year, as described below).
 
   
Performance Measures and Award Funding
  The 2008 performance measures are on Exhibit A attached hereto.
                             
        Threshold   Target   Maximum
   
Award Level Funded
    50 %     100 %     200 %
     
 
  Percent of payout will be determined on a straight line basis from Threshold to Target and from Target to Maximum. There will be no payout unless the Threshold for the applicable performance measure is reached.
 
   
 
  The performance measures will be communicated to each participant as soon as practicable after they have been established. Final Target Incentive Awards will be calculated after the Compensation Committee has reviewed the Company’s audited financial statements for 2008 and determined the performance level achieved.
 
   
 
  Threshold, Target and Maximum levels will be defined at the beginning of each Plan Year for each performance measure.
 
   
 
  The following definitions for the terms Maximum, Target and Threshold should help set the goals for each year, as well as evaluate the payouts:
    Maximum: Excellent; deserves an above-market incentive
 
    Target: Normal or expected performance; deserves market-level incentive
 
    Threshold: Lowest level of performance deserving payment above base salary; deserves below-market incentive
     
Individual
Performance
  Each Officer will receive 40% of his or her Target Incentive Award based on Net Sales Dollars, 30% of his or her Target Incentive Award based on Corporate Earnings Per Share, 15% of his or her Target Incentive Award based on Net Sales Per Route Improvement and 15% of his or her Target Incentive Award based on Supply Chain Costs Reduction.
 
   
Form and Timing of
Payments
  Final award payments will be made in cash as soon as practicable after award amounts are approved by the Compensation Committee of the Board of Directors, but not more than 75 days after the end of the Company’s

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  2008 fiscal year. All awards will be rounded to the nearest $100.
 
   
Change in Status
  An employee hired into an eligible position during the Plan Year may participate in the Plan for the balance of the Plan Year on a pro rata basis.
 
   
Certain Terminations of Employment
  In the event a participant voluntarily terminates employment (other than Retirement) or is terminated involuntarily before the payment date, any Award will be forfeited. In the event of death, Disability or Retirement, the award will be paid on a pro rata basis based on the actual performance determined after the end of the Plan Year. Awards otherwise will be calculated on the same basis as for other participants.
 
   
Change In Control
  In the event of a Change in Control, pro rata payouts will be made at the greater of (1) Target Incentives or (2) actual results for the year-to-date, based on the number of days in the Plan Year preceding the Change in Control. Payouts will be made within 30 days after the relevant transaction has been completed.
 
   
Withholding
  The Company shall withhold from award payments any Federal, foreign, state or local income or other taxes required to be withheld.
 
   
Communications
  Progress reports should be made to participants quarterly showing the year-to-date performance results and the percentage of Target Incentives that would be earned if results remain at that level for the entire year.
 
Executive Officers
  Notwithstanding any provisions to the contrary above, participation, Target Incentive Awards and prorations for executive officers, including the President and Chief Executive Officer, shall be approved by the Compensation Committee.
 
   
Stockholder Approval
  The 2008 Plan and the awards hereunder are made pursuant to the Incentive Plan, which was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on April 26, 2007.
 
   
Governance
  The Compensation Committee of the Board of Directors of Lance, Inc. is ultimately responsible for the administration and governance of the Plan. Actions requiring Committee approval include final determination of plan eligibility and participation, identification of performance measures, performance objectives and final award determination. The Committee may adjust any award due to extraordinary events such as acquisitions, dispositions, discontinued operations, required accounting adjustments or similar events, all as specified in Section 11(d) of the Incentive Plan; provided, however, that the Committee shall at all times be required to exercise this discretionary power in a manner, and subject to such limitations, as will permit all payments under the Plan to “covered employees,” as defined in Section 162(m) of the Internal Revenue Code, to continue to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. Subject to the foregoing, the decisions of the Committee shall be conclusive and binding on all participants.

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Exhibit A
Performance Measures
                                 
Performance Measure   Weight   Threshold   Target   Maximum
Net Sales Dollars*
    40 %   $770 million   $800 million   $850 million
Corporate EPS*
    30 %   $ 0.60     $ 0.75     $ 0.90  
Net Sales Per Route Improvement*
    15 %     0%       5%     15%
Supply Chain Costs Reduction*
    15 %   0 bps   50 bps   150 bps
 
*   Excludes special items

 


 

Exhibit B
                     
        Award   Target
Name   Title   Percentage   Incentive
David V. Singer
  President and Chief Executive Officer     100 %   $ 600,000  
 
                   
Rick D. Puckett
  Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
    50 %   $ 191,100  
 
                   
Glenn A. Patcha
  Senior Vice President —
Sales and Marketing
    50 %   $ 171,600  
 
                   
Blake W. Thompson
  Senior Vice President — Supply Chain     50 %   $ 143,000  
 
                   
Frank I. Lewis
  Senior Vice President — Sales     50 %   $ 132,600  
 
                   
Earl D. Leake
  Senior Vice President — Human
Resources
    ** %   $ **  
 
                   
M. E. Wicklund
  Vice President, Controller and
Assistant Secretary
    ** %   $ **  
 
**   Amounts are omitted for participants other than the Chief Executive Officer, the Chief Financial Officer and the other executive officers who were named in the Summary Compensation Table of the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

Exhibit 10.2
LANCE, INC.
2008 Three-Year Performance Incentive Plan for Officers and Key Managers
     
Purposes and Introduction
  The 2008 Three-Year Performance Incentive Plan for Officers and Key Managers provides for Stock Options, Restricted Stock and Performance Awards under the Lance, Inc. 2007 Key Employee Incentive Plan (the “Incentive Plan”). Except as otherwise expressly defined herein, capitalized terms shall be as defined in the Incentive Plan.
 
   
 
  The primary purposes of the 2008 Three-Year Performance Incentive Plan for Officers and Key Managers (the “2008 Plan”) are to:
 
   
 
       Align officers’ and managers’ interests with those of stockholders by linking a substantial portion of compensation to the price of the Company’s Common Stock and to the Company’s net sales over the 2008 fiscal year based on the Company’s 2008 Operating Plan.
 
   
 
       Provide a way to attract and retain key executives and managers who are critical to Lance’s future success.
 
   
 
       Provide competitive total compensation for executives and managers commensurate with Company performance.
 
   
 
  To achieve the maximum motivational impact, the Plan and the awards opportunities will be communicated to participants as soon as practical after the 2008 Plan is approved by the Compensation Committee of the Board of Directors.
 
   
 
  Each officer will be assigned a Target Incentive based on market and peer group data and each other participant will be assigned a Target Incentive, stated as a percent of base salary. The Chief Executive Officer is assigned a Target Incentive based on his Employment Agreement. Concurrently with the approval of the 2008 Plan, 35% of the Target Incentive will be awarded in the form of Nonqualified Stock Options and 30% will be awarded in the form of Restricted Stock. The final 35% of the Target Incentive will be in the form of a Performance Award to be settled in shares of Common Stock (with a portion as Restricted Stock) after the end of the 2008 fiscal year (the “Performance Period”), based on the attainment of a predetermined goal.

 


 

     
 
  For 2008, participants will be eligible to earn the Performance Award based on the Company’s Net Sales against the specific goal described below.
 
   
 
  Net Sales during the Performance Period is defined as sales and other operating revenue, net of returns, allowances, discounts and other sales deduction items.
 
   
 
  Base salary shall be the annual rate of base compensation for the 2008 fiscal year which is in effect on February 21, 2008; provided that for any award intended to satisfy the Performance-Based Exception, base salary shall be the annual rate of base compensation for the fiscal year which is set no later than March 31 of such fiscal year.
 
   
Eligibility and Participation
  Eligibility in the Plan is limited to Executive Officers and managers in Salary Grade 21 and above who are key to Lance’s success. The Compensation Committee will review and approve participants nominated by the President and Chief Executive Officer. An employee hired or promoted into an eligible position during the Performance Period will not participate in the 2008 Plan. Participation in the 2008 Plan does not guarantee participation in any subsequent long-term incentive plans but will be reevaluated and determined on an annual basis.
 
   
 
  Attachment A-1 and Attachment A-2 include the list of 2008 Plan participants approved by the Compensation Committee on February 21, 2008.
 
   
Target Incentives and Performance Measure
  Each participant will be assigned a Target Incentive as specified above. Participants will be assigned to a Performance Tier by Salary Grade.
 
   
             
    Performance Tier   Performance Tier Description
 
    1     Officer
 
    2     Non-Officer Vice President
 
           
     
 
  For the Performance Awards, the 2008 financial performance measure for the Company as a whole is shown below. The goal and related payout are also shown below.
                             
        Threshold   Target   Maximum
 
  Lance, Inc. Net Sales   $770 million   $800 million   $875 million
 
  Award Level Funded     50 %     100 %     400 %

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  Percent of payout will be determined on a straight line basis between Threshold and Target and between Target and Maximum. There will be no payouts unless the Threshold performance measure is reached.
 
   
 
  The performance measure will be communicated to each participant as soon as practicable after it has been established. Final Performance Awards will be calculated after the Compensation Committee has reviewed the Company’s audited financial statements for 2008 and determined the performance level achieved.
 
   
 
  The following definitions for the terms Maximum, Target and Threshold should help set the goals for the Performance Period, as well as evaluate the payouts:
 
   
 
       Maximum: Excellent; deserves payout above Target
 
   
 
       Target: Normal or expected performance; deserves Target payout
 
   
 
       Threshold: Lowest level of performance deserving a payout
 
   
 
  Attachment A-1 and Attachment A-2 list the Target Incentives for each participant for the 2008 Plan as determined by the Compensation Committee. Target Incentives will be communicated to each participant as close to the beginning of the year as practicable, in writing. Target Incentives, except for Officers, will be calculated by multiplying each participant’s base salary by the appropriate Performance Tiers and percentages, as described below.
             
            Percentage of Base Salary
    Performance Tier   for 2008 Target Incentives
 
    2     35-45%
     
 
  Final Performance Awards will be calculated, paid and granted after the Compensation Committee has reviewed the Company’s audited financial statements for 2008 and determined the performance levels achieved.
 
   
Awards
  As further specified on Attachment B-1 and Attachment B-2, the Awards under the 2008 Plan shall be as follows:

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  1.   Stock Options. Each participant shall receive Stock Options equal to 35% in value of his or her Target Incentive. The number of Stock Options awarded to each participant will equal the dollar value of the participant’s Stock Option Incentive divided by the Black-Scholes value of the Stock Options, with the result rounded up to the nearest multiple of three shares.
 
   
 
  The grant date for Stock Options will be the date the awards are approved by the Compensation Committee and the exercise price will be the Fair Market Value of the Common Stock on the grant date. Each Stock Option will vest in three substantially equal annual installments beginning one year after the date of grant and the term of each Stock Option will be ten years.
 
   
 
  2.   Restricted Stock. Each participant shall receive Restricted Stock equal to 30% in value of his or her Target Incentive. The number of shares of Restricted Stock awarded to each participant will equal the dollar value of the participant’s Restricted Stock Incentive divided by the closing price of the Common Stock on the date of award, with the results rounded up to the nearest multiple of three shares.
 
   
 
  The award date for Restricted Stock will be the date the awards are approved by the Compensation Committee and the value shall be the Fair Market Value of the Common Stock on the award date. Each award of Restricted Stock will vest in three substantially equal annual installments beginning one year after the date of award.
 
   
 
  3.   Performance Awards. Each participant shall receive a Performance Award equal to 35% in value of his or her Target Incentive.
 
   
 
  As a Performance Award, the number of shares of the Company’s Restricted Stock awarded will equal the applicable dollar value divided by the closing price for the Company’s Common Stock on the award date, with the result rounded up to the nearest multiple of three shares. One-third of such shares of Restricted Stock will be fully vested on the award date with an additional one-third vesting one year after the award date and the balance vesting two years after the award date.
 
   
 
  For purposes of the 2008 Plan, the award date for shares of Restricted Stock as a Performance Award will be the date established by the Compensation Committee after the applicable performance level has been determined.

4


 

     
Form and Timing of Awards
  Awards will be made as soon as practicable after the performance measure is calculated and approved by the Compensation Committee. All awards will be rounded to the nearest multiple of $100 or up to the nearest multiple of three shares, as the case may be.
 
   
Change In Status
  An employee hired or promoted into an eligible position during the Performance Period will not participate in the 2008 Plan.
 
   
Certain Terminations of Employment
  1.   In the event a participant voluntarily terminates employment (other than Retirement) or is terminated involuntarily before the end of the Performance Period, the participant shall not receive any Performance Award hereunder. In the event of death, Disability or Retirement before the end of the Performance Period, any Performance Award will be determined after the end of the Performance Period based on actual performance and paid out on a pro rata basis all in cash.
 
   
 
  If the participant’s employment terminates after the end of the Performance Period but before the applicable award date, then the participant will receive the Performance Award based on the performance results and paid out all in cash.
 
   
 
  2. In the event a participant voluntarily terminates employment (other than by Retirement) or is terminated involuntarily or in the event of death, Disability or Retirement, vesting and the post-termination exercise period for Stock Options will be as follows:
 
   
 
  Voluntary termination (other than Retirement) : Stock Options, whether vested or unvested, cease to be exercisable as of the date of termination.
 
   
 
  Involuntary termination : Vested Stock Options will remain exercisable for a period of 30 days following the date of termination (or, if earlier, the original expiration date of the option); unvested Stock Options will be forfeited as of the date of termination.
 
   
 
  Death : Stock Options will remain exercisable for a period of one year following the date of death (or, if earlier, the original expiration date of the option); unvested Stock Options will become fully vested as of the date of termination.
 
   
 
  Disability : Vested Stock Options will remain exercisable through the original expiration date of the option; unvested Stock Options will become fully vested as of the date of termination.

5


 

     
 
  Retirement : Vested Stock Options will remain exercisable for a period of three years following retirement (or, if earlier, the original expiration date of the option); unvested Stock Options will continue to vest for a period of six months after Retirement and any remaining unvested Stock Options will be forfeited as of such date.
 
   
 
  3. In the event a participant voluntarily terminates employment (other than by Retirement) or is terminated involuntarily or in the event of death, Disability or Retirement, vesting for Restricted Stock (including any Restricted Stock granted in connection with a Performance Award following completion of the Performance Period) will be as follows:
 
   
 
  Voluntary termination (other than Retirement) : Unvested Restricted Stock will be forfeited as of the date of termination.
 
   
 
  Involuntary termination : Unvested Restricted Stock will be forfeited as of the date of termination.
 
   
 
  Death : Unvested Restricted Stock will become vested pro rata based on the number of full months elapsed on the date of such event since the award date and any remaining unvested Restricted Stock will be forfeited as of such date.
 
   
 
  Disability : Unvested Restricted Stock will become vested pro rata based on the number of full months elapsed on the date of such event since the award date and any remaining unvested Restricted Stock will be forfeited as of such date.
 
   
 
  Retirement : Unvested Restricted Stock will become vested pro rata based on the number of full months elapsed on the date of such event since the award date and any remaining unvested Restricted Stock will be forfeited as of such date.
 
   
 
  “Retirement” is defined under the Incentive Plan to mean the participant’s termination of employment with the Company either (i) after attainment of age 65 or (ii) after attainment of age 55 with the prior consent of the Compensation Committee.
 
   
Change In Control
  In the event of a Change in Control, (i) unvested Stock Options and unvested Restricted Stock will vest as provided in the Incentive Plan and (ii) for outstanding Performance Awards pro rata payouts will be made all in cash at the greater of (1) Target Incentive or (2) actual results through the closing date with such proration based on the number of days in the Performance Period preceding the closing of the Change in Control transaction. Payouts will be made within 30 days after the relevant transaction has been closed.

6


 

     
Withholding
  The Company shall withhold from awards any Federal, foreign, state or local income or other taxes required to be withheld.
 
   
Communications
  Progress reports should be made to participants annually, showing performance results.
 
   
Executive Officers
  Notwithstanding any provisions to the contrary above, participation, awards and prorations for Executive Officers, including the President and Chief Executive Officer, shall be approved by the Compensation Committee.
 
   
Stockholder Approval
  The 2008 Plan and the awards hereunder are made pursuant to the Incentive Plan, which was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on April 26, 2007.
 
   
Governance
  The Compensation Committee of the Board of Directors of Lance, Inc. is ultimately responsible for the administration and governance of the Plan. Actions requiring Committee approval include final determination of plan eligibility and participation, identification of performance measures and goals, final award components and determination and amendments to the Plan. The Committee may adjust any award due to extraordinary events such as acquisitions, dispositions, required accounting adjustments or similar events, all as specified in Section 11(d) of the Incentive Plan; provided, however, that the Committee shall at all times be required to exercise this discretionary power in a manner, and subject to such limitations, as will permit all payments under the Plan to “covered employees,” as defined in Section 162(m) of the Internal Revenue Code, to continue to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. Subject to the foregoing, the decisions of the Committee shall be conclusive and binding on all participants.

7


 

Attachment A-1
2008 Three-Year Performance Incentive Plan for Officers
             
        Target
Name   Title   Incentive  
David V. Singer
  President and Chief   $ 1,000,000  
 
  Executive Officer      
 
       
Rick D. Puckett
  Executive Vice President,   $ 235,000  
 
  Chief Financial Officer,      
 
  Secretary and Treasurer      
 
       
Glenn A. Patcha
  Senior Vice President -   $ 191,000  
 
  Sales and Marketing      
 
         
Blake W. Thompson
  Senior Vice President -   $ 178,500  
 
  Supply Chain      
 
         
Earl D. Leake
  Senior Vice President -   $ **  
 
  Human Resources      
 
       
Margaret E. Wicklund
  Vice President, Controller   $ **
 
  and Assistant Secretary    
 
**   Amounts are omitted for participants other than the Chief Executive Officer, the Chief Financial Officer and the other executive officers who were named in the Summary Compensation Table of the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 


 

Attachment B-1
2008 Three-Year Performance Incentive Plan for Officers
                 
        Nonqualified        
    Stock Option   Stock   Restricted Stock   Performance Award
Name       Incentive     Options     Awards     Opportunity
David V. Singer
  $ 350,000   99,999   $ 300,000   $ 350,000
 
               
Rick D. Puckett
  $ 82,250   23,499   $ 70,500   $ 82,300
 
               
Glenn A. Patcha
  $ 66,850   19,101   $ 57,300   $ 66,900
 
               
Blake W. Thompson
  $ 62,475   17,850   $ 53,600   $ 62,500
 
               
Earl D. Leake
  $ **   **   $ **   $ **
 
               
Margaret E. Wicklund
  $ **   **   $ **   $ **
 
**   Amounts are omitted for participants other than the Chief Executive Officer, the Chief Financial Officer and the other executive officers who were named in the Summary Compensation Table of the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

LANCE, INC. AND SUBSIDIARIES
EXHIBIT 31.1
MANAGEMENT CERTIFICATION
I, David V. Singer, certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 25, 2008
     
/s/ David V. Singer
   
 
   
David V. Singer
   
President and Chief Executive Officer
   

 

 

LANCE, INC. AND SUBSIDIARIES
EXHIBIT 31.2
MANAGEMENT CERTIFICATION
I, Rick D. Puckett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lance, Inc.;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 25, 2008
     
/s/ Rick D. Puckett
   
 
   
Rick D. Puckett
   
Executive Vice President, Chief Financial Officer,
   
Treasurer and Secretary
   

 

 

LANCE, INC. AND SUBSIDIARIES
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lance, Inc. (the “Company”) on Form 10-Q for the period ended March 29, 2008 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 Officer,
April 25, 2008
  Treasurer and Secretary
 
  April 25, 2008