Snyder's-Lance, Inc.
LANCE INC (Form: 10-Q, Received: 04/24/2009 17:16:49)
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 28, 2009
Commission File Number 0-398
(LANCE LOGO)
LANCE, INC.
(Exact name of registrant as specified in its charter)
     
North Carolina   56-0292920
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    
     
14120 Ballantyne Corporate Place    
Suite 350    
Charlotte, North Carolina   28277
(Address of principal executive offices)   (Zip Code)
704-554-1421
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ       No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o       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 the 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
(Do not check if a smaller reporting company)
  Smaller Reporting Company o  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o       No þ
The number of shares outstanding of the registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock as of April 17, 2009, was 31,923,449 shares.
 
 

 


 

LANCE, INC. AND SUBSIDIARIES
INDEX
         
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    4  
 
       
    5  
 
       
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    7  
 
       
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    14  
 
       
    14  
 
       
    15  
 
       
    16  
  EX-10.1
  EX-10.2
  EX-31.1
  EX-31.2
  EX-32

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Quarters Ended March 28, 2009 and March 29, 2008
(in thousands, except share and per share data)
                 
    Quarter Ended  
    March 28,     March 29,  
    2009     2008  
Net revenue
  $ 215,809     $ 197,968  
Cost of sales
    131,413       123,460  
 
           
Gross margin
    84,396       74,508  
 
               
Selling, general and administrative
    73,505       72,857  
Other expense/(income), net
    61       (4 )
 
           
Earnings before interest and income taxes
    10,830       1,655  
 
               
Interest expense, net
    812       606  
 
           
Income before income taxes
    10,018       1,049  
 
               
Income tax expense
    3,566       404  
 
           
Net income
  $ 6,452     $ 645  
 
           
 
               
Basic earnings per share
  $ 0.21     $ 0.02  
Weighted average shares outstanding — basic
    31,403,000       31,103,000  
 
               
Diluted earnings per share
  $ 0.20     $ 0.02  
Weighted average shares outstanding — diluted
    32,064,000       31,608,000  
See Notes to the Condensed Consolidated Financial Statements (Unaudited).

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LANCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of March 28, 2009 (Unaudited) and December 27, 2008
(in thousands, except share data)
                 
    March 28,     December 27,  
    2009     2008  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 2,449     $ 807  
Accounts receivable, net
    80,852       74,406  
Inventories
    48,669       43,112  
Deferred income taxes
    8,833       9,778  
Prepaid expenses and other current assets
    16,962       12,933  
 
           
Total current assets
    157,765       141,036  
 
               
Other assets:
               
Fixed assets, net
    212,413       216,085  
Goodwill and other intangible assets, net
    103,351       104,076  
Other noncurrent assets
    5,127       4,949  
 
           
Total assets
  $ 478,656     $ 466,146  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 26,234     $ 25,939  
Other payables and accrued liabilities
    51,145       58,630  
Short-term debt
          7,000  
 
           
Total current liabilities
    77,379       91,569  
 
               
Other liabilities:
               
Long-term debt
    112,000       91,000  
Deferred income taxes
    31,873       31,241  
Other noncurrent liabilities
    16,770       16,829  
 
           
Total liabilities
    238,022       230,639  
 
               
Commitments and contingencies
           
 
               
Stockholders’ equity:
               
Common stock, 31,922,349 and 31,522,953 shares outstanding, respectively
    26,601       26,268  
Preferred stock, no shares outstanding
           
Additional paid-in capital
    53,125       49,138  
Retained earnings
    162,341       160,938  
Accumulated other comprehensive loss
    (1,433 )     (837 )
 
           
Total stockholders’ equity
    240,634       235,507  
 
           
Total liabilities and stockholders’ equity
  $ 478,656     $ 466,146  
 
           
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 28, 2009 and March 29, 2008
(in thousands, except share data)
                                                     
                    Additional             Accumulated
Other
         
            Common     Paid-in     Retained     Comprehensive          
    Shares     Stock     Capital     Earnings     Income/(Loss)       Total  
       
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  
       
 
                                                   
Balance, December 27, 2008
    31,522,953     $ 26,268     $ 49,138     $ 160,938     $   (837 )     $ 235,507  
 
                                                   
Comprehensive income/(loss):
                                                   
Net income
                            6,452                   6,452  
Foreign currency translation adjustment
                                      (889 )       (889 )
Net unrealized gains on derivatives, net of $159 tax effect
                                      329         329  
Actuarial loss recognized in net income, net of $21 tax effect
                                      (36 )       (36 )
 
                                                 
Total comprehensive income
                                                5,856  
 
                                                 
 
                                                   
Cash dividends paid to stockholders
                            (5,049 )                 (5,049 )
 
                                                   
Stock options exercised, including $280 excess tax benefit
    92,354       77       1,530                           1,607  
 
                                                   
Equity-based incentive expense previously recognized under a liability plan
    73,356       61       1,532                           1,593  
 
                                                   
Amortization of nonqualified stock options
                    267                           267  
 
                                                   
Issuances and amortization of restricted stock and units, net of forfeitures
    240,427       201       779                           980  
 
                                                   
Repurchase of common stock
    (6,741 )     (6 )     (121 )                         (127 )
 
                                                   
       
Balance, March 28, 2009
    31,922,349     $ 26,601     $ 53,125     $ 162,341     $   (1,433 )     $ 240,634  
       
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 28, 2009 and March 29, 2008
(in thousands)
                 
    Quarters Ended  
    March 28,     March 29,  
    2009     2008  
Operating activities
               
Net income
  $ 6,452     $ 645  
Adjustments to reconcile net income to cash from operating activities:
               
Depreciation and amortization
    8,501       7,925  
Stock-based compensation expense
    1,247       1,003  
Loss on sale of fixed assets
    54       102  
Changes in operating assets and liabilities, excluding business acquisition
    (20,130 )     (3,738 )
 
           
Net cash (used in)/from operating activities
    (3,876 )     5,937  
 
           
 
               
Investing activities
               
Purchases of fixed assets
    (5,238 )     (7,057 )
Proceeds from sale of fixed assets
    206       230  
Business acquisition, net of cash acquired
          (24,123 )
 
           
Net cash used in investing activities
    (5,032 )     (30,950 )
 
           
 
               
Financing activities
               
Dividends paid
    (5,049 )     (5,019 )
Issuance of common stock
    1,607       70  
Proceeds from existing credit facilities
    14,000       24,000  
Repayments of debt from business acquisition
          (1,495 )
 
           
Net cash from financing activities
    10,558       17,556  
 
           
 
               
Effect of exchange rate changes on cash
    (8 )     (34 )
 
           
 
               
Increase/(decrease) in cash and cash equivalents
    1,642       (7,491 )
Cash and cash equivalents at beginning of period
    807       8,647  
 
           
Cash and cash equivalents at end of period
  $ 2,449     $ 1,156  
 
           
 
               
Supplemental information:
               
Cash paid for income taxes, net of refunds of $115 and $0, respectively
  $ 608     $ 92  
Cash paid for interest
  $ 856     $ 655  
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 27, 2008, filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2009. 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 28, 2009, and December 27, 2008, and the condensed consolidated statements of income for the quarters ended March 28, 2009, and March 29, 2008, and the condensed consolidated statements of stockholders’ equity and comprehensive income/(loss) and cash flows for the quarters ended March 28, 2009, and March 29, 2008. 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 28, 2009, are not necessarily indicative of the results to be expected for the year ending December 26, 2009.
 
  3.   Preparing financial statements requires management to make estimates and assumptions 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, allowances for doubtful accounts, self-insurance reserves, impairment analysis of goodwill and other intangible assets, useful lives and impairment of fixed assets, incentive compensation, and income taxes. Actual results may differ from our estimates.
 
  4.   We own a non-controlling equity interest in Late July Snacks LLC, an organic snack food company. We also manufacture products for Late July. During the first quarters of 2009 and 2008, non-branded sales to Late July were approximately $1.1 million and $1.0 million, respectively. As of March 28, 2009, and December 27, 2008, accounts receivable due from Late July totaled $0.6 million and $0.4 million, respectively.
 
  5.   The following tables provide a reconciliation of the common shares used for basic earnings per share and diluted earnings per share:
                 
    Quarters Ended
    March 28,   March 29,
(in thousands)   2009   2008
Weighted average number of common shares used for basic earnings per share
    31,403       31,103  
Effect of potential dilutive shares
    661       505  
 
               
Weighted average number of common shares and potential dilutive shares used for diluted earnings per share
    32,064       31,608  
 
               
Anti-dilutive shares excluded from the above reconciliation
    271       706  
 
               
  6.   During the first quarter of 2009, we granted 73,356 restricted shares 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 $1.6 million during the first quarter of 2009. During the same quarter last year, 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.
 
  7.   Sales to our largest customer, Wal-Mart Stores, Inc., were approximately 20% of revenue for the quarters ended March 28, 2009, and March 29, 2008. Accounts receivable at March 28, 2009, and December 27, 2008, included receivables from Wal-Mart Stores, Inc. totaling $20.8 million and $18.0 million, respectively.

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LANCE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
  8.   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 28, 2009 totaling $1.0 million and related interest and penalties of $0.3 million in other noncurrent liabilities on the condensed consolidated balance sheet. Of this amount, $1.1 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 $0.6 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 28, 2009 was $0.3 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
  2005, 2007 and forward
Canada federal
  2004 and forward
Ontario provincial
  2003 and forward
Massachusetts
  2001 and forward
North Carolina
  2005 and forward
Iowa
  2005 and forward
  9.   Inventories consist of:
                 
    March 28,     December 27,  
(in thousands)   2009     2008  
Finished goods
  $ 25,595     $ 23,227  
Raw materials
    14,157       11,556  
Supplies, etc.
    15,978       15,293  
 
           
Total inventories at FIFO cost
    55,730       50,076  
Less adjustments to reduce FIFO cost to LIFO cost
    (7,061 )     (6,964 )
 
           
Total inventories
  $ 48,669     $ 43,112  
 
           
  10.   In March 2008, the FASB issued SFAS No. 161 “ Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 ,” which enhances the disclosure requirements for derivative instruments and hedging activities. The information required by SFAS No. 161 is disclosed below.
 
      We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and foreign exchange rate risk.
 
      Interest Rate Swaps
 
      Our variable-rate 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. Interest rate swaps are entered into to manage interest rate risk associated with our variable-rate debt and maintain a desirable proportion of fixed to variable-rate debt. In February 2009, we entered into an interest rate swap agreement on an additional $15 million of debt. Therefore, the notional amount of interest rate swaps increased from $50 million at December 27, 2008, to $65 million at March 28, 2009.
 
      Foreign Currency Forwards
 
      We are exposed to foreign exchange rate fluctuations through the operations of our Canadian subsidiary. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of 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. The notional amount for foreign currency forwards decreased from $18.8 million at December 27, 2008, to $18.1 million at March 28, 2009, as contracts expired during the first quarter of 2009. These contracts have maturities through June 2010.
 
      All of our derivative instruments are accounted for as cash flow hedges.

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LANCE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
      The pre-tax income/(expense) effect of derivative instruments on the condensed consolidated statements of income is as follows:
                 
    Quarters Ended  
    March 28,     March 29,  
(in thousands)   2009     2008  
Interest rate swaps (included in Interest expense, net)
  $ (544 )   $ (104 )
Foreign currency forwards (included in Net revenue)
    (783 )     50  
Foreign currency forwards (included in Other expense)
    (23 )     3  
 
           
Total net pre-tax expense from derivative instruments
  $ (1,350 )   $ (51 )
 
           
      The effect of derivative instruments on the condensed consolidated balance sheets is as follows:
                 
    Fair Value of Liability at  
    March 28,     December 27,  
(in thousands)   2009     2008  
Interest rate swaps (included in Other noncurrent liabilities)
  $ (4,310 )   $ (4,272 )
Foreign currency forwards (included in Other payables and accrued liabilities)
    (1,532 )     (2,094 )
 
           
Total fair value of derivative instruments
  $ (5,842 )   $ (6,366 )
 
           
      The change in unrealized pre-tax gains/(losses) included in other comprehensive income due to fluctuations in interest rates and foreign exchange rates were as follows:
                 
    Quarters Ended  
    March 28,     March 29,  
(in thousands)   2009     2008  
Interest rate swaps
  $ (38 )   $ (1,246 )
Foreign currency forwards
    526       (591 )
 
           
Total change in unrealized pre-tax gains/(losses) from derivative instruments
  $ 488     $ (1,837 )
 
           
      The counterparty risk associated with our derivative instruments is considered minimal because the fair values of these instruments are in a liability position at March 28, 2009.

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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 27, 2008.
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.
Quarter Ended March 28, 2009 Compared to Quarter Ended March 29, 2008
                                                 
                                    Favorable/  
    Quarter Ended     (Unfavorable)  
(dollars in thousands)   March 28, 2009     March 29, 2008     Variance  
     
Net revenue
  $ 215,809       100.0 %   $ 197,968       100.0 %   $ 17,841       9.0 %
Cost of sales
    131,413       60.9 %     123,460       62.4 %     (7,953 )     (6.4 %)
     
Gross margin
    84,396       39.1 %     74,508       37.6 %     9,888       13.3 %
Selling, general and administrative
    73,505       34.1 %     72,857       36.8 %     (648 )     (0.9 %)
Other expense/(income), net
    61             (4 )           (65 )     (1625.0 %)
     
Earnings before interest and taxes
    10,830       5.0 %     1,655       0.8 %     9,175       554.4 %
Interest expense, net
    812       0.4 %     606       0.3 %     (206 )     (34.0 %)
Income tax expense
    3,566       1.7 %     404       0.2 %     (3,162 )     (782.7 %)
     
Net income
  $ 6,452       3.0 %   $ 645       0.3 %   $ 5,807       900.3 %
     

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LANCE, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net income increased $5.8 million in the first quarter of 2009 compared to the same quarter in 2008, despite the negative impact that we faced relative to the recent peanut butter recall. In January 2009, there was a recall of products containing peanuts, peanut butter paste and peanut butter purchased from an independent supplier. Although our sandwich crackers contain only peanut butter made internally and were not part of the recall, the potential health concern caused many consumers to discontinue purchases of our peanut butter sandwich crackers during the first quarter of 2009. We estimate that net income was negatively impacted by approximately $1.5 million due to reductions in sales of peanut butter sandwich crackers and the cost of consumer communication initiatives to help mitigate the negative impacts associated with the recall. In addition, net income was negatively impacted by approximately $0.8 million due to the start-up costs associated with the newly acquired Ashland, Ohio facility and reestablishing the Archway brand in the market. We believe that the acquisition will be slightly profitable during 2009 as the brand is reestablished. During the first quarter of 2009, we continued to make significant progress in our supply chain initiatives and direct-store-delivery (DSD) system transformation.
Net income was adversely impacted during the first quarter of 2008 by a rapid increase in the costs of ingredients, primarily flour and vegetable oils. Throughout 2008, we implemented price increases to offset these significantly higher ingredient costs.
Total revenue increased $17.8 million or 9% from the first quarter of 2008. Approximately $4.5 million of this increase came from incremental revenue from acquisitions made during 2008. During the first quarter of 2009, we estimate that sales of peanut butter sandwich crackers were negatively impacted by approximately $2 million to $3 million due to the peanut butter recall. If we maintain a portion of the increased market share recently gained and consumers regain confidence in the safety of peanut butter products, the negative impact to revenue experienced during the first quarter of 2009 could be largely offset in the later part of the year.
Revenue from branded products represented approximately 59% of total revenue during the first quarter of 2009 as compared to 61% in 2008. Compared to the first quarter of 2008, revenue from branded products increased $5.7 million or 4.8%. Approximately 75% of this increase was due to higher selling prices as compared to the first quarter of 2008. Acquisitions made in 2008 generated approximately 25% of the additional branded revenue during the first quarter of 2009. While our revenue from branded products in our core channels continued to grow compared to the same quarter last year, general economic pressures and increased competition are slowing the rate of revenue growth for some of our premium products, such as Cape Cod ® potato chips, as compared to 2008. Lance ® home pack sandwich crackers experienced single digit growth compared to double-digit growth during the first quarter of 2008 primarily a result of the peanut butter recall. These increases were partially offset by expected revenue declines in certain channels, such as food service and up-and-down the street, resulting from our DSD transformation initiative.
Revenue from non-branded products, which includes private brand products and contract manufacturing, increased $12.1 million or 15.8%. Private brands revenue represented 32% of total revenue in the first quarter of 2009 compared to 29% for the first quarter of 2008, which reflects a higher demand for private brand products, likely a result of current economic conditions. Private brands revenue increased approximately 25% compared to the first quarter of 2008, of which approximately 65% of the increase related to sales price increases, 20% of the increase was due to acquisitions made in 2008 and the remainder reflects net volume growth from sales to new and existing customers and new product introductions. Revenues from contract manufacturing declined due to lower volume with certain customers, which were partially offset by sales price increases.
Gross margin increased $9.9 million and increased from 37.6% to 39.1% as a percentage of revenue. This improvement was mostly due to higher selling prices and improved manufacturing efficiencies. These improvements were slightly offset by the higher mix of non-branded product sales that generally carry a lower gross margin percentage than sales of branded products, as well as higher ingredient costs of $2.8 million compared to the first quarter of 2008 and start-up costs related to the newly acquired Ashland facility. As the Ashland facility becomes fully operational, we expect our gross margin to be approximately 40% for 2009.
Selling, general and administrative expenses increased $0.6 million. Marketing and advertising costs increased $1.0 million to support the Lance and Cape Cod brands and reestablish the Archway brand in the marketplace. Bad debt expense increased $0.7 million primarily due to customer bankruptcies. Additional marketing and public relation costs of $0.5 million were incurred during the first quarter to mitigate the negative impacts associated with the peanut butter recall. Partially offsetting these increases were lower fuel and diesel costs driven by lower rates, which decreased $1.5 million compared to the first quarter of 2008. We plan to continue to invest in advertising and marketing throughout 2009 at levels higher than in recent years.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net interest expense increased $0.2 million primarily due to higher average debt than 2008 resulting from acquisitions made during 2008, offset slightly by lower weighted average interest rates.
Our effective income tax rate was 35.6% in the first quarter of 2009 as compared to 38.5% in the first quarter of 2008. The major cause of the decrease in the tax rate was due to the impact of higher earnings on the accounting for uncertain tax positions, and increased business incentives and tax credits in 2009 as compared to 2008. We expect our full year income tax rate to be approximately 35% for 2009.
Liquidity and Capital Resources
Liquidity
The principal sources of liquidity for operations during the first quarter of 2009 were provided by operating activities, cash on hand, and our existing credit facilities. Cash flow from operating activities, cash on hand and our existing credit facilities are believed to be sufficient for the near future to enable us to meet obligations, fund capital expenditures and pay cash dividends to our stockholders.
During March 2009, our universal shelf registration statement was declared effective by the SEC. Subject to our ability to consummate a transaction on acceptable terms, this registration statement provides the flexibility to sell up to $250 million of debt or equity securities. While we have no specific plans to offer securities at this time, it could position us to expedite financing for business opportunities that support our growth strategy.
Operating Cash Flows
Net cash used in operating activities was $3.9 million during the first quarter of 2009. For the first quarter of 2008, net cash from operating activities was $5.9 million. Changes in net operating assets increased from $3.7 million during the first quarter of 2008 to $20.1 million in the first quarter of 2009 primarily due to changes in inventory and accounts payable. Inventory increased during the first quarter of 2009 due to planned increases for new product introductions and slowness in peanut butter sandwich cracker sales. Additionally, accounts payable grew at a much faster pace in the first quarter of 2008 as ingredient costs experienced an unprecedented increase from the previous year as compared to the first quarter of 2009.
Investing Cash Flows
Net cash used in investing activities was $5.0 million for the first quarter of 2009. Capital expenditures for fixed assets, principally information systems and manufacturing equipment totaled $5.2 million during the first quarter of 2009, 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 2009 are projected to be between $41 million and $46 million and funded by net cash flow from operating activities, cash on hand, and our existing credit facilities.
Net cash used in investing activities during the first quarter of 2008 represented capital expenditures of $7.1 million, partially offset by proceeds from the sale of fixed assets of $0.2 million. On March 14, 2008, we acquired Brent & Sam’s, Inc. for approximately $24.1 million. Capital expenditures for purchases of fixed assets were $39.1 million for the full year ended December 27, 2008.
Financing Cash Flows
During both of the first quarters of 2009 and 2008, we paid dividends of $0.16 per share totaling $5.0 million. In addition, we received cash and related tax benefits of $1.6 million and $0.1 million during the first quarters of 2009 and 2008, respectively, as a result of stock option exercises. Proceeds from our existing credit facilities were used to fund increases in working capital during the first quarter of 2009. On April 23, 2009, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on May 20, 2009, to stockholders of record on May 11, 2009.
During the first quarter of 2008, net cash from financing activities was impacted by $24 million of additional borrowings under our existing credit facilities 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.
Debt
Additional borrowings available under our existing credit facilities totaled $20.3 million as of March 28, 2009. We have complied with all financial covenants contained in the credit agreement. 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 $17.7 million as of March 28, 2009.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations
In order to fix a portion of our ingredient and packaging costs, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections, and expected usage levels in order to determine appropriate selling prices for our products. Purchase commitments for inventory decreased from $95.2 million as of December 27, 2008, to $90.7 million as of March 28, 2009, due to normal usage and the volume and mix of contracted ingredients. We are currently contracted at least six months in advance for all major ingredients and packaging.
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. Our variable-rate 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 on $35 million of debt in order to fix the interest rate at 4.99%, plus applicable margin. The applicable margin on March 28, 2009, was 0.50%. The fair value of the interest rate swap liability was $3.2 million and $3.3 million on March 28, 2009 and December 27, 2008, respectively.
In July 2008, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 3.87%, plus applicable margin. The applicable margin on this agreement on March 28, 2009, was 0.50%. The fair value of the interest rate swap liability was $1.0 million on March 28, 2009 and December 27, 2008.
In February 2009, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 1.68%, plus applicable margin. The applicable margin on this agreement on March 28, 2009, was 0.40%. The fair value of the interest rate swap liability was $0.1 million on March 28, 2009.
While these swaps fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.5 million lower without these swaps during the first quarter of 2009.
We are exposed to foreign exchange rate fluctuations through the operations of our Canadian subsidiary. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of 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 June 2010. During the first quarter of 2009, foreign currency fluctuations favorably impacted pre-tax earnings by $1.6 million compared to the first quarter of 2008. However, this increase in pre-tax earnings was offset by the unfavorable effect of forward contracts of $0.9 million for the first quarter of 2009 compared to the first quarter of 2008.
Due to foreign currency fluctuations during the first quarters of 2009 and 2008, we recorded losses of $0.9 million and $3.0 million, respectively, in other comprehensive income because of the translation of the subsidiary’s financial statements into U.S. dollars.
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 2009, net bad debt expense was $0.7 million primarily due to customer bankruptcies. Net bad debt expense was less than $0.1 million for the first quarter of 2008. Allowances for doubtful accounts were $1.3 million at March 28, 2009 and $0.9 million at December 27, 2008.

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LANCE, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The principal market risks that may adversely impact our results of operations and financial position are changes in raw material and packaging prices, energy and fuel costs, interest rates, 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 28, 2009, 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
We are currently subject to various routine legal proceedings 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.
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 27, 2008.
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 28, 2009, our consolidated stockholders’ equity was $240.6 million.
In December 2008, the Board of Directors approved the repurchase of up to 100,000 shares of common stock for the purpose of acquiring shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of shares of restricted stock when sales of common stock by employees are not permitted. During the first quarter of 2009, we repurchased the following shares of common stock for this purpose:
                                 
                    Total Number of Shares   Maximum Number of Shares
    Total Number   Average Price   Repurchased as Part of Publically   That May Yet to be Purchased
    of Shares   Paid Per Share   Announced Plans or Programs   Under the Plans or Programs
December 28, 2008 – January 24, 2009
                      100,000  
January 25, 2009 – February 21, 2009
    6,741     $ 18.83             93,259  
February 22, 2009 – March 28, 2009
                      93,259  

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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
  Articles of Amendment of Lance, Inc., as filed on October 30, 2008, eliminating the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 31, 2008 (File No. 0-398).
 
   
3.4
  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. 2009 Annual Performance Incentive Plan for Officers, filed herewith.
 
   
10.2*
  Lance, Inc. 2009 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 this 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 24, 2009

16

Exhibit 10.1
LANCE, INC.
2009 Annual Performance Incentive Plan for Officers
     
Purposes and Introduction
  The 2009 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 2009 Annual Performance Incentive Plan for Officers (the “2009 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 participants’ 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 2009, 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 is defined as sales and other operating revenue, net of returns, allowances, discounts and other sales deduction items for the 2009 fiscal year, as audited and reported in the Company’s Form 10-K for the 2009 fiscal year.
 
   
 
 
2.    Corporate Earnings Per Share (“Corporate EPS”) is defined as the fully diluted earnings per share of the Company for the 2009 fiscal year, as audited and reported in the Company’s Form 10-K for 2009 fiscal year.
 
   
 
 
3.    Sales Per Route Improvement is defined as the percentage improvement in gross 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 2009 fiscal year over that for the 2008 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 2009 fiscal year over that for the 2008 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 2009 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 2009 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 2009 participants approved by the Compensation Committee at its February 9, 2009 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.

2


 

     
 
  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 2009 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 payout for the Net Sales performance measure shall not exceed Target if the Corporate EPS performance measure does not equal or exceed its Threshold.
 
   
 
  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 2009 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 participant will receive 35% of his or her Target Incentive Award based on Net Sales, 45% of his or her Target Incentive Award based on Corporate EPS, 10% of his or her Target Incentive Award based on Sales Per Route Improvement and 10% of his or her Target Incentive Award based on Supply Chain Costs Reduction.

3


 

     
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 2009 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 during or after the end of the Plan Year but 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.
 
   
 
  “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, 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 2009 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.

4


 

     
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. In addition, under the Incentive Plan, the Committee retains the discretion to reduce any award amount from the amount otherwise determined under the applicable formula. Subject to the foregoing, the decisions of the Committee shall be conclusive and binding on all participants.

5


 

Exhibit A
Performance Measures
                                 
Performance Measure   Weight   Threshold   Target   Maximum
Net Sales*
    35 %   $ 865 million   $ 915.7 million   $ 965 million
 
                               
Corporate EPS*
    45 %   $ 0.80     $ 1.10     $ 1.40  
 
                               
Sales Per Route Improvement*
    10 %     1 %     10 %     15 %
 
                               
Supply Chain Costs Reduction*
    10 %     1 bps     25 bps     125 bps
 
*   Excludes acquisitions and special items, which are significant one-time income or expense items.

 


 

Exhibit B
                     
        Award   Target
Name   Title   Percentage   Incentive
David V. Singer
  President and Chief Executive Officer     100 %   $ 660,000  
 
                   
Rick D. Puckett
  Executive Vice President, Chief Financial Officer, Treasurer and Secretary     50 %   $ 200,700  
 
                   
Glenn A. Patcha
  Senior Vice President — Sales and Marketing     50 %   $ 180,200  
 
                   
Blake W. Thompson
  Senior Vice President — Supply Chain     50 %   $ 150,200  
 
                   
Earl D. Leake
  Senior Vice President — Human Resources     50 %   $ 140,300  
 
                   
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 2009 Annual Meeting of Stockholders.

 

Exhibit 10.2
LANCE, INC.
2009 Three-Year Performance Incentive Plan for Officers and Key Managers
     
Purposes and Introduction
  The 2009 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 2009 Three-Year Performance Incentive Plan for Officers and Key Managers (the “2009 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 financial performance based on the performance measures specified below.
 
   
 
 
     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 2009 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 2009 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 completion of the 2009 and 2010 fiscal years (the “Performance Period”), based on the attainment of predetermined goals.

 


 

     
 
  For the 2009 Plan, participants will be eligible to earn the Performance Award based on the performance measures listed on Exhibit A-1 hereto, excluding acquisitions and special items, and defined as follows:
 
   
 
  1. Net Sales is defined as the average of sales and other operating revenue, net of returns, allowances, discounts and other sales deduction items for the 2009 and 2010 fiscal years, as audited and reported in the Company’s Forms 10-K for the 2009 and 2010 fiscal years.
 
   
 
  2. Corporate Earnings Per Share (“Corporate EPS”) is defined as the average of the fully diluted earnings per share of the Company for the 2009 and 2010 fiscal years, as audited and reported in the Company’s Forms 10-K for the 2009 and 2010 fiscal years.
 
   
 
  3. Return on Capital Employed (“ROCE”) is defined as the average of the ROCE for the 2009 and 2010 fiscal years, as audited and reported in the Company’s Forms 10-K for the 2009 and 2010 fiscal years, calculated as follows:
         
 
   Operating Income x (1 - Tax Rate)
 
Average Equity + Average Net Debt
   
     
 
  Operating Income shall be the Company’s actual earnings before interest and taxes and excluding other income and expense.
 
   
 
  Tax Rate for ROCE shall be the Company’s actual total effective income tax rate.
 
   
 
  Average Net Debt shall be the Company’s average debt less average cash.
 
   
 
  Average amounts for ROCE shall be calculated on a 12-month basis.
 
   
 
  Base salary shall be the annual rate of base compensation for the 2009 fiscal year which is in effect on February 23, 2009; 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.

2


 

     
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 2009 Plan. Participation in the 2009 Plan does not guarantee participation in any subsequent long-term incentive plans but will be reevaluated and determined on an annual basis.
 
   
 
  Attachment A-2 and Attachment A-3 include the list of 2009 Plan participants approved by the Compensation Committee on February 23, 2009.
 
   
Target Incentives and Performance Measures
  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 2009-2010 financial performance measures and goals are on Exhibit A-1 attached hereto. The related payout percentage is shown below.
                           
    Threshold   Target   Maximum  
Award Level Funded
    50 %     100 %     250 %  
     
 
  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 measures 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 2009 and 2010 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

3


 

     
 
 
     Threshold: Lowest level of performance deserving a payout
 
   
 
  Attachment A-2 and Attachment A-3 list the Target Incentives for each participant for the 2009 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 2009 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 2009 and 2010 and determined the performance levels achieved.
 
   
Awards
  As further specified on Attachment B-1 and Attachment B-2, the Awards under the 2009 Plan shall be as follows:
 
   
 
  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, which is the closing price 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.

4


 

     
 
  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. Two-thirds of such shares of Restricted Stock will be fully vested on the award date with the balance vesting one year after the award date.
 
   
 
  For purposes of the 2009 Plan, the award date for shares of Restricted Stock as a Performance Award will be the date established by the Compensation Committee after completion of the Performance Period and the applicable performance level has been determined.
 
   
Form and Timing of Awards
  Awards will be made as soon as practicable after the performance level has been determined and approved by the Compensation Committee. All awards will be rounded to the nearest multiple of three shares.
 
   
Change In Status
  An employee hired or promoted into an eligible position during the Performance Period will not participate in the 2009 Plan.
 
   
Certain Terminations of Employment
  Performance Awards

In the event a participant voluntarily terminates employment (other than Retirement) or is terminated involuntarily during or after the end of the Performance Period but before the applicable award date, the participant shall not receive any Performance Award hereunder.
 
   
 
  In the event of a participant’s death or Disability before the end of the Performance Period, any Performance Award will be determined on the date of such event based on target performance and paid out all in cash as soon as administratively practicable (but in no event more than 75 days) after the date of such event. In the

5


 

     
 
  event of a participant’s death or Disability on or after the end of the Performance Period but before the applicable award date, any Performance Award will be determined based on actual performance and paid out all in cash on or about the applicable award date.
 
   
 
  If the event of a participant’s Retirement during or after the end of the Performance Period but before the applicable award date, any Performance Award will be determined based on actual performance and paid out all in cash on or about the applicable award date.
 
   
 
  Stock Options
 
   
 
  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.
 
   
 
  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.

6


 

     
 
  Restricted Shares
 
   
 
  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 fully vested on the date of such event.
 
   
 
  Disability : Unvested Restricted Stock will become fully vested on the date of such event.
 
   
 
  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.
 
   
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.

7


 

     
Stockholder
Approval
  The 2009 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. In addition, under the Incentive Plan, the Committee retains the discretion to reduce any award amount from the amount otherwise determined under the applicable formula. Subject to the foregoing, the decisions of the Committee shall be conclusive and binding on all participants.

8


 

Exhibit A-1
Performance Measures
                                 
Performance Measure   Weight   Threshold   Target   Maximum
Net Sales *
    30 %   $ 920 million   $ 940 million   $ 975 million
 
                               
Corporate EPS*
    40 %   $ 1.00     $ 1.25     $ 1.50  
 
                               
Return on Capital Employed*
    30 %     11 %     12.5 %     14.9 %
 
*   Excludes acquisitions and special items, which are significant one-time income or expense items.

 


 

Attachment A-2
2009 Three-Year Performance Incentive Plan for Officers
             
        Target
Name   Title   Incentive
David V. Singer
  President and Chief Executive Officer   $ 1,296,000  
 
           
Rick D. Puckett
  Executive Vice President, Chief Financial Officer, Secretary and Treasurer   $ 330,800  
 
           
Glenn A. Patcha
  Senior Vice President — Sales and Marketing   $ 281,300  
 
           
Blake W. Thompson
  Senior Vice President — Supply Chain   $ 247,300  
 
           
Earl D. Leake
  Senior Vice President — Human Resources   $ 257,000  
 
           
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 2009 Annual Meeting of Stockholders.

 


 

Attachment A-3
2009 Three-Year Performance Incentive Plan for Key Managers
                         
            Award   Target
Name   Title   Percentage   Incentive
**
  **        **        **     
 
**   Information is 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 2009 Annual Meeting of Stockholders.

 


 

Attachment B-1
2009 Three-Year Performance Incentive Plan for Officers
                                         
    Stock   Nonqualified   Restricted   Restricted   Performance
    Option   Stock   Stock     Stock   Award
Name     Incentive     Options   Awards    Shares   Opportunity
David V. Singer
  $ 453,600       92,196     $ 388,800       17,910     $ 453,600  
 
Rick D. Puckett
  $ 115,780       23,532     $ 99,240       4,572     $ 115,780  
 
Glenn A. Patcha
  $ 98,455       20,010     $ 84,390       3,888     $ 98,455  
 
Blake W. Thompson
  $ 86,555       17,592     $ 74,190       3,417     $ 86,555  
 
Earl D. Leake
  $ 89,950       18,282     $ 77,100       3,552     $ 89,950  
 
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 2009 Annual Meeting of Stockholders.

 


 

Attachment B-2
2009 Three-Year Performance Incentive Plan for Key Managers
                                 
            Nonqualified   Restricted   Performance
    Stock Option   Stock   Stock   Award
Name     Incentive     Options   Awards   Opportunity
**
  $**   **   $**   **
 
**   Information is 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 2009 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 24, 2009
     /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 24, 2009
     /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 28, 2009 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
 
David V. Singer
      /s/ Rick D. Puckett
 
Rick D. Puckett
   
President and Chief Executive Officer
      Executive Vice President, Chief Financial Officer,    
April 24, 2009
      Treasurer and Secretary    
 
      April 24, 2009