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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-398
LANCE, INC.
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(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-0292920
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(State of Incorporation) (I.R.S. Employer Identification Number)
8600 SOUTH BOULEVARD, CHARLOTTE, NORTH CAROLINA
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(Address of principal executive offices)
POST OFFICE BOX 32368, CHARLOTTE, NORTH CAROLINA
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28232 (Mailing address of principal executive offices)
Registrant's telephone number, including area code: (704) 554-1421
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
$.83-1/3 PAR VALUE COMMON STOCK
RIGHTS TO PURCHASE $1 PAR VALUE SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares of the Registrant's $.83-1/3 par value
Common Stock, its only outstanding class of voting stock, held by non-affiliates
as of March 1, 2000 was approximately $291,400,000.
The number of shares outstanding of the Registrant's $.83-1/3 par value Common
Stock, its only outstanding class of Common Stock, as of March 1, 2000, was
28,960,648 shares.
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DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on April 20, 2000 are incorporated by reference into Part III of this Form
10-K.
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PART I
ITEM 1. BUSINESS
Lance, Inc. was incorporated as a North Carolina corporation in 1926.
Lance, Inc. and its subsidiaries are collectively referred to herein as the
Registrant or the Company.
The Registrant manufactures, markets and distributes a variety of snack
foods. Product categories include sandwich crackers, cookies, restaurant
crackers and bread basket items, candy, chips, meat snacks, nuts and cake items,
of which approximately 76% are manufactured and approximately 24% are purchased
for resale. Products are distributed through the Registrant's
direct-store-delivery ("DSD") system, direct shipments by its own transportation
fleet and through third party common carriers. Products are packaged as
individual, single servings and as larger packages or multi-pack configurations.
The Registrant's customer base includes grocery and mass merchants,
convenience and drug stores, food service brokers and institutions, vending
operations, military and government facilities, and "up and down the street"
outlets such as recreational facilities, offices, restaurants and independent
retailers. The Registrant currently distributes products throughout most of the
United States and parts of Canada and Europe. The Registrant's products are sold
under the Registrant's brand names as well as private label and third-party
brands.
During 1999 the Registrant acquired Tamming Foods Ltd. ("Tamming"),
headquartered in Waterloo, Ontario, Canada and Cape Cod Potato Chip Company,
Inc. ("Cape Cod"), headquartered in Hyannis, Massachusetts. Tamming is a
manufacturer of premium sugar wafers that are distributed in Canada and the
United States. Cape Cod is a manufacturer and distributor of kettle cooked
potato chips that are sold throughout the United States and parts of Canada and
Europe. These acquisitions increased the Registrant's product offerings and
broadened distribution.
The Registrant's products are sold under various trade names and
registered trademarks that it owns, including LANCE, TOASTCHEE, TOASTY,
CHOC-O-LUNCH, VAN-O-LUNCH, NEKOT, GOLD-N-CHEES, CAPTAIN'S WAFERS, VISTA and CAPE
COD.
Sales are made by the Registrant's own DSD and non-DSD sales
representatives, and also through brokers and distributors. The DSD organization
is administered through 3 regions that are divided into 22 sales districts that
are further divided into 258 sales branches, each under the direction of a
branch manager. Within each branch are sales territories, each serviced by one
representative. At December 25, 1999, there were 2,005 sales territories. The
Registrant uses its own fleet of tractors and trailers to make weekly deliveries
of its products to the sales territories. The Registrant provides its
representatives with stockroom space for their inventory requirements. The
representatives load their own trucks from these stockrooms for delivery to
customers and to service vending machines owned by the Registrant. The
Registrant owns and operates vending machines in approximately 60,000 locations.
These vending machines are made
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available to customers primarily on a commission or rental basis. The machines
are not designed or manufactured specifically for the Registrant, and their use
is not limited to any particular sales area or class of customer. Non-DSD sales
are distributed by both the Registrant's fleet of tractors and trailers as well
as third party common carriers.
The Registrant has initiated a number of activities to revitalize its
operations and position itself for future growth. These activities include cost
reductions, systems development, organizational improvements, sales/marketing
initiatives and external development. The Registrant's strategic plans call for
sales growth that is driven by improved sales and marketing initiatives that are
funded through continued cost reduction activities as well as leveraging its
distribution capabilities.
The principal raw materials used in the manufacture of its snack food
products are flour, peanuts, peanut butter, oils, shortenings, potatoes, shelled
corn, popcorn, cornmeal, pork skins, tree nuts, starch, sugar, cheese, corn
syrup, cocoa, fig paste 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 and are generally
contracted for a season in advance. The principal supplies of energy used in the
manufacture of these products are electricity, natural and propane gas, fuel oil
and diesel fuel, all of which are currently available in adequate quantities.
All of the Registrant's products are sold in highly competitive markets
in which there are many competitors. In the case of many of its products, the
Registrant competes with manufacturers with greater total revenues and greater
resources than the Registrant. The principal methods of competition are price,
delivery, service and product quality. Generally, the Registrant believes that
it is competitive in these methods as a whole. The methods of competition and
the Registrant's competitive position vary according to the locality, the
particular products and the policies of its competitors. Although reliable
statistics are unavailable as to production and sales by others in the industry,
the Registrant believes that in its core areas of distribution it is one of the
largest producers of filled sandwich crackers.
On December 25, 1999, the Registrant and its subsidiaries had 4,878
employees, none of whom were covered by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Registrant's principal plant and general offices are located in
Charlotte, North Carolina on a 287-acre tract owned by the Registrant. The main
facility at this location is an air-conditioned and sprinklered plant, office
building and cafeteria of brick and steel containing approximately 670,000
square feet. The manufacturing portion of this facility houses seven oven lines
and is equipped with storage facilities to handle many of the Registrant's raw
materials in bulk and is operated on a continuous three-shift basis. Adjacent to
the main facility is an air-conditioned and sprinklered plant of brick and steel
used for processing potato chips, corn chips and similar products containing
approximately 140,000 square feet, which is operated on a continuous two-shift
basis. Also adjacent to the main facility are a 70,400 square foot precast
concrete building, which houses a vending machine repair and maintenance
facility, an 11,000 square foot
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brick and steel building, which houses vehicle maintenance operations, and
50,000 square foot, 40,000 square foot and 14,000 square foot metal warehouse
buildings.
The Registrant also owns a plant located on an 18.5-acre tract in
Burlington, Iowa. The plant is of masonry and steel and contains approximately
313,000 square feet. This plant houses eight oven lines, certain of which are
operated on a continuous three-shift basis. Adjacent to the plant is a steel
storage building of approximately 5,800 square feet. The Registrant owns two
plants located on two tracts totaling approximately 8 acres in Ontario, Canada.
These plants are located in Waterloo and Guelph and have approximately 45,000
and 46,000 square feet, respectively. The Registrant also owns a plant in
Hyannis, Massachusetts located on a 5.4-acre tract. The plant is of masonry and
steel and contains approximately 32,000 square feet.
The Registrant leases office space for administrative support and
district sales offices throughout the United States. The Registrant also leases
six distribution/warehouse facilities for periods ranging from one to three
years. In addition, the Registrant leases most of its stockroom space for its
DSD field sales representatives in various locations mainly on month-to-month
tenancies.
The Registrant believes that it has sufficient production capacity to meet
foreseeable demand in 2000.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to, nor are any of its assets subject to,
any material pending legal proceedings, other than ordinary routine litigation
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
SEPARATE ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to each executive officer of the Registrant, who is not
a director or a nominee named in Item 10 of this Form 10-K, is as follows:
Name Age Information About Officer
---- --- -------------------------
Robert S. Carles 59 Secretary of Lance, Inc. since 1997,
Assistant Secretary 1981-1997 and Corporate
Attorney since 1976
H. Dean Fields 58 President of Vista Bakery, Inc. (subsidiary
of Lance, Inc.) since 1996 and Manager,
Columbia, South Carolina Plant of Vista
Bakery, Inc. 1993-1996
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L. Rudy Gragnani 46 Vice President of Lance, Inc. since 1997;
Vice President of Coca-Cola Bottling Company
of New York 1996-1997 and Director of
Information Services of Coca-Cola Bottling
Co. Consolidated 1988-1996
Earl D. Leake 48 Vice President of Lance, Inc. since 1995 and
Treasurer and Assistant Secretary 1988-1995
James C. Melton 40 Assistant Vice President of Lance, Inc.,
Vice President Financial Services, Lance
Company since 1999, Corporate Controller and
Principal Accounting Officer of Lance, Inc.
1997-1999; independent financial consultant
1995-1996; Corporate Controller and
Assistant Treasurer, Kayser-Roth Corporation
(consumer products company) 1990-1994
David R. Perzinski 40 Treasurer of Lance, Inc. since 1999, Senior
Director of Sales/Marketing Finance and
Treasury Operations 1996-1999; Financial
Planning Manager Consumer Power
Tools/Outdoor Products NA (division of the
Black and Decker Corporation) 1992-1996;
Manufacturing Site Controller U.S. Power
Tools Group (Black and Decker) 1986-1991.
B. Clyde Preslar 45 Vice President and Chief Financial Officer
of Lance, Inc. since 1996; Treasurer
1996-1999; Director, Financial Services of
Worldwide Power Tools Group (a consumer
products division of The Black and Decker
Corporation) 1993-1996 and Director,
Corporate Business Planning and Analysis of
The Black and Decker Corporation 1991-1993
Dominic J. Sidari 46 Vice President of Lance, Inc. since 1998*;
Vice President, Sales of Pepperidge Farm
division of Campbell 1977 - 1998
Richard G. Tucker 45 Vice President of Lance, Inc. since 1996 and
President of Lance Company since 1999; Plant
Manager (bakery division) of RJR Nabisco
Holdings Corporation (consumer products
company) 1989-1996
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Gregory M. Venner 42 Vice President of Lance, Inc. since 1997*;
Marketing Director and Business Director,
Tropicana Products (food products company)
1993-1996 and Marketing Director, Conagra
Frozen Foods 1990-1993
Margaret E. Wicklund 39 Corporate Controller and Principal
Accounting Officer of Lance, Inc. since
1999, Assistant Secretary and Senior
Director of Corporate Tax and Shared
Services 1999-2000, Director of Corporate
Tax 1993-1998; Senior Tax Consultant,
Deloitte & Touche LLP 1987-1992.
* Employment will terminate effective March 27, 2000.
All the executive officers were appointed to their current positions at
the Annual Meeting of the Board of Directors effective April 16, 1999, except
that Mr. Melton and Ms. Wicklund were appointed effective December 27, 1999. All
of the Registrant's executive officers' terms of office extend until the next
Annual Meeting of the Board of Directors and until their successors shall have
been duly elected and qualified.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company had 4,595 stockholders of record as of March 1, 2000.
The $.83-1/3 par value Common Stock of Lance, Inc. is traded in the
over-the-counter market under the symbol LNCE and transactions in the Common
Stock are reported on The nasdaq Stock Market. The following table sets forth
the high and low sales prices and dividends paid during the interim periods in
fiscal years 1999 and 1998.
1999 Interim Periods High Low Dividend
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First quarter (13 weeks ended March 27, 1999) $ 20 1/2 $14 1/4 $0.24
Second quarter (13 weeks ended June 26, 1999) 16 1/2 13 1/2 0.24
Third quarter (13 weeks ended September 25, 1999) 15 3/4 12 0.24
Fourth quarter (13 weeks ended December 25, 1999) 13 7/16 9 0.24
1998 Interim Periods High Low Dividend
- -------------------- Price Price Paid
----- ----- ----
First quarter (13 weeks ended March 28, 1998) $ 27 1/4 21 1/4 0.24
Second quarter (13 weeks ended June 27, 1998) 22 7/8 20 0.24
Third quarter (13 weeks ended September 26, 1998) 23 1/8 18 1/4 0.24
Fourth quarter (13 weeks ended December 26, 1998) 20 1/2 18 0.24
On January 11, 2000, the Board of Directors of Lance, Inc. declared a
quarterly cash dividend of $0.16 per share payable on February 15, 2000 to
stockholders of record on February 5, 2000. This dividend represented a
one-third reduction in the quarterly cash dividend rate. The Board of Directors
of Lance, Inc. will consider the amount of future cash dividends on a quarterly
basis.
The Company's long-term debt agreements contain provisions that could
limit the amount of cash dividends paid by Lance, Inc.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of
the Company for the five-year period ended December 25, 1999. The selected
financial data have been derived from, and are qualified by reference to, the
audited financial statements of the Company included elsewhere herein. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements, including the notes thereto.
Amounts are in thousands, except per share data.
1999 1998 1997 1996 1995
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RESULTS OF OPERATIONS:
Net sales and other operating
revenue $531,274 $486,432 $486,854 $477,015 $ 480,810
Loss from restructuring and
impairment -- -- -- -- (35,897)
Operating profit (loss) 41,344 40,075 45,119 36,012 (10,682)
Income (loss) before income taxes 39,865 43,743 48,688 40,780 (10,100)
Income taxes (benefit) 15,104 16,135 18,591 16,188 (3,161)
Net income (loss) 24,761 27,608 30,097 24,592 (6,939)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 29,874 29,925 29,893 30,075 30,400
DILUTED 29,918 30,043 30,018 30,086 30,400
PER SHARE OF COMMON STOCK:
Operating profit (loss) - basic $ 1.38 $ 1.34 $ 1.51 $ 1.20 $ (0.35)
Operating profit (loss) - diluted 1.38 1.33 1.50 1.20 (0.35)
Net income (loss) - basic 0.83 0.92 1.01 0.82 (0.23)
Net income (loss) - diluted 0.83 0.92 1.00 0.82 (0.23)
Cash dividends 0.96 0.96 0.96 0.96 0.96
FINANCIAL STATUS AT YEAR-END:
Total assets $330,662 $251,403 $252,740 $247,205 $ 251,345
Total debt 71,206 -- -- -- --
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an assessment of the Company's
financial condition, results of operations and liquidity and capital resources
and should be read in conjunction with the accompanying financial statements and
notes thereto included elsewhere herein.
OVERVIEW
The Company manufactures, markets and distributes a variety of snack
foods. Product categories include sandwich crackers, cookies, restaurant
crackers and bread basket items, candy, chips, meat snacks, nuts and cake items,
of which approximately 76% are manufactured and approximately 24% are purchased
for resale. Products are distributed through the Company's direct-store-delivery
("DSD") system, through direct shipments by the Company's transportation fleet
and through third party common carriers. Products are packaged as individual,
single servings and as larger packages or multi-pack configurations.
The Company's customer base includes grocery and mass merchants,
convenience and drug stores, food service brokers and institutions, vending
operations and "up and down the street" outlets such as recreational facilities,
offices and independent retailers. The Company's products are sold under the
Company's brand names as well as private label and third-party brands.
The Company has implemented a number of activities to revitalize its
operations and position itself for future growth. These activities include cost
reductions, systems development, organizational improvements, sales/marketing
initiatives and external development.
Significant productivity gains have been realized within the
manufacturing and distribution areas through process and capital improvements.
Raw material costs have also been favorable due to lower commodity costs for
flour and peanuts and through improved relationships with vendors.
In 1998 the Company implemented a new route management information
system for the Company's DSD operations and completed the rollout of new
handheld computers used by the DSD field sales representatives. Continued
improvements have been made to these systems in 1999.
During 1999 the Company improved the DSD organization by implementing
segmented route structures, metro distribution centers and a route alignment
information system. These improvements support the Company's plan of increasing
profitable sales growth.
During 1999 the Company acquired Tamming Foods Ltd. ("Tamming"),
headquartered in Waterloo, Ontario, Canada and Cape Cod Potato Chip Company,
Inc.
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("Cape Cod"), headquartered in Hyannis, Massachusetts. These acquisitions
supported the Company's strategies by increasing product offerings and
broadening distribution.
The Company's sales growth plans are based on improved execution of
sales and marketing activities as well as increased penetration of growing
distribution channels such as mass merchandisers and convenience stores. In
addition, the Company is continuing its intense focus on cost reduction.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998 1999 1998 DIFFERENCE
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Revenues $ 531.3 100.0% $ 486.4 100.0% $ 44.9 9.2%
Cost of sales 246.0 46.3% 222.2 45.7% (23.8) (10.7%)
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Gross margin 285.3 53.7% 264.2 54.3% 21.1 8.0%
Selling, marketing and delivery expenses 214.3 40.3% 199.1 40.9% (15.2) (7.6%)
General and administrative expenses 23.7 4.5% 19.5 4.0% (4.2) (21.5%)
Provisions for employees' retirement plans 4.6 0.9% 5.5 1.1% 0.9 16.4%
Amortization of goodwill and other intangibles 1.4 0.2% -- -- (1.4) N/A
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Total operating expenses 244.0 45.9% 224.1 46.1% (19.9) (8.9%)
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Operating profit 41.3 7.8% 40.1 8.2% 1.2 3.0%
Interest income (expense), net (2.4) (0.5%) 1.9 0.4% (4.3) (226.3%)
Other income, net 1.0 0.2% 1.7 0.3% (0.7) (41.2%)
Income taxes 15.1 2.8% 16.1 3.3% 1.0 6.2%
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Net income $ 24.8 4.7% $ 27.6 5.7% $ (2.8) (10.1%)
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Revenues increased $44.9 million, or 9.2%, due primarily to the
acquisitions of Tamming and Cape Cod in 1999. Revenues in pre-acquisition
business increased 1.6% led by growth in vending revenue as well as sales of
meat products, chips and cake items.
Gross margin as a percent of revenues decreased by 0.6 percentage
points to 53.7% in 1999 due to the lower gross margins of the acquired
businesses. However, gross margin as a percent of revenues in the
pre-acquisition business was 55.6% in 1999 reflecting manufacturing improvements
and lower raw material costs. In the pre-acquisition business, unit labor costs
were reduced through labor-reducing capital expenditures while raw material
utilization improved through better controlled manufacturing processes.
The $15.2 million increase in selling, marketing and delivery expenses
was a result of higher personnel costs, higher depreciation, increased
provisions for bad debts and the addition of the acquired businesses. General
and administrative expenses increased $4.2 million primarily due to increased
temporary personnel costs and the addition of acquired businesses. Amortization
of goodwill and intangibles are the result of the acquisitions of Tamming and
Cape Cod. The provision for employee's retirement plans was $0.9 million lower
due to the profitability-based formula for these contributions.
Net interest expense amounted to $2.4 million in 1999 compared to $1.9
million of net interest income in 1998 due to reductions in cash and marketable
securities and indebtedness incurred to fund capital expenditures and
acquisitions. Other income includes gains and losses on dispositions of fixed
assets and marketable securities. The
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$0.7 million decrease in other income was due to the absence of securities gains
realized in 1998.
The effective income tax rate increased from 36.9% in 1998 to 37.9% in
1999 due to higher effective rates for the acquired businesses.
1998 COMPARED TO 1997 1998 1997 DIFFERENCE
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Revenues $ 486.4 100.0% $ 486.8 100.0% $ (0.4) (0.1%)
Cost of sales 222.2 45.7% 228.6 47.0% 6.4 2.8%
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Gross margin 264.2 54.3% 258.2 53.0% 6.0 2.3%
Selling, marketing and delivery expenses 199.1 40.9% 187.0 38.4% (12.1) (6.5%)
General and administrative expenses 19.5 4.0% 20.6 4.2% 1.1 5.3%
Provisions for employees' retirement plans 5.5 1.1% 5.5 1.1% -- --
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Total operating expenses 224.1 46.1% 213.1 43.8% (11.0) (5.2%)
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Operating profit 40.1 8.2% 45.1 9.3% (5.0) (11.1%)
Other income, net 3.6 0.7% 3.6 0.7% -- --
Income taxes 16.1 3.3% 18.6 3.8% 2.5 13.4%
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Net income $ 27.6 5.7% $ 30.1 6.2% $ (2.5) (8.3%)
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Revenues decreased $0.4 million, or 0.1%, despite a significant
increase in selling and marketing spending aimed at increasing unit volume.
Sales volume increases through grocery and vending accounts were offset by lower
sales volume through "up and down the street", convenience and food service
accounts. During the fourth quarter of 1998, a new breakfast line of pastry and
cake items was introduced, but sales were not material during the period.
Gross margin improved by 1.3 percentage points to 54.3% in 1998
primarily as a result of process improvements and lower raw material costs. Unit
labor costs were reduced through labor-reducing capital expenditures while raw
material utilization improved through better controlled manufacturing processes.
The full year gross margin improvement was hampered late in the third quarter
and during the fourth quarter when equipment start-up inefficiencies occurred,
primarily in private label production. By the end of the fourth quarter, the
equipment was running near targeted levels.
The $12.1 million increase in selling, marketing and delivery costs
included higher trade promotions, increased personnel and depreciation costs
related to vending sales and higher compensation and training costs for DSD
field sales personnel. Additionally, the implementation of two major information
systems caused higher personnel and other costs. Partially offsetting these cost
increases were lower incentive provisions as a result of lower-than-planned
revenue and earnings performance. General and administrative expenses declined
$1.1 million primarily through efficiencies and lower advisory fees.
Other income includes interest and dividend income on cash and
marketable securities and gains/losses on dispositions of assets. Interest and
dividend income declined during 1998 as the Company used cash for its capital
expenditure program. The effective income tax rate was reduced from 38.2% in
1997 to 36.9% in 1998 due to changes in the composition of earnings.
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LIQUIDITY AND CAPITAL RESOURCES
Traditionally, the Company has met its liquidity needs for capital
expenditures, cash dividends and stock repurchases through cash from operations
and investments. The Company has historically maintained relatively high
liquidity and no outstanding debt. During 1999, the Company changed its capital
structure by liquidating marketable securities and incurring indebtedness
available under new credit agreements, primarily to fund the acquisitions of
Tamming and Cape Cod. The Company paid dividends of $0.96 per share in 1999 and
1998.
Cash flow from operations in 1999 totaled $46.0 million. Working
capital (other than cash and marketable securities) increased to $43.9 million
from $36.1 million at the end of 1998. Approximately $3.4 million of the $7.8
million increase occurred as a result of the acquisitions. The remaining working
capital increase is primarily a result of increased inventory levels related to
new product rollouts.
Cash used in investing activities during 1999 totaled $73.5 million.
The costs of the acquisitions of Tamming and Cape Cod totaled $53.6 million.
Capital expenditures totaled $30.5 million, a decrease of $24.1 million from
1998 expenditures. 1999 expenditures included new vending equipment, sales
displays and automated packaging equipment. 1998 expenditures included $16.0
million relating to the implementation of information systems. During 1999, the
Company liquidated its investments in marketable securities providing
approximately $9.1 million of cash to fund property purchases and acquisitions.
Cash provided by financing activities for 1999 totaled $32.8 million.
During 1999, the Company's borrowings under new credit agreements totaled $100.0
million, of which $30.9 million was used to repay the Tamming unsecured term
bridge loan and $4.6 million was used to repay short- and long-term debt assumed
in the acquisition of Cape Cod. The Company continued its cash dividend at $0.96
per share amounting to $28.8 million in 1999. During the first quarter of 1999,
the Company repurchased 100,000 common shares for $1.5 million representing the
entire share repurchases authorized by the Board of Directors on February 16,
1999.
As of December 25, 1999, cash and cash equivalents totaled $13.3
million and total debt outstanding was $71.2 million. Borrowings available under
all credit facilities totaled $25.2 million. The Company has complied with all
financial covenants contained in the financing agreements. Available cash, cash
from operations and available credit under the credit facilities are expected to
be sufficient to meet normal operating requirements for the foreseeable future.
On January 11, 2000 the Board of Directors authorized the repurchase of
up to 1.5 million shares of common stock. In addition, the Board of Directors
declared a $0.16 quarterly dividend, which was a one-third reduction from the
prior quarterly dividend. The Company will use the funds saved from the dividend
reduction and borrowings from existing credit facilities for the stock
repurchase. From January 11, 2000 through February 15, 2000, the Company
repurchased 976,000 shares of its common stock.
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MARKET RISK
The principal market risks to which the Company is exposed that may
adversely impact results of operations and financial position are changes in
certain raw material prices, increased interest rates and fluctuations in
foreign exchange rates. The Company has no market risk sensitive instruments
held for trading purposes.
Raw materials used by the Company are exposed to the impact of changing
commodity prices, particularly the price of wheat used for flour. Accordingly,
the Company enters into commodity futures and option contracts to manage
fluctuations in prices of anticipated purchases of certain raw materials. The
Company's Board-approved policy is to use such commodity derivative financial
instruments only to the extent necessary to manage these exposures. The Company
does not use these financial instruments for trading purposes.
Since the Company uses commodity price-sensitive instruments to hedge a
certain portion of its existing and anticipated transactions, any loss in value
for these instruments generally would be offset by increases in the value for
the hedged transactions. At December 25, 1999, the Company had no open position
on futures contracts.
The Company's long-term debt obligations incur interest at floating
rates, based on changes in U.S. Dollar LIBOR and Canadian Dollar LIBOR.
Therefore, the Company has an exposure to changes in these interest rates. On
July 22, 1999, the Board of Directors authorized interest rate exchange
agreements to more effectively manage the effects of changing interest rates.
However, no such agreements have been entered into. At December 25, 1999, the
Company's long term debt totaled $71.2 million, with interest rates ranging from
6.05% to 8.50%, with a weighted average interest rate of 6.56%. A 10% increase
in U.S. LIBOR and Canadian LIBOR would have increased interest expense for the
1999 year by $ 0.3 million.
Through the operations of Tamming, the Company has an exposure to
foreign exchange rate fluctuations, primarily between U.S. and Canadian dollars.
Foreign exchange rate fluctuations have limited impact on the earnings of the
Company as a majority of the sales of Tamming are denominated in U.S. dollars.
The indebtedness used to finance the acquisition of Tamming is denominated in
Canadian dollars and serves as an effective hedge of the net asset investment in
Tamming. A 10% devaluation of the Canadian dollar would result in an immaterial
change in the Company's net asset investment in Tamming.
Inflation and changing prices have not had a material impact on the
Company's net sales and income for the last three fiscal years.
YEAR 2000
The Company incurred no material adverse effect related to Year 2000
issues.
14
15
FORWARD-LOOKING STATEMENTS
This discussion contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those forward-looking statements. Factors that may
cause actual results to differ materially include price competition, industry
consolidation, raw material costs and effectiveness of sales and marketing
activities, as described in the Company's filings with the Securities and
Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The principal market risks to which the Company is exposed that may
adversely impact results of operations and financial position are changes in
certain raw material prices, increased interest rates and fluctuations in
foreign exchange rates. The Company has no market risk sensitive instruments
held for trading purposes.
Raw materials used by the Company are exposed to the impact of changing
commodity prices, particularly the price of wheat used for flour. Accordingly,
the Company enters into commodity futures and option contracts to manage
fluctuations in prices of anticipated purchases of certain raw materials. The
Company's Board-approved policy is to use such commodity derivative financial
instruments only to the extent necessary to manage these exposures. The Company
does not use these financial instruments for trading purposes.
Since the Company uses commodity price-sensitive instruments to hedge a
certain portion of its existing and anticipated transactions, any loss in value
for these instruments generally would be offset by increases in the value for
the hedged transactions. At December 25, 1999, the Company had no open position
on futures contracts.
The Company's long-term debt obligations incur interest at floating
rates, based on changes in U.S. Dollar LIBOR and Canadian Dollar LIBOR.
Therefore, the Company has an exposure to changes in these interest rates. On
July 22, 1999, the Board of Directors authorized interest rate exchange
agreements to more effectively manage the effects of changing interest rates.
However, no such agreements have been entered into. At December 25, 1999, the
Company's long term debt totaled $71.2 million, with interest rates ranging from
6.05% to 8.50%, with a weighted average interest rate of 6.56%. A 10% increase
in U.S. LIBOR and Canadian LIBOR would have increased interest expense for the
1999 year by $ 0.3 million.
Through the operations of Tamming, the Company has an exposure to
foreign exchange rate fluctuations, primarily between U.S. and Canadian dollars.
Foreign exchange rate fluctuations have limited impact on the earnings of the
Company as a majority of the sales of Tamming are denominated in U.S. dollars.
The indebtedness used to finance the acquisition of Tamming is denominated in
Canadian dollars and serves as an effective hedge of the net asset investment in
Tamming. A 10% devaluation of the Canadian dollar would result in an immaterial
change in the Company's net asset investment in Tamming.
15
16
Inflation and changing prices have not had a material impact on the
Company's net sales and income for the last three fiscal years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 25, 1999, December 26, 1998 and December 27,
1997 (In thousands, except share and per share data)
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUE $531,274 $486,432 $486,854
- --------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES
Cost of sales 246,017 222,228 228,583
Selling, marketing and delivery 214,257 199,134 187,047
General and administrative 23,726 19,482 20,649
Provisions for employees' retirement plans 4,575 5,513 5,456
Amortization of goodwill and other intangibles 1,355 - -
- --------------------------------------------------------------------------------------------------------
Total costs and expenses 489,930 446,357 441,735
- --------------------------------------------------------------------------------------------------------
OPERATING PROFIT 41,344 40,075 45,119
Interest income (expense), net (2,417) 1,906 2,581
Other income, net 938 1,762 988
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 39,865 43,743 48,688
Income taxes 15,104 16,135 18,591
- --------------------------------------------------------------------------------------------------------
NET INCOME $24,761 $27,608 $30,097
========================================================================================================
EARNINGS PER SHARE
Basic $0.83 $0.92 $1.01
Diluted $0.83 $0.92 $1.00
- --------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 29,874,000 29,925,000 29,893,000
Weighted average shares outstanding - diluted 29,918,000 30,043,000 30,018,000
- --------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
16
17
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 25, 1999 and December 26, 1998
(In thousands, except share data)
ASSETS 1999 1998
- ------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 13,303 $ 7,856
Marketable securities - 9,126
Accounts receivable (less allowance for doubtful
accounts of $2,524 and $1,275, respectively) 49,106 39,616
Inventories 26,244 20,331
Prepaid income taxes 888 2,800
Deferred income tax benefit 4,487 5,808
Prepaid expenses and other 3,010 1,943
- ------------------------------------------------------------------------------------------------------
Total current assets 97,038 87,480
Property, plant and equipment, net 183,782 161,683
Goodwill, net 35,451 -
Other intangible assets, net 11,064 -
Other assets 3,327 2,240
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $330,662 $251,403
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 354 $ -
Accounts payable 15,597 9,231
Accrued compensation 10,845 10,969
Accrued profit-sharing retirement plan 4,564 4,916
Accrual for insurance claims 4,366 4,173
Other payables and accrued liabilities 4,154 5,102
- -----------------------------------------------------------------------------------------------------
Total current liabilities 39,880 34,391
- ------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Long-term debt 70,852 -
Deferred income taxes 21,167 12,122
Accrued postretirement health care costs 11,410 12,350
Accrual for insurance claims 3,808 3,529
Supplemental retirement benefits 2,755 2,927
Commitments and contingent liabilities - -
- -----------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 109,992 30,928
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, 29,950,897 and 29,989,210
shares outstanding at December 25, 24,959 24,991
1999 and December 26, 1998
Preferred stock, 0 shares outstanding at December 25,
1999 and December 26, 1998 - -
Additional paid in capital 2,552 1,981
Unamortized portion of restricted stock awards (799) (502)
Retained earnings 154,063 159,524
Accumulated other comprehensive income 15 90
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 180,790 186,084
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $330,662 $251,403
- ------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
17
18
Consolidated Statements of Stockholders' Equity and Comprehensive Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 25, 1999, December 26, 1998 and December 27,
1997 (In thousands, except share data)
Unamortized
Portion of Accumulated
Additional Restricted Other
Common Paid-in Stock Retained Comprehensive
Shares Stock Capital Awards Earnings Income Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 29,888,265 $ 24,907 $ -- $ -- $ 159,700 $ 255 $ 184,862
Comprehensive income:
Net income -- -- -- -- 30,097 -- 30,097
Net change in unrealized
gains on marketable
securities, net
of tax effect of $90 -- -- -- -- -- 138 138
---------
Total comprehensive income -- -- -- -- -- -- 30,235
---------
Cash dividends paid to
stockholders -- -- -- -- (28,699) -- (28,699)
Stock options exercised 29,822 25 328 -- -- -- 353
Issuance of restricted stock 30,200 25 671 (488) -- -- 208
Purchases of common stock (25,000) (21) -- -- (416) -- (437)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 27, 1997 29,923,287 24,936 999 (488) 160,682 393 186,522
Comprehensive income:
Net income -- -- -- -- 27,608 -- 27,608
Net change in unrealized
gains on marketable
securities, net
of tax effect of ($198) -- -- -- -- -- (303) (303)
---------
Total comprehensive income -- -- -- -- -- -- 27,305
---------
Cash dividends paid to
stockholders -- -- -- -- (28,766) -- (28,766)
Stock options exercised 60,901 50 1,039 -- -- -- 1,089
Issuance of restricted stock,
net of cancellations 17,401 15 230 (14) -- -- 231
Purchases of common stock (12,379) (10) (287) -- -- -- (297)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 26, 1998 29,989,210 24,991 1,981 (502) 159,524 90 186,084
Comprehensive income:
Net income -- -- -- -- 24,761 -- 24,761
Net change in unrealized
gains on marketable
securities, net
of tax effect of ($45) -- -- -- -- -- (90) (90)
Foreign currency translation
adjustment, net of tax
effect of $8 -- -- -- -- -- 15 15
---------
Total comprehensive income -- -- -- -- -- -- 24,686
---------
Cash dividends paid to
stockholders -- -- -- -- (28,808) -- (28,808)
Stock options exercised 3,487 3 57 -- -- -- 60
Issuance of restricted stock,
net of cancellations 58,200 49 514 (297) -- -- 266
Purchases of common stock (100,000) (84) -- -- (1,414) -- (1,498)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 25, 1999 29,950,897 $ 24,959 $ 2,552 $(799) $ 154,063 $ 15 180,790
================================================================================================================================
See Notes to Consolidated Financial Statements.
18
19
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 25, 1999, December 26, 1998 and December 27,
1997 (In thousands)
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 24,761 $ 27,608 $ 30,097
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 27,435 21,726 20,025
Gain on sale of property, net (902) (823) (976)
Deferred income taxes 3,518 3,222 3,638
Other, net 266 260 208
Changes in operating assets and liabilities:
Accounts receivable (1,818) (5,559) (2,007)
Inventory (3,698) (2,449) 4,615
Prepaid expenses and other current assets (903) (668) 533
Accounts payable 1,458 3,410 (1,229)
Accrued income taxes 1,623 (3,872) 930
Other payables and accrued liabilities (5,697) (5,023) 293
- -------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 46,043 37,832 56,127
- -------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (30,537) (54,659) (34,129)
Proceeds from sale of property 1,570 2,337 11,009
Acquisition of businesses, net of cash acquired (53,570) -- --
Purchases of marketable securities (556) (1,853) (16,103)
Maturities of marketable securities 1,886 6,201 12,125
Sales of marketable securities 7,643 11,917 4,050
Other, net 63 38 (20)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (73,501) (36,019) (23,068)
- -------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid (28,808) (28,766) (28,699)
Issuance (purchase) of common stock, net (1,438) 792 (84)
Proceeds from debt issued, net of acquisition costs 64,519 -- --
Repayments of debt (36,969) -- --
Borrowings under revolving credit facilities, net 35,500 -- --
Other, net -- (23) --
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 32,804 (27,997) (28,783)
- -------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 101 -- --
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,447 (26,184) 4,276
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 7,856 34,040 29,764
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 13,303 $ 7,856 $ 34,040
=======================================================================================================
SUPPLEMENTAL INFORMATION
Cash paid for income taxes, net of refunds of $ 9,666 $ 16,497 $ 14,050
$38 and $0, respectively
Cash paid for interest $ 2,211 $ -- $ --
See Notes to Consolidated Financial Statements.
19
20
Note to Consolidated Financial Statements
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 25, 1999 and December 26, 1998
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Lance, Inc. and subsidiaries (the Company) manufactures, markets and
distributes a variety of snack food products. The Company's customer base
includes grocery and mass merchants, convenience stores, food service,
vending and "up and down the street customers." Products are distributed
through the Company's direct-store-delivery system, direct shipments via
the Company's transportation fleet and/or through third party common
carriers. The Company currently distributes products throughout most of
the United States and parts of Canada and Europe. The Company's policy is
to recognize a sale at the time the product is delivered to the customer.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Lance, Inc. and its subsidiaries. All material intercompany items have
been eliminated. Certain prior year amounts shown in the accompanying
consolidated financial statements have been reclassified for consistent
presentation.
USE OF ESTIMATES
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Examples include provisions for bad debts and the
useful lives of buildings and equipment. Actual results may differ from
these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, marketable
securities, accounts payable, and short- and long-term debt approximate
fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows", cash flows from the Company's operations in
Canada are calculated based on their reporting currency, the Canadian
Dollar. As a result, amounts related to assets and liabilities reported
in the statement of cash flows will not necessarily agree to changes in
the corresponding balances
20
21
on the balance sheet. The effect of exchange rate changes on cash
balances held in the Canadian Dollar is reported below cash flows from
financing activities.
MARKETABLE SECURITIES
During 1999, the Company liquidated its marketable securities. Marketable
securities at December 26, 1998 were principally instruments of the U.S.
government and its agencies, of state governments, and of municipalities.
Debt and marketable equity securities are classified in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those securities
which the Company has the ability and intent to hold until maturity. All
other securities not included in trading or held-to-maturity are
classified as available-for-sale. All of the Company's marketable
securities were classified as available-for-sale at December 26, 1998.
Available-for-sale securities are recorded at market value. Unrealized
holding gains and losses, net of the related income tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity until realized. Dividend
and interest income are recognized when earned. Realized gains and losses
for securities classified as available-for-sale are included in earnings
and are derived using the specific identification method for determining
the cost of securities sold.
INVENTORIES AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary raw materials include peanuts, peanut butter, flour
and other similar grain products. Supplies principally consist of
packaging materials, including overwrap film and boxes.
Inventories are valued at the lower of cost or market; 72% of the cost of
the inventories in 1999 and 80% in 1998 was determined using the last-in,
first-out (LIFO) method and the remainder was determined using the
first-in, first-out (FIFO) method.
The Company enters into various forward purchase agreements and
derivative financial instruments to reduce the impact of volatility in
raw material ingredient prices. The Company has only limited involvement
with derivative financial instruments and does not use them for trading
purposes. These transactions meet the requirements for hedge accounting,
including designation to specific inventory amounts and probable future
purchases, and high correlation. Amounts payable or receivable under the
agreements are recognized as deferred gains or losses and included in
other assets or liabilities. These deferred amounts are charged or
credited to cost of sales as the related raw materials are charged to
operations.
21
22
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method over the
estimated useful lives of depreciable property ranging from 3 to 45
years. Property is recorded at cost less accumulated depreciation with
the exception of assets held for disposal which are recorded at their
estimated fair value. Upon retirement or disposal of any item of
property, the cost is removed from the property account and the
accumulated depreciation applicable to such item is removed from
accumulated depreciation. Major renewals and betterments are capitalized,
maintenance and repairs are expensed as incurred, and gains and losses on
dispositions are reflected in income. Assets under capital leases are
amortized over the estimated useful life of the related property.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost to sell.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase prices over the fair value
of net assets acquired. Other intangibles include trademarks and
covenants not-to-compete. Goodwill and trademarks are being amortized on
a straight-line basis over 40 years. The covenants not-to-compete are
being amortized on a straight-line basis over the contract life.
Amortization expense and accumulated amortization was $1,355,000 in 1999.
The Company evaluates the recoverability of goodwill and other intangible
assets by measuring the carrying amounts of the assets against the
estimated undiscounted future cash flows associated with them.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to the taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment date.
INSURANCE CLAIMS
The Company maintains a self-insurance program covering portions of
workers' compensation, automobile and general liability costs.
Self-insured accruals are
22
23
based on claims filed and an estimate for significant claims incurred but
not reported and are covered by standby letters of credit with the
Company's claims administrators. Claims in excess of the self-insured
levels are fully insured.
POST RETIREMENT PLANS
The Company has a defined benefit health care plan for substantially all
retirees and employees. The net periodic costs are recognized as
employees perform the services necessary to earn the postretirement
benefits.
The Company also provides supplemental retirement benefits to certain
officers. Provision for these benefits, made over the period of
employment of such officers, was $300,000 in 1999, $149,000 in 1998 and
$246,000 in 1997.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of Tamming Foods Ltd., a Canadian subsidiary,
are translated into U.S. dollars using current exchange rates and income
statement items are translated using the average exchange rates during
the period. The translation adjustment is included as a component of
stockholders' equity. Gains and losses on foreign currency transactions
are included in income. The net loss on foreign currency transactions
during 1999 was $74,000.
STOCK OPTION PLANS
On December 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by
the weighted average number of common shares outstanding during the
period.
Diluted earnings per share is calculated by including all dilutive common
shares such as stock options. Dilutive potential shares were 44,000 in
1999, 118,000 in 1998 and 125,000 in 1997. Anti-dilutive shares totaling
1,573,000 in 1999, 106,000 in 1998 and 46,000 in 1997 were excluded from
the dilutive earnings calculation. No adjustment to reported net income
is required when computing diluted earnings per share.
23
24
ADVERTISING AND CONSUMER PROMOTION COSTS
The Company records the costs of all advertising and consumer promotion
in the periods in which the advertising or promotion takes place. These
costs amounted to $8,984,000, $9,890,000 and $12,630,000 for the fiscal
years 1999, 1998 and 1997, respectively.
NEW ACCOUNTING STANDARDS
Derivative Instruments and Hedging - SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, will be effective for the
Company's 2001 fiscal year. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or a liability measured
at its fair value. It also requires changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met, and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. Given the Company's limited involvement with
derivative instruments, management does not expect the adoption of this
statement to have a material impact on the financial statements taken as
a whole.
(2) ACQUISITIONS
Effective April 2, 1999, the Company acquired Tamming Foods Ltd.
("Tamming"), headquartered in Waterloo, Ontario, Canada. Tamming
manufactures high quality sugar wafer products that are sold under
private label in the United States, Canada and Mexico.
Effective May 24, 1999, the Company acquired Cape Cod Potato Chip
Company, Inc. ("Cape Cod") headquartered in Hyannis, Massachusetts. Cape
Cod manufactures premium, kettle-cooked potato chips and other salty
snacks, which are distributed throughout the United States, Canada, Spain
and England under the Cape Cod brand.
The acquisitions described above were accounted for using the purchase
method of accounting for business combinations. The aggregate purchase
price of the acquisitions was $53.6 million, which includes the costs of
acquisition. The terms of the Tamming acquisition also provide for
additional consideration to be paid if Tamming's earnings exceed certain
targeted levels through the year 2002. The maximum amount of remaining
contingent consideration is Canadian dollars ("Cdn") $15.6 million ($10.8
million at December 25, 1999). The additional consideration is payable in
cash in 2004 and will result in additional goodwill if earned. The
Company has not recorded this liability as of December 25, 1999 as the
outcome of the contingency is not determinable beyond a reasonable doubt.
24
25
The total cost of the acquisitions was allocated to the net assets
acquired as follows (in thousands):
Current assets $ 9,799
Fixed assets 18,333
Goodwill and other intangibles 46,818
------------------------------------------------------------
Total assets 74,950
------------------------------------------------------------
Current liabilities 10,739
Long-term debt 3,580
Other liabilities 7,061
------------------------------------------------------------
Total liabilities 21,380
------------------------------------------------------------
Total cost of the acquisitions $ 53,570
------------------------------------------------------------
The accompanying consolidated financial statements include the operating
results of these entities since their respective effective dates. If the
acquisitions of Tamming and Cape Cod had occurred at the beginning of
1998, unaudited proforma consolidated sales, net income and net earnings
per share for 1999 and 1998 would have been as follows (in thousands):
1999 1998
------------------------------------------------------------------------
Net sales and other operating revenue $543,465 $534,772
Net income 24,206 27,472
Basic earnings per share $0.81 $0.92
Diluted earnings per share $0.81 $0.91
------------------------------------------------------------------------
(3) MARKETABLE SECURITIES
During 1999, the Company liquidated its marketable securities. At
December 26, 1998, the Company classified all investments as
available-for-sale. The amortized cost, gross unrealized holding gains,
gross unrealized holding losses and fair value of the available-for-sale
securities by major security type at December 26, 1998 were as follows
(in thousands):
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
-------------------------------------------------------------------------
At December 26, 1998:
Municipal obligations $ 8,999 $ 127 $ - $ 9,126
-------------------------------------------------------------------------
Total $ 8,999 $ 127 $ - $ 9,126
-------------------------------------------------------------------------
25
26
(4) INVENTORIES
Inventories at December 25, 1999 and December 26, 1998 consisted of the
following (in thousands):
1999 1998
-------------------------------------------------------------------------------
Finished goods $ 20,415 $ 16,627
Raw materials 3,962 3,653
Supplies, etc. 6,391 4,437
-------------------------------------------------------------------------------
Total inventories at FIFO cost 30,768 24,717
Less: adjustment to reduce FIFO cost to LIFO cost (4,524) (4,386)
-------------------------------------------------------------------------------
Total inventories $ 26,244 $ 20,331
-------------------------------------------------------------------------------
At December 26, 1998 the Company owned futures contracts to purchase
425,000 bushels of wheat totaling $1,275,000. No contracts were
outstanding at December 25, 1999. The contracts served to hedge the costs
of flour due to a high correlation of price movements. The underlying
quantity of flour represented by the contracts did not represent a
significant quantity of the Company's annual flour usage and were
realized within one year at no significant gain or loss to the Company.
(5) PROPERTY, PLANT AND EQUIPMENT
Property at December 25, 1999 and December 26, 1998 consisted of the
following (in thousands):
1999 1998
------------------------------------------------------------------------
Land and land improvements $12,462 $ 11,414
Buildings 68,865 64,339
Machinery, equipment and systems 170,787 132,086
Vending machines 96,016 90,746
Trucks and automobiles 32,419 30,794
Furniture and fixtures 3,859 3,620
Assets held for disposal 1,125 1,520
Construction in progress 12,949 22,864
------------------------------------------------------------------------
398,482 357,383
Accumulated depreciation and amortization (214,700) (195,700)
------------------------------------------------------------------------
Property, plant and equipment, net $183,782 $ 161,683
------------------------------------------------------------------------
During 1996, the Company concluded a restructuring of its operations.
Certain buildings and equipment were considered impaired and were written
down to their net realizable value. These assets are classified as assets
held for disposal. During 1998 and 1997, the Company sold impaired assets
which resulted in
26
27
gains of approximately $303,000 and $868,000, respectively. There was no
gain or loss realized in 1999.
(6) LONG TERM DEBT
In connection with the Tamming and Cape Cod acquisitions, the Company
incurred indebtedness during 1999. Long-term debt at December 25, 1999
consists of the following (in thousands):
------------------------------------------------------------------------
Unsecured revolving credit facility $ 35,500
Cdn $50 million unsecured term loan facility 34,485
Capital lease obligation 1,221
------------------------------------------------------------------------
71,206
Less: current portion of capital lease obligation (354)
------------------------------------------------------------------------
Total long-term debt $ 70,852
------------------------------------------------------------------------
The Company has entered into an unsecured revolving credit agreement that
gives the Company the ability to borrow up to $60 million through April
2004. Interest is payable monthly at a rate based on the U.S. Dollar
LIBOR plus a margin of 0.35% to 0.75%. The applicable margin, which was
0.55% at December 25, 1999, is determined by certain financial ratios.
The weighted average interest rate at December 25, 1999 was 7.02%. The
agreement also requires the Company to pay a facility fee on the entire
$60 million revolver ranging from 0.15% to 0.25% based on financial
ratios.
The Company has a Cdn $50 million unsecured term loan that is due August
2005. Interest is payable semi-annually at Cdn LIBOR plus a margin
ranging from 0.75% to 1.125%. The interest rate at December 25, 1999 was
6.05%.
One of the Company's subsidiaries' leases certain machinery and equipment
under a long-term lease agreement. The lease terminates in November 2003
with the option to purchase the equipment. The assets under capital lease
have been classified with machinery and equipment in property, plant, and
equipment, amounting to $2,982,000 at December 25, 1999. Accumulated
amortization of these assets was $148,000 at December 25, 1999. The
assets are amortized over the life of the equipment and amortization
expense is included in depreciation expense.
The carrying value of all long-term debt approximates fair value. At
December 25, 1999 and December 26, 1998, the Company had available
approximately $25,190,000 and $5,000,000, respectively, of unused credit
facilities.
Both debt agreements require the company to comply with certain
covenants, such as a debt to EBITDA ratio and an interest coverage ratio.
The Company was in compliance with these covenants at December 25, 1999.
Interest expense for 1999 was $2,616,000.
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The aggregate maturities of long-term debt, including future minimum
lease payments, at December 25, 1999 are as follows (in thousands):
2000 $ 354
2001 464
2002 387
2003 16
2004 35,500
Thereafter 34,485
----------------------------------
Total debt $ 71,206
----------------------------------
(7) INCOME TAXES
Income tax expense consists of the following (in thousands):
1999 1998 1997
----------------------------------------------------------------------
Current:
Federal $ 11,993 $ 11,076 $ 12,433
State and local 1,254 1,545 2,611
----------------------------------------------------------------------
13,247 12,621 15,044
----------------------------------------------------------------------
Deferred:
Federal 1,590 3,348 3,310
State and local 267 166 237
----------------------------------------------------------------------
1,857 3,514 3,547
----------------------------------------------------------------------
Total income tax expense $ 15,104 $ 16,135 $ 18,591
----------------------------------------------------------------------
A reconciliation of the federal income tax rate to the Company's
effective income tax rate follows:
1999 1998 1997
-------------------------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefit 2.2 2.5 3.7
Tax exempt interest 0.0 (1.2) (0.9)
Miscellaneous items, net 0.7 0.6 0.4
-------------------------------------------------------------------------
Income tax expense 37.9% 36.9% 38.2%
-------------------------------------------------------------------------
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29
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 25, 1999 and December 26, 1998 are presented below (in
thousands):
1999 1998
---------------------------------------------------------------------------------------
Deferred tax assets
Reserves for employee compensation and benefits,
deductible when paid for income tax purposes,
accrued for financial reporting purposes $ 10,067 $ 10,339
Other reserves deductible when paid for income
tax purposes, accrued for financial reporting
purposes 1,899 1,828
Inventories, principally due to additional costs
capitalized for income tax purposes 1,623 1,599
Net state operating loss carryforwards (expiring
after 2006) 590 670
---------------------------------------------------------------------------------------
Total gross deferred tax assets 14,179 14,436
Less valuation allowance (590) (670)
----------------------------------------------------------------------------------------
Net deferred tax assets 13,589 13,766
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation, net of impairment reserves (25,246) (18,664)
Deferred income (1,799) (1,383)
Trademark amortization (3,192) -
Other (32) (33)
----------------------------------------------------------------------------------------
Total gross deferred tax liabilities (30,269) (20,080)
----------------------------------------------------------------------------------------
Total net deferred tax liabilities $ (16,680) $ (6,314)
----------------------------------------------------------------------------------------
The valuation allowance as of December 26, 1998 and December 27, 1997 was
$670,000. The net change in the valuation allowance during 1999 was a
decrease of $80,000. Based on the Company's historical and current
earnings, management believes it is more likely than not that the Company
will realize the benefit of the remaining deferred tax assets that are
not covered by the valuation allowance.
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement medical benefits for retirees and
their spouses to age 65. Retirees pay contributions toward medical
coverage based on the medical plan and coverage they select. The plan was
amended effective January 1, 1999 to change eligibility requirements to
cover employees who retire on or after age 60 and completing 10 or more
years of service after attaining age 50. The effect of this change on the
benefit obligation at the beginning of the year was
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$2,739,000. The Company's postretirement health care plan is currently
not funded.
The following table sets forth the plan's benefit obligations, funded
status, and net periodic benefit costs for the three years ended December
25, 1999 (in thousands):
1999 1998 1997
---------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 7,322 $ 9,901 $ 11,161
Service cost 588 844 865
Interest cost 294 647 785
Plan participants' contributions 350 329 202
Prior service credit (2,739) -- --
Actuarial (gain)/loss 380 (3,773) (2,398)
Benefits paid (912) (626) (714)
---------------------------------------------------------------------------------------------------
Benefit obligation at end of year 5,283 7,322 9,901
---------------------------------------------------------------------------------------------------
Funded status (5,283) (7,322) (9,901)
Unrecognized net actuarial (gain)/loss (3,980) (5,114) (1,374)
Unrecognized prior service cost (2,147) 86 95
---------------------------------------------------------------------------------------------------
Accrued benefit cost $(11,410) $(12,350) $(11,180)
---------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 588 $ 844 $ 865
Interest cost 294 647 785
Recognition of prior service costs (505) 8 8
Recognized net gain (755) (31) --
---------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (378) $ 1,468 $ 1,658
---------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE DISCOUNT RATES USED IN
DETERMINING ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION:
Beginning of year 6.75% 6.75% 7.25%
---------------------------------------------------------------------------------------------------
End of year 7.75% 6.75% 6.75%
---------------------------------------------------------------------------------------------------
For measurement purposes, a 10.0% and 8.0% annual rate of increase in the
per capita cost of covered health care benefits for the indemnity plans
and HMO plans, respectively, was assumed for 1999. Both rates were
assumed to decrease gradually to 5.25% at 2013 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 25, 1999 by
$222,000, and the aggregate of the service and interest cost components
of postretirement expense for the year then ended by $50,000. Decreasing
the assumed health care cost trend rate by one percentage point in each
year would decrease the accumulated postretirement benefit obligation as
of December 25, 1999 by $211,000, and the aggregate of the service and
interest cost components of postretirement expense for the year then
ended by $49,000.
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31
(9) EMPLOYEE BENEFIT PLANS AND NON EMPLOYEE
STOCK OPTION PLANS
EMPLOYEE PROFIT-SHARING RETIREMENT PLAN
The Company has a retirement plan covering substantially all of its
employees. The plan is a defined contribution retirement plan providing
for contributions equal to 10% of net income before income taxes. Plan
funding is made in accordance with the provisions of the plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which shares of
common stock are purchased on the open market with employee and Company
contributions. The plan provides for the Company to contribute an amount
equal to 10% of the employees' contributions. A total of 800,000 shares
of common stock has been registered under the Securities Act of 1933 for
purchase under the plan. Company contributions amounted to $78,000 in
1999, $93,000 in 1998 and $101,000 in 1997.
EMPLOYEE STOCK OPTION PLANS
The Company has stock option plans under which 1,900,000 shares of common
stock may be issued to key employees of the Company, as defined in the
plans. The plans authorize the grant of incentive stock options,
non-qualified stock options and stock appreciation rights. The plans
require, among other things, that before the stock options and stock
appreciation rights may be exercised, such key employees must remain in
continuous employment of the Company not less than six months from the
date of grant.
Exercised stock options are accounted for through the issuance of
previously retired stock. Granted options generally become exercisable in
three or four installments from six to forty-eight months after date of
grant. The option price, which equals the fair market value of the
Company's common stock at the date of grant, ranges from $14.50 to $24.13
per share. The weighted average remaining contractual life at December
25, 1999 was 8.2 years.
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32
Number of Weighted
Shares Average Exercise Shares
Outstanding Price Exercisable
----------------------------------------------------------------------------------------------------
Balance at December 28, 1996 533,806 $ 18.82 397,586
Granted 299,400 18.38
Exercised, including stock
appreciation rights (53,252) 17.91
Expired (135,800) 18.84
----------------------------------------------------------------------------------------------------
Balance at December 27, 1997 644,154 18.31 308,994
Granted 336,100 20.90
Exercised, including stock
appreciation rights (62,401) 18.07
Expired (88,495) 19.24
----------------------------------------------------------------------------------------------------
Balance at December 26, 1998 829,358 19.32 238,099
Granted 802,100 16.15
Exercised, including stock
appreciation rights (2,587) 17.46
Expired (168,275) 18.41
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 25, 1999 1,460,596 $17.67 190,819
----------------------------------------------------------------------------------------------------
NON-EMPLOYEE STOCK OPTION PLAN
In 1995, the Company adopted a Nonqualified Stock Option Plan for
Non-Employee Directors (the Director Plan). The Company has 300,000
shares of common stock which may be issued to non-employee directors
under this plan. The Director Plan requires among other things that the
options are not exercisable unless the optionee remains available to
serve as a director of the Company until the first anniversary of the
date of grant, except that the initial option shall be exercisable after
six months. Options granted under the Director Plan shall expire ten
years from the date of grant. There were 44,000 and 42,500 options
granted during 1999 and 1998, respectively. The option price, which
equals the fair market value of the Company's stock at the date of grant,
was $13.88 and $21.63 for options granted in 1999 and in 1998,
respectively. The weighted average remaining contractual life at December
25, 1999 was 7.8 years.
32
33
FAIR VALUE OF STOCK OPTIONS
There were 303,319 options exercisable under all stock option plans at
December 25, 1999. The Company applies APB Opinion No. 25 in accounting
for its plans and, accordingly, no compensation cost has been recognized
for its stock options in the financial statements. The table below
presents the assumptions and pro-forma net income effect of the options
using the Black-Scholes option pricing model prescribed under SFAS No.
123.
1999 1998 1997
---------------------------------------------------------------------------
Expected dividend yield 6.05% 3.92% 5.22%
Risk-free interest rate 5.35% 5.77% 7.01%
Weighted average expected life 10 YEARS 10 years 10 years
Expected volatility 30.30% 26.00% 18.60%
Fair value per share of options granted $2.86 $6.13 $3.10
Pro-forma net income (in thousands) $23,897 $26,430 $29,591
Pro-forma earnings per share - diluted $0.80 $0.88 $0.99
---------------------------------------------------------------------------
RESTRICTED STOCK AWARDS
During 1999 and 1998, the Company awarded 65,300 and 24,450 shares of
common stock to certain employees under one of its incentive programs,
subject to certain vesting and performance restrictions. Compensation
costs associated with these restricted shares are deferred until earned,
at which time the earned portion is charged against current earnings. The
deferred portion of these restricted shares is included in the
accompanying balance sheet as unamortized portion of restricted stock
awards.
(10) OTHER COMMITMENTS AND CONTINGENCIES
The Company has entered into contractual agreements providing severance
benefits to certain key employees in the event of a potential change of
Company ownership. Commitments under these agreements totaled $8,940,000
at December 25, 1999.
The Company and its subsidiaries lease certain facilities and equipment
under contracts classified as operating leases. Commitments under leases
with terms extending beyond one year are not material. Rental expense was
$5,424,000 in 1999, $4,599,000 in 1998 and $4,707,000 in 1997.
The Company also maintains standby letters of credit in connection with
its self insurance reserves for casualty claims.
The Company and its subsidiaries have sundry claims and other lawsuits
pending against them and also have certain guarantees that were made in
the ordinary course of business. It is not possible to determine with any
certainty the ultimate liability, if any, of the Company in any of these
matters, but in the
33
34
opinion of management, their outcome should have no material adverse
effect upon the Company's consolidated financial statements taken as a
whole.
(11) STOCKHOLDERS' EQUITY
CAPITAL STOCK
The Company's Restated Charter, as amended, authorizes 75,000,000 shares
of common stock with a par value of $0.83 1/3 and 5,000,000 shares of
preferred stock, par value of $1.00 per share, to be issued in such
series and with such preferences, limitations and relative rights as the
Board of Directors may determine from time to time. Common shares
outstanding were 29,950,897 at December 25, 1999 and 29,989,210 at
December 26, 1998. There were no preferred shares outstanding.
STOCKHOLDER RIGHTS PLAN
On July 14, 1998, the Company's Board of Directors adopted a Preferred
Shares Rights Agreement ("Rights Agreement"), designed to protect all of
Lance's stockholders and insure that they receive fair and equal
treatment in the event of an attempted takeover of the Company or certain
takeover tactics. Pursuant to the Rights Agreement, each common
stockholder received a dividend distribution of one Right for each share
of Common Stock held.
If any person or group acquires beneficial ownership of 20 percent or
more of the Company's outstanding Common Stock, or commences a tender or
exchange offer that results in that person or group acquiring such level
of beneficial ownership, each Right (other than the Rights owned by such
person or group, which become void) entitles its holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock
for an exercise price of $100.
Each Right, under certain circumstances, entitles the holder to purchase
the number of shares of the Company's Common Stock which have an
aggregate market value equal to twice the exercise price of $100. Under
certain circumstances, the Board of Directors may exchange each
outstanding Right for either one share of the Company's Common Stock or
one one-hundredth of a share of Junior Participating Preferred Stock.
In addition, if a person or group acquires beneficial ownership of 20
percent or more of the Company's Common Stock and the Company either
merges into another entity, another entity merges into the Company, or
the Company sells 50 percent or more of its assets or earning power to
another entity, each Right (other than those owned by acquiror, which
become void) entitles its holder to purchase, for the exercise price of
$100, the number of shares of the Company's Common Stock (or share of the
class of stock of the surviving entity which has the greatest voting
power) which has a value equal to twice the exercise price.
If any such person or group acquires beneficial ownership of between 20
and 50 percent of the Company's Common Stock, the Board of Directors may,
at its
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35
option, exchange for each outstanding and not voided Right either one
share of Common Stock or one one-hundredth of a share of Series A Junior
Participating Preferred Stock.
The Board of Directors may redeem the Rights at a price of $0.01 per
Right at any time prior to a specified period of time after a person or
group has become the beneficial owner of 20 percent or more of its Common
Stock. The Rights will expire on July 14, 2008 unless redeemed earlier.
OTHER COMPREHENSIVE INCOME
The related tax effects allocated to other comprehensive income for the
fiscal year ended December 25, 1999 are as follows (in thousands):
Net-of-
Before Tax Tax (expense) Tax
Amount Benefit Amount
---------------------------------------------------------------------------------
Unrealized gains on securities:
Unrealized holding gains arising
during period $ - $ - $ -
Less: reclassification adjustment
for gains included in net income (135) 45 (90)
--------------------------------------------------------------------------------
Change in unrealized losses (135) 45 (90)
--------------------------------------------------------------------------------
Foreign currency translation
adjustments 23 (8) 15
--------------------------------------------------------------------------------
Other comprehensive income $(112) $ 37 $(75)
--------------------------------------------------------------------------------
The related tax effects allocated to other comprehensive income for the
fiscal year ended December 26, 1998 are as follows (in thousands):
Net-of-
Before Tax Tax (expense) Tax
Amount Benefit Amount
--------------------------------------------------------------------------------
Unrealized holding gains
arising during period $ 404 $(135) $ 269
Less: reclassification adjustment
for gains included in net income (905) 333 (572)
--------------------------------------------------------------------------------
Net unrealized losses on
marketable securities $(501) $ 198 $(303)
--------------------------------------------------------------------------------
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36
(12) INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands, except
per share data):
1999 Interim Period Ended
---------------------------------------------------------
March 27 June 26 September 25 December 25
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUES $ 120,789 $ 134,145 $ 139,694 $136,646
Cost of sales 54,024 60,697 66,584 64,712
Selling, marketing and delivery 51,036 54,028 54,667 54,526
General and administrative 5,362 6,261 6,354 5,749
Provisions for employees' retirement plans 1,238 1,280 1,247 810
Amortization of goodwill and other
intangibles - 346 433 576
------------------------------------------------------------------------------------------------------
OPERATING PROFIT 9,129 11,533 10,409 10,273
Interest income (expense), net 158 (638) (858) (1,079)
Other income, net 93 137 363 345
Income taxes 3,506 4,191 3,918 3,489
------------------------------------------------------------------------------------------------------
NET INCOME $ 5,874 $ 6,841 $ 5,996 $6,050
------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $0.20 $ 0.23 $ 0.20 $0.20
NET INCOME PER COMMON SHARE - DILUTED 0.20 0.23 0.20 0.20
DIVIDENDS PER COMMON SHARE 0.24 0.24 0.24 0.24
1998 Interim Period Ended
---------------------------------------------------------
March 28 June 27 September 26 December 26
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUES $ 119,955 $ 126,313 $ 121,259 $ 118,905
Cost of sales 55,120 56,442 55,097 55,569
Selling, marketing and delivery 48,376 51,337 49,859 49,562
General and administrative 4,964 4,664 4,540 5,314
Provisions for employees' retirement plans 1,527 1,602 1,386 998
------------------------------------------------------------------------------------------------------
OPERATING PROFIT 9,968 12,268 10,377 7,462
Other income, net 1,265 1,010 973 420
Income taxes 4,242 4,932 4,248 2,713
------------------------------------------------------------------------------------------------------
NET INCOME $ 6,991 $ 8,346 $ 7,102 $ 5,169
------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.23 $ 0.28 $ 0.24 $ 0.17
NET INCOME PER COMMON SHARE - DILUTED 0.23 0.28 0.24 0.17
DIVIDENDS PER COMMON SHARE 0.24 0.24 0.24 0.24
36
37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lance, Inc.:
We have audited the accompanying consolidated balance sheets of Lance, Inc. and
subsidiaries as of December 25, 1999 and December 26, 1998 and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the fiscal years in the three-year period ended
December 25, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lance, Inc. and
subsidiaries as of December 25, 1999 and December 26, 1998, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 25, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Charlotte, North Carolina
February 16, 2000
37
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of Management, Election
of Directors, Compensation/Stock Option Committee Interlocks and Insider
Participation, Director Compensation, Executive Officer Compensation and Section
16(a) Beneficial Ownership Reporting Compliance in the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held April 20, 2000 and
to the Separate Item in Part III of this Annual Report captioned Executive
Officers of the Registrant.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
The following financial statements are filed as part of this
report:
PAGE
----
Consolidated Statements of Income for the Fiscal Years Ended
December 25, 1999, December 26, 1998 and December 27, 1997...............16
Consolidated Balance Sheets as of December 25, 1999 and December 26, 1998.....17
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the Fiscal Years Ended December 25, 1999, December 26, 1998 and
December 27, 1997....................................................... 18
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 25, 1999, December 26, 1998 and December 27, 1997...............19
Notes to Consolidated Financial Statements....................................20
Independent Auditors' Report..................................................37
38
39
2. Financial Schedules.
Schedules have been omitted because of the absence of conditions
under which they are required or because information required is included in
financial statements or the notes thereto.
3. Exhibits.
2.1 Agreement of Purchase and Sale dated as of March 31, 1999
among the Registrant, a subsidiary of the Registrant and the shareholders of
Tamming Foods Ltd., incorporated herein by reference to Exhibit 2 to the
Registrant's Report on Form 8-K dated April 14, 1999.
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.
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.
3.3 Bylaws of Lance, Inc., as amended through April 21, 1995,
incorporated herein by reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 17, 1995.
4.1 See 3.1, 3.2 and 3.3 above.
4.2 Preferred Shares Rights Agreement dated July 14, 1998
between the Registrant and Wachovia Bank, N.A., together with the Form of Rights
Certificate attached as Exhibit B thereto, incorporated herein by reference to
Exhibit 4.1 to the Registrant's Form 8-A filed on July 15, 1998.
4.3 First Supplement to Preferred Shares Rights Agreement dated
as of July 1, 1999 between the Registrant and First Union National Bank,
incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly
Report on Form 10-Q for the thirteen weeks ended June 26, 1999.
4.4 Deferred Notes Agreement dated April 14, 1999 among 1346242
Ontario Inc. (now Tamming Foods Ltd.), Blairco Equities Inc., Linkco Equities
Inc., Tam-Di Equities Inc. and Tam-Ri Equities Inc. providing for the issuance
of $14.1 million of Tamming Foods Ltd.'s Deferred Notes due 2004. The total
amount of the Deferred Notes due 2004 does not exceed 10% of the total assets of
the Registrant and the Registrant agrees to furnish a copy of the Deferred Notes
Agreement to the Securities and Exchange Commission upon request.
39
40
10.1 Lance, Inc. 1983 Incentive Stock Option Plan, incorporated
herein by reference to Exhibit 10.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 26, 1987.
10.2 Lance, Inc. 1991 Stock Option Plan, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8,
Registration No. 33-41866.
10.3 Lance, Inc. 1995 Nonqualified Stock Option Plan for
Non-Employee Directors, as amended, incorporated herein by reference to Exhibit
4 to the Registrant's Registration Statement on Form S-8, File No. 33-58839, as
amended by Post Effective Amendment No. 1.
10.4 Lance, Inc. 1997 Incentive Equity Plan, incorporated herein
by reference to Exhibit 4 to the Registrant's Registration Statement on Form
S-8, File No. 333-25539.
10.5* Lance, Inc. Benefit Restoration Plan, incorporated herein
by reference to Exhibit 10(vi) to the Registrant's Quarterly Report on Form 10-Q
for the twelve weeks ended June 11, 1994.
10.6* Lance, Inc. Annual Corporate Performance Incentive Plan -
Officers - 1997, incorporated herein by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 14,
1997.
10.7* Lance, Inc. Long-Term Incentive Plan - Officers - 1997,
incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 14, 1997.
10.8* Lance, Inc. 1998 Annual Corporate Performance Incentive
Plan for Officers, incorporated herein by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended March 21,
1998.
10.9* Lance, Inc. 1998 Long-Term Incentive Plan for Officers,
incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 13, 1998.
10.10* Lance, Inc. 1999 Annual Corporate Performance Incentive
Plan for Officers, incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended March
27, 1999.
10.11* Lance, Inc. 1999 Long-Term Incentive Plan for Officers,
incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the thirteen weeks ended March 27, 1999.
10.12* Chairman of the Board Compensation Letter dated April 19,
1996 incorporated herein by reference to Exhibit 10.9 to the Registrant's
Quarterly Report on Form 10-Q for the twelve weeks ended June 15, 1996.
40
41
10.13* Chairman of the Board Compensation Letter dated October 6,
1998, incorporated herein by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the year ended December 26, 1998.
10.14* Chairman of the Board Compensation Letter dated February
16, 1999, incorporated herein by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the thirteen weeks ended March 27, 1999.
10.15* Form of Compensation and Benefits Assurance Agreement
between the Registrant and each of Paul A. Stroup, III, Earl D. Leake, B. Clyde
Preslar, Richard G. Tucker, Gregory M. Venner, L. R. Gragnani, H. Dean Fields
and Dominic J. Sidari, incorporated herein by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 27,
1997.
10.16* Executive Severance Agreement dated November 7, 1997
between the Registrant and Paul A. Stroup, III, incorporated herein by reference
to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 27, 1997.
10.17* Executive Severance Agreement dated November 7, 1997
between the Registrant and Earl D. Leake, incorporated herein by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 27, 1997.
10.18* Form of Executive Severance Agreement between the
Registrant and each of B. Clyde Preslar, Richard G. Tucker, Gregory M. Venner,
L. R. Gragnani, H. Dean Fields and Dominic J. Sidari, incorporated herein by
reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 27, 1997.
10.19* Early Retirement Agreement dated June 10, 1998 between
Lance, Inc. and Peter M. Duggan and related Amendment Agreement dated June 26,
1998 between Lance, Inc. and Peter M. Duggan, incorporated herein by reference
to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 26, 1998.
10.20 Credit Agreement dated April 12, 1999 among the Registrant,
NationsBank, N.A., First Union National Bank and Wachovia Bank, N.A.
incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the thirteen weeks ended June 26, 1999.
10.21 Financing and Share Purchase Agreement dated August 16,
1999 between the Registrant and Bank of America, N.A. incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the thirteen weeks ended September 25, 1999.
21 List of the Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
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27.1 Financial Data Schedule. (Filed in electronic format
only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not be deemed
filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934.)
99 Cautionary Statement under the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be filed by the
Registrant during the 13 weeks ended December 25, 1999.
- -----------------------------
* Management contract.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANCE, INC.
Dated: March 23, 2000 By: /s/ B. Clyde Preslar
-----------------------------------
B. Clyde Preslar
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Paul A. Stroup, III Chairman of the Board March 23, 2000
- ---------------------------------- President and Chief Executive
Paul A. Stroup, III Officer (Principal Executive
Officer)
/s/ B. Clyde Preslar Vice President (Principal March 23, 2000
- ---------------------------------- Financial Officer)
B. Clyde Preslar
/s/ Margaret E. Wicklund Controller (Principal March 23, 2000
- ---------------------------------- Accounting Officer)
Margaret E. Wicklund
/s/ Alan T. Dickson Director March 23, 2000
- ----------------------------------
Alan T. Dickson
/s/ J. W. Disher Director March 23, 2000
- ----------------------------------
J. W. Disher
/s/ James H. Hance, Jr. Director March 23, 2000
- ----------------------------------
James H. Hance, Jr.
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Director March , 2000
- ----------------------------------
William R. Holland
Director March , 2000
- ----------------------------------
Weldon H. Johnson
/s/ Scott C. Lea Director March 23, 2000
- ----------------------------------
Scott C. Lea
/s/ Wilbur J. Prezzano Director March 23, 2000
- ----------------------------------
Wilbur J. Prezzano
/s/ Robert V. Sisk Director March 23, 2000
- ----------------------------------
Robert V. Sisk
Director March , 2000
- ----------------------------------
Isaiah Tidwell
/s/ Nancy Van Every McLaurin Director March 23, 2000
- ----------------------------------
Nancy Van Every McLaurin
/s/ S. Lance Van Every Director March 23, 2000
- ----------------------------------
S. Lance Van Every
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
Item 14(a)(3)
FORM 10-K
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 25, 1999 0-398
LANCE, INC.
EXHIBIT INDEX
Exhibit
No. Exhibit Description
- ------- -------------------
2.1 Agreement of Purchase and Sale dated as of March 31, 1999
among the Registrant, a subsidiary of the Registrant and the
shareholders of Tamming Foods Ltd., incorporated herein by
reference to Exhibit 2 to the Registrant's Report on Form 8-K
dated April 14, 1999.
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.
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.
3.3 Bylaws of Lance, Inc., as amended through April 21, 1995,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 17, 1995.
4.1 See 3.1, 3.2 and 3.3 above.
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4.2 Preferred Shares Rights Agreement dated July 14, 1998 between
the Registrant and Wachovia Bank, N.A., together with the Form
of Rights Certificate attached as Exhibit B thereto,
incorporated herein by reference to Exhibit 4.1 to the
Registrant's Form 8-A filed on July 15, 1998.
4.3 First Supplement to Preferred Shares Rights Agreement dated as
of July 1, 1999 between the Registrant and First Union
National Bank, incorporated herein by reference to Exhibit 4.2
to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended June 26, 1999.
4.4 Deferred Notes Agreement dated April 14, 1999 among 1346242
Ontario Inc. (now Tamming Foods Ltd.), Blairco Equities Inc.,
Linkco Equities Inc., Tam-Di Equities Inc. and Tam-Ri Equities
Inc. providing for the issuance of $14.1 million of Tamming
Foods Ltd.'s Deferred Notes due 2004. The total amount of the
Deferred Notes due 2004 does not exceed 10% of the total
assets of the Registrant and the Registrant agrees to furnish
a copy of the Deferred Notes Agreement to the Securities and
Exchange Commission upon request.
10.1 Lance, Inc. 1983 Incentive Stock Option Plan, incorporated
herein by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 26,
1987.
10.2 Lance, Inc. 1991 Stock Option Plan, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-41866.
10.3 Lance, Inc. 1995 Nonqualified Stock Option Plan for
Non-Employee Directors, as amended, incorporated herein by
reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-8, File No. 33-58839, as amended by Post
Effective Amendment No. 1.
10.4 Lance, Inc. 1997 Incentive Equity Plan, incorporated herein by
reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-8, File No. 333-25539.
10.5* Lance, Inc. Benefit Restoration Plan, incorporated herein by
reference to Exhibit 10(vi) to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 11, 1994.
10.6* Lance, Inc. Annual Corporate Performance Incentive Plan -
Officers - 1997, incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the
twelve weeks ended June 14, 1997.
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10.7* Lance, Inc. Long-Term Incentive Plan - Officers - 1997,
incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 14, 1997.
10.8* Lance, Inc. 1998 Annual Corporate Performance Incentive Plan
for Officers, incorporated herein by reference to Exhibit 10
to the Registrant's Quarterly Report on Form 10-Q for the
twelve weeks ended March 21, 1998.
10.9* Lance, Inc. 1998 Long-Term Incentive Plan for Officers,
incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 13, 1998.
10.10* Lance, Inc. 1999 Annual Corporate Performance Incentive Plan
for Officers, incorporated herein by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended March 27, 1999.
10.11* Lance, Inc. 1999 Long-Term Incentive Plan for Officers,
incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen
weeks ended March 27, 1999.
10.12* Chairman of the Board Compensation Letter dated April 19, 1996
incorporated herein by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 15, 1996.
10.13* Chairman of the Board Compensation Letter dated October 6,
1998, incorporated herein by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the year ended
December 26, 1998.
10.14* Chairman of the Board Compensation Letter dated February 16,
1999, incorporated herein by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen
weeks ended March 27, 1999.
10.15* Form of Compensation and Benefits Assurance Agreement between
the Registrant and each of Paul A. Stroup, III, Earl D. Leake,
B. Clyde Preslar, Richard G. Tucker, Gregory M. Venner, L. R.
Gragnani, H. Dean Fields and Dominic J. Sidari, incorporated
herein by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
27, 1997.
10.16* Executive Severance Agreement dated November 7, 1997 between
the Registrant and Paul A. Stroup, III, incorporated herein by
reference to Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 27, 1997.
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10.17* Executive Severance Agreement dated November 7, 1997 between
the Registrant and Earl D. Leake, incorporated herein by
reference to Exhibit 10.16 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 27, 1997.
10.18* Form of Executive Severance Agreement between the Registrant
and each of B. Clyde Preslar, Richard G. Tucker, Gregory M.
Venner, L. R. Gragnani, H. Dean Fields and Dominic J. Sidari,
incorporated herein by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 27, 1997.
10.19* Early Retirement Agreement dated June 10, 1998 between Lance,
Inc. and Peter M. Duggan and related Amendment Agreement dated
June 26, 1998 between Lance, Inc. and Peter M. Duggan,
incorporated herein by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 26, 1998.
10.20 Credit Agreement dated April 12, 1999 among the Registrant,
NationsBank, N.A., First Union National Bank and Wachovia
Bank, N.A. incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended June 26, 1999.
10.21 Financing and Share Purchase Agreement dated August 16, 1999
between the Registrant and Bank of America, N.A. incorporated
herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the thirteen weeks ended
September 25, 1999.
21 List of the Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
27.1 Financial Data Schedule. (Filed in electronic format only.
Pursuant to Rule 402 of Regulation S-T, this schedule shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934.)
99 Cautionary Statement under the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
- -----------------------------
* Management contract.
48