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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 30, 2000
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 28232
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(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, 2001 was approximately $282,000,000.
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, 2001, was
28,936,823 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 26, 2001 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, third party carriers and through direct
shipments by its own transportation fleet. 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, other food manufacturers 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.
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. Approximately 64% of
sales are distributed through the DSD organization and 36% are distributed
through non-DSD sales representatives and independent brokers and distributors.
The DSD organization is administered through 3 regions that are divided into 22
sales districts that are further divided into 248 sales divisions, each under
the direction of a division manager. Within each division are sales routes, each
serviced by one representative. At December 30, 2000, there were 1,826 sales
routes. 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 through individual territory stockrooms and metro distribution
centers. The representatives load their own trucks from these stockrooms for
delivery to customers and to service vending machines owned by the Registrant.
The Registrant operates Company-owned vending
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machines in approximately 50,000 customer locations. These vending machines are
generally made available to customers 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 primarily by third party carriers as well as the
Registrant's fleet of tractors and trailers.
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
long-term sales growth that is driven by a strengthened route sales system and
continued sales and marketing initiatives that are funded through 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 up to 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 30, 2000, the Registrant and its subsidiaries had 4,623
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 180-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,
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which houses a sales distribution facility, an 11,000 square foot brick and
steel building, which houses vehicle maintenance operations, and 50,000 square
foot and 40,000 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 86,000 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 2001.
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.
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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 60 Secretary of Lance, Inc. since 1997 and
Assistant Secretary 1981-1997 and Corporate
Attorney since 1976
H. Dean Fields 59 President of Vista Bakery, Inc. (subsidiary
of Lance, Inc.) since 1996 and Manager,
Columbia, South Carolina Plant of Vista
Bakery, Inc. 1993-1996
L. Rudy Gragnani 47 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 49 Vice President of Lance, Inc. since 1995 and
Treasurer and Assistant Secretary 1988-1995
Frank I. Lewis 48 Vice President of Lance, Inc. since 2000 and
Regional Vice President of Frito Lay, Inc.
(subsidiary of PepsiCo. Inc.) 1991-2000
David R. Perzinski 41 Treasurer of Lance, Inc. since 1999, Senior
Director of Sales/Marketing Finance and
Treasury Operations of Lance, Inc.
1997-1999, Director of Sales/Marketing
Finance and Treasury Operations of Lance,
Inc. 1996-1997 and Financial Planning
Manager Consumer Power Tools/Outdoor
Products NA (division of the Black and
Decker Corporation) 1992-1996
B. Clyde Preslar 46 Vice President and Chief Financial Officer
of Lance, Inc. since 1996; Treasurer
1996-1999 and Director, Financial Services
of Worldwide Power Tools Group (a consumer
products division of The Black and Decker
Corporation) 1993-1996
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Richard G. Tucker 46 Vice President of Lance, Inc. since 1996;
President of Lance Company since 1999 and
Plant Manager (bakery division) of RJR
Nabisco Holdings Corporation (consumer
products company) 1989-1996
Margaret E. Wicklund 40 Corporate Controller, Principal
Accounting Officer and Assistant Secretary
of Lance, Inc. since 1999; Senior
Director of Corporate Tax and Shared
Services 1998-1999 and Director of Corporate
Tax 1993-1998
All the executive officers were appointed to their current positions at
the Annual Meeting of the Board of Directors effective April 20, 2000, except
that Mr. Lewis was appointed effective October 23, 2000. 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 4,292 stockholders of record as of March 1, 2001.
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 2000 and 1999.
2000 Interim Periods High Low Dividend
- -------------------- Price Price Paid
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First quarter (13 weeks ended March 25, 2000) $ 11 1/2 $ 8 7/8 $0.16
Second quarter (13 weeks ended June 24, 2000) 11 7/16 9 5/16 0.16
Third quarter (13 weeks ended September 23, 2000) 10 1/2 8 9/16 0.16
Fourth quarter (14 weeks ended December 30, 2000) 12 7/8 9 0.16
1999 Interim Periods High Low Dividend
- -------------------- Price Price Paid
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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
On January 30, 2001, the Board of Directors of Lance, Inc. declared a
quarterly cash dividend of $0.16 per share payable on February 15, 2001 to
stockholders of record on February 9, 2001. 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 30, 2000. 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.
2000 1999 1998 1997 1996
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RESULTS OF OPERATIONS:
Net sales and other operating
revenue $576,299 $531,274 $486,432 $486,854 $477,015
Operating profit 36,613 41,344 40,075 45,119 36,012
Income before income taxes 34,550 39,865 43,743 48,688 40,780
Income taxes 12,589 15,104 16,135 18,591 16,188
Net income 21,961 24,761 27,608 30,097 24,592
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 28,961 29,874 29,925 29,893 30,075
DILUTED 28,976 29,918 30,043 30,018 30,086
PER SHARE OF COMMON STOCK:
Net income - basic 0.76 0.83 0.92 1.01 0.82
Net income - diluted 0.76 0.83 0.92 1.00 0.82
Cash dividends 0.64 0.96 0.96 0.96 0.96
FINANCIAL STATUS AT YEAR-END:
Total assets $317,073 $330,662 $251,403 $252,740 $247,205
Total debt 63,931 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. Sales are made by the Registrant's own direct-store-delivery ("DSD")
and non-DSD sales representatives, and also through brokers and distributors.
Products are distributed through the Company's DSD system, through third party
carriers and through direct shipments by the Company's transportation fleet.
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, other food manufacturers 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.
In 1998 the Company implemented a 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. This system significantly
enhanced the Company's ability to analyze and distribute information throughout
the DSD organization in 2000.
During 1999 the Company acquired Tamming Foods Ltd. ("Tamming"),
headquartered in Waterloo, Ontario, Canada and Cape Cod Potato Chip Company,
Inc. ("Cape Cod"), headquartered in Hyannis, Massachusetts. These acquisitions
supported the Company's strategies by increasing product offerings and
broadening distribution. In 2000, the acquisitions contributed to the overall
growth in revenues.
The Company's sales growth plans are based on improved execution of
sales and marketing activities as well as increased penetration of traditional
distribution channels such as mass merchandisers, grocery and convenience stores
as well as continued growth in contract manufacturing sales. In addition, the
Company's key area of focus is the revitalization of the route sales system.
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RESULTS OF OPERATIONS
2000 COMPARED TO 1999 2000 1999 DIFFERENCE
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Revenues $ 576.3 100.0% $ 531.3 100.0% $ 45.0 8.5%
Cost of sales 284.7 49.4% 246.0 46.3% (38.7) (15.7%)
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Gross margin 291.6 50.6% 285.3 53.7% 6.3 2.2%
Selling, marketing and delivery expenses 224.6 39.0% 214.3 40.3% (10.3) (4.8%)
General and administrative expenses 24.4 4.2% 23.7 4.5% (0.7) (3.0%)
Provisions for employees' retirement plans 4.2 0.7% 4.6 0.9% 0.4 8.7%
Amortization of goodwill and other intangibles 1.8 0.3% 1.4 0.2% (0.4) (28.6%)
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Total operating expenses 255.0 44.2% 244.0 45.9% (11.0) (4.5%)
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Operating profit 36.6 6.4% 41.3 7.8% (4.7) (11.4%)
Interest income (expense), net (4.4) (0.8%) (2.4) (0.5%) (2.0) (83.3%)
Other income, net 2.4 0.4% 1.0 0.2% 1.4 140.0%
Income taxes 12.6 2.2% 15.1 2.8% 2.5 16.6%
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Net income $ 22.0 3.8% $ 24.8 4.7% $ (2.8) (11.3%)
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Revenues increased $45.0 million or 8.5% in 2000. Approximately $26.6
million of the revenue growth was attributable to the acquisitions of Tamming
and Cape Cod. Revenues increased $18.4 million or 3.7% in the pre-acquisition
business primarily due to growth in contract manufacturing and private label
sales. Approximately $6.6 million of revenue growth resulted from the impact of
the 53-week fiscal year in 2000 as compared to the 52-week fiscal year in 1999.
Gross margin as a percent of revenue decreased 3.1 percentage points to
50.6% in 2000. The margin decline resulted from the higher proportion of sales
to contract manufacturing and private label customers. Additional factors
included production inefficiencies related to significant changes in volume and
sales mix as well as lower margins of the acquired business.
Selling, marketing and distribution costs increased $10.3 million
compared to 1999 of which approximately 45% of the increase was attributable to
the inclusion of the acquired businesses for the full year. The remaining
increase was the result of higher personnel costs, including severance
provisions, and higher distribution costs due to increased sales and fuel
charges.
General and administrative expenses increased $0.7 million compared to
the prior year due to the full year impact of the acquired companies.
Amortization of goodwill and intangibles increased as a result of the full year
impact of the acquisitions. The provision for employees' retirement plans was
lower due to the profitability-based formula for these contributions.
Net interest expense was $4.4 million in 2000 compared to $2.4 million
in 1999. The increase of $2.0 million was primarily the result of the full year
impact of the indebtedness incurred in 1999. Other income of $2.4 million
includes primarily gains and losses on dispositions of fixed assets.
The effective income tax rate decreased from 37.9% in 1999 to 36.4% in
2000 due to changes in the composition of earnings among the consolidated
entities.
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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%, primarily due 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 the acquired businesses.
Amortization of goodwill and intangibles resulted from the acquisitions of
Tamming and Cape Cod. The provision for employees' 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 $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.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to 1999, the Company's principal source of liquidity was from
operations. In 2000, the Company amended its unsecured revolving credit
agreement, first entered into in 1999, giving the Company the ability to borrow
up to $60 million and Cdn $25 million through April 2004. At December 30, 2000,
$21.5 million was outstanding on these unsecured revolving credit facilities.
Borrowing and repayments under these revolving credit facilities are similar in
nature to short-term credit lines; however, due to the nature and terms of the
agreements allowing repayment through April 2004, all borrowings under these
facilities are classified as long-term debt.
Cash flow from operations in 2000 totaled $51.5 million. Working
capital (other than cash and marketable securities) decreased to $41.7 million
from $43.9 million at the end of 1999. The working capital decrease is primarily
a result of decreased inventory levels as compared to the prior year.
Cash used in investing activities during 2000 totaled $20.9 million.
Capital expenditures totaled $24.8 million, a decrease of $5.8 million from 1999
expenditures. 2000 expenditures included new automated packaging equipment,
sales displays and chip plant equipment. During 2000, the Company sold real and
personal property providing approximately $3.8 million of cash to fund investing
activities.
Cash used in financing activities for 2000 totaled $42.6 million.
During 2000, the Company repaid debt, net of borrowings, of $14.0 million. In
2000 the Company paid dividends of $0.64 per share totaling $18.6 million
compared to $0.96 per share in 1999. On January 14, 2000, the Board of Directors
authorized the repurchase of 1.5 million shares of its common stock. To date,
the Company has repurchased 976,000 shares for $9.6 million, all of which
occurred during the first quarter of 2000.
As of December 30, 2000, cash and cash equivalents totaled $1.2 million
and total debt outstanding was $63.9 million. Additional borrowings available
under all credit facilities totaled $53.7 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 30, 2001 the Board of Directors declared a $0.16 quarterly
dividend.
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, effectiveness of sales and marketing
activities and the operation of a leveraged business, as described in the
Company's filings with the Securities and Exchange Commission.
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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. 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 30, 2000, the Company had no open position
on derivative commodity contracts.
The Company's long-term debt obligations incur interest at floating
rates, based on changes in U.S. Dollar LIBOR, Canadian Dollar LIBOR and prime
rate interest. Therefore, the Company has an exposure to changes in these
interest rates. In 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 30, 2000,
the Company's long term debt totaled $63.9 million, with interest rates ranging
from 6.50% to 9.50%, with a weighted average interest rate of 6.90%. A 10%
increase in U.S. LIBOR and Canadian LIBOR would have increased interest expense
for the 2000 year by $ 0.5 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. In addition, the
Company has minimal exposure to foreign exchange rate risk relating to contracts
for capital acquisitions denominated in foreign currencies. In 2000, the Company
entered into forward contracts to manage the effects of changing currency rates.
These contracts had an immaterial financial impact to the Company.
Inflation and changing prices have not had a material impact on the
Company's net sales and income for the last three fiscal years.
14
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2000, December 25, 1999, and
December 26, 1998
(In thousands, except share and per share data)
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUE $576,299 $531,274 $486,432
- --------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES
Cost of sales 284,702 246,017 222,228
Selling, marketing and delivery 224,584 214,257 199,134
General and administrative 24,442 23,726 19,482
Provisions for employees' retirement plans 4,161 4,575 5,513
Amortization of goodwill and other intangibles 1,797 1,355 -
- --------------------------------------------------------------------------------------------------------
Total costs and expenses 539,686 489,930 446,357
- --------------------------------------------------------------------------------------------------------
OPERATING PROFIT 36,613 41,344 40,075
Interest income (expense), net (4,476) (2,417) 1,906
Other income, net 2,413 938 1,762
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 34,550 39,865 43,743
Income taxes 12,589 15,104 16,135
- --------------------------------------------------------------------------------------------------------
NET INCOME $21,961 $24,761 $27,608
- --------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $0.76 $0.83 $0.92
Diluted $0.76 $0.83 $0.92
- --------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 28,961,000 29,874,000 29,925,000
Weighted average shares outstanding - diluted 28,976,000 29,918,000 30,043,000
- --------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
15
16
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 30, 2000 and December 25, 1999
(In thousands, except share data)
ASSETS 2000 1999
- ------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,224 $ 13,303
Accounts receivable (less allowance for doubtful
accounts of $1,843 and $2,524, respectively) 47,188 49,106
Inventories 23,205 26,244
Prepaid income taxes 1,120 888
Deferred income tax benefit 4,161 4,487
Prepaid expenses and other 5,430 3,010
- ------------------------------------------------------------------------------------------------------
Total current assets 82,328 97,038
Property, plant and equipment, net 179,283 183,782
Goodwill, net 42,069 35,451
Other intangible assets, net 10,177 11,064
Other assets 3,216 3,327
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $317,073 $330,662
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 395 $ 354
Accounts payable 14,718 15,597
Accrued compensation 8,844 10,845
Accrued profit-sharing retirement plan 3,836 4,564
Accrual for insurance claims 4,642 4,366
Other payables and accrued liabilities 6,961 4,154
- -----------------------------------------------------------------------------------------------------
Total current liabilities 39,396 39,880
- ------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Long-term debt 63,536 70,852
Deferred income taxes 21,548 21,167
Accrued postretirement health care costs 11,317 11,410
Accrual for insurance claims 4,083 3,808
Supplemental retirement benefits 2,600 2,755
Commitments and contingent liabilities - -
- -----------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 103,084 109,992
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, 28,947,222 and 29,950,897 shares
outstanding at December 30, 2000 and December 25, 1999 24,123 24,959
Preferred stock, 0 shares outstanding at December 30,
2000 and December 25, 1999 - -
Additional paid-in capital 1,229 2,552
Unamortized portion of restricted stock awards (437) (799)
Retained earnings 149,794 154,063
Accumulated other comprehensive income (loss) (116) 15
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 174,593 180,790
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $317,073 $330,662
- ------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
16
17
Consolidated Statements of Stockholders' Equity and Comprehensive Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2000, December 25, 1999, and
December 26, 1998
(In thousands, except share data)
Unamortized
Portion of Accumulated
Additional Restricted Other
Common Paid-in Stock Retained Comprehensive
Shares Stock Capital Awards Earnings Income(Loss) Total
- -----------------------------------------------------------------------------------------------------------
Balance, December 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 - - - - - 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
Comprehensive income:
Net income - - - - 21,961 - 21,961
Foreign currency translation
adjustment - - - - - (131) (131)
---------
Total comprehensive income - - - - - - 21,830
---------
Cash dividends paid to stockholders - - - - (18,572) - (18,572)
Stock options exercised - - - - - - -
Issuance of restricted stock,
net of cancellations (27,675) (23) (184) 362 - - 155
Purchases of common stock (976,000) (813) (1,139) - (7,658) - (9,610)
- -----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 30, 2000 28,947,222 $24,123 $ 1,229 $ (437) $149,794 $ (116) $174,593
- -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
17
18
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 30, 2000, December 25, 1999, and
December 26, 1998
(In thousands)
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $21,961 $24,761 $27,608
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 28,951 27,435 21,726
Gain on sale of property, net (2,043) (902) (823)
Deferred income taxes 776 3,518 3,222
Other, net 156 266 260
Changes in operating assets and liabilities:
Accounts receivable 1,853 (1,818) (5,559)
Inventory 3,086 (3,698) (2,449)
Prepaid expenses and other current assets (2,398) (903) (668)
Accounts payable (851) 1,458 3,410
Prepaid income taxes (248) 1,623 (3,872)
Other payables and accrued liabilities 252 (5,697) (5,023)
- --------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 51,495 46,043 37,832
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (24,751) (30,537) (54,659)
Proceeds from sale of property 3,848 1,570 2,337
Acquisition of businesses, net of cash acquired - (53,570) -
Purchases of marketable securities - (556) (1,853)
Maturities of marketable securities - 1,886 6,201
Sales of marketable securities - 7,643 11,917
Other, net - 63 38
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (20,903) (73,501) (36,019)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid (18,572) (28,808) (28,766)
Issuance (purchase) of common stock, net (9,610) (1,438) 792
Proceeds from debt issued, net of acquisition costs - 64,519 -
Repayments of debt (384) (36,969) -
Borrowings (repayments) under revolving credit
facilities, net (13,995) 35,500 -
Other, net - - (23)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (42,561) 32,804 (27,997)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (110) 101 -
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,079) 5,447 (26,184)
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 13,303 7,856 34,040
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $1,224 $13,303 $ 7,856
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION AND NON-CASH TRANSACTIONS
Cash paid for income taxes, net of refunds of $423,
$3,043 and $38, respectively $11,244 $ 9,666 $16,497
Cash paid for interest $ 3,775 $ 2,211 $ -
Deferred notes payable $ 8,242 $ - $ -
See Notes to Consolidated Financial Statements.
18
19
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 30, 2000 and December 25, 1999
(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, other food manufacturers 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.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday of December. The year
ended December 30, 2000 included 53 weeks. The years ended December 25,
1999 and December 26, 1998 included 52 weeks.
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, accounts
payable, and short and long-term debt approximate fair value.
19
20
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 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.
INVENTORIES AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary raw materials include flour, peanuts, peanut
butter, oils, shortening, potatoes, corn syrup and sugar. Supplies
principally consist of packaging materials, including overwrap film and
boxes.
Inventories are valued at the lower of cost or market; 65% of the cost of
the inventories in 2000 and 72% in 1999 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. As of December 30, 2000 the Company had no open derivative
financial instruments related to commodities.
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
20
21
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 price over the fair value
of net assets acquired. Other intangibles include trademarks and
covenants not-to-compete. Amounts assigned to trademarks are based on
independent appraisals. 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 in 2000 were $1,797,000 and
$3,133,000, respectively, compared to amortization expense and
accumulated amortization of $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 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 $261,000 in 2000, $300,000 in 1999 and
$149,000 in 1998.
21
22
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. Foreign currency transactions resulted in a gain
of $97,000 during 2000 and a net loss of $74,000 during 1999.
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 15,000 in
2000, 44,000 in 1999 and 118,000 in 1998. Anti-dilutive shares totaling
2,123,000 in 2000, 1,573,000 in 1999 and 106,000 in 1998 were excluded
from the dilutive earnings calculation. No adjustment to reported net
income is required when computing diluted earnings per share.
ADVERTISING AND CONSUMER PROMOTION COSTS
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 $11,932,000, $8,984,000 and $9,890,000 for the fiscal
years 2000, 1999 and 1998, respectively and are included in selling,
marketing and delivery costs on the consolidated statements of income.
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
22
23
requires that 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, had the
Company adopted FAS 133 for the 2000 fiscal year, the impact on the
financial statements taken as a whole would have been immaterial.
Emerging Issues Task Force Issue 00-14, Accounting for Certain Sales
Incentives, will be effective beginning in the Company's quarter ended
June 30, 2001. This Issue addresses the recognition, measurement and
income statement classification for certain sales incentives. Had this
Issue been effective for the fiscal year 2000, there would have been no
net income impact to the Company.
(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 $62.2 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 2001. As of December 30, 2000, based on
projected earnings the remaining contingent consideration of Canadian
dollars ("Cdn") $15.6 million ($10.4 million at December 30, 2000) was
recorded as additional goodwill and long-term debt.
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 55,494
--------------------------------------------------------------
Total assets 83,626
--------------------------------------------------------------
Current liabilities 10,739
Long-term debt 3,580
Other liabilities 7,061
--------------------------------------------------------------
Total liabilities 21,380
--------------------------------------------------------------
Total cost of the acquisitions $ 62,246
--------------------------------------------------------------
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24
The accompanying consolidated financial statements include the operating
results of these entities since their respective acquisition 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) INVENTORIES
Inventories at December 30, 2000 and December 25, 1999 consisted of the
following (in thousands):
2000 1999
-------------------------------------------------------------------------
Finished goods $ 14,869 $ 20,415
Raw materials 5,386 3,962
Supplies, etc. 7,720 6,391
-------------------------------------------------------------------------
Total inventories at FIFO cost 27,975 30,768
Less: adjustment to reduce FIFO cost to LIFO cost (4,770) (4,524)
-------------------------------------------------------------------------
Total inventories $ 23,205 $ 26,244
-------------------------------------------------------------------------
(4) PROPERTY, PLANT AND EQUIPMENT
Property at December 30, 2000 and December 25, 1999 consisted of the
following (in thousands):
2000 1999
------------------------------------------------------------------------
Land and land improvements $12,015 $12,462
Buildings 68,895 68,865
Machinery, equipment and systems 175,561 170,787
Vending machines 97,679 96,016
Trucks and automobiles 32,528 32,419
Furniture and fixtures 2,978 3,859
Assets held for disposal 832 1,125
Construction in progress 15,127 12,949
------------------------------------------------------------------------
405,615 398,482
Accumulated depreciation and amortization (226,332) (214,700)
-------------------------------------------------------------------------
Property, plant and equipment, net $179,283 $183,782
------------------------------------------------------------------------
24
25
The Company sold or disposed of certain property and equipment during
2000, 1999 and 1998 resulting in net gains of $2.1 million, $0.9 million
and $0.6 million, respectively. These gains are included in other income
on the Consolidated Statement of Income.
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. In 2000, the Company wrote-off a portion of these
assets realizing a net loss of $314,000.
(5) LONG TERM DEBT
Long-term debt at December 30, 2000 and December 25, 1999 consists of the
following (in thousands):
2000 1999
------------------------------------------------------------------------
Unsecured revolving credit facility $ 21,500 $ 35,500
Cdn $50 million unsecured term loan facility 33,335 34,485
Deferred notes payable 8,242 -
Capital lease obligation 854 1,221
------------------------------------------------------------------------
63,931 71,206
Less: current portion of capital lease obligation (395) (354)
------------------------------------------------------------------------
Total long-term debt $ 63,536 $ 70,852
------------------------------------------------------------------------
In 2000, the Company amended its unsecured revolving credit agreement,
giving the Company the ability to borrow up to $60 million and Cdn $25
million through April 2004. Interest on U.S. denominated borrowings is
payable at a rate based on the U.S. Dollar LIBOR plus a margin of 0.35%
to 0.75%. Interest on Canadian borrowings is payable at a rate based on
the Canadian Bankers Acceptance rate, plus the applicable margin and an
additional 0.25% fee. The applicable margin, which was 0.45% at December
30, 2000, is determined by certain financial ratios. The weighted average
interest rate at December 30, 2000 and December 25, 1999 was 6.90% and
7.02%, respectively. The agreement also requires the Company to pay a
facility fee on the entire $60 million and Cdn $25 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 applicable margin, which was 0.75% at
December 30, 2000, is determined by certain financial ratios. The
interest rate at December 30, 2000 was 6.50% compared to 6.05% at
December 25, 1999.
In addition, in 2000, the Company recorded $8.2 million of deferred notes
payable related to a contingent consideration agreement entered into in
the purchase of Tamming Foods. This agreement requires payment of Cdn
$15.6 million ($10.4 million at December 30, 2000) in April 2004. The
Company
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26
discounted the balance of the note at 7% and will record imputed interest
over the remaining life of the debt.
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 30, 2000. Accumulated
amortization of these assets was $397,000 at December 30, 2000. 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 30, 2000 and December 25, 1999, the Company had available
approximately $53,691,000 and $25,190,000 respectively, of unused credit
facilities.
All debt agreements require the company to comply with certain covenants,
such as a debt to EBITDA ratio , interest coverage ratio and equity
restrictions. The Company was in compliance with these covenants at
December 30, 2000. Interest expense for 2000 and 1999 was $4,582,000 and
$2,616,000, respectively.
The aggregate maturities of long-term debt, including future minimum
lease payments for capital leases, at December 30, 2000 are as follows
(in thousands):
2001 $ 395
2002 438
2003 20
2004 29,743
2005 33,335
Thereafter -
---------------------------
Total debt $63,931
---------------------------
(6) INCOME TAXES
Income tax expense consists of the following (in thousands):
2000 1999 1998
---------------------------------------------------------------------
Current:
Federal $ 10,673 $ 11,895 $ 11,076
State, foreign and other 1,209 1,352 1,545
---------------------------------------------------------------------
11,882 13,247 12,621
---------------------------------------------------------------------
Deferred:
Federal 793 1,568 3,348
State, foreign and other (86) 289 166
---------------------------------------------------------------------
707 1,857 3,514
---------------------------------------------------------------------
Total income tax expense $ 12,589 $ 15,104 $ 16,135
---------------------------------------------------------------------
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27
A reconciliation of the federal income tax rate to the Company's
effective income tax rate follows:
2000 1999 1998
-------------------------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
State and other income taxes,
net of federal income tax benefit 1.8 2.5 2.5
Tax exempt interest 0.0 0.0 (1.2)
Miscellaneous items, net (0.4) 0.4 0.6
-------------------------------------------------------------------------
Income tax expense 36.4% 37.9% 36.9%
-------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 30, 2000 and December 25, 1999 are presented below (in
thousands):
2000 1999
--------------------------------------------------------------------------------------------------------
Deferred tax assets
Reserves for employee compensation and benefits,
deductible when paid for income tax purposes,
accrued for financial reporting purposes $ 10,139 $ 10,067
Other reserves deductible when paid for income
tax purposes, accrued for financial reporting
purposes 1,939 1,899
Inventories, principally due to additional costs
capitalized for income tax purposes 1,479 1,623
Net state operating loss carryforwards (expiring
after 2006) 564 590
--------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,121 14,179
Less valuation allowance (564) (590)
--------------------------------------------------------------------------------------------------------
Net deferred tax assets 13,557 13,589
--------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation, net of impairment reserves (25,494) (25,246)
Deferred income (1,917) (1,799)
Trademark amortization (3,181) (3,192)
Other (352) (32)
--------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (30,944) (30,269)
--------------------------------------------------------------------------------------------------------
Total net deferred tax liabilities $ (17,387) $(16,680)
--------------------------------------------------------------------------------------------------------
27
28
The valuation allowance as of December 30, 2000 and December 25, 1999 was
$564,000 and $590,000, respectively. The net change in the valuation
allowance during 2000 was a decrease of $26,000. 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.
(7) 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 1999 was a decrease of $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
30, 2000 (in thousands):
2000 1999 1998
-----------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 5,283 $ 7,322 $ 9,901
Service cost 700 588 844
Interest cost 393 294 647
Plan participants' contributions 234 350 329
Prior service credit - (2,739) -
Actuarial (gain)/loss (2,639) 380 (3,773)
Benefits paid (314) (912) (626)
------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 3,657 5,283 7,322
-----------------------------------------------------------------------------------------------------
Funded status (3,657) (5,283) (7,322)
Unrecognized net actuarial (gain)/loss (6,018) (3,980) (5,114)
Unrecognized prior service cost (1,642) (2,147) 86
-----------------------------------------------------------------------------------------------------
Accrued benefit cost $(11,317) $(11,410) $(12,350)
------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 700 $ 588 $ 844
Interest cost 393 294 647
Recognition of prior service costs (505) (505) 8
Recognized net gain (590) (755) (31)
------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (2) $ (378) $ 1,468
-----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE DISCOUNT RATES USED IN
DETERMINING ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION:
Beginning of year 7.75% 6.75% 6.75%
-----------------------------------------------------------------------------------------------------
End of year 7.50% 7.75% 6.75%
-----------------------------------------------------------------------------------------------------
28
29
For measurement purposes, a 9.75% annual rate of increase in the per
capita cost of covered health care benefits for the self-insured plans
was assumed for 2000. These rates were assumed to decrease gradually to
5.00% at 2010 and remain at that level thereafter. The health care cost
trend rate assumption has an 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 30, 2000 by $152,000, and the aggregate of the service and
interest cost components of postretirement expense for the year then
ended by $62,000. 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 30, 2000 by $145,000,
and the aggregate of the service and interest cost components of
postretirement expense for the year then ended by $58,000.
(8) 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 $70,000 in
2000, $78,000 in 1999 and $93,000 in 1998.
EMPLOYEE STOCK OPTION PLANS
The Company has stock option plans under which 3,400,000 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 $9.66 to $24.13
per share. The weighted average remaining contractual life at December
30, 2000 was 7.9 years.
29
30
Number of Weighted Shares
Shares Average Exercise Exercisable
Outstanding Price
-------------------------------------------------------------------------------------------------------
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/Forfeited (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/Forfeited (168,275) 18.41
-------------------------------------------------------------------------------------------------------
Balance at December 25, 1999 1,460,596 17.67 190,819
Granted 752,000 10.12
Exercised, including stock
appreciation rights - -
Expired/Forfeited (245,853) 15.83
-------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 30, 2000 1,966,743 $14.99 626,622
-------------------------------------------------------------------------------------------------------
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 40,000 and 44,000 options
granted during 2000 and 1999, respectively. The option price, which
equals the fair market value of the Company's stock at the date of grant,
was $10.50 and $13.88 for options granted in 2000 and in 1999,
respectively. The weighted average remaining contractual life at December
30, 2000 was 7.3 years.
30
31
FAIR VALUE OF STOCK OPTIONS
There were 783,122 options exercisable under all stock option plans at
December 30, 2000. 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.
2000 1999 1998
------------------------------------------------------------------------
Expected dividend yield 5.06% 6.05% 3.92%
Risk-free interest rate 5.75% 5.35% 5.77%
Weighted average expected life 10 YEARS 10 years 10 years
Expected volatility 38.28% 30.30% 26.00%
Fair value per share of options granted $2.89 $2.86 $6.13
Pro-forma net income (in thousands) $20,937 $23,897 $26,430
Pro-forma earnings per share - diluted $0.72 $0.80 $ 0.88
------------------------------------------------------------------------
RESTRICTED STOCK AWARDS
During 1999, the Company awarded 65,300 shares of common stock to certain
employees under one of its incentive programs, subject to certain vesting
and performance restrictions. No restricted stock was issued in 2000.
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.
(9) 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 $8,555,000
at December 30, 2000.
The Company and its subsidiaries lease certain facilities and equipment
under contracts classified as operating leases. Rental expense was
$6,168,000 in 2000, $5,424,000 in 1999 and $4,599,000 in 1998. Future
minimum lease commitments for operating leases at December 30, 2000 were
as follows (in thousands):
2001 $2,255
2002 947
2003 829
2004 676
2005 149
Thereafter -
-----------------------------------
Total operating lease
commitments $4,856
-----------------------------------
31
32
The Company also maintains standby letters of credit in connection with
its self insurance reserves for casualty claims.
The Company has entered into a long-term purchase commitment with a
supplier. Under this agreement the Company has annual purchase
requirements.
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 reasonably
estimate the ultimate liability, if any, of the Company in any of these
matters, but in the opinion of management, their outcome should have no
material adverse effect upon the Company's consolidated financial
statements taken as a whole.
(10) 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 28,947,222 at December 30, 2000 and 29,950,897 at
December 25, 1999. 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
the Company'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.
32
33
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 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
For the years ended December 30, 2000 and December 25, 1999, the Company
included in other comprehensive income an unrealized gain/(loss) due to
foreign currency translation of $(131,000) and $15,000, respectively.
Income taxes on the foreign currency translation adjustment in other
comprehensive income were not recognized because the earnings are
intended to be indefinitely reinvested in those operations.
33
34
(11) INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands, except
per share data):
2000 Interim Period Ended
---------------------------------------------------------
March 25 June 24 September 23 December 30
(13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks)
------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUES $ 135,630 $ 145,128 $ 147,978 $ 147,563
Cost of sales 64,015 70,314 74,820 75,553
Selling, marketing and delivery 54,927 56,777 56,028 56,852
General and administrative 6,071 5,731 6,355 6,285
Provisions for employees' retirement plans 1,172 1,050 1,035 904
Amortization of goodwill and other
intangibles 467 423 424 483
------------------------------------------------------------------------------------------------------
OPERATING PROFIT 8,978 10,833 9,316 7,486
Interest income (expense), net (1,125) (1,081) (1,079) (1,191)
Other income, net 1,319 254 685 155
Income taxes 3,428 3,709 3,254 2,198
------------------------------------------------------------------------------------------------------
NET INCOME $ 5,744 $ 6,297 $ 5,668 $ 4,252
------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.20 $ 0.22 $ 0.20 $ 0.15
NET INCOME PER COMMON SHARE - DILUTED 0.20 0.22 0.20 0.15
DIVIDENDS PER COMMON SHARE 0.16 0.16 0.16 0.16
.
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
34
35
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 30, 2000 and December 25, 1999 and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the fiscal years in the three-year period ended
December 30, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lance, Inc. and
subsidiaries as of December 30, 2000 and December 25, 1999, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 30, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Charlotte, North Carolina
March 6, 2001
35
36
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 26, 2001 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 30, 2000,
December 25, 1999 and December 26, 1998.............................................15
Consolidated Balance Sheets as of December 30, 2000 and December 25, 1999................16
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the Fiscal Years Ended December 30, 2000, December 25, 1999 and
December 26, 1998...................................................................17
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30,
2000, December 25, 1999 and December 26, 1998.......................................18
Notes to Consolidated Financial Statements...............................................19
Independent Auditors' Report.............................................................35
36
37
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 September 1,
2000, incorporated herein by reference to Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-Q for the thirteen weeks ended September 23, 2000.
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.
37
38
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, as amended,
incorporated herein by reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-8, File No. 333-35646.
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. 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.
10.7* 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.
10.8* 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.
10.9* 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.
10.10* Lance, Inc. 2000 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
25, 2000.
10.11* Lance, Inc. 2000 Long-Term Incentive Plan for Officers,
filed herewith.
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.
38
39
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, L. R. Gragnani, H. Dean Fields and Frank I. Lewis,
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, L. R. Gragnani and
H. Dean Fields, 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* Agreement dated October 9, 2000 between the Registrant
and Frank I. Lewis, filed herewith.
10.20* Agreement dated March 6, 2000 between the Registrant
and Dominic J. Sidari incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended March
25, 2000.
10.21* Agreement dated March 6, 2000 between the Registrant
and Gregory M. Venner incorporated herein by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended March
25, 2000.
10.22 Amended and Restated Credit Agreement dated May 26, 2000
among the Registrant, LanFin Investment, Inc., Bank of America, N.A., First
Union National Bank, Wachovia Bank, N.A. and Bank of America Canada incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the thirteen weeks ended June 24, 2000.
39
40
10.23 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.
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 fourteen weeks ended December 30, 2000.
- ----------------------------
* Management contract.
40
41
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 19, 2001 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 19, 2001
- --------------------------------- President and Chief Executive
Paul A. Stroup, III Officer (Principal Executive
Officer)
/s/ B. Clyde Preslar Vice President (Principal March 19, 2001
- --------------------------------- Financial Officer)
B. Clyde Preslar
/s/ Margaret E. Wicklund Controller (Principal March 19, 2001
- --------------------------------- Accounting Officer)
Margaret E. Wicklund
Director
- ---------------------------------
Alan T. Dickson
/s/ J.W. Disher Director March 19, 2001
- ---------------------------------
J. W. Disher
/s/ James H. Hance, Jr. Director March 19, 2001
- ---------------------------------
James H. Hance, Jr.
41
42
/s/ William R. Holland Director March 19, 2001
- ---------------------------------
William R. Holland
/s/ Scott C. Lea Director March 19, 2001
- ---------------------------------
Scott C. Lea
Director
- ---------------------------------
Wilbur J. Prezzano
/s/ Robert V. Sisk Director March 19, 2001
- ---------------------------------
Robert V. Sisk
/s/ Isaiah Tidwell Director March 19, 2001
- ---------------------------------
Isaiah Tidwell
/s/ Nancy Van Every McLaurin Director March 19, 2001
- ---------------------------------
Nancy Van Every McLaurin
/s/ S. Lance Van Every Director March 19, 2001
- ---------------------------------
S. Lance Van Every
42
43
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 30, 2000 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 September 1, 2000,
incorporated herein by reference to Exhibit 3.3 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen
weeks ended September 23, 2000.
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, as amended,
incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8, File No.
333-35646.
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. 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.
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10.7* 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.
10.8* 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.
10.9* 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.
10.10* Lance, Inc. 2000 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 25, 2000.
10.11* Lance, Inc. 2000 Long-Term Incentive Plan for Officers, filed
herewith.
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, L. R. Gragnani, H. Dean
Fields and Frank I. Lewis, 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.
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10.18* Form of Executive Severance Agreement between the Registrant
and each of B. Clyde Preslar, Richard G. Tucker, L. R.
Gragnani and H. Dean Fields, 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* Agreement dated October 9, 2000 between the Registrant and
Frank I. Lewis, filed herewith.
10.20* Agreement dated March 6, 2000 between the Registrant and
Dominic J. Sidari incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended March 25, 2000.
10.21* Agreement dated March 6, 2000 between the Registrant and
Gregory M. Venner incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended March 25, 2000.
10.22 Amended and Restated Credit Agreement dated May 26, 2000 among
the Registrant, LanFin Investment, Inc., Bank of America,
N.A., First Union National Bank, Wachovia Bank, N.A. and Bank
of America Canada incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended June 24, 2000.
10.23 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.
99 Cautionary Statement under the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
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* Management contract.
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