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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 29, 2001
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 28273
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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 February 19, 2002 was approximately $361,000,000.
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 February 19, 2002, was
29,040,923 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on April 25, 2002 are incorporated by reference into Part III of this Form
10-K.
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
food products including individual and multi-pack configurations of sandwich
crackers, cookies, candy, cakes, meat snacks and bread basket items as well as
salty snacks including potato chips, corn chips, popcorn products and nuts. In
addition, the Registrant manufactures products packaged in larger sizes
including crackers, cookies, bread basket items, potato chips and other salty
snack products. Of the products sold by the Registrant, 80% are manufactured by
the Registrant and 20% are purchased for resale.
The Registrant's branded products are primarily sold under the Lance
and Cape Cod trade names. Registered trademarks that it owns include: LANCE,
CAPE COD POTATO CHIPS, TOASTCHEE, TOASTY, NEKOT, NIPCHEE, CHOC-O-LUNCH,
VAN-O-LUNCH, GOLD-N-CHEES, CAPTAIN'S WAFERS, and VISTA. Other brand names used
by the Registrant include CHIP THUNDER and FIRECRACKER BARBECUE.
The Registrant's branded product customer base includes grocery and
mass merchants, convenience and drug stores, food service brokers and
institutions, vending operations, schools, military and government facilities
and "up and down the street" outlets such as recreational facilities, offices,
restaurants and independent retailers. The Registrant's non-branded product
sales consist primarily of private label sales. They also include sales of other
companies' branded products and sales to other manufacturers. Private label
customers include grocery and mass merchandisers. The Registrant sells other
companies' branded products primarily through its vending operations as well as
convenience and drug stores and "up and down the street" outlets. The Registrant
currently distributes products throughout most of the United States and parts of
Canada and Europe.
Products are distributed by the Registrant's direct-store delivery
("DSD") system, third party carriers and through direct shipments by its own
transportation fleet. Approximately 59% of sales are distributed through the DSD
system. The DSD system is administered through three regions that are divided
into 20 sales districts that are further divided into 231 sales divisions, each
under the direction of a division manager. Within each division are sales
routes, each serviced by one representative. At December 29, 2001, there were
1,830 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 or company owned step-vans from
these stockrooms for delivery to customers. The Registrant operates
Company-owned vending machines in approximately 44,000 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
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class of customer. The Registrant's non-DSD sales are made through Company sales
personnel, independent distributors or brokers. Most non-DSD sales are direct
shipments using third party carriers.
The principal raw materials used in the manufacture of the Registrant's
snack food products are flour, peanuts, peanut butter, oils, shortenings,
potatoes, sugar, popcorn, cheese, corn syrup, 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 year in advance. The principal types of energy
used by the Registrant 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 suppliers of filled sandwich crackers.
Sales to the Registrant's largest customer (Wal-Mart Stores, Inc.) were
approximately 10.3% of revenues in 2001. While the Registrant enjoys a
continuing business relationship with Wal-Mart Stores, Inc., the loss of this
business (or a substantial portion of this business) could have a material
adverse effect upon the Registrant.
On December 29, 2001, the Registrant and its subsidiaries had 4,679
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 140-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 three-shift
basis. Also adjacent to the main facility are a 70,400 square foot precast
concrete building, 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
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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. Additionally, 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 41,000 and
83,000 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
eight distribution/warehouse facilities for periods ranging from one to six
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 2002.
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 61 Secretary of Lance, Inc. since 1997 and Assistant Secretary 1981-1997 and Corporate
Attorney since 1976, retired 2002
H. Dean Fields 60 Vice President of Lance, Inc. since 2002; President of Vista Bakery, Inc. (subsidiary
of Lance, Inc.) since 1996
L. Rudy Gragnani 48 Vice President of Lance, Inc. since 1997; Vice President of Coca-Cola Bottling Company of New
York 1996-1997
Earl D. Leake 50 Vice President of Lance, Inc. since 1995
Frank I. Lewis 49 Vice President of Lance, Inc. since 2000 and Regional Vice President of Frito Lay, Inc.
(subsidiary of PepsiCo, Inc.) 1991-2000
David R. Perzinski 42 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
B. Clyde Preslar 47 Vice President and Chief Financial Officer of Lance, Inc. since 1996; Secretary of Lance, Inc.
since 2002
Richard G. Tucker 47 Vice President of Lance, Inc. since 1996; President of Lance Company since 1999
Margaret E. Wicklund 41 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 on April 26, 2001, except Mr.
Fields was appointed Vice President on January 31, 2002 and Mr. Preslar was
appointed Secretary on February 1, 2002. 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 4,088 stockholders of record as of February 19, 2002.
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 2001 and 2000.
High Low Dividend
2001 Interim Periods Price Price Paid
- -------------------- ------ ------ --------
First quarter (13 weeks ended March 31, 2001) $13.50 $10.25 $ 0.16
Second quarter (13 weeks ended June 30, 2001) 13.70 10.88 0.16
Third quarter (13 weeks ended September 29, 2001) 14.99 10.25 0.16
Fourth quarter (13 weeks ended December 29, 2001) 15.95 12.30 0.16
High Low Dividend
2000 Interim Periods Price Price Paid
- -------------------- ------ ------ --------
First quarter (13 weeks ended March 25, 2000) $11.50 $ 8.88 $ 0.16
Second quarter (13 weeks ended June 24, 2000) 11.44 9.31 0.16
Third quarter (13 weeks ended September 23, 2000) 10.50 8.56 0.16
Fourth quarter (14 weeks ended December 30, 2000) 12.88 9.00 0.16
On January 31, 2002, the Board of Directors of Lance, Inc. declared a
quarterly cash dividend of $0.16 per share payable on February 20, 2002 to
stockholders of record on February 11, 2002. The Board of Directors of Lance,
Inc. will consider the amount of future cash dividends on a quarterly basis.
The Registrant's Amended and Restated Credit Agreement dated May 26,
2000, restricts payment of cash dividends and repurchases of its common stock by
the Registrant if, after payment of any such dividends or any such repurchases
of its common stock, the Registrant's consolidated stockholders' equity would be
less than $125,000,000. At December 29, 2001, the Registrant's consolidated
stockholders' equity was $177,919,000.
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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 29, 2001. 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.
2001 2000 1999 1998 1997
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RESULTS OF OPERATIONS:
Net sales and other operating
revenue $582,906 $576,299 $531,274 $486,432 $486,854
Earnings before interest and taxes 41,395 39,026 42,282 46,107 41,837
Earnings before income taxes 37,637 34,550 39,865 43,743 48,688
Income taxes 13,860 12,589 15,104 16,135 18,591
Net income 23,777 21,961 24,761 27,608 30,097
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 28,909 28,961 29,874 29,925 29,893
DILUTED 29,068 28,976 29,918 30,043 30,018
PER SHARE OF COMMON STOCK:
Net income - basic 0.82 0.76 0.83 0.92 1.01
Net income - diluted 0.82 0.76 0.83 0.92 1.00
Cash dividends 0.64 0.64 0.96 0.96 0.96
FINANCIAL STATUS AT YEAR-END:
Total assets $313,399 $316,138 $330,662 $251,403 $252,740
Total debt 49,831 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
food products including individual and multi-pack configurations of sandwich
crackers, cookies, candy, cakes, meat snacks and bread basket items as well as
salty snacks including potato chips, corn chips, popcorn products and nuts. In
addition, the Company manufactures products packaged in larger sizes including
crackers, cookies, bread basket items, potato chips and other salty snack
products. Of the products sold by the Company, 80% are manufactured by the
Company and 20% are purchased for resale. Products are distributed by the
Company's direct-store delivery ("DSD") system, third party carriers and through
direct shipments by its own transportation fleet.
The Company's branded product customer base includes grocery and mass
merchants, convenience and drug stores, food service brokers and institutions,
vending operations, schools, military and government facilities and "up and down
the street" outlets such as recreational facilities, offices, restaurants and
independent retailers. The Registrant's non-branded product sales consist
primarily of private label sales. They also include sales of other companies'
branded products and sales to other manufacturers. Private label customers
include grocery and mass merchants. The Registrant sells other companies'
branded products primarily through its vending operations and through
convenience and drug stores and "up and down the street" outlets. The Company
currently distributes products throughout most of the United States and parts of
Canada and Europe.
The Company's growth plans are based on improved sales, more effective
distribution, increased marketing activities, new product introductions and
greater penetration of growing trade channels such as mass merchants,
convenience and grocery stores. A key element of these plans is the
revitalization of the Company's DSD route sales system.
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgements that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to customer programs
and incentives, bad debts, inventories, investments, intangible assets, income
taxes, insurance, other post-retirement benefits, and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgements about
the carrying values of assets and liabilities that are not readily
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apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000 2001 2000 DIFFERENCE
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Revenues $582.9 100.0% $576.3 100.0% $ 6.6 1.1%
Cost of sales 284.1 48.7% 284.7 49.4% 0.6 0.2%
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Gross margin 298.8 51.3% 291.6 50.6% 7.2 2.5%
Selling, marketing and delivery expenses 220.6 37.8% 223.6 38.8% 3.0 1.3%
General and administrative expenses 30.2 5.2% 25.4 4.4% (4.8) (18.9)%
Provisions for employees' retirement plans 4.5 0.8% 4.2 0.7% (0.3) (7.1)%
Amortization of goodwill and other intangibles 2.1 0.4% 1.8 0.3% (0.3) (16.7)%
Other income, net (0.0) (0.0)% (2.4) (0.4)% (2.4) (100.0)%
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Earnings before interest and taxes 41.4 7.1% 39.0 6.8% 2.4 6.2%
Interest expense, net 3.7 0.6% 4.4 0.8% 0.7 15.9%
Income taxes 13.9 2.4% 12.6 2.2% (1.3) (10.3)%
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Net income $ 23.8 4.1% $ 22.0 3.8% $ 1.8 8.2%
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Revenues in the 52-week fiscal year 2001 increased $6.6 million or 1.1%
over the 53-week fiscal year 2000. The revenue impact of the fifty-third week in
2000 was approximately $6.6 million. Excluding the additional revenue week in
2000, revenues in 2001 increased $13.2 million as a result of increased sales of
the Company's non-branded products. The Company's branded product sales declined
slightly as compared to 2000. In 2001, the Company's branded products comprised
67% of total sales as compared to 69% in 2000. The Company's non-branded
revenues consist mostly of private label sales and also include sales to other
manufacturers and third party branded products. Private label sales represented
20% and 19% of revenues in 2001 and 2000, respectively.
Gross margin as a percent of revenue increased 0.7 percentage points to
51.3% in 2001. This increase is primarily due to improved manufacturing
efficiencies and lower commodity and packaging costs. These improvements were
partially offset by a higher proportion of sales to direct ship customers which
have lower gross margins.
Selling, marketing and delivery costs decreased $3.0 million compared
to 2000. This decrease is partially due to a higher proportion of direct
shipments, which require less selling and delivery expenses. In addition,
reduced severance provisions and lower expenses due to the impact of the
fifty-third week in 2000 contributed to the decrease in selling, marketing and
delivery costs. These decreases were somewhat offset by increased provisions for
incentive compensation.
General and administrative expenses increased $4.8 million compared to
the prior year due predominately to increased incentive compensation provisions.
The provision for employees' retirement plans was higher due to the
profitability-based formula for these contributions.
Other income primarily includes gains and losses on fixed asset
dispositions and foreign currency transactions. In addition, included in other
income in 2001 was a $0.9 million gain related to the curtailment of the
Company's post-retirement benefit plan.
8
Net interest expense of $3.7 million in 2001 declined from $4.4 million
in 2000. The decrease of $0.7 million was primarily the result of lower interest
rates and lower debt levels during the year. See discussion in "Liquidity and
Capital Resources" section below.
The effective income tax rate increased from 36.4% in 2000 to 36.8% in
2001 due to changes in the composition of earnings among the consolidated
entities.
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 223.6 38.8% 213.1 40.1% (10.5) (4.9)%
General and administrative expenses 25.4 4.4% 24.9 4.7% (0.5) (2.0)%
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)%
Other income, net (2.4) (0.4)% (1.0) (0.2)% 1.4 140.0%
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Earnings before interest and taxes 39.0 6.8% 42.3 8.0% (3.3) (7.8)%
Interest expense, net 4.4 0.8% 2.4 0.5% (2.0) (83.3)%
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)%
- ---------------------------------------------------------------------------------------------------------------------------
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
Foods Ltd. ("Tamming") and Cape Cod Potato Chip Company Inc. ("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 direct ship customers. Additional factors included production inefficiencies
related to significant changes in volume and sales mix as well as the lower
gross margins of the acquired businesses.
Selling, marketing and delivery costs increased $10.5 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 $0.5 million compared to
the prior year due to the full year impact of the acquired businesses. The
provision for employees' retirement plans was lower due to the
profitability-based formula for these contributions. Amortization of goodwill
and intangibles increased as a result of the full year impact of the
acquisitions. Other income of $2.4 million predominately includes gains and
losses on fixed asset dispositions.
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 acquisition related debt incurred in 1999.
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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.
LIQUIDITY AND CAPITAL RESOURCES
Primary sources of liquidity are cash flows from operating activities
and certain financing activities. Net cash provided by operating activities was
$63.0 million for 2001. This compares to $51.5 million in 2000. The increase in
net cash provided by operating activities is primarily related to increased
earnings, further decreases in accounts receivable and increases in various
operating liabilities. Year-to-year changes in inventory and accounts payable
levels impacted cash flow unfavorably. Working capital (other than cash and cash
equivalents) decreased to $31.4 million from $40.6 million in 2000.
Cash flow used in investing activities was $28.8 million in 2001. The
primary component of cash used in investing activities was capital expenditures.
Cash expenditures for fixed assets totaled $30.9 million in 2001 compared to
$24.8 million in 2000. Major investments in 2001 included automated packaging
equipment and potato chip processing equipment. During 2001, proceeds from the
sale of real and personal property provided approximately $2.1 million of cash
to fund investing activities.
Cash used in financing activities for 2001 totaled $30.4 million.
During 2001, the Company repaid debt, net of borrowings, of $12.0 million. In
2001 and 2000 the Company paid dividends of $0.64 per share totaling $18.6
million each year. On January 31, 2002, the Board of Directors authorized the
repurchase of 1.0 million shares of its common stock. During 2001, the Company
did not repurchase any shares of its common stock and currently has no active
program to repurchase shares of its common stock.
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 Canadian ("Cdn") $25 million through April 2004. At December 29,
2001, $9.5 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. On February 8, 2002,
the agreement was further amended to extend the maturity date to February 2007.
As of December 29, 2001, cash and cash equivalents totaled $4.8 million
and total debt outstanding was $49.8 million. Additional borrowings available
under all credit facilities totaled $68.7 million. The Company has complied with
all financial covenants contained in the financing agreements.
The Company leases certain facilities and equipment classified as
operating leases. The future minimum lease commitments for operating leases as
of December 29, 2001 were $5,540,000. The minimum commitments under these leases
for 2002, 2003, 2004, 2005 and thereafter are $2,723,000, $1,342,000, $953,000,
$328,000 and $194,000 respectively.
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The Company also maintains standby letters of credit in connection with
its self-insurance reserves for casualty claims. The total amount of these
letters of credit was $5.9 million as of December 29, 2001.
In addition, the Company entered into a long-term guaranteed payment
commitment during 2000 with a supplier. Under the terms of this agreement, to
the extent the Company's purchases exceed an agreed upon amount no additional
amount is due from the Company. However, if purchases are below this amount, the
Company is required to compensate the supplier. During 2000 and 2001, the
Company made purchases from the supplier totaling $2.1 million and $2.8 million,
respectively. In addition, the Company has provided a guarantee to a third party
for fixed asset financing for the supplier. The maximum annual payment
guarantees to both the supplier and third party are $838,000 per year through
2007 and $249,000 in 2008. The total amount outstanding under these guarantees
was $4,439,000 as of December 29, 2001.
Available cash, cash from operations and available credit under the
credit facilities are expected to be sufficient to meet anticipated cash
expenditures and normal operating requirements for the foreseeable future.
On January 31, 2002 the Board of Directors declared a $0.16 quarterly
dividend payable on February 20, 2002 to stockholders of record on February 11,
2002.
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, interest rate and credit risks, as described in the Company's
filings with the Securities and Exchange Commission, including Exhibit 99 to
this Form 10-K.
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, credit risks 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. At times, the Company enters into commodity futures and option
contracts to manage fluctuations in prices of anticipated purchases of certain
raw materials. The Company's 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.
During 2001, the Company did not enter into any commodity contracts.
Most of 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. To manage exposure to changing interest rates, the Company
has entered into an interest
11
rate swap agreement covering a significant amount of its outstanding debt. At
December 29, 2001, the Company's long term debt totaled $49.8 million, with
interest rates ranging from 4.04% to 7.00%, with a weighted average interest
rate of 5.76%. A 10% increase in U.S. LIBOR and Canadian LIBOR would have
increased interest expense for the 2001 year by $0.5 million.
The Company is exposed to certain credit risks related to its accounts
receivable. The Company performs ongoing credit evaluations of its customers to
minimize the potential exposure. In February 2002, a customer of the Company
lost a significant portion of its business and is now considered a credit risk.
The maximum loss that the Company could recognize, net of tax, is approximately
$350,000 as of February 19, 2002. As of December 29, 2001, the Company had an
allowance for doubtful accounts of $2.0 million.
Through the operations of its Canadian subsidiary, Tamming, the Company
has an exposure to foreign exchange rate fluctuations, primarily between U.S.
and Canadian dollars. Foreign exchange rate fluctuations have limited impact on
the earnings of the Company as a majority of the sales of Tamming are
denominated in U.S. dollars. The indebtedness used to finance the acquisition of
Tamming is denominated in Canadian dollars and serves as an effective hedge of
the net asset investment in Tamming. A 10% devaluation of the Canadian dollar
would result in an immaterial change in the Company's net asset investment in
Tamming.
Inflation and changing prices have not had a material impact on the
Company's net sales and income for the last three fiscal years.
For the 2001 fiscal year, the Company implemented SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or a liability
measured at its fair value. It also requires 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.
Prior to September 2001, the Company had no derivative instruments. There was no
impact on the financial statements for the initial adoption.
The Company is exposed to certain market, commodity and interest rate
risks as part of its ongoing business operations and may use derivative
financial instruments, where appropriate, to manage these risks. The derivative
instruments must be effective at reducing the risk associated with the exposure
being hedged and must be designated as a hedge at the inception of the contract.
The Company does not use derivatives for trading purposes.
Interest Rate Risk - The Company is exposed to interest rate volatility
with regard to existing variable rate debt obligations. The Company uses
interest rate swap agreements to reduce interest rate volatility, and to achieve
a desired proportion of variable versus fixed rate debt, based on current and
projected market conditions.
Price Risk - The Company is exposed to price fluctuations primarily as
a result of anticipated purchases of raw and packaging materials. The Company
will consider the use
12
of futures and options contracts to reduce price fluctuations; however, the
Company currently has no open futures or options contracts related to raw and
packaging materials.
The Company currently records the fair value of outstanding derivatives
in other long-term liabilities. Gains and losses related to the ineffective
portion of the hedge is recorded in expenses based on the nature of the
derivative. There was no ineffectiveness as a result of the derivative as of
December 29, 2001. The qualifying derivative is reported as part of cash flow
hedge arrangements as follows:
Cash flow hedges involve hedging the risks relating to variable rates
or prices that affect future cash payments by the Company. Gains and losses on
these instruments are recorded in Other Comprehensive Income until the
underlying transaction is recorded in earnings. When the hedged item is
realized, gains or losses are reclassified from Accumulated Other Comprehensive
Income to the Consolidated Statement of Earnings on the same line item as the
underlying transaction risk.
In September 2001, the Company entered into an interest rate swap
agreement in order to manage the risk associated with variable interest rates.
The variable-to-fixed interest rate swap is accounted for as a cash flow hedge,
with effectiveness assessed based on changes in the present value of interest
payments on the underlying debt. The notional amount, interest payment and
maturity dates of the swap match the principal, interest payment and maturity
dates of the related debt. The interest rate on the swap was 5.9%, including
applicable margin. The underlying notional amount of the swap agreement is Cdn
$50 million. The fair value, determined by a third party financial institution,
of the interest rate swap was a $1.2 million liability as of December 29, 2001
and is included in other long-term liabilities.
Unrealized losses from the cash flow hedge are recorded in accumulated
other comprehensive income at December 29, 2001 was $0.7 million, net of tax,
related to the interest rate swap, which will be reclassified into interest
expense over the life of the interest rate hedge.
If the interest rate swap was terminated, the gain or loss realized
upon termination would be deferred and amortized to interest expense over the
remaining term of the underlying debt instrument it was intended to modify.
However, if the underlying debt instrument were to be settled prior to maturity,
the gain or loss realized upon termination would be recognized immediately.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 29, 2001, December 30, 2000, and December
25, 1999 (In thousands, except share and per share data)
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUE $ 582,906 $ 576,299 $ 531,274
- --------------------------------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES/(INCOME):
Cost of sales 284,120 284,702 246,017
Selling, marketing and delivery 220,641 223,648 213,057
General and administrative 30,240 25,378 24,926
Provisions for employees' retirement plans 4,448 4,161 4,575
Amortization of goodwill and other intangibles 2,082 1,797 1,355
Other income, net (20) (2,413) (938)
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND INCOME TAXES 41,395 39,026 42,282
Interest expense, net 3,758 4,476 2,417
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 37,637 34,550 39,865
Income taxes 13,860 12,589 15,104
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 23,777 $ 21,961 $ 24,761
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 0.82 $ 0.76 $ 0.83
Diluted $ 0.82 $ 0.76 $ 0.83
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 28,909,000 28,961,000 29,874,000
Weighted average shares outstanding - diluted 29,068,000 28,976,000 29,918,000
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
14
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 29, 2001 and December 30, 2000
(In thousands, except share data)
(restated)
ASSETS 2001 2000
- ------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,798 $ 1,224
Accounts receivable (less allowance for doubtful
accounts of $2,003 and $1,843, respectively) 41,718 44,593
Inventories 26,828 24,295
Prepaid income taxes -- 1,120
Deferred income tax benefit 5,824 4,731
Prepaid expenses and other 3,126 5,430
- ------------------------------------------------------------------------------------------------------------
Total current assets 82,294 81,393
Property, plant and equipment, net 179,436 179,283
Goodwill, net 39,411 42,069
Other intangible assets, net 9,193 10,177
Other assets 3,065 3,216
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 313,399 $ 316,138
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 487 $ 395
Accounts payable 10,776 14,718
Accrued compensation 15,335 8,844
Accrued profit-sharing retirement plan 4,274 3,836
Accrual for insurance claims 5,037 4,642
Other payables and accrued liabilities 10,178 6,961
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 46,087 39,396
- ------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Long-term debt 49,344 63,536
Deferred income taxes 23,063 21,548
Accrued postretirement health care costs 8,852 11,317
Accrual for insurance claims 4,511 4,083
Other long-term liabilities 3,623 2,600
- ------------------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 89,393 103,084
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, 28,995,172 and 28,947,222 shares
outstanding at December 29, 2001 and December 30, 2000 24,163 24,123
Preferred stock, 0 shares outstanding at December 29, 2001
and December 30, 2000 -- --
Additional paid-in capital 1,865 1,229
Unamortized portion of restricted stock awards
(826) (437)
Retained earnings 154,075 148,859
Accumulated other comprehensive loss
(1,358) (116)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 177,919 173,658
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND $ 313,399 $ 316,138
STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
15
Consolidated Statements of Stockholders' Equity and Comprehensive Income
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 29, 2001, December 30, 2000, and December
25,1999 (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 26, 1998 (restated) 29,989,210 $ 24,991 $ 1,981 $(502) $ 158,589 $ 90 $ 185,149
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 (restated) 29,950,897 24,959 2,552 (799) 153,128 15 179,855
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 (restated) 28,947,222 24,123 1,229 (437) 148,859 (116) 173,658
Comprehensive income:
Net income -- -- -- -- 23,777 -- 23,777
Unrealized loss on interest rate
swap, net of tax effect of ($436) -- -- -- -- -- (739) (739)
Foreign currency translation
adjustment -- -- -- -- -- (503) (503)
---------
Total comprehensive income -- -- -- -- -- -- 22,535
---------
Cash dividends paid to stockholders -- -- -- -- (18,561) -- (18,561)
Stock options exercised 13,000 11 129 -- -- -- 140
Issuance of restricted stock, net of
cancellations 34,950 29 507 (389) -- -- 147
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 29, 2001 28,995,172 $ 24,163 $ 1,865 $(826) $ 154,075 $(1,358) $ 177,919
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
16
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 29, 2001, December 30, 2000, and December
25, 1999 (In thousands)
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 23,777 $ 21,961 $ 24,761
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 31,111 28,951 27,435
Gain on sale of property, net (1,239) (2,043) (902)
Deferred income taxes 985 776 3,518
Other, net 148 156 266
Changes in operating assets and liabilities:
Accounts receivable 2,616 1,853 (1,818)
Inventory (2,598) 3,086 (3,698)
Prepaid expenses and other current assets 753 (2,398) (903)
Accounts payable (3,901) (851) 1,458
Accrued income taxes 2,119 (248) 1,623
Other payables and accrued liabilities 9,214 252 (5,697)
- -------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 62,985 51,495 46,043
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (30,918) (24,751) (30,537)
Proceeds from sale of property 2,144 3,848 1,570
Acquisition of businesses, net of cash acquired -- -- (53,570)
Purchases of marketable securities -- -- (556)
Maturities of marketable securities -- -- 1,886
Sales of marketable securities -- -- 7,643
Other, net -- -- 63
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (28,774) (20,903) (73,501)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid (18,561) (18,572) (28,808)
Issuance (purchase) of common stock, net 140 (9,610) (1,438)
Proceeds from debt issued, net of acquisition costs -- -- 64,519
Repayments of debt (304) (384) (36,969)
Borrowings (repayments) under revolving credit facilities,
net (11,675) (13,995) 35,500
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (30,400) (42,561) 32,804
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (237) (110) 101
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,574 (12,079) 5,447
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 1,224 13,303 7,856
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 4,798 $ 1,224 $ 13,303
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes, net of refunds of $602,
$423 and $3,043, respectively $ 9,986 $ 11,244 $ 9,666
Cash paid for interest $ 3,046 $ 3,775 $ 2,211
Deferred taxes included in other comprehensive income $ 436 $ -- $ 45
Deferred notes payable $ -- $ 8,242 $ --
See Notes to Consolidated Financial Statements.
17
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 29, 2001 and December 30, 2000
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The aggregated operating units of Lance, Inc. and subsidiaries (the Company)
manufacture, market and distribute a variety of snack food products. The
Company's customer base includes grocery and mass merchants, convenience and
drug stores, food service brokers and institutions, vending operations, schools,
military and government facilities and "up and down the street" customers.
Products are distributed through the Company's direct-store delivery system,
through third party common carriers and direct shipments by the Company's
transportation fleet. The Company currently distributes products throughout most
of the United States and parts of Canada and Europe.
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.
REVENUE RECOGNITION
The Company's policy is to recognize a sale at the time title to the finished
product passes to the customer. Revenue is recognized as the net amount to be
received after deducting estimated amounts for discounts.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday of December. The years ended
December 29, 2001 and December 25, 1999 included 52 weeks. The year ended
December 30, 2000 included 53 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, insurance reserves and
the useful lives of buildings and equipment. Actual results may differ from
these estimates.
18
RESTATEMENT OF PRIOR YEAR BALANCES
In 2001, the Company identified a valuation error related to the Company's
historical accounting for vending machine product inventories and related
vending receivables. The Company has restated retained earnings for the earliest
period presented in these financial statements. The cumulative effect of this
error for fiscal years prior to 1999 resulted in a reduction of retained
earnings of $935,000 as of December 26, 1998. The effects of this error on the
intervening periods included in these financial statements is not material.
Accordingly, the aggregate effect on 1999, 2000 and 2001 was a reduction in net
income in the consolidated statement of income for fiscal 2001 of $64,000.
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.
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
The Company's primary raw materials include flour, peanuts, peanut butter, oils,
shortenings, potatoes, sugar, popcorn, cheese, corn syrup and seasonings.
Supplies principally consist of packaging materials, including flexible film and
boxes.
Inventories are valued at the lower of cost or market; 68% of the cost of the
inventories in 2001 and 65% in 2000 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 may enter into various forward purchase agreements and derivative
financial instruments to reduce the impact of volatility in raw material
ingredient prices. As of December 29, 2001, 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
19
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
earnings. Assets under capital leases are amortized over the estimated useful
life of the related property.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase 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 2001 were $2,082,000 and $5,155,000, respectively, compared to
amortization expense and accumulated amortization of $1,797,000 and $3,133,000
in 2000.
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, general liability and medical costs. Self-insured
accruals are based on claims filed and an estimate for claims incurred but not
reported. Workers' compensation, automobile, and general liability costs are
covered by standby letters of credit with the Company's claims administrators.
Claims in excess of the self-insured levels are fully insured.
20
POST-RETIREMENT PLANS
The Company has a defined benefit health care plan which currently provides
medical benefits for retirees and their spouses to age 65. The plan was amended
effective July 1, 2001, and the Company began the phase out of the
post-retirement healthcare plan. The post-retirement healthcare plan will be
phased-out over the next ten years. This amendment resulted in a decrease in the
benefit obligation which will be amortized over the next 3.19 years. The net
periodic costs are recognized as employees perform the services necessary to
earn the post-retirement 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 $210,000 in 2001, $261,000 in 2000 and $300,000 in 1999.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain market, commodity and interest rate risks as
part of its ongoing business operations and may use derivative financial
instruments, where appropriate, to manage these risks. The derivative
instruments must be effective at reducing the risk associated with the exposure
being hedged and must be designated as a hedge at the inception of the contract.
The Company does not use derivatives for trading purposes.
For the 2001 fiscal year, the Company implemented SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or a liability measured at its
fair value. It also requires 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. There was no
impact on the financial statements for the initial adoption.
Derivatives are recognized on the balance sheet at their fair value. On the date
derivative contracts were entered into, the Company designated the derivative as
the variability of cash flows to be received or paid related to a recognized
asset or liability ("cash flow" hedge). The Company formally documents all
relationships between the hedging instrument and hedged items, as well as its
risk-management objective and strategy for undertaking the hedge transaction.
The Company formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
When it is determined that a derivative is not highly effective as a hedge or
that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively. Changes in the fair value of a derivative that
is highly effective and that is designated and qualifies as a cash-flow hedge
are recorded in other comprehensive income, until earnings are affected by the
variability in cash flows of the designated hedged item.
By using derivative financial instruments to hedge exposures to changes in
interest rates, the Company exposes itself to market risk. Market risk is the
adverse effect on
21
the value of a financial instrument that results from a change in interest
rates, currency exchange rates or commodity prices. The market risk associated
with interest-rate contracts is managed by establishing and monitoring
parameters that limit the types and degree of market risk that may be
undertaken. The Company assesses interest rate cash flow risk by continually
identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities. The
Company maintains risk management control systems to monitor interest rate cash
flow risk attributable to both the Company's outstanding or forecasted debt
obligations as well as the Company's offsetting hedge positions. The risk
management control systems involve the use of analytical techniques, including
cash flow sensitivity analysis, to estimate the expected impact of changes in
interest rates on the Company's future cash flows.
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 earnings. Foreign
currency transactions resulted in a minimal gain during 2001, a net gain of
$97,000 during 2000 and a net loss of $74,000 during 1999.
STOCK OPTION PLANS
The Company has 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 intrinsic value-based method of accounting prescribed by
APB Opinion No. 25 and related interpretations including FASB Interpretation No.
44, "Accounting for Certain Transactions involving Stock Based Compensation, an
interpretation of APB Opinion No. 25." The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma net income
and pro forma earnings per share disclosures for employee stock options as if
the fair value based method defined under the provisions of SFAS No. 123 had
been applied.
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are calculated by including all dilutive common
shares such as stock options. Dilutive potential shares were 158,000 in 2001,
15,000 in 2000 and 44,000 in 1999. Anti-dilutive shares totaling 1,367,000 in
2001, 2,123,000 in 2000 and 1,573,000 in 1999 were excluded from the dilutive
earnings calculation. No adjustment to reported net income is required when
computing diluted earnings per share.
22
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 $10,132,000, $11,932,000 and $8,984,000 for the fiscal years 2001, 2000 and
1999, respectively, and are included in selling, marketing and delivery costs in
the Consolidated Statements of Income.
CONCENTRATION OF CREDIT RISK
Sales to the Company's largest customer (Wal-Mart Stores, Inc.) were
approximately 10.3% of revenues in 2001. Accounts receivable at December 29,
2001 and December 30, 2000 included receivables from Wal-Mart Stores, Inc.
totaling $6.5 million and $5.3 million, respectively.
The Company's total bad debt expense for the fiscal years 2001, 2000 and 1999
amounted to $2.3 million, $2.7 million and $2.8 million, respectively.
SUBSEQUENT EVENT (UNAUDITED)
In February 2002, a customer of the Company lost a significant portion of its
business and is now considered a credit risk. The maximum loss that the Company
could recognize, net of tax, is approximately $350,000 as of February 19, 2002.
NEW ACCOUNTING STANDARDS
Emerging Issues Task Force Issue 00-14, Accounting for Certain Sales Incentives,
and Emerging Issues Task Force Issue 00-25, Accounting for Consideration from a
Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products, will be effective beginning in the Company's quarter ending
March 30, 2002. These Issues address the recognition, measurement and income
statement classification for certain sales incentives. Had the Company
implemented these new accounting policies certain expenses would have been
reclassified in the income statement to reduce net sales and other operating
revenue and selling, marketing and delivery expenses. If this new accounting
pronouncement would have been in effect for the years ended December 29, 2001,
December 30, 2000, and December 25, 1999, the impact of these reclassifications
would have been $26.1 million, $23.4 million and $23.2 million respectively.
These amounts would have been reclassified between net sales and other operating
revenue and selling, marketing and delivery expenses. There would be no net
income impact.
In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets. Statement No. 141 requires that the purchase method of accounting be
used for all business combinations initiated and completed after June 30, 2001.
Statement No. 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. Statement No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also
23
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The Company is required to adopt the provisions of SFAS No. 141 immediately, and
SFAS No. 142 is effective January 1, 2002. SFAS No. 141 will require that upon
adoption of SFAS No. 142, the Company evaluate its existing intangible assets
and goodwill that were acquired in a prior purchase business combination, and to
make any necessary reclassifications in order to conform with the new criteria
in SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No.
142, the Company will be required to reassess the useful lives and residual
values of all intangible assets acquired, and make any necessary amortization
period adjustments by the end of the first quarter of 2002. In addition, to the
extent an intangible asset is identified as having an indefinite life, the
Company will be required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 within the first quarter 2002.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
quarter of 2002.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $39 million and unamortized identifiable intangible assets in the
amount of $9 million, all of which will be subject to the provisions of SFAS No.
141 and SFAS No. 142. Amortization expense related to goodwill was approximately
$1.2 million for the year ended December 29, 2001. Under the provisions of SFAS
No. 142, for fiscal years beginning after 2001, the Company will no longer
record amortization expense on goodwill.
During the fourth quarter of 2001, the Company hired an independent appraisal
firm to perform a fair value assessment of certain reporting units, as defined
in SFAS No. 142. The fair value assessment will be used by the Company in its
goodwill impairment evaluation in accordance with the provisions of SFAS No.
142. The results of this evaluation indicated that, at this time, the Company
does not have an impairment of goodwill.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be 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 the asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The Company is required to
adopt SFAS No. 144 on January 1, 2002.
24
(2) ACQUISITIONS
Effective April 2, 1999, the Company acquired Tamming Foods Ltd. ("Tamming"),
which is headquartered in Waterloo, Ontario, Canada. Tamming manufactures high
quality sugar wafer products that are sold under private label in the United
States and Canada.
Effective May 24, 1999, the Company acquired Cape Cod Potato Chip Company Inc.
("Cape Cod"), which is headquartered in Hyannis, Massachusetts. Cape Cod
manufactures premium, kettle-cooked potato chips and other salty snacks, which
are distributed throughout the United States, Canada, and Europe under the Cape
Cod Potato Chips brand name.
The acquisitions described above were accounted for using the purchase method of
accounting for business combinations. The aggregate purchase price of the
acquisitions, including deferred consideration recorded in 2000 of $8.2 million,
was $62.2 million.
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
-------------------------------------------------------------------
(3) INVENTORIES
Inventories at December 29, 2001 and December 30, 2000 consisted of the
following:
(in thousands) 2001 2000
------------------------------------------------------------------------------------------------------------
Finished goods $ 16,311 $ 15,959
Raw materials 6,516 5,386
Supplies, etc 7,828 7,720
------------------------------------------------------------------------------------------------------------
Total inventories at FIFO cost 30,655 29,065
Less: adjustment to reduce FIFO cost to LIFO cost (3,827) (4,770)
------------------------------------------------------------------------------------------------------------
Total inventories $ 26,828 $ 24,295
------------------------------------------------------------------------------------------------------------
25
(4) PROPERTY, PLANT AND EQUIPMENT
Property at December 29, 2001 and December 30, 2000 consisted of the following:
(in thousands) 2001 2000
- ------------------------------------------------------------------------------------
Land and land improvements $ 11,824 $ 12,015
Buildings 69,866 68,895
Machinery, equipment and systems 197,417 175,561
Vending machines 94,822 97,679
Trucks and automobiles 34,935 32,528
Furniture and fixtures 2,961 2,978
Assets held for disposal -- 832
Construction in progress 8,208 15,127
- ------------------------------------------------------------------------------------
420,033 405,615
Accumulated depreciation and amortization (240,597) (226,332)
- ------------------------------------------------------------------------------------
Property, plant and equipment, net $ 179,436 $ 179,283
- ------------------------------------------------------------------------------------
The Company sold or disposed of certain property and equipment during 2001,
2000 and 1999 resulting in net gains (losses) of $(0.5) million, $2.1 million
and $0.9 million, respectively. These gains are included in other income on the
Consolidated Statements of Income.
At December 30, 2000, the Company had classified certain assets as held for
disposal. During 2001, these assets were disposed of at a net loss of $705,000,
which was recognized in earnings.
The Company has two facilities in Canada which accounted for $16.0 million and
$16.2 million of the total net property, plant and equipment in 2001 and 2000,
respectively.
26
(5) LONG-TERM DEBT
Long-term debt at December 29, 2001 and December 30, 2000 consists of the
following:
(in thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------
Unsecured revolving credit facility $ 9,500 $ 21,500
Cdn $50 million unsecured term loan facility 31,445 33,335
Deferred notes payable 8,336 8,242
Capital lease obligation 550 854
- ----------------------------------------------------------------------------------------------------
49,831 63,931
Less: current portion of capital lease obligation (487) (395)
- ----------------------------------------------------------------------------------------------------
Total long-term debt $ 49,344 $ 63,536
====================================================================================================
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 29, 2001, is determined by certain financial
ratios. The weighted average interest rate at December 29, 2001 and December
30, 2000 was 5.76% and 6.90%, 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 29, 2001, is
determined by certain financial ratios. The interest rate at December 29, 2001
was 3.60% compared to 6.50% at December 30, 2000. During 2001, the Company
entered into an interest rate swap agreement that fixes the interest rate on
this debt at 5.9%, including applicable margin.
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
($9.8 million at December 29, 2001) in April 2004. The Company discounted the
balance of the note at 7% and will record imputed interest over the remaining
life of the debt.
The Company 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 29, 2001. Accumulated amortization of these assets was
$650,000 at December 29, 2001. The assets are amortized over the life of the
equipment and amortization expense is included in depreciation expense.
27
The carrying value of all long-term debt approximates fair value. At December
29, 2001 and December 30, 2000, the Company had available approximately
$68,707,000 and $53,691,000 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 29, 2001. Interest
expense for 2001, 2000 and 1999 was $3,909,000, $4,582,000 and $2,732,000,
respectively.
The aggregate maturities of long-term debt, including future minimum lease
payments for capital leases, at December 29, 2001 are as follows:
(in thousands)
2002 $ 487
2003 63
2004 17,836
2005 31,445
2006 --
Thereafter --
- ------------------------------------------
Total debt $49,831
==========================================
(6) DERIVATIVE INSTRUMENTS
The Company has an interest-rate related derivative instrument to manage its
exposure on its debt instruments.
In September 2001, the Company entered into an interest rate swap agreement in
order to manage the risk associated with variable interest rates. The
variable-to-fixed interest rate swap is accounted for as a cash flow hedge,
with effectiveness assessed based on changes in the present value of interest
payments on the underlying debt. The notional amount, interest payment and
maturity dates of the swap match the principal, interest payment and maturity
dates of the related debt. The interest rate on the swap was 5.9%, including
applicable margin. The underlying notional amount of the swap agreement is Cdn
$50 million. The fair value of this interest rate swap was a liability of $1.2
million at December 29, 2001 and is included in other long-term liabilities.
Unrealized losses from the cash flow hedge recorded in accumulated other
comprehensive income at December 29, 2001 were $0.7 million, net of tax,
related to the interest rate swap, which will be reclassified into interest
expense over the life of the interest rate hedge.
28
(7) INCOME TAXES
Income tax expense consists of the following:
(in thousands) 2001 2000 1999
- ------------------------------------------------------------------------------------------
Current:
Federal $ 12,057 $ 10,673 $ 11,895
State, foreign and other 884 1,209 1,352
- ------------------------------------------------------------------------------------------
12,941 11,882 13,247
==========================================================================================
Deferred:
Federal 694 793 1,568
State, foreign and other 225 (86) 289
- ------------------------------------------------------------------------------------------
919 707 1,857
==========================================================================================
Total income tax expense $ 13,860 $ 12,589 $ 15,104
==========================================================================================
A reconciliation of the federal income tax rate to the Company's effective
income tax rate follows:
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
State and other income taxes,
net of federal income tax benefit 2.3 1.8 2.5
Miscellaneous items, net (0.5) (0.4) 0.4
- --------------------------------------------------------------------------------------------
Income tax expense 36.8% 36.4% 37.9%
============================================================================================
29
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 29, 2001
and December 30, 2000 are presented below:
(in thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets
Reserves for employee compensation, deductible
when paid for income tax purposes, accrued
for financial reporting purposes $ 3,350 $ 2,619
Reserves for insurance claims, deductible when
paid for income tax purposes, accrued for
financial reporting purposes 6,584 7,194
Other reserves deductible when paid for income
tax purposes, accrued for financial reporting
purposes 2,817 2,835
Unrealized losses deductible when realized for
Income tax purposes, included in Other
Comprehensive Income 436 --
Inventories, principally due to additional costs
capitalized for income tax purposes 1,177 1,479
Net state operating loss carryforwards (expiring
after 2006) 457 564
- ---------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,821 14,691
Less valuation allowance (457) (564)
- ---------------------------------------------------------------------------------------------------------
Net deferred tax assets 14,364 14,127
- ---------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation, net of impairment
reserves (26,620) (25,494)
Deferred income (1,592) (1,917)
Trademark amortization (2,934) (3,181)
Other (457) (352)
- ---------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (31,603) (30,944)
- ---------------------------------------------------------------------------------------------------------
Total net deferred tax liabilities $(17,239) $(16,817)
- ---------------------------------------------------------------------------------------------------------
The valuation allowance as of December 29, 2001 and December 30, 2000 was
$457,000 and $564,000, respectively. The net change in the valuation allowance
during 2001 was a decrease of $107,000. The valuation allowance relates to
state net operating loss carryforwards, which management does not believe will
be fully utilized due to the limited nature of the Company's activities in the
states which the state net operating losses exist. 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.
30
(8) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides post-retirement 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 July
1, 2001, and the Company began the phase out of its post-retirement healthcare
plan. This plan currently provides post-retirement medical benefits for
retirees and their spouses to age 65. The post-retirement healthcare plan will
be phased-out over the next ten years. Present participants and those employees
age 55 and older will continue to be covered under the plan. This change
resulted in a decrease in the benefit obligation at the beginning of 2001 of
$938,000 which will be amortized over the next 3.19 years. In addition, the
change resulted in a curtailment gain of $869,000 that was recognized in 2001.
The Company's post-retirement health care plan is not currently funded.
The following table sets forth the plan's benefit obligations, funded status,
and net periodic benefit costs for the three years ended December 29, 2001:
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 3,657 $ 5,283 $ 7,322
Service cost 345 700 588
Interest cost 236 393 294
Plan participants' contributions 379 234 350
Prior service credit (938) -- (2,739)
Actuarial (gain)/loss (170) (2,639) 380
Benefits paid (851) (314) (912)
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 2,658 3,657 5,283
- ---------------------------------------------------------------------------------------------------------------
Funded status (2,658) (3,657) (5,283)
Unrecognized net actuarial (gain)/loss (4,977) (6,018) (3,980)
Unrecognized prior service cost (1,217) (1,642) (2,147)
- ---------------------------------------------------------------------------------------------------------------
Accrued benefit cost $ (8,852) $(11,317) $(11,410)
===============================================================================================================
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 345 $ 700 $ 588
Interest cost 236 393 294
Recognition of prior service costs (494) (505) (505)
Recognized net gain (1,221) (590) (755)
- ---------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (1,134) $ (2) $ (378)
===============================================================================================================
WEIGHTED AVERAGE DISCOUNT RATES
USED IN DETERMINING ACCUMULATED
POST-RETIREMENT BENEFIT OBLIGATION:
Beginning of year 7.50% 7.75% 6.75%
- ---------------------------------------------------------------------------------------------------------------
End of year 7.00% 7.50% 7.75%
===============================================================================================================
For measurement purposes, a 10.00% annual rate of increase in the per capita
cost of covered health care benefits for the self-insured plans was assumed for
2001. 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.
31
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated post-retirement benefit obligation as
of December 29, 2001 by $76,000, and the aggregate of the service and interest
cost components of post-retirement expense for the year then ended by $30,000.
Decreasing the assumed health care cost trend rate by one percentage point in
each year would decrease the accumulated post-retirement benefit obligation as
of December 29, 2001 by $74,000, and the aggregate of the service and interest
cost components of post-retirement expense for the year then ended by $29,000.
(9) EMPLOYEE BENEFIT PLANS AND NON EMPLOYEE STOCK OPTION PLANS
EMPLOYEE PROFIT-SHARING RETIREMENT PLAN
The Company has a retirement plan covering substantially all of its employees.
The plan is a defined contribution retirement plan providing for contributions
equal to 10% of net income before income taxes. Plan funding is made in
accordance with the provisions of the plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which shares of common
stock are purchased on the open market with employee and Company contributions.
The plan provides for the Company to contribute an amount equal to 10% of the
employees' contributions. A total of 800,000 shares of common stock has been
registered under the Securities Act of 1933 for purchase under the plan.
Company contributions amounted to $63,000 in 2001, $70,000 in 2000 and $78,000
in 1999.
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.
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 29, 2001 was 7.4 years.
Since 1994, no stock appreciation rights (SAR's) have been issued. There are
55,825 SAR's outstanding and are included in the chart below. The option price
for the SAR's equaled fair market value of the Company's stock at the date of
grant. The Company's quoted market price has been below the granted price,
therefore, no compensation costs have been recorded for the years presented.
The weighted average remaining life of these rights at December 29, 2001 was
1.3 years.
32
Number of Weighted
Shares Average Exercise Shares
Outstanding Price Exercisable
- --------------------------------------------------------------------------------------------
Balance at December 26, 1998 829,358 $ 19.32 238,099
Granted 802,100 16.15
Exercised (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 -- --
Expired/Forfeited (245,853) 15.83
- --------------------------------------------------------------------------------------------
Balance at December 30, 2000 1,966,743 14.99 626,622
Granted 606,200 12.69
Exercised (13,000) 10.13
Expired/Forfeited (92,706) 15.58
- --------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 29, 2001 2,467,237 $ 14.87 853,647
============================================================================================
NON-EMPLOYEE DIRECTORS 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. The options under this plan vest on the first
anniversary of the date of grant. Options granted under the Director Plan shall
expire ten years from the date of grant. There were 40,000 options granted
during 2001 and 2000, respectively. The option price, which equals the fair
market value of the Company's stock at the date of grant, was $11.65 and $10.50
for options granted in 2001 and in 2000, respectively. There were 226,000
options outstanding at December 29, 2001. The weighted average remaining
contractual life at December 29, 2001 was 7.7 years.
FAIR VALUE OF STOCK OPTIONS
There were 1,039,647 options exercisable under all stock option plans at
December 29, 2001. 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.
33
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Expected dividend yield 4.30% 5.06% 6.05%
Risk-free interest rate 5.44% 5.75% 5.35%
Weighted average expected life 10 YEARS 10 years 10 years
Expected volatility 33.10% 38.28% 30.30%
Fair value per share of options granted $ 3.57 $ 2.89 $ 2.86
Pro-forma net income (in thousands) $ 22,694 $ 20,937 $ 23,897
Pro-forma earnings per share - diluted $ 0.78 $ 0.72 $ 0.80
===========================================================================================================
RESTRICTED STOCK AWARDS
During 2001, the Company awarded 26,800 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.
(10) OTHER COMMITMENTS AND CONTINGENCIES
The Company has entered into contractual agreements providing severance
benefits to certain key employees in the event of a potential change of Company
ownership. Commitments under these agreements totaled $8,744,000 at December
29, 2001.
The Company leases certain facilities and equipment under contracts classified
as operating leases. Rental expense was $6,026,000 in 2001, $6,168,000 in 2000
and $5,424,000 in 1999. Future minimum lease commitments for operating leases
at December 29, 2001 were as follows:
(in thousands)
2002 $2,723
2003 1,342
2004 953
2005 328
2006 170
Thereafter 24
------------------------------------------
Total operating lease
commitments $5,540
==========================================
The Company also maintains standby letters of credit in connection with its
self insurance reserves for casualty claims. These letters of credit amounted
to $5.9 million as of December 29, 2001.
In addition, the Company entered into a long-term guaranteed payment commitment
during 2000 with a supplier. Under the terms of this agreement, to the extent
the Company's purchases exceed an agreed upon amount no additional amount is
due from the Company. However, if purchases are below this amount, the Company
is
34
required to compensate the supplier. During 2000 and 2001, the Company made
purchases from the supplier totaling $2.1 million and $2.8 million,
respectively. In addition, the Company has provided a guarantee to a third
party for fixed asset financing for the supplier. The maximum annual payment
guarantees to both the supplier and the third party are $838,000 per year
through 2007 and $249,000 in 2008. The total amount outstanding under these
guarantees was $4,439,000 as of December 29, 2001.
The Company has sundry claims and other lawsuits pending against it that are 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.
(11) STOCKHOLDERS' EQUITY
CAPITAL STOCK
The Company's Restated Charter, as amended, authorizes 75,000,000 shares of
common stock with a par value of $0.83 1/3 and 5,000,000 shares of preferred
stock, par value of $1.00 per share, to be issued in such series and with such
preferences, limitations and relative rights as the Board of Directors may
determine from time to time. Common shares outstanding were 28,995,172 at
December 29, 2001 and 28,947,222 at December 30, 2000. 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.
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,
35
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 29, 2001 and December 30, 2000, the Company
included in other comprehensive income an unrealized loss due to foreign
currency translation of $503,000 and $131,000, 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. Also included in accumulated other comprehensive loss as
of December 29, 2001 was an unrealized loss of $739,000, net of tax effect of
$436,000, related to interest rate swaps accounted for in accordance with SFAS
No. 133.
36
(12) INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands, except per
share data):
2001 Interim Period Ended
---------------------------------------------------------------------------
March 31 June 30 September 29 December 29
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
- --------------------------------------------------------------------------------------------------------------------------
NET SALES AND OTHER OPERATING REVENUES $ 145,410 $ 150,966 $ 148,954 $ 137,576
Cost of sales 71,391 73,548 72,174 67,007
Selling, marketing and delivery 55,558 56,369 55,947 52,767
General and administrative 7,674 7,494 7,655 7,417
Provisions for employees' retirement plans 1,036 1,161 1,265 986
Amortization of goodwill and other
intangibles 512 528 510 532
Other (income)/expense, net (45) 402 (16) (361)
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 9,284 11,464 11,419 9,228
Interest expense, net 1,092 1,000 872 794
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 8,192 10,464 10,547 8,434
Income taxes 3,083 3,846 3,913 3,018
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,109 $ 6,618 $ 6,634 $ 5,416
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.18 $ 0.23 $ 0.23 $ 0.19
NET INCOME PER COMMON SHARE - DILUTED 0.18 0.23 0.23 0.19
DIVIDENDS PER COMMON SHARE 0.16 0.16 0.16 0.16
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 54,684 56,675 55,716 56,573
General and administrative 6,314 5,833 6,667 6,564
Provisions for employees' retirement plans 1,172 1,050 1,035 904
Amortization of goodwill and other
intangibles 467 423 424 483
Other income, net (1,319) (254) (685) (155)
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 10,297 11,087 10,001 7,641
Interest expense, net 1,125 1,081 1,079 1,191
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 9,172 10,006 8,922 6,450
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
37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lance, Inc.:
We have audited the accompanying consolidated balance sheets of Lance, Inc. and
subsidiaries as of December 29, 2001 and December 30, 2000 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 29, 2001. 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 29, 2001 and December 30, 2000, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 29, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Charlotte, North Carolina
January 31, 2002
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of Management, Election
of Directors, Compensation Committee and Stock Award 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 25,
2002 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 29, 2001,
December 30, 2000 and December 25, 1999..................................................................14
Consolidated Balance Sheets as of December 29, 2001 and December 30, 2000.....................................15
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the Fiscal Years Ended December 29, 2001, December 30, 2000 and
December 25, 1999........................................................................................16
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2001,
December 30, 2000 and December 25, 1999..................................................................17
Notes to Consolidated Financial Statements....................................................................18
Independent Auditors' Report..................................................................................38
39
2. Financial Schedules.
Schedules have been omitted because of the absence of
conditions under which they are required or because information required is
included in financial statements or the notes thereto.
3. Exhibits.
2.1 Agreement of Purchase and Sale dated as of March 31,
1999 among the Registrant, a subsidiary of the Registrant and the shareholders
of Tamming Foods Ltd., incorporated herein by reference to Exhibit 2 to the
Registrant's Report on Form 8-K dated April 14, 1999.
3.1 Restated Articles of Incorporation of Lance, Inc. as
amended through April 17, 1998, incorporated herein by reference to Exhibit 3
to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended
June 13, 1998.
3.2 Articles of Amendment of Lance, Inc. dated July 14,
1998 designating rights, preferences and privileges of the Registrant's Series
A Junior Participating Preferred Stock, incorporated herein by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 26, 1998.
3.3 Bylaws of Lance, Inc., as amended through April 26,
2001, incorporated herein by reference to Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-Q for the thirteen weeks ended June 30, 2001.
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.
40
10.1 Lance, Inc. 1983 Incentive Stock Option Plan,
incorporated herein by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 26, 1987.
10.2 Lance, Inc. 1991 Stock Option Plan, incorporated
herein by reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8, Registration No. 33-41866.
10.3 Lance, Inc. 1995 Nonqualified Stock Option Plan for
Non-Employee Directors, as amended, incorporated herein by reference to Exhibit
4 to the Registrant's Registration Statement on Form S-8, File No. 33-58839, as
amended by Post Effective Amendment No. 1.
10.4 Lance, Inc. 1997 Incentive Equity Plan, as amended,
incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the thirteen weeks ended March 31, 2001.
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 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.
10.9* 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.
10.10* Lance, Inc. 2000 Long-Term Incentive Plan for
Officers, incorporated herein by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.11* Lance, Inc. 2001 Annual 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
31, 2001.
41
10.12* Lance, Inc. 2001 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 31, 2001.
10.13* 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.
10.14* 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.
10.15* 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.
10.16* 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.
10.17* 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.
10.18* Amendment to Executive Severance Agreement dated
July 26, 2001 between the Lance, Inc. and Paul A. Stroup, III, incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the thirteen weeks ended September 29, 2001.
10.19* 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.
10.20* Amendment to Executive Severance Agreement dated
July 26, 2001 between the Lance, Inc. and Earl D. Leake, incorporated herein by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for
the thirteen weeks ended September 29, 2001.
10.21* 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.
42
10.22* Agreement dated October 9, 2000 between the
Registrant and Frank I. Lewis incorporated herein by reference to Exhibit 10.19
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 30, 2000.
10.23* 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.
10.24* 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.
10.25 Amended and Restated Credit Agreement dated May 26,
2000 among the Registrant, Lanfin Investments 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.
10.26 First Amendment to Amended and Restated Credit
Agreement dated as of December 7, 2001 among the Registrant, Lanfin Investments
Inc., Bank of America, N.A., First Union National Bank, Wachovia Bank, N.A.,
Bank of America Canada, et al, filed herewith.
10.27 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.
10.28 First Amendment to Financing and Share Purchase
Agreement dated as of December 17, 2001 between the Registrant and Bank of
America, N.A., filed herewith.
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 thirteen weeks ended December 29, 2001.
- ---------------
* Management contract.
43
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: February 20, 2002 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 February 20, 2002
- ---------------------------------------- President and Chief Executive
Paul A. Stroup, III Officer (Principal Executive
Officer)
/s/ B. Clyde Preslar Vice President (Principal February 20, 2002
- ---------------------------------------- Financial Officer)
B. Clyde Preslar
/s/ Margaret E. Wicklund Controller (Principal February 20, 2002
- ---------------------------------------- Accounting Officer)
Margaret E. Wicklund
- ---------------------------------------- Director
David L. Burner
/s/ Alan T. Dickson Director February 20, 2002
- ----------------------------------------
Alan T. Dickson
/s/ J. W. Disher Director February 20, 2002
- ----------------------------------------
J. W. Disher
44
/s/ James H. Hance, Jr. Director February 20, 2002
- ----------------------------------------
James H. Hance, Jr.
/s/ William R. Holland Director February 20, 2002
- ----------------------------------------
William R. Holland
/s/ Scott C. Lea Director February 20, 2002
- ----------------------------------------
Scott C. Lea
/s/ Wilbur J. Prezzano Director February 20, 2002
- ----------------------------------------
Wilbur J. Prezzano
/s/ Robert V. Sisk Director February 20, 2002
- ----------------------------------------
Robert V. Sisk
/s/ Isaiah Tidwell Director February 20, 2002
- ----------------------------------------
Isaiah Tidwell
/s/ Nancy Van Every McLaurin Director February 20, 2002
- ----------------------------------------
Nancy Van Every McLaurin
/s/ S. Lance Van Every Director February 20, 2002
- ----------------------------------------
S. Lance Van Every
45
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 29, 2001 0-398
LANCE, INC.
EXHIBIT INDEX
Exhibit
No. Exhibit Description
- ------- -------------------
2.1 Agreement of Purchase and Sale dated as of March 31, 1999 among the Registrant, a subsidiary of the Registrant and
the shareholders of Tamming Foods Ltd., incorporated herein by reference to Exhibit 2 to the Registrant's Report on
Form 8-K dated April 14, 1999.
3.1 Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by
reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended
June 13, 1998.
3.2 Articles of Amendment of Lance, Inc. dated July 14, 1998 designating rights, preferences and privileges of the
Registrant's Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1998.
3.3 Bylaws of Lance, Inc., as amended through April 26, 2001, incorporated herein by reference to Exhibit 3.3 to the
Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended June 30, 2001.
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.
1
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 10.3
to the Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2001.
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.
2
10.8* 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.
10.9* 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.
10.10* Lance, Inc. 2000 Long-Term Incentive Plan for Officers incorporated herein by reference to Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.11* Lance, Inc. 2001 Annual 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 31, 2001.
10.12* Lance, Inc. 2001 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 31, 2001.
10.13* 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.
10.14* 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.
10.15* 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.
10.16* 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.
10.17* 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.
10.18* Amendment to Executive Severance Agreement dated July 26, 2001 between the Lance, Inc. and Paul A. Stroup, III,
incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended September 29, 2001.
3
10.19* 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.
10.20* Amendment to Executive Severance Agreement dated July 26, 2001 between the Lance, Inc. and Earl D. Leake,
incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
thirteen weeks ended September 29, 2001.
10.21* 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.
10.22* Agreement dated October 9, 2000 between the Registrant and Frank I. Lewis incorporated herein by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.23* 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.
10.24* 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.
10.25 Amended and Restated Credit Agreement dated May 26, 2000 among the Registrant, Lanfin Investments 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.
10.26 First Amendment to Amended and Restated Credit Agreement dated as of December 7, 2001 among the Registrant,
Lanfin Investments Inc., Bank of America, N.A., First Union National Bank, Wachovia Bank, N.A., Bank of America
Canada, et al, filed herewith.
4
10.27 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.
10.28 First Amendment to Financing and Share Purchase Agreement dated December 17, 2001 between the Registrant and
Bank of America, N.A., filed herewith.
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.
- ---------
* Management contract.
5