LANCE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
Quarterly Report Filed Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934


For the quarterly (thirteen week) period ended June 29, 2002		Commission File Number 0-398

LANCE, INC.
(Exact name of registrant as specified in its charter)


North Carolina (State or other jurisdiction of Incorporation or organization)		56-0292920 (I.R.S. Employer Identification No.)


8600 South Boulevard P.O. Box 32368 Charlotte, North Carolina (Address of principal executive offices)		28232 (Zip Code)

704-554-1421
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes	X	No

The number of shares outstanding of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock, as of July 24, 2002, was 29,098,299 shares.

LANCE, INC. AND SUBSIDIARIES

INDEX


			Page

PART I. FINANCIAL INFORMATION

	Item 1. Financial Statements

		Condensed Consolidated Balance Sheets — June 29, 2002 (Unaudited) and December 29, 2001		3

		Condensed Consolidated Statements of Income (Unaudited) – Thirteen and Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001		4

		Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited) – Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001		5

		Condensed Consolidated Statements of Cash Flows (Unaudited) – Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001		6

		Notes to Condensed Consolidated Financial Statements		7

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12

	Item 3. Quantitative and Qualitative Disclosures about Market Risk			17

PART II. OTHER INFORMATION

	Item 2. Changes in Securities and Use of Proceeds			17

	Item 4. Submission of Matters to a Vote of Security Holders			17

	Item 5. Other Information			17

	Item 6. Exhibits and Reports on Form 8-K			18

SIGNATURES				19

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
As of June 29, 2002 (Unaudited) and December 29, 2001
(In thousands, except share data)


				June 29,			December 29,
				2002			2001

			ASSETS
Current assets
	Cash and cash equivalents			$	9,856		$	4,798
	Accounts receivable (less allowance for doubtful accounts)				44,533			41,718
	Inventories				29,139			26,828
	Deferred income tax benefit				5,963			5,824
	Prepaid expenses and other				3,181			3,126

		Total current assets			92,672			82,294

	Property, plant & equipment, net				184,143			179,436
	Goodwill, net				40,631			39,411
	Other intangible assets, net				8,743			9,054
	Other assets				3,164			3,204

		Total assets		$	329,353		$	313,399

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Current portion of long-term debt			$	126		$	487
	Accounts payable				12,567			10,776
	Accrued compensation				12,067			15,335
	Accrued liabilities				18,570			19,489

		Total current liabilities			43,330			46,087

Other liabilities and deferred credits
	Long-term debt				62,936			49,344
	Deferred income taxes				24,233			23,063
	Accrued postretirement health care costs				7,868			8,852
	Accrual for insurance claims				5,227			4,511
	Other long-term liabilities				2,972			3,623

		Total other liabilities and deferred credits			103,236			89,393

Stockholders’ equity
	Common stock, $0.83 1/3 par value (authorized: 75,000,000 shares; 29,093,172 and 28,995,172 shares outstanding at June 29, 2002 and December 29, 2001)				24,244			24,163
	Preferred stock, $1.00 par value (authorized: 5,000,000 shares; 0 shares outstanding at June 29, 2002 and December 29, 2001)				—			—
	Additional paid-in capital				3,055			1,865
	Unamortized portion of restricted stock awards				(778	)		(826	)
	Retained earnings				157,014			154,075
	Accumulated other comprehensive loss				(748	)		(1,358	)

		Total stockholders’ equity			182,787			177,919

		Total liabilities and stockholders’ equity		$	329,353		$	313,399

See notes to condensed consolidated financial statements (unaudited).

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)
For the Thirteen and Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001
(In thousands, except share and per share data)


		Thirteen		Thirteen		Twenty-Six		Twenty-Six
		Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
		June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001

Net sales and other operating revenue		$	141,382	$	143,981	$	278,699	$	282,943


Cost of sales and operating expenses:

Cost of sales			71,353		73,548		140,830		144,940
Selling, marketing and delivery			50,222		49,384		99,140		98,494
General and administrative			6,862		7,494		14,947		15,168
Provisions for employees’ retirement plans			1,224		1,161		2,333		2,197
Amortization of goodwill and other intangibles			174		528		343		1,039
Other expense, net			37		402		78		358

	Total costs and expenses		129,872		132,517		257,671		262,196


Earnings before interest and income taxes			11,510		11,464		21,028		20,747

Interest expense, net			853		1,000		1,768		2,093


Earnings before income taxes			10,657		10,464		19,260		18,654

Income taxes			3,866		3,846		7,026		6,929


Net income		$	6,791	$	6,618	$	12,234	$	11,725

Earnings per share
	Basic	$	0.23	$	0.23	$	0.42	$	0.41
	Diluted	$	0.23	$	0.23	$	0.42	$	0.40

	Weighted average shares outstanding — basic		28,972,000		28,909,000		28,951,000		28,905,000
	Weighted average shares outstanding — diluted		29,387,000		29,018,000		29,322,000		29,013,000

See notes to condensed consolidated financial statements (unaudited).

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited)
For the Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001
(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 30, 2000			28,947,222	$	24,123	$	1,229	$	(437	)	$	148,859		$	(116	)	$	173,658


Comprehensive income:
	Net income		—		—		—		—			11,725			—			11,725
	Foreign currency translation adjustment		—		—		—		—			—			(140	)		(140	)

	Total comprehensive income		—		—		—		—			—			—			11,585


Cash dividends paid to stockholders			—		—		—		—			(9,274	)		—			(9,274	)

Issuance of restricted stock, net of cancellations			34,950		29		449		(412	)		—			—			66


Balance, June 30, 2001 (restated)			28,982,172	$	24,152	$	1,678	$	(849	)	$	151,310		$	(256	)	$	176,035


Balance, December 29, 2001			28,995,172	$	24,163	$	1,865	$	(826	)	$	154,075		$	(1,358	)	$	177,919


Comprehensive income:
	Net income		—		—		—		—			12,234			—			12,234
	Unrealized gain on interest rate swap, net of tax effect of $210		—		—		—		—			—			356			356
	Foreign currency translation adjustment		—		—		—		—			—			254			254

	Total comprehensive income																	12,844


Cash dividends paid to stockholders			—		—		—		—			(9,295	)		—			(9,295	)

Stock Options Exercised			77,925		64		925		—			—			—			989

Issuance of restricted stock, net of cancellations			20,075		17		265		48			—			—			330


Balance, June 29, 2002			29,093,172	$	24,244	$	3,055	$	(778	)	$	157,014		$	(748	)	$	182,787

See notes to condensed consolidated financial statements (unaudited).

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001
(In thousands)


				Twenty-Six			Twenty-Six
				Weeks Ended			Weeks Ended
				June 29, 2002			June 30, 2001

Operating Activities
	Net income			$	12,234		$	11,725
	Adjustments to reconcile net income to cash provided by operating activities:
			Depreciation and amortization		14,724			15,116
			Loss on sale of property, net		41			243
			Deferred income taxes		722			(480	)
			Changes in operating assets and liabilities		(7,720	)		(3,780	)

	Net cash flow provided by operating activities				20,001			22,824


Investing Activities
		Purchases of property and equipment			(18,201	)		(18,152	)
		Proceeds from sale of property and equipment			85			412

Net cash used in investing activities					(18,116	)		(17,740	)


Financing Activities
		Dividends paid			(9,295	)		(9,274	)
		Issuance of common stock, net			989			—
		Repayments of debt			(414	)		(231	)
		Borrowings under revolving credit facilities, net			11,798			6,145

Net cash provided by (used in) financing activities					3,078			(3,360	)


Effect of exchange rate changes on cash					95			(40	)


Increase in cash and cash equivalents					5,058			1,684
Cash and cash equivalents at beginning of period					4,798			1,224

Cash and cash equivalents at end of period				$	9,856		$	2,908


Supplemental information and non-cash transactions:
Cash paid for income taxes				$	6,242		$	6,044
Cash paid for interest				$	1,169		$	1,678
Deferred taxes included in other comprehensive income				$	210		$	—

See notes to condensed consolidated financial statements (unaudited).

LANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. The accompanying unaudited condensed consolidated financial statements of Lance, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, these financial statements reflect all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of the Company and its subsidiaries as of June 29, 2002 and December 29, 2001, and the consolidated statements of income for the thirteen and twenty-six weeks ended June 29, 2002 and June 30, 2001 and the statements of stockholders’ equity and comprehensive income and cash flows for the twenty-six weeks ended June 29, 2002 and June 30, 2001. Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified for consistent presentation.

2. The consolidated results of operations for the twenty-six weeks ended June 29, 2002 are not necessarily indicative of the results to be expected for a full year.

3. The Company’s principal raw materials are flour, peanuts, peanut butter, oils, shortenings, potatoes, sugar, popcorn, cheese, corn syrup and seasonings.

4. The Company utilizes the dollar value last-in, first-out (LIFO) method of determining the cost of the majority of its inventories. Because inventory calculations under the LIFO method are based on annual determinations, the determination of interim LIFO valuations requires that estimates be made of year-end costs and levels of inventories. The possibility of variation between estimated year-end costs and levels of LIFO inventories and the actual year-end amounts may materially affect the results of operations as finally determined for the full year.

Inventories consist of (in thousands):


	June 29,			December 29,
	2002			2001

Finished goods	$	19,624		$	16,311
Raw materials		5,441			6,516
Packaging and supplies, etc.		7,958			7,828

Total inventories at FIFO cost		33,023			30,655
Less: Adjustments to reduce FIFO cost to LIFO cost		(3,884	)		(3,827	)

Total inventories	$	29,139		$	26,828

5. As of December 29, 2001, the Company restated retained earnings in the Form 10-K for the earliest period presented. The cumulative effect of this restatement resulted in a reduction of retained earnings of $935,000. Accordingly, retained earnings at June 30, 2001 included in the Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income has been adjusted to reflect the effect of this restatement. The income statement impact for the thirteen and twenty-six weeks ended June 30, 2001 was not material.

LANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. The following table provides a reconciliation of the denominator used in computing basic savings per share to the denominator used in computing diluted earnings per share for the thirteen weeks ended June 29, 2002 and June 30, 2001 (there were no reconciling items for the numerator amounts of basic and diluted earnings per share):


	June 29, 2002		June 30, 2001

Weighted average number of common shares used in computing basic earnings per share		28,972,000		28,909,000

Effect of dilutive stock options and non-vested restricted stock		415,000		109,000


Weighted average number of common shares and dilutive potential common stock used in computing diluted earnings per share		29,387,000		29,018,000


Stock options excluded from the above reconciliation because they are anti-dilutive		1,335,000		1,967,000

7. During the twenty-six weeks ended June 29, 2002 and June 30, 2001, the Company included in accumulated other comprehensive loss an unrealized gain/(loss) due to foreign currency translation of $254,000 and $(140,000), 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 for the twenty-six weeks ended June 29, 2002 was an unrealized gain of $356,000, net of tax effect of $210,000 related to an interest rate swap accounted for as a cash flow hedge in accordance with SFAS No. 133.

8. The Company has implemented 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, which became effective beginning in the Company’s quarter ended March 30, 2002. These Issues address the recognition, measurement and income statement classification for certain sales incentives. Therefore, the Company has reclassified certain expenses in the income statement which reduce net sales and other operating revenue and selling, marketing and delivery expenses. The impact of these reclassifications was $6.8 million and $7.0 million for the thirteen weeks ended June 29, 2002 and June 30, 2001, respectively. The impact for the twenty-six weeks ended June 29, 2002 and June 30, 2001 was $13.2 million and $13.4 million, respectively. These amounts have been reclassified between net sales and other operating revenue and selling, marketing and delivery expenses. There is no impact to net income.

LANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

9. For the 2002 fiscal year, the Company adopted Financial Accounting Standards Board Statement (“SFAS”) No. 142, Goodwill and Other Intangible Assets which requires 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. The new criteria provided in SFAS No. 142 require the testing of impairment based on fair value. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values.

SFAS No. 142 requires the Company to evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications for recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company is 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 is required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142. The Company has tested goodwill and intangible assets for impairment under the provision of SFAS No. 142. These tests indicated that there was no impairment of goodwill or intangible assets.

As of the date of adoption, the Company had unamortized goodwill in the amount of $39.4 million and unamortized identifiable intangible assets in the amount of $8.9 million. Under the provisions of SFAS No. 142, for fiscal years beginning after 2001, the Company is no longer recording amortization expense on goodwill.

As of June 29, 2002, the Company had the following acquired intangible assets recorded:


		Gross Carrying		Accumulated
(in thousands)		Amount		Amortization

Amortized Intangible Assets:
	Non-compete Agreements	$	3,355	$	(2,188	)

Unamortized Intangible Assets:
	Trademarks	$	7,576

The non-compete agreements are being amortized over the life of the agreements. The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Therefore, under the provisions of SFAS No. 142, the trademark will no longer be amortized.

LANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The changes in the carrying amount of goodwill for the quarter ended June 29, 2002 are as follows:


	Gross Carrying
(in thousands)	Amount

Balance as of December 30, 2001	$	39,411
Changes in foreign currency exchange rates		1,220

Balance as of June 29, 2002	$	40,631

The following table indicates the effect on net income and earnings per share if SFAS No. 142 had been in effect for each of the years presented in the income statement (net of profit sharing and income tax effect):


	For the thirteen				For the twenty-six
	weeks ended,				weeks ended,

(in thousands, except per share data)	June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001

Reported Net Income	$	6,791	$	6,618	$	12,234	$	11,725
Add back: Goodwill amortization		—		286		—		550
Add back: Trademark amortization		—		28		—		54

Adjusted Net Income	$	6,791	$	6,932	$	12,234	$	12,329

Basic earnings per share:
Reported net income	$	0.23	$	0.23	$	0.42	$	0.41
Goodwill amortization		—		0.01		—		0.02
Trademark amortization		—		0.00		—		0.00

Adjusted net income	$	0.23	$	0.24	$	0.42	$	0.43

Diluted earnings per share:
Reported net income	$	0.23	$	0.23	$	0.42	$	0.40
Goodwill amortization		—		0.01		—		0.02
Trademark amortization		—		0.00		—		0.00

Adjusted net income	$	0.23	$	0.24	$	0.42	$	0.42

10. The Company is exposed to certain market, commodity, interest rate and foreign exchange 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 the derivative contract was entered into, the Company designated it as a hedge of the variability of cash flows

LANCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 related to the instrument. Market risk is the adverse effect on 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.

11. Sales to the Company’s largest customer (Wal-Mart Stores, Inc.) were approximately 11.7% of revenues for the thirteen and twenty-six weeks ended June 29, 2002. Accounts receivable at June 29, 2002 and December 29, 2001 included receivables from Wal-Mart Stores, Inc. totaling $6.9 million and $8.6 million, respectively.

12. The Company’s total bad debt expense for the thirteen weeks ended June 29, 2002 and June 30, 2001 amounted to $0.3 million and $0.1 million, respectively. For the twenty-six weeks ended June 29, 2002 and June 30, 2001, total bad debt expense amounted to $1.4 million and $0.9 million, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 judgments 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, 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 judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

Thirteen Weeks Ended June 29, 2002 Compared to Thirteen Weeks Ended June 30, 2001


	Thirteen weeks ended

	June 29,				June 30,
($ In thousands)	2002				2001				Difference

Revenues	$	141,382	100.0	%	$	143,981	100.0	%	$	(2,599	)	(1.8	%)
Cost of sales		71,353	50.5	%		73,548	51.1	%		2,195		3.0	%

Gross margin		70,029	49.5	%		70,433	48.9	%		(404	)	(0.6	%)
Selling, marketing and delivery expenses		50,222	35.5	%		49,384	34.3	%		(838	)	1.7	%
General and administrative expenses		6,862	4.9	%		7,494	5.2	%		632		8.4	%
Provision for employees’ retirement plans		1,224	0.9	%		1,161	0.8	%		(63	)	(5.4	%)
Amortization of goodwill and intangibles		174	0.1	%		528	0.3	%		354		67.0	%
Other expense, net		37	0.0	%		402	0.3	%		365		90.8	%

Earnings before interest and taxes		11,510	8.1	%		11,464	8.0	%		46		0.4	%
Interest expense, net		853	0.6	%		1,000	0.7	%		147		14.7	%
Income taxes		3,866	2.7	%		3,846	2.7	%		(20	)	0.5	%

Net income	$	6,791	4.8	%	$	6,618	4.6	%	$	173		2.6	%

Revenues for the thirteen weeks ended June 29, 2002 decreased $2.6 million or 1.8% as compared to the thirteen weeks ended June 30, 2001. Non-branded revenue decreased 3.1% largely due to lower sales of third-party products. Branded revenue declined 1.1% from the prior year. Branded revenues as a percent of total revenue increased to 67.6% from 67.2% in the prior year.

Gross margin as a percent of revenue increased 0.6 percentage points to 49.5% for the thirteen weeks ended June 29, 2002. This increase is primarily due to favorable mix of products and improved manufacturing efficiencies.

Selling, marketing and delivery costs increased as a percent of revenue to 35.5% from 34.3% in the prior year. This increase is primarily due to increased investments in the Company’s route distribution system and increased expenses related to workers’ compensation insurance. General and administrative expenses decreased $0.6 million from the prior year principally due to reduced incentive expense.

The provision for employees’ retirement plans was higher due to the profitability-based formula for these contributions. Amortization of goodwill and intangibles decreased $0.4 million from the prior year due to the adoption of SFAS No. 142. Other expense, net, which is impacted primarily by fixed asset disposals and foreign currency transactions, decreased $0.4 million.

The $0.1 million decrease in net interest expense was primarily the result of lower interest rates. See discussion in “Liquidity and Capital Resources” below.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The effective income tax rate decreased from 36.8% in the prior year to 36.3% for the thirteen weeks ended June 29, 2002 due to changes in the composition of earnings among the consolidated entities.

Twenty-Six Weeks Ended June 29, 2002 Compared to Twenty-Six Weeks Ended June 30, 2001


	Twenty-six weeks ended

	June 29,				June 30,
($ In thousands)	2002				2001				Difference

Revenues	$	278,699	100.0	%	$	282,943	100.0	%	$	(4,244	)	(1.5	%)
Cost of sales		140,830	50.5	%		144,940	51.2	%		4,110		2.8	%

Gross margin		137,869	49.5	%		138,003	48.8	%		(134	)	(0.1	%)
Selling, marketing and delivery expenses		99,140	35.6	%		98,494	34.8	%		(646	)	(0.7	%)
General and administrative expenses		14,947	5.4	%		15,168	5.4	%		221		1.5	%
Provision for employees’ retirement plans		2,333	0.9	%		2,197	0.8	%		(136	)	(6.2	%)
Amortization of goodwill and intangibles		343	0.1	%		1,039	0.4	%		696		67.0	%
Other expense, net		78	0.0	%		358	0.1	%		280		78.2	%

Earnings before interest and taxes		21,028	7.5	%		20,747	7.3	%		281		1.4	%
Interest expense, net		1,768	0.6	%		2,093	0.7	%		325		15.5	%
Income taxes		7,026	2.5	%		6,929	2.5	%		(97	)	(1.4	%)

Net income	$	12,234	4.4	%	$	11,725	4.1	%	$	509		4.3	%

Revenues for the twenty-six weeks ended June 29, 2002 decreased $4.2 million or 1.5% as compared to the twenty-six weeks ended June 30, 2001. The decrease is predominately due to a 1.8% decline in branded revenue from the prior year. Branded revenues represented 67.0% of total revenues as compared to 67.2% in the prior year.

Gross margin as a percent of revenue increased 0.7 percentage points to 49.5% for the twenty-six weeks ended June 29, 2002. This increase is primarily due to improved manufacturing efficiencies and selective selling price changes.

Selling, marketing and delivery costs increased as a percent of revenue to 35.6% from 34.8% in the prior year. This increase is primarily due to increased investments in the Company’s route distribution system and increased expenses related to workers’ compensation insurance. General and administrative expenses decreased $0.2 million from the prior year mainly due to reduced incentive expense offset largely by increased bad debt provisions related to a third party distributor.

The provision for employees’ retirement plans was higher due to the profitability-based formula for these contributions. Amortization of goodwill and intangibles decreased $0.7 million from the prior year due to the adoption of SFAS No. 142. Other expense, net, which is impacted primarily by fixed asset disposals and foreign currency transactions, decreased $0.3 million.

The $0.3 million decrease in net interest expense was primarily the result of lower interest rates. See discussion in “Liquidity and Capital Resources” below.

The effective income tax rate decreased from 37.1% in the prior year to 36.5% for the twenty-six weeks ended June 29, 2002 due to changes in the composition of earnings among the consolidated entities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Primary sources of liquidity are cash flows from operating activities and certain financing activities. Net cash provided by operating activities for the twenty-six weeks ended June 29, 2002 was $20.0 million. Working capital (other than cash and cash equivalents) increased to $39.5 million at June 29, 2002 from $31.4 million at December 29, 2001 due to seasonal increases in accounts receivable and inventories and decreases in various current liabilities offset by seasonal increases in accounts payable.

Cash flow used in investing activities for the twenty-six weeks ended June 29, 2002 was $18.1 million. The primary component of cash used in investing activities was capital expenditures. Cash expenditures for fixed assets totaled $18.2 million with the largest expenditures being plant equipment.

Cash provided by financing activities for the twenty-six weeks ended June 29, 2002 totaled $3.1 million. The Company had net borrowings of $11.8 million. Cash dividends of $0.32 per share for the twenty-six weeks ended June 29, 2002 amounted to $9.3 million. On January 31, 2002, the Board of Directors authorized the repurchase of 1.0 million shares of its common stock. The Company currently has no active program to repurchase shares of its common stock.

In February 2002, 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 February 2007. At June 29, 2002, $21.0 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 February 2007, all borrowings under these facilities are classified as long-term debt.

As of June 29, 2002, cash and cash equivalents totaled $9.9 million and total debt outstanding was $63.1 million. Additional borrowings available under all credit facilities totaled $58.0 million. The Company has complied with all financial covenants contained in the financing agreements. Available cash, cash from operations and available credit under the credit facilities are expected to be sufficient to meet anticipated cash expenditures and normal operating requirements for the foreseeable future.

The Company leases certain facilities and equipment classified as operating leases. The future minimum lease commitments for operating leases as of June 29, 2002 were approximately $4.3 million. 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 June 29, 2002.

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. 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 of exposure under these guarantees was $4.2 million as of June 29, 2002.

On July 25, 2002 the Board of Directors declared a $0.16 per share quarterly cash dividend on the Company’s common stock payable on August 20, 2002 to stockholders of record on August 12, 2002.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. As of June 29, 2002, the Company has not entered into any commodity futures or option 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 rate swap agreement covering a significant amount of its outstanding debt. At June 29, 2002, the Company’s long term debt totaled $63.0 million, with interest rates ranging from 2.58% to 7.00%, with a weighted average interest rate of 5.02%. A 10% increase in U.S. LIBOR and Canadian LIBOR would have increased interest expense for the quarter by $0.1 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. As of June 29, 2002, the Company had an allowance for doubtful accounts of $2.1 million.

Through the operations of its Canadian subsidiary, Tamming Foods Ltd. (“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.

In 2001, 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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.

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.

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 hedges are recorded in expenses based on the nature of the derivative. There was no ineffectiveness as a result of the derivative as of June 29, 2002. 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 $0.6 million liability as of June 29, 2002 and is included in other long-term liabilities.

An unrealized gain from the cash flow hedge was recorded in the amount of $0.4 million, net of income tax, in accumulated other comprehensive income during the twenty-six weeks ended June 29, 2002. The net unrealized loss at June 29, 2002 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.

Forward-Looking Statements

This discussion contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those forward-looking statements. Factors that may cause actual results to differ materially include price competition, industry consolidation, raw material costs, effectiveness of sales and marketing activities and interest rate, foreign exchange rate and credit risks, as described in the Company’s filings with the Securities and Exchange Commission, including Exhibit 99.1 to this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The principal market risks to which the Company is exposed that may adversely impact results of operations and financial position include changes in certain raw material prices, interest and foreign exchange rates, credit risks, industry consolidation and effectiveness of sales and marketing activities. Quantitative and qualitative disclosures about these market risks are included under “Market Risks” in Item 2 above, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

The Registrant’s Second Amended and Restated Credit Agreement dated February 8, 2002, restricts payment of cash dividends and repurchases of common stock by the Registrant if, after payment of any such dividends or any such repurchases of common stock, the Registrant’s consolidated stockholders’ equity would be less than $125,000,000. At June 29, 2002, the Registrant’s consolidated stockholders’ equity was $182,787,000.

Item 4. Submission of Matters to a Vote of Security Holders

At the Registrant’s Annual Meeting of Stockholders held on April 25, 2002, the following matters were submitted to a vote of the stockholders of the Registrant:

1. Election of nominees to the Board of Directors of the Registrant:


For Term Ending in 2005	Shares Voted in Favor		Shares Withheld
J.W. Disher		26,219,686		609,438
Scott C. Lea		26,515,755		313,369
Wilbur J. Prezzano		26,297,275		531,849
Robert V. Sisk		26,199,865		629,260

For Term Ending in 2003	Shares Voted in Favor		Shares Withheld
David L. Burner		26,566,342		262,782

2. Ratification of the selection of KPMG LLP as independent public accountants for fiscal year 2002, which was approved by a vote of 26,250,961 shares in favor, 536,373 shares against and 41,791 shares abstaining.

Item 5. Other Information

Notice for Nominations of Directors. On April 25, 2002, Section 3.3 of the Registrant’s Bylaws was amended to add an advance notice provision for nominations of directors at annual or special meetings of the stockholders of the Registrant.

In order for a nomination of a director to be considered at an annual meeting of the stockholders of the Registrant, a stockholder must submit such nomination in writing to the Secretary of the Registrant. Pursuant to Section 3.3 of the Bylaws, to be considered timely, a nomination must be received at the principal office of the Registrant not less than 75 days nor more than 105 days prior to the anniversary of the prior year’s annual meeting of stockholders. In the event that the date of an annual meeting is advanced or delayed by more than 30 days from the anniversary of the prior year’s annual meeting, a

nomination must be received at the principal office of the Registrant not less than 75 days nor more than 105 days prior to the delayed or advanced meeting date, so long as the Registrant has provided notice of such change in date of the annual meeting in a Form 10-Q or Form 8-K filed with the Securities and Exchange Commission. The amended Bylaws are filed as Exhibit 3.3 to this Report.

The 2002 Annual Meeting of Stockholders was held on April 25, 2002 and the 2003 Annual Meeting of Stockholders is scheduled for April 24, 2003.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


			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 25, 2002.

			10.1*			Form of Executive Severance Agreement between the Registrant and each of B. Clyde Preslar, Richard G. Tucker, L.R. Gragnani, H. Dean Fields, David R. Perzinski and Margaret E. Wicklund, 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.

			99.1			Cautionary Statement under Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

			* Management Contract

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the thirteen weeks ended June 29, 2002.

Items 1 and 3 are not applicable and have been omitted.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the Report to be signed on its behalf by the undersigned thereunto duly authorized.


	LANCE, INC.

	By:	/s/ B. Clyde Preslar

		B. Clyde Preslar Vice President and Principal Financial Officer

Dated: July 25, 2002

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

EXHIBITS
Item 6(a)

FORM 10-Q
QUARTERLY REPORT


For the quarterly period ended June 29, 2002		Commission File Number 0-398

LANCE, INC.

EXHIBIT INDEX


Exhibit
No.		Exhibit Description

3.1		Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998.

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 25, 2002.

10.1*		Form of Executive Severance Agreement between the Registrant and each of B. Clyde Preslar, Richard G. Tucker, L.R. Gragnani, H. Dean Fields, David R. Perzinski and Margaret E. Wicklund, 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.

99.1		Cautionary Statement under Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

* Management Contract

	1.		The accompanying unaudited condensed consolidated financial statements of Lance, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, these financial statements reflect all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of the Company and its subsidiaries as of June 29, 2002 and December 29, 2001, and the consolidated statements of income for the thirteen and twenty-six weeks ended June 29, 2002 and June 30, 2001 and the statements of stockholders’ equity and comprehensive income and cash flows for the twenty-six weeks ended June 29, 2002 and June 30, 2001. Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified for consistent presentation.

	2.		The consolidated results of operations for the twenty-six weeks ended June 29, 2002 are not necessarily indicative of the results to be expected for a full year.

	3.		The Company’s principal raw materials are flour, peanuts, peanut butter, oils, shortenings, potatoes, sugar, popcorn, cheese, corn syrup and seasonings.

	4.		The Company utilizes the dollar value last-in, first-out (LIFO) method of determining the cost of the majority of its inventories. Because inventory calculations under the LIFO method are based on annual determinations, the determination of interim LIFO valuations requires that estimates be made of year-end costs and levels of inventories. The possibility of variation between estimated year-end costs and levels of LIFO inventories and the actual year-end amounts may materially affect the results of operations as finally determined for the full year.

			Inventories consist of (in thousands):

	7.		During the twenty-six weeks ended June 29, 2002 and June 30, 2001, the Company included in accumulated other comprehensive loss an unrealized gain/(loss) due to foreign currency translation of $254,000 and $(140,000), 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 for the twenty-six weeks ended June 29, 2002 was an unrealized gain of $356,000, net of tax effect of $210,000 related to an interest rate swap accounted for as a cash flow hedge in accordance with SFAS No. 133.

	8.		The Company has implemented 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, which became effective beginning in the Company’s quarter ended March 30, 2002. These Issues address the recognition, measurement and income statement classification for certain sales incentives. Therefore, the Company has reclassified certain expenses in the income statement which reduce net sales and other operating revenue and selling, marketing and delivery expenses. The impact of these reclassifications was $6.8 million and $7.0 million for the thirteen weeks ended June 29, 2002 and June 30, 2001, respectively. The impact for the twenty-six weeks ended June 29, 2002 and June 30, 2001 was $13.2 million and $13.4 million, respectively. These amounts have been reclassified between net sales and other operating revenue and selling, marketing and delivery expenses. There is no impact to net income.

	9.		For the 2002 fiscal year, the Company adopted Financial Accounting Standards Board Statement (“SFAS”) No. 142, Goodwill and Other Intangible Assets which requires 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. The new criteria provided in SFAS No. 142 require the testing of impairment based on fair value. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values.

			SFAS No. 142 requires the Company to evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications for recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company is 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 is required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142. The Company has tested goodwill and intangible assets for impairment under the provision of SFAS No. 142. These tests indicated that there was no impairment of goodwill or intangible assets.

			As of the date of adoption, the Company had unamortized goodwill in the amount of $39.4 million and unamortized identifiable intangible assets in the amount of $8.9 million. Under the provisions of SFAS No. 142, for fiscal years beginning after 2001, the Company is no longer recording amortization expense on goodwill.

			As of June 29, 2002, the Company had the following acquired intangible assets recorded:

	10.		The Company is exposed to certain market, commodity, interest rate and foreign exchange 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 the derivative contract was entered into, the Company designated it as a hedge of 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 related to the instrument. Market risk is the adverse effect on 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.

	11.		Sales to the Company’s largest customer (Wal-Mart Stores, Inc.) were approximately 11.7% of revenues for the thirteen and twenty-six weeks ended June 29, 2002. Accounts receivable at June 29, 2002 and December 29, 2001 included receivables from Wal-Mart Stores, Inc. totaling $6.9 million and $8.6 million, respectively.

	12.		The Company’s total bad debt expense for the thirteen weeks ended June 29, 2002 and June 30, 2001 amounted to $0.3 million and $0.1 million, respectively. For the twenty-six weeks ended June 29, 2002 and June 30, 2001, total bad debt expense amounted to $1.4 million and $0.9 million, respectively.