Attached files
file | filename |
---|---|
EX-32 - EX-32 - SNYDER'S-LANCE, INC. | lnce09ex32.htm |
EX-21 - EX-21 - SNYDER'S-LANCE, INC. | lnce09ex21.htm |
EX-23 - EX-23 - SNYDER'S-LANCE, INC. | lnce09ex23.htm |
EX-12 - EX-12 - SNYDER'S-LANCE, INC. | lnce09ex12.htm |
EX-31.2 - EX-31.2 - SNYDER'S-LANCE, INC. | lnce09ex312.htm |
EX-31.1 - EX-31.1 - SNYDER'S-LANCE, INC. | lnce09ex311.htm |
UNITED
STATES
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 26, 2009
[ ]
|
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.
(Exact
name of Registrant as specified in its charter)
North
Carolina
|
56-0292920
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification Number)
|
13024
Ballantyne Corporate Place, Suite 900, Charlotte, North Carolina
28277
|
(Address
of principal executive offices)
|
Post
Office Box 32395, Charlotte, North Carolina 28232-2395
|
(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:
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
$0.83-1/3
Par Value Common Stock
|
The
NASDAQ Stock Market LLC
|
Securities
Registered Pursuant to Section 12(g) of the Act: NONE
Indicate
by checkmark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No þ
Indicate
by checkmark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
One):
Large
accelerated filer þ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company ¨
(do
not check if a smaller reporting company)
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ Noþ
The
aggregate market value of shares of the Registrant’s $0.83-1/3 par value Common
Stock, its only outstanding class of voting or nonvoting common equity, held by
non-affiliates as of June 26, 2009, the last business day of the Registrant’s
most recently completed second fiscal quarter, was approximately
$695,629,000.
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 February 18, 2010,
was 32,091,166 shares.
Documents
Incorporated by Reference
Portions
of the Proxy Statement for the Annual Meeting of Stockholders to be held on May
4, 2010 are incorporated by reference into Part III of this Form
10-K.
LANCE,
INC.
FORM
10-K
TABLE OF CONTENTS
Page
|
||
PART
1
|
||
1
|
||
3
|
||
6
|
||
6
|
||
7
|
||
7
|
||
7
|
||
PART
II
|
||
8
|
||
9
|
||
10
|
||
23
|
||
24
|
||
50
|
||
51
|
||
53
|
||
54
|
||
54
|
||
54
|
||
PART
III
|
||
54
|
||
54
|
||
54
|
||
54
|
||
54
|
||
PART
IV
|
||
55
|
||
59
|
||
Note: Items
10-14 are incorporated by reference to the Proxy Statement and Item X of
Part I.
|
PART
I
Item
1. Business
General
Lance,
Inc. was incorporated as a North Carolina corporation in 1926. We
operate in one segment, snack food products. Our corporate offices
are located in Charlotte, North Carolina. We have U.S. manufacturing
operations in Charlotte, North Carolina; Burlington, Iowa; Columbus, Georgia;
Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida; and Ashland,
Ohio. Our Canadian manufacturing operations are located in Cambridge
and Guelph, Ontario.
In
October 2009, we acquired the Stella D’oro® brand as well as certain equipment
and inventory from Stella D’oro Biscuit Co., Inc. These products are
manufactured in our Ashland, Ohio facility.
During
2009, we closed our Little Rock, Arkansas premium cookie manufacturing operation
and relocated the manufacturing equipment and production to Charlotte, North
Carolina.
Products
We
manufacture, market and distribute a variety of snack food
products. We manufacture products including sandwich crackers and
sandwich cookies, potato chips, cookies, crackers, other salty snacks, sugar
wafers, nuts, restaurant style crackers and candy. In addition, we
purchase certain cakes, meat snacks, candy, restaurant style crackers and salty
snacks for resale in order to broaden our product offerings. Products
are packaged in various single-serve, multi-pack and family-size
configurations. We manufacture approximately 97% of all of the
products we sell and the remainder is purchased for resale.
We sell
both branded and private brand products, as well as contracted products for
other branded food manufacturers. Our branded products are
principally sold under the Lance®, Cape Cod®, Tom’s®, Archway® and Stella D’oro®
brands. Private brand (private label) products are sold
to retailers and distributors using store brands or our own control
brands. During 2009, 2008 and 2007, branded products represented
approximately 58%, 60% and 63% of total revenue, respectively, and private brand
products represented approximately 32%, 30% and 27% of total revenue in 2009,
2008 and 2007, respectively. Contract manufacturing represented 10%
of revenue in 2009, 2008 and 2007.
Intellectual
Property
Trademarks
that are important to our business are protected by registration or other means
in the United States and most other markets where the related products are
sold. We own various registered trademarks for use with our branded
products including LANCE, CAPE COD POTATO CHIPS, TOM’S, ARCHWAY, STELLA D’ORO,
TOASTCHEE, TOASTY, NEKOT, NIPCHEE, CHOC-O-LUNCH, VAN-O-LUNCH, GOLD-N-CHEES,
CAPTAIN’S WAFERS, THUNDER, SALERNO, OUTPOST and a variety of other marks and
designs. We license trademarks, including DON PABLO’s, BUGLES, BASS
PRO SHOP and TEXAS PETE, for limited use on certain products that are classified
as branded product sales. We also own registered trademarks including
VISTA, BRENT & SAM’S, DELICIOUS, and JODAN that are used in connection with
our private brand products.
1
Distribution
Distribution
through our direct-store-delivery (DSD) route sales system accounted for
approximately 40% of 2009 revenues. At December 26, 2009, the DSD
system consisted of approximately 1,100 sales routes in 24 states, mostly
located within the Southeastern and Mid-Atlantic United States. One
sales representative serves each sales route. We use our own fleet of
tractors and trailers to make deliveries of products throughout our DSD
system. Each route maintains stockroom space for inventory through
either individual stockrooms or distribution facilities. The sales
representatives load route trucks from these stockrooms for delivery to
customers.
In 2009,
approximately 60% of our total revenues were generated through distribution of
direct shipments or customer pick-ups through third-party carriers and our own
transportation fleet to customer locations throughout most of the United States
and other parts of North America. We utilize our own personnel,
independent distributors and brokers to solicit direct sales.
Customers
The
customer base for our branded products include grocery/mass merchandisers,
distributors, convenience stores, club stores, discount stores, food service
establishments and various other customers including drug stores, schools,
military and government facilities and “up and down the street” outlets such as
recreational facilities, offices and other independent
retailers. Private brand customers include grocery/mass merchandisers
and discount stores. We also manufacture products for branded
manufacturers.
Substantially
all of our revenues are to customers in the United States. Revenue
from our largest customer, Wal-Mart Stores, Inc., was approximately 22% of our
total revenue in 2009. The loss of this customer or a substantial
portion of business with this customer could have a material adverse effect on
our business and results of operations.
Raw
Materials
The
principal raw materials used to manufacture our products are flour, vegetable
oil, sugar, potatoes, peanuts, other nuts, cheese, cocoa and
seasonings. The principal packaging supplies used are flexible film,
cartons, trays, boxes and bags. These raw materials and supplies are
normally available in adequate quantities in the open market and may be
contracted by us up to a year or more in advance, depending on market
conditions.
Competition
and Industry
Our
products are sold in highly competitive markets. Generally, we
compete with manufacturers, many of whom have greater total revenues and
resources than we do. The principal methods of competition are price,
service, product quality and product offerings. The methods of
competition and our competitive position vary according to the geographic
location, the particular products and the activities of our
competitors.
Environmental
Matters
Our
operations in the United States and Canada are subject to various federal, state
(or provincial) and local laws and regulations with respect to environmental
matters. However, the Company was not a party to any material
proceedings arising under these laws or regulations for the periods covered by
this Form 10-K. We believe the Company is in compliance with all
material environmental regulations affecting our facilities and operations and
that continued compliance will not have a material impact on our capital
expenditures, earnings or competitive position.
`
Employees
At both
the beginning of February 2010 and 2009, we had approximately 4,800 active
employees in the United States and Canada. None of our employees are
covered by a collective bargaining agreement.
Other
Matters
Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, and amendments to these reports, are available on our website free of
charge. The website address is www.lanceinc.com. All
required reports are made available on the website as soon as reasonably
practicable after they are filed with the Securities and Exchange
Commission.
Item 1A. Risk
Factors
In
addition to the other information in this Form 10-K, the following risk factors
should be considered carefully in evaluating our business. Our
business, financial condition or results of operations may be adversely affected
by any of these risks. Additional risks and uncertainties, including
risks that we do not presently know of or currently deem insignificant, may also
impair our business, financial condition or results of operations.
Our
performance may be impacted by general economic conditions and an economic
downturn.
Recessionary
pressures from an overall decline in U.S. economic activity could adversely
impact our business and results of operations. Economic uncertainty
may reduce consumer spending in our sales channels and create a shift in
consumer preference toward private label products. While our product
portfolio contains both branded and private label offerings and mitigates
certain exposure, shifts in consumer spending could result in increased pressure
from competitors or customers to reduce the prices of some of our products
and/or limit our ability to increase or maintain prices, which could lower our
overall revenues and profitability.
Instability
in the financial markets may impact our ability or increase the cost to enter
into new credit agreements in the future. Additionally, it may weaken
the ability of our customers, suppliers, distributors, banks, insurance
companies and other business partners to perform in the normal course of
business, which could expose us to losses or disrupt the supply of inputs we
rely upon to conduct our business. If one or more of our key business
partners fail to perform as expected or contracted for any reason, our business
could be negatively impacted.
Volatility
in the price or availability of the inputs we depend on, including raw
materials, packaging, energy and labor, may adversely impact our
profitability.
Our
profitability could be adversely impacted by changes in the cost or availability
of raw materials and packaging. While we often obtain substantial
commitments for future delivery of certain raw materials and may engage in
limited hedging to reduce the price risk of these raw materials, continuing
long-term increases in the costs of raw materials and packaging, including cost
increases due to the tightening of supply, could adversely affect our
profitability.
Our
transportation and logistics system is dependent upon gasoline and diesel fuel,
and our manufacturing operations depend on natural gas. While we may
enter into forward purchase contracts to reduce the price risk associated with
some of these costs, continuing long-term changes in the cost or availability of
natural gas and energy could adversely impact our financial
performance.
Our
continued growth requires us to hire, retain and develop a highly skilled
workforce and talented management team. Any unplanned turnover or our failure to
develop an adequate succession plan for current positions could erode our
competitiveness. In addition, our operating results could be adversely affected
by increased costs due to increased competition for employees, higher employee
turnover or increased employee benefit costs.
We
operate in a highly competitive food industry.
Price
competition and industry consolidation could adversely impact our results of
operations and financial condition. The sales of most of our products
are subject to significant competition primarily through discounting and other
price cutting techniques by competitors, many of whom are significantly larger
and have greater resources than we do. In addition, there is a
continuing consolidation by the major companies in the food industry, which
could increase competition. Significant competition increases the
possibility that we could lose one or more major customers, lose existing
product offerings at customer locations, lose market share and/or shelf space,
increase expenditures or reduce selling prices, which could have an adverse
impact on our business or results of operations.
Sales
price increases initiated by us may negatively impact total
revenue. Future price increases, such as those to offset increased
ingredient costs, may reduce our overall sales volume, which could reduce total
revenues and operating profit. Additionally, if market prices for
certain ingredients decline significantly below our contracted prices, customer
pressure to reduce prices could lower total revenues and operating
profit.
Changes
in our top customer relationships could impact our revenues and
profitability.
We are
exposed to risks resulting from several large customers that account for a
significant portion of our revenue. Our top ten customers accounted
for approximately 40% of our revenue during 2009 with our largest customer
representing 22% of our 2009 revenue. The loss of one or more of our
large customers could adversely affect our results of
operations. These customers typically make purchase decisions based
on a combination of price, product quality, consumer demand and customer service
performance and generally do not enter into long-term contracts. In
addition, these significant customers may re-evaluate or refine their business
practices related to inventories, product displays, logistics or other aspects
of the customer-supplier relationship. Our results of operations
could be adversely affected if revenue from one or more of these customers is
significantly reduced or if the cost of complying with customers’ demands is
significant. If receivables from one or more of these customers
become uncollectible, our results of operations may be adversely
impacted.
Efforts
to execute and accomplish our strategic initiatives could adversely affect our
financial performance.
We
utilize several operating strategies to increase revenue and improve operating
performance. If we are unsuccessful due to our execution, unplanned
events, change management or unfavorable market conditions, our financial
performance could be adversely affected. If we pursue strategic
acquisitions, divestitures, or joint ventures, we may incur significant costs
and may not be able to consummate the transactions. We may also be
unsuccessful at integrating acquired businesses.
Future
acquisitions could also result in potentially dilutive issuances of equity
securities or the incurrence of debt, which could adversely affect result of
operations and financial condition. In the event we enter into
strategic transactions or relationships, our financial results may differ from
expectations. We may not be able to achieve expected returns and
other benefits as a result of integration or divestiture challenges not
adequately considered at the time of the transaction.
Concerns
with the safety and quality of certain food products or ingredients could cause
consumers to avoid our products.
We could
be adversely affected if consumers in our principal markets lose confidence in
the safety and quality of certain products or ingredients. Negative
publicity about these concerns, whether or not valid, may discourage consumers
from buying our products or cause disruptions in production or distribution of
our products.
If
our products become adulterated, misbranded or mislabeled, we might need to
recall those items and may experience product liability claims if consumers are
injured or become sick.
Future
product recalls or safety concerns could adversely impact our results of
operations and market share. We may be required to recall certain of our
products should they be mislabeled, contaminated or damaged. We also
may become involved in lawsuits and legal proceedings if it is alleged that the
consumption of any of our products causes injury or illness. A
product recall or an adverse result in any such litigation could have a material
adverse effect on our operating and financial results.
Disruption
of our supply chain or information technology systems could have an adverse
impact on our business, results of operations, and financial
condition.
Our
ability to make, move, and sell products is critical to our
success. Damage or disruption to our manufacturing or distribution
capabilities or the supply and delivery of key inputs, such as raw materials,
packaging, labor and energy, could impair our ability to conduct our
business. Examples include, but are not limited to, weather, natural
disasters, fires, terrorism, pandemics, and strikes. We specifically have DSD
routes and manufacturing facilities located in areas prone to tornadoes,
hurricanes and floods. Any business disruption due to natural
disasters or catastrophic events in these areas could adversely impact our
financial performance if not adequately mitigated.
Also, we
increasingly rely on information technology systems to conduct our
business. These systems may experience damage, failures,
interruptions, errors, inefficiencies, attacks, or suffer from fires or natural
disasters, any of which could have a material adverse effect on our business if
not adequately mitigated by our security measures and disaster recovery
plans.
We
may be unable to anticipate changes in consumer preferences and trends, which
may result in lower demand for our products.
Inability
to anticipate changes in consumer preferences may result in decreased demand for
products, which could have an adverse impact on our future growth and operating
results. Our success depends in part on our ability to respond to
current market trends and to anticipate the tastes and dietary habits of
consumers. Changes in consumer preferences, and our failure to
anticipate, identify or react to these changes could result in reduced demand
for our products, which could in turn cause our operating results to
suffer.
New regulations or legislation could adversely affect our business.
Food
production and marketing are highly regulated by a variety of governmental
agencies. New or increased government regulation of the food
industry, including areas related to production processes, product quality,
packaging, labeling, marketing, storage and distribution, and labor unions could
adversely impact our results of operations by increasing production costs or
restricting our methods of operation and distribution. These
regulations may address food industry or society factors, such as obesity,
nutritional concerns and diet trends. Additionally, we have increased
advertising for our products and could be the target of claims relating to
alleged false or deceptive advertising practices that may restrict our right to
advertise our products.
We
are exposed to interest and foreign currency exchange rate volatility, which
could negatively impact our operating results and financial
condition.
We are
exposed to interest rate volatility since the interest rate associated with our
existing credit facilities is variable. While we mitigate a portion
of this volatility by entering into interest rate swap agreements, those
agreements could lock our interest rates above the market rates.
We are
also exposed to foreign exchange rate volatility primarily through the
operations of our Canadian subsidiary. We mitigate a portion of the
volatility impact on our results of operations by entering into foreign currency
derivative contracts. Because our consolidated financial statements
are presented in U.S. dollars, we must translate the Canadian subsidiary’s
financial statements at the then-applicable exchange
rates. Consequently, changes in the value of the U.S. dollar may
impact our consolidated financial statements, even if the value has not changed
in the original currency.
Item
1B. Unresolved
Staff Comments
None.
Item 2. Properties
Our
corporate offices are located in Charlotte, North Carolina. We have
manufacturing operations in Charlotte, North Carolina; Burlington, Iowa;
Columbus, Georgia; Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida;
Ashland, Ohio; Cambridge, Ontario; and Guelph, Ontario. Most of our
manufacturing facilities produce both branded and non-branded
products. During 2009, we closed our Little Rock, Arkansas premium
cookie manufacturing operation and relocated the manufacturing equipment and
production to Charlotte, North Carolina. Our Little Rock location is
currently held for sale.
We lease
office space for administrative support and sales offices in 13
states. We also own or lease approximately 1,400 stockroom locations
and 10 distribution facilities.
The
plants and properties that we own and operate are maintained in good condition
and are believed to be suitable and adequate for present needs. We
believe that we have sufficient production capacity or the ability to increase
capacity to meet anticipated demand in 2010.
Item
3. Legal
Proceedings
We are
currently subject to various routine legal proceedings and claims incidental to
our business. In our opinion, such routine litigation and claims
should not have a material adverse effect upon our consolidated financial
statements taken as a whole.
Item
4. Submission
of Matters to a Vote of Security Holders
Not
applicable.
Item
X. Executive
Officers of the Registrant
Information
as to each of our executive officers is as follows:
Name
|
Age
|
Information
About Officer
|
David
V. Singer
|
54
|
President
and Chief Executive Officer of Lance, Inc. since 2005; Executive Vice
President and Chief Financial Officer of Coca-Cola Bottling Co.
Consolidated, a beverage manufacturer and distributor, from 2001 to
2005.
|
Rick
D. Puckett
|
56
|
Executive
Vice President, Chief Financial Officer and Secretary of Lance, Inc. since
January 2006 and Treasurer of Lance, Inc. since April 2006; Executive Vice
President, Chief Financial Officer and Treasurer of United Natural Foods,
Inc., a wholesale distributor of natural and organic products from 2005 to
January 2006; and Senior Vice President, Chief Financial Officer and
Treasurer of United Natural Foods, Inc. from 2003 to
2005.
|
Glenn
A. Patcha
|
46
|
Senior
Vice President – Sales and Marketing of Lance, Inc. since January 2007;
Senior Vice President of Marketing ConAgra Grocery Products Division, a
packaged foods company, 2003 to June 2006.
|
Blake
W. Thompson
|
54
|
Senior
Vice President – Supply Chain of Lance, Inc. since February 2007; Vice
President – Supply Chain of Lance, Inc. from 2005 to 2006; Senior Vice
President, Supply Chain of Tasty Baking, a snack food manufacturer and
distributor, from 2004 to 2005.
|
Kevin
A. Henry
|
42
|
Senior
Vice President and Chief Human Resources Officer of Lance, Inc. from
January 2010; Chief Human Resources Officer of Coca Cola Bottling Co.
Consolidated, a beverage manufacturer and distributor, from September 2007
to 2009; and Senior Vice President of Human Resources at Coca Cola
Bottling Co. from February 2001 to 2009.
|
Margaret
E. Wicklund
|
49
|
Vice
President, Corporate Controller, Principal Accounting Officer and
Assistant Secretary of Lance, Inc. since 2007; Corporate Controller,
Principal Accounting Officer and Assistant Secretary of Lance, Inc. from
1999 to 2006.
|
All of
the executive officers were appointed to their current positions at the Annual
Meeting of the Board of Directors on April 23, 2009, except Kevin A. Henry
who was appointed on January 13, 2010.
PART
II
Item
5. Market for
the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Our
$0.83-1/3 par value Common Stock is traded on the NASDAQ Global Select Market
under the symbol LNCE. We had 3,017 stockholders of record as of
February 18, 2010.
The
following table sets forth the high and low sales prices and dividends paid
during the interim periods in fiscal years 2009 and 2008:
2009
Interim Periods
|
High
Price
|
Low
Price
|
Dividend
Paid
|
|||||||||
First
quarter (13 weeks ended March 28, 2009)
|
$ | 24.00 | $ | 18.36 | $ | 0.16 | ||||||
Second
quarter (13 weeks ended June 27, 2009)
|
24.05 | 19.66 | 0.16 | |||||||||
Third
quarter (13 weeks ended September 26, 2009)
|
27.00 | 22.53 | 0.16 | |||||||||
Fourth
quarter (13 weeks ended December 26, 2009)
|
28.26 | 22.83 | 0.16 | |||||||||
2008
Interim Periods
|
High
Price
|
Low
Price
|
Dividend
Paid
|
|||||||||
First
quarter (13 weeks ended March 29, 2008)
|
$ | 20.98 | $ | 16.39 | $ | 0.16 | ||||||
Second
quarter (13 weeks ended June 28, 2008)
|
22.42 | 17.48 | 0.16 | |||||||||
Third
quarter (13 weeks ended September 27, 2008)
|
25.18 | 17.05 | 0.16 | |||||||||
Fourth
quarter (13 weeks ended December 27, 2008)
|
23.58 | 17.11 | 0.16 |
On
February 9, 2010, the Board of Directors of Lance, Inc. declared a quarterly
cash dividend of $0.16 per share payable on March 1, 2010 to stockholders of
record on February 22, 2010. Our Board of Directors will consider the
amount of future cash dividends on a quarterly basis.
Our
Credit Agreement dated October 20, 2006 restricts payment of cash dividends and
repurchases of our common stock if, after payment of any such dividends or any
such repurchases of our common stock, our consolidated stockholders’ equity
would be less than $125.0 million. At December 26, 2009, our
consolidated stockholders’ equity was $274.7 million.
In
December 2008, the Board of Directors approved the repurchase of up to 100,000
shares of common stock for the purpose of acquiring shares of common stock from
employees to cover withholding taxes payable by employees upon the vesting of
shares of restricted stock. During the first quarter of 2009, we
repurchased 6,741 shares of common stock. We did not repurchase any
shares of common stock during 2008 and 2007. At December 26, 2009, we
had the authority to repurchase 93,259 shares of common stock.
Item
6. Selected
Financial Data
The
following table sets forth selected historical financial data for the five-year
period ended December 26, 2009. 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. The prior year amounts have
been reclassified for consistent presentation, including the reclassification of
the vending operations to discontinued operations for 2005, 2006 and
2007.
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Results
of Operations (in thousands):
|
||||||||||||||||||||
Net sales and other
operating revenue (1) (2)
(3) (4)
|
$ | 918,163 | $ | 852,468 | $ | 762,736 | $ | 730,116 | $ | 651,437 | ||||||||||
Income from
continuing operations before income taxes (5) (6)
(7)
|
54,459 | 27,073 | 36,320 | 28,187 | 26,499 | |||||||||||||||
Net
income from continuing operations
|
35,794 | 17,706 | 23,809 | 18,378 | 17,476 | |||||||||||||||
Income from
discontinued operations before income taxes (8)
|
- | - | 44 | 153 | 1,506 | |||||||||||||||
Net
income from discontinued operations
|
- | - | 29 | 100 | 994 | |||||||||||||||
Net
income
|
$ | 35,794 | $ | 17,706 | $ | 23,838 | $ | 18,478 | $ | 18,470 | ||||||||||
Average
Number of Common Shares Outstanding
(in
thousands):
|
||||||||||||||||||||
Basic
|
31,565 | 31,202 | 30,961 | 30,467 | 29,807 | |||||||||||||||
Diluted
|
32,384 | 31,803 | 31,373 | 30,844 | 30,099 | |||||||||||||||
Per
Share of Common Stock:
|
||||||||||||||||||||
From
continuing operations – basic
|
$ | 1.13 | $ | 0.57 | $ | 0.77 | $ | 0.61 | $ | 0.59 | ||||||||||
From
discontinued operations – basic
|
- | - | - | - | 0.03 | |||||||||||||||
From
continuing operations – diluted
|
1.11 | 0.56 | 0.76 | 0.60 | 0.58 | |||||||||||||||
From
discontinued operations – diluted
|
- | - | - | - | 0.03 | |||||||||||||||
Cash
dividends declared
|
$ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.64 | $ | 0.64 | ||||||||||
Financial
Status at Year-end (in thousands):
|
||||||||||||||||||||
Total
assets
|
$ | 536,291 | $ | 466,146 | $ | 413,003 | $ | 385,452 | $ | 369,079 | ||||||||||
Long-term
debt, net of current portion
|
113,000 | 91,000 | 50,000 | 50,000 | 10,215 | |||||||||||||||
Total
debt
|
$ | 113,000 | $ | 98,000 | $ | 50,000 | $ | 50,000 | $ | 46,215 |
Footnotes:
(1)
|
2009
revenue included approximately $27 million from both Archway (acquired in
December 2008) and Stella D’oro (acquired in October
2009).
|
(2)
|
2008
revenue included approximately $15 million from Brent & Sam’s
(acquired in March 2008). Also, a significant amount of price
increases were initiated in response to unprecedented ingredient costs
increases, such as flour and vegetable
oil.
|
(3)
|
2006
revenue included incremental revenues from Tom’s (acquired in October
2005).
|
(4)
|
2005
represented a 53-week year, which accounted for $8.1 million in
incremental revenue. 2005 revenue was also impacted by two
months of revenue from the Tom’s
acquisition.
|
(5)
|
2008
pre-tax income was significantly impacted by unprecedented ingredient
costs increases, such as flour and vegetable oil, not fully offset by our
selling price increases during the
year.
|
(6)
|
Compared
to previous years, pre-tax income in 2006 was impacted by $1.3 million of
expenses related to stock options as required by a change in accounting
standard. Incremental severance and integration costs during
2006 related to the Tom’s acquisition were $2.8
million.
|
(7)
|
2005
pre-tax income was negatively impacted by $3.4 million of Tom’s
integration costs and $2.5 million of severance charges for the prior
CEO.
|
(8)
|
During
2006, we committed to a plan to discontinue our vending
operations.
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary
Information About Forward-Looking Statements
From time
to time, we make “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
include statements about our estimates, expectations, beliefs, intentions or
strategies for the future, and the assumptions underlying such
statements. We use the words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar
expressions to identify our forward-looking
statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
historical experience or our present expectations. Factors that could
cause these differences include, but are not limited to, the factors set forth
under Part I, Item 1A - Risk Factors.
Caution
should be taken not to place undue reliance on our forward-looking statements,
which reflect the expectations of management only as of the time such statements
are made. Except as required by law, we undertake no obligation to
update publicly or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
The
following discussion provides an assessment of our financial condition, results
of operations, liquidity and capital resources and should be read in conjunction
with the accompanying consolidated financial statements.
Management’s
discussion and analysis of our financial condition and results of operations are
based upon consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to
make estimates and judgments about future events that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Future events and their effects
cannot be determined with absolute certainty. Therefore, management’s
determination of estimates and judgments about the carrying values of assets and
liabilities requires the exercise of judgment in the selection and application
of assumptions based on various factors, including historical experience,
current and expected economic conditions and other factors believed to be
reasonable under the circumstances. We routinely evaluate our
estimates, including those related to customer returns and promotions,
provisions for bad debts, inventory valuations, useful lives of fixed assets,
hedge transactions, supplemental retirement benefits, intangible asset
valuations, incentive compensation, income taxes, self-insurance, contingencies
and legal proceedings. Actual results may differ from these estimates
under different assumptions or conditions.
Executive
Summary
This has
been a year of growth for our Company, as well as a year of successfully
overcoming challenges while we continued to transform our
business. In 2009, we nearly doubled our earnings per share (“EPS”)
from $0.56 in 2008 to $1.11 in 2009 and increased our revenue by $65.8 million
or 7.7%.
We began
2009 dealing with the impact of a peanut butter recall. Although our
sandwich crackers were not impacted by the recall, the potential health concerns
caused many consumers to discontinue purchases of our sandwich
crackers. The loss in revenue and increased consumer communication
initiatives related to the peanut butter recall negatively impacted our net
income in the first quarter of 2009 by an estimated $1.5 million.
During
most of 2008, our financial results were significantly impacted by higher
commodity prices and fuel costs that were not offset by selling price
increases. By the beginning of the fourth quarter of 2008, pricing
initiatives were put in place to offset a significant portion of the commodity
price increases. Commodity costs continued to increase over the first
half of 2009 and then declined in the second half of 2009 compared to
2008. In addition, energy-related costs declined compared to
2008. These costs were still at levels significantly higher than
historical rates; however, our selling price increases mitigated the impact of
the higher commodity prices and helped restore our gross margin
percentages.
From an
operational perspective, we continued to focus on our long-term key priorities
in order to develop a foundation for profitable growth. During the
year, we continued to focus on:
1.
|
Enhancing
organizational development and effectiveness in order to align our
organization to achieve our goals,
including:
|
a.
|
Attracting
highly talented employees to support growth and efficiency
initiatives,
|
b.
|
Aligning
the organization to support a centralized functional management structure,
and
|
c.
|
Implementing
organizational goals and a common vision throughout the
organization.
|
2.
|
Enhancing
operational efficiencies in our direct-store-delivery (“DSD”) operations,
supply chain process and information technology systems,
including:
|
a.
|
Improving
profitability within our DSD system by increasing weekly route sales
averages while improving pay and reducing
turnover,
|
b.
|
Improving
our capability to leverage manufacturing across facilities in order to
produce products at locations closer to our customers, standardizing
processes and continually improving our quality
initiatives,
|
c.
|
Developing
a distribution logistic strategy for our DSD and direct shipments and
increasing cubes per mile to reduce distribution costs,
and
|
d.
|
Implementing
a common ERP information technology system across all locations to
standardize processes and procedures and more efficiently provide
consistent data for
decision-making.
|
3.
|
Achieving
focused growth in core channels and product lines while simplifying our
business and creating new platforms for growth,
including:
|
a.
|
Supporting
growth in core products and channels through advertising and improved
sales execution,
|
b.
|
Leveraging
our distributor relationships to provide increased geographic and product
revenue growth and utilizing small format distributors to transfer
distribution as a result of our DSD transformation
initiatives,
|
c.
|
Increasing
profitable sales growth in our club and discount channels through pricing
initiatives, product offerings and packaging configuration
changes,
|
d.
|
Investing
in product innovation to drive profitable sales growth and support
consumer preferences, and
|
e.
|
Widening
our product offering in our private brands portfolio by offering value,
mainstream and premium products and providing exceptional customer
service.
|
During
2009, we continued to focus on our priorities as we transform Lance into a
leader within our snack food categories, while delivering on our key goals of
accelerated sales growth, widening our profit margins, improving return on
capital and driving growth in our earnings per share.
During
2009, our accomplishments included:
·
|
We
completed the integration of Archway, which we acquired in late
2008. As a result of the acquisition, we were able to
significantly increase revenue, leverage and expand production capacity
for both Archway and our private brand products, and increase our employee
base in Ashland, Ohio.
|
·
|
In
October 2009, we acquired the Stella D’oro brand and certain machinery and
equipment, which we moved to our Ashland, Ohio facility, and began
producing Stella D'oro product shortly after the
acquisition.
|
·
|
During
2009, we launched our first national television campaign and increased our
advertising in order to support our core
brands.
|
·
|
We
continued to focus our attention on product innovation initiatives and
introduced several new products both in our branded and private brand
portfolio.
|
·
|
We
completed our ERP information technology system implementation in all of
our U.S. facilities, which provided consistency and standardization at all
of our U.S. locations.
|
·
|
We
experienced significant improvements in supply chain efficiencies, which
included lower shipping costs as we centralized warehousing and more
efficiently utilized our transportation
fleet.
|
·
|
We
completed the majority of our DSD transformation initiative, which
resulted in improvements in weekly average sales per route, reduced route
sales turnover and reduced route costs as a percentage of revenue compared
to 2008.
|
·
|
We
moved the production of Brent and Sam’s products from Little Rock,
Arkansas to our Charlotte, North Carolina facility to improve
manufacturing and distribution
efficiencies.
|
·
|
We
had significant revenue growth in our club and discount channels through
providing additional product offerings and packaging
configurations.
|
·
|
Despite
the issues resulting from the peanut butter recall that occurred during
the first quarter of 2009, we experienced both consistent revenue growth
as well as increased market share of sandwich crackers sold through
grocery stores compared to 2008.
|
During
2009, we also experienced increased costs or declines in revenue as a result of
these initiatives and other economic factors, as follows:
·
|
We
incurred approximately $0.8 million of pre-tax incremental start-up costs
as a result of the Archway acquisition during the first quarter of
2009.
|
·
|
As
a result of the Stella D’oro acquisition, we incurred approximately $1.1
million in expenses due to legal and professional fees as well as start-up
costs and other costs associated with the de-installation of the equipment
moved to Ashland Ohio.
|
·
|
Advertising
costs to support our core brands increased $6.6 million compared to
2008.
|
·
|
Employee-related
costs, such as compensation, incentives and insurance-related expenses
increased approximately 18% compared to 2008, due to acquisitions and
additional employees to support revenue growth and other company
initiatives.
|
·
|
We
experienced double-digit revenue declines in our convenience store,
up-and-down the street and food service channels, as a result of lower
consumer spending and our DSD transformation
initiatives.
|
·
|
As
a result of the closure of the Brent and Sam’s facility and the subsequent
relocation of the manufacturing equipment to Charlotte, NC, we experienced
operating costs of $0.5 million.
|
·
|
During
2009, we experienced significant competition in our Cape Cod potato chips
products and achieved only modest revenue
growth.
|
Results
of Operations
2009
Compared to 2008
(In
millions)
|
2009
|
2008
|
Favorable/ (Unfavorable)
|
|||||||||||||||||||||
Revenue
|
$ | 918.2 | 100.0 | % | $ | 852.4 | 100.0 | % | $ | 65.8 | 7.7 | % | ||||||||||||
Cost
of sales
|
548.0 | 59.7 | % | 531.5 | 62.4 | % | (16.5 | ) | -3.1 | % | ||||||||||||||
Gross
margin
|
370.2 | 40.3 | % | 320.9 | 37.6 | % | 49.3 | 15.4 | % | |||||||||||||||
Selling,
general and administrative
|
310.6 | 33.8 | % | 291.7 | 34.2 | % | (18.9 | ) | -6.5 | % | ||||||||||||||
Other
expense (income), net
|
1.7 | 0.2 | % | (0.9 | ) | -0.1 | % | (2.6 | ) |
nm
|
||||||||||||||
Earnings
before interest and taxes
|
57.9 | 6.3 | % | 30.1 | 3.5 | % | 27.8 | 92.4 | % | |||||||||||||||
Interest
expense, net
|
3.4 | 0.4 | % | 3.0 | 0.4 | % | (0.4 | ) | -13.3 | % | ||||||||||||||
Income
tax expense
|
18.7 | 2.0 | % | 9.4 | 1.1 | % | (9.3 | ) | -98.9 | % | ||||||||||||||
Net
income from continuing operations
|
$ | 35.8 | 3.9 | % | $ | 17.7 | 2.1 | % | $ | 18.1 | 102.3 | % | ||||||||||||
nm
= not meaningful.
|
Revenue
Revenue
from continuing operations for the year ended December 26, 2009 increased $65.8
million or approximately 8% compared to the year ended December 27, 2008, and
was affected by the following factors:
Favorable/
(Unfavorable)
|
|||
Organic
growth
|
5%
|
||
Acquisitions
|
3%
|
||
Total
percentage change in revenue
|
8%
|
As a
percentage of total revenue, revenue by product category was as
follows:
2009
|
2008
|
||
Branded
Products
|
58%
|
60%
|
|
Private
Brand Products
|
32%
|
30%
|
|
Contract
Manufacturing
|
10%
|
10%
|
|
Total
Revenue
|
100%
|
100%
|
Branded
revenue increased $20.7 million or 4.0% compared to 2008. Sales of
branded products to grocery stores, distributors, discount stores and club
stores generated significant growth compared to 2008 due to acquisitions,
increased selling prices and new product offerings. Branded revenue from mass
merchandisers increased only modestly compared to 2008 due to changes in store
formats, which reduced the number of opportunities for promotional
displays. This growth was significantly offset by double-digit
declines in up-and-down the street, convenience store and food service revenue
as a result of lower consumer spending in these establishments and the
implementation of our DSD transformation strategy aimed at improving route
efficiency and profitability by shifting focus to servicing larger, more
profitable customers.
Our DSD
system represented approximately 68% of branded revenue in 2009 and 72% in
2008. The remainder consisted of branded revenue from distributors
and direct shipments to customers. The increase in our distributor revenue was
significantly impacted by the addition of the Archway and Stella D’oro product
offerings as well as an intended shift of certain revenue from our DSD system to
independent distributors as part of our DSD transformation
strategy.
Private
brand revenue increased $37.8 million or 15% compared to 2008, primarily related
to growth from new products and increased selling prices. Growth in
this category was also driven by increased demand from consumers for store
brands, which is in part believed to be the result of the economic
downturn.
Revenue
from contract manufacturing increased $7.3 million or 9% compared to 2008 as a
result of increased volume, increased selling prices and a short-term
manufacturing contract for a new customer.
Gross
Margin
Gross
margin increased $49.3 million or 2.7% as a percentage of revenue, compared to
2008. The increase in gross margin was mostly due to lower
ingredient, natural gas and packaging costs, as well as the favorable impact of
higher selling prices aimed at offsetting the escalation of ingredient costs
that were experienced throughout 2008 and into 2009. The increase in gross
margin was somewhat offset by a higher percentage of both private brand revenue,
which has a lower gross margin percentage than our branded products, and a
higher percentage of distributor branded revenue, which has a lower gross margin
than branded products sold through our DSD channel. In addition, we
had incremental start-up costs related to the acquisitions of Archway and Stella
D’oro and the relocation of the production of Brent & Sam’s
products.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $18.9 million as compared to 2008,
but decreased 0.4% as a percentage of revenue. Advertising costs
increased $6.6 million, which included a substantial investment in advertising
to support our first national television advertising campaign. We
also incurred incremental marketing costs of approximately $1.3 million to
reestablish the Archway® brand in the marketplace and mitigate the negative
impact of the peanut butter recall. In 2010, we plan to continue to
invest in advertising. Compensation-related expenses increased $6.7
million due to acquisitions and additional employees to support Company
initiatives. Information technology expenditures also increased due
to our ERP information technology system implementation. Somewhat
offsetting these increased expenses were favorable fuel rates, lower shipping
expenses and lower route costs due to the DSD transformation initiatives
compared to 2008.
Other Expense/(Income), Net
During
2009, other expense of $1.7 million consisted primarily of foreign currency
transaction losses due to the unfavorable impact of exchange rates in 2009, as
well as losses on sale of fixed assets. Conversely, other income
during 2008 was primarily the result of $0.9 million of foreign currency
transaction gains.
Interest
Expense, Net
Net
interest expense increased $0.4 million primarily due to higher average debt
than 2008 resulting from acquisitions made late in 2008 and 2009, offset
slightly by lower weighted average interest rates.
Income
Tax Expense
Our
effective income tax rate was 34.3% in 2009 as compared to 34.6% in
2008. The decrease in the income tax rate was primarily due to
increased utilization of federal and state credits as a result of higher net
income.
2008
Compared to 2007
(In
millions)
|
2008
|
2007
|
Favorable/ (Unfavorable)
|
|||||||||||||||||||||
Revenue
|
$ | 852.4 | 100.0 | % | $ | 762.7 | 100.0 | % | $ | 89.7 | 11.8 | % | ||||||||||||
Cost
of sales
|
531.5 | 62.4 | % | 444.5 | 58.3 | % | (87.0 | ) | -19.6 | % | ||||||||||||||
Gross
margin
|
320.9 | 37.6 | % | 318.2 | 41.7 | % | 2.7 | 0.8 | % | |||||||||||||||
Selling,
general and administrative
|
291.7 | 34.2 | % | 277.3 | 36.4 | % | (14.4 | ) | -5.2 | % | ||||||||||||||
Other
(income)/expense, net
|
(0.9 | ) | -0.1 | % | 2.4 | 0.3 | % | 3.3 |
nm
|
|||||||||||||||
Earnings
before interest and taxes
|
30.1 | 3.5 | % | 38.5 | 5.0 | % | (8.4 | ) | -21.8 | % | ||||||||||||||
Interest
expense, net
|
3.0 | 0.4 | % | 2.2 | 0.3 | % | (0.8 | ) | -36.4 | % | ||||||||||||||
Income
tax expense
|
9.4 | 1.1 | % | 12.5 | 1.6 | % | 3.1 | 24.8 | % | |||||||||||||||
Net
income from continuing operations
|
$ | 17.7 | 2.1 | % | $ | 23.8 | 3.1 | % | $ | (6.1 | ) | -25.6 | % | |||||||||||
nm
= not meaningful.
|
Revenue
Revenue
from continuing operations for the year ended December 27, 2008 increased $89.7
million or approximately 12% compared to the year ended December 29, 2007, and
was affected by the following factors:
Favorable/
(Unfavorable)
|
|||
Organic
growth
|
10%
|
||
Acquisitions
|
2%
|
||
Total
percentage change in revenue
|
12%
|
As a percentage
of total revenue, revenue by product category was as follows:
2008
|
2007
|
||
Branded
Products
|
60%
|
63%
|
|
Private
Brand Products
|
30%
|
27%
|
|
Contract
Manufacturing
|
10%
|
10%
|
|
Total
Revenue
|
100%
|
100%
|
Branded
revenue increased $33.2 million or 7% compared to 2007, due to price increases
and volume growth. Branded revenue was favorably impacted by
double-digit growth in sales to grocery/mass merchandisers. This
growth was significantly offset by double-digit declines in up-and-down the
street revenue and DSD food service revenue as a result of implementing our DSD
transformation strategy.
Our DSD
system represented approximately 72% of branded revenue in 2008 and 74% in
2007. The remainder consisted of branded revenue from distributors
and direct shipments to customers.
Private
brand revenue increased $52.4 million or 26% as a result of increased selling
prices, as well as the addition of Brent & Sam’s product offerings. Sales
volume increased only modestly due to the loss of private brand sandwich cracker
revenue from our largest customer driven by their decision to discontinue the
product.
Contract manufacturing revenue increased $4.2 million or 6% as a result of increased selling prices which was somewhat offset by volume declines in sales to certain contract manufacturing customers.
Gross
Margin
Gross
margin increased $2.7 million but declined 4.1% as a percentage of revenue as a
result of: significantly increased ingredient costs (principally flour and
vegetable oil), higher energy rates (principally natural gas), higher
compensation and vacation expense, increased packaging costs, manufacturing
inefficiencies due to the consolidation of our Canadian facilities, start-up
costs related to the acquisition of the Archway facility and the impact of
increased volume sold.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $14.4 million as compared to
2007. Increased expenses included higher salaries, wages, employee
commissions, vacation and incentives of $9.9 million, increased cost to deliver
products due to higher gasoline and diesel rates of $3.0 million, and increased
depreciation and amortization of $2.0 million due to new sales route trucks,
larger and more efficient over-the-road trailers and the implementation of our
ERP system. Also, there were increases in information technology
software and hardware maintenance costs, higher third-party brokerage costs due
to increased revenue and increased costs associated with market research
regarding new and existing products. Offsetting these increases in
expenses were reductions in advertising expenditures and lower casualty claims
costs.
Other
Expense/(Income), Net
During
2008, other income consisted primarily of $0.9 million of foreign currency
transaction gains due to the favorable impact of exchange rates during the
fourth quarter. Conversely, other expense during 2007 was the result
of $1.3 million of foreign currency transaction losses from unfavorable exchange
rates and write-offs of $1.1 million of previously capitalized information
technology that was replaced by the new ERP information technology
system.
Interest
Expense, Net
Net
interest expense increased $0.8 million primarily due to higher average debt
than 2007 resulting from acquisitions made during 2008, offset slightly by lower
weighted average interest rates.
Income
Tax Expense
Our
effective income tax rate was 34.6% in 2008 as compared to 34.4% in
2007. The increase in the income tax rate was due primarily to
unfavorable changes in permanent book-tax differences partially offset by
reductions in long-term tax contingencies.
Liquidity
and Capital Resources
Liquidity
Liquidity
represents our ability to generate sufficient cash flows from operating
activities to meet our obligations as well as our ability to obtain appropriate
financing. Therefore, liquidity cannot be considered separately from
capital resources that consist primarily of current and potentially available
funds for use in achieving our objectives. Currently, our liquidity
needs arise primarily from working capital requirements, capital expenditures
and dividends. Sufficient liquidity is expected to be available to
enable us to meet these demands.
We have a
universal shelf registration statement that, subject to our ability to
consummate a transaction on acceptable terms, provides the flexibility to sell
up to $250 million of debt or equity securities.
Operating
Cash Flows
Net cash
from operating activities was $69.3 million in 2009, $54.9 million in 2008 and
$52.4 million in 2007. Cash used from net changes in operating assets
and liabilities increased from $9.0 million in 2008 to $12.9 million in 2009,
primarily due to higher accounts receivable, as a result of increased sales, and
higher inventory, as a result of acquisitions and new product introductions,
offset somewhat by higher accounts payable and accrued selling
costs.
Cash used
from net changes in operating assets and liabilities increased from $6.1 million
in 2007 to $9.0 million in 2008, primarily due to higher accounts receivable, as
a result of increased sales, and higher inventory, as a result of acquisitions
and new product introductions, offset somewhat by higher accounts payable and
accrued compensation.
Investing
Cash Flows
Cash used
in investing activities in 2009 included capital expenditures of $40.7 million
which was partially offset by proceeds from the sale of fixed assets of $0.8
million. Capital expenditures for fixed assets in 2009 included
manufacturing equipment, computer hardware and software, office furniture and
fixtures, route truck shelving and permanent sales displays. Capital
expenditures for 2010 are projected to be between $40 million and $45 million,
funded primarily by net cash flow from operating activities, cash on hand, and
available credit from credit facilities. On October 13, 2009, we
acquired the Stella D’oro® brand as well as certain inventory and equipment from
Stella D’oro Biscuit Co., Inc. for $23.9 million, including the cost of
equipment installation.
Cash used
in investing activities in 2008 represented capital expenditures of $39.1
million, partially offset by proceeds from the sale of fixed assets of $3.0
million. On March 14, 2008, we acquired Brent & Sam’s, Inc. for
approximately $23.9 million, net of cash acquired of $0.2
million. Additionally, on December 8, 2008, we acquired substantially
all of the assets of Archway Cookies, LLC for approximately $31.0
million. During 2008, we also invested an additional $0.2 million in
our non-controlling equity interest in Late July, an organic snack food
company. Cash used in investing activities in 2007 represented
capital expenditures of $39.5 million and the purchase of a non-controlling
equity interest in Late July for $2.1 million. Proceeds from the sale
of fixed assets were $7.3 million in 2007.
Financing
Cash Flows
During
2009, 2008 and 2007, we paid dividends of $0.64 per share each year totaling
$20.4 million, $20.1 million and $19.9 million, respectively. As a
result of the exercise of stock options by employees, we received cash and tax
benefits of $4.1 million in 2009, net of stock repurchases of $0.1 million, $2.5
million in 2008, and $4.7 million in 2007. During 2009 and 2008,
proceeds from debt, net of repayments, were $15.0 million and $46.2 million,
respectively. These proceeds from debt were primarily used to fund
acquisitions.
In
December 2008, the Board of Directors approved the repurchase of up to 100,000
shares of common stock for the purpose of acquiring shares of common stock from
employees to cover withholding taxes payable by employees upon the vesting of
shares of restricted stock. During the first quarter of 2009, we
repurchased 6,741 shares of common stock. We did not repurchase any
shares of common stock during 2008 and 2007.
Debt
In
October 2006, we entered into an unsecured Credit Agreement, which allows us to
make revolving credit borrowings of up to US$100.0 million and CDN$15.0 million
through October 2011. As of December 26, 2009 and December 27, 2008,
we had $63.0 million and $48.0 million outstanding under the revolving credit
agreement, respectively. Also under the Credit Agreement, we entered
into a $50.0 million term loan due in October 2011. As of December
26, 2009 and December 27, 2008, we had $50.0 million outstanding under the term
loan. Debt increased $15.0 million during 2009, primarily to fund the
purchase of certain assets of Stella D’oro Biscuit Co., Inc.
We also
maintain standby letters of credit in connection with our self-insurance
reserves for casualty claims. The total amount of these letters of
credit was $15.7 million as of December 26, 2009. These letters of
credit reduce the total available borrowings under the Credit
Agreement. Unused and available borrowings were $35.6 million under
our existing U.S. and Canadian credit facilities at December 26,
2009. Under certain circumstances and subject to certain conditions,
we have the option to increase available credit under the Credit Agreement by up
to $50.0 million during the life of the facility.
The
Credit Agreement requires us to comply with certain defined covenants, such as a
maximum debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio of 3.0 and a minimum interest coverage ratio of
2.5. At December 26, 2009, our debt to EBITDA ratio was 1.2, and our
interest coverage ratio was 16.5. In addition, our revolving credit
agreement restricts payment of cash dividends and repurchases of our common
stock if, after payment of dividends or repurchases of our common stock, our
consolidated stockholders’ equity would be less than $125.0
million. At December 26, 2009, our consolidated stockholders’ equity
was $274.7 million. We were in compliance with these covenants at
December 26, 2009. Total interest expense under the Credit Agreement
for 2009, 2008 and 2007 was $3.4 million, $3.2 million, and $2.9 million,
respectively. During 2009 and 2008, we capitalized $0.2 million and
$0.3 million of interest expense, respectively into fixed assets as part of our
ERP information technology system implementation.
Contractual
Obligations
We lease
certain facilities and equipment classified as operating leases. We
also have entered into agreements with suppliers for the purchase of certain
ingredients, packaging materials and energy used in the production
process. These agreements are entered into in the normal course of
business and consist of agreements to purchase a certain quantity over a certain
period of time. These purchase commitments range in length from a few
weeks to twelve months. Additionally, we provide supplemental
retirement benefits to certain retired and active officers.
Contractual
obligations as of December 26, 2009 were:
Payments
Due by Period
|
||||||||||||||||||||
(in
thousands)
|
Total
|
<
1 year
|
1-3
years
|
3-5
years
|
Thereafter
|
|||||||||||||||
Purchase
commitments
|
$ | 88,201 | $ | 88,201 | $ | - | $ | - | $ | - | ||||||||||
Debt,
including interest payable*
|
119,112 | 3,334 | 115,778 | - | - | |||||||||||||||
Operating
lease obligations
|
27,297 | 3,290 | 6,609 | 4,808 | 12,590 | |||||||||||||||
Benefit
obligations
|
1,625 | 107 | 303 | 187 | 1,028 | |||||||||||||||
Total contractual obligations
|
$ | 236,235 | $ | 94,932 | $ | 122,690 | $ | 4,995 | $ | 13,618 |
*
Variable interest will be paid in future periods based on the outstanding
balance at that time. The amounts due include the estimated interest
payable on debt instruments through October 2011.
Because
we are uncertain as to if or when settlements may occur, this table does not
reflect our liability for gross unrecognized tax benefits of $0.9 million and
related interest and penalties of $0.3 million related to uncertain tax
positions. Details regarding this liability are presented in Note 9
to the consolidated financial statements included in Item 8.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future material effect on our financial condition, results of
operations or cash flows.
Critical
Accounting Estimates
Preparing
the consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. We believe the following estimates and assumptions to be
critical accounting estimates. These assumptions and estimates may be
material due to the levels of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters to change, and
may have a material impact on the financial condition or operating
performance. Actual results may differ from these estimates under
different assumptions or conditions.
Revenue
Recognition
Our
policy on revenue recognition varies based on the types of products sold and the
distribution method. We recognize operating revenue when title and
risk of loss passes to our customers. Allowances for sales returns,
stale products, promotions and discounts are also recorded as reductions of
revenue in the consolidated financial statements.
Revenue
for products sold through our DSD system is recognized when the product is
delivered to the retailer. Our sales representative creates the
invoice at time of delivery using a handheld computer. The invoice is
transmitted electronically each day and sales revenue is
recognized.
Revenue
for products shipped directly to the customer from our warehouse is recognized
based on the shipping terms listed on the shipping
documentation. Products shipped with terms FOB-shipping point are
recognized as revenue at the time the shipment leaves our
warehouses. Products shipped with terms FOB-destination are
recognized as revenue based on the anticipated receipt date by the
customer.
We allow
certain customers to return products under agreed upon
circumstances. We record a returns allowance for damaged products and
other products not sold by the expiration date on the product
label. This allowance is estimated based on a percentage of sales
returns using historical and current market information.
We record
certain reductions to revenue for promotional allowances. There are
several different types of promotional allowances such as off-invoice
allowances, rebates and shelf space allowances. An off-invoice
allowance is a reduction of the sales price that is directly deducted from the
invoice amount. We record the amount of the deduction as a reduction
to revenue when the transaction occurs. At times, certain rebates may
be offered to customers based on the quantity of product purchased over a period
of time. Based on the nature of these allowances, the exact amount of
the rebate is not known at the time the product is sold to the
customer. An estimate of the expected rebate amount is recorded as a
reduction to revenue and an accrued liability at the time the sale is
recorded. The accrued liability is monitored throughout the period
covered by the promotion. The accrual is based on historical
information and the progress of the customer against the target
amount. Shelf space allowances are capitalized and amortized over the
lesser of the life of the agreement or three years and recorded as a reduction
to revenue. Capitalized shelf space allowances are evaluated for
impairment on an ongoing basis.
We also
record certain allowances for coupon redemptions, scan-back promotions and other
promotional activities as a reduction to revenue. The accrued
liability is monitored throughout the period covered by the coupon or
promotion.
Total
allowances for sales returns, rebates, coupons, scan-backs and other promotional
activities included in other payables and accrued liabilities on the
consolidated balance sheets increased from $5.2 million at the end of 2008 to
$9.2 million at the end of 2009 due to a more aggressive marketing effort to
drive sales growth.
Allowance
for Doubtful Accounts
The
determination of the allowance for doubtful accounts is based on management’s
estimate of uncollectible accounts receivable. We record a general
reserve based on analysis of historical data and the aging of accounts
receivable. In addition, management records specific reserves for
receivable balances that are considered at higher risk due to known facts
regarding the customer. Allowances for doubtful accounts increased
from $0.9 million at the end of 2008 to $1.0 million at the end of 2009 due to
higher accounts receivable.
Self-Insurance
Reserves
We
maintain reserves for the self-funded portions of employee medical insurance
benefits. The employer’s portion of employee medical claims is
limited by stop-loss insurance coverage each year to $0.3 million per
person. At December 26, 2009 and December 27, 2008, the accruals for
our portion of medical insurance benefits were $2.9 million and $2.5 million,
respectively.
For
casualty insurance obligations, we maintain self-insurance reserves for workers’
compensation and auto liability for individual losses up to the $0.5 million
insurance deductible. In addition, general and product liability
claims are self-funded for individual losses up to the $0.1 million insurance
deductible. Claims in excess of the deductible are fully insured up
to $100 million per individual claim. We evaluate input from a
third-party actuary in the estimation of the casualty insurance obligation on an
annual basis. In determining the ultimate loss and reserve
requirements, we use various actuarial assumptions including compensation
trends, healthcare cost trends and discount rates. We also use
historical information for claims frequency and severity in order to establish
loss development factors. The estimate of discounted loss reserves
ranged from $11.6 million to $14.4 million in 2009. In 2008, the
estimate of discounted loss reserves ranged from $11.7 million to $14.9
million. Consistent with prior periods, the 75th
percentile of this range represents our best estimate of the ultimate
outstanding casualty liability. We lowered the discount rate from
4.5% in 2008 to 3.5% in 2009 based on projected investment returns over the
estimated future payout period, which increased the estimated claims liability
by approximately $0.2 million.
Impairment
Analysis of Goodwill and Other Indefinite-Lived Intangible
Assets
The
annual impairment analysis of goodwill and other indefinite-lived intangible
assets requires us to project future financial performance, including revenue
and profit growth, fixed asset and working capital investments, income tax rates
and cost of capital. These projections rely upon historical
performance, anticipated market conditions and forward-looking business
plans. The analysis of goodwill and other indefinite-lived intangible
assets as of December 26, 2009 assumes combined average annual revenue growth of
approximately 4.2% during the valuation period.
We also
use a combination of internal and external data to develop the weighted average
cost of capital. Significant investments in fixed assets and working
capital to support this growth are estimated and factored into the
analysis. If the forecasted revenue growth is not achieved, the
required investments in fixed assets and working capital could be
reduced. Even with the excess fair value over carrying value,
significant changes in assumptions or changes in conditions could result in a
goodwill impairment charge in the future.
Depreciation
and Impairment of Fixed Assets
Depreciation
of fixed assets is computed using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives used in
computing depreciation are based on estimates of the period over which the
assets will provide economic benefits. Estimated lives are based on
historical experience, maintenance practices, technological changes and future
business plans. Depreciation expense was $34.6 million, $32.0 million
and $29.3 million during 2009, 2008 and 2007, respectively. Changes
in these estimated lives and increases in capital expenditures could
significantly affect depreciation expense in the future.
Fixed
assets are tested for recoverability whenever events or changes in circumstances
indicate that their carrying value may not be
recoverable. Recoverability of fixed assets is evaluated by comparing
the carrying amount of an asset to future net undiscounted cash flows expected
to be generated by the asset. If this comparison indicates that an
asset’s carrying amount is not recoverable, an impairment loss is recognized,
and the adjusted carrying amount is depreciated over the asset’s remaining
useful life.
Equity-Based
Incentive Compensation Expense
Determining
the fair value of share-based awards at the grant date requires judgment,
including estimating the expected term, expected stock price volatility,
risk-free interest rate and expected dividends. Judgment is required
in estimating the amount of share-based awards that are expected to be forfeited
before vesting. In addition, our long-term equity incentive plans
require assumptions and projections of future operating results and financial
metrics. Actual results may differ from these assumptions and
projections, which could have a material impact on our financial
results.
Provision
for Income Taxes
We
estimate valuation allowances on deferred tax assets for the portions that we do
not believe will be fully utilized based on projected earnings and
usage. Our effective tax rate is based on the level and mix of income
of our separate legal entities, statutory tax rates and tax planning
opportunities available in the various jurisdictions in which we
operate. Significant judgment is required in evaluating tax positions
that affect the annual tax rate. Unrecognized tax benefits for
uncertain tax positions are established when, despite the fact that the tax
return positions are supportable, we believe these positions may be challenged
and the results are uncertain. We adjust these liabilities in light
of changing facts and circumstances, such as the progress of a tax
audit.
New
Accounting Standards
See Note
1 to the consolidated financial statements included in Item 8. for a summary of
new accounting standards.
Item
7A. Quantitative
and Qualitative Disclosure About Market Risk
We are
exposed to certain commodity, interest rate and foreign currency exchange rate
risks as part of our ongoing business operations and may use derivative
financial instruments, where appropriate, to manage some of these
risks. We do not use derivatives for trading
purposes. There are no market risk sensitive instruments held for
trading purposes.
In order
to reduce the price volatility of certain ingredient, packaging and energy
costs, we have entered into various forward purchase agreements with certain
suppliers based on market prices, forward price projections, and expected usage
levels in order to determine appropriate selling prices for our
products. As of December 26, 2009 and December 27, 2008, we had no
outstanding commodity futures contracts or other derivative contracts related to
ingredients and energy.
Our
variable-rate debt obligations incur interest at floating rates based on changes
in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian
prime rate and U.S. base rate interest. To manage exposure to
changing interest rates, we selectively enter into interest rate swap agreements
to maintain a desirable proportion of fixed to variable rate
debt. See Note
8 to the consolidated financial statements in Item 8. for further
information related to our interest rate swap agreements. While these
interest rate swap agreements fixed a portion of the interest rate at a
predictable level, pre-tax interest expense would have been $2.3 million lower
without these swaps during 2009. Including the effects of the
interest rate swap agreements, the weighted average interest rates for 2009 and
2008 were 3.1% and 3.6%, respectively. A 10% increase in the variable
interest rate would not have significantly impacted interest expense during
2009.
Through
the operations of our Canadian subsidiary, there is an exposure to foreign
exchange rate fluctuations, primarily between U.S. dollars and Canadian
dollars. A majority of the revenue of our Canadian operations is
denominated in U.S. dollars and a substantial portion of the operations’ costs,
such as raw materials and direct labor, are denominated in Canadian
dollars. We have entered into a series of forward contracts to
mitigate a portion of this foreign exchange rate exposure. These
contracts have maturities through June 2010. Foreign currency
fluctuations favorably impacted 2009 pre-tax earnings by $1.7 million compared
to 2008. However, this increase in pre-tax earnings was offset by the
unfavorable effect of derivative forward contracts of $0.5 million in 2009
compared to 2008, resulting in a net favorable impact of $1.2 million in
2009.
Item 8. Financial
Statements and Supplementary Data
Consolidated
Statements of Income
LANCE,
INC. AND SUBSIDIARIES
For
the Fiscal Years Ended December 26, 2009, December 27, 2008, and December 29,
2007
(in
thousands, except share and per share data)
2009
|
2008
|
2007
|
|||||||||
Net
revenue
|
$ | 918,163 | $ | 852,468 | $ | 762,736 | |||||
Cost
of sales
|
547,991 | 531,528 | 444,487 | ||||||||
Gross
margin
|
370,172 | 320,940 | 318,249 | ||||||||
Selling,
general and administrative
|
310,588 | 291,680 | 277,317 | ||||||||
Other
expense/(income), net
|
1,774 | (854 | ) | 2,390 | |||||||
Income
from continuing operations before interest and income
taxes
|
57,810 | 30,114 | 38,542 | ||||||||
Interest
expense, net
|
3,351 | 3,041 | 2,222 | ||||||||
Income
before income taxes
|
54,459 | 27,073 | 36,320 | ||||||||
Income
tax expense
|
18,665 | 9,367 | 12,511 | ||||||||
Net
income from continuing operations
|
35,794 | 17,706 | 23,809 | ||||||||
Income
from discontinued operations, before income taxes
|
- | - | 44 | ||||||||
Income
tax expense
|
- | - | 15 | ||||||||
Net
income from discontinued operations
|
- | - | 29 | ||||||||
Net
income
|
$ | 35,794 | $ | 17,706 | $ | 23,838 | |||||
Basic
earnings per share:
|
|||||||||||
From
continuing operations
|
$ | 1.13 | $ | 0.57 | $ | 0.77 | |||||
From
discontinued operations
|
- | - | - | ||||||||
Basic
earnings per share
|
$ | 1.13 | $ | 0.57 | $ | 0.77 | |||||
Weighted
average shares outstanding – basic
|
31,565,000 | 31,202,000 | 30,961,000 | ||||||||
Diluted
earnings per share:
|
|||||||||||
From
continuing operations
|
$ | 1.11 | $ | 0.56 | $ | 0.76 | |||||
From
discontinued operations
|
- | - | - | ||||||||
Diluted
earnings per share
|
$ | 1.11 | $ | 0.56 | $ | 0.76 | |||||
Weighted
average shares outstanding – diluted
|
32,384,000 | 31,803,000 | 31,373,000 | ||||||||
See
Notes to Consolidated Financial Statements
|
Consolidated
Balance
Sheets
LANCE,
INC. AND SUBSIDIARIES
December
26, 2009 and December 27, 2008
(in
thousands, except share data)
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 5,418 | $ | 807 | ||||
Accounts
receivable, net of allowances of $972 and $863,
respectively
|
87,172 | 74,406 | ||||||
Inventories
|
58,037 | 43,112 | ||||||
Deferred
income taxes
|
9,790 | 9,778 | ||||||
Assets
held for sale
|
2,769 | 385 | ||||||
Prepaid
expenses and other current assets
|
15,696 | 12,548 | ||||||
Total
current assets
|
178,882 | 141,036 | ||||||
Fixed
assets, net
|
225,981 | 216,085 | ||||||
Goodwill,
net
|
90,909 | 80,110 | ||||||
Other
intangible assets, net
|
35,154 | 23,966 | ||||||
Other
noncurrent assets
|
5,365 | 4,949 | ||||||
Total
assets
|
$ | 536,291 | $ | 466,146 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 29,777 | $ | 25,939 | ||||
Accrued
compensation
|
26,604 | 26,312 | ||||||
Accrued
profit-sharing retirement plan
|
6,285 | 5,592 | ||||||
Accrual
for casualty insurance claims
|
4,840 | 5,581 | ||||||
Accrued
selling costs
|
9,235 | 5,162 | ||||||
Other
payables and accrued liabilities
|
19,625 | 15,983 | ||||||
Short-term
debt
|
- | 7,000 | ||||||
Total
current liabilities
|
96,366 | 91,569 | ||||||
Long-term
debt
|
113,000 | 91,000 | ||||||
Deferred
income taxes
|
35,515 | 31,241 | ||||||
Accrual
for casualty insurance claims
|
8,287 | 8,459 | ||||||
Other
noncurrent liabilities
|
8,436 | 8,370 | ||||||
Total
liabilities
|
261,604 | 230,639 | ||||||
Commitments
and contingencies
|
- | - | ||||||
Stockholders’
equity
|
||||||||
Common
stock, $0.83-1/3 par value. Authorized 75,000,000 shares;
32,093,193
and 31,522,953 shares outstanding, respectively
|
26,743 | 26,268 | ||||||
Preferred
stock, no shares outstanding
|
- | - | ||||||
Additional
paid-in capital
|
60,829 | 49,138 | ||||||
Retained
earnings
|
176,322 | 160,938 | ||||||
Accumulated
other comprehensive income/(loss)
|
10,793 | (837 | ) | |||||
Total
stockholders' equity
|
274,687 | 235,507 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 536,291 | $ | 466,146 | ||||
See
Notes to Consolidated Financial Statements
|
Consolidated
Statements of
Stockholders’ Equity and Comprehensive Income
LANCE,
INC. AND SUBSIDIARIES
For
the Fiscal Years Ended December 26, 2009, December 27, 2008, and December 29,
2007
(in
thousands, except share data)
Shares
|
Common
Stock
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income/(Loss)
|
Total
|
|||||||||||||||||||
Balance,
December 30, 2006
|
30,855,891 | $ | 25,714 | $ | 32,129 | $ | 159,329 | $ | 5,228 | $ | 222,400 | |||||||||||||
Comprehensive
income/(loss):
|
||||||||||||||||||||||||
Net
income
|
23,838 | 23,838 | ||||||||||||||||||||||
Foreign
currency translation adjustment
|
11,468 | 11,468 | ||||||||||||||||||||||
Net
unrealized losses on derivatives, net of $179 tax effect
|
(254 | ) | (254 | ) | ||||||||||||||||||||
Actuarial
gains recognized in net income, net of $68 tax effect
|
(142 | ) | (142 | ) | ||||||||||||||||||||
Total
comprehensive income
|
34,910 | |||||||||||||||||||||||
Cash
dividends paid to stockholders
|
(19,872 | ) | (19,872 | ) | ||||||||||||||||||||
Cumulative
adjustment from adoption of accounting standard
|
61 | 61 | ||||||||||||||||||||||
Amortization
of nonqualified stock options
|
1,658 | 1,658 | ||||||||||||||||||||||
Equity-based
incentive expense previously recognized under a liability
plan
|
316 | 316 | ||||||||||||||||||||||
Stock
options exercised, including $1,026 excess tax benefit
|
270,852 | 224 | 4,508 | 4,732 | ||||||||||||||||||||
Issuances
and amortization of restricted stock and units, net of
forfeitures
|
88,000 | 73 | 2,819 | 2,892 | ||||||||||||||||||||
Balance,
December 29, 2007
|
31,214,743 | $ | 26,011 | $ | 41,430 | $ | 163,356 | $ | 16,300 | $ | 247,097 | |||||||||||||
Comprehensive
income/(loss):
|
||||||||||||||||||||||||
Net
income
|
17,706 | 17,706 | ||||||||||||||||||||||
Foreign
currency translation adjustment
|
(13,553 | ) | (13,553 | ) | ||||||||||||||||||||
Net
unrealized losses on derivatives, net of $1,923 tax effect
|
(3,593 | ) | (3,593 | ) | ||||||||||||||||||||
Actuarial
losses recognized in net income, net of $5 tax effect
|
9 | 9 | ||||||||||||||||||||||
Total
comprehensive income
|
569 | |||||||||||||||||||||||
Cash
dividends paid to stockholders
|
(20,124 | ) | (20,124 | ) | ||||||||||||||||||||
Amortization
of nonqualified stock options
|
1,124 | 1,124 | ||||||||||||||||||||||
Equity-based
incentive expense previously recognized under a liability
plan
|
39,250 | 33 | 876 | 909 | ||||||||||||||||||||
Stock
options exercised, including $395 excess tax benefit
|
149,825 | 125 | 2,414 | 2,539 | ||||||||||||||||||||
Issuances
and amortization of restricted stock and units, net of
forfeitures
|
119,135 | 99 | 3,294 | 3,393 | ||||||||||||||||||||
Balance,
December 27, 2008
|
31,522,953 | $ | 26,268 | $ | 49,138 | $ | 160,938 | $ | (837 | ) | $ | 235,507 | ||||||||||||
Comprehensive
income/(loss):
|
||||||||||||||||||||||||
Net
income
|
35,794 | 35,794 | ||||||||||||||||||||||
Foreign
currency translation adjustment
|
9,241 | 9,241 | ||||||||||||||||||||||
Net
unrealized gains on derivatives, net of $1,175 tax effect
|
2,569 | 2,569 | ||||||||||||||||||||||
Actuarial
gains recognized in net income, net of $104 tax effect
|
(180 | ) | (180 | ) | ||||||||||||||||||||
Total
comprehensive income
|
47,424 | |||||||||||||||||||||||
Cash
dividends paid to stockholders
|
(20,410 | ) | (20,410 | ) | ||||||||||||||||||||
Amortization
of nonqualified stock options
|
1,295 | 1,295 | ||||||||||||||||||||||
Equity-based
incentive expense previously recognized under a liability
plan
|
73,356 | 61 | 1,531 | 1,592 | ||||||||||||||||||||
Stock
options exercised, including $624 excess tax benefit
|
240,191 | 200 | 4,040 | 4,240 | ||||||||||||||||||||
Issuances
and amortization of restricted stock and units, net of
forfeitures
|
263,434 | 220 | 4,946 | 5,166 | ||||||||||||||||||||
Repurchases
of common stock
|
(6,741 | ) | (6 | ) | (121 | ) | (127 | ) | ||||||||||||||||
Balance,
December 26, 2009
|
32,093,193 | $ | 26,743 | $ | 60,829 | $ | 176,322 | $ | 10,793 | $ | 274,687 | |||||||||||||
See
Notes to Consolidated Financial
Statements
|
Consolidated
Statements of Cash
Flows
LANCE,
INC. AND SUBSIDIARIES
For
the Fiscal Years Ended December 26, 2009, December 27, 2008, and December 29,
2007
(in
thousands)
2009
|
2008
|
2007
|
||||||||||
Operating
activities
|
||||||||||||
Net
income
|
$ | 35,794 | $ | 17,706 | $ | 23,838 | ||||||
Adjustments
to reconcile net income to cash from operating activities:
|
||||||||||||
Depreciation
and amortization
|
35,211 | 32,217 | 29,307 | |||||||||
Equity-based
compensation expense
|
7,472 | 5,967 | 3,294 | |||||||||
Loss/(gain)
on sale of fixed assets
|
702 | (339 | ) | 818 | ||||||||
Deferred
income taxes
|
3,190 | 5,885 | (54 | ) | ||||||||
LIFO
reserve adjustment
|
(1,128 | ) | 1,715 | 1,412 | ||||||||
Provisions
for doubtful accounts
|
936 | 763 | (166 | ) | ||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
(13,109 | ) | (10,635 | ) | (1,551 | ) | ||||||
Inventories
|
(11,460 | ) | (4,762 | ) | (2,806 | ) | ||||||
Other
current assets
|
(3,285 | ) | (970 | ) | (1,776 | ) | ||||||
Accounts
payable
|
3,600 | 4,724 | 2,620 | |||||||||
Other
accrued liabilities
|
10,410 | 2,150 | (2,727 | ) | ||||||||
Other
noncurrent assets
|
(415 | ) | 952 | 828 | ||||||||
Other
noncurrent liabilities
|
1,359 | (463 | ) | (687 | ) | |||||||
Net
cash provided by operating activities
|
69,277 | 54,910 | 52,350 | |||||||||
Investing
activities
|
||||||||||||
Purchases
of fixed assets
|
(40,737 | ) | (39,064 | ) | (39,476 | ) | ||||||
Proceeds
from sale of fixed assets
|
765 | 2,958 | 7,277 | |||||||||
Purchase
of investment
|
- | (190 | ) | (2,090 | ) | |||||||
Business
acquisitions, net of cash acquired
|
(23,911 | ) | (54,984 | ) | - | |||||||
Net
cash used in investing activities
|
(63,883 | ) | (91,280 | ) | (34,289 | ) | ||||||
Financing
activities
|
||||||||||||
Dividends
paid
|
(20,410 | ) | (20,124 | ) | (19,872 | ) | ||||||
Issuance
and repurchase of common stock under employee stock plans,
net
|
4,113 | 2,539 | 4,732 | |||||||||
Net
proceeds from existing credit facilities
|
15,000 | 48,435 | - | |||||||||
Repayments
of debt from business acquisition
|
- | (2,239 | ) | - | ||||||||
Net
cash (used in)/provided by financing activities
|
(1,297 | ) | 28,611 | (15,140 | ) | |||||||
Effect
of exchange rate changes on cash
|
514 | (81 | ) | 222 | ||||||||
Increase/(decrease)
in cash and cash equivalents
|
4,611 | (7,840 | ) | 3,143 | ||||||||
Cash
and cash equivalents at beginning of period
|
807 | 8,647 | 5,504 | |||||||||
Cash
and cash equivalents at end of period
|
$ | 5,418 | $ | 807 | $ | 8,647 | ||||||
Supplemental
information:
|
||||||||||||
Cash
paid for income taxes, net of refunds of $159, $209 and $211,
respectively
|
$ | 13,763 | $ | 2,145 | $ | 12,594 | ||||||
Cash
paid for interest
|
$ | 3,515 | $ | 3,231 | $ | 2,878 | ||||||
See
Notes to Consolidated Financial Statements
|
Notes
to
Consolidated Financial Statements
LANCE,
INC. AND SUBSIDIARIES
December
26, 2009 and December 27, 2008
NOTE
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Operations
We
operate in one segment, snack food products, which we manufacture, market and
distribute. We manufacture products including sandwich crackers and
cookies, potato chips, cookies, crackers, other salty snacks, sugar wafers,
nuts, restaurant style crackers and candy. In addition, we purchase
certain cakes, meat snacks, candy, restaurant style crackers and salty snacks
for resale in order to broaden our product offerings. Products are
packaged in various single-serve, multi-pack and family-size
configurations.
We sell
both branded and private brand products, as well as contracted products for
other branded food manufacturers. Our branded products are
principally sold under the Lance®, Cape Cod®, Tom’s®, Archway® and Stella D’oro®
brands. Private brand products are sold to retailers and distributors
using store brands or Lance control brands.
Our
corporate offices are located in Charlotte, North Carolina. We have
manufacturing operations in Charlotte, North Carolina; Burlington, Iowa;
Columbus, Georgia; Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida;
Ashland, Ohio; Cambridge, Ontario and Guelph, Ontario.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Lance,
Inc. and subsidiaries. All intercompany transactions and balances
have been eliminated.
Reclassifications
Certain
prior year amounts shown in the consolidated financial statements have been
reclassified for consistent presentation. These reclassifications had
no impact on net income, financial position or cash flows.
Revenue
Recognition
Revenue
for products sold through our direct-store-delivery (DSD) system is recognized
when the product is delivered to the retailer. Our sales
representative creates the invoice at time of delivery using a handheld
computer. The invoice is transmitted electronically each day and
sales revenue is recognized.
Revenue
for products shipped directly to the customer from our warehouse is recognized
based on the shipping terms listed on the shipping
documentation. Products shipped with terms FOB-shipping point are
recognized as revenue at the time the shipment leaves our
warehouses. Products shipped with terms FOB-destination are
recognized as revenue based on the anticipated receipt date by the
customer.
We allow
certain customers to return products under agreed upon
circumstances. We record a returns allowance for damaged products and
other products not sold by the expiration date on the product
label. This allowance is estimated based on a percentage of sales
returns using historical and current market information.
We record
certain reductions to revenue for promotional allowances. There are
several different types of promotional allowances such as off-invoice
allowances, rebates and shelf space allowances. An off-invoice
allowance is a reduction of the sales price that is directly deducted from the
invoice amount. We record the amount of the deduction as a reduction
to revenue when the transaction occurs. Rebates are offered to
customers based on the quantity of product purchased over a period of
time. Based on the nature of these allowances, the exact amount of
the rebate is not known at the time the product is sold to the
customer. An estimate of the expected rebate amount is recorded as a
reduction to revenue and an accrued liability at the time the sale is
recorded. The accrued liability is monitored throughout the time
period covered by the promotion. The accrual is based on historical
information and the progress of the customer against the target
amount. Shelf space allowances are capitalized and amortized over the
lesser of the life of the agreement or three years and recorded as a reduction
to revenue. Capitalized shelf space allowances are evaluated for
impairment on an ongoing basis.
We also
record certain allowances for coupon redemptions, scan-back promotions and other
promotional activities as a reduction to revenue. The accrued
liability is monitored throughout the time period covered by the coupon or
promotion.
Fiscal
Year
Our
fiscal year ends on the last Saturday of December. While most of our
fiscal years are 52 weeks, some may be 53 weeks. The fiscal years
ended December 26, 2009, December 27, 2008 and December 29, 2007, were 52
weeks.
Use
of Estimates
Preparing
the consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Examples include customer returns and promotions,
allowances for doubtful accounts, inventories, useful lives of fixed assets,
hedge transactions, supplemental retirement benefits, intangible assets,
incentive compensation, income taxes, insurance, postretirement benefits,
contingencies and litigation. Actual results may differ from these
estimates under different assumptions or conditions.
Allowance
for Doubtful Accounts
Amounts
for bad debt expense are recorded in selling, general and administrative
expenses on the Consolidated Statements of Income. The determination
of the allowance for doubtful accounts is based on management’s estimate of
uncollectible accounts receivable. We record a general reserve based
on analysis of historical data and aging of accounts receivable. In
addition, management records specific reserves for receivable balances that are
considered at higher risk due to known facts regarding the
customer. The assumptions for this determination are reviewed
quarterly to ensure that business conditions or other circumstances are
consistent with the assumptions.
Fair
Value
We have
classified assets and liabilities required to be measured at fair value into the
fair value hierarchy as set forth below:
Level
1
|
- quoted
prices in active markets for identical assets and
liabilities.
|
Level
2
|
- observable
inputs other than quoted prices for identical assets and
liabilities
|
Level
3
|
- unobservable
inputs in which there is little or no market data available, which
requires us to develop our own
assumptions.
|
We
measure our derivative instruments at fair value using Level 2
inputs.
The
carrying amount of cash and cash equivalents, receivables and accounts payable
approximates fair value due to their short-term nature. The carrying
amount of debt approximates fair value since its variable interest rate is based
on current market rates and interest payments are made
monthly.
Cash
and Cash Equivalents
We
consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Inventories
The
principal raw materials used in the manufacturing of our snack food products are
flour, vegetable oil, sugar, potatoes, peanuts, other nuts, cheese, cocoa and
seasonings. The principal supplies used are flexible film, cartons,
trays, boxes and bags. Inventories are valued at the lower of cost or
market. Cost was determined using the last-in, first-out method
(LIFO) for approximately 36% and 44% of inventories as of December 26, 2009, and
December 27, 2008, respectively. The first-in, first-out method
(FIFO) is used for all other inventories.
We 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 26, 2009, and December 27, 2008, we had no
outstanding commodity futures contracts or other derivative contracts related to
raw materials.
Fixed
Assets
Depreciation
of fixed assets is computed using the straight-line method over the estimated
useful lives of long-term depreciable assets. Estimated lives are
based on historical experience, maintenance practices, technological changes and
future business plans. The following table summarizes the majority of
our estimated useful lives of long-term depreciable assets:
Useful
Life
|
|
Buildings
and building improvements
|
10-45
years
|
Land
improvements
|
10-15
years
|
Machinery,
equipment and computer systems
|
3-20
years
|
Furniture
and fixtures
|
3-12
years
|
Trucks,
trailers and automobiles
|
3-10
years
|
Fixed 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 held for sale are reported at the lower of the carrying amount or fair value less cost to sell.
Goodwill
and Other Intangible Assets
We are
required to evaluate and determine our reporting units for purposes of
performing the annual impairment analysis of goodwill. The annual
impairment analysis of goodwill and other indefinite-lived intangible assets
also requires us to project future financial performance, including revenue and
profit growth, fixed asset and working capital investments, income tax rates and
cost of capital. These projections rely upon historical performance,
anticipated market conditions and forward-looking business plans.
Amortizable
intangible assets are amortized using the straight-line method over their useful
lives, which is the estimated period over which economic benefits are expected
to be provided.
Income
Taxes
Our
effective tax rate is based on the level and mix of income of our separate legal
entities, statutory tax rates and tax planning opportunities available in the
various jurisdictions in which we operate. Significant judgment is
required in evaluating tax positions that affect the annual tax
rate. Unrecognized tax benefits for uncertain tax positions are
established when, despite the fact that the tax return positions are
supportable, we believe these positions may be challenged and the results are
uncertain. We adjust these liabilities in light of changing facts and
circumstances, such as the progress of a tax audit.
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. Deferred U.S. income taxes are not provided on undistributed
earnings of our foreign subsidiary since we have no plans to repatriate the
earnings. We estimate valuation allowances on deferred tax assets for
the portions that we do not believe will be fully utilized based on projected
earnings and usage.
Employee
and Non-Employee Stock-Based Compensation Arrangements
We
account for option awards based on the fair value-method using the Black-Scholes
model. The following assumptions were used to determine the weighted
average fair value of options granted during the years ended December 26, 2009,
December 27, 2008 and December 29, 2007:
2009
|
2008
|
2007
|
||||||||||
Assumptions
used in Black Scholes pricing model:
|
||||||||||||
Expected
dividend yield
|
2.91 | % | 3.79 | % | 3.13 | % | ||||||
Risk-free
interest rate
|
2.16 | % | 2.71 | % | 4.23 | % | ||||||
Weighted
average expected life
|
6.0
years
|
4.8
years
|
5.0
years
|
|||||||||
Expected
volatility
|
30.11 | % | 26.76 | % | 29.47 | % | ||||||
Weighted
average fair value per share of options granted
|
$ | 5.01 | $ | 3.00 | $ | 4.56 |
The
expected dividend yield is based on the projected annual dividend payment per
share divided by the stock price at the date of grant. The risk free
interest rate is based on rates of U.S. Treasury issues with a remaining life
equal to the expected life of the option.
The
expected life of the option is calculated using the simplified method by using
the vesting term of the option and the option expiration date. The
expected volatility is based on the historical volatility of our common stock
over the expected life.
Compensation
expense is recognized over the vesting period based on the closing stock price
on the grant date of the restricted stock and the restricted stock
units. As compensation expense is recognized, additional paid-in
capital is increased in stockholders’ equity. Restricted stock and
restricted stock units receive or accrue the same dividend as common shares
outstanding.
We plan
to repurchase shares of common stock from employees to cover withholding taxes
payable upon the vesting of shares of restricted stock. We estimate
that approximate 60,000 shares of common stock will be purchased from employees
for this purpose in 2010.
Self-Insurance
Reserves
We
maintain reserves for the self-funded portions of employee medical insurance
benefits. The employer’s portion of employee medical claims is
limited by stop-loss insurance coverage each year to $0.3 million per
person. At December 26, 2009 and December 27, 2008, the accruals for
our portion of medical insurance benefits were $2.9 million and $2.5 million,
respectively.
For
casualty insurance obligations, we maintain self-insurance reserves for workers’
compensation and auto liability for individual losses up to the $0.5 million
insurance deductible. In addition, general and product liability
claims are self-funded for individual losses up to the $0.1 million insurance
deductible. Claims in excess of the deductible are fully insured up
to $100 million per individual claim. We evaluate input from a
third-party actuary in the estimation of the casualty insurance obligation on an
annual basis. In determining the ultimate loss and reserve
requirements, we use various actuarial assumptions including compensation
trends, healthcare cost trends and discount rates. We also use
historical information for claims frequency and severity in order to establish
loss development factors. The estimate of discounted loss reserves
ranged from $11.6 million to $14.4 million in 2009. In 2008, the
estimate of discounted loss reserves ranged from $11.7 million to $14.9
million. Consistent with prior periods, the 75th
percentile of this range represents our best estimate of the ultimate
outstanding casualty liability. We lowered the discount rate from
4.5% in 2008 to 3.5% in 2009 based on projected investment returns over the
estimated future payout period, which increased the estimated claims liability
by approximately $0.2 million.
Derivative
Financial Instruments
We are
exposed to certain market, commodity and interest rate risks as part of our
ongoing business operations and may use derivative financial instruments, where
appropriate, to manage these risks. We do not use derivatives for
trading purposes.
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 and restricted stock. Dilutive potential shares were
819,000 in 2009, 601,000 in 2008, and 412,000 in 2007. Anti-dilutive
shares are excluded from the dilutive earnings calculation. There
were 25,000 anti-dilutive shares in 2009, 233,000 in 2008, and 15,000 in
2007. No adjustment to reported net income is required when computing
diluted earnings per share.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs included in
selling, general and administrative expenses on the Consolidated Statements of
Income were $7.5 million, $0.9 million and $3.8 million during 2009, 2008 and
2007, respectively.
Shipping
and Handling Costs
We do not
bill customers separately for shipping and handling of product. These
costs are included as part of selling, general and administrative expenses on
the Consolidated Statements of Income. For the years ended December
26, 2009, December 27, 2008 and December 29, 2007, shipping and handling costs
were $68.8 million, $67.0 million and $62.5 million, respectively.
Foreign
Currency Translation
All
assets and liabilities of our 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.
Vacation
Policy Change
During
2008, we modified our vacation policy to be more competitive and ensure
consistency at all facilities. This policy change generally allows
employees to earn more vacation with fewer years of service. Since
our policy allows employees with more than 1 year of service to vest in all of
their vacation as of the beginning of the year, we recorded a pre-tax charge of
$1.2 million when this modification was made during the fourth quarter of
2008.
New
Accounting Standards
In June
2009, the Financial Accounting Standards Board (“FASB”) announced the FASB
Accounting Standards Codification (the “Codification”), the online research
system representing the single source of authoritative non-governmental U.S.
GAAP, was available to use. All previous levels of the U.S. GAAP
hierarchy are superseded and all other accounting literature not included in the
Codification is non-authoritative. This Codification was effective
for Lance beginning in the third quarter of 2009. The adoption did
not affect our financial statements; however, it did impact how the
authoritative references are disclosed by referencing the applicable
Codification section.
In
May 2009, the FASB issued authoritative guidance included in ASC Subtopic
855 “Subsequent Events,” which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. Specifically,
this guidance provides (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
is effective for interim or annual financial periods ending after June 15,
2009, and is to be applied prospectively. We adopted this guidance in the second
quarter of 2009. The adoption of this guidance did not have a material effect on
our consolidated financial position, results of operations or cash
flows. Subsequent events have been evaluated for recognition and
disclosure through the date these financial statements were filed with the
SEC.
In
December 2007, the FASB issued authoritative guidance included in ASC
Subtopic 805 “Business Combinations,” which requires us to record fair value
estimates of contingent consideration and certain other potential liabilities
during the original purchase price allocation, expense acquisition costs as
incurred and does not permit certain restructuring activities to be recorded as
a component of purchase accounting.
In
April 2009, the FASB issued additional guidance that requires that assets
acquired and liabilities assumed in a business combination that arise from
contingencies be recognized at fair value, only if fair value can be reasonably
estimated and eliminates the requirement to disclose an estimate of the range of
outcomes of recognized contingencies at the acquisition date. This guidance is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008. We adopted this guidance at the beginning of 2009 for
all prospective business acquisitions. The effect of expensing acquisition costs
as incurred in 2009 was to reduce net income by $0.3 million.
In
March 2008, the FASB issued authoritative guidance included in ASC Subtopic
815 “Derivatives and Hedging,” which requires enhanced disclosures to enable
investors to better understand how and why derivatives are used and their
effects on an entity’s financial position, financial performance and cash flows.
This guidance is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We adopted this guidance
at the beginning of 2009. The adoption of this guidance did not have any effect
on our consolidated financial position, results of operations or cash flows. See
Note 8 for required disclosures related to this guidance.
In
December 2007, the FASB issued authoritative guidance included in ASC
Subtopic 810 “Consolidation,” which requires noncontrolling interests in
subsidiaries to be included in the equity section of the balance sheet. This
guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2008. We adopted this guidance at the
beginning of 2009. This Statement did not have any impact on our
financial condition, results of operations or cash flows because all of our
consolidated subsidiaries are wholly-owned.
NOTE
2. DISCONTINUED OPERATIONS
During
2006, we analyzed the different areas of our business and determined that our
vending operations were becoming increasingly less competitive in the
marketplace. Near the end of 2006, we committed to a plan to
discontinue our vending operations and sell all remaining vending machines and
related assets. A plan was designed to identify potential buyers and
dispose of substantially all of the vending assets by the end of the third
quarter of 2007.
Revenue
and pre-tax income related to the discontinued vending operations is as
follows:
(in
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Revenue
|
$ | - | $ | - | $ | 5,224 | ||||||
Pre-tax
income
|
$ | - | $ | - | $ | 44 |
NOTE
3. ACQUISITIONS & INVESTMENTS
On
October 13, 2009, we completed the purchase of the Stella D’oro® brand and
certain manufacturing equipment and inventory from Stella D’oro Biscuit Co.,
Inc. Stella D’oro® is a leading brand in the specialty cookie
market. Stella D’oro® products include shelf stable cookies,
breakfast treats, breadsticks and biscotti that are sold in grocery stores and
mass merchants throughout the United States, with a high concentration in the
Northeast and Southeast regions of the country. The Stella D’oro®
brand enhances our portfolio of niche snack food offerings to our
customers. We manufacture the majority of the products in our
Ashland, Ohio facility. We paid approximately $23.9 million to
acquire and install the Stella D’oro assets, which was predominantly funded from
borrowings from our existing Credit Agreement.
Although
we are continuing to evaluate the purchase price allocation, the initial
purchase price allocation resulted in goodwill of approximately $5.7 million and
identified other intangible assets of $11.8 million. Of the $11.8
million of other identified intangible assets, $9.8 million was assigned to
trademarks that are not subject to amortization and $2.0 million was assigned to
customer relationships with a useful life of 15 years. The post-acquisition
results of operations related to these assets are included in the 2009
Consolidated Statement of Income.
On
December 8, 2008, we acquired substantially all of the assets of Archway
Cookies, LLC. Archway is a premium soft cookie brand and complements
our existing product portfolio. The acquired bakery in Ashland, Ohio,
also provides increased capacity to support volume growth in the production of
our existing private brands portfolio of products. We paid
approximately $31.0 million, including direct acquisition costs, to acquire the
Archway assets, which were predominately funded from borrowings under our
existing Credit Agreement. The post-acquisition results of operations
related to these assets are included in the 2008 and 2009 Consolidated
Statements of Income.
On March
14, 2008, we acquired 100% of the outstanding common stock of Brent & Sam’s,
Inc. Brent & Sam’s is a producer of private brand premium gourmet
cookies with operations in Little Rock, Arkansas. In 2009, we moved
the Brent & Sam’s operations to Charlotte, North Carolina. This
acquisition enhances our product portfolio and extends our product offering into
the premium private brand category. We paid approximately $23.9
million to acquire Brent & Sam’s, net of cash acquired of $0.2 million,
mostly funded from borrowings under our existing Credit
Agreement. Since the acquisition date, we have repaid all of the $2.2
million assumed debt. The post-acquisition results of operations of
Brent & Sam’s are included in the 2008 and 2009 Consolidated Statements of
Income.
We
purchased a non-controlling equity interest in an organic snack food company,
Late July Snacks LLC, for $2.1 million in 2007. During 2008, we
invested an additional $0.2 million into Late July. This investment
has been reflected in other assets on the Consolidated Balance
Sheets. During 2009, 2008 and 2007, the equity method losses were
less than $0.1 million, $0.2 million and $0.1 million, respectively, and have
been recorded in other expense on the Consolidated Statements of
Income. We also manufacture products for Late July. As of
December 26, 2009, and December 27, 2008, accounts receivable due from Late July
totaled $0.5 million and $0.4 million, respectively.
NOTE
4. INVENTORIES
Inventories
at December 26, 2009 and December 27, 2008 consisted of the
following:
(in
thousands)
|
2009
|
2008
|
||||||
Finished
goods
|
$ | 33,060 | $ | 23,227 | ||||
Raw
materials
|
11,732 | 11,556 | ||||||
Supplies,
etc.
|
19,081 | 15,293 | ||||||
Total
inventories at FIFO cost
|
63,873 | 50,076 | ||||||
Less:
adjustments to reduce FIFO cost to LIFO cost
|
(5,836 | ) | (6,964 | ) | ||||
Total
inventories
|
$ | 58,037 | $ | 43,112 |
The
increase in inventory during 2009 was primarily due to new product offerings and
business acquisitions.
NOTE
5. FIXED ASSETS
Fixed
assets at December 26, 2009 and December 27, 2008 consisted of the
following:
(in
thousands)
|
2009
|
2008
|
||||||
Land
and land improvements
|
$ | 15,363 | $ | 15,209 | ||||
Buildings
and building improvements
|
89,594 | 87,067 | ||||||
Machinery,
equipment and computer systems
|
326,916 | 305,007 | ||||||
Trucks
and automobiles
|
60,335 | 61,967 | ||||||
Furniture
and fixtures
|
4,429 | 2,334 | ||||||
Construction
in progress
|
13,304 | 12,341 | ||||||
509,941 | 483,925 | |||||||
Accumulated
depreciation
|
(281,191 | ) | (267,456 | ) | ||||
228,750 | 216,469 | |||||||
Assets
held for sale
|
(2,769 | ) | (384 | ) | ||||
Fixed
assets, net
|
$ | 225,981 | $ | 216,085 |
The
increase in fixed assets during 2009 was primarily due to purchases of fixed
assets for existing facilities and $4.9 million from business
acquisitions.
Depreciation
expense related to fixed assets was $34.6 million during 2009, $32.0 million
during 2008, and $29.3 million during 2007.
During
2009 and 2008, we capitalized $0.2 million and $0.3 million, respectively, of
interest expense into fixed assets as part of our ERP system
implementation.
At
December 26, 2009, assets held for sale consisted of land and buildings related
to certain properties in Little Rock, Arkansas and Columbus,
Georgia. During 2009, we closed our Brent & Sam’s Little Rock,
Arkansas facility and relocated our manufacturing equipment and production to
Charlotte, North Carolina.
NOTE
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The
changes in the carrying amount of goodwill for the fiscal year ended December
26, 2009, are as follows:
(in
thousands)
|
Carrying
Amount
|
|||
Balance
as of December 27, 2008
|
$ | 80,110 | ||
Business
acquisitions
|
5,745 | |||
Purchase
price adjustments
|
(591 | ) | ||
Changes
in foreign currency exchange rates
|
5,645 | |||
Balance
as of December 26, 2009
|
$ | 90,909 |
The
purchase price adjustments in 2009 related to the acquisition of Archway
Cookies, LLC in December 2008.
As of
December 26, 2009 and December 27, 2008, acquired intangible assets consisted of
the following:
(in
thousands)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
|||||||||
As
of December 26, 2009:
|
||||||||||||
Customer
relationships - amortized
|
$ | 6,668 | $ | (678 | ) | $ | 5,990 | |||||
Non-compete
agreement - amortized
|
500 | (197 | ) | 303 | ||||||||
Trademarks
- unamortized
|
29,387 | (526 | ) | 28,861 | ||||||||
Balance
as of December 26, 2009
|
$ | 36,555 | $ | (1,401 | ) | $ | 35,154 | |||||
As
of December 27, 2008:
|
||||||||||||
Customer
relationships - amortized
|
$ | 4,678 | $ | (315 | ) | $ | 4,363 | |||||
Non-compete
agreement - amortized
|
500 | - | 500 | |||||||||
Trademarks
- unamortized
|
19,629 | (526 | ) | 19,103 | ||||||||
Balance
as of December 27, 2008
|
$ | 24,807 | $ | (841 | ) | $ | 23,966 |
During
2009, we added approximately $11.8 million of intangible assets from business
acquisitions.
Intangibles
subject to amortization are being amortized over a weighted average useful life
of 13.7 years. The intangible assets related to customer
relationships are being amortized over a weighted average useful life of 14.6
years and will be amortized through October 2024. The intangible
asset related to the non-compete agreement is being amortized over 2
years. Amortization expense related to intangibles was $0.6 million
and $0.3 million for the years ended December 26, 2009 and December 27, 2008,
respectively. For the year ended December 29, 2007, intangible
amortization expense was less than $0.1 million. We estimate that
annual amortization expense for intangible assets over the next five years is as
follows: $0.7 million in 2010, and $0.5 million in each of the years
2011 through 2014.
The
trademarks are deemed to have an indefinite useful life because they are
expected to generate cash flows indefinitely. Therefore, effective for
years after 2001, these trademarks have not been amortized.
NOTE
7. LONG-TERM DEBT
In
October 2006, we entered into an unsecured revolving Credit Agreement, which
allows us to make revolving credit borrowings of up to US$100.0 million and
CDN$15.0 million through October 2011.
At
December 26, 2009 and December 27, 2008, we had the following debt
outstanding:
(in
thousands)
|
2009
|
2008
|
||||||
Unsecured
U.S. term loan due October 2011, interest payable based on the 30-day
LIBOR, plus applicable margin of 0.40% (0.63% at December 26, 2009,
including applicable margin)
|
$ | 50,000 | $ | 50,000 | ||||
Unsecured
U.S. Dollar-denominated revolving credit facility, interest payable based
on the weighted-average 30-day LIBOR, plus applicable margin of 0.32%
(0.78% at December 26, 2009, including applicable margin)
|
63,000 | 48,000 | ||||||
Unsecured
Canadian Dollar-denominated revolving credit facility, interest payable
based on Canadian Bankers' Acceptance discount rate or Canadian Prime
rate, plus the applicable margin and an additional 0.13%
|
- | - | ||||||
Total
debt
|
113,000 | 98,000 | ||||||
Less
current portion of long-term debt
|
- | (7,000 | ) | |||||
Total
long-term debt
|
$ | 113,000 | $ | 91,000 |
During
2009, the proceeds from the increase in debt were primarily used to fund
acquisitions.
The
applicable margin is determined by certain financial ratios. The
Credit Agreement also requires us to pay a facility fee on the entire US$100.0
million and CDN$15.0 million revolvers ranging from 0.07% to 0.13% based on
certain financial ratios. Including the effect of interest rate swap
agreements, the weighted average interest rate for 2009 and 2008 was 3.1% and
3.6%, respectively. See Note 8, Derivatives, for further information
on our interest rate swap agreements.
The carrying value of all long-term debt approximates fair value since its variable interest rate is based on current market rates and interest payments are made monthly. At December 26, 2009 and December 27, 2008, we had available $35.6 million and $46.5 million, respectively, of unused credit facilities. Under certain circumstances and subject to certain conditions, we have the option to increase available credit under the Credit Agreement by up to $50.0 million during the life of the facility.
The
Credit Agreement requires us to comply with certain defined covenants, such as a
maximum debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio of 3.0 and a minimum interest coverage ratio of
2.5. At December 26, 2009, our debt to EBITDA ratio was 1.2, and our
interest coverage ratio was 16.5. In addition, our revolving credit
agreement restricts payment of cash dividends and repurchases of our common
stock if, after payment of any such dividends or any such repurchases of our
common stock, our consolidated stockholders’ equity would be less than $125.0
million. At December 26, 2009, our consolidated stockholders’ equity
was $274.7 million. We were in compliance with these covenants at
December 26, 2009. Total interest expense under the Credit Agreement
for 2009, 2008 and 2007 was $3.4 million, $3.2 million and $2.9 million,
respectively. During 2009 and 2008, we capitalized $0.2 million and
$0.3 million, respectively, of interest expense into fixed assets as part of our
ERP system implementation.
NOTE
8. DERIVATIVE INSTRUMENTS
We are
exposed to certain risks relating to our ongoing business
operations. We use derivative instruments to manage interest rate and
foreign exchange rate risks.
Interest
Rate Swaps
Our
variable-rate debt obligations incur interest at floating rates based on changes
in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian
prime rate and U.S. base rate interest. To manage exposure to
changing interest rates, we selectively enter into interest rate swap agreements
to maintain a desirable proportion of fixed to variable rate debt.
In
November 2006, we entered into an interest rate swap agreement on $35 million of
debt in order to fix the interest rate at 4.99%, plus applicable
margin. The applicable margin on December 26, 2009, was
0.40%. The fair value of the interest rate swap liability was $2.5
million and $3.3 million at December 26, 2009 and December 27, 2008,
respectively.
In July
2008, we entered into an interest rate swap agreement on an additional $15
million of debt in order to fix the interest rate at 3.87%, plus applicable
margin. The applicable margin on December 26, 2009, was
0.40%. The fair value of the interest rate swap liability was $0.8
million and $1.0 million at December 26, 2009 and December 27, 2008,
respectively.
In
February 2009, we entered into an interest rate swap agreement on an additional
$15 million of debt in order to fix the interest rate at 1.68%, plus applicable
margin. The applicable margin on December 26, 2009, was
0.32%. The fair value of the interest rate swap liability was $0.2
million at December 26, 2009.
While
these swaps fixed a portion of the interest rate at a predictable level, pre-tax
interest expense would have been $2.3 million lower without these swaps during
2009. These swaps are accounted for as cash flow hedges.
Foreign
Currency Forwards
Through
the operations of our Canadian subsidiary, there is an exposure to foreign
exchange rate fluctuations between U.S. dollars and Canadian
dollars. The majority of revenue from our Canadian operations is
denominated in U.S. dollars and a substantial portion of the operations’ costs,
such as raw materials and direct labor, are denominated in Canadian
dollars. We have entered into a series of forward currency contracts
to mitigate a portion of this foreign exchange rate exposure. These
contracts have maturities through June 2010. The fair value of the
forward contracts is determined by a third-party financial
institution.
All of
our derivative instruments are accounted for as cash flow hedges. The
effective portion of the change in fair value is included in accumulated other
comprehensive income/(loss), net of related tax effects, with the corresponding
asset or liability recorded in the Consolidated Balance
Sheets.
The
pre-tax income/(expense) effect of derivative instruments on the Consolidated
Statements of Income is as follows:
(in
thousands)
|
2009
|
2008
|
||||||
Interest
rate swaps (included in Interest expense, net)
|
$ | (2,349 | ) | $ | (789 | ) | ||
Foreign
currency forwards (included in Net revenue)
|
(1,045 | ) | (592 | ) | ||||
Foreign
currency forwards (included in Other expense, net)
|
(60 | ) | (4 | ) | ||||
Total
net pre-tax expense from derivative instruments
|
$ | (3,454 | ) | $ | (1,385 | ) |
The fair
value of the derivative instrument asset/(liability) in the Consolidated Balance
Sheets using Level 2 inputs is as follows:
(in
thousands)
|
2009
|
2008
|
||||||
Interest
rate swaps (included in Other noncurrent liabilities)
|
$ | (3,461 | ) | $ | (4,272 | ) | ||
Foreign
currency forwards (included in Other current assets)
|
839 | - | ||||||
Foreign
currency forwards (included in Other payables and accrued
liabilities)
|
- | (2,094 | ) | |||||
Total
fair value of derivative instruments
|
$ | (2,622 | ) | $ | (6,366 | ) |
The
change in unrealized pre-tax gains/(losses) included in other comprehensive
income due to fluctuations in interest rates and foreign exchange rates were as
follows:
(in
thousands)
|
2009
|
2008
|
||||||
Interest
rate swaps
|
$ | 811 | $ | (2,994 | ) | |||
Foreign
currency forwards
|
2,933 | (2,522 | ) | |||||
Total
change in unrealized pre-tax gains/(losses) from derivative instruments
(effective portion)
|
$ | 3,744 | $ | (5,516 | ) |
The
counterparty risk associated with our derivative instruments in an asset
position is considered to be low, because we limit our exposure to strong,
creditworthy counterparties.
NOTE
9. INCOME TAXES
Income
tax expense consists of the following:
(in
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Current:
|
||||||||||||
Federal
|
$ | 14,457 | $ | 3,140 | $ | 11,744 | ||||||
State
and other
|
1,275 | 240 | 888 | |||||||||
Foreign
|
(257 | ) | 102 | (52 | ) | |||||||
15,475 | 3,482 | 12,580 | ||||||||||
Deferred:
|
||||||||||||
Federal
|
2,426 | 5,860 | 560 | |||||||||
State
and other
|
22 | 720 | 240 | |||||||||
Foreign
|
742 | (695 | ) | (854 | ) | |||||||
3,190 | 5,885 | (54 | ) | |||||||||
Total
income tax expense
|
$ | 18,665 | $ | 9,367 | $ | 12,526 |
A reconciliation of the
federal income tax rate to our effective income tax rate for the years ended
December 26, 2009, December 27, 2008, and December 29, 2007
follows:
2009
|
2008
|
2007
|
|||
Statutory
income tax rate
|
35.0%
|
35.0%
|
35.0%
|
||
State
and local income taxes, net of federal income tax
benefit
|
1.4%
|
1.3%
|
1.7%
|
||
Net
favorable foreign income taxes as a result of tax adjustments and tax rate
differences
|
-0.4%
|
-1.0%
|
-1.3%
|
||
Changes
in deferred taxes for effective state rate changes
|
0.0%
|
-0.1%
|
0.2%
|
||
Miscellaneous
items, net
|
-1.7%
|
-0.6%
|
-1.2%
|
||
Effective
income tax rate
|
34.3%
|
34.6%
|
34.4%
|
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 26, 2009 and
December 27, 2008, are presented below:
(in
thousands)
|
2009
|
2008
|
||||||
Deferred
tax assets:
|
||||||||
Reserves
for employee compensation, deductible when paid for income tax purposes,
accrued for financial reporting purposes
|
$ | 9,183 | $ | 7,739 | ||||
Reserves
for insurance claims, deductible when paid for income tax purposes,
accrued for financial reporting purposes
|
4,274 | 4,620 | ||||||
Other
reserves, deductible when paid for income tax purposes, accrued for
financial reporting purposes
|
2,691 | 1,884 | ||||||
Inventories,
principally due to additional costs capitalized for income tax
purposes
|
1,468 | 1,523 | ||||||
Unrealized
losses, deductible when realized for income tax purposes, included in
other comprehensive income
|
1,070 | 2,244 | ||||||
Net
state and foreign operating loss and tax credit
carryforwards
|
274 | 702 | ||||||
Total
gross deferred tax assets
|
18,960 | 18,712 | ||||||
Less
valuation allowance
|
(193 | ) | (199 | ) | ||||
Net
deferred tax assets
|
18,767 | 18,513 | ||||||
Deferred
tax liabilities:
|
||||||||
Fixed
assets, principally due to differences in depreciation, net of impairment
reserves
|
(38,173 | ) | (35,155 | ) | ||||
Trademark
amortization
|
(4,423 | ) | (2,887 | ) | ||||
Unrealized
gains includible when realized for income tax purposes, included in
other comprehensive income
|
- | (104 | ) | |||||
Prepaid
expenses and other costs deductible for tax, amortized for financial
statement purposes
|
(1,896 | ) | (1,830 | ) | ||||
Total
gross deferred tax liabilities
|
(44,492 | ) | (39,976 | ) | ||||
Total
net deferred tax liabilities
|
$ | (25,725 | ) | $ | (21,463 | ) |
In 2009
and 2008, the valuation allowance on deferred tax assets related to a state net
operating loss carryforward, which management did not believe would be fully
utilized due to the limited nature of our activities in that state.
Our
effective tax rate is based on the level and mix of income of our separate legal
entities, statutory tax rates, and tax planning opportunities available in the
various jurisdictions in which we operate. Significant judgment is
required in evaluating tax positions that affect the annual tax
rate.
Pre-tax
income in our Canadian operation amounted to $1.9 million in 2009, and pre-tax
losses amounted to $2.1 million and $2.0 million in 2008 and 2007,
respectively.
We adjust
unrecognized tax liabilities in light of changing facts and circumstances, such
as the progress of a tax audit. As of December 26, 2009, we have
recorded gross unrecognized tax benefits totaling $0.9 million and related
interest and penalties of $0.3 million in other long-term liabilities on the
Consolidated Balance Sheets. Of this total amount, $0.9 million would
affect the effective tax rate if subsequently recognized. We expect
that certain income tax audits will be settled and various tax authorities’
statutes of limitations will expire during the next twelve months resulting in a
potential $0.8 million reduction of the unrecognized tax benefit
amount. We classify interest and penalties associated with income tax
positions within income tax expense. During both 2009 and 2008, $0.1
million of interest and penalties related to unrecognized tax benefits was
recorded in income tax expense.
We have
open years for income tax audit purposes in our major taxing jurisdictions
according to statutes as follows:
Jurisdiction
|
Open
Years
|
US
federal
|
2006
and forward
|
Canada
federal
|
2005
and forward
|
Ontario
provincial
|
2003
and forward
|
Massachusetts
|
2001
and forward
|
North
Carolina
|
2006
and forward
|
Iowa
|
2006
and forward
|
A
reconciliation of the beginning and ending amount of the gross unrecognized tax
benefits is as follows:
(in
thousands)
|
2009
|
|||
Balance
at December 27, 2008
|
$ | 1,052 | ||
Additions
for tax positions taken during the current period
|
112 | |||
Reductions
resulting from a lapse of the statute of limitations
|
(309 | ) | ||
Balance
at December 26, 2009
|
$ | 855 |
NOTE
10. POSTRETIREMENT BENEFITS PLANS
We have a
defined contribution retirement plan (known as the Lance, Inc. Profit-Sharing
“PSR” and 401(k) Retirement Saving Plan) that covers substantially all of our
employees. The PSR portion of the plan provides contributions equal
to 3.25% of qualified wages if an employee has less than ten years of service,
and 3.5% of qualified wages if over ten years of service. The 401(k)
portion of the plan provides a 50% match of the first 5% of employee
contributions not to exceed 2.5% of the employee’s qualified
wages. Total expenses for these employee retirement plans were $8.7
million, $8.0 million and $7.6 million, in 2009, 2008 and 2007,
respectively.
Additionally,
we provide supplemental retirement benefits to certain retired and active key
officers. The discounted liability recorded in other noncurrent
liabilities on the Consolidated Balance Sheets was $1.1 million and $1.0 million
at December 26, 2009 and December 27, 2008, respectively.
In 2001,
we began the phase out of our unfunded postretirement healthcare
plan. This plan currently provides postretirement medical benefits
for certain retirees who were age 55 or older on June 30, 2001 and their spouses
for medical coverage between the ages of 60 and 65. Retirees pay
contributions toward medical coverage based on the medical plan and coverage
they select. The postretirement healthcare plan will be phased-out
completely in 2011. As of December 26, 2009, there were seven
participants in the postretirement healthcare plan. The total
liability recorded at December 26, 2009 was not significant.
NOTE
11. EQUITY-BASED INCENTIVE COMPENSATION
Total
equity-based incentive expense recorded in the Consolidated Statements of Income
was $7.5 million, $6.0 million, and $3.3 million for the years ended December
26, 2009, December 27, 2008, and December 29, 2007, respectively.
Key
Employee Incentive Plans
As of
December 26, 2009, there were approximately 0.1 million of restricted shares and
0.6 million of other securities available for future issuance under the 2007 Key
Employee Incentive Plan (the “Plan”). This Plan provided for a
maximum of 1.8 million new securities to be issued to key employees as defined
in the Plan. The Plan authorizes the grant of incentive stock
options, non-qualified stock options, stock appreciation rights (SARs),
restricted stock and performance shares, and expires in April
2013. The plan also authorizes other awards denominated in monetary
units or shares of common stock payable in cash or shares of common
stock. At December 26, 2009, there were no SARs
outstanding. In April 2008, the 2003 Key Employee Stock Plan (the
2003 Plan) expired and there were no further securities awarded from this
plan.
Long-term
Incentive Plans
Long-term
performance-based incentive plans are accounted for as liability share-based
payment plans. Once certain performance-based measures are attained,
the related liabilities are converted into equity instruments. As of
December 26, 2009, and December 27, 2008, liabilities for long-term incentive
plans were $0.9 million and $1.5 million, respectively.
Employee
Stock Options
As of
December 26, 2009, there was $1.5 million of total unrecognized
compensation expense related to outstanding stock options. This cost
is expected to be recognized consistent with vesting on a straight-line basis
over a weighted average period of two years. Cash received from
option exercises during 2009, 2008 and 2007 was $3.6 million, $2.1 million
and $3.7 million, respectively. The benefit realized for the tax
deductions from option exercises was $0.6 million, $0.4 million and
$1.0 million, respectively, during 2009, 2008 and 2007. The
total intrinsic value of stock options exercised during 2009, 2008 and 2007 was
$2.1 million, $1.0 million and $2.7 million, respectively.
Stock
options become exercisable in periods ranging up to five years after the grant
date. The option price, which equals the fair market value of our
common stock at the date of grant, ranges from $7.65 to $25.27 per share for the
outstanding options as of December 26, 2009. The weighted average
exercise price of exercisable options was $16.85 as of December 26,
2009.
Options
Outstanding
|
Weighted
Average Exercise Price
|
Options
Exercisable
|
||||||||||
Balance
as of December 27, 2008
|
1,527,570 | $ | 17.01 | 1,197,627 | ||||||||
Granted
|
267,463 | 22.00 | ||||||||||
Exercised
|
(220,191 | ) | 15.22 | |||||||||
Expired
/ Forfeited
|
(48,925 | ) | 19.19 | |||||||||
Balance
as of December 26, 2009
|
1,525,917 | $ | 18.05 | 909,496 | ||||||||
Weighted
average contractual term
|
5.0
years
|
4.1
years
|
||||||||||
Aggregate
intrinsic value
|
$12.8
million
|
$8.7
million
|
Employee
Restricted Stock and Restricted Stock Unit Awards
As of
December 26, 2009, there was $4.4 million of total unrecognized
compensation expense related to outstanding restricted stock
awards. This cost is expected to be recognized consistent with
vesting on a straight-line basis over a weighted average period of 1.4
years.
During
2005, we awarded 300,000 restricted stock units, half of which would be settled
in common stock shares under the 2003 Key Employee Stock Plan and half of which
would be settled in cash. During 2006, the Compensation Committee of
the Board of Directors approved an amendment that re-designated the 150,000
units that were to be settled in cash to units settled in stock under the 1997
Incentive Equity Plan for our Chief Executive Officer. These
restricted units are classified as equity. Compensation costs
associated with the restricted stock units that are settled in common stock
shares are amortized over the vesting period through May 2010.
During
2006, the Compensation Committee of the Board of Directors approved the 2006
Five-Year Performance Equity Plan for Officers and Senior Managers, which
included performance equity units to be paid in common stock to key employees in
2011. All shares to be issued under the Five-Year Performance Equity
Plan were awarded under the 2003 Plan. The number of awards
ultimately issued under this plan is contingent upon our relative stock price
compared to the Russell 2000 Index and can range from zero to 100% of the awards
granted. The fair value of the award was calculated using the Monte
Carlo valuation method. This method estimates the probability of the
potential payouts using the historical volatility of our common stock compared
to the Russell 2000 Index. Included in our assumptions was a
risk-free interest rate of 4.53%, expected volatility of 35.08%, and an expected
dividend rate of 2.8%. Based on these assumptions, a discount rate of
33.4% was applied to the market value on the grant date. Compensation
costs associated with the restricted stock units are amortized over the vesting
period through the end of 2010.
Restricted
Stock and Restricted Unit Awards Outstanding
|
Weighted
Average Grant Date Fair Value
|
||||
Balance
as of December 27, 2008
|
785,951
|
$ 17.53
|
|||
Granted
|
359,810
|
20.98
|
|||
Vested
|
(140,343)
|
19.76
|
|||
Expired
/ Forfeited / Repurchased
|
(39,244)
|
17.31
|
|||
Balance
as of December 26, 2009
|
966,174
|
$ 18.50
|
The deferred portion of
these restricted shares is included in the Consolidated Balance Sheets as
additional paid-in capital. The weighted average grant date fair
value for awards granted during 2008 and 2007 was $16.70 and $17.78,
respectively.
During
2009, we granted 73,356 restricted shares related to a long-term incentive plan
for key employees that were previously accounted for as a
liability. This resulted in an increase in equity and a decrease in
accrued liabilities of $1.6 million. During 2008, we granted
approximately 175,000 nonqualified stock options, 19,500 restricted shares and
19,750 shares of common stock related to a long-term incentive plan for key
employees that were previously accounted for as a liability. This
resulted in an increase in equity and a decrease in accrued liabilities of $0.9
million.
Non-Employee
Director Stock Option Plan
In 1995,
we adopted a Nonqualified Stock Option Plan for Non-Employee Director (Director
Plan). The Director Plan requires among other things that the options
are not exercisable unless the optionee remains available to serve as a director
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 expire ten years from the date of
grant. After December 28, 2002, there were no awards made under this
plan. The option price, which equals the fair market value of our
common stock at the date of grant, ranges from $10.50 to $15.88 per
share. There were 44,000 options outstanding at December 26,
2009. At December 26, 2009, the weighted average remaining
contractual term was 1.3 years, and the aggregate intrinsic value was $0.6
million.
Options
Outstanding
|
Weighted
Average Exercise Price
|
Options
Exercisable
|
||||||||||
Balance
as of December 27, 2008
|
64,000 | $ | 12.98 | 64,000 | ||||||||
Granted
|
- | - | ||||||||||
Exercised
|
(20,000 | ) | 13.20 | |||||||||
Expired
/ Forfeited
|
- | - | ||||||||||
Balance
as of December 26, 2009
|
44,000 | $ | 12.87 | 44,000 |
Non-Employee
Director Restricted Stock Awards
In 2008,
we adopted the Lance, Inc. 2008 Director Stock Plan (“2008 Director
Plan”). With the adoption of the 2008 Director Plan, no further
awards will be made under the 2003 Director Plan that expired in April
2008.
The 2008
Director Plan is intended to attract and retain persons of exceptional ability
to serve as Directors and to further align the interests of Directors and
stockholders in enhancing the value of our common stock and to encourage such
Directors to remain with and to devote their best efforts to the
company. The Board of Directors reserved 200,000 shares of common
stock for issuance under the 2008 Director Plan. This number is
subject to adjustment in the event of stock dividends and splits,
recapitalizations and similar transactions. The 2008 Director Plan is
administered by the Board of Directors and expires in April 2013. As
of December 26, 2009, there were 160,000 shares available for future issuance
under the 2008 Director Plan.
In 2009,
we awarded 24,000 shares of common stock to our directors, subject to certain
vesting restrictions. During 2008 and 2007, we awarded 16,000 and
9,000 shares of common stock to our directors with a grant date fair value of
$20.36 and $23.23, respectively. At December 26, 2009, there were
24,000 unvested restricted shares outstanding under the 2008 Director Plan with
a remaining contractual term of four months and a grant date fair value of
$20.97. In addition, there were 25,000 unvested restricted shares
outstanding under the 2003 Director Plan with a weighted average grant date fair
value of $18.57. Compensation costs associated with these restricted
shares are amortized over the vesting or service period, at which time the
earned portion is charged against current earnings. The deferred
portion of these restricted shares is included in the Consolidated Balance
Sheets as additional paid-in capital.
Employee
Stock Purchase Plan
We have
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 us to contribute an amount equal to 10% of the employees’
contributions, and up to 25% for certain employees who are not executive
officers. We contributed less than $0.1 million to the employee stock
purchase plan during each of 2009, 2008 and 2007.
NOTE
12. OTHER COMMITMENTS AND CONTINGENCIES
We have
entered into contractual agreements providing severance benefits to certain key
employees in the event of a change in control. Commitments not
previously accrued for under these agreements totaled $28.4 million at December
26, 2009.
We have
entered into contractual agreements providing severance benefits to certain key
employees in the event of termination without cause. Commitments
under these agreements not previously accrued for were $9.6 million as of
December 26, 2009. The maximum aggregate unrecognized commitment for
both the change in control and severance agreements as of December 26, 2009 was
$31.1 million.
We lease
certain facilities and equipment under contracts classified as operating
leases. Total rental expense was $7.0 million in 2009, $5.3 million
in 2008 and $6.2 million in 2007. In the third quarter of 2009, we
entered into a 10-year operating lease agreement for a corporate office located
in Charlotte, North Carolina, which allowed for the consolidation of two leased
administrative office locations.
Future
minimum lease commitments for operating leases at December 26, 2009 were as
follows:
(in
thousands)
|
Amount
|
|||
2010
|
$ | 3,290 | ||
2011
|
3,615 | |||
2012
|
2,994 | |||
2013
|
2,424 | |||
2014
|
2,384 | |||
Thereafter
|
12,590 | |||
Total
operating lease commitments
|
$ | 27,297 |
We also
maintain standby letters of credit in connection with our self-insurance
reserves for casualty claims. These letters of credit amounted to
$15.7 million as of December 26, 2009.
We
entered into agreements with suppliers for certain ingredients, packaging
materials and energy used in the production process. These agreements
are entered into in the normal course of business and consist of agreements to
purchase a certain quantity over a certain period of time. As of
December 26, 2009, outstanding purchase commitments totaled $88.2
million. These commitments range in length from a few weeks to twelve
months.
In
addition, we are subject to routine litigation and claims incidental to our
business. In our opinion, such routine litigation and claims should
not have a material adverse effect upon our consolidated financial statements
taken as a whole.
NOTE
13. OTHER COMPREHENSIVE INCOME
Accumulated
other comprehensive income/(loss) presented in the Consolidated Balance Sheets
consists of:
(in
thousands)
|
2009
|
2008
|
||||||
Foreign
currency translation adjustment
|
$ | 12,345 | $ | 3,023 | ||||
Net
unrealized losses on derivative instruments, net of tax
|
(1,552 | ) | (4,040 | ) | ||||
Postretirement
actuarial gains recognized in net income, net of tax
|
- | 180 | ||||||
Total
accumulated other comprehensive income/(loss)
|
$ | 10,793 | $ | (837 | ) |
Income
taxes on the foreign currency translation adjustment in other comprehensive
income are not recognized because the earnings are intended to be indefinitely
reinvested in those operations.
NOTE
14. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
Geographic
Information
Substantially
all of our sales are to U.S customers. Revenues are attributable to
the United States and Canada based on the country in which the product is
produced. Revenues by country are as follows:
(in
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Country:
|
||||||||||||
United
States
|
$ | 871,964 | $ | 804,366 | $ | 716,013 | ||||||
Canada
|
46,199 | 48,102 | 46,723 | |||||||||
Net
revenue
|
$ | 918,163 | $ | 852,468 | $ | 762,736 |
Long-lived
assets, comprised of fixed assets, goodwill, other intangible assets and other
noncurrent assets, located in the United States and Canada as of December 26,
2009 and December 27, 2008, are as follows:
(in
thousands)
|
2009
|
2008
|
||||||
Country:
|
||||||||
United
States
|
$ | 298,419 | $ | 273,188 | ||||
Canada
|
58,990 | 51,922 | ||||||
Total
long-lived assets
|
$ | 357,409 | $ | 325,110 |
Significant
Customers
Sales to
our largest customer, Wal-Mart Stores, Inc., were approximately 22% of revenues
in 2009, and 20% in both 2008 and 2007. Accounts receivable at
December 26, 2009, and December 27, 2008, included receivables from Wal-Mart
Stores, Inc. totaling $22.6 million and $18.0 million,
respectively.
NOTE
15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary
of interim financial information follows (in thousands, except per share
data):
2009
Interim Period Ended
|
||||||||||||||||
March
28
|
June
27
|
September
26
|
December
26
|
|||||||||||||
(13
Weeks)
|
(13
Weeks)
|
(13
Weeks)
|
(13
Weeks)
|
|||||||||||||
Net
revenue
|
$ | 215,809 | $ | 236,355 | $ | 234,902 | $ | 231,097 | ||||||||
Cost
of sales
|
131,413 | 139,630 | 140,129 | 136,819 | ||||||||||||
Gross
margin
|
84,396 | 96,725 | 94,773 | 94,278 | ||||||||||||
Selling,
general and administrative
|
73,505 | 80,473 | 80,019 | 76,592 | ||||||||||||
Other
(income)/expense, net
|
61 | 547 | 644 | 521 | ||||||||||||
Income
from continuing operations before interest and income
taxes
|
10,830 | 15,705 | 14,110 | 17,165 | ||||||||||||
Interest
expense, net
|
812 | 910 | 796 | 834 | ||||||||||||
Income
from continuing operations before income taxes
|
10,018 | 14,795 | 13,314 | 16,331 | ||||||||||||
Income
tax expense
|
3,566 | 5,267 | 4,511 | 5,320 | ||||||||||||
Net
income from continuing operations
|
6,452 | 9,528 | 8,803 | 11,011 | ||||||||||||
Net
income
|
$ | 6,452 | $ | 9,528 | $ | 8,803 | $ | 11,011 | ||||||||
From
continuing operations:
|
||||||||||||||||
Net
income per common share – basic
|
$ | 0.21 | $ | 0.30 | $ | 0.28 | $ | 0.35 | ||||||||
Net
income per common share – diluted
|
0.20 | 0.30 | 0.27 | 0.34 | ||||||||||||
Dividends
declared per common share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | ||||||||
2008
Interim Period Ended
|
||||||||||||||||
March
29
|
June
28
|
September
27
|
December
27
|
|||||||||||||
(13
Weeks)
|
(13
Weeks)
|
(13
Weeks)
|
(13
Weeks)
|
|||||||||||||
Net
revenue
|
$ | 197,968 | $ | 213,614 | $ | 225,587 | $ | 215,298 | ||||||||
Cost
of sales
|
123,460 | 133,691 | 143,040 | 131,336 | ||||||||||||
Gross
margin
|
74,508 | 79,923 | 82,547 | 83,962 | ||||||||||||
Selling,
general and administrative
|
72,857 | 74,568 | 72,337 | 71,918 | ||||||||||||
Other
(income)/expense, net
|
(4 | ) | 161 | (536 | ) | (476 | ) | |||||||||
Income
from continuing operations before interest and income
taxes
|
1,655 | 5,194 | 10,746 | 12,520 | ||||||||||||
Interest
expense, net
|
606 | 860 | 708 | 867 | ||||||||||||
Income
from continuing operations before income taxes
|
1,049 | 4,334 | 10,038 | 11,653 | ||||||||||||
Income
tax expense
|
404 | 1,626 | 3,229 | 4,109 | ||||||||||||
Net
income from continuing operations
|
645 | 2,708 | 6,809 | 7,544 | ||||||||||||
Net
income
|
$ | 645 | $ | 2,708 | $ | 6,809 | $ | 7,544 | ||||||||
From
continuing operations:
|
||||||||||||||||
Net
income per common share – basic
|
$ | 0.02 | $ | 0.09 | $ | 0.22 | $ | 0.24 | ||||||||
Net
income per common share – diluted
|
0.02 | 0.09 | 0.21 | 0.24 | ||||||||||||
Dividends
declared per common share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 |
SCHEDULE II – VALUATION &
QUALIFYING ACCOUNTS
For
Fiscal Years ended December 26, 2009, December 27, 2008, and December 29,
2007
(in
thousands)
Beginning
Balance
|
Additions
/ (Reductions) to Expense
|
Deductions
|
Ending
Balance
|
|||||||||||||
Fiscal
year ended December 26, 2009:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | 863 | $ | 936 | $ | (827 | ) | $ | 972 | |||||||
LIFO
inventory reserves
|
6,964 | (1,128 | ) | - | 5,836 | |||||||||||
Deferred
tax asset valuation allowance
|
199 | (6 | ) | - | 193 | |||||||||||
Fiscal
year ended December 27, 2008:
|
||||||||||||||||
Allowance
for doubtful accounts
|
506 | 763 | (406 | ) | 863 | |||||||||||
LIFO
inventory reserves
|
5,249 | 1,715 | - | 6,964 | ||||||||||||
Deferred
tax asset valuation allowance
|
224 | (25 | ) | - | 199 | |||||||||||
Fiscal
year ended December 29, 2007:
|
||||||||||||||||
Allowance
for doubtful accounts
|
994 | (165 | ) | (323 | ) | 506 | ||||||||||
LIFO
inventory reserves
|
3,837 | 1,412 | - | 5,249 | ||||||||||||
Deferred
tax asset valuation allowance
|
417 | (193 | ) | - | 224 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Lance,
Inc.:
We have
audited the accompanying consolidated balance sheets of Lance, Inc. and
subsidiaries (the Company) as of December 26, 2009 and December 27, 2008, and
the related consolidated statements of income, stockholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 26, 2009. In connection with our audits of the
consolidated financial statements, we have also audited the related financial
statement schedule “Valuation and Qualifying Accounts.” Additionally, we have
audited the Company’s internal control over financial reporting as of December
26, 2009, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these consolidated financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying “Management’s
Report on Internal Control over Financial Reporting.” Our responsibility
is to express an opinion on these consolidated financial statements and an
opinion on the Company’s internal control over financial reporting based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
26, 2009 and December 27, 2008, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 26,
2009, in conformity with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
Additionally,
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 26, 2009, based on
criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
As
discussed in the Summary of Significant Accounting Policies, the Company has
changed its method of accounting for business combinations and noncontrolling
interests effective December 28, 2008, due to the adoption of Accounting
Standards Codification Subtopics 805 and 810-10.
/s/
KPMG LLP
Charlotte,
North Carolina
February
22, 2010
MANAGEMENT’S
REPORT ON
INTERNAL CONTROL
OVER
FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes
those policies and procedures that:
(i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company;
(ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of our management and
directors; and
(iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of assets that could have a material effect on
the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect all misstatements or instances of fraud. As such, a
control system, no matter how well conceived and operated, can provide only
reasonable assurance that the objectives of the control system are
met. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management
assessed the effectiveness of internal control over financial reporting as of
December 26, 2009. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on
our assessment and those criteria, management believes that we maintained
effective internal control over financial reporting as of December 26,
2009.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item
9A. Disclosure
Controls and Procedures
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
13a-15b of the Securities and Exchange Act of 1934 (the Exchange
Act). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective for the purpose of providing reasonable assurance that the
information required to be disclosed in the reports we file or submit under the
Exchange Act (1) is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (2) is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 26, 2009. See page 53 for “Management’s
Report on Internal Control over Financial Reporting.” Our
independent registered public accounting firm has issued an attestation report
on our internal control over financial reporting. The report of the
independent registered public accounting firm appears on page 51.
There
have been no changes in our internal control over financial reporting during the
quarter ended December 26, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. Other
Information
Not
applicable.
PART
III
Items
10
through 14 are incorporated by reference to the sections captioned Principal
Stockholders and Holdings of Management, Election of Directors, The Board of
Directors and its Committees, Compensation Committee Interlocks and Insider
Participation, Compensation Committee Report, Equity Compensation Plans,
Director Compensation, Section 16(a) Beneficial Ownership Reporting Compliance,
Executive Officer Compensation and Ratification of Selection of Independent
Public Accountants in our Proxy Statement for the Annual Meeting of Stockholders
to be held on May 4, 2010 and Item X in Part I of this Annual Report captioned
Executive Officers of the Registrant.
Code
of Ethics
We have
adopted a Code of Conduct and Ethics that covers our officers and
employees. In addition, we have adopted a Code of Ethics for
Directors and Senior Financial Officers which covers the members of the Board of
Directors and Senior Financial Officers, including the Chief Executive Officer,
Chief Financial Officer, Corporate Controller and Principal Accounting
Officer. These Codes are posted on our website at www.lanceinc.com.
We will
disclose any substantive amendments to, or waivers from, our Code of Ethics for
Directors and Senior Financial Officers on our website or in a report on Form
8-K.
PART
IV
Item 15. Exhibits
and Financial Statement Schedules
(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 26, 2009, December 27, 2008, and December 29, 2007 |
24
|
25
|
|
26
|
|
27
|
|
28
|
(a)
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.
|
(a)
3. Exhibit
Index.
|
3.1 Restated
Articles of Incorporation of Lance, Inc. as amended through April 17,
1998, incorporated herein by reference to Exhibit 3 to the Registrant’s
Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998
(File No. 0-398).
|
3.2 Bylaws
of Lance, Inc., as amended through November 1, 2007, incorporated herein
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on November 7, 2007 (File No. 0-398).
|
4.1 See
3.1 and 3.2 above.
|
10.1 Lance,
Inc. 1995 Nonqualified Stock Option Plan for Non-Employee Directors, as
amended, incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
June 25, 2005 (File No. 0-398).
|
10.2 Lance,
Inc. 1997 Incentive Equity Plan, as amended, incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007 (File No.
0-398).
|
10.3 Lance,
Inc. 2003 Key Employee Stock Plan, as amended, incorporated herein by
reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007 (File No.
0-398).
|
10.4 Lance,
Inc. 2003 Director Stock Plan, incorporated herein by reference to Exhibit
4 to the Registrant’s Registration Statement on Form S-8 filed on May 2,
2003 (File No. 333-104961).
|
10.5 Lance,
Inc. 2007 Key Employee Incentive Plan, incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on May 2, 2007 (File No. 0-398).
|
10.6 Lance,
Inc. 2008 Director Stock Plan, incorporated herein by reference to Exhibit
4.8 to the Registrant’s Registration Statement on Form S-8 filed on May
15, 2008 (File No. 333-150931).
|
10.7* Lance,
Inc. Compensation Deferral and Benefit Restoration Plan, as amended,
incorporated herein by reference to Exhibit 10.5 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 30, 2006
(File No. 0-398).
|
10.8* Lance,
Inc. 2006 Five-Year Performance Equity Plan for Officers and Senior
Managers, incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on March 22, 2006 (File
No. 0-398).
|
10.9* Lance,
Inc. 2007 Three-Year Performance Incentive Plan for Officers, 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, 2007 (File
No. 0-398).
|
10.10* Lance,
Inc. 2007 Stock Option Plan for Officers and Key Managers, incorporated
herein by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on March 14, 2007 (File
No. 0-398).
|
10.11* Lance,
Inc. 2008 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 29, 2008 (File No.
0-398).
|
10.12* Lance,
Inc. 2008 Three-Year Performance Incentive Plan for Officers and Key
Managers, as amended, 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, 2008 (File No. 0-398).
|
10.13* Lance,
Inc. 2009 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 quarterly period ended March 28, 2009 (File No.
0-398).
|
10.14* Lance,
Inc. 2009 Three-Year Performance Incentive Plan for Officers and Key
Managers, incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
March 28, 2009 (File No. 0-398).
|
10.15* Lance,
Inc. 2005 Employee Stock Purchase Plan, as amended and restated,
incorporated herein by reference to Exhibit 10.14 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 30, 2006
(File No. 0-398).
|
10.16* Executive
Employment Agreement dated May 11, 2005 between the Registrant and David
V. Singer, incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No.
0-398).
|
10.17* Executive
Employment Agreement Amendment dated April 24, 2008 between the Registrant
and David V. Singer, incorporated herein by reference to Exhibit 10.2 to
the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks
ended June 28, 2008 (File No. 0-398).
|
10.18* Amended
and Restated Compensation and Benefits Assurance Agreement dated April 24,
2008 between the Registrant and David V. Singer, incorporated herein by
reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form
10-Q for the thirteen weeks ended June 28, 2008 (File No.
0-398).
|
10.19* Restricted
Stock Unit Award Agreement dated May 11, 2005 between the Registrant and
David V. Singer, incorporated herein by reference to Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No.
0-398).
|
10.20* Restricted
Stock Unit Award Agreement Amendment dated April 27, 2006 between the
Registrant and David V. Singer, incorporated herein by reference to
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
filed on May 3, 2006 (File No. 0-398).
|
10.21* Restricted
Stock Unit Award Agreement Amendment Number Two dated April 24, 2008
between the Registrant and David V. Singer, incorporated herein by
reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form
10-Q for the thirteen weeks ended June 28, 2008 (File No.
0-398).
|
10.22* Form
of Amended and Restated Compensation and Benefits Assurance Agreement
between the Registrant and each of Rick D. Puckett, Glenn A. Patcha, Blake
W. Thompson, and Earl D. Leake, incorporated herein by reference to
Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q
for the thirteen weeks ended June 28, 2008 (File
No. 0-398).
|
10.23* Amended
and Restated Executive Severance Agreement dated April 24, 2008 between
the Registrant and Earl D. Leake, incorporated herein by reference to
Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the
thirteen weeks ended June 28, 2008 (File No. 0-398).
|
10.24* Form
of Executive Severance Agreement between the Registrant and each of Glenn
A. Patcha, Rick D. Puckett, Blake W. Thompson 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
(File No. 0-398).
|
10.25 Credit
Agreement, dated as of October 20, 2006, among the Registrant, Tamming
Foods, Ltd., Bank of America, National Association, Wachovia Capital
Markets, LLC and the other lenders named therein, incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on October 26, 2006 (File No.
0-398).
|
57
12 Computation
of Ratio of Earnings to Fixed Charges, filed herewith.
|
21 List
of the Subsidiaries of the Registrant, filed herewith.
|
23 Consent
of KPMG LLP, filed herewith.
|
31.1 Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a),
filed herewith.
|
31.2 Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a),
filed herewith.
|
32 Certification
pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
________________________
*
Management contract.
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
22, 2010
|
By:
|
/s/ David V. Singer |
David
V. Singer
|
||
President
and Chief Executive Officer
|
||
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/ David V. Singer |
President
and Chief Executive Officer (Principal Executive
|
February
22, 2010
|
||
David
V. Singer
|
Officer) | |||
|
||||
/s/ Rick D. Puckett |
Executive
Vice President, Chief Financial Officer,
|
February
22, 2010
|
||
Rick
D. Puckett
|
Treasurer
and Secretary (Principal Financial Officer)
|
|||
|
||||
|
||||
/s/ Margaret E. Wicklund |
Vice
President, Corporate Controller and Assistant
|
February
22, 2010
|
||
Margaret
E. Wicklund
|
Secretary
(Principal Accounting Officer)
|
|||
|
||||
/s/ W.J. Prezzano |
Chairman
of the Board of Directors
|
February
22, 2010
|
||
W.
J. Prezzano
|
||||
/s/ Jeffrey A. Atkins |
Director
|
February
22, 2010
|
||
Jeffrey
A. Atkins
|
||||
/s/ J.P. Bolduc |
Director
|
February
22, 2010
|
||
J.P.
Bolduc
|
/s/ William R. Holland |
Director
|
February
22, 2010
|
||
William
R. Holland
|
||||
/s/ James W. Johnston |
Director
|
February
22, 2010
|
||
James
W. Johnston
|
||||
/s/ Dan C. Swander |
Director
|
February
22, 2010
|
||
Dan
C. Swander
|
||||
/s/ Isaiah Tidwell |
Director
|
February
22, 2010
|
||
Isaiah
Tidwell
|
||||
/s/ S. Lance Van Every |
Director
|
February
22, 2010
|
||
S.
Lance Van Every
|
60