<PAGE> 1
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 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
8600 SOUTH BOULEVARD, CHARLOTTE, NORTH CAROLINA
--------------------------------------------------------------------------------
(Address of principal executive offices)
POST OFFICE BOX 32368, CHARLOTTE, NORTH CAROLINA 28232
--------------------------------------------------------------------------------
(Mailing address of principal executive offices)
Registrant's telephone number, including area code: (704) 554-1421
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: $.83-1/3 PAR VALUE
COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of shares of the Registrant's $.83-1/3 par value
Common Stock, its only outstanding class of voting stock, held by
non-affiliates as of February 21, 1995 was $463,585,000.
The number of shares outstanding of the Registrant's $.83-1/3 par value Common
Stock, its only outstanding class of Common Stock, as of February 21, 1995, was
30,433,407 shares.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following annual report to security holders and proxy statement
are incorporated by reference into the indicated parts of this Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
Incorporated Documents Parts into which Incorporated
---------------------- -----------------------------
<S> <C>
Proxy Statement for Annual Meeting of Parts I and III
Stockholders to be held April 21, 1995
Annual Report to Stockholders for the Part II
fiscal year ended December 31, 1994
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
The Registrant manufactures and sells snack foods and bakery products
directly and through its subsidiaries, Midwest Biscuit Company and Vista
Bakery, Inc.
The Registrant manufactures, distributes and sells packaged snack and
bread basket items primarily under the LANCE label. The principal snack items
are cracker sandwiches, cookie sandwiches, peanuts, potato chips, corn chips,
popcorn, cakes, cookies, candies, chewing gum, beef snacks and sausages. The
principal new snack items introduced in 1994 include the Swiss Roll, Fat Free
Apple Bar, Fat Free Cranberry Bar, Reduced Fat Toastchee and Reduced Fat
Gold-N-Chees. During the year, the Registrant discontinued its line of chewing
gum and began distributing Wrigley's Chewing Gum(R). The principal bread
basket items are wafers, crackers and bread sticks, individually packaged and
sold to restaurants and similar institutions.
The Registrant's products are sold under various trade names and
registered trademarks that it owns, including TOASTCHEE, LANCHEE, RYE CHEE,
CHOC-O-LUNCH, VAN-O-LUNCH, NEKOT, GOLD-N-CHEES, BIG TOWN and CAPTAIN'S WAFERS.
The Registrant packages several of its most popular snack and bread
basket items in convenience packs and distributes them to grocers and
supermarkets. In addition, the Registrant distributes large bags of potato
chips and large size bags and boxes of its snack and bread basket items to
grocers and supermarkets. Various items that are purchased from others and
resold by the Registrant account for 21% of net sales and other operating
revenue.
Midwest Biscuit Company manufactures and sells cookies and crackers,
through its own sales representatives and brokers, to wholesale grocers,
supermarkets and distributors throughout the United States and portions of
Canada, under customer private labels and the VISTA label. Vista Bakery, Inc.
manufactures cookies and crackers which are sold through Midwest Biscuit
Company under customer private labels and the VISTA label.
The following table shows the approximate percentages of the
Registrant's net sales and other operating revenue for 1994, 1993 and 1992
contributed by snack items and bread basket items:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Snack items 89% 88% 88%
Bread basket items 8% 9% 9%
</TABLE>
3
<PAGE> 4
The principal raw materials and supplies used in the manufacture of
snack foods and bakery products are flour, peanuts, oils and shortenings,
potatoes, shelled corn and popcorn, cornmeal, pork skins, tree nuts, starch,
sugar, cheese, corn syrup, cocoa, fig paste, seasonings and packaging
materials. These raw materials and supplies are generally available in
adequate quantities in the open market either from sources in the United States
or from other countries and are generally contracted for a season in advance.
The principal supplies of energy used in the manufacture of these
products are electricity, natural and propane gas, fuel oil and diesel fuel,
all of which are currently available in adequate quantities.
The Registrant sells its products through its own sales organization
to convenience stores, independent and chain supermarkets, discount stores,
restaurants, military commissaries and exchanges, schools, hospitals, caterers,
industrial, recreational and commercial establishments, and similar customers
in 36 states and the District of Columbia. The Registrant's distribution
operations are administered through 27 sales districts which are divided into
350 sales areas, each under the direction of a branch manager. There are 2,309
sales territories, each serviced by one sales representative. In 1994, the
Registrant continued the development of its distributor and broker network,
principally in the Western United States.
The Registrant owns a fleet of tractors and trailers, which make
weekly deliveries of its products to the sales territories. The Registrant
provides sales representatives with stockroom space for their inventory
requirements. The sales representatives load their own trucks from these
stockrooms for delivery to their customers.
A significant portion of the Registrant's total sales is through
vending machines, which are made available to its customers on a rental,
commission or sales basis. The machines are not designed or manufactured
specifically for the Registrant, and their use is not limited to any particular
sales area or class of customer.
Caronuts, Inc., a subsidiary of the Registrant, owns a peanut buying
facility that purchases peanuts directly from growers and sells all of its
peanuts to the Registrant. The facility is operated on a seasonal basis,
during the peanut harvest.
All of the Registrant's products are sold in highly competitive
markets in which there are many competitors. In the case of many of its
products, the Registrant competes with manufacturers with greater total
revenues and greater resources than the Registrant. The principal methods of
competition are price, delivery, service and product quality. Generally, the
Registrant believes that it is competitive in these methods as a whole. The
methods of competition and the Registrant's competitive position varies
according to the locality, the particular products and the policies of its
competitors. Although reliable statistics are unavail-
4
<PAGE> 5
able as to production and sales by others in the industry, the Registrant
believes that in its areas of distribution it is one of the largest producers
of peanut butter filled cracker sandwiches.
On December 31, 1994, the Registrant and its subsidiaries had 5,818 employees.
ITEM 2. PROPERTIES
The Registrant's principal plant and general offices are located in
Charlotte, North Carolina on a 288 acre tract owned by the Registrant. The
main facility is an air-conditioned and sprinklered plant, office building and
cafeteria of brick and steel containing approximately 670,000 square feet. The
manufacturing plant houses seven oven lines and is equipped with storage
facilities to handle many of the Registrant's raw materials in bulk. Adjacent
to the main facility is an air-conditioned and sprinklered plant of brick and
steel used for the processing of potato chips, corn chips and similar products
containing approximately 140,000 square feet. Both plants are operated on
two eight-hour shifts. Also adjacent to the main facility are a 70,400 square
foot precast concrete building, which houses a vending machine repair and
maintenance facility, an 11,000 square foot brick and steel building, which
houses vehicle maintenance operations, 40,000 square foot and 13,000 square
foot metal warehouse buildings and a 5,500 square foot brick veneer office
building.
The Registrant owns a plant located on a 105 acre tract in Greenville,
Texas. The plant is an air-conditioned and sprinklered building of brick and
steel containing approximately 290,000 square feet. The plant houses two oven
lines and storage facilities that can handle many of the Registrant's raw
materials in bulk. Both of the oven lines are operated on two eight-hour
shifts. Adjacent to the plant is a building of steel construction which
contains approximately 29,000 square feet of vending repair, office and garage
space.
These facilities, unless otherwise noted, are used to produce both
snack and bread basket items.
The Registrant leases office space and most of its stockroom space in
various towns and cities, mainly on month-to-month tenancies. The Registrant
currently owns 188 stockroom locations with steel frame buildings, which range
in size from 400 to 6,400 square feet and contain an aggregate of 988 stockroom
spaces.
Midwest Biscuit Company owns a plant located on an 18.5 acre tract in
Burlington, Iowa. The plant is of masonry and steel and contains approximately
230,000 square feet. This plant houses six oven lines and is operated on two
eight-hour shifts. Adjacent to the plant is a steel storage building of
approximately 10,000 square feet.
5
<PAGE> 6
Vista Bakery, Inc. owns a 243,000 square foot plant on a 137 acre
tract in Columbia, South Carolina. The plant is of brick and steel
construction and houses three oven lines and is operated on two eight-hour
shifts.
The Registrant believes that it has sufficient production capacity to
meet foreseeable increases in demand in 1995.
The peanut buying facility owned by Caronuts, Inc. is located on a 20
acre tract in Boykins, Virginia. The facility consists of six peanut storage
tanks and related metal buildings and sheds.
SEPARATE ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to executive officers of the Registrant who are
directors or nominees of the Registrant is incorporated herein by reference to
the section captioned Election of Directors in the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held April 21, 1995. Information
as to each executive officer of the Registrant who is not a director or a
nominee is as follows:
<TABLE>
<CAPTION>
Name Age Information About Officer
---- --- -------------------------
<S> <C> <C>
G. R. Melvin 58 Vice President of the Company since 1978
Peter M. Duggan 54 Vice President of the Company since 1994 and a Group Vice President for the Snacks and
International Consumer Products Division of Borden, Inc. (consumer products company)
1985-1993
James W. Helms, Jr. 48 Secretary of the Company since 1988, Treasurer since 1995 and Assistant Treasurer
1988-1995
</TABLE>
All the Company's executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors on April 15, 1994,
except Mr. Duggan who was appointed at a Special Meeting of the Board of
Directors on July 12, 1994. In addition, at the Meeting of the Board of
Directors on February 21, 1995, Thomas B. Horack and Gerald K. Smith were
elected Executive Vice Presidents, Earl D. Leake was elected Vice President and
Mr. Helms was elected Treasurer. All of the Registrant's executive officers'
terms of office extend until the next Annual Meeting of the Board of Directors
and until their successors shall have been duly elected and qualified.
Items 3 and 4 are inapplicable and have been omitted.
6
<PAGE> 7
PART II
Items 5 through 8 are incorporated herein by reference to pages 10
through 27 of the Registrant's 1994 Annual Report to Stockholders.
Item 9 is inapplicable and has been omitted.
PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of Management, Election
of Directors, Compensation/Stock Option Committee Interlocks and Insider
Participation, Executive Officer Compensation and Director Compensation in the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
April 21, 1995 and to the Separate Item in Part I of this Annual Report
captioned Executive Officers of the Registrant.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
See Table of Contents to Financial Statements filed
herewith as a separate part of this Annual Report.
2. Financial Schedules.
Schedules have been omitted because of the absence of
conditions under which they are required or because
information required is included in financial statements
or the notes thereto.
3. Exhibits.
3.1 Restated Charter of Lance, Inc. incorporated
herein by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 26, 1992.
3.2 Bylaws of Lance, Inc. incorporated herein by
reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 25, 1993.
7
<PAGE> 8
4 See 3.1 and 3.2 above.
10.1 Lance, Inc. 1991 Stock Option Plan
incorporated herein by reference to Exhibit
4.1 to the Registrant's Registration
Statement on Form S-8, Registration No.
33-41866.
10.2 The Lance, Inc. Key Executive Employee
Benefit Plan incorporated herein by reference
to Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1983.
10.3 Form of Executive Employment Agreement
between Lance, Inc. and the Key Executives
incorporated herein by reference to Exhibit
10(c) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December
26, 1992.
10.4 Lance, Inc. 1983 Incentive Stock Option Plan
incorporated herein by reference to Exhibit
10.1 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 26,
1987.
10.5 Lance, Inc. Key Executive Employee Benefit
Plan Trust, dated December 3, 1993, between
Lance, Inc. and First Union National Bank of
North Carolina incorporated herein by
reference to Exhibit 10(v) to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 25, 1993.
13 The Registrant's 1994 Annual Report to
Stockholders. This Annual Report to
Stockholders is furnished for the information
of the Commission only and, except for the
parts thereof incorporated by reference in
this Report on Form 10-K, is not to be deemed
"filed" as a part of this filing.
21 List of the Subsidiaries of the Registrant
incorporated herein by reference to Exhibit
22 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 26,
1992.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule. (Filed in
electronic format only. Pursuant to Rule 402
of Regulation S-T, this schedule shall not
be deemed filed for purposes of Section 11 of
the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934.)
8
<PAGE> 9
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be filed
by the Registrant during the 17 weeks ended December 31,
1994.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANCE, INC.
Dated: March 29, 1995
By: /s/ E. D. Leake
----------------------------
E. D. Leake
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ J. W. Disher Chairman of the Board, March 29, 1995
-------------------------------------- Chief Executive Officer
J. W. Disher and Director (Principal
Executive Officer)
/s/ P. A. Stroup, III President and March 29, 1995
-------------------------------------- Director
P. A. Stroup, III
/s/ T. B. Horack Executive Vice President March 29, 1995
-------------------------------------- and Director
T. B. Horack
/s/ G. K. Smith Executive Vice President March 29, 1995
-------------------------------------- and Director
G. K. Smith
/s/ G. R. Melvin Vice President March 29, 1995
-------------------------------------- and Director
G. R. Melvin
/s/ W. B. Meacham Vice President March 29, 1995
-------------------------------------- and Director
W. B. Meacham
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
/s/ R. G. Swain Vice President March 29, 1995
-------------------------------------- and Director
R. G. Swain
/s/ E. D. Leake Vice President and March 29, 1995
-------------------------------------- Director (Principal
E. D. Leake Financial Officer)
/s/ James W. Helms, Jr. Secretary and March 29, 1995
---------------------------------- Treasurer (Principal
James W. Helms, Jr. Accounting Officer)
/s/ Alan T. Dickson Director March 29, 1995
--------------------------------------
Alan T. Dickson
/s/ William R. Holland Director March 29, 1995
--------------------------------------
William R. Holland
/s/ Scott C. Lea Director March 29, 1995
--------------------------------------
Scott C. Lea
/s/ Robert V. Sisk Director March 29, 1995
--------------------------------------
Robert V. Sisk
/s/ A. F. Sloan Director March 29, 1995
--------------------------------------
A. F. Sloan
/s/ Victoria S. Sutton Director March 29, 1995
--------------------------------------
Victoria S. Sutton
/s/ S. Lance Van Every Director March 29, 1995
--------------------------------------
S. Lance Van Every
/s/ Richard A. Zimmerman Director March 29, 1995
--------------------------------------
Richard A. Zimmerman
</TABLE>
11
<PAGE> 12
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-K
FOR CORPORATIONS
ITEM 14(a) - FINANCIAL STATEMENTS
12
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Annual Report
to Stockholders
Page
----
<S> <C>
Data incorporated by reference from the 1994
Annual Report to Stockholders of Lance, Inc.
and Subsidiaries:
Independent Auditors' Report 10
Consolidated Balance Sheets, December 31, 1994
and December 25, 1993 11
For the Fiscal Years Ended December 31, 1994,
December 25, 1993 and December 26, 1992:
Statements of Consolidated Income and
Retained Earnings 12
Statements of Consolidated Cash Flows 13
Notes to Consolidated Financial
Statements 14
</TABLE>
FINANCIAL STATEMENTS AND SCHEDULES OMITTED
The above listed financial statements are presented on only a consolidated
basis since the Company is primarily an operating company and its subsidiaries
included for the periods presented in the consolidated financial statements are
totally-held subsidiaries. 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.
13
<PAGE> 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
Item 14(a)(3)
FORM 10-K
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 31, 1994 0-398
LANCE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
------- -------------------
<S> <C>
3.1 Restated Charter of Lance, Inc. incorporated herein by reference to Exhibit 3(a) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992.
3.2 Bylaws of Lance, Inc. incorporated herein by reference to Exhibit 3(ii) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1993.
10.1 Lance, Inc. 1991 Stock Option Plan incorporated herein by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-41866.
10.2 The Lance, Inc. Key Executive Employee Benefit Plan incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1983.
10.3 Form of Executive Employment Agreement between Lance, Inc. and the Key Executives incorporated herein by reference
to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1992.
</TABLE>
<PAGE> 15
<TABLE>
<S> <C>
10.4 Lance, Inc. 1983 Incentive Stock Option Plan incorporated herein by reference to Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 26, 1987.
10.5 Lance, Inc. Key Executive Employee Benefit Plan Trust, dated December 3, 1993, between Lance, Inc. and First Union
National Bank of North Carolina incorporated herein by reference to Exhibit 10(v) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 25, 1993.
13 The Registrant's 1994 Annual Report to Stockholders. This Annual Report to Stockholders is furnished for the
information of the Commission only and, except for the parts thereof specifically incorporated by reference in this
Annual Report on Form 10-K, is not to be deemed "filed" as a part of this filing. (Page ___ of the sequentially
numbered pages.)
21 List of the Subsidiaries of the Registrant incorporated herein by reference to Exhibit 22 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 26, 1992.
23 Consent of KPMG Peat Marwick LLP. (Page ___ of the sequentially numbered pages.)
27 Financial Data Schedule. (Filed in electronic format only. Pursuant to Rule 402 of Regulation S-T, this schedule
shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934.)
</TABLE>
<PAGE> 1
EXHIBIT 13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lance, Inc.:
We have audited the accompanying consolidated balance sheets of Lance, Inc. and
subsidiaries as of December 31, 1994 and December 25, 1993 and the related
consolidated statements of income and retained earnings and cash flows for each
of the fiscal years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lance, Inc. and its
subsidiaries as of December 31, 1994 and December 25, 1993, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 4 to the consolidated financial statements, the
Company adopted the provisions of the American Institute of Certified Public
Accountants' Statement of Position 93-7, "Reporting on Advertising Costs," and
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," during the fiscal year ended
December 31, 1994. As discussed in Notes 7 and 8 to the consolidated financial
statements, the Company adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes," and SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," as of the beginning of the fiscal year ended
December 25, 1993.
KPMG PEAT MARWICK LLP
February 20, 1995
10
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and December 25, 1993
(In thousands, except share data)
<TABLE>
<CAPTION>
Assets Notes 1994 1993
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 1 $ 12,964 $ 20,328
Marketable securities 1, 4 32,946 19,228
Accounts receivable (less allowance for doubtful accounts
of $739 in 1994 and $259 in 1993, respectively) 1 30,155 28,906
Inventories 1, 2 38,952 33,673
Accrued interest receivable 599 724
Refundable income taxes 1 1,959 1,750
Deferred income tax benefit 1, 7 5,800 5,333
--------------------------------------------------------------------------------------------------------------------------
Total current assets 123,375 109,942
--------------------------------------------------------------------------------------------------------------------------
PROPERTY, NET 1, 3 165,390 173,639
--------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Marketable securities - At amortized cost, which approximates market 1, 4 14,452
Deposits 335 2,296
Notes receivable, prepayments, etc. 1, 8 7,896 8,145
--------------------------------------------------------------------------------------------------------------------------
Total other assets 8,231 24,893
--------------------------------------------------------------------------------------------------------------------------
TOTAL $ 296,996 $ 308,474
--------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 5
--------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 1 $ 8,572 $ 6,907
Accrued compensation 9,656 8,909
Accrued profit-sharing retirement plan 9 2,482 3,110
Accrued income taxes 1, 7 461 138
Accrual for insurance claims 1 8,708 9,786
Other payables and accrued liabilities 2,980 2,640
--------------------------------------------------------------------------------------------------------------------------
Total current liabilities 32,859 31,490
--------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS: 1
Deferred income taxes 7 19,243 19,525
Accrued postretirement health care costs 8 8,078 7,096
Supplemental retirement benefits 3,322 3,323
--------------------------------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 30,643 29,944
--------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY: 6, 9
Common stock, $.83 1/3 par value (authorized: 75,000,000 shares;
issued and outstanding: 30,433,407 shares in 1994,
31,001,185 shares in 1993) 25,361 25,835
Retained earnings 208,800 221,205
Net unrealized loss on marketable securities 4 (667)
--------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 233,494 247,040
--------------------------------------------------------------------------------------------------------------------------
TOTAL $ 296,996 $ 308,474
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 3
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
For the Fiscal Years Ended December 31, 1994, December 25, 1993 and December
26, 1992
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
Notes (53 WEEKS) (52 Weeks) (52 Weeks)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUE $ 487,982 $ 472,786 $ 461,449
-----------------------------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES:
Cost of sales 1, 2 238,127 221,792 207,021
Selling and delivery 183,164 179,332 173,770
General and administrative 20,722 19,871 19,244
Contributions to employees' profit-sharing
retirement plan 9 5,975 6,599 7,048
-----------------------------------------------------------------------------------------------------------------------------
Total 447,988 427,594 407,083
-----------------------------------------------------------------------------------------------------------------------------
PROFIT FROM OPERATIONS 39,994 45,192 54,366
OTHER INCOME, NET (INCLUDING INTEREST INCOME OF
$2,054 IN 1994, $2,965 IN 1993,
AND $3,487 IN 1992) 4,333 5,515 5,796
-----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 44,327 50,707 60,162
-----------------------------------------------------------------------------------------------------------------------------
INCOME TAXES: 1, 7
Current 18,092 18,970 21,141
Deferred (benefit) (749) 561 (123)
-----------------------------------------------------------------------------------------------------------------------------
Total 17,343 19,531 21,018
-----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 26,984 31,176 39,144
-----------------------------------------------------------------------------------------------------------------------------
Cumulative effect on prior years of changes in
accounting principles for:
Income taxes 1, 7 3,538
Postretirement health care costs 1, 8 (3,916)
-----------------------------------------------------------------------------------------------------------------------------
(378)
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME 26,984 30,798 39,144
RETAINED EARNINGS AT BEGINNING OF FISCAL YEAR 221,205 226,060 216,275
-----------------------------------------------------------------------------------------------------------------------------
Total 248,189 256,858 255,419
Cash dividends (29,583) (29,980) (28,795)
Retirement of common stock 6 (9,802) (5,863) (813)
Stock options exercised 6, 9 (4) 190 249
-----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS AT END OF FISCAL YEAR $ 208,800 $ 221,205 $ 226,060
-----------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS: 1
Income before cumulative effect of changes
in accounting principles $ .88 $ 1.00 $ 1.25
Cumulative effect on prior years of changes
in accounting principles (.01)
---- ---- ----
Net income $ .88 $ .99 $ 1.25
==== ==== ====
Cash dividends $ .96 $ .96 $ .92
==== ==== ====
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 4
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Fiscal Years Ended December 31, 1994, December 25, 1993 and December
26, 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
(53 WEEKS) (52 Weeks) (52 Weeks)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 26,984 $ 30,798 $ 39,144
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 24,544 24,747 23,227
Loss on sale of property 397 591 982
Deferred income taxes (749) 561 (123)
Cumulative effect of changes in accounting principles 378
Other, net 750 1,022 428
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,249) (1,187) 138
(Increase) in refundable income taxes (209) (48) (419)
(Increase) in inventory (5,279) (1,542) (4,403)
Increase (decrease) in accounts payable 1,665 (118) (207)
Increase (decrease) in accrued income taxes 323 (691) (174)
Increase in other payables and accrued liabilities 362 862 3,147
---------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 47,539 55,373 61,740
---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property:
Vending machines (3,439) (5,519) (4,770)
Other property (14,502) (16,843) (46,240)
Machinery deposits 1,961 (1,839) 195
Proceeds from sale of property 1,249 1,896 2,046
Purchases of marketable securities (25,849) (30,862) (14,136)
Maturities of marketable securities 8,161 20,455 28,957
Sales of marketable securities 17,130 13,550 3,045
Other, net 249 (1,322) (225)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,040) (20,484) (31,128)
---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends paid (29,583) (29,980) (28,795)
Purchases of common stock, net (10,280) (5,904) (564)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (39,863) (35,884) (29,359)
---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,364) (995) 1,253
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 20,328 21,323 20,070
---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 12,964 $ 20,328 $ 21,323
---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes $ 17,978 $ 19,789 $ 23,746
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include in consolidation the accounts of
Lance, Inc. and its wholly-owned subsidiaries (the Company). All material
intercompany items have been eliminated. For purposes of comparability, certain
1992 and 1993 amounts shown in the accompanying consolidated financial
statements have been reclassified to conform with the 1994 presentation.
OPERATIONS
The Company manufactures and purchases snack foods and bakery products which
are sold and distributed through the Company's own sales organization to
convenience stores, supermarkets, discount stores, restaurants, wholesale
grocery distributors, and similar establishments, and also in schools, office
buildings, manufacturing plants, and similar locations through the operation of
Company vending machines. The Company's policy is to recognize a sale at the
time the product is delivered to the customer.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
CASH, MARKETABLE SECURITIES, ACCOUNTS AND
NOTES RECEIVABLE AND ACCOUNTS PAYABLE
The carrying amount of cash, accounts and notes receivable and accounts payable
approximates fair value.
Marketable securities at December 31, 1994 are principally instruments of the
U.S. government and its agencies, of state governments, and of municipalities.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) 115, "Accounting for Certain Investments in Debt and Equity
Securities" effective at the beginning of fiscal 1994. Under SFAS 115, the
Company classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities which the
Company has the ability and intent to hold until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale.
Under SFAS 115, trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
holding gains and losses are recognized in earnings for transfers into trading
securities. Unrealized holding gains and losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity. The unrealized holding gains or
losses included in the separate component of equity for securities transferred
from available-for-sale to held-for-maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
14
<PAGE> 6
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Marketable securities at December 25, 1993 include, principally, instruments of
the U.S. government and its agencies, of state governments, and of
municipalities, and are accounted for under SFAS 12, "Accounting for Certain
Marketable Securities." Marketable securities are stated at amortized cost,
which approximates fair value. Fair value is based on market prices.
INVENTORIES
Inventories are valued at the lower of cost or market; 77% of the cost of the
inventories in 1994 and 71% in 1993 was determined using the last-in, first-out
(LIFO) method and the remainder was determined using the first-in, first-out
(FIFO) method.
DEPRECIATION AND PROPERTY
Depreciation is computed over estimated useful lives of depreciable property,
using the straight-line method, generally as follows:
<TABLE>
<S> <C>
Land improvements 20 years
Buildings 20-50 years
Machinery and equipment 5-12 years
Vending machines on location 8 years
Trucks and automobiles 3-9 years
Furniture and fixtures 10 years
</TABLE>
Property is recorded at cost less accumulated depreciation. Upon retirement or
disposal of any item of property, the cost is removed from the property account
and the accumulated depreciation applicable to such item is removed from
accumulated depreciation. Major renewals and betterments are capitalized,
maintenance and repairs are expensed as incurred, and gains and losses on
dispositions are reflected in income.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, which include supplemental
retirement benefits, with certain officers. Provision for these benefits, made
over the period of employment of such officers, was $296,000 in 1994, $488,000
in 1993, and $441,000 in 1992.
INCOME TAXES
Effective at the beginning of fiscal 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes." The cumulative effect of the change in
accounting for income taxes is determined as of the beginning of fiscal 1993
and is reported separately in the Company's statement of consolidated income
and retained earnings for fiscal 1993. Prior years' financial statements have
not been restated to apply the provisions of SFAS 109.
15
<PAGE> 7
SFAS 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS 109, 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.
Pursuant to the deferred method under APB Opinion 11, which was applied in 1992
and prior years, deferred income taxes are recognized for income and expense
items that are reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Refundable income taxes result from an overpayment of estimated taxes.
POSTRETIREMENT HEALTH CARE COSTS
Effective at the beginning of fiscal 1993, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
cumulative effect of the change in accounting for postretirement health care
costs is determined as of the beginning of fiscal 1993 and is reported
separately in the Company's statement of consolidated income and retained
earnings for fiscal 1993. Prior years' financial statements have not been
restated to apply the provisions of SFAS 106.
SFAS 106 requires that the Company accrue the estimated cost of retiree benefit
payments during the years the employee provides services. The Company
previously expensed the cost of these benefits, which are principally health
care, as claims were incurred. SFAS 106 allows recognition of the cumulative
effect of the liability in the year of adoption or the amortization of the
obligation over a period of up to twenty years. The Company has elected to
recognize the cumulative effect of this obligation on the immediate recognition
basis.
INSURANCE CLAIMS
The accrual for insurance claims represents the estimated liability outstanding
on actual claims reported and an estimate of claims incurred but not yet
reported.
EARNINGS PER SHARE
Earnings per share amounts for the fiscal years ended December 31, 1994,
December 25, 1993 and December 26, 1992 were computed based on 30,774,472;
31,236,274; and 31,299,082 weighted average shares of common stock outstanding,
respectively. The dilutive effect of stock options is not material.
ADVERTISING COSTS
Effective at the beginning of fiscal 1994, the Company changed its method of
accounting for advertising costs to comply with the American Institute of
Certified Public Accountants' Statement of Position (SOP) 93-7, "Reporting on
Advertising Costs." SOP 93-7 requires that the Company report the costs of all
advertising in the periods in which the costs are incurred or the first time
the advertising takes place, except for certain direct-response advertising
that results in probable and measurable future economic benefits.
Direct-response advertising is to be capitalized and amortized over its
expected period of future benefit.
16
<PAGE> 8
Previously, the Company capitalized all advertising costs and amortized them
over a period of one to three years. The majority of the Company's advertising
costs do not qualify as direct-response advertising. The Company has elected,
under SOP 93-7, to expense non-qualifying costs as they are incurred. The
effect of the change in accounting method increased advertising expense and
reduced net income and net income per share by $753,083, $489,504 and $.02
respectively, in 1994.
$353,404 and $1,178,200 of advertising costs were reported as assets at
December 31, 1994 and December 25, 1993, respectively. These amounts relate to
costs capitalized under the previous accounting method, which continue to be
amortized as allowed under SOP 93-7. Advertising expense was $4,003,119,
$2,028,643 and $698,763 for the fiscal years 1994, 1993 and 1992,
respectively.
2. INVENTORIES
Inventories at December 31, 1994 and December 25, 1993 consisted of (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 16,979 $ 15,653
Goods in process 11 22
Raw materials 19,679 14,932
Supplies, etc. 9,058 8,222
---------------------------------------------------------------------------------------------------------------------------
Total inventories at FIFO cost 45,727 38,829
Less: Adjustment to reduce FIFO cost to LIFO cost 6,775 5,156
---------------------------------------------------------------------------------------------------------------------------
Total inventories $ 38,952 $ 33,673
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. PROPERTY
Property at December 31, 1994 and December 25, 1993 consisted of (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 12,235 $ 11,968
Buildings 87,813 86,591
Machinery and equipment 128,598 125,008
Vending machines on location 95,809 94,483
Trucks and automobiles 28,584 28,455
Furniture and fixtures 3,716 3,905
Construction in progress 5,461 5,648
---------------------------------------------------------------------------------------------------------------------------
Total 362,216 356,058
Accumulated depreciation (196,826) (182,419)
---------------------------------------------------------------------------------------------------------------------------
Property, net $ 165,390 $ 173,639
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 9
4. MARKETABLE SECURITIES
At December 31, 1994, the Company reclassified all investments as
available-for-sale. The reclassification, which had no impact on net income,
was retroactive to the beginning of fiscal 1994. The impact of the
reclassification on stockholders' equity was not material.
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value of the available-for-sale securities by major security
type at December 31, 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government agencies $ 5,519 $ $ (247) $ 5,272
Municipal obligations 28,040 (587) 27,453
Equity securities 54 167 221
---------------------------------------------------------------------------------------------------------------
Total $ 33,613 $ 167 $ (834) $ 32,946
---------------------------------------------------------------------------------------------------------------
</TABLE>
Maturities of investment securities classified as available-for-sale were as
follows at December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Due within one year $ 2,291 $ 2,279
Due after one year through five years 29,100 28,301
Due after five years through ten years 689 676
Due after ten years 1,479 1,469
Equity securities 54 221
---------------------------------------------------------------------------------------------------
Total $ 33,613 $ 32,946
---------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of available-for-sale marketable securities during fiscal
1994 were $17,130,000 and related net realized losses included in income were
$41,333.
5. FINANCING AND COMMITMENTS
At December 31, 1994 the Company had an unsecured bank line of credit of
$5,000,000 against which there have been no borrowings.
The Company and its subsidiaries lease certain facilities and equipment under
contracts classified as operating leases. Commitments under leases with terms
extending beyond one year are not material. Rental expense was $4,711,000 in
1994, $4,608,000 in 1993 and $4,272,000 for 1992.
18
<PAGE> 10
6. STOCKHOLDERS' EQUITY
Common stock outstanding at year-end was as follows:
<TABLE>
<CAPTION>
AMOUNT
SHARES (in thousands)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock outstanding at December 28, 1991 31,282,790 $ 26,069
Exercise of stock options 32,634 27
Retirement of common stock (36,666) (30)
-------------------------------------------------------------------------------------------------------------------
Common stock outstanding at December 26, 1992 31,278,758 26,066
Exercise of stock options 19,927 17
Retirement of common stock (297,500) (248)
-------------------------------------------------------------------------------------------------------------------
Common stock outstanding at December 25, 1993 31,001,185 25,835
Exercise of stock options 4,222 3
Retirement of common stock (572,000) (477)
-------------------------------------------------------------------------------------------------------------------
Common stock outstanding at December 31, 1994 30,433,407 $ 25,361
-------------------------------------------------------------------------------------------------------------------
</TABLE>
7. INCOME TAXES
Effective at the beginning of fiscal 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes." The cumulative effect of the change in
accounting for income taxes is $3,538,000 and is reported separately in the
Company's statement of consolidated income and retained earnings for fiscal
1993.
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 14,545 $ 16,032 $ 18,416
State and local 3,547 2,938 2,725
-------------------------------------------------------------------------------------------------------------------------
Total current 18,092 18,970 21,141
-------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (584) 459 (142)
State and local (165) 102 19
-------------------------------------------------------------------------------------------------------------------------
Total deferred (749) 561 (123)
-------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 17,343 $ 19,531 $ 21,018
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 11
A reconciliation of income taxes computed using the statutory rates to income
tax expense follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35% 35% 34%
Income taxes at statutory tax rate $ 15,515 $ 17,747 $ 20,455
Increase (decrease) in taxes resulting from:
State and local income taxes, net of federal income tax benefit 2,198 1,900 1,827
Amortization of federal income tax investment credits (343)
Miscellaneous items, net (370) (116) (921)
-------------------------------------------------------------------------------------------------------------------------
Income tax expense $ 17,343 $ 19,531 $ 21,018
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994
and December 25, 1993 are presented below (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------------------------------------------------------------------
Net current deferred tax assets:
<S> <C> <C>
Accounts receivable, principally due to allowance for doubtful accounts $ 256 $ 100
Inventories, principally due to additional costs of inventories for tax
purposes pursuant to the Tax Reform Act of 1986 2,183 1,963
Compensated absences, principally due to accrual for financial
statement purposes 2,178 2,182
Other payroll costs, principally due to accrual for financial statement purposes 106 95
Insurance, principally due to accrual for financial statement purposes 1,010 1,707
Amounts deductible when paid for tax purposes,
capitalized for financial reporting purposes 34 (488)
Contributions to employee benefit trust (297)
Other 33 71
-------------------------------------------------------------------------------------------------------------------------
Net current deferred tax assets $ 5,800 $ 5,333
-------------------------------------------------------------------------------------------------------------------------
Net noncurrent deferred tax liabilities:
Deferred compensation, principally due to accrual for financial
statement purposes $ 1,303 $ 1,306
Accrued postretirement costs 3,165 2,867
Net state operating loss carryforwards 1,032 564
-------------------------------------------------------------------------------------------------------------------------
Total gross noncurrent deferred tax assets 5,500 4,737
Less valuation allowance (998) (564)
-------------------------------------------------------------------------------------------------------------------------
Total net noncurrent deferred tax assets 4,502 4,173
Plant and equipment, principally due to differences in depreciation (23,713) (23,698)
Other (32)
-------------------------------------------------------------------------------------------------------------------------
Net noncurrent deferred tax liabilities $ (19,243) $ (19,525)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 12
The net change in the total valuation allowance for the years ended December
31, 1994 and December 25, 1993 was an increase of $434,000 and $464,000
respectively. Based on the Company's historical and current earnings,
management believes it is more likely than not that the Company will realize
the benefit of the deferred tax assets that are not covered by the valuation
allowance.
At December 31, 1994, the Company has net operating loss carryforwards for
state income tax purposes which are available to offset future state taxable
income, if any. These net operating losses begin expiring in 2007.
For the year ended December 26, 1992, deferred income tax benefit of $123,000
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below (in thousands):
<TABLE>
<CAPTION>
1992
----------------------------------------------------------------------------------------------------------------
<S> <C>
Excess of tax over book depreciation $ 903
Additional inventory costs capitalized and deductible
in future periods for tax purposes (305)
Accrued commissions and salaries not deductible until paid (118)
Accrued insurance claims not deductible until paid (260)
Amortization of deferred federal income tax investment credits (343)
----------------------------------------------------------------------------------------------------------------
Total $ (123)
----------------------------------------------------------------------------------------------------------------
</TABLE>
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement medical benefits for retirees and their
spouses to age 65. Retirees pay contributions toward medical coverage based on
the medical plan and coverage they select.
Effective at the beginning of fiscal 1993, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
cumulative effect of adopting SFAS 106 as of the beginning of fiscal 1993 was
an increase in accrued postretirement health care costs of $6,309,000 and a
decrease in net income of $3,916,000 ($.125 per share), which is reported
separately in the Company's statement of consolidated income and retained
earnings for fiscal 1993.
The effect of adopting SFAS 106 on postretirement health care costs and on net
income before the cumulative effect on prior years of changes in accounting
principles for fiscal 1993 was an increase of $805,000 and a decrease of
$495,000, respectively. In 1992, the Company recognized health care benefits
cost of $659,000 on the pay-as-you-go method.
The Company's postretirement health care plan currently is not funded.
21
<PAGE> 13
The following table presents the plan's accumulated postretirement benefit
obligation reconciled with amounts recognized in the Company's consolidated
balance sheet as of December 31, 1994 and December 25, 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (715) $ (368)
Fully eligible active plan participants (1,211) (854)
Other active plan participants (5,997) (5,391)
--------------------------------------------------------------------------------------------------------------------
Total (7,923) (6,613)
Net unrecognized gain from past experience
different from that assumed (155) (483)
--------------------------------------------------------------------------------------------------------------------
Accrued postretirement health care costs $ (8,078) $ (7,096)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost for the years ended December 31, 1994
and December 25, 1993 consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits attributed to service during the year $ 543 $ 522
Interest cost on accumulated postretirement benefit obligation 439 496
-------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 982 $ 1,018
-------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1995; the rate was assumed to
decrease gradually to 6% at 2015 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1994, by $814,000 and the aggregate of
the service and interest cost components of postretirement expense for the year
ended December 31, 1994 by $150,000. The weighted-average discount rate used
in determining the accumulated postretirement benefit obligation was 6.75% at
the beginning of the 1994 fiscal year and 8.00% at the end of the 1994 fiscal
year and was 8.0% at the beginning of the 1993 fiscal year and 6.75% at the end
of the 1993 fiscal year.
The Company has established a Voluntary Employees' Beneficiary Association
(VEBA) trust to fund both employee and retiree medical costs in future years.
The trust is not legally restricted exclusively for retirees. The balance of
the trust, $3,885,000 in 1994 and 1993, is included in other assets in the
accompanying consolidated balance sheets.
9. EMPLOYEE BENEFIT PLANS
The Company has retirement plans covering substantially all of its employees.
These plans are defined contribution plans providing for contributions based on
income before income taxes, as defined. Contributions to the plans are funded
as accrued.
The Company also has an employee stock purchase plan under which shares of
common stock are purchased on the open market with employee and Company
contributions. The plan provides for the Company to contribute an amount equal
to 10% of the employees' contributions. A total of 800,000 shares of common
stock has been registered under the Securities Act of 1933 for purchase under
the plan. Company contributions amounted to $129,000 in 1994, $127,000 in 1993
and $137,000 in 1992.
22
<PAGE> 14
In addition, the Company has incentive stock option plans under which 1,466,666
shares of common stock may be issued to key employees of the Company, as
defined in the plans. The plans also authorize the grant of non-qualified
stock options and stock appreciation rights to key employees. The plans
require, among other things, that before the stock options and stock
appreciation rights may be exercised, such key employees must remain in
continuous employment of the Company not less than six months from the date of
grant. Exercised stock options are accounted for through the issuance of
previously retired stock. Options have been granted that generally become
exercisable in three installments of six, eighteen and thirty months after date
of grant. The option price, which equals the fair market value of the
Company's common stock at the date of grant, ranges from $14.81 to $24.13 per
share.
Activity under the plan for each of the years in the three-year period ended
December 31, 1994 is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Options Stock Options
Outstanding, Appreciation Range of Outstanding,
Beginning of Options Rights Options Options Price Options End of the
Years the Year Granted Exercised Exercised Exercised Expired Year
----- -------- ------- --------- --------- --------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1992 428,685 89,850 (750) (53,228) $10.36 to 23.50 464,557
1993 464,557 (29,767) 10.36 to 17.81 434,790
1994 434,790 85,900 (13,047) 10.64 to 17.81 507,643
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were 450,376 options exercisable at December 31, 1994.
23
<PAGE> 15
10. UNAUDITED INTERIM FINANCIAL INFORMATION
A summary of certain interim financial information follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1994 Interim Period Ended
------------------------------------------------------------------------
March 19 June 11 September 3 December 31
(12 Weeks) (12 Weeks) (12 Weeks) (17 Weeks)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and other operating revenues $ 108,133 $ 117,541 $ 107,643 $ 154,665
------------------------------------------------------------------------------------------------------------------------
Cost of sales 52,438 55,704 52,746 77,239
------------------------------------------------------------------------------------------------------------------------
Profit from operations 8,290 12,749 7,848 11,107
------------------------------------------------------------------------------------------------------------------------
Net income 5,791 8,446 5,433 7,314
------------------------------------------------------------------------------------------------------------------------
Net income per common share .19 .27 .18 .24
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1993 Interim Period Ended
------------------------------------------------------------------------
March 20 June 12 September 4 December 25
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and other operating revenues $ 106,423 $ 113,184 $ 106,140 $ 147,039
------------------------------------------------------------------------------------------------------------------------
Cost of sales 48,948 52,287 50,384 70,173
------------------------------------------------------------------------------------------------------------------------
Profit from operations 10,678 12,054 8,415 14,045
------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles 7,436 8,442 5,638 9,660
------------------------------------------------------------------------------------------------------------------------
Cumulative effect on prior years of
changes in accounting principles for:
Income taxes 3,538
Postretirement healthcare costs (3,916)
------------------------------------------------------------------------------------------------------------------------
Net income 7,058 8,442 5,638 9,660
------------------------------------------------------------------------------------------------------------------------
Per share income before cumulative
effect of changes in accounting
principles .24 .27 .18 .31
------------------------------------------------------------------------------------------------------------------------
Per share cumulative effect of changes
in accounting principles (.01)
------------------------------------------------------------------------------------------------------------------------
Net income per common share .23 .27 .18 .31
------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
The Company continues to maintain a strong position of liquidity and has the
financial strength to meet its regular operating needs, capital investment
program, cash dividend payments and stock repurchases through cash flow from
current operations and investments. The Company's conservative investment
strategy of investing in bank paper and government securities continues to
provide the financial stability and the ready cash needed to meet the Company's
operating, capital and other requirements. At the end of 1994, working capital
of $90.5 million included $45.9 million in cash and marketable securities,
reflecting an increase of $12.1 million in working capital and $6.4 million in
cash and marketable securities compared to 1993. These increases were primarily
attributable to the classification in 1994 of all marketable securities as
available-for-sale and the increase in inventories of $5.3 million. The
increase in inventories is primarily due to the increase in raw materials,
especially peanuts. Deposits decreased because most capital projects requiring
deposits were completed and transferred to property. The increase in accounts
payable at year end was due to the increase in peanut purchases. The decrease
in the accrual for insurance claims resulted from a decrease in the estimate of
future claims to be paid. The established bank line of credit of $5 million
remained unused during 1994 and there are no current plans for its use.
During 1994, the Company spent $16 million for capital improvements, paid $29.6
million in cash dividends and spent $10.3 million to repurchase 572,000 shares
of Company stock. Over the last three years total capital investments have
amounted to $91 million, a period in which capital expenditures have exceeded
depreciation by $18.5 million.
The Company's capital investment program is devoted to expansion and renovation
of facilities and modernization of machinery and equipment. Of the $16 million
spent for capital improvements during 1994, $3.4 million was spent for vending
machines, $5.2 million for machinery and equipment and $4.9 million for
vehicles, principally delivery vans.
At the end of fiscal 1994, commitments for capital expenditures, including
machinery and equipment and further expansion and renovation of facilities,
totaled approximately $8 million, with an additional $17 million in capital
expenditures planned for 1995.
OTHER ACCOUNTING MATTERS
Effective at the beginning of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) 115, "Accounting for Certain Investments
in Debt and Equity Securities." The provisions of SFAS 115 apply to investments
in equity securities with readily determinable fair values and to all
investments in debt securities. Initial adoption of SFAS 115 is reflected
prospectively. Due to the nature of the Company's investment portfolio, SFAS
115 does not have a material effect on the consolidated financial statements.
Effective at the beginning of fiscal 1994, the Company changed its method of
accounting for advertising costs to comply with the American Institute of
Certified Public Accountants' Statement of Position (SOP) 93-7, "Reporting on
Advertising Costs." SOP 93-7 requires that the Company report the costs of all
advertising in the periods in which the costs are incurred or the first time
the advertising takes place. Previously, the Company capitalized all
advertising costs and amortized them over one to three years. The effect of the
change to SOP 93-7 increased advertising expense by $753,000 and reduced net
income by $490,000 and earnings per share by $.02. Advertising costs of
$353,000 and $1,178,000 were recorded as assets at December 31, 1994 and
December 25, 1993, respectively. These amounts will continue to be amortized as
allowed under SOP 93-7.
RESULTS OF OPERATIONS, 1994 COMPARED TO 1993
Net sales and other operating revenue for 1994 (53 weeks) were up $15.2 million
(3.2%) over 1993 (52 weeks) due primarily to increased unit volume from Midwest
Biscuit and Vista Bakery and sales during the additional week in 1994. Sales
continued to be affected by intense price competition in most markets. To meet
this competition additional marketing activities were utilized. Also, bad
weather in the first quarter of 1994 had a detrimental impact on sales.
Cost of sales increased to $238.1 million in 1994 from $221.8 million in 1993.
As a result, gross profit as a percentage of sales decreased to 51.2% in 1994
from 53.1% in 1993. The decrease in gross profit was principally a result of
increased raw material costs, particularly peanuts and cooking oils, the shift
in composition of sales mix to lower margin products, including products
purchased for resale and products sold to supermarket chains and discount
stores, and higher production costs at Midwest Biscuit and Vista Bakery.
Selling and delivery expenses in 1994 were $183.2 million or 37.5% of sales as
compared to $179.3 million or 37.9% of sales in 1993. This increase in
expenses was due primarily to increased sales, increased marketing expenses in
response to intense price competition and increased delivery costs. Marketing
strategies included increased television and radio advertising as well as
sponsoring a Lance Busch Grand National and a Winston Cup race car. Total
advertising costs were $4 million, an increase of $2
25
<PAGE> 17
million over 1993. As described above, the Company changed its accounting
method which caused advertising costs to increase by $753,000 from 1993. These
increases in selling and delivery expenses were offset somewhat by
restructuring certain sales territories and by lower insurance costs.
General and administrative expenses were $20.7 million in 1994 as compared to
$19.9 million in 1993 primarily due to the additional week in fiscal 1994. As a
percentage of sales, general and administrative expenses were 4.2% of sales in
both years. Profit sharing contributions were lower in 1994 due to decreased
earnings.
Other income was down due to lower interest income on fewer marketable
securities and lower income from the delivery van lease program.
Sales of products produced at the Midwest Biscuit and Vista Bakery plants
continued to increase. While prices were increased at Midwest Biscuit and Vista
Bakery during the fourth quarter of 1994, the impact on 1994 sales and net
income was not material. Consolidated operating results of Midwest Biscuit and
Vista Bakery declined due to higher operating expenses, especially production
and delivery expenses. Midwest Biscuit operating results were impacted by
increased manufacturing costs, increased selling expenses, primarily brokerage
and promotional costs, and increased warehousing costs. Inefficiencies, over
capacity and high overhead continued to negatively impact the Vista Bakery
operations. The principal component of increased delivery expenses was that the
additional sales were primarily in the Midwest Biscuit market area and the
products were manufactured at Vista Bakery and shipped to Midwest Biscuit.
During 1994 and early 1995, changes were made in the Vista Bakery operations to
improve production efficiencies. Management is currently studying and planning
methods to better integrate the two operations to reduce operating costs and to
increase sales in the Vista Bakery market area.
Net income was down $3.8 million ($.11 per share) due primarily to a shift in
sales mix to lower margin products, higher operating costs at the Midwest
Biscuit and Vista Bakery plants, increased raw material costs, increased
marketing expenses and lower interest income. This was offset somewhat by
restructuring certain sales territories and lower insurance costs. Net income
for 1993 was affected by the cumulative effect on prior years of changes in
accounting principles for income taxes and retiree health care benefits.
RESULTS OF OPERATIONS, 1993 COMPARED TO 1992
Sales for 1993 were up $11.3 million (2.5%) over 1992 due primarily to
increased unit volume. Sales revenues continued to be affected by intense price
competition in most markets.
Cost of sales was up in dollars and as a percent of sales due to high
production costs at the Vista Bakery plant and lower sales of higher margin
products. Selling and delivery expenses were up in dollars and as a percent of
sales due to increased advertising and promotional expenses, accounts
receivable written off at year end and the effect of changes in accounting
principles for retiree health care benefits.
Other income was down due to lower interest rates and lower interest income on
fewer marketable securities.
Net income was down $8.3 million ($.26 per share) due primarily to high
production costs at the Vista Bakery plant, a shift in sales mix to lower
margin products, the increase in selling expenses, the effect of changes in
accounting principles for income taxes and retiree health care benefits, the
new federal income tax rate and the impact on 1992 of a refund of a prior
year's income taxes.
IMPACT OF INFLATION AND CHANGING PRICES
Over the years, the Company has had a policy of expansion, replacement and
renovation of its equipment and buildings on a continuing rather than on a
catch up basis. This policy has served to reduce the impact of inflation.
As a result of increasing costs, the Company has increased the wholesale price
of its snack foods substantially since 1978. Retail prices of most snack items
have risen from $.20 in 1978 to $.39 in 1994. However, prices in the last five
years have remained relatively flat.
The Company believes it is in position to contend with the effect of further
inflation through pricing, improved manufacturing methods and changes in
marketing strategy.
26
<PAGE> 18
FIVE YEAR SUMMARY
Consolidated Financial Highlights
For the Five Fiscal Years Ended December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales and other operating revenue $ 487,982 $ 472,786 $ 461,449 $ 449,861 $ 445,962
Profit from operations 39,994 45,192 54,366 50,990 62,226
Income before income taxes 44,327 50,707 60,162 58,673 70,463
Income taxes 17,343 19,531 21,018 20,961 24,736
Net income 26,984 30,798 39,144 37,712 45,727
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 30,774 31,236 31,299 31,268 31,377
Per Share of Common Stock:
Profit from operations $ 1.30 $ 1.45 $ 1.74 $ 1.63 $ 1.98
Net income .88 .99 1.25 1.21 1.46
Cash dividends .96 .96 .92 .88 .82
FINANCIAL STATUS AT YEAR-END:
Total assets $ 296,996 $ 308,474 $ 313,446 $ 300,290 $ 288,621
</TABLE>
MARKET AND DIVIDEND INFORMATION
The Company had 5,359 stockholders of record as of February 21, 1995.
The $.83 1/3 par value Common Stock of Lance Inc. is traded in the
over-the-counter market under the symbol LNCE and transactions in the Common
Stock are reported on the NASDAQ National Market System. The following table
sets forth the high and low sales prices and dividends paid during the interim
periods in fiscal years 1993 and 1994.
<TABLE>
<CAPTION>
1993 Interim High Low Dividends
Periods Price Price Paid
------- ----- ----- ----
<S> <C> <C> <C>
First . . . . . . . . . . . . . . . . . . . . . . $ 24 1/4 $ 22 24 cents
Second . . . . . . . . . . . . . . . . . . . . . . 24 20 1/4 24
Third . . . . . . . . . . . . . . . . . . . . . . 22 1/2 20 1/2 24
Fourth . . . . . . . . . . . . . . . . . . . . . . 22 1/4 19 24
1994 Interim High Low Dividends
Periods Price Price Paid
------- ----- ----- ----
First . . . . . . . . . . . . . . . . . . . . . . $ 22 3/4 $ 18 3/4 24 cents
Second . . . . . . . . . . . . . . . . . . . . . . 20 1/2 16 3/4 24
Third . . . . . . . . . . . . . . . . . . . . . . 20 1/2 16 3/4 24
Fourth . . . . . . . . . . . . . . . . . . . . . . 18 7/8 16 1/4 24
</TABLE>
27
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lance, Inc.:
We consent to incorporation by reference in Registration Statements No. 2-77150,
No. 2-88540 and No. 33-41866 of Lance, Inc. on Form S-8 of our report dated
February 20, 1995 relating to the consolidated balance sheets of Lance, Inc.
and subsidiaries as of December 31, 1994 and December 25, 1993, and the related
consolidated statements of income and retained earnings and cash flows for the
three-year period ended December 31, 1994, which report appears in or is
incorporated by reference in the December 31, 1994 annual report on Form 10-K
of Lance, Inc.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANCE, INC. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> DEC-26-1993
<PERIOD-END> DEC-31-1994
<CASH> 12,964
<SECURITIES> 32,946
<RECEIVABLES> 30,894
<ALLOWANCES> 739
<INVENTORY> 38,952
<CURRENT-ASSETS> 123,375
<PP&E> 362,216
<DEPRECIATION> 196,826
<TOTAL-ASSETS> 296,996
<CURRENT-LIABILITIES> 32,859
<BONDS> 0
<COMMON> 25,361
0
0
<OTHER-SE> 208,133
<TOTAL-LIABILITY-AND-EQUITY> 296,996
<SALES> 487,982
<TOTAL-REVENUES> 487,982
<CGS> 238,127
<TOTAL-COSTS> 447,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 44,327
<INCOME-TAX> 17,343
<INCOME-CONTINUING> 26,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,984
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
