<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
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-398
LANCE, INC.
- --------------------------------------------------------------------------------
(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
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(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 19, 1999 was approximately $380,000,000.
The number of shares outstanding of the Registrant's $.83-1/3 par value Common
Stock, its only outstanding class of Common Stock, as of February 19, 1999, was
29,992,698 shares.
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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:
Incorporated Documents Parts into which Incorporated
---------------------- -----------------------------
Proxy Statement for Annual Meeting of Parts I and III
Stockholders to be held April 16, 1999
Annual Report to Stockholders for the Part II
fiscal year ended December 26, 1998
2
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PART I
ITEM 1. BUSINESS
The Registrant manufactures, markets and distributes a variety of
branded and private label snack foods and bakery products. Product categories
include branded sandwich crackers, sandwich cookies, restaurant crackers and
bread basket items, candy, chips, meat snacks, nuts and private label cookies
and crackers, of which approximately 76% are manufactured and approximately 24%
are purchased for resale. Products are distributed through the Registrant's
direct-store-delivery ("DSD") system and through direct shipments via its own
transportation fleet and/or third party common carriers. Products are packaged
as individual, single servings and as larger packages or multi-pack
configurations.
The Registrant's branded products are distributed to grocery
stores, convenience stores, owned and third party vending machines, food service
institutions, and through "up and down the street" outlets such as recreational
facilities, offices and independent retailers. Private label cookies and
crackers are distributed primarily to grocery stores and mass merchants. Branded
and private label sales are fairly evenly distributed among these outlets. The
majority of branded product sales occur within a 24-state area in the
southeastern United States where the Registrant's DSD system operates. Private
label sales occur throughout the United States and in Canada.
The Registrant's products are sold under various trade names and
registered trademarks that it owns, including LANCE, TOASTCHEE, LANCHEE, RYE
CHEE, CHOC-O-LUNCH, VAN-O-LUNCH, NEKOT, GOLD-N-CHEES, BIG TOWN, CAPTAIN'S WAFERS
and VISTA.
Sales are made primarily by the Registrant's own DSD and non-DSD
sales representatives, and also through brokers and distributors. The DSD
organization is administered through 23 sales districts that are divided into
272 sales branches, each under the direction of a branch manager. Within each
branch are sales territories, each serviced by one representative. At December
26, 1998, there were 1,981 sales territories. The Registrant uses its own fleet
of tractors and trailers to make weekly deliveries of its products to the sales
territories. The Registrant provides its representatives with stockroom space
for their inventory requirements. The representatives load their own trucks from
these stockrooms for delivery to customers and to service vending machines owned
by the Registrant. The Registrant owns and operates vending machines in
approximately 60,000 locations. These vending machines are made available to
customers primarily on a commission or rental basis. The machines are not
designed or manufactured specifically for the Registrant, and their use is not
limited to any particular sales area or class of customer.
Since late 1995 and early 1996, the Company has initiated a
number of activities to revitalize its operations and position itself for future
growth. These activities include cost reductions, systems development,
organizational improvements, sales/marketing initiatives and external
development planning.
3
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The Registrant's cost reduction efforts began in 1995 upon the
announcement of two plant closures and consolidation of certain of its DSD
territories. Although those specific efforts were completed in 1996, the cost
reduction efforts continue in almost every aspect of operations. Significant
progress has been made within manufacturing and distribution areas through
process improvements and capital expenditures. Raw material costs have also had
a favorable impact through lower commodity costs for flour and peanuts and
through improved relationships with vendors. These trends continued during 1998.
In late 1995, the Registrant began the replacement of every
major information system. These efforts concluded during 1998 with the
implementation of the new route management system for the Registrant's DSD
operations and with the rollout of new handheld computers used by the DSD field
sales representatives. Capital expenditures during 1998 for information
technology amounted to approximately $16 million.
During 1998, the Registrant appointed its new Vice President of
Sales, filling a key position on its senior management team. The senior
management team has extensive experience in the food and beverage industry and
has also recruited a number of excellent mid-level managers to complement
positions held by long-term employees.
The Registrant's strategic plans focus on developing its business
through branded products, private label products and leveraging its distribution
capabilities. The strategic plans call for sales growth that is driven by
improved sales and marketing initiatives that are funded through continued cost
reduction activities. To supplement internal growth capabilities, the Registrant
is also exploring external growth opportunities that would fit within its
strategic plans.
The principal raw materials used in the manufacture of snack
foods and bakery products are flour, peanuts, peanut butter, oils, shortenings,
potatoes, shelled corn, popcorn, cornmeal, pork skins, tree nuts, starch, sugar,
cheese, corn syrup, cocoa, fig paste and seasonings. The principal supplies used
are flexible film, cartons, trays, boxes and bags. These raw materials and
supplies are generally available in adequate quantities in the open market
either from sources in the United States or from other countries and are
generally contracted 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.
All of the Registrant's products are sold in highly competitive
markets in which there are many competitors. In the case of many of its
products, the Registrant competes with manufacturers with greater total revenues
and greater resources than the Registrant. The principal methods of competition
are price, delivery, service and product quality. Generally, the Registrant
believes that it is competitive in these methods as a whole. The methods of
competition and the Registrant's competitive position vary according to the
locality, the particular products and the policies of its competitors. Although
reliable statistics are unavailable as to production and sales by others in the
industry, the Registrant believes that in its areas of distribution it is one of
the largest producers of filled sandwich crackers.
On December 26, 1998, the Registrant and its subsidiaries had
4,616 employees, none of whom were covered by a collective bargaining agreement.
4
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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 at this location is an air-conditioned and sprinklered plant,
office building and cafeteria of brick and steel containing approximately
670,000 square feet. The manufacturing portion of this facility houses seven
oven lines and is equipped with storage facilities to handle many of the
Registrant's raw materials in bulk and is operated on a continuous three-shift
basis. Adjacent to the main facility is an air-conditioned and sprinklered plant
of brick and steel used for processing potato chips, corn chips and similar
products containing approximately 140,000 square feet, which is operated on a
continuous two-shift basis. Also adjacent to the main facility are a 70,400
square foot precast concrete building, which houses a vending machine repair and
maintenance facility, an 11,000 square foot brick and steel building, which
houses vehicle maintenance operations, 50,000 square foot, 40,000 square foot
and 14,000 square foot metal warehouse buildings and a 5,500 square foot brick
veneer office building.
The Registrant also owns a plant located on an 18.5-acre tract in
Burlington, Iowa. The plant is of masonry and steel and contains approximately
313,000 square feet. This plant houses eight oven lines, certain of which are
operated on a continuous three-shift basis. Adjacent to the plant is a steel
storage building of approximately 5,800 square feet.
The Registrant leases office space and most of its stockroom
space in various towns and cities, mainly on month-to-month tenancies, and a
building in Greenville, Texas containing approximately 6,150 square feet which
serves as a distribution and vending maintenance center.
The Registrant believes that it has sufficient production
capacity to meet foreseeable demand in 1999.
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 16, 1999. Information as
to each executive officer of the Registrant who is not a director or a nominee
is as follows:
Name Age Information About Officer
---- --- -------------------------
L. Rudy Gragnani 45 Vice President of Lance, Inc. since 1997;
Vice President of Coca-Cola Bottling Company
of New York 1996-1997 and Director of
Information Services of Coca-Cola Bottling
Co. Consolidated 1988-1996
Earl D. Leake 47 Vice President of Lance, Inc. since 1995 and
Treasurer and Assistant Secretary 1988-1995
B. Clyde Preslar 44 Vice President, Treasurer and Chief
Financial Officer of Lance, Inc. since 1996;
Director, Financial Services of Worldwide
Power Tools Group (a consumer products
division of The Black and Decker
Corporation) 1993-1996 and Director,
Corporate Business Planning and Analysis of
The Black and Decker Corporation 1991-1993
Dominic J. Sidari 45 Vice President of Lance, Inc. since 1998;
Vice President, Sales of Pepperidge Farm
division of Campbell 1977 - 1998
5
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Richard G. Tucker 44 Vice President of Lance, Inc. since 1996 and
President of Lance Company since 1999; Plant
Manager (bakery division) of RJR Nabisco
Holdings Corporation (consumer products
company) 1989-1996
Gregory M. Venner 41 Vice President of Lance, Inc. since 1997;
Marketing Director and Business Director,
Tropicana Products (food products company)
1993-1996 and Marketing Director, Conagra
Frozen Foods 1990-1993
H. Dean Fields 57 President of Vista Bakery, Inc. (subsidiary
of Lance, Inc.) since 1996 and Manager,
Columbia, South Carolina Plant of Vista
Bakery, Inc. 1993-1996
James C. Melton 39 Corporate Controller and Principal
Accounting Officer of Lance, Inc. since
1997; independent financial consultant
1995-1996; Corporate Controller and
Assistant Treasurer, Kayser-Roth Corporation
(consumer products company) 1990-1994
Robert S. Carles 58 Secretary of Lance, Inc. since 1997,
Assistant Secretary 1981-1997 and Corporate
Attorney since 1976
All the executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors effective April 17,
1998, except that Mr. Sidari was appointed effective April 20, 1998. 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.
PART II
Items 5 through 8 are incorporated herein by reference to pages
17 through 34 of the Registrant's 1998 Annual Report to Stockholders.
Item 9 is inapplicable and has been omitted.
6
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PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of Management, Election
of Directors, Compensation/Stock Option Committee Interlocks and Insider
Participation, Director Compensation, Executive Officer Compensation and
Compliance with Section 16(a) of the Securities Exchange Act of 1934 in the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
April 16, 1999 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 Articles of Incorporation of Lance,
Inc. as amended through April 17, 1998, incorporated herein by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 13, 1998.
3.2 Articles of Amendment of Lance, Inc. dated
July 14, 1998 designating rights, preferences and privileges of the
Registrant's Series A Junior Participating Preferred Stock.
3.3 Bylaws of Lance, Inc., as amended through
April 21, 1995, incorporated herein by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 17,
1995.
4.1 See 3.1, 3.2 and 3.3 above.
4.2 Preferred Shares Rights Agreement dated July
14, 1998 between the Registrant and Wachovia Bank, N.A., together with the Form
of Rights Certificate attached as Exhibit B thereto, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Form 8-A filed on July 15, 1998.
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.
7
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10.2 Lance, Inc. 1983 Incentive Stock Option Plan,
incorporated herein by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 26, 1987.
10.3 Lance, Inc. 1995 Nonqualified Stock Option
Plan for Non-Employee Directors, as amended, incorporated herein by reference to
Exhibit 4 to the Registrant's Registration Statement on Form S-8, File No.
33-58839, as amended by Post Effective Amendment No. 1.
10.4 Lance, Inc. 1997 Incentive Equity Plan,
incorporated herein by reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-8, File No. 333-25539.
10.5* Lance, Inc. Benefit Restoration Plan,
incorporated herein by reference to Exhibit 10(vi) to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 11, 1994.
10.6* Lance, Inc. Annual Corporate Performance
Incentive Plan - Officers - 1997, incorporated herein by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 14, 1997.
10.7* Lance, Inc. Long-Term Incentive Plan -
Officers - 1997, incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 14,
1997.
10.8* Lance, Inc. 1998 Annual Corporate
Performance Incentive Plan for Officers, incorporated herein by reference to
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended March 21, 1998.
10.9* Lance, Inc. 1998 Long-Term Incentive Plan
for Officers, incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 13,
1998.
10.10* Chairman of the Board Compensation Letter
dated April 19, 1996 incorporated herein by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 15,
1996.
10.11* Chairman of the Board Compensation Letter
dated October 6, 1998.
10.12* Form of Compensation and Benefits Assurance
Agreement between the Registrant and each of Paul A. Stroup, III, Earl D. Leake,
B. Clyde Preslar, Richard G. Tucker, Gregory M. Venner, L. R. Gragnani, H. Dean
Fields and Dominic J. Sidari, incorporated herein by reference to Exhibit 10.14
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 27, 1997.
- ---------------
* Management contract.
8
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10.13* Executive Severance Agreement dated
November 7, 1997 between the Registrant and Paul A. Stroup, III, incorporated
herein by reference to Exhibit 10.15 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 27, 1997.
10.14* Executive Severance Agreement dated
November 7, 1997 between the Registrant and Earl D. Leake, incorporated herein
by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 27, 1997.
10.15* Form of Executive Severance Agreement
between the Registrant and each of B. Clyde Preslar, Richard G. Tucker, Gregory
M. Venner, L. R. Gragnani, H. Dean Fields and Dominic J. Sidari, incorporated
herein by reference to Exhibit 10.17 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 27, 1997.
10.16* Early Retirement Agreement dated June 10,
1998 between Lance, Inc. and Peter M. Duggan and related Amendment Agreement
dated June 26, 1998 between Lance, Inc. and Peter M. Duggan.
13 The Registrant's 1998 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.
23 Consent of KPMG LLP.
27.1 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.)
99 Cautionary Statement under the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be
filed by the Registrant during the 16 weeks ended December 26, 1998.
- ---------------
* Management contract.
9
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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 25, 1999 By: /s/ B. Clyde Preslar
-----------------------------
B. Clyde Preslar
Vice President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Scott C. Lea Chairman of the Board March 25, 1999
- ------------------------ and Director
Scott C. Lea
/s/ P. A. Stroup, III
- ------------------------ President, Chief Executive March 25, 1999
P. A. Stroup, III Officer and Director
(Principal Executive Officer)
/s/ B. Clyde Preslar
- ------------------------ Vice President (Principal March 25, 1999
B. Clyde Preslar Financial Officer)
/s/ James C. Melton
- ------------------------ Controller (Principal March 25, 1999
James C. Melton Accounting Officer)
/s/ Alan T. Dickson
- ------------------------ Director March 25, 1999
Alan T. Dickson
/s/ J. W. Disher
- ------------------------ Director March 25, 1999
J. W. Disher
/s/ James H. Hance, Jr.
- ------------------------ Director March 25, 1999
James H. Hance, Jr.
10
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/s/ William R. Holland
- ---------------------------- Director March 25, 1999
William R. Holland
/s/ Weldon H. Johnson
- ---------------------------- Director March 25, 1999
Weldon H. Johnson
/s/ Wilbur J. Prezzano
- ---------------------------- Director March 25, 1999
Wilbur J. Prezzano
/s/ Robert V. Sisk
- ---------------------------- Director March 25, 1999
Robert V. Sisk
/s/ Isaiah Tidwell
- ---------------------------- Director March 25, 1999
Isaiah Tidwell
/s/ Nancy Van Every McLaurin
- ---------------------------- Director March 25, 1999
Nancy Van Every McLaurin
/s/ S. Lance Van Every
- ---------------------------- Director March 25, 1999
S. Lance Van Every
11
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-K
FOR CORPORATIONS
ITEM 14(a) - FINANCIAL STATEMENTS
12
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TABLE OF CONTENTS
Annual Report to Stockholders
Page
----
Data incorporated by reference from the 1998
Annual Report to Stockholders of Lance, Inc.
and Subsidiaries:
Independent Auditors' Report.................................................33
Consolidated Balance Sheets, December 26, 1998 and December 27, 1997.........22
For the Fiscal Years Ended December 26, 1998, December 27, 1997
and December 28, 1996:
Consolidated Statements of Income ........................................21
Consolidated Statements of Stockholders' Equity and Comprehensive Income..23
Consolidated Statements of Cash Flows.....................................24
Notes to Consolidated Financial Statements..................................25
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
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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 26, 1998 0-398
LANCE, INC.
EXHIBIT INDEX
Exhibit
No. Exhibit Description
- ------- -------------------
3.1 Restated Articles of Incorporation of Lance, Inc. as amended
through April 17, 1998, incorporated herein by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for
the twelve weeks ended June 13, 1998.
3.2 Articles of Amendment of Lance, Inc. dated July 14, 1998
designating rights, preferences and privileges of the
Registrant's Series A Junior Participating Preferred Stock.
3.3 Bylaws of Lance, Inc., as amended through April 21, 1995,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 17, 1995.
4 See 3.1, 3.2 and 3.3 above.
4.2 Preferred Shares Rights Agreement dated July 14, 1998 between the
Registrant and Wachovia Bank, N.A., together with the Form of
Rights Certificate attached as Exhibit B thereto, incorporated
herein by reference to Exhibit 4.1 to the Registrant's Form 8-A
filed on July 15, 1998.
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 Lance, Inc. 1983 Incentive Stock Option Plan, incorporated herein
by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 26, 1987.
14
<PAGE> 15
10.3 Lance, Inc. 1995 Nonqualified Stock Option Plan for Non-Employee
Directors, as amended, incorporated herein by reference to
Exhibit 4 to the Registrant's Registration Statement on Form S-8,
File No. 33-58839, as amended by Post Effective Amendment No. 1.
10.4 Lance, Inc. 1997 Incentive Equity Plan, incorporated herein by
reference to Exhibit 4 to the Registrant's Registration Statement
on Form S-8, File No. 333-25539.
10.5* Lance, Inc. Benefit Restoration Plan, incorporated herein by
reference to Exhibit 10(vi) to the Registrant's Quarterly Report
on Form 10-Q for the twelve weeks ended June 11, 1994.
10.6* Lance, Inc. Annual Corporate Performance Incentive Plan -
Officers - 1997, incorporated herein by reference to Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 14, 1997.
10.7* Lance, Inc. Long-Term Incentive Plan - Officers - 1997,
incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 14, 1997.
10.8* Lance, Inc. 1998 Annual Corporate Performance Incentive Plan for
Officers, incorporated herein by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended March 21, 1998.
10.9* Lance, Inc. 1998 Long-Term Incentive Plan for Officers,
incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 13, 1998.
10.10* Chairman of the Board Compensation Letter dated April 19, 1996
incorporated herein by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended June 15, 1996.
10.11* Chairman of the Board Compensation Letter dated October 6, 1998.
10.12* Form of Compensation and Benefits Assurance Agreement between the
Registrant and each of Paul A. Stroup, III, Earl D. Leake, B.
Clyde Preslar, Richard G. Tucker, Gregory M. Venner, L. R.
Gragnani, H. Dean Fields and Dominic J. Sidari, incorporated
herein by reference to Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 27, 1997.
- ---------------
* Management contract.
15
<PAGE> 16
10.13* Executive Severance Agreement dated November 7, 1997 between the
Registrant and Paul A. Stroup, III, incorporated herein by
reference to Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 27, 1997.
10.14* Executive Severance Agreement dated November 7, 1997 between the
Registrant and Earl D. Leake, incorporated herein by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 27, 1997.
10.15* Form of Executive Severance Agreement between the Registrant and
each of B. Clyde Preslar, Richard G. Tucker, Gregory M. Venner,
L. R. Gragnani, H. Dean Fields and Dominic J. Sidari,
incorporated herein by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 27, 1997.
10.16* Early Retirement Agreement dated June 10, 1998 between Lance,
Inc. and Peter M. Duggan and related Amendment Agreement dated
June 26, 1998 between Lance, Inc. and Peter M. Duggan.
13 The Registrant's 1998 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.
23 Consent of KPMG LLP.
27.1 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.)
99 Cautionary Statement under the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995.
- ---------------
* Management contract.
16
<PAGE> 1
EXHIBIT 3.2
LANCE, INC.
ARTICLES OF AMENDMENT
DESIGNATING RIGHTS, PREFERENCES AND PRIVILEGES
OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
The undersigned Corporation hereby submits these Articles of Amendment
for the purpose of amending its Restated Articles of Incorporation to fix the
preferences, limitations and relative rights of 1,000,000 shares of its $1 par
value Preferred Stock:
1. The name of the Corporation is LANCE, INC.
2. The following Amendment to the Restated Articles of Incorporation of
the Corporation was duly adopted by the Board of Directors of the Corporation on
July 14, 1998:
The Board of Directors does hereby provide for the issue of a series of
Preferred Stock, $1 par value, of the Corporation, to be designated "SERIES A
JUNIOR PARTICIPATING PREFERRED STOCK", initially consisting of One Million
(1,000,000) shares and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions of the Series A Junior Participating Preferred Stock are not stated
and expressed in the Restated Articles of Incorporation, does hereby fix and
herein state and express such designations, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the Restated
Articles of Incorporation shall be deemed to have the meanings provided
therein):
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock," par value $1 per
share, and the number of shares constituting such series shall be One Million
(1,000,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the last day of February, May, August and November in each year (each such date
being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to, subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or
<PAGE> 2
other distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock of the Corporation (the "COMMON STOCK")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after July 14, 1998 (the
"RIGHTS DECLARATION DATE") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were Outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the
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<PAGE> 3
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the Outstanding Common Stock into a
smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as required by law, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Junior Participating Preferred Stock unless concurrently
therewith it shall declare a dividend on such Preferred Stock as required by
Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 hereof are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of the Series A
Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on, make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
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(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of the Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of the Series A Junior
Participating Preferred Stock shall have received an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment, plus an amount equal to the greater of (1) $100 per share,
provided that in the event the Corporation does not have sufficient assets,
after payment of its liabilities and distribution to holders of Preferred Stock
ranking prior to the Series A Junior Participating Preferred Stock, available to
permit payment in full of the $100 per share amount, the amount required to be
paid under this Section 6(A)(1) shall, subject to Section 6(B) hereof, equal the
value of the amount of available assets divided by the number of Outstanding
shares of the Series A Junior Participating Preferred Stock or (2) subject to
the
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<PAGE> 5
provisions for adjustment hereinafter set forth, 100 times the aggregate per
share amount to be distributed to the holders of Common Stock (the greater of
(1) or (2), the "Series A Liquidation Preference"). In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series A Junior Participating Preferred Stock were entitled immediately prior
to such event under clause (2) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock that were outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
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<PAGE> 6
Section 10. Amendment. The Restated Articles of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of the Series A Junior Participating Preferred Stock, voting separately as a
class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of the Series A Junior Participating Preferred Stock."
This the 14th day of July, 1998.
LANCE, INC.
By /s/ B. Clyde Preslar
B. Clyde Preslar
Vice President
<PAGE> 1
EXHIBIT 10.11
Lance, Inc.
P.O. Box 32368
[LANCE LOGO] Charlotte, NC 28232 2379 USA
Phone 704 554 1421
October 6, 1998
Mr. Scott C. Lea
Charlotte, North Carolina
Re: Chairman of the Board
Dear Scott:
This letter is to acknowledge the substantial contributions of
time and energy you have made to Lance, Inc., its stockholders and employees, in
your role as Chairman of the Board and to confirm the additional compensation
approved by the Board of Directors at its meeting on October 6, 1998.
Since you have provided substantially more consulting services
since early 1996 than originally contemplated by the letter agreement of April
19, 1996 and you have agreed to serve for the full three-year term contemplated
in that letter, your compensation and tenure will continue as set forth in the
letter agreement of April 19, 1996 and the attachment to that letter as well as
with the additional amounts set forth in the attachment to this letter.
For the purposes of your additional incentive compensation
described in the attachment to this letter, the mean price of Lance Common Stock
on April 17, 1998 is $20.875 per share.
If you concur that this letter, together with the attachment,
correctly describes our arrangement, please so indicate in the space provided
below on the enclosed copy of this letter and return it to me.
On behalf of the Directors, stockholders and employees of Lance,
Inc., we appreciate and are grateful for your service as Chairman of the Board.
Very truly yours,
s/ Paul A. Stroup, III
Paul A. Stroup, III
President
Agreed:
s/ Scott C. Lea
- ----------------------
Scott C. Lea
<PAGE> 2
Lance, Inc.
Chairman of the Board Compensation
1. The Chairman of the Board of Directors (as non-executive
chairman) of Lance, Inc. (the Company) will continue to receive the fee and
incentive compensation on the terms and conditions set forth in the letter
agreement dated April 16, 1996 and the attachment thereto.
2. Upon completion of the three year term as Chairman of the
Board, the Chairman of the Board will be paid a cash bonus of $162,000.
3. As additional incentive compensation, the Chairman of the
Board will be paid $25,000 for each 1% that the Highest Average Sales Price (as
defined below) of the Company's Common Stock exceeds the mean of the high and
low prices of the Common Stock on the NASDAQ Stock Market on April 17, 1998.
Such incentive compensation shall be paid in one lump sum upon the earlier of
(a) three years after completion of service as Chairman of the Board or (b) a
Change of Control (as defined below). For example, as the price is $20.875 and
if the Highest Average Sales Price is $32, this would result in an approximately
53% increase and additional incentive compensation of $1,325,000.
4. For purposes of determining additional incentive compensation,
the Highest Average Sales Price means the higher of (i) the average of the
highest sales price of the Company's Common Stock on the NASDAQ Stock Market (or
a national securities exchange if the Common Stock is so listed) during four
consecutive interim (quarterly accounting) periods of the Company which have the
highest average sales price for the Common Stock of the Company beginning with
the interim period which began on March 22, 1998 and ending with the interim
period in March which is 35 months or more after the termination of service as
Chairman of the Board or (ii) the average of the highest sales price of the
Company's Common Stock on the NASDAQ Stock Market (or a national securities
exchange if the Common Stock is so listed) for any 10 consecutive trading days
during the period from April 17, 1998 until three years after the termination of
service as Chairman of the Board.
5. In the event of a Change of Control as defined in the
Company's former Executive Employment Agreements, the Highest Average Sales
Price shall be deemed to be the highest per share consideration paid or payable
for the Company's Common Stock in connection with the transaction that results
in a Change of Control. In the event the Company or its stockholders receive a
bona fide, adequately financed offer or tender offer for a transaction, which
could result in a Change of Control, and such offer or tender offer is or
becomes available to the Company's stockholders, the Highest Average Sales Price
shall be the higher of the per share consideration payable for the Company's
Common Stock in connection with such offer or tender offer or the Highest
Average Sales Price determined in accordance with Section 4 above.
6. In the event that the Company through its Compensation/Stock
Option Committee and its Board of Directors determines that a new agreement for
service as Chairman of the Board after April 1999 is necessary and appropriate,
the Company will enter into such agreement with the Chairman of the Board prior
to March 1, 1999.
<PAGE> 1
EXHIBIT 10.16
STATE OF NORTH CAROLINA
EARLY RETIREMENT AGREEMENT
COUNTY OF MECKLENBURG
THIS EARLY RETIREMENT AGREEMENT (this "Agreement") is entered into as
of June 10, 1998 by and between LANCE, INC., a North Carolina corporation (the
"Company"), and PETER M. DUGGAN ("Duggan").
STATEMENT OF PURPOSE
Duggan has been employed by the Company since July 18, 1994. On
November 11, 1997, the Company and Duggan entered into an Executive Severance
Agreement (the "Severance Agreement"), whereby the Company provided Duggan with
certain benefits. Duggan currently holds the title of Senior Vice President of
the Company.
Duggan has decided to retire from his position with the Company. The
Company and Duggan have entered into negotiations with a view toward resolving
all issues relating to Duggan's employment with the Company and his retirement
from that employment.
As a result of these negotiations, Duggan and the Company have agreed
that Duggan will retire and that Duggan and the Company will terminate their
relationship on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
terms and provisions of this Agreement, the parties hereto mutually agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement that are not
expressly defined herein but are defined in the Severance Agreement have the
respective meanings given those terms in the Severance Agreement. In addition,
as used herein, the following terms shall have the following meanings:
(a) "Affiliate" with reference to the Company means any Person
that directly or indirectly is controlled by, or is under
common control with, the Company. For purposes of this
definition the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
(b) "Person" means any individual, corporation, association,
partnership, business trust, joint stock company, limited
liability company, foundation, trust, estate or other entity
or organization of whatever nature.
<PAGE> 2
(c) "Effective Date" with reference to this Agreement means the
eighth (8th) day following the execution of this Agreement, if
not a Saturday, Sunday or legal holiday, and if such day is a
Saturday, Sunday or legal holiday, then the first business day
following such eighth (8th) day.
2. RESIGNATION. Duggan hereby retires from employment and resigns from
all offices, committees and positions he holds with the Company and its
Affiliates, including but not limited to, Senior Vice President of the Company,
with said resignation to be effective as of June 10, 1998. Duggan will remain on
the payroll through June 26, 1998 and will be considered during such period as
being on vacation, and in such connection will have no duties or
responsibilities except to consult from time to time with Company officials
regarding the transfer of his responsibilities to others. If requested by the
Company, Duggan will execute any additional resignation letters, forms or other
documents which acknowledge his resignation from such employment, positions,
committees and offices.
3. PAYMENTS BY THE COMPANY AND DEFERRAL. The Company agrees to pay or
provide Duggan with the following:
(a) Compensation and benefits to which Duggan is otherwise
entitled as an employee of the Company at Duggan's current
rate and status through June 26, 1998, in accordance with the
Company's generally applicable policies and procedures;
(b) Compensation and benefits to which Duggan is otherwise
entitled under the Severance Agreement in accordance with the
terms of the Severance Agreement. For purposes hereof, the
Company acknowledges and agrees that Duggan shall be
considered to have been involuntarily terminated Without
Cause, and shall be due all payments and benefits set forth in
paragraph 4 of the Severance Agreement;
(c) Possession of the Company automobile used by Duggan in
connection with his employment together with conveyance of
title to said automobile promptly following the Effective Date
of this Agreement;
(d) Health benefits for Duggan until December 31, 2000 or his
earlier death under the HMO coverage option under the
Company's group medical plan. During this period, Duggan will
be required to pay those amounts the Company's employees are
customarily required to pay from time to time for such
coverage and will be entitled to obtain at his expense
optional family/dependent medical coverage under the Company's
group medical plan. After December 31, 2000, the Company will
provide to Duggan, at such expense to Duggan as shall then be
required of the Company's retired executives, health benefits
as a "retiree" under such program, if any, as may then be
available to the Company's retired executives and/or their
dependents;
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(e) Duggan has vested interests under Company sponsored 401(k),
Employee Stock Purchase and Incentive Equity plans. Duggan's
vested interest in these plans shall be paid when and as
provided in, and otherwise subject to, the terms, provisions
and conditions of said plans, and nothing in this Agreement
shall modify or override the terms, provisions or conditions,
except that the Company shall request the Compensation/Stock
Option Committee of the Board of Directors of the Company to
amend Duggan's nonqualified stock option agreements to provide
that vested shares may be exercised for three years after June
26, 1998 and to amend Duggan's performance restricted stock
award agreements to provide that the awards be prorated
monthly;
(f) As of June 2, 1998, Duggan has a balance of $14,675 in the
Company sponsored Profit Sharing Retirement Plan, $640 in the
Company sponsored 401(k) Plan and a balance of $7,582 in the
Company sponsored Benefit Restoration Plan. None of these
balances are vested; however, as an additional severance
benefit, the Company will pay Duggan an amount equal to those
unvested balances, plus an amount equal to the income taxes
payable by Duggan on such amount, provided, that the Company
shall not be obligated to pay these amounts to Duggan until
December 31, 1998 and provided further, to the extent that
amendments to the Profit Sharing Retirement Plan, 401(k) Plan
or the Benefit Restoration Plan permit vesting and immediate
payment of such balances prior to December 31, 1998 for
Duggan, the Company shall not be obligated to make such
payments;
(g) The Company will provide Duggan, at no expense to him,
outplacement services for a period of up to twelve months
beginning in 1998 at a cost not to exceed $30,000;
(h) Duggan hereby elects to defer until January 31, 1999 $200,000
of the compensation payable pursuant to Section 3(b) hereof
and the Company agrees to pay such deferred amount to Duggan
no earlier than January 4, 1999 and no later than January 31,
1999, plus interest at 6% on such amount from June 26, 1998
until paid;
(i) Duggan hereby elects to defer until December 31, 2000 $25,000
of the compensation payable pursuant to Section 3(b) hereof
and the Company agrees to pay such deferred amount to Duggan
no earlier than December 15, 2000 and no later than December
31, 2000, plus interest at 6% on such amount from June 26,
1998 until paid;
(j) In consideration for the non-competition agreements of Duggan
contained in Section 7 hereof, the sum of $90,544. No
withholdings for income or employment taxes shall be made from
the amount paid pursuant to this Section 3(j).
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4. TERMINATION OF THE COMPENSATION AND BENEFITS ASSURANCE AGREEMENT AND
ALL OTHER BENEFITS NOT SPECIFIED IN THIS AGREEMENT. On November 11, 1997, Duggan
and the Company entered into a Compensation and Benefits Assurance Agreement
which was intended to provide Duggan with certain compensation and benefits in
the event of the termination of his employment under certain specified
circumstances in connection with a Change in Control, as defined in the
Compensation and Benefits Assurance Agreement. It is agreed that this Agreement
is not being entered into in connection with a Change in Control, that Duggan is
not entitled to receive any compensation or benefits under the Compensation and
Benefits Assurance Agreement, that the Compensation and Benefits Assurance
Agreement is hereby terminated and that neither party has any further rights and
obligations thereunder. The Company and Duggan acknowledge and agree that all
other benefits and perquisites related to or resulting from Duggan's employment
and positions with the Company and its Affiliates, which are not described and
provided for in this Agreement, terminate on the Effective Date, and that the
Company has no further obligations with respect thereto.
5. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. Duggan acknowledges
that by reason of Duggan's employment by the Company, Duggan has had access to
certain Company "Trade Secrets" (as defined in the North Carolina Trade Secrets
Protection Act, N.C.G.S. ss.66-152) and confidential product formulations
(collectively "Confidential Information"). Duggan agrees that he shall not
directly or indirectly use, reveal, disclose or remove from the Company's
premises Confidential Information or material containing Confidential
Information, without the prior written consent of the Company. In addition,
Duggan agrees that he will turn over and return to the Company no later than
June 26, 1998 all property whatsoever of the Company now in his possession
(including keys and credit cards).
6. EMPLOYMENT TAXES AND WITHHOLDINGS. Duggan acknowledges and agrees
that the Company shall withhold from the payments and benefits described in this
Agreement all taxes, including income and employment taxes, required to be so
deducted or withheld under applicable law.
7. NON-COMPETITION. Duggan agrees that in consideration of the payment
by the Company under Section 3(j) hereof, he will not during the period June 27,
1998 through December 26, 1999, become employed by, perform services for or
consult with the following corporations, their subsidiaries or affiliates which
are involved in the manufacture or sale of sandwich crackers, or their
successors or assigns: Frito Lay, Tom's, Nabisco, Keebler and Austin.
8. RELEASE OF THE COMPANY. Duggan, on behalf of himself and his heirs,
personal representatives, successors and assigns, hereby releases and forever
discharges the Company and its Affiliates, and each and every one of their
respective present and former shareholders, directors, officers, employees and
agents, and each of their respective successors and assigns, from and against
any and all claims, demands, actions, causes of action, damages, costs and
expenses, including without limitation all "Employment-Related Claims," which
Duggan now has or may have by reason of any thing occurring, done or omitted to
be done to the date of this Agreement; provided, however, this release shall not
apply to (i) any claims which Duggan may
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<PAGE> 5
have for the payments or benefits expressly provided for Duggan or otherwise
specifically referred to in this Agreement; or (ii) the Company's obligation to
defend and indemnify Duggan in accordance with the provisions of the Company's
Bylaws and Restated Articles of Incorporation. For purposes of this Agreement,
"Employment-Related Claims" means all rights and claims Duggan has or may have:
(i) related to his employment by or status as an employee of the
Company or any of its Affiliates or the termination of that
employment or status or to any employment practices and
policies of the Company, or its Affiliates; or
(ii) under the federal Age Discrimination in Employment Act of
1967, as amended ("ADEA").
9. SPECIAL ADEA WAIVER ACKNOWLEDGEMENTS. DUGGAN ACKNOWLEDGES AND AGREES
THAT HE HAS READ THIS AGREEMENT IN ITS ENTIRETY AND THAT THIS AGREEMENT CONTAINS
A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING RIGHTS AND CLAIMS
ARISING UNDER THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS
AMENDED ("ADEA"). DUGGAN FURTHER ACKNOWLEDGES AND AGREES THAT:
(a) THIS AGREEMENT DOES NOT RELEASE, WAIVE OR DISCHARGE ANY RIGHTS
OR CLAIMS THAT MAY ARISE AFTER THE DATE OF THIS AGREEMENT;
(b) HE IS ENTERING INTO THIS AGREEMENT AND RELEASING, WAIVING AND
DISCHARGING RIGHTS OR CLAIMS ONLY IN EXCHANGE FOR
CONSIDERATION WHICH HE IS NOT ALREADY ENTITLED TO RECEIVE;
(c) HE HAS BEEN ADVISED, AND IS BEING ADVISED IN THIS AGREEMENT,
TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT
AND IS EXECUTING THIS AGREEMENT WITH THE ADVICE OF COUNSEL;
(d) HE HAS BEEN ADVISED, AND IS BEING ADVISED IN THIS AGREEMENT,
THAT HE HAS UP TO TWENTY-ONE DAYS (21) DAYS WITHIN WHICH TO
CONSIDER THIS AGREEMENT AND THAT IF HE EXECUTES THIS AGREEMENT
PRIOR TO THE EXPIRATION OF THE TWENTY-ONE (21) DAY PERIOD,
THEN HE EXPRESSLY WAIVES HIS RIGHTS WITH RESPECT TO THE
REMAINING TIME AND THAT THE AGREEMENT WILL BECOME EFFECTIVE
FOLLOWING THE EXPIRATION OF THE SEVEN (7) DAY PERIOD REFERRED
TO IN PARAGRAPH 8 (e) BELOW; AND
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<PAGE> 6
(e) HE IS AWARE THAT THIS AGREEMENT WILL NOT BECOME EFFECTIVE OR
ENFORCEABLE UNTIL SEVEN (7) DAYS FOLLOWING HIS EXECUTION OF
THIS AGREEMENT AND THAT HE MAY REVOKE THIS AGREEMENT AT ANY
TIME DURING SUCH PERIOD BY DELIVERING (OR CAUSING TO BE
DELIVERED) TO THE PRINCIPAL OFFICE OF THE COMPANY NOTICE OF
HIS REVOCATION OF THIS AGREEMENT NO LATER THAN 5:00 P.M.
EASTERN TIME ON THE SEVENTH (7TH) FULL DAY FOLLOWING HIS
EXECUTION OF THIS AGREEMENT.
10. CONFIDENTIALITY OF THIS AGREEMENT; EMPLOYMENT REFERENCE. Duggan
shall not at any time, directly or indirectly, discuss with or disclose to
anyone (other than to members of his immediate family, his attorney, his tax
advisors and the appropriate taxing authorities or as otherwise required by law,
hereinafter "Qualified Persons") the terms of this Agreement, including the
amounts payable hereunder. Duggan further agrees that he shall not discuss with
anyone other than Qualified Persons the circumstances surrounding the
termination of his employment. If any person asks Duggan about the above
matters, he will simply say that he retired from the Company and all issues
relating to his employment have been resolved. Duggan further agrees that for a
period of five years from the Effective Date, he will refrain from making
derogatory comments about the Company or its agents or affiliates to the
Company's customers, suppliers or employees. The Company agrees that for a
period of five years from the Effective Date, the Company and its officers will
likewise refrain from making derogatory comments about Duggan to the Company's
customers, suppliers or employees. The Company further agrees that if any person
makes inquiry concerning Duggan, the Company will advise such person only as to
the dates of Duggan's employment with the Company, the positions held and that
he voluntarily retired from the Company.
11. APPLICABLE LAW. This Agreement is made and executed with the
intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of Duggan, his heirs, executors and
administrators.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
cancels all prior or contemporaneous oral or written agreements and
understandings between them with respect to the subject matter hereof.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and Duggan has hereunto set his hand and seal, all as of the day and year first
above written.
LANCE, INC.
[CORPORATE SEAL]
ATTEST: By s/ Paul A. Stroup, III
---------------------------------------
President
s/ Robert S. Carles
- ----------------------------
Secretary
s/ Peter M. Duggan [SEAL]
---------------------------------
Peter M. Duggan
7
<PAGE> 8
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "Agreement") is entered into as of June
26, 1998 by and between LANCE, INC., a North Carolina corporation (the
"Company"), and PETER M. DUGGAN ("Duggan").
STATEMENT OF PURPOSE
The Company through its Compensation/Stock Option Committee has
heretofore granted to Duggan certain nonqualified stock options and performance
restricted stock awards. Pursuant to Early Retirement Agreement dated as of June
10, 1998 Duggan has retired from the Company. The Committee has authorized
amendments to certain Nonqualified Stock Option Agreements and Performance
Restricted Stock Award Agreements between the Company and Duggan on the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
terms and provisions of this Agreement, the parties hereto mutually agree as
follows:
1. AMENDMENT OF NONQUALIFIED STOCK OPTION AGREEMENTS.
(a) The Nonqualified Stock Option Agreement dated April
19, 1996 between the Company and Duggan is hereby
amended to provide that the vested option to purchase
6,350 shares of the Common Stock of the Company may
be exercised by Duggan at any time prior to three
years from the date hereof, through June 25, 2001.
(b) The Nonqualified Stock Option Agreement dated April
18, 1997 between the Company and Duggan is hereby
amended to provide that the vested option to purchase
2,512 shares of the Common Stock of the Company may
be exercised by Duggan at any time prior to three
years from the date hereof, through June 25, 2001.
2. AMENDMENT OF PERFORMANCE RESTRICTED STOCK AWARD AGREEMENTS.
(a) The Performance Restricted Stock Award Agreement
dated April 18, 1997 between the Company and Duggan
is hereby amended to provide that the Shares are
vested pro rata based on the number of full months
from the date of award through the date hereof to the
date three years after the award date which results
in the vesting of 603 shares of Common Stock of the
Company which shares shall be issued to Duggan
without restriction. The balance of the Shares shall
be forfeited.
(b) The Performance Restricted Stock Award Agreement
dated April 16, 1998 between the Company and Duggan
is hereby amended to provide that the Shares are
vested pro rata based on the number of full months
from the
<PAGE> 9
date of award through the date hereof to the date
three years after the award date which results in the
vesting of 78 shares of Common Stock of the Company
which shares shall be issued to Duggan without
restriction. The balance of the Shares shall be
forfeited.
3. MISCELLANEOUS. Except as expressly modified herein the above
described Nonqualified Stock Option Agreements and Performance Restricted Stock
Award Agreements shall remain in full force and effect. This Agreement shall be
governed by and construed in accordance with the laws of the State of North
Carolina. This Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns. This Agreement shall be binding upon and
inure to the benefit of Duggan, his heirs, executors and administrators.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officer and Duggan has hereunto set his hand and seal,
all as of the day and year first above written.
LANCE, INC.
By s/ Earl D. Leake
-----------------------------------------
Vice President
s/ Peter M. Duggan [SEAL]
---------------------------------------
Peter M. Duggan
2
<PAGE> 1
EXHIBIT 13
1998 ANNUAL REPORT TO STOCKHOLDERS (EXCERPT)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Amounts in millions)
Overview
The Company manufactures, markets and distributes a variety of branded and
private label snack foods and bakery products. Product categories include
branded sandwich crackers, sandwich cookies, restaurant crackers and bread
basket items, candy, chips, meat snacks, nuts and private label cookies and
crackers, of which approximately 76% are manufactured and approximately 24% are
purchased for resale. Products are distributed through the Company's
direct-store-delivery ("DSD") system and through direct shipments via the
Company's transportation fleet and/or third party common carriers. Products are
packaged as individual, single servings for certain accounts and as larger
packages or multi-pack configurations for other types of accounts.
The Company's branded products are distributed to grocery stores, convenience
stores, Company-owned and third party vending machines, food service
institutions, and through "up and down the street" outlets such as recreational
facilities, offices and independent retailers. Private label cookies and
crackers are distributed primarily to grocery stores and mass merchants. Branded
and private label sales are fairly evenly distributed among these outlets. The
majority of branded product sales occur within a 24-state area in the
southeastern U.S. where the Company's DSD system operates. Private label sales
occur throughout the U.S. and in Canada.
Since late 1995 and early 1996, the Company has initiated a number of activities
to revitalize its operations and position itself for future growth. These
activities include cost reductions, systems development, organizational
improvements, sales/marketing initiatives and external development planning.
The Company's cost reduction efforts began in 1995 upon the announcement of two
plant closures and consolidation of certain of its DSD territories. Although
those specific efforts were completed in 1996, the cost reduction efforts
continue in most every aspect of the Company. Significant progress has been made
within manufacturing and distribution areas through process improvements and
capital expenditures. Raw material costs have also had a favorable impact
through lower commodity costs for flour and peanuts and through improved
relationships with vendors.
In late 1995, the Company began the replacement of every major information
system within the Company. These efforts concluded during 1998 with the
implementation of the new route management system for the Company's DSD
operations and with the rollout of new handheld computers used by the DSD field
sales representatives.
During 1998, the Company appointed its new Vice President of Sales, filling a
key position on its senior management team. The senior management team has
extensive experience in the food and beverage industry and has also recruited a
number of excellent mid-level managers to complement positions held by long-term
Company employees. Senior management has established a clear direction that
focuses on the Company's strengths in its brands, private label operations and
distribution capabilities. To supplement internal growth capabilities, the
Company is also exploring external growth opportunities that would fit within
its strategic plans.
The Company's strategic plans call for sales growth that is driven by improved
sales and marketing initiatives. These improvements will be funded through
continued cost reduction activities. To date, the sales and marketing
initiatives have met with mixed success. Costs have been reduced very
successfully in manufacturing and certain distribution operations, but the
expenditures in sales and marketing have not yet generated the planned
profitable sales growth.
17
<PAGE> 2
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1998 1997 CHANGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 486.4 100.0% $ 486.8 100.0% $ (0.4) (0.1%)
Cost of sales 222.2 45.7% 228.6 47.0% 6.4 2.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 264.2 54.3% 258.2 53.0% 6.0 2.3%
Selling, marketing and delivery expenses 199.1 40.9% 187.0 38.4% (12.1) (6.5%)
General and administrative expenses 19.5 4.0% 20.6 4.2% 1.1 5.3%
Provisions for employees' retirement plans 5.5 1.1% 5.5 1.1% -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 224.1 46.1% 213.1 43.8% (11.0) (5.2%)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating profit 40.1 8.2% 45.1 9.3% (5.0) (11.1%)
Other income, net 3.6 0.7% 3.6 0.7% -- --
Income taxes 16.1 3.3% 18.6 3.8% 2.5 13.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 27.6 5.7% $ 30.1 6.2% $ (2.5) (8.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues decreased $0.4 million, or 0.1%, despite a significant increase in
selling and marketing costs that were aimed at increasing unit volume. Sales
volume increases through grocery (both branded and private label products) and
vending accounts were offset by lower sales volume through "up and down the
street", convenience and food service accounts. During the fourth quarter of
1998, a new breakfast line of pastry and cake items was introduced, but sales
were not material during the period.
Gross margin improved by 1.3 percentage points to 54.3% in 1998 primarily as a
result of process improvements and lower raw material costs. Unit labor costs
were reduced through labor-reducing capital expenditures while raw material
utilization improved through better controlled manufacturing processes. The full
year gross margin improvement was hampered late in the third quarter and during
the fourth quarter when equipment start-up inefficiencies occurred, primarily in
private label production. By the end of the fourth quarter, the equipment was
running near targeted levels.
The $12.1 million increase in selling, marketing and delivery costs included
higher trade promotions; higher personnel and depreciation costs related to
vending sales; and, higher compensation and training costs for DSD field sales
personnel. In addition, the implementation of two major information systems
caused higher personnel and other costs. Partially offsetting these cost
increases were lower incentive provisions as a result of lower-than-planned
revenue and earnings performance. While the cost increases did not result in
overall improved revenues in 1998, management believes accomplishments during
1998 will improve the opportunity for increased revenues in 1999 and beyond.
General and administrative expenses declined $1.1 million primarily through
efficiencies and lower advisory fees.
Other income includes interest and dividend income on cash and marketable
securities and gains/losses on dispositions of assets. Interest and dividend
income declined during 1998 as the Company used cash for its capital expenditure
program. The effective income tax rate was reduced from 38.2% in 1997 to 36.9%
in 1998 due to changes in the composition of its earnings.
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1997 1996 CHANGE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 486.8 100.0% $ 477.0 100.0% $ 9.8 2.1%
Cost of sales 228.6 47.0% 232.7 48.8% 4.1 1.8%
Gross margin 258.2 53.0% 244.3 51.2% 13.9 5.7%
- ------------------------------------------------------------------------------------------------------------------------------
Selling, marketing and delivery expenses 187.0 38.4% 181.8 38.1% (5.2) (2.9%)
General and administrative expenses 20.6 4.2% 22.0 4.6% 1.4 6.4%
Provisions for employees' retirement plans 5.5 1.1% 4.5 0.9% (1.0) (22.2%)
Total operating expenses 213.1 43.8% 208.3 43.7% (4.8) (2.3%)
- ------------------------------------------------------------------------------------------------------------------------------
Operating profit 45.1 9.3% 36.0 7.5% 9.1 25.3%
Other income, net 3.6 0.7% 4.8 1.0% (1.2) (25.0%)
Income taxes 18.6 3.8% 16.2 3.4% (2.4) (14.8%)
Net income $ 30.1 6.2% $ 24.6 5.2% $ 5.5 22.4%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues increased $9.8 million, or 2.1%, due to higher unit volume throughout
virtually all distribution outlets. The increased unit volume was a result of
expanded advertising and promotional programs as well as expanded participation
in key distribution channels.
Gross margin improved from 51.2% in 1996 to 53.0% in 1997. The 1.8 percentage
point improvement came from lower raw material costs, more effective expense
control on labor and overhead items and through improved efficiencies from new
manufacturing equipment.
Selling, marketing and delivery costs increased $5.2 million to 38.4% of
revenues. This increase reflects expanded advertising and promotional activities
for branded products. This increase was partially offset by lower distribution
costs reflecting efficiencies in the DSD system. General and administrative
expenses declined $1.4 million due primarily to a
18
<PAGE> 3
reduction in severance provisions recorded in 1996 and from lower outside
consulting fees associated with implementations of information systems.
Other income decreased $1.2 million in 1997 primarily due to a net decrease in
gains on dispositions of property. The effective income tax rate was reduced
from 39.7% in 1996 to 38.2% in 1997 due to changes in the composition of its
earnings.
Liquidity and Capital Resources
Traditionally, the Company has met its liquidity needs for capital expenditures,
cash dividends and stock repurchases through cash from operations and
investments. In addition, the Company has maintained relatively high liquidity
and no outstanding debt. During 1998, the Company increased its capital
expenditures to a planned level of almost $55 million, a peak level in recent
history and for the foreseeable future, while maintaining the annual dividend
rate of $0.96 per share. As a result, cash and marketable securities were
reduced by $42.5 million to $17.0 million at the end of 1998. The Company also
has a $5 million bank line of credit, which was unused during 1998.
Working capital (other than cash and marketable securities) increased in 1998 to
$36.1 million from $22.8 million at the end of 1997. This increase of $13.3
million along with reduced profitability resulted in net cash flow from
operating activities of $37.8 million as compared to $56.1 million a year ago.
The working capital increase came primarily from higher levels of receivables,
inventories and prepaid income taxes. Receivables increased due to increases in
sales on credit terms for private label accounts and due to accommodations
during the information systems implementations. Inventories in the DSD field
sales organization increased due to the rollout of the breakfast line of cakes
and due to promotional activities planned for first quarter of 1999.
Capital expenditures increased to $54.7 million in 1998 with nearly $16.0
million relating to the implementation of information systems. Other major
capital expenditures included cost-reducing manufacturing equipment, added
capacity for private label cookie and cracker production and vending machines
and vending-related equipment. The Company plans to continue capital
expenditures in three major areas: cost-reducing equipment, sales-enhancing
equipment such as vending machines and point-of-sale displays, and normal
replacement to maintain service levels. Expenditures for 1999 are expected to
amount to $30 to $35 million, of which $14.6 million had been committed as of
the end of 1998.
The Company continued its cash dividend at $0.96 per share amounting to $28.8
million in 1998 compared to $28.7 million in 1997. On February 16, 1999, the
Board of Directors authorized the repurchase of up to 100,000 shares on the open
market. The 12,379 shares purchased in 1998 were in connection with stock option
exercises.
As the Company evaluates its external development opportunities, the Company may
utilize all of its existing cash and marketable securities and consider taking
on indebtedness.
Market Risk
Raw materials used by the Company are exposed to the impact of changing
commodity prices, particularly the price of wheat used for flour. Accordingly,
the Company enters into commodity future and option contracts to manage
fluctuations in prices of anticipated purchases of certain raw materials. The
Company's Board-approved policy is to use such commodity derivative financial
instruments only to the extent necessary to manage these exposures. The Company
does not use these financial instruments for trading purposes.
Since the Company uses commodity price-sensitive instruments to hedge a certain
portion of its existing and anticipated transactions, any loss in value for
these instruments generally would be offset by increases in the value for the
hedged transactions. At December 26, 1998, the Company's position included
futures contracts for 425,000 bushels of wheat maturing during 1999 with
contract and fair market values each totaling $1.3 million. A 10% decrease in
the cost of wheat futures at the time of offset or maturity would result in a
$0.13 million realized loss.
19
<PAGE> 4
Year 2000 Readiness
The Company has organized its activities to address Year 2000 issues in four
phases: (1) initial assessment and project organization; (2) remediation and
testing; (3) assessment of third-party readiness and impacts and (4) contingency
planning. The timing of each of these phases overlap each other. The Company has
completed the first phase, which included an assessment of hardware and software
applications; implementation of a vendor management program; awareness training
throughout the Company; establishment of compliance testing principles and
standards; and development of the project master plan.
The second phase consists of remediation and testing. All critical internal
hardware and software applications (commonly referred to as "IT systems") have
been remediated and tested. A comprehensive, integrated test of all applications
is planned for the second quarter of 1999. Other applications not internal to
the Company (commonly referred to as "non-IT systems") include applications such
as energy supply, telecommunications, facility operation and security, automated
production controllers and financial services such as banking and benefit plan
administration. In addition, the Company has non-IT systems included in its
vending machine operations and DSD system. Remediation and testing for non-IT
systems has begun and is expected to be completed for all critical applications
by the end of the second quarter of 1999.
The third phase, assessment of third party readiness and impacts, has also begun
and is expected to be completed by mid-1999. The Company has received a majority
of responses to initial inquiries of material third party relationships. The
Company plans to validate readiness responses for its key relationships as it
assesses its contingency planning requirements. The Company's key relationships
include suppliers of flour, peanuts, peanut butter, energy and production and
distribution equipment. The fourth phase, contingency planning, began in the
fourth quarter of 1998 and is expected to be completed early in the fourth
quarter of 1999.
Year 2000 compliance costs are expected to range from $0.7 million to $1.0
million of external costs, of which approximately $0.5 million have been
incurred. In addition, the Company is using internal resources for a
cross-functional steering committee and three project co-managers. The estimated
compliance costs do not include costs for system replacements. Essentially all
of the Company's systems have been replaced during the last three years as part
of the integrated information systems project initiated in late 1995.
At this stage of the Company's Year 2000 readiness activities, the Company's
assessment is that the failure of non-IT systems and lack of readiness by third
parties would not have a material adverse effect on revenues since a majority of
sales are to a large number and wide variety of customers. While such failures
would likely cause increased operating expenses, the Company does not expect a
material effect on the results of operations, liquidity or financial condition.
The Company will continue to assess possible increased operating expenses as the
Company's Year 2000 readiness activities continue.
Forward-Looking Statements
This discussion contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from those forward-looking statements. Factors that may cause
actual results to differ materially include, price competition, industry
consolidation, raw material costs, effectiveness of sales and marketing
activities and effectiveness of Year 2000 readiness activities, as described in
the Company's filings with the Securities and Exchange Commission.
20
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 26, 1998, December 27, 1997 and December 28,
1996 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUE $ 486,432 $ 486,854 $ 477,015
- -----------------------------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES
Cost of sales 222,228 228,583 232,715
Selling, marketing and delivery 199,134 187,047 181,780
General and administrative 19,482 20,649 22,031
Provisions for employees' retirement plans 5,513 5,456 4,477
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 446,357 441,735 441,003
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 40,075 45,119 36,012
OTHER INCOME, NET (including interest
income of $1,906 in 1998, $2,581 in
1997 and $2,221 in 1996) 3,668 3,569 4,768
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 43,743 48,688 40,780
Income taxes 16,135 18,591 16,188
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 27,608 $ 30,097 $ 24,592
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 0.92 $ 1.01 $ 0.82
Diluted $ 0.92 $ 1.00 $ 0.82
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 29,925,000 29,893,000 30,075,000
Weighted average shares outstanding - diluted 30,043,000 30,018,000 30,086,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
December 26, 1998 and December 27, 1997
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,856 $ 34,040
Marketable securities 9,126 25,430
Accounts receivable (less allowance for doubtful
accounts of $1,275 and $1,054, respectively) 39,616 34,057
Inventories 20,331 17,882
Prepaid income taxes 2,800 --
Deferred income tax benefit 5,808 6,913
Prepaid expenses and other 1,943 1,275
- -----------------------------------------------------------------------------------------------------
Total current assets 87,480 119,597
Property, plant and equipment, net 161,683 130,264
Other 2,240 2,879
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 251,403 $ 252,740
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 9,231 $ 5,821
Accrued compensation 10,969 13,142
Accrued profit-sharing retirement plan 4,916 5,396
Accrued income taxes -- 1,072
Accrual for insurance claims 4,173 4,632
Other payables and accrued liabilities 5,102 7,215
- ----------------------------------------------------------------------------------------------------
Total current liabilities 34,391 37,278
- -----------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes 12,122 10,005
Accrued postretirement health care costs 12,350 11,180
Accrual for insurance claims 3,529 4,449
Supplemental retirement benefits 2,927 3,306
- ----------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 30,928 28,940
- -----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 24,991 24,936
Preferred stock -- --
Additional paid in capital 1,981 999
Unamortized portion of restricted stock awards (502) (488)
Retained earnings 159,524 160,682
Net unrealized gain on marketable securities 90 393
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 186,084 186,522
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 251,403 $ 252,740
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 26, 1998, December 27, 1997 and December 28,
1996 (In thousands, except share data)
<TABLE>
<CAPTION>
Unamortized
Portion of Accumulated
Additional Restricted Other
Common Paid-in Stock Retained Comprehensive
Shares Stock Capital Awards Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995 30,337,265 $ 25,281 $ -- $ -- $ 170,964 $ 298 $ 196,543
Comprehensive income:
Net income - - - - 24,592 - 24,592
Net change in unrealized gains
on marketable securities, net
of tax effect of ($28) - - - - - (43) (43)
--------------
Total comprehensive income - - - - - - 24,549
--------------
Cash dividends paid to stockholders - - - - (28,879) - (28,879)
Purchases of common stock (449,000) (374) - - (6,977) - (7,351)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 29,888,265 24,907 - - 159,700 255 184,862
Comprehensive income:
Net income - - - - 30,097 - 30,097
Net change in unrealized gains
on marketable securities, net
of tax effect of $90 - - - - - 138 138
--------------
Total comprehensive income - - - - - - 30,235
--------------
Cash dividends paid to stockholders - - - - (28,699) - (28,699)
Stock options exercised 29,822 25 328 - - - 353
Issuance of restricted stock 30,200 25 671 (488) - - 208
Purchases of common stock (25,000) (21) - - (416) - (437)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 27, 1997 29,923,287 24,936 999 (488) 160,682 393 186,522
Comprehensive income:
Net income - - - - 27,608 - 27,608
Net change in unrealized gains
on marketable securities, net
of tax effect of ($198) - - - - - (303) (303)
--------------
Total comprehensive income - - - - - - 27,305
--------------
Cash dividends paid to stockholders - - - - (28,766) - (28,766)
Stock options exercised 60,901 50 1,039 - - - 1,089
Issuance of restricted stock, net
of cancellations 17,401 15 230 (14) - - 231
Purchases of common stock (12,379) (10) (287) - - - (297)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 26, 1998 29,989,210 $ 24,991 $ 1,981 ($ 502) $ 159,524 $ 90 $ 186,084
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
For the Fiscal Years Ended December 26, 1998, December 27, 1997 and December 28,
1996 (In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 27,608 $ 30,097 $ 24,592
Adjustments to net income:
Depreciation 21,726 20,025 20,295
Gain on sale of property, net (823) (976) (1,953)
Deferred income taxes 3,222 3,638 2,485
Other, net 260 208 1,116
Changes in operating assets and liabilities:
Accounts receivable (5,559) (2,007) (2,877)
Prepaid income taxes (2,800) - 4,765
Inventory (2,449) 4,615 10,346
Prepaid expenses and other current assets (668) 533 (438)
Accounts payable 3,410 (1,229) 618
Accrued income taxes (1,072) 930 129
Other payables and accrued liabilities (5,023) 293 4,374
- ----------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 37,832 56,127 63,452
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (54,659) (34,129) (19,223)
Proceeds from sale of property 2,337 11,009 3,689
Purchases of marketable securities (1,853) (16,103) (10,276)
Maturities of marketable securities 6,201 12,125 11,917
Sales of marketable securities 11,917 4,050 4,747
Other, net 38 (20) 312
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (36,019) (23,068) (8,834)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid (28,766) (28,699) (28,879)
Issuance (purchase) of common stock, net 792 (84) (7,351)
Other, net (23) -- --
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (27,997) (28,783) (36,230)
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (26,184) 4,276 18,388
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 34,040 29,764 11,376
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 7,856 $ 34,040 $ 29,764
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Income taxes paid $ 16,497 $ 14,050 $ 10,829
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 9
LANCE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 26, 1998 and December 27, 1997
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Lance, Inc. and subsidiaries (the Company) manufactures, markets and
distributes a variety of branded and private label snack foods and
bakery products. Products are distributed through the Company's
direct-store-delivery ("DSD") system and through direct shipments via
the Company's transportation fleet and/or third party common
carriers. Branded products are distributed to grocery stores,
convenience stores, Company-owned and third party vending machines,
food service institutions, and through "up and down the street"
outlets such as recreational facilities, offices and independent
retailers. Sales are concentrated primarily in the Southeastern
United States. The Company's policy is to recognize a sale at the
time the product is delivered to the customer.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include in
consolidation the accounts of Lance, Inc. and its subsidiaries. All
material intercompany items have been eliminated. Certain prior year
amounts shown in the accompanying consolidated financial statements
have been reclassified for consistent presentation.
USE OF ESTIMATES
Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Examples include provisions for
bad debts and the useful lives of buildings and equipment. Actual
results may differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables,
marketable securities and accounts payable approximate fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
<PAGE> 10
MARKETABLE SECURITIES
Marketable securities at December 26, 1998 and December 27, 1997 are
principally instruments of the U.S. government and its agencies, of
state governments, and of municipalities. Debt and marketable equity
securities are classified 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. All of the Company's marketable securities
were classified available-for-sale at December 26, 1998 and December
27,1997.
Available-for-sale securities are recorded at market value.
Unrealized holding gains and losses, net of the related income tax
effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity
until realized. Dividend and interest income are recognized when
earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using the
specific identification method for determining the cost of securities
sold.
INVENTORIES AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary raw materials include peanuts, peanut butter,
flour and other similar grain products. Supplies principally consist
of packaging materials, including overwrap film and boxes.
Inventories are valued at the lower of cost or market; 80% of the
cost of the inventories in 1998 and 78% in 1997 was determined using
the last-in, first-out (LIFO) method and the remainder was determined
using the first-in, first-out (FIFO) method.
The Company enters into various forward purchase agreements and
derivative financial instruments to reduce the impact of volatility
in raw material ingredient prices. The Company has only limited
involvement with derivative financial instruments and does not use
them for trading purposes. These transactions meet the requirements
for hedge accounting, including designation to specific inventory
amounts and probable future purchases, and high correlation. Amounts
payable or receivable under the agreements are recognized as deferred
gains or losses and included in other assets or liabilities. These
deferred amounts are charged or credited to cost of sales as the
related raw materials are charged to operations.
25
<PAGE> 11
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method over the
estimated useful lives of depreciable property ranging from 3 to 45
years. Property is recorded at cost less accumulated depreciation
with the exception of assets held for disposal which are recorded at
their estimated fair value. Upon retirement or disposal of any item
of property, the cost is removed from the property account and the
accumulated depreciation applicable to such item is removed from
accumulated depreciation. Major renewals and betterments are
capitalized, maintenance and repairs are expensed as incurred, and
gains and losses on dispositions are reflected in income.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value
less cost to sell.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to the taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
INSURANCE CLAIMS
The Company maintains a self-insurance program covering portions of
workers' compensation, automobile and general liability costs.
Self-insured accruals are based on claims filed and an estimate for
significant claims incurred but not reported and are covered by
standby letters of credit with the Company's claims administrators.
Claims in excess of the self-insured levels are fully insured.
<PAGE> 12
POST RETIREMENT PLANS
The Company has a defined benefit health care plan for substantially
all retirees and employees. The net periodic costs are recognized as
employees perform the services necessary to earn the postretirement
benefits.
The Company also provides supplemental retirement benefits to certain
officers. Provision for these benefits, made over the period of
employment of such officers, was $149,000 in 1998, $246,000 in 1997
and $278,000 in 1996.
STOCK OPTION PLANS
On December 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income
by the weighted average number of common shares outstanding during
the period.
Dilutive earnings per share is calculated by including all dilutive
common shares such as stock options. Dilutive potential shares were
118,000 in 1998, 125,000 in 1997 and 11,000 in 1996. Anti-dilutive
shares totaling 106,000 in 1998, 46,000 in 1997 and 313,000 in 1996
were excluded from the dilutive earnings calculation. No adjustment
to reported net income is required when computing diluted earnings
per share.
ADVERTISING AND CONSUMER PROMOTION COSTS
The Company records the costs of all advertising and consumer
promotion in the periods in which the advertising or promotion takes
place. These costs amounted to $9,890,000, $12,630,000 and $7,674,000
for the fiscal years 1998, 1997 and 1996, respectively.
<PAGE> 13
NEW ACCOUNTING STANDARDS
Comprehensive Income - On December 28, 1997, the Company adopted SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. For the
Company, comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the
consolidated statements of stockholders' equity and comprehensive
income. The Statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's
financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of
SFAS No. 130.
Business Segments and Related Information - On December 28, 1997, the
Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes new
standards of disclosure for information about operating segments of
the enterprise and related disclosures about products and services,
geographic areas and major customers. Given the similarities of
products, production processes, customers, distribution methods and
economic characteristics, the Company has aggregated its branded and
private label segments for reporting purposes.
Pension and Other Postretirement Benefits - On December 28, 1997, the
Company adopted SFAS No. 132, Employers' Disclosures about Pension
and Other Postretirement Benefits. SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the method of accounting for such plans.
Derivative Instruments and Hedging - SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, will be effective for
the Company's 1999 fiscal year. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or a liability
measured at its fair value. It also requires changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met, and requires that a
company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. Given
the Company's limited involvement with derivative instruments,
management does not expect the adoption of this statement to have a
material impact on the financial statements taken as a whole.
26
<PAGE> 14
(2) MARKETABLE SECURITIES
At December 26, 1998 and December 27, 1997, the Company has
classified all investments as available-for-sale. 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 26, 1998 and December 27, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 26, 1998:
Municipal obligations $ 8,999 $ 127 $ -- $ 9,126
---------------------------------------------------------------------------------------------------
TOTAL $ 8,999 $ 127 $ -- $ 9,126
---------------------------------------------------------------------------------------------------
At December 27, 1997:
U.S. government agencies $ 5,501 $ 2 $ (7) $ 5,496
Municipal obligations 19,222 146 (6) 19,362
Equity securities 58 518 (4) 572
---------------------------------------------------------------------------------------------------
Total $24,781 $ 666 $(17) $25,430
---------------------------------------------------------------------------------------------------
</TABLE>
Maturities of investment securities were as follows at December 26,
1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 2,491 $ 2,511
Due after one year through five years 6,508 6,615
--------------------------------------------------------------------------------------
Total $ 8,999 $ 9,126
--------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
(3) INVENTORIES
Inventories at December 26, 1998 and December 27, 1997 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 16,627 $ 15,047
Raw materials 3,653 4,133
Supplies, etc. 4,437 3,986
-------------------------------------------------------------------------------------
Total inventories at FIFO cost 24,717 23,166
Less: Adjustment to reduce FIFO cost to LIFO cost (4,386) (5,284)
-------------------------------------------------------------------------------------
Total inventories $ 20,331 $ 17,882
-------------------------------------------------------------------------------------
</TABLE>
At December 26, 1998 and December 27, 1997 the Company owned futures
contracts to purchase 425,000 and 140,000 bushels of wheat totaling
$1,275,000 and $491,000, respectively. These contracts serve to hedge
the costs of flour due to a high correlation of price movements. The
underlying quantity of flour represented by the contracts do not
represent a significant quantity of the Company's annual flour usage
and are expected to be realized within one year at no significant
gain or loss to the Company.
(4) PROPERTY, PLANT AND EQUIPMENT
Property at December 26, 1998 and December 27, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 11,414 $ 11,398
Buildings 64,339 62,040
Machinery, equipment and systems 132,086 108,853
Vending machines on location 90,746 84,503
Trucks and automobiles 30,794 28,676
Furniture and fixtures 3,620 3,492
Assets held for disposal 1,520 2,124
Construction in progress 22,864 20,189
----------------------------------------------------------------------------------
357,383 321,275
Accumulated depreciation and amortization (195,700) (191,011)
----------------------------------------------------------------------------------
Property, plant and equipment, net $ 161,683 $130,264
----------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 16
(5) INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 11,076 $ 12,433 $ 11,133
State and local 1,545 2,611 2,570
-----------------------------------------------------------------------------
12,621 15,044 13,703
-----------------------------------------------------------------------------
Deferred:
Federal 3,348 3,310 2,162
State and local 166 237 323
-----------------------------------------------------------------------------
3,514 3,547 2,485
-----------------------------------------------------------------------------
Total income tax expense $ 16,135 $ 18,591 $ 16,188
-----------------------------------------------------------------------------
</TABLE>
A reconciliation of the federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefit 2.5 3.7 4.8
Tax exempt interest (1.2) (0.9) (0.9)
Miscellaneous items, net 0.6 0.4 0.8
-----------------------------------------------------------------------------
Income tax expense 36.9% 38.2% 39.7%
-----------------------------------------------------------------------------
</TABLE>
<PAGE> 17
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 26, 1998 and December 27, 1997 are presented
below (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Reserves for employee compensation benefits,
Deductible when paid for income tax purposes,
Accrued for financial reporting purposes $ 10,339 $ 11,010
Other reserves deductible when paid for income
tax purposes, accrued for financial reporting
Purposes 1,828 1,684
Inventories, principally due to additional costs
Capitalized for income tax purposes 1,599 1,629
Net state operating loss carryforwards (expiring
After 2006) 670 670
---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,436 14,993
Less valuation allowance (670) (670)
---------------------------------------------------------------------------------------------------
Net deferred tax assets 13,766 14,323
---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation, net of impairment reserves (18,664) (17,089)
Deferred income (1,383) --
Other (33) (326)
---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (20,080) (17,415)
---------------------------------------------------------------------------------------------------
Total net deferred tax liabilities ($ 6,314) ($ 3,092)
---------------------------------------------------------------------------------------------------
</TABLE>
The net deferred tax liabilities at December 26, 1998 and December
27, 1997 are shown on the accompanying financial statements as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets $ 5,808 $ 6,913
Noncurrent deferred tax liabilities (12,122) (10,005)
---------------------------------------------------------------------
Total net deferred tax liabilities ($ 6,314) ($ 3,092)
---------------------------------------------------------------------
</TABLE>
Based on the Company's historical and current earnings, management
believes it is more likely than not that the Company will realize the
benefit of the remaining deferred tax assets that are not covered by
the valuation allowance.
28
<PAGE> 18
(6) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement medical benefits for retirees and
their spouses to age 65. Retirees pay contributions toward medical
coverage based on the medical plan and coverage they select. The
Company's postretirement health care plan is currently not funded.
The following table sets forth the plan's benefit obligations, funded
status, and net periodic benefit costs for the three years ended
December 26, 1998 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 9,901 $11,161 $10,115
Service cost 844 865 714
Interest cost 647 785 647
Plan participants' contributions 329 202 395
Actuarial (gain)/loss (3,773) (2,398) 580
Benefits paid (626) (714) (540)
Curtailments -- -- (750)
----------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 7,322 9,901 11,161
----------------------------------------------------------------------------------------------------------------
Funded status (7,322) (9,901) (11,161)
Unrecognized net actuarial (gain)/loss (5,114) (1,374) 1,024
Unrecognized prior service cost 86 95 103
----------------------------------------------------------------------------------------------------------------
Accrued benefit cost ($12,350) ($11,180) ($10,034)
----------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 844 $ 865 $ 714
Interest cost 647 785 647
Recognition of prior service costs 8 8 9
Recognized net gain (31) -- 1
----------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,468 $ 1,658 $ 1,371
----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE DISCOUNT RATES USED IN
DETERMINING ACCUMULATED
POSTRETIREMENT BENEFIT OBLIGATION:
Beginning of year 6.75% 7.25% 7.00%
----------------------------------------------------------------------------------------------------------------
End of year 6.75% 6.75% 7.25%
----------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, an 9.55% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The
rate was assumed to decrease gradually to 5.25% at 2013 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 26, 1998 by $679,000, and the aggregate of the service
and interest cost components of postretirement expense for the year
then ended by $159,000. Decreasing the assumed health care cost trend
rate by one percentage point in each year would decrease the
accumulated postretirement benefit obligation as of December 26, 1998
by $607,000.
<PAGE> 19
(7) EMPLOYEE BENEFIT PLANS AND NON EMPLOYEE STOCK OPTION PLANS
EMPLOYEE PROFIT-SHARING RETIREMENT PLAN
The Company has a retirement plan covering substantially all of its
employees. The plan is a defined contribution retirement plan
providing for contributions equal to 10% of net income before income
taxes. Plan funding is made in accordance with the provisions of the
plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which shares of
common stock are purchased on the open market with employee and
Company contributions. The plan provides for the Company to
contribute an amount equal to 10% of the employees' contributions. A
total of 800,000 shares of common stock has been registered under the
Securities Act of 1933 for purchase under the plan. Company
contributions amounted to $93,000 in 1998, $101,000 in 1997 and
$106,000 in 1996.
EMPLOYEE STOCK OPTION PLANS
The Company has stock option plans under which 1,900,000 shares of
common stock may be issued to key employees of the Company, as
defined in the plans. The plans authorize the grant of incentive
stock options, non-qualified stock options and stock appreciation
rights. The plans require, among other things, that before the stock
options and stock appreciation rights may be exercised, such key
employees must remain in continuous employment of the Company not
less than six months from the date of grant.
Exercised stock options are accounted for through the issuance of
previously retired stock. Granted options generally become
exercisable in three or four installments from six to forty-eight
months after date of grant. The option price, which equals the fair
market value of the Company's common stock at the date of grant,
ranges from $15.75 to $24.13 per share. The weighted average
remaining contractual life at December 26, 1998 was 7.91 years.
29
<PAGE> 20
<TABLE>
<CAPTION>
Number of Weighted Average Shares
Shares Outstanding Exercise Price Exercisable
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 474,257 $21.04 470,957
Granted 248,480 15.81
Expired (188,931) 20.45
---------------------------------------------------------------------------------------------------
Balance at December 28, 1996 533,806 18.82 397,586
Granted 299,400 18.38
Exercised, including stock
appreciation rights (53,252) 17.91
Expired (135,800) 18.84
---------------------------------------------------------------------------------------------------
Balance at December 27, 1997 644,154 18.31 308,994
Granted 336,100 20.90
Exercised, including stock
appreciation rights (62,401) 18.07
Expired (88,495) 19.24
---------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 26, 1998 829,358 $19.32 238,099
---------------------------------------------------------------------------------------------------
</TABLE>
NON-EMPLOYEE STOCK OPTION PLANS
In 1995, the Company adopted a Nonqualified Stock Option Plan for
Non-Employee Directors (the Director Plan). The Company has 300,000
shares of common stock which may be issued to non-employee directors
under this plan. The Director Plan requires among other things that
the options are not exercisable unless the optionee remains available
to serve as a director of the Company until the first anniversary of
the date of grant, except that the initial option shall be
exercisable after six months. Options granted under the Director Plan
shall expire ten years from the date of grant. There were 42,500
options granted during 1998 and 1997. The option price, which equals
the fair market value of the Company's stock at the date of grant,
was $21.63 and $18.00 for options granted in 1998 and in 1997,
respectively. The weighted average remaining contractual life at
December 26, 1998 was 8.24 years.
<PAGE> 21
FAIR VALUE OF STOCK OPTIONS
There were 310,599 options exercisable under all stock option plans
at December 26, 1998. The Company applies APB Opinion No. 25 in
accounting for its plans and, accordingly, no compensation cost has
been recognized for its stock options in the financial statements.
The table below presents the assumptions and pro-forma net income
effect of the options using the Black-Scholes option pricing model
prescribed under SFAS No. 123.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 3.92% 5.22% 5.30%
Risk-free interest rate 5.77% 7.01% 6.50%
Weighted average expected life 10 YEARS 10 years 8 years
Expected volatility 26.00% 18.60% 25.00%
Fair value per share of options granted $6.13 $3.10 $3.07
Pro-forma net income (in thousands) $ 26,430 $ 29,591 $ 24,449
Pro-forma earnings per share - diluted $ 0.88 $ 0.99 $ 0.81
-------------------------------------------------------------------------------------
</TABLE>
RESTRICTED STOCK AWARDS
During 1998 and 1997 the Company awarded 24,450 and 30,200 shares of
common stock to certain employees under one of its incentive
programs, subject to certain vesting and performance restrictions.
Compensation costs associated with these restricted shares are
deferred until earned, at which time the earned portion is charged
against current earnings. The deferred portion of these restricted
shares is included in the accompanying balance sheet as unamortized
portion of restricted stock awards.
<PAGE> 22
(8) COMMITMENTS AND CONTINGENCIES
At December 26, 1998, the Company had an unsecured bank line of
credit of $5,000,000 against which there have been no borrowings. The
Company also maintains standby letters of credit in connection with
its self insurance reserves for casualty claims.
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 $4,599,000 in 1998, $4,707,000 in 1997 and
$4,426,000 in 1996.
The Company has entered into contractual agreements providing
severance benefits to certain key employees in the event of a
potential change of Company ownership. Commitments under these
agreements totaled $8,554,000 at December 26, 1998.
The Company and its subsidiaries have sundry claims and other
lawsuits pending against them and also have certain guarantees which
were made in the ordinary course of business. It is not possible to
determine with any certainty the ultimate liability, if any, of the
Company in any of these matters, but in the opinion of management,
their outcome should have no material adverse effect upon the
Company's consolidated financial statements taken as a whole.
(9) RESTRUCTURING
During 1996 the Company concluded a restructuring of its operations
designed to improve profitability and make it more competitive in the
marketplace. The restructuring plan included the closing of plants in
Columbia, South Carolina and Greenville, Texas resulting in work
force reductions of approximately 500 employees.
The Company determined that certain buildings and equipment at its
closed facilities were impaired. During 1998, 1997 and 1996 the
Company sold impaired assets which resulted in gains of approximately
$303,000 $868,000 and $957,000, respectively. The expected disposal
date of the remaining assets is not presently determinable.
30
<PAGE> 23
(10) STOCKHOLDERS' EQUITY
CAPITAL STOCK
The Company's Restated Charter, as amended, authorizes 75,000,000
shares of common stock with a par value of $0.83 1/3 and 5,000,000
shares of preferred stock, par value of $1.00 per share, to be issued
in such series and with such preferences, limitations and relative
rights as the Board of Directors may determine from time to time.
Common shares outstanding were 29,989,210 in 1998 and 29,923,287 in
1997. There were no preferred shares outstanding.
STOCKHOLDER RIGHTS PLAN
On July 14, 1998, the Company's Board of Directors adopted a
Preferred Shares Rights Agreement (`Rights Agreement'), designed to
protect all of Lance's stockholders and insure that they receive fair
and equal treatment in the event of an attempted takeover of the
Company or certain takeover tactics. Pursuant to the Rights
Agreement, each common stockholder receives a dividend distribution
of one Right for each share of Common Stock held.
If any person or group acquires beneficial ownership of 20 percent or
more of the Company's outstanding Common Stock, or commences a tender
or exchange offer that results in that person or group acquiring such
level of beneficial ownership, each Right (other than the Rights
owned by such person or group, which become void) entitles its holder
to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock for an exercise price of $100.
Each Right, under certain circumstances, entitles the holder to
purchase the number of shares of the Company's Common Stock which
have an aggregate market value equal to twice the exercise price of
$100. Under certain circumstances, the Board of Directors may
exchange each outstanding Right for either one share of the Company's
Common Stock or one one-hundredth of a share of Junior Participating
Preferred Stock.
In addition, if a person or group acquires beneficial ownership of 20
percent or more of the Company's Common Stock and the Company either
merges into another entity, another entity merges into the Company,
or the Company sells 50 percent or more of its assets or earning
power to another entity, each Right (other than those owned by
acquiror, which become void) entitles its holder to purchase, for the
exercise price of $100, the number of shares of the Company's Common
Stock (or share of the class of stock of the surviving entity which
has the greatest voting power) which has a value equal to twice the
exercise price.
If any such person or group acquires beneficial ownership of between
20 and 50 percent of the Company's Common Stock, the Board of
Directors may, at its option, exchange for each outstanding and not
voided Right either one share of Common Stock or one one-hundredth of
a share of Series A Junior Participating Preferred Stock.
<PAGE> 24
The Board of Directors may redeem the Rights at a price of $0.01 per
Right at any time prior to a specified period of time after a person
or group has become the beneficial owner of 20 percent or more of its
Common Stock. The Rights will expire on July 14, 2008 unless redeemed
earlier.
OTHER COMPREHENSIVE INCOME
The related tax effects allocated to unrealized holding gains on
marketable securities for the fiscal year ended December 26, 1998 are
as follows:
<TABLE>
<CAPTION>
Before tax Tax (expense) Net-of-Tax
Amount Benefit Amount
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains
arising during period $404 $(135) $269
Less: reclassification adjustment
for gains included in net income 905 (333) 572
---------------------------------------------------------------------------------------------
Net unrealized losses on
marketable securities $(501) $198 $(303)
---------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 25
(11) INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 Interim Period Ended
-----------------------------------------------------------
March 21 June 13 September 5 December 26
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUES $ 110,226 $ 118,264 $ 112,098 $ 145,844
Cost of sales 50,816 52,745 50,408 68,259
Selling, marketing and delivery 44,222 47,915 46,319 60,678
General and administrative 4,508 4,422 4,018 6,534
Provisions for employees' retirement plans 1,431 1,522 1,336 1,224
------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 9,249 11,660 10,017 9,149
Other income, net 1,218 998 956 496
Income taxes 3,953 4,699 4,105 3,378
------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,514 $ 7,959 $ 6,868 $ 6,267
------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.22 $ 0.27 $ 0.23 $ 0.21
NET INCOME PER COMMON SHARE - DILUTIVE 0.22 0.27 0.23 0.21
DIVIDENDS PER COMMON SHARE 0.24 0.24 0.24 0.24
</TABLE>
<TABLE>
<CAPTION>
1997 Interim Period Ended
----------------------------------------------------------
March 22 June 14 September 6 December 27
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and other operating revenues $ 112,803 $ 118,107 $ 110,341 $ 145,603
Cost of sales 54,543 55,428 51,288 67,324
Selling, marketing and delivery 43,329 44,785 43,112 55,821
General and administrative 4,533 4,702 4,366 7,048
Provisions for employees' retirement plans 1,122 1,446 1,247 1,641
-----------------------------------------------------------------------------------------------------------
Operating profit 9,276 11,746 10,328 13,769
Other income, net 730 1,108 780 951
Income taxes 3,858 4,919 4,202 5,612
-----------------------------------------------------------------------------------------------------------
Net income $ 6,148 $ 7,935 $ 6,906 $ 9,108
-----------------------------------------------------------------------------------------------------------
Net income per common share - basic $ 0.21 $ 0.27 $ 0.23 $ 0.30
Net income per common share - diluted 0.20 0.26 0.23 0.30
Dividends per common share 0.24 0.24 0.24 0.24
</TABLE>
32
<PAGE> 26
[LETTERHEAD]
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 26, 1998 and December 27, 1997 and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the fiscal years in the three-year period ended
December 26, 1998. 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
subsidiaries as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 26, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
February 16, 1999
33
<PAGE> 27
FIVE YEAR SUMMARY
- --------------------------------------------------------------------------------
LANCE, INC. AND SUBSIDIARIES
Consolidated Financial Highlights
For the Five Fiscal Years Ended December 26, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(52 WEEKS) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales and other operating
revenue $ 486,432 $ 486,854 $ 477,015 $ 480,810 $ 487,982
Loss from restructuring and
impairment -- -- -- (35,897) --
Operating profit (loss) 40,075 45,119 36,012 (10,682) 42,294
Income (loss) before income
taxes 43,743 48,688 40,780 (10,100) 42,027
Income taxes (benefit) 16,135 18,591 16,188 (3,161) 17,343
Net income (loss) 27,608 30,097 24,592 (6,939) 26,984
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 29,925 29,893 30,075 30,400 30,774
DILUTED 30,043 30,018 30,086 30,400 30,787
PER SHARE OF COMMON STOCK:
Operating profit (loss) - basic $ 1.34 $ 1.51 $ 1.20 ($ 0.35) $ 1.37
Operating profit (loss) - diluted 1.33 1.50 1.20 (0.35) 1.37
Net income (loss) - basic 0.92 1.01 0.82 (0.23) 0.88
Net income (loss) - diluted 0.92 1.00 0.82 (0.23) 0.88
Cash dividends 0.96 0.96 0.96 0.96 0.96
FINANCIAL STATUS AT YEAR-END:
Total assets $ 251,403 $ 252,740 $ 247,205 $ 251,345 $ 296,996
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET AND DIVIDEND INFORMATION
The Company had 4,607 stockholders of record as of February 19, 1999.
The $.83-1/3 par value Common Stock of Lance, Inc. is traded in the
over-the-counter market under the symbol LNCE and transactions in the Common
Stock are reported on The nasdaq Stock Market. The following table sets forth
the high and low sales prices and dividends paid during the interim periods in
fiscal years 1998 and 1997.
<TABLE>
<CAPTION>
1998 INTERIM PERIODS HIGH PRICE LOW PRICE DIVIDEND PAID
- -------------------- ---------- --------- -------------
<S> <C> <C> <C>
First quarter (12 weeks ended March 21, 1998).......... $27 1/4 $21 1/4 $0.24
Second quarter (12 weeks ended June 13, 1998)........... 22 7/8 20 1/8 0.24
Third quarter (12 weeks ended September 5, 1998)........ 23 1/8 18 1/4 0.24
Fourth quarter (16 weeks ended December 26, 1998)....... 21 18 0.24
1997 INTERIM PERIODS HIGH PRICE LOW PRICE DIVIDEND PAID
- -------------------- ---------- --------- -------------
First quarter (12 weeks ended March 22, 1997).......... $19 3/4 $17 1/4 $0.24
Second quarter (12 weeks ended June 14, 1997)........... 20 1/2 17 1/2 0.24
Third quarter (12 weeks ended September 6, 1997)........ 22 3/4 18 5/8 0.24
Fourth quarter (16 weeks ended December 27, 1997)....... 26 1/2 20 1/4 0.24
</TABLE>
34
<PAGE> 1
EXHIBIT 21
LIST OF THE SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary (1) State of Incorporation
- ------------------ ----------------------
Lance Mfg. LLC North Carolina
Caronuts, Inc. North Carolina
Vista Bakery, Inc. North Carolina
South MECKCA, LLC Delaware
West MECKCA, LLC Delaware
Norbehouse, LP(2) Delaware
HSW Mortgage Corp.(3) North Carolina
- --------------------------
(1) Each subsidiary does business under only its corporate name.
(2) Subsidiary of South MECKCA, LLC and West MECKCA, LLC.
(3) Subsidiary of Norbehouse, L.P.
<PAGE> 1
EXHIBIT 23
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lance, Inc.
We consent to incorporation by reference in Registration Statements No. 2-77150,
No. 2-88540, No. 33-41866, No. 33-58839 and No. 333-25539 of Lance, Inc. on Form
S-8 of our report dated February 16, 1999 relating to the consolidated balance
sheets of Lance, Inc. and subsidiaries as of December 26, 1998 and December 27,
1997, and the related consolidated statements of income, stockholders' equity
and comprehensive income and cash flows for each of the fiscal years in the
three-year period ended December 26, 1998, which report is incorporated by
reference in the December 26, 1998 annual report on Form 10-K of Lance, Inc.
/s/ KPMG LLP
Charlotte, North Carolina
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANCE, INC. FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 26,
1998 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-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-26-1998
<CASH> 7,856
<SECURITIES> 9,126
<RECEIVABLES> 40,891
<ALLOWANCES> 1,275
<INVENTORY> 20,331
<CURRENT-ASSETS> 87,480
<PP&E> 357,383
<DEPRECIATION> 195,700
<TOTAL-ASSETS> 251,403
<CURRENT-LIABILITIES> 34,391
<BONDS> 0
0
0
<COMMON> 24,991
<OTHER-SE> 161,093
<TOTAL-LIABILITY-AND-EQUITY> 251,403
<SALES> 486,432
<TOTAL-REVENUES> 486,432
<CGS> 222,228
<TOTAL-COSTS> 446,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,743
<INCOME-TAX> 16,135
<INCOME-CONTINUING> 27,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,608
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Lance, Inc. (the Company), from time to time, makes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements, which may be written or oral,
reflect expectations of management of the Company at the time such statements
are made. The Company is filing this cautionary statement to identify certain
important factors that could cause the Company's actual results to differ
materially from those in any forward-looking statements made by or on behalf of
the Company.
PRICE COMPETITION AND CONSOLIDATION
The sales of most of the Company's products are subject to
intense competition primarily through discounting and other price cutting
techniques by competitors, many of whom are significantly larger and have
greater resources than the Company. In addition, there is a continuing
consolidation by the major companies in the snack food industry which could
increase competition.
RAW MATERIALS
The Company's cost of sales can be adversely impacted by changes
in the cost of raw materials, principally flour, peanuts and peanut butter.
While the Company obtains substantial commitments for the future delivery of
certain of its raw materials and engages in limited hedging to reduce the price
risk of these raw materials, continuing long-term increases in the costs of raw
materials could adversely impact the Company's cost of sales.
SALES GROWTH
The Company's plans for profitable sales growth depend upon the
ability of the Company to develop and execute effective marketing and sales
strategies for its products.
YEAR 2000 READINESS
The Company's efforts to ensure its operations are not materially
impacted by the arrival of the year 2000 depend upon the completeness and
accuracy of its remediation assessments and activities. In addition, the Company
could be adversely impacted by the failures of material third parties for which
the contingency plans are inadequate. Furthermore, the Company's efforts are
dependent upon the continued availability of qualified personnel.
There are other important factors not described above that could
also cause actual results to differ materially from those in any forward-looking
statement made by or on behalf of the Company.
