lance 10K fiscal year 2008

lance 10K fiscal year 2008 - LANCE INC FORMReport) 10-K...

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Unformatted text preview: LANCE INC FORMReport) 10-K (Annual Filed 02/24/09 for the Period Ending 12/27/08 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 8600 SOUTH BLVD POST OFFICE BOX 32368 CHARLOTTE, NC 28232 7045541421 0000057528 LNCE 2052 - Cookies and Crackers Food Processing Consumer/Non-Cyclical 12/30 http://www.edgar-online.com © Copyright 2009, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 27, 2008 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 (State of Incorporation) 56-0292920 (I.R.S. Employer Identification Number) 14120 Ballantyne Corporate Place, Suite 350, Charlotte, North Carolina 28277 (Address of principal executive offices) Post Office Box 32395, Charlotte, North Carolina 28232-2395 (Mailing address of principal executive offices) Registrant’s telephone number, including area code: (704) 554-1421 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class $0.83-1/3 Par Value Common Stock Name of Each Exchange on Which Registered The NASDAQ Stock Market LLC Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No No 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 No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of shares of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of voting or nonvoting common equity, held by non-affiliates as of June 27, 2008, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $590,817,000. The number of shares outstanding of the Registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock, as of February 17, 2009, was 31,540,104 shares. Documents Incorporated by Reference Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2009 are incorporated by reference into Part III of this Form 10-K. LANCE, INC. FORM 10-K TABLE OF CONTENTS Page PART 1 Item 1 Business Item 1A Risk Factors Item 1B Unresolved Staff Comments Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders Separate Item Executive Officers of the Registrant 1 3 6 6 6 6 7 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 Selected Financial Data Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosures about Market Risk Item 8 Financial Statements and Supplementary Data Schedule II – Valuation and Qualifying Accounts Report of Independent Registered Public Accounting Firm Management’s Report on Internal Control Over Financial Reporting Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A Disclosure Controls and Procedures Item 9B Other Information 8 9 10 22 24 48 49 51 52 52 52 PART III Item 10 Directors, Executive Officers and Corporate Governance 53 PART IV Item 15 Exhibits and Financial Statement Schedules Signatures Exhibit 10.15 Lance, Inc. 2008 Three-Year Performance Incentive Plan for Officers and Key Managers, as amended Exhibit 21 Subsidiaries of Lance, Inc. Exhibit 23 Consent of Independent Registered Public Accounting Firm Exhibit 31.1 Section 302 Certification of the CEO Exhibit 31.2 Section 302 Certification of the CFO Exhibit 32 Section 906 Certification of the CEO and CFO Note: Items 10-14 are incorporated by reference to the Proxy Statement and the Separate Item in Part I. 53 58 Table of Contents PART I Item 1. Business General Lance, Inc. was incorporated as a North Carolina corporation in 1926. We operate in one segment, snack food products. Our corporate offices are located in Charlotte, North Carolina. We have U.S. manufacturing operations in Charlotte, North Carolina; Burlington, Iowa; Columbus, Georgia; Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida; Little Rock, Arkansas; and Ashland, Ohio. Our Canadian manufacturing operations are located in Cambridge and Guelph, Ontario. The manufacturing operations in Little Rock, Arkansas, were acquired as part of the purchase of Brent & Sam’s, Inc. in March 2008. In December 2008, we acquired substantially all of the assets of Archway Cookies, LLC, which included the manufacturing facility in Ashland, Ohio. During the first half of 2008, we consolidated our sugar wafer manufacturing operations in Canada and closed a facility in Waterloo, Ontario. Products We manufacture, market and distribute a variety of snack food products. We manufacture products including sandwich crackers and sandwich cookies, potato chips, crackers, cookies, other salty snacks, sugar wafers, nuts, restaurant style crackers and candy. In addition, we purchase certain cakes, meat snacks, candy, restaurant style crackers and salty snacks for resale in order to broaden our product offerings. Products are packaged in various single-serve, multi-pack and family-size configurations. We manufacture approximately 97% of all of the products we sell and the remainder is purchased for resale. We sell both branded and non-branded products. Our branded products are principally sold under the Lance®, Cape Cod®, Tom’s®, and Archway® brands. During 2008, 2007 and 2006, branded products represented approximately 60%, 63% and 64% of total revenue, respectively, and non-branded products represented 40%, 37% and 36% of total revenue, respectively. Non-branded products consist of private brands and contract manufacturing. Private brand products represented approximately 30%, 27% and 26% of total revenue in 2008, 2007 and 2006, respectively. Private brand (private label) products are sold to retailers and distributors using store brands or our own control brands, such as Vista®, Brent & Sam’s®, and Jodan®. Contract manufacturing represented 10% of revenue in 2008, 2007 and 2006. Contract manufacturing products are those produced for other branded food manufacturers. 1 Table of Contents Intellectual Property Trademarks that are important to our business are protected by registration or other means in the United States and most other markets where the related products are sold. We own various registered trademarks for use with our branded products including LANCE, CAPE COD POTATO CHIPS, TOM’S, ARCHWAY, TOASTCHEE, TOASTY, NEKOT, NIPCHEE, CHOC-O-LUNCH, VAN-O-LUNCH, GOLD-NCHEES, CAPTAIN’S WAFERS, THUNDER, SALERNO, and a variety of other marks and designs. We license trademarks, including DON PABLO’s, BUGLES, and TEXAS PETE, for limited use on certain products that are classified as branded product sales. We also own registered trademarks including VISTA, BRENT & SAM’S, DELICIOUS, and JODAN that are used in connection with our private brand products. Distribution Distribution through our direct-store-delivery (DSD) route sales system accounted for approximately 44% of 2008 revenues. At December 27, 2008, the DSD system consisted of approximately 1,300 sales routes in 23 states, mostly located within the Southeastern and Mid-Atlantic United States. One sales representative serves each sales route. We use our own fleet of tractors and trailers to make deliveries of products throughout our DSD system. Each route maintains stockroom space for inventory through either individual stockrooms or distribution facilities. The sales representatives load route trucks from these stockrooms for delivery to customers. In 2008, approximately 56% of our total revenues were generated from direct sales. These sales were generally distributed by direct shipments or customer pick-ups. Direct sales were shipped through third-party carriers and our own transportation fleet to customer locations throughout most of the United States and other parts of North America. We utilize our own personnel, independent distributors and brokers to solicit direct sales. Customers The customer base for our branded products include grocery/mass merchandisers, convenience stores, distributors, club stores, food service establishments, discount stores and various other customers including drug stores, schools, military, government facilities and “up and down the street” outlets such as recreational facilities, offices and other independent retailers. Private brand customers include grocery/mass merchandisers and discount stores. We also manufacture products for branded manufacturers. Substantially all of our revenues are to customers in the United States. Revenue from Wal-Mart Stores, Inc. was approximately 20% of our total revenue in 2008. The loss of this customer or a substantial portion of business with this customer could have a material adverse effect on our business and results of operations. Raw Materials The principal raw materials used to manufacture our products are flour, vegetable oil, sugar, potatoes, peanuts, other nuts, cheese and seasonings. The principal packaging supplies used are flexible film, cartons, trays, boxes and bags. These raw materials and supplies are normally available in adequate quantities in the open market and may be contracted up to a year in advance, depending on market conditions. 2 Table of Contents Competition and Industry Our products are sold in highly competitive markets. Generally, we compete with manufacturers, many of whom have greater total revenues and resources than we do. The principal methods of competition are price, service, product quality and product offerings. The methods of competition and our competitive position vary according to the geographic location, the particular products and the activities of our competitors. Employees At the beginning of February 2009, we had approximately 4,800 active employees in the United States and Canada, as compared to approximately 4,700 active employees at the beginning of February 2008. None of our employees are covered by a collective bargaining agreement. Other Matters Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are available on our website free of charge. The website address is www.lance.com. All required reports are made available on the website as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. Item 1A. Risk Factors In addition to the other information in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations may be adversely affected by any of these risks. Additional risks and uncertainties, including risks that we do not presently know of or currently deem immaterial, may also impair our business or results of operations. Price competition and industry consolidation could adversely impact our results. The sales of most of our products are subject to significant competition primarily through discounting and other price cutting techniques by competitors, many of whom are significantly larger and have greater resources than we do. In addition, there is a continuing consolidation by the major companies in the food industry, which could increase competition. Significant competition increases the possibility that we could lose one or more major customers, lose existing product offerings at customer locations, lose market share, increase expenditures or reduce selling prices, which could have an adverse impact on our business or results of operations. 3 Table of Contents Increases in cost or availability of ingredients and other market driven costs could negatively impact our results. Our cost of sales could be adversely impacted by changes in the cost or availability of raw materials and packaging. While we often obtain substantial commitments for future delivery of certain raw materials and may engage in limited hedging to reduce the price risk of these raw materials, continuing long-term increases in the costs of raw materials and packaging, including cost increases due to the tightening of supply, could adversely affect our cost of sales. Our financial performance could also be adversely impacted by changes in the cost or availability of natural gas and other fuel. While we may engage in limited hedging to reduce the price risk associated with these costs, continuing long-term increases in the cost of natural gas and fuel could adversely impact our cost of sales and operating expenses. In 2008, our costs for flour and vegetable oils reached unprecedented levels, which negatively impacted our results of operations. Product price increases may negatively impact total revenue. Future price increases, such as those to offset significantly increased ingredient costs, may reduce our overall sales volume, which could reduce total revenues and operating profit. Additionally, if market prices for those ingredients decline significantly below our contracted prices, customers could demand price reductions that could reduce total revenues and operating profit. We are exposed to risks resulting from several large customers. We have several large customers that account for a significant portion of our revenue. Our top ten customers accounted for approximately 40% of our revenue during 2008 with our largest customer representing 20% of our 2008 revenue. The loss of one or more of our large customers could adversely affect our results of operations. These customers typically do not enter into long-term contracts, but make purchase decisions based on a combination of price, product quality, consumer demand and customer service performance. In addition, these significant customers may re-evaluate or refine their business practices related to inventories, product displays, logistics or other aspects of the customer-supplier relationship. Our results of operations could be adversely affected if revenue from one or more of these customers is significantly reduced or if the cost of complying with customers’ demands is significant. If receivables from one or more of these customers become uncollectible, our results of operations may be adversely impacted. Inability to anticipate changes in consumer preferences may result in decreased demand for products, which could have an adverse impact on our future growth and operating results. Our success depends in part on our ability to respond to current market trends and to anticipate the tastes and dietary habits of consumers. Changes in consumer preferences, and our failure to anticipate, identify or react to these changes could result in reduced demand for our products, which could in turn cause our operating results to suffer. Implementation of an Enterprise Resource Planning (ERP) system could cause interruption to business operations or inability to account for business transactions. We are in the process of implementing a new ERP system. To the extent that there are unexpected issues as a result of the implementation, we may experience interruptions in business operations or may be unable to account for business transactions in a timely manner. 4 Table of Contents Future product recalls or safety concerns could adversely impact our results of operations. We may be required to recall certain of our products should they be mislabeled, contaminated or damaged. We also may become involved in lawsuits and legal proceedings if it is alleged that the consumption of any of our products causes injury or illness. A product recall or an adverse result in any such litigation could have a material adverse effect on our operating and financial results. We also could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of our products. The U.S. Food and Drug Administration’s recent investigation of Salmonella in products containing peanut butter and peanut paste and the associated recall of products throughout the food and snack food industries, as well as future issues such as this, could adversely impact our revenues and results of operations by negatively impacting consumer demand for products such as ours, harming consumer confidence in our Company or our products, and exposing us to increased cost and risk associated with litigation, government investigations and other legal and regulatory activities. Food industry and regulatory factors could adversely affect our revenues and costs. Food industry factors including obesity, nutritional concerns and diet trends could adversely affect our revenues and cost of sales. New or increased government regulation of the food industry, including areas related to production processes, product quality, packaging, labeling, marketing, storage and distribution, could adversely impact our results of operations by increasing production costs or restricting our methods of operation and distribution. Acquisitions and divestitures may result in financial results that are different than expected. In the event we enter into acquisitions or divestitures, our financial results may differ from expectations in a given quarter, or over a long-term period. Our future operating results are dependent on our ability to integrate the operations of acquired businesses into our existing operations. The inability to effectively integrate the acquired assets or operations or effectively divest assets, could adversely affect our revenues and results of operations. Our ability to execute our strategic initiatives could adversely affect our financial performance. We utilize several operating strategies to increase revenue and improve operating performance. If we are unsuccessful due to our execution, unplanned events or unfavorable market conditions, our financial performance could be adversely affected. We are exposed to interest rate volatility, foreign exchange rate volatility and credit risks. We are exposed to interest rate volatility with regard to variable rate credit facilities. We are exposed to foreign exchange rate volatility primarily through the operations of our Canadian subsidiary. This volatility may adversely affect our results of operations. In addition, we are exposed to certain customer credit risks related to the collection of our accounts receivable. Any business disruption due to natural disasters or catastrophic events could adversely impact our financial performance. If natural disasters or catastrophic events occur in the U.S. or other locations, such events may disrupt manufacturing, labor and other aspects of our business. In the event of such incidents, our business and financial performance could be adversely affected. 5 Table of Contents Current economic conditions could adversely impact our business and results of operations. The recent instability in the financial markets and the overall U.S. economy may impact our ability or cost to enter into new credit agreements in the future and may weaken the ability of our customers, suppliers and other business partners to perform under contractual obligations or in the normal course of business. A prolonged recession in the U.S. economy could expose us to losses related to bankruptcies among our customers and suppliers. There are other factors not described above that could also cause actual results to differ materially from those in any forward-looking statement made by us or on our behalf. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate offices are located in Charlotte, North Carolina. We have manufacturing operations in Charlotte, North Carolina; Burlington, Iowa; Columbus, Georgia; Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida; Little Rock, Arkansas; Ashland, Ohio; Cambridge, Ontario; and Guelph, Ontario. Most of our manufacturing facilities produce both branded and non-branded products. During the first half of 2008, we consolidated our sugar wafer manufacturing operations in Canada and closed the Waterloo, Ontario facility. We lease office space for administrative support and sales offices in 14 states. We also own or lease approximately 1,500 stockroom locations and 10 distribution facilities. The plants and properties that we own and operate are maintained in good condition and are believed to be suitable and adequate for present needs. We believe that we have sufficient production capacity or the ability to increase capacity to meet anticipated demand in 2009. Item 3. Legal Proceedings We are currently subject to various routine legal proceedings and claims incidental to our business. In our opinion, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 6 Table of Contents Separate Item. Executive Officers of the Registrant Information as to each of our executive officers is as follows: Name Age Information About Officer David V. Singer 53 President and Chief Executive Officer of Lance, Inc. since 2005; Executive Vice President and Chief Financial Officer of Coca-Cola Bottling Co. Consolidated, a beverage manufacturer and distributor, from 2001 to 2005. Rick D. Puckett 55 Executive Vice President, Chief Financial Officer and Secretary of Lance, Inc. since January 2006 and Treasurer of Lance, Inc. since April 2006; Executive Vice President, Chief Financial Officer and Treasurer of United Natural Foods, Inc., a wholesale distributor of natural and organic products from 2005 to January 2006; and Senior Vice President, Chief Financial Officer and Treasurer of United Natural Foods, Inc. from 2003 to 2005. Glenn A. Patcha 45 Senior Vice President – Sales and Marketing of Lance, Inc. since January 2007; Senior Vice President of Marketing ConAgra Grocery Products Division, a packaged foods company, 2003 to June 2006; various executive positions with Eastman Kodak including, VP of Marketing for Kodak’s North American Consumer Imaging Division from 1998 to 2003. Blake W. Thompson 53 Senior Vice President – Supply Chain of Lance, Inc. since February 2007; Vice President – Supply Chain of Lance, Inc. from 2005 to 2006; Senior Vice President, Supply Chain of Tasty Baking, a snack food manufacturer and distributor, from 2004 to 2005; Region Vice President of Operations, Northeast Region of Frito Lay (a division of PepsiCo, Inc.) a snack food manufacturer and distributor, from 2001 to 2004. Earl D. Leake 57 Senior Vice President – Human Resources of Lance, Inc. since February 2007; Vice President – Human Resources of Lance, Inc. from 1995 to 2006. Margaret E. Wicklund 48 Vice President, Corporate Controller, Principal Accounting Officer and Assistant Secretary of Lance, Inc. since 2007; Corporate Controller, Principal Accounting Officer and Assistant Secretary of Lance, Inc. from 1999 to 2006. All of the executive officers were appointed to their current positions at the Annual Meeting of the Board of Directors on April 24, 2008. All of our executive officers’ terms of office extend until the next Annual Meeting of the Board of Directors and until their successors are duly elected and qualified. 7 Table of Contents PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our $0.83-1/3 par value Common Stock is traded on the NASDAQ Global Select Market under the symbol LNCE. We had 3,129 stockholders of record as of February 17, 2009. The following table sets forth the high and low sales prices and dividends paid during the interim periods in fiscal years 2008 and 2007: High Price 2008 Interim Periods First quarter (13 weeks ended March 29, 2008) Second quarter (13 weeks ended June 28, 2008) Third quarter (13 weeks ended September 27, 2008) Fourth quarter (13 weeks ended December 27, 2008) $20.98 22.42 25.18 23.58 High Price 2007 Interim Periods First quarter (13 weeks ended March 31, 2007) Second quarter (13 weeks ended June 30, 2007) Third quarter (13 weeks ended September 29, 2007) Fourth quarter (13 weeks ended December 29, 2007) $22.06 25.45 27.04 23.99 Low Price $16.39 17.48 17.05 17.11 Low Price $19.12 19.90 21.75 17.67 Dividend Paid $0.16 0.16 0.16 0.16 Dividend Paid $0.16 0.16 0.16 0.16 On February 10, 2009, the Board of Directors of Lance, Inc. declared a quarterly cash dividend of $0.16 per share payable on February 27, 2009 to stockholders of record on February 20, 2009. Our Board of Directors will consider the amount of future cash dividends on a quarterly basis. Our Credit Agreement dated October 20, 2006 restricts payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $125.0 million. At December 27, 2008, our consolidated stockholders’ equity was $235.5 million. 8 Table of Contents Item 6. Selected Financial Data The following table sets forth selected historical financial data for the five-year period ended December 27, 2008. The selected financial data set forth below should be read in conjunction with “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the audited financial statements. The prior year amounts have been reclassified for consistent presentation, including the reclassification of the vending operations to discontinued operations for all years presented. 2008 Results of Operations (in thousands): Net sales and other operating revenue (1) (2) (3) Income from continuing operations before income taxes (4) (5) (6) Net income from continuing operations Income from discontinued operations before income taxes (7) Net income from discontinued operations Net income Financial Status at Year-end (in thousands): Total assets Long-term debt, net of current portion Total debt 2006 2005 2004 $852,468 $762,736 $730,116 $651,437 $564,734 27,073 17,706 36,320 23,809 28,187 18,378 26,499 17,476 33,298 22,627 — — $ 17,706 44 29 $ 23,838 153 100 $ 18,478 1,506 994 $ 18,470 3,276 2,228 $ 24,855 31,202 31,803 30,961 31,373 30,467 30,844 29,807 30,099 29,419 29,732 Average Number of Common Shares Outstanding (in thousands): Basic Diluted Per Share of Common Stock: From continuing operations – basic From discontinued operations – basic From continuing operations – diluted From discontinued operations – diluted Cash dividends declared 2007 $ $ 0.57 — 0.56 — 0.64 $ $ $466,146 $ 91,000 $ 98,000 0.77 — 0.76 — 0.64 $413,003 $ 50,000 $ 50,000 $ $ 0.61 — 0.60 — 0.64 $385,452 $ 50,000 $ 50,000 $ $ 0.59 0.03 0.58 0.03 0.64 $369,079 $ 10,215 $ 46,215 $ $ 0.77 0.07 0.77 0.07 0.64 $341,740 $ — $ 40,650 Footnotes: (1) 2008 revenue included approximately $15 million from Brent & Sam’s (acquired in March 2008). Also, a significant amount of price increases were initiated in response to unprecedented ingredient costs increases, such as flour and vegetable oil. (2) 2006 revenue included incremental revenues from Tom’s (acquired in October 2005). (3) 2005 represented a 53-week year, which accounted for $8.1 million in incremental revenue. 2005 revenue was also impacted by two months of revenue from the Tom’s acquisition. (4) 2008 pre-tax income was significantly impacted by unprecedented ingredient costs increases, such as flour and vegetable oil, not fully offset by price increases during the year. (5) Compared to previous years, pre-tax income in 2006 was impacted by $1.3 million of expenses related stock options as required by the adoption of SFAS 123R. Incremental severance and integration costs during 2006 related to the Tom’s acquisition were $2.8 million. (6) 2005 pre-tax income was negatively impacted by $3.4 million of Tom’s integration costs and $2.5 million of severance charges for the prior CEO. (7) During 2006, we committed to a plan to discontinue our vending operations. 9 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Information About Forward-Looking Statements From time to time, we make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, the factors set forth under Part I, Item 1A — Risk Factors. Caution should be taken not to place undue reliance on our forward-looking statements, which reflect the expectations of management only as of the time such statements are made. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The following discussion provides an assessment of our financial condition, results of operations, liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements. Management’s discussion and analysis of our financial condition and results of operations are based upon consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. We routinely evaluate our estimates, including those related to customer returns and promotions, provisions for bad debts, inventory valuations, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible asset valuations, incentive compensation, income taxes, self-insurance, postretirement benefits, contingencies and legal proceedings. Actual results may differ from these estimates under different assumptions or conditions. 10 Table of Contents Executive Summary From an earnings perspective, 2008 was a year impacted significantly by higher input costs. For the first three quarters of 2008, we earned $0.32 per share as compared to $0.72 in same period of 2007. Significant escalations in ingredient costs, fuel rates, utility costs and unfavorable foreign exchange rates far outpaced sales price increases to our customers. During the fourth quarter, we were able to restore our operating profit margin and earn $0.24 per share compared to $0.03 in the fourth quarter of 2007 and $0.19 in the fourth quarter of 2006. These results were achieved despite a $1.2 million pre-tax charge for a change in our employee vacation policy and costs associated with the Archway acquisition of $0.8 million, including $0.4 million in payments to former Archway employees. In total, these items decreased earnings per share during the fourth quarter of 2008 by $0.04. From an operational perspective, we continued to focus on the following priorities in order to develop a foundation for profitable growth: 1. Organizational development and effectiveness in order to align our organization to achieve our goals; 2. Operational efficiencies in our DSD operations, supply chain process, and information technology systems; 3. Focused growth in core channels and product lines while we simplify our business and create new platforms for growth. To that end, we have continued to focus on our priorities as we transform Lance into a leader within our niche snack food categories. Our transformation is focused on delivering key goals including delivering accelerated sales growth, widening our profit margins, improving return on capital and driving growth in our earnings per share. During 2008, our accomplishments included: • Two acquisitions – The acquisition of Brent & Sam’s, Inc. and substantially all of the assets of Archway Cookies, LLC: o o • Brent & Sam’s was acquired in March of 2008, added approximately $15 million in revenue in 2008 and expanded our premium private brand product offerings to our customers. The Archway assets were acquired in December of 2008. The acquisition of the Archway brand provides a strong brand with a long history of quality home-style cookies that we believe we can grow through product innovation and improved customer service through our DSD and distributor network. The Archway facility also provides additional production capacity. In addition, based on the location of the facility we plan to improve our supply chain operations efficiency through a centralized location to service our customers in the Midwest and Northeast. Continued DSD organizational improvements: o We continued to realign our DSD sales organization by rationalizing our customer stops based on profitability and operating efficiency needed to service our customers. During 2008, we increased the weekly net revenue per route by 11%. o We have also implemented improved processes in our DSD organization to improve the efficiency of the time it takes to service our customers at each stop. 11 Table of Contents • We continued to focus on sales growth: o o Private brand revenue increased approximately 26%, of which approximately 7% was the result of the acquisition of Brent & Sam’s. o During 2008, we introduced a mainstream private brand line of products that is a more premium product than our value line private brands and provides consumers additional options from traditional branded products. o • Revenue from both Lance brand home-pack products and Cape Cod Potato Chip products increased more than 10% over last year. We increased our focus on innovation to provide a constant stream of new product introductions for our customers. We continued to build a foundation for growth: o We continued to improve our supply chain efficiency by consolidating our Canadian operations from three plants to two and increased the volume of products transported per mile through the use of larger trailers, which minimized the effect of increases in diesel fuel rates. o In 2008, we implemented a portion of our ERP solution and expect to have the ERP system implemented at all locations by the end of 2009. We believe the cost increases that eroded earnings per share in the first three quarters of 2008 are behind us and we are well positioned for continued growth in 2009. We plan additional spending for advertising in 2009 in order to support future sales growth of our branded products. In addition, we plan to increase new product introductions and expand product innovation to provide our consumers with additional snack food offerings. During January 2009, there was a recall of products containing peanuts, peanut butter paste and peanut butter purchased from Peanut Corp. of America (PCA) due to potential salmonella contamination. No products bearing the Lance brand were included in this recall as we internally source our peanuts and peanut butter. In 2008, we purchased Brent and Sam’s, Inc. who historically purchased product from PCA and voluntarily recalled a limited number of private brand cookie products related to this concern, but we do not expect this to have a material impact on our results of operations. Brent and Sam’s now sources its peanut butter through Lance. Critical Accounting Estimates Preparing the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We believe the following estimates and assumptions to be critical accounting estimates. These assumptions and estimates may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and may have a material impact on the financial condition or operating performance. Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition Our policy on revenue recognition varies based on the types of products sold and the distribution method. We recognize operating revenue when title and risk of loss passes to our customers. Allowances for sales returns, stale products, promotions and discounts are also recorded as reductions of revenue in the consolidated financial statements. 12 Table of Contents Revenue for products sold through our DSD system is recognized when the product is delivered to the retailer. Our sales representative creates the invoice at time of delivery using a handheld computer. The invoice is transmitted electronically each day and sales revenue is recognized. Customers purchasing products through the DSD system have the right to return product if it is not sold by the expiration date on the product label. We have recorded an estimated allowance for product that might be returned as a reduction to revenue. We estimate the number of days until product is sold through the customer’s location and the percent of sales returns using historical information. This information is reviewed on a quarterly basis for significant changes and updated no less than annually. Revenue for products shipped directly to the customer from our warehouse is recognized based on the shipping terms listed on the shipping documentation. Products shipped with terms FOB-shipping point are recognized as revenue at the time the shipment leaves our warehouses. Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer. We record certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as offinvoice allowances, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. We record the amount of the deduction as a reduction to revenue when the transaction occurs. Rebates are offered to customers based on the quantity of product purchased over a period of time. Based on the nature of these allowances, the exact amount of the rebate is not known at the time the product is sold to the customer. An estimate of the expected rebate amount is recorded as a reduction to revenue and an accrued liability at the time the sale is recorded. The accrued liability is monitored throughout the period covered by the promotion. The accrual is based on historical information and the progress of the customer against the target amount. Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or three years and recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis. We also record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue. The accrued liability is monitored throughout the period covered by the coupon or promotion. Total allowances for sales returns, rebates, coupons, scan-backs and other promotional activities included in current liabilities on the consolidated balance sheets increased from $4.0 million at the end of 2007 to $5.2 million at the end of 2008 due to a more aggressive marketing effort to drive sales growth. Allowance for Doubtful Accounts The determination of the allowance for doubtful accounts is based on management’s estimate of uncollectible accounts receivables. We record a general reserve based on analysis of historical data and the aging of accounts receivable. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. The assumptions for this determination are regularly reviewed to ensure that business conditions or other circumstances are consistent with the assumptions. Allowances for doubtful accounts increased from $0.5 million at the end of 2007 to $0.9 million at the end of 2008 due to current economic conditions resulting in slower payments from some customers, higher accounts receivable, and increased specific reserves for customers with higher risks. The recent instability in the U.S. economy may weaken the ability of our customers to perform under contractual obligations or in the normal course of business, which may expose us to additional bad debt expense related to bankruptcies among our customers. 13 Table of Contents Self-Insurance Reserves We maintain reserves for the self-funded portions of employee medical insurance and for post-retirement healthcare benefits. The employer’s portion of employee and retiree medical claims is limited by stop-loss insurance coverage each year to $0.3 million per person. In addition, we maintain insurance reserves for the self-funded portions of workers’ compensation, auto, product and general liability insurance. Self-insured accruals are based on claims filed and estimated claims incurred but not reported based on historical claims trends. For casualty insurance obligations, we maintain self-insurance reserves for workers’ compensation and auto liability for individual losses up to $0.5 million. In addition, general and product liability claims are self-funded for individual losses up to $0.1 million. We evaluate input from a third-party actuary in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, we use various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. We also use historical information for claims frequency and severity in order to establish loss development factors. The estimate of loss reserves ranged from $11.7 million to $14.9 million in 2008. In 2007, the estimate of loss reserves ranged from $13.3 million to 16.8 million. Consistent with prior periods, the 75 th percentile of this range represents our best estimate of the ultimate outstanding casualty liability. We used a 4.5% discount rate on the estimated claims liability in 2008 and 2007 based on projected investment returns over the estimated future payout period. Impairment Analysis of Goodwill and Other Indefinite-Lived Intangible Assets The annual impairment analysis of goodwill and other indefinite-lived intangible assets requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital. These projections rely upon historical performance, anticipated market conditions and forward-looking business plans. The analysis of goodwill and other indefinitelived intangible assets as of December 27, 2008 assumes combined average annual revenue growth of approximately 3.5% during the valuation period. We also use a combination of internal and external data to develop the weighted-average cost of capital. Significant investments in fixed assets and working capital to support this growth are estimated and factored into the analysis. If the forecasted revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with the excess fair value over carrying value, significant changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future. Depreciation and Impairment of Fixed Assets Depreciation of fixed assets is computed using the straight-line method over the lives of the assets. The lives used in computing depreciation are based on estimates of the period over which the assets will provide economic benefits. Estimated lives are based on historical experience, maintenance practices, technological changes and future business plans. Depreciation expense was $32.0 million, $29.3 million, and 26.8 million during 2008, 2007, and 2006, respectively. Changes in these estimated lives and increases in capital expenditures could significantly affect depreciation expense in the future. Fixed assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Recoverability of fixed assets is evaluated by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If this comparison indicates that an asset’s carrying amount is not recoverable, an impairment loss is recognized, and the adjusted carrying amount is depreciated over the asset’s remaining useful life. 14 Table of Contents Assets that are to be disposed of by sale are recognized in the financial statements at the lower of carrying amount or fair value, less cost to sell, and are not depreciated once they are classified as held for sale. In order for an asset to be classified as held for sale, the asset must be actively marketed, available for immediate sale and meet certain other specified criteria. Equity Incentive Expense Determining the fair value of share-based awards at the grant date requires judgment, including estimating the expected term, expected stock price volatility, risk-free interest rate, and expected dividends. Judgment is required in estimating the amount of share-based awards that are expected to be forfeited before vesting. In addition, our long-term equity incentive plans require assumptions and projections of future operating results and financial metrics. Actual results may differ from these assumptions and projections, which could have a material impact on our financial results. Provision for Income Taxes We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage. Our effective tax rate is based on the level and mix of income of our separate legal entities, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are established when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain. We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit. New Accounting Standards See Note 1 to the consolidated financial statements included in Item 8 for a summary of new accounting standards. Results of Operations 2008 Compared to 2007 (in millions) Revenue Cost of sales Gross margin Selling, general and administrative Other (income)/expense, net Earnings before interest and taxes Interest expense, net Income tax expense Net income from continuing operations nm = not meaningful. 2008 $852.4 531.5 320.9 291.7 (0.9) 30.1 3.0 9.4 17.7 15 Favorable/ (Unfavorable) 2007 100.0% 62.4% 37.6% 34.2% (0.1%) 3.5% 0.4% 1.1% 2.1% $762.7 444.5 318.2 277.3 2.4 38.5 2.2 12.5 23.8 100.0% 58.3% 41.7% 36.4% 0.3% 5.0% 0.3% 1.6% 3.1% $ 89.7 (87.0) 2.7 (14.4) 3.3 (8.4) (0.8) 3.1 (6.1) 11.8% (19.6%) 0.8% (5.2%) nm (21.8)% (36.4%) 24.8% (25.6)% Table of Contents Revenue from continuing operations for the year ended December 27, 2008 increased $89.7 million or 11.8% compared to the year ended December 29, 2007. Branded sales represented 60% of total revenue in 2008 as compared to 63% in 2007, and non-branded sales represented 40% of total revenue and 37% of total revenue for 2008 and 2007, respectively. Non-branded sales consist of private brand and contract manufacturing revenue. In 2008, private brand represented 30% of total revenue and contract manufacturing sales represented 10% of total revenue. In 2007, private brand sales represented 27% of total revenue and contract manufacturing sales were 10% of total revenue. Branded revenue increased $33.2 million or 6.9% compared to 2007. Price increases accounted for approximately two-thirds of the growth in revenue and the remainder of the growth was the result of increased volume. Branded revenue was favorably impacted by double-digit growth in sales of Lance® home pack sandwich crackers and Cape Cod® potato chips, predominantly from sales to grocery/mass merchandisers. This growth was significantly offset by double digit declines in up-and-down the street revenue and DSD food service revenue as a result of implementing our DSD distribution strategy to improve profitability by servicing customers with larger drop sizes and making our sales routes more efficient. Our DSD system generated approximately 72% of the branded revenue in 2008 and 74% in 2007. The remainder consisted of branded revenue from distributors and direct shipments to customers. Non-branded revenue increased $56.6 million or 20%. Price increases represented approximately 13% of the revenue growth, the addition of Brent & Sam’s product offerings represented approximately 5% of the revenue growth. Approximately 2% of the non-branded revenue growth was due to higher sales volume, which was unfavorably impacted by volume declines in sales to certain contract manufacturing customers and the loss of private brand sandwich cracker revenue from our largest customer driven by their decision to discontinue the product. Cost of sales increased $87.0 million principally due to the impact of significantly increased ingredient costs, principally flour and vegetable oil of $55.9 million, higher utility rates, principally natural gas of $3.5 million, higher compensation and vacation expense of $2.9 million, increased packaging costs of $2.2 million, manufacturing inefficiencies due to the consolidation of our Canadian facilities and start-up costs related to the acquisition of the Archway facility as well as the impact of increased volume sold. Gross margin as a percentage of revenue decreased from 41.7% to 37.6%. The decrease in gross margin was the result of the increases in costs as described above, unfavorable product mix due to a higher proportion of non-branded products sales, partially offset by unit price increases for both branded and non-branded products. 16 Table of Contents Selling, general and administrative expenses increased $14.4 million as compared to 2007. Increased expenses include higher salaries, wages, employee commissions, vacation and incentives of $9.9 million, increased cost to deliver products due to higher gasoline and diesel rates of $3.0 million, and increased depreciation and amortization of $2.0 million due to new sales route trucks, larger and more efficient over-the-road trailers and the implementation of our ERP system. Also, there were increases in information technology software and hardware maintenance costs of $1.6 million, higher third-party brokerage costs of $1.1 million due to increased revenue and $1.1 million of increased costs associated with market research regarding new and existing products as well as other net increases of $0.6 million. Offsetting these increases in expenses were reductions in advertising expenditures of $2.9 million and lower casualty claims costs of $2.0 million. During 2008, other income consisted primarily of $0.9 million of foreign currency transaction gains due to the favorable impact of exchange rates during the fourth quarter. Conversely, other expense during 2007 was the result of $1.3 million of foreign currency transaction losses from unfavorable exchange rates and write-offs of $1.1 million of previously capitalized information technology that was replaced by the new ERP system. Net interest expense increased $0.8 million primarily due to higher average debt than 2007 resulting from acquisitions made during 2008, offset slightly by lower weighted average interest rates. Our effective income tax rate was 34.6% in 2008 as compared to 34.4% in 2007. The increase in the income tax rate was due primarily to unfavorable changes in permanent book-tax differences partially offset by reductions in long-term tax contingencies. 2007 Compared to 2006 (in millions) Revenue Cost of sales Gross margin Selling, general and administrative Other expense/(income), net Earnings before interest and taxes Interest expense, net Income tax expense Net income from continuing operations 2007 $762.7 444.5 318.2 277.3 2.4 38.5 2.2 12.5 23.8 Favorable/ (Unfavorable) 2006 100.0% 58.3% 41.7% 36.4% 0.3% 5.0% 0.3% 1.6% 3.1% $730.1 415.6 314.5 283.0 0.2 31.3 3.1 9.8 18.4 100.0% 56.9% 43.1% 38.8% — 4.3% 0.4% 1.3% 2.5% $ 32.6 (28.9) 3.7 5.7 (2.2) 7.2 0.9 (2.7) 5.4 4.5% (7.0%) 1.2% 2.0% (1,100.0%) 23.0% 29.0% (27.6%) 29.3% Revenue from continuing operations for the year ended December 29, 2007 increased $32.6 million or 4.5% compared to the year ended December 30, 2006. Branded sales represented 63% of total revenue in 2007 as compared to 64% in 2006, and non-branded sales represented 37% of total revenue and 36% of total revenue for 2007 and 2006, respectively. Non-branded sales consists of private brand and contract manufacturing revenue. In 2007, private brand sales represented 27% of total revenue and contract manufacturing sales represented 10% of total revenue. In 2006, private brand sales represented 26% of total revenue and contract manufacturing sales were 10% of total revenue. 17 Table of Contents Branded revenue increased $13.5 million or 2.9% and non-branded revenue increased $19.1 million or 7.2%. Branded revenue was favorably impacted by double digit sales growth in sales of Lance® home pack sandwich crackers, Cape Cod® potato chips and mid single-digit growth in Tom’s® salty snacks, predominantly from sales to grocery/mass merchandisers. This growth was partially offset by double digit declines in up-and-down the street revenue and DSD food service revenue as a result of implementing our DSD distribution strategy to improve profitability by servicing customers with larger drop sizes as well as the discontinuation of certain products related to the Tom’s acquisition. Our DSD system generated approximately 74% of the branded revenue in both 2007 and 2006. The remaining 26% consisted of branded revenue from distributors and direct shipments to customers. The increase in non-branded revenue was due to increased revenue from existing customers, additional product offerings and unit price increases. Cost of sales increased $28.9 million principally due to the impact of increased ingredient costs, principally flour and vegetable oil, of $22.4 million and the impact of increased volume sold. These increases in costs were partially offset by improved operational efficiencies. Gross margin as a percentage of revenue decreased from 43.1% to 41.7%. The decrease in gross margin was the result of the unfavorable impact of ingredient costs and product mix, partially offset by increases in pricing and favorable manufacturing efficiencies. Selling, general and administrative expenses decreased $5.7 million. This decrease in expenses compared to prior year reflects continued operational efficiency gains due to additional capacity gained by increased trailer capacity as well as continued loading and delivery improvements, efficiencies gained through common third-party carrier agreements across all business locations, reductions in DSD costs due to more efficient stops and improved efficiencies, significantly improved DSD employee retention levels, which reduced required training and recruiting costs, and the completion of the Tom’s integration. Offsetting these reductions were increases in salaries, wages, training and recruiting costs associated with corporate initiatives in 2007, such as the ERP implementation, and increased professional fees due primarily to increased legal fees. Other expense increased $2.2 million compared to 2006 due to unfavorable impact of foreign currency exchange losses in 2007 and a write-off of previously capitalized information technology that was replaced by the new ERP system. Interest expense, net, decreased $0.9 million due to higher interest income from invested cash and cash equivalents. Our effective income tax rate was 34.4% in 2007 as compared to 34.8% in 2006. The decrease in the income tax rate was due primarily to reductions in foreign jurisdiction tax rates. 18 Table of Contents 2006 Compared to 2005 (in millions) Revenue Cost of sales Gross margin Selling, general and administrative Other expense/( income), net Earnings before interest and taxes Interest expense, net Income tax expense Net income from continuing operations nm = not meaningful. 2006 $730.1 415.6 314.5 283.0 0.2 31.3 3.1 9.8 18.4 Favorable/ (Unfavorable) 2005 100.0% 56.9% 43.1% 38.8% — 4.3% 0.4% 1.3% 2.5% $651.4 369.3 282.1 253.7 (0.1) 28.5 2.0 9.0 17.5 100.0% 56.7% 43.3% 38.9% — 4.4% 0.3% 1.4% 2.7% $ 78.7 (46.3) 32.4 (29.3) (0.3) 2.8 (1.1) (0.8) 0.9 12.1% (12.5%) 11.5% (11.5%) nm 9.8% (55.0%) (8.9%) 5.1% Revenue from continuing operations for the fifty-two weeks ended December 30, 2006 increased $78.7 million or 12.1% compared to the fiftythree week period ended December 31, 2005. The additional week in 2005 from continuing operations generated $8.1 million in revenue. Branded sales represented 64% of total revenue in 2006 as compared to 62% in 2005, and non-branded sales represented 36% of total revenue and 38% of total revenue in 2006 and 2005, respectively. Of the non-branded revenue in 2006, private brand sales represented 26% of total revenue and contract manufacturing was 10% of total revenue. For 2005, private brand sales were 29% of total revenue and contract manufacturing sales were 9% of total revenue. Branded revenue increased $63.3 million or 15.7% and non-branded revenue increased $15.4 million or 6.2%. The increase in branded revenue was favorably impacted by the Tom’s acquisition in late 2005 as well as growth in both Lance® branded sandwich crackers and Cape Cod® potato chips, predominantly from sales to convenience stores and grocery/mass merchandisers. This growth was offset somewhat by declines in DSD food service revenue. Our DSD system generated approximately 74% of the branded revenue in both 2006 and 2005. The remaining 26% consisted of branded revenue from sales to distributors and direct shipments to customers. The non-branded revenue increase of $15.4 million included a $13.8 million increase in contract manufacturing revenue and a $1.6 million increase in private brand revenue. The increase in contract manufacturing was favorably impacted by the Tom’s acquisition and increased sales to existing customers. Cost of sales increased 0.2% as a percentage of revenue due to higher ingredient and packaging costs of $10.3 million, increased natural gas costs of $1.8 million and an unfavorable impact of foreign currency of $1.4 million. Gross margin increased $32.4 million principally due to higher sales volume and improved product pricing, but decreased 0.2% as a percentage of revenue because of the increased costs of goods sold. 19 Table of Contents Selling, general and administrative expenses increased $29.3 million, which was primarily driven by increased salaries and commission expense due to the Tom’s acquisition and integration. As compared to 2005, other increases in selling, general and administrative expenses related to fuel rate increases and higher reimbursed business mileage, higher information technology expenses, utility costs, and relocation costs, higher compensation due to additional employees and additional equity incentive expense, partially due to the adoption of SFAS No. 123R. Offsetting the increased expenses were approximately $2.5 million of severance costs for the prior CEO recognized in 2005, and reductions in bad debt expense of $1.6 million during 2006. Interest expense increased $1.1 million as a result of higher average debt levels in 2006 as compared to 2005. Higher debt levels were a result of the Tom’s acquisition. Our effective income tax rate was 34.8% in 2006 as compared to 34.0% in 2005. The increase in the income tax rate was due primarily to a combination of an increase in state income tax expense and reductions in items deductible for income tax purposes but not for financial reporting. Liquidity and Capital Resources Liquidity During the last three years, the principal source of liquidity for our operating needs was provided from operating activities. Cash flow from operating activities, available credit from credit facilities and cash on hand are believed to be sufficient for the foreseeable future to meet obligations, fund capital expenditures, and pay dividends to our stockholders. However, the recent economic downturn, banking industry turmoil, and FDA investigations in our industry may provide certain risks to future performance and sources of liquidity. Operating Cash Flows Net cash from operating activities was $54.9 million in 2008, $52.4 million in 2007, and $39.1 million in 2006. Working capital (other than cash and cash equivalents and current portion of long-term debt) increased to $55.7 million at December 27, 2008 from $49.8 million at December 29, 2007 primarily due to higher accounts receivable and inventory, offset somewhat by higher accounts payable and accrued compensation. Investing Cash Flows Cash used in investing activities in 2008 included capital expenditures of $39.1 million which was partially offset by proceeds from the sale of fixed assets of $3.0 million. Capital expenditures for fixed assets in 2008 included computer hardware and software, manufacturing equipment, route trucks, handheld computers for field sales representatives, and tractors and trailers. Capital expenditures for 2009 are projected to be between $36 million and $41 million, funded primarily by net cash flow from operating activities, cash on hand, and available credit from credit facilities. On March 14, 2008, we acquired Brent & Sam’s, Inc. for approximately $23.9 million, net of cash acquired of $0.2 million. Additionally, on December 8, 2008, we acquired substantially all of the assets of Archway Cookies, LLC for approximately $31.1 million. Cash used in investing activities in 2007 represented capital expenditures of $39.5 million and a purchase of a noncontrolling equity interest in an organic snack food company for $2.1 million. Proceeds from the sale of fixed assets were $7.3 million. 20 Table of Contents Cash used in investing activities in 2006 represented capital expenditures of $47.0 million. Proceeds from the sale of fixed assets were $7.3 million. Financing Cash Flows During 2008, 2007 and 2006, we paid dividends of $0.64 per share each year totaling $20.1 million, $19.9 million and $19.6 million, respectively. As a result of the exercise of stock options by employees, we received cash and tax benefits of $2.5 million in 2008, $4.7 million in 2007, and $18.1 million in 2006. During 2008 and 2006, proceeds from debt, net of repayments, was $46.2 million and $3.8 million, respectively. During 2008, proceeds from debt were primarily used to fund acquisitions. We did not repurchase any shares of common stock during 2008 and 2007. In December 2008, the Board of Directors approved the repurchase of up to 100,000 shares of common stock for the purpose of acquiring shares of common stock from employees to cover withholding taxes payable by employees upon the vesting of shares of restricted stock when sales of common stock are not permitted. Debt In October 2006, we entered into an unsecured revolving Credit Agreement, terminating and replacing the then existing Second Amended and Restated Credit Agreement and Bridge Credit Agreement. The Credit Agreement allows us to make revolving credit borrowings of up to US$100.0 million and CDN$15.0 million through October 2011. Also under the Credit Agreement, we entered into a $50.0 million term loan due in October 2011. As of December 27, 2008 and December 29, 2007, we had $50.0 million outstanding under the term loan. Debt increased $48.0 million during 2008, primarily to fund the purchases of Brent & Sam’s and substantially all the assets of Archway Cookies, LLC. Although no debt repayments are required before 2011, we have classified $7.0 million as short-term borrowings on the consolidated balance sheet ended December 27, 2008, based on our projected cash flows and intentions to repay debt during 2009. We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims. The total amount of these letters of credit was $17.7 million as of December 27, 2008. These letters of credit reduce the total available borrowings under the Credit Agreement. Unused and available borrowings were $46.5 million under the Credit Agreement at December 27, 2008. Under certain circumstances and subject to certain conditions, we have the option to increase available credit under the Credit Agreement by up to $50.0 million during the life of the facility. The Credit Agreement requires us to comply with certain defined covenants, such as a maximum debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.0 and a minimum interest coverage ratio of 2.5. At December 27, 2008, our debt to EBITDA ratio was 1.6, and our interest coverage ratio was 8.7. In addition, our revolving credit agreement restricts payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $125.0 million. At December 27, 2008, our consolidated stockholders’ equity was $235.5 million. We were in compliance with these covenants at December 27, 2008. Total interest expense for 2008, 2007 and 2006 was $3.2 million, $2.9 million, and $3.3 million, respectively. During 2008, we capitalized $0.3 million of interest expense into fixed assets as part of our ERP system implementation. 21 Table of Contents Commitments and Contingencies We lease certain facilities and equipment classified as operating leases. We also have entered into agreements with suppliers for the purchase of certain ingredients and packaging materials used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. These purchase commitments range in length from a few weeks to twelve months. At the beginning of 2007, we adopted FIN 48 and recorded a gross unrecognized tax benefit associated with uncertain tax positions. Additionally, we provide supplemental retirement benefits to certain retired and active officers. Contractual obligations as of December 27, 2008 were: (in thousands) Purchase commitments for inventory Debt, including interest payable* Operating lease obligations Unrecognized tax benefits** Benefit obligations Total contractual obligations * ** Total < 1 year $ 95,245 108,326 2,562 1,052 1,689 $208,874 Payments Due by Period 1-3 years $ 95,245 3,605 1,790 $ — 104,721 544 ** 191 $100,831 3-5 years $— — 204 ** 250 $105,515 Thereafter $ — — 24 ** 228 $432 ** 1,020 $1,044 Variable interest will be paid in future periods based on the outstanding balance at that time. The amounts due include the estimated interest payable on debt instruments through October 2011. The timing of payment, if any, for unrecognized tax benefits cannot be estimated. However, we believe that $0.4 million related to an uncertain tax position is reasonably likely to be paid within the next 3 years. Item 7A. Quantitative and Qualitative Disclosure About Market Risk The principal market risks that may adversely impact our results of operations and financial position are changes in raw material and packaging prices, energy and fuel costs, interest rates, foreign exchange rates and credit risks. We selectively use derivative financial instruments to manage these risks. There are no market risk sensitive instruments held for trading purposes. At times, we may enter into commodity futures and other derivative contracts to manage fluctuations in prices of anticipated purchases of certain raw materials. Our policy is to use these commodity derivative financial instruments only to the extent necessary to manage these exposures. As of December 27, 2008 and December 29, 2007, there were no outstanding commodity futures contracts or other derivative contracts related to raw materials. In order to fix a portion of our ingredient and packaging costs, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections, and expected usage levels in order to determine appropriate selling prices for our products. For the year ended December 27, 2008, the increase in commodity costs increased our cost of sales by $55.9 million as compared to 2007. 22 Table of Contents Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian prime rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable rate debt. In November 2006, we entered into an interest rate swap agreement on $35 million of debt in order to fix the interest rate at 4.99%, plus applicable margin. The applicable margin on December 27, 2008, was 0.50%. The fair value of the interest rate swap liability was $3.3 million and $1.3 million on December 27, 2008 and December 29, 2007, respectively. In July 2008, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 3.87%, plus applicable margin. The fair value of the interest rate swap liability was $1.0 million on December 27, 2008. While these swaps fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.4 million lower without these swaps during 2008. These swaps are accounted for as cash flow hedges. At December 27, 2008 and December 29, 2007, we had a $50.0 million term loan. During 2008, we borrowed $48.0 million from our existing revolving credit facility to purchase Brent & Sam’s and substantially all the assets of Archway Cookies, LLC. Including the effects of the interest rate swap agreements, the weighted average interest rate for 2008 and 2007 was 3.6% and 5.3%, respectively. A 10% increase in the variable interest rate would not have significantly impacted interest expense during 2008. We are exposed to credit risks related to our accounts receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. As of December 27, 2008 and December 29, 2007, we had allowances for doubtful accounts of $0.9 million and $0.5 million, respectively. Through the operations of our Canadian subsidiary, there is an exposure to foreign exchange rate fluctuations, primarily between U.S. dollars and Canadian dollars. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations’ costs, such as raw materials and direct labor, are denominated in Canadian dollars. We have entered into a series of forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2009. As of December 27, 2008, the fair value of the liability related to the forward contracts as determined by a third party financial institution was $2.1 million. Due to foreign currency fluctuations during 2008 and 2007, we recorded losses of $13.6 million and gains of $11.5 million, respectively, in other comprehensive income because of the translation of the subsidiary’s financial statements into U.S. dollars. Pre-tax earnings during 2008 were increased by $0.1 million from foreign currency exchange rate fluctuations as compared to 2007. This increase in pre-tax earnings includes the unfavorable effect of forward contracts of $0.6 million in 2008. During 2007, pre-tax earnings were reduced by $2.3 million from foreign currency exchange rate fluctuations compared to 2006. The effect of foreign exchange on earnings is included in both cost of goods sold and other income/loss in the income statement. During 2008, pre-tax earnings were unfavorably impacted by increases in natural gas prices and fuel costs of $6.5 million as compared to 2007. During 2007, pre-tax earnings were favorably impacted by decreases in natural gas prices and fuel costs of $0.1 million as compared to 2006. 23 Table of Contents Item 8. Financial Statements and Supplementary Data Consolidated Statements of Income LANCE, INC. AND SUBSIDIARIES For the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 (in thousands, except share and per share data) 2008 Net sales and other operating revenue Cost of sales Gross margin $ Selling, general and administrative Other (income)/expense, net Income from continuing operations before interest and income taxes 2007 852,468 531,528 320,940 $ 2006 762,736 444,487 318,249 $ 730,116 415,576 314,540 291,680 (854) 30,114 277,317 2,390 38,542 283,006 191 31,343 Interest expense, net Income from continuing operations before income taxes 3,041 27,073 2,222 36,320 3,156 28,187 Income tax expense Net income from continuing operations 9,367 17,706 12,511 23,809 9,809 18,378 — — — 44 15 29 153 53 100 Income from discontinued operations, before income taxes Income tax expense Net income from discontinued operations Net income $ 0.57 — $ 0.57 31,202,000 $ Diluted earnings per share: From continuing operations From discontinued operations Diluted earnings per share Weighted average shares outstanding — diluted $ $ Basic earnings per share: From continuing operations From discontinued operations Basic earnings per share Weighted average shares outstanding — basic 17,706 0.56 — $ 0.56 31,803,000 See Notes to Consolidated Financial Statements. 24 23,838 $ $ 0.77 — $ 0.77 30,961,000 $ $ $ 0.76 — $ 0.76 31,373,000 18,478 0.61 — $ 0.61 30,467,000 0.60 — $ 0.60 30,844,000 Table of Contents Consolidated Balance Sheets LANCE, INC. AND SUBSIDIARIES December 27, 2008 and December 29, 2007 (in thousands, except share data) 2008 Assets Current assets Cash and cash equivalents Accounts receivable Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Fixed assets, net Goodwill, net Other intangible assets, net Other assets Total assets 2007 $ 807 74,406 43,112 9,778 12,933 141,036 216,085 80,110 23,966 4,949 $466,146 Liabilities and Stockholders’ Equity Current liabilities Accounts payable Accrued compensation Accrued profit-sharing retirement plan Accrual for casualty insurance claims Accrued selling costs Other payables and accrued liabilities Short-term debt Total current liabilities Long-term debt Deferred income taxes Accrual for casualty insurance claims Other long-term liabilities Total liabilities Commitments and contingencies Stockholders’ equity Common stock, 31,522,953 and 31,214,743 shares outstanding, respectively Preferred stock, no shares outstanding Additional paid-in capital Retained earnings Accumulated other comprehensive income Total stockholders’ equity Total liabilities and stockholders’ equity See Notes to Consolidated Financial Statements. 25 $ 8,647 64,081 38,659 9,335 12,367 133,089 205,075 55,956 13,171 5,712 $413,003 $ 25,939 26,312 5,592 5,581 5,162 15,983 7,000 91,569 91,000 31,241 8,459 8,370 230,639 $ 21,169 20,564 5,383 8,163 4,511 14,847 — 74,637 50,000 26,874 7,428 6,967 165,906 26,268 — 49,138 160,938 (837) 235,507 $466,146 26,011 — 41,430 163,356 16,300 247,097 $413,003 Table of Contents Consolidated Statements of Stockholders’ Equity and Comprehensive Income LANCE, INC. AND SUBSIDIARIES For the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 (in thousands, except share data) Shares Balance, December 31, 2005 Comprehensive income: Net income Net unrealized losses on derivative instruments, net of $106 tax effect Adoption of SFAS No. 158, net of $167 tax effect Foreign currency translation adjustment Total comprehensive income Cash dividends paid to stockholders Amortization of nonqualified stock options Equity-based incentive expense previously recognized under a liability plan Stock options exercised, including $3,223 tax benefit Issuance and amortization of restricted stock, net of cancellations Balance, December 30, 2006 Comprehensive income: Net income Net unrealized losses on derivative instruments, net of $179 tax effect Actuarial gains recognized in net income, net of $68 tax effect Foreign currency translation adjustment Total comprehensive income Cash dividends paid to stockholders Cumulative adjustment from adoption of FIN 48 Amortization of nonqualified stock options Equity-based incentive expense previously recognized under a liability plan Stock options exercised, including $1,026 tax benefit Issuance and amortization of restricted stock, net of cancellations Balance, December 29, 2007 Comprehensive income: Net income Net unrealized losses on derivative instruments, net of $1,923 tax effect Actuarial gains recognized in net income, net of $5 tax effect Foreign currency translation adjustment Total comprehensive income Cash dividends paid to stockholders Amortization of nonqualified stock options Equity-based incentive expense previously recognized under a liability plan Stock options exercised, including $395 tax benefit Issuance and amortization of restricted stock, net of cancellations Balance, December 27, 2008 Common Stock Additional Paid-in Capital 29,808,705 $24,841 $11,380 Retained Earnings Accumulated Other Comprehensive Income Total $160,407 $ 5,081 $201,709 18,478 18,478 (193) 313 27 (19,556) 1,331 (193 ) 313 27 18,625 (19,556) 1,331 634 634 18,128 1,018,761 850 17,278 28,425 30,855,891 23 $25,714 1,506 $32,129 $159,329 $ 5,228 23,838 1,529 $222,400 23,838 (254) (254 ) (142) 11,468 (142 ) 11,468 34,910 (19,872) 61 1,658 (19,872) 61 1,658 316 316 4,732 270,852 224 4,508 88,000 31,214,743 73 $26,011 2,819 $41,430 $163,356 $ 16,300 17,706 2,892 $247,097 17,706 (3,593) (3,593 ) 9 (13,553) 9 (13,553) 569 (20,124) 1,124 (20,124) 1,124 39,250 33 876 909 149,825 125 2,414 2,539 119,135 31,522,953 99 $26,268 3,294 $49,138 See Notes to Consolidated Financial Statements. 26 $160,938 $ (837) 3,393 $235,507 Table of Contents Consolidated Statements of Cash Flows LANCE, INC. AND SUBSIDIARIES For the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 (in thousands) 2008 Operating activities: Net income Adjustments to reconcile net income to cash from operating activities: Fixed asset depreciation and intangible amortization Equity-based incentive compensation expense (Gain)/loss on sale of fixed assets, net Deferred income taxes LIFO reserve adjustment Provisions for doubtful accounts Changes in assets and liabilities, excluding business acquisitions, and foreign currency translation adjustments: Accounts receivable Inventory Other current assets Accounts payable Other accrued liabilities Other noncurrent assets Other noncurrent liabilities Net cash flow from operating activities $ 17,706 2007 $ 23,838 2006 $ 18,478 32,217 5,967 (339) 6,275 1,715 763 29,307 3,294 818 (419) 1,412 (166) 26,897 4,896 591 1,182 (1,083) (838) (10,635) (4,762) (970) 4,724 2,150 952 (853) 54,910 (1,551) (2,806) (1,776) 2,620 (2,727) 828 (322) 52,350 (1,845) 1,329 1,695 (2,108) (6,740) (963) (2,394) 39,097 (39,064) (54,984) (190) 2,958 (91,280) (39,476) — (2,090) 7,277 (34,289) (46,965) — — 7,340 (39,625) Financing activities: Dividends paid Issuances of common stock under employee stock plans Net repayments of previous revolving credit agreement Net proceeds from long-term debt Repayments of long-term debt from business acquisitions Net cash (used in)/from financing activities Effect of exchange rate changes on cash Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of fiscal year Cash and cash equivalents at end of fiscal year (20,124) 2,539 — 48,435 (2,239) 28,611 (81) (7,840) 8,647 $ 807 (19,872) 4,732 — — — (15,140) 222 3,143 5,504 $ 8,647 (19,556) 18,128 (46,238) 50,000 — 2,334 155 1,961 3,543 $ 5,504 Supplemental information: Cash paid for income taxes, net of refunds of $209, $211, and $165, respectively Cash paid for interest $ 2,145 $ 3,231 $ 12,594 $ 2,878 $ 6,679 $ 3,471 Investing activities: Purchases of fixed assets Business acquisitions, net of cash acquired Purchase of investment Proceeds from sale of fixed assets Net cash used in investing activities See Notes to Consolidated Financial Statements. 27 Table of Contents Notes to Consolidated Financial Statements LANCE, INC. AND SUBSIDIARIES December 27, 2008 and December 29, 2007 NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations We manufacture, market and distribute a variety of snack food products. We manufacture products including sandwich crackers and cookies, potato chips, crackers, cookies, other salty snacks, sugar wafers, nuts, restaurant style crackers and candy. In addition, we purchase certain cakes, meat snacks, candy, restaurant style crackers and salty snacks for resale in order to broaden our product offerings. Products are packaged in various single-serve, multi-pack and family-size configurations. We sell branded and non-branded products. Our non-branded products consist of private brand and contract manufacturing for third-parties. Our branded products are principally sold under the Lance®, Cape Cod® and Tom’s® brands. Private brand products are sold to retailers and distributors using store brands or Lance control brands. Contract manufacturing products are produced for other branded manufacturers. Our corporate offices are located in Charlotte, North Carolina. We have manufacturing operations in Charlotte, North Carolina; Burlington, Iowa; Columbus, Georgia; Hyannis, Massachusetts; Corsicana, Texas; Perry, Florida; Little Rock, Arkansas; Ashland, Ohio; Cambridge, Ontario and Guelph, Ontario. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Lance, Inc. and subsidiaries. All intercompany transactions and balances have been eliminated. Reclassifications Certain prior year amounts shown in the consolidated financial statements have been reclassified for consistent presentation. These reclassifications had no impact on net income, financial position, or cash flows. Revenue Recognition Revenue for products sold through our direct-store-delivery (DSD) system is recognized when the product is delivered to the retailer. Our sales representative creates the invoice at time of delivery using a handheld computer. The invoice is transmitted electronically each day and sales revenue is recognized. Customers purchasing products through the DSD system have the right to return product if it is not sold by the expiration date on the product label. We have recorded an estimated allowance for product that may be returned as a reduction to revenue. We estimate the number of days until product is sold through the customer’s location and the percent of sales returns using historical information. This information is reviewed on a quarterly basis for significant changes and updated no less than annually. Revenue for products shipped directly to the customer from our warehouse is recognized based on the shipping terms listed on the shipping documentation. Products shipped with terms FOB-shipping point are recognized as revenue at the time the shipment leaves our warehouses. 28 Table of Contents Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer. We record certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as offinvoice allowances, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. We record the amount of the deduction as a reduction to revenue when the transaction occurs. Rebates are offered to customers based on the quantity of product purchased over a period of time. Based on the nature of these allowances, the exact amount of the rebate is not known at the time the product is sold to the customer. An estimate of the expected rebate amount is recorded as a reduction to revenue and an accrued liability at the time the sale is recorded. The accrued liability is monitored throughout the time period covered by the promotion. The accrual is based on historical information and the progress of the customer against the target amount. Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or three years and recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis. We also record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue. The accrued liability is monitored throughout the time period covered by the coupon or promotion. Fiscal Year Our fiscal year ends on the last Saturday of December. While most of our fiscal years are 52 weeks, some may be 53 weeks. The fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006 were 52 weeks. Use of Estimates Preparing the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include customer returns and promotions, allowances for doubtful accounts, inventories, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, intangible assets, incentive compensation, income taxes, insurance, postretirement benefits, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions. Allowance for Doubtful Accounts Amounts for bad debt expense are recorded in selling, general and administrative expenses on the consolidated statements of income. The determination of the allowance for doubtful accounts is based on management’s estimate of uncollectible accounts receivables. We record a general reserve based on analysis of historical data and aging of accounts receivable. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. The assumptions for this determination are reviewed quarterly to ensure that business conditions or other circumstances are consistent with the assumptions. The recent instability in the U.S. economy may weaken the ability of our customers to perform under contractual obligations or in the normal course of business, which may expose us to additional bad debt expense related to bankruptcies among our customers. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, receivables, accounts payable, derivative instruments and long-term debt approximate their fair values. 29 Table of Contents Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories The principal raw materials used in the manufacturing of our snack food products are flour, vegetable oil, sugar, potatoes, peanuts, other nuts, cheese and seasonings. The principal supplies used are flexible film, cartons, trays, boxes and bags. Inventories are valued at the lower of cost or market. Cost was determined using the last-in, first-out method (LIFO) for approximately 44% and 36% of inventories as of December 27, 2008, and December 29, 2007, respectively. The first-in, first-out method (FIFO) is used for all other inventories. We may enter into various forward purchase agreements and derivative financial instruments to reduce the impact of volatility in raw material ingredient prices. As of December 27, 2008, and December 29, 2007, we had no outstanding commodity futures contracts or other derivative contracts related to raw materials. Fixed Assets Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of long-term depreciable assets. Estimated lives are based on historical experience, maintenance practices, technological changes and future business plans. The following table summarizes the majority of our estimated useful lives of long-term depreciable assets: Useful Life Buildings and building improvements Land improvements Machinery, equipment and computer systems Furniture and fixtures Trucks and automobiles 10-45 years 10-15 years 3-20 years 3-12 years 3-10 years Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount or fair value less cost to sell. Goodwill and Other Intangible Assets We are required to evaluate and determine our reporting units for purposes of performing the annual impairment analysis of goodwill. During 2007, we changed the way the organization is internally reported to management in order to focus on a centralized view of the overall operating performance. In previous years, our internal reporting view was more focused on separate business units. While this did not have external reporting impact, it did change the level at which our goodwill impairment analysis is performed from a business unit level to the consolidated entity level. 30 Table of Contents The annual impairment analysis of goodwill and other indefinite-lived intangible assets also requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital. These projections rely upon historical performance, anticipated market conditions and forward-looking business plans. The analysis of goodwill and other indefinite-lived intangible assets as of December 27, 2008 assumes combined average annual revenue growth of approximately 3.5% during the valuation period. We also use a combination of internal and external data to develop the weightedaverage cost of capital. Significant investments in fixed assets and working capital to support this growth are estimated and factored into the analysis. If the forecasted revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with the excess fair value over carrying value, changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future. Amortizable intangible assets are amortized using the straight-line method over their useful lives, which is the estimated period over which economic benefits are expected to be provided. Intangible assets with indefinite lives are not amortized, but are tested for impairment on an annual basis. Income Taxes Our effective tax rate is based on the level and mix of income of our separate legal entities, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are established in accordance with FIN 48 when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain. We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Deferred U.S. income taxes are not provided on undistributed earnings of our foreign subsidiary since we have no plans to repatriate the earnings. We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage. Self-Insurance Reserves We maintain reserves for the self-funded portions of employee medical insurance and for postretirement healthcare benefits. In addition, we maintain insurance reserves for the self-funded portions of workers’ compensation, auto, product and general liability insurance. Self-insured accruals are based on claims filed and estimated claims incurred but not reported. Workers’ compensation, automobile and general liability costs are covered by standby letters of credit with our claims administrators. 31 Table of Contents We have a defined benefit healthcare plan that currently provides medical insurance benefits for certain retirees and their spouses to age 65. The plan was amended in 2001, and we began the phase out of the postretirement healthcare plan. The postretirement healthcare plan will be phased-out completely by 2011. We evaluate input from a third-party actuary in the estimation of the postretirement healthcare plan obligation on an annual basis. This obligation requires assumptions regarding participation, healthcare cost trends, employee contributions, turnover, mortality and discount rates. For casualty insurance obligations, we maintain self-insurance reserves for workers’ compensation and auto liability for individual losses up to $0.5 million. In addition, general and product liability claims are self-funded for individual losses up to $0.1 million. We evaluate input from a third-party actuary to assist in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, we use various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. We also use historical information for claims frequency and severity in order to establish loss development factors. Consistent with prior periods, the 75 th percentile of this range represents our best estimate of the ultimate outstanding casualty liability. We used a 4.5% discount rate on the estimated claims liability in 2008 and 2007 based on projected investment returns over the estimated future payout period. Claims in excess of the self-insured levels, which vary by type of insurance, are fully insured up to $100 million per individual claim. Derivative Financial Instruments We are exposed to certain market, commodity and interest rate risks as part of our ongoing business operations and may use derivative financial instruments, where appropriate, to manage these risks. We do not use derivatives for trading purposes. Earnings Per Share Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by including all dilutive common shares such as stock options and restricted stock. Dilutive potential shares were 601,000 in 2008, 412,000 in 2007, and 377,000 in 2006. Anti-dilutive shares are excluded from the dilutive earnings calculation. There were 233,000 anti-dilutive shares in 2008, 15,000 in 2007, and none in 2006. No adjustment to reported net income is required when computing diluted earnings per share. Advertising and Consumer Promotion Costs We promote our products with certain marketing activities, including advertising, consumer incentives and trade promotions. All advertising costs are expensed as incurred. Consumer incentive and trade promotions are recorded as expense based on amounts estimated as being due to customers and consumers at the end of the period, based principally on our historical utilization and redemption rates. Advertising costs included in selling, general and administrative expenses on the consolidated statements of income were $1.1 million, $4.0 million, and $4.4 million during 2008, 2007, and 2006, respectively. Shipping and Handling Costs We do not bill customers separately for shipping and handling of product. These costs are included as part of selling, general and administrative expenses on the consolidated statements of income. For the years ended December 27, 2008, December 29, 2007, and December 30, 2006, shipping and handling costs were $67.0 million, $62.5 million, and $68.9 million, respectively. 32 Table of Contents Concentration of Credit Risk Sales to our largest customer, Wal-Mart Stores, Inc., were approximately 20% of revenues in 2008, 20% in 2007, and 18% in 2006. Accounts receivable at December 27, 2008, and December 29, 2007, included receivables from Wal-Mart Stores, Inc. totaling $18.0 million and $14.7 million, respectively. Vacation Policy Change During 2008, we modified our vacation policy to be more competitive and ensure consistency at all facilities. This policy change generally allows employees to earn more vacation with fewer years of service. Since our policy allows employees with more than 1 year of service to vest in all of their vacation as of the beginning of the year, we recorded a pre-tax charge of $1.2 million when this modification was made during the fourth quarter of 2008. New Accounting Standards In June 2006, the FASB issued Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109 ” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “ Accounting for Income Taxes .” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 was adopted at the beginning of 2007. The $0.1 million cumulative effect of applying FIN 48 was reported as an increase to the opening balance of retained earnings. Additionally, we reclassified a $1.8 million net liability for unrecognized tax benefits for uncertain tax positions from other payables and accrued liabilities to other long-term liabilities during the first quarter of 2007. The additional disclosures required by FIN 48 have been included in the accompanying notes to the audited consolidated financial statements. In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements .” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for Lance in 2008, but does not have any impact on the comparability of our financial condition, results of operations or cash flows. In February 2007, the FASB issued SFAS No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities: Including an amendment of FASB Statement No. 115 .” SFAS No. 159 permits entities to measure many financial instruments and certain other items at fair value with changes in fair value reported in earnings. The FASB issued SFAS No. 159 to mitigate earnings volatility that arises when financial assets and liabilities are measured differently, and to expand the use of fair value measurement for financial instruments. SFAS No. 159 is effective for Lance beginning in 2008, but does not have any impact on the comparability of our financial condition, results of operations or cash flows. During December 2007, the FASB replaced SFAS No. 141, “ Business Combinations. ” SFAS No. 141R changes the way companies account for business combinations by requiring certain acquisition-related costs to be expensed. This Statement also requires more assets and liabilities to be recorded at fair value as of the acquisition date. SFAS No. 141R is effective for Lance beginning in 2009. The impact of this Statement on potential future acquisitions cannot be determined until the transactions occur. 33 Table of Contents Also during December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 .” Under SFAS No. 160, noncontrolling interests in consolidated subsidiaries are required to be initially measured at fair value and classified as a component of equity. SFAS No. 160 is effective for Lance beginning in 2009. This Statement is not expected to have a significant impact on our financial condition, results of operations or cash flows because all of our consolidated subsidiaries are whollyowned. In March 2008, the FASB issued SFAS No. 161 “ Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 ,” which enhances the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) the location and amounts of derivative instruments in an entity’s financial statements, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for Lance beginning in 2009. NOTE 2. DISCONTINUED OPERATIONS During 2006, we analyzed the different areas of our business and determined that our vending operations were becoming increasingly less competitive in the marketplace. Near the end of 2006, we committed to a plan to discontinue our vending operations and sell all remaining vending machines and related assets. A plan was designed to identify potential buyers and dispose of substantially all of the vending assets by the end of the third quarter of 2007. Revenue and pre-tax income related to the discontinued vending operations is as follows: (in thousands) 2008 Revenue Pre-tax income $— $— 2007 $5,224 $ 44 2006 $17,833 $ 153 NOTE 3. ACQUISITIONS & INVESTMENTS On March 14, 2008, we acquired 100% of the outstanding common stock of Brent & Sam’s, Inc. Brent & Sam’s is a producer of private brand premium gourmet cookies with operations in Little Rock, Arkansas. This acquisition enhances our product portfolio and extends our product offering into the premium private brand category. We paid approximately $23.9 million to acquire Brent & Sam’s, net of cash acquired of $0.2 million, mostly funded from borrowings under our existing Credit Agreement. Since the acquisition date, we have repaid all of the $2.2 million assumed debt. The post-acquisition results of operations of Brent & Sam’s, which primarily consists of a bakery facility in North Little Rock, Arkansas, are included in the 2008 consolidated statement of income. 34 Table of Contents On December 8, 2008, we acquired substantially all of the assets of Archway Cookies, LLC. Archway is a premium soft cookie brand and complements our existing product portfolio. The acquired bakery in Ashland, Ohio, also provides increased capacity to support volume growth in production of our existing private brands portfolio of products. We paid approximately $31.1 million, including direct acquisition costs, to acquire the Archway assets, which were predominately funded from borrowings under our existing Credit Agreement. The post-acquisition results of operations related to these assets are included in the 2008 consolidated statement of income. We purchased a non-controlling equity interest in an organic snack food company, Late July Snacks LLC, for $2.1 million in 2007. During 2008, we invested an additional $0.2 million into Late July. This investment has been reflected in other assets on the consolidated balance sheet. During 2008 and 2007, the equity method losses were $0.2 million and $0.1 million, respectively, and have been recorded in other expense on the consolidated statements of income. We also manufacture products for Late July. As of December 27, 2008, and December 29, 2007, accounts receivable due from Late July totaled $0.4 million and $0.6 million, respectively. NOTE 4. INVENTORIES Inventories at December 27, 2008 and December 29, 2007 consisted of the following: (in thousands) 2008 2007 $23,227 11,556 15,293 50,076 (6,964) $43,112 Finished goods Raw materials Supplies, etc. Total inventories at FIFO cost Less: adjustment to reduce FIFO cost to LIFO cost Total inventories $21,910 7,701 14,297 43,908 (5,249) $38,659 The increase in inventory during 2008 was primarily due to higher inventory costs and $2.0 million of additional inventory from business acquisitions. During 2008 and 2007, we recorded adjustments to the LIFO reserve of $1.7 million and $1.4 million, respectively, due to higher costs and inventory quantities on hand. 35 Table of Contents NOTE 5. FIXED ASSETS Fixed assets at December 27, 2008 and December 29, 2007 consisted of the following: (in thousands) 2008 Accumulated depreciation and amortization Assets held for sale Fixed assets, net 2007 $ 15,209 87,067 305,007 61,967 2,334 12,341 483,925 (267,456) $ 216,469 (384) $ 216,085 Land and land improvements Buildings and building improvements Machinery, equipment and computer systems Trucks and automobiles Furniture and fixtures Construction in progress $ 14,670 84,118 287,821 59,490 2,304 10,909 459,312 (253,732) $ 205,580 (505) $ 205,075 The increase in fixed assets during 2008 was primarily due to purchases of fixed assets for existing facilities and $11.0 million from business acquisitions. Depreciation expense related to fixed assets was $32.0 million during 2008, $29.3 million during 2007, and $26.8 million during 2006. During 2008, we capitalized $0.3 million of interest expense into fixed assets as part of our ERP system implementation. There are two facilities in Canada that accounted for $17.5 million and $24.2 million of the total net fixed assets in 2008 and 2007, respectively. At December 27, 2008, and December 29, 2007, assets held for sale consisted of land and buildings related to certain properties in Columbus, Georgia. NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the fiscal year ended December 27, 2008, are as follows: Carrying Amount (in thousands) Balance as of December 29, 2007 Business acquisitions Changes in foreign currency exchange rates Balance as of December 27, 2008 $55,956 32,722 (8,568) $80,110 36 Table of Contents As of December 27, 2008 and December 29, 2007, acquired intangible assets consisted of the following: Gross Carrying Amount (in thousands) As of December 27, 2008: Customer relationships — amortized Non-compete agreement — amortized Trademarks — unamortized Total other intangible assets as of December 27, 2008 Net Carrying Amount Accumulated Amortization $ 4,678 500 19,103 $24,281 $ 4,363 500 19,103 $23,966 $ As of December 29, 2007: Customer relationships — amortized Trademarks — unamortized Total other intangible assets as of December 29, 2007 $(315) $— — $(315) $ (82) — $ (82) $ 296 12,875 $13,171 378 12,875 $13,253 During 2008, we added approximately $11.0 million of intangible assets from business acquisitions. The intangible assets related to customer relationships are being amortized over a weighted average useful life of 14 years and will be amortized through 2023. Amortization expense related to intangibles was less than $0.3 million for the year ended December 27, 2008. For each of the years ended December 29, 2007, and December 30, 2006, intangible amortization expense was less than $0.1 million. We estimate that annual amortization expense for intangible assets related to customer relationships to be less than $0.4 million for each of the next five years. The non-compete agreement relates to the acquisition of Brent & Sam’s and will be amortized over the two-year period following the expiration of an employment agreement. The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Therefore, the trademarks are not amortized. NOTE 7. LONG-TERM DEBT At December 27, 2008 and December 29, 2007, we had the following debt outstanding: (in thousands) 2008 Unsecured U.S. term loan due October 2011, interest payable based on the 30-day LIBOR, plus applicable margin of 0.50% (1.94% at December 27, 2008, including applicable margin) Unsecured U.S. Dollar-denominated revolving credit facility, interest payable based on the weightedaverage 30-day LIBOR, plus applicable margin of 0.40% (1.94% at December 27, 2008, including applicable margin) Unsecured Canadian Dollar — denominated revolving credit facility, interest payable based on Canadian Bankers’ Acceptance discount rate or Canadian Prime rate, plus the applicable margin and an additional 0.13% fee Total Debt Less current portion of long-term debt Total long-term debt 37 2007 $50,000 $50,000 48,000 — — 98,000 (7,000) $91,000 — 50,000 — $50,000 Table of Contents During 2008, the increase in debt was primarily used to fund acquisitions. The applicable margin is determined by certain financial ratios. The Credit Agreement also requires us to pay a facility fee on the entire US$100.0 million and CDN$15.0 million revolvers ranging from 0.07% to 0.13% based on certain financial ratios. Although no debt repayments are required before 2011, we classified $7.0 million as short-term borrowings on the consolidated balance sheet ended December 27, 2008, based on our projected cash flows for 2009. Including the effect of interest rate swap agreements, the weighted average interest rate for 2008 and 2007 was 3.6% and 5.3%, respectively. See Note 8, Derivatives, for further information. The carrying value of all long-term debt approximates fair value. At December 27, 2008 and December 29, 2007, we had available $46.5 million and $95.0 million, respectively, of unused credit facilities. Under certain circumstances and subject to certain conditions, we have the option to increase available credit under the Credit Agreement by up to $50.0 million during the life of the facility. The Credit Agreement requires us to comply with certain defined covenants, such as a maximum debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.0 and a minimum interest coverage ratio of 2.5. At December 27, 2008, our debt to EBITDA ratio was 1.6, and our interest coverage ratio was 8.7. In addition, our revolving credit agreement restricts payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders’ equity would be less than $125.0 million. At December 27, 2008, our consolidated stockholders’ equity was $235.5 million. We were in compliance with these covenants at December 27, 2008. Total interest expense for 2008, 2007 and 2006 was $3.2 million, $2.9 million, and $3.3 million, respectively. During 2008, we capitalized $0.3 million of interest expense into fixed assets as part of our ERP system implementation. NOTE 8. DERIVATIVE INSTRUMENTS Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate, Canadian Bankers’ Acceptance discount rate, Canadian prime rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable rate debt. In November 2006, we entered into an interest rate swap agreement on $35 million of debt in order to fix the interest rate at 4.99%, plus applicable margin. The applicable margin on December 27, 2008, was 0.50%. The fair value of the interest rate swap liability was $3.3 million and $1.3 million on December 27, 2008 and December 29, 2007, respectively. In July 2008, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 3.87%, plus applicable margin. The fair value of the interest rate swap liability was $1.0 million on December 27, 2008. While these swaps fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.4 million lower without these swaps during 2008. These swaps are accounted for as cash flow hedges. 38 Table of Contents NOTE 9. INCOME TAXES Income tax expense (benefit) consists of the following: (in thousands) 2008 Total income tax expense 2006 $11,744 888 (52) 12,580 $8,517 671 (523) 8,665 5,860 720 (695) 5,885 $9,367 Deferred: Federal State and other Foreign 2007 $3,140 240 102 3,482 Current: Federal State and other Foreign 560 240 (854) (54) $12,526 838 112 247 1,197 $9,862 A reconciliation of the federal income tax rate to our effective income tax rate for the years ended December 27, 2008, December 29, 2007, and December 30, 2006 follows: 2008 Statutory income tax rate State and local income taxes, net of federal income tax benefit Net favorable foreign income taxes as a result of tax adjustments and tax rate differences Changes in deferred taxes for effective state rate changes Miscellaneous items, net Effective income tax rate 39 2007 2006 35.0% 1.3 (1.0) (0.1) (0.6) 34.6% 35.0% 1.7 (1.3) 0.2 (1.2) 34.4% 35.0% 2.0 (2.5) (0.1) 0.4 34.8% Table of Contents The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 27, 2008 and December 29, 2007, are presented below: (in thousands) 2008 Deferred tax assets: Reserves for employee compensation, deductible when paid for income tax purposes, accrued for financial reporting purposes Reserves for insurance claims, deductible when paid for income tax purposes, accrued for financial reporting purposes Other reserves, deductible when paid for income tax purposes, accrued for financial reporting purposes Unrealized losses, deductible when realized for income tax purposes, included in other comprehensive income Inventories, principally due to additional costs capitalized for income tax purposes Net state and foreign operating loss and tax credit carryforwards Total gross deferred tax assets Less valuation allowance Net deferred tax assets Deferred tax liabilities: Fixed assets, principally due to differences in depreciation, net of impairment reserves Trademark amortization Unrealized gains includible when realized for income tax purposes, included in other comprehensive income Prepaid expenses and other costs deductible for tax, amortized for financial statement purposes Total gross deferred tax liabilities Total net deferred tax liabilities 2007 $ 7,739 $ 5,916 4,620 1,884 5,488 2,639 2,244 1,523 702 18,712 (199) 18,513 278 1,764 1,182 17,267 (224) 17,043 (35,155) (2,887) (30,089) (2,905) (104) (1,830) (39,976) $(21,463) (98) (1,490) (34,582) $(17,539) In 2008 and 2007, the valuation allowance on deferred tax assets related to a state net operating loss carryforward, which management did not believe would be fully utilized due to the limited nature of our activities in that state. Our effective tax rate is based on the level and mix of income of our separate legal entities, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are recorded in accordance with Financial Accounting Standards Board Interpretation No. 48 (FIN 48). We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit. As of December 27, 2008, we have recorded gross unrecognized tax benefits totaling $1.1 million and related interest and penalties of $0.3 million in other long-term liabilities on the consolidated balance sheet. Of this total amount, $1.1 million would affect the effective tax rate if subsequently recognized. We expect that certain income tax audits will be settled and various tax authorities’ statutes of limitations will expire during the next twelve months resulting in a potential $0.6 million reduction of the unrecognized tax benefit amount. We classify interest and penalties associated with income tax positions within income tax expense. During 2008, $0.1 million of interest and penalties related to unrecognized tax benefits were recorded in income tax expense. 40 Table of Contents We have open years for income tax audit purposes in our major taxing jurisdictions according to statutes as follows: Jurisdiction Open Years US federal Canada federal Ontario provincial Massachusetts North Carolina Iowa 2005 and forward 2004 and forward 2003 and forward 2001 and forward 2005 and forward 2005 and forward A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows: (in thousands) 2008 Balance at December 30, 2007 (first day of fiscal 2008) Additions for tax positions taken during the current period Reductions resulting from a lapse of the statute of limitations Balance at December 27, 2008 $ 1,499 89 (536) $ 1,052 NOTE 10. POSTRETIREMENT BENEFITS PLANS In 2001, we began the phase out of our unfunded postretirement healthcare plan. This plan currently provides postretirement medical benefits for certain retirees who were age 55 or older on June 30, 2001 and their spouses for medical coverage between the ages of 60 and 65. Retirees pay contributions toward medical coverage based on the medical plan and coverage they select. The postretirement healthcare plan will be phased-out completely in 2011. As of December 27, 2008, there were 12 participants in the postretirement healthcare plan. The total liability recorded was less than $0.1 million at December 27, 2008. We also have a defined contribution retirement plan (known as the Lance, Inc. Profit-Sharing “PSR” and 401(k) Retirement Saving Plan) that covers substantially all of our employees. The PSR plan provides contributions equal to 3.25% of qualified employee wages if an employee has less than ten years of service, and 3.5% of qualified wages if over ten years of service. The 401(k) plan provides a 50% match of the first 5% of employee contributions not to exceed 2.5% of the employee’s qualified wages. Total expenses for these employee retirement plans were $8.0 million, $7.6 million and $7.3 million, in 2008, 2007 and 2006, respectively. Additionally, we provide supplemental retirement benefits to certain retired and active key officers. The discounted liability recorded in other long-term liabilities on the consolidated balance sheets was $1.0 million and $1.1 million at December 27, 2008, and December 29, 2007. NOTE 11. EQUITY BASED INCENTIVE COMPENSATION Total equity-based incentive expense recorded in the consolidated statements of income was $6.0 million, $3.3 million, and $4.9 million for the years ended December 27, 2008, December 29, 2007, and December 30, 2006, respectively. 41 Table of Contents Key Employee Incentive Plans As of December 27, 2008, there were approximately 1.3 million securities available for future issuance under the 2007 Key Employee Incentive Plan. This Plan provided for a maximum of 1.8 million new securities to be issued to key employees as defined in the plan. The plan authorizes the grant of incentive stock options, non-qualified stock options, stock appreciation rights (SARs), restricted stock and performance shares, and expires in April 2013. The plan also authorizes other awards denominated in monetary units or shares of common stock payable in cash or shares of common stock. At December 27, 2008, there were no SARs outstanding. In April 2008, the 2003 Key Employee Stock Plan (the 2003 Plan) expired and there are no securities available for future issuance from this plan. Long-term Incentive Plans Long-term incentive plans are accounted for as liability share-based payment plans. Once certain performance and time-based measures are attained, the related liabilities are converted into equity instruments. As of December 27, 2008, and December 29, 2007, liabilities for longterm incentive plans were $1.5 million and $1.4 million, respectively. Employee Stock Options As of December 27, 2008, there was $1.8 million of total unrecognized compensation expense related to outstanding stock options. This cost is expected to be recognized, consistent with vesting on a straight-line basis over a weighted-average period of 2.0 years. Cash received from option exercises during 2008, 2007 and 2006 was $2.1 million, $3.7 million and $14.9 million, respectively. The cash tax windfall benefit realized for the tax deductions from option exercises was $0.4 million, $1.0 million and $3.2 million, respectively, during 2008, 2007, and 2006. The total intrinsic value of stock options exercised during 2008, 2007, and 2006 was $1.0 million, $2.7 million, and $8.6 million, respectively. Stock options become exercisable in periods ranging from immediately to five years after the grant date. The option price, which equals the fair market value of our common stock at the date of grant, ranges from $7.65 to $24.00 per share for the outstanding options as of December 27, 2008. The weighted average exercise price of exercisable options was $16.26 as of December 27, 2008. Options Outstanding Balance at December 29, 2007 Granted Exercised Expired/Forfeited Balance at December 27, 2008 Weighted average contractual term Aggregate intrinsic value 1,213,090 490,305 (133,825) (42,000) 1,527,570 6.3 years $7.7 million 42 Outstanding Weighted Average Exercise Price $16.91 16.89 14.47 20.98 $17.01 Options Exercisable 657,024 1,197,627 5.9 years $6.9 million Table of Contents The following assumptions were used to determine the weighted average fair value of options granted during the years ended December 27, 2008, December 29, 2007 and December 30, 2006: 2008 2007 2006 3.79% 2.71% 4.8 years 26.76% $ 3.00 Assumptions used in Black Scholes pricing model: Expected dividend yield Risk-free interest rate Weighted average expected life (simplified method) Expected volatility Weighted average fair value per share of options granted 3.13% 4.23% 5.0 years 29.47% $ 4.56 3.21% 4.54% 6.5 years 31.20% $ 5.50 Employee Restricted Stock and Restricted Stock Unit Awards As of December 27, 2008, there was $5.0 million of total unrecognized compensation expense related to outstanding restricted stock awards. This cost is expected to be recognized, consistent with vesting on a straight-line basis over a weighted-average period of 1.8 years. During 2005, we awarded 300,000 restricted stock units, half of which would be settled in common stock shares and half of which would be settled in cash. During 2006, the Compensation Committee of the Board of Directors approved an amendment that re-designated the 150,000 units that were to be settled in cash to units settled in stock for our Chief Executive Officer. Pursuant to SFAS No. 123R, these restricted units are classified as equity as opposed to a liability. Accordingly, there was an increase to additional paid-in capital of $0.6 million with an offsetting reduction in other long-term liabilities during 2006. Compensation costs associated with the restricted stock units that are settled in common stock shares are amortized over the vesting period through May 2010. During 2006, the Compensation Committee of the Board of Directors approved the 2006 Five-Year Performance Equity Plan for Officers and Senior Managers, which included performance equity units to be paid in common stock to key employees in 2011. All shares issued under the Five-Year Performance Equity Plan were awarded under the 2003 Plan. The number of awards ultimately issued under this plan is contingent upon our relative stock price compared to the Russell 2000 Index and can range from zero to 100% of the awards granted. The fair value of the award was calculated using the Monte Carlo valuation method. This method estimates the probability of the potential payouts using the historical volatility of our common stock compared to the Russell 2000 Index. Included in our assumptions was a risk-free interest rate of 4.53%, expected volatility of 35.08%, and an expected dividend rate of 2.8%. Based on these assumptions, a discount rate of 33.4% was applied to the market value on the grant date. Compensation costs associated with the restricted stock units are amortized over the vesting period through the end of 2010. Restricted Stock and Restricted Unit Awards Outstanding Balance at December 29, 2007 Granted Exercised Expired/Forfeited Balance at December 27, 2008 722,800 151,473 (61,301) (27,021) 785,951 Weighted Average Grant Date Fair Value $17.68 16.70 18.41 14.89 $17.53 The deferred portion of these restricted shares is included in the consolidated balance sheet as additional paid-in capital. The weighted average grant date fair value for awards granted during 2007 and 2006 was $17.78 and $14.91, respectively. 43 Table of Contents Non-Employee Director Stock Option Plan In 1995, we adopted a Nonqualified Stock Option Plan for Non-Employee Director (Director Plan). The Director Plan requires among other things that the options are not exercisable unless the optionee remains available to serve as a director until the first anniversary of the date of grant, except that the initial option shall be exercisable after six months. The options under this plan vest on the first anniversary of the date of grant. Options granted under the Director Plan expire ten years from the date of grant. After December 28, 2002, there were no awards made under this plan. The option price, which equals the fair market value of our common stock at the date of grant, ranges from $10.50 to $15.88 per share. There were 64,000 options outstanding at December 27, 2008. At December 27, 2008, the weighted average remaining contractual term was 1.8 years, and the aggregate intrinsic value was $0.6 million. Options Outstanding Options Exercisable 98,500 — (16,000) (18,500) 64,000 Balance at December 29, 2007 Granted Exercised Expired/Forfeited Balance at December 27, 2008 Weighted Average Exercise Price $14.60 — 12.98 21.63 $12.98 98,500 64,000 Non-Employee Director Restricted Stock Awards In 2008, we adopted the Lance, Inc. 2008 Director Stock Plan (“2008 Director Plan”). With the adoption of the 2008 Director Plan, no further awards will be made under the 2003 Director Plan that expired in April 2008. The 2008 Director Plan is intended to attract and retain persons of exceptional ability to serve as Directors and to further align the interests of Directors and stockholders in enhancing the value of our common stock and to encourage such Directors to remain with and to devote their best efforts to the company. The Board of Directors reserved 200,000 shares of common stock for issuance under the 2008 Director Plan. This number is subject to adjustment in the event of stock dividends and splits, recapitalizations and similar transactions. The 2008 Director Plan is administered by the Board of Directors and expires in April 2013. As of December 27, 2008, there were 184,000 shares available for future issuance under the 2008 Director Plan. In 2008, we awarded 16,000 shares of common stock to our directors, subject to certain vesting restrictions. During 2007 and 2006, we awarded 9,000 shares of common stock to our directors with a grant date fair value of $23.23 and $24.85, respectively. At December 27, 2008, there were 16,000 unvested restricted shares outstanding with a remaining contractual term of four months and a grant date fair value of $20.36. Compensation costs associated with these restricted shares are amortized over the vesting period, at which time the earned portion is charged against current earnings. The deferred portion of these restricted shares is included in the consolidated balance sheet as additional paidin capital. Employee Stock Purchase Plan We have an employee stock purchase plan under which shares of common stock are purchased on the open market with employee and company contributions. The plan provides for us to contribute an amount equal to 10% of the employees’ contributions, and up to 25% for certain employees who are not executive officers. We contributed less than $0.1 million to the employee stock purchase plan during each of 2008, 2007 and 2006. 44 Table of Contents NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES We have entered into contractual agreements providing severance benefits to certain key employees in the event of a change in control. Commitments not previously accrued for under these agreements totaled $23.7 million at December 27, 2008. We have entered into contractual agreements providing severance benefits to certain key employees in the event of termination without cause. Commitments under these agreements not previously accrued for were $9.0 million as of December 27, 2008. The maximum aggregate commitment for both the change in control and severance agreements as of December 27, 2008 was $25.6 million. We lease certain facilities and equipment under contracts classified as operating leases. Rental expense was $5.3 million in 2008, $6.2 million in 2007, and $6.6 million in 2006. Future minimum lease commitments for operating leases at December 27, 2008 were as follows: (in thousands) Amount 2009 2010 2011 2012 2013 Thereafter $ 1,790 339 205 118 86 24 Total operating lease commitments $ 2,562 We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims. These letters of credit amounted to $17.7 million as of December 27, 2008. We entered into agreements with suppliers for certain ingredients and packaging materials used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. As of December 27, 2008, outstanding purchase commitments for inventory items totaled $95.2 million. These commitments range in length from a few weeks to 12 months. In addition, we are subject to routine litigation and claims incidental to our business. In our opinion, such routine litigation and claims should not have a material adverse effect upon our consolidated financial statements taken as a whole. NOTE 13. STOCKHOLDERS’ EQUITY Capital Stock Our Restated Charter, as amended, authorizes 75,000,000 shares of common stock with a par value of $0.83-1/3 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. There were 31,522,953 and 31,214,743 shares of common stock outstanding at December 27, 2008, and December 29, 2007, respectively. There were no preferred shares outstanding. 45 Table of Contents Stockholder Rights Plan On July 14, 1998, our Board of Directors adopted a Preferred Shares Rights Agreement (Rights Agreement), designed to protect all of our stockholders and ensure that they receive fair and equal treatment in the event of an attempted takeover or certain takeover tactics. None of these rights were redeemed and all expired on July 14, 2008, in accordance with the terms of the Rights Agreement. Other Comprehensive Income Accumulated other comprehensive income presented in the consolidated balance sheets consists of: (in thousands) 2008 2007 $ 3,023 180 (4,040) $ (837) Foreign currency translation adjustment Postretirement actuarial gains recognized in net income, net of tax Net unrealized losses on derivative instruments, net of tax Total accumulated other comprehensive income $ 16,576 171 (447) $ 16,300 Income taxes on the foreign currency translation adjustment in other comprehensive income are not recognized because the earnings are intended to be indefinitely reinvested in those operations. 46 Table of Contents NOTE 14. INTERIM FINANCIAL INFORMATION (UNAUDITED) A summary of interim financial information follows (in thousands, except per share data): March 29 (13 Weeks) Net sales and other operating revenue Cost of sales Gross margin Selling, general and administrative Other (income)/expense, net Income from continuing operations before interest and income taxes Interest expense, net Income from continuing operations before income taxes Income tax expense Net income from continuing operations Income from discontinued operations Income tax expense Net income from discontinued operations Net income 2008 Interim Period Ended June 28 September 27 (13 Weeks) (13 Weeks) December 27 (13 Weeks) $197,968 123,460 74,508 72,857 (4) 1,655 606 1,049 404 645 — — — $ 645 $225,587 143,040 82,547 72,337 (536) 10,746 708 10,038 3,229 6,809 — — — $ 6,809 $215,298 131,336 83,962 71,918 (476) 12,520 867 11,653 4,109 7,544 — — — $ 7,544 $ From continuing operations: Net income per common share — basic Net income per common share — diluted From discontinued operations: Net income per common share — basic Net income per common share — diluted $213,614 133,691 79,923 74,568 161 5,194 860 4,334 1,626 2,708 — — — $ 2,708 $ $ $ 0.02 0.02 — — Dividends declared per common share $ 0.16 March 31 (13 Weeks) Net sales and other operating revenue Cost of sales Gross margin Selling, general and administrative Other (income)/expense, net Income from continuing operations before interest and income taxes Interest expense, net Income from continuing operations before income taxes Income tax expense Net income from continuing operations Income/(loss) from discontinued operations Income tax expense/(benefit) Net income/(loss) from discontinued operations Net income 0.09 0.09 — — $ 0.16 0.22 0.21 — — $ 0.16 2007 Interim Period Ended June 30 September 29 (13 Weeks) (13 Weeks) 0.24 0.24 — — $ 0.16 December 29 (13 Weeks) $182,426 102,976 79,450 69,616 (90) 9,924 604 9,320 3,448 5,872 537 199 338 $ 6,210 $198,052 115,692 82,360 70,253 522 11,585 550 11,035 3,448 7,587 (146) (54) (92) $ 7,495 $185,222 116,384 68,838 65,981 985 1,872 454 1,418 337 1,081 — — — $ 1,081 $ From continuing operations: Net income per common share — basic Net income per common share — diluted From discontinued operations: Net income/(loss) per common share — basic Net income/(loss) per common share — diluted $197,036 109,435 87,601 71,467 973 15,161 615 14,546 5,277 9,269 (346) (129) (217) $ 9,052 $ $ $ 0.19 0.19 0.01 0.01 Dividends declared per common share $ 47 0.16 0.30 0.30 (0.01) (0.01) $ 0.16 0.24 0.24 — — $ 0.16 0.03 0.03 — — $ 0.16 Table of Contents SCHEDULE II — VALUATION & QUALIFYING ACCOUNTS For Fiscal Years ended December 27, 2008, December 29, 2007, and December 30, 2006 (in thousands) Beginning Balance Additions (Reductions) to Expense Deductions Ending Balance Fiscal year ended December 27, 2008: Allowance for doubtful accounts LIFO inventory reserves Deferred tax asset valuation allowance $ 506 $5,249 $ 224 763 1,715 (25) (406) — — $ 863 $6,964 $ 199 Fiscal year ended December 29, 2007: Allowance for doubtful accounts LIFO inventory reserves Deferred tax asset valuation allowance $ 994 $3,837 $ 417 (165) 1,412 (193) (323) — — $ 506 $5,249 $ 224 Fiscal year ended December 30, 2006: Allowance for doubtful accounts LIFO inventory reserves Deferred tax asset valuation allowance $5,337 $4,920 $ 460 (838) (1,083) (43) (3,505) — — $ 994 $3,837 $ 417 48 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Lance, Inc.: We have audited the accompanying consolidated balance sheets of Lance, Inc. and subsidiaries (the Company) as of December 27, 2008 and December 29, 2007, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 27, 2008. In connection with our audits of the consolidated financial statements, we have also audited the related financial statement schedule “Valuation and Qualifying Accounts.” Additionally, we have audited the Company’s internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 49 Table of Contents In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 27, 2008 and December 29, 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 27, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Additionally, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As discussed in the Summary of Significant Accounting Policies, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109, ” effective December 31, 2006. Additionally, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123(R), “ Share-Based Payment ,” effective January 1, 2006, and the recognition and disclosure provisions of Statement of Financial Accounting Standards, No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans ,” as of December 30, 2006. /s/ KPMG LLP Charlotte, North Carolina February 23, 2009 50 Table of Contents MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or instances of fraud. As such, a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of internal control over financial reporting as of December 27, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 27, 2008. 51 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b of the Securities and Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Our management assessed the effectiveness of our internal control over financial reporting as of December 27, 2008. See page 51 for “ Management’s Report on Internal Control over Financial Reporting .” Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting. The report of the independent registered public accounting firm appears on page 49. There have been no changes in our internal control over financial reporting during the quarter ended December 27, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Not applicable. PART III Items 10 through 14 are incorporated by reference to the sections captioned Principal Stockholders and Holdings of Management, Election of Directors, The Board of Directors and its Committees, Compensation Committee Interlocks and Insider Participation, Compensation Committee Report, Equity Compensation Plans, Director Compensation, Section 16(a) Beneficial Ownership Reporting Compliance, Executive Officer Compensation and Ratification of Selection of Independent Public Accountants in our Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2009 and to the Separate Item in Part I of this Annual Report captioned Executive Officers of the Registrant. 52 Table of Contents Item 10. Directors, Executive Officers and Corporate Governance Code of Ethics We have adopted a Code of Conduct and Ethics that covers our officers and employees. In addition, we have adopted a Code of Ethics for Directors and Senior Financial Officers which covers the members of the Board of Directors and Senior Financial Officers, including the Chief Executive Officer, Chief Financial Officer, Corporate Controller and Principal Accounting Officer. These Codes are posted on our website at www.lance.com. We will disclose any substantive amendments to, or waivers from, our Code of Ethics for Directors and Senior Financial Officers on our website or in a report on Form 8-K. PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements. The following financial statements are filed as part of this report: Page Consolidated Statements of Income for the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 Consolidated Balance Sheets as of December 27, 2008 and December 29, 2007 Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 27, 2008, December 29, 2007, and December 30, 2006 Notes to Consolidated Financial Statements 24 25 26 27 28 (a) 2. Financial Schedules. Schedules have been omitted because of the absence of conditions under which they are required or because information required is included in financial statements or the notes thereto. (a) 3. Exhibit Index. 2.1 Asset Purchase Agreement, dated November 13, 2008, as amended and approved on December 3, 2008, by and among Archer Acquisitions, LLC, a North Carolina limited liability company, Archway Cookies, LLC, a Delaware limited liability company, and for purposes of Section 6.4 of the Agreement, the Registrant, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 9, 2008 (File No. 0-398). 3.1 Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated herein by reference to Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the twelve weeks ended June 13, 1998 (File No. 0-398). 53 Table of Contents 3.2 Articles of Amendment of Lance, Inc. dated July 14, 1998 designating rights, preferences and privileges of the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 1998 (File No. 0-398). 3.3 Articles of Amendment of Lance, Inc., as filed on October 30, 2008, eliminating the Registrant’s Series A Junior Participating Preferred Stock, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 31, 2008 (File No. 0-398). 3.4 Bylaws of Lance, Inc., as amended through November 1, 2007, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 7, 2007 (File No. 0-398). 4.1 See 3.1, 3.2, 3.3 and 3.4 above. 10.1 Lance, Inc. 1995 Nonqualified Stock Option Plan for Non-Employee Directors, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 2005 (File No. 0-398). 10.2 Lance, Inc. 1997 Incentive Equity Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (File No. 0-398). 10.3 Lance, Inc. 2003 Key Employee Stock Plan, as amended, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 (File No. 0-398). 10.4 Lance, Inc. 2003 Director Stock Plan, incorporated herein by reference to Exhibit 4 to the Registrant’s Registration Statement on Form S-8 filed on May 2, 2003 (File No. 333-104961). 10.5 Lance, Inc. 2007 Key Employee Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2007 (File No. 0-398). 10.6 Lance, Inc. 2008 Director Stock Plan, incorporated herein by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-8 filed on May 15, 2008 (File No. 333-150931). 10.7* Lance, Inc. Compensation Deferral and Benefit Restoration Plan, as amended, incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2006 (File No. 0-398). 10.8* Lance, Inc. 2006 Annual Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398). 54 Table of Contents 10.9* Lance, Inc. 2006 Three-Year Incentive Plan for Officers, as amended, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 30, 2007 (File No. 0-398). 10.10* Lance, Inc. 2006 Five-Year Performance Equity Plan for Officers and Senior Managers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 22, 2006 (File No. 0-398). 10.11* Lance, Inc. 2007 Annual Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2007 (File No. 0-398). 10.12* Lance, Inc. 2007 Three-Year Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2007 (File No. 0-398). 10.13* Lance, Inc. 2007 Stock Option Plan for Officers and Key Managers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 14, 2007 (File No. 0-398). 10.14* Lance, Inc. 2008 Annual Performance Incentive Plan for Officers, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 29, 2008 (File No. 0-398). 10.15* Lance, Inc. 2008 Three-Year Performance Incentive Plan for Officers and Key Managers, as amended, filed herewith. 10.16* Lance, Inc. 2005 Employee Stock Purchase Plan, as amended and restated, incorporated herein by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2006 (File No. 0-398). 10.17* Executive Employment Agreement dated May 11, 2005 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No. 0-398). 10.18* Executive Employment Agreement Amendment dated April 24, 2008 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 28, 2008 (File No. 0398). 10.19* Amended and Restated Compensation and Benefits Assurance Agreement dated April 24, 2008 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 28, 2008 (File No. 0-398). 10.20* Restricted Stock Unit Award Agreement dated May 11, 2005 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 16, 2005 (File No. 0-398). 55 Table of Contents 10.21* Restricted Stock Unit Award Agreement Amendment dated April 27, 2006 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 3, 2006 (File No. 0-398). 10.22* Restricted Stock Unit Award Agreement Amendment Number Two dated April 24, 2008 between the Registrant and David V. Singer, incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 28, 2008 (File No. 0-398). 10.23* Offer Letter, effective as of January 30, 2006, between the Registrant and Rick D. Puckett, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2006 (File No. 0-398). 10.24* Form of Amended and Restated Compensation and Benefits Assurance Agreement between the Registrant and each of Rick D. Puckett, Glenn A. Patcha, Blake W. Thompson, Frank I. Lewis and Earl D. Leake, incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 28, 2008 (File No. 0-398). 10.25* Amended and Restated Executive Severance Agreement dated April 24, 2008 between the Registrant and Earl D. Leake, incorporated herein by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended June 28, 2008 (File No. 0-398). 10.26* Form of Executive Severance Agreement between the Registrant and each of Frank I. Lewis, Glenn A. Patcha, Rick D. Puckett, Blake W. Thompson and Margaret E. Wicklund, incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (File No. 0-398). 10.27* Agreement, effective as of February 14, 2007, between the Registrant and L. Rudy Gragnani, incorporated herein by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2007 (File No. 0-398). 10.28* Retirement Agreement, effective March 26, 2007, between the Registrant and H. Dean Fields, incorporated herein by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2007 (File No. 0-398). 10.29* Offer Letter, effective as of January 8, 2007, between the Registrant and Glenn A. Patcha, incorporated herein by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 2007 (File No. 0-398). 10.30 Credit Agreement, dated as of October 20, 2006, among the Registrant, Tamming Foods, Ltd., Bank of America, National Association, Wachovia Capital Markets, LLC and the other lenders named therein, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006 (File No. 0-398). 21 List of the Subsidiaries of the Registrant, filed herewith. 23 Consent of KPMG LLP, filed herewith. 56 Table of Contents 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), filed herewith. 32 Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, filed herewith. * Management contract. 57 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. LANCE, INC. Dated: February 23, 2009 By: /s/ David V. Singer David V. Singer President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ David V. Singer David V. Singer President and Chief Executive Officer (Principal Executive Officer) February 23, 2009 /s/ Rick D. Puckett Rick D. Puckett Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) February 23, 2009 /s/ Margaret E. Wicklund Margaret E. Wicklund Vice President, Corporate Controller and Assistant Secretary (Principal Accounting Officer) February 23, 2009 /s/ W. J. Prezzano W. J. Prezzano Chairman of the Board of Directors February 23, 2009 /s/ Jeffrey A. Atkins Jeffrey A. Atkins Director February 23, 2009 /s/ J.P. Bolduc J.P. Bolduc Director February 23, 2009 58 Table of Contents Signature Capacity Date /s/ William R. Holland William R. Holland Director February 23, 2009 /s/ James W. Johnston James W. Johnston Director February 23, 2009 /s/ Dan C. Swander Dan C. Swander Director February 23, 2009 /s/ Isaiah Tidwell Isaiah Tidwell Director February 23, 2009 /s/ S. Lance Van Every S. Lance Van Every Director February 23, 2009 59 Exhibit 10.15 LANCE, INC. 2008 Three-Year Performance Incentive Plan for Officers and Key Managers (As Amended through December 11, 2008) Purposes and Introduction The 2008 Three-Year Performance Incentive Plan for Officers and Key Managers provides for Stock Options, Restricted Stock and Performance Awards under the Lance, Inc. 2007 Key Employee Incentive Plan (the “Incentive Plan”). Except as otherwise expressly defined herein, capitalized terms shall be as defined in the Incentive Plan. The primary purposes of the 2008 Three-Year Performance Incentive Plan for Officers and Key Managers (the “2008 Plan”) are to: • Align officers’ and managers’ interests with those of stockholders by linking a substantial portion of compensation to the price of the Company’s Common Stock and to the Company’s net sales over the 2008 fiscal year based on the Company’s 2008 Operating Plan. • Provide a way to attract and retain key executives and managers who are critical to Lance’s future success. • Provide competitive total compensation for executives and managers commensurate with Company performance. To achieve the maximum motivational impact, the Plan and the awards opportunities will be communicated to participants as soon as practical after the 2008 Plan is approved by the Compensation Committee of the Board of Directors. Each officer will be assigned a Target Incentive based on market and peer group data and each other participant will be assigned a Target Incentive, stated as a percent of base salary. The Chief Executive Officer is assigned a Target Incentive based on his Employment Agreement. Concurrently with the approval of the 2008 Plan, 35% of the Target Incentive will be awarded in the form of Nonqualified Stock Options and 30% will be awarded in the form of Restricted Stock. The final 35% of the Target Incentive will be in the form of a Performance Award to be settled in shares of Common Stock (with a portion as Restricted Stock) after the end of the 2008 fiscal year (the “Performance Period”), based on the attainment of a predetermined goal. For 2008, participants will be eligible to earn the Performance Award based on the Company’s Net Sales against the specific goal described below. Net Sales during the Performance Period is defined as sales and other operating revenue, net of returns, allowances, discounts and other sales deduction items. Base salary shall be the annual rate of base compensation for the 2008 fiscal year which is in effect on February 21, 2008; provided that for any award intended to satisfy the Performance-Based Exception, base salary shall be the annual rate of base compensation for the fiscal year which is set no later than March 31 of such fiscal year. Eligibility and Participation Eligibility in the Plan is limited to Executive Officers and managers in Salary Grade 21 and above who are key to Lance’s success. The Compensation Committee will review and approve participants nominated by the President and Chief Executive Officer. An employee hired or promoted into an eligible position during the Performance Period will not participate in the 2008 Plan. Participation in the 2008 Plan does not guarantee participation in any subsequent long-term incentive plans but will be reevaluated and determined on an annual basis. Attachment A-1 and Attachment A-2 include the list of 2008 Plan participants approved by the Compensation Committee on February 21, 2008. Target Incentives and Performance Measure Each participant will be assigned a Target Incentive as specified above. Participants will be assigned to a Performance Tier by Salary Grade. Performance Tier Performance Tier Description 1 2 Officer Non-Officer Vice President For the Performance Awards, the 2008 financial performance measure for the Company as a whole is shown below. The goal and related payout are also shown below. Threshold Target Maximum $770 million 50% Lance, Inc. Net Sales Award Level Funded $800 million 100% $875 million 400% Percent of payout will be determined on a straight line basis between Threshold and Target and between Target and Maximum. There will be no payouts unless the Threshold performance measure is reached. The performance measure will be communicated to each participant as soon as practicable after it has been established. Final Performance Awards will be calculated after the Compensation Committee has reviewed the Company’s audited financial statements for 2008 and determined the performance level achieved. The following definitions for the terms Maximum, Target and Threshold should help set the goals for the Performance Period, as well as evaluate the payouts: • Maximum: Excellent; deserves payout above Target • Target: Normal or expected performance; deserves Target payout • Threshold: Lowest level of performance deserving a payout Attachment A-1 and Attachment A-2 list the Target Incentives for each participant for the 2008 Plan as determined by the Compensation Committee. Target Incentives will be communicated to each participant as close to the beginning of the year as practicable, in writing. Target Incentives, except for Officers, will be calculated by multiplying each participant’s base salary by the appropriate Performance Tiers and percentages, as described below. Percentage of Base Salary for 2008 Target Incentives Performance Tier 2 35-45% Final Performance Awards will be calculated, paid and granted after the Compensation Committee has reviewed the Company’s audited financial statements for 2008 and determined the performance levels achieved. Awards As further specified on Attachment B-1 and Attachment B-2, the Awards under the 2008 Plan shall be as follows: 1. Stock Options. Each participant shall receive Stock Options equal to 35% in value of his or her Target Incentive. The number of Stock Options awarded to each participant will equal the dollar value of the participant’s Stock Option Incentive divided by the Black-Scholes value of the Stock Options, with the result rounded up to the nearest multiple of three shares. The grant date for Stock Options will be the date the awards are approved by the Compensation Committee and the exercise price will be the Fair Market Value of the Common Stock on the grant date. Each Stock Option will vest in three substantially equal annual installments beginning one year after the date of grant and the term of each Stock Option will be ten years. 2. Restricted Stock. Each participant shall receive Restricted Stock equal to 30% in value of his or her Target Incentive. The number of shares of Restricted Stock awarded to each participant will equal the dollar value of the participant’s Restricted Stock Incentive divided by the closing price of the Common Stock on the date of award, with the results rounded up to the nearest multiple of three shares. The award date for Restricted Stock will be the date the awards are approved by the Compensation Committee and the value shall be the Fair Market Value of the Common Stock on the award date. Each award of Restricted Stock will vest in three substantially equal annual installments beginning one year after the date of award. 3. Performance Awards. Each participant shall receive a Performance Award equal to 35% in value of his or her Target Incentive. As a Performance Award, the number of shares of the Company’s Restricted Stock awarded will equal the applicable dollar value divided by the closing price for the Company’s Common Stock on the award date, with the result rounded up to the nearest multiple of three shares. One-third of such shares of Restricted Stock will be fully vested on the award date with an additional one-third vesting one year after the award date and the balance vesting two years after the award date. For purposes of the 2008 Plan, the award date for shares of Restricted Stock as a Performance Award will be the date established by the Compensation Committee after the applicable performance level has been determined. Form and Timing of Awards Awards will be made as soon as practicable after the performance measure is calculated and approved by the Compensation Committee. All awards will be rounded to the nearest multiple of $100 or up to the nearest multiple of three shares, as the case may be. Change In Status An employee hired or promoted into an eligible position during the Performance Period will not participate in the 2008 Plan. Certain Terminations of Employment Performance Awards In the event a participant voluntarily terminates employment (other than Retirement) or is terminated involuntarily before the end of the Performance Period but before the applicable award date, the participant shall not receive any Performance Award hereunder. In the event of a participant’s death or Disability before the end of the Performance Period, any Performance Award will be determined on the date of such event based on target performance and paid out all in cash as soon as administratively practicable (but in no event more than 75 days) after the date of such event. In the event of a participant’s death or Disability on or after the end of the Performance Period but before the applicable award date, any Performance Award will be determined based on actual performance and paid out all in cash on or about the applicable award date. If the event of a participant’s Retirement during or after the end of the Performance Period but before the applicable award date, any Performance Award will be determined based on actual performance and paid out all in cash on or about the applicable award date. Stock Options In the event a participant voluntarily terminates employment (other than by Retirement) or is terminated involuntarily or in the event of death, Disability or Retirement, vesting and the post-termination exercise period for Stock Options will be as follows: Voluntary termination (other than Retirement) : Stock Options, whether vested or unvested, cease to be exercisable as of the date of termination. Involuntary termination : Vested Stock Options will remain exercisable for a period of 30 days following the date of termination (or, if earlier, the original expiration date of the option); unvested Stock Options will be forfeited as of the date of termination. Death : Stock Options will remain exercisable for a period of one year following the date of death (or, if earlier, the original expiration date of the option); unvested Stock Options will become fully vested as of the date of termination. Disability : Vested Stock Options will remain exercisable through the original expiration date of the option; unvested Stock Options will become fully vested as of the date of termination. Retirement : Vested Stock Options will remain exercisable for a period of three years following retirement (or, if earlier, the original expiration date of the option); unvested Stock Options will continue to vest for a period of six months after Retirement and any remaining unvested Stock Options will be forfeited as of such date. Restricted Shares In the event a participant voluntarily terminates employment (other than by Retirement) or is terminated involuntarily or in the event of death, Disability or Retirement, vesting for Restricted Stock (including any Restricted Stock granted in connection with a Performance Award following completion of the Performance Period) will be as follows: Voluntary termination (other than Retirement) : Unvested Restricted Stock will be forfeited as of the date of termination. Involuntary termination : Unvested Restricted Stock will be forfeited as of the date of termination. Death : Unvested Restricted Stock will become fully vested on the date of such event. Disability : Unvested Restricted Stock will become fully vested on the date of such event. Retirement: Unvested Restricted Stock will become vested pro rata based on the number of full months elapsed since the award date and any remaining unvested Restricted Stock will be forfeited as of such date. “Retirement” is defined under the Incentive Plan to mean the participant’s termination of employment with the Company either (i) after attainment of age 65 or (ii) after attainment of age 55 with the prior consent of the Compensation Committee. Change In Control In the event of a Change in Control, (i) unvested Stock Options and unvested Restricted Stock will vest as provided in the Incentive Plan and (ii) for outstanding Performance Awards pro rata payouts will be made all in cash at the greater of (1) Target Incentive or (2) actual results through the closing date with such proration based on the number of days in the Performance Period preceding the closing of the Change in Control transaction. Payouts will be made within 30 days after the relevant transaction has been closed. Withholding The Company shall withhold from awards any Federal, foreign, state or local income or other taxes required to be withheld. Communications Progress reports should be made to participants annually, showing performance results. Executive Officers Notwithstanding any provisions to the contrary above, participation, awards and prorations for Executive Officers, including the President and Chief Executive Officer, shall be approved by the Compensation Committee. Stockholder Approval The 2008 Plan and the awards hereunder are made pursuant to the Incentive Plan, which was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on April 26, 2007. Governance The Compensation Committee of the Board of Directors of Lance, Inc. is ultimately responsible for the administration and governance of the Plan. Actions requiring Committee approval include final determination of plan eligibility and participation, identification of performance measures and goals, final award components and determination and amendments to the Plan. The Committee may adjust any award due to extraordinary events such as acquisitions, dispositions, required accounting adjustments or similar events, all as specified in Section 11(d) of the Incentive Plan; provided, however, that the Committee shall at all times be required to exercise this discretionary power in a manner, and subject to such limitations, as will permit all payments under the Plan to “covered employees,” as defined in Section 162(m) of the Internal Revenue Code, to continue to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. Subject to the foregoing, the decisions of the Committee shall be conclusive and binding on all participants. Attachment A-1 2008 Three-Year Performance Incentive Plan for Officers Target Incentive Name Title David V. Singer President and Chief Executive Officer $1,000,000 Rick D. Puckett Executive Vice President, Chief Financial Officer, Secretary and Treasurer $ 235,000 Glenn A. Patcha Senior Vice President — Sales and Marketing $ 191,000 Blake W. Thompson Senior Vice President — Supply Chain $ 178,500 Earl D. Leake Senior Vice President — Human Resources $ ** Margaret E. Wicklund Vice President, Corporate Controller and Assistant Secretary $ ** ** Amounts are omitted for participants other than the Chief Executive Officer, the Chief Financial Officer and the other executive officers who were named in the Summary Compensation Table of the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders. Attachment B-1 2008 Three-Year Performance Incentive Plan for Officers Name David V. Singer Rick D. Puckett Glenn A. Patcha Blake W. Thompson Earl D. Leake Margaret E. Wicklund ** Stock Option Incentive Nonqualified Stock Options $350,000 $ 82,250 $ 66,850 $ 62,475 $ ** $ ** 99,999 23,499 19,101 17,850 ** ** Restricted Stock Awards Performance Award Opportunity $300,000 $ 70,500 $ 57,300 $ 53,600 $ ** $ ** $350,000 $ 82,300 $ 66,900 $ 62,500 $ ** $ ** Amounts are omitted for participants other than the Chief Executive Officer, the Chief Financial Officer and the other executive officers who were named in the Summary Compensation Table of the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders. EXHIBIT 21 SUBSIDIARIES OF LANCE, INC. Name of Subsidiary State/Province of Incorporation Lance Mfg. LLC (1) North Carolina Caronuts, Inc. (1) North Carolina Vista Bakery, Inc. (1) North Carolina Cape Cod Potato Chip Company LLC (1) Massachusetts Lanhold Investments, Inc. (1) Delaware Tamming Foods Ltd. (2) Ontario Fresno Ventures, Inc. (1) North Carolina Archway Bakeries, LLC (3) North Carolina Brent & Sam’s, Inc. (4) Arkansas North State Cookies, LLC (3) North Carolina (1) (2) (3) (4) Lance, Inc. owns 100% of the outstanding voting equity securities. Subsidiary of Lanhold Investments, Inc., which owns 100% of the outstanding voting equity securities. Subsidiary of Lance Mfg. LLC, which owns 100% of the outstanding voting equity securities. Subsidiary of North State Cookies, LLC, which owns 100% of the outstanding voting equity securities. EXHIBIT 23 Consent of Independent Registered Public Accounting Firm The Board of Directors Lance, Inc.: We consent to the incorporation by reference in the Registration Statements, No. 333-150931, No. 33-58839, No. 333-25539, No. 333-35646, No. 333-104960, No. 333-104961, No. 333-124472, and No. 333-146336 of Lance, Inc. on Form S-8 of our reports dated February 23, 2009, with respect to the consolidated balance sheets of Lance, Inc. and subsidiaries as of December 27, 2008 and December 29, 2007, 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 27, 2008, and the related financial statement schedule “Valuation and Qualifying Accounts,” and the effectiveness of internal control over financial reporting as of December 27, 2008, which reports appear in the December 27, 2008 annual report on Form 10-K of Lance, Inc. As discussed in the Summary of Significant Accounting Policies, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109, ” effective December 31, 2006. Additionally, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123(R), “ Share-Based Payment ,” effective January 1, 2006, and the recognition and disclosure provisions of Statement of Financial Accounting Standards, No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans ,” as of December 30, 2006. /s/ KPMG LLP Charlotte, North Carolina February 23, 2009 EXHIBIT 31.1 MANAGEMENT CERTIFICATION I, David V. Singer, certify that: 1. I have reviewed this annual report on Form 10-K of Lance, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 23, 2009 /s/ David V. Singer David V. Singer President and Chief Executive Officer EXHIBIT 31.2 MANAGEMENT CERTIFICATION I, Rick D. Puckett, certify that: 1. I have reviewed this annual report on Form 10-K of Lance, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 23, 2009 /s/ Rick D. Puckett Rick D. Puckett Executive Vice President, Chief Financial Officer, Treasurer and Secretary EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Lance, Inc. (the “Company”) on Form 10-K for the period ended December 27, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David V. Singer, President and Chief Executive Officer of the Company, and Rick D. Puckett, Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Lance, Inc. and will be retained by Lance, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. /s/ David V. Singer David V. Singer President and Chief Executive Officer February 23, 2009 /s/ Rick D. Puckett Rick D. Puckett Executive Vice President, Chief Financial Officer, Treasurer and Secretary February 23, 2009 ...
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