##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarter and nine months ended September 29, 2007
 Commission File Number 0-398
 LANCE, INC.
 (Exact name of registrant as specified in its charter)
 North Carolina
    
    56-0292920(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)14120 Ballantyne Corporate Place, Suite 350Charlotte, North Carolina
    
    28277(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
  þ o
  o þ o
  o þ




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##### 



LANCE, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Statements of Income (Unaudited)  Quarters and Nine Months Ended
September 29, 2007 and September 30, 2006
    
    
    3Condensed Consolidated Balance Sheets  September 29, 2007 (Unaudited) and December 30, 2006
    
    
    4Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income
(Unaudited)  Nine Months Ended September 29, 2007 and September 30, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)  Nine Months Ended September
29, 2007 and September 30, 2006
    
    
    6Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 6. Exhibits
    
    
    16SIGNATURE
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
For the Quarters and Nine Months Ended September 29, 2007 and September 30, 2006
 Quarter Ended
    
    
    Nine Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales and other operating revenue
    
    $
    198,052
    
    
    $
    188,628
    
    
    $
    577,515
    
    
    $
    557,714Cost of sales and operating expenses:Cost of sales
    
    
    115,692
    
    
    
    106,768
    
    
    
    328,104
    
    
    
    317,294Selling, marketing and delivery
    
    
    58,985
    
    
    
    60,571
    
    
    
    175,328
    
    
    
    185,901General and administrative
    
    
    11,268
    
    
    
    9,296
    
    
    
    36,008
    
    
    
    32,525Other expense/(income), net
    
    
    522
    
    
    
    (243
    )
    
    
    1,405
    
    
    
    436Total costs and expenses
    
    
    186,467
    
    
    
    176,392
    
    
    
    540,845
    
    
    
    536,156Income from continuing operations
before interest and income taxes
    
    
    11,585
    
    
    
    12,236
    
    
    
    36,670
    
    
    
    21,558Interest expense, net
    
    
    550
    
    
    
    901
    
    
    
    1,768
    
    
    
    2,398Income from continuing operations
before income taxes
    
    
    11,035
    
    
    
    11,335
    
    
    
    34,902
    
    
    
    19,160Income tax expense
    
    
    3,448
    
    
    
    3,940
    
    
    
    12,174
    
    
    
    6,795Net income from continuing operations
    
    
    7,587
    
    
    
    7,395
    
    
    
    22,728
    
    
    
    12,365(Loss)/income from discontinued operations
    
    
    (146
    )
    
    
    129
    
    
    
    45
    
    
    
    797Income tax (benefit)/expense
    
    
    (54
    )
    
    
    45
    
    
    
    16
    
    
    
    289Net (loss)/income from discontinued operations
    
    
    (92
    )
    
    
    84
    
    
    
    29
    
    
    
    508Net income
    
    $
    7,495
    
    
    $
    7,479
    
    
    $
    22,757
    
    
    $
    12,873Basic earnings per share:From continuing operations
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.74
    
    
    $
    0.41From discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Basic earnings per share
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.74
    
    
    $
    0.42Weighted average shares outstanding  basic
    
    
    31,034,000
    
    
    
    30,716,000
    
    
    
    30,921,000
    
    
    
    30,370,000Diluted earnings per share:From continuing operations
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.40From discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.02Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.72
    
    
    $
    0.42Weighted average shares outstanding  diluted
    
    
    31,693,000
    
    
    
    31,154,000
    
    
    
    31,506,000
    
    
    
    30,803,000
  3




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
As of September 29, 2007 (Unaudited) and December 30, 2006
 September 29,
    
    
    December 30,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    14,313
    
    
    $
    5,504Accounts receivable, net
    
    
    68,845
    
    
    
    61,690Inventories
    
    
    38,729
    
    
    
    36,838Deferred income tax asset
    
    
    9,697
    
    
    
    8,811Assets held for sale
    
    
    505
    
    
    
    6,552Prepaid expenses and other current assets
    
    
    9,739
    
    
    
    6,298Total current assets
    
    
    141,828
    
    
    
    125,693Other assetsProperty, plant & equipment, net
    
    
    202,152
    
    
    
    193,009Goodwill
    
    
    55,251
    
    
    
    49,091Other intangible assets, net
    
    
    13,181
    
    
    
    13,209Other assets
    
    
    6,752
    
    
    
    4,450Total assets
    
    $
    419,164
    
    
    $
    385,452LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    22,057
    
    
    $
    18,194Accrued compensation
    
    
    20,536
    
    
    
    20,471Accrued retirement plans
    
    
    4,270
    
    
    
    5,192Accrual for casualty insurance claims
    
    
    8,163
    
    
    
    6,783Accrual for medical insurance claims
    
    
    2,664
    
    
    
    3,488Accrued selling costs
    
    
    4,850
    
    
    
    4,860Other payables and accrued liabilities
    
    
    14,009
    
    
    
    12,632Total current liabilities
    
    
    76,549
    
    
    
    71,620Other liabilitiesLong-term debt
    
    
    50,000
    
    
    
    50,000Deferred income taxes
    
    
    26,474
    
    
    
    26,562Accrual for casualty insurance claims
    
    
    8,428
    
    
    
    9,418Other long-term liabilities
    
    
    8,462
    
    
    
    5,452Total liabilities
    
    
    169,913
    
    
    
    163,052Commitments and contingencies
    
    
    
    
    
    
    Stockholders equityCommon stock, 31,201,207 and 30,855,891 shares outstanding, respectively
    
    
    25,999
    
    
    
    25,714Preferred stock, no shares outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    40,389
    
    
    
    32,129Retained earnings
    
    
    167,269
    
    
    
    159,329Accumulated other comprehensive income
    
    
    15,594
    
    
    
    5,228Total stockholders equity
    
    
    249,251
    
    
    
    222,400Total liabilities and stockholders equity
    
    $
    419,164
    
    
    $
    385,452
  4




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income (Unaudited)
For the Nine Months Ended September 29, 2007 and September 30, 2006
 UnamortizedPortion of
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Restricted
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Stock
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Capital
    
    
    Awards
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, December 31, 2005
    
    
    29,808,705
    
    
    $
    24,841
    
    
    $
    13,870
    
    
    $
    (2,490
    )
    
    $
    160,407
    
    
    $
    5,081
    
    
    $
    201,709Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,873
    
    
    
    
    
    
    
    12,873Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,614
    
    
    
    2,614Unrealized gain on forward exchange
contracts, net of tax effect of $(25)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    46Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,533Cash dividends paid to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,617
    )
    
    
    
    
    
    
    (14,617
    )Stock options exercised, including
excess tax benefit of $3,293
    
    
    994,330
    
    
    
    829
    
    
    
    17,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,862Conversion of a liability to equity
instrument
    
    
    
    
    
    
    
    
    
    
    634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    634Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (1,831
    )
    
    
    2,490
    
    
    
    
    
    
    
    
    
    
    
    659Cancellation, issuance and
amortization of restricted stock, net
    
    
    28,425
    
    
    
    23
    
    
    
    1,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,101Balance, September 30, 2006
    
    
    30,831,460
    
    
    $
    25,693
    
    
    $
    30,784
    
    
    $
    
    
    
    $
    158,663
    
    
    $
    7,741
    
    
    $
    222,881Balance, December 30, 2006
    
    
    30,855,891
    
    
    $
    25,714
    
    
    $
    32,129
    
    
    $
    
    
    
    $
    159,329
    
    
    $
    5,228
    
    
    $
    222,400Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,757
    
    
    
    
    
    
    
    22,757Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,315
    
    
    
    10,315Net unrealized losses on derivative
instruments, net of tax effect of $101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203
    
    
    
    203Amortization of gains from post-
retirement medical plan, net of tax
effect of $73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (152
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,123Cash dividends paid to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,878
    )
    
    
    
    
    
    
    (14,878
    )Stock options exercised, including
excess tax benefit of $997
    
    
    262,316
    
    
    
    216
    
    
    
    4,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,600Cumulative adjustment from adoption
of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    61Stock-based compensation previously
recognized under a liability plan
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,228Cancellation, issuance and
amortization of restricted stock, net
    
    
    83,000
    
    
    
    69
    
    
    
    2,332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,401Balance, September 29, 2007
    
    
    31,201,207
    
    
    $
    25,999
    
    
    $
    40,389
    
    
    $
    
    
    
    $
    167,269
    
    
    $
    15,594
    
    
    $
    249,251
  5




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 29, 2007 and September 30, 2006
 Nine Months EndedSeptember 29,
    
    
    September 30,2007
    
    
    2006Operating activitiesNet income
    
    $
    22,757
    
    
    $
    12,873Adjustments to reconcile net income to cash from operating activities:Depreciation and amortization
    
    
    21,839
    
    
    
    20,096Equity-based compensation expense
    
    
    2,680
    
    
    
    1,762(Gain)/loss on dispositions of property, net
    
    
    (839
    )
    
    
    69Changes in operating assets and liabilities
    
    
    (3,991
    )
    
    
    (15,751
    )Net cash from operating activities
    
    
    42,446
    
    
    
    19,049Investing activitiesPurchases of property and equipment
    
    
    (28,299
    )
    
    
    (34,678
    )Proceeds from sales of property
    
    
    6,895
    
    
    
    3,382Purchase of investment
    
    
    (2,090
    )
    
    
    Net cash used in investing activities
    
    
    (23,494
    )
    
    
    (31,296
    )Financing activitiesDividends paid
    
    
    (14,878
    )
    
    
    (14,617
    )Issuances of common stock
    
    
    4,600
    
    
    
    17,862Net proceeds from revolving credit facilities
    
    
    
    
    
    
    8,396Net cash flow (used in)/from financing activities
    
    
    (10,278
    )
    
    
    11,641Effect of exchange rate changes on cash
    
    
    135
    
    
    
    253Increase/(decrease) in cash and cash equivalents
    
    
    8,809
    
    
    
    (353
    )Cash and cash equivalents at beginning of period
    
    
    5,504
    
    
    
    3,543Cash and cash equivalents at end of period
    
    $
    14,313
    
    
    $
    3,190Supplemental information:Cash paid for income taxes, net of refunds of $7 and $21, respectively
    
    $
    10,397
    
    
    $
    4,240Cash paid for interest
    
    $
    2,193
    
    
    $
    2,701
  6




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Notes to the Condensed Consolidated Financial Statements (Unaudited)
 1.
    
    The accompanying unaudited condensed consolidated financial statements of Lance, Inc. have
been prepared in accordance with generally accepted accounting principles in the United States
of America for interim financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. These condensed
financial statements should be read in conjunction with the audited financial statements and
notes included in our Form 10-K for the year ended December 30, 2006 filed with the Securities
and Exchange Commission on March 13, 2007. In our opinion, these condensed consolidated
financial statements reflect all adjustments (consisting of only normal, recurring accruals)
necessary to present fairly our condensed consolidated financial position as of September 29,
2007 and December 30, 2006 and the condensed consolidated statements of income for the quarters
and nine months ended September 29, 2007 and September 30, 2006 and the condensed consolidated
statements of stockholders equity and comprehensive income and cash flows for the nine months
ended September 29, 2007 and September 30, 2006. Prior year amounts shown in the accompanying
condensed consolidated financial statements have been reclassified
for consistent presentation.
 2.
    
    The consolidated results of operations for the quarter and nine months ended September 29,
2007 are not necessarily indicative of the results to be expected for the year ending December
29, 2007.
 3.
    
    Preparing financial statements requires management to make estimates and judgments about
future events that affect the reported amounts of assets, liabilities, revenues and expenses
and the related disclosure of contingent assets and liabilities. Examples include 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, insurance, post-retirement benefits, contingencies and
legal proceedings. Actual results may differ from these estimates under different assumptions
or conditions.
 4.
    
    The principal raw materials used in the manufacture of our snack food products are flour,
vegetable oil, sugar, potatoes, peanuts, nuts, cheese and seasonings. The principal supplies
used are flexible film, cartons, trays, boxes and bags. These raw materials and supplies are
generally available in adequate quantities in the open market either from sources in the
United States or from other countries. Depending on market conditions and commodity prices,
these raw materials may be contracted up to a year in advance of
delivery.
 5.
    
    We utilize the dollar value last-in, first-out (LIFO) method of determining the cost of
approximately 40% of our inventories. Because inventory valuations under the LIFO method are
based on annual determinations, the interim LIFO valuations require management to estimate
year-end costs and levels of inventories. The variation between estimated year-end costs and
levels of LIFO inventories compared to the actual year-end amounts may materially affect the
results of operations for the full year.Inventories consist of:
 September 29,
    
    
    December 30,(in thousands)
    
    2007
    
    
    2006Finished goods
    
    $
    21,462
    
    
    $
    18,630Raw materials
    
    
    7,433
    
    
    
    7,968Supplies, etc.
    
    
    14,417
    
    
    
    14,077Total inventories at FIFO cost
    
    
    43,312
    
    
    
    40,675Less adjustments to reduce FIFO cost to LIFO cost
    
    
    (4,583
    )
    
    
    (3,837
    )Total inventories
    
    $
    38,729
    
    
    $
    36,838
 7




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 Notes to the Condensed Consolidated Financial Statements (Unaudited)
 6.
    
    The following tables provide a reconciliation of the common shares used for basic earnings per
share and diluted earnings per share:
 Quarter Ended
    
    
    Nine Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average number of common
shares used for basic earnings per share
    
    
    31,034
    
    
    
    30,716
    
    
    
    30,921
    
    
    
    30,370Effect of potential dilutive shares
    
    
    659
    
    
    
    438
    
    
    
    585
    
    
    
    433Weighted average number of common
shares and potential dilutive shares used
for diluted earnings per share
    
    
    31,693
    
    
    
    31,154
    
    
    
    31,506
    
    
    
    30,803Anti-dilutive shares excluded from the
above reconciliation
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
 7.
    
    Sales to our largest customer, Wal-Mart Stores, Inc. (Wal-Mart), were approximately 20% and
19% of revenue for the third quarters of 2007 and 2006, respectively, and 20% and 19% of
revenue for the nine months ended September 29, 2007 and September 30, 2006, respectively.
Accounts receivable at September 29, 2007 and December 30, 2006 included receivables from
Wal-Mart totaling $16.7 million and $13.6 million,
respectively.
 8.
    
    During the quarter and nine months ended September 29, 2007, net bad debt expense was $0.2
million and $0.1 million, respectively. Net bad debt expense was $0.6 million in both the
quarter and nine months ended September 30, 2006. Net bad debt expense is included in
selling, marketing and delivery in the accompanying condensed consolidated statements of
income.
 9.
    
    During the first quarter of 2007, we granted 114,000 vested nonqualified stock options that
were previously accounted for as a liability. This resulted in a year-to-date increase in
additional paid-in capital and a decrease in accrued compensation of $0.3 million on the
September 29, 2007 condensed consolidated balance sheet.
 10.
    
    Net periodic benefit income for our post-retirement medical benefit plan consists of the
following:
 Quarter Ended
    
    
    Nine Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic
postretirement
benefit cost/(income):Service cost
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    2Interest cost
    
    
    4
    
    
    
    12
    
    
    
    12
    
    
    
    37Gain amortization
    
    
    (75
    )
    
    
    (181
    )
    
    
    (225
    )
    
    
    (543
    )Net periodic postretirement
benefit income
    
    $
    (71
    )
    
    $
    (168
    )
    
    $
    (213
    )
    
    $
    (504
    )Retiree benefit claims paid
    
    $
    
    
    
    $
    186
    
    
    $
    26
    
    
    $
    627Plan participant contributions
    
    $
    57
    
    
    $
    102
    
    
    $
    185
    
    
    $
    301
 11.
    
    At September 29, 2007 and December 30, 2006, we had $0.5 million and $6.6 million,
respectively, of assets held for sale. The Fresno, CA facility and discontinued vending
assets held for sale were disposed of during the nine months ended September 29, 2007. The
remaining assets held for sale at September 29, 2007 are primarily related to certain
facilities acquired from Toms Foods Inc. and subsequently closed. These assets are expected
to be sold during 2007.
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LANCE, INC. AND SUBSIDIARIES
 Notes to the Condensed Consolidated Financial Statements (Unaudited)
 12.
    
    In June 2006, the Financial Accounting Standards Board (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 $1.9 million net liability for uncertain tax positions from
other payables and accrued liabilities to other long-term liabilities of $2.2 million and $0.3
million of deferred tax assets on the condensed consolidated balance sheet during the first
quarter of 2007.We have recorded gross unrecognized tax benefits totaling $1.8 million as of September 29, 2007
in other long-term liabilities on the condensed consolidated balance sheet. Of this amount,
$1.5 million would affect the effective tax rate if subsequently recognized. Various taxing
authorities statutes of limitations expired during the third quarter of 2007 resulting in a
$0.5 million reduction of the unrecognized tax benefit amount. We do not anticipate any
significant future changes in our gross unrecognized tax benefits for the remainder of 2007. We
classify interest and penalties associated with income tax positions within income tax expense.
The interest and penalty component of the unrecognized tax benefits as of September 29, 2007 was
$0.4 million.We have open years for income tax audit purposes in our major taxing jurisdictions according to
statutes as follows:
 Jurisdiction
    
    Open yearsUS federal
    
    2004 and forwardCanada federal
    
    2003 and forwardOntario provincial
    
    2002 and forwardMassachusetts
    
    2001 and forwardNorth Carolina
    
    2004 and forwardIowa
    
    2004 and forward
 13.
    
    The FASB also issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, in September 2006. SFAS No. 158 requires employers to recognize
the overfunded or underfunded status of a single-employer defined benefit post-retirement plan
as an asset or liability in its balance sheet and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income. SFAS No. 158 also
requires an employer to measure the funded status of a plan as of the date of its year-end
balance sheet, with limited exceptions. We adopted SFAS No. 158 at the end of 2006, which
resulted in a reclassification of the unrealized gain component of the accrued post-retirement
healthcare costs liability to accumulated other comprehensive income, net of tax, at December
30, 2006. There will be no impact from the adoption of the remaining provisions of SFAS No.
158 since we already measure the funded status of our post-retirement medical plan at the
year-end balance sheet date.
 14.
    
    On June 25, 2007, we purchased a non-controlling equity interest in an organic snack food
company for $2.1 million. This investment has been reflected in other assets on the Condensed
Consolidated Balance Sheet. The equity method loss for the third quarter of 2007 was less
than $0.1 million and has been recorded in other expense on the Condensed Consolidated
Statement of Income. As of September 29, 2007, prepaid expenses and other current assets on
the Condensed Consolidated Balance sheet includes a $1.5 million receivable from this related
party that is expected to be paid during the fourth quarter of
2007.
 15.
    
    In an effort to streamline our overall supply chain and increase manufacturing efficiency, we
announced in June 2007 our plan to consolidate our sugar wafer manufacturing operations in
Canada, which is expected to begin in November 2007. Of the $0.5 million total consolidation
costs expected to be incurred, $0.3 million has been recognized
during 2007.
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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Results of Operations
 Quarter Ended September 29, 2007 Compared to Quarter Ended September 30, 2006
 Favorable/Quarter Ended
    
    
    (Unfavorable)($ in thousands)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    VarianceRevenue
    
    $
    198,052
    
    
    
    100.0
    %
    
    $
    188,628
    
    
    
    100.0
    %
    
    $
    9,424
    
    
    
    5.0
    %Cost of sales
    
    
    115,692
    
    
    
    58.4
    %
    
    
    106,768
    
    
    
    56.6
    %
    
    
    (8,924
    )
    
    
    (8.4
    %)Gross margin
    
    
    82,360
    
    
    
    41.6
    %
    
    
    81,860
    
    
    
    43.4
    %
    
    
    500
    
    
    
    0.6
    %Selling, marketing and delivery
    
    
    58,985
    
    
    
    29.8
    %
    
    
    60,571
    
    
    
    32.1
    %
    
    
    1,586
    
    
    
    2.6
    %General and administrative
    
    
    11,268
    
    
    
    5.7
    %
    
    
    9,296
    
    
    
    4.9
    %
    
    
    (1,972
    )
    
    
    (21.2
    %)Other expense/(income), net
    
    
    522
    
    
    
    0.3
    %
    
    
    (243
    )
    
    
    (0.1
    %)
    
    
    (765
    )
    
    nmEarnings before interest and taxes
    
    
    11,585
    
    
    
    5.8
    %
    
    
    12,236
    
    
    
    6.5
    %
    
    
    (651
    )
    
    
    (5.3
    %)Interest expense, net
    
    
    550
    
    
    
    0.3
    %
    
    
    901
    
    
    
    0.5
    %
    
    
    351
    
    
    
    39.0
    %Income tax expense
    
    
    3,448
    
    
    
    1.7
    %
    
    
    3,940
    
    
    
    2.1
    %
    
    
    492
    
    
    
    12.5
    %Income from continuing operations
    
    
    7,587
    
    
    
    3.8
    %
    
    
    7,395
    
    
    
    3.9
    %
    
    
    192
    
    
    
    2.6
    %(Loss)/income from discontinued
operations
    
    
    (146
    )
    
    
    (0.1
    %)
    
    
    129
    
    
    
    0.1
    %
    
    
    (275
    )
    
    nmIncome tax (benefit)/expense
    
    
    (54
    )
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    99
    
    
    nmNet (loss)/income from discontinued
operations
    
    
    (92
    )
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    (176
    )
    
    nmNet income
    
    $
    7,495
    
    
    
    3.8
    %
    
    $
    7,479
    
    
    
    4.0
    %
    
    $
    16
    
    
    
    0.2
    %
   ® ® ®
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LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Nine Months Ended September 29, 2007 Compared to the Nine Months Ended September 30, 2006
 Favorable/Nine Months Ended
    
    
    (Unfavorable)($ in thousands)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    VarianceRevenue
    
    $
    577,515
    
    
    
    100.0
    %
    
    $
    557,714
    
    
    
    100.0
    %
    
    $
    19,801
    
    
    
    3.6
    %Cost of sales
    
    
    328,104
    
    
    
    56.8
    %
    
    
    317,294
    
    
    
    56.9
    %
    
    
    (10,810
    )
    
    
    (3.4
    %)Gross margin
    
    
    249,411
    
    
    
    43.2
    %
    
    
    240,420
    
    
    
    43.1
    %
    
    
    8,991
    
    
    
    3.7
    %Selling, marketing and delivery
    
    
    175,328
    
    
    
    30.4
    %
    
    
    185,901
    
    
    
    33.3
    %
    
    
    10,573
    
    
    
    5.7
    %General and administrative
    
    
    36,008
    
    
    
    6.2
    %
    
    
    32,525
    
    
    
    5.8
    %
    
    
    (3,483
    )
    
    
    (10.7
    %)Other expense, net
    
    
    1,405
    
    
    
    0.2
    %
    
    
    436
    
    
    
    0.1
    %
    
    
    (969
    )
    
    
    (222.2
    %)Earnings before interest and taxes
    
    
    36,670
    
    
    
    6.3
    %
    
    
    21,558
    
    
    
    3.9
    %
    
    
    15,112
    
    
    
    70.1
    %Interest expense, net
    
    
    1,768
    
    
    
    0.3
    %
    
    
    2,398
    
    
    
    0.4
    %
    
    
    630
    
    
    
    26.3
    %Income tax expense
    
    
    12,174
    
    
    
    2.1
    %
    
    
    6,795
    
    
    
    1.2
    %
    
    
    (5,379
    )
    
    
    (79.2
    %)Income from continuing operations
    
    
    22,728
    
    
    
    3.9
    %
    
    
    12,365
    
    
    
    2.2
    %
    
    
    10,363
    
    
    
    83.8
    %Income from discontinued operations
    
    
    45
    
    
    
    
    
    
    
    797
    
    
    
    0.1
    %
    
    
    (752
    )
    
    
    (94.4
    %)Income tax expense
    
    
    16
    
    
    
    
    
    
    
    289
    
    
    
    0.1
    %
    
    
    273
    
    
    
    94.5
    %Net income from discontinued
operations
    
    
    29
    
    
    
    
    
    
    
    508
    
    
    
    0.1
    %
    
    
    (479
    )
    
    
    (94.3
    %)Net income
    
    $
    22,757
    
    
    
    3.9
    %
    
    $
    12,873
    
    
    
    2.3
    %
    
    $
    9,884
    
    
    
    76.8
    %
   ® ® ®
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LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     Liquidity and Capital Resources
 Liquidity
 Cash Flow
     13




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LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Dividends
 Market Risks
        Forward-Looking Statements and Risk Factors
  14




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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LANCE, INC. AND SUBSIDIARIES
 
 Item 6. Exhibits
 Exhibit Index
 No.
    
    Description3.1
    
    Restated Articles of Incorporation of Lance, Inc. as amended through April 17, 1998, incorporated
herein by reference to Exhibit 3 to the Registrants Quarterly Report on Form 10-Q for the twelve
weeks ended June 13, 1998 (File No. 0-398).3.2
    
    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
    
    Bylaws of Lance, Inc., as amended through April 25, 2002, incorporated herein by reference to Exhibit
3.3 to the Registrants Quarterly Report on Form 10-Q for the thirteen weeks ended June 29, 2002
(File No. 0-398).31.1
    

Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a), filed herewith.31.2
    

Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a), filed herewith.32
    
    Certification pursuant to Rule 13a-14(b), as required by 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
  16




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LANCE, INC. AND SUBSIDIARIES
 
 Signature
  LANCE, INC.By:
    
    /s/ Rick D. PuckettRick D. Puckett
Executive Vice President,
Chief Financial Officer,
Treasurer and SecretaryDated: November 2, 2007
 17