##### 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 six months ended June 30, 2007
 Commission File Number 0-398
 LANCE, INC.
 (Exact name of registrant as specified in its charter)
 North Carolina(State or other jurisdiction of 
incorporation or organization)
    
    56-0292920(I.R.S. Employer Identification No.)8600 South Boulevard 
P.O. Box 32368
Charlotte, North Carolina(Address of principal executive offices)
    
    28232(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 Six Months Ended June
30, 2007 and July 1, 2006
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2007 (Unaudited) and December 30, 2006
    
    
    4Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income
(Unaudited)  Six Months Ended June 30, 2007 and July 1, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)  Six Months Ended June 30, 2007
and July 1, 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
    
    
    14Item 4. Controls and Procedures
    
    
    14PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15Item 6. Exhibits
    
    
    16SIGNATURE
    
    
    17Exhibit 10.1 Lance, Inc. 2005 Long-Term Incentive Plan for Officers, as amendedExhibit 10.2 Lance, Inc. 2006 Three-Year Incentive Plan for Officers, as amendedExhibit 31.1 Section 302 Certification of the CEOExhibit 31.2 Section 302 Certification of the CFOExhibit 32 Section 906 Certification of the CEO and CFO
  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 Six Months Ended June 30, 2007 and July 1, 2006
 Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales and other operating revenue
    
    $
    197,036
    
    
    $
    188,341
    
    
    $
    379,463
    
    
    $
    369,086Cost of sales and operating expenses:Cost of sales
    
    
    109,435
    
    
    
    105,660
    
    
    
    212,412
    
    
    
    210,526Selling, marketing and delivery
    
    
    59,864
    
    
    
    60,285
    
    
    
    116,343
    
    
    
    125,330General and administrative
    
    
    11,603
    
    
    
    11,771
    
    
    
    24,739
    
    
    
    23,229Other expense, net
    
    
    973
    
    
    
    517
    
    
    
    884
    
    
    
    679Total costs and expenses
    
    
    181,875
    
    
    
    178,233
    
    
    
    354,378
    
    
    
    359,764Income from continuing operations
before interest and income taxes
    
    
    15,161
    
    
    
    10,108
    
    
    
    25,085
    
    
    
    9,322Interest expense, net
    
    
    (615
    )
    
    
    (828
    )
    
    
    (1,219
    )
    
    
    (1,497
    )Income from continuing operations
before income taxes
    
    
    14,546
    
    
    
    9,280
    
    
    
    23,866
    
    
    
    7,825Income tax expense
    
    
    (5,277
    )
    
    
    (3,386
    )
    
    
    (8,725
    )
    
    
    (2,855
    )Net income from continuing operations
    
    
    9,269
    
    
    
    5,894
    
    
    
    15,141
    
    
    
    4,970(Loss)/income from discontinued operations
    
    
    (346
    )
    
    
    418
    
    
    
    190
    
    
    
    668Income tax benefit/(expense)
    
    
    129
    
    
    
    (153
    )
    
    
    (69
    )
    
    
    (244
    )Net (loss)/income from discontinued operations
    
    
    (217
    )
    
    
    265
    
    
    
    121
    
    
    
    424Net income
    
    $
    9,052
    
    
    $
    6,159
    
    
    $
    15,262
    
    
    $
    5,394Basic earnings/(loss) per share:From continuing operations
    
    $
    0.30
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.17From discontinued operations
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.01Basic earnings per share
    
    $
    0.29
    
    
    $
    0.20
    
    
    $
    0.49
    
    
    $
    0.18Weighted average shares outstanding  basic
    
    
    30,927,000
    
    
    
    30,462,000
    
    
    
    30,866,000
    
    
    
    30,197,000Diluted earnings/(loss) per share:From continuing operations
    
    $
    0.30
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.17From discontinued operations
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.01Diluted earnings per share
    
    $
    0.29
    
    
    $
    0.20
    
    
    $
    0.49
    
    
    $
    0.18Weighted average shares outstanding  diluted
    
    
    31,414,000
    
    
    
    30,935,000
    
    
    
    31,308,000
    
    
    
    30,622,000
  3




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
As of June 30, 2007 (Unaudited) and December 30, 2006
 June 30,
    
    
    December 30,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,032
    
    
    $
    5,504Accounts receivable, net
    
    
    71,139
    
    
    
    61,690Inventories
    
    
    39,302
    
    
    
    36,838Deferred income tax asset
    
    
    8,151
    
    
    
    8,811Assets held for sale
    
    
    3,569
    
    
    
    6,552Prepaid expenses and other current assets
    
    
    8,997
    
    
    
    6,298Total current assets
    
    
    137,190
    
    
    
    125,693Other assetsProperty, plant & equipment, net
    
    
    202,268
    
    
    
    193,009Goodwill
    
    
    52,470
    
    
    
    49,091Other intangible assets, net
    
    
    13,190
    
    
    
    13,209Other assets
    
    
    7,304
    
    
    
    4,450Total assets
    
    $
    412,422
    
    
    $
    385,452LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    26,115
    
    
    $
    18,194Accrued compensation
    
    
    19,662
    
    
    
    20,471Accrued retirement plans
    
    
    2,877
    
    
    
    5,192Accrual for casualty insurance claims
    
    
    6,706
    
    
    
    6,783Accrual for medical insurance claims
    
    
    3,017
    
    
    
    3,488Accrued selling costs
    
    
    5,290
    
    
    
    4,860Other payables and accrued liabilities
    
    
    15,280
    
    
    
    12,632Total current liabilities
    
    
    78,947
    
    
    
    71,620Other liabilitiesLong-term debt
    
    
    50,000
    
    
    
    50,000Deferred income taxes
    
    
    25,516
    
    
    
    26,562Accrual for casualty insurance claims
    
    
    9,973
    
    
    
    9,418Other long-term liabilities
    
    
    8,079
    
    
    
    5,452Total liabilities
    
    
    172,515
    
    
    
    163,052Commitments and contingencies
    
    
    
    
    
    
    Stockholders equityCommon stock, 31,100,916 and 30,855,891 shares outstanding, respectively
    
    
    25,916
    
    
    
    25,714Preferred stock, no shares outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    37,728
    
    
    
    32,129Retained earnings
    
    
    164,752
    
    
    
    159,329Accumulated other comprehensive income
    
    
    11,511
    
    
    
    5,228Total stockholders equity
    
    
    239,907
    
    
    
    222,400Total liabilities and stockholders equity
    
    $
    412,422
    
    
    $
    385,452
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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income (Unaudited)
For the Six Months Ended June 30, 2007 and July 1, 2006
 UnamortizedAdditional
    
    
    Portion of
    
    
    
    
    
    
    Accumulated OtherCommon
    
    
    Paid-in
    
    
    Restricted 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,394
    
    
    
    
    
    
    
    5,394Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,565
    
    
    
    2,565Unrealized gain on forward exchange
contracts, net of tax effect of $(77)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    139Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,098Cash dividends paid to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,677
    )
    
    
    
    
    
    
    (9,677
    )Stock options exercised, including
excess tax benefit of $3,125
    
    
    946,567
    
    
    
    790
    
    
    
    16,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,036Conversion of a liability to equity
instrument
    
    
    
    
    
    
    
    
    
    
    634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    634Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (2,097
    )
    
    
    2,490
    
    
    
    
    
    
    
    
    
    
    
    393Cancellation, issuance and
amortization of restricted stock, net
    
    
    28,425
    
    
    
    148
    
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674Balance, July 1, 2006
    
    
    30,783,697
    
    
    $
    25,779
    
    
    $
    29,179
    
    
    $
    
    
    
    $
    156,124
    
    
    $
    7,785
    
    
    $
    218,867Balance, December 30, 2006
    
    
    30,855,891
    
    
    $
    25,714
    
    
    $
    32,129
    
    
    $
    
    
    
    $
    159,329
    
    
    $
    5,228
    
    
    $
    222,400Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,262
    
    
    
    
    
    
    
    15,262Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,678
    
    
    
    5,678Net unrealized losses on derivative
instruments, net of tax effect of $401
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    710
    
    
    
    710Amortization of gains from post-
retirement medical plan, net of tax
effect of $45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,545Cash dividends paid to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,900
    )
    
    
    
    
    
    
    (9,900
    )Stock options exercised, including
excess tax benefit of $517
    
    
    162,025
    
    
    
    133
    
    
    
    2,636
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,769Cumulative adjustment from adoption
of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    61Stock-based compensation previously
recognized under a liability plan
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805Cancellation, issuance and
amortization of restricted stock, net
    
    
    83,000
    
    
    
    69
    
    
    
    1,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,911Balance, June 30, 2007
    
    
    31,100,916
    
    
    $
    25,916
    
    
    $
    37,728
    
    
    $
    
    
    
    $
    164,752
    
    
    $
    11,511
    
    
    $
    239,907
  5




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2007 and July 1, 2006
 Six Months EndedJune 30,
    
    
    July 1,2007
    
    
    2006Operating activitiesNet income
    
    $
    15,262
    
    
    $
    5,394Adjustments to reconcile net income to cash from operating activities:Depreciation and amortization
    
    
    14,461
    
    
    
    13,388Equity-based compensation expense
    
    
    1,767
    
    
    
    1,068Loss/(gain) on dispositions of property, net
    
    
    518
    
    
    
    (4
    )Changes in operating assets and liabilities
    
    
    (3,057
    )
    
    
    (12,758
    )Net cash from operating activities
    
    
    28,951
    
    
    
    7,088Investing activitiesPurchases of property and equipment
    
    
    (22,608
    )
    
    
    (27,198
    )Proceeds from sales of property
    
    
    3,319
    
    
    
    2,762Purchase of investment
    
    
    (2,090
    )
    
    
    Net cash used in investing activities
    
    
    (21,379
    )
    
    
    (24,436
    )Financing activitiesDividends paid
    
    
    (9,900
    )
    
    
    (9,677
    )Issuances of common stock
    
    
    2,769
    
    
    
    17,036Net proceeds from revolving credit facilities
    
    
    
    
    
    
    7,505Net cash flow (used in)/from financing activities
    
    
    (7,131
    )
    
    
    14,864Effect of exchange rate changes on cash
    
    
    87
    
    
    
    220Increase/(decrease) in cash and cash equivalents
    
    
    528
    
    
    
    (2,264
    )Cash and cash equivalents at beginning of period
    
    
    5,504
    
    
    
    3,543Cash and cash equivalents at end of period
    
    $
    6,032
    
    
    $
    1,279Supplemental information:Cash paid for income taxes, net of refunds of $2, respectively
    
    $
    5,389
    
    
    $
    3,430Cash paid for interest
    
    $
    1,442
    
    
    $
    1,676
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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 June 30, 2007
and December 30, 2006 and the condensed consolidated statements of income for the quarters and
six months ended June 30, 2007 and July 1, 2006 and the condensed consolidated statements of
stockholders equity and comprehensive income and cash flows for the six months ended June 30,
2007 and July 1, 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 six months ended June 30, 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:
 June 30,
    
    
    December 30,(in thousands)
    
    2007
    
    
    2006Finished goods
    
    $
    21,717
    
    
    $
    18,630Raw materials
    
    
    7,653
    
    
    
    7,968Supplies, etc.
    
    
    14,028
    
    
    
    14,077Total inventories at FIFO cost
    
    
    43,398
    
    
    
    40,675Less adjustments to reduce FIFO cost to LIFO cost
    
    
    (4,096
    )
    
    
    (3,837
    )Total inventories
    
    $
    39,302
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average number of common
shares used for basic earnings per
share
    
    
    30,927
    
    
    
    30,462
    
    
    
    30,866
    
    
    
    30,197Effect of potential dilutive shares
    
    
    487
    
    
    
    473
    
    
    
    442
    
    
    
    425Weighted average number of common
shares and potential dilutive
shares used for diluted earnings
per share
    
    
    31,414
    
    
    
    30,935
    
    
    
    31,308
    
    
    
    30,622Anti-dilutive shares excluded from
the above reconciliation
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
 7.
    
    Sales to our largest customer, Wal-Mart Stores, Inc. (Wal-Mart), were approximately 20% and
19% of revenue for the quarters ended June 30, 2007 and July 1, 2006, respectively, and 20%
and 18% of revenue for the six months ended June 30, 2007 and July 1, 2006, respectively, on a
continuing operations basis. Accounts receivable at June 30, 2007 and December 30, 2006
included receivables from Wal-Mart totaling $18.3 million and
$13.6 million, respectively.8.
    
    Net bad debt expense/(benefit) was $0.1 million or less in all periods presented. Net bad
debt expense/(benefit) 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 June
30, 2007 condensed consolidated balance sheet.10.
    
    Net periodic benefit income for our post-retirement medical benefit plan consists of the
following:
 Quarter Ended
    
    
    Six Months EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic
postretirement
benefit cost/(income):Service cost
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    10Interest cost
    
    
    4
    
    
    
    12
    
    
    
    8
    
    
    
    18Gain amortization
    
    
    (75
    )
    
    
    (181
    )
    
    
    (150
    )
    
    
    (173
    )Net periodic postretirement
benefit income
    
    $
    (71
    )
    
    $
    (168
    )
    
    $
    (142
    )
    
    $
    (145
    )Retiree benefit claims paid
    
    $
    6
    
    
    $
    264
    
    
    $
    26
    
    
    $
    424Plan participant contributions
    
    $
    63
    
    
    $
    103
    
    
    $
    128
    
    
    $
    200
 11.
    
    At June 30, 2007 and December 30, 2006, we had $3.6 million and $6.6 million, respectively,
of assets held for sale. The assets at June 30, 2007 are primarily related to the
discontinued vending operations and certain facilities acquired from Toms Foods Inc. and
subsequently closed. These assets are expected to be sold during
2007.12.
    
    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.
 8




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 Notes to the Condensed Consolidated Financial Statements (Unaudited)
 We have recorded gross unrecognized tax benefits totaling $2.3 million as of June 30, 2007 in
other long-term liabilities on the condensed consolidated balance sheet. Of this amount, $1.9
million would impact the effective tax rate if subsequently recognized. Various taxing
authorities statutes of limitations related to the computation of our unrecognized tax benefits
will expire within the next twelve months resulting in a potential $0.5 million reduction of the
unrecognized tax benefit amount. 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 June 30, 2007 was $0.5 million.We have open years for income tax audit purposes in our major taxing jurisdictions according to
statutes as follows:
 Jurisdiction
    
    Open yearsUS federal
    
    2003 and forwardCanada federal
    
    2002 and forwardOntario provincial
    
    2001 and forwardMassachusetts
    
    2001 and forwardNorth Carolina
    
    2003 and forwardIowa
    
    2003 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 noncontrolling equity interest in an organic snack food
company for $2.1 million. This investment, which is reflected in other assets on the
Condensed Consolidated Balance Sheet, will be accounted for using the equity method beginning
in the third quarter of 2007.15.
    
    In an effort to streamline our overall supply chain and increase manufacturing efficiency, we
announced the consolidation of sugar wafer manufacturing operations in Canada with the closure
of the Waterloo, Ontario location during June 2007. We anticipate total consolidation costs
to be $0.5 million. Of the $0.3 million recognized during the quarter ended June 30, 2007,
$0.2 million was related to asset impairments.
 9




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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 June 30, 2007 Compared to Quarter Ended July 1, 2006
 Favorable/Quarter Ended
    
    (Unfavorable)($ in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    VarianceRevenue
    
    $
    197,036
    
    
    
    100.0
    %
    
    $
    188,341
    
    
    
    100.0
    %
    
    $
    8,695
    
    
    
    4.6
    %Cost of sales
    
    
    109,435
    
    
    
    55.5
    %
    
    
    105,660
    
    
    
    56.1
    %
    
    
    (3,775
    )
    
    
    (3.6
    %)Gross margin
    
    
    87,601
    
    
    
    44.5
    %
    
    
    82,681
    
    
    
    43.9
    %
    
    
    4,920
    
    
    
    6.0
    %Selling, marketing and delivery
    
    
    59,864
    
    
    
    30.4
    %
    
    
    60,285
    
    
    
    32.0
    %
    
    
    421
    
    
    
    0.7
    %General and administrative
    
    
    11,603
    
    
    
    5.9
    %
    
    
    11,771
    
    
    
    6.2
    %
    
    
    168
    
    
    
    1.4
    %Other expense, net
    
    
    973
    
    
    
    0.5
    %
    
    
    517
    
    
    
    0.3
    %
    
    
    (456
    )
    
    
    (88.2
    %)Earnings before interest and taxes
    
    
    15,161
    
    
    
    7.7
    %
    
    
    10,108
    
    
    
    5.4
    %
    
    
    5,053
    
    
    
    50.0
    %Interest expense, net
    
    
    (615
    )
    
    
    (0.3
    %)
    
    
    (828
    )
    
    
    (0.4
    %)
    
    
    213
    
    
    
    25.7
    %Income tax expense
    
    
    (5,277
    )
    
    
    (2.7
    %)
    
    
    (3,386
    )
    
    
    (1.8
    %)
    
    
    (1,891
    )
    
    
    (55.8
    %)Income from continuing operations
    
    
    9,269
    
    
    
    4.7
    %
    
    
    5,894
    
    
    
    3.1
    %
    
    
    3,375
    
    
    
    57.3
    %(Loss)/income from discontinued
operations
    
    
    (346
    )
    
    
    (0.2
    %)
    
    
    418
    
    
    
    0.2
    %
    
    
    (764
    )
    
    nmIncome tax benefit/(expense)
    
    
    129
    
    
    
    0.1
    %
    
    
    (153
    )
    
    
    (0.1
    %)
    
    
    282
    
    
    nmNet (loss)/income from discontinued
operations
    
    
    (217
    )
    
    
    (0.1
    %)
    
    
    265
    
    
    
    0.1
    %
    
    
    (482
    )
    
    nmNet income
    
    $
    9,052
    
    
    
    4.6
    %
    
    $
    6,159
    
    
    
    3.3
    %
    
    $
    2,893
    
    
    
    47.0
    %
 
 nm = not meaningful.   10




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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
 ® ® ®
       Six Months Ended June 30, 2007 Compared to the Six Months Ended July 1, 2006
 Favorable/Six Months Ended
    
    
    (Unfavorable)($ in thousands)
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    VarianceRevenue
    
    $
    379,463
    
    
    
    100.0
    %
    
    $
    369,086
    
    
    
    100.0
    %
    
    $
    10,377
    
    
    
    2.8
    %Cost of sales
    
    
    212,412
    
    
    
    56.0
    %
    
    
    210,526
    
    
    
    57.0
    %
    
    
    (1,886
    )
    
    
    (0.9
    %)Gross margin
    
    
    167,051
    
    
    
    44.0
    %
    
    
    158,560
    
    
    
    43.0
    %
    
    
    8,491
    
    
    
    5.4
    %Selling, marketing and delivery
    
    
    116,343
    
    
    
    30.7
    %
    
    
    125,330
    
    
    
    34.0
    %
    
    
    8,987
    
    
    
    7.2
    %General and administrative
    
    
    24,739
    
    
    
    6.5
    %
    
    
    23,229
    
    
    
    6.3
    %
    
    
    (1,510
    )
    
    
    (6.5
    %)Other expense, net
    
    
    884
    
    
    
    0.2
    %
    
    
    679
    
    
    
    0.2
    %
    
    
    (205
    )
    
    
    (30.2
    %)Earnings before interest and taxes
    
    
    25,085
    
    
    
    6.6
    %
    
    
    9,322
    
    
    
    2.5
    %
    
    
    15,763
    
    
    
    169.1
    %Interest expense, net
    
    
    (1,219
    )
    
    
    (0.3
    %)
    
    
    (1,497
    )
    
    
    (0.4
    %)
    
    
    278
    
    
    
    18.6
    %Income tax expense
    
    
    (8,725
    )
    
    
    (2.3
    %)
    
    
    (2,855
    )
    
    
    (0.8
    %)
    
    
    (5,870
    )
    
    
    (205.6
    %)Income from continuing operations
    
    
    15,141
    
    
    
    4.0
    %
    
    
    4,970
    
    
    
    1.3
    %
    
    
    10,171
    
    
    
    204.6
    %Income from discontinued operations
    
    
    190
    
    
    
    0.1
    %
    
    
    668
    
    
    
    0.2
    %
    
    
    (478
    )
    
    
    (71.6
    %)Income tax expense
    
    
    (69
    )
    
    
    
    
    
    
    (244
    )
    
    
    (0.1
    %)
    
    
    175
    
    
    
    71.7
    %Net income from discontinued
operations
    
    
    121
    
    
    
    
    
    
    
    424
    
    
    
    0.1
    %
    
    
    (303
    )
    
    
    (71.5
    %)Net income
    
    $
    15,262
    
    
    
    4.0
    %
    
    $
    5,394
    
    
    
    1.5
    %
    
    $
    9,868
    
    
    
    182.9
    %
 11




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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
   ® ® ®
      Liquidity and Capital Resources
 Liquidity
  12




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LANCE, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cash Flow
       Market Risks
     13




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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
   Forward-Looking Statements and Risk Factors
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
   14




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##### Table of Contents



LANCE, INC. AND SUBSIDIARIES
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    Election of nominees to the Board of Directors to serve until the Annual Meeting of
Stockholders in 2010:
 Votes For
    

    Votes WithheldDavid V. Singer
    
    
    28,251,061
    
    
    
    508,976Dan C. Swander
    
    
    28,563,020
    
    
    
    197,017S. Lance Van Every
    
    
    28,201,311
    
    
    
    558,727
 2.
    
    Adoption of the 2007 Key Employee Incentive Plan (21,078,730 for, 3,643,632 against,
80,317 abstaining, 3,957,360 broker non-votes).3.
    
    Ratification of the selection of KPMG LLP as independent public accountants for fiscal
2007 (28,067,370 for, 653,942 against, 38,723 abstaining).
 15




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##### Table of Contents



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).10.1*
    
    

Lance,
Inc. 2005 Long-Term Incentive Plan for Officers, as amended, filed
herewith.10.2*
    
    

Lance,
Inc. 2006 Three-Year Incentive Plan for Officers, as amended, filed
herewith.10.3*
    
    
    Form of Compensation and Benefits Assurance Agreement between the Registrant and each of Earl D.
Leake, Frank I. Lewis, Glenn A. Patcha, Rick D. Puckett and Blake W. Thompson, incorporated herein by
reference to Exhibit 10.14 to the Registrants Annual Report on Form 10-K for the fiscal year ended
December 27, 1997 (File No. 0-398).10.4*
    
    
    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).31.1
    
    

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

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




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LANCE, INC. AND SUBSIDIARIES
 
 Signature
  LANCE, INC.By:
    /s/ Rick D. PuckettRick D. PuckettExecutive Vice President,
Chief Financial Officer,
Treasurer and Secretary  17