1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter (Thirteen Weeks) Ended March 27, 1999 --------------------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ To ________________________ Commission file number 0-398 --------------------------------------------------------- LANCE, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0292920 - ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 8600 South Boulevard (P.O. Box 32368), Charlotte, North Carolina 28232 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 704-554-1421 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- ----------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.83-1/3 par value - 29,957,997 shares outstanding as of May 4, 1999 2 LANCE, INC. AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION: Financial Statements: Condensed Consolidated Balance Sheets - March 27, 1999 (Unaudited) and December 26, 1998 .......................................................... 3 Condensed Consolidated Statements of Income (Unaudited) - Thirteen Weeks Ended March 27, 1999 and Twelve Weeks Ended March 21, 1998 ................................ 4 Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Thirteen Weeks Ended March 27, 1999 and Twelve Weeks Ended March 21, 1998 ............................................................................. Condensed Consolidated Statements of Cash Flows (Unaudited) - Thirteen Weeks Ended March 27, 1999 and Twelve Weeks Ended March 21, 1998 ........................... 6 Notes to Condensed Consolidated Financial Statements ............................................ 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................................................... 10 PART II. OTHER INFORMATION: Exhibits and Reports on Form 8-K ................................................................ 13 SIGNATURES.............................................................................................. 14 2 3 LANCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 27, 1999 (UNAUDITED) AND December 26, 1998 (In thousands, except share and per share data) March 27, December 26, 1999 1998 --------- ------------ ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 5,439 $ 7,856 Marketable securities -- 9,126 Accounts receivable (less allowance for doubtful accounts) 42,131 39,616 Inventories (Notes 3 and 4) 21,478 20,331 Deferred income tax benefit 6,881 5,808 Income tax receivable -- 2,800 Prepaid expenses and other 2,774 1,943 --------- --------- Total current assets 78,703 87,480 PROPERTY, NET 160,400 161,683 OTHER ASSETS 2,424 2,240 --------- --------- TOTAL ASSETS $ 241,527 $ 251,403 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 7,595 $ 9,231 Accrued liabilities 18,683 25,160 --------- --------- Total current liabilities 26,278 34,391 =========== ========= OTHER LIABILITIES AND DEFERRED CREDITS: Deferred income taxes 13,274 12,122 Accrued postretirement health care costs 12,504 12,350 Accrual for insurance claims 3,292 3,529 Supplemental retirement benefits 2,873 2,927 --------- --------- Total other liabilities and deferred credits 31,943 30,928 ========= ========= STOCKHOLDERS' EQUITY: Common stock, $0.83 1/3 par value (authorized: 75,000,000 shares; issued 29,957,997 shares in 1999; 29,989,210 in 1998) 24,964 24,991 Preferred stock, $1.00 par value (authorized: 5,000,000 shares; none issued) -- -- Additional paid in capital 2,973 1,981 Unamortized portion of restricted stock awards (1,483) (502) Retained earnings 156,852 159,524 Net unrealized gain on marketable securities -- 90 --------- --------- Total stockholders' equity 183,306 186,084 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 241,527 $ 251,403 ========= ========= See notes to condensed consolidated financial statements (unaudited). 3 4 LANCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the THIRTEEN WEEKS ENDED March 27, 1999 AND THE TWELVE WEEKS ENDED March 21, 1998 (Note 2) (In thousands, except share and per share data) (See Note 2) ---------------------------------------------- Thirteen Weeks Ended Twelve Weeks Ended March 27, 1999 March 21, 1998 -------------------- ------------------ NET SALES AND OTHER OPERATING REVENUE $ 120,789 $ 110,226 ----------- ----------- COST OF SALES AND OPERATING EXPENSES: Cost of sales (Note 3) 54,024 50,816 Selling, marketing and delivery 51,036 44,222 General and administrative 5,362 4,508 Provision for profit-sharing retirement plan 1,238 1,431 ----------- ----------- Total 116,660 100,977 ----------- ----------- PROFIT FROM OPERATIONS 9,129 9,249 OTHER INCOME, NET 251 1,218 ----------- ----------- INCOME BEFORE INCOME TAXES 9,380 10,467 INCOME TAXES 3,506 3,953 ----------- ----------- NET INCOME $ 5,874 $ 6,514 =========== =========== SHARE AND PER SHARE AMOUNTS (Note 5) Net Income: Basic $ 0.20 $ 0.22 =========== =========== Diluted $ 0.20 $ 0.22 =========== =========== Cash dividends $ 0.24 $ 0.24 =========== =========== Weighted average shares of common stock outstanding: Basic 29,940,000 29,900,000 =========== =========== Diluted 30,030,000 30,073,000 =========== =========== See notes to condensed consolidated financial statements (unaudited). 4 5 LANCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE THIRTEEN WEEKS ENDED MARCH 27, 1999 AND THE TWELVE WEEKS ENDED MARCH 21, 1998 - ------------------------------------------------------------------------------ (In thousands, except share data) Net Unamortized Unrealized Additional Portion of Gain on Common Paid-in Restricted Retained Marketable Shares Stock Capital Stock Awards Earnings Securities Total ------ ----- ------- ------------ -------- ---------- ----- BALANCE, DECEMBER 27, 1997 29,923,287 $ 24,936 $ 999 $( 488) $ 160,682 $ 393 $ 186,522 ----------- -------- ------- ------- --------- ----- --------- COMPREHENSIVE INCOME: Net Income -- -- -- -- 6,514 -- 6,514 Net change in unrealized gain on marketable securities -- -- -- -- -- (222) (222) ----------- -------- ------- ------- --------- ----- --------- Total comprehensive income -- -- -- -- 6,514 (222) 6,292 ----------- -------- ------- ------- --------- ----- --------- CASH DIVIDENDS PAID -- -- -- -- (7,182) -- (7,182) RECOGNITION OF RESTRICTED STOCK AWARDS -- -- (72) 95 -- -- 23 STOCK OPTIONS EXERCISED 22,425 19 399 -- -- -- 418 PURCHASE OF COMMON STOCK (5,359) (5) (139) -- -- -- (144) ----------- -------- ------- ------- --------- ----- --------- BALANCE, MARCH 21, 1998 29,940,353 $ 24,950 $ 1,187 $ (393) $ 160,014 $ 171 $ 185,929 ----------- -------- ------- ------- --------- ----- --------- BALANCE, DECEMBER 26, 1998 29,989,210 $ 24,991 $ 1,981 $ (502) $ 159,524 $ 90 $ 186,084 ----------- -------- ------- ------- --------- ----- --------- COMPREHENSIVE INCOME: Net Income -- -- -- -- 5,874 -- 5,874 Net change in unrealized gain on marketable securities -- -- -- -- -- (90) (90) ----------- -------- ------- ------- --------- ----- --------- Total comprehensive income -- -- -- -- 5,874 (90) 5,784 ----------- -------- ------- ------- --------- ----- --------- CASH DIVIDENDS PAID -- -- -- -- (7,134) -- (7,134) ISSUANCE OF RESTRICTED STOCK 65,300 54 1,081 (1,135) -- -- -- RECOGNITION OF RESTRICTED STOCK AWARDS -- -- (146) 154 -- -- 8 STOCK OPTIONS EXERCISED 3,487 3 57 -- -- -- 60 PURCHASE OF COMMON STOCK (100,000) (84) -- -- (1,412) -- (1,496) ----------- -------- ------- ------- --------- ----- --------- BALANCE, MARCH 27, 1999 29,957,997 $ 24,964 $ 2,973 $(1,483) $ 156,852 $ -- $ 183,306 ----------- -------- ------- ------- --------- ----- --------- See notes to condensed consolidated financial statements (unaudited). 5 6 LANCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the THIRTEEN WEEKS ENDED March 27, 1999 AND THE TWELVE WEEKS ENDED March 21, 1998 (Note 2) - ------------------------------------------------------------------------------ (In thousands) Thirteen Weeks Twelve Weeks Ended Ended March 27, 1999 March 21, 1998 -------------- -------------- OPERATING ACTIVITIES: Net income $ 5,874 $ 6,514 Adjustments to reconcile net income to cash provided by operating activities Depreciation 6,510 4,799 Gain on sale of property, net (29) (76) Deferred income taxes 79 (209) Other, net 9 (378) Changes in operating assets and liabilities (10,218) (1,389) -------- -------- Net cash flow from operating activities 2,225 9,261 -------- -------- INVESTING ACTIVITIES: Purchases of property (5,276) (8,187) Proceeds from sale of property 78 207 Purchases of marketable securities (556) (276) Sales of marketable securities 7,733 499 Maturities of marketable securities 1,886 4,701 Other, net 63 (61) -------- -------- Net cash provided by (used in) investing activities 3,928 (3,117) -------- -------- FINANCING ACTIVITIES: Dividends paid (7,134) (7,182) Issuance (purchase) of common stock, net (1,436) 274 -------- -------- Net cash used in financing activities (8,570) (6,908) -------- -------- DECREASE IN CASH (2,417) (764) CASH, BEGINNING OF PERIOD 7,856 34,040 -------- -------- CASH, END OF PERIOD $ 5,439 $ 33,276 ======== ======== SUPPLEMENTAL INFORMATION: Cash paid for income taxes $ 226 $ 450 ======== ======== See notes to condensed consolidated financial statements (unaudited). 6 7 LANCE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of the Company and its subsidiaries as of March 27, 1999 and December 26, 1998, the consolidated results of operations for the thirteen weeks ended March 27, 1999 and the twelve weeks ended March 21, 1998 and the consolidated cash flows for the thirteen weeks ended March 27, 1999 and the twelve weeks ended March 21, 1998. 2. Effective for fiscal 1999, the Company has adopted a quarterly reporting calendar based on four 13-week quarters. Historically, the Company has reported interim results on the basis of three 12-week quarters and one 16-week quarter. Management believes the new quarterly reporting provides more useful, comparative information. The table below summarizes revenues, operating profit, net income and earnings per share as filed with the Securities and Exchange Commission for 1998 on the basis of three 12-week quarters and one 16-week quarter: Quarter Ended ------------------------------------------------------------------------- Year Ended March 21 June 13 September 5 December 26 December 26 (12 wks) (12 wks) (12 wks) (16 wks) (52 wks) --------------------------------------------------------------------------------------------- Revenues $ 110,226 $ 118,264 $ 112,098 $ 145,844 $ 486,432 Operating Profit 9,249 11,660 10,017 9,149 40,075 Net Income 6,514 7,959 6,868 6,267 27,608 Earnings per share: Basic $ 0.22 $ 0.27 $ 0.23 $ 0.21 $ 0.92 Diluted $ 0.22 $ 0.27 $ 0.23 $ 0.21 $ 0.92 Weighted average shares outstanding: Basic 29,900,000 29,916,000 29,935,000 29,942,000 29,925,000 Diluted 30,073,000 30,030,000 30,043,000 30,018,000 30,043,000 In order to better compare 1999 results with 1998, the table below summarizes estimated revenues, operating profit, net income and earnings per share for 1998 on the basis of four 13-week quarters: Quarter Ended ------------------------------------------------------------------------- Year Ended March 28 June 27 September 26 December 26 December 26 (13 wks) (13 wks) (13 wks) (13 wks) (52 wks) --------------------------------------------------------------------------------------------- Revenues $ 119,955 $ 126,313 $ 121,259 $ 118,905 $ 486,432 Operating Profit 9,968 12,268 10,377 7,462 40,075 Net Income 6,991 8,346 7,102 5,169 27,608 Earnings per share: Basic $ 0.23 $ 0.28 $ 0.24 $ 0.17 $ 0.92 Diluted $ 0.23 $ 0.28 $ 0.24 $ 0.17 $ 0.92 Weighted average shares outstanding: Basic 29,901,000 29,918,000 29,937,000 29,943,000 29,925,000 Diluted 30,073,000 30,021,000 30,028,000 30,018,000 30,043,000 7 8 LANCE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The consolidated results of operations for the thirteen weeks ended March 27, 1999 and the twelve weeks ended March 21, 1998 are not necessarily indicative of the results to be expected for a full year. 3. The Company's primary raw materials include peanuts, peanut butter, flour and other grain products. The Company enters into various forward purchase agreements and derivative financial instruments to reduce the impact of volatility in raw material prices. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. Amounts payable or receivable under the agreements, which qualify as hedges, are recognized as deferred gains or losses and included in other assets or other liabilities. These deferred amounts are charged or credited to cost of sales as the related raw materials costs are charged to operations. 4. The Company utilizes the dollar value last-in, first-out (LIFO) method of determining the cost of substantially all of its inventories. Because inventory calculations under the LIFO method are based on annual determinations, the determination of interim LIFO valuations requires that estimates be made of year-end costs and levels of inventories. The possibility of variation between estimated year-end costs and levels of LIFO inventories and the actual year-end amounts may materially affect the results of operations as finally determined for the full year. Inventories at March 27, 1999 and December 26, 1998 consisted of (in thousands): 1999 1998 -------- -------- Finished goods $ 17,026 $ 16,627 Raw materials 4,793 3,653 Supplies, etc 4,061 4,437 -------- -------- Total inventories at FIFO cost 25,880 24,717 Less: Adjustment to reduce FIFO costs to LIFO (4,402) (4,386) -------- -------- Total inventories at LIFO cost $ 21,478 $ 20,331 ======== ======== 5. The following table provides a reconciliation of the denominator used in computing basic earnings per share to the denominator used in computing diluted earnings per share at March 27, 1999 and March 21, 1998 (there were no reconciling items for the numerator amounts of basic and diluted earnings per share): March 27, 1999 March 21, 1998 -------------- -------------- Weighted average number of common shares used in computing basic earnings per share 29,940,000 29,900,000 Effect of dilutive stock options 90,000 173,000 ----------- ----------- Weighted average number of common shares and dilutive potential common stock used in computing diluted earnings per share 30,030,000 30,073,000 ----------- ----------- Stock options excluded from the above reconciliation because they are anti-dilutive 749,000 44,000 =========== =========== 8 9 LANCE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. During the thirteen weeks ended March 27, 1999, other comprehensive income consisted of a $90,000 reclassification adjustment, net of taxes, for realized gains included in net income. 7. On April 14, 1999, the Registrant acquired 100% of the stock of Tamming Foods Ltd., a corporation organized under the laws of Ontario, Canada ("Tamming") pursuant to the terms of an Agreement of Purchase and Sale dated as of March 31, 1999. Tamming manufactures high quality sugar wafer products that are sold under private label in the United States, Canada and Mexico. Annual sales of Tamming are approximately $20 million. Pursuant to the terms of the Agreement of Purchase and Sale, a subsidiary of the Company purchased all of the outstanding stock of Tamming for the aggregate purchase price of $45.0 million of which $14.1 million was paid by delivery of Deferred Notes due April 2, 2004. The funds for the acquisition were obtained from a short term borrowing agreement with a bank consisting of a 180 day unsecured term loan in the amount of $30.9 million and an existing unsecured line of credit with a bank in the amount of $5.0 million. The Deferred Notes, which are non-interest bearing, were issued pursuant to a Deferred Notes Agreement. On April 16, 1999, the Company entered into an agreement to acquire Cape Cod Potato Chip Company, Inc. ("Cape Cod") headquartered in Hyannis, Massachusetts. Cape Cod manufactures premium, kettle-cooked potato chips and other salty snacks which are distributed in the United States, Canada, Spain and England. Annual sales of Cape Cod are approximately $30 million. Completion of the acquisition is subject to regulatory approval and is expected to be completed by June 1999. Funds for this acquisition are to be obtained from a revolving bank credit facility expected to be in place in May 1999. 9 10 LANCE, INC AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGE IN INTERIM REPORTING PERIODS Effective for the fiscal year ending December 25, 1999, the Company has revised its interim quarterly reporting periods to 13-week fiscal quarters. A summary of estimated 1998 quarterly operating results on a 13-week basis is presented in Note 2 of the accompanying condensed consolidated financial statements. For purposes of discussion and analysis of the Company's results of operations for the quarter (13 weeks) ended March 27, 1999, the operating results for 1998 shown below are presented on a 13-week basis to improve comparability. Cash flows for 1998 have not been presented on the basis of a 13-week quarter. Management does not believe cash flows would be significantly different between a 12-week period and a 13-week period for purposes of understanding financial condition and liquidity. RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED MARCH 27, 1999 COMPARED TO THE THIRTEEN WEEKS ENDED MARCH 28, 1998 ($ In Thousands) 1999 1998 Change ---- ---- ------ Revenues $120,789 100.0% $119,955 100.0% $ 834 0.7% Cost of sales 54,024 44.7% 55,120 45.9% 1,096 -2.0% -------- ----- -------- ----- -------- ----- Gross margin 66,765 55.3% 64,835 54.1% 1,930 3.0% -------- ----- -------- ----- -------- ----- Selling, marketing, and delivery expenses 51,036 42.3% 48,376 40.3% (2,660) 5.5% General and administrative expenses 5,362 4.4% 4,964 4.1% ( 398) 8.0% Provisions for employees' retirement plans 1,238 1.0% 1,527 1.3% 289 -18.9% -------- ----- -------- ----- -------- ----- Total operating expenses 57,636 47.7% 54,867 45.7% (2,769) 5.0% -------- ----- -------- ----- -------- ----- Operating profit 9,129 7.6% 9,968 8.3% ( 839) -8.4% Other income, net 251 0.2% 1,265 1.1% (1,014) -80.2% Income taxes 3,506 2.9% 4,242 3.5% 736 -17.4% -------- ----- -------- ----- -------- ----- Net income $ 5,874 4.9% $ 6,991 5.8% $ (1,117) -16.0% -------- ----- -------- ----- -------- ----- Revenues increased $0.8 million, or 0.7%, due to sales volume increases through grocery accounts from both branded and private label products. These increases were offset by lower sales volume through "up and down the street", convenience and food service accounts. Gross margin improved by 1.2 percentage points to 55.3% primarily as a result of manufacturing efficiencies and favorable commodity costs. The $2.7 million increase in selling, marketing and delivery costs relate to infrastructure costs for sales and vending as well as higher than expected costs related to information system implementations. Other income includes interest and dividend income on cash and marketable securities and gains/losses on dispositions of assets. The $1.0 million decrease in other income was due to the absence of $0.5 million in securities gains from 1998 and a decline in interest income from lower amounts of marketable securities. 10 11 LANCE, INC AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Traditionally, the Company has met its liquidity needs for capital expenditures, cash dividends and stock repurchases through cash from operations and investments. In addition, the Company has historically maintained relatively high liquidity and no outstanding debt. During 1998, cash and marketable securities were reduced to $17.0 million as the Company's capital expenditures peaked at $55 million. Cash and marketable securities were further reduced during the thirteen weeks ended March 27, 1999 by $11.5 million primarily as a result of increased working capital. Working capital (other than cash and marketable securities) as of March 27, 1999 increased to $47.0 million from $36.1 million at December 28, 1998. This increase of $10.9 million along with reduced profitability resulted in net cash flow from operating activities of $2.2 million as compared to $9.3 million for the 12-week period in 1998. The working capital increase came primarily from higher levels of receivables and inventories, as well as annual payments for profit-sharing contributions and employee benefits. Receivables increased due to increases in sales on credit terms for private label accounts and due to accommodations during the information systems implementations. Inventories increased in the DSD field sales organization due to planned promotional activities. On February 16, 1999, the Board of Directors authorized the repurchase of up to 100,000 shares on the open market. During the first quarter of 1999, 100,000 shares were purchased at a cost of $1.5 million. In connection with the acquisition of Tamming Foods Ltd. on April 14, 1999, the Company utilized its existing unsecured credit line in the amount of $5.0 million and entered into a short-term borrowing agreement consisting of a 180-day term loan in the amount of $30.9 million. The Company is presently arranging longer term credit arrangements to repay the short-term borrowing for the Tamming acquisition, to fund the recently announced acquisition of Cape Cod Potato Chip Company, Inc. and for general corporate purposes. MARKET RISK Raw materials used by the Company are exposed to the impact of changing commodity prices, particularly the price of wheat used for flour. Accordingly, the Company enters into commodity future and option contracts to manage fluctuations in prices of anticipated purchases of certain raw materials. The Company's Board-approved policy is to use such commodity derivative financial instruments only to the extent necessary to manage these exposures. The Company does not use these financial instruments for trading purposes. Since the Company uses commodity price-sensitive instruments to hedge a certain portion of its existing and anticipated transactions, any loss in value for these instruments generally would be offset by increases in the value for the hedged transactions. At March 27, 1999, the Company's position included futures contracts for 700,000 bushels of wheat maturing during 1999 with contract and fair market values each totaling $2.1 million. A 10% decrease in the cost of wheat futures at the time of offset or maturity would result in a $0.21 million realized loss. YEAR 2000 READINESS The Company has organized its activities to address Year 2000 issues in four phases: (1) initial assessment and project organization; (2) remediation and testing; (3) assessment of third-party readiness 11 12 LANCE, INC AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and impacts and (4) contingency planning. The timing of each of these phases overlap each other. The Company has completed the first phase, which included an assessment of hardware and software applications; implementation of a vendor management program; awareness training throughout the Company; establishment of compliance testing principles and standards; and development of the project master plan. The second phase consists of remediation and testing. All critical internal hardware and software applications (commonly referred to as "IT systems") have been remediated and tested. A comprehensive, integrated test of all applications is planned for the second quarter of 1999. Other applications not internal to the Company (commonly referred to as "non-IT systems") include applications such as energy supply, telecommunications, facility operation and security, automated production controllers and financial services such as banking and benefit plan administration. In addition, the Company has non-IT systems included in its vending machine operations and DSD system. Remediation and testing for non-IT systems has begun and is expected to be completed for all critical applications by the end of the second quarter of 1999. The third phase, assessment of third party readiness and impacts, has also begun and is expected to be completed by mid-1999. The Company has received a majority of responses to initial inquiries of material third party relationships. The Company plans to validate readiness responses for its key relationships as it assesses its contingency planning requirements. The Company's key relationships include suppliers of flour, peanuts, peanut butter, energy and production and distribution equipment. The fourth phase, contingency planning, began in the fourth quarter of 1998 and is expected to be completed early in the fourth quarter of 1999. Year 2000 compliance costs are expected to range from $0.7 million to $1.0 million of external costs, of which approximately $0.6 million have been incurred. In addition, the Company is using internal resources for a cross-functional steering committee and three project co-managers. The estimated compliance costs do not include costs for system replacements. Essentially all of the Company's IT systems have been replaced during the last three years as part of an integrated information systems project initiated in late 1995. At this stage of the Company's Year 2000 readiness activities, the Company's assessment is that the failure of non-IT systems and lack of readiness by third parties would not have a material adverse effect on revenues since a majority of sales are to a large number and wide variety of customers. While such failures would likely cause increased operating expenses, the Company does not expect a material effect on the results of operations, liquidity or financial condition. The Company will continue to assess possible increased operating expenses as the Company's Year 2000 readiness activities continue. FORWARD-LOOKING STATEMENTS This discussion contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those forward-looking statements. Factors that may cause actual results to differ materially include, price competition, industry consolidation, raw material costs, effectiveness of sales and marketing activities, effectiveness of Year 2000 readiness activities and effects of a leveraged business, as described in the Company's filings with the Securities and Exchange Commission. 12 13 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 1999 Annual Corporate Performance Incentive Plan for Officers 10.2 1999 Long-Term Incentive Plan for Officers 10.3 Chairman of the Board Compensation Letter dated February 16, 1999 27 Financial Data Schedule (Filed in electronic format only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934). 99.1 Cautionary Statement under Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 99.2 1998 Statements of Income for the Quarters (13 Weeks) Ended March 28, 1998, June 27, 1998, September 26, 1998 and December 26, 1998 (b) Reports on Form 8-K No reports on Form 8-K were filed during the 13 weeks ended March 27, 1999. Items 1 through 5 are not applicable and have been omitted. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the Report to be signed on its behalf by the undersigned thereunto duly authorized. LANCE, INC. By: /s/ B. Clyde Preslar -------------------------------------- B. Clyde Preslar Vice President and Principal Financial Officer Dated: May 7, 1999 13