UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

LANCE, INC.

704-554-1421
(Registrant’s telephone number, including area code)

     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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   [X]   No    [   ].

     The number of shares outstanding of the registrant’s $0.83-1/3 par value Common Stock, its only outstanding class of Common Stock, as of April 20, 2004, was 29,486,920 shares.

LANCE, INC. AND SUBSIDIARIES

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
As of March 27, 2004 (Unaudited) and December 27, 2003
(In thousands, except share data)

See notes to condensed consolidated financial statements (unaudited).

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LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss) (Unaudited)
For the Thirteen Weeks Ended March 27, 2004 and March 29, 2003
(In thousands, except share and per share data)

See notes to condensed consolidated financial statements (unaudited).

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LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive
Income (Loss) (Unaudited) For the Thirteen Weeks Ended March 27, 2004 and March 29, 2003
(In thousands, except share data)

See notes to condensed consolidated financial statements (unaudited).

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LANCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Thirteen Weeks Ended March 27, 2004 and March 29, 2003
(In thousands)

See notes to condensed consolidated financial statements (unaudited).

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LANCE, INC. AND SUBSIDIARIES

Notes to condensed consolidated financial statements (unaudited)

1.		The accompanying unaudited condensed consolidated financial statements of Lance, Inc. (the “Company”) 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 thereto included in the Company’s Form 10-K for the year ended December 27, 2003 filed with the Securities and Exchange Commission on February 20, 2004. In the opinion of the Company, these condensed financial statements reflect all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the condensed consolidated financial position of the Company and its subsidiaries as of March 27, 2004 and December 27, 2003, and the condensed consolidated statements of income (loss) for the thirteen weeks ended March 27, 2004 and March 29, 2003 and the condensed statements of stockholders’ equity and comprehensive income (loss) and cash flows for the thirteen weeks ended March 27, 2004 and March 29, 2003. Certain 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 thirteen weeks ended March 27, 2004 are not necessarily indicative of the results to be expected for a full year.
3.		Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include customer programs, customer returns and promotions, provisions for bad debts, inventories, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, investments, intangible assets, incentive compensation, income taxes, insurance, post-retirement benefits, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.
4.		The principal raw materials used in the manufacture of the Company’s snack food products are flour, vegetable oils, sugar, potatoes, nuts, peanut butter, 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 and are generally contracted up to a year in advance.
5.		The Company utilizes the dollar value last-in, first-out (LIFO) method of determining the cost of the majority 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.

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LANCE, INC. AND SUBSIDIARIES

Notes to condensed consolidated financial statements (unaudited)

     Inventories consist of (in thousands):

6.

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 for the thirteen weeks ended March 27, 2004 and March 29, 2003 (there were no reconciling items for the numerator amounts of basic and diluted earnings per share):

7.		During the thirteen weeks ended March 27, 2004 and March 29, 2003, the Company included in accumulated other comprehensive income (loss) an unrealized (loss) gain due to foreign currency translation of $(65,000) and $656,000, respectively. Income taxes on the foreign currency translation adjustment in other comprehensive income (loss) were not recognized because the earnings are intended to be indefinitely reinvested in those operations. Also included in accumulated other comprehensive income (loss) for the thirteen weeks ended March 27, 2004 and March 29, 2003, was a net unrealized loss of $75,000, net of tax effect of $44,000 and $267,000, net of tax effect of $157,000, respectively, related to interest rate swaps and forward exchange contracts accounted for in accordance with SFAS No. 133.
8.		During the thirteen weeks ended March 29, 2003, the Company recorded severance charges of $1.1 million related to a workforce reduction. Severance charges are included in general and administrative expenses ($0.7 million), costs of goods sold ($0.2 million) and selling, marketing and delivery expenses ($0.2 million) on the Condensed Consolidated Statement of Income (Loss). During the thirteen weeks ended March 27, 2004, the Company recorded severance charges of $0.2 million, which are included in general and administrative expenses.
9.		During the thirteen weeks ended March 29, 2003, the Company discontinued distribution of its mini-sandwich cracker product line through its route sales system. The discontinuation resulted in pre-tax charges of approximately $8.4 million for the thirteen weeks ended March 29, 2003. These charges include a fixed asset impairment of $6.4 million, which is shown as a loss on asset impairment on the Condensed Consolidated Statements of Income (Loss) and

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LANCE, INC. AND SUBSIDIARIES

Notes to condensed consolidated financial statements (unaudited)

		Condensed Consolidated Statements of Cash Flows. The assets are classified as held for use and are included in Property, Plant and Equipment in the accompanying Condensed Consolidated Balance Sheets. In addition, provisions for inventory-related items of $1.4 million were included in cost of sales, provisions for sales returns of $0.5 million were included in net sales and other operating revenues and provisions for selling and marketing expenses of $0.1 million were included in selling, marketing and delivery expenses. The fixed asset impairment was accounted for under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Discontinuation of the product line resulted in the performance of a recoverability test to determine if an impairment charge was needed. The fair value of the impaired assets was determined based on historical sales of comparable assets.
10.		In 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. The criteria provided in SFAS No. 142 requires the testing of impairment based on fair value. The Company tests goodwill and intangible assets for impairment, no less than annually, as required under the provisions of SFAS No. 142. These tests indicated that there was no impairment of goodwill or intangible assets. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values.
		As of March 27, 2004, the Company had the following acquired intangible assets recorded:

		The noncompetition agreements have been amortized over the five-year life of the agreements. The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely. Therefore, under the provisions of SFAS 142, the trademarks are no longer being amortized.
		The changes in the carrying amount of goodwill for the quarter ended March 27, 2004 are as follows:

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LANCE, INC. AND SUBSIDIARIES

Notes to condensed consolidated financial statements (unaudited)

11.		Sales to the Company’s largest customer, Wal-Mart Stores, Inc., were approximately 17.7% of revenues for the thirteen weeks ended March 27, 2004 and 14.5% of revenues for the thirteen weeks ended March 29, 2003. Accounts receivable at March 27, 2004 and December 27, 2003 included receivables from Wal-Mart Stores, Inc. of $10.9 million and $8.8 million, respectively.
12.		The Company’s total bad debt expense for the thirteen weeks ended March 27, 2004 and March 29, 2003 amounted to $0.3 million and $0.1 million, respectively.
13.		The Company has adopted SFAS No. 123, “Accounting for Stock-Based Compensation,” which permits entities to recognize as expense, over the vesting period, the fair value of all stock option awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Based Compensation, an interpretation of APB Opinion No. 25.” The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma net income and pro forma earnings per share disclosures for employee stock options as if the fair value based method defined under the provisions of SFAS No. 123 had been applied. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. The table below presents the pro-forma net income effect of the options using the Black-Scholes option pricing model prescribed under SFAS No. 123.

14.

The Company entered into a long-term guaranteed payment commitment during 1999 with a supplier. Under the terms of this agreement, to the extent the Company’s purchases exceed an agreed upon amount, no additional amount is due from the Company. However, if purchases are below this amount, the Company is required to compensate the supplier. In addition, the Company has provided a guarantee to a third party for fixed asset financing for the supplier. The maximum annual payment guarantees to both the supplier and third party are $0.8 million per year through 2007 and $0.2 million in 2008. The total amount outstanding under these guarantees was $3.5 million as of March 27, 2004. For the quarters ended March 27, 2004 and March 29, 2003, the Company paid $43,000 and $102,000, respectively, related to the minimum guarantees under this commitment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment in the selection and application of assumptions based on various factors, including historical experience, current and expected economic conditions and other factors believed to be reasonable under the circumstances. The Company routinely evaluates its estimates, including those related to customer programs, customer returns and promotions, provisions for bad debts, inventories, useful lives of fixed assets, hedge transactions, supplemental retirement benefits, investments, intangible assets, incentive compensation, income taxes, insurance, post-retirement benefits, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

Thirteen Weeks Ended March 27, 2004 Compared to Thirteen Weeks Ended March 29, 2003