SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 25, 2004

OR

For the transition period from ______________ to _____________

Commission file number 0-398

LANCE, INC.

8600 South Boulevard, Charlotte, North Carolina 28273

Post Office Box 32368, Charlotte, North Carolina 28232

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

Securities Registered Pursuant to Section 12(b) of the Act: NONE

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

The aggregate market value of shares of the Registrant’s $.83-1/3 par value Common Stock, its only outstanding class of voting stock, held by non-affiliates as of June 26, 2004, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $460,000,000.

The number of shares outstanding of the Registrant’s $.83-1/3 par value Common Stock, its only outstanding class of Common Stock, as of March 1, 2005, was 29,840,846 shares.

Documents Incorporated by Reference

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 21, 2005 are incorporated by reference into Part III of this Form 10-K.

PART I

Item 1. Business

General

Lance, Inc. was incorporated as a North Carolina corporation in 1926. Lance, Inc. and its subsidiaries are collectively referred to herein as the Company. The Company operates in one segment, snack food products. The Company’s principal operations are located in Charlotte, North Carolina. In 1979, the Company acquired its Midwest bakery operations which are located in Burlington, Iowa. In 1999, the Company acquired its sugar wafer operations which are located in Ontario, Canada and its Cape Cod potato chip operations which are located in Hyannis, Massachusetts.

Products

The Company manufactures, markets and distributes a variety of snack food products. The Company’s manufactured products include sandwich crackers and cookies, crackers, potato chips, cookies, sugar wafers, nuts and other salty snacks. In addition, the Company purchases for resale certain cakes, candy, meat snacks, restaurant style crackers, salty snacks and cookies in order to broaden the Company’s product offerings. The Company also uses third-party manufacturers to produce certain products that are also manufactured by the Company based on production commitments and location of customers. Products are packaged in various individual-size, multi-pack and family-size configurations. Of the products sold by the Company, approximately 85% are manufactured by the Company with the balance purchased for resale.

The Company sells both branded and non-branded products. The Company’s branded products are principally sold under the Lance and Cape Cod brand names and during 2004 represented 60% of total revenue. Non-branded product sales represented 40% of total 2004 revenue. Non-branded products consist of private label products, products sold to other manufacturers and products sold under third-party brands. Private label products are sold to retailers or distributors using a controlled brand or the customers’ own labels. Third-party brands consist of products distributed for other branded companies and products with branded trade names that the Company has licensed for use.

Intellectual Property

Trademarks that are important to the Company’s business are protected by registration or otherwise in the United States and most other markets where the related products are sold. The Company owns various registered trademarks for use with its branded products including LANCE, CAPE COD POTATO CHIPS, TOASTCHEE, TOASTY, NEKOT, NIPCHEE, CHOC-O-LUNCH, VAN-O-LUNCH, GOLD-N-CHEES, CAPTAIN’S WAFERS, THUNDER, BLOOPS, OUTPOST and a variety of other marks and designs. The Company also owns registered trademarks including VISTA and JODAN that are used in connection with the Company’s private label products. During 2004, the Company licensed trademarks and trade names, including DON PABLO’s, for limited use on certain products the sales of which the Company classifies as third-party brands.

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Distribution

Distribution through the Company’s direct-store delivery (DSD) route sales system accounts for approximately 52% of the Company’s revenues. At December 25, 2004, the route sales system consisted of 1,516 sales routes in 25 states. Each sales route is served by one sales representative. The Company uses its own fleet of tractors and trailers to make weekly deliveries of its products to the sales territories. The Company provides its sales representatives with stockroom space for their inventory requirements through individual territory stockrooms as well as four distribution centers. The sales representatives load step-vans from these stockrooms for delivery to customers. As of December 25, 2004, the Company owned approximately 78% of the step-vans with the balance owned by employees.

Through its route sales system, the Company also operates approximately 25,000 Company-owned vending machines in various customer locations. These vending machines are generally made available to customers on a commission or rental basis. The machines are not designed or manufactured specifically for the Company, and their use is not limited to any particular sales area or class of customer.

Beginning in 2003 and continuing throughout 2004, the Company was engaged in a significant realignment of its routes sales system. Since December 27, 2003, the number of sales routes has been reduced by approximately 100 and the number of vending machines on location by approximately 10,000. As of December 25, 2004 the realignment has been completed in fifteen of the Company’s eighteen sales districts.

Approximately 48% of the revenues generated by the Company in 2004 were direct sales. These sales are generally distributed by direct shipments or customer pick-ups. Direct sales are shipped through third-party carriers and the Company’s own transportation fleet.

The Company’s direct sales are made through Company sales personnel, independent distributors and brokers. Direct sales are shipped to customer locations primarily throughout most of the United States and other parts of North America.

Customers

The customer base for the Company’s branded and third-party branded products includes grocery stores, convenience stores, food service brokers and institutions, mass merchandisers, drug stores, warehouse club stores, vending operators, schools, military and government facilities, distributors and “up and down the street” outlets such as recreational facilities, offices, and independent retailers. Private label customers include grocery stores, mass merchandisers, discount stores and distributors. The Company also manufactures products for other food manufacturers.

Revenue from the Company’s largest customer, Wal-Mart Stores, Inc., was approximately 18% of the Company’s revenue in 2004, 16% in 2003 and 12% in 2002. While the Company enjoys a continuing business relationship with Wal-Mart Stores, Inc., the loss of this business, or a substantial portion of this business could have a material adverse effect on the Company.

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Raw Materials

The principal raw materials used in the manufacture of the Company’s products are vegetable oil, flour, sugar, potatoes, peanut butter, 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 and are generally contracted up to a year in advance.

Competition and Industry

The Company’s products are sold in highly competitive markets in which there are many competitors. Generally, the Company competes with manufacturers with greater total revenues and greater resources than the Company. The principal methods of competition are price, service, product quality and product offerings. The methods of competition and the Company’s competitive position vary according to the locality, the particular products and the activities of its competitors. Industry consolidation continues and during 2004 a significant private label competitor exited the business as a result of its bankruptcy.

Regulatory and industry factors, including issues such as obesity, nutrition concerns, diet trends and the use of trans-fatty acids in food products, could impact the food industry. At this time, the effect of these factors on the Company, if any, is not determinable.

During 2004, the Company reformulated many of its products to remove trans-fatty acids.

Employees

On December 25, 2004, the Company and its subsidiaries had approximately 4,250 active employees in the United States and Canada, none of whom were covered by a collective bargaining agreement, as compared to approximately 4,400 on December 27, 2003.

Other Matters

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, are available on the Company’s website. The website address is www.lance.com. All required reports are made available on the website as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.

Item 2. Properties

The Company’s principal plant and general offices are located in Charlotte, North Carolina on a 140-acre tract owned by the Company. This approximately 1,000,000 square foot facility consists of office, production and distribution buildings. This location produces both branded and non-branded products. The Company also owns an approximately 360,000 square foot manufacturing plant and office located on an 18.5-acre tract in Burlington, Iowa that produces primarily private label products. Additionally, the Company owns two plants located on two tracts totaling approximately 8 acres in Ontario, Canada. These Canadian plants, located in Waterloo and Guelph, have approximately 131,000 total square feet and produce both branded and non-branded products. The Company also owns a branded manufacturing plant in Hyannis, Massachusetts with approximately 32,000 square feet, located on a 5.4-acre tract.

The Company leases office space for administrative support and district sales offices in 12 states. The Company also leases nine distribution/warehouse facilities for periods ranging from two to five years. In addition, the Company leases most of its stockroom space for its route sales representatives in various locations mainly on month-to-month tenancies.

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The plants and properties owned and operated by the Company are maintained in good condition and are believed to be suitable and adequate for present needs. The Company believes that it has sufficient production capacity to meet anticipated demand in 2005. During 2004, the Company increased its private label capacity by expanding its Burlington, Iowa facility and adding an oven line. The Company plans to add an additional oven line to this facility during 2005.

Item 3. Legal Proceedings

The Company’s decision to distribute certain of its products through its route sales system resulted in the termination of certain independent distributors, some of which have asserted claims against the Company. In 2003, one of the distributors filed a civil action for an unspecified amount of damages which was resolved in mediation in January 2005. In addition, the Company is subject to routine litigation and claims incidental to its business. In the opinion of management, such routine litigation and claims should not have a material adverse effect upon the Company’s consolidated financial statements taken as a whole.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Separate Item. Executive Officers of the Registrant

Information as to each executive officer of the Company, who is not a director or a nominee named in the Company’s Proxy Statement for the Annual Meeting to be held April 21, 2005 and incorporated by reference into Item 10 of this Form 10-K, is as follows:

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All the executive officers were appointed to their current positions at the Annual Meeting of the Board of Directors on April 22, 2004. All of the Company’s executive officers’ terms of office extend until the next Annual Meeting of the Board of Directors and until their successors are duly elected and qualified.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company had 4,553 stockholders of record as of March 1, 2005.

The $.83-1/3 par value Common Stock of Lance, Inc. is traded in the over-the-counter market under the symbol LNCE and transactions in the Common Stock are reported on The Nasdaq Stock Market. The following table sets forth the high and low sales prices and dividends paid during the interim periods in fiscal years 2004 and 2003.

On January 27, 2005, the Board of Directors of Lance, Inc. declared a quarterly cash dividend of $0.16 per share payable on February 18, 2005 to stockholders of record on February 10, 2005. The Board of Directors of Lance, Inc. will consider the amount of future cash dividends on a quarterly basis.

The Company’s Second Amended and Restated Credit Agreement dated February 8, 2002, restricts payment of cash dividends and repurchases of its common stock by the Company if, after payment of any such dividends or any such repurchases of its common stock, the Company’s consolidated stockholders’ equity would be less than $125,000,000. At December 25, 2004, the Company’s consolidated stockholders’ equity was $198,715,000.

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Item 6. Selected Financial Data

The following table sets forth selected historical financial data of the Company for the five-year period ended December 25, 2004. The selected financial data have been derived from, and are qualified by reference to, the audited financial statements of the Company included elsewhere herein. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements, including the notes thereto. Amounts are in thousands, except per share data.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an assessment of the Company’s financial condition, results of operations, liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements and notes thereto included elsewhere herein.

Executive Summary

For the fifty-two week year ended December 25, 2004, the Company’s revenues were $600.5 million, representing a 6.7% increase from the prior year. Net income for 2004 was $24.9 million, an increase of $6.6 million or 36.1% million from the prior year. Several important factors impacted the results of operations.

Throughout 2004, the Company continued the realignment of its routes sales system, a process which began in 2003. This realignment is intended to improve route economics and overall profitability of the Company’s route sales system by increasing the average drop size, removing less profitable customers, allowing additional time to better service remaining customers and reducing infrastructure costs. At the end of 2004, the Company had completed the realignment of fifteen of its eighteen sales districts, eleven of which were completed during 2004. The overall progress of the route sales system realignment through the end of 2004 met expectations and the Company plans to complete the realignment of the remaining three districts during the first half of 2005.

Also during 2004, the Company invested an incremental $0.9 million in building its brand equity with a radio and billboard advertising campaign. This advertising campaign was intended to increase overall consumer awareness of the Lance brand and increase the appeal of Lance products to a broader consumer base. The Company believes this advertising campaign achieved its objectives in 2004 and plans to extend the campaign to additional markets in 2005.

The Company’s sales of private label cookies and crackers increased 19% during 2004, driven by growth with existing customers, additions of new customers and the exit of a significant competitor. The Company expanded its private label capacity in 2004 with the addition of facility space and a new oven line at its Burlington, Iowa plant. The Company plans to add an additional oven line to this facility during 2005.

During 2003, the Company discontinued distribution of its mini-sandwich cracker line through its route sales system. The discontinuation resulted in pre-tax charges of approximately $7.4 million for the fifty-two weeks ended December 27, 2003. These charges included a fixed asset impairment of $6.4 million. In addition, provisions for inventory-related items of $1.1 million were included in cost of sales, provisions for sales returns of $0.3 million were included in net sales and other operating revenue, and provisions for selling and marketing expenses of $0.1 million were included in selling, marketing and delivery expenses, partially offset by a $0.5 million reduction in profit-sharing retirement expense.

Also during 2003, the Company announced plans to reduce its workforce by 6%. Much of the workforce reduction was achieved by not filling vacant positions. During the fifty-two weeks ended December 27, 2003, the Company recorded severance charges of $1.2 million related to this workforce reduction. These severance costs resulted from the elimination of 67 positions where severance benefits were paid. Severance charges are included in general and

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administrative expenses ($0.7 million), selling, marketing and delivery expenses ($0.3 million) and costs of goods sold ($0.2 million).

During 2004, the Company’s cash increased by $16.0 million after purchasing $29.0 million in property, plant and equipment, paying $18.9 million in dividends and retiring $5.6 million in debt. The exercise of stock options by employees provided $7.4 million of cash during 2004. In 2005, the Company plans to increase expenditures for property, plant and equipment from $29.0 million in 2004 to the $35 to $40 million range.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s 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 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 returns and promotions, bad debts, inventories, fixed assets, hedge transactions, supplemental retirement benefits, investments, intangible assets, incentive compensation, income taxes, insurance, other post-retirement benefits, contingencies and litigation. Actual results may differ from these estimates.

The Company believes the following to be critical accounting policies. That is, they are both important to the portrayal of the Company’s financial condition and results, and they require management to make judgments and estimates about matters that are inherently uncertain.

Revenue Recognition

The Company’s policy on revenue recognition varies based on the types of product sold and the distribution method. The Company recognizes operating revenues upon shipment of products to customers when title and risk of loss pass to its customers. Provisions and allowances for sales returns, stale products, promotional allowances and discounts are also recorded as a reduction of revenues in the Company’s consolidated financial statements.

Revenue for products sold through the Company’s route sales system is recognized when the product is delivered to the retail customer and an invoice is recorded. The Company’s sales representative creates the invoice at time of delivery using a handheld computer. The invoice is transmitted electronically each day and sales revenue is recognized. Customers purchasing products through the route sales system have the right to return product if it is not sold by the expiration date on the product label. The Company has recorded, based on historical information, an estimated allowance for product that may be returned. The Company estimates the number of days until product is sold through the customer’s location and the percent of sales returns using historical information. This information is reviewed on a quarterly basis for significant changes and updated no less than annually. This allowance is recorded as an offset to revenue. The allowance for sales returns was $0.5 million as of the end of 2004 and 2003.

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Revenue for products shipped directly to the customer from the Company’s warehouse is recognized based on the shipping terms listed on the shipping documentation. Products shipped with terms FOB-shipping point are recognized as revenue at the time the shipment leaves the Company’s warehouses. Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer.

The Company sells products through Company-owned vending machines using two methods. The first method is the wholesale method, with the customer managing the vending machine and purchasing product from the Company. Under this method, revenue is recognized when product is delivered. The second method is the full-service method, with the Company’s sales representatives managing the vending machines and commissions being paid to each customer based on sales. Revenue is recognized under this method when inventory is restocked and cash is collected from the machine and is recorded net of commissions and sales tax.

The Company records certain offsets to revenue for promotional allowances. There are several different types of promotional allowances such as off-invoice, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. The Company records the amount of the deduction as an offset to revenue when the transaction occurs. Rebates are offered to customers based on the quantity of product purchased over a period of time. Based on the nature of these allowances, the exact amount of the rebate is not known at the time the product is sold to the customer. An estimate of the expected rebate amount is recorded as an offset to revenue and an accrued liability at the time the sale is recorded. The accrued liability is monitored throughout the time period covered by the promotion. The accrual is based on historical information and the progress of the customer against the target amount. The allowance for rebates as of the end of 2004 and 2003 were $1.0 million and $1.2 million, respectively. Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or one year and are recorded as an offset to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis. The Company’s shelf space allowance was $0.1 million at the end of 2004 and 2003.

The Company also records as an offset to revenue certain allowances for coupon redemptions and scan-back promotion. The accrued liability is monitored throughout the time period covered by the coupon or promotion. The allowance for coupons and scan-backs was $0.7 million and $0.4 million as of the end of 2004 and 2003, respectively.

Insurance Reserves

The Company maintains reserves for the self-funded portion of employee medical insurance and for post-retiree medical benefits. In addition, the Company maintains insurance reserves for workers’ compensation, auto, product and general liability insurance. The Company utilizes estimates and assumptions in determining the appropriate liability.

The Company provides medical insurance benefits to its employees. In 2004, approximately 96% of its employees in the United States were covered under a self-insurance plan. Accordingly, the Company is required to reserve for unpaid and incurred but not reported claims. The Company estimates the amount of outstanding claims by reviewing historical claims and calculating a weekly lag projection based on information provided by the plan administrator. The Company updates these estimates on a quarterly basis. As of December 25, 2004 and December 27, 2003, the Company’s reserve for incurred but not reported medical claims was $2.5 million and $2.7 million, respectively. The $0.2 million decrease is primarily related to reductions in employees covered under the plan and the timing of claims paid.

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A 25% change in the weekly lag projection would increase or decrease the reserve as of December 25, 2004 by $0.6 million.

The Company provides medical insurance benefits to qualifying retirees and their spouses. Based on the retiree medical plan as of December 25, 2004, employees who were age 55 or older or disabled at June 30, 2001 and have 10 years service at age 60 qualify for retiree medical plan benefits. The Company uses a third-party actuary to estimate the postretirement medical plan obligation on an annual basis. This determination requires assumptions regarding participation percentage, health care cost trends, employee contributions, turnover, mortality and discount rates. This plan was amended on July 1, 2001 effectively terminating the plan for employees no later than 2011. This amendment generated a benefit that is being amortized over the average active participation period. As of December 25, 2004 and December 27, 2003, the Company had an unrecognized net actuarial gain and prior service cost credit of $1.8 million and $2.9 million, respectively, and a post-retirement health care liability of $3.9 million and $5.4 million, respectively. The plan benefits, assumptions and sensitivity analysis are described in further detail in the Post-Retirement Benefits Other Than Pensions footnote in the consolidated financial statements.

An annual one percentage point decrease or increase in the health care cost trend rates has an immaterial impact to the accumulated postretirement benefit obligation and the aggregate of the service and interest components of postretirement expense.

For casualty insurance obligations, the Company maintains self-insurance reserves for workers’ compensation and auto liability for individual losses up to $0.5 million. In addition, general and product liability claims are self-funded for individual losses up to $0.1 million. The Company uses a third-party actuary to estimate the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, the third-party actuary uses various actuarial assumptions including compensation trends, health care cost trends and discount rates. The third-party actuary also uses historical information for claims frequency and severity in order to establish loss development factors.

Included in the actuarial calculation is a margin of error to account for changes in inflation, health care costs, compensation and litigation cost trends as well as estimated future incurred claims. This calculation, as has been the Company’s practice, utilized a 75% confidence level for estimating the ultimate outstanding casualty liability. Under this approach, approximately 75% of each claim should be equal to or less than the ultimate liability recorded based on the historical trends experienced by the Company. If the Company had used a 50% factor, the liability would have been reduced by approximately $2.3 million. However, if the Company had used a 90% factor, the liability would have increased by approximately $1.4 million.

In addition, during 2004 and 2003, the Company used a 4.5% investment rate to discount the estimated claims based on the historical payout pattern. A one percentage point change in the discount rate would have impacted the liability by approximately $0.3 million.

Based on the sensitivity analysis discussed above, actual ultimate losses could vary from those estimated by the third-party actuary. The Company believes the reserves established are reasonable estimates of the ultimate liability based on historical trends. As of December 25, 2004 and December 27, 2003, the Company’s casualty reserve was $12.9 million and $12.5 million,

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respectively. The increase in the liability is the result of an increase in the estimated cost per claim and payout trends.

Accounts Receivable

The Company records accounts receivable at the time revenue is recognized. Amounts for bad debt expense are recorded in selling, marketing and delivery expenses on the consolidated statements of income. The determination of the allowance for doubtful accounts is based on management’s estimate of uncollectable accounts receivables. Management records a general reserve based on analysis of historical data. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. The Company has a formal policy for determining the allowance for doubtful accounts. The assumptions for this calculation are reviewed quarterly to ensure that business conditions or other circumstances do not warrant a change in the assumptions. Failure of a major customer to pay amounts owed to the Company could have a material impact on the financial statements of the Company. The Company’s total bad debt expense for the fiscal years 2004, 2003 and 2002 amounted to $1.1 million, $1.5 million and $2.0 million, respectively. At December 25, 2004 and December 27, 2003, the Company had accounts receivables of $46.4 million and $41.9 million, net of an allowance for doubtful accounts of $1.5 million and $1.8 million, respectively.

The following table summarizes the Company’s customer accounts receivable profile as of December 25, 2004:

New Accounting Standards

Effective January 1, 2002, the Company adopted Statement of Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of.” SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of a discontinued operation to include a component of an entity and eliminates the exemption to consolidation when control over a subsidiary is likely to be temporary. The adoption of this new standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal use of the asset. The Company adopted

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SFAS No. 143 on January 1, 2003 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this new standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock- Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. In 2003 and 2004 the Company included the required interim disclosures in Forms 10-Q and annual disclosures in Form 10-K.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group and in other FASB projects or deliberations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company’s accounting for derivative instruments is in compliance with SFAS No. 149 and SFAS No. 133. Therefore, the adoption of SFAS No. 149 did not have an impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued Financial Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities.” This interpretation clarifies the application of Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 became effective February 1, 2003 for variable interest entities created after January 31, 2003, and July 1, 2003 for variable interest entities created prior to February 1, 2003. In December 2003, the FASB issued a revised FIN 46. The revised standard, FIN 46R, modifies or clarifies various provisions of FIN 46 and incorporates many FASB Staff Positions previously issued by the FASB. This standard replaces the original FIN 46 that was issued in January 2003. The adoption of these new standards did not have an impact on the Company’s financial position, results of operations or cash flows.

In December 2003, the FASB issued a revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The revised SFAS No. 132 revised employers’ disclosures about pension plans and other postretirement benefit plans. It did not change the

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measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The revised SFAS No. 132 retains the disclosure requirements contained in the original SFAS No. 132. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The adoption of this new standard did not have an impact on the Company’s financial position, results of operations or cash flows.

In December 2003, the SEC released Staff Accounting Bulletin (SAB) 104. SAB 104 revises or rescinds portions of the interpretative guidance included in SEC Topic 13, “Revenue Recognition,” in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in U.S. generally accepted accounting principles. SAB 104 also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13. The adoption of this new standard did not have an impact on the Company’s financial position, results of operations or cash flows.

In May, 2004, the FASB issued Staff Position (FSP) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This Position provides guidance on the accounting, disclosure, effective date, and transition requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The Company’s post-retirement benefit plan only covers employees until they reach age 65 and are eligible for Medicare. Therefore, the adoption of this FSP had no impact on the Company’s financial position, results of operations or cash flows.

In October, 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The FASB has issued FSP 109-1 and 109-2 to provide accounting and disclosure guidance relating to the enactment of this Act. The Act allows for a tax deduction of up to 9% (when fully phased-in) of the lesser of “qualified production activities income” or taxable income, as defined in the Act, beginning in 2005. The tax benefits of this deduction are to be recognized in the year in which they are reported on the tax return. The Act also allows for a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated to a U.S. taxpayer, provided certain criteria are met. The Company has not completed its evaluation of the effects of the Act on its future financial position. This evaluation is expected to be completed during the first half of 2005.

In November, 2004, the FASB issued SFAS No. 151, “Inventory Cost or Amendment of ARB No. 43, Chapter 4.” This Statement amends ARB No. 43, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material should be recognized in current-period charges. In addition, this Statement requires that allocation of fixed production overhead to the costs on conversion be based on the normal capacity of the production facilities. This provision is effective for inventory costs incurred during fiscal years after June 15, 2005. SFAS No. 151 is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In December 2004, the FASB revised its SFAS No. 123 (SFAS No. 123R), “Accounting for Stock Based Compensation.” The revision establishes standards for the accounting of transactions in

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which an entity exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The revised statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the requisite service period are to be recognized as compensation cost over that period. In addition, the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. The provisions of the revised statement are effective for financial statements issued for the first interim or annual reporting period beginning after June 15, 2005, with early adoption encouraged. The Company is currently evaluating the impact that this statement will have on its financial condition, results of operations or cash flows .

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29.” APB Opinion No. 29, “Accounting For Nonmonetary Transactions,” is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets whose results are not expected to significantly change the future cash flows of the entity. The provisions of this Statement shall be effective for nonmonetary asset exchanges occurring in the Company’s fiscal year 2006. The adoption of SFAS No. 153 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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Results of Operations

Revenue in 2004 increased $37.7 million or 6.7%. The Company’s non-branded product revenue increased $36.7 million or 18% and the Company’s branded product revenue increased $1.0 million. The non-branded product revenue increase resulted from increases in sales of private label products, sales to other manufacturers and sales of third-party brands of $26.0 million, $8.8 million and $1.9 million, respectively. Private label sales increased 19% driven by growth with existing customers, new customers and the exit of a large competitor. The $1.0 million increase in branded revenue was the result of increased revenue from sandwich crackers and cookies (up $8.3 million), salty snacks (up $1.8 million) and nuts (up $1.6 million) offset by reductions in revenue from cakes (down $4.2 million), meat products (down $2.9 million), candy (down $2.0 million) and restaurant style crackers (down $1.6 million). The route sales system realignment negatively impacted revenue during 2004, particularly in the vending channel which was down 17% compared to 2003.

The Company’s branded revenue represented 60% of total revenue in 2004 compared to 64% in 2003. During 2004, non-branded revenue represented 40% of total revenue which consisted of private label sales (27%), sales to other manufacturers (8%) and sales of third-party brands (5%). During 2003, non-branded revenue represented 36% of total revenue which consisted of private label sales (24%), sales to other manufacturers (7%) and sales of third-party brands (5%).

Gross margin increased $7.0 million compared to prior year as a result of increased volume ($18.0 million) and favorable operating efficiencies ($1.4 million), offset by unfavorable mix ($8.6 million), unfavorable net commodity and packaging costs ($4.7 million) and unfavorable pricing and promotional allowances ($1.2 million). Additionally, prior year gross margin was unfavorably impacted $2.1 million by the mini-sandwich crackers discontinuation. Gross margin as a percent of revenue declined 1.9 points primarily because of a higher proportion of direct shipments and increased commodity costs.

Selling, marketing and delivery expenses increased $5.2 million in 2004 compared to 2003, principally due to increased freight costs ($4.3 million) and incentive compensation ($2.0 million). Other factors impacting selling, marketing and delivery expense included increased costs for the route realignment and media, offset by reductions in commission

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expenses. Selling, marketing and delivery expenses decreased 1.3 points as a percent of revenue due to a higher proportion of direct shipments which have lower selling, marketing and delivery expenses than sales through the Company’s route sales system.

General and administrative expenses increased $2.8 million in 2004 due to increased incentive compensation ($1.9 million) and increased professional and legal expenses ($1.4 million). These expenses were partially offset by reductions in severance and insurance costs. Professional costs were impacted by increased auditor and consulting fees related to the new reporting requirements.

Provisions for employee retirement increased $0.2 million as a result of the profitability-based formula for Company contributions.

Amortization of intangibles decreased $0.5 million due to expiration of non-compete agreements during 2004.

Other expense/(income) primarily reflects gains on fixed asset dispositions of $0.9 million in 2004 and foreign currency losses of $0.7 million in 2003.

Compared to 2003, interest expense, net, decreased $0.7 million due to increased interest income and lower debt levels in 2004.

Income tax expense increased $1.4 million as a result of higher earnings. The effective income tax rate decreased from 36.1% in 2003 to 32.0% in 2004 as a result of increased utilization of tax credits, net operating losses, lower effective state tax rates and favorable state income tax audit adjustments. Many of these adjustments are not expected to affect the rate in future years. Accordingly, the Company expects to have an effective income tax rate in 2005 between 34.5% and 35.5% based on preliminary estimates of the impact of the enactment of the American Jobs Creation Act, excluding the impact of any repatriation of dividends.

Revenue in 2003 increased $20.0 million or 3.7% compared to 2002. The Company’s non-branded product revenues increased $18.6 million and branded product revenue increased $1.4 million. The non-branded increase was due to increased revenue from private label sales (up $20.7 million) partially offset by reduction in revenue from sales to other manufacturers (down $1.5 million) and revenues from third-party brands (down $0.6 million). Approximately 50% of

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the private label increase was due to increased sales to a major customer as a result of new product introductions and customer expansion. The branded product increase was due primarily to increased sales of nut products (up $6.7 million), salty snacks (up $6.0 million) and sandwich crackers (up $1.0 million) somewhat offset by declines in mini-sandwich crackers and cookies (down $5.4 million), cakes (down $3.2 million), crackers and restaurant style crackers (down $2.1 million) and candy and mints (down $1.5 million). Revenue from the Cape Cod brand increased approximately 20% in 2003 compared to the prior year mainly due to the transfer of distribution to the Company’s route sales system in certain areas. Revenue from the Lance brand declined by 2% in 2003 compared to the prior year primarily due to reduced revenue from the Company’s vending operations and food service customers and the discontinuation of mini-sandwich cracker sales through the route sales system.

In 2003 and 2002, the Company’s branded products represented 64% and 66% of total revenues, respectively. Private label sales represented 24% and 22% of revenues in 2003 and 2002, respectively. Sales of other non-branded products represented 12% of revenues in 2003 and 2002.

Gross margin increased $4.7 million in 2003 compared to the prior year as a result of increased volume ($6.2 million), operating efficiencies ($6.2 million) and increased prices ($5.0 million) partially offset by unfavorable mix ($5.7 million), increased commodity costs ($4.3 million), impact of foreign currency ($1.6 million) and the costs associated with discontinuation of distribution of mini-sandwich crackers ($1.1 million). Gross margin as a percent of revenues declined 0.8 points primarily because of unfavorable product and customer mix and increased commodity costs.

Selling, marketing and delivery costs increased $0.1 million in 2003 compared to 2002. This increase was primarily due to spending in support of the route sales system and the route realignment efforts during 2003. Additional sales route truck expenses of $3.5 million were partially offset by reductions in volume-based sales commissions, salaries, benefits and other insurance costs resulting in a net increase in route sales expenses of $1.2 million in 2003. Freight expenses also increased $1.3 million as a result of increased volumes. These increases were partially offset by reductions in compensation related expenses ($0.9 million), marketing expenditures ($0.6 million), communication costs ($0.5 million) and bad debt expense ($0.5 million).

General and administrative expenses increased $1.6 million in 2003 compared to 2002 primarily as a result of increased incentive compensation expense ($2.2 million), increased professional fees, including legal fees related to trade-name registrations and other legal matters, as well as increased accounting fees ($0.7 million) and increased severance provisions due to work-force reduction ($0.5 million). These increases were partially offset by reductions in salaries and benefits due to work force reductions ($1.2 million) and various other expenses as a part of cost containment initiatives ($0.5 million). The provision for employees’ retirement plans increased $0.3 million in 2003 from 2002 due to safe-harbor provisions under the profit sharing plan.

During the first quarter of 2003, the Company recognized a $6.4 million impairment on fixed assets related to the discontinuation of distribution of mini-sandwich crackers through its route sales system.

Other expense primarily includes gains and losses resulting from fixed asset dispositions and foreign currency transactions. In 2003, other expense represents foreign currency losses ($0.7

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million). In 2002, the Company recognized a net loss on asset dispositions of $1.2 million and a $0.5 million write-off of an investment.

The effective income tax rate decreased from 36.5% in 2002 to 36.1% in 2003 due to lower earnings and changes in the composition of earnings among the consolidated entities. Several factors impact income tax, including rate changes, legislative changes and the mix and level of earnings at each legal reporting entity.

Liquidity and Capital Resources

Liquidity

During 2004, the principal source of liquidity for the Company’s operating needs was provided from operating activities. Cash flows from operating activities and cash on hand are believed to be sufficient for the foreseeable future to meet obligations, fund capital expenditures and pay dividends to the Company’s stockholders. As of December 25, 2004, cash and cash equivalents totaled $41.5 million.

Contractual obligations as of December 25, 2004 were: