Lance Inc. Reports Operating Results (10-Q/A)

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Jul 27, 2010
Lance Inc. (LNCE, Financial) filed Amended Quarterly Report for the period ended 2010-06-26.

Lance Inc. has a market cap of $748.7 million; its shares were traded at around $23.25 with a P/E ratio of 20.4 and P/S ratio of 0.8. The dividend yield of Lance Inc. stocks is 2.8%. Lance Inc. had an annual average earning growth of 1.6% over the past 5 years.LNCE is in the portfolios of John Keeley of Keeley Fund Management, Diamond Hill Capital of Diamond Hill Capital Management Inc, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Net cash used in investing activities was $11.2 million for the first six months of 2010. Capital expenditures for fixed assets, principally manufacturing equipment and building improvements, totaled $13.2 million during the first six months of 2010, partially funded by proceeds from the sale of fixed assets and assets held for sale of $2.0 million. Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs. Capital expenditures for fiscal 2010 are projected to be between $35 million and $40 million and funded by net cash flow from operating activities, cash on hand, and our existing credit facilities.

Net cash used in investing activities during the first six months of 2009 represented capital expenditures of $14.6 million, partially offset by proceeds from the sale of fixed assets of $0.5 million. Capital expenditures for purchases of fixed assets were $40.7 million for the year ended December 26, 2009.

During both of the first six months of 2010 and 2009, we paid dividends of $0.32 per common share totaling $10.3 million and $10.2 million, respectively. We received cash and related tax benefits of $1.7 million and $2.2 million during the first six months of 2010 and 2009, respectively, as a result of stock option exercises. During the first six months of 2010, we repurchased 56,152 shares of common stock from employees and net-settled 172,650 of the 300,000 restricted stock units that vested in May 2010, to cover $3.8 million of withholding taxes payable by employees upon the vesting of restricted stock and restricted stock units. We also paid $0.9 million of accrued dividends on restricted stock units. Net proceeds from our existing credit facilities were $3.0 million. On July 21, 2010, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on August 10, 2010, to stockholders of record on August 2, 2010.

In November 2006, we entered into an interest rate swap agreement on $35 million of debt in order to fix the interest rate at 4.99%, plus applicable margin. The applicable margin on June 26, 2010 was 0.40%. In July 2008, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 3.87%, plus applicable margin. The applicable margin on this agreement on June 26, 2010, was 0.40%. In February 2009, we entered into an interest rate swap agreement on an additional $15 million of debt in order to fix the interest rate at 1.68%, plus applicable margin. The applicable margin on this agreement on June 26, 2010, was 0.32%.

We are exposed to foreign exchange rate fluctuations through the operations of our Canadian subsidiary. A majority of the revenue of our Canadian operations is denominated in U.S. dollars and a substantial portion of the operations costs, such as raw materials and direct labor, are denominated in Canadian dollars. We have entered into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts have maturities through December 2010. During the first six months of 2010, foreign currency fluctuations unfavorably impacted pre-tax earnings by $2.0 million compared to the first six months of 2009. However, the decrease in pre-tax earnings was more than offset by the favorable effect of derivative forward contracts of $2.3 million during the first six months of 2010 compared to the first six months of 2009, resulting in a net favorable impact of foreign currency of $0.3 million. Due to foreign currency fluctuations during the first six months of 2010 and 2009, we recorded gains of $0.9 million and $3.3 million, respectively, in other comprehensive income because of the translation of the subsidiary s financial statements into U.S. dollars.

We are exposed to credit risks related to our accounts receivable. We perform ongoing credit evaluations of our customers to minimize the potential exposure. For the first six months of 2010 and 2009, net bad debt expense was $0.5 million and $1.0 million, respectively. Allowances for doubtful accounts were $1.3 million at June 26, 2010 and $1.0 million at December 26, 2009.

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