News Column

SNYDER'S-LANCE, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

February 25, 2014

The following discussion provides an assessment of our financial condition, results of operations, and liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements and notes to the financial statements. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under Part I, Item 1A-Risk Factors and other sections in this report. Management's discussion and analysis of our financial condition and results of operations are based upon our 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 us 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. We routinely evaluate our estimates, including those related to sales and promotional allowances, customer returns, allowances for doubtful accounts, inventory valuations, useful lives of fixed assets and related impairment, long-term investments, hedge transactions, goodwill and intangible asset valuations and impairments, incentive compensation, income taxes, self-insurance, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions. Executive Summary During 2013, we continued executing our strategic plan, which provides for growth of our existing Core brands through expanded distribution, innovation and advertising, as well as improving margins for our Allied brands through pricing strategies, enhanced packaging and product configurations. In addition, we continued to benefit from our acquisition of Snack Factory, LLC and certain affiliates ("Snack Factory"). Our newest Core brand, Pretzel Crisps®, realized significant revenue and market share growth throughout the year. Our most significant accomplishments during 2013 included the following: • Snack Factory - We experienced strong revenue growth from our Snack Factory® Pretzel Crisps® pretzel crackers and gained an additional 2.3 points of market share in the deli snacks category, as determined by an independent third party, and realized approximately 25% in year over year retail sales growth. We expanded the distribution of this brand



significantly and were able to drive increased consumer awareness through

our marketing efforts. In addition, we successfully integrated the business during 2013.



• Innovation efforts - We introduced new flavors of our Cape Cod® waffle-cut

kettle chips, gluten free Snyder's of Hanover® pretzels, and late in 2013,

introduced Snyder's of Hanover® Korn Krunchers. We also introduced

Quitos™, a new Allied brand product line to be distributed primarily

through our DSD network. We made significant improvements to our Lance®

and Archway® brands by increasing the quality of the products through

ingredient changes, along with upgrades in packaging that provide better

consumer messaging.

• Lance® anniversary - We achieved a significant milestone in 2013 with the

100-year anniversary of the Lance® brand.

• Expansion of our DSD network - We further developed our DSD network with

acquisitions of regional third-party distributors and continued to optimize and expand our reach to customers.



Michaud Distributors - On October 25, 2013, we acquired the remaining 20%

equity in Michaud Distributors ("Michaud") and now own all of the

outstanding equity. We exchanged 342,212 newly issued unregistered shares

of our common stock for the remaining equity.

An overview of changes by income statement line item for 2013 when compared to 2012 is as follows: • Net revenue - Net revenue increased approximately 9%. This revenue



increase was led by strong Core brand growth, primarily related to the

full year impact of sales of our Snack Factory® Pretzel Crisps® pretzel

crackers. We realized increased distribution and market share growth for

most of our Core brands. However, increased promotional spending was

necessary in order to mitigate increased competition, changing consumer

buying habits and shifts with major retailers compared to 2012. 13

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Partner brand revenue continued to grow as we expanded our distribution footprint and added new partner brands to our product portfolio. We experienced softness in private brand sales volume. • Gross margin - We experienced a slightly higher gross margin percentage



compared to 2012, primarily as a result of a higher mix of branded product

sales.

• Selling, general and administrative expenses - We experienced increases in

selling, general and administrative expenses as a result of the additional

costs of a full year of Snack Factory operating expenses. • Gain on the sale of route businesses - Our net gains from the sale of route businesses to IBOs declined significantly in 2013 compared to 2012, due to the completion of the IBO conversion during 2012.



For 2013, we recognized the following items: • Impairment charges of $1.9 million were incurred associated with one of

our trademarks.

• Certain self-funded medical claims resulted in $4.7 million in incremental

expenses for the year, of which $2.7 million was recorded in cost of sales and $2.0 million was recorded in selling, general and administrative expense.



• We recognized $2.3 million in gains on the sale of fixed assets associated

with the consolidation of our Canadian manufacturing facilities.

In addition, some of the items that impacted our results for 2012 were as follows: • As a result of our strategy to focus on Core brands, we made the decision

to replace a portion of net revenue from Allied brands with other, more recognizable, Core branded products. This decision resulted in our recognition of an impairment of trademark intangible assets of $7.6 million.



• Impairment of fixed assets and severance expenses totaling $4.8 million

were recorded in the fourth quarter, as a result of the decision to close

our Cambridge, Ontario manufacturing facility.

• Professional fees and severance of $3.8 million was incurred in order to

accomplish certain Merger related activities. • Expenses of $2.0 million were recorded in cost of sales due to the relocation of assets from our Corsicana, Texas facility to other manufacturing locations. • Snack Factory acquisition costs of $1.8 million were incurred and recognized as selling, general and administrative expenses. Related to our business outlook for 2014, our cash flows and financial position may be impacted due to the following items: • We expect revenue to grow between three and five percent, with an



increased focus on consumer and retailer trends. We are introducing over

60 new products or product flavors, including Snyder's of Hanover® Sweet

and Salty pretzel pieces and Pretzel Spoonz™, as well as Lance® Bolds

sandwich crackers. Our continued focus on "better-for-you" products and

brands is also important to our growth plans.

• We expect ingredient costs in 2014 to be reasonably consistent with 2013

and there are currently no significant planned price increases. • We will continue to make investments in marketing and advertising, including television, digital campaigns and social media, to support our



Snyder's of Hanover®, Lance®, Cape Cod® and Pretzel Crisps® brands. This

is expected to increase costs associated with marketing and advertising

15% to 20% compared to 2013, with the majority of the increase occurring

during the first quarter of 2014. • Fiscal year 2014 will include 53 weeks as compared to 52 weeks for both fiscal year 2013 and 2012, but we expect that the additional week will have very little impact on our earnings. 14

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Results of Operations Year Ended December 28, 2013 Compared to Year Ended December 29, 2012 Favorable/ (Unfavorable) (in millions) 2013 2012 Variance Net revenue $ 1,761.0 100.0 % $ 1,618.6 100.0 % $ 142.4 8.8 % Cost of sales 1,163.0 66.0 % 1,079.7 66.7 % (83.3 ) (7.7 )% Gross margin 598.0 34.0 % 538.9 33.3 % 59.1 11.0 % Selling, general and administrative 470.5 26.7 % 440.6 27.2 % (29.9 ) (6.8 )% Impairment charges 1.9 0.1 % 11.9 0.7 % 10.0 84.0 % Gain on sale of route businesses, net (2.6 ) (0.1 )% (22.3 ) (1.3 )% (19.7 ) (88.3 )% Other income, net (10.8 ) (0.6 )% (0.4 ) - % 10.4 2,600.0 % Income before interest and income taxes 139.0 7.9 % 109.1 6.7 % 29.9 27.4 % Interest expense, net 14.4 0.8 % 9.5 0.5 % (4.9 ) (51.6 )% Income tax expense 45.5 2.6 % 40.1 2.5 % (5.4 ) (13.5 )% Net income $ 79.1 4.5 % $ 59.5 3.7 % $ 19.6 32.9 % Net Revenue Net revenue by product category was as follows: Favorable/ (Unfavorable) (in millions) 2013 2012 Variance

Branded $ 1,071.4 60.8 % $ 955.5 59.0 % $ 115.9 12.1 % Partner brand 308.4 17.5 % 283.1 17.5 % 25.3 8.9 % Private brand 287.8 16.4 % 291.1 18.0 % (3.3 ) (1.1 )% Other 93.4 5.3 % 88.9 5.5 % 4.5 5.1 % Net revenue $ 1,761.0 100.0 % $ 1,618.6 100.0 % $ 142.4 8.8 % Branded revenue increased $116 million, or 12.1%, compared to 2012, led by strong Core brand growth, primarily driven by the full-year impact of our recent acquisition of Snack Factory®. Compared to 2012 pro forma results, Snack Factory® Pretzel Crisps® pretzel crackers branded revenue grew more than 25% as a result of new market activations and new product offerings, and the brand increased market share in the deli snacks category by 2.3 points. We also had double-digit revenue growth and increased our market share in our Snyder's of Hanover® brand products. Cape Cod® Kettle Potato chips also achieved growth in both revenue and market share. Our Lance® branded sandwich cracker revenue was negatively impacted by significantly higher promotional spending necessary to mitigate the impact of increased competition, which resulted in a decline in revenue compared to 2012, but this brand maintained its market share leader position in the sandwich cracker category. We also experienced a decline in revenue in certain Allied brands. Partner brand net revenue grew 8.9% compared to 2012. This increase was due to the acquisition of new third-party distributors and new product offerings to support our DSD network. Adding strong regional partner brands to our portfolio provides an opportunity for us to continue to grow our DSD network in order to expand the geographic footprint for our own branded products. Net revenue from private brand products declined $3.3 million, or 1.1%, from 2012 to 2013. Much of this revenue decrease was due to lower volume as a result of necessary price increases. Other revenue increased $4.5 million, or 5.1%, from 2012 to 2013, primarily because of increased sales of certain semi-finished goods. In 2013, approximately 62% of net revenue was generated through our DSD network as compared to 66% in the prior year. The decline as a percentage of revenue was due to a higher mix of Snack Factory® Pretzel Crisps® pretzel crackers, which are sold Direct. 15 --------------------------------------------------------------------------------



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Gross Margin Gross margin increased $59.1 million during 2013 compared to 2012, and increased 0.7% as a percentage of net revenue. The majority of the increase in gross margin was due to the full year impact of sales of our Snack Factory® Pretzel Crisps® pretzel crackers. In addition, we benefited from the full year impact of certain price increases secured in 2012 to offset increased ingredient costs. Much of the favorability in gross margin as a percentage of revenue was due to a higher mix of branded product sales, offset by increased promotional spending to support our branded portfolio, costs related to the consolidation of our Canadian plants and start-up costs associated with the installation of two major capital projects that provided additional capacity. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $29.9 million in 2013 compared to 2012, but decreased 0.5% as a percentage of net revenue. A majority of the increase was due to incremental expenses associated with the operations of Snack Factory, which included additional investment in advertising and marketing to support this as well as our other Core brands. The decrease as a percentage of revenue was due to the full-year impact of the IBO conversion, which resulted in lower compensation, benefits and other route related expenses. However, we did have certain items that unfavorably impacted selling, general and administrative expenses, which included higher display costs to support our new product offerings, sales development and incremental expenses associated with certain self-funded medical claims. In 2012, we recognized severance charges and professional fees associated with the Merger and integration activities and costs associated with the acquisition of Snack Factory. Impairment Charges Impairment charges decreased $10.0 million from 2012 to 2013. In 2013, we recorded an impairment of $1.9 million to write-off the remaining value of a trade name for which we have substantially discontinued use. The $11.9 million of impairment expense in 2012 consisted primarily of a $7.6 million impairment of two of our trademarks and a $2.5 million impairment of machinery and equipment at our Cambridge, Ontario manufacturing facility. The impairment of trademarks was necessary as the Company continued to optimize its brand portfolio following the Merger and made a decision to replace a portion of the sales of these branded products with other, more recognizable, brands in our portfolio. The impairment of the machinery and equipment was recorded in 2012 to write down assets that would no longer be used after the plant closed in May 2013. Gain on the Sale of Route Businesses, Net During 2013, we recognized $2.6 million in gains on the sale of route businesses compared with gains of $22.3 million in 2012. The gains in 2012 primarily represented gains as a result of the IBO conversion which was completed during 2012. In 2013, the gains reflected ongoing routine route business sales activity. Other Income, Net Other Income increased $10.4 million from 2012 to 2013 due primarily to a settlement of a business interruption claim for lost profits during the fiscal year of approximately $4.0 million. We also recognized approximately $2.3 million as a result of gains on sale of fixed assets in connection with the Canadian plant consolidation. The remaining increase is primarily the result of gains on sales of fixed assets, certain cost method investments as well as foreign exchange gains. Interest Expense, Net Interest expense increased $4.9 million during 2013 compared to 2012, primarily due to the full-year impact of the additional debt used to fund the Snack Factory acquisition. Income Tax Expense The effective income tax rate decreased to 36.5% for 2013 from 40.3% for 2012. In 2012, the effective tax rate was higher than usual due to goodwill associated with the sale of route businesses which had no tax basis. The impact on the effective tax rate was an increase of 4.8% in 2012. As expected, the effective tax rate declined as subsequent route sale activity decreased. 16 --------------------------------------------------------------------------------



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Year Ended December 29, 2012 Compared to Year Ended December 31, 2011

Favorable/ (Unfavorable) (in millions) 2012 2011 Variance Net revenue $ 1,618.6 100.0 % $ 1,635.0 100.0 % $ (16.4 ) (1.0 )% Cost of sales 1,079.7 66.7 % 1,065.1 65.1 % (14.6 ) (1.4 )% Gross margin 538.9 33.3 % 569.9 34.9 % (31.0 ) (5.4 )% Selling, general and administrative 440.6 27.2 % 495.2 30.3 % 54.6 11.0 % Impairment charges 11.9 0.7 % 12.7 0.8 % 0.8 6.3 % Gain on sale of route businesses, net (22.3 ) (1.3 )% (9.4 ) (0.6 )% 12.9 137.2 % Other (income)/expense, net (0.4 ) - % 1.0 0.1 % 1.4 140.0 % Income before interest and income taxes 109.1 6.7 % 70.4 4.3 % 38.7 55.0 % Interest expense, net 9.5 0.5 % 10.6 0.6 % 1.1 10.4 % Income tax expense 40.1 2.5 % 21.1 1.3 % (19.0 ) (90.0 )% Net income $ 59.5 3.7 % $ 38.7 2.4 % $ 20.8 53.7 % Net Revenue Net revenue by product category was as follows: Favorable/ (Unfavorable) (in millions) 2012 2011 Variance Branded $ 955.5 59.0 % $ 943.2 57.7 % $ 12.3 1.3 % Partner brand 283.1 17.5 % 283.4 17.3 % (0.3 ) (0.1 )% Private brand 291.1 18.0 % 312.5 19.1 % (21.4 ) (6.8 )% Other 88.9 5.5 % 95.9 5.9 % (7.0 ) (7.3 )% Net revenue $ 1,618.6 100.0 % $ 1,635.0 100.0 % $ (16.4 ) (1.0 )% Net revenue for 2012 declined $16.4 million, or 1.0%, compared to 2011. The decline in revenue compared to the prior year, was driven primarily by lower revenue per unit sold as a result of the IBO conversion, as well as planned private brand volume declines. The declines were partially offset by additional revenue from acquired businesses during 2012 of approximately $29.5 million. Compared to 2011, net revenue from our branded products declined approximately 1.5% when excluding the impact of acquisitions. However, approximately 5.5% of the net revenue decline was a direct result of the IBO conversion. Branded revenue increased approximately 3.9% when excluding the impact of Snack Factory and the conversion to an IBO-based DSD distribution network, due primarily to increased product distribution and the introduction of new products resulting in increased revenue and market share of all our Core brands, including double-digit growth in our Lance® brands. The branded volume growth was partially offset by substantial net revenue declines in our Allied brands which were primarily related to replacement of Allied brands with Core brands in certain areas. Partner brand net revenue was largely consistent with 2011. Net revenue from private brand products declined $21.4 million, or 6.8%, from 2011 to 2012. Much of this decline was anticipated as we recognized that necessary price increases would not be accepted by all retailers. In addition, there was a decline in volume with certain large retailers, as the gap between private and branded pricing narrowed for a portion of the year, which resulted in additional net revenue declines when compared to the prior year. Other revenue declined $7.0 million, or 7.3%, from 2011 to 2012 primarily because of decreased sales of certain semi-finished goods in 2012. In 2012, approximately 66% of net revenue was generated through our DSD network as compared to 2011, where approximately 65% of net revenue was generated through our DSD network while the remaining revenue was generated through Direct distribution. Gross Margin 17

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Gross margin decreased $31.0 million during 2012 compared to 2011 and declined 1.6% as a percentage of net revenue. The overall decrease in gross margin and as a percentage of net revenue was driven by the IBO conversion, which accounted for a decline of approximately 3.3% as a percentage of net revenue. This decline was partially offset by price increases on certain products and improved manufacturing efficiencies. Gross margin for 2012 was also favorably impacted by acquisitions, which contributed approximately $13.3 million in additional gross margin. Costs that negatively impacted gross margin in 2012 included severance expense associated with the closure of our Cambridge, Ontario manufacturing facility and additional expenses due to the relocation of assets from our Corsicana, Texas facility to other manufacturing locations. In 2011, gross margin was favorably impacted by a $4.9 million adjustment to our vacation accrual due to a vacation policy change. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $54.6 million in 2012 compared to 2011 and decreased 3.1% as a percentage of net revenue. The decrease was primarily driven by reduced infrastructure costs and lower compensation and benefit expenses due to IBO conversion, as well as synergies recognized as a result of the Merger and integration activities. During 2012, we recognized severance charges and professional fees associated with the Merger and integration activities and costs associated with the acquisition of Snack Factory. In addition, we incurred incremental costs for the operations of Snack Factory and increased advertising expenses associated with new marketing campaigns. In 2011, we adopted a new vacation plan, which reduced selling, general and administrative expenses by $5.0 million, but this was more than offset by $18.5 million in severance charges and professional fees associated with the Merger and integration activities. Impairment Charges Impairment charges decreased $0.8 million from 2011 to 2012. The $11.9 million of impairment expense in 2012 consisted primarily of a $7.6 million impairment of two of our trademarks and a $2.5 million impairment of machinery and equipment at our Cambridge, Ontario manufacturing facility. The impairment of trademarks was necessary as the Company continued to optimize its brand portfolio following the Merger and made the decision to replace a portion of the sales of these branded products with other, more recognizable, brands in our portfolio. The impairment of the machinery and equipment was recorded to write down the value of assets no longer used when the facility closed in May 2013. In order to determine the fair market value of this equipment, we reviewed market pricing for similar assets from external sources. The $12.7 million of impairment expense in 2011 consisted primarily of $10.1 million associated with our planned disposition of route trucks and $2.3 million in connection with the closure of our Corsicana, Texas manufacturing facility. Gain on the Sale of Route Businesses, Net During 2012, we recognized $22.3 million in gains on the sale of route businesses compared with gains of $9.4 million in 2011. The increase was due to increased activity associated with the IBO conversion in 2012 as compared to 2011. Interest Expense, Net Interest expense decreased $1.1 million during 2012 compared to 2011 as a result of lower outstanding long-term debt throughout the majority of the year. The additional debt used to fund the Snack Factory acquisition increased interest expense by $1.6 million in the last quarter of 2012. Income Tax Expense The effective income tax rate increased to 40.3% for 2012 from 35.3% for 2011. During 2011, the Company undertook a comprehensive restructuring of the legal entities within the Snyder's-Lance consolidated group to align the legal entity structure with the Company's business. As a result of this restructuring, our net deferred tax liability is expected to reverse at a state rate which is lower than the rate at which the liabilities were established. This resulted in a benefit recorded to our deferred state tax expense in 2011 that did not repeat in 2012. In 2011 and 2012 the effective tax rate was higher than usual due to goodwill associated with the sale of route businesses which had no tax basis. 18 --------------------------------------------------------------------------------



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Liquidity and Capital Resources Liquidity Liquidity represents our ability to generate sufficient cash flows from operating activities to meet our obligations as well as our ability to obtain appropriate financing. Therefore, liquidity should not be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives. Currently, our liquidity needs arise primarily from acquisitions, working capital requirements, capital expenditures for fixed assets, purchases of route businesses, and dividends. We believe we have sufficient liquidity available to enable us to meet these demands. We have a universal shelf registration statement that, subject to our ability to consummate a transaction on acceptable terms, provides the flexibility to sell up to $250 million of debt or equity securities, which is effective through February 27, 2015. Prior to December of 2013, we permanently reinvested earnings from our Canadian subsidiary. As of December 28, 2013, $4.4 million of our cash and cash equivalents balance was held by our Canadian subsidiary. Operating Cash Flows Cash flow provided by operating activities increased $48.0 million in 2013 when compared to 2012. The increase was largely driven by an increase in cash generating net income, which excludes gains on both the sale of route businesses and fixed assets. Investing Cash Flows Cash used in investing activities totaled $64.9 million in 2013 compared with cash used in investing activities of $348.3 million in 2012. The significant reduction in cash used in investing activities was due to the acquisition of Snack Factory for $343.4 million in 2012. Capital expenditures for fixed assets, principally manufacturing equipment, decreased from $80.3 million in 2012 to $74.6 million in 2013. Capital expenditures are expected to continue at a level sufficient to support our strategic and operating needs and are projected to be between $70 and $75 million in 2014. Approximately half of these expenditures are expected to support ongoing maintenance, with the remaining projects focused on adding capacity or providing production efficiencies. Proceeds from the sale of route businesses, net of purchases, generated cash flows of $1.1 million in 2013, compared to net proceeds of $65.4 million in 2012. While we continued the purchase and sale of route businesses in 2013, these activities slowed substantially to a more normal level when compared to 2012 due to the completion of the IBO conversion. Financing Cash Flows Net cash used in financing activities of $71.0 million in 2013 was principally due to dividends paid of $44.4 million, as well as the continued debt repayment of $36.6 million. Cash provided by financing activities in 2012 was $243.8 million, principally due to proceeds from a $325 million term loan used to acquire Snack Factory, partially offset by dividends paid of $43.8 million and total repayments of debt of $47.3 million. During 2014, we plan to continue to utilize cash provided by operations to pay the current portion of long-term debt and reduce the balance on our revolving credit facilities. On February 5, 2014, our Board of Directors declared a quarterly cash dividend of $0.16 per share payable on March 5, 2014 to stockholders of record on February 26, 2014. Debt Our existing credit agreement allows us to make revolving credit borrowings of up to $265 million through December 2015. As of December 28, 2013, and December 29, 2012, we had $85.0 million and $100.0 million outstanding under the revolving credit agreement, respectively. Unused and available borrowings were $180 million under our existing credit facilities at December 28, 2013, as compared to $165 million at December 29, 2012. Under certain circumstances and subject to certain conditions, we have the option to increase available credit under the credit agreement by up to $100 million during the life of the facility. We also maintain standby letters of credit in connection with our self-insurance reserves for casualty claims. The total amount of these letters of credit was $14.0 million as of December 28, 2013. 19 --------------------------------------------------------------------------------



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The credit agreement requires us to comply with certain defined covenants, such as a maximum debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.25, or 3.50 for four consecutive periods following a material acquisition, and a minimum interest coverage ratio of 2.50. At December 28, 2013, our debt to EBITDA ratio was 2.65, and our interest coverage ratio was 9.22. In addition, our revolving credit agreement restricts our payment of cash dividends and repurchases of our common stock if, after payment of any such dividends or any such repurchases of our common stock, our consolidated stockholders' equity would be less than $200 million. As of December 28, 2013, our consolidated stockholders' equity was $917.9 million. We were in compliance with these covenants at December 28, 2013. The private placement agreement for $100 million of senior notes assumed as part of the Merger and the $325 million term loan used to fund the acquisition of Snack Factory have provisions no more restrictive than the revolving credit agreement. Total interest expense under all credit agreements for 2013, 2012 and 2011 was $14.7 million, $9.7 million and $10.7 million, respectively. Contractual Obligations We lease certain facilities and equipment classified as operating leases. We also have entered into agreements with suppliers for the purchase of certain ingredients, packaging materials and energy used in the production process. These agreements are entered into in the normal course of business and consist of agreements to purchase a certain quantity over a certain period of time. These purchase commitments range in length from three to twelve months. Contractual obligations as of December 28, 2013 were: Payments Due by



Period

(in thousands) Total 2014 2015-2016 2017-2018 Thereafter Purchase commitments $ 117,575$ 117,575 $ - $ - $ - Debt, including interest payable (1) 533,055 30,331 400,169 102,555 -



Operating lease obligations 59,973 17,979 25,427

13,024 3,543 Unrecognized tax benefits (2) 13,370 - - - - Other noncurrent liabilities (3) 21,285 - - - - Total contractual obligations $ 745,258$ 165,885$ 425,596$ 115,579$ 3,543 Footnotes:



(1) Variable interest will be paid in future periods based on the outstanding

balance at that time.

(2) Unrecognized tax benefits relate to uncertain tax positions recorded under

accounting guidance that we have adopted and include associated interest

and penalties. As we are not able to reasonably estimate the timing of the

payments or the amount by which the liability will increase or decrease

over time, the related balances have not been reflected in the "Payments

Due by Period" section of the table. (3) Amounts represent future cash payments to satisfy other noncurrent liabilities recorded on our Consolidated Balance Sheets, including the



short-term portion of these long-term liabilities. Included in noncurrent

liabilities on our Consolidated Balance Sheets as of December 28, 2013 were

$11.8 million in accrued insurance liabilities, $5.9 million in accrued

incentives, and $3.6 million in other liabilities. As the specific payment

dates for these liabilities is unknown, the related balances have not been reflected in the "Payments Due by Period" section of the table. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity or cash flows. We currently provide a partial guarantee for loans made to IBOs by third-party financial institutions for the purchase of route businesses. The outstanding aggregate balance on these loans was approximately $117.9 million as of December 28, 2013 compared to approximately $109.7 million as of December 29, 2012. The annual maximum amount of future payments we could be required to make under the guarantee equates to 25% of the outstanding loan balance on the first day of each calendar year plus 25% of the amount of any new loans issued during such calendar year. These loans are collateralized by the route businesses for which the loans are made. Accordingly, we have the ability to recover substantially all of the outstanding loan value upon default, and our liability associated with this guarantee is not significant. 20 --------------------------------------------------------------------------------



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Critical Accounting Estimates Preparing the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We believe the following estimates and assumptions to be critical accounting estimates. These assumptions and estimates may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and may have a material impact on our financial condition or operating performance. Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition Our policy on revenue recognition varies based on the types of products sold and the distribution method. We recognize revenue when title and risk of loss passes to our customers. Allowances for sales returns, stale products, promotions and discounts are also recorded as reductions of revenue in the consolidated financial statements. Revenue for products sold to IBOs in our DSD network is recognized when the IBO purchases the inventory from our warehouses. Revenue for products sold to retailers through routes operated by company associates is recognized when the product is delivered to the customer. Revenue for products shipped directly to the customer from our 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 product leaves our warehouses. Products shipped with terms FOB-destination are recognized as revenue based on the anticipated receipt date by the customer. We allow certain customers to return products under agreed upon circumstances. We record a returns allowance for damaged products and other products not sold by the expiration date on the product label. This allowance is estimated based on a percentage of historical sales returns and current market information. We record certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as off-invoice allowances, rebates and shelf space allowances. An off-invoice allowance is a reduction of the sales price that is directly deducted from the invoice amount. We record the amount of the deduction as a reduction to revenue when the transaction occurs. Rebates are offered to retailers 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 a reduction to revenue at the time of the sale and a corresponding accrued liability is recorded. The accrued liability is monitored throughout the time period covered by the promotion, and is based on historical information and the progress of the customer against the target amount. We also record certain allowances for coupon redemptions, scan-back promotions and other promotional activities as a reduction to revenue. The accrued liabilities for these allowances are monitored throughout the time period covered by the coupon or promotion. Total allowances for sales returns, rebates, coupons, scan-backs and other promotional activities decreased from $26.5 million at the end of 2012 to $22.4 million at the end of 2013 due to the timing of promotional activities. Shelf space allowances are capitalized and amortized over the lesser of the life of the agreement or up to a maximum of three years and recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis. Allowance for Doubtful Accounts The determination of the allowance for doubtful accounts is based on management's estimate of uncollectible accounts receivable. We record a general reserve based on analysis of historical data and aging of accounts receivable. In addition, management records specific reserves for receivable balances that are considered at higher risk due to known facts regarding the customer. The assumptions for this determination are reviewed quarterly to ensure that business conditions or other circumstances are consistent with the assumptions. The allowance for doubtful accounts was $1.6 million and $2.2 million as of December 28, 2013 and December 29, 2012, respectively. The decrease from 2012 to 2013 was primarily due to improved collection trends from our customers compared to the prior year. Self-Insurance Reserves We maintain reserves for the self-funded portions of employee medical insurance benefits. Our portion of employee medical claims is generally limited to $0.3 million per participant annually by stop-loss insurance coverage. Due to the significance of certain historical claims, our 2013 stop-loss insurance coverage limit was increased to $5.0 million in aggregate for a specific portion of our self-funded claims. The entire $5.0 million associated with these claims was recorded in pre-tax expenses during 2013. This specific stop-loss of $5.0 million for 2013 has decreased to $3.3 million for 2014. The accrual for incurred but not reported medical insurance claims was $4.4 million in both 2013 and 2012. 21 --------------------------------------------------------------------------------



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We maintain self-insurance reserves for workers' compensation and auto liability for individual losses up to the deductibles which are currently $350,000 per individual loss and $250,000 for auto physical damage per accident. In addition, certain general and product liability claims are self-funded for individual losses up to the $100,000 insurance deductible. Claims in excess of the deductible are fully insured up to $100 million per individual claim. We evaluate input from a third-party actuary in the estimation of the casualty insurance obligation on an annual basis. In determining the ultimate loss and reserve requirements, we use various actuarial assumptions including compensation trends, healthcare cost trends and discount rates. In 2013, we used a discount rate of 2.0%, an increase from 1.5% used in 2012, based on projected investment returns over the estimated future payout period. A change in the discount rate by one percentage point would not materially impact this liability. We also use historical information for claims frequency and severity in order to establish loss development factors. For 2013 and 2012, we had accrued liabilities related to the retained risks of $10.1 million and $12.3 million, respectively, included in the accruals for casualty insurance claims in our Consolidated Balance Sheets. In December 2010, we assumed a liability for workers' compensation relating to claims that had originated prior to 1992 and been insured by a third-party insurance company. Due to the uncertainty of that insurer's ability to continue paying claims, we entered into an agreement where we assumed the full liability of insurance claims under the pre-existing workers' compensation policies. The net liability for these claims was $1.7 million and $2.2 million for 2013 and 2012, respectively, and was included in the accruals for casualty insurance claims in our Consolidated Balance Sheets. Impairment Analysis of Goodwill and Intangible Assets The annual impairment analysis of goodwill and other indefinite-lived intangible assets requires us to project future financial performance, including revenue and profit growth, fixed asset and working capital investments, income tax rates and cost of capital. The impairment analysis of goodwill, as of December 28, 2013, assumes combined average annual revenue growth of approximately 3.9% during the valuation period. This compares to a combined average annual revenue growth of approximately 4.4% in the calculation as of December 29, 2012. These projections rely upon historical performance, anticipated market conditions and forward-looking business plans. We use a combination of internal and external data to develop the weighted average cost of capital, which was 8.0% for both 2013 and 2012. Significant investments in fixed assets and working capital to support the assumed revenue growth are estimated and factored into the analysis. If the assumed revenue growth is not achieved, the required investments in fixed assets and working capital could be reduced. Even with a significant amount of excess fair value over carrying value, major changes in assumptions or changes in conditions could result in a goodwill impairment charge in the future. Our trademarks are valued using the relief-from-royalty method under the income approach, which requires us to estimate a royalty rate, identify relevant projected revenue, and select an appropriate discount rate. In the second quarter of 2013, we incurred $1.9 million in impairment charges related to one of our trademarks. We incurred $7.6 million in impairment charges related to two of our trademarks during 2012. These impairments were necessary as the Company made a decision to replace future sales of associated products with a more recognizable brand. While our annual impairment testing did not result in any additional impairment in 2013, there continue to be certain trademarks, predominately those acquired through recent transactions, that have a fair value which approximates the book value. Any changes in the use of these trademarks or the sales volumes of the associated products could result in an impairment charge. Our route intangible assets are valued by comparing the current fair market value for the route assets to the associated book value. The fair market value is computed using the route sales average for each route multiplied by the market multiple for the area in which the route is located. No impairments were recognized in 2013 as a result of this analysis. Other intangible assets, primarily customer and contractual relationships and patents, are tested for impairment if events or changes in circumstances indicate that it is more likely than not that fair value is less than book value. No event-driven impairment assessments were deemed necessary for 2013, 2012 or 2011. Impairment of Fixed Assets Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or asset groups to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During 2013, there were no fixed asset impairment charges, compared to impairment charges of $4.3 million and $12.7 million during 2012 and 2011, respectively. The majority of asset impairments recorded in 2012 were due to our decision to close our Cambridge, Ontario manufacturing facility in order to consolidate the operations of our two Canadian manufacturing facilities. During 2011, we recorded impairment charges primarily related to the 22 --------------------------------------------------------------------------------



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decisions to sell route trucks prior to the end of their useful lives, as well as close the Corsicana, Texas manufacturing facility. See Note 6 to the consolidated financial statements in Item 8 for additional information regarding these impairment charges. Equity-Based Incentive Compensation Expense Determining the fair value of share-based awards at the grant date requires judgment, including estimating the expected term, expected stock price volatility, risk-free interest rate and expected dividends. Judgment is required in estimating the amount of share-based awards that are expected to be forfeited before vesting. In addition, our long-term equity incentive plans require assumptions and projections of future operating results and financial metrics. Actual results may differ from these assumptions and projections, which could have a material impact on our financial results. Information regarding assumptions can be found in Note 1 to the consolidated financial statements in Item 8. Provision for Income Taxes Our effective tax rate is based on the level and mix of income of our separate legal entities, statutory tax rates, business credits available in the various jurisdictions in which we operate and permanent tax differences. Significant judgment is required in evaluating tax positions that affect the annual tax rate. Unrecognized tax benefits for uncertain tax positions are established when, despite the fact that the tax return positions are supportable, we believe these positions may be challenged and the results are uncertain. We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. We estimate valuation allowances on deferred tax assets for the portions that we do not believe will be fully utilized based on projected earnings and usage. New Accounting Standards See Note 2 to the consolidated financial statements included in Item 8 for a summary of new accounting standards. Item 7A. Quantitative and Qualitative Disclosure About Market Risk We are exposed to certain commodity, interest rate and foreign currency exchange rate risks as part of our ongoing business operations. We may use derivative financial instruments, where appropriate, to manage some of these risks related to interest and exchange rates. We do not use derivatives for trading purposes. In order to mitigate the risks of volatility in commodity markets to which we are exposed, in the normal course of business, we enter into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels. Amounts committed under these forward purchase agreements are discussed in Note 13 to the consolidated financial statements. Our variable-rate debt obligations incur interest at floating rates based on changes in the Eurodollar rate and U.S. base rate interest. To manage exposure to changing interest rates, we selectively enter into interest rate swap agreements to maintain a desirable proportion of fixed to variable-rate debt. See Note 11 to the consolidated financial statements in Item 8 for further information related to our interest rate swap agreements. While these interest rate swap agreements fixed a portion of the interest rate at a predictable level, pre-tax interest expense would have been $0.6 million lower without these swaps during 2013. Including the effect of interest rate swap agreements, the weighted average interest rate was 2.72% and 2.70%, respectively, as of December 28, 2013 and December 29, 2012. A 10% increase in variable interest rates would not have significantly impacted interest expense during 2013. We have exposure 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 its costs, such as raw materials and direct labor, are denominated in Canadian dollars. We periodically enter into a series of derivative forward contracts to mitigate a portion of this foreign exchange rate exposure. These contracts had maturities through March 2014. For 2013 and 2012, foreign currency fluctuations, net of the effect of derivative forward contracts, favorably impacted pre-tax income by $0.6 million and $0.1 million, respectively. 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 years ended December 28, 2013 and December 29, 2012, net bad debt expense was $1.8 million and $1.5 million, respectively. Allowances for doubtful accounts were $1.6 million at December 28, 2013 and $2.2 million at December 29, 2012. 23 --------------------------------------------------------------------------------



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