• Acquisition of Snack Factory - On October 11, 2012, we completed the acquisition of Snack Factory for $343.4 million. Snack Factory develops, markets and distributes snack food products under the Pretzel Crispsฎ brand name. The acquisition provides us with an additional core brand that we believe has strong growth potential. The results of Snack Factory's operations since the acquisition date are included in the Company's consolidated financial statements as of and for the year ended December 29, 2012, which included approximately $27.3 million of net revenue and an additional $0.02 in diluted earnings per share after reduction for additional amortization and interest expense associated with the transaction.

• Optimization of Manufacturing Capacity - During 2012, many efficiency improvements were made to our operations in order to deliver future success. The closure of the Corsicana, TX manufacturing facility and the Greenville, TX distribution facility helped to consolidate operations to increase efficiency in the future without sacrificing necessary capacity. In addition, the announced closure of the Cambridge, Ontario manufacturing facility will provide significant benefits for our Canadian operations, again without sacrificing capacity needs. In addition, we improved our operational efficiency by consolidating production of certain products and by investing in capital projects targeted at improved packaging and manufacturing automation.

An overview of changes by income statement line item for 2012 when compared to 2011 is as follows:
• Net revenue - As anticipated, total branded revenue decreased compared to 2011 primarily because of lower revenue per unit sold as the majority of our distribution network shifted from a company-owned to an IBO distribution structure. However, we were able to largely offset this decline in branded revenue through increased product distribution and new product introductions. Private brand revenues declined when compared to 2011, primarily because of the planned loss of certain retailers who did not accept price increases and a decline in sales volume with certain large retailers.

• Gross margin - Throughout the year, the IBO conversion has been driving lower revenue per unit sold, and accordingly lower gross margin as a percentage of net revenue compared to 2011.

• Selling, general and administrative expenses - Significant reductions in selling, general and administrative expenses were realized during 2012 primarily as a result of the IBO conversion and other Merger-related synergies. These reductions more than offset the declines in gross margin resulting from the IBO conversion.

• Gain on the sale of route businesses - We recorded net gains of $22.3 million from the sale of route businesses to IBOs in 2012. Although the IBO conversion is complete, we will continue to have route purchase and sale transactions as we expand our distribution network.

In addition, some of the unusual items that impacted our results for 2012 were as follows:
• As a result of our strategic initiatives and focus on core brands, we made the decision to replace a portion of net revenues 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, TX facility to other manufacturing locations.

• Snack Factory acquisition costs of $1.8 million were incurred and have been recognized as selling, general and administrative expenses.

For fiscal 2011, as a result of the Merger and the conversion to an IBO distribution structure, we recognized the following items:
• Severance expense of $16.3 million was incurred associated with the Merger and the IBO conversion.

• Impairment of fixed assets of $10.1 million was recognized related to our planned disposition of route trucks.

• Impairment of fixed assets and other costs totaling $2.6 million were recognized in the fourth quarter as a result of the decision to close and sell our Corsicana, Texas plant.

• Professional fees and other related expenses of $3.4 million were incurred in order to accomplish certain Merger-related activities.

• A $9.9 million reduction in expense was recorded as an offset to cost of sales and selling, general and administrative expenses in the fourth quarter resulting from the adoption of a revised vacation plan for the combined Company.

• Gains on the sale of routes of $9.4 million were realized primarily associated with the conversion to an IBO distribution structure.

Results of Operations
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 for the years ended December 29, 2012 and
December 31, 2011 was as follows:
                                                               Favorable/
                                                              (Unfavorable)
(in millions)           2012                 2011               Variance
Branded          $   955.5   59.0 %   $   943.2   57.7 %   $  12.3      1.3  %
Partner brands       283.1   17.5 %       283.4   17.3 %      (0.3 )   (0.1 )%
Private brands       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 )%

As anticipated, net revenue for 2012 declined $16.4 million, or 1.0%, compared to 2011. The decline in revenues compared to the prior year, was driven primarily by lower revenue per unit sold as a result of the IBO conversion and planned private brand volume declines. The declines were partially offset by additional revenues 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 revenues increased approximately 3.9% when excluding the impact of Snack Factory and the IBO conversion, due primarily to increased product distribution and the introduction of new products. This volume growth was partially offset by 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 revenues were largely consistent with 2011, although they were negatively impacted in the fourth quarter by the loss of certain brands. This resulted in an $8.1 million decline in fourth quarter net revenues from partner brand products when comparing 2012 to 2011.
Net revenues 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. During the fourth quarter of 2012, net revenues from private brand products began to recover as revenues from certain large retailers began to improve and new sources of revenues were obtained. The decline in the fourth quarter of 2012 was $2.5 million, or 3.1%, when compared to the fourth quarter of 2011. Other revenues declined $7.0 million, or 7.3%, from 2011 to 2012 primarily because of a sale of bulk peanuts for approximately $4.0 million in 2011 which did not recur 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 sales were generated through our direct sales network. Pretzel Crispsฎ are sold through our direct sales network, so sales through this channel are expected to increase as a percentage of total sales in 2013. In total, net revenues are expected to increase 10% to 12% in 2013 due to increased distribution, the addition of Snack Factory for the entire year, and increased pricing necessary to offset commodity cost increases.

Gross Margin
As expected, 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 conversion to an IBO distribution structure 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 include $2.3 million in severance expense associated with the recently announced closure of our Cambridge, Ontario manufacturing facility and $2.0 million in additional expenses due to the relocation of assets from our Corsicana, TX 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 is primarily driven by reduced infrastructure costs and lower compensation and benefit expenses due to the conversion to an IBO distribution structure and synergies recognized as a result of the Merger and integration activities. During 2012, we recognized $3.5 million of severance charges and professional fees associated with the Merger and integration activities and $1.8 million in 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 continues 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 to write these assets down as they will no longer be used when the facility closes 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, TX 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. This activity slowed substantially in the fourth quarter of 2012 as gains on the sale of route businesses were only $0.7 million, and we expect the fourth quarter trend to continue into 2013 as gains on the sale of route businesses are expected to be between $1 and $2 million for 2013. 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 $325 million addition of long-term 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 recur in 2012.

In 2011 and 2012 the effective tax rate was higher than usual due to book losses recognized from 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% and 4.7% in 2012 and 2011, respectively. This unfavorable rate impact will decline in subsequent years as route sale activity decreases.
Year Ended December 31, 2011 Compared to Year Ended January 1, 2011 Fiscal 2011 reflects the results of operations of the combined company while fiscal 2010 reflects the full fiscal year results of operations for Lance, but the operations of Snyder's are included only from December 6, 2010 to January 1, 2011.

                                                                                         Favorable/
                                                                                       (Unfavorable)
(in millions)                           2011                      2010                    Variance
Net revenue                   $ 1,635.0       100.0  %   $  979.8       100.0 %   $  655.2         66.9  %
Cost of sales                   1,065.1        65.1  %      601.0        61.3 %     (464.1 )      (77.2 )%
Gross margin                      569.9        34.9  %      378.8        38.7 %      191.1         50.4  %
Selling, general and
administrative                    495.2        30.3  %      359.6        36.7 %     (135.6 )      (37.7 )%
Impairment charges                 12.7         0.8  %        0.6         0.1 %      (12.1 )   (2,016.7 )%
Gain on sale of route
businesses, net                    (9.4 )      (0.6 )%          -           - %        9.4            -  %
Other expense, net                  1.0         0.1  %        6.5         0.6 %        5.5         84.6  %
Income before interest and
income taxes                       70.4         4.3  %       12.1         1.3 %       58.3        481.8  %
Interest expense, net              10.6         0.6  %        3.9         0.4 %       (6.7 )     (171.8 )%
Income tax expense                 21.1         1.3  %        5.7         0.6 %      (15.4 )     (270.2 )%
Net income                    $    38.7         2.4  %   $    2.5         0.3 %   $   36.2      1,448.0  %

Net Revenue
Net revenue by product category for the years ended December 31, 2011 and
January 1, 2011 was as follows:
                                                                Favorable/
                                                              (Unfavorable)
(in millions)             2011                2010               Variance
Branded Products   $   943.2   57.7 %   $ 569.5   58.1 %   $ 373.7       65.6 %
Partner brands         283.4   17.3 %      19.5    2.0 %     263.9    1,353.3 %
Private brands         312.5   19.1 %     303.2   30.9 %       9.3        3.1 %
Other                   95.9    5.9 %      87.6    9.0 %       8.3        9.5 %

Net revenue for the 2011 fifty-two week fiscal year increased $655.2 million, or 66.9%, compared to the fifty-three week 2010 fiscal year. The additional week in 2010 increased net revenue by $11.1 million compared to 2011. The comparability of our net revenue is significantly impacted by the Merger primarily due to the incremental branded and partner brand revenue from the Merger. In addition, during 2011 we acquired a distributor which accounted for approximately $8 million of our net revenue.
Compared to 2010 and including only legacy Lance products:
• We had approximately 2% net revenue growth in our branded products primarily from increased distribution as a result of the Merger and new product innovation, despite an approximate 1% reduction in selling prices due to the conversion to an IBO distribution structure. Declines in certain allied brand net revenues offset net revenue increases in certain core branded products.

• We experienced approximately 7% net revenue growth in our private brand and other products primarily due to selling price increases, sales to new customers and new product offerings.

In 2011, approximately 65% of net revenue was generated through our DSD network as compared to 2010, where approximately 38% of net revenue was generated through our DSD network. The increase from 2010 is primarily due to the partner brand revenue obtained as a result of the Merger that is sold through our DSD network.

Gross Margin
Gross margin increased $191.1 million during fiscal 2011 compared to fiscal 2010 but declined 3.8% as a percentage of net revenue. The overall increase in gross margin dollars was driven by the increase in sales volume primarily as a result of the Merger. Despite certain price increases, lower promotional spending and lower vacation expense, gross margin declined as a percentage of net revenue due to the following:
• Higher commodity costs for our products;

• Manufacturing inefficiencies at certain manufacturing operations due to the start-up of new machinery and equipment;

• Higher portion of sales to IBOs where we realize lower selling prices compared to direct sales to retailers; and

• Severance costs as a result of the Merger and the planned closing of the Corsicana facility.

Selling, General and Administrative Expenses Selling, general and administrative expenses increased $135.6 million during fiscal 2011 compared to fiscal 2010 but decreased 6.4% as a percentage of net revenue. The dollar increase was primarily driven by incremental expenses incurred due to the Merger. Additionally, we recognized $18.5 million of severance charges and professional fees associated with the IBO conversion and other Merger integration activities. This amount was compared to $35.2 million in expenses recognized in fiscal 2010 associated with the Merger. We also introduced several media campaigns during 2011 as an investment in our core brands, which resulted in an approximately $15.1 million increase in advertising costs over fiscal 2010 or a 1.2% increase as a percentage of branded revenue. In addition, during fiscal 2011, we continued to experience duplicate costs as a part of the integration and conversion to IBOs including workforce duplication, warehouse rent and other selling and distribution expenses. Offsetting these increased costs was a reduction in bad debt expense of $2.2 million in 2011 primarily due to a customer bankruptcy that occurred in 2010. In addition, in 2011 we adopted a new vacation plan, which reduced selling, general and administrative expenses by $5.0 million, and we experienced reductions in salaries and benefits as we converted to an IBO distribution structure. Impairment Charges
Impairment charges increased $12.1 million from 2010 to 2011. During 2011, the $12.7 million in impairment expense 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, TX manufacturing facility. Gain on the Sale of Route Businesses, Net During 2011, we recognized $9.4 million in gains on the sale of route businesses compared with no gains on the sale of route businesses in 2010. The increase was due to activities associated with the IBO conversion in 2011 as we operated only company-owned routes for the majority of 2010. Other Expense, Net
During fiscal 2011, we recognized $1.0 million in other expense, net compared to $6.5 million in 2010. The $6.5 million expense in 2010 consisted mostly of financing commitment fees in the first quarter of 2010 of $2.7 million associated with an unsuccessful bid for a targeted acquisition, $2.1 million of insurance settlement charges which occurred during the fourth quarter, foreign currency transaction losses due to the unfavorable impact of exchange rates in 2010, as well as losses on the sale of fixed assets. Interest Expense, Net
Interest expense increased $6.7 million during 2011 compared to 2010 as a result of higher debt levels due to the Merger. Income Tax Expense
The effective income tax rate decreased from 69.0% for 2010 to 35.3% for 2011. The decrease in the effective tax rate was due to lower non-tax deductible expenses related to the Merger and a reduction in deferred tax liabilities as a result of a legal entity reorganization. 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 working capital requirements, capital expenditures for fixed assets, purchases of route businesses, acquisitions 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.

We permanently reinvest earnings from our Canadian subsidiary. As of . . .