1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission file number 0-4065-1 LANCASTER COLONY CORPORATION (Exact name of registrant as specified in its charter) OHIO 13-1955943 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37 WEST BROAD STREET, COLUMBUS, OHIO 43215 (Address of principal executive offices) (Zip Code) 614-224-7141 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of December 31, 2000, there were approximately 37,700,000 shares of common stock, no par value per share, outstanding. 1 of 9
2 LANCASTER COLONY CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I. Financial Information Condensed Consolidated Balance Sheets - December 31, 2000 and June 30, 2000 3 Condensed Consolidated Statements of Income - Three Months and Six Months Ended December 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended December 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of the Results of Operations and Financial Condition 7-8 Part II. Other Information Item 4 - Submission of Matters to a Vote of Security Holders 9 Item 6 - Exhibits and Reports on Form 8-K 9 Signatures 9 2 of 9
3 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December 31 June 30 2000 2000 ------------ ------------ (Unaudited) <S> <C> <C> ASSETS Current Assets: Cash and equivalents $ 3,914,000 $ 2,656,000 Receivables - net of allowance for doubtful accounts 147,341,000 118,991,000 Inventories: Raw materials and supplies 50,084,000 43,882,000 Finished goods and work in process 122,673,000 131,598,000 ------------ ------------ Total inventories 172,757,000 175,480,000 Prepaid expenses and other current assets 21,498,000 18,768,000 ------------ ------------ Total current assets 345,510,000 315,895,000 Property, Plant and Equipment - At cost 429,879,000 413,183,000 Less Accumulated Depreciation 253,849,000 240,799,000 ------------ ------------ Property, plant and equipment - net 176,030,000 172,384,000 Goodwill - net of accumulated amortization 59,870,000 34,553,000 Other Assets 8,218,000 9,012,000 ------------ ------------ Total Assets $589,628,000 $531,844,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term bank loans $ 14,000,000 $ 8,250,000 Current portion of long-term debt 545,000 535,000 Accounts payable 46,500,000 43,690,000 Accrued liabilities 61,675,000 44,000,000 ------------ ------------ Total current liabilities 122,720,000 96,475,000 Long-Term Debt - Less current portion 2,495,000 3,040,000 Other Noncurrent Liabilities 7,311,000 6,800,000 Deferred Income Taxes 9,563,000 10,046,000 Shareholders' Equity: Preferred stock - authorized 3,050,000 shares issuable in series; Class A - $1.00 par value, authorized 750,000 shares; Class B and C - no par value, authorized 1,150,000 shares each; outstanding - none Common stock - authorized 75,000,000 shares; issued December 31, 2000 - no par value - 47,158,652 shares; June 30, 2000 - no par value - 47,152,852 shares 52,214,000 52,115,000 Retained earnings 661,038,000 622,660,000 Accumulated other comprehensive income 106,000 115,000 ------------ ------------ Total 713,358,000 674,890,000 Less: Common stock in treasury, at cost December 31, 2000 - 9,458,935 shares; June 30, 2000 - 9,190,435 shares 265,819,000 259,407,000 ------------ ------------ Total shareholders' equity 447,539,000 415,483,000 ------------ ------------ Total Liabilities and Shareholders' Equity $589,628,000 $531,844,000 ============ ============ </TABLE> See Notes to Condensed Consolidated Financial Statements 3 of 9
4 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 2000 1999 2000 1999 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net Sales $313,713,000 $324,407,000 $577,658,000 $584,851,000 Cost of Sales 221,004,000 222,865,000 409,670,000 404,672,000 ------------ ------------ ------------ ------------ Gross Margin 92,709,000 101,542,000 167,988,000 180,179,000 Selling, General and Administrative Expenses 44,593,000 47,204,000 84,505,000 88,727,000 ------------ ------------ ------------ ------------ Operating Income 48,116,000 54,338,000 83,483,000 91,452,000 Other Income (Expense): Interest expense (653,000) (672,000) (913,000) (1,258,000) Interest income and other - net 109,000 (186,000) (72,000) (222,000) ------------ ------------ ------------ ------------ Income Before Income Taxes 47,572,000 53,480,000 82,498,000 89,972,000 Taxes Based on Income 18,175,000 20,360,000 31,663,000 34,279,000 ------------ ------------ ------------ ------------ Net Income $ 29,397,000 $ 33,120,000 $ 50,835,000 $ 55,693,000 ============ ============ ============ ============ Net Income Per Common Share: Basic $ .78 $ .83 $ 1.34 $ 1.39 Diluted $ .78 $ .83 $ 1.34 $ 1.39 Cash Dividends Per Common Share $ .17 $ .16 $ .33 $ .31 Weighted Average Common Shares Outstanding: Basic 37,714,000 39,854,000 37,800,000 40,103,000 Diluted 37,724,000 39,931,000 37,809,000 40,184,000 </TABLE> See Notes to Condensed Consolidated Financial Statements 4 of 9
5 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Six Months Ended December 31 2000 1999 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 50,835,000 $ 55,693,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,617,000 17,022,000 Deferred income taxes and other noncash charges 28,000 (3,869,000) (Gain) loss on sale of property (453,000) 21,000 Changes in operating assets and liabilities: Receivables (27,509,000) (31,647,000) Inventories 4,018,000 9,148,000 Prepaid expenses and other current assets (2,702,000) (2,533,000) Accounts payable 2,106,000 4,221,000 Accrued liabilities 15,067,000 7,679,000 ------------ ------------ Net cash provided by operating activities 59,007,000 55,735,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash acquired (32,444,000) Payments on property additions (11,363,000) (11,651,000) Proceeds from sale of property 712,000 31,000 Other - net (1,090,000) (1,734,000) ------------ ------------ Net cash used in investing activities (44,185,000) (13,354,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (6,412,000) (32,528,000) Payment of dividends (12,457,000) (12,397,000) Net change in short-term bank loans 5,750,000 Payments on long-term debt (535,000) (520,000) Common stock issued upon exercise of stock options 99,000 1,089,000 ------------ ------------ Net cash used in financing activities (13,555,000) (44,356,000) ------------ ------------ Effect of exchange rate changes on cash (9,000) 2,000 ------------ ------------ Net change in cash and equivalents 1,258,000 (1,973,000) Cash and equivalents at beginning of year 2,656,000 18,860,000 ------------ ------------ Cash and equivalents at end of period $ 3,914,000 $ 16,887,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS: Cash paid during the period for: Interest $ 925,000 $ 1,253,000 ============ ============ Income taxes $ 20,271,000 $ 29,763,000 ============ ============ </TABLE> See Notes to Condensed Consolidated Financial Statements 5 of 9
6 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 2000 AND 1999 (1) The interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended June 30, 2000. (2) Comparative second quarter and year-to-date unaudited results by segment are as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 (Dollars in Thousands) 2000 1999 2000 1999 ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> NET SALES Specialty Foods $142,204 $129,448 $268,813 $245,080 Glassware and Candles 113,909 130,955 191,411 217,598 Automotive 57,600 64,004 117,434 122,173 ---------------------------------------------------------------------------------------------- Total $313,713 $324,407 $577,658 $584,851 ============================================================================================== OPERATING INCOME Specialty Foods $ 30,686 $ 24,810 $ 55,030 $ 43,575 Glassware and Candles 18,535 30,911 30,629 48,777 Automotive 525 237 928 2,084 Corporate expenses (1,630) (1,620) (3,104) (2,984) ---------------------------------------------------------------------------------------------- Total $ 48,116 $ 54,338 $ 83,483 $ 91,452 ============================================================================================== </TABLE> (3) In May 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus on Issue 00-14 "Accounting for Certain Sales Incentives." The EITF concluded that certain consumer and trade sales promotion expenses should be classified as a reduction of sales rather than as marketing expenses. Similar to many consumer packaged goods companies, the Company currently classifies certain consumer and trade sales promotion expenses as marketing expenses. In September 2000, the EITF also reached a final consensus on Issue 00-10 "Accounting for Shipping and Handling Costs." The EITF concluded that these costs cannot be reported as a reduction of revenue. The Company currently classifies certain shipping costs as a reduction of sales. The Company is currently evaluating the impact of these issues, which are expected to become effective in the fourth quarter of fiscal 2001. Upon adoption, prior period amounts will be reclassified to conform to the new requirements. As reclassifications, these changes will not have a material effect on the Company's financial position or earnings. In July 2000, the EITF reached a final consensus on Issue 00-15 "Classification of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option," wherein the EITF concluded that if the income tax benefit related to the exercise of a Nonqualified Employee Stock Option is credited to equity and does not reduce income tax expense, the resulting amount should be classified as an operating cash flow in the statement of cash flows. Although not material, the Statements of Cash Flows presented have been conformed to reflect this revised presentation. 6 of 9
7 LANCASTER COLONY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE PERIODS ENDED DECEMBER 31, 2000 AND 1999 RESULTS OF OPERATIONS <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 (Dollars in Thousands) 2000 1999 2000 1999 --------------------------------------------------------------------------- <S> <C> <C> <C> <C> NET SALES Specialty Foods $142,204 $129,448 $268,813 $245,080 Glassware and Candles 113,909 130,955 191,411 217,598 Automotive 57,600 64,004 117,434 122,173 --------------------------------------------------------------------------- Total $313,713 $324,407 $577,658 $584,851 =========================================================================== </TABLE> As reflected above, consolidated net sales of $313,713,000 and $577,658,000 for the respective three and six-month periods ended December 31, 2000 declined 3% and 1%, respectively, from the corresponding fiscal 2000 totals of $324,407,000 and $584,851,000. This decline was primarily attributable to lower sales levels achieved within the Glassware and Candles segment. This segment incurred sales declines of 13% and 12% for the respective three and six-month periods. Consistent with a trend that began at the beginning of calendar 2000, sales of this segment's candle products have been adversely affected by several factors including a general market softness, increased import competition and the effects of a significant customer of this segment restructuring its approach toward marketing candles. Net sales of the Automotive segment also declined for both the three and six-month periods by 10% and 4%, respectively. Generally less favorable economic conditions and lower new vehicle sales adversely affected demand for this segment's products from both original equipment manufacturers and aftermarket customers. Partially offsetting the declines referenced above were increases in the net sales of the Specialty Foods segment that were 10% greater than comparable sales totals for the preceding year's three and six-month periods. An increase in sales of retail food products was led by such products as vegetable dips, frozen garlic breads and those obtained through the September 2000 acquisition of Sister Schubert's Homemade Rolls. This segment's foodservice growth was primarily attributable to increased sales volumes achieved with larger national restaurant accounts. The Company's consolidated gross margins as a percentage of net sales of 29.6% and 29.1% declined for both the respective three and six-month periods ended December 31, 2000 relative to the 31.3% and 30.8% achieved for the comparable periods of fiscal 2000. Although food margins increased as a result of the benefits of higher sales volumes and somewhat lower food commodity costs, the Company's other two segments experienced a decline in such margins. The Automotive segment saw a less favorable sales mix, somewhat higher raw material prices and additional costs associated with the start-up of a new aluminum truck accessory program for an original equipment manufacturer. The lower sales volumes for the three months ended December 31, 2000 also contributed to lower absorption rates of fixed costs. Mitigating these factors were certain improvements in floor mat manufacturing operations. Lower margins within the Glassware and Candles segment were primarily attributable to the generally lower mix of candle sales within the segment as well as less favorable overhead absorption within the candle operations due to the lower sales volume. Glassware margins were also adversely affected by somewhat lower sales volumes, substantially higher natural gas costs, the effects of certain operational inefficiencies at the Sapulpa, Oklahoma consumer glassware facility and, for the most recent six months, by first quarter start-up costs associated with a new pressed glassware product line. As we enter the third fiscal quarter, natural gas costs continue to remain significantly higher than levels present a year ago. Consolidated selling, general and administrative costs of $44,593,000 and $84,505,000 decreased 6% and 5%, respectively, from the corresponding fiscal 2000 three and six-month totals of $47,204,000 and $88,727,000. This decrease was largely influenced by the decline in consolidated sales volumes during these periods and by changes in the promotional mix present within the Specialty Foods segment. The foregoing factors contributed to consolidated operating income totaling $48,116,000 and $83,483,000 for the three and six-month periods ended December 31, 2000. These amounts represented decreases of 11% and 7 of 9
8 9% over the corresponding fiscal 2000 totals of $54,338,000 and $91,452,000. By segment, the Company's operating income can be summarized as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended December 31 December 31 (Dollars in Thousands) 2000 1999 2000 1999 --------------------------------------------------------------------------- <S> <C> <C> <C> <C> OPERATING INCOME Specialty Foods $30,686 $24,810 $55,030 $43,575 Glassware and Candles 18,535 30,911 30,629 48,777 Automotive 525 237 928 2,084 Corporate expenses (1,630) (1,620) (3,104) (2,984) --------------------------------------------------------------------------- Total $48,116 $54,338 $83,483 $91,452 =========================================================================== </TABLE> Similar to operating income, net income of $29,397,000 and $50,835,000 for the three and six-month periods ended December 31, 2000 declined 11% and 9% over the corresponding record totals of fiscal 2000. As was further affected by the Company's share repurchases, fully diluted earnings per share of $.78 and $1.34 for the three and six-month periods declined 6% and 4%, respectively, compared to the preceding year's comparable totals of $.83 and $1.39. FINANCIAL CONDITION Net cash provided by operating activities for the six months ended December 31, 2000 totaled $59,007,000, which is $3,192,000 greater than the $55,815,000 provided in the six months ended December 31, 1999. This fluctuation in cash flows resulted from the extent of relative year-over-year changes in various working capital components. Accounts receivable levels of $147,341,000 at December 31, 2000 increased by $28,350,000 since June 30. This fluctuation is attributable to the seasonal increase in accounts receivable typically experienced by the Glassware and Candles group during the second fiscal quarter of each year. This increase in receivables was somewhat smaller than that which occurred in the corresponding period of fiscal 2000 due to the lower sales levels achieved in the second quarter of fiscal 2001. Significant investment activities for the first half included $32,444,000 paid for the Sister Schubert's business, net of cash acquired. This purchase price is subject to future adjustment based largely on the future level of Sister Schubert's earnings, as defined, that will be attained through calendar 2004. Financing activities for the six months ended December 31, 2000 included $6,412,000 expended for share repurchases and $12,457,000 for dividends paid. The level of dividends paid in the current period remained essentially unchanged from that paid in the comparable prior year period, as the share reduction resulting from share repurchases largely offset the impact of the quarterly $.01 per share increase in the effective dividend rate. Approximately 3,143,000 shares remain authorized for future buyback at December 31, 2000. Management anticipates that cash provided from operations and the currently available discretionary bank lines of credit should be adequate to meet the Company's foreseeable cash requirements over the remainder of fiscal 2001. The Company is, however, currently in the process of negotiating a committed credit facility that could be utilized for general corporate purposes and further enhancing the Company's future financial flexibility. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This Form 10-Q contains forward-looking statements related to future growth and earnings opportunities. Such statements are based upon certain assumptions and assessments made by management of the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. Actual results may differ as a result of factors over which the Company has no control including the strength of the economy, slower than anticipated sales growth, the extent of operational efficiencies achieved, the success of new product introductions, price and product competition, and increases in raw materials costs. Management believes these forward-looking statements to be reasonable; however, undue reliance should not be placed on such statements, which are based on current expectations. The Company undertakes no obligation to publicly update such forward-looking statements. More detailed statements regarding significant events which could affect the Company's financial results are included in the Company's Forms 10-K and 10-Q filed with the Securities and Exchange Commission. 8 of 9
9 PART II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The registrant held its annual meeting of the shareholders on November 20, 2000. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. There were no matters discussed or voted upon at the annual meeting, except for the election of the following three directors whose term will expire in 2003: Shares Shares Voted Shares Not "For" "Withheld" Voted ---------- ---------- --------- Kerrii B. Anderson 34,769,054 178,926 2,814,437 Morris S. Halpern 34,766,930 181,050 2,814,437 Robert S. Hamilton 34,767,201 180,779 2,814,437 As of November 20, 2000, the following individuals also continued to serve as directors of the registrant: John L. Boylan Edward H. Jennings Robert L. Fox Henry M. O'Neill, Jr. John B. Gerlach, Jr. Zuheir Sofia Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- Reports on Form 8-K - There were no reports filed on Form 8-K for the three months ended December 31, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LANCASTER COLONY CORPORATION Date: February 6, 2001 BY: /S/ John B. Gerlach, Jr. -------------------------- ---------------------------- JOHN B. GERLACH, JR. Chairman, Chief Executive Officer and President Date: February 6, 2001 BY: /S/ John L. Boylan -------------------------- ---------------------- JOHN L. BOYLAN Treasurer, Vice President, Assistant Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) 9 of 9