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 March 31, 2001 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 March 31, 2001, there were approximately 37,267,000 shares of common stock, no par value per share, outstanding. 1 of 9
2 LANCASTER COLONY CORPORATION AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> <C> Part I. Financial Information Condensed Consolidated Balance Sheets - March 31, 2001 and June 30, 2000 3 Condensed Consolidated Statements of Income - Three Months and Nine Months Ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of the Results of Operations and Financial Condition 7-9 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 9 Signatures 9 </TABLE> 2 of 9
3 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31 June 30 2001 2000 ------------------ ----------- (Unaudited) <S> <C> <C> ASSETS Current Assets: Cash and equivalents $ 7,171,000 $ 2,656,000 Receivables - net of allowance for doubtful accounts 132,341,000 118,991,000 Inventories: Raw materials and supplies 50,337,000 43,882,000 Finished goods and work in process 126,717,000 131,598,000 ------------- ------------- Total inventories 177,054,000 175,480,000 Prepaid expenses and other current assets 21,314,000 18,768,000 ------------- ------------- Total current assets 337,880,000 315,895,000 Property, Plant and Equipment - At cost 434,020,000 413,183,000 Less Accumulated Depreciation 258,180,000 240,799,000 ------------- ------------- Property, plant and equipment - net 175,840,000 172,384,000 Goodwill - net of accumulated amortization 73,660,000 34,553,000 Other Assets 8,109,000 9,012,000 ------------- ------------- Total Assets $ 595,489,000 $ 531,844,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term bank loans $ 23,000,000 $ 8,250,000 Current portion of long-term debt 545,000 535,000 Accounts payable 49,585,000 43,690,000 Accrued liabilities 53,257,000 44,000,000 ------------- ------------- Total current liabilities 126,387,000 96,475,000 Long-Term Debt - Less current portion 2,495,000 3,040,000 Other Noncurrent Liabilities 7,290,000 6,800,000 Deferred Income Taxes 11,514,000 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 March 31, 2001 - no par value - 47,233,968 shares; June 30, 2000 - no par value - 47,152,852 shares 54,158,000 52,115,000 Retained earnings 674,095,000 622,660,000 Accumulated other comprehensive income 107,000 115,000 ------------- ------------- Total 728,360,000 674,890,000 Less: Common stock in treasury, at cost March 31, 2001 - 9,966,813 shares; June 30, 2000 - 9,190,435 shares 280,557,000 259,407,000 ------------- ------------- Total shareholders' equity 447,803,000 415,483,000 ------------- ------------- Total Liabilities and Shareholders' Equity $ 595,489,000 $ 531,844,000 ============= ============= See Notes to Condensed Consolidated Financial Statements </TABLE> 3 of 9
4 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 2001 2000 2001 2000 ------------------ ----------------- ----------------- -------------- <S> <C> <C> <C> <C> Net Sales $ 272,270,000 $ 261,833,000 $ 848,202,000 $ 845,024,000 Cost of Sales 196,166,000 184,241,000 605,836,000 588,913,000 --------------- -------------- -------------- -------------- Gross Margin 76,104,000 77,592,000 242,366,000 256,111,000 Selling, General and Administrative Expenses 44,150,000 44,982,000 126,929,000 132,049,000 --------------- -------------- -------------- -------------- Operating Income 31,954,000 32,610,000 115,437,000 124,062,000 Other Income (Expense): Interest expense (116,000) (245,000) (1,029,000) (1,503,000) Interest income and other - net (324,000) 187,000 (396,000) (35,000) --------------- -------------- -------------- -------------- Income Before Income Taxes 31,514,000 32,552,000 114,012,000 122,524,000 Taxes Based on Income 12,061,000 12,450,000 43,724,000 46,729,000 --------------- -------------- -------------- -------------- Net Income $ 19,453,000 $ 20,102,000 $ 70,288,000 $ 75,795,000 =============== ============== ============== ============== Net Income Per Common Share: Basic $ .52 $ .51 $ 1.86 $ 1.90 Diluted $ .52 $ .51 $ 1.86 $ 1.90 Cash Dividends Per Common Share $ .17 $ .16 $ .50 $ .47 Weighted Average Common Shares Outstanding: Basic 37,603,000 39,360,000 37,735,000 39,855,000 Diluted 37,620,000 39,410,000 37,746,000 39,926,000 See Notes to Condensed Consolidated Financial Statements </TABLE> 4 of 9
5 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended March 31 2001 2000 ----------------- ---------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 70,288,000 $ 75,795,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,511,000 25,589,000 Provision for losses on accounts receivable 1,487,000 5,334,000 Deferred income taxes and other noncash charges 202,000 (2,317,000) (Gain) Loss on sale of property (411,000) 120,000 Changes in operating assets and liabilities: Receivables (13,296,000) (6,828,000) Inventories 101,000 2,806,000 Prepaid expenses and other current assets (552,000) (1,933,000) Accounts payable 4,363,000 (1,507,000) Accrued liabilities 8,638,000 (4,189,000) --------------- ------------------ Net cash provided by operating activities 97,331,000 92,870,000 --------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash acquired (49,626,000) Payments on property additions (17,682,000) (18,628,000) Proceeds from sale of property 750,000 33,000 Other - net (2,204,000) (2,814,000) --------------- ------------------ Net cash used in investing activities (68,762,000) (21,409,000) --------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (21,150,000) (44,964,000) Payment of dividends (18,853,000) (18,687,000) Net change in short-term bank loans 14,750,000 Payments on long-term debt, including acquisition debt payoff (836,000) (25,520,000) Common stock issued upon exercise of stock options 2,043,000 1,039,000 --------------- ------------------ Net cash used in financing activities (24,046,000) (88,132,000) --------------- ------------------ Effect of exchange rate changes on cash (8,000) (2,000) --------------- ------------------ Net change in cash and equivalents 4,515,000 (16,673,000) Cash and equivalents at beginning of year 2,656,000 18,860,000 --------------- ------------------ Cash and equivalents at end of period $ 7,171,000 $ 2,187,000 =============== ================== SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS: Cash paid during the period for: Interest $ 1,043,000 $ 2,433,000 =============== ================ Income taxes $ 44,393,000 $ 55,682,000 =============== ================ See Notes to Condensed Consolidated Financial Statements </TABLE> 5 of 9
6 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 (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 third quarter and year-to-date unaudited results by segment are as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 (Dollars in Thousands) 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> NET SALES Specialty Foods $ 133,026 $ 116,992 $ 400,196 $ 360,665 Glassware and Candles 76,931 74,245 268,329 291,821 Automotive 62,313 70,596 179,677 192,538 ------------------------------------------------------------------------------------------------------- Total $ 272,270 $ 261,833 $ 848,202 $ 845,024 ======================================================================================================= OPERATING INCOME Specialty Foods $ 22,716 $ 14,356 $ 77,746 $ 57,931 Glassware and Candles 10,528 15,900 41,157 64,677 Automotive 180 3,686 1,108 5,770 Corporate expenses (1,470) (1,332) (4,574) (4,316) -------------------------------------------------------------------------------------------------------- Total $ 31,954 $ 32,610 $ 115,437 $ 124,062 ======================================================================================================== </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 an effect on the Company's financial position or earnings. In September 2000, the EITF issued EITF 00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future." EITF 00-22 addresses, among other issues, how a vendor should account for an offer to a customer to rebate or refund a specified amount of cash that is redeemable only if a customer completes a specified cumulative level of revenue transactions or remains a customer for a specified time period. At the January 2001 meeting, the Task Force reached a consensus on this Issue (Issue #3) that a vendor should recognize a cash rebate or refund obligation as a reduction of revenue based upon a systematic and rational allocation of the cost of honoring rebates or refunds earned and claimed to each of the underlying revenue transactions. The consensus on this Issue is effective for interim or annual periods ending after February 15, 2001, thus the Company adopted this guidance during the quarter ended March 31, 2001. As required, certain current year and prior year amounts have been reclassified from selling expenses to a reduction in net sales for the three- and nine-month periods presented. 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 MARCH 31, 2001 AND 2000 RESULTS OF OPERATIONS <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 (Dollars in Thousands) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> NET SALES Specialty Foods $ 133,026 $ 116,992 $ 400,196 $ 360,665 Glassware and Candles 76,931 74,245 268,329 291,821 Automotive 62,313 70,596 179,677 192,538 - ------------------------------------------------------------------------------------------------------- Total $ 272,270 $ 261,833 $ 848,202 $ 845,024 ======================================================================================================= </TABLE> As reflected above, consolidated net sales of $272,270,000 for the fiscal third quarter ended March 31, 2001 increased 4% over the comparable prior year total of $261,833,000. For the nine-month period ended March 31, 2001, net sales totaled $848,202,000 or slightly above the prior year total of $845,024,000. For both periods presented, net sales of the Specialty Foods segment achieved notable sales increases benefiting from the September 2000 acquisition of the Sister Schubert's frozen roll product lines as well as through continued expansion of both retail and foodservice volumes. Retail growth benefited from increased sales of frozen bread products while foodservice growth was achieved through increased sales to large national restaurant chains. Increasing 4% for the third quarter, net sales of $76,931,000 for the Glassware and Candles segment improved primarily as a result of increased candle sales for several new product introductions and general growth in consumer glassware sales. Net sales for the nine months ended March 31, 2001 of $268,329,000 decreased 8% from the prior year as 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 declined for both the three- and nine-month periods by 12% and 7%, 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. The Company's consolidated gross margins as a percentage of net sales of 28.0% and 28.6% declined for both the respective three- and nine-month periods ended March 31, 2001 relative to the 29.6% and 30.3% achieved for the comparable periods of fiscal 2000. Food margins increased slightly 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 gross margins. The Automotive segment saw a less favorable sales mix, somewhat higher raw material prices and lower sales volumes that contributed to reduced absorption rates of fixed costs. Margins for the nine months were also negatively impacted by start-up costs associated with a new line of original equipment aluminum truck accessories. The decision to exit certain lower margin floor mat business also led to additional inventory reserves being provided in the current year's third quarter. Lower margins within the Glassware and Candles segment were primarily attributable to a generally lower mix of candle sales within the segment, some market-driven pricing deterioration as well as less favorable overhead absorption within candle operations due to the lower production volume. Glassware margins were also adversely affected by substantially higher natural gas costs and, for the nine-month period, by the effects of certain operational inefficiencies at the Sapulpa, Oklahoma consumer glassware facility and first quarter start-up costs associated with a new pressed glassware product line. Entering the quarter ended June 30, 2001, natural gas costs continue to remain higher than levels present a year ago. Consolidated selling, general and administrative costs of $44,150,000 and $126,929,000 decreased 2% and 4%, respectively, from the corresponding fiscal 2000 three- and nine-month totals of $44,982,000 and $132,049,000. This decline was influenced by a charge of approximately $5 million in the prior year's third quarter related to the bankruptcy of a Specialty Foods customer. However, selling costs in the current year's 7 of 9
8 third quarter otherwise increased as influenced by increased sales, greater promotional costs within the Specialty Foods segment and an overall higher mix of Specialty Food sales within consolidated sales. The foregoing factors contributed to consolidated operating income totaling $31,954,000 and $115,437,000 for the three- and nine-month periods ended March 31, 2001. These amounts represented decreases of 2% and 7%, respectively, over the corresponding fiscal 2000 totals of $32,610,000 and $124,062,000. By segment, the Company's operating income can be summarized as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 (Dollars in Thousands) 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> OPERATING INCOME Specialty Foods $ 22,716 $ 14,356 $ 77,746 $ 57,931 Glassware and Candles 10,528 15,900 41,157 64,677 Automotive 180 3,686 1,108 5,770 Corporate expenses (1,470) (1,332) (4,574) (4,316) - ---------------------------------------------------------------------------------------------------------------- Total $ 31,954 $ 32,610 $ 115,437 $ 124,062 ================================================================================================================ </TABLE> Similar to operating income, net income of $19,453,000 and $70,288,000 for the three- and nine-month periods ended March 31, 2001 declined 3% and 7% over the corresponding totals of fiscal 2000. As influenced by the Company's share repurchases, fully diluted earnings per share of $.52 for the three-month period increased 2% from the preceding year's $.51 per share. For the nine months ended March 31, 2001, earnings per share of $1.86 declined 2% compared to the preceding year's comparable total of $1.90. While net income and earnings per share were not affected, certain current year and prior year amounts have been reclassified from selling expenses to a reduction in net sales in order to conform with the recent consensus reached by the EITF on EITF 00-22, Issue 3. FINANCIAL CONDITION Net cash provided by operating activities for the nine months ended March 31, 2001 totaled $97,331,000, which is $4,461,000 greater than the $92,870,000 provided in the nine months ended March 31, 2000. This fluctuation in cash flows primarily resulted from the extent of relative year-over-year changes in various working capital components. Significant investment activities for the first nine months included a combined total of $49,626,000 paid for the Sister Schubert's (acquired in September 2000) and Mamma Bella (acquired in March 2001) businesses, net of cash acquired. The purchase price of Sister Schubert's is ultimately subject to further 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 nine months ended March 31, 2001 included $21,150,000 expended for share repurchases and $18,853,000 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 2,635,000 shares remained authorized for future buyback at March 31, 2001. In February 2001, the Company entered into an unsecured revolving credit facility with a group of several commercial banks. The facility provides up to $125,000,000 in credit availability, expires in February 2004 and contains certain representations, warranties, covenants and conditions customary to credit facilities of this nature. Under terms of the agreement, certain financial ratios influence the extent of the Company's all-in borrowing costs, including interest and ongoing facility fees. This facility largely replaced discretionary commercial bank credit lines that were previously made available. Management believes that cash provided from operations and the currently available bank credit arrangements should be adequate to meet the Company's foreseeable cash requirements over the remainder of fiscal 2001. 8 of 9
9 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. PART II. OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.3 Credit Agreement dated as of February 13, 2001 among Lancaster Colony Corporation, The Lenders and Bank One, NA, as Agent (filed herewith) (b) Reports on Form 8-K There were no reports filed on Form 8-K for the three months ended March 31, 2001. 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: May 10, 2001 BY: /S/John B. Gerlach, Jr. ------------------------------- ------------------------ JOHN B. GERLACH, JR. Chairman, Chief Executive Officer and President Date: May 10, 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