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,September 30, 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[X] No ------- -------[ ]
As of March 31,September 30, 2001, there were approximately 37,267,00037,051,000 shares of
common stock, no par value per share, outstanding.
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheets -
March 31,Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheets -
September 30, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 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
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3
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 June 30
2001 2000
------------------ -----------
(Unaudited)
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
============= =============September 30 June 30
2001 2001
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 11,013,000 $ 4,873,000
Receivables - net of allowance for
doubtful accounts 128,626,000 107,895,000
Inventories:
Raw materials and supplies 51,429,000 48,435,000
Finished goods and work in process 131,417,000 135,952,000
------------ ------------
Total inventories 182,846,000 184,387,000
Prepaid expenses and other current assets 22,004,000 20,450,000
------------ ------------
Total current assets 344,489,000 317,605,000
Property, Plant and Equipment - At cost 439,872,000 437,138,000
Less Accumulated Depreciation 269,663,000 263,969,000
------------ ------------
Property, plant and equipment - net 170,209,000 173,169,000
Goodwill - net of accumulated amortization 72,737,000 73,397,000
Other Assets 7,220,000 7,766,000
------------ ------------
Total Assets $594,655,000 $571,937,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans $ 4,500,000
Current portion of long-term debt $ 1,340,000 1,945,000
Accounts payable 45,933,000 41,565,000
Accrued liabilities 62,288,000 44,284,000
------------ ------------
Total current liabilities 109,561,000 92,294,000
Long-Term Debt - Less current portion 1,095,000
Other Noncurrent Liabilities 7,365,000 7,346,000
Deferred Income Taxes 9,986,000 11,301,000
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 September 30, 2001 - no par value -
47,315,330 shares; June 30, 2001 -
no par value - 47,270,030 shares 56,643,000 55,229,000
Retained earnings 700,745,000 686,722,000
Accumulated other comprehensive income 109,000 99,000
------------ ------------
Total 757,497,000 742,050,000
Less:
Common stock in treasury, at cost
September 30, 2001 - 10,264,414 shares;
June 30, 2001 - 10,016,814 shares 289,754,000 282,149,000
------------ ------------
Total shareholders' equity 467,743,000 459,901,000
------------ ------------
Total Liabilities and Shareholders' Equity $594,655,000 $571,937,000
============ ============
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31 March 31
2001 2000 2001 2000
------------------ ----------------- ----------------- --------------
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 39,926,000Three Months Ended
September 30
2001 2000
------------ ------------
Net Sales $266,462,000 $262,045,000
Cost of Sales 205,612,000 200,145,000
------------ ------------
Gross Margin 60,850,000 61,900,000
Selling, General and Administrative Expenses 27,197,000 26,841,000
------------ ------------
Operating Income 33,653,000 35,059,000
Other Income (Expense):
Interest Expense (54,000) (260,000)
Interest Income and Other - Net (584,000) (181,000)
------------ ------------
Income Before Income Taxes 33,015,000 34,618,000
Taxes Based on Income 12,674,000 13,371,000
------------ ------------
Income Before Cumulative Effect of Accounting Change 20,341,000 21,247,000
Cumulative Effect of Accounting Change, Net of Tax (998,000)
------------ ------------
Net Income $ 20,341,000 $ 20,249,000
============ ============
Net Income Per Common Share:
Before Cumulative Effect of Accounting Change:
Basic and Diluted $ .55 $ .56
Cumulative Effect of Accounting Change:
Basic and Diluted (.03)
------ --------
After Cumulative Effect of Accounting Change:
Basic and Diluted $ .55 $ .53
====== ========
Cash Dividends Per Common Share $ .17 $ .16
====== ========
Weighted Average Common Shares Outstanding:
Basic 37,181,000 37,886,000
Diluted 37,230,000 37,893,000
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31
2001 2000
----------------- ----------------
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
=============== ================Three Months Ended
September 30
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,341,000 $ 20,249,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,741,000 8,726,000
Deferred income taxes and other noncash charges (1,296,000) 1,037,000
Loss on sale of property 110,000 21,000
Changes in operating assets and liabilities:
Receivables (20,731,000) (11,456,000)
Inventories 1,541,000 (22,547,000)
Prepaid expenses and other current assets (1,554,000) (1,366,000)
Accounts payable 4,368,000 6,297,000
Accrued liabilities 18,054,000 7,492,000
------------ ------------
Net cash provided by operating activities 29,574,000 8,453,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired (32,444,000)
Payments on property additions (4,400,000) (5,200,000)
Proceeds from sale of property 3,000 9,000
Other - net (288,000) (618,000)
------------ ------------
Net cash used in investing activities (4,685,000) (38,253,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (7,605,000) (5,490,000)
Payment of dividends (6,318,000) (6,051,000)
Net change in short-term bank loans (4,500,000) 39,750,000
Payments on long-term debt (1,700,000) (300,000)
Common stock issued upon exercise of stock
options 1,364,000
------------ ------------
Net cash (used in) provided by financing
activities (18,759,000) 27,909,000
------------ ------------
Effect of exchange rate changes on cash 10,000 (8,000)
------------ ------------
Net change in cash and equivalents 6,140,000 (1,899,000)
Cash and equivalents at beginning of year 4,873,000 2,656,000
------------ ------------
Cash and equivalents at end of period $ 11,013,000 $ 757,000
============ ============
SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS:
Cash paid during the period for:
Interest $ 58,000 $ 273,000
============ ============
Income taxes $ 958,000 $ 959,000
============ ============
See Notes to Condensed Consolidated Financial Statements
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6
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31,SEPTEMBER 30, 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, 2000.2001.
(2) Comparative thirdfirst quarter and year-to-date unaudited results by segment are as follows:
Three Months Ended Nine Months Ended
March 31 March 31
(Dollars in Thousands) 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------
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
========================================================================================================
Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
-------------------------------------------------------
NET SALES
Specialty Foods $ 137,146 $ 120,856
Glassware and Candles 78,687 79,975
Automotive 50,629 61,214
-------------------------------------------------------
Total $ 266,462 $ 262,045
=======================================================
OPERATING INCOME
Specialty Foods $ 28,300 $ 24,069
Glassware and Candles 5,396 12,061
Automotive 1,500 403
Corporate expenses (1,543) (1,474)
-------------------------------------------------------
Total $ 33,653 $ 35,059
=======================================================
(3) In May 2000,At September 30, 2001, the Emerging Issues Task Force ("EITF")Company is a party to various legal and
environmental matters which have arisen in the ordinary course of business.
Such matters did not have a material adverse effect on the current quarter
results of operations and, in the opinion of management, their ultimate
disposition will not have a material adverse effect on the Company's
Consolidated Financial Statements.
A lawsuit was filed against a subsidiary of the Financial
Accounting Standards Board reachedCompany in late June 2001
asserting that the subsidiary received approximately $16 million in
preferential payments prior to the January 2000 bankruptcy of 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.
Similarformer
customer. An answer 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.this claim was filed in July 2001 denying liability.
The Company is currently
evaluatingalso in receipt of informal notice regarding certain other,
but less significant, claims from the impactsame former customer including those
involving two other subsidiaries of the Company. Management believes that it
has substantial and meritorious defenses with respect to these matters and
that the ultimate liability for this claim, while difficult to predict, will
be significantly less than the originally asserted amount. Based upon
management's best estimate of the range of potential exposure, approximately
$1,000,000 has been accrued at September 30, 2001. Although there can be no
assurance as to the outcome 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 changesmatters, management believes that its
resolution will not have an effecta material impact 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, howbut could have 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 consensusmaterial impact 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.results of
operations.
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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,SEPTEMBER 30, 2001 AND 2000
RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
March 31 March 31
(Dollars in Thousands) 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------
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
=======================================================================================================
Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
--------------------------------------------------------
NET SALES
Specialty Foods $137,146 $120,856
Glassware and Candles 78,687 79,975
Automotive 50,629 61,214
--------------------------------------------------------
Total $266,462 $262,045
========================================================
As reflected above, consolidated net sales of $272,270,000 for the fiscal thirdthree months ended September
30, 2001 reached a first quarter ended March 31, 2001 increased 4%record total of $266,462,000, which is a 2%
increase over the comparable prior year total
of $261,833,000. For$262,045,000 for the nine-month periodthree months ended March 31, 2001, netSeptember 30, 2000.
This growth was generated by increased sales totaled $848,202,000 or slightly above the prior year total of $845,024,000.
For both periods presented, net sales ofin the Specialty Foods segment achieved
notableas
such sales increases benefitingtotaled $137,146,000, a 13% increase over the comparable fiscal 2001
total of $120,856,000. The majority of this segment's increased sales was
derived from the September 2000 acquisitioninternally generated growth, particularly sales of the
Sister Schubert's frozen roll product linesbreads
into retail channels as well as through continued
expansionsales of both retail andvarious products into large national
accounts within foodservice volumes. Retail growthchannels. Sales of this segment also benefited from
increasedfiscal 2001's two food-related business acquisitions.
The Automotive segment's sales totaled $50,629,000, a 17% decline from the prior
year's first quarter total of $61,214,000. This segment's sales to original
equipment manufacturers ("OEMs") were influenced by the weakened economic
conditions leading to lower builds of new vehicles. Net sales to OEMs in the
first quarter of fiscal 2002 were further impacted by the Company's fiscal 2001
decision to exit certain low margin floor mat lines. Generally lackluster
conditions in the automotive aftermarket have also adversely impacted sales of
frozen bread products while foodservice growth was achieved
through increasedthis segment. Similar to the Automotive segment, a softer economic environment
appeared to adversely affect 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 resultdid
increased competitive pricing pressures. First quarter sales of increased candle sales for several new
product introductionsthe Glassware
and general growth in consumer glassware sales. Net sales
for the nine months ended March 31, 2001 of $268,329,000 decreased 8%Candles segment totaling $78,687,000 declined 2% from the prior year as adversely affected by several factors including a general market
softness, increased import competition and the effectsyear's total
of $79,975,000. Placement of a significant customernew line of this segment restructuring its approach toward marketing candles. Net sales
ofprivate-label candles at a large mass
merchandiser mitigated 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 asdecline otherwise present.
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% achievedCompany's consolidated gross margins for the
three months ended September 30, 2001 totaled 22.8% compared to 23.6% achieved
during the comparable periodsperiod of fiscal 2000. Food margins increased slightly as a result of the
benefits of higher sales volumes and somewhat2001. This decline is primarily
attributable to 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 marginslevels occurring within the Glassware and
Candles segment were primarilyas affected by such factors as the increased market pricing
pressures, higher levels of fixed cost absorption attributable to a generally lower
mixproduction levels and product placement costs incurred in fiscal 2002 associated
with the product line introduction referenced above. Gross margins of candle sales within the
Automotive segment some
market-driven pricing deterioration as well as less favorable overhead
absorption within candle operationsimproved somewhat due to the lower production volume.
Glassware margins were also adversely affected by substantially higher natural
gas costsan improved sales mix, improvement
in manufacturing processes and for the nine-month period, by the effects of certain operational
inefficiencies atcost control initiatives. The
Specialty Foods segment also showed modest margin improvement resulting from the
Sapulpa, Oklahoma consumer glassware facilitybenefits of a better retail sales mix, higher plant operating levels 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.relatively stable commodity costs.
Consolidated selling, general and administrative costs of $44,150,000 and
$126,929,000 decreased 2% and 4%, respectively,$27,197,000 for the
three months ended September 30, 2001 increased 1% from the corresponding fiscal$26,841,000 incurred
for the three months ended September 30, 2000 three- and nine-month totalsbut remained essentially unchanged
as a percentage 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'ssales at 10.2%.
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$33,653,000 for the three- and nine-month periodsthree months ended March
31, 2001. These amounts represented decreasesSeptember 30, 2001, a decrease of 2% and 7%, respectively, over4% from
the corresponding fiscal 2000 totals2001 total of $32,610,000 and $124,062,000.$35,059,000. By segment, the Company's
operating income can be summarized as follows:
Three Months Ended Nine Months Ended
March 31 March 31Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
-------------------------------------------------------
OPERATING INCOME
Specialty Foods $ 28,300 $ 24,069
Glassware and Candles 5,396 12,061
Automotive 1,500 403
Corporate expenses (1,543) (1,474)
-------------------------------------------------------
Total $ 33,653 $ 35,059
=======================================================
With the effective income tax rate of 38.4% for the quarter ending September 30,
2001 being slightly lower than the 38.6% of the comparable period of fiscal
2001, 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------
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
================================================================================================================
Similar to operating income, net income of $19,453,000 and $70,288,000$20,341,000 was essentially even with the preceding year's
net income for the three- and nine-month periods ended March 31, 2001 declined 3% and 7% overquarter of $20,249,000. However, the corresponding totalsprior year amount was
net of a charge reflecting the cumulative effect of an accounting change that
totaled $998,000 after taxes. Earnings per share for the first quarter of fiscal
2000. As2002 was influenced by the Company's share repurchases,repurchase program and totaled $.55
per share on a fully diluted earningsbasis. The prior year's comparable per share of $.52 foramount
was $.56 before the three-month period
increased 2% fromcumulative effect, and $.53 after reflecting the preceding year's $.51 per share.charge.
FINANCIAL CONDITION
For the ninethree months ended March 31,September 30, 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,$29,574,000, which is $4,461,000 greater than the $92,870,000compares to $8,453,000 provided in the
nine months ended March 31, 2000.comparable period of fiscal 2001. This fluctuation in cash flowsimprovement primarily resultedresults from
the extent offavorable relative year-over-year changes in various working capital components. In particular,
inventories in the current year's first quarter declined by $1,541,000 compared
to an increase in excess of $22 million experienced last year. Inventories of
the nonfood segments have reflected comparative reductions as a result of slower
business conditions and changes in production scheduling. Total working capital
at September 30, 2001 of $234,928,000 increased by $9,617,000 over the
$225,311,000 present this past June 30. Accounts receivable of $128,626,000
increased over $20 million during this period principally as a result of
seasonal aspects typically occurring this time of year in the Glassware and
Candles segment. Accrued liabilities also increased by approximately $18 million
since June 30 primarily as a result of an increase in accruals for corporate
income taxes.
Significant investment activities conducted during the three months ended
September 30, 2001 included $4,400,000 expended for payments on property
additions. Financing activities of note consisted of $7,605,000 expended for the
first nine months included a combined
totalpurchase of $49,626,000 paid fortreasury stock and $6,318,000 related to the Sister Schubert's (acquired in September 2000)
and Mamma Bella (acquired in March 2001) businesses, netpayment 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.dividends.
Approximately 2,635,0002,353,000 shares remainedremain authorized for future buyback at March 31,September
30, 2001. In February 2001,The dividends paid during the Company entered into an unsecured revolving credit
facility withcurrent quarter increased approximately
4% due to the effects of a group of several commercial banks. The facility provides up to
$125,000,0006% increase 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 influencestated dividend rate being
somewhat offset by 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.share repurchases. 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 2002.
In July 2001, the Financial Accounting Standards Board issued two
pronouncements, Statement of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets", relating to the accounting for goodwill and other intangible assets
associated with business combinations. SFAS No. 141 requires the use of the
purchase method of accounting for all business combinations initiated after June
30, 2001 and eliminates the pooling-of-interests method. SFAS No. 142 requires,
among other things, the discontinuance of goodwill amortization for goodwill or
intangibles with indefinite lives and requires at least annual assessments for
impairment. The amortization provisions apply immediately to goodwill and
intangible assets acquired after June 30, 2001 and will apply upon adoption of
SFAS No. 142 in the first quarter of fiscal 2003 for goodwill and intangible
assets recorded on the books at June 30, 2001. Within the first six months of
adoption, the Company will perform the first of the required impairment
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9tests of goodwill and intangible assets. Any initial adjustments relating to
impairment will be accounted for as a cumulative change in accounting in the
year of adoption. Management has not yet completed its analysis of these
Statements as to their impact on the Company's financial statements and
disclosures. Solely for informational purposes, goodwill amortization incurred
during the first quarter of fiscal 2002 totaled approximately $660,000.
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 FormsForm 10-K and 10-Q filed with the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEMItem 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
- -----------------------------------------
Reports on Form 8-K - There were no reports filed on Form 8-K for the three
months ended March 31,September 30, 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,November 9, 2001 BY:By: /S/John B. Gerlach, Jr.
------------------------------- ---------------------------------------------- --------------------------------------
JOHN B. GERLACH, JR.
Chairman, Chief Executive
Officer and President
Date: May 10,November 9, 2001 BY:By: /S/John L. Boylan
------------------------------- ---------------------------------------- --------------------------------------
JOHN L. BOYLAN
Treasurer, Vice President,
Assistant Secretary and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
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