1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Results of Operations and Financial Condition
- ------------------------------------------------
REVIEW OF CONSOLIDATED OPERATIONS
Fiscal 2000 marked the Company's ninth consecutive year that a record level of
consolidated net sales has been established. Such sales totaled $1,104,258,000,
a 6% increase over the fiscal 1999 total of $1,045,702,000. This growth was
internally generated and resulted primarily from increased sales levels of
specialty food products to both retail and foodservice customers as well as from
greater sales of automotive floor mats and aluminum light truck accessories to
original equipment manufacturers ("OEMs"). These same factors generally
contributed to 1999 sales increasing 4% over fiscal 1998 sales of
$1,008,752,000.
The relative proportion of sales and operating income contributed by each of the
Company's business segments can impact a year-to-year comparison of the
consolidated statements of income. The following table summarizes the sales mix
and related operating income percentages achieved by the business segments over
each of the last three years:
Segment Sales Mix:(1) 2000 1999 1998
- --------------------------------------------------------------------------------
Specialty Foods 44% 42% 41%
Glassware and Candles 33% 35% 36%
Automotive 23% 23% 23%
Segment Operating Income %:(2)
- --------------------------------------------------------------------------------
Specialty Foods 17% 16% 15%
Glassware and Candles 21% 22% 22%
Automotive 3% 5% 8%
(1) Expressed as a percentage of consolidated net sales
(2) Expressed as a percentage of the related segment's net sales
The Company's gross margin as a percentage of net sales was 30.4% in 2000
compared with 30.8% in 1999 and 32.2% in 1998. The decline in the current year's
percentage reflects operational inefficiencies and a less favorable sales mix
affecting certain automotive floor mat and glassware operations. Margins on
specialty food products actually improved as a result of such factors as
generally lower food commodity costs and a more favorable sales mix. The decline
in the 1999 percentage compared to that of 1998 is primarily attributable to
higher food ingredient costs present in the first half of fiscal 1999, although
certain glassware and automotive operations also experienced lower efficiencies
during 1999. The increasing proportion of sales contributed by specialty food
products over the last two years has positively influenced gross margin
percentages during this period as such products typically carry higher average
gross margins than many of the Company's other products.
Selling, general and administrative expenses for 2000 totaled $173,449,000 and
increased 4% over the 1999 total of $166,228,000. Such expenses in 2000 include
a bad debt provision of approximately $5 million relating to the January 2000
bankruptcy of a large national foodservice distributor. The 1999 level of
selling, general and administrative costs declined 1% from the 1998 total of
$168,526,000. This decrease was influenced by cost reductions attained within
the Glassware and Candles segment.
In the aggregate, improved Specialty Foods results were partially offset by a
decline in performance of the Automotive and, to a lesser extent, the Glassware
and Candles segments such that consolidated operating income for 2000 totaled
$161,949,000, a 4% improvement from the 1999 total of $155,688,000. In 1999,
improved results of the Specialty Foods segment were largely offset by a decline
in Automotive segment performance resulting in 1999 operating income being
essentially unchanged from the $155,871,000 recorded in 1998.
The effective tax rate in 2000 remained constant at 38.0% compared to 1999. The
effective rate for 1998 was 38.1%.
Net income per common share totaled a record $2.51 on a fully-diluted basis for
fiscal 2000, an increase of 10% over the comparable 1999 total of $2.28 per
share. Fully diluted earnings per share in 1999 increased 3% over the 1998 total
of $2.22 per share. Earnings per share have been beneficially affected by the
Company's share repurchases which totaled $179 million over the three-year
period ended June 30, 2000.
SEGMENT REVIEW - SPECIALTY FOODS
Record levels of net sales and earnings were again achieved by the Specialty
Foods segment during fiscal 2000. This segment's net sales during 2000 increased
by 11% to total $489,962,000 compared to $441,470,000 in fiscal 1999. Relative
to the fiscal 1998 total of $411,373,000, fiscal 1999 net sales increased 7%. In
each of the last three fiscal years, the percentage of retail sales to total
sales was essentially unchanged at 56%, with the remaining 44% of segment sales
being made to foodservice accounts.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
The growth in retail sales over the last two years has been influenced by both
the strength of the recently-introduced Texas Toast garlic bread product line
and a continued increase in produce department offerings such as vegetable dips
and produce dressings. Foodservice sales during this period benefited from new
business with several large national restaurant chains as well as from greater
sales of Marzetti-branded products to foodservice distributors.
Operating income of the Specialty Foods segment in fiscal 2000 totaled
$83,372,000, a 22% increase from the 1999 total of $68,550,000. Compared to
operating income of $62,141,000 reported in fiscal 1998, the 1999 total
increased 10%. Among the factors contributing to these increases were the
greater sales volumes, better capacity utilization and a favorable sales mix.
Raw material costs in fiscal 2000 were also substantially lower than in fiscal
1999, especially for soybean oil and cream. Costs for these materials were
particularly high during the first half of fiscal 1999. Adversely affecting 2000
results was a bad debt provision of approximately $5,000,000 relating to the
bankruptcy of a large foodservice distributor that primarily serviced restaurant
chains. This bankruptcy also impaired 2000 cash flows, but did not materially
impact the segment's net sales.
SEGMENT REVIEW - GLASSWARE AND CANDLES
Net sales of the Glassware and Candles segment during fiscal 2000 totaled
$357,525,000, a 2% decline from the $363,617,000 achieved in 1999. Most of this
decline was attributable to a decline in candle sales to mass merchants that
occurred during the second half of fiscal 2000. This decline is not specifically
attributable to any one factor but appears to have been influenced by increased
retail sales in advance of the year 2000 millennium, a growth in competitive
import alternatives and less promotional activity conducted by certain
customers. Sales of private-label candle products and consumer glassware to mass
merchants increased in 2000. Compared to 1998 sales of $363,835,000, 1999 sales
remained essentially even as affected by a reduction in the sales of
private-label wax-filled products and the closing of the segment's glassware
direct selling organization in October 1998.
This segment's operating income in 2000 totaled $76,756,000, a 3% decline from
the 1999 total of $79,235,000. Similarly, operating income in 1999 declined 1%
from the 1998 operating income level of $80,350,000. Adversely affecting fiscal
2000 results were the reduced sales volume of candles and, within the consumer
glassware operations, a less favorable sales mix and substantial production
inefficiencies at the Sapulpa, Oklahoma glass production facility. Compared to
1998, lower production volumes in 1999 at a second glass production facility
also adversely impacted results due to lower overhead absorption.
SEGMENT REVIEW - AUTOMOTIVE
A record level of net sales was achieved by this segment during fiscal 2000 with
total net sales of $256,771,000 exceeding the 1999 total of $240,615,000.
Compared to 1998 net sales of $233,544,000, a 3% increase in net sales occurred
in 1999. Contributing to the volume increase was internal growth associated with
the addition of several new aluminum accessory and floor mat programs placed
with OEMs, as well as the volume associated with a new aftermarket customer.
Sales of light truck bedliners were adversely impacted throughout this period as
a result of factors such as significant industry over-capacity and intense
competitive pricing conditions.
Operating income of the Automotive segment during 2000 totaled $7,452,000, a 42%
decline from the comparable 1999 total of $12,861,000. This decline is
attributable to lower contribution from the sales of floor mats as affected by
operating inefficiencies, a less favorable sales mix, certain raw material cost
increases, reduced pricing to OEMs and more competitive aftermarket conditions.
Freight and overtime costs were also unusually high in the first half of fiscal
2000 due to capacity constraints. The extent of the decline was mitigated by
improved contribution from aluminum truck accessory operations. The operating
income of the Automotive segment for 1999 declined 31% from the $18,700,000
recorded in 1998. In addition to the presence of the general conditions noted
above, operating efficiencies in the first half of fiscal 1999 were also
adversely affected by the disruptive effects of unrelated work stoppages at both
a major customer and at the Company's Wapakoneta, Ohio facility.
This segment's sales to OEMs are made both directly to the OEMs and indirectly
through third party, "Tier 1" suppliers. Such sales are sensitive to the overall
rate of new vehicle sales, the availability of competitive alternatives and the
3
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
Tier 1 supplier's ongoing ability to maintain its relationship with the OEMs.
Additionally, the extent of pricing flexibility associated with these sales
continues to be particularly limited with certain products subject to annual
price reductions. During 2000, sales to OEMs comprised 58% of this segment's
sales compared to 50% and 49% in 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company's noteworthy balance sheet strength at June 30, 2000 is
substantially similar in composition to that of June 30, 1999. This was
reflected in short and long-term debt comprising less than 10% of total
capitalization at both dates. Management believes that this relatively low level
of leverage provides the Company with considerable flexibility to acquire
businesses complementary in function to that of the Company's existing
operations. It is anticipated that adequate funds will continue to be made
available under bank lines of credit to meet any short-term cash requirements
not otherwise met by cash generated from operations. Short-term bank loans
utilized at June 30, 2000 increased $8,250,000.
Over the last three years, the Company's financial position has benefited from
net cash provided by operating activities totaling $128,445,000, $126,484,000
and $120,045,000 for 2000, 1999 and 1998, respectively. The primary influence on
these amounts has been the Company's favorable levels of net income and working
capital. This cash flow generated from operations remains the primary source of
financing the Company's internal growth.
The principal use of cash flows used in investing activities over the last three
years has been for investments in property, plant and equipment. The fiscal 2000
total of $24,564,000 declined from the $33,804,000 expended in fiscal 1999 due
to 1999 including large expenditures for the completion of a food distribution
facility. No similarly-sized projects were undertaken in 2000. Fiscal 1998
included the acquisition of all the outstanding stock of Chatham Village Foods,
Inc., a manufacturer and marketer of croutons and related products. The total of
cash paid and debt assumed by the Company in consummating this acquisition
exceeded $20,000,000. Subsequent to June 30, 2000, the Company utilized cash of
approximately $33,000,000 to acquire the outstanding stock of Sister Schubert's
Homemade Rolls, Inc., a manufacturer and marketer of frozen, partially baked
yeast rolls and related products. The selling shareholders may ultimately
receive additional cash payments from the Company contingent upon the future
annual level of Sister Schubert's earnings, as defined, that will be attained
through calendar 2004.
Financing activities of the Company used net cash totaling $115,915,000,
$91,355,000 and $58,738,000 in fiscals 2000, 1999 and 1998, respectively. The
largest such financing activity conducted by the Company in each of the last
three years involved the purchase of the Company's common stock. Cash utilized
for these purchases totaled $75,101,000, $66,792,000 and $37,083,000 in 2000,
1999 and 1998, respectively. In May 2000, the Company's Board of Directors
approved a share repurchase authorization of 3,000,000 shares which, when
combined with the amount of shares remaining subject to repurchase under a
previous authorization, provided a total of 3,412,000 shares authorized for
future purchase as of June 30, 2000.
An additional significant financing activity conducted in each of the last three
years has been the payment of dividends. Total dividend payments for 2000 were
$24,747,000 which was approximately 1% greater than the 1999 total of
$24,573,000. This increase reflects the higher dividend payout rate of $.63
present during 2000 as compared to $.59 during 1999. Fiscal 2000 marks the 37th
consecutive year in which the Company's dividend rate was increased. The future
levels of share purchases and declared dividends are subject to the periodic
review of the Company's Board of Directors and are generally determined after an
assessment is made of such factors as anticipated earnings levels, cash flow
requirements and general business conditions.
Compared to June 30, 1999, the current portion of long-term debt decreased
approximately $25 million by June 30, 2000 as a result of the maturity of a $25
million note which was paid in February 2000. This payment was effectively
funded by cash from operations.
The Company's ongoing business activities continue to be subject to compliance
with various laws, rules and regulations as may be issued and enforced by
various Federal, state and local agencies. With respect to environmental
matters, costs are incurred pertaining to regulatory compliance and, upon
occasion, remediation. Such costs have not been, and are not anticipated to
become, material.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
IMPACT OF INFLATION
The most significant change in costs during fiscal 2000 related to declines in
soybean oil and cream costs which benefited the results of the Specialty Foods
segment. Certain cost increases in the second half of fiscal 2000, including
those for freight, natural gas and corrugated, trended above the general
inflation rate and may adversely affect fiscal 2001 results if not abated. Raw
material costs in fiscal 1999, with the exception of certain food commodity
costs, did not significantly vary from the levels encountered in fiscal 1998.
Soybean oil and cream costs rose markedly during the first half of fiscal 1999
but returned to more comparable levels by June 30.
The Company generally attempts to adjust its selling prices to offset the
effects of increased raw material costs. However, these adjustments have
historically been difficult to implement on a timely basis relative to the
increase in costs incurred. Reducing the exposure to such increased costs is the
Company's diversity of operations and its ongoing efforts to achieve greater
manufacturing and distribution efficiencies through the improvement of work
processes.
YEAR 2000
As of the date of this report, the Company has not experienced any significant
Year 2000 related issues. Mainframe applications, personal computers,
telecommunications equipment and programmable logic controllers associated with
certain manufacturing equipment are operating effectively. In addition, the
Company is not aware of any third-party vendors or principal suppliers that are
not Year 2000 compliant. Management will continue to monitor its critical
systems and will utilize contingency plans, if the need arises. The costs and
business implications which might be associated with the adoption of such
contingency plans is not estimable, but could be significant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995:
All statements made by the Company in both this annual report and in other
contexts, other than statements of historical fact, that address activities,
events or developments that the Company or management intends, expects,
projects, believes or anticipates will or may occur in the future, are
forward-looking statements. Such statements are based upon certain assumptions
and assessments made by management of the Company in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes to be appropriate. The
forward-looking statements included in this report are also subject to a number
of risks and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, customers, products, services and prices. Specific influences relating
to these forward-looking statements include fluctuations in material costs, the
continued solvency of key customers, efficiencies in plant operations and
innumerable other factors. Such forward-looking statements are not guarantees of
future performance, and the actual results, developments and business decisions
may differ from those contemplated by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
5
FIVE YEAR FINANCIAL SUMMARY
Lancaster Colony Corporation and Subsidiaries
- ---------------------------------------------
(Thousands Except Per Share Figures) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
OPERATIONS
Net Sales $1,104,258 $1,045,702 $1,008,752 $ 922,813 $ 855,912
Gross Margin $ 335,398 $ 321,916 $ 324,397 $ 290,762 $ 263,952
Percent of Sales 30.4% 30.8% 32.2% 31.5% 30.8%
Interest Expense $ 1,588 $ 2,718 $ 2,626 $ 2,596 $ 2,875
Percent of Sales 0.1% 0.3% 0.3% 0.3% 0.3%
Income Before Income Taxes $ 160,189 $ 153,462 $ 155,373 $ 142,459 $ 123,221
Percent of Sales 14.5% 14.7% 15.4% 15.4% 14.4%
Taxes Based on Income $ 60,925 $ 58,333 $ 59,243 $ 53,753 $ 47,086
Net Income $ 99,264 $ 95,129 $ 96,130 $ 88,706 $ 76,135
Percent of Sales 9.0% 9.1% 9.5% 9.6% 8.9%
Per Common Share:(1)
Net Income- Basic and Diluted $ 2.51 $ 2.28 $ 2.22 $ 2.01 $ 1.71
Cash Dividends $ 0.63 $ 0.59 $ 0.54 $ 0.48 $ 0.44
- -------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total Assets $ 531,844 $ 550,014 $ 529,367 $ 484,394 $ 435,359
Working Capital $ 219,420 $ 212,162 $ 235,031 $ 235,079 $ 203,988
Property, Plant and Equipment--Net $ 172,384 $ 175,617 $ 170,766 $ 151,309 $ 139,095
Long-Term Debt $ 3,040 $ 3,575 $ 29,095 $ 30,685 $ 31,230
Property Additions $ 24,564 $ 33,804 $ 44,935 $ 37,528 $ 50,229
Depreciation and Amortization $ 34,340 $ 35,569 $ 32,571 $ 26,981 $ 24,399
Shareholders' Equity $ 415,483 $ 414,855 $ 410,563 $ 368,000 $ 323,563
Per Common Share(1) $ 10.94 $ 10.23 $ 9.60 $ 8.45 $ 7.29
Weighted Average
Common Shares Outstanding- Diluted(1) 39,554 41,799 43,364 44,108 44,624
- -------------------------------------------------------------------------------------------------------------
STATISTICS
Price-Earnings Ratio at Year End 7.8 15.1 17.1 16.0 14.6
Current Ratio 3.3 2.8 4.1 4.2 3.9
Long-Term Debt as
a Percent of Shareholders' Equity 0.7% 0.9% 7.1% 8.3% 9.7%
Dividends Paid as a Percent
of Net Income 24.9% 25.8% 24.3% 23.8% 25.7%
Return on Average Equity 23.9% 23.0% 24.7% 25.7% 25.3%
- -------------------------------------------------------------------------------------------------------------
(1) Adjusted for 3-for-2 stock split paid January 1998.
6
BUSINESS SEGMENTS
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000, 1999 and 1998
- ------------------------------------------------
In 1999, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Management has evaluated its operations in accordance with SFAS
No. 131 and has determined that the business is separated into three distinct
operating and reportable product categories: "Specialty Foods," "Glassware and
Candles" and "Automotive." The 1998 business segment presentation has been
restated to conform with the 2000 and 1999 presentations.
SPECIALTY FOODS-includes the production and marketing of a family of pourable
and refrigerated produce salad dressings; croutons; sauces; refrigerated produce
vegetable and fruit dips; chip dips; dairy snacks and desserts; dry and frozen
egg noodles; caviar; frozen ready-to-bake pies; and frozen hearth-baked breads.
The salad dressings, sauces and frozen bread products are sold to both retail
and foodservice markets. The remaining products of this business segment are
primarily directed to retail markets.
GLASSWARE AND CANDLES-includes the production and marketing of table and
giftware consisting of domestic glassware, both machine pressed and machine
blown; imported glassware; candles in all popular sizes, shapes and scents;
potpourri and related scented products; industrial glass and lighting
components; and glass floral containers. This segment's products are sold
primarily to retail markets such as mass merchandisers and department stores.
AUTOMOTIVE-includes the production and marketing of rubber, vinyl and
carpet-on-rubber car mats for original equipment manufacturers, importers and
for the auto aftermarket; truck and trailer splash guards; pickup truck bed mats
and liners; aluminum running boards for pickup trucks and vans; and a broad line
of auto accessories.
Operating income represents net sales less operating expenses related to the
business segments. Expenses of a general corporate nature have not been
allocated to the business segments. All intercompany transactions have been
eliminated, and intersegment revenues are not significant. Identifiable assets
for each segment include those assets used in its operations and intangible
assets allocated to purchased businesses. Corporate assets consist principally
of cash, cash equivalents and deferred income taxes.
The 2000 and 1999 capital expenditures of the segments include property relating
to business acquisitions as follows:
Segment 2000 1999
- --------------------------------------------------------------------------------
Glassware & Candles $150,000
Automotive $990,000
- --------------------------------------------------------------------------------
7
BUSINESS SEGMENTS
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000, 1999 and 1998
- ------------------------------------------------
The following sets forth certain financial information attributable to the
Company's business segments for the three years ended June 30, 2000, 1999 and
1998:
(Dollars In Thousands) 2000 1999 1998
- -------------------------------------------------------------------------------
NET SALES
Specialty Foods $ 489,962 $ 441,470 $ 411,373
Glassware and Candles 357,525 363,617 363,835
Automotive 256,771 240,615 233,544
- -------------------------------------------------------------------------------
Total $ 1,104,258 $ 1,045,702 $ 1,008,752
===============================================================================
OPERATING INCOME
Specialty Foods $ 83,372 $ 68,550 $ 62,141
Glassware and Candles 76,756 79,235 80,350
Automotive 7,452 12,861 18,700
Corporate Expenses (5,631) (4,958) (5,320)
- -------------------------------------------------------------------------------
Total $ 161,949 $ 155,688 $ 155,871
===============================================================================
IDENTIFIABLE ASSETS
Specialty Foods $ 131,657 $ 133,100 $ 121,659
Glassware and Candles 253,659 260,359 264,569
Automotive 126,819 122,373 108,238
Corporate 19,709 34,182 34,901
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Total $ 531,844 $ 550,014 $ 529,367
===============================================================================
CAPITAL EXPENDITURES
Specialty Foods $ 5,753 $ 13,721 $ 9,347
Glassware and Candles 11,301 10,998 29,847
Automotive 7,544 9,804 9,372
Corporate 116 271 59
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Total $ 24,714 $ 34,794 $ 48,625
===============================================================================
DEPRECIATION AND AMORTIZATION
Specialty Foods $ 7,927 $ 7,601 $ 7,425
Glassware and Candles 16,939 18,601 16,367
Automotive 9,327 9,242 8,684
Corporate 147 125 95
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Total $ 34,340 $ 35,569 $ 32,571
===============================================================================
Substantially all net sales and all long-lived assets are domestic.
Combined net sales from each of the three segments to one customer totaled
approximately $112,000,000 and $109,000,000 or 10% of consolidated fiscal 2000
and 1999 net sales, respectively.
8
CONSOLIDATED STATEMENTS OF INCOME
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000, 1999 and 1998
- ------------------------------------------------
Years Ended June 30
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
NET SALES $ 1,104,258,000 $ 1,045,702,000 $ 1,008,752,000
COST OF SALES 768,860,000 723,786,000 684,355,000
- ----------------------------------------------------------------------------------------------------------------
GROSS MARGIN 335,398,000 321,916,000 324,397,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 173,449,000 166,228,000 168,526,000
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 161,949,000 155,688,000 155,871,000
OTHER INCOME (EXPENSE):
Interest expense (1,588,000) (2,718,000) (2,626,000)
Interest income and other--net (172,000) 492,000 2,128,000
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 160,189,000 153,462,000 155,373,000
TAXES BASED ON INCOME 60,925,000 58,333,000 59,243,000
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 99,264,000 $ 95,129,000 $ 96,130,000
================================================================================================================
NET INCOME PER COMMON SHARE:
Basic $ 2.51 $ 2.28 $ 2.22
Diluted $ 2.51 $ 2.28 $ 2.22
================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 39,498,000 41,759,000 43,271,000
Diluted 39,554,000 41,799,000 43,364,000
================================================================================================================
See Notes to Consolidated Financial Statements
9
CONSOLIDATED BALANCE SHEETS
Lancaster Colony Corporation and Subsidiaries
As of June 30, 2000 and 1999
- ---------------------------------------------
June 30
ASSETS 2000 1999
- -------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and equivalents $ 2,656,000 $ 18,860,000
Receivables (less allowance for doubtful accounts,
2000--$2,395,000; 1999--$3,300,000) 118,991,000 123,268,000
Inventories:
Raw materials and supplies 43,882,000 41,741,000
Finished goods and work in process 131,598,000 127,680,000
- -------------------------------------------------------------------------------------------
Total inventories 175,480,000 169,421,000
Prepaid expenses and other current assets 18,768,000 16,830,000
- -------------------------------------------------------------------------------------------
Total current assets 315,895,000 328,379,000
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 113,959,000 112,351,000
Machinery and equipment 299,224,000 281,710,000
- -------------------------------------------------------------------------------------------
Total cost 413,183,000 394,061,000
Less accumulated depreciation 240,799,000 218,444,000
- -------------------------------------------------------------------------------------------
Property, plant and equipment--net 172,384,000 175,617,000
OTHER ASSETS:
Goodwill (net of accumulated amortization,
2000--$10,354,000; 1999--$8,884,000) 34,553,000 35,768,000
Other assets 9,012,000 10,250,000
- -------------------------------------------------------------------------------------------
TOTAL $531,844,000 $550,014,000
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term bank loans $ 8,250,000
Current portion of long-term debt 535,000 $ 25,520,000
Accounts payable 43,690,000 45,742,000
Accrued liabilities 44,000,000 44,955,000
Total current liabilities 96,475,000 116,217,000
LONG-TERM DEBT--less current portion 3,040,000 3,575,000
OTHER NONCURRENT LIABILITIES 6,800,000 7,081,000
DEFERRED INCOME TAXES 10,046,000 8,286,000
SHAREHOLDERS' EQUITY:
Preferred stock--authorized 3,050,000 shares;
Outstanding--none
Common stock--authorized 75,000,000 shares;
Outstanding, 2000--37,962,417; 1999--40,547,796 52,115,000 50,912,000
Retained earnings 622,660,000 548,143,000
Accumulated other comprehensive income 115,000 106,000
- -------------------------------------------------------------------------------------------
Total 674,890,000 599,161,000
Less common stock in treasury, at cost 259,407,000 184,306,000
- -------------------------------------------------------------------------------------------
Total shareholders' equity 415,483,000 414,855,000
- -------------------------------------------------------------------------------------------
TOTAL $531,844,000 $550,014,000
===========================================================================================
See Notes to Consolidated Financial Statements
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000, 1999 and 1998
- ------------------------------------------------
Years Ended June 30
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99,264,000 $ 95,129,000 $ 96,130,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 34,340,000 35,569,000 32,571,000
Provision for losses on accounts receivable 5,081,000 1,789,000 1,691,000
Deferred income taxes and other noncash charges (121,000) (1,225,000) 887,000
Loss (gain) on sale of property 89,000 (229,000) (1,965,000)
Changes in operating assets and liabilities:
Receivables (804,000) (25,252,000) 2,661,000
Inventories (6,059,000) 6,426,000 (12,635,000)
Prepaid expenses and other current assets (338,000) (173,000) 81,000
Accounts payable and accrued liabilities (3,007,000) 14,450,000 624,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 128,445,000 126,484,000 120,045,000
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on property additions (24,564,000) (33,804,000) (44,935,000)
Acquisitions net of cash acquired (400,000) (2,075,000) (19,749,000)
Proceeds from sale of property 78,000 647,000 3,634,000
Other--net (3,857,000) (4,269,000) (9,165,000)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (28,743,000) (39,501,000) (70,215,000)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term bank loans 8,250,000
Payment of dividends (24,747,000) (24,573,000) (23,326,000)
Purchase of treasury stock (75,101,000) (66,792,000) (37,083,000)
Payments on long-term debt, including acquisition debt payoff (25,520,000) (510,000) (5,148,000)
Common stock issued, including stock issued upon
exercise of stock options and related tax benefit 1,203,000 520,000 6,819,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (115,915,000) (91,355,000) (58,738,000)
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 9,000 8,000 23,000
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents (16,204,000) (4,364,000) (8,885,000)
Cash and equivalents at beginning of year 18,860,000 23,224,000 32,109,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 2,656,000 $ 18,860,000 $ 23,224,000
=========================================================================================================================
See Notes to Consolidated Financial Statements
11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000, 1999 and 1998
- ---------------------------------------------------
Accumulated
Common Stock Other
Outstanding Retained Comprehensive Treasury
Shares Amount Earnings Income Stock
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 29,016,836 $ 43,573,000 $ 404,783,000 $ 75,000 $ 80,431,000
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1998:
Net income 96,130,000
Cash dividends-common stock
($.54 per share) (23,326,000)
Purchase of treasury shares (987,150) 37,083,000
Shares issued upon exercise of
stock options including
related tax benefits 215,659 6,819,000
Shares issued in connection with
three-for-two stock split 14,508,143
Translation adjustment 23,000
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 42,753,488 50,392,000 477,587,000 98,000 117,514,000
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1999:
Net income 95,129,000
Cash dividends-common stock
($.59 per share) (24,573,000)
Purchase of treasury shares (2,226,800) 66,792,000
Shares issued upon exercise of
stock options including
related tax benefits 21,108 520,000
Translation adjustment 8,000
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 40,547,796 50,912,000 548,143,000 106,000 184,306,000
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 2000:
Net income 99,264,000
Cash dividends-common stock
($.63 per share) (24,747,000)
Purchase of treasury shares (2,631,032) 75,101,000
Shares issued upon exercise of
stock options including
related tax benefits 45,653 1,203,000
Translation adjustment 9,000
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 37,962,417 $52,115,000 $622,660,000 $115,000 $259,407,000
===================================================================================================================================
See Notes to Consolidated Financial Statements
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lancaster Colony Corporation and Subsidiaries
- ---------------------------------------------
1. SUMMARY OF Principles of Consolidation
SIGNIFICANT The accompanying consolidated financial statements
ACCOUNTING include the accounts of Lancaster Colony
POLICIES Corporation and its wholly-owned subsidiaries,
collectively referred to as the "Company." All
significant intercompany transactions have been
eliminated.
Use of Estimates
The preparation of the consolidated financial
statements of the Company in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
at the date of the financial statements, as well as
their related disclosures. Such estimates and
assumptions also affect the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments
purchased with maturities of three months or less to
be cash equivalents.
Property, Plant and Equipment
The Company uses the straight-line method of
computing depreciation for financial reporting
purposes based on the estimated useful lives of the
corresponding assets. Estimated useful lives for
buildings and improvements range from ten to forty
years while machinery and equipment range from three
to ten years. For tax purposes, the Company generally
computes depreciation using accelerated methods.
Goodwill
For financial reporting purposes goodwill is being
amortized on a straight-line basis over ten to forty
years, with the exception of $2,243,000 which relates
to a company acquired prior to November 1, 1970. Such
amount is not being amortized as, in the opinion of
management, there has been no dimunition in value.
Management periodically evaluates the future economic
benefit of its recorded goodwill and other long-term
assets when events or circumstances indicate
potential recoverability concerns. This evaluation is
based on consideration of expected future
undiscounted cash flows and other operating factors.
Carrying amounts are adjusted appropriately when
determined to have been impaired.
Revenue Recognition
Net sales and related cost of sales are recognized
upon shipment of products. Net sales are recorded net
of estimated sales discounts and returns.
Per Share Information
Net income per common share is computed based on the
weighted average number of shares of common stock and
common stock equivalents (stock options) outstanding
during each period.
Basic earnings per share excludes dilution and is
computed by dividing income available to common
shareholders by the weighted average number of common
shares outstanding during the period. Diluted
earnings per share is computed by dividing income
available to common shareholders by the diluted
weighted average number of common shares outstanding
during the period, which includes the dilutive
potential common shares associated with outstanding
stock options. There are no adjustments to net income
necessary in the calculation of basic and diluted
earnings per share.
13
On January 27, 1998, a three-for-two stock split was
effected whereby one additional common share was
issued for each two shares outstanding to
shareholders of record on January 6, 1998.
Accordingly, per share data and weighted average
common shares outstanding for all periods presented
in the accompanying consolidated financial statements
have been retroactively adjusted for this split.
Credit Risk
Financial instruments which potentially subject the
Company to concentrations of credit risk consist
primarily of cash equivalents and trade accounts
receivable. The Company places its cash equivalents
with high-quality institutions and, by policy, limits
the amount of credit exposure to any one institution.
Concentration of credit risk with respect to trade
accounts receivable is limited by the Company having
a large and diverse customer base.
Business Segments
The business segments information for 2000, 1999 and
1998 included on pages 14 and 15 of this Annual
Report is an integral part of these financial
statements.
Comprehensive Income
The only component of other comprehensive income for
the Company is foreign currency translation
adjustments for which there is no related income tax
effect. The difference from net income is immaterial
in relation to the Company's financial statements for
the fiscal years ended June 30, 2000, 1999 and 1998.
Derivative Instruments, Computer Software Costs,
Start-Up Costs and Revenue Recognition
In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting
standards requiring that every derivative instrument
be recorded on the balance sheet as either an asset
or liability measured at its fair value. This
Statement also requires that changes in the
derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria
are met.
In June 1999, the Financial Accounting Standards
Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133," which deferred the
effective date of SFAS No. 133 to all fiscal quarters
of all fiscal years beginning after June 15, 2000
(i.e., the first quarter of the Company's fiscal
2001). In June 2000, the Financial Accounting
Standards Board issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging
Activities-an amendment of FASB Statement No. 133,"
which, among other changes, permitted contracts for
the purchase and sale of an item other than a
financial instrument or a derivative which contained
normal terms and where physical delivery was probable
to be excluded from the scope of SFAS No. 133.
Management has completed its analysis relating to the
adoption of these Statements and has concluded that
the Company did not have any freestanding or embedded
derivatives as defined by the Statement at July 1,
2000.
In July 1999, the Company adopted Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for
Internal Use," which revised the accounting for
software development costs and SOP No. 98-5,
"Reporting on the Costs of Start-up Activities,"
which requires costs of start-up activities to be
expensed as incurred. Adoption of these SOPs had no
significant impact on the Company's financial
statements.
14
In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial
Statements," which effectively summarizes certain
of the staff's views in applying generally accepted
accounting principles to revenue recognition in
financial statements. In March 2000, the SEC issued
SAB No. 101A to provide additional time for
implementation of SAB No. 101 and in June 2000, the
SEC issued SAB No. 101B, which defers the
implementation of SAB No. 101 until the fourth
quarter of fiscal years beginning after December
15, 1999 (the fourth quarter of the Company's
fiscal 2001). Management has not yet completed its
analysis of this SAB as to its impact on the
Company's consolidated financial statements and
disclosures.
2. ACQUISITIONS During January 2000, the Company acquired certain
assets of a glass container distributor for cash of
approximately $400,000. During October 1998, the
Company acquired certain assets of an automobile
floor mat manufacturer, for cash of approximately
$2,075,000. During July 1997, the Company acquired
all of the common stock of Chatham Village Foods,
Inc., an upscale salad crouton business, for cash
of approximately $19,749,000. This amount was
financed through the use of internally generated
funds. The related liabilities assumed totaled
approximately $5,747,000. These acquisitions were
accounted for under the purchase method of
accounting and the non-cash aspects have been
excluded from the accompanying Consolidated
Statements of Cash Flows. The results of operations
of these entities have been included in the
consolidated financial statements from the dates of
acquisition and are immaterial in relation to the
consolidated totals.
Subsequent to June 30, 2000, the Company utilized
cash of approximately $33,000,000 to acquire the
outstanding stock of Sister Schubert's Homemade
Rolls, Inc., a manufacturer and marketer of frozen,
partially baked yeast rolls and related products.
The selling shareholders may ultimately receive
additional cash payments from the Company
contingent upon the future annual level of Sister
Schubert's earnings, as defined, that will be
attained through calendar 2004.
3. INVENTORIES Inventories are valued at the lower of cost or
market. Inventories which comprise approximately
22% of total inventories at June 30, 2000 and 1999,
are costed on a last-in, first-out (LIFO) basis.
Inventories which are costed by various other
methods approximate actual cost on a first-in,
first-out (FIFO) basis. If the FIFO method (which
approximates current cost) of inventory accounting
had been used for inventories costed on a LIFO
basis, these inventories would have been
$17,315,000 and $16,744,000 higher than reported at
June 30, 2000 and 1999, respectively.
It is not practicable to segregate work in process
from finished goods inventories. Management
estimates, however, that work in progress
inventories amount to approximately 10% of the
combined total of finished goods and work in
process inventories at June 30, 2000 and 1999.
4. SHORT-TERM BORROWINGS During fiscal 2000, the Company entered into a
short-term revolving credit agreement in which a
credit line of $20,000,000 was established. This
agreement permits the Company to borrow funds on a
variety of interest rate terms and, as has been
subsequently extended, will terminate on December
31, 2000. The Company must remain in compliance
with certain convenants included in the agreement.
As of June 30, 2000, the Company had outstanding
borrowings totaling $8,250,000 against the line
provided by this agreement. The weighted average
interest rate on these borrowings was 6.8% at June
30, 2000.
As of June 30, 2000, 1999 and 1998, the Company had
unused lines of credit for short-term borrowings
from various banks of $70,000,000, $95,000,000 and
$85,000,000, respectively. The lines of credit are
granted at the discretion of the lending banks and
are generally subject to periodic review. As of
June 30, 2000 and 1999, the Company had no
short-term borrowings under these lines of credit
arrangements.
5. ACCRUED LIABILITIES Accrued liabilities at June 30, 2000 and 1999 are
composed of:
(Dollars In Thousands) 2000 1999
-------------------------------------------------------------------------------------------
Accrued compensation and employee benefits $29,569 $29,911
Accrued marketing and distribution 7,208 5,808
Income and other taxes 1,019 4,131
Other 6,204 5,105
-------------------------------------------------------------------------------------------
Total accrued liabilities $44,000 $44,955
==========================================================================================
15
6. LONG-TERM DEBT Long-term debt (including current portion) at June
30, 2000 and 1999 consists of:
(Dollars In Thousands) 2000 1999
--------------------------------------------------------------------------------------------
Notes payable (8.9%, paid in February 2000) $25,000
Obligations with various industrial development
authorities - collateralized by real estate and
equipment - floating rate due in installments
to 2005 $3,575 4,095
--------------------------------------------------------------------------------------------
Total 3,575 29,095
Less current portion 535 25,520
--------------------------------------------------------------------------------------------
Long-term debt $3,040 $ 3,575
===========================================================================================
No material debt was assumed for the purchase of
property additions in 2000, 1999 and 1998. Cash
payments for interest (including interest paid on
short-term borrowings) were $2,511,000, $2,722,000
and $2,646,000 for 2000, 1999 and 1998,
respectively. At June 30, 2000, the Company met or
exceeded various covenant requirements related to
the outstanding debt.
Long-term debt matures as follows: (Dollars In Thousands)
--------------------------------------------------------------------------------------------
Year ending June 30:
2001 $ 535
2002 545
2003 555
2004 565
2005 680
After 2005 695
--------------------------------------------------------------------------------------------
Total $ 3,575
===========================================================================================
7. INCOME TAXES The Company and its domestic subsidiaries file a
consolidated Federal income tax return. Taxes based
on income for the years ended June 30, 2000, 1999
and 1998, have been provided as follows:
(Dollars In Thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------
Currently payable:
Federal $53,623 $53,245 $49,798
State and local 7,142 6,420 7,612
--------------------------------------------------------------------------------------------
Total current provision 60,765 59,665 57,410
Deferred Federal, state and local provision (credit) 160 (1,332) 1,833
--------------------------------------------------------------------------------------------
Total taxes based on income $60,925 $58,333 $59,243
===========================================================================================
Tax expense resulting from allocating certain tax
benefits directly to common stock and retained
earnings totaled $85,000, $22,000 and $647,000 for
2000, 1999 and 1998, respectively. The Company's
effective tax rate varies from the statutory Federal
income tax rate as a result of the following
factors:
2000 1999 1998
--------------------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes 2.9 2.9 3.1
Other 0.1 0.1 0.0
--------------------------------------------------------------------------------------------
Effective rate 38.0% 38.0% 38.1%
============================================================================================
16
Deferred income taxes recorded in the consolidated
balance sheets at June 30, 2000 and 1999 consist of
the following:
(Dollars In Thousands) 2000 1999
--------------------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Inventories $ 6,389 $ 7,013
Employee medical and other benefits 7,336 5,033
Receivable and other valuation allowances 3,468 3,976
Other accrued liabilities 3,606 3,631
--------------------------------------------------------------------------------------------
Total deferred tax assets 20,799 19,653
--------------------------------------------------------------------------------------------
Total deferred tax liabilities - property and other (14,845) (13,538)
--------------------------------------------------------------------------------------------
Net deferred tax asset $ 5,954 $ 6,115
============================================================================================
Net current deferred tax assets totaled $16,000,000
and $14,400,000 for 2000 and 1999, respectively, and
were included in prepaid expenses and other current
assets. Cash payments for income taxes were
$63,862,000, $51,119,000 and $63,633,000 for 2000,
1999 and 1998, respectively.
8. SHAREHOLDERS' EQUITY The Company is authorized to issue 3,050,000 shares
of preferred stock consisting of 750,000 shares of
Class A Participating Preferred Stock with $1.00 par
value, 1,150,000 shares of Class B Voting Preferred
Stock without par value and 1,150,000 shares of
Class C Nonvoting Preferred Stock without par value.
As authorized by the Company's Board of Directors in
February 2000, each share of the Company's
outstanding common stock includes a nondetachable
stock purchase right that provides, upon becoming
exercisable, for the purchase of one-hundredth of a
share of Series A Participating Preferred Shares at
an exercise price of $185, subject to certain
adjustments. Alternatively, once exercisable, each
right will also entitle the holder to buy shares of
the Company's common stock having a market value of
twice the exercise price. The rights may be
exercised on or after the time when a person or
group of persons without the approval of the Board
of Directors acquire beneficial ownership of 15
percent or more of the Company's common stock or
announce the initiation of a tender or exchange
offer which, if successful, would cause such person
or group to beneficially own 30 percent or more of
the common stock. The person or group effecting such
15 percent acquisition or undertaking such tender
offer will not be entitled to exercise any rights.
If the Company is acquired in a merger or other
business combination, each right will entitle the
holder, other than the acquiring person, to purchase
securities of the surviving company having a market
value equal to twice the exercise price of the
rights. Until the rights become exercisable, they
may be redeemed by the Company at a price of one
cent per right. These rights expire in April 2010
unless earlier redeemed by the Company under
circumstances permitted by the Rights Agreement.
In November 1999, the Company's Board of Directors
approved a share repurchase authorization of
2,000,000 shares of which 411,688 remained
authorized for future purchase as of June 30, 2000.
In May 2000, the Company's Board of Directors
authorized an additional 3,000,000 shares for future
purchases, all of which remain authorized for future
purchase at June 30, 2000.
9. STOCK OPTIONS Under terms of an incentive option plan approved by
the shareholders in November 1995, the Company has
reserved 3,000,000 common shares for issuance to
qualified key employees. All options granted under
the plan are exercisable at prices not less than
fair market value as of the date of grant. At June
30, 2000, 2,452,654 shares were available for future
grants under the plan. In general, options granted
under the plan vest immediately and have a maximum
term of 10 years. Both reserved common shares and
shares available for future grants have been
restated to reflect the stock split in January 1998.
As permitted by SFAS No. 123, the Company has
elected to follow Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations, in
accounting for its stock-based compensation. Under
APB Opinion No. 25, because the exercise price of
the Company's stock options was at least equal to
the market price of the underlying stock on the date
of grant, no compensation expense was recognized.
17
The following summarizes for each of the three years in the
period ended June 30, 2000 the activity relating to stock
options granted under the 1995 plan mentioned above as well
as those granted under a separate plan that expired in May
1995, as restated to reflect the stock split in January 1998:
2000 1999 1998
----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------------------
Outstanding at beginning of period 430,149 $26.75 277,986 $27.78 497,095 $28.18
Exercised (45,653) 24.54 (21,108) 23.62 (215,659) 28.62
Granted 293,350 27.15
Forfeited (3,550) 27.13 (120,079) 30.85 (3,450) 30.75
----------------------------------------------------------------------------------------------------
Outstanding at end of the period 380,946 $26.98 430,149 $26.75 277,986 $27.78
====================================================================================================
Exercisable at end of period 294,437 $27.46 318,449 $27.32 186,692 $29.73
====================================================================================================
The weighted average fair value of options granted during
fiscal 1999 was $5.27 per share.
The following table summarizes information about the options
outstanding at June 30, 2000:
Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------------------
Weighted Average
Range of Number Remaining Exercise Number Weighted Average
Exercise Prices Outstanding Contractual Life Price Exercisable Exercise Price
------------------------------------------------------------- -----------------------------------
$30.75 82,500 1.59 $30.75 74,434 $30.75
$27.13 - $29.84 244,556 1.73 $27.15 202,412 $27.16
$17.06 - $22.25 53,890 3.53 $20.41 17,591 $17.06
============================================================= ==================================
The fair value of the options presented above was estimated
at the date of grant using the Black-Scholes option pricing
model with the following assumptions for options granted in
1999: risk free interest rate of 5.77%; dividend yield of
1.7%; volatility factor of the expected market price of the
Company's common stock of 27.39%; and a weighted average
expected option life of 2.71 years.
Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant dates
for awards under the plan consistent with the method of SFAS
No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated
below:
For Years Ended June 30
(Dollars In Thousands Except Per Share Figures) 2000 1999 1998
----------------------------------------------------------------------------------------------------
Net income As reported $99,264 $95,129 $96,130
Pro forma $99,078 $94,555 $96,057
Earnings per Share:
Basic and Diluted As reported $2.51 $2.28 $2.22
Basic Pro forma $2.51 $2.26 $2.22
Diluted Pro forma $2.50 $2.26 $2.22
====================================================================================================
10. PENSION The Company and certain of its operating subsidiaries
AND OTHER provide multiple defined benefit pension and postretirement
POSTRETIREMENT medical and life insurance benefit plans. Benefits under
BENEFITS the defined benefit pension plans are primarily based on
negotiated rates and years of service and cover the union
workers at such locations. The Company contributes to these
pension plans at least the minimum amount required by
regulation or contract. The Company recognizes the cost of
postretirement medical and life insurance benefits as the
employees render service in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions." Benefits are funded as incurred.
18
Relevant information with respect to these defined benefit
pension and postretirement medical and life insurance
benefits as of June 30, can be summarized as follows:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------------------------------------ ---------------------------
(Dollars In Thousands) 2000 1999 2000 1999
------------------------------------------------------------------ ---------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $28,273 $28,409 $2,757 $2,850
Service cost 625 491 111 109
Interest cost 1,954 1,851 199 192
Amendments 808
Actuarial (gain) (804) (1,526) (125) (192)
Benefits paid (2,073) (1,760) (285) (202)
------------------------------------------------------------------ --------------------------
Benefit obligation at end of year 27,975 28,273 2,657 2,757
------------------------------------------------------------------ ---------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year 35,066 34,794
Actual return on plan assets (177) 1,738
Employer contribution 65 294 286 202
Benefits paid (2,073) (1,760) (286) (202)
------------------------------------------------------------------ ---------------------------
Fair value of plan assets at end of year 32,881 35,066
------------------------------------------------------------------ ---------------------------
Funded status 4,906 6,793 (2,657) (2,757)
Unrecognized net actuarial (gain) (3,788) (6,436) (743) (643)
Unrecognized prior service cost 2,598 2,797
Unrecognized net transition obligation 146 177
------------------------------------------------------------------ ---------------------------
Prepaid (accrued) benefit cost $3,862 $3,331 ($3,400) ($3,400)
================================================================== ===========================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
------------------------------------------------------------------ --------------------------- -
Discount rate 7.60% 7.25% 7.60% 7.25%
Expected return on plan assets 9.00% 9.00%
For measurement purposes, annual increases in medical costs
for fiscal 2000 are assumed to total approximately 6.5% per
year and gradually decline to 5% by approximately the year
2003 and remain level thereafter. Annual increases in medical
costs for fiscal 1999 were assumed to total approximately 7%
per year and gradually decline to 5% by approximately the
year 2003 and remain level thereafter.
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------------------------------------ ------------------------------
(Dollars In Thousands) 2000 1999 1998 2000 1999 1998
------------------------------------------------------------------ ------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $625 $491 $559 $111 $109 $102
Interest cost 1,954 1,851 1,785 199 192 215
Expected return on plan assets (3,072) (3,056) (2,649)
Amortization of unrecognized net gain (203) (202) (230) (25) (11) (4)
Amortization of prior service cost 199 200 148
Amortization of unrecognized
net obligation existing at transition 32 31 31
------------------------------------------------------------------- ---------------------------
Net periodic benefit cost (benefit) ($465) ($685) ($356) $285 $290 $313
------------------------------------------------------------------- ---------------------------
The majority of the pension plan assets are invested in
bonds, short-term investments and common stock including
shares of the Company's common stock with a market value of
$2,721,000 and $4,814,000 as of June 30, 2000 and 1999,
respectively.
19
Assumed health care cost rates can have a significant effect
on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend
rates would have the following effect:
1-PERCENTAGE- 1-PERCENTAGE-
(Dollars In Thousands) POINT INCREASE POINT DECREASE
--------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $29 ($25)
Effect on postretirement benefit obligation as of
June 30, 2000 $168 ($147)
The Company and certain of its subsidiaries also participate
in multiemployer plans that provide pension and
postretirement health and welfare benefits to the union
workers at such locations. The Company's contributions
required by its participation in the multiemployer plans
totaled $2,920,000, $2,904,000 and $2,723,000 in 2000, 1999
and 1998, respectively.
During fiscal 1998, the Company adopted the Lancaster Colony
Corporation 401(k) Profit Sharing Plan and Trust ("401(k)
Plan"). In general, the 401(k) Plan extends participation to
all domestic employees, except those covered by a collective
bargaining agreement. The Company's contribution is 40% of
the participant's contribution up to a maximum of 4% of the
participant's annual compensation and is funded annually at
the end of the 401(k) Plan year, December 31. The funds are
invested in mutual funds with the exception of the Company
contribution which is invested in Company stock. The
Company's 401(k) Plan contributions totaled approximately
$811,000, $800,000 and $174,000 for the years ended June 30,
2000, 1999 and 1998, respectively.
The Company also sponsors an Employee Stock Ownership Plan
("ESOP"). Effective January 1, 1998, the ESOP was frozen and
all benefit accruals under and further contributions to the
ESOP ceased. All participants in the plan at that time were
immediately 100% vested. The ESOP was fully paid by the
Company and generally provided coverage to all domestic
employees, except those covered by a collective bargaining
agreement.
11. COMMITMENTS The Company has operating leases with initial
noncancelable lease terms in excess of one year, covering the
rental of various facilities and equipment, which expire at
various dates through fiscal 2011. Certain of these leases
contain renewal options, some provide options to purchase
during the lease term and some require contingent rentals
based on usage. The future minimum rental commitments due
under these leases are summarized as follows (in thousands):
2001-$3,724; 2002-$2,800; 2003-$2,144; 2004-$1,489;
2005-$513; thereafter-$2,290.
Total rent expense, including short-term cancelable leases,
during 2000, 1999 and 1998 is summarized as follows:
(Dollars In Thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------
Operating leases:
Minimum rentals $4,877 $4,844 $5,477
Contingent rentals 452 328 534
Short-term cancelable leases 2,246 2,172 2,113
--------------------------------------------------------------------------------------------------------
Total $7,575 $7,344 $8,124
========================================================================================================
12. CONTINGENCIES At June 30, 2000, the Company is a party to various
AND ENVIRON- legal and environmental matters which have arisen in
MENTAL the ordinary course of business. Such matters did not
MATTERS have a material adverse effect on the current year
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.
20
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of Lancaster Colony Corporation
- -----------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Lancaster Colony
Corporation and its subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lancaster Colony Corporation and
its subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2000 in conformity with accounting principles generally accepted in the
United States of America.
/S/ Deloitte & Touche LLP
Columbus, Ohio
August 23, 2000
SELECTED QUARTERLY FINANCIAL DATA
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 2000 and 1999
- ---------------------------------------------
Diluted
(Thousands Except Per Net Gross Net Earnings Stock Prices Dividends Paid
Share Figures) Sales Margin Income Per Share High Low Per Share
- -----------------------------------------------------------------------------------------------------------------------------------
2000
First quarter $ 260,444 $ 78,637 $22,573 $ .56 $36.938 $29.000 $.15
Second quarter 324,407 101,542 33,120 .83 37.000 29.500 .16
Third quarter 262,764 78,523 20,102 .51 34.750 26.563 .16
Fourth quarter 256,643 76,696 23,469 .61 32.000 18.500 .16
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR $1,104,258 $335,398 $99,264 $2.51 $37.000 $18.500 $.63
===================================================================================================================================
1999
First quarter $ 244,080 $ 73,267 $20,338 $ .48 $40.000 $27.750 $.14
Second quarter 300,590 92,284 28,213 .67 32.125 24.063 .15
Third quarter 247,227 76,519 21,834 .53 32.000 26.500 .15
Fourth quarter 253,805 79,846 24,744 .61 35.813 24.688 .15
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR $1,045,702 $321,916 $95,129 $2.28 $40.000 $24.063 $.59
===================================================================================================================================
Lancaster Colony common stock trades on The Nasdaq Stock Market(R) under the
symbol LANC. Stock prices were provided by The Nasdaq Stock Market(R). The
number of shareholders as of September 14, 2000 was approximately 6,900. The
highest and lowest prices for the Company's common stock from July 1, 2000 to
September 14, 2000 were $26.250 and $20.625.