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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-4065-1
LANCASTER COLONY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 13-1955943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 WEST BROAD STREET, COLUMBUS, OHIO 43215
(Address of principal executive offices)
(Zip Code)
614-224-7141
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
As of March 31, 2001, there were approximately 37,267,000 shares of
common stock, no par value per share, outstanding.
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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Part I. Financial Information
Condensed Consolidated Balance Sheets -
March 31, 2001 and June 30, 2000 3
Condensed Consolidated Statements of Income -
Three Months and Nine Months
Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of the Results
of Operations and Financial Condition 7-9
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 9
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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
============= =============
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 39,926,000
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
=============== ================
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
(1) The interim condensed consolidated financial statements are unaudited
but, in the opinion of management, reflect all adjustments necessary
for a fair presentation of the results of operations and financial
position for such periods. All such adjustments reflected in the
interim condensed consolidated financial statements are considered to
be of a normal recurring nature. The results of operations for any
interim period are not necessarily indicative of results for the full
year. Accordingly, these financial statements should be read in
conjunction with the financial statements and notes thereto contained
in the Company's annual report on Form 10-K for the year ended June 30,
2000.
(2) Comparative third quarter and year-to-date unaudited results by
segment are as follows:
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
========================================================================================================
(3) In May 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue 00-14
"Accounting for Certain Sales Incentives." The EITF concluded that
certain consumer and trade sales promotion expenses should be
classified as a reduction of sales rather than as marketing expenses.
Similar to many consumer packaged goods companies, the Company
currently classifies certain consumer and trade sales promotion
expenses as marketing expenses. In September 2000, the EITF also
reached a final consensus on Issue 00-10 "Accounting for Shipping and
Handling Costs." The EITF concluded that these costs cannot be reported
as a reduction of revenue. The Company currently classifies certain
shipping costs as a reduction of sales. The Company is currently
evaluating the impact of these issues, which are expected to become
effective in the fourth quarter of fiscal 2001. Upon adoption, prior
period amounts will be reclassified to conform to the new requirements.
As reclassifications, these changes will not have an effect on the
Company's financial position or earnings.
In September 2000, the EITF issued EITF 00-22, "Accounting for Points
and Certain Other Time-Based or Volume-Based Sales Incentive Offers,
and Offers for Free Products or Services to Be Delivered in the
Future." EITF 00-22 addresses, among other issues, how a vendor should
account for an offer to a customer to rebate or refund a specified
amount of cash that is redeemable only if a customer completes a
specified cumulative level of revenue transactions or remains a
customer for a specified time period. At the January 2001 meeting, the
Task Force reached a consensus on this Issue (Issue #3) that a vendor
should recognize a cash rebate or refund obligation as a reduction of
revenue based upon a systematic and rational allocation of the cost of
honoring rebates or refunds earned and claimed to each of the
underlying revenue transactions. The consensus on this Issue is
effective for interim or annual periods ending after February 15, 2001,
thus the Company adopted this guidance during the quarter ended March
31, 2001. As required, certain current year and prior year amounts have
been reclassified from selling expenses to a reduction in net sales for
the three- and nine-month periods presented.
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
RESULTS OF OPERATIONS
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
=======================================================================================================
As reflected above, consolidated net sales of $272,270,000 for the fiscal third
quarter ended March 31, 2001 increased 4% over the comparable prior year total
of $261,833,000. For the nine-month period ended March 31, 2001, net sales
totaled $848,202,000 or slightly above the prior year total of $845,024,000.
For both periods presented, net sales of the Specialty Foods segment achieved
notable sales increases benefiting from the September 2000 acquisition of the
Sister Schubert's frozen roll product lines as well as through continued
expansion of both retail and foodservice volumes. Retail growth benefited from
increased sales of frozen bread products while foodservice growth was achieved
through increased sales to large national restaurant chains. Increasing 4% for
the third quarter, net sales of $76,931,000 for the Glassware and Candles
segment improved primarily as a result of increased candle sales for several new
product introductions and general growth in consumer glassware sales. Net sales
for the nine months ended March 31, 2001 of $268,329,000 decreased 8% from the
prior year as adversely affected by several factors including a general market
softness, increased import competition and the effects of a significant customer
of this segment restructuring its approach toward marketing candles. Net sales
of the Automotive segment declined for both the three- and nine-month periods by
12% and 7%, respectively. Generally less favorable economic conditions and lower
new vehicle sales adversely affected demand for this segment's products from
both original equipment manufacturers and aftermarket customers.
The Company's consolidated gross margins as a percentage of net sales of 28.0%
and 28.6% declined for both the respective three- and nine-month periods ended
March 31, 2001 relative to the 29.6% and 30.3% achieved for the comparable
periods of fiscal 2000. Food margins increased slightly as a result of the
benefits of higher sales volumes and somewhat lower food commodity costs. The
Company's other two segments experienced a decline in gross margins. The
Automotive segment saw a less favorable sales mix, somewhat higher raw material
prices and lower sales volumes that contributed to reduced absorption rates of
fixed costs. Margins for the nine months were also negatively impacted by
start-up costs associated with a new line of original equipment aluminum truck
accessories. The decision to exit certain lower margin floor mat business also
led to additional inventory reserves being provided in the current year's third
quarter. Lower margins within the Glassware and Candles segment were primarily
attributable to a generally lower mix of candle sales within the segment, some
market-driven pricing deterioration as well as less favorable overhead
absorption within candle operations due to the lower production volume.
Glassware margins were also adversely affected by substantially higher natural
gas costs and, for the nine-month period, by the effects of certain operational
inefficiencies at the Sapulpa, Oklahoma consumer glassware facility and first
quarter start-up costs associated with a new pressed glassware product line.
Entering the quarter ended June 30, 2001, natural gas costs continue to remain
higher than levels present a year ago.
Consolidated selling, general and administrative costs of $44,150,000 and
$126,929,000 decreased 2% and 4%, respectively, from the corresponding fiscal
2000 three- and nine-month totals of $44,982,000 and $132,049,000. This decline
was influenced by a charge of approximately $5 million in the prior year's third
quarter related to the bankruptcy of a Specialty Foods customer. However,
selling costs in the current year's
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third quarter otherwise increased as influenced by increased sales, greater
promotional costs within the Specialty Foods segment and an overall higher mix
of Specialty Food sales within consolidated sales.
The foregoing factors contributed to consolidated operating income totaling
$31,954,000 and $115,437,000 for the three- and nine-month periods ended March
31, 2001. These amounts represented decreases of 2% and 7%, respectively, over
the corresponding fiscal 2000 totals of $32,610,000 and $124,062,000. By
segment, the Company's operating income can be summarized as follows:
Three Months Ended Nine Months Ended
March 31 March 31
(Dollars in Thousands) 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 for the
three- and nine-month periods ended March 31, 2001 declined 3% and 7% over the
corresponding totals of fiscal 2000. As influenced by the Company's share
repurchases, fully diluted earnings per share of $.52 for the three-month period
increased 2% from the preceding year's $.51 per share. For the nine months ended
March 31, 2001, earnings per share of $1.86 declined 2% compared to the
preceding year's comparable total of $1.90.
While net income and earnings per share were not affected, certain current year
and prior year amounts have been reclassified from selling expenses to a
reduction in net sales in order to conform with the recent consensus reached by
the EITF on EITF 00-22, Issue 3.
FINANCIAL CONDITION
Net cash provided by operating activities for the nine months ended March 31,
2001 totaled $97,331,000, which is $4,461,000 greater than the $92,870,000
provided in the nine months ended March 31, 2000. This fluctuation in cash flows
primarily resulted from the extent of relative year-over-year changes in various
working capital components.
Significant investment activities for the first nine months included a combined
total of $49,626,000 paid for the Sister Schubert's (acquired in September 2000)
and Mamma Bella (acquired in March 2001) businesses, net of cash acquired. The
purchase price of Sister Schubert's is ultimately subject to further adjustment
based largely on the future level of Sister Schubert's earnings, as defined,
that will be attained through calendar 2004. Financing activities for the nine
months ended March 31, 2001 included $21,150,000 expended for share repurchases
and $18,853,000 for dividends paid. The level of dividends paid in the current
period remained essentially unchanged from that paid in the comparable prior
year period, as the share reduction resulting from share repurchases largely
offset the impact of the quarterly $.01 per share increase in the effective
dividend rate. Approximately 2,635,000 shares remained authorized for future
buyback at March 31, 2001.
In February 2001, the Company entered into an unsecured revolving credit
facility with a group of several commercial banks. The facility provides up to
$125,000,000 in credit availability, expires in February 2004 and contains
certain representations, warranties, covenants and conditions customary to
credit facilities of this nature. Under terms of the agreement, certain
financial ratios influence the extent of the Company's all-in borrowing costs,
including interest and ongoing facility fees. This facility largely replaced
discretionary commercial bank credit lines that were previously made available.
Management believes that cash provided from operations and the currently
available bank credit arrangements should be adequate to meet the Company's
foreseeable cash requirements over the remainder of fiscal 2001.
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SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
This Form 10-Q contains forward-looking statements related to future
growth and earnings opportunities. Such statements are based upon
certain assumptions and assessments made by management of the Company
in light of its experience and perception of historical trends,
current conditions, expected future developments and other factors it
believes to be appropriate. Actual results may differ as a result of
factors over which the Company has no control including the strength
of the economy, slower than anticipated sales growth, the extent of
operational efficiencies achieved, the success of new product
introductions, price and product competition, and increases in raw
materials costs. Management believes these forward-looking statements
to be reasonable; however, undue reliance should not be placed on
such statements, which are based on current expectations. The Company
undertakes no obligation to publicly update such forward-looking
statements. More detailed statements regarding significant events
which could affect the Company's financial results are included in
the Company's Forms 10-K and 10-Q filed with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.3 Credit Agreement dated as of February 13, 2001 among
Lancaster Colony Corporation, The Lenders and Bank One, NA,
as Agent (filed herewith)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months
ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANCASTER COLONY CORPORATION
Date: May 10, 2001 BY: /S/John B. Gerlach, Jr.
------------------------------- ------------------------
JOHN B. GERLACH, JR.
Chairman, Chief Executive
Officer and President
Date: May 10, 2001 BY: /S/John L. Boylan
------------------------------- ------------------
JOHN L. BOYLAN
Treasurer, Vice President,
Assistant Secretary and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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