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 September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-4065-1
LANCASTER COLONY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 13-1955943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 WEST BROAD STREET, COLUMBUS, OHIO 43215
(Address of principal executive offices)
(Zip Code)
614-224-7141
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 2001, there were approximately 37,051,000 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 -
September 30, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 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
September 30 June 30
2001 2001
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 11,013,000 $ 4,873,000
Receivables - net of allowance for
doubtful accounts 128,626,000 107,895,000
Inventories:
Raw materials and supplies 51,429,000 48,435,000
Finished goods and work in process 131,417,000 135,952,000
------------ ------------
Total inventories 182,846,000 184,387,000
Prepaid expenses and other current assets 22,004,000 20,450,000
------------ ------------
Total current assets 344,489,000 317,605,000
Property, Plant and Equipment - At cost 439,872,000 437,138,000
Less Accumulated Depreciation 269,663,000 263,969,000
------------ ------------
Property, plant and equipment - net 170,209,000 173,169,000
Goodwill - net of accumulated amortization 72,737,000 73,397,000
Other Assets 7,220,000 7,766,000
------------ ------------
Total Assets $594,655,000 $571,937,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans $ 4,500,000
Current portion of long-term debt $ 1,340,000 1,945,000
Accounts payable 45,933,000 41,565,000
Accrued liabilities 62,288,000 44,284,000
------------ ------------
Total current liabilities 109,561,000 92,294,000
Long-Term Debt - Less current portion 1,095,000
Other Noncurrent Liabilities 7,365,000 7,346,000
Deferred Income Taxes 9,986,000 11,301,000
Shareholders' Equity:
Preferred stock - authorized 3,050,000 shares
issuable in series; Class A - $1.00 par value,
authorized 750,000 shares; Class B and C -
no par value, authorized 1,150,000 shares each;
outstanding - none
Common stock - authorized 75,000,000 shares;
issued September 30, 2001 - no par value -
47,315,330 shares; June 30, 2001 -
no par value - 47,270,030 shares 56,643,000 55,229,000
Retained earnings 700,745,000 686,722,000
Accumulated other comprehensive income 109,000 99,000
------------ ------------
Total 757,497,000 742,050,000
Less:
Common stock in treasury, at cost
September 30, 2001 - 10,264,414 shares;
June 30, 2001 - 10,016,814 shares 289,754,000 282,149,000
------------ ------------
Total shareholders' equity 467,743,000 459,901,000
------------ ------------
Total Liabilities and Shareholders' Equity $594,655,000 $571,937,000
============ ============
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30
2001 2000
------------ ------------
Net Sales $266,462,000 $262,045,000
Cost of Sales 205,612,000 200,145,000
------------ ------------
Gross Margin 60,850,000 61,900,000
Selling, General and Administrative Expenses 27,197,000 26,841,000
------------ ------------
Operating Income 33,653,000 35,059,000
Other Income (Expense):
Interest Expense (54,000) (260,000)
Interest Income and Other - Net (584,000) (181,000)
------------ ------------
Income Before Income Taxes 33,015,000 34,618,000
Taxes Based on Income 12,674,000 13,371,000
------------ ------------
Income Before Cumulative Effect of Accounting Change 20,341,000 21,247,000
Cumulative Effect of Accounting Change, Net of Tax (998,000)
------------ ------------
Net Income $ 20,341,000 $ 20,249,000
============ ============
Net Income Per Common Share:
Before Cumulative Effect of Accounting Change:
Basic and Diluted $ .55 $ .56
Cumulative Effect of Accounting Change:
Basic and Diluted (.03)
------ --------
After Cumulative Effect of Accounting Change:
Basic and Diluted $ .55 $ .53
====== ========
Cash Dividends Per Common Share $ .17 $ .16
====== ========
Weighted Average Common Shares Outstanding:
Basic 37,181,000 37,886,000
Diluted 37,230,000 37,893,000
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,341,000 $ 20,249,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,741,000 8,726,000
Deferred income taxes and other noncash charges (1,296,000) 1,037,000
Loss on sale of property 110,000 21,000
Changes in operating assets and liabilities:
Receivables (20,731,000) (11,456,000)
Inventories 1,541,000 (22,547,000)
Prepaid expenses and other current assets (1,554,000) (1,366,000)
Accounts payable 4,368,000 6,297,000
Accrued liabilities 18,054,000 7,492,000
------------ ------------
Net cash provided by operating activities 29,574,000 8,453,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired (32,444,000)
Payments on property additions (4,400,000) (5,200,000)
Proceeds from sale of property 3,000 9,000
Other - net (288,000) (618,000)
------------ ------------
Net cash used in investing activities (4,685,000) (38,253,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (7,605,000) (5,490,000)
Payment of dividends (6,318,000) (6,051,000)
Net change in short-term bank loans (4,500,000) 39,750,000
Payments on long-term debt (1,700,000) (300,000)
Common stock issued upon exercise of stock
options 1,364,000
------------ ------------
Net cash (used in) provided by financing
activities (18,759,000) 27,909,000
------------ ------------
Effect of exchange rate changes on cash 10,000 (8,000)
------------ ------------
Net change in cash and equivalents 6,140,000 (1,899,000)
Cash and equivalents at beginning of year 4,873,000 2,656,000
------------ ------------
Cash and equivalents at end of period $ 11,013,000 $ 757,000
============ ============
SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS:
Cash paid during the period for:
Interest $ 58,000 $ 273,000
============ ============
Income taxes $ 958,000 $ 959,000
============ ============
See Notes to Condensed Consolidated Financial Statements
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(1) The interim condensed consolidated financial statements are unaudited but,
in the opinion of management, reflect all adjustments necessary for a fair
presentation of the results of operations and financial position for such
periods. All such adjustments reflected in the interim condensed
consolidated financial statements are considered to be of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. Accordingly, these financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
year ended June 30, 2001.
(2) Comparative first quarter unaudited results by segment are as follows:
Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
-------------------------------------------------------
NET SALES
Specialty Foods $ 137,146 $ 120,856
Glassware and Candles 78,687 79,975
Automotive 50,629 61,214
-------------------------------------------------------
Total $ 266,462 $ 262,045
=======================================================
OPERATING INCOME
Specialty Foods $ 28,300 $ 24,069
Glassware and Candles 5,396 12,061
Automotive 1,500 403
Corporate expenses (1,543) (1,474)
-------------------------------------------------------
Total $ 33,653 $ 35,059
=======================================================
(3) At September 30, 2001, the Company is a party to various legal and
environmental matters which have arisen in the ordinary course of business.
Such matters did not have a material adverse effect on the current quarter
results of operations and, in the opinion of management, their ultimate
disposition will not have a material adverse effect on the Company's
Consolidated Financial Statements.
A lawsuit was filed against a subsidiary of the Company in late June 2001
asserting that the subsidiary received approximately $16 million in
preferential payments prior to the January 2000 bankruptcy of a former
customer. An answer to this claim was filed in July 2001 denying liability.
The Company is also in receipt of informal notice regarding certain other,
but less significant, claims from the same former customer including those
involving two other subsidiaries of the Company. Management believes that it
has substantial and meritorious defenses with respect to these matters and
that the ultimate liability for this claim, while difficult to predict, will
be significantly less than the originally asserted amount. Based upon
management's best estimate of the range of potential exposure, approximately
$1,000,000 has been accrued at September 30, 2001. Although there can be no
assurance as to the outcome of these matters, management believes that its
resolution will not have a material impact on the Company's financial
position, but could have a material impact on interim or annual results of
operations.
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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 SEPTEMBER 30, 2001 AND 2000
RESULTS OF OPERATIONS
Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
--------------------------------------------------------
NET SALES
Specialty Foods $137,146 $120,856
Glassware and Candles 78,687 79,975
Automotive 50,629 61,214
--------------------------------------------------------
Total $266,462 $262,045
========================================================
As reflected above, consolidated net sales for the three months ended September
30, 2001 reached a first quarter record total of $266,462,000, which is a 2%
increase over the $262,045,000 for the three months ended September 30, 2000.
This growth was generated by increased sales in the Specialty Foods segment as
such sales totaled $137,146,000, a 13% increase over the comparable fiscal 2001
total of $120,856,000. The majority of this segment's increased sales was
derived from internally generated growth, particularly sales of frozen breads
into retail channels as well as sales of various products into large national
accounts within foodservice channels. Sales of this segment also benefited from
fiscal 2001's two food-related business acquisitions.
The Automotive segment's sales totaled $50,629,000, a 17% decline from the prior
year's first quarter total of $61,214,000. This segment's sales to original
equipment manufacturers ("OEMs") were influenced by the weakened economic
conditions leading to lower builds of new vehicles. Net sales to OEMs in the
first quarter of fiscal 2002 were further impacted by the Company's fiscal 2001
decision to exit certain low margin floor mat lines. Generally lackluster
conditions in the automotive aftermarket have also adversely impacted sales of
this segment. Similar to the Automotive segment, a softer economic environment
appeared to adversely affect sales of the Glassware and Candles segment, as did
increased competitive pricing pressures. First quarter sales of the Glassware
and Candles segment totaling $78,687,000 declined 2% from the prior year's total
of $79,975,000. Placement of a new line of private-label candles at a large mass
merchandiser mitigated the decline otherwise present.
As a percentage of net sales, the Company's consolidated gross margins for the
three months ended September 30, 2001 totaled 22.8% compared to 23.6% achieved
during the comparable period of fiscal 2001. This decline is primarily
attributable to lower gross margin levels occurring within the Glassware and
Candles segment as affected by such factors as the increased market pricing
pressures, higher levels of fixed cost absorption attributable to lower
production levels and product placement costs incurred in fiscal 2002 associated
with the product line introduction referenced above. Gross margins of the
Automotive segment improved somewhat due to an improved sales mix, improvement
in manufacturing processes and the effects of cost control initiatives. The
Specialty Foods segment also showed modest margin improvement resulting from the
benefits of a better retail sales mix, higher plant operating levels and
relatively stable commodity costs.
Consolidated selling, general and administrative costs of $27,197,000 for the
three months ended September 30, 2001 increased 1% from the $26,841,000 incurred
for the three months ended September 30, 2000 but remained essentially unchanged
as a percentage of sales at 10.2%.
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The foregoing factors contributed to consolidated operating income totaling
$33,653,000 for the three months ended September 30, 2001, a decrease of 4% from
the corresponding fiscal 2001 total of $35,059,000. By segment, the Company's
operating income can be summarized as follows:
Three Months Ended
September 30
(Dollars in Thousands) 2001 2000
-------------------------------------------------------
OPERATING INCOME
Specialty Foods $ 28,300 $ 24,069
Glassware and Candles 5,396 12,061
Automotive 1,500 403
Corporate expenses (1,543) (1,474)
-------------------------------------------------------
Total $ 33,653 $ 35,059
=======================================================
With the effective income tax rate of 38.4% for the quarter ending September 30,
2001 being slightly lower than the 38.6% of the comparable period of fiscal
2001, net income of $20,341,000 was essentially even with the preceding year's
net income for the quarter of $20,249,000. However, the prior year amount was
net of a charge reflecting the cumulative effect of an accounting change that
totaled $998,000 after taxes. Earnings per share for the first quarter of fiscal
2002 was influenced by the Company's share repurchase program and totaled $.55
per share on a fully diluted basis. The prior year's comparable per share amount
was $.56 before the cumulative effect, and $.53 after reflecting the charge.
FINANCIAL CONDITION
For the three months ended September 30, 2001, net cash provided by operating
activities totaled $29,574,000, which compares to $8,453,000 provided in the
comparable period of fiscal 2001. This improvement primarily results from
favorable relative changes in working capital components. In particular,
inventories in the current year's first quarter declined by $1,541,000 compared
to an increase in excess of $22 million experienced last year. Inventories of
the nonfood segments have reflected comparative reductions as a result of slower
business conditions and changes in production scheduling. Total working capital
at September 30, 2001 of $234,928,000 increased by $9,617,000 over the
$225,311,000 present this past June 30. Accounts receivable of $128,626,000
increased over $20 million during this period principally as a result of
seasonal aspects typically occurring this time of year in the Glassware and
Candles segment. Accrued liabilities also increased by approximately $18 million
since June 30 primarily as a result of an increase in accruals for corporate
income taxes.
Significant investment activities conducted during the three months ended
September 30, 2001 included $4,400,000 expended for payments on property
additions. Financing activities of note consisted of $7,605,000 expended for the
purchase of treasury stock and $6,318,000 related to the payment of dividends.
Approximately 2,353,000 shares remain authorized for future buyback at September
30, 2001. The dividends paid during the current quarter increased approximately
4% due to the effects of a 6% increase in the stated dividend rate being
somewhat offset by the extent of share repurchases. Management believes that
cash provided from operations and the currently available bank credit
arrangements should be adequate to meet the Company's foreseeable cash
requirements over the remainder of fiscal 2002.
In July 2001, the Financial Accounting Standards Board issued two
pronouncements, Statement of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets", relating to the accounting for goodwill and other intangible assets
associated with business combinations. SFAS No. 141 requires the use of the
purchase method of accounting for all business combinations initiated after June
30, 2001 and eliminates the pooling-of-interests method. SFAS No. 142 requires,
among other things, the discontinuance of goodwill amortization for goodwill or
intangibles with indefinite lives and requires at least annual assessments for
impairment. The amortization provisions apply immediately to goodwill and
intangible assets acquired after June 30, 2001 and will apply upon adoption of
SFAS No. 142 in the first quarter of fiscal 2003 for goodwill and intangible
assets recorded on the books at June 30, 2001. Within the first six months of
adoption, the Company will perform the first of the required impairment
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tests of goodwill and intangible assets. Any initial adjustments relating to
impairment will be accounted for as a cumulative change in accounting in the
year of adoption. Management has not yet completed its analysis of these
Statements as to their impact on the Company's financial statements and
disclosures. Solely for informational purposes, goodwill amortization incurred
during the first quarter of fiscal 2002 totaled approximately $660,000.
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
This Form 10-Q contains forward-looking statements related to future
growth and earnings opportunities. Such statements are based upon
certain assumptions and assessments made by management of the Company in
light of its experience and perception of historical trends, current
conditions, expected future developments and other factors it believes
to be appropriate. Actual results may differ as a result of factors over
which the Company has no control including the strength of the economy,
slower than anticipated sales growth, the extent of operational
efficiencies achieved, the success of new product introductions, price
and product competition, and increases in raw materials costs.
Management believes these forward-looking statements to be reasonable;
however, undue reliance should not be placed on such statements, which
are based on current expectations. The Company undertakes no obligation
to publicly update such forward-looking statements. More detailed
statements regarding significant events which could affect the Company's
financial results are included in the Company's Form 10-K filed with the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
Reports on Form 8-K - There were no reports filed on Form 8-K for the three
months ended September 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANCASTER COLONY CORPORATION
Date: November 9, 2001 By: /S/ John B. Gerlach, Jr.
---------------------- --------------------------------------
JOHN B. GERLACH, JR.
Chairman, Chief Executive
Officer and President
Date: November 9, 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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