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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
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 43215
COLUMBUS, OHIO (Zip Code)
(Address of principal executive offices)
614-224-7141
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Common Stock-No Par Value Per Share
(Including Series A Participating Preferred Stock Purchase Rights)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates on August
30, 2002 was approximately $1,141,265,000, based on the closing price of these
shares on that day.
As of August 30, 2002, there were approximately 36,550,000 shares of Common
Stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed for its
2002 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Annual Report on Form 10-K. The 2002 Definitive Proxy Statement shall be
deemed to have been "filed" only to the extent portions thereof are expressly
incorporated by reference.
Current and periodic reports are available at the Company Web site
(www.lancastercolony.com) free of charge as soon as reasonably practicable after
such material is electronically filed with the Commission.
EXHIBIT INDEX LOCATED IN PART IV OF THIS ANNUAL REPORT ON FORM 10-K.
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LANCASTER COLONY CORPORATION
TABLE OF CONTENTS
ITEM NO.
- --------
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Supplementary Item. Executive Officers of the Registrant
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Results of Operations
and Financial Condition
7a. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Index to Exhibits
1
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Lancaster Colony Corporation was reincorporated in Ohio effective January
2, 1992. Prior to this date Lancaster Colony Corporation had been a Delaware
Corporation organized in 1961. As used herein the term "registrant," unless the
context otherwise requires, refers to Lancaster Colony Corporation and its
subsidiaries.
DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
The registrant operates in three business segments - "specialty foods,"
"glassware and candles" and "automotive" - which accounted for approximately
51%, 28% and 21%, respectively, of consolidated net sales for the fiscal year
ended June 30, 2002. The financial information relating to business segments for
each of the three years in the period ended June 30, 2002 is included in Note 13
to the consolidated financial statements, which is included in Part II, Item 8
of this Form 10-K. Further description of each business segment the registrant
operates within is provided below:
SPECIALTY FOODS
The food products manufactured and sold by the registrant include salad
dressings and sauces marketed under the brand names "Marzetti," "T. Marzetti's,"
"Cardini's," "Pfeiffer" and "Girard's"; fruit glazes, vegetable dips and fruit
dips marketed under the brand name "T. Marzetti's"; frozen unbaked pies marketed
under the brand name "Mountain Top"; frozen hearth-baked breads marketed under
the brand names "New York Brand" and "Mamma Bella"; frozen yeast Parker House
style dinner rolls and sweet rolls marketed under the brand name "Sister
Schubert's"; premium dry egg noodles marketed under the brand names "Inn Maid"
and "Amish Kitchen"; frozen specialty noodles and pastas marketed under the
brand name "Reames"; croutons and related products marketed under the brand
names "Chatham Village" and "T. Marzetti's" and caviar marketed under the brand
name "Romanoff." A portion of the registrant's sales in this segment are also
sold under private label to retailers, distributors and restaurants primarily in
the United States.
A significant portion of this segment's product lines is manufactured by
the registrant in 13 plants located throughout the United States. Certain
individual items are manufactured and packaged by third parties located in the
United States and Canada under contractual agreements established by the
registrant.
The dressings, sauces, croutons, fruit glazes, vegetable dips, fruit dips,
frozen hearth-baked breads and yeast rolls are sold primarily through sales
personnel, food brokers and distributors in various metropolitan areas in the
United States with sales being made to retail, club stores and/or foodservice
markets.
The dry egg noodles and frozen specialty noodles are sold through sales
personnel, food brokers and distributors to retail markets principally in the
central and midwestern United States.
One customer accounted for approximately 11% of this segment's total net
sales in the current year. Although the registrant is a leading producer in
several of its product categories, all of the markets in which the registrant
sells food products are highly competitive in the areas of price, quality and
customer service.
During fiscal year 2002, the registrant obtained adequate supplies of raw
materials for this segment.
The registrant's firm order backlog at June 30, 2002, in this business
segment, was approximately $9,267,000 as compared to a backlog of approximately
$14,194,000 as of the end of the preceding fiscal year. It is expected that all
of these orders will be filled during the current fiscal year. The operations of
this segment are not affected to any material extent by seasonal fluctuations.
The registrant does not utilize any franchises or concessions in this business
segment. The trademarks which it utilizes are significant to the overall
success of this segment. However, the patents and licenses under which it
operates are not essential to the overall success of this segment.
2
GLASSWARE AND CANDLES
Candles and other home fragrance products of all sizes, forms and fragrance
are primarily sold to the mass merchandise markets as well as to supermarkets,
drug stores and specialty shops under the brand names "Candle-lite" and
"Lancaster Colony." A portion of the registrant's candle business is marketed
under private label.
Glass products include a broad range of machine pressed and machine blown
consumer glassware and industrial glass products such as security and interior
warehouse lighting components, cathode ray tubes and lenses.
Consumer glassware includes a diverse line of decorative and ornamental
products such as tumblers, bowls, pitchers, jars and barware. These products are
marketed under a variety of trademarks, the most important of which are "Indiana
Glass," "Colony" and "Fostoria."
Glass vases and containers are sold to both the retail and wholesale
florist markets under the brand names "Brody" and "Indiana Glass" as well as
under private label.
The registrant's glass products are sold to discount, department, variety,
drug stores and specialty shops, as well as to jobbers. Commercial markets such
as foodservice, hotels, hospitals and schools are also served by this segment's
products.
All the markets in which the registrant sells houseware products are highly
competitive in the areas of design, price, quality and customer service. The
aggregate sales of glassware and candles to two customers accounted for
approximately 32% of this segment's total net sales during fiscal 2002 and 2001.
No other customer accounted for more than 10% of this segment's total net sales.
During fiscal year 2002, the registrant obtained adequate supplies of raw
materials for this segment.
The registrant's firm order backlog at June 30, 2002, in this business
segment, was approximately $33,786,000 as compared to approximately $15,631,000
as of the end of the preceding fiscal year. The current year's increase was due
to the timing of receipt of certain seasonal orders. It is expected that all of
these orders will be filled during the current fiscal year. Seasonal retail
stocking patterns cause certain of this segment's products to experience
increased sales in the first half of the fiscal year. The registrant does not
use any franchises or concessions in this segment. The patents under which it
operates are not essential to the overall success of this segment. However,
certain trademarks and licenses are important to this segment's marketing
efforts.
AUTOMOTIVE
The registrant manufactures and sells a complete line of rubber, vinyl and
carpeted floor mats to both original equipment manufacturers and aftermarket
retailers. Other products include pickup truck bed mats; running boards; tube
steps; tool boxes and other accessories for pickup trucks, vans and sport
utility vehicles; heavy-duty truck and trailer splash guards and quarter
fenders; and accessories such as cup holders, litter caddies and floor consoles.
The automotive aftermarket products are marketed primarily through mass
merchandisers and automotive outlets. Floor mats are marketed under the brand
name "Rubber Queen," bed mats under the "Protecta" trademark, and aluminum
accessories and running boards under the "Dee Zee" brand name. These products
are also subject to marketing under private labels. The aggregate sales to two
customers accounted for approximately 38% and 37% of this segment's total net
sales during fiscal 2002 and 2001, respectively. No other customer accounted for
more than 10% of this segment's total net sales. Although the registrant is a
market leader in many of its product lines, all the markets in which the
registrant sells automotive products are highly competitive in the areas of
design, price, quality and customer service.
During fiscal year 2002, the registrant obtained adequate supplies of raw
materials for this segment.
The registrant's firm order backlog at June 30, 2002, in this business
segment, was approximately $6,102,000 as compared to a backlog of approximately
$3,216,000 as of the end of the preceding fiscal year. Such backlogs do not
reflect certain orders by original equipment manufacturers as, due to its
nature, such information is not readily available. It is expected that all of
these orders will be filled during the current fiscal year. The operations of
this segment are not affected to any material extent by seasonal fluctuations.
The registrant does not utilize any significant franchises or concessions in
this segment. The patents and licenses under which it operates are
3
generally not essential to the overall success of this segment. However,
certain trademarks are valuable to the segment's marketing efforts.
NET SALES BY CLASS OF PRODUCTS
The following table sets forth business segment information with respect to
the percentage of net sales contributed by each class of similar products which
accounted for at least 10% of the registrant's consolidated net sales in any
fiscal year from 2000 through 2002:
2002 2001 2000
---- ---- ----
Specialty Foods:
Retail....................................... 27% 25% 22%
Foodservice.................................. 24% 22% 20%
Glassware and Candles:
Consumer Table and Giftware.................. 24% 26% 29%
Automotive:
Original Equipment Manufacturers............. 13% 13% 14%
Aftermarket.................................. 8% 9% 10%
Combined net sales from the three segments to Wal-Mart Stores, Inc. totaled
approximately 12%, 11% and 10% of consolidated net sales for fiscal years 2002,
2001 and 2000, respectively.
GENERAL BUSINESS
RESEARCH AND DEVELOPMENT
The estimated amount spent during each of the last three fiscal years on
research and development activities determined in accordance with generally
accepted accounting principles is not considered material.
ENVIRONMENTAL MATTERS
Certain of the registrant's operations are subject to compliance with
various air emission standards promulgated under Title V of the Federal Clean
Air Act. Pursuant to this Act, with respect to certain of its facilities, the
registrant is required to submit compliance strategies to various regulatory
authorities for review and approval. Based upon available information,
compliance with the Federal Clean Air Act provisions, as well as other various
Federal, state and local environmental protection laws and regulations, is not
expected to have a material adverse effect upon the level of capital
expenditures, earnings or the competitive position of the registrant for the
remainder of the current and succeeding fiscal year.
EMPLOYEES
As of June 30, 2002, Lancaster Colony employed approximately 5,900
individuals. Approximately 37% of these employees are represented under various
collective bargaining agreements, which expire from March 2003 to February 2007.
No employees are working under expired collective bargaining agreements. While
management believes that labor relations with unionized employees are good, a
prolonged labor dispute could have a material adverse effect on business and
results of operations.
FOREIGN OPERATIONS AND EXPORT SALES
Foreign operations and export sales have not been significant in the past
and are not expected to be significant in the future based upon existing
operations.
ITEM 2. PROPERTIES
The registrant uses approximately 6,013,000 square feet of space for its
operations. Of this space, approximately 1,050,000 square feet are leased.
4
The following table summarizes locations wherein multiple facilities are
aggregated and in total exceed 75,000 square feet of space and which are
considered the principal manufacturing and warehousing operations of the
registrant:
APPROXIMATE
LOCATION BUSINESS SEGMENT(S) SQUARE FEET
-------- ------------------- -----------
Bedford Heights, OH (4)..Specialty Foods....................... 81,000
Columbus, OH.............Specialty Foods....................... 244,000
Coshocton, OH (2)........Automotive............................ 630,000
Des Moines, IA (5).......Automotive............................ 391,000
Dunkirk, IN .............Glassware and Candles................. 729,000
Grove City, OH...........Specialty Foods....................... 195,000
Jackson, OH..............Automotive and Glassware and Candles.. 223,000
LaGrange, GA.............Automotive............................ 211,000
Lancaster, OH............Glassware and Candles................. 465,000
Leesburg, OH (1).........Glassware and Candles................. 875,000
Milpitas, CA (5).........Specialty Foods....................... 130,000
Muncie, IN...............Glassware and Candles................. 148,000
Sapulpa, OK (4)..........Glassware and Candles................. 686,000
Wapakoneta, OH (1).......Automotive............................ 240,000
Waycross, GA (2)(3)......Automotive............................ 152,000
Wilson, NY ..............Specialty Foods....................... 80,000
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(1) Part leased on a monthly basis.
(2) Part leased for term expiring in 2002.
(3) Part leased for term expiring in 2003.
(4) Part leased for term expiring in 2004.
(5) Part leased for term expiring in 2005.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Supplementary Item. Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Report in lieu of being
included in the Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held November 18, 2002.
5
The following is a list of names and ages of all of the executive officers
of the registrant indicating all positions and offices with the registrant held
by such person and each person's principal occupation or employment during the
past five years. No person other than those listed below has been chosen to
become an executive officer of the registrant:
FIRST
ELECTED
AGE AS OF AN
OFFICES AND AUGUST 30, EXECUTIVE
NAME POSITIONS HELD 2002 OFFICER
---- -------------- ---------- ---------
John B. Gerlach, Jr. .. Chairman, Chief Executive Officer,
President and Director................................. 48 1982
John L. Boylan......... Treasurer, Vice President, Assistant Secretary,
Chief Financial Officer and Director................... 47 1990
Larry G. Noble......... Vice President......................................... 66 1985
Bruce L. Rosa.......... Vice President, Development - elected July 1, 1998;
Executive Vice President of T. Marzetti Company
(a subsidiary of Lancaster Colony Corporation) from
1996 to 1998; Senior Vice President of T. Marzetti
Company from 1993 to 1996.............................. 53 1998
The above named officers were elected or re-elected to their present
positions at the annual meeting of the Board of Directors on November 19, 2001.
All such persons have been elected to serve until the next annual election of
officers, which shall occur on November 18, 2002 and their successors are
elected or until their earlier resignation or removal.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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
following table sets forth the high and low prices for Lancaster Colony common
shares and the dividends paid for each quarter of fiscal 2002 and 2001.
STOCK PRICES DIVIDENDS
--------------- PAID
HIGH LOW PER SHARE
------ ------ ---------
2002
FIRST QUARTER............................ $34.96 $24.96 $.17
SECOND QUARTER........................... 37.36 27.26 .18
THIRD QUARTER............................ 37.80 32.09 .18
FOURTH QUARTER........................... 41.16 35.50 .18
------ ------ ----
YEAR................................... $41.16 $24.96 $.71
====== ====== ====
2001
First quarter............................ $26.25 $20.63 $.16
Second quarter........................... 28.38 22.88 .17
Third quarter............................ 31.88 26.25 .17
Fourth quarter........................... 34.48 27.44 .17
------ ------ ----
Year................................... $34.48 $20.63 $.67
====== ====== ====
The number of shareholders as of September 12, 2002 was approximately
11,700. The highest and lowest prices for the Company's common stock from
July 1, 2002 to September 12, 2002 were $45.51 and $31.55.
6
Equity Compensation Plan Information
The following table summarizes information about the Company's common stock
that may be issued upon the exercise of options under all of the Company's
equity compensation plans as of June 30, 2002. The table includes the following
plans: The 1981 Incentive Stock Option Plan and the 1995 Key Employee Stock
Option Plan.
<Table>
<Caption>
NUMBER OF COMMON
NUMBER OF COMMON SHARES REMAINING
SHARES TO BE AVAILABLE FOR FUTURE
ISSUED UPON WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING COMMON SHARES
OPTIONS OPTIONS REFLECTED IN COLUMN (a))
---------------- ----------------- -------------------------
(a) (b) (c)
---------------- ----------------- -------------------------
Equity Compensation Plans
Approved by Shareholders.... 262,979 $28.42 2,239,220
Equity Compensation Plans Not
Approved by Shareholders.... - - -
------- ------ ---------
Total........................... 262,979 $28.42 2,239,220
======= ====== =========
</Table>
7
ITEM 6. SELECTED FINANCIAL DATA
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY
YEARS ENDED JUNE 30
(THOUSANDS EXCEPT ------------------------------------------------------------------
PER SHARE FIGURES) 2002 2001(1) 2000 1999 1998
- ------------------ ---------- --------- ---------- ---------- ---------
OPERATIONS(2)
Net Sales............................. $1,129,687 $1,092,653 $1,090,696 $1,034,116 $ 996,102
Gross Margin.......................... $ 253,565 $ 255,721 $ 273,500 $ 266,075 $ 265,270
Percent of Sales................... 22.4% 23.4% 25.1% 25.7% 26.6%
Interest Expense...................... $ 54 $ 1,239 $ 1,588 $ 2,718 $ 2,626
Percent of Sales................... 0.0% 0.1% 0.1% 0.3% 0.3%
Income Before Income Taxes............ $ 149,342 $ 145,885 $ 160,189 $ 153,462 $ 155,373
Percent of Sales................... 13.2% 13.4% 14.7% 14.8% 15.6%
Taxes Based on Income................. $ 57,402 $ 55,649 $ 60,925 $ 58,333 $ 59,243
Income Before Cumulative
Effect of Accounting Change........ $ 91,940 $ 90,236 $ 99,264 $ 95,129 $ 96,130
Cumulative Effect of
Accounting Change, Net of Tax...... $ (998)
Net Income............................ $ 91,940 $ 89,238 $ 99,264 $ 95,129 $ 96,130
Percent of Sales................... 8.1% 8.2% 9.1% 9.2% 9.7%
Per Common Share:
Net Income-Basic and Diluted....... $ 2.49 $ 2.37 $ 2.51 $ 2.28 $ 2.22
Cash Dividends..................... $ .71 $ 0.67 $ 0.63 $ 0.59 $ 0.54
FINANCIAL POSITION
Total Assets.......................... $ 618,705 $ 576,352 $ 531,844 $ 550,014 $ 529,367
Working Capital....................... $ 276,796 $ 220,896 $ 219,420 $ 212,162 $ 235,031
Property, Plant and Equipment-Net..... $ 165,943 $ 173,169 $ 172,384 $ 175,617 $ 170,766
Long-Term Debt........................ $ 1,095 $ 3,040 $ 3,575 $ 29,095
Property Additions.................... $ 22,546 $ 22,632 $ 24,564 $ 33,804 $ 44,935
Depreciation and Amortization......... $ 35,287 $ 35,528 $ 34,340 $ 35,569 $ 32,571
Shareholders' Equity.................. $ 501,277 $ 459,901 $ 415,483 $ 414,855 $ 410,563
Per Common Share................... $ 13.70 $ 12.35 $ 10.94 $ 10.23 $ 9.60
Weighted Average Common Shares
Outstanding-Diluted................ 36,910 37,636 39,554 41,799 43,364
STATISTICS
Price-Earnings Ratio at Year-End...... 14.3 13.9 7.8 15.1 17.1
Current Ratio......................... 4.1 3.3 3.3 2.8 4.1
Long-Term Debt as a Percent
of Shareholders' Equity............ 0.0% 0.2% 0.7% 0.9% 7.1%
Dividends Paid as a Percent
of Net Income...................... 28.4% 28.2% 24.9% 25.8% 24.3%
Return on Average Equity.............. 19.1% 20.4% 23.9% 23.0% 24.7%
8
- ------------
(1) Reflects the impact of adopting the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements.
(2) Net Sales and Gross Margin reflect accounting reclassifications in
accordance with adopting the provisions of the Emerging Issues Task Force of
the Financial Accounting Standards Board Issue No. 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products, in the second quarter of fiscal 2002.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
REVIEW OF CONSOLIDATED OPERATIONS
Fiscal 2002 represented the eleventh consecutive year of increased
consolidated net sales for the Company. Such sales totaled $1,129,687,000, a 3%
increase over the $1,092,653,000 achieved in fiscal 2001. Fiscal 2000 net sales
totaled $1,090,696,000. Segment sales trends in fiscal 2002 were generally
similar to those of fiscal 2001 with increased sales of the Specialty Foods
segment being offset by declines in sales of the Company's non-food segments.
Competitive market conditions and an unsettled economy adversely affected sales
of automotive products, glassware and candles.
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) 2002 2001 2000
---- ---- ----
Specialty Foods........................... 51% 47% 42%
Glassware and Candles..................... 28% 31% 34%
Automotive................................ 21% 22% 24%
SEGMENT OPERATING INCOME %:(2)
Specialty Foods........................... 20% 20% 18%
Glassware and Candles..................... 3% 14% 21%
Automotive................................ 7% 0% 3%
- ---------
(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 22.4% in 2002
compared with 23.4% in 2001 and 25.1% in 2000. The most recent year's decline in
margins was primarily attributable to lower margins attained in the Glassware
and Candles segment due to the impact of such factors as competitive pricing
conditions and lower plant utilization. The margins of the Specialty Foods
segment were also somewhat lower in fiscal 2002 as influenced by higher levels
of trade promotions, which are reflected as reductions to net sales. Gross
margins within the Automotive segment increased as a result of the benefits of
higher production efficiencies, somewhat lower material costs and the decision
to exit certain lower margin floor mat business.
Compared to fiscal 2000, the decline in the fiscal 2001 gross margin
percentage reflected the Company's non-food business segments experiencing a
generally more competitive pricing environment, a less favorable sales mix
brought about by the decline in sales of candles, substantially higher energy
costs, less overhead absorption on lower production volumes and certain
instances of increased material costs. The effect of these issues was mitigated
by somewhat improved margins in the Specialty Foods segment as influenced by an
improved retail sales mix and more favorable commodity costs.
Selling, general and administrative expenses for 2002 totaled $119,196,000
and increased 10% from the 2001 total of $108,047,000. The fiscal 2002 total
included a second quarter provision for bad debts within the Glassware and
Candles segment of approximately $14.3 million related to the Company's accounts
receivable
9
exposure to Kmart Corporation, which filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code in January 2002. For fiscal 2001, total selling,
general and administrative expenses were $3,504,000 less than the fiscal 2000
total of $111,551,000. However, the fiscal 2000 amount included a bad debt
provision of approximately $5 million relating to the January 2000 bankruptcy
of a large national foodservice distributor.
Weaker results in the Glassware and Candles segment resulted in
consolidated operating income for fiscal 2002 of $134,369,000 declining by 9%
compared to fiscal 2001 income of $147,674,000. The fiscal 2001 total had also
declined 9% from fiscal 2000 operating income totaling $161,949,000. Overall,
compared to fiscal 2000, fiscal 2001 results reflected strong improvement in the
Specialty Foods segment exceeded by declining contributions from the two
non-food segments.
Components of other income and expense, including interest, in the
consolidated statements of income were affected in the most recent year by
lowered levels of debt and interest rates. Additionally, in February 2002,
consistent with notice previously provided to the Company by the U.S. Treasury
Department in January, the Company received approximately $15.6 million under
the Continued Dumping and Subsidy Offset Act of 2000 ("CDSOA"). This amount was
recorded within fiscal 2002 as other income in the accompanying financial
statements. CDSOA, which applies to the Company's candle operations, is in its
first year of effectiveness and is intended to redress the unfair dumping of
imported products through annual cash payments to eligible affected companies.
In September 2002, the Company filed with the U.S. Customs Service another
certification for claim of additional distribution under CDSOA. However,
payments, if any, to be received by the Company in fiscal 2003 and any future
year under CDSOA are subject to many variables outside the control of the
Company and, accordingly, the related amounts are not subject to reasonable
estimation at the present time. Also included in fiscal 2002 other income was a
gain of approximately $1 million from insurance proceeds related to a casualty
loss that occurred during January 2001.
As affected by the CDSOA payment, the Company's income before income taxes
for fiscal 2002 of $149,342,000 increased 2% over the fiscal 2001 total of
$145,885,000. In fiscal 2001, consistent with the fluctuation in operating
income, income before income taxes had declined 9% from the level of 2000. As
compared to income before income taxes, the Company's effective tax rate over
the last three years has remained relatively steady at 38.4% for 2002 compared
to 38.1% and 38.0% in fiscal 2001 and 2000, respectively.
Fiscal 2002 diluted earnings per share totaled $2.49, a 4% increase from
the prior year's total of $2.40 before the cumulative effect of an accounting
change. The latter amount was 4% less than fiscal 2000 diluted earnings per
share of $2.51. The fiscal 2001 accounting change related to adopting the
guidance of Securities and Exchange Commission Staff Accounting Bulletin No. 101
("SAB 101"). As adjusted for the $998,000, or $.03 per share, after-tax effect
of the SAB 101 accounting change, diluted earnings per share in 2001 totaled
$2.37. Earnings per share in each of the last three years has been beneficially
affected by the Company's share repurchases which have totaled in excess of $126
million over the three-year period ended June 30, 2002.
Effective July 1, 2002, the Company is required to adopt the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," which requires goodwill and indefinite-lived
intangible assets to no longer be amortized but reviewed annually for
impairment, or more frequently if impairment indicators arise. Intangible assets
with lives restricted by contractual, legal or other means will continue to be
amortized over their useful lives. Amortization of goodwill and other
intangibles for 2002, 2001 and 2000 was $2,680,000, $2,102,000 and $1,470,000,
respectively. Of the $72.7 million in goodwill at June 30, 2002, approximately
$71.5 million, $1.0 million and $.2 million relates to the Specialty Foods,
Automotive and Glassware and Candles segments, respectively. The Company has
not completed its initial asset impairment assessment as required in adopting
SFAS No. 142.
Also effective July 1, 2002, the Company is required to adopt the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets to be held and used, to be
disposed of other than by sale, and to be disposed of by sale. The adoption of
this Statement is not expected to have a material impact on the Company's
results of operations or financial condition.
In April 2002, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." This Statement rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and
an
10
amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." This
Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions; and
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. The adoption of this Statement is not expected to have a material impact
on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 2002.
SEGMENT REVIEW - SPECIALTY FOODS
Record levels of both net sales and earnings were again achieved by the
Specialty Foods segment during fiscal 2002. Net sales during fiscal 2002 totaled
$579,940,000, a 12% increase over the prior year's total of $517,714,000. Fiscal
2001 sales had also increased 12% over the fiscal 2000 total of $460,982,000.
The percentage of sales to retail customers for this segment was approximately
52% during fiscal 2002 compared to 53% in each of the prior two years.
Sales growth to retail customers over the last two years has been
influenced by both the continued strength of the frozen bread product lines and
the two acquisitions made during fiscal 2001. These acquisitions contributed
approximately $35 million in incremental sales volume during their first year of
operations within the segment, including $21 million in fiscal 2001. Foodservice
sales also increased through this period as a result of well-received product
development efforts for existing national account customers as well as sales to
new national account customers.
The Specialty Foods segment's operating income in fiscal 2002 totaled
$113,710,000, an 8% increase over the fiscal 2001 total of $105,656,000. The
2001 level was $22,284,000, or 27%, above the fiscal 2000 level of $83,372,000.
The increase in fiscal 2002's operating income was principally driven by the
benefits of higher sales volumes. Margins associated with retail customers were
constrained by increased promotional activities, and foodservice pricing was
adversely affected by the extent of competitive market activities. In general,
the impact of year-over-year variations in raw material costs was relatively
small.
In comparing fiscal 2001 to fiscal 2000, it should be noted that fiscal
2000 results included a bad debt provision of approximately $5,000,000 resulting
from the January 2000 bankruptcy of a large foodservice distributor that
primarily serviced large national restaurant chains. Although also impairing
fiscal 2000 cash flows, this bankruptcy did not materially affect the segment's
net sales. Absent this charge, the segment's operating income for fiscal 2001
would have increased by approximately 20% over the prior year's level. Also
contributing to fiscal 2001's increased income were the greater sales volumes,
an improving retail mix, better capacity utilization and lower raw material
costs.
SEGMENT REVIEW - GLASSWARE AND CANDLES
Net sales of the Glassware and Candles segment during fiscal 2002 totaled
$314,591,000, and declined 6% compared to fiscal 2001 net sales of $336,291,000.
Similarly, compared to net sales in fiscal 2000 totaling $368,374,000, fiscal
2001 sales declined by $32,083,000, or 9%. Of influence throughout all of this
segment's product lines in fiscal 2002 and 2001 was the presence of generally
softer economic conditions. The decline in both years was primarily attributable
to year-over-year declines in candle sales to mass merchants. This trend was
first experienced beginning the second half of fiscal 2000. Factors contributing
to the decline in the sales of the segment's candles were an apparent softening
in the consumer demand of candles within the mass market, heightened competition
from imported product and the development of substantially more competitive
market pricing conditions.
11
The segment's operating income totaled $10,547,000 during fiscal 2002, a
78% decline from the prior year's total of $47,154,000. Compared to fiscal 2000
operating income of $76,756,000, fiscal 2001 income declined by 39%. Over the
last two years, in addition to the effects of the lower volume and competitive
pricing conditions, income was adversely affected by a less favorable sales mix,
and lower production levels leading to greater amounts of unabsorbed overhead in
both candle and glassware manufacturing operations.
Affecting just fiscal 2002 results was the January 2002 bankruptcy filing
of Kmart Corporation. In addition to recording a related bad debt provision of
$14.3 million during fiscal 2002, the segment's sales to this customer have been
adversely affected by the impact of the reorganization process on Kmart
Corporation's sales. Other issues negatively impacting fiscal 2002 results were
expenses associated with a prolonged labor strike at a consumer glassware
facility and unabsorbed costs associated with a scheduled rebuild of a glass
melting tank. The foregoing issues were somewhat mitigated by the benefit of
liquidations of LIFO inventory acquired at lower costs in prior years. Such
liquidations reduced cost of sales by $3,300,000 in fiscal 2002. Many of the
effects of the decline in sales volume persist into fiscal 2003, and management
is reviewing how to most optimally utilize the capacity of this segment's
manufacturing facilities, including its two consumer glassware facilities in
particular.
SEGMENT REVIEW - AUTOMOTIVE
Net sales of the Automotive segment during fiscal 2002 totaled
$235,156,000, a 1% decline from the prior year's sales level of $238,648,000.
Fiscal 2001 sales declined 9% from the record sales level of $261,340,000
achieved in fiscal 2000.
Consistent with the trend noted in fiscal 2001, the overall sales of
aluminum truck accessories in fiscal 2002 increased as a result of new product
lines being sold to original equipment manufacturers ("OEMs"). However,
generally more unsettled economic conditions that began in fiscal 2001 adversely
impacted the sales of many of the segment's other products, especially in the
aftermarket. Additionally, certain floor mat lines with OEMs were exited during
2001 based on management's analysis that an adequate contribution margin would
not be provided in the future.
Operating income of the Automotive segment totaled $15,489,000 for fiscal
2002, a substantial increase from the prior year's total of $673,000. The
improvement in fiscal 2002 results was primarily attributable to greater
production efficiencies achieved within the floor mat operations, generally
lower material costs, less need for inventory obsolescence provisions and higher
capacity utilization occurring within the aluminum accessory operations. Price
reductions among certain OEM programs mitigated the extent of the increase in
segment income.
Compared to fiscal 2000 operating income of $7,452,000, segment income in
fiscal 2001 declined 91%. This decline was influenced by the lower sales volume,
a less favorable sales mix, the impact of scheduled price reductions with
certain OEMs, somewhat higher raw material costs and the lower volume leading to
less overhead absorption. The decision to exit certain low margin floor mat
lines in fiscal 2001 also resulted in additional inventory obsolescence reserves
being provided.
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 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 2002, sales to OEMs
comprised 63% of this segment's sales compared to 60% and 57% in 2001 and 2000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The continued strength of cash flows from operations resulted in the
Company becoming debt-free during the fiscal year ended June 30, 2002.
Management believes that this low level of leverage provides the Company with
considerable flexibility to acquire businesses complementary in function to that
of the Company's existing operations, continue historical levels of share
repurchases and otherwise meet ongoing liquidity requirements.
12
The Company maintains a revolving credit arrangement with several
commercial banks totaling $125,000,000. Terms of the related agreement allow for
borrowings to occur at or below the U.S. prime rate of interest. During fiscal
2002, the expiration date of this agreement was extended by one year to February
2005 with all other terms and conditions remaining otherwise unchanged.
Management believes that internally generated funds, the existing credit
facilities and an ability to obtain additional financing, if desired, will be
sufficient to meet operating requirements and fund future foreseeable capital
needs.
The Company's cash flows for the fiscal years 2000 through 2002 are
presented in the Consolidated Statements of Cash Flows. Cash flow generated from
operations remains the primary source of financing the Company's internal
growth. Cash provided from operating activities in fiscal 2002 totaled
$160,325,000, a 27% increase over the prior year's total of $126,212,000 and 25%
over the fiscal 2000 total of $128,530,000. Reductions in inventory led to the
improved fiscal 2002 amounts. Similarly-sized working capital reductions are not
expected to reoccur in fiscal 2003.
Within working capital, accounts receivable at June 30, 2002 increased
slightly above year ago levels by approximately 1% and inventories decreased
nearly 20%. Consolidated accounts receivable levels benefited from an increased
mix of specialty foods sales, while inventories within the non-food segments
fell due, in part, to a concentrated effort over the last year to more closely
align inventory levels with the decline in segment sales volumes.
During fiscal 2002, no business acquisitions were consummated although
payments totaling $2,250,000 were made as required under the terms of a
contingent payment arrangement associated with a business acquired in fiscal
2001. The single largest purpose of cash flows used in investing activities
during fiscal 2001 was for business acquisitions. Two such acquisitions, both in
the Specialty Foods segment, were made that required an aggregate expenditure of
$49,831,000 net of cash acquired.
Other cash flows used in investing activities during fiscal 2002 included
capital expenditures totaling $22,546,000, compared to $22,632,000 in fiscal
2001 and $24,564,000 in fiscal 2000.
Financing activities of the Company used net cash totaling $55,678,000,
$49,443,000 and $116,000,000 in fiscals 2002, 2001 and 2000 respectively. Cash
utilized for share repurchases totaled $28,275,000, $22,742,000 and $75,101,000
in 2002, 2001 and 2000, respectively. In May 2000, the Company's Board of
Directors approved a share repurchase authorization of 3,000,000 shares of which
approximately 1,731,000 remained authorized for future purchase as of June 30,
2002.
Total dividend payments for 2002 were $26,128,000 which was nearly 4%
greater than the 2001 total of $25,176,000. This increase reflects the higher
dividend payout rate of $.71 present during 2002 as compared to $.67 during 2001
and $.63 in fiscal 2000. Fiscal 2002 marks the 39th consecutive year in which
the Company's dividend rate was increased. The future levels of share
repurchases 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.
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.
The Company is contingently liable with respect to lawsuits, taxes and
various other matters that routinely arise in the normal course of business. The
Company does not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"Special Purpose Entities." Additionally, the Company does not have any related
party transactions that materially affect the results of operations, cash flow
or financial condition.
IMPACT OF INFLATION
Raw material costs were generally stable or declining during fiscal 2002
with the non-food segments receiving some benefit. Energy costs, a significant
input to glassware production, abated from the record high costs incurred in
fiscal 2001 but remained at levels above that experienced historically.
13
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. If implemented, such adjustments tend
to lag the increase in costs incurred. Minimizing 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Results of Operations and Financial
Condition discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates and judgments, including those
related to accounts receivable, inventories, marketing and distribution costs
and self-insurance reserves. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. While a summary of the
Company's significant accounting policies can be found in Note 1 to the
consolidated financial statements, which is included in Part II, Item 8 of this
Form 10-K, management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
REVENUE RECOGNITION
Customer sales are recognized when revenue is realized and earned. The
Company recognizes revenue when the risk and title passes to the customer,
generally at the time of shipment. Customer sales are recorded net of allowances
for estimated returns, trade promotions and other discounts, which are
recognized as a deduction from sales at the time of sale.
RECEIVABLES AND THE ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for doubtful accounts based on the aging
of accounts receivable balances and historical write-off experience and on-going
reviews of its trade receivables. Measurement of potential losses requires
credit review of existing customer relationships, consideration of historical
loss experience, including the need to adjust for current conditions, and
judgments about the probable effects of relevant observable data, including
present economic conditions such as delinquency rates and the economic health of
customers. In addition to credit concerns, the Company also evaluates the
adequacy of its allowances for customer deductions. Various factors such as
unanticipated changes in the economy or financial well-being of customers may
significantly impact the needed levels of these allowances.
VALUATION OF INVENTORY
When necessary, the Company provides allowances to adjust the carrying
value of its inventory to the lower of cost or net realizable value, including
any costs to sell or dispose. The determination of whether inventory items are
slow moving, obsolete or in excess of needs requires estimates about the future
demand for the Company's products. The estimates as to future demand used in the
valuation of inventory are subject to the ongoing success of its products. In
addition, the Company's allowance for obsolescence may be impacted by the number
of stock-keeping units. A decrease in product demand due to changing customer
tastes, consumer buying patterns or loss of shelf space to competitors could
significantly impact the Company's evaluation of its excess and obsolete
inventories. The valuation during interim periods of inventories determined
under the LIFO method of accounting requires estimations regarding the year-end
mix of inventory quantities and costs of product. Such estimates may differ
from the actual due to such factors as changes in customer demand and
production schedules.
14
ACCRUED MARKETING AND DISTRIBUTION
Various marketing programs are offered to customers which reimburse them
for a portion or all of their promotional activities related to the Company's
products. Additionally, the Company often incurs various costs associated with
shipping products to the customer. The Company provides accruals for the costs
of marketing and distribution based on historical information as may be modified
by estimates of actual costs incurred. Actual costs may differ significantly if
factors such as the level and success of the customers' programs, changes in
customer utilization practices, or other conditions differ from expectations.
ACCRUALS FOR SELF-INSURANCE
Self-insurance accruals are made for certain claims associated with
employee health care, workers' compensation and general liability insurance.
These accruals include estimates that may be based on historical loss
development factors. Differences in estimates and assumptions could result in an
accrual requirement materially different from the calculated accrual.
The preparation of all consolidated financial statements includes the use
of estimates and assumptions that affect a number of amounts included in the
Company's consolidated financial statements. The Company bases its estimates on
historical experience and other assumptions which it believes are reasonable. If
actual amounts are ultimately different from previous estimates, the revisions
are included in the Company's results for the period in which the actual amounts
become known. Historically, the aggregate differences, if any, between the
Company's estimates and actual amounts in any year have not had a significant
impact on the Company's consolidated financial statements.
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
but are not limited to:
- fluctuations in material costs;
- the continued solvency of key customers;
- efficiencies in plant operations, including the ability to optimize
overhead utilization in non-food operations;
- stability of labor relations;
- the success and cost of new product development efforts;
- the effect of consolidation of customers within key market channels;
- the possible occurrence of business acquisitions;
- maintenance of competitive position with respect to other
manufacturers, including import sources of production; 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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 subsidiaries as of June 30, 2002 and 2001, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended June 30, 2002. Our audits also
included the consolidated financial statement schedule listed in the Table of
Contents at Item 14. These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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 subsidiaries as of June 30, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2002, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Columbus, Ohio
August 22, 2002
16
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
Years Ended June 30
-----------------------------------------------------
2002 2001 2000
---------------- --------------- ---------------
NET SALES.......................................... $ 1,129,687,000 $ 1,092,653,000 $ 1,090,696,000
COST OF SALES...................................... 876,122,000 836,932,000 817,196,000
---------------- --------------- ---------------
GROSS MARGIN....................................... 253,565,000 255,721,000 273,500,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 119,196,000 108,047,000 111,551,000
---------------- --------------- ---------------
OPERATING INCOME................................... 134,369,000 147,674,000 161,949,000
OTHER INCOME (EXPENSE):
Interest expense................................ (54,000) (1,239,000) (1,588,000)
Interest income and other-net................... 15,027,000 (550,000) (172,000)
---------------- --------------- ---------------
INCOME BEFORE INCOME TAXES......................... 149,342,000 145,885,000 160,189,000
TAXES BASED ON INCOME.............................. 57,402,000 55,649,000 60,925,000
---------------- --------------- ---------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE............................... 91,940,000 90,236,000 99,264,000
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX BENEFIT OF $619,000.................. (998,000)
---------------- --------------- ---------------
NET INCOME ........................................ $ 91,940,000 $ 89,238,000 $ 99,264,000
================ =============== ===============
NET INCOME PER COMMON SHARE:
Before Cumulative Effect of Accounting Change:
Basic and Diluted............................. $2.49 $2.40 $2.51
Cumulative Effect of Accounting Change:
Basic and Diluted............................. (.03)
After Cumulative Effect of Accounting Change:
Basic and Diluted............................. $2.49 $2.37 $2.51
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic......................................... 36,850,000 37,618,000 39,498,000
Diluted....................................... 36,910,000 37,636,000 39,554,000
See Notes to Consolidated Financial Statements
17
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND 2001
June 30
----------------------------------
2002 2001
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and equivalents............................................... $ 83,378,000 $ 4,873,000
Receivables (less allowance for doubtful accounts,
2002-$3,414,000; 2001-$3,167,000)................................ 109,350,000 107,895,000
Inventories:
Raw materials and supplies....................................... 43,670,000 48,435,000
Finished goods and work in process............................... 104,581,000 135,952,000
-------------- --------------
Total inventories................................................ 148,251,000 184,387,000
Prepaid expenses and other current assets.......................... 25,121,000 20,450,000
-------------- --------------
Total current assets........................................... 366,100,000 317,605,000
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements................................... 117,608,000 116,661,000
Machinery and equipment............................................ 336,063,000 320,477,000
-------------- --------------
Total cost....................................................... 453,671,000 437,138,000
Less accumulated depreciation...................................... 287,728,000 263,969,000
-------------- --------------
Property, plant and equipment-net.............................. 165,943,000 173,169,000
OTHER ASSETS:
Goodwill (net of accumulated amortization,
2002-$15,136,000; 2001-$12,456,000).............................. 72,677,000 73,397,000
Other.............................................................. 13,985,000 12,181,000
-------------- --------------
TOTAL........................................................ $ 618,705,000 $ 576,352,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank loans.............................................. $ $ 4,500,000
Current portion of long-term debt.................................. 1,945,000
Accounts payable................................................... 43,258,000 41,565,000
Accrued liabilities................................................ 46,046,000 48,699,000
-------------- --------------
Total current liabilities...................................... 89,304,000 96,709,000
LONG-TERM DEBT-less current portion................................... 1,095,000
OTHER NONCURRENT LIABILITIES.......................................... 15,890,000 7,346,000
DEFERRED INCOME TAXES................................................. 12,234,000 11,301,000
SHAREHOLDERS' EQUITY:
Preferred stock-authorized 3,050,000 shares;
Outstanding-none
Common stock-authorized 75,000,000 shares;
Outstanding, 2002-36,598,239; 2001-37,253,216.................... 61,919,000 55,229,000
Retained earnings.................................................. 752,534,000 686,722,000
Accumulated other comprehensive (loss) income...................... (2,752,000) 99,000
-------------- --------------
Total............................................................ 811,701,000 742,050,000
Common stock in treasury, at cost.................................. (310,424,000) (282,149,000)
-------------- --------------
Total shareholders' equity......................................... 501,277,000 459,901,000
-------------- --------------
TOTAL........................................................ $ 618,705,000 $ 576,352,000
============== ==============
See Notes to Consolidated Financial Statements
18
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
Years Ended June 30
------------------------------------------------
2002 2001 2000
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 91,940,000 $ 89,238,000 $ 99,264,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization.................... 35,287,000 35,528,000 34,340,000
Provision for losses on accounts receivable...... 16,405,000 2,038,000 5,081,000
Deferred income taxes and other noncash charges.. (1,754,000) (4,255,000) (121,000)
Loss (gain) on sale of property.................. 144,000 (420,000) 89,000
Changes in operating assets and liabilities:
Receivables.................................... (17,860,000) 10,653,000 (804,000)
Inventories.................................... 36,136,000 (7,232,000) (6,059,000)
Prepaid expenses and other current assets...... 329,000 307,000 (338,000)
Accounts payable and accrued liabilities....... (302,000) 355,000 (2,922,000)
------------- ------------- -------------
Net cash provided by operating activities.... 160,325,000 126,212,000 128,530,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on property additions.................... (22,546,000) (22,632,000) (24,564,000)
Acquisitions net of cash acquired................. (2,250,000) (49,831,000) (400,000)
Proceeds from sale of property.................... 336,000 766,000 78,000
Other-net......................................... (1,699,000) (2,839,000) (3,857,000)
------------- ------------- -------------
Net cash used in investing activities....... (26,159,000) (74,536,000) (28,743,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term bank loans............... (4,500,000) (3,750,000) 8,250,000
Payment of dividends.............................. (26,128,000) (25,176,000) (24,747,000)
Purchase of treasury stock........................ (28,275,000) (22,742,000) (75,101,000)
Payments on long-term debt, including acquisition
debt payoff..................................... (3,040,000) (836,000) (25,520,000)
Common stock issued, including stock issued upon
exercise of stock options....................... 6,265,000 3,061,000 1,118,000
------------- ------------- -------------
Net cash used in financing activities....... (55,678,000) (49,443,000) (116,000,000)
------------- ------------- -------------
Effect of exchange rate changes on cash.............. 17,000 (16,000) 9,000
------------- ------------- -------------
Net change in cash and equivalents................... 78,505,000 2,217,000 (16,204,000)
Cash and equivalents at beginning of year............ 4,873,000 2,656,000 18,860,000
------------- ------------- -------------
Cash and equivalents at end of year.................. $ 83,378,000 $ 4,873,000 $ 2,656,000
============= ============= =============
See Notes to Consolidated Financial Statements
19
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
COMMON STOCK ACCUMULATED
OUTSTANDING OTHER TOTAL
----------------------- RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT EARNINGS INCOME/(LOSS) STOCK EQUITY
---------- ----------- ------------ ------------- ------------- -------------
BALANCE, JUNE 30, 1999........... 40,547,796 $50,912,000 $548,143,000 $ 106,000 $(184,306,000) $414,855,000
---------- ----------- ------------ ----------- ------------- ------------
Net income....................... 99,264,000 99,264,000
Translation adjustment........... 9,000 9,000
------------
COMPREHENSIVE INCOME............. 99,273,000
------------
Cash dividends -
common stock
($.63 per share).............. (24,747,000) (24,747,000)
Purchase of treasury shares...... (2,631,032) (75,101,000) (75,101,000)
Shares issued upon
exercise of stock
options including
related tax benefits.......... 45,653 1,203,000 1,203,000
---------- ----------- ------------ ----------- ------------- ------------
BALANCE, JUNE 30, 2000........... 37,962,417 52,115,000 622,660,000 115,000 (259,407,000) 415,483,000
---------- ----------- ------------ ----------- ------------- ------------
Net income....................... 89,238,000 89,238,000
Translation adjustment........... (16,000) (16,000)
------------
COMPREHENSIVE INCOME............. 89,222,000
------------
Cash dividends -
common stock
($.67 per share).............. (25,176,000) (25,176,000)
Purchase of treasury shares...... (826,379) (22,742,000) (22,742,000)
Shares issued upon
exercise of stock
options including
related tax benefits.......... 117,178 3,114,000 3,114,000
---------- ----------- ------------ ----------- ------------- ------------
BALANCE, JUNE 30, 2001........... 37,253,216 55,229,000 686,722,000 99,000 (282,149,000) 459,901,000
---------- ----------- ------------ ----------- ------------- ------------
Net income....................... 91,940,000 91,940,000
Translation adjustment........... 17,000 17,000
Minimum pension
liability, net of
$1,777,000 tax effect......... (2,868,000) (2,868,000)
------------
COMPREHENSIVE INCOME............. 89,089,000
------------
Cash dividends -
common stock
($.71 per share).............. (26,128,000) (26,128,000)
Purchase of treasury shares...... (869,200) (28,275,000) (28,275,000)
Shares issued upon
exercise of stock
options including
related tax benefits.......... 214,223 6,690,000 6,690,000
---------- ----------- ------------ ----------- ------------- ------------
BALANCE, JUNE 30, 2002........... 36,598,239 $61,919,000 $752,534,000 $(2,752,000) $(310,424,000) $501,277,000
========== =========== ============ =========== ============= ============
See Notes to Consolidated Financial Statements
20
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lancaster Colony Corporation and its wholly-owned subsidiaries, collectively
referred to as the "Company." All significant intercompany transactions and
accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements of the Company in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Significant estimates included in these consolidated financial statements
include allowance for doubtful accounts receivable, net realizable value of
inventories, useful lives for depreciation and amortization, accruals for
marketing and merchandising programs, distribution and self-insured related
expenses. 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. As a result of the
Company's cash management system, checks issued but not presented to the banks
for payment may create negative book cash balances. Such negative balances are
included in other accrued liabilities and totaled $4,503,000 and $4,969,000 as
of June 30, 2002 and 2001, respectively.
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 three to forty-five years while machinery and equipment range from
three to twenty years. For tax purposes, the Company generally computes
depreciation using accelerated methods.
GOODWILL
For financial reporting purposes goodwill has been 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
diminution 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. See discussion under "Recently Issued Accounting
Standards" herein regarding the accounting for goodwill in future fiscal years.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 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.
As a result, the Company adopted a change in the method of accounting for
shipments to customers and cumulatively applied this change as if it had
occurred on July 1, 2000. Historically, net sales and related cost of sales were
recognized upon shipment of the products. Under the new accounting method, the
Company recognizes net sales and related cost of sales at the time of shipment
of the products, or at the time when all substantial risks of ownership change,
if later. The effect of the change was a one-time charge of $998,000 (net of tax
benefit of $619,000), or approximately $.03 per share, which is reflected as a
cumulative effect of an accounting change in the fiscal 2001 income statement.
Net sales are recorded net of estimated sales discounts, returns and other
applicable promotional type expenses.
21
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In April 2001, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") reached a consensus on Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which was later codified by EITF Issue No. 01-9. The
EITF concluded that certain sales incentives which were classified as selling
expenses be recorded as a reduction of revenue. The Company adopted this
guidance during the quarter ended December 31, 2001. The adoption of EITF 00-25
had no impact on the Company's net income and all applicable expenses have been
reclassified from selling to net sales for all years presented to conform with
the new presentation requirements.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
OTHER INCOME
In February 2002, consistent with notice previously provided to the Company
by the U.S. Treasury Department in January, the Company received approximately
$15.6 million under the Continued Dumping and Subsidy Offset Act of 2000. This
amount was recorded within fiscal 2002 as other income in the accompanying
financial statements.
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.
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, trade
accounts receivable and debt. The carrying amounts of these financial
instruments approximates fair value. 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 2002, 2001 and 2000 is included in
Note 13 of the consolidated financial statements.
22
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
COMPREHENSIVE INCOME
Comprehensive income includes changes in equity that result from
transactions and economic events from nonowner sources. Comprehensive income is
composed of two subsets - net income and other comprehensive income/(loss).
Included in other comprehensive income/(loss) for the Company are foreign
currency translation adjustments for which there are no related income tax
effects and a minimum pension liability adjustment which is recorded net of a
related tax benefit of $1,777,000. These adjustments are accumulated within the
Consolidated Statements of Shareholders' Equity under the caption Accumulated
Other Comprehensive Income/(Loss). As of June 30, 2002 and 2001, accumulated
other comprehensive income/(loss), as reflected in the Consolidated Statements
of Shareholders' Equity, was comprised of the following:
(DOLLARS IN THOUSANDS) 2002 2001
---------------------- ---------- ---------
Cumulative translation adjustments..................................... $ 116 $ 99
Minimum pension liability adjustment................................... (2,868)
------- ----
$(2,752) $ 99
======= ====
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective July 1, 2002, the Company is required to adopt the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," which requires goodwill and indefinite-lived
intangible assets to no longer be amortized but reviewed annually for
impairment, or more frequently if impairment indicators arise. Intangible assets
with lives restricted by contractual, legal or other means will continue to be
amortized over their useful lives. Amortization of goodwill and other
intangibles for 2002, 2001 and 2000 was $2,680,000, $2,102,000 and $1,470,000,
respectively. Of the $72.7 million in goodwill at June 30, 2002, approximately
$71.5 million, $1.0 million and $.2 million relates to the Specialty Foods,
Automotive and Glassware and Candles segments, respectively. The Company has not
yet completed its initial asset impairment assessment as required in adopting
SFAS No. 142.
Also effective July 1, 2002, the Company is required to adopt the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets to be held and used, to be
disposed of other than by sale, and to be disposed of by sale. The adoption of
this Statement is not expected to have a material impact on the Company's
results of operations or financial condition.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement amends FASB Statement
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions; and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002. The adoption of this Statement is
not expected to have a material impact on the Company's financial position or
results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 2002.
23
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - ACQUISITIONS
During March 2001, the Company acquired all the outstanding stock of Ausmac
Inc., producer of Mamma Bella brand specialty frozen breads, for cash of
$15,257,000, net of cash acquired. During September 2000, the Company acquired
all of the outstanding stock of Sister Schubert's Homemade Rolls, Inc. for
$32,444,000, net of cash acquired. Sister Schubert's is a manufacturer and
marketer of frozen, partially baked yeast rolls and related products. The
Company made additional payments of $2,250,000 and $2,130,000 in fiscal years
2002 and 2001, respectively, as required under the terms of a contingent payment
arrangement associated with this acquisition. This contingent payment
arrangement continues through calendar 2003 and is based largely on the future
annual level of Sister Schubert's earnings, as defined. During January 2000, the
Company acquired certain assets of a glass container distributor for cash of
approximately $400,000.
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.
NOTE 3 - INVENTORIES
Inventories are valued at the lower of cost or market. Inventories which
comprise approximately 18% and 21% of total inventories at June 30, 2002 and
2001, respectively, are costed on a last-in, first-out ("LIFO") basis.
Replacement cost for this inventory would have been higher by approximately
$14,494,000 and $17,976,000 at June 30, 2002 and 2001, respectively. Inventories
which are costed by various other methods approximate actual cost on a first-in,
first-out ("FIFO") basis. During fiscal 2002, certain inventory quantity
reductions resulted in a liquidation of LIFO inventory layers carried at lower
costs which prevailed in prior years. The fiscal 2002 effect of the liquidation
was an increase in net earnings of approximately $2 million after taxes, or
approximately five cents per share.
It is not practicable to segregate work in process from finished goods
inventories. Management estimates, however, that work in process inventories
amount to approximately 11% and 9% of the combined total of finished goods and
work in process inventories at June 30, 2002 and 2001, respectively.
NOTE 4 - SHORT-TERM BORROWINGS
The Company has the ability to borrow up to $125,000,000 under the terms of
an unsecured revolving credit facility. The facility expires in February 2005
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. At June 30, 2002, the
Company was in compliance with all provisions of the facility and there were no
amounts outstanding under the facility.
As of June 30, 2002, 2001 and 2000, the Company had lines of credit for
short-term borrowings from various banks of $25,000,000, $25,000,000 and
$70,000,000, respectively. The lines of credit have been granted at the
discretion of the lending banks and, generally, are subject to periodic review.
As of June 30, 2001, the Company had short-term borrowings outstanding of
$4,500,000 under such an arrangement with a weighted average interest rate of
4.2%.
24
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities at June 30, 2002 and 2001 are composed of:
(DOLLARS IN THOUSANDS) 2002 2001
-------------------- --------- ---------
Accrued compensation and employee benefits.............................. $ 31,065 $ 28,640
Accrued marketing and distribution...................................... 5,765 7,480
Income and other taxes.................................................. 372 2,035
Other................................................................... 8,844 10,544
--------- ---------
Total accrued liabilities............................................... $ 46,046 $ 48,699
========= =========
NOTE 6 - LONG-TERM DEBT
As of June 30, 2002, the Company had no outstanding long-term debt.
Long-term debt (including current portion) at June 30, 2001 consisted of:
(DOLLARS IN THOUSANDS) 2001
-------------------- --------
Obligations with various industrial development authorities -
collateralized by real estate and equipment - floating rate due
in installments to December 1, 2005................................................. $ 3,040
Less current portion.................................................................... 1,945
--------
Long-term debt.......................................................................... $ 1,095
========
No material debt was assumed for the purchase of property additions in
2002, 2001 and 2000. Cash payments for interest (including interest paid on
short-term borrowings) were $83,000, $1,248,000 and $2,511,000 for 2002, 2001
and 2000, respectively.
NOTE 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, 2002, 2001
and 2000, have been provided as follows:
(DOLLARS IN THOUSANDS) 2002 2001 2000
-------------------- -------- -------- ---------
Currently payable:
Federal................................................... $ 52,952 $ 48,646 $ 53,623
State and local........................................... 6,709 6,755 7,142
-------- -------- ---------
Total current provision..................................... 59,661 55,401 60,765
Deferred Federal, state and local (credit) provision........ (2,259) (371) 160
-------- -------- ---------
Total taxes based on income................................. $ 57,402 $ 55,030 $ 60,925
======== ======== =========
Tax expense resulting from allocating certain tax benefits directly to
common stock totaled $425,000, $53,000 and $85,000 for 2002, 2001 and 2000,
respectively. The Company's effective tax rate varies from the statutory Federal
income tax rate as a result of the following factors:
2002 2001 2000
-------- -------- ---------
Statutory rate.............................................. 35.0% 35.0% 35.0%
State and local income taxes................................ 2.9% 3.0% 2.9%
Other....................................................... 0.5% 0.1% 0.1%
------ ------ ------
Effective rate.............................................. 38.4% 38.1% 38.0%
====== ====== ======
25
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred income taxes recorded in the Consolidated Balance Sheets at June
30, 2002 and 2001 consist of the following:
2002 2001
(DOLLARS IN THOUSANDS) -------- ---------
----------------------
Deferred tax assets (liabilities):
Inventories........................................................... $ 6,784 $ 6,928
Employee medical and other benefits................................... 9,298 7,890
Receivable and other valuation allowances............................. 7,173 3,878
Other accrued liabilities............................................. 3,443 3,218
-------- ---------
Total deferred tax assets............................................... 26,698 21,914
-------- ---------
Total deferred tax liabilities-property and other....................... (16,932) (16,215)
-------- ---------
Net deferred tax asset.................................................. $ 9,766 $ 5,699
======== =========
Net current deferred tax assets totaled approximately $22,000,000 and
$17,000,000 for 2002 and 2001, respectively, and were included in prepaid
expenses and other current assets. Cash payments for income taxes were
$60,997,000, $54,008,000 and $63,862,000 for 2002, 2001 and 2000, respectively.
NOTE 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 May 2000, the Company's Board of Directors approved a share repurchase
authorization of 3,000,000 shares of which approximately 1,731,000 remained
authorized for future purchase as of June 30, 2002.
NOTE 9 - STOCK OPTIONS
Under the terms of the 1995 Key Employee Stock Option Plan ("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, 2002, 2,239,220 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.
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.
26
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes for each of the three years in the period ended
June 30, 2002 the activity relating to stock options granted under the 1995 Plan
mentioned above as well as those granted under a separate shareholder approved
plan that expired in May 1995:
2002 2001 2000
---------------- ----------------- ----------------
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... 478,330 $ 28.80 380,946 $26.98 430,149 $26.75
Exercised.......................... (214,223) 29.25 (117,178) 26.12 (45,653) 24.54
Granted............................ 370,250 29.52
Forfeited.......................... (1,128) 29.92 (155,688) 28.08 (3,550) 27.13
------- ------- ------- ----- --------- ------
Outstanding at end of the period..... 262,979 $ 28.42 478,330 $28.80 380,946 $26.98
======= ======= ======= ====== ========= ======
Exercisable at end of period......... 224,547 $ 28.93 417,569 $29.29 294,437 $27.46
======= ======= ======= ====== ======= ======
The weighted average fair value of options granted during fiscal year 2001
was $6.96.
The following table summarizes information about the options outstanding at
June 30, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------- -----------------------------
WEIGHTED AVERAGE
----------------
REMAINING
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER WEIGHTED AVERAGE
GRANT YEARS EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISE PRICE
----------- --------------- ------------------------- ----- ----------- --------------
1995 $22.25 26,982 2.59 $22.25 9,006 $22.25
1999 $27.13 40,000 2.22 $27.13 29,544 $27.13
2001 $29.50-$32.45 195,997 3.80 $29.54 185,997 $29.54
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 2001: risk free interest rate of 5.52%;
dividend yield of 2.03%; volatility factor of the expected market price of the
Company's common stock of 33.71%; and a weighted average expected option life of
2.59 years.
Had compensation cost for the 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 the years ended June 30:
(DOLLARS IN THOUSANDS EXCEPT PER SHARE FIGURES) 2002 2001 2000
--------------------------------------------- ------- ------- --------
Net income............................. As reported $91,940 $89,238 $ 99,264
....................................... Pro forma $91,799 $88,434 $ 99,078
Earnings per Share:
Basic and Diluted.................... As reported $ 2.49 $ 2.37 $ 2.51
Basic................................ Pro forma $ 2.49 $ 2.35 $ 2.51
Diluted.............................. Pro forma $ 2.49 $ 2.35 $ 2.50
NOTE 10 - PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and certain of its operating subsidiaries provide multiple
defined benefit pension and postretirement medical and life insurance benefit
plans. Benefits under 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. Benefits are funded as incurred.
27
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) 2002 2001 2002 2001
-------------------- ------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........... $29,405 $ 27,975 $ 2,646 $ 2,657
Service cost...................................... 630 610 122 128
Interest cost..................................... 2,124 2,009 182 193
Amendments........................................ 114 756
Actuarial loss (gain)............................. 2,536 296 712 (63)
Prior service cost................................ (104)
Benefits paid..................................... (2,200) (2,241) (244) (165)
------- -------- -------- --------
Benefit obligation at end of year................. $32,609 $ 29,405 $ 3,418 $ 2,646
------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.... $32,133 $ 32,881
Actual return on plan assets...................... (1,073) 975
Employer contribution............................. 708 518 $ 244 $ 165
Benefits paid..................................... (2,200) (2,241) (244) (165)
------- -------- -------- --------
Fair value of plan assets at end of year.......... $29,568 $ 32,133
------- -------- -------- --------
RECONCILIATION OF FUNDED STATUS
(Under) over funded status........................ $(3,041) $ 2,728 $ (3,418) $ (2,646)
Unrecognized net actuarial loss (gain)............ 4,854 (1,541) (28) (774)
Unrecognized prior service cost (asset)........... 2,988 3,114 (97) (104)
Unrecognized net transition obligation............ 83 114
------- -------- -------- --------
Prepaid (accrued) benefit cost.................... $ 4,884 $ 4,415 $ (3,543) $ (3,524)
======= ======== ======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS CONSIST OF
Prepaid benefit cost(1)........................... $ 4,884 $ 4,415
Accrued benefit liability(2)...................... (7,306) $ (3,543) $ (3,524)
Intangible asset(1)............................... 2,661
Accumulated other comprehensive loss.............. 4,645
------- -------- -------- --------
Net amount recognized............................. $ 4,884 $ 4,415 $ (3,543) $ (3,524)
======= ======== ======== ========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
Discount rate..................................... 6.95% 7.25% 6.95% 7.25%
Expected return on plan assets.................... 9.00% 9.00%
- ------------------
(1) Recorded in other noncurrent assets
(2) Recorded in other noncurrent liabilities
For measurement purposes, annual increases in medical costs for fiscal 2002
are assumed to total approximately 8% per year and gradually decline to 5% by
approximately the year 2008 and remain level thereafter. Annual increases in
medical costs for fiscal 2001 were assumed to total approximately 6% per year
and gradually decline to 5% by approximately the year 2003 and remain level
thereafter.
28
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------- ------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2000 2002 2001 2000
-------------------- ------- ------- ------- ------ ------ -----
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.............................. $ 630 $ 610 $ 625 $ 122 $ 128 $ 111
Interest cost............................. 2,124 2,009 1,954 182 193 199
Expected return on plan assets............ (2,794) (2,871) (3,072)
Amortization of unrecognized
net loss (gain)......................... 8 (54) (203) (34) (31) (25)
Amortization of prior service cost (asset) 240 240 199 (7)
Amortization of unrecognized net
obligation existing at transition....... 31 31 32
------- ------- ------- ----- ------ ------
Net periodic benefit cost (benefit)....... $ 239 $ (35) $ (465) $ 263 $ 290 $ 285
======= ======= ======= ===== ====== ======
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 $3,620,000 and $4,601,000 as of June 30, 2002 and 2001,
respectively.
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-POINT 1-PERCENTAGE-POINT
(DOLLARS IN THOUSANDS) INCREASE DECREASE
-------------------- ----------------- ------------------
Effect on total of service and interest cost components......... $ 27 $ (23)
Effect on postretirement benefit obligation as of June 30, 2002. $ 214 $ (187)
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 $3,423,000,
$3,277,000 and $2,920,000 in 2002, 2001 and 2000, 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 $896,000, $815,000 and $811,000 for the
years ended June 30, 2002, 2001 and 2000, 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 ESOP at
that time were immediately 100% vested. The Company has no further obligation to
the ESOP.
NOTE 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):
2003-$4,606; 2004-$3,585; 2005-$2,384; 2006-$1,236; 2007-$693; thereafter-
$1,470.
29
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Total rent expense, including short-term cancelable leases, during fiscal
years ended June 30, 2002, 2001 and 2000 is summarized as follows:
(DOLLARS IN THOUSANDS) 2002 2001 2000
-------------------- ------ ------ -------
Operating leases:
Minimum rentals............................................... $5,130 $4,866 $ 4,427
Contingent rentals............................................ 392 340 452
Short-term cancelable leases.................................... 2,706 3,256 2,696
------ ------ -------
Total....................................................... $8,228 $8,462 $ 7,575
====== ====== =======
NOTE 12 - CONTINGENCIES AND ENVIRONMENTAL MATTERS
At June 30, 2002, 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 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.
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. In December 2001, the
Company settled this litigation. The effect of this settlement on the Company's
financial results was not significant.
NOTE 13 - BUSINESS SEGMENTS 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."
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; dry and frozen egg
noodles; caviar; frozen ready-to-bake pies; frozen hearth-baked breads; and
frozen yeast rolls. Salad dressings, sauces, frozen egg noodles, frozen bread
products and frozen yeast rolls 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 for original equipment
manufacturers, importers and the auto aftermarket of rubber, vinyl and
carpet-on-rubber floor mats; truck and trailer splash guards; pickup truck bed
mats; aluminum accessories for pickup trucks and vans; and a broad line of
additional automotive 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 2001 and 2000 capital expenditures of the segments include property
relating to business acquisitions as follows:
SEGMENT 2001 2000
------- ----------- --------
Specialty Foods..................................................... $7,814,000
Glassware and Candles............................................... $150,000
30
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following sets forth certain financial information attributable to the
Company's business segments for the three years ended June 30, 2002, 2001 and
2000:
(DOLLARS IN THOUSANDS) 2002 2001 2000
---------------------- ------------- ------------ ------------
NET SALES(1)
Specialty Foods............................... $ 579,940 $ 517,714 $ 460,982
Glassware and Candles......................... 314,591 336,291 368,374
Automotive.................................... 235,156 238,648 261,340
------------- ------------ ------------
Total..................................... $ 1,129,687 $ 1,092,653 $ 1,090,696
============= ============ ============
OPERATING INCOME
Specialty Foods............................... $ 113,710 $ 105,656 $ 83,372
Glassware and Candles......................... 10,547 47,154 76,756
Automotive.................................... 15,489 673 7,452
Corporate Expenses............................ (5,377) (5,809) (5,631)
------------- ------------ ------------
Total..................................... $ 134,369 $ 147,674 $ 161,949
============= ============ ============
IDENTIFIABLE ASSETS
Specialty Foods............................... $ 182,819 $ 187,249 $ 131,657
Glassware and Candles......................... 224,819 255,860 253,659
Automotive.................................... 104,872 110,650 126,819
Corporate..................................... 106,195 22,593 19,709
------------- ------------ ------------
Total..................................... $ 618,705 $ 576,352 $ 531,844
============= ============ ============
CAPITAL EXPENDITURES
Specialty Foods............................... $ 4,513 $ 13,451 $ 5,753
Glassware and Candles......................... 13,881 12,363 11,301
Automotive.................................... 4,138 4,502 7,544
Corporate..................................... 14 130 116
------------- ------------ ------------
Total..................................... $ 22,546 $ 30,446 $ 24,714
============= ============ ============
DEPRECIATION AND AMORTIZATION
Specialty Foods............................... $ 10,567 $ 9,698 $ 7,927
Glassware and Candles......................... 16,201 16,432 16,939
Automotive.................................... 8,299 9,207 9,327
Corporate..................................... 220 191 147
------------- ------------ ------------
Total..................................... $ 35,287 $ 35,528 $ 34,340
============= ============ ============
- ------------------------
(1) As is further discussed in Note 1 to the consolidated financial statements,
segment net sales have been restated in accordance with EITF No. 00-25 for
all years presented.
Net sales and long-lived assets are predominantly domestic.
Combined net sales from the three segments to one customer totaled
approximately $136,000,000 or 12% of consolidated fiscal 2002 net sales;
$120,000,000 or 11% of consolidated fiscal 2001 net sales and $112,000,000 or
10% of consolidated net sales in fiscal 2000.
31
LANCASTER COLONY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
DILUTED
EARNINGS
INCOME PER SHARE
BEFORE BEFORE
CUMULATIVE CUMULATIVE
EFFECT OF EFFECT OF DILUTED
(THOUSANDS EXCEPT NET GROSS ACCOUNTING NET ACCOUNTING EARNINGS
PER SHARE FIGURES) SALES(2) MARGIN(2) CHANGE INCOME CHANGE PER SHARE
------------------ ---------- ---------- ---------- -------- ---------- ---------
2002
FIRST QUARTER........... $ 264,929 $ 59,317 $20,341 $20,341 $ .55 $ .55
SECOND QUARTER(3)....... 311,873 70,353 17,423 17,423 .47 .47
THIRD QUARTER(4)........ 270,912 57,524 28,807 28,807 .78 .78
FOURTH QUARTER(5)....... 281,973 66,371 25,369 25,369 .69 .69
---------- --------- ------- ------- ----- -----
YEAR............... $1,129,687 $ 253,565 $91,940 $91,940 $2.49 $2.49
========== ========= ======= ======= ===== =====
2001(1)
First quarter........... $ 260,676 $ 60,531 $21,247 $20,249 $ .56 $ .53
Second quarter.......... 311,101 77,240 29,853 29,853 .79 .79
Third quarter........... 266,721 59,383 19,070 19,070 .51 .51
Fourth quarter.......... 254,155 58,567 20,066 20,066 .54 .54
---------- --------- ------- ------- ----- -----
Year............... $1,092,653 $ 255,721 $90,236 $89,238 $2.40 $2.37
========== ========= ======= ======= ===== =====
- --------------------
(1) Reflects the impact of adopting the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements.
(2) Net Sales and Gross Margin reflect accounting reclassifications in
accordance with adopting the provisions of the Emerging Issues Task Force
of the Financial Accounting Standards Board Issue No. 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products.
(3) Included in the second quarter's earnings is a provision for bad debt of
approximately $8.8 million, net of taxes, or approximately $.24 per share
related to the bankruptcy filing of Kmart Corporation in January 2002.
(4) Included in the third quarter's earnings is income of approximately $9.6
million, net of taxes, or approximately $.26 per share related to funds
received in February 2002 under the Continued Dumping and Subsidy Offset
Act of 2000.
(5) As influenced by a decision to curtail certain production in late May 2002,
the fourth quarter's earnings include income of approximately $1.8 million,
net of taxes, equivalent to approximately five cents per share, related to
the liquidation of certain LIFO inventories carried at prior years' lower
costs.
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned "Nomination and Election of Directors," "Executive Compensation,"
"Security Ownership of Certain Beneficial Owners" and "Other Transactions" in
the Registrant's Definitive Proxy Statement for the 2002 Annual Meeting of
Shareholders to be held November 18, 2002 and to the "Supplementary Item" in
Part I of this Annual Report on Form 10-K captioned "Executive Officers of the
Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following consolidated financial
statements as of June 30, 2002 and 2001 and for each of the three years in the
period ended June 30, 2002 together with the report thereon of Deloitte & Touche
LLP dated August 22, 2002 are included in Item 8 of this report:
Independent Auditors' Report
Consolidated Statements of Income for the years ended June 30, 2002, 2001
and 2000
Consolidated Balance Sheets as of June 30, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended June 30, 2002,
2001 and 2000
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules Required by Items 8 and 14(d).
Included in Part IV of this report is the following additional financial data
which should be read in conjunction with the consolidated financial statements
included in Item 8 of this report:
Schedule II - Valuation and Qualifying Accounts.
Supplemental schedules not included with the additional financial data have
been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
(a)(3) Exhibits Required by Item 601 of Regulation S-K and Item 14(c). See
Index to Exhibits following "Schedule II - Valuation and Qualifying Accounts."
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of the year ended June 30, 2002.
33
SIGNATURES
Pursuant to the requirements of Section 13 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 on this 25th day of September,
2002.
LANCASTER COLONY CORPORATION (REGISTRANT)
By:/s/JOHN B. GERLACH, JR.
--------------------------------------
John B. Gerlach, Jr.
Chairman, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/JOHN B. GERLACH, JR. Chairman, September 25, 2002
- ----------------------------------- Chief Executive Officer,
John B. Gerlach, Jr. President and Director
/s/JOHN L. BOYLAN Treasurer, Vice President, September 25, 2002
- ----------------------------------- Assistant Secretary,
John L. Boylan Chief Financial Officer
(Principal Financial and
Accounting Officer) and Director
/s/KERRII B. ANDERSON Director September 16, 2002
- -----------------------------------
Kerrii B. Anderson
/s/ROBERT L. FOX Director September 13, 2002
- -----------------------------------
Robert L. Fox
/s/MORRIS S. HALPERN Director September 15, 2002
- -----------------------------------
Morris S. Halpern
/s/ROBERT S. HAMILTON Director September 16, 2002
- -----------------------------------
Robert S. Hamilton
/s/EDWARD H. JENNINGS Director September 14, 2002
- -----------------------------------
Edward H. Jennings
/s/HENRY M. O'NEILL, JR. Director September 12, 2002
- -----------------------------------
Henry M. O'Neill, Jr.
/s/ZUHEIR SOFIA Director September 16, 2002
- -----------------------------------
Zuheir Sofia
34
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, John B. Gerlach, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Lancaster Colony
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 25, 2002
/s/JOHN B. GERLACH, JR.
- -----------------------
John B. Gerlach, Jr.
Chief Executive Officer
35
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, John L. Boylan, certify that:
1. I have reviewed this annual report on Form 10-K of Lancaster Colony
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 25, 2002
/s/JOHN L. BOYLAN
- -----------------
John L. Boylan
Chief Financial Officer
36
LANCASTER COLONY CORPORATION
AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 2002
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------- ------------ ------------- -------------- -------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS (A) OF YEAR
- ----------- ------------ ------------- -------------- -------------
Reserves deducted from asset to
which they apply - Allowance
for doubtful accounts:
Year ended June 30, 2000.............. $ 3,300,000 $ 5,081,000 $ 5,986,000 $ 2,395,000
============ ============= ============== ============
Year ended June 30, 2001.............. $ 2,395,000 $ 2,038,000 $ 1,266,000 $ 3,167,000
============ ============= ============== ============
Year ended June 30, 2002.............. $ 3,167,000 $ 16,405,000(B) $ 16,158,000(B) $ 3,414,000
============ ============= ============== ============
NOTES:
(A) Represents uncollectible accounts written off net of recoveries.
(B) Included in fiscal 2002 is a provision and write-off for bad debt of
approximately $14.3 million related to the bankruptcy filing of Kmart
Corporation in January 2002.
37
LANCASTER COLONY CORPORATION
FORM 10-K
JUNE 30, 2002
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATED AT
- ------ ----------- ----------
3.1 Certificate of Incorporation of the registrant approved by
the shareholders November 18, 1991........................................... (i)
.2 Certificate of Amendment to the Articles of Incorporation approved by
the shareholders November 16, 1992........................................... (i)
.3 Certificate of Amendment to the Articles of Incorporation approved by
the shareholders November 17, 1997........................................... (i)
.4 By-laws of the registrant as amended through November 18, 1991............... (a)
.5 Certificate of Designation, Rights and Preferences of the Series A
Participating Preferred Stock of Lancaster Colony Corporation................ (b)
4.1 Specimen Certificate of Common Stock......................................... (l)
.2 Rights Agreement dated as of April 20, 2000 between Lancaster
Colony Corporation and The Huntington Trust Company, N.A..................... (k)
.3 Credit Agreement dated as of February 13, 2001 among Lancaster
Colony Corporation, The Lenders and Bank One, NA, as Agent................... (m)
10.1 1981 Incentive Stock Option Plan............................................. (c)
.2 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 21, 1983............. (d)
.3 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 18, 1985............. (e)
.4 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 19, 1990............. (f)
.5 Key Employee Severance Agreement between Lancaster Colony
Corporation and John L. Boylan............................................... (f)
.6 Consulting Agreement by and between Lancaster Colony
Corporation and Morris S. Halpern............................................ (g)
.7 1995 Key Employee Stock Option Plan.......................................... (h)
.8 Key Employee Severance Agreement between Lancaster Colony
Corporation and Bruce L. Rosa................................................ (j)
.9 Lancaster Colony Corporation Executive Employee Deferred
Compensation Plan............................................................ (l)
21. Significant Subsidiaries of Registrant....................................... Filed herewith
23. The consent of Deloitte & Touche LLP to the incorporation by reference
in Registration Statements No. 33-39102 and 333-01275 on Form S-8
of their reports dated August 22, 2002, appearing in and incorporated
by reference in this Annual Report on Form 10-K of Lancaster Colony
Corporation for the year ended June 30, 2002................................. Filed herewith
99.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002..... Filed herewith
99.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002..... Filed herewith
- ------------
(a) Indicates the exhibit is incorporated by reference from filing as
an annex to the Proxy Statement of Lancaster Colony Corporation for
the Annual Meeting of Shareholders held November 18, 1991.
38
(b) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-Q
for the quarter ended March 31, 1990.
(c) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1982.
(d) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1984.
(e) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1985.
(f) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1991.
(g) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1993.
(h) Indicates the exhibit is incorporated by reference from the
Lancaster Colony Corporation filing on Form S-8 of its 1995 Key
Employee Stock Option Plan (Registration Statement No. 333-01275).
(i) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1998.
(j) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 1999.
(k) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 8-A
filed April 20, 2000.
(l) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-K
for the year ended June 30, 2000.
(m) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 10-Q
for the quarter ended March 31, 2001.
39