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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-4065-1
LANCASTER COLONY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 13-1955943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 WEST BROAD STREET
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
614-224-7141
(Registrant's telephone number, including area code)
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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined by Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of Common Stock held by non-affiliates on
December 31, 2004 was approximately $1,129,467,000, based on the closing price
of these shares on that day.
As of August 31, 2005, there were approximately 34,216,000 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
2005 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Annual Report on Form 10-K. The 2005 Definitive Proxy Statement shall be
deemed to have been "filed" only to the extent portions thereof are expressly
incorporated by reference.
EXHIBIT INDEX LOCATED IN PART IV OF THIS ANNUAL REPORT ON FORM 10-K.
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
Index to Exhibits
2
PART I
ITEM 1. BUSINESS
GENERAL
Lancaster Colony Corporation, an Ohio corporation, is a diversified
manufacturer and marketer of consumer products including specialty foods for the
retail and foodservice markets; glassware and candles for the retail,
industrial, floral and foodservice markets; and automotive accessories for the
original equipment market and aftermarket. Our principal executive offices are
located at 37 West Broad Street, Columbus, Ohio 43215 and our telephone number
is 614/224-7141.
As used in this Annual Report on Form 10-K and except as the context
otherwise may require, the terms "we," "us," "our," "registrant," or "the
Company" mean Lancaster Colony Corporation and all entities owned or controlled
by Lancaster Colony Corporation except where it is clear that the term only
means the parent company.
Current and periodic reports are available at our Web site
(www.lancastercolony.com) free of charge as soon as reasonably practicable after
such material is electronically filed with the Securities and Exchange
Commission.
DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
We operate in three business segments - "Specialty Foods," "Glassware and
Candles" and "Automotive" - which accounted for approximately 60%, 21% and 20%,
respectively, (percentages do not add to 100% due to rounding) of consolidated
net sales for the fiscal year ended June 30, 2005. The financial information
relating to business segments for each of the three years in the period ended
June 30, 2005 is included in Note 17 to the consolidated financial statements,
which is included in Part II, Item 8 of this Form 10-K. Further description of
each business segment within which we operate is provided below:
SPECIALTY FOODS
The food products we manufacture and sell include salad dressings and
sauces marketed under the brand names "Marzetti," "T. 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
hearth-baked breads marketed under the brand names "New York Brand" and "Mamma
Bella"; frozen Parkerhouse style yeast 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 names "Reames" and "Aunt Vi's"; croutons and
related products marketed under the brand names "Chatham Village," "Cardini's"
and "T. Marzetti's" and caviar marketed under the brand name "Romanoff." A
portion of our sales in this segment is sold under private label to retailers,
distributors and restaurants primarily in the United States. Additionally, a
portion of our sales relates to frozen specialty noodles and pastas sold to
industrial customers for use as ingredients in their products.
A significant portion of this segment's product lines is manufactured at
our 13 plants located throughout the United States. Certain items are
manufactured and packaged by third parties located in the United States, Canada
and England under contractual agreements established by us.
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 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.
Sales attributable to one customer comprised approximately 11% and 10% of
this segment's total net sales in the current year and prior year, respectively.
No other customer accounted for more than 10% of this segment's total net sales.
Although we have the leading market share in several product categories, all of
the
3
markets in which we sell food products are highly competitive in the areas of
price, quality and customer service.
The operations of this segment are not affected to any material extent by
seasonal fluctuations. We do not utilize any franchises or concessions in this
business segment. The trademarks that we utilize are significant to the overall
success of this segment. The patents and licenses under which we operate,
however, are not essential to the overall success of this segment.
GLASSWARE AND CANDLES
Candles, candle accessories, and other home fragrance products in a variety
of sizes, forms and fragrance are sold to the mass merchandise markets as well
as to supermarkets, drug stores and specialty shops under the "Candle-lite"
brand name. A portion of our candle business is marketed under private label.
Glass products include a broad range of machine-blown and pressed 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, barware, and candle
accessories. 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 floral
markets under the brand names "Brody" and "Indiana Glass" as well as to mass
merchants and specialty craft stores.
Our glass products are sold to mass merchants, department stores, drug
stores and specialty shops, as well as to wholesalers. Commercial markets such
as foodservice, hotels, hospitals and schools are also served by this segment's
products.
All the markets in which we sell houseware products are highly competitive
in the areas of design, price, quality and customer service. Sales attributable
to one customer comprised approximately 31% and 26% of this segment's total net
sales in the current year and prior year, respectively. No other customer
accounted for more than 10% of this segment's total net sales.
Seasonal retail stocking patterns cause certain of this segment's products
to experience increased sales in the first half of the fiscal year. We do not
use any franchises or concessions in this segment. The patents and licenses
under which we operate are not essential to the overall success of this segment.
Certain trademarks, however, are important to this segment's marketing efforts.
AUTOMOTIVE
We manufacture and sell 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; toolboxes
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, each with
sales greater than 10% of total segment sales, accounted for approximately 24%
of this segment's total net sales during fiscal 2005. In fiscal 2004, three
customers, each with sales greater than 10% of total segment sales, accounted
for 31% of this segment's total net sales. No other customer accounted for more
than 10% of this segment's total net sales. Although we are a market leader in
many of our product lines, all the markets in which we sell automotive products
are highly competitive in the areas of design, price, quality and customer
service.
The operations of this segment are not affected to any material extent by
seasonal fluctuations. We do not utilize any significant franchises or
concessions in this segment. The patents and licenses under which we operate are
generally not essential to the overall success of this segment. Certain
trademarks, however, are valuable to the segment's marketing efforts.
4
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 that
account for at least 10% of our consolidated net sales in any fiscal year from
2003 through 2005:
2005 2004 2003
---- ---- ----
Specialty Foods:
Retail............................. 30% 30% 29%
Foodservice........................ 29% 28% 26%
Glassware and Candles:
Consumer Table and Giftware........ 17% 17% 19%
Automotive:
Original Equipment Manufacturers... 13% 14% 15%
Net sales attributable to Wal-Mart Stores, Inc. totaled approximately 13%,
12% and 12% of consolidated net sales for fiscal years 2005, 2004 and 2003,
respectively.
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.
BACKLOG
The nature of our backlog varies by segment. Orders in our Specialty Foods
segment are generally filled in three to seven days following the receipt of the
order. In our Glassware and Candles segment, certain orders are received in a
highly seasonal manner, and the timing of the receipt of several large customer
orders can materially impact the amount of the backlog at any point in time
without being an indication of longer-term sales. In the aftermarket sector of
our Automotive segment, orders are generally filled within four to six weeks
following the receipt of the order. In our Automotive segment, orders from
original equipment manufacturers ("OEM") are generally filled within four to
eight weeks. Also, our Automotive segment backlog is impacted by general market
conditions in the automobile industry and is subject to general economic
conditions and changes in consumer demand. Due to these variables, we do not
view the amount of backlog at any particular point in time as a meaningful
indicator of longer-term shipments.
ENVIRONMENTAL MATTERS
Certain of our operations are subject to various Federal, state and local
environmental protection laws. Based upon available information, compliance with
these laws and regulations is not expected to have a material adverse effect
upon the level of capital expenditures, earnings or our competitive position for
the remainder of the current and succeeding fiscal year.
EMPLOYEES AND LABOR RELATIONS
As of June 30, 2005, we had approximately 5,500 employees. Approximately
30% of these employees are represented under various collective bargaining
agreements, which expire at various times through May 2009. While we believe
that labor relations with unionized employees are good, a prolonged labor
dispute could have a material adverse effect on our 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.
RAW MATERIALS
During fiscal year 2005, we obtained adequate supplies of raw materials for
all of the segments. We rely on a variety of raw materials for the day-to-day
production of our products, including the following: soybean
5
oil, certain dairy-related products, flour, fragrances and colorant agents,
paraffin wax, plastic and paper packaging materials, resins, synthetic rubbers,
rubber friction and compound, aluminum and steel.
We purchase the majority of these materials on the open market to meet
current requirements, but we also have some longer-term fixed-price contracts.
See further discussion in our contractual obligations disclosure in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Although the availability of certain of these materials has become
more influenced by the level of global demand, we anticipate that future sources
of supply will generally be adequate for our needs.
ITEM 2. PROPERTIES
We use approximately 6.5 million square feet of space for our operations.
Of this space, approximately 1.7 million square feet are leased.
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 TERMS OF
LOCATION BUSINESS SEGMENT(S) SQUARE FEET OCCUPANCY
-------- ------------------- ----------- ---------
Altoona, Iowa (5) ............... Specialty Foods 107,000 Owned/Leased
Bedford Heights, OH (3) ......... Specialty Foods 81,000 Owned/Leased
Columbus, OH (5) ................ Specialty Foods 392,000 Owned/Leased
Grove City, OH .................. Specialty Foods 195,000 Owned
Luverne, AL ..................... Specialty Foods 91,000 Owned
Milpitas, CA (6) ................ Specialty Foods 130,000 Owned/Leased
Wilson, NY ...................... Specialty Foods 80,000 Owned
Dunkirk, IN ..................... Glassware and Candles 622,000 Owned
Lancaster, OH ................... Glassware and Candles 465,000 Owned
Leesburg, OH (1) ................ Glassware and Candles 875,000 Owned/Leased
Sapulpa, OK (3) ................. Glassware and Candles 680,000 Owned/Leased
Jackson, OH ..................... Automotive and Glassware and Candles 223,000 Owned
Coshocton, OH ................... Automotive 591,000 Owned
Des Moines, IA (1)(2)(3)(4)(6) .. Automotive 1,003,000 Owned/Leased
LaGrange, GA .................... Automotive 211,000 Owned
Wapakoneta, OH (1)(2) ........... Automotive 273,000 Owned/Leased
- ----------
(1) Part leased on a monthly basis
(2) Part leased for term expiring in 2005
(3) Part leased for term expiring in 2006
(4) Part leased for term expiring in 2007
(5) Part leased for term expiring in 2009
(6) Part leased for term expiring in 2010
We are in the process of constructing a new salad dressing facility in
Horse Cave, Kentucky. The construction is expected to be complete in early
fiscal 2007 and the facility will contain approximately 220,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
None
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on The Nasdaq Stock Market(R) under the symbol
LANC. The following table sets forth the high and low close prices for Lancaster
Colony common shares and the dividends paid for each quarter of fiscal 2005 and
2004. Stock prices were provided by The Nasdaq Stock Market(R).
CLOSING
STOCK PRICES DIVIDENDS
--------------- PAID
HIGH LOW PER SHARE
------ ------ ---------
2005
FIRST QUARTER.... $43.55 $38.26 $.23
SECOND QUARTER... 44.63 40.32 .25
THIRD QUARTER.... 43.50 41.17 .25
FOURTH QUARTER... 44.35 40.90 .25
----
YEAR.......... $.98
====
2004
First quarter.... $42.00 $38.68 $.20
Second quarter... 45.18 39.36 .23
Third quarter.... 46.11 39.09 .23
Fourth quarter... 44.06 38.20 .23
----
Year.......... $.89
====
The number of shareholders as of September 1, 2005 was approximately
10,450. The highest and lowest close prices for our common stock from July 1,
2005 to September 1, 2005 were $45.75 and $42.25.
ISSUER PURCHASES OF EQUITY SECURITIES
Our Board of Directors approved share repurchase authorizations of
3,000,000 shares (May 2000), 2,000,000 shares (August 2004) and 2,000,000 shares
(May 2005). Approximately 3,026,000 shares from the August 2004 and the May 2005
authorizations remained authorized for future purchase at June 30, 2005. In the
fourth quarter, we made the following repurchases of our common stock:
TOTAL NUMBER MAXIMUM NUMBER
TOTAL AVERAGE OF SHARES OF SHARES THAT MAY
NUMBER PRICE PURCHASED AS YET BE PURCHASED
OF SHARES PAID PER PART OF PUBLICLY UNDER THE PLANS OR
PERIOD PURCHASED SHARE ANNOUNCED PLANS PROGRAMS
- ------ --------- -------- ---------------- ------------------
April 1-30, 2005... 105,182 $41.978 105,182 1,131,512
May 1-31, 2005..... 90,147 $42.286 90,147 3,041,365
June 1-30, 2005.... 15,051 $42.924 15,051 3,026,314
These share repurchase authorizations do not have a stated expiration date.
7
ITEM 6. SELECTED FINANCIAL DATA
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY
YEARS ENDED JUNE 30
(THOUSANDS EXCEPT --------------------------------------------------------------
PER SHARE FIGURES) 2005 2004 2003 2002 2001(1)
- ------------------ ---------- ---------- ---------- ---------- ----------
OPERATIONS
Net Sales........................... $1,131,466 $1,096,953 $1,106,800 $1,129,687 $1,092,653
Gross Margin........................ $ 219,463 $ 223,686 $ 243,860 $ 253,565 $ 255,721
Percent of Sales................. 19.4% 20.4% 22.0% 22.4% 23.4%
Interest Expense.................... $ -- $ -- $ -- $ 54 $ 1,239
Percent of Sales................. 0.0% 0.0% 0.0% 0.0% 0.1%
Income Before Income Taxes.......... $ 148,021 $ 128,464 $ 180,801 $ 149,342 $ 145,885
Percent of Sales................. 13.1% 11.7% 16.3% 13.2% 13.4%
Taxes Based on Income............... $ 54,933 $ 48,462 $ 68,255 $ 57,402 $ 55,649
Income Before Cumulative
Effect of Accounting Change...... $ 93,088 $ 80,002 $ 112,546 $ 91,940 $ 90,236
Cumulative Effect of
Accounting Change, Net of Tax.... $ -- $ -- $ -- $ -- $ (998)
Net Income.......................... $ 93,088 $ 80,002 $ 112,546 $ 91,940 $ 89,238
Percent of Sales................. 8.2% 7.3% 10.2% 8.1% 8.2%
Per Common Share:
Net Income-Basic and Diluted..... $ 2.67 $ 2.24 $ 3.11 $ 2.49 $ 2.37
Cash Dividends................... $ 0.98 $ 0.89 $ 0.78 $ 0.71 $ 0.67
FINANCIAL POSITION
Total Assets........................ $ 731,278 $ 712,885 $ 667,716 $ 618,705 $ 576,352
Working Capital..................... $ 370,559 $ 358,274 $ 329,462 $ 276,796 $ 220,896
Property, Plant and Equipment-Net... $ 154,147 $ 159,494 $ 161,111 $ 165,943 $ 173,169
Long-Term Debt...................... $ -- $ -- $ -- $ -- $ 1,095
Property Additions.................. $ 22,683 $ 18,172 $ 29,941 $ 22,546 $ 22,632
Depreciation and Amortization....... $ 33,262 $ 31,267 $ 31,669 $ 35,287 $ 35,528
Shareholders' Equity................ $ 587,726 $ 586,785 $ 547,665 $ 501,277 $ 459,901
Per Common Share................. $ 17.17 $ 16.54 $ 15.31 $ 13.70 $ 12.35
Weighted Average Common Shares
Outstanding-Diluted.............. 34,925 35,778 36,243 36,910 37,636
STATISTICS
Current Ratio....................... 4.6 4.9 4.9 4.1 3.3
Long-Term Debt as a Percent
of Shareholders' Equity.......... 0.0% 0.0% 0.0% 0.0% 0.2%
Dividends Paid as a Percent
of Net Income.................... 36.6% 39.7% 25.0% 28.4% 28.2%
Return on Average Equity............ 15.9% 14.1% 21.5% 19.1% 20.4%
- ----------
(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.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a diversified manufacturer and marketer of consumer products
including specialty foods for the retail and foodservice markets; glassware and
candles for the retail, industrial, floral and foodservice markets; and
automotive accessories for the original equipment market and aftermarket.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") describes the matters that we consider to be
important in understanding the results of our operations for each of the three
years in the period ended June 30, 2005 and our liquidity and capital resources
as of June 30, 2005 and 2004. Our fiscal year begins on July 1 and ends on June
30. In the discussion that follows, we analyze the results of our operations for
the last three years, including the trends in the overall business, followed by
a discussion of our cash flows and liquidity and contractual obligations. We
then provide a review of the critical accounting policies and estimates that we
have made which we believe are most important to an understanding of our MD&A
and our consolidated financial statements. We conclude our MD&A with information
on recently issued accounting pronouncements.
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and our consolidated financial statements and the
notes thereto, all included elsewhere herein. The forward-looking statements in
this section and other parts of this document involve risks and uncertainties
including statements regarding our plans, objectives, goals, strategies, and
financial performance. Our actual results could differ materially from the
results anticipated in these forward-looking statements as a result of factors
set forth under the caption "Forward-Looking Statements."
We recorded other income for proceeds received from the Continued Dumping
and Subsidy Offset Act of 2000 ("CDSOA") for the year ended June 30, 2005 of
$26.2 million compared to $2.0 million for the prior year. This income
represents distributions we received from the U.S. government under CDSOA.
CDSOA, which applies to our candle operations, is intended to redress unfair
dumping of imported products through cash payments to eligible affected
companies. Such payments are in part dependent upon the amount of anti-dumping
duties collected by the U.S. government on those products.
In the quarter ended March 31, 2005, we recorded a noncash impairment
charge of $1.6 million ($1.0 million after taxes) relating to certain equipment
in two of our business segments. Approximately $0.9 million of the charge
relates to the impairment of glassware-manufacturing equipment in our Glassware
and Candles segment. Approximately $0.7 million of the charge relates to the
impairment of certain idle manufacturing equipment in our Automotive segment.
These impairments occurred due to inefficient production and a slowdown in
demand for certain products associated with this equipment. See further
discussion in Note 16 to the consolidated financial statements.
On April 27, 2004, we announced our intent to close our automotive floor
mat manufacturing facility located in Waycross, Georgia. In fiscal 2004, we
recorded a restructuring and impairment charge of approximately $1.1 million
($0.7 million after taxes). During the 2005 fiscal year, we recorded an
additional restructuring and impairment charge of $0.5 million ($0.3 million
after taxes) for costs incurred during that period. See further discussion in
Note 16 to the consolidated financial statements.
On December 12, 2003, we purchased substantially all the operating assets
of Warren Frozen Foods, Inc. ("Warren"), a privately owned producer and marketer
of frozen noodle and pasta products. Warren is reported in our Specialty Foods
segment. This acquisition's final purchase price was approximately $21.1
million, including a net asset adjustment of approximately $492,000 as
determined under the terms of the purchase agreement, and this transaction is
discussed in further detail in Note 3 to the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). This Annual Report on
Form 10-K contains various "forward-looking statements" within the meaning of
the PSLRA and other applicable securities laws. Such statements can be
identified by the use of the forward-looking words "anticipate," "estimate,"
"project," "believe," "intend,"
9
"expect," "hope," or similar words. These statements discuss future
expectations; contain projections regarding future developments, operations or
financial conditions; or state other forward-looking information. Such
statements are based upon assumptions and assessments made by us in light of our
experience and perception of historical trends, current conditions, expected
future developments, and other factors we believe to be appropriate. These
forward-looking statements involve various important risks, uncertainties and
other factors that could cause our actual results to differ materially from
those expressed in the forward-looking statements. Actual results may differ as
a result of factors over which we have no, or limited, control including the
strength of the economy, slower than anticipated sales growth, the extent of
operational efficiencies achieved, the success of new product introductions,
price and product competition, and increases in raw materials costs. Management
believes these forward-looking statements to be reasonable; however, undue
reliance should not be placed on such statements that are based on current
expectations. We undertake no obligation to publicly update such forward-looking
statements.
Specific influences relating to these forward-looking statements include,
but are not limited to:
- the potential for loss of larger programs or key customer
relationships;
- the effect of consolidation of customers within key market
channels;
- the continued solvency of key customers;
- the success and cost of new product development efforts;
- lack of market acceptance of new products;
- changes in demand for our products, which may result from loss of
brand reputation or customer goodwill;
- changes in market trends;
- the extent to which future business acquisitions are completed
and acceptably integrated;
- the possible occurrence of product recalls;
- efficiencies in plant operations, including the ability to
optimize overhead utilization in nonfood operations;
- fluctuations in the cost and availability of raw materials;
- adverse changes in energy costs and other factors that may affect
costs of producing, distributing or transporting our products;
- maintenance of competitive position with respect to other
manufacturers, including import sources of production;
- dependence on key personnel;
- stability of labor relations;
- dependence on contract copackers;
- effect of governmental regulations, including environmental
matters;
- legislation and litigation affecting the future administration of
CDSOA;
- changes in income tax laws;
- changes in estimates in critical accounting judgments; and
- innumerable other factors.
SUMMARY OF RESULTS
The following is an overview of our consolidated results for the year ended
June 30, 2005.
Net sales for the year ended June 30, 2005 increased 3% to $1,131 million
from the prior year total of $1,097 million. Gross margin decreased 2% to $219.5
million from the prior year comparable total of $223.7 million. Net income for
the current year was $93.1 million or $2.67 per diluted share, compared to $80.0
million or $2.24 per diluted share in the prior year.
Our current year results continue to reflect an environment of heightened
competition, increased pricing pressures and higher nonfood raw material costs.
We also experienced higher costs associated with freight and energy. We have
been able to maintain a strong balance sheet with no debt throughout this fiscal
year.
10
Our total consolidated cash, cash equivalents, and short-term investments
increased by $6.1 million to $184.6 million compared to the prior year total of
$178.5 million. Overall results were also affected by the funds received under
CDSOA. In fiscal 2005, we received $26.2 million under CDSOA compared to $2.0
million in fiscal 2004 and $39.2 million in fiscal 2003.
REVIEW OF CONSOLIDATED OPERATIONS
SEGMENT SALES MIX
The relative proportion of sales contributed by each of our business
segments can impact a year-to-year comparison of the consolidated statements of
income. The following table summarizes the sales mix over each of the last three
years:
2005 2004 2003
---- ---- ----
SEGMENT SALES MIX: (1)
Specialty Foods......... 60% 58% 55%
Glassware and Candles... 21% 21% 23%
Automotive.............. 20% 21% 22%
- ----------
(1) Expressed as a percentage of consolidated net sales; may not add to 100%
due to rounding.
NET SALES AND GROSS MARGIN
FISCAL YEAR ENDED
JUNE 30 CHANGE
(DOLLARS IN THOUSANDS) 2005 2004 2003 2005 VS. 2004 2004 vs. 2003
- ---------------------- ---------- ---------- ---------- ------------- --------------
NET SALES
Specialty Foods......... $ 673,840 $ 639,226 $ 609,994 $34,614 5% $ 29,232 5%
Glassware and Candles... 233,505 231,125 251,437 2,380 1% (20,312) (8%)
Automotive.............. 224,121 226,602 245,369 (2,481) (1%) (18,767) (8%)
---------- ---------- ---------- ------- --- -------- ---
Total................ $1,131,466 $1,096,953 $1,106,800 $34,513 3% $ (9,847) (1%)
========== ========== ========== ======= === ======== ===
GROSS MARGIN............... $ 219,463 $ 223,686 $ 243,860 $(4,223) (2%) $(20,174) (8%)
========== ========== ========== ======= === ======== ===
GROSS MARGIN AS A
PERCENT OF SALES........ 19.4% 20.4% 22.0%
Consolidated net sales during fiscal 2005 were led by further growth in the
Specialty Foods segment and reached the record level of $1,131 million,
increasing 3% as compared to prior year sales of $1,097 million. Over the past
two years, a business acquisition made within the Specialty Foods segment
contributed approximately $9 million growth in each year. Like many other
consumer product companies, we experienced heightened competitive influences
during this period, which impacted sales growth, particularly in our nonfood
markets.
Our gross margin as a percentage of net sales was 19.4% in 2005 compared
with 20.4% in 2004 and 22.0% in 2003. A significant influence affecting the 2005
decline was the presence of increasing nonfood material costs and our limited
ability to obtain much cost recovery through higher pricing. Higher levels of
freight and energy costs were also broadly prevalent in fiscal 2005. Despite
modest improvement in food commodity costs, gross margins in the Specialty Foods
segment were adversely impacted by issues involving sales mix, higher freight
costs and certain operating inefficiencies. Compared to fiscal 2003, the
consolidated gross margin percentage for fiscal 2004 declined, as affected by
higher food ingredient costs, rising raw material costs in the Automotive
segment, and the presence of price competition along with lower fixed cost
absorption occurring in the Glassware and Candles segment.
11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FISCAL YEAR ENDED
JUNE 30 CHANGE
(DOLLARS IN THOUSANDS) 2005 2004 2003 2005 VS. 2004 2004 vs. 2003
- ---------------------- ------- ------- ------- ------------- -------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES... $99,421 $97,885 $99,032 $1,536 2% $(1,147) (1%)
======= ======= ======= ====== === ======= ===
SG&A EXPENSE AS A PERCENT OF
SALES..................... 8.8% 8.9% 8.9%
Selling, general and administrative expenses for fiscal 2005 totaled $99.4
million and increased 2% as compared with the 2004 total of $97.9 million and
increased $0.4 million from the 2003 total of $99.0 million. The 2005 and 2004
fiscal totals included recoveries of bad debt totaling $1.5 million and $1.8
million, respectively, associated with the 2002 bankruptcy filing of Kmart
Corporation. We wrote off approximately $14.3 million related to this bankruptcy
in fiscal 2002. Selling, general and administrative expenses were relatively
stable as a percentage of sales for the years ended June 30, 2005, 2004 and
2003.
RESTRUCTURING AND IMPAIRMENT CHARGE
In the quarter ended March 31, 2005, we recorded a noncash impairment
charge of $1.6 million ($1.0 million after taxes) relating to certain equipment
in two of our business segments. Approximately $0.9 million of the charge
relates to the impairment of glassware-manufacturing equipment in our Glassware
and Candles segment. Approximately $0.7 million of the charge relates to the
impairment of certain idle manufacturing equipment in our Automotive segment.
These impairments occurred due to inefficient production and a slowdown in
demand for certain products associated with this equipment. We determined that
an impairment existed based on a comparison of the sum of the related, estimated
undiscounted future cash flows with the assets' carrying amounts. We then
compared the assets' carrying amounts to their estimated fair value to determine
the amount of impairment to be recorded.
In fiscal 2004, we recorded a restructuring and impairment charge of
approximately $1.1 million ($0.7 million after taxes) for costs incurred as of
June 30, 2004 related to the closing of our automotive floor mat manufacturing
facility located in Waycross, Georgia. Manufacturing effectively ceased as of
June 30, 2004. The decision to close the plant was brought on by a decline in
demand for compression molded rubber floor mats that resulted in excess segment
capacity. The fiscal 2004 cash costs associated with this closure totaled
approximately $0.3 million and included termination benefits and other closing
costs, such as costs to remove and relocate certain equipment, costs to prepare
the building for sale, and various other charges. Approximately $0.8 million of
the fiscal 2004 restructuring and impairment charge related to this facility's
impairment of property, plant and equipment. During the year ended June 30,
2005, we recorded an additional restructuring and impairment charge of $0.5
million ($0.3 million after taxes) for costs incurred during that period. The
majority of this charge resulted in cash outlays and consisted of other closing
costs, such as costs to maintain the building and various other charges.
An analysis of our Waycross restructuring activity and the related
liability within the Automotive segment is as follows (in thousands):
ACCRUAL ACCRUAL
2004 AT 2005 AT
2004 CASH JUNE 30, 2005 CASH JUNE 30,
CHARGE OUTLAYS 2004 CHARGE OUTLAYS 2005
------ ------- -------- ------ ------- --------
WAYCROSS RESTRUCTURING AND IMPAIRMENT CHARGE
Employee Separation Costs................... $ 233 $(128) $105 $ -- $(105) $--
Other Costs................................. 39 (5) 34 401 (410) 25
------ ----- ---- ---- ----- ---
Subtotal.................................... 272 $(133) $139 401 $(515) $25
===== ==== ===== ===
Asset Impairment............................ 786 135
------ ----
Waycross Restructuring and Impairment
Charge................................ $1,058 $536
====== ====
12
The restructuring accrual is included in accounts payable and accrued
liabilities at June 30, 2005 and 2004. We expect that the remaining cash outlays
for this plan will be immaterial to the overall consolidated financial
statements.
In fiscal 2003, we recorded a restructuring and impairment charge of
approximately $4.9 million ($3.0 million after taxes) related to the
consolidation of certain glass manufacturing operations. The charge consisted of
employee separation costs, pension curtailment costs, closure and cleanup costs,
and the writedown of property, plant and equipment having no future utility as a
result of the restructuring decision. The plant consolidation was substantially
completed by June 2003. The liability that remains for this restructuring is
immaterial to the overall consolidated financial statements.
OPERATING INCOME
FISCAL YEAR ENDED
JUNE 30 CHANGE
(DOLLARS IN THOUSANDS) 2005 2004 2003 2005 VS. 2004 2004 vs. 2003
- ---------------------- -------- -------- -------- ------------- --------------
OPERATING INCOME
Specialty Foods......... $111,392 $109,391 $116,068 $ 2,001 2% $ (6,677) (6%)
Glassware and Candles... 7,247 9,298 12,432 (2,051) (22%) (3,134) (25%)
Automotive.............. 6,082 11,980 17,351 (5,898) (49%) (5,371) (31%)
Corporate Expenses...... (6,808) (5,926) (5,908) (882) 15% (18) 0%
-------- -------- -------- ------- --- -------- ---
Total................ $117,913 $124,743 $139,943 $(6,830) (5%) $(15,200) (11%)
======== ======== ======== ======= === ======== ===
OPERATING INCOME AS
A PERCENT OF SALES
Specialty Foods......... 16.5% 17.1% 19.0%
Glassware and Candles... 3.1% 4.0% 4.9%
Automotive.............. 2.7% 5.3% 7.1%
Consolidated............ 10.4% 11.4% 12.6%
Despite increased operating income in the Specialty Foods segment, declines
in operating income in the other two segments, due to the factors discussed
above, led to consolidated operating income for fiscal 2005 totaling $117.9
million, a 5% decrease from fiscal 2004 operating income of $124.7 million. The
fiscal 2004 total had decreased 11% from fiscal 2003 operating income totaling
$139.9 million.
OTHER INCOME (EXPENSE)
In December 2004, December 2003 and January 2003, we received approximately
$26.2 million, $2.0 million and $39.2 million, respectively, from the U.S.
government under CDSOA. These amounts were recorded within the accompanying
financial statements as other income. CDSOA, which applies to our candle
operations, is intended to redress the unfair dumping of imported products
through annual cash payments to eligible affected companies. Such payments are
in part dependent upon the amount of anti-dumping duties collected on those
products. The World Trade Organization has previously ruled that such payments
are inconsistent with international trade rules. Additionally, there exists
pending litigation to which we are not a party that challenges the
constitutionality of CDSOA. However, CDSOA continues to be in effect in the
United States at this time. Uncertainties associated with this program leave us
unable to predict the amounts, if any, we may be entitled to receive in the
future.
INCOME BEFORE INCOME TAXES
As affected by the increased CDSOA payment, our income before income taxes
for fiscal 2005 of $148.0 million increased 15% from the fiscal 2004 total of
$128.5 million. As influenced by an increase in tax-free interest income and a
2005 change in state tax laws within Ohio, our effective tax rate was 37.1%,
37.7% and 37.8% in fiscals 2005, 2004 and 2003, respectively.
13
NET INCOME PER COMMON SHARE
Fiscal 2005 diluted earnings per share totaled $2.67, a 19% increase from
the prior year total of $2.24. The latter amount was 28% less than fiscal 2003
diluted earnings per share of $3.11. Earnings per share in each of the last
three years has been beneficially affected by share repurchases, which have
totaled approximately $108.9 million over the three-year period ended June 30,
2005.
Effective July 1, 2002, we adopted 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 continue to be amortized over their useful lives. Amortization of
other intangibles for 2005, 2004 and 2003 was $522,000, $276,000 and $30,000,
respectively. Of the $79.2 million in goodwill at June 30, 2005, approximately
$78.2 million related to the Specialty Foods segment and approximately $1.0
million related to the Automotive segment.
SEGMENT REVIEW - SPECIALTY FOODS
Record net sales were again achieved by the Specialty Foods segment during
fiscal 2005, and operating income of $111.4 million increased 2% from the fiscal
2004 level of $109.4 million, primarily as a result of the higher sales volume.
Net sales during fiscal 2005 totaled $673.8 million, a 5% increase over the
prior year total of $639.2 million. Fiscal 2004 sales had increased 5% over the
fiscal 2003 total of $610.0 million. The percentage of retail customer sales was
approximately 51% during fiscal 2005 and 2004 compared to 53% in fiscal 2003.
The sales growth experienced in 2005 primarily resulted from internally
generated improvements in both retail and foodservice markets. Fiscal 2005 also
benefited from incremental sales totaling approximately $9.0 million
attributable to the December 2003 Warren acquisition. Fiscal 2004, the year of
acquisition, had also benefited from incremental sales of approximately $9.0
million. The segment's retail customer sales growth over the last two years was
most influenced by increased sales of such products as produce dips and
dressings, frozen breads and frozen rolls. The level of foodservice sales in
fiscal 2005 benefited from the Warren acquisition and growth in several frozen
products.
The Specialty Foods segment operating income in fiscal 2005 totaled $111.4
million, a 2% increase from the fiscal 2004 total of $109.4 million. The 2004
level was 6% below the fiscal 2003 level of $116.1 million. The increase in
fiscal 2005's operating income was influenced by higher sales volume and
modestly lower raw material costs incurred during the year, although the segment
also experienced increased freight and promotional costs during the same period.
Increased food commodity costs impacted the year-over-year comparisons between
fiscal 2004 and 2003, as it was estimated that the impact of the increased
soybean oil costs alone was in excess of $7 million in 2004. Entering fiscal
2006, we anticipate that commodity costs may remain somewhat favorable in the
first half of the fiscal year.
SEGMENT REVIEW - GLASSWARE AND CANDLES
Net sales of the Glassware and Candles segment are comprised primarily of
candles and related accessories. Segment sales during fiscal 2005 totaled $233.5
million, and increased 1% compared to fiscal 2004 net sales of $231.1 million.
Compared to net sales in fiscal 2003 totaling $251.4 million, fiscal 2004 sales
declined by 8%. Fiscal 2005 candle sales grew primarily due to greater demand
from existing customers, including placement in additional stores for which
product was not previously provided. Glassware sales declined on weakness in
demand for household drinkware and tableware. The segment's fiscal 2004 sales
decline was attributable to weakness in both candle and glassware demand, as
affected by intense competitive pressures, including pricing. Toward the end of
fiscal 2004, candle sales increased as compared to the prior year period,
benefiting from the mid-year introduction of a new line of private-label candle
products.
The segment's operating income totaled $7.2 million during fiscal 2005, a
22% decrease from the prior year total of $9.3 million. Compared to fiscal 2003
operating income of $12.4 million, fiscal 2004 income decreased by 25%.
Affecting fluctuations between years was income associated with the liquidations
of LIFO glassware inventory acquired at substantially lower costs in prior
years. Such liquidations reduced cost of
14
sales by approximately $1.3 million in fiscal 2005, $4.2 million in fiscal 2004
and $7.0 million in fiscal 2003. The current year's operating income also
included a noncash impairment charge of $0.9 million relating to the impairment
of certain glassware-manufacturing equipment. Other factors influencing fiscal
2005 results relative to 2004 were the benefits of higher levels of sales and
plant utilization, as mitigated by issues of higher material and energy costs.
Fiscal 2004 results relative to 2003 were adversely affected by lower sales
volumes, a competitive pricing environment and reduced production levels. As
discussed previously, a $4.9 million restructuring charge related to the
consolidation of glass manufacturing operations also impacted fiscal 2003
results.
Future results will be sensitive to capacity utilization rates due to the
high level of fixed manufacturing costs that exist in this segment. We monitor
our operations for indicators of impairment. To the extent such indicators are
present, we evaluate the long-lived assets for recoverability. See further
discussion in our Critical Accounting Policies and Estimates.
SEGMENT REVIEW - AUTOMOTIVE
Net sales of the Automotive segment during fiscal 2005 totaled $224.1
million, a 1% decrease from the prior year sales level of $226.6 million. Fiscal
2004 sales decreased 8% from the sales level of $245.4 million achieved in
fiscal 2003. Fiscal 2005 sales of aluminum accessories increased, primarily with
OEMs, but those gains were not large enough to offset a decline in floor mat
sales to OEMs. Relative to fiscal 2003, 2004 sales declined, as most
significantly impacted by the loss of one large aluminum accessory OEM program
beginning in the first quarter of fiscal 2004. This segment's sales to OEMs are
made both directly to the OEMs and, to a lesser extent, 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
suppliers' ongoing ability to maintain their 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 2005, direct and indirect sales to OEMs comprised
approximately 65% of this segment's sales compared to approximately 66% and 69%
in 2004 and 2003, respectively.
Operating income of the Automotive segment totaled $6.1 million for fiscal
2005, a 49% decrease from the prior year total of $12.0 million. This decrease
was primarily attributable to higher material costs. The current year operating
income includes a $0.7 million restructuring charge related to the impairment of
certain idle manufacturing equipment. In fiscal 2004, a $1.1 million
restructuring charge was recorded for the closure of the Waycross, Georgia floor
mat facility, with additional related costs of approximately $0.5 million being
recorded in fiscal 2005. The segment's 2004 operating income of $12.0 million
represented a 31% decrease over the prior year total of $17.4 million. Notable
factors affecting comparisons between these years were the effects of lower
sales volume, reduced production volumes, rising material costs and the Waycross
restructuring charge. Material costs remain higher than year-ago levels in early
fiscal 2006, but generally below peak levels of fiscal 2005. We anticipate that
segment sales may benefit from the gain of a large new aluminum OEM program that
should increase in volume during the first half of fiscal 2006, although the
extent of related start-up costs could affect the initial profitability from
these sales.
LIQUIDITY AND CAPITAL RESOURCES
The strength of our balance sheet at June 30, 2005 is reflected by the
presence of over $184 million in cash, cash equivalents and short-term
investments, along with nearly $588 million in shareholders' equity and no debt.
We believe that this financial position provides us with substantial flexibility
to consider business acquisitions, especially those that are complementary in
function to that of our existing operations, evaluate share repurchase
opportunities and otherwise meet ongoing liquidity requirements.
We maintain a revolving credit arrangement with several commercial banks
totaling $100 million. Terms of the related agreement allow for borrowings to
occur at or below the U.S. prime rate of interest. We also have an uncommitted
line of credit for short-term borrowings from one bank for $25 million. We did
not have any borrowings under either arrangement in fiscal 2005 or fiscal 2004.
We believe that internally generated funds, the existing credit facilities and
an ability to obtain additional financing, combined with the current cash,
cash equivalents and short-term investments on hand, will be sufficient to meet
operating requirements and fund future foreseeable capital needs.
15
CASH FLOWS
FISCAL YEAR ENDED
JUNE 30 CHANGE
(DOLLARS IN THOUSANDS) 2005 2004 2003 2005 VS. 2004 2004 vs. 2003
- ---------------------- -------- -------- -------- -------------- --------------
Provided by Operating Activities... $116,677 $116,582 $157,253 $ 95 0% $(40,671) (26%)
Used in Investing Activities....... (34,161) (50,190) (55,127) 16,029 32% 4,937 9%
Used in Financing Activities....... (82,467) (42,026) (63,867) (40,441) (96%) 21,841 34%
Our cash flows for the fiscal years 2003 through 2005 are presented in the
Consolidated Statements of Cash Flows. Cash flow generated from operations
remains the primary source of financing for our internal growth. Cash provided
from operating activities in fiscal 2005 totaled $116.7 million, essentially
flat as compared with the prior year total of $116.6 million and a 26% decrease
from the fiscal 2003 total of $157.3 million. Cash flows provided by operating
activities during fiscal 2005 were impacted by the higher level of net income,
as offset by relative changes in certain working capital components, including
accounts receivable and inventory. Contributing to the decline in fiscal 2004
cash flows compared to that of 2003 was the lower level of net income between
years, as affected by reduced CDSOA receipts.
Net cash used in investing activities during fiscal 2005 included capital
expenditures totaling $22.7 million, compared to $18.2 million in fiscal 2004
and $29.9 million in fiscal 2003. Capital spending allocations during fiscal
2005 by segment were 67% to Specialty Foods, 16% to Glassware and Candles and
17% to Automotive. Construction has begun on our new salad dressing facility in
Kentucky. Expenditures in fiscal 2003 included approximately $8.0 million for
the expansion of a frozen roll manufacturing facility of the Specialty Foods
segment. Based on current plans and expectations, we believe total capital
expenditures for fiscal 2006 could exceed $60 million due to increased
construction activity on our new salad dressing facility, which is not expected
to be completed until early fiscal 2007.
During fiscal 2004, we acquired a food-related business for a final
purchase price of approximately $21.1 million. A net asset adjustment of
$492,000 was paid in October 2004. See further discussion in Note 3 to the
consolidated financial statements.
In 2003, a payment of $3.0 million was made as required under the terms of
a contingent payment arrangement associated with a business acquired in fiscal
2001. No such payment was required during fiscal 2004, the last year of the
arrangement.
Financing activities used net cash totaling $82.5 million, $42.0 million
and $63.9 million in 2005, 2004 and 2003, respectively. Cash utilized for share
repurchases totaled $56.7 million, $16.7 million and $35.6 million in 2005, 2004
and 2003, respectively. Our Board of Directors approved share repurchase
authorizations of 3,000,000 shares (May 2000), 2,000,000 shares (August 2004)
and 2,000,000 shares (May 2005). Approximately 3,026,000 shares from the August
2004 and the May 2005 authorizations remained authorized for future purchase at
June 30, 2005.
On March 9, 2005, pursuant to our previously announced share repurchase
program, we purchased 230,000 shares of common stock from the Estate of Dorothy
B. Fox (the "Estate") at a price per share of $42.634, which is equal to the
average closing price of our common stock over the ten trading days beginning
February 23, 2005, as adjusted to reflect the effects of our previously declared
dividend. Robert L. Fox, one of our Directors, serves as executor of the Estate.
Total dividend payments for 2005 were $34.1 million, which was nearly 7%
greater than the 2004 total of $31.8 million. This increase reflects the higher
dividend payout rate of $.98 per share present during 2005 as compared to $.89
per share during 2004 and $.78 per share in 2003. Fiscal 2005 marks the 42nd
consecutive year in which our dividend rate was increased. The future levels of
share repurchases and declared dividends are subject to the periodic review of
our 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.
In connection with the preparation of this report and as reported in the
Form 10-Q for the period ended March 31, 2005, we concluded that it was
appropriate to classify our investments in auction rate securities and variable
rate demand obligations as short-term investments. Prior to March 31, 2005, such
investments
16
had been classified as cash and cash equivalents. Accordingly, we have revised
the classification to report these securities as short-term investments in a
separate line item in the Current Assets section on our Consolidated Balance
Sheets as of June 30, 2005 and 2004. We have also made corresponding adjustments
to our Consolidated Statements of Cash Flows for the periods ended June 30,
2005, 2004 and 2003 to reflect the gross purchases and sales of these securities
as investing activities rather than as a component of cash and cash equivalents.
We also made a reclassification on the Consolidated Statements of Cash
Flows for June 30, 2005, 2004 and 2003 to move payments to pension plans from
the investing cash flow category to the operating cash flow category, as these
payments ultimately represent payments to employees, which appear more
appropriately presented as activity associated with operating cash flows.
Approximately $1.0 million, $3.1 million and $3.2 million were reclassified for
June 30, 2005, 2004 and 2003, respectively.
Our 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.
We are contingently liable with respect to lawsuits, taxes and various
other matters that routinely arise in the normal course of business. Except as
discussed above, we do not have any related party transactions that materially
affect our results of operations, cash flow or financial condition.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMITMENTS
We do not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"Variable Interest Entities" that have or are reasonably likely to have a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity or
capital expenditures.
We have various contractual obligations, which are appropriately recorded
as liabilities in our consolidated financial statements. Certain other items,
such as purchase obligations, are not recognized as liabilities in our
consolidated financial statements. Examples of items not recognized as
liabilities in our consolidated financial statements are commitments to purchase
raw materials or inventory that has not yet been received as of June 30, 2005
and future minimum lease payments for the use of property and equipment under
operating lease agreements.
The following table summarizes our contractual obligations as of June 30,
2005 (in thousands):
PAYMENT DUE BY PERIOD
--------------------------------------------------------
LESS THAN MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
- ----------------------- -------- --------- --------- --------- ---------
Operating Lease Obligations (1).......... $ 19,890 $ 5,642 $ 7,552 $5,707 $ 989
Purchase Obligations (2)................. 92,444 89,642 2,797 5 --
Minimum Required Pension Contributions... 263 211 52 -- --
Other Long-Term Liabilities (as reflected
on Consolidated Balance Sheet) (3).... 1,491 60 1,078 186 167
-------- ------- ------- ------ ------
Total................................. $114,088 $95,555 $11,479 $5,898 $1,156
======== ======= ======= ====== ======
- ----------
(1) Operating leases are primarily entered into for warehouse and office
facilities and certain equipment. See Note 14 to the consolidated financial
statements for further information.
(2) Purchase obligations represent purchase orders and longer-term purchase
arrangements related to the procurement of ingredients, supplies, raw
materials, and property, plant and equipment.
17
(3) This amount does not include $29.0 million of other noncurrent liabilities
recorded on the balance sheet, which consist of the minimum pension
liability, other post employment benefit obligations, and deferred
compensation and interest on deferred compensation. These items are
excluded, as it is not certain when these liabilities will become due. See
Notes 11, 12 and 13 to the consolidated financial statements for further
information.
Our contractual obligations have increased over the prior year due
primarily to a new purchase obligation associated with the construction of a new
salad dressing facility in Kentucky. As of June 30, 2005, it is estimated that
approximately $39.5 million is yet to be paid under this obligation.
IMPACT OF INFLATION
Other than for food commodities, our raw material costs during fiscal 2005
were generally above fiscal 2004 levels, which had also increased from costs
present during 2003. Among raw materials most affected by these increases were
certain metals and petroleum-derived materials. Material cost increases
especially affected the 2005 results of the Automotive segment. Food commodity
costs, particularly for soybean oil and dairy-related products, were somewhat
lower than 2004 levels, which had risen from those of 2003. As we begin fiscal
2006, many food commodity costs remain below year-ago levels, although other
raw-material and energy-related costs generally exceed those of a year ago.
We generally attempt to adjust our 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
our diversity of operations and our ongoing efforts to achieve greater
manufacturing and distribution efficiencies through the improvement of work
processes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
MD&A discusses our 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 that we 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, we evaluate our estimates and judgments, including, but not
limited to, those related to accounts receivable, inventories, marketing and
distribution costs, asset impairments and self-insurance reserves. We base our
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.
Historically, the aggregate differences, if any, between our estimates and
actual amounts in any year have not had a significant impact on our consolidated
financial statements. While a summary of our 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, we believe the following critical
accounting policies, among others, affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION
We recognize 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. Net sales are recorded net of estimated sales discounts, returns and
certain sales incentives, including coupons and rebates.
RECEIVABLES AND THE ALLOWANCE FOR DOUBTFUL ACCOUNTS
We provide an allowance for doubtful accounts based on the aging of
accounts receivable balances and historical write-off experience and on-going
reviews of our 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
18
customers. In addition to credit concerns, we also evaluate the adequacy of our
allowances for customer deductions considering several factors including
historical losses and existing customer relationships.
LONG-LIVED ASSETS
We monitor the recoverability of the carrying value of our long-lived
assets by periodically considering whether or not indicators of impairment are
present. If such indicators are present, we determine if the assets are
recoverable by comparing the sum of the undiscounted future cash flows to the
assets' carrying amount. Our cash flows are based on historical results adjusted
to reflect our best estimate of future market and operating conditions. If the
carrying amounts are greater, then the assets are not recoverable. In that
instance, we compare the carrying amounts to the fair value to determine the
amount of the impairment to be recorded.
GOODWILL AND INTANGIBLE ASSETS
Goodwill is not amortized. It is evaluated annually through asset
impairment assessments as appropriate. Intangible assets with lives restricted
by contractual, legal, or other means are amortized over their useful lives. We
periodically evaluate the future economic benefit of the recorded goodwill and
intangible 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.
VALUATION OF INVENTORY
When necessary, we provide allowances to adjust the carrying value of our
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
our products. The estimates as to future demand used in the valuation of
inventory are subject to the ongoing success of our products. A decrease in
product demand due to changing customer tastes, consumer buying patterns or loss
of shelf space to competitors could significantly impact our evaluation of our
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.
ACCRUED MARKETING AND DISTRIBUTION
Various marketing programs are offered to customers to reimburse them for a
portion or all of their promotional activities related to our products.
Additionally, we often incur various costs associated with shipping products to
the customer. We provide 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.
ACCOUNTING FOR PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
To determine our ultimate obligation under our defined benefit pension
plans and our other postretirement benefit plans, we must estimate the future
cost of benefits and attribute that cost to the time period during which each
covered employee works. To record the related net assets and obligation of such
benefit plans, we use assumptions related to inflation, investment returns,
mortality, employee turnover, medical costs and discount rates. To determine the
discount rate, we, along with our third-party actuaries, considered several
factors, including the June 30, 2005 rates of various bond indices, such as the
Moody's Aa long-term bond index and the past history of discount rates used for
the plan valuation. These assumptions follow the guidance provided in SFAS No.
87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." We, along with our
third-party
19
actuaries, review all of these assumptions on an ongoing basis to ensure that
the most reasonable information available is being considered. Changes in
assumptions and future investment returns could potentially have a material
impact on pension expense and related funding requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154
changes the requirements for the accounting and reporting of a change in
accounting principle. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We
do not expect the adoption of this Statement to have a material impact on our
financial position or results of operations.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 ("FSP
109-1"). FSP 109-1 provides guidance on the application of FASB Statement No.
109, "Accounting for Income Taxes," and the new tax deduction on qualified
production activities created by the American Jobs Creation Act of 2004. The
effective date of the new deduction is for tax years beginning after December
31, 2004. Thus, the deduction is available to us in fiscal 2006. We are
currently evaluating the effect the new deduction will have on our results of
operations for the year ending June 30, 2006.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R requires the measurement and recognition of
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The cost of the
employee services is recognized as compensation expense over the period that an
employee provides service in exchange for the award, which is typically the
vesting period. SFAS 123R is effective July 1, 2005 and may be adopted using a
modified prospective method or a modified retrospective method. We are currently
evaluating the Statement's alternatives, but anticipate using the modified
prospective application method of adoption. Our evaluation will be complete with
our adoption of the Statement in the first quarter of fiscal 2006.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets," an amendment of APB Opinion No. 29 ("SFAS 153"). APB Opinion No. 29 is
based on the principle that exchanges of nonmonetary assets should be measured
on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. SFAS 153 amends Opinion
29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS 153 is effective for
nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005.
We do not expect the adoption of this Statement to have a material impact on our
financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS
151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling cost, and wasted material (spoilage). In addition, this
Statement requires that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. We are currently evaluating the implications of this
Statement, but do not expect the adoption of this Statement to have a material
impact on our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash and cash equivalents have been maintained only with maturities of
90 days or less. Our short-term investments have interest reset periods of 35
days or less. These financial instruments may be subject to interest rate risk
through lost income should interest rates increase during their limited term to
maturity or resetting of interest rates. As of June 30, 2005, there was no
long-term debt outstanding. Future borrowings, if any, would bear interest at
negotiated rates and would be subject to interest rate risk. We do not believe
that a hypothetical adverse change of 10% in interest rates would have a
material effect on our financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Lancaster Colony Corporation
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Lancaster
Colony Corporation and subsidiaries (the "Company") as of June 30, 2005 and
2004, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended June 30, 2005.
Our audits also included the financial statement schedule listed in the Table of
Contents at Item 15. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2005, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such 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.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of June 30, 2005, based
on the criteria established in Internal Control--Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated September 12, 2005 expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
- -------------------------------------
Deloitte & Touche LLP
Columbus, Ohio
September 12, 2005
21
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 2005 2004
- ----------------------------------------- ---------- ---------
ASSETS
CURRENT ASSETS:
Cash and equivalents ............................... $ 113,265 $ 113,233
Short-term investments ............................. 71,315 65,270
Receivables (less allowance for doubtful accounts,
2005-$1,830; 2004-$1,819) ....................... 100,351 94,623
Inventories:
Raw materials and supplies ...................... 47,097 44,717
Finished goods and work in process .............. 117,268 110,359
---------- ---------
Total inventories ............................ 164,365 155,076
Deferred income taxes and other current assets ..... 25,109 22,801
---------- ---------
Total current assets ...................... 474,405 451,003
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements ................... 121,290 118,693
Machinery and equipment ............................ 365,005 354,112
---------- ---------
Total cost ...................................... 486,295 472,805
Less accumulated depreciation ...................... 332,148 313,311
---------- ---------
Property, plant and equipment-net ......... 154,147 159,494
OTHER ASSETS:
Goodwill (net of accumulated amortization) ......... 79,219 79,187
Other intangible assets-net ........................ 4,937 5,459
Other noncurrent assets ............................ 18,570 17,742
---------- ---------
TOTAL .................................. $ 731,278 $ 712,885
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................... $ 51,014 $ 47,235
Accrued liabilities ................................ 52,832 45,494
---------- ---------
Total current liabilities ................. 103,846 92,729
OTHER NONCURRENT LIABILITIES .......................... 30,492 21,576
DEFERRED INCOME TAXES ................................. 9,214 11,795
SHAREHOLDERS' EQUITY:
Preferred stock-authorized 3,050,000 shares;
Outstanding-none
Common stock-authorized 75,000,000 shares;
Outstanding, 2005-34,235,905; 2004-35,472,163 ... 73,801 69,809
Retained earnings .................................. 944,194 885,161
Accumulated other comprehensive loss ............... (10,905) (5,542)
---------- ---------
Total ........................................... 1,007,090 949,428
Common stock in treasury, at cost .................. (419,364) (362,643)
---------- ---------
Total shareholders' equity ................ 587,726 586,785
---------- ---------
TOTAL .................................. $ 731,278 $ 712,885
========== =========
See accompanying notes to consolidated financial statements.
22
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30
------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2005 2004 2003
- --------------------------------------------- ---------- ---------- ----------
NET SALES ...................................... $1,131,466 $1,096,953 $1,106,800
COST OF SALES .................................. 912,003 873,267 862,940
---------- ---------- ----------
GROSS MARGIN ................................... 219,463 223,686 243,860
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ... 99,421 97,885 99,032
RESTRUCTURING AND IMPAIRMENT CHARGE ............ 2,129 1,058 4,885
---------- ---------- ----------
OPERATING INCOME ............................... 117,913 124,743 139,943
OTHER INCOME (EXPENSE):
Other income-Continued Dumping and Subsidy
Offset Act ............................... 26,226 1,987 39,177
Interest income and other-net ............... 3,882 1,734 1,681
---------- ---------- ----------
INCOME BEFORE INCOME TAXES ..................... 148,021 128,464 180,801
TAXES BASED ON INCOME .......................... 54,933 48,462 68,255
---------- ---------- ----------
NET INCOME ..................................... $ 93,088 $ 80,002 $ 112,546
========== ========== ==========
NET INCOME PER COMMON SHARE:
Basic and diluted ........................... $ 2.67 $ 2.24 $ 3.11
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic ....................................... 34,868 35,708 36,184
Diluted ..................................... 34,925 35,778 36,243
See accompanying notes to consolidated financial statements.
23
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30
------------------------------
(AMOUNTS IN THOUSANDS) 2005 2004 2003
- ---------------------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 93,088 $ 80,002 $112,546
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .................... 33,262 31,267 31,669
Deferred income taxes and other noncash charges .. 884 5,290 2,962
Restructuring and impairment charge .............. 1,608 848 3,824
(Gain) loss on sale of property .................. (34) (751) 21
Payments to pension plans ........................ (999) (3,111) (3,235)
Changes in operating assets and liabilities:
Receivables ................................... (5,597) (4,471) 20,767
Inventories ................................... (9,352) 5,431 (11,161)
Other current assets .......................... 353 123 78
Accounts payable and accrued liabilities ...... 3,464 1,954 (218)
-------- -------- --------
Net cash provided by operating activities .. 116,677 116,582 157,253
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions .......................... (492) (20,568) (3,000)
Payments on property additions ...................... (22,683) (18,172) (29,941)
Proceeds from sale of property ...................... 660 1,341 1,550
Purchases of short-term investments ................. (52,695) (31,300) (53,150)
Proceeds from short-term investment sales,
calls and maturities ............................. 46,650 20,030 31,950
Other-net ........................................... (5,601) (1,521) (2,536)
-------- -------- --------
Net cash used in investing activities ...... (34,161) (50,190) (55,127)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends ................................ (34,055) (31,769) (28,152)
Purchase of treasury stock .......................... (56,721) (16,667) (35,552)
Proceeds from the exercise of stock options ......... 3,785 3,634 4,340
Increase (decrease) in cash overdraft balance ....... 4,524 2,776 (4,503)
-------- -------- --------
Net cash used in financing activities ...... (82,467) (42,026) (63,867)
-------- -------- --------
Effect of exchange rate changes on cash ................ (17) 20 10
-------- -------- --------
Net change in cash and equivalents ..................... 32 24,386 38,269
Cash and equivalents at beginning of year .............. 113,233 88,847 50,578
-------- -------- --------
Cash and equivalents at end of year .................... $113,265 $113,233 $ 88,847
======== ======== ========
See accompanying notes to consolidated financial statements.
24
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ACCUMULATED
OUTSTANDING OTHER TOTAL
(AMOUNTS IN THOUSANDS, ---------------- RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
EXCEPT PER SHARE DATA) SHARES AMOUNT EARNINGS LOSS STOCK EQUITY
- ---------------------- ------ ------- -------- ------------- --------- -------------
BALANCE, JUNE 30, 2002........ 36,598 $61,919 $752,534 $ (2,752) $(310,424) $501,277
------ ------- -------- -------- --------- --------
Net income.................... 112,546 112,546
Translation adjustment........ 10 10
Minimum pension liability,
net of $3,862 tax effect... (6,409) (6,409)
--------
COMPREHENSIVE INCOME.......... 106,147
--------
Cash dividends - common
stock ($0.78 per share).... (28,152) (28,152)
Purchase of treasury shares... (948) (35,552) (35,552)
Shares issued upon exercise of
stock options including
related tax benefits....... 120 3,945 3,945
------ ------- -------- -------- --------- --------
BALANCE, JUNE 30, 2003........ 35,770 65,864 836,928 (9,151) (345,976) 547,665
------ ------- -------- -------- --------- --------
Net income.................... 80,002 80,002
Translation adjustment........ 20 20
Minimum pension liability,
net of $2,163 tax effect... 3,589 3,589
--------
COMPREHENSIVE INCOME.......... 83,611
--------
Cash dividends - common
stock ($0.89 per share).... (31,769) (31,769)
Purchase of treasury shares... (408) (16,667) (16,667)
Shares issued upon exercise of
stock options including
related tax benefits....... 110 3,945 3,945
------ ------- -------- -------- --------- --------
BALANCE, JUNE 30, 2004........ 35,472 69,809 885,161 (5,542) (362,643) 586,785
------ ------- -------- -------- --------- --------
Net income.................... 93,088 93,088
Translation adjustment........ (17) (17)
Minimum pension liability,
net of $2,812 tax effect... (5,346) (5,346)
--------
COMPREHENSIVE INCOME.......... 87,725
--------
Cash dividends - common
stock ($0.98 per share).... (34,055) (34,055)
Purchase of treasury shares... (1,348) (56,721) (56,721)
Shares issued upon exercise of
stock options including
related tax benefits....... 112 3,992 3,992
------ ------- -------- -------- --------- --------
BALANCE, JUNE 30, 2005........ 34,236 $73,801 $944,194 $(10,905) $(419,364) $587,726
====== ======= ======== ======== ========= ========
See accompanying notes to consolidated financial statements.
25
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lancaster Colony Corporation and our wholly-owned subsidiaries, collectively
referred to as "we," "us," "our," "registrant," or "the Company." All
significant intercompany transactions and accounts have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires that we
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 the calculation of depreciation and amortization, impairments of long-lived
assets, accruals for marketing and merchandising programs, pension and
postretirement assumptions, as well as expenses related to distribution and
self-insurance. Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
REVISION IN THE CLASSIFICATION OF CERTAIN SECURITIES
In connection with the preparation of this report and as reported in the
Form 10-Q for the period ended March 31, 2005, we concluded that it was
appropriate to classify our investments in auction rate securities and variable
rate demand obligations as short-term investments, as described under Short-Term
Investments below. Prior to March 31, 2005, such investments had been classified
as cash and cash equivalents. Accordingly, we have revised the classification to
report these securities as short-term investments in a separate line item in the
Current Assets section on our Consolidated Balance Sheets as of June 30, 2005
and 2004. The effect of this reclass was to reduce cash and equivalents and
increase short-term investments by $65.3 million at June 30, 2004. We have also
made corresponding adjustments to our Consolidated Statements of Cash Flows for
the periods ended June 30, 2005, 2004 and 2003 to reflect the gross purchases
and sales of these securities as investing activities rather than as a component
of cash and cash equivalents. This change in classification does not affect cash
flows from operating or financing activities in our previously reported
Consolidated Statements of Cash Flows. The reclassification also has no impact
on shareholders' equity, net sales or net income.
CASH AND EQUIVALENTS
We consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. As a result of our
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 $7.3 million and $2.8 million as of June
30, 2005 and 2004, respectively.
SHORT-TERM INVESTMENTS
We account for our short-term investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Our short-term investments consist
of auction rate securities and variable rate demand obligations classified as
available-for-sale securities. Our short-term investments in these securities
are recorded at cost, which approximates fair market value due to their variable
interest rates, which typically reset every 7 to 35 days, and, despite the
long-term nature of their stated contractual maturities, we generally have the
ability to liquidate these securities in 35 days or less. Our intent is to hold
these securities as liquid assets easily convertible to cash for applicable
operational needs as they may arise.
26
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RECEIVABLES AND THE ALLOWANCE FOR DOUBTFUL ACCOUNTS
We provide an allowance for doubtful accounts based on the aging of
accounts receivable balances, historical write-off experience and on-going
reviews of our trade receivables. Measurement of potential losses requires
credit review of existing customer relationships, consideration of historical
effects of relevant observable data, including present economic conditions such
as delinquency rates, and the economic health of customers.
CREDIT RISK
Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of cash and equivalents, short-term investments
and trade accounts receivable. The carrying amounts of these financial
instruments approximate fair value. We place our cash and equivalents and
short-term investments with institutions believed to be of high quality and, by
policy, limit the amount of credit exposure to any one institution or issuer.
Concentration of credit risk with respect to trade accounts receivable is
mitigated by having a large and diverse customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Purchases of property,
plant and equipment included in accounts payable at June 30, 2005 were $2.3
million, and these purchases have been excluded from the Consolidated Statement
of Cash Flows. Prior year amounts were not material. We use 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 two to forty-five years while machinery
and equipment range from two to twenty years. For tax purposes, we generally
compute depreciation using accelerated methods. See Note 16 for discussion of
asset impairment in the current fiscal year.
LONG-LIVED ASSETS
We monitor the recoverability of the carrying value of our long-lived
assets by periodically considering whether or not indicators of impairment are
present. If such indicators are present, we determine if the assets are
recoverable by comparing the sum of the undiscounted future cash flows to the
assets' carrying amount. Our cash flows are based on historical results adjusted
to reflect our best estimate of future market and operating conditions. If the
carrying amounts are greater, then the assets are not recoverable. In that
instance, we compare the carrying amounts to the fair value to determine the
amount of the impairment to be recorded. See Note 16 for discussion of asset
impairment in the current fiscal year.
GOODWILL AND INTANGIBLE ASSETS
In accordance with SFAS No. 142, as of July 1, 2002, goodwill is no longer
being amortized. Intangible assets with lives restricted by contractual, legal,
or other means continue to be amortized over their useful lives. Also in
accordance with SFAS No. 142, as of April 30, 2005 and 2004, as appropriate, we
completed asset impairment assessments, and such assessments indicated that
there was no impairment. We periodically evaluate the future economic benefit of
the recorded goodwill and other long-lived 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 further discussion and disclosure in Note 5.
REVENUE RECOGNITION
We recognize 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. Net sales are recorded net of estimated sales discounts, returns and
certain sales incentives, including coupons and rebates.
27
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ADVERTISING EXPENSE
We expense advertising as it is incurred. Advertising expense represents
less than 1% of sales in each of the three years ended June 30, 2005.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
STOCK-BASED EMPLOYEE COMPENSATION PLANS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R, "Share-Based Payment." See further discussion of this Statement
later in Note 1. At June 30, 2005, we had a stock-based compensation plan, which
is described more fully in Note 10. As permitted by SFAS No. 123, as amended by
SFAS No. 148, we have elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for our stock-based compensation. Under APB
Opinion No. 25, because the exercise price of the stock options was at least
equal to the market price of the underlying stock on the date of grant, no
compensation expense was recognized.
The weighted average per share fair value of options granted during fiscal
year 2005 and 2003 was $7.68 and $7.18, respectively.
The fair value of the options presented above was estimated at the date of
grant using the Black-Scholes option pricing model. The following assumptions
were used for options granted in 2005: risk-free interest rate of 3.47%;
dividend yield of 2.41%; volatility factor of the expected market price of our
common stock of 26.17%; and a weighted average expected option life of 3.2
years. The following assumptions were used for options granted in 2003:
risk-free interest rate of 1.76%; dividend yield of 2.15%; volatility factor of
the expected market price of our common stock of 33.34%; and a weighted average
expected option life of 2.5 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, our net income and earnings per share would have been reduced to the
pro forma amounts indicated below for the years ended June 30:
2005 2004 2003
------- ------- --------
Net income............. As reported $93,088 $80,002 $112,546
Pro forma $90,984 $79,595 $110,339
Earnings per Share:
Basic and Diluted... As reported $ 2.67 $ 2.24 $ 3.11
Basic............... Pro forma $ 2.61 $ 2.23 $ 3.05
Diluted............. Pro forma $ 2.61 $ 2.22 $ 3.04
We intend to solicit shareholder approval for adoption of a new equity
compensation plan at our 2005 Annual Meeting of Shareholders, as the current
plan expired in August 2005.
OTHER INCOME
During the second quarter of fiscal 2005, we received approximately $26.2
million from the U.S. government under the Continued Dumping and Subsidy Offset
Act of 2000 ("CDSOA") compared to approximately $2.0 million received in the
second quarter of fiscal 2004 and approximately $39.2 million received in the
second quarter of fiscal 2003. These amounts are recorded as other income in the
accompanying financial statements. See further discussion at Note 15.
28
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PER SHARE INFORMATION
We account for earnings per share under SFAS No. 128. 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.
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) 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
provision/(benefit) of ($2.8) million, $2.2 million, and ($3.9) million in 2005,
2004 and 2003, respectively. These adjustments are accumulated within the
Consolidated Balance Sheet in Accumulated Other Comprehensive Loss. As of June
30, 2005, 2004 and 2003, accumulated other comprehensive loss was comprised of
the following:
2005 2004 2003
-------- ------- -------
Cumulative translation adjustments..... $ 129 $ 146 $ 126
Minimum pension liability adjustment... (11,034) (5,688) (9,277)
-------- ------- -------
$(10,905) $(5,542) $(9,151)
======== ======= =======
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"). SFAS 154 changes the requirements for the accounting
and reporting of a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We do not expect the adoption of this Statement to have
a material impact on our financial position or results of operations.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 ("FSP
109-1"). FSP 109-1 provides guidance on the application of FASB Statement No.
109, "Accounting for Income Taxes," and the new tax deduction on qualified
production activities created by the American Jobs Creation Act of 2004. The
effective date of the new deduction is for tax years beginning after December
31, 2004. Thus, the deduction is available to us in fiscal 2006. We are
currently evaluating the effect the new deduction will have on our results of
operations for the year ending June 30, 2006.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R requires the measurement and recognition of
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The cost of the
employee services is recognized as compensation expense over the period that an
employee provides service in exchange for the award, which is typically the
vesting period. SFAS 123R is effective July 1, 2005 and may be adopted using a
modified prospective method or a modified retrospective method. We are currently
evaluating the Statement's alternatives, but anticipate using the modified
prospective application method of adoption. Our evaluation will be complete with
our adoption of the Statement in the first quarter of fiscal 2006.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets," an amendment of APB Opinion No. 29 ("SFAS 153"). APB Opinion No. 29 is
based on the principle that exchanges of nonmonetary assets should be measured
on the fair value of the assets exchanged. The guidance
29
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
in that Opinion, however, included certain exceptions to that principle. SFAS
153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary exchanges occurring in fiscal periods beginning after
June 15, 2005. We do not expect the adoption of this Statement to have a
material impact on our financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS
151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling cost, and wasted material (spoilage). In addition, this
Statement requires that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. We are currently evaluating the implications of this
Statement, but do not expect the adoption of this Statement to have a material
impact on our financial position or results of operations.
NOTE 2 - SHORT-TERM INVESTMENTS
At June 30, 2005 and 2004, we held $71.3 million and $65.3 million,
respectively, of short-term investments, which consist of auction rate
securities and variable rate demand obligations classified as available-for-sale
securities. See further discussion in Note 1.
Our June 30 short-term investments by contractual maturity are as follows:
2005 2004
------- -------
Due within one year............... $ 3,300 $ --
Due between one and five years.... 1,580 6,200
Due after ten years............... 66,435 59,070
------- -------
Total short-term investments... $71,315 $65,270
======= =======
We had no cumulative gross unrealized holding gains (losses) or gross
realized gains (losses) from our short-term investments. All income generated
from these short-term investments was recorded as interest income. Actual
maturities may differ from contractual maturities should the borrower have the
right to call certain obligations.
NOTE 3 - ACQUISITIONS
On December 12, 2003, we completed the acquisition of substantially all the
operating assets of Warren Frozen Foods, Inc. ("Warren"), a privately owned
producer and marketer of frozen noodle and pasta products based in Altoona,
Iowa. Warren has a well-recognized presence in the industrial and foodservice
markets and complements our existing frozen noodle operation, which has a
greater presence in retail markets. Warren is reported in our Specialty Foods
segment, and its results of operations have been included in our consolidated
statement of income since December 12, 2003.
Under the terms of the purchase agreement, we acquired certain personal and
real property including fixed assets, inventory and accounts receivable, and
assumed certain liabilities. The purchase price was approximately $21.1 million,
including a net asset adjustment of approximately $492,000 as determined under
the terms of the purchase agreement. This net asset adjustment was paid in
October 2004.
30
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following purchase price allocation is based on the estimated fair
value of the net assets acquired:
BALANCE SHEET CAPTIONS ALLOCATION
---------------------- ----------
Receivables..................... $ 1,519
Inventories..................... 1,095
Property, Plant and Equipment... 10,062
Goodwill (tax deductible)....... 4,007
Intangibles..................... 5,300
Current Liabilities............. (923)
-------
Total Purchase Price......... $21,060
=======
The intangible assets listed in the allocation above consist of $4.1
million of customer lists and $1.2 million of non-compete agreements. The
customer lists have been assigned a useful life of twelve years. The non-compete
agreements have been assigned a useful life of eight years based on the terms of
the non-compete agreement. Management established the value of property, plant
and equipment, and intangibles using independent appraisals.
During September 2000, we acquired all of the outstanding stock of Sister
Schubert's Homemade Rolls, Inc. for $32.4 million, net of cash acquired. Sister
Schubert's is a manufacturer and marketer of frozen, partially baked yeast rolls
and related products. We made additional payments of $3.0 million and $2.3
million in fiscal years 2003 and 2002, respectively, as required under the terms
of a contingent payment arrangement associated with the Sister Schubert's
acquisition. This contingent payment arrangement continued through calendar
2003, but no payment was required in fiscal 2004, the last year of the
arrangement.
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 4 - INVENTORIES
Inventories are valued at the lower of cost or market. Inventories that
comprise approximately 5% and 6% of total inventories at June 30, 2005 and 2004,
respectively, are costed on a last-in, first-out ("LIFO") basis. Replacement
cost for this inventory would have been higher by approximately $2.1 million and
$3.3 million at June 30, 2005 and 2004, respectively. Inventories that are
costed by various other methods approximate actual cost on a first-in, first-out
("FIFO") basis. During fiscal 2005, 2004 and 2003, certain inventory quantity
reductions resulted in a liquidation of LIFO inventory layers carried at lower
costs that prevailed in prior years. The fiscal 2005, 2004 and 2003 effect of
the liquidations was an increase in net earnings of approximately $0.8 million,
$2.6 million and $4.4 million after taxes, or approximately $.02, $.07 and $.12
per share, respectively.
It is not practicable to segregate work in process from finished goods
inventories. We estimate, however, that work in process inventories amount to
approximately 11% and 10% of the combined total of finished goods and work in
process inventories at June 30, 2005 and 2004, respectively.
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill attributable to the Specialty Foods and Automotive segments is
$78.2 million and $1.0 million, respectively.
31
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables summarize our identifiable other intangible assets by
segment as of June 30, 2005 and 2004:
2005 2004
------ ------
SPECIALTY FOODS
Trademarks
Gross carrying value............ $ 370 $ 370
Accumulated amortization........ (131) (121)
------ ------
Net Carrying Value.............. $ 239 $ 249
====== ======
Customer Lists
Gross carrying value............ $4,100 $4,100
Accumulated amortization........ (513) (171)
------ ------
Net Carrying Value.............. $3,587 $3,929
====== ======
Non-compete Agreements
Gross carrying value............ $1,200 $1,200
Accumulated amortization........ (225) (75)
------ ------
Net Carrying Value.............. $ 975 $1,125
====== ======
GLASSWARE AND CANDLES - CUSTOMER LISTS
Gross carrying value............... $ 250 $ 250
Accumulated amortization........... (114) (94)
------ ------
Net Carrying Value................. $ 136 $ 156
====== ======
Total Net Carrying Value.............. $4,937 $5,459
====== ======
Amortization expense relating to these assets was approximately $522,000,
$276,000 and $30,000 for the years ended June 30, 2005, 2004 and 2003,
respectively. The amortization expense is estimated to be approximately $522,000
for each of the next five fiscal years.
NOTE 6 - SHORT-TERM BORROWINGS
We may borrow up to $100 million under the terms of an unsecured revolving
credit facility. The facility expires in February 2008 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 all-in borrowing costs, including interest
and ongoing facility fees. At June 30, 2005, we were in compliance with all
provisions and covenants of the facility and there were no amounts outstanding
under the facility.
As of June 30, 2005, we had an uncommitted line of credit for short-term
borrowings from one bank of $25 million. The line of credit has been granted at
the discretion of the lending bank and, generally, is subject to periodic
review.
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities at June 30, 2005 and 2004 are composed of:
2005 2004
------- -------
Accrued compensation and employee benefits... $30,298 $29,751
Accrued marketing and distribution........... 7,660 5,359
Income and other taxes....................... 4,150 3,328
Book cash overdrafts......................... 7,299 2,775
Other........................................ 3,425 4,281
------- -------
Total accrued liabilities.................... $52,832 $45,494
======= =======
32
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8 - INCOME TAXES
We and our domestic subsidiaries file a consolidated Federal income tax
return. Taxes based on income for the years ended June 30, 2005, 2004 and 2003,
have been provided as follows:
2005 2004 2003
------- ------- -------
Currently payable:
Federal.............................................. $48,522 $38,844 $60,340
State and local...................................... 6,848 6,292 7,832
------- ------- -------
Total current provision................................. 55,370 45,136 68,172
Deferred Federal, state and local (benefit) provision... (437) 3,326 83
------- ------- -------
Total taxes based on income............................. $54,933 $48,462 $68,255
======= ======= =======
Certain tax benefits recorded directly to common stock totaled $208,000,
$311,000 and $395,000 for 2005, 2004 and 2003, respectively. For the years ended
June 30, 2005, 2004 and 2003, our effective tax rate varied from the statutory
Federal income tax rate as a result of the following factors:
2005 2004 2003
---- ---- ----
Statutory rate................. 35.0 % 35.0 % 35.0%
State and local income taxes... 2.9 % 3.2 % 2.8%
Other.......................... (0.8)% (0.5)% 0.0%
---- ---- ----
Effective rate................. 37.1 % 37.7 % 37.8%
==== ==== ====
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2005 and 2004 are comprised of:
2005 2004
-------- --------
Deferred tax assets:
Inventories...................................... $ 6,590 $ 7,353
Employee medical and other benefits.............. 14,232 11,230
Receivable and other allowances.................. 5,037 5,369
Other accrued liabilities........................ 4,019 3,457
-------- --------
Total deferred tax assets........................... 29,878 27,409
-------- --------
Total deferred tax liabilities-property and other... (18,511) (19,704)
-------- --------
Net deferred tax asset.............................. $ 11,367 $ 7,705
======== ========
Net current deferred tax assets totaled approximately $20.6 million and
$19.5 million for 2005 and 2004, respectively, and were included in Deferred
Income Taxes and Other Current Assets on the Consolidated Balance Sheet. Cash
payments for income taxes were approximately $54.2 million, $44.1 million and
$64.4 million for 2005, 2004 and 2003, respectively.
Ohio corporate tax legislation enacted on June 30, 2005 phases out the Ohio
Corporate Franchise Tax and phases in a new gross receipts tax called the
Commercial Activity Tax. The Corporate Franchise Tax was generally based on
federal taxable income, but the Commercial Activity Tax is based on sales in
Ohio. As required by SFAS No. 109, "Accounting for Income Taxes," we recorded
the impact of the change in Ohio tax legislation in the fourth quarter of fiscal
2005. The effect of the change in the law was immaterial to the consolidated
financial statements.
The American Jobs Creation Act provides a tax deduction calculated as a
percentage of qualified income from manufacturing in the United States. The
percentage increases from 3% to 9% over a six-year period beginning with our
2006 fiscal year. In December 2004, the FASB issued a new staff position
providing for this deduction to be treated as a special deduction, as opposed to
a tax rate reduction in accordance with SFAS No. 109.
33
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9 - SHAREHOLDERS' EQUITY
We are 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 Board of Directors in February 2000, each share of our
outstanding common stock includes a non-detachable 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 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% or more of 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% or more of the common stock. The person
or group effecting such 15% acquisition or undertaking such tender offer will
not be entitled to exercise any rights. If we are 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 us at a price of $.01 per right.
These rights expire in April 2010 unless earlier redeemed by us under
circumstances permitted by the Rights Agreement.
Our Board of Directors approved share repurchase authorizations of
3,000,000 shares (May 2000), 2,000,000 shares (August 2004) and 2,000,000 shares
(May 2005). Approximately 3,026,000 shares from the August 2004 and the May 2005
authorizations remained authorized for future purchase at June 30, 2005.
On March 9, 2005, pursuant to our previously announced share repurchase
program, we purchased 230,000 shares of common stock from the Estate of Dorothy
B. Fox (the "Estate") at a price per share of $42.634, which is equal to the
average closing price of our common stock over the ten trading days beginning
February 23, 2005, as adjusted to reflect the effects of our previously declared
dividend. Robert L. Fox, one of our Directors, serves as executor of the Estate.
NOTE 10 - STOCK OPTIONS
As approved by the shareholders in November 1995, the terms of the 1995 Key
Employee Stock Option Plan ("Plan") reserved 3,000,000 common shares for
issuance to qualified key employees. All options granted under the Plan were
exercisable at prices not less than fair market value as of the date of grant.
At June 30, 2005, 1,569,634 shares were available for future grants, but the
plan expired in August 2005. In general, options granted under the Plan vested
immediately and had a maximum term of five years. We intend to solicit
shareholder approval for adoption of a new equity compensation plan at our 2005
Annual Meeting of Shareholders.
The following summarizes for each of the three years in the period ended
June 30, 2005 the activity relating to stock options granted under the 1995 Plan
mentioned above:
2005 2004 2003
------------------- ------------------- -------------------
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... 380,664 $34.93 496,941 $34.53 262,979 $28.42
Exercised......................... (112,160) 33.74 (109,877) 33.07 (120,424) 29.34
Granted........................... 326,550 41.52 -- -- 359,800 37.26
Forfeited......................... (4,950) 38.53 (6,400) 35.48 (5,414) 34.73
-------- ------ -------- ------ -------- ------
Outstanding at end of period......... 590,104 $38.77 380,664 $34.93 496,941 $34.53
======== ====== ======== ====== ======== ======
Exercisable at end of period......... 531,255 $38.59 373,809 $34.98 466,197 $34.81
======== ====== ======== ====== ======== ======
34
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information about the options outstanding at
June 30, 2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
------------------------
REMAINING
GRANT RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER WEIGHTED AVERAGE
YEARS EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISE PRICE
- ----- --------------- ----------- ------------- -------- ----------- ----------------
2001... $29.50-$32.45 63,764 0.87 $29.62 59,439 $29.62
2003... $37.23-$40.95 203,040 2.75 $37.28 200,510 $37.28
2005... $41.52 323,300 4.67 $41.52 271,306 $41.52
NOTE 11 - PENSION BENEFITS
DEFINED BENEFIT PENSION PLANS
We and certain of our operating subsidiaries provide multiple defined
benefit pension plans. Benefits under the plans are primarily based on
negotiated rates and years of service and cover the union workers at such
locations. We contribute to these plans at least the minimum amount required by
regulation or contract. We recognize the cost of plan benefits as the employees
render service. We use a June 30 measurement date for all of our plans. At the
end of the year, we discount our plan liabilities using an assumed discount
rate. In estimating this rate, we, along with our third-party actuaries, review
bond indices and the past history of discount rates.
The actuarial present value of benefit obligations summarized below was
based on the following assumption:
2005 2004
---- ----
WEIGHTED-AVERAGE ASSUMPTION AS OF JUNE 30
Discount rate............................ 5.25% 6.25%
The net periodic benefit costs were determined utilizing the following
beginning-of-the-year assumptions:
2005 2004 2003
---- ---- ----
Discount rate.............................. 6.25% 5.75% 6.95%
Expected long-term return on plan assets... 8.00% 9.00% 9.00%
Our investment strategy for our plan assets is to control and manage
investment risk through diversification across asset classes and investment
styles. By our current corporate guidelines, 50-85% of plan assets may be
allocated to equity securities, 15-40% to debt securities and up to 35% to cash.
We currently do not expect to make substantial changes in total investment
allocation from that of fiscal 2005. We expect that a modest allocation to cash
will exist within the plans, because each investment manager is likely to hold
limited cash in a portfolio. Our plan assets include an investment in shares of
our common stock with a market value of $3.0 million and $2.9 million as of June
30, 2005 and 2004, respectively.
The asset allocation for our plans at June 30 by asset category, is as
follows:
PERCENTAGE OF
PLAN ASSETS
AT JUNE 30
-------------
ASSET CATEGORY 2005 2004
- -------------- ---- ----
Equity securities... 73% 69%
Fixed income........ 27% 31%
--- ---
Total............... 100% 100%
=== ===
The expected return on plan assets is based on our historical experience,
our plan investment guidelines, and our expectations for long-term rates of
return. Our plan investment guidelines are established based upon an evaluation
of market conditions, tolerance for risk, and cash requirements for benefit
payments.
35
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Relevant information with respect to our pension benefits as of June 30,
can be summarized as follows:
2005 2004
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ........................... $ 40,406 $ 42,236
Service cost ...................................................... 554 605
Interest cost ..................................................... 2,531 2,376
Actuarial loss (gain) ............................................. 7,331 (2,446)
Benefits paid ..................................................... (2,288) (2,365)
-------- --------
Benefit obligation at end of year ................................. $ 48,534 $ 40,406
-------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year .................... $ 35,712 $ 30,980
Actual return on plan assets ...................................... 2,671 3,986
Employer contributions ............................................ 999 3,111
Benefits paid ..................................................... (2,288) (2,365)
-------- --------
Fair value of plan assets at end of year .......................... $ 37,094 $ 35,712
-------- --------
RECONCILIATION OF FUNDED STATUS
Under funded status ............................................... $(11,440) $ (4,694)
Unrecognized net actuarial loss ................................... 17,343 10,318
Unrecognized prior service cost ................................... 2,429 2,663
Unrecognized net transition obligation ............................ 31 66
-------- --------
Prepaid benefit cost .............................................. $ 8,363 $ 8,353
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF
Prepaid benefit cost(1) ........................................... $ 8,363 $ 8,353
Accrued benefit liability(2) ...................................... (19,803) (11,566)
Intangible asset(1) ............................................... 2,480 2,402
Accumulated other comprehensive loss .............................. 17,323 9,164
-------- --------
Net amount recognized ............................................. $ 8,363 $ 8,353
======== ========
ACCUMULATED BENEFIT OBLIGATION .................................... $ 48,534 $ 40,406
======== ========
- ----------
(1) Recorded in other noncurrent assets
(2) Recorded in other noncurrent liabilities
The following table discloses, in the aggregate, those plans with benefit
obligations in excess of the fair value of plan assets at the June 30
measurement date:
2005 2004
------- -------
Benefit obligations ....................... $48,534 $32,910
Fair value of plan assets at end of year .. $37,094 $28,124
36
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SFAS No. 87, "Employers' Accounting for Pensions," requires recognition in
the balance sheet of an additional minimum liability for pension plans with
accumulated benefit obligation in excess of plan assets. The following table
summarizes the resulting balance sheet changes to record the minimum pension
liability at June 30:
2005 2004 2003
------- ------- -------
Minimum pension liability (asset) .................... $ 8,237 $(6,373) $10,633
Intangible asset (liability) ......................... $ 78 $ (621) $ 362
Other comprehensive (loss) income net of tax ......... $(5,346) $ 3,589 $(6,409)
Tax (benefit) expense of other comprehensive income .. $(2,813) $ 2,163 $(3,862)
The following table summarizes the components of net periodic benefit cost
at June 30:
2005 2004 2003
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ..................................... $ 554 $ 605 $ 625
Interest cost .................................... 2,531 2,376 2,324
Expected return on plan assets ................... (2,775) (2,508) (2,564)
Amortization of unrecognized net loss ............ 410 699 125
Amortization of prior service cost ............... 234 234 267
Change in prior service cost due to curtailment .. -- -- 678
Amortization of unrecognized net
obligation (asset) existing at transition ..... 35 35 (19)
------- ------- -------
Net periodic benefit cost ........................ $ 989 $ 1,441 $ 1,436
======= ======= =======
We have not yet finalized our anticipated funding level for fiscal 2006,
but, based on initial estimates, we anticipate funding approximately $2.9
million.
Benefit payments estimated for future fiscal years are as follows:
2006 ......... $ 1,864
2007 ......... $ 1,995
2008 ......... $ 2,112
2009 ......... $ 2,280
2010 ......... $ 2,402
2011 - 2015 .. $13,631
NOTE 12 - POSTRETIREMENT BENEFITS
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFIT PLANS
We and certain of our operating subsidiaries provide multiple
postretirement medical and life insurance benefit plans. We recognize the cost
of benefits as the employees render service. Postretirement benefits are funded
as incurred. We use a June 30 measurement date for all of our plans. At the end
of the year, we discount our plan liabilities using an assumed discount rate. In
estimating this rate, we, along with our third-party actuaries, review bond
indices and the past history of discount rates.
The actuarial present value of benefit obligations summarized below was
based on the following assumption:
2005 2004
---- ----
WEIGHTED-AVERAGE ASSUMPTION AS OF JUNE 30
Discount rate ........................... 5.25% 6.25%
37
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The net periodic benefit costs were determined utilizing the following
beginning-of-the-year assumptions:
2005 2004 2003
----- ---- ----
Discount rate................. 6.25% 5.75% 6.95%
Health care cost trend rate... 12.00% 9.00% 8.00%
Relevant information with respect to our postretirement medical and life
insurance benefits as of June 30, can be summarized as follows:
2005 2004
------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.... $ 5,368 $ 4,335
Service cost............................... 135 253
Interest cost.............................. 323 240
Actuarial loss............................. 1,380 886
Plan amendments............................ 6 --
Benefits paid.............................. (448) (346)
------- -------
Benefit obligation at end of year.......... $ 6,764 $ 5,368
------- -------
CHANGE IN PLAN ASSETS
Employer contributions..................... $ 448 $ 346
Benefits paid.............................. (448) (346)
------- -------
Fair value of plan assets at end of year... $ -- $ --
------- -------
RECONCILIATION OF FUNDED STATUS
Under funded status........................ $(6,764) $(5,368)
Unrecognized net actuarial loss............ 3,112 1,807
Unrecognized prior service asset........... (70) (83)
------- -------
Accrued benefit cost....................... $(3,722) $(3,644)
======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS CONSIST OF
Accrued benefit liability(1)............... $(3,722) $(3,644)
======= =======
ACCUMULATED BENEFIT OBLIGATION............. $ 6,764 $ 5,368
======= =======
- ----------
(1) Recorded in other noncurrent liabilities
The following table summarizes the components of net periodic benefit cost
at June 30:
2005 2004 2003
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost............................ $135 $253 $176
Interest cost........................... 323 240 227
Amortization of unrecognized net loss... 75 36 --
Amortization of prior service asset..... (7) (7) (7)
---- ---- ----
Net periodic benefit cost............... $526 $522 $396
==== ==== ====
We expect to contribute approximately $0.3 million to our postretirement
benefit plans in fiscal 2006.
38
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Benefit payments estimated for future years are as follows:
2006.......... $ 340
2007.......... $ 333
2008.......... $ 327
2009.......... $ 321
2010.......... $ 327
2011 - 2015... $1,968
For other postretirement benefit measurement purposes, annual increases in
medical costs for fiscal 2005 are assumed to total approximately 12% per year
and gradually decline to 5% by approximately the year 2012 and remain level
thereafter. Annual increases in medical costs for fiscal 2004 were assumed to
total approximately 12% per year and gradually decline to 5% by approximately
the year 2011 and remain level thereafter.
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
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost components........... $ 79 $ (62)
Effect on postretirement benefit obligation as of June 30, 2005... $829 $(667)
NOTE 13 - DEFINED CONTRIBUTION AND OTHER EMPLOYEE PLANS
We sponsor eight defined contribution plans established pursuant to Section
401(k) of the Internal Revenue Code. Contributions are determined under various
formulas, and we contribute to six such plans. Costs related to such plans
totaled approximately $1.0 million for each of the years ended June 30, 2005,
2004 and 2003.
Certain of our subsidiaries also participate in multiemployer plans that
provide pension and postretirement health and welfare benefits to the union
workers at such locations. The contributions required by our participation in
the multiemployer plans totaled $3.7 million, $3.8 million and $3.7 million in
2005, 2004 and 2003, respectively.
We also sponsored 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. We have no further obligation to the ESOP.
We offer a deferred compensation plan for select employees who may elect to
defer a certain percentage of annual compensation. We do not match any
contributions. Each participant earns interest based upon the prime rate of
interest, adjusted semi-annually, on their respective deferred compensation
balance. Participants are paid out upon retirement or termination. Our liability
for total deferred compensation and accrued interest was $3.6 million and $3.1
million for the years ended June 30, 2005 and 2004, respectively. Deferred
compensation expense amounted to $157,000, $108,000 and $75,000 for the years
2005, 2004 and 2003, respectively.
NOTE 14 - COMMITMENTS
We have 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 2012. 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): 2006-$5,642;
2007-$4,180; 2008-$3,372; 2009-$3,164; 2010-$2,543; thereafter-$989.
39
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total rent expense, including short-term cancelable leases, during fiscal
years ended June 30, 2005, 2004 and 2003 is summarized as follows:
2005 2004 2003
------ ------ ------
Operating leases:
Minimum rentals............. $5,385 $5,446 $5,126
Contingent rentals.......... 376 381 360
Short-term cancelable leases... 2,057 2,094 2,786
------ ------ ------
Total.................... $7,818 $7,921 $8,272
====== ====== ======
NOTE 15 - CONTINGENCIES AND ENVIRONMENTAL MATTERS
At June 30, 2005, we are a party to various legal and environmental matters
that 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 our
opinion, their ultimate disposition will not have a material adverse effect on
our consolidated financial statements.
During the second quarter of fiscal 2005, we received approximately $26.2
million from the U.S. government under CDSOA compared to approximately $2.0
million received in the second quarter of fiscal 2004 and approximately $39.2
million received in the second quarter of fiscal 2003. These amounts are
recorded as other income in the accompanying financial statements. The CDSOA,
which applies to our candle operations, is intended to redress unfair dumping of
imported products through cash payments to eligible affected companies. Such
payments are in part dependent upon the amount of anti-dumping duties collected
on those products. The World Trade Organization has previously ruled that such
payments are inconsistent with international trade rules. Additionally, there
exists pending litigation to which we are not a party that challenges the
constitutionality of CDSOA. However, CDSOA continues to be in effect in the
United States at this time. Uncertainties associated with this program leave us
unable to predict the amounts, if any, we may be entitled to receive in the
future.
Certain of our automotive accessory products carry explicit limited
warranties that extend from 12 months to the life of the product, based on terms
that are generally accepted in the marketplace. Our policy is to record a
provision for the expected cost of the warranty-related claims at the time of
the sale, and periodically adjust the provision to reflect actual experience.
The amount of warranty liability accrued reflects our best estimate of the
expected future cost of honoring obligations under the warranty plans. The
warranty accrual as of June 30, 2005 and 2004 is immaterial to our financial
condition, and the change in the accrual for the current year of fiscal 2005 is
immaterial to our results of operations and cash flows.
Approximately 30% of our employees are represented under various collective
bargaining agreements, which expire at various times through May 2009. While we
believe that labor relations with unionized employees are good, a prolonged
labor dispute could have a material adverse effect on our business and results
of operations.
NOTE 16 - RESTRUCTURING AND IMPAIRMENT CHARGE
In the quarter ended March 31, 2005, we recorded a noncash impairment
charge of $1.6 million ($1.0 million after taxes) relating to certain equipment
in two of our business segments. Approximately $0.9 million of the charge
relates to the impairment of glassware-manufacturing equipment in our Glassware
and Candles segment. Approximately $0.7 million of the charge relates to the
impairment of certain idle manufacturing equipment in our Automotive segment.
These impairments occurred due to inefficient production and a slowdown in
demand for certain products associated with this equipment. We determined that
an impairment existed based on a comparison of the sum of the related, estimated
undiscounted future cash flows with the assets' carrying amounts. We then
compared the assets' carrying amounts to their estimated fair value to determine
the amount of impairment to be recorded utilizing market prices of similar
equipment as applicable.
40
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In the fourth quarter of fiscal 2004, we recorded a restructuring and
impairment charge of approximately $1.1 million ($0.7 million after taxes) for
costs incurred as of June 30, 2004 related to the closing of our automotive
floor mat manufacturing facility located in Waycross, Georgia. Manufacturing
effectively ceased as of June 30, 2004. Approximately 110 hourly and salary
employees were impacted by this shutdown. The decision to close the plant was
brought on by a decline in demand for compression molded rubber floor mats that
resulted in excess segment capacity. The fiscal 2004 cash costs associated with
this closure totaled approximately $0.3 million and included termination
benefits and other closing costs, such as costs to remove and relocate certain
equipment, costs to prepare the building for sale, and various other charges.
Approximately $0.8 million of the fiscal 2004 restructuring and impairment
charge related to this facility's impairment of property, plant and equipment.
During the year ended June 30, 2005, we recorded an additional restructuring and
impairment charge of $0.5 million ($0.3 million after taxes) for costs incurred
during that period. The majority of this charge resulted in cash outlays and
consisted of other closing costs, such as costs to maintain the building and
various other charges.
An analysis of our Waycross restructuring activity and the related
liability in the Automotive segment is as follows:
ACCRUAL ACCRUAL
2004 AT 2005 AT
2004 CASH JUNE 30, 2005 CASH JUNE 30,
CHARGE OUTLAYS 2004 CHARGE OUTLAYS 2005
------ ------- -------- ------ ------- --------
WAYCROSS RESTRUCTURING AND IMPAIRMENT CHARGE
Employee Separation Costs ............... $ 233 $(128) $105 $ -- $(105) $--
Other Costs ............................. 39 (5) 34 401 (410) 25
------ ----- ---- ---- ----- ---
Subtotal ................................ 272 $(133) $139 401 $(515) $25
===== ==== ===== ===
Asset Impairment ........................ 786 135
------ ----
Waycross Restructuring and
Impairment Charge ................. $1,058 $536
====== ====
The restructuring accrual is included in accounts payable and accrued
liabilities at June 30, 2005 and 2004. We expect that the remaining cash outlays
for this plan will be immaterial to the overall consolidated financial
statements.
In fiscal 2003, we recorded a restructuring and impairment charge of
approximately $4.9 million ($3.0 million after taxes) related to the
consolidation of certain glass manufacturing operations. The charge consisted of
employee separation costs, pension curtailment costs, closure and cleanup costs,
and the writedown of property, plant and equipment having no future utility as a
result of the restructuring decision. The plant consolidation was substantially
completed by June 2003.
An analysis of this restructuring activity and the related liability within
the Glassware and Candles segment is as follows:
ACCRUAL ACCRUAL ACCRUAL
2003 AT 2004 AT 2005 AT
2003 CASH JUNE 30, CASH JUNE 30, CASH JUNE 30,
CHARGE OUTLAYS 2003 OUTLAYS 2004 OUTLAYS 2005
------ ------- -------- ------- -------- ------- --------
RESTRUCTURING AND IMPAIRMENT CHARGE
Employee Separation Costs .......... $1,063 $ (974) $ 89 $(68) $ 21 $ -- $ 21
Closing and Cleanup Costs .......... 201 (87) 114 (9) 105 (5) 100
------ ------- ---- ---- ---- ---- ----
Subtotal ........................... 1,264 $(1,061) $203 $(77) $126 $ (5) $121
======= ==== ==== ==== ==== ====
Property and Equipment Impairment .. 2,943
Pension Curtailment ................ 678
------
Total Restructuring and
Impairment Charge ............... $4,885
======
The restructuring accrual is included in accrued liabilities at June 30,
2005 and 2004. We expect that the remaining cash outlays for this plan will be
immaterial to the overall consolidated financial statements.
41
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 17 - BUSINESS SEGMENTS INFORMATION
We have evaluated our operations in accordance with SFAS No. 131 and have
determined that the business is separated into three distinct operating and
reportable segments: "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 pasta
and egg noodles, caviar, frozen hearth-baked breads, and frozen yeast rolls.
Salad dressings, sauces, croutons, frozen pasta and 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 a variety of 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 food and drug 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, short-term investments and deferred income taxes.
The following sets forth certain financial information attributable to our
business segments for the three years ended June 30, 2005, 2004 and 2003:
2005 2004 2003
---------- ---------- ----------
NET SALES(1)
Specialty Foods ........ $ 673,840 $ 639,226 $ 609,994
Glassware and Candles .. 233,505 231,125 251,437
Automotive ............. 224,121 226,602 245,369
---------- ---------- ----------
Total ............... $1,131,466 $1,096,953 $1,106,800
========== ========== ==========
OPERATING INCOME
Specialty Foods ........ $ 111,392 $ 109,391 $ 116,068
Glassware and Candles .. 7,247 9,298 12,432
Automotive ............. 6,082 11,980 17,351
Corporate Expenses ..... (6,808) (5,926) (5,908)
---------- ---------- ----------
Total ............... $ 117,913 $ 124,743 $ 139,943
========== ========== ==========
IDENTIFIABLE ASSETS(1)
Specialty Foods ........ $ 231,219 $ 221,953 $ 194,254
Glassware and Candles .. 187,707 186,332 205,651
Automotive ............. 106,461 106,191 103,685
Corporate .............. 205,891 198,409 164,126
---------- ---------- ----------
Total ............... $ 731,278 $ 712,885 $ 667,716
========== ========== ==========
42
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 2004 2003
------- ------- -------
CAPITAL EXPENDITURES
Specialty Foods .......... $15,152 $ 8,790 $14,355
Glassware and Candles .... 3,621 4,359 7,587
Automotive ............... 3,791 4,843 7,910
Corporate ................ 119 180 89
------- ------- -------
Total ................. $22,683 $18,172 $29,941
======= ======= =======
DEPRECIATION AND AMORTIZATION
Specialty Foods .......... $ 9,589 $ 9,015 $ 8,227
Glassware and Candles .... 16,387 14,313 15,756
Automotive ............... 7,127 7,776 7,539
Corporate ................ 159 163 147
------- ------- -------
Total ................. $33,262 $31,267 $31,669
======= ======= =======
- ----------
(1) Net sales and long-lived assets are predominantly domestic.
Combined net sales from the three segments attributable to Wal-Mart Stores,
Inc. totaled approximately $152 million or 13% of consolidated fiscal 2005 net
sales; $131 million or 12% of consolidated fiscal 2004 net sales and $137
million or 12% of consolidated net sales in fiscal 2003.
Combined accounts receivable for the three segments attributable to
Wal-Mart Stores, Inc. totaled approximately 15% and 14% of consolidated accounts
receivable at June 30, 2005 and 2004, respectively.
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
DILUTED
NET GROSS NET EARNINGS
SALES MARGIN INCOME PER SHARE(5)
---------- -------- ------- ------------
2005
FIRST QUARTER(1).... $ 281,484 $ 54,017 $18,378 $ .52
SECOND QUARTER(2)... 297,349 59,359 38,119 1.08
THIRD QUARTER(3).... 276,822 51,300 16,112 .46
FOURTH QUARTER(4)... 275,811 54,787 20,479 .60
---------- -------- ------- -----
YEAR............. $1,131,466 $219,463 $93,088 $2.67
========== ======== ======= =====
2004
First quarter(6).... $ 266,652 $ 55,807 $19,700 $ .55
Second quarter(7)... 291,196 65,051 26,650 .74
Third quarter(8).... 269,463 49,804 16,045 .45
Fourth quarter(9)... 269,642 53,024 17,607 .49
---------- -------- ------- -----
Year............. $1,096,953 $223,686 $80,002 $2.24
========== ======== ======= =====
- ----------
(1) Included in the first quarter's earnings are a) income of approximately
$0.2 million, after taxes, or less than $.01 per share, related to the
liquidation of certain LIFO inventories carried at prior years' lower costs
and b) income of approximately $0.5 million, net of taxes, or approximately
$.01 per share, related to a bad debt recovery.
(2) Included in the second quarter's earnings is income of approximately $16.4
million, net of taxes, or approximately $.47 per share, related to funds
received under CDSOA.
(3) Included in the third quarter's earnings is an asset impairment charge of
approximately $1.0 million, net of taxes, or approximately $.03 per share,
related to the writedown of certain machinery and equipment.
43
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) Included in the fourth quarter's earnings is income of approximately $0.3
million, net of taxes, or less than $.01 per share, related to the
liquidation of certain LIFO inventories carried at prior years' lower
costs.
(5) Quarterly diluted earnings per share do not add due to rounding.
(6) Included in the first quarter's earnings is income of approximately $1.0
million, net of taxes, or approximately $.03 per share, related to the
liquidation of certain LIFO inventories carried at prior years' lower
costs.
(7) Included in the second quarter's earnings are a) income of approximately
$0.7 million, net of taxes, or approximately $.02 per share, related to the
liquidation of certain LIFO inventories carried at prior years' lower
costs; b) income of approximately $1.2 million, net of taxes, or
approximately $.03 per share, related to funds received under CDSOA; and c)
income of approximately $0.8 million, net of taxes, or approximately $.02
per share, related to the recovery of bad debts previously written off.
(8) Included in the third quarter's earnings is income of approximately $0.5
million, net of taxes, or approximately $.01 per share, related to the
liquidation of certain LIFO inventories carried at prior years' lower
costs.
(9) Included in the fourth quarter's earnings are a) a restructuring charge of
approximately $0.7 million, net of taxes, or approximately $.02 per share,
related to the closing of our automotive floor mat manufacturing facility
located in Waycross, Georgia and b) income of approximately $0.5 million,
net of taxes, or approximately $.01 per share, related to the liquidation
of certain LIFO inventories carried at prior years' lower costs.
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities Exchange Act of 1934
reports are recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well-designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the
design and operating of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
REPORT OF MANAGEMENT
Internal control over financial reporting refers to the process designed
by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, and includes those policies and
procedures that:
1. Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets;
2. Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of management and our directors; and
3. Provide reasonable assurance regarding prevention or timely detection
of an unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Management is
responsible for establishing and maintaining adequate internal control over
financial reporting.
Management has used the framework set forth in the report entitled Internal
Control - Integrated Framework published by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission to evaluate the effectiveness of
our internal control over financial reporting. Management has concluded that our
internal control over financial reporting was effective as of the end of the
most recent fiscal year. Deloitte & Touche LLP has issued an attestation report
on management's assessment of our internal control over financial reporting.
There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Lancaster Colony Corporation
Columbus, Ohio
We have audited management's assessment, included in the accompanying
Report of Management, that Lancaster Colony Corporation and subsidiaries (the
"Company") maintained effective internal control over financial reporting as of
June 30, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of June 30, 2005, is
fairly stated, in all material respects, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2005, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheets of the
Company as of June 30, 2005 and 2004, and the related consolidated statements of
income, shareholders' equity and cash flows and the financial statement schedule
for each of the three years in the period ended June 30, 2005. Our report dated
September 12, 2005 expressed an unqualified opinion on those consolidated
financial statements and financial statement schedule.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Columbus, Ohio
September 12, 2005
46
ITEM 9B. OTHER INFORMATION
None
PART III
Items 10 through 14 are incorporated herein by reference to the sections
captioned "Nomination and Election of Directors," "Executive Compensation,"
"Security Ownership of Certain Beneficial Owners," "Certain Relationship and
Related Transactions," "Audit and Related Fees" and "Approval of the Adoption of
the 2005 Stock Plan" in the Registrant's Definitive Proxy Statement for the 2005
Annual Meeting of Shareholders to be held November 21, 2005.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements. The following consolidated financial
statements as of June 30, 2005 and 2004 and for each of the three years in the
period ended June 30, 2005 together with the report thereon of Deloitte & Touche
LLP dated September 12, 2005 are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2005 and 2004
Consolidated Statements of Income for the years ended June 30, 2005, 2004
and 2003
Consolidated Statements of Cash Flows for the years ended June 30, 2005,
2004 and 2003
Consolidated Statements of Shareholders' Equity for the years ended June
30, 2005, 2004 and 2003
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules Required by Item 8. Included in Part
IV of this report is the following additional financial data that 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 15(b). See
Index to Exhibits following "Schedule II - Valuation and Qualifying Accounts."
47
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LANCASTER COLONY CORPORATION
----------------------------------------
(Registrant)
By: /s/ JOHN B. GERLACH, JR.
------------------------------------
John B. Gerlach, Jr.
Chairman, Chief Executive Officer,
President and Director
Date: September 13, 2005
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 13, 2005
- -------------------------- Chief Executive Officer,
John B. Gerlach, Jr. President and Director
/s/ JOHN L. BOYLAN Treasurer, Vice President, September 13, 2005
- -------------------------- Assistant Secretary,
John L. Boylan Chief Financial Officer
(Principal Financial and
Accounting Officer) and
Director
/s/ JAMES B. BACHMANN Director September 2, 2005
- --------------------------
James B. Bachmann
/s/ NEELI BENDAPUDI Director September 8, 2005
- --------------------------
Neeli Bendapudi
/s/ ROBERT L. FOX Director September 1, 2005
- --------------------------
Robert L. Fox
Director
- --------------------------
Robert S. Hamilton
/s/ EDWARD H. JENNINGS Director September 3, 2005
- --------------------------
Edward H. Jennings
/s/ HENRY M. O'NEILL, JR. Director September 2, 2005
- --------------------------
Henry M. O'Neill, Jr.
/s/ ZUHEIR SOFIA Director September 1, 2005
- --------------------------
Zuheir Sofia
48
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 2005
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
(amounts in thousands):
Year ended June 30, 2003............... $3,414 $ 667 $ 2,129 $1,952
====== ======= ======= ======
Year ended June 30, 2004............... $1,952 $(1,174)(B) $(1,041)(B) $1,819
====== ======= ======= ======
Year ended June 30, 2005............... $1,819 $ (673)(C) $ (684)(C) $1,830
====== ======= ======= ======
NOTES:
(A) Represents uncollectible accounts written off net of recoveries.
(B) Includes recovery of previously written off bad debt related to the fiscal
2002 bankruptcy of Kmart Corporation of approximately $1.8 million.
(C) Includes recovery of previously written off bad debt related to the fiscal
2002 bankruptcy of Kmart Corporation of approximately $1.5 million.
49
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FORM 10-K
JUNE 30, 2005
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATED AT
- ------- ----------- ----------
3.1 Certificate of Incorporation of the registrant
approved by the shareholders November 18, 1991....... (e)
.2 Certificate of Amendment to the Articles of
Incorporation approved by the shareholders
November 16, 1992.................................... (e)
.3 Certificate of Amendment to the Articles of
Incorporation approved by the shareholders
November 17, 1997.................................... (e)
.4 Regulations 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................. (h)
.2 Rights Agreement dated as of April 20, 2000 between
Lancaster Colony Corporation and The Huntington Trust
Company, N.A......................................... (g)
.3 Credit Agreement dated as of February 13, 2001 among
Lancaster Colony Corporation, The Lenders and Bank
One, NA, as Agent.................................... (i)
.4 First Amendment to Credit Agreement dated as of
June 24, 2003 among Lancaster Colony Corporation, the
Lenders and Bank One, NA as Agent.................... (j)
.5 Second Amendment to Credit Agreement dated as of
March 3, 2005 among Lancaster Colony Corporation, the
Lenders and J. P. Morgan Chase Bank, NA as Agent..... (o)
10.1 Key Employee Severance Agreement between Lancaster
Colony Corporation and John L. Boylan................ (c)
.2 1995 Key Employee Stock Option Plan.................. (d)
.3 Key Employee Severance Agreement between Lancaster
Colony Corporation and Bruce L. Rosa................. (f)
.4 Lancaster Colony Corporation Executive Employee
Deferred Compensation Plan........................... (h)
.5 Description of Registrant's Executive Bonus
Arrangements......................................... (k)
.6 Design/Build Agreement between T. Marzetti Company,
LLC and Shambaugh & Son, L.P......................... (l)
.7 2004 Amendment to the Lancaster Colony Corporation
Executive Employee Deferred Compensation Plan........ (m)
.8 Lancaster Colony Corporation 2005 Executive Employee
Deferred Compensation Plan........................... (n)
21 Significant Subsidiaries of Registrant............... Filed herewith
23 The consent of Deloitte & Touche LLP to the
incorporation by reference in Registration Statement
No. 333-01275 on Form S-8 of their reports dated
September 12, 2005, appearing in and incorporated by
reference in this Annual Report on Form 10-K of
Lancaster Colony Corporation for the year ended
June 30, 2005........................................ Filed herewith
31.1 Certification of CEO under Section 302 of the
Sarbanes-Oxley Act of 2002........................... Filed herewith
31.2 Certification of CFO under Section 302 of the
Sarbanes-Oxley Act of 2002........................... Filed herewith
32 Certification of CEO and CFO under Section 906 of the
Sarbanes-Oxley Act of 2002........................... Filed herewith
50
- ----------
(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.
(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, 1991.
(d) 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).
(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, 1998.
(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, 1999.
(g) 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.
(h) 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.
(i) 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.
(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, 2003.
(k) 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, 2004.
(l) 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 December 31, 2004.
(m) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 8-K filed
January 3, 2005.
(n) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 8-K filed
February 25, 2005.
(o) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 8-K filed March
7, 2005.
51