-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N6NK27hBuQGRY/VibEnRmDK+7AZLbl2XiHq5fAXhXm2AD8C9g2/DjvYkDYUFJYdd oImvcIGWfRooC3DTKsUXyQ== 0000950152-98-007796.txt : 19980925 0000950152-98-007796.hdr.sgml : 19980925 ACCESSION NUMBER: 0000950152-98-007796 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980924 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANCASTER COLONY CORP CENTRAL INDEX KEY: 0000057515 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 131955943 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-04065 FILM NUMBER: 98714239 BUSINESS ADDRESS: STREET 1: 37 W BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142247141 10-K405 1 LANCASTER COLONY CORPORATION 1 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, 1998 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) 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 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 (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 ----- ----- The aggregate market value of Common Stock held by non-affiliates on September 1, 1998 was approximately $988,504,000. As of September 1, 1998, there were approximately 42,536,000 shares of Common Stock, no par value per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference to this annual report: Registrant's 1998 Annual Report to Shareholders - Parts I, II and IV. Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998; to be filed - Part III. The 1998 Annual Report to Shareholders and 1998 Proxy Statement shall be deemed to have been "filed" only to the extent portions thereof are expressly incorporated by reference. EXHIBIT INDEX ON PAGE 12. - 1 - 2 PART I Item 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Lancaster Colony Corporation was reincorporated in Ohio effective January 2, 1992. Prior to this date Lancaster Colony Corporation had been a Delaware Corporation organized in 1961. As used herein the term "registrant," unless the context otherwise requires, refers to Lancaster Colony Corporation and its subsidiaries. DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS The registrant operates in three business segments - specialty foods, glassware and candles and automotive - which accounted for approximately 41%, 36% and 23%, respectively, of consolidated net sales for the fiscal year ended June 30, 1998. The financial information relating to business segments for each of the three years in the period ended June 30, 1998, appearing in Exhibit 13 in this Form 10-K Annual Report, is incorporated herein by reference. Further description of each business segment the registrant operates within is provided below: SPECIALTY FOODS The food products manufactured and sold by the registrant include salad dressings and sauces marketed under the brand names "Marzetti," "Cardini's," "Pfeiffer" and "Girard's"; fruit glazes, veggie dips and fruit dips marketed under the brand name "Marzetti", frozen unbaked pies principally marketed under the brand name "Mountain Top"; hearth-baked frozen breads marketed under the brand name "New York Frozen Foods"; refrigerated chip dips and dairy desserts marketed under the brand names "Allen" and "Marzetti"; premium dry egg noodles marketed under the brand names "Inn Maid" and "Amish Kitchen"; frozen specialty noodles, pastas, and breaded specialty items marketed under the brand name "Reames"; croutons and related products marketed under the brand name "Chatham Village Foods" and caviar marketed under the brand name "Romanoff." The salad dressings and sauces are manufactured in Columbus, Ohio; Wilson, New York; Atlanta, Georgia and Milpitas, California. The dressings, sauces, croutons, veggie dips and fruit dips are sold in various metropolitan areas in the United States with sales being made to retail and/or foodservice markets. The frozen unbaked pies are marketed principally in the Midwestern United States through salesmen and food brokers to institutional distributors and retail outlets. A portion of the frozen bread sales is directed to the foodservice market. The dry egg noodles and refrigerated chip dips and dairy desserts are sold through food brokers and distributors to retail markets principally in the Midwestern United States. The "Reames" line is sold through brokers and distributors in various metropolitan areas principally in the central and Midwestern United States. This segment is not dependent upon a single customer or a few customers, the loss of any one or more of which would have a significant adverse effect on operating results. Although the Company is a leading producer of salad dressings, all of the markets in which the registrant sells food products are highly competitive in the areas of price, quality and customer service. During fiscal year 1998, the registrant obtained adequate supplies of raw materials for this segment. - 2 - 3 The registrant's firm order backlog at June 30, 1998, in this business segment, was approximately $4,195,000 as compared to a backlog of approximately $4,261,000 as of the end of the preceding fiscal year. It is expected that all of these orders will be filled during the current fiscal year. The operations of this segment are not affected to any material extent by seasonal fluctuations. The registrant does not utilize any franchises or concessions in this business segment. The trade names under which it operates are significant to the overall success of this segment. However, the patents and licenses under which it operates are not essential to the overall success of this segment. GLASSWARE AND CANDLES Candles and other home fragrance products of all sizes, forms and fragrance are primarily sold in the mass merchandise markets as well as to supermarkets, drug stores and specialty shops under the name "Candle-lite." A portion of the registrant's candle business is marketed under private label. Glass products include a broad range of machine pressed and machine blown consumer glassware and technical glass products such as cathode ray tubes, lighting components, lenses and silvered reflectors. Consumer glassware includes a diverse line of decorative and ornamental products such as tumblers, bowls, pitchers, jars and barware. These products are marketed under a variety of trademarks, the most important of which are "Indiana Glass," "Tiara," "Colony" and "Fostoria." The registrant also purchases domestic and imported blown glassware which is sold under the trade name Colony; and some domestic handcrafted ware sold through its Tiara home party marketing plan. Glass vases and containers are sold both in the retail and wholesale florist markets under the trade name "Brody" as well as under private label. The registrant's glass products are sold to discount, department, variety and drug stores, as well as to jobbers and directly to retail customers. Commercial markets such as foodservice, hotels, hospitals and schools are also served by this segment's products. Although minor, rubber matting sales to commercial markets are also included in this segment. All the markets in which the registrant sells houseware products are highly competitive in the areas of design, price, quality and customer service. Sales of glassware and candles to one customer accounted for approximately 21% and 15% of this segment's total net sales during 1998 and 1997, respectively. No other customer accounted for more than 10% of this segment's total net sales. During fiscal year 1998, the registrant obtained adequate supplies of raw materials for this business segment. The registrant's firm order backlog at June 30, 1998, in this business segment, was approximately $33,327,000 as compared to approximately $44,599,000 as of the end of the preceding fiscal year. It is expected that all of these orders will be filled during the current fiscal year. Seasonal retail stocking patterns cause certain of this segment's products to experience increased sales in the first half of the fiscal year. The registrant does not use any franchises or concessions in this segment. The patents under which it operates are not essential to the overall success of this segment. However, certain trademarks and licenses are important to this segment's marketing efforts. AUTOMOTIVE The registrant manufactures and sells a complete line of rubber, vinyl and carpeted car mats both in the aftermarket and to original equipment manufacturers. Other products are pickup truck bed mats, running boards, bed liners, tool boxes and other accessories for pickup trucks, vans and sport utility vehicles, truck and trailer splash guards and quarter fenders, - 3 - 4 accessories such as cup holders, litter caddies and floor consoles. The automotive aftermarket products are marketed primarily through mass merchandisers and automotive outlets under the name "Rubber Queen" and the registrant sells bed liners under the "Protecta" trademark, running boards under the "Dee Zee" name, as well as under private labels. The aggregate sales of two customers accounted for approximately 29% of this segment's total net sales during 1998 and 1997. No other customer accounted for more than 10% of this segment's total net sales. Although the Company is a market leader in many of its product lines, all the markets in which the registrant sells automotive products are highly competitive in the areas of design, price, quality and customer service. During fiscal year 1998, the registrant obtained adequate supplies of raw materials for this segment. The registrant's firm order backlog at June 30, 1998, in this business segment, was approximately $6,348,000 as compared to a backlog of approximately $6,180,000 as of the end of the preceding fiscal year. Such backlogs do not reflect certain orders by original equipment manufacturers as, due to its nature, such information is not readily available. It is expected that all of these orders will be filled during the current fiscal year. The operations of this segment are not affected to any material extent by seasonal fluctuations. The registrant does not utilize any significant franchises or concessions in this segment. The patents, trademarks and licenses under which it operates are generally not essential to the overall success of this segment. NET SALES BY CLASS OF PRODUCTS The following table sets forth business segment information with respect to the percentage of net sales contributed by each class of similar products which accounted for at least 10% of the Company's consolidated net sales in any fiscal year from 1996 through 1998:
1998 1997 1996 - -------------------------------------------------------------------------- Specialty Foods: Retail 22% 21% 21% Foodservice 18% 17% 17% Glassware and Candles: Consumer Table and Giftware 31% 31% 30% Automotive 23% 26% 27%
GENERAL BUSINESS RESEARCH AND DEVELOPMENT The estimated amount spent during each of the last three fiscal years on research and development activities determined in accordance with generally accepted accounting principles is not considered material. ENVIRONMENTAL MATTERS Certain of the registrant's operations are subject to compliance with various air emission standards promulgated under Title V of the Federal Clean Air Act. Pursuant to this Act, with respect to certain of its facilities, the Company is required to submit compliance strategies to various regulatory authorities for review and approval. Based upon available information, compliance with the Federal Clean Air Act provisions, as well as other various Federal, state and local environmental protection laws and regulations, is not expected to have a material adverse effect upon the level of capital expenditures, earnings or the competitive position of the registrant for the remainder of the current and succeeding fiscal year. - 4 - 5 EMPLOYEES The registrant has approximately 6,300 employees. FOREIGN OPERATIONS AND EXPORT SALES Financial information relating to foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based on existing operations. Item 2. PROPERTIES The registrant uses approximately 6,400,000 square feet of space for its operations. Of this space, approximately 1,552,000 square feet are leased. The following table summarizes facilities exceeding 75,000 square feet of space and which are considered the principal manufacturing and warehousing operations of the registrant:
APPROXIMATE LOCATION BUSINESS SEGMENT(S) SQUARE FEET - -------- ------------------- ----------- Blue Ash, OH (1) Glassware and Candles 266,000 Columbus, OH (3) Specialty Foods 370,000 Coshocton, OH Automotive 591,000 Des Moines, IA (2) Automotive 404,000 Dunkirk, IN Glassware and Candles 934,000 Elkhart, IN Automotive 96,000 Jackson, OH Automotive and Glassware and Candles 223,000 LaGrange, GA Automotive 211,000 Lancaster, OH Glassware and Candles 465,000 Leesburg, OH (3) Glassware and Candles 875,000 Milpitas, CA (4) Specialty Foods 130,000 Muncie, IN Glassware and Candles 153,000 Sapulpa, OK (5) Glassware and Candles 669,000 Wapakoneta, OH (3) Automotive 213,000 Waycross, GA (4) Automotive 142,000 Wilson, NY Specialty Foods 80,000 Washington Court House, OH (6) Glassware and Candles 134,000
(1) Leased for term expiring 1998 and 1999. (2) Part leased for terms expiring 1998 and 1999. (3) Part leased on a monthly basis. (4) Part leased for term expiring 2000. (5) Part leased for term expiring in 1999. (6) Leased for term expiring 1999. - 5 - 6 Item 3. LEGAL PROCEEDINGS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998. The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by such person and each person's principal occupation or employment during the past five years. No person other than those listed below has been chosen to become an executive officer of the registrant:
FIRST ELECTED AGE AS OF AN AUGUST 31 OFFICES AND EXECUTIVE NAME 1998 POSITIONS HELD OFFICER ---- ----------- -------------- -------- John B. Gerlach, Jr. 44 Chairman, Chief Executive Officer and President 1982 John L. Boylan 43 Treasurer, Vice President, Assistant Secretary and Chief Financial Officer 1990 Larry G. Noble 62 Vice President 1985 Bruce L. Rosa 49 Vice President - Development 1998
Except for Bruce L. Rosa, the above named officers were elected or re-elected to their present positions at the annual meeting of the Board of Directors on November 17, 1997. All such persons have been elected to serve until the next annual election of officers, which shall occur on November 16, 1998 and their successors are elected or until their earlier resignation or removal. - 6 - 7 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to the "Selected Quarterly Financial Data," appearing in Exhibit 13 of this Form 10-K Annual Report, for information concerning market prices and related security holder matters on the registrant's common shares during 1998 and 1997. Such information is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The presentation of selected financial data as of and for the five years ended June 30, 1998 is included in the "Operations" and "Financial Position" sections of the "Five Year Financial Summary" appearing in Exhibit 13 of this Form 10-K Annual Report and is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to the "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing in Exhibit 13 of this Form 10-K Annual Report. Such information is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information are set forth in Exhibit 13 of this Form 10-K Annual Report and are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. For information with respect to the Directors of the registrant, see "Nomination and Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998, which is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION Information set forth under the caption "Executive Compensation" in the Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998 is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information set forth under the captions "Nomination and Election of Directors" and "Security Ownership of Certain Beneficial Owners" in the Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998 is incorporated herein by reference. - 7 - 8 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information with respect to certain transactions with Directors of the registrant, see "Other Transactions" in the Proxy Statement for the Annual Meeting of Shareholders to be held November 16, 1998, which is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The consolidated financial statements as of June 30, 1998 and 1997 and for each of the three years in the period ended June 30, 1998, together with the report thereon of Deloitte & Touche LLP dated August 26, 1998, appearing in Exhibit 13 of this Form 10-K Annual Report are incorporated herein by reference. INDEX TO FINANCIAL STATEMENTS Consolidated Statements of Income for the years ended June 30, 1998, 1997 and 1996 Consolidated Balance Sheets at June 30, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Independent Auditors' Report (a) 2. FINANCIAL STATEMENT SCHEDULES REQUIRED BY ITEMS 8 AND 14(d) Included in Part IV of this report is the following additional financial data which should be read in conjunction with the consolidated financial statements in the 1998 Annual Report to Shareholders: Independent Auditors' Report Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended June 30, 1998 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 financial statements or notes thereto. (a) 3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K AND ITEM 14(c) See Index to Exhibits attached. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended June 30, 1998. - 8 - 9 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 24th day of September, 1998. LANCASTER COLONY CORPORATION (Registrant) By /s/ John B. Gerlach, Jr. --------------------------- John B. Gerlach, Jr. Chairman, Chief Executive Officer and President 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, Chief September 23, 1998 - --------------------------- Executive Officer ------------------ John B. Gerlach, Jr. and President /S/ John L. Boylan Treasurer, Vice September 23, 1998 - --------------------------- President, Assistant ------------------ John L. Boylan Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) /S/ Kerrii B. Anderson Director September 18, 1998 - --------------------------- ------------------ Kerrii B. Anderson Director ------------------ - --------------------------- Frank W. Batsch /S/ Robert L. Fox Director September 14, 1998 - --------------------------- ------------------ Robert L. Fox /S/ Morris S. Halpern Director September 15, 1998 - --------------------------- ------------------ Morris S. Halpern /S/ Robert S. Hamilton Director September 17, 1998 - --------------------------- ------------------ Robert S. Hamilton /S/ Edward H. Jennings Director September 17, 1998 - --------------------------- ------------------ Edward H. Jennings /S/ Richard R. Murphey, Jr. Director September 18, 1998 - --------------------------- ------------------ Richard R. Murphey, Jr. /S/ Henry M. O'Neill, Jr. Director September 14, 1998 - --------------------------- ------------------ Henry M. O'Neill, Jr.
- 9 - 10 INDEPENDENT AUDITORS' REPORT To the Directors and Shareholders of Lancaster Colony Corporation: We have audited the consolidated financial statements of Lancaster Colony Corporation and its subsidiaries as of June 30, 1998 and 1997, and for each of the three years in the period ended June 30, 1998, and have issued our report thereon dated August 26, 1998; such financial statements and report are included in your 1998 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Lancaster Colony Corporation and its subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio August 26, 1998 - 10 - 11 SCHEDULE II LANCASTER COLONY CORPORATION AND SUBSIDIARIES ============================ VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------ 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 OF YEAR - ------------------------------------------------------------------------------------------------------------------- RESERVES DEDUCTED FROM ASSET TO WHICH THEY APPLY - Allowance for doubtful accounts: Year ended June 30, 1996................. $1,947,000 $2,089,000 $1,905,000(A) $2,131,000 =========================================================== Year ended June 30, 1997................. $2,131,000 $1,813,000 $1,083,000(A) $2,861,000 =========================================================== Year ended June 30, 1998................. $2,861,000 $1,834,000 $1,921,000(A) $2,774,000 ===========================================================
(A) Represents uncollectible accounts written off net of recoveries. - 11 - 12 LANCASTER COLONY CORPORATION FORM 10-K JUNE 30, 1998 INDEX TO EXHIBITS
Exhibit Number Description Located At ------ ----------- ---------- 3.1 Certificate of Incorporation of the registrant approved by the shareholders November 18, 1991. 1998 Form 10-K .2 Certificate of Amendment to the Articles of Incorporation approved by the shareholders November 16, 1992. 1998 Form 10-K .3 Certificate of Amendment to the Articles of Incorporation approved by the shareholders November 17, 1997. 1998 Form 10-K .4 By-laws of the registrant as amended through November 18, 1991. (a) .5 Certificate of Designation, Rights and Preferences of the Series A Participating Preferred Stock of Lancaster Colony Corporation. (b) 4.1 Specimen Certificate of Common Stock. (j) .2 Rights Agreement dated as of April 20, 1990 between Lancaster Colony Corporation and The Huntington Trust Company, N.A. (c) 10.1 1981 Incentive Stock Option Plan. (d) .2 Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan, approved by the shareholders November 21, 1983. (e) .3 Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan approved by the shareholders November 18, 1985. (f) .4 Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan approved by the shareholders November 19, 1990. (g) .5 Key Employee Severance Agreement between Lancaster Colony Corporation and John L. Boylan. (g) .6 Consulting Agreement by and between Lancaster Colony Corporation and Morris S. Halpern. (h) .7 1995 Key Employee Stock Option Plan. (i) 13. Annual Report to Shareholders. 1998 Form 10-K 21. Significant Subsidiaries of Registrant. 1998 Form 10-K
- 12 - 13
23. The consent of Deloitte & Touche LLP to the incorporation by reference in Registration Statements No. 33-39102 and 333-01275 on Form S-8 of their reports dated August 26, 1998, appearing in and incorporated by reference in this Annual Report on Form 10-K of Lancaster Colony Corporation for the year ended June 30, 1998. 1998 Form 10-K 27. Financial Data Schedule 1998 Form 10-K (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 stockholders 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 8-K filed April 20, 1990. (d) Indicates the exhibit is incorporated by reference from filing as an exhibit to the Lancaster Colony Corporation report on Form 10-K for the year ended June 30, 1982. (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, 1984. (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, 1985. (g) Indicates the exhibit is incorporated by reference from filing as an exhibit to the Lancaster Colony Corporation report on Form 10-K for the year ended June 30, 1991. (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, 1993. (i) 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). (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, 1996. Note(1) The registrant and certain of its subsidiaries are parties to various long-term debt instruments. The amount of securities authorized under such debt instruments does not, in any case, exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish a copy of any such long-term debt instrument to the Commission upon request. Note(2) The registrant has included in Exhibit 13 only the specific Financial Statements and notes thereto of its 1998 Annual Report to Shareholders which are incorporated by reference in this Form 10-K Annual Report. The registrant agrees to furnish a complete copy of its 1998 Annual Report to Shareholders to the Commission upon request.
- 13 - EX-3.1 2 EXHIBIT 3.1 1 Exhibit 3.1 ARTICLES OF INCORPORATION OF LANCASTER COLONY CORPORATION FIRST: The name of the Corporation (hereinafter called the "Corporation") is LANCASTER COLONY CORPORATION. SECOND: The place in Ohio where the principal office of the Corporation is located is Columbus, Franklin County. THIRD: The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under the Ohio General Corporation Law, as now in effect or hereafter amended. FOURTH: The amount of the total authorized capital stock which the Corporation shall have authority to issue is Twenty-Two Million Five Hundred Thousand (22,500,000) shares, consisting of Twenty Million (20,000,000) shares of Common Stock (the "Common Stock") which are common shares without par value, Two Hundred Thousand (200,000) shares of Class A Participating Preferred Stock ("Class A Preferred Stock") which are preferred shares with $1.00 par value, One Million One Hundred Fifty Thousand (1,150,000) shares of Class B Voting Preferred Stock ("Class B Preferred Stock") which are preferred shares without par value, and One Million One Hundred Fifty Thousand (1,150,000) shares of Class C Nonvoting Preferred Stock ("Class C Preferred Stock") which are preferred shares without par value. (A) EXPRESS TERMS OF THE COMMON STOCK. The shares of Common Stock shall be subject to the terms of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock (collectively, "Preferred Stock") and the express terms of any series thereof. Each share of Common Stock shall be equal to every other share of Common Stock and the holders thereof shall be entitled to one vote for each share of Common Stock on all questions presented to the shareholders. Subject to any rights to receive dividends to which the holders of the outstanding shares of Preferred Stock may be entitled, the holders of shares of Common Stock shall be entitled to receive dividends, if and when declared, payable from time to time by the Board of Directors from funds legally available therefor. (B) EXPRESS TERMS OF THE CLASS A PREFERRED STOCK. (1) DIVIDENDS. (i) The holders of record of shares of Class A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for that purpose, quarterly dividends payable in cash on the last day of each March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first 2 issuance of a share or fraction of a share of Class A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b), subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), paid on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Class A Preferred Stock. In the event the Corporation shall at any time after November 18, 1991 (the "Rights Declaration Date"): (x) declare any dividend on Common Stock payable in shares of Common Stock, (y) subdivide the outstanding Common Stock, or (z) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount of dividends to which holders of shares of Class A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) On or after the date of the first issuance of any share or fraction of a share of Class A Preferred Stock, no dividend on Common Stock shall be declared unless concurrently therewith a dividend or distribution is declared on the Class A Preferred Stock as provided in clause (i) of paragraph (B)(1) of this Article FOURTH and the declaration of any such dividend on the Common Stock shall be expressly conditioned upon payment or declaration of and provision for payment of a dividend on the Class A Preferred Stock. In the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Class A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (iii) Dividends shall begin to accrue and be cumulative on outstanding shares of Class A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Class A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the record date for the first Quarterly Dividend Payment Date following such date of issue, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Class A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. The Board of Directors may fix a record date for the determination of holders of shares of Class A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. (2) VOTING RIGHTS. The holders of shares of Class A Preferred Stock shall have the following voting rights: 2 3 (i) Each share of Class A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. (ii) Except as otherwise provided herein or by law, the holders of shares of Class A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (iii) (a) If at any time dividends on any Class A Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the currently quarterly dividend period on all shares of Class A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, holders of Class A Preferred Stock, voting as a class, shall have the right to elect two (2) Directors. (b) During any default period, such voting right of the holders of Class A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (c) of this paragraph (2)(iii) or at any annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Class A Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not effect the exercise by the holders of Class A Preferred Stock of such voting right. At any meeting at which the holders of Class A Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting because of existing vacancies is less than two, the holders of the Class A Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of two Directors. After the holders of the Class A Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Class A Preferred Stock as herein provided. (c) Unless the holders of Class A Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent of the total number of shares of Class A Preferred Stock outstanding may request, the calling of a special meeting which special meeting shall thereupon be called by the President of the Corporation. Notice of such meeting and of any annual meeting at which holders of Class A Preferred Stock are entitled to vote pursuant to this paragraph (2)(iii)(c) shall be given to each holder of record of Class A Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of 3 4 the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent of the total number of shares of Class A Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (2)(iii)(c), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (d) In any default period, the holders of Common Stock, and other classes of stock of the Corporation, if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Class A Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (y) the Directors so elected by the holders of the Class A Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (z) any vacancy in the Board of Directors may (except as provided in this paragraph (2)(iii)(d)) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References to this paragraph (iii) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (z) of the immediately preceding sentence. (e) Immediately upon the expiration of a default period, (x) the right of the holders of Class A Preferred Stock as a class to elect Directors shall cease, (y) the term of any directors elected by the holders of Class A Preferred Stock as a class shall terminate, and (z) the ongoing number of Directors shall be such number as may be provided for in, or pursuant to, the Articles of Incorporation or Regulations of the Corporation, irrespective of any increase made pursuant to the provisions of paragraph (2)(iii)(b) (such number being subject, however, to change thereafter in any manner provided by law or in the Articles of Incorporation or Regulations). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (3) DISSOLUTION, LIQUIDATION AND WINDING UP. (i) In the event of a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation (hereinafter referred to as a "Liquidation"), the holders of Class A Preferred Stock shall receive an amount per share equal to the greater of (a) $7,000, or (b) 100 times the amount per share to be distributed to holders of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Class A Liquidation Preference"). (ii) In the event the Corporation shall at any time after the Rights Declaration Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the Class A Liquidation 4 5 Preference determined pursuant to paragraph (3)(i)(b) shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (4) REDEMPTION. The shares of Class A Preferred Stock shall not be redeemable. (5) CONVERSION RIGHTS. The Class A Preferred Stock is not convertible into Common Stock or any other security of the Corporation. (6) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Class A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Class A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (7) FRACTIONAL SHARES. Class A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Class A Preferred Stock. (C) EXPRESS TERMS OF THE CLASS B PREFERRED STOCK The shares of Class B Preferred Stock may be issued from time to time in one or more series. All shares of Class B Preferred Stock shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of this paragraph (C), which provisions shall apply to all Class B Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (1) the designation of the series, which may be by distinguishing number, letter or title; 5 6 (2) the number of shares of the series, which number the Board of Directors may from time to time (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding); (3) the dividend rate of the series; (4) the dates of payment of dividends and the dates from which dividends of the series shall be cumulative; (5) the redemption rights and price or prices for shares of the series; (6) sinking fund requirements, if any, for the purchase or redemption of shares of the series; (7) the liquidation price payable on shares of the series in the event of any liquidation, dissolution or winding up of affairs of the Corporation; (8) whether the shares of the series shall be convertible into Common Stock, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made; (9) restrictions on the issuance of shares of any class or series; and (10) such other terms as the Board of Directors may by law from time to time be permitted to fix or change. The Board of Directors is authorized to adopt from time to time amendments to the Articles Of Incorporation fixing or changing, with respect to each such series, the matters described in the preceding clauses (1) to (10) of this paragraph (C). Shares of Class B Preferred Stock shall entitle the holder thereof to one vote per share of Class B Preferred Stock on all matters submitted to a vote of the shareholders of the Corporation. Except as otherwise provided herein or by law, the holders of shares of Class B Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. During any period in which dividends on the Class B Preferred Stock are cumulatively in arrears in the amount of six or more full quarterly dividends, the holders of the Class B Preferred Stock, voting together as a class with the holders of any other class or series of Preferred Stock who are similarly entitled to vote, will have the right to elect two (2) directors which two (2) directorships shall be in addition to that number of directors then determined as constituting the number of members of the Board of Directors pursuant to the Regulations of the Corporation. The approval of a majority of the outstanding shares of Class B Preferred Stock voted together as a class shall be required in order to amend the Articles of Incorporation of the Corporation to affect adversely the rights of the holders of the Class B Preferred Stock or to take any action that would result in the creation of or an increase in the number of authorized shares senior or superior with respect to dividends or upon liquidation to the Class B Preferred Stock. 6 7 (D) EXPRESS TERMS OF CLASS C PREFERRED STOCK. The shares of Class C Preferred Stock may be issued from time to time in one or more series. All shares of Class C Preferred Stock shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of this paragraph (D), which provisions shall apply to all Class C Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (1) the designation of the series, which may be by distinguishing number, letter or title; (2) the number of shares of the series, which number the Board of Directors may from time to time (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding); (3) the dividend rate of the series; (4) the dates of payment of dividends and the dates from which dividends of the series shall be cumulative; (5) the redemption rights and price or prices for shares of the series; (6) sinking fund requirements, if any, for the purchase or redemption of shares of the series; (7) the liquidation price payable on shares of the series in the event of any liquidation, dissolution or winding up of affairs of the Corporation; (8) whether the shares of the series shall be convertible into Common Stock, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made; (9) restrictions on the issuance of shares of any class or series; and (10) such other terms as the Board of Directors may by law from time to time be permitted to fix or change. The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation fixing or changing, with respect to each such series, the matters described in the preceding clauses (1) to (10) of this paragraph (D). 7 8 Shares of Class C Preferred Stock shall not be entitle to voting rights except to the extent described below. During any period in which dividends on the Class C Preferred Stock are cumulatively in arrears in the amount of six or more full quarterly dividends, the holders of the Class C Preferred Stock, voting together as a class with the holders of any other class or series of Preferred Stock who are similarly entitled to vote, will have the right to elect two (2) directors which two (2) directorships shall be in addition to that number of directors then determined as constituting the number of members of the Board of Directors pursuant to the Regulations of the Corporation. The approval of a majority of the outstanding shares of Class C Preferred Stock voted together as a class shall be required in order to amend the Articles of Incorporation of the Corporation to affect adversely the rights of the holders of the Class C Preferred Stock or to take any action that would result in the creation of or an increase in the number of authorized shares senior or superior with respect to dividends or upon liquidation to the Class C Preferred Stock. FIFTH: Except as otherwise provided in these Articles of Incorporation or in the Regulations, the holders of a majority of the outstanding shares are authorized to take any action which, but for this provision, would require the vote or other action of the holders of more than a majority of such shares. SIXTH: To the extent not prohibited by law, the Board of Directors may authorize the purchase by the Corporation of shares of any class issued by it. SEVENTH: No holder of any class of shares of the Corporation shall, as such holder, have any preemptive or preferential right to purchase or subscribe to any shares of any class of stock of the Corporation, whether now or hereafter authorized, whether unissued or in treasury, or to purchase any obligations convertible into shares of any class of stock of the Corporation, which at any time may be proposed to be issued by the Corporation or subjected to rights or options to purchase granted by the Corporation. EIGHTH: No holder of shares of any class of the Corporation shall have the right to cumulate his voting power in the election of the Board of Directors and the right to cumulate voting described in Ohio Revised Code Section 1701.55 is hereby specifically denied to the holders of shares of any class of the Corporation. NINTH: The Corporation may create and issue, whether or not in connection with the issue and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class or classes to the extent such shares are authorized by these Articles, such rights or options to be evidenced by or in such instrument or instruments as shall be approved by the Board of Directors. The terms upon which any such shares may be purchased upon the exercise of any such fight or option, including without limitation the time or times (which may be limited or unlimited in duration) at or within which, and the price or prices at which, any such shares may be purchased, shall be such as shall be determined as set forth or incorporated by reference in a resolution adopted by the Board of Directors providing for the creation and issue of such rights or options. 8 9 TENTH: No Person shall make a Control Share Acquisition without the prior authorization of the shareholders of the Corporation. (A) In order to obtain authorization of a Control Share Acquisition by the shareholders of the Corporation, a Person shall deliver a notice (the "Notice") to the Corporation at its principal place of business that sets forth all of the following information: (1) The identity of the Person who is giving the Notice; (2) A statement that the Notice is given pursuant to this Article TENTH; (3) The number and class of shares of the Corporation owned, directly or indirectly, by the Person who gives the Notice, fall; (4) The range of voting power under which the proposed Control Share Acquisition would, if consummated, fall; (5) A description in reasonable detail of the terms of the proposed Control Share Acquisition; and (6) Representations, supported by reasonable evidence, that the proposed Control Share Acquisition, if consummated, would not be contrary to law and that the Person who is giving the Notice has the financial capacity to make the proposed Control Share Acquisition. (B) (1) The Board of Directors of the Corporation shall, within ten (10) days after receipt by the Corporation of a Notice that complies with paragraph (A), call a special meeting of shareholders to be held not later than fifty (50) days after receipt of the Notice by the Corporation, unless the Person who delivered the Notice agrees to a later date, to consider the proposed Control Share Acquisition; provided, that, the Board of Directors shall have no obligation to call such meeting if they make a determination within ten (10) days after receipt of the Notice (i) that the Notice was not given in good faith, (ii) that the proposed Control Share Acquisition would not be in the best interests of the Corporation and its shareholders or (iii) that the Person who delivered the Notice has failed to adequately demonstrate that such Person has the financial capacity to make the proposed Control Share Acquisition or that the proposed Control Share Acquisition would not be contrary to law if consummated. The Board of Directors may adjourn such meeting if, prior to such meeting, (i) the Corporation has received a Notice from any other Person or (ii) a merger, consolidation or sale of assets of the Corporation has been approved by the Board of Directors and the Board of Directors has determined that the Control Share Acquisition proposed by such other Person or the merger, consolidation or sale of assets of the Corporation should be presented to shareholders at an adjourned meeting or at a special meeting held at a later date. (2) For purposes of making a determination that a special meeting of shareholders should not be called pursuant to this paragraph (B), no such determination shall be deemed void or voidable with respect to the Corporation merely because one or more of its directors or 9 10 officers who participated in making such determination may be deemed to be other than disinterested, if in any such case the material facts of the relationship giving rise to a basis for self-interest are known to the directors and the directors, in good faith reasonably justified by the facts, make such determination by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum. For purposes of this paragraph (B), "disinterested directors" shall mean directors whose material contacts with the Corporation are limited principally to activities as a director or shareholder. Persons who have substantial, recurring business or professional contacts with the Corporation shall not be deemed to be "disinterested directors" for purposes of this provision. A director shall not be deemed to be other than a "disinterested director" merely because he would no longer be a director if the proposed Control Share Acquisition were approved and consummated. (C) The Corporation shall give notice of such special meeting to all shareholders of record as of the record date set for such meeting as promptly as practicable. Such notice shall include or be accompanied by a copy of the Notice and by a statement of the Corporation, authorized by the Board of Directors, of its position or recommendation, or that it is taking no position or making no recommendation, with respect to the proposed Control Share Acquisition. (D) The Person who delivered the Notice may make the proposed Control Share Acquisition if both the following occur: (i) the shareholders of the Corporation authorize such acquisition at the special meeting called by the Board of Directors and held for that purpose, and at which a quorum is present, by an affirmative vote of a majority of the Voting Shares represented at such meeting in person or by proxy and by a majority of the portion of such Voting Shares represented at such meeting in person or by proxy excluding the votes of Interested Shares; and (ii) such acquisition is consummated, in accordance with the terms so authorized, not later than 360 days following such shareholder authorization of the Control Share Acquisition. (E) Shares issued or transferred to any Person in violation of this Article TENTH shall be valid only with respect to such amount of shares as does not result in a violation of this Article TENTH, and such issuance or transfer shall be null and void with respect to the remainder of such shares (any such remainder of shares being hereinafter called "Excess Shares") unless within 30 days of the date on which the Board of Directors determines that such Excess Shares have been issued or transferred, the issuance or transfer of such Excess Shares is approved by the Board of Directors, which approval makes specific reference to paragraph (E) of this Article TENTH. If the issuance or transfer of such Excess Shares is approved by the Board of Directors in accordance with the provisions of this paragraph, then the issuance or transfer of such Excess Shares shall be deemed, for all purposes, to have been approved prior to the date of such issuance or transfer in accordance with paragraph F(2)(ii)(e) of this Article TENTH. If the second clause of the first sentence of this paragraph (E) is determined to be invalid by virtue of any legal decision, statute, rule or regulation, any Person who holds Excess Shares in violation of this Article TENTH shall be conclusively deemed to have acted as an agent on behalf of the Corporation in acquiring such Excess Shares and to hold such Excess Shares on behalf of the Corporation. While held by any Person in violation of this Article TENTH, Excess Shares shall not be entitled to any voting rights, shall not be considered to be outstanding for quorum or voting purposes, and shall not be entitled to receive dividends or any other distribution with respect to such Excess Shares. Any such Person who receives dividends or any other distribution with 10 11 respect to Excess Shares shall hold the same as agent for the Corporation and, following a permitted transfer, for the transferee thereof. Notwithstanding the foregoing, any holder of Excess Shares may transfer the same (together with any distributions thereon) to any Person who, following such transfer, would not own shares in violation of this Article TENTH. Upon such permitted transfer, the Corporation shall pay or distribute to the transferee any dividends or other distributions on the Excess Shares not previously paid or distributed. (F) As used in this Article TENTH: (1) "Person" includes, without limitation, an individual, a corporation (whether nonprofit or for profit), a partnership, an unincorporated society or association, and two or more persons having a joint or common interest. (2) (i) "Control Share Acquisition" means the acquisition, directly or indirectly, alone or with others, by any Person of shares of the Corporation that, when added to all other shares of the Corporation in respect of which such Person may exercise or direct the exercise of voting power as provided in this paragraph (F)(2)(i), would entitle such Person, immediately after such acquisition, directly or indirectly to exercise or direct the exercise of voting power of the Corporation in the election of directors within any of the following ranges of such voting power: (a) One-fifth or more but less than one-third of such voting power; (b) One-third or more but less than a majority of such voting power; (c) A majority or more of such voting power. A bank, broker, nominee, trustee, or other Person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing this Article TENTH shall, however, be deemed to have voting power only of shares in respect of which such Person would be able to exercise or direct the exercise of votes without further instruction from others at a meeting of shareholders called under this Article TENTH. For purposes of this Article TENTH, the acquisition of securities immediately convertible into shares of the Corporation with voting power in the election of directors shall be treated as an acquisition of such shares. (ii) The acquisition of any shares of the Corporation does not constitute a Control Share Acquisition for the purpose of this Article TENTH if the acquisition is consummated in any of the following circumstances. (a) By underwriters, in good faith and not for the purpose of circumventing this Article TENTH, in connection with an offering of the securities of the Corporation to the public; 11 12 (b) By bequest or inheritance, by operation of law upon the death of any individual, or by any other transfer without valuable consideration, including a gift, that is made in good faith and not for the purpose of circumventing this Article TENTH; (c) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this Article TENTH; (d) Pursuant to a merger or consolidation adopted, or a combination or majority share acquisition authorized, by shareholder vote in compliance with the provisions of Section 1701.78 or Section 1701.83 of the Ohio Revised Code if the Corporation is the surviving or new corporation in the merger or consolidation or is the acquiring corporation in the combination or majority share acquisition and if the vote of shareholders of the surviving, new, or acquiring corporation is required by the provisions of Section 1701.78 or 1701.83 of the Ohio Revised Code; (e) Pursuant to a transaction which has received the prior authorization of the Board of Directors of the Corporation which authorization makes specific references to this paragraph (F)(2)(ii)(e); (f) Prior to * , 1992; or ---------------- (g) Pursuant to a contract existing prior to * , 1992. -------------- The acquisition by any Person of shares of the Corporation in a manner described under this paragraph (F)(2)(ii) shall be deemed to be a Control Share Acquisition authorized pursuant to this Article TENTH within the range of voting power under paragraph (F)(2)(i)(a), (b) or (c) of this Article TENTH that such Person is entitled to exercise after such acquisition, provided that, in the case of an acquisition in a manner described under paragraph (F)(2)(ii)(b) or (c), the transferor of such shares to such Person had previously obtained or was deemed to have obtained any authorization of shareholders required under this Article TENTH in connection with such transferor's acquisition of shares of the Corporation. (iii) The acquisition of shares of the Corporation in good faith and not for the purpose of circumventing this Article TENTH, the acquisition of which (a) had previously been authorized by shareholders in compliance with this Article TENTH or (b) would have constituted a Control Share Acquisition but for paragraph (F)(2)(ii), does not constitute a Control Share Acquisition for the purpose of this Article TENTH unless such acquisition entitles any Person, directly or indirectly, to exercise or direct the exercise of voting power of the Corporation in the election of directors in excess of the range of such voting power authorized pursuant to this Article TENTH, or deemed to be so authorized under paragraph (F)(2)(ii). (3) "Interested Shares" means Voting Shares with respect to which any of the following Persons may exercise or direct the exercise of the voting power: * The date which is the Effective Time of the merger of Lancaster Colony Corporation, a Delaware corporation, with and into LC of Ohio, Inc., an Ohio corporation. 12 13 (i) any Person whose Notice prompted the calling of the meeting of shareholders; (ii) any officer of the Corporation elected or appointed by the directors of the Corporation; and (iii) any employee of the Corporation who is also a director of the Corporation. (G) No proxy appointed for or in connection with the shareholder authorization of a Control Share Acquisition pursuant to this Article TENTH shall be valid unless it provides that it is revocable. No such proxy is valid unless it is sought, appointed, and received both: (1) In accordance with all applicable requirements of law; and (2) Separate and apart from the sale or purchase, contract or tender for sale or purchase, or request or invitation for tender for sale or purchase, of shares of the Corporation. (H) Proxies appointed for or in connection with the shareholder authorization of a Control Share Acquisition pursuant to this Article TENTH shall be revocable at all times prior to the obtaining of such shareholder authorization, whether or not coupled with an interest. (I) Notwithstanding any other provisions of these Articles of Incorporation or the Regulations of the Corporation, as the same may be in effect from time to time, or any provision of law that might otherwise permit a lesser vote of the directors or shareholders, but in addition to any affirmative vote of the directors or the holders of any particular class or series of shares required by law, the Articles of Incorporation or the Regulations of the Corporation, as the same may be in effect from time to time, the affirmative vote of at least 80% of the Voting Shares shall be required to alter, amend, supersede or repeal this Article TENTH or adopt any provisions in the Articles of Incorporation or Regulations of the Corporation, as the same may be in effect from time to time, that are inconsistent with the provisions of this Article TENTH. (J) Each certificate representing shares of the Corporation's capital stock shall contain the following legend: "Transfer of the shares represented by this Certificate is subject to the provisions of Article TENTH of the Corporation's Articles of Incorporation as the same may be in effect from time to time. Upon written request delivered to the Secretary of the Corporation at its principal place of business, the Corporation will mail to the holder of the Certificate a copy of such provisions without charge within five (5) days after receipt of written request therefor. By accepting this Certificate the holder hereof acknowledges that it is accepting same subject to the provisions of said Article TENTH as the same may be in effect from time to time and covenants with the Corporation and each shareholder thereof from time to time to comply with the provisions of said Article TENTH as the same may be in effect from time to time." 13 14 ELEVENTH: The provisions of Section 1701.831 of the Ohio Revised Code, as amended from time to time, or any successor provision or provisions to said section, shall only apply to this Corporation with respect to any particular Control Share Acquisition attempt, as such is defined in Section 1701.831 of the Ohio Revised Code, in the event that there is a determination by a court of competent jurisdiction with respect to which no appeal is pending that the provisions of Article TENTH of these Articles of Incorporation shall not be applicable to a particular Control Share Acquisition attempt or in the event that Article TENTH of these Articles of Incorporation, as such Articles of Incorporation may be amended from time to time, ceases to be an Article of these Articles of Incorporation, disregarding any renumbering of such Article TENTH resulting from any amendment of these Articles of Incorporation. TWELFTH: (A) If, as of the record date for the determination of the stockholders entitled to vote thereon or consent thereto, any Prior Holder (as hereinafter defined) owns or controls, directly or indirectly, 5% or more of the outstanding shares of the corporation entitled to vote, then the affirmative vote of the holders of shares representing at least 80% of the shares of stock of the corporation entitled to vote for the election of directors, voting as a class, will be required, except as otherwise expressly provided in paragraph (B) of this Article TWELFTH, in order for any of the following actions or transactions to be effected by the Corporation, or approved by the Corporation as stockholder of any subsidiary of the corporation. (1) any merger or consolidation of the Corporation or any of its subsidiaries with or into such Prior Holder or any of its affiliates, subsidiaries or associates; (2) any merger or consolidation of the Corporation with or into any subsidiary of the Corporation, except a merger with a subsidiary of the Corporation in which the Corporation is the surviving corporation, or a subsidiary of the Corporation is the surviving corporation and, following such merger, the certificate or articles of incorporation of such subsidiary contains provisions substantially the same in substance as those in Article EIGHTH, Article TENTH, Article ELEVENTH, this Article TWELFTH and Article THIRTEENTH of these Articles of Incorporation; (3) any sale, lease, exchange or other disposition of all or any substantial part of the assets of the Corporation or any of its subsidiaries to or with such Prior Holder or any of its affiliates, subsidiaries or associates; (4) any issuance or delivery of any voting securities of the Corporation or any of its subsidiaries to such Prior Holder or any of its affiliates, subsidiaries or associates in exchange for cash, other assets or securities, or a combination thereof; or (5) any dissolution of the Corporation. (B) The vote of shareholders specified in paragraph (A) of this Article TWELFTH will not apply to any action or transaction described in such paragraph, if the Board of Directors of the Corporation has approved the action or transaction before direct or indirect ownership or control of 5% or more of the outstanding shares of stock of the Corporation entitled to vote is acquired by the Prior Holder. 14 15 (C) For the purpose of this Article TWELFTH and for guidance to the Board of Directors for the purpose of paragraph (D) hereof: (1) "Prior Holder" means any corporation, person or entity other than the Corporation or any of its subsidiaries; (2) a Prior Holder will be deemed to "own" or "control," directly or indirectly, any outstanding shares of stock of the Corporation (a) which it has the right to acquire pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise, or (b) which are owned, directly or indirectly (including shares deemed owned through application of clause (a) above), by any other corporation, person or other entity which is its subsidiary, affiliate or associate or with which it or any of its subsidiaries, affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of stock of the Corporation (or, with or without such an agreement, arrangement or understanding, acts in concert); (3) "outstanding shares of the Corporation entitled to vote" and "voting securities" mean such shares as are entitled to vote in the election of directors, considered as one class; (4) "subsidiary" means any corporation of which another corporation owns, directly or indirectly, 50% or more of the voting stock; (5) an "associate" and an "affiliate" have the same meanings as set forth in the General Rules and Regulations under the Securities Exchange Act of 1934; and (6) "substantial part of the assets" means assets then having a fair market value, in the aggregate, or more than $5,000,000. (D) The Board of Directors of the Corporation will have the power and duty to determine for the purposes of this Article TWELFTH, on the basis of information then known to the Board of Directors, (1) who constitutes a Prior Holder, (2) whether any Prior Holder owns or controls, directly or indirectly, 5% or more of the outstanding shares of the Corporation entitled to vote, and what entities are its subsidiaries, affiliates or associates, and (3) whether any proposed sale, lease, exchange or other disposition involves a substantial part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Board will be conclusive and binding for all purposes. 15 16 THIRTEENTH: The Corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation in the manner prescribed by the Ohio General Corporation Law. However, the provisions set forth in Article EIGHTH, Article TENTH, Article ELEVENTH, Article TWELFTH, and this Article THIRTEENTH of these Articles of Incorporation may not be altered, amended, superseded or repealed in any respect, unless such action is approved by the affirmative vote of the holders of shares representing at least 80% of the shares of the Corporation entitled to vote for the election of directors, voting as a class. All rights conferred in these Articles of Incorporation are granted subject to the reservation set forth in this Article THIRTEENTH. 16 EX-3.2 3 EXHIBIT 3.2 1 Exhibit 3.2 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF LANCASTER COLONY CORPORATION The undersigned President and Secretary of Lancaster Colony Corporation, an Ohio corporation hereby certify that the shareholders of the corporation, by the affirmative vote of the holders of shares entitling them to exercise two-thirds of the voting power of the corporation at a meeting of shareholders duly called for such purpose on November 16, 1992, have duly adopted the following resolution to amend the corporation's articles of incorporation: RESOLVED that the first paragraph of Article FOURTH of the corporation's articles of incorporation be, and hereby is, amended to read as follows: "FOURTH: The amount of the total authorized capital stock which the Corporation shall have the authority to issue is Thirty-Seven Million Six Hundred Fifty Thousand (37,650,000) shares, consisting of Thirty-Five Million (35,000,000) shares of Common Stock (the "Common Stock") which are common shares without par value, Three Hundred Fifty Thousand (350,000) shares of Class A Participating Preferred Stock ("Class A Preferred Stock") which are preferred shares with $1.00 par value, One Million One Hundred Fifty Thousand (1,150,000) shares of Class B Voting Preferred Stock ("Class B Preferred Stock") which are preferred shares without par value, and One Million One Hundred Fifty Thousand (1,150,000) shares of Class C Nonvoting Preferred Stock ("Class C Preferred Stock") which are preferred shares without par value." IN WITNESS WHEREOF, the President and Secretary, acting for and on behalf of said corporation, have signed their names to this certificate on November 16, 1992. /s/ John B. Gerlach -------------------------------------- John B. Gerlach President /s/ John B. Gerlach, Jr. -------------------------------------- John B. Gerlach, Jr. Executive Vice President and Secretary EX-3.3 4 EXHIBIT 3.3 1 Exhibit 3.3 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF LANCASTER COLONY CORPORATION The undersigned President and Secretary of Lancaster Colony Corporation, an Ohio corporation, hereby certify that the shareholders of the corporation, by majority affirmative vote at a meeting of shareholders duly called for such purpose on November 17, 1997, have duly adopted the following resolution to amend the corporation's articles of incorporation: RESOLVED that the first paragraph of Article FOURTH of the corporation's articles of incorporation be, and hereby is, amended to read as follows: "FOURTH: The amount of the total authorized capital stock which the Corporation shall have the authority to issue is Seventy-Eight Million Fifty Thousand (78,050,000) shares, consisting of Seventy Five Million (75,000,000) shares of Common Stock (the "Common Stock") which are common shares without par value, Seven Hundred Fifty Thousand (750,000) shares of Class A Participating Preferred Stock ("Class A Preferred Stock") which are preferred shares with $1.00 par value, One Million One Hundred Fifty Thousand (1,150,000) shares of Class B Voting Preferred Stock ("Class B Preferred Stock") which are preferred shares without par value, and One Million One Hundred Fifty Thousand (1,150,000) shares of Class C Nonvoting Preferred Stock ("Class C Preferred Stock") which are preferred shares without par value." IN WITNESS WHEREOF, the President and Secretary, acting for and on behalf of said corporation, have signed their names to this certificate on November 24, 1997. /s/ John B. Gerlach, Jr. ------------------------------- John B. Gerlach, Jr., President /s/ David M. Segal ------------------------------- David M. Segal, Secretary EX-13 5 EXHIBIT 13 1 Exhibit 13 BUSINESS SEGMENTS Lancaster Colony Corporation and Subsidiaries For the Years Ended 1998, 1997 and 1996 The Company operates in three business segments - Specialty Foods, Glassware and Candles, and Automotive. The net sales of each segment are principally domestic. A further description of each business segment follows: SPECIALTY FOODS-includes production and marketing of a family of pourable and refrigerated produce salad dressings, croutons, sauces, refrigerated produce vegetable and fruit dips, chip dips, dairy snacks and desserts, dry and frozen egg noodles, caviar, frozen ready-to-bake pies and frozen hearth-baked breads. The salad dressings, sauces and frozen bread products are sold to both retail and foodservice markets. The remaining products of this business segment are primarily directed to retail markets. GLASSWARE AND CANDLES-includes the production and marketing of table and giftware consisting of domestic glassware, both machine pressed and machine blown; imported glassware; candles in all popular sizes, shapes and scents; potpourri and related scented products; industrial glass and lighting components; and glass floral containers. This segment's products are sold primarily to mass merchandisers, discount and department stores. AUTOMOTIVE-includes production and marketing of rubber, vinyl and carpet-on-rubber car mats for original equipment manufacturers, importers and for the auto aftermarket; truck and trailer splash guards; pickup truck bed mats and liners; aluminum running boards for pickup trucks and vans; and a broad line of auto accessories. Operating income represents net sales less operating expenses related to the business segments. The Glassware and Candles segment's 1998 operating income includes approximately $1,800,000 in nonrecurring gains on the sales of real estate. Expenses of a general corporate nature, including interest expense and income taxes, have not been allocated to the business segments. Identifiable assets for each segment include those assets used in its operations and intangible assets allocated to purchased businesses. Corporate assets consist principally of cash, cash equivalents and deferred income taxes. The 1998 and 1996 capital expenditures of the Specialty Foods segment includes property relating to business acquisitions totaling $3,690,000 and $213,000, respectively. The following sets forth certain financial information attributable to the Company's business segments for the three years ended June 30, 1998, 1997 and 1996:
(Dollars In Thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Net Sales Specialty Foods $ 411,373 $351,012 $329,420 Glassware and Candles 363,835 336,200 297,937 Automotive 233,544 235,601 228,555 - -------------------------------------------------------------------------------------------------------------------------- Total $1,008,752 $922,813 $855,912 ========================================================================================================================== Operating Income Specialty Foods $ 61,154 $ 47,308 $ 35,579 Glassware and Candles 82,317 81,455 76,068 Automotive 18,501 20,310 18,561 - -------------------------------------------------------------------------------------------------------------------------- Total 161,972 149,073 130,208 Corporate expenses (6,599) (6,614) (6,987) - -------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes $ 155,373 $142,459 $123,221 ========================================================================================================================== Identifiable Assets Specialty Foods $ 121,659 $ 95,130 $102,606 Glassware and Candles 264,569 235,154 205,232 Automotive 108,238 110,525 113,003 Corporate 34,901 43,585 14,518 - -------------------------------------------------------------------------------------------------------------------------- Total $ 529,367 $484,394 $435,359 ========================================================================================================================== Capital Expenditures Specialty Foods $ 9,347 $ 4,625 $ 8,856 Glassware and Candles 29,847 21,986 33,038 Automotive 9,372 10,817 8,501 Corporate 59 100 47 - -------------------------------------------------------------------------------------------------------------------------- Total $ 48,625 $ 37,528 $ 50,442 ========================================================================================================================== Depreciation and Amortization Specialty Foods $ 7,425 $ 5,546 $ 4,753 Glassware and Candles 16,367 12,520 10,767 Automotive 8,684 8,814 8,749 Corporate 95 101 130 - -------------------------------------------------------------------------------------------------------------------------- Total $ 32,571 $ 26,981 $ 24,399 ==========================================================================================================================
2 FIVE YEAR FINANCIAL SUMMARY Lancaster Colony Corporation and Subsidiaries
(Thousands Except Per Share Figures) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- Operations Net Sales $1,008,752 $922,813 $855,912 $795,126 $721,732 Gross Margin $ 324,397 $290,762 $263,952 $247,942 $232,096 Percent of Sales 32.2% 31.5% 30.8% 31.2% 32.2% Interest Expense $ 2,626 $ 2,596 $ 2,875 $ 2,736 $ 2,849 Percent of Sales 0.3% 0.3% 0.3% 0.3% 0.4% Income Before Income Taxes $ 155,373 $142,459 $123,221 $114,808 $ 98,093 Percent of Sales 15.4% 15.4% 14.4% 14.4% 13.6% Taxes Based on Income $ 59,243 $ 53,753 $ 47,086 $ 44,284 $ 38,233 Net Income $ 96,130 $ 88,706 $ 76,135 $ 70,524 $ 59,860 Percent of Sales 9.5% 9.6% 8.9% 8.9% 8.3% Per Common Share:(1) Net Income- Basic And Diluted $ 2.22 $ 2.01 $ 1.71 $ 1.57 $ 1.32 Cash Dividends $ 0.54 $ 0.48 $ 0.44 $ 0.37 $ 0.29 - -------------------------------------------------------------------------------------------------------------------------- Financial Position Total Assets $ 529,367 $484,394 $435,359 $379,904 $355,445 Working Capital $ 235,031 $235,079 $203,988 $189,255 $163,546 Property, Plant and Equipment--Net $ 170,766 $151,309 $139,095 $113,187 $101,570 Long-Term Debt $ 29,095 $ 30,685 $ 31,230 $ 31,840 $ 32,933 Property Additions $ 44,935 $ 37,528 $ 50,229 $ 31,745 $ 23,532 Depreciation and Amortization $ 32,571 $ 26,981 $ 24,399 $ 22,717 $ 22,403 Shareholders' Equity $ 410,563 $368,000 $323,563 $277,148 $236,847 Per Common Share(1) $ 9.60 $ 8.45 $ 7.29 $ 6.19 $ 5.22 Weighted Average Common Shares Outstanding- Diluted(1) 43,364 44,108 44,624 45,057 45,476 - -------------------------------------------------------------------------------------------------------------------------- Statistics Price-Earnings Ratio at Year End 17.1 16.0 14.6 15.2 18.0 Current Ratio 4.1 4.2 3.9 4.1 3.2 Long-Term Debt as a Percent of Shareholders' Equity 7.1% 8.3% 9.7% 11.5% 13.9% Dividends Paid as a Percent of Net Income 24.3% 23.8% 25.7% 23.4% 22.3% Return on Average Equity 24.7% 25.7% 25.3% 27.4% 27.9% - --------------------------------------------------------------------------------------------------------------------------
(1) Adjusted for 3-for-2 stock split paid January 1998, 4-for-3 stock split paid July 1994 and/or adoption of Statement of Financial Accounting Standard No. 128 "Earnings Per Share" in Fiscal 1998. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS Of Results of Operations and Financial Condition Review of Consolidated Operations For the fiscal year ended June 30, 1998, the Company achieved a record level of consolidated net sales totaling $1,008,752,000. This amount represented a 9% increase over the $922,813,000 recorded for fiscal 1997. The overall sales increase for fiscal 1998 of $85,939,000 was primarily attributable to the Specialty Foods segment which increased by $60,361,000 as this segment benefited from the July 1997 acquisition of the Chatham Village product lines. The Glassware and Candles segment also achieved a sales increase of $27,635,000 during fiscal 1998 although the Automotive segment declined by $2,057,000. Consistent with recent years, competitive conditions have minimized the effect of any year-over-year increases in unit selling prices. For fiscal 1997, increased sales of the Glassware and Candles segment were primarily responsible for that year's consolidated net sales increasing 8% over the fiscal 1996 total of $855,912,000. A record level of net income was also attained in fiscal 1998 totaling $96,130,000, an 8% increase over the $88,706,000 recorded in fiscal 1997. This improvement was essentially the result of the increased sales volume discussed above. Net income for 1997 was 17% above the fiscal 1996 total of $76,135,000. The relative proportion of sales and operating income contributed by each of the Company's operating segments can impact a year-to-year comparison of the consolidated statements of income. The following table summarizes the sales mix and related operating income percentages achieved by the operating segments over each of the last three years:
Segment Sales Mix(1): 1998 1997 1996 - -------------------------------------------------------------------------------- Specialty Foods 41% 38% 38% Glassware and Candles 36% 36% 35% Automotive 23% 26% 27% Segment Operating Income(2): - -------------------------------------------------------------------------------- Specialty Foods 15% 13% 11% Glassware and Candles 23% 24% 26% Automotive 8% 9% 8%
(1) Expressed as a percentage of consolidated net sales. (2) Expressed as a percentage of the related segment's net sales. Expressed as a percentage of net sales, the Company's consolidated gross margins increased to 32.2% in 1998 compared to 31.5% in 1997 and 30.8% in 1996. Influencing the current year's improvement were better margins within the Specialty Foods segment as it benefited from a more favorable sales mix. The consolidated percentage also reflects a higher proportion of sales of specialty foods and candles. These products have higher average gross margins than many of the Company's other products. However, during fiscal 1998, this improvement was somewhat offset by the Automotive segment's margins declining slightly on lower production volumes. Compared to 1996, the 1997 margins were enhanced primarily by the Specialty Foods segment experiencing lower raw material costs and a more favorable sales mix. This improvement was somewhat offset by the Glassware and Candles segment experiencing a decline in margins due to increases in certain raw material costs and certain production inefficiencies. Total selling, general and administrative expenses for 1998 of $168,526,000 increased 15% over the 1997 total of $146,403,000. The total of such expenses for fiscal 1997 also increased 6% over the 1996 total of $138,206,000. These increases generally result from the effects of higher sales volumes on sales-related costs. Particularly impacting the fiscal 1998 total is the greater mix of sales from the Specialty Foods segment relative to the consolidated total. Such sales have a higher level of associated selling costs compared to that of the other segments. The relative level of promotional selling costs also increased within the Specialty Foods segment during 1998 and included expenses associated with the development of new retail markets. Consistent with the increased sales volume, 1998 consolidated operating income increased by 8% to $155,871,000 compared to $144,359,000 recorded in 1997. The prior year's operating income had increased 15% over the 1996 total of $125,746,000. Stated as a percentage of pretax income, the Company's effective tax rate increased slightly to 38.1% compared to 37.7% in 1997. The effective rate for 1996 was 38.2%. Earnings per share of $2.22 increased 10% in 1998 over the $2.01 reported in 1997, after adjustment for the three-for-two stock split paid in January 1998. Compared to the adjusted 1996 earnings per share of $1.71, the 1997 total had increased 18%. In addition to the increased levels of corporate earnings, earnings per share have been beneficially affected by the Company's share repurchases which have totaled in excess of $88 million over the three-year period ended June 30, 1998. Segment Review - Specialty Foods Record net sales of $411,373,000 were achieved by the Specialty Foods segment during fiscal 1998. This total increased 17% over the 1997 total of $351,012,000. Compared to 1996 sales of $329,420,000, 1997 sales had increased 7%. In all three years, retail and foodservice sales comprised 55% and 45% of total sales, respectively. The increase in retail sales during 1998 was influenced by the acquisition of the Chatham Village crouton business in July 1997. Sales increases were also provided by fruit and vegetable dips and by the success of recently introduced Texas Toast frozen bread products. Sales in 1997 benefited from volume increases in products sold to grocery produce departments, increased private label sales and the growth in product lines sold through specialty distributors. The November 1995 purchase of the Cardini lines of food products significantly contributed to the growth of the latter category of products. Foodservice sales during the last two years have also increased due to the expansion of sales to both national restaurant chains and wholesale distributors. Operating margins of $61,154,000 in 1998 improved due to such factors as better capacity utilization and a more favorable sales mix. Compared to 1996 operating income of $35,579,000, this segment had significantly improved operating margins during 1997 as operating income totaled $47,308,000. This improvement was influenced by a generally broad-based reduction in raw material costs which was primarily concentrated in the latter half of the fiscal year. Soybean oil cost returned to more historic norms after three years at considerably higher levels. As this segment enters fiscal 1999, soybean oil costs are above the levels of 1998. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS Segment Review - Glassware and Candles Net sales for this segment totaled $363,835,000 in fiscal 1998 which was an 8% improvement over the $336,200,000 achieved in 1997. Sales of candles and related products to mass merchants were principally responsible for this internally-generated growth. Partially offsetting this growth was a decline in private label wax-filled glass products and a generally lackluster demand for glass tableware. The 1997 sales level increased 13% over the 1996 total of $297,937,000. Candle products also led the growth for 1997 with private label business providing a significant component of this growth. This segment's operating income increased by 1% in 1998 and totaled $82,317,000 compared to $81,455,000 achieved in 1997. Among the factors adversely affecting 1998 margins were higher wax costs, certain operating inefficiencies at the consumer glassware plants, competitive pricing conditions, promotional expenses and a less favorable sales mix. Also included in this segment's 1998 income is approximately $1,800,000 in nonrecurring gains on the sales of real estate. The 7% increase in 1997 operating income over the 1996 total of $76,068,000 was primarily attributable to the effect of increased sales volumes. Offsetting this effect were such factors as a less favorable sales mix, higher wax and natural gas costs and certain production inefficiencies occurring in both the candle and glassware manufacturing operations. Segment Review - Automotive Adversely affected by a decline in aftermarket sales, fiscal 1998 net sales of the Automotive segment totaling $233,544,000 declined 1% from the 1997 total of $235,601,000. The sales of light truck bedliners were adversely impacted by industry over-capacity and intense competitive pricing conditions. Sales to original equipment manufacturers ("OEMs") increased during 1998 with particular strength in aluminum accessories for light trucks and sport utility vehicles. Sales of automotive floor mats and aluminum truck and van accessories led the 3% increase in 1997 sales over the 1996 total of $228,555,000. A decline in bedliner sales during 1997 mitigated this increase. The operating income of this segment for 1998 totaled $18,501,000, a 9% decrease from the $20,310,000 recorded in 1997. This decline is attributable to the lower sales volume, a less favorable sales mix and pricing pressures, particularly on sales to OEMs. Unrelated labor work stoppages occurring in June 1998, at both a major customer and at the Company's Wapakoneta, Ohio facility, also adversely affected this segment's capacity utilization. The level of 1997 operating income improved 9% from the $18,561,000 recorded in 1996. Contributing to this improvement were greater production efficiencies and generally lower raw material costs. This segment's sales to OEMs are made both directly to the OEMs and indirectly through a third party, "Tier 1" supplier. Such sales are sensitive to the overall rate of new vehicle sales, the availability of competitive alternatives and the Tier 1 supplier's ongoing ability to maintain its relationship with the OEMs. Additionally, the extent of pricing flexibility associated with these sales continues to be particularly limited with certain products subject to annual price reductions. During 1998, sales to OEMs comprised 49% of this segment's sales compared to 44% and 43% in 1997 and 1996, respectively. Liquidity and Capital Resources As of June 30, 1998 the Company's balance sheet maintains a position of financial strength. This posture has been accomplished through the benefits of increasing cash flow with net cash provided by operating activities totaling $120,045,000, $113,461,000 and $84,474,000 for 1998, 1997 and 1996, respectively. The primary influence on these amounts has been the Company's increasing net income. This cash flow generated from operations remains the primary source of financing the Company's internal growth. Over the last three fiscal years the Company has made investments in property, plant and equipment totaling $132,692,000, including $44,935,000 in 1998. The Glassware and Candles segment has been the primary user of such funds during each of these years. During 1998, this segment completed a new distribution facility adjacent to the existing candle manufacturing facility located in Leesburg, Ohio. Substantial progress was also made in completing a manufacturing addition at the same facility. Additionally, during July 1997, the Company acquired the outstanding stock of Chatham Village Foods, Inc., a manufacturer and marketer of croutons and related products. The total of cash paid and debt assumed by the Company in consummating this acquisition exceeded $20,000,000. Significant financing activities conducted during 1998 included the purchase of $37,083,000 of the Company's common stock compared to $29,554,000 in 1997. Total dividend payments for 1998 were $23,326,000 which was more than 10% greater than the 1997 total of $21,114,000. This increase reflects the higher dividend payout rate of $.54 in 1998 as compared to $.48 in 1997. The future levels of share purchases and declared dividends continue to be subject to periodic review of the Company's Board of Directors and are generally determined after an assessment is made of such factors as anticipated earnings levels, cash flow requirements and general business conditions. The Company's balance sheet reflects a relatively low level of leverage as the debt to total capital ratio remains low at 7% at June 30, 1998 compared to 8% at June 30, 1997. Management believes this posture provides the Company with considerable flexibility to acquire businesses complementary to the Company's existing operations. It is anticipated that adequate borrowings will continue to be made available under discretionary bank lines of credit to meet any short-term cash requirements not otherwise met by cash generated from operations. The Company's ongoing business activities continue to be subject to compliance with various laws, rules and regulations as may be issued and enforced by various Federal, state and local agencies. With respect to environmental matters, costs are incurred pertaining to regulatory compliance and, upon 5 MANAGEMENT'S DISCUSSION AND ANALYSIS occasion, remediation. Such costs have not been, and are not anticipated to become, material. Impact of Inflation Generally, fiscal 1998 encountered relatively moderate changes in raw material costs. Wax costs trended somewhat higher while many other material costs actually held steady or declined modestly. Compared to 1996, 1997 had markedly lower level of food commodity costs although higher costs of plastics, wax and natural gas prevailed throughout the year. The Company generally attempts to adjust its selling prices to offset the effects of increased raw material costs. However, these adjustments have historically been difficult to implement on a timely basis relative to the increase in costs incurred. Minimizing the exposure to such increased costs is the Company's diversity of operations and its ongoing efforts to achieve greater manufacturing and distribution efficiencies through the improvement of work processes. Year 2000 Lancaster Colony is in the process of preparing for the consequences that the year 2000 may have on its ability to rely on data processing and other automated operational functions which are date-dependent. This "Year 2000" problem arises as a result of many automated calculations being written in computer code which does not properly recognize dates after 1999. Problems associated with this issue can occur not only on "mainframe" applications, but also with such devices as personal computers, telecommunication equipment and programmable logic controllers associated with certain manufacturing equipment. Without correction, it is possible that business and operational functions that rely on this improper code could fail and cause significant business disruption and loss. The Company's existing data processing structure could be characterized as decentralized in nature. Management believes the Company's business units have completed an adequate assessment of the internal Year 2000 dependencies relating to their critical data processing functions. However, there are no assurances that this process has identified all the existing Year 2000 exposures. Furthermore, such a failure could result in a materially adverse impact to the Company although the extent of this impact is not believed to be reasonably estimable. Depending on the business unit's particular circumstance, the manner of resolving the identified Year 2000 shortcomings has included strategies such as implementing Year 2000 compliant versions of third party software, modifying portions of existing software and replacing non-compliant business systems with new third party software. A combination of internal and external resources is being used to assist the Company through a multi-phased concurrent approach, which encompasses identification, implementation and testing phases, to address the associated Year 2000 issues. Generally, the Company has completed the identification phase and is currently engaged in the implementation and testing phases. Based on existing plans, it is anticipated that the Company's ongoing efforts to remediate data processing systems to be Year 2000 compliant will be completed by the middle of calendar 1999. The most significant data processing expenditures are being made within the Company's Automotive segment. This segment is in the process of implementing comprehensive new third party software and hardware with Year 2000 compliance being regarded as one of the several resulting benefits. The Company's aggregate costs to date are approximately $3 million, which include capitalized costs incurred by the Automotive segment of approximately $2.2 million. The Company estimates an additional $3 million of cost will be incurred, of which approximately $2 million will relate to the Automotive segment's data processing project. Expenditures associated with making changes to existing systems for Year 2000 compliance are being expensed as incurred. Costs associated with the Company's efforts, both incurred and planned, are not believed to be material to the Company's consolidated results of operations, liquidity and financial condition. Due to the nature of the Company's efforts, actual costs could vary significantly from that currently anticipated and there are no guarantees regarding the timing or efficacy of completion. As noted above, the Year 2000 issue may also affect systems ("non-IT systems") not traditionally identified with information technology. For example, production machinery which is dependent on reading the current date could become inoperable if the machine's embedded code does not allow for proper interpretation of a year beyond 1999. The Company is in the process of inventorying and assessing its Year 2000 exposure with respect to non-IT systems but is not currently aware of any significant deficiencies. There can be no assurances, however, that such deficiencies do not exist. The effect of not resolving these issues on a timely basis could have a materially adverse impact on the Company. Another risk presented by the Year 2000 issue is that significant customers and suppliers of the Company could fail to become fully Year 2000 compliant. This failure, in turn, could result in a significant adverse effect to the Company's operations. The Company is in the process of making inquiries of its significant suppliers as to the state of their Year 2000 readiness. It is believed that these inquiries will become increasingly more meaningful as the year 2000 approaches. Regardless, there can be no assurance that the data processing and non-IT systems utilized by these other companies will become Year 2000 compliant on a timely basis. The impact of noncompliance is not currently estimable, but it is possible that significant failures could have a material adverse effect on the Company's operations. Although the Company has not yet adopted formal contingency arrangements to address the possibility that internal, customer or supplier systems may not become Year 2000 compliant, management will develop such plans which may be required as fiscal 1999 evolves and the risk of such exposures, if any, become better clarified. The costs and business implications which might be associated with the adoption of any such contingency plan is not estimable but could be significant. 6 CONSOLIDATED STATEMENTS OF INCOME Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1998, 1997 and 1996
Years Ended June 30 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Net Sales $1,008,752,000 $922,813,000 $855,912,000 Cost of Sales 684,355,000 632,051,000 591,960,000 - ------------------------------------------------------------------------------------------------------------------------- Gross Margin 324,397,000 290,762,000 263,952,000 Selling, General and Administrative Expenses 168,526,000 146,403,000 138,206,000 - ------------------------------------------------------------------------------------------------------------------------- Operating Income 155,871,000 144,359,000 125,746,000 Other Income (Expense): Interest expense (2,626,000) (2,596,000) (2,875,000) Interest income and other--net 2,128,000 696,000 350,000 - ------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 155,373,000 142,459,000 123,221,000 Taxes Based on Income 59,243,000 53,753,000 47,086,000 ========================================================================================================================= Net Income $ 96,130,000 $ 88,706,000 $ 76,135,000 ========================================================================================================================= Net Income Per Common Share: Basic $2.22 $2.01 $1.71 Diluted $2.22 $2.01 $1.71 ========================================================================================================================= Weighted Average Common Shares Outstanding: Basic 43,271,000 44,060,000 44,558,000 Diluted 43,364,000 44,108,000 44,624,000 =========================================================================================================================
See Notes to Consolidated Financial Statements 7 CONSOLIDATED BALANCE SHEETS Lancaster Colony Corporation and Subsidiaries as of June 30, 1998 and 1997
June 30 Assets 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and Equivalents $ 23,224,000 $ 32,109,000 Receivables (less allowance for doubtful accounts, 1998--$2,774,000; 1997--$2,861,000) 99,870,000 102,457,000 Inventories: Raw materials and supplies 44,915,000 42,339,000 Finished goods and work in process 130,282,000 118,912,000 - -------------------------------------------------------------------------------------------------------------------------- Total inventories 175,197,000 161,251,000 Prepaid expenses and other current assets 13,257,000 12,966,000 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 311,548,000 308,783,000 Property, Plant And Equipment: Land, buildings and improvements 103,252,000 89,232,000 Machinery and equipment 270,781,000 248,069,000 - -------------------------------------------------------------------------------------------------------------------------- Total cost 374,033,000 337,301,000 Less accumulated depreciation 203,267,000 185,992,000 - -------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment--net 170,766,000 151,309,000 Other Assets: Goodwill (net of accumulated amortization, 1998--$6,872,000; 1997--$5,438,000) 37,045,000 19,810,000 Other Assets 10,008,000 4,492,000 - -------------------------------------------------------------------------------------------------------------------------- Total $529,367,000 $484,394,000 ========================================================================================================================== Liabilities and Shareholders' Equity - -------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Current portion of long-term debt $ 510,000 $ 545,000 Accounts payable 41,804,000 33,203,000 Accrued liabilities 34,203,000 39,956,000 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 76,517,000 73,704,000 Long-Term Debt--Less Current Portion 29,095,000 30,685,000 Other Noncurrent Liabilities 7,325,000 7,895,000 Deferred Income Taxes 5,867,000 4,110,000 Shareholders' Equity: Preferred stock--authorized 3,050,000 shares; outstanding--none Common stock--authorized 75,000,000 shares; Shares outstanding, 1998--42,753,488; 1997--29,016,836 50,392,000 43,573,000 Retained earnings 477,587,000 404,783,000 Foreign currency translation adjustment 98,000 75,000 - -------------------------------------------------------------------------------------------------------------------------- Total 528,077,000 448,431,000 Less common stock in treasury, at cost 117,514,000 80,431,000 - -------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 410,563,000 368,000,000 - -------------------------------------------------------------------------------------------------------------------------- Total $529,367,000 $484,394,000 ==========================================================================================================================
See Notes To Consolidated Financial Statements 8 CONSOLIDATED STATEMENTS OF CASH FLOWS Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1998, 1997 and 1996
Years Ended June 30 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 96,130,000 $ 88,706,000 $ 76,135,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,571,000 26,981,000 24,399,000 Provision for losses on accounts receivable 1,691,000 1,813,000 2,089,000 Deferred income taxes and other noncash charges 887,000 (669,000) (190,000) (Gain) loss on sale of property (1,965,000) 530,000 233,000 Changes in operating assets and liabilities: Receivables 2,661,000 1,133,000 (18,478,000) Inventories (12,635,000) (9,656,000) (8,982,000) Prepaid expenses and other current assets 81,000 208,000 334,000 Accounts payable and accrued liabilities 624,000 4,415,000 8,934,000 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 120,045,000 113,461,000 84,474,000 - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Payments on property additions (44,935,000) (37,528,000) (50,229,000) Acquisitions net of cash acquired (19,749,000) Proceeds from sale of property 3,634,000 52,000 1,784,000 Other--net (9,165,000) (3,629,000) (638,000) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (70,215,000) (41,105,000) (49,083,000) - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Payment of dividends (23,326,000) (21,114,000) (19,591,000) Purchase of treasury stock (37,083,000) (29,554,000) (21,457,000) Payments on long-term debt, including acquisition debt payoff (5,148,000) (610,000) (1,026,000) Reduction of ESOP debt 1,279,000 1,278,000 Common stock issued, including stock issued upon exercise of stock options and related tax benefit 6,819,000 5,082,000 1,785,000 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (58,738,000) (44,917,000) (39,011,000) - ---------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 23,000 51,000 - ---------------------------------------------------------------------------------------------------------------------------- Net change in cash and equivalents (8,885,000) 27,439,000 (3,569,000) Cash and equivalents at beginning of year 32,109,000 4,670,000 8,239,000 - ---------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $ 23,224,000 $ 32,109,000 $ 4,670,000 ============================================================================================================================
See Notes To Consolidated Financial Statements 9 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1998, 1997 and 1996
Foreign Currency Amount Outstanding Common Retained Translation Treasury Due From Shares Stock Earnings Adjustment Stock ESOP - --------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1995 29,829,000 $28,086,000 $280,538,000 $501,000 $ 29,420,000 $2,557,000 Year Ended June 30, 1996: Net income 76,135,000 Cash dividends-- common stock ($.44 per share) (19,591,000) Purchase of treasury shares (601,955) 21,457,000 Shares issued upon exercise of stock options including related tax benefits 63,629 1,405,000 Tax benefit of cash dividends paid on ESOP unallocated shares 71,000 Shares issued in business acquisition 272,727 9,000,000 Reduction of ESOP debt (1,278,000) Translation adjustment (426,000) - --------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1996 29,563,401 38,491,000 337,153,000 75,000 50,877,000 1,279,000 - --------------------------------------------------------------------------------------------------------------------------------- Year Ended June 30, 1997: Net income 88,706,000 Cash dividends-- common stock ($.48 per share) (21,114,000) Purchase of treasury shares (691,882) 29,554,000 Shares issued upon exercise of stock options including related tax benefits 145,317 5,082,000 Tax benefit of cash dividends paid on ESOP unallocated shares 38,000 Reduction of ESOP debt (1,279,000) - --------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1997 29,016,836 43,573,000 404,783,000 75,000 80,431,000 - --------------------------------------------------------------------------------------------------------------------------------- Year Ended June 30, 1998: Net income 96,130,000 Cash dividends-- common stock ($.54 per share) (23,326,000) Purchase of treasury shares (987,150) 37,083,000 Shares issued upon exercise of stock options including related tax benefits 215,659 6,819,000 Shares issued in connection with three-for-two stock split 14,508,143 Translation adjustment 23,000 - --------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1998 42,753,488 $50,392,000 $477,587,000 $ 98,000 $117,514,000 =================================================================================================================================
See Notes to Consolidated Financial Statements 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lancaster Colony Corporation and Subsidiaries 1. SUMMARY OF Principles of Consolidation SIGNIFICANT ACCOUNTING The accompanying consolidated financial statements include POLICIES the accounts of Lancaster Colony Corporation and its wholly-owned subsidiaries, collectively referred to as the "Company." All significant intercompany transactions have been eliminated. Use of Estimates The preparation of the consolidated financial statements of the Company in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain prior year amounts have been reclassed to conform to the current year presentation. Cash Equivalents The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Property, Plant and Equipment The Company uses the straight-line method of computing depreciation for financial reporting purposes based on the estimated useful lives of the corresponding assets. Estimated useful lives for buildings and improvements range from ten to forty years while machinery and equipment range from three to ten years. For tax purposes, the Company generally computes depreciation using accelerated methods. Goodwill For financial reporting purposes goodwill is being amortized over ten to forty years, with the exception of $2,243,000 which relates to a company acquired prior to November 1, 1970. Such amount is not being amortized as, in the opinion of management, there has been no diminution in value. Management periodically evaluates the future economic benefit of its recorded goodwill and other long-term assets and appropriately adjusts such amounts when determined to have been impaired based on the difference between the fair value of an asset and its carrying amount. Revenue Recognition Net sales and related cost of sales are recognized upon shipment of products. Net sales are recorded net of estimated sales discounts and returns. Per Share Information Net income per common share is computed based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during each period. In December 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 is effective for financial statements for periods ending after December 15, 1997, including interim periods, and requires restatement of prior periods. Accordingly, all net income per share and weighted average common shares outstanding data has been presented in accordance with SFAS No. 128 in the accompanying consolidated financial statements. Under SFAS No. 128, the Company is required to present basic earnings per share and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to common stockholders 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. On January 27, 1998, a three-for-two stock split was affected whereby one additional common share was issued for each two shares outstanding to shareholders of record on January 6, 1998. Accordingly, per share data and weighted average common shares outstanding for all periods presented in the accompanying consolidated financial statements have been retroactively adjusted for this split. 11 Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and trade accounts receivable. The Company places its cash equivalents with high-quality institutions and, by policy, limits the amount of credit exposure to any one institution. Concentration of credit risk with respect to trade accounts receivable is limited by the Company having a large and diverse customer base. Business Segments The business segments information for 1998, 1997 and 1996 included on page 10 and 11 of this Annual Report is an integral part of these financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement establishes standards to be utilized by public business enterprises in reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures regarding products and services, geographic areas and major customers. The Statement will be effective for the Company for fiscal 1999 and will require comparative information for earlier years. Interim financial information will not be required during the initial year of application; however, comparative interim financial information will be required for interim periods in the second year of application. Management has not yet completed its analysis of this Statement as to its impact on the Company's financial disclosures. Comprehensive Income During June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This Statement will be effective for fiscal years beginning after December 15, 1997 or the Company's fiscal year beginning July 1, 1998. The Statement is effective for interim periods and will require reclassification of financial statements for earlier periods provided for comparative purposes. SFAS No. 130 will require the Company to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the Consolidated Balance Sheet. Derivative Instruments and Computer Software Costs In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which revises the accounting for derivative financial instruments. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which revises the accounting for software development costs. The Statements will be effective for the Company the first quarter of fiscal 2000. Management has not yet completed its analysis of these Statements as to their impact on the Company's financial statements and/or disclosures. 2. ACQUISITIONS During July 1997, the Company acquired all of the common stock of Chatham Village Foods, Inc., an upscale salad crouton business, for cash of approximately $19,749,000. This amount was financed through the use of internally generated funds. The related liabilities assumed totalled approximately $5,747,000. During November 1995, the Company acquired all of the common stock of a specialty foods marketer of upscale salad dressings via a stock-for-stock transaction. This transaction resulted in the issuance of approximately 409,500 shares of Lancaster Colony Corporation common stock, restated for the effect of the stock split in January 1998, having a fair market value of approximately $9,000,000 in exchange for cash of $380,000 and other assets and liabilities having a fair market value of $1,718,000 and $825,000, respectively. These acquisitions were accounted for under the purchase method of accounting and the non-cash aspects have been excluded from the accompanying Consolidated Statement 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. 3. INVENTORIES Inventories are valued at the lower of cost or market. Inventories which comprise approximately 22% and 21% of total inventories at June 30, 1998 and 1997, respectively, are costed on a last-in, first-out (LIFO) basis. Inventories which are costed by various other methods approximate actual cost on a first-in, first-out (FIFO) basis. If the FIFO method (which approximates current cost) of inventory accounting had been used for inventories costed on a LIFO basis, these inventories would have been $14,531,000 and $14,704,000 higher than reported at June 30, 1998 and 1997, respectively. It is not practicable to segregate work in process from finished goods inventories. Management estimates, however, that work in process inventories amount to less than 10% of the combined total of finished goods and work in process inventories at June 30, 1998 and 1997. 12 4. SHORT-TERM BORROWINGS As of June 30, 1998, 1997 and 1996, the Company had unused lines of credit for short-term borrowings from various banks of $85,000,000, $174,000,000 and $199,000,000, respectively. The lines of credit are granted at the discretion of the lending banks and are generally subject to periodic review. As of June 30, 1998 and 1997, the Company had no short-term borrowings under its line of credit arrangements. 5. ACCRUED LIABILITIES Accrued liabilities at June 30, 1998 and 1997 are composed of:
(Dollars In Thousands) 1998 1997 -------------------------------------------------------------------------------------------- Income and other taxes ($ 4,603) $ 2,496 Accrued compensation and employee benefits 25,813 25,103 Accrued marketing and distribution 4,839 6,287 Other 8,154 6,070 -------------------------------------------------------------------------------------------- Total accrued liabilities $34,203 $39,956 ============================================================================================
6. LONG-TERM DEBT Long-term debt (including current portion) at June 30, 1998 and 1997 consists of:
(Dollars In Thousands) 1998 1997 -------------------------------------------------------------------------------------------- Notes payable (8.9%, due in February 2000) $25,000 $25,000 Obligations with various industrial development authorities-collateralized by real estate and equipment: Floating rate due in installments to 2005 4,605 5,010 7%, paid in 1998 1,220 -------------------------------------------------------------------------------------------- Total 29,605 31,230 Less current portion 510 545 -------------------------------------------------------------------------------------------- Long-term debt $29,095 $30,685 ============================================================================================
No material debt was assumed for the purchase of property additions in 1998, 1997 and 1996. Cash payments for interest were $2,646,000, $2,603,000 and $2,875,000 for 1998, 1997 and 1996, respectively. Various debt agreements require the maintenance of certain financial statement amounts and ratios, including a requirement to maintain a specified minimum net worth, as defined. At June 30, 1998, the Company exceeded this net worth requirement by approximately $76,741,000.
Long-term debt matures as follows: (Dollars In Thousands) -------------------------------------------------------------------------------------------- Year ending June 30: 1999 $ 510 2000 25,520 2001 535 2002 545 2003 555 After 2003 1,940 -------------------------------------------------------------------------------------------- Total $29,605 ============================================================================================
Based on the borrowing rates currently available for long-term debt with similar terms and average maturities, the estimated fair value of total long-term debt is approximately $30,497,000 and $32,179,000 at June 30, 1998 and 1997, respectively. 13 7. INCOME TAXES The Company and its domestic subsidiaries file a consolidated Federal income tax return. Taxes based on income for the years ended June 30, 1998, 1997 and 1996, have been provided as follows:
(Dollars In Thousands) 1998 1997 1996 -------------------------------------------------------------------------------------------- Currently payable: Federal $49,798 $49,063 $40,476 State and local 7,612 5,579 5,863 -------------------------------------------------------------------------------------------- Total current provision 57,410 54,642 46,339 Deferred Federal, state and local provision (credit) 1,833 (889) 747 -------------------------------------------------------------------------------------------- Total taxes based on income $59,243 $53,753 $47,086 ============================================================================================
Tax expense resulting from allocating certain tax benefits directly to common stock and retained earnings totaled $647,000, $323,000 and $427,000 for 1998, 1997 and 1996, respectively. The Company's effective tax rate varies from the statutory Federal income tax rate as a result of the following factors:
1998 1997 1996 -------------------------------------------------------------------------------------------- Statutory rate 35.0% 35.0% 35.0% State and local income taxes 3.1 2.5 3.0 Other 0.2 0.2 -------------------------------------------------------------------------------------------- Effective rate 38.1% 37.7% 38.2% ============================================================================================
Deferred income taxes recorded in the consolidated balance sheets at June 30, 1998 and 1997 consist of the following:
(Dollars In Thousands) 1998 1997 -------------------------------------------------------------------------------------------- Deferred tax assets (liabilities): Inventories $ 5,729 $ 4,797 Employee medical and other benefits 5,079 5,010 Receivable valuation allowances 2,421 2,195 Other accrued liabilities 3,031 3,519 -------------------------------------------------------------------------------------------- Total deferred tax assets 16,260 15,521 -------------------------------------------------------------------------------------------- Total deferred tax liabilities - Property and other (11,477) (8,930) -------------------------------------------------------------------------------------------- Net deferred tax asset $ 4,783 $ 6,591 ============================================================================================
Cash payments for income taxes were $63,633,000, $54,225,000 and $46,547,000 for 1998, 1997 and 1996, respectively. 8. SHAREHOLDERS' EQUITY The Company is authorized to issue 3,050,000 shares of preferred stock consisting of 750,000 shares of Class A Participating Preferred Stock with $1.00 par value, 1,150,000 shares of Class B Voting Preferred Stock without par value and 1,150,000 shares of Class C Nonvoting Preferred Stock without par value. In April 1990, the Company's Board of Directors adopted a Rights Agreement which provides for one preferred share purchase right to be associated with each share of the Company's outstanding common stock. Shareholders exercising these rights would become entitled to purchase shares of Class A Participating Preferred Stock. The rights may be exercised on or after the time when a person or group of persons without the approval of the Board of Directors acquire beneficial ownership of 15 percent or more of the Company's common stock or announce the initiation of a tender or exchange offer which if successful would cause such person or group to beneficially own 30 percent or more of the common stock. Such exercise may ultimately entitle the holders of the rights to purchase for $17.50 per right common stock of the Company having a market value of $35. The person or groups effecting such 15 percent acquisition or undertaking such tender offer will not be entitled to exercise any rights. These rights expire April 2000 unless earlier redeemed by the Company under circumstances permitted by the Rights Agreement. 14 9. STOCK OPTIONS Under terms of an incentive stock option plan approved by the shareholders in November 1995, the Company has reserved 3,000,000 common shares for issuance to qualified key employees. All options granted under the plan are exercisable at prices not less than fair market value as of the date of grant. At June 30, 1998, 2,622,375 shares were available for future grants under the plan. In general, options granted under the plan vest immediately and have a maximum term of 10 years. Both reserved common shares and shares available for future grants have been restated to reflect the stock split in January 1998. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" which in accordance with the Statement, the Company adopted in fiscal 1997. As permitted by SFAS No. 123, the Company has elected to follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, in accounting for its stock based compensation because, as discussed below, the alternative fair value provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing stock options. Under APB Opinion No. 25, because the exercise price of the Company's stock options was at least equal to the market price of the underlying stock on the date of grant, no compensation expense was recognized. The following summarizes for each of the three years in the period ended June 30, 1998 the activity relating to stock options granted under the 1995 plan mentioned above as well as those granted under a separate plan that expired in May 1995, as restated to reflect the stock split in January 1998:
1998 1997 1996 ------------------------------------------------------------------------------------------------------- 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 497,095 $28.18 335,121 $21.16 459,063 $19.25 Exercised, net of stock tendered (215,659) 28.62 (217,976) 21.95 (120,717) 13.88 in payment Granted 383,100 30.78 Forfeited (3,450) 30.75 (3,150) 27.71 (3,225) 22.25 ------------------------------------------------------------------------------------------------------- Outstanding at end of the period 277,986 $27.78 497,095 $28.18 335,121 $21.16 ======================================================================================================= Exercisable at end of period 186,692 $29.73 354,179 $30.01 =======================================================================================================
The weighted average fair value of options granted during the fiscal year 1997 was $5.00. The following table summarizes information about the options outstanding at June 30, 1998: Options Outstanding Options Exercisable -------------------------------------------------------------------- --------------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at June 30, 1998 Contractual Life Exercise Price at June 30, 1998 Exercise Price -------------------------------------------------------------------- --------------------------------- $30.75- $33.83 203,104 1.68 $30.75 171,542 $30.75 $17.06- $22.25 74,882 3.92 $19.71 15,150 $18.22 ==================================================================== =================================
The fair value of the options presented above was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 6.04%; dividend yield of 1.6%; volatility factors of the expected market price of the Company's common stock of 20.60%; and a weighted average expected option life of 2.29 years. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the Plan consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
For Years Ended (Dollars In Thousands Except Per Share Figures) June 30, 1998 June 30, 1997 ------------------------------------------------------------------------------------------------------- Net income As reported $96,130 $88,706 Pro forma $96,057 $87,746 Earnings per Share Basic and Diluted As reported $2.22 $2.01 Pro forma $2.22 $1.99 =======================================================================================================
15 10. PENSION AND OTHER Defined Benefit Pension Plans: POSTRETIREMENT BENEFITS The Company and certain of its operating subsidiaries sponsor five noncontributory defined benefit plans which cover the union workers at such locations. Additionally, the Company and certain of its operating subsidiaries participate in two multiemployer defined benefit plans covering the union workers at such locations. Benefits under these plans are primarily based on negotiated rates and years of service. The Company contributes to these pension funds at least the minimum amount required by regulation or contract. Net pension cost relating to these plans for each of the three years in the period ended June 30, 1998 is summarized as follows:
(Dollars In Thousands) 1998 1997 1996 ------------------------------------------------------------------------------------------ Company sponsored plans- Service cost - benefits earned during the period $ 559 $ 537 $ 472 Interest cost on projected benefit obligations 1,785 1,681 1,662 Actual return on pension plan assets (5,927) (5,361) (2,895) Net amortization and deferrals 3,227 3,226 889 ------------------------------------------------------------------------------------------ Net pension cost for Company plans (356) 83 128 Multiemployer plans 970 886 806 ------------------------------------------------------------------------------------------ Net pension cost $ 614 $ 969 $ 934 ==========================================================================================
The following table summarizes the funded status of the Company's plans at June 30, 1998 and 1997:
(Dollars In Thousands) 1998 1997 ------------------------------------------------------------------------------------------ Actuarial present value of benefit obligation: Vested benefits $28,197 $24,230 ========================================================================================== Accumulated benefit obligation $28,409 $24,361 ========================================================================================== Projected benefit obligation $28,409 $24,361 Plan assets at fair value 34,794 30,262 ------------------------------------------------------------------------------------------ Excess of assets over projected benefit obligation 6,385 5,901 Unrecognized net gain (6,430) (6,548) Unrecognized prior service costs 2,189 2,318 Remaining unrecognized net transition obligation 208 240 ------------------------------------------------------------------------------------------ Net recorded pension asset $ 2,352 $ 1,911 ==========================================================================================
The majority of plan assets are invested in bonds, short-term investments and common stock including shares of the Company's common stock with a market value of $5,284,000, $4,500,000 and $3,476,000 as of June 30, 1998, 1997 and 1996, respectively. The weighted average discount rates used in determining the projected benefit obligation were 6.75% for 1998 and 7.50% for 1997 and 1996. The expected long-term rate of return on assets was 9.0% for the three years. Employee Stock Ownership Plan and 401(k) Profit Sharing Plan and Trust: The Company sponsors an Employee Stock Ownership Plan (ESOP). In April 1990, the Company loaned $10,000,000 to the ESOP for the purpose of purchasing the Company's common stock in furtherance of the objectives of the Plan. The Company funded this transaction primarily through short-term bank borrowings. With the proceeds and as adjusted for all stock splits since April 1990, the ESOP effectively purchased 1,791,585 shares of the Company's common stock in the open market. Effective January 1, 1998, the ESOP was frozen and all benefit accruals under and further contributions to the ESOP ceased. All participants in the plan at that time were immediately 100% vested. Prior to this time, the ESOP was fully paid by the Company and generally provided coverage to all domestic employees, except those covered by a collective bargaining agreement. Contributions to the ESOP were not less than that required by the terms of the loan agreement between the Company and the ESOP. The Company used the shares-allocated method of accounting in determining the amount of expense related to each contribution. The loan to the ESOP was paid in full in fiscal 1997. Dividends accumulated on the Company's unallocated common stock held by the ESOP were used to repay the loan to the Company. Accordingly, the pretax expense associated with 1997 and 1996 totaled $1,169,000 and $1,077,000, which is net of dividends of $110,000 and $201,000 on the unallocated shares, respectively. 16 The Company adopted the Lancaster Colony Corporation 401(k) Profit Sharing Plan and Trust (401(k) Plan) effective January 1, 1998. The 401(k) Plan allows participation to all domestic employees, except those covered by a collective bargaining agreement. The Company contribution is 40% of the participant's contribution up to 4% of the participant's annual compensation. The Company contribution will be funded annually at the end of the 401(k) Plan year, December 31. The Company's contribution for the year ended June 30, 1998 is approximately $174,000. The funds are invested in mutual funds. Postretirement Benefits Other Than Pensions: In addition to pension benefits, the Company also provides certain employees other postretirement benefits including health care and life insurance coverage. As of June 30, 1998, the Company provides such coverage under three active benefit plans of which two relate to collectively bargained benefits. In general, all eligible employees are entitled to receive medical and life insurance benefits upon meeting certain age and service requirements at the time of their retirement. The Company recognizes the cost of postretirement medical and life insurance benefits as the employees render service in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Benefits are funded as incurred. Relevant information with respect to these postretirement benefits as of June 30, 1998 and 1997 can be summarized as follows:
(Dollars In Thousands) 1998 1997 ---------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retired participants $1,825 $1,768 Fully eligible active plan participants 247 214 Other active plan participants 778 892 ---------------------------------------------------------------------------------------------------- Total 2,850 2,874 Unrecognized net gain from past experience and changes in assumptions 463 348 ---------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost $3,313 $3,222 ====================================================================================================
Net postretirement benefits expense relating to the plans for each of the three years in the period ended June 30, 1998, is summarized as follows:
(Dollars In Thousands) 1998 1997 1996 ---------------------------------------------------------------------------------------------------- Net postretirement benefit cost: Service cost $ 102 $ 99 $ 111 Interest cost 215 227 226 Net amortization (4) ---------------------------------------------------------------------------------------------------- Total $ 313 $ 326 $ 337 ==================================================================================================== Estimated effect of 1% increase in assumed medical cost trend rates: Increase in accumulated postretirement benefit obligation $ 179 $ 230 $ 245 ==================================================================================================== Increase in net periodic postretirement benefit cost $ 28 $ 47 $ 50 ==================================================================================================== Assumed weighted average discount rate 6.75% 7.50% 7.50% ====================================================================================================
For 1998, annual increases in medical costs are initially assumed to total approximately 7.5% per year and gradually decline to 5% by approximately the year 2003. Annual increases in medical costs for 1997 were assumed to total approximately 8% per year and gradually decline to 5% by approximately the year 2003. The Company and certain of its subsidiaries participate in two multiemployer plans that provide various postretirement health and welfare benefits to the union workers at such locations. The Company's contributions required by its participation in the multiemployer plans totaled $1,753,000, $1,602,000 and $1,463,000 in 1998, 1997 and 1996, respectively. 17 In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits." This Statement is effective for fiscal years beginning after December 15, 1997 or for the Company's year ending June 30, 1999. SFAS No. 132 revises employers disclosures about pension and other postretirement benefit plans for purposes of standardization in disclosure. SFAS No. 132 suggests combined formats for presentation of pension and other postretirement benefit disclosures and requires restatement of disclosures for earlier periods provided for comparative purposes. Management has not yet completed its analysis of this Statement as to its impact on the Company's financial disclosures. 11. COMMITMENTS The Company has operating leases with initial noncancelable lease terms in excess of one year, covering the rental of various facilities and equipment, which expire at various dates through fiscal 2005. 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): 1999 - $4,036; 2000 - $2,521; 2001 - $1,556; 2002 - $1,220; 2003 - $888; thereafter - $591. Total rent expense, including short-term cancelable leases, during 1998, 1997 and 1996 is summarized as follows:
(Dollars In Thousands) 1998 1997 1996 -------------------------------------------------------------------------------------------------- Operating leases: Minimum rentals $5,477 $4,545 $4,393 Contingent rentals 534 558 579 Short-term cancelable leases 2,113 2,808 2,330 -------------------------------------------------------------------------------------------------- Total $8,124 $7,911 $7,302 ==================================================================================================
12. CONTINGENCIES At June 30, 1998, the Company is a party to various legal and AND environmental matters which have arisen in the ordinary ENVIRONMENTAL course of business. Such matters did not have a material MATTERS adverse effect on the current year results of operations and, in the opinion of management, their ultimate disposition will not have a material adverse effect on the Company's consolidated financial statements. 18 INDEPENDENT AUDITORS' REPORT To The Shareholders And Directors Of Lancaster Colony Corporation We have audited the accompanying consolidated balance sheets of Lancaster Colony Corporation and its subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lancaster Colony Corporation and its subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP COLUMBUS, OHIO AUGUST 26, 1998 SELECTED QUARTERLY FINANCIAL DATA Lancaster Colony Corporation and Subsidiaries for the Years Ended June 30, 1998 and 1997
Diluted (Thousands Except Net Gross Net Earnings Stock Prices(1) Dividends Paid Per Share Figures) Sales Margin Income Per Share(1) High Low Per Share(1) - -------------------------------------------------------------------------------------------------------------------------------- 1998 First quarter $ 237,174 $ 75,154 $20,861 $ .48 $36.167 $32.000 $.127 Second quarter 300,754 95,046 28,967 .67 38.500 31.833 .133 Third quarter 237,628 76,250 22,796 .53 44.750 37.333 .140 Fourth quarter 233,196 77,947 23,506 .55 45.375 36.750 .140 - ------------------------------------------------------------------------------------------------------------------------------- Year $1,008,752 $324,397 $96,130 $2.22 $45.375 $31.833 $.540 =============================================================================================================================== 1997 First quarter $ 218,918 $ 66,345 $18,259 $ .41 $25.833 $23.500 $.113 Second quarter 259,023 82,290 25,405 .57 30.667 24.083 .120 Third quarter 218,141 69,157 21,022 .48 32.250 28.833 .120 Fourth quarter 226,731 72,970 24,020 .55 32.583 26.167 .127 - ------------------------------------------------------------------------------------------------------------------------------- Year $ 922,813 $290,762 $88,706 $2.01 $32.583 $23.500 $.480 ===============================================================================================================================
(1) Adjusted for the 3-for-2 stock split paid January 1998. Lancaster Colony common shares are traded in the Nasdaq National Market System (Nasdaq Symbol: LANC). Stock quotations were obtained from the National Association of Securities Dealers. The number of shareholders as of September 15, 1998 was approximately 12,100. The highest and lowest prices for the Company's common shares from July 1, 1998 to September 15, 1998 were $40.00 and $27.75. EX-21 6 EXHIBIT 21 1 Exhibit 21 LANCASTER COLONY CORPORATION SIGNIFICANT SUBSIDIARIES OF REGISTRANT --------------------------------------
State Percent Of Name Of Incorporation Ownership ---- ---------------- --------- Colony Printing & Labeling, Inc. Indiana 100% Dee Zee, Inc. Ohio 100% Fostoria Glass, LLC Ohio 100% Indiana Glass Company Indiana 100% LRV Acquisition Corp. Ohio 100% LaGrange Molded Products, Inc. Delaware 100% Lancaster Colony Commercial Products, Inc. Ohio 100% Lancaster Glass Corporation Ohio 100% New York Frozen Foods, Inc. Ohio 100% Pretty Products, Inc. Ohio 100% T. Marzetti Company Ohio 100% The Quality Bakery Company, Inc. Ohio 100% Reames Foods, Inc. Iowa 100% Waycross Molded Products, Inc. Ohio 100%
All subsidiaries conduct their business under the names shown. EX-23 7 EXHIBIT 23 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-39102 and 333-01275 of Lancaster Colony Corporation on Form S-8 of our reports dated August 26, 1998, appearing in and incorporated by reference in this Annual Report on Form 10-K of Lancaster Colony Corporation for the year ended June 30, 1998. /S/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio September 24, 1998 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1998 JUN-30-1998 23,224 0 102,644 2,774 175,197 311,548 374,033 203,267 529,367 76,517 29,095 0 0 50,392 360,171 529,367 1,008,752 1,008,752 684,355 684,355 0 0 2,626 155,373 59,243 96,130 0 0 0 96,130 2.22 2.22
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