-----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, Ib+qz2F6WjfPb00jjAc8LAvfpZSqnKhnk0lAd0okb1S0Q3+YPX+k5mpbr5ecedrv lsxEc2Jn0MwkP6lTjjcyhw== 0000950152-04-000934.txt : 20040211 0000950152-04-000934.hdr.sgml : 20040211 20040211154025 ACCESSION NUMBER: 0000950152-04-000934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040211 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04065 FILM NUMBER: 04586217 BUSINESS ADDRESS: STREET 1: 37 W BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142247141 10-Q 1 l05594ae10vq.txt LANCASTER COLONY CORPORATION 10-Q/QTR END 12-31-03 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549-1004 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-4065-1 ---------------------- LANCASTER COLONY CORPORATION (Exact name of registrant as specified in its charter) OHIO 13-1955943 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37 WEST BROAD STREET 43215 COLUMBUS, OHIO (Zip Code) (Address of principal executive offices) 614-224-7141 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of January 31, 2004, there were approximately 35,764,000 shares of Common Stock, no par value per share, outstanding. LANCASTER COLONY CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets - December 31, 2003 and June 30, 2003 Consolidated Statements of Income - Three and Six Months Ended December 31, 2003 and 2002 Consolidated Statements of Cash Flows - Six Months Ended December 31, 2003 and 2002 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURES INDEX TO EXHIBITS 2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31 JUNE 30 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2003 --------------------------------------- ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and equivalents................................................. $ 152,505 $ 142,847 Receivables - (net of allowance for doubtful accounts, December - $2,398 and June - $1,952)............................... 106,288 88,583 Inventories: Raw materials and supplies......................................... 46,429 42,957 Finished goods and work in process................................. 104,245 116,455 ----------- ----------- Total inventories................................................ 150,674 159,412 Deferred income taxes and other current assets....................... 26,780 23,543 ----------- ----------- Total current assets............................................. 436,247 414,385 PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements..................................... 121,290 118,457 Machinery and equipment.............................................. 354,724 343,419 ----------- ----------- Total cost....................................................... 476,014 461,876 Less accumulated depreciation........................................ 308,457 300,765 ----------- ----------- Property, plant and equipment - net.............................. 167,557 161,111 OTHER ASSETS: Goodwill - (net of accumulated amortization December and June - $15,136) ...................................... 84,047 75,212 Other intangible assets.............................................. 420 435 Other noncurrent assets.............................................. 16,743 16,573 ----------- ----------- TOTAL............................................................ $ 705,014 $ 667,716 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................... $ 41,410 $ 41,983 Accrued liabilities.................................................. 50,175 42,940 ----------- ----------- Total current liabilities........................................ 91,585 84,923 OTHER NONCURRENT LIABILITIES............................................ 28,897 27,811 DEFERRED INCOME TAXES................................................... 8,147 7,317 SHAREHOLDERS' EQUITY: Preferred stock - authorized 3,050,000 shares; outstanding - none Common stock - authorized 75,000,000 shares; outstanding - December 31, 2003 - 35,710,047 shares; June 30, 2003 - 35,770,663 shares.................................. 67,005 65,864 Retained earnings.................................................... 867,916 836,928 Accumulated other comprehensive loss................................. (8,862) (9,151) ----------- ----------- Total............................................................ 926,059 893,641 Common stock in treasury, at cost.................................... (349,674) (345,976) ----------- ----------- Total shareholders' equity........................................... 576,385 547,665 ----------- ----------- TOTAL............................................................ $ 705,014 $ 667,716 =========== ===========
See accompanying notes to consolidated financial statements. 3 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2003 2002 - -------------------------------------------- ---------- ---------- ---------- ---------- NET SALES........................................ $ 291,196 $ 307,669 $ 557,848 $ 583,490 COST OF SALES.................................... 226,145 233,437 436,990 451,572 ---------- ---------- ---------- ---------- GROSS MARGIN..................................... 65,051 74,232 120,858 131,918 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................... 24,903 26,236 49,072 51,122 RESTRUCTURING AND IMPAIRMENT CHARGE.............. - 4,945 - 4,945 ---------- ---------- ---------- ---------- OPERATING INCOME................................. 40,148 43,051 71,786 75,851 OTHER INCOME (EXPENSE): Other Income - Continued Dumping and Subsidy Offset Act.......................... 1,987 39,177 1,987 39,177 Interest Income and Other - Net............... 493 880 839 1,277 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES....................... 42,628 83,108 74,612 116,305 TAXES BASED ON INCOME............................ 15,978 31,129 28,262 43,770 ---------- ---------- ---------- ---------- NET INCOME....................................... $ 26,650 $ 51,979 $ 46,350 $ 72,535 ========== ========== ========== ========== NET INCOME PER COMMON SHARE: Basic......................................... $ .75 $ 1.43 $ 1.30 $ 1.99 Diluted....................................... $ .74 $ 1.43 $ 1.29 $ 1.99 CASH DIVIDENDS PER COMMON SHARE.................. $ .23 $ .20 $ .43 $ .38 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic......................................... 35,719 36,354 35,741 36,458 Diluted....................................... 35,798 36,406 35,815 36,517
See accompanying notes to consolidated financial statements. 4 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS) 2003 2002 - ---------------------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................. $ 46,350 $ 72,535 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................................ 15,322 16,119 (Recovery of) provision for losses on accounts receivable............ (629) 253 Deferred income taxes and other noncash charges...................... 1,916 461 Restructuring and impairment charge.................................. (58) 4,101 Gain on sale of property............................................. (736) (324) Changes in operating assets and liabilities: Receivables........................................................ (15,507) (28,487) Inventories........................................................ 9,813 389 Other current assets............................................... (3,237) (2,438) Accounts payable................................................... (965) (5,050) Accrued liabilities................................................ 7,129 29,666 ---------- ---------- Net cash provided by operating activities........................ 59,398 87,225 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions............................................. (20,568) - Payments on property additions......................................... (10,840) (12,143) Proceeds from sale of property......................................... 1,130 1,431 Other - net............................................................ (1,464) (1,056) ---------- ---------- Net cash used in investing activities............................ (31,742) (11,768) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends................................................... (15,362) (13,832) Purchase of treasury stock............................................. (3,698) (18,893) Common stock issued upon exercise of stock options..................... 1,046 2,384 ---------- ---------- Net cash used in financing activities............................ (18,014) (30,341) ---------- ---------- Effect of exchange rate changes on cash................................... 16 11 ---------- ---------- Net change in cash and equivalents........................................ 9,658 45,127 Cash and equivalents at beginning of year................................. 142,847 83,378 ---------- ---------- Cash and equivalents at end of period..................................... $ 152,505 $ 128,505 ========== ========== SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS: Cash paid during the period for income taxes........................... $ 21,995 $ 19,930 ========== ==========
See accompanying notes to consolidated financial statements. 5 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 - BASIS OF PRESENTATION The interim consolidated financial statements are unaudited but, in our opinion, reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended June 30, 2003. During the three and six months ended December 31, 2003 and 2002, certain inventory quantity reductions resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of the liquidation for the three and six months ended December 31, 2003 was an increase in pretax income of approximately $1.0 million and $2.6 million, or approximately two cents and five cents per share after taxes, respectively. The effect of the liquidation for the three and six months ended December 31, 2002 was an increase in pretax income of approximately $2.7 million, or approximately five cents per share after taxes. We account for our stock option plan under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, no compensation cost is reflected in net income, as all options granted under those plans had an exercise price at least equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and net income per common share as if we had applied the fair-value-based method under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, to record expense for stock option compensation:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 2003 2002 2003 2002 --------- --------- -------- --------- Net income as reported.................... $ 26,650 $ 51,979 $ 46,350 $ 72,535 Less: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects.... (102) (35) (204) (70) --------- --------- -------- --------- Pro forma net income...................... $ 26,548 $ 51,944 $ 46,146 $ 72,465 ========= ========= ======== ========= Net income per common share - basic as reported......................... $ .75 $ 1.43 $ 1.30 $ 1.99 Net income per common share - diluted as reported....................... $ .74 $ 1.43 $ 1.29 $ 1.99 Net income per common share - basic pro forma........................... $ .74 $ 1.43 $ 1.29 $ 1.99 Net income per common share - diluted pro forma......................... $ .74 $ 1.43 $ 1.29 $ 1.98
NOTE 2 - ACQUISITION On December 12, 2003, we completed the acquisition of substantially all the operating assets of Warren Frozen Foods, Inc. ("Warren"), a privately owned producer and marketer of frozen noodle and pasta products based in Altoona, Iowa. Warren has a well-recognized presence in the industrial and foodservice markets and will complement our existing frozen noodle operation, which has a greater presence in retail markets. Warren is reported in our Specialty Foods segment, and its results of operations have been included in our consolidated statement of income since December 12, 2003. Proforma financial information relating to this acquisition is not included, as the impact of this transaction is not material to our consolidated results. 6 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Under the terms of the purchase agreement, we acquired certain personal and real property including fixed assets, inventory, accounts receivable, and certain assumed liabilities. The purchase price was approximately $20.6 million, although this amount is subject to a net asset adjustment as determined under the terms of the purchase agreement. The following purchase price allocation is based on the estimated fair value of the net assets acquired and will be finalized upon resolution of the net asset adjustment and the completion of an independent appraisal with respect to certain intangible assets other than goodwill, which we are currently in the process of obtaining. All of the purchase price in excess of the net identifiable assets acquired has been tentatively assigned to goodwill, pending the completion of the third-party valuation. Accordingly, a preliminary allocation of the purchase price is as follows:
PRELIMINARY BALANCE SHEET CAPTIONS ALLOCATION ---------------------- ----------- Receivables........................................................................ $ 1,519 Inventories........................................................................ 1,075 Property, Plant and Equipment (as determined by independent appraisal)............. 10,062 Goodwill........................................................................... 8,836 Current Liabilities................................................................ (924) -------- Total............................................................................ $ 20,568 ========
The preliminary goodwill is reported in the Specialty Foods segment and it is estimated that all of it will be deductible for tax purposes. NOTE 3 - BUSINESS SEGMENT INFORMATION The following summary financial information by business segment is consistent with the basis of segmentation and measurement of segment profit or loss presented in our June 30, 2003 consolidated financial statements:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 2003 2002 2003 2002 ---------- ---------- --------- ---------- NET SALES Specialty Foods...................... $ 163,888 $ 164,316 $ 318,705 $ 311,949 Glassware and Candles................ 72,709 81,753 128,835 149,963 Automotive........................... 54,599 61,600 110,308 121,578 ---------- ---------- --------- ---------- Total ............................. $ 291,196 $ 307,669 $ 557,848 $ 583,490 ========== ========== ========= ========== OPERATING INCOME Specialty Foods...................... $ 31,096 $ 34,296 $ 57,409 $ 60,572 Glassware and Candles................ 6,764 5,896 9,870 9,973 Automotive........................... 3,804 4,541 7,455 8,444 Corporate expenses................... (1,516) (1,682) (2,948) (3,138) ---------- ---------- --------- ---------- Total ............................. $ 40,148 $ 43,051 $ 71,786 $ 75,851 ========== ========== ========= ==========
NOTE 4 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In December 2003, the Financial Accounting Standards Board ("FASB") issued Revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises the annual disclosure requirements for pension and postretirement plans to include additional disclosures about assets, obligations, cash flows, and net periodic benefit costs of defined benefit pension and 7 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) other defined benefit postretirement plans. SFAS No. 132 also revises the interim disclosure requirements to include disclosures of the net periodic benefit costs for each period in which an income statement is presented and the employer's contributions paid and expected to be paid during the current fiscal year, if the contributions are significantly different than previously disclosed amounts. The Statement is effective for financial statements with fiscal years ending after December 15, 2003. For interim-period disclosures, the Statement is effective for interim periods beginning after December 15, 2003. We will adopt this Statement for interim-period disclosures with our March 31, 2004 Form 10-Q, and we will adopt the annual disclosures with our June 30, 2004 Form 10-K. The adoption of FAS No. 132 will not have an impact on our financial condition or results of operations, as it pertains only to disclosure provisions. In January 2004, the FASB issued FASB Staff Position No. FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-1"). FSP 106-1 permits employers that sponsor postretirement benefit plans that provide prescription drug benefits to retirees to make a one-time election to defer accounting for any effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). We have elected to defer accounting for any effect of the Act until specific authoritative accounting guidance is issued. Therefore, the amounts included in the financial statements related to our postretirement benefit plans do not reflect the effects of the Act. The effect of the Act is not expected to have a material effect on our results of operations, cash flows or financial position. NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill attributable to the Specialty Foods and Automotive segments was $83.0 million and $1.0 million, respectively, at December 31, 2003 and $74.2 million and $1.0 million, respectively, at June 30, 2003. The increase in goodwill at December 31 is the result of the acquisition of Warren, as discussed in Note 2. The following table summarizes our segment identifiable other intangible assets as of December 31 and June 30, 2003:
DECEMBER JUNE 2003 2003 ---------- ------- Specialty Foods - Trademarks Gross carrying value....................................... $ 370 $ 370 Accumulated amortization................................... (117) (112) ------ ------- Net Carrying Value......................................... $ 253 $ 258 ====== ======= Glassware and Candles - Customer Lists Gross carrying value....................................... $ 250 $ 250 Accumulated amortization................................... (83) (73) ------ ------- Net Carrying Value......................................... $ 167 $ 177 ====== ======= Total Net Carrying Value..................................... $ 420 $ 435 ====== =======
Amortization expense relating to these assets was approximately $8,000 for the three months ended December 31, 2003 and 2002 and $15,000 for the six months ended December 31, 2003 and 2002. The amortization expense is estimated to be approximately $30,000 for each of the five fiscal years ending June 30, 2004 through 2008. NOTE 6 - RESTRUCTURING AND IMPAIRMENT CHARGE On November 1, 2002, we announced the restructuring and consolidation of our glass manufacturing facility located in Dunkirk, Indiana into our facility located in Sapulpa, Oklahoma. The Sapulpa plant gained pressed glassware manufacturing in addition to its blown glassware capabilities, while warehousing and certain other ancillary functions continue to be performed at the Dunkirk facility. This action was deemed necessary due to a combination of weaker demand for pressed glassware, import competition and the existence of excess plant capacity. 8 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) As a result of this plan, during the second quarter of the year ended June 30, 2003, we recognized a pretax charge of approximately $4.9 million, consisting of employee separation costs (relating to approximately 250 hourly and salary employees), pension curtailment costs, closure and cleanup costs and the write-down of property, plant and equipment having no future utility as a result of the restructuring decision. The accounting for this restructuring was in accordance with Emerging Issues Task Force No. 94-3. In accordance with this guidance, the restructuring provision was determined based on estimates prepared at the time we approved the restructuring actions. An analysis of our restructuring activity and related liability is as follows:
EMPLOYEE SEPARATION OTHER COSTS CHARGES TOTAL ---------- ------- ----- Accrual Balance at June 30, 2003................................ $ 89 $ 114 $ 203 Cash Paid....................................................... (52) (6) (58) ----- ------ ------ Accrual Balance at December 31, 2003 (included in accrued liabilities)............................. $ 37 $ 108 $ 145 ===== ====== ======
NOTE 7 - COMMITMENTS AND CONTINGENCIES At December 31, 2003, we are a party to various claims and litigation which have arisen in the ordinary course of business. Such matters did not have a material effect on the current fiscal year-to-date results of operations and, in our opinion, their ultimate disposition will not have a material adverse effect on our consolidated financial statements. Certain of our automotive accessory products carry explicit limited warranties that extend from twelve months to the life of the product, based on terms that are generally accepted in the marketplace. Our policy is to record a provision for the expected cost of the warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects our best estimate of the expected future cost of honoring our obligations under the warranty plans. The warranty accrual as of December 31, 2003 and June 30, 2003 is immaterial to our financial condition, and the change in the accrual for the current quarter of fiscal 2004 is immaterial to our results of operations and cash flows. NOTE 8 - COMPREHENSIVE INCOME Total comprehensive income for the three months ended December 31, 2003 and 2002 was approximately $26.8 million and $52.0 million, respectively. Total comprehensive income for the six-month periods ended December 31, 2003 and 2002 was approximately $46.7 million and $72.6 million, respectively. The December 31, 2003 comprehensive income consists of net income, the tax benefit on Employee Stock Ownership Plan dividends and foreign currency translation adjustments. The December 31, 2002 comprehensive income consists of net income and foreign currency translation adjustments. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LANCASTER COLONY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (TABULAR DOLLARS IN THOUSANDS) OVERVIEW We are a diversified manufacturer and marketer of consumer products including specialty foods for the retail and foodservice markets; glassware and candles for the retail, industrial, floral and foodservice markets; and automotive accessories for the original equipment market and aftermarket. On December 12, 2003, we purchased substantially all the operating assets of Warren Frozen Foods, Inc. ("Warren"), a privately owned producer and marketer of frozen noodle and pasta products. Warren is reported in our Specialty Foods segment. This acquisition is discussed in further detail in Note 2 to the accompanying consolidated financial statements. The following is an overview of our consolidated operating results for the three and six months ended December 31, 2003. Net sales for the second quarter ended December 31, 2003 decreased 5% to $291.2 million from the prior year second quarter total of $307.7 million. Gross margin decreased 12% to $65.1 million from the prior year comparable total of $74.2 million. Net income for the current year second quarter was $26.7 million or $0.74 per diluted share. For the current year-to-date period, net sales were $557.8 million, a 4% decline from $583.5 million in the prior year comparable period. Gross margin declined by 8% to $120.9 million from the prior year period total of $131.9 million. Net income for the six months ended December 31, 2003 was $46.4 million or $1.29 per diluted share. Our second quarter and year-to-date results reflect an environment of increased competition, continued soft economic conditions, and higher material costs. We have been able to maintain a strong balance sheet with no debt throughout this period. RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 2003 2002 CHANGE 2003 2002 CHANGE -------- -------- --------------- -------- ------- ---------------- NET SALES Specialty Foods....... $163,888 $164,316 $ (428) 0 % $318,705 $311,949 $ 6,756 2 % Glassware and Candles. 72,709 81,753 (9,044) (11) 128,835 149,963 (21,128) (14) Automotive............ 54,599 61,600 (7,001) (11) 110,308 121,578 (11,270) (9) -------- -------- -------- --- ------- ------- -------- ---- Total .............. $291,196 $307,669 $(16,473) (5)% $557,848 $583,490 $(25,642) (4)% ======== ======== ======== === ======== ======== ======== ====
For the most recent quarter, net sales of the Specialty Foods segment were flat as compared to the prior year period, but the Glassware and Candles and Automotive segments experienced declines of 11% each. For the current year's six-month period, growth in the Specialty Foods segment was more than offset by declines in the Glassware and Candles segment and the Automotive segment. For the quarter ended December 31, 2003, net sales of the Specialty Foods segment totaled $163.9 million, essentially even with the prior year total of $164.3 million. For the six months ended December 31, 2003, the Specialty Foods segment's net sales increased by 2% over the prior year total of $311.9 million. The segment's year-to-date increased sales were generated in both the retail and foodservice lines. For the most recent quarter, increases in foodservice sales were offset by decreases in retail sales due to weakness in the demand for certain produce dips and dressings. Our Warren acquisition, discussed in Note 2 to the 10 accompanying consolidated financial statements, contributed approximately $0.8 million in net sales in the current year second quarter and year-to-date periods. Net sales of the Glassware and Candles segment for the second quarter ended December 31, 2003 totaled $72.7 million, an 11% decline from the comparable prior year quarter total of $81.8 million. For the six months ended December 31, 2003, Glassware and Candles sales were $128.8 million, or a 14% decline from the prior year total of $150.0 million. This decline was primarily attributable to continued weakness in candle demand and the overall retail market, as well as intense competitive pressures. Automotive segment net sales for the second quarter ended December 31, 2003 totaled $54.6 million, an 11% decline from the prior year second quarter total of $61.6 million. Similarly, for the six-month period ended December 31, 2003, Automotive segment net sales were $110.3 million, or a 9% decline from the comparable prior year period total of $121.6 million. The loss of a larger aluminum accessory original equipment manufacturer ("OEM") program in the first quarter adversely affected sales in this segment. Also, sales of aftermarket floor mats continued to decline. As a percentage of sales, our consolidated gross margins for the three and six months ended December 31, 2003 totaled 22.3% and 21.7%, respectively, which are slightly lower than the levels that were achieved during the comparable periods of fiscal 2003. Margins within the Specialty Foods segment declined due to increases in ingredient costs, especially soybean oil and certain dairy-related products. The impact of the higher soybean oil costs alone was in excess of $1.9 million and $3.5 million for the second quarter and year-to-date periods, respectively. Based on current market conditions, we anticipate that unfavorable comparisons with ingredient costs will persist through the remainder of fiscal 2004. Gross margins of the Glassware and Candles segment decreased due to several factors including a decline in candle production resulting in lower fixed cost absorption. Despite higher material costs, gross margins of the Automotive segment achieved some improvement. Results for the six months ended December 31, 2003 also reflected the inclusion of a $0.4 million gain on the August 2003 sale of an idle manufacturing facility. Consolidated selling, general and administrative costs of $24.9 million and $49.1 million for the three and six months ended December 31, 2003, respectively, decreased 5% and 4% from the $26.2 million and $51.1 million incurred for the three and six months ended December 31, 2002, respectively. The decrease in these costs reflected a $1.2 million recovery of bad debt from a bankrupt customer whose account was previously written off in the Glassware and Candles segment. In January 2004, we received an additional distribution from the same bankrupt customer worth approximately $0.8 million. As a percentage of sales, selling, general and administrative costs were 8.6% and 8.8% for the most recent quarter and year-to-date periods, respectively, versus 8.5% and 8.8% for the prior year comparable periods. In the prior year's second quarter, we recorded a restructuring and impairment charge of approximately $4.9 million ($3.0 million after taxes) due to the consolidation of our glass manufacturing operations in Dunkirk, Indiana into our facility located in Sapulpa, Oklahoma. The charge consisted of employee separation costs, pension curtailment costs, closure and cleanup costs, and the writedown of property, plant and equipment having no future utility as a result of the restructuring decision. The plant consolidation, which affected approximately 250 jobs, was substantially completed by June 2003. The following table reflects cash payments made during the quarter ended December 31, 2003:
EMPLOYEE SEPARATION OTHER COSTS CHARGES TOTAL ---------- ------- ----- Accrual Balance at June 30, 2003................................ $ 89 $ 114 $ 203 Cash Paid....................................................... (52) (6) (58) ----- ------ ------ Accrual Balance at December 31, 2003 (included in accrued liabilities)............................. $ 37 $ 108 $ 145 ===== ====== ======
11 The foregoing factors contributed to consolidated operating income totaling $40.1 million and $71.8 million for the three and six months ended December 31, 2003, respectively. These amounts represent a decrease of 7% from the prior year quarter and 5% from the prior year to date. By segment, our operating income can be summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 2003 2002 CHANGE 2003 2002 CHANGE ------- ------- -------------- ------- ------- -------------- OPERATING INCOME Specialty Foods........ $31,096 $34,296 $(3,200) (9)% $57,409 $60,572 $(3,163) (5)% Glassware and Candles.. 6,764 5,896 868 15 9,870 9,973 (103) (1) Automotive............. 3,804 4,541 (737) (16) 7,455 8,444 (989) (12) Corporate Expenses..... (1,516) (1,682) 166 10 (2,948) (3,138) 190 6 ------- ------- ------ -- ------- ------ ----- --- Total ............... $40,148 $43,051 $(2,903) (7)% $71,786 $75,851 $(4,065) (5)% ======= ======= ======= == ======= ======= ======= ===
Other income - Continued Dumping and Subsidy Offset Act for the three- and six-month periods ended December 31, 2003 was $2.0 million compared to $39.2 million for the comparable prior year periods. This income represents distributions received from the U.S. government under the Continued Dumping and Subsidy Offset Act of 2000 ("CDSOA"). CDSOA is intended to redress unfair dumping of imported products through cash payments to eligible affected companies. Consistent with the decline in operating income and as influenced by the impact of the CDSOA distributions, second quarter net income of $26.7 million decreased from the preceding year's net income for the quarter of $52.0 million. Year-to-date December 31, 2003 net income was $46.4 million compared to $72.5 million in the prior year period. Earnings per share for the fiscal 2004 second quarter was influenced by the above-noted items and by our share repurchase program and totaled $0.75 per basic share and $0.74 per diluted share as compared to $1.43 per basic and diluted share recorded in the prior year. Year-to-date December 31, 2003 earnings per share were $1.30 on a basic basis and $1.29 on a diluted basis compared to $1.99 for the prior year period. FINANCIAL CONDITION For the six months ended December 31, 2003, net cash provided by operating activities totaled $59.4 million, which compares to $87.2 million provided in the comparable prior year period. This decrease results from the relative changes in working capital components, particularly receivables and accrued liabilities. Cash used in investing activities for the six months ended December 31, 2003 increased to $31.7 million from the prior year amount of $11.8 million due to the acquisition of Warren for approximately $20.6 million. The purchase price is subject to a net asset adjustment as determined under the terms of the purchase agreement. All of the purchase price in excess of the net identifiable assets acquired has been tentatively assigned to goodwill. We are in the process of obtaining an independent appraisal of the intangible assets other than goodwill. The final purchase price allocation will be completed upon the resolution of the net asset adjustment and the independent valuation. Cash used in financing activities for the six months ended December 31, 2003 decreased to $18.0 million from the prior year total of $30.3 million due to a decrease in the purchase of treasury stock. At December 31, 2003, approximately 690,000 shares remain authorized for future buyback. Offsetting the decrease was the increase in the amount of dividends paid over the prior year. Total dividends paid during the current year-to-date period increased approximately 11% as compared to the prior year period due to the effects of a 13% increase in the stated dividend rate being somewhat offset by the extent of share repurchases. We believe that cash provided from operations and the currently available bank credit arrangements should be adequate to meet our foreseeable cash requirements over the remainder of fiscal 2004. There have been no changes in critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2003. 12 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q contains forward-looking statements related to future growth and earnings opportunities. Such statements are based upon certain assumptions and assessments made by management of the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. Actual results may differ as a result of factors over which the Company has no, or limited, control including the strength of the economy, slower than anticipated sales growth, the extent of operational efficiencies achieved, the success of new product introductions, price and product competition, and increases in raw materials costs. Management believes these forward-looking statements to be reasonable; however, undue reliance should not be placed on such statements, which are based on current expectations. The Company undertakes no obligation to publicly update such forward-looking statements. More detailed statements regarding significant events which could affect the Company's financial results are included in the Company's Forms 10-Q and 10-K filed with the Securities and Exchange Commission. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of management, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2003 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) Changes in Internal Control Over Financial Reporting. No changes were made to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our annual meeting of the shareholders on November 17, 2003. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. There were no matters discussed or voted upon at the annual meeting, except for the election of the following three directors whose terms will expire in 2006: SHARES SHARES VOTED SHARES NOT "FOR" "WITHHELD" VOTED ---------- ---------- --------- Kerrii B. Anderson............. 33,852,740 194,769 1,709,838 James B. Bachmann.............. 33,863,288 184,221 1,709,838 Robert S. Hamilton............. 33,860,221 187,288 1,709,838 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Index to Exhibits following Signatures. (b) Reports on Form 8-K: A report, dated October 30, 2003, on Form 8-K was filed with the SEC on October 30, 2003 pursuant to Items 7 and 12, announcing the financial results for the three months ended September 30, 2003. A report, dated December 12, 2003, on Form 8-K was filed with the SEC on December 12, 2003 pursuant to Items 5 and 7, announcing the acquisition of the operating assets of Warren Frozen Foods, Inc. A report, dated December 15, 2003, on Form 8-K was filed with the SEC on December 15, 2003 pursuant to Item 5, announcing the receipt of notification from U.S. Customs and Border Protection that we would receive approximately $2 million under the Continued Dumping and Subsidy Offset Act of 2000. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LANCASTER COLONY CORPORATION (REGISTRANT) Date: February 11, 2004 By: /s/ JOHN B. GERLACH, JR. ------------------- ------------------------------------- John B. Gerlach, Jr. Chairman, Chief Executive Officer and President Date: February 11, 2004 By: /s/ JOHN L. BOYLAN ------------------- ------------------------------------- John L. Boylan Treasurer, Vice President, Assistant Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) 14 LANCASTER COLONY CORPORATION AND SUBSIDIARIES FORM 10-Q DECEMBER 31, 2003 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION LOCATED AT - ------- ----------- ---------- 31.1 Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002..... Filed herewith 31.2 Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002..... Filed herewith 32. Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002.................................................................. Filed herewith
15 EX-31.1 3 l05594aexv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER I, John B. Gerlach, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lancaster Colony Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2004 By: /s/ JOHN B. GERLACH, JR. ---------------------------- John B. Gerlach, Jr. Chief Executive Officer EX-31.2 4 l05594aexv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER I, John L. Boylan, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lancaster Colony Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2004 By: /s/ JOHN L. BOYLAN --------------------------- John L. Boylan Chief Financial Officer EX-32 5 l05594aexv32.txt EXHIBIT 32 EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lancaster Colony Corporation (the "Company") on Form 10-Q for the quarter ending December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), John B. Gerlach, Jr., Chief Executive Officer of the Company and John L. Boylan, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company. By: /s/ JOHN B. GERLACH, JR. ------------------------------- John B. Gerlach, Jr. Chief Executive Officer February 11, 2004 By: /s/ JOHN L. BOYLAN -------------------------------- John L. Boylan Chief Financial Officer February 11, 2004 -----END PRIVACY-ENHANCED MESSAGE-----