-----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, A/cuSZxbnYsLk0fuNc6PvGs9pJdaH7ouHjfihaqoS3lDLMm8AHJzA+QUIFBWyt8A 74Li2I/dkWhohkATjVctjA== 0000950152-99-008682.txt : 19991108 0000950152-99-008682.hdr.sgml : 19991108 ACCESSION NUMBER: 0000950152-99-008682 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991105 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: SEC FILE NUMBER: 000-04065 FILM NUMBER: 99742210 BUSINESS ADDRESS: STREET 1: 37 W BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142247141 10-Q 1 LANCASTER COLONY CORPORATION 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 0-4065-1 LANCASTER COLONY CORPORATION (Exact name of registrant as specified in its charter) OHIO 13-1955943 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37 WEST BROAD STREET, COLUMBUS, OHIO 43215 (Address of principal executive offices) (Zip Code) 614-224-7141 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of September 30, 1999, there were approximately 40,025,000 shares of common stock, no par value per share, outstanding. 1 of 11 2 LANCASTER COLONY CORPORATION AND SUBSIDIARIES INDEX
Page No. -------- Part I. Financial Information Condensed Consolidated Balance Sheets - September 30, 1999 and June 30, 1999 3 Condensed Consolidated Statements of Income - Three Months Ended September 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended September 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of the Results of Operations and Financial Condition 7-9 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 10 Signatures 10 Exhibit 27 - Financial Data Schedule 11
2 of 11 3 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 June 30 1999 1999 ------------ ------------ (Unaudited) ASSETS Current Assets: Cash and equivalents $ 5,068,000 $ 18,860,000 Receivables - net of allowance for doubtful accounts 142,197,000 123,268,000 Inventories: Raw materials and supplies 49,941,000 41,741,000 Finished goods and work in process 137,095,000 127,680,000 ------------ ------------ Total inventories 187,036,000 169,421,000 Prepaid expenses and other current assets 18,194,000 16,830,000 ------------ ------------ Total current assets 352,495,000 328,379,000 Property, Plant and Equipment - At cost 399,087,000 394,061,000 Less Accumulated Depreciation 224,083,000 218,444,000 ------------ ------------ Property, plant and equipment - net 175,004,000 175,617,000 Goodwill - net of accumulated amortization 35,385,000 35,768,000 Other Assets 9,546,000 10,250,000 ------------ ------------ Total Assets $572,430,000 $550,014,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 25,520,000 $ 25,520,000 Accounts payable 54,756,000 45,742,000 Accrued liabilities 61,487,000 44,955,000 ------------ ------------ Total current liabilities 141,763,000 116,217,000 Long-Term Debt - Less current portion 3,275,000 3,575,000 Other Noncurrent Liabilities 7,090,000 7,081,000 Deferred Income Taxes 6,592,000 8,286,000 Shareholders' Equity: Preferred stock - authorized 3,050,000 shares issuable in series; Class A - $1.00 par value, authorized 750,000 shares; Class B and C - no par value, authorized 1,150,000 shares each; outstanding - none Common stock - authorized 75,000,000 shares; issued September 30, 1999 - no par value - 47,125,286 shares; June 30, 1999 - no par value - 47,107,199 shares 51,402,000 50,912,000 Retained earnings 564,673,000 548,143,000 Accumulated other comprehensive income 106,000 106,000 ------------ ------------ Total 616,181,000 599,161,000 Less: Common stock in treasury, at cost September 30, 1999 - 7,100,050 shares; June 30, 1999 - 6,559,403 shares 202,471,000 184,306,000 ------------ ------------ Total shareholders' equity 413,710,000 414,855,000 ------------ ------------ Total Liabilities and Shareholders' Equity $572,430,000 $550,014,000 ============ ============
See Notes to Condensed Consolidated Financial Statements 3 of 11 4 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended September 30 1999 1998 ------------ ------------ Net Sales $260,444,000 $244,080,000 Cost of Sales 181,807,000 170,813,000 ------------ ------------ Gross Margin 78,637,000 73,267,000 Selling, General and Administrative Expenses 41,523,000 39,384,000 ------------ ------------ Operating Income 37,114,000 33,883,000 Other Income (Expense): Interest expense (586,000) (649,000) Interest income and other - net (36,000) 39,000 ------------ ------------ Income Before Income Taxes 36,492,000 33,273,000 Taxes Based on Income 13,919,000 12,935,000 ------------ ------------ Net Income $ 22,573,000 $ 20,338,000 ============ ============ Net Income Per Common Share: Basic $ .56 $ .48 Diluted .56 .48 Cash Dividends Per Common Share $ .15 $ .14 Weighted Average Common Shares Outstanding: Basic 40,352,000 42,553,000 Diluted 40,437,000 42,607,000
See Notes to Condensed Consolidated Financial Statements 4 of 11 5 LANCASTER COLONY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,573,000 $ 20,338,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 8,508,000 8,674,000 Deferred income taxes and other noncash charges (1,685,000) (1,406,000) (Gain) on sale of property (2,000) (118,000) Changes in operating assets and liabilities: Receivables (18,929,000) (30,970,000) Inventories (17,615,000) (15,757,000) Prepaid expenses and other current assets (1,364,000) (437,000) Accounts payable 9,014,000 3,696,000 Accrued liabilities 16,532,000 7,315,000 ------------ ------------ Net cash provided by (used in) operating activities 17,032,000 (8,665,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Payments on property additions (6,247,000) (9,677,000) Proceeds from sale of property 24,000 171,000 Other - net (583,000) (1,958,000) ------------ ------------ Net cash used in investing activities (6,806,000) (11,464,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (18,165,000) (13,937,000) Payment of dividends (6,043,000) (5,957,000) Net change in short-term bank loans 21,000,000 Payments on long-term debt (300,000) (300,000) Common stock issued upon exercise of stock options including related tax benefits 490,000 16,000 ------------ ------------ Net cash (used in) provided by financing activities (24,018,000) 822,000 ------------ ------------ Effect of exchange rate changes on cash 27,000 ------------ ------------ Net change in cash and equivalents (13,792,000) (19,280,000) Cash and equivalents at beginning of year 18,860,000 23,224,000 ------------ ------------ Cash and equivalents at end of period $ 5,068,000 $ 3,944,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS: Cash paid during the period for: Interest $ 1,153,000 $ 1,209,000 ============ ============ Income taxes $ 745,000 $ 765,000 ============ ============
See Notes to Condensed Consolidated Financial Statements 5 of 11 6 LANCASTER COLONY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 (1) The interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended June 30, 1999. (2) In 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." Management has evaluated its operations in accordance with SFAS No. 131 and has determined that the business is separated into three distinct operating and reportable product categories: "Specialty Foods," "Glassware and Candles" and "Automotive." Comparative first quarter unaudited results by segment are as follows: Three Months Ended September 30 (Dollars in Thousands) 1999 1998 ---------------------------------------------------------------------- NET SALES Specialty Foods $115,632 $107,405 Glassware and Candles 86,643 84,112 Automotive 58,169 52,563 ---------------------------------------------------------------------- Total $260,444 $244,080 ====================================================================== OPERATING INCOME Specialty Foods $ 18,765 $ 16,134 Glassware and Candles 17,866 16,898 Automotive 1,847 2,025 Corporate expenses (1,364) (1,174) ---------------------------------------------------------------------- Total $ 37,114 $ 33,883 ======================================================================
(3) In July 1999, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which revised the accounting for software development costs and SOP 98-5, "Reporting on the Costs of Start-up Activites," which requires costs of start-up activities to be expensed as incurred. Adoption of these SOPs had no significant impact on the Company's financial statements. 6 of 11 7 LANCASTER COLONY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 RESULTS OF OPERATIONS
Three Months Ended September 30 (Dollars in Thousands) 1999 1998 % Change ----------------------------------------------------------------------- NET SALES Specialty Foods $115,632 $107,405 7.7% Glassware and Candles 86,643 84,112 3.0% Automotive 58,169 52,563 10.7% ----------------------------------------------------------------------- Total $260,444 $244,080 6.7% =======================================================================
As reflected above, consolidated net sales for the three months ended September 30, 1999 increased nearly 7% as a result of growth across each of the Company's three operating segments. The Specialty Foods segment benefited from increased sales of both retail and foodservice products with retail volumes being stronger for several product lines including produce dressings and frozen bread items. Sales of the Glassware and Candles segment increased 3% as a result of improved candle sales, particularly to private-label customers. The nearly 11% increase in Automotive sales was driven by increased demand from original equipment manufacturers for floor mats and aluminum accessories. A portion of this increase resulted from the prior year's sales being adversely affected by a labor strike at General Motors Corporation. The Company's consolidated gross margin as a percentage of net sales increased slightly between years and totaled 30.2% for the three months ended September 30, 1999 compared to 30.0% for the corresponding period of fiscal 1999. Higher sales volumes and reduced food commodity costs, particularly for soybean oil and cream, benefited margins of the Specialty Foods segment. Within the Glassware and Candles segment, productivity improvements in manufacturing and distribution efficiencies resulted in higher candle margins. However, this segment's margins were adversely affected by operational issues present at glassware manufacturing facilities. Gross margins of the Automotive segment, although positively influenced by the higher sales volumes, were constrained due to significant costs being incurred, including premium freight and overtime premiums, in meeting the demand from original equipment manufacturers for floor mats. Consolidated selling, general and administrative costs of $41,523,000 for the three months ended September 30, 1999 increased 5% over the $39,384,000 incurred in the comparable period of 1998. This increase was influenced by the increased sales level achieved for the quarter. The foregoing factors contributed to consolidated operating income totaling $37,114,000 for the three-month period ended September 30, 1999, an increase of 10% from the corresponding fiscal 1999 total of $33,883,000. By segment, the Company's operating income can be summarized as follows:
Three Months Ended September 30 (Dollars in Thousands) 1999 1998 % Change ----------------------------------------------------------------------- OPERATING INCOME Specialty Foods $18,765 $16,134 16.3% Glassware and Candles 17,866 16,898 5.7% Automotive 1,847 2,025 -8.8% Corporate (1,364) (1,174) 16.2% ----------------------------------------------------------------------- Total $37,114 $33,883 9.5% =======================================================================
7 of 11 8 With the effective income tax rate of 38.1% for the quarter ended September 30 being slightly less than the 38.9% in the comparable period of 1998, net income of $22,573,000 increased 11% over the preceding year's quarterly income of $20,338,000. Additionally, as influenced by the Company's share repurchase program, fully diluted earnings per share increased 17% to $.56 for the quarter compared to $.48 for the quarter ended September 30, 1998. FINANCIAL CONDITION Net cash provided by operating activities for the three months ended September 30, 1999 totaled $17,032,000, which was $25,697,000 greater than the $8,665,000 used in the three months ended September 30, 1998. This fluctuation in cash flows largely results from the increase in net income and relative changes in working capital components. Net working capital declined from $212,162,000 at June 30, 1999 to $210,732,000 at September 30, 1999. Affecting this change were seasonal increases in accounts receivable and inventories offset by a decline in cash and increases in accruals for accounts payable and accrued income taxes. Significant investing activities for the first quarter included $6,247,000 expended on property additions. The Company's most significant financing activities during the three months ended September 30, 1999 included $18,165,000 expended for the acquisition of approximately 539,000 shares of Company stock. Shares remaining authorized for future buyback at September 30, 1999 totaled 502,000. Additionally, dividends paid of $6,043,000 during the current year increased by 1% as a result of the effect of a higher stated dividend rate being paid on common shares. However, much of this effect was offset by the impact of a reduction in shares outstanding. Management anticipates that cash provided from operations and the currently available lines of credit will be adequate to meet the Company's foreseeable cash requirements over the remainder of fiscal 2000. YEAR 2000 The "Year 2000" problem arises as a result of many automated calculations being written in computer code which do 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. Lancaster Colony continues to address and prepare for the consequences that the Year 2000 may have on its ability to rely on data processing and other automated operational functions that are date-dependent. The Company's existing data processing structure is decentralized in nature. Management has created a Year 2000 team to oversee Year 2000 status at the various business units. 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. The Company is addressing Year 2000 compliance through a multiphased concurrent approach encompassing identification, implementation and testing phases utilizing a combination of internal and external resources. 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. The Company has substantially completed the identification, implementation and testing phases. However, additional testing of the various systems and programs may continue through the fourth quarter of calendar 1999. The most significant data processing expenditures are being made within the Company's Automotive segment. This segment has substantially completed the process of implementing comprehensive new third party software and hardware with Year 2000 compliance being regarded as one of several resulting benefits. The Company's aggregate costs to date are approximately $4.9 million, which include capitalized costs incurred by 8 of 11 9 the Automotive segment of approximately $3.7 million. The Company estimates an additional $1.1 million of cost will be incurred, of which approximately $1.0 million will relate to the Automotive segment's data processing project. Expenditures associated with making changes to existing systems specifically 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 continues to address its Year 2000 exposure with respect to non-IT systems. Remediation of non-IT equipment has been substantially completed, while testing of the various systems and programs may continue through the fourth quarter of calendar 1999. The Company 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 continues to inquire and correspond with its significant suppliers as to the state of their Year 2000 readiness. 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 materially adverse effect on the Company's operations. Management will continue to diligently monitor Year 2000 efforts both internally and externally and, as needed, will develop contingency plans to address exposures, if any, as they 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. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This Form 10-Q contains forward-looking statements related to future growth and earnings opportunities. Such statements are based upon certain assumptions and assessments made by management of the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. Actual results may differ as a result of factors over which the Company has no control including the strength of the economy, slower than anticipated sales growth, price and product competition, and increases in raw materials costs. More detailed statements regarding significant events which could affect the Company's financial results are included in the Company's Form 10-K filed with the Securities and Exchange Commission. 9 of 11 10 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K - There were no reports filed on Form 8-K for the three months ended September 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LANCASTER COLONY CORPORATION Date: November 5, 1999 By: /S/ John B. Gerlach, Jr. ------------------------------ ---------------------------- JOHN B. GERLACH, JR. Chairman, Chief Executive Officer and President Date: November 5, 1999 By: /S/ John L. Boylan ------------------------------ ---------------------- JOHN L. BOYLAN Treasurer, Vice President, Assistant Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) 10 of 11 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-2000 SEP-30-1999 5,068 0 145,401 3,204 187,036 352,495 399,087 224,083 572,430 141,763 3,275 0 0 51,402 362,308 572,430 260,444 260,444 181,807 181,807 0 0 586 36,492 13,919 22,573 0 0 0 22,573 .56 .56
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