LANCASTER COLONY CORP
FORM 10-K (Annual Report)
Filed 9/24/1997 For Period Ending 6/30/1997
Address
37 W. BROAD STREET 5TH FLOOR COLUMBUS, Ohio 43215
Telephone
614-224-7141
CIK
0000057515
Industry
Food Processing
Sector
Consumer/Non-Cyclical
Fiscal Year
06/30
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, 1997 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 incorporation or organization)
(I.R.S. Employer Identification No.)
37 WEST BROAD STREET, COLUMBUS, OHIO (Address of principal executive offices)
43215 (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. 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 August 29, 1997 was approximately $1,158,394,000. As of August 29, 1997, there were approximately 29,024,000 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 1997 Annual Report to Shareholders Parts I, II and IV. Proxy Statement for the Annual Meeting of Shareholders to be held November 17, 1997; to be filed - Part III. The 1997 Annual Report to Shareholders and 1997 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
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 38%, 36% and 26%, respectively, of consolidated net sales for the fiscal year ended June 30, 1997. The financial information relating to business segments for each of the three years in the period ended June 30, 1997, 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"; frozen unbaked pies marketed under the brand names "Mountain Top" and "Reames"; hearth-baked frozen breads marketed under the brand name "New York Frozen Foods"; refrigerated chip and produce dips, dairy snacks and desserts marketed under the brand names "Oak Lake Farms," "Allen" and/or "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 are sold in various metropolitan areas with sales being made both to retail and 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 significant portion of the frozen bread sales is directed to the foodservice market. The refrigerated chip and produce dips, dairy snacks and desserts are sold through food brokers and distributors in most major markets in the United States. The dry egg noodles are marketed by brokers principally in Ohio, Michigan, Indiana and Kentucky. 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 1997, the registrant obtained adequate supplies of raw materials for this segment. 2
The registrant's firm order backlog at June 30, 1997, in this business segment, was approximately $4,261,000 as compared to a backlog of approximately $3,706,000 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 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 through Colony, a marketing division, 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. 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. 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. 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 two customers accounted for approximately 25% and 32% of this segment's total net sales during 1997 and 1996, respectively. No other customer accounted for more than 10% of this segment's total net sales. During fiscal year 1997, the registrant obtained adequate supplies of raw materials for this business segment. The registrant's firm order backlog at June 30, 1997, in this business segment, was approximately $44,599,000 as compared to approximately $32,527,000 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 and licenses under which it operates are not essential to the overall success of this segment. However, certain trademarks 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, accessories such as cup holders, litter caddies and floor consoles. The 3
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. Although minor, rubber matting sales are also included in this segment. The aggregate sales of two customers accounted for approximately 29% of this segment's total net sales during 1997 and 1996. 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 1997, the registrant obtained adequate supplies of raw materials for this segment. The registrant's firm order backlog at June 30, 1997, in this business segment, was approximately $6,180,000 as compared to a backlog of approximately $6,865,000 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 1995 through 1997: 1997 1996 1995 ------------------------------------------------------------------------Specialty Foods: Retail 21% 21% 22% Foodservice 17% 17% 17% Glassware and Candles: Consumer Table and Giftware 31% 30% 25% Automotive 26% 27% 31%
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
EMPLOYEES The registrant has approximately 6,400 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 6,100,000 square feet of space for its operations. Of this space, approximately 1,515,000 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:
LOCATION -------Blue Ash, OH (1) Columbus, OH (2) Coshocton, OH Des Moines, IA (3) Dunkirk, IN Elkhart, IN Jackson, OH LaGrange, GA Lancaster, OH Leesburg, OH (4) Milpitas, CA (5) Muncie, IN Sapulpa, OK (6) Wapakoneta, OH (7) Waycross, GA (5) Wilson, NY Washington Court House, OH (8)
BUSINESS SEGMENT(S) ------------------Glassware and Candles Specialty Foods Automotive Automotive Glassware and Candles Automotive Automotive and Glassware and Candles Automotive Glassware and Candles Glassware and Candles Specialty Foods Glassware and Candles Glassware and Candles Automotive Automotive Specialty Foods Glassware and Candles
APPROXIMATE SQUARE FEET ----------198,000 370,000 591,000 344,000 934,000 96,000 223,000 211,000 465,000 600,000 130,000 153,000 669,000 178,000 142,000 80,000 134,000
(1) Leased for term expiring 1998. (2) Part leased for term expiring 1998. (3) Part leased for terms expiring 1997 and 1998. (4) Part leased on a monthly basis. (5) Part leased for term expiring 1997. (6) Part leased for term expiring in 1999 and 2001. (7) Part leased for term expiring 2003 with ownership passing to registrant at lease expiration. Part leased on monthly basis. (8) Leased for term expiring 1999. 5
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 17, 1997. 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:
NAME ---John B. Gerlach, Jr.
John L. Boylan
AGE AS OF AUGUST 29 1997 ----------43
OFFICES AND POSITIONS HELD -------------Chairman, Chief Executive Officer and President
42
FIRST ELECTED AN EXECUTIVE OFFICER -------1982
Treasurer, Vice President, Assistant Secretary and Chief Financial Officer
1990
Larry G. Noble
61
Vice President
1985
David M. Segal
45
Corporate Secretary
1997
Except for David M. Segal and John B. Gerlach, Jr., the above named officers were elected to their present positions at the annual meeting of the Board of Directors on November 18, 1996. All such persons have been elected to serve until the next annual election of officers, which shall occur on November 17, 1997 and their successors are elected or until their earlier resignation or removal. 6
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 1997 and 1996. 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, 1997 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 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 17, 1997, 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 17, 1997 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 17, 1997 is incorporated herein by reference. 7
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 17, 1997, 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, 1997 and 1996 and for each of the three years in the period ended June 30, 1997, together with the report thereon of Deloitte & Touche LLP dated August 26, 1997, appearing in Exhibit 13 of this Form 10-K Annual Report are incorporated herein by reference. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Statements of Income for the years ended June 30, 1997, 1996 and 1995 Consolidated Balance Sheets at June 30, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (a) 2. FINANCIAL STATEMENT SCHEDULES REQUIRED BY ITEMS 8 AND 14(d) Included in Part IV of this report is the following additional financial data which should be read in conjunction with the consolidated financial statements in the 1997 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, 1997 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, 1997.
8
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 23rd day of September, 1997. 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 ---------/S/ John B. Gerlach, Jr. --------------------------John B. Gerlach, Jr.
Title ----Chairman, Chief Executive Officer and President
Date ---September 17, 1997 ------------------
/S/ John L. Boylan --------------------------John L. Boylan
Treasurer, Vice President, Assistant Secretary and Chief Financial Officer (Principal Financial and Accounting Officer)
September 17, 1997 ------------------
Director --------------------------Frank W. Batsch /S/ Robert L. Fox --------------------------Robert L. Fox
------------------
Director
September 15, 1997 ------------------
Director --------------------------Morris S. Halpern
------------------
/S/ Robert S. Hamilton --------------------------Robert S. Hamilton
Director
September 15, 1997 ------------------
/S/ Edward H. Jennings --------------------------Edward H. Jennings
Director
September 15, 1997 ------------------
/S/ Richard R. Murphey, Jr. --------------------------Richard R. Murphey, Jr.
Director
September 16, 1997 ------------------
/S/ Henry M. O'Neill, Jr. --------------------------Henry M. O'Neill, Jr.
Director
September 18, 1997 ------------------
/S/ David J. Zuver --------------------------David J. Zuver
Director
September 18, 1997 ------------------
9
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, 1997 and 1996, and for each of the three years in the period ended June 30, 1997, and have issued our report thereon dated August 26, 1997; such financial statements and report are included in your 1997 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, 1997 10
SCHEDULE II LANCASTER COLONY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED JUNE 30, 1997 -------------------------------------------------------------------------------------------------------------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, 1995.................
$2,339,000 $ 614,000 $1,006,000(A) $1,947,000 ==========================================================
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 ==========================================================
(A) Represents uncollectible accounts written off net of recoveries. 11
LANCASTER COLONY CORPORATION FORM 10-K JUNE 30, 1997 INDEX TO EXHIBITS Exhibit Number -------3.1
.2
Description ----------Certificate of Incorporation of the registrant approved by the shareholders November 18, 1991.
Located at ---------(a)
By-laws of the registrant as amended through November 18, 1991.
(a)
Certificate of Designation, Rights and Preferences of the Series A Participating Preferred Stock of Lancaster Colony Corporation.
(b)
Specimen Certificate of Common Stock.
(j)
Rights Agreement dated as of April 20, 1990 between Lancaster Colony Corporation and The Huntington Trust Company, N.A.
(c)
1981 Incentive Stock Option Plan.
(d)
Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan, approved by the shareholders November 21, 1983.
(e)
Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan approved by the shareholders November 18, 1985.
(f)
Resolution by the Board of Directors to amend registrant's 1981 Incentive Stock Option Plan approved by the shareholders November 19, 1990.
(g)
Key Employee Severance Agreement between Lancaster Colony Corporation and John L. Boylan.
(g)
Consulting Agreement by and between Lancaster Colony Corporation and Morris S. Halpern.
(h)
1995 Key Employee Stock Option Plan.
(i)
13.
Annual Report to Shareholders.
1997 Form 10-K
21.
Significant Subsidiaries of Registrant.
1997 Form 10-K
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, 1997, appearing in and incorporated by reference in this Annual Report on Form 10-K of Lancaster Colony Corporation for the year ended June 30, 1997.
1997 Form 10-K
Financial Data Schedule
1997 Form 10-K
.3
4.1 .2
10.1 .2
.3
.4
.5
.6
.7
27.
12
(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 1997 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 1997 Annual Report to Shareholders to the Commission upon request.
13
Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS Of Results of Operations and Financial Condition Review of Consolidated Operations Consolidated net sales for fiscal 1997 totaled $922,813,000, which was a record high and an 8% increase above fiscal 1996 net sales of $855,912,000. Leading this increase in consolidated net sales was the Glassware and Candles segment, which achieved a 13% growth in its net sales stemming primarily from greater unit sales of its Candle-lite product lines. The Company's Specialty Foods and Automotive segments also contributed increased net sales. Generally, on a corporate basis, competitive conditions have minimized the effect of any year over year increases in unit selling prices. Increased sales of the Glassware and Candles segment were also primarily responsible for fiscal 1996 consolidated net sales increasing 8% over the fiscal 1995 total of $795,126,000. Benefiting from the increase in sales, consolidated net income also attained a record high during fiscal 1997 and totaled $88,706,000. Net income for 1997 was 17% above the fiscal 1996 total of $76,135,000. Similarly, 1996 net income increased 8% over the fiscal 1995 total of $70,524,000. 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): 1997 1996 1995 ------------------------------------------------------------------------Specialty Foods 38% 38% 39% Glassware and Candles 36% 35% 30% Automotive 26% 27% 31% Operating Income(2): ------------------------------------------------------------------------Specialty Foods 13% 11% 13% Glassware and Candles 24% 26% 22% Automotive 9% 8% 11%
(1) Expressed as a percentage of consolidated net sales. (2) Expressed as a percentage of the related segment's net sales. The Company's consolidated gross margin increased to 31.5% of net sales in 1997 compared to 30.8% in 1996 and 31.2% in 1995. This increase was largely the result of improved Specialty Foods margins as influenced by such factors as a more beneficial sales mix and lower raw material costs. Automotive margins also improved slightly on higher production volumes. During 1997, the Glassware and Candles segment experienced a decline in margins resulting from increases in certain raw material costs and production inefficiencies. Compared to 1995, the 1996 margins were adversely affected in the Specialty Foods segment by higher raw material costs and a less favorable sales mix. For 1997, total selling, general and administrative expenses of $146,403,000 increased 6% over the 1996 total of $138,206,000. This increase is similar in size to the 1996 increase of 5% over the 1995 total of $131,424,000 for such expenses. These increases generally result from the effects of higher sales volumes. The foregoing factors contributed to consolidated operating income in 1997 increasing by 15% to $144,359,000 compared to $125,746,000 recorded in 1996. The prior year's operating income had increased 8% over the 1995 total of $116,518,000. Stated as a percentage of pretax income, the Company's effective tax rate declined slightly to 37.7% compared to 38.2% in 1996 and 38.6% in 1995. Earnings per share of $3.02 increased $.46 in 1997 over 1996, an improvement of 18%. Similarly, 1996 earnings per share of $2.56 increased $.21, or 9%, over the 1995 total of $2.35. In addition to the increased levels of corporate earnings, earnings per share have been beneficially affected by the Company's share repurchases that have totaled in excess of 1,800,000 shares over the three-year period ended June 30, 1997. Segment Review - Glassware and Candles This segment continued to experience significant internally generated growth with net sales in 1997 totaling $336,200,000 which was a 13% increase over the 1996 total of $297,937,000. Net sales in 1996 increased 26% over the $237,320,000 recorded in 1995. Throughout this period, the sales of candles and related products have been principally responsible for this growth. Of particular note is the volume generated by wax-filled glass products for which much of the related glassware is also produced by
MANAGEMENT'S DISCUSSION AND ANALYSIS this segment. Growth in 1997 was assisted by a significant increase in sales of private label wax-filled candle products. Operating income recorded during 1997 totaled $81,455,000, exceeding the 1996 total of $76,068,000 by 7%. This increase is 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. Compared to 1995 operating income of $52,147,000, the corresponding total for 1996 increased by 46%. This improvement was generated by increased volume, a more favorable sales mix, the increased utilization of plant capacity and the effect of significant additional investment in more productive machinery and equipment. Segment Review - Specialty Foods Record net sales of the Specialty Foods segment during fiscal 1997 of $351,012,000 increased 7% over the $329,420,000 achieved in 1996. Compared to 1995 sales of $309,622,000, 1996 sales had increased 6%. The majority of this segment's sales continue to be made to retail customers as is reflected in the following table: 1997 1996 1995 ------------------------------------------------------------------------Proportion of retail sales 55% 55% 56% Proportion of foodservice sales 45% 45% 44%
Sales made into retail distribution channels during the last two years have increased as a result of greater volume of products sold in 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. Sales of non-refrigerated, pourable dressings have declined during this period as a result of new market entrants and heightened competitive pricing pressures. Foodservice sales have also improved during this period as influenced by the expansion of sales to both national restaurant chains and to wholesale distributors. This segment enjoyed a recovery in operating margins during 1997 as operating income totaled $47,308,000, which was 13% of segment sales. The current year's income increased 33% above the 1996 operating income of $35,579,000, which represented 11% of net sales. Compared to this segment's 1995 operating income of $40,704,000, the 1996 total reflected a 13% decrease. Reflecting this segment's reliance of raw materials having price volatility, a generally broad-based reduction in raw material costs contributed to the improvements in fiscal 1997 margins. One of the raw materials significantly influencing this trend was soybean oil, which had its cost return to more historic norms after having spent three years at considerably higher levels. The 1997 margins were also positively affected by an improved sales mix as well as capital improvements completed in calendar 1996 which provided notable improvements in certain operating efficiencies. Factors, which led to the decline in 1996 margins compared to 1995, included generally higher raw material costs, a less favorable sales mix and increased competitive pricing pressures. Segment Review - Automotive After a year of sales decline, the Automotive segment recorded a 3% increase in sales during 1997 compared to 1996. Sales during these past two years totaled $235,601,000 and $228,555,000, respectively. Compared to 1995 sales totaling $248,184,000, this segment's 1996 sales decreased 8%. Sales of automotive floor mats and aluminum truck and van accessories led the 1997 increase. Offsetting this increase was a decline in the sales of truck bed liners as a result of competitive market conditions reflecting increased industry capacity and eroding prices. Sales during fiscal 1996 were adversely affected by
MANAGEMENT'S DISCUSSION AND ANALYSIS several factors including a shifting in the floor mat supply arrangements with certain original equipment manufacturers and a decline in the heavy truck and trailer industry to which the company is a leading supplier of splash guards. An improved sales mix, greater production efficiencies and generally lower raw material costs assisted this segment's operating income to increase by 9% during fiscal 1997 and total $20,310,000 compared to $18,561,000 in 1996. Increased plastic costs in 1997 mitigated this improvement. The operating income recorded in 1996 decreased by 34% from the $28,027,000 achieved in 1995. Contributing to this decline were the decline in sales and less efficient overhead absorption resulting from lower production volumes. Plastic costs, however, during 1996 were significantly lower than during much of 1995. This segment's sales to original equipment manufacturers ("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 as well as 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. During 1997, sales to OEMs comprised 44% of this segment's sales compared to 43% and 44% in 1996 and 1995, respectively. Liquidity and Capital Resources The Company's last seven years of increasing profitability has served to provide a basis for improved cash flows and a strong financial condition at June 30, 1997. Compared to the fiscal 1996 total of $84,474,000, net cash provided by operating activities in fiscal 1997 increased by 34% to total $113,461,000. Similarly, in 1996, such cash generated from operations increased 81% from the $46,725,000 in fiscal 1995. Increased net income and reduced needs for investments in working capital growth during this three-year period contributed to this improvement. This cash flow generated from operations remains the primary source of financing the Company's internal growth. Investments in property, plant and equipment during 1997 totaled $37,528,000. As has been the case over the last three years, the majority of these expenditures went to the Glassware and Candles segment to support its recent strong growth. Total expenditures during 1996 of $50,229,000 included funding for a new distribution facility which is located adjacent to the existing candle manufacturing facility located in Leesburg, Ohio. A similarly sized expansion of this new facility is anticipated to be completed during fiscal 1998 to support this segment's growth. 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. Among significant financing activities conducted during 1997 was the purchase of $29,554,000, or 692,000 shares, of the Company's common stock. Total dividend payments for 1997 were $21,114,000, which was 8% greater than the 1996 total of $19,591,000. This increase reflects the higher dividend payout rate of $.72 present during 1997 as compared to $.66 during 1996. 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 debt to total capital ratio was 8% at June 30, 1997 compared to 9% at June 30, 1996. This relatively low level of debt provides the Company with considerable flexibility to acquire businesses complementary in function to that of the Company's existing operations. It is anticipated that adequate borrowings will continue to be available under discretionary bank lines of credit to meet any foreseeable cash requirements not otherwise met by cash generated from operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS The Company's ongoing business activities continue to be subject to compliance with various laws, rules and regulations as may be issued and enforced by various Federal, state and local agencies. With respect to environmental matters, costs are incurred pertaining to regulatory compliance and, upon occasion, remediation. Such costs have not been, and are not anticipated to become, material. See Note 12 to the accompanying financial statements for further discussion as to the accounting for such costs. Impact of Inflation On a consolidated basis, material cost changes during both 1997 and 1996 were mixed and generally moderate. However, a markedly lower level of food commodity costs were present in the latter half of 1997 while plastics, wax and natural gas costs were prevalently higher throughout the year. Reduced plastic costs benefited the Company during fiscal 1996, particularly within the Automotive segment. During 1996, soybean oil, a significant ingredient of the Specialty Foods segment, also averaged slightly lower from 1995 levels. 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. The Company's diversity of operations and its ongoing efforts to achieve greater manufacturing and distribution efficiencies through the improvement of work processes minimizes the exposure to such increased costs.
BUSINESS SEGMENTS Lancaster Colony Corporation and Subsidiaries For the Years Ended 1997, 1996 and 1995 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 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. 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 1996 and 1995 capital expenditures of the Specialty Foods segment includes property relating to business acquisitions totaling $213,000 and $36,000, respectively. The 1995 capital expenditures of the Automotive segment includes property relating to business acquisitions totaling $1,500,000. The following sets forth certain financial information attributable to the Company's business segments for the three years ended June 30, 1997, 1996 and 1995: (Dollars in Thousands) 1997 1996 1995 ----------------------------------------------------------------------------------Net Sales Specialty Foods $351,012 $329,420 $309,622 Glassware and Candles 336,200 297,937 237,320 Automotive 235,601 228,555 248,184 ----------------------------------------------------------------------------------Total $922,813 $855,912 $795,126 =================================================================================== Operating Income Specialty Foods $ 47,308 $ 35,579 $ 40,704 Glassware and Candles 81,455 76,068 52,147 Automotive 20,310 18,561 28,027 ----------------------------------------------------------------------------------Total 149,073 130,208 120,878 Corporate expenses (6,614) (6,987) (6,070) ----------------------------------------------------------------------------------Income Before Income Taxes $142,459 $123,221 $114,808 =================================================================================== Identifiable Assets Specialty Foods $ 95,130 $102,606 $ 79,297 Glassware and Candles 235,154 205,232 155,484 Automotive 110,525 113,003 126,654 Corporate 43,585 14,518 18,469 ----------------------------------------------------------------------------------Total $484,394 $435,359 $379,904 =================================================================================== Capital Expenditures Specialty Foods $ 4,625 $ 8,856 $ 6,582 Glassware and Candles 21,986 33,038 17,182 Automotive 10,817 8,501 9,473 Corporate 100 47 44 ----------------------------------------------------------------------------------Total $ 37,528 $ 50,442 $ 33,281 =================================================================================== Depreciation and Amortization Specialty Foods $ 5,546 $ 4,753 $ 4,439 Glassware and Candles 12,520 10,767 9,802 Automotive 8,814 8,749 8,338
Corporate 101 130 138 ----------------------------------------------------------------------------------Total $ 26,981 $ 24,399 $ 22,717 ===================================================================================
FIVE YEAR FINANCIAL SUMMARY Lancaster Colony Corporation and Subsidiaries (Thousands Except Per Share Figures) 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------------------------------------------OPERATIONS Net Sales $922,813 $855,912 $795,126 $721,732 $630,627 Gross Margin $290,762 $263,952 $247,942 $232,096 $203,106 Percent of sales 31.5% 30.8% 31.2% 32.2% 32.2% Interest Expense $ 2,596 $ 2,875 $ 2,736 $ 2,849 $ 3,625 Percent of sales 0.3% 0.3% 0.3% 0.4% 0.6% Income Before Income Taxes $142,459 $123,221 $114,808 $ 98,093 $ 74,319 Percent of sales 15.4% 14.4% 14.4% 13.6% 11.8% Taxes Based on Income $ 53,753 $ 47,086 $ 44,284 $ 38,233 $ 28,094 Net Income $ 88,706 $ 76,135 $ 70,524 $ 59,860 $ 46,225 Percent of sales 9.6% 8.9% 8.9% 8.3% 7.3% Per Common Share:(1) Net income $ 3.02 $ 2.56 $ 2.35 $ 1.97 $ 1.52 Cash dividends $ 0.72 $ 0.66 $ 0.55 $ 0.44 $ 0.37 ---------------------------------------------------------------------------------------------------------------------FINANCIAL POSITION Total Assets $484,394 $435,359 $379,904 $355,445 $302,050 Working Capital $235,079 $203,988 $189,255 $163,546 $126,648 Property, Plant and Equipment--Net $151,309 $139,095 $113,187 $101,570 $ 98,597 Long-Term Debt $ 30,685 $ 31,230 $ 31,840 $ 32,933 $ 34,586 Property Additions $ 37,528 $ 50,229 $ 31,745 $ 23,532 $ 18,921 Provision for Depreciation $ 24,732 $ 22,007 $ 20,440 $ 20,145 $ 19,486 Shareholders' Equity $368,000 $323,563 $277,148 $236,847 $192,010 Per Common Share(1) $ 12.68 $ 10.94 $ 9.29 $ 7.83 $ 6.34 Weighted Average Common Shares Outstanding(1) 29,405 29,749 30,038 30,317 30,483 ---------------------------------------------------------------------------------------------------------------------STATISTICS Price-Earnings Ratio at Year End 16.0 14.6 15.2 18.0 18.9 Current Ratio 4.2 3.9 4.1 3.2 3.1 Long-Term Debt as a Percent of Shareholders' Equity 8.3% 9.7% 11.5% 13.9% 18.0% Dividends Paid as a Percent of Net Income 23.8% 25.7% 23.4% 22.3% 24.5% Return on Average Equity 25.7% 25.3% 27.4% 27.9% 26.3% ----------------------------------------------------------------------------------------------------------------------
(1) Adjusted for 4-for-3 stock splits paid July 1994 and April 1993.
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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP Columbus, Ohio August 26, 1997
CONSOLIDATED STATEMENTS OF INCOME Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1997, 1996 and 1995 Years Ended June 30 1997 1996 1995 --------------------------------------------------------------------------------------------------------------------------NET SALES $922,813,000 $855,912,000 $795,126,000 COST OF SALES 632,051,000 591,960,000 547,184,000 --------------------------------------------------------------------------------------------------------------------------GROSS MARGIN 290,762,000 263,952,000 247,942,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 146,403,000 138,206,000 131,424,000 --------------------------------------------------------------------------------------------------------------------------OPERATING INCOME 144,359,000 125,746,000 116,518,000 OTHER INCOME (EXPENSE): Interest expense (2,596,000) (2,875,000) (2,736,000) Interest income and other--net 696,000 350,000 1,026,000 --------------------------------------------------------------------------------------------------------------------------INCOME BEFORE INCOME TAXES 142,459,000 123,221,000 114,808,000 TAXES BASED ON INCOME 53,753,000 47,086,000 44,284,000 =========================================================================================================================== NET INCOME $ 88,706,000 $ 76,135,000 $ 70,524,000 =========================================================================================================================== NET INCOME PER COMMON SHARE $3.02 $2.56 $2.35 =========================================================================================================================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 29,405,000 29,749,000 30,038,000 ===========================================================================================================================
See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS Lancaster Colony Corporation and Subsidiaries As of June 30, 1997 and 1996 June 30 ASSETS 1997 1996 --------------------------------------------------------------------------------------------------------------------------CURRENT ASSETS: Cash and equivalents $ 32,109,000 $ 4,670,000 Receivables (less allowance for doubtful accounts, 1997-- $2,861,000; 1996--$2,131,000) 102,457,000 105,403,000 Inventories: Raw materials and supplies 42,339,000 33,148,000 Finished goods and work in process 118,912,000 118,447,000 --------------------------------------------------------------------------------------------------------------------------Total inventories 161,251,000 151,595,000 Prepaid expenses and other current assets 12,966,000 11,674,000 --------------------------------------------------------------------------------------------------------------------------Total current assets 308,783,000 273,342,000 PROPERTY, PLANT AND EQUIPMENT: Land, buildings and improvements 89,232,000 82,882,000 Machinery and equipment 248,069,000 234,013,000 --------------------------------------------------------------------------------------------------------------------------Total cost 337,301,000 316,895,000 Less accumulated depreciation 185,992,000 177,800,000 --------------------------------------------------------------------------------------------------------------------------Property, plant and equipment--net 151,309,000 139,095,000 OTHER ASSETS: Goodwill (net of accumulated amortization, 1997-- $5,438,000; 1996--$4,562,000) 19,810,000 20,715,000 Other Assets 4,492,000 2,207,000 --------------------------------------------------------------------------------------------------------------------------TOTAL $484,394,000 $435,359,000 =========================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY --------------------------------------------------------------------------------------------------------------------------CURRENT LIABILITIES: Current portion of long-term debt $ 545,000 $ 610,000 Accounts payable 33,203,000 34,303,000 Accrued liabilities 39,956,000 34,441,000 --------------------------------------------------------------------------------------------------------------------------Total current liabilities 73,704,000 69,354,000 LONG-TERM DEBT--Less current portion 30,685,000 31,230,000 OTHER NONCURRENT LIABILITIES 7,895,000 7,714,000 DEFERRED INCOME TAXES 4,110,000 3,498,000 SHAREHOLDERS' EQUITY: Preferred stock--authorized 2,650,000 shares; Outstanding--none Common stock--authorized 35,000,000 shares; Shares outstanding, 1997--29,016,836; 1996--29,563,401 43,573,000 38,491,000 Retained earnings 404,783,000 337,153,000 Foreign currency translation adjustment 75,000 75,000 --------------------------------------------------------------------------------------------------------------------------Total 448,431,000 375,719,000 Less: Common stock in treasury, at cost 80,431,000 50,877,000 Amount due from ESOP 1,279,000 --------------------------------------------------------------------------------------------------------------------------Total shareholders' equity 368,000,000 323,563,000 --------------------------------------------------------------------------------------------------------------------------TOTAL $484,394,000 $435,359,000 ===========================================================================================================================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1997, 1996 and 1995 Years Ended June 30 1997 1996 1995 --------------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 88,706,000 $ 76,135,000 $70,524,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,981,000 24,399,000 22,717,000 Provision for losses on accounts receivable 1,813,000 2,089,000 614,000 Deferred income taxes and other noncash charges (669,000) (190,000) (2,086,000) Loss on sale of property 530,000 233,000 235,000 Changes in operating assets and liabilities: Receivables 1,133,000 (18,478,000) (7,273,000) Inventories (9,656,000) (8,982,000) (23,475,000) Prepaid expenses and other current assets 208,000 334,000 (1,061,000) Accounts payable and accrued liabilities 4,415,000 8,934,000 (13,470,000) --------------------------------------------------------------------------------------------------------------------------Net cash provided by operating activities 113,461,000 84,474,000 46,725,000 --------------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM INVESTING ACTIVITIES: Payments on property additions (37,528,000) (50,229,000) (31,745,000) Acquisitions net of cash acquired (5,054,000) Proceeds from sale of property 52,000 1,784,000 1,002,000 Other--net (3,629,000) (638,000) (1,420,000) --------------------------------------------------------------------------------------------------------------------------Net cash used in investing activities (41,105,000) (49,083,000) (37,217,000) --------------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends (21,114,000) (19,591,000) (16,486,000) Purchase of treasury stock (29,554,000) (21,457,000) (17,814,000) Payments on long-term debt (610,000) (1,026,000) (1,368,000) Reduction of ESOP debt 1,279,000 1,278,000 1,279,000 Common stock issued, including stock issued upon exercise of stock options and related tax benefit 5,082,000 1,785,000 2,649,000 --------------------------------------------------------------------------------------------------------------------------Net cash used in financing activities (44,917,000) (39,011,000) (31,740,000) --------------------------------------------------------------------------------------------------------------------------Effect of exchange rate changes on cash 51,000 48,000 --------------------------------------------------------------------------------------------------------------------------Net change in cash and equivalents 27,439,000 (3,569,000) (22,184,000) Cash and equivalents at beginning of year 4,670,000 8,239,000 30,423,000 --------------------------------------------------------------------------------------------------------------------------Cash and equivalents at end of year $ 32,109,000 $ 4,670,000 $ 8,239,000 ===========================================================================================================================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1997, 1996 and 1995 Foreign Currency Amount Outstanding Common Retained Translation Treasury due from Shares Stock Earnings Adjustment Stock ESOP --------------------------------------------------------------------------------------------------------------------------BALANCE, JUNE 30, 1994 22,674,020 $25,437,000 $226,412,000 $440,000 $11,606,000 $3,836,000 Year Ended June 30, 1995 : Net income 70,524,000 Cash dividends--common stock ($.55 per share) (16,465,000) Purchase of treasury shares (530,800) 17,814,000 Shares issued upon exercise of stock options including related tax benefits 130,026 2,649,000 Shares issued in connection with four-for-three stock split 7,555,754 Cash paid in lieu of fractional shares in connection with four-for-three stock split (21,000) Tax benefit of cash dividends paid on ESOP unallocated shares 88,000 Reduction of ESOP debt (1,279,000) Translation adjustment 61,000 --------------------------------------------------------------------------------------------------------------------------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 ($.66 per share) (19,591,000) Purchase of treasury shares (601,955) 21,457,000 Shares issued upon exercise of stock options including related tax benefits 63,629 1,405,000 Tax benefit of cash dividends paid on ESOP unallocated shares 71,000 Shares issued in business acquisition 272,727 9,000,000 Reduction of ESOP debt (1,278,000) Translation adjustment (426,000) --------------------------------------------------------------------------------------------------------------------------BALANCE, JUNE 30, 1996 29,563,401 38,491,000 337,153,000 75,000 50,877,000 1,279,000 --------------------------------------------------------------------------------------------------------------------------Year Ended June 30, 1997 : Net income 88,706,000 Cash dividends--common stock ($.72 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 ===========================================================================================================================
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lancaster Colony Corporation and Subsidiaries 1. SUMMARY OF SIGNIFICANT PRINCIPLES OF CONSOLIDATION ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Lancaster Colony Corporation and its wholly-owned subsidiaries, collectively referred to as the "Company." All significant intercompany transactions 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. 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 the 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 February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which when adopted, will replace the current methodology for calculating and presenting earnings per share under the Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share." Under SFAS No. 128, companies with complex capital structures will be required to present basic earnings per share and diluted earnings per share while companies with simple capital structures will only be required to present basic 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 for the period. Diluted earnings per share is computed similarly to the current computation of fully diluted earnings per share required under APB Opinion No. 15. The standard, which is effective for financial statements for periods ending after December 15, 1997, including interim periods, requires restatement of all prior-period earnings per share data. Earlier application is not permitted. The presentation required by SFAS No. 128 will not materially differ from the current presentation of earnings per share. 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 diverse customer base. BUSINESS SEGMENTS The business segments information for 1997, 1996 and 1995 included on page 11 of this Annual Report is an integral part of these financial statements. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 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. This Statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," and amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries" and Accounting Principles Board Opinion No. 28, "Interim Financial Reporting." 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. 2. ACQUISITIONS During fiscal 1996, 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 273,000 shares of Lancaster Colony Corporation common stock 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. This acquisition was accounted for under the purchase method of accounting and the non-cash aspects have been excluded from the accompanying Consolidated Statements of Cash Flows. The results of operations of this entity have been included in the consolidated financial statements from the date 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 21% of total inventories at June 30, 1997 and 1996 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 $14,704,000 and $14,014,000 higher than reported at June 30, 1997 and 1996, 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, 1997 and 1996. 4. SHORT-TERM BORROWINGS As of June 30, 1997, 1996, and 1995, the Company had unused lines of credit for short-term borrowings from various banks of $174,000,000, $199,000,000 and $154,000,000, 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, 1997 and 1996, the Company had no short-term borrowings under its line of credit arrangements. 5. ACCRUED LIABILITIES Accrued liabilities at June 30, 1997 and 1996 are composed of: (Dollars in Thousands) 1997 1996 ----------------------------------------------------------------------------Income and other taxes $ 2,496 $ 2,297 Accrued compensation and employee benefits 25,103 22,747 Accrued marketing and distribution 8,037 4,894 Other 4,320 4,503 ----------------------------------------------------------------------------Total accrued liabilities $39,956 $34,441 =============================================================================
6. LONG-TERM DEBT Long-term debt (including current portion) at June 30, 1997 and 1996 consists of: (Dollars in Thousands) 1997 1996 ----------------------------------------------------------------------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 5,010 5,405 7%, due in installments to 2003 1,220 1,360 Other (5% to 15.6%, due in installments to 1996) 75 ----------------------------------------------------------------------Total 31,230 31,840 Less current portion 545 610 ----------------------------------------------------------------------Long-term debt $30,685 $31,230 =======================================================================
The net book value of property subject to lien at June 30, 1997 was approximately $2,496,000. No material debt was assumed for the purchase of property additions in 1997, 1996 and 1995. Cash payments for interest were $2,603,000, $2,875,000 and $2,739,000 for 1997, 1996 and 1995, 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, 1997, the Company exceeded this net worth requirement by approximately $95,015,000. Long-term debt matures as follows: (Dollars in Thousands) --------------------------------------------------------------------------Year ending June 30: 1998 $ 545 1999 650 2000 25,660 2001 675 2002 685 After 2002 3,015 --------------------------------------------------------------------------Total $31,230 ===========================================================================
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 $32,179,000 and $32,785,000 at June 30, 1997 and 1996, respectively. 7. INCOME TAXES The Company and its domestic subsidiaries file a consolidated Federal income tax return. Taxes based on income have been provided as follows: (Dollars in Thousands) 1997 1996 1995 --------------------------------------------------------------------------------Currently payable: Federal $49,063 $40,476 $40,163 State and local 5,579 5,863 6,425 --------------------------------------------------------------------------------Total current provision 54,642 46,339 46,588 Deferred Federal, state and local provision (credit) (889) 747 (2,304) --------------------------------------------------------------------------------Total taxes based on income $53,753 $47,086 $44,284 =================================================================================
Tax expense resulting from allocating certain tax benefits directly to common stock and retained earnings totaled $323,000, $427,000 and $193,000 for 1997, 1996 and 1995, respectively. The Company's effective tax rate varies from the statutory Federal income tax rate as a result of the following factors: 1997 1996 1995 -------------------------------------------------------------------Statutory rate 35.0% 35.0% 35.0% State and local income taxes 2.5 3.0 3.5 Other 0.2 0.2 0.1 -------------------------------------------------------------------Effective rate 37.7% 38.2% 38.6% ====================================================================
Deferred income taxes recorded in the consolidated balance sheets at June 30, 1997 and 1996 consist of the following: (Dollars in Thousands) 1997 1996 -------------------------------------------------------------------Deferred tax assets (liabilities): Inventories $4,797 $4,910 Employee medical and other benefits 5,010 4,525 Receivable valuation allowances 2,195 1,545 Other accrued liabilities 3,519 1,112 -------------------------------------------------------------------Total deferred tax assets 15,521 12,092 -------------------------------------------------------------------Total deferred tax liabilities - Property and other (8,930) (6,390) -------------------------------------------------------------------Net deferred tax asset $6,591 $5,702 ====================================================================
Cash payments for income taxes were $54,225,000, $46,547,000 and $51,529,000 for 1997, 1996 and 1995, respectively. 8. SHAREHOLDERS' EQUITY The Company is authorized to issue 2,650,000 shares of preferred stock consisting of 350,000 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 $70 per right common stock of the Company having a market value of $140. 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. 9. STOCK OPTIONS Under terms of an incentive stock option plan approved by the shareholders in November 1995, the Company has reserved 2,000,000 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, 1997, 1,745,950 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. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS") No. 123 which in accordance with the Statement, the Company adopted in fiscal 1997. In accordance with 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, 1997 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:
Number Weighted Average of Shares Exercise Price ------------------------------------------------------------------------------Outstanding-June 30, 1994 223,023 $18.93 Granted 216,600 $33.41 Exercised (130,026) $19.56 Forfeited (3,554) $27.84 ------------------------------------------------------------------------------Outstanding-June 30, 1995 306,043 $28.87 Exercised (80,478) $20.82 Forfeited (2,150) $33.38 ------------------------------------------------------------------------------Outstanding-June 30, 1996 223,415 $31.73 Granted 255,400 $46.17 Exercised (145,317) $32.92 Forfeited (2,100) $41.57 ------------------------------------------------------------------------------Outstanding-June 30, 1997 331,398 $42.28 =============================================================================== Exercisable at end of period 236,120 $45.01 =============================================================================== The weighted average fair value of options granted during the fiscal year 1997 was $8.52. Exercise prices for options outstanding totaling 253,550 and 77,848 at June 30, 1997, ranged from $46.13 to $50.74 and from $25.59 to $33.38, respectively. The weighted average remaining contractual life of these options is 3.42 years. The fair value of the options presented above was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions for 1997: risk free interest rate of 6.07%; dividend yield of 1.6%; volatility factors of the expected market price of the Company's common stock of 21.83%; and a weighted average expected option life of 2.67 years. Because the effect of applying the fair value method to the Company's stock options results in net income and earnings per share that are not materially different from amounts reported in the consolidated statements of income, pro forma information has not been provided. 10.
PENSION AND OTHER POSTRETIREMENT BENEFITS
DEFINED BENEFIT PENSION PLANS: 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, 1997 is summarized as follows: (Dollars in Thousands) 1997 1996 1995 ---------------------------------------------------------------------------Company sponsored plansService cost - benefits earned during the period $ 537 $ 472 $ 507 Interest cost on projected benefit obligations 1,681 1,662 1,507 Actual return on pension plan assets (5,361) (2,895) (2,984) Net amortization and deferrals 3,226 889 1,130 ----------------------------------------------------------------------------Net pension cost for Company plans 83 128 160
Multiemployer plans 886 806 594 ----------------------------------------------------------------------------Net pension cost $ 969 $ 934 $ 754 =============================================================================
The following table summarizes the funded status of the Company's plans at June 30, 1997 and 1996: (Dollars in Thousands) 1997 1996 ------------------------------------------------------------------Actuarial present value of benefit obligation: Vested benefits $24,230 $22,743 =================================================================== Accumulated benefit obligation $24,361 $22,846 =================================================================== Projected benefit obligation $24,361 $22,846 Plan assets at fair value 30,262 25,803 ------------------------------------------------------------------Excess of assets over projected benefit obligation 5,901 2,957 Unrecognized net gain (6,548) (2,827) Unrecognized prior service costs 2,318 1,045 Remaining unrecognized net transition obligation 240 271 ------------------------------------------------------------------Net recorded pension asset $ 1,911 $ 1,446 ===================================================================
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 $4,500,000, $3,476,000 and $3,325,000 as of June 30, 1997, 1996 and 1995, respectively. The weighted average discount rates used in determining the projected benefit obligation was 7.50% for 1997 and 1996 and 7.25% for 1995. The expected long-term rate of return on assets was 9.0% for the three years. EMPLOYEE STOCK OWNERSHIP PLAN: 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 1,194,390 shares of the Company's common stock in the open market. The ESOP is fully paid by the Company and generally provides coverage to all domestic employees, except those covered by a collective bargaining agreement. Contributions to the ESOP are to be not less than that required by the terms of the loan agreement between the Company and the ESOP. The Company uses the shares-allocated method of accounting in determining the amount of expense related to each contribution. As of June 30, 1996, the amount due from the ESOP was recorded as a reduction in shareholders' equity and represented the Company's prepayment of future contributions to the ESOP. This amount was expensed in fiscal 1997. Dividends accumulated on the Company's unallocated common stock held by the ESOP are used to repay the loan to the Company. Accordingly, the pretax expense associated with 1997, 1996 and 1995 totaled $1,169,000, $1,077,000, and $1,027,000, which is net of dividends of $110,000, $201,000, and $252,000 on the unallocated shares, respectively. 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, 1997, 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 Statement of Financial Accounting Standards (SFAS) No. 106. Benefits are funded as incurred. Relevant information with respect to these postretirement benefits as of June 30, 1997 and 1996 can be summarized as follows: (Dollars in Thousands) 1997 1996 -----------------------------------------------------------------------Accumulated postretirement benefit obligation: Retired participants $1,768 $1,920 Fully eligible active plan participants 214 243 Other active plan participants 892 895 -----------------------------------------------------------------------Total 2,874 3,058 Unrecognized net gain (loss) from past experience and changes in assumptions 348 (62) -----------------------------------------------------------------------Accrued postretirement benefit cost $3,222 $2,996 ======================================================================== Net postretirement benefit cost: Service cost $ 99 $ 111 Interest cost 227 226 -----------------------------------------------------------------------Total $ 326 $ 337 ======================================================================== Estimated effect of 1% increase in assumed medical cost trend rates: Increase in accumulated postretirement benefit obligation $ 230 $ 245 ======================================================================== Increase in net periodic postretirement benefit cost $ 47 $ 50 ======================================================================== Assumed weighted average discount rate 7.50% 7.50% ========================================================================
For 1997, annual increases in medical costs are initially assumed to total approximately 8% per year and gradually decline to 5% by approximately the year 2003. Annual increases in medical costs for 1996 were assumed to total approximately 9% 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 $1,602,000, $1,463,000 and $1,174,000 in 1997, 1996 and 1995, respectively. 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 2003. 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): 1998-$4,627; 1999-$2,110; 2000-$707; 2001-$417; 2002-$286; thereafter-$136. Total rent expense, including short-term cancelable leases, during 1997, 1996 and 1995
is summarized as follows: (Dollars in thousands) 1997 1996 1995 ----------------------------------------------------------------------------------Operating leases: Minimum rentals $4,545 $4,393 $4,225 Contingent rentals 558 579 457 Short-term cancelable leases 2,808 2,330 2,288 ----------------------------------------------------------------------------------Total $7,911 $7,302 $6,970 =================================================================================== 12.
CONTINGENCIES AND ENVIRONMENTAL MATTERS
At June 30, 1997, the Company is a party to various legal and environmental matters which have arisen in the ordinary course of business. Such matters did not have a material adverse effect on the current year results of operations and, in the opinion of management, their ultimate disposition will not have a material adverse effect on the Company's future consolidated financial position or results of operations. Environmental expenditures relating to current or past operations are expensed in the period incurred. Expenditures relating to future operations are capitalized, provided they are recoverable and serve to improve the property. The Company records an estimate for contingent and environmental liabilities when costs are both probable and can be reasonably estimated. The Company periodically evaluates and revises such estimates based upon expenditures against such reserves and the availability of additional relevant information.
SELECTED QUARTERLY FINANCIAL DATA Lancaster Colony Corporation and Subsidiaries For the Years Ended June 30, 1997 and 1996 (Thousands Except Per Net Gross Net Earnings Stock Prices Dividends Paid Share Figures) Sales Margin Income Per Share High Low Per Share ---------------------------------------------------------------------------------------------------------------------------1997 First quarter $218,918 $66,345 $18,259 $ .62 $38.750 $35.250 $.17 Second quarter 259,023 82,290 25,405 .86 46.000 36.125 .18 Third quarter 218,141 69,157 21,022 .71 48.375 43.250 .18 Fourth quarter 226,731 72,970 24,020 .82 48.875 39.250 .19 ---------------------------------------------------------------------------------------------------------------------------Year $922,813 $290,762 $88,706 $3.02 $48.875 $35.250 $.72 ============================================================================================================================ 1996 First quarter $200,902 $59,319 $15,408 $ .52 $37.750 $33.500 $.15 Second quarter 239,055 75,621 22,369 .75 38.000 31.000 .17 Third quarter 200,459 60,308 17,767 .60 39.250 36.250 .17 Fourth quarter 215,496 68,704 20,591 .69 38.500 33.000 .17 ----------------------------------------------------------------------------------------------------------------------------
Year $855,912 $263,952 $76,135 $2.56 $39.250 $31.000 $.66 ============================================================================================================================
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 10, 1997 was approximately 11,000. The highest and lowest prices for the Company's common shares from July 1, 1997 to September 10, 1997 was $53.50 and $48.00.
Exhibit 21 LANCASTER COLONY CORPORATION SIGNIFICANT SUBSIDIARIES OF REGISTRANT
Name ---Colony Printing & Labeling, Inc. Dee Zee, Inc. Fostoria Glass Company Indiana Glass Company LRV Acquisition Corp. LaGrange Molded Products, Inc. Lancaster Colony Commercial Products, Inc. Lancaster Glass Corporation New York Frozen Foods, Inc. Pretty Products, Inc. T. Marzetti Company The Quality Bakery Company, Inc. Reames Foods, Inc. Waycross Molded Products, Inc.
All subsidiaries conduct their business under the names shown.
State or Province of Incorporation ----------------Indiana Ohio West Virginia Indiana Ohio Delaware Ohio Ohio Ohio Ohio Ohio Ohio Iowa Ohio
Percent of Ownership ---------100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
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, 1997, appearing in and incorporated by reference in this Annual Report on Form 10-K of Lancaster Colony Corporation for the year ended June 30, 1997. /S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP Columbus, Ohio September 23, 1997
ARTICLE 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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000
PERIOD TYPE FISCAL YEAR END PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED
YEAR JUN 30 1997 JUN 30 1997 32,109 0 105,318 2,861 161,251 308,783 337,301 185,992 484,394 73,704 30,685 0 0 43,573 324,427 484,394 922,813 922,813 632,051 632,051 0 0 2,596 142,459 53,753 88,706 0 0 0 88,706 3.02 0
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