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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-4065-1
LANCASTER COLONY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 13-1955943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 WEST BROAD STREET 43215
COLUMBUS, OHIO (Zip Code)
(Address of principal executive offices)
614-224-7141
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Common Stock-No Par Value Per Share
(Including Series A Participating Preferred Stock Purchase Rights)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of Common Stock held by non-affiliates on
December 31, 2002 was approximately $1,072,088,000, based on the closing price
of these shares on that day.
As of August 29, 2003, there were approximately 35,767,000 shares of
Common Stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed for
its 2003 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Annual Report on Form 10-K. The 2003 Definitive Proxy Statement
shall be deemed to have been "filed" only to the extent portions thereof are
expressly incorporated by reference.
EXHIBIT INDEX LOCATED IN PART IV OF THIS ANNUAL REPORT ON FORM 10-K.
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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Supplementary Item. Executive Officers of the Registrant
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Index to Exhibits
2
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Lancaster Colony Corporation, an Ohio corporation, is a diversified
manufacturer and marketer of consumer products including Specialty Foods for the
retail and foodservice markets; Glassware and Candles for the retail,
industrial, floral and foodservice markets; and Automotive accessories for the
original equipment market and aftermarket. Our principal executive offices are
located at 37 West Broad Street, Columbus, Ohio 43215 and our telephone number
is 614/224-7141.
As used in this Annual Report on Form 10-K and except as the context
otherwise may require, the terms "we," "us," "our," "registrant," or "the
Company" means Lancaster Colony Corporation and all entities owned or controlled
by Lancaster Colony Corporation except where it is clear that the term only
means the parent company.
Current and periodic reports are available at the Company Web site
(www.lancastercolony.com) free of charge as soon as reasonably practicable after
such material is electronically filed with the Securities and Exchange
Commission.
DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
We operate in three business segments - "Specialty Foods," "Glassware
and Candles" and "Automotive" - which accounted for approximately 55%, 23% and
22%, respectively, of consolidated net sales for the fiscal year ended June 30,
2003. The financial information relating to business segments for each of the
three years in the period ended June 30, 2003 is included in Note 15 to the
consolidated financial statements, which is included in Part II, Item 8 of this
Form 10-K. Further description of each business segment within which we operate
is provided below:
SPECIALTY FOODS
The food products we manufacture and sell include salad dressings and
sauces marketed under the brand names "Marzetti," "T. Marzetti's," "Cardini's,"
"Pfeiffer" and "Girard's"; fruit glazes, vegetable dips and fruit dips marketed
under the brand name "T. Marzetti's"; frozen unbaked pies marketed under the
brand name "Mountain Top"; frozen hearth-baked breads marketed under the brand
names "New York Brand" and "Mamma Bella"; frozen Parker House style yeast dinner
rolls and sweet rolls marketed under the brand name "Sister Schubert's"; premium
dry egg noodles marketed under the brand names "Inn Maid" and "Amish Kitchen";
frozen specialty noodles and pastas marketed under the brand name "Reames";
croutons and related products marketed under the brand names "Chatham Village,"
and "T. Marzetti's" and caviar marketed under the brand name "Romanoff." A
portion of our sales in this segment are also sold under private label to
retailers, distributors and restaurants primarily in the United States.
A significant portion of this segment's product lines is manufactured
by our 13 plants located throughout the United States. Certain individual items
are manufactured and packaged by third parties located in the United States and
Canada under contractual agreements established by us.
The dressings, sauces, croutons, fruit glazes, vegetable dips, fruit
dips, frozen hearth-baked breads and yeast rolls are sold primarily through
sales personnel, food brokers and distributors in various metropolitan areas in
the United States with sales being made to retail, club stores and/or
foodservice markets.
The dry egg noodles and frozen specialty noodles are sold through sales
personnel, food brokers and distributors to retail markets principally in the
central and midwestern United States.
One customer accounted for approximately 13% and 12% of this segment's
total net sales in the current year and prior year, respectively. Although we
have the leading market share in several product categories, all of the markets
in which we sell food products are highly competitive in the areas of price,
quality and customer service.
3
The operations of this segment are not affected to any material extent
by seasonal fluctuations. We do not utilize any franchises or concessions in
this business segment. The trademarks which we utilize are significant to the
overall success of this segment. However, the patents and licenses under which
we operate are not essential to the overall success of this segment.
GLASSWARE AND CANDLES
Candles, candle accessories, and other home fragrance products in a
variety of sizes, forms and fragrance are primarily sold to the mass merchandise
markets as well as to supermarkets, drug stores and specialty shops under the
"Candle-lite" brand name. A portion of our candle business is marketed under
private label.
Glass products include a broad range of machine pressed and machine
blown consumer glassware and industrial glass products such as security and
interior warehouse lighting components, cathode ray tubes and lenses.
Consumer glassware includes a diverse line of decorative and ornamental
products such as tumblers, bowls, pitchers, jars and barware. These products are
marketed under a variety of trademarks, the most important of which are "Indiana
Glass," "Colony" and "Fostoria."
Glass vases and containers are sold to both the retail and wholesale
florist markets under the brand names "Brody" and "Indiana Glass" as well as
under private label.
Our glass products are sold to discount, department, variety, drug
stores and specialty shops, as well as to wholesalers. Commercial markets such
as foodservice, hotels, hospitals and schools are also served by this segment's
products.
All the markets in which we sell houseware products are highly
competitive in the areas of design, price, quality and customer service. The
aggregate sales of glassware and candles to one customer accounted for
approximately 21% of this segment's total net sales during fiscal 2003. In
fiscal 2002, two customers accounted for approximately 32% of this segment's
total net sales. No other customer accounted for more than 10% of this segment's
total net sales.
Seasonal retail stocking patterns cause certain of this segment's
products to experience increased sales in the first half of the fiscal year. We
do not use any franchises or concessions in this segment. The patents under
which we operate are not essential to the overall success of this segment.
However, certain trademarks and licenses are important to this segment's
marketing efforts.
AUTOMOTIVE
We manufacture and sell a complete line of rubber, vinyl and carpeted
floor mats to both original equipment manufacturers and aftermarket retailers.
Other products include pickup truck bed mats; running boards; tube steps;
toolboxes and other accessories for pickup trucks, vans and sport utility
vehicles; heavy-duty truck and trailer splash guards and quarter fenders; and
accessories such as cup holders, litter caddies and floor consoles. The
automotive aftermarket products are marketed primarily through mass
merchandisers and automotive outlets. Floor mats are marketed under the brand
name "Rubber Queen," bed mats under the "Protecta" trademark, and aluminum
accessories and running boards under the "Dee Zee" brand name. These products
are also subject to marketing under private labels. The aggregate sales to two
customers accounted for approximately 44% and 38% of this segment's total net
sales during fiscal 2003 and 2002, respectively. No other customer accounted for
more than 10% of this segment's total net sales. Although we are a market leader
in many of our product lines, all the markets in which we sell automotive
products are highly competitive in the areas of design, price, quality and
customer service.
The operations of this segment are not affected to any material extent
by seasonal fluctuations. We do not utilize any significant franchises or
concessions in this segment. The patents and licenses under which we operate are
generally not essential to the overall success of this segment. However, certain
trademarks are valuable to the segment's marketing efforts.
4
NET SALES BY CLASS OF PRODUCTS
The following table sets forth business segment information with
respect to the percentage of net sales contributed by each class of similar
products which account for at least 10% of our consolidated net sales in any
fiscal year from 2001 through 2003:
2003 2002 2001
---- ---- ----
Specialty Foods:
Retail................................................................ 29% 27% 25%
Foodservice........................................................... 26% 24% 22%
Glassware and Candles:
Consumer Table and Giftware........................................... 19% 24% 26%
Automotive:
Original Equipment Manufacturers...................................... 15% 13% 13%
Combined net sales from the three segments to Wal-Mart Stores, Inc.
totaled approximately 12%, 13% and 11% of consolidated net sales for fiscal
years 2003, 2002 and 2001, respectively.
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.
BACKLOG
Our backlog by business segment, which we believe to be firm at June
30, 2003 and 2002, is as follows:
(DOLLARS IN THOUSANDS) 2003 2002
-------------------- -------- ---------
Specialty Foods......................................................... $ 13,182 $ 9,267
Glassware and Candles................................................... 16,975 33,786
Automotive(1)........................................................... 6,037 6,102
-------- ---------
Total................................................................. $ 36,194 $ 49,155
======== =========
- ---------------
(1) Automotive backlogs do not reflect certain orders by original
equipment manufacturers as, due to its nature, such information is
not readily available.
We expect that all of our fiscal 2003 backlog will be filled in fiscal
2004.
ENVIRONMENTAL MATTERS
Certain of our 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 our facilities, we are 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 our
competitive position for the remainder of the current and succeeding fiscal
year.
EMPLOYEES AND LABOR RELATIONS
As of June 30, 2003, we had approximately 5,500 employees.
Approximately 33% of these employees are represented under various collective
bargaining agreements, which expire at various times through March 2008. One
contract covering approximately 232 employees has been indefinitely extended by
oral agreement of both parties who continue to negotiate. We feel that we will
be able to come to an agreement on a new
5
contract in the near future. While we believe that labor relations with
unionized employees are good, a prolonged labor dispute could have a material
adverse effect on business and results of operations.
FOREIGN OPERATIONS AND EXPORT SALES
Foreign operations and export sales have not been significant in the
past and are not expected to be significant in the future based upon existing
operations.
RAW MATERIALS AND SUPPLIES
During fiscal year 2003, we obtained adequate supplies of raw materials
for all of the segments. We rely on the following principal raw materials and
supplies for the day-to-day production of our products: natural gas, paraffin
wax, soybean oil, dairy products, flour, fragrances and colorant agents, plastic
and paper packaging materials, resins, synthetic rubbers, rubber friction and
compound, aluminum and steel.
We have some long-term fixed-price contracts on certain of these
materials and supplies, but we purchase the majority of these materials and
supplies on the open market to meet current requirements. We believe in the
future our sources of supply will be adequate for our needs.
ITEM 2. PROPERTIES
We use approximately 5,806,000 square feet of space for our operations.
Of this space, approximately 1,102,000 square feet are leased.
The following table summarizes locations wherein multiple facilities
are aggregated and in total exceed 75,000 square feet of space and which are
considered the principal manufacturing and warehousing operations of the
registrant:
APPROXIMATE TERMS OF
LOCATION BUSINESS SEGMENT(S) SQUARE FEET OCCUPANCY
-------- ------------------- ----------- ------------
Bedford Heights, OH (3)..... Specialty Foods........................... 81,000 Owned/Leased
Columbus, OH................ Specialty Foods........................... 244,000 Owned
Grove City, OH.............. Specialty Foods........................... 195,000 Owned
Milpitas, CA (4)............ Specialty Foods........................... 130,000 Owned/Leased
Wilson, NY ................. Specialty Foods........................... 80,000 Owned
Dunkirk, IN ................ Glassware and Candles..................... 622,000 Owned
Lancaster, OH............... Glassware and Candles..................... 465,000 Owned
Leesburg, OH (1)............ Glassware and Candles..................... 875,000 Owned/Leased
Sapulpa, OK (3)............. Glassware and Candles..................... 686,000 Owned/Leased
Jackson, OH................. Automotive and Glassware and Candles...... 223,000 Owned
Coshocton, OH............... Automotive................................ 591,000 Owned
Des Moines, IA (1)(4)....... Automotive................................ 444,000 Owned/Leased
LaGrange, GA................ Automotive................................ 211,000 Owned
Wapakoneta, OH (1).......... Automotive................................ 263,000 Owned/Leased
Waycross, GA (2)(3)......... Automotive................................ 146,000 Owned/Leased
- ---------------------
(1) Part leased on a monthly basis
(2) Part leased for term expiring in 2003
(3) Part leased for term expiring in 2004
(4) Part leased for term expiring in 2005
ITEM 3. LEGAL PROCEEDINGS
None
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
SUPPLEMENTARY ITEM. 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 Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held November 17, 2003.
The following is a list of names and ages of all of our executive
officers indicating all positions and offices 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:
FIRST
ELECTED
AGE AS OF AS AN
OFFICES AND AUGUST 29, EXECUTIVE
NAME POSITIONS HELD 2003 OFFICER
- ---- -------------- --------- ---------
John B. Gerlach, Jr... Chairman, Chief Executive Officer,
President and Director................................. 49 1982
John L. Boylan........ Treasurer, Vice President, Assistant Secretary,
Chief Financial Officer and Director................... 48 1990
Bruce L. Rosa(1)...... Vice President-Development - elected July 1, 1998;
Executive Vice President of T. Marzetti Company
(a subsidiary of Lancaster Colony Corporation)
from 1996 to 1998...................................... 54 1998
- -------------------
(1) Larry G. Noble, former Vice President of the Company and President of
T. Marzetti Company, retired from these positions as of June 30, 2003,
and Bruce L. Rosa became President of T. Marzetti Company effective
July 1, 2003.
The above named officers were elected or re-elected to their present
positions at the annual meeting of the Board of Directors on November 18, 2002.
All such persons have been elected to serve until the next annual election of
officers, which shall occur on November 17, 2003, when their successors are
elected or until their earlier resignation or removal.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our common stock trades on The Nasdaq Stock Market(R) under the symbol
LANC. Stock prices were provided by The Nasdaq Stock Market(R). The following
table sets forth the high and low prices for Lancaster Colony common shares and
the dividends paid for each quarter of fiscal 2003 and 2002.
STOCK PRICES DIVIDENDS
----------------- PAID
HIGH LOW PER SHARE
------- ------- ---------
2003
FIRST QUARTER................................................... $ 44.71 $ 32.68 $.18
SECOND QUARTER.................................................. 46.74 33.50 .20
THIRD QUARTER................................................... 39.53 35.47 .20
FOURTH QUARTER.................................................. 42.79 37.55 .20
----
YEAR.......................................................... $.78
====
7
STOCK PRICES DIVIDENDS
----------------- PAID
HIGH LOW PER SHARE
------- ------- ---------
2002
First quarter................................................... $ 34.96 $ 24.96 $.17
Second quarter.................................................. 37.36 27.26 .18
Third quarter................................................... 37.80 32.09 .18
Fourth quarter.................................................. 41.16 35.50 .18
----
Year.......................................................... $.71
====
The number of shareholders as of September 24, 2003 was approximately
12,900. The highest and lowest prices for our common stock from July 1, 2003 to
September 24, 2003 were $42.00 and $38.68.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about our common stock that
may be issued upon the exercise of options under all of our equity compensation
plans as of June 30, 2003. The table includes the following plans: The 1981
Incentive Stock Option Plan and the 1995 Key Employee Stock Option Plan.
NUMBER OF COMMON
NUMBER OF COMMON SHARES REMAINING
SHARES TO BE AVAILABLE FOR FUTURE
ISSUED UPON WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING COMMON SHARES
OPTIONS OPTIONS REFLECTED IN COLUMN (a))
---------------- --------------- ------------------------
(a) (b) (c)
---------------- --------------- ------------------------
Equity Compensation Plans
Approved by Shareholders.......... 496,941 $34.53 1,884,834
Equity Compensation Plans
Not Approved by Shareholders...... - - -
------- ------ ---------
Total............................... 496,941 $34.53 1,884,834
======= ====== =========
8
ITEM 6. SELECTED FINANCIAL DATA
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY
YEARS ENDED JUNE 30
(THOUSANDS EXCEPT ------------------------------------------------------------------------
PER SHARE FIGURES) 2003 2002 2001(1) 2000 1999
- ------------------ ----------- ----------- ----------- ----------- -----------
OPERATIONS
Net Sales........................... $ 1,106,800 $ 1,129,687 $ 1,092,653 $ 1,090,696 $ 1,034,116
Gross Margin........................ $ 243,860 $ 253,565 $ 255,721 $ 273,500 $ 266,075
Percent of Sales................. 22.0% 22.4% 23.4% 25.1% 25.7%
Interest Expense.................... $ - $ 54 $ 1,239 $ 1,588 $ 2,718
Percent of Sales................. 0.0% 0.0% 0.1% 0.1% 0.3%
Income Before Income Taxes.......... $ 180,801 $ 149,342 $ 145,885 $ 160,189 $ 153,462
Percent of Sales................. 16.3% 13.2% 13.4% 14.7% 14.8%
Taxes Based on Income............... $ 68,255 $ 57,402 $ 55,649 $ 60,925 $ 58,333
Income Before Cumulative
Effect of Accounting Change...... $ 112,546 $ 91,940 $ 90,236 $ 99,264 $ 95,129
Cumulative Effect of
Accounting Change, Net of Tax.... $ - $ - $ (998) $ - $ -
Net Income.......................... $ 112,546 $ 91,940 $ 89,238 $ 99,264 $ 95,129
Percent of Sales................. 10.2% 8.1% 8.2% 9.1% 9.2%
Per Common Share:
Net Income-Basic and Diluted..... $ 3.11 $ 2.49 $ 2.37 $ 2.51 $ 2.28
Cash Dividends................... $ 0.78 $ 0.71 $ 0.67 $ 0.63 $ 0.59
FINANCIAL POSITION
Total Assets........................ $ 667,716 $ 618,705 $ 576,352 $ 531,844 $ 550,014
Working Capital..................... $ 329,462 $ 276,796 $ 220,896 $ 219,420 $ 212,162
Property, Plant and Equipment-Net... $ 161,111 $ 165,943 $ 173,169 $ 172,384 $ 175,617
Long-Term Debt...................... $ - $ - $ 1,095 $ 3,040 $ 3,575
Property Additions.................. $ 29,941 $ 22,546 $ 22,632 $ 24,564 $ 33,804
Depreciation and Amortization....... $ 31,669 $ 35,287 $ 35,528 $ 34,340 $ 35,569
Shareholders' Equity................ $ 547,665 $ 501,277 $ 459,901 $ 415,483 $ 414,855
Per Common Share................. $ 15.31 $ 13.70 $ 12.35 $ 10.94 $ 10.23
Weighted Average Common Shares
Outstanding-Diluted.............. 36,243 36,910 37,636 39,554 41,799
STATISTICS
Price-Earnings Ratio at Year-End.... 12.4 14.3 13.9 7.8 15.1
Current Ratio....................... 4.9 4.1 3.3 3.3 2.8
Long-Term Debt as a Percent
of Shareholders' Equity.......... 0.0% 0.0% 0.2% 0.7% 0.9%
Dividends Paid as a Percent
of Net Income.................... 25.0% 28.4% 28.2% 24.9% 25.8%
Return on Average Equity............ 21.5% 19.1% 20.4% 23.9% 23.0%
- ------------------
(1) Reflects the impact of adopting the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
REVIEW OF CONSOLIDATED OPERATIONS
Consolidated net sales during fiscal 2003 reached $1,106,800,000, a 2%
decline from the prior year's record sales level of $1,129,687,000. Sales
through fiscal 2002 had increased for eleven consecutive years. Like many other
consumer product companies, our sales for fiscal 2003 were impacted by unsettled
domestic economic conditions. We also experienced heightened competitive
influences, particularly in non-food markets.
The relative proportion of sales and operating income contributed by
each of our business segments can impact a year-to-year comparison of the
consolidated statements of income. The following table summarizes the sales mix
and related operating income percentages achieved by the business segments over
each of the last three years:
2003 2002 2001
---- ---- ----
SEGMENT SALES MIX: (1)
Specialty Foods................................................... 55% 51% 47%
Glassware and Candles............................................. 23% 28% 31%
Automotive........................................................ 22% 21% 22%
SEGMENT OPERATING INCOME %: (2)
Specialty Foods................................................... 19% 20% 20%
Glassware and Candles............................................. 5% 3% 14%
Automotive........................................................ 7% 7% 0%
- -----------------
(1) Expressed as a percentage of consolidated net sales
(2) Expressed as a percentage of the related segment's net sales
Our gross margin as a percentage of net sales was 22.0% in 2003
compared with 22.4% in 2002 and 23.4% in 2001. Over the last two years, gross
margins have been particularly affected by lower margins occurring within the
Glassware and Candles segment. This segment has experienced significant price
competition, lower fixed cost absorption on reduced production levels and, in
fiscal 2003, the impact of consolidating certain glass manufacturing operations.
In conjunction with the latter action, a restructuring charge of approximately
$4.9 million ($3.0 million after taxes) was recorded. This charge consisted of
employee separation costs, pension curtailment costs, closure and cleanup costs,
and the writedown of property, plant and equipment having no future utility as a
result of the restructuring decision.
The plant consolidation, which affected approximately 250 jobs, was
substantially completed by June 2003 and is expected to improve capacity
utilization over time. An analysis of our restructuring activity and related
liability is as follows:
EMPLOYEE
SEPARATION ASSET OTHER
(Dollars in Thousands) COSTS WRITE-OFFS CHARGES TOTAL
-------------------- ---------- ---------- ------- -------
Restructuring Provision
Employee separation costs........... $ 1,063 $ - $ - $ 1,063
Property and equipment impairment... - 2,943 - 2,943
Pension curtailment................. - - 678 678
Closing and cleanup costs........... - - 201 201
------- ------- ------- -------
Total Provision................... 1,063 2,943 879 4,885
Cash Paid............................. (974) - (87) (1,061)
Non-Cash Charges...................... - (2,943) (678) (3,621)
------- ------- ------- -------
Accrual Balance at June 30, 2003
(included in accrued liabilities)... $ 89 $ - $ 114 $ 203
======= ======= ======= =======
10
We anticipate that the remaining cash-related charges will be paid by
the end of the third quarter of fiscal 2004. Although pressed glassware
manufacturing commenced during the third quarter of fiscal 2003 at the Sapulpa
facility, we incurred some amount of transitional start-up costs over the
balance of fiscal 2003. Accordingly, the benefits of this restructuring will not
become fully evident until the fiscal year beginning July 1, 2003.
Gross margin as a percentage of sales of the Specialty Foods segment
was also somewhat lower in fiscal 2003 due to higher ingredient costs. Fiscal
2002 margins were influenced by sales mix and higher levels of trade promotions,
which are reflected as reductions to net sales. Gross margin as a percentage of
sales within the Automotive segment remained relatively flat in fiscal 2003
after having increased in fiscal 2002 as a result of the benefits of higher
production efficiencies, somewhat lower material costs and the decision to exit
certain lower margin floor mat business.
Selling, general and administrative expenses for 2003 totaled
$99,032,000 and decreased 17% from the 2002 total of $119,196,000. The fiscal
2002 total included a second quarter provision for bad debts within the
Glassware and Candles segment of approximately $14.3 million ($8.8 million after
taxes) related to our accounts receivable exposure to Kmart Corporation, which
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in January
2002. This provision led to the 10% increase in such costs over the fiscal 2001
levels.
Improved operating income in each of the three operating segments led
to consolidated operating income for fiscal 2003 totaling $139,943,000, a 4%
increase over fiscal 2002 income of $134,369,000. The fiscal 2002 total had
declined by 9% from fiscal 2001 operating income totaling $147,674,000. Overall,
compared to fiscal 2001, fiscal 2002 results reflected strong improvement in the
Specialty Foods and Automotive segments exceeded by weaker results from the
Glassware and Candles segment.
In January 2003 and February 2002, we received approximately $39.2
million and $15.6 million, respectively, under the Continued Dumping and Subsidy
Offset Act of 2000 ("CDSOA"). These amounts were recorded within the
accompanying financial statements as other income. CDSOA, which applies to our
candle operations, is intended to redress the unfair dumping of imported
products through annual cash payments to eligible affected companies. Certain
litigation has arisen regarding CDSOA, generally, and we are also aware that
other candle manufacturers have initiated certain legal proceedings against the
U.S. Customs Service claiming a right to share in the total proceeds paid to
candle manufacturers pursuant to the provisions of CDSOA. To date, one such case
was decided by the trial court in favor of the Customs Service in April 2003.
The trial court ruling has since been appealed by the plaintiff to the
applicable Federal Appeals Court. If the Customs Service is ultimately unable to
prevail in these matters, it might become asserted that the payments that we
have received should be reduced by an undetermined amount through either smaller
future distributions or as refunds to the Customs Service. Also influencing
other income and expense were the impact of lower interest rates upon interest
income and in fiscal 2002 a recorded gain of approximately $1 million from
insurance proceeds related to a casualty loss that occurred during January 2001.
As affected by the increased CDSOA payment, our income before income
taxes for fiscal 2003 of $180,801,000 increased 21% over the fiscal 2002 total
of $149,342,000. In fiscal 2002, as similarly influenced by the initial $15.6
million receipt under CDSOA, income before income taxes had increased 2% from
the level of 2001. As influenced by the cessation of nondeductible goodwill
amortization as discussed below, our effective tax rate during fiscal 2003
declined to 37.8% compared to 38.4% and 38.1% in fiscals 2002 and 2001,
respectively.
Fiscal 2003 diluted earnings per share totaled $3.11, a 25% increase
from the prior year's total of $2.49. The latter amount was 4% more than fiscal
2001 diluted earnings per share of $2.40 before the cumulative effect of an
accounting change. The fiscal 2001 accounting change related to adopting the
guidance of Securities and Exchange Commission Staff Accounting Bulletin No. 101
("SAB 101"). As adjusted for the $998,000, or $0.03 per share, after-tax effect
of the SAB 101 accounting change, diluted earnings per share in 2001 totaled
$2.37. Earnings per share in each of the last three years has been beneficially
affected by share repurchases which have totaled in excess of $86 million over
the three-year period ended June 30, 2003.
11
Effective July 1, 2002, we adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which requires goodwill and indefinite-lived intangible assets to no
longer be amortized but reviewed annually for impairment, or more frequently if
impairment indicators arise. Intangible assets with lives restricted by
contractual, legal or other means will continue to be amortized over their
useful lives. Amortization of other intangibles for 2003 was $30,000.
Amortization of goodwill and other intangibles for 2002 and 2001 was $2,680,000
and $2,102,000, respectively. Of the $75.2 million in goodwill at June 30, 2003,
approximately $74.2 million relates to the Specialty Foods segment and
approximately $1.0 million relates to the Automotive segment.
SEGMENT REVIEW - SPECIALTY FOODS
Record levels of both net sales and earnings were again achieved by the
Specialty Foods segment during fiscal 2003. Net sales during fiscal 2003 totaled
$609,994,000, a 5% increase over the prior year's total of $579,940,000. Fiscal
2002 sales had increased 12% over the fiscal 2001 total of $517,714,000. The
percentage of sales to retail customers for this segment was approximately 53%
during fiscal 2003 compared to 52% and 53% in fiscals 2002 and 2001,
respectively.
Sales growth to retail customers over the last two years has been
influenced by the continued strength of the frozen bread product lines. Further,
although fiscal 2003 lacked the benefit of sales growth attributable to business
acquisitions, the two acquisitions made during fiscal 2001 did contribute to
fiscal 2002 growth. These acquisitions provided approximately $35 million in
incremental sales volume during their first year of operations within the
segment, including $21 million in fiscal 2001. Foodservice sales also increased
through this period as a result of well-received product development efforts for
existing national account customers as well as sales to new national account
customers. However, this channel saw only modest growth in the latter half of
fiscal 2003 due to generally soft consumer demand and a decrease in significant
new account activity.
The Specialty Foods segment's operating income in fiscal 2003 totaled
$116,068,000, a 2% increase over the fiscal 2002 total of $113,710,000. The 2002
level was $8,054,000, or 8%, above the fiscal 2001 level of $105,656,000. The
increase in fiscal 2003's operating income was principally driven by the
benefits of higher sales volumes, changes in sales mix and lower trade
promotional activities. These influences were partially offset by higher
ingredient costs, especially for soybean oil. The impact of soybean oil costs is
estimated to have exceeded $4 million, and higher soybean oil costs are
currently anticipated to continue to adversely affect comparative results
through at least the first half of fiscal 2004. The impact of year-over-year
variations in ingredient costs between fiscal 2002 and 2001 was not significant.
The higher income level in fiscal 2002 compared to fiscal 2001 largely resulted
from the higher sales volumes partially offset by higher trade promotional costs
and the presence of competitive foodservice pricing pressures.
SEGMENT REVIEW - GLASSWARE AND CANDLES
Net sales of the Glassware and Candles segment are comprised primarily
of candles and related accessories. The segment's sales during fiscal 2003
totaled $251,437,000, and declined 20% compared to fiscal 2002 net sales of
$314,591,000. Similarly, compared to net sales in fiscal 2001 totaling
$336,291,000, fiscal 2002 sales declined by 6%. The sales decline in each year
was primarily attributable to a year-over-year decline in candle sales made to
mass merchants. Factors contributing to the decline in the sales of the
segment's candles were an apparent overall softening in the consumer demand of
candles within the mass market, heightened competition from imported product and
a continuation of competitive market pricing conditions. Sales of glassware
products also declined in the segment's industrial and floral channels.
The segment's operating income totaled $12,432,000 during fiscal 2003,
an 18% increase over the prior year's total of $10,547,000. Compared to fiscal
2001 operating income of $47,154,000, fiscal 2002 income declined by 78%. Over
the last two years, in addition to the effects of the lower volume and
competitive pricing conditions, income was adversely affected by a less
favorable sales mix and lower production levels leading to greater amounts of
unabsorbed overhead in both candle and glassware manufacturing operations.
Somewhat offsetting this impact has been the income associated with the
liquidations of LIFO glassware inventory acquired at substantially lower costs
in prior years. Such liquidations reduced cost of sales by approximately $7.0
million in fiscal 2003 and $3.3 million in fiscal 2002. As discussed above, the
$4.9 million restructuring charge related to the consolidation of glass
manufacturing operations also impacted fiscal 2003 results.
12
The January 2002 bankruptcy filing of Kmart Corporation affected the
fiscal 2002 results. In addition to recording a related bad debt provision of
$14.3 million during fiscal 2002, the segment's sales to this customer were
adversely affected by the impact of the reorganization process on Kmart
Corporation's sales. Other issues negatively impacting fiscal 2002 results were
expenses associated with a prolonged labor strike at a consumer glassware
facility and unabsorbed costs associated with a scheduled rebuild of a
glass-melting tank.
Many of the effects of the decline in sales volume will persist into
fiscal 2004, and we continue to assess how to most optimally utilize the
capacity of this segment's manufacturing facilities.
SEGMENT REVIEW - AUTOMOTIVE
Net sales of the Automotive segment during fiscal 2003 totaled
$245,369,000, a 4% increase over the prior year's sales level of $235,156,000.
Fiscal 2002 sales declined 1% from the sales level of $238,648,000 achieved in
fiscal 2001. Consistent with the trend experienced in fiscal 2002, the overall
sales of aluminum truck accessories in fiscal 2003 increased as a result of new
product lines being sold to original equipment manufacturers ("OEMs"). However,
the unsettled economic conditions that began in fiscal 2001 continued to
adversely impact the sales of many of the segment's other products, especially
in the aftermarket. Additionally, certain floor mat product lines have been
discontinued based on our analysis that an adequate contribution margin would
not be provided in the future.
Operating income of the Automotive segment totaled $17,351,000 for
fiscal 2003, a 12% increase over the prior year's total of $15,489,000. This
increase was influenced by the greater sales level, the sales mix and better
overhead absorption. Material costs, however, were trending up in the latter
half of fiscal 2003. The substantial improvement in fiscal 2002 results above
fiscal 2001's operating income of $673,000 was primarily attributable to greater
production efficiencies achieved within the floor mat operations, generally
lower material costs, less need for inventory obsolescence provisions and higher
capacity utilization occurring within the aluminum accessory operations. Price
reductions occurred among certain OEM programs and mitigated the extent to which
operating income increased.
This segment's sales to OEMs are made both directly to the OEMs and
indirectly through third-party "Tier 1" suppliers. Such sales are sensitive to
the overall rate of new vehicle sales, the availability of competitive
alternatives and the Tier 1 suppliers' ongoing ability to maintain their
relationship with the OEMs. Additionally, the extent of pricing flexibility
associated with these sales continues to be particularly limited with certain
products subject to annual price reductions. During 2003, sales to OEMs
comprised 69% of this segment's sales compared to 63% and 60% in 2002 and 2001,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The higher level of net income achieved in the year ended June 30, 2003
allowed us to further strengthen our already strong financial position,
including again ending the year without debt. We believe that this financial
position provides us with substantial flexibility to acquire businesses
complementary in function to that of our existing operations, evaluate share
repurchase levels and otherwise meet ongoing liquidity requirements.
We maintain a revolving credit arrangement with several commercial
banks totaling $125,000,000. Terms of the related agreement allow for borrowings
to occur at or below the U.S. prime rate of interest. We did not have any
borrowings under this arrangement in fiscal 2003 and thus did not pay any
interest in 2003. We believe that internally generated funds, the existing
credit facilities and an ability to obtain additional financing, if desired,
will be sufficient to meet operating requirements and fund future foreseeable
capital needs.
Our cash flows for the fiscal years 2001 through 2003 are presented in
the Consolidated Statements of Cash Flows. Cash flow generated from operations
remains the primary source of financing for our internal growth. Cash provided
from operating activities in fiscal 2003 totaled $155,985,000, a 3% decrease
from the prior year's total of $160,325,000 and 24% increase over the fiscal
2001 total of $126,212,000. Cash flows provided by operating activities during
fiscal 2002 benefited from the extent to which inventories declined.
13
Among the components of working capital, accounts receivable at June
30, 2003 of $88,583,000 declined 19% from year ago levels as affected by the
lower fourth quarter sales. The rising proportion of Specialty Food sales has
also contributed to a lower level of consolidated accounts receivable, as such
sales typically have shorter payment terms than do sales of our other two
segments.
Net cash used in investing activities during fiscal 2003 included
capital expenditures totaling $29,941,000, compared to $22,546,000 in fiscal
2002 and $22,632,000 in fiscal 2001. Capital spending allocations during fiscal
2003 by segment were 48% to Specialty Foods, 25% to Glassware and Candles and
27% to Automotive. Expenditures in fiscal 2003 included an expansion to a frozen
roll manufacturing facility of the Specialty Foods segment. Fiscal 2004
expenditures are currently expected to exceed that of fiscal 2003 due to
construction starting on a new salad dressing facility that is not anticipated
to be completed until fiscal 2005.
During fiscals 2003 and 2002, no business acquisitions were consummated
although payments totaling $3,000,000 and $2,250,000, respectively, were made as
required under the terms of a contingent payment arrangement associated with a
business acquired in fiscal 2001. The single largest purpose of cash flows used
in investing activities during fiscal 2001 was for business acquisitions. Two
such acquisitions, both in the Specialty Foods segment, were made that required
an initial fiscal 2001 aggregate expenditure of $49,831,000 net of cash
acquired.
Financing activities used net cash totaling $59,364,000, $55,678,000
and $49,443,000 in fiscals 2003, 2002 and 2001 respectively. Cash utilized for
share repurchases totaled $35,552,000, $28,275,000 and $22,742,000 in 2003, 2002
and 2001, respectively. In May 2000, our Board of Directors approved a share
repurchase authorization of 3,000,000 shares of which approximately 783,000
remained authorized for future purchase as of June 30, 2003.
Total dividend payments for 2003 were $28,152,000 which was nearly 8%
greater than the 2002 total of $26,128,000. This increase reflects the higher
dividend payout rate of $.78 present during 2003 as compared to $.71 during 2002
and $.67 in fiscal 2001. Fiscal 2003 marks the 40th consecutive year in which
our dividend rate was increased. The future levels of share repurchases and
declared dividends are subject to the periodic review of our Board of Directors
and are generally determined after an assessment is made of such factors as
anticipated earnings levels, cash flow requirements and general business
conditions.
Our ongoing business activities continue to be subject to compliance
with various laws, rules and regulations as may be issued and enforced by
various Federal, state and local agencies. With respect to environmental
matters, costs are incurred pertaining to regulatory compliance and, upon
occasion, remediation. Such costs have not been, and are not anticipated to
become, material.
We are contingently liable with respect to lawsuits, taxes and various
other matters that routinely arise in the normal course of business. We do not
have any related party transactions that materially affect our results of
operations, cash flow or financial condition.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"Variable Interest Entities" that have or are reasonably likely to have a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operation, liquidity or
capital expenditures.
IMPACT OF INFLATION
Raw material costs during fiscal 2003 were above fiscal 2002 levels,
particularly in the latter half of fiscal 2003. Among commodities most affecting
this increase were soybean oil in the Specialty Foods segment and certain
petroleum-derived materials used in the Automotive segment. Energy costs in
fiscal 2003 were also above year ago levels after having abated from record high
levels incurred in fiscal 2001.
We generally attempt to adjust our selling prices to offset the effects
of increased raw material costs. However, these adjustments have historically
been difficult to implement. If implemented, such adjustments
14
tend to lag the increase in costs incurred. Minimizing the exposure to such
increased costs is our diversity of operations and our ongoing efforts to
achieve greater manufacturing and distribution efficiencies through the
improvement of work processes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Results of Operations and
Financial Condition discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires that we make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, we evaluate our estimates and judgments, including those related
to accounts receivable, inventories, marketing and distribution costs, asset
impairments and self-insurance reserves. We base our estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Historically, the aggregate
differences, if any, between our estimates and actual amounts in any year have
not had a significant impact on our consolidated financial statements. While a
summary of our significant accounting policies can be found in Note 1 to the
consolidated financial statements, which is included in Part II, Item 8 of this
Form 10-K, we believe the following critical accounting policies, among others,
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements.
REVENUE RECOGNITION
Customer sales are recognized when revenue is realized and earned. We
recognize revenue when the risk and title passes to the customer, generally at
the time of shipment. Customer sales are recorded net of allowances for
estimated returns, trade promotions and other discounts, which are recognized as
a deduction from sales at the time of sale.
RECEIVABLES AND THE ALLOWANCE FOR DOUBTFUL ACCOUNTS
We provide an allowance for doubtful accounts based on the aging of
accounts receivable balances and historical write-off experience and on-going
reviews of our trade receivables. Measurement of potential losses requires
credit review of existing customer relationships, consideration of historical
loss experience, including the need to adjust for current conditions, and
judgments about the probable effects of relevant observable data, including
present economic conditions such as delinquency rates and the economic health of
customers. In addition to credit concerns, we also evaluate the adequacy of our
allowances for customer deductions considering several factors including
historical losses and existing customer relationships.
VALUATION OF INVENTORY
When necessary, we provide allowances to adjust the carrying value of
our inventory to the lower of cost or net realizable value, including any costs
to sell or dispose. The determination of whether inventory items are slow
moving, obsolete or in excess of needs requires estimates about the future
demand for our products. The estimates as to future demand used in the valuation
of inventory are subject to the ongoing success of our products. In addition,
our allowance for obsolescence may be impacted by the number of stock-keeping
units. A decrease in product demand due to changing customer tastes, consumer
buying patterns or loss of shelf space to competitors could significantly impact
our evaluation of our excess and obsolete inventories. The valuation during
interim periods of inventories determined under the LIFO method of accounting
requires estimations regarding the year-end mix of inventory quantities and
costs of product. Such estimates may differ from the actual due to such factors
as changes in customer demand and production schedules.
ACCRUED MARKETING AND DISTRIBUTION
Various marketing programs are offered to customers to reimburse them
for a portion or all of their promotional activities related to our products.
Additionally, we often incur various costs associated with
15
shipping products to the customer. We provide accruals for the costs of
marketing and distribution based on historical information as may be modified by
estimates of actual costs incurred. Actual costs may differ significantly if
factors such as the level and success of the customers' programs, changes in
customer utilization practices, or other conditions differ from expectations.
ACCRUALS FOR SELF-INSURANCE
Self-insurance accruals are made for certain claims associated with
employee health care, workers' compensation and general liability insurance.
These accruals include estimates that may be based on historical loss
development factors. Differences in estimates and assumptions could result in an
accrual requirement materially different from the calculated accrual.
ACCOUNTING FOR PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
To determine our ultimate obligation under our defined benefit pension
plans and our other postretirement benefit plans, we must estimate the future
cost of benefits and attribute that cost to the time period during which each
covered employee works. To record the related net assets and obligation of such
benefit plans, we use assumptions related to inflation, investment returns,
mortality, employee turnover, medical costs and discount rates. These
assumptions follow the guidance provided in SFAS No. 87, "Employers' Accounting
for Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." We, along with third party actuaries, review all
of these assumptions on an ongoing basis to ensure that the most reasonable
information available is being considered. Changes in assumptions and future
investment returns could potentially have a material impact on pension expense
and related funding requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 provides guidance on the appropriate classification for
and accounting of financial instruments with characteristics of both liabilities
and equity. It requires that financial instruments be classified as a liability
(or an asset in certain circumstances) if they are within the scope of the
statement. The Statement is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
will not have a material impact on our results of operations or our financial
condition.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), to expand upon and
strengthen existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Until now, one company generally has included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that by requiring a variable interest entity,
as defined, to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
is entitled to receive a majority of the entity's residual returns or both. FIN
46 also requires disclosures about variable interest entities that the company
is not required to consolidate but in which it has a significant variable
interest. The provisions of FIN 46 have been adopted and based upon a review of
such provisions it has been determined that there are no variable interest
entities which would require consolidation or disclosure at this time.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation and amends the
disclosure requirements of SFAS No. 123. The transition provisions of this
Statement are effective for fiscal years ending after December 15, 2002, and the
disclosure requirements of the Statement are effective for interim periods
beginning after December 15, 2002. We account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board ("APB") No. 25 and comply with the disclosure provisions of
SFAS No. 123 and SFAS No. 148.
16
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a
guarantor to recognize a liability, at the inception of the guarantee, for the
fair value of obligations it has undertaken in issuing the guarantee and also
include more detailed disclosures with respect to guarantees. FIN 45 was
effective for guarantees issued or modified starting January 1, 2003 and
required the additional disclosures beginning with our fiscal second quarter
ended December 31, 2002. The provisions of FIN 45 have been adopted with no
material impact on our results of operations or financial condition. Additional
disclosure has been provided with respect to guarantees in Note 13.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting. EITF
00-21 will be effective for arrangements entered into after June 30, 2003. The
adoption of EITF 00-21 is not expected to have a material impact on our results
of operation or financial condition.
Effective July 1, 2002, we adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets," which requires goodwill and
indefinite-lived intangible assets to no longer be amortized but reviewed
annually for impairment, or more frequently if impairment indicators arise.
Intangible assets with lives restricted by contractual, legal or other means
will continue to be amortized over their useful lives. We completed our initial
asset impairment assessment as required in adopting SFAS No. 142 and no
impairment was indicated. See additional information at Note 4.
Effective July 1, 2002, we adopted the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets to be held and used, to be disposed of other than by sale, and
to be disposed of by sale. The adoption of this Statement did not have a
material impact on our results of operations or financial condition.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 2002. We did not have
any exit or disposal activities initiated after December 31, 2002, therefore,
there is no current year impact of this statement.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement amends FASB Statement
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions; and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002. The adoption of this Statement
did not have a material impact on our financial position or results of
operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements made by us in both this annual report and in other
contexts, other than statements of historical fact, that address activities,
events or developments that we intend, expect, project, believe or anticipate
will or may occur in the future, are forward-looking statements. Such statements
are based upon certain assumptions and assessments made by us in light of our
experience and our perception of historical trends, current conditions, expected
future developments and other factors we believe to be appropriate. The
forward-looking statements included in this report are also subject to a number
of risks and uncertainties,
17
including but not limited to economic, competitive, governmental and
technological factors affecting our operations, markets, customers, products,
services and prices.
Specific influences relating to these forward-looking statements
include, but are not limited to:
- fluctuations in material costs;
- the continued solvency of key customers;
- efficiencies in plant operations, including the ability to
optimize overhead utilization in non-food operations;
- stability of labor relations;
- the success and cost of new product development efforts;
- lack of market acceptance of new products;
- changes in market trends;
- changes in demand for our products;
- dependence on key personnel;
- effect of governmental regulations, including environmental
matters;
- the effect of consolidation of customers within key market
channels;
- the possible occurrence of business acquisitions;
- maintenance of competitive position with respect to other
manufacturers, including import sources of production; and
- innumerable other factors.
Such forward-looking statements are not guarantees of future
performance, and the actual results, developments and business decisions may
differ from those contemplated by such forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash and cash equivalents have been maintained only with maturities
of 90 days or less. These financial instruments may be subject to interest rate
risk through lost income should interest rates increase during their limited
term to maturity. As of June 30, 2003, there was no long-term debt outstanding.
Future borrowings, if any, would bear interest at negotiated rates and would be
subject to interest rate risk. We do not believe that a hypothetical adverse
change of 10% in interest rates would have a material effect on our financial
position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
18
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of Lancaster Colony Corporation:
We have audited the accompanying consolidated balance sheets of
Lancaster Colony Corporation and subsidiaries as of June 30, 2003 and 2002, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 2003. Our audits
also included the financial statement schedule listed in the Table of Contents
at Item 15. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Lancaster Colony Corporation
and subsidiaries as of June 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2003, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 4 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142.
/S/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 19, 2003
19
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30
--------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002
- ----------------------------------------- --------- ----------
ASSETS
CURRENT ASSETS:
Cash and equivalents..................................................... $ 142,847 $ 83,378
Receivables (less allowance for doubtful accounts,
2003-$1,952; 2002-$3,414).............................................. 88,583 109,350
Inventories:
Raw materials and supplies............................................. 42,957 43,670
Finished goods and work in process..................................... 116,455 104,581
--------- ----------
Total inventories...................................................... 159,412 148,251
Deferred income taxes and other current assets........................... 23,543 25,121
--------- ----------
Total current assets................................................. 414,385 366,100
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements......................................... 118,457 117,608
Machinery and equipment.................................................. 343,419 336,063
--------- ----------
Total cost............................................................. 461,876 453,671
Less accumulated depreciation............................................ 300,765 287,728
--------- ----------
Property, plant and equipment-net.................................... 161,111 165,943
OTHER ASSETS:
Goodwill (net of accumulated amortization,
2003 and 2002-$15,136)................................................. 75,212 72,212
Other intangible assets.................................................. 435 465
Other noncurrent assets.................................................. 16,573 13,985
--------- ----------
TOTAL.............................................................. $ 667,716 $ 618,705
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................................... $ 41,983 $ 42,988
Accrued liabilities...................................................... 42,940 46,316
--------- ----------
Total current liabilities............................................ 84,923 89,304
OTHER NONCURRENT LIABILITIES................................................ 27,811 15,890
DEFERRED INCOME TAXES....................................................... 7,317 12,234
SHAREHOLDERS' EQUITY:
Preferred stock-authorized 3,050,000 shares;
Outstanding-none
Common stock-authorized 75,000,000 shares;
Outstanding, 2003-35,770,663; 2002-36,598,239.......................... 65,864 61,919
Retained earnings........................................................ 836,928 752,534
Accumulated other comprehensive loss..................................... (9,151) (2,752)
--------- ----------
Total.................................................................. 893,641 811,701
Common stock in treasury, at cost........................................ (345,976) (310,424)
--------- ----------
Total shareholders' equity............................................... 547,665 501,277
--------- ----------
TOTAL.............................................................. $ 667,716 $ 618,705
========= ==========
See accompanying notes to consolidated financial statements.
20
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30
-----------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2001
- --------------------------------------------- ------------ ------------ ------------
NET SALES.............................................. $ 1,106,800 $ 1,129,687 $ 1,092,653
COST OF SALES.......................................... 862,940 876,122 836,932
------------ ------------ ------------
GROSS MARGIN........................................... 243,860 253,565 255,721
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 99,032 119,196 108,047
RESTRUCTURING AND IMPAIRMENT CHARGE.................... 4,885 - -
------------ ------------ ------------
OPERATING INCOME....................................... 139,943 134,369 147,674
OTHER INCOME (EXPENSE):
Interest expense.................................... - (54) (1,239)
Other income-Continued Dumping and Subsidy
Offset Act........................................ 39,177 15,588 -
Interest income and other-net....................... 1,681 (561) (550)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES............................. 180,801 149,342 145,885
TAXES BASED ON INCOME.................................. 68,255 57,402 55,649
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................ 112,546 91,940 90,236
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX BENEFIT OF $619.......................... - - (998)
------------ ------------ ------------
NET INCOME ............................................ $ 112,546 $ 91,940 $ 89,238
============ ============ ============
NET INCOME PER COMMON SHARE:
Before Cumulative Effect of Accounting Change:
Basic and Diluted................................. $3.11 $2.49 $2.40
Cumulative Effect of Accounting Change:
Basic and Diluted................................. - - (.03)
After Cumulative Effect of Accounting Change:
Basic and Diluted................................. $3.11 $2.49 $2.37
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic............................................. 36,184 36,850 37,618
Diluted........................................... 36,243 36,910 37,636
See accompanying notes to consolidated financial statements.
21
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30
-----------------------------------------
(AMOUNTS IN THOUSANDS) 2003 2002 2001
- ---------------------- ---------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 112,546 $ 91,940 $ 89,238
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization........................... 31,669 35,287 35,528
Provision for losses on accounts receivable............. 667 16,405 2,038
Deferred income taxes and other noncash charges......... 2,810 (1,754) (4,255)
Restructuring and impairment charge..................... 3,824 - -
Loss (gain) on sale of property......................... 21 144 (420)
Changes in operating assets and liabilities:
Receivables........................................... 20,100 (17,860) 10,653
Inventories........................................... (11,161) 36,136 (7,232)
Other current assets.................................. 78 329 307
Accounts payable and accrued liabilities.............. (4,569) (302) 355
---------- --------- ----------
Net cash provided by operating activities........... 155,985 160,325 126,212
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on property additions............................ (29,941) (22,546) (22,632)
Acquisitions, net of cash acquired........................ (3,000) (2,250) (49,831)
Proceeds from sale of property............................ 1,550 336 766
Other-net................................................. (5,771) (1,699) (2,839)
---------- --------- ----------
Net cash used in investing activities............... (37,162) (26,159) (74,536)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock................................ (35,552) (28,275) (22,742)
Payment of dividends...................................... (28,152) (26,128) (25,176)
Common stock issued, including stock issued upon
exercise of stock options............................... 4,340 6,265 3,061
Payment of short-term bank loans.......................... - (4,500) (3,750)
Payments on long-term debt, including acquisition
debt payoff............................................. - (3,040) (836)
---------- --------- ----------
Net cash used in financing activities............... (59,364) (55,678) (49,443)
---------- --------- ----------
Effect of exchange rate changes on cash...................... 10 17 (16)
---------- --------- ----------
Net change in cash and equivalents........................... 59,469 78,505 2,217
Cash and equivalents at beginning of year.................... 83,378 4,873 2,656
---------- --------- ----------
Cash and equivalents at end of year.......................... $ 142,847 $ 83,378 $ 4,873
========== ========= ==========
See accompanying notes to consolidated financial statements.
22
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ACCUMULATED
OUTSTANDING OTHER TOTAL
(AMOUNTS IN THOUSANDS, ----------------- RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
EXCEPT PER SHARE DATA) SHARES AMOUNT EARNINGS (LOSS)/INCOME STOCK EQUITY
- ---------------------- ------ -------- --------- ------------- ---------- -------------
BALANCE, JUNE 30, 2000........ 37,962 $ 52,115 $ 622,660 $ 115 $ (259,407) $ 415,483
------ -------- --------- ------- ---------- ---------
Net income.................... 89,238 89,238
Translation adjustment........ (16) (16)
---------
COMPREHENSIVE INCOME.......... 89,222
---------
Cash dividends -
common stock
($0.67 per share).......... (25,176) (25,176)
Purchase of treasury shares... (826) (22,742) (22,742)
Shares issued upon
exercise of stock
options including
related tax benefits....... 117 3,114 3,114
------ -------- --------- ------- ---------- ---------
BALANCE, JUNE 30, 2001........ 37,253 55,229 686,722 99 (282,149) 459,901
------ -------- --------- ------- ---------- ---------
Net income.................... 91,940 91,940
Translation adjustment........ 17 17
Minimum pension
liability, net of
$1,777 tax effect.......... (2,868) (2,868)
---------
COMPREHENSIVE INCOME.......... 89,089
---------
Cash dividends -
common stock
($0.71 per share).......... (26,128) (26,128)
Purchase of treasury shares... (869) (28,275) (28,275)
Shares issued upon
exercise of stock
options including
related tax benefits....... 214 6,690 6,690
------ -------- --------- ------- ---------- ---------
BALANCE, JUNE 30, 2002........ 36,598 61,919 752,534 (2,752) (310,424) 501,277
------ -------- --------- ------- ---------- ---------
Net income.................... 112,546 112,546
Translation adjustment........ 10 10
Minimum pension
liability, net of
$3,862 tax effect.......... (6,409) (6,409)
---------
COMPREHENSIVE INCOME.......... 106,147
---------
Cash dividends -
common stock
($0.78 per share).......... (28,152) (28,152)
Purchase of treasury shares... (948) (35,552) (35,552)
Shares issued upon
exercise of stock
options including
related tax benefits....... 120 3,945 3,945
------ -------- --------- ------- ---------- ---------
BALANCE, JUNE 30, 2003........ 35,770 $ 65,864 $ 836,928 $(9,151) $ (345,976) $ 547,665
====== ======== ========= ======= ========== =========
See accompanying notes to consolidated financial statements.
23
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Lancaster Colony Corporation and our wholly-owned subsidiaries, collectively
referred to as "we," "us," "our," "registrant," or "the Company." All
significant intercompany transactions and accounts have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires that
we make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Significant estimates
included in these consolidated financial statements include allowance for
doubtful accounts receivable, net realizable value of inventories, useful lives
for depreciation and amortization, impairments of long-lived assets, accruals
for marketing and merchandising programs, pension and postretirement
assumptions, as well as expenses related to distribution and self-insurance.
Actual results could differ from those estimates.
CASH EQUIVALENTS
We consider all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. As a result of our cash management
system, checks issued but not presented to the banks for payment may create
negative book cash balances. Such negative balances are included in other
accrued liabilities and totaled $-0- and $4,503,000 as of June 30, 2003 and
2002, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. We use the
straight-line method of computing depreciation for financial reporting purposes
based on the estimated useful lives of the corresponding assets. Estimated
useful lives for buildings and improvements range from two to forty-five years
while machinery and equipment range from two to twenty years. For tax purposes,
we generally compute depreciation using accelerated methods. See Note 14 for
discussion of asset impairment in the current fiscal year.
GOODWILL
In accordance with SFAS No. 142, goodwill is no longer being amortized.
Intangible assets with lives restricted by contractual, legal, or other means
continue to be amortized over their useful lives. Also in accordance with SFAS
No. 142, in April 2003, we completed asset impairment assessments, and such
analysis indicated that there was no impairment. We periodically evaluate the
future economic benefit of the recorded goodwill and other long-lived assets
when events or circumstances indicate potential recoverability concerns. This
evaluation is based on consideration of expected future undiscounted cash flows
and other operating factors. Carrying amounts are adjusted appropriately when
determined to have been impaired. See further discussion and disclosure in Note
4.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which effectively summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
As a result, we adopted a change in the method of accounting for shipments to
customers and cumulatively applied this change as if it had occurred on July 1,
2000. Historically, net sales and related cost of sales were recognized upon
shipment of the products. Under the new accounting method, we recognize net
sales and related cost of sales at the time of shipment of the products, or at
the time when all substantial risks of ownership change, if later. The effect of
the change was a one-time charge of $998,000 (net of tax benefit of $619,000),
or approximately $.03 per share, which is reflected as a cumulative effect of an
accounting change in the fiscal
24
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 income statement. Net sales are recorded net of estimated sales discounts,
returns and certain sales incentives, including coupons and rebates.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
STOCK-BASED EMPLOYEE COMPENSATION PLANS
At June 30, 2003, we had a stock-based compensation plan, which is
described more fully in Note 10. As permitted by SFAS No. 123, as amended by
SFAS No. 148, we have elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for its stock-based compensation. Under APB
Opinion No. 25, because the exercise price of the stock options was at least
equal to the market price of the underlying stock on the date of grant, no
compensation expense was recognized.
The weighted average per share fair value of options granted during
fiscal year 2003 and 2001 was $7.18 and $6.96, respectively.
The fair value of the options presented above was estimated at the date
of grant using the Black-Scholes option pricing model. The following assumptions
were used for options granted in 2003: risk free interest rate of 1.76%;
dividend yield of 2.15%; volatility factor of the expected market price of our
common stock of 33.34%; and a weighted average expected option life of 2.5
years. The assumptions used for options granted in 2001 were: risk free interest
rate of 5.52%; dividend yield of 2.03%; volatility factor of the expected market
price of our common stock of 33.71%; and a weighted average expected option life
of 2.59 years.
Had compensation cost for the Plan been determined based on the fair
value at the grant dates for awards under the Plan consistent with the method of
SFAS No. 123, our net income and earnings per share would have been reduced to
the pro forma amounts indicated below for the years ended June 30:
2003 2002 2001
--------- -------- --------
Net income............................. As reported $ 112,546 $ 91,940 $ 89,238
........................................ Pro forma $ 110,339 $ 91,799 $ 88,434
Earnings per Share:
Basic and Diluted.................... As reported $ 3.11 $ 2.49 $ 2.37
Basic................................ Pro forma $ 3.05 $ 2.49 $ 2.35
Diluted.............................. Pro forma $ 3.04 $ 2.49 $ 2.35
OTHER INCOME
During the second quarter of fiscal 2003, we recognized as income
approximately $39.2 million being distributed by the U.S. Customs Service to us
consistent with the terms of the Continued Dumping and Subsidy Offset Act of
2000. In fiscal 2002, approximately $15.6 million received under this Act was
recognized in the fiscal third quarter. These amounts are recorded as other
income in the accompanying financial statements. See further discussion at Note
13.
PER SHARE INFORMATION
We account for earnings per share under SFAS No. 128. Net income per
common share is computed based on the weighted average number of shares of
common stock and common stock equivalents (stock options) outstanding during
each period.
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the diluted
25
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
weighted average number of common shares outstanding during the period, which
includes the dilutive potential common shares associated with outstanding stock
options. There are no adjustments to net income necessary in the calculation of
basic and diluted earnings per share.
CREDIT RISK
Financial instruments which potentially subject us to concentrations of
credit risk consist primarily of cash equivalents and trade accounts receivable.
The carrying amounts of these financial instruments approximates fair value. We
place our cash equivalents with high-quality institutions and, by policy, limit
the amount of credit exposure to any one institution. Concentration of credit
risk with respect to trade accounts receivable is limited by having a large and
diverse customer base.
BUSINESS SEGMENTS
The business segments information for 2003, 2002 and 2001 is included
in Note 15 of the consolidated financial statements.
COMPREHENSIVE INCOME
Comprehensive income includes changes in equity that result from
transactions and economic events from nonowner sources. Comprehensive income is
composed of two subsets - net income and other comprehensive (loss)/income.
Included in other comprehensive (loss)/income are foreign currency translation
adjustments for which there are no related income tax effects and a minimum
pension liability adjustment which is recorded net of a related tax benefit of
$3,862,000 and $1,777,000 in 2003 and 2002, respectively. These adjustments are
accumulated within the Consolidated Statements of Shareholders' Equity under the
caption Accumulated Other Comprehensive (Loss)/Income. As of June 30, 2003 and
2002, accumulated other comprehensive (loss)/income, as reflected in the
Consolidated Statements of Shareholders' Equity, was comprised of the following:
2003 2002
-------- --------
Cumulative translation adjustments..................................... $ 126 $ 116
Minimum pension liability adjustment................................... (9,277) (2,868)
-------- --------
$ (9,151) $ (2,752)
======== ========
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 provides guidance on the appropriate classification for
and accounting of financial instruments with characteristics of both liabilities
and equity. It requires that financial instruments be classified as a liability
(or an asset in certain circumstances) if they are within the scope of the
statement. The Statement is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
will not have a material impact on our results of operations or our financial
condition.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), to expand upon and
strengthen existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Until now, one company generally has included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that by requiring a variable interest entity,
as defined, to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
is entitled to receive a majority of the entity's residual returns or both.
26
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIN 46 also requires disclosures about variable interest entities that the
company is not required to consolidate but in which it has a significant
variable interest. The provisions of FIN 46 have been adopted and based upon a
review of such provisions it has been determined that there are no variable
interest entities which would require consolidation or disclosure at this time.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation and amends the
disclosure requirements of SFAS No. 123. The transition provisions of this
Statement are effective for fiscal years ending after December 15, 2002, and the
disclosure requirements of the Statement are effective for interim periods
beginning after December 15, 2002. We account for stock-based employee
compensation arrangements in accordance with the provisions of APB No. 25 and
comply with the disclosure provisions of SFAS No. 123 and SFAS No. 148.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a
guarantor to recognize a liability, at the inception of the guarantee, for the
fair value of obligations it has undertaken in issuing the guarantee and also
include more detailed disclosures with respect to guarantees. FIN 45 was
effective for guarantees issued or modified starting January 1, 2003 and
required the additional disclosures beginning with our fiscal second quarter
ended December 31, 2002. The provisions of FIN 45 have been adopted with no
material impact on our results of operations or financial condition. Additional
disclosure has been provided with respect to guarantees in Note 13.
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting. EITF
00-21 will be effective for arrangements entered into after June 30, 2003. The
adoption of EITF 00-21 is not expected to have a material impact on our results
of operation or financial condition.
Effective July 1, 2002, we adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets," which requires goodwill and
indefinite-lived intangible assets to no longer be amortized but reviewed
annually for impairment, or more frequently if impairment indicators arise.
Intangible assets with lives restricted by contractual, legal or other means
will continue to be amortized over their useful lives. We completed our initial
asset impairment assessment as required in adopting SFAS No. 142 and no
impairment was indicated. See additional information at Note 4.
Effective July 1, 2002, we adopted the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets to be held and used, to be disposed of other than by sale, and
to be disposed of by sale. The adoption of this Statement did not have a
material impact on our results of operations or financial condition.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 2002. We did not have
any exit or disposal activities initiated after December 31, 2002, therefore,
there is no current year impact of this statement.
27
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement amends FASB Statement
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions; and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002. The adoption of this Statement
did not have a material impact on our financial position or results of
operations.
NOTE 2 - ACQUISITIONS
During March 2001, we acquired all the outstanding stock of Ausmac
Inc., producer of Mamma Bella brand specialty frozen breads, for cash of
$15,257,000, net of cash acquired. During September 2000, we acquired all of the
outstanding stock of Sister Schubert's Homemade Rolls, Inc. for $32,444,000, net
of cash acquired. Sister Schubert's is a manufacturer and marketer of frozen,
partially baked yeast rolls and related products. We made additional payments of
$3,000,000, $2,250,000 and $2,130,000 in fiscal years 2003, 2002 and 2001,
respectively, as required under the terms of a contingent payment arrangement
associated with the Sister Schubert's acquisition. This contingent payment
arrangement continues through calendar 2003 and is based largely on the future
annual level of Sister Schubert's earnings, as defined in the purchase
agreement.
These acquisitions were accounted for under the purchase method of
accounting and the non-cash aspects have been excluded from the accompanying
Consolidated Statements of Cash Flows. The results of operations of these
entities have been included in the consolidated financial statements from the
dates of acquisition and are immaterial in relation to the consolidated totals.
NOTE 3 - INVENTORIES
Inventories are valued at the lower of cost or market. Inventories
which comprise approximately 11% and 18% of total inventories at June 30, 2003
and 2002, respectively, are costed on a last-in, first-out ("LIFO") basis.
Replacement cost for this inventory would have been higher by approximately
$7,393,000 and $14,494,000 at June 30, 2003 and 2002, respectively. Inventories
which are costed by various other methods approximate actual cost on a first-in,
first-out ("FIFO") basis. During fiscal 2003 and 2002, certain inventory
quantity reductions resulted in a liquidation of LIFO inventory layers carried
at lower costs which prevailed in prior years. The fiscal 2003 and 2002 effect
of the liquidation was an increase in net earnings of approximately $4.4 million
and $2.0 million after taxes, or approximately twelve and five cents per share,
respectively.
It is not practicable to segregate work in process from finished goods
inventories. We estimate, however, that work in process inventories amount to
approximately 10% and 11% of the combined total of finished goods and work in
process inventories at June 30, 2003 and 2002, respectively.
28
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following tables summarize our segment identifiable other
intangible assets as of June 30, 2003 and 2002:
2003 2002
------- -------
Specialty Foods - Trademarks
Gross carrying value...................................................... $ 370 $ 370
Accumulated amortization.................................................. (112) (103)
------- -------
Net Carrying Value........................................................ $ 258 $ 267
======= =======
Glassware and Candles - Customer Lists
Gross carrying value...................................................... $ 250 $ 250
Accumulated amortization.................................................. (73) (52)
------- -------
Net Carrying Value........................................................ $ 177 $ 198
======= =======
Total Net Carrying Value.................................................... $ 435 $ 465
======= =======
Amortization expense relating to these assets was approximately $30,000
in each of the years ended June 30, 2003 and 2002. The amortization expense is
estimated to be approximately $30,000 for each of the next five fiscal years.
Goodwill attributable to the Specialty Foods and Automotive segments is
$74.2 million and $1.0 million, respectively. There were no changes to goodwill
in the current year except that the $74.2 million includes the current year
contingent payment of $3.0 million as further discussed in Note 2.
The following is a reconciliation assuming goodwill and other
intangible assets had been accounted for in accordance with the provisions of
SFAS No. 142 in the years ended June 30:
2003 2002 2001
-------- --------- ---------
Reported Net Income........................................ $112,546 $ 91,940 $ 89,238
Add back amortization of goodwill, net of taxes............ - 2,552 1,974
-------- --------- ---------
Adjusted Net Income........................................ $112,546 $ 94,492 $ 91,212
======== ========= =========
Reported Basic and Diluted Earnings per Share.............. $ 3.11 $ 2.49 $ 2.37
Adjusted Basic and Diluted Earnings per Share.............. $ 3.11 $ 2.56 $ 2.42
NOTE 5 - SHORT-TERM BORROWINGS
We have the ability to borrow up to $125,000,000 under the terms of an
unsecured revolving credit facility. The facility expires in February 2005 and
contains certain representations, warranties, covenants and conditions customary
to credit facilities of this nature. Under terms of the agreement, certain
financial ratios influence the extent of the all-in borrowing costs, including
interest and ongoing facility fees. At June 30, 2003, we were in compliance with
all provisions of the facility and there were no amounts outstanding under the
facility.
As of June 30, 2003, 2002 and 2001, we had lines of credit for
short-term borrowings from various banks of $25,000,000. The lines of credit
have been granted at the discretion of the lending banks and, generally, are
subject to periodic review.
29
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities at June 30, 2003 and 2002 are composed of:
2003 2002
-------- ---------
Accrued compensation and employee benefits.............................. $ 30,033 $ 31,335
Accrued marketing and distribution...................................... 5,475 5,765
Income and other taxes.................................................. 3,074 372
Other................................................................... 4,358 8,844
-------- ---------
Total accrued liabilities............................................... $ 42,940 $ 46,316
======== =========
NOTE 7 - LONG-TERM DEBT
As of June 30, 2003 and 2002, we had no outstanding long-term debt.
No material debt was assumed for the purchase of property additions in
2003, 2002 and 2001. Cash payments for interest (including interest paid on
short-term borrowings) were $-0-, $83,000 and $1,248,000 for 2003, 2002 and
2001, respectively.
NOTE 8 - INCOME TAXES
We and our domestic subsidiaries file a consolidated Federal income tax
return. Taxes based on income for the years ended June 30, 2003, 2002 and 2001,
have been provided as follows:
2003 2002 2001
-------- -------- ---------
Currently payable:
Federal................................................... $ 60,340 $ 52,952 $ 48,646
State and local........................................... 7,832 6,709 6,755
-------- -------- ---------
Total current provision..................................... 68,172 59,661 55,401
Deferred Federal, state and local (credit) provision........ 83 (2,259) (371)
-------- -------- ---------
Total taxes based on income................................. $ 68,255 $ 57,402 $ 55,030
======== ======== =========
Tax expense resulting from allocating certain tax benefits directly to
common stock totaled $395,000, $425,000 and $53,000 for 2003, 2002 and 2001,
respectively. Our effective tax rate varies from the statutory Federal income
tax rate as a result of the following factors:
2003 2002 2001
-------- -------- ---------
Statutory rate.............................................. 35.0% 35.0% 35.0%
State and local income taxes................................ 2.8% 2.9% 3.0%
Other....................................................... 0.0% 0.5% 0.1%
---- ---- ----
Effective rate.............................................. 37.8% 38.4% 38.1%
==== ==== ====
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30
follow:
2003 2002
-------- ---------
Deferred tax assets (liabilities):
Inventories........................................................... $ 7,503 $ 6,784
Employee medical and other benefits................................... 13,615 9,298
Receivable and other valuation allowances............................. 5,583 7,173
Other accrued liabilities............................................. 3,714 3,443
-------- ---------
Total deferred tax assets............................................... 30,415 26,698
-------- ---------
Total deferred tax liabilities - property and other..................... (17,232) (16,932)
-------- ---------
Net deferred tax asset.................................................. $ 13,183 $ 9,766
======== =========
30
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net current deferred tax assets totaled approximately $20,500,000 and
$22,000,000 for 2003 and 2002, respectively, and were included in deferred
income taxes and other current assets. Cash payments for income taxes were
approximately $64,428,000, $60,997,000 and $54,008,000 for 2003, 2002 and 2001,
respectively.
NOTE 9 - SHAREHOLDERS' EQUITY
We are authorized to issue 3,050,000 shares of preferred stock
consisting of 750,000 shares of Class A Participating Preferred Stock with $1.00
par value, 1,150,000 shares of Class B Voting Preferred Stock without par value
and 1,150,000 shares of Class C Nonvoting Preferred Stock without par value.
As authorized by the Board of Directors in February 2000, each share of
our outstanding common stock includes a nondetachable stock purchase right that
provides, upon becoming exercisable, for the purchase of one-hundredth of a
share of Series A Participating Preferred Shares at an exercise price of $185,
subject to certain adjustments. Alternatively, once exercisable, each right will
also entitle the holder to buy shares of common stock having a market value of
twice the exercise price. The rights may be exercised on or after the time when
a person or group of persons without the approval of the Board of Directors
acquire beneficial ownership of 15 percent or more of common stock or announce
the initiation of a tender or exchange offer which, if successful, would cause
such person or group to beneficially own 30 percent or more of the common stock.
The person or group effecting such 15 percent acquisition or undertaking such
tender offer will not be entitled to exercise any rights. If we are acquired in
a merger or other business combination, each right will entitle the holder,
other than the acquiring person, to purchase securities of the surviving company
having a market value equal to twice the exercise price of the rights. Until the
rights become exercisable, they may be redeemed by us at a price of one cent per
right. These rights expire in April 2010 unless earlier redeemed by us under
circumstances permitted by the Rights Agreement.
In May 2000, the Board of Directors approved a share repurchase
authorization of 3,000,000 shares of which approximately 783,000 remained
authorized for future purchase as of June 30, 2003.
NOTE 10 - STOCK OPTIONS
Under the terms of the 1995 Key Employee Stock Option Plan ("Plan")
approved by the shareholders in November 1995, we have reserved 3,000,000 common
shares for issuance to qualified key employees. All options granted under the
Plan are exercisable at prices not less than fair market value as of the date of
grant. At June 30, 2003, 1,884,834 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.
The following summarizes for each of the three years in the period
ended June 30, 2003 the activity relating to stock options granted under the
1995 Plan mentioned above as well as those granted under a separate shareholder
approved plan that expired in May 1995:
2003 2002 2001
------------------- ------------------ ------------------
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number Average Number Average
OF EXERCISE of Exercise of Exercise
SHARES PRICE Shares Price Shares Price
--------- -------- -------- -------- -------- --------
Outstanding at beginning of period... 262,979 $28.42 478,330 $28.80 380,946 $26.98
Exercised.......................... (120,424) 29.34 (214,223) 29.25 (117,178) 26.12
Granted............................ 359,800 37.26 - - 370,250 29.52
Forfeited.......................... (5,414) 34.73 (1,128) 29.92 (155,688) 28.08
--------- ------ -------- ------ -------- ------
Outstanding at end of the period..... 496,941 $34.53 262,979 $28.42 478,330 $28.80
========= ====== ======== ====== ======== ======
Exercisable at end of period......... 466,197 $34.81 224,547 $28.93 417,569 $29.29
========= ====== ======== ====== ======== ======
31
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information about the options
outstanding at June 30, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------- -----------------------------
WEIGHTED AVERAGE
-----------------------
REMAINING
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER WEIGHTED AVERAGE
GRANT YEARS EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISE PRICE
- ----------- --------------- ----------- ------------- -------- ----------- ----------------
1995 $22.25 17,988 1.59 $22.25 9,000 $22.25
1999 $27.13 26,628 1.41 $27.13 24,744 $27.13
2001 $29.50-$32.45 106,175 2.85 $29.57 98,461 $29.57
2003 $37.23-$40.95 346,150 4.76 $37.26 333,992 $37.26
NOTE 11 - PENSION AND OTHER POSTRETIREMENT BENEFITS
We and certain of our operating subsidiaries provide multiple defined
benefit pension and postretirement medical and life insurance benefit plans.
Benefits under the defined benefit pension plans are primarily based on
negotiated rates and years of service and cover the union workers at such
locations. We contribute to these pension plans at least the minimum amount
required by regulation or contract. We recognize the cost of pension plans and
postretirement medical and life insurance benefits as the employees render
service. Postretirement benefits are funded as incurred.
Relevant information with respect to these defined benefit pension and
postretirement medical and life insurance benefits as of June 30, can be
summarized as follows:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year......... $ 32,609 $ 29,405 $ 3,418 $ 2,646
Service cost.................................... 625 630 176 122
Interest cost................................... 2,324 2,124 227 182
Amendments...................................... 854 114 - -
Actuarial loss.................................. 7,871 2,536 985 712
Benefits paid................................... (2,047) (2,200) (471) (244)
-------- -------- -------- --------
Benefit obligation at end of year............... $ 42,236 $ 32,609 $ 4,335 $ 3,418
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.. $ 29,568 $ 32,133 $ - $ -
Actual return on plan assets.................... 223 (1,073) - -
Employer contributions.......................... 3,236 708 471 244
Benefits paid................................... (2,047) (2,200) (471) (244)
-------- -------- -------- --------
Fair value of plan assets at end of year........ $ 30,980 $ 29,568 $ - $ -
-------- -------- -------- --------
RECONCILIATION OF FUNDED STATUS
Under funded status...................... $(11,256) $ (3,041) $ (4,335) $ (3,418)
Unrecognized net actuarial loss (gain).......... 14,916 4,854 957 (28)
Unrecognized prior service cost (asset)......... 2,897 2,988 (90) (97)
Unrecognized net transition obligation.......... 126 83 - -
-------- -------- -------- --------
Prepaid (accrued) benefit cost.................. $ 6,683 $ 4,884 $ (3,468) $ (3,543)
======== ======== ======== ========
32
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS CONSIST OF
Prepaid benefit cost(1)......................... $ 6,683 $ 4,884 $ - $ -
Accrued benefit liability(2).................... (17,939) (7,306) (3,468) (3,543)
Intangible asset(1)............................. 3,023 2,661 - -
Accumulated other comprehensive loss............ 14,916 4,645 - -
-------- -------- -------- --------
Net amount recognized........................... $ 6,683 $ 4,884 $ (3,468) $ (3,543)
======== ======== ======== ========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
Discount rate................................... 5.75% 6.95% 5.75% 6.95%
Expected return on plan assets.................. 9.00% 9.00%
- -----------------------
(1) Recorded in other noncurrent assets
(2) Recorded in other noncurrent liabilities
FASB 87 "Employers' Accounting for Pensions," requires recognition in
the balance sheet of an additional minimum liability for pension plans with
accumulated benefit obligation in excess of plan assets. At June 30, 2003, the
accumulated benefit obligation exceeded the plan assets resulting in the
recognition of an additional minimum pension liability of $10,633,000, an
intangible asset of $362,000 and a charge to shareholders' equity, net of tax
benefit, of $6,409,000. At June 30, 2002, the accumulated benefit obligation
exceeded the plan assets resulting in the recognition of an additional minimum
pension liability of $7,306,000, an intangible asset of $2,661,000 and a charge
to shareholders' equity, net of tax benefit, of $2,868,000.
For measurement purposes, annual increases in medical costs for fiscal
2003 are assumed to total approximately 9% per year and gradually decline to
5% by approximately the year 2011 and remain level thereafter. Annual increases
in medical costs for fiscal 2002 were assumed to total approximately 8% per year
and gradually decline to 5% by approximately the year 2008 and remain level
thereafter.
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------- -----------------------
2003 2002 2001 2003 2002 2001
------- ------- ------- ----- ------ ------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................... $ 625 $ 630 $ 610 $ 176 $ 122 $ 128
Interest cost.................................. 2,324 2,124 2,009 227 182 193
Expected return on plan assets................. (2,564) (2,794) (2,871) - - -
Amortization of unrecognized
net loss (gain).............................. 125 8 (54) - (34) (31)
Amortization of prior service cost (asset)..... 267 240 240 (7) (7) -
Change in prior service cost due to
curtailment.................................. 678 - - - - -
Amortization of unrecognized net(asset)
obligation existing at transition............ (19) 31 31 - - -
------- ------- ------- ----- ------ ------
Net periodic benefit cost (benefit)............ $ 1,436 $ 239 $ (35) $ 396 $ 263 $ 290
======= ======= ======= ===== ====== ======
The majority of the pension plan assets are invested in bonds, short-term
investments and common stock including shares of our common stock with a market
value of $2,670,000 and $3,620,000 as of June 30, 2003 and 2002, respectively.
33
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Assumed health care cost rates can have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effect:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
Effect on total of service and interest cost components................ $ 39 $ (33)
Effect on postretirement benefit obligation as of June 30, 2003........ $ 347 $ (299)
Certain of our subsidiaries also participate in multiemployer plans
that provide pension and postretirement health and welfare benefits to the union
workers at such locations. The contributions required by our participation in
the multiemployer plans totaled $3,674,000, $3,423,000 and $3,277,000 in 2003,
2002 and 2001, respectively.
During fiscal 1998, we adopted the Lancaster Colony Corporation 401(k)
Profit Sharing Plan and Trust ("401(k) Plan"). In general, the 401(k) Plan
extends participation to all domestic employees, except those covered by a
collective bargaining agreement. Our contribution is 40% of the participant's
contribution up to a maximum of 4% of the participant's annual compensation and
is funded annually at the end of the 401(k) Plan year, December 31. The funds
are invested in mutual funds with the exception of our contribution which is
invested in our common stock. Our 401(k) Plan contributions totaled
approximately $914,000, $896,000 and $815,000 for the years ended June 30, 2003,
2002 and 2001, respectively.
We also sponsor an Employee Stock Ownership Plan ("ESOP"). Effective
January 1, 1998, the ESOP was frozen and all benefit accruals under and further
contributions to the ESOP ceased. All participants in the ESOP at that time were
immediately 100% vested. We have no further obligation to the ESOP.
NOTE 12 - COMMITMENTS
We have operating leases with initial noncancelable lease terms in
excess of one year, covering the rental of various facilities and equipment,
which expire at various dates through fiscal 2011. 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):
2004 - $4,310; 2005 - $2,982; 2006 - $1,715; 2007 - $1,020; 2008 - $626;
thereafter - $1,135.
Total rent expense, including short-term cancelable leases, during
fiscal years ended June 30, 2003, 2002 and 2001 is summarized as follows:
2003 2002 2001
------ ------ ------
Operating leases:
Minimum rentals............................................... $5,126 $5,130 $ 4,866
Contingent rentals............................................ 360 392 340
Short-term cancelable leases.................................... 2,786 2,706 3,256
------ ------ -------
Total....................................................... $8,272 $8,228 $ 8,462
====== ====== =======
NOTE 13 - CONTINGENCIES AND ENVIRONMENTAL MATTERS
At June 30, 2003, we are 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 our opinion, their ultimate disposition will not have a material adverse
effect on our consolidated financial statements.
34
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During the second quarter of fiscal 2003, we recognized as income
approximately $39.2 million being distributed by the U.S. Customs Service to us
consistent with the terms of the Continued Dumping and Subsidy Offset Act of
2000 ("CDSOA"). In fiscal 2002, approximately $15.6 million received under this
Act was recognized in the fiscal third quarter. These amounts are recorded as
other income in the accompanying financial statements. The CDSOA, which applies
to our candle operations, is in its second year of effectiveness and is intended
to redress unfair dumping of imported products through cash payments to eligible
affected companies. Payments to be received in future years under CDSOA are
subject to many variables outside of our control and, accordingly, the related
amounts, if any, are not subject to reasonable estimation at the present time.
We are aware that other candle manufacturers have initiated certain legal
proceedings against the Customs Service and claimed a right to share in the
total proceeds payable to candle manufacturers pursuant to the provisions of
CDSOA. To date, one such case was decided by the trial court in favor of the
Customs Service in April 2003. The trial court ruling has since been appealed by
the plaintiff to the applicable Federal Appeals Court. If the Customs Service is
ultimately unable to prevail in these matters, it might become asserted that the
payments we have received should be reduced by an undetermined amount through
either smaller future distributions or refunds to the Customs Service.
Certain of our automotive accessory products carry explicit limited
warranties that extend from 12 months to the life of the product, based on terms
that are generally accepted in the marketplace. Our policy is to record a
provision for the expected cost of the warranty-related claims at the time of
the sale, and periodically adjust the provision to reflect actual experience.
The amount of warranty liability accrued reflects our best estimate of the
expected future cost of honoring obligations under the warranty plans. The
warranty accrual as of June 30, 2003 and 2002 is immaterial to our financial
condition, and the change in the accrual for the current year of fiscal 2003 is
immaterial to our results of operations and cash flows.
NOTE 14 - RESTRUCTURING AND IMPAIRMENT CHARGE
On November 1, 2002, we announced the restructuring and consolidation
of our glass manufacturing facility located in Dunkirk, Indiana into our
facility located in Sapulpa, Oklahoma. The Sapulpa plant gained pressed
glassware manufacturing in addition to its blown glassware capabilities, while
warehousing and certain other ancillary functions continue to be performed at
the Dunkirk facility. This action was deemed necessary due to a combination of
weaker demand for pressed glassware, import competition and the existence of
excess plant capacity and is expected to improve capacity utilization over time.
As a result of this plan, during the year ended June 30, 2003, we
recognized a pretax charge of approximately $4.9 million, consisting of employee
separation costs (relating to approximately 250 hourly and salary employees),
pension curtailment costs, closure and cleanup costs and the write-down of
property, plant and equipment having no future utility as a result of the
restructuring decision. The accounting for this restructuring is in accordance
with Emerging Issues Task Force No. 94-3. In accordance with this guidance, the
restructuring provision was determined based on estimates prepared at the time
we approved the restructuring actions. An analysis of our restructuring activity
and related liability is as follows:
EMPLOYEE
SEPARATION ASSET OTHER
COSTS WRITE-OFFS CHARGES TOTAL
---------- ---------- ------- -------
Restructuring Provision
Employee separation costs.......................... $ 1,063 $ - $ - $ 1,063
Property and equipment impairment.................. - 2,943 - 2,943
Pension curtailment................................ - - 678 678
Closing and cleanup costs.......................... - - 201 201
------- ------- ------ -------
Total Provision.................................. 1,063 2,943 879 4,885
Cash Paid............................................ (974) - (87) (1,061)
Non-Cash Charges..................................... - (2,943) (678) (3,621)
------- ------- ------ -------
Accrual Balance at June 30, 2003
(included in accrued liabilities).................. $ 89 $ - $ 114 $ 203
======= ======= ====== =======
35
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
We anticipate that the remaining cash-related charges will be paid by
the end of the third quarter of fiscal 2004. Although pressed glassware
manufacturing commenced during the third quarter of fiscal 2003 at the Sapulpa
facility, we incurred some amount of transitional costs over the balance of the
fiscal year. Accordingly, the benefits of this restructuring will not become
fully evident until the fiscal year beginning July 1, 2003.
NOTE 15 - BUSINESS SEGMENTS INFORMATION
We have evaluated our operations in accordance with SFAS No. 131 and
have determined that the business is separated into three distinct operating and
reportable product categories: "Specialty Foods," "Glassware and Candles" and
"Automotive."
SPECIALTY FOODS - includes the production and marketing of a family of
pourable and refrigerated produce salad dressings, croutons, sauces,
refrigerated produce vegetable and fruit dips, chip dips, dry and frozen egg
noodles, caviar, frozen ready-to-bake pies, frozen hearth-baked breads, and
frozen yeast rolls. Salad dressings, sauces, croutons, frozen egg noodles,
frozen bread products and frozen yeast rolls are sold to both retail and
foodservice markets. The remaining products of this business segment are
primarily directed to retail markets.
GLASSWARE AND CANDLES - includes the production and marketing of table
and giftware consisting of domestic glassware, both machine pressed and machine
blown; imported glassware; candles in a variety of popular sizes, shapes and
scents; potpourri and related scented products; industrial glass and lighting
components; and glass floral containers. This segment's products are sold
primarily to retail markets such as mass merchandisers and food and drug stores.
AUTOMOTIVE - includes the production and marketing for original
equipment manufacturers, importers and the auto aftermarket of rubber, vinyl and
carpet-on-rubber floor mats; truck and trailer splash guards; pickup truck bed
mats; aluminum accessories for pickup trucks and vans; and a broad line of
additional automotive accessories.
Operating income represents net sales less operating expenses related
to the business segments. Expenses of a general corporate nature have not been
allocated to the business segments. All intercompany transactions have been
eliminated, and intersegment revenues are not significant. Identifiable assets
for each segment include those assets used in its operations and intangible
assets allocated to purchased businesses. Corporate assets consist principally
of cash, cash equivalents and deferred income taxes.
The 2001 capital expenditures of the Specialty Foods segment include
property relating to a business acquisition of $7,814,000.
The following sets forth certain financial information attributable to
our business segments for the three years ended June 30, 2003, 2002 and 2001:
2003 2002 2001
------------- ------------ ------------
NET SALES(1)
Specialty Foods............................... $ 609,994 $ 579,940 $ 517,714
Glassware and Candles......................... 251,437 314,591 336,291
Automotive.................................... 245,369 235,156 238,648
------------- ------------ ------------
Total..................................... $ 1,106,800 $ 1,129,687 $ 1,092,653
============= ============ ============
OPERATING INCOME
Specialty Foods............................... $ 116,068 $ 113,710 $ 105,656
Glassware and Candles......................... 12,432 10,547 47,154
Automotive.................................... 17,351 15,489 673
Corporate Expenses............................ (5,908) (5,377) (5,809)
------------- ------------ ------------
Total..................................... $ 139,943 $ 134,369 $ 147,674
============= ============ ============
36
\
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 2001
------------- ------------ ------------
IDENTIFIABLE ASSETS(1)
Specialty Foods............................... $ 194,254 $ 182,819 $ 187,249
Glassware and Candles......................... 205,651 224,819 255,860
Automotive.................................... 103,685 104,872 110,650
Corporate..................................... 164,126 106,195 22,593
------------- ------------ ------------
Total..................................... $ 667,716 $ 618,705 $ 576,352
============= ============ ============
CAPITAL EXPENDITURES
Specialty Foods............................... $ 14,355 $ 4,513 $ 13,451
Glassware and Candles......................... 7,587 13,881 12,363
Automotive.................................... 7,910 4,138 4,502
Corporate..................................... 89 14 130
------------- ------------ ------------
Total..................................... $ 29,941 $ 22,546 $ 30,446
============= ============ ============
DEPRECIATION AND AMORTIZATION(2)
Specialty Foods............................... $ 8,227 $ 10,567 $ 9,698
Glassware and Candles......................... 15,756 16,201 16,432
Automotive.................................... 7,539 8,299 9,207
Corporate..................................... 147 220 191
------------- ------------ ------------
Total..................................... $ 31,669 $ 35,287 $ 35,528
============= ============ ============
- --------------------
(1) Net sales and long-lived assets are predominantly domestic.
(2) Includes goodwill and other amortization of approximately $2.8 million
for 2002 and approximately $2.2 million for 2001, recorded under the
caption "Interest income and other - net" in the accompanying
Consolidated Statements of Income.
Combined net sales from the three segments to one customer totaled
approximately $137,000,000 or 12% of consolidated fiscal 2003 net sales;
$143,000,000 or 13% of consolidated fiscal 2002 net sales and $125,000,000 or
11% of consolidated net sales in fiscal 2001.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
DILUTED
NET GROSS NET EARNINGS
SALES MARGIN INCOME PER SHARE
----------- ---------- --------- ---------
2003
FIRST QUARTER.......................... $ 275,821 $ 57,686 $ 20,556 $ .56
SECOND QUARTER(1)...................... 307,669 74,232 51,979 1.43
THIRD QUARTER(2)....................... 259,535 53,573 18,047 .50
FOURTH QUARTER(3)...................... 263,775 58,369 21,964 .61
----------- ---------- --------- ------
YEAR(4)........................... $ 1,106,800 $ 243,860 $ 112,546 $ 3.11
=========== ========== ========= ======
2002
First quarter.......................... $ 264,929 $ 59,317 $ 20,341 $ .55
Second quarter(5)...................... 311,873 70,353 17,423 .47
Third quarter(6)....................... 270,912 57,524 28,807 .78
Fourth quarter(7)...................... 281,973 66,371 25,369 .69
----------- ---------- --------- ------
Year.............................. $ 1,129,687 $ 253,565 $ 91,940 $ 2.49
=========== ========== ========= ======
37
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------
(1) Included in the second quarter's earnings are a) a restructuring charge
of approximately $3.0 million, net of taxes, or approximately $.08 per
share related to the restructuring of some of our glass manufacturing
facilities, b) income of approximately $1.7 million, after taxes, or
approximately $.05 per share related to the liquidation of certain LIFO
inventories carried at prior years' lower costs and c) income of
approximately $24.5 million, net of taxes, or approximately $.67 per
share related to funds received under the Continued Dumping and Subsidy
Offset Act of 2000.
(2) Included in the third quarter's earnings is income of approximately
$1.5 million, net of taxes, or approximately $.04 per share related to
the liquidation of certain LIFO inventories carried at prior years'
lower costs.
(3) Included in the fourth quarter's earnings is income of approximately
$1.2 million, net of taxes, or approximately $.03 per share related to
the liquidation of certain LIFO inventories carried at prior years'
lower costs.
(4) Quarterly diluted earnings per share for 2003 do not add to $3.11 due
to rounding.
(5) Included in the second quarter's earnings is a provision for bad debt
of approximately $8.8 million, net of taxes, or approximately $.24 per
share related to the bankruptcy filing of Kmart Corporation in January
2002.
(6) Included in the third quarter's earnings is income of approximately
$9.6 million, net of taxes, or approximately $.26 per share related to
funds received in February 2002 under the Continued Dumping and Subsidy
Offset Act of 2000.
(7) Included in the fourth quarter's earnings is income of approximately
$1.8 million, net of taxes, or approximately $.05 per share related to
the liquidation of certain LIFO inventories carried at prior years'
lower costs.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. As of the end of
the period covered by this Annual Report on Form 10-K, our Chief Executive
Officer and Chief Financial Officer evaluated, with the participation of
management, the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")). Based upon this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
No changes were made to our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during our most recent fiscal quarter that have materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned "Nomination and Election of Directors," "Executive
Compensation," "Security Ownership of Certain Beneficial Owners and Management"
and "Other Transactions" in the Registrant's Definitive Proxy Statement for the
2003 Annual Meeting of Shareholders to be held November 17, 2003 and to the
"Supplementary Item" in Part I of this Annual Report on Form 10-K captioned
"Executive Officers of the Registrant."
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Not applicable
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following consolidated financial
statements as of June 30, 2003 and 2002 and for each of the three years in the
period ended June 30, 2003 together with the report thereon of Deloitte & Touche
LLP dated August 19, 2003 are included in Item 8 of this report:
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 2003 and 2002
Consolidated Statements of Income for the years ended June 30, 2003,
2002 and 2001
Consolidated Statements of Cash Flows for the years ended June 30,
2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules Required by Items 8 and 15(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
included in Item 8 of this report:
Schedule II - Valuation and Qualifying Accounts.
Supplemental schedules not included with the additional financial data
have been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
(a)(3) Exhibits Required by Item 601 of Regulation S-K and Item 15(c).
See Index to Exhibits following "Schedule II - Valuation and Qualifying
Accounts."
39
(b) Reports on Form 8-K. A report, dated May 1, 2003, on Form 8-K was
filed with the SEC on May 1, 2003, pursuant to Items 7 and 9, announcing the
financial results for the three and nine months ended March 31, 2003.
A report, dated June 4, 2003, on Form 8-K was filed with the SEC on
June 4, 2003, pursuant to Items 5 and 7, announcing a change in food group
executives.
40
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 25th day of
September, 2003.
LANCASTER COLONY CORPORATION (REGISTRANT)
By:/s/JOHN B. GERLACH, JR.
----------------------------------------
John B. Gerlach, Jr.
Chairman, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/JOHN B. GERLACH, JR. Chairman, September 23, 2003
- ------------------------- Chief Executive Officer,
John B. Gerlach, Jr. President and Director
/s/JOHN L. BOYLAN Treasurer, Vice President, September 23, 2003
- ------------------------- Assistant Secretary,
John L. Boylan Chief Financial Officer
(Principal Financial and
Accounting Officer)
and Director
/s/KERRII B. ANDERSON Director September 23, 2003
- -------------------------
Kerrii B. Anderson
/s/ROBERT L. FOX Director September 14, 2003
- -------------------------
Robert L. Fox
/s/MORRIS S. HALPERN Director September 23, 2003
- -------------------------
Morris S. Halpern
/s/ROBERT S. HAMILTON Director September 15, 2003
- -------------------------
Robert S. Hamilton
/s/EDWARD H. JENNINGS Director September 14, 2003
- -------------------------
Edward H. Jennings
/s/HENRY M. O'NEILL, JR. Director September 23, 2003
- -------------------------
Henry M. O'Neill, Jr.
/s/ZUHEIR SOFIA Director September 16, 2003
- -------------------------
Zuheir Sofia
41
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 2003
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(A) OF YEAR
----------- ---------- ---------- ------------- ---------
Reserves deducted from asset to which they
apply - Allowance for doubtful accounts
(amounts in thousands):
Year ended June 30, 2001 .............. $ 2,395 $ 2,038 $ 1,266 $ 3,167
========= ========= ========= =========
Year ended June 30, 2002 .............. $ 3,167 $ 16,405(B) $ 16,158(B) $ 3,414
========= ========= ========= =========
Year ended June 30, 2003 .............. $ 3,414 $ 667 $ 2,129 $ 1,952
========= ========= ========= =========
NOTES:
(A) Represents uncollectible accounts written off net of recoveries.
(B) Included in fiscal 2002 is a provision and write-off for bad debt of
approximately $14.3 million related to the bankruptcy filing of Kmart
Corporation in January 2002.
42
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FORM 10-K
JUNE 30, 2003
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATED AT
- -------- ----------- ----------
3.1 Certificate of Incorporation of the registrant approved by
the shareholders November 18, 1991........................................... (i)
.2 Certificate of Amendment to the Articles of Incorporation approved by
the shareholders November 16, 1992........................................... (i)
.3 Certificate of Amendment to the Articles of Incorporation approved by
the shareholders November 17, 1997........................................... (i)
.4 By-laws of the registrant as amended through November 18, 1991............... (a)
.5 Certificate of Designation, Rights and Preferences of the Series A
Participating Preferred Stock of Lancaster Colony Corporation................ (b)
4.1 Specimen Certificate of Common Stock......................................... (l)
.2 Rights Agreement dated as of April 20, 2000 between Lancaster
Colony Corporation and The Huntington Trust Company, N.A..................... (k)
.3 Credit Agreement dated as of February 13, 2001 among Lancaster
Colony Corporation, The Lenders and Bank One, NA, as Agent................... (m)
.4 First Amendment to Credit Agreement dated as of June 24, 2003 among
Lancaster Colony Corporation, the Lenders and Bank One, NA as Agent.......... Filed herewith
10.1 1981 Incentive Stock Option Plan............................................. (c)
.2 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 21, 1983............. (d)
.3 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 18, 1985............. (e)
.4 Resolution by the Board of Directors to amend registrant's 1981 Incentive
Stock Option Plan approved by the shareholders November 19, 1990............. (f)
.5 Key Employee Severance Agreement between Lancaster Colony
Corporation and John L. Boylan............................................... (f)
.6 Consulting Agreement by and between Lancaster Colony
Corporation and Morris S. Halpern............................................ (g)
.7 1995 Key Employee Stock Option Plan.......................................... (h)
.8 Key Employee Severance Agreement between Lancaster Colony
Corporation and Bruce L. Rosa................................................ (j)
.9 Lancaster Colony Corporation Executive Employee Deferred
Compensation Plan............................................................ (l)
21. Significant Subsidiaries of Registrant....................................... Filed herewith
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 19, 2003, appearing in and incorporated
by reference in this Annual Report on Form 10-K of Lancaster Colony
Corporation for the year ended June 30, 2003................................. Filed herewith
31.1 Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002..... Filed herewith
31.2 Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002..... Filed herewith
32. Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley
Act of 2002.................................................................. Filed herewith
43
- ---------------------
(a) Indicates the exhibit is incorporated by reference from filing as an
annex to the Proxy Statement of Lancaster Colony Corporation for the
Annual Meeting of Shareholders held November 18, 1991.
(b) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 10-Q for the
quarter ended March 31, 1990.
(c) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 10-K for the
year ended June 30, 1982.
(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, 1984.
(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, 1985.
(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, 1991.
(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, 1993.
(h) 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).
(i) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 10-K for the
year ended June 30, 1998.
(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, 1999.
(k) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 8-A filed
April 20, 2000.
(l) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 10-K for the
year ended June 30, 2000.
(m) Indicates the exhibit is incorporated by reference from filing as an
exhibit to the Lancaster Colony Corporation report on Form 10-Q for the
quarter ended March 31, 2001.
44