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