<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
COMMISSION FILE NUMBER 0-4065-1
LANCASTER COLONY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 13-1955943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 WEST BROAD STREET, COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
614-224-7141
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
COMMON STOCK--NO PAR VALUE PER SHARE
(INCLUDING SERIES A PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The aggregate market value of Common Stock held by non-affiliates on
September 1, 1998 was approximately $988,504,000.
As of September 1, 1998, there were approximately 42,536,000 shares of
Common Stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference to
this annual report: Registrant's 1998 Annual Report to Shareholders - Parts I,
II and IV. Proxy Statement for the Annual Meeting of Shareholders to be held
November 16, 1998; to be filed - Part III. The 1998 Annual Report to
Shareholders and 1998 Proxy Statement shall be deemed to have been "filed" only
to the extent portions thereof are expressly incorporated by reference.
EXHIBIT INDEX ON PAGE 12.
- 1 -
<PAGE> 2
PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Lancaster Colony Corporation was reincorporated in Ohio effective
January 2, 1992. Prior to this date Lancaster Colony Corporation had been a
Delaware Corporation organized in 1961. As used herein the term "registrant,"
unless the context otherwise requires, refers to Lancaster Colony Corporation
and its subsidiaries.
DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
The registrant operates in three business segments - specialty foods,
glassware and candles and automotive - which accounted for approximately 41%,
36% and 23%, respectively, of consolidated net sales for the fiscal year ended
June 30, 1998. The financial information relating to business segments for each
of the three years in the period ended June 30, 1998, appearing in Exhibit 13 in
this Form 10-K Annual Report, is incorporated herein by reference. Further
description of each business segment the registrant operates within is provided
below:
SPECIALTY FOODS
The food products manufactured and sold by the registrant include salad
dressings and sauces marketed under the brand names "Marzetti," "Cardini's,"
"Pfeiffer" and "Girard's"; fruit glazes, veggie dips and fruit dips marketed
under the brand name "Marzetti", frozen unbaked pies principally marketed under
the brand name "Mountain Top"; hearth-baked frozen breads marketed under the
brand name "New York Frozen Foods"; refrigerated chip dips and dairy desserts
marketed under the brand names "Allen" and "Marzetti"; premium dry egg noodles
marketed under the brand names "Inn Maid" and "Amish Kitchen"; frozen specialty
noodles, pastas, and breaded specialty items marketed under the brand name
"Reames"; croutons and related products marketed under the brand name "Chatham
Village Foods" and caviar marketed under the brand name "Romanoff."
The salad dressings and sauces are manufactured in Columbus, Ohio;
Wilson, New York; Atlanta, Georgia and Milpitas, California. The dressings,
sauces, croutons, veggie dips and fruit dips are sold in various metropolitan
areas in the United States with sales being made to retail and/or foodservice
markets.
The frozen unbaked pies are marketed principally in the Midwestern
United States through salesmen and food brokers to institutional distributors
and retail outlets. A portion of the frozen bread sales is directed to the
foodservice market.
The dry egg noodles and refrigerated chip dips and dairy desserts are
sold through food brokers and distributors to retail markets principally in the
Midwestern United States.
The "Reames" line is sold through brokers and distributors in various
metropolitan areas principally in the central and Midwestern United States.
This segment is not dependent upon a single customer or a few
customers, the loss of any one or more of which would have a significant adverse
effect on operating results. Although the Company is a leading producer of salad
dressings, all of the markets in which the registrant sells food products are
highly competitive in the areas of price, quality and customer service.
During fiscal year 1998, the registrant obtained adequate supplies of raw
materials for this segment.
- 2 -
<PAGE> 3
The registrant's firm order backlog at June 30, 1998, in this business
segment, was approximately $4,195,000 as compared to a backlog of approximately
$4,261,000 as of the end of the preceding fiscal year. It is expected that all
of these orders will be filled during the current fiscal year. The operations of
this segment are not affected to any material extent by seasonal fluctuations.
The registrant does not utilize any franchises or concessions in this business
segment. The trade names under which it operates are significant to the overall
success of this segment. However, the patents and licenses under which it
operates are not essential to the overall success of this segment.
GLASSWARE AND CANDLES
Candles and other home fragrance products of all sizes, forms and
fragrance are primarily sold in the mass merchandise markets as well as to
supermarkets, drug stores and specialty shops under the name "Candle-lite." A
portion of the registrant's candle business is marketed under private label.
Glass products include a broad range of machine pressed and machine
blown consumer glassware and technical glass products such as cathode ray tubes,
lighting components, lenses and silvered reflectors.
Consumer glassware includes a diverse line of decorative and ornamental
products such as tumblers, bowls, pitchers, jars and barware. These products are
marketed under a variety of trademarks, the most important of which are "Indiana
Glass," "Tiara," "Colony" and "Fostoria." The registrant also purchases domestic
and imported blown glassware which is sold under the trade name Colony; and some
domestic handcrafted ware sold through its Tiara home party marketing plan.
Glass vases and containers are sold both in the retail and wholesale
florist markets under the trade name "Brody" as well as under private label.
The registrant's glass products are sold to discount, department,
variety and drug stores, as well as to jobbers and directly to retail customers.
Commercial markets such as foodservice, hotels, hospitals and schools are also
served by this segment's products. Although minor, rubber matting sales to
commercial markets are also included in this segment. All the markets in which
the registrant sells houseware products are highly competitive in the areas of
design, price, quality and customer service. Sales of glassware and candles to
one customer accounted for approximately 21% and 15% of this segment's total net
sales during 1998 and 1997, respectively. No other customer accounted for more
than 10% of this segment's total net sales.
During fiscal year 1998, the registrant obtained adequate supplies of
raw materials for this business segment.
The registrant's firm order backlog at June 30, 1998, in this business
segment, was approximately $33,327,000 as compared to approximately $44,599,000
as of the end of the preceding fiscal year. It is expected that all of these
orders will be filled during the current fiscal year. Seasonal retail stocking
patterns cause certain of this segment's products to experience increased sales
in the first half of the fiscal year. The registrant does not use any franchises
or concessions in this segment. The patents under which it operates are not
essential to the overall success of this segment. However, certain trademarks
and licenses are important to this segment's marketing efforts.
AUTOMOTIVE
The registrant manufactures and sells a complete line of rubber, vinyl
and carpeted car mats both in the aftermarket and to original equipment
manufacturers. Other products are pickup truck bed mats, running boards, bed
liners, tool boxes and other accessories for pickup trucks, vans and sport
utility vehicles, truck and trailer splash guards and quarter fenders,
- 3 -
<PAGE> 4
accessories such as cup holders, litter caddies and floor consoles. The
automotive aftermarket products are marketed primarily through mass
merchandisers and automotive outlets under the name "Rubber Queen" and the
registrant sells bed liners under the "Protecta" trademark, running boards under
the "Dee Zee" name, as well as under private labels. The aggregate sales of two
customers accounted for approximately 29% of this segment's total net sales
during 1998 and 1997. No other customer accounted for more than 10% of this
segment's total net sales. Although the Company is a market leader in many of
its product lines, all the markets in which the registrant sells automotive
products are highly competitive in the areas of design, price, quality and
customer service.
During fiscal year 1998, the registrant obtained adequate supplies of
raw materials for this segment.
The registrant's firm order backlog at June 30, 1998, in this business
segment, was approximately $6,348,000 as compared to a backlog of approximately
$6,180,000 as of the end of the preceding fiscal year. Such backlogs do not
reflect certain orders by original equipment manufacturers as, due to its
nature, such information is not readily available. It is expected that all of
these orders will be filled during the current fiscal year. The operations of
this segment are not affected to any material extent by seasonal fluctuations.
The registrant does not utilize any significant franchises or concessions in
this segment. The patents, trademarks and licenses under which it operates are
generally not essential to the overall success of this segment.
NET SALES BY CLASS OF PRODUCTS
The following table sets forth business segment information with
respect to the percentage of net sales contributed by each class of similar
products which accounted for at least 10% of the Company's consolidated net
sales in any fiscal year from 1996 through 1998:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Foods:
Retail 22% 21% 21%
Foodservice 18% 17% 17%
Glassware and Candles:
Consumer Table and Giftware 31% 31% 30%
Automotive 23% 26% 27%
</TABLE>
GENERAL BUSINESS
RESEARCH AND DEVELOPMENT
The estimated amount spent during each of the last three fiscal years
on research and development activities determined in accordance with generally
accepted accounting principles is not considered material.
ENVIRONMENTAL MATTERS
Certain of the registrant's operations are subject to compliance with
various air emission standards promulgated under Title V of the Federal Clean
Air Act. Pursuant to this Act, with respect to certain of its facilities, the
Company is required to submit compliance strategies to various regulatory
authorities for review and approval. Based upon available information,
compliance with the Federal Clean Air Act provisions, as well as other various
Federal, state and local environmental protection laws and regulations, is not
expected to have a material adverse effect upon the level of capital
expenditures, earnings or the competitive position of the registrant for the
remainder of the current and succeeding fiscal year.
- 4 -
<PAGE> 5
EMPLOYEES
The registrant has approximately 6,300 employees.
FOREIGN OPERATIONS AND EXPORT SALES
Financial information relating to foreign operations and export sales
have not been significant in the past and are not expected to be significant in
the future based on existing operations.
Item 2. PROPERTIES
The registrant uses approximately 6,400,000 square feet of space for
its operations. Of this space, approximately 1,552,000 square feet are leased.
The following table summarizes facilities exceeding 75,000 square feet
of space and which are considered the principal manufacturing and warehousing
operations of the registrant:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION BUSINESS SEGMENT(S) SQUARE FEET
- -------- ------------------- -----------
<S> <C> <C>
Blue Ash, OH (1) Glassware and Candles 266,000
Columbus, OH (3) Specialty Foods 370,000
Coshocton, OH Automotive 591,000
Des Moines, IA (2) Automotive 404,000
Dunkirk, IN Glassware and Candles 934,000
Elkhart, IN Automotive 96,000
Jackson, OH Automotive and Glassware and Candles 223,000
LaGrange, GA Automotive 211,000
Lancaster, OH Glassware and Candles 465,000
Leesburg, OH (3) Glassware and Candles 875,000
Milpitas, CA (4) Specialty Foods 130,000
Muncie, IN Glassware and Candles 153,000
Sapulpa, OK (5) Glassware and Candles 669,000
Wapakoneta, OH (3) Automotive 213,000
Waycross, GA (4) Automotive 142,000
Wilson, NY Specialty Foods 80,000
Washington Court House, OH (6) Glassware and Candles 134,000
</TABLE>
(1) Leased for term expiring 1998 and 1999.
(2) Part leased for terms expiring 1998 and 1999.
(3) Part leased on a monthly basis.
(4) Part leased for term expiring 2000.
(5) Part leased for term expiring in 1999.
(6) Leased for term expiring 1999.
- 5 -
<PAGE> 6
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to be
held November 16, 1998.
The following is a list of names and ages of all of the executive
officers of the registrant indicating all positions and offices with
the registrant held by such person and each person's principal occupation or
employment during the past five years. No person other than those listed below
has been chosen to become an executive officer of the registrant:
<TABLE>
<CAPTION>
FIRST
ELECTED
AGE AS OF AN
AUGUST 31 OFFICES AND EXECUTIVE
NAME 1998 POSITIONS HELD OFFICER
---- ----------- -------------- --------
<S> <C> <C> <C>
John B. Gerlach, Jr. 44 Chairman, Chief Executive
Officer and President 1982
John L. Boylan 43 Treasurer, Vice President,
Assistant Secretary and
Chief Financial Officer 1990
Larry G. Noble 62 Vice President 1985
Bruce L. Rosa 49 Vice President - Development 1998
</TABLE>
Except for Bruce L. Rosa, the above named officers were elected or
re-elected to their present positions at the annual meeting of the Board
of Directors on November 17, 1997. All such persons have been elected to serve
until the next annual election of officers, which shall occur on November 16,
1998 and their successors are elected or until their earlier resignation
or removal.
- 6 -
<PAGE> 7
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Reference is made to the "Selected Quarterly Financial Data," appearing
in Exhibit 13 of this Form 10-K Annual Report, for information concerning market
prices and related security holder matters on the registrant's common shares
during 1998 and 1997. Such information is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The presentation of selected financial data as of and for the five
years ended June 30, 1998 is included in the "Operations" and "Financial
Position" sections of the "Five Year Financial Summary" appearing in Exhibit 13
of this Form 10-K Annual Report and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Reference is made to the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" appearing in Exhibit 13 of this
Form 10-K Annual Report. Such information is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information are
set forth in Exhibit 13 of this Form 10-K Annual Report and are incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the
registrant, see "Executive Officers of the Registrant" at the end of Part I of
this report. For information with respect to the Directors of the registrant,
see "Nomination and Election of Directors" in the Proxy Statement for the Annual
Meeting of Shareholders to be held November 16, 1998, which is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information set forth under the caption "Executive Compensation" in the
Proxy Statement for the Annual Meeting of Shareholders to be held November 16,
1998 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth under the captions "Nomination and Election of
Directors" and "Security Ownership of Certain Beneficial Owners" in the Proxy
Statement for the Annual Meeting of Shareholders to be held November 16, 1998 is
incorporated herein by reference.
- 7 -
<PAGE> 8
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain transactions with Directors of
the registrant, see "Other Transactions" in the Proxy Statement for the Annual
Meeting of Shareholders to be held November 16, 1998, which is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1998 and 1997 and
for each of the three years in the period ended June 30, 1998,
together with the report thereon of Deloitte & Touche LLP dated August
26, 1998, appearing in Exhibit 13 of this Form 10-K Annual Report are
incorporated herein by reference.
INDEX TO FINANCIAL STATEMENTS
Consolidated Statements of Income for the years ended June 30, 1998,
1997 and 1996
Consolidated Balance Sheets at June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended June 30,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. FINANCIAL STATEMENT SCHEDULES REQUIRED BY ITEMS 8 AND 14(d)
Included in Part IV of this report is the following additional
financial data which should be read in conjunction with the
consolidated financial statements in the 1998 Annual Report to
Shareholders:
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts for each of the three
years in the period ended June 30, 1998
Supplemental schedules not included with the additional financial
data have been omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
(a) 3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K AND ITEM 14(c)
See Index to Exhibits attached.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of the
year ended June 30, 1998.
- 8 -
<PAGE> 9
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 24th day of
September, 1998.
LANCASTER COLONY CORPORATION
(Registrant)
By /s/ John B. Gerlach, Jr.
---------------------------
John B. Gerlach, Jr.
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ John B. Gerlach, Jr. Chairman, Chief September 23, 1998
- --------------------------- Executive Officer ------------------
John B. Gerlach, Jr. and President
/S/ John L. Boylan Treasurer, Vice September 23, 1998
- --------------------------- President, Assistant ------------------
John L. Boylan Secretary and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
/S/ Kerrii B. Anderson Director September 18, 1998
- --------------------------- ------------------
Kerrii B. Anderson
Director ------------------
- ---------------------------
Frank W. Batsch
/S/ Robert L. Fox Director September 14, 1998
- --------------------------- ------------------
Robert L. Fox
/S/ Morris S. Halpern Director September 15, 1998
- --------------------------- ------------------
Morris S. Halpern
/S/ Robert S. Hamilton Director September 17, 1998
- --------------------------- ------------------
Robert S. Hamilton
/S/ Edward H. Jennings Director September 17, 1998
- --------------------------- ------------------
Edward H. Jennings
/S/ Richard R. Murphey, Jr. Director September 18, 1998
- --------------------------- ------------------
Richard R. Murphey, Jr.
/S/ Henry M. O'Neill, Jr. Director September 14, 1998
- --------------------------- ------------------
Henry M. O'Neill, Jr.
</TABLE>
- 9 -
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of
Lancaster Colony Corporation:
We have audited the consolidated financial statements of Lancaster Colony
Corporation and its subsidiaries as of June 30, 1998 and 1997, and for each of
the three years in the period ended June 30, 1998, and have issued our report
thereon dated August 26, 1998; such financial statements and report are included
in your 1998 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of Lancaster Colony Corporation and its subsidiaries, listed in Item
14. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 26, 1998
- 10 -
<PAGE> 11
SCHEDULE II
LANCASTER COLONY CORPORATION
AND SUBSIDIARIES
============================
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSET TO WHICH
THEY APPLY - Allowance for doubtful
accounts:
Year ended June 30, 1996................. $1,947,000 $2,089,000 $1,905,000(A) $2,131,000
===========================================================
Year ended June 30, 1997................. $2,131,000 $1,813,000 $1,083,000(A) $2,861,000
===========================================================
Year ended June 30, 1998................. $2,861,000 $1,834,000 $1,921,000(A) $2,774,000
===========================================================
</TABLE>
(A) Represents uncollectible accounts written off net of recoveries.
- 11 -
<PAGE> 12
LANCASTER COLONY CORPORATION
FORM 10-K
JUNE 30, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Located At
------ ----------- ----------
<S> <C> <C>
3.1 Certificate of Incorporation of the registrant
approved by the shareholders November 18, 1991. 1998 Form 10-K
.2 Certificate of Amendment to the Articles of
Incorporation approved by the shareholders
November 16, 1992. 1998 Form 10-K
.3 Certificate of Amendment to the Articles of
Incorporation approved by the shareholders
November 17, 1997. 1998 Form 10-K
.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. (j)
.2 Rights Agreement dated as of April 20, 1990
between Lancaster Colony Corporation and The
Huntington Trust Company, N.A. (c)
10.1 1981 Incentive Stock Option Plan. (d)
.2 Resolution by the Board of Directors to amend
registrant's 1981 Incentive Stock Option Plan,
approved by the shareholders November 21, 1983. (e)
.3 Resolution by the Board of Directors to amend
registrant's 1981 Incentive Stock Option Plan
approved by the shareholders November 18, 1985. (f)
.4 Resolution by the Board of Directors to amend
registrant's 1981 Incentive Stock Option Plan
approved by the shareholders November 19, 1990. (g)
.5 Key Employee Severance Agreement between Lancaster
Colony Corporation and John L. Boylan. (g)
.6 Consulting Agreement by and between Lancaster
Colony Corporation and Morris S. Halpern. (h)
.7 1995 Key Employee Stock Option Plan. (i)
13. Annual Report to Shareholders. 1998 Form 10-K
21. Significant Subsidiaries of Registrant. 1998 Form 10-K
</TABLE>
- 12 -
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C>
23. The consent of Deloitte & Touche LLP to the incorporation by
reference in Registration Statements No. 33-39102 and 333-01275
on Form S-8 of their reports dated August 26, 1998, appearing in
and incorporated by reference in this Annual Report on Form 10-K
of Lancaster Colony Corporation for the year ended June 30, 1998. 1998 Form 10-K
27. Financial Data Schedule 1998 Form 10-K
(a) Indicates the exhibit is incorporated by reference from filing as
an annex to the proxy statement of Lancaster Colony Corporation
for the annual meeting of stockholders held November 18, 1991.
(b) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-Q for the quarter ended March 31, 1990.
(c) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form 8-K
filed April 20, 1990.
(d) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1982.
(e) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1984.
(f) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1985.
(g) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1991.
(h) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1993.
(i) Indicates the exhibit is incorporated by reference from the
Lancaster Colony Corporation filing on Form S-8 of its 1995 Key
Employee Stock Option Plan (Registration Statement No.
333-01275).
(j) Indicates the exhibit is incorporated by reference from filing as
an exhibit to the Lancaster Colony Corporation report on Form
10-K for the year ended June 30, 1996.
Note(1) The registrant and certain of its subsidiaries are parties to
various long-term debt instruments. The amount of securities
authorized under such debt instruments does not, in any case,
exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The registrant agrees to
furnish a copy of any such long-term debt instrument to the
Commission upon request.
Note(2) The registrant has included in Exhibit 13 only the specific
Financial Statements and notes thereto of its 1998 Annual Report
to Shareholders which are incorporated by reference in this Form
10-K Annual Report. The registrant agrees to furnish a complete
copy of its 1998 Annual Report to Shareholders to the Commission
upon request.
</TABLE>
- 13 -
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
LANCASTER COLONY CORPORATION
FIRST: The name of the Corporation (hereinafter called the "Corporation") is
LANCASTER COLONY CORPORATION.
SECOND: The place in Ohio where the principal office of the Corporation is
located is Columbus, Franklin County.
THIRD: The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under the Ohio
General Corporation Law, as now in effect or hereafter amended.
FOURTH: The amount of the total authorized capital stock which the Corporation
shall have authority to issue is Twenty-Two Million Five Hundred Thousand
(22,500,000) shares, consisting of Twenty Million (20,000,000) shares of Common
Stock (the "Common Stock") which are common shares without par value, Two
Hundred Thousand (200,000) shares of Class A Participating Preferred Stock
("Class A Preferred Stock") which are preferred shares with $1.00 par value, One
Million One Hundred Fifty Thousand (1,150,000) shares of Class B Voting
Preferred Stock ("Class B Preferred Stock") which are preferred shares without
par value, and One Million One Hundred Fifty Thousand (1,150,000) shares of
Class C Nonvoting Preferred Stock ("Class C Preferred Stock") which are
preferred shares without par value.
(A) EXPRESS TERMS OF THE COMMON STOCK.
The shares of Common Stock shall be subject to the terms of the Class A
Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock
(collectively, "Preferred Stock") and the express terms of any series thereof.
Each share of Common Stock shall be equal to every other share of Common Stock
and the holders thereof shall be entitled to one vote for each share of Common
Stock on all questions presented to the shareholders. Subject to any rights to
receive dividends to which the holders of the outstanding shares of Preferred
Stock may be entitled, the holders of shares of Common Stock shall be entitled
to receive dividends, if and when declared, payable from time to time by the
Board of Directors from funds legally available therefor.
(B) EXPRESS TERMS OF THE CLASS A PREFERRED STOCK.
(1) DIVIDENDS.
(i) The holders of record of shares of Class A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, quarterly dividends payable in cash on
the last day of each March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
<PAGE> 2
issuance of a share or fraction of a share of Class A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b), subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), paid on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Class A
Preferred Stock. In the event the Corporation shall at any time after November
18, 1991 (the "Rights Declaration Date"): (x) declare any dividend on Common
Stock payable in shares of Common Stock, (y) subdivide the outstanding Common
Stock, or (z) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount of dividends to which holders of
shares of Class A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(ii) On or after the date of the first issuance of any share or
fraction of a share of Class A Preferred Stock, no dividend on Common Stock
shall be declared unless concurrently therewith a dividend or distribution is
declared on the Class A Preferred Stock as provided in clause (i) of paragraph
(B)(1) of this Article FOURTH and the declaration of any such dividend on the
Common Stock shall be expressly conditioned upon payment or declaration of and
provision for payment of a dividend on the Class A Preferred Stock. In the event
no dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Class A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on outstanding
shares of Class A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Class A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the record date for the first Quarterly Dividend Payment
Date following such date of issue, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Class A Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. The Board of Directors may fix a record date for the determination of
holders of shares of Class A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.
(2) VOTING RIGHTS. The holders of shares of Class A Preferred Stock shall
have the following voting rights:
2
<PAGE> 3
(i) Each share of Class A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the shareholders of
the Corporation.
(ii) Except as otherwise provided herein or by law, the holders of
shares of Class A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(iii) (a) If at any time dividends on any Class A Preferred Stock shall
be in arrears in an amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
currently quarterly dividend period on all shares of Class A Preferred Stock
then outstanding shall have been declared and paid or set apart for payment.
During each default period, holders of Class A Preferred Stock, voting as a
class, shall have the right to elect two (2) Directors.
(b) During any default period, such voting right of the holders
of Class A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (c) of this paragraph (2)(iii) or at any annual
meeting of shareholders, and thereafter at annual meetings of shareholders,
provided that such voting right shall not be exercised unless the holders of ten
percent (10%) in number of shares of Class A Preferred Stock outstanding shall
be present in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not effect the exercise by the holders of Class A Preferred
Stock of such voting right. At any meeting at which the holders of Class A
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect Directors
to fill such vacancies, if any, in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised at an annual meeting, to
elect two (2) Directors. If the number which may be so elected at any special
meeting because of existing vacancies is less than two, the holders of the Class
A Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of two Directors.
After the holders of the Class A Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased except
by vote of the holders of Class A Preferred Stock as herein provided.
(c) Unless the holders of Class A Preferred Stock shall, during
an existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareholder or shareholders
owning in the aggregate not less than ten percent of the total number of shares
of Class A Preferred Stock outstanding may request, the calling of a special
meeting which special meeting shall thereupon be called by the President of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Class A Preferred Stock are entitled to vote pursuant to this paragraph
(2)(iii)(c) shall be given to each holder of record of Class A Preferred Stock
by mailing a copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than 10 days and not later than 60 days after such order or request or
in default of
3
<PAGE> 4
the calling of such meeting within 60 days after such order or request, such
meeting may be called on similar notice by any shareholder or shareholders
owning in the aggregate not less than ten percent of the total number of shares
of Class A Preferred Stock outstanding. Notwithstanding the provisions of this
paragraph (2)(iii)(c), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next annual meeting
of the stockholders.
(d) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Class A
Preferred Stock shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (y) the Directors so
elected by the holders of the Class A Preferred Stock shall continue in office
until their successors shall have been elected by such holders or until the
expiration of the default period, and (z) any vacancy in the Board of Directors
may (except as provided in this paragraph (2)(iii)(d)) be filled by vote of a
majority of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have become vacant.
References to this paragraph (iii) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (z) of the immediately preceding sentence.
(e) Immediately upon the expiration of a default period, (x) the
right of the holders of Class A Preferred Stock as a class to elect Directors
shall cease, (y) the term of any directors elected by the holders of Class A
Preferred Stock as a class shall terminate, and (z) the ongoing number of
Directors shall be such number as may be provided for in, or pursuant to, the
Articles of Incorporation or Regulations of the Corporation, irrespective of any
increase made pursuant to the provisions of paragraph (2)(iii)(b) (such number
being subject, however, to change thereafter in any manner provided by law or in
the Articles of Incorporation or Regulations). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors, even though
less than a quorum.
(3) DISSOLUTION, LIQUIDATION AND WINDING UP.
(i) In the event of a voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Corporation (hereinafter referred to as a
"Liquidation"), the holders of Class A Preferred Stock shall receive an amount
per share equal to the greater of (a) $7,000, or (b) 100 times the amount per
share to be distributed to holders of Common Stock, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Class A Liquidation Preference").
(ii) In the event the Corporation shall at any time after the Rights
Declaration Date declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the Class A Liquidation
4
<PAGE> 5
Preference determined pursuant to paragraph (3)(i)(b) shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(4) REDEMPTION. The shares of Class A Preferred Stock shall not be
redeemable.
(5) CONVERSION RIGHTS. The Class A Preferred Stock is not convertible into
Common Stock or any other security of the Corporation.
(6) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Class A Preferred
Stock shall at the same time be similarly exchanged or changed into an amount
per share (subject to the provision for adjustment hereinafter set forth) equal
to 100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Class A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(7) FRACTIONAL SHARES. Class A Preferred Stock may be issued in fractions of
a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Class A
Preferred Stock.
(C) EXPRESS TERMS OF THE CLASS B PREFERRED STOCK
The shares of Class B Preferred Stock may be issued from time to time in one
or more series. All shares of Class B Preferred Stock shall be of equal rank and
shall be identical, except in respect of the matters that may be fixed by the
Board of Directors as hereinafter provided, and each share of each series shall
be identical with all other shares of such series, except as to the date from
which dividends are cumulative. Subject to the provisions of this paragraph (C),
which provisions shall apply to all Class B Preferred Stock, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series prior to the issuance thereof to
fix:
(1) the designation of the series, which may be by distinguishing
number, letter or title;
5
<PAGE> 6
(2) the number of shares of the series, which number the Board of
Directors may from time to time (except where otherwise provided in the creation
of the series) increase or decrease (but not below the number of shares thereof
then outstanding);
(3) the dividend rate of the series;
(4) the dates of payment of dividends and the dates from which
dividends of the series shall be cumulative;
(5) the redemption rights and price or prices for shares of the series;
(6) sinking fund requirements, if any, for the purchase or redemption
of shares of the series;
(7) the liquidation price payable on shares of the series in the event
of any liquidation, dissolution or winding up of affairs of the Corporation;
(8) whether the shares of the series shall be convertible into Common
Stock, and, if so, the conversion price or prices, any adjustments thereof, and
all other terms and conditions upon which such conversion may be made;
(9) restrictions on the issuance of shares of any class or series; and
(10) such other terms as the Board of Directors may by law from time to
time be permitted to fix or change.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles Of Incorporation fixing or changing, with respect to
each such series, the matters described in the preceding clauses (1) to (10) of
this paragraph (C).
Shares of Class B Preferred Stock shall entitle the holder thereof to
one vote per share of Class B Preferred Stock on all matters submitted to a vote
of the shareholders of the Corporation. Except as otherwise provided herein or
by law, the holders of shares of Class B Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of shareholders of the Corporation. During any period in which
dividends on the Class B Preferred Stock are cumulatively in arrears in the
amount of six or more full quarterly dividends, the holders of the Class B
Preferred Stock, voting together as a class with the holders of any other class
or series of Preferred Stock who are similarly entitled to vote, will have the
right to elect two (2) directors which two (2) directorships shall be in
addition to that number of directors then determined as constituting the number
of members of the Board of Directors pursuant to the Regulations of the
Corporation. The approval of a majority of the outstanding shares of Class B
Preferred Stock voted together as a class shall be required in order to amend
the Articles of Incorporation of the Corporation to affect adversely the rights
of the holders of the Class B Preferred Stock or to take any action that would
result in the creation of or an increase in the number of authorized shares
senior or superior with respect to dividends or upon liquidation to the Class B
Preferred Stock.
6
<PAGE> 7
(D) EXPRESS TERMS OF CLASS C PREFERRED STOCK.
The shares of Class C Preferred Stock may be issued from time to time
in one or more series. All shares of Class C Preferred Stock shall be of equal
rank and shall be identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series, except as to the date
from which dividends are cumulative. Subject to the provisions of this paragraph
(D), which provisions shall apply to all Class C Preferred Stock, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series prior to the issuance thereof to
fix:
(1) the designation of the series, which may be by distinguishing number,
letter or title;
(2) the number of shares of the series, which number the Board of Directors
may from time to time (except where otherwise provided in the creation of the
series) increase or decrease (but not below the number of shares thereof then
outstanding);
(3) the dividend rate of the series;
(4) the dates of payment of dividends and the dates from which dividends of
the series shall be cumulative;
(5) the redemption rights and price or prices for shares of the series;
(6) sinking fund requirements, if any, for the purchase or redemption of
shares of the series;
(7) the liquidation price payable on shares of the series in the event of
any liquidation, dissolution or winding up of affairs of the Corporation;
(8) whether the shares of the series shall be convertible into Common
Stock, and, if so, the conversion price or prices, any adjustments thereof, and
all other terms and conditions upon which such conversion may be made;
(9) restrictions on the issuance of shares of any class or series; and
(10) such other terms as the Board of Directors may by law from time to
time be permitted to fix or change.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing or changing, with respect to
each such series, the matters described in the preceding clauses (1) to (10) of
this paragraph (D).
7
<PAGE> 8
Shares of Class C Preferred Stock shall not be entitle to voting rights
except to the extent described below. During any period in which dividends on
the Class C Preferred Stock are cumulatively in arrears in the amount of six or
more full quarterly dividends, the holders of the Class C Preferred Stock,
voting together as a class with the holders of any other class or series of
Preferred Stock who are similarly entitled to vote, will have the right to elect
two (2) directors which two (2) directorships shall be in addition to that
number of directors then determined as constituting the number of members of the
Board of Directors pursuant to the Regulations of the Corporation. The approval
of a majority of the outstanding shares of Class C Preferred Stock voted
together as a class shall be required in order to amend the Articles of
Incorporation of the Corporation to affect adversely the rights of the holders
of the Class C Preferred Stock or to take any action that would result in the
creation of or an increase in the number of authorized shares senior or superior
with respect to dividends or upon liquidation to the Class C Preferred Stock.
FIFTH: Except as otherwise provided in these Articles of Incorporation or in the
Regulations, the holders of a majority of the outstanding shares are authorized
to take any action which, but for this provision, would require the vote or
other action of the holders of more than a majority of such shares.
SIXTH: To the extent not prohibited by law, the Board of Directors may authorize
the purchase by the Corporation of shares of any class issued by it.
SEVENTH: No holder of any class of shares of the Corporation shall, as such
holder, have any preemptive or preferential right to purchase or subscribe to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in treasury, or to purchase any obligations
convertible into shares of any class of stock of the Corporation, which at any
time may be proposed to be issued by the Corporation or subjected to rights or
options to purchase granted by the Corporation.
EIGHTH: No holder of shares of any class of the Corporation shall have the right
to cumulate his voting power in the election of the Board of Directors and the
right to cumulate voting described in Ohio Revised Code Section 1701.55 is
hereby specifically denied to the holders of shares of any class of the
Corporation.
NINTH: The Corporation may create and issue, whether or not in connection with
the issue and sale of any shares of stock or other securities of the
Corporation, rights or options entitling the holders thereof to purchase from
the Corporation any shares of its capital stock of any class or classes to the
extent such shares are authorized by these Articles, such rights or options to
be evidenced by or in such instrument or instruments as shall be approved by the
Board of Directors. The terms upon which any such shares may be purchased upon
the exercise of any such fight or option, including without limitation the time
or times (which may be limited or unlimited in duration) at or within which, and
the price or prices at which, any such shares may be purchased, shall be such as
shall be determined as set forth or incorporated by reference in a resolution
adopted by the Board of Directors providing for the creation and issue of such
rights or options.
8
<PAGE> 9
TENTH: No Person shall make a Control Share Acquisition without the prior
authorization of the shareholders of the Corporation.
(A) In order to obtain authorization of a Control Share Acquisition by the
shareholders of the Corporation, a Person shall deliver a notice (the "Notice")
to the Corporation at its principal place of business that sets forth all of the
following information:
(1) The identity of the Person who is giving the Notice;
(2) A statement that the Notice is given pursuant to this Article TENTH;
(3) The number and class of shares of the Corporation owned, directly or
indirectly, by the Person who gives the Notice, fall;
(4) The range of voting power under which the proposed Control Share
Acquisition would, if consummated, fall;
(5) A description in reasonable detail of the terms of the proposed Control
Share Acquisition; and
(6) Representations, supported by reasonable evidence, that the proposed
Control Share Acquisition, if consummated, would not be contrary to law and that
the Person who is giving the Notice has the financial capacity to make the
proposed Control Share Acquisition.
(B) (1) The Board of Directors of the Corporation shall, within ten (10) days
after receipt by the Corporation of a Notice that complies with paragraph (A),
call a special meeting of shareholders to be held not later than fifty (50) days
after receipt of the Notice by the Corporation, unless the Person who delivered
the Notice agrees to a later date, to consider the proposed Control Share
Acquisition; provided, that, the Board of Directors shall have no obligation to
call such meeting if they make a determination within ten (10) days after
receipt of the Notice (i) that the Notice was not given in good faith, (ii) that
the proposed Control Share Acquisition would not be in the best interests of the
Corporation and its shareholders or (iii) that the Person who delivered the
Notice has failed to adequately demonstrate that such Person has the financial
capacity to make the proposed Control Share Acquisition or that the proposed
Control Share Acquisition would not be contrary to law if consummated. The Board
of Directors may adjourn such meeting if, prior to such meeting, (i) the
Corporation has received a Notice from any other Person or (ii) a merger,
consolidation or sale of assets of the Corporation has been approved by the
Board of Directors and the Board of Directors has determined that the Control
Share Acquisition proposed by such other Person or the merger, consolidation or
sale of assets of the Corporation should be presented to shareholders at an
adjourned meeting or at a special meeting held at a later date.
(2) For purposes of making a determination that a special meeting of
shareholders should not be called pursuant to this paragraph (B), no such
determination shall be deemed void or voidable with respect to the Corporation
merely because one or more of its directors or
9
<PAGE> 10
officers who participated in making such determination may be deemed to be other
than disinterested, if in any such case the material facts of the relationship
giving rise to a basis for self-interest are known to the directors and the
directors, in good faith reasonably justified by the facts, make such
determination by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors constitute less than a
quorum. For purposes of this paragraph (B), "disinterested directors" shall mean
directors whose material contacts with the Corporation are limited principally
to activities as a director or shareholder. Persons who have substantial,
recurring business or professional contacts with the Corporation shall not be
deemed to be "disinterested directors" for purposes of this provision. A
director shall not be deemed to be other than a "disinterested director" merely
because he would no longer be a director if the proposed Control Share
Acquisition were approved and consummated.
(C) The Corporation shall give notice of such special meeting to all
shareholders of record as of the record date set for such meeting as promptly as
practicable. Such notice shall include or be accompanied by a copy of the Notice
and by a statement of the Corporation, authorized by the Board of Directors, of
its position or recommendation, or that it is taking no position or making no
recommendation, with respect to the proposed Control Share Acquisition.
(D) The Person who delivered the Notice may make the proposed Control Share
Acquisition if both the following occur: (i) the shareholders of the Corporation
authorize such acquisition at the special meeting called by the Board of
Directors and held for that purpose, and at which a quorum is present, by an
affirmative vote of a majority of the Voting Shares represented at such meeting
in person or by proxy and by a majority of the portion of such Voting Shares
represented at such meeting in person or by proxy excluding the votes of
Interested Shares; and (ii) such acquisition is consummated, in accordance with
the terms so authorized, not later than 360 days following such shareholder
authorization of the Control Share Acquisition.
(E) Shares issued or transferred to any Person in violation of this Article
TENTH shall be valid only with respect to such amount of shares as does not
result in a violation of this Article TENTH, and such issuance or transfer shall
be null and void with respect to the remainder of such shares (any such
remainder of shares being hereinafter called "Excess Shares") unless within 30
days of the date on which the Board of Directors determines that such Excess
Shares have been issued or transferred, the issuance or transfer of such Excess
Shares is approved by the Board of Directors, which approval makes specific
reference to paragraph (E) of this Article TENTH. If the issuance or transfer of
such Excess Shares is approved by the Board of Directors in accordance with the
provisions of this paragraph, then the issuance or transfer of such Excess
Shares shall be deemed, for all purposes, to have been approved prior to the
date of such issuance or transfer in accordance with paragraph F(2)(ii)(e) of
this Article TENTH. If the second clause of the first sentence of this paragraph
(E) is determined to be invalid by virtue of any legal decision, statute, rule
or regulation, any Person who holds Excess Shares in violation of this Article
TENTH shall be conclusively deemed to have acted as an agent on behalf of the
Corporation in acquiring such Excess Shares and to hold such Excess Shares on
behalf of the Corporation. While held by any Person in violation of this Article
TENTH, Excess Shares shall not be entitled to any voting rights, shall not be
considered to be outstanding for quorum or voting purposes, and shall not be
entitled to receive dividends or any other distribution with respect to such
Excess Shares. Any such Person who receives dividends or any other distribution
with
10
<PAGE> 11
respect to Excess Shares shall hold the same as agent for the Corporation and,
following a permitted transfer, for the transferee thereof. Notwithstanding the
foregoing, any holder of Excess Shares may transfer the same (together with any
distributions thereon) to any Person who, following such transfer, would not own
shares in violation of this Article TENTH. Upon such permitted transfer, the
Corporation shall pay or distribute to the transferee any dividends or other
distributions on the Excess Shares not previously paid or distributed.
(F) As used in this Article TENTH:
(1) "Person" includes, without limitation, an individual, a corporation
(whether nonprofit or for profit), a partnership, an unincorporated society or
association, and two or more persons having a joint or common interest.
(2) (i) "Control Share Acquisition" means the acquisition, directly or
indirectly, alone or with others, by any Person of shares of the Corporation
that, when added to all other shares of the Corporation in respect of which such
Person may exercise or direct the exercise of voting power as provided in this
paragraph (F)(2)(i), would entitle such Person, immediately after such
acquisition, directly or indirectly to exercise or direct the exercise of voting
power of the Corporation in the election of directors within any of the
following ranges of such voting power:
(a) One-fifth or more but less than one-third of such voting power;
(b) One-third or more but less than a majority of such voting power;
(c) A majority or more of such voting power.
A bank, broker, nominee, trustee, or other Person who acquires shares in the
ordinary course of business for the benefit of others in good faith and not for
the purpose of circumventing this Article TENTH shall, however, be deemed to
have voting power only of shares in respect of which such Person would be able
to exercise or direct the exercise of votes without further instruction from
others at a meeting of shareholders called under this Article TENTH. For
purposes of this Article TENTH, the acquisition of securities immediately
convertible into shares of the Corporation with voting power in the election of
directors shall be treated as an acquisition of such shares.
(ii) The acquisition of any shares of the Corporation does not
constitute a Control Share Acquisition for the purpose of this Article TENTH if
the acquisition is consummated in any of the following circumstances.
(a) By underwriters, in good faith and not for the purpose of
circumventing this Article TENTH, in connection with an offering of the
securities of the Corporation to the public;
11
<PAGE> 12
(b) By bequest or inheritance, by operation of law upon the death
of any individual, or by any other transfer without valuable consideration,
including a gift, that is made in good faith and not for the purpose of
circumventing this Article TENTH;
(c) Pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing this
Article TENTH;
(d) Pursuant to a merger or consolidation adopted, or a
combination or majority share acquisition authorized, by shareholder vote in
compliance with the provisions of Section 1701.78 or Section 1701.83 of the Ohio
Revised Code if the Corporation is the surviving or new corporation in the
merger or consolidation or is the acquiring corporation in the combination or
majority share acquisition and if the vote of shareholders of the surviving,
new, or acquiring corporation is required by the provisions of Section 1701.78
or 1701.83 of the Ohio Revised Code;
(e) Pursuant to a transaction which has received the prior
authorization of the Board of Directors of the Corporation which authorization
makes specific references to this paragraph (F)(2)(ii)(e);
(f) Prior to * , 1992; or
----------------
(g) Pursuant to a contract existing prior to * , 1992.
--------------
The acquisition by any Person of shares of the Corporation in a manner described
under this paragraph (F)(2)(ii) shall be deemed to be a Control Share
Acquisition authorized pursuant to this Article TENTH within the range of voting
power under paragraph (F)(2)(i)(a), (b) or (c) of this Article TENTH that such
Person is entitled to exercise after such acquisition, provided that, in the
case of an acquisition in a manner described under paragraph (F)(2)(ii)(b) or
(c), the transferor of such shares to such Person had previously obtained or was
deemed to have obtained any authorization of shareholders required under this
Article TENTH in connection with such transferor's acquisition of shares of the
Corporation.
(iii) The acquisition of shares of the Corporation in good faith and
not for the purpose of circumventing this Article TENTH, the acquisition of
which (a) had previously been authorized by shareholders in compliance with this
Article TENTH or (b) would have constituted a Control Share Acquisition but for
paragraph (F)(2)(ii), does not constitute a Control Share Acquisition for the
purpose of this Article TENTH unless such acquisition entitles any Person,
directly or indirectly, to exercise or direct the exercise of voting power of
the Corporation in the election of directors in excess of the range of such
voting power authorized pursuant to this Article TENTH, or deemed to be so
authorized under paragraph (F)(2)(ii).
(3) "Interested Shares" means Voting Shares with respect to which any of
the following Persons may exercise or direct the exercise of the voting power:
* The date which is the Effective Time of the merger of Lancaster Colony
Corporation, a Delaware corporation, with and into LC of Ohio, Inc., an
Ohio corporation.
12
<PAGE> 13
(i) any Person whose Notice prompted the calling of the meeting of
shareholders;
(ii) any officer of the Corporation elected or appointed by the
directors of the Corporation; and
(iii) any employee of the Corporation who is also a director of the
Corporation.
(G) No proxy appointed for or in connection with the shareholder authorization
of a Control Share Acquisition pursuant to this Article TENTH shall be valid
unless it provides that it is revocable. No such proxy is valid unless it is
sought, appointed, and received both:
(1) In accordance with all applicable requirements of law; and
(2) Separate and apart from the sale or purchase, contract or tender for
sale or purchase, or request or invitation for tender for sale or purchase, of
shares of the Corporation.
(H) Proxies appointed for or in connection with the shareholder authorization
of a Control Share Acquisition pursuant to this Article TENTH shall be revocable
at all times prior to the obtaining of such shareholder authorization, whether
or not coupled with an interest.
(I) Notwithstanding any other provisions of these Articles of Incorporation or
the Regulations of the Corporation, as the same may be in effect from time to
time, or any provision of law that might otherwise permit a lesser vote of the
directors or shareholders, but in addition to any affirmative vote of the
directors or the holders of any particular class or series of shares required by
law, the Articles of Incorporation or the Regulations of the Corporation, as the
same may be in effect from time to time, the affirmative vote of at least 80% of
the Voting Shares shall be required to alter, amend, supersede or repeal this
Article TENTH or adopt any provisions in the Articles of Incorporation or
Regulations of the Corporation, as the same may be in effect from time to time,
that are inconsistent with the provisions of this Article TENTH.
(J) Each certificate representing shares of the Corporation's capital stock
shall contain the following legend:
"Transfer of the shares represented by this Certificate is subject to the
provisions of Article TENTH of the Corporation's Articles of Incorporation as
the same may be in effect from time to time. Upon written request delivered to
the Secretary of the Corporation at its principal place of business, the
Corporation will mail to the holder of the Certificate a copy of such provisions
without charge within five (5) days after receipt of written request therefor.
By accepting this Certificate the holder hereof acknowledges that it is
accepting same subject to the provisions of said Article TENTH as the same may
be in effect from time to time and covenants with the Corporation and each
shareholder thereof from time to time to comply with the provisions of said
Article TENTH as the same may be in effect from time to time."
13
<PAGE> 14
ELEVENTH: The provisions of Section 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
section, shall only apply to this Corporation with respect to any particular
Control Share Acquisition attempt, as such is defined in Section 1701.831 of the
Ohio Revised Code, in the event that there is a determination by a court of
competent jurisdiction with respect to which no appeal is pending that the
provisions of Article TENTH of these Articles of Incorporation shall not be
applicable to a particular Control Share Acquisition attempt or in the event
that Article TENTH of these Articles of Incorporation, as such Articles of
Incorporation may be amended from time to time, ceases to be an Article of these
Articles of Incorporation, disregarding any renumbering of such Article TENTH
resulting from any amendment of these Articles of Incorporation.
TWELFTH: (A) If, as of the record date for the determination of the stockholders
entitled to vote thereon or consent thereto, any Prior Holder (as hereinafter
defined) owns or controls, directly or indirectly, 5% or more of the outstanding
shares of the corporation entitled to vote, then the affirmative vote of the
holders of shares representing at least 80% of the shares of stock of the
corporation entitled to vote for the election of directors, voting as a class,
will be required, except as otherwise expressly provided in paragraph (B) of
this Article TWELFTH, in order for any of the following actions or transactions
to be effected by the Corporation, or approved by the Corporation as stockholder
of any subsidiary of the corporation.
(1) any merger or consolidation of the Corporation or any of its
subsidiaries with or into such Prior Holder or any of its affiliates,
subsidiaries or associates;
(2) any merger or consolidation of the Corporation with or into any
subsidiary of the Corporation, except a merger with a subsidiary of the
Corporation in which the Corporation is the surviving corporation, or a
subsidiary of the Corporation is the surviving corporation and, following such
merger, the certificate or articles of incorporation of such subsidiary contains
provisions substantially the same in substance as those in Article EIGHTH,
Article TENTH, Article ELEVENTH, this Article TWELFTH and Article THIRTEENTH of
these Articles of Incorporation;
(3) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Corporation or any of its subsidiaries to
or with such Prior Holder or any of its affiliates, subsidiaries or associates;
(4) any issuance or delivery of any voting securities of the Corporation or
any of its subsidiaries to such Prior Holder or any of its affiliates,
subsidiaries or associates in exchange for cash, other assets or securities, or
a combination thereof; or
(5) any dissolution of the Corporation.
(B) The vote of shareholders specified in paragraph (A) of this Article TWELFTH
will not apply to any action or transaction described in such paragraph, if the
Board of Directors of the Corporation has approved the action or transaction
before direct or indirect ownership or control of 5% or more of the outstanding
shares of stock of the Corporation entitled to vote is acquired by the Prior
Holder.
14
<PAGE> 15
(C) For the purpose of this Article TWELFTH and for guidance to the Board of
Directors for the purpose of paragraph (D) hereof:
(1) "Prior Holder" means any corporation, person or entity other than the
Corporation or any of its subsidiaries;
(2) a Prior Holder will be deemed to "own" or "control," directly or
indirectly, any outstanding shares of stock of the Corporation (a) which it has
the right to acquire pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise, or (b)
which are owned, directly or indirectly (including shares deemed owned through
application of clause (a) above), by any other corporation, person or other
entity which is its subsidiary, affiliate or associate or with which it or any
of its subsidiaries, affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Corporation (or, with or without such an agreement, arrangement or
understanding, acts in concert);
(3) "outstanding shares of the Corporation entitled to vote" and "voting
securities" mean such shares as are entitled to vote in the election of
directors, considered as one class;
(4) "subsidiary" means any corporation of which another corporation owns,
directly or indirectly, 50% or more of the voting stock;
(5) an "associate" and an "affiliate" have the same meanings as set forth
in the General Rules and Regulations under the Securities Exchange Act of 1934;
and
(6) "substantial part of the assets" means assets then having a fair market
value, in the aggregate, or more than $5,000,000.
(D) The Board of Directors of the Corporation will have the power and duty to
determine for the purposes of this Article TWELFTH, on the basis of information
then known to the Board of Directors,
(1) who constitutes a Prior Holder,
(2) whether any Prior Holder owns or controls, directly or indirectly, 5%
or more of the outstanding shares of the Corporation entitled to vote, and what
entities are its subsidiaries, affiliates or associates, and
(3) whether any proposed sale, lease, exchange or other disposition
involves a substantial part of the assets of the Corporation or any of its
subsidiaries. Any such determination by the Board will be conclusive and binding
for all purposes.
15
<PAGE> 16
THIRTEENTH: The Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation in the manner prescribed by the
Ohio General Corporation Law. However, the provisions set forth in Article
EIGHTH, Article TENTH, Article ELEVENTH, Article TWELFTH, and this Article
THIRTEENTH of these Articles of Incorporation may not be altered, amended,
superseded or repealed in any respect, unless such action is approved by the
affirmative vote of the holders of shares representing at least 80% of the
shares of the Corporation entitled to vote for the election of directors, voting
as a class. All rights conferred in these Articles of Incorporation are granted
subject to the reservation set forth in this Article THIRTEENTH.
16
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LANCASTER COLONY CORPORATION
The undersigned President and Secretary of Lancaster Colony
Corporation, an Ohio corporation hereby certify that the shareholders of the
corporation, by the affirmative vote of the holders of shares entitling them to
exercise two-thirds of the voting power of the corporation at a meeting of
shareholders duly called for such purpose on November 16, 1992, have duly
adopted the following resolution to amend the corporation's articles of
incorporation:
RESOLVED that the first paragraph of Article FOURTH of the
corporation's articles of incorporation be, and hereby is, amended to
read as follows:
"FOURTH: The amount of the total authorized capital stock which the
Corporation shall have the authority to issue is Thirty-Seven Million
Six Hundred Fifty Thousand (37,650,000) shares, consisting of
Thirty-Five Million (35,000,000) shares of Common Stock (the "Common
Stock") which are common shares without par value, Three Hundred Fifty
Thousand (350,000) shares of Class A Participating Preferred Stock
("Class A Preferred Stock") which are preferred shares with $1.00 par
value, One Million One Hundred Fifty Thousand (1,150,000) shares of
Class B Voting Preferred Stock ("Class B Preferred Stock") which are
preferred shares without par value, and One Million One Hundred Fifty
Thousand (1,150,000) shares of Class C Nonvoting Preferred Stock
("Class C Preferred Stock") which are preferred shares without par
value."
IN WITNESS WHEREOF, the President and Secretary, acting for and on
behalf of said corporation, have signed their names to this certificate on
November 16, 1992.
/s/ John B. Gerlach
--------------------------------------
John B. Gerlach
President
/s/ John B. Gerlach, Jr.
--------------------------------------
John B. Gerlach, Jr.
Executive Vice President and Secretary
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LANCASTER COLONY CORPORATION
The undersigned President and Secretary of Lancaster Colony
Corporation, an Ohio corporation, hereby certify that the shareholders of the
corporation, by majority affirmative vote at a meeting of shareholders duly
called for such purpose on November 17, 1997, have duly adopted the following
resolution to amend the corporation's articles of incorporation:
RESOLVED that the first paragraph of Article FOURTH of the
corporation's articles of incorporation be, and hereby is, amended to
read as follows:
"FOURTH: The amount of the total authorized capital stock which the
Corporation shall have the authority to issue is Seventy-Eight
Million Fifty Thousand (78,050,000) shares, consisting of Seventy Five
Million (75,000,000) shares of Common Stock (the "Common Stock") which
are common shares without par value, Seven Hundred Fifty Thousand
(750,000) shares of Class A Participating Preferred Stock ("Class A
Preferred Stock") which are preferred shares with $1.00 par value, One
Million One Hundred Fifty Thousand (1,150,000) shares of Class B
Voting Preferred Stock ("Class B Preferred Stock") which are preferred
shares without par value, and One Million One Hundred Fifty Thousand
(1,150,000) shares of Class C Nonvoting Preferred Stock ("Class C
Preferred Stock") which are preferred shares without par value."
IN WITNESS WHEREOF, the President and Secretary, acting for and on
behalf of said corporation, have signed their names to this certificate on
November 24, 1997.
/s/ John B. Gerlach, Jr.
-------------------------------
John B. Gerlach, Jr., President
/s/ David M. Segal
-------------------------------
David M. Segal, Secretary
<PAGE> 1
Exhibit 13
BUSINESS SEGMENTS
Lancaster Colony Corporation and Subsidiaries
For the Years Ended 1998, 1997 and 1996
The Company operates in three business segments - Specialty Foods, Glassware and
Candles, and Automotive. The net sales of each segment are principally domestic.
A further description of each business segment follows:
SPECIALTY FOODS-includes production and marketing of a family of pourable and
refrigerated produce salad dressings, croutons, sauces, refrigerated produce
vegetable and fruit dips, chip dips, dairy snacks and desserts, dry and frozen
egg noodles, caviar, frozen ready-to-bake pies and frozen hearth-baked breads.
The salad dressings, sauces and frozen bread products are sold to both retail
and foodservice markets. The remaining products of this business segment are
primarily directed to retail markets.
GLASSWARE AND CANDLES-includes the production and marketing of table and
giftware consisting of domestic glassware, both machine pressed and machine
blown; imported glassware; candles in all popular sizes, shapes and scents;
potpourri and related scented products; industrial glass and lighting
components; and glass floral containers. This segment's products are sold
primarily to mass merchandisers, discount and department stores.
AUTOMOTIVE-includes production and marketing of rubber, vinyl and
carpet-on-rubber car mats for original equipment manufacturers, importers and
for the auto aftermarket; truck and trailer splash guards; pickup truck bed mats
and liners; aluminum running boards for pickup trucks and vans; and a broad line
of auto accessories.
Operating income represents net sales less operating expenses related to the
business segments. The Glassware and Candles segment's 1998 operating income
includes approximately $1,800,000 in nonrecurring gains on the sales of real
estate. Expenses of a general corporate nature, including interest expense and
income taxes, have not been allocated to the business segments. Identifiable
assets for each segment include those assets used in its operations and
intangible assets allocated to purchased businesses. Corporate assets consist
principally of cash, cash equivalents and deferred income taxes.
The 1998 and 1996 capital expenditures of the Specialty Foods segment includes
property relating to business acquisitions totaling $3,690,000 and $213,000,
respectively.
The following sets forth certain financial information attributable to the
Company's business segments for the three years ended June 30, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Specialty Foods $ 411,373 $351,012 $329,420
Glassware and Candles 363,835 336,200 297,937
Automotive 233,544 235,601 228,555
- --------------------------------------------------------------------------------------------------------------------------
Total $1,008,752 $922,813 $855,912
==========================================================================================================================
Operating Income
Specialty Foods $ 61,154 $ 47,308 $ 35,579
Glassware and Candles 82,317 81,455 76,068
Automotive 18,501 20,310 18,561
- --------------------------------------------------------------------------------------------------------------------------
Total 161,972 149,073 130,208
Corporate expenses (6,599) (6,614) (6,987)
- --------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes $ 155,373 $142,459 $123,221
==========================================================================================================================
Identifiable Assets
Specialty Foods $ 121,659 $ 95,130 $102,606
Glassware and Candles 264,569 235,154 205,232
Automotive 108,238 110,525 113,003
Corporate 34,901 43,585 14,518
- --------------------------------------------------------------------------------------------------------------------------
Total $ 529,367 $484,394 $435,359
==========================================================================================================================
Capital Expenditures
Specialty Foods $ 9,347 $ 4,625 $ 8,856
Glassware and Candles 29,847 21,986 33,038
Automotive 9,372 10,817 8,501
Corporate 59 100 47
- --------------------------------------------------------------------------------------------------------------------------
Total $ 48,625 $ 37,528 $ 50,442
==========================================================================================================================
Depreciation and Amortization
Specialty Foods $ 7,425 $ 5,546 $ 4,753
Glassware and Candles 16,367 12,520 10,767
Automotive 8,684 8,814 8,749
Corporate 95 101 130
- --------------------------------------------------------------------------------------------------------------------------
Total $ 32,571 $ 26,981 $ 24,399
==========================================================================================================================
</TABLE>
<PAGE> 2
FIVE YEAR FINANCIAL SUMMARY
Lancaster Colony Corporation and Subsidiaries
<TABLE>
<CAPTION>
(Thousands Except Per Share Figures) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Sales $1,008,752 $922,813 $855,912 $795,126 $721,732
Gross Margin $ 324,397 $290,762 $263,952 $247,942 $232,096
Percent of Sales 32.2% 31.5% 30.8% 31.2% 32.2%
Interest Expense $ 2,626 $ 2,596 $ 2,875 $ 2,736 $ 2,849
Percent of Sales 0.3% 0.3% 0.3% 0.3% 0.4%
Income Before Income Taxes $ 155,373 $142,459 $123,221 $114,808 $ 98,093
Percent of Sales 15.4% 15.4% 14.4% 14.4% 13.6%
Taxes Based on Income $ 59,243 $ 53,753 $ 47,086 $ 44,284 $ 38,233
Net Income $ 96,130 $ 88,706 $ 76,135 $ 70,524 $ 59,860
Percent of Sales 9.5% 9.6% 8.9% 8.9% 8.3%
Per Common Share:(1)
Net Income- Basic And Diluted $ 2.22 $ 2.01 $ 1.71 $ 1.57 $ 1.32
Cash Dividends $ 0.54 $ 0.48 $ 0.44 $ 0.37 $ 0.29
- --------------------------------------------------------------------------------------------------------------------------
Financial Position
Total Assets $ 529,367 $484,394 $435,359 $379,904 $355,445
Working Capital $ 235,031 $235,079 $203,988 $189,255 $163,546
Property, Plant and Equipment--Net $ 170,766 $151,309 $139,095 $113,187 $101,570
Long-Term Debt $ 29,095 $ 30,685 $ 31,230 $ 31,840 $ 32,933
Property Additions $ 44,935 $ 37,528 $ 50,229 $ 31,745 $ 23,532
Depreciation and Amortization $ 32,571 $ 26,981 $ 24,399 $ 22,717 $ 22,403
Shareholders' Equity $ 410,563 $368,000 $323,563 $277,148 $236,847
Per Common Share(1) $ 9.60 $ 8.45 $ 7.29 $ 6.19 $ 5.22
Weighted Average
Common Shares Outstanding- Diluted(1) 43,364 44,108 44,624 45,057 45,476
- --------------------------------------------------------------------------------------------------------------------------
Statistics
Price-Earnings Ratio at Year End 17.1 16.0 14.6 15.2 18.0
Current Ratio 4.1 4.2 3.9 4.1 3.2
Long-Term Debt as
a Percent of Shareholders' Equity 7.1% 8.3% 9.7% 11.5% 13.9%
Dividends Paid as a Percent
of Net Income 24.3% 23.8% 25.7% 23.4% 22.3%
Return on Average Equity 24.7% 25.7% 25.3% 27.4% 27.9%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for 3-for-2 stock split paid January 1998, 4-for-3 stock split
paid July 1994 and/or adoption of Statement of Financial Accounting
Standard No. 128 "Earnings Per Share" in Fiscal 1998.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Results of Operations and Financial Condition
Review of Consolidated Operations
For the fiscal year ended June 30, 1998, the Company achieved a record level of
consolidated net sales totaling $1,008,752,000. This amount represented a 9%
increase over the $922,813,000 recorded for fiscal 1997. The overall sales
increase for fiscal 1998 of $85,939,000 was primarily attributable to the
Specialty Foods segment which increased by $60,361,000 as this segment benefited
from the July 1997 acquisition of the Chatham Village product lines. The
Glassware and Candles segment also achieved a sales increase of $27,635,000
during fiscal 1998 although the Automotive segment declined by $2,057,000.
Consistent with recent years, competitive conditions have minimized the effect
of any year-over-year increases in unit selling prices. For fiscal 1997,
increased sales of the Glassware and Candles segment were primarily responsible
for that year's consolidated net sales increasing 8% over the fiscal 1996 total
of $855,912,000.
A record level of net income was also attained in fiscal 1998 totaling
$96,130,000, an 8% increase over the $88,706,000 recorded in fiscal 1997. This
improvement was essentially the result of the increased sales volume discussed
above. Net income for 1997 was 17% above the fiscal 1996 total of $76,135,000.
The relative proportion of sales and operating income contributed by each of the
Company's operating segments can impact a year-to-year comparison of the
consolidated statements of income. The following table summarizes the sales mix
and related operating income percentages achieved by the operating segments over
each of the last three years:
<TABLE>
<CAPTION>
Segment Sales Mix(1): 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Foods 41% 38% 38%
Glassware and Candles 36% 36% 35%
Automotive 23% 26% 27%
Segment Operating Income(2):
- --------------------------------------------------------------------------------
Specialty Foods 15% 13% 11%
Glassware and Candles 23% 24% 26%
Automotive 8% 9% 8%
</TABLE>
(1) Expressed as a percentage of consolidated net sales.
(2) Expressed as a percentage of the related segment's net sales.
Expressed as a percentage of net sales, the Company's consolidated gross margins
increased to 32.2% in 1998 compared to 31.5% in 1997 and 30.8% in 1996.
Influencing the current year's improvement were better margins within the
Specialty Foods segment as it benefited from a more favorable sales mix. The
consolidated percentage also reflects a higher proportion of sales of specialty
foods and candles. These products have higher average gross margins than many of
the Company's other products. However, during fiscal 1998, this improvement was
somewhat offset by the Automotive segment's margins declining slightly on lower
production volumes. Compared to 1996, the 1997 margins were enhanced primarily
by the Specialty Foods segment experiencing lower raw material costs and a more
favorable sales mix. This improvement was somewhat offset by the Glassware and
Candles segment experiencing a decline in margins due to increases in certain
raw material costs and certain production inefficiencies.
Total selling, general and administrative expenses for 1998 of $168,526,000
increased 15% over the 1997 total of $146,403,000. The total of such expenses
for fiscal 1997 also increased 6% over the 1996 total of $138,206,000. These
increases generally result from the effects of higher sales volumes on
sales-related costs. Particularly impacting the fiscal 1998 total is the greater
mix of sales from the Specialty Foods segment relative to the consolidated
total. Such sales have a higher level of associated selling costs compared to
that of the other segments. The relative level of promotional selling costs also
increased within the Specialty Foods segment during 1998 and included expenses
associated with the development of new retail markets.
Consistent with the increased sales volume, 1998 consolidated operating income
increased by 8% to $155,871,000 compared to $144,359,000 recorded in 1997. The
prior year's operating income had increased 15% over the 1996 total of
$125,746,000.
Stated as a percentage of pretax income, the Company's effective tax rate
increased slightly to 38.1% compared to 37.7% in 1997. The effective rate for
1996 was 38.2%.
Earnings per share of $2.22 increased 10% in 1998 over the $2.01 reported in
1997, after adjustment for the three-for-two stock split paid in January 1998.
Compared to the adjusted 1996 earnings per share of $1.71, the 1997 total had
increased 18%. In addition to the increased levels of corporate earnings,
earnings per share have been beneficially affected by the Company's share
repurchases which have totaled in excess of $88 million over the three-year
period ended June 30, 1998.
Segment Review - Specialty Foods
Record net sales of $411,373,000 were achieved by the Specialty Foods segment
during fiscal 1998. This total increased 17% over the 1997 total of
$351,012,000. Compared to 1996 sales of $329,420,000, 1997 sales had increased
7%. In all three years, retail and foodservice sales comprised 55% and 45% of
total sales, respectively.
The increase in retail sales during 1998 was influenced by the acquisition of
the Chatham Village crouton business in July 1997. Sales increases were also
provided by fruit and vegetable dips and by the success of recently introduced
Texas Toast frozen bread products. Sales in 1997 benefited from volume increases
in products sold to grocery produce departments, increased private label sales
and the growth in product lines sold through specialty distributors. The
November 1995 purchase of the Cardini lines of food products significantly
contributed to the growth of the latter category of products. Foodservice sales
during the last two years have also increased due to the expansion of sales to
both national restaurant chains and wholesale distributors.
Operating margins of $61,154,000 in 1998 improved due to such factors as better
capacity utilization and a more favorable sales mix. Compared to 1996 operating
income of $35,579,000, this segment had significantly improved operating margins
during 1997 as operating income totaled $47,308,000. This improvement was
influenced by a generally broad-based reduction in raw material costs which was
primarily concentrated in the latter half of the fiscal year. Soybean oil cost
returned to more historic norms after three years at considerably higher levels.
As this segment enters fiscal 1999, soybean oil costs are above the levels of
1998.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
Segment Review - Glassware and Candles
Net sales for this segment totaled $363,835,000 in fiscal 1998 which was an 8%
improvement over the $336,200,000 achieved in 1997. Sales of candles and related
products to mass merchants were principally responsible for this
internally-generated growth. Partially offsetting this growth was a decline in
private label wax-filled glass products and a generally lackluster demand for
glass tableware. The 1997 sales level increased 13% over the 1996 total of
$297,937,000. Candle products also led the growth for 1997 with private label
business providing a significant component of this growth.
This segment's operating income increased by 1% in 1998 and totaled $82,317,000
compared to $81,455,000 achieved in 1997. Among the factors adversely affecting
1998 margins were higher wax costs, certain operating inefficiencies at the
consumer glassware plants, competitive pricing conditions, promotional expenses
and a less favorable sales mix. Also included in this segment's 1998 income is
approximately $1,800,000 in nonrecurring gains on the sales of real estate. The
7% increase in 1997 operating income over the 1996 total of $76,068,000 was
primarily attributable to the effect of increased sales volumes. Offsetting this
effect were such factors as a less favorable sales mix, higher wax and natural
gas costs and certain production inefficiencies occurring in both the candle and
glassware manufacturing operations.
Segment Review - Automotive
Adversely affected by a decline in aftermarket sales, fiscal 1998 net sales of
the Automotive segment totaling $233,544,000 declined 1% from the 1997 total of
$235,601,000. The sales of light truck bedliners were adversely impacted by
industry over-capacity and intense competitive pricing conditions. Sales to
original equipment manufacturers ("OEMs") increased during 1998 with particular
strength in aluminum accessories for light trucks and sport utility vehicles.
Sales of automotive floor mats and aluminum truck and van accessories led the 3%
increase in 1997 sales over the 1996 total of $228,555,000. A decline in
bedliner sales during 1997 mitigated this increase.
The operating income of this segment for 1998 totaled $18,501,000, a 9% decrease
from the $20,310,000 recorded in 1997. This decline is attributable to the lower
sales volume, a less favorable sales mix and pricing pressures, particularly on
sales to OEMs. Unrelated labor work stoppages occurring in June 1998, at both a
major customer and at the Company's Wapakoneta, Ohio facility, also adversely
affected this segment's capacity utilization. The level of 1997 operating income
improved 9% from the $18,561,000 recorded in 1996. Contributing to this
improvement were greater production efficiencies and generally lower raw
material costs.
This segment's sales to OEMs are made both directly to the OEMs and indirectly
through a third party, "Tier 1" supplier. Such sales are sensitive to the
overall rate of new vehicle sales, the availability of competitive alternatives
and the Tier 1 supplier's ongoing ability to maintain its relationship with the
OEMs. Additionally, the extent of pricing flexibility associated with these
sales continues to be particularly limited with certain products subject to
annual price reductions. During 1998, sales to OEMs comprised 49% of this
segment's sales compared to 44% and 43% in 1997 and 1996, respectively.
Liquidity and Capital Resources
As of June 30, 1998 the Company's balance sheet maintains a position of
financial strength. This posture has been accomplished through the benefits of
increasing cash flow with net cash provided by operating activities totaling
$120,045,000, $113,461,000 and $84,474,000 for 1998, 1997 and 1996,
respectively. The primary influence on these amounts has been the Company's
increasing net income. This cash flow generated from operations remains the
primary source of financing the Company's internal growth.
Over the last three fiscal years the Company has made investments in property,
plant and equipment totaling $132,692,000, including $44,935,000 in 1998. The
Glassware and Candles segment has been the primary user of such funds during
each of these years. During 1998, this segment completed a new distribution
facility adjacent to the existing candle manufacturing facility located in
Leesburg, Ohio. Substantial progress was also made in completing a manufacturing
addition at the same facility. Additionally, during July 1997, the Company
acquired the outstanding stock of Chatham Village Foods, Inc., a manufacturer
and marketer of croutons and related products. The total of cash paid and debt
assumed by the Company in consummating this acquisition exceeded $20,000,000.
Significant financing activities conducted during 1998 included the purchase of
$37,083,000 of the Company's common stock compared to $29,554,000 in 1997. Total
dividend payments for 1998 were $23,326,000 which was more than 10% greater than
the 1997 total of $21,114,000. This increase reflects the higher dividend payout
rate of $.54 in 1998 as compared to $.48 in 1997. The future levels of share
purchases and declared dividends continue to be subject to periodic review of
the Company's Board of Directors and are generally determined after an
assessment is made of such factors as anticipated earnings levels, cash flow
requirements and general business conditions.
The Company's balance sheet reflects a relatively low level of leverage as the
debt to total capital ratio remains low at 7% at June 30, 1998 compared to 8% at
June 30, 1997. Management believes this posture provides the Company with
considerable flexibility to acquire businesses complementary to the Company's
existing operations. It is anticipated that adequate borrowings will continue to
be made available under discretionary bank lines of credit to meet any
short-term cash requirements not otherwise met by cash generated from
operations.
The Company's ongoing business activities continue to be subject to
compliance with various laws, rules and regulations as may be issued and
enforced by various Federal, state and local agencies. With respect to
environmental matters, costs are incurred pertaining to regulatory compliance
and, upon
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
occasion, remediation. Such costs have not been, and are not anticipated to
become, material.
Impact of Inflation
Generally, fiscal 1998 encountered relatively moderate changes in raw material
costs. Wax costs trended somewhat higher while many other material costs
actually held steady or declined modestly. Compared to 1996, 1997 had markedly
lower level of food commodity costs although higher costs of plastics, wax and
natural gas prevailed throughout the year.
The Company generally attempts to adjust its selling prices to offset the
effects of increased raw material costs. However, these adjustments have
historically been difficult to implement on a timely basis relative to the
increase in costs incurred. Minimizing the exposure to such increased costs is
the Company's diversity of operations and its ongoing efforts to achieve greater
manufacturing and distribution efficiencies through the improvement of work
processes.
Year 2000
Lancaster Colony is in the process of preparing for the consequences that the
year 2000 may have on its ability to rely on data processing and other automated
operational functions which are date-dependent. This "Year 2000" problem arises
as a result of many automated calculations being written in computer code which
does not properly recognize dates after 1999. Problems associated with this
issue can occur not only on "mainframe" applications, but also with such devices
as personal computers, telecommunication equipment and programmable logic
controllers associated with certain manufacturing equipment. Without correction,
it is possible that business and operational functions that rely on this
improper code could fail and cause significant business disruption and loss.
The Company's existing data processing structure could be characterized as
decentralized in nature. Management believes the Company's business units have
completed an adequate assessment of the internal Year 2000 dependencies relating
to their critical data processing functions. However, there are no assurances
that this process has identified all the existing Year 2000 exposures.
Furthermore, such a failure could result in a materially adverse impact to the
Company although the extent of this impact is not believed to be reasonably
estimable.
Depending on the business unit's particular circumstance, the manner of
resolving the identified Year 2000 shortcomings has included strategies such as
implementing Year 2000 compliant versions of third party software, modifying
portions of existing software and replacing non-compliant business systems with
new third party software. A combination of internal and external resources is
being used to assist the Company through a multi-phased concurrent approach,
which encompasses identification, implementation and testing phases, to address
the associated Year 2000 issues. Generally, the Company has completed the
identification phase and is currently engaged in the implementation and testing
phases. Based on existing plans, it is anticipated that the Company's ongoing
efforts to remediate data processing systems to be Year 2000 compliant will be
completed by the middle of calendar 1999.
The most significant data processing expenditures are being made within the
Company's Automotive segment. This segment is in the process of implementing
comprehensive new third party software and hardware with Year 2000 compliance
being regarded as one of the several resulting benefits. The Company's aggregate
costs to date are approximately $3 million, which include capitalized costs
incurred by the Automotive segment of approximately $2.2 million. The Company
estimates an additional $3 million of cost will be incurred, of which
approximately $2 million will relate to the Automotive segment's data processing
project. Expenditures associated with making changes to existing systems for
Year 2000 compliance are being expensed as incurred. Costs associated with the
Company's efforts, both incurred and planned, are not believed to be material to
the Company's consolidated results of operations, liquidity and financial
condition. Due to the nature of the Company's efforts, actual costs could vary
significantly from that currently anticipated and there are no guarantees
regarding the timing or efficacy of completion.
As noted above, the Year 2000 issue may also affect systems ("non-IT systems")
not traditionally identified with information technology. For example,
production machinery which is dependent on reading the current date could become
inoperable if the machine's embedded code does not allow for proper
interpretation of a year beyond 1999. The Company is in the process of
inventorying and assessing its Year 2000 exposure with respect to non-IT systems
but is not currently aware of any significant deficiencies. There can be no
assurances, however, that such deficiencies do not exist. The effect of not
resolving these issues on a timely basis could have a materially adverse impact
on the Company.
Another risk presented by the Year 2000 issue is that significant customers and
suppliers of the Company could fail to become fully Year 2000 compliant. This
failure, in turn, could result in a significant adverse effect to the Company's
operations. The Company is in the process of making inquiries of its significant
suppliers as to the state of their Year 2000 readiness. It is believed that
these inquiries will become increasingly more meaningful as the year 2000
approaches. Regardless, there can be no assurance that the data processing and
non-IT systems utilized by these other companies will become Year 2000 compliant
on a timely basis. The impact of noncompliance is not currently estimable, but
it is possible that significant failures could have a material adverse effect on
the Company's operations.
Although the Company has not yet adopted formal contingency arrangements to
address the possibility that internal, customer or supplier systems may not
become Year 2000 compliant, management will develop such plans which may be
required as fiscal 1999 evolves and the risk of such exposures, if any, become
better clarified. The costs and business implications which might be associated
with the adoption of any such contingency plan is not estimable but could be
significant.
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Years Ended June 30
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,008,752,000 $922,813,000 $855,912,000
Cost of Sales 684,355,000 632,051,000 591,960,000
- -------------------------------------------------------------------------------------------------------------------------
Gross Margin 324,397,000 290,762,000 263,952,000
Selling, General and Administrative Expenses 168,526,000 146,403,000 138,206,000
- -------------------------------------------------------------------------------------------------------------------------
Operating Income 155,871,000 144,359,000 125,746,000
Other Income (Expense):
Interest expense (2,626,000) (2,596,000) (2,875,000)
Interest income and other--net 2,128,000 696,000 350,000
- -------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 155,373,000 142,459,000 123,221,000
Taxes Based on Income 59,243,000 53,753,000 47,086,000
=========================================================================================================================
Net Income $ 96,130,000 $ 88,706,000 $ 76,135,000
=========================================================================================================================
Net Income Per Common Share:
Basic $2.22 $2.01 $1.71
Diluted $2.22 $2.01 $1.71
=========================================================================================================================
Weighted Average Common Shares Outstanding:
Basic 43,271,000 44,060,000 44,558,000
Diluted 43,364,000 44,108,000 44,624,000
=========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
Lancaster Colony Corporation and Subsidiaries
as of June 30, 1998 and 1997
<TABLE>
<CAPTION>
June 30
Assets 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 23,224,000 $ 32,109,000
Receivables (less allowance for doubtful accounts,
1998--$2,774,000; 1997--$2,861,000) 99,870,000 102,457,000
Inventories:
Raw materials and supplies 44,915,000 42,339,000
Finished goods and work in process 130,282,000 118,912,000
- --------------------------------------------------------------------------------------------------------------------------
Total inventories 175,197,000 161,251,000
Prepaid expenses and other current assets 13,257,000 12,966,000
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 311,548,000 308,783,000
Property, Plant And Equipment:
Land, buildings and improvements 103,252,000 89,232,000
Machinery and equipment 270,781,000 248,069,000
- --------------------------------------------------------------------------------------------------------------------------
Total cost 374,033,000 337,301,000
Less accumulated depreciation 203,267,000 185,992,000
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--net 170,766,000 151,309,000
Other Assets:
Goodwill (net of accumulated amortization,
1998--$6,872,000; 1997--$5,438,000) 37,045,000 19,810,000
Other Assets 10,008,000 4,492,000
- --------------------------------------------------------------------------------------------------------------------------
Total $529,367,000 $484,394,000
==========================================================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt $ 510,000 $ 545,000
Accounts payable 41,804,000 33,203,000
Accrued liabilities 34,203,000 39,956,000
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 76,517,000 73,704,000
Long-Term Debt--Less Current Portion 29,095,000 30,685,000
Other Noncurrent Liabilities 7,325,000 7,895,000
Deferred Income Taxes 5,867,000 4,110,000
Shareholders' Equity:
Preferred stock--authorized 3,050,000 shares;
outstanding--none
Common stock--authorized 75,000,000 shares;
Shares outstanding, 1998--42,753,488; 1997--29,016,836 50,392,000 43,573,000
Retained earnings 477,587,000 404,783,000
Foreign currency translation adjustment 98,000 75,000
- --------------------------------------------------------------------------------------------------------------------------
Total 528,077,000 448,431,000
Less common stock in treasury, at cost 117,514,000 80,431,000
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 410,563,000 368,000,000
- --------------------------------------------------------------------------------------------------------------------------
Total $529,367,000 $484,394,000
==========================================================================================================================
</TABLE>
See Notes To Consolidated Financial Statements
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Years Ended June 30
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 96,130,000 $ 88,706,000 $ 76,135,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 32,571,000 26,981,000 24,399,000
Provision for losses on accounts receivable 1,691,000 1,813,000 2,089,000
Deferred income taxes and other noncash charges 887,000 (669,000) (190,000)
(Gain) loss on sale of property (1,965,000) 530,000 233,000
Changes in operating assets and liabilities:
Receivables 2,661,000 1,133,000 (18,478,000)
Inventories (12,635,000) (9,656,000) (8,982,000)
Prepaid expenses and other current assets 81,000 208,000 334,000
Accounts payable and accrued liabilities 624,000 4,415,000 8,934,000
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 120,045,000 113,461,000 84,474,000
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Payments on property additions (44,935,000) (37,528,000) (50,229,000)
Acquisitions net of cash acquired (19,749,000)
Proceeds from sale of property 3,634,000 52,000 1,784,000
Other--net (9,165,000) (3,629,000) (638,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (70,215,000) (41,105,000) (49,083,000)
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payment of dividends (23,326,000) (21,114,000) (19,591,000)
Purchase of treasury stock (37,083,000) (29,554,000) (21,457,000)
Payments on long-term debt, including acquisition debt payoff (5,148,000) (610,000) (1,026,000)
Reduction of ESOP debt 1,279,000 1,278,000
Common stock issued, including stock issued upon
exercise of stock options and related tax benefit 6,819,000 5,082,000 1,785,000
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (58,738,000) (44,917,000) (39,011,000)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 23,000 51,000
- ----------------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents (8,885,000) 27,439,000 (3,569,000)
Cash and equivalents at beginning of year 32,109,000 4,670,000 8,239,000
- ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 23,224,000 $ 32,109,000 $ 4,670,000
============================================================================================================================
</TABLE>
See Notes To Consolidated Financial Statements
<PAGE> 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Lancaster Colony Corporation and Subsidiaries
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Foreign
Currency Amount
Outstanding Common Retained Translation Treasury Due From
Shares Stock Earnings Adjustment Stock ESOP
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 29,829,000 $28,086,000 $280,538,000 $501,000 $ 29,420,000 $2,557,000
Year Ended June 30, 1996:
Net income 76,135,000
Cash dividends-- common stock
($.44 per share) (19,591,000)
Purchase of treasury shares (601,955) 21,457,000
Shares issued upon exercise of stock
options including related tax benefits 63,629 1,405,000
Tax benefit of cash dividends paid
on ESOP unallocated shares 71,000
Shares issued in business acquisition 272,727 9,000,000
Reduction of ESOP debt (1,278,000)
Translation adjustment (426,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 29,563,401 38,491,000 337,153,000 75,000 50,877,000 1,279,000
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1997:
Net income 88,706,000
Cash dividends-- common stock
($.48 per share) (21,114,000)
Purchase of treasury shares (691,882) 29,554,000
Shares issued upon exercise of stock
options including related tax benefits 145,317 5,082,000
Tax benefit of cash dividends paid
on ESOP unallocated shares 38,000
Reduction of ESOP debt (1,279,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 29,016,836 43,573,000 404,783,000 75,000 80,431,000
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1998:
Net income 96,130,000
Cash dividends-- common stock
($.54 per share) (23,326,000)
Purchase of treasury shares (987,150) 37,083,000
Shares issued upon exercise of stock
options including related tax benefits 215,659 6,819,000
Shares issued in connection with
three-for-two stock split 14,508,143
Translation adjustment 23,000
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 42,753,488 $50,392,000 $477,587,000 $ 98,000 $117,514,000
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lancaster Colony Corporation and Subsidiaries
1. SUMMARY OF Principles of Consolidation
SIGNIFICANT
ACCOUNTING The accompanying consolidated financial statements include
POLICIES the accounts of Lancaster Colony Corporation and its
wholly-owned subsidiaries, collectively referred to as the
"Company." All significant intercompany transactions have
been eliminated.
Use of Estimates
The preparation of the consolidated financial statements of
the Company in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, as
well as their related disclosures. Such estimates and
assumptions also affect the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassed to conform
to the current year presentation.
Cash Equivalents
The Company considers all highly liquid investments
purchased with maturities of three months or less to be
cash equivalents.
Property, Plant and Equipment
The Company uses the straight-line method of computing
depreciation for financial reporting purposes based on the
estimated useful lives of the corresponding assets.
Estimated useful lives for buildings and improvements range
from ten to forty years while machinery and equipment range
from three to ten years. For tax purposes, the Company
generally computes depreciation using accelerated methods.
Goodwill
For financial reporting purposes goodwill is being
amortized over ten to forty years, with the exception of
$2,243,000 which relates to a company acquired prior to
November 1, 1970. Such amount is not being amortized as, in
the opinion of management, there has been no diminution in
value. Management periodically evaluates the future
economic benefit of its recorded goodwill and other
long-term assets and appropriately adjusts such amounts
when determined to have been impaired based on the
difference between the fair value of an asset and its
carrying amount.
Revenue Recognition
Net sales and related cost of sales are recognized upon
shipment of products. Net sales are recorded net of
estimated sales discounts and returns.
Per Share Information
Net income per common share is computed based on the
weighted average number of shares of common stock and
common stock equivalents (stock options) outstanding during
each period. In December 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." SFAS No. 128 is effective for
financial statements for periods ending after December 15,
1997, including interim periods, and requires restatement
of prior periods. Accordingly, all net income per share and
weighted average common shares outstanding data has been
presented in accordance with SFAS No. 128 in the
accompanying consolidated financial statements. Under SFAS
No. 128, the Company is required to present basic earnings
per share and diluted earnings per share. Basic earnings
per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted
average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing
income available to common stockholders by the diluted
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. On January 27,
1998, a three-for-two stock split was affected whereby one
additional common share was issued for each two shares
outstanding to shareholders of record on January 6, 1998.
Accordingly, per share data and weighted average common
shares outstanding for all periods presented in the
accompanying consolidated financial statements have been
retroactively adjusted for this split.
<PAGE> 11
Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash
equivalents and trade accounts receivable. The Company
places its cash equivalents with high-quality institutions
and, by policy, limits the amount of credit exposure to any
one institution. Concentration of credit risk with respect
to trade accounts receivable is limited by the Company
having a large and diverse customer base.
Business Segments
The business segments information for 1998, 1997 and 1996
included on page 10 and 11 of this Annual Report is an
integral part of these financial statements. In June 1997,
the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This Statement establishes standards
to be utilized by public business enterprises in reporting
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial reports to
shareholders. It also establishes standards for related
disclosures regarding products and services, geographic
areas and major customers.
The Statement will be effective for the Company for fiscal
1999 and will require comparative information for earlier
years. Interim financial information will not be required
during the initial year of application; however,
comparative interim financial information will be required
for interim periods in the second year of application.
Management has not yet completed its analysis of this
Statement as to its impact on the Company's financial
disclosures.
Comprehensive Income
During June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income." This
Statement will be effective for fiscal years beginning
after December 15, 1997 or the Company's fiscal year
beginning July 1, 1998. The Statement is effective for
interim periods and will require reclassification of
financial statements for earlier periods provided for
comparative purposes. SFAS No. 130 will require the Company
to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated
balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the
equity section of the Consolidated Balance Sheet.
Derivative Instruments and Computer Software Costs
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities," which revises the accounting for
derivative financial instruments. In March 1998, the
American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,"
which revises the accounting for software development
costs. The Statements will be effective for the Company the
first quarter of fiscal 2000. Management has not yet
completed its analysis of these Statements as to their
impact on the Company's financial statements and/or
disclosures.
2. ACQUISITIONS During July 1997, the Company acquired all of the common
stock of Chatham Village Foods, Inc., an upscale salad
crouton business, for cash of approximately $19,749,000.
This amount was financed through the use of internally
generated funds. The related liabilities assumed totalled
approximately $5,747,000. During November 1995, the Company
acquired all of the common stock of a specialty foods
marketer of upscale salad dressings via a stock-for-stock
transaction. This transaction resulted in the issuance of
approximately 409,500 shares of Lancaster Colony
Corporation common stock, restated for the effect of the
stock split in January 1998, having a fair market value of
approximately $9,000,000 in exchange for cash of $380,000
and other assets and liabilities having a fair market value
of $1,718,000 and $825,000, respectively. These
acquisitions were accounted for under the purchase method
of accounting and the non-cash aspects have been excluded
from the accompanying Consolidated Statement 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.
3. INVENTORIES Inventories are valued at the lower of cost or market.
Inventories which comprise approximately 22% and 21% of
total inventories at June 30, 1998 and 1997, respectively,
are costed on a last-in, first-out (LIFO) basis.
Inventories which are costed by various other methods
approximate actual cost on a first-in, first-out (FIFO)
basis. If the FIFO method (which approximates current cost)
of inventory accounting had been used for inventories
costed on a LIFO basis, these inventories would have been
$14,531,000 and $14,704,000 higher than reported at June
30, 1998 and 1997, respectively.
It is not practicable to segregate work in process from
finished goods inventories. Management estimates, however,
that work in process inventories amount to less than 10% of
the combined total of finished goods and work in process
inventories at June 30, 1998 and 1997.
<PAGE> 12
4. SHORT-TERM BORROWINGS As of June 30, 1998, 1997 and 1996, the Company had
unused lines of credit for short-term borrowings from
various banks of $85,000,000, $174,000,000 and
$199,000,000, respectively. The lines of credit are
granted at the discretion of the lending banks and
are generally subject to periodic review. As of June
30, 1998 and 1997, the Company had no short-term
borrowings under its line of credit arrangements.
5. ACCRUED LIABILITIES Accrued liabilities at June 30, 1998 and 1997 are
composed of:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C>
Income and other taxes ($ 4,603) $ 2,496
Accrued compensation and employee benefits 25,813 25,103
Accrued marketing and distribution 4,839 6,287
Other 8,154 6,070
--------------------------------------------------------------------------------------------
Total accrued liabilities $34,203 $39,956
============================================================================================
</TABLE>
6. LONG-TERM DEBT Long-term debt (including current portion) at
June 30, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable (8.9%, due in February 2000) $25,000 $25,000
Obligations with various industrial development
authorities-collateralized by real estate
and equipment:
Floating rate due in installments to 2005 4,605 5,010
7%, paid in 1998 1,220
--------------------------------------------------------------------------------------------
Total 29,605 31,230
Less current portion 510 545
--------------------------------------------------------------------------------------------
Long-term debt $29,095 $30,685
============================================================================================
</TABLE>
No material debt was assumed for the purchase of
property additions in 1998, 1997 and 1996. Cash
payments for interest were $2,646,000, $2,603,000 and
$2,875,000 for 1998, 1997 and 1996, respectively.
Various debt agreements require the maintenance of
certain financial statement amounts and ratios,
including a requirement to maintain a specified
minimum net worth, as defined. At June 30, 1998, the
Company exceeded this net worth requirement by
approximately $76,741,000.
<TABLE>
<CAPTION>
Long-term debt matures as follows: (Dollars In Thousands)
--------------------------------------------------------------------------------------------
<S> <C>
Year ending June 30:
1999 $ 510
2000 25,520
2001 535
2002 545
2003 555
After 2003 1,940
--------------------------------------------------------------------------------------------
Total $29,605
============================================================================================
</TABLE>
Based on the borrowing rates currently available for
long-term debt with similar terms and average
maturities, the estimated fair value of total
long-term debt is approximately $30,497,000 and
$32,179,000 at June 30, 1998 and 1997, respectively.
<PAGE> 13
7. INCOME TAXES The Company and its domestic subsidiaries file a
consolidated Federal income tax return. Taxes based
on income for the years ended June 30, 1998, 1997 and
1996, have been provided as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $49,798 $49,063 $40,476
State and local 7,612 5,579 5,863
--------------------------------------------------------------------------------------------
Total current provision 57,410 54,642 46,339
Deferred Federal, state and local
provision (credit) 1,833 (889) 747
--------------------------------------------------------------------------------------------
Total taxes based on income $59,243 $53,753 $47,086
============================================================================================
</TABLE>
Tax expense resulting from allocating certain tax
benefits directly to common stock and retained
earnings totaled $647,000, $323,000 and $427,000 for
1998, 1997 and 1996, respectively. The Company's
effective tax rate varies from the statutory Federal
income tax rate as a result of the following factors:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes 3.1 2.5 3.0
Other 0.2 0.2
--------------------------------------------------------------------------------------------
Effective rate 38.1% 37.7% 38.2%
============================================================================================
</TABLE>
Deferred income taxes recorded in the consolidated
balance sheets at June 30, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Inventories $ 5,729 $ 4,797
Employee medical and other benefits 5,079 5,010
Receivable valuation allowances 2,421 2,195
Other accrued liabilities 3,031 3,519
--------------------------------------------------------------------------------------------
Total deferred tax assets 16,260 15,521
--------------------------------------------------------------------------------------------
Total deferred tax liabilities - Property and other (11,477) (8,930)
--------------------------------------------------------------------------------------------
Net deferred tax asset $ 4,783 $ 6,591
============================================================================================
</TABLE>
Cash payments for income taxes were $63,633,000,
$54,225,000 and $46,547,000 for 1998, 1997 and 1996,
respectively.
8. SHAREHOLDERS' EQUITY The Company is 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.
In April 1990, the Company's Board of Directors
adopted a Rights Agreement which provides for one
preferred share purchase right to be associated with
each share of the Company's outstanding common stock.
Shareholders exercising these rights would become
entitled to purchase shares of Class A Participating
Preferred Stock. The rights may be exercised on or
after the time when a person or group of persons
without the approval of the Board of Directors
acquire beneficial ownership of 15 percent or more of
the Company's common stock or announce the initiation
of a tender or exchange offer which if successful
would cause such person or group to beneficially own
30 percent or more of the common stock. Such exercise
may ultimately entitle the holders of the rights to
purchase for $17.50 per right common stock of the
Company having a market value of $35. The person or
groups effecting such 15 percent acquisition or
undertaking such tender offer will not be entitled to
exercise any rights. These rights expire April 2000
unless earlier redeemed by the Company under
circumstances permitted by the Rights Agreement.
<PAGE> 14
9. STOCK OPTIONS Under terms of an incentive stock option plan approved by the
shareholders in November 1995, the Company has 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, 1998, 2,622,375 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. Both reserved common shares and shares available for
future grants have been restated to reflect the stock split
in January 1998.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which in accordance with the Statement, the
Company adopted in fiscal 1997. As permitted by SFAS No. 123,
the Company has elected to follow Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, in accounting for its
stock based compensation because, as discussed below, the
alternative fair value provided for under SFAS No. 123
requires use of option valuation models that were not
developed for use in valuing stock options. Under APB Opinion
No. 25, because the exercise price of the Company's stock
options was at least equal to the market price of the
underlying stock on the date of grant, no compensation
expense was recognized.
The following summarizes for each of the three years in the
period ended June 30, 1998 the activity relating to stock
options granted under the 1995 plan mentioned above as well
as those granted under a separate plan that expired in May
1995, as restated to reflect the stock split in January 1998:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 497,095 $28.18 335,121 $21.16 459,063 $19.25
Exercised, net of stock tendered (215,659) 28.62 (217,976) 21.95 (120,717) 13.88
in payment
Granted 383,100 30.78
Forfeited (3,450) 30.75 (3,150) 27.71 (3,225) 22.25
-------------------------------------------------------------------------------------------------------
Outstanding at end of the period 277,986 $27.78 497,095 $28.18 335,121 $21.16
=======================================================================================================
Exercisable at end of period 186,692 $29.73 354,179 $30.01
=======================================================================================================
</TABLE>
The weighted average fair value of options granted during the
fiscal year 1997 was $5.00.
The following table summarizes information about the options
outstanding at June 30, 1998:
<TABLE>
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ---------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at June 30, 1998 Contractual Life Exercise Price at June 30, 1998 Exercise Price
-------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$30.75- $33.83 203,104 1.68 $30.75 171,542 $30.75
$17.06- $22.25 74,882 3.92 $19.71 15,150 $18.22
==================================================================== =================================
</TABLE>
The fair value of the options presented above was estimated
at the date of grant using the Black-Scholes option pricing
model with the following assumptions: risk free interest rate
of 6.04%; dividend yield of 1.6%; volatility factors of the
expected market price of the Company's common stock of
20.60%; and a weighted average expected option life of 2.29
years.
Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant dates
for awards under the Plan consistent with the method of FASB
Statement 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For Years Ended
(Dollars In Thousands Except Per Share Figures) June 30, 1998 June 30, 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $96,130 $88,706
Pro forma $96,057 $87,746
Earnings per Share
Basic and Diluted As reported $2.22 $2.01
Pro forma $2.22 $1.99
=======================================================================================================
</TABLE>
<PAGE> 15
10. PENSION AND OTHER Defined Benefit Pension Plans:
POSTRETIREMENT
BENEFITS The Company and certain of its operating subsidiaries
sponsor five noncontributory defined benefit plans
which cover the union workers at such locations.
Additionally, the Company and certain of its
operating subsidiaries participate in two
multiemployer defined benefit plans covering the
union workers at such locations. Benefits under these
plans are primarily based on negotiated rates and
years of service. The Company contributes to these
pension funds at least the minimum amount required by
regulation or contract.
Net pension cost relating to these plans for each of
the three years in the period ended June 30, 1998 is
summarized as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company sponsored plans-
Service cost - benefits earned during the period $ 559 $ 537 $ 472
Interest cost on projected benefit obligations 1,785 1,681 1,662
Actual return on pension plan assets (5,927) (5,361) (2,895)
Net amortization and deferrals 3,227 3,226 889
------------------------------------------------------------------------------------------
Net pension cost for Company plans (356) 83 128
Multiemployer plans 970 886 806
------------------------------------------------------------------------------------------
Net pension cost $ 614 $ 969 $ 934
==========================================================================================
</TABLE>
The following table summarizes the funded status of
the Company's plans at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $28,197 $24,230
==========================================================================================
Accumulated benefit obligation $28,409 $24,361
==========================================================================================
Projected benefit obligation $28,409 $24,361
Plan assets at fair value 34,794 30,262
------------------------------------------------------------------------------------------
Excess of assets over projected benefit obligation 6,385 5,901
Unrecognized net gain (6,430) (6,548)
Unrecognized prior service costs 2,189 2,318
Remaining unrecognized net transition obligation 208 240
------------------------------------------------------------------------------------------
Net recorded pension asset $ 2,352 $ 1,911
==========================================================================================
</TABLE>
The majority of plan assets are invested in bonds,
short-term investments and common stock including
shares of the Company's common stock with a market
value of $5,284,000, $4,500,000 and $3,476,000 as of
June 30, 1998, 1997 and 1996, respectively. The
weighted average discount rates used in determining
the projected benefit obligation were 6.75% for 1998
and 7.50% for 1997 and 1996. The expected long-term
rate of return on assets was 9.0% for the three
years.
Employee Stock Ownership Plan and 401(k) Profit
Sharing Plan and Trust:
The Company sponsors an Employee Stock Ownership Plan
(ESOP). In April 1990, the Company loaned $10,000,000
to the ESOP for the purpose of purchasing the
Company's common stock in furtherance of the
objectives of the Plan. The Company funded this
transaction primarily through short-term bank
borrowings. With the proceeds and as adjusted for all
stock splits since April 1990, the ESOP effectively
purchased 1,791,585 shares of the Company's common
stock in the open market.
Effective January 1, 1998, the ESOP was frozen and
all benefit accruals under and further contributions
to the ESOP ceased. All participants in the plan at
that time were immediately 100% vested.
Prior to this time, the ESOP was fully paid by the
Company and generally provided coverage to all
domestic employees, except those covered by a
collective bargaining agreement. Contributions to the
ESOP were not less than that required by the terms of
the loan agreement between the Company and the ESOP.
The Company used the shares-allocated method of
accounting in determining the amount of expense
related to each contribution. The loan to the ESOP
was paid in full in fiscal 1997.
Dividends accumulated on the Company's unallocated
common stock held by the ESOP were used to repay the
loan to the Company. Accordingly, the pretax expense
associated with 1997 and 1996 totaled $1,169,000 and
$1,077,000, which is net of dividends of $110,000 and
$201,000 on the unallocated shares, respectively.
<PAGE> 16
The Company adopted the Lancaster Colony Corporation 401(k)
Profit Sharing Plan and Trust (401(k) Plan) effective January
1, 1998. The 401(k) Plan allows participation to all domestic
employees, except those covered by a collective bargaining
agreement. The Company contribution is 40% of the
participant's contribution up to 4% of the participant's
annual compensation. The Company contribution will be funded
annually at the end of the 401(k) Plan year, December 31. The
Company's contribution for the year ended June 30, 1998 is
approximately $174,000. The funds are invested in mutual
funds.
Postretirement Benefits Other Than Pensions:
In addition to pension benefits, the Company also provides
certain employees other postretirement benefits including
health care and life insurance coverage. As of June 30, 1998,
the Company provides such coverage under three active benefit
plans of which two relate to collectively bargained benefits.
In general, all eligible employees are entitled to receive
medical and life insurance benefits upon meeting certain age
and service requirements at the time of their retirement.
The Company recognizes the cost of postretirement medical and
life insurance benefits as the employees render service in
accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Benefits are
funded as incurred. Relevant information with respect to
these postretirement benefits as of June 30, 1998 and 1997
can be summarized as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants $1,825 $1,768
Fully eligible active plan participants 247 214
Other active plan participants 778 892
----------------------------------------------------------------------------------------------------
Total 2,850 2,874
Unrecognized net gain from
past experience and changes in assumptions 463 348
----------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $3,313 $3,222
====================================================================================================
</TABLE>
Net postretirement benefits expense relating to the plans for
each of the three years in the period ended June 30, 1998, is
summarized as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net postretirement benefit cost:
Service cost $ 102 $ 99 $ 111
Interest cost 215 227 226
Net amortization (4)
----------------------------------------------------------------------------------------------------
Total $ 313 $ 326 $ 337
====================================================================================================
Estimated effect of 1% increase in assumed medical cost trend rates:
Increase in accumulated postretirement benefit obligation $ 179 $ 230 $ 245
====================================================================================================
Increase in net periodic postretirement benefit cost $ 28 $ 47 $ 50
====================================================================================================
Assumed weighted average discount rate 6.75% 7.50% 7.50%
====================================================================================================
</TABLE>
For 1998, annual increases in medical costs are initially
assumed to total approximately 7.5% per year and gradually
decline to 5% by approximately the year 2003. Annual
increases in medical costs for 1997 were assumed to total
approximately 8% per year and gradually decline to 5% by
approximately the year 2003.
The Company and certain of its subsidiaries participate in
two multiemployer plans that provide various postretirement
health and welfare benefits to the union workers at such
locations. The Company's contributions required by its
participation in the multiemployer plans totaled $1,753,000,
$1,602,000 and $1,463,000 in 1998, 1997 and 1996,
respectively.
<PAGE> 17
In February 1998, the Financial Accounting Standards Board
issued SFAS No. 132, "Employers Disclosures about Pensions
and Other Postretirement Benefits." This Statement is
effective for fiscal years beginning after December 15, 1997
or for the Company's year ending June 30, 1999. SFAS No. 132
revises employers disclosures about pension and other
postretirement benefit plans for purposes of standardization
in disclosure. SFAS No. 132 suggests combined formats for
presentation of pension and other postretirement benefit
disclosures and requires restatement of disclosures for
earlier periods provided for comparative purposes. Management
has not yet completed its analysis of this Statement as to
its impact on the Company's financial disclosures.
11. COMMITMENTS The Company has operating leases with initial noncancelable
lease terms in excess of one year, covering the rental of
various facilities and equipment, which expire at various
dates through fiscal 2005. 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): 1999 -
$4,036; 2000 - $2,521; 2001 - $1,556; 2002 - $1,220; 2003 -
$888; thereafter - $591.
Total rent expense, including short-term cancelable leases,
during 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating leases:
Minimum rentals $5,477 $4,545 $4,393
Contingent rentals 534 558 579
Short-term cancelable leases 2,113 2,808 2,330
--------------------------------------------------------------------------------------------------
Total $8,124 $7,911 $7,302
==================================================================================================
</TABLE>
12. CONTINGENCIES At June 30, 1998, the Company is a party to various legal and
AND environmental matters which have arisen in the ordinary
ENVIRONMENTAL course of business. Such matters did not have a material
MATTERS adverse effect on the current year results of operations and,
in the opinion of management, their ultimate disposition will
not have a material adverse effect on the Company's
consolidated financial statements.
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To The Shareholders And Directors Of Lancaster Colony Corporation
We have audited the accompanying consolidated balance sheets of Lancaster Colony
Corporation and its subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lancaster Colony Corporation and
its subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
COLUMBUS, OHIO
AUGUST 26, 1998
SELECTED QUARTERLY FINANCIAL DATA
Lancaster Colony Corporation and Subsidiaries
for the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Diluted
(Thousands Except Net Gross Net Earnings Stock Prices(1) Dividends Paid
Per Share Figures) Sales Margin Income Per Share(1) High Low Per Share(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
First quarter $ 237,174 $ 75,154 $20,861 $ .48 $36.167 $32.000 $.127
Second quarter 300,754 95,046 28,967 .67 38.500 31.833 .133
Third quarter 237,628 76,250 22,796 .53 44.750 37.333 .140
Fourth quarter 233,196 77,947 23,506 .55 45.375 36.750 .140
- -------------------------------------------------------------------------------------------------------------------------------
Year $1,008,752 $324,397 $96,130 $2.22 $45.375 $31.833 $.540
===============================================================================================================================
1997
First quarter $ 218,918 $ 66,345 $18,259 $ .41 $25.833 $23.500 $.113
Second quarter 259,023 82,290 25,405 .57 30.667 24.083 .120
Third quarter 218,141 69,157 21,022 .48 32.250 28.833 .120
Fourth quarter 226,731 72,970 24,020 .55 32.583 26.167 .127
- -------------------------------------------------------------------------------------------------------------------------------
Year $ 922,813 $290,762 $88,706 $2.01 $32.583 $23.500 $.480
===============================================================================================================================
</TABLE>
(1) Adjusted for the 3-for-2 stock split paid January 1998.
Lancaster Colony common shares are traded in the Nasdaq National Market System
(Nasdaq Symbol: LANC). Stock quotations were obtained from the National
Association of Securities Dealers. The number of shareholders as of
September 15, 1998 was approximately 12,100. The highest and lowest prices for
the Company's common shares from July 1, 1998 to September 15, 1998 were $40.00
and $27.75.
<PAGE> 1
Exhibit 21
LANCASTER COLONY CORPORATION
SIGNIFICANT SUBSIDIARIES OF REGISTRANT
--------------------------------------
<TABLE>
<CAPTION>
State Percent Of
Name Of Incorporation Ownership
---- ---------------- ---------
<S> <C> <C>
Colony Printing & Labeling, Inc. Indiana 100%
Dee Zee, Inc. Ohio 100%
Fostoria Glass, LLC Ohio 100%
Indiana Glass Company Indiana 100%
LRV Acquisition Corp. Ohio 100%
LaGrange Molded Products, Inc. Delaware 100%
Lancaster Colony Commercial
Products, Inc. Ohio 100%
Lancaster Glass Corporation Ohio 100%
New York Frozen Foods, Inc. Ohio 100%
Pretty Products, Inc. Ohio 100%
T. Marzetti Company Ohio 100%
The Quality Bakery Company, Inc. Ohio 100%
Reames Foods, Inc. Iowa 100%
Waycross Molded Products, Inc. Ohio 100%
</TABLE>
All subsidiaries conduct their business under the names shown.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-39102 and 333-01275 of Lancaster Colony Corporation on Form S-8 of our
reports dated August 26, 1998, appearing in and incorporated by reference in
this Annual Report on Form 10-K of Lancaster Colony Corporation for the year
ended June 30, 1998.
/S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME FOR THE YEAR
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,224
<SECURITIES> 0
<RECEIVABLES> 102,644
<ALLOWANCES> 2,774
<INVENTORY> 175,197
<CURRENT-ASSETS> 311,548
<PP&E> 374,033
<DEPRECIATION> 203,267
<TOTAL-ASSETS> 529,367
<CURRENT-LIABILITIES> 76,517
<BONDS> 29,095
0
0
<COMMON> 50,392
<OTHER-SE> 360,171
<TOTAL-LIABILITY-AND-EQUITY> 529,367
<SALES> 1,008,752
<TOTAL-REVENUES> 1,008,752
<CGS> 684,355
<TOTAL-COSTS> 684,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,626
<INCOME-PRETAX> 155,373
<INCOME-TAX> 59,243
<INCOME-CONTINUING> 96,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,130
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
