Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 000-04065

 

 

Lancaster Colony Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Ohio   13-1955943

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

37 West Broad Street

Columbus, Ohio

  43215
(Address of principal executive offices)   (Zip Code)

614-224-7141

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of January 25, 2013, there were approximately 27,313,000 shares of Common Stock, without par value, outstanding.

 

 

 


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

  

Item 1.

   Condensed Consolidated Financial Statements (unaudited):    3
   Condensed Consolidated Balance Sheets – December 31, 2012 and June 30, 2012    3
   Condensed Consolidated Statements of Income – Three and Six Months Ended December 31, 2012 and 2011    4
   Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended December 31, 2012 and 2011    5
   Condensed Consolidated Statements of Cash Flows –Six Months Ended December 31, 2012 and 2011    6
   Notes to Condensed Consolidated Financial Statements    7

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    15

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    21

Item 4.

   Controls and Procedures    21

PART II - OTHER INFORMATION

  

Item 1A.

   Risk Factors    22

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    22

Item 6.

   Exhibits    22
SIGNATURES    23
INDEX TO EXHIBITS    24

 

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     December 31,     June 30,  

(Amounts in thousands, except share data)

   2012     2012  

ASSETS

  

Current Assets:

    

Cash and equivalents

   $ 92,521      $ 191,636   

Receivables (less allowance for doubtful accounts, December-$760; June-$678)

     90,927        73,326   

Inventories:

    

Raw materials

     36,017        36,005   

Finished goods and work in process

     64,527        73,699   
  

 

 

   

 

 

 

Total inventories

     100,544        109,704   

Deferred income taxes and other current assets

     20,486        17,073   
  

 

 

   

 

 

 

Total current assets

     304,478        391,739   

Property, Plant and Equipment:

    

Land, buildings and improvements

     142,620        140,337   

Machinery and equipment

     286,435        276,951   
  

 

 

   

 

 

 

Total cost

     429,055        417,288   

Less accumulated depreciation

     240,680        233,158   
  

 

 

   

 

 

 

Property, plant and equipment-net

     188,375        184,130   

Other Assets:

    

Goodwill

     89,840        89,840   

Other intangible assets-net

     6,795        7,267   

Other noncurrent assets

     8,259        9,659   
  

 

 

   

 

 

 

        Total

   $ 597,747      $ 682,635   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Current Liabilities:

    

Accounts payable

   $ 47,527      $ 40,708   

Accrued liabilities

     33,715        31,963   
  

 

 

   

 

 

 

Total current liabilities

     81,242        72,671   

Other Noncurrent Liabilities

     30,946        31,627   

Deferred Income Taxes

     14,404        14,070   

Shareholders’ Equity:

    

Preferred stock-authorized 3,050,000 shares; outstanding-none

    

Common stock-authorized 75,000,000 shares; outstanding - December-27,312,813 shares; June-27,286,861 shares

     101,511        100,015   

Retained earnings

     1,113,211        1,208,027   

Accumulated other comprehensive loss

     (11,954     (12,162

Common stock in treasury, at cost

     (731,613     (731,613
  

 

 

   

 

 

 

Total shareholders’ equity

     471,155        564,267   
  

 

 

   

 

 

 

        Total

   $ 597,747      $ 682,635   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

     Three Months Ended      Six Months Ended  
     December 31,      December 31,  

(Amounts in thousands, except per share data)

   2012     2011      2012     2011  

Net Sales

   $ 326,155      $ 311,786       $ 617,131      $ 586,302   

Cost of Sales

     244,499        241,927         469,758        461,013   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross Margin

     81,656        69,859         147,373        125,289   

Selling, General and Administrative Expenses

     29,031        26,149         54,176        49,067   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating Income

     52,625        43,710         93,197        76,222   

Other Income:

         

Other income-Continued Dumping and Subsidy Offset Act

     293        2,701         293        2,701   

Interest Income and Other-Net

     (39     38         (25     34   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income Before Income Taxes

     52,879        46,449         93,465        78,957   

Taxes Based on Income

     17,602        16,076         31,526        27,326   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Income

   $ 35,277      $ 30,373       $ 61,939      $ 51,631   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Income Per Common Share:

         

Basic

   $ 1.29      $ 1.11       $ 2.26      $ 1.89   

Diluted

   $ 1.28      $ 1.11       $ 2.26      $ 1.89   

Cash Dividends Per Common Share

   $ 5.38      $ 0.36       $ 5.74      $ 0.69   

Weighted Average Common Shares Outstanding:

         

Basic

     27,243        27,206         27,236        27,248   

Diluted

     27,273        27,240         27,268        27,277   

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     Three Months Ended     Six Months Ended  
     December 31,     December 31,  

(Amounts in thousands)

   2012     2011     2012     2011  

Net Income

   $ 35,277      $ 30,373      $ 61,939      $ 51,631   

Other Comprehensive Income:

        

Defined Benefit Pension and Postretirement Benefit Plans:

        

Amortization of loss, before tax

     167        81        334        162   

Amortization of prior service asset, before tax

     (1     (1     (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income, Before Tax

     166        80        332        160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax Attributes of Items in Other Comprehensive Income:

        

Amortization of loss, tax

     (62     (31     (124     (61

Amortization of prior service asset, tax

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income, Tax

     (62     (31     (124     (61
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income, Net of Tax

     104        49        208        99   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 35,381      $ 30,422      $ 62,147      $ 51,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Six Months Ended  
     December 31,  

(Amounts in thousands)

   2012     2011  

Cash Flows From Operating Activities:

    

Net income

   $ 61,939      $ 51,631   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     9,971        10,113   

Deferred income taxes and other noncash changes

     (848     3,206   

Stock-based compensation expense

     1,623        1,195   

Gain on sale of property

     (41     —     

Pension plan activity

     (30     (1,067

Changes in operating assets and liabilities:

    

Receivables

     (18,153     (20,530

Inventories

     9,160        18,582   

Other current assets

     (1,385     6,173   

Accounts payable and accrued liabilities

     5,515        (2,684
  

 

 

   

 

 

 

Net cash provided by operating activities

     67,751        66,619   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Payments on property additions

     (10,359     (9,080

Proceeds from sale of property

     148        —     

Other-net

     (359     (491
  

 

 

   

 

 

 

Net cash used in investing activities

     (10,570     (9,571
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Purchase of treasury stock

     —          (8,191

Payment of dividends

     (156,755     (18,820

Excess tax benefit from stock-based compensation

     459        78   
  

 

 

   

 

 

 

Net cash used in financing activities

     (156,296     (26,933
  

 

 

   

 

 

 

Net change in cash and equivalents

     (99,115     30,115   

Cash and equivalents at beginning of year

     191,636        132,266   
  

 

 

   

 

 

 

Cash and equivalents at end of period

   $ 92,521      $ 162,381   
  

 

 

   

 

 

 

Supplemental Disclosure of Operating Cash Flows:

    

Cash paid during the period for income taxes

   $ 32,043      $ 14,539   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and SEC Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in our 2012 Annual Report on Form 10-K. Unless otherwise noted, the term “year” and references to a particular year pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2013 refers to fiscal 2013, which is the period from July 1, 2012 to June 30, 2013.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Purchases of property, plant and equipment included in accounts payable and excluded from the property additions and the change in accounts payable in the Condensed Consolidated Statements of Cash Flows were as follows:

 

     December 31,  
     2012      2011  

Construction in progress in accounts payable

   $ 3,393       $ 438   

Held for Sale

As a result of various prior-years’ restructuring and divestiture activities, we have certain “held for sale” properties with a total net book value of approximately $1.8 million at December 31, 2012. We have classified approximately $1.0 million of these “held for sale” assets as current assets and they are included in Deferred Income Taxes and Other Current Assets on the Condensed Consolidated Balance Sheet. The remaining balance of approximately $0.8 million is included in Other Noncurrent Assets. In accordance with GAAP for property, plant and equipment, we are no longer depreciating these “held for sale” assets and they are being actively marketed for sale and evaluated for potential impairment.

Earnings Per Share

Earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock and common stock equivalents (restricted stock and stock-settled stock appreciation rights) outstanding during each period. Unvested shares of restricted stock granted to employees are considered participating securities since employees receive nonforfeitable dividends prior to vesting and, therefore, are included in the earnings allocation in computing EPS under the two-class method. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing income available to common shareholders by the diluted weighted average number of common shares outstanding during the period, which includes the dilutive potential common shares associated with nonparticipating restricted stock and stock-settled stock appreciation rights.

 

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

Basic and diluted net income per common share were calculated as follows:

 

     Three Months Ended     Six Months Ended  
     December 31,     December 31,  
     2012     2011     2012     2011  

Net income

   $ 35,277      $ 30,373      $ 61,939      $ 51,631   

Net income available to participating securities

     (246     (39     (299     (66
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 35,031      $ 30,334      $ 61,640      $ 51,565   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—basic

     27,243        27,206        27,236        27,248   

Incremental share effect from:

        

Restricted stock

     4        4        4        5   

Stock-settled stock appreciation rights

     26        30        28        24   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—diluted

     27,273        27,240        27,268        27,277   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share—basic

   $ 1.29      $ 1.11      $ 2.26      $ 1.89   

Net income per common share—diluted

   $ 1.28      $ 1.11      $ 2.26      $ 1.89   

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our 2012 Annual Report on Form 10-K.

Note 2 – Impact of Recently Issued Accounting Standards

There were no recently issued accounting pronouncements that impact our consolidated financial statements.

Note 3 – Goodwill and Other Intangible Assets

Goodwill attributable to the Specialty Foods segment was approximately $89.8 million at December 31, 2012 and June 30, 2012.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

The following table summarizes our identifiable other intangible assets, all included in the Specialty Foods segment:

 

     December 31,     June 30,  
     2012     2012  

Trademarks (40-year life)

    

Gross carrying value

   $ 370      $ 370   

Accumulated amortization

     (200     (196
  

 

 

   

 

 

 

Net Carrying Value

   $ 170      $ 174   
  

 

 

   

 

 

 

Customer Relationships (12 to 15-year life)

    

Gross carrying value

   $ 13,020      $ 13,020   

Accumulated amortization

     (6,395     (5,927
  

 

 

   

 

 

 

Net Carrying Value

   $ 6,625      $ 7,093   
  

 

 

   

 

 

 

Total Net Carrying Value

   $ 6,795      $ 7,267   
  

 

 

   

 

 

 

Amortization expense relating to these assets was as follows:

 

     Three Months Ended      Six Months Ended  
     December 31,      December 31,  
     2012      2011      2012      2011  

Amortization expense

   $ 236       $ 291       $ 472       $ 582   

Total annual amortization expense for each of the next five years is estimated to be as follows:

 

2014

   $  946   

2015

   $ 946   

2016

   $ 775   

2017

   $ 604   

2018

   $ 604   

Note 4 – Long-Term Debt

At December 31, 2012 and June 30, 2012, we had an unsecured credit agreement under which we may borrow, on a revolving credit basis, up to a maximum of $120 million at any one time, with potential to expand the total credit availability to $200 million based on obtaining consent of the issuing banks and certain other conditions. The facility expires on April 18, 2017, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an alternative base rate defined in the credit agreement, at our option. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Based on the long-term nature of this facility, when we have outstanding borrowings under this facility, we will classify the outstanding balance as long-term debt.

At December 31, 2012 and June 30, 2012, we had no borrowings outstanding under this facility. At December 31, 2012, we had approximately $3.4 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the credit agreement. We paid no interest for the three and six months ended December 31, 2012 and 2011. At December 31, 2012 and June 30, 2012, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At December 31, 2012, we were not aware of any event that would constitute a default under the facility.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

The facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions. There are two principal financial covenants: an interest expense test that requires us to maintain an interest coverage ratio not less than 2.5 to 1 at the end of each fiscal quarter; and an indebtedness test that requires us to maintain a consolidated leverage ratio not greater than 3 to 1 at all times. The interest coverage ratio is calculated by dividing Consolidated EBIT (as defined more specifically in the credit agreement) by Consolidated Interest Expense (as defined more specifically in the credit agreement), and the leverage ratio is calculated by dividing Consolidated Debt (as defined more specifically in the credit agreement) by Consolidated EBITDA (as defined more specifically in the credit agreement.)

Note 5 – Pension Benefits

We and certain of our operating subsidiaries have sponsored multiple defined benefit pension plans covering union workers at certain locations. As a result of restructuring activities in recent years, we no longer have any active employees continuing to accrue service cost or otherwise eligible to receive plan benefits. Benefits being paid under the plans are primarily based on negotiated rates and years of service. We contribute to these plans at least the minimum amount required by regulation.

The following table summarizes the components of net periodic benefit income for our pension plans:

 

     Three Months Ended     Six Months Ended  
     December 31,     December 31,  
     2012     2011     2012     2011  

Components of net periodic benefit income

        

Interest cost

   $ 408      $ 483      $ 816      $ 966   

Expected return on plan assets

     (595     (599     (1,190     (1,198

Amortization of unrecognized net loss

     172        89        344        178   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit income

   $ (15   $ (27   $ (30   $ (54
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and six months ended December 31, 2012, we made no pension plan contributions and we do not expect to make any contributions to our pension plans during 2013.

Note 6 – Postretirement Benefits

We and certain of our operating subsidiaries provide multiple postretirement medical and life insurance benefit plans. We recognize the cost of benefits as the employees render service. Postretirement benefits are funded as incurred.

The following table summarizes the components of net periodic benefit cost for our postretirement plans:

 

     Three Months Ended     Six Months Ended  
     December 31,     December 31,  
     2012     2011     2012     2011  

Components of net periodic benefit cost

        

Service cost

   $ 8      $ 6      $ 16      $ 12   

Interest cost

     28        37        56        74   

Amortization of unrecognized net gain

     (5     (8     (10     (16

Amortization of prior service asset

     (1     (1     (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 30      $ 34      $ 60      $ 68   
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and six months ended December 31, 2012, we made approximately $32,000 and $54,000 in contributions to our postretirement medical and life insurance benefit plans. We expect to make approximately $0.1 million more in contributions to our postretirement medical and life insurance benefit plans during the remainder of 2013.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

Note 7 – Stock-Based Compensation

Our shareholders approved the adoption of and subsequent amendments to the Lancaster Colony Corporation 2005 Stock Plan (the “2005 Plan”). The 2005 Plan reserved 2,000,000 common shares for issuance to our employees and directors, and all awards granted under the 2005 Plan will be exercisable at prices not less than fair market value as of the date of the grant. The vesting period for awards granted under the 2005 Plan varies as to the type of award granted, but generally these awards have a maximum term of five years.

Stock-Settled Stock Appreciation Rights

We use periodic grants of stock-settled stock appreciation rights (“SSSARs”) as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value. We calculate the fair value of SSSARs grants using the Black-Scholes option-pricing model. Our policy is to issue shares upon SSSARs exercise from new shares that had been previously authorized. There were no grants of SSSARs during the six months ended December 31, 2012 and 2011, and no SSSARs vested during these periods.

We recognize compensation expense over the requisite service period. Compensation expense was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to SSSARs. These windfall tax benefits were included in the financing section of the Condensed Consolidated Statements of Cash Flows. The following table summarizes SSSARs compensation expense and tax benefits recorded:

 

     Three Months Ended      Six Months Ended  
     December 31,      December 31,  
     2012      2011      2012      2011  

Compensation expense

   $ 338       $ 366       $ 799       $ 646   

Tax benefits

   $ 118       $ 128       $ 279       $ 226   

Intrinsic value of exercises

   $ 594       $ 130       $ 1,284       $ 143   

Gross windfall tax benefits

   $ 208       $ 59       $ 449       $ 64   

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the six months ended December 31, 2012:

 

     Number
of Rights
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Life in
Years
     Aggregate
Intrinsic
Value
 

Outstanding at beginning of period

     446      $ 60.55         

Exercised

     (94   $ 50.66         

Granted

     —        $ —           

Forfeited

     (5   $ 63.50         
  

 

 

         

Outstanding at end of period

     347      $ 63.18         3.40       $ 2,088   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable and vested at end of period

     50      $ 56.26         2.19       $ 644   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest at end of period

     340      $ 63.15         3.39       $ 2,057   
  

 

 

   

 

 

    

 

 

    

 

 

 

At December 31, 2012, there was approximately $1.2 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of approximately 1.79 years.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

Restricted Stock

We use periodic grants of restricted stock as a vehicle for rewarding our nonemployee directors and certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

In November 2012 and 2011, we granted shares of restricted stock to our seven nonemployee directors under the terms of the 2005 Plan. The following table summarizes information relating to each of these grants:

 

     Six Months Ended  
     December 31,  
     2012      2011  

Nonemployee directors

     

Restricted stock granted

     7         7   

Grant date fair value

   $ 490       $ 490   

Weighted average grant date fair value per award

   $ 73.29       $ 65.97   

The 2013 grant vests over a one-year period, and all of these shares are expected to vest. Dividends earned on the stock during the vesting period will be paid to the directors at the time the stock vests. The 2012 grant vested during the second quarter of 2013, and the directors were paid the related dividends.

We recognize compensation expense over the requisite service period. Compensation expense was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to restricted stock. Windfall tax benefits, if any, were included in the financing section of the Condensed Consolidated Statements of Cash Flows. The following table summarizes restricted stock compensation expense and tax benefits recorded:

 

     Three Months Ended      Six Months Ended  
     December 31,      December 31,  
     2012      2011      2012      2011  

Compensation expense

   $ 414       $ 275       $ 824       $ 549   

Tax benefits

   $ 144       $ 96       $ 288       $ 192   

Gross windfall tax benefits

   $ 9       $ 15       $ 10       $ 15   

The total fair values of restricted stock vested were as follows:

 

     Six Months Ended  
     December 31,  
     2012      2011  

Fair value of vested shares

   $ 490       $ 420   

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the six months ended December 31, 2012:

 

     Number of
Shares
    Weighted Average
Grant Date Fair
Value
 

Unvested restricted stock at beginning of period

     62      $ 63.25   

Granted

     7      $ 73.29   

Vested

     (7   $ 65.97   

Forfeited

     (1   $ 61.01   
  

 

 

   

Unvested restricted stock at end of period

     61      $ 64.05   
  

 

 

   

At December 31, 2012, there was approximately $1.8 million of unrecognized compensation expense

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

related to restricted stock that we will recognize over a weighted-average period of approximately 1.69 years.

Note 8 – Income Taxes

The gross tax contingency reserve at December 31, 2012 was approximately $2.0 million and consisted of tax liabilities of approximately $1.0 million and penalties and interest of approximately $1.0 million. We classified approximately $0.2 million of the gross tax contingency reserve as current liabilities as these amounts are expected to be resolved within the next 12 months. The remaining liability of approximately $1.8 million was included in other noncurrent liabilities. We expect that the amount of these liabilities will change within the next 12 months; however, we do not expect the change to have a significant effect on our financial position or results of operations. We recognize interest and penalties related to these tax liabilities in income tax expense.

Note 9 – Business Segment Information

The following summary of financial information by business segment is consistent with the basis of segmentation and measurement of segment profit or loss presented in our June 30, 2012 consolidated financial statements. The December 31, 2012 identifiable assets by reportable segment are generally consistent with that of June 30, 2012. However, the amount of Corporate assets declined because of the decrease in cash, which is treated as a Corporate asset, due to the payment of the December 2012 special dividend.

 

     Three Months Ended     Six Months Ended  
     December 31,     December 31,  
     2012     2011     2012     2011  

Net Sales

        

Specialty Foods

   $ 272,634      $ 266,225      $ 521,515      $ 503,172   

Glassware and Candles

     53,521        45,561        95,616        83,130   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 326,155      $ 311,786      $ 617,131      $ 586,302   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

        

Specialty Foods

   $ 50,384      $ 44,750      $ 93,142      $ 79,949   

Glassware and Candles

     5,614        1,636        6,222        1,299   

Corporate Expenses

     (3,373     (2,676     (6,167     (5,026
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 52,625      $ 43,710      $ 93,197      $ 76,222   
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 10 – Commitments and Contingencies

In addition to the items discussed below, at December 31, 2012, we were a party to various claims and litigation matters arising in the ordinary course of business. Such matters did not have a material effect on the current-year results of operations and, in our opinion, their ultimate disposition will not have a material effect on our consolidated financial statements.

The Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) provides for the distribution of monies collected by U.S. Customs from anti-dumping cases to qualifying domestic producers. Our reported CDSOA receipts totaled approximately $0.3 million in the second quarter of 2013, as compared to approximately $2.7 million in the second quarter of 2012.

CDSOA remittances have related to certain candles being imported from the People’s Republic of China. CDSOA provisions for remittances apply only to duties collected on products imported prior to October 2007. Accordingly, we may receive some level of annual distributions for an undetermined period of years in the future as the monies collected that relate to entries filed prior to October 2007 are administratively finalized by U.S. Customs. Without further legislative action, we expect these distributions will eventually cease.

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

 

Cases have been brought in U.S. courts challenging certain aspects of CDSOA. In two separate cases, the U.S. Court of International Trade (“CIT”) ruled that the procedure for determining recipients eligible to receive CDSOA distributions is unconstitutional. The U.S. Court of Appeals for the Federal Circuit reversed both CIT decisions and the U.S. Supreme Court did not hear either case. This allowed the appellate court decisions to stand, but other legal challenges to CDSOA are still pending.

We are unable to determine, at this time, what the ultimate outcome of other litigation will be, and it is possible that further legal action, potential additional changes in the law and other factors could affect the amount of funds available for distribution, including funds relating to entries prior to October 2007. Accordingly, we cannot predict the amount of future distributions, if any, we may receive. Any change in CDSOA distributions could affect our earnings and cash flow.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(Tabular dollars in thousands)

Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, 2013 refers to fiscal 2013, which is the period from July 1, 2012 to June 30, 2013.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto, all included elsewhere in this report. The forward-looking statements in this section and other parts of this report involve risks and uncertainties including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “Forward-Looking Statements.”

OVERVIEW

Business Overview

Lancaster Colony Corporation is a diversified manufacturer and marketer of consumer products focusing primarily on specialty foods for the retail and foodservice markets. We also manufacture and market candles for the food, drug and mass markets. Although not material to our consolidated operations, we are also engaged in the distribution of various products, including glassware and candles, to select commercial markets. Our operations are organized in two reportable segments: “Specialty Foods” and “Glassware and Candles.” The sales of each segment are predominately domestic.

In recent years, our strategy has shifted away from operating businesses in a variety of industries towards emphasizing the growth and success we have achieved in our Specialty Foods segment.

We view our food operations as having the potential to achieve future growth in sales and profitability due to attributes such as:

 

   

leading retail market positions in several branded products with a high-quality perception;

 

   

a broad customer base in both retail and foodservice accounts;

 

   

well-regarded culinary expertise among foodservice accounts;

 

   

recognized leadership in foodservice product development;

 

   

experience in integrating complementary business acquisitions; and

 

   

historically strong cash flow generation that supports growth opportunities.

Our goal is to grow our specialty foods retail and foodservice business over time by:

 

   

leveraging the strength of our retail brands to increase current product sales and introduce new products;

 

   

growing our foodservice sales through the strength of our reputation in product development and quality; and

 

   

pursuing acquisitions that meet our strategic criteria.

We have made substantial capital investments to support our existing food operations and future growth opportunities. Based on our current plans and expectations, we believe that our total consolidated capital expenditures for 2013 will total approximately $25 million.

Summary of 2013 Results

The following is a comparative overview of our consolidated operating results for the three and six months ended December 31, 2012 and 2011.

 

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Net sales for the three months ended December 31, 2012 increased 5% to approximately $326.2 million from the prior-year total of $311.8 million. This sales increase reflects higher sales in both operating segments. The Specialty Foods segment’s increase reflects higher retail and foodservice sales. The increase in sales of the Glassware and Candles segment primarily reflects higher seasonal sales. The second quarter gross margin increased 17% to approximately $81.7 million from the prior-year total of $69.9 million. The higher level of net sales and comparatively lower material costs contributed to the improved gross margin. Other income for the current-year second quarter totaled approximately $0.3 million compared to $2.7 million in the prior-year comparative period. These figures included Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) receipts totaling approximately $0.3 million in the second quarter of 2013 and approximately $2.7 million in the corresponding period of 2012. Net income for the three months ended December 31, 2012 totaled approximately $35.3 million, or $1.28 per diluted share. Net income totaled approximately $30.4 million in the second quarter of the prior year, or $1.11 per diluted share.

Year-to-date net sales for the period ended December 31, 2012 increased 5% to approximately $617.1 million from the prior-year total of $586.3 million. Gross margin increased 18% to approximately $147.4 million from the prior year-to-date total of $125.3 million. Net income for the six months ended December 31, 2012 totaled approximately $61.9 million, or $2.26 per diluted share. Net income totaled approximately $51.6 million in the six months ended December 31, 2011, or $1.89 per diluted share.

RESULTS OF CONSOLIDATED OPERATIONS

Net Sales and Gross Margin

 

     Three Months Ended                  Six Months Ended               
     December 31,                  December 31,               
     2012     2011     Change     2012     2011     Change  

Net Sales

                  

Specialty Foods

   $ 272,634     $ 266,225     $ 6,409          $ 521,515     $ 503,172     $ 18,343       

Glassware and Candles

     53,521       45,561       7,960        17      95,616       83,130       12,486        15 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 326,155     $ 311,786     $ 14,369          $ 617,131     $ 586,302     $ 30,829       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross Margin

   $ 81,656     $ 69,859     $ 11,797        17    $ 147,373     $ 125,289     $ 22,084        18 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross Margin as a Percentage of Net Sales

     25.0      22.4           23.9      21.4      
  

 

 

   

 

 

        

 

 

   

 

 

      

Consolidated net sales for the second quarter and six months ended December 31, 2012 increased 5%, reflecting higher sales in both operating segments.

For the three and six months ended December 31, 2012, net sales of the Specialty Foods segment increased by 2% and 4%, respectively. Net sales of both retail and foodservice products improved during each comparative period. Higher product pricing contributed approximately half of the segment’s net sales growth for the quarter and approximately a third of the segment’s net sales growth for the six-month period. Retail net sales also benefited from lower levels of trade and consumer promotional costs. Overall sales volumes for the quarter were relatively comparable to year ago levels as modest improvement in foodservice volumes were offset by retail softness, particularly among garlic bread products. The latter decline reflected heightened competitive conditions in this category. Improved sales of foodservice products also led to a modest increase in segment sales volumes for the six-month period. The current year’s growth in foodservice sales occurred largely among existing customers. Additionally, the success of recently-introduced products also benefited retail channel sales.

Net sales of the Glassware and Candles segment for the three and six months ended December 31, 2012 increased by 17% and 15%, respectively. The increase in net sales was influenced by the growth of seasonal candle programs.

As a percentage of sales, our consolidated gross margin for the three and six months ended December 31, 2012 was 25.0% and 23.9%, respectively, as compared to 22.4% and 21.4% achieved in the prior-year comparative periods.

In the Specialty Foods segment, gross margin percentages improved for both the three and six months ended December 31, 2012, reflecting factors such as higher pricing and comparatively favorable ingredient

 

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costs (especially for soybean oil, flour and dairy-related products). We estimate that lower material costs beneficially affected the segment’s gross margins by less than one percent of segment net sales for both the three and six months ended December 31, 2012. Looking forward into the second half of 2013, we anticipate reduced benefits from higher pricing and, under current market conditions, potentially less favorable material cost comparisons to the prior year.

Gross margin percentages in the Glassware and Candles segment for both the three and six months ended December 31, 2012, improved from the prior-year comparative periods primarily due to higher production levels and somewhat lower average wax costs.

Selling, General and Administrative Expenses

 

     Three Months Ended                  Six Months Ended               
     December 31,                  December 31,               
     2012     2011     Change     2012     2011     Change  

SG&A Expenses

   $ 29,031     $ 26,149     $ 2,882        11    $ 54,176     $ 49,067     $ 5,109        10 
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

SG&A Expenses as a Percentage of Net Sales

     8.9      8.4           8.8      8.4      
  

 

 

   

 

 

        

 

 

   

 

 

      

Consolidated selling, general and administrative costs totaled approximately $29.0 million and $54.2 million for the three and six months ended December 31, 2012, respectively, compared to the $26.1 million and $49.1 million incurred for the three and six months ended December 31, 2011. These increases were influenced by higher sales, greater personnel costs and increased costs associated with previously idled held-for-sale real estate.

Operating Income

The foregoing factors contributed to consolidated operating income totaling approximately $52.6 million and $93.2 million for the three and six months ended December 31, 2012, respectively. By segment, our operating income can be summarized as follows:

 

     Three Months Ended                 Six Months Ended              
     December 31,                 December 31,              
     2012     2011     Change     2012     2011     Change  

Operating Income

                

Specialty Foods

   $ 50,384     $ 44,750     $ 5,634       13    $ 93,142     $ 79,949     $ 13,193       17 

Glassware and Candles

     5,614       1,636       3,978       243      6,222       1,299       4,923       379 

Corporate Expenses

     (3,373     (2,676     (697     26      (6,167     (5,026     (1,141     23 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 52,625     $ 43,710     $ 8,915       20  %    $ 93,197     $ 76,222     $ 16,975       22  % 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income as a Percentage of Net Sales

                

Specialty Foods

     18.5      16.8          17.9      15.9     

Glassware and Candles

     10.5      3.6          6.5      1.6     

Total

     16.1      14.0          15.1      13.0     

Other Income – Continued Dumping and Subsidy Offset Act

The Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) provides for the distribution of monies collected by U.S. Customs from anti-dumping cases to qualifying domestic producers. Our reported CDSOA receipts totaled approximately $0.3 million in the second quarter of 2013, as compared to a distribution of approximately $2.7 million in the second quarter of 2012.

CDSOA remittances have related to certain candles being imported from the People’s Republic of China. CDSOA provisions for remittances apply only to duties collected on products imported prior to October 2007. Accordingly, we may receive some level of annual distributions for an undetermined period of years in the future as the monies collected that relate to entries filed prior to October 2007 are administratively finalized by U.S. Customs. Without further legislative action, we expect these distributions will eventually cease.

 

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Cases have been brought in U.S. courts challenging certain aspects of CDSOA. In two separate cases, the U.S. Court of International Trade (“CIT”) ruled that the procedure for determining recipients eligible to receive CDSOA distributions is unconstitutional. The U.S. Court of Appeals for the Federal Circuit reversed both CIT decisions and the U.S. Supreme Court did not hear either case. This allowed the appellate court decisions to stand, but other legal challenges to CDSOA are still pending.

We are unable to determine, at this time, what the ultimate outcome of other litigation will be, and it is possible that further legal action, potential additional changes in the law and other factors could affect the amount of funds available for distribution, including funds relating to entries prior to October 2007. Accordingly, we cannot predict the amount of future distributions, if any, we may receive. Any change in CDSOA distributions could affect our earnings and cash flow.

Interest Income and Other – Net

Interest income and other was expense of less than $0.1 million for the three and six months ended December 31, 2012 as compared to income of less than $0.1 million for the three and six months ended December 31, 2011.

Income Before Income Taxes

As impacted by the factors discussed above, income before income taxes for the three months ended December 31, 2012 increased by approximately $6.5 million to $52.9 million from the prior-year total of $46.4 million. Income before income taxes for the six months ended December 31, 2012 and 2011 was approximately $93.5 million and $79.0 million, respectively. Our effective tax rate of 33.7% for the six months ended December 31, 2012 was lower than the prior-year rate of 34.6%. The decrease in the 2013 effective rate was influenced by an increased deduction for dividends paid to our frozen ESOP Plan due to the $5.00 per share special dividend paid in December 2012.

Net Income

Second quarter net income for 2013 of approximately $35.3 million increased from the preceding year’s net income for the quarter of $30.4 million, as influenced by the factors noted above. Year-to-date net income of approximately $61.9 million was higher than the prior year-to-date total of $51.6 million. Net income per share for the second quarter of 2013 totaled $1.29 and $1.28 per basic and diluted share, respectively, as compared to $1.11 per basic and diluted share recorded in the prior year. Year-to-date net income per share was $2.26 per basic and diluted share, as compared to $1.89 per basic and diluted share for the prior-year period.

FINANCIAL CONDITION

For the six months ended December 31, 2012, net cash provided by operating activities totaled approximately $67.8 million as compared to $66.6 million in the prior-year period. The increase resulted from higher net income, which was largely offset by the relative changes in working capital, particularly inventory. The increase in receivables since June 2012 primarily related to seasonal influences on sales within the Glassware and Candles segment.

Cash used in investing activities for the six months ended December 31, 2012 was approximately $10.6 million as compared to $9.6 million in the prior year. This increase reflected a slightly higher level of capital expenditures in 2013.

Cash used in financing activities for the six months ended December 31, 2012 of approximately $156.3 million increased from the prior-year total of $26.9 million. This increase was due to higher dividend payments, including the $5.00 per share special dividend that was paid in December 2012, as partially offset by a lower level of share repurchases in the current year. The special dividend payment, which totaled in excess of $136 million, led to the decline in retained earnings since June 30, 2012 and also resulted in the decrease of Corporate assets, from that presented in the business segment information disclosed in our 2012 Annual Report on Form 10-K.

Under our unsecured revolving credit facility, we may borrow up to a maximum of $120 million at any one time. Loans may be used for general corporate purposes. We had no borrowings outstanding under this facility at December 31, 2012. At December 31, 2012, we had approximately $3.4 million of standby letters

 

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of credit outstanding, which reduced the amount available for borrowing on the unsecured revolving credit facility. The facility expires in April 2017, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an alternative base rate defined in the credit agreement, at our option. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Based on the long-term nature of this facility, when we have outstanding borrowings under this facility, we will classify the outstanding balance as long-term debt.

The facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and financial covenants relating to interest coverage and leverage. At December 31, 2012, we were in compliance with all applicable provisions and covenants of the facility, and we exceeded the requirements of the financial covenants by substantial margins.

We currently expect to remain in compliance with the facility’s covenants for the foreseeable future. A default under the facility could accelerate the repayment of any outstanding indebtedness and limit our access to additional credit available under the facility. Such an event could require curtailment of cash dividends or share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our obligations when due. At December 31, 2012, we were not aware of any event that would constitute a default under the facility.

We believe that internally generated funds and our existing balances in cash and equivalents, in addition to our currently available bank credit arrangements, should be adequate to meet our cash requirements through 2013. If we were to borrow outside of our credit facility under current market terms, our average interest rate may increase significantly and have an adverse effect on our results of operations.

For additional information regarding our credit facility, see Note 4 to the condensed consolidated financial statements.

CONTRACTUAL OBLIGATIONS

We have various contractual obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other items, such as purchase obligations, are not recognized as liabilities in our condensed consolidated financial statements. Examples of items not recognized as liabilities in our condensed consolidated financial statements are commitments to purchase raw materials or inventory that has not yet been received as of December 31, 2012 and future minimum lease payments for the use of property and equipment under operating lease agreements. Aside from expected changes in raw-material needs due to changes in product demand, there have been no significant changes to the contractual obligations disclosed in our 2012 Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those disclosed in our 2012 Annual Report on Form 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

There were no recently issued accounting pronouncements that impact our consolidated financial statements.

RECENTLY ADOPTED ACCOUNTING STANDARDS

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, “Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 11-12”). This ASU indefinitely defers the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income as set forth in ASU No. 2011-05, “Comprehensive Income: Presentation of Comprehensive Income” (“ASU 11-05”). ASU 11-12 had the same effective date as the unaffected provisions of ASU 11-05, for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. As this update is merely a deferral, it had no impact on our financial position or results of operations.

In June 2011, the FASB issued ASU 11-05. This ASU amends current comprehensive income guidance

 

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to eliminate the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, it requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 11-05 was effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. As noted above, portions of this ASU relating to reclassifications were indefinitely deferred with the issuance of ASU 11-12. We adopted the presentation provisions of this guidance in the first quarter of fiscal 2013 by presenting other comprehensive income and its components in the Condensed Consolidated Statements of Comprehensive Income. There was no impact on our financial position or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other: Testing Goodwill for Impairment” (“ASU 11-08”). This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying value. ASU 11-08 was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We adopted this guidance in fiscal 2013, but because the measurement of a potential impairment loss has not changed, the amended standards are not expected to have an effect on our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below. Management believes these forward-looking statements to be reasonable; however, you should not place undue reliance on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.

Items which could impact these forward-looking statements include, but are not limited to:

 

   

the potential for loss of larger programs or key customer relationships;

 

   

the effect of consolidation of customers within key market channels;

 

   

the success and cost of new product development efforts;

 

   

the lack of market acceptance of new products;

 

   

the reaction of customers or consumers to the effect of price increases we may implement;

 

   

changes in demand for our products, which may result from loss of brand reputation or customer goodwill;

 

   

the extent to which future business acquisitions are completed and acceptably integrated;

 

   

the possible occurrence of product recalls or other defective or mislabeled product costs;

 

   

efficiencies in plant operations, including the ability to optimize overhead utilization in candle operations;

 

   

price and product competition;

 

   

the uncertainty regarding the effect or outcome of any decision to explore further strategic alternatives among our nonfood operations;

 

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fluctuations in the cost and availability of raw materials;

 

   

adverse changes in energy costs and other factors that may affect costs of producing, distributing or transporting our products;

 

   

the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs;

 

   

maintenance of competitive position with respect to other manufacturers, including global sources of production;

 

   

dependence on key personnel;

 

   

stability of labor relations;

 

   

dependence on contract copackers and limited or exclusive sources for certain goods;

 

   

legislation and litigation affecting the future administration of the Continued Dumping and Subsidy Offset Act of 2000;

 

   

access to any required financing;

 

   

unknown costs relating to the holding or disposition of idle real estate;

 

   

changes in estimates in critical accounting judgments;

 

   

the outcome of any litigation or arbitration; and

 

   

certain other factors, including the information disclosed in our discussion of risk factors under Item 1A of our 2012 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks have not changed materially from those disclosed in our 2012 Annual Report on Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of management, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2012 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is 1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and 2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. No changes were made to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Item 1A in our 2012 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 shares, of which approximately 1,476,000 shares remained authorized for future repurchases at December 31, 2012. This share repurchase authorization does not have a stated expiration date. In the second quarter, we did not repurchase any of our common stock.

 

Period

   Total
Number of
Shares
Purchased
     Average
Price Paid
Per Share
     Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans
     Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans
 

October 1-31, 2012

     —         $           —           —           1,476,123   

November 1-30, 2012

     —         $           —           —           1,476,123   

December 1-31, 2012

     —         $           —           —           1,476,123   
  

 

 

          

 

 

    

Total

     —         $           —           —           1,476,123   

Item 6. Exhibits

See Index to Exhibits following Signatures.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  LANCASTER COLONY CORPORATION

                        (Registrant)

Date: February 7, 2013   By:   /s/ JOHN B. GERLACH, JR.
    John B. Gerlach, Jr.
    Chairman, Chief Executive Officer,
    President and Director
    (Principal Executive Officer)
Date: February 7, 2013   By:   /s/ JOHN L. BOYLAN
    John L. Boylan
    Treasurer, Vice President,
    Assistant Secretary,
    Chief Financial Officer
    and Director
    (Principal Financial and Accounting Officer)

 

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LANCASTER COLONY CORPORATION AND SUBSIDIARIES

FORM 10-Q

DECEMBER 31, 2012

INDEX TO EXHIBITS

 

Exhibit
Number

  

Description

   Located at  
31.1    Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002      Filed herewith   
31.2    Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002      Filed herewith   
32    Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002      Filed herewith   
101.INS    XBRL Instance Document      Filed herewith   
101.SCH    XBRL Taxonomy Extension Schema Document      Filed herewith   
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document      Filed herewith   
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document      Filed herewith   
101.LAB    XBRL Taxonomy Extension Label Linkbase Document      Filed herewith   
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document      Filed herewith   

 

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