Annual Statements Open main menu

LANCASTER COLONY CORP - Quarter Report: 2005 December (Form 10-Q)

Lancaster Colony Corp. 10-Q/Quarter End 12-31-05
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2005
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission file number 0-4065-1
 
Lancaster Colony Corporation
(Exact name of registrant as specified in its charter)
     
Ohio   13-1955943
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
37 West Broad Street   43215
Columbus, Ohio   (Zip Code)
(Address of principal executive offices)    
614-224-7141
(Registrant’s telephone number, including area code)
     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 þ  No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
Large Accelerated filer þ     Accelerated filer o      Non-accelerated filer o
     Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o  No þ
     As of January 31, 2006, there were approximately 33,381,000 shares of Common Stock, no par value per share, outstanding.
 
 

 


 

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
     
PART I — FINANCIAL INFORMATION
 
   
  Consolidated Financial Statements:
 
       Consolidated Balance Sheets — December 31, 2005 and June 30, 2005
 
       Consolidated Statements of Income — Three and Six Months Ended December 31, 2005 and 2004
 
       Consolidated Statements of Cash Flows — Six Months Ended December 31, 2005 and 2004
 
       Notes to Consolidated Financial Statements
 
   
  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
   
  Controls and Procedures
 
   
PART II — OTHER INFORMATION
 
   
  Unregistered Sales of Equity Securities and Use of Proceeds
 
   
  Submission of Matters to a Vote of Security Holders
 
   
  Exhibits
 
   
SIGNATURES
 
   
INDEX TO EXHIBITS
 EX-31.1
 EX-31.2
 EX-32

2


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    December 31     June 30  
(Amounts in thousands, except share data)   2005     2005  
    (Unaudited)          
ASSETS
               
Current Assets:
               
Cash and equivalents
  $ 13,089     $ 113,265  
Short-term investments
    64,965       71,315  
Receivables (less allowance for doubtful accounts, December — $1,857 and June — $1,830)
    121,606       100,351  
Inventories:
               
Raw materials and supplies
    49,160       47,097  
Finished goods and work in process
    114,369       117,268  
 
           
Total inventories
    163,529       164,365  
Deferred income taxes and other current assets
    29,599       25,109  
 
           
Total current assets
    392,788       474,405  
Property, Plant and Equipment:
               
Land, buildings and improvements
    130,837       121,290  
Machinery and equipment
    386,922       365,005  
 
           
Total cost
    517,759       486,295  
Less accumulated depreciation
    341,685       332,148  
 
           
Property, plant and equipment — net
    176,074       154,147  
Other Assets:
               
Goodwill
    79,219       79,219  
Other intangible assets — net
    4,677       4,937  
Other noncurrent assets
    16,855       18,570  
 
           
Total
  $ 669,613     $ 731,278  
 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
               
Accounts payable
  $ 49,588     $ 51,014  
Accrued liabilities
    59,197       52,832  
 
           
Total current liabilities
    108,785       103,846  
Other Noncurrent Liabilities
    30,497       30,492  
 
Deferred Income Taxes
    7,413       9,214  
 
Shareholders’ Equity:
               
Preferred stock — authorized 3,050,000 shares; outstanding — none
               
Common stock — authorized 75,000,000 shares; outstanding — December 31, 2005 — 33,531,009 shares; June 30, 2005 — 34,235,905 shares
    76,483       73,801  
Retained earnings
    907,748       944,194  
Accumulated other comprehensive loss
    (10,907 )     (10,905 )
 
           
Total
    973,324       1,007,090  
Common stock in treasury, at cost
    (450,406 )     (419,364 )
 
           
Total shareholders’ equity
    522,918       587,726  
 
           
Total
  $ 669,613     $ 731,278  
 
           
See accompanying notes to consolidated financial statements.

3


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
                                 
    Three Months Ended     Six Months Ended  
    December 31     December 31  
(Amounts in thousands, except per share data)   2005     2004     2005     2004  
Net Sales
  $ 312,577     $ 297,349     $ 598,492     $ 578,833  
Cost of Sales
    252,623       237,990       485,297       465,457  
 
                       
Gross Margin
    59,954       59,359       113,195       113,376  
Selling, General and Administrative Expenses
    25,842       25,531       51,876       50,307  
Restructuring and Impairment Charge
    19       45       43       487  
 
                       
Operating Income
    34,093       33,783       61,276       62,582  
Other Income (Expense):
                               
Other Income — Continued Dumping and Subsidy Offset Act
    11,376       26,226       11,376       26,226  
Interest Income and Other — Net
    1,263       833       2,649       1,460  
 
                       
Income Before Income Taxes
    46,732       60,842       75,301       90,268  
Taxes Based on Income
    16,502       22,723       27,025       33,771  
 
                       
Net Income
  $ 30,230     $ 38,119     $ 48,276     $ 56,497  
 
                       
Net Income Per Common Share:
                               
Basic
  $ .89     $ 1.09     $ 1.42     $ 1.60  
Diluted
  $ .89     $ 1.08     $ 1.42     $ 1.60  
Cash Dividends Per Common Share
  $ 2.26     $ .25     $ 2.51     $ .48  
 
Weighted Average Common Shares Outstanding:
                               
Basic
    33,838       35,084       34,029       35,220  
Diluted
    33,861       35,144       34,074       35,276  
See accompanying notes to consolidated financial statements.

4


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Six Months Ended  
    December 31  
(Amounts in thousands)   2005     2004  
Cash Flows From Operating Activities:
               
Net income
  $ 48,276     $ 56,497  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    16,540       16,865  
Deferred income taxes and other noncash items
    (3,238 )     (601 )
Restructuring and impairment charge
    (26 )     (8 )
Gain on sale of property
    (813 )     (79 )
Loss on sale of business
    202        
Payments to pension plans
    (106 )     (135 )
Changes in operating assets and liabilities:
               
Receivables
    (21,681 )     (14,378 )
Inventories
    526       12,215  
Other current assets
    (2,858 )     (3,054 )
Accounts payable and accrued liabilities
    2,702       7,163  
 
           
Net cash provided by operating activities
    39,524       74,485  
 
           
 
Cash Flows From Investing Activities:
               
Payments on property additions
    (35,075 )     (9,431 )
Proceeds from sale of property
    1,155       504  
Cash paid for acquisitions
          (492 )
Proceeds from sale of business
    476        
Purchases of short-term investments
    (24,700 )     (42,205 )
Proceeds from short-term investment sales, calls, and maturities
    31,050       24,840  
Other net
    (829 )     (4,816 )
 
           
Net cash used in investing activities
    (27,923 )     (31,600 )
 
           
 
Cash Flows From Financing Activities:
               
Purchase of treasury stock
    (31,042 )     (23,304 )
Payment of dividends
    (84,722 )     (16,878 )
Proceeds from the exercise of stock options, including related tax benefits
    2,333       2,273  
Increase in cash overdraft balance
    1,656       3,832  
 
           
Net cash used in financing activities
    (111,775 )     (34,077 )
 
           
 
Effect of exchange rate changes on cash
    (2 )     (6 )
 
           
Net change in cash and equivalents
    (100,176 )     8,802  
Cash and equivalents at beginning of year
    113,265       113,233  
 
           
Cash and equivalents at end of period
  $ 13,089     $ 122,035  
 
           
 
Supplemental Disclosure Of Operating Cash Flows:
               
Cash paid during the period for income taxes
  $ 25,415     $ 22,105  
 
           
See accompanying notes to consolidated financial statements.

5


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except per share amounts)
Note 1 — Summary of Significant Accounting Policies
   Basis of Presentation
     The interim consolidated financial statements are unaudited but, in our opinion, reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended June 30, 2005. Unless otherwise noted, references to “year” pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2005 refers to fiscal 2005, which is the period from July 1, 2004 to June 30, 2005.
   Reclassifications
     Certain prior-year amounts have been reclassified to conform with the current-year presentation.
     We reclassified our investments in auction rate securities and variable rate demand obligations from cash and equivalents to short-term investments for the prior-year period ended December 31, 2004. This balance sheet reclassification resulted in the increase in short-term investments of $82.6 million with a corresponding decrease in cash and equivalents. This reclassification also resulted in the net short-term investment activity being reclassified from the change in cash to a gross presentation in investing activities on the Consolidated Statement of Cash Flows.
   Liquidation of LIFO Inventory Layers
     During the six months ended December 31, 2005 and the three and six months ended December 31, 2004, certain inventory quantity reductions resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. There was no impact for the three months ended December 31, 2005, and the effect of the liquidation for the six months ended December 31, 2005 was insignificant. The effect of the liquidation for the three and six months ended December 31, 2004 was an increase in pretax income of approximately $0.3 million and $0.6 million, or less than $.01 per share and approximately $.01 per share after taxes, respectively.
   Property, Plant and Equipment
     Property, plant and equipment are stated at cost. Purchases of property, plant and equipment included in accounts payable at December 31, 2005 were $2.9 million. These purchases, less the June 30, 2005 amount of $2.3 million, have been excluded from the property additions in the Consolidated Statement of Cash Flows. Prior-year amounts were not material.
   Stock-Based Employee Compensation Plans
     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” (“SFAS 123R”). SFAS 123R requires the measurement and recognition of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of the employee services is recognized as compensation expense over the period that an employee provides service in exchange for the award, which is typically the vesting period. SFAS 123R was effective July 1, 2005, and we adopted SFAS 123R using the modified prospective method in the quarter ended September 30, 2005. At the date of adoption, we had both vested and unvested options outstanding under our 1995 Key Employee Stock Option Plan (the “1995 Plan”), a stock-based compensation plan. See a complete discussion of the impact of the adoption of SFAS 123R in Note 7.
     Under the modified prospective method, we have not restated any balance sheet or income statement items for any prior periods. Had compensation cost for the 1995 Plan been determined based on the fair value at the grant dates for awards under the 1995 Plan consistent with the method of SFAS No. 123, our net

6


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
income and earnings per share would have been reduced to the pro forma amounts indicated below for the three and six months ended December 31, 2004:
                 
    Three Months Ended     Six Months Ended  
    December 31     December 31  
    2004     2004  
Net income as reported
  $ 38,119     $ 56,497  
Less: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects
    (32 )     (64 )
 
           
Pro forma net income
  $ 38,087     $ 56,433  
 
           
Net income per common share basic as reported and pro forma
  $ 1.09     $ 1.60  
Net income per common share diluted as reported and pro forma
  $ 1.08     $ 1.60  
   Significant Accounting Policies
     There were no changes to our Significant Accounting Policies from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2005, except for the adoption of SFAS 123R as of July 1, 2005.
Note 2 — Short-Term Investments
     At December 31 and June 30, 2005, we held $65.0 million and $71.3 million, respectively, of short-term investments, which consist of auction rate securities and variable rate demand obligations classified as available-for-sale securities.
     Our December 31 and June 30 short-term investments by contractual maturity are as follows:
                 
    December 31     June 30  
    2005     2005  
Due within one year
  $ 380     $ 3,300  
Due between one and five years
    600       1,580  
Due after ten years
    63,985       66,435  
 
           
 
Total short-term investments
  $ 64,965     $ 71,315  
 
           
     We had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from our short-term investments. All income generated from these short-term investments was recorded as interest income. Actual maturities may differ from contractual maturities should the borrower have the right to call certain obligations.
Note 3 — Impact of Recently Issued Accounting Standards
     In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We do not expect the adoption of FIN 47 to have a material impact on our financial position or results of operations.

7


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
Note 4 — Goodwill and Other Intangible Assets
     Goodwill attributable to the Specialty Foods and Automotive segments was $78.2 million and $1.0 million, respectively, at December 31 and June 30, 2005.
     The following table summarizes our segment identifiable other intangible assets as of December 31 and June 30, 2005:
                 
    December 31     June 30  
    2005     2005  
Specialty Foods
               
Trademarks (40-year life)
               
Gross carrying value
  $ 370     $ 370  
Accumulated amortization
    (135 )     (131 )
 
           
Net Carrying Value
  $ 235     $ 239  
 
           
Customer Lists (12-year life)
               
Gross carrying value
  $ 4,100     $ 4,100  
Accumulated amortization
    (683 )     (513 )
 
           
Net Carrying Value
  $ 3,417     $ 3,587  
 
           
Non-compete Agreements (8-year life)
               
Gross carrying value
  $ 1,200     $ 1,200  
Accumulated amortization
    (300 )     (225 )
 
           
Net Carrying Value
  $ 900     $ 975  
 
           
Glassware and Candles — Customer Lists (12-year life)
               
Gross carrying value
  $ 250     $ 250  
Accumulated amortization
    (125 )     (114 )
 
           
Net Carrying Value
  $ 125     $ 136  
 
           
Total Net Carrying Value
  $ 4,677     $ 4,937  
 
           
     Amortization expense relating to these assets was approximately $0.1 million and $0.3 million for the three and six months ended December 31, 2005 and 2004. Total annual amortization expense is estimated to be approximately $0.5 million for each of the next five years.
Note 5 — Pension Benefits
     We and certain of our operating subsidiaries provide multiple defined benefit pension plans. Benefits under the plans are primarily based on negotiated rates and years of service and cover the union workers at various locations. We contribute to these plans at least the minimum amount required by regulation or contract. We recognize the cost of plan benefits as the employees render service.

8


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
     The following table discloses net periodic benefit cost for our pension plans:
                                 
    Three Months     Six Months  
    Ended     Ended  
    December 31     December 31  
    2005     2004     2005     2004  
Components of net periodic benefit cost
                               
Service cost
  $ 188     $ 139     $ 376     $ 277  
Interest cost
    635       632       1,270       1,265  
Expected return on plan assets
    (723 )     (694 )     (1,446 )     (1,388 )
Amortization of unrecognized net loss
    177       103       354       205  
Amortization of prior service cost
    58       58       117       117  
Amortization of unrecognized net obligation existing at transition
    9       9       18       18  
 
                       
Net periodic benefit cost
  $ 344     $ 247     $ 689     $ 494  
 
                       
     For the three and six months ended December 31, 2005, we made less than $0.1 million and approximately $0.1 million in contributions to our pension plans, respectively. We expect to make approximately $2.7 million more in contributions to our pension plans during the remainder of this year.
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 discloses net periodic benefit cost for our postretirement plans:
                                 
    Three Months     Six Months  
    Ended     Ended  
    December 31     December 31  
    2005     2004     2005     2004  
Components of net periodic benefit cost
                               
Service cost
  $ 43     $ 34     $ 87     $ 68  
Interest cost
    86       81       173       162  
Amortization of unrecognized net loss
    36       18       72       37  
Amortization of prior service asset
    (1 )     (2 )     (3 )     (4 )
 
                       
Net periodic benefit cost
  $ 164     $ 131     $ 329     $ 263  
 
                       
     For the three and six months ended December 31, 2005, we made less than $0.1 million and approximately $0.1 million in contributions to our postretirement medical and life insurance benefit plans. We expect to make approximately $0.2 million more in contributions to our postretirement medical and life insurance benefit plans during the remainder of this fiscal year.
Note 7 — Stock Options
     As approved by our shareholders in November 1995, the terms of the 1995 Key Employee Stock Option Plan reserved 3,000,000 common shares for issuance to key employees. All options granted under the 1995 Plan were exercisable at prices not less than fair market value as of the date of grant. This 1995 Plan expired in August 2005. In general, options granted under the 1995 Plan vested immediately and had a maximum term of five years.
     Our shareholders approved the adoption of a new equity compensation plan, the Lancaster Colony Corporation 2005 Stock Plan, at our 2005 Annual Meeting of Shareholders, which was held on November 21, 2005. This new plan reserved 2,000,000 common shares for issuance to key employees, and

9


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
all options that will be granted under the plan will be exercisable at prices not less than fair market value as of the date of the grant.
     Our policy is to issue shares upon option exercise from new shares that had been previously authorized.
     There were no grants of options in the six months ending December 31, 2005 and 2004 under either plan.
     Under SFAS 123R, we calculate fair value of option grants using the Black-Scholes option-pricing model. Assumptions used in the model for the prior-year grants are described in our Annual Report on Form 10-K for the year ended June 30, 2005. Total compensation cost related to share-based payment arrangements for the three and six months ended December 31, 2005 was approximately $0.1 million and $0.3 million, respectively. These amounts were reflected in Selling, General and Administrative Expenses and have been allocated to each segment appropriately. There was no tax benefit recorded for this compensation cost because it relates to incentive stock options that do not qualify for a tax deduction until, and only if, a disqualifying disposition occurs.
     During the three and six months ended December 31, 2005, we received less than $0.1 million and approximately $2.2 million, respectively, in cash from the exercise of stock options. The aggregate intrinsic value of the second quarter and year-to-date option exercises was less than $0.1 million and approximately $0.4 million, respectively. A related tax benefit of less than $0.1 million and $0.2 million was recorded in the three and six months ended December 31, 2005, respectively, and is included in the financing section of the Consolidated Statement of Cash Flows. This benefit resulted from incentive stock option disqualifying dispositions and exercises of non-qualified options. The benefit includes less than $0.1 million of gross windfall tax benefits for both the quarter and year-to-date periods.
     The following summarizes the activity relating to stock options granted under the 1995 Plan mentioned above for the six months ended December 31, 2005:
                                 
                    Weighted        
            Weighted     Average        
    Number     Average     Remaining     Aggregate  
    of     Exercise     Contractual     Intrinsic  
    Shares     Price     Life     Value  
Outstanding at beginning of period
    590,104     $ 38.77                  
Exercised
    (58,972 )     36.85                  
Granted
                           
Forfeited
    (3,500 )     38.52                  
 
                           
Outstanding at end of period
    527,632     $ 38.99       3.18     $ 387  
 
                       
Exercisable at end of period
    468,783     $ 38.81       3.10     $ 354  
 
                       
     The following summarizes the status of, and changes to, unvested options during the six months ended December 31, 2005:
                 
            Weighted  
    Number     Average  
    of     Grant Date  
    Shares     Fair Value  
Unvested at beginning of period
    58,849     $ 7.52  
Granted
           
Vested
           
Forfeited
           
 
           
 
Unvested at end of period
    58,849     $ 7.52  
 
           
     At December 31, 2005, there was less than $0.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 1995 Plan. This cost is expected to be recognized over a weighted-average period of 1.6 years.

10


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
Note 8 — Restructuring and Impairment Charge
     In the fourth quarter of 2004, we recorded a restructuring and impairment charge of approximately $1.1 million ($0.7 million after taxes) for costs incurred as of June 30, 2004 related to the closing of our automotive floor mat manufacturing facility located in Waycross, Georgia. Manufacturing effectively ceased as of June 30, 2004. The decision to close the plant was brought on by a decline in demand for compression molded rubber floor mats that resulted in excess segment capacity. During the year ended June 30, 2005, we recorded additional restructuring and impairment charges of $0.5 million ($0.3 million after taxes) for continuing costs incurred during that period. During the six months ended December 31, 2005, both the new costs incurred and the cash outlays made for the required upkeep of the facility were immaterial to the consolidated financial statements. The restructuring accrual is included in accounts payable and accrued liabilities at December 31, 2005. We expect that the remaining cash outlays for this plant closing will be immaterial.
Note 9 — Business Segment Information
     The following summary financial information by business segment is consistent with the basis of segmentation and measurement of segment profit or loss presented in our June 30, 2005 consolidated financial statements:
                                 
    Three Months Ended     Six Months Ended  
    December 31     December 31  
    2005     2004     2005     2004  
Net Sales
                               
Specialty Foods
  $ 189,505     $ 177,075     $ 359,039     $ 337,684  
Glassware and Candles
    65,269       67,842       125,544       131,574  
Automotive
    57,803       52,432       113,909       109,575  
 
                       
Total
  $ 312,577     $ 297,349     $ 598,492     $ 578,833  
 
                       
Operating Income
                               
Specialty Foods
  $ 31,574     $ 31,036     $ 57,418     $ 58,415  
Glassware and Candles
    3,417       3,684       5,620       4,763  
Automotive
    699       1,098       1,833       3,354  
Corporate Expenses
    (1,597 )     (2,035 )     (3,595 )     (3,950 )
 
                       
Total
  $ 34,093     $ 33,783     $ 61,276     $ 62,582  
 
                       
Note 10 — Commitments and Contingencies
     At December 31, 2005, we are a party to various claims and litigation matters which have arisen 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 adverse effect on our consolidated financial statements.
     During the second quarter of 2006 and 2005, we received approximately $11.4 million and $26.2 million, respectively, from the U.S. government under the Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”). These amounts were recorded as other income. CDSOA, which applies to our candle operations, is intended to redress unfair dumping of imported products through cash payments to eligible affected companies. Such payments are in part dependent upon the amount of anti-dumping duties collected on those products. The World Trade Organization has previously ruled that such payments are inconsistent with international trade rules. Additionally, there is pending litigation to which we are not a party that challenges the constitutionality of CDSOA. Further, in February 2006, legislation has been enacted to repeal the applicability of CDSOA to duties collected on imported products entered into the United States after September 2007. While CDSOA continues to be in effect in the United States at this time, uncertainties associated with this program leave us unable to predict the amounts, if any, we may be entitled to receive in the future.

11


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands, except per share amounts)
     Certain of our automotive accessory products carry explicit limited warranties that extend from twelve months to the life of the product, based on terms that are generally accepted in the marketplace. Our policy is to record a provision for the expected cost of the warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual experience. The amount of warranty liability accrued reflects our best estimate of the expected future cost of honoring our obligations under the warranty plans. The warranty accrual as of December 31 and June 30, 2005 is immaterial to our financial condition, and the change in the accrual for the current quarter of 2006 is immaterial to our results of operations and cash flows.
Note 11 — Comprehensive Income
     Total comprehensive income for the three and six months ended December 31, 2005 was approximately $30.0 million and $48.3 million, respectively. Total comprehensive income for the three and six months ended December 31, 2004 was $38.1 million and $56.5 million, respectively. The December 31, 2005 and 2004 comprehensive income primarily consists of net income and foreign currency translation adjustments.

12


Table of Contents

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)
OVERVIEW
     We are a diversified manufacturer and marketer of consumer products including specialty foods for the retail and foodservice markets; glassware and candles for the retail, industrial, floral and foodservice markets; and automotive accessories for the original equipment market and aftermarket.
     This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important in understanding the results of our operations for the three and six months ended December 31, 2005 and our financial condition as of December 31, 2005. Unless otherwise noted, references herein to “year” pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2005 refers to fiscal 2005, which is the period from July 1, 2004 to June 30, 2005. In the discussion that follows, we analyze the results of our operations for the three and six months ended December 31, 2005, including the trends in the overall business, followed by a discussion of our financial condition.
     On November 21, 2005, the Board of Directors voted to increase the regular quarterly cash dividend to $.26 per common share. They also approved a special cash dividend of $2.00 per common share. Both of these dividends were paid on December 30, 2005 to shareholders of record on December 9, 2005. The total cash payment was $76.2 million for both dividends.
     We received an $11.4 million distribution from the U.S. government under the Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) in the second quarter of 2006, as compared to a $26.2 million distribution in the same period of 2005. These amounts were recorded as other income. CDSOA, which applies to our candle operations, is intended to redress unfair dumping of imported products through cash payments to eligible affected companies. Such payments are in part dependent upon the amount of anti-dumping duties collected on those products. The World Trade Organization has previously ruled that such payments are inconsistent with international trade rules. Additionally, there is pending litigation to which we are not a party that challenges the constitutionality of CDSOA. Further, in February 2006, legislation has been enacted to repeal the applicability of CDSOA to duties collected on imported products entered into the United States after September 2007. While CDSOA continues to be in effect in the United States at this time, uncertainties associated with this program leave us unable to predict the amounts, if any, we may be entitled to receive in the future.
     On July 1, 2005, we sold our indirect subsidiary, Colony Printing & Labeling, for net proceeds of approximately $0.5 million. The loss recorded on the sale was approximately $0.2 million. Colony Printing & Labeling was part of our Glassware and Candles segment and was not deemed material for presentation as a discontinued operation.
     The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto, all included elsewhere herein. The forward-looking statements in this section and other parts of this document 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.”
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,” “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

13


Table of Contents

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 the strength of the economy, slower than anticipated sales growth, the extent of operational efficiencies achieved, the success of new product introductions, price and product competition, and increases in energy and raw materials costs. Management believes these forward-looking statements to be reasonable; however, undue reliance should not be placed on such statements that are based on current expectations. We undertake no obligation to publicly update such forward-looking statements. More detailed statements regarding significant events that could affect our financial results are included in our Annual Report on Form 10-K for the year ended June 30, 2005 filed with the Securities and Exchange Commission.
Summary of Results
     The following is an overview of our consolidated operating results for the three and six months ended December 31, 2005.
     Net sales for the second quarter ended December 31, 2005 increased 5% to $312.6 million from the prior-year second quarter total of $297.3 million. Gross margin increased 1% to $60.0 million from the prior-year second quarter total of $59.4 million. Net income for the current-year second quarter was $30.2 million, or $.89 per diluted share, compared to $38.1 million, or $1.08 per diluted share, in the comparable period of 2005.
     Year-to-date net sales for the period ended December 31, 2005 increased 3% to $598.5 million from the prior year-to-date total of $578.8 million. Gross margin decreased only slightly to $113.2 million from the prior year-to-date total of $113.4 million. Net income was $48.3 million, or $1.42 per diluted share, compared to $56.5 million, or $1.60 per diluted share, in the comparable period of 2005.
     Our second quarter and year-to-date results continue to reflect an environment of increased pricing pressures and higher nonfood material costs as well as higher freight and energy costs. While we are striving to implement selected price increases, to date, we have found our opportunities to increase prices to be limited and generally not sufficient to offset the impact of the higher costs. We are also working to otherwise mitigate the impact of these increased costs, including changing various manufacturing processes, but these efforts may also lag the adverse effect of the higher costs. We have been able to maintain a strong balance sheet with no debt throughout this period.
RESULTS OF CONSOLIDATED OPERATIONS
Net Sales and Gross Margin
                                                                 
    Three Months Ended                     Six Months Ended        
    December 31                     December 31        
    2005     2004     Change     2005     2004     Change  
Net Sales
                                                               
Specialty Foods
  $ 189,505     $ 177,075     $ 12,430       7 %   $ 359,039     $ 337,684     $ 21,355       6 %
Glassware and Candles
    65,269       67,842       (2,573 )     (4 )%     125,544       131,574       (6,030 )     (5 )%
Automotive
    57,803       52,432       5,371       10 %     113,909       109,575       4,334       4 %
 
                                               
Total
  $ 312,577     $ 297,349     $ 15,228       5 %   $ 598,492     $ 578,833     $ 19,659       3 %
 
                                               
Gross Margin
  $ 59,954     $ 59,359     $ 595       1 %   $ 113,195     $ 113,376     $ (181 )     0 %
 
                                               
Gross Margin as a Percent of Sales
    19.2 %     20.0 %                     18.9 %     19.6 %                
 
                                                       
     Consolidated net sales for the most recent quarter increased 5%, reflecting 10% growth in sales of the Automotive segment and 7% growth in sales of the Specialty Foods segment, as partially offset by lower sales in the Glassware and Candles segment. Year-to-date consolidated net sales increased 3%, again on gains in the Specialty Foods and Automotive segments.
     For the quarter ended December 31, 2005, net sales of the Specialty Foods segment totaled $189.5 million, an increase of 7% over the prior-year total of $177.1 million. The segment’s increased sales reflected

14


Table of Contents

solid growth in our retail product lines, particularly produce dressings, and frozen breads and rolls. Growth in these retail product lines also contributed to year-to-date Specialty Foods segment net sales of $359.0 million, increasing by 6% over the prior-year total of $337.7 million.
     Net sales of the Glassware and Candles segment for the second quarter ended December 31, 2005 totaled $65.3 million, a 4% decline from the prior-year quarter total of $67.8 million. This decrease was attributable to lower glass sales, reflecting generally soft market demand. Glassware and Candles net sales year-to-date totaled $125.5 million, which represented a 5% decline from the prior year-to-date amount of $131.6 million. In addition to lower glass sales, this decrease was also influenced by a reduction in the sales of candles resulting from competitive market conditions and lower sales to dollar stores.
     Automotive segment net sales for the second quarter ended December 31, 2005 totaled $57.8 million, a 10% increase from the prior-year second quarter total of $52.4 million. Improved sales of aluminum truck accessories more than offset the declining sales of automotive floor mats. Shipments of aluminum tube steps for a large, new original equipment manufacturer (“OEM”) program began in the current-year first quarter and have ramped up in the second quarter. Floor mat sales continue to be adversely affected by certain OEM programs that ended in the first half of 2005. Year-to-date net sales for the Automotive segment reached $113.9 million, a 4% increase over the prior-year total of $109.6 million.
     As a percentage of sales, our consolidated gross margin for the three and six months ended December 31, 2005 totaled 19.2% and 18.9%, respectively, reflecting declines of 0.8% and 0.7% from the prior-year comparative periods. Despite the benefits of the segment’s higher sales volumes and improved efficiencies at our frozen food operations, Specialty Foods’ margins decreased slightly in the quarter, reflecting factors such as higher freight and energy costs. The year-to-date margins reflected a similar decline.
     Gross margins in the Glassware and Candles segment declined in the quarter and six months ended December 31, 2005 due to higher energy and raw material costs. Current-year results have also been adversely affected by a planned idling of substantially all production at our Sapulpa, Oklahoma glassware manufacturing facility that occurred in the last half of December 2005. This idling is currently anticipated to be extended into at least early March 2006 and is intended to better balance existing inventory levels with anticipated demand. However, margins for the year have otherwise benefited from generally more favorable levels of overhead absorption on higher production volumes, as well as better production efficiencies at our Oklahoma facility. The effect of liquidations of LIFO inventory was insignificant for the six-month period ended December 31, 2005 compared to $0.3 million and $0.6 million of income for the three and six months ended December 31, 2004. Wax and energy costs are expected to remain above historical levels and, combined with the impact of expected reductions in both candle and glassware manufacturing production, are likely to adversely affect comparative segment margins over the remainder of 2006.
     Within our Automotive segment, higher material costs for aluminum and petroleum-related materials contributed to the lower segment gross margins present during the current-year quarter and year-to-date periods. Affecting year-to-date segment margins were start-up costs associated with the new OEM program involving aluminum tube steps. Second-quarter margins in 2006 were adversely affected by lower floor mat production causing less favorable levels of overhead absorption. Further, second quarter margins in the current year were inclusive of a gain of approximately $0.8 million that resulted from the sale of idle real estate.
Selling, General and Administrative Expenses
                                                                 
    Three Months Ended                     Six Months Ended        
    December 31                     December 31        
    2005     2004     Change     2005     2004     Change  
Selling, General and Administrative Expenses
  $ 25,842     $ 25,531     $ 311       1 %   $ 51,876     $ 50,307     $ 1,569       3 %
 
                                               
SG&A Expenses as a Percent of Sales
    8.3 %     8.6 %                     8.7 %     8.7 %                
 
                                                       
     Consolidated selling, general and administrative costs of $25.8 million and $51.9 million for the three and six months ended December 31, 2005 increased by 1% and 3%, respectively, from the $25.5 million and $50.3 million incurred for the three and six months ended December 31, 2004. As a percentage of sales, these costs were slightly lower for the quarter, but comparable to the prior year-to-date period.

15


Table of Contents

Restructuring and Impairment Charge
     In the fourth quarter of 2004, we recorded a restructuring and impairment charge of approximately $1.1 million ($0.7 million after taxes) for costs incurred as of June 30, 2004 related to the closing of our automotive floor mat manufacturing facility located in Waycross, Georgia. Manufacturing effectively ceased as of June 30, 2004. The decision to close the plant was brought on by a decline in demand for compression molded rubber floor mats that resulted in excess segment capacity. During the year ended June 30, 2005, we recorded additional restructuring and impairment charges of $0.5 million ($0.3 million after taxes) for continuing costs incurred during that period. During the six months ended December 31, 2005, both the new costs incurred and the cash outlays made for the required upkeep of the facility were immaterial to the consolidated financial statements. The restructuring accrual is included in accounts payable and accrued liabilities at December 31, 2005. We expect that the remaining cash outlays for this plant closing will be immaterial.
Operating Income
     The foregoing factors contributed to consolidated operating income totaling $34.1 million and $61.3 million for the three and six months ended December 31, 2005. These amounts represent an increase of 1% from the prior-year quarter and a decrease of 2% from prior year-to-date. By segment, our operating income can be summarized as follows:
                                                                 
    Three Months Ended                     Six Months Ended        
    December 31                     December 31        
    2005     2004     Change     2005     2004     Change  
Operating Income
                                                               
Specialty Foods
  $ 31,574     $ 31,036     $ 538       2 %   $ 57,418     $ 58,415     $ (997 )     (2 )%
Glassware and Candles
    3,417       3,684       (267 )     (7 )%     5,620       4,763       857       18 %
Automotive
    699       1,098       (399 )     (36 )%     1,833       3,354       (1,521 )     (45 )%
Corporate Expenses
    (1,597 )     (2,035 )     438       (22 )%     (3,595 )     (3,950 )     355       (9 )%
 
                                               
Total
  $ 34,093     $ 33,783     $ 310       1 %   $ 61,276     $ 62,582     $ (1,306 )     (2 )%
 
                                               
Operating Income as a Percent of Sales
                                                               
Specialty Foods
    16.7 %     17.5 %                     16.0 %     17.3 %                
Glassware and Candles
    5.2 %     5.4 %                     4.5 %     3.6 %                
Automotive
    1.2 %     2.1 %                     1.6 %     3.1 %                
Consolidated
    10.9 %     11.4 %                     10.2 %     10.8 %                
Other Income — Continued Dumping and Subsidy Offset Act
     The three and six months ended December 31, 2005 included other income of $11.4 million from a distribution under CDSOA. In the three and six months ended December 31, 2004, we recorded a $26.2 million distribution from CDSOA. CDSOA, which applies to our candle operations, is intended to redress unfair dumping of imported products through cash payments to eligible affected companies. See further discussion at Note 10 to the consolidated financial statements.
Interest Income and Other — Net
     The quarter and year-to-date periods ended December 31, 2005 included interest income and other of $1.3 million and $2.6 million, respectively, as compared to $0.8 million and $1.5 million in corresponding periods of the prior year. The increase was primarily due to higher interest income, as interest rates on our cash equivalents and short-term investments have been higher than in the prior year.
Income Before Income Taxes
     As impacted by the factors discussed above, income before income taxes for the year-to-date period ended December 31, 2005 decreased by $15.0 million to $75.3 million from the prior-year total of $90.3 million. Our effective tax rate decreased from the prior-year rate of 37.4% to 35.9% year-to-date due to the

16


Table of Contents

changes in state tax laws within Ohio, increased deduction for dividends paid to the ESOP Plan due to the $2.00 per share special dividend paid in December 2005, and the new federal production deduction created by the American Jobs Creation Act. The effective tax rate for the second quarter of 2006 reflects an adjustment of the effective rate for the special dividend not authorized by the Board of Directors until November 2005. We anticipate the full-year effective tax rate to be approximately 36%.
Net Income
     Second quarter net income of $30.2 million decreased from the preceding year’s net income for the quarter of $38.1 million, as significantly influenced by the lower CDSOA disbursement and the other factors noted above. Similarly, year-to-date net income of $48.3 million decreased from the prior year-to-date total of $56.5 million. Net income per share for the second quarter of 2006, as influenced by the extent of share repurchases under our share repurchase program, totaled $.89 per basic and diluted share, as compared to $1.09 per basic share and $1.08 per diluted share recorded in the prior year. Year-to-date net income per share was $1.42 on a basic and diluted basis compared to $1.60 on a basic and diluted basis for the prior-year period.
FINANCIAL CONDITION
     For the six months ended December 31, 2005, net cash provided by operating activities totaled $39.5 million, which compares to $74.5 million in the comparable prior-year period. This decrease results mainly from the relative change in accounts receivable, inventory, accounts payable and accrued liabilities, the decline in net income, as well as from comparative fluctuations in deferred income taxes and other noncash items. The increase in accounts receivable at December relative to the June 30 balance largely reflects seasonably higher levels of accounts receivable in the Glass and Candles segment as well as the relative strength of the second quarter’s sales, including that of December.
     Cash used in investing activities for the six months ended December 31, 2005 decreased to $27.9 million from the prior-year amount of $31.6 million due to the relative change in net short-term investment activity offset by an increase in capital expenditures. The increase in capital expenditures primarily reflects construction of a new salad dressing facility. Capital expenditures for 2006 could exceed $60 million, as influenced by increased construction activity on this facility.
     Cash used in financing activities for the six months ended December 31, 2005 of $111.8 million increased from the prior-year total of $34.1 million due primarily to increased dividend payments and increased share repurchases. Total dividends paid during the current year-to-date period increased approximately $67.8 million as compared to the prior-year period due to the payment of a special cash dividend of $2.00 per common share in the second quarter. The total payment for cash dividends year-to-date December 31, 2005 was $84.7 million. This amount includes the first and second quarter regular cash dividends of $.25 and $.26 per common share, respectively, and the second quarter special cash dividend of $2.00 per common share. At December 31, 2005, approximately 2,262,000 shares remain authorized for future buyback.
     We believe that internally generated funds, our existing aggregate balances in cash, cash equivalents and short-term investments, in addition to our currently available bank credit arrangements, should be adequate to meet our foreseeable cash requirements.
     We reclassified our investments in auction rate securities and variable rate demand obligations from cash and equivalents to short-term investments for the prior-year period ended December 31, 2004. This balance sheet reclassification resulted in the increase in short-term investments of $82.6 million with a corresponding decrease in cash and equivalents. This reclassification also resulted in the net short-term investment activity being reclassified from the change in cash to a gross presentation in investing activities on the Consolidated Statement of Cash Flows.
CONTRACTUAL OBLIGATIONS
     We have various contractual obligations, which are appropriately recorded as liabilities in our consolidated financial statements. Certain other items, such as purchase obligations, are not recognized as liabilities in our consolidated financial statements. Examples of items not recognized as liabilities in our consolidated financial statements are commitments to purchase raw materials or inventory that have not yet been received as of December 31, 2005 and future minimum lease payments for the use of property and

17


Table of Contents

equipment under operating lease agreements. In our Annual Report on Form 10-K for the year ended June 30, 2005, we disclosed our contractual obligations as of June 30, 2005. There have been no significant changes to the obligations disclosed therein.
CRITICAL ACCOUNTING POLICIES
     There have been no changes in critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2005.
RECENTLY ISSUED ACCOUNTING STANDARDS
     In March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We do not expect the adoption of FIN 47 to have a material impact on our financial position or results of operations.
     In May 2005, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
RECENTLY ADOPTED ACCOUNTING STANDARDS
     Effective July 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), using the modified prospective method, which requires the measurement and recognition of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.
     Prior to SFAS 123R, our stock-based compensation plan was accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25. Under this guidance, because the exercise price of the stock options was at least equal to the market price of the underlying stock at the date of grant, no compensation expense was recognized in the financial statements.
     Under the modified prospective method, we have not restated any prior period balance sheet or income statement items. Pro forma disclosure for these periods can be seen in Note 1 to the consolidated financial statements.
     Total compensation cost related to share-based payment arrangements for the three and six months ended December 31, 2005 was approximately $0.1 million and $0.3 million, respectively. These amounts were reflected in Selling, General and Administrative Expenses and have been allocated to each segment appropriately. There was no tax benefit recorded for this compensation cost because it relates to incentive stock options that do not qualify for a tax deduction until, and only if, a disqualifying disposition occurs.
     At December 31, 2005, there was less than $0.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 1.6 years.
     See Note 7 to the consolidated financial statements for further information.
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

18


Table of Contents

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, 2005 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
     (b) Changes in Internal Control Over Financial Reporting. No changes were made to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
     (c) In both August 2004 and May 2005, our Board of Directors approved share repurchase authorizations of 2,000,000 shares, of which approximately 2,262,000 shares remain authorized for future repurchases at December 31, 2005. In the second quarter, we made the following repurchases of our common stock:
                                     
                    Total Number     Maximum Number  
    Total   Average   of Shares     of Shares That May  
    Number   Price   Purchased as     Yet be Purchased  
    of Shares   Paid Per   Part of Publicly     Under the Plans or  
Period     Purchased     Share     Announced Plans       Programs  
October 1-31, 2005
    155,226     $ 41.471       155,226       2,683,082  
November 1-30, 2005
    210,309     $ 39.110       210,309       2,472,773  
December 1-31, 2005
    210,327     $ 38.288       210,327       2,262,446  
     These share repurchase authorizations do not have a stated expiration date.
Item 4.   Submission of Matters to a Vote of Security Holders
     We held our 2005 Annual Meeting of the Shareholders on November 21, 2005. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. Matters discussed or voted on at the annual meeting were the approval of a proposal to adopt the Lancaster Colony Corporation 2005 Stock Plan (“Stock Plan”) and the election of three incumbent directors. The Stock Plan was approved with a vote of 25,612,993 cast for approval, 2,350,078 against such approval and 4,168,540 abstaining. The directors, whose terms will expire in 2008, obtained the following votes:
                         
    Shares           Shares
      Voted     Shares   Not
      “For”       “Withheld”       Voted
Robert L. Fox
    32,000,164       131,447       2,041,728  
John B. Gerlach, Jr.
    31,907,726       223,885       2,041,728  
Edward H. Jennings
    31,907,933       223,678       2,041,728  
Item 6.   Exhibits. See Index to Exhibits following Signatures.

19


Table of Contents

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 9, 2006
  By:   /s/   John B. Gerlach, Jr.    
             
 
          John B. Gerlach, Jr.    
 
          Chairman, Chief Executive Officer,    
 
          President and Director    
 
               
Date: February 9, 2006
  By:   /s/   John L. Boylan    
             
 
          John L. Boylan
   
 
          Treasurer, Vice President,    
 
          Assistant Secretary,    
 
          Chief Financial Officer    
 
          (Principal Financial    
 
          and Accounting Officer)    
 
          and Director    

20


Table of Contents

LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2005
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

21