<PAGE>   1
                                                                      Exhibit 13


                                BUSINESS SEGMENTS


                  Lancaster Colony Corporation and Subsidiaries
                     For the Years Ended 1998, 1997 and 1996


The Company operates in three business segments - Specialty Foods, Glassware and
Candles, and Automotive. The net sales of each segment are principally domestic.
A further description of each business segment follows:

SPECIALTY FOODS-includes production and marketing of a family of pourable and
refrigerated produce salad dressings, croutons, sauces, refrigerated produce
vegetable and fruit dips, chip dips, dairy snacks and desserts, dry and frozen
egg noodles, caviar, frozen ready-to-bake pies and frozen hearth-baked breads.
The salad dressings, sauces and frozen bread products are sold to both retail
and foodservice markets. The remaining products of this business segment are
primarily directed to retail markets.

GLASSWARE AND CANDLES-includes the production and marketing of table and
giftware consisting of domestic glassware, both machine pressed and machine
blown; imported glassware; candles in all popular sizes, shapes and scents;
potpourri and related scented products; industrial glass and lighting
components; and glass floral containers. This segment's products are sold
primarily to mass merchandisers, discount and department stores.

AUTOMOTIVE-includes production and marketing of rubber, vinyl and
carpet-on-rubber car mats for original equipment manufacturers, importers and
for the auto aftermarket; truck and trailer splash guards; pickup truck bed mats
and liners; aluminum running boards for pickup trucks and vans; and a broad line
of auto accessories.

Operating income represents net sales less operating expenses related to the
business segments. The Glassware and Candles segment's 1998 operating income
includes approximately $1,800,000 in nonrecurring gains on the sales of real
estate. Expenses of a general corporate nature, including interest expense and
income taxes, have not been allocated to the business segments. Identifiable
assets for each segment include those assets used in its operations and
intangible assets allocated to purchased businesses. Corporate assets consist
principally of cash, cash equivalents and deferred income taxes.

The 1998 and 1996 capital expenditures of the Specialty Foods segment includes
property relating to business acquisitions totaling $3,690,000 and $213,000,
respectively.


The following sets forth certain financial information attributable to the
Company's business segments for the three years ended June 30, 1998, 1997 and
1996:

<TABLE>
<CAPTION>
(Dollars In Thousands)                                1998                           1997                        1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                               <C>                        <C>      
Net Sales
  Specialty Foods                                   $  411,373                     $351,012                    $329,420
  Glassware and Candles                                363,835                      336,200                     297,937
  Automotive                                           233,544                      235,601                     228,555
--------------------------------------------------------------------------------------------------------------------------
   Total                                            $1,008,752                     $922,813                    $855,912
==========================================================================================================================
Operating Income
  Specialty Foods                                   $   61,154                     $ 47,308                    $ 35,579
  Glassware and Candles                                 82,317                       81,455                      76,068
  Automotive                                            18,501                       20,310                      18,561
--------------------------------------------------------------------------------------------------------------------------
   Total                                               161,972                      149,073                     130,208
  Corporate expenses                                    (6,599)                      (6,614)                     (6,987)
--------------------------------------------------------------------------------------------------------------------------
   Income Before Income Taxes                       $  155,373                     $142,459                    $123,221
==========================================================================================================================
Identifiable Assets
  Specialty Foods                                   $  121,659                     $ 95,130                    $102,606
  Glassware and Candles                                264,569                      235,154                     205,232
  Automotive                                           108,238                      110,525                     113,003
  Corporate                                             34,901                       43,585                      14,518
--------------------------------------------------------------------------------------------------------------------------
   Total                                            $  529,367                     $484,394                    $435,359
==========================================================================================================================
Capital Expenditures
  Specialty Foods                                   $    9,347                     $  4,625                    $  8,856
  Glassware and Candles                                 29,847                       21,986                      33,038
  Automotive                                             9,372                       10,817                       8,501
  Corporate                                                 59                          100                          47
--------------------------------------------------------------------------------------------------------------------------
   Total                                            $   48,625                     $ 37,528                    $ 50,442
==========================================================================================================================
Depreciation and Amortization
  Specialty Foods                                   $    7,425                     $  5,546                    $  4,753
  Glassware and Candles                                 16,367                       12,520                      10,767
  Automotive                                             8,684                        8,814                       8,749
  Corporate                                                 95                          101                         130
--------------------------------------------------------------------------------------------------------------------------
   Total                                            $   32,571                     $ 26,981                    $ 24,399
==========================================================================================================================
</TABLE>







<PAGE>   2



                          FIVE YEAR FINANCIAL SUMMARY

                  Lancaster Colony Corporation and Subsidiaries

<TABLE>
<CAPTION>
(Thousands Except Per Share Figures)           1998              1997            1996           1995             1994
--------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>             <C>            <C>             
Operations
Net Sales                                   $1,008,752         $922,813        $855,912      $795,126         $721,732
Gross Margin                                $  324,397         $290,762        $263,952      $247,942         $232,096
  Percent of Sales                                32.2%            31.5%           30.8%         31.2%            32.2%
Interest Expense                            $    2,626         $  2,596        $  2,875      $  2,736         $  2,849
  Percent of Sales                                 0.3%             0.3%            0.3%          0.3%             0.4%
Income Before Income Taxes                  $  155,373         $142,459        $123,221      $114,808         $ 98,093
  Percent of Sales                                15.4%            15.4%           14.4%         14.4%            13.6%
Taxes Based on Income                       $   59,243         $ 53,753        $ 47,086      $ 44,284         $ 38,233
Net Income                                  $   96,130         $ 88,706        $ 76,135      $ 70,524         $ 59,860
  Percent of Sales                                 9.5%             9.6%            8.9%          8.9%             8.3%
Per Common Share:(1)
  Net Income- Basic And Diluted             $     2.22         $   2.01        $   1.71      $   1.57         $   1.32
  Cash Dividends                            $     0.54         $   0.48        $   0.44      $   0.37         $   0.29
--------------------------------------------------------------------------------------------------------------------------
Financial Position
Total Assets                                $  529,367         $484,394        $435,359      $379,904         $355,445
Working Capital                             $  235,031         $235,079        $203,988      $189,255         $163,546
Property, Plant and Equipment--Net          $  170,766         $151,309        $139,095      $113,187         $101,570
Long-Term Debt                              $   29,095         $ 30,685        $ 31,230      $ 31,840         $ 32,933
Property Additions                          $   44,935         $ 37,528        $ 50,229      $ 31,745         $ 23,532
Depreciation and Amortization               $   32,571         $ 26,981        $ 24,399      $ 22,717         $ 22,403
Shareholders' Equity                        $  410,563         $368,000        $323,563      $277,148         $236,847
  Per Common Share(1)                       $     9.60         $   8.45        $   7.29      $   6.19         $   5.22

Weighted Average
  Common Shares Outstanding- Diluted(1)         43,364           44,108          44,624        45,057           45,476
--------------------------------------------------------------------------------------------------------------------------
Statistics
Price-Earnings Ratio at Year End                  17.1             16.0            14.6          15.2             18.0
Current Ratio                                      4.1              4.2             3.9           4.1              3.2
Long-Term Debt as
  a Percent of Shareholders' Equity                7.1%             8.3%            9.7%         11.5%            13.9%
Dividends Paid as a Percent
  of Net Income                                   24.3%            23.8%           25.7%         23.4%            22.3%
Return on Average Equity                          24.7%            25.7%           25.3%         27.4%            27.9%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Adjusted for 3-for-2 stock split paid January 1998, 4-for-3 stock split
     paid July 1994 and/or adoption of Statement of Financial Accounting
     Standard No. 128 "Earnings Per Share" in Fiscal 1998.
<PAGE>   3


                      MANAGEMENT'S DISCUSSION AND ANALYSIS


                Of Results of Operations and Financial Condition


Review of Consolidated Operations

For the fiscal year ended June 30, 1998, the Company achieved a record level of
consolidated net sales totaling $1,008,752,000. This amount represented a 9%
increase over the $922,813,000 recorded for fiscal 1997. The overall sales
increase for fiscal 1998 of $85,939,000 was primarily attributable to the
Specialty Foods segment which increased by $60,361,000 as this segment benefited
from the July 1997 acquisition of the Chatham Village product lines. The
Glassware and Candles segment also achieved a sales increase of $27,635,000
during fiscal 1998 although the Automotive segment declined by $2,057,000.
Consistent with recent years, competitive conditions have minimized the effect
of any year-over-year increases in unit selling prices. For fiscal 1997,
increased sales of the Glassware and Candles segment were primarily responsible
for that year's consolidated net sales increasing 8% over the fiscal 1996 total
of $855,912,000. 

A record level of net income was also attained in fiscal 1998 totaling
$96,130,000, an 8% increase over the $88,706,000 recorded in fiscal 1997. This
improvement was essentially the result of the increased sales volume discussed
above. Net income for 1997 was 17% above the fiscal 1996 total of $76,135,000.

The relative proportion of sales and operating income contributed by each of the
Company's operating segments can impact a year-to-year comparison of the
consolidated statements of income. The following table summarizes the sales mix
and related operating income percentages achieved by the operating segments over
each of the last three years:

<TABLE>
<CAPTION>
Segment Sales Mix(1):               1998      1997      1996
--------------------------------------------------------------------------------
<S>                                  <C>       <C>       <C>
Specialty Foods                      41%       38%       38%
Glassware and Candles                36%       36%       35%
Automotive                           23%       26%       27%

Segment Operating Income(2):
--------------------------------------------------------------------------------
Specialty Foods                      15%       13%       11%
Glassware and Candles                23%       24%       26%
Automotive                            8%        9%        8%
</TABLE>

(1) Expressed as a percentage of consolidated net sales.

(2) Expressed as a percentage of the related segment's net sales.

Expressed as a percentage of net sales, the Company's consolidated gross margins
increased to 32.2% in 1998 compared to 31.5% in 1997 and 30.8% in 1996.
Influencing the current year's improvement were better margins within the
Specialty Foods segment as it benefited from a more favorable sales mix. The
consolidated percentage also reflects a higher proportion of sales of specialty
foods and candles. These products have higher average gross margins than many of
the Company's other products. However, during fiscal 1998, this improvement was
somewhat offset by the Automotive segment's margins declining slightly on lower
production volumes. Compared to 1996, the 1997 margins were enhanced primarily
by the Specialty Foods segment experiencing lower raw material costs and a more
favorable sales mix. This improvement was somewhat offset by the Glassware and
Candles segment experiencing a decline in margins due to increases in certain
raw material costs and certain production inefficiencies.

Total selling, general and administrative expenses for 1998 of $168,526,000
increased 15% over the 1997 total of $146,403,000. The total of such expenses
for fiscal 1997 also increased 6% over the 1996 total of $138,206,000. These
increases generally result from the effects of higher sales volumes on
sales-related costs. Particularly impacting the fiscal 1998 total is the greater
mix of sales from the Specialty Foods segment relative to the consolidated
total. Such sales have a higher level of associated selling costs compared to
that of the other segments. The relative level of promotional selling costs also
increased within the Specialty Foods segment during 1998 and included expenses
associated with the development of new retail markets.

Consistent with the increased sales volume, 1998 consolidated operating income
increased by 8% to $155,871,000 compared to $144,359,000 recorded in 1997. The
prior year's operating income had increased 15% over the 1996 total of
$125,746,000. 

Stated as a percentage of pretax income, the Company's effective tax rate
increased slightly to 38.1% compared to 37.7% in 1997. The effective rate for
1996 was 38.2%.

Earnings per share of $2.22 increased 10% in 1998 over the $2.01 reported in
1997, after adjustment for the three-for-two stock split paid in January 1998.
Compared to the adjusted 1996 earnings per share of $1.71, the 1997 total had
increased 18%. In addition to the increased levels of corporate earnings,
earnings per share have been beneficially affected by the Company's share
repurchases which have totaled in excess of $88 million over the three-year
period ended June 30, 1998.

Segment Review - Specialty Foods

Record net sales of $411,373,000 were achieved by the Specialty Foods segment
during fiscal 1998. This total increased 17% over the 1997 total of
$351,012,000. Compared to 1996 sales of $329,420,000, 1997 sales had increased
7%. In all three years, retail and foodservice sales comprised 55% and 45% of
total sales, respectively. 

The increase in retail sales during 1998 was influenced by the acquisition of
the Chatham Village crouton business in July 1997. Sales increases were also
provided by fruit and vegetable dips and by the success of recently introduced
Texas Toast frozen bread products. Sales in 1997 benefited from volume increases
in products sold to grocery produce departments, increased private label sales
and the growth in product lines sold through specialty distributors. The
November 1995 purchase of the Cardini lines of food products significantly
contributed to the growth of the latter category of products. Foodservice sales
during the last two years have also increased due to the expansion of sales to
both national restaurant chains and wholesale distributors.

Operating margins of $61,154,000 in 1998 improved due to such factors as better
capacity utilization and a more favorable sales mix. Compared to 1996 operating
income of $35,579,000, this segment had significantly improved operating margins
during 1997 as operating income totaled $47,308,000. This improvement was
influenced by a generally broad-based reduction in raw material costs which was
primarily concentrated in the latter half of the fiscal year. Soybean oil cost
returned to more historic norms after three years at considerably higher levels.
As this segment enters fiscal 1999, soybean oil costs are above the levels of
1998.
<PAGE>   4


                      MANAGEMENT'S DISCUSSION AND ANALYSIS


Segment Review - Glassware and Candles

Net sales for this segment totaled $363,835,000 in fiscal 1998 which was an 8%
improvement over the $336,200,000 achieved in 1997. Sales of candles and related
products to mass merchants were principally responsible for this
internally-generated growth. Partially offsetting this growth was a decline in
private label wax-filled glass products and a generally lackluster demand for
glass tableware. The 1997 sales level increased 13% over the 1996 total of
$297,937,000. Candle products also led the growth for 1997 with private label
business providing a significant component of this growth.

This segment's operating income increased by 1% in 1998 and totaled $82,317,000
compared to $81,455,000 achieved in 1997. Among the factors adversely affecting
1998 margins were higher wax costs, certain operating inefficiencies at the
consumer glassware plants, competitive pricing conditions, promotional expenses
and a less favorable sales mix. Also included in this segment's 1998 income is
approximately $1,800,000 in nonrecurring gains on the sales of real estate. The
7% increase in 1997 operating income over the 1996 total of $76,068,000 was
primarily attributable to the effect of increased sales volumes. Offsetting this
effect were such factors as a less favorable sales mix, higher wax and natural
gas costs and certain production inefficiencies occurring in both the candle and
glassware manufacturing operations.

Segment Review - Automotive

Adversely affected by a decline in aftermarket sales, fiscal 1998 net sales of
the Automotive segment totaling $233,544,000 declined 1% from the 1997 total of
$235,601,000. The sales of light truck bedliners were adversely impacted by
industry over-capacity and intense competitive pricing conditions. Sales to
original equipment manufacturers ("OEMs") increased during 1998 with particular
strength in aluminum accessories for light trucks and sport utility vehicles.
Sales of automotive floor mats and aluminum truck and van accessories led the 3%
increase in 1997 sales over the 1996 total of $228,555,000. A decline in
bedliner sales during 1997 mitigated this increase. 

The operating income of this segment for 1998 totaled $18,501,000, a 9% decrease
from the $20,310,000 recorded in 1997. This decline is attributable to the lower
sales volume, a less favorable sales mix and pricing pressures, particularly on
sales to OEMs. Unrelated labor work stoppages occurring in June 1998, at both a
major customer and at the Company's Wapakoneta, Ohio facility, also adversely
affected this segment's capacity utilization. The level of 1997 operating income
improved 9% from the $18,561,000 recorded in 1996. Contributing to this
improvement were greater production efficiencies and generally lower raw
material costs.

This segment's sales to OEMs are made both directly to the OEMs and indirectly
through a third party, "Tier 1" supplier. Such sales are sensitive to the
overall rate of new vehicle sales, the availability of competitive alternatives
and the Tier 1 supplier's ongoing ability to maintain its relationship with the
OEMs. Additionally, the extent of pricing flexibility associated with these
sales continues to be particularly limited with certain products subject to
annual price reductions. During 1998, sales to OEMs comprised 49% of this
segment's sales compared to 44% and 43% in 1997 and 1996, respectively.

Liquidity and Capital Resources

As of June 30, 1998 the Company's balance sheet maintains a position of
financial strength. This posture has been accomplished through the benefits of
increasing cash flow with net cash provided by operating activities totaling
$120,045,000, $113,461,000 and $84,474,000 for 1998, 1997 and 1996,
respectively. The primary influence on these amounts has been the Company's
increasing net income. This cash flow generated from operations remains the
primary source of financing the Company's internal growth.

Over the last three fiscal years the Company has made investments in property,
plant and equipment totaling $132,692,000, including $44,935,000 in 1998. The
Glassware and Candles segment has been the primary user of such funds during
each of these years. During 1998, this segment completed a new distribution
facility adjacent to the existing candle manufacturing facility located in
Leesburg, Ohio. Substantial progress was also made in completing a manufacturing
addition at the same facility. Additionally, during July 1997, the Company
acquired the outstanding stock of Chatham Village Foods, Inc., a manufacturer
and marketer of croutons and related products. The total of cash paid and debt
assumed by the Company in consummating this acquisition exceeded $20,000,000.

Significant financing activities conducted during 1998 included the purchase of
$37,083,000 of the Company's common stock compared to $29,554,000 in 1997. Total
dividend payments for 1998 were $23,326,000 which was more than 10% greater than
the 1997 total of $21,114,000. This increase reflects the higher dividend payout
rate of $.54 in 1998 as compared to $.48 in 1997. The future levels of share
purchases and declared dividends continue to be subject to periodic review of
the Company's Board of Directors and are generally determined after an
assessment is made of such factors as anticipated earnings levels, cash flow
requirements and general business conditions.

The Company's balance sheet reflects a relatively low level of leverage as the
debt to total capital ratio remains low at 7% at June 30, 1998 compared to 8% at
June 30, 1997. Management believes this posture provides the Company with
considerable flexibility to acquire businesses complementary to the Company's
existing operations. It is anticipated that adequate borrowings will continue to
be made available under discretionary bank lines of credit to meet any
short-term cash requirements not otherwise met by cash generated from
operations. 

The Company's ongoing business activities continue to be subject to
compliance with various laws, rules and regulations as may be issued and
enforced by various Federal, state and local agencies. With respect to
environmental matters, costs are incurred pertaining to regulatory compliance
and, upon
<PAGE>   5

                      MANAGEMENT'S DISCUSSION AND ANALYSIS


occasion, remediation. Such costs have not been, and are not anticipated to
become, material.

Impact of Inflation

Generally, fiscal 1998 encountered relatively moderate changes in raw material
costs. Wax costs trended somewhat higher while many other material costs
actually held steady or declined modestly. Compared to 1996, 1997 had markedly
lower level of food commodity costs although higher costs of plastics, wax and
natural gas prevailed throughout the year. 

The Company generally attempts to adjust its selling prices to offset the
effects of increased raw material costs. However, these adjustments have
historically been difficult to implement on a timely basis relative to the
increase in costs incurred. Minimizing the exposure to such increased costs is
the Company's diversity of operations and its ongoing efforts to achieve greater
manufacturing and distribution efficiencies through the improvement of work
processes.

Year 2000

Lancaster Colony is in the process of preparing for the consequences that the
year 2000 may have on its ability to rely on data processing and other automated
operational functions which are date-dependent. This "Year 2000" problem arises
as a result of many automated calculations being written in computer code which
does not properly recognize dates after 1999. Problems associated with this
issue can occur not only on "mainframe" applications, but also with such devices
as personal computers, telecommunication equipment and programmable logic
controllers associated with certain manufacturing equipment. Without correction,
it is possible that business and operational functions that rely on this
improper code could fail and cause significant business disruption and loss.

The Company's existing data processing structure could be characterized as
decentralized in nature. Management believes the Company's business units have
completed an adequate assessment of the internal Year 2000 dependencies relating
to their critical data processing functions. However, there are no assurances
that this process has identified all the existing Year 2000 exposures.
Furthermore, such a failure could result in a materially adverse impact to the
Company although the extent of this impact is not believed to be reasonably
estimable.

Depending on the business unit's particular circumstance, the manner of
resolving the identified Year 2000 shortcomings has included strategies such as
implementing Year 2000 compliant versions of third party software, modifying
portions of existing software and replacing non-compliant business systems with
new third party software. A combination of internal and external resources is
being used to assist the Company through a multi-phased concurrent approach,
which encompasses identification, implementation and testing phases, to address
the associated Year 2000 issues. Generally, the Company has completed the
identification phase and is currently engaged in the implementation and testing
phases. Based on existing plans, it is anticipated that the Company's ongoing
efforts to remediate data processing systems to be Year 2000 compliant will be
completed by the middle of calendar 1999. 

The most significant data processing expenditures are being made within the
Company's Automotive segment. This segment is in the process of implementing
comprehensive new third party software and hardware with Year 2000 compliance
being regarded as one of the several resulting benefits. The Company's aggregate
costs to date are approximately $3 million, which include capitalized costs
incurred by the Automotive segment of approximately $2.2 million. The Company
estimates an additional $3 million of cost will be incurred, of which
approximately $2 million will relate to the Automotive segment's data processing
project. Expenditures associated with making changes to existing systems for
Year 2000 compliance are being expensed as incurred. Costs associated with the
Company's efforts, both incurred and planned, are not believed to be material to
the Company's consolidated results of operations, liquidity and financial
condition. Due to the nature of the Company's efforts, actual costs could vary
significantly from that currently anticipated and there are no guarantees
regarding the timing or efficacy of completion.

As noted above, the Year 2000 issue may also affect systems ("non-IT systems")
not traditionally identified with information technology. For example,
production machinery which is dependent on reading the current date could become
inoperable if the machine's embedded code does not allow for proper
interpretation of a year beyond 1999. The Company is in the process of
inventorying and assessing its Year 2000 exposure with respect to non-IT systems
but is not currently aware of any significant deficiencies. There can be no
assurances, however, that such deficiencies do not exist. The effect of not
resolving these issues on a timely basis could have a materially adverse impact
on the Company.

Another risk presented by the Year 2000 issue is that significant customers and
suppliers of the Company could fail to become fully Year 2000 compliant. This
failure, in turn, could result in a significant adverse effect to the Company's
operations. The Company is in the process of making inquiries of its significant
suppliers as to the state of their Year 2000 readiness. It is believed that
these inquiries will become increasingly more meaningful as the year 2000
approaches. Regardless, there can be no assurance that the data processing and
non-IT systems utilized by these other companies will become Year 2000 compliant
on a timely basis. The impact of noncompliance is not currently estimable, but
it is possible that significant failures could have a material adverse effect on
the Company's operations.

Although the Company has not yet adopted formal contingency arrangements to
address the possibility that internal, customer or supplier systems may not
become Year 2000 compliant, management will develop such plans which may be
required as fiscal 1999 evolves and the risk of such exposures, if any, become
better clarified. The costs and business implications which might be associated
with the adoption of any such contingency plan is not estimable but could be
significant.


<PAGE>   6


                       CONSOLIDATED STATEMENTS OF INCOME


                  Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                 Years Ended June 30
                                                                 1998                   1997                1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                       <C>                  <C>          
Net Sales                                                    $1,008,752,000         $922,813,000         $855,912,000
Cost of Sales                                                   684,355,000          632,051,000          591,960,000
-------------------------------------------------------------------------------------------------------------------------
Gross Margin                                                    324,397,000          290,762,000          263,952,000
Selling, General and Administrative Expenses                    168,526,000          146,403,000          138,206,000
-------------------------------------------------------------------------------------------------------------------------
Operating Income                                                155,871,000          144,359,000          125,746,000
Other Income (Expense):
  Interest expense                                               (2,626,000)          (2,596,000)          (2,875,000)
  Interest income and other--net                                  2,128,000              696,000              350,000
-------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                      155,373,000          142,459,000          123,221,000
Taxes Based on Income                                            59,243,000           53,753,000           47,086,000
=========================================================================================================================
Net Income                                                   $   96,130,000         $ 88,706,000         $ 76,135,000
=========================================================================================================================
Net Income Per Common Share:
  Basic                                                               $2.22                $2.01                $1.71
  Diluted                                                             $2.22                $2.01                $1.71
=========================================================================================================================
Weighted Average Common Shares Outstanding:
  Basic                                                          43,271,000           44,060,000           44,558,000
  Diluted                                                        43,364,000           44,108,000           44,624,000
=========================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements




<PAGE>   7


                          CONSOLIDATED BALANCE SHEETS


                 Lancaster Colony Corporation and Subsidiaries
                          as of June 30, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                               June 30
Assets                                                                           1998                         1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                        <C>         
Current Assets:
  Cash and Equivalents                                                         $ 23,224,000               $ 32,109,000
  Receivables (less allowance for doubtful accounts,
     1998--$2,774,000; 1997--$2,861,000)                                         99,870,000                102,457,000
  Inventories:
    Raw materials and supplies                                                   44,915,000                 42,339,000
    Finished goods and work in process                                          130,282,000                118,912,000
--------------------------------------------------------------------------------------------------------------------------
      Total inventories                                                         175,197,000                161,251,000
  Prepaid expenses and other current assets                                      13,257,000                 12,966,000
--------------------------------------------------------------------------------------------------------------------------
         Total current assets                                                   311,548,000                308,783,000
Property, Plant And Equipment:
  Land, buildings and improvements                                              103,252,000                 89,232,000
  Machinery and equipment                                                       270,781,000                248,069,000
--------------------------------------------------------------------------------------------------------------------------
      Total cost                                                                374,033,000                337,301,000
  Less accumulated depreciation                                                 203,267,000                185,992,000
--------------------------------------------------------------------------------------------------------------------------
         Property, plant and equipment--net                                     170,766,000                151,309,000
Other Assets:
  Goodwill (net of accumulated amortization,
     1998--$6,872,000; 1997--$5,438,000)                                         37,045,000                 19,810,000
  Other Assets                                                                   10,008,000                  4,492,000
--------------------------------------------------------------------------------------------------------------------------
           Total                                                               $529,367,000               $484,394,000
==========================================================================================================================

Liabilities and Shareholders' Equity
--------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
  Current portion of long-term debt                                            $    510,000               $    545,000
  Accounts payable                                                               41,804,000                 33,203,000
  Accrued liabilities                                                            34,203,000                 39,956,000
--------------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                               76,517,000                 73,704,000
Long-Term Debt--Less Current Portion                                             29,095,000                 30,685,000
Other Noncurrent Liabilities                                                      7,325,000                  7,895,000
Deferred Income Taxes                                                             5,867,000                  4,110,000
Shareholders' Equity:
  Preferred stock--authorized 3,050,000 shares;
    outstanding--none
  Common stock--authorized 75,000,000 shares;
    Shares outstanding, 1998--42,753,488; 1997--29,016,836                       50,392,000                 43,573,000
  Retained earnings                                                             477,587,000                404,783,000
  Foreign currency translation adjustment                                            98,000                     75,000
--------------------------------------------------------------------------------------------------------------------------
      Total                                                                     528,077,000                448,431,000
  Less common stock in treasury, at cost                                        117,514,000                 80,431,000
--------------------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                             410,563,000                368,000,000
--------------------------------------------------------------------------------------------------------------------------
           Total                                                               $529,367,000               $484,394,000
==========================================================================================================================
</TABLE>


See Notes To Consolidated Financial Statements




<PAGE>   8



                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                 Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                       Years Ended June 30
                                                                          1998                 1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>             <C>         
Cash Flows From Operating Activities:
  Net income                                                           $ 96,130,000        $ 88,706,000    $ 76,135,000

  Adjustments to reconcile net income
        to net cash provided by operating activities:
    Depreciation and amortization                                        32,571,000          26,981,000      24,399,000
    Provision for losses on accounts receivable                           1,691,000           1,813,000       2,089,000
    Deferred income taxes and other noncash charges                         887,000            (669,000)       (190,000)
    (Gain) loss on sale of property                                      (1,965,000)            530,000         233,000
    Changes in operating assets and liabilities:
      Receivables                                                         2,661,000           1,133,000     (18,478,000)
      Inventories                                                       (12,635,000)         (9,656,000)     (8,982,000)
      Prepaid expenses and other current assets                              81,000             208,000         334,000
      Accounts payable and accrued liabilities                              624,000           4,415,000       8,934,000
----------------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                       120,045,000         113,461,000      84,474,000
----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
  Payments on property additions                                        (44,935,000)        (37,528,000)    (50,229,000)
  Acquisitions net of cash acquired                                     (19,749,000)
  Proceeds from sale of property                                          3,634,000              52,000       1,784,000
  Other--net                                                             (9,165,000)         (3,629,000)       (638,000)
----------------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                           (70,215,000)        (41,105,000)    (49,083,000)
----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
  Payment of dividends                                                  (23,326,000)        (21,114,000)    (19,591,000)
  Purchase of treasury stock                                            (37,083,000)        (29,554,000)    (21,457,000)
  Payments on long-term debt, including acquisition debt payoff          (5,148,000)           (610,000)     (1,026,000)
  Reduction of ESOP debt                                                                      1,279,000       1,278,000
  Common stock issued, including stock issued upon
      exercise of stock options and related tax benefit                   6,819,000           5,082,000       1,785,000
----------------------------------------------------------------------------------------------------------------------------
        Net cash used in financing activities                           (58,738,000)        (44,917,000)    (39,011,000)
----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                      23,000                              51,000
----------------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents                                       (8,885,000)         27,439,000      (3,569,000)
Cash and equivalents at beginning of year                                32,109,000           4,670,000       8,239,000
----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                    $ 23,224,000        $ 32,109,000    $  4,670,000
============================================================================================================================
</TABLE>

See Notes To Consolidated Financial Statements



<PAGE>   9


                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                 Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                         Foreign
                                                                                         Currency                      Amount
                                         Outstanding         Common       Retained      Translation    Treasury       Due From
                                           Shares             Stock       Earnings      Adjustment       Stock          ESOP
---------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>           <C>              <C>         <C>            <C>  
Balance, June 30, 1995                     29,829,000      $28,086,000   $280,538,000     $501,000    $ 29,420,000   $2,557,000
Year Ended June 30, 1996:
  Net income                                                               76,135,000
  Cash dividends-- common stock
    ($.44 per share)                                                      (19,591,000)
  Purchase of treasury shares                (601,955)                                                  21,457,000
  Shares issued upon exercise of stock
    options including related tax benefits     63,629        1,405,000
  Tax benefit of cash dividends paid
    on ESOP unallocated shares                                                 71,000
  Shares issued in business acquisition       272,727        9,000,000
  Reduction of ESOP debt                                                                                             (1,278,000)
  Translation adjustment                                                                  (426,000)
---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996                     29,563,401       38,491,000    337,153,000       75,000      50,877,000    1,279,000
---------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1997:
  Net income                                                               88,706,000
  Cash dividends-- common stock
    ($.48 per share)                                                      (21,114,000)
  Purchase of treasury shares                (691,882)                                                  29,554,000
  Shares issued upon exercise of stock
    options including related tax benefits    145,317        5,082,000
  Tax benefit of cash dividends paid
    on ESOP unallocated shares                                                 38,000
  Reduction of ESOP debt                                                                                             (1,279,000)
---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997                     29,016,836       43,573,000    404,783,000       75,000      80,431,000
---------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1998:
  Net income                                                               96,130,000
  Cash dividends-- common stock
    ($.54 per share)                                                      (23,326,000)
  Purchase of treasury shares                (987,150)                                                  37,083,000
  Shares issued upon exercise of stock
    options including related tax benefits    215,659        6,819,000
  Shares issued in connection with
    three-for-two stock split              14,508,143
  Translation adjustment                                                                    23,000
---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998                     42,753,488      $50,392,000   $477,587,000     $ 98,000    $117,514,000
=================================================================================================================================
</TABLE>


See Notes to Consolidated Financial Statements




<PAGE>   10



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                 Lancaster Colony Corporation and Subsidiaries


   1. SUMMARY OF     Principles of Consolidation              
     SIGNIFICANT                                            
      ACCOUNTING     The accompanying consolidated financial statements include
        POLICIES     the accounts of Lancaster Colony Corporation and its
                     wholly-owned subsidiaries, collectively referred to as the
                     "Company." All significant intercompany transactions have
                     been eliminated.
                                       
                     Use of Estimates

                     The preparation of the consolidated financial statements of
                     the Company in conformity with generally accepted
                     accounting principles requires management to make estimates
                     and assumptions that affect the reported amounts of assets
                     and liabilities at the date of the financial statements, as
                     well as their related disclosures. Such estimates and
                     assumptions also affect the reported amounts of revenues
                     and expenses during the reporting period. Actual results
                     could differ from those estimates.

                     Reclassification

                     Certain prior year amounts have been reclassed to conform
                     to the current year presentation.

                     Cash Equivalents

                     The Company considers all highly liquid investments
                     purchased with maturities of three months or less to be
                     cash equivalents.

                     Property, Plant and Equipment

                     The Company uses the straight-line method of computing
                     depreciation for financial reporting purposes based on the
                     estimated useful lives of the corresponding assets.
                     Estimated useful lives for buildings and improvements range
                     from ten to forty years while machinery and equipment range
                     from three to ten years. For tax purposes, the Company
                     generally computes depreciation using accelerated methods.

                     Goodwill

                     For financial reporting purposes goodwill is being
                     amortized over ten to forty years, with the exception of
                     $2,243,000 which relates to a company acquired prior to
                     November 1, 1970. Such amount is not being amortized as, in
                     the opinion of management, there has been no diminution in
                     value. Management periodically evaluates the future
                     economic benefit of its recorded goodwill and other
                     long-term assets and appropriately adjusts such amounts
                     when determined to have been impaired based on the
                     difference between the fair value of an asset and its
                     carrying amount.

                     Revenue Recognition

                     Net sales and related cost of sales are recognized upon
                     shipment of products. Net sales are recorded net of
                     estimated sales discounts and returns.

                     Per Share Information

                     Net income per common share is computed based on the
                     weighted average number of shares of common stock and
                     common stock equivalents (stock options) outstanding during
                     each period. In December 1997, the Company adopted
                     Statement of Financial Accounting Standards ("SFAS") No.
                     128, "Earnings per Share." SFAS No. 128 is effective for
                     financial statements for periods ending after December 15,
                     1997, including interim periods, and requires restatement
                     of prior periods. Accordingly, all net income per share and
                     weighted average common shares outstanding data has been
                     presented in accordance with SFAS No. 128 in the
                     accompanying consolidated financial statements. Under SFAS
                     No. 128, the Company is required to present basic earnings
                     per share and diluted earnings per share. Basic earnings
                     per share excludes dilution and is computed by dividing
                     income available to common stockholders by the weighted
                     average number of common shares outstanding during the
                     period. Diluted earnings per share is computed by dividing
                     income available to common stockholders by the diluted
                     weighted average number of common shares outstanding during
                     the period, which includes the dilutive potential common
                     shares associated with outstanding stock options. There are
                     no adjustments to net income necessary in the calculation
                     of basic and diluted earnings per share. On January 27,
                     1998, a three-for-two stock split was affected whereby one
                     additional common share was issued for each two shares
                     outstanding to shareholders of record on January 6, 1998.
                     Accordingly, per share data and weighted average common
                     shares outstanding for all periods presented in the
                     accompanying consolidated financial statements have been
                     retroactively adjusted for this split.



<PAGE>   11



                     Credit Risk

                     Financial instruments which potentially subject the Company
                     to concentrations of credit risk consist primarily of cash
                     equivalents and trade accounts receivable. The Company
                     places its cash equivalents with high-quality institutions
                     and, by policy, limits the amount of credit exposure to any
                     one institution. Concentration of credit risk with respect
                     to trade accounts receivable is limited by the Company
                     having a large and diverse customer base.

                     Business Segments

                     The business segments information for 1998, 1997 and 1996
                     included on page 10 and 11 of this Annual Report is an
                     integral part of these financial statements. In June 1997,
                     the Financial Accounting Standards Board issued SFAS
                     No. 131, "Disclosures about Segments of an Enterprise and
                     Related Information." This Statement establishes standards
                     to be utilized by public business enterprises in reporting
                     information about operating segments in annual financial
                     statements and requires reporting of selected information
                     about operating segments in interim financial reports to
                     shareholders. It also establishes standards for related
                     disclosures regarding products and services, geographic
                     areas and major customers.

                     The Statement will be effective for the Company for fiscal
                     1999 and will require comparative information for earlier
                     years. Interim financial information will not be required
                     during the initial year of application; however,
                     comparative interim financial information will be required
                     for interim periods in the second year of application.
                     Management has not yet completed its analysis of this
                     Statement as to its impact on the Company's financial
                     disclosures.

                     Comprehensive Income

                     During June 1997, the Financial Accounting Standards Board
                     issued SFAS No. 130, "Reporting Comprehensive Income." This
                     Statement will be effective for fiscal years beginning
                     after December 15, 1997 or the Company's fiscal year
                     beginning July 1, 1998. The Statement is effective for
                     interim periods and will require reclassification of
                     financial statements for earlier periods provided for
                     comparative purposes. SFAS No. 130 will require the Company
                     to classify items of other comprehensive income by their
                     nature in a financial statement and display the accumulated
                     balance of other comprehensive income separately from
                     retained earnings and additional paid-in capital in the
                     equity section of the Consolidated Balance Sheet.

                     Derivative Instruments and Computer Software Costs

                     In June 1998, the Financial Accounting Standards Board
                     issued SFAS No. 133 "Accounting for Derivative Instruments
                     and Hedging Activities," which revises the accounting for
                     derivative financial instruments. In March 1998, the
                     American Institute of Certified Public Accountants issued
                     Statement of Position 98-1, "Accounting for the Costs of
                     Computer Software Developed or Obtained for Internal Use,"
                     which revises the accounting for software development
                     costs. The Statements will be effective for the Company the
                     first quarter of fiscal 2000. Management has not yet
                     completed its analysis of these Statements as to their
                     impact on the Company's financial statements and/or
                     disclosures.    

 2. ACQUISITIONS     During July 1997, the Company acquired all of the common
                     stock of Chatham Village Foods, Inc., an upscale salad
                     crouton business, for cash of approximately $19,749,000.
                     This amount was financed through the use of internally
                     generated funds. The related liabilities assumed totalled
                     approximately $5,747,000. During November 1995, the Company
                     acquired all of the common stock of a specialty foods
                     marketer of upscale salad dressings via a stock-for-stock
                     transaction. This transaction resulted in the issuance of
                     approximately 409,500 shares of Lancaster Colony
                     Corporation common stock, restated for the effect of the
                     stock split in January 1998, having a fair market value of
                     approximately $9,000,000 in exchange for cash of $380,000
                     and other assets and liabilities having a fair market value
                     of $1,718,000 and $825,000, respectively. These
                     acquisitions were accounted for under the purchase method
                     of accounting and the non-cash aspects have been excluded
                     from the accompanying Consolidated Statement of Cash Flows.
                     The results of operations of these entities have been
                     included in the consolidated financial statements from the
                     dates of acquisition and are immaterial in relation to the
                     consolidated totals.

3. INVENTORIES       Inventories are valued at the lower of cost or market.
                     Inventories which comprise approximately 22% and 21% of
                     total inventories at June 30, 1998 and 1997, respectively,
                     are costed on a last-in, first-out (LIFO) basis.
                     Inventories which are costed by various other methods
                     approximate actual cost on a first-in, first-out (FIFO)
                     basis. If the FIFO method (which approximates current cost)
                     of inventory accounting had been used for inventories
                     costed on a LIFO basis, these inventories would have been
                     $14,531,000 and $14,704,000 higher than reported at June
                     30, 1998 and 1997, respectively.

                     It is not practicable to segregate work in process from
                     finished goods inventories. Management estimates, however,
                     that work in process inventories amount to less than 10% of
                     the combined total of finished goods and work in process
                     inventories at June 30, 1998 and 1997.
<PAGE>   12

4. SHORT-TERM BORROWINGS   As of June 30, 1998, 1997 and 1996, the Company had
                           unused lines of credit for short-term borrowings from
                           various banks of $85,000,000, $174,000,000 and
                           $199,000,000, respectively. The lines of credit are
                           granted at the discretion of the lending banks and
                           are generally subject to periodic review. As of June
                           30, 1998 and 1997, the Company had no short-term
                           borrowings under its line of credit arrangements.

5. ACCRUED LIABILITIES     Accrued liabilities at June 30, 1998 and 1997 are
                           composed of:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                           1998          1997
                           --------------------------------------------------------------------------------------------
                           <S>                                                           <C>           <C>     
                           Income and other taxes                                         ($ 4,603)     $ 2,496
                           Accrued compensation and employee benefits                       25,813       25,103
                           Accrued marketing and distribution                                4,839        6,287
                           Other                                                             8,154        6,070
                           --------------------------------------------------------------------------------------------
                           Total accrued liabilities                                       $34,203      $39,956
                           ============================================================================================
</TABLE>

6. LONG-TERM DEBT          Long-term debt (including current portion) at
                           June 30, 1998 and 1997 consists of:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                            1998        1997
                           --------------------------------------------------------------------------------------------
                           <S>                                                           <C>           <C>     
                           Notes payable (8.9%, due in February 2000)                      $25,000      $25,000
                           Obligations with various industrial development
                             authorities-collateralized by real estate
                             and equipment:
                               Floating rate due in installments to 2005                     4,605        5,010
                               7%, paid in 1998                                                           1,220
                           --------------------------------------------------------------------------------------------
                           Total                                                            29,605       31,230
                           Less current portion                                                510          545
                           --------------------------------------------------------------------------------------------
                           Long-term debt                                                  $29,095      $30,685
                           ============================================================================================
</TABLE>

                           No material debt was assumed for the purchase of
                           property additions in 1998, 1997 and 1996. Cash
                           payments for interest were $2,646,000, $2,603,000 and
                           $2,875,000 for 1998, 1997 and 1996, respectively.
                           Various debt agreements require the maintenance of
                           certain financial statement amounts and ratios,
                           including a requirement to maintain a specified
                           minimum net worth, as defined. At June 30, 1998, the
                           Company exceeded this net worth requirement by
                           approximately $76,741,000.

<TABLE>
<CAPTION>
                           Long-term debt matures as follows:                              (Dollars In Thousands)
                           --------------------------------------------------------------------------------------------
                           <S>                                                                         <C>
                           Year ending June 30:
                            1999                                                                        $   510
                            2000                                                                         25,520
                            2001                                                                            535
                            2002                                                                            545
                            2003                                                                            555
                            After 2003                                                                    1,940
                           --------------------------------------------------------------------------------------------
                             Total                                                                      $29,605
                           ============================================================================================
</TABLE>

                           Based on the borrowing rates currently available for
                           long-term debt with similar terms and average
                           maturities, the estimated fair value of total
                           long-term debt is approximately $30,497,000 and
                           $32,179,000 at June 30, 1998 and 1997, respectively.
<PAGE>   13
7. INCOME TAXES            The Company and its domestic subsidiaries file a
                           consolidated Federal income tax return. Taxes based
                           on income for the years ended June 30, 1998, 1997 and
                           1996, have been provided as follows:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                         1998                1997            1996
                           --------------------------------------------------------------------------------------------
                           <S>                                          <C>                 <C>           <C>    
                           Currently payable:
                            Federal                                       $49,798             $49,063       $40,476
                            State and local                                 7,612               5,579         5,863
                           --------------------------------------------------------------------------------------------
                           Total current provision                         57,410              54,642        46,339
                           Deferred Federal, state and local 
                           provision (credit)                               1,833                (889)          747
                           --------------------------------------------------------------------------------------------
                           Total taxes based on income                    $59,243             $53,753       $47,086
                           ============================================================================================
</TABLE>

                           Tax expense resulting from allocating certain tax
                           benefits directly to common stock and retained
                           earnings totaled $647,000, $323,000 and $427,000 for
                           1998, 1997 and 1996, respectively. The Company's
                           effective tax rate varies from the statutory Federal
                           income tax rate as a result of the following factors:

<TABLE>
<CAPTION>
                                                                            1998               1997          1996
                           --------------------------------------------------------------------------------------------
                           <S>                                          <C>                 <C>           <C>    
                           Statutory rate                                   35.0%               35.0%         35.0%
                           State and local income taxes                      3.1                 2.5           3.0
                           Other                                                                 0.2           0.2
                           --------------------------------------------------------------------------------------------
                           Effective rate                                   38.1%               37.7%         38.2%
                           ============================================================================================
</TABLE>

                           Deferred income taxes recorded in the consolidated
                           balance sheets at June 30, 1998 and 1997 consist of
                           the following:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                   1998                1997
                           --------------------------------------------------------------------------------------------
                           <S>                                                      <C>               <C>    
                           Deferred tax assets (liabilities):
                             Inventories                                           $ 5,729             $ 4,797
                             Employee medical and other benefits                     5,079               5,010
                             Receivable valuation allowances                         2,421               2,195
                             Other accrued liabilities                               3,031               3,519
                           --------------------------------------------------------------------------------------------
                           Total deferred tax assets                                16,260              15,521
                           --------------------------------------------------------------------------------------------
                           Total deferred tax liabilities - Property and other     (11,477)             (8,930)
                           --------------------------------------------------------------------------------------------
                           Net deferred tax asset                                  $ 4,783             $ 6,591
                           ============================================================================================
</TABLE>

                           Cash payments for income taxes were $63,633,000,
                           $54,225,000 and $46,547,000 for 1998, 1997 and 1996,
                           respectively.


8. SHAREHOLDERS' EQUITY    The Company is authorized to issue 3,050,000 shares
                           of preferred stock consisting of 750,000 shares of
                           Class A Participating Preferred Stock with $1.00 par
                           value, 1,150,000 shares of Class B Voting Preferred
                           Stock without par value and 1,150,000 shares of Class
                           C Nonvoting Preferred Stock without par value. 

                           In April 1990, the Company's Board of Directors
                           adopted a Rights Agreement which provides for one
                           preferred share purchase right to be associated with
                           each share of the Company's outstanding common stock.
                           Shareholders exercising these rights would become
                           entitled to purchase shares of Class A Participating
                           Preferred Stock. The rights may be exercised on or
                           after the time when a person or group of persons
                           without the approval of the Board of Directors
                           acquire beneficial ownership of 15 percent or more of
                           the Company's common stock or announce the initiation
                           of a tender or exchange offer which if successful
                           would cause such person or group to beneficially own
                           30 percent or more of the common stock. Such exercise
                           may ultimately entitle the holders of the rights to
                           purchase for $17.50 per right common stock of the
                           Company having a market value of $35. The person or
                           groups effecting such 15 percent acquisition or
                           undertaking such tender offer will not be entitled to
                           exercise any rights. These rights expire April 2000
                           unless earlier redeemed by the Company under
                           circumstances permitted by the Rights Agreement.

<PAGE>   14
9. STOCK OPTIONS   Under terms of an incentive stock option plan approved by the
                   shareholders in November 1995, the Company has reserved
                   3,000,000 common shares for issuance to qualified key
                   employees. All options granted under the plan are exercisable
                   at prices not less than fair market value as of the date of
                   grant. At June 30, 1998, 2,622,375 shares were available for
                   future grants under the plan. In general, options granted
                   under the plan vest immediately and have a maximum term of 10
                   years. Both reserved common shares and shares available for
                   future grants have been restated to reflect the stock split
                   in January 1998.

                   In October 1995, the Financial Accounting Standards Board
                   issued SFAS No. 123, "Accounting for Stock-Based
                   Compensation" which in accordance with the Statement, the
                   Company adopted in fiscal 1997. As permitted by SFAS No. 123,
                   the Company has elected to follow Accounting Principles Board
                   ("APB") Opinion No. 25, "Accounting for Stock Issued to
                   Employees" and related interpretations, in accounting for its
                   stock based compensation because, as discussed below, the
                   alternative fair value provided for under SFAS No. 123
                   requires use of option valuation models that were not
                   developed for use in valuing stock options. Under APB Opinion
                   No. 25, because the exercise price of the Company's stock
                   options was at least equal to the market price of the
                   underlying stock on the date of grant, no compensation
                   expense was recognized.

                   The following summarizes for each of the three years in the
                   period ended June 30, 1998 the activity relating to stock
                   options granted under the 1995 plan mentioned above as well
                   as those granted under a separate plan that expired in May
                   1995, as restated to reflect the stock split in January 1998:

<TABLE>
<CAPTION>
                                                                      1998                  1997                 1996
                           -------------------------------------------------------------------------------------------------------
                                                                          Weighted               Weighted               Weighted
                                                               Number     Average      Number    Average    Number      Average
                                                                 of       Exercise       of      Exercise     of        Exercise
                                                               Shares      Price       Shares     Price     Shares        Price
                           -------------------------------------------------------------------------------------------------------
                           <S>                                <C>        <C>          <C>       <C>        <C>         <C>   
                           Outstanding at beginning of period  497,095    $28.18       335,121    $21.16     459,063     $19.25
                           Exercised, net of stock tendered   (215,659)    28.62      (217,976)    21.95    (120,717)     13.88
                            in payment
                           Granted                                                     383,100     30.78
                           Forfeited                            (3,450)    30.75        (3,150)    27.71      (3,225)     22.25
                           -------------------------------------------------------------------------------------------------------
                           Outstanding at end of the period    277,986    $27.78       497,095    $28.18     335,121     $21.16
                           =======================================================================================================
                           Exercisable at end of period        186,692    $29.73       354,179    $30.01
                           =======================================================================================================
</TABLE>
                   The weighted average fair value of options granted during the
                   fiscal year 1997 was $5.00.

                   The following table summarizes information about the options
                   outstanding at June 30, 1998:

<TABLE>
                                               Options Outstanding                                     Options Exercisable
                           --------------------------------------------------------------------  ---------------------------------
                                                Number        Weighted Average                        Number
                               Range of       Outstanding        Remaining     Weighted Average    Exercisable    Weighted Average
                           Exercise Prices  at June 30, 1998  Contractual Life  Exercise Price   at June 30, 1998  Exercise Price
                           --------------------------------------------------------------------  ---------------------------------
                           <S>                  <C>             <C>               <C>              <C>                <C> 
                           $30.75- $33.83        203,104            1.68            $30.75             171,542         $30.75
                           $17.06- $22.25         74,882            3.92            $19.71              15,150         $18.22
                           ====================================================================  =================================
</TABLE>

                   The fair value of the options presented above was estimated
                   at the date of grant using the Black-Scholes option pricing
                   model with the following assumptions: risk free interest rate
                   of 6.04%; dividend yield of 1.6%; volatility factors of the
                   expected market price of the Company's common stock of
                   20.60%; and a weighted average expected option life of 2.29
                   years.

                   Had compensation cost for the Company's stock option plan
                   been determined based on the fair value at the grant dates
                   for awards under the Plan consistent with the method of FASB
                   Statement 123, the Company's net income and earnings per
                   share would have been reduced to the pro forma amounts
                   indicated below:

<TABLE>
<CAPTION>
                                                                                                  For Years Ended 
                           (Dollars In Thousands Except Per Share Figures)                 June 30, 1998     June 30, 1997
                           -------------------------------------------------------------------------------------------------------
                           <S>                 <C>                                          <C>                 <C>   
                            Net income           As reported                                  $96,130             $88,706
                                                 Pro forma                                    $96,057             $87,746 
                            Earnings per Share 
                             Basic and Diluted   As reported                                    $2.22               $2.01 
                                                 Pro forma                                      $2.22               $1.99
                           =======================================================================================================
</TABLE>
<PAGE>   15
   10. PENSION AND OTHER   Defined Benefit Pension Plans:
       POSTRETIREMENT   
       BENEFITS            The Company and certain of its operating subsidiaries
                           sponsor five noncontributory defined benefit plans
                           which cover the union workers at such locations.
                           Additionally, the Company and certain of its
                           operating subsidiaries participate in two
                           multiemployer defined benefit plans covering the
                           union workers at such locations. Benefits under these
                           plans are primarily based on negotiated rates and
                           years of service. The Company contributes to these
                           pension funds at least the minimum amount required by
                           regulation or contract.

                           Net pension cost relating to these plans for each of
                           the three years in the period ended June 30, 1998 is
                           summarized as follows:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                              1998         1997        1996
                           ------------------------------------------------------------------------------------------
                           <S>                                              <C>          <C>         <C>
                           Company sponsored plans-
                            Service cost - benefits earned during the period  $   559      $    537    $   472
                            Interest cost on projected benefit obligations      1,785         1,681      1,662
                            Actual return on pension plan assets               (5,927)       (5,361)    (2,895)
                            Net amortization and deferrals                      3,227         3,226        889
                           ------------------------------------------------------------------------------------------
                               Net pension cost for Company plans                (356)           83        128
                           Multiemployer plans                                    970           886        806
                           ------------------------------------------------------------------------------------------
                               Net pension cost                               $   614      $    969    $   934
                           ==========================================================================================
</TABLE>

                           The following table summarizes the funded status of
                           the Company's plans at June 30, 1998 and 1997:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                         1998             1997
                           ------------------------------------------------------------------------------------------
                           <S>                                                          <C>               <C>
                           Actuarial present value of benefit obligation: 
                             Vested benefits                                             $28,197          $24,230
                           ==========================================================================================
                             Accumulated benefit obligation                              $28,409          $24,361
                           ==========================================================================================
                           Projected benefit obligation                                  $28,409          $24,361
                           Plan assets at fair value                                      34,794           30,262
                           ------------------------------------------------------------------------------------------
                           Excess of assets over projected benefit obligation              6,385            5,901
                           Unrecognized net gain                                          (6,430)          (6,548)
                           Unrecognized prior service costs                                2,189            2,318
                           Remaining unrecognized net transition obligation                  208              240
                           ------------------------------------------------------------------------------------------
                               Net recorded pension asset                                $ 2,352          $ 1,911
                           ==========================================================================================
</TABLE>

                           The majority of plan assets are invested in bonds,
                           short-term investments and common stock including
                           shares of the Company's common stock with a market
                           value of $5,284,000, $4,500,000 and $3,476,000 as of
                           June 30, 1998, 1997 and 1996, respectively. The
                           weighted average discount rates used in determining
                           the projected benefit obligation were 6.75% for 1998
                           and 7.50% for 1997 and 1996. The expected long-term
                           rate of return on assets was 9.0% for the three
                           years.

                           Employee Stock Ownership Plan and 401(k) Profit 
                           Sharing Plan and Trust: 

                           The Company sponsors an Employee Stock Ownership Plan
                           (ESOP). In April 1990, the Company loaned $10,000,000
                           to the ESOP for the purpose of purchasing the
                           Company's common stock in furtherance of the
                           objectives of the Plan. The Company funded this
                           transaction primarily through short-term bank
                           borrowings. With the proceeds and as adjusted for all
                           stock splits since April 1990, the ESOP effectively
                           purchased 1,791,585 shares of the Company's common
                           stock in the open market.

                           Effective January 1, 1998, the ESOP was frozen and
                           all benefit accruals under and further contributions
                           to the ESOP ceased. All participants in the plan at
                           that time were immediately 100% vested.

                           Prior to this time, the ESOP was fully paid by the
                           Company and generally provided coverage to all
                           domestic employees, except those covered by a
                           collective bargaining agreement. Contributions to the
                           ESOP were not less than that required by the terms of
                           the loan agreement between the Company and the ESOP.
                           The Company used the shares-allocated method of
                           accounting in determining the amount of expense
                           related to each contribution. The loan to the ESOP
                           was paid in full in fiscal 1997.

                           Dividends accumulated on the Company's unallocated
                           common stock held by the ESOP were used to repay the
                           loan to the Company. Accordingly, the pretax expense
                           associated with 1997 and 1996 totaled $1,169,000 and
                           $1,077,000, which is net of dividends of $110,000 and
                           $201,000 on the unallocated shares, respectively.
<PAGE>   16


                   The Company adopted the Lancaster Colony Corporation 401(k)
                   Profit Sharing Plan and Trust (401(k) Plan) effective January
                   1, 1998. The 401(k) Plan allows participation to all domestic
                   employees, except those covered by a collective bargaining
                   agreement. The Company contribution is 40% of the
                   participant's contribution up to 4% of the participant's
                   annual compensation. The Company contribution will be funded
                   annually at the end of the 401(k) Plan year, December 31. The
                   Company's contribution for the year ended June 30, 1998 is
                   approximately $174,000. The funds are invested in mutual
                   funds.

                   Postretirement Benefits Other Than Pensions:

                   In addition to pension benefits, the Company also provides
                   certain employees other postretirement benefits including
                   health care and life insurance coverage. As of June 30, 1998,
                   the Company provides such coverage under three active benefit
                   plans of which two relate to collectively bargained benefits.
                   In general, all eligible employees are entitled to receive
                   medical and life insurance benefits upon meeting certain age
                   and service requirements at the time of their retirement. 

                   The Company recognizes the cost of postretirement medical and
                   life insurance benefits as the employees render service in
                   accordance with SFAS No. 106, "Employers' Accounting for
                   Postretirement Benefits Other Than Pensions." Benefits are
                   funded as incurred. Relevant information with respect to
                   these postretirement benefits as of June 30, 1998 and 1997
                   can be summarized as follows: 

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                                1998         1997
                           ----------------------------------------------------------------------------------------------------
                           <S>                                                                 <C>           <C>
                           Accumulated postretirement benefit obligation:
                            Retired participants                                                $1,825       $1,768 
                            Fully eligible active plan participants                                247          214 
                            Other active plan participants                                         778          892
                           ----------------------------------------------------------------------------------------------------
                              Total                                                              2,850        2,874 
                            Unrecognized net gain from 
                            past experience and changes in assumptions                             463          348
                           ----------------------------------------------------------------------------------------------------
                           Accrued postretirement benefit cost                                  $3,313       $3,222
                           ====================================================================================================
</TABLE>

                   Net postretirement benefits expense relating to the plans for
                   each of the three years in the period ended June 30, 1998, is
                   summarized as follows:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                                                1998       1997       1996
                           ----------------------------------------------------------------------------------------------------
                           <S>                                                                 <C>         <C>        <C>
                           Net postretirement benefit cost:
                            Service cost                                                        $ 102      $  99      $ 111
                            Interest cost                                                         215        227        226
                            Net amortization                                                       (4)
                           ----------------------------------------------------------------------------------------------------
                              Total                                                             $ 313      $ 326      $ 337
                           ====================================================================================================
                           Estimated effect of 1% increase in assumed medical cost trend rates:
                            Increase in accumulated postretirement benefit obligation           $ 179      $ 230      $ 245
                           ====================================================================================================
                            Increase in net periodic postretirement benefit cost                $  28      $  47      $  50
                           ====================================================================================================
                           Assumed weighted average discount rate                                6.75%      7.50%      7.50%
                           ====================================================================================================
</TABLE>

                   For 1998, annual increases in medical costs are initially
                   assumed to total approximately 7.5% per year and gradually
                   decline to 5% by approximately the year 2003. Annual
                   increases in medical costs for 1997 were assumed to total
                   approximately 8% per year and gradually decline to 5% by
                   approximately the year 2003. 

                   The Company and certain of its subsidiaries participate in
                   two multiemployer plans that provide various postretirement
                   health and welfare benefits to the union workers at such
                   locations. The Company's contributions required by its
                   participation in the multiemployer plans totaled $1,753,000,
                   $1,602,000 and $1,463,000 in 1998, 1997 and 1996,
                   respectively.

<PAGE>   17
                   In February 1998, the Financial Accounting Standards Board
                   issued SFAS No. 132, "Employers Disclosures about Pensions
                   and Other Postretirement Benefits." This Statement is
                   effective for fiscal years beginning after December 15, 1997
                   or for the Company's year ending June 30, 1999. SFAS No. 132
                   revises employers disclosures about pension and other
                   postretirement benefit plans for purposes of standardization
                   in disclosure. SFAS No. 132 suggests combined formats for
                   presentation of pension and other postretirement benefit
                   disclosures and requires restatement of disclosures for
                   earlier periods provided for comparative purposes. Management
                   has not yet completed its analysis of this Statement as to
                   its impact on the Company's financial disclosures.

  
11. COMMITMENTS    The Company has operating leases with initial noncancelable
                   lease terms in excess of one year, covering the rental of
                   various facilities and equipment, which expire at various
                   dates through fiscal 2005. Certain of these leases contain
                   renewal options, some provide options to purchase during the
                   lease term and some require contingent rentals based on
                   usage. The future minimum rental commitments due under these
                   leases are summarized as follows (in thousands): 1999 -
                   $4,036; 2000 - $2,521; 2001 - $1,556; 2002 - $1,220; 2003 -
                   $888; thereafter - $591.

                   Total rent expense, including short-term cancelable leases,
                   during 1998, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
                           (Dollars In Thousands)                           1998                1997              1996
                           --------------------------------------------------------------------------------------------------
                           <S>                                             <C>                 <C>               <C>
                           Operating leases:
                             Minimum rentals                               $5,477              $4,545            $4,393
                             Contingent rentals                               534                 558               579
                           Short-term cancelable leases                     2,113               2,808             2,330
                           --------------------------------------------------------------------------------------------------
                             Total                                         $8,124              $7,911            $7,302
                           ==================================================================================================
</TABLE>


12. CONTINGENCIES  At June 30, 1998, the Company is a party to various legal and
    AND            environmental matters which have arisen in the ordinary
    ENVIRONMENTAL  course of business. Such matters did not have a material
    MATTERS        adverse effect on the current year results of operations and,
                   in the opinion of management, their ultimate disposition will
                   not have a material adverse effect on the Company's
                   consolidated financial statements.                   
                                                                                
<PAGE>   18





                          INDEPENDENT AUDITORS' REPORT


       To The Shareholders And Directors Of Lancaster Colony Corporation


We have audited the accompanying consolidated balance sheets of Lancaster Colony
Corporation and its subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lancaster Colony Corporation and
its subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.



/s/ DELOITTE & TOUCHE LLP
COLUMBUS, OHIO
AUGUST 26, 1998


                        SELECTED QUARTERLY FINANCIAL DATA



                  Lancaster Colony Corporation and Subsidiaries
                   for the Years Ended June 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                           Diluted
(Thousands Except            Net              Gross            Net         Earnings          Stock Prices(1)    Dividends Paid  
Per Share Figures)          Sales             Margin          Income      Per Share(1)      High         Low      Per Share(1)
--------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>               <C>           <C>          <C>          <C>           <C>  
1998
First quarter            $  237,174         $ 75,154          $20,861        $ .48        $36.167      $32.000       $.127
Second quarter              300,754           95,046           28,967          .67         38.500       31.833        .133
Third quarter               237,628           76,250           22,796          .53         44.750       37.333        .140
Fourth quarter              233,196           77,947           23,506          .55         45.375       36.750        .140
-------------------------------------------------------------------------------------------------------------------------------
   Year                  $1,008,752         $324,397          $96,130        $2.22        $45.375      $31.833       $.540
===============================================================================================================================
1997
First quarter            $  218,918         $ 66,345          $18,259        $ .41        $25.833      $23.500       $.113
Second quarter              259,023           82,290           25,405          .57         30.667       24.083        .120
Third quarter               218,141           69,157           21,022          .48         32.250       28.833        .120
Fourth quarter              226,731           72,970           24,020          .55         32.583       26.167        .127
-------------------------------------------------------------------------------------------------------------------------------
   Year                  $  922,813         $290,762          $88,706        $2.01        $32.583      $23.500       $.480
===============================================================================================================================
</TABLE>

(1) Adjusted for the 3-for-2 stock split paid January 1998.

Lancaster Colony common shares are traded in the Nasdaq National Market System
(Nasdaq Symbol: LANC). Stock quotations were obtained from the National
Association of Securities Dealers. The number of shareholders as of
September 15, 1998 was approximately 12,100. The highest and lowest prices for
the Company's common shares from July 1, 1998 to September 15, 1998 were $40.00
and $27.75.