<PAGE>   1
                                                                   Exhibit 13

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                Of Results of Operations and Financial Condition


Review of Consolidated Operations

Consolidated net sales for fiscal 1997 totaled $922,813,000, which was a record
high and an 8% increase above fiscal 1996 net sales of $855,912,000. Leading
this increase in consolidated net sales was the Glassware and Candles segment,
which achieved a 13% growth in its net sales stemming primarily from greater
unit sales of its Candle-lite product lines. The Company's Specialty Foods and
Automotive segments also contributed increased net sales. Generally, on a
corporate basis, competitive conditions have minimized the effect of any year
over year increases in unit selling prices. Increased sales of the Glassware
and Candles segment were also primarily responsible for fiscal 1996
consolidated net sales increasing 8% over the fiscal 1995 total of
$795,126,000.

Benefiting from the increase in sales, consolidated net income also attained a
record high during fiscal 1997 and totaled $88,706,000. Net income for 1997 was
17% above the fiscal 1996 total of $76,135,000. Similarly, 1996 net income
increased 8% over the fiscal 1995 total of $70,524,000.

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):                   1997     1996     1995
-------------------------------------------------------------------------
<S>                                     <C>      <C>       <C>
Specialty Foods                          38%      38%      39%
Glassware and Candles                    36%      35%      30%
Automotive                               26%      27%      31%

Operating Income(2):
-------------------------------------------------------------------------
Specialty Foods                          13%      11%      13%
Glassware and Candles                    24%      26%      22%
Automotive                                9%       8%      11%
</TABLE>
(1) Expressed as a percentage of consolidated net sales.
(2) Expressed as a percentage of the related segment's net sales.

The Company's consolidated gross margin increased to 31.5% of net sales in 1997
compared to 30.8% in 1996 and 31.2% in 1995. This increase was largely the
result of improved Specialty Foods margins as influenced by such factors as a
more beneficial sales mix and lower raw material costs. Automotive margins also
improved slightly on higher production volumes. During 1997, the Glassware and
Candles segment experienced a decline in margins resulting from increases in
certain raw material costs and production inefficiencies. Compared to 1995, the
1996 margins were adversely affected in the Specialty Foods segment by higher
raw material costs and a less favorable sales mix.

For 1997, total selling, general and administrative expenses of $146,403,000
increased 6% over the 1996 total of $138,206,000. This increase is similar in
size to the 1996 increase of 5% over the 1995 total of $131,424,000 for such
expenses. These increases generally result from the effects of higher sales
volumes.

The foregoing factors contributed to consolidated operating income in 1997
increasing by 15% to $144,359,000 compared to $125,746,000 recorded in 1996. The
prior year's operating income had increased 8% over the 1995 total of
$116,518,000.

Stated as a percentage of pretax income, the Company's effective tax rate
declined slightly to 37.7% compared to 38.2% in 1996 and 38.6% in 1995.

Earnings per share of $3.02 increased $.46 in 1997 over 1996, an improvement of
18%. Similarly, 1996 earnings per share of $2.56 increased $.21, or 9%, over
the 1995 total of $2.35. In addition to the increased levels of corporate
earnings, earnings per share have been beneficially affected by the Company's
share repurchases that have totaled in excess of 1,800,000 shares over the
three-year period ended June 30, 1997.

Segment Review - Glassware and Candles

This segment continued to experience significant internally generated growth
with net sales in 1997 totaling $336,200,000 which was a 13% increase over the
1996 total of $297,937,000. Net sales in 1996 increased 26% over the
$237,320,000 recorded in 1995. Throughout this period, the sales of candles and
related products have been principally responsible for this growth. Of
particular note is the volume generated by wax-filled glass products for which
much of the related glassware is also produced by

<PAGE>   2

                      MANAGEMENT'S DISCUSSION AND ANALYSIS


this segment. Growth in 1997 was assisted by a significant increase in sales of
private label wax-filled candle products.

Operating income recorded during 1997 totaled $81,455,000, exceeding the 1996
total of $76,068,000 by 7%. This increase is 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.

Compared to 1995 operating income of $52,147,000, the corresponding total for
1996 increased by 46%. This improvement was generated by increased volume, a
more favorable sales mix, the increased utilization of plant capacity and the
effect of significant additional investment in more productive machinery and
equipment.

Segment Review - Specialty Foods

Record net sales of the Specialty Foods segment during fiscal 1997 of
$351,012,000 increased 7% over the $329,420,000 achieved in 1996. Compared to
1995 sales of $309,622,000, 1996 sales had increased 6%. The majority of this
segment's sales continue to be made to retail customers as is reflected in the
following table:
<TABLE>
<CAPTION>
                                        1997      1996     1995
-------------------------------------------------------------------------
<S>                                               <C>      <C>
Proportion of retail sales               55%       55%      56%
Proportion of foodservice sales          45%       45%      44%
</TABLE>

Sales made into retail distribution channels during the last two years have
increased as a result of greater volume of products sold in 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. Sales of non-refrigerated, pourable dressings have declined during
this period as a result of new market entrants and heightened competitive
pricing pressures. Foodservice sales have also improved during this period as
influenced by the expansion of sales to both national restaurant chains and to
wholesale distributors.

This segment enjoyed a recovery in operating margins during 1997 as operating
income totaled $47,308,000, which was 13% of segment sales. The current year's
income increased 33% above the 1996 operating income of $35,579,000, which
represented 11% of net sales. Compared to this segment's 1995 operating income
of $40,704,000, the 1996 total reflected a 13% decrease.

Reflecting this segment's reliance of raw materials having price volatility, a
generally broad-based reduction in raw material costs contributed to the
improvements in fiscal 1997 margins. One of the raw materials significantly
influencing this trend was soybean oil, which had its cost return to more
historic norms after having spent three years at considerably higher levels.
The 1997 margins were also positively affected by an improved sales mix as well
as capital improvements completed in calendar 1996 which provided notable
improvements in certain operating efficiencies. Factors, which led to the
decline in 1996 margins compared to 1995, included generally higher raw material
costs, a less favorable sales mix and increased competitive pricing pressures.

Segment Review - Automotive

After a year of sales decline, the Automotive segment recorded a 3% increase in
sales during 1997 compared to 1996. Sales during these past two years totaled
$235,601,000 and $228,555,000, respectively.  Compared to 1995 sales totaling
$248,184,000, this segment's 1996 sales decreased 8%. Sales of automotive floor
mats and aluminum truck and van accessories led the 1997 increase. Offsetting
this increase was a decline in the sales of truck bed liners as a result of
competitive market conditions reflecting increased industry capacity and
eroding prices. Sales during fiscal 1996 were adversely affected by

<PAGE>   3

                      MANAGEMENT'S DISCUSSION AND ANALYSIS


several factors including a shifting in the floor mat supply arrangements with
certain original equipment manufacturers and a decline in the heavy truck and
trailer industry to which the company is a leading supplier of splash guards.

An improved sales mix, greater production efficiencies and generally lower raw
material costs assisted this segment's operating income to increase by 9%
during fiscal 1997 and total $20,310,000 compared to $18,561,000 in 1996.
Increased plastic costs in 1997 mitigated this improvement. The operating
income recorded in 1996 decreased by 34% from the $28,027,000 achieved in 1995.
Contributing to this decline were the decline in sales and less efficient
overhead absorption resulting from lower production volumes. Plastic costs,
however, during 1996 were significantly lower than during much of 1995.

This segment's sales to original equipment manufacturers ("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 as well as
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. During 1997, sales to OEMs
comprised 44% of this segment's sales compared to 43% and 44% in 1996 and 1995,
respectively.

Liquidity and Capital Resources

The Company's last seven years of increasing profitability has served to
provide a basis for improved cash flows and a strong financial condition at
June 30, 1997. Compared to the fiscal 1996 total of $84,474,000, net cash
provided by operating activities in fiscal 1997 increased by 34% to total
$113,461,000.  Similarly, in 1996, such cash generated from operations
increased 81% from the $46,725,000 in fiscal 1995. Increased net income and
reduced needs for investments in working capital growth during this three-year
period contributed to this improvement. This cash flow generated from
operations remains the primary source of financing the Company's internal
growth.

Investments in property, plant and equipment during 1997 totaled $37,528,000.
As has been the case over the last three years, the majority of these
expenditures went to the Glassware and Candles segment to support its recent
strong growth.  Total expenditures during 1996 of $50,229,000 included funding
for a new distribution facility which is located adjacent to the existing
candle manufacturing facility located in Leesburg, Ohio. A similarly sized
expansion of this new facility is anticipated to be completed during fiscal
1998 to support this segment's growth. 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.

Among significant financing activities conducted during 1997 was the purchase
of $29,554,000, or 692,000 shares, of the Company's common stock. Total
dividend payments for 1997 were $21,114,000, which was 8% greater than the 1996
total of $19,591,000. This increase reflects the higher dividend payout rate of
$.72 present during 1997 as compared to $.66 during 1996. 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 debt to total capital ratio was 8% at June 30, 1997 compared to
9% at June 30, 1996. This relatively low level of debt provides the Company
with considerable flexibility to acquire businesses complementary in function
to that of the Company's existing operations. It is anticipated that adequate
borrowings will continue to be available under discretionary bank lines of
credit to meet any foreseeable cash requirements not otherwise met by cash
generated from operations.

<PAGE>   4

                      MANAGEMENT'S DISCUSSION AND ANALYSIS


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
occasion, remediation. Such costs have not been, and are not anticipated to
become, material. See Note 12 to the accompanying financial statements for
further discussion as to the accounting for such costs.

Impact of Inflation

On a consolidated basis, material cost changes during both 1997 and 1996 were
mixed and generally moderate. However, a markedly lower level of food commodity
costs were present in the latter half of 1997 while plastics, wax and natural
gas costs were prevalently higher throughout the year. Reduced plastic costs
benefited the Company during fiscal 1996, particularly within the Automotive
segment. During 1996, soybean oil, a significant ingredient of the Specialty
Foods segment, also averaged slightly lower from 1995 levels.

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. The Company's diversity of operations and its
ongoing efforts to achieve greater manufacturing and distribution efficiencies
through the improvement of work processes minimizes the exposure to such
increased costs.

<PAGE>   5
                               BUSINESS SEGMENTS
                 Lancaster Colony Corporation and Subsidiaries
                    For the Years Ended 1997, 1996 and 1995


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 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. 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 1996 and 1995 capital expenditures of the Specialty Foods segment includes
property relating to business acquisitions totaling $213,000 and $36,000,
respectively. The 1995 capital expenditures of the Automotive segment includes
property relating to business acquisitions totaling $1,500,000.

The following sets forth certain financial information attributable
to the Company's business segments for the three years ended
June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
(Dollars in Thousands)                     1997            1996            1995
-----------------------------------------------------------------------------------
<S>                                      <C>
Net Sales
  Specialty Foods                          $351,012        $329,420       $309,622
  Glassware and Candles                     336,200         297,937        237,320
  Automotive                                235,601         228,555        248,184
-----------------------------------------------------------------------------------
    Total                                  $922,813        $855,912       $795,126
===================================================================================
Operating Income
  Specialty Foods                          $ 47,308        $ 35,579       $ 40,704
  Glassware and Candles                      81,455          76,068         52,147
  Automotive                                 20,310          18,561         28,027
-----------------------------------------------------------------------------------
    Total                                   149,073         130,208        120,878
  Corporate expenses                         (6,614)         (6,987)        (6,070)
-----------------------------------------------------------------------------------
    Income Before Income Taxes             $142,459        $123,221       $114,808
===================================================================================
Identifiable Assets
  Specialty Foods                          $ 95,130        $102,606       $ 79,297
  Glassware and Candles                     235,154         205,232        155,484
  Automotive                                110,525         113,003        126,654
  Corporate                                  43,585          14,518         18,469
-----------------------------------------------------------------------------------
    Total                                  $484,394        $435,359       $379,904
===================================================================================
Capital Expenditures
  Specialty Foods                          $  4,625        $  8,856       $  6,582
  Glassware and Candles                      21,986          33,038         17,182
  Automotive                                 10,817           8,501          9,473
  Corporate                                     100              47             44
-----------------------------------------------------------------------------------
    Total                                  $ 37,528        $ 50,442       $ 33,281
===================================================================================
Depreciation and Amortization
  Specialty Foods                          $  5,546        $  4,753       $  4,439
  Glassware and Candles                      12,520          10,767          9,802
  Automotive                                  8,814           8,749          8,338
  Corporate                                     101             130            138
-----------------------------------------------------------------------------------
    Total                                  $ 26,981        $ 24,399       $ 22,717
===================================================================================
</TABLE>

<PAGE>   6


                          FIVE YEAR FINANCIAL SUMMARY


                 Lancaster Colony Corporation and Subsidiaries


<TABLE>
<CAPTION>
(Thousands Except Per Share Figures)           1997            1996           1995          1994            1993
-----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>                                          <C>
OPERATIONS
Net Sales                                    $922,813        $855,912       $795,126      $721,732        $630,627
Gross Margin                                 $290,762        $263,952       $247,942      $232,096        $203,106
  Percent of sales                               31.5%           30.8%          31.2%         32.2%           32.2%
Interest Expense                             $  2,596        $  2,875       $  2,736      $  2,849        $  3,625
  Percent of sales                                0.3%            0.3%           0.3%          0.4%            0.6%
Income Before Income Taxes                   $142,459        $123,221       $114,808      $ 98,093        $ 74,319
  Percent of sales                               15.4%           14.4%          14.4%         13.6%           11.8%
Taxes Based on Income                        $ 53,753        $ 47,086       $ 44,284      $ 38,233        $ 28,094
Net Income                                   $ 88,706        $ 76,135       $ 70,524      $ 59,860        $ 46,225
  Percent of sales                                9.6%            8.9%           8.9%          8.3%            7.3%
Per Common Share:(1)
  Net income                                 $   3.02        $   2.56       $   2.35      $   1.97        $   1.52
  Cash dividends                             $   0.72        $   0.66       $   0.55      $   0.44        $   0.37
----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total Assets                                 $484,394        $435,359       $379,904      $355,445        $302,050
Working Capital                              $235,079        $203,988       $189,255      $163,546        $126,648
Property, Plant and Equipment--Net           $151,309        $139,095       $113,187      $101,570        $ 98,597
Long-Term Debt                               $ 30,685        $ 31,230       $ 31,840      $ 32,933        $ 34,586
Property Additions                           $ 37,528        $ 50,229       $ 31,745      $ 23,532        $ 18,921
Provision for Depreciation                   $ 24,732        $ 22,007       $ 20,440      $ 20,145        $ 19,486
Shareholders' Equity                         $368,000        $323,563       $277,148      $236,847        $192,010
  Per Common Share(1)                        $  12.68        $  10.94       $   9.29      $   7.83        $   6.34
Weighted Average
  Common Shares Outstanding(1)                 29,405          29,749         30,038        30,317          30,483
----------------------------------------------------------------------------------------------------------------------
STATISTICS
Price-Earnings Ratio at Year End                 16.0            14.6           15.2          18.0            18.9
Current Ratio                                     4.2             3.9            4.1           3.2             3.1
Long-Term Debt as
  a Percent of Shareholders' Equity               8.3%            9.7%          11.5%         13.9%           18.0%
Dividends Paid as a Percent
  of Net Income                                  23.8%           25.7%          23.4%         22.3%           24.5%
Return on Average Equity                         25.7%           25.3%          27.4%         27.9%           26.3%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Adjusted for 4-for-3 stock splits paid July 1994 and April 1993.


<PAGE>   7

                          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, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.


/S/ DELOITTE & TOUCHE LLP

Columbus, Ohio
August 26, 1997
<PAGE>   8


                       CONSOLIDATED STATEMENTS OF INCOME


                 Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                 Years Ended June 30
                                                                  1997                  1996                1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                  <C>
NET SALES                                                      $922,813,000         $855,912,000         $795,126,000
COST OF SALES                                                   632,051,000          591,960,000          547,184,000
---------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN                                                    290,762,000          263,952,000          247,942,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                    146,403,000          138,206,000          131,424,000
---------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                144,359,000          125,746,000          116,518,000
OTHER INCOME (EXPENSE):
  Interest expense                                               (2,596,000)          (2,875,000)          (2,736,000)
  Interest income and other--net                                    696,000              350,000            1,026,000
---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES                                      142,459,000          123,221,000          114,808,000
TAXES BASED ON INCOME                                            53,753,000           47,086,000           44,284,000
===========================================================================================================================
NET INCOME                                                     $ 88,706,000         $ 76,135,000         $ 70,524,000
===========================================================================================================================
NET INCOME PER COMMON SHARE                                           $3.02                $2.56                $2.35
===========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                       29,405,000           29,749,000           30,038,000
===========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>   9

                          CONSOLIDATED BALANCE SHEETS


                 Lancaster Colony Corporation and Subsidiaries
                          As of June 30, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                               June 30
ASSETS                                                                           1997                         1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                        <C>
CURRENT ASSETS:
  Cash and equivalents                                                          $ 32,109,000              $  4,670,000
  Receivables (less allowance for doubtful accounts,
     1997-- $2,861,000; 1996--$2,131,000)                                        102,457,000               105,403,000
  Inventories:
    Raw materials and supplies                                                    42,339,000                33,148,000
    Finished goods and work in process                                           118,912,000               118,447,000
---------------------------------------------------------------------------------------------------------------------------
      Total inventories                                                          161,251,000               151,595,000
  Prepaid expenses and other current assets                                       12,966,000                11,674,000
---------------------------------------------------------------------------------------------------------------------------
         Total current assets                                                    308,783,000               273,342,000
PROPERTY, PLANT AND EQUIPMENT:
  Land, buildings and improvements                                                89,232,000                82,882,000
  Machinery and equipment                                                        248,069,000               234,013,000
---------------------------------------------------------------------------------------------------------------------------
      Total cost                                                                 337,301,000               316,895,000
  Less accumulated depreciation                                                  185,992,000               177,800,000
---------------------------------------------------------------------------------------------------------------------------
         Property, plant and equipment--net                                      151,309,000               139,095,000
OTHER ASSETS:
  Goodwill (net of accumulated amortization,
     1997-- $5,438,000; 1996--$4,562,000)                                         19,810,000                20,715,000
  Other Assets                                                                     4,492,000                 2,207,000
---------------------------------------------------------------------------------------------------------------------------
          TOTAL                                                                 $484,394,000              $435,359,000
===========================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
  Current portion of long-term debt                                             $    545,000              $    610,000
  Accounts payable                                                                33,203,000                34,303,000
  Accrued liabilities                                                             39,956,000                34,441,000
---------------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                73,704,000                69,354,000
LONG-TERM DEBT--Less current portion                                              30,685,000                31,230,000
OTHER NONCURRENT LIABILITIES                                                       7,895,000                 7,714,000
DEFERRED INCOME TAXES                                                              4,110,000                 3,498,000
SHAREHOLDERS' EQUITY:
  Preferred stock--authorized 2,650,000 shares;
    Outstanding--none
  Common stock--authorized 35,000,000 shares;
    Shares outstanding, 1997--29,016,836; 1996--29,563,401                        43,573,000                38,491,000
  Retained earnings                                                              404,783,000               337,153,000
  Foreign currency translation adjustment                                             75,000                    75,000
---------------------------------------------------------------------------------------------------------------------------
      Total                                                                      448,431,000               375,719,000
  Less:
    Common stock in treasury, at cost                                             80,431,000                50,877,000
    Amount due from ESOP                                                                                     1,279,000
---------------------------------------------------------------------------------------------------------------------------
         Total shareholders' equity                                              368,000,000               323,563,000
---------------------------------------------------------------------------------------------------------------------------
           TOTAL                                                                $484,394,000              $435,359,000
===========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>   10


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                       Years Ended June 30
                                                                          1997                1996              1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                           $ 88,706,000        $ 76,135,000     $70,524,000
  Adjustments to reconcile net income
        to net cash provided by operating activities:
    Depreciation and amortization                                        26,981,000          24,399,000      22,717,000
    Provision for losses on accounts receivable                           1,813,000           2,089,000         614,000
    Deferred income taxes and other noncash charges                        (669,000)           (190,000)     (2,086,000)
    Loss on sale of property                                                530,000             233,000         235,000
    Changes in operating assets and liabilities:
      Receivables                                                         1,133,000         (18,478,000)     (7,273,000)
      Inventories                                                        (9,656,000)         (8,982,000)    (23,475,000)
      Prepaid expenses and other current assets                             208,000             334,000      (1,061,000)
      Accounts payable and accrued liabilities                            4,415,000           8,934,000     (13,470,000)
---------------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                       113,461,000          84,474,000      46,725,000
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments on property additions                                        (37,528,000)        (50,229,000)    (31,745,000)
  Acquisitions net of cash acquired                                                                          (5,054,000)
  Proceeds from sale of property                                             52,000           1,784,000       1,002,000
  Other--net                                                             (3,629,000)           (638,000)     (1,420,000)
---------------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                           (41,105,000)        (49,083,000)    (37,217,000)
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of dividends                                                  (21,114,000)        (19,591,000)    (16,486,000)
  Purchase of treasury stock                                            (29,554,000)        (21,457,000)    (17,814,000)
  Payments on long-term debt                                               (610,000)         (1,026,000)     (1,368,000)
  Reduction of ESOP debt                                                  1,279,000           1,278,000       1,279,000
  Common stock issued, including stock issued upon
     exercise of stock options and related tax benefit                    5,082,000           1,785,000       2,649,000
---------------------------------------------------------------------------------------------------------------------------
        Net cash used in financing activities                           (44,917,000)        (39,011,000)    (31,740,000)
---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                                          51,000          48,000
---------------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents                                       27,439,000         (3,569,000)     (22,184,000)
Cash and equivalents at beginning of year                                 4,670,000           8,239,000      30,423,000
---------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                    $ 32,109,000        $  4,670,000    $  8,239,000
===========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>   11



                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                 Lancaster Colony Corporation and Subsidiaries
                For the Years Ended June 30, 1997, 1996 and 1995


<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, 1994                    22,674,020  $25,437,000    $226,412,000    $440,000    $11,606,000   $3,836,000
Year Ended June 30, 1995 :
  Net income                                                           70,524,000
  Cash dividends--common stock
    ($.55 per share)                                                  (16,465,000)
  Purchase of treasury shares               (530,800)                                             17,814,000
  Shares issued upon exercise of stock
    options including related tax benefits   130,026    2,649,000
  Shares issued in connection with
    four-for-three stock split             7,555,754
  Cash paid in lieu of fractional
    shares in connection with
    four-for-three stock split                                            (21,000)
  Tax benefit of cash dividends paid
    on ESOP unallocated shares                                             88,000
  Reduction of ESOP debt                                                                                       (1,279,000)
  Translation adjustment                                                               61,000
---------------------------------------------------------------------------------------------------------------------------
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
    ($.66 per share)                                                  (19,591,000)
  Purchase of treasury shares               (601,955)                                             21,457,000
  Shares issued upon exercise of stock
    options including related tax benefits    63,629    1,405,000
  Tax benefit of cash dividends paid
    on ESOP unallocated shares                                             71,000
  Shares issued in business acquisition      272,727    9,000,000
  Reduction of ESOP debt                                                                                       (1,278,000)
  Translation adjustment                                                             (426,000)
---------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996                    29,563,401   38,491,000     337,153,000      75,000     50,877,000    1,279,000
---------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1997 :
  Net income                                                           88,706,000
  Cash dividends--common stock
    ($.72 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
===========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements

<PAGE>   12


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                 Lancaster Colony Corporation and Subsidiaries


    1.   SUMMARY OF SIGNIFICANT   PRINCIPLES OF CONSOLIDATION
           ACCOUNTING POLICIES
                                  The accompanying consolidated financial
                                  statements include 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.

                                  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 the 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 February 1997, the Financial
                                  Accounting Standards Board issued Statement of
                                  Financial Accounting Standards ("SFAS") No.
                                  128, "Earnings per Share" which when adopted,
                                  will replace the current methodology for
                                  calculating and presenting earnings per share
                                  under the Accounting Principles Board ("APB")
                                  Opinion No. 15, "Earnings per Share." Under
                                  SFAS No. 128, companies with complex capital
                                  structures will be required to present basic
                                  earnings per share and diluted earnings per
                                  share while companies with simple capital
                                  structures will only be required to present
                                  basic 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 for the period.
                                  Diluted earnings per share is computed
                                  similarly to the current computation of fully
                                  diluted earnings per share required under APB
                                  Opinion No. 15. The standard, which is
                                  effective for financial statements for periods
                                  ending after December 15, 1997, including
                                  interim periods, requires restatement of all
                                  prior-period earnings per share data. Earlier
                                  application is not permitted. The presentation
                                  required by SFAS No. 128 will not materially
                                  differ from the current presentation of
                                  earnings per share.

                                  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 diverse
                                  customer base.

                                  BUSINESS SEGMENTS

                                  The business segments information for 1997,
                                  1996 and 1995 included on page 11 of this
                                  Annual Report is an integral part of these
                                  financial statements. In June 1997, the
                                  Financial Accounting Standards Board ("FASB")
                                  issued Statement of Financial Accounting
                                  Standards No. 131, "Disclosures about Segments
                                  of an Enterprise and Related Information."
                                  This Statement establishes standards to be


<PAGE>   13

                                  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.  This Statement supersedes
                                  FASB Statement No. 14, "Financial Reporting
                                  for Segments of a Business Enterprise," and
                                  amends FASB Statement No. 94, "Consolidation
                                  of All Majority-Owned Subsidiaries" and
                                  Accounting Principles Board Opinion No. 28,
                                  "Interim Financial Reporting."

                                  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.

    2.   ACQUISITIONS             During fiscal 1996, 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
                                  273,000 shares of Lancaster Colony Corporation
                                  common stock 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. This acquisition
                                  was accounted for under the purchase method of
                                  accounting and the non-cash aspects have been
                                  excluded from the accompanying Consolidated
                                  Statements of Cash Flows. The results of
                                  operations of this entity have been included
                                  in the consolidated financial statements from
                                  the date 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 21% of total inventories at June
                                  30, 1997 and 1996 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 $14,704,000
                                  and $14,014,000 higher than reported at June
                                  30, 1997 and 1996, 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, 1997 and
                                  1996.

    4.   SHORT-TERM BORROWINGS    As of June 30, 1997, 1996, and 1995, the
                                  Company had unused lines of credit for
                                  short-term borrowings from various banks of
                                  $174,000,000, $199,000,000 and $154,000,000,
                                  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, 1997 and 1996, the Company had no
                                  short-term borrowings under its line of credit
                                  arrangements.

    5.   ACCRUED LIABILITIES      Accrued liabilities at June 30, 1997 and
                                  1996 are composed of:

<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                            1997            1996
                                  -----------------------------------------------------------------------------
                                       <S>                                             <C>            <C>
                                       Income and other taxes                          $  2,496       $  2,297
                                       Accrued compensation and employee benefits        25,103         22,747
                                       Accrued marketing and distribution                 8,037          4,894
                                       Other                                              4,320          4,503
                                  -----------------------------------------------------------------------------
                                       Total accrued liabilities                        $39,956        $34,441
                                  =============================================================================
</TABLE>
<PAGE>   14



    6.   LONG-TERM DEBT           Long-term debt (including current portion)
                                  at June 30, 1997 and 1996 consists of:


<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                          1997        1996
                                  -----------------------------------------------------------------------
                                       <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                               5,010       5,405
                                             7%, due in installments to 2003           1,220       1,360
                                       Other (5% to 15.6%, due in installments
                                           to 1996)                                                   75
                                  -----------------------------------------------------------------------
                                       Total                                          31,230      31,840
                                       Less current portion                              545         610
                                  -----------------------------------------------------------------------
                                       Long-term debt                                $30,685     $31,230
                                  =======================================================================
</TABLE>

                                  The net book value of property subject to lien
                                  at June 30, 1997 was approximately $2,496,000.
                                  No material debt was assumed for the purchase
                                  of property additions in 1997, 1996 and 1995.
                                  Cash payments for interest were $2,603,000,
                                  $2,875,000 and $2,739,000 for 1997, 1996 and
                                  1995, 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, 1997, the
                                  Company exceeded this net worth requirement by
                                  approximately $95,015,000.

<TABLE>
<CAPTION>
                                       Long-term debt matures as follows:              (Dollars in Thousands)
                                  ---------------------------------------------------------------------------
                                       <S>                                                     <C>
                                       Year ending June 30:
                                         1998                                                  $   545
                                         1999                                                      650
                                         2000                                                   25,660
                                         2001                                                      675
                                         2002                                                      685
                                         After 2002                                              3,015
                                  ---------------------------------------------------------------------------
                                          Total                                                $31,230
                                  ===========================================================================
</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 $32,179,000 and $32,785,000 at
                                  June 30, 1997 and 1996, respectively.

    7.   INCOME TAXES             The Company and its domestic subsidiaries
                                  file a consolidated Federal income tax
                                  return. Taxes based on income have been
                                  provided as follows:


<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                      1997           1996        1995
                                  ---------------------------------------------------------------------------------
                                       <S>                                       <C>            <C>        <C>
                                       Currently payable:
                                         Federal                                  $49,063        $40,476    $40,163
                                         State and local                            5,579          5,863      6,425
                                  ---------------------------------------------------------------------------------
                                       Total current provision                     54,642         46,339     46,588
                                       Deferred Federal, state and local
                                         provision (credit)                          (889)           747     (2,304)
                                  ---------------------------------------------------------------------------------
                                       Total taxes based on income                $53,753        $47,086    $44,284
                                  =================================================================================
</TABLE>
                                  Tax expense resulting from allocating certain
                                  tax benefits directly to common stock and
                                  retained earnings totaled $323,000, $427,000
                                  and $193,000 for 1997, 1996 and 1995,
                                  respectively. The Company's effective tax rate
                                  varies from the statutory Federal income tax
                                  rate as a result of the following factors:

<TABLE>
<CAPTION>
                                                                         1997       1996         1995
                                  --------------------------------------------------------------------
                                       <S>                               <C>         <C>         <C>
                                       Statutory rate                    35.0%       35.0%       35.0%
                                       State and local income taxes       2.5         3.0         3.5
                                       Other                              0.2         0.2         0.1
                                  --------------------------------------------------------------------
                                       Effective rate                    37.7%       38.2%       38.6%
                                  ====================================================================
</TABLE>


<PAGE>   15



                                  Deferred income taxes recorded in the
                                  consolidated balance sheets at June 30, 1997
                                  and 1996 consist of the following:
<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                        1997       1996
                                  --------------------------------------------------------------------
                                       <S>                                          <C>        <C>
                                       Deferred tax assets (liabilities):
                                         Inventories                                $4,797     $4,910
                                         Employee medical and other benefits         5,010      4,525
                                         Receivable valuation allowances             2,195      1,545
                                         Other accrued liabilities                   3,519      1,112
                                  --------------------------------------------------------------------
                                       Total deferred tax assets                    15,521     12,092
                                  --------------------------------------------------------------------
                                       Total deferred tax liabilities - Property
                                           and other                                (8,930)    (6,390)
                                  --------------------------------------------------------------------
                                       Net deferred tax asset                       $6,591     $5,702
                                  ====================================================================
</TABLE>

                                  Cash payments for income taxes were
                                  $54,225,000, $46,547,000 and $51,529,000 for
                                  1997, 1996 and 1995, respectively.

    8.   SHAREHOLDERS' EQUITY     The Company is authorized to issue
                                  2,650,000 shares of preferred stock consisting
                                  of 350,000 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 $70 per right common stock of the Company
                                  having a market value of $140. 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.  

    9.   STOCK OPTIONS            Under terms of an incentive stock option plan
                                  approved by the shareholders in November 1995,
                                  the Company has reserved 2,000,000 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, 1997, 1,745,950 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.

                                  In October 1995, the Financial Accounting
                                  Standards Board issued Statement of Financial
                                  Accounting Standards No. 123, "Accounting for
                                  Stock-Based Compensation" ("SFAS") No. 123
                                  which in accordance with the Statement, the
                                  Company adopted in fiscal 1997. In accordance
                                  with 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, 1997 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:

<PAGE>   16



<TABLE>
<CAPTION>
                                                                                   Number        Weighted Average
                                                                                  of Shares       Exercise Price
                                  -------------------------------------------------------------------------------
                                       <S>                                        <C>                 <C>
                                       Outstanding-June 30, 1994                   223,023            $18.93
                                        Granted                                    216,600            $33.41
                                        Exercised                                 (130,026)           $19.56
                                        Forfeited                                   (3,554)           $27.84
                                  -------------------------------------------------------------------------------
                                       Outstanding-June 30, 1995                   306,043            $28.87
                                        Exercised                                  (80,478)           $20.82
                                        Forfeited                                   (2,150)           $33.38
                                  -------------------------------------------------------------------------------
                                       Outstanding-June 30, 1996                   223,415            $31.73
                                        Granted                                    255,400            $46.17
                                        Exercised                                 (145,317)           $32.92
                                        Forfeited                                   (2,100)           $41.57
                                  -------------------------------------------------------------------------------
                                       Outstanding-June 30, 1997                   331,398            $42.28
                                  ===============================================================================
                                       Exercisable at end of period                236,120            $45.01
                                  ===============================================================================
</TABLE>
                                  The weighted average fair value of options
                                  granted during the fiscal year 1997 was $8.52.

                                  Exercise prices for options outstanding
                                  totaling 253,550 and 77,848 at June 30, 1997,
                                  ranged from $46.13 to $50.74 and from $25.59
                                  to $33.38, respectively. The weighted average
                                  remaining contractual life of these options is
                                  3.42 years.

                                  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 for 1997: risk free
                                  interest rate of 6.07%; dividend yield of
                                  1.6%; volatility factors of the expected
                                  market price of the Company's common stock of
                                  21.83%; and a weighted average expected option
                                  life of 2.67 years. Because the effect of
                                  applying the fair value method to the
                                  Company's stock options results in net income
                                  and earnings per share that are not materially
                                  different from amounts reported in the
                                  consolidated statements of income, pro forma
                                  information has not been provided.

    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, 1997 is summarized as follows:


<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                       1997       1996      1995
                                  ----------------------------------------------------------------------------
                                       <S>                                       <C>       <C>          <C>
                                       Company sponsored plans-
                                        Service cost - benefits earned during
                                            the period                           $   537    $   472    $   507
                                        Interest cost on projected benefit
                                            obligations                            1,681      1,662      1,507
                                        Actual return on pension plan assets      (5,361)    (2,895)    (2,984)
                                        Net amortization and deferrals             3,226        889      1,130
                                  -----------------------------------------------------------------------------
                                           Net pension cost for Company plans         83        128        160
                                       Multiemployer plans                           886        806        594
                                  -----------------------------------------------------------------------------
                                           Net pension cost                      $   969    $   934    $   754
                                  =============================================================================
</TABLE>
                                  The following table summarizes the funded
                                  status of the Company's plans at June 30, 1997
                                  and 1996:

<TABLE>
<CAPTION>
                                      (Dollars in Thousands)                     1997        1996
                                  -------------------------------------------------------------------
                                      <S>                                       <C>          <C>
                                       Actuarial present value of benefit
                                           obligation:
                                        Vested benefits                         $24,230      $22,743
                                  ===================================================================
                                        Accumulated benefit obligation          $24,361      $22,846
                                  ===================================================================
                                       Projected benefit obligation             $24,361      $22,846
                                       Plan assets at fair value                 30,262       25,803
                                  -------------------------------------------------------------------
                                       Excess of assets over projected
                                           benefit obligation                     5,901        2,957
                                       Unrecognized net gain                     (6,548)      (2,827)
                                       Unrecognized prior service costs           2,318        1,045
                                       Remaining unrecognized net transition
                                           obligation                               240          271
                                  -------------------------------------------------------------------
                                           Net recorded pension asset           $ 1,911      $ 1,446
                                  ===================================================================
</TABLE>


<PAGE>   17

                                  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 $4,500,000, $3,476,000
                                  and $3,325,000 as of June 30, 1997, 1996 and
                                  1995, respectively. The weighted average
                                  discount rates used in determining the
                                  projected benefit obligation was 7.50% for
                                  1997 and 1996 and 7.25% for 1995. The expected
                                  long-term rate of return on assets was 9.0%
                                  for the three years.

                                  EMPLOYEE STOCK OWNERSHIP PLAN:

                                  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 1,194,390 shares of the
                                  Company's common stock in the open market.

                                  The ESOP is fully paid by the Company and
                                  generally provides coverage to all domestic
                                  employees, except those covered by a
                                  collective bargaining agreement. Contributions
                                  to the ESOP are to be not less than that
                                  required by the terms of the loan agreement
                                  between the Company and the ESOP. The Company
                                  uses the shares-allocated method of accounting
                                  in determining the amount of expense related
                                  to each contribution.

                                  As of June 30, 1996, the amount due from the
                                  ESOP was recorded as a reduction in
                                  shareholders' equity and represented the
                                  Company's prepayment of future contributions
                                  to the ESOP. This amount was expensed in
                                  fiscal 1997. Dividends accumulated on the
                                  Company's unallocated common stock held by the
                                  ESOP are used to repay the loan to the
                                  Company. Accordingly, the pretax expense
                                  associated with 1997, 1996 and 1995 totaled
                                  $1,169,000, $1,077,000, and $1,027,000, which
                                  is net of dividends of $110,000, $201,000, and
                                  $252,000 on the unallocated shares,
                                  respectively.

                                  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,
                                  1997, 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 Statement of Financial
                                  Accounting Standards (SFAS) No. 106. Benefits
                                  are funded as incurred. Relevant information
                                  with respect to these postretirement benefits
                                  as of June 30, 1997 and 1996 can be summarized
                                  as follows:

<TABLE>
<CAPTION>
                                       (Dollars in Thousands)                            1997        1996
                                  ------------------------------------------------------------------------
                                      <S>                                              <C>          <C>
                                       Accumulated postretirement benefit obligation:
                                        Retired participants                            $1,768      $1,920
                                        Fully eligible active plan participants            214         243
                                        Other active plan participants                     892         895
                                  ------------------------------------------------------------------------
                                          Total                                          2,874       3,058
                                       Unrecognized net gain (loss) from past
                                         experience and changes in assumptions             348         (62)
                                  ------------------------------------------------------------------------
                                       Accrued postretirement benefit cost              $3,222      $2,996
                                  ========================================================================
                                       Net postretirement benefit cost:
                                        Service cost                                    $   99      $  111
                                        Interest cost                                      227         226
                                  ------------------------------------------------------------------------
                                          Total                                         $  326      $  337
                                  ========================================================================
                                       Estimated effect of 1% increase in assumed
                                         medical cost trend rates:
                                           Increase in accumulated postretirement
                                             benefit obligation                         $  230      $  245
                                  ========================================================================
                                           Increase in net periodic postretirement
                                             benefit cost                               $   47      $   50
                                  ========================================================================
                                       Assumed weighted average discount rate            7.50%       7.50%
                                  ========================================================================
</TABLE>
                                  For 1997, annual increases in medical costs
                                  are initially assumed to total approximately
                                  8% per year and gradually decline to 5% by
                                  approximately the year 2003. Annual increases
                                  in medical costs for 1996 were assumed to
                                  total approximately 9% 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


<PAGE>   18

                                  contributions required by its participation in
                                  the multiemployer plans totaled $1,602,000,
                                  $1,463,000 and $1,174,000 in 1997, 1996 and
                                  1995, respectively.


    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 2003. 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):
                                  1998-$4,627; 1999-$2,110; 2000-$707;
                                  2001-$417; 2002-$286; thereafter-$136.

                                  Total rent expense, including short-term
                                  cancelable leases, during 1997, 1996 and 1995
                                  is summarized as follows:
<TABLE>
<CAPTION>
                                       (Dollars in thousands)            1997                1996              1995
                                  -----------------------------------------------------------------------------------
                                       <S>                             <C>                 <C>               <C>
                                       Operating leases:
                                         Minimum rentals               $4,545               $4,393            $4,225
                                         Contingent rentals               558                  579               457
                                       Short-term cancelable leases     2,808                2,330             2,288
                                  -----------------------------------------------------------------------------------
                                       Total                           $7,911               $7,302            $6,970
                                  ===================================================================================
</TABLE>

    12.  CONTINGENCIES AND        At June 30, 1997, the Company is a party to
         ENVIRONMENTAL MATTERS    various legal and environmental matters which
                                  have arisen in the ordinary course of
                                  business. Such matters did not have a material
                                  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
                                  future consolidated financial position or
                                  results of operations.

                                  Environmental expenditures relating to current
                                  or past operations are expensed in the period
                                  incurred. Expenditures relating to future
                                  operations are capitalized, provided they are
                                  recoverable and serve to improve the property.
                                  The Company records an estimate for contingent
                                  and environmental liabilities when costs are
                                  both probable and can be reasonably estimated.
                                  The Company periodically evaluates and revises
                                  such estimates based upon expenditures against
                                  such reserves and the availability of
                                  additional relevant information.


                       SELECTED QUARTERLY FINANCIAL DATA

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

<TABLE>
<CAPTION>

(Thousands Except Per        Net             Gross           Net           Earnings        Stock Prices       Dividends Paid
  Share Figures)            Sales           Margin          Income         Per Share       High     Low          Per Share
----------------------------------------------------------------------------------------------------------------------------
1997
<S>                        <C>              <C>            <C>              <C>          <C>        <C>               <C>
First quarter              $218,918        $66,345         $18,259           $ .62       $38.750    $35.250           $.17
Second quarter              259,023         82,290          25,405             .86        46.000     36.125            .18
Third quarter               218,141         69,157          21,022             .71        48.375     43.250            .18
Fourth quarter              226,731         72,970          24,020             .82        48.875     39.250            .19
----------------------------------------------------------------------------------------------------------------------------
   Year                    $922,813       $290,762         $88,706           $3.02       $48.875    $35.250           $.72
============================================================================================================================
1996
First quarter              $200,902        $59,319         $15,408           $ .52       $37.750    $33.500           $.15
Second quarter              239,055         75,621          22,369             .75        38.000     31.000            .17
Third quarter               200,459         60,308          17,767             .60        39.250     36.250            .17
Fourth quarter              215,496         68,704          20,591             .69        38.500     33.000            .17
----------------------------------------------------------------------------------------------------------------------------
   Year                    $855,912       $263,952         $76,135           $2.56       $39.250    $31.000           $.66
============================================================================================================================
</TABLE>

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
10, 1997 was approximately 11,000. The highest and lowest prices for the
Company's common shares from July 1, 1997 to September 10, 1997 was $53.50 and
$48.00.