##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 Form 10-Q
 (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2006oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from          to
 Commission file number 0-4065-1
 
 Lancaster Colony Corporation
 (Exact name of registrant as specified in its charter)
 Ohio
    
    13-1955943(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)37 West Broad Street 
Columbus, Ohio
    
    43215(Address of principal executive offices)
    
    (Zip Code)
 614-224-7141  (Registrants telephone number, including area code)
 þ o
  þ o o
 o þ




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated
Balance Sheets  September 30, 2006 and June 30,
2006Consolidated
Statements of Income  Three Months Ended September 30,
2006 and 2005Consolidated
Statements of Cash Flows  Three Months Ended September 30,
2006 and 2005Notes
to Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4.
    
    Controls and ProceduresPART II  OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 6.
    
    ExhibitsSIGNATURESINDEX TO EXHIBITS
 2




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##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 
 LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  UNAUDITED
 September 30
    
    
    June 30(Amounts in thousands, except share data)
    
    2006
    
    
    2006ASSETSCurrent Assets:Cash and equivalents
    
    $
    11,750
    
    
    $
    6,050Short-term investments
    
    
    
    
    
    
    35,765Receivables (less allowance for doubtful accounts,
September  $1,257 and June  $1,097)
    
    
    123,252
    
    
    
    108,987Inventories:Raw materials
    
    
    42,937
    
    
    
    40,719Finished goods and work in process
    
    
    128,898
    
    
    
    121,230Total inventories
    
    
    171,835
    
    
    
    161,949Deferred income taxes and other current assets
    
    
    27,781
    
    
    
    26,032Total current assets
    
    
    334,618
    
    
    
    338,783Property, Plant and Equipment:Land, buildings and improvements
    
    
    147,725
    
    
    
    137,233Machinery and equipment
    
    
    398,785
    
    
    
    399,914Total cost
    
    
    546,510
    
    
    
    537,147Less accumulated depreciation
    
    
    356,248
    
    
    
    349,875Property, plant and equipment  net
    
    
    190,262
    
    
    
    187,272Other Assets:Goodwill  net
    
    
    79,219
    
    
    
    79,219Other intangible assets  net
    
    
    4,285
    
    
    
    4,416Other noncurrent assets
    
    
    17,958
    
    
    
    18,331Total
    
    $
    626,342
    
    
    $
    628,021LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    51,228
    
    
    $
    47,684Accrued liabilities
    
    
    59,828
    
    
    
    55,816Total current liabilities
    
    
    111,056
    
    
    
    103,500Other Noncurrent Liabilities
    
    
    23,822
    
    
    
    21,734Deferred Income Taxes
    
    
    6,793
    
    
    
    8,366Shareholders Equity:Preferred stock  authorized 3,050,000 shares;
outstanding  noneCommon stock
 authorized 75,000,000 shares; outstanding 
September 30, 2006  31,852,325 shares; 
June 30, 2006  32,245,735 shares
    
    
    80,298
    
    
    
    78,017Retained earnings
    
    
    930,893
    
    
    
    925,388Accumulated other comprehensive loss
    
    
    (5,284
    )
    
    
    (5,277
    )Total
    
    
    1,005,907
    
    
    
    998,128Common stock in treasury, at cost
    
    
    (521,236
    )
    
    
    (503,707
    )Total shareholders equity
    
    
    484,671
    
    
    
    494,421Total
    
    $
    626,342
    
    
    $
    628,021
  3




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME  UNAUDITED
 Three Months EndedSeptember 30(Amounts in thousands, except per share data)
    
    2006
    
    
    2005Net Sales
    
    $
    289,035
    
    
    $
    285,915Cost of Sales
    
    
    242,703
    
    
    
    232,674Gross Margin
    
    
    46,332
    
    
    
    53,241Selling, General and Administrative Expenses
    
    
    24,961
    
    
    
    26,034Restructuring and Impairment Charge
    
    
    19
    
    
    
    24Operating Income
    
    
    21,352
    
    
    
    27,183Interest Income and Other  Net
    
    
    378
    
    
    
    1,386Income Before Income Taxes
    
    
    21,730
    
    
    
    28,569Taxes Based on Income
    
    
    7,949
    
    
    
    10,523Net Income
    
    $
    13,781
    
    
    $
    18,046Net Income Per Common Share:Basic and diluted
    
    $
    .43
    
    
    $
    .53Cash Dividends Per Common Share
    
    $
    .26
    
    
    $
    .25Weighted Average Common Shares Outstanding:Basic
    
    
    31,919
    
    
    
    34,220Diluted
    
    
    31,936
    
    
    
    34,287
  4




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedSeptember 30(Amounts in thousands)
    
    2006
    
    
    2005Cash Flows From Operating Activities:Net income
    
    $
    13,781
    
    
    $
    18,046Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    7,553
    
    
    
    8,240Deferred income taxes and other noncash charges
    
    
    (357
    )
    
    
    (2,280
    )Restructuring and impairment charge
    
    
    (11
    )
    
    
    17(Gain) loss on sale of property
    
    
    (101
    )
    
    
    9Loss on sale of business
    
    
    
    
    
    
    202Payments to pension plans
    
    
    (53
    )
    
    
    (53
    )Changes in operating assets and liabilities:Receivables
    
    
    (14,264
    )
    
    
    (21,111
    )Inventories
    
    
    (9,886
    )
    
    
    (11,404
    )Other current assets
    
    
    (2,449
    )
    
    
    (2,369
    )Accounts payable and accrued liabilities
    
    
    11,818
    
    
    
    9,935Net cash provided by (used in) operating activities
    
    
    6,031
    
    
    
    (768
    )Cash Flows From Investing Activities:Payments on property additions
    
    
    (10,252
    )
    
    
    (16,734
    )Proceeds from sale of property
    
    
    104
    
    
    
    2Proceeds from sale of business
    
    
    
    
    
    
    476Purchases of short-term investments
    
    
    
    
    
    
    (10,000
    )Proceeds from short-term investment sales, calls and maturities
    
    
    35,765
    
    
    
    24,340Other net
    
    
    (201
    )
    
    
    (297
    )Net cash provided by (used in) investing activities
    
    
    25,416
    
    
    
    (2,213
    )Cash Flows From Financing Activities:Payment of dividends
    
    
    (8,276
    )
    
    
    (8,557
    )Purchase of treasury stock
    
    
    (17,529
    )
    
    
    (8,327
    )Proceeds from the exercise of stock options
    
    
    2,266
    
    
    
    2,540(Decrease) increase in cash overdraft balance
    
    
    (2,201
    )
    
    
    2,816Net cash used in financing activities
    
    
    (25,740
    )
    
    
    (11,528
    )Effect of exchange rate changes on cash
    
    
    (7
    )
    
    
    2Net change in cash and equivalents
    
    
    5,700
    
    
    
    (14,507
    )Cash and equivalents at beginning of year
    
    
    6,050
    
    
    
    113,265Cash and equivalents at end of period
    
    $
    11,750
    
    
    $
    98,758Supplemental Disclosure Of Operating Cash Flows:Cash paid during the period for income taxes
    
    $
    1,260
    
    
    $
    858
  5




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands, except share and per share amounts)
 Note 1  Summary of Significant Accounting Policies
 Basis of Presentation
  Property, Plant and Equipment
  Significant Accounting Policies
  Note 2  Short-Term Investments
   June 302006Due within one year
    
    $
    Due between one and five years
    
    
    Due after ten years
    
    
    35,765Total short-term investments
    
    $
    35,765
  Note 3  Impact of Recently Issued Accounting Standards
  6




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Tabular dollars in thousands, except share and per share amounts)
    Note 4  Goodwill and Other Intangible Assets
   September 30
    
    
    June 302006
    
    
    2006Specialty FoodsTrademarks (40-year life)Gross carrying value
    
    $
    370
    
    
    $
    370Accumulated amortization
    
    
    (142
    )
    
    
    (140
    )Net Carrying Value
    
    $
    228
    
    
    $
    230Customer Lists (12-year life)Gross carrying value
    
    $
    4,100
    
    
    $
    4,100Accumulated amortization
    
    
    (940
    )
    
    
    (854
    )Net Carrying Value
    
    $
    3,160
    
    
    $
    3,246Non-compete Agreements (8-year life)Gross carrying value
    
    $
    1,200
    
    
    $
    1,200Accumulated amortization
    
    
    (412
    )
    
    
    (375
    )Net Carrying Value
    
    $
    788
    
    
    $
    825Glassware and Candles  Customer Lists (12-year life)Gross carrying value
    
    $
    250
    
    
    $
    250Accumulated amortization
    
    
    (141
    )
    
    
    (135
    )Net Carrying Value
    
    $
    109
    
    
    $
    115Total Net Carrying Value
    
    $
    4,285
    
    
    $
    4,416
 7




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Tabular dollars in thousands, except share and per share amounts)
  Note 5  Pension Benefits
   Three MonthsEndedSeptember 302006
    
    
    2005Components of net periodic benefit costService cost
    
    $
    127
    
    
    $
    188Interest cost
    
    
    632
    
    
    
    635Expected return on plan assets
    
    
    (748
    )
    
    
    (723
    )Amortization of unrecognized net loss
    
    
    65
    
    
    
    177Amortization of prior service cost
    
    
    61
    
    
    
    59Amortization of unrecognized net obligation existing at transition
    
    
    1
    
    
    
    9Net periodic benefit cost
    
    $
    138
    
    
    $
    345
  Note 6  Postretirement Benefits
   Three MonthsEndedSeptember 302006
    
    
    2005Components of net periodic benefit costService cost
    
    $
    33
    
    
    $
    44Interest cost
    
    
    106
    
    
    
    87Amortization of unrecognized net loss
    
    
    32
    
    
    
    36Amortization of prior service asset
    
    
    (2
    )
    
    
    (2
    )Net periodic benefit cost
    
    $
    169
    
    
    $
    165
  8




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Tabular dollars in thousands, except share and per share amounts)
 Note 7  Stock Options
       WeightedWeighted
    
    
    AverageNumber
    
    
    Average
    
    
    Remaining
    
    
    Aggregateof
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding at beginning of period
    
    
    470,982
    
    
    $
    39.92Exercised
    
    
    (57,004
    )
    
    
    37.43Granted
    
    
    
    
    
    
    Forfeited
    
    
    (4,492
    )
    
    
    41.52Outstanding at end of period
    
    
    409,486
    
    
    $
    40.25
    
    
    
    2.85
    
    
    $
    1,849Exercisable at end of period
    
    
    393,171
    
    
    $
    40.22
    
    
    
    2.84
    
    
    $
    1,785
 9




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Tabular dollars in thousands, except share and per share amounts)
  WeightedNumber
    
    
    Averageof
    
    
    Grant DateShares
    
    
    Fair ValueUnvested at beginning of period
    
    
    16,315
    
    
    $
    7.82Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested at end of period
    
    
    16,315
    
    
    $
    7.82
  Note 8  Business Segment Information
  Three Months EndedSeptember 302006
    
    
    2005Net SalesSpecialty Foods
    
    $
    172,287
    
    
    $
    169,534Glassware and Candles
    
    
    54,506
    
    
    
    60,275Automotive
    
    
    62,242
    
    
    
    56,106Total
    
    $
    289,035
    
    
    $
    285,915Operating IncomeSpecialty Foods
    
    $
    24,182
    
    
    $
    25,844Glassware and Candles
    
    
    (801
    )
    
    
    2,203Automotive
    
    
    (531
    )
    
    
    1,134Corporate expenses
    
    
    (1,498
    )
    
    
    (1,998
    )Total
    
    $
    21,352
    
    
    $
    27,183
 Note 9   Commitments and Contingencies
   10




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Tabular dollars in thousands, except share and per share amounts)
     Note 10  Comprehensive Income
  11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 LANCASTER COLONY CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Tabular dollars in thousands)
 OVERVIEW
       12




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Forward-Looking Statements
  Summary of Results
    RESULTS OF CONSOLIDATED OPERATIONS
 Net Sales and Gross Margin
 Three Months EndedSeptember 302006
    
    
    2005
    
    
    ChangeNet SalesSpecialty Foods
    
    $
    172,287
    
    
    $
    169,534
    
    
    $
    2,753
    
    
    
    2
    %Glassware and Candles
    
    
    54,506
    
    
    
    60,275
    
    
    
    (5,769
    )
    
    
    (10
    )%Automotive
    
    
    62,242
    
    
    
    56,106
    
    
    
    6,136
    
    
    
    11
    %Total
    
    $
    289,035
    
    
    $
    285,915
    
    
    $
    3,120
    
    
    
    1
    %Gross Margin
    
    $
    46,332
    
    
    $
    53,241
    
    
    $
    (6,909
    )
    
    
    (13
    )%Gross Margin as a Percent of Sales
    
    
    16.0
    %
    
    
    18.6
    %
 13




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Selling, General and Administrative Expenses
 Three Months EndedSeptember 302006
    
    
    2005
    
    
    ChangeSelling, General and Administrative Expenses
    
    $
    24,961
    
    
    $
    26,034
    
    
    $
    (1,073
    )
    
    
    (4
    )%SG&A Expenses as a Percent of Sales
    
    
    8.6
    %
    
    
    9.1
    %
  14




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Operating Income
  Three Months EndedSeptember 302006
    
    
    2005
    
    
    ChangeOperating IncomeSpecialty Foods
    
    $
    24,182
    
    
    $
    25,844
    
    
    $
    (1,662
    )
    
    
    (6
    )%Glassware and Candles
    
    
    (801
    )
    
    
    2,203
    
    
    
    (3,004
    )
    
    
    (136
    )%Automotive
    
    
    (531
    )
    
    
    1,134
    
    
    
    (1,665
    )
    
    
    (147
    )%Corporate Expenses
    
    
    (1,498
    )
    
    
    (1,998
    )
    
    
    500
    
    
    
    (25
    )%Total
    
    $
    21,352
    
    
    $
    27,183
    
    
    $
    (5,831
    )
    
    
    (21
    )%Operating Income as a Percent of SalesSpecialty Foods
    
    
    14.0
    %
    
    
    15.2
    %Glassware and Candles
    
    
    (1.5
    )%
    
    
    3.7
    %Automotive
    
    
    (0.9
    )%
    
    
    2.0
    %Consolidated
    
    
    7.4
    %
    
    
    9.5
    %
 Interest Income and Other  Net
  Income Before Income Taxes
  Net Income
  FINANCIAL CONDITION
    15




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CONTRACTUAL OBLIGATIONS
  CRITICAL ACCOUNTING POLICIES
  RECENTLY ISSUED ACCOUNTING STANDARDS
     
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 16




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Changes in Internal Control Over Financial Reporting.
  
 PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number
    
    
    Maximum NumberTotal
    
    
    Average
    
    
    of Shares
    
    
    of Shares That MayNumber
    
    
    Price
    
    
    Purchased as
    
    
    Yet be Purchasedof Shares
    
    
    Paid Per
    
    
    Part of Publicly
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    Announced Plans
    
    
    ProgramsJuly 1-31, 2006
    
    
    300,337
    
    
    $
    38.69
    
    
    
    300,337
    
    
    
    2,633,535August 1-31, 2006
    
    
    150,077
    
    
    $
    39.36
    
    
    
    150,077
    
    
    
    2,483,458September 1-30, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,483,458
  
 Item 6. Exhibits .
 17




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SIGNATURES
  Lancaster Colony Corporation(Registrant)Date: November 9, 2006
    
    By:
    
    /s/John B. Gerlach, Jr.
John B. Gerlach, Jr.Chairman, Chief Executive Officer,
President and DirectorDate: November 9, 2006
    
    By:
    
    /s/John L. BoylanJohn L. BoylanTreasurer, Vice President,
Assistant Secretary,
Chief Financial Officer
(Principal Financial
and Accounting Officer)
and Director
 18




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LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 2006
 
 INDEX TO EXHIBITS
 ExhibitNumber
    
    Description
    
    Located at31.1
    
    Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002
    
    Filed herewith32
    
    Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002
    
    Filed herewith
 19