UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form			10-Q

(Mark One)



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

For the quarterly period ended ~~March~~December 31, 2020



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

For the transition period from to

Commission file number 000-04065




Lancaster Colony Corporation
(Exact name of registrant as specified in its charter)



Ohio		13-1955943
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

380 Polaris Parkway	Suite 400
Westerville	Ohio	43082
(Address of principal executive offices)		(Zip Code)



(614)			224-7141
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without par value	LANC	NASDAQ Global Select Market

As of ~~April 17, 2020,~~January 15, 2021, there were approximately ~~27,516,000~~27,549,000 shares of Common Stock, without par value, outstanding.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS





PART I – FINANCIAL INFORMATION			3

Item 1.		Condensed Consolidated Financial Statements (unaudited):

		Condensed Consolidated Balance Sheets – ~~March~~December 31, 2020 and June 30, ~~2019~~2020	3

		Condensed Consolidated Statements of Income – Three and ~~Nine~~ Six Months Ended ~~March 31,~~Dec ember 3 1 , 2020 and 2019	4

		Condensed Consolidated Statements of Comprehensive Income – Three and ~~Nine~~Six Months Ended ~~March 31,~~Dec ember 3 1 , 2020 and 2019	5

		Condensed Consolidated Statements of Cash Flows – ~~Nine~~Six Months Ended ~~March 31,~~Dec ember 3 1 , 2020 and 2019	6

		Condensed Consolidated Statements of Shareholders’ Equity – ~~Nine~~Six Months Ended ~~March 31,~~Dec ember 3 1 , 2020 and 2019	7

		Notes to Condensed Consolidated Financial Statements	9

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2016

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	2723

Item 4.		Controls and Procedures	2723

PART II – OTHER INFORMATION			2824

Item 1A.		Risk Factors	2824

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	2824



Item 5.6.		~~Other Information~~Exhibits	2924

~~Item 6.~~			~~Exhibits~~SIGNATURES	2925

~~SIGNATURES~~			30

INDEX TO EXHIBITS	3126

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(Amounts in thousands, except share data)	March 31, 2020			June 30, 2019			(Amounts in thousands, except share data)	December 31, 2020		June 30, 2020
ASSETS	ASSETS						ASSETS
Current Assets:							Current Assets:
Cash and equivalents	$	177,798		$	196,288		Cash and equivalents	$	216,381	$	198,273
Receivables	87,649			75,691			Receivables	87,530		86,604
Inventories:							Inventories:
Raw materials	40,108			30,647			Raw materials	41,732		34,374
Finished goods	56,151			55,425			Finished goods	67,315		50,674
Total inventories	96,259			86,072			Total inventories	109,047		85,048
Other current assets	20,269			10,518			Other current assets	13,306		15,687
Total current assets	381,975			368,569			Total current assets	426,264		385,612
Property, Plant and Equipment:							Property, Plant and Equipment:
Land, buildings and improvements	181,671			163,094			Land, buildings and improvements	197,820		186,542
Machinery and equipment	389,200			340,232			Machinery and equipment	413,050		388,929
Total cost	570,871			503,326			Total cost	610,870		575,471
Less accumulated depreciation	274,436			256,282			Less accumulated depreciation	296,240		282,183
Property, plant and equipment-net	296,435			247,044			Property, plant and equipment-net	314,630		293,288
Other Assets:							Other Assets:
Goodwill	208,371			208,371			Goodwill	208,371		208,371
Other intangible assets-net	66,460			70,277			Other intangible assets-net	61,172		65,216
Operating lease right-of-use assets	24,469			—			Operating lease right-of-use assets	24,119		22,977
Other noncurrent assets	15,342			11,138			Other noncurrent assets	19,754		17,889
Total	$	993,052		$	905,399		Total	$	1,054,310	$	993,353
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY						LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:							Current Liabilities:
Accounts payable	$	90,818		$	76,670		Accounts payable	$	88,066	$	71,433
Accrued liabilities	46,328			43,036			Accrued liabilities	52,562		54,826
Total current liabilities	137,146			119,706			Total current liabilities	140,628		126,259
Noncurrent Operating Lease Liabilities	19,292			—			Noncurrent Operating Lease Liabilities	18,740		17,893
Other Noncurrent Liabilities	31,306			35,938			Other Noncurrent Liabilities	32,563		31,661
Deferred Income Taxes	32,024			22,882			Deferred Income Taxes	36,019		34,240
Commitments and Contingencies							Commitments and Contingencies	0		0
Shareholders’ Equity:							Shareholders’ Equity:
Preferred stock-authorized 3,050,000 shares; outstanding-none
Common stock-authorized 75,000,000 shares; outstanding-March-27,515,651 shares; June-27,491,497 shares	124,221			122,844
Preferred stock-authorized 3,050,000 shares; outstanding-NaN							Preferred stock-authorized 3,050,000 shares; outstanding-NaN	0		0
Common stock-authorized 75,000,000 shares; outstanding-December-27,547,331 shares; June-27,523,935 shares							Common stock-authorized 75,000,000 shares; outstanding-December-27,547,331 shares; June-27,523,935 shares	126,260		125,153
Retained earnings	1,409,994			1,359,782			Retained earnings	1,462,905		1,421,121
Accumulated other comprehensive loss	(10,099		)	(10,308		)	Accumulated other comprehensive loss	(11,882)		(12,070)
Common stock in treasury, at cost	(750,832		)	(745,445		)	Common stock in treasury, at cost	(750,923)		(750,904)
Total shareholders’ equity	773,284			726,873			Total shareholders’ equity	826,360		783,300
Total	$	993,052		$	905,399		Total	$	1,054,310	$	993,353

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended March 31,				Nine Months Ended March 31,						Three Months Ended December 31,				Six Months Ended December 31,
(Amounts in thousands, except per share data)	2020		2019		2020		2019			(Amounts in thousands, except per share data)	2020		2019		2020		2019
Net Sales	$	321,363	$	317,882	$	1,013,534	$	984,117		Net Sales	$	375,015	$	355,117	$	724,252	$	692,171
Cost of Sales	244,401		242,485		744,575		736,129			Cost of Sales	268,170		255,228		524,753		500,174
Gross Profit	76,962		75,397		268,959		247,988			Gross Profit	106,845		99,889		199,499		191,997
Selling, General and Administrative Expenses	46,907		37,981		132,109		109,902			Selling, General and Administrative Expenses	48,247		45,747		96,445		85,202
Change in Contingent Consideration	65		88		192		(9,517		)	Change in Contingent Consideration	0		64		(5,687)		127
Restructuring and Impairment Charges	—		—		886		—			Restructuring and Impairment Charges	0		0		1,195		886
Operating Income	29,990		37,328		135,772		147,603			Operating Income	58,598		54,078		107,546		105,782
Other, Net	727		1,329		3,031		3,682			Other, Net	(27)		877		(23)		2,304
Income Before Income Taxes	30,717		38,657		138,803		151,285			Income Before Income Taxes	58,571		54,955		107,523		108,086
Taxes Based on Income	8,288		8,053		32,205		33,746			Taxes Based on Income	13,941		11,531		25,814		23,917

Net Income	$	22,429	$	30,604	$	106,598	$	117,539		Net Income	$	44,630	$	43,424	$	81,709	$	84,169

Net Income Per Common Share:										Net Income Per Common Share:
Basic	$	0.82	$	1.11	$	3.88	$	4.28		Basic	$	1.62	$	1.58	$	2.97	$	3.06
Diluted	$	0.81	$	1.11	$	3.87	$	4.26		Diluted	$	1.62	$	1.58	$	2.96	$	3.06


Weighted Average Common Shares Outstanding:										Weighted Average Common Shares Outstanding:
Basic	27,457		27,448		27,447		27,436			Basic	27,479		27,443		27,470		27,443
Diluted	27,501		27,549		27,502		27,543			Diluted	27,518		27,489		27,507		27,503

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended December 31,				Six Months Ended December 31,
(Amounts in thousands)	2020			2019			2020			2019			(Amounts in thousands)	2020		2019		2020		2019
Net Income	$	22,429		$	30,604		$	106,598		$	117,539		Net Income	$	44,630	$	43,424	$	81,709	$	84,169
Other Comprehensive Income:													Other Comprehensive Income:
Defined Benefit Pension and Postretirement Benefit Plans:													Defined Benefit Pension and Postretirement Benefit Plans:
Amortization of loss, before tax	136			102			409			307			Amortization of loss, before tax	168		137		336		273
Amortization of prior service credit, before tax	(45		)	(46		)	(136		)	(137		)	Amortization of prior service credit, before tax	(46)		(46)		(91)		(91)
Total Other Comprehensive Income, Before Tax	91			56			273			170			Total Other Comprehensive Income, Before Tax	122		91		245		182
Tax Attributes of Items in Other Comprehensive Income:													Tax Attributes of Items in Other Comprehensive Income:
Amortization of loss, tax	(31		)	(24		)	(95		)	(72		)	Amortization of loss, tax	(39)		(33)		(78)		(64)
Amortization of prior service credit, tax	10			11			31			32			Amortization of prior service credit, tax	11		11		21		21
Total Tax Expense	(21		)	(13		)	(64		)	(40		)	Total Tax Expense	(28)		(22)		(57)		(43)
Other Comprehensive Income, Net of Tax	70			43			209			130			Other Comprehensive Income, Net of Tax	94		69		188		139
Comprehensive Income	$	22,499		$	30,647		$	106,807		$	117,669		Comprehensive Income	$	44,724	$	43,493	$	81,897	$	84,308

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended March 31,							Six Months Ended December 31,
(Amounts in thousands)	2020			2019			(Amounts in thousands)	2020		2019
Cash Flows From Operating Activities:							Cash Flows From Operating Activities:
Net income	$	106,598		$	117,539		Net income	$	81,709	$	84,169
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Impacts of noncash items:							Impacts of noncash items:
Depreciation and amortization	27,672			22,677			Depreciation and amortization	21,197		17,911
Change in contingent consideration	192			(9,517		)	Change in contingent consideration	(5,687)		127
Deferred income taxes and other changes	9,625			3,910			Deferred income taxes and other changes	2,272		2,834
Stock-based compensation expense	4,337			4,542			Stock-based compensation expense	3,542		2,859
Restructuring and impairment charges	(268		)	—			Restructuring and impairment charges	1,195		(268)

Pension plan activity	(458		)	(602		)	Pension plan activity	(87)		(336)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Receivables	(11,958		)	(6,220		)	Receivables	(926)		(1,371)
Inventories	(10,187		)	(766		)	Inventories	(23,999)		(4,411)
Other current assets	(15,590		)	3,080			Other current assets	140		(1,970)
Accounts payable and accrued liabilities	9,175			8,780			Accounts payable and accrued liabilities	11,500		5,835
Net cash provided by operating activities	119,138			143,423			Net cash provided by operating activities	90,856		105,379
Cash Flows From Investing Activities:							Cash Flows From Investing Activities:
Payments for property additions	(72,006		)	(43,966		)	Payments for property additions	(29,554)		(57,700)
Cash paid for acquisitions, net of cash acquired	—			(57,540		)

Other-net	(389		)	(592		)	Other-net	(364)		(222)
Net cash used in investing activities	(72,395		)	(102,098		)	Net cash used in investing activities	(29,918)		(57,922)
Cash Flows From Financing Activities:							Cash Flows From Financing Activities:
Payment of dividends	(56,386		)	(52,244		)	Payment of dividends	(39,925)		(37,114)
Purchase of treasury stock	(5,387		)	(5,032		)	Purchase of treasury stock	(19)		(1,472)
Tax withholdings for stock-based compensation	(2,960		)	(2,209		)	Tax withholdings for stock-based compensation	(2,435)		(2,696)

Other-net	(500		)	(203		)	Other-net	(451)		(237)
Net cash used in financing activities	(65,233		)	(59,688		)	Net cash used in financing activities	(42,830)		(41,519)

Net change in cash and equivalents	(18,490		)	(18,363		)	Net change in cash and equivalents	18,108		5,938
Cash and equivalents at beginning of year	196,288			205,752			Cash and equivalents at beginning of year	198,273		196,288
Cash and equivalents at end of period	$	177,798		$	187,389		Cash and equivalents at end of period	$	216,381	$	202,226
Supplemental Disclosure of Operating Cash Flows:							Supplemental Disclosure of Operating Cash Flows:
Net cash payments for income taxes	$	30,355		$	25,373		Net cash payments for income taxes	$	16,338	$	18,783

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


	Nine Months Ended March 31, 2020																		Six Months Ended December 31, 2020
(Amounts in thousands, except per share data)	Common Stock Outstanding					Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares		Amount																Shares	Amount
Balance, June 30, 2019	27,491		$	122,844		$	1,359,782		$	(10,308	)	$	(745,445	)	$	726,873
Balance, June 30, 2020																		Balance, June 30, 2020	27,524	$	125,153	$	1,421,121	$	(12,070)	$	(750,904)	$	783,300
Net income						40,745									40,745			Net income				37,079						37,079
Net pension and postretirement benefit gains, net of $21 tax effect									70						70
Cash dividends - common stock ($0.65 per share)						(17,869		)							(17,869		)
Purchase of treasury stock	(10	)										(1,465		)	(1,465		)
Stock-based plans	4		(125		)										(125		)
Stock-based compensation expense			1,436												1,436
Balance, September 30, 2019	27,485		$	124,155		$	1,382,658		$	(10,238	)	$	(746,910	)	$	749,665
Net income						43,424									43,424
Net pension and postretirement benefit gains, net of $22 tax effect									69						69
Net pension and postretirement benefit gains, net of $29 tax effect																		Net pension and postretirement benefit gains, net of $29 tax effect						94				94
Cash dividends - common stock ($0.70 per share)						(19,245		)							(19,245		)	Cash dividends - common stock ($0.70 per share)				(19,270)						(19,270)
Purchase of treasury stock	—											(7		)	(7		)	Purchase of treasury stock	0							(15)		(15)
Stock-based plans	26		(2,571		)										(2,571		)	Stock-based plans	16	(1,854)								(1,854)
Stock-based compensation expense			1,423												1,423			Stock-based compensation expense		1,772								1,772
Balance, December 31, 2019	27,511		$	123,007		$	1,406,837		$	(10,169	)	$	(746,917	)	$	772,758
Balance, September 30, 2020																		Balance, September 30, 2020	27,540	$	125,071	$	1,438,930	$	(11,976)	$	(750,919)	$	801,106
Net income						22,429									22,429			Net income				44,630						44,630
Net pension and postretirement benefit gains, net of $21 tax effect									70						70
Cash dividends - common stock ($0.70 per share)						(19,272		)							(19,272		)
Net pension and postretirement benefit gains, net of $28 tax effect																		Net pension and postretirement benefit gains, net of $28 tax effect						94				94
Cash dividends - common stock ($0.75 per share)																		Cash dividends - common stock ($0.75 per share)				(20,655)						(20,655)
Purchase of treasury stock	(28	)										(3,915		)	(3,915		)	Purchase of treasury stock	0							(4)		(4)
Stock-based plans	33		(264		)										(264		)	Stock-based plans	7	(581)								(581)
Stock-based compensation expense			1,478												1,478			Stock-based compensation expense		1,770								1,770
Balance, March 31, 2020	27,516		$	124,221		$	1,409,994		$	(10,099	)	$	(750,832	)	$	773,284
Balance, December 31, 2020																		Balance, December 31, 2020	27,547	$	126,260	$	1,462,905	$	(11,882)	$	(750,923)	$	826,360

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)

(UNAUDITED)


	Nine Months Ended March 31, 2019																		Six Months Ended December 31, 2019
(Amounts in thousands, except per share data)	Common Stock Outstanding					Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity			(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares		Amount																Shares	Amount
Balance, June 30, 2018	27,488		$	119,232		$	1,279,343		$	(8,259	)	$	(738,034	)	$	652,282
Balance, June 30, 2019																		Balance, June 30, 2019	27,491	$	122,844	$	1,359,782	$	(10,308)	$	(745,445)	$	726,873
Net income						39,028									39,028			Net income				40,745						40,745
Net pension and postretirement benefit gains, net of $13 tax effect									44						44
Cash dividends - common stock ($0.60 per share)						(16,495		)							(16,495		)
Purchase of treasury stock	(10	)										(1,593		)	(1,593		)
Stock-based plans	12		(778		)										(778		)
Stock-based compensation expense			1,531												1,531
Balance, September 30, 2018	27,490		$	119,985		$	1,301,876		$	(8,215	)	$	(739,627	)	$	674,019
Net income						47,907									47,907
Net pension and postretirement benefit gains, net of $14 tax effect									43						43
Net pension and postretirement benefit gains, net of $21 tax effect																		Net pension and postretirement benefit gains, net of $21 tax effect						70				70
Cash dividends - common stock ($0.65 per share)						(17,875		)							(17,875		)	Cash dividends - common stock ($0.65 per share)				(17,869)						(17,869)
Purchase of treasury stock	(1	)										(166		)	(166		)	Purchase of treasury stock	(10)							(1,465)		(1,465)
Stock-based plans	16		(988		)										(988		)	Stock-based plans	4	(125)								(125)
Stock-based compensation expense			1,831												1,831			Stock-based compensation expense		1,436								1,436
Balance, December 31, 2018	27,505		$	120,828		$	1,331,908		$	(8,172	)	$	(739,793	)	$	704,771
Balance, September 30, 2019																		Balance, September 30, 2019	27,485	$	124,155	$	1,382,658	$	(10,238)	$	(746,910)	$	749,665
Net income						30,604									30,604			Net income				43,424						43,424
Net pension and postretirement benefit gains, net of $13 tax effect									43						43
Cash dividends - common stock ($0.65 per share)						(17,874		)							(17,874		)
Net pension and postretirement benefit gains, net of $22 tax effect																		Net pension and postretirement benefit gains, net of $22 tax effect						69				69
Cash dividends - common stock ($0.70 per share)																		Cash dividends - common stock ($0.70 per share)				(19,245)						(19,245)
Purchase of treasury stock	(21	)										(3,273		)	(3,273		)	Purchase of treasury stock	0							(7)		(7)
Stock-based plans	21		(443		)										(443		)	Stock-based plans	26	(2,571)								(2,571)
Stock-based compensation expense			1,180												1,180			Stock-based compensation expense		1,423								1,423
Balance, March 31, 2019	27,505		$	121,565		$	1,344,638		$	(8,129	)	$	(743,066	)	$	715,008
Balance, December 31, 2019																		Balance, December 31, 2019	27,511	$	123,007	$	1,406,837	$	(10,169)	$	(746,917)	$	772,758

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lancaster Colony Corporation and our wholly-owned subsidiaries, collectively referred to as “we,” “us,” “our,” “registrant” or the “Company” and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and SEC Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our ~~2019~~2020 Annual Report on Form 10-K. Unless otherwise noted, the term “year” and references to a particular year pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, ~~2020~~2021 refers to fiscal ~~2020~~,2021, which is the period from July 1, ~~2019~~2020 to June 30, ~~2020~~.2021.

Deferred Software Costs

We capitalize certain costs related to hosting arrangements that are service contracts (cloud computing arrangements). Capitalized costs are included in Other Current Assets or Other Noncurrent Assets and are amortized on a straight-line basis over the estimated useful life. For the ~~nine~~six months ended ~~March~~December 31, 2020, we capitalized ~~$6.6~~$2.8 million of deferred software costs related to cloud computing ~~arrangements, primarily for amounts related to our new enterprise resource planning system.~~arrangements.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, except for those acquired as part of a business combination, which are recorded at fair value at the time of purchase. We use the straight-line method of computing depreciation for financial reporting purposes based on the estimated useful lives of the corresponding assets. Purchases of property, plant and equipment included in Accounts Payable and excluded from the property additions and the change in accounts payable in the Condensed Consolidated Statements of Cash Flows were as follows:


	December 31,
	2020		2019
Construction in progress in Accounts Payable	$	3,415	$	8,810

March 31,
2020 2019
Construction in progress in Accounts Payable $ 8,532
$ 3,131
Accrued Compensation and Employee Benefits

Accrued compensation and employee benefits included in Accrued Liabilities was $21.6 million and $32.8 million at December 31, 2020 and June 30, 2020, respectively.

Accrued Distribution

Accrued distribution included in Accrued Liabilities was $9.7 million and $7.1 million at December 31, 2020 and June 30, 2020, respectively.

Earnings Per Share

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

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Net income $ 22,429
$ 30,604
$ 106,598
$ 117,539
Net income available to participating securities (48 ) (52 ) (216 ) (212 )
Net income available to common shareholders $ 22,381
$ 30,552
$ 106,382
$ 117,327

Weighted average common shares outstanding – basic 27,457
27,448
27,447
27,436
Incremental share effect from:
Nonparticipating restricted stock 1
1
2
3
Stock-settled stock appreciation rights 43
100
53
104
Weighted average common shares outstanding – diluted 27,501
27,549
27,502
27,543

Net income per common share – basic $ 0.82
$ 1.11
$ 3.88
$ 4.28
Net income per common share – diluted $ 0.81
$ 1.11
$ 3.87
$ 4.26


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Net income	$	44,630	$	43,424	$	81,709	$	84,169
Net income available to participating securities	(94)		(68)		(173)		(133)
Net income available to common shareholders	$	44,536	$	43,356	$	81,536	$	84,036

Weighted average common shares outstanding – basic	27,479		27,443		27,470		27,443
Incremental share effect from:
Nonparticipating restricted stock	2		2		3		2
Stock-settled stock appreciation rights	37		44		34		58
Weighted average common shares outstanding – diluted	27,518		27,489		27,507		27,503

Net income per common share – basic	$	1.62	$	1.58	$	2.97	$	3.06
Net income per common share – diluted	$	1.62	$	1.58	$	2.96	$	3.06

Accumulated Other Comprehensive Loss

The following table presents the amounts reclassified out of accumulated other comprehensive loss by component:

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Accumulated other comprehensive loss at beginning of period $ (10,169 ) $ (8,172 ) $ (10,308 ) $ (8,259 )
Defined Benefit Pension Plan Items:
Amortization of unrecognized net loss 143
111
429
335
Postretirement Benefit Plan Items:
Amortization of unrecognized net gain (7 ) (9 ) (20 ) (28 )
Amortization of prior service credit (45 ) (46 ) (136 ) (137 )
Total other comprehensive income, before tax 91
56
273
170
Total tax expense (21 ) (13 ) (64 ) (40 )
Other comprehensive income, net of tax 70
43
209
130
Accumulated other comprehensive loss at end of period $ (10,099 ) $ (8,129 ) $ (10,099 ) $ (8,129 )


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Accumulated other comprehensive loss at beginning of period	$	(11,976)	$	(10,238)	$	(12,070)	$	(10,308)
Defined Benefit Pension Plan Items:
Amortization of unrecognized net loss	173		143		346		286
Postretirement Benefit Plan Items:
Amortization of unrecognized net gain	(5)		(6)		(10)		(13)
Amortization of prior service credit	(46)		(46)		(91)		(91)
Total other comprehensive income, before tax	122		91		245		182
Total tax expense	(28)		(22)		(57)		(43)
Other comprehensive income, net of tax	94		69		188		139

Accumulated other comprehensive loss at end of period	$	(11,882)	$	(10,169)	$	(11,882)	$	(10,169)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our ~~2019~~2020 Annual Report on Form 10-K. ~~However, see expanded disclosure of lease accounting policies in Note 5 due to the adoption of new lease accounting guidance.~~

Recently Issued Accounting Standards

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

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ~~(“FASB”)~~ issued new accounting guidance related to the disclosure requirements for fair value measurements. The guidance removes, modifies and adds disclosures related to fair value. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ~~This~~We adopted the new guidance ~~will be effective for us in fiscal 2021, including interim periods.~~on July 1, 2020. As the guidance only relates to disclosures, there ~~will be~~was no impact on our financial position or results of operations. See fair value disclosures in Note 2.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

~~Recently Adopted Accounting Standards~~

In February 2016, the FASB issued new accounting guidance to require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months and issued subsequent clarifications of this new guidance. This guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record a right-of-use asset and a lease liability based upon the present value of the lease payments. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the consolidated financial statements. In July 2018, the FASB issued guidance that allows for an alternate transition method whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than restating comparative periods. We adopted the new guidance on July 1, 2019 using this alternate transition method, but we did not record a cumulative-effect adjustment from initially applying the standard. We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets. We have completed the implementation of a lease accounting system to enable the preparation of financial information and have implemented relevant accounting policies and internal controls surrounding the lease accounting process. As a result of adoption, we recognized a lease liability and right-of-use asset of $33.5 million and $31.7 million, respectively. The right-of-use asset balance reflects the reclassification of deferred rent and prepaid rent against the initial asset. The adoption did not impact our results of operations or cash flows. See additional lease disclosures in Note 5.

Note 2 ~~– Acquisitions~~

~~Omni Baking Company LLC~~

On November 16, 2018, we acquired substantially all of the assets of Omni Baking Company LLC (“Omni”). Omni has been a long-time supplier of products to our frozen garlic bread operations and is based in Vineland, New Jersey. The purchase price of $22.3 million, which includes the post-closing working capital adjustment, was funded with cash on hand. Omni’s results of operations are allocated between our Retail and Foodservice segments in a manner consistent with our current segment allocations. These results have been included in our condensed consolidated financial statements from the date of acquisition.

~~Bantam Bagels, LLC~~

On October 19, 2018, we acquired all the assets of Bantam Bagels, LLC (“Bantam”). Bantam, a producer and marketer of frozen mini stuffed bagels and other frozen bread products sold to both the retail and foodservice channels, is based in New York, New York. The base purchase price of $33.1 million, which includes the post-closing working capital adjustment, was funded with cash on hand. This purchase price excludes contingent consideration relating to an additional earn-out payment which is tied to performance-based conditions. In general, the terms of the acquisition specify that the sellers will receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Bantam for the twelve months ending December 31, 2023. We are unable to provide a range for the amount of this earn-out because it is based on the future adjusted EBITDA of Bantam, and the earn-out does not contain a minimum or maximum value. See further discussion of the earn-out in Note 3. Bantam’s results of operations are allocated between our Retail and Foodservice segments in a manner consistent with our current segment allocations. These results have been included in our condensed consolidated financial statements from the date of acquisition.

~~Note 3~~ – Fair Value

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. GAAP sets forth a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels are as follows:

Level 1 – defined as observable inputs, such as quoted market prices in active markets.

Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

Our financial assets and liabilities subject to the three-level fair value hierarchy consist principally of cash and equivalents, accounts receivable, accounts payable, contingent consideration payable and defined benefit pension plan assets. The estimated fair value of cash and equivalents, accounts receivable and accounts payable approximates their carrying value.

Our contingent consideration, which resulted from the earn-outs associated with our acquisitions of Bantam Bagels, LLC (“Bantam”) and Angelic Bakehouse, Inc. (“Angelic”), is measured at fair value on a recurring basis and is included in Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets. The following table summarizes our contingent consideration:

Fair Value Measurements at March 31, 2020
Level 1 Level 2 Level 3 Total
Contingent consideration - Bantam $ —
$ —
$ 9,092
$ 9,092
Contingent consideration - Angelic —
—
—
—
Total contingent consideration $ —
$ —
$ 9,092
$ 9,092

Fair Value Measurements at June 30, 2019
Level 1 Level 2 Level 3 Total
Contingent consideration - Bantam $ —
$ —
$ 8,900
$ 8,900
Contingent consideration - Angelic —
—
—
—
Total contingent consideration $ —
$ —
$ 8,900
$ 8,900


	Fair Value Measurements at December 31, 2020
	Level 1		Level 2		Level 3		Total
Contingent consideration - Bantam	$	0	$	0	$	3,470	$	3,470
Contingent consideration - Angelic	0		0		0		0
Total contingent consideration	$	0	$	0	$	3,470	$	3,470

	Fair Value Measurements at June 30, 2020
	Level 1		Level 2		Level 3		Total
Contingent consideration - Bantam	$	0	$	0	$	9,157	$	9,157
Contingent consideration - Angelic	0		0		0		0
Total contingent consideration	$	0	$	0	$	9,157	$	9,157

Bantam Contingent Consideration

This contingent consideration resulted from the earn-out associated with our October 19, 2018 acquisition of Bantam. In general, the terms of the acquisition specify the sellers will receive an earn-out based upon a pre-determined multiple of ~~the~~Bantam’s defined adjusted EBITDA ~~of Bantam~~ for the twelve months ending December 31, 2023. The initial fair value of the contingent consideration was determined to be $8.0 ~~million, which included a refinement to the purchase price allocation in the prior-year third quarter related to a change in assumptions.~~million. The fair value is measured on a recurring basis using a Monte Carlo simulation that randomly changes revenue growth, forecasted adjusted EBITDA and other uncertain variables to estimate an expected value. We record the present value of this amount by applying a discount rate. As this fair value measurement is based on significant inputs not observable in the market, it represents a Level 3 measurement within the fair value hierarchy. Our September 30, 2020 fair value measurement resulted in a $5.7 million reduction in the fair value of Bantam’s contingent consideration based on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023. The changes in forecasted adjusted EBITDA reflected the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020. This adjustment was recorded in our Foodservice segment.

The following table represents our Level 3 fair value measurements using significant other unobservable inputs for Bantam’s contingent consideration:


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Contingent consideration at beginning of period	$	3,470	$	8,963	$	9,157	$	8,900

Change in contingent consideration included in operating income	0		64		(5,687)		127
Contingent consideration at end of period	$	3,470	$	9,027	$	3,470	$	9,027

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Contingent consideration at beginning of period $ 9,027
$ 8,995
$ 8,900
$ —
Initial fair value - (reductions)/additions —
(900 ) —
8,000
Change in contingent consideration included in operating income 65
88
192
183
Contingent consideration at end of period $ 9,092
$ 8,183
$ 9,092
$ 8,183

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Angelic Contingent Consideration

This contingent consideration resulted from the earn-out associated with our November 17, 2016 acquisition of Angelic. In general, the terms of the acquisition specify the sellers will receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Angelic for fiscal 2021. The initial fair value of the contingent consideration was determined to be $13.9 million. The fair value is measured on a recurring basis using a present value approach, which incorporates factors such as revenue growth and forecasted adjusted EBITDA, to estimate an expected value. We record the present value of this amount by applying a discount rate. As this fair value measurement is based on significant inputs not observable in the market, it represents a Level 3 measurement within the fair value hierarchy. ~~Our 2019 fair value measurements resulted in a $9.7 million reduction in the fair value of~~At December 31, 2020 and June 30, 2020, there was 0 liability recorded for Angelic’s contingent consideration ~~in the second quarter ended December 31, 2018 and a $7.4 million reduction in the fourth quarter ended June 30, 2019~~ based on ~~changes in~~current projections for Angelic’s forecasted adjusted EBITDA for fiscal 2021. ~~These adjustments were recorded in our Retail segment.~~

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

~~The following table represents our Level 3 fair value measurements using significant other unobservable inputs for Angelic’s contingent consideration:~~

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Contingent consideration at beginning of period $ —
$ 7,380
$ —
$ 17,080
Change in contingent consideration included in operating income —
—
—
(9,700 )
Contingent consideration at end of period $ —
$ 7,380
$ —
$ 7,380

Note 43 – Long-Term Debt

At December 31, 2020 and June 30, ~~2019,~~2020, we had an unsecured credit facility (“Facility”) under which we could ~~borrow, on a revolving credit basis, up to a maximum of~~ ~~$150 million~~ ~~at any one time, with potential to expand the total credit availability to~~ ~~$225 million~~ ~~subject to us obtaining consent of the issuing banks and certain other conditions.~~

On March 19, 2020, in the ordinary course of business, we entered into a new unsecured revolving credit facility (“New Credit Facility”), replacing the facility discussed above which was to expire in April 2021. The material terms and covenants of the New Credit Facility are substantially similar to our previous credit facility.

~~The New Credit Facility provides that we may~~ borrow, on a revolving credit basis, up to a maximum of $150 million at any one time, with potential to expand the total credit availability to $225 million based on consent of the issuing banks and certain other conditions. The ~~New Credit~~ Facility expires on March 19, 2025,, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an alternate base rate defined in the ~~New Credit~~ Facility. In the event that LIBOR becomes unavailable or is no longer deemed an appropriate reference rate, the ~~New Credit~~ Facility allows for the use of a benchmark replacement rate. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the ~~New Credit~~ Facility, they will be classified as long-term debt.

At March 31, 2020 and June 30, 2019, we had 0 borrowings outstanding under these facilities. At March 31, 2020 and June 30, 2019, we had $2.8 million and $5.1 million, respectively, of standby letters of credit outstanding, which reduced the amount available for borrowing under these facilities. We paid 0 interest for the three and nine months ended March 31, 2020 and 2019.

The ~~New Credit~~ Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions. There are two principal financial covenants: an interest expense test that requires us to maintain an interest coverage ratio not less than 2.5 to 1 at the end of each fiscal quarter; and an indebtedness test that requires us to maintain a consolidated leverage ratio not greater than 3.5 to 1, subject to certain exceptions. The interest coverage ratio is calculated by dividing Consolidated EBIT by Consolidated Interest Expense, and the leverage ratio is calculated by dividing Consolidated Net Debt by Consolidated EBITDA. All financial terms used in the covenant calculations are defined more specifically in the ~~New Credit~~ Facility.

At December 31, 2020 and June 30, 2020, we had 0 borrowings outstanding under the Facility. At December 31, 2020 and June 30, 2020, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. We paid 0 interest for the three and six months ended December 31, 2020 and 2019.

Note 54 – ~~Leases~~Commitments and Contingencies

~~General Lease Description~~

We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment. Certain of these leases contain renewal options and some provide options to purchase during the lease term. Our operating leases include leases for real estate for some of our office and manufacturing facilities as well as manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these operating leases range from 1 year to 8 years.

We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various equipment. These leases are generally for manufacturing and non-manufacturing equipment used in our business. The remaining lease terms for these finance leases range from 3 years to 4 years.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

~~Significant Assumptions and Judgments~~

~~Contract Contains a Lease~~

~~In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:~~

~~Whether explicitly or implicitly identified assets have been deployed in the contract; and~~

~~Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.~~

~~Allocation of Consideration~~

In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.

~~Options to Extend or Terminate Leases~~

We have leases which contain options to extend or terminate the leases. On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.

~~Discount Rate~~

The discount rate for leases, if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

We used a discount rate to calculate the present value of the lease liability at the date of adoption. In the development of the discount rate, we considered our internal borrowing rate, treasury security rates, collateral and credit risk specific to us, and our lease portfolio characteristics.

~~As of March~~At December 31, 2020, ~~the weighted-average discount rate of our operating and finance leases was 3.0% and 4.1%, respectively.~~

~~Practical Expedients and Accounting Policy Elections~~

We elected the package of practical expedients that permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from our Consolidated Balance Sheets.

~~Amounts Recognized in the Financial Statements~~

~~The components of lease expense were as follows:~~

Three Months Ended
March 31, 2020 Nine Months Ended
March 31, 2020
Operating lease cost in Cost of Sales and Selling, General and Administrative Expenses $ 2,379
$ 6,520
Finance lease cost:
Amortization of assets in Cost of Sales $ 83
$ 251
Interest on lease liabilities in Other, Net 18
57
Total finance lease cost $ 101
$ 308
Short-term lease cost in Cost of Sales and Selling, General and Administrative Expenses 361
1,785
Total net lease cost $ 2,841
$ 8,613

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

~~Supplemental balance sheet information related to leases is as follows:~~

March 31, 2020
Operating Leases
Operating Lease Right-Of-Use Assets $ 24,469

Current operating lease liabilities in Accrued Liabilities $ 6,903
Noncurrent Operating Lease Liabilities 19,292
Total operating lease liabilities $ 26,195

Finance Leases
Finance lease right-of-use assets in Property, Plant and Equipment-Net $ 1,799

Current finance lease liabilities in Accrued Liabilities $ 446
Noncurrent finance lease liabilities in Other Noncurrent Liabilities 1,183
Total finance lease liabilities $ 1,629

~~Supplemental cash flow information related to leases is as follows:~~

Nine Months Ended
March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 6,675
Operating cash flows from finance leases $ 57
Financing cash flows from finance leases $ 322

Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets $ 4,867
Supplemental noncash information on lease liabilities removed due to purchase of leased asset $ 5,765

~~As of March 31, 2020, the maturities of lease liabilities were as follows:~~

Operating Leases Finance Leases
Three months ending June 30, 2020 $ 2,220
$ 126
2021 6,961
505
2022 5,917
505
2023 4,631
493
2024 3,768
121
Thereafter 4,694
—
Total minimum payments $ 28,191
$ 1,750
Less amount representing interest (1,996 ) (121 )
Present value of lease obligations $ 26,195
$ 1,629

~~As of March 31, 2020, the weighted-average remaining term of our operating and finance leases was 4.8 years and 3.5 years, respectively.~~

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting standard (Topic 840), as of June 30, 2019, future minimum lease payments under noncancelable leases with initial lease terms in excess of one year were as follows:

Operating Leases Capital Leases
2020 $ 8,261
$ 505
2021 7,136
505
2022 6,345
505
2023 4,992
493
2024 4,619
121
Thereafter 6,901
—
Total minimum payments $ 38,254
$ 2,129
Less amount representing interest (178 )
Present value of capital lease obligations $ 1,951

~~Note 6 – Contingencies~~

At ~~March 31, 2020~~, we were a party to various claims and litigation matters arising in the ordinary course of business. Such matters did not have a material effect on the current-year results of operations and, in our opinion, their ultimate disposition will not have a material effect on our consolidated financial statements.

A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. In the U.S., state and local governments recommended or mandated actions to slow the transmission of COVID-19. We ~~continue to monitor~~are monitoring the ~~rapidly~~ evolving situation and guidance from authorities, including federal, state and local public health departments. We ~~reviewed~~continue to review the carrying value of our assets and, as ~~of March 31, 2020 and~~needed, have recorded additional reserves for inventory and receivables related to the impact of COVID-19 on our Foodservice segment. The future impact of COVID-19 on our results of operations, financial condition, and cash flows ~~are~~is contingent upon the duration and severity of the ~~outbreak.~~outbreak, the associated recommended or mandated actions imposed by U.S. state and local governments, and the resulting effects on consumer behavior.

We have a significant commitment of approximately $113 million related to a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky.

Our acquisitions of Angelic and Bantam included provisions for contingent consideration for the earn-outs associated with these transactions. See further discussion in Note 3.2.

Note 75 – Goodwill and Other Intangible Assets

Goodwill attributable to the Retail and Foodservice segments was $157.4 million and $51.0 million, respectively, at ~~March~~December 31, 2020 and June 30, ~~2019.~~2020.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following table summarizes our identifiable other intangible assets:


	December 31, 2020		June 30, 2020


Tradenames (20 to 30-year life)
Gross carrying value	$	62,531	$	63,121
Accumulated amortization	(11,141)		(9,925)
Net carrying value	$	51,390	$	53,196




Customer Relationships (2 to 15-year life)
Gross carrying value	$	17,507	$	17,507
Accumulated amortization	(12,210)		(11,094)
Net carrying value	$	5,297	$	6,413
Technology / Know-how (10-year life)
Gross carrying value	$	8,020	$	8,950
Accumulated amortization	(3,568)		(3,396)
Net carrying value	$	4,452	$	5,554
Non-compete Agreements (5-year life)
Gross carrying value	$	191	$	791
Accumulated amortization	(158)		(738)
Net carrying value	$	33	$	53
Total net carrying value	$	61,172	$	65,216

March 31,
2020 June 30,
2019
Tradenames (20 to 30-year life)
Gross carrying value $ 63,121
$ 63,121
Accumulated amortization (9,277 ) (7,335 )
Net carrying value $ 53,844
$ 55,786
Customer Relationships (10 to 15-year life)
Gross carrying value $ 17,507
$ 17,507
Accumulated amortization (10,731 ) (9,641 )
Net carrying value $ 6,776
$ 7,866
Technology / Know-how (10-year life)
Gross carrying value $ 8,950
$ 8,950
Accumulated amortization (3,172 ) (2,501 )
Net carrying value $ 5,778
$ 6,449
Non-compete Agreements (5-year life)
Gross carrying value $ 791
$ 791
Accumulated amortization (729 ) (615 )
Net carrying value $ 62
$ 176
Total net carrying value $ 66,460
$ 70,277

In the three months ended September 30, 2020, we recorded impairment charges of $1.2 million related to certain tradename and technology / know-how intangible assets for Bantam, which reflect the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020. The impairment charges represent the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful lives of the intangible assets. The impairment charges are reflected in Restructuring and Impairment Charges in the Condensed Consolidated Statements of Income and were recorded in our Foodservice segment. We also reduced the remaining useful life for Bantam’s Foodservice customer relationship and have recorded accelerated amortization expense.

Amortization expense for our other intangible assets, which is reflected in Selling, General and Administrative Expenses, was as follows:

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Amortization expense $ 1,269
$ 1,273
$ 3,817
$ 3,325


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Amortization expense	$	1,508	$	1,274	$	2,849	$	2,548

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

2021 $ 4,976
2022 $ 4,902
2023 $ 4,343
2024 $ 4,343
2025 $ 4,083



2022	$	4,739
2023	$	4,180
2024	$	4,180
2025	$	3,920
2026	$	3,272

Note 86 – Income Taxes

Accrued federal income taxes of $2.7 million were included in Accrued Liabilities at December 31, 2020. Prepaid federal income taxes of ~~$10.7 million and $5.2~~$5.3 million were included in Other Current Assets at ~~March 31, 2020 and~~ June 30, ~~2019, respectively. Prepaid state and local income taxes of $1.1 million and $0.1 million were included~~2020.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in ~~Other Current Assets at March 31, 2020 and June 30, 2019, respectively.~~thousands, except per share data)

Note 97 – Business Segment Information

Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied. Our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that have historically been part of the indirect costs allocated to our two reportable segments. This review was completed as part of our preparation for our upcoming enterprise resource planning system implementation. As a result of this review, our CODM identified certain support functions that would be more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources. These changes were effective July 1, 2020. All historical information has been retroactively conformed to the current presentation. These changes had no effect on previously reported consolidated net sales, operating income, net income or earnings per share.

Retail - The vast majority of the products we sell in the Retail segment are sold through sales personnel, food brokers and distributors in the United States. We have placement of products in grocery produce departments through our refrigerated salad dressings, vegetable dips and fruit dips. Our flatbread products and sprouted grain bakery products are generally placed in the specialty bakery/deli section of the grocery store. We also have products typically marketed in the shelf-stable section of the grocery store, which include salad dressing, slaw dressing and croutons. Within the frozen food section of the grocery store, we sell yeast rolls, garlic breads and mini stuffed bagels.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except per share data)~~

Foodservice - The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States. Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. The majority of our Foodservice sales are products sold under private label to restaurants. We also manufacture and sell various branded Foodservice products to distributors. Finally, within this segment, we ~~sell~~sold other roll products under a transitional co-packing arrangement resulting from the acquisition of Omni ~~acquisition.~~Baking Company LLC. This arrangement was terminated effective October 31, 2020.

As many of our products are similar between our two segments, our procurement, manufacturing, warehousing and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. Consequently, we do not prepare, and our ~~Chief Operating Decision Maker~~CODM does not review, separate balance sheets for the reportable segments. As such, our external reporting does not include the presentation of identifiable assets by reportable segment. The composition of our identifiable assets at ~~March~~December 31, 2020 is generally consistent with that of June 30, ~~2019.~~2020.

We evaluate our Retail and Foodservice segments based on net sales and operating income which follow:

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Net Sales
Retail $ 169,414
$ 153,038
$ 521,701
$ 502,088
Foodservice 151,949
164,844
491,833
482,029
Total $ 321,363
$ 317,882
$ 1,013,534
$ 984,117
Operating Income
Retail $ 29,609
$ 24,082
$ 104,061
$ 102,815
Foodservice 9,185
17,124
56,390
55,390
Restructuring and Impairment Charges —
—
(886 ) —
Corporate Expenses (8,804 ) (3,878 ) (23,793 ) (10,602 )
Total $ 29,990
$ 37,328
$ 135,772
$ 147,603


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Net Sales
Retail	$	222,570	$	186,210	$	416,295	$	352,287
Foodservice	152,445		168,907		307,957		339,884
Total	$	375,015	$	355,117	$	724,252	$	692,171
Operating Income
Retail	$	60,720	$	43,462	$	103,378	$	82,478
Foodservice	18,336		26,920		45,757		53,895
Nonallocated Restructuring and Impairment Charges (1)	0		0		0		(886)
Corporate Expenses	(20,458)		(16,304)		(41,589)		(29,705)
Total	$	58,598	$	54,078	$	107,546	$	105,782

~~The following table sets forth net sales disaggregated by class of similar products for the Retail~~(1)Reflects restructuring and ~~Foodservice segments:~~

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Retail
Frozen breads $ 68,682
$ 59,846
$ 221,084
$ 207,256
Refrigerated dressings, dips and other 49,479
47,900
163,521
164,973
Shelf-stable dressings and croutons 51,253
45,292
137,096
129,859
Total Retail net sales $ 169,414
$ 153,038
$ 521,701
$ 502,088
Foodservice
Dressings and sauces $ 106,306
$ 115,746
$ 341,039
$ 347,583
Frozen breads and other 40,339
41,230
131,300
122,742
Other roll products 5,304
7,868
19,494
11,704
Total Foodservice net sales $ 151,949
$ 164,844
$ 491,833
$ 482,029
Total net sales $ 321,363
$ 317,882
$ 1,013,534
$ 984,117

impairment charges related to a plant closure that were not allocated to our two reportable segments due to their unusual nature.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following table sets forth net sales disaggregated by class of similar products for the Retail and Foodservice segments:


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Retail
Frozen breads	$	103,686	$	92,105	$	176,529	$	152,402
Refrigerated dressings, dips and other	54,309		51,405		116,247		114,042
Shelf-stable dressings and croutons	64,575		42,700		123,519		85,843
Total Retail net sales	$	222,570	$	186,210	$	416,295	$	352,287
Foodservice
Dressings and sauces	$	111,225	$	114,970	$	226,176	$	234,733
Frozen breads and other	40,282		47,597		78,074		90,961
Other roll products	938		6,340		3,707		14,190
Total Foodservice net sales	$	152,445	$	168,907	$	307,957	$	339,884
Total net sales	$	375,015	$	355,117	$	724,252	$	692,171

The following table provides an additional disaggregation of Foodservice net sales by type of customer:

Three Months Ended
March 31, Nine Months Ended
March 31,
2020 2019 2020 2019
Foodservice
National accounts $ 110,384
$ 119,875
$ 356,192
$ 356,102
Branded and other 36,261
37,101
116,147
114,223
Other roll products 5,304
7,868
19,494
11,704
Total Foodservice net sales $ 151,949
$ 164,844
$ 491,833
$ 482,029


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Foodservice
National accounts	$	116,827	$	122,050	$	234,905	$	245,808
Branded and other	34,680		40,517		69,345		79,886
Other roll products	938		6,340		3,707		14,190
Total Foodservice net sales	$	152,445	$	168,907	$	307,957	$	339,884

Note 108 – Stock-Based Compensation

There have been no changes to our stock-based compensation plans from those disclosed in our ~~2019~~2020 Annual Report on Form 10-K.

Our stock-settled stock appreciation rights (“SSSARs”) compensation expense was ~~$0.7~~$0.8 million for the three months ended ~~March~~December 31, 2020 and 2019. Year-to-date SSSARs compensation expense was ~~$2.2~~$1.7 million for the current-year period compared to ~~$2.3~~$1.5 million for the prior-year period. At ~~March~~December 31, 2020, there was ~~$7.0~~$4.5 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 2 years.

Our restricted stock compensation expense was ~~$0.7~~$0.9 million and ~~$0.5~~$0.7 million for the three months ended ~~March~~December 31, 2020 and 2019, respectively. Year-to-date restricted stock compensation expense was ~~$2.1~~$1.8 million for the current-year period compared to ~~$2.2~~$1.4 million for the prior-year period. At ~~March~~December 31, 2020, there was ~~$6.4~~$4.4 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.

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

Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, ~~2020~~2021 refers to fiscal ~~2020~~,2021, which is the period from July 1, ~~2019~~2020 to June 30, ~~2020~~.2021.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto, all included elsewhere in this report, and our ~~2019~~2020 Annual Report on Form 10-K. The forward-looking statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements due to these factors. For more information, see the section below entitled “Forward-Looking Statements.”

OVERVIEW

Business Overview

Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels.

Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied. Our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that have historically been part of the indirect costs allocated to our two reportable segments. This review was completed as part of our preparation for our upcoming enterprise resource planning system (“ERP”) implementation. As a result of this review, our CODM identified certain support functions that would be more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources. These changes were effective July 1, 2020. All historical information has been retroactively conformed to the current presentation. These changes had no effect on previously reported consolidated net sales, operating income, net income or earnings per share.

Over 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets located outside of the United States.

Our business has the potential to achieve future growth in sales and profitability due to attributes such as:

•leading Retail market positions in several product categories with a high-quality perception;

•recognized innovation in Retail products;

•a broad customer base in both Retail and Foodservice accounts;

•well-regarded culinary expertise among Foodservice customers;

•recognized leadership in Foodservice product development;

•experience in integrating complementary business acquisitions; and

•historically strong cash flow generation that supports growth opportunities.

Our goal is to grow both Retail and Foodservice segment sales over time by:

•introducing new products and expanding distribution;

•leveraging the strength of our Retail brands to increase current product sales;

•expanding Retail growth through strategic licensing agreements;

•continuing to rely upon the strength of our reputation in Foodservice product development and quality; and

•acquiring complementary businesses.

With respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include a significant capacity expansion project for our Sister Schubert’s frozen dinner roll facility in Horse Cave, Kentucky that was completed in January 2020; a new R&D center that was completed near the end of 2019; and the establishment of a Transformation Program Office in 2019 that will serve to coordinate our various capital and integration efforts, including our ~~enterprise resource planning system (“ERP”)~~ERP project and related initiatives, Project Ascent, that is now underway. The ERP implementation commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Post implementation, Project Ascent will evolve into an on-going Center of Excellence (“COE”) that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards. Most of the on-going COE costs are expected to consist of annual software maintenance and support, consulting and professional fees and wages and benefits.

We also continue to review potential acquisitions that we believe will complement our existing product lines, enhance our profitability and/or offer good expansion opportunities in a manner that fits our overall strategic goals. Consistent with this acquisition strategy, on November 16, 2018, we acquired, using available cash on hand, substantially all of the assets of Omni Baking Company LLC (“Omni”), a long-time supplier of products to our frozen garlic bread operations. On October 19, 2018, we acquired, using available cash on hand, all the assets of Bantam Bagels, LLC (“Bantam”), a producer and marketer of frozen mini stuffed bagels and other frozen bread products sold to both the retail and foodservice channels. See further discussion of these acquisitions in Note 2 to the condensed consolidated financial statements.

RECENT EVENTS

A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. In the U.S., state and local

governments recommended or mandated actions to slow the transmission of COVID-19. These measures ~~include~~included limitations on public gatherings, social distancing requirements, travel restrictions, closures of bars and dine-in restaurants, stay-at-home orders, quarantines and restrictions that ~~prohibit~~prohibited many non-essential employees from going to work.

We have two major priorities while navigating through this period of volatility and uncertainty:


1.	~~to ensure the health, safety and welfare of our employees; and~~


2.	~~to continue to play our part in the vital food supply chain by adequately supplying our customers while maintaining the financial strength of our business.~~

1.to ensure the health, safety and welfare of our employees; and

2.to continue to play our part in the vital food supply chain by adequately supplying our customers while maintaining the financial strength of our business.

With respect to our efforts to ensure the health, safety and welfare of our employees, we are complying with all guidelines issued by the Centers for Disease Control and Prevention as well as state and local health departments. We have also engaged a pulmonology and critical care physician to advise us on our employee safety protocols. Based on the advice of these experts, we have put in place a range of safety modifications and guidelines in our factories, distribution centers and offices to ensure that we can operate safely, including but not limited to:

~~engaging a third party to conduct~~•conducting employee temperature checks prior to entering our production facilities;

•conducting extensive cleaning and sanitation of workstations and common areas before, during, and after each shift;

•employing social distancing guidelines and modifications at workspaces and in break areas;

•staggering ~~between~~the timing of shift changes and breaks;

•relaxing attendance requirements and enhancing our paid leave policy;

•implementing quarantine protocols in the event of confirmed or suspected cases of COVID-19;

providing a $300 bonus for each of our front-line employees in late March and increasing the wage rate for our hourly front-line employees by $2 per hour beginning in April through the end date of the applicable stay-at-home order;

•establishing business travel restrictions; and

•limiting capacity at office locations or working from home whenever ~~possible, consistent with the applicable stay-at-home order.~~possible.

In March 2020, we also began providing temporary incentive pay compensation (“hero pay”) to our front-line employees.

With respect to our second priority, as of the date of this filing, there has been no material adverse change in our ability to manufacture and distribute our products. We have not experienced any significant disruptions to our shipping or warehousing operations or sourcing of raw materials. We ~~are~~have also ~~pursuing~~secured additional second-sourcing options as needed to help limit the risk of supply disruptions.

We continue to monitor the ~~rapidly evolving~~COVID-19 situation and related guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plans. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future. However, ~~we do expect that it~~COVID-19 could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to higher-than-normal inventory levels, revised payment terms with certain of our customers, additional reserves for inventory and receivables, and higher plant operating costs.

~~During the three months ended March 31, 2020, particularly the month of March, the~~The effects of COVID-19, including changes in consumer purchasing habits and ~~the related~~ actions undertaken in the U.S. to attempt to control ~~its~~the spread ~~specifically~~of COVID-19, most notably the restriction of restaurant dine-in purchases, ~~and imposition of stay-at-home orders,~~have continued to negatively ~~impacted~~impact the operating results of our Foodservice segment. ~~In the three-month period, our~~Our Foodservice segment net sales for the six months ended December 31, 2020 declined ~~8% to $151.9 million while segment operating income fell 46% to $9.2 million, including a $4.5 million inventory write-down attributed~~9% compared to the abrupt mid-March slowdown in our Foodservice demand. We anticipate Foodservice segment sales will continue to be negatively impacted and the recovery period for this segment’s sales and operating results is contingent upon the timeline for the resumption of full-service operations at U.S. restaurants, the lifting of stay-at-home orders, the overall pace of the U.S. economic recovery and the willingness of consumers to return to away-from-home dining.prior year.

With respect to our Retail segment, the impact of COVID-19 ~~resulted in an increase in~~contributed to higher sales during the ~~three~~six months ended ~~March~~December 31, 2020 ~~particularly starting mid-March,~~ as consumer ~~food purchases transitioned away from the foodservice channel and into~~demand in the retail channel. We anticipate this sales shift to our Retail segment will continue at least until U.S. restaurants can resume normal operations and consumers return to more typical levels of spending in the foodservice channel.

Our Foodservice segment, which in 2019 accounted for 50% of our total net sales and approximately 65% of our total pounds produced, is undergoing reduced throughput due to the impact of COVID-19, which will result in a reduction in the recovery of our fixed manufacturing and overhead costs, and will therefore unfavorably influence our financial results.channel remained elevated.

We continue to operate from a position of financial strength and believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to our access to capital under our unsecured revolving credit facility, should be adequate to meet our liquidity needs over the next 12 months. We ~~are also putting~~have placed a greater emphasis on tracking the

financial strength of our customers and suppliers and taking actions, where determined necessary, to limit our financial exposure and operational risks. Additional details regarding our financial strength are provided in the “Financial Condition” section below.

RESULTS OF CONSOLIDATED OPERATIONS


(Dollars in thousands, except per share data)	Three Months Ended March 31,											Nine Months Ended March 31,											(Dollars in thousands, except per share data)	Three Months Ended December 31,										Six Months Ended December 31,
	2020			2019			Change					2020			2019			Change						2020			2019			Change				2020			2019			Change
Net Sales	$	321,363		$	317,882		$	3,481		1	%	$	1,013,534		$	984,117		$	29,417		3	%	Net Sales	$	375,015		$	355,117		$	19,898	6	%	$	724,252		$	692,171		$	32,081	5	%
Cost of Sales	244,401			242,485			1,916			1	%	744,575			736,129			8,446			1	%	Cost of Sales	268,170			255,228			12,942		5	%	524,753			500,174			24,579		5	%
Gross Profit	76,962			75,397			1,565			2	%	268,959			247,988			20,971			8	%	Gross Profit	106,845			99,889			6,956		7	%	199,499			191,997			7,502		4	%
Gross Margin	23.9		%	23.7		%						26.5		%	25.2		%						Gross Margin	28.5		%	28.1		%					27.5		%	27.7		%
Selling, General and Administrative Expenses	46,907			37,981			8,926			24	%	132,109			109,902			22,207			20	%	Selling, General and Administrative Expenses	48,247			45,747			2,500		5	%	96,445			85,202			11,243		13	%
Change in Contingent Consideration	65			88			(23		)	(26	)%	192			(9,517		)	9,709			(102	)%	Change in Contingent Consideration	—			64			(64)		(100)	%	(5,687)			127			(5,814)		N/M
Restructuring and Impairment Charges	—			—			—			N/M		886			—			886			N/M		Restructuring and Impairment Charges	—			—			—		N/M		1,195			886			309		35	%
Operating Income	29,990			37,328			(7,338		)	(20	)%	135,772			147,603			(11,831		)	(8	)%	Operating Income	58,598			54,078			4,520		8	%	107,546			105,782			1,764		2	%
Operating Margin	9.3		%	11.7		%						13.4		%	15.0		%						Operating Margin	15.6		%	15.2		%					14.8		%	15.3		%
Other, Net	727			1,329			(602		)	(45	)%	3,031			3,682			(651		)	(18	)%	Other, Net	(27)			877			(904)		(103)	%	(23)			2,304			(2,327)		(101)	%
Income Before Income Taxes	30,717			38,657			(7,940		)	(21	)%	138,803			151,285			(12,482		)	(8	)%	Income Before Income Taxes	58,571			54,955			3,616		7	%	107,523			108,086			(563)		(1)	%
Taxes Based on Income	8,288			8,053			235			3	%	32,205			33,746			(1,541		)	(5	)%	Taxes Based on Income	13,941			11,531			2,410		21	%	25,814			23,917			1,897		8	%
Effective Tax Rate	27.0		%	20.8		%						23.2		%	22.3		%						Effective Tax Rate	23.8		%	21.0		%					24.0		%	22.1		%
Net Income	$	22,429		$	30,604		$	(8,175	)	(27	)%	$	106,598		$	117,539		$	(10,941	)	(9	)%	Net Income	$	44,630		$	43,424		$	1,206	3	%	$	81,709		$	84,169		$	(2,460)	(3)	%
Diluted Net Income Per Common Share	$	0.81		$	1.11		$	(0.30	)	(27	)%	$	3.87		$	4.26		$	(0.39	)	(9	)%	Diluted Net Income Per Common Share	$	1.62		$	1.58		$	0.04	3	%	$	2.96		$	3.06		$	(0.10)	(3)	%

Net Sales

Consolidated net sales for the three months ended ~~March~~December 31, 2020 increased 1%6% to a ~~third~~second quarter record ~~$321.4~~$375.0 million versus ~~$317.9~~$355.1 million last year. ~~This~~Consolidated net sales for the six months ended December 31, 2020 increased 5% to $724.3 million versus $692.2 million last year. Excluding all sales resulting from the November 2018 acquisition of Omni Baking Company LLC (“Omni”), consolidated net sales for the three and six months ended December 31, 2020 increased 7% and 6%, respectively. Sales growth for the quarter and year-to-date periods was driven by an increase in Retail segment net sales partially offset by a decline in Foodservice segment net sales. ~~Consolidated net sales for the nine months ended March 31, 2020 increased 3% due to higher sales for both segments.~~ See discussion of net sales by segment following the discussion of “Earnings Per Share” below.

Gross Profit

Consolidated gross profit for the three months ended ~~March~~December 31, 2020 increased ~~$1.6 million, or 2%,~~7% to ~~$77.0~~$106.8 million compared to $99.9 million in the prior-year period. ~~The increase was driven~~Gross profit benefited from the strong Retail sales growth and reduced Retail trade spending partially offset by higher manufacturing costs and increased commodity and freight costs. Manufacturing costs continue to reflect the ~~favorable sales mix shift to the Retail segment~~impacts of COVID-19 including higher hourly wage rates for our front-line employees, increased expenditures for personal protective equipment and ~~our~~lower operating efficiencies. Our ongoing cost savings ~~programs. Gross profit was unfavorably impacted by a $4.5 million inventory write-down attributed~~programs also helped to ~~an abrupt mid-March slowdown in Foodservice demand due to the impact~~offset some of COVID-19. In addition, the company incurred a charge of $1.0 million for bonuses paid to the front-line employees in our factories and distribution network in gratitude for their work in helping us meet the shifting demand within our business.these costs.

Consolidated gross profit for the ~~nine~~six months ended ~~March~~December 31, 2020 increased ~~$21.0 million, or 8%,~~4% to ~~$269.0~~$199.5 million compared to $192.0 million in the prior-year ~~period. The increase was driven~~period as influenced by the ~~higher~~same factors noted above for the three-month period but with less favorability in the sales ~~volumes, our cost savings programs, lower commodity costs and improved net price realization, as partially offset by the impact of COVID-19.~~mix.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased ~~24%~~5% to $48.2 million for the three months ended ~~March~~December 31, 2020 and increased ~~20%~~13% to $96.4 million for the year-to-date period. These increases were ~~primarily~~ driven by ~~ERP~~expenditures for Project Ascent, which increased $3.6 million to $8.5 million for the quarter and $9.2 million to $16.8 million for the year-to-date period. SG&A expenses ~~higher IT-related costs and increased~~for the three months ended December 31, 2020 reflect a reduced level of consumer spending ~~as well as higher bad debt expense related to~~while the ~~impact of COVID-19. ERP~~year-to-date period includes increased investments in IT infrastructure, most notably for the three months ended September 30, 2020. Project Ascent expenses are included within Corporate Expenses. A portion of the costs classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the ERP implementation.


	Three Months Ended December 31,								Six Months Ended December 31,
(Dollars in thousands)	2020		2019		Change				2020		2019		Change
SG&A Expenses - Excluding Project Ascent	$	39,741	$	40,854	$	(1,113)	(3)	%	$	79,653	$	77,587	$	2,066	3	%
Project Ascent Expenses	8,506		4,893		3,613		74	%	16,792		7,615		9,177		121	%
Total SG&A Expenses	$	48,247	$	45,747	$	2,500	5	%	$	96,445	$	85,202	$	11,243	13	%

Three Months Ended
March 31, Nine Months Ended
March 31,
(Dollars in thousands) 2020 2019 Change 2020 2019 Change
SG&A Expenses - Excluding ERP $ 42,030
$ 37,981
$ 4,049
11 % $ 119,617
$ 109,902
$ 9,715
9 %
ERP Expenses 4,877
—
4,877
N/M
12,492
—
12,492
N/M
Total SG&A Expenses $ 46,907
$ 37,981
$ 8,926
24 % $ 132,109
$ 109,902
$ 22,207
20 %

Change in Contingent Consideration

There were no changes to contingent consideration for the three months ended December 31, 2020. The change in contingent consideration resulted in a benefit of $5.7 million for the six months ended December 31, 2020 compared to expense of less than $0.1 million and ~~$0.2~~$0.1 million for the three and ~~nine~~six months ended ~~March 31, 2020, respectively, compared to expense of $0.1 million and a net benefit of $9.5 million for the three and nine months ended March~~December 31, 2019, respectively. The ~~prior-year net~~ benefit for the ~~year-to-date period reflected~~six months ended December 31, 2020 reflects a ~~$9.7 million~~ reduction in the fair value of the contingent consideration liability for ~~Angelic Bakehouse, Inc.~~Bantam Bagels, LLC (“~~Angelic”~~Bantam”) as a result of our ~~December 31, 2018~~September 30, 2020 fair value measurement. See further discussion in Note 32 to the condensed consolidated financial statements. As the fair value adjustment resulted from the impact of a SKU rationalization by a Foodservice customer, the entire adjustment related to Bantam’s contingent consideration was reflected within the Foodservice segment. This adjustment was recorded during the three months ended September 30, 2020.

Restructuring and Impairment Charges

InWe recorded impairment charges of $1.2 million for the ~~fourth quarter~~six months ended December 31, 2020 related to certain tradename and technology / know-how intangible assets for Bantam as a result of ~~2019, we committed to~~the impact of a ~~plan to close~~SKU rationalization by a Foodservice customer. The impairment charges represent the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful lives of the intangible assets. The impairment charges were reflected within our frozen bread manufacturing plant located in Saraland, Alabama. This decision was intended to provide greater production efficiency by consolidating most of this facility’s operations into other existing plants, outsourcing certain requirements and discontinuing less profitable frozen bread products. Production atFoodservice segment for the plant ceased in July 2019. The operations of this plant have not been classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results.three months ended September 30, 2020.

We recorded restructuring and impairment charges of $0.9 million for the ~~nine~~six months ended ~~March~~December 31, ~~2020,~~2019, which primarily consisted of plant clean-up expenses and contract termination ~~costs.~~costs related to the closure of our frozen bread manufacturing plant located in Saraland, Alabama. These charges were not allocated to our two reportable segments due to their unusual nature. All of these charges were recorded in the three months ended September 30, ~~2019, and we do not expect any additional charges attributed to this plant closure.~~2019.

Operating Income

Operating income ~~decreased 20% and~~increased 8% to $58.6 million for the three ~~and nine~~ months ended ~~March~~December 31, 2020 ~~respectively. For~~and increased 2% to $107.5 million for the ~~quarter, operating income was unfavorably influenced~~six months ended December 31, 2020, reflecting the strong Retail sales growth and resulting more favorable sales mix, improved net price realization and our cost savings programs. In addition, results for the three months ended December 31, 2020 reflect a reduced level of consumer spending while the current year-to-date period includes the favorable adjustment related to Bantam’s contingent consideration. These benefits were partially offset by ~~the $4.5 million write-down of Foodservice inventory~~increased expenditures for Project Ascent, higher manufacturing costs, increased investments in IT infrastructure, and higher SG&A costs, including ERP expenses. The change in operating income for the year-to-date period was also unfavorably impacted by the prior-year benefit from the reduction in the fair value of Angelic’s contingent considerationcommodity and ~~the current-year restructuring and impairment charges.~~freight costs. See discussion of operating results by segment following the discussion of “Earnings Per Share” below.

Other, Net

Other, net resulted in expense of less than $0.1 million for the three and six months ended December 31, 2020 compared to a benefit of $0.9 million and $2.3 million for the three and six months ended December 31, 2019, respectively. These changes primarily reflect lower interest rates for our cash holdings.

Taxes Based on Income

Our effective tax rate was ~~23.2%~~24.0% and ~~22.3%~~22.1% for the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, respectively. For the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:


	Six Months Ended December 31,
	2020		2019
Statutory rate	21.0	%	21.0	%
State and local income taxes	3.4		2.7
Net windfall tax benefits - stock-based compensation	(0.5)		(1.0)
Other	0.1		(0.6)
Effective rate	24.0	%	22.1	%

Nine Months Ended
March 31,
2020 2019
Statutory rate 21.0 % 21.0 %
State and local income taxes 2.9
2.5
Net windfall tax benefits - stock-based compensation (0.9 ) (1.0 )
Other 0.2
(0.2 )
Effective rate 23.2 % 22.3 %

We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by ~~0.9%~~0.5% and 1.0%, respectively.

Earnings Per Share

As influenced by the factors noted above, particularly the strong Retail sales growth partially offset by the increased expenditures for Project Ascent and higher manufacturing costs, diluted net income per share for the ~~third~~second quarter of ~~2020~~2021 totaled ~~$0.81,~~$1.62, as compared to ~~$1.11~~$1.58 per diluted share in the prior year. Year-to-date net income ~~per share~~ was ~~$3.87~~$2.96 per diluted share, as compared to ~~$4.26~~$3.06 per diluted share for the prior-year period. Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended ~~March~~December 31.

In ~~2020, spend~~2021, expenditures for ~~the ERP~~Project Ascent reduced diluted earnings per share by ~~$0.13~~$0.23 and ~~$0.34~~$0.46 for the ~~third~~second quarter and year-to-date periods, ~~respectively.~~respectively, compared to $0.14 and $0.21 in the prior-year comparative periods. The ~~Foodservice inventory write-down and bonuses paid~~favorable adjustment related to ~~front-line employees reduced net income~~Bantam’s contingent consideration increased diluted earnings per ~~diluted~~ share by ~~$0.15~~$0.16 for the ~~current-year third quarter and~~current year-to-date ~~periods. The restructuring~~period. Restructuring and impairment ~~charge~~charges had an unfavorable impact of $0.03 and $0.02 per diluted share for the ~~nine~~six months ended ~~March~~December 31, ~~2020. In~~2020 and 2019, ~~the reduction in the fair value of Angelic’s contingent consideration liability increased diluted earnings per share by $0.27 for the year-to-date period.~~respectively.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment


	Three Months Ended December 31,										Six Months Ended December 31,
(Dollars in thousands)	2020			2019			Change				2020			2019			Change
Net Sales	$	222,570		$	186,210		$	36,360	20	%	$	416,295		$	352,287		$	64,008	18	%
Operating Income	$	60,720		$	43,462		$	17,258	40	%	$	103,378		$	82,478		$	20,900	25	%
Operating Margin	27.3		%	23.3		%					24.8		%	23.4		%

Three Months Ended
March 31, Nine Months Ended
March 31,
(Dollars in thousands) 2020 2019 Change 2020 2019 Change
Net Sales $ 169,414
$ 153,038
$ 16,376
11 % $ 521,701
$ 502,088
$ 19,613
4 %
Operating Income $ 29,609
$ 24,082
$ 5,527
23 % $ 104,061
$ 102,815
$ 1,246
1 %
Operating Margin 17.5 % 15.7 % 19.9 % 20.5 %

For the three months ended ~~March~~December 31, 2020, Retail segment net sales ~~increased 11%. Retail net sales benefited~~reached $222.6 million, a 20% increase from ~~higher demand as~~ the COVID-19 outbreak and related stay-at-home orders led to increased consumption in the retail channel. New products introduced during the quarter also contributed to Retail sales growth. The higher sales volumes were led by frozen garlic bread, shelf-stable dressings and sauces sold under license agreements and frozen dinner rolls.

prior-year total of $186.2 million. Year-to-date net sales for the Retail segment ~~reached $521.7~~increased 18% to $416.3 million ~~a 4% increase from~~compared to the prior-year total of ~~$502.1 million driven~~$352.3 million. The increases for both periods reflect the impacts of the COVID-19 outbreak, which has continued to drive higher demand for at-home food consumption. New products also contributed to sales gains. The increase in Retail net sales was led by ~~higher~~Olive Garden® dressings along with our recently introduced Chick-fil-A® sauces and single-bottle Buffalo Wild Wings® sauces, all of which are produced and sold under exclusive license agreements. Other products contributing to the growth in Retail net sales ofincluded frozen garlic bread ~~croutons, shelf-stable dressings and sauces sold under license agreements~~ and frozen dinner rolls. ~~The sales increase is due in part to higher retail channel demand attributed to~~Sales for the ~~impact~~quarter also reflect a reduced level of ~~COVID-19 along with the strategic growth initiatives we have implemented for our~~ Retail ~~segment.~~trade spending.

For the three months ended ~~March~~December 31, 2020, Retail segment operating income increased ~~23%,~~40% to $60.7 million, reflecting ~~benefits from~~ the ~~increased~~increase in sales, ~~volume,~~improved net price realization, reduced consumer spending and our ongoing cost savings programs, as partially offset by higher manufacturing costs, including expenses directly attributed to the impacts of COVID-19 and ~~improved net price realization.~~increased commodity and freight costs.

For the ~~nine~~six months ended ~~March~~December 31, 2020, Retail segment operating income increased ~~1% as~~25% to $103.4 million, reflecting the ~~prior-year results were favorably impacted by the $9.7 million reduction~~increase in ~~the fair value of Angelic’s contingent consideration liability. Retail segment operating income benefited from the higher~~ sales, ~~volumes,~~improved net price realization, our ongoing cost savings programs and ~~improved net price realization,~~reduced consumer spending, as partially offset by higher ~~trade~~manufacturing costs, including expenses directly attributed to the impacts of COVID-19, and ~~consumer promotional spending.~~increased commodity and freight costs.

Foodservice Segment


	Three Months Ended March 31,											Nine Months Ended March 31,											Three Months Ended December 31,										Six Months Ended December 31,
(Dollars in thousands)	2020			2019			Change					2020			2019			Change				(Dollars in thousands)	2020			2019			Change				2020			2019			Change
Net Sales	$	151,949		$	164,844		$	(12,895	)	(8	)%	$	491,833		$	482,029		$	9,804	2	%	Net Sales	$	152,445		$	168,907		$	(16,462)	(10)	%	$	307,957		$	339,884		$	(31,927)	(9)	%
Operating Income	$	9,185		$	17,124		$	(7,939	)	(46	)%	$	56,390		$	55,390		$	1,000	2	%	Operating Income	$	18,336		$	26,920		$	(8,584)	(32)	%	$	45,757		$	53,895		$	(8,138)	(15)	%
Operating Margin	6.0		%	10.4		%						11.5		%	11.5		%					Operating Margin	12.0		%	15.9		%					14.9		%	15.9		%

For the three months ended ~~March~~December 31, 2020, Foodservice segment net sales decreased 8%10% to $152.4 million compared to $168.9 million in the prior-year period as demand remained constrained by the impacts of COVID-19. Excluding all sales resulting from the November 2018 acquisition of Omni, Foodservice segment net sales declined 7%. Omni sales

attributed to a temporary supply agreement totaled $0.9 million in the current year compared to $6.3 million in the prior year. The temporary supply agreement was terminated effective October 31, 2020.

For the six months ended December 31, 2020, Foodservice segment net sales decreased 9% to $308.0 million from the prior-year total of $339.9 million due to the impacts of COVID-19. Excluding all sales attributed to Omni, Foodservice segment net sales declined 7% ~~as foodservice channel demand was unfavorably influenced by the impact of COVID-19.~~. Omni sales totaled ~~$5.3~~$3.7 million in the current year compared to $7.9 million in the prior year. Note that Omni sales are attributed to a temporary supply agreement that is expected to end by December 2020 with declining sales projected through the end of the agreement.

For the nine months ended March 31, 2020, Foodservice segment net sales increased 2%. Excluding all sales attributed to Omni, Foodservice segment net sales were nearly flat as the decline in national chain restaurant sales resulting from the impact of COVID-19 was offset by higher Bantam sales and improved sales for branded products and frozen pasta products. Omni sales totaled $19.5 million in the current year compared to $11.7$14.2 million in the prior year.

The decline in Foodservice segment operating income for the three months ended ~~March~~December 31, 2020 reflects ~~the impact of the sales decline and the $4.5 million inventory write-down, both of which are~~reduced demand attributed to the ~~impact~~impacts of ~~COVID-19. The~~COVID-19, higher manufacturing costs, including expenses directly attributed to the impacts of COVID-19, reduced overhead recovery resulting from lower production volumes, and increased commodity and freight costs.

~~modest increase~~The decrease in Foodservice segment operating income for the ~~nine~~six months ended ~~March~~December 31, 2020 ~~is attributed to a more favorable sales mix and~~reflects the ~~benefits from our cost savings programs which were nearly~~same factors noted above for the three months ended December 31, 2020 along with the current-year Bantam impairment charges for certain intangible assets, as partially offset by the ~~unfavorable~~favorable impact of ~~COVID-19.~~the $5.7 million adjustment related to Bantam’s contingent consideration.

Corporate Expenses

For the three months ended ~~March~~December 31, 2020 and 2019, corporate expenses totaled ~~$8.8~~$20.5 million and ~~$3.9~~$16.3 million, respectively. For the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, corporate expenses totaled ~~$23.8~~$41.6 million and ~~$10.6~~$29.7 million, respectively. ~~The increase for both periods was primarily~~These increases were driven by ~~ERP expenses~~expenditures for Project Ascent, which totaled ~~$4.9~~$8.5 million and ~~$12.5~~$4.9 million, for the three ~~and nine~~ months ended ~~March~~December 31, 2020 and 2019, respectively, and $16.8 million and $7.6 million for the six months ended December 31, 2020 and 2019, respectively. For the ~~nine~~six months ended ~~March~~December 31, 2020 and 2019, we also capitalized an additional ~~$4.9~~$2.8 million and $0.9 million, respectively, of ERP-related expenditures for application development stage activities.

LOOKING FORWARD

Looking forward to our fiscal ~~fourth~~third quarter, net sales are expected to benefit from continued gains in Retail for dressings and sauces sold under exclusive license agreements and further growth for our frozen bread products while Foodservice segment sales will ~~continue to be~~remain unfavorably influenced by the ~~impact~~impacts of the COVID-19 pandemic as the restaurant industry experiences ~~steep~~ sales declines due to restrictions on dine-in purchases and changes in consumer purchasing habits. We anticipate the ~~imposition~~impacts of ~~stay-at-home orders.~~COVID-19 will also remain a headwind for our manufacturing costs. The full impact of ~~these circumstances~~the COVID-19 pandemic on our ~~Foodservice segment~~ sales and operating results is difficult to quantify based on the uncertainty surrounding the timeline for the resumption of full-service operations at U.S. restaurants, the ~~lifting of stay-at-home orders, the~~ overall pace of the U.S. economic recovery and the willingness of consumers to return to away-from-home dining. ~~We anticipate that since~~Inflationary costs for commodities and freight are expected to be increasingly unfavorable in the ~~Foodservice segment accounted for 50% of our total~~fiscal third quarter. Our ongoing cost savings programs and net ~~sales and approximately 65% of our total pounds produced in 2019, notable declines in our Foodservice segment sales~~price realization will ~~unfavorably impact the absorption of fixed manufacturing and overhead expenses. We have taken actions~~help to reduce costs resulting from the lower Foodservice segment demand including voluntary furlough programs. We anticipate fiscal fourth quarter Retail segment sales will continue to benefit from the shift in consumer purchases to retail stores due to the stay-at-home orders and other changes in consumer behavior attributed to COVID-19. Note that under the current environment, new product launches into the retail channel are subject to delay by some retailers as they focus their efforts on stocking shelves with existing items and, in some cases, forgo shelf resets to introduce new items. With respect to our ERP initiative, considering the current environment resulting from the impact of COVID-19, we are delaying the implementation timeframe for the project but will continue with our design stage efforts.offset these higher costs.

FINANCIAL CONDITION

For the ~~nine~~six months ended ~~March~~December 31, 2020, net cash provided by operating activities totaled ~~$119.1~~$90.9 million, as compared to ~~$143.4~~$105.4 million in the prior-year period. This decrease was primarily due to the year-over-year change in net working capital, ~~and lower net income, as partially offset by~~particularly the ~~impact of the prior-year reduction in the fair value of Angelic’s contingent consideration and the current-year~~ increase in ~~the deferred income tax liability due to additional bonus depreciation taken for tax purposes.~~inventories.

Cash used in investing activities for the ~~nine~~six months ended ~~March~~December 31, 2020 was ~~$72.4~~$29.9 million, as compared to ~~$102.1~~$57.9 million in the prior year. This decrease primarily reflects ~~the impact of the prior-year second quarter acquisitions of Bantam and Omni as partially offset by~~ a ~~higher~~lower level of ~~capital expenditures paid~~payments for property additions in the current year. ~~The year-over-year increase in our~~Our prior-year capital expenditures ~~includes~~included spending on a capacity expansion project at our frozen dinner roll facility in Horse Cave, Kentucky that was completed in January 2020 and the purchase of the Omni manufacturing facility that was previously leased.

Cash used in financing activities for the ~~nine~~six months ended ~~March~~December 31, 2020 of ~~$65.2~~$42.8 million increased from the prior-year total of ~~$59.7~~$41.5 million. This increase was primarily due to higher dividend ~~payments.~~payments, as partially offset by a decline in treasury stock purchases.

Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time. We had no borrowings outstanding under the Facility at ~~March~~December 31, 2020. At ~~March~~December 31, 2020, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.

The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and financial covenants relating to interest coverage and leverage. At ~~March~~December 31, 2020, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At ~~March~~December 31, 2020, there were no events that would constitute a default under this facility.

We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future. However, a default under the Facility could accelerate the repayment of any then outstanding indebtedness and limit our access to $75 million of additional credit available under the Facility. Such an event could require a reduction in or curtailment of cash dividends or

share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our obligations when due.

We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. Due to the recent shifts in demand between our Retail and Foodservice segments and uncertainty attributed to the impact of COVID-19, we have canceled the planned expansion of our dressing and sauce production facility in Horse Cave, Kentucky and terminated the related design/build agreement effective May 1, 2020. We are obligated to pay for work completed as of the date of termination and for any costs actually incurred as a result of the termination, which are not expected to be material. Based on our current plans and expectations, we believe our capital expenditures for 2020 will total approximately $90 million. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2021 could total between $105 and $125 million, which includes approximately $30 million in initial expenditures attributed to a substantial investment for a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first quarter of fiscal 2023.

CONTRACTUAL OBLIGATIONS

We have various contractual obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other contractual obligations are not recognized as liabilities in our condensed consolidated financial statements. Examples of such items are commitments to purchase raw materials or packaging inventory that has not yet been received as of ~~March~~December 31, 2020. There have been no significant changes to the contractual obligations disclosed in our ~~2019~~2020 Annual Report on Form 10-K aside from expected changes in raw-material costs associated with changes in product demand or ~~pricing.~~pricing, our obligation related to a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky as further discussed below, and obligations for other capital projects and IT service agreements.

In November 2020, T. Marzetti Company (“T. Marzetti”), a wholly-owned subsidiary of ours, entered into a Design/Build Agreement (the “Agreement”) with Gray Construction, Inc. (“Gray”) under which Gray will design, coordinate and build additional dressing and sauce manufacturing and warehousing capacity for the T. Marzetti facility in Hart County, Kentucky (the “Project”). The Project will result in an expansion of the current facility footprint. Subject to certain conditions in the Agreement, T. Marzetti will pay Gray no more than the guaranteed maximum price of approximately $113 million for the Project. The Agreement contains other terms and conditions that are customary for this type of project. Expected to be completed in the first quarter of fiscal 2023, the Project is in its early stages, thus we are still obligated for the majority of the guaranteed maximum price.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our ~~2019~~2020 Annual Report on Form 10-K. ~~We adopted the new lease accounting guidance on July 1, 2019. See expanded disclosure of lease accounting policies in Note 5 to the condensed consolidated financial statements.~~

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below, many of which could be amplified by the COVID-19 pandemic. Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance on such statements that are based on current expectations.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.

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

•significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, operations, and production processes resulting from COVID-19 and other epidemics, pandemics or similar widespread public health concerns and disease outbreaks;

•efficiencies in plant operations;

•dependence on contract manufacturers, distributors and freight transporters, including their financial strength in continuing to support our business;

~~fluctuations in the cost and availability of ingredients and packaging;~~

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

•capacity constraints that may affect our ability to meet demand or may increase our costs;

•difficulties related to the design and implementation of our new enterprise resource planning system;

•cyber-security incidents, information technology disruptions, and data breaches;

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

•fluctuations in the cost and availability of ingredients and packaging;

•the ability to successfully grow recently acquired businesses;

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

~~difficulties in designing and implementing our new enterprise resource planning system;~~

~~cyber-security incidents, information technology disruptions, and data breaches;~~

~~ability to successfully grow recently acquired businesses;~~

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

•price and product competition;

~~the lack of market acceptance of new products;~~

•the success and cost of new product development efforts;

•the lack of market acceptance of new products;

•the impact of customer store brands on our branded retail volumes;

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

•adverse changes in freight, energy or other costs of producing, distributing or transporting our products;

•stability of labor relations;

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

•dependence on key personnel and changes in key personnel;

•the effect of consolidation of customers within key market channels;

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

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

•maintenance of competitive position with respect to other manufacturers;

•changes in estimates in critical accounting judgments;

•the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand;

•the outcome of any litigation or arbitration;

•adequate supply of skilled labor; and

•certain other factors, including the information disclosed in our discussion of risk factors under Item 1A of our ~~2019~~2020 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks have not changed materially from those disclosed in our ~~2019~~2020 Annual Report on Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March~~December 31, 2020 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is 1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and 2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

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

PART II – OTHER INFORMATION

Item 1A. Risk Factors

~~Other than the addition of the following item, there~~There have been no material changes to the risk factors disclosed under Item 1A in our ~~2019~~2020 Annual Report on Form 10-K.

Epidemics, pandemics or similar widespread public health concerns and disease outbreaks, such as the novel coronavirus (“COVID-19”), have disrupted and may continue to disrupt consumption, supply chains, operations and production processes, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Epidemics, pandemics or similar widespread health concerns and disease outbreaks, such as COVID-19, as well as related government mandates, including the avoidance of gatherings, self-quarantine and the closure of a variety of businesses and restaurants have negatively affected and may continue to negatively affect our business, results of operations, financial condition and cash flows. These effects may include, but are not limited to:

significant reductions or volatility in consumer demand for our products as quarantines, stay-at-home orders, travel restrictions, restrictions on gatherings, actual disease outbreaks, customer fears and financial hardship of customers may inhibit consumption or shift demand from discretionary or higher-priced products to lower-priced products and restrict the business operations of our retail and foodservice customers;

forced or temporary curtailment of business operations, including the closure of restaurants and restaurant chains or limitations on restaurants to offer only take-out or delivery sales, resulting in a significant reduction in demand for our foodservice products;

failure of third parties on which we rely, including our customers, distributors, suppliers, contract manufacturers, and other partners to meet their obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties;

inability to meet our retail customers’ needs and achieve cost targets due to disruption in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability; and

disruption in operations if a significant percentage of our workforce is unable to work due to illness, travel or other government restrictions, or other reasons in connection with epidemics, pandemics or disease outbreaks.

Despite our efforts to manage and remedy these effects, their ultimate significance also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain the spread and mitigate public health effects.

In addition, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect the economies and financial markets of many areas, resulting in economic downturns (local, regional, national, and/or global) that could affect customers’ demand for our products.

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

(c) In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of which ~~1,316,387~~1,315,800 common shares remained authorized for future repurchases at ~~March~~December 31, ~~2020~~.2020. This share repurchase authorization does not have a stated expiration date. In the ~~third~~second quarter, we made the following repurchases of our common stock:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet be Purchased Under the Plans
October 1-31, 2020 (1)	25	$	166.14	25	1,315,800
November 1-30, 2020	—	$	—	—	1,315,800
December 1-31, 2020	—	$	—	—	1,315,800
Total	25	$	166.14	25	1,315,800

(1)Represents shares that were repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan.

Period
Total
Number of
Shares
Purchased

Average
Price Paid
Per Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans

Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans
January 1-31, 2020 —
$ —
—
1,344,099
February 1-29, 2020 ⁽¹⁾
2,660
$ 156.95
2,660
1,341,439
March 1-31, 2020 ⁽¹⁾
25,052
$ 139.61
25,052
1,316,387
Total 27,712
$ 141.27
27,712
1,316,387


~~(1)~~	Includes 2,660 shares in February 2020 and 52 shares in March 2020 that were repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan.

~~Item 5. Other Information~~

On February 27, 2020, T. Marzetti Company (“T. Marzetti”), a wholly-owned subsidiary of ours, entered into a Design/Build Agreement (the “Agreement”) with Gray Construction, Inc. (“Gray”) for the design and construction of an expansion of T. Marzetti’s existing facility in Hart County, Kentucky at a guaranteed maximum price of approximately $80 million. This expansion was intended to support the growth of certain national chain restaurant accounts. Based on the recent shifts in demand between our Retail and Foodservice segments and uncertainty attributed to COVID-19, T. Marzetti terminated the Agreement effective May 1, 2020. T. Marzetti is obligated to pay Gray for work completed as of the date of termination and for any costs actually incurred as a result of the termination, which are not expected to be material.

Item 6. Exhibits

See Index to Exhibits following Signatures.

SIGNATURES

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

LANCASTER COLONY CORPORATION

(Registrant)

Date:

~~May 5, 2020~~February 4, 2021

By:

/s/ DAVID A. CIESINSKI

David A. Ciesinski

President, Chief Executive Officer

and Director

(Principal Executive Officer)

Date:

~~May 5, 2020~~February 4, 2021

By:

/s/ THOMAS K. PIGOTT

Thomas K. Pigott

Vice President, Chief Financial Officer

and Assistant Secretary

(Principal Financial and Accounting Officer)

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

FORM 10-Q

~~MARCH~~DECEMBER 31, 2020

INDEX TO EXHIBITS



Exhibit Number			Description

~~Exhibit~~ ~~Number~~		~~Description~~

10.1^{(a), (b)}		~~Form of Restricted Stock Award Agreement for Employees and Consultants under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan~~

~~10.2~~^{(a), (b)}	~~Form of Stock Appreciation Rights Agreement for Employees and Consultants under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan~~

~~10.3~~	Design/Build Agreement between T. Marzetti Company and Gray Construction, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed ~~February 28,~~November 16, 2020)

31.1~~10.4~~		Credit Agreement dated as of March 19, 2020 among Lancaster Colony Corporation, the Lenders, The Huntington National Bank as Syndication Agent and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed March 20, 2020)

~~31.1~~^(b)(a)		Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002

31.2~~31.2~~^(b)(a)			Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002

3232^(c)(b)			Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002

101.INS^(b)(a)			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH^(b)(a)			Inline XBRL Taxonomy Extension Schema Document

101.CAL^(b)(a)			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF^(b)(a)			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB^(b)(a)			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE^(b)(a)			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104^(b)(a)			The cover page of Lancaster Colony Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~March~~December 31, 2020, formatted in Inline XBRL (included within Exhibit 101 attachments)

(a)			~~Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.~~Filed herewith

(b)			~~Filed herewith~~

~~(c)~~	Furnished herewith



	March 31,
	2020		2019
Construction in progress in Accounts Payable	$	8,532	$	3,131



	Three Months Ended March 31, 2020		Nine Months Ended March 31, 2020
Operating lease cost in Cost of Sales and Selling, General and Administrative Expenses	$	2,379	$	6,520
Finance lease cost:
Amortization of assets in Cost of Sales	$	83	$	251
Interest on lease liabilities in Other, Net	18		57
Total finance lease cost	$	101	$	308
Short-term lease cost in Cost of Sales and Selling, General and Administrative Expenses	361		1,785
Total net lease cost	$	2,841	$	8,613



	March 31, 2020
Operating Leases
Operating Lease Right-Of-Use Assets	$	24,469

Current operating lease liabilities in Accrued Liabilities	$	6,903
Noncurrent Operating Lease Liabilities	19,292
Total operating lease liabilities	$	26,195

Finance Leases
Finance lease right-of-use assets in Property, Plant and Equipment-Net	$	1,799

Current finance lease liabilities in Accrued Liabilities	$	446
Noncurrent finance lease liabilities in Other Noncurrent Liabilities	1,183
Total finance lease liabilities	$	1,629



	Nine Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,675
Operating cash flows from finance leases	$	57
Financing cash flows from finance leases	$	322

Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets	$	4,867
Supplemental noncash information on lease liabilities removed due to purchase of leased asset	$	5,765



	Operating Leases			Finance Leases
Three months ending June 30, 2020	$	2,220		$	126
2021	6,961			505
2022	5,917			505
2023	4,631			493
2024	3,768			121
Thereafter	4,694			—
Total minimum payments	$	28,191		$	1,750
Less amount representing interest	(1,996		)	(121		)
Present value of lease obligations	$	26,195		$	1,629



	Operating Leases		Capital Leases
2020	$	8,261	$	505
2021	7,136		505
2022	6,345		505
2023	4,992		493
2024	4,619		121
Thereafter	6,901		—
Total minimum payments	$	38,254	$	2,129
Less amount representing interest			(178		)
Present value of capital lease obligations			$	1,951