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 September 30, ~~2020~~2021


☐			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)

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

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 October ~~16, 2020,~~15, 2021, there were approximately ~~27,539,000~~27,530,000 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 – September 30, ~~2020~~2021 and June 30, ~~2020~~2021	3

	Condensed Consolidated Statements of Income – Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements of Cash Flows – Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6

	Condensed Consolidated Statements of Shareholders’ Equity – Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II – OTHER INFORMATION		23

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23



Item 6.	Exhibits	23

SIGNATURES		24

INDEX TO EXHIBITS		25

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)	(Amounts in thousands, except share data)	September 30, 2020		June 30, 2020		(Amounts in thousands, except share data)	September 30, 2021		June 30, 2021
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and equivalents	Cash and equivalents	$	186,088	$	198,273	Cash and equivalents	$	130,089	$	188,055
Receivables	Receivables	96,993		86,604		Receivables	108,365		97,897
Inventories:	Inventories:					Inventories:
Raw materials	Raw materials	41,296		34,374		Raw materials	48,077		48,895
Finished goods	Finished goods	69,266		50,674		Finished goods	110,292		72,980
Total inventories	Total inventories	110,562		85,048		Total inventories	158,369		121,875
Other current assets	Other current assets	14,764		15,687		Other current assets	13,033		15,654
Total current assets	Total current assets	408,407		385,612		Total current assets	409,856		423,481
Property, Plant and Equipment:	Property, Plant and Equipment:					Property, Plant and Equipment:
Land, buildings and improvements	Land, buildings and improvements	187,236		186,542		Land, buildings and improvements	270,972		252,174
Machinery and equipment	Machinery and equipment	402,750		388,929		Machinery and equipment	442,262		424,015
Total cost	Total cost	589,986		575,471		Total cost	713,234		676,189
Less accumulated depreciation	Less accumulated depreciation	290,509		282,183		Less accumulated depreciation	321,198		311,567
Property, plant and equipment-net	Property, plant and equipment-net	299,477		293,288		Property, plant and equipment-net	392,036		364,622
Other Assets:	Other Assets:					Other Assets:
Goodwill	Goodwill	208,371		208,371		Goodwill	208,371		208,371
Other intangible assets-net	Other intangible assets-net	62,680		65,216		Other intangible assets-net	57,625		58,766
Operating lease right-of-use assets	Operating lease right-of-use assets	26,091		22,977		Operating lease right-of-use assets	24,157		22,455
Other noncurrent assets	Other noncurrent assets	19,342		17,889		Other noncurrent assets	23,091		23,590
Total	Total	$	1,024,368	$	993,353	Total	$	1,115,136	$	1,101,285
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	87,231	$	71,433	Accounts payable	$	127,753	$	110,338
Accrued liabilities	Accrued liabilities	52,588		54,826		Accrued liabilities	52,034		63,585
Total current liabilities	Total current liabilities	139,819		126,259		Total current liabilities	179,787		173,923
Noncurrent Operating Lease Liabilities	Noncurrent Operating Lease Liabilities	20,407		17,893		Noncurrent Operating Lease Liabilities	18,353		17,228
Other Noncurrent Liabilities	Other Noncurrent Liabilities	25,919		31,661		Other Noncurrent Liabilities	27,495		28,285
Deferred Income Taxes	Deferred Income Taxes	37,117		34,240		Deferred Income Taxes	39,446		38,702
Commitments and Contingencies	Commitments and Contingencies					Commitments and Contingencies	0		0
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock-authorized 3,050,000 shares; outstanding-NaN
Common stock-authorized 75,000,000 shares; outstanding-September-27,539,988 shares; June-27,523,935 shares		125,071		125,153
Preferred stock-authorized 3,050,000 shares; outstanding-none						Preferred stock-authorized 3,050,000 shares; outstanding-none	0		0
Common stock-authorized 75,000,000 shares; outstanding-September-27,529,867 shares; June-27,531,040 shares						Common stock-authorized 75,000,000 shares; outstanding-September-27,529,867 shares; June-27,531,040 shares	130,832		128,617
Retained earnings	Retained earnings	1,438,930		1,421,121		Retained earnings	1,492,200		1,482,220
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(11,976)		(12,070)		Accumulated other comprehensive loss	(8,211)		(8,253)
Common stock in treasury, at cost	Common stock in treasury, at cost	(750,919)		(750,904)		Common stock in treasury, at cost	(764,766)		(759,437)
Total shareholders’ equity	Total shareholders’ equity	801,106		783,300		Total shareholders’ equity	850,055		843,147
Total	Total	$	1,024,368	$	993,353	Total	$	1,115,136	$	1,101,285

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


		Three Months Ended September 30,						Three Months Ended September 30,
(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)		2020		2019		(Amounts in thousands, except per share data)		2021		2020
Net Sales	Net Sales		$	349,237	$	337,054	Net Sales		$	392,056	$	349,237
Cost of Sales	Cost of Sales		256,583		244,946		Cost of Sales		299,689		256,583
Gross Profit	Gross Profit		92,654		92,108		Gross Profit		92,367		92,654
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses		48,198		39,455		Selling, General and Administrative Expenses		51,856		48,198
Change in Contingent Consideration	Change in Contingent Consideration		(5,687)		63		Change in Contingent Consideration		—		(5,687)
Restructuring and Impairment Charges			1,195		886
Impairment Charges							Impairment Charges		—		1,195
Operating Income	Operating Income		48,948		51,704		Operating Income		40,511		48,948
Other, Net	Other, Net		4		1,427		Other, Net		20		4
Income Before Income Taxes	Income Before Income Taxes		48,952		53,131		Income Before Income Taxes		40,531		48,952
Taxes Based on Income	Taxes Based on Income		11,873		12,386		Taxes Based on Income		9,876		11,873

Net Income	Net Income		$	37,079	$	40,745	Net Income		$	30,655	$	37,079

Net Income Per Common Share:	Net Income Per Common Share:						Net Income Per Common Share:
Basic and diluted	Basic and diluted		$	1.35	$	1.48	Basic and diluted		$	1.11	$	1.35

Weighted Average Common Shares Outstanding:	Weighted Average Common Shares Outstanding:						Weighted Average Common Shares Outstanding:
Basic	Basic		27,461		27,442		Basic		27,459		27,461
Diluted	Diluted		27,495		27,517		Diluted		27,515		27,495

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three Months Ended September 30,						Three Months Ended September 30,
(Amounts in thousands)	(Amounts in thousands)		2020		2019		(Amounts in thousands)		2021		2020
Net Income	Net Income		$	37,079	$	40,745	Net Income		$	30,655	$	37,079
Other Comprehensive Income:	Other Comprehensive Income:						Other Comprehensive Income:
Defined Benefit Pension and Postretirement Benefit Plans:	Defined Benefit Pension and Postretirement Benefit Plans:						Defined Benefit Pension and Postretirement Benefit Plans:
Amortization of loss, before tax	Amortization of loss, before tax		168		136		Amortization of loss, before tax		100		168
Amortization of prior service credit, before tax	Amortization of prior service credit, before tax		(45)		(45)		Amortization of prior service credit, before tax		(45)		(45)
Total Other Comprehensive Income, Before Tax	Total Other Comprehensive Income, Before Tax		123		91		Total Other Comprehensive Income, Before Tax		55		123
Tax Attributes of Items in Other Comprehensive Income:	Tax Attributes of Items in Other Comprehensive Income:						Tax Attributes of Items in Other Comprehensive Income:
Amortization of loss, tax	Amortization of loss, tax		(39)		(31)		Amortization of loss, tax		(23)		(39)
Amortization of prior service credit, tax	Amortization of prior service credit, tax		10		10		Amortization of prior service credit, tax		10		10
Total Tax Expense	Total Tax Expense		(29)		(21)		Total Tax Expense		(13)		(29)
Other Comprehensive Income, Net of Tax	Other Comprehensive Income, Net of Tax		94		70		Other Comprehensive Income, Net of Tax		42		94
Comprehensive Income	Comprehensive Income		$	37,173	$	40,815	Comprehensive Income		$	30,697	$	37,173

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Three Months Ended September 30,					Three Months Ended September 30,
(Amounts in thousands)	(Amounts in thousands)	2020		2019		(Amounts in thousands)	2021		2020
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	37,079	$	40,745	Net income	$	30,655	$	37,079
Adjustments to reconcile net income to net cash provided by operating activities:	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:					Impacts of noncash items:
Depreciation and amortization	Depreciation and amortization	10,409		8,750		Depreciation and amortization	11,262		10,409
Change in contingent consideration	Change in contingent consideration	(5,687)		63		Change in contingent consideration	—		(5,687)
Deferred income taxes and other changes	Deferred income taxes and other changes	3,179		833		Deferred income taxes and other changes	800		3,179
Stock-based compensation expense	Stock-based compensation expense	1,772		1,436		Stock-based compensation expense	2,274		1,772
Restructuring and impairment charges		1,195		(268)
Impairment charges						Impairment charges	—		1,195

Pension plan activity	Pension plan activity	(57)		(215)		Pension plan activity	(137)		(57)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables	Receivables	(10,389)		(15,869)		Receivables	(10,468)		(10,389)
Inventories	Inventories	(25,514)		(8,353)		Inventories	(36,494)		(25,514)
Other current assets	Other current assets	(626)		616		Other current assets	2,238		(626)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	12,282		12,357		Accounts payable and accrued liabilities	(1,302)		12,282
Net cash provided by operating activities		23,643		40,095
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(1,172)		23,643
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Payments for property additions	Payments for property additions	(14,411)		(43,189)		Payments for property additions	(30,227)		(14,411)

Other-net	Other-net	(137)		(156)		Other-net	134		(137)
Net cash used in investing activities	Net cash used in investing activities	(14,548)		(43,345)		Net cash used in investing activities	(30,093)		(14,548)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Payment of dividends	Payment of dividends	(19,270)		(17,869)		Payment of dividends	(20,675)		(19,270)
Purchase of treasury stock	Purchase of treasury stock	(15)		(1,465)		Purchase of treasury stock	(5,329)		(15)
Tax withholdings for stock-based compensation	Tax withholdings for stock-based compensation	(1,854)		(125)		Tax withholdings for stock-based compensation	(59)		(1,854)

Other-net	Other-net	(141)		(118)		Other-net	(638)		(141)
Net cash used in financing activities	Net cash used in financing activities	(21,280)		(19,577)		Net cash used in financing activities	(26,701)		(21,280)

Net change in cash and equivalents	Net change in cash and equivalents	(12,185)		(22,827)		Net change in cash and equivalents	(57,966)		(12,185)
Cash and equivalents at beginning of year	Cash and equivalents at beginning of year	198,273		196,288		Cash and equivalents at beginning of year	188,055		198,273
Cash and equivalents at end of period	Cash and equivalents at end of period	$	186,088	$	173,461	Cash and equivalents at end of period	$	130,089	$	186,088
Supplemental Disclosure of Operating Cash Flows:	Supplemental Disclosure of Operating Cash Flows:					Supplemental Disclosure of Operating Cash Flows:
Net cash payments for income taxes	Net cash payments for income taxes	$	1,617	$	528	Net cash payments for income taxes	$	15	$	1,617

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


		Three Months Ended September 30, 2020												Three Months Ended September 30, 2021
(Amounts in thousands, except per share data)	(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, 2020		27,524	$	125,153	$	1,421,121	$	(12,070)	$	(750,904)	$	783,300
Balance, June 30, 2021													Balance, June 30, 2021	27,531	$	128,617	$	1,482,220	$	(8,253)	$	(759,437)	$	843,147
Net income	Net income				37,079						37,079		Net income				30,655						30,655
Net pension and postretirement benefit gains, net of $29 tax effect							94				94
Cash dividends - common stock ($0.70 per share)					(19,270)						(19,270)
Net pension and postretirement benefit gains, net of $13 tax effect													Net pension and postretirement benefit gains, net of $13 tax effect						42				42
Cash dividends - common stock ($0.75 per share)													Cash dividends - common stock ($0.75 per share)				(20,675)						(20,675)
Purchase of treasury stock	Purchase of treasury stock	0							(15)		(15)		Purchase of treasury stock	(30)							(5,329)		(5,329)
Stock-based plans	Stock-based plans	16	(1,854)								(1,854)		Stock-based plans	29	(59)								(59)
Stock-based compensation expense	Stock-based compensation expense		1,772								1,772		Stock-based compensation expense		2,274								2,274
Balance, September 30, 2020		27,540	$	125,071	$	1,438,930	$	(11,976)	$	(750,919)	$	801,106
Balance, September 30, 2021													Balance, September 30, 2021	27,530	$	130,832	$	1,492,200	$	(8,211)	$	(764,766)	$	850,055


		Three Months Ended September 30, 2019												Three Months Ended September 30, 2020
(Amounts in thousands, except per share data)	(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	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)
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)													Cash dividends - common stock ($0.70 per share)				(19,270)						(19,270)
Purchase of treasury stock	Purchase of treasury stock	(10)							(1,465)		(1,465)		Purchase of treasury stock	—							(15)		(15)
Stock-based plans	Stock-based plans	4	(125)								(125)		Stock-based plans	16	(1,854)								(1,854)
Stock-based compensation expense	Stock-based compensation expense		1,436								1,436		Stock-based compensation expense		1,772								1,772
Balance, September 30, 2019		27,485	$	124,155	$	1,382,658	$	(10,238)	$	(746,910)	$	749,665
Balance, September 30, 2020													Balance, September 30, 2020	27,540	$	125,071	$	1,438,930	$	(11,976)	$	(750,919)	$	801,106

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 ~~2020~~2021 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, ~~2021~~2022 refers to fiscal ~~2021,~~2022, which is the period from July 1, ~~2020~~2021 to June 30, ~~2021.~~2022.

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 three months ended September 30, 2021 and 2020, we capitalized $0.3 million and $1.6 million, respectively, of deferred software costs related to cloud computing 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:

September 30,
2020 2019
Construction in progress in Accounts Payable $ 3,556 $ 5,606


	September 30,
	2021		2020
Construction in progress in Accounts Payable	$	22,685	$	3,556

Accrued Compensation and Employee Benefits

Accrued compensation and employee benefits included in Accrued Liabilities was ~~$24.4~~$18.2 million and ~~$32.8~~$32.5 million at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, 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)~~rights and performance units) 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.~~rights and performance units.

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 September 30,						Three Months Ended September 30,
			2020		2019				2021		2020
Net income	Net income		$	37,079	$	40,745	Net income		$	30,655	$	37,079
Net income available to participating securities	Net income available to participating securities		(79)		(67)		Net income available to participating securities		(87)		(79)
Net income available to common shareholders	Net income available to common shareholders		$	37,000	$	40,678	Net income available to common shareholders		$	30,568	$	37,000

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic		27,461		27,442		Weighted average common shares outstanding – basic		27,459		27,461
Incremental share effect from:	Incremental share effect from:						Incremental share effect from:
Nonparticipating restricted stock	Nonparticipating restricted stock		3		3		Nonparticipating restricted stock		3		3
Stock-settled stock appreciation rights	Stock-settled stock appreciation rights		31		72		Stock-settled stock appreciation rights		49		31
Performance units							Performance units		4		—
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted		27,495		27,517		Weighted average common shares outstanding – diluted		27,515		27,495

Net income per common share – basic and diluted	Net income per common share – basic and diluted		$	1.35	$	1.48	Net income per common share – basic and diluted		$	1.11	$	1.35

Accumulated Other Comprehensive Loss

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


		Three Months Ended September 30,						Three Months Ended September 30,
			2020		2019				2021		2020
Accumulated other comprehensive loss at beginning of period	Accumulated other comprehensive loss at beginning of period		$	(12,070)	$	(10,308)	Accumulated other comprehensive loss at beginning of period		$	(8,253)	$	(12,070)
Defined Benefit Pension Plan Items:	Defined Benefit Pension Plan Items:						Defined Benefit Pension Plan Items:
Amortization of unrecognized net loss	Amortization of unrecognized net loss		173		143		Amortization of unrecognized net loss		107		173
Postretirement Benefit Plan Items:	Postretirement Benefit Plan Items:						Postretirement Benefit Plan Items:
Amortization of unrecognized net gain	Amortization of unrecognized net gain		(5)		(7)		Amortization of unrecognized net gain		(7)		(5)
Amortization of prior service credit	Amortization of prior service credit		(45)		(45)		Amortization of prior service credit		(45)		(45)
Total other comprehensive income, before tax	Total other comprehensive income, before tax		123		91		Total other comprehensive income, before tax		55		123
Total tax expense	Total tax expense		(29)		(21)		Total tax expense		(13)		(29)
Other comprehensive income, net of tax	Other comprehensive income, net of tax		94		70		Other comprehensive income, net of tax		42		94

Accumulated other comprehensive loss at end of period	Accumulated other comprehensive loss at end of period		$	(11,976)	$	(10,238)	Accumulated other comprehensive loss at end of period		$	(8,211)	$	(11,976)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our ~~2020~~2021 Annual Report on Form 10-K.

~~Recently Issued~~Recent Accounting Standards

There ~~were~~are no recently issued or adopted accounting standards that will impact our consolidated financial statements.

~~Recently Adopted Accounting Standards~~

In August 2018, the Financial Accounting Standards Board 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. We adopted the new guidance on July 1, 2020. As the guidance only relates to disclosures, there 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)~~

Note 2 – 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.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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~~earn-out associated with our ~~acquisitions~~acquisition 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 September 30, 2020
Level 1 Level 2 Level 3 Total
Contingent consideration - Bantam $ 0 $ 0 $ 3,470 $ 3,470
Contingent consideration - Angelic — 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


	Fair Value Measurements at September 30, 2021
	Level 1		Level 2		Level 3		Total
Contingent consideration - Bantam	$	—	$	—	$	3,470	$	3,470



	Fair Value Measurements at June 30, 2021
	Level 1		Level 2		Level 3		Total
Contingent consideration - Bantam	$	—	$	—	$	3,470	$	3,470

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 ~~Bantam’s~~the 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. 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 fair value measurement at 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 ~~reflect~~primarily reflected the impact of a SKU rationalization by a Foodservice customer ~~that will result~~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
September 30,
2020 2019
Contingent consideration at beginning of period $ 9,157 $ 8,900
Change in contingent consideration included in operating income (5,687) 63
Contingent consideration at end of period $ 3,470 $ 8,963

~~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. At September 30, 2020 and June 30, 2020, there was 0 liability recorded for Angelic’s contingent consideration based on current projections for Angelic’s forecasted adjusted EBITDA for fiscal 2021.


	Three Months Ended September 30,
		2021		2020
Contingent consideration at beginning of period		$	3,470	$	9,157

Change in contingent consideration included in operating income		—		(5,687)
Contingent consideration at end of period		$	3,470	$	3,470

Note 3 – Long-Term Debt

At September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, 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 based on consent of the issuing banks and certain other conditions. The 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 Facility. In the event that LIBOR becomes unavailable or is no longer deemed an appropriate reference rate, the 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 Facility, they will be classified as long-term debt.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The 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 Facility.

At September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, we had 0no borrowings outstanding under the Facility. At September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. We paid 0no interest for the three months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

Note 4 – Commitments and Contingencies

At September 30, ~~2020,~~2021, 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~~We have a significant remaining commitment 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 are monitoring the evolving situation and guidance from authorities, including federal, state and local public health departments. We continue to review the carrying value of our assets and, as needed, have recorded additional reserves for inventory and receivablesapproximately $78 million related to ~~the impact of COVID-19 on~~a capacity expansion project at our ~~Foodservice segment. The future impact of COVID-19 on our results of operations, financial condition,~~dressing and cash flows is contingent upon the duration and severity of the outbreak, the associated recommended or mandated actions imposed by U.S. state and local governments, and the resulting effects on consumer behavior.sauce facility in Horse Cave, Kentucky.

Our ~~acquisitions~~acquisition of ~~Angelic and~~ Bantam included ~~provisions~~a provision for contingent consideration for the ~~earn-outs~~earn-out associated with ~~these transactions.~~this transaction. See further discussion in Note 2.

Note 5 – Goodwill and Other Intangible Assets

Goodwill attributable to the Retail and Foodservice segments was $157.4 million and $51.0 million, respectively, at September 30, ~~2020~~2021 and June 30, ~~2020.~~2021.

The following table summarizes our identifiable other intangible assets:


	September 30, 2021		June 30, 2021


Tradenames (20 to 30-year life)
Gross carrying value	$	62,531	$	62,531
Accumulated amortization	(13,064)		(12,421)
Net carrying value	$	49,467	$	50,110




Customer Relationships (2 to 15-year life)
Gross carrying value	$	17,007	$	17,507
Accumulated amortization	(12,763)		(12,912)
Net carrying value	$	4,244	$	4,595
Technology / Know-how (10-year life)
Gross carrying value	$	8,020	$	8,020
Accumulated amortization	(4,111)		(3,973)
Net carrying value	$	3,909	$	4,047
Non-compete Agreements (5-year life)
Gross carrying value	$	191	$	191
Accumulated amortization	(186)		(177)
Net carrying value	$	5	$	14
Total net carrying value	$	57,625	$	58,766

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:~~

September 30,
2020 June 30,
2020
Tradenames (20 to 30-year life)
Gross carrying value $ 62,531 $ 63,121
Accumulated amortization (10,501) (9,925)
Net carrying value $ 52,030 $ 53,196
Customer Relationships (2 to 15-year life)
Gross carrying value $ 17,507 $ 17,507
Accumulated amortization (11,555) (11,094)
Net carrying value $ 5,952 $ 6,413
Technology / Know-how (10-year life)
Gross carrying value $ 8,020 $ 8,950
Accumulated amortization (3,365) (3,396)
Net carrying value $ 4,655 $ 5,554
Non-compete Agreements (5-year life)
Gross carrying value $ 191 $ 791
Accumulated amortization (148) (738)
Net carrying value $ 43 $ 53
Total net carrying value $ 62,680 $ 65,216

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 ~~that will result~~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
September 30,
2020 2019
Amortization expense $ 1,341 $ 1,274


	Three Months Ended September 30,
		2021		2020
Amortization expense		$	1,141	$	1,341

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


2022		$	4,739
2023	2023	$	4,180	2023	$	4,180
2024	2024	$	4,180	2024	$	4,180
2025	2025	$	3,920	2025	$	3,920
2026	2026	$	3,272	2026	$	3,290
2027				2027	$	3,119

Note 6 – Income Taxes

Accrued federal income taxes of ~~$1.9~~$2.3 million and accrued state and local income taxes of $0.6 million were included in Accrued Liabilities at September 30, ~~2020.~~2021. Prepaid federal income taxes of ~~$5.3~~$5.1 million and prepaid state and local income taxes of $1.1 million were included in Other Current Assets at June 30, ~~2020.~~

2021.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Note 7 – 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,~~dressings, slaw dressing, sauces and croutons. Within the frozen food section of the grocery store, we sell yeast rolls, garlic breads and mini stuffed bagels.

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~~temporary supply agreement resulting from the acquisition of Omni Baking Company LLC. The temporary supply agreement 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 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 September 30, ~~2020~~2021 is generally consistent with that of June 30, ~~2020.~~

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

Three Months Ended
September 30,
2020 2019
Net Sales
Retail $ 193,725 $ 166,077
Foodservice 155,512 170,977
Total $ 349,237 $ 337,054
Operating Income
Retail $ 42,658 $ 39,016
Foodservice 27,421 26,975
Nonallocated Restructuring and Impairment Charges (1)
0 (886)
Corporate Expenses (21,131) (13,401)
Total $ 48,948 $ 51,704

~~(1)Reflects restructuring and impairment charges related to a plant closure that were not allocated to our two reportable segments due to their unusual nature.~~2021.

1312

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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


	Three Months Ended September 30,
		2021		2020
Net Sales
Retail		$	223,889	$	193,725
Foodservice		168,167		155,512
Total		$	392,056	$	349,237
Operating Income
Retail		$	48,178	$	42,658
Foodservice		15,825		27,421

Corporate Expenses		(23,492)		(21,131)
Total		$	40,511	$	48,948

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


		Three Months Ended September 30,					Three Months Ended September 30,
			2020		2019				2021		2020
Retail	Retail							Retail
Shelf-stable dressings, sauces and croutons								Shelf-stable dressings, sauces and croutons	$	90,527	$	58,944
Frozen breads	Frozen breads		$	72,843	$	60,297		Frozen breads	74,719		72,843
Refrigerated dressings, dips and other	Refrigerated dressings, dips and other		61,938		62,637			Refrigerated dressings, dips and other	58,643		61,938
Shelf-stable dressings and croutons			58,944		43,143
Total Retail net sales	Total Retail net sales		$	193,725	$	166,077		Total Retail net sales	$	223,889	$	193,725
Foodservice	Foodservice							Foodservice
Dressings and sauces	Dressings and sauces		$	114,951	$	119,763		Dressings and sauces	$	124,759	$	114,951
Frozen breads and other	Frozen breads and other		37,792		43,364			Frozen breads and other	43,408		37,792
Other roll products	Other roll products		2,769		7,850			Other roll products	—		2,769
Total Foodservice net sales	Total Foodservice net sales		$	155,512	$	170,977		Total Foodservice net sales	$	168,167	$	155,512
Total net sales	Total net sales		$	349,237	$	337,054		Total net sales	$	392,056	$	349,237

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


		Three Months Ended September 30,					Three Months Ended September 30,
			2020		2019				2021		2020
Foodservice	Foodservice							Foodservice
National accounts	National accounts		$	118,078	$	123,758		National accounts	$	126,128	$	118,078
Branded and other	Branded and other		34,665		39,369			Branded and other	42,039		34,665
Other roll products	Other roll products		2,769		7,850			Other roll products	—		2,769
Total Foodservice net sales	Total Foodservice net sales		$	155,512	$	170,977		Total Foodservice net sales	$	168,167	$	155,512

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 8 – Stock-Based Compensation

There have been no changes to our stock-based compensation ~~plans from those~~plan as disclosed in our ~~2020~~2021 Annual Report on Form 10-K. However, as permitted under this plan, we made an initial grant of performance units in August 2021. These performance units have either a market condition or a performance condition and will vest 3 years after the grant date. Dividend equivalents earned during the vesting period will be paid at the time the awards vest.

Our stock-settled stock appreciation rights (“SSSARs”) compensation expense was ~~$0.9~~$1.0 million and ~~$0.7~~$0.9 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. At September 30, ~~2020,~~2021, there was ~~$5.3~~$5.7 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 ~~$0.9~~$1.1 million and ~~$0.7~~$0.9 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. At September 30, ~~2020,~~2021, there was ~~$4.6~~$8.9 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.

Our performance units compensation expense was $0.2 million for the three months ended September 30, 2021. At September 30, 2021, there was $3.5 million of unrecognized compensation expense related to performance units that we will recognize over a weighted-average period of 3 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, ~~2021~~2022 refers to fiscal ~~2021,~~2022, which is the period from July 1, ~~2020~~2021 to June 30, ~~2021.~~2022.

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 ~~2020~~2021 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. 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~~ include:

•a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first quarter of fiscal 2023;

•a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that we expect to complete in the second quarter of fiscal 2022;

•a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that we expect to complete during the second quarter of fiscal 2022;

•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~~serves to coordinate our various capital and integration efforts, including our ~~ERP~~enterprise resource planning system (“ERP”) project and related initiatives, Project Ascent, that is ~~now~~currently underway. ~~The ERP implementation~~

Project Ascent 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.

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.~~shutdowns. In the U.S., state and local governments recommended or mandated actions intended to slow the transmission of COVID-19. These measures 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 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.

With respect to our efforts to ensure the health, safety and welfare of our employees, we ~~are complying with all guidelines issued by~~continue to monitor the latest guidance from authorities, including the Centers for Disease Control and Prevention ~~as well as~~and other federal, state and local public health ~~departments.~~departments, regarding COVID-19 and adopt the appropriate measures to ensure we continue to operate safely and support our employees. 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 and our commitment to the health, safety and welfare of our employees, we ~~have~~implemented some policy changes and 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:

•~~conducting employee temperature checks prior to entering our production facilities;~~

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

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

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

•~~relaxing~~relaxed attendance requirements and ~~enhancing~~enhanced 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 temporarily increasing the wage rate for our hourly front-line employees by $2 per hour beginning in April;~~

•~~establishing business travel restrictions;~~ and

•~~limiting capacity~~provided every employee an extra vacation day in 2021 to allow flexibility with scheduling COVID-19 vaccination appointments.

After 16 months and once the vaccine became broadly available, we discontinued our temporary incentive pay compensation (“hero pay”) to our front-line employees at ~~office locations or working from home whenever possible.~~the end of fiscal 2021.

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 have also secured additional second-sourcing options ~~as needed~~ to help limit the risk of supply disruptions.

We continue to monitor the 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 impactThe effects of COVID-19 on consumer behavior have impacted the relative demand for our ~~results~~Retail and Foodservice products. Specifically, since the onset of ~~operations, financial condition, or cash flows in~~ the ~~future. However,~~ 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~~pandemic near the end of our ~~customers, additional reserves for inventory and receivables, and higher plant operating costs.~~

~~During the three months ended September 30,~~fiscal 2020 ~~the effects of COVID-19, including changes~~third quarter, there has been an overall shift in consumer ~~purchasing habits~~demand towards increased at-home food consumption and ~~actions undertaken~~away from in-restaurant dining.While this shift in demand has been inconsistent and volatile, on balance it has positively impacted our Retail segment sales and negatively impacted our Foodservice segment sales.From an operations standpoint, the ~~U.S.~~shift in demand combined with other COVID-19-related issues such as higher hourly wage rates paid to ~~attempt~~our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to ~~control the spread of COVID-19, most notably the restriction of restaurant dine-in purchases,~~incremental co-manufacturing volumes, and overall lower operating efficiencies have ~~continued to negatively impact~~unfavorably impacted the operating results of both our Foodservice segment. Our Foodservice segment net sales for the first quarter declined 9% to $155.5 million compared to the prior year. After a very slow start to the fourth quarter of fiscal 2020, consumer demand at quick-service restaurants continues to recover, and sales for other restaurants have also improved.

~~With respect to our Retail segment, the impact of COVID-19 contributed to higher sales during the three months ended September 30, 2020 as consumer demand in the retail 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 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.segments.

RESULTS OF CONSOLIDATED OPERATIONS


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Three Months Ended September 30,									(Dollars in thousands, except per share data)				Three Months Ended September 30,
		2020	2019			Change									2021	2020	Change
Net Sales	Net Sales		$	349,237		$	337,054		$	12,183		4	%	Net Sales			$	392,056		$	349,237		$	42,819	12	%
Cost of Sales	Cost of Sales		256,583			244,946			11,637			5	%	Cost of Sales			299,689			256,583			43,106		17	%
Gross Profit	Gross Profit		92,654			92,108			546			1	%	Gross Profit			92,367			92,654			(287)		—	%
Gross Margin	Gross Margin		26.5		%	27.3		%						Gross Margin			23.6		%	26.5		%
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses		48,198			39,455			8,743			22	%	Selling, General and Administrative Expenses			51,856			48,198			3,658		8	%
Change in Contingent Consideration	Change in Contingent Consideration		(5,687)			63			(5,750)			N/M		Change in Contingent Consideration			—			(5,687)			5,687		(100)	%
Restructuring and Impairment Charges			1,195			886			309			35	%
Impairment Charges														Impairment Charges			—			1,195			(1,195)		(100)	%
Operating Income	Operating Income		48,948			51,704			(2,756)			(5)	%	Operating Income			40,511			48,948			(8,437)		(17)	%
Operating Margin	Operating Margin		14.0		%	15.3		%						Operating Margin			10.3		%	14.0		%
Other, Net	Other, Net		4			1,427			(1,423)			(100)	%	Other, Net			20			4			16		400	%
Income Before Income Taxes	Income Before Income Taxes		48,952			53,131			(4,179)			(8)	%	Income Before Income Taxes			40,531			48,952			(8,421)		(17)	%
Taxes Based on Income	Taxes Based on Income		11,873			12,386			(513)			(4)	%	Taxes Based on Income			9,876			11,873			(1,997)		(17)	%
Effective Tax Rate	Effective Tax Rate		24.3		%	23.3		%						Effective Tax Rate			24.4		%	24.3		%
Net Income	Net Income		$	37,079		$	40,745		$	(3,666)		(9)	%	Net Income			$	30,655		$	37,079		$	(6,424)	(17)	%
Diluted Net Income Per Common Share	Diluted Net Income Per Common Share		$	1.35		$	1.48		$	(0.13)		(9)	%	Diluted Net Income Per Common Share			$	1.11		$	1.35		$	(0.24)	(18)	%

Net Sales

Consolidated net sales for the three months ended September 30, ~~2020~~2021 increased 4%12% to a first quarter record ~~$349.2~~$392.1 million versus ~~$337.1~~$349.2 million last year. ~~This growth was driven by an increase in Retail segment~~Excluding all sales resulting from the November 2018 acquisition of Omni Baking Company LLC (“Omni”), consolidated net sales ~~partially offset by a decline in~~for the three months ended September 30, 2021 increased 13%. Sales growth for the quarter reflected higher net sales for both the Retail and Foodservice ~~segment net sales.~~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 September 30, ~~2020 increased 1%~~2021 decreased slightly to ~~$92.7~~$92.4 million compared to ~~$92.1~~$92.7 million in the prior-year ~~period. Gross profit benefited from~~periodas the ~~heavier retail~~sales growth, a more favorable sales mix and our ongoing cost savings programs were offset by higher ~~manufacturing~~commodity and packaging costs, ~~including expenses directly~~incremental expenditures attributed to ~~the impacts of COVID-19,~~increased co-manufacturing costs, and increased ~~commodity~~freight and ~~freight~~warehousing costs. Sources of the increased costs incurred due to the impacts of COVID-19 included higher hourly wage rates for our front-line employees, lower overhead recovery due to the decreased Foodservice volumes, increased expenditures for personal protective equipment and lower operating efficiencies.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased ~~22% to $48.2~~8% for the quarter reaching $51.9 million for the three months ended September 30, ~~2020 as~~2021. This increase reflected higher expenditures for Project Ascent, which increased ~~$5.6~~$1.1 million to ~~$8.3 million. We also invested more~~$9.4 million for the quarter. Excluding Project Ascent, SG&A expenses for the quarter ended September 30, 2021 were 6% higher than the prior-year period, reflecting increased investments in ~~consumer promotions~~personnel and ~~IT infrastructure.~~business initiatives to support continued growth. Project Ascent expenses are included within Corporate Expenses. A portion of the costs that have been classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the ERP implementation.


		Three Months Ended September 30,											Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020	2019		Change				(Dollars in thousands)				2021	2020	Change
SG&A Expenses - Excluding Project Ascent	SG&A Expenses - Excluding Project Ascent		$	39,912	$	36,733	$	3,179		9	%	SG&A Expenses - Excluding Project Ascent			$	42,427	$	39,912	$	2,515	6	%
Project Ascent Expenses	Project Ascent Expenses		8,286		2,722		5,564			204	%	Project Ascent Expenses			9,429		8,286		1,143		14	%
Total SG&A Expenses	Total SG&A Expenses		$	48,198	$	39,455	$	8,743		22	%	Total SG&A Expenses			$	51,856	$	48,198	$	3,658	8	%

Change in Contingent Consideration

~~The~~There was no change in contingent consideration for the three months ended September 30, 2021. For the three months ended September 30, 2020, the change in contingent consideration resulted in a benefit of $5.7 ~~million for the three months ended September 30, 2020 compared~~million. This prior-year benefit was attributed to ~~expense of $0.1 million for the three months ended September 30, 2019. The current-year benefit reflects~~ a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) ~~as a result of~~based on our September 30, 2020 fair value measurement. ~~See further discussion in Note 2 to the condensed consolidated financial statements. As the~~The fair value adjustment resulted from the impact of a SKU rationalization by a Foodservice customer, ~~that will result in the loss of sales to that customer after November 30, 2020,~~and therefore the entire adjustment ~~related to Bantam’s contingent consideration~~ was reflected within the Foodservice segment. See further discussion in Note 2 to the condensed consolidated financial statements.

~~Restructuring and~~ Impairment Charges

WeThere were no impairment charges recorded for the three months ended September 30, 2021.We recorded impairment charges of $1.2 million for the three months ended September 30, 2020 related to certain tradename and technology / know-how intangible assets for Bantam as a result of the impact of athe above-referenced SKU rationalization by a Foodservice ~~customer that will result in the loss of sales to that customer after November 30, 2020.~~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~~assets and were reflected within our Foodservice segment.

~~We recorded restructuring and impairment charges of $0.9~~Operating Income

Operating income decreased $8.4 million to $40.5 million for the three months ended September 30, ~~2019, which primarily consisted of plant clean-up expenses and contract termination costs~~2021. The prior-year quarter included the $5.7 million benefit related to Bantam’s contingent consideration. In the ~~closure of our frozen bread manufacturing plant located~~current-year quarter, operating income was negatively affected by higher commodity and packaging costs, increased co-manufacturing costs, higher freight and warehousing costs, investments in ~~Saraland, Alabama. These charges were not allocated~~personnel and business initiatives to ~~our two reportable segments due to their unusual nature.~~

~~Operating Income~~

~~Operating income decreased 5% to $48.9 million for the three months ended September 30, 2020, reflecting~~support continued growth, and increased expenditures for Project ~~Ascent, higher manufacturing costs, increased investments in consumer promotions and IT infrastructure, and higher commodity and freight costs.~~Ascent. These unfavorable factors were partially offset by the ~~current year’s favorable adjustment related to Bantam’s contingent consideration, as well as the more favorable~~increased sales ~~mix,~~and our ongoing cost savings ~~programs and improved net price realization.~~programs. See discussion of operating results by segment following the discussion of “Earnings Per Share” below.

~~Other, Net~~

Other, net resulted in a benefit of less than $0.1 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively. The decrease primarily reflects lower interest rates for our cash holdings.

Taxes Based on Income

Our effective tax rate was ~~24.3%~~24.4% and ~~23.3%~~24.3% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:


		Three Months Ended September 30,					Three Months Ended September 30,
		2020		2019			2021		2020
Statutory rate	Statutory rate	21.0	%	21.0	%	Statutory rate	21.0	%	21.0	%
State and local income taxes	State and local income taxes	3.0		3.0		State and local income taxes	3.5		3.0
Net windfall tax benefits - stock-based compensation	Net windfall tax benefits - stock-based compensation	(0.7)		(0.1)		Net windfall tax benefits - stock-based compensation	—		(0.7)
Other	Other	1.0		(0.6)		Other	(0.1)		1.0
Effective rate	Effective rate	24.3	%	23.3	%	Effective rate	24.4	%	24.3	%

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 three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by ~~0.7%~~less than 0.1% and ~~0.1%~~0.7%, respectively.

Earnings Per Share

As influenced by the factors noted above, particularly the ~~increased expenditures for Project Ascent, current-year~~higher commodity costs ~~attributed to the impacts of COVID-19~~ and the ~~current-year favorable adjustment~~prior-year quarter’s benefit related to Bantam’s contingent consideration, diluted net income per share for the first quarter of ~~2021~~2022 totaled ~~$1.35,~~$1.11, as compared to ~~$1.48~~$1.35 per diluted share in the prior year. Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended September 30.

~~In 2021, expenditures~~Expenditures for Project Ascent reduced diluted earnings per share by $0.26 and $0.23 for the ~~first quarter compared to $0.08 in~~three months ended September 30, 2021 and 2020, respectively. In the ~~prior-year period. The~~prior year, the favorable impact of the adjustment ~~related~~ to Bantam’s contingent consideration increased diluted earnings per share by $0.16 ~~for the current-year period. Restructuring and~~while impairment charges had an unfavorable impact of $0.03 ~~and $0.02~~ per diluted ~~share for the three months ended September 30, 2020 and 2019, respectively.~~share.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment


		Three Months Ended September 30,													Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020	2019			Change					(Dollars in thousands)				2021	2020	Change
Net Sales	Net Sales		$	193,725		$	166,077		$	27,648		17	%	Net Sales			$	223,889		$	193,725		$	30,164	16	%
Operating Income	Operating Income		$	42,658		$	39,016		$	3,642		9	%	Operating Income			$	48,178		$	42,658		$	5,520	13	%
Operating Margin	Operating Margin		22.0		%	23.5		%						Operating Margin			21.5		%	22.0		%

For the three months ended September 30, ~~2020,~~2021, Retail segment net sales reached ~~$193.7~~$223.9 million, a ~~17%~~16% increase from the prior-year total of ~~$166.1 million, as the impacts of the COVID-19 outbreak continued to drive higher demand for at-home food consumption.~~$193.7 million. The increase ~~in Retail net sales~~ was ~~led~~driven by ~~frozen garlic bread, Olive Garden~~® ~~dressings sold under a license agreement and frozen dinner rolls. New products sold under exclusive license agreements, specifically~~volume gains for Chick-fil-A® sauces and ~~single-bottle~~ Buffalo Wild Wings® sauces, ~~also contributed to the strong~~both of which are sold under exclusive licensing agreements, and higher sales ~~growth.~~of our New York BRAND Bakery® frozen garlic bread.

For the three months ended September 30, ~~2020,~~2021, Retail segment operating income increased 9%13% to ~~$42.7~~$48.2 million, reflecting the increase in sales, ~~lower trade~~including some inflationary pricing, a more favorable sales mix and reduced promotional spending, ~~improved net price realization and our ongoing cost savings programs,~~ as partially offset by higher ~~manufacturing~~commodity and packaging costs ~~including expenses directly attributed to the impacts of COVID-19, higher levels of consumer promotional spending,~~ and increased ~~commodity~~freight and ~~freight~~warehousing costs.

Foodservice Segment


		Three Months Ended September 30,													Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2020	2019			Change					(Dollars in thousands)				2021	2020	Change
Net Sales	Net Sales		$	155,512		$	170,977		$	(15,465)		(9)	%	Net Sales			$	168,167		$	155,512		$	12,655	8	%
Operating Income	Operating Income		$	27,421		$	26,975		$	446		2	%	Operating Income			$	15,825		$	27,421		$	(11,596)	(42)	%
Operating Margin	Operating Margin		17.6		%	15.8		%						Operating Margin			9.4		%	17.6		%

For the three months ended September 30, ~~2020,~~2021, Foodservice segment net sales ~~decreased 9%~~grew 8% to ~~$155.5~~$168.2 million compared to ~~$171.0~~$155.5 million in the prior-year period ~~as demand remained constrained~~driven by ~~the impacts of COVID-19.~~inflationary pricing and volume gains for our branded Foodservice products. Excluding all sales resulting from the November 2018 acquisition of Omni, ~~Baking Company LLC (“Omni”),~~ Foodservice segment net sales ~~declined 6%~~increased 10%. Omni sales attributed to a temporary supply agreement totaled $2.8 million in the ~~current year compared to $7.9 million~~prior-year quarter. There were no such sales in the ~~prior year. The~~current-year quarter as the temporary supply agreement was terminated effective October 31, 2020.

The ~~increase~~decline in Foodservice segment operating income for the three months ended September 30, ~~2020 reflects~~2021 was driven by the ~~favorable~~ impact of ~~the~~last year’s $5.7 million ~~adjustment~~benefit related to Bantam’s contingent consideration, ~~which was largely offset by the sales decline attributed to the impacts of COVID-19, higher manufacturing costs, including expenses directly attributed to the impacts of COVID-19,~~as well as increased commodity ~~and freight~~ costs and ~~the current-year impairment charges for certain intangible assets.~~higher warehousing expenses. Operating income was favorably impacted by inflationary pricing.

Corporate Expenses

For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, corporate expenses totaled $23.5 million and $21.1 million, ~~and $13.4 million,~~ respectively. ~~The~~This increase was driven by expenditures for Project Ascent, which totaled ~~$8.3~~$9.4 million and ~~$2.7~~$8.3 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the three months ended September 30, 2021 and 2020, we also capitalized an additional $0.3 million and $1.6 million, respectively, of ERP-related expenditures for application development stage activities.

LOOKING FORWARD

Looking forward to our fiscal second quarter, we expect our licensing program to remain an important source of growth for Retail segment sales while our Foodservice segment should continue to benefit from higher demand for our branded Foodservice products and growth from select quick-service restaurant and pizza chain customers in our mix of national chain restaurant accounts. We anticipate the inflationary environment to continue in the coming quarter, including higher commodity costs, particularly for soybean oil, along with increased costs for packaging, freight and labor. Inflationary pricing, including Retail segment pricing actions that took effect near the end of our fiscal first quarter combined with additional pricing in the Foodservice segment, will help to partially offset the input cost inflation. Our ongoing cost savings programs and other net price realization efforts will also serve to reduce the unfavorable impacts of inflation in the fiscal second quarter.

Our fiscal second quarter financial results will continue to be impacted by the COVID-19 pandemic, which has caused shifts in consumer demand between the retail and foodservice channels and resulted in higher costs to produce our products and service our customers. The extent of this impact on our financial results is difficult to forecast due to ongoing regional ebbs and flows of COVID-19 cases and the associated changes to the COVID-19 guidelines provided by or mandates imposed by health authorities and government agencies, which creates uncertainty for the restaurant industry and consumer behavior over an unpredictable timeline.

~~LOOKING FORWARD~~

Looking forward to our fiscal second quarter, which is typically our strongest sales quarter due to the impact of the holiday season, we expect our Retail segment sales will continue to benefit from the shift in consumer preferences towards at-home food consumption due to the impacts of COVID-19. We also expect continued growth in the Retail segment from shelf-stable dressings and sauces sold under license agreements, including sales gains for Olive Garden® ~~dressings, Chick-fil-A~~® ~~sauces and Buffalo Wild Wings~~® sauces. Foodservice segment sales will remain unfavorably influenced by the impacts of the COVID-19 pandemic as the restaurant industry experiences sales declines due to restrictions on dine-in purchases and changes in consumer purchasing habits. The full impact of these circumstances 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 overall pace of the U.S. economic recovery and the willingness of consumers to return to away-from-home dining. Inflationary costs for commodities and freight are expected to be increasingly unfavorable in the fiscal second quarter. We also expect manufacturing costs to remain higher due to the impacts of COVID-19. Our ongoing cost savings programs and net price realization will help to offset these higher costs.

FINANCIAL CONDITION

Cash Flows

For the three months ended September 30, ~~2020,~~2021, net cash used in operating activities totaled $1.2 million, as compared to net cash provided by operating activities ~~totaled~~of $23.6 ~~million, as compared to $40.1~~ million in the prior-year period. This decrease was primarily due to the year-over-year ~~change~~changes in net working capital, particularly ~~the increase in~~accounts payable and accrued liabilities, as well as inventories.

Cash used in investing activities for the three months ended September 30, ~~2020~~2021 was ~~$14.5~~$30.1 million, as compared to ~~$43.3~~$14.5 million in the prior year. This ~~decrease~~increase primarily reflects a ~~lower~~higher level of payments for property additions in the current year. Our ~~prior-year~~current-year capital expenditures ~~included~~include spending on a capacity expansion project at our ~~frozen dinner roll~~dressing and sauce facility in Horse Cave, Kentucky that ~~was completed~~we expect to complete in ~~January 2020~~the first quarter of fiscal 2023, a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that we expect to complete in the ~~purchase~~second quarter of fiscal 2022, and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that we expect to complete in the ~~Omni manufacturing facility that was previously leased.~~second quarter of fiscal 2022.

Cash used in financing activities for the three months ended September 30, ~~2020~~2021 of ~~$21.3~~$26.7 million increased from the prior-year total of ~~$19.6~~$21.3 million. This increase was primarily due to a higher ~~dividend payments.~~level of share repurchases.

Liquidity and Capital Resources

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 September 30, ~~2020.~~2021. At September 30, ~~2020,~~2021, 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 September 30, ~~2020,~~2021, 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 September 30, ~~2020,~~2021, 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. 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~~2022 could total between ~~$70~~$170 and ~~$90 million. In addition, we will also continue~~$190 million, which includes approximately $105 million in initial expenditures attributed to ~~evaluate other potentially significant investments, such as~~ a ~~plant~~substantial investment for a capacity expansion ~~new plant construction or brownfield investment, to meet increasing demand for~~project at our dressing and sauce ~~products.~~facility in Horse Cave, Kentucky that we expect to complete in the first quarter of fiscal 2023.

~~CONTRACTUAL OBLIGATIONS~~Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of liquidity for the foreseeable future. This source, combined with our existing balances in cash and equivalents and amounts available under the Facility, is expected to be sufficient to meet our overall cash requirements.

We have various contractual and other 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~~obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of September 30, ~~2020. There have been no significant changes~~2021, as well as purchase orders and longer-term purchase arrangements related to the ~~contractual~~procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations ~~disclosed~~is expected to be due within one year. See further discussion below of our obligation related to the capacity expansion project at our dressing and sauce facility in ~~our~~Horse Cave, Kentucky.

In November 2020, ~~Annual Report on Form 10-K aside from expected changes~~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 ~~raw-material costs associated with changes~~Hart County, Kentucky (the “Project”). The Project will result in ~~product demand or pricing.~~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, we have a remaining commitment of approximately $78 million for the Project.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our ~~2020~~2021 Annual Report on Form 10-K.

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;~~

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

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

•inflationary pressures resulting in higher input costs;

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

•~~difficulties~~dependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in ~~designing and implementing~~continuing to support our ~~new enterprise resource planning system;~~business;

•adequate supply of labor for our manufacturing facilities;

•efficiencies in plant operations;

•the ~~success and cost~~reaction of ~~new product development efforts;~~

•~~the ability~~customers or consumers to ~~successfully grow recently acquired businesses;~~price increases we may implement;

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

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

•stability of labor relations;

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

•the potential for loss of larger programs, including licensing agreements, or key customer relationships;

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

•price and product competition;

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

•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;

•the ability to successfully grow recently acquired businesses;

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

•certain other factors, including the information disclosed in our discussion of risk factors under Item 1A of our ~~2020~~2021 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 ~~2020~~2021 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 September 30, ~~2020~~2021 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 1. Legal Proceedings

We are required to disclose certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will be in excess of an applied threshold not to exceed $1 million. We are using a threshold of $1 million as we believe this amount is reasonably designed to result in disclosure of such proceedings that are material to our business or financial condition. Applying this threshold, there are no environmental matters to disclose in this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Item 1A in our ~~2020~~2021 Annual Report on Form 10-K.

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 ~~1,315,825~~1,239,539 common shares remained authorized for future repurchases at September 30, ~~2020.~~2021. This share repurchase authorization does not have a stated expiration date. In the first 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
July 1-31, 2020 — $ — — 1,315,911
August 1-31, 2020 (1)
42 $ 168.66 42 1,315,869
September 1-30, 2020 (1)
44 $ 173.66 44 1,315,825
Total 86 $ 171.22 86 1,315,825


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
July 1-31, 2021	—	$	—	—	1,269,701
August 1-31, 2021 (1)	5,062	$	177.73	5,062	1,264,639
September 1-30, 2021	25,100	$	176.45	25,100	1,239,539
Total	30,162	$	176.67	30,162	1,239,539

(1)~~Represents~~Includes 162 shares in August 2021 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 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:

November ~~4, 2020~~3, 2021

By:

/s/ DAVID A. CIESINSKI

David A. Ciesinski

President, Chief Executive Officer

and Director

(Principal Executive Officer)

Date:

November ~~4, 2020~~3, 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

SEPTEMBER 30, ~~2020~~2021

INDEX TO EXHIBITS



Exhibit Number						Description

10.1(a)(b)						Form of Performance Unit Award Agreement for Employees and Consultants under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan

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

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

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

101.INS~~(a)~~(b)						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~~(a)~~(b)						Inline XBRL Taxonomy Extension Schema Document

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

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

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

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

104~~(a)~~(b)						The cover page of Lancaster Colony Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, 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.

(b)						Filed herewith

~~(b)~~(c)						Furnished herewith