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 December 31, ~~2021~~2022


☐			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

As of January ~~14, 2022,~~13, 2023, there were approximately ~~27,535,000~~27,571,000 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 – December 31, ~~2021~~2022 and June 30, ~~2021~~2022	3

	Condensed Consolidated Statements of Income – Three and Six Months Ended December 3 1 ~~, 2021~~ 31, 2022 and ~~2020~~2021	4

	Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended December 3 1 ~~, 2021~~ 31, 2022 and ~~2020~~2021	5

	Condensed Consolidated Statements of Cash Flows – Six Months Ended December 3 1 ~~, 2021~~ 31, 2022 and ~~2020~~2021	6

	Condensed Consolidated Statements of Shareholders’ Equity – Six Months Ended December 3 1 ,31, 2022 and 2021 ~~and 2020~~	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2422

Item 4.	Controls and Procedures	2422

PART II – OTHER INFORMATION		2524

Item 1.	Legal Proceedings	2524

Item 1A.	Risk Factors	2524

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2524



Item 6.	Exhibits	2524

SIGNATURES		26

~~INDEX TO EXHIBITS~~	27

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)	December 31, 2021		June 30, 2021		(Amounts in thousands, except share data)	December 31, 2022		June 30, 2022
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and equivalents	Cash and equivalents	$	114,011	$	188,055	Cash and equivalents	$	95,487	$	60,283
Receivables	Receivables	104,769		97,897		Receivables	126,919		135,496
Inventories:	Inventories:					Inventories:
Raw materials	Raw materials	56,291		48,895		Raw materials	57,795		56,460
Finished goods	Finished goods	98,874		72,980		Finished goods	81,618		88,242
Total inventories	Total inventories	155,165		121,875		Total inventories	139,413		144,702
Other current assets	Other current assets	15,462		15,654		Other current assets	11,817		11,300
Total current assets	Total current assets	389,407		423,481		Total current assets	373,636		351,781
Property, Plant and Equipment:	Property, Plant and Equipment:					Property, Plant and Equipment:
Land, buildings and improvements		293,099		252,174
Machinery and equipment		459,998		424,015
Total cost		753,097		676,189

Property, plant and equipment-gross						Property, plant and equipment-gross	833,871		785,629
Less accumulated depreciation	Less accumulated depreciation	331,357		311,567		Less accumulated depreciation	352,797		334,261
Property, plant and equipment-net	Property, plant and equipment-net	421,740		364,622		Property, plant and equipment-net	481,074		451,368
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	55,463		58,766		Other intangible assets-net	31,066		32,323
Operating lease right-of-use assets	Operating lease right-of-use assets	21,906		22,455		Operating lease right-of-use assets	25,283		28,177
Other noncurrent assets	Other noncurrent assets	23,310		23,590		Other noncurrent assets	17,741		18,354
Total	Total	$	1,120,197	$	1,101,285	Total	$	1,137,171	$	1,090,374
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	127,771	$	110,338	Accounts payable	$	131,688	$	114,972
Accrued liabilities	Accrued liabilities	45,061		63,585		Accrued liabilities	48,483		50,613
Total current liabilities	Total current liabilities	172,832		173,923		Total current liabilities	180,171		165,585
Noncurrent Operating Lease Liabilities	Noncurrent Operating Lease Liabilities	16,248		17,228		Noncurrent Operating Lease Liabilities	17,628		20,494
Other Noncurrent Liabilities	Other Noncurrent Liabilities	24,647		28,285		Other Noncurrent Liabilities	19,471		20,719
Deferred Income Taxes	Deferred Income Taxes	41,461		38,702		Deferred Income Taxes	40,351		38,889
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred stock-authorized 3,050,000 shares; outstanding-none	Preferred stock-authorized 3,050,000 shares; outstanding-none	0		0		Preferred stock-authorized 3,050,000 shares; outstanding-none
Common stock-authorized 75,000,000 shares; outstanding-December-27,533,957 shares; June-27,531,040 shares		133,419		128,617
Common stock-authorized 75,000,000 shares; outstanding-December-27,571,087 shares; June-27,520,237 shares						Common stock-authorized 75,000,000 shares; outstanding-December-27,571,087 shares; June-27,520,237 shares	140,660		137,814
Retained earnings	Retained earnings	1,504,535		1,482,220		Retained earnings	1,517,081		1,485,045
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(8,170)		(8,253)		Accumulated other comprehensive loss	(10,982)		(11,172)
Common stock in treasury, at cost	Common stock in treasury, at cost	(764,775)		(759,437)		Common stock in treasury, at cost	(767,209)		(767,000)
Total shareholders’ equity	Total shareholders’ equity	865,009		843,147		Total shareholders’ equity	879,550		844,687
Total	Total	$	1,120,197	$	1,101,285	Total	$	1,137,171	$	1,090,374

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)	2021		2020		2021		2020		(Amounts in thousands, except per share data)	2022		2021		2022		2021
Net Sales	Net Sales	$	428,427	$	375,015	$	820,483	$	724,252	Net Sales	$	477,394	$	428,427	$	902,931	$	820,483
Cost of Sales	Cost of Sales	331,825		268,170		631,514		524,753		Cost of Sales	375,292		331,825		701,774		631,514
Gross Profit	Gross Profit	96,602		106,845		188,969		199,499		Gross Profit	102,102		96,602		201,157		188,969
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses	51,538		48,247		103,394		96,445		Selling, General and Administrative Expenses	50,775		51,538		100,532		103,394
Change in Contingent Consideration	Change in Contingent Consideration	(2,170)		—		(2,170)		(5,687)		Change in Contingent Consideration	—		(2,170)		—		(2,170)
Restructuring and Impairment Charges	Restructuring and Impairment Charges	1,928		—		1,928		1,195		Restructuring and Impairment Charges	—		1,928		—		1,928
Operating Income	Operating Income	45,306		58,598		85,817		107,546		Operating Income	51,327		45,306		100,625		85,817
Other, Net	Other, Net	111		(27)		131		(23)		Other, Net	478		111		208		131
Income Before Income Taxes	Income Before Income Taxes	45,417		58,571		85,948		107,523		Income Before Income Taxes	51,805		45,417		100,833		85,948
Taxes Based on Income	Taxes Based on Income	11,047		13,941		20,923		25,814		Taxes Based on Income	11,832		11,047		23,268		20,923

Net Income	Net Income	$	34,370	$	44,630	$	65,025	$	81,709	Net Income	$	39,973	$	34,370	$	77,565	$	65,025

Net Income Per Common Share:	Net Income Per Common Share:									Net Income Per Common Share:
Basic	Basic	$	1.25	$	1.62	$	2.36	$	2.97	Basic	$	1.45	$	1.25	$	2.82	$	2.36
Diluted	Diluted	$	1.25	$	1.62	$	2.36	$	2.96	Diluted	$	1.45	$	1.25	$	2.81	$	2.36

Weighted Average Common Shares Outstanding:	Weighted Average Common Shares Outstanding:									Weighted Average Common Shares Outstanding:
Basic	Basic	27,443		27,479		27,451		27,470		Basic	27,471		27,443		27,460		27,451
Diluted	Diluted	27,464		27,518		27,490		27,507		Diluted	27,493		27,464		27,476		27,490

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
(Amounts in thousands)	(Amounts in thousands)	2021		2020		2021		2020		(Amounts in thousands)	2022		2021		2022		2021
Net Income	Net Income	$	34,370	$	44,630	$	65,025	$	81,709	Net Income	$	39,973	$	34,370	$	77,565	$	65,025
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	100		168		200		336		Amortization of loss, before tax	171		100		340		200
Amortization of prior service credit, before tax	Amortization of prior service credit, before tax	(46)		(46)		(91)		(91)		Amortization of prior service credit, before tax	(46)		(46)		(91)		(91)
Total Other Comprehensive Income, Before Tax	Total Other Comprehensive Income, Before Tax	54		122		109		245		Total Other Comprehensive Income, Before Tax	125		54		249		109
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	(24)		(39)		(47)		(78)		Amortization of loss, tax	(40)		(24)		(80)		(47)
Amortization of prior service credit, tax	Amortization of prior service credit, tax	11		11		21		21		Amortization of prior service credit, tax	10		11		21		21
Total Tax Expense	Total Tax Expense	(13)		(28)		(26)		(57)		Total Tax Expense	(30)		(13)		(59)		(26)
Other Comprehensive Income, Net of Tax	Other Comprehensive Income, Net of Tax	41		94		83		188		Other Comprehensive Income, Net of Tax	95		41		190		83
Comprehensive Income	Comprehensive Income	$	34,411	$	44,724	$	65,108	$	81,897	Comprehensive Income	$	40,068	$	34,411	$	77,755	$	65,108

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Six Months Ended December 31,					Six Months Ended December 31,
(Amounts in thousands)	(Amounts in thousands)	2021		2020		(Amounts in thousands)	2022		2021
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	65,025	$	81,709	Net income	$	77,565	$	65,025
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	22,844		21,197		Depreciation and amortization	23,012		22,844
Change in contingent consideration	Change in contingent consideration	(2,170)		(5,687)		Change in contingent consideration	—		(2,170)
Deferred income taxes and other changes	Deferred income taxes and other changes	2,854		2,272		Deferred income taxes and other changes	1,854		2,854
Stock-based compensation expense	Stock-based compensation expense	4,863		3,542		Stock-based compensation expense	5,264		4,863
Restructuring and impairment charges	Restructuring and impairment charges	1,928		1,195		Restructuring and impairment charges	—		1,928

Pension plan activity	Pension plan activity	(274)		(87)		Pension plan activity	(330)		(274)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables	Receivables	(6,872)		(926)		Receivables	8,577		(6,872)
Inventories	Inventories	(33,290)		(23,999)		Inventories	5,289		(33,290)
Other current assets	Other current assets	(892)		140		Other current assets	(517)		(892)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(12,036)		11,500		Accounts payable and accrued liabilities	19,726		(12,036)
Net cash provided by operating activities	Net cash provided by operating activities	41,980		90,856		Net cash provided by operating activities	140,440		41,980
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Payments for property additions	Payments for property additions	(66,695)		(29,554)		Payments for property additions	(56,486)		(66,695)

Proceeds from sale of property						Proceeds from sale of property	1,159		221

Other-net	Other-net	87		(364)		Other-net	(449)		(134)
Net cash used in investing activities	Net cash used in investing activities	(66,608)		(29,918)		Net cash used in investing activities	(55,776)		(66,608)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Payment of dividends	Payment of dividends	(42,710)		(39,925)		Payment of dividends	(45,529)		(42,710)
Purchase of treasury stock	Purchase of treasury stock	(5,338)		(19)		Purchase of treasury stock	(209)		(5,338)
Tax withholdings for stock-based compensation	Tax withholdings for stock-based compensation	(61)		(2,435)		Tax withholdings for stock-based compensation	(2,418)		(61)

Other-net		(1,307)		(451)
Principal payments for finance leases						Principal payments for finance leases	(1,304)		(1,307)
Net cash used in financing activities	Net cash used in financing activities	(49,416)		(42,830)		Net cash used in financing activities	(49,460)		(49,416)

Net change in cash and equivalents	Net change in cash and equivalents	(74,044)		18,108		Net change in cash and equivalents	35,204		(74,044)
Cash and equivalents at beginning of year	Cash and equivalents at beginning of year	188,055		198,273		Cash and equivalents at beginning of year	60,283		188,055
Cash and equivalents at end of period	Cash and equivalents at end of period	$	114,011	$	216,381	Cash and equivalents at end of period	$	95,487	$	114,011
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	$	16,593	$	16,338	Net cash payments for income taxes	$	22,977	$	16,593

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


		Six Months Ended December 31, 2021												Six Months Ended December 31, 2022
(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, 2021		27,531	$	128,617	$	1,482,220	$	(8,253)	$	(759,437)	$	843,147
Balance, June 30, 2022													Balance, June 30, 2022	27,520	$	137,814	$	1,485,045	$	(11,172)	$	(767,000)	$	844,687
Net income	Net income				30,655						30,655		Net income				37,592						37,592
Net pension and postretirement benefit gains, net of $13 tax effect							42				42
Cash dividends - common stock ($0.75 per share)					(20,675)						(20,675)
Purchase of treasury stock		(30)							(5,329)		(5,329)
Stock-based plans		29	(59)								(59)
Stock-based compensation expense			2,274								2,274
Balance, September 30, 2021		27,530	$	130,832	$	1,492,200	$	(8,211)	$	(764,766)	$	850,055
Net income					34,370						34,370
Net pension and postretirement benefit gains, net of $13 tax effect							41				41
Net pension and postretirement benefit gains, net of $29 tax effect													Net pension and postretirement benefit gains, net of $29 tax effect						95				95
Cash dividends - common stock ($0.80 per share)	Cash dividends - common stock ($0.80 per share)				(22,035)						(22,035)		Cash dividends - common stock ($0.80 per share)				(22,067)						(22,067)
Purchase of treasury stock	Purchase of treasury stock	—							(9)		(9)		Purchase of treasury stock	—							(84)		(84)
Stock-based plans	Stock-based plans	4	(2)								(2)		Stock-based plans	34	(617)								(617)
Stock-based compensation expense	Stock-based compensation expense		2,589								2,589		Stock-based compensation expense		2,465								2,465
Balance, December 31, 2021		27,534	$	133,419	$	1,504,535	$	(8,170)	$	(764,775)	$	865,009
Balance, September 30, 2022													Balance, September 30, 2022	27,554	$	139,662	$	1,500,570	$	(11,077)	$	(767,084)	$	862,071
Net income													Net income				39,973						39,973
Net pension and postretirement benefit gains, net of $30 tax effect													Net pension and postretirement benefit gains, net of $30 tax effect						95				95
Cash dividends - common stock ($0.85 per share)													Cash dividends - common stock ($0.85 per share)				(23,462)						(23,462)
Purchase of treasury stock													Purchase of treasury stock	(1)							(125)		(125)
Stock-based plans													Stock-based plans	18	(1,801)								(1,801)
Stock-based compensation expense													Stock-based compensation expense		2,799								2,799
Balance, December 31, 2022													Balance, December 31, 2022	27,571	$	140,660	$	1,517,081	$	(10,982)	$	(767,209)	$	879,550

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)

(UNAUDITED)


		Six Months Ended December 31, 2020												Six Months Ended December 31, 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)
Purchase of treasury stock		—							(15)		(15)
Stock-based plans		16	(1,854)								(1,854)
Stock-based compensation expense			1,772								1,772
Balance, September 30, 2020		27,540	$	125,071	$	1,438,930	$	(11,976)	$	(750,919)	$	801,106
Net income					44,630						44,630
Net pension and postretirement benefit gains, net of $28 tax effect							94				94
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)				(20,655)						(20,655)		Cash dividends - common stock ($0.75 per share)				(20,675)						(20,675)
Purchase of treasury stock	Purchase of treasury stock	—							(4)		(4)		Purchase of treasury stock	(30)							(5,329)		(5,329)
Stock-based plans	Stock-based plans	7	(581)								(581)		Stock-based plans	29	(59)								(59)
Stock-based compensation expense	Stock-based compensation expense		1,770								1,770		Stock-based compensation expense		2,274								2,274
Balance, December 31, 2020		27,547	$	126,260	$	1,462,905	$	(11,882)	$	(750,923)	$	826,360
Balance, September 30, 2021													Balance, September 30, 2021	27,530	$	130,832	$	1,492,200	$	(8,211)	$	(764,766)	$	850,055
Net income													Net income				34,370						34,370
Net pension and postretirement benefit gains, net of $13 tax effect													Net pension and postretirement benefit gains, net of $13 tax effect						41				41
Cash dividends - common stock ($0.80 per share)													Cash dividends - common stock ($0.80 per share)				(22,035)						(22,035)
Purchase of treasury stock													Purchase of treasury stock	—							(9)		(9)
Stock-based plans													Stock-based plans	4	(2)								(2)
Stock-based compensation expense													Stock-based compensation expense		2,589								2,589
Balance, December 31, 2021													Balance, December 31, 2021	27,534	$	133,419	$	1,504,535	$	(8,170)	$	(764,775)	$	865,009

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 ~~2021~~2022 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, ~~2022~~2023 refers to fiscal ~~2022,~~2023, which is the period from July 1, ~~2021~~2022 to June 30, ~~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 six months ended December 31, 2021 and 2020, we capitalized $1.1 million and $2.8 million, respectively, of deferred software costs related to cloud computing arrangements.2023.

Property, Plant and Equipment

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

December 31,
2021 2020
Construction in progress in Accounts Payable $ 26,080 $ 3,415


	December 31,
	2022		2021
Construction in progress in Accounts Payable	$	15,062	$	26,080

Accrued ~~Compensation and Employee Benefits~~Distribution

Accrued ~~compensation and employee benefits~~distribution included in Accrued Liabilities was ~~$14.9~~$10.3 million and ~~$32.5~~$11.9 million at December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, 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, stock-settled stock appreciation 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, stock-settled stock appreciation 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 December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	34,370	$	44,630	$	65,025	$	81,709	Net income	$	39,973	$	34,370	$	77,565	$	65,025
Net income available to participating securities	Net income available to participating securities	(98)		(94)		(185)		(173)		Net income available to participating securities	(118)		(98)		(232)		(185)
Net income available to common shareholders	Net income available to common shareholders	$	34,272	$	44,536	$	64,840	$	81,536	Net income available to common shareholders	$	39,855	$	34,272	$	77,333	$	64,840

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic	27,443		27,479		27,451		27,470		Weighted average common shares outstanding – basic	27,471		27,443		27,460		27,451
Incremental share effect from:	Incremental share effect from:									Incremental share effect from:
Nonparticipating restricted stock	Nonparticipating restricted stock	2		2		3		3		Nonparticipating restricted stock	2		2		3		3
Stock-settled stock appreciation rights(1)	Stock-settled stock appreciation rights(1)	19		37		34		34		Stock-settled stock appreciation rights(1)	18		19		9		34
Performance units	Performance units	—		—		2		—		Performance units	2		—		4		2
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted	27,464		27,518		27,490		27,507		Weighted average common shares outstanding – diluted	27,493		27,464		27,476		27,490

Net income per common share – basic	Net income per common share – basic	$	1.25	$	1.62	$	2.36	$	2.97	Net income per common share – basic	$	1.45	$	1.25	$	2.82	$	2.36
Net income per common share – diluted	Net income per common share – diluted	$	1.25	$	1.62	$	2.36	$	2.96	Net income per common share – diluted	$	1.45	$	1.25	$	2.81	$	2.36

(1)Excludes the impact of the following weighted average stock-settled stock appreciation rights outstanding with an antidilutive effect: 0.1 million and 0.3 million for the three months ended December 31, 2022 and 2021, respectively; and 0.2 million for the six months ended December 31, 2022 and 2021.

Accumulated Other Comprehensive Loss

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


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Accumulated other comprehensive loss at beginning of period	Accumulated other comprehensive loss at beginning of period	$	(8,211)	$	(11,976)	$	(8,253)	$	(12,070)	Accumulated other comprehensive loss at beginning of period	$	(11,077)	$	(8,211)	$	(11,172)	$	(8,253)
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	107		173		214		346		Amortization of unrecognized net loss	182		107		363		214
Postretirement Benefit Plan Items:	Postretirement Benefit Plan Items:									Postretirement Benefit Plan Items:
Amortization of unrecognized net gain	Amortization of unrecognized net gain	(7)		(5)		(14)		(10)		Amortization of unrecognized net gain	(11)		(7)		(23)		(14)
Amortization of prior service credit	Amortization of prior service credit	(46)		(46)		(91)		(91)		Amortization of prior service credit	(46)		(46)		(91)		(91)
Total other comprehensive income, before tax	Total other comprehensive income, before tax	54		122		109		245		Total other comprehensive income, before tax	125		54		249		109
Total tax expense	Total tax expense	(13)		(28)		(26)		(57)		Total tax expense	(30)		(13)		(59)		(26)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	41		94		83		188		Other comprehensive income, net of tax	95		41		190		83

Accumulated other comprehensive loss at end of period	Accumulated other comprehensive loss at end of period	$	(8,170)	$	(11,882)	$	(8,170)	$	(11,882)	Accumulated other comprehensive loss at end of period	$	(10,982)	$	(8,170)	$	(10,982)	$	(8,170)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our ~~2021~~2022 Annual Report on Form 10-K.

Recent Accounting Standards

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

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.

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-out associated with our acquisition of Bantam Bagels, LLC (“Bantam”), is measured at fair value on a recurring basis and is included in Other Noncurrent Liabilities. The following table summarizes our contingent consideration:

Fair Value Measurements at December 31, 2021
Level 1 Level 2 Level 3 Total
Contingent consideration - Bantam $ — $ — $ 1,300 $ 1,300
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~~Contingent consideration resulted from the earn-out associated with our October 19, 2018 acquisition of ~~Bantam.~~Bantam Bagels, LLC (“Bantam”). In general, the terms of the acquisition ~~specify~~specified the sellers ~~will~~could receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Bantam for the twelve months ending December 31, 2023. The initial fair value of the contingent consideration was determined to be $8.0 million. ~~The~~Prior to exiting the Bantam business near the end of fiscal 2022, the fair value iswas measured on a recurring basis using a Monte Carlo simulation that randomly ~~changes~~changed revenue growth, forecasted adjusted EBITDA and other uncertain variables to estimate an expected value. We ~~record~~recorded the present value of ~~this amount~~these amounts by applying a discount rate. As ~~this~~these fair value ~~measurement is~~measurements were based on significant inputs not observable in the market, ~~it represents a~~they represented Level 3 ~~measurement~~measurements within the fair value hierarchy.

Our fair value measurement at December 31, 2021 resulted in a $2.2 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, as well as a refinement to the estimated probabilities applied to our forecast scenarios.consideration. The changes in forecasted adjusted EBITDA primarily reflected lower projected sales levels for Bantam’s Retail business while the changes in estimated probabilities reflected a lower likelihood of attaining certain Foodservice business. We recorded $1.3 million of this adjustment in our Foodservice segment and $0.9 million in our Retail segment.

~~Our fair value measurement at September 30, 2020 resulted in a $5.7 million reduction in the~~ fair value of ~~Bantam’s~~the contingent consideration ~~based on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December~~was written down to zero at March 31, 2023. The changes in forecasted adjusted EBITDA primarily reflected the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020. This adjustment was recorded in our Foodservice segment.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

2022.

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


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Contingent consideration at beginning of period	Contingent consideration at beginning of period	$	3,470	$	3,470	$	3,470	$	9,157	Contingent consideration at beginning of period	$	—	$	3,470	$	—	$	3,470

Change in contingent consideration included in operating income	Change in contingent consideration included in operating income	(2,170)		—		(2,170)		(5,687)		Change in contingent consideration included in operating income	—		(2,170)		—		(2,170)
Contingent consideration at end of period	Contingent consideration at end of period	$	1,300	$	3,470	$	1,300	$	3,470	Contingent consideration at end of period	$	—	$	1,300	$	—	$	1,300

Note 3 – Long-Term Debt

At December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, 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~~The Facility was amended on December 13, 2022 to reflect a change in the calculation of the variable ~~based upon~~interest rate from formulas tied to LIBOR to formulas tied to SOFR or an alternate base rate as defined in the Facility. In the event ~~that LIBOR~~SOFR 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.

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.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

At December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, we had no borrowings outstanding under the Facility. At December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. We paid no interest for the three and six months ended December 31, ~~2021~~2022 and ~~2020.~~2021.

Note 4 – Commitments and Contingencies

At December 31, ~~2021,~~2022, 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~~is not expected to have a material effect on our consolidated financial statements.

~~We have a significant remaining commitment of approximately $60 million related to a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky.~~

~~Our acquisition of Bantam included a provision for contingent consideration for the earn-out associated with 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 December 31, ~~2021~~2022 and June 30, ~~2021.~~

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

2022.

The following table summarizes our identifiable other intangible assets:


		December 31, 2021		June 30, 2021			December 31, 2022		June 30, 2022

Tradenames (20 to 30-year life)	Tradenames (20 to 30-year life)					Tradenames (20 to 30-year life)
Gross carrying value	Gross carrying value	$	62,531	$	62,531	Gross carrying value	$	37,100	$	37,100
Accumulated amortization	Accumulated amortization	(13,701)		(12,421)		Accumulated amortization	(9,052)		(8,385)
Net carrying value	Net carrying value	$	48,830	$	50,110	Net carrying value	$	28,048	$	28,715

Customer Relationships (2 to 15-year life)
Customer Relationships (10 to 15-year life)						Customer Relationships (10 to 15-year life)
Gross carrying value	Gross carrying value	$	15,207	$	17,507	Gross carrying value	$	5,287	$	14,207
Accumulated amortization	Accumulated amortization	(12,215)		(12,912)		Accumulated amortization	(4,076)		(12,727)
Net carrying value	Net carrying value	$	2,992	$	4,595	Net carrying value	$	1,211	$	1,480
Technology / Know-how (10-year life)	Technology / Know-how (10-year life)					Technology / Know-how (10-year life)
Gross carrying value	Gross carrying value	$	8,020	$	8,020	Gross carrying value	$	6,350	$	6,350
Accumulated amortization	Accumulated amortization	(4,379)		(3,973)		Accumulated amortization	(4,543)		(4,222)
Net carrying value	Net carrying value	$	3,641	$	4,047	Net carrying value	$	1,807	$	2,128
Non-compete Agreements (5-year life)
Gross carrying value		$	191	$	191
Accumulated amortization		(191)		(177)
Net carrying value		$	—	$	14

Total net carrying value	Total net carrying value	$	55,463	$	58,766	Total net carrying value	$	31,066	$	32,323

In the three months ended December 31, 2021, we recorded an impairment charge of $0.9 million related to Bantam’s Retail customer relationships intangible asset, which ~~reflects~~reflected lower projected cash flows for Bantam’s Retail business. The impairment charge ~~represents~~represented the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful life of the intangible asset. As this fair value measurement was based on significant inputs not observable in the market, it represented a Level 3 measurement within the fair value hierarchy. The impairment charge iswas reflected in Restructuring and Impairment Charges and was recorded in our Retail segment.

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 reflected the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020. The impairment charges represent the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful lives of the intangible assets. The impairment charges are reflected in Restructuring and Impairment Charges 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
December 31, Six Months Ended
December 31,
2021 2020 2021 2020
Amortization expense $ 1,260 $ 1,508 $ 2,401 $ 2,849


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Amortization expense	$	628	$	1,260	$	1,257	$	2,401

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


2023		$	4,047
2024	2024	$	4,047	2024	$	2,514
2025	2025	$	3,787	2025	$	2,212
2026	2026	$	3,157	2026	$	1,610
2027	2027	$	2,986	2027	$	1,426
2028				2028	$	1,334

1312

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 6 – Income Taxes

Prepaid federal income taxes of ~~$3.9 million and $5.1~~$2.3 million were included in Other Current Assets at December 31, ~~2021 and June 30, 2021, respectively.~~2022. Prepaid state and local income taxes of ~~$0.7~~$0.8 million and ~~$1.1~~$1.9 million were included in Other Current Assets at December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively.

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.

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

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 sold other roll products under a 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 December 31, ~~2021~~2022 is generally consistent with that of June 30, ~~2021.~~2022.

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


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Net Sales	Net Sales									Net Sales
Retail	Retail	$	245,085	$	222,570	$	468,974	$	416,295	Retail	$	258,763	$	245,085	$	481,979	$	468,974
Foodservice	Foodservice	183,342		152,445		351,509		307,957		Foodservice	218,631		183,342		420,952		351,509
Total	Total	$	428,427	$	375,015	$	820,483	$	724,252	Total	$	477,394	$	428,427	$	902,931	$	820,483
Operating Income	Operating Income									Operating Income
Retail	Retail	$	49,606	$	60,720	$	97,784	$	103,378	Retail	$	49,352	$	49,606	$	92,252	$	97,784
Foodservice	Foodservice	18,309		18,336		34,134		45,757		Foodservice	26,696		18,309		58,625		34,134
Nonallocated Restructuring and Impairment Charges (1)	Nonallocated Restructuring and Impairment Charges (1)	(1,026)		—		(1,026)		—		Nonallocated Restructuring and Impairment Charges (1)	—		(1,026)		—		(1,026)
Corporate Expenses	Corporate Expenses	(21,583)		(20,458)		(45,075)		(41,589)		Corporate Expenses	(24,721)		(21,583)		(50,252)		(45,075)
Total	Total	$	45,306	$	58,598	$	85,817	$	107,546	Total	$	51,327	$	45,306	$	100,625	$	85,817

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

1413

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Retail	Retail									Retail
Shelf-stable dressings, sauces and croutons	Shelf-stable dressings, sauces and croutons	$	87,334	$	64,575	$	177,861	$	123,519	Shelf-stable dressings, sauces and croutons	$	94,711	$	87,334	$	185,749	$	177,861
Frozen breads	Frozen breads	110,379		103,686		185,098		176,529		Frozen breads	117,424		110,379		190,282		185,098
Refrigerated dressings, dips and other	Refrigerated dressings, dips and other	47,372		54,309		106,015		116,247		Refrigerated dressings, dips and other	46,628		47,372		105,948		106,015
Total Retail net sales	Total Retail net sales	$	245,085	$	222,570	$	468,974	$	416,295	Total Retail net sales	$	258,763	$	245,085	$	481,979	$	468,974
Foodservice	Foodservice									Foodservice
Dressings and sauces	Dressings and sauces	$	136,038	$	111,225	$	260,797	$	226,176	Dressings and sauces	$	160,855	$	136,038	$	311,915	$	260,797
Frozen breads and other	Frozen breads and other	47,304		40,282		90,712		78,074		Frozen breads and other	57,776		47,304		109,037		90,712
Other roll products		—		938		—		3,707

Total Foodservice net sales	Total Foodservice net sales	$	183,342	$	152,445	$	351,509	$	307,957	Total Foodservice net sales	$	218,631	$	183,342	$	420,952	$	351,509
Total net sales	Total net sales	$	428,427	$	375,015	$	820,483	$	724,252	Total net sales	$	477,394	$	428,427	$	902,931	$	820,483

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


		Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Foodservice	Foodservice									Foodservice
National accounts	National accounts	$	141,753	$	116,827	$	267,881	$	234,905	National accounts	$	171,814	$	141,753	$	332,006	$	267,881
Branded and other	Branded and other	41,589		34,680		83,628		69,345		Branded and other	46,817		41,589		88,946		83,628
Other roll products		—		938		—		3,707

Total Foodservice net sales	Total Foodservice net sales	$	183,342	$	152,445	$	351,509	$	307,957	Total Foodservice net sales	$	218,631	$	183,342	$	420,952	$	351,509

Note 8 – Stock-Based Compensation

There have been no changes to our stock-based compensation plan as disclosed in our ~~2021~~2022 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 ~~$1.0~~$0.7 million and ~~$0.8~~$1.0 million for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Year-to-date SSSARs compensation expense was ~~$2.0~~$1.4 million for the current-year period compared to ~~$1.7~~$2.0 million for the prior-year period. At December 31, ~~2021,~~2022, there was ~~$4.7~~$1.8 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of ~~2 years.~~1 year.

Our restricted stock compensation expense was ~~$1.3~~$1.5 million and ~~$0.9~~$1.3 million for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Year-to-date restricted stock compensation expense was ~~$2.4~~$2.8 million for the current-year period compared to ~~$1.8~~$2.4 million for the prior-year period. At December 31, ~~2021,~~2022, there was ~~$8.5~~$7.9 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 $0.6 million and $0.3 million for the three months ended December 31, ~~2021.~~2022 and 2021, respectively. Year-to-date performance units compensation expense was $1.1 million for the current-year period compared to $0.5 million for the ~~current-year~~prior-year period. At December 31, ~~2021,~~2022, there was ~~$3.2~~$5.6 million of unrecognized compensation expense related to performance units that we will recognize over a weighted-average period of 32 years.

1514

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, ~~2022~~2023 refers to fiscal ~~2022,~~2023, which is the period from July 1, ~~2021~~2022 to June 30, ~~2022.~~2023.

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 ~~2021~~2022 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.

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

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

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

•recognized innovation in Retail products;

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

•well-regarded culinary expertise among Foodservice customers;

•recognized leadership in Foodservice product development;

•experience in integrating complementary business acquisitions; and

•historically strong cash flow generation that supports growth opportunities.

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

•introducing new products and expanding distribution;

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

•expanding Retail growth through strategic licensing agreements;

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

•acquiring complementary businesses.

With respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include:

•a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that ~~we expect to complete~~commenced commercial production in ~~the first half of fiscal 2023;~~December 2022;

•a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;

•a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that ~~we expect to complete during the third 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;~~March 2022; and

•the establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our enterprise resource planning system (“ERP”) project and related initiatives, Project Ascent, that is currently ~~underway.~~in the implementation phase.

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. Implementation of this system began in July 2022 and will continue throughout fiscal 2023. Customer fulfillment levels remained strong before and after the system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. We remain on schedule to complete the planned implementation of Project Ascent in fiscal 2024.

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~~as well as 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.BUSINESS TRENDS

~~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. COVID-19 has surfaced in all regions around the world and resulted in business slowdowns or 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 continue to monitor the latest guidance from authorities, including the Centers for Disease Control and Prevention and other federal, state and local public health departments, regarding COVID-19 and adopt the appropriate measures to ensure we continue to operate safely and support our employees. We 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 commitmentDating back to the ~~health, safety and welfare~~onset of ~~our employees, we implemented some policy changes and put~~the COVID-19 pandemic in ~~place a range of safety modifications and guidelines in our factories, distribution centers and offices, including but not limited to:~~

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

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

•~~staggered~~2020, the ~~timing of shift changes and breaks;~~

•~~adjusted our attendance requirements and paid leave policy; and~~

•~~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 the end of fiscal 2021.~~

With respect to our second priority, we have experienced some disruptions to our shipping and warehousing operations and our sourcing of raw materials and packaging, particularly during the quarter ended December 31, 2021. We have secured additional second-sourcing options to help limit the risk of supply disruptions and have also secured additional warehousing space to accommodate higher inventory levels needed to service our customers.

~~The~~ effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. ~~Specifically, since the onset of the COVID-19 pandemic near the end of our fiscal~~More specifically, beginning in March 2020, ~~third quarter, there has been an overall shift in~~ consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining. ~~While~~Over the course of the following two years, while this shift in demand ~~has been~~was inconsistent and volatile, on balance it ~~has~~ positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment ~~sales.~~sales volumes. From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, ~~such as~~unfavorably impacted the operating results of both our segments. These issues included higher hourly wage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution ~~network have unfavorably impacted~~network. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating ~~results~~environment became more predictable and stable.

The inflationary cost environment we experienced during 2022 resulted in significantly higher input costs for our business. During 2022, we endured unprecedented inflationary costs for commodities, particularly soybean oil and flour, in addition to notably higher costs for packaging, freight and warehousing, and labor. This cost inflation was attributed to numerous factors such as the impacts of ~~both our segments.~~

the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions. We continued to experience significant cost inflation through the first half of 2023, particularly for soybean oil, eggs and flour.

RESULTS OF CONSOLIDATED OPERATIONS


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Three Months Ended December 31,										Six Months Ended December 31,										(Dollars in thousands, except per share data)	Three Months Ended December 31,										Six Months Ended December 31,
		2021			2020			Change				2021			2020			Change					2022			2021			Change				2022			2021			Change
Net Sales	Net Sales	$	428,427		$	375,015		$	53,412	14	%	$	820,483		$	724,252		$	96,231	13	%	Net Sales	$	477,394		$	428,427		$	48,967	11	%	$	902,931		$	820,483		$	82,448	10	%
Cost of Sales	Cost of Sales	331,825			268,170			63,655		24	%	631,514			524,753			106,761		20	%	Cost of Sales	375,292			331,825			43,467		13	%	701,774			631,514			70,260		11	%
Gross Profit	Gross Profit	96,602			106,845			(10,243)		(10)	%	188,969			199,499			(10,530)		(5)	%	Gross Profit	102,102			96,602			5,500		6	%	201,157			188,969			12,188		6	%
Gross Margin	Gross Margin	22.5		%	28.5		%					23.0		%	27.5		%					Gross Margin	21.4		%	22.5		%					22.3		%	23.0		%
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses	51,538			48,247			3,291		7	%	103,394			96,445			6,949		7	%	Selling, General and Administrative Expenses	50,775			51,538			(763)		(1)	%	100,532			103,394			(2,862)		(3)	%
Change in Contingent Consideration	Change in Contingent Consideration	(2,170)			—			(2,170)		N/M		(2,170)			(5,687)			3,517		(62)	%	Change in Contingent Consideration	—			(2,170)			2,170		(100)	%	—			(2,170)			2,170		(100)	%
Restructuring and Impairment Charges	Restructuring and Impairment Charges	1,928			—			1,928		N/M		1,928			1,195			733		61	%	Restructuring and Impairment Charges	—			1,928			(1,928)		(100)	%	—			1,928			(1,928)		(100)	%
Operating Income	Operating Income	45,306			58,598			(13,292)		(23)	%	85,817			107,546			(21,729)		(20)	%	Operating Income	51,327			45,306			6,021		13	%	100,625			85,817			14,808		17	%
Operating Margin	Operating Margin	10.6		%	15.6		%					10.5		%	14.8		%					Operating Margin	10.8		%	10.6		%					11.1		%	10.5		%
Other, Net	Other, Net	111			(27)			138		511	%	131			(23)			154		670	%	Other, Net	478			111			367		331	%	208			131			77		59	%
Income Before Income Taxes	Income Before Income Taxes	45,417			58,571			(13,154)		(22)	%	85,948			107,523			(21,575)		(20)	%	Income Before Income Taxes	51,805			45,417			6,388		14	%	100,833			85,948			14,885		17	%
Taxes Based on Income	Taxes Based on Income	11,047			13,941			(2,894)		(21)	%	20,923			25,814			(4,891)		(19)	%	Taxes Based on Income	11,832			11,047			785		7	%	23,268			20,923			2,345		11	%
Effective Tax Rate	Effective Tax Rate	24.3		%	23.8		%					24.3		%	24.0		%					Effective Tax Rate	22.8		%	24.3		%					23.1		%	24.3		%
Net Income	Net Income	$	34,370		$	44,630		$	(10,260)	(23)	%	$	65,025		$	81,709		$	(16,684)	(20)	%	Net Income	$	39,973		$	34,370		$	5,603	16	%	$	77,565		$	65,025		$	12,540	19	%
Diluted Net Income Per Common Share	Diluted Net Income Per Common Share	$	1.25		$	1.62		$	(0.37)	(23)	%	$	2.36		$	2.96		$	(0.60)	(20)	%	Diluted Net Income Per Common Share	$	1.45		$	1.25		$	0.20	16	%	$	2.81		$	2.36		$	0.45	19	%

Net Sales

Consolidated net sales for the three months ended December 31, ~~2021~~2022 increased ~~14%~~11% to a second quarter record $477.4 million versus $428.4 million ~~versus $375.0 million~~ last ~~year.~~ year, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs. Consolidated sales volumes, measured in pounds shipped, decreased 4% for the three months ended December 31, 2022. In the prior-year quarter ended December 31, 2021, consolidated sales volumes increased 6%.

Consolidated net sales for the six months ended December 31, ~~2021~~2022 increased ~~13%~~10% to $902.9 million versus $820.5 million ~~versus $724.3 million~~ last ~~year. Sales growth for the quarter and year-to-date periods reflected~~year, reflecting higher net sales for both the Retail and Foodservice ~~segments.~~segments driven by pricing to offset inflationary costs. Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1. Consolidated sales volumes, measured in pounds shipped, ~~increased 6% and 5%~~decreased 7% for the ~~three and~~ six months ended December 31, ~~2021, respectively.~~ 2022. In the prior year, consolidated sales volumes increased 5% for the six months ended December 31, 2021.

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 December 31, ~~2021 decreased~~2022 increased $5.5 million to ~~$96.6~~$102.1 million ~~compared to $106.8 million in~~as our pricing actions effectively offset the ~~prior-year period driven by the unfavorable impacts of significantly higher commodity and~~significant inflationary costs we have experienced for commodities, packaging, ~~costs, increased costs to service the shifting demands of our business, incremental expenditures attributed to our increased reliance upon co-manufacturers to help satisfy growing demand, higher~~labor, freight and ~~warehousing costs, increased labor costs, ingredient and packaging supply shortages,~~warehousing. The higher gross profit also reflects improved manufacturing efficiencies and a ~~less favorable sales mix. Inflationary pricing and our ongoing cost savings programs partially offset these unfavorable impacts.~~more stable operating environment.

Consolidated gross profit for the six months ended December 31, ~~2021 decreased 5%~~2022 increased $12.2 million to ~~$189.0~~$201.2 million ~~compared~~as influenced by the pricing actions we have taken to $199.5 million in the prior-year period as significantly higher commodity and packaging costs, increased costs to service the shifting demands of our business, incremental expenditures attributed to our increased reliance upon co-manufacturers, higher freight and warehousing costs, and increased labor costsoffset significant inflationary costs. Gross profit also benefited from a more ~~than offset the sales growth~~stable operating environment and our ~~ongoing cost savings programs.~~actions taken to exit less profitable product lines and reduce headcount.

Selling, General and Administrative Expenses

Three Months Ended
December 31, Six Months Ended
December 31,
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
SG&A Expenses - Excluding Project Ascent $ 42,945 $ 39,741 $ 3,204 8 % $ 85,372 $ 79,653 $ 5,719 7 %
Project Ascent Expenses 8,593 8,506 87 1 % 18,022 16,792 1,230 7 %
Total SG&A Expenses $ 51,538 $ 48,247 $ 3,291 7 % $ 103,394 $ 96,445 $ 6,949 7 %


	Three Months Ended December 31,								Six Months Ended December 31,
(Dollars in thousands)	2022		2021		Change				2022		2021		Change
SG&A Expenses - Excluding Project Ascent	$	43,324	$	42,945	$	379	1	%	$	83,862	$	85,372	$	(1,510)	(2)	%
Project Ascent Expenses	7,451		8,593		(1,142)		(13)	%	16,670		18,022		(1,352)		(8)	%
Total SG&A Expenses	$	50,775	$	51,538	$	(763)	(1)	%	$	100,532	$	103,394	$	(2,862)	(3)	%

Selling, general and administrative (“SG&A”) expenses for the three months ended December 31, ~~2021 increased 7%~~2022 decreased 1% to ~~$51.5~~$50.8 million compared to ~~$48.2~~$51.5 million in the prior-year period. This ~~increase~~decline was driven by a higher level of investments to support the continued growth of our business. These investments included a supply chain optimization study, higher brokerage costs attributed to the increased sales, a modest resumptionlower professional fees, reduced levels of consumer ~~spending~~promotions and ~~IT infrastructure improvements. Expenditures~~decreased expenditures for Project Ascent, our ERP ~~initiative,~~initiative. These reduced costs were partially offset by increased investments in personnel and IT. Project Ascent costs totaled ~~$8.6~~$7.5 million in the current-year quarter versus ~~$8.5~~$8.6 million last year.

SG&A expenses for the six months ended December 31, ~~2021 increased 7%~~2022 decreased 3% to ~~$103.4~~$100.5 million compared to ~~$96.4~~$103.4 million in the prior ~~year, reflecting~~year. This decline reflects lower levels of consumer promotions, a decrease in professional fees and a reduction in expenditures for Project Ascent, as partially offset by increased investments in personnel and ~~business initiatives to support continued growth as well as higher expenditures for Project Ascent.~~IT. Project Ascent expenses ~~increased $1.2~~decreased $1.4 million to ~~$18.0~~$16.7 million.

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 completion of our ERP implementation.

Change in Contingent Consideration

~~For~~In the ~~three and six months ended December 31, 2021,~~prior year, the change in contingent consideration resulted in a benefit of $2.2 ~~million.~~million for the three and six months ended December 31, 2021. This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our December 31, 2021 fair value measurement. The fair value adjustment was based on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023, as well as a refinement to the estimated probabilities applied to our forecast scenarios. We recorded $1.3 million of this adjustment in our Foodservice segment and $0.9 million in our Retail segment.

There was no change in contingent consideration for the three months ended December 31, 2020. For the six months ended December 31, 2020, the change in contingent consideration resulted in a benefit of $5.7 million. This benefit was attributed to a reduction in the The fair value of ~~the~~this contingent consideration ~~liability for~~was written down to zero at March 31, 2022. We ultimately exited the Bantam ~~based on our September 30, 2020 fair value measurement. The fair value adjustment resulted from~~business near the ~~impact~~end of ~~a SKU rationalization by a Foodservice customer, and therefore the entire adjustment was reflected within the Foodservice segment.~~

fiscal 2022. See further discussion ~~of these adjustments~~ in Note 2 to the condensed consolidated financial statements.

Restructuring and Impairment Charges

In the ~~second~~prior-year quarter ~~of 2022,~~ended December 31, 2021, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network. ~~Production at the facility ceased in January 2022, and the Mamma Bella~~® brand frozen garlic bread product line was discontinued based on its small size and low profitability. Certain facility clean-up and closure activities are expected to continue into March 2022. The Baldwin Park facility is a leased building with the lease term ending in June 2023. The operations of this facility ~~have~~were not ~~been~~ classified as discontinued operations as the closure ~~does~~did not represent a strategic shift that would have a major effect on our operations or financial results. WeFor the three and six months ended December 31, 2021, we recorded restructuring and impairment charges of $1.0 million, ~~related to this closure for the three and six months ended December 31, 2021. The restructuring and impairment charges,~~ which consisted of one-time termination benefits and impairment charges for fixed assets and the operating lease right-of-use ~~asset,~~asset. These charges were not allocated to our two reportable segments due to their unusual nature.

~~For~~

In the prior year, we also recorded an impairment charge of $0.9 million for the three and six months ended December 31, 2021 ~~we also recorded an impairment charge of $0.9 million~~ related to Bantam’s Retail customer relationships intangible asset, which ~~reflects~~reflected lower projected cash flows for Bantam’s Retail business. ~~The~~This impairment charge ~~represents the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful life of the intangible asset and~~ was reflected in our Retail segment.

For the six months ended December 31, 2020, we recorded impairment charges of $1.2 million related to certain tradename and technology / know-how intangible assets for Bantam as a result of the impact of the above-referenced SKU rationalization by a Foodservice customer. The impairment charges represent the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful lives of the intangible assets and were reflected within our Foodservice segment for the three months ended September 30, 2020.

Operating Income

Operating income ~~decreased 23%~~increased $6.0 million to ~~$45.3~~$51.3 million for the three months ended December 31, ~~2021. In~~2022 driven by the ~~current-year quarter, operating income was negatively affected by higher commodity and~~increase in gross profit as our pricing actions served to offset the significant inflationary costs we have experienced for commodities, packaging, ~~costs, increased co-manufacturing costs, higher~~labor, freight and ~~warehousing costs, higher labor costs, ingredient and packaging supply shortages,~~warehousing. Operating income also benefited from improved manufacturing efficiencies, a more stable operating environment and a ~~higher level of~~decline in SG&A expenditures to support the continued growth of our business. These unfavorable factors were partially offset by the increased sales volume and pricing actions in addition to our ongoing cost savings programs.expenditures.

Operating income ~~decreased $21.7~~increased $14.8 million to ~~$85.8~~$100.6 million for the six months ended December 31, ~~2021. The prior-year period included the $5.7 million benefit related to Bantam’s contingent consideration. In the current year, operating income was~~

negatively affected by higher commodity and packaging costs, increased co-manufacturing costs, higher freight and warehousing costs, increased labor costs, a higher level of SG&A expenditures to support the continued growth of our business, and increased expenditures for Project Ascent. These unfavorable factors were partially offset2022 driven by the ~~increased sales volume and pricing actions in addition to our ongoing cost savings programs.~~same factors noted for the three months ended December 31, 2022.

See discussion of operating results by segment following the discussion of “Earnings Per Share” below.

Taxes Based on Income

Our effective tax rate was ~~24.3%~~23.1% and ~~24.0%~~24.3% for the six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively. For the six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:


		Six Months Ended December 31,					Six Months Ended December 31,
		2021		2020			2022		2021
Statutory rate	Statutory rate	21.0	%	21.0	%	Statutory rate	21.0	%	21.0	%
State and local income taxes	State and local income taxes	3.3		3.4		State and local income taxes	2.4		3.3
Net windfall tax benefits - stock-based compensation	Net windfall tax benefits - stock-based compensation	—		(0.5)		Net windfall tax benefits - stock-based compensation	(0.4)		—
Other	Other	—		0.1		Other	0.1		—
Effective rate	Effective rate	24.3	%	24.0	%	Effective rate	23.1	%	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 six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.4% and less than 0.1% ~~and 0.5%~~, respectively.

Earnings Per Share

~~Diluted~~As influenced by the factors discussed above, diluted net income per share for the second quarter of ~~2022~~2023 totaled ~~$1.25,~~$1.45, as compared to ~~$1.62~~$1.25 per diluted share in the prior year. Expenditures for Project Ascent reduced diluted earnings per share by ~~$0.24~~$0.21 and ~~$0.23~~$0.24 for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively. For the three months ended December 31, 2021, the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.06 while restructuring and impairment charges had an unfavorable impact of $0.05 per diluted share.

For the six months ended December 31, ~~2021,~~2022, diluted net income per share totaled ~~$2.36,~~$2.81, as compared to ~~$2.96~~$2.36 per diluted share in the prior year. For the six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, expenditures for Project Ascent reduced diluted earnings per share by $0.47 and $0.50, ~~and $0.46, respectively;~~respectively. For the six months ended December 31, 2021, the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.06 ~~and $0.16, respectively; and~~while restructuring and impairment charges ~~reduced~~had an unfavorable impact of $0.05 per diluted ~~earnings per share by $0.05 and $0.03, respectively.~~share.

Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended December 31.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment


		Three Months Ended December 31,										Six Months Ended December 31,											Three Months Ended December 31,										Six Months Ended December 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			Change				2021			2020			Change				(Dollars in thousands)	2022			2021			Change				2022			2021			Change
Net Sales	Net Sales	$	245,085		$	222,570		$	22,515	10	%	$	468,974		$	416,295		$	52,679	13	%	Net Sales	$	258,763		$	245,085		$	13,678	6	%	$	481,979		$	468,974		$	13,005	3	%
Operating Income	Operating Income	$	49,606		$	60,720		$	(11,114)	(18)	%	$	97,784		$	103,378		$	(5,594)	(5)	%	Operating Income	$	49,352		$	49,606		$	(254)	(1)	%	$	92,252		$	97,784		$	(5,532)	(6)	%
Operating Margin	Operating Margin	20.2		%	27.3		%					20.9		%	24.8		%					Operating Margin	19.1		%	20.2		%					19.1		%	20.9		%

For the three months ended December 31, ~~2021,~~2022, Retail segment net sales ~~reached $245.1~~increased 6% to $258.8 million ~~a 10% increase~~ from the prior-year total of ~~$222.6 million. In addition~~$245.1 million, including the favorable impact of inflationary pricing. Key contributors to the ~~benefit of inflationary pricing,~~increase in Retail segment net sales ~~were driven by volume gains for Chick-fil-A~~included New York BRAND Bakery® ~~sauces~~frozen garlic bread and our licensing program, driven by sales gains for Buffalo Wild Wings® sauces ~~both of which are sold under exclusive licensing agreements,~~ and ~~higher sales of our Sister Schubert’s~~the recently launched Arby’s® ~~frozen dinner rolls.~~Horsey Sauce® and Arby’s Sauce® products. Retail segment sales volumes, measured in pounds shipped, decreased 4% primarily due to price elasticity. Retail segment sales volumes in the current year were also unfavorably impacted by our decision to exit less profitable product lines during 2022 including some private label dressings and Mamma Bella® frozen garlic bread. In the prior-year quarter ended December 31, 2021, Retail sales volumes increased 4%.

For the six months ended December 31, 2022, Retail segment net sales increased 3% to $482.0 million compared to the prior-year total of $469.0 million, including the favorable impact of inflationary pricing. Sales in the current year were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales that were made near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1. Retail segment sales volumes, measured in pounds shipped, declined 9%. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live, price elasticity and the product line rationalizations. In the six months ended December 31, 2021, Retail ~~segment net sales increased 13% to $469.0 million compared to the prior-year total of $416.3 million. The increase was driven by volume gains for Chick-fil-A~~® ~~sauces and Buffalo Wild Wings~~® ~~sauces, both of which are sold under exclusive licensing agreements, and higher sales of our New York BRAND Bakery~~® ~~frozen garlic bread. Retail segment~~ sales volumes ~~measured in pounds shipped,~~ increased 7%.

For the three months ended December 31, ~~2021,~~2022, Retail segment operating income decreased ~~18%~~1% to ~~$49.6 million as~~$49.4 million. Although our pricing actions served to offset significant cost inflation and spending on consumer promotions was lower, segment operating income was unfavorably impacted by the unfavorable impacts of higher commodity and packaging costs, increased co-manufacturing costs, increased freight and warehousing costs, higher labor costs and ingredient supply shortages more than offset the inflationary pricing, increasedlower sales volumes and ~~a more favorable sales mix.~~reduced production volumes resulting in reduced overhead recovery.

For the six months ended December 31, ~~2021,~~2022, Retail segment operating income decreased 5%6% to ~~$97.8~~$92.3 million ~~as higher commodity and packaging costs, increased co-manufacturing costs, increased freight and warehousing expenses and higher labor costs more than offset~~driven by the ~~inflationary pricing, increased sales volumes and a more favorable sales mix.~~same factors noted for the three months ended December 31, 2022.

Foodservice Segment


		Three Months Ended December 31,										Six Months Ended December 31,											Three Months Ended December 31,										Six Months Ended December 31,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			Change				2021			2020			Change				(Dollars in thousands)	2022			2021			Change				2022			2021			Change
Net Sales	Net Sales	$	183,342		$	152,445		$	30,897	20	%	$	351,509		$	307,957		$	43,552	14	%	Net Sales	$	218,631		$	183,342		$	35,289	19	%	$	420,952		$	351,509		$	69,443	20	%
Operating Income	Operating Income	$	18,309		$	18,336		$	(27)	—	%	$	34,134		$	45,757		$	(11,623)	(25)	%	Operating Income	$	26,696		$	18,309		$	8,387	46	%	$	58,625		$	34,134		$	24,491	72	%
Operating Margin	Operating Margin	10.0		%	12.0		%					9.7		%	14.9		%					Operating Margin	12.2		%	10.0		%					13.9		%	9.7		%

For the three months ended December 31, ~~2021,~~2022, Foodservice segment net sales grew ~~20%~~19% to ~~$183.3~~$218.6 million compared to ~~$152.4~~$183.3 million in the prior-year period driven by inflationary pricing and volume gains ~~for~~from certain quick-service restaurant ~~and pizza chain~~ customers in our mix of national chain restaurant ~~accounts along with a solid recovery for our branded products as demand for those products in the prior-year quarter was markedly constrained by the impacts of COVID-19.~~accounts. Foodservice segment sales volume, measured in pounds shipped, decreased 5% as impacted by our decision to exit some less profitable SKUs during fiscal 2022. In the prior-year quarter ended December 31, 2021, Foodservice sales volumes increased 7%.

For the six months ended December 31, ~~2021,~~2022, Foodservice segment net sales increased ~~14%~~20% to ~~$351.5~~$421.0 million from the prior-year total of ~~$308.0~~$351.5 million driven by inflationary pricing and volume gains ~~for~~from certain quick-service restaurant customers in our ~~branded~~mix of national chain restaurant accounts. Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice ~~products.~~net sales in the current-year period by an estimated $14 million. Foodservice segment sales ~~volume,~~volumes, measured in pounds shipped, decreased 6%. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live and our decision to exit some less profitable SKUs during fiscal 2022. In the six months ended December 31, 2021, Foodservice sales volumes increased 5%. Excluding all sales resulting from the November 2018 acquisition of Omni Baking Company LLC, Foodservice segment net sales increased 16%. Omni sales attributed to a temporary supply agreement totaled $3.7 million in the prior-year period. There were no such sales in the current year as the temporary supply agreement was terminated effective October 31, 2020.

For the three months ended December 31, ~~2021,~~2022, Foodservice segment operating income ~~was flat at $18.3~~increased 46% to $26.7 million as our pricing actions effectively offset inflationary costs, including last year’s shortfall. Foodservice operating income also benefited from a more favorable sales mix, our decision to discontinue some less profitable SKUs in fiscal 2022 and a more stable operating environment. The lower Foodservice segment operating income in the prior-year quarter reflected a lag in

pricing ~~and~~relative to inflationary costs, as partially offset by the $1.3 million benefit recorded to Foodservice from the adjustment to Bantam’s contingent ~~consideration offset increased commodity costs and higher warehousing expenses.~~consideration.

For the six months ended December 31, ~~2021,~~2022, Foodservice segment operating income ~~decreased 25%~~increased 72% to ~~$34.1 million. The decline in Foodservice segment operating income was driven by the impact of~~$58.6 million as our pricing actions effectively offset inflationary costs, including last year’s ~~$5.7 million benefit related~~shortfall. Operating income in the current year also benefited from a more favorable sales mix, our decision to ~~Bantam’s contingent consideration, as well as increased commodity costs~~discontinue some less profitable SKUs and ~~higher warehousing expenses. Operating~~a more stable operating environment. Prior-year operating income was favorably impacted by ~~inflationary pricing and~~ the ~~current-year~~ adjustment to Bantam’s contingent consideration.

Corporate Expenses

For the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, corporate expenses totaled ~~$21.6~~$24.7 million and ~~$20.5~~$21.6 million, respectively. This increase primarily reflects increased investments in ~~personnel.~~personnel and IT, as partially offset by a decline in Project Ascent ~~expenses~~expenses. Expenditures for Project Ascent totaled ~~$8.6~~$7.5 million and ~~$8.5~~$8.6 million for the three months ended December 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

For the six months ended December 31, ~~2021~~2022 and ~~2020,~~2021, corporate expenses totaled ~~$45.1~~$50.3 million and ~~$41.6~~$45.1 million, respectively. This increase reflects increased investments in personnel and ~~higher expenditures~~IT, as partially offset by a decline in Project Ascent expenses. Expenditures for Project Ascent ~~which~~ totaled ~~$18.0~~$16.7 million and ~~$16.8~~$18.0 million for the six months ended December 31, 2022 and 2021, ~~and 2020,~~ respectively. For the six months ended December 31, 2021 and 2020, we also capitalized an additional $1.1 million and $2.8 million, respectively, of ERP-related expenditures for application development stage activities.

LOOKING FORWARD

Looking forward to our fiscal third quarter, we ~~expect~~anticipate our Retail sales volumes will benefit from the continued growth of our licensing program, but offsets from consumer demand elasticity will remain a headwind to ~~remain an important source of growth for Retail segment~~ sales ~~while our~~volume growth. In Foodservice, ~~segment should~~we project sales volumes will continue to be impacted by our decision to exit some less profitable SKUs during fiscal 2022, but we do expect some continued benefit from ~~higher demand for our branded Foodservice products and~~the growth ~~from~~of select quick-service restaurant ~~and pizza chain~~ customers in our mix of national chain restaurant accounts. ~~We anticipate the inflationary environment and the supply chain disruptions and challenges that have resulted in increased costs to produce~~Both our products and service our customers to continue in the coming quarter, including higher commodity costs, particularly for soybean oil, along with increased costs for packaging, freight, warehousing and labor.

~~Inflationary pricing in both the~~ Retail and Foodservice ~~segments~~sales will ~~help~~also continue to ~~partially offset~~benefit from our pricing actions.

Cost inflation will remain a headwind to our financial results in our fiscal third quarter, but the ~~higher costs~~pricing actions we have implemented along with our ~~ongoing~~ cost savings ~~programs~~initiatives are expected to offset the inflationary costs. The ramp up of the newly expanded section of our dressing and ~~other net price realization efforts.~~

~~Our fiscal~~sauce facility in Horse Cave, Kentucky will continue through the third quarter, ~~financial results will continue~~and we are now in the process of adding that facility to ~~be impacted by~~our new ERP system as part of the ~~COVID-19 pandemic, which has caused shifts~~Wave 3 implementation phase of Project Ascent. We remain on schedule to complete the planned implementation of Project Ascent in consumer demand between the retail and foodservice channels, complicated our production planning 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.fiscal 2024.

FINANCIAL CONDITION

Cash Flows

For the six months ended December 31, ~~2021,~~2022, net cash provided by operating activities totaled ~~$42.0~~$140.4 million, as compared to ~~$90.9~~$42.0 million in the prior-year period. This ~~decrease~~increase was primarily due to the year-over-year changes in net working capital, particularly ~~accounts payable and~~inventories, receivables, accrued liabilities and accounts payable. Inventories primarily reflect the favorable comparison against a large prior-year increase in inventories, which resulted from higher commodity costs and overall elevated quantities on-hand to help service a less predictable demand environment. Receivables reflect the favorable impacts of a current-year decrease in receivables as well as ~~inventories.~~a prior-year increase in receivables. The current-year decrease in receivables was due in part to an elevated level of receivables at the end of fiscal 2022 resulting from the advance ordering by our customers ahead of our ERP go-live. The prior-year increase in receivables resulted from higher sales levels. Accrued liabilities reflect the favorable comparison against a prior-year decline in the accruals for compensation and employee benefits. The favorable cash flow impact of higher accounts payable, as adjusted to exclude construction in progress amounts, was more pronounced in the ~~prior~~current year, ~~due to fluctuations~~reflecting continued increases in production levels for the comparative periods. The changes in accrued liabilities are primarily related to larger current-year declines in the accruals for compensation and employee benefits. The larger current-year change in inventories reflects increased commodity costs ~~and overall higher quantities on-hand to better service our customers. Lower~~as well as the timing of payments. Higher net income also contributed to the ~~reduced level of~~increase in cash provided by operating activities.

Cash used in investing activities for the six months ended December 31, ~~2021~~2022 was ~~$66.6~~$55.8 million, as compared to ~~$29.9~~$66.6 million in the prior year. This ~~increase~~decrease primarily reflects a ~~higher~~lower level of payments for property additions in the current year. ~~Notable current-year~~Current-year capital expenditures include spending ~~on:~~on a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that ~~we expect to complete~~commenced commercial production in December 2022. Notable prior-year capital expenditures included spending on: the ~~first half of fiscal 2023;~~Horse Cave capacity expansion project; a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that ~~we expect to complete~~were completed in ~~the third quarter of fiscal~~March 2022.

Cash used in financing activities for the six months ended December 31, ~~2021~~2022 of ~~$49.4~~$49.5 million ~~increased from~~was essentially flat as compared to the prior-year total of ~~$42.8~~$49.4 million. ~~This increase was primarily due to~~Higher levels of dividend payments and tax withholdings for stock-based compensation were offset by a ~~higher~~lower 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 December 31, ~~2021.~~2022. At December 31, ~~2021,~~2022, 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~~SOFR 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 December 31, ~~2021,~~2022, 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 December 31, ~~2021,~~2022, 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 ~~2022~~2023 could total between ~~$170~~$90 and ~~$190~~$110 million, which includes approximately ~~$105~~$50 million in ~~initial~~ expenditures attributed to ~~a substantial investment for a~~the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that ~~we expect to complete~~commenced commercial production in ~~the first half of fiscal 2023.~~

December 2022.

Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of ~~liquidity for the foreseeable future.~~liquidity. 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 obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of December 31, ~~2021 and a warehouse lease commitment that has not yet commenced,~~2022, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations 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 Horse Cave, Kentucky.~~

In November 2020, T. Marzetti Company (“T. Marzetti”), a wholly-owned subsidiary of ours, entered into a Design/Build Agreement (the “Agreement”) with Gray Construction, Inc. (“Gray”) under which Gray will design, coordinate and build additional dressing and sauce manufacturing and warehousing capacity for the T. Marzetti facility in Hart County, Kentucky (the “Project”). The Project will result in an expansion of the current facility footprint. Subject to certain conditions in the Agreement, T. Marzetti will pay Gray no more than the guaranteed maximum price of approximately $113 million for the Project. The Agreement contains other terms and conditions that are customary for this type of project. Expected to be completed in the first half of fiscal 2023, we have a remaining commitment of approximately $60 million for the Project.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our ~~2021~~2022 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.~~below. 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:

•inflationary pressures resulting in higher input costs;

•the reaction of customers or consumers to pricing actions we take to offset inflationary costs;

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

•efficiencies in plant operations and our overall supply chain network;

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

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

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

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

•adequate supply of labor for our manufacturing facilities;

•stability of labor relations;

•dependence on key personnel and changes in key personnel;

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

•~~fluctuations in the cost~~cyber-security incidents, information technology disruptions, and ~~availability of ingredients and packaging;~~

•~~inflationary pressures resulting in higher input costs;~~data breaches;

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

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

•~~adequate supply~~geopolitical events, such as Russia’s invasion of ~~labor for our manufacturing facilities;~~

•~~efficiencies in plant operations;~~

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

•~~cyber-security incidents, information technology~~Ukraine, that could create unforeseen business disruptions and ~~data breaches;~~

•~~complexities related to~~impact the ~~design~~cost or availability of raw materials 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;~~energy;

•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~~ 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;

•maintenance of competitive position with respect to other manufacturers;

•the outcome of any litigation or arbitration;

•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;~~

•the impact of 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 ~~2021~~2022 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 ~~2021~~2022 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 December 31, ~~2021~~2022 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. NoDuring the first quarter of fiscal 2023, we began the implementation phase of Project Ascent, which entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA ERP system.

Implementation will continue throughout fiscal 2023 as we integrate additional plants and warehouses into our new ERP network. We remain on schedule to complete the planned implementation of Project Ascent in fiscal 2024. We updated our internal controls, as necessary, to reflect the related changes ~~were made to~~in business processes. We do not expect this implementation will have an adverse effect on our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). There were no changes to our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2423

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 ~~2021~~2022 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 ~~1,239,482~~1,224,364 common shares remained authorized for future repurchases at December 31, ~~2021.~~2022. This share repurchase authorization does not have a stated expiration date. In the second quarter, we made the following repurchases of our common stock:

Period Total
Number of
Shares
Purchased Average
Price Paid
Per Share Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans
October 1-31, 2021 — $ — — 1,239,539
November 1-30, 2021 (1)
57 $ 163.48 57 1,239,482
December 1-31, 2021 — $ — — 1,239,482
Total 57 $ 163.48 57 1,239,482


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet be Purchased Under the Plans
October 1-31, 2022 (1)	167	$	177.65	167	1,224,845
November 1-30, 2022 (1)	51	$	204.46	51	1,224,794
December 1-31, 2022 (1)	430	$	197.30	430	1,224,364
Total	648	$	192.80	648	1,224,364

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

Item 6. Exhibits

See Index to Exhibits ~~following Signatures.~~below.

~~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:~~

~~February 3, 2022~~

~~By:~~

~~/s/ DAVID A. CIESINSKI~~

~~David A. Ciesinski~~

~~President, Chief Executive Officer~~

~~and Director~~

~~(Principal Executive Officer)~~

~~Date:~~

~~February 3, 2022~~

~~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~~

~~DECEMBER 31, 2021~~

INDEX TO EXHIBITS



Exhibit Number						Description

10.1(a)						Amendment No. 1 to Credit Agreement, dated December 13, 2022, among Lancaster Colony Corporation, the Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent

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

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

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

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

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

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

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

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

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


Exhibit Number						Description

104(a)						The cover page of Lancaster Colony Corporation’s Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2021,~~2022, formatted in Inline XBRL (included within Exhibit 101 attachments)

(a)						Filed herewith

(b)						Furnished herewith

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:

February 2, 2023

By:

/s/ DAVID A. CIESINSKI

David A. Ciesinski

President, Chief Executive Officer

and Director

(Principal Executive Officer)

Date:

February 2, 2023

By:

/s/ THOMAS K. PIGOTT

Thomas K. Pigott

Vice President, Chief Financial Officer

and Assistant Secretary

(Principal Financial and Accounting Officer)

2726


	Fair Value Measurements at December 31, 2021
	Level 1		Level 2		Level 3		Total
Contingent consideration - Bantam	$	—	$	—	$	1,300	$	1,300



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