UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form			10-Q

(Mark One)


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

For the quarterly period ended ~~March 31,~~September 30, 2023


☐			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 ~~April 14,~~October 13, 2023, there were approximately ~~27,522,000~~27,517,000 shares of Common Stock, without par value, outstanding.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS




PART I – FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets – ~~March 31,~~S e ptember 3 0 , 2023 and June 30, ~~2022~~2023	3

	Condensed Consolidated Statements of Income – Three ~~and Nine~~ Months Ended ~~March 31,~~September 3 0 , 2023 and 2022	4

	Condensed Consolidated Statements of Comprehensive Income – Three ~~and Nine~~ Months Ended ~~March 31,~~September 30 , 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~March 31,~~September 3 0 , 2023 and 2022	6

	Condensed Consolidated Statements of Shareholders’ Equity – ~~Nine~~Three Months Ended ~~March 31,~~September 3 0 , 2023 and 2022	7

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1513

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2319

Item 4.	Controls and Procedures	2319

PART II – OTHER INFORMATION		2420

Item 1.	Legal Proceedings	2420

Item 1A.	Risk Factors	2420

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2420



Item 6.	Exhibits	2420

SIGNATURES		2622

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)	March 31, 2023		June 30, 2022		(Amounts in thousands, except share data)	September 30, 2023		June 30, 2023
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and equivalents	Cash and equivalents	$	82,861	$	60,283	Cash and equivalents	$	73,746	$	88,473
Receivables	Receivables	130,506		135,496		Receivables	120,076		114,967
Inventories:	Inventories:					Inventories:
Raw materials	Raw materials	49,352		56,460		Raw materials	47,659		40,761
Finished goods	Finished goods	105,401		88,242		Finished goods	130,149		117,504
Total inventories	Total inventories	154,753		144,702		Total inventories	177,808		158,265
Other current assets	Other current assets	23,440		11,300		Other current assets	14,628		12,758
Total current assets	Total current assets	391,560		351,781		Total current assets	386,258		374,463
Property, Plant and Equipment:	Property, Plant and Equipment:					Property, Plant and Equipment:

Property, plant and equipment-gross	Property, plant and equipment-gross	846,937		785,629		Property, plant and equipment-gross	871,290		853,709
Less accumulated depreciation	Less accumulated depreciation	361,899		334,261		Less accumulated depreciation	382,195		371,503
Property, plant and equipment-net	Property, plant and equipment-net	485,038		451,368		Property, plant and equipment-net	489,095		482,206
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	30,437		32,323		Other intangible assets-net	4,708		4,840
Operating lease right-of-use assets	Operating lease right-of-use assets	24,808		28,177		Operating lease right-of-use assets	23,073		24,743
Other noncurrent assets	Other noncurrent assets	17,543		18,354		Other noncurrent assets	18,797		18,371
Total	Total	$	1,157,757	$	1,090,374	Total	$	1,130,302	$	1,112,994
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	138,450	$	114,972	Accounts payable	$	120,337	$	111,758
Accrued liabilities	Accrued liabilities	58,001		50,613		Accrued liabilities	46,871		56,994
Total current liabilities	Total current liabilities	196,451		165,585		Total current liabilities	167,208		168,752
Noncurrent Operating Lease Liabilities	Noncurrent Operating Lease Liabilities	17,465		20,494		Noncurrent Operating Lease Liabilities	15,286		16,967
Other Noncurrent Liabilities	Other Noncurrent Liabilities	18,889		20,719		Other Noncurrent Liabilities	16,312		17,683
Deferred Income Taxes	Deferred Income Taxes	51,768		38,889		Deferred Income Taxes	52,728		47,325
Commitments and Contingencies	Commitments and Contingencies					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					Preferred stock-authorized 3,050,000 shares; outstanding-none
Common stock-authorized 75,000,000 shares; outstanding-March-27,522,603 shares; June-27,520,237 shares		142,038		137,814
Common stock-authorized 75,000,000 shares; outstanding-September-27,517,313 shares; June-27,527,550 shares						Common stock-authorized 75,000,000 shares; outstanding-September-27,517,313 shares; June-27,527,550 shares	146,439		143,870
Retained earnings	Retained earnings	1,518,219		1,485,045		Retained earnings	1,524,469		1,503,963
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(10,885)		(11,172)		Accumulated other comprehensive loss	(9,289)		(9,365)
Common stock in treasury, at cost	Common stock in treasury, at cost	(776,188)		(767,000)		Common stock in treasury, at cost	(782,851)		(776,201)
Total shareholders’ equity	Total shareholders’ equity	873,184		844,687		Total shareholders’ equity	878,768		862,267
Total	Total	$	1,157,757	$	1,090,374	Total	$	1,130,302	$	1,112,994

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)	2023		2022		2023		2022		(Amounts in thousands, except per share data)		2023		2022
Net Sales	Net Sales	$	464,935	$	403,494	$	1,367,866	$	1,223,977	Net Sales		$	461,572	$	425,537
Cost of Sales	Cost of Sales	370,698		335,162		1,072,472		966,676		Cost of Sales		352,850		326,482
Gross Profit	Gross Profit	94,237		68,332		295,394		257,301		Gross Profit		108,722		99,055
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses	64,829		54,526		165,361		157,920		Selling, General and Administrative Expenses		51,947		49,757
Change in Contingent Consideration		—		(1,300)		—		(3,470)
Restructuring and Impairment Charges		—		22,723		—		24,651
Operating Income (Loss)		29,408		(7,617)		130,033		78,200

Operating Income										Operating Income		56,775		49,298
Other, Net	Other, Net	607		119		815		250		Other, Net		857		(270)
Income (Loss) Before Income Taxes		30,015		(7,498)		130,848		78,450
Taxes Based on Income (Loss)		5,460		(3,015)		28,728		17,908
Income Before Income Taxes										Income Before Income Taxes		57,632		49,028
Taxes Based on Income										Taxes Based on Income		13,681		11,436

Net Income (Loss)		$	24,555	$	(4,483)	$	102,120	$	60,542
Net Income										Net Income		$	43,951	$	37,592

Net Income (Loss) Per Common Share:
Basic and Diluted		$	0.89	$	(0.17)	$	3.71	$	2.20

Net Income Per Common Share:										Net Income Per Common Share:
Basic										Basic		$	1.60	$	1.37
Diluted										Diluted		$	1.59	$	1.36

Weighted Average Common Shares Outstanding:	Weighted Average Common Shares Outstanding:									Weighted Average Common Shares Outstanding:
Basic	Basic	27,465		27,442		27,462		27,448		Basic		27,449		27,450
Diluted	Diluted	27,487		27,442		27,479		27,478		Diluted		27,473		27,458

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(Amounts in thousands)	(Amounts in thousands)	2023		2022		2023		2022		(Amounts in thousands)		2023		2022
Net Income (Loss)		$	24,555	$	(4,483)	$	102,120	$	60,542
Net Income										Net Income		$	43,951	$	37,592
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	170		101		510		301		Amortization of loss, before tax		144		169
Amortization of prior service credit, before tax	Amortization of prior service credit, before tax	(45)		(45)		(136)		(136)		Amortization of prior service credit, before tax		(45)		(45)
Total Other Comprehensive Income, Before Tax	Total Other Comprehensive Income, Before Tax	125		56		374		165		Total Other Comprehensive Income, Before Tax		99		124
Tax Attributes of Items in Other Comprehensive Income:	Tax Attributes of Items in Other Comprehensive Income:									Tax Attributes of Items in Other Comprehensive Income:
Amortization of loss, tax	Amortization of loss, tax	(39)		(24)		(119)		(71)		Amortization of loss, tax		(34)		(40)
Amortization of prior service credit, tax	Amortization of prior service credit, tax	11		11		32		32		Amortization of prior service credit, tax		11		11
Total Tax Expense	Total Tax Expense	(28)		(13)		(87)		(39)		Total Tax Expense		(23)		(29)
Other Comprehensive Income, Net of Tax	Other Comprehensive Income, Net of Tax	97		43		287		126		Other Comprehensive Income, Net of Tax		76		95
Comprehensive Income (Loss)		$	24,652	$	(4,440)	$	102,407	$	60,668
Comprehensive Income										Comprehensive Income		$	44,027	$	37,687

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended March 31,					Three Months Ended September 30,
(Amounts in thousands)	(Amounts in thousands)	2023		2022		(Amounts in thousands)	2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	102,120	$	60,542	Net income	$	43,951	$	37,592
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	36,665		34,417		Depreciation and amortization	13,592		11,203
Change in contingent consideration		—		(3,470)

Deferred income taxes and other changes	Deferred income taxes and other changes	13,714		1,587		Deferred income taxes and other changes	5,765		195
Stock-based compensation expense	Stock-based compensation expense	6,924		7,384		Stock-based compensation expense	2,569		2,465
Restructuring and impairment charges		—		24,435

Pension plan activity	Pension plan activity	(166)		(411)		Pension plan activity	(64)		(493)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables	Receivables	5,490		(12,234)		Receivables	(5,109)		(745)
Inventories	Inventories	(10,051)		(44,147)		Inventories	(19,543)		(21,237)
Other current assets	Other current assets	(11,511)		(4,240)		Other current assets	(1,870)		(102)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	40,966		(5,212)		Accounts payable and accrued liabilities	(3,676)		21,986
Net cash provided by operating activities	Net cash provided by operating activities	184,151		58,651		Net cash provided by operating activities	35,615		50,864
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Payments for property additions	Payments for property additions	(78,847)		(104,888)		Payments for property additions	(18,331)		(24,585)

Proceeds from sale of property	Proceeds from sale of property	1,209		276		Proceeds from sale of property	—		1,159

Other-net	Other-net	(1,283)		(453)		Other-net	(1,412)		(55)
Net cash used in investing activities	Net cash used in investing activities	(78,921)		(105,065)		Net cash used in investing activities	(19,743)		(23,481)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Payment of dividends	Payment of dividends	(68,946)		(64,736)		Payment of dividends	(23,445)		(22,067)
Purchase of treasury stock	Purchase of treasury stock	(9,188)		(7,485)		Purchase of treasury stock	(6,650)		(84)
Tax withholdings for stock-based compensation	Tax withholdings for stock-based compensation	(2,700)		(356)		Tax withholdings for stock-based compensation	—		(617)

Principal payments for finance leases	Principal payments for finance leases	(1,818)		(1,979)		Principal payments for finance leases	(504)		(679)
Net cash used in financing activities	Net cash used in financing activities	(82,652)		(74,556)		Net cash used in financing activities	(30,599)		(23,447)

Net change in cash and equivalents	Net change in cash and equivalents	22,578		(120,970)		Net change in cash and equivalents	(14,727)		3,936
Cash and equivalents at beginning of year	Cash and equivalents at beginning of year	60,283		188,055		Cash and equivalents at beginning of year	88,473		60,283
Cash and equivalents at end of period	Cash and equivalents at end of period	$	82,861	$	67,085	Cash and equivalents at end of period	$	73,746	$	64,219
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	$	26,371	$	18,775	Net cash payments for income taxes	$	6,231	$	7,544

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


		Nine Months Ended March 31, 2023												Three Months Ended September 30, 2023
(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, 2022		27,520	$	137,814	$	1,485,045	$	(11,172)	$	(767,000)	$	844,687
Balance, June 30, 2023													Balance, June 30, 2023	27,528	$	143,870	$	1,503,963	$	(9,365)	$	(776,201)	$	862,267
Net income	Net income				37,592						37,592		Net income				43,951						43,951
Net pension and postretirement benefit gains, net of $29 tax effect							95				95
Cash dividends - common stock ($0.80 per share)					(22,067)						(22,067)
Purchase of treasury stock		—							(84)		(84)
Stock-based plans		34	(617)								(617)
Stock-based compensation expense			2,465								2,465
Balance, September 30, 2022		27,554	$	139,662	$	1,500,570	$	(11,077)	$	(767,084)	$	862,071
Net income					39,973						39,973
Net pension and postretirement benefit gains, net of $30 tax effect							95				95
Net pension and postretirement benefit gains, net of $23 tax effect													Net pension and postretirement benefit gains, net of $23 tax effect						76				76
Cash dividends - common stock ($0.85 per share)	Cash dividends - common stock ($0.85 per share)				(23,462)						(23,462)		Cash dividends - common stock ($0.85 per share)				(23,445)						(23,445)
Purchase of treasury stock	Purchase of treasury stock	(1)							(125)		(125)		Purchase of treasury stock	(40)							(6,650)		(6,650)
Stock-based plans	Stock-based plans	18	(1,801)								(1,801)		Stock-based plans	29	—								—
Stock-based compensation expense	Stock-based compensation expense		2,799								2,799		Stock-based compensation expense		2,569								2,569
Balance, December 31, 2022		27,571	$	140,660	$	1,517,081	$	(10,982)	$	(767,209)	$	879,550
Net income					24,555						24,555
Net pension and postretirement benefit gains, net of $28 tax effect							97				97
Cash dividends - common stock ($0.85 per share)					(23,417)						(23,417)
Purchase of treasury stock		(47)							(8,979)		(8,979)
Stock-based plans		(1)	(282)								(282)
Stock-based compensation expense			1,660								1,660
Balance, March 31, 2023		27,523	$	142,038	$	1,518,219	$	(10,885)	$	(776,188)	$	873,184
Balance, September 30, 2023													Balance, September 30, 2023	27,517	$	146,439	$	1,524,469	$	(9,289)	$	(782,851)	$	878,768


	Three Months Ended September 30, 2022
(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2022	27,520	$	137,814	$	1,485,045	$	(11,172)	$	(767,000)	$	844,687
Net income				37,592						37,592
Net pension and postretirement benefit gains, net of $29 tax effect						95				95
Cash dividends - common stock ($0.80 per share)				(22,067)						(22,067)
Purchase of treasury stock	—							(84)		(84)
Stock-based plans	34	(617)								(617)
Stock-based compensation expense		2,465								2,465
Balance, September 30, 2022	27,554	$	139,662	$	1,500,570	$	(11,077)	$	(767,084)	$	862,071

See accompanying notes to condensed consolidated financial statements.

~~LANCASTER COLONY CORPORATION AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)~~

~~(UNAUDITED)~~

Nine Months Ended March 31, 2022
(Amounts in thousands,
except per share data)
Common Stock
Outstanding Retained
Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Shareholders’
Equity
Shares Amount
Balance, June 30, 2021 27,531 $ 128,617 $ 1,482,220 $ (8,253) $ (759,437) $ 843,147
Net income 30,655 30,655
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
Cash dividends - common stock ($0.80 per share) (22,035) (22,035)
Purchase of treasury stock — (9) (9)
Stock-based plans 4 (2) (2)
Stock-based compensation expense 2,589 2,589
Balance, December 31, 2021 27,534 $ 133,419 $ 1,504,535 $ (8,170) $ (764,775) $ 865,009
Net loss (4,483) (4,483)
Net pension and postretirement benefit gains, net of $13 tax effect 43 43
Cash dividends - common stock ($0.80 per share) (22,026) (22,026)
Purchase of treasury stock (14) (2,147) (2,147)
Stock-based plans 4 (295) (295)
Stock-based compensation expense 2,521 2,521
Balance, March 31, 2022 27,524 $ 135,645 $ 1,478,026 $ (8,127) $ (766,922) $ 838,622

~~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 ~~2022~~2023 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, ~~2023~~2024 refers to fiscal ~~2023,~~2024, which is the period from July 1, ~~2022~~2023 to June 30, ~~2023.~~2024.

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:

March 31,
2023 2022
Construction in progress in Accounts Payable $ 9,281 $ 21,256

In the three months ended March 31, 2022, we recorded an impairment charge of $6.8 million for certain property, plant and equipment related to the Bantam Bagels, LLC (“Bantam”) business. This charge resulted from our decision to explore strategic alternatives for this business, which triggered impairment testing, and represented the excess of the carrying value over the fair value. The fair value was based on estimated selling prices for these assets, which represented a Level 3 measurement within the fair value hierarchy. The impairment charge was reflected in Restructuring and Impairment Charges and was not allocated to our two reportable segments due to its unusual nature.


	September 30,
	2023		2022
Construction in progress in Accounts Payable	$	10,165	$	22,864

Accrued Compensation and Employee Benefits

Accrued compensation and employee benefits included in Accrued Liabilities was ~~$27.2~~$16.3 million and ~~$16.3~~$26.3 million at ~~March 31,~~September 30, 2023 and June 30, ~~2022, respectively.~~

~~Accrued Distribution~~

~~Accrued distribution included in Accrued Liabilities was $8.4 million and $11.9 million at March 31,~~ 2023, ~~and June 30, 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 March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
		2023		2022		2023		2022				2023		2022
Net income (loss)		$	24,555	$	(4,483)	$	102,120	$	60,542
Net income										Net income		$	43,951	$	37,592
Net income available to participating securities	Net income available to participating securities	(43)		(52)		(246)		(168)		Net income available to participating securities		(136)		(118)
Net income (loss) available to common shareholders		$	24,512	$	(4,535)	$	101,874	$	60,374
Net income available to common shareholders										Net income available to common shareholders		$	43,815	$	37,474

Weighted average common shares outstanding – basic	Weighted average common shares outstanding – basic	27,465		27,442		27,462		27,448		Weighted average common shares outstanding – basic		27,449		27,450
Incremental share effect from:	Incremental share effect from:									Incremental share effect from:
Nonparticipating restricted stock	Nonparticipating restricted stock	1		—		2		3		Nonparticipating restricted stock		3		4
Stock-settled stock appreciation rights (1)	Stock-settled stock appreciation rights (1)	19		—		12		26		Stock-settled stock appreciation rights (1)		11		—
Performance units	Performance units	2		—		3		1		Performance units		10		4
Weighted average common shares outstanding – diluted	Weighted average common shares outstanding – diluted	27,487		27,442		27,479		27,478		Weighted average common shares outstanding – diluted		27,473		27,458

Net income (loss) per common share – basic and diluted		$	0.89	$	(0.17)	$	3.71	$	2.20

Net income per common share – basic										Net income per common share – basic		$	1.60	$	1.37
Net income per common share – diluted										Net income per common share – diluted		$	1.59	$	1.36

(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 ~~March 31, 2022; and 0.1 million and 0.2 million for the nine months ended March 31,~~September 30, 2023 and 2022, respectively.

Accumulated Other Comprehensive Loss

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
		2023		2022		2023		2022				2023		2022
Accumulated other comprehensive loss at beginning of period	Accumulated other comprehensive loss at beginning of period	$	(10,982)	$	(8,170)	$	(11,172)	$	(8,253)	Accumulated other comprehensive loss at beginning of period		$	(9,365)	$	(11,172)
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	181		107		544		321		Amortization of unrecognized net loss		159		181
Postretirement Benefit Plan Items:	Postretirement Benefit Plan Items:									Postretirement Benefit Plan Items:
Amortization of unrecognized net gain	Amortization of unrecognized net gain	(11)		(6)		(34)		(20)		Amortization of unrecognized net gain		(15)		(12)
Amortization of prior service credit	Amortization of prior service credit	(45)		(45)		(136)		(136)		Amortization of prior service credit		(45)		(45)
Total other comprehensive income, before tax	Total other comprehensive income, before tax	125		56		374		165		Total other comprehensive income, before tax		99		124
Total tax expense	Total tax expense	(28)		(13)		(87)		(39)		Total tax expense		(23)		(29)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	97		43		287		126		Other comprehensive income, net of tax		76		95

Accumulated other comprehensive loss at end of period	Accumulated other comprehensive loss at end of period	$	(10,885)	$	(8,127)	$	(10,885)	$	(8,127)	Accumulated other comprehensive loss at end of period		$	(9,289)	$	(11,077)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our ~~2022~~2023 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.

109

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 and defined benefit pension plan assets. The estimated fair value of cash and equivalents, accounts receivable and accounts payable approximates their carrying value.

~~Impairment charges for property, plant and equipment and intangible assets resulted from nonrecurring fair value measurements in the prior year. See further discussion in Note 1 and Note 5.~~

~~Bantam Contingent Consideration~~

Contingent consideration resulted from the earn-out associated with our October 19, 2018 acquisition of Bantam. In general, the terms of the acquisition specified the sellers 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. Prior to exiting the Bantam business near the end of fiscal 2022, the fair value was measured on a recurring basis using a Monte Carlo simulation that randomly changed revenue growth, forecasted adjusted EBITDA and other uncertain variables to estimate an expected value. We recorded the present value of these amounts by applying a discount rate. As these fair value measurements were based on significant inputs not observable in the market, they represented Level 3 measurements within the fair value hierarchy. Based on our 2022 fair value measurements, we recorded reductions in the fair value of Bantam’s contingent consideration of $1.3 million and $3.5 million for the three and nine months ended March 31, 2022, respectively, resulting in a zero balance at March 31, 2022.

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

Three Months Ended
March 31, Nine Months Ended
March 31,
2023 2022 2023 2022
Contingent consideration at beginning of period $ — $ 1,300 $ — $ 3,470
Change in contingent consideration included in operating income — (1,300) — (3,470)
Contingent consideration at end of period $ — $ — $ — $ —

~~Note 3 –~~ Long-Term Debt

At ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, 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. ~~The Facility was amended on December 13, 2022 to reflect a change in the calculation of the~~Interest is variable ~~interest rate from formulas tied to LIBOR to~~based upon formulas tied to SOFR or an alternate base rate as defined in the Facility. ~~In the event 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 ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, we had no borrowings outstanding under the Facility. At ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, we had $2.2 million and $2.8 million, respectively, of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. We paid no interest for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2023 and 2022.

Note 43 – Commitments and Contingencies

At ~~March 31,~~September 30, 2023, 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 is not expected to have a material effect on our consolidated financial statements.

Note 54 – Goodwill and Other Intangible Assets

Goodwill attributable to the Retail and Foodservice segments was $157.4 million and $51.0 million, respectively, at ~~March 31,~~September 30, 2023 and June 30, ~~2022.~~2023.

The following table summarizes our identifiable other intangible assets:

March 31,
2023 June 30,
2022
Tradenames (20 to 30-year life)
Gross carrying value $ 37,100 $ 37,100
Accumulated amortization (9,386) (8,385)
Net carrying value $ 27,714 $ 28,715
Customer Relationships (10 to 15-year life)
Gross carrying value $ 5,287 $ 14,207
Accumulated amortization (4,210) (12,727)
Net carrying value $ 1,077 $ 1,480
Technology / Know-how (10-year life)
Gross carrying value $ 6,350 $ 6,350
Accumulated amortization (4,704) (4,222)
Net carrying value $ 1,646 $ 2,128
Total net carrying value $ 30,437 $ 32,323

In the three months ended March 31, 2022, we recorded an impairment charge of $12.3 million to write off the net carrying value of Bantam’s tradename, customer relationships and technology / know-how intangible assets based on our decision to explore strategic alternatives for this business. The impairment charge was reflected in Restructuring and Impairment Charges and was not allocated to our two reportable segments due to its unusual nature.

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 reflected lower projected cash flows for Bantam’s Retail business. The impairment charge was reflected in Restructuring and Impairment Charges and was recorded in our Retail segment.

The impairment charges discussed above represented the excess of the carrying value over the fair value of estimated discounted cash flows specific to the remaining useful lives of the related intangible assets. As the fair value measurements were based on significant inputs not observable in the market, they represented Level 3 measurements within the fair value hierarchy.


	September 30, 2023		June 30, 2023


Tradenames (20 to 30-year life)
Gross carrying value	$	4,100	$	4,100
Accumulated amortization	(244)		(181)
Net carrying value	$	3,856	$	3,919




Customer Relationships (10-year life)
Gross carrying value	$	287	$	287
Accumulated amortization	(198)		(190)
Net carrying value	$	89	$	97
Technology / Know-how (10-year life)
Gross carrying value	$	2,450	$	2,450
Accumulated amortization	(1,687)		(1,626)
Net carrying value	$	763	$	824




Total net carrying value	$	4,708	$	4,840

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

Three Months Ended
March 31, Nine Months Ended
March 31,
2023 2022 2023 2022
Amortization expense $ 629 $ 1,161 $ 1,886 $ 3,562


	Three Months Ended September 30,
		2023		2022
Amortization expense		$	132	$	629

1210

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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


2024		$	2,514
2025	2025	$	2,212	2025	$	527
2026	2026	$	1,610	2026	$	527
2027	2027	$	1,426	2027	$	343
2028	2028	$	1,334	2028	$	251
2029				2029	$	251

Note 65 – Income Taxes

Prepaid federal income taxes of ~~$10.2~~$2.5 million and $3.3 million were included in Other Current Assets at ~~March 31,~~September 30, 2023 and June 30, 2023, respectively. Accrued state and local income taxes of $0.4 million were included in Accrued Liabilities at September 30, 2023. Prepaid state and local income taxes of ~~$2.2 million and $1.9~~$0.8 million were included in Other Current Assets at ~~March 31, 2023 and~~ June 30, ~~2022, respectively.~~2023.

Note 76 – 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.

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.

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 ~~March 31,~~September 30, 2023 is generally consistent with that of June 30, ~~2022.~~2023.

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

Three Months Ended
March 31, Nine Months Ended
March 31,
2023 2022 2023 2022
Net Sales
Retail $ 247,208 $ 213,128 $ 729,187 $ 682,102
Foodservice 217,727 190,366 638,679 541,875
Total $ 464,935 $ 403,494 $ 1,367,866 $ 1,223,977
Operating Income
Retail $ 36,943 $ 22,213 $ 129,195 $ 119,997
Foodservice 22,405 18,556 81,030 52,690
Nonallocated Restructuring and Impairment Charges (1)
— (22,723) — (23,749)
Corporate Expenses (29,940) (25,663) (80,192) (70,738)
Total $ 29,408 $ (7,617) $ 130,033 $ 78,200

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


	Three Months Ended September 30,
		2023		2022
Net Sales
Retail		$	242,184	$	223,216
Foodservice		219,388		202,321
Total		$	461,572	$	425,537
Operating Income
Retail		$	53,124	$	42,900
Foodservice		26,633		31,929

Corporate Expenses		(22,982)		(25,531)
Total		$	56,775	$	49,298

1311

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 March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
		2023		2022		2023		2022				2023		2022
Retail	Retail									Retail
Shelf-stable dressings, sauces and croutons	Shelf-stable dressings, sauces and croutons	$	116,246	$	94,578	$	301,995	$	272,439	Shelf-stable dressings, sauces and croutons		$	98,581	$	91,038
Frozen breads	Frozen breads	85,165		73,328		275,447		258,426		Frozen breads		79,630		72,858
Refrigerated dressings, dips and other	Refrigerated dressings, dips and other	45,797		45,222		151,745		151,237		Refrigerated dressings, dips and other		63,973		59,320
Total Retail net sales	Total Retail net sales	$	247,208	$	213,128	$	729,187	$	682,102	Total Retail net sales		$	242,184	$	223,216
Foodservice	Foodservice									Foodservice
Dressings and sauces	Dressings and sauces	$	163,851	$	143,156	$	475,766	$	403,953	Dressings and sauces		$	165,271	$	151,060
Frozen breads and other	Frozen breads and other	53,876		47,210		162,913		137,922		Frozen breads and other		54,117		51,261

Total Foodservice net sales	Total Foodservice net sales	$	217,727	$	190,366	$	638,679	$	541,875	Total Foodservice net sales		$	219,388	$	202,321
Total net sales	Total net sales	$	464,935	$	403,494	$	1,367,866	$	1,223,977	Total net sales		$	461,572	$	425,537

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
		2023		2022		2023		2022				2023		2022
Foodservice	Foodservice									Foodservice
National accounts	National accounts	$	172,304	$	146,959	$	504,310	$	414,840	National accounts		$	171,586	$	160,192
Branded and other	Branded and other	45,423		43,407		134,369		127,035		Branded and other		47,802		42,129

Total Foodservice net sales	Total Foodservice net sales	$	217,727	$	190,366	$	638,679	$	541,875	Total Foodservice net sales		$	219,388	$	202,321

Note 87 – Stock-Based Compensation

There have been no changes to our stock-based compensation plan as disclosed in our ~~2022~~2023 Annual Report on Form 10-K.

Our stock-settled stock appreciation rights (“SSSARs”) compensation expense was $0.3 million and ~~$0.9~~$0.7 million for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. ~~Year-to-date SSSARs compensation expense was $1.7 million for the current-year period compared to $2.9 million for the prior-year period.~~ At ~~March 31,~~September 30, 2023, there was ~~$1.2~~$0.5 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 1 year.

Our restricted stock compensation expense was ~~$0.4~~$1.2 million and $1.3 million for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. ~~Year-to-date restricted stock compensation expense was $3.2 million for the current-year period compared to $3.7 million for the prior-year period.~~ At ~~March 31,~~September 30, 2023, there was ~~$5.8~~$8.8 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 ~~$0.9~~$1.1 million and ~~$0.3~~$0.5 million for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. ~~Year-to-date performance units compensation expense was $2.0 million for the current-year period compared to $0.8 million for the prior-year period.~~ At ~~March 31,~~September 30, 2023, there was ~~$4.9~~$7.5 million of unrecognized compensation expense related to performance units that we will recognize over a weighted-average period of 2 years.

1412

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, ~~2023~~2024 refers to fiscal ~~2023,~~2024, which is the period from July 1, ~~2022~~2023 to June 30, ~~2023.~~2024.

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 ~~2022~~2023 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;

•long-standing Foodservice customer relationships that help to support strategic licensing opportunities in Retail;

•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 reached substantial completion in March 2023;

•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 was completed in 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 in~~reached completion of the implementation ~~phase.~~phase in August 2023.

Project Ascent ~~commenced in late 2019 and entails~~entailed 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~~continued throughout fiscal 2023. Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. During fiscal 2023, we progressed through our ERP implementation with no major disruptions. We ~~remain on schedule to complete~~completed the final wave of the implementation phase in August 2023 as planned ~~implementation~~and have shifted our focus towards leveraging the capabilities of ~~Project Ascent in fiscal 2024.~~our new ERP system.

1513

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 consulting and professional fees, as well as wages and benefits.

BUSINESS TRENDS

Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining. Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes. From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, 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. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating 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 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 nine months of~~ 2023, particularly for soybean oil, eggs and flour. However, our pricing actions served to offset these inflationary costs. In addition, the operating environment stabilized as we did not experience the supply chain disruptions and demand swings of the preceding years.

Near the end of 2023, cost inflation began to diminish notably, and we completed the first quarter of 2024 with our input costs, in aggregate, at levels similar to the prior year.

RESULTS OF CONSOLIDATED OPERATIONS

(Dollars in thousands,
except per share data)
Three Months Ended
March 31, Nine Months Ended
March 31,
2023 2022 Change 2023 2022 Change
Net Sales $ 464,935 $ 403,494 $ 61,441 15 % $ 1,367,866 $ 1,223,977 $ 143,889 12 %
Cost of Sales 370,698 335,162 35,536 11 % 1,072,472 966,676 105,796 11 %
Gross Profit 94,237 68,332 25,905 38 % 295,394 257,301 38,093 15 %
Gross Margin 20.3 % 16.9 % 21.6 % 21.0 %
Selling, General and Administrative Expenses 64,829 54,526 10,303 19 % 165,361 157,920 7,441 5 %
Change in Contingent Consideration — (1,300) 1,300 (100) % — (3,470) 3,470 (100) %
Restructuring and Impairment Charges — 22,723 (22,723) (100) % — 24,651 (24,651) (100) %
Operating Income (Loss) 29,408 (7,617) 37,025 486 % 130,033 78,200 51,833 66 %
Operating Margin 6.3 % (1.9) % 9.5 % 6.4 %
Other, Net 607 119 488 410 % 815 250 565 226 %
Income (Loss) Before Income Taxes 30,015 (7,498) 37,513 500 % 130,848 78,450 52,398 67 %
Taxes Based on Income (Loss) 5,460 (3,015) 8,475 281 % 28,728 17,908 10,820 60 %
Effective Tax Rate 18.2 % 40.2 % 22.0 % 22.8 %
Net Income (Loss) $ 24,555 $ (4,483) $ 29,038 648 % $ 102,120 $ 60,542 $ 41,578 69 %
Diluted Net Income (Loss) Per Common Share $ 0.89 $ (0.17) $ 1.06 624 % $ 3.71 $ 2.20 $ 1.51 69 %


(Dollars in thousands, except per share data)	Three Months Ended September 30,
	2023	2022			Change
Net Sales		$	461,572		$	425,537		$	36,035	8.5	%
Cost of Sales		352,850			326,482			26,368		8.1	%
Gross Profit		108,722			99,055			9,667		9.8	%
Gross Margin		23.6		%	23.3		%
Selling, General and Administrative Expenses		51,947			49,757			2,190		4.4	%


Operating Income		56,775			49,298			7,477		15.2	%
Operating Margin		12.3		%	11.6		%
Other, Net		857			(270)			1,127		417.4	%
Income Before Income Taxes		57,632			49,028			8,604		17.5	%
Taxes Based on Income		13,681			11,436			2,245		19.6	%
Effective Tax Rate		23.7		%	23.3		%
Net Income		$	43,951		$	37,592		$	6,359	16.9	%
Diluted Net Income Per Common Share		$	1.59		$	1.36		$	0.23	16.9	%

Net Sales

Consolidated net sales for the three months ended ~~March 31,~~September 30, 2023 increased ~~15%~~8.5% to a ~~third~~first quarter record ~~$464.9~~$461.6 million versus ~~$403.5~~$425.5 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven primarily by ~~pricing to offset inflationary costs in addition to~~ volume growth. Consolidated sales volumes, measured in pounds shipped, increased 3% for the three months ended March 31, 2023. In the prior-year quarter ended March 31, 2022, consolidated sales volumes decreased 2%.

Consolidated net sales for the nine months ended March 31, 2023 increased 12% to $1,367.9 million versus $1,224.0 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs.gains. Sales in the ~~current year~~prior-year first quarter were unfavorably impacted by ~~the~~an estimated $25 million in net sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1.1, 2022. Consolidated sales volumes, measured in pounds shipped, ~~decreased 4%~~increased 8.0% for the ~~nine~~three months ended ~~March 31,~~September 30, 2023. InExcluding the ~~prior year,~~impact of last year’s shift in sales due to our ERP go-live, consolidated sales volumes increased ~~3% for the nine months ended March 31, 2022.~~

1.4%. See discussion of net sales by segment following the discussion of “Earnings Per Share” below.

Gross Profit

Consolidated gross profit for the three months ended ~~March 31,~~September 30, 2023 increased ~~$25.9~~$9.7 million to ~~$94.2~~$108.7 million asdriven by the higher sales volumes, some continued favorability in pricing net of commodity costs, and our ~~pricing actions effectively offset~~cost savings programs. Partial offsets to these positive factors included higher labor costs and increased depreciation expense. In aggregate, the ~~significant inflationary~~input costs ~~we have experienced~~ for ~~commodities, packaging, labor and warehousing. The higher~~our commodity basket were generally consistent with last year’s level. In last year’s first quarter, gross profit ~~also reflects improved manufacturing efficiencies, cost savings initiatives and a more stable operating environment, as partially offset~~was unfavorably impacted by an estimated $5 million due to the ~~impact~~aforementioned shift of net sales into the Wave 3 implementation phase of Project Ascent as our dressing and sauce production facility in Horse Cave, Kentucky transitioned to our new ERP system in early February as planned. The current-year gross profit compares to a very challenging prior-year quarter ~~characterized by escalating inflationary costs across our entire supply chain, increased costs to service the shifting demands~~ended June 30, 2022 ahead of our ~~business, and shortages of select ingredients and packaging supplies.~~

Consolidated gross profit for the nine months ended March 31, 2023 increased $38.1 million to $295.4 million as influenced by the pricing actions we have taken to offset significant inflationary costs. Gross profit also benefited from a more stable operating environment, improved manufacturing efficiencies, cost savings initiatives and our actions taken to exit less profitable product lines and reduce headcount.ERP go-live.

Selling, General and Administrative Expenses


		Three Months Ended March 31,								Nine Months Ended March 31,									Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2023		2022		Change				2023		2022		Change				(Dollars in thousands)	2023	2022		Change
SG&A Expenses - Excluding Project Ascent	SG&A Expenses - Excluding Project Ascent	$	57,214	$	44,227	$	12,987	29	%	$	141,076	$	129,599	$	11,477	9	%	SG&A Expenses - Excluding Project Ascent		$	48,114	$	40,538	$	7,576	18.7	%
Project Ascent Expenses	Project Ascent Expenses	7,615		10,299		(2,684)		(26)	%	24,285		28,321		(4,036)		(14)	%	Project Ascent Expenses		3,833		9,219		(5,386)		(58.4)	%
Total SG&A Expenses	Total SG&A Expenses	$	64,829	$	54,526	$	10,303	19	%	$	165,361	$	157,920	$	7,441	5	%	Total SG&A Expenses		$	51,947	$	49,757	$	2,190	4.4	%

Selling, general and administrative (“SG&A”) expenses for the three months ended ~~March 31,~~September 30, 2023 increased ~~19%~~4.4% to ~~$64.8~~$51.9 million compared to ~~$54.5~~$49.8 million in the prior-year period. This increase reflects higher expenditures to support the continued growth of our business, including a more normalized level of consumer promotions, investments in personnel and ~~consumer promotions in addition to~~ higher brokerage costs associated with the increased sales. ~~SG&A expenses also include some nonrecurring legal charges for closed operations.~~ These higher costs were partially offset by lower expenditures for Project Ascent, our ERP initiative. Project Ascent expenses totaled ~~$7.6~~$3.8 million in the current-year quarter versus ~~$10.3~~$9.2 million last year.

SG&A expenses for the nine months ended March 31, 2023 increased 5% to $165.4 million compared to $157.9 million in the prior year. This increase reflects increased investments in personnel, higher brokerage costs, some nonrecurring legal charges for closed operations and increased travel expenses. Project Ascent expenses decreased $4.0 million to $24.3 million for the nine months ended March 31, 2023.

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~~

In the prior year, the change in contingent consideration resulted in a benefit of $1.3 million and $3.5 million for the three and nine months ended March 31, 2022, respectively. This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our fair value measurements, resulting in a zero balance at March 31, 2022. We recorded the third quarter adjustment of $1.3 million in our Foodservice segment. For the year-to-date adjustment, we recorded $2.6 million in our Foodservice segment and $0.9 million in our Retail segment. We ultimately exited the Bantam business near the end of fiscal 2022. See further discussion in Note 2 to the condensed consolidated financial statements.

~~Restructuring and Impairment Charges~~

In the prior-year quarter ended March 31, 2022, we recorded restructuring and impairment charges of $22.7 million related to Bantam. Impairment testing was triggered for the related long-lived assets of the asset group based on our decision to explore strategic alternatives for this business. The restructuring and impairment charges consisted of impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as restructuring charges related to a contractual obligation. Due to their unusual nature, these charges were not allocated to our two reportable segments. As noted above, we ultimately exited the Bantam business near the end of fiscal 2022.

In the prior year, we also recorded an impairment charge of $0.9 million for the nine months ended March 31, 2022 related to Bantam’s Retail customer relationships intangible asset, which reflected lower projected cash flows for Bantam’s Retail business. This impairment charge was reflected in our Retail segment.

In the prior-year quarter 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. The operations of this facility were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results. For the nine months ended March 31, 2022, we recorded restructuring and impairment charges of $1.0 million, which consisted of one-time termination benefits and impairment charges for fixed assets and an operating lease right-of-use asset. These charges were not allocated to our two reportable segments due to their unusual nature.

Operating Income ~~(Loss)~~

Operating income increased ~~$37.0~~$7.5 million to ~~$29.4~~$56.8 million for the three months ended ~~March 31,~~September 30, 2023 driven by the increase in gross profit, as ~~our pricing actions served to~~partially offset by the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing, as well as the impact of the prior-year restructuring and impairment charges. Operating income also benefited from improved manufacturing efficiencies and a more stable operating environment. The increase in SG&A ~~expenses partially offset these positive factors.~~

~~Operating income increased $51.8 million to $130.0 million for the nine months ended March 31, 2023 driven by the same factors noted for the three months ended March 31, 2023.~~

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

Taxes Based on Income ~~(Loss)~~

Our effective tax rate was ~~22.0%~~23.7% and ~~22.8%~~23.3% for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. For the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:

Nine Months Ended
March 31,
2023 2022
Statutory rate 21.0 % 21.0 %
State and local income taxes 2.1 3.6
Net windfall tax benefits - stock-based compensation (0.4) (0.2)
Other (0.7) (1.6)
Effective rate 22.0 % 22.8 %


	Three Months Ended September 30,
	2023		2022
Statutory rate	21.0	%	21.0	%
State and local income taxes	2.6		2.5
Net windfall tax benefits - stock-based compensation	—		—
Other	0.1		(0.2)
Effective rate	23.7	%	23.3	%

We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by ~~0.4% and 0.2%, respectively.~~less than 0.1%.

Earnings Per Share

As influenced by the factors discussed above, diluted net income per share for the ~~third~~first quarter of ~~2023~~2024 totaled ~~$0.89,~~$1.59, as compared to ~~a loss of $0.17~~$1.36 per diluted share in the prior year. Expenditures for Project Ascent reduced diluted earnings per share by ~~$0.21~~$0.11 and ~~$0.29~~$0.26 for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. For the three months ended March 31, 2022, restructuring and impairment charges had an unfavorable impact of $0.63 per diluted share while the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.04. Diluted earnings per share in the current year benefited from final adjustments related to the filing of tax returns for fiscal 2022, including a favorable adjustment related to closed operations.

For the nine months ended March 31, 2023, diluted net income per share totaled $3.71, as compared to $2.20 per diluted share in the prior year. For the nine months ended March 31, 2023 and 2022, expenditures for Project Ascent reduced diluted earnings per share by $0.68 and $0.79, respectively. For the nine months ended March 31, 2022, restructuring and impairment charges had an unfavorable impact of $0.68 per diluted share while the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.10.

Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended ~~March 31.~~September 30.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment


		Three Months Ended March 31,										Nine Months Ended March 31,											Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2023			2022			Change				2023			2022			Change				(Dollars in thousands)	2023	2022			Change
Net Sales	Net Sales	$	247,208		$	213,128		$	34,080	16	%	$	729,187		$	682,102		$	47,085	7	%	Net Sales		$	242,184		$	223,216		$	18,968	8.5	%
Operating Income	Operating Income	$	36,943		$	22,213		$	14,730	66	%	$	129,195		$	119,997		$	9,198	8	%	Operating Income		$	53,124		$	42,900		$	10,224	23.8	%
Operating Margin	Operating Margin	14.9		%	10.4		%					17.7		%	17.6		%					Operating Margin		21.9		%	19.2		%

For the three months ended ~~March 31,~~September 30, 2023, Retail segment net sales increased ~~16%~~8.5% to ~~$247.2~~$242.2 million from the prior-year total of ~~$213.1~~$223.2 million, including the favorable impact of ~~our pricing actions. Retail segment~~higher sales volumes ~~measured in pounds shipped, increased 6%. Retail sales volume growth was driven by the continued success of~~and, to a lesser extent, our ~~program for licensed dressings and sauces. Our New York BRAND Bakery~~® ~~frozen garlic bread products also contributed to the increase in the Retail sales volume. In the prior-year quarter ended March 31, 2022, Retail sales volumes decreased 2%.~~

~~For the nine months ended March 31,~~ 2023 ~~Retail segment net sales increased 7% to $729.2 million compared to the prior-year total of $682.1 million, including the favorable impact of our~~ pricing ~~actions.~~actions that have not fully lapped. Sales in the ~~current year~~prior-year first quarter 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 1.1, 2022. Retail segment sales volumes, measured in pounds shipped, ~~declined 4%~~increased 7.1%. ~~Sales volumes were unfavorably impacted~~Retail sales volume growth was driven by the ~~advance ordering ahead~~continued success of our program for licensed dressings and sauces. Our New York BRAND® Bakery frozen garlic bread products also contributed to the increase in the Retail sales volumes. Excluding the impact of last year’s shift in sales due to our ERP go-live, ~~price elasticity and product line rationalizations that were implemented during fiscal 2022. In the nine months ended March 31, 2022,~~ Retail segment sales volumes increased 4%1.4%.

For the three months ended ~~March 31,~~September 30, 2023, Retail segment operating income increased ~~66%~~23.8% to ~~$36.9~~$53.1 million asdue to our previous pricing actions, ~~served to offset significant~~our cost ~~inflation, in addition to~~savings programs and the favorable ~~impacts~~impact of higher sales volumes. In the prior-year quarter, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and operating income was also unfavorably impacted by an unstable operating environment that resulted in increased costs to manufacture products and service the business.

For the nine months ended March 31, 2023, Retail segment operating income increased 8% to $129.2 million as our pricing actions served to offset significant cost inflation. In the prior-year period, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and operating income was also unfavorably impacted by an unstable operating environment that resulted in increased costs to manufacture products and service the business.

Foodservice Segment


		Three Months Ended March 31,										Nine Months Ended March 31,											Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2023			2022			Change				2023			2022			Change				(Dollars in thousands)	2023	2022			Change
Net Sales	Net Sales	$	217,727		$	190,366		$	27,361	14	%	$	638,679		$	541,875		$	96,804	18	%	Net Sales		$	219,388		$	202,321		$	17,067	8.4	%
Operating Income	Operating Income	$	22,405		$	18,556		$	3,849	21	%	$	81,030		$	52,690		$	28,340	54	%	Operating Income		$	26,633		$	31,929		$	(5,296)	(16.6)	%
Operating Margin	Operating Margin	10.3		%	9.7		%					12.7		%	9.7		%					Operating Margin		12.1		%	15.8		%

For the three months ended ~~March 31,~~September 30, 2023, Foodservice segment net sales grew ~~14%~~8.4% to ~~$217.7~~$219.4 million compared to ~~$190.4~~$202.3 million in the prior-year period driven by ~~inflationary pricing combined with~~ increased demand from several of our national chain restaurant account customers and growth for our branded Foodservice products. ~~Foodservice segment sales volume, measured in pounds shipped, increased less than 1%. In the prior-year quarter ended March 31, 2022, Foodservice sales volumes decreased 2%.~~

For the nine months ended March 31, 2023, Foodservice segment net sales increased 18% to $638.7 million from the prior-year total of $541.9 million driven by inflationary pricing and volume gains from certain quick-service restaurant customers in our mix of national chain restaurant accounts. Sales in the ~~current year~~prior-year first quarter were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the ~~current-year~~prior-year period by an estimated $14 million. Foodservice segment sales volumes, measured in pounds shipped, ~~decreased 4%~~increased 8.6%. ~~Sales volumes were unfavorably impacted by~~Excluding the ~~advance ordering ahead~~impact of last year’s shift in sales due to our ERP go-live, ~~and our decision to exit some less profitable SKUs during fiscal 2022. In the nine months ended March 31, 2022,~~ Foodservice segment sales volumes increased 2%1.4%.

For the three months ended ~~March 31,~~September 30, 2023, Foodservice segment operating income ~~increased 21%~~decreased 16.6% to ~~$22.4~~$26.6 million driven by cost savings initiatives and improved manufacturing efficiencies. Our pricing actions effectively offset inflationary costs. Foodservice segment operating income in the prior-year quarter included the $1.3 million benefit recorded to Foodservice from the adjustment to Bantam’s contingent consideration.

For the nine months ended March 31, 2023, Foodservice segment operating income increased 54% to $81.0 million as our pricing actions effectively offset inflationary costs, including last year’s shortfall. Operating income in the current year also benefited from a more favorable sales mix, our decision to discontinue some less profitable SKUs and a more stable operating environment. Prior-year operating income reflected a lag in pricing relative to inflationaryhigher supply chain costs, as partially offset by the ~~adjustments~~benefit of increased sales volumes and a more favorable sales mix. The Foodservice segment’s operating margin compares to ~~Bantam’s contingent consideration.~~strong results in the prior-year period.

Corporate Expenses

For the three months ended ~~March 31,~~September 30, 2023 and 2022, corporate expenses totaled ~~$29.9~~$23.0 million and ~~$25.7~~$25.5 million, respectively. This ~~increase~~decrease primarily reflects ~~increased investments in personnel and some nonrecurring legal charges for closed operations, as partially offset by~~ a decline in Project Ascent ~~expenses.~~expenses, as partially offset by increased investments in personnel. Expenditures for Project Ascent totaled ~~$7.6~~$3.8 million and ~~$10.3~~$9.2 million for the three months ended ~~March 31, 2023 and 2022, respectively.~~

For the nine months ended March 31, 2023 and 2022, corporate expenses totaled $80.2 million and $70.7 million, respectively. This increase reflects the same factors noted for the three months ended March 31, 2023. Expenditures for Project Ascent totaled $24.3 million and $28.3 million for the nine months ended March 31,September 30, 2023 and 2022, respectively.

LOOKING FORWARD

Looking forward to our fiscal ~~fourth~~second quarter, we anticipate ~~our~~ Retail sales will continue to benefit from our expanding licensing program, including incremental ~~volume~~ growth from the new products, flavors and sizes we ~~have~~ introduced ~~this~~in fiscal ~~year.~~2023. In the Foodservice segment, we expect ~~sustained~~continued volume growth from select customers in our mix of national chain restaurant accounts. ~~Consolidated net sales~~Regarding inflation, while our input costs remain high, in total we do not anticipate a significant impact from inflationary costs in the upcoming quarter versus the prior-year period. External factors, including U.S. economic performance and ~~operating income will compare~~potential changes in consumer sentiment, may impact demand.

With respect to ~~last year’s fourth quarter that benefited from an estimated $25 million~~Project Ascent, we completed the final wave of the implementation phase in ~~incremental net sales~~August 2023 as planned and ~~$5 million in operating income attributed to advance customer orders ahead~~have shifted towards leveraging the capabilities of our ~~July 1, 2022~~new ERP ~~go-live date for Wave 1. Both our Retail and Foodservice sales will also continue~~system to ~~benefit from our pricing actions.~~

Cost inflation will remain a headwind to our financial results in our fiscal fourth quarter, but we do foresee some moderation in the rate of inflationary costs compared to recent quarters. The pricing actions we have implemented along with our cost savings initiatives are expected to offset the inflationary costs.

~~We remain on schedule to complete the planned implementation of Project Ascent in fiscal 2024.~~improve execution.

2016

We will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders.

FINANCIAL CONDITION

Cash Flows

For the ~~nine~~three months ended ~~March 31,~~September 30, 2023, net cash provided by operating activities totaled ~~$184.2~~$35.6 million, as compared to ~~$58.7~~$50.9 million in the prior-year period. This ~~increase~~decrease was primarily due to the year-over-year changes in net working capital, particularly ~~inventories, accounts payable,~~ accrued liabilities and ~~receivables. Inventories primarily~~accounts payable. Accrued liabilities reflect the ~~favorable comparison against~~unfavorable cash flow impact of a ~~larger prior-year increase~~current-year decrease in ~~inventories, which resulted from higher commodity costs~~the accruals for compensation and ~~overall elevated quantities on-hand to help service a less predictable demand environment.~~employee benefits. The favorable cash flow impact of higher accounts payable, as adjusted to exclude construction in progress amounts, was more pronounced in the ~~current~~prior year ~~reflecting continued increases in~~due to increased commodity costs as well as the timing of payments. ~~Accrued liabilities reflect the favorable impacts of a current-year increase~~These changes in the accruals for compensation and employee benefits as well as a prior-year decline in these balances. Receivables reflect the favorable impacts of a current-year decrease in receivables as well as 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. Higher net ~~income, as~~working capital were partially offset by ~~the year-over-year change in noncash restructuring and impairment charges, also contributed to the increase in cash provided by operating activities.~~higher net income.

Cash used in investing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 was ~~$78.9~~$19.7 million, as compared to ~~$105.1~~$23.5 million in the prior year. This decrease primarily reflects a lower level of payments for property additions in the current ~~year. Current-year capital expenditures include spending on a~~year as the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky ~~that~~ reached substantial completion in March 2023. Notable prior-year capital expenditures included spending on: the 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 were completed in March 2022.

Cash used in financing activities for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 of ~~$82.7~~$30.6 million increased from the prior-year total of ~~$74.6~~$23.4 million. This increase reflects higher levels of share repurchases and dividend ~~payments, tax withholdings for stock-based compensation and share repurchases.~~payments.

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 ~~March 31,~~September 30, 2023. At ~~March 31,~~September 30, 2023, we had ~~$2.8~~$2.2 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 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 ~~March 31,~~September 30, 2023, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At ~~March 31,~~September 30, 2023, 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 ~~2023 will~~2024 could total ~~an estimated $100 million, which includes approximately $55 million in expenditures attributed to the capacity expansion project at our dressing~~between $70 and ~~sauce facility in Horse Cave, Kentucky.~~$80 million.

Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of 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 ~~March 31,~~September 30, 2023, 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.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our ~~2022~~2023 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. 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~~efficiencies in ~~higher input costs;~~plant operations and our overall supply chain network;

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

•~~efficiencies in plant operations~~price and ~~our overall supply chain network;~~product competition;

•~~complexities related to~~ the ~~implementation~~impact of customer store brands on our ~~new enterprise resource planning system;~~branded retail volumes;

•adequate supply of labor for our manufacturing facilities;

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

•~~the impact of customer store brands on our branded retail volumes;~~inflationary pressures resulting in higher input costs;

•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;

•~~price and product competition;~~

•stability of labor relations;

•dependence on key personnel and changes in key personnel;

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

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

•geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;

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

•failure to maintain or renew license agreements;

•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 epidemics, pandemics or similar widespread public health concerns and disease outbreaks;

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

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

•the ability to successfully grow acquired businesses;

•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 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 ~~2022~~2023 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 ~~2022~~2023 Annual Report on Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2023 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. During 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 scheduleNo changes were made to complete the planned implementation of Project Ascent in fiscal 2024. We updated our internal controls, as necessary, to reflect the related changes 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.

2319

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 ~~2022~~2023 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 ~~1,176,804~~1,136,608 common shares remained authorized for future repurchases at ~~March 31,~~September 30, 2023. This share repurchase authorization does not have a stated expiration date. In the ~~third~~first quarter, we made the following repurchases of our common stock:

Period Total
Number of
Shares
Purchased Average
Price Paid
Per Share Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans
January 1-31, 2023 — $ — — 1,224,364
February 1-28, 2023 (1)
31,563 $ 188.62 31,563 1,192,801
March 1-31, 2023 15,997 $ 189.17 15,997 1,176,804
Total 47,560 $ 188.80 47,560 1,176,804


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet be Purchased Under the Plans
July 1-31, 2023	—	$	—	—	1,176,739
August 1-31, 2023 (1)	16,057	$	166.22	16,057	1,160,682
September 1-30, 2023 (1)	24,074	$	165.35	24,074	1,136,608
Total	40,131	$	165.70	40,131	1,136,608

(1)Includes ~~7,560~~57 shares in August 2023 and 74 shares in September 2023 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 below.

INDEX TO EXHIBITS


Exhibit Number						Description

10.1(a),(c)						Form of Restricted Stock Award Agreement for ~~Severance~~Employees and ~~Release, effective February 1, 2023, between~~Consultants under the ~~Company~~Lancaster Colony Corporation 2015 Omnibus Incentive Plan

10.2(a),(c)						Form of Performance Unit Award Agreement for Employees and ~~Dave Nagle (incorporated by reference to Exhibit 10.1 to~~Consultants under the ~~Current Report on~~Lancaster Colony Corporation 2015 Omnibus Incentive Plan

10.3(a),(c)						Lancaster Colony Corporation Form ~~8-K (000-04065), filed February 3, 2023)~~of Change in Control Agreement

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~~

2420


Exhibit Number						Description

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

104(a)						The cover page of Lancaster Colony Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2023, formatted in Inline XBRL (included within Exhibit 101 attachments)

(a)						Filed herewith

(b)						Furnished herewith

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

2521

SIGNATURES

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

LANCASTER COLONY CORPORATION

(Registrant)

Date:

~~May 4,~~November 2, 2023

By:

/s/ DAVID A. CIESINSKI

David A. Ciesinski

President, Chief Executive Officer

and Director

(Principal Executive Officer)

Date:

~~May 4,~~November 2, 2023

By:

/s/ THOMAS K. PIGOTT

Thomas K. Pigott

Vice President, Chief Financial Officer

and Assistant Secretary

(Principal Financial and Accounting Officer)

2622


	Nine Months Ended March 31, 2022
(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2021	27,531	$	128,617	$	1,482,220	$	(8,253)	$	(759,437)	$	843,147
Net income				30,655						30,655
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
Cash dividends - common stock ($0.80 per share)				(22,035)						(22,035)
Purchase of treasury stock	—							(9)		(9)
Stock-based plans	4	(2)								(2)
Stock-based compensation expense		2,589								2,589
Balance, December 31, 2021	27,534	$	133,419	$	1,504,535	$	(8,170)	$	(764,775)	$	865,009
Net loss				(4,483)						(4,483)
Net pension and postretirement benefit gains, net of $13 tax effect						43				43

Cash dividends - common stock ($0.80 per share)				(22,026)						(22,026)
Purchase of treasury stock	(14)							(2,147)		(2,147)
Stock-based plans	4	(295)								(295)
Stock-based compensation expense		2,521								2,521
Balance, March 31, 2022	27,524	$	135,645	$	1,478,026	$	(8,127)	$	(766,922)	$	838,622


	March 31,
	2023		2022
Construction in progress in Accounts Payable	$	9,281	$	21,256