What changed in this filing

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Item 1. Business

2021-08-26 compared with 2020-08-27 · 74 added, 45 removed, 75 unchanged (61% of the section changed)

GENERAL DEVELOPMENT OF BUSINESS

Company Overview

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

We began our operations in 1961 as a Delaware corporation.

In 1992, we reincorporated as an Ohio corporation.

Our principal executive offices are located at 380 Polaris Parkway, Suite 400, Westerville, Ohio 43082 and our telephone number is 614-224-7141.

Our vision is to be The Better Food Company – better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day – while fulfilling our corporate purpose To Nourish Growth With All That We Do .

Our company goals are to bring delicious food to the table and to deliver top quartile financial performance and top quartile product quality, safety and customer satisfaction while attracting, retaining and rewarding top quartile people.

To achieve these goals, we are focused on the three pillars of our strategic growth plan:

Accelerate our base business growth;

Simplify our supply chain to reduce our costs and grow our margins;

Identify and execute complementary mergers and acquisitions to grow our core.

As used in this Annual Report on Form 10-K and except as the context otherwise may require, the terms “we,” “us,” “our,” “registrant,” or “the Company” mean Lancaster Colony Corporation and its consolidated subsidiaries, except where it is clear that the term only means the parent company.

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Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.

Our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that have historically been part of the indirect costs allocated to our two reportable segments.

This review was completed as part of our preparation for our upcoming enterprise resource planning system implementation.

As a result of this review, our CODM identified certain support functions that would be more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources.

These changes were effective July 1, 2020.

All historical information has been retroactively conformed to the current presentation.

These changes had no effect on previously reported consolidated net sales, gross profit, operating income, net income or earnings per share.

The financial information relating to our business segments for the three years ended June 30, 2021, 2020 and 2019 is included in Note 10 to the consolidated financial statements, and located in Part II, Item 8 of this Annual Report on Form 10-K.

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The following table presents the primary Retail products we manufacture and sell under our brand names:

Products Brand Names

Frozen Breads

Frozen garlic breads

New York BRAND Bakery

Frozen Parkerhouse style yeast rolls and dinner rolls

Sister Schubert’s

Frozen mini stuffed bagels

Bantam Bagels

Frozen garlic breads New York BRAND Bakery

Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s

Refrigerated Dressings, Dips and Other

Salad dressings

Marzetti, Simply Dressed, Simply 60

Vegetable dips and fruit dips

Flatbread wraps and pizza crusts

Sprouted grain bakery products

Angelic Bakehouse

Salad dressings Marzetti, Simply Dressed

Vegetable dips and fruit dips Marzetti

Flatbread wraps and pizza crusts Flatout

Shelf-Stable Dressings and Croutons

Salad dressings

Marzetti, Tastefully Dressed, Cardini’s, Girard’s

Croutons and salad toppings

New York BRAND Bakery, Chatham Village, Marzetti

Salad dressings Marzetti, Cardini’s, Girard’s

Croutons and salad toppings New York BRAND Bakery, Chatham Village, Marzetti

We also manufacture and sell other shelf-stable products pursuant to brand license agreements including Olive Garden ® dressings, Buffalo Wild Wings ® sauces and Chick-fil-A ® sauces.

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Our flatbread products and sprouted grain bakery products are generally placed in the specialty bakery/deli section of the grocery store.

We also have products typically marketed in the shelf-stable section of the grocery store, which include salad dressing, slaw dressing and croutons.

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, garlic breads and mini stuffed bagels.

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Our category-leading retail brands and commitment to new product development help drive increased consumer demand in our Retail segment.

We have also expanded Retail segment growth by leveraging our strong Foodservice customer relationships to establish exclusive licensing agreements for the retail channel.

Strategic acquisitions are also part of our future growth plans, with a focus on fit and value.

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The following table presents the primary Foodservice products we manufacture and sell under our brand names:

Products Brand Names

Dressings and Sauces

Salad dressings

Marzetti, Simply Dressed

Salad dressings Marzetti, Simply Dressed

Frozen Breads and Other

Frozen garlic breads

New York BRAND Bakery

Frozen Parkerhouse style yeast rolls and dinner rolls

Sister Schubert’s

Marzetti Frozen Pasta

Frozen garlic breads New York BRAND Bakery

Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s

Frozen pasta Marzetti Frozen Pasta

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.

Finally, within this segment, we sell other roll products under a transitional co-packing arrangement resulting from the November 2018 acquisition of Omni Baking Company LLC.

Finally, within this segment, we sold other roll products under a temporary supply agreement resulting from the November 2018 acquisition of Omni Baking Company LLC.

The temporary supply agreement was terminated effective October 31, 2020.

Our top five Foodservice direct customers accounted for 61%, 59% and 59% of this segment’s total net sales in 2021, 2020 and 2019, respectively.

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In the Foodservice segment, sales growth results from general volume gains or geographic expansion of our established customer base, and we also grow our business with existing and new customers by leveraging our culinary skills and experience to support the development of new products and menu offerings.

Strategic acquisitions are also part of our future growth plans, with a focus on fit and value.

The operations of this segment are not affected to any material extent by seasonal fluctuations.

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We consider our owned intellectual property rights to be essential to our Foodservice business.

NET SALES ATTRIBUTED TO SIGNIFICANT CUSTOMER RELATIONSHIPS

Net sales attributed to Walmart Inc.

(“Walmart”) totaled 18%, 18% and 17% of consolidated net sales for 2021, 2020 and 2019, respectively.

Net sales attributed to McLane Company, Inc.

(“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., totaled 13%, 13% and 15% of consolidated net sales for 2021, 2020 and 2019, respectively.

McLane is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast casual and casual dining channels.

In general, these national chain restaurants have direct relationships with us for culinary research and development, menu development and production needs, but choose to buy our products through McLane, who acts as their distributor.

McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales.

Chick-fil-A, Inc.

(“Chick-fil-A”), one of our national chain restaurant accounts, also represents a significant portion of our consolidated net sales.

We supply Chick-fil-A indirectly through distributors, including McLane.

In addition, Chick-fil-A is a growing contributor to our Retail sales since we began selling their sauces to grocery retailers under an exclusive license agreement beginning in March 2020 with a regional pilot test.

Retail sales of Chick-fil-A sauces have grown through geographic expansion, ultimately reaching national distribution in April 2021.

Net sales attributed to Chick-fil-A, including the Retail sales resulting from the exclusive license agreement and the indirect Foodservice sales, totaled 21%, 16% and 14% of consolidated net sales for 2021, 2020 and 2019, respectively.

NET SALES BY CLASS OF PRODUCTS

The following table sets forth business segment information with respect to the percentage of net sales contributed by each class of similar products that account for at least 10% of our consolidated net sales in any year from 2018 through 2020 :

The following table sets forth business segment information with respect to the percentage of net sales contributed by our primary classes of similar products:

2021 2020 2019

Retail Segment:

Frozen breads 21% 22% 20%

Shelf-stable dressings, sauces and croutons 21% 16% 13%

Refrigerated dressings, dips and other 15% 16% 17%

Shelf-stable dressings and croutons

Foodservice Segment:

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Frozen breads and other 11% 12% 13%

Net sales attributable to Walmart Inc.

(“Walmart”) totaled 18% , 17% and 17% of consolidated net sales for 2020 , 2019 and 2018 , respectively.

Net sales attributable to McLane Company, Inc.

(“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., totaled 13% , 15% and 15% of consolidated net sales for 2020 , 2019 and 2018 , respectively.

McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales.

No other direct customer accounted for more than 10% of consolidated net sales during these years.

MANUFACTURING

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Certain items are also manufactured and packaged by third parties located in the United States, Canada and Europe.

Orders are generally filled in five to ten days.

We do not view the amount of backlog at any particular point in time as a meaningful indicator of longer-term shipments.

All of the markets in which we sell food products are highly competitive in the areas of price, quality and customer service.

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Our ability to compete depends upon a variety of factors, including the position of our branded goods within various categories, product quality, product innovation, promotional and marketing activity, pricing and our ability to service customers.

ENVIRONMENTAL MATTERS

Our operations are subject to various federal, state and local environmental protection laws.

GOVERNMENT REGULATION

Our business operations are subject to regulation by various federal, state and local government entities and agencies.

As a producer of food products for human consumption, our operations are subject to stringent production, packaging, quality, labeling and distribution standards, including regulations promulgated under the Federal Food, Drug and Cosmetic Act and the Food Safety Modernization Act.

We are also subject to various federal, state and local environmental protection laws.

Based upon available information, compliance with these laws and regulations did not have a material effect upon the level of capital expenditures, earnings or our competitive position in 2021 and is not expected to have a material impact in 2022.

EMPLOYEES AND LABOR RELATIONS

As of June 30, 2020 we had 3,200 employees, 25% of which are represented under various collective bargaining contracts.

6% of our employees are represented under a collective bargaining contract that will expire within one year.

HUMAN CAPITAL

Our people are essential to our vision to be The Better Food Company — better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day.

The honesty, integrity and sound judgment of our people in following our Code of Business Ethics are what enable us to be successful and live our company’s purpose To Nourish Growth With All That We Do .

Consistent with that purpose, we are committed to diversity, inclusion and belonging in the workplace.

Our commitment was exemplified by five recent strategic actions:

We adopted a Diversity Hiring Statement, which reiterates our pledge to include highly qualified women and minority candidates, as well as highly qualified candidates with other diverse backgrounds, skills and experiences, in the pool of candidates for new leadership positions.

We appointed a Vice President of Environmental, Social, Governance and Corporate Affairs to support engagement of our stakeholders and enhanced disclosure practices.

We established a work-study program to provide both tuition support and work-study mentorship for high school students from low-income families.

We created an Employee Assistance Fund to offer short-term financial assistance to associates facing difficult life circumstances and times of crisis.

We encouraged and supported the development of several employee resource groups that promote diversity and equality by raising awareness and ensuring that group members have a voice in the company.

We believe our diversity, inclusion and belonging initiatives enhance our ability to attract and retain a high-performing, diverse team of people.

We also endeavor to provide our employees with competitive fixed and/or variable pay along with a benefit package which typically includes medical, dental and life insurance benefits, disability coverage, a 401(k) plan, and an employee assistance program, among other benefits.

In managing our business, we strive to reward performance, promote shared fiscal responsibility among the company and our employees, and strategically align talent within our organization, while also managing the costs of such actions.

In addition, we are committed to nourishing the growth of our employees by providing training and development opportunities to pursue their career paths and to ensure compliance with our policies.

During the novel coronavirus (“COVID-19”) pandemic, one of our major priorities while navigating through this period of volatility and uncertainty has been to ensure the health, safety and welfare of our employees.

Our health and safety program is well-developed and is reinforced through our policies, training, and auditing efforts.

The discussion in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes many of the actions we have taken with respect to these efforts.

We continue to monitor the latest guidance from authorities, including federal, state and local public health departments, and adopt the appropriate measures to ensure we continue to operate safely and support our employees.

As of June 30, 2021, we had 3,200 employees.

Of those employees, 24% are represented under various collective bargaining contracts and 12% are represented under collective bargaining contracts that will expire within one year.

While we believe that labor relations with all our employees are satisfactory, a prolonged labor dispute or an organizing attempt could have a material adverse effect on our business and results of operations.

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We purchase the majority of these materials on the open market to meet current requirements, but we also have some fixed-price contracts with terms generally one year or less.

See further discussion in our “Risk Factors” section below and our contractual obligations disclosure in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

See further discussion in the “Risk Factors” section below and the “Financial Condition” section of our MD&A.

Although the availability and price of certain of these materials are influenced by weather, disease and the level of global demand, we anticipate that future sources of supply for 2022 will generally be available and adequate for our needs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business