What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-08-26 compared with 2020-08-27 · 313 added, 248 removed, 754 unchanged (43% of the section changed)

7 unchanged sentences

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases effective July 1, 2019, due to the adoption of Accounting Standards Update (“ASU”) No.

As discussed in Note 5 to the financial statements, the Company has changed its method of accounting for leases effective July 1, 2019, due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842).

2 unchanged sentences

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

7 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value - Contingent Consideration (Level 3 Liabilities) - Refer to Note 3 in the Financial Statements

Fair Value - Bantam Bagels, LLC (“Bantam”) Contingent Consideration (Level 3 Liability) - Refer to Note 3 in the financial statements

Critical Audit Matter Description

The Company has contingent consideration liabilities whose fair values are based on complex models and unobservable inputs.

The contingent consideration liabilities resulted from the earn-out provisions associated with the Company’s October 19, 2018 acquisition of Bantam Bagels and November 17, 2016 acquisition of Angelic Bakehouse.

The terms of these acquisitions specify that the sellers may receive an earn-out payment as part of the overall consideration in the transactions based upon a pre-determined contractual formula at a specified future date.

Under accounting principles generally accepted in the United States of America, these liabilities are generally classified as Level 3 liabilities and are marked to fair value on a recurring basis.

The Company has a contingent consideration liability whose fair value is based on a complex model and unobservable inputs.

The contingent consideration liability resulted from the earn-out provision associated with the Company’s October 19, 2018 acquisition of Bantam.

The terms of this acquisition specify that the sellers may receive an earn-out payment as part of the overall consideration in the transaction based upon a predetermined contractual formula at a specified future date.

Under accounting principles generally accepted in the United States of America, contingent consideration liabilities are generally classified as Level 3 liabilities and are marked to fair value on a recurring basis.

Unlike the fair value of other assets and liabilities that are readily observable, and therefore, more easily independently corroborated, the valuation of Level 3 liabilities is inherently subjective, and often involves the use of complex models and unobservable inputs.

The contingent consideration of Bantam Bagels is valued using a Monte Carlo simulation that randomly changes revenue growth, forecasted adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the related acquisition agreement, and other uncertain variables to estimate fair value using a discount rate.

The contingent consideration of Angelic Bakehouse is valued using a present value approach that incorporates factors such as a revenue growth rate, discount rate, and forecasted adjusted EBITDA, as defined in the related acquisition agreement, to estimate fair value.

We identified these Level 3 liabilities as a critical audit matter because of the complex models and unobservable inputs management uses to estimate fair value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists who possess significant quantitative and modeling expertise, to audit and evaluate the appropriateness of the models and inputs.

The fair value of the Bantam contingent consideration is measured on a recurring basis using a Monte Carlo simulation that randomly changes revenue growth, forecasted adjusted earnings before interest, taxes, depreciation, and amortization, as defined in the related acquisition agreement, and other uncertain variables to estimate an expected value, which is recorded at present value by applying a discount rate.

We identified this Level 3 liability as a critical audit matter because of the complex model and unobservable inputs management uses to estimate fair value.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the complex models and unobservable inputs used by management to estimate the fair value of the Level 3 liabilities included the following, among others:

We tested the effectiveness of controls over management’s valuation of Level 3 liabilities, including those related to the complex models and the significant inputs that are not readily observable.

Our audit procedures related to the complex model and unobservable inputs used by management to estimate the fair value of the Level 3 liability included the following, among others:

• We tested the effectiveness of controls over management’s valuation of the contingent consideration, including those related to the complex proprietary model and the significant inputs that are not readily observable.

• We evaluated management’s ability to accurately estimate fair value by comparing management’s historical estimates to subsequent results, taking into account changes in market conditions.

• We compared management’s assumptions to external sources.

These assumptions included the discount rates and future revenue growth affecting the forecasted adjusted EBITDA used in the valuation models.

With the assistance of our fair value specialists, we developed independent fair value estimates and compared our results to the Company’s estimates.

These assumptions included discount rates, forecasted revenue growth rates, and operating margins used in the valuation models.

• With the assistance of our fair value specialists, we evaluated the appropriateness of the valuation technique utilized, and assessed the reasonableness of the valuation inputs and discount rate assumptions used in the fair value analysis by developing a range of independent estimates and comparing those to inputs selected by management.

/s/ Deloitte & Touche LLP

8 unchanged sentences

Cash and equivalents $ 188,055 $ 198,273

Receivables 97,897 86,604

Raw materials 48,895 34,374

6 unchanged sentences

Machinery and equipment 424,015 388,929

Total cost 676,189 575,471

Less accumulated depreciation 311,567 282,183

1 unchanged sentence

Other Assets:

Goodwill 208,371 208,371

Other intangible assets-net 58,766 65,216

1 unchanged sentence

Other noncurrent assets 23,590 17,889

Total $ 1,101,285 $ 993,353

LIABILITIES AND SHAREHOLDERS’ EQUITY

13 unchanged sentences

2020- 27,523,935 shares

128,617 125,153

Retained earnings 1,482,220 1,421,121

2 unchanged sentences

Total shareholders’ equity 843,147 783,300

Total $ 1,101,285 $ 993,353

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Amounts in thousands, except per share data) 2021 2020 2019

Net Sales $ 1,467,067 $ 1,334,388 $ 1,307,787

Cost of Sales 1,080,344 976,352 981,589

Gross Profit 386,723 358,036 326,198

Selling, General and Administrative Expenses 205,363 180,945 149,811

2 unchanged sentences

Operating Income 185,852 175,948 190,924

Other, Net ( 107 ) 3,129 4,618

Income Before Income Taxes 185,745 179,077 195,542

Taxes Based on Income 43,413 42,094 44,993

Net Income $ 142,332 $ 136,983 $ 150,549

Net Income Per Common Share:

Basic $ 5.17 $ 4.98 $ 5.48

Diluted $ 5.16 $ 4.97 $ 5.46

Weighted Average Common Shares Outstanding:

Basic 27,475 27,448 27,438

Diluted 27,518 27,496 27,537

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Amounts in thousands) 2021 2020 2019

Other Comprehensive (Loss) Income:

Net Income $ 142,332 $ 136,983 $ 150,549

Other Comprehensive Income (Loss):

Defined Benefit Pension and Postretirement Benefit Plans:

Net (loss) gain arising during the period, before tax

Net gain (loss) arising during the period, before tax 4,490 ( 2,662 ) ( 2,902 )

Amortization of loss, before tax 672 546 410

Amortization of prior service credit, before tax ( 181 ) ( 182 ) ( 182 )

Total Other Comprehensive (Loss) Income, Before Tax

Tax Attributes of Items in Other Comprehensive (Loss) Income:

Net (loss) gain arising during the period, tax

Total Other Comprehensive Income (Loss), Before Tax 4,981 ( 2,298 ) ( 2,674 )

Tax Attributes of Items in Other Comprehensive Income (Loss):

Net gain (loss) arising during the period, tax ( 1,049 ) 622 678

Amortization of loss, tax ( 157 ) ( 128 ) ( 96 )

Amortization of prior service credit, tax 42 42 43

Total Tax Benefit (Expense)

Other Comprehensive (Loss) Income, Net of Tax

Total Tax (Expense) Benefit ( 1,164 ) 536 625

Other Comprehensive Income (Loss), Net of Tax 3,817 ( 1,762 ) ( 2,049 )

Comprehensive Income $ 146,149 $ 135,221 $ 148,500

5 unchanged sentences

Cash Flows From Operating Activities:

Net income $ 142,332 $ 136,983 $ 150,549

Adjustments to reconcile net income to net cash provided by operating activities:

8 unchanged sentences

Changes in operating assets and liabilities:

Receivables ( 11,293 ) ( 10,913 ) ( 748 )

Inventories ( 36,827 ) 1,024 6,282

Other current assets ( 3,524 ) ( 14,267 ) ( 3,085 )

5 unchanged sentences

Proceeds from sale of property 150 129 169

Other-net ( 1,262 ) ( 752 ) ( 786 )

Net cash used in investing activities ( 88,977 ) ( 83,265 ) ( 126,861 )

3 unchanged sentences

Tax withholdings for stock-based compensation ( 3,662 ) ( 3,806 ) ( 2,360 )

Other-net ( 2,002 ) ( 610 ) ( 320 )

Net cash used in financing activities ( 95,430 ) ( 85,519 ) ( 80,201 )

7 unchanged sentences

except per share data)

Outstanding Retained

Earnings Accumulated

Comprehensive

Loss Treasury

Shareholders’

Shares Amount

Balance, June 30, 2018 27,488 $ 119,232 $ 1,279,343 $ ( 8,259 ) $ ( 738,034 ) $ 652,282

Net pension and postretirement benefit gains, net of $829 tax effect

Tax Cuts and Jobs Act of 2017, Reclassification from accumulated other comprehensive loss to retained earnings

Net income 150,549 150,549

Net pension and postretirement benefit losses, net of $( 625 ) tax effect

( 2,049 ) ( 2,049 )

Cash dividends - common stock ($ 2.55 per share)

( 70,110 ) ( 70,110 )

Purchase of treasury stock ( 48 ) ( 7,411 ) ( 7,411 )

2 unchanged sentences

Balance, June 30, 2019 27,491 122,844 1,359,782 ( 10,308 ) ( 745,445 ) 726,873

Net income 136,983 136,983

Net pension and postretirement benefit losses, net of $( 536 ) tax effect

( 1,762 ) ( 1,762 )

Cash dividends - common stock ($ 2.75 per share)

( 75,644 ) ( 75,644 )

Purchase of treasury stock ( 38 ) ( 5,459 ) ( 5,459 )

2 unchanged sentences

Balance, June 30, 2020 27,524 125,153 1,421,121 ( 12,070 ) ( 750,904 ) 783,300

Net pension and postretirement benefit losses, net of ($536) tax effect

Net income 142,332 142,332

Net pension and postretirement benefit gains, net of $ 1,164 tax effect

Cash dividends - common stock ($ 2.95 per share)

( 81,233 ) ( 81,233 )

Purchase of treasury stock ( 46 ) ( 8,533 ) ( 8,533 )

22 unchanged sentences

When such negative balances exist, they are included in Accrued Liabilities.

Receivables and Related Allowances

We evaluate the adequacy of our allowances for customer deductions considering several factors including historical experience, specific trade programs and existing customer relationships.

We also provide an allowance for doubtful accounts based on the aging of accounts receivable balances, historical write-off experience and on-going reviews of our trade receivables.

Measurement of potential losses requires credit review of existing customer relationships, consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the economic health of customers.

Receivable Allowances

Our receivables balance is net of trade-related allowances, which consist of sales discounts, trade promotions and certain other sales incentives.

We evaluate the adequacy of these allowances considering several factors including historical experience, specific trade programs and existing customer relationships.

These allowances can fluctuate based on the level of sales and promotional programs as well as the timing of deductions.

We also provide an allowance for doubtful accounts based on our estimate of expected credit losses, which considers the aging of accounts receivable balances, historical write-off experience and on-going reviews of our trade receivables.

Measurement of expected credit losses requires credit review of existing customer relationships, consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the economic health of customers.

Our allowance for doubtful accounts was immaterial for all periods presented.

1 unchanged sentence

By policy, we limit the amount of credit exposure to any one institution or issuer.

Our concentration of credit risk with respect to trade accounts receivable is mitigated by our credit evaluation process and by having a large and diverse customer base.

Our concentration of credit risk with respect to trade accounts receivable is mitigated by our credit evaluation process and our broad Retail and Foodservice customer base.

However, see Note 10 with respect to our accounts receivable with Walmart Inc.

5 unchanged sentences

The estimates as to future demand used in the valuation of inventory are subject to the ongoing success of our products and may differ from actual due to factors such as changes in customer and consumer demand.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Property, Plant and Equipment

3 unchanged sentences

For tax purposes, we generally compute depreciation using accelerated methods.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Purchases of property, plant and equipment included in Accounts Payable and excluded from the property additions and the change in accounts payable in the Consolidated Statements of Cash Flows at June 30 were as follows:

2021 2020 2019

Construction in progress in Accounts Payable $ 16,110 $ 2,909 $ 7,852

The following table sets forth depreciation expense, including finance lease amortization, in each of the years ended June 30:

2021 2020 2019

Depreciation expense $ 37,172 $ 31,604 $ 26,751

2 unchanged sentences

Capitalized costs are included in Other Current Assets or Other Noncurrent Assets and are amortized on a straight-line basis over the estimated useful life.

In 2020 and 2019 , we capitalized $ 10.3 million and $ 1.7 million , respectively, of deferred software costs related to cloud computing arrangements.

In 2021, 2020 and 2019, we capitalized $ 3.5 million, $ 10.3 million and $ 1.7 million, respectively, of deferred software costs related to cloud computing arrangements.

Long-Lived Assets

15 unchanged sentences

Accruals for Self-Insurance

Self-insurance accruals are made for certain claims associated with employee health care, workers’ compensation and general liability insurance.

Self-insurance accruals are made for certain claims associated with employee health care, workers’ compensation and general liability insurance up to stop-loss coverage.

These accruals include estimates that are primarily based on historical loss development factors.

Shareholders’ Equity

We are authorized to issue 3,050,000 shares of preferred stock consisting of 750,000 shares of Class A Participating Preferred Stock with $ 1.00 par value, 1,150,000 shares of Class B Voting Preferred Stock without par value and 1,150,000 shares of Class C Nonvoting Preferred Stock without par value.

We are authorized to issue 3,050,000 shares of preferred stock consisting of 750,000 shares of Class A Participating Preferred Stock with $ 1.00 par value, 1,150,000 shares of Class B Voting Preferred Stock with no par value and 1,150,000 shares of Class C Nonvoting Preferred Stock with no par value.

Our Board of Directors approved a share repurchase authorization of 2,000,000 common shares in November 2010.

50 unchanged sentences

The following table summarizes advertising expense as a percentage of net sales in each of the years ended June 30:

2021 2020 2019

Advertising expense as a percentage of net sales 2 % 2 % 2 %

30 unchanged sentences

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

2021 2020 2019

Net income $ 142,332 $ 136,983 $ 150,549

Net income available to participating securities ( 285 ) ( 278 ) ( 259 )

14 unchanged sentences

Defined Benefit Pension Plan Items:

Net loss arising during the period

Net gain (loss) arising during the period 4,340 ( 2,597 )

Amortization of unrecognized net loss (1)

Postretirement Benefit Plan Items:

Net loss arising during the period

Net gain (loss) arising during the period 150 ( 65 )

Amortization of unrecognized net gain ( 20 ) ( 26 )

Amortization of prior service credit ( 181 ) ( 182 )

Total other comprehensive loss, before tax

Total tax benefit

Other comprehensive loss, net of tax

Total other comprehensive income (loss), before tax 4,981 ( 2,298 )

Total tax (expense) benefit ( 1,164 ) 536

Other comprehensive income (loss), net of tax 3,817 ( 1,762 )

Accumulated other comprehensive loss at end of year $ ( 8,253 ) $ ( 12,070 )

3 unchanged sentences

Recently Issued Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to the disclosure requirements for fair value measurements.

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

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board issued new accounting guidance related to the disclosure requirements for fair value measurements.

The guidance removes, modifies and adds disclosures related to fair value.

1 unchanged sentence

All other amendments should be applied retrospectively to all periods presented upon their effective date.

This guidance will be effective for us in fiscal 2021, including interim periods.

As the guidance only relates to disclosures, there will be no impact on our financial position or results of operations.

We adopted the new guidance on July 1, 2020.

As the guidance only relates to disclosures, there was no impact on our financial position or results of operations.

See fair value disclosures in Note 3.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(Tabular amounts in thousands, except per share data)

Recently Adopted Accounting Standards

In February 2016, the FASB issued new accounting guidance to require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months and issued subsequent clarifications of this new guidance.

This guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease).

Both lease classifications require the lessee to record a right-of-use asset and a lease liability based upon the present value of the lease payments.

Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset.

Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease.

The guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the consolidated financial statements.

In July 2018, the FASB issued guidance that allows for an alternate transition method whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than restating comparative periods.

We adopted the new guidance on July 1, 2019 using this alternate transition method, but we did not record a cumulative-effect adjustment from initially applying the standard.

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

We have completed the implementation of a lease accounting system to enable the preparation of financial information and have implemented relevant accounting policies and internal controls surrounding the lease accounting process.

As a result of adoption, we recognized a lease liability and right-of-use asset of $ 33.5 million and $ 31.7 million , respectively.

The right-of-use asset balance reflects the reclassification of deferred rent and prepaid rent against the initial asset.

The adoption did not impact our results of operations or cash flows.

See additional lease disclosures in Note 5.

Note 2 – Acquisitions

1 unchanged sentence

On November 16, 2018, we acquired substantially all of the assets of Omni Baking Company LLC (“Omni”).

Omni has been a long-time supplier of products to our frozen garlic bread operations and is based in Vineland, New Jersey.

Omni had been a long-time supplier of products to our frozen garlic bread operations and is based in Vineland, New Jersey.

The purchase price of $ 22.3 million, which includes the post-closing working capital adjustment, was funded with cash on hand.

Omni’s results of operations are allocated between our Retail and Foodservice segments in a manner consistent with our current segment allocations.

These results have been included in our consolidated financial statements from the date of acquisition.

The following table summarizes the purchase price allocation based on the fair value of the net assets acquired:

Purchase Price Allocation

Other current assets

Machinery and equipment

Goodwill (tax deductible)

Current liabilities

Net assets acquired

Bantam Bagels, LLC

6 unchanged sentences

See further discussion of the earn-out in Note 3.

Bantam’s results of operations are allocated between our Retail and Foodservice segments in a manner consistent with our current segment allocations.

These results have been included in our consolidated financial statements from the date of acquisition.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following table summarizes the consideration related to the acquisition and the purchase price allocation based on the fair value of the net assets acquired:

Consideration

Cash paid for acquisition

Contingent consideration - fair value of earn-out at date of closing

Fair value of total consideration

Purchase Price Allocation

Other current assets

Machinery and equipment

Goodwill (tax deductible)

Other intangible assets

Current liabilities

Other noncurrent liabilities

Net assets acquired

Note 3 – Fair Value

8 unchanged sentences

See Note 12 for fair value disclosures related to our defined benefit pension plan assets.

Our contingent consideration, which resulted from the earn-outs associated with our acquisitions of Bantam and Angelic Bakehouse, Inc.

(“Angelic”), is measured at fair value on a recurring basis and is included in Other Noncurrent Liabilities on the Consolidated Balance Sheets.

Our contingent consideration, which resulted from the earn-out associated with our acquisition of Bantam, is measured at fair value on a recurring basis and is included in Other Noncurrent Liabilities on the Consolidated Balance Sheets.

The following table summarizes our contingent consideration as of June 30:

Fair Value Measurements at June 30, 2021

Level 1 Level 2 Level 3 Total

Contingent consideration - Bantam $ — $ — $ 3,470 $ 3,470

Contingent consideration - Angelic

Total contingent consideration

Fair Value Measurements at June 30, 2020

Level 1 Level 2 Level 3 Total

Contingent consideration - Bantam $ — $ — $ 9,157 $ 9,157

Contingent consideration - Angelic

Total contingent consideration

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Bantam Contingent Consideration

5 unchanged sentences

As this fair value measurement is based on significant inputs not observable in the market, it represents a Level 3 measurement within the fair value hierarchy.

Our 2021 fair value measurements resulted in a $ 5.7 million reduction in the fair value of Bantam’s contingent consideration based

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023.

The changes in forecasted adjusted EBITDA primarily reflected the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020.

This adjustment was recorded in our Foodservice segment.

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

Contingent consideration at beginning of year $ 9,157 $ 8,900

Initial fair value - additions

Change in contingent consideration included in operating income ( 5,687 ) 257

1 unchanged sentence

Angelic Contingent Consideration

This contingent consideration resulted from the earn-out associated with our November 17, 2016 acquisition of Angelic.

In general, the terms of the acquisition specify the sellers will receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Angelic for fiscal 2021.

The initial fair value of the contingent consideration was determined to be $ 13.9 million .

The fair value is measured on a recurring basis using a present value approach, which incorporates factors such as revenue growth and forecasted adjusted EBITDA, to estimate an expected value.

We record the present value of this amount by applying a discount rate.

As this fair value measurement is based on significant inputs not observable in the market, it represents a Level 3 measurement within the fair value hierarchy.

Our 2019 fair value measurements resulted in a $ 17.1 million reduction in the fair value of Angelic’s contingent consideration based on a change in Angelic’s forecasted adjusted EBITDA for fiscal 2021.

This adjustment was recorded in our Retail segment.

Our 2020 fair value measurements indicated no change to Angelic’s contingent consideration based on Angelic’s forecasted adjusted EBITDA for fiscal 2021, and no fair value adjustments were made.

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

Contingent consideration at beginning of year

Change in contingent consideration included in operating income

Contingent consideration at end of year

The terms of our November 17, 2016 acquisition of Angelic Bakehouse, Inc.

(“Angelic”) specified the sellers would receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Angelic for fiscal 2021.

Based on Angelic’s actual adjusted EBITDA for fiscal 2021, there will be no earn-out payment.

No fair value adjustments were made during 2021 and 2020, and there was no liability recorded for Angelic’s contingent consideration at June 30, 2021 and 2020.

Note 4 – Long-Term Debt

On March 19, 2020, in the ordinary course of business, we entered into a new unsecured revolving credit facility (“New Credit Facility”), replacing the previous facility discussed below which was to expire in April 2021.

The material terms and covenants of the New Credit Facility are substantially similar to our previous credit facility.

The New Credit Facility provides that we may borrow, on a revolving credit basis, up to a maximum of $ 150 million at any one time, with potential to expand the total credit availability to $ 225 million based on consent of the issuing banks and certain other conditions.

The New Credit Facility expires on March 19, 2025 , and all outstanding amounts are then due and payable.

Interest is variable based upon formulas tied to LIBOR or an alternate base rate defined in the New Credit Facility.

In the event that LIBOR becomes unavailable or is no longer deemed an appropriate reference rate, the New Credit Facility allows for the use of a benchmark replacement rate.

At June 30, 2021 and 2020, we had an unsecured credit facility (“Facility”) under which we could borrow, on a revolving credit basis, up to a maximum of $ 150 million at any one time, with potential to expand the total credit availability to $ 225 million based on consent of the issuing banks and certain other conditions.

The Facility expires on March 19, 2025 , and all outstanding amounts are then due and payable.

Interest is variable based upon formulas tied to LIBOR or an alternate base rate defined in the Facility.

In the event that LIBOR becomes unavailable or is no longer deemed an appropriate reference rate, the Facility allows for the use of a benchmark replacement rate.

We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio.

Loans may be used for general corporate purposes.

Due to the nature of its terms, when we have outstanding borrowings under the New Credit Facility, they will be classified as long-term debt.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The New Credit Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions.

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:

2 unchanged sentences

The interest coverage ratio is calculated by dividing Consolidated EBIT by Consolidated Interest Expense, and the leverage ratio is calculated by dividing Consolidated Net Debt by Consolidated EBITDA.

All financial terms used in the covenant calculations are defined more specifically in the New Credit Facility.

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

At June 30, 2020 and 2019 , we had no borrowings outstanding under these facilities.

At June 30, 2020 and 2019 , we had $ 2.8 million and $ 5.1 million , respectively, of standby letters of credit outstanding, which reduced the amount available for borrowing under these facilities.

All financial terms used in the covenant calculations are defined more specifically in the Facility.

At June 30, 2021 and 2020, we had no borrowings outstanding under the Facility.

At June 30, 2021 and 2020, we had $ 2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility.

We paid no interest in 2021 and 2020.

Note 5 – Leases

On July 1, 2019, we adopted new lease accounting guidance, which requires a lessee to record right-of-use assets and lease liabilities based upon the present value of the lease payments for operating leases and finance leases.

We used the alternate transition method whereby companies could recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than restating comparative periods, but we did not record a cumulative-effect adjustment from initially applying the standard.

General Lease Description

4 unchanged sentences

We have finance leases with initial noncancelable lease terms in excess of one year covering the rental of various facilities and equipment.

These leases are generally for manufacturing and non-manufacturing equipment used in our business and warehouse facilities.

These leases are generally for non-manufacturing equipment used in our business and warehouse facilities.

The remaining lease terms for these finance leases range from 2 years to 4 years.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Significant Assumptions and Judgments

10 unchanged sentences

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

We used a discount rate to calculate the present value of the lease liability at the date of adoption.

In the development of the discount rate, we considered our internal borrowing rate, treasury security rates, collateral and credit risk specific to us, and our lease portfolio characteristics.

As of June 30, 2020 , the weighted-average discount rate of our operating and finance leases was 3.0 % and 3.6 % , respectively.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

We use a discount rate to calculate the present value of lease liabilities.

In the development of the discount rate, we consider our internal borrowing rate, treasury security rates, collateral and credit risk specific to us, and our lease portfolio characteristics.

As of June 30, 2021 and 2020, the weighted-average discount rate of our operating leases was 2.9 % and 3.0 %, respectively.

As of June 30, 2021 and 2020, the weighted-average discount rate of our finance leases was 1.9 % and 3.6 %, respectively.

Practical Expedients and Accounting Policy Elections

1 unchanged sentence

Amounts Recognized in the Financial Statements

The components of lease expense for the year ended June 30 have been provided as follows:

The components of lease expense in each of the years ended June 30 have been provided as follows:

Operating lease cost in Cost of Sales and Selling, General and Administrative Expenses $ 8,300 $ 8,726

5 unchanged sentences

Total net lease cost $ 12,679 $ 11,539

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Supplemental balance sheet information related to leases at June 30 is as follows:

9 unchanged sentences

Total finance lease liabilities $ 9,184 $ 2,151

Supplemental cash flow information related to leases for the year ended June 30 is as follows:

Supplemental cash flow information related to leases in each of the years ended June 30 is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows from finance leases $ 2,002 $ 432

Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets

Supplemental noncash information on lease liabilities removed due to purchase of leased asset

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Supplemental noncash information on operating lease liabilities arising from obtaining right-of-use assets $ 7,005 $ 5,611

Supplemental noncash information on operating lease liabilities removed due to purchase of leased asset $ — $ 5,765

Supplemental noncash information on finance lease liabilities arising from obtaining right-of-use assets $ 9,035 $ 631

As of June 30, 2021, the maturities of lease liabilities were as follows:

Operating Leases

Finance Leases

Operating Leases Finance Leases

2022 $ 7,466 $ 2,666

2023 5,809 2,475

2024 4,943 2,095

2025 2,910 1,973

2026 2,654 306

Thereafter 1,949 —

Total minimum payments $ 25,731 $ 9,515

1 unchanged sentence

Present value of lease obligations $ 24,089 $ 9,184

As of June 30, 2020 , the weighted-average remaining term of our operating and finance leases was 4.7 years and 3.8 years , respectively.

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

Operating Leases

Capital Leases

Total minimum payments

Less amount representing interest

Present value of capital lease obligations

Note 6 – Contingencies

As of June 30, 2021 and 2020, the weighted-average remaining term of our operating leases was 4.4 years and 4.7 years, respectively.

As of June 30, 2021 and 2020, the weighted-average remaining term of our finance leases was 4.0 years and 3.8 years, respectively.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 6 – Commitments and Contingencies

In addition to the items discussed below, at June 30, 2021, we were a party to various claims and litigation matters arising in the ordinary course of business.

Such matters did not have a material effect on the current-year results of operations and, in our opinion, their ultimate disposition will not have a material effect on our consolidated financial statements.

A novel strain of coronavirus (“COVID-19”) was first identified in Wuhan, China in December 2019.

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic.

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

We are monitoring the evolving situation and guidance from authorities, including federal, state and local public health departments.

We continue to review the carrying value of our assets and, as needed, have recorded additional reserves for inventory and receivables related to the impact of COVID-19 on our Foodservice segment.

The future impact of COVID-19 on our results of operations, financial condition, and cash flows is contingent upon the duration and severity of the outbreak.

Our acquisitions of Angelic and Bantam included provisions for contingent consideration for the earn-outs associated with these transactions.

We have a significant remaining commitment of approximately $ 92 million related to a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky.

Our acquisition of Bantam included a provision for contingent consideration for the earn-out associated with this transaction.

See further discussion in Note 3.

24 % of our employees are represented under various collective bargaining contracts.

The labor contract for our Bedford Heights, Ohio plant facility, which produces various garlic bread products, will expire on October 31, 2020.

6 % of our employees are represented under this collective bargaining contract.

The labor contract for our Milpitas, California plant facility, which produces various sauces and dressings, will expire on December 15, 2021, and the labor contract for one of our Columbus, Ohio plant facilities, which produces various sauces, dressings and dips, will expire on March 6, 2022.

12 % of our employees are represented under these collective bargaining contracts.

None of our other collective bargaining contracts will expire within one year.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 7 – Goodwill and Other Intangible Assets

18 unchanged sentences

Total net carrying value $ 58,766 $ 65,216

In 2021, we recorded impairment charges of $ 1.2 million related to certain tradename and technology / know-how intangible assets for Bantam, which reflect the impact of a SKU rationalization by a Foodservice customer resulting in the loss of sales to that customer after November 30, 2020.

The impairment charges represent the excess of the carrying value over the fair value of estimated discounted cash flows for the remaining useful lives of the intangible assets.

The impairment charges are reflected in Restructuring and Impairment Charges in the Consolidated Statements of Income and were recorded in our Foodservice segment.

We also reduced the remaining useful life for Bantam’s Foodservice customer relationship and have recorded accelerated amortization expense.

Amortization expense for our other intangible assets, which is reflected in Selling, General and Administrative Expenses, was as follows in each of the years ended June 30:

2021 2020 2019

Amortization expense $ 5,255 $ 5,061 $ 4,599

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO 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:

2 unchanged sentences

Compensation and employee benefits $ 32,521 $ 32,818

Distribution 8,803 7,148

Operating leases 6,861 6,766

Royalties 5,783 1,659

Finance leases 2,517 571

Marketing 1,957 1,525

Other taxes 1,665 1,392

Other 3,478 2,947

Total accrued liabilities $ 63,585 $ 54,826

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Other noncurrent liabilities at June 30 were composed of:

Workers compensation $ 8,777 $ 9,701

Contingent consideration

Finance leases 6,667 1,580

Deferred compensation and accrued interest 4,606 4,390

Contingent consideration 3,470 9,157

Pension benefit liability 1,675 3,540

Postretirement benefit liability

Gross tax contingency reserve 1,253 968

Postretirement benefit liability 1,145 1,207

Other 692 1,118

Total other noncurrent liabilities $ 28,285 $ 31,661

Note 9 – Income Taxes

The Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law on December 22, 2017 with an effective date of January 1, 2018.

Most notably, the Tax Act reduced the statutory federal income tax rate for corporations from 35 % to 21 % .

Since we file our tax return based on our fiscal year, the statutory federal income tax rate for our 2018 tax return was a blended rate of 28.1 % .

In addition to the effect of the lower overall federal tax rate, the Tax Act resulted in a $ 9.5 million one-time benefit for the re-measurement of our net deferred tax liability in 2018.

We file a consolidated federal income tax return.

Taxes based on income for the years ended June 30 have been provided as follows:

2021 2020 2019

Currently payable:

Federal $ 32,655 $ 23,392 $ 30,220

State and local 7,460 6,808 8,070

Total current provision 40,115 30,200 38,290

Deferred federal, state and local provision (benefit)

Deferred federal, state and local provision 3,298 11,894 6,703

Total taxes based on income $ 43,413 $ 42,094 $ 44,993

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

For the years ended June 30, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:

2021 2020 2019

Statutory rate 21.0 % 21.0 % 21.0 %

1 unchanged sentence

Net windfall tax benefits - stock-based compensation ( 0.6 ) ( 0.8 ) ( 0.8 )

ESOP dividend deduction

One-time benefit on re-measurement of net deferred tax liability

Domestic manufacturing deduction for qualified income

Other ( 0.2 ) 0.2 ( 0.7 )

Effective rate 23.4 % 23.5 % 23.0 %

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Our net deferred tax liability for all periods presented in the Consolidated Balance Sheets has been classified as noncurrent.

3 unchanged sentences

Operating lease liabilities 5,181 5,713

Inventories 3,003 2,382

Receivables 2,175 2,371

Other accrued liabilities 1,719 1,938

2 unchanged sentences

Property, plant and equipment ( 31,052 ) ( 30,036 )

Goodwill ( 14,174 ) ( 11,390 )

Intangible assets ( 7,076 ) ( 7,848 )

Operating lease right-of-use assets ( 5,298 ) ( 5,333 )

Other ( 33 ) ( 421 )

Total deferred tax liabilities ( 57,633 ) ( 55,028 )

1 unchanged sentence

Prepaid federal income taxes of $ 5.1 million and $ 5.3 million were included in Other Current Assets at June 30, 2021 and 2020, respectively.

Prepaid state and local income taxes of $ 1.1 million were included in Other Current Assets at June 30, 2021.

Net cash payments for income taxes for each of the years ended June 30 were as follows:

2021 2020 2019

Net cash payments for income taxes $ 40,735 $ 30,958 $ 38,644

1 unchanged sentence

The unrecognized tax benefits recorded as the gross tax contingency reserve noted in the following table for June 30, 2021 and 2020 would affect our effective tax rate, if recognized.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following table sets forth changes in our total gross tax contingency reserve (including interest and penalties):

1 unchanged sentence

Tax positions related to the current year:

Additions — —

Reductions — —

Tax positions related to prior years:

Additions 311 51

Reductions ( 26 ) ( 25 )

Settlements — ( 728 )

Balance, end of year $ 1,253 $ 968

5 unchanged sentences

For each of the years ended June 30, we recognized the change in the accrual for net tax-related interest and penalties as follows:

(Benefit) expense recognized for net tax-related interest and penalties

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Expense (benefit) recognized for net tax-related interest and penalties $ 48 $ ( 188 )

We had accrued interest and penalties at June 30 as follows:

3 unchanged sentences

federal or state and local income taxes for years prior to 2018.

The American Jobs Creation Act provided a tax deduction calculated as a percentage of qualified income from manufacturing in the United States.

This deduction was repealed by the Tax Act.

Therefore, 2018 was the final year that we were able to claim this deduction.

Note 10 – Business Segment Information

4 unchanged sentences

We evaluate our segments based on net sales and operating income.

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.

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.

1 unchanged sentence

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.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Foodservice - The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States.

2 unchanged sentences

We also manufacture and sell various branded Foodservice products to distributors.

Finally, within this segment, we sell other roll products under a transitional co-packing arrangement resulting from the Omni acquisition.

Finally, within this segment, we sold other roll products under a temporary supply agreement resulting from the Omni acquisition.

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

As many of our products are similar between our two segments, our procurement, manufacturing, warehousing and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity.

Consequently, we do not prepare, and our Chief Operating Decision Maker does not review, separate balance sheets for the reportable segments.

Consequently, we do not prepare, and our CODM does not review, separate balance sheets for the reportable segments.

As such, our external reporting does not include the presentation of identifiable assets, payments for property additions or depreciation and amortization by reportable segment.

The following table sets forth net sales disaggregated by class of similar products for the Retail and Foodservice segments in each of the years ended June 30:

2021 2020 2019

Frozen breads $ 308,482 $ 290,940 $ 259,290

Shelf-stable dressings, sauces and croutons 297,572 205,062 177,717

Refrigerated dressings, dips and other 222,909 218,125 219,614

Shelf-stable dressings and croutons

Total Retail net sales $ 828,963 $ 714,127 $ 656,621

4 unchanged sentences

Total net sales $ 1,467,067 $ 1,334,388 $ 1,307,787

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

The following table provides an additional disaggregation of Foodservice net sales by type of customer in each of the years ended June 30:

2021 2020 2019

National accounts $ 494,874 $ 459,880 $ 480,249

2 unchanged sentences

Total Foodservice net sales $ 638,104 $ 620,261 $ 651,166

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following sets forth certain additional financial information attributable to our reportable segments, certain amounts not allocated among our reportable segments and amounts retained at the corporate level for the years ended June 30:

2021 2020 2019

Net Sales (1) (2)

Retail $ 828,963 $ 714,127 $ 656,621

Foodservice 638,104 620,261 651,166

Total $ 1,467,067 $ 1,334,388 $ 1,307,787

Operating Income (2) (3)

Restructuring and Impairment Charges (3)

Retail $ 188,403 $ 161,487 $ 149,019

Foodservice 89,048 80,475 86,177

Nonallocated Restructuring and Impairment Charges (4)

— ( 886 ) ( 1,643 )

Corporate Expenses (5)

( 91,599 ) ( 65,128 ) ( 42,629 )

Total $ 185,852 $ 175,948 $ 190,924

Identifiable Assets (1) (6)

Retail & Foodservice (7)

$ 878,389 $ 771,270 $ 695,872

Corporate 222,896 222,083 209,527

Total $ 1,101,285 $ 993,353 $ 905,399

Payments for Property Additions (3)

Retail & Foodservice (7)

$ 86,792 $ 81,067 $ 70,415

Corporate 1,073 1,575 465

Total $ 87,865 $ 82,642 $ 70,880

Depreciation and Amortization (3)

Retail & Foodservice (7)

$ 41,356 $ 35,790 $ 30,896

Corporate 3,153 2,173 952

Total $ 44,509 $ 37,963 $ 31,848

(1) Net sales and long-lived assets are predominately domestic.

(2) All intercompany transactions have been eliminated.

Restructuring and impairment charges were not allocated to our two reportable segments due to their unusual nature.

(3) As discussed above, all historical information for operating income, payments for property additions and depreciation and amortization has been retroactively conformed to the current presentation.

These changes had no effect on previously reported consolidated totals.

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

(5) Our Corporate Expenses include various expenses of a general corporate nature, expenditures for Project Ascent and costs related to certain divested or closed nonfood operations.

By their very nature, these costs have not been allocated to the Retail and Foodservice segments.

These costs have not been allocated to the Retail and Foodservice segments.

(6) Retail and Foodservice identifiable assets include those assets used in our operations and other intangible assets allocated to purchased businesses.

Corporate assets consist principally of cash and equivalents.

The increase in Retail and Foodservice identifiable assets from June 30, 2020 to June 30, 2021 reflected property additions, largely due to several capacity expansion projects that are currently underway, and higher inventory levels due to increased commodity costs.

The increase in Retail and Foodservice identifiable assets from June 30, 2019 to June 30, 2020 reflected property additions, notably a capacity expansion project at our frozen dinner roll facility in Horse Cave, Kentucky, as well as operating lease right-of-use assets recorded in 2020 due to the adoption of new accounting guidance.

The increase in Retail and Foodservice identifiable assets from June 30, 2018 to June 30, 2019 was due to the acquisitions of Bantam and Omni.

(7) As discussed above, we do not present identifiable assets, payments for property additions or depreciation and amortization by reportable segment.

5 unchanged sentences

(“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., for each of the years ended June 30 were as follows:

2021 2020 2019

Net sales to Walmart $ 267,090 $ 241,699 $ 222,171

3 unchanged sentences

Accounts receivable attributable to Walmart and McLane at June 30 as a percentage of consolidated accounts receivable were as follows:

Walmart 27 % 30 %

McLane 9 % 10 %

Note 11 – Stock-Based Compensation

12 unchanged sentences

Our policy is to issue shares upon SSSARs exercise from new shares that had been previously authorized.

In 2020 , 2019 and 2018 , we granted SSSARs to various employees under the terms of the plans.

In 2021, 2020 and 2019, we granted SSSARs to various employees under the terms of the plan.

The following table summarizes information relating to these grants:

2021 2020 2019

SSSARs granted 124 180 157

7 unchanged sentences

The expected average life was determined based on historical exercise experience for this type of grant.

The SSSARs we grant generally vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date and one-third on the third anniversary of the grant date.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The SSSARs we grant generally vest over a 3 -year period whereby one-third vests on the first anniversary of the grant date, one-third vests on the second anniversary of the grant date and one-third vests on the third anniversary of the grant date.

The following table summarizes our SSSARs compensation expense and tax benefits recorded for each of the years ended June 30:

2021 2020 2019

Compensation expense $ 3,568 $ 3,049 $ 3,074

Tax benefits $ 749 $ 640 $ 646

Intrinsic value of exercises $ 6,187 $ 6,693 $ 6,008

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The total fair values of SSSARs vested for each of the years ended June 30 were as follows:

2021 2020 2019

Fair value of vested rights $ 3,404 $ 2,972 $ 3,143

The following table summarizes the activity relating to SSSARs granted under the plans for the year ended June 30, 2020 :

The following table summarizes the activity relating to SSSARs granted under the plan for the year ended June 30, 2021:

Rights Weighted

Price Weighted

Years Aggregate

Outstanding at beginning of year 539 $ 142.16

Exercised ( 203 ) $ 131.76

Granted 124 $ 177.87

Forfeited ( 6 ) $ 147.72

Outstanding at end of year 454 $ 156.49 3.34 $ 16,806

2 unchanged sentences

The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2021:

Outstanding Exercisable

Weighted Average

Exercise Prices

Grant Years Range of

Exercise Prices Number

Outstanding Remaining

Years Exercise

Exercisable Weighted

2021 $ 167.18 -$ 187.30

2 unchanged sentences

165 3.64 $ 153.74 47 $ 153.73

2019 $ 148.18 -$ 180.60

96 2.66 $ 154.82 44 $ 155.03

2018 $ 121.09 -$ 124.29

40 1.65 $ 121.17 40 $ 121.17

2017 $ 135.06

29 0.65 $ 135.06 29 $ 135.06

At June 30, 2021, there was $ 6.7 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 2 years.

1 unchanged sentence

We use periodic grants of restricted stock as a vehicle for rewarding our nonemployee directors and certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

In 2020 , 2019 and 2018 , we granted shares of restricted stock to various employees under the terms of the plans.

In 2021, 2020 and 2019, we granted shares of restricted stock to various employees under the terms of the plan.

The following table summarizes information relating to these grants:

2021 2020 2019

Restricted stock granted 17 31 13

1 unchanged sentence

Weighted average grant date fair value per award $ 177.89 $ 153.72 $ 154.66

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The restricted stock under these employee grants vests on the third anniversary of the grant date.

The restricted stock under these employee grants vests 3 years after the grant date.

Under the terms of our grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status.

In 2020 , 2019 and 2018 , we also granted shares of restricted stock to our nonemployee directors under the terms of the plans.

In 2021, 2020 and 2019, we also granted shares of restricted stock to our nonemployee directors under the terms of the plan.

The following table summarizes information relating to each of these grants:

2021 2020 2019

Nonemployee directors

2 unchanged sentences

Weighted average grant date fair value per award $ 172.89 $ 155.70 $ 180.16

The 2020 grant vests over a one -year period, and all of these shares are expected to vest.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The restricted stock under these nonemployee director grants generally vests 1 year after the grant date.

All of the shares granted during 2021 are expected to vest.

Dividends earned on the stock during the vesting period will be paid to the directors at the time the stock vests.

The following table summarizes our restricted stock compensation expense and tax benefits recorded for each of the years ended June 30:

2021 2020 2019

Compensation expense $ 3,558 $ 3,066 $ 2,898

Tax benefits $ 747 $ 644 $ 609

The total fair values of restricted stock vested for each of the years ended June 30 were as follows:

2021 2020 2019

Fair value of vested shares $ 3,148 $ 2,284 $ 3,537

The following table summarizes the activity relating to restricted stock granted under the plans for the year ended June 30, 2020 :

The following table summarizes the activity relating to restricted stock granted under the plan for the year ended June 30, 2021:

Shares Weighted

Average Grant

1 unchanged sentence

Unvested restricted stock at beginning of year 69 $ 144.27

Granted 21 $ 176.82

Vested ( 25 ) $ 128.03

Forfeited ( 3 ) $ 142.45

Unvested restricted stock at end of year 62 $ 161.35

7 unchanged sentences

At the end of the year, we discount our plan liabilities using an assumed discount rate.

In estimating this rate, we, along with our third-party actuaries, review the timing of future benefit payments, bond indices, consider yield curve analysis results and the past history of discount rates.

In estimating this rate, we, along with our third-party actuaries, review the timing of future benefit payments, bond indices, yield curve analysis results and the past history of discount rates.

The actuarial present value of benefit obligations summarized below was based on the following assumption:

1 unchanged sentence

Discount rate 2.58 % 2.49 %

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The net periodic benefit costs were determined utilizing the following beginning-of-the-year assumptions:

2021 2020 2019

Discount rate 2.49 % 3.35 % 4.07 %

2 unchanged sentences

The investment strategy for plan assets is to control and manage investment risk through diversification among asset classes, investment managers/funds and investment styles.

The plans’ investment guidelines have been designed to meet the intended objective that plan assets earn at least nominal returns equal to or in excess of the plans’ liability growth rate.

The plans’ investment guidelines have been designed to meet the intended objective that plan assets earn at least nominal returns equal to

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

or more than the plans’ liability growth rate.

In consideration of the current average age of the plans’ participants, the investment guidelines are based upon an investment horizon of at least 10 years.

We completed an evaluation of the plans’ asset allocation and liabilities with assistance from an independent outside consultant.

As a result, with the plans well-funded and no active employees continuing to accrue service cost or otherwise eligible to receive plan benefits, we reallocated the plan assets to better match the plan liabilities.

Accordingly, we allocated a higher percentage of the plan assets to long-duration fixed income investments, thereby reducing equity exposure risk and mitigating the unfavorable impacts of interest rate volatility.

This reallocation resulted in a reduction to the expected long-term return on plan assets.

The target and actual asset allocations for our plans at June 30 by asset category were as follows:

1 unchanged sentence

of Plan Assets at

Actual Percentage of Plan Assets

June 30 Actual Percentage of Plan Assets

2021 2021 2020

Equity securities 20 %- 80 %

Fixed income, including cash 20 %- 80 %

Total 100 % 100 %

Our target asset allocations are maintained through ongoing review and periodic rebalancing of equity and fixed income investments with assistance from an independent outside investment consultant.

Also, the plan assets are diversified among asset classes, asset managers or funds and investment styles to avoid concentrations of risk.

We expect that a modest allocation to cash will exist within the plans because each investment manager is likely to hold limited cash in a portfolio.

As noted above, the increase in the allocation of plan assets to fixed income investments over the past two years reflects the decision to better match the invested assets with the plans’ liabilities.

We continue to allocate a modest amount of plan assets to cash to cover near-term expenses.

We categorize our plan assets within a three-level fair value hierarchy, as previously defined in Note 3.

1 unchanged sentence

June 30, 2021

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Cash and equivalents $ 577 $ — $ — $ 577

6 unchanged sentences

Mutual funds equity 10,658 — — 10,658

Total $ 39,419 $ — $ — $ 39,419

June 30, 2020

Asset Category

Asset Category Level 1 Level 2 Level 3 Total

Cash and equivalents $ 367 $ — $ — $ 367

6 unchanged sentences

Mutual funds equity 13,365 — — 13,365

Total $ 32,104 $ 4,664 $ — $ 36,768

The plan assets classified at Level 1 include money market funds and mutual funds.

Quoted market prices in active markets for identical assets are available for investments in this category.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(Tabular amounts in thousands, except per share data)

The plan assets classified at Level 1 include money market funds and mutual funds.

Quoted market prices in active markets for identical assets are available for investments in this category.

The plan assets classified at Level 2 include fixed income securities consisting of government securities, municipal obligations, corporate obligations and mortgage obligations.

8 unchanged sentences

Interest cost 965 1,246

Actuarial loss

Actuarial (gain) loss ( 1,188 ) 2,639

Benefits paid ( 2,307 ) ( 2,298 )

6 unchanged sentences

Fair value of plan assets at end of year $ 39,419 $ 36,768

Funded status - net accrued benefit cost

Funded status - net prepaid (accrued) benefit cost $ 1,980 $ ( 3,201 )

Amounts recognized in the Consolidated Balance Sheets consist of

8 unchanged sentences

Net actuarial loss $ 12,138 $ 17,170

Income taxes ( 2,837 ) ( 4,013 )

Total $ 9,301 $ 13,157

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

2 unchanged sentences

The following table summarizes the components of net periodic benefit income for our pension plans at June 30:

2021 2020 2019

Components of net periodic benefit income

2 unchanged sentences

Amortization of unrecognized net loss 692 572 447

Settlement charge

Net periodic benefit income $ ( 122 ) $ ( 484 ) $ ( 587 )

1 unchanged sentence

Benefit payments estimated for future years are as follows:

2027 - 2031 $ 10,844

Note 13 – Defined Contribution and Other Employee Plans

4 unchanged sentences

Costs related to such plans for each of the years ended June 30 were as follows:

2021 2020 2019

Costs related to company-sponsored defined contribution plans $ 5,015 $ 4,170 $ 2,637

15 unchanged sentences

Pension Protection

Act Zone Status

Act Zone Status Fiscal Year

Contributions

FIP/RP Status

Plan Name EIN/PN 2020 2019 FIP/RP Status

Implemented 2021 2020 2019 Surcharge

Imposed Expiration

Western Conference of Teamsters Pension Plan 916145047 -

91-6145047-001

$ 327 $ 327 $ 388 No

Under this multiemployer plan and one additional multiemployer plan, we also contribute amounts for health and welfare benefits that are defined by each plan.

1 unchanged sentence

The contributions required by our participation in these plans for each of the years ended June 30 were as follows:

2021 2020 2019

Multiemployer health and welfare plan contributions $ 3,428 $ 3,242 $ 3,189

9 unchanged sentences

Deferred compensation expense for each of the years ended June 30 was as follows:

2021 2020 2019

Deferred compensation expense $ 147 $ 239 $ 239

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 14 – Selected Quarterly Financial Data (Unaudited)

Net Income (1) (2) (3)

Diluted Net Income Per Common Share (1) (2) (3) (4)

Net Income (5) (6)

Diluted Net Income Per Common Share (4) (5) (6)

Included in net income were after-tax expenditures for Project Ascent of $ 2.1 million in the first quarter, or approximately $ 0.08 per diluted share;

$ 3.7 million in the second quarter, or approximately $ 0.14 per diluted share;

$ 3.7 million in the third quarter, or approximately $ 0.13 per diluted share;

and $ 4.2 million in the fourth quarter, or approximately $ 0.15 per diluted share.

The after-tax expense for the fiscal year was $ 13.7 million , or approximately $ 0.50 per diluted share.

Included in the third quarter and fourth quarter net income were after-tax expenses totaling $ 4.2 million and $ 3.5 million , respectively, or approximately $ 0.15 and $ 0.13 per diluted share, respectively, related to certain costs attributed to the impacts of COVID-19, including the temporary increase in pay for our front-line employees, the fourth quarter write-off of engineering costs for a canceled dressing plant expansion project and changes in the Foodservice inventory reserve.

The after-tax expense for the fiscal year was $ 7.7 million , or approximately $ 0.28 per diluted share.

Included in the first quarter and fiscal year net income were after-tax restructuring and impairment charges of $ 0.7 million , or approximately $ 0.02 per diluted share.

Diluted net income per common share amounts are calculated independently for each of the quarters presented.

Accordingly, the sum of the quarterly net income per common share amounts may not agree with the fiscal year.

Included in the second quarter and fourth quarter net income was an after-tax benefit of $ 7.4 million and $ 5.7 million , respectively, or approximately $ 0.27 and $ 0.21 per diluted share, respectively, related to the reduction in the fair value of Angelic’s contingent consideration liability.

The after-tax benefit for the fiscal year was $ 13.1 million , or approximately $ 0.48 per diluted share.

Included in the fourth quarter and fiscal year net income were after-tax expenditures for Project Ascent of $ 1.4 million , or approximately $ 0.05 per diluted share, and after-tax restructuring and impairment charges of $ 1.3 million , or approximately $ 0.05 per diluted share.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data