What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-25 compared with 2021-08-26 · 195 added, 203 removed, 864 unchanged (32% of the section changed)

6 unchanged sentences

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 25, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

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).

Basis for Opinion

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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 US 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 U.S.

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.

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

Valuation of Long-Lived Assets and Other Intangible Assets - Refer to Notes 1 and 6 in the Financial Statements

Critical Audit Matter Description

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 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.

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 model and inputs.

The Company monitors the recoverability of the carrying value of its long-lived and other intangible assets by periodically considering whether indicators of impairment are present.

Indicators of impairment may include, but are not limited to, factors such as adverse changes in the macroeconomic environment, adverse changes in the extent or manner an asset or group of assets are used by management, unfavorable events impacting current and projected operating results and cash flows, or decisions to explore strategic alternatives or exit individual businesses before the end of their expected useful life.

If such indicators are present, the Company determines if the assets are recoverable by comparing the sum of the undiscounted cash flows to the assets’ carrying amounts.

If the carrying amounts are greater, then the assets are not recoverable.

The net other intangible asset balance was $32.3 million and $58.8 million at June 30, 2022 and 2021, respectively.

The long-lived asset balances, comprised of net property, plant and equipment and operating lease right of use assets, totaled $479.5 million and $387.1 million at June 30, 2022 and 2021, respectively.

Given the subjectivity in determining qualitative and quantitative impairment indicators for an asset group, management exercises significant judgment in the identification of whether impairment indicators are present.

Accordingly, auditing management's determination of whether impairment indicators exist for an asset group was challenging due to the judgment

applied in both the identification of such factors, and the evaluation of whether the factors have an impact on the recovery of the carrying value of the asset group.

How the Critical Audit Matter Was Addressed in the Audit

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 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.

Our audit procedures related to the Company’s identification of potential indicators of impairment of its long-lived and other intangible assets included the following, among others:

• We evaluated the design and tested the operating effectiveness of controls over management’s evaluation of impairment indicators.

• We evaluated the reasonableness of management’s assessment of impairment indicators by:

◦ Evaluating management’s process for identifying qualitative and quantitative impairment indicators by asset group and whether management appropriately considered such indicators.

◦ Conducting a completeness assessment to determine whether additional impairment indicators were present during the period that were not identified by management.

/s/ Deloitte & Touche LLP

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Net Income $ 89,586 $ 142,332 $ 136,983

Other Comprehensive Income (Loss):

Other Comprehensive (Loss) Income:

Defined Benefit Pension and Postretirement Benefit Plans:

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

Net (loss) gain arising during the period, before tax ( 4,029 ) 4,490 ( 2,662 )

Amortization of loss, before tax 401 672 546

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

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

Total Other Comprehensive (Loss) Income, Before Tax ( 3,809 ) 4,981 ( 2,298 )

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

Net (loss) gain arising during the period, tax 942 ( 1,049 ) 622

Amortization of loss, tax ( 94 ) ( 157 ) ( 128 )

Amortization of prior service credit, tax 42 42 42

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

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

Total Tax Benefit (Expense) 890 ( 1,164 ) 536

Other Comprehensive (Loss) Income, Net of Tax ( 2,919 ) 3,817 ( 1,762 )

Comprehensive Income $ 86,667 $ 146,149 $ 135,221

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Restructuring and impairment charges 32,285 1,195 ( 268 )

Loss (gain) on sale of property 61 315 ( 13 )

(Gain) loss on sale of property ( 123 ) 61 315

Pension plan activity ( 548 ) ( 149 ) ( 578 )

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Payments for property additions ( 131,972 ) ( 87,865 ) ( 82,642 )

Cash paid for acquisitions, net of cash acquired — — ( 55,364 )

Proceeds from sale of property 368 150 129

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Net income 142,332 142,332

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

( 1,762 ) ( 1,762 )

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

Cash dividends - common stock ($ 2.95 per share)

5 unchanged sentences

Net income 89,586 89,586

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

Net pension and postretirement benefit losses, net of $( 890 ) tax effect

( 2,919 ) ( 2,919 )

Cash dividends - common stock ($ 3.15 per share)

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Depreciation expense $ 39,799 $ 37,172 $ 31,604

In 2022, we recorded an impairment charge of $ 7.6 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 and ultimately exit this business and represents the excess of the carrying value over the fair value.

The fair value was based on agreed-upon selling prices for these assets, which represents a Level 2 measurement within the fair value hierarchy.

The impairment charge is reflected in Restructuring and Impairment Charges and was not allocated to our two reportable segments due to its unusual nature.

Deferred Software Costs

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Goodwill is not amortized.

It is evaluated annually at April 30 by applying impairment testing procedures.

It is evaluated annually at April 30, or when events or circumstances indicate potential recoverability concerns, by applying impairment testing procedures.

Other intangible assets are amortized on a straight-line basis over their estimated useful lives to Selling, General and Administrative Expenses.

We evaluate the future economic benefit of the recorded goodwill and other intangible assets when events or circumstances indicate potential recoverability concerns.

We monitor the recoverability of the carrying value of our other intangible assets similar to our long-lived assets discussed above.

Carrying amounts are adjusted appropriately when determined to have been impaired.

See further discussion regarding goodwill and other intangible assets in Note 6.

We record right-of-use assets and lease liabilities based on the present value of the lease payments for operating leases and finance leases with an initial term in excess of 12 months.

We made an accounting policy election to exclude short-term leases from our Consolidated Balance Sheets.

In evaluating our contracts to determine whether a contract is or contains a lease, we consider the following:

• Whether explicitly or implicitly identified assets have been deployed in the contract;

• Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we use judgment and consistent application of assumptions to reasonably allocate the consideration.

For leases containing options to extend or terminate, we determine whether the extension or termination should be considered reasonably certain to be exercised.

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 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.

Accrued Distribution

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At June 30, 2022, 1,225,545 common shares remained authorized for future purchase.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Revenue Recognition

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this includes distribution costs incurred after control over a product has transferred to a customer, as we have chosen to use the available practical expedient to account for these costs within our cost of sales.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Variable Consideration

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See Note 9 for disaggregation of our net sales by class of similar product and type of customer.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Advertising Expense

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We are subject to income taxes in numerous domestic jurisdictions.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Our annual effective tax rate is determined based on our income, statutory tax rates and the permanent tax impacts of items treated differently for tax purposes than for financial reporting purposes.

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Earnings Per Share

Earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock and common stock equivalents (restricted stock and stock-settled stock appreciation rights) outstanding during each period.

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 and stock-settled stock appreciation rights.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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Stock-settled stock appreciation rights (1)

Performance units 1 — —

Weighted average common shares outstanding - diluted 27,472 27,518 27,496

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Net income per common share - diluted $ 3.25 $ 5.16 $ 4.97

(1) Excludes the impact of 0.3 million, 0.1 million and 0.2 million weighted average stock-settled stock appreciation rights outstanding in 2022, 2021 and 2020, respectively, because their effect was antidilutive.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Comprehensive Income and Accumulated Other Comprehensive Loss

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Defined Benefit Pension Plan Items:

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

Net (loss) gain arising during the period ( 4,388 ) 4,340

Amortization of unrecognized net loss (1)

Postretirement Benefit Plan Items:

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

Net gain arising during the period 359 150

Amortization of unrecognized net gain ( 27 ) ( 20 )

Amortization of prior service credit ( 181 ) ( 181 )

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 )

Total other comprehensive (loss) income, before tax ( 3,809 ) 4,981

Total tax benefit (expense) 890 ( 1,164 )

Other comprehensive (loss) income, net of tax ( 2,919 ) 3,817

Accumulated other comprehensive loss at end of year $ ( 11,172 ) $ ( 8,253 )

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(2) Additional disclosures for postretirement benefits are not included as they are not considered material.

Recently Issued Accounting Standards

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.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

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

We adopted the new guidance on July 1, 2020.

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

See fair value disclosures in Note 3.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 2 – Acquisitions

Omni Baking Company LLC

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

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.

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

Bantam Bagels, LLC

On October 19, 2018, we acquired all the assets of Bantam Bagels, LLC (“Bantam”).

Bantam, a producer and marketer of frozen mini stuffed bagels and other frozen bread products sold to both the retail and foodservice channels, is based in New York, New York.

The base purchase price of $ 33.1 million, which includes the post-closing working capital adjustment, was funded with cash on hand.

This purchase price excludes contingent consideration relating to an additional earn-out payment which is tied to performance-based conditions.

In general, the terms of the acquisition specify that the sellers will 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.

We are unable to provide a range for the amount of this earn-out because it is based on the future adjusted EBITDA of Bantam, and the earn-out does not contain a minimum or maximum value.

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

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

Recent Accounting Standards

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

Note 2 – Fair Value

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See Note 11 for fair value disclosures related to our defined benefit pension plan assets.

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.

Impairment charges for property, plant and equipment and intangible assets resulted from nonrecurring fair value measurements.

See further discussion in Note 1 and Note 6.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Our contingent consideration, which resulted from the earn-out associated with our acquisition of Bantam, was included in Other Noncurrent Liabilities.

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

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This contingent consideration resulted from the earn-out associated with our October 19, 2018 acquisition of Bantam.

In general, the terms of the acquisition specify the sellers will receive an earn-out based upon a pre-determined multiple of the defined adjusted EBITDA of Bantam for the twelve months ending December 31, 2023.

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.

The fair value is measured on a recurring basis using a Monte Carlo simulation that randomly changes revenue growth, forecasted adjusted EBITDA and other uncertain variables to estimate an expected value.

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

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

Our 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.

Prior to our May 2022 decision to exit the business, 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.

There was no liability recorded for Bantam’s contingent consideration at June 30, 2022.

Our 2022 fair value measurements resulted in a $ 3.5 million reduction in the fair value of Bantam’s contingent consideration based on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023, as well as a refinement to the estimated probabilities applied to our forecast scenarios.

The changes in forecasted adjusted EBITDA reflected lower projected sales levels for both the Retail and Foodservice business.

The changes in estimated probabilities reflected a lower likelihood of attaining certain Foodservice business.

We recorded $ 2.6 million of this adjustment in our Foodservice segment and $ 0.9 million in our Retail segment.

Our 2021 fair value measurements resulted in a $ 5.7 million reduction in the fair value of Bantam’s contingent consideration based on changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023.

The changes in forecasted adjusted EBITDA 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.

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Contingent consideration at end of year $ — $ 3,470

Angelic Contingent Consideration

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 3 – Long-Term Debt

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

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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Note 4 – 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

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

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

Certain of these leases contain renewal options and some provide options to purchase during the lease term.

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

Contract Contains a Lease

In evaluating our contracts to determine whether a contract is or contains a lease, we considered the following:

• Whether explicitly or implicitly identified assets have been deployed in the contract;

• Whether we obtain substantially all of the economic benefits from the use of that underlying asset, and we can direct how and for what purpose the asset is used during the term of the contract.

Allocation of Consideration

In determining how to allocate consideration between lease and non-lease components in a contract that was deemed to contain a lease, we used judgment and consistent application of assumptions to reasonably allocate the consideration.

Options to Extend or Terminate Leases

We have leases which contain options to extend or terminate the leases.

On a lease-by-lease basis, we have determined if the extension should be considered reasonably certain to be exercised and thus a right-of-use asset and a lease liability should be recorded.

Discount Rate

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.

The remaining lease terms for these finance leases range from 1 year to 3 years.

As of June 30, 2022 and 2021, the weighted-average discount rate of our operating leases was 2.6 % and 2.9 %, respectively.

As of June 30, 2022 and 2021, the weighted-average discount rate of our finance leases was 1.8 % and 1.9 %, respectively.

Practical Expedients and Accounting Policy Elections

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.

Amounts Recognized in the Financial Statements

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

2022 2021 2020

Operating lease cost in Cost of Sales and Selling, General and Administrative Expenses $ 9,246 $ 8,300 $ 8,726

Finance lease cost:

Amortization of assets in Cost of Sales $ 1,571 $ 335

Amortization of assets in Cost of Sales and Selling, General and Administrative Expenses $ 2,413 $ 1,571 $ 335

Interest on lease liabilities in Other, Net 153 156 73

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

2022 2021 2020

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

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2026 4,995 306

2026 2,654 306

Thereafter 546 —

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As of June 30, 2022 and 2021, the weighted-average remaining term of our finance leases was 3.0 years and 4.0 years, respectively.

We have additional operating lease commitments totaling $ 1.9 million for equipment that had not been delivered as of June 30, 2022.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

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In addition to the items discussed below, at June 30, 2022, we were a party to various claims and litigation matters arising in the ordinary course of business.

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

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.

We have a significant remaining commitment of approximately $ 30 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 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.

The labor contract for our Vineland, New Jersey plant facility, which produces frozen bread products, will expire on December 31, 2022.

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

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

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Total net carrying value $ 32,323 $ 58,766

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

In 2022, we recorded impairment charges of $ 13.2 million to write off the net carrying value of Bantam’s tradename, customer relationships and technology / know-how intangible assets.

These impairment charges were reflected in Restructuring and Impairment Charges.

We recorded $ 0.9 million in our Retail segment related to lower projected cash flows for Bantam’s Retail business.

The remaining $ 12.3 million, which resulted from our decision to explore strategic alternatives for this business, was not allocated to our two reportable segments due to its unusual nature.

In 2022, we also recorded an impairment charge of $ 8.8 million related to the tradename intangible asset of Angelic Bakehouse, Inc.

(“Angelic”), which reflected the impact of lower projected sales for Angelic’s branded Retail business.

This impairment charge was reflected in Restructuring and Impairment Charges and was recorded in our Retail segment.

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

The impairment charges were reflected in Restructuring and Impairment Charges and were recorded in our Foodservice segment.

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

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

1 unchanged sentence

(Tabular amounts in thousands, except per share data)

The impairment charges discussed above represent 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 represent Level 3 measurements within the fair value hierarchy.

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:

2022 2021 2020

Amortization expense $ 4,437 $ 5,255 $ 5,061

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

6 unchanged sentences

Finance leases 2,542 2,517

Marketing 1,957 1,525

Other taxes 1,592 1,665

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Workers compensation $ 7,265 $ 8,777

Finance leases 6,667 1,580

Deferred compensation and accrued interest 4,934 4,606

Contingent consideration 3,470 9,157

Finance leases 4,320 6,667

Pension benefit liability 1,813 1,675

1 unchanged sentence

Postretirement benefit liability 867 1,145

Contingent consideration — 3,470

Other 595 692

Total other noncurrent liabilities $ 20,719 $ 28,285

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 8 – Income Taxes

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Total taxes based on income $ 22,802 $ 43,413 $ 42,094

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:

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State and local income taxes 0.7 3.2 3.1

Research and development tax credit ( 1.7 ) ( 0.8 ) —

Net windfall tax benefits - stock-based compensation ( 0.1 ) ( 0.6 ) ( 0.8 )

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Effective rate 20.3 % 23.4 % 23.5 %

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

Our net deferred tax liability for all periods presented has been classified as noncurrent.

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30 were comprised of:

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Operating lease liabilities 6,553 5,181

Inventories 3,003 2,382

Receivables 2,756 2,175

Inventories 1,668 3,003

Other accrued liabilities 1,443 1,719

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Goodwill ( 15,930 ) ( 14,174 )

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

Operating lease right-of-use assets ( 6,726 ) ( 5,298 )

Intangible assets ( 1,494 ) ( 7,076 )

Other ( 59 ) ( 33 )

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Net deferred tax liability $ ( 38,889 ) $ ( 38,702 )

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.

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

Prepaid state and local income taxes of $ 1.9 million and $ 1.1 million were included in Other Current Assets at June 30, 2022 and 2021, respectively.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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The unrecognized tax benefits recorded as the gross tax contingency reserve noted in the following table for June 30, 2022 and 2021 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):

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

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

(Benefit) expense recognized for net tax-related interest and penalties $ ( 22 ) $ 48

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

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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.

In 2021, our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that had historically been part of the indirect costs allocated to our two reportable segments.

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

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

These changes were effective in 2021, and all historical information was 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.

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, garlic breads and mini stuffed bagels.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

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(Tabular amounts in thousands, except per share data)

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.

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.

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

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

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.

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2022 2021 2020

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

Shelf-stable dressings, sauces and croutons $ 375,031 $ 297,572 $ 205,062

Frozen breads 331,812 308,482 290,940

Refrigerated dressings, dips and other 208,367 222,909 218,125

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(2) All intercompany transactions have been eliminated.

(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.

(3) As discussed above, certain prior-year amounts were reclassified in 2021 to conform 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.

(4) Reflects restructuring and impairment charges related to the Bantam business and a facility closure in 2022 and a plant closure in 2020, which 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.

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

The increase in Retail and Foodservice identifiable assets from June 30, 2021 to June 30, 2022 reflected property additions due to several capacity expansion projects, higher receivables balances due to increased sales, and higher inventory levels due to increased input costs.

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

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 decrease in Corporate assets from June 30, 2021 to June 30, 2022 reflected the decline in cash and equivalents.

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

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Compensation expense is reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification.

We record tax benefits and excess tax benefits related to stock-settled stock appreciation rights (“SSSARs”) and restricted stock awards.

These excess tax benefits are included in the operating section of the Consolidated Statements of Cash Flows.

We estimate a forfeiture rate for our SSSARs and restricted stock grants based on historical experience.

We estimate a forfeiture rate based on historical experience.

Stock-Settled Stock Appreciation Rights

We use periodic grants of SSSARs as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

We calculate the fair value of SSSARs grants using the Black-Scholes option-pricing model.

Prior to 2022, we used periodic grants of stock-settled stock appreciation rights (“SSSARs”) as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

We calculated the fair value of SSSARs grants using the Black-Scholes option-pricing model.

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

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The following table summarizes information relating to these grants:

2021 2020 2019

SSSARs granted 124 180

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

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 SSSARs we granted 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:

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35 0.65 $ 121.18 35 $ 121.18

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.

At June 30, 2022, there was $ 3.2 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 1 year.

Restricted Stock

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At June 30, 2022, there was $ 6.2 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.

Performance Units

We made an initial grant of performance units in August 2021 as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

These performance units are based on two performance metrics, with equal weightings, as follows:

• a market condition based on relative total shareholder return versus the S&P 1500 Packaged Foods & Meats Index;

• a performance condition based on revenue growth over the applicable performance period.

These performance units will vest 3 years after the grant date and will be settled in shares of common stock equal to the number of performance units granted multiplied by a percentage between 0 % and 200 % depending on the achievement of the above-noted performance metrics over the 3 -year performance period.

Our policy is to issue shares upon the vesting of performance units from new shares that had been previously authorized.

Dividend equivalents earned during the vesting period will be paid at the time the awards vest.

In 2022, we granted performance units to various employees under the terms of the plan.

The following table summarizes information relating to these grants:

Performance units granted 20

Grant date fair value $ 4,151

Weighted average grant date fair value per award $ 201.67

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

For our performance units with a performance condition, the grant-date fair value is equal to the closing price of our common stock on the grant date.

For our performance units with a market condition, the grant-date fair value is estimated using a Monte Carlo simulation.

The assumptions used in the Monte Carlo simulation were as follows:

Risk-free interest rate 0.41 %

Dividend yield 1.65 %

Volatility factor of the expected market price of our common stock 31.30 %

The following table summarizes our performance units compensation expense and tax benefits recorded for the year ended June 30:

Compensation expense $ 1,055

Tax benefits $ 222

The following table summarizes the activity relating to performance units granted under the plan for the year ended June 30, 2022:

Units Weighted

Average Grant

Date Fair Value

Unvested performance units at beginning of year — $ —

Granted 20 $ 201.67

Forfeited ( 1 ) $ 201.92

Unvested performance units at end of year 19 $ 201.65

At June 30, 2022, there was $ 2.6 million of unrecognized compensation expense related to performance units that we will recognize over a weighted-average period of 2 years.

Note 11 – Pension Benefits

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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

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

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(Tabular amounts in thousands, except per share data)

or more than the plans’ liability growth rate.

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

In 2021, 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.

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

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.

The higher allocation of plan assets to fixed income investments reflects the decision to better match the invested assets with the plans’ liabilities and the fact that the plans are well-funded with no active employees continuing to accrue service cost or otherwise eligible to receive plan benefits.

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

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Money market funds 795 — — 795

government obligations — — — —

Municipal obligations — — — —

Corporate obligations — — — —

Mortgage obligations — — — —

Mutual funds fixed income 20,628 — — 20,628

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Money market funds 1,140 — — 1,140

government obligations — 1,261 — 1,261

Municipal obligations — 264 — 264

Corporate obligations — 1,303 — 1,303

Mortgage obligations — 1,836 — 1,836

Mutual funds fixed income 27,044 — — 27,044

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

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

For these types of securities, market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually at the measurement date.

For these assets, we obtain pricing information from an independent pricing service.

The pricing service uses various pricing models for each asset class that are consistent with what other market participants would use.

The inputs and assumptions to the model of the pricing service are derived from market observable sources including as applicable:

benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

Relevant information with respect to our pension benefits as of June 30 can be summarized as follows:

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Interest cost 935 965

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

Actuarial gain ( 5,130 ) ( 1,188 )

Benefits paid ( 2,201 ) ( 2,307 )

Benefit obligation at end of year $ 31,043 $ 37,439

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Change in plan assets

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Fair value of plan assets at end of year $ 29,611 $ 39,419

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

Funded status - net (accrued) prepaid benefit cost $ ( 1,432 ) $ 1,980

Amounts recognized in the Consolidated Balance Sheets consist of

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Total $ 12,336 $ 9,301

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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We have not yet finalized our anticipated funding level for 2023, but based on initial estimates, we do not expect our 2023 contributions to our pension plans to be material.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Benefit payments estimated for future years are as follows:

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Company-Sponsored Defined Contribution Plans

We sponsor three defined contribution plans established pursuant to Section 401(k) of the Internal Revenue Code.

We sponsor four defined contribution plans established pursuant to Section 401(k) of the Internal Revenue Code.

Contributions are determined under various formulas, and we contributed to each of these plans in 2022.

The employer matching contribution percentage for one of these plans was increased effective January 1, 2019.

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

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(1) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (3) if a participating employer chooses to stop participating in the multiemployer plan, it may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Our participation in this multiemployer pension plan for the three years ended June 30, 2022 is reflected in the following table.

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$ 296 $ 327 $ 327 No

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

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

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We also make non-elective contributions for the union employees at our Bedford Heights, Ohio plant into a union-sponsored multiemployer 401(k) plan.

Our contributions totaled $ 0.7 million in 2021, 2020 and 2019.

Our contributions totaled $ 0.9 million, $ 0.7 million and $ 0.7 million in 2022, 2021 and 2020, respectively.

Deferred Compensation Plan

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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