LANCASTER COLONY CORPORATION
RETAIL BRANDS &
NEW PRODUCTS
The Company’s marquee brands include
Marzetti®, New York BRAND Bakery®, Sister
Schubert’s® and Flatout®. Products sold under
the long-established Marzetti brand include salad
dressings, veggie dips, fruit dips and croutons.
New York Bakery is the recognized leader in the
frozen garlic toast and garlic breadstick segments,
while New York Bakery Texas Toast croutons rank
among the top retail crouton brands in the United
States. Sister Schubert’s offers the top-selling lineup
of dinner yeast rolls in the supermarket frozen section.
Flatout is a leading flatbread brand with placement
in the deli department and product offerings that
include oval-shaped flatbread wraps, the unique
Foldit® line of flatbreads and Artisan Thin pizza crusts.
This past year we introduced our Simply 60® line
of refrigerated dressings with only 60 calories per
serving made with simple ingredients such as real
buttermilk and extra virgin olive oil. Expanding upon
our offerings of dressings and sauces sold under
license agreements, we added a new Parmesan
Ranch flavor to the Olive Garden® lineup and
completed a successful retail test of Buffalo Wild
Wings® sauces. In fiscal 2019, new retail products
will include Marzetti Simple Harvest® plant-based,
non-dairy dips for the produce department; Angelic
Bakehouse® non-GMO sprouted grain wraps for
the deli department; and New York Bakery Ultimate
GarlicTM Texas Toast for the grocer’s frozen section.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Figures)
2018
2017
Years Ended June 30
Note: Financial results for the fiscal year ended June 30, 2018 reflect the favorable impact of the Tax Cuts and
Jobs Act of 2017, including a one-time deferred tax benefit to net income of $9.5 million. Financial results for
the fiscal year ended June 30, 2017 include the impact of a one-time $17.6 million pre-tax charge resulting
from the company’s withdrawal from an underfunded multiemployer pension plan.
Olive Garden® is a registered trademark of Darden Concepts, Inc. and Buffalo Wild Wings® is a registered trademark of Buffalo Wild Wings, Inc.
Net Sales$1,222,925 $1,201,842Gross Profit$303,513$318,764Income Before Income Taxes$174,203$175,516Taxes Based on Income$38,889$60,202Net Income$135,314$115,314Per Common Share: Net Income – Diluted $4.92$4.20 Cash Dividends $2.35$2.15 Shareholders’ Equity$23.73$20.98Total Assets$804,491$716,405Shareholders’ Equity$652,282$575,977Weighted Average Common Shares Outstanding – Diluted27,45927,440 TO OUR SHAREHOLDERS
Fiscal 2018 was a year of continued growth and change for Lancaster Colony. We progressed in our strategic
(cid:319)(cid:352)(cid:319)(cid:421)(cid:319)(cid:238)(cid:421)(cid:319)(cid:452)(cid:282)(cid:409)(cid:3)(cid:421)(cid:363)(cid:3)(cid:319)(cid:350)(cid:398)(cid:401)(cid:363)(cid:452)(cid:282)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:363)(cid:398)(cid:282)(cid:401)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:409)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:238)(cid:268)(cid:268)(cid:282)(cid:341)(cid:282)(cid:401)(cid:238)(cid:421)(cid:282)(cid:3)(cid:267)(cid:238)(cid:409)(cid:282)(cid:3)(cid:267)(cid:429)(cid:409)(cid:319)(cid:352)(cid:282)(cid:409)(cid:409)(cid:3)(cid:307)(cid:401)(cid:363)(cid:453)(cid:421)(cid:314)(cid:3)(cid:267)(cid:429)(cid:421)(cid:3)(cid:453)(cid:282)(cid:401)(cid:282)(cid:3)(cid:238)(cid:341)(cid:409)(cid:363)(cid:3)(cid:268)(cid:314)(cid:238)(cid:341)(cid:341)(cid:282)(cid:352)(cid:307)(cid:282)(cid:275)(cid:3)(cid:267)(cid:459)(cid:3)(cid:409)(cid:319)(cid:307)(cid:352)(cid:319)(cid:475)(cid:268)(cid:238)(cid:352)(cid:421)(cid:3)
(cid:268)(cid:363)(cid:409)(cid:421)(cid:3)(cid:319)(cid:352)(cid:476)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:3)(cid:306)(cid:363)(cid:401)(cid:3)(cid:268)(cid:363)(cid:350)(cid:350)(cid:363)(cid:275)(cid:319)(cid:421)(cid:319)(cid:282)(cid:409)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:306)(cid:401)(cid:282)(cid:319)(cid:307)(cid:314)(cid:421)(cid:550)(cid:3)(cid:3)
Consolidated net sales increased 1.8% to a record $1.22 billion. Retail segment net sales increased 1.4% to $650.2
million driven by increased sales volumes for shelf-stable dressings and sauces sold under license agreements,
the incremental sales from the Angelic Bakehouse business acquired in November 2016, and net pricing actions.
(cid:71)(cid:363)(cid:363)(cid:275)(cid:409)(cid:282)(cid:401)(cid:452)(cid:319)(cid:268)(cid:282)(cid:3)(cid:409)(cid:282)(cid:307)(cid:350)(cid:282)(cid:352)(cid:421)(cid:3)(cid:352)(cid:282)(cid:421)(cid:3)(cid:409)(cid:238)(cid:341)(cid:282)(cid:409)(cid:3)(cid:307)(cid:401)(cid:282)(cid:453)(cid:3)(cid:488)(cid:550)(cid:488)(cid:636)(cid:3)(cid:421)(cid:363)(cid:3)(cid:592)(cid:491)(cid:493)(cid:488)(cid:550)(cid:493)(cid:3)(cid:350)(cid:319)(cid:341)(cid:341)(cid:319)(cid:363)(cid:352)(cid:3)(cid:275)(cid:282)(cid:409)(cid:398)(cid:319)(cid:421)(cid:282)(cid:3)(cid:238)(cid:3)(cid:268)(cid:314)(cid:238)(cid:341)(cid:341)(cid:282)(cid:352)(cid:307)(cid:319)(cid:352)(cid:307)(cid:3)(cid:475)(cid:401)(cid:409)(cid:421)(cid:3)(cid:314)(cid:238)(cid:341)(cid:306)(cid:3)(cid:363)(cid:306)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:459)(cid:282)(cid:238)(cid:401)(cid:550)(cid:3)
(cid:31)(cid:363)(cid:421)(cid:314)(cid:3)(cid:398)(cid:401)(cid:319)(cid:268)(cid:319)(cid:352)(cid:307)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:452)(cid:363)(cid:341)(cid:429)(cid:350)(cid:282)(cid:3)(cid:307)(cid:238)(cid:319)(cid:352)(cid:409)(cid:3)(cid:268)(cid:363)(cid:352)(cid:421)(cid:401)(cid:319)(cid:267)(cid:429)(cid:421)(cid:282)(cid:275)(cid:3)(cid:421)(cid:363)(cid:3)(cid:238)(cid:3)(cid:409)(cid:319)(cid:307)(cid:352)(cid:319)(cid:475)(cid:268)(cid:238)(cid:352)(cid:421)(cid:3)(cid:409)(cid:282)(cid:268)(cid:363)(cid:352)(cid:275)(cid:3)(cid:314)(cid:238)(cid:341)(cid:306)(cid:3)(cid:319)(cid:350)(cid:398)(cid:401)(cid:363)(cid:452)(cid:282)(cid:350)(cid:282)(cid:352)(cid:421)(cid:3)(cid:319)(cid:352)(cid:3)(cid:71)(cid:363)(cid:363)(cid:275)(cid:409)(cid:282)(cid:401)(cid:452)(cid:319)(cid:268)(cid:282)(cid:3)(cid:352)(cid:282)(cid:421)(cid:3)(cid:409)(cid:238)(cid:341)(cid:282)(cid:409)(cid:550)(cid:3)(cid:3)
Consolidated operating income decreased $2.6 million to $172.1 million from $174.7 million last year. Excluding
the $17.6 million pre-tax charge in the prior year resulting from the company’s withdrawal from an underfunded
(cid:350)(cid:429)(cid:341)(cid:421)(cid:319)(cid:282)(cid:350)(cid:398)(cid:341)(cid:363)(cid:459)(cid:282)(cid:401)(cid:3)(cid:398)(cid:282)(cid:352)(cid:409)(cid:319)(cid:363)(cid:352)(cid:3)(cid:398)(cid:341)(cid:238)(cid:352)(cid:545)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:3)(cid:363)(cid:398)(cid:282)(cid:401)(cid:238)(cid:421)(cid:319)(cid:352)(cid:307)(cid:3)(cid:319)(cid:352)(cid:268)(cid:363)(cid:350)(cid:282)(cid:3)(cid:275)(cid:282)(cid:268)(cid:341)(cid:319)(cid:352)(cid:282)(cid:275)(cid:3)(cid:487)(cid:486)(cid:550)(cid:491)(cid:636)(cid:550)(cid:3)(cid:84)(cid:352)(cid:268)(cid:401)(cid:282)(cid:238)(cid:409)(cid:282)(cid:275)(cid:3)(cid:268)(cid:363)(cid:350)(cid:350)(cid:363)(cid:275)(cid:319)(cid:421)(cid:459)(cid:3)(cid:268)(cid:363)(cid:409)(cid:421)(cid:409)(cid:545)(cid:3)(cid:398)(cid:238)(cid:401)(cid:421)(cid:319)(cid:268)(cid:429)(cid:341)(cid:238)(cid:401)(cid:341)(cid:459)(cid:3)
eggs, and higher freight costs led to the drop in operating income, with cost savings realized from the company’s
lean six sigma program and pricing actions serving as partial offsets.
Net income totaled $135.3 million, or $4.92 per diluted share, versus the prior-year amount of $115.3 million, or
(cid:592)(cid:490)(cid:550)(cid:488)(cid:486)(cid:3)(cid:398)(cid:282)(cid:401)(cid:3)(cid:275)(cid:319)(cid:341)(cid:429)(cid:421)(cid:282)(cid:275)(cid:3)(cid:409)(cid:314)(cid:238)(cid:401)(cid:282)(cid:3)(cid:238)(cid:409)(cid:3)(cid:319)(cid:352)(cid:476)(cid:429)(cid:282)(cid:352)(cid:268)(cid:282)(cid:275)(cid:3)(cid:267)(cid:459)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:306)(cid:238)(cid:452)(cid:363)(cid:401)(cid:238)(cid:267)(cid:341)(cid:282)(cid:3)(cid:319)(cid:350)(cid:398)(cid:238)(cid:268)(cid:421)(cid:3)(cid:363)(cid:306)(cid:3)(cid:238)(cid:3)(cid:341)(cid:363)(cid:453)(cid:282)(cid:401)(cid:3)(cid:306)(cid:282)(cid:275)(cid:282)(cid:401)(cid:238)(cid:341)(cid:3)(cid:319)(cid:352)(cid:268)(cid:363)(cid:350)(cid:282)(cid:3)(cid:421)(cid:238)(cid:458)(cid:3)(cid:401)(cid:238)(cid:421)(cid:282)(cid:3)(cid:319)(cid:352)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:3)
and last year’s charge for the withdrawal from the underfunded multiemployer pension plan.
(cid:84)(cid:352)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:545)(cid:3)(cid:103)(cid:238)(cid:352)(cid:268)(cid:238)(cid:409)(cid:421)(cid:282)(cid:401)(cid:3)(cid:32)(cid:363)(cid:341)(cid:363)(cid:352)(cid:459)(cid:3)(cid:401)(cid:282)(cid:268)(cid:363)(cid:401)(cid:275)(cid:282)(cid:275)(cid:3)(cid:319)(cid:421)(cid:409)(cid:3)(cid:491)(cid:491)(cid:421)(cid:314)(cid:3)(cid:268)(cid:363)(cid:352)(cid:409)(cid:282)(cid:268)(cid:429)(cid:421)(cid:319)(cid:452)(cid:282)(cid:3)(cid:459)(cid:282)(cid:238)(cid:401)(cid:3)(cid:453)(cid:319)(cid:421)(cid:314)(cid:3)(cid:238)(cid:3)(cid:401)(cid:282)(cid:307)(cid:429)(cid:341)(cid:238)(cid:401)(cid:3)(cid:268)(cid:238)(cid:409)(cid:314)(cid:3)(cid:275)(cid:319)(cid:452)(cid:319)(cid:275)(cid:282)(cid:352)(cid:275)(cid:3)(cid:319)(cid:352)(cid:268)(cid:401)(cid:282)(cid:238)(cid:409)(cid:282)(cid:545)(cid:3)(cid:363)(cid:352)(cid:282)(cid:3)(cid:363)(cid:306)(cid:3)
only 14 U.S. companies with such a record.
(cid:103)(cid:363)(cid:363)(cid:338)(cid:319)(cid:352)(cid:307)(cid:3)(cid:238)(cid:314)(cid:282)(cid:238)(cid:275)(cid:3)(cid:421)(cid:363)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:495)(cid:545)(cid:3)(cid:164)(cid:282)(cid:421)(cid:238)(cid:319)(cid:341)(cid:3)(cid:409)(cid:238)(cid:341)(cid:282)(cid:409)(cid:3)(cid:453)(cid:319)(cid:341)(cid:341)(cid:3)(cid:267)(cid:282)(cid:352)(cid:282)(cid:475)(cid:421)(cid:3)(cid:306)(cid:401)(cid:363)(cid:350)(cid:3)(cid:352)(cid:282)(cid:453)(cid:3)(cid:398)(cid:401)(cid:363)(cid:275)(cid:429)(cid:268)(cid:421)(cid:3)(cid:319)(cid:352)(cid:421)(cid:401)(cid:363)(cid:275)(cid:429)(cid:268)(cid:421)(cid:319)(cid:363)(cid:352)(cid:409)(cid:3)(cid:398)(cid:341)(cid:238)(cid:352)(cid:352)(cid:282)(cid:275)(cid:3)(cid:306)(cid:363)(cid:401)(cid:3)(cid:341)(cid:238)(cid:429)(cid:352)(cid:268)(cid:314)(cid:3)(cid:421)(cid:314)(cid:401)(cid:363)(cid:429)(cid:307)(cid:314)(cid:363)(cid:429)(cid:421)(cid:3)
the year, including Marzetti® Simple Harvest® plant-based, non-dairy dips for the produce department; a fresh
lineup of 60-calorie Flatout®(cid:3)(cid:476)(cid:238)(cid:421)(cid:267)(cid:401)(cid:282)(cid:238)(cid:275)(cid:3)(cid:453)(cid:401)(cid:238)(cid:398)(cid:409)(cid:555)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:4)(cid:352)(cid:307)(cid:282)(cid:341)(cid:319)(cid:268)(cid:3)(cid:31)(cid:238)(cid:338)(cid:282)(cid:314)(cid:363)(cid:429)(cid:409)(cid:282)®(cid:3)(cid:352)(cid:363)(cid:352)(cid:569)(cid:72)(cid:113)(cid:126)(cid:3)(cid:409)(cid:398)(cid:401)(cid:363)(cid:429)(cid:421)(cid:282)(cid:275)(cid:3)(cid:307)(cid:401)(cid:238)(cid:319)(cid:352)(cid:3)(cid:453)(cid:401)(cid:238)(cid:398)(cid:409)(cid:3)(cid:453)(cid:319)(cid:421)(cid:314)(cid:3)(cid:476)(cid:238)(cid:452)(cid:363)(cid:401)(cid:409)(cid:3)
(cid:409)(cid:429)(cid:268)(cid:314)(cid:3)(cid:238)(cid:409)(cid:3)(cid:101)(cid:238)(cid:341)(cid:282)(cid:3)(cid:641)(cid:3)(cid:172)(cid:398)(cid:319)(cid:352)(cid:238)(cid:268)(cid:314)(cid:545)(cid:3)(cid:31)(cid:282)(cid:282)(cid:421)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:172)(cid:453)(cid:282)(cid:282)(cid:421)(cid:3)(cid:161)(cid:363)(cid:421)(cid:238)(cid:421)(cid:363)(cid:550)(cid:3)(cid:84)(cid:352)(cid:3)(cid:238)(cid:275)(cid:275)(cid:319)(cid:421)(cid:319)(cid:363)(cid:352)(cid:545)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:164)(cid:282)(cid:421)(cid:238)(cid:319)(cid:341)(cid:3)(cid:409)(cid:282)(cid:307)(cid:350)(cid:282)(cid:352)(cid:421)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:268)(cid:421)(cid:409)(cid:3)(cid:421)(cid:363)(cid:3)(cid:267)(cid:429)(cid:319)(cid:341)(cid:275)(cid:3)(cid:429)(cid:398)(cid:363)(cid:352)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:401)(cid:282)(cid:268)(cid:282)(cid:352)(cid:421)(cid:3)
rollout of the new Olive Garden®(cid:3)(cid:161)(cid:238)(cid:401)(cid:350)(cid:282)(cid:409)(cid:238)(cid:352)(cid:3)(cid:164)(cid:238)(cid:352)(cid:268)(cid:314)(cid:3)(cid:275)(cid:401)(cid:282)(cid:409)(cid:409)(cid:319)(cid:352)(cid:307)(cid:3)(cid:476)(cid:238)(cid:452)(cid:363)(cid:401)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:319)(cid:350)(cid:398)(cid:341)(cid:282)(cid:350)(cid:282)(cid:352)(cid:421)(cid:3)(cid:238)(cid:3)(cid:306)(cid:363)(cid:341)(cid:341)(cid:363)(cid:453)(cid:569)(cid:429)(cid:398)(cid:3)(cid:398)(cid:401)(cid:363)(cid:307)(cid:401)(cid:238)(cid:350)(cid:3)(cid:421)(cid:363)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:401)(cid:282)(cid:268)(cid:282)(cid:352)(cid:421)(cid:3)
successful retail test of Buffalo Wild Wings® sauces sold under a license agreement.
(cid:84)(cid:352)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:71)(cid:363)(cid:363)(cid:275)(cid:409)(cid:282)(cid:401)(cid:452)(cid:319)(cid:268)(cid:282)(cid:3)(cid:409)(cid:282)(cid:307)(cid:350)(cid:282)(cid:352)(cid:421)(cid:545)(cid:3)(cid:453)(cid:282)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:268)(cid:421)(cid:3)(cid:421)(cid:363)(cid:3)(cid:268)(cid:363)(cid:352)(cid:421)(cid:319)(cid:352)(cid:429)(cid:282)(cid:3)(cid:421)(cid:363)(cid:3)(cid:409)(cid:421)(cid:401)(cid:282)(cid:352)(cid:307)(cid:421)(cid:314)(cid:282)(cid:352)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:282)(cid:458)(cid:319)(cid:409)(cid:421)(cid:319)(cid:352)(cid:307)(cid:3)(cid:268)(cid:429)(cid:409)(cid:421)(cid:363)(cid:350)(cid:282)(cid:401)(cid:3)(cid:267)(cid:238)(cid:409)(cid:282)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:398)(cid:429)(cid:401)(cid:409)(cid:429)(cid:282)(cid:3)(cid:352)(cid:282)(cid:453)(cid:3)
(cid:363)(cid:398)(cid:398)(cid:363)(cid:401)(cid:421)(cid:429)(cid:352)(cid:319)(cid:421)(cid:319)(cid:282)(cid:409)(cid:3)(cid:306)(cid:363)(cid:401)(cid:3)(cid:398)(cid:401)(cid:363)(cid:475)(cid:421)(cid:238)(cid:267)(cid:341)(cid:282)(cid:3)(cid:307)(cid:401)(cid:363)(cid:453)(cid:421)(cid:314)(cid:3)(cid:421)(cid:314)(cid:401)(cid:363)(cid:429)(cid:307)(cid:314)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:268)(cid:429)(cid:341)(cid:319)(cid:352)(cid:238)(cid:401)(cid:459)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:401)(cid:421)(cid:319)(cid:409)(cid:282)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:352)(cid:363)(cid:421)(cid:282)(cid:275)(cid:3)(cid:401)(cid:282)(cid:398)(cid:429)(cid:421)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:3)(cid:306)(cid:363)(cid:401)(cid:3)(cid:268)(cid:429)(cid:409)(cid:421)(cid:363)(cid:350)(cid:569)(cid:306)(cid:363)(cid:401)(cid:350)(cid:429)(cid:341)(cid:238)(cid:421)(cid:282)(cid:275)(cid:3)
dressings and dipping sauces, frozen breads and rolls, and frozen pasta.
(cid:31)(cid:238)(cid:409)(cid:282)(cid:275)(cid:3)(cid:363)(cid:352)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:268)(cid:429)(cid:401)(cid:401)(cid:282)(cid:352)(cid:421)(cid:3)(cid:238)(cid:409)(cid:409)(cid:282)(cid:409)(cid:409)(cid:350)(cid:282)(cid:352)(cid:421)(cid:545)(cid:3)(cid:268)(cid:363)(cid:350)(cid:350)(cid:363)(cid:275)(cid:319)(cid:421)(cid:459)(cid:3)(cid:268)(cid:363)(cid:409)(cid:421)(cid:409)(cid:3)(cid:238)(cid:401)(cid:282)(cid:3)(cid:398)(cid:401)(cid:363)(cid:335)(cid:282)(cid:268)(cid:421)(cid:282)(cid:275)(cid:3)(cid:421)(cid:363)(cid:3)(cid:401)(cid:282)(cid:350)(cid:238)(cid:319)(cid:352)(cid:3)(cid:429)(cid:352)(cid:306)(cid:238)(cid:452)(cid:363)(cid:401)(cid:238)(cid:267)(cid:341)(cid:282)(cid:3)(cid:319)(cid:352)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:495)(cid:545)(cid:3)(cid:238)(cid:341)(cid:421)(cid:314)(cid:363)(cid:429)(cid:307)(cid:314)(cid:3)
(cid:421)(cid:363)(cid:3)(cid:238)(cid:3)(cid:341)(cid:282)(cid:409)(cid:409)(cid:282)(cid:401)(cid:3)(cid:282)(cid:458)(cid:421)(cid:282)(cid:352)(cid:421)(cid:3)(cid:421)(cid:314)(cid:238)(cid:352)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:550)(cid:3)(cid:84)(cid:352)(cid:268)(cid:401)(cid:282)(cid:238)(cid:409)(cid:282)(cid:275)(cid:3)(cid:306)(cid:401)(cid:282)(cid:319)(cid:307)(cid:314)(cid:421)(cid:3)(cid:268)(cid:363)(cid:409)(cid:421)(cid:409)(cid:3)(cid:238)(cid:401)(cid:282)(cid:3)(cid:238)(cid:341)(cid:409)(cid:363)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:268)(cid:421)(cid:282)(cid:275)(cid:3)(cid:421)(cid:363)(cid:3)(cid:398)(cid:282)(cid:401)(cid:409)(cid:319)(cid:409)(cid:421)(cid:3)(cid:421)(cid:314)(cid:401)(cid:363)(cid:429)(cid:307)(cid:314)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:475)(cid:401)(cid:409)(cid:421)(cid:3)(cid:314)(cid:238)(cid:341)(cid:306)(cid:3)(cid:363)(cid:306)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)
(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:459)(cid:282)(cid:238)(cid:401)(cid:550)(cid:3)(cid:79)(cid:319)(cid:307)(cid:314)(cid:282)(cid:401)(cid:3)(cid:398)(cid:401)(cid:319)(cid:268)(cid:319)(cid:352)(cid:307)(cid:3)(cid:319)(cid:352)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:164)(cid:282)(cid:421)(cid:238)(cid:319)(cid:341)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:71)(cid:363)(cid:363)(cid:275)(cid:409)(cid:282)(cid:401)(cid:452)(cid:319)(cid:268)(cid:282)(cid:3)(cid:409)(cid:282)(cid:307)(cid:350)(cid:282)(cid:352)(cid:421)(cid:409)(cid:3)(cid:453)(cid:319)(cid:341)(cid:341)(cid:3)(cid:314)(cid:282)(cid:341)(cid:398)(cid:3)(cid:421)(cid:363)(cid:3)(cid:363)(cid:306)(cid:306)(cid:409)(cid:282)(cid:421)(cid:3)(cid:421)(cid:314)(cid:282)(cid:409)(cid:282)(cid:3)(cid:319)(cid:352)(cid:268)(cid:401)(cid:282)(cid:238)(cid:409)(cid:282)(cid:275)(cid:3)(cid:268)(cid:363)(cid:409)(cid:421)(cid:409)(cid:550)(cid:3)(cid:84)(cid:352)(cid:3)(cid:238)(cid:275)(cid:275)(cid:319)(cid:421)(cid:319)(cid:363)(cid:352)(cid:545)(cid:3)
our supply chain team will remain focused on cost-saving initiatives and opportunities.
(cid:185)(cid:314)(cid:319)(cid:409)(cid:3)(cid:398)(cid:238)(cid:409)(cid:421)(cid:3)(cid:113)(cid:238)(cid:459)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:31)(cid:363)(cid:238)(cid:401)(cid:275)(cid:3)(cid:363)(cid:306)(cid:3)(cid:39)(cid:319)(cid:401)(cid:282)(cid:268)(cid:421)(cid:363)(cid:401)(cid:409)(cid:3)(cid:238)(cid:398)(cid:398)(cid:401)(cid:363)(cid:452)(cid:282)(cid:275)(cid:3)(cid:421)(cid:314)(cid:401)(cid:282)(cid:282)(cid:3)(cid:409)(cid:319)(cid:307)(cid:352)(cid:319)(cid:475)(cid:268)(cid:238)(cid:352)(cid:421)(cid:3)(cid:409)(cid:421)(cid:401)(cid:238)(cid:421)(cid:282)(cid:307)(cid:319)(cid:268)(cid:3)(cid:398)(cid:401)(cid:363)(cid:335)(cid:282)(cid:268)(cid:421)(cid:409)(cid:3)(cid:421)(cid:314)(cid:238)(cid:421)(cid:3)(cid:453)(cid:319)(cid:341)(cid:341)(cid:3)(cid:275)(cid:401)(cid:319)(cid:452)(cid:282)(cid:3)(cid:341)(cid:363)(cid:352)(cid:307)(cid:569)(cid:421)(cid:282)(cid:401)(cid:350)(cid:3)(cid:267)(cid:282)(cid:352)(cid:282)(cid:475)(cid:421)(cid:409)(cid:3)
to our business but elevate our short-term capital spending.
(cid:185)(cid:314)(cid:282)(cid:3)(cid:475)(cid:401)(cid:409)(cid:421)(cid:3)(cid:319)(cid:409)(cid:3)(cid:238)(cid:3)(cid:409)(cid:429)(cid:267)(cid:409)(cid:421)(cid:238)(cid:352)(cid:421)(cid:319)(cid:238)(cid:341)(cid:3)(cid:268)(cid:238)(cid:398)(cid:238)(cid:268)(cid:319)(cid:421)(cid:459)(cid:3)(cid:282)(cid:458)(cid:398)(cid:238)(cid:352)(cid:409)(cid:319)(cid:363)(cid:352)(cid:3)(cid:238)(cid:421)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:172)(cid:319)(cid:409)(cid:421)(cid:282)(cid:401)(cid:3)(cid:172)(cid:268)(cid:314)(cid:429)(cid:267)(cid:282)(cid:401)(cid:421)(cid:580)(cid:409)(cid:3)(cid:306)(cid:401)(cid:363)(cid:469)(cid:282)(cid:352)(cid:3)(cid:459)(cid:282)(cid:238)(cid:409)(cid:421)(cid:3)(cid:401)(cid:363)(cid:341)(cid:341)(cid:3)(cid:306)(cid:238)(cid:268)(cid:421)(cid:363)(cid:401)(cid:459)(cid:3)(cid:319)(cid:352)(cid:3)(cid:79)(cid:363)(cid:401)(cid:409)(cid:282)(cid:3)(cid:32)(cid:238)(cid:452)(cid:282)(cid:545)(cid:3)(cid:101)(cid:282)(cid:352)(cid:421)(cid:429)(cid:268)(cid:338)(cid:459)(cid:545)(cid:3)
to support continued retail growth and also position us to meet increasing demand from a key foodservice customer.
Also planned is a new high-speed bottling line to be installed at our Columbus, Ohio, dressing and sauce production
facility, which will enable us to in-source some retail salad dressing volume that is currently co-packed, and provide
capacity for future growth.
(cid:71)(cid:319)(cid:352)(cid:238)(cid:341)(cid:341)(cid:459)(cid:545)(cid:3)(cid:453)(cid:282)(cid:3)(cid:453)(cid:319)(cid:341)(cid:341)(cid:3)(cid:282)(cid:409)(cid:421)(cid:238)(cid:267)(cid:341)(cid:319)(cid:409)(cid:314)(cid:3)(cid:238)(cid:3)(cid:352)(cid:282)(cid:453)(cid:3)(cid:84)(cid:352)(cid:352)(cid:363)(cid:452)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:3)(cid:32)(cid:282)(cid:352)(cid:421)(cid:282)(cid:401)(cid:3)(cid:319)(cid:352)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:32)(cid:363)(cid:341)(cid:429)(cid:350)(cid:267)(cid:429)(cid:409)(cid:545)(cid:3)(cid:126)(cid:314)(cid:319)(cid:363)(cid:545)(cid:3)(cid:238)(cid:401)(cid:282)(cid:238)(cid:3)(cid:421)(cid:314)(cid:238)(cid:421)(cid:3)(cid:453)(cid:319)(cid:341)(cid:341)(cid:3)(cid:238)(cid:341)(cid:341)(cid:363)(cid:453)(cid:3)(cid:429)(cid:409)(cid:3)(cid:421)(cid:363)(cid:3)(cid:267)(cid:401)(cid:319)(cid:352)(cid:307)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:164)(cid:282)(cid:421)(cid:238)(cid:319)(cid:341)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)
Foodservice R&D teams and our Quality team together into one location to support more effective collaboration within
our organization and also with our retail and foodservice partners.
(cid:216)(cid:282)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:268)(cid:421)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:84)(cid:352)(cid:352)(cid:363)(cid:452)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:3)(cid:32)(cid:282)(cid:352)(cid:421)(cid:282)(cid:401)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:267)(cid:363)(cid:421)(cid:421)(cid:341)(cid:319)(cid:352)(cid:307)(cid:3)(cid:341)(cid:319)(cid:352)(cid:282)(cid:3)(cid:398)(cid:401)(cid:363)(cid:335)(cid:282)(cid:268)(cid:421)(cid:409)(cid:3)(cid:421)(cid:363)(cid:3)(cid:267)(cid:282)(cid:3)(cid:268)(cid:363)(cid:350)(cid:398)(cid:341)(cid:282)(cid:421)(cid:282)(cid:275)(cid:3)(cid:319)(cid:352)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:495)(cid:545)(cid:3)(cid:453)(cid:314)(cid:319)(cid:341)(cid:282)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:172)(cid:319)(cid:409)(cid:421)(cid:282)(cid:401)(cid:3)(cid:172)(cid:268)(cid:314)(cid:429)(cid:267)(cid:282)(cid:401)(cid:421)(cid:580)(cid:409)(cid:3)
(cid:282)(cid:458)(cid:398)(cid:238)(cid:352)(cid:409)(cid:319)(cid:363)(cid:352)(cid:3)(cid:398)(cid:401)(cid:363)(cid:335)(cid:282)(cid:268)(cid:421)(cid:3)(cid:319)(cid:409)(cid:3)(cid:238)(cid:352)(cid:421)(cid:319)(cid:268)(cid:319)(cid:398)(cid:238)(cid:421)(cid:282)(cid:275)(cid:3)(cid:421)(cid:363)(cid:3)(cid:267)(cid:282)(cid:3)(cid:268)(cid:363)(cid:350)(cid:398)(cid:341)(cid:282)(cid:421)(cid:282)(cid:3)(cid:319)(cid:352)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:409)(cid:282)(cid:268)(cid:363)(cid:352)(cid:275)(cid:3)(cid:314)(cid:238)(cid:341)(cid:306)(cid:3)(cid:363)(cid:306)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:488)(cid:486)(cid:550)(cid:3)(cid:47)(cid:458)(cid:268)(cid:341)(cid:429)(cid:275)(cid:319)(cid:352)(cid:307)(cid:3)(cid:421)(cid:314)(cid:282)(cid:409)(cid:282)(cid:3)(cid:421)(cid:314)(cid:401)(cid:282)(cid:282)(cid:3)(cid:409)(cid:421)(cid:401)(cid:238)(cid:421)(cid:282)(cid:307)(cid:319)(cid:268)(cid:3)(cid:398)(cid:401)(cid:363)(cid:335)(cid:282)(cid:268)(cid:421)(cid:409)(cid:545)(cid:3)
(cid:453)(cid:282)(cid:3)(cid:282)(cid:458)(cid:398)(cid:282)(cid:268)(cid:421)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:495)(cid:3)(cid:268)(cid:238)(cid:398)(cid:319)(cid:421)(cid:238)(cid:341)(cid:3)(cid:409)(cid:398)(cid:282)(cid:352)(cid:275)(cid:319)(cid:352)(cid:307)(cid:3)(cid:421)(cid:363)(cid:3)(cid:267)(cid:282)(cid:3)(cid:268)(cid:363)(cid:350)(cid:398)(cid:238)(cid:401)(cid:238)(cid:267)(cid:341)(cid:282)(cid:3)(cid:421)(cid:363)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:550)
(cid:126)(cid:429)(cid:401)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:494)(cid:3)(cid:401)(cid:282)(cid:409)(cid:429)(cid:341)(cid:421)(cid:409)(cid:3)(cid:275)(cid:282)(cid:350)(cid:363)(cid:352)(cid:409)(cid:421)(cid:401)(cid:238)(cid:421)(cid:282)(cid:3)(cid:421)(cid:314)(cid:238)(cid:421)(cid:3)(cid:275)(cid:282)(cid:409)(cid:398)(cid:319)(cid:421)(cid:282)(cid:3)(cid:238)(cid:3)(cid:268)(cid:314)(cid:238)(cid:341)(cid:341)(cid:282)(cid:352)(cid:307)(cid:319)(cid:352)(cid:307)(cid:3)(cid:319)(cid:352)(cid:476)(cid:238)(cid:421)(cid:319)(cid:363)(cid:352)(cid:238)(cid:401)(cid:459)(cid:3)(cid:282)(cid:352)(cid:452)(cid:319)(cid:401)(cid:363)(cid:352)(cid:350)(cid:282)(cid:352)(cid:421)(cid:545)(cid:3)(cid:363)(cid:429)(cid:401)(cid:3)(cid:409)(cid:421)(cid:401)(cid:238)(cid:421)(cid:282)(cid:307)(cid:319)(cid:268)(cid:3)(cid:398)(cid:429)(cid:401)(cid:409)(cid:429)(cid:319)(cid:421)(cid:409)(cid:3)(cid:319)(cid:352)(cid:3)
innovation, the lean six sigma cost savings program and retail category management are working, positioning us
(cid:306)(cid:363)(cid:401)(cid:3)(cid:306)(cid:429)(cid:421)(cid:429)(cid:401)(cid:282)(cid:3)(cid:307)(cid:401)(cid:363)(cid:453)(cid:421)(cid:314)(cid:3)(cid:421)(cid:314)(cid:401)(cid:363)(cid:429)(cid:307)(cid:314)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:352)(cid:282)(cid:453)(cid:3)(cid:398)(cid:401)(cid:363)(cid:275)(cid:429)(cid:268)(cid:421)(cid:3)(cid:341)(cid:238)(cid:429)(cid:352)(cid:268)(cid:314)(cid:282)(cid:409)(cid:3)(cid:238)(cid:352)(cid:275)(cid:3)(cid:268)(cid:238)(cid:398)(cid:319)(cid:421)(cid:238)(cid:341)(cid:3)(cid:319)(cid:352)(cid:452)(cid:282)(cid:409)(cid:421)(cid:350)(cid:282)(cid:352)(cid:421)(cid:409)(cid:3)(cid:398)(cid:341)(cid:238)(cid:352)(cid:352)(cid:282)(cid:275)(cid:3)(cid:306)(cid:363)(cid:401)(cid:3)(cid:475)(cid:409)(cid:268)(cid:238)(cid:341)(cid:3)(cid:488)(cid:486)(cid:487)(cid:495)(cid:550)
(cid:84)(cid:352)(cid:3)(cid:268)(cid:341)(cid:363)(cid:409)(cid:319)(cid:352)(cid:307)(cid:545)(cid:3)(cid:84)(cid:3)(cid:453)(cid:363)(cid:429)(cid:341)(cid:275)(cid:3)(cid:341)(cid:319)(cid:338)(cid:282)(cid:3)(cid:421)(cid:363)(cid:3)(cid:282)(cid:458)(cid:421)(cid:282)(cid:352)(cid:275)(cid:3)(cid:350)(cid:459)(cid:3)(cid:409)(cid:319)(cid:352)(cid:268)(cid:282)(cid:401)(cid:282)(cid:3)(cid:421)(cid:314)(cid:238)(cid:352)(cid:338)(cid:409)(cid:3)(cid:421)(cid:363)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:275)(cid:282)(cid:275)(cid:319)(cid:268)(cid:238)(cid:421)(cid:282)(cid:275)(cid:3)(cid:350)(cid:282)(cid:350)(cid:267)(cid:282)(cid:401)(cid:409)(cid:3)(cid:363)(cid:306)(cid:3)(cid:421)(cid:314)(cid:282)(cid:3)(cid:103)(cid:238)(cid:352)(cid:268)(cid:238)(cid:409)(cid:421)(cid:282)(cid:401)(cid:3)(cid:32)(cid:363)(cid:341)(cid:363)(cid:352)(cid:459)(cid:3)(cid:421)(cid:282)(cid:238)(cid:350)(cid:3)(cid:453)(cid:314)(cid:363)(cid:3)(cid:453)(cid:363)(cid:401)(cid:338)(cid:3)
diligently every day to serve our retail and foodservice customers.
Sincerely yours,
David A. Ciesinski
(cid:161)(cid:401)(cid:282)(cid:409)(cid:319)(cid:275)(cid:282)(cid:352)(cid:421)(cid:3)(cid:641)(cid:3)(cid:32)(cid:314)(cid:319)(cid:282)(cid:306)(cid:3)(cid:47)(cid:458)(cid:282)(cid:268)(cid:429)(cid:421)(cid:319)(cid:452)(cid:282)(cid:3)(cid:126)(cid:306)(cid:475)(cid:268)(cid:282)(cid:401)
September 25, 2018
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2018
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 000-04065
Lancaster Colony Corporation
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
380 Polaris Parkway, Suite 400
Westerville, Ohio
(Address of principal executive offices)
13-1955943
(I.R.S. Employer
Identification No.)
43082
(Zip Code)
614-224-7141
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, without par value
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).
Yes
No
The aggregate market value of Common Stock held by non-affiliates of the registrant computed by reference to the price
at which such Common Stock was last sold as of December 31, 2017 was $2,415.3 million.
As of August 2, 2018, there were 27,490,006 shares of Common Stock, without par value, outstanding.
Portions of the registrant’s definitive proxy statement to be filed for its November 2018 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
Index to Exhibits
2
3
6
12
13
13
13
14
16
17
27
27
56
56
58
58
58
58
58
58
59
60
61
PART I
Item 1. Business
GENERAL
Lancaster Colony Corporation, an Ohio corporation, is a manufacturer and marketer of specialty food products for the
retail and foodservice channels. We began our operations in 1961 as a Delaware corporation. In 1992, we reincorporated as an
Ohio corporation. Our principal executive offices are located at 380 Polaris Parkway, Suite 400, Westerville, Ohio 43082 and
our telephone number is 614-224-7141.
As used in this Annual Report on Form 10-K and except as the context otherwise may require, the terms “we,” “us,”
“our,” “registrant,” or “the Company” mean Lancaster Colony Corporation and its consolidated subsidiaries, except where it is
clear that the term only means the parent company. Unless otherwise noted, references to “year” pertain to our fiscal year which
ends on June 30; for example, 2018 refers to fiscal 2018, which is the period from July 1, 2017 to June 30, 2018.
Available Information
Our Internet web site address is http://www.lancastercolony.com. Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after
such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained
on our web site or connected to it is not incorporated into this Annual Report on Form 10-K.
DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Effective July 1, 2017, David A. Ciesinski, our President and Chief Operating Officer, succeeded John B. Gerlach, Jr. as
our Chief Executive Officer (“CEO”). As President and CEO, Mr. Ciesinski became our principal executive officer and chief
operating decision maker (“CODM”). This change resulted in modifications to the CODM’s approach to managing the
business, assessing performance and allocating resources. Consequently, beginning on July 1, 2017, our segment reporting
structure was amended to align with these changes, and our financial results are now presented as two reportable segments:
Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate
segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are
allocated to the two reportable segments using a reasonable methodology that is consistently applied. All historical information
was retroactively conformed to the current presentation. These segment changes had no effect on previously reported
consolidated net sales, operating income, net income or earnings per share. The financial information relating to our business
segments for the three years ended June 30, 2018, 2017 and 2016 is included in Note 10 to the consolidated financial
statements, and located in Part II, Item 8 of this Annual Report on Form 10-K. Further description of each business segment
within which we operate is provided below.
Retail Segment
The following table presents the primary Retail products we manufacture and sell under our brand names:
Products
Frozen Breads
Brand Names
Frozen garlic breads
Frozen Parkerhouse style yeast rolls and dinner rolls
New York BRAND Bakery
Sister Schubert’s
Refrigerated Dressings, Dips and Other
Salad dressings
Vegetable dips and fruit dips
Flatbread wraps and pizza crusts
Sprouted grain bakery products
Shelf-Stable Dressings and Croutons
Salad dressings
Croutons and salad toppings
Marzetti, Simply Dressed, Simply 60
Marzetti
Flatout
Angelic Bakehouse
Marzetti, Cardini’s, Girard’s
New York BRAND Bakery, Chatham Village, Marzetti
We also manufacture and sell other products pursuant to brand license agreements including Olive Garden® dressings and
Buffalo Wild Wings® sauces. Additionally, a small portion of our Retail sales are products sold under private label to retailers.
3
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 dressing, slaw dressing and croutons. Within the frozen food section of the grocery store, we
have prominent market positions of frozen yeast rolls and garlic breads.
Our top five Retail customers accounted for 55%, 54% and 54% of this segment’s total net sales in 2018, 2017 and 2016,
respectively.
We continue to rely upon our strong retail brands, innovation expertise, geographic and channel expansion and customer
relationships for future growth. Our category-leading retail brands and commitment to new product development help drive
increased consumer demand in our Retail segment. Strategic acquisitions are also part of our future growth plans, with a focus
on fit and value.
Our quarterly Retail sales are affected by seasonal fluctuations, primarily in the fiscal second quarter and the Easter
holiday season when sales of certain frozen retail products tend to be most pronounced. Our quarterly Retail sales can also be
affected by the timing of seasonal shipments of certain fruit dips between the first and second quarters. The impacts on working
capital are not significant. We do not utilize any franchises or concessions. In addition to the owned and licensed trademarked
brands discussed above, we also own and operate under innumerable other intellectual property rights, including patents,
copyrights, formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider
our owned and licensed intellectual property rights to be essential to our Retail business.
Foodservice Segment
The majority of our Foodservice sales are products sold under private label to restaurants.
The following table presents the primary Foodservice products we manufacture and sell under our brand names:
Products
Dressings and Sauces
Salad dressings
Frozen Breads and Other
Frozen garlic breads
Frozen Parkerhouse style yeast rolls and dinner rolls
Frozen pasta
Brand Names
Marzetti, Simply Dressed
New York BRAND Bakery
Sister Schubert’s
Marzetti Frozen Pasta
The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and
distributors in the United States. Most of the products we sell in the Foodservice segment are custom-formulated and include
salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls.
Our top five Foodservice direct customers accounted for 64%, 68% and 69% of this segment’s total net sales in 2018,
2017 and 2016, respectively. Within our Foodservice segment, typically our largest direct customers are distributors that
distribute our products primarily to foodservice national chain restaurant accounts.
In the Foodservice segment, sales growth results from general volume gains or geographic expansion of our established
customer base, and we also grow our business with existing and new customers by leveraging our culinary skills and
experience to support the development of new products and menu offerings.
The operations of this segment are not affected to any material extent by seasonal fluctuations. We do not utilize any
franchises or concessions. We own and operate under innumerable intellectual property rights, including patents, copyrights,
formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider our owned
intellectual property rights to be essential to our Foodservice business.
4
NET SALES BY CLASS OF PRODUCTS
The following table sets forth business segment information with respect to the percentage of net sales contributed by
each class of similar products that account for at least 10% of our consolidated net sales in any year from 2016 through 2018:
Retail Segment:
Frozen breads
Refrigerated dressings, dips and other
Shelf-stable dressings and croutons
Foodservice Segment:
Dressings and sauces
Frozen breads and other
2018
21%
18%
14%
35%
12%
2017
21%
18%
14%
36%
11%
2016
20%
18%
14%
37%
11%
Net sales attributable to Walmart Inc. (“Walmart”) totaled 17%, 17% and 16% of consolidated net sales for 2018, 2017
and 2016, respectively. Net sales attributable to McLane Company, Inc. (“McLane”), a wholesale distribution subsidiary of
Berkshire Hathaway, Inc., totaled 15%, 16% and 19% of consolidated net sales for 2018, 2017 and 2016, respectively. McLane
is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant
accounts, principally in the quick service, fast casual and casual dining channels. In general, these national chain restaurants
have direct relationships with us for culinary research and development, menu development and production needs, but choose
to buy our products through McLane, who acts as their distributor. McLane orders our products on behalf of these national
chain restaurants, and we invoice McLane for these sales. The decline in net sales to McLane in both 2018 and 2017 was
primarily attributed to the choice of certain national chain restaurants to switch to a different distributor. The decline for 2017
was also influenced by our targeted business rationalization efforts with certain national chain restaurants that began in
mid-2016. No other direct customer accounted for more than 10% of consolidated net sales during these years.
MANUFACTURING
The majority of our products are manufactured and packaged at our 16 food plants located throughout the United States.
Most of these plants produce products for both the Retail and Foodservice segments. Efficient and cost-effective production
remains a key focus as evidenced by our lean six sigma initiative. Certain items are also manufactured and packaged by third
parties located in the United States, Canada and Europe.
BACKLOG
Orders are generally filled in five to ten days. We do not view the amount of backlog at any particular point in time as a
meaningful indicator of longer-term shipments.
COMPETITION
All of the markets in which we sell food products are highly competitive in the areas of price, quality and customer
service. We face competition from a number of manufacturers of various sizes and capabilities. Our ability to compete depends
upon a variety of factors, including the position of our branded goods within various categories, product quality, product
innovation, promotional and marketing activity, pricing and our ability to service customers.
ENVIRONMENTAL MATTERS
Our operations are subject to various federal, state and local environmental protection laws. Based upon available
information, compliance with these laws and regulations did not have a material effect upon the level of capital expenditures,
earnings or our competitive position in 2018 and is not expected to have a material impact in 2019.
EMPLOYEES AND LABOR RELATIONS
As of June 30, 2018 we had 2,900 employees, 20% of which are represented under various collective bargaining
contracts. 4% of our employees are represented under a collective bargaining contract that will expire within one year. While
we believe that labor relations with all our employees are satisfactory, a prolonged labor dispute or an organizing attempt could
have a material adverse effect on our business and results of operations.
5
FOREIGN OPERATIONS AND EXPORT SALES
Over 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in
the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets
located outside of the United States.
RAW MATERIALS
During 2018, we obtained adequate supplies of raw materials and packaging. We rely on a variety of raw materials and
packaging for the day-to-day production of our products, including soybean oil, various sweeteners, eggs, dairy-related
products, flour, various films and plastic and paper packaging materials.
We purchase the majority of these materials on the open market to meet current requirements, but we also have some
fixed-price contracts with terms generally one year or less. See further discussion in our “Risk Factors” section below and our
contractual obligations disclosure in Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”). Although the availability and price of certain of these materials are influenced by weather, disease and the level of
global demand, we anticipate that future sources of supply for 2019 will generally be available and adequate for our needs.
Item 1A. Risk Factors
An investment in our common stock is subject to certain risks inherent in our business. Before making an investment
decision, investors should carefully consider the risks and uncertainties described below, together with all of the other
information included or incorporated by reference in this Annual Report on Form 10-K.
If any of the following risks occur, our business, results of operations, financial condition and cash flows could be
materially and adversely affected. If this were to happen, the value of our common stock could decline significantly.
We may be subject to business disruptions, product recalls or other claims for real or perceived safety issues regarding
our food products.
We can be impacted by both real and unfounded claims regarding the safety of our operations, or concerns regarding
mislabeled, adulterated, contaminated or spoiled food products. Any of these circumstances could necessitate a voluntary or
mandatory recall due to a substantial product hazard, a need to change a product’s labeling or other consumer safety concerns.
A pervasive product recall may result in significant loss due to the costs of a recall, related legal claims, including claims
arising from bodily injury or illness caused by our products, the destruction of product inventory, or lost sales due to product
unavailability. A highly publicized product recall, whether involving us or any related products made by third parties, also
could result in a loss of customers or an unfavorable change in consumer sentiment regarding our products or any category in
which we operate. In addition an allegation of noncompliance with federal or state food laws and regulations could force us to
cease production, stop selling our products or create significant adverse publicity that could harm our credibility and decrease
market acceptance of our products. Any of these events could have a material adverse effect on our business, results of
operations, financial condition and cash flows. While we believe our insurance related to these matters is consistent with
industry practice, any potential claim under our policies may exceed our insurance coverage, may be subject to certain
exceptions or may not be honored fully, in a timely manner, or at all.
We may be subject to a loss of sales or increased costs due to adverse publicity or consumer concern regarding the safety,
quality or healthfulness of food products, whether with our products, competing products or other related food products.
We are highly dependent upon consumers’ perception of the safety, quality and possible dietary attributes of our products.
As a result, substantial negative publicity concerning one or more of our products, or other foods similar to or in the same food
group as our products, could lead to lower demand for our products and/or reduced prices and lost sales. Substantial negative
publicity, even when false or unfounded, could also hurt the image of our brands or cause consumers to choose other products
or avoid categories in which we operate. Any of these events could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Certain negative publicity regarding the food industry or our products could also increase our cost of operations. The food
industry has been subject to negative publicity concerning the health implications of genetically modified organisms, added
sugars, trans fat, salt, artificial growth hormones, ingredients sourced from foreign suppliers and other supply chain concerns.
Consumers may increasingly require that our products and processes meet stricter standards than are required by applicable
governmental agencies, thereby increasing the cost of manufacturing our products. If we fail to adequately respond to any such
consumer concerns, we could suffer lost sales and damage our brand image or our reputation. Any of these events could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
6
A disruption of production at certain manufacturing facilities could result in an inability to provide adequate levels of
customer service.
Because we source certain products from single manufacturing sites and use third party manufacturers for significant
portions of our production needs for certain products, it is possible that we could experience a production disruption that results
in a reduction or elimination of the availability of some of our products. If we are not able to obtain alternate production
capability in a timely manner, or on favorable terms, it could have a negative impact on our business, results of operations,
financial condition and cash flows, including the potential for long-term loss of product placement with various customers.
We are also subject to risks of other business disruptions associated with our dependence on production facilities and
distribution systems. Natural disasters, terrorist activity or other unforeseen events could interrupt production or distribution
and have a material adverse effect on our business, results of operations, financial condition and cash flows, including the
potential for long-term loss of product placement with our customers.
Competitive conditions within our Retail and Foodservice markets could impact our sales volumes and operating profits.
Competition within all of our markets is expected to remain intense. Numerous competitors exist, many of which are
larger than us in size. These competitive conditions could lead to significant downward pressure on the prices of our products,
which could have a material adverse effect on our sales and profitability.
Competitive considerations in the various product categories in which we sell are numerous and include price, product
innovation, product quality, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to
remain relevant to consumer preferences and trends. In order to maintain our existing market share or capture increased market
share among our retail and foodservice channels, we may decide to increase our spending on marketing and promotional costs,
advertising and new product innovation. The success of marketing, advertising and new product innovation is subject to risks,
including uncertainties about trade and consumer acceptance. As a result, any such increased expenditures may not maintain or
enhance market share and could result in lower profitability.
Walmart is our largest Retail customer. The loss of, or a significant reduction in, Walmart’s business, or an adverse
change in the financial condition of Walmart, could result in a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our net sales to Walmart represented 17% of consolidated net sales for the year ended June 30, 2018. Our accounts
receivable balance from Walmart as of June 30, 2018 was $20.1 million. While our relationship with Walmart has been long-
standing and is believed to be good, it is important to recognize that we may not be able to maintain this relationship and
Walmart is not contractually obligated to purchase from us. In addition, changes in Walmart’s general business model, such as
reducing the shelf space devoted to the branded products we market, or devoting more shelf space to competing products, could
adversely affect the profitability of our business with Walmart, even if we maintain a good relationship. The loss of, or a
significant reduction in, this business could have a material adverse effect on our sales and profitability. Unfavorable changes in
Walmart’s financial condition or other disruptions to Walmart, such as decreased consumer demand or stronger competition,
could also have a material adverse effect on our business, results of operations, financial condition and cash flows.
McLane is our largest Foodservice customer. An adverse change in the financial condition of McLane could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
Our net sales to McLane represented 15% of consolidated net sales for the year ended June 30, 2018. Our accounts
receivable balance from McLane as of June 30, 2018 was $7.8 million. McLane is a large, national distributor that sells and
distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast
casual and casual dining channels. In general, these national chain restaurants have direct relationships with us for culinary
research and development, menu development and production needs, but choose to buy our products through McLane, who
acts as their distributor. McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for
these sales. Thus, unfavorable changes in the financial condition of McLane could have a material adverse effect on our
business, results of operations, financial condition and cash flows. In addition, the loss of, or significant reduction in our
business with the underlying national chain restaurants, or other disruptions, such as decreased consumer demand or stronger
competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows.
We believe that our relationship with McLane and the underlying national chain restaurants is good, but we cannot ensure that
we will be able to maintain these relationships. McLane and the underlying national chain restaurants are not typically
committed to long-term contractual obligations with us, and they may switch to other suppliers that offer lower prices,
differentiated products or customer service that McLane and/or the underlying national chain restaurants perceive to be more
favorable. In addition, changes in the general business model of McLane, or the underlying national chain restaurants, could
have a material adverse effect on our business, results of operations, financial condition and cash flows.
7
A single indirect national chain restaurant account represents a significant portion of our Foodservice segment sales.
The loss of, or a significant reduction in this national chain restaurant’s business, or an adverse change in the financial
condition of this national chain restaurant, could result in a material adverse effect on our business, results of operations,
financial condition and cash flows.
Our net sales to a single national chain restaurant account, which are made indirectly through several foodservice
distributors, represented 13% of consolidated net sales for the year ended June 30, 2018. While our relationship has been long-
standing and is believed to be very good, it is recognized that we may not be able to maintain this relationship in the future. We
do not have any long-term purchase commitments, and we may be unable to continue to sell our products in the same quantities
or on the same terms as in the past. The loss of, or a significant reduction in, this business could have a material adverse effect
on our sales and profitability. Further, unfavorable changes in this national chain restaurant’s financial condition or other
disruptions, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our
business, results of operations, financial condition and cash flows.
We rely on the performance of major retailers, mass merchants, wholesalers, food brokers, distributors and foodservice
customers for the success of our business and, should they perform poorly or give higher priority to other brands or
products, our business could be adversely affected.
Within our Retail and Foodservice segments, we sell our products principally to retail and foodservice channels,
including traditional supermarkets, mass merchants, warehouse clubs, specialty food distributors, foodservice distributors and
national chain restaurants. Poor performance by our customers or our inability to collect accounts receivable from our
customers, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, our future growth and profitability may be unfavorably impacted by recent changes in the competitive
landscape for our Retail segment customers. As consolidation in the retail grocery industry continues and our retail customers
also grow larger and become more sophisticated, they may demand improved efficiency, lower pricing, increased promotional
programs, or specifically tailored products. Further, these customers are reducing their inventories and increasing their
emphasis on private label products and other products holding top market positions. Traditional retail grocers are also being
pressured by the growing presence of deep discount retailers that emphasize private label product offerings and lower price
points. If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to these
trends, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our
products sold, our business, results of operations, financial condition and cash flows could be adversely affected.
Furthermore, within our Retail segment, many of our customers offer competitor branded products and their own store
branded products that compete directly with our products for shelf space and consumer purchases. Accordingly, there is a risk
that these customers give higher priority or promotional support to their store branded products or to the products of our
competitors or discontinue the use of our products in favor of their store branded products or other competing products. Failure
to maintain our retail shelf space or priority with these customers could have a material adverse effect on our business, results
of operations, financial condition and cash flows. Likewise, our foodservice distributors often offer their own branded products
that compete directly with our products.
Emerging channels such as online retailers and home meal kit delivery services also continue to evolve and impact both
the retail and foodservice industries. Our presence in these emerging channels is currently underdeveloped and while we have
plans to pursue future opportunities in these emerging channels, our ultimate success and the resulting impacts to our financial
results is uncertain.
We rely on the value of the brands we sell, and the failure to maintain and enhance these brands could adversely affect
our business.
We rely on the success of our well-recognized brand names. Maintaining and enhancing our brand image and recognition
is essential to our long-term success, and maintaining license agreements under which we market and sell certain brands is
important to our business. The failure to do either could have a material adverse effect on our business, financial condition and
results of operations. We seek to maintain and enhance our brands through a variety of efforts, including the delivery of quality
products, extending our brands into new markets and new products and investing in marketing and advertising. The costs of
maintaining and enhancing our brands, including maintaining our rights to brands under license agreements, may increase.
These increased costs could have a material adverse effect on our business, results of operations, financial condition and cash
flows.
We manufacture and sell numerous products pursuant to brand license agreements including Olive Garden® dressings and
Buffalo Wild Wings® sauces. We believe that our relationships with our brand licensors are good, but we cannot ensure that we
will maintain those relationships. Many of our brand license agreements can be terminated or not renewed at the option of the
licensor upon short notice to us. The termination of our brand license agreements, the failure to renew our brand license
8
agreements on terms favorable to us, or the impairment of our relationship with our brand licensors could have a material
adverse effect on our business, results of operations, financial condition and cash flows.
In addition, we increasingly rely on electronic marketing, such as social media platforms and the use of online marketing
strategies, to support and enhance our brands. This “e-commerce” marketplace is growing and evolving quickly and allows for
the rapid dissemination of information regarding our brands by us and consumers. We may not be able to successfully adapt our
marketing efforts to this rapidly changing marketplace, which could have a material adverse impact on our business, financial
condition and results of operations. Further, negative opinions or commentary posted online regarding our brands, regardless of
their underlying merits or accuracy, could diminish the value of our brands and have a material adverse effect on our business,
results of operations, financial condition and cash flows.
Increases in the costs or limitations to the availability of raw materials we use to produce and package our products
could adversely affect our business by increasing our costs to produce goods.
Our principal raw-material needs include soybean oil, various sweeteners, eggs, dairy-related products, flour, water and
various films, plastic and paper packaging materials. Our ability to manufacture and/or sell our products may be impaired by
damage or disruption to our manufacturing or distribution capabilities, or to the capabilities of our suppliers or contract
manufacturers, due to factors that are hard to predict or beyond our control, such as adverse weather conditions, natural
disasters, fire, terrorism, pandemics, strikes or other events. Production of the agricultural commodities used in our business
may also be adversely affected by drought, water scarcity, temperature extremes, scarcity of suitable agricultural land,
worldwide demand, changes in international trade arrangements, livestock disease (for example, avian influenza), crop disease
and/or crop pests.
We purchase a majority of our key raw materials on the open market. Our ability to avoid the adverse effects of a
pronounced, sustained price increase in our raw materials is limited. We have observed increased volatility in the costs of many
of these raw materials in recent years, including 2018. In general, eggs have been our most volatile raw material over the past
three years, principally due to an outbreak of avian influenza in late 2015 in the United States and certain issues affecting egg
production in Europe beginning in our second quarter of 2018.
Similarly, fluctuating petroleum prices and transportation capacity have, from time to time, impacted our costs of resin-
based packaging and our costs of inbound freight on all purchased materials. In 2018, we experienced dramatic changes in our
freight costs due to several factors that placed constraints on our transportation capacity in the United States.
We try to limit our exposure to price fluctuations for raw materials by periodically entering into longer-term, fixed-price
contracts for certain raw materials, but we cannot ensure success in limiting our exposure. We may experience further increases
in the costs of raw materials, and we may try to offset such cost increases with higher prices or other measures. However, we
may be unable to successfully implement offsetting measures or unable to do so in a timely manner. Such cost increases, as
well as an inability to effectively implement additional measures to offset higher costs, could have a material adverse effect on
our business, results of operations, financial condition and cash flows.
The availability and cost of transportation for our products is vital to our success, and the loss of availability or increase
in the cost of transportation could have an unfavorable impact on our business, results of operations, financial condition
and cash flows.
Our ability to obtain adequate and reasonably priced methods of transportation to distribute our products, including
refrigerated trailers for many of our products, is a key factor to our success. Delays in transportation, including weather-related
delays, could have a material adverse effect on our business and results of operations. Further, higher fuel costs and increased
line haul costs due to industry capacity constraints, customer delivery requirements and a more restrictive regulatory
environment could also negatively impact our financial results. We are often required to pay fuel surcharges that fluctuate with
the price of diesel fuel to third-party transporters of our products, and such surcharges can be substantial. Any sudden or
dramatic increases in the price of diesel fuel would serve to increase our fuel surcharges and our cost of goods sold. If we were
unable to pass higher freight costs to our customers in the form of price increases, those higher costs could have a material
adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to federal, state and local government regulations that could adversely affect our business and results of
operations.
Our business operations are subject to regulation by various federal, state and local government entities and agencies. As
a producer of food products for human consumption, our operations are subject to stringent production, packaging, quality,
labeling and distribution standards, including regulations promulgated under the Federal Food, Drug and Cosmetic Act and the
Food Safety Modernization Act. We cannot predict whether future regulation by various federal, state and local governmental
entities and agencies would adversely affect our business, results of operations, financial condition and cash flows.
9
In addition, our business operations and the past and present ownership and operation of our properties, including idle
properties, are subject to extensive and changing federal, state and local environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of wastes (including solid and hazardous wastes) or
otherwise relating to protection of the environment. Although most of our properties have been subjected to periodic
environmental assessments, these assessments may be limited in scope and may not include or identify all potential
environmental liabilities or risks associated with any particular property. We cannot be certain that our environmental
assessments have identified all potential environmental liabilities or that we will not incur material environmental liabilities in
the future.
We cannot be certain that environmental issues relating to presently known matters or identified sites, or to other matters
or sites will not require additional, currently unanticipated investigation, assessment or expenditures. If we do incur or discover
any material environmental liabilities or potential environmental liabilities in the future, we may face significant remediation
costs and find it difficult to sell or lease any affected properties.
We may require significant capital expenditures to maintain, improve or replace aging infrastructure and facilities,
which could adversely affect our cash flows.
Much of our infrastructure and facilities have been in service for many years, which may result in a higher level of future
maintenance costs and unscheduled repairs. Further, our infrastructure and facilities may need to be improved or replaced to
maintain or increase operational efficiency, sustain production capacity, or meet changing regulatory requirements. A
significant increase in maintenance costs and capital expenditures could adversely affect our financial condition, results of
operations and cash flows. In addition, a failure to operate our facilities optimally could result in declining customer service
capabilities, which could have a material adverse effect on our business, results of operations, financial condition and cash
flows.
Manufacturing capacity constraints may have a material adverse effect on our business, results of operations, financial
condition and cash flows.
Our current manufacturing resources may be inadequate to meet significantly increased demand for some of our food
products. Our ability to increase our manufacturing capacity depends on many factors, including the availability of capital,
steadily increasing consumer demand, equipment delivery, construction lead-times, installation, qualification, regulatory
permitting and regulatory requirements. Increasing capacity through the use of third party manufacturers depends on our ability
to develop and maintain such relationships and the ability of such third parties to devote additional capacity to fill our orders.
A lack of sufficient manufacturing capacity to meet demand could cause our customer service levels to decrease, which
may negatively affect customer demand for our products and customer relations generally, which in turn could have a material
adverse effect on our business, results of operations, financial condition and cash flows. In addition, operating facilities at or
near capacity may also increase production and distribution costs and negatively affect relations with our employees or
contractors, which could result in disruptions in our operations.
Technology failures could disrupt our operations and negatively impact our business.
We increasingly rely on information technology systems to conduct and manage our business operations, including the
processing, transmitting, and storing of electronic information. For example, our sales group and our production and
distribution facilities utilize information technology to increase efficiencies and limit costs. Furthermore, a significant portion
of the communications between our personnel, customers, and suppliers depends on information technology and an
uninterrupted and functioning infrastructure, including telecommunications. Our information technology systems may be
vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist
attacks, telecommunications failures and other security issues. If we are unable to adequately protect against these
vulnerabilities, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated
information.
Cyber attacks or other breaches of network or other information technology security could have an adverse effect on our
business, results of operations, financial condition and cash flows.
Cyber attacks or other breaches of network or information technology security may cause equipment failures or
disruptions to our operations. Our inability to operate our networks as a result of such events, even for a limited period of time,
may result in significant expenses. Cyber attacks, which include the use of malware, computer viruses and other means for
disruption or unauthorized access, have increased in frequency, scope and potential harm in recent years. To date, we have not
been subject to cyber attacks or other cyber incidents that, individually or in the aggregate, have been material to our operations
or financial condition. While we believe we take reasonable steps to protect the security of our information relative to our
perceived risks, our preventative actions may be insufficient to defend against a major cyber attack in the future. The costs
associated with a major cyber attack could include increased expenditures on cyber security measures, lost revenues from
10
business interruption, litigation, regulatory fines and penalties and damage to our reputation. If we fail to prevent the theft of
valuable information such as financial data, sensitive information about the Company and intellectual property, or if we fail to
protect the privacy of customer, consumer and employee confidential data against breaches of network or information
technology security, it could result in damage to our reputation and brand image, which could adversely impact our employee,
customer and investor relations. Any of these occurrences could have a material adverse effect on our business, results of
operations, financial condition and cash flows. While we believe our insurance related to these matters is consistent with
industry practice, any potential claim under our policies may be subject to certain exceptions; may not be honored fully, in a
timely manner, or at all; and we may not have purchased sufficient insurance to cover all material losses.
We may not be able to successfully consummate proposed acquisitions or divestitures, and integrating acquired
businesses may present financial, managerial and operational challenges.
We continually evaluate the acquisition of other businesses that would strategically fit within our operations. If we are
unable to consummate, successfully integrate and grow these acquisitions and to realize contemplated revenue growth,
synergies and cost savings, our financial results could be adversely affected. In addition, we may, from time to time, divest
businesses, product lines or other operations that are less of a strategic fit within our portfolio or do not meet our growth or
profitability targets. As a result, our profitability may be adversely affected by losses on the sales of divested assets or lost
operating income or cash flows from those businesses.
We may incur asset impairment or restructuring charges related to acquired or divested assets, which may reduce our
profitability and cash flows. These potential acquisitions or divestitures present financial, managerial and operational
challenges, including diversion of management attention from ongoing businesses, difficulty with integrating or separating
personnel and financial and other systems, increased expenses, assumption of unknown liabilities, indemnities and potential
disputes with the buyers or sellers.
Our inability to successfully renegotiate collective bargaining contracts and any prolonged work stoppages could have an
adverse effect on our business, results of operations, financial condition and cash flows.
We believe that our labor relations with employees under collective bargaining contracts are satisfactory, but our inability
to negotiate the renewal of any collective bargaining agreements, including the agreement at our Milpitas, California facility,
which is currently scheduled to expire in December 2018, or any prolonged work stoppages could have a material adverse
effect on our business, results of operations, financial condition and cash flows.
We may incur liabilities related to multiemployer pension plans which could adversely affect our financial results.
Through 2017, we contributed to two multiemployer pension plans under certain collective bargaining agreements that
provide pension benefits to employees and retired employees who are part of the plans. On January 21, 2017, the employees at
our Bedford Heights, Ohio plant voted to ratify a new collective bargaining agreement that provided for our complete
withdrawal from the multiemployer pension plan associated with that facility. At this time, we still contribute to a
multiemployer pension plan related to our facility in Milpitas, California.
Because we have withdrawn from the multiemployer pension plan associated with our Bedford Heights plant, we are no
longer subject to risks associated with increased contributions with respect to this pension fund. Nonetheless, certain future
events related to this pension fund could result in incremental pension-related costs; however, the likelihood of these events
occurring is indeterminate at this time.
As a contributor to the multiemployer pension plan associated with our Milpitas, California facility, we are responsible
for making periodic contributions to this plan. Our required contributions to this plan could increase; however, any increase
would be dependent upon a number of factors, including our ability to renegotiate the collective bargaining contract
successfully, current and future regulatory requirements, the performance of the pension plan’s investments, the number of
participants who are entitled to receive benefits from the plan, the contribution base as a result of the insolvency or withdrawal
of other companies that currently contribute to this plan, the inability or failure of withdrawing companies to pay their
withdrawal liability, low interest rates and other funding deficiencies. We may also be required to pay a withdrawal liability if
we exit from this plan. While we cannot determine whether and to what extent our contributions may increase or what our
withdrawal liability may be, we do not expect any payments related to this plan to have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Increases in energy-related costs could negatively affect our business by increasing our costs to produce goods.
We are subject to volatility in energy-related costs that affect the cost of producing and distributing our products,
including our petroleum-derived packaging materials. Furthermore, any sudden and dramatic increases in electricity or natural
gas costs could have a material adverse effect on our business, results of operations, financial condition and cash flows.
11
We limit our exposure to price fluctuations in energy-related costs by periodically entering into longer-term, fixed-price
contracts for natural gas and electricity supply to some of our manufacturing facilities. However, due to the inherent variability
of contractual terms and end dates, in addition to the extent to which the energy markets in which we operate have been
deregulated to allow for contracted supply, we will retain some level of exposure to future price fluctuations for our energy-
related costs.
The loss of the services of one or more members of our senior management team could have a material adverse effect on
our business, results of operations, financial condition and cash flows.
Our operations and prospects depend in large part on the performance of our senior management team, several of which
are long-serving employees with significant knowledge of our business model and operations. Should we not be able to find
qualified replacements for any of these individuals if their services were no longer available, our ability to manage our
operations or successfully execute our business strategy may be materially and adversely affected.
Mr. Gerlach, Executive Chairman of our Board of Directors, has a significant ownership interest in our Company.
As of June 30, 2018, Mr. Gerlach owned or controlled 30% of the outstanding shares of our common stock. Accordingly,
Mr. Gerlach has significant influence on all matters submitted to a vote of the holders of our common stock, including the
election of directors. Mr. Gerlach’s voting power may also have the effect of discouraging transactions involving an actual or a
potential change of control of our Company, regardless of whether a premium is offered over then-current market prices.
The interests of Mr. Gerlach may conflict with the interests of other holders of our common stock. This conflict of
interest may have an adverse effect on the price of our common stock.
Anti-takeover provisions could make it more difficult for a third party to acquire us.
Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a
meeting of shareholders without giving advance notice and provisions classifying our Board of Directors, may make it more
difficult for a third party to acquire us or influence our Board of Directors. This may have the effect of delaying or preventing
changes of control or management, which could have an adverse effect on the market price of our stock.
Additionally, Ohio corporate law contains certain provisions that could have the effect of delaying or preventing a change
of control. The Ohio Control Share Acquisition Act found in Chapter 1701 of the Ohio Revised Code provides that certain
notice and informational filings and a special shareholder meeting and voting procedures must be followed prior to
consummation of a proposed “control share acquisition,” as defined in the Ohio Revised Code. Assuming compliance with the
prescribed notice and information filings, a proposed control share acquisition may be accomplished only if, at a special
meeting of shareholders, the acquisition is approved by both a majority of the voting power represented at the meeting and a
majority of the voting power remaining after excluding the combined voting power of the “interested shares,” as defined in the
Ohio Revised Code. The Interested Shareholder Transactions Act found in Chapter 1704 of the Ohio Revised Code generally
prohibits certain transactions, including mergers, majority share acquisitions and certain other control transactions, with an
“interested shareholder,” as defined in the Ohio Revised Code, for a three-year period after becoming an interested shareholder,
unless our Board of Directors approved the initial acquisition. After the three-year waiting period, such a transaction may
require additional approvals under this Act, including approval by two-thirds of our voting shares and a majority of our voting
shares not owned by the interested shareholder. The application of these provisions of the Ohio Revised Code, or any similar
anti-takeover law adopted in Ohio, could have the effect of delaying or preventing a change of control, which could have an
adverse effect on the market price of our stock.
Also, our Board of Directors has the authority to issue up to 1,150,000 shares of Class B Voting Preferred Stock and
1,150,000 shares of Class C Nonvoting Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions of those shares without any further vote or action by the shareholders. The rights of the holders of our common
stock may be subject to, and may be adversely affected by, the rights of the holders of any Class B Voting Preferred Stock and
Class C Nonvoting Preferred Stock that may be issued in the future. The Company could use these rights to put in place a
shareholder rights plan, or “poison pill,” that could be used in connection with a bid or proposal of acquisition for an
inadequate price.
Item 1B. Unresolved Staff Comments
None.
12
Item 2. Properties
We use 1.9 million square feet of space for our operations. Of this space, 0.6 million square feet are leased. These
amounts exclude facilities operated by third-party service providers.
The following table summarizes our principal manufacturing locations (including aggregation of multiple facilities):
Location
Altoona, IA
Bedford Heights, OH
Principal Products Produced
Frozen pasta
Frozen breads
Columbus, OH
Cudahy, WI
Horse Cave, KY
Luverne, AL
Milpitas, CA
Saline, MI
Wareham, MA (1)
Sauces, dressings, dips
Sprouted grain bakery products
Sauces, dressings, frozen rolls
Frozen rolls
Sauces and dressings
Flatbread products
Croutons
(1) Fully leased for terms expiring in fiscal 2019 and fiscal 2024.
Business Segment(s)
Retail and Foodservice
Retail and Foodservice
Retail and Foodservice
Retail
Retail and Foodservice
Retail and Foodservice
Retail and Foodservice
Retail and Foodservice
Retail and Foodservice
Terms of Occupancy
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
The following table summarizes our principal warehouses, which are used to distribute products to our customers:
Location
Altoona, IA (1)
Attalla, AL
Columbus, OH (2)
Grove City, OH
Horse Cave, KY
Milpitas, CA (3)
(1) Fully leased for term expiring in fiscal 2020.
(2) Fully leased for term expiring in fiscal 2022.
(3) Fully leased for term expiring in fiscal 2021.
Item 3. Legal Proceedings
Business Segment(s)
Retail and Foodservice
Terms of Occupancy
Leased
Retail and Foodservice
Retail and Foodservice
Third-party service
Leased
Retail and Foodservice
Owned
Retail and Foodservice
Owned
Retail and Foodservice
Leased
From time to time we are a party to various legal proceedings. While we believe that the ultimate outcome of these
various proceedings, individually and in the aggregate, will not have a material effect on our consolidated financial statements,
litigation is always subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include
monetary damages or an injunction prohibiting us from manufacturing or selling one or more products or could lead to us
altering the manner in which we manufacture or sell one or more products, which could have a material impact on net income
for the period in which the ruling occurs and future periods.
Item 4. Mine Safety Disclosures
Not applicable.
13
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on The NASDAQ Global Select Market under the symbol LANC. The following table sets
forth the high and low prices for Lancaster Colony Corporation common stock and the dividends paid for each quarter of 2018
and 2017. Stock prices were provided by The NASDAQ Stock Market LLC.
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year
Stock Prices
High
Low
Dividends Paid
Per Share
$
$
$
$
$
$
$
$
127.90
135.86
132.35
141.58
137.71
143.67
149.30
131.79
$
$
$
$
$
$
$
$
113.34
116.25
115.81
118.91
117.50
125.71
125.82
119.38
$
$
$
$
0.55
0.60
0.60
0.60
2.35
0.50
0.55
0.55
0.55
2.15
The number of shareholders of record as of August 2, 2018 was approximately 770. This is not the actual number of
beneficial owners of our common stock, as shares are held in “street name” by brokers and others on behalf of individual
owners. The highest and lowest prices for our common stock from July 1, 2018 to August 2, 2018 were $147.59 and $137.97.
We have increased our regular cash dividends for 55 consecutive years. Future dividends will depend on our earnings,
financial condition and other factors.
Issuer Purchases of Equity Securities
In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of
which 1,402,219 common shares remained authorized for future repurchases at June 30, 2018. This share repurchase
authorization does not have a stated expiration date. In the fourth quarter, we did not repurchase any of our common stock.
Period
April 1-30, 2018
May 1-31, 2018
June 1-30, 2018
Total
Total
Number
of Shares
Purchased
Average
Price Paid
Per Share
— $
— $
— $
— $
—
—
—
—
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
—
—
—
—
Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans
1,402,219
1,402,219
1,402,219
1,402,219
14
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
OF LANCASTER COLONY CORPORATION, THE S&P MIDCAP 400 INDEX
AND THE DOW JONES U.S. FOOD PRODUCERS INDEX
The graph set forth below compares the five-year cumulative total return from investing $100 on June 30, 2013 in each of
our Common Stock, the S&P Midcap 400 Index and the Dow Jones U.S. Food Producers Index. The total return calculation
assumes that all dividends are reinvested, including any special dividends.
Lancaster Colony Corporation
S&P Midcap 400
Dow Jones U.S. Food Producers
Cumulative Total Return (Dollars)
6/14
124.48
125.24
120.27
6/15
121.26
133.25
134.23
6/13
100.00
100.00
100.00
6/16
181.08
135.02
159.55
6/17
176.86
160.09
153.11
6/18
203.43
181.71
150.01
There can be no assurance that our stock performance will continue into the future with the same or similar trends
depicted in the above graph.
15
Item 6. Selected Financial Data
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY
(Thousands Except Per Share Figures)
Operations
Net Sales (1)
Gross Profit (1)
Percent of Net Sales
Multiemployer Pension Settlement and
Related Costs
Income From Continuing Operations Before
Income Taxes (1)
Percent of Net Sales
Taxes Based on Income (1) (4)
Income From Continuing Operations (1) (4)
Percent of Net Sales
Continuing Operations Diluted Net Income
Per Common Share (1) (4)
Cash Dividends Per Common Share -
Regular
Cash Dividends Per Common Share -
Special
Financial Position
Total Assets (2)
Property, Plant and Equipment-Net (1)
Property Additions (1) (3)
Depreciation and Amortization (1)
Long-Term Debt
Shareholders’ Equity (4)
Per Common Share
Weighted Average Common Shares
Outstanding-Diluted (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
2017
2016
2015
2014
Years Ended June 30,
$ 1,222,925
$
303,513
$ 1,201,842
318,764
$
$ 1,191,109
299,629
$
$ 1,104,514
257,692
$
$ 1,041,075
248,568
$
24.8%
26.5%
25.2%
23.3%
23.9%
— $
— $
—
— $
17,635
174,203
14.2%
38,889
135,314
11.1%
4.92
2.35
$
$
$
$
$
175,516
14.6%
60,202
115,314
9.6%
4.20
2.15
$
$
$
$
$
$
— $
— $
184,633
15.5%
62,869
121,764
10.2%
4.44
1.96
5.00
$
$
$
$
$
$
$
$
$
154,552
14.0%
52,866
101,686
9.2%
3.72
1.82
$
$
$
$
$
— $
702,156
172,311
18,298
$
$
$
153,279
14.7%
52,293
100,986
9.7%
3.69
1.72
—
627,301
168,674
15,645
18,993
—
528,597
19.33
804,491
190,813
31,025
$
$
$
716,405
180,671
27,005
$
$
$
634,732
169,595
16,671
26,896
$
— $
$
$
652,282
23.73
24,906
24,147
21,111
$
— $
$
$
575,977
20.98
$
— $
$
$
513,598
18.73
$
— $
$
$
580,918
21.23
27,459
27,440
27,373
27,327
27,308
(1) Amounts for 2014 exclude the impact of the discontinued Glassware & Candles segment operations.
(2) Certain prior-year balances were reclassified in 2016 to reflect the impact of the adoption of new accounting guidance
about the presentation of deferred tax assets and liabilities. With the adoption, our net deferred tax liability for all periods
presented has been classified as noncurrent.
(3) Amounts for 2017 and 2015 exclude property obtained in acquisitions ($5.1 million in the 2017 acquisition of Angelic
Bakehouse and $6.9 million in the 2015 acquisition of Flatout).
(4) Amounts for 2018 reflect the impact of the adoption of new accounting guidance for stock-based compensation, including
the following provisions that were applied on a prospective basis: (a) the inclusion of the tax consequences related to
stock-based compensation within the computation of income tax expense versus equity and (b) assumed proceeds used in
the calculation of weighted average shares no longer include the amount of excess tax benefits. As a result, the amounts for
2018 may not be comparable to amounts for prior years.
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal
year; for example, 2018 refers to fiscal 2018, which is the period from July 1, 2017 to June 30, 2018.
The following discussion should be read in conjunction with the “Selected Financial Data” in Item 6 and our
consolidated financial statements and the notes thereto in Item 8 of this Annual Report on Form 10-K. The forward-looking
statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements
regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from
the results anticipated in these forward-looking statements as a result of factors set forth under the caption “Forward-Looking
Statements” and those set forth in Item 1A of this Annual Report on Form 10-K.
OVERVIEW
Business Overview
Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice
channels.
Effective July 1, 2017, David A. Ciesinski, our President and Chief Operating Officer, succeeded John B. Gerlach, Jr. as
our CEO. As President and CEO, Mr. Ciesinski became our principal executive officer and CODM. This change resulted in
modifications to the CODM’s approach to managing the business, assessing performance and allocating resources.
Consequently, beginning on July 1, 2017, our segment reporting structure was amended to align with these changes, and our
financial results are now presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to
either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding
corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable
methodology that is consistently applied. All historical information was retroactively conformed to the current presentation.
These segment changes had no effect on previously reported consolidated net sales, operating income, net income or earnings
per share. See Note 10 to the consolidated financial statements for further information about our segments.
Our sales are predominately domestic.
Our business has the potential to achieve future growth in sales and profitability due to attributes such as:
•
•
•
•
•
•
•
leading Retail market positions in several product categories with a high-quality perception;
recognized innovation in Retail products;
a broad customer base in both Retail and Foodservice accounts;
well-regarded culinary expertise among Foodservice customers;
recognized leadership in Foodservice product development;
experience in integrating complementary business acquisitions; and
historically strong cash flow generation that supports growth opportunities.
Our goal is to grow both Retail and Foodservice segment sales over time by:
•
•
•
leveraging the strength of our Retail brands to increase current product sales;
introducing new products and expanding distribution; and
continuing to rely upon the strength of our reputation in Foodservice product development and quality.
Part of our future growth may result from acquisitions. We continue to review potential acquisitions that we believe will
complement our existing product lines, enhance our profitability and/or offer good expansion opportunities in a manner that fits
our overall strategic goals.
Consistent with this acquisition strategy, in November 2016 we acquired substantially all of the assets of Angelic
Bakehouse, Inc. (“Angelic”), a manufacturer and marketer of premium sprouted grain bakery products based near Milwaukee,
Wisconsin. This transaction is discussed in further detail in Note 2 to the consolidated financial statements.
We have made substantial capital investments to support our existing operations and future growth opportunities. For
example, we recently expanded our warehousing capacity at Angelic to help meet anticipated growth in demand for our
sprouted grain bakery products. Based on our current plans and expectations, we believe our capital expenditures for 2019
could total between $60 and $80 million, which includes a substantial investment for a frozen dinner roll capacity expansion
project that we expect to complete in mid-2020. We anticipate we will be able to fund all of our capital needs in 2019 with cash
generated from operations and cash on hand.
17
Summary of 2018 Results
Consolidated net sales reached a record $1,223 million during 2018, increasing by 2% as compared to prior-year net sales
of $1,202 million, with both the Retail and Foodservice segments contributing to this growth.
Gross profit decreased 5% to $303.5 million from the prior-year total of $318.8 million. This decline resulted from
considerably higher commodity and freight costs, partially offset by supply chain savings realized from our lean six sigma
program and pricing actions taken beginning in the third quarter of 2018 in response to the cost increases. The prior-year results
reflected a notable benefit from significantly lower ingredient costs in the first half of 2017 with only a modest offset from
deflationary pricing.
In 2018, net income totaled $135.3 million, or $4.92 per diluted share, including a one-time benefit of $9.5 million, or
$0.35 per diluted share, for the re-measurement of our net deferred tax liability due to the Tax Cuts and Jobs Act of 2017 (“Tax
Act”). In 2017, net income totaled $115.3 million, or $4.20 per diluted share, including the multiemployer pension after-tax
charge of $11.5 million, or $0.42 per diluted share, compared to $121.8 million, or $4.44 per diluted share, in 2016.
Looking Forward
For 2019, we expect volume-driven growth in our Retail segment with support from recent and upcoming new product
introductions. We also anticipate continued progress with net price realization from the price increases that began in the second
half of 2018 and better-optimized trade spending in the Retail segment. In the Foodservice segment, we anticipate volume
growth from select national chain restaurant accounts and distributors of our branded products, as well as continued benefits
from Foodservice segment price increases that were implemented early in the third quarter of 2018.
We will also continue to consider acquisition opportunities that are consistent with our growth strategy and represent
good value or otherwise provide significant strategic benefits.
Among the many factors that may impact our ability to improve sales and operating margins in the coming year are the
success of our continued investment in innovation and new products, growth from existing product lines, the level of net price
realization in the Retail segment and the extent of efficiency gains and cost savings resulting from our lean six sigma program
and other supply chain initiatives.
Based on current market conditions, commodity costs are projected to remain unfavorable in fiscal 2019, although to a
lesser extent than we experienced in fiscal 2018. Freight costs are also expected to persist as a headwind through the first half
of the fiscal year. We have initiatives in place or planned for both the short- and long-term to address these higher freight and
commodity costs including pricing actions, a more optimized distribution network and tactical procurement. Future changes in
ingredient costs, as well as other material costs, will be influenced by the size of agricultural harvests in both the United States
and other parts of the world and related global demand, economic conditions, tariffs and the regulatory environment.
Overall, we continue to limit some of our exposure to volatile swings in food commodity costs through a structured
forward purchasing program for certain key materials such as soybean oil and flour. For a more-detailed discussion of the effect
of commodity costs, see the “Impact of Inflation” section of this MD&A below. Changes in other notable recurring costs, such
as marketing, transportation, production costs and introductory costs for new products, may also impact our overall results.
The 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%. The statutory federal income tax rate for
our 2019 tax return will be 21%, a reduction from the blended rate of 28.1% for our 2018 federal tax return. We expect an
overall effective tax rate of approximately 24% for 2019.
We will adopt new accounting guidance for revenue recognition on July 1, 2018. The adoption of this standard will not
have a material impact on our financial position or results of operations. However, there will be additional required disclosures
in the notes to the consolidated financial statements upon adoption. See further discussion in Note 1 to the consolidated
financial statements.
We will adopt new accounting guidance for changes in the presentation of net periodic pension cost and net periodic
postretirement benefit cost on July 1, 2018. The amendments will require retrospective application for the income statement
presentation provisions. We expect only changes in classification on the income statement. See further discussion in Note 1 to
the consolidated financial statements.
We will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating
flexibility while providing appropriate levels of cash returns to our shareholders.
18
RESULTS OF CONSOLIDATED OPERATIONS
Segment Sales Mix
The relative proportion of sales contributed by each of our business segments can impact a year-to-year comparison of the
consolidated statements of income. The following table summarizes the sales mix over each of the last three years:
Segment Sales Mix:
Retail
Foodservice
Net Sales and Gross Profit
(Dollars in thousands)
Net Sales
Retail
Foodservice
Total
Gross Profit
Gross Margin
2018
53%
47%
2017
53%
47%
2016
52%
48%
Year Ended June 30,
Change
2018
2017
2016
2018 vs. 2017
2017 vs. 2016
$ 650,234
572,691
$1,222,925
$ 303,513
$ 641,417
560,425
$ 1,201,842
$ 318,764
$ 619,384
571,725
$ 1,191,109
$ 299,629
$
8,817
12,266
21,083
$
$ (15,251)
1 % $
22,033
2 % (11,300)
2 % $
10,733
(5)% $
19,135
4 %
(2)%
1 %
6 %
24.8%
26.5%
25.2%
In November 2016, we acquired Angelic and its results of operations have been included in the Retail segment within our
consolidated financial statements from the date of acquisition.
2018 to 2017
Consolidated net sales for the year ended June 30, 2018 increased 2% to a new record of $1,223 million from the prior-
year record total of $1,202 million. This growth was driven by increases in both Retail and Foodservice net sales and resulted
from pricing actions, which were taken during the second half of 2018 in response to higher freight and commodity costs, as
well as reduced retail trade spending and lower coupon expense. Our sales volume, as measured by pounds shipped, was
essentially flat. Retail net sales represented 53% of total net sales in both 2018 and 2017.
Our gross margin declined to 24.8% in 2018 compared to 26.5% in 2017 due to the impact of increased commodity costs,
most notably eggs, as well as soybean oil, flour and dairy ingredients, and higher freight costs. The increase in freight costs
resulted from several factors adversely affecting transportation capacity within the United States, including severe weather,
rising diesel fuel costs, new regulations, driver availability and a growing U.S. economy. These increased costs were partially
offset by supply chain savings realized from our lean six sigma program and pricing actions taken in our Retail and Foodservice
segments primarily in the second half of 2018. Excluding the impact of pricing, total raw-material costs were estimated to have
negatively affected our gross margins by 1% of net sales. We estimate higher freight costs to have negatively affected our gross
margins by nearly 1% of net sales. The prior-year results reflected a notable benefit from significantly lower ingredient costs in
the first half of 2017 with only a modest offset from deflationary pricing.
2017 to 2016
Consolidated net sales for the year ended June 30, 2017 increased 1% to a then record of $1,202 million from the prior-
year record total of $1,191 million. This growth was driven by higher Retail net sales as partially offset by lower Foodservice
net sales. Excluding Angelic, our overall sales volume, as measured by pounds shipped, improved by 1%. Pricing had a net
deflationary impact of nearly 1% of net sales for 2017. As a percentage of total net sales, Retail net sales increased slightly to
53% from 52% in 2016.
Our gross margin increased to 26.5% in 2017 compared with 25.2% in 2016 due to the influence of overall lower raw-
material costs, primarily for eggs, but also for flour, honey and certain packaging materials. Margins also benefited from a more
favorable sales mix, partially offset by higher retail trade spending and deflationary pricing in the Foodservice segment.
Excluding pricing actions, total raw-material costs were estimated to have positively affected our gross margins by 2% of net
sales.
19
Selling, General and Administrative Expenses
(Dollars in thousands)
SG&A Expenses
SG&A Expenses as a Percentage
of Net Sales
Year Ended June 30,
Change
2018
$ 131,406
2017
$ 126,381
2016
$ 115,059
2018 vs. 2017
5,025
$
4% $
2017 vs. 2016
11,322
10%
10.7%
10.5%
9.7%
The 2018 increase in selling, general and administrative (“SG&A”) expenses reflected a higher level of investments in
personnel and business growth initiatives, incremental amortization expense and other recurring noncash charges attributed to
Angelic during the first half of 2018, and the impact of a prior-year one-time benefit from the full settlement of a class-action
lawsuit related to a provider of in-store promotional advertising. The higher level of SG&A expenses was partially offset by
lower promotional spending and savings gained through the realignment of our retail broker network beginning in the second
half of 2018. The 2017 increase in SG&A expenses reflected investments in key leadership personnel and strategic business
initiatives during the second half of 2017 to support future growth. Transaction costs, incremental amortization expense and
other recurring noncash charges attributed to the Angelic business acquired in November 2016 also impacted SG&A expenses
in 2017.
Multiemployer Pension Settlement and Related Costs
In 2017 the employees at our Bedford Heights, Ohio plant voted to ratify a new collective bargaining agreement. Among
other terms, the new agreement provided for our complete withdrawal from the underfunded multiemployer Cleveland Bakers
and Teamsters Pension Fund. In lieu of contributions to the pension fund, we are making non-elective contributions for the
union employees at the Bedford Heights, Ohio plant into a union-sponsored 401(k) plan. We initially funded the new 401(k)
plan and paid a withdrawal liability as settlement of our portion of underfunded pension benefits of the multiemployer plan. We
recorded a one-time charge of $17.6 million in 2017 for the multiemployer pension settlement and other benefit-related costs.
Given the unusual nature of these significant indirect costs, this charge was not allocated to our two reportable segments.
Operating Income
(Dollars in thousands)
Operating Income
Retail
Foodservice
Multiemployer Pension
Settlement and Related Costs
Corporate Expenses
Total
Operating Margin
Retail
Foodservice
Total
Year Ended June 30,
Change
2018
2017
2016
2018 vs. 2017
2017 vs. 2016
$ 126,391
58,432
$ 138,470
66,216
$ 134,900
61,692
$ (12,079)
(7,784)
(9)% $
(12)%
3,570
4,524
—
(12,716)
$ 172,107
(17,635)
(12,303)
$ 174,748
—
(12,022)
$ 184,570
17,635
(413)
(2,641)
(100)% (17,635)
(281)
(9,822)
3 %
(2)% $
$
3 %
7 %
N/M
2 %
(5)%
19.4%
10.2%
14.1%
21.6%
11.8%
14.5%
21.8%
10.8%
15.5%
See discussion of operating results by segment following the discussion of “Net Income” below.
The level of the 2018 corporate expenses presented above was consistent with our expectations and was similar to those
of 2017 and 2016.
Income Before Income Taxes
As impacted by the factors discussed above, income before income taxes for 2018 of $174.2 million decreased 1% from
the 2017 total of $175.5 million. The 2016 income before income taxes was $184.6 million.
Taxes Based on Income
Our effective tax rate was 22.3%, 34.3% and 34.1% in 2018, 2017 and 2016, respectively. The current-year rate was
impacted by the Tax Act, which 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 will be 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-
20
measurement of our net deferred tax liability in 2018. Looking ahead to 2019, we expect an overall effective tax rate of
approximately 24%. See Note 9 to the consolidated financial statements for a reconciliation of the statutory rate to the effective
rate for 2018, 2017 and 2016.
Our taxes based on income for the year ended June 30, 2018 consisted of the following components:
(Dollars in thousands)
Federal, state and local provision
One-time benefit on re-measurement of net deferred tax liability
Net windfall tax benefits - stock-based compensation
Taxes Based on Income
2018
$
$
49,186
(9,542)
(755)
38,889
28.2 %
(5.5)%
(0.4)%
22.3 %
The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017. SAB 118 allows for a
measurement period in which companies can either use provisional estimates for changes resulting from the Tax Act or apply
the tax laws that were in effect immediately prior to the Tax Act being enacted if estimates cannot be determined at the time of
the preparation of the financial statements until the actual impacts can be determined. We recorded an estimate of the impact of
the Tax Act within our December 31, 2017 financial statements, including the impact of items recorded within accumulated
other comprehensive loss. There were no material changes to these estimates in the six months ended June 30, 2018. We will
continue to evaluate the impacts of the Tax Act and record adjustments, as needed, including adjustments related to the filing of
our 2018 federal tax return, but do not expect material changes to the amounts recorded. In February 2018, the Financial
Accounting Standards Board issued new accounting guidance to allow a reclassification from accumulated other
comprehensive income/loss to retained earnings for stranded tax effects resulting from the Tax Act. We recorded this
reclassification in the quarter ended March 31, 2018. See further discussion under the caption “Recently Adopted Accounting
Standards” in Note 1 to the consolidated financial statements.
On July 1, 2017, we adopted new accounting guidance for stock-based compensation that, among other things, requires
the recognition of windfall tax benefits and shortfall tax deficiencies in our income tax expense, instead of equity. For 2018, the
impact of net windfall tax benefits reduced our effective tax rate by 0.4%. This adoption may result in increased volatility to
our quarterly and annual income tax expense and resulting net income, dependent upon, among other variables, the price of our
common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled
stock appreciation rights and vesting of restricted stock awards. This adoption is discussed in further detail under the caption
“Recently Adopted Accounting Standards” in Note 1 to the consolidated financial statements.
Net Income
As influenced by the factors discussed above, particularly the impact of the Tax Act in 2018 and the multiemployer
pension charge in 2017, net income for 2018 of $135.3 million increased from the 2017 net income of $115.3 million, which
had decreased from 2016 net income of $121.8 million. Diluted weighted average common shares outstanding for each of the
years ended June 30, 2018, 2017 and 2016 have remained relatively stable. As a result, and due to the change in net income for
each year, diluted net income per share totaled $4.92 in 2018, an increase from the 2017 total of $4.20 per diluted share. The
2016 net income per share totaled $4.44 per diluted share.
In 2018, the Tax Act resulted in a one-time deferred tax benefit of $0.35 per diluted share. In 2017, the estimated impact
of the multiemployer pension charge was $0.42 per diluted share.
RESULTS OF OPERATIONS - SEGMENTS
Retail Segment
(Dollars in thousands)
Net Sales
Operating Income
Operating Margin
2018 to 2017
Year Ended June 30,
Change
2018
$ 650,234
$ 126,391
2017
$ 641,417
$ 138,470
2016
$ 619,384
$ 134,900
2018 vs. 2017
8,817
$
$ (12,079)
1 % $
(9)% $
2017 vs. 2016
22,033
3,570
4%
3%
19.4%
21.6%
21.8%
In 2018, net sales for the Retail segment reached $650.2 million, a 1% increase from the prior-year total of
$641.4 million. This increase was driven by increased sales volumes for shelf-stable dressings and sauces sold under license
agreements, the incremental sales from the Angelic Bakehouse business acquired in November 2016, pricing actions, reduced
trade spending and lower coupon expense, partially offset by reduced sales of frozen garlic bread products in the second and
21
third quarters of 2018 due to a supply disruption. Pricing actions were implemented starting in the second half of 2018 with a
resulting net impact of less than 1% of Retail net sales for 2018.
In 2018, Retail segment operating income and related margins decreased due to the impact of increased commodity and
freight costs, investments in personnel and business growth initiatives and incremental amortization expense and other
recurring noncash charges attributed to Angelic during the first half of the year. These higher costs were partially offset by
supply chain savings realized from our lean six sigma program, some net price realization, lower consumer promotional and
other trade spending and lower brokerage costs due to the mid-year realignment of our retail broker network. The prior-year
operating income and related margins reflected a significant benefit from lower ingredient costs in the first half of the year.
2017 to 2016
In 2017, net sales for the Retail segment reached $641.4 million, a 4% increase from the 2016 total of $619.4 million with
sprouted grain bakery products, shelf-stable dressings sold under license agreements and frozen bread products among the most
notable contributing product lines. Higher trade promotion costs served to limit Retail sales growth. The impact of pricing on
Retail net sales was minimal for 2017.
In 2017, Retail segment operating income increased while related margins were essentially flat as the influence of overall
lower raw-material costs, primarily for eggs, but also for flour, honey and certain packaging materials, were partially offset by
higher retail trade spending, investments in key leadership personnel and strategic business initiatives during the second half of
2017 and the transaction costs, incremental amortization expense and other recurring noncash charges attributed to the Angelic
business.
Foodservice Segment
(Dollars in thousands)
Net Sales
Operating Income
Operating Margin
2018 to 2017
Year Ended June 30,
2018
$ 572,691
58,432
$
2017
$ 560,425
66,216
$
2016
$ 571,725
61,692
$
$
$
10.2%
11.8%
10.8%
2018 vs. 2017
12,266
(7,784)
Change
2017 vs. 2016
2 % $ (11,300)
4,524
(12)% $
(2)%
7 %
In 2018, Foodservice net sales increased 2% to $572.7 million from the 2017 total of $560.4 million reflecting
improvements due to pricing actions that were taken beginning in the third quarter and higher volumes for frozen breads and
frozen pasta. This increase was partially offset by the impact of general softness in the restaurant industry in the first half of
2018. Inflationary pricing totaled 1% of Foodservice net sales for 2018.
In 2018, the decline in Foodservice segment operating income and related margins was driven by increased commodity
and freight costs and our investments in personnel and business growth initiatives. These higher costs were partially offset by
supply chain savings realized from our lean six sigma program and inflationary pricing. The 2017 operating income and related
margins reflected a significant benefit from lower ingredient costs in the first half of the year.
With regard to the impact of commodity and freight costs on Foodservice segment operating income, most of our supply
contracts with national chain restaurant accounts incorporate pricing adjustments to account for changes in ingredient and
freight costs. These supply contracts may vary by account with regard to the time lapse between the actual change in ingredient
and freight costs we incur and the effective date of the associated price increase or decrease. As a result, the reported operating
margins of the Foodservice segment are subject to increased volatility during periods of rapidly rising or falling ingredient and/
or freight costs because at least some portion of the change in ingredient and/or freight costs is reflected in the segment’s results
prior to the impact of any associated change in pricing. In addition, the Foodservice segment has an inherently higher degree of
margin volatility from changes in ingredient costs when compared to the Retail segment due to its overall lower margin profile
and higher ratio of ingredient pounds to net sales.
2017 to 2016
In 2017, net sales for the Foodservice segment reached $560.4 million, a 2% decrease from the 2016 total of
$571.7 million as influenced by our targeted business rationalization efforts with certain national chain restaurants that began in
the third quarter of 2016 and deflationary pricing, primarily from lower egg costs.
In 2017, Foodservice segment operating income and related margins increased due to the influence of overall lower raw-
material costs, primarily for eggs, but also for flour, honey and certain packaging materials, partially offset by deflationary
pricing and investments in key leadership personnel and strategic business initiatives during the second half of 2017.
22
FINANCIAL CONDITION
Liquidity and Capital Resources
We maintain sufficient flexibility in our capital structure to ensure our capitalization is adequate to support our future
internal growth prospects, acquire food businesses consistent with our strategic goals, and maintain cash returns to our
shareholders through cash dividends and opportunistic share repurchases. Our balance sheet maintained fundamental financial
strength during 2018 as we ended the year with $206 million in cash and equivalents, along with shareholders’ equity of
$652 million and no debt.
Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one
time. We had no borrowings outstanding under the Facility at June 30, 2018. At June 30, 2018, we had $5.1 million of standby
letters of credit outstanding, which reduced the amount available for borrowing on the Facility. The Facility expires in April
2021, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an
alternative base rate defined in the Facility, at our option. We must also pay facility fees that are tied to our then-applicable
consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have
outstanding borrowings under the Facility, they will be classified as long-term debt.
The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and
financial covenants relating to interest coverage and leverage. At June 30, 2018, we were in compliance with all applicable
provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins.
At June 30, 2018, there were no events that would constitute a default under this facility.
We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future. However, a default
under the Facility could accelerate the repayment of any then outstanding indebtedness and limit our access to $75 million of
additional credit available under the Facility. Such an event could require a reduction in or curtailment of cash dividends or
share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our
obligations when due.
We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that
available under the Facility, should be adequate to meet our cash requirements through 2019. If we were to borrow outside of
the Facility under current market terms, our average interest rate may increase significantly and have an adverse effect on our
results of operations.
Cash Flows
(Dollars in thousands)
Provided By Operating Activities
Used In Investing Activities
Used In Financing Activities
Year Ended June 30,
Change
2017
$ 146,385
2018
$ 160,714
$ 14,329
$ (31,452) $ (60,608) $ (17,423) $ 29,156
$ (66,614) $ (60,753) $(192,602) $ (5,861)
2016
$ 145,903
10 % $
482
48 % $ (43,185)
(10)% $ 131,849
—%
N/M
68%
2018 vs. 2017
2017 vs. 2016
Cash provided by operating activities remains the primary source for funding our investing and financing activities, as
well as financing our organic growth initiatives.
Cash provided by operating activities in 2018 totaled $160.7 million, an increase of 10% as compared with the 2017 total
of $146.4 million, which increased less than 1% as compared to the 2016 total of $145.9 million. The 2018 increase was
primarily due to higher net income, including the benefit from the lower tax rate resulting from the Tax Act. The 2017 increase
reflected lower working capital requirements, primarily in accounts payable and accrued liabilities, an increase in deferred tax
liabilities related to property and increases in noncash charges for depreciation and amortization and the noncash change in
acquisition-related contingent consideration. These changes were largely offset by lower net income in 2017, which included
the one-time multiemployer pension charge. The increase in amortization and the change in acquisition-related contingent
consideration were the result of the November 2016 acquisition of Angelic.
Cash used in investing activities totaled $31.5 million in 2018 as compared to $60.6 million in 2017 and $17.4 million in
2016. The 2018 decrease in cash used in investing activities was due to the $35.2 million paid for the acquisition of Angelic in
November 2016, as partially offset by a higher level of capital expenditures in 2018, with the largest amounts spent on
warehousing and new equipment to increase capacity and/or improve operational efficiencies. The 2017 increase in cash used
in investing activities primarily reflected the cash paid for the acquisition of Angelic in November 2016, as well as a higher
level of capital expenditures in 2017, with the largest amounts spent on packaging equipment to accommodate growth and
build-out costs related to our corporate office relocation. Capital expenditures totaled $31.0 million in 2018, compared to
$27.0 million in 2017 and $16.7 million in 2016.
23
Financing activities used net cash totaling $66.6 million, $60.8 million and $192.6 million in 2018, 2017 and 2016,
respectively. In general, cash used in financing activities reflects the payment of dividends. The regular dividend payout rate for
2018 was $2.35 per share, as compared to $2.15 per share in 2017 and $1.96 per share in 2016. This past fiscal year marked the
55th consecutive year in which our dividend rate was increased. A $5.00 per share special dividend was paid in December 2015,
which totaled $136.7 million.
The future levels of share repurchases and declared dividends are subject to the periodic review of our Board of Directors
and are generally determined after an assessment is made of various factors, such as anticipated earnings levels, cash flow
requirements and general business conditions.
Our ongoing business activities continue to be subject to compliance with various laws, rules and regulations as may be
issued and enforced by various federal, state and local agencies. With respect to environmental matters, costs are incurred
pertaining to regulatory compliance and, upon occasion, remediation. Such costs have not been, and are not anticipated to
become, material.
We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal
course of business. We do not have any related party transactions that materially affect our results of operations, cash flows or
financial condition.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMITMENTS
We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other
persons, also known as “Variable Interest Entities,” that have or are reasonably likely to have a current or future material effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
expenditures.
We have various contractual obligations that are appropriately recorded as liabilities in our consolidated financial
statements. Certain other contractual obligations are not recognized as liabilities in our consolidated financial statements.
Examples of such items are commitments to purchase raw materials or packaging inventory that has not yet been received as of
June 30, 2018 and future minimum lease payments for the use of property and equipment under operating lease agreements.
The following table summarizes our contractual obligations as of June 30, 2018 (dollars in thousands):
Contractual Obligations
Operating Lease Obligations (1)
Purchase Obligations (2)
Other Noncurrent Liabilities (as reflected on
Consolidated Balance Sheet) (3)
Total
Payment Due by Period
Total
23,152
199,737
17,720
240,609
$
$
Less than 1
Year
$
$
6,839
180,944
—
187,783
$
$
1-3 Years
3-5 Years
More than 5
Years
8,211
17,472
640
26,323
$
$
4,274
971
17,080
22,325
$
$
3,828
350
—
4,178
(1) Operating leases are primarily entered into for warehouse and office facilities and certain equipment. See Note 5 to the
consolidated financial statements for further information.
(2) Purchase obligations represent purchase orders and longer-term purchase arrangements related to the procurement of raw
materials, supplies, services, and property, plant and equipment.
(3) This amount does not include $23.9 million of other noncurrent liabilities recorded on the balance sheet, which largely
consist of the underfunded defined benefit pension liability, other post employment benefit obligations, tax liabilities,
noncurrent workers compensation obligations, deferred compensation and interest on deferred compensation. These items
are excluded, as it is not certain when these liabilities will become due. See Notes 9, 12 and 13 to the consolidated
financial statements for further information.
IMPACT OF INFLATION
Our business results can be influenced by significant changes in the costs of our raw materials. We attempt to mitigate the
impact of inflation on our raw materials by entering into longer-term fixed-price contracts for a portion of our most significant
commodities, soybean oil and flour. As we enter 2019, we will begin to implement a new procurement strategy for a portion of
our egg needs through the use of grain-based pricing contracts to reduce our exposure to egg market spot prices. However, we
remain exposed to events and trends in the marketplace for our other raw-material and packaging costs. While we attempt to
pass through sustained increases in raw-material costs via price adjustments on our retail and foodservice products, such price
adjustments will often lag the changes in the related input costs.
24
As we transitioned from 2015 to 2016, we saw a significant increase in the price of egg-based ingredients due to a major
outbreak of avian influenza in the United States. Due to timing and the degree of the increase in egg costs, we lagged obtaining
cost recovery during the first half of 2016, but we had largely recovered such costs as we exited our then third fiscal quarter.
During the first half of 2017, we experienced a deflationary pricing environment within our foodservice channel as the cost of
eggs had retreated to historical prices, and we adjusted pricing charged to our foodservice national chain restaurant accounts to
reflect the lower input cost of eggs and other key ingredients. Consequently, while the deflationary pricing was more than offset
by lower egg costs during the first half of 2017, the deflationary pricing negatively impacted net sales growth from our
foodservice channel during the period. During the second half of 2017, the net impact of inflation was not significant, but some
residual deflationary pricing did impact Foodservice net sales and gross profit in the period.
In 2018, we experienced increased commodity costs across many ingredient and packaging materials, most notably for
eggs. The increase in egg costs was principally due to egg-producing issues in Europe which resulted in significantly higher
exports from the United States. Additionally, freight costs increased significantly due to capacity constraints in the
transportation industry. We implemented pricing actions in both our Retail and Foodservice segments in the second half of
2018. Entering 2019, under current market conditions, we foresee unfavorable material and freight cost comparisons, although
to a lesser extent than in 2018. We expect net price realization in 2019 to offset the impact of material and freight cost inflation.
Although typically less notable, we are also exposed to the impacts of general inflation beyond material costs, especially in
the areas of annual wage adjustments and benefit costs. Over time, we attempt to minimize the exposure to such cost increases
through greater manufacturing and distribution efficiencies via our lean six sigma program and strategic investments in plant
equipment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This MD&A discusses our consolidated financial statements, which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these consolidated financial statements requires that we make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates and judgments, including, but not limited to, those related to
accounts receivable allowances, distribution costs, asset impairments and self-insurance reserves. We base our estimates and
judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant
impact on our consolidated financial statements. While a summary of our significant accounting policies can be found in Note 1
to the consolidated financial statements, we believe the following critical accounting policies reflect those areas in which more
significant judgments and estimates are used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue upon transfer of title and risk of loss, provided that evidence of an arrangement exists, pricing is
fixed or determinable, and collectability is probable. Net sales are recorded net of estimated sales discounts, returns, trade
promotions and certain other sales incentives, including coupon redemptions and rebates. See discussion of new accounting
guidance for revenue recognition, which will be applicable for us beginning on July 1, 2018, under the caption “Recently
Issued Accounting Standards” in Note 1 to the consolidated financial statements.
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.
Goodwill and Other Intangible Assets
Goodwill is not amortized. It is evaluated annually at April 30 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. Carrying amounts are adjusted appropriately when determined to have
been impaired.
25
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to
the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the
“PSLRA”). This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the
PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words
“anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss
future expectations; contain projections regarding future developments, operations or financial conditions; or state other
forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our
experience and perception of historical trends, current conditions, expected future developments and other factors we believe to
be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could
cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as
a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined
below. Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance
on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made,
and we undertake no obligation to update such forward-looking statements, except as required by law.
Items which could impact these forward-looking statements include, but are not limited to, those risk factors identified in
Item 1A and:
adverse changes in freight, energy or other costs of producing, distributing or transporting our products;
fluctuations in the cost and availability of ingredients and packaging;
the reaction of customers or consumers to price increases we may implement;
price and product competition;
the impact of customer store brands on our branded retail volumes;
the lack of market acceptance of new products;
dependence on contract manufacturers, distributors and freight transporters;
capacity constraints that may affect our ability to meet demand or may increase our costs;
the success and cost of new product development efforts;
dependence on key personnel and changes in key personnel;
the effect of consolidation of customers within key market channels;
the ability to successfully grow recently acquired businesses;
the extent to which future business acquisitions are completed and acceptably integrated;
the possible occurrence of product recalls or other defective or mislabeled product costs;
the potential for loss of larger programs or key customer relationships;
changes in demand for our products, which may result from loss of brand reputation or customer goodwill;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
• maintenance of competitive position with respect to other manufacturers;
•
•
efficiencies in plant operations;
the impact of any regulatory matters affecting our food business, including any required labeling changes and
their impact on consumer demand;
stability of labor relations;
the outcome of any litigation or arbitration;
the impact, if any, of certain contingent liabilities associated with our withdrawal from a multiemployer pension
plan;
the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit
costs;
changes in estimates in critical accounting judgments; and
certain other risk factors, including those discussed in other filings we have submitted to the Securities and
Exchange Commission.
•
•
•
•
•
•
26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to market risks primarily from changes in raw material prices. In recent years, due to the absence of
any borrowings, we have not had exposure to changes in interest rates. We also have not had exposure to market risk associated
with derivative financial instruments or derivative commodity instruments as we do not utilize any such instruments.
RAW MATERIAL PRICE RISK
We purchase a variety of commodities and other raw materials, such as soybean oil, flour, eggs and dairy-based materials,
which we use to manufacture our products. The market prices for these commodities are subject to fluctuation based upon a
number of economic factors and may become volatile at times. While we do not use any derivative commodity instruments to
hedge against commodity price risk, we do actively manage a portion of the risk through a structured forward purchasing
program for certain key materials such as soybean oil and flour. This program, coupled with short-term fixed price
arrangements on other significant raw materials, gives us more predictable input costs, which may help stabilize our short-term
margins during periods of volatility in commodity markets.
Item 8. Financial Statements and Supplementary Data
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Lancaster Colony Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lancaster Colony Corporation and Subsidiaries (the
“Company”) as of June 30, 2018 and 2017, the related consolidated statements of income, comprehensive income,
shareholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2018, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the
United States of America.
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, 2018, 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 27, 2018, expressed an unqualified opinion on the Company’s internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. 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 conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Columbus, Ohio
August 27, 2018
We have served as the Company’s auditor since 1961.
28
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
June 30,
2018
2017
$
205,752
72,960
$
Current Assets:
Cash and equivalents
Receivables
Inventories:
Raw materials
Finished goods
Total inventories
Other current assets
Total current assets
Property, Plant and Equipment:
Land, buildings and improvements
Machinery and equipment
Total cost
Less accumulated depreciation
Property, plant and equipment-net
Other Assets:
Goodwill
Other intangible assets-net
Other noncurrent assets
Total
LIABILITIES AND SHAREHOLDERS’ EQUITY
$
Current Liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Other Noncurrent Liabilities
Deferred Income Taxes
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock-authorized 3,050,000 shares; outstanding-none
Common stock-authorized 75,000,000 shares; outstanding-2018-27,487,989
shares; 2017-27,448,424 shares
Retained earnings
Accumulated other comprehensive loss
Common stock in treasury, at cost
Total shareholders’ equity
Total
$
$
See accompanying notes to consolidated financial statements.
29
143,104
69,922
28,447
47,929
76,376
11,744
301,146
124,673
272,582
397,255
216,584
180,671
168,030
60,162
6,396
716,405
41,353
35,270
76,623
38,598
25,207
115,174
1,206,671
(8,936)
(736,932)
575,977
716,405
32,673
58,188
90,861
9,304
378,877
132,318
293,409
425,727
234,914
190,813
168,030
56,176
10,595
804,491
57,978
35,789
93,767
41,638
16,804
119,232
1,279,343
(8,259)
(738,034)
652,282
804,491
$
$
$
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
Net Sales
Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Multiemployer Pension Settlement and Related Costs
Operating Income
Other, Net
Income Before Income Taxes
Taxes Based on Income
Net Income
Net Income Per Common Share:
Basic
Diluted
Weighted Average Common Shares Outstanding:
Basic
Diluted
$
$
$
$
Years Ended June 30,
$
$
$
$
2018
1,222,925
919,412
303,513
131,406
—
172,107
2,096
174,203
38,889
135,314
4.93
4.92
27,403
27,459
$
$
$
$
2017
1,201,842
883,078
318,764
126,381
17,635
174,748
768
175,516
60,202
115,314
4.21
4.20
27,376
27,440
2016
1,191,109
891,480
299,629
115,059
—
184,570
63
184,633
62,869
121,764
4.45
4.44
27,336
27,373
See accompanying notes to consolidated financial statements.
30
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net Income
Other Comprehensive Income (Loss):
Defined Benefit Pension and Postretirement Benefit Plans:
Net gain (loss) arising during the period, before tax
Prior service credit arising during the period, before tax
Amortization of loss, before tax
Amortization of prior service credit, before tax
Total Other Comprehensive Income (Loss), Before Tax
Tax Attributes of Items in Other Comprehensive Income (Loss):
Net gain (loss) arising during the period, tax
Prior service credit arising during the period, tax
Amortization of loss, tax
Amortization of prior service credit, tax
Total Tax (Expense) Benefit
Other Comprehensive Income (Loss), Net of Tax
Comprehensive Income
$
Years Ended June 30,
2018
2017
2016
$
135,314
$
115,314
$
121,764
3,041
—
536
(182)
3,395
(710)
—
(180)
61
(829)
2,566
137,880
$
3,334
—
677
(182)
3,829
(1,231)
—
(250)
66
(1,415)
2,414
117,728
$
(4,200)
1,770
505
(126)
(2,051)
1,551
(654)
(186)
47
758
(1,293)
120,471
See accompanying notes to consolidated financial statements.
31
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
2018
2017
2016
$
135,314
$
115,314
$
121,764
(Amounts in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Impacts of noncash items:
Depreciation and amortization
Change in acquisition-related contingent consideration
Deferred income taxes and other changes
Stock-based compensation expense
Gain on sale of property
Pension plan activity
Changes in operating assets and liabilities:
Receivables
Inventories
Other current assets
Accounts payable and accrued liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Cash paid for acquisitions, net of cash acquired
Payments for property additions
Proceeds from sale of property
Other-net
Net cash used in investing activities
Cash Flows From Financing Activities:
Purchase of treasury stock
Payment of dividends (including special dividend payment,
2018-$0; 2017-$0; 2016-$136,677)
Tax withholdings for stock-based compensation
Net cash used in financing activities
Net change in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
$
26,896
2,052
(8,502)
5,039
(10)
(434)
(3,040)
(14,485)
2,164
15,720
160,714
(318)
(31,025)
38
(147)
(31,452)
(1,102)
(64,531)
(981)
(66,614)
62,648
143,104
205,752
24,906
1,156
2,347
4,248
(629)
(244)
(2,598)
150
(2,958)
4,693
146,385
(35,169)
(27,005)
1,475
91
(60,608)
24,147
—
(525)
3,326
—
(296)
(3,547)
1,802
1,445
(2,213)
145,903
(12)
(16,671)
—
(740)
(17,423)
(866)
(155)
(58,980)
(907)
(60,753)
25,024
118,080
143,104
$
(190,546)
(1,901)
(192,602)
(64,122)
182,202
118,080
$
See accompanying notes to consolidated financial statements.
32
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in thousands,
except per share data)
Balance, June 30, 2015
Net income
Net pension and postretirement benefit
losses, net of ($758) tax effect
Cash dividends - common stock ($6.96
per share)
Purchase of treasury stock
Stock-based plans, including excess
tax benefits
Stock-based compensation expense
Balance, June 30, 2016
Net income
Net pension and postretirement benefit
gains, net of $1,415 tax effect
Cash dividends - common stock ($2.15
per share)
Purchase of treasury stock
Stock-based plans, including excess
tax benefits
Stock-based compensation expense
Balance, June 30, 2017
Net income
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
Cash dividends - common stock
($2.35 per share)
Purchase of treasury stock
Stock-based plans
Stock-based compensation expense
Balance, June 30, 2018
Common Stock
Outstanding
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
Shares
27,361
Amount
$ 107,767
$ 1,219,119
121,764
$
(10,057) $ (735,911) $
(190,546)
1,150,337
115,314
(58,980)
(1,293)
(155)
(11,350)
(736,066)
2,414
(866)
1,206,671
135,314
(8,936)
(736,932)
2,566
1,889
(1,889)
(64,531)
(1,102)
$ 1,279,343
$
(8,259) $ (738,034) $
(2)
65
27,424
(416)
3,326
110,677
(6)
30
27,448
249
4,248
115,174
(9)
49
27,488
(981)
5,039
$ 119,232
580,918
121,764
(1,293)
(190,546)
(155)
(416)
3,326
513,598
115,314
2,414
(58,980)
(866)
249
4,248
575,977
135,314
2,566
—
(64,531)
(1,102)
(981)
5,039
652,282
See accompanying notes to consolidated financial statements.
33
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Note 1 – Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Lancaster Colony Corporation and our
wholly-owned subsidiaries, collectively referred to as “we,” “us,” “our,” “registrant,” or the “Company.” Intercompany
transactions and accounts have been eliminated in consolidation. Our fiscal year begins on July 1 and ends on June 30. Unless
otherwise noted, references to “year” pertain to our fiscal year; for example, 2018 refers to fiscal 2018, which is the period from
July 1, 2017 to June 30, 2018.
Effective July 1, 2017, David A. Ciesinski, our President and Chief Operating Officer, succeeded John B. Gerlach, Jr. as
Chief Executive Officer (“CEO”). As President and CEO, Mr. Ciesinski became our principal executive officer and chief
operating decision maker (“CODM”). This change resulted in modifications to the CODM’s approach to managing the
business, assessing performance and allocating resources. Consequently, beginning on July 1, 2017, our segment reporting
structure was amended to align with these changes, and our financial results are now presented as two reportable segments:
Retail and Foodservice. See Note 10 for additional details. All historical information was retroactively conformed to the current
presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires that we make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Estimates included in these consolidated financial statements include allowances for
customer deductions, net realizable value of inventories, useful lives for the calculation of depreciation and amortization,
distribution accruals, pension and postretirement assumptions and self-insurance accruals. Actual results could differ from these
estimates.
Cash and Equivalents
We consider all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents. The carrying amounts of our cash and equivalents approximate fair value due to their short maturities and are
considered level 1 investments, which have quoted market prices in active markets for identical assets. As a result of our cash
management system, checks issued but not presented to the banks for payment may create negative book cash balances. 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. Our allowance for doubtful accounts was immaterial for all periods presented.
Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and equivalents
and trade accounts receivable. 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. However, see Note 10 with respect to our accounts receivable with Walmart Inc. and
McLane Company, Inc., a wholesale distribution subsidiary of Berkshire Hathaway, Inc.
Inventories
Inventories are valued at the lower of cost or net realizable value and are costed by various methods that approximate
actual cost on a first-in, first-out basis. Due to the nature of our business, work in process inventory is not a material component
of inventory. When necessary, we provide allowances to adjust the carrying value of our inventory to the lower of cost or net
realizable value, including any costs to sell or dispose. The determination of whether inventory items are slow moving, obsolete
or in excess of needs requires estimates about the future demand for our products. 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.
34
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, except for those acquired as part of a business combination, which are
recorded at fair value at the time of purchase. We use the straight-line method of computing depreciation for financial reporting
purposes based on the estimated useful lives of the corresponding assets. Estimated useful lives for buildings and improvements
range generally from 10 to 40 years, machinery and equipment, excluding technology-related equipment, range generally from
3 to 15 years and technology-related equipment range generally from 3 to 5 years. For tax purposes, we generally compute
depreciation using accelerated methods.
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:
Construction in progress in Accounts Payable
2018
2017
2016
$
2,070
$
622
$
1,000
The following table sets forth depreciation expense in each of the years ended June 30:
Depreciation expense
Long-Lived Assets
2018
2017
2016
$
22,168
$
20,430
$
20,114
We monitor the recoverability of the carrying value of our long-lived assets by periodically considering whether
indicators of impairment are present. If such indicators are present, we determine if the assets are recoverable by comparing the
sum of the undiscounted future cash flows to the assets’ carrying amounts. Our cash flows are based on historical results
adjusted to reflect our best estimate of future market and operating conditions. If the carrying amounts are greater, then the
assets are not recoverable. In that instance, we compare the carrying amounts to the fair value to determine the amount of the
impairment to be recorded.
Goodwill and Other Intangible Assets
Goodwill is not amortized. It is evaluated annually at April 30 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. Carrying amounts are adjusted appropriately when determined to have
been impaired. See further discussion regarding goodwill and other intangible assets in Note 7.
Accrued Distribution
We incur various freight and other related costs associated with shipping products to our customers and warehouses. We
provide accruals for unbilled shipments from carriers utilizing historical or projected freight rates and other relevant
information.
Accruals for Self-Insurance
Self-insurance accruals are made for certain claims associated with employee health care, workers’ compensation and
general liability insurance. 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. Our Board of Directors approved a share repurchase
authorization of 2,000,000 common shares in November 2010. At June 30, 2018, 1,402,219 common shares remained
authorized for future purchase.
Revenue Recognition
We recognize revenue upon transfer of title and risk of loss, provided that evidence of an arrangement exists, pricing is
fixed or determinable, and collectability is probable. Net sales are recorded net of estimated sales discounts, returns, trade
promotions and certain other sales incentives, including coupon redemptions and rebates. See discussion of new accounting
guidance for revenue recognition, which will be applicable for us beginning on July 1, 2018, under the caption “Recently Issued
Accounting Standards” below.
35
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Advertising Expense
We expense advertising as it is incurred. The following table summarizes advertising expense as a percentage of net sales
in each of the years ended June 30:
Advertising expense as a percentage of net sales
Research and Development Costs
2018
2017
2016
2%
3%
3%
We expense research and development costs as they are incurred. The estimated amount spent during each of the last
three years on research and development activities was less than 1% of net sales.
Distribution Costs
Distribution fees billed to customers are included in Net Sales, while our distribution costs incurred are included in Cost
of Sales.
Stock-Based Employee Compensation Plans
We account for our stock-based employee compensation plans in accordance with GAAP for stock-based compensation,
which requires the measurement and recognition of the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The cost of the employee services is recognized as compensation
expense over the period that an employee provides service in exchange for the award, which is typically the vesting period. See
further discussion and disclosure in Note 11.
Income Taxes
Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect
management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in numerous domestic
jurisdictions.
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. Tax law requires certain items be included in the
tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent,
such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as
depreciation expense. These temporary differences create deferred tax assets and liabilities. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. See further
discussion in Note 9.
Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate
jurisdiction prior to the expiration of the carryforward periods. Although realization is not assured, management believes it is
more likely than not that our deferred tax assets will be realized and thus we have not recorded any valuation allowance for the
years ended June 30, 2018 or 2017.
In accordance with accounting literature related to uncertainty in income taxes, tax benefits and liabilities from uncertain
tax positions that are recognized in the financial statements are measured based on the largest attribute that has a greater than
fifty percent likelihood of being realized upon ultimate settlement.
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. 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.
36
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:
Net income
Net income available to participating securities
Net income available to common shareholders
Weighted average common shares outstanding - basic
Incremental share effect from:
Nonparticipating restricted stock
Stock-settled stock appreciation rights
Weighted average common shares outstanding - diluted
Net income per common share - basic
Net income per common share - diluted
2018
2017
2016
135,314
(271)
135,043
$
$
115,314
(196)
115,118
$
$
121,764
(242)
121,522
27,403
27,376
27,336
3
53
27,459
3
61
27,440
4.93
4.92
$
$
4.21
4.20
$
$
3
34
27,373
4.45
4.44
$
$
$
$
Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
Comprehensive income includes changes in equity that result from transactions and economic events from non-owner
sources. Comprehensive income is composed of two subsets – net income and other comprehensive income (loss). Included in
other comprehensive income (loss) are pension and postretirement benefits adjustments.
The following table presents the amounts reclassified out of accumulated other comprehensive loss by component:
Accumulated other comprehensive loss at beginning of year
2018
2017
$
(8,936) $
(11,350)
Defined Benefit Pension Plan Items:
Net gain arising during the period
Amortization of unrecognized net loss (1)
Postretirement Benefit Plan Items: (2)
Net gain (loss) arising during the period
Amortization of unrecognized net gain
Amortization of prior service credit
Total other comprehensive income, before tax
Total tax expense
Other comprehensive income, net of tax
Tax Cuts and Jobs Act of 2017, Reclassification from accumulated other comprehensive
loss to retained earnings (3)
Accumulated other comprehensive loss at end of year
2,987
572
54
(36)
(182)
3,395
(829)
2,566
(1,889)
(8,259) $
$
3,339
715
(5)
(38)
(182)
3,829
(1,415)
2,414
—
(8,936)
(1) Included in the computation of net periodic benefit income/cost. See Note 12 for additional information.
(2) Additional disclosures for postretirement benefits are not included as they are not considered material.
(3) See further discussion of this reclassification under the caption “Recently Adopted Accounting Standards” within Note 1.
Recently Issued Accounting Standards
In March 2017, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance to improve the
presentation of net periodic pension cost and net periodic postretirement benefit cost by disaggregating the service cost
component from the other components of net periodic benefit cost. The amendments require an employer to present service cost
in the same line item(s) as compensation costs for the pertinent employees whereas the other components of net periodic benefit
cost must be reported separately from service cost and outside of income from operations. The amendments also allow only the
service cost component to be eligible for capitalization. The amendments require retrospective application for the income
statement presentation provisions and prospective application for the capitalization of the service cost component. However, as
a result of prior years’ restructuring activities, we no longer have any active employees continuing to accrue service cost.
37
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Therefore, the service cost provisions are not applicable to us, and we expect only changes in classification on the income
statement. We will adopt the new guidance on July 1, 2018.
In May 2014, the FASB issued new accounting guidance for the recognition of revenue and issued subsequent
clarifications of this new guidance in 2016 and 2017. The core principle of the new guidance states that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. This model is based on a control approach
rather than the current risks and rewards model. We have completed a review of selected customer contracts and evaluated the
impact of the new standard on certain common practices currently employed by us and by other manufacturers of consumer
products. We have also finalized our assessment of the impact this standard will have on our accounting policies, processes,
system requirements, internal controls and disclosures using internal resources and the assistance of a third party. We will adopt
the new guidance on July 1, 2018 using a modified retrospective approach, but we will not record a cumulative-effect
adjustment from initially applying the standard as the adoption will not have a material impact on our financial position or
results of operations. There will be additional required disclosures in the notes to the consolidated financial statements upon
adoption.
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 in 2018.
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. The guidance will be effective for us in fiscal 2020 including interim periods. 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 are currently
evaluating the impact of this guidance.
Recently Adopted Accounting Standards
In February 2018, the FASB issued new accounting guidance to allow a reclassification from accumulated other
comprehensive income/loss to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“Tax
Act”). GAAP requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax rates with the effect of
the change included in income from continuing operations even when the related income tax effects of items in accumulated
other comprehensive income/loss were originally recognized in other comprehensive income rather than in income from
continuing operations. We adopted the new guidance on a prospective basis in the quarter ended March 31, 2018 and elected to
reclassify these stranded tax effects resulting from the Tax Act from accumulated other comprehensive loss to retained earnings
in the period of adoption. These tax effects related to the impact of the change in the federal income tax rate on pension and
postretirement benefit amounts remaining in accumulated other comprehensive loss, and the reclassification resulted in a net
increase in accumulated other comprehensive loss of $1.9 million and a corresponding increase in retained earnings. Our
accounting policy is to release stranded tax effects from accumulated other comprehensive loss. As this guidance only relates to
balance sheet classification, there was no impact on the Consolidated Statements of Income.
In March 2016, the FASB issued new accounting guidance to simplify the accounting for stock-based compensation. The
amendments include changes to the accounting for share-based payment transactions, including: the inclusion of the tax
consequences related to stock-based compensation within the computation of income tax expense versus equity; the
classification of awards as either equity or liabilities; and the classification of share-based activity on the statement of cash
flows. The adoption may result in increased volatility to our quarterly and annual income tax expense and resulting net income
in future periods dependent upon, among other variables, the price of our common stock and the timing and volume of share-
based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted
stock awards. We adopted the new guidance on July 1, 2017 and elected to continue to estimate forfeitures. The adoption of this
guidance resulted in 1) the prospective recognition of windfall tax benefits and shortfall tax deficiencies in income tax expense;
2) the retrospective reclassification of windfall tax benefits on the Consolidated Statements of Cash Flows from financing
activities to operating activities; and 3) the retrospective reclassification of employee tax withholdings on the Consolidated
Statements of Cash Flows from operating activities to financing activities. There was no material impact on our consolidated
financial statements as a result of this adoption.
38
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Note 2 – Acquisition
On November 17, 2016, we acquired substantially all of the assets of Angelic Bakehouse, Inc. (“Angelic”). Angelic, a
privately owned manufacturer and marketer of premium sprouted grain bakery products, is based near Milwaukee, Wisconsin.
The purchase price of $35.5 million was funded by cash on hand and includes immaterial post-closing adjustments, which were
paid in April 2017 and July 2017, but 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 the sellers will receive an earn-out based upon
a pre-determined multiple of the defined adjusted EBITDA of Angelic for fiscal 2021. We are unable to provide a range for the
amount of this earn-out because it is based on the future adjusted EBITDA of Angelic, and the earn-out does not contain a
minimum or maximum value. See further discussion of the earn-out in Note 3. Angelic is reported in our Retail segment, and its
results of operations have been included in our consolidated financial statements from the date of acquisition.
The following table summarizes the consideration related to the acquisition and the final purchase price allocation based
on the fair value of the net assets acquired:
Consideration
Purchase price
Contingent consideration - fair value of earn-out at date of closing
Fair value of total consideration
Purchase Price Allocation
Trade receivables
Other receivables
Inventories
Other current assets
Property, plant and equipment
Goodwill (tax deductible)
Other intangible assets
Current liabilities
Net assets acquired
Note 3 – Fair Value
$
$
$
$
35,487
13,872
49,359
831
550
430
19
5,083
24,242
18,749
(545)
49,359
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants as of the measurement date. GAAP sets forth a three-level fair value
hierarchy, which prioritizes the inputs used in measuring fair value. The three levels are as follows:
Level 1 – defined as observable inputs, such as quoted market prices in active markets.
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable.
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to
develop its own assumptions.
Our financial assets and liabilities subject to the three-level fair value hierarchy consist principally of cash and
equivalents, accounts receivable, accounts payable, contingent consideration payable and defined benefit pension plan assets.
The estimated fair value of cash and equivalents, accounts receivable and accounts payable approximates their carrying value.
See Note 12 for fair value disclosures related to our defined benefit pension plan assets.
39
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Our contingent consideration, which is measured at fair value on a recurring basis, is included in Other Noncurrent
Liabilities on the Consolidated Balance Sheets. The following table summarizes our contingent consideration as of June 30:
Acquisition-related contingent consideration
Acquisition-related contingent consideration
Fair Value Measurements at June 30, 2018
Level 1
Level 2
Level 3
Total
— $
— $
17,080 $
17,080
Fair Value Measurements at June 30, 2017
Level 1
Level 2
Level 3
Total
— $
— $
15,028 $
15,028
$
$
The contingent consideration resulted from the earn-out associated with our November 17, 2016 acquisition of Angelic.
The purchase price did not include the future earn-out payment which is tied to performance-based conditions. 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 fair value of the contingent consideration was estimated using a present value
approach, which incorporates factors such as business risks and projections, to estimate an expected value. This fair value
measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the
fair value hierarchy. Using this valuation technique, the fair value of the contingent consideration was determined to be
$13.9 million at November 17, 2016.
The following table represents our Level 3 fair value measurements using significant other unobservable inputs for
acquisition-related contingent consideration:
Acquisition-related contingent consideration at beginning of year
Additions
Changes in fair value included in Selling, General and Administrative Expenses
Acquisition-related contingent consideration at end of year
2018
2017
$
$
15,028
$
—
2,052
17,080
$
—
13,872
1,156
15,028
Note 4 – Long-Term Debt
At June 30, 2018 and 2017, 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 subject to us obtaining consent of the issuing banks and certain other conditions. The Facility expires on April 8,
2021, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to LIBOR or an
alternative base rate defined in the Facility, at our option. We must also pay facility fees that are tied to our then-applicable
consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have
outstanding borrowings under the Facility, they will be classified as long-term debt.
At June 30, 2018 and 2017, we had no borrowings outstanding under the Facility. At June 30, 2018, we had $5.1 million
of standby letters of credit outstanding, which reduced the amount available for borrowing on the Facility. We paid no interest
in 2018 and 2017.
The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions.
There are two principal financial covenants: an interest expense test that requires us to maintain an interest coverage ratio not
less than 2.5 to 1 at the end of each fiscal quarter; and an indebtedness test that requires us to maintain a consolidated leverage
ratio not greater than 3 to 1 at all times. The interest coverage ratio is calculated by dividing Consolidated EBIT by
Consolidated Interest Expense, and the leverage ratio is calculated by dividing Consolidated Debt by Consolidated EBITDA.
All financial terms used in the covenant calculations are defined more specifically in the Facility.
40
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Note 5 – Commitments
We have operating leases with initial noncancelable lease terms in excess of one year covering the rental of various
facilities and equipment, which expire at various dates through fiscal year 2027. Certain of these leases contain renewal options,
some provide options to purchase during the lease term and some require contingent rentals. The future minimum rental
commitments due under these leases are summarized as follows:
2019
2020
2021
2022
2023
Thereafter
$
$
$
$
$
$
6,839
4,736
3,475
2,781
1,493
3,828
Total rent expense, including short-term cancelable leases, during the years ended June 30 is summarized as follows:
Operating leases:
Minimum rentals
Contingent rentals
Short-term cancelable leases
Total
Note 6 – Contingencies
2018
2017
2016
$
$
6,663
—
1,257
7,920
$
$
6,529
4
1,508
8,041
$
$
5,298
11
1,611
6,920
In addition to the items discussed below, at June 30, 2018, 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.
With our acquisition of Angelic, we have a contingent liability recorded for the earn-out associated with the transaction.
See further discussion in Note 3.
20% of our employees are represented under various collective bargaining contracts. The labor contract for our Milpitas,
California plant facility, which produces various sauce and dressing products, will expire on December 15, 2018. 4% of our
employees are represented under this collective bargaining contract. None of our other collective bargaining contracts will
expire within one year.
Note 7 – Goodwill and Other Intangible Assets
As described in Notes 1 and 10, we changed our reportable segments as of July 1, 2017 when our organizational structure
changed. Using a relative fair value approach, we reassigned our existing goodwill balance to the two new reporting units that
directly align with our new Retail and Foodservice reportable segments. Based on this approach, goodwill attributable to the
Retail and Foodservice segments was $119.3 million and $48.7 million, respectively, at June 30, 2018 and 2017.
41
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
The following table summarizes our identifiable other intangible assets at June 30:
Tradenames (20 to 30-year life)
Gross carrying value
Accumulated amortization
Net carrying value
Trademarks (27-year life)
Gross carrying value
Accumulated amortization
Net carrying value
Customer Relationships (10 to 15-year life)
Gross carrying value
Accumulated amortization
Net carrying value
Technology / Know-how (10-year life)
Gross carrying value
Accumulated amortization
Net carrying value
Non-compete Agreements (5-year life)
Gross carrying value
Accumulated amortization
Net carrying value
Total net carrying value
2018
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
50,321
(5,071)
45,250
370
(370)
— $
14,207
(8,283)
5,924
6,350
(1,682)
4,668
791
(457)
334
56,176
$
$
$
$
$
$
$
50,321
(3,130)
47,191
370
(241)
129
14,207
(7,160)
7,047
6,350
(1,047)
5,303
791
(299)
492
60,162
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:
Amortization expense
2018
2017
2016
$
3,986
$
3,453
$
2,905
Total annual amortization expense for each of the next five years is estimated to be as follows:
2019
2020
2021
2022
2023
Note 8 – Liabilities
Accrued liabilities at June 30 were composed of:
Compensation and employee benefits
Distribution
Other taxes
Marketing
Other
Total accrued liabilities
42
$
$
$
$
$
$
$
3,858
3,823
3,738
3,664
3,105
2017
21,864
7,711
1,266
1,197
3,232
35,270
2018
23,135
8,579
1,306
485
2,284
35,789
$
$
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:
Acquisition-related contingent consideration
Workers compensation
Deferred compensation and accrued interest
Pension benefit liability
Gross tax contingency reserve
Postretirement benefit liability
Other
Total other noncurrent liabilities
Note 9 – Income Taxes
2018
2017
$
$
17,080
12,850
4,611
1,312
1,298
926
3,561
41,638
$
$
15,028
8,492
4,968
4,344
1,241
968
3,557
38,598
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 will be 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.
The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017. SAB 118 allows for a
measurement period in which companies can either use provisional estimates for changes resulting from the Tax Act or apply
the tax laws that were in effect immediately prior to the Tax Act being enacted if estimates cannot be determined at the time of
the preparation of the financial statements until the actual impacts can be determined. We recorded an estimate of the impact of
the Tax Act within our December 31, 2017 financial statements, including the impact of items recorded within accumulated
other comprehensive loss. There were no material changes to these estimates in the six months ended June 30, 2018. We will
continue to evaluate the impacts of the Tax Act and record adjustments, as needed, including adjustments related to the filing of
our 2018 federal tax return, but do not expect material changes to the amounts recorded. In February 2018, the FASB issued
new accounting guidance to allow a reclassification from accumulated other comprehensive income/loss to retained earnings
for stranded tax effects resulting from the Tax Act. We recorded this reclassification in the quarter ended March 31, 2018. See
further discussion under the caption “Recently Adopted Accounting Standards” in Note 1.
We file a consolidated federal income tax return. Taxes based on income for the years ended June 30 have been provided
as follows:
Currently payable:
Federal
State and local
Total current provision
Deferred federal, state and local (benefit) provision
Total taxes based on income
2018
2017
2016
$
$
40,766
7,355
48,121
(9,232)
38,889
$
$
51,524
6,319
57,843
2,359
60,202
$
$
57,116
6,502
63,618
(749)
62,869
In 2018, we adopted new accounting guidance for stock-based compensation. One of the changes resulting from this new
guidance is the inclusion of the tax consequences related to stock-based compensation within the computation of income tax
expense versus equity. We adopted this provision on a prospective basis. Prior to 2018, certain tax benefits were recorded
directly to common stock, and these amounts totaled $1.1 million and $1.4 million for 2017 and 2016, respectively.
43
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:
Statutory rate
State and local income taxes
One-time benefit on re-measurement of net deferred tax liability
Domestic manufacturing deduction for qualified income
Net windfall tax benefits - stock-based compensation
ESOP dividend deduction
Other
Effective rate
2018
2017
2016
28.1%
3.0
(5.5)
(2.3)
(0.4)
(0.1)
(0.5)
22.3%
35.0%
2.4
—
(2.8)
—
(0.1)
(0.2)
34.3%
35.0%
2.3
—
(3.0)
—
(0.4)
0.2
34.1%
Our net deferred tax liability for all periods presented in the Consolidated Balance Sheets 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:
Deferred tax assets:
Employee medical and other benefits
Receivables
Inventories
Other accrued liabilities
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Goodwill
Other
Total deferred tax liabilities
Net deferred tax liability
2018
2017
$
$
$
6,407
3,992
1,112
1,029
12,540
(15,551)
(8,518)
(5,044)
(231)
(29,344)
(16,804) $
10,349
5,314
1,041
1,905
18,609
(22,188)
(14,070)
(7,092)
(466)
(43,816)
(25,207)
Prepaid federal income taxes of $3.6 million and $6.1 million were included in Other Current Assets at June 30, 2018 and
2017, respectively. Prepaid state and local income taxes of $0.9 million were included in Other Current Assets at June 30, 2018
and 2017.
Net cash payments for income taxes for each of the years ended June 30 were as follows:
Net cash payments for income taxes
2018
2017
2016
$
46,198
$
59,008
$
62,901
The gross tax contingency reserve at June 30, 2018 was $1.3 million and consisted of estimated tax liabilities of
$0.7 million and interest and penalties of $0.6 million. The unrecognized tax benefits recorded as the gross tax contingency
reserve noted in the following table for June 30, 2018 and 2017 would affect our effective tax rate, if recognized.
44
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):
Balance, beginning of year
Tax positions related to the current year:
Additions
Reductions
Tax positions related to prior years:
Additions
Reductions
Lapse of statute of limitations
Settlements
Balance, end of year
2018
2017
$
1,808
$
1,599
12
—
86
(41)
(567)
—
1,298
$
82
—
153
(26)
—
—
1,808
$
We have not classified any of the gross tax contingency reserve at June 30, 2018 in Accrued Liabilities as none of these
amounts are expected to be resolved within the next 12 months. Consequently, the entire liability of $1.3 million was included
in Other Noncurrent Liabilities. We expect that the amount of these liabilities will change within the next 12 months; however,
we do not expect the change to have a significant effect on our financial position or results of operations.
We recognize interest and penalties related to these tax liabilities in income tax expense. 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
We had accrued interest and penalties at June 30 as follows:
Accrued interest and penalties included in the gross tax contingency reserve
2018
2017
(78) $
112
2018
2017
605
$
683
$
$
We file federal and various state and local income tax returns in the United States. With limited exceptions, we are no
longer subject to examination of U.S. federal or state and local income taxes for years prior to 2015.
The American Jobs Creation Act provided a tax deduction calculated as a percentage of qualified income from
manufacturing in the United States. The deduction percentage for 2018 was 9%. In accordance with FASB guidance, this
deduction is treated as a special deduction, as opposed to a tax rate reduction and is properly reflected in the effective tax rate
table. This deduction was repealed by the Tax Act. Therefore, 2018 is the final year that we will be able to claim this deduction.
Note 10 – Business Segment Information
Effective July 1, 2017, David A. Ciesinski, our President and Chief Operating Officer, succeeded John B. Gerlach, Jr. as
CEO. As President and CEO, Mr. Ciesinski became our principal executive officer and CODM. This change resulted in
modifications to the CODM’s approach to managing the business, assessing performance and allocating resources.
Consequently, beginning on July 1, 2017, our segment reporting structure was amended to align with these changes, and our
financial results are now presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to
either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding
corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable
methodology that is consistently applied. All historical information was retroactively conformed to the current presentation.
These segment changes had no effect on previously reported consolidated net sales, operating income, net income or earnings
per share. We continue to evaluate our segments based on net sales and operating income.
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 dressing, slaw dressing and croutons. Within the frozen food section of the grocery store, we
have prominent market positions of frozen yeast rolls and garlic breads.
45
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. Most of the products we sell in the Foodservice segment are custom-formulated
and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. The majority of our Foodservice sales
are products sold under private label to restaurants. We also manufacture and sell various branded Foodservice products.
Within our organization, our procurement, manufacturing, warehousing and distribution activities are substantially
integrated across our operations in order to maximize efficiency and productivity, as many of our products are similar between
the two segments. Consequently, we do not prepare, and the CODM does not review, separate balance sheets for the reportable
segments. As such, our external reporting does not include the presentation of identifiable assets, capital expenditures or
depreciation and amortization by reportable segment.
The following table sets forth net sales contributed by each class of similar products in each of the years ended June 30:
Retail
Frozen breads
Refrigerated dressings, dips and other
Shelf-stable dressings and croutons
Total Retail net sales
Foodservice
Dressings and sauces
Frozen breads and other
Total Foodservice net sales
Total net sales
2018
2017
2016
$
$
$
$
$
252,186
226,276
171,772
650,234
430,944
141,747
572,691
1,222,925
$
$
$
$
$
253,965
221,422
166,030
641,417
427,017
133,408
560,425
1,201,842
$
$
$
$
$
240,799
212,640
165,945
619,384
435,747
135,978
571,725
1,191,109
46
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:
Net Sales (1) (2)
Retail
Foodservice
Total
Operating Income (2)
Retail
Foodservice
Multiemployer Pension Settlement and Related Costs
Corporate Expenses (3)
Total
Identifiable Assets (1) (4)
Retail & Foodservice (5)
Corporate
Total
Capital Expenditures
Retail & Foodservice (5)
Corporate
Total
Depreciation and Amortization
Retail & Foodservice (5)
Corporate
Total
2018
2017
2016
$
$
$
$
$
$
$
$
$
$
650,234
572,691
1,222,925
126,391
58,432
—
(12,716)
172,107
589,509
214,982
804,491
31,025
—
31,025
26,685
211
26,896
$
$
$
$
$
$
$
$
$
$
641,417
560,425
1,201,842
138,470
66,216
(17,635)
(12,303)
174,748
577,509
138,896
716,405
26,031
974
27,005
24,752
154
24,906
$
$
$
$
$
$
$
$
$
$
619,384
571,725
1,191,109
134,900
61,692
—
(12,022)
184,570
515,553
119,179
634,732
16,652
19
16,671
24,001
146
24,147
(1) Net sales and long-lived assets are predominately domestic.
(2) All intercompany transactions have been eliminated.
(3) Our Corporate Expenses include various expenses of a general corporate nature, as well as costs related to certain divested
or closed nonfood operations, including the expense associated with retirement plans applicable to those closed units. By
their very nature, these costs have not been allocated to the Retail and Foodservice segments.
(4) 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 Corporate identifiable
assets from June 30, 2017 to June 30, 2018 was primarily due to the increase in cash and equivalents. The increase in Retail
and Foodservice identifiable assets from June 30, 2016 to June 30, 2017 was due to the acquisition of Angelic.
(5) As discussed above, we do not present identifiable assets, capital expenditures or depreciation and amortization by
reportable segment.
Retail segment net sales attributable to Walmart Inc. (“Walmart”) and Foodservice segment net sales attributable to
McLane Company, Inc. (“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., for each of the years
ended June 30 were as follows:
Net sales to Walmart
As a percentage of consolidated net sales
Net sales to McLane
As a percentage of consolidated net sales
$
$
2018
209,860
17%
185,226
15%
$
$
2017
201,484
17%
198,153
16%
$
$
2016
189,417
16%
232,241
19%
47
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Accounts receivable attributable to Walmart and McLane at June 30 as a percentage of consolidated accounts receivable
were as follows:
Walmart
McLane
2018
2017
28%
11%
26%
12%
Note 11 – Stock-Based Compensation
Our shareholders previously approved the adoption of and subsequent amendments to the Lancaster Colony Corporation
2005 Stock Plan (the “2005 Plan”). The 2005 Plan reserved 2,000,000 common shares for issuance to our employees and
directors. As the 2005 Plan expired in May 2015, we obtained shareholder approval of the Lancaster Colony Corporation 2015
Omnibus Incentive Plan (the “2015 Plan”) at our November 2015 Annual Meeting of Shareholders. The 2015 Plan did not
affect any currently outstanding equity awards granted under the 2005 Plan. The 2015 Plan reserved 1,500,000 common shares
for issuance to our employees and directors. All awards granted under these plans will be exercisable at prices not less than fair
market value as of the date of the grant. The vesting period for awards granted under these plans varies as to the type of award
granted, but generally these awards have a maximum term of five years.
We adopted new accounting guidance for stock-based compensation on July 1, 2017. See further discussion in Note 1. We
recognize compensation expense over the requisite service period of the grant. 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.
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. Our policy is to issue shares upon SSSARs exercise from new shares that had been previously authorized.
In 2018, 2017 and 2016, we granted SSSARs to various employees under the terms of the plans. The following table
summarizes information relating to these grants:
SSSARs granted
Weighted average grant date fair value per right
Weighted average assumptions used in fair value calculations:
2018
2017
2016
185
17.85
$
166
17.59
$
240
12.23
$
Risk-free interest rate
Dividend yield
Volatility factor of the expected market price of our common stock
Expected life in years
2.39%
1.98%
22.57%
2.85
1.36%
1.64%
22.41%
2.47
0.86%
1.93%
20.88%
2.69
For these grants, the volatility factor was estimated based on actual historical volatility of our stock for a time period
equal to the term of the SSSARs. The expected average life was determined based on historical exercise experience for this type
of grant. The SSSARs we grant 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.
The following table summarizes our SSSARs compensation expense and tax benefits recorded for each of the years ended
June 30:
Compensation expense
Tax benefits
Intrinsic value of exercises
Excess tax benefits
2018
2017
2016
$
$
$
$
2,455
690
2,381
669
$
$
$
$
1,882
659
2,281
798
$
$
$
$
1,472
515
3,788
1,341
48
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:
Fair value of vested rights
2018
2017
2016
$
2,330
$
1,916
$
1,192
The following table summarizes the activity relating to SSSARs granted under the plans for the year ended June 30,
2018:
Number of
Rights
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life in
Years
Aggregate
Intrinsic
Value
Outstanding at beginning of year
Exercised
Granted
Forfeited
Outstanding at end of year
Exercisable and vested at end of year
Vested and expected to vest at end of year
521
$
(105) $
185
$
(15) $
$
586
$
225
$
562
109.70
93.67
121.09
115.85
115.99
107.41
116.31
3.42 $
$
2.54
$
3.42
13,156
6,986
12,423
The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2018:
Outstanding
Exercisable
Weighted Average
Grant Years
2018
2017
2016
2015
2014
Range of
Exercise Prices
$117.76-$124.29
$121.54-$138.96
$101.70-$112.62
$91.13
$89.29
Number
Outstanding
181
159
172
63
11
Remaining
Contractual
Life in
Years
4.65
3.67
2.70
1.65
0.66
Exercise
Price
$121.09
$134.01
$104.73
$91.13
$89.29
Number
Exercisable
—
54
97
63
11
Weighted
Average
Exercise
Price
$—
$134.03
$105.26
$91.13
$89.29
At June 30, 2018, there was $4.7 million of unrecognized compensation expense related to SSSARs that we will
recognize over a weighted-average period of 2 years.
Restricted Stock
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 2018, 2017 and 2016, we granted shares of restricted stock to various employees under the terms of the plans. The
following table summarizes information relating to these grants:
Employees
Restricted stock granted
Grant date fair value
Weighted average grant date fair value per award
2018
2017
2016
27
3,218
121.09
$
$
12
1,591
134.07
$
$
28
2,923
102.89
$
$
The restricted stock under these employee grants vests on the third anniversary of the grant date. Under the terms of our
grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status.
49
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
In 2018, 2017 and 2016, we also granted shares of restricted stock to our nonemployee directors under the terms of the
plans. The following table summarizes information relating to each of these grants:
Nonemployee directors
Restricted stock granted
Grant date fair value
Weighted average grant date fair value per award
2018
2017
2016
6
759
123.11
$
$
5
759
138.96
$
$
6
639
112.05
$
$
The 2018 grant vests over a one-year period, and all of these shares 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:
Compensation expense
Tax benefits
Excess tax benefits
2018
2017
2016
$
$
$
2,584
726
92
$
$
$
2,366
828
325
$
$
$
1,854
649
76
The total fair values of restricted stock vested for each of the years ended June 30 were as follows:
Fair value of vested shares
2018
2017
2016
$
1,508
$
2,420
$
1,124
The following table summarizes the activity relating to restricted stock granted under the plans for the year ended
June 30, 2018:
Unvested restricted stock at beginning of year
Granted
Vested
Forfeited
Unvested restricted stock at end of year
Number of
Shares
Weighted
Average Grant
Date Fair Value
111.87
52
$
121.47
$
33
(13) $
110.60
(4) $
107.86
116.99
$
68
At June 30, 2018, there was $4.2 million of unrecognized compensation expense related to restricted stock that we will
recognize over a weighted-average period of 2 years.
Note 12 – Pension Benefits
Defined Benefit Pension Plans
We sponsor multiple defined benefit pension plans that covered certain workers under collective bargaining contracts.
However, as a result of prior-years’ restructuring activities, for all periods presented, we no longer have any active employees
continuing to accrue service cost or otherwise eligible to receive plan benefits. Benefits being paid under the plans are primarily
based on negotiated rates and years of service. We contribute to these plans at least the minimum amount required by
regulation.
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.
The actuarial present value of benefit obligations summarized below was based on the following assumption:
Weighted-average assumption as of June 30
Discount rate
2018
2017
4.07%
3.68%
50
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:
Discount rate
Expected long-term return on plan assets
2018
2017
2016
3.68%
7.00%
3.39%
7.00%
4.12%
7.00%
In determining the long-term expected return on plan assets, we consider our related investment guidelines, our
expectations of long-term rates of return by asset category, our target asset allocation weighting and historical rates of return
and volatility for equity and fixed income investments. 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. 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.
The target and actual asset allocations for our plans at June 30 by asset category were as follows:
Cash and equivalents
Equity securities
Fixed income
Total
Target Percentage
of Plan Assets at
June 30
2018
0%-10%
30%-70%
30%-70%
Actual Percentage of Plan Assets
2018
2017
5%
51
44
100%
3%
49
48
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.
We categorize our plan assets within a three-level fair value hierarchy, as previously defined in Note 3. The following
table summarizes the fair values and levels, within the fair value hierarchy, for our plan assets at June 30:
Asset Category
Cash and equivalents
Money market funds
U.S. government obligations
Municipal obligations
Corporate obligations
Mortgage obligations
Mutual funds fixed income
Mutual funds equity
Total
Asset Category
Cash and equivalents
Money market funds
U.S. government obligations
Municipal obligations
Corporate obligations
Mortgage obligations
Mutual funds fixed income
Mutual funds equity
Total
Level 1
Level 2
Level 3
Total
June 30, 2018
$
$
$
$
$
$
$
$
547
1,331
—
—
—
—
7,044
18,881
27,803
Level 1
472
599
—
—
—
—
8,109
17,951
27,131
51
— $
—
3,344
36
3,176
2,354
—
—
8,910
$
— $
—
—
—
—
—
—
—
— $
547
1,331
3,344
36
3,176
2,354
7,044
18,881
36,713
June 30, 2017
Level 2
Level 3
Total
— $
—
3,598
36
3,805
2,199
—
—
9,638
$
— $
—
—
—
—
—
—
—
— $
472
599
3,598
36
3,805
2,199
8,109
17,951
36,769
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. 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:
Change in benefit obligation
Benefit obligation at beginning of year
Interest cost
Actuarial gain
Benefits paid
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Reconciliation of funded status
Net accrued benefit cost
Amounts recognized in the Consolidated Balance Sheets consist of
Prepaid benefit cost (Other Noncurrent Assets)
Accrued benefit liability (Other Noncurrent Liabilities)
Net amount recognized
Accumulated benefit obligation
2018
2017
40,941
1,463
(3,070)
(2,442)
36,892
$
$
44,152
1,457
(2,297)
(2,371)
40,941
2018
2017
36,769
$
2,366
20
(2,442)
36,713
$
35,682
3,458
—
(2,371)
36,769
2018
2017
(179) $
(4,172)
2018
2017
$
1,133
(1,312)
(179) $
172
(4,344)
(4,172)
2018
2017
36,892
$
40,941
$
$
$
$
$
$
$
$
The following table discloses, in the aggregate, those plans with benefit obligations in excess of the fair value of plan
assets at the June 30 measurement date:
Benefit obligations
Fair value of plan assets at end of year
2018
2017
$
$
6,012
4,700
$
$
38,236
33,892
52
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Amounts recognized in accumulated other comprehensive loss at June 30 were as follows:
Net actuarial loss
Income taxes
Total
2018
2017
$
$
12,821
(2,996)
9,825
$
$
16,380
(6,052)
10,328
The amount in accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit
cost during the next fiscal year is as follows:
Net actuarial loss
2019
$
447
The following table summarizes the components of net periodic benefit income for our pension plans at June 30:
Components of net periodic benefit income
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Settlement charge
Net periodic benefit income
2018
2017
2016
$
$
$
1,463
(2,491)
572
42
(414) $
$
1,457
(2,416)
715
—
(244) $
1,685
(2,520)
539
—
(296)
We have not yet finalized our anticipated funding level for 2019, but based on initial estimates, we do not expect our 2019
contributions to our pension plans to be material.
Benefit payments estimated for future years are as follows:
2019
2020
2021
2022
2023
2024 - 2028
$
$
$
$
$
$
2,364
2,383
2,389
2,401
2,396
12,057
Note 13 – Defined Contribution and Other Employee Plans
Company-Sponsored Defined Contribution Plans
We sponsored four defined contribution plans established pursuant to Section 401(k) of the Internal Revenue Code during
2018. Contributions are determined under various formulas, and we contributed to two of these plans in 2018. Costs related to
such plans for each of the years ended June 30 were as follows:
Costs related to company-sponsored defined contribution plans
$
1,352
$
1,111
$
992
2018
2017
2016
Multiemployer Plans
In the three years ended June 30, 2018, certain of our subsidiaries participated in multiemployer plans that provide
pension benefits to retiree workers under collective bargaining contracts at such locations. These plans generally provide for
retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining contract, based
on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating in these
multiemployer plans are different from single-employer plans in the following aspects: (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.
53
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
In 2017 the employees at our Bedford Heights, Ohio plant voted to ratify a new collective bargaining agreement. Among
other terms, the new agreement provided for our complete withdrawal from the underfunded multiemployer Cleveland Bakers
and Teamsters Pension Fund. As settlement of our portion of underfunded pension benefits of the multiemployer plan, we paid
$17.0 million in 2017 for a full withdrawal from the plan.
Our participation in multiemployer pension plans for the three years ended June 30, 2018 is reflected in the following
table. All information in the table is as of December 31 of the relevant year, except contributions which are based on our fiscal
year, or except as otherwise noted. The EIN-PN column provides the Employer Identification Number (“EIN”) and the Plan
Number (“PN”). The pension protection act zone status is based on information that we received from the plan. Among other
factors, generally, plans in critical status (red zone) are less than 65 percent funded, plans in endangered or seriously
endangered status (yellow zone or orange zone, respectively) are less than 80 percent funded, and plans at least 80 percent
funded are said to be in the green zone. The FIP/RP status pending/implemented column indicates plans for which a funding
improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each
plan. Except as noted below regarding contributions to the Cleveland Bakers and Teamsters Pension Fund, there have been no
significant changes that affect the comparability of 2018, 2017 or 2016 contributions.
Pension Protection
Act Zone Status
Fiscal Year
Contributions (1)
EIN/PN
2017
2016
FIP/RP Status
Pending /
Implemented
2018
2017
2016
Surcharge
Imposed
Expiration
Date of
Collective
Bargaining
Agreement
34-0904419-
001
Red
12/31/16
Red
12/31/15
Yes,
Implemented
$ — $ 2,098
$ 1,605
No
n/a
91-6145047-
001
Green
12/31/16
Green
12/31/15
No
356
409
420
No
12/15/2018
$
356
$ 2,507
$ 2,025
Plan Name
Cleveland Bakers and
Teamsters Pension
Fund (2)
Western Conference
of Teamsters Pension
Plan
Total contributions to
multiemployer plans
(1) Contributions do not include payments related to multiemployer pension withdrawals/settlements.
(2) As discussed above, we withdrew from this plan in 2017 and did not make any contributions in 2018. Our 2017
contributions included amounts related to a new collective bargaining contract.
Our contributions to the Cleveland Bakers and Teamsters Pension Fund exceeded 5% of the total contributions to the plan
in the plan year ended December 31, 2016.
Under these two multiemployer plans, we also contribute amounts for health and welfare benefits that are defined by each
plan. These benefits are not vested. The contributions required by our participation in these plans for each of the years ended
June 30 were as follows:
Multiemployer health and welfare plan contributions
$
3,167
$
3,570
$
3,559
2018
2017
2016
We also began to make non-elective contributions for the union employees at our Bedford Heights, Ohio plant into a
union-sponsored multiemployer 401(k) plan following our withdrawal from the underfunded Cleveland Bakers and Teamsters
Pension Fund in 2017. Our contributions totaled $0.7 million and $0.8 million in 2018 and 2017, respectively, including
$0.6 million to initially fund this 401(k) plan in 2017.
Deferred Compensation Plan
We offer a deferred compensation plan for select employees who may elect to defer a certain percentage of annual
compensation. We do not match any contributions. Each participant earns interest based upon the prime rate of interest,
adjusted semi-annually, on their respective deferred compensation balance. Participants are paid out upon retirement or
termination in accordance with their annual election.
The following table summarizes our liability for total deferred compensation and accrued interest at June 30:
Liability for deferred compensation and accrued interest
2018
2017
$
4,611
$
4,968
54
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share data)
Deferred compensation expense for each of the years ended June 30 was as follows:
Deferred compensation expense
2018
2017
2016
$
210
$
170
$
151
Note 14 – Selected Quarterly Financial Data (Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
2018
Net Sales
Gross Profit
Net Income (1)
Diluted Net Income Per Common Share (1) (3)
$ 298,916
75,477
$
29,386
$
$ 319,665
83,941
$
45,920
$
$ 296,174
67,913
$
27,621
$
$ 308,170
76,182
$
32,387
$
$ 1,222,925
303,513
$
135,314
$
$
1.07
$
1.67
$
1.00
$
1.18
$
4.92
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
2017
Net Sales
Gross Profit
Net Income (2)
Diluted Net Income Per Common Share (2) (3)
$ 291,361
80,634
$
33,400
$
$ 326,773
93,739
$
38,956
$
$ 293,834
71,905
$
14,471
$
$ 289,874
72,486
$
28,487
$
$ 1,201,842
318,764
$
115,314
$
$
1.22
$
1.42
$
0.53
$
1.04
$
4.20
(1) Included in the second quarter net income was the one-time preliminary deferred tax benefit of $8.9 million, or
approximately $0.32 per diluted share, resulting from the Tax Act. The fiscal year impact was $9.5 million, or
approximately $0.35 per diluted share.
(2) Included in the third quarter and fiscal year net income was expense of $11.5 million, net of taxes, or approximately $0.42
per diluted share, related to a multiemployer pension settlement and other benefit-related costs.
(3) 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.
55
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well-designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management must apply its judgment in
evaluating the cost–benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K.
Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of June 30, 2018.
REPORT OF MANAGEMENT
Internal control over financial reporting refers to the process designed by, or under the supervision of, our management,
including our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and
procedures that:
1.
2.
3.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of management and our directors; and
Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is only possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Management has used the framework set forth in the report entitled Internal Control – Integrated Framework (2013) published
by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission to evaluate the effectiveness of our
internal control over financial reporting. Management has concluded that our internal control over financial reporting was
effective as of the end of the most recent year.
Our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered
public accounting firm. Their opinion, as to the effectiveness of our internal control over financial reporting, is stated in their
report, which is set forth on the following page.
There has been no change in our internal control over financial reporting during our most recent quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Lancaster Colony Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Lancaster Colony Corporation and subsidiaries (the
“Company”) as of June 30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of June 30, 2018, based on criteria established in
Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2018, of the Company and our
report dated August 27, 2018, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of
Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Columbus, Ohio
August 27, 2018
57
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information regarding our directors and executive officers, including the identification of the Audit Committee and
the Audit Committee financial expert, is incorporated by reference to the information contained in our definitive proxy
statement for our November 2018 Annual Meeting of Shareholders (“2018 Proxy Statement”) to be filed with the SEC pursuant
to Regulation 14A promulgated under the Exchange Act.
The information regarding Section 16(a) beneficial ownership reporting compliance is incorporated by reference to the
material under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2018 Proxy Statement.
The information regarding changes, if any, in procedures by which shareholders may recommend nominees to our Board
of Directors is incorporated by reference to the information contained in our 2018 Proxy Statement.
The information regarding our Code of Business Ethics is incorporated by reference to the information contained in our
2018 Proxy Statement.
Item 11. Executive Compensation
The information regarding executive officer and director compensation is incorporated by reference to the information
contained in our 2018 Proxy Statement.
The information regarding Compensation Committee interlocks and insider participation and the Compensation
Committee Report is incorporated by reference to the information contained in our 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding security ownership of certain beneficial owners and management and securities authorized for
issuance under our equity compensation plans is incorporated by reference to the information contained in our 2018 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding certain relationships and related transactions and director independence is incorporated by
reference to the information contained in our 2018 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information regarding fees paid to and services provided by our independent registered public accounting firm during the
fiscal years ended June 30, 2018 and 2017 and the pre-approval policies and procedures of the Audit Committee is incorporated
by reference to the information contained in our 2018 Proxy Statement.
58
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Financial Statements. The following consolidated financial statements as of June 30, 2018 and 2017 and for each
of the three years in the period ended June 30, 2018, together with the report thereon of Deloitte & Touche LLP dated
August 27, 2018, are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2018 and 2017
Consolidated Statements of Income for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules. Supplemental schedules not included with the additional financial data have been
omitted because they are not applicable or the related amounts are immaterial for all periods presented.
(a) (3) Exhibits Required by Item 601 of Regulation S-K and Item 15(b). See Index to Exhibits.
59
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LANCASTER COLONY CORPORATION
(Registrant)
By:
/s/ DAVID A. CIESINSKI
David A. Ciesinski
President, Chief Executive Officer
and Director
Date:
August 27, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
/s/ DAVID A. CIESINSKI
David A. Ciesinski
/s/ JOHN B. GERLACH, JR.
John B. Gerlach, Jr.
/s/ DOUGLAS A. FELL
Douglas A. Fell
/s/ JAMES B. BACHMANN
James B. Bachmann
/s/ NEELI BENDAPUDI
Neeli Bendapudi
/s/ WILLIAM H. CARTER
William H. Carter
/s/ KENNETH L. COOKE
Kenneth L. Cooke
/s/ ROBERT L. FOX
Robert L. Fox
/s/ ALAN F. HARRIS
Alan F. Harris
/s/ ROBERT P. OSTRYNIEC
Robert P. Ostryniec
/s/ ZUHEIR SOFIA
Zuheir Sofia
Title
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Executive Chairman of the Board
and Director
Vice President, Assistant Secretary
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
60
Date
August 27, 2018
August 27, 2018
August 27, 2018
August 22, 2018
August 22, 2018
August 22, 2018
August 22, 2018
August 22, 2018
August 22, 2018
August 22, 2018
August 22, 2018
LANCASTER COLONY CORPORATION AND SUBSIDIARIES
FORM 10-K
JUNE 30, 2018
INDEX TO EXHIBITS
Exhibit
Number
3.1
3.2
4.1*
4.2
10.1
10.2(a)
10.3(a)
10.4(a)
10.5(a)
10.6(a)
10.7(a)
10.8(a)
10.9(a)
10.10(a)
10.11(a)
10.12(a)
10.13(a)
Description
Certificate of Amendment to the Amended and Restated Articles of Incorporation of Lancaster Colony
Corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (000-04065), filed
February 3, 2017).
Amended and Restated Regulations of Lancaster Colony Corporation, dated as of April 18, 2016 (incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K (000-04065), filed April 19, 2016).
Specimen Certificate of Common Stock.
Description of Common Stock (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K
(000-04065), filed October 29, 2015).
Credit Agreement, dated as of April 8, 2016, among Lancaster Colony Corporation, the Lenders, The
Huntington National Bank as Syndication Agent and JPMorgan Chase Bank, N.A. as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed April 11,
2016).
Lancaster Colony Corporation Executive Employee Deferred Compensation Plan (incorporated by reference to
Exhibit 10.9 to the Annual Report on Form 10-K (000-04065), filed September 26, 2000).
2004 Amendment to Lancaster Colony Corporation Executive Employee Deferred Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed January 3,
2005).
Lancaster Colony Corporation 2005 Executive Employee Deferred Compensation Plan (incorporated by
reference to Exhibit 99.2 to the Current Report on Form 8-K (000-04065), filed February 25, 2005).
Lancaster Colony Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Appendix A to the
Company’s Definitive Proxy Statement (000-04065), filed October 9, 2015).
Lancaster Colony Corporation Amended and Restated 2005 Stock Plan (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed November 19, 2010).
Form of Restricted Stock Award Agreement for Directors under the Lancaster Colony Corporation 2015
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K
(000-04065), filed November 17, 2015).
Form of Stock Appreciation Rights Agreement for Employees and Consultants under the Lancaster Colony
Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q (000-04065), filed May 1, 2018).
Form of Restricted Stock Award Agreement for Employees and Consultants under the Lancaster Colony
Corporation 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q (000-04065), filed May 1, 2018).
Description of Executive Bonus Arrangements (incorporated by reference to Exhibit 10.9 to the Annual Report
on Form 10-K (000-04065), filed September 10, 2004).
Employment Agreement, dated April 18, 2016, between Lancaster Colony Corporation and David A. Ciesinski
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (000-04065), filed April 19,
2016).
First Amendment to Employment Agreement, dated October 27, 2016, between Lancaster Colony Corporation
and David A. Ciesinski (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q
(000-04065), filed October 31, 2016).
Lancaster Colony Corporation Form of Change in Control Agreement (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q (000-04065), filed October 31, 2016).
61
Exhibit
Number
21*
23*
31.1*
31.2*
32**
Significant Subsidiaries of Registrant.
Consent of Independent Registered Public Accounting Firm.
Description
Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
(a)
*
**
Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any
Executive Officer participates.
Filed herewith
Furnished herewith
62
This page intentionally left blank
This page intentionally left blank
This page intentionally left blank
FOODSERV ICE
Lancaster Colony is a proud supplier to 17 of the top 25 restaurant companies in the U.S. with a diverse array of food products
including salad dressings, entrée and dipping sauces, frozen breads and rolls, and frozen pasta.
Our research and development team works closely with our foodservice customers to ideate, develop and launch deliciously creative
products that bring unique value to both core menus and limited time promotional offerings. Our foodservice products encompass a
fresh ingredient focus, including refrigerated dressings made with canola oil and sea salt with no preservatives, artificial colors or
artificial flavors. This past year, under our Marzetti® Simply Dressed® label, we launched a new eight-flavor line of dressings designed
specifically for salad bars featuring convenient packaging in 32-ounce bottles with an easy-to-pour spout.
Bold Blends® Sauce Cup
Marzetti® Dressing Cup
Marzetti® Croutons Bag
Marzetti® Dressing Packets
OU R FAMILY OF BRANDS
®
380 Polaris Parkway, Suite 400
Westerville, Ohio 43082
www.lancastercolony.com