Our fiscal year begins onJuly 1 and ends onJune 30 . Unless otherwise noted, references to "year" pertain to our fiscal year; for example, 2021 refers to fiscal 2021, which is the period fromJuly 1, 2020 toJune 30, 2021 . The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto, all included elsewhere in this report, and our 2020 Annual Report on Form 10-K. The forward-looking statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements due to these factors. For more information, see the section below entitled "Forward-Looking Statements." OVERVIEW Business OverviewLancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels. Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied. Our Chief Operating Decision Maker ("CODM"), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that have historically been part of the indirect costs allocated to our two reportable segments. This review was completed as part of our preparation for our upcoming enterprise resource planning system ("ERP") implementation. As a result of this review, our CODM identified certain support functions that would be more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources. These changes were effectiveJuly 1, 2020 . All historical information has been retroactively conformed to the current presentation. These changes had no effect on previously reported consolidated net sales, operating income, net income or earnings per share. Over 95% of our products are sold inthe 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 ofthe United States . Our business has the potential to achieve future growth in sales and profitability due to attributes such as: •leading Retail market positions in several product categories with a high-quality perception; •recognized innovation in Retail products; •a broad customer base in both Retail and Foodservice accounts; •well-regarded culinary expertise among Foodservice customers; •recognized leadership in Foodservice product development; •experience in integrating complementary business acquisitions; and •historically strong cash flow generation that supports growth opportunities. Our goal is to grow both Retail and Foodservice segment sales over time by: •introducing new products and expanding distribution; •leveraging the strength of our Retail brands to increase current product sales; •expanding Retail growth through strategic licensing agreements; •continuing to rely upon the strength of our reputation in Foodservice product development and quality; and •acquiring complementary businesses. With respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include a significant capacity expansion project for our Sister Schubert's frozen dinner roll facility inHorse Cave, Kentucky that was completed inJanuary 2020 ; a new R&D center that was completed near the end of 2019; and the establishment of a Transformation Program Office in 2019 that will serve to coordinate our various capital and integration efforts, including our ERP project and related initiatives, Project Ascent, that is now underway. The ERP implementation commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Post implementation, Project Ascent will evolve into an on-going Center of Excellence ("COE") that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards. Most of the on-going COE costs are expected to consist of annual software maintenance and support, consulting and professional fees and wages and benefits. 16
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We also 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. RECENT EVENTS A novel strain of coronavirus ("COVID-19") was first identified inWuhan, China inDecember 2019 . OnMarch 11, 2020 , theWorld Health Organization designated COVID-19 as a global pandemic. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. In theU.S. , state and local governments recommended or mandated actions to slow the transmission of COVID-19. These measures included limitations on public gatherings, social distancing requirements, travel restrictions, closures of bars and dine-in restaurants, stay-at-home orders, quarantines and restrictions that prohibited many non-essential employees from going to work. We have two major priorities while navigating through this period of volatility and uncertainty: 1.to ensure the health, safety and welfare of our employees; and 2.to continue to play our part in the vital food supply chain by adequately supplying our customers while maintaining the financial strength of our business. With respect to our efforts to ensure the health, safety and welfare of our employees, we are complying with all guidelines issued by theCenters for Disease Control and Prevention as well as state and local health departments. We have also engaged a pulmonology and critical care physician to advise us on our employee safety protocols. Based on the advice of these experts, we have put in place a range of safety modifications and guidelines in our factories, distribution centers and offices to ensure that we can operate safely, including but not limited to: •conducting employee temperature checks prior to entering our production facilities; •conducting extensive cleaning and sanitation of workstations and common areas before, during, and after each shift; •employing social distancing guidelines and modifications at workspaces and in break areas; •staggering the timing of shift changes and breaks; •relaxing attendance requirements and enhancing our paid leave policy; •implementing quarantine protocols in the event of confirmed or suspected cases of COVID-19; •establishing business travel restrictions; and •limiting capacity at office locations or working from home whenever possible. InMarch 2020 , we also began providing temporary incentive pay compensation ("hero pay") to our front-line employees. With respect to our second priority, as of the date of this filing, there has been no material adverse change in our ability to manufacture and distribute our products. We have not experienced any significant disruptions to our shipping or warehousing operations or sourcing of raw materials. We have also secured additional second-sourcing options as needed to help limit the risk of supply disruptions. We continue to monitor the COVID-19 situation and related guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plans. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future. However, COVID-19 could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to higher-than-normal inventory levels, revised payment terms with certain of our customers, additional reserves for inventory and receivables, and higher plant operating costs. The effects of COVID-19, including changes in consumer purchasing habits and actions undertaken in theU.S. to attempt to control the spread of COVID-19, most notably the restriction of restaurant dine-in purchases, have continued to negatively impact the operating results of our Foodservice segment. Our Foodservice segment net sales for the six months endedDecember 31, 2020 declined 9% compared to the prior year. With respect to our Retail segment, the impact of COVID-19 contributed to higher sales during the six months endedDecember 31, 2020 as consumer demand in the retail channel remained elevated. We continue to operate from a position of financial strength and believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to our access to capital under our unsecured revolving credit facility, should be adequate to meet our liquidity needs over the next 12 months. We have placed a greater emphasis on tracking the financial strength of our customers and suppliers and taking actions, where determined necessary, to limit our financial exposure and operational risks. Additional details regarding our financial strength are provided in the "Financial Condition" section below. 17
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