Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed 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” and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and SEC Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto contained in our 2016 Annual Report on Form 10-K. Unless otherwise noted, the term “year” and references to a particular year pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2017 refers to fiscal 2017, which is the period from July 1, 2016 to June 30, 2017.

Subsequent Event

On January 21, 2017 the employees at our Bedford Heights, Ohio plant voted to ratify a new collective bargaining agreement to replace the agreement that expired on April 30, 2016. The new collective bargaining agreement will expire on April 30, 2020. Among other terms, the new agreement provides for our complete withdrawal from the Cleveland Bakers and Teamsters Pension Fund, a multiemployer pension fund. In lieu of contributions to the pension fund, we will make non-elective contributions for the employees at the Bedford Heights, Ohio plant into a union-sponsored 401(k) plan. We have agreed to initially fund the new 401(k) plan and pay a withdrawal liability as settlement of our portion of underfunded pension benefits of the multiemployer plan. The recording of these charges is predicated upon when the liability is probable in occurrence. Due to the fact that the new collective bargaining agreement was contingent upon ratification by the employees, the probability of occurrence was not satisfied until the vote on January 21, 2017. Therefore, we will record a one-time charge of $17.7 million for the multiemployer pension settlement and other benefit-related costs in the quarter ended March 31, 2017.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, except for those acquired as part of a business combination, which are stated at fair value at the time of purchase. Purchases of property, plant and equipment included in Accounts Payable and excluded from the property additions and the change in accounts payable in the Condensed Consolidated Statements of Cash Flows were as follows:



	December 31,
	2016		2015
Construction in progress in Accounts Payable	$	1,298	$	476

Accrued Distribution

Accrued distribution costs included in Accrued Liabilities were $7.1 million and $4.5 million at December 31, 2016 and June 30, 2016, respectively.

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.

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



	Three Months Ended December 31,						Six Months Ended December 31,
	2016			2015			2016			2015
Net income	$	38,956		$	34,511		$	72,356		$	62,139
Net income available to participating securities	(77		)	(177		)	(142		)	(192		)
Net income available to common shareholders	$	38,879		$	34,334		$	72,214		$	61,947

Weighted average common shares outstanding – basic	27,366			27,328			27,364			27,324
Incremental share effect from:
Nonparticipating restricted stock	3			3			4			4
Stock-settled stock appreciation rights	72			43			67			31
Weighted average common shares outstanding – diluted	27,441			27,374			27,435			27,359

Net income per common share – basic	$	1.42		$	1.26		$	2.64		$	2.27
Net income per common share – diluted	$	1.42		$	1.25		$	2.63		$	2.26

Accumulated Other Comprehensive Loss

The following table presents the amounts reclassified out of accumulated other comprehensive loss by component:



	Three Months Ended December 31,						Six Months Ended December 31,
	2016			2015			2016			2015
Accumulated other comprehensive loss at beginning of period	$	(11,272	)	$	(9,976	)	$	(11,350	)	$	(10,057	)
Defined Benefit Pension Plan Items:
Amortization of unrecognized net loss	178			135			357			270
Postretirement Benefit Plan Items:
Prior service credit arising during the period	—			2,038			—			2,038
Amortization of unrecognized net gain	(10		)	(8		)	(19		)	(12		)
Amortization of prior service credit	(45		)	(31		)	(90		)	(32		)
Total other comprehensive income, before tax	123			2,134			248			2,264
Total tax expense	(45		)	(789		)	(92		)	(838		)
Other comprehensive income, net of tax	78			1,345			156			1,426
Accumulated other comprehensive loss at end of period	$	(11,194	)	$	(8,631	)	$	(11,194	)	$	(8,631	)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our 2016 Annual Report on Form 10-K.

Recently Issued Accounting Standards

In March 2016, the Financial Accounting Standards Board (“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 income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance will be effective for us in fiscal 2018 including interim periods. The transition method that will be applied on adoption varies for each of the amendments. We are currently evaluating the impact of this guidance.

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 is 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. The new guidance would also require expanded disclosures. Since we do not plan to early adopt this standard, the guidance will be effective for us in fiscal 2019 including interim periods and will require either retrospective application to each prior period presented or modified retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. We are currently evaluating the impact of this guidance.

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. The updated 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 updated 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 using a modified retrospective approach. We are currently evaluating the impact of this guidance.

Recently Adopted Accounting Standards

In July 2015, the FASB issued new accounting guidance which requires entities to measure most inventory “at the lower of cost or net realizable value,” thereby simplifying current guidance. Under current guidance an entity must measure inventory at the lower of cost or market, where market is defined as one of three different measures, one of which is net realizable value. We adopted this guidance effective July 1, 2016 on a prospective basis, and it did not have a material impact on our condensed consolidated financial statements.

In August 2016, the FASB issued new accounting guidance to reduce diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows. Current guidance is either unclear or does not include specific requirements for the classification of these transactions. The majority of the new provisions are not currently applicable to us, and those that are applicable are consistent with our current practice. The guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 using a retrospective transition method for all periods presented. Early adoption is permitted provided that all amendments are adopted in the same period. We adopted this guidance effective July 1, 2016, and it did not have an impact on our Condensed Consolidated Statements of Cash Flows.