What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-08-27 compared with 2019-08-27 · 129 added, 99 removed, 200 unchanged (53% of the section changed)

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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 in Horse Cave, Kentucky that we expect to complete in mid-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 enterprise resource planning system (“ERP”) 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.

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.

Consistent with this acquisition strategy, in November 2018 we acquired, using available cash on hand, substantially all of the assets of Omni Baking Company LLC (“Omni”), a long-time supplier of products to our frozen garlic bread operations.

In October 2018 we acquired, using available cash on hand, all the assets of Bantam Bagels, LLC (“Bantam”), a producer and marketer of frozen mini stuffed bagels and mini stuffed pancakes sold to both the retail and foodservice channels.

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.

Consistent with this acquisition strategy, on November 16, 2018, we acquired, using available cash on hand, substantially all of the assets of Omni Baking Company LLC (“Omni”), a long-time supplier of products to our frozen garlic bread operations.

On October 19, 2018, we acquired, using available cash on hand, all the assets of Bantam Bagels, LLC (“Bantam”), a producer and marketer of

frozen mini stuffed bagels and other frozen bread products sold to both the retail and foodservice channels.

See further discussion of these acquisitions in Note 2 to the consolidated financial statements.

RECENT EVENTS

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

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

To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas.

In the U.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:

to ensure the health, safety and welfare of our employees;

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 the Centers 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:

engaging a third party to conduct 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 between 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;

providing a $300 bonus for each of our front-line employees in late March and temporarily increasing the wage rate for our hourly front-line employees by $2 per hour beginning in April;

establishing business travel restrictions;

working from home whenever possible, consistent with the applicable stay-at-home order.

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.

During the three months ended June 30, 2020, the effects of COVID-19 and the related actions undertaken in the U.S.

to attempt to control its spread, specifically the restriction of restaurant dine-in purchases and imposition of stay-at-home orders, negatively impacted the operating results of our Foodservice segment.

Our Foodservice segment net sales for the fourth quarter declined 24% to $128.4 million while segment operating income fell 45% to $10.1 million .

After a very slow start in April, consumer demand at quick-service restaurants made a strong recovery in May and June, and sales for other restaurants also improved notably throughout the quarter.

With respect to our Retail segment, the impact of COVID-19 resulted in higher sales during the three months ended June 30, 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.

RESULTS OF CONSOLIDATED OPERATIONS

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Restructuring and Impairment Charges

Multiemployer Pension Settlement and Related Costs

Operating Income

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Consolidated net sales for the year ended June 30, 2020 increased 2% to a new record of $1,334 million from the prior-year record total of $1,308 million .

This growth was driven by increases in both Retail and Foodservice net sales.

Excluding net sales attributed to the acquisitions of Bantam and Omni, consolidated net sales increased 5% for the year.

This growth was driven by an increase in Retail net sales, particularly in the second half of the year, partially offset by a decline in Foodservice net sales.

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.

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See discussion of net sales by segment following the discussion of “Earnings Per Share” below.

Consolidated gross profit increased to $326.2 million in 2019 compared to $303.5 million in 2018 driven by increased sales volumes in Foodservice, cost savings from our lean six sigma program and improved net price realization.

These benefits were partially offset by incremental costs, including facility upgrades, associated with the Omni operations, investments to support expanding retail distribution of Bantam, and higher warehousing costs.

Consolidated gross profit increased 10% to $358.0 million in 2020 compared to $326.2 million in 2019 driven by the higher sales volumes in Retail, our cost savings programs, including continued contributions from our strategic procurement and transportation management initiatives, improved net price realization and lower commodity costs.

Offsets to gross profit growth included higher manufacturing costs and other expenses resulting from the impacts of COVID-19.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased 15% in 2019 .

The increase in these costs was driven by increased investments in personnel and business initiatives to support future growth, including ERP expenses, and the impact of our two acquisitions.

ERP expenses are included within Corporate Expenses.

Selling, general and administrative (“SG&A”) expenses increased 21% to $180.9 million in 2020 as expenditures for Project Ascent increased $16.3 million to $18.0 million .

Investments in technology and IT infrastructure, a write-off of engineering costs for a dressing plant expansion project and other expenses attributed to the impacts of COVID-19, and a higher level of consumer promotional spending also contributed to the rise in SG&A expenses.

Shifts in demand between our Retail and Foodservice segments led us to cancel the plant expansion project.

Project Ascent expenses are included within Corporate Expenses.

A portion of the costs classified as Project Ascent expenses represent ongoing costs that will continue subsequent to ERP implementation.

Year Ended June 30,

(Dollars in thousands)

SG&A Expenses - Excluding ERP

SG&A Expenses - Excluding Project Ascent

Project Ascent Expenses

Total SG&A Expenses

Change in Contingent Consideration

The change in contingent consideration resulted in a net benefit of $16.2 million in 2019 , which reflects a $17.1 million reduction in the fair value of Angelic’s contingent consideration liability as a result of our 2019 fair value measurements.

The change in contingent consideration resulted in expense of $0.3 million in 2020 compared to a net benefit of $16.2 million in 2019, which included a $17.1 million reduction in the fair value of the contingent consideration liability for Angelic Bakehouse, Inc.

(“Angelic”) as a result of our 2019 fair value measurements.

See further discussion in Note 3 to the consolidated financial statements.

Given the nature of Angelic’s sales and historical accounting treatment, the entire adjustment related to Angelic’s contingent consideration was reflected within the Retail segment.

Given the nature of Angelic’s sales and historical accounting treatment, the entire adjustment related to Angelic’s contingent consideration was recorded within the Retail segment.

Restructuring and Impairment Charges

In the fourth quarter of 2019, we committed to a plan to close our frozen bread manufacturing plant located in Saraland, Alabama.

This decision is intended to provide greater production efficiency by consolidating most of this facility’s operations into other existing plants, outsourcing certain requirements and discontinuing less profitable frozen bread products.

This decision was intended to provide greater production efficiency by consolidating most of this facility’s operations into other existing plants, outsourcing certain requirements and discontinuing less profitable frozen bread products.

Production at the plant ceased in July 2019.

Certain plant clean-up and closure activities are expected to continue into August 2019.

The Saraland plant is a leased facility with the lease term ending in November 2020.

The operations of this plant have not been classified as discontinued operations as the closure does not represent a strategic shift that would have a major effect on our operations or financial results.

During 2019, we recorded restructuring and impairment charges of $1.6 million , as well as $0.2 million recorded in Cost of Sales for the write-down of inventories.

The operations of this plant have not been classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results.

During 2020 and 2019, we recorded restructuring and impairment charges of $0.9 million and $1.6 million , respectively.

The restructuring and impairment charges, which consisted of one-time termination benefits, fixed asset impairment charges and other closing costs, were not allocated to our two reportable segments due to their unusual nature.

W e do not expect any additional charges attributed to this plant closure.

Operating Income

Operating income increased 11% in 2019 driven by gross profit growth and the change in contingent consideration, as partially offset by the increase in SG&A expenses and restructuring and impairment charges.

Operating income decreased 8% to $175.9 million in 2020 driven by the impact of the prior-year’s favorable adjustment related to Angelic’s contingent consideration, increased expenditures for Project Ascent, higher costs attributed to the impacts of COVID-19 and increased investments in technology and IT infrastructure.

These unfavorable factors were partially offset by the more favorable sales mix, our cost savings programs, improved net price realization and lower commodity costs.

See discussion of operating results by segment following the discussion of “Earnings Per Share” below.

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Our effective tax rate was 23.5% and 23.0% in 2020 and 2019 , respectively.

The current-year and prior-year rates were favorably impacted by the Tax Cuts and Jobs Act of 2017 (“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 was a blended rate of 28.1%.

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

The statutory federal income tax rate for our 2019 tax return will be 21%.

See Note 9 to the consolidated financial statements for a reconciliation of the statutory rate to the effective rate for 2019 , 2018 and 2017 .

The SEC issued Staff Accounting Bulletin No.

118 (“SAB 118”) on December 22, 2017.

SAB 118 allowed for a measurement period in which companies could 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 could not be determined at the time of the preparation of the financial statements until the actual impacts could be determined.

We recorded an initial estimate of the impact of the Tax Act within our December 31, 2017 financial statements, and the adjustments recorded in the second half of 2018 were not material .

The measurement period has ended, and we have completed the accounting for all the impacts of the Tax Act.

See Note 9 to the consolidated financial statements for a reconciliation of the statutory rate to the effective rate.

We include the tax consequences related to stock-based compensation within the computation of income tax expense.

We may experience increased volatility to our 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.

For 2019 and 2018 , the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.8% and 0.4% , respectively.

For 2020 and 2019 , the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.8% .

Earnings Per Share

As influenced by the factors discussed above, particularly the impact of the reduction in fair value of Angelic’s contingent consideration in 2019 and the Tax Act in 2018, diluted net income per share totaled $5.46 in 2019 , an increase from the 2018 total of $4.92 per diluted share.

As influenced by the factors discussed above, particularly the increased expenditures for Project Ascent and costs attributed to the impacts of COVID-19 in 2020 and the reduction in fair value of Angelic’s contingent consideration in 2019, diluted net income per share totaled $4.97 in 2020 , a decrease from the 2019 total of $5.46 per diluted share.

Diluted weighted average common shares outstanding for each of the years ended June 30, 2020 and 2019 have remained relatively stable.

In 2019, the after-tax benefit from the reduction in the fair value of Angelic’s contingent consideration liability was $0.48 per diluted share while spend for the ERP reduced diluted earnings per share by $0.05 and the restructuring and impairment charge had an unfavorable impact of $0.05 per diluted share.

In 2018, the Tax Act resulted in a one-time deferred tax benefit of $0.35 per diluted share from the re-measurement of our net deferred tax liability.

In 2020, expenditures for Project Ascent reduced diluted earnings per share by $0.50.

Certain costs attributed to the impacts of COVID-19, including the temporary increase in pay for our front-line employees, the write-off of engineering costs for a canceled dressing plant expansion project and an increase in the Foodservice inventory reserve, had an unfavorable impact of $0.28 per diluted share in 2020.

The restructuring and impairment charge also reduced diluted earnings per share in 2020 by $0.02.

In 2019, the after-tax benefit from the reduction in the fair value of Angelic’s contingent consideration liability was $0.48 per diluted share while Project Ascent expenditures reduced diluted earnings per share by $0.05 and the restructuring and impairment charge had an unfavorable impact of $0.05 per diluted share.

RESULTS OF OPERATIONS - SEGMENTS

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Operating Margin

In 2019 , net sales for the Retail segment reached $656.6 million , a 1% increase from the prior-year total of $650.2 million .

Excluding the incremental sales from Bantam, Retail net sales improved 0.5% as influenced by volume gains for shelf-stable dressings and sauces sold under license agreements, improved net price realization and lower coupon expense.

Notable offsets to Retail sales growth included volume declines in flatbread wraps and our decision to selectively exit some low-margin private-label business.

In 2019 , Retail segment operating income was favorably impacted by the $17.1 million reduction in the fair value of Angelic’s contingent consideration liability.

Excluding this fair value reduction, Retail segment operating income declined to $118.0 million as influenced by incremental costs, including facility upgrades, associated with the Omni operations, investments to strengthen the Retail leadership team and incremental spending to expand distribution for Bantam.

In 2020 , net sales for the Retail segment reached a record $714.1 million , a 9% increase from the prior-year total of $656.6 million as higher retail channel demand attributed to the impacts of COVID-19 and contributions from shelf-stable dressings and sauces sold under license agreements, including new product introductions, drove Retail sales gains.

Higher sales volumes for frozen garlic bread and frozen dinner rolls, along with some beneficial net price realization, also added to the growth in Retail net sales.

In 2020 , Retail segment operating income increased $7.7 million , or 6% , to $142.8 million .

Retail segment operating income benefited from the increase in sales, our ongoing cost savings programs, improved net price realization and lower commodity costs as partially offset by higher trade and consumer promotional spending.

The prior-year results were favorably impacted by the $17.1 million reduction in the fair value of Angelic’s contingent consideration liability.

Foodservice Segment

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Operating Margin

In 2019 , Foodservice net sales increased 14% to $651.2 million from the 2018 total of $572.7 million .

Excluding incremental contributions of $7.3 million from Bantam and $19.4 million from Omni, Foodservice sales growth of 9% was widespread throughout the segment with national chain restaurant accounts, branded products and frozen pasta products all contributing to growth.

The higher level of branded product sales was attributed in part to new product introductions and expanded distribution with colleges and universities.

Note that all of the Omni sales are due to an interim agreement whereby, for a period of up to two years post-closing, we will be a supplier of bread products to an affiliated party of the seller.

In 2019 , the increase in Foodservice segment operating income and related margins was driven by increased sales volumes, the benefit from continued cost savings in manufacturing and procurement attributed to our lean six sigma program and inflationary pricing as partially offset by higher costs for packaging materials and warehousing.

In 2020 , Foodservice net sales decreased 5% to $620.3 million from the 2019 total of $651.2 million .

After growth of 7% in the first half of the fiscal year, Foodservice net sales declined 16% in the second half as consumer demand shifted away from the foodservice channel due to the impacts of COVID-19.

Excluding all sales resulting from the November 2018 acquisition of Omni, total Foodservice net sales declined 5%.

Omni sales attributed to a temporary supply agreement totaled $22.3 million in the current fiscal year compared to $19.4 million last year.

In 2020 , the $7.3 million decline in Foodservice segment operating income and decrease in operating margin was primarily due to the sales decline, reduced absorption of fixed production costs resulting from the lower sales volumes and other costs attributed to the impacts of COVID-19, including the cancelation of the dressing plant expansion project, an inventory write-down and the temporary increase in hourly wages for our front-line employees.

Corporate Expenses

The 2020 corporate expenses totaled $32.5 million as compared to $16.4 million in 2019 .

The increase was driven by ERP expenses, professional fees and increased investments in personnel.

The increase was driven by expenditures for Project Ascent, which totaled $18.0 million in 2020 as compared to $1.8 million in 2019 .

In 2020 , we also capitalized an additional $8.9 million of ERP-related expenditures for application development stage activities.

LOOKING FORWARD

For 2020 , we expect Retail segment sales will benefit from the incremental Bantam sales and continued growth from shelf-stable dressings and sauces sold under license agreements along with several new product introductions planned for launch throughout the year.

In the Foodservice segment, we anticipate continued volume growth from select national chain restaurant accounts and sales of our branded products along with the added sales from the Omni and Bantam acquisitions.

We expect to incur some incremental costs attributed to the Omni acquisition for ongoing operational improvements and upgrades to the facility in Vineland, New Jersey through the first half of the fiscal year as our supply chain team works to fully integrate that facility.

In addition, SG&A expenses will continue to reflect incremental investments in our strategic initiatives, including ERP.

For 2021 , we expect Retail segment sales will continue to benefit from the growth in shelf-stable dressings and sauces sold under license agreements, including sales gains for Chick-fil-A ® sauces following a successful pilot test that was launched in March 2020, expanded geographic distribution of Buffalo Wild Wings ® sauces in single bottles and growth in the dollar and value channels for Olive Garden ® dressings.

We also anticipate both our Retail and Foodservice segment sales will continue to be impacted by the COVID-19 pandemic, which has caused shifts in consumer demand between the retail and foodservice channels.

The extent of this impact on our 2021 results is very difficult to predict due to ongoing regional ebbs and flows of COVID-19 cases and the associated loosening and tightening of stay-at-home orders and other restrictions and guidelines that create uncertainty for the restaurant industry and consumer behavior over an unpredictable timeline.

Based on current market conditions, following a year in which commodity costs were notably favorable, we expect commodity costs to increase in 2021.

Our cost savings programs and pricing initiatives will help to offset these increased costs.

Our 2021 SG&A expenses will continue to include Project Ascent expenses.

We will continue to consider acquisition opportunities that represent good value and are consistent with our growth strategy 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, following a year in which commodity costs were generally flat, we anticipate an uptick in commodity costs in 2020.

Pricing initiatives, in addition to ongoing savings from our lean six sigma program and other cost-out projects planned by our supply chain team, will help to offset these increased costs.

Overall, we continue to limit some of our exposure to volatile swings in food commodity costs through a strategic 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.

Our exposure to volatile swings in food commodity costs will continue to be managed and mitigated through a strategic 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.

We will adopt new accounting guidance for leases on July 1, 2019.

While the adoption of this guidance will result in a significant increase in the balances of right-of-use assets and lease liabilities on our Consolidated Balance Sheet, we do not expect the adoption to impact our results of operations or cash flows.

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.

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We had no borrowings outstanding under the Facility at June 30, 2020 .

At June 30, 2019 , 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.

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

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

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

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

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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 2020 , including the projected levels of capital expenditures and our historic trend of increasing annual dividend payments.

Based on our current plans and expectations, we believe our capital expenditures for 2020 could total between $80 and $100 million , which includes estimated remaining payments of $33 million for a capacity expansion project at our frozen dinner roll facility in Horse Cave, Kentucky that we expect to complete in mid-2020.

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.

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 liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments.

Based on our current plans and expectations, we believe our capital expenditures for 2021 could total between $65 and $85 million .

In addition, we will also continue to evaluate other potentially significant investments, such as a plant expansion, new plant construction or brownfield investment, to meet increasing demand for our dressing and sauce products.

If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations.

Year Ended June 30,

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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 2019 totaled $197.6 million , an increase of 23% as compared with the 2018 total of $160.7 million .

The 2019 increase was due to higher net income, a benefit from the change in deferred income taxes as a result of the prior-year impact of the Tax Act, and the year-over-year change in net working capital as offset by the reduction in the fair value of Angelic’s contingent consideration liability.

Cash provided by operating activities in 2020 totaled $170.8 million , a decrease of 14% as compared with the 2019 total of $197.6 million .

The 2020 decrease was due to the year-over-year change in net working capital and lower net income, as partially offset by the impact of the prior-year reduction in the fair value of Angelic’s contingent consideration.

Cash used in investing activities totaled $83.3 million in 2020 as compared to $126.9 million in 2019 .

The 2019 increase in cash used in investing activities primarily reflects cash paid for the October 2018 acquisition of Bantam and the November 2018 acquisition of Omni, as well as a higher level of capital expenditures in 2019 .

Our 2019 capital expenditures include a substantial investment for a capacity expansion project at our frozen dinner roll facility in Horse Cave, Kentucky that we expect to complete in mid-2020.

We have recently completed a dedicated R&D center in central Ohio that will benefit both the Retail and Foodservice segments, and we are also investing in production capacity and increased automation at Angelic to improve efficiencies in production.

We also continue to invest in projects to expand packaging capacity and end-of-line automation for both segments.

The 2020 decrease primarily reflects the impact of the prior-year second quarter acquisitions of Bantam and Omni as partially offset by a higher level of payments for property additions in the current year.

The year-over-year increase in our capital expenditures includes spending on a capacity expansion project at our frozen dinner roll facility in Horse Cave, Kentucky that was completed in January 2020 and the purchase of the Omni manufacturing facility that was previously leased.

Payments for property additions totaled $82.6 million in 2020 compared to $70.9 million in 2019 .

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In general, cash used in financing activities reflects the payment of dividends and share repurchases.

The 2020 increase was primarily due to higher dividend payments.

The regular dividend payout rate for 2020 was $2.75 per share, as compared to $2.55 per share in 2019 .

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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, 2019 and future minimum lease payments for the use of property and equipment under operating lease agreements.

Examples of such items are commitments to purchase raw materials or packaging inventory that has not yet been received as of June 30, 2020 .

The following table summarizes our contractual obligations as of June 30, 2020 (dollars in thousands):

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More than 5 Years

Capital Lease Obligations (1)

Finance Lease Obligations (1)

Operating Lease Obligations (1)

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Other Noncurrent Liabilities (as reflected on Consolidated Balance Sheet) (3)

Capital leases are primarily entered into for certain equipment.

Finance leases are primarily entered into for certain equipment and warehouse facilities.

Operating leases are primarily entered into for warehouse and office facilities and certain equipment.

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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.

We also recently implemented a 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.

We have also implemented a 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.

With regard to freight costs, during 2019 we added more dedicated carriers to our overall transportation network to help reduce our exposure to spot freight rates.

In 2019 we also implemented a transportation management system which improved the efficiency of our internal freight management processes and also allowed us to secure more competitive freight rates.

Nonetheless, we remain exposed to events and trends in the marketplace for our other raw-material, packaging and freight costs.

Nonetheless, we remain

exposed to events and trends in the marketplace for our other raw-material, packaging and freight costs.

While we attempt to pass through sustained increases in raw-material costs, any such price adjustments will often lag the changes in the related input costs.

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.

In 2020, commodity costs were modestly favorable driven by lower costs for eggs, soybean oil and flour.

Packaging materials and freight costs were also favorable in 2020.

Our strategic procurement programs, transportation management system and other cost savings initiatives also helped to reduce our expenditures on commodities, packaging materials and freight in 2020.

In 2019, commodity cost inflation moderated to nearly flat compared to 2018 while packaging and freight costs were modestly inflationary.

Looking ahead to 2020, under current market conditions we foresee inflation in commodities, packaging and freight with commodities and packaging imposing the greatest headwind.

Net price realization in 2020 will help to offset these inflationary costs along with the cost savings from our lean six sigma program, including our strategic procurement initiatives and the beneficial impact of our new transportation management system.

Looking ahead to 2021, under current market conditions we foresee inflation in commodities.

Our ongoing cost savings programs and pricing initiatives will help to offset these higher commodity costs.

Although typically less notable, we are also exposed to the unfavorable effects of general inflation beyond material and freight costs, especially in the areas of annual wage adjustments and benefit costs.

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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.

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, many of which could be amplified by the COVID-19 pandemic.

Management believes these forward-looking statements to be reasonable;

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Items which could impact these forward-looking statements include, but are not limited to, those risk factors identified in Item 1A and:

the ability to successfully grow recently acquired businesses;

the extent to which recent and future business acquisitions are completed and acceptably integrated;

significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, operations, and production processes resulting from COVID-19 and other epidemics, pandemics or similar widespread public health concerns and disease outbreaks;

efficiencies in plant operations;

dependence on contract manufacturers, distributors and freight transporters, including their financial strength in continuing to support our business;

fluctuations in the cost and availability of ingredients and packaging;

the potential for loss of larger programs or key customer relationships;

capacity constraints that may affect our ability to meet demand or may increase our costs;

changes in demand for our products, which may result from loss of brand reputation or customer goodwill;

difficulties in designing and implementing our new enterprise resource planning system;

cyber-security incidents, information technology disruptions, and data breaches;

ability to successfully grow recently acquired businesses;

the extent to which recent and future business acquisitions are completed and acceptably integrated;

price and product competition;

the lack of market acceptance of new products;

the success and cost of new product development efforts;

the impact of customer store brands on our branded retail volumes;

the reaction of customers or consumers to price increases we may implement;

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 impact of customer store brands on our branded retail volumes;

dependence on contract manufacturers, distributors and freight transporters;

the success and cost of new product development efforts;

stability of labor relations;

dependence on key personnel and changes in key personnel;

the effect of consolidation of customers within key market channels;

the lack of market acceptance of new products;

the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs;

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;

capacity constraints that may affect our ability to meet demand or may increase our costs;

maintenance of competitive position with respect to other manufacturers;

2 unchanged sentences

the outcome of any litigation or arbitration;

efficiencies in plant operations;

stability of labor relations;

adequate supply of skilled labor;

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;

certain other risk factors, including those discussed in other filings we have submitted to the Securities and Exchange Commission.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis