What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-23 compared with 2022-08-25 · 110 added, 127 removed, 233 unchanged (50% of the section changed)

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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.

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

This review was completed as part of our preparation for our enterprise resource planning system (“ERP”) implementation.

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

These changes were effective in 2021, and all historical information was retroactively conformed to the current presentation.

These changes had no effect on previously reported consolidated net sales, gross profit, operating income, net income or earnings per share.

Over 95% of our products are sold in the United States.

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• well-regarded culinary expertise among Foodservice customers;

• long-standing Foodservice customer relationships that help to support strategic licensing opportunities in Retail;

• recognized leadership in Foodservice product development;

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Recent examples of resulting investments include:

• a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023;

• a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023;

• a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;

• a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022;

• a significant capacity expansion project for our Sister Schubert’s frozen dinner roll facility in Horse Cave, Kentucky that was completed in January 2020;

• the establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our ERP project and related initiatives, Project Ascent, that is currently underway.

• the establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our enterprise resource planning system (“ERP”) project and related initiatives, Project Ascent, that is currently in the implementation phase.

Project Ascent 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.

Implementation of this system began in July 2022 and will continue throughout fiscal 2023.

Customer fulfillment levels remained strong before and after the system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders.

We anticipate full deployment throughout our organization in the next 12-18 months.

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.

Implementation of this system began in July 2022 and continued throughout fiscal 2023.

Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders.

During fiscal 2023, we progressed through our ERP implementation with no major disruptions.

We completed the final wave of the implementation phase in August 2023 as planned and will shift our focus towards leveraging the capabilities of our new ERP system in the coming year.

Project Ascent will evolve into an on-going Center of Excellence 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.

BUSINESS TRENDS

Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products.

More specifically, beginning in March 2020, there has been an overall shift in consumer demand towards increased at-home food consumption and away from in-restaurant dining.

While this shift in demand has been inconsistent and volatile, on balance it has positively impacted our Retail segment sales and negatively impacted our Foodservice segment sales.

From an operations standpoint, the shift in demand, combined with other COVID-19-related issues, has unfavorably impacted the operating results of both our segments.

These issues include higher hourly wage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network.

More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining.

Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes.

From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, unfavorably impacted the operating results of both our segments.

Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating environment became more predictable and stable.

The inflationary cost environment we experienced during 2022 resulted in significantly higher input costs for our business.

During 2022, we endured unprecedented inflationary costs for commodities, particularly soybean oil and flour, in addition to notably higher costs for packaging, freight and warehousing, and labor.

This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in the Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government-directed fiscal stimulus actions.

This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions.

We continued to experience significant cost inflation through 2023, particularly for soybean oil, eggs and flour.

However, our pricing actions served to offset these inflationary costs.

In addition, the operating environment stabilized as we did not experience the supply chain disruptions and demand swings of the preceding years.

RESULTS OF CONSOLIDATED OPERATIONS

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Selling, General and Administrative Expenses 222,091 212,098 205,363 9,993 5 % 6,735 3 %

Change in Contingent Consideration (3,470) (5,687) 257 2,217 (39) % (5,944) N/M

Change in Contingent Consideration — (3,470) (5,687) 3,470 (100) % 2,217 (39) %

Restructuring and Impairment Charges 24,969 35,180 1,195 (10,211) (29) % 33,985 N/M

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Diluted Net Income Per Common Share $ 4.04 $ 3.25 $ 5.16 $ 0.79 24 % $ (1.91) (37) %

Consolidated net sales for the year ended June 30, 2022 increased 14% to a new record of $1,676 million from the prior-year record total of $1,467 million.

This growth was driven by higher net sales for both the Retail and Foodservice segments, including the favorable impact of pricing actions.

Consolidated sales volumes, measured in pounds shipped, increased 2% in 2022.

Consolidated net sales for the year ended June 30, 2023 increased 9% to a new record of $1,823 million from the prior-year record total of $1,676 million, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs.

Sales in the current year were unfavorably impacted by approximately $25 million in incremental sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1.

Consolidated sales volumes, measured in pounds shipped, decreased 5% in 2023.

In the prior year, consolidated sales volumes increased 2%.

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

Consolidated gross profit decreased 8% to $355.7 million in 2022 compared to $386.7 million in 2021 as we endured unprecedented inflationary costs for commodities, packaging, freight and warehousing, and labor.

We also incurred incremental expenditures attributed to our increased reliance upon co-manufacturers to help satisfy demand.

While our pricing actions helped to offset the impacts of inflation, the gross profit decline reflects an extremely challenging operating environment that, beyond inflation, includes the unfavorable effects of supply chain disruptions, demand volatility and uncertainty, suboptimal capacity utilization, and overall lower productivity resulting in substantially higher costs to produce our products and service our customers.

Consolidated gross profit increased 9% to $388.6 million in 2023 compared to $355.7 million in 2022 as our pricing actions effectively offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing.

The higher gross profit also reflects the benefits of a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers.

The current-year gross profit compares to a challenging prior-year period characterized by escalating inflationary costs across our entire supply chain, the unfavorable effects of supply chain disruptions, demand volatility and uncertainty, suboptimal capacity utilization, and overall lower productivity resulting in substantially higher costs to produce our products and service our customers.

Note that last year’s gross profit included an estimated $5 million impact from the advance customer orders ahead of our ERP go-live.

Selling, General and Administrative Expenses

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Total SG&A Expenses $ 222,091 $ 212,098 $ 205,363 $ 9,993 5 % $ 6,735 3 %

Selling, general and administrative (“SG&A”) expenses increased 3% to $212.1 million in 2022 as expenditures for Project Ascent increased $1.4 million to $39.3 million.

Excluding Project Ascent, SG&A expenses were higher than the prior year reflecting investments in a supply chain optimization study and IT investments, as well as higher brokerage costs attributed to the increased sales.

Selling, general and administrative (“SG&A”) expenses increased 5% to $222.1 million in 2023.

This increase reflects increased investments in personnel and IT;

higher brokerage costs associated with the increased sales;

higher travel expenses;

and some nonrecurring legal charges for closed operations.

Project Ascent expenses decreased $9.5 million to $29.9 million.

Project Ascent expenses are included within Corporate Expenses.

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

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

Change in Contingent Consideration

In 2022, the change in contingent consideration resulted in a benefit of $3.5 million.

This benefit reflected a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our 2022 fair value measurements.

The resulting fair value adjustments were due to changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023, as well as refinements to the estimated probabilities applied to our forecast scenarios.

This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our fair value measurements, resulting in a zero balance at March 31, 2022.

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

In May 2022, our Board of Directors approved a plan to exit the Bantam business.

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

In 2021, the change in contingent consideration resulted in a benefit of $5.7 million.

This benefit reflected a reduction in the fair value of the contingent consideration liability for Bantam based on our 2021 fair value measurements.

As the fair value adjustment resulted from the impact of a SKU rationalization by a Foodservice customer, the entire adjustment related to Bantam’s contingent consideration was reflected within the Foodservice segment.

We ultimately exited the Bantam business near the end of fiscal 2022.

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

Restructuring and Impairment Charges

In 2023, we recorded impairment charges of $25.0 million related to the intangible assets of Flatout, Inc.

(“Flatout”) due to lowered expectations for the projected sales and profitability of the Flatout business.

These impairment charges were reflected in our Retail segment.

In 2022, we recorded restructuring and impairment charges totaling $35.2 million related to the following items:

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Based on our decision to explore strategic alternatives for the Bantam business, impairment testing was triggered for the related long-lived assets of the asset group.

The related restructuring and impairment charges of $24.8 million included impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as other closure-related costs.

Due to their unusual nature, these restructuring and impairment charges were not allocated to our two reportable segments.

As noted above, in May 2022, our Board of Directors approved a plan to exit the Bantam business.

The operations of this business 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.

The restructuring and impairment charges of $24.8 million included impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as other closure-related costs.

Due to their unusual nature, these charges were not allocated to our two reportable segments.

As noted above, we ultimately exited the Bantam business near the end of fiscal 2022.

The operations of this business were not 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.

In 2022, prior to our decision to explore strategic alternatives for the Bantam business, we also recorded an impairment charge of $0.9 million related to Bantam’s Retail customer relationships intangible asset, which reflected lower projected cash flows for Bantam’s Retail business.

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In 2022, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network.

Production at the facility ceased in January 2022, and the Mamma Bella ® brand frozen garlic bread product line was discontinued based on its small size and low profitability.

The operations of this facility 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.

We recorded restructuring and impairment charges of

$0.7 million, which consisted of one-time termination benefits and impairment charges for fixed assets and the operating lease right-of-use asset, and were not allocated to our two reportable segments due to their unusual nature.

We recorded impairment charges of $1.2 million in 2021 related to certain tradename and technology / know-how intangible assets for Bantam as a result of the impact of a SKU rationalization by a Foodservice customer.

These impairment charges were reflected in our Foodservice segment.

The operations of this facility were not 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.

We recorded restructuring and impairment charges of $0.7 million, which consisted of one-time termination benefits and impairment charges for fixed assets and an operating lease right-of-use asset.

These charges were not allocated to our two reportable segments due to their unusual nature.

Operating Income

Operating income decreased 40% to $111.9 million in 2022, including the unfavorable impacts of the $25.7 million in restructuring and impairment charges for the Bantam business and the $8.8 million impairment charge for the Angelic tradename intangible asset.

Beyond those charges, operating results were negatively affected by significant inflationary costs for commodities, packaging, freight and warehousing, and labor in addition to increased co-manufacturing costs.

We also experienced the unfavorable impacts of an extremely challenging operating environment characterized by supply chain disruptions, demand volatility and uncertainty, and reduced operating efficiencies.

Our pricing actions helped to offset the inflationary costs.

The decline in operating income also reflected the higher level of SG&A expenditures.

Incremental sales attributed to advance customer orders near the end of 2022 ahead of our ERP go-live added an estimated $5 million to consolidated operating income.

Operating income increased 26% to $141.5 million in 2023 driven by the increase in gross profit as our pricing actions served to offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing, as well as the impact of lower restructuring and impairment charges.

Operating income also benefited from a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers.

The increase in SG&A expenses partially offset these positive factors.

Additionally, operating income in the current year was unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live and accounted for an estimated $5 million in operating income.

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

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Earnings Per Share

As influenced by the factors discussed above, diluted net income per share totaled $3.25 in 2022, a decrease from the 2021 total of $5.16 per diluted share.

As influenced by the factors discussed above, diluted net income per share totaled $4.04 in 2023, an increase from the 2022 total of $3.25 per diluted share.

Diluted weighted average common shares outstanding for each of the years ended June 30, 2023 and 2022 have remained relatively stable.

In 2022 and 2021, expenditures for Project Ascent reduced diluted earnings per share by $1.09 and $1.05, respectively;

restructuring and impairment charges reduced diluted earnings per share by $0.98 and $0.03, respectively;

and the adjustments to Bantam’s contingent consideration increased diluted earnings per share by $0.10 and $0.16, respectively.

In 2023 and 2022, expenditures for Project Ascent reduced diluted earnings per share by $0.84 and $1.09, respectively, and restructuring and impairment charges reduced diluted earnings per share by $0.70 and $0.98, respectively.

In 2022, the adjustments to Bantam’s contingent consideration increased diluted earnings per share by $0.10.

RESULTS OF OPERATIONS - SEGMENTS

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Operating Margin 14.4 % 16.6 % 22.7 %

In 2022, net sales for the Retail segment reached a record $915.2 million, a 10% increase from the prior-year total of $829.0 million.

In addition to the benefit of pricing actions, the increase in Retail sales was driven by volume gains for Chick-fil-A ® sauces and Buffalo Wild Wings ® sauces, both of which are sold under exclusive licensing agreements.

Volume gains for our New York BRAND Bakery ® frozen garlic bread and Sister Schubert’s ® frozen dinner rolls also contributed to sales growth.

Retail segment sales volumes, measured in pounds shipped, increased 2% in the current year compared to an increase of 11% last year.

Note that Retail segment sales volumes benefited from advance ordering by our customers near the end of the fiscal fourth quarter ahead of our ERP go-live, and the resulting incremental Retail sales were estimated to be $11 million.

In addition, Retail segment sales volumes were unfavorably impacted by our decision to exit certain product lines during 2022 including some private label dips and Mamma Bella ® frozen garlic bread.

Excluding the advance ordering and the product line rationalizations, Retail sales volumes increased 6%.

In 2022, Retail segment operating income decreased 20% to $151.6 million, including the unfavorable impact of impairment charges totaling $9.7 million as referenced in the “Restructuring and Impairment Charges” section above.

The decline in operating income was driven by the unfavorable impacts of increased commodity and packaging costs, significantly higher freight and warehousing costs, increased co-manufacturing costs, higher labor costs and broad-based supply chain challenges.

The net impact of our pricing actions lagged the extraordinary levels of cost inflation.

In 2023, net sales for the Retail segment reached a record $965.4 million, a 5% increase from the prior-year total of $915.2 million, including the favorable impact of our pricing actions.

Sales in the current year were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1, 2022.

Retail segment sales volumes, measured in pounds shipped, declined 4% in the current year.

Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live, price elasticity and product line rationalizations that were implemented during fiscal 2022.

In 2022, Retail sales volumes increased 2%.

In 2023, Retail segment operating income decreased 8% to $139.5 million, including the unfavorable impact of higher impairment charges.

As referenced in the “Restructuring and Impairment Charges” section above, Retail segment operating income included impairment charges totaling $25.0 million and $9.7 million in 2023 and 2022, respectively.

Operating income was favorably impacted by our pricing actions, which served to offset significant cost inflation.

Operating income also benefited from our reduced reliance upon co-manufacturers.

In the prior year, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and the segment’s operating income also reflected an unstable operating environment that resulted in increased costs to manufacture products and service the business.

Foodservice Segment

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Operating Margin 12.4 % 10.9 % 14.0 %

In 2022, Foodservice segment net sales increased 19% to a record $761.2 million from the 2021 total of $638.1 million driven by inflationary pricing along with the benefit of volume gains for our branded Foodservice products and select customers within our mix of national chain restaurant accounts.

Note that Foodservice segment sales volumes benefited from advance ordering by our customers near the end of the fiscal fourth quarter ahead of our ERP go-live, and the resulting incremental Foodservice sales were estimated to be $14 million.

Foodservice sales volumes, measured in pounds shipped, increased 2% compared to a decline of 1% last year.

Excluding the benefit of advance ordering and also excluding 2021 sales attributed to a temporary supply agreement resulting from the November 2018 acquisition of Omni Baking Company LLC (“Omni”) that was terminated effective October 31, 2020, Foodservice sales volumes increased 1% in 2022.

In 2022, Foodservice segment operating income decreased 7% to $82.7 million, reflecting increased commodity and packaging costs, higher freight and warehousing expenses, higher labor costs and the unfavorable impacts of broad-based supply chain challenges as partially offset by the benefit of pricing actions.

In 2023, Foodservice segment net sales increased 13% to a record $857.2 million from the 2022 total of $761.2 million driven by inflationary pricing and volume gains from certain quick-service restaurant customers in our mix of national chain restaurant accounts.

Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the current year by an estimated $14 million.

Foodservice segment sales volumes, measured in pounds shipped, decreased 5% in the current year.

Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live and our decision to exit some less profitable SKUs during fiscal 2022.

In 2022, Foodservice sales volumes increased 2%.

In 2023, Foodservice segment operating income increased 29% to $106.3 million as our pricing actions effectively offset inflationary costs.

Operating income in the current year also benefited from a more stable operating environment, improved manufacturing efficiencies and our decision to discontinue some less profitable SKUs.

Prior-year operating income reflected a lag in pricing relative to inflationary costs, as partially offset by the adjustments to Bantam’s contingent consideration.

Corporate Expenses

The 2022 corporate expenses totaled $97.0 million as compared to $91.6 million in 2021.

This increase reflects increased IT investments and professional fees as well as higher expenditures for Project Ascent, which totaled $39.3 million in 2022 as compared to $37.9 million in 2021.

In 2022 and 2021, we also capitalized an additional $1.6 million and $3.5 million, respectively, of ERP-related expenditures for application development stage activities.

In 2023, corporate expenses totaled $104.3 million as compared to $97.0 million in 2022.

This increase primarily reflects increased investments in personnel and IT, as well as some nonrecurring legal charges for closed operations.

Lower expenditures for Project Ascent partially offset these higher expenses.

Project Ascent expenses totaled $29.9 million and $39.3 million in 2023 and 2022, respectively.

LOOKING FORWARD

For 2023, we anticipate our Retail sales volumes will continue to benefit from the growth of our licensing program, but will also face offsets from consumer demand elasticity and rationalization initiatives for some of our low-margin products.

In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts while the external factors of a slowing economy and changes in consumer sentiment may dampen demand.

Both our Retail and Foodservice sales will also continue to benefit from our pricing actions.

Note that our 2023 first quarter sales will be unfavorably impacted by the advance ordering that occurred ahead of our ERP go-live near the end of 2022.

From a cost standpoint, subject to future changes in the markets for our raw materials, we are currently forecasting a notable increase in our commodity costs in the coming year versus fiscal 2022 and higher costs for other items such as packaging, labor and freight that will pose a headwind to our financial results.

To help mitigate these rising costs, we recently implemented another round of price increases for dressings and sauces sold through our Retail segment while our Foodservice segment will continue to realize offsets to increased commodity and freight costs through contractual-based inflationary pricing.

Our cost savings programs and other net price realization efforts will also help to offset the unfavorable impacts of inflation in the year ahead.

The implementation phase for Project Ascent, our ERP initiative, will continue throughout fiscal 2023 as we integrate additional plants and warehouses into our new ERP network.

In addition to the above commentary specific to rising commodity costs, 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.

For 2024, we anticipate Retail segment sales will benefit from volume growth led by our licensing program, including incremental growth from the new products, flavors and sizes we introduced in 2023, along with some new items we have planned for 2024.

We also foresee continued positive momentum for our New York BRAND ® Bakery frozen garlic bread products.

In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts, while external factors, including U.S.

economic performance and potential changes in consumer sentiment, may impact demand.

Consolidated net sales will also continue to benefit from the pricing actions taken in 2023.

We project the impact of inflationary costs to subside notably in the coming year compared to fiscal 2023.

The pricing actions we have implemented along with our cost savings initiatives will help to offset remaining inflationary costs.

With respect to Project Ascent, we completed the final wave of the implementation phase in August 2023 as planned and have shifted towards leveraging the capabilities of our new ERP system to improve execution in the coming year.

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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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.

Interest is variable based upon formulas tied to SOFR 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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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.

Based on our current plans and expectations, we believe our capital expenditures for 2023 could total between $90 and $110 million, which includes approximately $50 million in expenditures attributed to a substantial investment for a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023.

Based on our current plans and expectations, we believe our capital expenditures for 2024 could total between $70 and $80 million.

Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of liquidity.

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The majority of these obligations is expected to be due within one year.

See further discussion below of our obligation related to the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky.

In November 2020, T.

Marzetti Company (“T.

Marzetti”), a wholly-owned subsidiary of ours, entered into a Design/Build Agreement (the “Agreement”) with Gray Construction, Inc.

(“Gray”) under which Gray will design, coordinate and build additional dressing and sauce manufacturing and warehousing capacity for the T.

Marzetti facility in Horse Cave, Kentucky (the “Project”).

The Project will result in an expansion of the current facility footprint.

Subject to certain conditions in the Agreement, T.

Marzetti will pay Gray no more than the guaranteed maximum price of approximately $113 million for the Project.

The Agreement contains other terms and conditions that are customary for this type of project.

Expected to be completed in the first half of fiscal 2023, we have a remaining commitment of approximately $30 million for the Project.

Year Ended June 30, Change

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Cash provided by operating activities and our existing balances in cash and equivalents remain the primary sources for funding our investing and financing activities, as well as financing our organic growth initiatives.

Cash provided by operating activities in 2022 totaled $101.8 million, a decrease of 42% as compared with the 2021 total of $174.2 million.

The 2022 decrease was primarily due to the year-over-year changes in net working capital, particularly accounts payable and accrued liabilities, as well as receivables.

The favorable cash flow impact of higher accounts payable was more pronounced in the prior year due to fluctuations in production levels for the comparative periods.

The changes in accrued liabilities were primarily related to current-year declines in the accruals for compensation and employee benefits.

The larger current-year increase in receivables reflected higher sales, including advance ordering by our customers near the end of the fiscal fourth quarter ahead of our ERP go-live.

Lower net income, which was impacted by significantly higher noncash restructuring and impairment charges in 2022, also contributed to the reduced level of cash provided by operating activities.

Cash provided by operating activities in 2023 totaled $225.9 million, an increase of 122% as compared with the 2022 total of $101.8 million.

The 2023 increase was primarily due to the year-over-year changes in net working capital, particularly receivables and accrued liabilities.

Receivables reflect the favorable impacts of a current-year decrease in receivables as well as a prior-year increase in receivables.

These fluctuations were due in part to an elevated level of receivables at the end of fiscal 2022 resulting from the advance ordering by our customers ahead of our ERP go-live.

Accrued liabilities reflect the favorable impacts of a current-year increase in the accruals for compensation and employee benefits as well as a prior-year decline in these balances.

Higher net income, as partially offset by the year-over-year change in noncash restructuring and impairment charges, also contributed to the increase in cash provided by operating activities.

Cash used in investing activities totaled $90.8 million in 2023 as compared to $132.2 million in 2022.

The 2022 increase primarily reflected a higher level of payments for property additions in the current year.

Notable capital expenditures in 2022 included spending on:

a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023;

The 2023 decrease primarily reflects a lower level of payments for property additions, which totaled $90.2 million in 2023 compared to $132.0 million in 2022.

Current-year capital expenditures included spending on a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023.

Notable prior-year capital expenditures included spending on:

the Horse Cave capacity expansion project;

a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;

and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that was completed in March 2022.

Capital expenditures in 2021 included spending on the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky and the infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa.

Payments for property additions totaled $132.0 million in 2022 compared to $87.9 million in 2021.

Financing activities used net cash totaling $106.9 million and $97.3 million in 2023 and 2022, respectively.

The vast majority of the cash used in financing activities is attributed to the payment of dividends, and the 2022 increase in cash used in financing activities was primarily due to higher dividend payments.

The vast majority of the cash used in financing activities is attributed to the payment of dividends, and the 2023 increase in cash used in financing activities primarily reflects higher levels of dividend payments, tax withholdings for stock-based compensation and share repurchases.

The regular dividend payout rate for 2023 was $3.35 per share, as compared to $3.15 per share in 2022.

This past fiscal year marked the 60 th consecutive year of increased regular cash dividends.

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.

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.

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We attempt to mitigate the impact of inflation on our raw-material costs via longer-term fixed-price contractual commitments for a portion of our most significant market-indexed commodities, most notably soybean oil and flour.

We have also implemented a procurement strategy for a portion of our egg needs using grain-based pricing contracts to reduce our exposure to egg market spot prices.

Specific to freight costs, our transportation network includes a mix of dedicated carriers, longer-term fixed-rate contracts and a small internal fleet that serve to reduce our exposure to spot freight rates.

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

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;

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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:

• inflationary pressures resulting in higher input costs;

• efficiencies in plant operations and our overall supply chain network;

• adverse changes in freight, energy or other costs of producing, distributing or transporting our products;

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

• the reaction of customers or consumers to pricing actions we take to offset inflationary costs;

• price and product competition;

• adequate supply of labor for our manufacturing facilities;

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

• inflationary pressures resulting in higher input costs;

• 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;

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

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

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

• adequate supply of labor for our manufacturing facilities;

• stability of labor relations;

• dependence on key personnel and changes in key personnel;

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

• complexities related to the implementation of our new enterprise resource planning system;

• geopolitical events, such as Russia’s recent invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;

• the potential for loss of larger programs, including licensing agreements, or key customer relationships;

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

• geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;

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

• failure to maintain or renew license agreements;

• significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of epidemics, pandemics or similar widespread public health concerns and disease outbreaks;

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

• price and product competition;

• the possible occurrence of product recalls or other defective or mislabeled product costs;

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• the lack of market acceptance of new products;

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

• the ability to successfully grow recently acquired businesses;

• dependence on key personnel and changes in key personnel;

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

• the ability to successfully grow acquired businesses;

• the effect of consolidation of customers within key market channels;

• maintenance of competitive position with respect to other manufacturers;

• stability of labor relations;

• the outcome of any litigation or arbitration;

• changes in estimates in critical accounting judgments;

• the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand;

• the outcome of any litigation or arbitration;

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis