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What changed in FLOWERS FOODS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FLOWERS FOODS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+345 added−364 removedSource: 10-K (2023-02-22) vs 10-K (2022-02-23)

Top changes in FLOWERS FOODS INC's 2023 10-K

345 paragraphs added · 364 removed · 236 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

62 edited+25 added−30 removed27 unchanged
Biggest changeExcept as otherwise expressly set forth herein, the information contained on our website is neither included nor incorporated by reference herein. 12 The following corporate governance documents may be obtained free of charge through our website in the “ CORPORATE GOVERNANCE ” section of the “ INVESTORS ” tab or by sending a written request to Flowers Foods, Inc., 1919 Flowers Circle, Thomasville, GA 31757, Attention: Investor Relations. • Finance Committee Charter • Audit Committee Charter • Nominating/Corporate Governance Committee Charter • Compensation Committee Charter • Flowers Foods, Inc.
Biggest changeThe following corporate governance documents may be obtained free of charge through our website in the “CORPORATE GOVERNANCE” section of the “INVESTORS” tab or by sending a written request to Flowers Foods, Inc., 1919 Flowers Circle, Thomasville, GA 31757, Attention: Investor Relations. • Corporate Governance Guidelines • Finance Committee Charter • Audit Committee Charter • Nominating/Corporate Governance Committee Charter • Compensation and Human Capital Committee Charter • Flowers Foods Employee Code of Conduct • Political Contribution and Activity Policy • Code of Business Conduct and Ethics • Disclosure Policy • Stock Ownership Guidelines
In certain circumstances, we enter into co-packing arrangements with retail customers or other food companies, some of which are competitors. Although we service public health care, military commissaries, and prisons, among other governmental institutions, we do not have any material government contracts. 8 Distribution We distribute our products through a direct-store-delivery (“DSD”) distribution system and a warehouse delivery system.
In certain circumstances, we enter into co-packing arrangements with retail customers or other food companies, some of which are competitors. Although we service public health care, military commissaries, and prisons, among other governmental institutions, we do not have any material government contracts. Distribution We distribute our products through a direct-store-delivery (“DSD”) distribution system and a warehouse delivery system.
Combined, these digital domains are expected to improve data visibility and efficiencies while automating many of our processes. When fully implemented, we expect this work will further our brand efforts, bring us ever closer to the consumer, increase operational efficiencies, and deliver higher-quality, real-time insights, which will in turn enable more predictive business decision-making.
These digital domains are expected to improve data visibility and efficiencies while automating many of our processes. When fully implemented, we expect this work will further our brand efforts, bring us ever closer to the consumer, increase operational efficiencies, and deliver higher-quality, real-time insights, which will in turn enable more predictive business decision-making.
Competition in the baking industry continues to be driven by a number of factors, including the ability to serve retail and foodservice customers, generational changes in family-owned businesses, and competitors’ promotional efforts on branded bread and 10 store brands.
Competition in the baking industry continues to be driven by a number of factors, including the ability to serve retail and foodservice customers, generational changes in family-owned businesses, and competitors’ promotional efforts on branded bread and store brands.
Walmart/Sam’s Club was the only customer to account for 10% or more of our sales during Fiscal 2021, 2020, and 2019. Fresh baked foods’ customers include mass merchandisers, supermarkets and other retailers, restaurants, quick-serve chains, food wholesalers, institutions, dollar stores, and vending companies. We also sell returned and surplus product through a system of thrift stores.
Walmart/Sam’s Club was the only customer to account for 10% or more of our sales during Fiscal 2022, 2021, and 2020. Fresh baked foods’ customers include mass merchandisers, supermarkets and other retailers, restaurants, quick-serve chains, food wholesalers, institutions, dollar stores, and vending companies. We also sell returned and surplus product through a system of thrift stores.
Flowers aims to attract a qualified workforce through an inclusive and accessible recruiting process that utilizes online recruiting platforms, campus outreach, apprenticeships, internships, and job fairs. In 2022, we plan to advance our partnership with the Thurgood Marshall College Fund by leveraging its Talent Sourcing program in our recruiting efforts.
Flowers aims to attract a qualified workforce through an inclusive and accessible recruiting process that utilizes online recruiting platforms, campus outreach, apprenticeships, internships, and job fairs. In 2023, we plan to advance our partnership with the Thurgood Marshall College Fund by leveraging its Talent Sourcing program in our recruiting efforts.
Item 1. Business The Company Flowers Foods, Inc. (which we reference to herein as “we,” “our,” “us,” the “company,” “Flowers” or “Flowers Foods”), founded in 1919 as a Georgia corporation and headquartered in Thomasville, Georgia, is currently the second-largest producer and marketer of packaged bakery foods in the United States (“U.S.”).
Item 1. B usiness The Company Flowers Foods, Inc. (which we reference to herein as “we,” “our,” “us,” the “company,” “Flowers” or “Flowers Foods”), founded in 1919 as a Georgia corporation and headquartered in Thomasville, Georgia, is currently the second-largest producer and marketer of packaged bakery foods in the United States (“U.S.”).
People of character, people of integrity, people who don’t mind working and taking advantage of their opportunity. ” We continue to strive toward a people-centric legacy by implementing initiatives that enhance the lives of each and every employee—current and prospective.
People of character, people of integrity, people who don’t mind working and taking advantage of their opportunity. ” We continue to strive toward a people-centric legacy by implementing initiatives that enhance the lives of every employee.
Programs include Skillsoft online learning and a Mentor Up Mentoring Program which are both available at our bakeries. • Offering a variety of programs that contribute to our leadership, training and development goals, including internal programs such as the “Flowers Front-Line Leadership Program,” “Lead Now” for leaders at all levels, and “Leading The Flowers Way” for our high potential leaders. • Encouraging employees to discuss their professional development during annual performance reviews with their supervisors. • Offering Career Conversations training for supervisory employees to discuss career pathing and employee development.
Programs available at our bakeries include Skillsoft online learning and a Mentor Up Mentoring Program. • Offering a variety of programs that contribute to our leadership, training and development goals, including the “Flowers Front-Line Leadership Program,” “Lead Now” for leaders at all levels, and “Leading The Flowers Way” for our high potential leaders. • Encouraging employees to discuss their professional development during annual performance reviews with their supervisors. • Offering Career Conversations training for supervisory employees to discuss career pathing and employee development.
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 12/26/21 ) • DKB is the #1 selling organic brand in the U.S. and the company’s #2 brand, with the top-selling organic brand in four different segments (Loaf, Bagels, Breakfast Bread, and English Muffins).
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 1/1/23 ) • DKB is the #1 selling organic brand in the U.S. and the company’s #2 brand, with the top-selling organic brand in four different segments. (Loaf, Bagels, Breakfast Bread, and English Muffins).
Additionally, we have made and are continuing to make marketing investments to target e-commerce sales as consumers shift to more online shopping alternatives, such as grocery delivery sites, retailer websites and apps, among others. Customers Our top 10 customers in Fiscal 2021 accounted for 53.7% of sales.
Additionally, we have made and are continuing to make marketing investments to target e-commerce sales as consumers shift to more online shopping alternatives, such as grocery delivery sites, retailer websites and apps, among others. 7 Customers Our top 10 customers in Fiscal 2022 accounted for 54.5% of sales.
During Fiscal 2021, our largest customer, Walmart/Sam’s Club, represented 21.2% of the company’s sales. The loss of, or a material negative change in our relationship with, Walmart/Sam’s Club or any other major customer could have a material adverse effect on our business.
During Fiscal 2022, our largest customer, Walmart/Sam’s Club, represented 21.7% of the company’s sales. The loss of, or a material negative change in our relationship with, Walmart/Sam’s Club or any other major customer could have a material adverse effect on our business.
Furthermore, in recognition and support of our frontline workers, we paid a total of $5.2 million and $12.3 million in appreciation bonuses to eligible hourly and non-exempt employees, leased labor, and contract workers in Fiscal 2021 and 2020, respectively. These appreciation bonuses are in addition to the company’s annual performance-based cash incentive plan, in which all Flowers employees participate.
Furthermore, in recognition and support of our frontline workers, we paid a total of $5.2 million of appreciation bonuses to eligible hourly and non-exempt employees, leased labor, and contract workers in Fiscal 2021. These appreciation bonuses were in addition to the company’s annual performance-based cash incentive plan, in which all Flowers employees participate.
Nature’s Own’s sales, at retail, were $1.3 billion for Fiscal 2021. • Nature’s Own Honey Wheat is the #1 Universal Product Code (“UPC”) in the U.S. Fresh Packaged Bread category based on dollars and units. Nature’s Own Butterbread is the #2 UPC in the loaf category based on dollars and units.
Nature’s Own’s sales, at estimated retail, were $1.4 billion for Fiscal 2022. • Nature’s Own Honey Wheat is the #1 Universal Product Code (“UPC”) in the U.S. Fresh Packaged Bread category based on dollars and units. Nature’s Own Butterbread is the #2 UPC in the loaf category based on dollars and units.
Our operations may continue to experience disruption due to the continued uncertainty caused by the pandemic, including but not limited to additional variants of the COVID-19 virus, new geographic hotspots, changes in the number of COVID-19 cases, the rate of vaccination within the U.S. population and the efficacy of the vaccines, changes in the global and U.S. economic environment, and changes in pandemic safety policies.
Our operations may continue to experience disruption due to the continued uncertainty caused by the pandemic, including, but not limited to, additional variants of the COVID-19 virus, new geographic hotspots, changes in the number of COVID-19 cases, the rate of vaccination within the U.S. population, the efficacy, or lack thereof, of the vaccines, changes in the global and U.S. economic environment, supply chain disruptions and labor shortages, and changes in pandemic safety policies.
Our benefits package includes: • comprehensive health insurance coverage to employees working 30 hours or more each week; • parental leave to all new parents for birth, adoption or foster placement; • short-term disability to provide wage protection for up to six months; • a tuition reimbursement program; and • a 401(k) plan with generous company match.
Our benefits package includes: • comprehensive health insurance coverage to employees working 30 hours or more each week; • parental leave to all new parents for birth, adoption or foster placement; 11 • short-term disability to provide wage protection for up to six months; • a tuition reimbursement program; and • a 401(k) plan (certain union-affiliated employees participate in a company-sponsored pension or multi-employer plan) with generous company match.
(Source: IRI Flowers custom database, 52 weeks ending 12-26-21; Flowers private label sales from SDW): The current competitive landscape for breads and rolls in the U.S. baking industry consists of Bimbo Bakeries USA (BBU), Flowers Foods, and Campbell Soup Company, under the Pepperidge Farm brand, along with a number of smaller independent regional bakers, local bakeries, and retailer-owned bakeries.
(Source: IRI Flowers custom database, 52 weeks ending 1/1/23 ): The current competitive landscape for breads and rolls in the U.S. baking industry consists of Bimbo Bakeries USA (BBU), Flowers Foods, and Campbell Soup Company, under the Pepperidge Farm brand, along with a number of smaller independent regional bakers, local bakeries, and retailer-owned bakeries.
The company is not a party to any material proceedings arising under these laws and regulations. We believe compliance with existing environmental laws and regulations will not materially affect the Consolidated Financial Statements or the competitive position of the company. The company is currently in substantial compliance with all material environmental laws and regulations affecting the company and its properties.
The company is not a party to any material proceedings arising under these laws and regulations. We believe compliance with existing environmental laws and regulations will not materially affect the Consolidated Financial Statements or the competitive position of the company.
In Fiscal 2020, our sales mix shifted to more profitable branded retail products due to increases in at-home dining resulting from COVID-19, which led to increased sales and operating income , further illustrating the potential of an optimized portfolio. In Fiscal 2021, we have continued to benefit from this positive shift in sales mix.
In Fiscal 2020, our sales mix shifted to more profitable branded retail products due to increases in at-home dining resulting from COVID-19, which led to increased sales and operating income, further illustrating the potential of an optimized portfolio.
We believe this centralized distribution system allows us to achieve both production and distribution efficiencies. Products coming from different bakeries are then cross-docked and shipped directly to customers’ warehouses nationwide. Our frozen bread and roll products are shipped to various outside freezer facilities for distribution to our customers.
We believe this centralized distribution system allows us to achieve both production and distribution efficiencies. Products coming from different bakeries are then cross-docked and shipped directly to customers’ warehouses nationwide. Our frozen bread and roll products are shipped to various outside freezer facilities for distribution to our customers. Intellectual Property We own many trademarks, trade names, patents, and licenses.
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 12/26/21 ) DKB’s sales, at retail, were $875 million for Fiscal 2021. • Canyon Bakehouse, acquired at the end of Fiscal 2018, is the #1 selling gluten-free bread brand in the U.S.
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 1/1/23 ) DKB’s sales, at estimated retail, were $965 million for Fiscal 2022. • Canyon Bakehouse, acquired at the end of Fiscal 2018, is the #1 selling gluten-free bread brand in the U.S.
The table below presents the approximate number of territories used by the company as of January 1, 2022: Type of territory Number of territories Independent distributor-owned and operated territories 5,340 Territories classified as available for sale 432 Other company operated territories 80 Total territories 5,852 Our warehouse distribution system delivers a portion of our packaged bakery snack products from a central distribution facility located near our Crossville, Tennessee snack cake bakery.
The table below presents the approximate number of territories used by the company as of December 31, 2022: Type of territory Number of territories Independent distributor-owned and operated territories 5,137 Territories classified as available for sale 507 Other company operated territories 143 Total territories 5,787 Our warehouse distribution system delivers a portion of our packaged bakery snack products from a central distribution facility located near our Crossville, Tennessee snack cake bakery.
Our principal products are breads, buns, rolls, snack cakes, and tortillas. The table below presents the major brands within our diversified brand portfolio: Strategic Positioning Key Brands Mainstream Nature's Own, Wonder, Tastykake Organic Dave's Killer Bread Gluten Free Canyon Bakehouse Brand Highlights • Nature’s Own is the best-selling loaf bread in the U.S.
The table below presents the major brands within our diversified brand portfolio: Strategic Positioning Key Brands Mainstream Nature's Own, Wonder, Tastykake Organic Dave's Killer Bread Gluten Free Canyon Bakehouse Brand Highlights • Nature’s Own is the best-selling loaf bread in the U.S.
We also are subject to the regulations of various state agencies, with respect to production processes, product quality, packaging, labeling, storage, distribution, labor, and local regulations regarding the licensing of bakeries and the enforcement of state standards and facility 9 inspections.
We also are subject to the regulations of various state agencies, with respect to production processes, product quality, packaging, labeling, storage, distribution, labor, and local regulations regarding the licensing of bakeries and the enforcement of state standards and facility inspections. Under various statutes and regulations, these federal and state agencies prescribe requirements and establish standards for quality, purity, and labeling.
These metrics could include statistics pertaining to retention, attrition, and promotion and statistics on DEI trainings administered, among others. 11 Additionally, we regularly conduct anonymous surveys to capture feedback from our team members on a variety of topics, including, but not limited to, confidence in company leadership, competitiveness of our compensation and benefits package, career growth opportunities and how we can make our company an employer of choice.
Additionally, we regularly conduct anonymous surveys to capture feedback from our team members on a variety of topics, including, but not limited to, confidence in company leadership, competitiveness of our compensation and benefits package, career growth opportunities and how we can make our company an employer of choice.
M&A has always been, and we expect will continue to be, an important part of our long-term growth strategy. We employ a disciplined approach to M&A, seeking out candidates primarily in the grain-based foods arena that will enhance our branded portfolio, extend our geographic presence, are a strong cultural fit, and add enhanced capabilities to our company.
We employ a disciplined approach to M&A, seeking out candidates primarily in the grain-based foods arena that will enhance our branded portfolio, extend our geographic presence, are a strong cultural fit, and add enhanced capabilities to our company.
We expect this initiative will require significant capital investment and expense over the next several years. See Item 1A., Risk Factors , “We may experience difficulties in designing and implementing the upgrade of our ERP system.” 6 Segment Since the beginning of Fiscal 2019, we have managed our business as one operating segment.
See Item 1A., Risk Factors , “We may experience difficulties in designing and implementing the upgrade of our ERP system.” Segment Since the beginning of Fiscal 2019, we have managed our business as one operating segment.
The company provides its employees with resources to enhance their skills and careers, including: • Elevating the long-term impact of learning and development in the Flowers organization by investing in a new Learning Management System in Fiscal 2022. • Providing a range of formal and informal learning programs, which are designed to help employees continuously grow throughout their careers.
The company provides its employees with resources to enhance their skills and careers, including: • Promoting education and development by investing in our internal Learning Management System in Fiscal 2022 and 2023. • Providing a range of formal and informal learning programs designed to help employees continuously develop skills throughout their careers.
The company currently operates 243 such stores and reported sales of $60.3 million during Fiscal 2021 from these outlets.
The company currently operates 238 such stores and reported sales of $64.5 million during Fiscal 2022 from these outlets.
Our legacy of excellence is built on 100+ years of hard work by thousands of Flowers team members. As W.H. Flowers, Jr. said, “ The key to any enterprise or goal is people.
Approximately 930 employees are covered by collective bargaining agreements and there are no material outstanding labor disputes. Our legacy of excellence is built on 100+ years of hard work by thousands of Flowers team members. As W.H. Flowers, Jr. said, “ The key to any enterprise or goal is people.
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 12/26/21 ) Canyon Bakehouse’s sales, at retail, were $137 million for Fiscal 2021. 7 • Wonder , over 100 years old , enjoys 98% brand awareness (Source: Kantar Brand Health Tracking Study - Q4 2020 ) .
(Source: IRI Total US MultiOutlet+C-Store L52 Weeks Ending 1/1/23 ) Canyon Bakehouse’s sales, at estimated retail, were $159 million for Fiscal 2022. • Wonder , over 100 years old, enjoys 94% brand awareness (Source: Kantar Brand Health Tracking Study - Summer 2022 ).
Flowers is also a proud second chance employer, furthering the commitment started by its DKB brand. Established in 2015, the Dave’s Killer Bread Foundation helps businesses create meaningful and sustainable employment opportunities for individuals impacted by the criminal justice system. At Flowers, we have implemented recruitment initiatives at our bakeries to attract and retain ex-offenders.
Flowers is also a proud second chance employer for individuals impacted by the criminal justice system, furthering the commitment that began when we acquired the DKB brand in Fiscal 2015. At Flowers, we have implemented recruitment initiatives at our bakeries to attract and retain ex-offenders.
Other factors that may negatively affect our ability to efficiently operate our production lines or run at full capacity might include, but are not limited to, a labor shortage or increased turnover rates within our workforce that could lead to increased labor costs, including additional overtime to meet demand and higher wage rates to attract and retain workers.
These challenges may negatively affect our ability to operate our production lines efficiently or run at full capacity which could lead to increased labor costs, including additional overtime to meet demand and higher wage rates to attract and retain workers.
Raw Materials Our primary baking ingredients are flour, sweeteners, shortening, yeast and water. We also purchase organic and gluten-free ingredients. We also use paper products, such as corrugated containers, folding cartons, films and plastics to package our bakery foods. We strive to maintain diversified sources for all of our baking ingredients and packaging products.
We also purchase organic and gluten-free ingredients. We also use paper products, such as corrugated containers, folding cartons, films and plastics to package our bakery foods. We strive to maintain diversified sources for all of our baking ingredients and packaging products. In addition, we are dependent on natural gas or propane as fuel for firing our ovens.
Our main focus throughout the pandemic has been and continues to be the health and safety of our team members and independent distributor partners. From the start of the pandemic, we have followed the guidance of the U.S. Centers for Disease Control and Prevention (CDC), taking a number of recommended steps to safeguard those in our facilities.
Our main focus throughout the pandemic has been and continues to be the health and safety of our team members and independent distributor partners. We continue to follow the COVID-19 guidance of the U.S. Centers for Disease Control and Prevention (CDC).
We believe we are currently in substantial compliance with all material federal, state and local laws and regulations affecting the company and its properties.
The cost of compliance with such laws and regulations has not had a material adverse effect on the company’s business. We believe we are currently in substantial compliance with all material federal, state and local laws and regulations affecting the company and its properties.
Intellectual Property We own a number of trademarks, trade names, patents, and licenses. The company also sells products under franchised and licensed trademarks and trade names which we do not own pursuant to contractual arrangements. We consider all of our trademarks and trade names important to our business since we use them to build strong brand awareness and consumer loyalty.
The company also sells products under franchised and licensed trademarks and trade names which we do not own pursuant to contractual arrangements. We consider our trademarks and trade names important to our business since we use them to build strong brand awareness and consumer loyalty. 8 Raw Materials Our primary baking ingredients are flour, sweeteners, shortening, yeast and water.
During the first quarter of Fiscal 2021, we engaged a leading, global consulting firm to assist us in planning and implementing the upgrade of our ERP platform and serve as the system integrator for the project. We transitioned into the build phase of the project in the beginning of Fiscal 2022.
During the first quarter of Fiscal 2021, we engaged a leading, global consulting firm to assist us in planning and implementing the upgrade of our ERP platform and serve as the system integrator for the project. We expect the transformation strategy initiatives to require significant capital investment and expense over the next several years.
We believe executing on our strategic priorities will drive future growth and margin expansion and deliver meaningful shareholder value over time. COVID-19 We continue to monitor the impact of the ongoing COVID-19 pandemic on our business operations, results of operations, and liquidity.
We believe executing on our strategic priorities will drive future growth and margin expansion and deliver meaningful shareholder value over time. Current Inflationary Economic Environment, Other Macroeconomic Factors, and COVID-19 We continue to monitor the impact of the inflationary economic environment, supply chain disruptions, labor shortages, the conflict between Russia and Ukraine, and the COVID-19 pandemic on our business.
Competitive Overview The U.S. market for fresh and frozen bakery products is estimated at $43.2 billion at retail. This category is intensely competitive and has continued to experience consolidation. Flowers Foods is currently the second-largest company in the U.S. fresh baking industry based on market share as presented in the following chart (amounts may not compute due to rounding).
Flowers Foods is currently the second-largest company in the U.S. fresh baking industry based on market share as presented in the following chart (amounts may not compute due to rounding).
The store brand share of retail fresh packaged bread in the U.S. accounts for approximately 19% of the dollar sales and approximately 30% of unit sales, though its share has steadily declined over the past seven years, in particular, the last two years.
The store brand share of retail fresh packaged bread in the U.S. accounts for approximately 20% of the dollar sales and approximately 30% of unit sales.
The SEC allows us to disclose important information by referring to it in this manner, and you should review this information in addition to the information contained in this report.
Other Available Information Throughout this Form 10-K, we incorporate by reference information from parts of other documents filed with the SEC. The SEC allows us to disclose important information by referring to it in this manner, and you should review this information in addition to the information contained in this report.
The company’s board of directors (the “Board” or “Board of Directors”) receives regular updates from management on our inclusion and diversity efforts. We are currently developing a standard set of metrics to be included in these updates to the Board to evaluate our progress on these efforts.
The company’s board of directors (the “Board” or “Board of Directors”) receives regular updates from management on our inclusion and diversity efforts.
Over the past several years, we have completed brand rationalization initiatives resulting in a more streamlined brand and product assortment, reduced brand portfolio complexity , and increased efficiency.
We have established clear roles for the brands and product lines within our portfolio to enable more targeted decision-making on brand investment. Over the past several years, we have completed brand rationalization initiatives resulting in a more streamlined brand and product assortment, and reduced brand portfolio complexity.
Also, we believe our flexible bakery system has been crucial in navigating demand changes caused by the pandemic as we have been able to quickly shift production to high demand products and adjust distribution where needed. We are continuing to optimize our distribution system by reducing network complexity through depot consolidation and reducing transport miles.
Also, we believe our flexible bakery system allows us to quickly shift production to high demand products and adjust distribution where needed. We are continuing to optimize our distribution system by reducing network complexity through depot consolidation and reducing transport miles. M&A has always been, and we expect will continue to be, an important part of our long-term growth strategy.
In e-commerce, we strive to become a category and market share leader, engage with the consumer through digital platforms and marketplaces, and support our retail partners’ omnichannel strategies. The autonomous planning domain encompasses predictive ordering, cost-to-serve modeling, integrated business planning, and supply and demand forecasting, among other areas.
Digital Strategy Initiatives Our digital strategy initiatives include investments in digital domains of e-commerce, autonomous planning, bakery of the future, digital logistics, and digital sales. In e-commerce, we strive to become a category and market share leader, engage with the consumer through digital platforms and marketplaces, and support our retail partners’ omnichannel strategies.
We completed the initial planning and road mapping phase of these multi-year transformation initiatives at the end of Fiscal 2020 and transitioned into the design phase in early Fiscal 2021. Digital Strategy Initiatives Our digital strategy initiatives include investments in digital domains of e-commerce, autonomous planning, and bakery of the future.
We completed the initial planning and road mapping phase of this multi-year initiative at the end of Fiscal 2020, then transitioned into the design phase in early Fiscal 2021 and the build phase at the beginning of Fiscal 2022.
ERP Upgrade This initiative includes upgrading our information system to a more robust platform and is expected to improve data management and efficiencies while automating many of our processes.
To date, we have rolled out supply chain-focused domains to more than thirteen bakeries and plan to continue to invest in these new ways of working. ERP Upgrade This initiative includes upgrading our information system platform and is expected to improve data management and efficiencies while automating many of our processes.
The warehouse delivery system involves primarily delivering our products to customers’ warehouses. The company has sold the majority of the distribution rights for territories to independent distributors under long-term financing arrangements. Independent distributors, highly motivated by financial incentives from their distribution rights ownership, strive to increase sales by offering outstanding service and merchandising.
The warehouse delivery system involves primarily delivering our products to customers’ warehouses. The company has sold the majority of the distribution rights to market certain brands within a geographic territory to independent distributors under long-term financing arrangements.
Our brands are some of the best-known in the U.S. fresh packaged bread industry and many of them hold leading market positions in the categories in which they compete. We believe having a well-diversified portfolio of brands allows us to be more competitive in the marketplace and appeal to a broader range of consumers.
In Fiscal 2022, Branded Retail sales represented 65.3% of our total sales. Our brands are some of the best-known in the U.S. fresh packaged bread industry and many of them hold leading market positions in the categories in which they compete.
Under various statutes and regulations, these federal and state agencies prescribe requirements and establish standards for quality, purity, and labeling. Failure to comply with one or more regulatory requirements could result in a variety of sanctions, including monetary fines or compulsory withdrawal of products from store shelves.
Failure to comply with one or more regulatory requirements could result in a variety of sanctions, including monetary fines or compulsory withdrawal of products from store shelves. Advertising of our brands is subject to regulation by the Federal Trade Commission, and we are subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act.
To foster a greater culture of inclusion, in Fiscal 2021, the entire Flowers senior leadership team participated in unconscious bias training. In Fiscal 2022, Flowers intends to continue its development of diversity, equity, and inclusion (DE&I) training for its workforce.
In Fiscal 2022, we hired a dedicated resource to lead our diversity, equity, and inclusion (DE&I) efforts. To foster a greater culture of inclusion, during Fiscal 2022, Flowers' corporate employees and certain bakery employees received DE&I awareness training. In Fiscal 2023, Flowers intends to continue its development of DE&I training for its workforce.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity, or cash flows. Strategic Initiatives We are a brand-focused company dedicated to the consumer and committed to growing our most profitable brands through innovation, market expansion, and prudent mergers and acquisitions (“M&A”).
An overall labor shortage, lack of skilled labor, or increased turnover could have a material adverse impact on the company’s operations, results of operations, liquidity, or cash flows.
As we implement our targeted sales portfolio strategy, the flexibility of our production and distribution systems allows us to pivot capacity to meet this changing demand.
Remote and hybrid-work arrangements spurred by the pandemic endured through Fiscal 2022 which resulted in continued greater at-home food consumption as compared to pre-pandemic periods and a more optimized sales mix. As we implement our targeted sales portfolio strategy, the flexibility of our production and distribution systems allows us to pivot capacity to meet this changing demand.
For additional discussion on the impact of the pandemic on our results of operations, refer to Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Form 10-K.
For additional discussion on the impact of macroeconomic factors and the COVID-19 pandemic on our business, refer to Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Form 10-K. 4 Strategic Initiatives We are a brand-focused company dedicated to the consumer and committed to growing our most profitable brands through innovation, market expansion, and prudent mergers and acquisitions (“M&A”).
Additionally, unforeseen disruptions in other areas of our operations, including but not limited to procurement of raw materials, transport of our products, or recovery by our foodservice customers, could negatively impact our operations, results of operations, cash flows, and liquidity. During Fiscal 2021, we have experienced labor shortages at some of our bakeries.
Disruptions in our operations, related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and available workforce, have negatively impacted, and could continue to negatively impact, our operations, results of operations, cash flows, and liquidity.
In addition, we are dependent on natural gas or propane as fuel for firing our ovens. Commodities, such as our baking ingredients, periodically experience price fluctuations. The cost of these inputs may fluctuate widely due to government policy and regulation, weather conditions, domestic and international supply and demand, global logistics dynamics, or other unforeseen circumstances.
Prices of ingredients and packaging materials fluctuate and we continually monitor these markets. Ingredient and packaging costs are currently experiencing significant volatility. The cost of these inputs has fluctuated widely, and may continue to do so, due to government policy and regulation, weather conditions, domestic and international supply and demand, global logistics dynamics, or other unforeseen circumstances.
The transformation office is a cross-functional team responsible for over-overseeing the implementation of our strategic priorities, including our digital and ERP initiatives, which are discussed in more detail under the “Transformation Strategy Initiatives” section below. 5 A major focus of our long-term strategy is to evolve our sales portfolio to higher margin, value-added branded retail products that we expect will generate top line growth and improve overall profitability.
A major focus of our long-term strategy is to evolve our sales portfolio to higher margin, value-added branded retail products that we expect will generate top line growth and improve overall profitability. We expect an optimized portfolio will drive share gains by targeting growth segments with new, innovative products.
Beginning with the first quarter of Fiscal 2019, the comparative periods have been presented on a consolidated basis due to the change to a single operating segment. See Note 2, Summary of Significant Accounting Policies , of Notes to Consolidated Financial Statements of this Form 10-K for detailed financial information about our operating segment.
See Note 2, Summary of Significant Accounting Policies , of Notes to Consolidated Financial Statements of this Form 10-K for detailed financial information about our operating segment. 6 Brands & Products We report our sales as Branded Retail and Other. The Other category includes store branded retail, foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing.
In addition, Flowers is a long-time supporter of causes that support U.S. veterans and their families. Presently, Flowers employs more than 550 veterans. For current Flowers team members, the company offers competitive wages, benefits, and training opportunities, while also promoting a safe and healthy workplace.
Through this partnership, we have donated more than $1.8 million to the USO and some of our marketing campaigns and packaging tie-ins recognize the service and sacrifices of the military. Presently, Flowers employs more than 530 veterans. Flowers offers team members competitive wages, benefits, and training opportunities, while also promoting a safe and healthy workplace.
Human Capital Resources As of January 1, 2022 Flowers and its subsidiaries had approximately 8,900 employees located throughout the U.S. and approximately 4,300 long-term leased employees. Approximately 970 employees are covered by collective bargaining agreements and there are no material outstanding labor disputes.
Its dollar share had been steadily declining over the past seven years, however this trend reversed in Fiscal 2022. 10 Human Capital Resources As of December 31, 2022 Flowers and its subsidiaries had approximately 9,200 employees located throughout the U.S. and approximately 4,100 long-term leased employees.
We believe our strong balance sheet and cash flow generation will enable us to execute our M&A strategy. Transformation Strategy Initiatives In the second half of Fiscal 2020, we launched initiatives to transform how we operate our business.
We believe our strong balance sheet and cash flow generation enables us to execute our M&A strategy and on February 17, 2023, we completed the purchase of Papa Pita, a manufacturer and distributor of bagels, tortillas, breads, buns, English muffins, and flat breads.
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In recognition and support of our frontline workers, we paid a total of $5.2 million and $12.3 million in appreciation bonuses to eligible hourly and non-exempt employees, leased labor, and contract workers in Fiscal 2021 and 2020, respectively. These appreciation bonuses are in addition to the company’s annual performance-based cash incentive plan, in which all Flowers employees participate.
Added
Our results for Fiscal 2022 continued to benefit from a more optimized sales mix of branded retail products as compared to pre-pandemic periods. Remote and hybrid-work arrangements spurred by the pandemic endured in Fiscal 2022 which resulted in greater at-home food consumption than in pre-pandemic periods.
Removed
Our Fiscal 2021 sales declined compared to Fiscal 2020 primarily due to the additional week in the prior year. Fiscal 2020 benefitted from the significant rise in demand for our branded retail products at the beginning of the COVID-19 pandemic, as well as positive shifts in mix throughout the year and the additional week.
Added
We experienced significant input cost inflation for commodities and transportation, and, to a lesser extent, for labor in the current year which partially offset this benefit. To mitigate the ongoing cost pressures, we implemented price increases in Fiscal 2022 and in early Fiscal 2023.
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Comparatively, Fiscal 2021 benefitted from favorable pricing, a continued positive shift in mix from store branded retail to branded retail products, and a partial recovery in non-retail sales. As steps to mitigate the pandemic have waned, including the easing of mandatory shutdowns and restaurant closures, our non-retail sales have been recovering.
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Additionally, in the latter half of the first quarter and into the second quarter of Fiscal 2022, we experienced heightened supply chain disruptions which impacted our ability to procure adequate quantities of certain raw materials and particularly packaging items, resulting in lower production volumes.
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Compared to our historical pre-pandemic sales, our Fiscal 2021 sales were elevated as we continued to benefit from the positive mix shift to branded retail products and favorable pricing, partially offset by volume declines.
Added
Although we were able to mitigate these packaging shortages earlier than originally anticipated, our operating results were negatively impacted. These and other supply chain disruptions could continue to negatively impact production volumes due to uncertainty in the global and U.S. supply chain.
Removed
The unpredictability of the pandemic makes forecasting this recovery in non-retail sales difficult, but such a recovery or a significant shift in mix from branded retail to store branded retail products could negatively impact our results of operations, including our net sales, earnings, and cash flows.
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While the conflict between Russia and Ukraine has not impacted us directly, we are closely monitoring its effects on the broader economy, including on the availability and price of commodities used in or for the production of our products.
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We believe we have sufficient liquidity to satisfy our cash needs and we continue to take steps to preserve adequate liquidity during the ongoing pandemic as further discussed in Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations , of this Form 10-K.
Added
Labor shortages and turnover at some of our bakeries in Fiscal 2022 and 2021 hampered production levels. These and other factors, including, but not limited to, high employment rates and additional government regulations, may continue to adversely affect labor availability and labor costs.
Removed
As discussed further in the “Transformation Strategy Initiatives” section below, we are continuing to move forward with the ERP system upgrade and our digital strategy initiatives and do not anticipate the pandemic to materially alter the timing of these initiatives.
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We believe we have sufficient liquidity to satisfy our cash needs and we continue to execute on our strategic priorities, including our transformation strategy initiatives. The company completed the acquisition of the Papa Pita Bakery business ("Papa Pita") on February 17, 2023 as further discussed below.
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These steps included, but are not limited to, monitoring the symptoms of everyone entering our facilities, requiring face coverings, maintaining (where possible) social distancing of six feet, conducting enhanced cleaning and sanitizing of common areas and frequently touched surfaces, performing decontamination of work areas and equipment when there is a confirmed or presumptive case of COVID-19 at a facility, and contact tracing.
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We funded the purchase price with cash on-hand and from our senior unsecured revolving credit facility (the "credit facility"). The credit facility is variable rate debt and exposes the company to greater interest rate risk.
Removed
Company-wide bans on non-essential travel and non-essential visitors at all locations were put into place, corporate offices were closed, and office staff were directed to work remotely. In addition, the company issued regular communications about COVID-19 prevention steps.
Added
This realignment can take the form of organizational changes or providing crucial tools, including investments in our information systems. Our cross-functional transformation office is responsible for overseeing the implementation of our strategic priorities, including our digital and ERP initiatives, which are discussed in more detail under the “Transformation Strategy Initiatives” section below.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changePreviously, he served as senior vice president of DSD Regions/Sales from 2017 until 2020, as president of Flowers’ Phoenix, Arizona bakery from 2016 to 2017, as vice president of national accounts from 2013 to 2016, and as director of DSD cake sales in 2012. Mr.
Biggest changeHeeth Varnedoe IV Age 56 Chief Operating Officer Mr. Varnedoe was named chief operating officer effective January 1, 2023. He previously served as chief transformation officer from December 2020 until January 2023, senior vice president of DSD Regions/Sales from August 2017 until December 2020, and president of Flowers’ Phoenix, Arizona bakery from January 2016 to August 2017. Mr.
Previously, he served as executive vice president and CFO and chief administrative officer from May 2017 to April 2020. Mr. Kinsey served as executive vice president and CFO from 2008 until 2017, and as senior vice president and CFO from 2007 to 2008. Prior to those appointments, Mr. Kinsey served in various accounting roles since joining the company in 1989.
Previously, he served as executive vice president, CFO and chief administrative officer from May 2017 to April 2020. Mr. Kinsey served as executive vice president and CFO from 2008 until 2017, and as senior vice president and CFO from 2007 to 2008. Prior to those appointments, Mr. Kinsey served in various accounting roles since joining the company in 1989.
Acquisitions, including future acquisitions, require us to efficiently integrate the acquired business or businesses, which involves a significant degree of difficulty, including the following: • integrating the operations and business cultures of the acquired businesses while carrying on the ongoing operations of the businesses we operated prior to the acquisitions; • managing a significantly larger company than before consummation of the acquisitions; • the possibility of faulty assumptions underlying our expectations regarding the prospects of the acquired businesses; 15 • coordinating a greater number of diverse businesses and businesses located in a greater number of geographic locations; • attracting and retaining the necessary personnel associated with the acquisitions; • creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and • expectations about the performance of acquired trademarks and brands and the fair value of such trademarks and brands.
Acquisitions, including future acquisitions, require us to efficiently integrate the acquired business or businesses, which involves a significant degree of difficulty, including the following: • integrating the operations and business cultures of the acquired businesses while carrying on the ongoing operations of the businesses we operated prior to the acquisitions; • managing a significantly larger company than before consummation of the acquisitions; • the possibility of faulty assumptions underlying our expectations regarding the prospects of the acquired businesses; • coordinating a greater number of diverse businesses and businesses located in a greater number of geographic locations; • attracting and retaining the necessary personnel associated with the acquisitions; • creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and • expectations about the performance of acquired trademarks and brands and the fair value of such trademarks and brands.
Failure to comply with, or violations of, applicable laws and the regulatory requirements of one or more of these entities and agencies could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could result in 18 increased operating costs and adversely affect our results of operations and financial condition.
Failure to comply with, or violations of, applicable laws and the regulatory requirements of one or more of these entities and agencies could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could result in increased operating costs and adversely affect our results of operations and financial condition.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows. 14 Additionally, health care , workers’ compensation , postretirement welfare, and pension costs are increasing and will likely continue to do so.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows. Additionally, health care, workers’ compensation, postretirement welfare, and pension costs are increasing and will likely continue to do so.
The design and implementation of the upgrade to the ERP system 16 requires an investment of significant personnel and financial resources, including substantial expenditures for outside consultants, system hardware and software in addition to other expenses in connection with the transformation of our financial and operating processes.
The design and implementation of the upgrade to the ERP system requires an investment of significant personnel and financial resources, including substantial expenditures for outside consultants, system hardware and software in addition to other expenses in connection with the transformation of our financial and operating processes.
The willingness of our customers and consumers to purchase our products may depend in part on economic conditions. Worsening economic conditions or future challenges to economic growth could have a negative impact on consumer demand, which could adversely affect our business.
The willingness of our customers and consumers to purchase our products may depend in part on economic conditions. Worsening economic conditions or future challenges to economic growth could have a negative impact on consumer demand, which could adversely 12 affect our business.
Our inability to execute our business strategy could adversely affect our business. We employ various operating strategies to maintain our position as one of the nation’s leading producers and marketers of bakery products available to customers through multiple channels of distribution.
Our inability to execute our business strategy could adversely affect our business. 14 We employ various operating strategies to maintain our position as one of the nation’s leading producers and marketers of bakery products available to customers through multiple channels of distribution.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events and disruption to our manufacturing or distribution capabilities, or to effectively manage such events if they occur, could adversely affect our business, financial conditions and results of operations.
Failure to take adequate steps to mitigate the likelihood or potential impact of such events and disruption to our manufacturing or distribution 15 capabilities, or to effectively manage such events if they occur, could adversely affect our business, financial conditions and results of operations.
In an inflationary environment, such as the current economic environment, depending on the market conditions of the baking industry and the expected raising of interest rate by the United States Federal Reserve, we may be unable to raise the prices of our products enough to keep up with the rate of inflation, which would reduce our profit margins, and continued inflationary pressures could impact our business, financial condition, and results of operations.
In an inflationary environment, such as the current economic environment, depending on the market conditions of the baking industry and the raising of interest rates by the United States Federal Reserve, we may be unable to raise the prices of our products enough to keep up with the rate of inflation, which would reduce our profit margins, and continued inflationary pressures could impact our business, financial condition, and results of operations.
Operational Risks The extent to which the outbreak of the novel strain of coronavirus (“COVID-19”) and measures taken in response thereto, including any new and emerging variants of the virus and the efficacy and distribution of vaccines, may impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict.
The extent to which the outbreak of the novel strain of coronavirus (“COVID-19”) and measures taken in response thereto, including any new and emerging variants of the virus and the efficacy and distribution of vaccines, may impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict.
Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often-complex initiatives. Any failure to implement our initiatives could adversely affect our ability to grow margins. If we are unsuccessful in implementing or executing one or more of our business strategies, our business could be adversely affected.
Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often-complex initiatives. Any delay in, or failure to implement, our strategic initiatives could adversely affect our ability to grow margins. If we are unsuccessful in implementing or executing one or more of our business strategies, our business could be adversely affected.
McMullian served as vice president and associate general counsel from 2011 until 2015 and as associate general counsel from 2003, when he joined the company, until 2011. R. Steve Kinsey Age 61 Chief Financial Officer and Chief Accounting Officer Mr. Kinsey was named chief financial officer (“CFO”) and chief accounting officer (“CAO”) in April 2020.
McMullian served as vice president and associate general counsel from 2011 until 2015 and as associate general counsel from 2003, when he joined the company, until 2011. R. Steve Kinsey Age 62 Chief Financial Officer and Chief Accounting Officer Mr. Kinsey was named chief financial officer (“CFO”) and chief accounting officer (“CAO”) in April 2020.
Previously, he served as COO from July 2018 until May 2019. Mr. McMullian served as chief strategy officer from May 2017 to July 2018, and as vice president of mergers and acquisitions and deputy general counsel from 2015 until 2017. Mr.
Previously, he served as chief operating officer from July 2018 until May 2019. Mr. McMullian served as chief strategy officer from May 2017 to July 2018, and as vice president of mergers and acquisitions and deputy general counsel from 2015 until 2017. Mr.
Information about our Executive Officers The following table sets forth certain information regarding the persons who currently serve as the executive officers of Flowers Foods. 19 EXECUTIVE OFFICERS Name, Age and Office Business Experience A.Ryals McMullian Age 52 President and Chief Executive Officer Mr. McMullian was elected CEO in May 2019.
Information about our Executive Officers The following table sets forth certain information regarding the persons who currently serve as the executive officers of Flowers Foods. 19 EXECUTIVE OFFICERS Name, Age and Office Business Experience A. Ryals McMullian Age 53 President and Chief Executive Officer Mr. McMullian was elected president and chief executive officer in May 2019.
Item 1A. Risk Factors You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. These risk factors are not listed in any order of significance.
Item 1A. Ri sk Factors You should carefully consider the risks described below, together with the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. These risk factors are not listed in any order of significance.
The extent to which the spread of COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak and the emergence of any new or worsening variants, its severity, the actions to contain the virus or treat its impact, including the distribution and efficacy of vaccines, and how quickly and to what extent normal economic and operating conditions can resume.
The extent to which the spread of COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak and additional variants, its severity, the actions to contain the virus or treat its impact, including the distribution and efficacy of vaccines, and how quickly and to what extent normal economic and operating conditions can resume.
Some of the impacts our business has experienced, is experiencing or may experience as a result of COVID-19 include, but are not limited to, the following: • We experienced a favorable shift in sales mix to our branded retail products due to the change in consumer buying patterns as a result of COVID-19 during Fiscal 2021 and 2020, which positively impacted our business operations, including our sales, operating income and cash flows; • Many of our foodservice customers have periodically closed or restricted operations, which has adversely impacted our revenues from these customers, and has impacted, and could continue to impact, our ability to collect payment from these customers; • Consumer fears about contracting the disease have altered preferences and spending habits, including significant increases in purchases of fresh and frozen breads during the pendency of quarantines, shelter-in-place orders and other 13 shutdowns; and these trends have moderated in recent periods, which could negatively affect our performance in future periods as compared to prior periods if consumers were to purchase fewer products from us; • We have experienced, and may experience in the future, temporary facility closures or partial shutdowns in response to government mandates in certain jurisdictions in which we operate and in response to positive diagnoses for COVID-19 in certain facilities for the safety of our employees; • Our distribution networks, including our DSD distribution system and our warehouse delivery system, where we manage our inventory, or the operations of our logistics and other service providers may be disrupted, temporarily closed or experience worker shortages; • Disruptions to our suppliers that supply our ingredients, packaging, and other materials necessary to produce, distribute, and sell our products may affect the ability of our suppliers to fulfill their obligations to us and may cause disruptions to our operations; and • We also implemented a work from home policy for many of our corporate employees, which may negatively impact productivity and cause other disruptions to our business.
Some of the impacts our business has experienced, is experiencing or may experience as a result of COVID-19 include, but are not limited to, the following: • We experienced a favorable shift in sales mix to our branded retail products as compared to pre-pandemic periods due to the change in consumer buying patterns as a result of COVID-19, which positively impacted our business operations, including our sales, operating income and cash flows; • Consumer fears about contracting the disease have altered preferences and spending habits, including significant increases in purchases of fresh and frozen breads during the pendency of quarantines, shelter-in-place orders and other shutdowns; and these trends have moderated in recent periods, which could negatively affect our performance in future periods as compared to prior periods if consumers were to purchase fewer products from us; • We have experienced, and may experience in the future, temporary facility closures or partial shutdowns in response to government mandates in certain jurisdictions in which we operate and in response to positive diagnoses for COVID-19 in certain facilities for the safety of our employees; • Our distribution networks, including our DSD distribution system and our warehouse delivery system, where we manage our inventory, or the operations of our logistics and other service providers may be disrupted, temporarily closed or experience worker shortages; • Disruptions to our suppliers that supply our ingredients, packaging, and other materials necessary to produce, distribute, and sell our products may affect the ability of our suppliers to fulfill their obligations to us and may cause disruptions to our operations; and • We also implemented a work from home policy for many of our corporate employees, which may negatively impact productivity and cause other disruptions to our business.
The upgrade of the ERP system will be designed to accurately maintain our financial records, enhance our operational functionality and provide timely information to our management team related to the operations of the business.
The upgrade of the ERP system is designed to accurately maintain our financial records, enhance our operational functionality and provide timely information to our management team related to the operations of the business.
We have several large customers that account for a significant portion of sales, and the loss of one of our large customers could adversely affect our financial condition and results of operations. Our top ten customers accounted for 53.7% of sales during Fiscal 2021. Our largest customer, Walmart/Sam’s Club, accounted for 21.2% of sales during this period.
We have several large customers that account for a significant portion of sales, and the loss of one of our large customers could adversely affect our financial condition and results of operations. Our top ten customers accounted for 54.5% of sales during Fiscal 2022. Our largest customer, Walmart/Sam’s Club, accounted for 21.7% during this period.
In particular, we initiated under Project Centennial, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology, and (iii) an enhanced organizational structure.
In particular, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology, and (iii) an enhanced organizational structure.
The success of any acquisition or divestiture depends on the company’s ability to identify opportunities that help the company meet its strategic objectives, consummate a transaction on favorable contractual terms, and achieve expected returns and other financial benefits.
The success of any acquisition, divestiture or joint venture depends on the company’s ability to identify opportunities that help us meet our strategic objectives, consummate a transaction on favorable contractual terms, and achieve expected returns and other financial benefits.
Consolidation in the retail and foodservice industries could adversely affect our sales and profitability. We expect consolidations among our retail and foodservice customers to continue. If this trend continues and our retail and foodservice customers continue to grow larger due to consolidation in their respective industries, they may demand lower pricing and increased promotional programs.
We expect consolidations among our retail and foodservice customers to continue. If this trend continues and our retail and foodservice customers continue to grow larger due to consolidation in their respective industries, they may demand lower pricing and increased promotional programs.
The independent distributors and third-party transportation companies are dependent upon gasoline and diesel for their vehicles. The cost of fuel may fluctuate widely due to economic and political conditions, government policy and regulation, war, or other unforeseen circumstances.
The independent distributors and third-party transportation companies are dependent upon gasoline and diesel for their vehicles. The cost of these fuels may fluctuate widely due to economic and political conditions, government policy and regulation, war or other conflicts (including the current situation in Ukraine), or other unforeseen circumstances.
Tillman Age 51 Chief Legal Counsel Ms. Tillman was named chief legal counsel effective January 2020. Previously, she served as vice president, chief compliance officer, and deputy general counsel from April 2011 to January 2020. Prior to that, Ms. Tillman served in various roles in the legal department since joining the company in 1995.
Previously, she served as vice president, chief compliance officer, and deputy general counsel from April 2011 to January 2020. Prior to that, Ms. Tillman served in various roles in the legal department since joining the company in 1995. D. Keith Wheeler Age 59 Chief Sales Officer Mr. Wheeler was named chief sales officer in May 2017.
We rely on several large customers for a significant portion of sales and the loss of one of our large customers could adversely affect our business, financial condition or results of operations.
We rely on several large customers for a significant portion of sales and the loss of one of our large customers or their decision to give higher priority to other brands could adversely affect our business, financial condition or results of operations.
Legal and Regulatory Risks Government regulation could adversely impact our results of operations and financial condition.
Legal and Regulatory Risks Government regulation, including labeling or warning requirements, could adversely impact our results of operations and financial condition.
If we are unable to implement the ERP system upgrade as planned, the effectiveness of our internal control over financial reporting could be adversely affected, our ability to assess those controls adequately could be delayed, and our financial condition, results of operations and cash flows could be negatively impacted.
If we are unable to implement the ERP system upgrade as planned, the effectiveness of our internal control over financial reporting could be adversely affected, our ability to assess those controls adequately could be delayed, and our financial condition, results of operations and cash flows could be negatively impacted. 16 Industry Risks Increases in costs and/or shortages of raw materials, fuels and utilities could adversely impact our profitability.
These measures have impacted and may further impact the consumer, our workforce and operations, as well as the workforce, operations and financial prospects of our customers, vendors and suppliers.
These measures have impacted and may further impact the consumer, our workforce and operations, as well as the workforce, operations and financial prospects of our customers, vendors and suppliers. There is considerable uncertainty regarding such measures and potential future measures.
Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us. Disputes with significant suppliers could also adversely affect our ability to supply products to our customers. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business, financial condition or results of operations.
Disputes with significant suppliers could also adversely affect our ability to supply products to our customers. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business, financial condition or results of operations. Our large customers may impose requirements on us that may adversely affect our results of operations.
Additional risks and uncertainties not presently known to us, or that we currently deem insignificant, may also impair our business operations. The occurrence of any of the following risks could harm our business, financial condition, liquidity, or results of operations.
Additional risks and uncertainties not presently known to us, or that we currently deem insignificant, may also impair our business operations. The occurrence of any of the following risks could harm our business, financial condition, liquidity, or results of operations. Operational Risks Economic conditions may negatively impact demand for our products, which could adversely impact our sales and operating profit.
COVID-19 has spread throughout the world, including the U.S., and has resulted in governmental and other regulatory authorities throughout the U.S. implementing numerous measures to try to contain the virus and any variants of the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns.
COVID-19 has spread throughout the world, including the U.S., and has resulted in governmental and other regulatory authorities throughout the U.S. implementing numerous measures to try to contain the virus and any variants of the virus.
Even if a product liability, consumer fraud or other claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image.
Even if a product liability, consumer fraud or other claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image. We also could be adversely affected if our customers or consumers in our principal markets lose confidence in the safety and quality of our products.
Previously, he served as president of Flowers Bakeries from July 2014 until May 2017. Prior to that, Mr. Wheeler served in various leadership roles, including regional senior vice president, regional controller, and bakery president. He joined the company in 1988. Item 1B. Unresolved Staff Comments. None
Previously, he served as president of Flowers Bakeries from July 2014 until May 2017. Prior to that, Mr. Wheeler served in various leadership roles, including regional senior vice president, regional controller, and bakery president. He joined the company in 1988. Tom Winters Age 59 Chief Supply Chain Officer Mr. Winters joined Flowers as chief supply chain officer in April 2022.
We also could be adversely affected if our customers or consumers in our principal markets lose confidence in the safety and quality of our products. 17 During f iscal years 2018 through 2021, we have been required, and may be required in future periods, to remove certain of our products from the market should they be mislabeled, contaminated, spoiled, tampered with or damaged, including as a result of inferior ingredients provided by any of our suppliers.
During fiscal years 2018 through 2022, we have been required, and may be required in future periods, to remove certain of our products from the market should they be mislabeled, contaminated, spoiled, tampered with or damaged, including as a result of inferior ingredients provided by any of our suppliers. 17 Consolidation in the retail and foodservice industries could adversely affect our sales and profitability.
He previously served as president of the Fresh Packaged Bread Business Unit from May 2019 to July 2020, senior vice president of retail accounts from May 2017 to May 2019, and senior vice president of sales from June 2008 to May 2017. Prior to that, Mr. Courtney served in various sales positions since joining the company in 1983.
Mark Courtney Age 62 Chief Brand Officer Mr. Courtney was named chief brand officer in July 2020. He previously served as president of the Fresh Packaged Bread Business Unit from May 2019 to July 2020, senior vice president of retail accounts from May 2017 to May 2019, and senior vice president of sales from June 2008 to May 2017.
Debo Mukherjee Age 54 Chief Marketing Officer Mr. Mukherjee joined Flowers as chief marketing officer in October 2017. Before joining Flowers, Mr. Mukherjee was founder and owner of Intacta Consulting Group, LLC, a marketing consulting firm, from 2015 to 2019. Prior to that, he served as CEO of Redco Foods, Inc. from 2011 to 2015.
Debo Mukherjee Age 55 Chief Marketing Officer Mr. Mukherjee joined Flowers as chief marketing officer in October 2017. Before joining Flowers, Mr. Mukherjee was founder and owner of Intacta Consulting Group, LLC, a marketing consulting firm, since 2015.
In situations where acquisitions or divestitures are not successfully implemented or completed, or the expected benefits of such acquisitions or divestitures are not otherwise realized, the company’s business or financial results could be negatively impacted.
We have had, and may have in the future, situations where acquisitions, divestitures or joint ventures are not successfully implemented or completed, or the expected benefits of such acquisitions or divestitures are not otherwise realized, which has, and may in the future, negatively impacted the company’s business, results of operations or financial condition.
The spread of COVID-19 has caused us to modify our business practices (including temporary bakery closures and restricting production at certain bakeries, restricting employee travel, developing social distancing plans for our employees, and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by governmental and other regulatory authorities or as we determine are in the best interests of our employees, customers, vendors and suppliers.
The spread of COVID-19 has caused us to modify our business practices and we may take further actions as may be required by governmental and other regulatory authorities or as we determine are in the best interests of our employees, customers, vendors and suppliers.
In addition, changes in tax or interest rates, whether due to recession, efforts to combat inflation, financial and credit market disruptions or other reasons, could negatively impact us. A disruption in the operation of our DSD distribution system could negatively affect our results of operations, financial condition and cash flows.
In addition, changes in tax or interest rates, whether due to recession, efforts to combat inflation, financial and credit market disruptions or other reasons, could negatively impact us.
Any of these events could exacerbate the other risks and uncertainties described herein, or in other reports filed with the SEC from time to time, and could materially adversely affect our business, results of operations and financial condition. Economic conditions may negatively impact demand for our products, which could adversely impact our sales and operating profit.
Any of these events could exacerbate the other risks and uncertainties described herein, or in other reports filed with the SEC from time to time, and could materially adversely affect our business, results of operations and financial condition. 13 A disruption in the operation of our DSD distribution system could negatively affect our results of operations, financial condition and cash flows.
Uncertainty regarding labeling standards has led to customer confusions and legal challenges. In addition, our operations are subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency related to the discharge of materials into the environment and the handling and disposition of wastes.
Such factors could adversely affect our sales and results of operations. 18 In addition, our operations are subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency related to the discharge of materials into the environment and the handling and disposition of wastes.
These customers do not typically enter long-term sales contracts, and instead make purchase decisions based on a combination of price, product quality, consumer demand, and customer service performance. At any time, they may use more of their shelf space, including space currently used for our products, for store branded products or for products from other suppliers.
These customers do not typically enter long-term sales contracts, and instead make purchase decisions based on a combination of price, product quality, consumer demand, and customer service performance.
The growth of large mass merchandisers, supercenters and dollar stores, together with changes in consumer shopping patterns, have produced large, sophisticated customers with increased buying power and negotiating strength.
From time to time, our large customers may re-evaluate or refine their business practices and impose new or revised requirements on us, the distributors, and the customers’ other suppliers. The growth of large mass merchandisers, supercenters and dollar stores, together with changes in consumer shopping patterns, have produced large, sophisticated customers with increased buying power and negotiating strength.
Benton served as senior vice president and chief manufacturing officer from January 2015 to May 2017 and as senior vice president of manufacturing and operations support from March 2011 until January 2015. Prior to that, he held various manufacturing positions since joining the company in 1980. Mark Chaffin Age 51 Chief Information Officer Mr.
He previously served as chief supply chain officer from May 2017 until November 2019. Mr. Benton served as senior vice president and chief manufacturing officer from January 2015 to May 2017 and as senior vice president of manufacturing and operations support from March 2011 until January 2015.
Varnedoe joined Flowers in 1990 and held a number of positions before leaving the company in 2000 to pursue other business interests. He rejoined Flowers in 2012. 20 Name, Age and Office Business Experience D. Keith Wheeler Age 58 Chief Sales Officer Mr. Wheeler was named chief sales officer in May 2017.
Varnedoe joined Flowers in 1990 and held a number of positions before leaving the company in 2000 to pursue other business interests. He rejoined Flowers in 2012. Robert L. Benton, Jr. Age 65 Executive Vice President of Network Optimization Mr. Benton was named executive vice president of network optimization in November 2019.
He previously served as president of the Snacking/Specialty Business Unit from May 2017 to July 2020 and as senior vice president of organics from September 2015 until May 2017. Mr. Roach served in various sales and management positions since joining the company in 1992. Tonja Taylor Age 62 Chief Human Resources Officer Ms.
He previously served as president of cake operations from July 2020 until August 2022, president of the Snacking/Specialty Business Unit from May 2017 to July 2020, and senior vice president of organics from September 2015 until May 2017. Mr.
We may be adversely impacted by the failure to successfully execute acquisitions and divestitures and integrate acquired operations. From time to time, the company undertakes acquisitions or divestitures.
We may be adversely impacted by the failure to successfully realize the expected benefits of acquisitions, divestitures or joint ventures. From time to time, we undertake acquisitions, divestitures, joint ventures and co-investments.
He also served as CIO at sgsco, a global package and brand design and marketing company, from 2015 to 2019 and as CIO for Acosta Sales and Marketing from 2007 to 2015. H. Mark Courtney Age 61 Chief Brand Officer Mr. Courtney was named chief brand officer in July 2020.
Chaffin was a partner in the Southeast practice of Fortium Partners, a provider of technology leadership services, from 2019 until joining Flowers. He also served as CIO at SGSCO, a global package and brand design and marketing company, from 2015 to 2019 and as CIO for Acosta Sales and Marketing from 2007 to 2015. H.
He also held marketing roles at Mars Inc., Unilever, H.J. Heinz Co. and The Hershey Company. David M. Roach Age 52 President, Cake Operations Mr. Roach was named president of cake operations in July 2020.
Prior to that, he served as CEO of Redco Foods, Inc. from 2011 to 2015 and held marketing roles at Mars Inc., Unilever, H.J. Heinz Co. and The Hershey Company. David M. Roach Age 53 Chief Strategic Projects Officer Mr. Roach was named chief strategic projects officer in August 2022.
Chaffin was named chief information officer (“CIO”) in February 2020 after serving four months in an interim capacity. Prior to joining Flowers, Mr. Chaffin was a partner in the Southeast practice of Fortium Partners, a provider of technology leadership services, from 2019 until joining Flowers.
Prior to that, he held various manufacturing positions since joining the company in 1980. Mark Chaffin Age 52 Chief Information Officer Mr. Chaffin was named chief information officer (“CIO”) in February 2020 after serving four months in an interim capacity. Prior to joining Flowers, Mr.
The cost of these inputs may fluctuate widely due to foreign and domestic government policies and regulations, weather conditions, domestic and international demand and supply, armed conflict or political instability, including any escalation of hostility arising out of the conflict between Russia and the Ukraine, or other unforeseen circumstances.
Raw materials, such as flour, sweeteners, shortening, yeast, and water, which are used in our bakery products, are subject to price fluctuations. The cost of these inputs may fluctuate widely due to foreign and domestic government policies and regulations, inflation, weather conditions, domestic and international demand, availability due to supply chain conditions, or other unforeseen circumstances.
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There is considerable uncertainty regarding such measures and potential future measures, such as restrictions on our access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our customers, vendors and suppliers.
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We may not be able to attract or retain the highly skilled people we need to support our business. We depend on the skills and continued service of key personnel, including our experienced management team.
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Industry Risks Increases in costs and/or shortages of raw materials, fuels and utilities could adversely impact our profitability. Raw materials, such as flour, sweeteners, shortening, yeast, and water, which are used in our bakery products, are subject to price fluctuations.
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In addition, our ability to achieve our strategic and operating goals depends on our ability to attract, recruit, hire, develop, and retain qualified individuals, including individuals with e-commerce, digital marketing, and data analytics capabilities.
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Our large customers may impose requirements on us that may adversely affect our results of operations. From time to time, our large customers may re-evaluate or refine their business practices and impose new or revised requirements on us, the distributors, and the customers’ other suppliers.
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We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, recruit, hire, develop, and retain other talented personnel. Any such loss, failure or negative perception with respect to these individuals may adversely affect our business or financial results.
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Bradley K. Alexander Age 63 Chief Operating Officer Mr. Alexander was named COO in May 2019.
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In addition, activities related to identifying, recruiting, hiring, and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who terminate their employment or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Removed
Previously, he served as president of the Fresh Packaged Bread Business Unit from May 2017 to May 2019, as executive vice president and COO of Flowers Foods from July 2014 to May 2017, and as president of Flowers Bakeries from July 2008 to July 2014. Mr. Alexander joined the company in 1981. Robert L. Benton, Jr.
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The growing use of social and digital media platforms by consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Brand recognition and loyalty can be impacted by the effectiveness of our advertising campaigns, marketing programs and sponsorships, as well as our use of social media.
Removed
Age 64 Executive Vice President of Network Optimization Mr. Benton was named executive vice president of network optimization in November 2019. He previously served as chief supply chain officer from May 2017 until November 2019. Mr.
Added
Co-investments with third parties through partnership, joint ventures, or other entities, may involve non-controlling, illiquid interests and limited decision-making authority.
Removed
Taylor was named chief human resources officer in May 2017. She served as senior vice president of human resources from September 2013 until May 2017 and as vice president of human resources from June 2008 until September 2013. Prior to these appointments, Ms. Taylor held various human resources positions since joining the company in 1999. Stephanie B.
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Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third-party not involved, including the possibility that our joint venture partners might become bankrupt, fail to fund their share of required capital contributions, make poor business decisions, or block or delay necessary decisions.
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Heeth Varnedoe IV Age 55 Chief Transformation Officer Mr. Varnedoe was named chief transformation officer in December 2020.
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Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses. In addition, we may in certain circumstances be liable for the actions of our joint venture partners.
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Cyber-attacks and other cyber incidents are occurring more frequently in the United States and are becoming more sophisticated with a wide range of expertise and motives. Such cyber-attacks and cyber incidents can take many forms, including extortion, denial of service, or social engineering through phishing or malware emails.
Added
In addition, the risk of cyber-attacks has increased in connection with the military conflict between Russia and Ukraine and the resulting geopolitical conflict.
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In light of those and other geopolitical events, nation-state actors or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, result in data compromise, or both. These circumstances increase the likelihood of cyber-attacks and/or security breaches.
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We may incur significant costs in protecting or remediating cyber-attacks or other cyber incidents.
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The global economy has been negatively impacted by the military conflict between Russia and Ukraine. The Russia-Ukraine conflict is fast-moving and uncertain. Global grain markets have exhibited increased volatility as sanctions have been imposed on Russia by the United States, the United Kingdom, the European Union, and others in response to Russia’s invasion of Ukraine.
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While we do not expect our operations to be directly impacted by the conflict at this time, changes in global grain and commodity flows could impact the markets in which we operate, which may in turn negatively impact our business, results of operations, supply chain and financial condition.
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At any time, there is a risk that our customers will give higher priority to their own products or to the products of our competitors, resulting in less shelf space for our products. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us.
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Uncertainty regarding labeling standards has led to customer confusions and legal challenges.
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The imposition or proposed imposition of additional product labeling or warning requirements could reduce overall consumption of our products, lead to negative publicity (whether based in scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs.
Added
Prior to that, Mr. Courtney served in various sales positions since joining the company in 1983. Cindy L. Cox Age 56 Chief Human Resources Officer Ms. Cox joined Flowers as chief human resources officer in February 2023.
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Before joining Flowers, she served as vice president of human resources for the Refrigeration segment of Carrier Corporation, the leading global provider of healthy, safe, sustainable, and intelligent building and cold chain solutions (“Carrier”), since July 2017. During her 27-year tenure with Carrier and Pratt & Whitney, she held multiple human resources roles of increasing scale and responsibility.
Added
Roach served in various sales and management positions since joining the company in 1992. 20 Name, Age and Office Business Experience Stephanie B. Tillman Age 52 Chief Legal Counsel Ms. Tillman was named chief legal counsel and corporate secretary effective January 2020.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur production plant locations are: State City State City Alabama Birmingham Kentucky London Alabama Montgomery Louisiana Baton Rouge Alabama Tuscaloosa Louisiana Lafayette Arizona Mesa Louisiana New Orleans Arizona Phoenix Maine Lewiston (2 locations) Arizona Tolleson Nevada Henderson Arkansas Batesville North Carolina Goldsboro Arkansas Texarkana North Carolina Jamestown California Modesto (Leased) North Carolina Newton Colorado Johnstown Oregon Milwaukie Florida Bradenton Pennsylvania Oxford Florida Jacksonville Pennsylvania Philadelphia (Leased) Florida Lakeland Tennessee Cleveland Florida Miami Tennessee Crossville Georgia Atlanta Tennessee Knoxville Georgia Savannah Texas Denton Georgia Suwanee Texas El Paso Georgia Thomasville Texas Houston (2 locations) Georgia Tucker Texas San Antonio Georgia Villa Rica Texas Tyler Kansas Lenexa Virginia Lynchburg Kentucky Bardstown Virginia Norfolk In Thomasville, Georgia, the company leases properties that house shared services functions and our IT group and owns several properties for our corporate offices.
Biggest changeThe table below sets forth the production and sales operations in our bakeries: Alabama Kansas Tennessee Birmingham (PS) Lenexa (PS) Cleveland (P) Montgomery (P) Kentucky Crossville (PS)* Tuscaloosa (P) Bardstown (PS) Knoxville (PS) Arizona London (PS)* Texas Mesa (PS)* Louisiana Denton (PS) Tolleson (P) Baton Rouge (PS) El Paso (PS) Arkansas Lafayette (P) Houston (P) Batesville (PS) New Orleans (PS) Houston (PS) Texarkana (P) Maine San Antonio (PS) California Lewiston (P) Tyler (PS) Modesto (Leased) (PS) Lewiston (PS) Utah Colorado Nevada West Jordan (PS) Johnstown (P) Henderson (PS) Virginia Florida North Carolina Lynchburg (P) Bradenton (PS) Goldsboro (PS) Norfolk (PS) Jacksonville (PS) Jamestown (PS) Lakeland (PS) Newton (PS) Miami (PS) Oregon Georgia Milwaukie (PS) Atlanta (P) Pennsylvania Savannah (PS) Oxford (PS) Suwanee (P) Philadelphia (Leased) (PS) Thomasville (PS) Tucker (P) Villa Rica (PS) P - Production Only PS - Production and Sales *Only thrift store sales We believe our facilities are well-maintained and adequate, that they are being appropriately utilized and that they have sufficient production utilization for their present intended purposes.
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Item 2. Properties The company currently operates 46 bakeries, of which 44 are owned and two are leased. We believe our properties are in good condition, well maintained, and sufficient for our present operations.
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Item 2. Pr operties Our principal executive offices are company owned and located in Thomasville, Georgia. The company also leases properties that are used for shared services functions and our IT group and owns several properties for our corporate offices.
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The company also houses an additional shared services center at its Phoenix, Arizona bakery.
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The company also has an additional shared services center in Phoenix, Arizona. 21 We operate 46 bakeries across the continental U.S. Each of the listed bakeries is company owned except for Modesto, California and Philadelphia, Pennsylvania. We believe that our bakeries have adequate production utilization and can meet the current operational requirements for the operation of the business.
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Additionally, across the continental U.S. in the markets we serve, we own approximately 140 warehouse/distribution centers and lease approximately 480 warehouse/distribution centers.
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Utilization is actual labor time as a percent of available hours of production in a week (based on 120 hours/week for three shifts). On a consolidated basis during Fiscal 2022, our average quarterly production utilization ranged from 92% to 97% across all bakeries.
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During heightened periods of demand, the company can improve utilization by streamlining production with longer production runs and fewer differentiated products produced. Production utilization is not materially different when a sales facility is also located at the bakery.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings For a description of all material pending legal proceedings, See Note 22, Commitments and Contingencies , of Notes to Consolidated Financial Statements of this Form 10-K. Item 4. Mine Safety Disclosures Not Applicable 21 PART II
Biggest changeItem 3. Legal Proceedings For a description of all material pending legal proceedings, See Note 22, Commitments and Contingencies , of Notes to Consolidated Financial Statements of this Form 10-K. Item 4. Mine Saf ety Disclosures Not Applicable 22 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDecember 31, 2016 December 30, 2017 December 29, 2018 December 28, 2019 January 2, 2021 January 1, 2022 FLOWERS FOODS INC 100.00 100.22 98.33 120.94 130.29 163.68 S&P 500 INDEX 100.00 121.83 115.49 153.58 181.35 233.41 S&P 500 PACKAGED FOODS & MEATS INDEX 100.00 101.35 82.14 107.52 112.54 127.26 S&P MIDCAP 400 INDEX 100.00 116.24 102.31 130.36 148.26 184.97 Companies in the S&P 500 Index, the S&P 500 Packaged Foods and Meats Index, and the S&P MidCap 400 Index are weighted by market capitalization and indexed to $100 at December 31, 2016.
Biggest changeDecember 30, 2017 December 29, 2018 December 28, 2019 January 2, 2021 January 1, 2022 December 31, 2022 FLOWERS FOODS INC 100.00 98.11 120.67 130.00 163.32 176.34 S&P 500 INDEX 100.00 94.80 126.06 148.85 191.58 156.88 S&P 500 PACKAGED FOODS & MEATS INDEX 100.00 81.05 106.09 111.04 125.56 137.34 S&P MIDCAP 400 INDEX 100.00 88.01 112.15 127.54 159.12 138.34 Companies in the S&P 500 Index, the S&P 500 Packaged Foods and Meats Index, and the S&P MidCap 400 Index are weighted by market capitalization and indexed to $100 at December 30, 2017.
Purchases of Equity Securities by the Issuer The company did not purchase any shares of its common stock during the fourth quarter of Fiscal 2021. 22 Stock Performance Graph The chart below is a comparison of the cumulative total return (assuming the reinvestment of all dividends paid) of our common stock, Standard & Poor’s 500 Index, Standard & Poor’s 500 Packaged Foods and Meats Index, and Standard & Poor’s MidCap 400 Index for the period December 31, 2016 through January 1, 2022 the last day of our 2021 fiscal year.
Purchases of Equity Securities by the Issuer The company did not purchase any shares of its common stock during the fourth quarter of Fiscal 2022. 23 Stock Performance Graph The chart below is a comparison of the cumulative total return (assuming the reinvestment of all dividends paid) of our common stock, Standard & Poor’s 500 Index, Standard & Poor’s 500 Packaged Foods and Meats Index, and Standard & Poor’s MidCap 400 Index for the period December 30, 2017 through December 31, 2022 the last day of our 2022 fiscal year.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Shares of the company’s common stock are quoted on the New York Stock Exchange (the “NYSE”) under the symbol “FLO.” Holders As of February 17, 2022, there were approximately 3,307 holders of record of the company’s common stock.
Item 5. Market for the Registrant’s Common Equity, Related S tockholder Matters and Issuer Purchases of Equity Securities Market Information Shares of the company’s common stock are quoted on the New York Stock Exchange (the “NYSE”) under the symbol “FLO.” Holders As of February 16, 2023, there were approximately 3,281 holders of record of the company’s common stock.
Flowers Foods’ share price is also indexed to $100 at December 31, 2016. Item 6. [Reserved] 23
Flowers Foods’ share price is also indexed to $100 at December 30, 2017. Item 6. [Reserved] 24

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeLosses are recorded in the selling, distribution and administrative expenses line item of the Consolidated Statements of Income. 32 Results of Operations Consolidated Results - Fiscal 2021 compared to Fiscal 2020 The company’s results of operations, expressed as a percentage of sales, are set forth below for Fiscal 2021 and Fiscal 2020: Percentage of Sales Increase (Decrease) Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 Dollars % 52 weeks 53 weeks 52 weeks 53 weeks (Amounts in thousands, except percentages) Sales $ 4,330,767 $ 4,387,991 100.0 100.0 $ (57,224 ) (1.3 ) Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) 2,175,247 2,196,142 50.2 50.0 (20,895 ) (1.0 ) Selling, distribution and administrative expenses 1,719,797 1,693,387 39.7 38.6 26,410 1.6 Loss on inferior ingredients 944 107 0.0 0.0 837 NM Restructuring and related impairment charges — 35,483 — 0.8 (35,483 ) NM Multi-employer pension plan withdrawal costs 3,300 — 0.1 — 3,300 NM Depreciation and amortization 136,559 141,384 3.2 3.2 (4,825 ) (3.4 ) Income from operations 294,920 321,488 6.8 7.3 (26,568 ) (8.3 ) Other components of net periodic pension and postretirement benefits credit (405 ) (74 ) (0.0 ) (0.0 ) (331 ) NM Pension plan settlement and curtailment loss 403 108,757 0.0 2.5 (108,354 ) NM Interest expense, net 8,001 12,094 0.2 0.3 (4,093 ) (33.8 ) Loss on extinguishment of debt 16,149 — 0.4 — 16,149 NM Income before income taxes 270,772 200,711 6.3 4.6 70,061 34.9 Income tax expense 64,585 48,393 1.5 1.1 16,192 33.5 Net income $ 206,187 $ 152,318 4.8 3.5 $ 53,869 35.4 Comprehensive income $ 202,350 $ 264,762 4.7 6.0 $ (62,412 ) (23.6 ) NM – the computation is not meaningful Percentages may not add due to rounding.
Biggest changeResults of Operations Consolidated Results - Fiscal 2022 compared to Fiscal 2021 The company’s results of operations, expressed as a percentage of sales, are set forth below for Fiscal 2022 and Fiscal 2021: Percentage of Sales Increase (Decrease) Fiscal 2022 Fiscal 2021 Fiscal 2022 Fiscal 2021 Dollars % 52 weeks 52 weeks 52 weeks 52 weeks (Amounts in thousands, except percentages) Sales $ 4,805,822 $ 4,330,767 100.0 100.0 $ 475,055 11.0 Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) 2,501,995 2,175,247 52.1 50.2 326,748 15.0 Selling, distribution, and administrative expenses 1,850,594 1,719,797 38.5 39.7 130,797 7.6 FASTER Act and loss on inferior ingredients 236 944 0.0 0.0 (708 ) NM Plant closure costs and impairment of assets 7,825 — 0.2 — 7,825 NM Multi-employer pension plan withdrawal costs — 3,300 — 0.1 (3,300 ) NM Depreciation and amortization 141,957 136,559 3.0 3.2 5,398 4.0 Income from operations 303,215 294,920 6.3 6.8 8,295 2.8 Other components of net periodic pension and postretirement benefits credit (773 ) (405 ) (0.0 ) (0.0 ) (368 ) NM Pension plan settlement loss — 403 — 0.0 (403 ) NM Interest expense, net 5,277 8,001 0.1 0.2 (2,724 ) (34.0 ) Loss on extinguishment of debt — 16,149 — 0.4 (16,149 ) NM Income before income taxes 298,711 270,772 6.2 6.3 27,939 10.3 Income tax expense 70,317 64,585 1.5 1.5 5,732 8.9 Net income $ 228,394 $ 206,187 4.8 4.8 $ 22,207 10.8 Comprehensive income $ 227,281 $ 202,350 4.7 4.7 $ 24,931 12.3 NM – the computation is not meaningful Percentages may not add due to rounding. 32 Sales Fiscal 2022 Fiscal 2021 52 weeks 52 weeks $ % $ % % Change (Amounts in thousands) (Amounts in thousands) Branded retail $ 3,139,220 65.3 $ 2,874,714 66.4 9.2 Other 1,666,602 34.7 1,456,053 33.6 14.5 Total $ 4,805,822 100.0 $ 4,330,767 100.0 11.0 (The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.) The change in sales was attributable to the following: Percentage point change in sales attributed to: Branded Retail Other Total Favorable (Unfavorable) Pricing/Mix* 14.3 18.1 15.4 Volume* (5.1 ) (3.6 ) (4.4 ) Total percentage point change in sales 9.2 14.5 11.0 * Computations above are calculated as follows: Price/Mix $ = Current fiscal year units x change in price per unit Price/Mix % = Price/Mix $ ÷ P rior fiscal year Sales $ Volume $ = Prior fiscal year price per unit x change in units Volume % = Volume $ ÷ P rior fiscal year Sales $ The company disaggregates its sales into two categories, Branded Retail and Other.
Consideration payable to a customer is recognized at the time control transfers and is a reduction to revenue. The recognition of costs for promotion programs involves the use of judgment related to performance and redemption 29 estimates. Estimates are made based on historical experience and other factors.
Consideration payable to a customer is recognized at the time control transfers and is a reduction to revenue. The recognition of costs for promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors.
The fair value is compared to the carrying value of the intangible asset, and if less than the carrying value, the intangible asset is written down to fair value. There are certain inherent risks included in our expectations about the 30 performance of acquired trademarks and brands.
The fair value is compared to the carrying value of the intangible asset, and if less than the carrying value, the intangible asset is written down to fair value. There are certain inherent risks included in our expectations about the performance of acquired trademarks and brands.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is segregated into four sections, including: • Executive overview — provides a summary of our operating performance and cash flows, industry trends, and our strategic initiatives. • Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our financial condition and results of operations. • Results of operations — an analysis of the company’s consolidated results of operations for Fiscal 2021 compared to Fiscal 2020 as presented in the Consolidated Financial Statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is segregated into four sections, including: • Executive overview — provides a summary of our operating performance and cash flows, industry trends, and our strategic initiatives. • Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our financial condition and results of operations. • Results of operations — an analysis of the company’s consolidated results of operations for Fiscal 2022 compared to Fiscal 2021 as presented in the Consolidated Financial Statements.
In October 2019, the SOA published its final report on their “standard” mortality table (“Pri-2012”). For purposes of measuring pension benefit obligations of Plan No. 2, the company used a blue color adjustment to the Pri-2012 base table and a projection scale of MP-2020. No other collar adjustments are applied for any other plans.
In October 2019, the SOA published its final report on their “standard” mortality table (“Pri-2012”). For purposes of measuring pension benefit obligations of Plan No. 2, the company used a blue color adjustment to the Pri-2012 base table and a projection scale of MP-2021. No other collar adjustments are applied for any other plans.
See Item 1., Business, of this Form 10-K for additional information regarding our customers and brands, business strategies, strengths and core competencies, and competition and risks.
Item 1., Business, of this Form 10-K for additional information regarding our customers and brands, business strategies, strengths and core competencies, and competition and risks.
We use the multi-period excess earnings and relief from royalty methods to value these intangibles. The method used for impairment testing purposes is consistent with the valuation method employed at acquisition of the intangible asset. No impairment charges related to amortizing intangible assets were recorded in Fiscal 2021.
We use the multi-period excess earnings and relief from royalty methods to value these intangibles. The method used for impairment testing purposes is consistent with the valuation method employed at acquisition of the intangible asset. No impairment charges related to amortizing intangible assets were recorded in Fiscal 2022 or 2021.
The withdrawal was effective, and the union participants became eligible to participate in the Flowers Foods, Inc. 401(k) Retirement Savings Plan, on December 1, 2021. This resulted in the recognition of a pension plan withdrawal liability of $3.3 million (including transition payments) in our Consolidated Statements of Income.
The withdrawal was effective, and the union participants became eligible to participate in the Flowers Foods, Inc. 401(k) Retirement Savings Plan, on December 1, 2021, which resulted in the recognition of a pension plan withdrawal liability of $3.3 million (including transition payments) in our Consolidated Statements of Income.
There were no repurchases of the company’s common stock during the fourth quarter of Fiscal 2021. 41 New Accounting Pronouncements Not Yet Adopted See Note 3, Recent Accounting Pronouncements, of Notes to Consolidated Financial Statements of this Form 10-K regarding this information.
There were no repurchases of the company’s common stock during the fourth quarter of Fiscal 2022. 41 New Accounting Pronouncements Not Yet Adopted See Note 3, Recent Accounting Pronouncements, of Notes to Consolidated Financial Statements of this Form 10-K regarding this information.
Changes in our forecasted operating results and other assumptions could materially affect these estimates. This test is performed in the fourth quarter of each fiscal year unless circumstances require this analysis to be completed sooner.
Changes in our forecasted operating results and other assumptions could materially affect these estimates. This test is performed in the fourth quarter of each fiscal year unless 29 circumstances require this analysis be completed sooner.
A portion of t hese shares were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of restricted stock awards, which are repurchased by the company based on the fair market value on the vesting date. • See the discussion below under the “Capital Structure” section regarding changes in debt obligations.
A portion of these shares were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of restricted stock awards, which are repurchased by the company based on the fair market value on the vesting date. • See the discussion below under the “Capital Structure” section regarding changes in debt obligations.
Our product offerings include a wide range of fresh breads, buns, rolls, snack cakes and tortillas, as well as frozen breads and rolls, which we produce at 46 plants in 18 states. Our products are sold under leading brands such as Nature’s Own, Dave’s Killer Bread, Canyon Bakehouse, Tastykake, Mrs. Freshley’s, and Wonder .
Our product offerings include a wide range of fresh breads, buns, rolls, snack items and tortillas, as well as frozen breads and rolls, which we produce at 46 plants in 19 states. Our products are sold under leading brands such as Nature’s Own, Dave’s Killer Bread, Canyon Bakehouse, Tastykake, Mrs. Freshley’s, and Wonder .
The company’s strategy for use of its excess cash flows includes: • implementing our strategic priorities, including our transformation strategy initiatives; • paying dividends to our shareholders; • maintaining a conservative financial position; • making strategic acquisitions; and • repurchasing shares of our common stock.
The company’s strategy for allocating excess cash flows includes: • implementing our strategic priorities, including our transformation strategy initiatives; • paying dividends to our shareholders; • maintaining a conservative financial position; • making strategic acquisitions; and • repurchasing shares of our common stock.
Special Purpose Entities. At January 1, 2022 and January 2, 2021, the company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Guarantees.
At December 31, 2022 and January 1, 2022, the company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Guarantees.
Refer to the Annual Report on Form 10-K for the fiscal year ended January 2, 2021 for a discussion of the results of operations for Fiscal 2020 compared to Fiscal 2019. • Liquidity, capital resources and financial position — an analysis of cash flow, contractual obligations, and certain other matters affecting the company’s financial position.
Refer to the Annual Report on Form 10-K for the fiscal year ended January 1, 2022 for a discussion of the results of operations for Fiscal 2021 compared to Fiscal 2020. • Liquidity, capital resources and financial position — an analysis of cash flow, contractual obligations, and certain other matters affecting the company’s financial position.
The company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The income approach is tested using a sensitivity analysis to changes in the discount rate and yield a sufficient buffer to significant variances in our estimates. The estimated fair value of our reporting unit exceeded its carrying value in excess of $4.0 billion in Fiscal 2021.
The income approach is tested using a sensitivity analysis to changes in the discount rate and yield a sufficient buffer to significant variances in our estimates. The estimated fair value of our reporting unit exceeded its carrying value in excess of $4.6 billion in Fiscal 2022.
The company has historically entered into amendments and extensions approximately one year prior to the maturity of these facilities. During the third quarter of Fiscal 2021, we amended the credit facility to, among other things, extend the maturity date to July 30, 2026 and amended the AR facility to, among other things, extend the maturity date to September 27, 2023.
The company has historically entered into amendments and extensions approximately one year prior to the maturity of these facilities. During the third quarter of Fiscal 2021, we amended the credit facility to, among other things, extend the maturity date to July 30, 2026.
A 1% decrease in the discount rate would increase the fair value of the reporting unit by $1.1 billion and a 1% increase in the discount rate would decrease the fair value by $0.8 billion. Based on management’s evaluation, no impairment charges relating to goodwill were recorded for Fiscal 2021 or 2020.
A 1% decrease in the discount rate would increase the fair value of the reporting unit by $1.1 billion and a 1% increase in the discount rate would decrease the fair value by $0.9 billion. Based on management’s evaluation, no impairment charges relating to goodwill were recorded for Fiscal 2022 or 2021.
Based on these factors, the long-term rate of return assumption for Plan No. 2 was set at 5.7% for Fiscal 2021 and 5.9% for Fiscal 2022. The company utilizes the Society of Actuaries’ (“SOA”) published mortality tables and improvement scales in developing their best estimates of mortality.
Based on these factors, the long-term rate of return assumption for Plan No. 2 was set at 5.9% for Fiscal 2022 and is unchanged for Fiscal 2023. The company utilizes the Society of Actuaries’ (“SOA”) published mortality tables and improvement scales in developing their best estimates of mortality.
Net Interest Expense Year over year, net interest expense (exclusive of the portion related to the loss on extinguishment of debt discussed below) decreased in dollars and as a percent of sales primarily due to the lower interest rate on the 2031 notes as compared to the 2022 notes which were redeemed in the first quarter of Fiscal 2021 and, to a lesser extent, lower average amounts outstanding under our borrowing arrangements, partially offset by a decrease in interest income.
Net Interest Expense Year over year, net interest expense (exclusive of the portion related to the loss on extinguishment of debt discussed below) decreased in dollars and as a percent of sales primarily due to the lower interest rate on the 2031 notes as compared to the 2022 notes that were redeemed in the first quarter of Fiscal 2021 and, to a lesser extent, lower average amounts outstanding under our borrowing arrangements.
Impairment charges recorded in Fiscal 2020 are discussed above in the “Matters Affecting Comparability” section.
Impairment charges recorded in Fiscal 2022 are discussed above in the “Matters Affecting Comparability” section.
An additional $ 0 . 4 million and $ 0.2 million was paid during Fiscal 20 2 1 and 20 20 , respectively, for our share of employment taxes on the vesting of the performance-contingent restricted stock awards in each respective year.
An additional $1.8 million and $0.4 million was paid during Fiscal 2022 and 2021, respectively, for our share of employment taxes on the vesting of the performance-contingent restricted stock awards in each respective year.
During Fiscal 2021, the company borrowed $10.0 million in revolving borrowings under the credit facility and repaid $60.0 million in revolving borrowings. The amount available under the credit facility is reduced by $8.4 million for letters of credit. The AR facility and the credit facility are variable rate debt.
During Fiscal 2022, the company borrowed $230.0 million in revolving borrowings under the credit facility and repaid $230.0 million in revolving borrowings. The amount available under the credit facility is reduced by $8.4 million for letters of credit. The AR facility and the credit facility are variable rate debt.
We did not make any contributions to our qualified defined benefit pension plans in Fiscal 2021. We expect to make $1.0 million of voluntary cash contributions to our pension plans in Fiscal 2022 and expect to pay $0.3 million in nonqualified pension benefits from corporate assets.
We did not make any contributions to our qualified defined benefit pension plans in Fiscal 2021. We do not expect to make any voluntary cash contributions to our pension plans in Fiscal 2023 and expect to pay $0.3 million in nonqualified pension benefits from corporate assets.
These purchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. During Fiscal 2021, 0.41 million shares of the company’s common stock were repurchased under the plan at a cost of $9.5 million and during Fiscal 2020, 0.04 million shares were repurchased under the plan at a cost of $0.8 million.
These purchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. During Fiscal 2022, 1.32 million shares of the company’s common stock were repurchased under the plan at a cost of $34.6 million and during Fiscal 2021, 0.41 million shares were repurchased under the plan at a cost of $9.5 million.
Capital Structure Long-term debt and right-of-use lease obligations and stockholders’ equity were as follows at January 1, 2022 and January 2, 2021.
Capital Structure Long-term debt and right-of-use lease obligations and stockholders’ equity were as follows at December 31, 2022 and January 1, 2022.
Two of the purchased properties were fully impaired in Fiscal 2020, resulting in the recognition of a $2.6 million gain upon completion of the purchase of these assets and this amount is included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
Two of the purchased properties were fully impaired in Fiscal 2020, resulting in the recognition of a $2.6 million gain upon completion of the purchase of these assets and this amount is included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income. Food allergen compliance costs and loss on inferior ingredients.
We anticipate our Fiscal 2022 sales will be positively impacted by the benefit of price increases implemented during Fiscal 2021 and at the beginning of Fiscal 2022, however, this could potentially be offset to some extent by changes in consumer buying patterns which are unpredictable.
We anticipate our Fiscal 2023 sales will be positively impacted by the benefit of price increases implemented during Fiscal 2022 and at the beginning of Fiscal 2023, and the Papa Pita acquisition completed in February 2023, however, this benefit could be offset to some extent by changes in consumer buying patterns which are unpredictable.
The following table details the amounts available under the AR facility and credit facility and the highest and lowest balances outstanding under these arrangements during Fiscal 2021: Amount Available Highest Lowest for Withdrawal at Balance in Balance in Facility January 1, 2022 Fiscal 2021 Fiscal 2021 (Amounts in thousands) AR facility $ 194,500 $ 114,000 $ — Credit facility (1) 491,600 $ 50,000 $ — $ 686,100 (1) Amount excludes a provision in the agreement which allows the company to request an additional $200.0 million in additional revolving commitments.
The following table details the amounts available under the AR facility and credit facility and the highest and lowest balances outstanding under these arrangements during Fiscal 2022: Amount Available Highest Lowest for Withdrawal at Balance in Balance in Facility December 31, 2022 Fiscal 2022 Fiscal 2022 (Amounts in thousands) AR facility $ 195,600 $ 100,000 $ — Credit facility (1) 491,600 200,000 — $ 687,200 (1) Amount excludes a provision in the agreement which allows the company to request an additional $200.0 million in additional revolving commitments.
In the event the company ceases to utilize the independent distribution form of doing business or exits a geographic market, the company is contractually required to purchase the distribution rights from the independent distributor. Stock Repurchase Plan. The Board has approved a plan that currently authorizes share repurchases of up to 74.6 million shares of the company’s common stock.
In the event the company ceases to utilize the independent distribution form of doing business or exits a geographic market, the company is contractually required to purchase the distribution rights from the independent distributors. Stock Repurchase Plan. Previously, our Board had approved a plan that authorized share repurchases of up to 74.6 million shares of the company’s common stock.
Loss on Extinguishment of Debt In the first quarter of Fiscal 2021, we completed the redemption of the outstanding 2022 notes and incurred a loss of $16.1 million due to the make-whole provision of $15.4 million and the write-off of unamortized debt discount and debt issuance costs totaling $0.7 million as further discussed in the “Matters Affecting Comparability” section above.
Loss on Extinguishment of Debt In the first quarter of Fiscal 2021, we completed the redemption of the outstanding 2022 notes and incurred a loss of $16.1 million due to the make-whole provision of $15.4 million and the write-off of unamortized debt discount and debt issuance costs totaling $0.7 million as further discussed in the “Matters Affecting Comparability” section above. 35 Income Tax Expense The effective tax rate for Fiscal 2022 was 23.5% compared to 23.9% in the prior year.
In Fiscal 2022, the company expects to make a $1.0 million voluntary cash contribution to Plan No. 2 and expects to pay $0.3 million in nonqualified pension benefits from corporate assets. Stock-based compensation. Stock-based compensation expense for all share-based payment awards granted is determined based on the grant date fair value.
In Fiscal 2023, the company does not expect to make any cash contributions to Plan No. 2 and expects to pay $0.3 million in nonqualified pension benefits from corporate assets. 31 Stock-based compensation. Stock-based compensation expense for all share-based payment awards granted is determined based on the grant date fair value.
Key items impacting our liquidity, capital resources and financial position in Fiscal 2021 and 2020: Fiscal 2021: • We generated $344.6 million of net cash from operating activities. • We paid dividends to our shareholders of $175.9 million. • We decreased our total debt outstanding $81.9 million. • We invested in our business through capital expenditures of $136.0 million (inclusive of $23.0 million of capital expenditures (including amounts recognized in accounts payable at year end) for the ERP upgrade) and purchase of leased warehouses of $64.7 million. • We paid $1.5 million in restructuring cash payments, all of which had been accrued for in the prior year. • We incurred business process improvement consulting costs of $31.3 million related to the ongoing transformation strategy initiatives (exclusive of capitalized or deferred costs).
Fiscal 2021: • Generated $344.6 million of net cash from operating activities. • Paid dividends to our shareholders of $175.9 million. • Reduced our total debt outstanding $81.9 million. • Invested in our business through capital expenditures of $136.0 million (inclusive of $23.0 million of capital expenditures, including amounts recognized in accounts payable at year end, for the ERP upgrade) and purchase of leased warehouses of $64.7 million. • Incurred business process improvement consulting costs of $31.3 million related to the ongoing transformation strategy initiatives (exclusive of capitalized or deferred costs).
In the first quarter of Fiscal 2021, we incurred an additional $0.1 million of costs related to the inferior gluten-free ingredients and in the third quarter of Fiscal 2021, we received reimbursements of approximately $1.0 million for these previously incurred costs.
In the first quarter of Fiscal 2021, we incurred an additional $0.1 million of costs related to receiving inferior ingredients used in the production of certain of our gluten-free products in the previous year. In the third quarter of Fiscal 2021, we received reimbursements of approximately $1.0 million for these previously incurred costs.
The expensed portion of the c onsulting costs related to both the ERP upgrade and digital strategy initiatives incurred in Fiscal 2021 was $31.3 million and is reflected in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
The expensed portion of the consulting costs related to both the ERP upgrade and digital strategy initiatives incurred in Fiscal 2022 and Fiscal 2021 was $33.2 million and $31.3 million, respectively, and is reflected in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income. Plant closure costs and impairment of assets.
Loss on Inferior Ingredients, Restructuring and Related Impairment Charges, and Multi-Employer Pension Plan Withdrawal Costs Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.
FASTER Act and Loss on Inferior Ingredients, Plant Closure Costs and Impairment of Assets, and Multi-Employer Pension Plan Withdrawal Costs Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.
While this is our best estimate of the ultimate cost of the withdrawal from this Fund, additional withdrawal liability may be incurred based on the final Fund assessment or in the event of a mass withdrawal as defined by statute, occurring any time within the next three years following our complete withdrawal. 26 Additional Items Impacting Comparability Reporting Periods.
While this is our best estimate of the ultimate cost of the withdrawal from this plan, additional withdrawal liability may be incurred based on the final IAM Fund assessment or in the event of a mass withdrawal, as defined by statute, occurring anytime within the next three years.
Although there has been no material adverse impact on the company’s results of operations, liquidity or cash flows in Fiscal 2021, the COVID-19 pandemic could significantly impact our ability to generate future cash flows and w e continue to evaluate various potential COVID-19-related business risks.
Although there has been no material adverse impact on the company’s results of operations, liquidity or cash flows in Fiscal 2022, volatility in global and U.S. economic environments could significantly impact our ability to generate future cash flows and w e continue to evaluate these various potential business risks.
For a detailed description of our debt and right-of-use lease obligations and information regarding our distributor arrangements, deferred compensation, and guarantees and indemnification obligations, see Note 13, Leases, and Note 14, Debt and Other Commitments , of Notes to Consolidated Financial Statements of this Form 10-K: Interest Rate at Final Balance at Fixed or January 1, 2022 Maturity January 1, 2022 January 2, 2021 Variable Rate (Amounts in thousands) 2031 notes 2.40% 2031 $ 493,333 $ — Fixed Rate 2026 notes 3.50% 2026 397,276 396,705 Fixed Rate 2022 notes 4.38% 2022 — 399,398 Fixed Rate Credit facility 1.02% 2026 — 50,000 Variable Rate AR facility 1.00% 2023 — 114,000 Variable Rate Right-of-use lease obligations 2036 300,522 345,762 1,191,131 1,305,865 Less: Current maturities of long-term debt and right-of-use lease obligations (47,974 ) (51,908 ) Long-term debt and right-of-use lease obligations $ 1,143,157 $ 1,253,957 Total stockholders’ equity was as follows at January 1, 2022 and January 2, 2021: Balance at January 1, 2022 January 2, 2021 (Amounts in thousands) Total stockholders' equity $ 1,411,274 $ 1,372,994 On March 9, 2021, the company issued $500.0 million of senior notes with a maturity date of March 15, 2031.
For a detailed description of our debt and right-of-use lease obligations and information regarding our distributor arrangements, deferred compensation, and guarantees and indemnification obligations, see Note 13, Leases, and Note 14, Debt and Other Commitments , of Notes to Consolidated Financial Statements of this Form 10-K: Interest Rate at Final Balance at Fixed or December 31, 2022 Maturity December 31, 2022 January 1, 2022 Variable Rate (Amounts in thousands) 2031 notes 2.40% 2031 $ 493,994 $ 493,333 Fixed Rate 2026 notes 3.50% 2026 397,848 397,276 Fixed Rate Credit facility 5.42% 2026 — — Variable Rate AR facility 5.27% 2024 — — Variable Rate Right-of-use lease obligations 2036 282,862 300,522 1,174,704 1,191,131 Less: Current maturities of long-term debt and right-of-use lease obligations (45,769 ) (47,974 ) Long-term debt and right-of-use lease obligations $ 1,128,935 $ 1,143,157 Total stockholders’ equity was as follows at December 31, 2022 and January 1, 2022: Balance at December 31, 2022 January 1, 2022 (Amounts in thousands) Total stockholders' equity $ 1,443,290 $ 1,411,274 On March 9, 2021, the company issued $500.0 million of senior notes with a maturity date of March 15, 2031.
In light of the potential risks associated with the ongoing pandemic, the company has taken actions to safeguard its capital position.
In light of the potential risks detailed above associated with the current inflationary economic environment and the ongoing pandemic, the company has taken actions to safeguard its capital position.
While the company considers future taxable income and ongoing prudent and feasible tax strategies in assessing the need for a valuation allowance, if these estimates and assumptions change in the future, the company may be required to adjust its valuation allowance, which could result in a charge to, or an increase in, income in the period such determination is made.
While the company considers future taxable income and ongoing prudent and feasible tax strategies in assessing the need for a valuation allowance, if these estimates and assumptions change in the future, the company may be required to adjust its valuation allowance, which could result in a charge to, or an increase in, income in the period such determination is made. 30 Periodically, we face audits from federal and state tax authorities, which can result in challenges regarding the timing and amount of income or deductions.
See Note 1 7 , Stockholders’ Equ ity , of Notes to Consolidated Financial Statements of this Form 10-K for additional information .
See Note 17, Stockholders’ Equity , of Notes to Consolidated Financial Statements of this Form 10-K for additional information.
We continue to maintain higher levels of cash on hand compared to pre-pandemic levels and , in the first quarter of Fiscal 2021, we issued the 2031 notes and used the net proceeds from the offering to redeem in full the outstanding 2022 notes, extending the earliest maturity date of our non-revolving debt to 2026.
I n the first quarter of Fiscal 2021, we issued the 2031 notes and used the net proceeds from the offering to redeem in full the outstanding 2022 notes, extending the earliest maturity date of our non-revolving debt to 2026.
The table below presents net cash disbursed for financing activities for Fiscal 2021 and 2020 (amounts in thousands): Fiscal 2021 Fiscal 2020 Dividends paid, including dividends on share-based payment awards $ (175,903 ) $ (167,270 ) Payment of contingent consideration — (4,700 ) Payment of financing fees (6,022 ) (206 ) Stock repurchases (9,510 ) (783 ) Change in bank overdrafts 261 3,134 Net change in debt obligations (81,858 ) 92,500 Payments on financing leases (1,745 ) (6,715 ) Net cash disbursed for financing activities $ (274,777 ) $ (84,040 ) • Our annual dividend rate increased from $0.80 per share in Fiscal 2020 to $0.84 per share in Fiscal 2021.
The table below presents net cash disbursed for financing activities for Fiscal 2022 and 2021 (amounts in thousands): Fiscal 2022 Fiscal 2021 Dividends paid, including dividends on share-based payment awards $ (186,501 ) $ (175,903 ) Payment of financing fees (282 ) (6,022 ) Stock repurchases (34,586 ) (9,510 ) Change in bank overdrafts 799 261 Net change in debt obligations — (81,858 ) Payments on financing leases (1,597 ) (1,745 ) Net cash disbursed for financing activities $ (222,167 ) $ (274,777 ) • Our annual dividend rate increased from $0.84 per share in Fiscal 2021 to $0.88 per share in Fiscal 2022.
EXECUTIVE OVERVIEW We are the second-largest producer and marketer of packaged bakery foods in the U.S. with Fiscal 2021 sales of $4.3 billion. We operate in the highly competitive fresh bakery market.
The transition payments were paid in December 2021 and the withdrawal liability was paid in April 2022. EXECUTIVE OVERVIEW We are the second-largest producer and marketer of packaged bakery foods in the U.S. with Fiscal 2022 sales of $4.8 billion. We operate in the highly competitive fresh bakery market.
Under the CARES Act, the company deferred approximately $30.0 million of the employer share of Social Security tax for the period from the beginning of the second quarter of Fiscal 2020 through December 31, 2020 and paid approximately $15.0 million in December 2021 with the remaining amount to be paid by December 31, 2022. • During Fiscal 2020, we made voluntary contributions to our qualified defined benefit pension plans of $7.6 million.
Under the CARES Act, the company deferred approximately $30.0 million of the employer share of Social Security tax for the period from the beginning of the second quarter of Fiscal 2020 through December 31, 2020 and paid approximately $15.0 million in December 2021 and the remainder in December 2022. • During Fiscal 2022, we made a voluntary qualified defined benefit pension plan cash contribution of $1.0 million to Plan No 2.
The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the debt agreements and can meet its presently foreseeable financial requirements.
Our debt may also contain certain customary representations and warranties, affirmative and negative covenants, and events of default. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the debt agreements and can meet its presently foreseeable financial requirements.
While the ultimate outcome of audits cannot be predicted with certainty, we do not currently believe that current or future audits will have a material adverse effect on our consolidated financial condition or results of operations. The company is no longer subject to federal examination for years prior to Fiscal 2018. Postretirement Plans.
While the ultimate outcome of audits cannot be predicted with certainty, we do not currently believe that current or future audits will have a material adverse effect on our consolidated financial condition or results of operations.
We use a spot rate approach (“granular method”) to estimate the service cost and interest cost components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this provides the best estimate of service and interest costs. 31 The pension plan’s investment committee, which consists of certain members of management, establishes investment guidelines and regularly monitors the performance of the plan’s assets.
We use a spot rate approach (“granular method”) to estimate the service cost and interest cost components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this provides the best estimate of service and interest costs.
The selection and disclosure of the company’s critical accounting estimates have been discussed with the company’s audit committee. Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements of this Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements of this Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
On March 9, 2021, we issued the 2031 notes and used the net proceeds from the offering to complete the early redemption of our outstanding 2022 notes and for other debt repayments.
Additionally, we reduced our total indebtedness by $81.9 million and paid $175.9 million in dividends to our shareholders in Fiscal 2021. On March 9, 2021, we issued the 2031 notes and used the net proceeds from the offering to complete the early redemption of our outstanding 2022 notes and for other debt repayments.
At the close of the company’s fourth quarter on January 1, 2022, 5.8 million shares remained under the existing authorization. Under the plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated repurchase program at such times and at such prices as determined to be in the company’s best interest.
Under the share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated repurchase program at such times and at such prices as determined to be in the company’s best interest.
MATTERS AFFECTING COMPARABILITY Detailed below are expense (recovery) items affecting comparability that will provide additional context while reading this discussion: Fiscal 2021 Fiscal 2020 Footnote 52 weeks 53 weeks Disclosure (Amounts in thousands) Business process improvement consulting costs $ 31,293 $ — Note 2 Project Centennial consulting costs — 15,548 Note 5 ERP Road Mapping consulting costs — 4,363 Note 2 Restructuring and related impairment charges — 35,483 Note 5 Loss on inferior ingredients 944 107 Note 4 Non-restructuring lease termination gain (2,644 ) (4,066 ) Note 13, 2 Pension plan settlement and curtailment loss 403 108,757 Note 20 Acquisition consideration adjustment 3,400 — Note 12 Legal settlements and related costs 23,089 7,250 Note 22 Loss on extinguishment of debt 16,149 — Note 14 Other pension plan termination costs — 133 Multi-employer pension plan withdrawal costs 3,300 — Note 20 $ 75,934 $ 167,575 Business process improvement consulting costs related to the transformation strategy initiatives.
Additionally, detailed below are expense (recovery) items affecting comparability that will provide additional context while reading this discussion: Fiscal 2022 Fiscal 2021 Footnote 52 weeks 52 weeks Disclosure (Amounts in thousands) Business process improvement consulting costs $ 33,169 $ 31,293 Note 2 Plant closure costs and impairment of assets 7,825 — Note 2 Gain on sale, severance costs, and lease termination (gain) loss (4,390 ) (2,644 ) Note 12, 13 FASTER Act and loss on inferior ingredients 236 944 Note 4 Acquisition-related costs 12,518 — Note 2 Acquisition consideration adjustment — 3,400 Note 12 Legal settlements and related costs 7,500 23,089 Note 22 Loss on extinguishment of debt — 16,149 Note 14 Pension plan settlement loss — 403 Note 20 Multi-employer pension plan withdrawal costs — 3,300 Note 20 $ 56,858 $ 75,934 Business process improvement consulting costs related to the transformation strategy initiatives.
Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and obligated debt repayments. We believe we currently have access to available funds and financing sources to meet our short and long-term capital requirements.
We believe we currently have access to available funds and financing sources to meet our short and long-term capital requirements.
In Fiscal 2022, w e currently expect costs for the upgrade of our ERP system (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) to be approximately $85 million to $95 million.
In Fiscal 2023, we expect costs for the upgrade of our ERP system (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) to be approximately $80 million to $90 million. Costs related to our digital initiatives are more fluid and cannot currently be estimated.
See Note 18, Stock-Based Compensation , of Notes to Consolidated Financial Statements of this Form 10-K for additional information. In early Fiscal 2022, the company granted stock awards to certain employees and stock-based compensation expense is expected to increase approximately $2 million to $3 million as compared to Fiscal 2021.
See Note 18, Stock-Based Compensation , of Notes to Consolidated Financial Statements of this Form 10-K for additional information. In early Fiscal 2023, the company granted stock awards to certain employees. The company expects stock-based compensation expense for Fiscal 2023 to be relatively consistent with Fiscal 2022.
During Fiscal 20 2 1 and 20 20 , the company paid $ 64 . 6 million a nd $ 18 . 6 million, respectively, including our share of employment taxes, in performance-based cash awards under the company’s incentive plan. The increase in performance-based cash awards paid in Fiscal 2021 resulted from improved financial performance in Fiscal 2020.
During Fiscal 2022 and 2021, the company paid $43.8 million and $64.6 million, respectively, including our share of employment taxes, in performance-based cash awards under the company’s incentive plan.
If the company experienced a significant reduction in revenues, the company would have additional alternatives to maintain liquidity, including amounts available on our debt facilities, capital expenditure reductions, adjustments to its capital allocation policy, and cost reductions. Although we do not currently anticipate a need, we also believe that we could access the capital markets to raise additional funds.
If the company were to experience a significant reduction in revenues, the company would have additional alternatives to maintain liquidity, including amounts available on our debt facilities, capital expenditure reductions, adjustments to its capital allocation policy, and cost reductions.
We anticipate funding future dividend payments from cash flows from operations. • The payment for contingent consideration was made to satisfy the contingent consideration liability recorded in the Canyon Bakehouse LLC acquisition. • We paid financing costs associated with the issuance of the 2031 notes in the first quarter of Fiscal 2021 and for the amendments of the AR facility and credit facility in the third quarter of Fiscal 2021. 39 • Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given time.
In the prior year period, we paid financing costs associated with the issuance of the 2031 notes in the first quarter of Fiscal 2021 and for the amendments of the AR facility and credit facility in the third quarter of Fiscal 2021. • Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given time.
From the inception of the plan through January 1, 2022, 68.8 million shares, at a cost of $652.9 million, have been repurchased.
From the inception of the plan through December 31, 2022, 70.1 million shares have been repurchased, at a cost of $687.5 million.
Any decrease in the availability of these agreements could increase the effective price of these raw materials to us and significantly affect our earnings. We currently anticipate i ngredient costs to be significantly higher in Fiscal 20 2 2 relative to Fiscal 20 2 1 .
Any decrease in the availability of these agreements and instruments could increase the price of these raw materials and significantly affect our earnings. We currently anticipate ingredient and packaging costs to be a headwind in the first half of Fiscal 2023 relative to Fiscal 2022.
Net cash for working capital requirements and pension plan contributions included the following items (amounts in thousands): Fiscal 2021 Fiscal 2020 Changes in accounts receivable, net $ (10,600 ) $ (25,021 ) Changes in inventories, net (9,767 ) (1,771 ) Changes in hedging activities, net (4,967 ) 15,829 Changes in other assets and accrued liabilities, net (46,749 ) 53,250 Changes in accounts payable 38,076 (5,772 ) Qualified pension plan contributions — (7,600 ) Net changes in working capital and pension plan contributions $ (34,007 ) $ 28,915 • The change in accounts receivable, inventories, and accounts payable resulted primarily from changes in sales and increases in ingredient and packaging costs year over year. • Hedging activities change from market movements that affect the fair value and required collateral of positions and the timing and recognition of deferred gains or losses.
Net cash for working capital requirements and pension plan contributions included the following items (amounts in thousands): Fiscal 2022 Fiscal 2021 Changes in accounts receivable, net $ (55,420 ) $ (10,600 ) Changes in inventories, net (37,396 ) (9,767 ) Changes in hedging activities, net (224 ) (4,967 ) Changes in other assets and accrued liabilities, net (39,080 ) (46,749 ) Changes in accounts payable 82,125 38,076 Qualified pension plan contributions (1,000 ) — Net changes in working capital and pension plan contributions $ (50,995 ) $ (34,007 ) • The change in accounts receivable, inventories, and accounts payable were mainly attributable to significant price increases and cost inflation in Fiscal 2022 and 2021. • Hedging activities change from market movements that affect the fair value and required collateral of positions and the timing and recognition of deferred gains or losses.
In the second half of Fiscal 2020, we launched i nitiatives to transform how we operate our business, which includes upgrading our information system to a more robust platform, as well as investments in e-commerce, autonomous planning, and our “bakery of the future” initiative. These transformation strategy initiatives are further discussed in Item 1., Business, of this Form 10-K.
In the second half of Fiscal 2020, we launched initiatives to transform how we operate our business, including upgrading our information system to a more robust platform, as well as investments in e-commerce, autonomous planning, and our “bakery of the future” initiative. In the first quarter of Fiscal 2022, we launched the digital logistics and digital sales initiatives.
As of January 1, 2022 and January 2, 2021, the company was in compliance with all restrictive covenants under our debt agreements. The company has debt exposure to LIBOR and sufficient LIBOR successor rate provisions to cover the discontinuance of LIBOR. The company continues to monitor the progression of LIBOR discontinuation and the recommendation for an alternative interest rate benchmark.
As of December 31, 2022 and January 1, 2022, the company was in compliance with all restrictive covenants under our debt agreements. The company has debt exposure to LIBOR under certain of its agreements, but the agreements contain LIBOR successor rate provisions to cover the discontinuance of LIBOR.
Income from Operations The decrease in income from operations year over year in dollars and as a percent of sales resulted from sales declines, input cost inflation, higher selling, distribution, and administrative expenses, and current year multi-employer pension plan withdrawal costs, as discussed above.
The decrease as a percent of sales resulted primarily from significant input cost inflation and the plant closure costs incurred in the current year, partially offset by reduced selling, distribution, and administrative expenses and prior year multi-employer pension plan withdrawal costs.
The cash and cash equivalents were derived from the activities presented in the table below (amounts in thousands): Cash flow component Fiscal 2021 Fiscal 2020 Cash flows provided by operating activities $ 344,610 $ 454,464 Cash disbursed for investing activities (191,438 ) (73,992 ) Cash disbursed for financing activities (274,777 ) (84,040 ) Total change in cash $ (121,605 ) $ 296,432 Cash Flows Provided by Operating Activities.
The cash and cash equivalents were derived from the activities presented in the table below (amounts in thousands): Cash flow component Fiscal 2022 Fiscal 2021 Cash flows provided by operating activities $ 360,889 $ 344,610 Cash disbursed for investing activities (151,088 ) (191,438 ) Cash disbursed for financing activities (222,167 ) (274,777 ) Effect of exchange rates in cash (8,371 ) — Total change in cash $ (20,737 ) $ (121,605 ) 37 Cash Flows Provided by Operating Activities.
Unless there is a successful appeal which overturns the determination, the company estimates that it will owe the shareholders approximately $3.4 million, and the Company has recorded this cost in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income in Fiscal 2021. Legal settlements and related costs.
In Fiscal 2021, there was a tax determination that the selling shareholders owed additional taxes of approximately $3.4 million and the Company recorded this cost in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income in Fiscal 2021.
In periods of rising interest rates, the cost of using these facilities will become more expensive and increase our interest expense. Therefore, borrowings under these facilities provide us the greatest direct exposure to rising rates. In addition, if interest rates do increase, it will make the cost of funds more expensive.
In periods of rising interest rates, the cost of using these facilities will become more expensive and increase our interest expense. Therefore, borrowings under these facilities provide us the greatest direct exposure to rising rates. Restrictive financial covenants for our borrowings include such ratios as a minimum interest coverage ratio and a maximum leverage ratio.
See Note 13, Leases , of Notes to Consolidated Financial Statements of this Form 10-K for detailed financial information regarding the company’s lease arrangements.
See Note 13, Leases , of Notes to Consolidated Financial Statements of this Form 10-K for detailed financial information regarding the company’s lease arrangements. On May 26, 2022, our Board of Directors increased the company's share repurchase authorization by 20.0 million shares.
The recall was initiated following notification by a vendor of the possible contamination in a supplied ingredient. The company incurred costs of $1.8 million related to the recall in Fiscal 2021 and these costs are recorded in our Consolidated Statements of Income. The company is seeking recovery of these losses.
The recall was initiated following notification by a vendor of the possible contamination in a supplied ingredient. The company incurred costs of $1.8 million related to the recall in Fiscal 2021 and received a full reimbursement for the loss in the fourth quarter of Fiscal 2022.
The table below presents net cash disbursed for investing activities for Fiscal 2021 and 2020 (amounts in thousands): Fiscal 2021 Fiscal 2020 Purchase of property, plant, and equipment $ (135,964 ) $ (97,929 ) Purchase of leased portfolio (64,689 ) — Principal payments from notes receivable, net of repurchases of independent distributor territories 15,276 18,379 Acquisition of trademarks (10,200 ) — Proceeds from sale of property, plant and equipment 2,995 5,368 Other 1,144 190 Net cash disbursed for investing activities $ (191,438 ) $ (73,992 ) • The company currently estimates capital expenditures of approximately $175.0 million to $185.0 million (inclusive of expenditures for the ERP upgrade of $65.0 million to $75.0 million) in Fiscal 2022.
The table below presents net cash disbursed for investing activities for Fiscal 2022 and 2021 (amounts in thousands): Fiscal 2022 Fiscal 2021 Purchase of property, plant, and equipment $ (169,071 ) $ (135,964 ) Purchase of leased portfolio — (64,689 ) Principal payments from notes receivable, net of repurchases of independent distributor territories 18,829 15,276 Acquisition of trademarks — (10,200 ) Investment in unconsolidated affiliate (9,000 ) — Proceeds from sale of property, plant and equipment 7,681 2,995 Other 473 1,144 Net cash disbursed for investing activities $ (151,088 ) $ (191,438 ) • The company currently estimates capital expenditures of approximately $140.0 million to $150.0 million (inclusive of expenditures for the ERP upgrade of $20.0 million to $30.0 million) in Fiscal 2023. • As discussed in the Executive Overview section above, we invested $9.0 million in Base Culture, a Clearwater, Florida-based company with one manufacturing facility.
In addition, the payout for the Fiscal 2020 grant is currently trending at 125% of target and as a result, we anticipate an additional $1.7 million of expense will be recognized in the first quarter of Fiscal 2022. Commitments and contingencies.
This estimate is inclusive of an additional $1.5 million of expense anticipated to be recognized in the first quarter of Fiscal 2023 due to the payout for the Fiscal 2021 grant currently trending at 125% of target. Commitments and contingencies.
The company records pension costs and benefit obligations related to its defined benefit plans based on actuarial valuations. These valuations reflect key assumptions determined by management, including the discount rate, expected long-term rate of return on plan assets and mortality.
These valuations reflect key assumptions determined by management, including the discount rate, expected long-term rate of return on plan assets and mortality. Material changes in pension costs and in benefit obligations may occur in the future due to experience that is different than assumed and changes in these assumptions.
The decrease was partially offset by the prior year restructuring and related impairment charges. 35 Pension Plan Settlement and Curtailment Loss As discussed in the “Matters Affecting Comparability” section above, we recognized $0.4 million of non-cash pension plan settlement charges in Fiscal 2021 associated with Plan No. 2 and $108.8 million of non-cash pension plan settlement and curtailment charges in Fiscal 2020 composed of a settlement charge of $104.5 million and a curtailment loss of $4.3 million associated with Plan No. 1.
Pension Plan Settlement Loss As discussed in the “Matters Affecting Comparability” section above, we recognized $0.4 million of non-cash pension plan settlement charges in Fiscal 2021 associated with Plan No. 2.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Strategy We believe our ability to consistently generate cash flows from operating activities to meet our liquidity needs is one of our key financial strengths. Furthermore, we strive to maintain a conservative financial position as we believe it allows us flexibility to make investments and acquisitions and is a strategic competitive advantage.
Furthermore, we strive to maintain a conservative financial position as we believe it allows us flexibility to make investments and acquisitions and is a strategic competitive advantage. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and obligated debt repayments.
Selling, Distribution and Administrative Expenses (as a percent of sales) Line item component Fiscal 2021 % of sales Fiscal 2020 % of sales Change as a % of sales Workforce-related costs 11.4 11.5 (0.1 ) Distributor distribution fees 14.9 15.3 (0.4 ) Other 13.4 11.8 1.6 Total 39.7 38.6 1.1 Workforce-related costs decreased slightly as a percent of sales compared to the prior year primarily due to lower workforce-related incentive costs, including a $2.6 million decrease in appreciation bonuses paid to frontline workers, mostly offset by wage inflation and a competitive labor market.
Selling, Distribution, and Administrative Expenses (as a percent of sales) Line item component Fiscal 2022 % of sales Fiscal 2021 % of sales Change as a % of sales Workforce-related costs 10.8 11.4 (0.6 ) Distributor distribution fees 14.6 14.9 (0.3 ) Other 13.1 13.4 (0.3 ) Total 38.5 39.7 (1.2 ) 34 Sales price increases and lower incentive compensation and employee fringe benefit costs year over year more than offset wage inflation rates resulting in lower workforce-related costs as a percent of sales.
Non-restructuring lease termination gain. In Fiscal 2021, the company purchased twenty-seven warehouses that were included in the company’s operating leased assets.
Lease termination costs were paid in the second quarter of Fiscal 2022 and the severance payments were completed in January 2023. In Fiscal 2021, the company purchased twenty-seven warehouses that were included in the company’s operating leased assets.
In Fiscal 2021, we generated net cash flows from operations of $344.6 million, invested $136.0 million in capital expenditures, and purchased a portfolio of leased warehouses for $64.7 million. Additionally, we paid $175.9 million in dividends to our shareholders and decreased our total indebtedness by $81.9 million.
Additionally, on May 26, 2022, the Board of Directors increased the company's share repurchase authorization by 20.0 million shares. In Fiscal 2021, we generated net cash flows from operations of $344.6 million, invested $136.0 million in capital expenditures and purchased a portfolio of leased warehouses for $64.7 million.
Periodically, we face audits from federal and state tax authorities, which can result in challenges regarding the timing and amount of income or deductions. We provide reserves for potential exposures when we consider it more likely than not that a taxing authority may take a sustainable position on a matter contrary to our position.
We provide reserves for potential exposures when we consider it more likely than not that a taxing authority may take a sustainable position on a matter contrary to our position.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of January 1, 2022, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of $3.7 million and is based on quoted market prices. The total amount relates to instruments that will be utilized in Fiscal 2022.
Biggest changeAs of December 31, 2022, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of $(0.5) million and is based on quoted market prices. Approximately $(0.4) million relates to instruments that will be utilized in Fiscal 2023 and the remaining $(0.1) million will be utilized in Fiscal 2024.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forwards, futures, swaps, and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forwards, futures, swaps, and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices.
A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to its derivative portfolio. Based on the company’s derivative portfolio as of January 1, 2022, a hypothetical ten percent change in commodity prices would increase or decrease the fair value of the derivative portfolio by $4.8 million.
A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to its derivative portfolio. Based on the company’s derivative portfolio as of December 31, 2022, a hypothetical ten percent change in commodity prices would increase or decrease the fair value of the derivative portfolio by $4.7 million.

Other FLO 10-K year-over-year comparisons