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What changed in MARZETTI CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MARZETTI CO'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.

+231 added−234 removedSource: 10-K (2023-08-23) vs 10-K (2022-08-25)

Top changes in MARZETTI CO's 2023 10-K

231 paragraphs added · 234 removed · 174 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe have already seen a positive impact, with 27% of our leadership team representing diverse backgrounds in 2022, up from 15% in 2019 before we implemented the policy. To unlock opportunities for high school students from diverse backgrounds, we have committed to a work-study program that provides tuition support and work-study mentorship to high school students from low-income families.
Biggest changeTo unlock opportunities for high school students from diverse backgrounds, we have committed to a work-study program that provides tuition support and work-study mentorship to high school students from low-income families. We also encourage employee-led initiatives to promote diversity within the organization. Several employee resource groups (“ERGs”) have been established in the last few years.
In general, these national chain restaurants have direct relationships with us for culinary research and development, menu development and production needs, but choose to buy our products through McLane, who acts as their distributor. McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales. Chick-fil-A, Inc.
In general, these national chain restaurants have direct relationships with us for culinary research and development, menu development and production needs, but choose to buy our products through McLane, who acts as their distributor. McLane orders our products on behalf of these national chain restaurants, and we invoice McLane for these sales. Our relationship with Chick-fil-A, Inc.
The information contained on our website or connected to it is not incorporated into this Annual Report on Form 10-K. The SEC also maintains a website, http://www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The information contained on our website or connected to it is not incorporated into this Annual Report on Form 10-K. The SEC also maintains a website, https://www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Although the availability and price of certain of these materials are influenced by weather, disease and the level of global demand, we anticipate that future sources of supply for 2023 will generally be available and adequate for our needs.
Although the availability and price of certain of these materials are influenced by weather, disease and the level of global demand, we anticipate that future sources of supply for 2024 will generally be available and adequate for our needs.
(“Walmart”) totaled 18% of consolidated net sales for 2022, 2021 and 2020. Net sales attributed to McLane Company, Inc. (“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., totaled 11%, 13% and 13% of consolidated net sales for 2022, 2021 and 2020, respectively.
(“Walmart”) totaled 18% of consolidated net sales for 2023, 2022 and 2021. Net sales attributed to McLane Company, Inc. (“McLane”), a wholesale distribution subsidiary of Berkshire Hathaway, Inc., totaled 11%, 11% and 13% of consolidated net sales for 2023, 2022 and 2021, respectively.
The following table presents the primary Foodservice products we manufacture and sell under our brand names: Products Brand Names Dressings and Sauces Salad dressings Marzetti, Simply Dressed Frozen Breads and Other Frozen garlic breads New York BRAND Bakery Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s Frozen pasta Marzetti Frozen Pasta 4 Table of Contents The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States.
The following table presents the primary Foodservice products we manufacture and sell under our brand names: Products Brand Names Dressings and Sauces Salad dressings Marzetti Frozen Breads and Other Frozen garlic breads New York BRAND Bakery Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s Frozen pasta Marzetti Frozen Pasta The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States.
Based upon available information, compliance with these laws and regulations did not have a material effect upon the level of capital expenditures, earnings or our competitive position in 2022 and is not expected to have a material impact in 2023. HUMAN CAPITAL As of June 30, 2022, we had 3,200 employees.
Based upon available information, compliance with these laws and regulations did not have a material effect upon the level of capital expenditures, earnings or our competitive position in 2023 and is not expected to have a material impact in 2024. HUMAN CAPITAL As of June 30, 2023, we had 3,400 employees.
Consistent with this purpose, our human capital management strategy emphasizes six key areas of focus: Health and Safety; Talent Acquisition; Compensation and Benefits; Employee Engagement; Diversity, Equity and Inclusion (“DEI”); and Community Engagement. Our Board of Directors oversees this strategy and dedicates one Board meeting each year to a full review of talent.
Consistent with this purpose, our human capital management strategy emphasizes six key areas of focus: Health and Safety; Talent Acquisition; Total Rewards; Employee Engagement; Diversity, Equity and Inclusion (“DEI”); and Community Engagement. Our Board of Directors oversees this strategy and dedicates one Board meeting each year to a full review of talent.
We own and operate under innumerable intellectual property rights, including patents, copyrights, formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider our owned intellectual property rights to be essential to our Foodservice business. NET SALES ATTRIBUTED TO SIGNIFICANT CUSTOMER RELATIONSHIPS Net sales attributed to Walmart Inc.
We own and operate under innumerable intellectual property rights, including patents, copyrights, formulas, proprietary trade secrets, technologies, know-how processes and other unregistered rights. We consider our owned intellectual property rights to be essential to our Foodservice business. 4 Table of Contents NET SALES ATTRIBUTED TO SIGNIFICANT CUSTOMER RELATIONSHIPS Net sales attributed to Walmart Inc.
Our top five Retail customers accounted for 57%, 55% and 56% of this segment’s total net sales in 2022, 2021 and 2020, respectively. We continue to rely upon our strong retail brands, innovation expertise, geographic and channel expansion and customer relationships for future growth.
Our top five Retail customers accounted for 59%, 57% and 55% of this segment’s total net sales in 2023, 2022 and 2021, respectively. We continue to rely upon our strong retail brands, innovation expertise, geographic and channel expansion and customer relationships for future growth.
NET SALES BY CLASS OF PRODUCTS The following table sets forth business segment information with respect to the percentage of net sales contributed by our primary classes of similar products: 2022 2021 2020 Retail Segment: Shelf-stable dressings, sauces and croutons 22% 21% 16% Frozen breads 20% 21% 22% Refrigerated dressings, dips and other 13% 15% 16% Foodservice Segment: Dressings and sauces 34% 32% 33% Frozen breads and other 11% 11% 12% MANUFACTURING As of June 30, 2022, the majority of our products were manufactured and packaged at our 15 food plants located throughout the United States.
NET SALES BY CLASS OF PRODUCTS The following table sets forth business segment information with respect to the percentage of net sales contributed by our primary classes of similar products: 2023 2022 2021 Retail Segment: Shelf-stable dressings, sauces and croutons 23% 22% 21% Frozen breads 19% 20% 21% Refrigerated dressings, dips and other 11% 13% 15% Foodservice Segment: Dressings and sauces 35% 34% 32% Frozen breads and other 12% 11% 11% MANUFACTURING As of June 30, 2023, the majority of our products were manufactured and packaged at our 15 food plants located throughout the United States.
Unless otherwise noted, references to “year” pertain to our fiscal year which ends on June 30; for example, 2022 refers to fiscal 2022, which is the period from July 1, 2021 to June 30, 2022. Available Information Our Internet website address is http://www.lancastercolony.com.
Unless otherwise noted, references to “year” pertain to our fiscal year which ends on June 30; for example, 2023 refers to fiscal 2023, which is the period from July 1, 2022 to June 30, 2023. Available Information Our Internet website address is https://www.lancastercolony.com.
Further description of each business segment within which we operate is provided below. 3 Table of Contents Retail Segment The following table presents the primary Retail products we manufacture and sell under our brand names: Products Brand Names Frozen Breads Frozen garlic breads New York BRAND Bakery Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s Refrigerated Dressings and Dips Salad dressings Marzetti, Simply Dressed Vegetable dips and fruit dips Marzetti Shelf-Stable Dressings and Croutons Salad dressings Marzetti, Cardini’s, Girard’s Croutons and salad toppings New York BRAND Bakery, Chatham Village, Marzetti We also manufacture and sell other shelf-stable products pursuant to brand license agreements including Olive Garden ® dressings, Buffalo Wild Wings ® sauces and Chick-fil-A ® sauces.
Retail Segment The following table presents the primary Retail products we manufacture and sell under our brand names: Products Brand Names Frozen Breads Frozen garlic breads New York BRAND Bakery Frozen Parkerhouse style yeast rolls and dinner rolls Sister Schubert’s Refrigerated Dressings and Dips Salad dressings Marzetti, Marzetti Simply Vegetable dips and fruit dips Marzetti Shelf-Stable Dressings and Croutons Salad dressings Marzetti, Cardini’s, Girard’s Croutons and salad toppings New York BRAND Bakery, Chatham Village, Marzetti 3 Table of Contents We also manufacture and sell other products pursuant to brand license agreements, including Chick-fil-A ® sauces and dressings, Olive Garden ® dressings and Buffalo Wild Wings ® sauces.
We rely on a variety of raw materials and packaging for the day-to-day production of our products, including soybean oil, various sweeteners, eggs, dairy-related products, flour, various films and plastic and paper packaging materials.
RAW MATERIALS During 2023, we obtained adequate supplies of raw materials and packaging. We rely on a variety of raw materials and packaging for the day-to-day production of our products, including soybean oil, various sweeteners, eggs, dairy-related products, flour, various films and plastic and paper packaging materials.
Compensation and Benefits We offer our employees competitive fixed and/or variable pay along with a Total Rewards package which typically includes medical, prescription, dental and life insurance benefits, paid parental leave, adoption assistance, disability coverage, a 401(k) plan, and various employee assistance programs.
Total Rewards We offer our employees competitive fixed and/or variable pay along with a Total Rewards package which typically includes medical, prescription, dental, vision and life insurance benefits, paid parental leave, adoption assistance, disability coverage, a 401(k) plan, and various employee assistance programs. We have undertaken external benchmarking to ensure our compensation and benefits offerings remain competitive.
In 2022, our teams mobilized to support Pelotonia, Toys for Tots, and the United Way. We regularly donate funds and volunteer time to a range of other community organizations and foundations as well, including the Children’s Hunger Alliance, Susan G. Komen Race for the Cure, Jobs for America’s Graduates, and local food banks.
In 2023, our teams mobilized to support Pelotonia, Toys for Tots, and the United Way. We regularly donate funds and volunteer time to a range of other community organizations and foundations as well, including the Children’s Hunger Alliance, National Veterans Memorial and Museum, Jobs for America’s Graduates, and local food banks.
The financial information relating to our business segments for the three years ended June 30, 2022, 2021 and 2020 is included in Note 9 to the consolidated financial statements, and located in Part II, Item 8 of this Annual Report on Form 10-K.
The financial information relating to our business segments for the three years ended June 30, 2023, 2022 and 2021 is included in Note 9 to the consolidated financial statements, and located in Part II, Item 8 of this Annual Report on Form 10-K. Further description of each business segment within which we operate is provided below.
We have also identified Diversity & Inclusion Champions on our leadership team to ensure top-down accountability for our DEI initiatives. Community Engagement Our volunteering and philanthropic efforts align with United Nations Sustainable Development Goals, with a particular focus on reducing poverty and food insecurity while promoting good health and quality education for all.
Each of our ERGs is sponsored by a member of our leadership team to ensure top-down accountability for our DEI initiatives. 6 Table of Contents Community Engagement Our volunteering and philanthropic efforts align with United Nations Sustainable Development Goals, with a particular focus on reducing poverty and food insecurity while promoting good health and quality education for all.
Most of these plants produce products for both the Retail and Foodservice segments. Efficient and cost-effective production remains a key focus as evidenced by our lean six sigma initiative.
Most of these plants produce products for both the Retail and Foodservice segments. Efficient and cost-effective production remains a key focus as evidenced by our lean six sigma initiative. Certain items are also manufactured and packaged by third parties located in the United States, Canada and Europe.
In 2022, our workforce was 35% female and 46% of our employees represented minority races or ethnicities. In 2020, we adopted our Diversity Hiring Statement, which sets out our pledge to include women and minority candidates in the pool of candidates for new leadership positions.
In 2020, we adopted our Diversity Hiring Statement, which sets out our pledge to include women and minorities in the pool of candidates for new leadership positions.
Certain items are also manufactured and packaged by third parties located in the United States, Canada and Europe. 5 Table of Contents COMPETITION All of the markets in which we sell food products are highly competitive in the areas of price, quality and customer service. We face competition from a number of manufacturers of various sizes and capabilities.
COMPETITION All of the markets in which we sell food products are highly competitive in the areas of price, quality and customer service. We face competition from a number of manufacturers of various sizes and capabilities.
Retail sales of Chick-fil-A sauces have grown through geographic expansion, ultimately reaching national distribution in April 2021. Net sales attributed to Chick-fil-A, including the Retail sales resulting from the exclusive license agreement and the indirect Foodservice sales, totaled 24%, 21% and 16% of consolidated net sales for 2022, 2021 and 2020, respectively.
Total net sales attributed to Chick-fil-A, including the Retail sales resulting from the exclusive license agreement and the Foodservice sales, totaled 26%, 24% and 21% of consolidated net sales for 2023, 2022 and 2021, respectively.
Our people are essential to our vision to be The Better Food Company — better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day.
Of those employees, 23% are represented under various collective bargaining contracts and 6% are represented under a collective bargaining contract that will expire within one year. 5 Table of Contents Our people are essential to our vision to be The Better Food Company — better people, driven by purpose, making better food, in a better more collaborative culture, working in unison to make the world around us a little bit better place, every day.
Each year, we invite our employees to respond to our annual employee engagement survey and share their views on a range of workplace questions.
Each year, we invite our employees to respond to our annual employee engagement survey and share their views on a range of workplace questions. Based on feedback from the survey, management develops and implements plans to address the primary areas of opportunity that have been identified by employees.
We also encourage employee-led initiatives to promote diversity within the organization. Several employee resource groups have been established in the last few years. These affinity-based groups provide a support network for colleagues from diverse backgrounds and help to raise awareness of DEI topics.
These affinity-based groups provide a support network for colleagues from diverse backgrounds and help to raise awareness of DEI topics.
Our top five Foodservice direct customers accounted for 58%, 61% and 59% of this segment’s total net sales in 2022, 2021 and 2020, respectively. Within our Foodservice segment, typically our largest direct customers are distributors that distribute our products primarily to foodservice national chain restaurant accounts.
Within our Foodservice segment, typically our largest direct customers are distributors that distribute our products primarily to foodservice national chain restaurant accounts.
(“Chick-fil-A”), one of our national chain restaurant accounts, also represents a significant portion of our consolidated net sales. We supply Chick-fil-A indirectly through distributors, including McLane. In addition, Chick-fil-A is a growing contributor to our Retail sales since we began selling their sauces to grocery retailers under an exclusive license agreement beginning in March 2020 with a regional pilot test.
(“Chick-fil-A”), one of our national chain restaurant accounts, also represents a significant portion of our consolidated net sales. In Foodservice, we primarily supply Chick-fil-A indirectly through distributors, including McLane. A portion of our Foodservice sales represent direct sales to Chick-fil-A.
We continue to work to expand our Total Rewards program to strengthen our focus on work/life effectiveness and holistic well-being, which includes physical, financial, emotional, and social well-being. We have undertaken external benchmarking to ensure our compensation and benefits packages remain competitive.
We continue to work to expand our Total Rewards program to strengthen our focus on work/life effectiveness and holistic well-being, which includes physical, financial, emotional, and social well-being. We genuinely want to help our people to thrive both personally and professionally and have cultivated a high-performing workplace built on trust, accountability and growth.
We believe our commitment to diversity, equity, inclusion and belonging enhances our ability to attract and retain a high-performing and diverse team. We monitor the diversity of our organization to identify areas of improvement, advance our DEI strategy and measure the effectiveness of our efforts. Our goal is to establish a continuous improvement trend.
We monitor the diversity of our organization to identify areas of improvement, advance our DEI strategy and measure the effectiveness of our efforts. Our goal is to establish a continuous improvement trend. In 2023, our workforce was 36% female and 44% of our employees represented minority races or ethnicities.
Based on feedback from the survey, management develops and implements plans to address the primary areas of opportunity that have been identified by employees. 6 Table of Contents Diversity, Equity and Inclusion We foster a collaborative working environment where all our employees can thrive and feel they belong.
Diversity, Equity and Inclusion We foster a collaborative working environment where all our employees can thrive and feel they belong. We believe our commitment to diversity, equity, inclusion and belonging enhances our ability to attract and retain a high-performing and diverse team.
Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. Finally, within this segment, we sold other roll products under a temporary supply agreement resulting from the November 2018 acquisition of Omni Baking Company LLC. The temporary supply agreement was terminated effective October 31, 2020.
Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. Our top five Foodservice direct customers accounted for 58%, 58% and 61% of this segment’s total net sales in 2023, 2022 and 2021, respectively.
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In 2021, our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that had historically been part of the indirect costs allocated to our two reportable segments. This review was completed as part of our preparation for our enterprise resource planning system implementation.
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Chick-fil-A is also a significant contributor to our Retail sales as we sell their sauce and dressing products into the retail channel through an exclusive license agreement.
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As a result of this review, our CODM identified certain support functions that were more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources. These changes were effective in 2021, and all historical information was retroactively conformed to the current presentation.
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We have already seen a positive impact with the percentage of women at levels of Vice President and above increasing by 58% from January 2020 to January 2023 and the percentages of non-white representation for positions of director and above nearly doubling in the same period.
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These changes had no effect on previously reported consolidated net sales, gross profit, operating income, net income or earnings per share.
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Of those employees, 24% are represented under various collective bargaining contracts and 6% are represented under a collective bargaining contract that will expire within one year.
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Our focus on our employees also extends beyond the workplace – we genuinely want to help our people to thrive both personally and professionally through a healthy work-life balance.
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RAW MATERIALS During 2022, we experienced some disruptions to our sourcing of raw materials and packaging. We secured additional second-sourcing options to help limit the risk of supply disruptions.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

74 edited+34 added−16 removed79 unchanged
Biggest changeThese increased costs could have a material adverse effect on our business, results of operations, financial condition and cash flows. We also manufacture and sell numerous products pursuant to brand license agreements including Olive Garden ® dressings, Buffalo Wild Wings ® sauces and Chick-fil-A ® sauces.
Biggest changeWe manufacture and sell numerous products pursuant to brand license agreements, including Chick-fil-A ® sauces and dressings, Olive Garden ® dressings and Buffalo Wild Wings ® sauces. Maintaining license agreements under which we market and sell certain brands is important to our business. Our brand license agreements are typically for a fixed term with no automatic renewal options or provisions.
Furthermore, any sudden and dramatic increases in electricity or natural gas costs could have a material adverse effect on our business, results of operations, financial condition and cash flows. We limit our exposure to price fluctuations in energy-related costs by periodically entering into longer-term, fixed-price contracts for natural gas and electricity supply to some of our manufacturing facilities.
Furthermore, any sudden and dramatic increases in electricity or natural gas costs could have a material adverse effect on our business, results of operations, financial condition and cash flows. We limit our exposure to price fluctuations in energy-related costs by periodically entering into longer-term, fixed-price contracts for natural gas and electricity supply for some of our manufacturing facilities.
If we fail to prevent the theft of valuable information such as financial data, sensitive information about the Company and intellectual property, or if we fail to protect the privacy of customers’, consumers’ and employees’ confidential data against breaches of network or information technology security, it could result in substantial damage to our reputation and an impairment of business partner confidences and brand image, which could adversely impact our employee, customer and investor relations.
If we fail to prevent the theft of valuable information such as financial data, sensitive information about our Company and intellectual property, or if we fail to protect the privacy of customers’, consumers’ or employees’ confidential data against breaches of network or information technology security, it could result in substantial damage to our reputation and an impairment of business partner confidences and brand image, which could adversely impact our employee, customer and investor relations.
The effects of the CCPA, the CPRA, and other laws, rules or regulations relating to 15 Table of Contents privacy, data protection and information security that apply now or in the future, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, are significant, may require us to modify our data processing practices and policies, and could increase our costs, require significant changes to our operations, prevent us from providing certain offerings or cause us to incur potential liability in an effort to comply with such legislation.
The effects of the CCPA, the CPRA, and laws, rules or regulations of other jurisdictions relating to privacy, data protection and information security that apply now or in the future, particularly any new or modified laws or regulations that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer or disclosure, are significant, may require us to modify 15 Table of Contents our data processing practices and policies, and could increase our costs, require significant changes to our operations, prevent us from providing certain offerings or cause us to incur potential liability in an effort to comply with such legislation.
Due to the uncertainty surrounding the interpretation and application of many privacy and data protection requirements, laws, regulations, and contractually imposed industry standards, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent with our existing data management practices or business activities.
Further, due to the uncertainty surrounding the interpretation and application of many privacy and data protection requirements, laws, regulations, and contractually imposed industry standards, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent with our existing data management practices or business activities.
Because we source certain products from single manufacturing sites and use third-party manufacturers for significant portions of our production needs for certain products, it is possible that we could experience a production disruption that results in a reduction or elimination of the availability of some of our products.
Because we source certain products from single manufacturing sites and use third-party manufacturers for portions of our production needs for certain products, it is possible that we could experience a production disruption that results in a reduction or elimination of the availability of some of our products.
Competitive considerations in the various product categories in which we sell are numerous and include price, product innovation, product quality, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to remain relevant to consumer preferences and trends.
Competitive considerations in the various product categories in which we sell are numerous and include price, product innovation, product quality, reputation, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to remain relevant to consumer preferences and trends.
Epidemics, pandemics or similar widespread public health concerns and disease outbreaks, such as COVID-19, have disrupted and may cause future disruptions to consumption, supply chains, management, operations and production processes, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Epidemics, pandemics or similar widespread public health emergencies and disease outbreaks, such as COVID-19, have disrupted and may cause future disruptions to consumption, supply chains, management, operations and production processes, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The loss of, or a significant reduction in, Walmart’s business, or an adverse change in the financial condition of Walmart, could result in a material adverse effect on our business, results of operations, financial condition and cash flows. Our net sales to Walmart represented 18% of consolidated net sales for each of the years ended June 30, 2022 and 2021.
The loss of, or a significant reduction in, Walmart’s business, or an adverse change in the financial condition of Walmart, could result in a material adverse effect on our business, results of operations, financial condition and cash flows. Our net sales to Walmart represented 18% of consolidated net sales for each of the years ended June 30, 2023 and 2022.
Furthermore, our increased use of mobile and cloud technologies, including as a result of our transition to our new enterprise resource planning system, has heightened these cybersecurity and privacy risks. In addition, techniques used to obtain unauthorized access to information or to sabotage information technology systems change frequently.
Furthermore, our increased use of mobile and cloud technologies, including as a result of our transition to our current enterprise resource planning system, has heightened these cybersecurity and privacy risks. In addition, techniques used to obtain unauthorized access to information or to sabotage information technology systems change frequently.
The Ohio Control Share Acquisition Act found in Chapter 1701 of the Ohio Revised Code provides that certain notice and informational filings and a special shareholder meeting and voting procedures must be followed prior to consummation of a proposed “control share acquisition,” as defined in the Ohio Revised Code.
The Ohio Control Share Acquisition Act found in Chapter 1701 of the Ohio Revised Code (“ORC”) provides that certain notice and informational filings and a special shareholder meeting and voting procedures must be followed prior to consummation of a proposed “control share acquisition,” as defined in the ORC.
Failure to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, rules, regulations and policies could result in additional cost and liability to us, damage our reputation, inhibit growth, and otherwise adversely affect our business.
Failure to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, rules, regulations and policies could result in additional cost and liability to us, administrative actions, damage our reputation, inhibit growth, and otherwise adversely affect our business.
RISKS RELATED TO INVESTMENTS IN OUR COMMON STOCK Mr. Gerlach, Executive Chairman of our Board of Directors, has a significant ownership interest in our Company. As of June 30, 2022, Mr. Gerlach and the Gerlach family trusts owned or controlled approximately 28% of the outstanding shares of our common stock. Accordingly, Mr.
RISKS RELATED TO INVESTMENTS IN OUR COMMON STOCK Mr. Gerlach, Executive Chairman of our Board of Directors, has a significant ownership interest in our Company. As of June 30, 2023, Mr. Gerlach and the Gerlach family trusts owned or controlled approximately 28% of the outstanding shares of our common stock. Accordingly, Mr.
Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice and provisions classifying our Board of Directors, may make it more difficult for a third party to acquire us or influence our Board of Directors.
Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice and provisions classifying our Board of Directors, may make it more difficult for a third party to acquire our Company or influence our Board of Directors.
The Company could use these rights to put in place a shareholder rights plan, or “poison pill,” that could be used in connection with a bid or proposal of acquisition for an inadequate price. Item 1B. Unresolved Staff Comments None.
Our Company could use these rights to put in place a shareholder rights plan, or “poison pill,” that could be used in connection with a bid or proposal of acquisition for an inadequate price. Item 1B. Unresolved Staff Comments None.
Cyber attacks, which include the use of malware, ransomware, computer viruses and other means for disruption or unauthorized access, have increased in frequency, scope and potential harm in recent years and may remain undetected for an extended period.
Cyber attacks on businesses, which include the use of malware, ransomware, computer viruses and other means for disruption or unauthorized access, have increased in frequency, scope and potential harm in recent years and may remain undetected for an extended period.
Cyber attacks, data breaches or other breaches of our information security systems, as well as those of our third-party service providers and other third parties with which we do business, may cause equipment failures or disruptions to our operations.
Cyber attacks, data breaches or other breaches of our information security systems, as well as those of our third-party service providers, including cloud service providers, and other third parties with which we do business, may cause equipment failures or disruptions to our operations.
Failure to maintain our 14 Table of Contents retail shelf space or priority with these customers and foodservice distributors could have a material adverse effect on our business, results of operations, financial condition and cash flows. Emerging channels such as online retailers and home meal kit delivery services also continue to evolve and impact both the retail and foodservice industries.
Failure to maintain our retail shelf space or priority with these customers and foodservice distributors could have a material adverse effect on our business, results of operations, financial condition and cash flows. Emerging channels such as online retailers and home meal kit delivery services also continue to evolve and impact both the retail and foodservice industries.
If we are not able to obtain alternate production capability in a timely manner, or on favorable terms, it could have a negative impact on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with various customers.
If we are not able to obtain alternate production capability in a timely 8 Table of Contents manner, or on favorable terms, it could have a negative impact on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with various customers.
Consumers may increasingly require that our products and processes meet stricter standards than are required by applicable governmental agencies, thereby increasing the cost of manufacturing our products. If we fail to adequately respond to any such consumer concerns, we could suffer lost sales and damage our brand image or our reputation.
Consumers may increasingly require that our products and processes meet stricter standards than are required by applicable 7 Table of Contents governmental agencies, thereby increasing the cost of manufacturing our products. If we fail to adequately respond to any such consumer concerns, we could suffer lost sales and damage our brand image or our reputation.
Our accounts receivable balance from Walmart as of June 30, 2022 was $33.1 million. We may not be able to maintain our relationship with Walmart, and Walmart is not contractually obligated to purchase from us.
Our accounts receivable balance from Walmart as of June 30, 2023 was $33.1 million. We may not be able to maintain our relationship with Walmart, and Walmart is not contractually obligated to purchase from us.
The increasing concern over climate change and related environmental sustainability matters also has and is likely to continue to result in more federal, state, and local legal and regulatory requirements, including requirements affecting key 12 Table of Contents energy inputs in the manufacturing and distribution of our products, such as natural gas, diesel fuel, and electricity.
The increasing concern over climate change and related environmental sustainability matters also has and is likely to continue to result in more federal, state, and local legal and regulatory requirements, including requirements affecting key energy inputs in the manufacturing and distribution of our products, such as natural gas, diesel fuel, and electricity.
Further, unfavorable changes in Chick-fil-A’s financial condition or other disruptions to its business, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows. McLane is our largest Foodservice customer.
Further, unfavorable changes in Chick-fil-A’s financial condition or other 13 Table of Contents disruptions to its business, such as decreased consumer demand or stronger competition, could also have a material adverse effect on our business, results of operations, financial condition and cash flows. McLane is our largest Foodservice customer.
In addition, changes in Walmart’s general business model, such as reducing the shelf space devoted to the branded products we market, or devoting more shelf space to competing products, could adversely affect the profitability of our business with Walmart, even if we maintain a good 13 Table of Contents relationship.
In addition, changes in Walmart’s general business model, such as reducing the shelf space devoted to the branded products we market, or devoting more shelf space to competing products, could adversely affect the profitability of our business with Walmart, even if we maintain a good relationship.
Accordingly, there is a risk that these customers give higher priority or promotional support to their store branded products or to our competitors’ products or discontinue the use of our products in favor of their store branded products or other competing products. Likewise, our foodservice distributors often offer their own branded products that compete directly with our products.
Accordingly, there is a risk that these customers give higher priority or promotional support to their store branded products or to our competitors’ products or discontinue selling our products in favor of their store branded products or other competing products. Likewise, our foodservice distributors often offer their own branded products that compete directly with our products.
In addition, an allegation of noncompliance with federal or state food laws and 7 Table of Contents regulations could force us to cease production, stop selling our products or create significant adverse publicity that could harm our credibility and decrease market acceptance of our products.
In addition, an allegation of noncompliance with federal or state food laws and regulations could force us to cease production, stop selling our products or create significant adverse publicity that could harm our credibility and decrease market acceptance of our products.
If so, in addition to the possibility of substantial fines, lawsuits and other claims and penalties, we could be required to make fundamental changes to our data management practices and business activities, which could have an adverse effect on our business.
If so, in addition to the possibility of substantial fines, lawsuits and other claims and penalties, we could be required to make fundamental changes to our data management practices and business activities, which could have a material adverse effect on our business.
Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be accomplished only if, at a special meeting of shareholders, the acquisition is approved by both a majority of the voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the “interested shares,” as defined in the Ohio Revised Code.
Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be accomplished only if, at a special meeting of shareholders, the acquisition is approved by both a majority of the voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the “interested shares,” as defined in the ORC.
The Interested Shareholder Transactions Act found in Chapter 1704 of the Ohio Revised Code generally prohibits certain transactions, including mergers, majority share acquisitions and certain other control transactions, with an “interested shareholder,” as defined in the Ohio Revised Code, for a three-year period after becoming an interested shareholder, unless our Board of Directors approved the initial acquisition.
The Interested Shareholder Transactions Act found in Chapter 1704 of the ORC generally prohibits certain transactions, including mergers, majority share acquisitions and certain other control transactions, with an “interested shareholder,” as defined in the ORC, for a three-year period after becoming an interested shareholder, unless our Board of Directors approved the initial acquisition.
Sales to Chick-fil-A in our Foodservice segment, which are made indirectly through several foodservice distributors including McLane, represented 18% and 17% of consolidated net sales for the years ended June 30, 2022 and 2021, respectively. We cannot ensure that we will be able to maintain good relationships with key national chain restaurant accounts in the future.
Sales to Chick-fil-A in our Foodservice segment, which are primarily made indirectly through several foodservice distributors including McLane, represented 20% and 18% of consolidated net sales for the years ended June 30, 2023 and 2022, respectively. We cannot ensure that we will be able to maintain good relationships with key national chain restaurant accounts in the future.
If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to these trends, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our business, results of operations, financial condition and cash flows could be adversely affected.
If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to such events, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our business, results of operations, financial condition and cash flows could be adversely affected.
Our ability to avoid the adverse effects of a pronounced, sustained price increase in our raw materials is limited. We have observed increased volatility in the costs of many of these raw materials in recent years. During fiscal 2023 and possibly beyond, we expect to face continued industry-wide inflation for various inputs, including commodities, ingredients, packaging materials, transportation and labor.
Our ability to avoid the adverse effects of a pronounced, sustained price increase in our raw materials is limited. We have observed increased volatility in the costs of many of these raw materials in recent years. During fiscal 2023, we faced continued industry-wide inflation for various inputs, including commodities, ingredients, packaging materials, transportation and labor.
The loss of the services of one or more members of our senior management team could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Any of these activities could have a material adverse effect on our business, results of operations, financial condition and cash flows. The loss of the services of one or more members of our senior management team could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have seen, and will likely continue to see, industry-wide vulnerabilities which could affect our systems or those of our third-party service providers or other third parties with which we do business. While we have been subject to cyber attacks, none of these events has been material to our operations or financial condition.
Like most businesses, we have seen, and will likely continue to see, vulnerabilities which could affect our systems or those of our third-party service providers or other third parties with which we do business. While we have been subject to cyber attacks, none of these events has been material to our operations or financial condition.
Thus, unfavorable changes in the financial condition of McLane could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Thus, unfavorable changes in the financial condition of McLane could increase our credit risk and have a material adverse effect on our business, results of operations, financial condition and cash flows.
Epidemics, pandemics or similar widespread health concerns and disease outbreaks, such as COVID-19, as well as related government mandates, including the avoidance of gatherings, self-quarantine and the closure of a variety of businesses 9 Table of Contents and restaurants, have negatively affected and may in the future negatively affect our business, results of operations, financial condition and cash flows.
Epidemics, pandemics or similar widespread public health emergencies and disease outbreaks, such as COVID-19, as well as related government mandates, including the avoidance of gatherings, self-quarantine and the closure of a variety of businesses and restaurants, have negatively affected and may in the future negatively affect our business, results of operations, financial condition and cash flows.
Our accounts receivable balance from McLane as of June 30, 2022 was $14.4 million. McLane is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast casual and casual dining channels.
Our accounts receivable balance from McLane as of June 30, 2023 was $9.9 million. McLane is a large, national distributor that sells and distributes our products to several of our foodservice national chain restaurant accounts, principally in the quick service, fast casual and casual dining channels.
An adverse change in the financial condition of McLane could have a material adverse effect on our business, results of operations, financial condition and cash flows. Our net sales to McLane represented 11% and 13% of consolidated net sales for the years ended June 30, 2022 and 2021, respectively.
An adverse change in the financial condition of McLane could have a material adverse effect on our business, results of operations, financial condition and cash flows. Our net sales to McLane represented 11% of consolidated net sales for each of the years ended June 30, 2023 and 2022.
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing or distribution capabilities, or to the capabilities of our suppliers or contract manufacturers, due to factors that are hard to predict or beyond our control, such as adverse weather conditions, natural disasters, fire, terrorism, pandemics, including COVID-19, strikes, geopolitical events such as the recent conflict between Russia and Ukraine, or other events.
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing or distribution capabilities, or to the capabilities of our suppliers or contract manufacturers, due to factors that are hard to predict or beyond our control, such as adverse weather conditions, natural disasters, fire, terrorism, pandemics or similar public health emergencies, strikes, geopolitical events such as the conflict between Russia and Ukraine, or other events.
Further, our businesses could be adversely affected if we are unable to effectively address increased concerns from the media, shareholders, customers, and other stakeholders on climate change and related environmental sustainability and governance matters.
Further, our businesses could be adversely affected if we are unable to effectively address concerns from the media, shareholders, customers, and other stakeholders specific to our business regarding climate change and related environmental sustainability and governance matters.
After the three-year waiting period, such a transaction may require additional approvals under this Act, including approval by two-thirds of our voting shares and a majority of our voting shares not owned by the interested shareholder.
After the three-year waiting period, such a transaction may require additional approvals under the Interested Shareholder Transactions Act, including approval by two-thirds of our voting shares and a majority of our voting shares not 16 Table of Contents owned by the interested shareholder.
Pandemics, including COVID-19, natural disasters, terrorist activity, cyber attacks, or other unforeseen events could interrupt production or distribution and have a material adverse effect on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with our customers.
In addition, pandemics and similar public health emergencies, natural disasters, terrorist activity, cyber attacks, geopolitical events or other unforeseen events could interrupt production or distribution and have a material adverse effect on our business, results of operations, financial condition and cash flows, including the potential for long-term loss of product placement with our customers.
Our ability to obtain adequate and reasonably priced methods of transportation to distribute our products, including refrigerated trailers for many of our products, is a key factor to our success. Delays in transportation, including weather-related delays, could have a material adverse effect on our business and results of operations.
Our ability to obtain adequate and reasonably priced methods of transportation to distribute our products, including refrigerated trailers for many of our products, is a key factor to our success. Delays in transportation, including weather-related delays and disruptions due to a pandemic or similar public health emergency, could have a material adverse effect on our business and results of operations.
Labor shortages, increased labor costs, and increased labor turnover could adversely impact our business, results of operations, financial condition, and cash flows. We have recently experienced labor shortages, increased labor costs and increased employee turnover, which were exacerbated by the current inflationary market as well as the COVID-19 pandemic and the related policies and mandates.
Labor shortages, increased labor costs, and increased labor turnover could adversely impact our business, results of operations, financial condition, and cash flows. We have recently experienced labor shortages, increased labor costs and increased employee turnover, which were due in part to the COVID-19 pandemic and the related policies and mandates and exacerbated by inflationary costs.
As a result, the impact of the COVID-19 pandemic could have a material adverse effect on our business, results of operations, financial condition and cash flows. Cyber attacks, data breaches or other breaches of our information security systems have had and in the future could have an adverse effect on our business, results of operations, financial condition and cash flows.
As a result, such public health emergencies could have a material adverse effect on our business, results of operations, financial condition and cash flows. Cyber attacks, data breaches or other breaches of our information security systems have had, and in the future could have, an adverse effect on our business, results of operations, financial condition and cash flows.
Hardware, software or applications we utilize may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, potentially resulting in the unauthorized disclosure and misappropriation of sensitive data, including intellectual property, proprietary business 10 Table of Contents information, and personal data.
Hardware, software or applications we utilize on our networks and work-issued devices may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, potentially resulting in the unauthorized disclosure and misappropriation of sensitive data, including intellectual property, proprietary business information, and personal data.
These laws and regulations may include requirements to conserve water or mitigate the effects of greenhouse gas emissions. Depending on the nature of such legal requirements, we may experience significant increases in our compliance costs, capital expenditures, and other financial obligations to adapt our business and operations to meet new laws and regulations, which could materially affect our profitability.
Depending on the nature of such legal requirements, we may experience significant increases in our compliance costs, production costs, capital expenditures, and other financial obligations to adapt our business and operations to meet new laws and regulations, which could materially affect our profitability.
RISKS RELATED TO OUR OPERATIONS Increases in the costs, from inflation or otherwise, or limitations in the availability of raw materials, packaging and freight used to produce, package and deliver our products could adversely affect our business by increasing our costs to produce goods. Our principal raw materials include soybean oil, packaging materials, flour, various sweeteners, dairy-related products and eggs.
RISKS RELATED TO OUR OPERATIONS Increases in the costs, or limitations in the availability, of raw materials, packaging and freight used to produce, package and deliver our products due to inflation, geopolitical events or otherwise could adversely affect our business by increasing our costs to produce goods.
The termination of our brand license agreements, the failure to renew our brand license agreements or to renew them on terms favorable to us, adverse changes in the economic health or reputation of our brand licensors, or the impairment of our relationships with our brand licensors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The termination of our brand license agreements, the failure to renew any of our significant brand license agreements or failure to renew them under terms that are similar and not materially less favorable to us, including as a result of negative publicity (whether or not warranted), adverse changes in the economic health or reputation of our brand licensors, or the impairment of our relationships with our brand licensors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Should we not be able to find qualified replacements or successors for any of these individuals if their services were no longer available due to retirement, resignation or otherwise, our ability to manage our operations or successfully execute our business strategy may be materially and adversely affected. 11 Table of Contents Manufacturing capacity constraints may have a material adverse effect on our business, results of operations, financial condition and cash flows.
Should we not be able to find qualified replacements or successors for any of these individuals if their services were no longer available due to retirement, resignation or otherwise, our ability to manage our operations or successfully execute our business strategy may be materially and adversely affected.
For example, we are subject to the California Consumer Privacy Act of 2018 (“CCPA”) and will become subject to the California Privacy Rights Act (“CPRA”), which has required us to modify our data processing practices and policies and incur compliance-related costs and expenses.
For example, we are subject to the California Consumer Privacy Act of 2018 (“CCPA”). The CCPA was amended by the California Privacy Rights Act (“CPRA”), which went into effect on January 1, 2023. The CCPA, as amended, has required us to modify our data processing practices and policies and incur compliance-related costs and expenses.
Maintaining and enhancing our brand image and recognition is essential to our long-term success, and maintaining license agreements under which we market and sell certain brands is important to our business. The failure to do either could have a material adverse effect on our business, financial condition and results of operations.
We rely on the success of our well-recognized brand names. Maintaining and enhancing our brand image and recognition is essential to our long-term success. The failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We are also subject to risks of other business disruptions associated with our dependence on production facilities and distribution systems.
We are also subject to risks of other business disruptions associated with our dependence on production facilities, distribution systems and third party staffing agencies. For example, we rely on third party temporary staffing agencies to support certain of our production operations.
Increases in the frequency and severity of extreme weather and natural disasters, such as drought, may continue to result in material damage and disruptions to our manufacturing operations and distribution channels or our third-party manufacturers’ operations, particularly where a product is primarily sourced from a single location impacted by a climate event.
In addition, we may be subject to decreased availability or less favorable pricing of soybean oil as a result of increased demand for soybean oil in the production of alternative fuels, such as biodiesel. 11 Table of Contents Increases in the frequency and severity of extreme weather and natural disasters, such as drought, have in the past and may in the future result in material damage and disruptions to our manufacturing operations and distribution channels or our third-party manufacturers’ operations, particularly where a product is primarily sourced from a single location impacted by a climate event.
RISKS RELATED TO THE BRANDS WE SELL AND CUSTOMER DEMAND FOR OUR PRODUCTS We rely on the value of the brands we sell, and the failure to maintain and enhance these brands could adversely affect our business. We rely on the success of our well-recognized brand names.
RISKS RELATED TO THE BRANDS WE SELL AND CUSTOMER DEMAND FOR OUR PRODUCTS We rely on the value of our reputation and the value of the brands we sell, and the failure to maintain and enhance these brands, including as a result of negative publicity (whether or not warranted), could adversely affect our business.
Our key brand license agreements can be terminated or not renewed at the option of the licensor upon short notice to us.
We cannot ensure that we will maintain good relationships with our brand licensors or that we will be able to renew any of our license agreements upon expiration. Our key brand license agreements can be terminated or not renewed at the option of the licensor upon short notice to us.
Any of these occurrences could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any potential claim under our insurance policies relating to cyber events may be subject to certain exceptions or may not be honored fully, in a timely manner, or at all.
Further, any potential claim under our insurance policies relating to cyber events may be subject to certain exceptions or may not be honored fully, in a timely manner, or at all.
We cannot predict whether future regulation by various federal, state and local government entities and agencies would adversely affect our business, results of operations, financial condition and cash flows.
We cannot predict whether future regulation by various federal, state and local government entities and agencies would adversely affect our business, results of operations, financial condition and cash flows. In recent years, our industry has been subject to increased regulatory scrutiny, including by the Federal Trade Commission and the Occupational Safety and Health Administration.
These factors, as well as an inability to effectively implement additional measures to offset higher costs, could have a material adverse effect on our business, results of operations, financial condition and cash flows. 8 Table of Contents A disruption of production at certain manufacturing facilities could result in an inability to meet customer demand for certain of our products, which could also negatively impact our ability to maintain adequate levels of product placement with our customers on a long-term basis.
A disruption of production at certain manufacturing facilities could result in an inability to meet customer demand for certain of our products, which could also negatively impact our ability to maintain adequate levels of product placement with our customers on a long-term basis.
Our information technology systems could also be adversely affected by changes that result from COVID-19, including for example, remote work arrangements for our employees. If we are unable to adequately protect against these vulnerabilities, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information.
If we are unable to adequately protect against these vulnerabilities, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information.
The application of these provisions of the Ohio Revised Code, or any similar anti-takeover law adopted in Ohio, could have the effect of delaying or preventing a change of control, which could have an adverse effect on the market price of our stock. 16 Table of Contents Also, our Board of Directors has the authority to issue up to 1,150,000 shares of Class B Voting Preferred Stock and 1,150,000 shares of Class C Nonvoting Preferred Stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the shareholders.
Also, our Board of Directors has the authority to issue up to 1,150,000 shares of Class B Voting Preferred Stock and 1,150,000 shares of Class C Nonvoting Preferred Stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the shareholders.
Competition within all of our markets is expected to remain intense. Numerous competitors exist, many of which are larger than us in size. These competitive conditions could lead to significant downward pressure on the prices of our products, which could have a material adverse effect on our sales and profitability.
These competitive conditions could lead to significant downward pressure on the prices of our products, which could have a material adverse effect on our sales and profitability.
We may not have purchased sufficient insurance to cover all material costs and losses, and in the future, we may not be able to obtain adequate liability insurance on commercially desirable or reasonable terms or at all. We may experience difficulties in implementing our new enterprise resource planning system.
We may not have purchased sufficient insurance to cover all material costs and losses, and in the future, we may not be able to obtain adequate liability insurance on commercially desirable or reasonable terms or at all. Any of these occurrences could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our presence in these emerging channels is currently underdeveloped, and our ultimate success and the resulting impacts to our financial results are uncertain. RISKS RELATED TO INFORMATION TECHNOLOGY Technology failures could disrupt our operations and negatively impact our business.
Our ultimate success in these channels and the resulting impacts to our financial results are uncertain. 14 Table of Contents RISKS RELATED TO INFORMATION TECHNOLOGY Technology failures could disrupt our operations and negatively impact our business. We increasingly rely on information technology systems to conduct and manage our business operations, including the processing, transmitting, and storing of electronic information.
Further, higher fuel costs and increased line haul costs due to industry capacity constraints, customer delivery requirements and a more restrictive regulatory environment could continue to negatively impact our financial results. We are often required to pay fuel surcharges that fluctuate with the price of diesel fuel to third-party transporters of our products, and such surcharges can be substantial.
Further, higher fuel costs and increased line haul costs due to industry capacity constraints, customer delivery requirements and a more restrictive regulatory environment could negatively impact our financial results.
As consolidation in the retail grocery industry continues and our retail customers also grow larger and become more sophisticated, they may demand improved efficiency, lower pricing, increased promotional programs, or specifically tailored products. Further, these customers are reducing their inventories and increasing their emphasis on private label products and other products holding top market positions.
As consolidation in the retail grocery industry continues and our retail customers also grow larger and become more sophisticated, they may demand improved efficiency, lower pricing, increased promotional programs, or specifically tailored products. If we are unable to respond to these demands, our profitability or volume growth could be negatively impacted.
For example, changes in consumer demand, combined with other COVID-19-related issues, have unfavorably impacted the operating results of both our segments as a result of higher hourly wage rates, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network.
For example, the negative impacts of COVID-19 on our Company included higher hourly 9 Table of Contents wage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network.
Further, negative opinions or commentary posted online regarding our brands, regardless of their underlying merits or accuracy, could diminish the value of our brands and have a material adverse effect on our business, results of operations, financial condition and cash flows. Competitive conditions within our Retail and Foodservice markets could impact our sales volumes and operating profits.
Further, negative opinions or commentary posted online regarding our brands, regardless of their underlying merits or accuracy, could diminish the value of our brands and have a material adverse effect on our business, results of operations, financial condition and cash flows. 12 Table of Contents We manufacture and sell numerous products pursuant to license agreements and failure to maintain or renew these agreements could adversely affect our business.
Furthermore, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology and an uninterrupted and functioning infrastructure, including telecommunications. Our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, cyber attacks and other security issues.
Our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, cyber attacks and other security issues. Our information technology systems could also be adversely affected by changes relating to remote work arrangements for our employees.
Our current manufacturing resources may be inadequate to meet significantly increased demand for some of our food products.
Manufacturing capacity constraints may have a material adverse effect on our business, results of operations, financial condition and cash flows. Our current manufacturing resources may be inadequate to meet significantly increased demand for some of our food products.
The interests of Mr. Gerlach may conflict with the interests of other holders of our common stock. This conflict of interest may have an adverse effect on the price of our common stock. Anti-takeover provisions could make it more difficult for a third party to acquire us.
The interests of Mr. Gerlach may conflict with the interests of other holders of our common stock. This conflict of interest may have an adverse effect on the price of our common stock. For instance, sales of a substantial number of shares of our common stock into the public market, particularly shares held by Mr.
We believe that our labor relations with employees under collective bargaining contracts are satisfactory, but our inability to negotiate the renewal of any collective bargaining agreements, including the agreement at our Vineland, New Jersey facility, which is currently scheduled to expire in December 2022, or any prolonged work stoppages could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We believe that our labor relations with employees under collective bargaining contracts are satisfactory, but our inability to negotiate the renewal of any collective bargaining agreements, including the agreement at our Bedford Heights, Ohio facility, which is currently scheduled to expire in April 2024, or any prolonged work stoppages or other types of labor unrest could in some cases impair our ability to supply our products to customers, which could result in reduced sales and may distract our 10 Table of Contents management from focusing on other aspects of our business and strategic priorities.
However, we may be unable to successfully implement offsetting measures or unable to do so in a timely manner. Inflation has and may continue to adversely affect us by increasing our costs of raw materials, packaging and freight, as well as wage and benefit costs.
During fiscal 2022, the overall global economy experienced significant inflation in packaging materials, fuel, energy, and commodities. Inflation has and may continue to adversely affect us by increasing our costs of raw materials, packaging and freight, as well as wage and benefit costs.
We increasingly rely on information technology systems to conduct and manage our business operations, including the processing, transmitting, and storing of electronic information. For example, our sales group and our production and distribution facilities utilize information technology to increase efficiencies and limit costs.
For example, our sales group and our production and distribution facilities utilize information technology to increase efficiencies and limit costs. Furthermore, a significant portion of the communications between our personnel, customers, and suppliers depends on information technology and an uninterrupted and functioning infrastructure, including telecommunications.
Removed
During fiscal 2022, the overall global economy experienced significant inflation in packaging materials, fuel, energy, and commodities. We may experience further increases in the costs of raw materials, and we may try to offset such cost increases with higher prices or other measures.
Added
Our principal raw materials include soybean oil, packaging materials, flour, various sweeteners, dairy-related products and eggs.
Removed
In an inflationary environment, depending on broad market conditions and the expected increase in 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.
Added
Any substantial change in the prices or availability of raw materials may have an adverse impact on our profitability. For example, in recent periods we have seen significant commodity inflation in soybean oil, which has impacted both of our segments because of the significant number of our products that include soybean oil.
Removed
Any sudden or dramatic increases in the price of diesel fuel would serve to increase our fuel surcharges and our cost of goods sold.
Added
During challenging economic times, consumers may be less willing or able to pay a price premium for our branded products and may shift purchases to lower-priced offerings, making it more difficult for us to maintain prices and/or effectively implement price increases.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table summarizes our principal warehouses (including aggregation of multiple facilities), which are used to distribute products to our customers: Location Business Segment(s) Terms of Occupancy Altoona, IA (1) Retail and Foodservice Leased Columbus, OH (2) Retail and Foodservice Leased Grove City, OH Retail and Foodservice Owned Horse Cave, KY Retail and Foodservice Owned McDonough, GA Retail and Foodservice Third-party service Shepherdsville, KY Foodservice Third-party service Tracy, CA Retail and Foodservice Third-party service (1) Fully leased for term expiring in fiscal 2026.
Biggest changeThe following table summarizes our principal warehouses (including aggregation of multiple facilities), which are used to distribute products to our customers: Location Business Segment(s) Terms of Occupancy Columbus, OH (1) Retail and Foodservice Leased and third-party service Grove City, OH Retail and Foodservice Owned Horse Cave, KY Retail and Foodservice Owned McDonough, GA Retail and Foodservice Third-party service Tracy, CA Retail and Foodservice Third-party service (1) Leased portions have terms expiring in fiscal 2025 and fiscal 2027.
Item 2. Properties We use 2.5 million square feet of space for our operations. Of this space, 0.8 million square feet are leased. These amounts exclude facilities operated by third-party service providers.
Item 2. Properties We use 2.6 million square feet of space for our operations. Of this space, 0.7 million square feet are leased. These amounts exclude facilities operated by third-party service providers.
Removed
(2) Fully leased for terms expiring in fiscal 2024 and fiscal 2027.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn the fourth quarter, we made the following repurchases of our common stock: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet be Purchased Under the Plans April 1-30, 2022 (1) 450 $ 155.14 450 1,225,646 May 1-31, 2022 (1) 68 $ 121.72 68 1,225,578 June 1-30, 2022 (1) 33 $ 128.78 33 1,225,545 Total 551 $ 149.44 551 1,225,545 (1) Represents shares that were repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan. 19 Table of Contents PERFORMANCE GRAPH COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN OF LANCASTER COLONY CORPORATION, THE S&P MIDCAP 400 INDEX AND THE DOW JONES U.S.
Biggest changeIn the fourth quarter, we made the following repurchases of our common stock: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet be Purchased Under the Plans April 1-30, 2023 (1) 10 $ 202.88 10 1,176,794 May 1-31, 2023 — $ — — 1,176,794 June 1-30, 2023 (1) 55 $ 198.33 55 1,176,739 Total 65 $ 199.03 65 1,176,739 (1) Represents shares that were repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan. 19 Table of Contents PERFORMANCE GRAPH COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN OF LANCASTER COLONY CORPORATION, THE S&P MIDCAP 400 INDEX, THE S&P 1500 PACKAGED FOODS & MEATS INDEX AND THE DOW JONES U.S.
This is not the actual number of beneficial owners of our common stock, as shares are held in “street name” by brokers and others on behalf of individual owners. We have increased our regular cash dividends for 59 consecutive years. Future dividends will depend on our earnings, financial condition and other factors.
This is not the actual number of beneficial owners of our common stock, as shares are held in “street name” by brokers and others on behalf of individual owners. We have increased our regular cash dividends for 60 consecutive years. Future dividends will depend on our earnings, financial condition and other factors.
The information regarding compensation plans under which equity securities are authorized for issuance is incorporated by reference to the information contained in our definitive proxy statement for our November 2022 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act.
The information regarding compensation plans under which equity securities are authorized for issuance is incorporated by reference to the information contained in our definitive proxy statement for our November 2023 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades on The NASDAQ Global Select Market under the symbol LANC. The number of shareholders of record as of August 1, 2022 was approximately 680.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades on The NASDAQ Global Select Market under the symbol LANC. The number of shareholders of record as of August 1, 2023 was approximately 640.
Issuer Purchases of Equity Securities In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of which 1,225,545 common shares remained authorized for future repurchases at June 30, 2022. This share repurchase authorization does not have a stated expiration date.
Issuer Purchases of Equity Securities In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of which 1,176,739 common shares remained authorized for future repurchases at June 30, 2023. This share repurchase authorization does not have a stated expiration date.
FOOD PRODUCERS INDEX The graph set forth below compares the five-year cumulative total return from investing $100 on June 30, 2017 in each of our Common Stock, the S&P Midcap 400 Index and the Dow Jones U.S. Food Producers Index. The total return calculation assumes that all dividends are reinvested, including any special dividends.
FOOD PRODUCERS INDEX The graph set forth below compares the five-year cumulative total return from investing $100 on June 30, 2018 in each of our Common Stock, the S&P Midcap 400 Index, the S&P 1500 Packaged Foods & Meats Index and the Dow Jones U.S. Food Producers Index.
Food Producers 100.00 97.97 101.62 104.00 129.68 134.23 There can be no assurance that our stock performance will continue into the future with the same or similar trends depicted in the above graph.
Food Producers 100.00 103.72 106.15 132.36 137.00 147.09 There can be no assurance that our stock performance will continue into the future with the same or similar trends depicted in the above graph.
Cumulative Total Return (Dollars) 6/17 6/18 6/19 6/20 6/21 6/22 Lancaster Colony Corporation 100.00 115.02 125.49 133.22 169.06 114.95 S&P Midcap 400 100.00 113.50 115.05 107.35 164.49 140.41 Dow Jones U.S.
Cumulative Total Return (Dollars) 6/18 6/19 6/20 6/21 6/22 6/23 Lancaster Colony Corporation 100.00 109.10 115.82 146.98 99.93 158.81 S&P Midcap 400 100.00 101.36 94.58 144.93 123.71 145.49 S&P 1500 Packaged Foods & Meats 100.00 106.85 111.69 130.95 139.18 148.55 Dow Jones U.S.
Added
The total return calculation assumes that all dividends are reinvested, including any special dividends. Going forward, the Dow Jones U.S. Food Producers Index will be replaced by the S&P 1500 Packaged Foods & Meats Index, which is a published industry index used to determine certain components of our stock-based compensation.

Item 7. Management's Discussion & Analysis

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

58 edited+20 added−36 removed35 unchanged
Biggest changeItems which could impact these forward-looking statements include, but are not limited to, those risk factors identified in Item 1A and: • inflationary pressures resulting in higher input costs; • efficiencies in plant operations and our overall supply chain network; • adverse changes in freight, energy or other costs of producing, distributing or transporting our products; • significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of COVID-19 and other epidemics, pandemics or similar widespread public health concerns and disease outbreaks; • the reaction of customers or consumers to pricing actions we take to offset inflationary costs; • fluctuations in the cost and availability of ingredients and packaging; • dependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in continuing to support our business; • the impact of customer store brands on our branded retail volumes; • capacity constraints that may affect our ability to meet demand or may increase our costs; • adequate supply of labor for our manufacturing facilities; • cyber-security incidents, information technology disruptions, and data breaches; • complexities related to the implementation of our new enterprise resource planning system; • geopolitical events, such as Russia’s recent invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy; • the potential for loss of larger programs, including licensing agreements, or key customer relationships; • changes in demand for our products, which may result from loss of brand reputation or customer goodwill; • price and product competition; • the possible occurrence of product recalls or other defective or mislabeled product costs; • the success and cost of new product development efforts; • the lack of market acceptance of new products; • the extent to which recent and future business acquisitions are completed and acceptably integrated; • the ability to successfully grow recently acquired businesses; • dependence on key personnel and changes in key personnel; • the effect of consolidation of customers within key market channels; • maintenance of competitive position with respect to other manufacturers; • stability of labor relations; • changes in estimates in critical accounting judgments; • the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand; • the outcome of any litigation or arbitration; • the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs; and • certain other risk factors, including those discussed in other filings we have submitted to the Securities and Exchange Commission. 30 Table of Contents
Biggest changeItems which could impact these forward-looking statements include, but are not limited to, those risk factors identified in Item 1A and: • efficiencies in plant operations and our overall supply chain network; • the reaction of customers or consumers to pricing actions we take to offset inflationary costs; • price and product competition; • adequate supply of labor for our manufacturing facilities; • the impact of customer store brands on our branded retail volumes; • inflationary pressures resulting in higher input costs; • adverse changes in freight, energy or other costs of producing, distributing or transporting our products; • fluctuations in the cost and availability of ingredients and packaging; • dependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in continuing to support our business; • stability of labor relations; • dependence on key personnel and changes in key personnel; • cyber-security incidents, information technology disruptions, and data breaches; • capacity constraints that may affect our ability to meet demand or may increase our costs; • geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy; • the potential for loss of larger programs or key customer relationships; • failure to maintain or renew license agreements; • significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of epidemics, pandemics or similar widespread public health concerns and disease outbreaks; • changes in demand for our products, which may result from loss of brand reputation or customer goodwill; • the possible occurrence of product recalls or other defective or mislabeled product costs; • the success and cost of new product development efforts; • the lack of market acceptance of new products; • the extent to which business acquisitions are completed and acceptably integrated; • the ability to successfully grow acquired businesses; • the effect of consolidation of customers within key market channels; • maintenance of competitive position with respect to other manufacturers; • the outcome of any litigation or arbitration; • changes in estimates in critical accounting judgments; • the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand; • the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs; and • certain other risk factors, including those discussed in other filings we have submitted to the Securities and Exchange Commission. 29 Table of Contents
The future levels of share repurchases and declared dividends are subject to the periodic review of our Board of Directors and are generally determined after an assessment is made of various factors, such as anticipated earnings levels, cash flow requirements and general business conditions.
Future levels of share repurchases and declared dividends are subject to the periodic review of our Board of Directors and are generally determined after an assessment is made of various factors, such as anticipated earnings levels, cash flow requirements and general business conditions.
Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “Forward-Looking Statements” and those set forth in Item 1A of this Annual Report on Form 10-K. Our discussion of results for 2022 compared to 2021 is included herein.
Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “Forward-Looking Statements” and those set forth in Item 1A of this Annual Report on Form 10-K. Our discussion of results for 2023 compared to 2022 is included herein.
At June 30, 2022, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At June 30, 2022, there were no events that would constitute a default under this facility. We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future.
At June 30, 2023, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At June 30, 2023, there were no events that would constitute a default under this facility. We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future.
For discussion of results for 2021 compared to 2020, see our 2021 Annual Report on Form 10-K. OVERVIEW Business Overview Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels. Our financial results are presented as two reportable segments: Retail and Foodservice.
For discussion of results for 2022 compared to 2021, see our 2022 Annual Report on Form 10-K. OVERVIEW Business Overview Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels. Our financial results are presented as two reportable segments: Retail and Foodservice.
Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of June 30, 2022, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment.
Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of June 30, 2023, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment.
Interest is variable based upon formulas tied to LIBOR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes.
Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, 2022 refers to fiscal 2022, which is the period from July 1, 2021 to June 30, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, 2023 refers to fiscal 2023, which is the period from July 1, 2022 to June 30, 2023.
RECENT ACCOUNTING PRONOUNCEMENTS Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the consolidated financial statements. 29 Table of Contents FORWARD-LOOKING STATEMENTS We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).
RECENT ACCOUNTING PRONOUNCEMENTS Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the consolidated financial statements. 28 Table of Contents FORWARD-LOOKING STATEMENTS We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).
We had no borrowings outstanding under the Facility at June 30, 2022. At June 30, 2022, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable.
We had no borrowings outstanding under the Facility at June 30, 2023. At June 30, 2023, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable.
A portion of the costs that have been classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the ERP implementation. Change in Contingent Consideration In 2022, the change in contingent consideration resulted in a benefit of $3.5 million.
A portion of the costs that have been classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the completion of our ERP implementation. Change in Contingent Consideration In 2022, the change in contingent consideration resulted in a benefit of $3.5 million.
Post implementation, Project Ascent will evolve into an on-going Center of Excellence (“COE”) that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards.
Project Ascent will evolve into an on-going Center of Excellence that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards.
Our business has the potential to achieve future growth in sales and profitability due to attributes such as: • leading Retail market positions in several product categories with a high-quality perception; • recognized innovation in Retail products; • a broad customer base in both Retail and Foodservice accounts; • well-regarded culinary expertise among Foodservice customers; • recognized leadership in Foodservice product development; • experience in integrating complementary business acquisitions; and • historically strong cash flow generation that supports growth opportunities.
Our business has the potential to achieve future growth in sales and profitability due to attributes such as: • leading Retail market positions in several product categories with a high-quality perception; • recognized innovation in Retail products; • a broad customer base in both Retail and Foodservice accounts; • well-regarded culinary expertise among Foodservice customers; • long-standing Foodservice customer relationships that help to support strategic licensing opportunities in Retail; • recognized leadership in Foodservice product development; • experience in integrating complementary business acquisitions; and • historically strong cash flow generation that supports growth opportunities.
Taxes Based on Income Our effective tax rate was 20.3% and 23.4% in 2022 and 2021, respectively. See Note 8 to the consolidated financial statements for a reconciliation of the statutory rate to the effective rate. We include the tax consequences related to stock-based compensation within the computation of income tax expense.
Taxes Based on Income Our effective tax rate was 22.3% and 20.3% in 2023 and 2022, respectively. See Note 8 to the consolidated financial statements for a reconciliation of the statutory rate to the effective rate. We include the tax consequences related to stock-based compensation within the computation of income tax expense.
Our balance sheet maintained fundamental financial strength during 2022 as we ended the year with $60 million in cash and equivalents, along with shareholders’ equity of $845 million and no debt. Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time.
Our balance sheet maintained fundamental financial strength during 2023 as we ended the year with $88 million in cash and equivalents, along with shareholders’ equity of $862 million and no debt. Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time.
Restructuring and Impairment Charges In 2022, we recorded restructuring and impairment charges totaling $35.2 million related to the following items: • our decision to explore strategic alternatives and ultimately exit the Bantam business; • the impact of a revision to the forecasted cash flows of Bantam on the intangible assets of this business; • the impact of a revision to the forecasted branded sales of Angelic Bakehouse, Inc.
These impairment charges were reflected in our Retail segment. 23 Table of Contents In 2022, we recorded restructuring and impairment charges totaling $35.2 million related to the following items: • our decision to explore strategic alternatives and ultimately exit the Bantam business; • the impact of a revision to the forecasted cash flows of Bantam on the intangible assets of this business; • the impact of a revision to the forecasted branded sales of Angelic Bakehouse, Inc.
The following table summarizes the sales mix over each of the last three years: 2022 2021 2020 Segment Sales Mix: Retail 55% 57% 54% Foodservice 45% 43% 46% See discussion of net sales by segment following the discussion of “Earnings Per Share” below.
The following table summarizes the sales mix over each of the last three years: 2023 2022 2021 Segment Sales Mix: Retail 53% 55% 57% Foodservice 47% 45% 43% See discussion of net sales by segment following the discussion of “Earnings Per Share” below.
Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.
Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied. Over 95% of our products are sold in the United States.
The regular dividend payout rate for 2022 was $3.15 per share, as compared to $2.95 per share in 2021. This past fiscal year marked the 59 th consecutive year of increased regular cash dividends.
The regular dividend payout rate for 2023 was $3.35 per share, as compared to $3.15 per share in 2022. This past fiscal year marked the 60 th consecutive year of increased regular cash dividends.
The operations of this facility have not been classified as discontinued operations as the closure does not represent a strategic shift that would have a major effect on our operations or financial results.
The operations of this business were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results.
Notable capital expenditures in 2022 included spending on: a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023; a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that was completed in March 2022.
Notable prior-year capital expenditures included spending on: the Horse Cave capacity expansion project; a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that was completed in March 2022.
The related restructuring and impairment charges of $24.8 million included impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as other closure-related costs. Due to their unusual nature, these restructuring and impairment charges were not allocated to our two reportable segments.
The restructuring and impairment charges of $24.8 million included impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as other closure-related costs. Due to their unusual nature, these charges were not allocated to our two reportable segments. As noted above, we ultimately exited the Bantam business near the end of fiscal 2022.
For 2022 and 2021, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.1% and 0.6%, respectively. Earnings Per Share As influenced by the factors discussed above, diluted net income per share totaled $3.25 in 2022, a decrease from the 2021 total of $5.16 per diluted share.
For 2023 and 2022, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.4% and 0.1%, respectively. Earnings Per Share As influenced by the factors discussed above, diluted net income per share totaled $4.04 in 2023, an increase from the 2022 total of $3.25 per diluted share.
We will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders. 26 Table of Contents FINANCIAL CONDITION Liquidity and Capital Resources We maintain sufficient flexibility in our capital structure to ensure our capitalization is adequate to support our future internal growth prospects, acquire food businesses consistent with our strategic goals, and maintain cash returns to our shareholders through cash dividends and opportunistic share repurchases.
FINANCIAL CONDITION Liquidity and Capital Resources We maintain sufficient flexibility in our capital structure to ensure our capitalization is adequate to support our future internal growth prospects, acquire food businesses consistent with our strategic goals, and maintain cash returns to our shareholders through cash dividends and opportunistic share repurchases.
Cash provided by operating activities in 2022 totaled $101.8 million, a decrease of 42% as compared with the 2021 total of $174.2 million. The 2022 decrease was primarily due to the year-over-year changes in net working capital, particularly accounts payable and accrued liabilities, as well as receivables.
Cash provided by operating activities in 2023 totaled $225.9 million, an increase of 122% as compared with the 2022 total of $101.8 million. The 2023 increase was primarily due to the year-over-year changes in net working capital, particularly receivables and accrued liabilities.
If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations.
If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2024 could total between $70 and $80 million.
Foodservice Segment Year Ended June 30, Change (Dollars in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Net Sales $ 761,180 $ 638,104 $ 620,261 $ 123,076 19 % $ 17,843 3 % Operating Income $ 82,745 $ 89,048 $ 80,475 $ (6,303) (7) % $ 8,573 11 % Operating Margin 10.9 % 14.0 % 13.0 % In 2022, Foodservice segment net sales increased 19% to a record $761.2 million from the 2021 total of $638.1 million driven by inflationary pricing along with the benefit of volume gains for our branded Foodservice products and select customers within our mix of national chain restaurant accounts.
Foodservice Segment Year Ended June 30, Change (Dollars in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net Sales $ 857,157 $ 761,180 $ 638,104 $ 95,977 13 % $ 123,076 19 % Operating Income $ 106,349 $ 82,745 $ 89,048 $ 23,604 29 % $ (6,303) (7) % Operating Margin 12.4 % 10.9 % 14.0 % In 2023, Foodservice segment net sales increased 13% to a record $857.2 million from the 2022 total of $761.2 million driven by inflationary pricing and volume gains from certain quick-service restaurant customers in our mix of national chain restaurant accounts.
While we attempt to pass through sustained increases in these costs, any such price adjustments can lag the changes in the related input costs. 28 Table of Contents Although typically less notable, we are also exposed to the unfavorable effects of general inflation beyond material and freight costs, especially in the areas of labor rates, including annual wage adjustments and benefit costs.
Although typically less notable, we are also exposed to the unfavorable effects of general inflation beyond material and freight costs, especially in the areas of labor rates, including annual wage adjustments and benefit costs.
Cash used in investing activities totaled $132.2 million in 2022 as compared to $89.0 million in 2021. The 2022 increase primarily reflected a higher level of payments for property additions in the current year.
Cash used in investing activities totaled $90.8 million in 2023 as compared to $132.2 million in 2022. The 2023 decrease primarily reflects a lower level of payments for property additions, which totaled $90.2 million in 2023 compared to $132.0 million in 2022.
In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts while the external factors of a slowing economy and changes in consumer sentiment may dampen demand. Both our Retail and Foodservice sales will also continue to benefit from our pricing actions.
In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts, while external factors, including U.S. economic performance and potential changes in consumer sentiment, may impact demand.
Recent examples of resulting investments include: • a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023; • a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; • a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022; 21 Table of Contents • a significant capacity expansion project for our Sister Schubert’s frozen dinner roll facility in Horse Cave, Kentucky that was completed in January 2020; and • the establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our ERP project and related initiatives, Project Ascent, that is currently underway.
Recent examples of resulting investments include: • a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023; • a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; • a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022; and • the establishment of a Transformation Program Office in 2019 that serves to coordinate our various capital and integration efforts, including our enterprise resource planning system (“ERP”) project and related initiatives, Project Ascent, that is currently in the implementation phase. 21 Table of Contents Project Ascent commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system.
Financing activities used net cash totaling $97.3 million and $95.4 million in 2022 and 2021, respectively. The vast majority of the cash used in financing activities is attributed to the payment of dividends, and the 2022 increase in cash used in financing activities was primarily due to higher dividend payments.
Financing activities used net cash totaling $106.9 million and $97.3 million in 2023 and 2022, respectively. The vast majority of the cash used in financing activities is attributed to the payment of dividends, and the 2023 increase in cash used in financing activities primarily reflects higher levels of dividend payments, tax withholdings for stock-based compensation and share repurchases.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.
Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.
Expected to be completed in the first half of fiscal 2023, we have a remaining commitment of approximately $30 million for the Project. 27 Table of Contents Cash Flows Year Ended June 30, Change (Dollars in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Provided By Operating Activities $ 101,813 $ 174,189 $ 170,769 $ (72,376) (42) % $ 3,420 2 % Used In Investing Activities $ (132,240) $ (88,977) $ (83,265) $ (43,263) (49) % $ (5,712) (7) % Used In Financing Activities $ (97,345) $ (95,430) $ (85,519) $ (1,915) (2) % $ (9,911) (12) % Cash provided by operating activities and our existing balances in cash and equivalents remain the primary sources for funding our investing and financing activities, as well as financing our organic growth initiatives.
The majority of these obligations is expected to be due within one year. 26 Table of Contents Cash Flows Year Ended June 30, Change (Dollars in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Provided By Operating Activities $ 225,901 $ 101,813 $ 174,189 $ 124,088 122 % $ (72,376) (42) % Used In Investing Activities $ (90,782) $ (132,240) $ (88,977) $ 41,458 31 % $ (43,263) (49) % Used In Financing Activities $ (106,929) $ (97,345) $ (95,430) $ (9,584) (10) % $ (1,915) (2) % Cash provided by operating activities and our existing balances in cash and equivalents remain the primary sources for funding our investing and financing activities, as well as financing our organic growth initiatives.
These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements.
These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below.
We have also implemented a procurement strategy for a portion of our egg needs using grain-based pricing contracts to reduce our exposure to egg market spot prices. Specific to freight costs, our transportation network includes a mix of dedicated carriers, longer-term fixed-rate contracts and a small internal fleet that serve to reduce our exposure to spot freight rates.
Specific to freight costs, our transportation network includes a mix of dedicated carriers, longer-term fixed-rate contracts and a small internal fleet that serve to reduce our exposure to spot freight rates. We also have a transportation management system in place to support our freight management processes and help us to secure more competitive freight rates.
This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in the Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government-directed fiscal stimulus actions. 22 Table of Contents RESULTS OF CONSOLIDATED OPERATIONS (Dollars in thousands, except per share data) Years Ended June 30, Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Net Sales $ 1,676,390 $ 1,467,067 $ 1,334,388 $ 209,323 14 % $ 132,679 10 % Cost of Sales 1,320,671 1,080,344 976,352 240,327 22 % 103,992 11 % Gross Profit 355,719 386,723 358,036 (31,004) (8) % 28,687 8 % Gross Margin 21.2 % 26.4 % 26.8 % Selling, General and Administrative Expenses 212,098 205,363 180,945 6,735 3 % 24,418 13 % Change in Contingent Consideration (3,470) (5,687) 257 2,217 (39) % (5,944) N/M Restructuring and Impairment Charges 35,180 1,195 886 33,985 N/M 309 35 % Operating Income 111,911 185,852 175,948 (73,941) (40) % 9,904 6 % Operating Margin 6.7 % 12.7 % 13.2 % Other, Net 477 (107) 3,129 584 546 % (3,236) (103) % Income Before Income Taxes 112,388 185,745 179,077 (73,357) (39) % 6,668 4 % Taxes Based on Income 22,802 43,413 42,094 (20,611) (47) % 1,319 3 % Effective Tax Rate 20.3 % 23.4 % 23.5 % Net Income $ 89,586 $ 142,332 $ 136,983 $ (52,746) (37) % $ 5,349 4 % Diluted Net Income Per Common Share $ 3.25 $ 5.16 $ 4.97 $ (1.91) (37) % $ 0.19 4 % Net Sales Consolidated net sales for the year ended June 30, 2022 increased 14% to a new record of $1,676 million from the prior-year record total of $1,467 million.
RESULTS OF CONSOLIDATED OPERATIONS (Dollars in thousands, except per share data) Years Ended June 30, Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net Sales $ 1,822,527 $ 1,676,390 $ 1,467,067 $ 146,137 9 % $ 209,323 14 % Cost of Sales 1,433,959 1,320,671 1,080,344 113,288 9 % 240,327 22 % Gross Profit 388,568 355,719 386,723 32,849 9 % (31,004) (8) % Gross Margin 21.3 % 21.2 % 26.4 % Selling, General and Administrative Expenses 222,091 212,098 205,363 9,993 5 % 6,735 3 % Change in Contingent Consideration — (3,470) (5,687) 3,470 (100) % 2,217 (39) % Restructuring and Impairment Charges 24,969 35,180 1,195 (10,211) (29) % 33,985 N/M Operating Income 141,508 111,911 185,852 29,597 26 % (73,941) (40) % Operating Margin 7.8 % 6.7 % 12.7 % Other, Net 1,789 477 (107) 1,312 275 % 584 546 % Income Before Income Taxes 143,297 112,388 185,745 30,909 28 % (73,357) (39) % Taxes Based on Income 32,011 22,802 43,413 9,209 40 % (20,611) (47) % Effective Tax Rate 22.3 % 20.3 % 23.4 % Net Income $ 111,286 $ 89,586 $ 142,332 $ 21,700 24 % $ (52,746) (37) % Diluted Net Income Per Common Share $ 4.04 $ 3.25 $ 5.16 $ 0.79 24 % $ (1.91) (37) % 22 Table of Contents Net Sales Consolidated net sales for the year ended June 30, 2023 increased 9% to a new record of $1,823 million from the prior-year record total of $1,676 million, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs.
In 2022, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network. Production at the facility ceased in January 2022, and the Mamma Bella ® brand frozen garlic bread product line was discontinued based on its small size and low profitability.
In 2022, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network.
RESULTS OF OPERATIONS - SEGMENTS Retail Segment Year Ended June 30, Change (Dollars in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Net Sales $ 915,210 $ 828,963 $ 714,127 $ 86,247 10 % $ 114,836 16 % Operating Income $ 151,627 $ 188,403 $ 161,487 $ (36,776) (20) % $ 26,916 17 % Operating Margin 16.6 % 22.7 % 22.6 % In 2022, net sales for the Retail segment reached a record $915.2 million, a 10% increase from the prior-year total of $829.0 million.
In 2022, the adjustments to Bantam’s contingent consideration increased diluted earnings per share by $0.10. 24 Table of Contents RESULTS OF OPERATIONS - SEGMENTS Retail Segment Year Ended June 30, Change (Dollars in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net Sales $ 965,370 $ 915,210 $ 828,963 $ 50,160 5 % $ 86,247 10 % Operating Income $ 139,464 $ 151,627 $ 188,403 $ (12,163) (8) % $ (36,776) (20) % Operating Margin 14.4 % 16.6 % 22.7 % In 2023, net sales for the Retail segment reached a record $965.4 million, a 5% increase from the prior-year total of $915.2 million, including the favorable impact of our pricing actions.
Over time, we attempt to minimize the exposure to such cost increases through ongoing improvements and greater efficiencies throughout our manufacturing operations, including benefits gained through our lean six sigma program and strategic investments in plant equipment.
Over time, we attempt to minimize the exposure to such cost increases through ongoing improvements and greater efficiencies throughout our manufacturing operations, including benefits gained through our lean six sigma program and strategic investments in plant equipment. 27 Table of Contents With regard to the impact of commodity and freight costs on Foodservice segment operating income, most of our supply contracts with national chain restaurant accounts incorporate pricing adjustments to account for changes in ingredient and freight costs.
Customer fulfillment levels remained strong before and after the system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. We anticipate full deployment throughout our organization in the next 12-18 months.
Implementation of this system began in July 2022 and continued throughout fiscal 2023. Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. During fiscal 2023, we progressed through our ERP implementation with no major disruptions.
This benefit reflected a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our 2022 fair value measurements.
This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our fair value measurements, resulting in a zero balance at March 31, 2022. We recorded $2.6 million in our Foodservice segment and $0.9 million in our Retail segment.
From an operations standpoint, the shift in demand, combined with other COVID-19-related issues, has unfavorably impacted the operating results of both our segments.
From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, unfavorably impacted the operating results of both our segments. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating environment became more predictable and stable.
The decline in operating income also reflected the higher level of SG&A expenditures. Incremental sales attributed to advance customer orders near the end of 2022 ahead of our ERP go-live added an estimated $5 million to consolidated operating income. See discussion of operating results by segment following the discussion of “Earnings Per Share” below.
Additionally, operating income in the current year was unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live and accounted for an estimated $5 million in operating income. See discussion of operating results by segment following the discussion of “Earnings Per Share” below.
Diluted weighted average common shares outstanding for each of the years ended June 30, 2022 and 2021 have remained relatively stable.
Diluted weighted average common shares outstanding for each of the years ended June 30, 2023 and 2022 have remained relatively stable. In 2023 and 2022, expenditures for Project Ascent reduced diluted earnings per share by $0.84 and $1.09, respectively, and restructuring and impairment charges reduced diluted earnings per share by $0.70 and $0.98, respectively.
Note that Foodservice segment sales volumes benefited from advance ordering by our customers near the end of the fiscal fourth quarter ahead of our ERP go-live, and the resulting incremental Foodservice sales were estimated to be $14 million. Foodservice sales volumes, measured in pounds shipped, increased 2% compared to a decline of 1% last year.
Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the current year by an estimated $14 million. Foodservice segment sales volumes, measured in pounds shipped, decreased 5% in the current year.
Most of the on-going COE costs are expected to consist of annual software maintenance and support, consulting and professional fees and wages and benefits. BUSINESS TRENDS Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products.
BUSINESS TRENDS Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining.
We recorded restructuring and impairment charges of 24 Table of Contents $0.7 million, which consisted of one-time termination benefits and impairment charges for fixed assets and the operating lease right-of-use asset, and were not allocated to our two reportable segments due to their unusual nature.
The operations of this facility were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results. We recorded restructuring and impairment charges of $0.7 million, which consisted of one-time termination benefits and impairment charges for fixed assets and an operating lease right-of-use asset.
These changes had no effect on previously reported consolidated net sales, gross profit, operating income, net income or earnings per share. Over 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations.
Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets located outside of the United States.
Gross Profit Consolidated gross profit decreased 8% to $355.7 million in 2022 compared to $386.7 million in 2021 as we endured unprecedented inflationary costs for commodities, packaging, freight and warehousing, and labor. We also incurred incremental expenditures attributed to our increased reliance upon co-manufacturers to help satisfy demand.
Gross Profit Consolidated gross profit increased 9% to $388.6 million in 2023 compared to $355.7 million in 2022 as our pricing actions effectively offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing. The higher gross profit also reflects the benefits of a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers.
We also have a transportation management system in place to support our freight management processes and help us to secure more competitive freight rates. Nonetheless, we are subject to events and trends in the marketplace that will impact our costs for raw materials, packaging and freight.
Nonetheless, we are subject to events and trends in the marketplace that will impact our costs for raw materials, packaging and freight. While we attempt to pass through sustained increases in these costs, any such price adjustments can lag the changes in the related input costs.
Excluding the advance ordering and the product line rationalizations, Retail sales volumes increased 6%. 25 Table of Contents In 2022, Retail segment operating income decreased 20% to $151.6 million, including the unfavorable impact of impairment charges totaling $9.7 million as referenced in the “Restructuring and Impairment Charges” section above.
Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live, price elasticity and product line rationalizations that were implemented during fiscal 2022. In 2022, Retail sales volumes increased 2%. In 2023, Retail segment operating income decreased 8% to $139.5 million, including the unfavorable impact of higher impairment charges.
While our pricing actions helped to offset the impacts of inflation, the gross profit decline reflects an extremely challenging operating environment that, beyond inflation, includes the unfavorable effects of supply chain disruptions, demand volatility and uncertainty, suboptimal capacity utilization, and overall lower productivity resulting in substantially higher costs to produce our products and service our customers. 23 Table of Contents Selling, General and Administrative Expenses Year Ended June 30, Change (Dollars in thousands) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 SG&A Expenses - Excluding Project Ascent $ 172,771 $ 167,480 $ 162,910 $ 5,291 3 % $ 4,570 3 % Project Ascent Expenses 39,327 37,883 18,035 1,444 4 % 19,848 110 % Total SG&A Expenses $ 212,098 $ 205,363 $ 180,945 $ 6,735 3 % $ 24,418 13 % Selling, general and administrative (“SG&A”) expenses increased 3% to $212.1 million in 2022 as expenditures for Project Ascent increased $1.4 million to $39.3 million.
Selling, General and Administrative Expenses Year Ended June 30, Change (Dollars in thousands) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 SG&A Expenses - Excluding Project Ascent $ 192,225 $ 172,771 $ 167,480 $ 19,454 11 % $ 5,291 3 % Project Ascent Expenses 29,866 39,327 37,883 (9,461) (24) % 1,444 4 % Total SG&A Expenses $ 222,091 $ 212,098 $ 205,363 $ 9,993 5 % $ 6,735 3 % Selling, general and administrative (“SG&A”) expenses increased 5% to $222.1 million in 2023.
Based on our current plans and expectations, we believe our capital expenditures for 2023 could total between $90 and $110 million, which includes approximately $50 million in expenditures attributed to a substantial investment for a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that we expect to complete in the first half of fiscal 2023.
Current-year capital expenditures included spending on a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023.
More specifically, beginning in March 2020, there has been an overall shift in consumer demand towards increased at-home food consumption and away from in-restaurant dining. While this shift in demand has been inconsistent and volatile, on balance it has positively impacted our Retail segment sales and negatively impacted our Foodservice segment sales.
Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes.
Note that our 2023 first quarter sales will be unfavorably impacted by the advance ordering that occurred ahead of our ERP go-live near the end of 2022.
Sales in the current year were unfavorably impacted by approximately $25 million in incremental sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1. Consolidated sales volumes, measured in pounds shipped, decreased 5% in 2023. In the prior year, consolidated sales volumes increased 2%.
This increase reflects increased IT investments and professional fees as well as higher expenditures for Project Ascent, which totaled $39.3 million in 2022 as compared to $37.9 million in 2021. In 2022 and 2021, we also capitalized an additional $1.6 million and $3.5 million, respectively, of ERP-related expenditures for application development stage activities.
Corporate Expenses In 2023, corporate expenses totaled $104.3 million as compared to $97.0 million in 2022. This increase primarily reflects increased investments in personnel and IT, as well as some nonrecurring legal charges for closed operations. Lower expenditures for Project Ascent partially offset these higher expenses. Project Ascent expenses totaled $29.9 million and $39.3 million in 2023 and 2022, respectively.
Note that Retail segment sales volumes benefited from advance ordering by our customers near the end of the fiscal fourth quarter ahead of our ERP go-live, and the resulting incremental Retail sales were estimated to be $11 million.
Sales in the current year were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1, 2022. Retail segment sales volumes, measured in pounds shipped, declined 4% in the current year.
Removed
In 2021, our Chief Operating Decision Maker (“CODM”), in order to drive enhanced accountability and transparency throughout our organization, initiated a review of functional costs that had historically been part of the indirect costs allocated to our two reportable segments. This review was completed as part of our preparation for our enterprise resource planning system (“ERP”) implementation.
Added
We completed the final wave of the implementation phase in August 2023 as planned and will shift our focus towards leveraging the capabilities of our new ERP system in the coming year.
Removed
As a result of this review, our CODM identified certain support functions that were more appropriately presented within corporate expenses to facilitate the management of the business, including assessing segment performance and allocating resources. These changes were effective in 2021, and all historical information was retroactively conformed to the current presentation.
Added
This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions. We continued to experience significant cost inflation through 2023, particularly for soybean oil, eggs and flour.
Removed
We do not have any fixed assets located outside of the United States.
Added
However, our pricing actions served to offset these inflationary costs. In addition, the operating environment stabilized as we did not experience the supply chain disruptions and demand swings of the preceding years.
Removed
Project Ascent commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Implementation of this system began in July 2022 and will continue throughout fiscal 2023.
Added
The current-year gross profit compares to a challenging prior-year period characterized by escalating inflationary costs across our entire supply chain, the unfavorable effects of supply chain disruptions, demand volatility and uncertainty, suboptimal capacity utilization, and overall lower productivity resulting in substantially higher costs to produce our products and service our customers.
Removed
These issues include higher hourly wage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network.
Added
Note that last year’s gross profit included an estimated $5 million impact from the advance customer orders ahead of our ERP go-live.
Removed
This growth was driven by higher net sales for both the Retail and Foodservice segments, including the favorable impact of pricing actions. Consolidated sales volumes, measured in pounds shipped, increased 2% in 2022. In the prior year, consolidated sales volumes increased 3%.
Added
This increase reflects increased investments in personnel and IT; higher brokerage costs associated with the increased sales; higher travel expenses; and some nonrecurring legal charges for closed operations. Project Ascent expenses decreased $9.5 million to $29.9 million. Project Ascent expenses are included within Corporate Expenses.
Removed
Excluding Project Ascent, SG&A expenses were higher than the prior year reflecting investments in a supply chain optimization study and IT investments, as well as higher brokerage costs attributed to the increased sales. Project Ascent expenses are included within Corporate Expenses.
Added
We ultimately exited the Bantam business near the end of fiscal 2022. See further discussion in Note 2 to the consolidated financial statements. Restructuring and Impairment Charges In 2023, we recorded impairment charges of $25.0 million related to the intangible assets of Flatout, Inc. (“Flatout”) due to lowered expectations for the projected sales and profitability of the Flatout business.
Removed
The resulting fair value adjustments were due to changes in Bantam’s forecasted adjusted EBITDA for the twelve months ending December 31, 2023, as well as refinements to the estimated probabilities applied to our forecast scenarios. We recorded $2.6 million in our Foodservice segment and $0.9 million in our Retail segment.
Added
These charges were not allocated to our two reportable segments due to their unusual nature.
Removed
In May 2022, our Board of Directors approved a plan to exit the Bantam business. There was no liability recorded for Bantam’s contingent consideration at June 30, 2022. In 2021, the change in contingent consideration resulted in a benefit of $5.7 million.
Added
Operating Income Operating income increased 26% to $141.5 million in 2023 driven by the increase in gross profit as our pricing actions served to offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing, as well as the impact of lower restructuring and impairment charges.
Removed
This benefit reflected a reduction in the fair value of the contingent consideration liability for Bantam based on our 2021 fair value measurements. As the fair value adjustment resulted from the impact of a SKU rationalization by a Foodservice customer, the entire adjustment related to Bantam’s contingent consideration was reflected within the Foodservice segment.
Added
Operating income also benefited from a more stable operating environment, improved manufacturing efficiencies and reduced reliance upon co-manufacturers. The increase in SG&A expenses partially offset these positive factors.
Removed
See further discussion in Note 2 to the consolidated financial statements.
Added
As referenced in the “Restructuring and Impairment Charges” section above, Retail segment operating income included impairment charges totaling $25.0 million and $9.7 million in 2023 and 2022, respectively. Operating income was favorably impacted by our pricing actions, which served to offset significant cost inflation. Operating income also benefited from our reduced reliance upon co-manufacturers.

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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 changeThese programs, coupled with short-term fixed price arrangements on other significant raw materials, provide us more predictable input costs, which, in addition to the supply contracts with our foodservice customers that allow us to pass along price increases for commodities, help to reduce margin volatility during periods of significant volatility in the commodity markets.
Biggest changeThis program, coupled with short-term fixed price arrangements on other significant raw materials, provide us more predictable input costs, which, in addition to the supply contracts with our foodservice customers that allow us to pass along price increases for commodities, help to reduce margin volatility during periods of significant volatility in the commodity markets.
Removed
In addition, we have implemented a procurement strategy for a portion of our egg needs through the use of grain-based pricing contracts to reduce our exposure to egg market spot prices.

Other MZTI 10-K year-over-year comparisons