# Flowers Foods Inc: Form 10-Q for the period ended Oct 5, 2024

- Company: [Flowers Foods Inc](/companies/flo.md) (CIK 1128928)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 07:00 ET
- Period: 2024-10-05
- Accession: 0000950170-24-123679
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1128928/000095017024123679/flo-20241005.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1128928/000095017024123679/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-10-05.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-14 to 2024-10-05 | $1.19bn | us-gaap:Revenues |
| Revenue | 9 months, 2023-12-31 to 2024-10-05 | $3.99bn | us-gaap:Revenues |
| Selling, general and administrative | 3 months, 2024-07-14 to 2024-10-05 | $460.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-12-31 to 2024-10-05 | $1.56bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-14 to 2024-10-05 | $90.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-12-31 to 2024-10-05 | $286.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-14 to 2024-10-05 | $8.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-12-31 to 2024-10-05 | $29.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-14 to 2024-10-05 | $20.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-12-31 to 2024-10-05 | $67.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-14 to 2024-10-05 | $65.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-12-31 to 2024-10-05 | $205.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-14 to 2024-10-05 | $0.31 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-12-31 to 2024-10-05 | $0.97 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-14 to 2024-10-05 | $0.31 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-12-31 to 2024-10-05 | $0.97 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-14 to 2024-10-05 | 211,975,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-12-31 to 2024-10-05 | 212,123,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-12-31 to 2024-10-05 | $282.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-12-31 to 2024-10-05 | $86.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-12-31 to 2024-10-05 | $152.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-12-31 to 2024-10-05 | $22.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-10-05 | $15.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-10-05 | $707.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-10-05 | $3.43bn | us-gaap:Assets |
| Current liabilities | at 2024-10-05 | $569.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-10-05 | $1.05bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-10-05 | $1.41bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 68,640 characters.

The following discussion of the financial condition and results of operations of the company as of and for the twelve and forty weeks ended October 5, 2024 should be read in conjunction with the Form 10-K. Any reference to sales refers to net sales inclusive of allowances and deductions against gross sales.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is segregated into four sections, including:

- *Executive overview —* provides a summary of our business, operating performance and cash flows, and strategic initiatives.
- *Critical accounting estimates —* describes the accounting areas where management makes critical estimates to report our financial condition and results of operations. There have been no changes to this section from the Form 10-K.
- *Results of operations —* analyzes the company’s consolidated results of operations for the two comparative periods presented in our Condensed Consolidated Financial Statements.
- *Liquidity and capital resources —* analyzes cash flow, contractual obligations, and certain other matters affecting the company’s financial position.

### Matters Affecting Comparability

Comparative results from quarter to quarter are impacted by the company's fiscal reporting calendar. Internal financial results and key performance indicators are reported on a weekly basis to ensure the same number of Saturdays and Sundays in comparable months to allow for consistent four-week progression analysis. This structure results in our first quarter consisting of sixteen weeks while the remaining three quarters have twelve weeks (except in cases where there is an extra week every five or six years). Accordingly, interim results may not be indicative of subsequent interim period results, or comparable to prior or subsequent interim period results, due to differences in the lengths of the interim periods.

Additionally, detailed below are expense items affecting comparability that will provide greater context while reading this discussion. For more information regarding these items, see the reference to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q as indicated in the table:

*(Amounts in thousands)*

*(Amounts in thousands)*

|  | For the Twelve Weeks Ended October 5, 2024 | October 7, 2023 | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Footnote Disclosure |
| --- | ---: | ---: | ---: | ---: | --- |
| Business process improvement costs | $490 | $5,814 | $5,779 | $18,621 | Note 1 |
| Restructuring charges | — | 179 | 7,403 | 6,873 | Note 3 |
| Restructuring-related implementation costs | — | — | 2,979 | — | Note 3 |
| Plant closure costs and impairment of assets | 4,483 | 1,034 | 9,860 | 1,034 | Note 1, 12 |
| Legal settlements and related costs | 827 | 137,529 | 827 | 137,529 | Note 15 |
| Acquisition-related costs | — | — | — | 3,712 | Note 4 |
|  | $5,800 | $144,556 | $26,848 | $167,769 |  |

- *Business process improvement costs related to the transformation strategy initiatives* In the second half of Fiscal 2020, we launched initiatives to transform our business, including an upgrade to our information system, as well as investments in e-commerce, autonomous planning, and our "bakery of the future" initiatives. Implementation of the ERP upgrade is anticipated to be completed in Fiscal 2026. These initiatives are further discussed in the “Transformation Strategy Initiatives” section below. The expensed portion of costs incurred related to these initiatives, which was primarily consulting costs, are detailed in the table above and are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income (Loss). We currently expect costs (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) related to the upgrade of our ERP system to be approximately $25.0 million to $30.0 million for Fiscal 2024.
- *Restructuring charges and related implementation costs* In April 2024, the company announced a cost savings program to improve operational performance, which includes employee termination benefits associated with a reduction-in-force ("RIF") and other expense optimization initiatives. In the first and second quarters of Fiscal 2024, the company incurred $0.6 million and $6.8 million of RIF costs. The company made RIF payments of $0.2 million, $6.7 million, and $0.4 million in the first, second, and third quarters of Fiscal 2024, respectively. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income (Loss). The company also incurred consulting costs associated with implementing the restructuring program in the first and second quarters of Fiscal 2024 and these costs are

included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income (Loss).

In February 2023, to improve operational effectiveness, increase profitable sales, and better meet customer requirements, the company announced a restructuring of plant operation responsibilities from the sales function to the supply chain function. As part of that restructuring, we incurred costs for employee termination benefits and other cash charges, which were primarily related to the voluntary employee separation incentive plan (the "VSIP"), RIF, and employee relocation costs. During the first quarter of Fiscal 2023, we recorded VSIP-related charges of $3.9 million and made VSIP-related payments of $0.5 million. Relocation costs incurred and paid during the first, second, and third quarters of Fiscal 2023 were $0.3 million, $0.3 million, and $0.2 million, respectively. In the second quarter of Fiscal 2023, we recorded RIF and VSIP charges of $2.2 million and made payments of $2.9 million. These costs are recorded in the restructuring charges line item of the Condensed Consolidated Statements of Income (Loss). In the first quarter of Fiscal 2024, we paid the remaining VSIP payments of $1.4 million.

- *Plant closure costs and impairment of assets* On July 18, 2024, the company announced the closure of its Baton Rouge, Louisiana bakery. The bakery produced bun products and ceased production on September 19, 2024. This bakery closure is part of our strategy to optimize capacity within our supply chain. The facility continues to be used as a distribution center. The company recognized severance costs of $1.1 million and asset impairment and equipment relocation charges of $2.4 million in the third quarter of Fiscal 2024. Additionally, in the third quarter of Fiscal 2024, the company recorded a charge of $2.3 million to fully impair certain ERP-related software and recognized a recovery of $1.3 million related to the sale of equipment that had been previously written off in Fiscal 2022 as part of the Phoenix, Arizona bakery closure. During the second quarter of Fiscal 2024, the company recorded an asset impairment charge of $1.4 million to write-off certain cake distribution territories classified as held for sale that the company no longer intends to sell.

During the second quarter of the Fiscal 2022, we invested $9.0 million in Base Culture, a Clearwater, Florida-based company with one manufacturing facility. We made an additional investment of $2.0 million in the second quarter of Fiscal 2023. Base Culture's product offerings include better-for-you, gluten-free, and grain-free sliced breads and baked goods that are all-natural, 100% Paleo-certified, kosher-certified, dairy-free, soy-free, and non-GMO verified. These investments are being accounted for at cost, less any impairment, as we do not control, nor do we have the ability to significantly influence Base Culture. In the fourth quarter of Fiscal 2023, we recognized an impairment loss of $5.5 million on this investment and recognized an additional impairment of $4.0 million in the first quarter of Fiscal 2024.

In the third quarter of Fiscal 2023, the company entered into an agreement to sell a warehouse classified as held for sale and recorded an impairment charge of $1.0 million. The company completed the sale of the impaired warehouse at the end of the third quarter of Fiscal 2023.

- *Legal settlements and related costs* In the third quarter of Fiscal 2024, we reached agreements to settle certain distributor-related litigation in the aggregate amount of $0.8 million, inclusive of plaintiffs’ attorney fees.

In the third quarter of Fiscal 2023, we reached an agreement to settle certain distributor-related litigation for a settlement payment, inclusive of plaintiffs’ attorney fees, of $55.0 million which was paid in the second quarter of Fiscal 2024. The settlement also requires a phased repurchase of approximately 350 distribution rights in California and the company estimates this cost, along with the cost to repurchase approximately 50 other California distribution rights that are not part of the settlement, to be approximately $80.2 million. Additional costs of $2.3 million were recognized to fully impair held and used distribution rights classified as intangibles assets. The repurchases of the distribution rights commenced at the end of the first quarter of Fiscal 2024 and are anticipated to be completed by the end of the first quarter of Fiscal 2025. These costs are recorded in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income (Loss).

- *Acquisition-related costs* On February 17, 2023, the company completed the acquisition of the Papa Pita bakery business ("Papa Pita") for total consideration of $274.8 million, inclusive of a net working capital purchase price adjustment. We funded the purchase price with cash on-hand and from our existing credit facilities. Papa Pita is a manufacturer and distributor of bagels, tortillas, breads, buns, English muffins, and flat breads with one production facility in West Jordan, Utah and, prior to the acquisition, Papa Pita co-manufactured certain products for us. Papa Pita has direct-store-delivery distribution in the western United States ("U.S."), expanding our geographic reach. We incurred additional acquisition costs during the forty weeks ended October 7, 2023 of $3.7 million, and these costs are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income (Loss).

### Executive Overview

#### Business

Flowers is the second-largest producer and marketer of packaged bakery foods in the U.S. Our principal products include breads, buns, rolls, snack items, bagels, English muffins, and tortillas and are sold under a variety of brand names, including *Nature’s Own,*

*Dave's Killer Bread ("DKB"), Wonder, Canyon Bakehouse, Tastykake,* and *Mrs. Freshley’s.* Our brands are among the best known in the U.S. baking industry. Many of our brands have a major presence in the product categories in which they compete. We manage our business as one operating segment.

Flowers’ strategic priorities include developing our team, focusing on our brands, prioritizing our margins, and proactively seeking smart, disciplined acquisitions in the grain-based foods category. We believe that executing on our strategic priorities will drive future growth and margin expansion and deliver meaningful shareholder value over time allowing us to achieve our long-term financial targets of 1% to 2% sales growth, 4% to 6% EBITDA growth, and 7% to 9% EPS growth. The company defines EBITDA as earnings before interest, taxes, depreciation and amortization.

Optimization initiatives in our procurement, distribution, operations, and administrative functions are projected to save $40 million to $50 million in Fiscal 2024.

#### Highlights

- *Nature’s Own* is the best-selling loaf bread in the U.S., *DKB* is the #1 selling organic brand in the U.S., and *Canyon Bakehouse* is the #1 selling gluten-free bread brand in the U.S. (Source: *Circana Total US MultiOutlet+ w/ Conv 12 Weeks Ended 10/6/24).*
- Our branded retail sales comprised 64.3% of total sales for the forty weeks ended October 5, 2024 as compared to 64.1% for the forty weeks ended October 7, 2023.
- As of October 5, 2024, we operated 45 bakeries, which produce fresh and frozen breads, buns, and rolls, as well as snack items, bagels, English muffins, and tortillas.
- We distribute our fresh bakery foods through a direct-store-delivery ("DSD") distribution system, whereby product is primarily sold by a network of independent distributor partners to retail and foodservice customers with access to more than 85% of the U.S. population. In certain markets, we utilize a sales employee model to facilitate the distribution of product through our DSD distribution system.
- We offer nationwide distribution of certain fresh snack items and frozen breads and rolls via contract carriers.

#### Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business

We continue to monitor the impact of a variety of factors on our business, including the impact of the inflationary economic environment on our costs and the buying patterns of our consumers, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the third quarter of Fiscal 2024 continued to benefit from a more optimal sales mix of branded retail products as compared to pre-pandemic periods. However, inflationary pressures are impacting consumer purchasing patterns. Inflation, particularly for input costs, has also impacted our business during the previous two fiscal years which has partially offset the improved sales mix. We implemented price increases to mitigate these cost pressures during the first quarter of Fiscal 2023 and midway through the second quarter of Fiscal 2023. Commodity cost inflation began to moderate in the latter half of Fiscal 2023 and we expect that trend to continue throughout the remainder of Fiscal 2024.

Additionally, in the prior year period, capacity constraints, largely for gluten-free production, resulted in reduced production volumes and sales. These supply chain and other disruptions could continue to negatively impact production volumes as the global and U.S. supply chain remains uncertain. Although the conflict between Russia and Ukraine and the conflict in the Middle East have not impacted our operations directly, we are closely monitoring the impact on the broader economy including on the availability and price of commodities used in or for the production of our products. Disruptions in our operations, related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and workforce availability, have negatively impacted, and could continue to negatively impact, our operations, results of operations, cash flows, and liquidity.

Labor shortages and turnover at some bakeries has negatively impacted our results in the current and prior year periods. These and other factors, including, but not limited to, high employment rates and additional government regulations, may continue to adversely affect labor availability and labor costs. These challenges may negatively impact the efficiency of our production lines and our ability to operate at, or near, full capacity, and could result in increased labor costs, including additional overtime to meet demand, and higher wage rates to attract and retain workers. An overall labor shortage, lack of skilled labor, or increased turnover has and could continue to have a negative impact on the company’s operations, results of operations, liquidity, or cash flows.

We believe we have sufficient liquidity to satisfy our cash needs and we continue to execute on our strategic priorities, including our transformation strategy initiatives, as further discussed in the “Liquidity and Capital Resources” section below.

#### Summary of Operating Results, Cash Flows and Financial Condition

Sales decreased 0.7% for the twelve weeks ended October 5, 2024 compared to the same quarter in the prior year due to volume declines of 2.4%, partially offset by positive price/mix of 1.7%. Branded Retail sales declined 1.5%, while sales in the Other sales category increased 0.7%. Positive price/mix resulted mostly from optimizing our foodservice business, partially offset by negative price/mix in Branded Retail due to competitive dynamics. Both sales categories experienced softer volumes with the largest decline in sales of cake products. Sales of *DKB, Nature's Own,* and *Canyon Bakehouse* grew on higher volumes, partially offset by negative price/mix.

Sales increased 0.8% for the forty weeks ended October 5, 2024 compared to the same period in the prior year. Price/mix contributed 2.0% and the Papa Pita acquisition contributed 0.2% (cycled on February 17, 2024), partially offset by volume declines of 1.4%. The benefits of inflation-driven pricing actions implemented predominantly in the prior year and optimizing our foodservice business were partially offset by softer volumes. Branded Retail volumes were relatively unchanged. Volume declines in the Other sales category largely resulted from exiting certain lower margin business in the second half of Fiscal 2023 and vending decreases, partially offset by growth in store branded retail volumes. *DKB* sales continued to increase due to higher volumes, and sales of *Nature's Own* improved on positive price/mix, partially offset by lower volumes.

For the twelve weeks ended October 5, 2024, income from operations was $90.2 million compared to a $59.3 million loss from operations in the prior year quarter. The improvement resulted mostly from the prior year legal settlement and related costs and moderating input costs, and, to a lesser extent, benefits of optimizing our foodservice business, lower distributor distribution fees, reduced marketing investments, and decreased logistics and consulting costs. These benefits were partially offset by increased workforce-related costs, higher rent expenses, greater outside purchases of product, and lower production volumes quarter over quarter.

Income from operations was $286.9 million for the forty weeks ended October 5, 2024 compared to $123.0 million in the prior year period. The improvement primarily resulted from the prior year legal settlement and related costs, as well as moderating input costs, improved sales price/mix, decreased distributor distribution fees, and lower consulting costs. Those factors were partially offset by increased plant closure costs and impairment of assets, greater workforce-related costs, higher rent expenses, increased depreciation expense, and lower production volumes (excluding the acquisition impact).

Net income for the twelve weeks ended October 5, 2024 was $65.0 million compared to a net loss of $46.7 million in the prior year quarter. The improvement resulted primarily from the increase in income from operations, as described above, and a lower effective tax rate quarter over quarter.

Net income for the forty weeks ended October 5, 2024 was $205.0 million compared to $87.7 million in the prior year period. The year over year growth resulted primarily from the increase in income from operations, as described above, net of a higher effective tax rate in the current year period.

During the forty weeks ended October 5, 2024, we generated net cash flows from operations of $282.4 million, invested $86.6 million in capital expenditures, and increased our indebtedness by $5.0 million. Additionally, we paid $152.5 million in dividends to our shareholders and repurchased $22.7 million of company stock. On April 15, 2024, we amended the two-year $200.0 million accounts receivable repurchase facility (the "repurchase facility") to extend the scheduled facility expiration date to April 14, 2026. During the forty weeks ended October 7, 2023, we generated net cash flows from operations of $257.3 million, paid $274.8 million for the Papa Pita acquisition (inclusive of the net working capital purchase price adjustment), invested $97.0 million in capital expenditures, and increased our indebtedness $145.0 million primarily to fund the acquisition. Also, in the prior year period, we paid $146.7 million in dividends to our shareholders and repurchased $30.9 million of company stock.

#### Transformation Strategy Initiatives

In the second half of Fiscal 2020, we launched initiatives to transform our business operations. The primary goals of these initiatives are: (1) enable a more agile business model, empowering the organization by fundamentally redesigning core business processes; (2) embed digital capabilities and transform the way we engage with our consumers, customers and employees; and (3) modernize and simplify our application and technology infrastructure landscape, inclusive of the upgrade of our ERP system.

As discussed above, in February 2023, we announced a restructuring of plant operation responsibilities from the sales function to the supply chain function to improve operational effectiveness, increase profitable sales, and better meet customer requirements. This restructuring has transitioned to digitally enabling these key functions, driving accountability, and improving operational performance and sales execution.

#### Digital Strategy Initiatives

Our digital strategy initiatives include investments in digital domains of e-commerce, autonomous planning, bakery of the future, digital logistics, and digital sales. In e-commerce, we strive to become a category and market share leader, engage with the consumer through digital platforms and marketplaces, and support our retail partners’ omnichannel strategies. The autonomous planning domain encompasses predictive ordering, cost-to-serve modeling, integrated business planning, and supply and demand forecasting, among other areas. Bakery of the future involves transforming our current manufacturing processes and operational visibility to apply industry-leading digital manufacturing tools, such as real-time performance management and visibility, automation of repetitive processes, standardization of processes and procedures, and sensor-based quality monitoring tools to improve consistency and quality. Digital logistics includes real-time operational visibility, improving our routing efficiency, and automating the freight bill pay audit process. Finally, digital sales is focused on improving our sales execution through improved visibility to in-store activities, streamlined reporting, focusing in-store priorities, and improved collaboration tools across our sales ecosystem.

These digital domains are expected to improve data visibility and efficiencies while automating many of our processes. When fully implemented, we expect this work will further our brand efforts, bring us closer to the consumer, increase operational efficiencies, and deliver higher-quality, real-time insights, which will in turn enable more predictive business decision-making. We transitioned into the implementation phase for the e-commerce, autonomous planning, and bakery of the future domains and selected two bakeries for the pilot program for bakery of the future and autonomous planning in Fiscal 2021. To date, we have rolled out bakery of the future to 36 bakeries, digital logistics to all bakery locations, and autonomous planning and our digital sales tools across our entire sales organization. Costs related to the digital initiatives are fluid and cannot be currently estimated.

#### ERP Upgrade

Our ERP initiative, which includes upgrading our information system platform, is expected to improve data management and efficiencies while automating many of our processes. We completed the initial planning and road mapping phase of the ERP upgrade at the end of Fiscal 2020. In the first quarter of Fiscal 2021, we transitioned into the design phase and engaged a leading, global consulting firm to assist us in designing and implementing the upgrade of our ERP platform and to serve as the system integrator for the project. We transitioned into the build phase at the beginning of Fiscal 2022 and during the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2026. We currently estimate total costs for the upgrade of our ERP system will be approximately $350 million (of which approximately 34% has been or is anticipated to be capitalized). In the third quarter of Fiscal 2024, we recorded a $2.3 million asset impairment charge to fully impair certain ERP-related assets that no longer meet our business needs. As of October 5, 2024, we have incurred costs related to the project of approximately $232 million.

### CRITICAL ACCOUNTING POLICIES:

Our financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). These principles are numerous and complex. Our significant accounting policies are summarized in the Form 10-K. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. Refer to the Form 10-K for a discussion of the areas where we believe that the estimates, judgments or interpretations that we have made, if different, could yield the most significant differences in our financial statements. There have been no significant changes to our critical accounting policies from those disclosed in the Form 10-K.

### RESULTS OF OPERATIONS:

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twelve and forty weeks ended October 5, 2024 and October 7, 2023, respectively, are set forth in the tables below (dollars in thousands):

|  | For the Twelve Weeks Ended October 5, 2024 | October 7, 2023 | Percentage of Sales October 5, 2024 | October 7, 2023 | Increase (Decrease) Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $1,190,561 | $1,199,260 | 100.0 | 100.0 | $(8,699) | (0.7) |
| Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) | 598,209 | 617,468 | 50.2 | 51.5 | (19,259) | (3.1) |
| Selling, distribution and administrative expenses | 460,359 | 603,954 | 38.7 | 50.4 | (143,595) | (23.8) |
| Restructuring charges | — | 179 | — | 0.0 | (179) | NM |
| Plant closure costs and impairment of assets | 4,483 | 1,034 | 0.4 | 0.1 | 3,449 | NM |
| Depreciation and amortization | 37,331 | 35,974 | 3.1 | 3.0 | 1,357 | 3.8 |
| Income (loss) from operations | 90,179 | (59,349) | 7.6 | (4.9) | 149,528 | 251.9 |
| Other components of net periodic pension and postretirement benefit plans credit | (119) | (62) | (0.0) | (0.0) | (57) | NM |
| Interest expense, net | 4,778 | 4,010 | 0.4 | 0.3 | 768 | 19.2 |
| Income (loss) before income taxes | 85,520 | (63,297) | 7.2 | (5.3) | 148,817 | 235.1 |
| Income tax expense (benefit) | 20,536 | (16,567) | 1.7 | (1.4) | 37,103 | 224.0 |
| Net income (loss) | $64,984 | $(46,730) | 5.5 | (3.9) | $111,714 | 239.1 |
| Comprehensive income (loss) | $66,280 | $(48,056) | 5.6 | (4.0) | $114,336 | 237.9 |

|  | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Percentage of Sales October 5, 2024 | October 7, 2023 | Increase (Decrease) Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales | $3,992,362 | $3,961,803 | 100.0 | 100.0 | $30,559 | 0.8 |
| Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) | 2,008,757 | 2,044,417 | 50.3 | 51.6 | (35,660) | (1.7) |
| Selling, distribution and administrative expenses | 1,557,010 | 1,671,813 | 39.0 | 42.2 | (114,803) | (6.9) |
| Restructuring charges | 7,403 | 6,873 | 0.2 | 0.2 | 530 | NM |
| Plant closure costs and impairment of assets | 9,860 | 1,034 | 0.2 | 0.0 | 8,826 | NM |
| Depreciation and amortization | 122,393 | 114,693 | 3.1 | 2.9 | 7,700 | 6.7 |
| Income from operations | 286,939 | 122,973 | 7.2 | 3.1 | 163,966 | 133.3 |
| Other components of net periodic pension and postretirement benefit plans credit | (395) | (207) | (0.0) | (0.0) | (188) | NM |
| Interest expense, net | 15,297 | 12,147 | 0.4 | 0.3 | 3,150 | 25.9 |
| Income before income taxes | 272,037 | 111,033 | 6.8 | 2.8 | 161,004 | 145.0 |
| Income tax expense | 67,043 | 23,293 | 1.7 | 0.6 | 43,750 | 187.8 |
| Net income | $204,994 | $87,740 | 5.1 | 2.2 | $117,254 | 133.6 |
| Comprehensive income | $206,612 | $87,596 | 5.2 | 2.2 | $119,016 | 135.9 |

NM - the computation is not meaningful.

Percentages may not add due to rounding.

TWELVE WEEKS ENDED OCTOBER 5, 2024 COMPARED TO TWELVE WEEKS ENDED OCTOBER 7, 2023

### Sales (dollars in thousands)

|  | For the Twelve Weeks Ended October 5, 2024 | October 7, 2023 | Percentage of Sales October 5, 2024 | October 7, 2023 | Increase (Decrease) Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Branded Retail | $760,580 | $772,082 | 63.9 | 64.4 | $(11,502) | (1.5) |
| Other | 429,981 | 427,178 | 36.1 | 35.6 | 2,803 | 0.7 |
| Total | $1,190,561 | $1,199,260 | 100.0 | 100.0 | $(8,699) | (0.7) |

(The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.)

The change in sales was generally attributable to the following:

| Percentage Point Change in Sales Attributed to: | Branded Retail Favorable (Unfavorable) | Other | Total |
| --- | ---: | ---: | ---: |
| Pricing/Mix\* | (0.9) | 4.9 | 1.7 |
| Volume\* | (0.6) | (4.2) | (2.4) |
| Total percentage change in sales | (1.5) | 0.7 | (0.7) |
| \* Computations above are calculated as follows (the Total column is consolidated and is not adding the Branded Retail and Other columns): |  |  |  |
| Price/Mix $ = Current year period units x change in price per unit |  |  |  |
| Price/Mix % = Price/Mix $ ÷ Prior year period Sales $ |  |  |  |
| Volume $ = Prior year period price per unit x change in units |  |  |  |
| Volume % = Volume $ ÷ Prior year period Sales $ |  |  |  |

The company disaggregates its sales into two categories, Branded Retail and Other. These categories align with our brand-focused strategy to drive above-market growth via innovation and focusing on higher-margin products. The Other category includes store branded retail and non-retail sales (foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing).

Sales decreased quarter over quarter due to softer volumes in both sales categories, partially offset by overall favorable price/mix. Price/mix benefitted from executing our portfolio strategy in our non-retail business, net of negative price/mix for Branded Retail and store branded retail. To mitigate the impact of the inflationary pressure on consumer spending, we increased our promotional activity quarter over quarter, though it remained below pre-pandemic levels.

#### Branded Retail Sales

Branded retail sales decreased 1.5% quarter over quarter due to unfavorable price/mix, resulting from increased promotional activity, and volume declines. Branded cake drove the volume decrease, partially offset by volume growth in branded bread products. Branded bread products grew due to increases in branded organic products, branded traditional buns and rolls, and branded Keto products, partially offset by softness in branded traditional loaf breads. Our *DKB* and *Nature's Own* brands continued to perform well benefiting from efficient market execution and growth in newer products, such as *Nature's Own* Keto products. *Canyon Bakehouse's* sales grew quarter over quarter on volume growth enabled by capacity additions, partially offset by negative price/mix.

#### Other Sales

Sales in the Other category increased 0.7% due to significant favorable price/mix from optimizing our non-retail business, most notably foodservice, partially offset by volume declines largely for vending, foodservice, and institutional sales. Negative price/mix for store branded retail sales also partially offset the overall increase.

### Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

| Line Item Component | For the Twelve Weeks Ended October 5, 2024 % of Sales | October 7, 2023 % of Sales | Increase (Decrease) as a % of Sales |
| --- | ---: | ---: | ---: |
| Ingredients and packaging | 29.3 | 32.1 | (2.8) |
| Workforce-related costs | 14.7 | 13.9 | 0.8 |
| Other | 6.2 | 5.5 | 0.7 |
| Total | 50.2 | 51.5 | (1.3) |

Materials, supplies, labor and other production costs as a percent of sales decreased quarter over quarter due to moderating ingredient and packaging costs, improved sales price/mix, and decreased product returns. Lower production volumes, higher workforce-related costs, and increased outside purchases of product (sales with no associated ingredient costs) partially offset the overall improvement. The decrease in ingredient and packaging costs was mostly attributed to lower pricing for commodities such as flour and fats and oils, partially offset by higher costs for other ingredients such as sweeteners. Wage inflation, higher employee compensation costs, and lower production volumes resulted in increased workforce-related costs as a percent of sales. We expect the impact of lower production volumes and the competitive labor market to continue to negatively impact our operations. Outside purchases of product are included in the Other line item in the table above.

Prices of ingredient and packaging materials fluctuate due to government policy and regulation, weather conditions, domestic and international demand, or other unforeseen circumstances, and we monitor these markets closely. Ingredient and packaging costs continued to experience volatility in the current quarter and are expected to remain volatile for the remainder of Fiscal 2024. To manage the impact of volatility in certain raw material prices, we enter into forward purchase agreements and other financial instruments. Any decrease in the availability of these agreements and instruments could increase the cost of these raw materials and significantly affect our earnings.

### Selling, Distribution and Administrative Expenses (as a percent of sales)

| Line Item Component | For the Twelve Weeks Ended October 5, 2024 % of Sales | October 7, 2023 % of Sales | Increase (Decrease) as a % of Sales |
| --- | ---: | ---: | ---: |
| Workforce-related costs | 11.9 | 11.0 | 0.9 |
| Distributor distribution fees | 13.0 | 14.1 | (1.1) |
| Other | 13.8 | 25.3 | (11.5) |
| Total | 38.7 | 50.4 | (11.7) |

Workforce-related costs increased as a percent of sales quarter over quarter primarily due to a shift from distributor distribution fees, wage inflation, and higher employee compensation costs, partially offset by benefits of cost savings programs. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs. We anticipate a continued shift from distributor distribution fees to workforce-related costs and other territory-related costs such as vehicle rent expense, among others, as the company completes a phased repurchase of the California distribution rights and converts to an employee-based model in that state. The repurchases began at the end of the first quarter of Fiscal 2024 and are anticipated to be completed by the end of the first quarter of Fiscal 2025. The decrease in the Other line item mostly reflects the $136.7 million decrease in legal settlements and related costs and, to a much lesser extent, decreased marketing investments, reduced consulting costs, and lower transportation costs. These items were partially offset by higher rent expense and lower scrap dough income. See the “Matters Affecting Comparability” section above for a discussion of the legal settlement and related costs and the project-related consulting costs.

### Restructuring Charges and Plant Closure Costs and Impairment of Assets

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

### Depreciation and Amortization Expense

Depreciation and amortization expense for the third quarter of Fiscal 2024 was relatively consistent to the prior year period.

### Income (Loss) from Operations

Income from operations for the twelve weeks ended October 5, 2024 increased as a percent of sales compared to the prior year quarter primarily due to significantly lower selling, distribution, and administrative costs, as described above, moderating ingredient and packaging costs, and benefits from optimizing our foodservice business. Those items were partially offset by higher workforce-related costs, higher plant closure costs and impairment of assets, and lower production volumes.

### Net Interest Expense

Net interest expense increased modestly in dollars and as a percent of sales as compared to the prior year quarter due to decreased interest income. We anticipate higher net interest expense year over year due to funding payments associated with the legal settlement and related costs, all accrued for in Fiscal 2023, and lower interest income resulting from decreases in distributor notes receivable outstanding.

### Income Tax Expense (Benefit)

The effective tax rate for the twelve weeks ended October 5, 2024 was 24.0% compared to 26.2% in the prior year quarter. The increased rate in the prior year quarter was due to a tax benefit associated with a pre-tax loss, coupled with other net discrete tax benefits, whereas the current year quarter rate resulted from tax expense associated with a pre-tax income, coupled with other net discrete tax benefits. For both periods presented, the primary differences in the effective rate and the statutory rate were state income taxes.

### Comprehensive Income (Loss)

Comprehensive income (loss) changed primarily due to the increase in net income quarter over quarter.

FORTY WEEKS ENDED OCTOBER 5, 2024 COMPARED TO FORTY WEEKS ENDED OCTOBER 7, 2023

### Sales (dollars in thousands)

|  | Forty Weeks Ended October 5, 2024 | October 7, 2023 | Percentage of Sales October 5, 2024 | October 7, 2023 | Increase (Decrease) Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Branded Retail | $2,565,310 | $2,539,890 | 64.3 | 64.1 | $25,420 | 1.0 |
| Other | 1,427,052 | 1,421,913 | 35.7 | 35.9 | 5,139 | 0.4 |
| Total | $3,992,362 | $3,961,803 | 100.0 | 100.0 | $30,559 | 0.8 |

(The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.)

The change in sales was generally attributable to the following:

| Percentage Point Change in Sales Attributed to: | Branded Retail Favorable (Unfavorable) | Other | Total |
| --- | ---: | ---: | ---: |
| Pricing/Mix\* | 0.9 | 3.2 | 2.0 |
| Volume\* | (0.1) | (3.0) | (1.4) |
| Acquisition until cycled on February 17, 2024 | 0.2 | 0.2 | 0.2 |
| Total percentage change in sales | 1.0 | 0.4 | 0.8 |
| \* Computations above are calculated as follows (the Total column is consolidated and is not adding the Branded Retail and Other columns): |  |  |  |
| Price/Mix $ = Current year period units x change in price per unit |  |  |  |
| Price/Mix % = Price/Mix $ ÷ Prior year period Sales $ |  |  |  |
| Volume $ = Prior year period price per unit x change in units |  |  |  |
| Volume % = Volume $ ÷ Prior year period Sales $ |  |  |  |

The company disaggregates its sales into two categories, Branded Retail and Other. These categories align with our brand-focused strategy to drive above-market growth via innovation and focusing on higher-margin products. The Other category includes store branded retail and non-retail sales (foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing).

Sales increased year over year due to positive pricing actions implemented predominantly in the second quarter of the prior year that benefitted branded retail sales, improved price/mix for our non-retail business, and, to a lesser extent, the Papa Pita acquisition contribution. Volume declines in the Other sales category partially offset the overall sales increase and resulted from strategic exits of certain foodservice business in the second half of Fiscal 2023 and declines in vending volumes, net of increased volume for store branded retail sales. Our promotional activity increased as compared to the prior year period in response to inflationary pressure on consumer spending but remained below pre-pandemic levels.

#### Branded Retail Sales

Branded retail sales grew 1.0% year over year due to favorable price/mix and the acquisition contribution; volume was relatively unchanged. Price/mix benefitted from inflation-driven pricing actions taken in the second quarter of the prior year and improved price/mix from greater sales of our more differentiated branded products, such as branded organic and Keto. Decreases in branded cake volumes were partially offset by volume growth in branded bread products. Higher branded bread volumes resulted from increases in branded organic products, branded traditional buns and rolls, and branded Keto products, partially offset by softness in branded traditional loaf breads. Our *Nature's Own* and *DKB* brands continued to perform well. *DKB* benefitted from inflation-driven price increases implemented in the prior year, efficient market execution, and growth from more recently introduced products, such as snack bars and bites. *Nature's Own* benefitted from inflation-driven price increases implemented in the prior year, and growth in Keto bread (introduced in Fiscal 2023) and Keto buns (introduced in the second quarter of Fiscal 2024), but experienced volume declines year over year largely due to inflationary pressure on consumer spending.

#### Other Sales

Sales in the Other category increased 0.4% due to positive price/mix, largely from optimizing our foodservice business, and the acquisition contribution, partially offset by volume declines. Store branded retail sales increased mainly due to volume growth in store branded traditional loaf breads, partially offset by negative price/mix. Non-retail sales decreased year over year due to volume declines, partially offset by positive price/mix and the acquisition contribution. Foodservice drove most of the volume decrease as we exited certain lower margin business in the second half of Fiscal 2023. Declines in vending and thrift store sales also contributed to lower volumes.

We anticipate our Fiscal 2024 sales will be flat to higher than Fiscal 2023 sales due to price increases implemented in Fiscal 2023 and new business that has or will come online in the second half of Fiscal 2024, however, this benefit could be offset by changes in consumer buying patterns, changes in promotional activity, and the impact of cycling certain exits of lower margin business that occurred in Fiscal 2023 and to a lesser extent in Fiscal 2024.

### Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

| Line item component | For the Forty Weeks Ended October 5, 2024 % of sales | October 7, 2023 % of sales | Increase (Decrease) as a % of sales |
| --- | ---: | ---: | ---: |
| Ingredients and packaging | 29.5 | 32.2 | (2.7) |
| Workforce-related costs | 14.4 | 13.6 | 0.8 |
| Other | 6.4 | 5.8 | 0.6 |
| Total | 50.3 | 51.6 | (1.3) |

Materials, supplies, labor and other production costs as a percent of sales decreased year over year due to moderating ingredient and packaging costs, improved sales price/mix, and decreased product returns. Lower production volumes (excluding the acquisition impact) and higher workforce-related costs partially offset the overall improvement. The decrease in ingredient and packaging costs was mostly attributed to lower pricing for commodities such as flour, fats and oils, and eggs, and packaging items including bags and corrugated containers. Higher costs for sweeteners partially offset the lower ingredient costs. Wage inflation, higher employee compensation costs, and lower production volumes drove the increase in workforce-related costs as a percent of sales. We expect the impact of lower production volumes (excluding the acquisition impact) and the competitive labor market to continue to negatively impact our operations.

Prices of ingredient and packaging materials fluctuate due to government policy and regulation, weather conditions, domestic and international demand, or other unforeseen circumstances, and we monitor these markets closely. Ingredient and packaging costs continued to experience volatility in the current quarter and are expected to remain volatile for the remainder of Fiscal 2024. We enter into forward purchase agreements and other financial instruments to manage the impact of volatility in certain raw material prices. Any decrease in the availability of these agreements and instruments could increase the cost of these raw materials and significantly affect our earnings.

### Selling, Distribution and Administrative Expenses (as a percent of sales)

| Line item component | For the Forty Weeks Ended October 5, 2024 % of sales | October 7, 2023 % of sales | Increase (Decrease) as a % of sales |
| --- | ---: | ---: | ---: |
| Workforce-related costs | 11.8 | 10.8 | 1.0 |
| Distributor distribution fees | 13.4 | 14.1 | (0.7) |
| Other | 13.8 | 17.3 | (3.5) |
| Total | 39.0 | 42.2 | (3.2) |

Workforce-related costs increased as a percent of sales year over year due to a shift from distributor distribution fees, higher employee compensation costs, wage inflation, and a competitive labor market. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs. We anticipate a continued shift from distributor distribution fees to workforce-related costs and other territory-related costs, such as vehicle rent expense, among others, as the company completes a phased repurchase of the California distribution rights and converts to an employee-based model in that state. The repurchases began at the end of the first quarter of Fiscal 2024 and are anticipated to be completed by the end of the first quarter of Fiscal 2025. The decrease in the Other line item mostly reflects the $136.7 million decrease in legal settlements and related costs and, to a much lesser extent, reduced transportation and consulting costs and the prior year acquisition costs and insurance liability claim.

These items were partially offset by increased amortization of cloud-based applications, increased rent expense, and lower scrap dough income. See the “Matters Affecting Comparability” section above for a discussion of the legal settlements and related costs, project-related consulting costs, and the acquisition-related costs.

### Restructuring Charges and Plant Closure Costs and Impairment of Assets

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

### Depreciation and Amortization Expense

Year over year, depreciation and amortization expense increased in dollars and as a percent of sales primarily due to the ERP assets being placed in service in the second quarter of Fiscal 2023 and, to a lesser extent, other capital projects being placed in service and the Papa Pita assets acquired midway through the first quarter of Fiscal 2023.

### Income from Operations

Income from operations increased as a percent of sales compared to the prior year period primarily due to significantly lower selling, distribution, and administrative costs, as described above, moderating input costs, improved sales price/mix, partially offset by increased plant closure costs and impairment of assets, lower production volumes (excluding the acquisition impact), and higher depreciation expense.

### Net Interest Expense

Net interest expense increased in dollars and as a percent of sales as compared to the prior year period largely due to decreased interest income. We anticipate higher net interest expense year over year due to funding payments associated with the legal settlement and related costs, all accrued for in Fiscal 2023, and lower interest income resulting from decreases in distributor notes receivable outstanding.

### Income Tax Expense

The effective tax rate for the forty weeks ended October 5, 2024 was 24.6% compared to 21.0% in the prior year period. The increase in the rate was primarily due to unfavorable discrete items related to state income taxes in the current year, coupled with a decrease in benefits on stock-based compensation. For both periods presented, the primary differences in the effective rate and statutory rate were state income taxes including the recognition of discrete tax credits.

### Comprehensive Income

The increase in comprehensive income year over year resulted primarily from increased net income.

### LIQUIDITY AND CAPITAL RESOURCES:

#### Strategy and Update on Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business

We believe that our ability to consistently generate cash flows from operating activities to meet our liquidity needs is one of our key financial strengths. Furthermore, we strive to maintain a conservative financial position as we believe it allows us flexibility to make investments and acquisitions and is a strategic competitive advantage. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and obligated debt repayments. We believe that we currently have access to available funds and financing sources to meet our short and long-term capital requirements. The company’s strategy for use of its excess cash flows includes:

- implementing our strategic priorities, including our transformation strategy initiatives;
- paying dividends to our shareholders;
- maintaining a conservative financial position;
- making strategic acquisitions; and
- repurchasing shares of our common stock.

Although there has been no material adverse impact on our results of operations, liquidity or cash flows for the forty weeks ended October 5, 2024, volatility in global and U.S. economic environments, as a result of, among other things, the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle

East, could significantly impact our ability to generate future cash flows and we continue to evaluate these various potential business risks. Potential risks include the possibility of future economic downturns that could shift consumer demand away from our branded retail products to store branded products, supply chain disruptions that have impacted, and could continue to impact, the procurement of raw materials and packaging items, the available workforce, and our ability to implement additional pricing actions to offset inflation.

The macroeconomic-related factors discussed above remain fluid and the future impact on our business, results of operations, liquidity or capital resources cannot be reasonably estimated with any degree of certainty. In the event of a significant reduction in revenues, we would have additional alternatives to maintain liquidity, including the availability on our debt facilities, capital expenditure reductions, adjustments to our capital allocation policy, and cost reductions. Although we do not currently anticipate a need, we also believe that we could access the capital markets to raise additional funds. During the first quarter of Fiscal 2024, we amended the repurchase facility to extend the maturity date to April 14, 2026. We believe that we have sufficient liquidity on hand to continue business operations during this time of volatility in the global and U.S. economic environments. As of October 5, 2024, we had total available liquidity of $546.6 million, consisting of cash on hand and the available balances under the senior unsecured revolving credit facility (the "credit facility") and repurchase facility.

### Liquidity Discussion for the Forty Weeks Ended October 5, 2024 and October 7, 2023

Cash and cash equivalents were $15.0 million at October 5, 2024 and $22.5 million at December 30, 2023. The cash and cash equivalents were derived from the activities presented in the tables below (amounts in thousands):

| Cash Flow Component | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Change |
| --- | ---: | ---: | ---: |
| Cash provided by operating activities | $282,370 | $257,318 | $25,052 |
| Cash disbursed for investing activities | (112,942) | (366,535) | 253,593 |
| Cash disbursed for financing activities | (176,980) | (41,356) | (135,624) |
| Total change in cash | $(7,552) | $(150,573) | $143,021 |

*Cash Flows Provided by Operating Activities*. Net cash provided by operating activities consisted of the following items for non-cash adjustments to net income (amounts in thousands):

|  | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Change |
| --- | ---: | ---: | ---: |
| Depreciation and amortization | $122,393 | $114,693 | $7,700 |
| Impairment of assets | 9,864 | 3,347 | 6,517 |
| Loss reclassified from accumulated other comprehensive income to net income | 1,314 | 2,426 | (1,112) |
| Allowances for accounts receivable | 6,328 | 10,071 | (3,743) |
| Stock-based compensation | 23,324 | 21,382 | 1,942 |
| Deferred income taxes | 15,831 | (44,256) | 60,087 |
| Other non-cash items | 3,789 | 4,151 | (362) |
| Net non-cash adjustment to net income | $182,843 | $111,814 | $71,029 |

- Refer to the *Plant closure costs and impairment of assets* discussion in the “Matters Affecting Comparability” section above for additional information regarding the impairment of assets.
- For the forty weeks ended October 5, 2024, deferred income tax activity was composed of changes in temporary differences year over year, including the current year impact of a payment for a previously accrued legal settlement for the repurchase of distribution rights. Additionally, for the current and prior year periods ended October 5, 2024 and October 7, 2023, deferred income tax activity was composed of changes in temporary differences year over year, including prior year activity related to the accrual of a legal settlement, the impact of the vesting of stock equity awards, and activity related to the capitalization of research and development expenses as defined under Internal Revenue Code Section 174.
- Other non-cash items include non-cash interest expense for the amortization of debt discounts and deferred financing costs (including $0.3 million related to the write-off of unamortized loan costs upon the early extinguishment of the accounts receivable securitization facility in the first quarter of Fiscal 2023) and gains or losses on the sale of assets.

Net changes in working capital consisted of the following items (amounts in thousands):

|  | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Change |
| --- | ---: | ---: | ---: |
| Changes in accounts receivable | $(58,959) | $(17,364) | $(41,595) |
| Changes in inventories | 11,519 | (13,552) | 25,071 |
| Changes in hedging activities | 1,455 | (332) | 1,787 |
| Changes in accounts payable | (31,527) | (17,788) | (13,739) |
| Changes in other assets and accrued liabilities | (27,955) | 107,800 | (135,755) |
| Qualified pension plan contributions | — | (1,000) | 1,000 |
| Net changes in working capital and pension plan contributions | $(105,467) | $57,764 | $(163,231) |

- Changes in accounts receivable were mainly attributable to sales increases period over period. Changes in inventories resulted primarily from volatility in input costs and a build-up inventory in the prior year period.
- Hedging activities change due to market movements that affect the fair value and the associated required collateral of positions and the timing and recognition of deferred gains or losses. We expect these changes will continue to occur as part of our hedging program, though the degree and financial impact cannot be currently estimated.
- The change in other assets primarily resulted from changes in prepaid assets and income tax receivables in each respective period. Changes in employee compensation, legal settlement, and insurance liability accruals primarily resulted in the change in other accrued liabilities. During the first quarter of Fiscal 2024 and Fiscal 2023, we paid $31.9 million and $32.1 million, respectively, including our share of employment taxes, in performance-based cash awards under our bonus plans. An additional $1.9 million and $2.2 million was paid during the first quarter of Fiscal 2024 and Fiscal 2023, respectively, for our share of employment taxes on the vesting of employee restricted stock awards in each respective year. During the forty weeks ended October 5, 2024, the company accrued $0.8 million of legal settlements and paid $55.0 million to the legal fund related to a legal settlement recognized in the third quarter of Fiscal 2023. During the forty weeks ended October 7, 2023, the company recorded a legal settlement and related costs of $137.5 million (of which $120.3 million was included in other accrued liabilities, $14.9 million as a contra account to other assets, and $2.3 million was a non-cash impairment charge) and paid $5.5 million of legal settlements that had been accrued for in a prior period. See the “Matters Affecting Comparability” section above for a discussion of the legal settlements and related costs. Additionally, the company accrued $7.5 million of insurance liability claims in the prior year period.

*Cash Flows Disbursed for Investing Activities*. The table below presents net cash disbursed for investing activities for the forty weeks ended October 5, 2024 and October 7, 2023, respectively (amounts in thousands):

|  | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Change |
| --- | ---: | ---: | ---: |
| Purchases of property, plant, and equipment | $(86,624) | $(97,003) | $10,379 |
| Repurchases of independent distributor distribution rights, net of principal payments from notes receivable | (28,789) | 4,863 | (33,652) |
| Proceeds from sale of property, plant and equipment | 2,040 | 2,278 | (238) |
| Acquisition of business | — | (274,755) | 274,755 |
| Investment in unconsolidated affiliate | — | (1,981) | 1,981 |
| Other | 431 | 63 | 368 |
| Net cash disbursed for investing activities | $(112,942) | $(366,535) | $253,593 |

- We currently anticipate capital expenditures of $130.0 million to $140.0 million for Fiscal 2024 (inclusive of expenditures for the ERP upgrade of $5.0 million to $7.0 million).
- The repurchases of the California distribution rights contributed to most of the change in the repurchases of distribution rights, net of principal payments on notes receivable. The company expects to complete the California repurchases by the end of the first quarter of Fiscal 2025.
- As discussed in the Executive Overview section above, on February 17, 2023, we completed the Papa Pita acquisition. We paid $270.5 million of the total purchase price in the first quarter of Fiscal 2023 and $4.3 million in the second quarter of Fiscal 2023 for a net working capital purchase price adjustment. Papa Pita operates one manufacturing facility in West Jordan, Utah.

*Cash Flows Disbursed for Financing Activities*. The table below presents net cash disbursed for financing activities for the forty weeks ended October 5, 2024 and October 7, 2023, respectively (amounts in thousands):

|  | For the Forty Weeks Ended October 5, 2024 | October 7, 2023 | Change |
| --- | ---: | ---: | ---: |
| Dividends paid, including dividends on stock-based payment awards | $(152,489) | $(146,726) | $(5,763) |
| Payments for financing fees | (190) | (533) | 343 |
| Stock repurchases | (22,703) | (30,891) | 8,188 |
| Change in bank overdrafts | (6,363) | (6,693) | 330 |
| Net change in debt obligations | 5,000 | 145,000 | (140,000) |
| Payments on financing leases | (235) | (1,513) | 1,278 |
| Net cash disbursed for financing activities | $(176,980) | $(41,356) | $(135,624) |

- Our Board of Directors declared the following quarterly dividends during the forty weeks ended October 5, 2024 (amounts in thousands, except per share data):

| Date Declared | Record Date | Payment Date | Dividend per Common Share | Dividends Paid |
| --- | --- | --- | ---: | ---: |
| August 22, 2024 | September 6, 2024 | September 20, 2024 | $0.2400 | $50,543 |
| May 23, 2024 | June 6, 2024 | June 20, 2024 | $0.2400 | $50,687 |
| February 16, 2024 | March 1, 2024 | March 15, 2024 | $0.2300 | $48,560 |

Additionally, we paid dividends of $2.7 million at the time of vesting of certain restricted stock awards. The increase in dividends paid resulted from an increase in the dividend rate compared to the prior year. While there are no requirements to increase our dividend rate, we have shown a recent historical trend to do so. We anticipate funding future dividend payments from cash flows from operations.

- Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given time. During the forty weeks ended October 5, 2024 and October 7, 2023, we repurchased 992,233 and 1,198,729 shares of our common stock for $22.7 million and $30.9 million, respectively, under a share repurchase plan approved by our Board of Directors. A portion of these shares were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of restricted stock awards, which are repurchased by the company based on the fair market value on the vesting date.
- Changes in debt obligations primarily related to drawdowns made to fund the Papa Pita acquisition in the first quarter of Fiscal 2023. See the discussion below under the “Capital Structure” section for additional details regarding changes in debt obligations.

### Capital Structure

Long-term debt and right-of-use lease obligations and stockholders’ equity were as follows at October 5, 2024 and December 30, 2023, respectively. For additional information regarding our debt and right-of-use lease obligations, see Note 5, *Leases*, and Note 13, *Debt and Other Obligations,* of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

*(Amounts in thousands)*

| Long-term debt and right-of-use lease obligations | Balance at October 5, 2024 | December 30, 2023 | Fixed or Variable Rate | Final Maturity |
| --- | ---: | ---: | --- | --- |
| 2031 notes | $495,284 | $494,723 | Fixed Rate | 2031 |
| 2026 notes | 398,859 | 398,421 | Fixed Rate | 2026 |
| Unsecured credit facility | — | — | Variable Rate | 2026 |
| Accounts receivable repurchase facility | 160,000 | 155,000 | Variable Rate | 2026 |
| Right-of-use lease obligations | 315,803 | 284,501 |  | 2036 |
|  | 1,369,946 | 1,332,645 |  |  |
| Less: Current maturities of long-term debt and right- of-use lease obligations | (64,673) | (47,606) |  |  |
| Long-term debt and right-of-use lease obligations | $1,305,273 | $1,285,039 |  |  |
| **Total stockholders' equity** |  |  |  |  |
| Total stockholders' equity | $1,406,526 | $1,351,782 |  |  |

50

The repurchase facility and the credit facility are generally used for short-term liquidity needs. On April 15, 2024, we amended the repurchase facility to extend the scheduled facility expiration date to April 14, 2026. See Note 13, *Debt and Other Obligations,* of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to closely monitor our liquidity in light of the continued economic uncertainty in the U.S. and throughout the world due to, among other things, the impact of the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. There is no current portion payable over the next year for our debt obligations. Amounts available for withdrawal under the repurchase facility are determined as the lesser of the total facility limit and a formula derived amount based on qualifying trade receivables.

The following table details the amounts available under the repurchase facility and the credit facility and the highest and lowest balances outstanding under these arrangements during the forty weeks ended October 5, 2024:

*(Amounts in thousands)*

| Facility | Amount Available for Withdrawal at October 5, 2024 | For the Forty Weeks Ended October 5, 2024 Highest Balance | Lowest Balance |
| --- | ---: | ---: | ---: |
| Accounts receivable repurchase facility | $40,000 | $195,000 | $105,000 |
| Unsecured credit facility (1) | 491,600 | 30,000 | — |
|  | $531,600 |  |  |

(1) Amount excludes a provision in the credit facility agreement which allows the company to request an additional $200.0 million in additional revolving commitments.

Amounts outstanding under the credit facility can vary daily. Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions which are part of the company’s overall risk management strategy as discussed in Note 9, *Derivative Financial Instruments,* of Notes to Condensed Consolidated Financial Statements of this Form 10-Q. During the forty weeks ended October 5, 2024, the company made $79.7 million in revolving borrowings and $79.7 million in payments on revolving borrowings under the credit facility. The amount available under the credit facility is reduced by $8.4 million for letters of credit.

The repurchase facility and the credit facility are variable rate debt and provide us the greatest direct exposure to changing interest rates. In periods of rising interest rates, like we experienced in Fiscal 2023 and Fiscal 2022, the cost of using these facilities becomes more expensive and results in increased interest expense.

Restrictive financial covenants for our borrowings can include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. Our debt may also contain certain customary representations and warranties, affirmative and negative covenants, and events of default. The company believes that, given its current cash position, its cash flow from operating activities, and its available credit capacity, it can comply with the current terms of the debt agreements and can meet presently foreseeable financial requirements. As of October 5, 2024, the company was in compliance with all restrictive covenants under our debt agreements.

At October 5, 2024, the company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Under our share repurchase plan, the company may repurchase its common stock in the open market or privately negotiated transactions at such times and at such prices as determined to be in the company’s best interest. These repurchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. During the forty weeks ended October 5, 2024, 992,233 shares, at a cost of $22.7 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through October 5, 2024, 73.0 million shares, at a cost of $755.9 million, have been repurchased.

### Accounting Pronouncements Recently Adopted and Not Yet Adopted

See Note 2, *Recent Accounting Pronouncements*, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding recently adopted accounting pronouncements and accounting pronouncements not yet adopted.

## Market risk

As filed, 3,073 characters.

The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forward, futures, swap and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices. The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions are less favorable than those anticipated, raw material prices could increase significantly, adversely affecting the margins from the sale of our products.

### Commodity Price Risk

The company enters into commodity forward, futures and option contracts and swap agreements for wheat and, to a lesser extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of market volatility in its raw material and packaging prices. As of October 5, 2024, the company’s hedge portfolio contained commodity derivatives with a fair value of $0.6 million, based on quoted market prices. All of this amount relates to instruments that will be utilized in Fiscal 2025 except for an immaterial amount that will be utilized in Fiscal 2024.

A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to the derivative portfolio. Based on the company’s derivative portfolio as of October 5, 2024, a hypothetical ten percent increase (decrease) in commodity prices would increase (decrease) the fair value of the derivative portfolio by $1.3 million. The analysis disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase (decrease) in fair value of the portfolio would be substantially offset by increases (decreases) in raw material and packaging prices.

### Interest Rate Risk

The company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the forty weeks ended October 5, 2024, such derivatives were used to hedge the variable cash flows associated with forecasted issuances of debt. As of October 5, 2024, the company’s hedge portfolio contained interest rate derivatives with a fair value of $0.6 million.

A sensitivity analysis has been prepared to quantify the company’s potential exposure to interest rate market risk with respect to our derivative portfolio. Based on the company’s derivative portfolio as of October 5, 2024, a hypothetical 100-basis-point increase (decrease) in interest rates would increase (decrease) the fair value of the derivative portfolio by $9.7 million and ($9.8) million, respectively.

## Controls and procedures

As filed, 1,598 characters.

### Management’s Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to ensure that material information relating to the company, which is required to be timely disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is accumulated and communicated to management in a timely fashion and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer and Chief Accounting Officer ("CFO and CAO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the CEO and the CFO and CAO concluded that the company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the company files or submits to the SEC under the Exchange Act.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended October 5, 2024 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

## Risk factors

As filed, 469 characters.

Refer to Part I, Item 1A., Risk Factors, in the Form 10-K for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-123679. Last ingested by Listed: Nov 4, 2026, 09:33 ET. No prices; not investment advice.