FLOWERS FOODS INC

Previous wording

The following discussion of the financial condition and results of operations of the company as of and for the sixteen weeks ended April 20, 2024 should be read in conjunction with the Form 10-K.

Current wording

The following discussion of the financial condition and results of operations of the company as of and for the twelve and twenty-eight weeks ended July 13, 2024 should be read in conjunction with the Form 10-K.

Previous wording

Results of operations — an analysis of the company’s consolidated results of operations for the comparative period presented in our Condensed Consolidated Financial Statements.

Current wording

Results of operations — an analysis of the company’s consolidated results of operations for the two comparative periods presented in our Condensed Consolidated Financial Statements.

Previous wording

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 upgrading our information system to a more robust platform, 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, was $3.7 million during the sixteen weeks ended April 20, 2024 compared to $6.2 million in the first quarter of the prior year. These costs are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. 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 $35.0 million for Fiscal 2024.

Current wording

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 upgrading our information system to a more robust platform, 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. 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 $35.0 million for Fiscal 2024.

Previous wording

Restructuring charges 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 optimization initiatives. The company also incurred consulting costs of $1.3 million associated with implementing the restructuring program which are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. In the first quarter of Fiscal 2024, the company incurred $0.6 million of restructuring charges for the RIF and made $0.2 million of RIF payments. The company expects to incur additional RIF and other restructuring costs of approximately $7.0 million to $10.0 million in Fiscal 2024.

Current wording

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 optimization initiatives. In the first and second quarters of Fiscal 2024, the company incurred $0.6 million and $6.8 million of RIF costs and made $0.2 million and $6.7 million of RIF payments, respectively. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. 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.

Previous wording

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 quarter of Fiscal 2023 were $0.3 million. These costs are recorded in the restructuring charges line item of the Condensed Consolidated Statements of Income. In the first quarter of Fiscal 2024, we paid the remaining VSIP payments of $1.4 million.

Current wording

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 and second quarters of Fiscal 2023 were $0.3 million in each quarter. 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. In the first quarter of Fiscal 2024, we paid the remaining VSIP payments of $1.4 million.

Previous wording

Impairment of assets 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 and 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.

Current wording

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.

Previous wording

Acquisition-related costs On February 17, 2023, the company completed the acquisition of the Papa Pita bakery business ("Papa Pita") for total consideration of approximately $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 sixteen weeks ended April 23, 2023 of $3.2 million and these costs are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Current wording

Acquisition-related costs On February 17, 2023, the company completed the acquisition of the Papa Pita bakery business ("Papa Pita") for total consideration of approximately $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 twelve and twenty-eight weeks ended July 15, 2023 of $0.5 million and $3.7 million, respectively, and these costs are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Previous wording

Optimization initiatives in our procurement, distribution, operations, and administrative functions are projected to save $40 million to $50 million in Fiscal 2024. In the second quarter of Fiscal 2023, we completed the build phase of our ERP upgrade project and began the deployment, which is anticipated to be completed in Fiscal 2026. Additionally, we continue to implement our digital strategy initiatives as discussed further in the “Transformation Strategy Initiatives” section below.

Current wording

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

Previous wording

Nature’s Own is the best-selling loaf bread in the U.S., DKBis 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+C-Store 16 Weeks Ended 4/21/24).

Current wording

Nature’s Own is the best-selling loaf bread in the U.S., DKBis 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 7/14/24).

Previous wording

Our branded retail sales comprised 64.4% of total sales for the sixteen weeks ended April 20, 2024 as compared to 63.9% for the sixteen weeks ended April 22, 2023.

Current wording

Our branded retail sales comprised 64.4% of total sales for the twenty-eight weeks ended July 13, 2024 as compared to 64.0% for the twenty-eight weeks ended July 15, 2023.

Previous wording

We continue to monitor the impact of a variety of factors on our business, including the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the first quarter of Fiscal 2024 have continued to benefit from a more optimized sales mix of branded retail products as compared to pre-pandemic periods. However, we experienced significant input cost inflation 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, though it remains above pre-pandemic levels, and we expect that trend to continue throughout the remainder of Fiscal 2024.

Current wording

We continue to monitor the impact of a variety of factors on our business, including the impact of the inflationary economic environment on our business and consumers, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the second quarter of Fiscal 2024 have continued to benefit from a more optimized 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.

Previous wording

Sales increased 2.8% for the sixteen weeks ended April 20, 2024 compared to the same quarter in the prior year, with price/mix contributing 3.1% and the Papa Pita acquisition contributing 0.5% (cycled on February 17, 2024), partially offset by volume declines of 0.8%. The benefits of inflation-driven pricing actions implemented in the prior year were partially offset by softer volumes. Volume declines were concentrated in our Other sales category, where we exited certain lower margin foodservice business in the second half of Fiscal 2023. Those declines were partially offset by volume increases in Branded Retail sales from execution in the marketplace. Sales of DKBcontinued to grow on higher volumes and sales of Nature's Ownimproved on positive price/mix, partially offset by lower volumes.

Current wording

Sales increased 1.4% for the twenty-eight weeks ended July 13, 2024 compared to the same period in the prior year, with price/mix contributing 2.1% and the Papa Pita acquisition contributing 0.3% (cycled on February 17, 2024), partially offset by volume declines of 1.0%. The benefits of inflation-driven pricing actions implemented predominantly in the prior year were partially offset by softer volumes. Volume declines were concentrated in the Other sales category, partly due to exiting certain lower margin business in the second half of Fiscal 2023, and were partially offset by growth in store branded retail volumes. Sales of DKBcontinued to increase on higher volumes, and sales of Nature's Ownimproved on positive price/mix, partially offset by lower volumes.

Previous wording

For the sixteen weeks ended April 20, 2024, income from operations was $101.5 million compared to $93.8 million in the prior year quarter. The improvement resulted from moderating input costs, sales price increases implemented in the prior year, and the prior year acquisition costs, partially offset by increased workforce-related, repairs and maintenance, and depreciation expenses and lower production volumes (excluding the acquisition impact) quarter over quarter.

Current wording

Income from operations was $196.8 million for the twenty-eight weeks ended July 13, 2024 compared to $182.3 million in the prior year period. The improvement mostly resulted from moderating input costs, improved sales price/mix, and lower distributor distribution fees. Those factors were partially offset by increased workforce-related costs, higher repairs and maintenance and rent expenses, higher depreciation expense, and lower production volumes (excluding the acquisition impact).

Previous wording

Net income for the sixteen weeks ended April 20, 2024 was $73.0 million compared to $70.7 million in the prior year period. The increase resulted primarily from the increase in income from operations, as described above, net of increased interest expense and a higher effective tax rate quarter over quarter.

Current wording

Net income for the twelve weeks ended July 13, 2024 was $67.0 million compared to $63.8 million in the prior year quarter. The improvement resulted primarily from the increase in income from operations, as described above, net of a higher effective tax rate quarter over quarter.

Previous wording

During the sixteen weeks ended April 20, 2024, we generated net cash flows from operations of $105.1 million, invested $33.3 million in capital expenditures, decreased our indebtedness by $5.0 million, and paid $51.1 million in dividends to our shareholders. 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 sixteen weeks ended April 22, 2023, we generated net cash flows from operations of $58.0 million, paid $270.5 million for the Papa Pita acquisition (an additional $4.3 million net working capital purchase price adjustment was paid in the second quarter of Fiscal 2023), invested $34.0 million in capital expenditures, increased our indebtedness $171.0 million, and paid $49.1 million in dividends to our shareholders.

Current wording

During the twenty-eight weeks ended July 13, 2024, we generated net cash flows from operations of $168.4 million, invested $61.3 million in capital expenditures, and increased our indebtedness by $20.0 million. Additionally, we paid $101.9 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 twenty-eight weeks ended July 15, 2023, we generated net cash flows from operations of $128.9 million, paid $274.8 million for the Papa Pita acquisition (inclusive of the net working capital purchase price adjustment), invested $68.4 million in capital expenditures, and increased our indebtedness $182.0 million primarily to fund the acquisition. Also, in the prior year period, we paid $98.1 million in dividends to our shareholders and repurchased $26.2 million of company stock.

Previous wording

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 35 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.

Current wording

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.

Previous wording

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). As of April 20, 2024, we have incurred costs related to the project of approximately $223 million.

Current wording

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). As of July 13, 2024, we have incurred costs related to the project of approximately $226 million.

Previous wording

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively, are set forth in the table below (dollars in thousands):

Current wording

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twelve and twenty-eight weeks ended July 13, 2024 and July 15, 2023, respectively, are set forth in the tables below (dollars in thousands):

Previous wording

Net interest expense increased in dollars and as a percent of sales as compared to the prior year quarter largely due to higher average amounts outstanding under our borrowing arrangements primarily from funding the Papa Pita acquisition in the first quarter of Fiscal 2023 and increased interest rates on our variable rate debt. Decreased interest income also contributed to the overall increase in net interest expense. 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.

Current wording

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.

Previous wording

The effective tax rate for the sixteen weeks ended April 20, 2024 was 24.0% compared to 21.4% in the prior year quarter. The increase in the rate quarter over quarter was primarily due to a decrease in windfall tax benefits on stock-based compensation. For both periods presented, the primary differences in the effective rate and statutory rate were state income taxes and windfall/shortfall tax impacts related to stock-based compensation.

Current wording

The effective tax rate for the twelve weeks ended July 13, 2024 was 25.9% compared to 24.4% in the prior year quarter. The increase in the rate quarter over quarter was primarily due to unfavorable discrete items related to state income taxes in the current year quarter. For both periods presented, the primary differences in the effective rate and statutory rate were state income taxes.

Previous wording

Sales increased quarter over quarter due to positive pricing actions implemented in the first and second quarters of the prior year to mitigate considerable cost inflation, and, to a lesser extent, the Papa Pita acquisition contribution. These increases were partially offset by volume declines, largely for non-retail items and, to a lesser extent, for branded retail traditional loaf breads. Our promotional activity increased quarter over quarter largely due to inflationary pressure on consumer spending but remained lower than pre-pandemic levels.

Current wording

Sales increased year over year due to positive pricing actions implemented predominantly in the second quarter of the prior year which targeted branded retail sales, and, to a lesser extent, the Papa Pita acquisition contribution. Volume declines, largely for non-retail items and, to a lesser extent, for branded retail traditional loaf breads, partially offset the overall sales increase. Our promotional activity increased as compared to the prior year period due to inflationary pressure on consumer spending but remained lower than pre-pandemic levels.

Previous wording

Branded retail sales grew 3.5% quarter over quarter due to favorable price/mix, the acquisition contribution, and volume growth. Price/mix benefitted from inflation-driven pricing actions taken in the second quarter of the prior year and improved mix from greater branded organic product sales. Volumes improved mainly as a result of efficient sales execution in a competitive marketplace. Volume growth in branded organic products, branded buns and rolls, and branded Keto bread was partially offset by softer volumes primarily for branded traditional loaf breads. Our Nature's Ownand DKBbrands continued to perform well benefiting from inflation-driven price increases and growth from more recently introduced products, such as Nature's Own Keto bread and Hawaiian and Everything bun varieties, all introduced in the second quarter of Fiscal 2023, and DKBsnack bars and bites. Nature's Owndid experience volume declines quarter over quarter largely due to inflationary pressure on consumer spending.

Current wording

Branded retail sales grew 2.1% year over year due to favorable price/mix, the acquisition contribution, and modest volume growth. Price/mix benefitted from inflation-driven pricing actions taken in the second quarter of the prior year and improved mix from greater branded organic product sales. The slight increase in volume resulted primarily from growth in our more differentiated products, such as branded organic and branded Keto, and from market share gains in branded traditional buns and rolls. The increases were mostly offset by softer volumes primarily for branded traditional loaf breads and branded cake. Our Nature's Ownand DKBbrands 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 Ownbenefitted 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.

Previous wording

Sales in the Other category increased 1.4% due to positive price/mix from price increases implemented in the prior year, and the acquisition contribution, partially offset by volume declines. Store branded retail sales increased largely due to volume growth in store branded traditional loaf breads, partially offset by negative price/mix. Non-retail sales increased quarter over quarter due to inflation-driven pricing actions in the prior year and the acquisition contribution, offset mostly by volume declines. Foodservice drove most of the volume decrease as we exited certain lower margin business in the second half of Fiscal 2023. Declines in vending also contributed to lower volumes, partially offset by increased contract manufacturing volume.

Current wording

Sales in the Other category increased 0.3% due to positive price/mix and the acquisition contribution, partially offset by volume declines. Store branded retail sales increased largely 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 also contributed to lower volumes.

Previous wording

We anticipate our Fiscal 2024 sales will be flat to higher than Fiscal 2023 sales due to price increases implemented in Fiscal 2023, 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.

Current wording

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 coming 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.

Previous wording

Materials, supplies, labor and other production costs as a percent of sales decreased quarter over quarter due to the benefit of prior year inflation-driven pricing actions, moderating ingredient and packaging costs, and decreased product returns. Lower production volumes (excluding the acquisition impact) and higher workforce-related and bakery maintenance costs, reflected in the Other line item, 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. Wage inflation, higher employee compensation costs, and lower production volumes resulted in 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.

Current wording

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), higher workforce-related costs, and increased bakery maintenance costs, reflected in the Other line item, 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. 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.

Previous wording

Workforce-related costs increased as a percent of sales due to higher employee compensation costs quarter over quarter, a shift from distributor distribution fees, 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 territory-related logistics costs, 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 increase in the Other line item mostly reflects increased amortization of cloud-based applications, increased rent expense, and lower scrap dough income, partially offset by reduced transportation costs and the prior year quarter acquisition costs. See the “Matters Affecting Comparability” section above for a discussion of the acquisition-related costs.

Current wording

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 territory-related logistics costs, 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 reduced transportation and consulting costs and the prior year acquisition costs and insurance liability claim, 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 project-related consulting costs and the acquisition-related costs.

Previous wording

Depreciation and amortization expense for the first quarter of Fiscal 2024 increased in dollars and as a percent of sales as compared to the prior year period primarily due to ERP assets being placed in service in the second quarter of Fiscal 2023 and, to a lesser extent, the Papa Pita assets acquired midway through the first quarter of Fiscal 2023, partially offset by assets becoming fully depreciated.

Current wording

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, the Papa Pita assets acquired midway through the first quarter of Fiscal 2023, partially offset by assets becoming fully depreciated.

Previous wording

Income from operations for the sixteen weeks ended April 20, 2024 increased as a percent of sales compared to the prior year quarter due primarily to moderating input costs, partially offset by lower production volumes (excluding the acquisition impact), increased selling, distribution, and administrative expenses, and increased depreciation and amortization expense, as discussed above.

Current wording

Income from operations increased as a percent of sales compared to the prior year period primarily due to moderating input costs, partially offset by lower production volumes (excluding the acquisition impact), the current year asset impairment charges, increased selling, distribution, and administrative expenses, and increased depreciation and amortization expense.

Previous wording

The increase in comprehensive income quarter over quarter resulted primarily from increased net earnings and changes in the fair value of derivatives.

Current wording

The increase in comprehensive income year over year resulted primarily from increased net earnings, net of changes in the fair value of derivatives.

Previous wording

Although there has been no material adverse impact on our results of operations, liquidity or cash flows for the sixteen weeks ended April 20, 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.

Current wording

Although there has been no material adverse impact on our results of operations, liquidity or cash flows for the twenty-eight weeks ended July 13, 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.

Previous wording

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 two-year $200.0 million trade receivable repurchase facility (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 April 20, 2024, we had total available liquidity of $557.4 million, consisting of cash on hand and the available balances under the senior unsecured revolving credit facility (the "credit facility") and repurchase facility.

Current wording

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 two-year $200.0 million trade receivable repurchase facility (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 July 13, 2024, we had total available liquidity of $523.5 million, consisting of cash on hand and the available balances under the senior unsecured revolving credit facility (the "credit facility") and repurchase facility.

Previous wording

Liquidity Discussion for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023

Current wording

Liquidity Discussion for the Twenty-Eight Weeks Ended July 13, 2024 and July 15, 2023

Previous wording

Cash and cash equivalents were $15.8 million at April 20, 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):

Current wording

Cash and cash equivalents were $6.9 million at July 13, 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):

Previous wording

For the sixteen weeks ended April 20, 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. For the current and prior year quarters ended April 20, 2024 and April 22, 2023, deferred income tax activity was composed of changes in temporary differences year over year, including 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.

Current wording

For the twenty-eight weeks ended July 13, 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 July 13, 2024 and July 15, 2023, deferred income tax activity was composed of changes in temporary differences year over year, including 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.

Previous wording

Changes in accounts receivable were mainly attributable to sales increases period over period. Changes in inventories resulted primarily from volatility in input costs. Changes in accounts payable were mainly attributable to higher capital spending in the prior year period largely due to the upgrade of the ERP system and volatility in input costs.

Current wording

Changes in accounts receivable were mainly attributable to sales increases period over period and a temporary delay in customer billings in the prior year period due to the ERP implementation. Changes in inventories resulted primarily from volatility in input costs.

Previous wording

The change in other assets primarily resulted from changes in prepaid assets and income tax receivables in each respective period. Changes in employee compensation and legal settlement 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 sixteen weeks ended April 20, 2024, the company paid $1.3 million related to territory repurchase obligations recognized as part of a legal settlement recognized in the third quarter of Fiscal 2023, and on May 9, 2024, subsequent to the first quarter of Fiscal 2024, paid $55.0 million to the legal settlement fund. The company expects to complete the territory repurchases by the end of the first quarter of Fiscal 2025. During the sixteen weeks ended April 22, 2023, the company paid $5.5 million of legal settlements that had been accrued for in a prior period.

Current wording

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 twenty-eight weeks ended July 13, 2024, the company paid $55.0 million to the legal fund related to a legal settlement recognized in the third quarter of Fiscal 2023. During the twenty-eight weeks ended July 15, 2023, the company paid $5.5 million of legal settlements that had been accrued for in a prior period and accrued $7.5 million of insurance liability claims.

Previous wording

Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively (amounts in thousands):

Current wording

Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the twenty-eight weeks ended July 13, 2024 and July 15, 2023, respectively (amounts in thousands):

Previous wording

Cash Flows Disbursed for Financing Activities. The table below presents net cash disbursed for financing activities for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively (amounts in thousands):

Current wording

Cash Flows Provided by (Disbursed for) Financing Activities. The table below presents net cash provided by (disbursed for) financing activities for the twenty-eight weeks ended July 13, 2024 and July 15, 2023, respectively (amounts in thousands):

Previous wording

Our Board of Directors declared the following quarterly dividend during the sixteen weeks ended April 20, 2024 (amounts in thousands, except per share data):

Current wording

Our Board of Directors declared the following quarterly dividends during the twenty-eight weeks ended July 13, 2024 (amounts in thousands, except per share data):

Previous wording

Additionally, we paid dividends of $2.5 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.

Current wording

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.