Lancaster Colony (LANC) 10-Q2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lancaster Colony Corporation and our wholly-owned subsidiaries, collectively referred to as “we,” “us,” “our,” “registrant” or the “Company” and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and SEC Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our 2022 Annual Report on Form 10-K. Unless otherwise noted, the term “year” and references to a particular year pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2023 refers to fiscal 2023, which is the period from July 1, 2022 to June 30, 2023.

Property, Plant and Equipment

In the three months ended March 31, 2022, we recorded an impairment charge of $6.8 million for certain property, plant and equipment related to the Bantam Bagels, LLC (“Bantam”) business. This charge resulted from our decision to explore strategic alternatives for this business, which triggered impairment testing, and represented the excess of the carrying value over the fair value. The fair value was based on estimated selling prices for these assets, which represented a Level 3 measurement within the fair value hierarchy. The impairment charge was reflected in Restructuring and Impairment Charges and was not allocated to our two reportable segments due to its unusual nature.

Accrued Compensation and Employee Benefits

Accrued compensation and employee benefits included in Accrued Liabilities was $27.2 million and $16.3 million at March 31, 2023 and June 30, 2022, respectively.

Accrued Distribution

Accrued distribution included in Accrued Liabilities was $8.4 million and $11.9 million at March 31, 2023 and June 30, 2022, respectively.

Earnings Per Share

Earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock and common stock equivalents (restricted stock, stock-settled stock appreciation rights and performance units) outstanding during each period. Unvested shares of restricted stock granted to employees are considered participating securities since employees receive nonforfeitable dividends prior to vesting and, therefore, are included in the earnings allocation in computing EPS under the two-class method. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing income available to common shareholders by the diluted weighted average number of common shares outstanding during the period, which includes the dilutive potential common shares associated with nonparticipating restricted stock, stock-settled stock appreciation rights and performance units.

Basic and diluted net income per common share were calculated as follows:

Accumulated Other Comprehensive Loss

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our 2022 Annual Report on Form 10-K.

Recent Accounting Standards

There are no recently issued or adopted accounting standards that will impact our consolidated financial statements.

Our financial assets and liabilities subject to the three-level fair value hierarchy consist principally of cash and equivalents, accounts receivable, accounts payable and defined benefit pension plan assets. The estimated fair value of cash and equivalents, accounts receivable and accounts payable approximates their carrying value.

The following table summarizes our identifiable other intangible assets:

In the three months ended March 31, 2022, we recorded an impairment charge of $12.3 million to write off the net carrying value of Bantam’s tradename, customer relationships and technology / know-how intangible assets based on our decision to explore strategic alternatives for this business. The impairment charge was reflected in Restructuring and Impairment Charges and was not allocated to our two reportable segments due to its unusual nature.

In the three months ended December 31, 2021, we recorded an impairment charge of $0.9 million related to Bantam’s Retail customer relationships intangible asset, which reflected lower projected cash flows for Bantam’s Retail business. The impairment charge was reflected in Restructuring and Impairment Charges and was recorded in our Retail segment.

The impairment charges discussed above represented the excess of the carrying value over the fair value of estimated discounted cash flows specific to the remaining useful lives of the related intangible assets. As the fair value measurements were based on significant inputs not observable in the market, they represented Level 3 measurements within the fair value hierarchy.

Amortization expense for our other intangible assets, which is reflected in Selling, General and Administrative Expenses, was as follows:

Total annual amortization expense for each of the next five years is estimated to be as follows:

Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.

Retail - The vast majority of the products we sell in the Retail segment are sold through sales personnel, food brokers and distributors in the United States. We have placement of products in grocery produce departments through our refrigerated salad dressings, vegetable dips and fruit dips. Our flatbread products and sprouted grain bakery products are generally placed in the specialty bakery/deli section of the grocery store. We also have products typically marketed in the shelf-stable section of the grocery store, which include salad dressings, slaw dressing, sauces and croutons. Within the frozen food section of the grocery store, we sell yeast rolls and garlic breads.

Foodservice - The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States. Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. The majority of our Foodservice sales are products sold under private label to restaurants. We also manufacture and sell various branded Foodservice products to distributors.

As many of our products are similar between our two segments, our procurement, manufacturing, warehousing and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. Consequently, we do not prepare, and our Chief Operating Decision Maker does not review, separate balance sheets for the reportable segments. As such, our external reporting does not include the presentation of identifiable assets by reportable segment. The composition of our identifiable assets at March 31, 2023 is generally consistent with that of June 30, 2022.

We evaluate our Retail and Foodservice segments based on net sales and operating income which follow:

The following table sets forth net sales disaggregated by class of similar products for the Retail and Foodservice segments:

The following table provides an additional disaggregation of Foodservice net sales by type of customer:

There have been no changes to our stock-based compensation plan as disclosed in our 2022 Annual Report on Form 10-K.

Our stock-settled stock appreciation rights (“SSSARs”) compensation expense was $0.3 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. Year-to-date SSSARs compensation expense was $1.7 million for the current-year period compared to $2.9 million for the prior-year period. At March 31, 2023, there was $1.2 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 1 year.

Our restricted stock compensation expense was $0.4 million and $1.3 million for the three months ended March 31, 2023 and 2022, respectively. Year-to-date restricted stock compensation expense was $3.2 million for the current-year period compared to $3.7 million for the prior-year period. At March 31, 2023, there was $5.8 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.

Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, 2023 refers to fiscal 2023, which is the period from July 1, 2022 to June 30, 2023.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto, all included elsewhere in this report, and our 2022 Annual Report on Form 10-K. The forward-looking statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements due to these factors. For more information, see the section below entitled “Forward-Looking Statements.”

OVERVIEW

Business Overview

Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels.

Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.

Over 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets located outside of the United States.

Our business has the potential to achieve future growth in sales and profitability due to attributes such as:

Our goal is to grow both Retail and Foodservice segment sales over time by:

With respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include:

Project Ascent commenced in late 2019 and entails the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Implementation of this system began in July 2022 and will continue throughout fiscal 2023. Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. We remain on schedule to complete the planned implementation of Project Ascent in fiscal 2024.

Post implementation, Project Ascent will evolve into an on-going Center of Excellence (“COE”) that will provide oversight for all future upgrades of the S/4HANA environment, evaluation of future software needs to support the business, acquisition integration support and master data standards. Most of the on-going COE costs are expected to consist of consulting and professional fees, as well as wages and benefits.

BUSINESS TRENDS

Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining. Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes. From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, unfavorably impacted the operating results of both our segments. These issues included higher hourly wage rates paid to our front-line employees, increased costs for personal protective equipment, higher expenditures attributed to incremental co-manufacturing volumes, increased complexity and uncertainty in production planning and forecasting, and overall lower levels of efficiency in our production and distribution network. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating environment became more predictable and stable.

The inflationary cost environment we experienced during 2022 resulted in significantly higher input costs for our business. During 2022, we endured unprecedented inflationary costs for commodities, particularly soybean oil and flour, in addition to notably higher costs for packaging, freight and warehousing, and labor. This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions. We continued to experience significant cost inflation through the first nine months of 2023, particularly for soybean oil, eggs and flour.

RESULTS OF CONSOLIDATED OPERATIONS

Net Sales

Consolidated net sales for the three months ended March 31, 2023 increased 15% to a third quarter record $464.9 million versus $403.5 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs in addition to volume growth. Consolidated sales volumes, measured in pounds shipped, increased 3% for the three months ended March 31, 2023. In the prior-year quarter ended March 31, 2022, consolidated sales volumes decreased 2%.

Consolidated net sales for the nine months ended March 31, 2023 increased 12% to $1,367.9 million versus $1,224.0 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven by pricing to offset inflationary costs. Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1. Consolidated sales volumes, measured in pounds shipped, decreased 4% for the nine months ended March 31, 2023. In the prior year, consolidated sales volumes increased 3% for the nine months ended March 31, 2022.

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

Gross Profit

Consolidated gross profit for the three months ended March 31, 2023 increased $25.9 million to $94.2 million as our pricing actions effectively offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing. The higher gross profit also reflects improved manufacturing efficiencies, cost savings initiatives and a more stable operating environment, as partially offset by the impact of the Wave 3 implementation phase of Project Ascent as our dressing and sauce production facility in Horse Cave, Kentucky transitioned to our new ERP system in early February as planned. The current-year gross profit compares to a very challenging prior-year quarter characterized by escalating inflationary costs across our entire supply chain, increased costs to service the shifting demands of our business, and shortages of select ingredients and packaging supplies.

Consolidated gross profit for the nine months ended March 31, 2023 increased $38.1 million to $295.4 million as influenced by the pricing actions we have taken to offset significant inflationary costs. Gross profit also benefited from a more stable operating environment, improved manufacturing efficiencies, cost savings initiatives and our actions taken to exit less profitable product lines and reduce headcount.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2023 increased 19% to $64.8 million compared to $54.5 million in the prior-year period. This increase reflects higher expenditures to support the continued growth of our business, including investments in personnel and consumer promotions in addition to higher brokerage costs associated with the increased sales. SG&A expenses also include some nonrecurring legal charges for closed operations. These higher costs were partially offset by lower expenditures for Project Ascent, our ERP initiative. Project Ascent expenses totaled $7.6 million in the current-year quarter versus $10.3 million last year.

SG&A expenses for the nine months ended March 31, 2023 increased 5% to $165.4 million compared to $157.9 million in the prior year. This increase reflects increased investments in personnel, higher brokerage costs, some nonrecurring legal charges for closed operations and increased travel expenses. Project Ascent expenses decreased $4.0 million to $24.3 million for the nine months ended March 31, 2023.

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

Change in Contingent Consideration

In the prior year, the change in contingent consideration resulted in a benefit of $1.3 million and $3.5 million for the three and nine months ended March 31, 2022, respectively. This benefit was attributed to a reduction in the fair value of the contingent consideration liability for Bantam Bagels, LLC (“Bantam”) based on our fair value measurements, resulting in a zero balance at March 31, 2022. We recorded the third quarter adjustment of $1.3 million in our Foodservice segment. For the year-to-date adjustment, we recorded $2.6 million in our Foodservice segment and $0.9 million in our Retail segment. We ultimately exited the Bantam business near the end of fiscal 2022. See further discussion in Note 2 to the condensed consolidated financial statements.

Restructuring and Impairment Charges

In the prior-year quarter ended March 31, 2022, we recorded restructuring and impairment charges of $22.7 million related to Bantam. Impairment testing was triggered for the related long-lived assets of the asset group based on our decision to explore strategic alternatives for this business. The restructuring and impairment charges consisted of impairment charges for intangible assets, fixed assets and an operating lease right-of-use asset, as well as restructuring charges related to a contractual obligation. Due to their unusual nature, these charges were not allocated to our two reportable segments. As noted above, we ultimately exited the Bantam business near the end of fiscal 2022.

In the prior year, we also recorded an impairment charge of $0.9 million for the nine months ended March 31, 2022 related to Bantam’s Retail customer relationships intangible asset, which reflected lower projected cash flows for Bantam’s Retail business. This impairment charge was reflected in our Retail segment.

In the prior-year quarter ended December 31, 2021, we committed to a plan to close our frozen garlic bread facility in Baldwin Park, California in support of our ongoing efforts to better optimize our manufacturing network. The operations of this facility were not classified as discontinued operations as the closure did not represent a strategic shift that would have a major effect on our operations or financial results. For the nine months ended March 31, 2022, we recorded restructuring and impairment charges of $1.0 million, which consisted of one-time termination benefits and impairment charges for fixed assets and an operating lease right-of-use asset. These charges were not allocated to our two reportable segments due to their unusual nature.

Operating Income (Loss)

Operating income increased $37.0 million to $29.4 million for the three months ended March 31, 2023 driven by the increase in gross profit as our pricing actions served to offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing, as well as the impact of the prior-year restructuring and impairment charges. Operating income also benefited from improved manufacturing efficiencies and a more stable operating environment. The increase in SG&A expenses partially offset these positive factors.

Operating income increased $51.8 million to $130.0 million for the nine months ended March 31, 2023 driven by the same factors noted for the three months ended March 31, 2023.

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

Taxes Based on Income (Loss)

Our effective tax rate was 22.0% and 22.8% for the nine months ended March 31, 2023 and 2022, respectively. For the nine months ended March 31, 2023 and 2022, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:

We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For the nine months ended March 31, 2023 and 2022, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.4% and 0.2%, respectively.

Earnings Per Share

As influenced by the factors discussed above, diluted net income per share for the third quarter of 2023 totaled $0.89, as compared to a loss of $0.17 per diluted share in the prior year. Expenditures for Project Ascent reduced diluted earnings per share by $0.21 and $0.29 for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2022, restructuring and impairment charges had an unfavorable impact of $0.63 per diluted share while the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.04. Diluted earnings per share in the current year benefited from final adjustments related to the filing of tax returns for fiscal 2022, including a favorable adjustment related to closed operations.

For the nine months ended March 31, 2023, diluted net income per share totaled $3.71, as compared to $2.20 per diluted share in the prior year. For the nine months ended March 31, 2023 and 2022, expenditures for Project Ascent reduced diluted earnings per share by $0.68 and $0.79, respectively. For the nine months ended March 31, 2022, restructuring and impairment charges had an unfavorable impact of $0.68 per diluted share while the adjustment to Bantam’s contingent consideration increased diluted earnings per share by $0.10.

Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended March 31.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment

For the nine months ended March 31, 2023, Retail segment net sales increased 7% to $729.2 million compared to the prior-year total of $682.1 million, including the favorable impact of our pricing actions. Sales in the current year were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales that were made near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1. Retail segment sales volumes, measured in pounds shipped, declined 4%. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live, price elasticity and product line rationalizations that were implemented during fiscal 2022. In the nine months ended March 31, 2022, Retail sales volumes increased 4%.

For the three months ended March 31, 2023, Retail segment operating income increased 66% to $36.9 million as our pricing actions served to offset significant cost inflation, in addition to the favorable impacts of higher sales volumes. In the prior-year quarter, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and operating income was also unfavorably impacted by an unstable operating environment that resulted in increased costs to manufacture products and service the business.

For the nine months ended March 31, 2023, Retail segment operating income increased 8% to $129.2 million as our pricing actions served to offset significant cost inflation. In the prior-year period, the net impact of our pricing actions lagged the extraordinary levels of cost inflation, and operating income was also unfavorably impacted by an unstable operating environment that resulted in increased costs to manufacture products and service the business.

Foodservice Segment

For the three months ended March 31, 2023, Foodservice segment net sales grew 14% to $217.7 million compared to $190.4 million in the prior-year period driven by inflationary pricing combined with increased demand from several of our national chain restaurant account customers and growth for our branded Foodservice products. Foodservice segment sales volume, measured in pounds shipped, increased less than 1%. In the prior-year quarter ended March 31, 2022, Foodservice sales volumes decreased 2%.

For the nine months ended March 31, 2023, Foodservice segment net sales increased 18% to $638.7 million from the prior-year total of $541.9 million driven by inflationary pricing and volume gains from certain quick-service restaurant customers in our mix of national chain restaurant accounts. Sales in the current year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the current-year period by an estimated $14 million. Foodservice segment sales volumes, measured in pounds shipped, decreased 4%. Sales volumes were unfavorably impacted by the advance ordering ahead of our ERP go-live and our decision to exit some less profitable SKUs during fiscal 2022. In the nine months ended March 31, 2022, Foodservice sales volumes increased 2%.

For the three months ended March 31, 2023, Foodservice segment operating income increased 21% to $22.4 million driven by cost savings initiatives and improved manufacturing efficiencies. Our pricing actions effectively offset inflationary costs. Foodservice segment operating income in the prior-year quarter included the $1.3 million benefit recorded to Foodservice from the adjustment to Bantam’s contingent consideration.

For the nine months ended March 31, 2023, Foodservice segment operating income increased 54% to $81.0 million as our pricing actions effectively offset inflationary costs, including last year’s shortfall. Operating income in the current year also benefited from a more favorable sales mix, our decision to discontinue some less profitable SKUs and a more stable operating environment. Prior-year operating income reflected a lag in pricing relative to inflationary costs, as partially offset by the adjustments to Bantam’s contingent consideration.

Corporate Expenses

For the three months ended March 31, 2023 and 2022, corporate expenses totaled $29.9 million and $25.7 million, respectively. This increase primarily reflects increased investments in personnel and some nonrecurring legal charges for closed operations, as partially offset by a decline in Project Ascent expenses. Expenditures for Project Ascent totaled $7.6 million and $10.3 million for the three months ended March 31, 2023 and 2022, respectively.

For the nine months ended March 31, 2023 and 2022, corporate expenses totaled $80.2 million and $70.7 million, respectively. This increase reflects the same factors noted for the three months ended March 31, 2023. Expenditures for Project Ascent totaled $24.3 million and $28.3 million for the nine months ended March 31, 2023 and 2022, respectively.

LOOKING FORWARD

Looking forward to our fiscal fourth quarter, we anticipate our Retail sales will continue to benefit from our licensing program, including incremental volume growth from the new products, flavors and sizes we have introduced this fiscal year. In Foodservice, we expect sustained volume growth from select customers in our mix of national chain restaurant accounts. Consolidated net sales and operating income will compare to last year’s fourth quarter that benefited from an estimated $25 million in incremental net sales and $5 million in operating income attributed to advance customer orders ahead of our July 1, 2022 ERP go-live date for Wave 1. Both our Retail and Foodservice sales will also continue to benefit from our pricing actions.

Cost inflation will remain a headwind to our financial results in our fiscal fourth quarter, but we do foresee some moderation in the rate of inflationary costs compared to recent quarters. The pricing actions we have implemented along with our cost savings initiatives are expected to offset the inflationary costs.

We remain on schedule to complete the planned implementation of Project Ascent in fiscal 2024.

FINANCIAL CONDITION

Cash Flows

For the nine months ended March 31, 2023, net cash provided by operating activities totaled $184.2 million, as compared to $58.7 million in the prior-year period. This increase was primarily due to the year-over-year changes in net working capital, particularly inventories, accounts payable, accrued liabilities and receivables. Inventories primarily reflect the favorable comparison against a larger prior-year increase in inventories, which resulted from higher commodity costs and overall elevated quantities on-hand to help service a less predictable demand environment. The favorable cash flow impact of higher accounts payable, as adjusted to exclude construction in progress amounts, was more pronounced in the current year, reflecting continued increases in commodity costs as well as the timing of payments. Accrued liabilities reflect the favorable impacts of a current-year increase in the accruals for compensation and employee benefits as well as a prior-year decline in these balances. Receivables reflect the favorable impacts of a current-year decrease in receivables as well as a prior-year increase in receivables. The current-year decrease in receivables was due in part to an elevated level of receivables at the end of fiscal 2022 resulting from the advance ordering by our customers ahead of our ERP go-live. The prior-year increase in receivables resulted from higher sales levels. Higher net income, as partially offset by the year-over-year change in noncash restructuring and impairment charges, also contributed to the increase in cash provided by operating activities.

Cash used in investing activities for the nine months ended March 31, 2023 was $78.9 million, as compared to $105.1 million in the prior year. This decrease primarily reflects a lower level of payments for property additions in the current year. Current-year capital expenditures include spending on a capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023. Notable prior-year capital expenditures included spending on: the Horse Cave capacity expansion project; a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022; and infrastructure improvements and capacity expansion investments at our frozen pasta facility in Altoona, Iowa that were completed in March 2022.

Cash used in financing activities for the nine months ended March 31, 2023 of $82.7 million increased from the prior-year total of $74.6 million. This increase reflects higher levels of dividend payments, tax withholdings for stock-based compensation and share repurchases.

Liquidity and Capital Resources

Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time. We had no borrowings outstanding under the Facility at March 31, 2023. At March 31, 2023, we had $2.8 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.

The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and financial covenants relating to interest coverage and leverage. At March 31, 2023, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At March 31, 2023, there were no events that would constitute a default under this facility.

We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future. However, a default under the Facility could accelerate the repayment of any then outstanding indebtedness and limit our access to $75 million of additional credit available under the Facility. Such an event could require a reduction in or curtailment of cash dividends or share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our obligations when due.

We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2023 will total an estimated $100 million, which includes approximately $55 million in expenditures attributed to the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky.

Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of liquidity. This source, combined with our existing balances in cash and equivalents and amounts available under the Facility, is expected to be sufficient to meet our overall cash requirements.

We have various contractual and other obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other contractual obligations are not recognized as liabilities in our condensed consolidated financial statements. Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of March 31, 2023, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations is expected to be due within one year.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our 2022 Annual Report on Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below. Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.

Items which could impact these forward-looking statements include, but are not limited to:

(c) In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of which 1,176,804 common shares remained authorized for future repurchases at March 31, 2023. This share repurchase authorization does not have a stated expiration date. In the third quarter, we made the following repurchases of our common stock: