Lancaster Colony(LANC) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of its financial performance Item 1. Condensed Consolidated Financial Statements This section presents unaudited condensed consolidated financial statements and notes on accounting policies, debt, and segments Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific points in time Condensed Consolidated Balance Sheets (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :------------------ | :------------ | | Cash and equivalents | $95,487 | $60,283 | | Receivables | $126,919 | $135,496 | | Total inventories | $139,413 | $144,702 | | Total current assets | $373,636 | $351,781 | | Total Assets | $1,137,171 | $1,090,374 | | Accounts payable | $131,688 | $114,972 | | Total current liabilities | $180,171 | $165,585 | | Total shareholders' equity | $879,550 | $844,687 | - Cash and equivalents increased by $35.2 million from June 30, 2022, to December 31, 2022[10] - Total assets increased by $46.8 million, and total shareholders' equity increased by $34.9 million during the six-month period[10] Condensed Consolidated Statements of Income This section details the company's financial performance over specific reporting periods Condensed Consolidated Statements of Income (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Sales | $477,394 | $428,427 | $902,931 | $820,483 | | Cost of Sales | $375,292 | $331,825 | $701,774 | $631,514 | | Gross Profit | $102,102 | $96,602 | $201,157 | $188,969 | | Operating Income | $51,327 | $45,306 | $100,625 | $85,817 | | Net Income | $39,973 | $34,370 | $77,565 | $65,025 | | Basic EPS | $1.45 | $1.25 | $2.82 | $2.36 | | Diluted EPS | $1.45 | $1.25 | $2.81 | $2.36 | - Net Sales increased by 11% for the three months ended December 31, 2022, and 10% for the six months ended December 31, 2022, compared to the prior year[12] - Net Income increased by 16% for the three months and 19% for the six months ended December 31, 2022, year-over-year[12] Condensed Consolidated Statements of Comprehensive Income This section details total change in equity from non-owner sources, including net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Income | $39,973 | $34,370 | $77,565 | $65,025 | | Other Comprehensive Income, Net of Tax | $95 | $41 | $190 | $83 | | Comprehensive Income | $40,068 | $34,411 | $77,755 | $65,108 | - Other comprehensive income, net of tax, increased for both the three-month ($95 thousand vs $41 thousand) and six-month ($190 thousand vs $83 thousand) periods ended December 31, 2022, primarily due to defined benefit pension and postretirement benefit plans[14] Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | (Amounts in thousands) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $140,440 | $41,980 | | Net cash used in investing activities | $(55,776) | $(66,608) | | Net cash used in financing activities | $(49,460) | $(49,416) | | Net change in cash and equivalents | $35,204 | $(74,044) | | Cash and equivalents at end of period | $95,487 | $114,011 | - Net cash provided by operating activities significantly increased to $140.4 million for the six months ended December 31, 2022, compared to $42.0 million in the prior-year period, primarily due to changes in net working capital[17][99] - Cash used in investing activities decreased to $55.8 million, reflecting a lower level of payments for property additions[17][100] Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity, including net income, dividends, and stock transactions Condensed Consolidated Statements of Shareholders' Equity (Amounts in thousands) | (Amounts in thousands) | Balance, June 30, 2022 | Net Income (6 months) | Cash Dividends (6 months) | Purchase of Treasury Stock (6 months) | Stock-based compensation expense (6 months) | Balance, December 31, 2022 | | :--------------------- | :--------------------- | :-------------------- | :------------------------ | :------------------------------------ | :------------------------------------------ | :------------------------- | | Common Stock Amount | $137,814 | - | - | - | $5,264 | $140,660 | | Retained Earnings | $1,485,045 | $77,565 | $(45,529) | - | - | $1,517,081 | | Accumulated Other Comprehensive Loss | $(11,172) | - | - | - | - | $(10,982) | | Treasury Stock | $(767,000) | - | - | $(209) | - | $(767,209) | | Total Shareholders' Equity | $844,687 | $77,565 | $(45,529) | $(209) | $5,264 | $879,550 | - Total shareholders' equity increased from $844.7 million at June 30, 2022, to $879.6 million at December 31, 2022, driven by net income, partially offset by cash dividends and treasury stock purchases[19] - Cash dividends paid for common stock totaled $45.5 million for the six months ended December 31, 2022[19][17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC Article 10 of Regulation S-X, reflecting all necessary normal recurring adjustments[24] - Property, plant and equipment are recorded at cost (or fair value for business combinations) and depreciated using the straight-line method[25] Construction in progress in Accounts Payable (Amounts in thousands) | December 31, | 2022 | 2021 | | :----------- | :-------- | :-------- | | Construction in progress in Accounts Payable | $15,062 | $26,080 | - EPS is computed using the two-class method, with unvested restricted stock considered participating securities[27] Net Income Per Common Share Calculation (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income available to common shareholders | $39,855 | $34,272 | $77,333 | $64,840 | | Weighted average common shares outstanding – basic | 27,471 | 27,443 | 27,460 | 27,451 | | Weighted average common shares outstanding – diluted | 27,493 | 27,464 | 27,476 | 27,490 | | Net income per common share – basic | $1.45 | $1.25 | $2.82 | $2.36 | | Net income per common share – diluted | $1.45 | $1.25 | $2.81 | $2.36 | - There were no changes to significant accounting policies or recently issued/adopted accounting standards impacting the consolidated financial statements[31][32] Note 2 – Fair Value This note defines fair value and details the valuation hierarchy and contingent consideration adjustments - Fair value is defined as the exit price, with a three-level hierarchy: Level 1 (observable inputs), Level 2 (indirectly observable inputs), and Level 3 (unobservable inputs)[34][35] - The fair value of Bantam's contingent consideration, initially $8.0 million, was written down to zero at March 31, 2022, after a $2.2 million reduction at December 31, 2021, due to lower projected EBITDA[37] Bantam Contingent Consideration (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Contingent consideration at beginning of period | $— | $3,470 | $— | $3,470 | | Change in contingent consideration included in operating income | $— | $(2,170) | $— | $(2,170) | | Contingent consideration at end of period | $— | $1,300 | $— | $1,300 | Note 3 – Long-Term Debt This note describes the company's revolving credit facility, outstanding borrowings, and financial covenants - The company has an unsecured revolving credit facility of up to $150 million, expiring March 19, 2025, with a variable interest rate tied to SOFR[39] - As of December 31, 2022, there were no outstanding borrowings under the facility, but $2.8 million in standby letters of credit were outstanding[42] - The facility includes financial covenants for interest coverage ratio (not less than 2.5 to 1) and consolidated leverage ratio (not greater than 3.5 to 1), with which the company was in compliance[40] Note 4 – Commitments and Contingencies This note addresses various claims and litigation matters arising in the ordinary course of business - Various claims and litigation matters arising in the ordinary course of business are not expected to have a material effect on the consolidated financial statements[43] Note 5 – Goodwill and Other Intangible Assets This note provides details on the company's goodwill by segment and other identifiable intangible assets Goodwill by Segment (Amounts in thousands) | Segment | December 31, 2022 | June 30, 2022 | | :---------- | :---------------- | :------------ | | Retail | $157,400 | $157,400 | | Foodservice | $51,000 | $51,000 | Identifiable Other Intangible Assets (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :---------------- | :------------ | | Tradenames (net) | $28,048 | $28,715 | | Customer Relationships (net) | $1,211 | $1,480 | | Technology / Know-how (net) | $1,807 | $2,128 | | Total net carrying value | $31,066 | $32,323 | - An impairment charge of $0.9 million was recorded in the prior year (Q3 2021) related to Bantam's Retail customer relationships intangible asset due to lower projected cash flows[44] Amortization Expense (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Amortization expense | $628 | $1,260 | $1,257 | $2,401 | Estimated Annual Amortization Expense for Next Five Years (Amounts in thousands) | Fiscal Year | Estimated Amortization Expense | | :---------- | :----------------------------- | | 2024 | $2,514 | | 2025 | $2,212 | | 2026 | $1,610 | | 2027 | $1,426 | | 2028 | $1,334 | Note 6 – Income Taxes This note provides a breakdown of the company's prepaid federal, state, and local income taxes Prepaid Income Taxes (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :---------------- | :------------ | | Prepaid federal income taxes | $2,300 | - | | Prepaid state and local income taxes | $800 | $1,900 | Note 7 – Business Segment Information This note details the company's financial performance across its Retail and Foodservice operating segments - The company operates in two reportable segments: Retail and Foodservice, with integrated procurement, manufacturing, warehousing, and distribution activities[48][51] Net Sales by Segment (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Retail | $258,763 | $245,085 | $481,979 | $468,974 | | Foodservice | $218,631 | $183,342 | $420,952 | $351,509 | | Total | $477,394 | $428,427 | $902,931 | $820,483 | Operating Income by Segment (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Retail | $49,352 | $49,606 | $92,252 | $97,784 | | Foodservice | $26,696 | $18,309 | $58,625 | $34,134 | | Corporate Expenses | $(24,721) | $(21,583) | $(50,252) | $(45,075) | | Total | $51,327 | $45,306 | $100,625 | $85,817 | Net Sales Disaggregated by Product Class (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Retail | | | | | | Shelf-stable dressings, sauces and croutons | $94,711 | $87,334 | $185,749 | $177,861 | | Frozen breads | $117,424 | $110,379 | $190,282 | $185,098 | | Refrigerated dressings, dips and other | $46,628 | $47,372 | $105,948 | $106,015 | | Foodservice | | | | | | Dressings and sauces | $160,855 | $136,038 | $311,915 | $260,797 | | Frozen breads and other | $57,776 | $47,304 | $109,037 | $90,712 | Foodservice Net Sales by Customer Type (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | National accounts | $171,814 | $141,753 | $332,006 | $267,881 | | Branded and other | $46,817 | $41,589 | $88,946 | $83,628 | Note 8 – Stock-Based Compensation This note outlines the types of stock-based compensation and associated expense and unrecognized compensation Stock-Based Compensation Expense (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | SSSARs compensation expense | $700 | $1,000 | $1,400 | $2,000 | | Restricted stock compensation expense | $1,500 | $1,300 | $2,800 | $2,400 | | Performance units compensation expense | $600 | $300 | $1,100 | $500 | - As of December 31, 2022, unrecognized compensation expense totaled $1.8 million for SSSARs (over 1 year), $7.9 million for restricted stock (over 2 years), and $5.6 million for performance units (over 2 years)[55][56][57] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial performance, condition, and future outlook, covering segments and liquidity OVERVIEW This section provides a general introduction to the company's business, strategies, and prevailing market trends Business Overview This section describes the company's core business, product channels, and strategic growth initiatives - Lancaster Colony Corporation manufactures and markets specialty food products for retail and foodservice channels, with over 95% of sales in the United States[60][62] - Growth strategies include new product introductions, expanded distribution, leveraging Retail brands, strategic licensing, Foodservice product development, and complementary acquisitions[62] - The company is implementing Project Ascent, an integrated SAP S/4HANA ERP system, which began in July 2022 and is scheduled for completion in fiscal 2024[63] BUSINESS TRENDS This section discusses key market dynamics and cost pressures impacting the company's operations - COVID-19 initially shifted consumer demand towards at-home food consumption, positively impacting Retail and negatively impacting Foodservice, but this volatility subsided near the end of 2022[65] - The company experienced significant inflationary costs for commodities (soybean oil, flour, eggs), packaging, freight, warehousing, and labor throughout 2022 and into the first half of 2023[66] RESULTS OF CONSOLIDATED OPERATIONS This section provides a detailed analysis of the company's overall financial performance, including sales, profit, and expenses Consolidated Financial Highlights (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $477,394 | $428,427 | 11% | $902,931 | $820,483 | 10% | | Cost of Sales | $375,292 | $331,825 | 13% | $701,774 | $631,514 | 11% | | Gross Profit | $102,102 | $96,602 | 6% | $201,157 | $188,969 | 6% | | Gross Margin | 21.4% | 22.5% | - | 22.3% | 23.0% | - | | Selling, General and Administrative Expenses | $50,775 | $51,538 | (1)% | $100,532 | $103,394 | (3)% | | Operating Income | $51,327 | $45,306 | 13% | $100,625 | $85,817 | 17% | | Operating Margin | 10.8% | 10.6% | - | 11.1% | 10.5% | - | | Net Income | $39,973 | $34,370 | 16% | $77,565 | $65,025 | 19% | | Diluted Net Income Per Common Share | $1.45 | $1.25 | 16% | $2.81 | $2.36 | 19% | - Consolidated net sales reached a second-quarter record of $477.4 million, an 11% increase, driven by pricing actions to offset inflationary costs, despite a 4% decrease in sales volumes (pounds shipped)[69] - Gross profit increased by $5.5 million, as pricing actions, improved manufacturing efficiencies, and a more stable operating environment effectively offset significant inflationary costs[72] - SG&A expenses decreased by 1% for the three months and 3% for the six months, primarily due to lower professional fees, reduced consumer promotions, and decreased Project Ascent expenditures[74][75] - Operating income increased by 13% for the three months and 17% for the six months, benefiting from higher gross profit and lower SG&A expenses[80][81] Effective Tax Rate (Six Months Ended December 31) | Factor | 2022 | 2021 | | :---------------------------------------- | :---- | :---- | | Statutory rate | 21.0% | 21.0% | | State and local income taxes | 2.4% | 3.3% | | Net windfall tax benefits - stock-based compensation | (0.4)% | — | | Other | 0.1% | — | | Effective rate | 23.1% | 24.3% | - Diluted net income per share increased to $1.45 for the second quarter and $2.81 for the six months, despite Project Ascent expenditures reducing EPS by $0.21 and $0.47, respectively[83][84] RESULTS OF OPERATIONS - SEGMENTS This section analyzes the financial performance of the company's distinct Retail and Foodservice operating segments Retail Segment This section details the financial performance of the company's Retail segment, including sales and operating income Retail Segment Performance (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :--------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $258,763 | $245,085 | 6% | $481,979 | $468,974 | 3% |\ | Operating Income | $49,352 | $49,606 | (1)% | $92,252 | $97,784 | (6)% | | Operating Margin | 19.1% | 20.2% | - | 19.1% | 20.9% | - | - Retail net sales increased 6% for the three months and 3% for the six months, driven by inflationary pricing and growth in licensing programs (Buffalo Wild Wings, Arby's sauces)[87] - Retail sales volumes decreased 4% for the three months and 9% for the six months, primarily due to price elasticity and the exit of less profitable product lines[87] - Retail operating income decreased 1% for the three months and 6% for the six months, impacted by lower sales and production volumes, despite pricing actions and reduced consumer promotions[88][89] Foodservice Segment This section details the financial performance of the company's Foodservice segment, including sales and operating income Foodservice Segment Performance (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :--------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $218,631 | $183,342 | 19% | $420,952 | $351,509 | 20% | | Operating Income | $26,696 | $18,309 | 46% | $58,625 | $34,134 | 72% | | Operating Margin | 12.2% | 10.0% | - | 13.9% | 9.7% | - | - Foodservice net sales grew 19% for the three months and 20% for the six months, driven by inflationary pricing and volume gains from quick-service restaurant customers[90][91] - Foodservice sales volumes decreased 5% for the three months and 6% for the six months, impacted by the decision to exit less profitable SKUs and advance ordering ahead of the ERP go-live[90][91] - Foodservice operating income significantly increased by 46% for the three months and 72% for the six months, as pricing actions effectively offset inflationary costs, supported by a favorable sales mix and a more stable operating environment[92][94] Corporate Expenses This section outlines the trends and drivers behind the company's unallocated corporate operating expenses Corporate Expenses (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Corporate Expenses | $24,700 | $21,600 | $50,300 | $45,100 | - Corporate expenses increased due to increased investments in personnel and IT, partially offset by a decline in Project Ascent expenses[95][96] LOOKING FORWARD This section discusses the company's future outlook, including sales volume expectations and cost management strategies - Retail sales volumes are expected to benefit from licensing program growth, but consumer demand elasticity will remain a headwind[97] - Foodservice sales volumes will continue to be impacted by SKU rationalization but expect benefits from quick-service restaurant customer growth[97] - Pricing actions and cost savings initiatives are anticipated to offset ongoing cost inflation in the fiscal third quarter[98] - Project Ascent ERP implementation is on schedule for completion in fiscal 2024, with the Horse Cave facility being integrated in Wave 3[98] FINANCIAL CONDITION This section assesses the company's liquidity, capital resources, and cash flow generation Cash Flows This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Net cash provided by operating activities increased significantly to $140.4 million (vs. $42.0 million prior year) due to favorable changes in net working capital and higher net income[99] - Cash used in investing activities decreased to $55.8 million (vs. $66.6 million prior year) due to lower payments for property additions, despite ongoing capacity expansion projects[100] - Cash used in financing activities remained flat at $49.5 million, with higher dividend payments and tax withholdings offset by lower share repurchases[101] Liquidity and Capital Resources This section evaluates the company's ability to meet its short-term and long-term financial obligations - The company has a $150 million unsecured revolving credit facility with no outstanding borrowings and $2.8 million in standby letters of credit as of December 31, 2022, and is in compliance with all covenants[102][103] - Management believes cash from operating activities, existing cash, and the credit facility will be adequate to meet liquidity needs for the next 12 months and beyond[105][106] - Projected capital expenditures for fiscal 2023 are between $90 million and $110 million, including $50 million for the Horse Cave, Kentucky dressing and sauce facility expansion[105] CRITICAL ACCOUNTING POLICIES This section confirms no changes to the critical accounting policies disclosed in the prior annual report - There have been no changes in critical accounting policies from those disclosed in the 2022 Annual Report on Form 10-K[108] RECENT ACCOUNTING PRONOUNCEMENTS This section addresses the impact of recently issued accounting standards on the financial statements - Recent accounting pronouncements and their impact are disclosed in Note 1 to the condensed consolidated financial statements, indicating no material impact[109][32] FORWARD-LOOKING STATEMENTS This section highlights the inherent uncertainties and risks associated with future-oriented statements - The report contains forward-looking statements subject to various risks and uncertainties, including inflationary pressures, customer reactions to pricing, supply chain disruptions, IT system implementation complexities, and geopolitical events[110][111] - Management believes these statements are reasonable but cautions against undue reliance, and undertakes no obligation to update them except as required by law[110][111] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's market risks since the disclosure in its 2022 Annual Report on Form 10-K - No material changes to market risks have occurred since the 2022 Annual Report on Form 10-K[111] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, concluding their effectiveness, and discusses changes in internal control over financial reporting related to the ongoing Project Ascent ERP implementation Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[112] Changes in Internal Control Over Financial Reporting This section discusses updates to internal controls due to the ongoing implementation of the Project Ascent ERP system - The implementation of Project Ascent, a new SAP S/4HANA ERP system, began in Q1 fiscal 2023, leading to necessary updates in internal controls[113][114] - The company does not expect this ERP implementation to have a material adverse effect on its internal control over financial reporting[114] PART II – OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and a list of exhibits Item 1. Legal Proceedings This section confirms that there are no environmental legal proceedings to disclose, based on a $1 million materiality threshold - No environmental matters requiring disclosure were identified, using a $1 million materiality threshold[117] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K[118] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on common stock repurchases during the second quarter of fiscal 2023, primarily for tax withholding obligations related to stock-based compensation, and the remaining authorization for future repurchases - As of December 31, 2022, 1.22 million common shares remained authorized for future repurchases under a program approved in November 2010[119] Common Stock Repurchases (Q2 FY2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :------------------------------- | :--------------------------- | | October 1-31, 2022 | 167 | $177.65 | | November 1-30, 2022 | 51 | $204.46 | | December 1-31, 2022 | 430 | $197.30 | | Total | 648 | $192.80 | - Repurchases were primarily made to satisfy tax withholding obligations from the vesting of restricted stock granted to employees[119] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including an amendment to the credit agreement, CEO and CFO certifications, and XBRL documents - Exhibits include Amendment No. 1 to Credit Agreement, CEO and CFO certifications under Sections 302 and 906 of Sarbanes-Oxley Act, and various XBRL documents[122][123] SIGNATURES This section contains the official signatures of the registrant's authorized officers, confirming the due filing of the report SIGNATURES This section contains the official signatures of the registrant's authorized officers, confirming the due filing of the report - The report was signed on February 2, 2023, by David A. Ciesinski (President, Chief Executive Officer, and Director) and Thomas K. Pigott (Vice President, Chief Financial Officer, and Assistant Secretary)[127]