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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 11, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-16247

 

FLOWERS FOODS, INC.

(Exact name of registrant as specified in its charter)

 

 

Georgia

 

58-2582379

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1919 FLOWERS CIRCLE, THOMASVILLE, Georgia 

(Address of principal executive offices)

31757

(Zip Code)

(229)-226-9110

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

FLO

 

NYSE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

As of July 31, 2020, the registrant had 211,602,778 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

FLOWERS FOODS, INC.

INDEX

 

 

PAGE

NUMBER

PART I. Financial Information

3

 

Item 1.

Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of July 11, 2020 and December 28, 2019

3

 

 

Condensed Consolidated Statements of Income for the Twelve and Twenty-Eight Weeks Ended July 11, 2020 and July 13, 2019

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Twelve and Twenty-Eight Weeks Ended July 11, 2020 and July 13, 2019

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Twelve and Twenty-Eight Weeks Ended July 11, 2020

6

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Twelve and Twenty-Eight Weeks Ended July 13, 2019

7

 

 

Condensed Consolidated Statements of Cash Flows For the Twenty-Eight Weeks Ended July 11, 2020 and July 13, 2019

8

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

 

Item 4.

Controls and Procedures

54

PART II. Other Information

55

 

Item 1.

Legal Proceedings

55

 

Item 1A.

Risk Factors

55

 

Item 2.

Unregistered Sales of Securities and Use of Proceeds

56

 

Item 3.

Defaults Upon Senior Securities

56

 

Item 4.

Mine Safety Disclosures

56

 

Item 5.

Other Information

56

 

Item 6.

Exhibits

57

Signatures

58

 

 

 


Forward-Looking Statements

Statements contained in this filing and certain other written or oral statements made from time to time by Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) and its representatives that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to current expectations regarding our future financial condition and results of operations and the ultimate impact of the novel strain of coronavirus (“COVID-19”) on our business, results of operations and financial condition and are often identified by the use of words and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” “is likely to,” “is expected to” or “will continue,” or the negative of these terms or other comparable terminology. These forward-looking statements are based upon assumptions we believe are reasonable.

Forward-looking statements are based on current information and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Certain factors that may cause actual results, performance, liquidity, and achievements to differ materially from those projected are discussed in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and may include, but are not limited to:

 

unexpected changes in any of the following: (i) general economic and business conditions; (ii) the competitive setting in which we operate, including advertising or promotional strategies by us or our competitors, as well as changes in consumer demand; (iii) interest rates and other terms available to us on our borrowings; (iv) energy and raw materials costs and availability and hedging counter-party risks; (v) relationships with or increased costs related to our employees and third-party service providers; (vi) laws and regulations (including environmental and health-related issues); and (vii) accounting standards or tax rates in the markets in which we operate;

 

the ultimate impact of the COVID-19 outbreak and measures taken in response thereto on our business, results of operations and financial condition, which are highly uncertain and are difficult to predict;

 

the loss or financial instability of any significant customer(s), including as a result of product recalls or safety concerns related to our products;

 

changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products;

 

the level of success we achieve in developing and introducing new products and entering new markets;

 

our ability to implement new technology and customer requirements as required;

 

our ability to operate existing, and any new, manufacturing lines according to schedule;

 

our ability to execute our business strategies, including those strategies we have initiated under Project Centennial, which may involve, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology, and (iii) an enhanced organizational structure;

 

consolidation within the baking industry and related industries;

 

changes in pricing, customer and consumer reaction to pricing actions, and the pricing environment among competitors within the industry;

 

disruptions in our direct-store-delivery distribution model, including litigation or an adverse ruling by a court or regulatory or governmental body that could affect the independent contractor classifications of the independent distributors;

 

increasing legal complexity and legal proceedings that we are or may become subject to;

 

increases in employee and employee-related costs, including funding of pension plans;

 

the credit, business, and legal risks associated with independent distributors and customers, which operate in the highly competitive retail food and foodservice industries;

 

any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters, labor strikes or work stoppages, technological breakdowns, product contamination, product recalls or safety concerns related to our products, or the responses to or repercussions from any of these or similar events or conditions and our ability to insure against such events;

 

the failure of our information technology systems to perform adequately, including any interruptions, intrusions or security breaches of such systems; and

 

regulation and legislation related to climate change that could affect our ability to procure our commodity needs or that necessitate additional unplanned capital expenditures.

1


 

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the company (such as in our other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Refer to Part I, Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 28, 2019 (the “Form 10-K”), Part II, Item 1A., Risk Factors, of the Quarterly Report on Form 10-Q for the quarterly period ended April 18, 2020 (the “First Quarter Form 10-Q”), and Part II, Item 1A., Risk Factors, of this Form 10-Q for additional information regarding factors that could affect the company’s results of operations, financial condition and liquidity.

We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law. You are advised, however, to consult any further public disclosures by the company (such as in our filings with the SEC or in company press releases) on related subjects.

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. Solely for convenience, some of the trademarks, trade names and copyrights referred to in this Form 10-Q are listed without the  © , ®  and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, trade names and copyrights.

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited) 

 

 

 

July 11, 2020

 

 

December 28, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

299,562

 

 

$

11,044

 

Accounts and notes receivable, net of allowances of $16,036 and $9,473, respectively

 

 

326,667

 

 

 

285,606

 

Inventories, net:

 

 

 

 

 

 

 

 

Raw materials

 

 

48,746

 

 

 

46,171

 

Packaging materials

 

 

24,555

 

 

 

22,045

 

Finished goods

 

 

52,010

 

 

 

58,843

 

Inventories, net

 

 

125,311

 

 

 

127,059

 

Spare parts and supplies

 

 

68,690

 

 

 

67,456

 

Other

 

 

29,242

 

 

 

62,753

 

Total current assets

 

 

849,472

 

 

 

553,918

 

Property, plant and equipment, net:

 

 

 

 

 

 

 

 

Property, plant and equipment, gross

 

 

2,009,919

 

 

 

2,002,633

 

Less: accumulated depreciation

 

 

(1,312,792

)

 

 

(1,284,811

)

Property, plant and equipment, net

 

 

697,127

 

 

 

717,822

 

Financing lease right-of-use assets

 

 

19,254

 

 

 

22,829

 

Operating lease right-of-use assets

 

 

355,469

 

 

 

376,473

 

Notes receivable from independent distributor partners

 

 

187,540

 

 

 

198,639

 

Assets held for sale

 

 

7,605

 

 

 

4,408

 

Other assets

 

 

6,960

 

 

 

8,236

 

Goodwill

 

 

545,244

 

 

 

545,244

 

Other intangible assets, net

 

 

730,123

 

 

 

750,207

 

Total assets

 

$

3,398,794

 

 

$

3,177,776

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

-

 

 

$

3,730

 

Current maturities of financing leases

 

 

7,469

 

 

 

8,176

 

Current maturities of operating leases

 

 

52,232

 

 

 

52,806

 

Accounts payable

 

 

250,040

 

 

 

233,011

 

Current postretirement/post-employment obligations

 

 

926

 

 

 

29,380

 

Other accrued liabilities

 

 

227,409

 

 

 

201,040

 

Total current liabilities

 

 

538,076

 

 

 

528,143

 

 

 

 

 

 

 

 

 

 

Noncurrent long-term debt

 

 

1,009,596

 

 

 

862,778

 

Noncurrent financing lease obligations

 

 

16,672

 

 

 

19,390

 

Noncurrent operating lease obligations

 

 

307,853

 

 

 

324,131

 

Total long-term debt and right-of-use lease liabilities

 

 

1,334,121

 

 

 

1,206,299

 

Other liabilities:

 

 

 

 

 

 

 

 

Postretirement/post-employment obligations

 

 

14,280

 

 

 

14,328

 

Deferred taxes

 

 

124,285

 

 

 

121,395

 

Other long-term liabilities

 

 

51,544

 

 

 

44,181

 

Total other long-term liabilities

 

 

190,109

 

 

 

179,904

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock — $100 stated par value, 200,000 authorized shares and none issued

 

 

 

 

 

 

Preferred stock — $.01 stated par value, 800,000 authorized shares and none issued

 

 

 

 

 

 

Common stock — $.01 stated par value and $.001 current par value, 500,000,000

   authorized shares and 228,729,585 shares and 228,729,585 shares issued, respectively

 

 

199

 

 

 

199

 

Treasury stock — 17,126,920 shares and 17,215,514 shares, respectively

 

 

(225,414

)

 

 

(226,287

)

Capital in excess of par value

 

 

653,672

 

 

 

648,492

 

Retained earnings

 

 

916,565

 

 

 

947,046

 

Accumulated other comprehensive loss

 

 

(8,534

)

 

 

(106,020

)

Total stockholders’ equity

 

 

1,336,488

 

 

 

1,263,430

 

Total liabilities and stockholders’ equity

 

$

3,398,794

 

 

$

3,177,776

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

3


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

For the Twelve Weeks Ended

 

 

For the Twenty-Eight Weeks Ended

 

 

 

July 11, 2020

 

 

July 13, 2019

 

 

July 11, 2020

 

 

July 13, 2019

 

Sales

 

$

1,025,861

 

 

$

975,759

 

 

$

2,375,305

 

 

$

2,239,654

 

Materials, supplies, labor and other production costs (exclusive

   of depreciation and amortization shown separately below)

 

 

506,033

 

 

 

508,552

 

 

 

1,176,906

 

 

 

1,160,693

 

Selling, distribution and administrative expenses

 

 

396,904

 

 

 

359,497

 

 

 

918,939

 

 

 

835,546

 

Depreciation and amortization

 

 

33,180

 

 

 

33,329

 

 

 

77,843

 

 

 

78,148

 

Recovery on inferior ingredients

 

 

 

 

 

 

 

 

 

 

 

(413

)

Restructuring and related impairment charges

 

 

10,535

 

 

 

2,047

 

 

 

10,535

 

 

 

2,765

 

Income from operations

 

 

79,209

 

 

 

72,334

 

 

 

191,082

 

 

 

162,915

 

Interest expense

 

 

9,001

 

 

 

9,192

 

 

 

20,640

 

 

 

21,663

 

Interest income

 

 

(6,132

)

 

 

(6,423

)

 

 

(14,457

)

 

 

(15,070

)

Pension plan settlement and curtailment loss

 

 

 

 

 

 

 

 

116,207

 

 

 

 

Other components of net periodic pension and postretirement

   benefits (credit) expense

 

 

(72

)

 

 

519

 

 

 

71

 

 

 

1,211

 

Income before income taxes

 

 

76,412

 

 

 

69,046

 

 

 

68,621

 

 

 

155,111

 

Income tax expense

 

 

18,493

 

 

 

15,951

 

 

 

16,474

 

 

 

36,150

 

Net income

 

$

57,919

 

 

$

53,095

 

 

$

52,147

 

 

$

118,961

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.27

 

 

$

0.25

 

 

$

0.25

 

 

$

0.56

 

Weighted average shares outstanding

 

 

211,780

 

 

 

211,685

 

 

 

211,766

 

 

 

211,517

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.27

 

 

$

0.25

 

 

$

0.25

 

 

$

0.56

 

Weighted average shares outstanding

 

 

212,284

 

 

 

211,957

 

 

 

212,192

 

 

 

211,924

 

Cash dividends paid per common share

 

$

0.2000

 

 

$

0.1900

 

 

$

0.3900

 

 

$

0.3700

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

4


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

 

 

 

For the Twelve Weeks Ended

 

 

For the Twenty-Eight Weeks Ended

 

 

 

July 11, 2020

 

 

July 13, 2019

 

 

July 11, 2020

 

 

July 13, 2019

 

Net income

 

$

57,919

 

 

$

53,095

 

 

$

52,147

 

 

$

118,961

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement and curtailment loss

 

 

 

 

 

 

 

 

86,865

 

 

 

 

Net gain for the period

 

 

 

 

 

 

 

 

15,693

 

 

 

 

Amortization of prior service cost included in net income

 

 

9

 

 

 

60

 

 

 

64

 

 

 

139

 

Amortization of actuarial loss included in net income

 

 

43

 

 

 

1,177

 

 

 

996

 

 

 

2,746

 

Pension and postretirement plans, net of tax

 

 

52

 

 

 

1,237

 

 

 

103,618

 

 

 

2,885

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in fair value of derivatives

 

 

(3,358

)

 

 

12,140

 

 

 

(7,207

)

 

 

2,547

 

Loss (gain) reclassified to net income

 

 

664

 

 

 

(945

)

 

 

1,075

 

 

 

(3,123

)

Derivative instruments, net of tax

 

 

(2,694

)

 

 

11,195

 

 

 

(6,132

)

 

 

(576

)

Other comprehensive income (loss), net of tax

 

 

(2,642

)

 

 

12,432

 

 

 

97,486

 

 

 

2,309

 

Comprehensive income

 

$

55,277

 

 

$

65,527

 

 

$

149,633

 

 

$

121,270

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

5


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited) 

 

 

 

 

For the Twelve Weeks Ended July 11, 2020

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Excess

 

 

 

 

 

 

Other

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

Issued

 

 

Par

Value

 

 

of Par

Value

 

 

Retained

Earnings

 

 

Comprehensive

Loss

 

 

Number of

Shares

 

 

Cost

 

 

Total

 

Balances at April 18, 2020

 

 

228,729,585

 

 

$

199

 

 

$

651,258

 

 

$

900,988

 

 

$

(5,892

)

 

 

(17,167,036

)

 

$

(225,942

)

 

$

1,320,611

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,919

 

Derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,694

)

 

 

 

 

 

 

 

 

 

 

(2,694

)

Pension and postretirement

   plans, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

52

 

Amortization of share-based

   compensation awards

 

 

 

 

 

 

 

 

 

 

2,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,942

 

Issuance of deferred

   compensation

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

 

 

 

 

 

2,171

 

 

 

29

 

 

 

 

Issuance of deferred stock awards

 

 

 

 

 

 

 

 

 

 

(499

)

 

 

 

 

 

 

 

 

 

 

37,945

 

 

 

499

 

 

 

 

Dividends paid on vested share-based

   payment awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

Dividends paid — $0.2000 per

   common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,320

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,320

)

Balances at July 11, 2020

 

 

228,729,585

 

 

$

199

 

 

$

653,672

 

 

$

916,565

 

 

$

(8,534

)

 

 

(17,126,920

)

 

$

(225,414

)

 

$

1,336,488

 

 

 

 

 

For the Twenty-Eight Weeks Ended July 11, 2020

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated