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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 October 9, 2021

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 November 5, 2021, the registrant had 211,394,781 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 October 9, 2021 and January 2, 2021

3

 

 

Condensed Consolidated Statements of Income for the Twelve and Forty Weeks Ended October 9, 2021 and October 3, 2020

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Twelve and Forty Weeks Ended October 9, 2021 and October 3, 2020

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Twelve and Forty Weeks Ended October 9, 2021 and October 3, 2020

6

 

 

Condensed Consolidated Statements of Cash Flows for the Forty Weeks Ended October 9, 2021 and October 3, 2020

8

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

 

Item 2.

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

37

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54

 

Item 4.

Controls and Procedures

55

PART II. Other Information

56

 

Item 1.

Legal Proceedings

56

 

Item 1A.

Risk Factors

56

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

 

Item 3.

Defaults Upon Senior Securities

58

 

Item 4.

Mine Safety Disclosures

58

 

Item 5.

Other Information

58

 

Item 6.

Exhibits

59

Signatures

60

 

 

 


 

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, including additional variants of the virus, the efficacy and distribution of vaccines, and the impact of federal vaccine mandates on our business, workforce, 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 implement and achieve our environmental, social, and governance (ESG) goals in accordance with suppliers, regulations, and customers;

 

our ability to execute our business strategies 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 (including decreased volumes), 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 distributor partners;

 

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

 

labor shortages and turnover or increases in employee and employee-related costs;

 

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

 

any business disruptions due to political instability, pandemics, 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;

1


 

 

the failure of our information technology (“IT”) systems to perform adequately, including any interruptions, intrusions or security breaches of such systems or risks associated with the planned implementation of a new enterprise resource planning (“ERP”) system; and

 

the potential impact of climate change on the company, including physical and transition risks, higher regulatory and compliance costs, reputational risks, and availability of capital on attractive terms.

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 January 2, 2021 (the “Form 10-K”) 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) 

 

 

 

October 9, 2021

 

 

January 2, 2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

307,523

 

 

$

307,476

 

Accounts and notes receivable, net of accounts receivable allowances of $18,829 and $15,162, respectively

 

 

300,792

 

 

 

300,001

 

Inventories, net:

 

 

 

 

 

 

 

 

Raw materials

 

 

49,763

 

 

 

48,977

 

Packaging materials

 

 

24,777

 

 

 

20,744

 

Finished goods

 

 

58,237

 

 

 

55,508

 

Inventories, net

 

 

132,777

 

 

 

125,229

 

Spare parts and supplies

 

 

68,166

 

 

 

68,108

 

Other

 

 

40,075

 

 

 

37,389

 

Total current assets

 

 

849,333

 

 

 

838,203

 

Property, plant and equipment, net:

 

 

 

 

 

 

 

 

Property, plant and equipment, gross

 

 

2,106,212

 

 

 

2,033,532

 

Less: accumulated depreciation

 

 

(1,399,838

)

 

 

(1,334,139

)

Property, plant and equipment, net

 

 

706,374

 

 

 

699,393

 

Financing lease right-of-use assets

 

 

4,094

 

 

 

5,419

 

Operating lease right-of-use assets

 

 

335,834

 

 

 

328,712

 

Notes receivable from independent distributor partners

 

 

158,261

 

 

 

176,412

 

Assets held for sale

 

 

12,040

 

 

 

5,641

 

Other assets

 

 

9,788

 

 

 

9,081

 

Goodwill

 

 

545,244

 

 

 

545,244

 

Other intangible assets, net

 

 

702,428

 

 

 

714,918

 

Total assets

 

$

3,323,396

 

 

$

3,323,023

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

 

 

$

 

Current maturities of financing leases

 

 

1,829

 

 

 

1,769

 

Current maturities of operating leases

 

 

53,945

 

 

 

50,139

 

Accounts payable

 

 

264,535

 

 

 

225,918

 

Other accrued liabilities

 

 

216,282

 

 

 

226,279

 

Total current liabilities

 

 

536,591

 

 

 

504,105

 

 

 

 

 

 

 

 

 

 

Noncurrent long-term debt

 

 

890,180

 

 

 

960,103

 

Noncurrent financing lease obligations

 

 

2,266

 

 

 

3,590

 

Noncurrent operating lease obligations

 

 

294,291

 

 

 

290,264

 

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

 

 

1,186,737

 

 

 

1,253,957

 

Other liabilities:

 

 

 

 

 

 

 

 

Postretirement/post-employment obligations

 

 

9,440

 

 

 

10,049

 

Deferred taxes

 

 

125,740

 

 

 

128,259

 

Other long-term liabilities

 

 

52,958

 

 

 

53,659

 

Total other long-term liabilities

 

 

188,138

 

 

 

191,967

 

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 issued

 

 

199

 

 

 

199

 

Treasury stock —   17,335,655 shares and 17,126,261  shares, respectively

 

 

(232,316

)

 

 

(225,405

)

Capital in excess of par value

 

 

673,851

 

 

 

659,682

 

Retained earnings

 

 

967,449

 

 

 

932,094

 

Accumulated other comprehensive income

 

 

2,747

 

 

 

6,424

 

Total stockholders’ equity

 

 

1,411,930

 

 

 

1,372,994

 

Total liabilities and stockholders’ equity

 

$

3,323,396

 

 

$

3,323,023

 

 

(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 Forty Weeks Ended

 

 

 

October 9, 2021

 

 

October 3, 2020

 

 

October 9, 2021

 

 

October 3, 2020

 

Sales

 

$

1,027,800

 

 

$

989,650

 

 

$

3,347,277

 

 

$

3,364,955

 

Materials, supplies, labor and other production costs (exclusive

   of depreciation and amortization shown separately below)

 

 

515,078

 

 

 

497,659

 

 

 

1,662,716

 

 

 

1,674,565

 

Selling, distribution and administrative expenses

 

 

426,575

 

 

 

386,739

 

 

 

1,336,255

 

 

 

1,305,678

 

Depreciation and amortization

 

 

31,680

 

 

 

32,162

 

 

 

104,685

 

 

 

110,005

 

Recovery on inferior ingredients

 

 

(950

)

 

 

 

 

 

(828

)

 

 

 

Restructuring and related impairment charges

 

 

 

 

 

20,100

 

 

 

 

 

 

30,635

 

Multi-employer pension plan withdrawal costs

 

 

3,300

 

 

 

 

 

 

3,300

 

 

 

 

Income from operations

 

 

52,117

 

 

 

52,990

 

 

 

241,149

 

 

 

244,072

 

Interest expense

 

 

6,670

 

 

 

8,706

 

 

 

24,907

 

 

 

29,346

 

Interest income

 

 

(5,359

)

 

 

(5,951

)

 

 

(18,325

)

 

 

(20,408

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

16,149

 

 

 

 

Pension plan settlement and curtailment (gain) loss

 

 

 

 

 

(7,153

)

 

 

 

 

 

109,054

 

Other components of net periodic pension and postretirement

   benefits credit

 

 

(94

)

 

 

(72

)

 

 

(312

)

 

 

(1

)

Income before income taxes

 

 

50,900

 

 

 

57,460

 

 

 

218,730

 

 

 

126,081

 

Income tax expense

 

 

12,048

 

 

 

13,113

 

 

 

51,865

 

 

 

29,587

 

Net income

 

$

38,852

 

 

$

44,347

 

 

$

166,865

 

 

$

96,494

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.18

 

 

$

0.21

 

 

$

0.79

 

 

$

0.46

 

Weighted average shares outstanding

 

 

211,921

 

 

 

211,800

 

 

 

211,912

 

 

 

211,776

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.18

 

 

$

0.21

 

 

$

0.78

 

 

$

0.45

 

Weighted average shares outstanding

 

 

213,187

 

 

 

212,458

 

 

 

212,979

 

 

 

212,270

 

Cash dividends paid per common share

 

0.2100

 

 

0.2000

 

 

0.6200

 

 

0.5900

 

 

(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 Forty Weeks Ended

 

 

 

October 9, 2021

 

 

October 3, 2020

 

 

October 9, 2021

 

 

October 3, 2020

 

Net income

 

$

38,852

 

 

$

44,347

 

 

$

166,865

 

 

$

96,494

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement and curtailment (gain) loss

 

 

 

 

 

(5,365

)

 

 

 

 

 

81,500

 

Net loss for the period

 

 

 

 

 

5,365

 

 

 

 

 

 

21,058

 

Amortization of prior service cost included in net income

 

 

9

 

 

 

9

 

 

 

31

 

 

 

73

 

Amortization of actuarial loss included in net income

 

 

92

 

 

 

43

 

 

 

307

 

 

 

1,039

 

Pension and postretirement plans, net of tax

 

 

101

 

 

 

52

 

 

 

338

 

 

 

103,670

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in fair value of derivatives

 

 

(3,618

)

 

 

9,409

 

 

 

(3,215

)

 

 

2,202

 

(Gain) loss reclassified to net income

 

 

(426

)

 

 

677

 

 

 

(800

)

 

 

1,752

 

Derivative instruments, net of tax

 

 

(4,044

)

 

 

10,086

 

 

 

(4,015

)

 

 

3,954

 

Other comprehensive (loss) income, net of tax

 

 

(3,943

)

 

 

10,138

 

 

 

(3,677

)

 

 

107,624

 

Comprehensive income

 

$

34,909

 

 

$

54,485

 

 

$

163,188

 

 

$

204,118

 

 

(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 October 9, 2021

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Excess

 

 

 

 

 

 

Other

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

Issued

 

 

Par

Value

 

 

of Par

Value

 

 

Retained

Earnings

 

 

Comprehensive

Income

 

 

Number of

Shares

 

 

Cost

 

 

Total

 

Balances at July 17, 2021

 

 

228,729,585

 

 

$

199

 

 

$

669,051

 

 

$

973,065

 

 

$

6,690

 

 

 

(16,976,284

)

 

$

(223,875

)

 

$

1,425,130

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,852

 

Derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,044

)

 

 

 

 

 

 

 

 

 

 

(4,044

)

Pension and postretirement

   plans, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

 

 

 

 

 

101

 

Amortization of share-based

   compensation awards

 

 

 

 

 

 

 

 

 

 

4,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,811

 

Issuance of deferred

   compensation

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

851

 

 

 

11

 

 

 

 

Share repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(360,222

)

 

 

(8,452

)

 

 

(8,452

)

Dividends paid — $0.2100 per

   common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,468

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,468

)

Balances at October 9, 2021

 

 

228,729,585

 

 

$

199

 

 

$

673,851

 

 

$

967,449

 

 

$

2,747

 

 

 

(17,335,655

)

 

$

(232,316

)

 

$

1,411,930

 

 

 

 

For the Forty Weeks Ended October 9, 2021

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Excess