FLOWERS FOODS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549

FORM 10-Q


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

For the quarterly period ended July 13, 2002

		OR

o		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)

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 [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


TITLE OF EACH CLASS	OUTSTANDING AT AUGUST 23, 2002

Common Stock, $.01 par value with Preferred Share Purchase Rights		29,797,513

TABLE OF CONTENTS


		CONDENSED CONSOLIDATED BALANCE SHEET
		CONDENSED CONSOLIDATED INCOME STATEMENT
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Subsidiaries of Flowers Foods, Inc.
906 Certification of the CEO and CFO

FLOWERS FOODS, INC.
INDEX


			PAGE
			NUMBER

PART I. Financial Information
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheet July 13, 2002 and December 29, 2001		3
		Condensed Consolidated Statement of Income for the Twelve and Twenty-Eight Weeks Ended July 13, 2002 and July 14, 2001		4
		Condensed Consolidated Statement of Cash Flows for the Twenty-Eight Weeks Ended July 13, 2002 and July 14, 2001		5
		Notes to Condensed Consolidated Financial Statements		6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			20
PART II. Other Information
	Item 1. Legal Proceedings			21
	Item 4. Submission of Matters to a Vote of Security Holders			22
	Item 5. Other Information			22
	Item 6. Exhibits and Reports on Form 8-K			23
SIGNATURES				24

FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share data)


			JULY 13, 2002			DECEMBER 29, 2001

			(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents		$	3,654		$	12,280
	Accounts and notes receivable, net of allowances of $2,720 and $1,271, respectively			113,027			104,104
	Inventories, net:
		Raw materials		16,796			18,593
		Packaging materials		12,053			13,942
		Finished goods		74,619			56,466

				103,468			89,001

	Spare parts and supplies			22,763			20,981
	Assets held for sale			18,056			18,025
	Other			12,041			8,149

				273,009			252,540
Property, Plant and Equipment:
	Land			33,872			33,324
	Buildings			267,865			267,184
	Machinery and equipment			676,754			656,727
	Furniture, fixtures and transportation equipment			71,520			67,797
	Construction in progress			11,053			8,570

				1,061,064			1,033,602
	Less: accumulated depreciation			(453,757	)		(423,170	)

				607,307			610,432

Notes Receivable				71,111			72,940
Deferred Taxes				11,632			16,084
Other Assets				21,610			22,015

Cost in Excess of Net Tangible Assets:
	Cost in excess of net tangible assets			175,420			174,913
	Less: accumulated amortization			(51,609	)		(49,233	)

				123,811			125,680

			$	1,108,480		$	1,099,691

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt and capital leases		$	20,573		$	15,648
	Accounts payable			82,695			83,980
	Facility closing costs and severance			6,624			4,830
	Other accrued liabilities			85,193			81,756

				195,085			186,214

Long-Term Debt and Capital Leases				239,052			242,057

Other Liabilities:
	Facility closing costs and severance			7,542			11,571
	Postretirement/postemployment obligations			22,480			25,466
	Other			12,940			12,746

				42,962			49,783
Shareholders’ Equity:
	Preferred stock-$100 par value, 100,000 authorized and none issued Preferred stock-$.01 par value, 900,000 authorized and none issued Common stock-$.01 par value, 100,000,000 authorized and 29,797,513 and 29,797,513 shares issued, respectively			298			298
	Capital in excess of par value			476,401			476,401
	Retained earnings			157,614			149,842
	Accumulated other comprehensive loss			(2,932	)		(4,904	)

				631,381			621,637

			$	1,108,480		$	1,099,691

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
(Amounts in thousands except per share data)
(Unaudited)


	FOR THE TWELVE WEEKS ENDED						FOR THE TWENTY-EIGHT WEEKS ENDED

	JULY 13, 2002			JULY 14, 2001			JULY 13, 2002			JULY 14, 2001

Sales	$	378,340		$	368,461		$	841,953		$	834,476
Materials, supplies, labor and other production costs		203,832			195,518			452,913			449,206
Selling, marketing and administrative expenses		142,570			142,493			327,363			329,166
Depreciation and amortization		16,655			17,340			38,558			38,957
Insurance proceeds, net		—			(684	)		—			(7,473	)
Severance and other closing charges		1,311			3,135			1,311			3,135
Separation and other contractual payments		—			—			—			27,952

Income (loss) from operations		13,972			10,659			21,808			(6,467	)

Interest (income)		(1,295	)		(1,261	)		(3,032	)		(1,696	)
Interest expense		5,432			6,914			12,203			24,927

Interest expense, net		4,137			5,653			9,171			23,231

Income (loss) before income taxes and extraordinary gain		9,835			5,006			12,637			(29,698	)
Income tax expense (benefit)		3,786			1,304			4,865			(7,720	)

Income (loss) before extraordinary gain		6,049			3,702			7,772			(21,978	)
Extraordinary gain on early extinguishment of debt		—			—			—			5,000

Net income (loss)	$	6,049		$	3,702		$	7,772		$	(16,978	)

Net Income (Loss) Per Common Share:
Basic:
Income (loss) before extraordinary gain on early extinguishment of debt	$	0.20		$	0.12		$	0.26		$	(0.74	)
Extraordinary gain on early extinguishment of debt		—			—			—			0.17

Net income (loss) per share	$	0.20		$	0.12		$	0.26		$	(0.57	)

Weighted average shares outstanding		29,798			29,798			29,798			29,798
Diluted:
Income (loss) before extraordinary gain on early extinguishment of debt	$	0.20		$	0.12		$	0.25		$	(0.74	)
Extraordinary gain on early extinguishment of debt		—			—			—			0.17

Net income (loss) per share	$	0.20		$	0.12		$	0.25		$	(0.57	)

Weighted average shares outstanding		30,433			30,219			30,740			29,798
Cash Dividends Paid Per Common Share		—			—			—			—

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)


		FOR THE TWENTY-EIGHT WEEKS ENDED

		JULY 13, 2002			JULY 14, 2001

CASH FLOWS (DISBURSED FOR) RECEIVED FROM OPERATING ACTIVITIES:
Net income (loss)		$	7,772		$	(16,978	)
Adjustments to reconcile net income (loss) to net cash (disbursed for) received from operating activities:
	Extraordinary gain, net of tax		—			(5,000	)
	Unusual charges		—			3,135
	Depreciation and amortization		38,558			38,957
	Deferred income taxes		4,452			(7,720	)
	Provision for inventory obsolescence		1,845			1,897
	Allowances for accounts receivable		1,869			1,637
	Non-cash effect of derivative instruments		1,782			6,283
	Other		—			(13	)
Changes in assets and liabilities:
	Accounts and notes receivable, net		(10,735	)		(1,766	)
	Inventories, net		(16,312	)		(32,318	)
	Other assets		(5,428	)		12,101
	Accounts payable and other accrued liabilities		(1,996	)		(20,153	)
	Facility closing costs and severance		(1,046	)		(2,241	)

NET CASH (DISBURSED FOR) RECEIVED FROM OPERATING ACTIVITIES		$	20,761		$	(22,179	)

CASH FLOWS (DISBURSED FOR) RECEIVED FROM INVESTING ACTIVITIES:
	Purchase of property, plant and equipment	$	(31,843	)	$	(26,815	)
	Proceeds from / (purchase of) notes receivable		1,772			(77,646	)
	Dividends received		—			5,197
	Proceeds from property disposals		409			57
	Other		216			(737	)

NET CASH (DISBURSED FOR) INVESTING ACTIVITIES		$	(29,446	)	$	(99,944	)

CASH FLOWS (DISBURSED FOR) RECEIVED FROM FINANCING ACTIVITIES:
	Stock compensation and warrants exercised		—		$	337
	Proceeds from new credit agreement		—			251,000
	Purchase of debentures		—			(193,776	)
	Payment of financing fees		—			(9,978	)
	Other debt and capital lease obligation proceeds / (payments)		59			(2,696	)
	Other net changes in debt and other liabilities in connection with the spin-off and merger		—			73,099

NET CASH RECEIVED FROM FINANCING ACTIVITIES		$	59		$	117,986

Net decrease in cash and cash equivalents			(8,626	)		(4,137	)
Cash and cash equivalents at beginning of period			12,280			11,845

Cash and cash equivalents at end of period		$	3,654		$	7,708

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS — The accompanying unaudited condensed consolidated financial statements of Flowers Foods, Inc. (“the company”) have been prepared by the company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of July 13, 2002 and December 29, 2001 (audited), the results of operations for the twelve and twenty-eight week periods ended July 13, 2002 and July 14, 2001 and statement of cash flows for the twenty-eight week periods ended July 13, 2002 and July 14, 2001. The results of operations for the twelve and twenty-eight week periods ended July 13, 2002 and July 14, 2001, are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001.

ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: revenue recognition, allowance for doubtful accounts, derivative instruments, reserves for obsolescence and unmarketable inventory, valuation of long-lived assets and goodwill and deferred tax asset valuation allowances. These policies are the same as those summarized in the company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001, except as discussed in Note 4 below.

REPORTING PERIODS — The company’s quarterly reporting periods for fiscal 2002 are as follows: first quarter ended April 20, 2002 (sixteen weeks), second quarter ended July 13, 2002 (twelve weeks), third quarter ending October 5, 2002 (twelve weeks) and fourth quarter ending December 28, 2002 (twelve weeks).

RECLASSIFICATIONS – Certain reclassifi

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