SECURITIES AND EXCHANGE COMMISSION
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 October 4, 2003 | ||
| 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.
| GEORGIA | 58-2582379 | |
|
|
||
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA
31757
229/226-9110
N/A
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
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 NOVEMBER 14, 2003 | |
| Common Stock, $.01 par value with Preferred Share Purchase Rights | 44,930,170 |
1
FLOWERS FOODS, INC.
INDEX
| PAGE | ||||||
| NUMBER | ||||||
PART I. Financial Information |
||||||
Item 1. Financial Statements (unaudited) |
||||||
Condensed Consolidated Balance Sheets as of October 4, 2003 and December 28, 2002 |
3 | |||||
Condensed Consolidated Statements of Income for the Twelve and Forty Weeks
Ended October 4, 2003 and October 5, 2002 |
4 | |||||
Condensed Consolidated Statements of Cash Flows for the Forty Weeks
Ended October 4, 2003 and October 5, 2002 |
5 | |||||
Notes to Condensed Consolidated Financial Statements |
6 | |||||
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition |
15 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
24 | |||||
Item 4. Controls and Procedures |
24 | |||||
PART II. Other Information |
||||||
Item 1. Legal Proceedings |
25 | |||||
Item 6. Exhibits and Reports on Form 8-K |
25 | |||||
SIGNATURES |
26 | |||||
2
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
| OCTOBER 4, 2003 | DECEMBER 28, 2002 | |||||||||
| (unaudited) | ||||||||||
ASSETS |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 46,788 | $ | 69,826 | ||||||
Accounts and notes receivable, net of allowances of $3,104 and $1,475,
respectively |
96,412 | 104,121 | ||||||||
Inventories, net: |
||||||||||
Raw materials |
9,102 | 7,872 | ||||||||
Packaging materials |
7,749 | 7,806 | ||||||||
Finished goods |
18,110 | 14,311 | ||||||||
| 34,961 | 29,989 | |||||||||
Spare parts and supplies |
20,221 | 19,840 | ||||||||
Assets held for sale |
16,103 | 18,563 | ||||||||
Assets to be disposed of – discontinued operations |
— | 243,061 | ||||||||
Deferred taxes |
9,537 | — | ||||||||
Other |
19,809 | 10,009 | ||||||||
| 243,831 | 495,409 | |||||||||
Property, Plant and Equipment: |
||||||||||
Land |
34,115 | 33,073 | ||||||||
Buildings |
207,092 | 200,713 | ||||||||
Machinery and equipment |
518,373 | 509,879 | ||||||||
Furniture, fixtures and transportation equipment |
43,286 | 43,689 | ||||||||
Construction in progress |
26,726 | 12,174 | ||||||||
| 829,592 | 799,528 | |||||||||
Less: accumulated depreciation |
(406,080 | ) | (363,403 | ) | ||||||
| 423,512 | 436,125 | |||||||||
Notes Receivable |
72,466 | 71,599 | ||||||||
Deferred Taxes |
5,526 | 22,267 | ||||||||
Other Assets |
4,258 | 10,225 | ||||||||
Goodwill, net |
63,482 | 54,249 | ||||||||
Other Intangible Assets, net |
7,675 | 6,506 | ||||||||
| $ | 820,750 | $ | 1,096,380 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||
Current Liabilities: |
||||||||||
Current maturities of long-term debt and capital leases |
$ | 1,475 | $ | 27,231 | ||||||
Accounts payable |
84,611 | 82,827 | ||||||||
Facility closing costs and severance |
1,579 | 4,516 | ||||||||
Liabilities related to assets to be disposed of – discontinued operations |
— | 2,553 | ||||||||
Other accrued liabilities |
68,868 | 89,151 | ||||||||
| 156,533 | 206,278 | |||||||||
Long-Term Debt and Capital Leases |
4,975 | 223,133 | ||||||||
Other Liabilities: |
||||||||||
Facility closing costs and severance |
3,225 | 7,337 | ||||||||
Postretirement/postemployment obligations |
52,201 | 54,486 | ||||||||
Other |
20,919 | 12,150 | ||||||||
| 76,345 | 73,973 | |||||||||
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 45,185,121 and
29,985,375 shares issued
|
452 | 300 | ||||||||
Treasury stock |
(5,686 | ) | — | |||||||
Capital in excess of par value |
486,834 | 483,142 | ||||||||
Retained earnings |
118,269 | 131,388 | ||||||||
Accumulated other comprehensive loss |
(16,972 | ) | (21,834 | ) | ||||||
| 582,897 | 592,996 | |||||||||
| $ | 820,750 | $ | 1,096,380 | |||||||
(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 4, 2003 | OCTOBER 5, 2002 | OCTOBER 4, 2003 | OCTOBER 5, 2002 | |||||||||||||
Sales |
$ | 333,175 | $ | 311,042 | $ | 1,104,920 | $ | 1,025,145 | ||||||||
Materials, supplies, labor and other
production costs (exclusive of
depreciation and amortization shown
separately below) |
167,383 | 152,732 | 546,585 | 497,024 | ||||||||||||
Selling, marketing and administrative
expenses |
133,389 | 127,675 | 453,569 | 425,058 | ||||||||||||
Depreciation and amortization |
12,607 | 13,313 | 42,258 | 43,831 | ||||||||||||
Income from continuing operations
before interest, income taxes and
cumulative effect of a change in
accounting principle |
19,796 | 17,322 | 62,508 | 59,232 | ||||||||||||
Interest income |
1,294 | 1,298 | 4,315 | 4,330 | ||||||||||||
Interest expense |
(411 | ) | (620 | ) | (1,547 | ) | (2,304 | ) | ||||||||
Interest income, net |
883 | 678 | 2,768 | 2,026 | ||||||||||||
Income from continuing operations
before income taxes and cumulative
effect of a change in accounting
principle |
20,679 | 18,000 | 65,276 | 61,258 | ||||||||||||
Income tax expense |
7,961 | 6,930 | 25,131 | 23,584 | ||||||||||||
Income from continuing operations
before cumulative effect of a change
in accounting principle |
12,718 | 11,070 | 40,145 | 37,674 | ||||||||||||
Discontinued operations, net of tax |
(259 | ) | (2,867 | ) | (42,690 | ) | (21,699 | ) | ||||||||
Income (loss) before cumulative
effect of a change in accounting
principle |
12,459 | 8,203 | (2,545 | ) | 15,975 | |||||||||||
Cumulative effect of a change in
accounting principle, net of tax |
— | — | — | (23,078 | ) | |||||||||||
Net income (loss) |
$ | 12,459 | $ | 8,203 | $ | (2,545 | ) | $ | (7,103 | ) | ||||||
Net
Income (Loss) Per Common Share: |
||||||||||||||||
Basic: |
||||||||||||||||
Income from continuing operations
before cumulative effect of a change
in accounting principle |
$ | 0.28 | $ | 0.25 | $ | 0.89 | $ | 0.84 | ||||||||
Discontinued operations, net of tax |
— | (0.07 | ) | (0.95 | ) | (0.48 | ) | |||||||||
Cumulative effect of a change in
accounting principle, net of tax |
— | — | — | (0.52 | ) | |||||||||||
Net income (loss) per share |
$ | 0.28 | $ | 0.18 | $ | (0.06 | ) | $ | (0.16 | ) | ||||||
Weighted average shares outstanding |
45,051 | 44,697 | 45,025 | 44,697 | ||||||||||||
Diluted: |
||||||||||||||||
Income from continuing operations
before cumulative effect of a change
in accounting principle |
$ | 0.28 | $ | 0.24 | $ | 0.88 | $ | 0.82 | ||||||||
Discontinued operations, net of tax |
(0.01 | ) | (0.06 | ) | (0.94 | ) | (0.47 | ) | ||||||||
Cumulative effect of a change in
accounting principle, net of tax |
— | — | — | (0.50 | ) | |||||||||||
Net income (loss) per share |
$ | 0.27 | $ | 0.18 | $ | (0.06 | ) | $ | (0.15 | ) | ||||||
Weighted average shares outstanding |
45,896 | 45,327 | 45,741 | 45,869 | ||||||||||||
Cash dividends paid per common share |
$ | 0.1000 | $ | 0.0000 | $ | 0.2300 | $ | 0.0000 | ||||||||
(See Accompanying Notes to Condensed Consolidated Financial Statements)
4
FLOWERS FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| FOR THE FORTY WEEKS ENDED | ||||||||||
| OCTOBER 4, 2003 | OCTOBER 5, 2002 | |||||||||
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES: |
||||||||||
Net loss |
$ | (2,545 | ) | $ | (7,103 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||
Discontinued operations |
18,145 | 12,857 | ||||||||
Goodwill impairment |
— | 23,078 | ||||||||
Stock appreciation rights |
5,716 | 367 | ||||||||
Depreciation and amortization |
42,258 | 43,831 | ||||||||
Deferred income taxes |
6,501 | 11,147 | ||||||||
Provision for inventory obsolescence |
1,018 | 2,667 | ||||||||
Allowances for accounts receivable |
3,894 | 2,599 | ||||||||
Other |
350 | — | ||||||||
Payment of legal settlement |
(9,000 | ) | — | |||||||
Changes in assets and liabilities: |
||||||||||
Accounts and notes receivable, net |
3,910 | (27,193 | ) | |||||||
Inventories, net |
(5,875 | ) | (33,117 | ) | ||||||
Other assets |
(6,239 | ) | (3,785 | ) | ||||||
Accounts payable and other accrued liabilities |
(5,384 | ) | 22,620 | |||||||
Facility closing costs and severance |
(7,049 | ) | (2,094 | ) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
45,700 | 45,874 | ||||||||
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES: |
||||||||||
Purchase of property, plant and equipment |
(31,073 | ) | (39,495 | ) | ||||||
(Purchase of) proceeds from notes receivable |
(962 | ) | 2,198 | |||||||
Acquisition of business, net of cash received |
(14,534 | ) | — | |||||||
Proceeds from sale of Mrs. Smith’s Bakeries frozen dessert business |
231,551 | — | ||||||||
Other |
440 | 768 | ||||||||
NET CASH PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES |
185,422 | (36,529 | ) | |||||||
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES: |
||||||||||
Dividends paid |
(10,579 | ) | — | |||||||
Exercise of stock options |
1,695 | — | ||||||||
Stock
repurchases
|
(5,403 | ) | — | |||||||
Payment for termination of derivative instruments |
(5,330 | ) | — | |||||||
Change
in book
overdraft |
9,298 | (1,618 | ) | |||||||
Debt and capital lease obligation payments |
(243,841 | ) | (14,465 | ) | ||||||
NET CASH (DISBURSED FOR) FINANCING ACTIVITIES: |
(254,160 | ) | (16,083 | ) | ||||||
Net decrease in cash and cash equivalents |
(23,038 | ) | (6,738 | ) | ||||||
Cash and cash equivalents at beginning of period |
69,826 | 12,280 | ||||||||
Cash and cash equivalents at end of period |
$ | 46,788 | $ | 5,542 | ||||||
(See Accompanying Notes to Condensed Consolidated Financial Statements)
5
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. In the opinion of management, 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 October 4, 2003 and December 28, 2002, the results of operations for the twelve and forty week periods ended October 4, 2003 and October 5, 2002 and statement of cash flows for the forty week periods ended October 4, 2003 and October 5, 2002. The results of operations for the twelve and forty week periods ended October 4, 2003 and October 5, 2002 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 28, 2002.
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, valuation of long-lived assets and goodwill and other intangibles, deferred tax asset valuation allowances and pension obligations. These policies are summarized in the company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002.
REPORTING PERIODS — Fiscal 2003 consists of 53 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 19, 2003 (sixteen weeks), second quarter ended July 12, 2003 (twelve weeks), third quarter ended October 4, 2003 (twelve weeks) and fourth quarter ending January 3, 2004 (thirteen weeks).
RECLASSIFICATIONS — Certain reclassifications of prior period data have been made to conform with the current period reporting.
STOCK SPLIT — On May 30, 2003, the board of directors declared a 3 for 2 stock split of the company’s common stock in the form of a 50% stock dividend. The record date for the split was June 13, 2003 and new shares were issued on June 27, 2003. Earnings (loss) per common share have been restated for all period