SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission file number 1-16247

FLOWERS FOODS, INC.

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 [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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.

FLOWERS FOODS, INC.

INDEX

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FORWARD-LOOKING STATEMENTS:

     Statements contained in this filing and certain other written or oral statements made from time to time by the company 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 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.

     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 to differ materially from those projected are discussed in this report and may include, but are not limited to:

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

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our ability to execute our business strategy, which may involve integration of recent acquisitions or the acquisition or disposition of assets at values we consider appropriate;

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

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

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the credit and business risks associated with our suppliers, and with our customers which operate in the highly competitive retail food industry, including the amount of consolidation in that industry; and

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any business disruptions due to extreme weather conditions or other calamities, incidents of terrorism or the responses to or repercussions from any of these or similar events or conditions.

     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.

     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.

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FLOWERS FOODS, INC.

(See Accompanying Notes to Condensed Consolidated Financial Statements)

4

FLOWERS FOODS, INC.

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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FLOWERS FOODS, INC.

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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FLOWERS FOODS, INC.

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, as amended. 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 in this report contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of July 17, 2004 and January 3, 2004 and the results of operations for the twelve and twenty-eight week periods ended July 17, 2004 and July 12, 2003 and cash flows for the twenty-eight week periods ended July 17, 2004 and July 12, 2003. The results of operations for the twelve and twenty-eight week periods ended July 17, 2004 and July 12, 2003 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 accompanying notes included in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.

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, goodwill and other intangibles, self-insurance reserves, 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 January 3, 2004.

REPORTING PERIODS — Fiscal 2004 consists of 52 weeks with quarterly reporting periods as follows: first quarter ended April 24, 2004 (sixteen weeks), second quarter ended July 17, 2004 (twelve weeks), third quarter ending October 9, 2004 (twelve weeks) and fourth quarter ending January 1, 2005 (twelve weeks). Fiscal 2003 consisted of 53 weeks.

RECLASSIFICATIONS — Certain reclassifications of prior period data have been made to conform with the current period reporting. Between September 1996 and March 26, 2001, the independent distributor notes, made in connection with the purchase of the distributors’ territories (the “distributor notes”), were made directly between the distributor and a third party financial institution. The interest charged on the distributor notes was 12%. During this time, the third party paid the company approximately 5% of the interest on the distributor notes as a servicing fee for acting as the servicing agent of the distributor notes. The company reduced selling, marketing and administrative expenses because the fee offset administrative costs incurred by the company in collecting payments from the distributor and remitting the payments to the third party. Upon the purchase of the distributor notes from the third party on March 26, 2001, the company consistently applied this allocation of the 12% interest received on the distributor notes until the fourth quarter of fiscal 2003 to effectively offset its administrative expenses associated with administering the distributor notes. The remaining 7% was recorded as interest income. The company determined during the fourth quarter of fiscal 2003 that a reclassification of the 5% servicing fee from selling, marketing and administrative expenses to interest income is a more appropriate presentation. The reclassification for the twelve and twenty-eight week periods ended July 12, 2003 is $1.0 million and $2.2 million, respectively. This reclassification does not effect sales or income from continuing operations.

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.

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SEGMENTS — On April 24, 2003, the company completed the sale of substantially all the assets of its Mrs. Smith’s Bakeries, LLC (“Mrs. Smith’s Bakeries”) frozen dessert business to The Schwan Food Company (“Schwan”). The company retained the frozen bread and roll portion of the Mrs. Smith’s Bakeries business. As a result, the frozen bread and roll business as well as the Birmingham, Alabama production facility, formerly a part of Flowers Foods Bakeries Group, LLC (“Flowers Bakeries”), became a part of our Flowers Snack, LLC (“Flowers Snack”) segment, with Flowers Snack being renamed Flowers Foods Specialty Group, LLC (“Flowers Specialty”). For purposes of this Form 10-Q, discussion will relate to Flowers Bakeries and Flowers Specialty as currently operated. The frozen dessert business of Mrs. Smith’s Bakeries that was sold is reported as a discontinued operation. Because the Mrs. Smith’s Bakeries frozen dessert and frozen bread and roll businesses historically shared certain administrative and division expenses, certain allocations and assumptions have been made in order to present historical comparative information. In most instances, administrative and division expenses have been allocated between Mrs. Smith’s Bakeries and Flowers Specialty based on cases of product sold. Management believes that the amounts are reasonable estimations of the costs that would have been incurred had the Mrs. Smith’s Bakeries frozen dessert and frozen bread and rolls businesses performed these functions as separate divisions.

SIGNIFICANT CUSTOMER — During the twelve weeks ended July 17, 2004, sales to the company’s largest customer, Wal-Mart/Sam’s Club, represented 15.7% of the company’s sales with 14.0% attributable to Flowers Bakeries and 1.7% attributable to Flowers Specialty. During the twelve weeks ended July 12, 2003, sales to this customer represented 12.9% of the company’s sales with 11.7% attributable to Flowers Bakeries and 1.2% attributable to Flowers Specialty. During the twenty-eight weeks ended July 17, 2004, sales to this customer represented 15.3% of the company’s sales with 13.4% attributable to Flowers Bakeries and 1.9% attributable to Flowers Specialty. During the twenty-eight weeks ended July 12, 2003, sales to this customer represented 12.5% of the company’s sales with 11.3% attributable to Flowers Bakeries and 1.2% attributable to Flowers Specialty.

STOCK BASED COMPENSATION — In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148 (“SFAS 148”), Accounting for Stock-Based Compensation — Transition and Disclosure, Amendment of FASB Statement No. 123. SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the provisions of SFAS No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation. Furthermore, SFAS 148 mandates disclosures in both interim and year-end financial statements. The company elected not to adopt the recognition provisions of SFAS 123, as amended by SFAS 148. However, as permitted by SFAS 123, the company continues to apply intrinsic value accounting for its stock option plans under Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees. Compensation cost for stock options, if any, is measured as the excess of the market price of the company’s common stock at the date of grant over the exercise price to be paid by the grantee to acquire the stock. The company’s pro forma net earnings and pro forma earnings per share based upon the fair value at the grant dates for awards under the company’s plans are disclosed below.

     If the company had elected to recognize compensation expense based upon the fair value at the grant dates for awards under these plans, the company’s net income (loss) and net income (loss) per share would have been affected as follows (amounts in thousands except per share data):

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2. DISCONTINUED OPERATIONS

     On January 30, 2003, the company entered into an agreement to sell its Mrs. Smith’s Bakeries frozen dessert business to Schwan. Included in those assets were the Stilwell, Oklahoma and Spartanburg, South Carolina production facilities and a portion of the company’s Suwanee, Georgia property. On that date, the assets and liabilities related to the portion of the Mrs. Smith’s Bakeries business to be sold were classified as held for sale in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and recorded at estimable fair value less costs to dispose. On April 24, 2003, the company completed the sale of substantially all the assets of its Mrs. Smith’s Bakeries frozen dessert business to Schwan. The value received by the company was determined on the basis of arm’s length negotiations between the parties. The frozen dessert business sold to Schwan is presented as discontinued operations for the twenty-eight weeks ended July 17, 2004 and for the twelve and twenty-eight weeks ended July 12, 2003. There was no activity related to the discontinued operations for the twelve weeks ended July 17, 2004. Accordingly, the operations and certain transaction costs are included in “Discontinued operations, net of income tax” in the Condensed Consolidated Statements of Income. An analysis of this line item is as follows (amounts in thousands):

     On April 24, 2003, in connection with the sale of the Mrs. Smith’s Bakeries frozen dessert business to Schwan, the company agreed to indemnify Schwan for certain customary matters such as breaches of representations and warranties, certain tax matters and liabilities arising prior to the consummation of the transaction. In most, but not all, circumstances the indemnity is limited to an 18-month period and a maximum liability of $70 million. The company purchased an insurance policy to cover claims that may arise under the indemnification. The fair value of the indemnification was determined to equal the insurance premium paid by the company, which was $2.7 million, and the balance as of July 17, 2004 was $0.5 million. Subsequent to the sale, the company has paid various expenses related to its operation of the Mrs. Smith’s business, no single one of which was material to the financial condition of the company. During the first quarter of fiscal 2004, based on claim activity, the company established a reserve of $5.1 million ($3.1 million, net of income tax) as an estimate of future expenses likely to be incurred attributable to these claims.

     There were no revenues recorded for the discontinued operations in the twelve and twenty-eight weeks ended July 17, 2004. Revenue related to the discontinued operations of $3.6 million and $68.0 million was included in the operating loss above for the twelve and twenty-eight weeks ended July 12, 2003, respectively.

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     The company’s former senior secured credit facility required that a substantial portion of the facility be repaid from the proceeds of the sale of the frozen dessert business of Mrs. Smith’s Bakeries. Interest expense was allocated to discontinued operations based on the ratio of the amount of debt required to be repaid to the amount of debt actually repaid (i.e. both required and on a voluntary basis) at April 24, 2003 in connection with the divestiture of the Mrs. Smith’s Bakeries frozen dessert business.

3. COMPREHENSIVE INCOME (LOSS)

     Other comprehensive income (loss) results from derivative financial instruments and additional minimum pension liabilities. Total comprehensive income, determined as net income (loss) adjusted by other comprehensive income (loss), for the twelve and twenty-eight weeks ended July 17, 2004 was $11.8 million and $24.7 million, respectively.

     During the twenty-eight weeks ended July 17, 2004, changes to accumulated other comprehensive loss, net of income tax, were as follows (amounts in thousands):

4. GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill for the twenty-eight weeks ended July 17, 2004 are as follows (amounts in thousands):