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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o

     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. 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, and achievements to differ materially from those projected are discussed in this report 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 changes in pricing, 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; (v) relationships with our employees, independent distributors and third party service providers; and (vi) laws and regulations (including health-related issues), accounting standards or tax rates in the markets in which we operate;
	•	the loss or financial instability of any significant customer(s);
	•	our ability to execute our business strategy, which may involve integration of recent acquisitions or the acquisition or disposition of assets at presently targeted values;
	•	our ability to operate existing, and any new, manufacturing lines according to schedule;
	•	the level of success we achieve in developing and introducing new products and entering new markets;
	•	changes in consumer behavior, trends and preferences, including weight loss trends;
	•	our ability to implement new technology as required;
	•	the credit and business risks associated with our independent distributors and customers which operate in the highly competitive retail food industry, including the amount of consolidation in that industry;
	•	customer and consumer reaction to pricing actions;
	•	existing or future governmental regulations resulting from the events of September 11, 2001, the military action in Iraq and the continuing threat of terrorist attacks that could adversely affect our business and our commodity and service costs; and
	•	any business disruptions due to political instability, armed hostilities, 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)

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FLOWERS FOODS, INC.

(See Accompanying Notes to Condensed Consolidated Financial Statements)

5

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 herein contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of April 23, 2005 and January 1, 2005 and the results of operations and cash flows for the sixteen week periods ended April 23, 2005 and April 24, 2004. The results of operations for the sixteen week periods ended April 23, 2005 and April 24, 2004 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 January 1, 2005.

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, income tax expense and accruals, pension obligations and distributor accounting. These policies are summarized in the company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005.

REPORTING PERIODS — Fiscal 2005 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 23, 2005 (sixteen weeks), second quarter ending July 16, 2005 (twelve weeks), third quarter ending October 8, 2005 (twelve weeks) and fourth quarter ending December 31, 2005 (twelve weeks).

SEGMENTS — The company consists of two business segments: Flowers Foods Bakeries Group, LLC (“Flowers Bakeries”) and Flowers Foods Specialty Group, LLC (“Flowers Specialty”). Flowers Bakeries focuses on the production and marketing of bakery products to customers in the southeastern and southwestern United States. Flowers Specialty produces snack cakes for sale to co-pack, retail and vending customers as well as frozen bread, rolls and buns for sale to retail and foodservice customers. During the fourth quarter of fiscal 2004, Flowers Specialty’s Birmingham, Alabama production facility was transferred to Flowers Bakeries as a result of this facility beginning to deliver products through the company’s direct store delivery (“DSD”) system. All prior year segment information has been restated to reflect this transfer.

SIGNIFICANT CUSTOMER — During the sixteen weeks ended April 23, 2005, sales to the company’s largest customer, Wal-Mart/Sam’s Club, represented 16.0% of the consolidated company’s sales with 13.7% attributable to Flowers Bakeries and 2.3% attributable to Flowers Specialty. During the sixteen weeks ended April 24, 2004, sales to this customer represented 15.0% of the consolidated company’s sales with 12.9% attributable to Flowers Bakeries and 2.1% attributable to Flowers Specialty.

STOCK BASED COMPENSATION — As permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“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 has adopted disclosure-only provisions of SFAS 123 and SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123. The

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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 and net income per share would have been affected as follows (amounts in thousands except per share data):

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R (“SFAS 123R”), Share-Based Payment. SFAS 123R requires the value of employee stock options and similar awards be expensed for interim and annual periods beginning after June 15, 2005. On April 14, 2005 the SEC approved a new rule that for public companies delayed the effective date of SFAS 123R. Under the SEC’s rule, SFAS 123R will be effective for annual periods that begin after June 15, 2005, which will be the company’s fiscal 2006 beginning January 1, 2006. SFAS 123R is effective for any unvested awards that are outstanding on the effective date and for all new awards granted or modified after the effective date. The remaining unrecognized portion of the original fair value of the unvested awards will be recognized in the income statement at their fair value that the company estimated for purposes of preparing its SFAS 123 pro forma disclosures. The company intends to adopt the standard on January 1, 2006 and apply the modified prospective transition method. This method calls for expensing of the remaining unrecognized portion of awards outstanding at the effective date and any awards granted or modified after the effective date and does not require restatement of prior periods.

2. DISCONTINUED OPERATIONS

     On January 30, 2003, the company entered into an agreement to sell its Mrs. Smith’s Bakeries frozen dessert business to The Schwan Food Company (“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 sixteen weeks ended April 24, 2004. Accordingly, certain costs are included in “Discontinued operations, net of income tax” in the Condensed Consolidated Statements of Income.

     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 certain product liability claims that may arise under the indemnification. Certain claims were asserted by Schwan prior to the expiration of the 18-month period. The company is investigating these claims, and while the company is unable to predict the outcome of these claims, it believes, based on currently available

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facts, that it is unlikely that the ultimate resolution of such claims will have a material adverse effect on the company’s overall financial condition, results of operations or cash flows. 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 by the company in connection with its prior ownership of the Mrs. Smith’s Bakeries business. The balance of this reserve as of April 23, 2005 and January 1, 2005 was $2.0 million and $4.6 million, respectively.

     There were no revenues recorded for the discontinued operations in the sixteen weeks ended April 23, 2005 and April 24, 2004.

     The company’s Suwanee, Georgia facility was sold to Schwan as part of the divestiture. The company leases a portion of the Suwanee facility from Schwan where frozen bread and roll products are currently produced. This lease originally was to expire in April 2006, but on February 2, 2005, the company and Schwan agreed to extend the term of the lease through April 2010.

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 adjusted by other comprehensive income (loss), was $21.8 million for the sixteen weeks ended April 23, 2005.

     During the sixteen weeks ended April 23, 2005, changes to accumulated other comprehensive loss, net of income tax, were as follows (amounts in thousands):

4. GOODWILL AND OTHER INTANGIBLE ASSETS

     There were no changes in the carrying amount of goodwill for the sixteen weeks ended April 23, 2005. The balances by business segment are as follows (amounts in thousands):

     The changes in the carrying amount of intangible assets, which consist primarily of trademarks, customer lists and non-compete agreements, for the sixteen weeks ended April 23, 2005 are as follows (amounts in thousands):

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     The reclassification relates to a consulting agreement entered into as part of an acquisition that the company has determined would be more appropriately classified as an other long-term asset rather than an intangible asset. The company has and will continue to amortize this agreement over the life of the agreement.

5. NEW ACCOUNTING PRONOUNCEMENTS

     Stock Based Compensation. As discussed in Note 1, in December 2004, the FASB issued SFAS 123R, which requires the value of employee stock options and similar awards be expensed. The company intends to adopt the standard on January 1, 2006, and apply the modified prospective transition method. This method calls for expensing of the remaining unrecognized portion of awards outstanding at the effective date and any awards granted or modified after the effective date and does not require restatement of prior periods.

     Asset Retirement Obligations. In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), Accounting for Conditional Asset Retirement Obligations-an Interpretation of FASB Statement No. 143, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FIN 47 is effective for fiscal years ending after December 15, 2005. The company is currently evaluating the affect of this statement, but we do not believe it will have a material effect on our results of operations, financial condition or cash flows.

6. DERIVATIVE FINANCIAL INSTRUMENTS

     The company enters into commodity derivatives, designated as cash flow hedges of existing or future exposure to changes in commodity prices. The company’s primary raw materials are flour, sugar, shortening and dairy products, along with pulp and paper and petroleum-based packaging products. The company also enters into interest rate derivatives to hedge exposure to changes in interest rates.

     As of April 23, 2005, the company’s hedge portfolio contained commodity derivatives with a fair value of $(5.9) million, which is recorded in other current and long-term liabilities. The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix the price, or limit increases in prices, for a period of time extending into fiscal 2007. Under SFAS 133, these instruments are designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded each period in other comprehensive income (loss), and any ineffective portion of the change in fair value is recorded to current period earnings in selling, marketing and administrative expenses. The company held no commodity derivatives at April 23, 2005 or January 1, 2005 that did not qualify for hedge accounting under SFAS 133.

7. DEBT AND OTHER OBLIGATIONS

     Long-term debt consisted of the following at April 23, 2005 and January 1, 2005 (amounts in thousands):

     On October 29, 2004, the company amended and restated its credit facility (the “credit facility”). The credit facility is a 5-year, $150.0 million unsecured revolving loan facility that provides for lower rates on future borrowings and less restrictive loan covenants than the company’s former credit facility. The credit facility provides for total borrowings of up to $150.0 million through October 29, 2009. The company may request to increase its borrowings under the credit facility up to an aggregate of $225.0 million upon the satisfaction of certain conditions. Proceeds from the credit facility may be used for working capital and general corporate purposes, including acquisition financing, refinancing of indebtedness and share repurchases. The credit facility includes certain restrictions, which among other things, requires maintenance of financial covenants and limits encumbrance of assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the credit facility and can meet presently foreseeable financial requirements.

     Interest is due quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus the applicable margin. The underlying rate is defined as either rates offered in the interbank Eurodollar market

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or the higher of the prime lending rate or federal funds rate plus 0.5%. The applicable margin is based on the company’s leverage ratio and ranges from 0.0% to 0.20% for base rate loans and from 0.625% to 1.20% for Eurodollar loans. In addition, a facility fee ranging from 0.125% to 0.30% is due quarterly on all commitments under the credit facility. Outstanding borrowings under the credit facility were $59.0 million at April 23, 2005. This borrowing was used to fund the purchase of approximately 2.1 million shares of the company’s common stock from an institutional holder. On May 12, 2005, the company repaid $14.0 million of this borrowing. There were no borrowings outstanding under the credit facility as of January 1, 2005.

     The company paid financing costs of $0.4 million in connection with its credit facility. These costs, along with unamortized costs of $0.4 million relating to the company’s former credit facility, were deferred and are being amortized over the term of the credit facility.

     Included in accounts payable in the condensed consolidated balance sheets are book overdrafts of $17.6 million and $9.4 million as of April 23, 2005 and January 1, 2005, respectively.

8. VARIABLE INTEREST ENTITY

     The company maintains a transportation agreement with a thinly capitalized entity. This entity transports a significant portion of the company’s fresh bakery products from the company’s production facilities to outlying distribution centers. The company represents a significant portion of the entity’s revenue. This entity qualifies as a Variable Interest Entity (“VIE”) but not a Special Purpose Entity and, under FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, the company is the primary beneficiary. In accordance with FIN 46, the company consolidated this entity effective with the first quarter of fiscal 2004. There was no cumulative effect recorded. As of April 23, 2005, the company had assets relating to the VIE of $22.8 million or 2.7% of total assets, consisting primarily of $16.4 million of transportation equipment recorded as capital lease obligations. Sales of $3.1 million, or 0.6%, and income from continuing operations before income taxes and minority interest of $0.4 million, or 1.1%, were recorded for the sixteen weeks ended April 23, 2005. As of January 1, 2005, the company had assets relating to the VIE of $22.6 million or 2.6% of total assets, consisting primarily of $16.2 million of transportation equipment recorded as capital lease obligations. Sales of $3.0 million, or 0.6%, and income from continuing operations before income taxes and minority interest of $1.1 million, or 3.8%, were recorded for the sixteen weeks ended April 24, 2004. The VIE has collateral that is sufficient to meet its capital lease and other debt obligations, and the owner of the VIE personally guarantees the obligations of the VIE. The VIE’s creditors have no recourse against the general credit of the company.

9. LITIGATION

     The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings, including personal injury, commercial, contract, environmental, antitrust, product liability, health and safety and employment matters, which are being handled and defended in the ordinary course of business. While the company is unable to predict the outcome of these matters, it believes, based upon currently available facts, that it is remote that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows in the future. However, adverse developments could negatively impact earnings in a particular future fiscal period.

     On September 9, 2004, the company announced an agreement to settle a class action lawsuit related to pie shells produced by a former operating facility. The costs of this settlement, $1.8 million, net of income tax, were recorded by the company in the first quarter of fiscal 2004 as part of discontinued operations.

     As previously disclosed, the SEC conducted an investigation with respect to trading in the company’s common stock by certain entities and individuals from December 2002 through January 2003. On March 2, 2005, the SEC announced that final judgment had been entered against six current employees and one former employee of the company, none of whom were executive officers. Pursuant to settlements with the SEC, under which the individuals neither admitted nor denied liability, the SEC enjoined these individuals from further violations of the securities laws and ordered them to disgorge their individual profits which aggregated $57,486 plus prejudgment interest, and to pay civil penalties, which equaled their profits of $57,486. Following entry of the judgment and completion of the company’s investigation, the company formally reprimanded the current employees with final warning, required the

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current employees to undergo additional training with regard to the company’s code of conduct, and required all seven individuals to forfeit fiscal 2004 bonus payments totaling approximately $163,000 for violation of the company’s insider trading policy.

10. EARNINGS PER SHARE

     The following table calculates basic earnings per common share and diluted earnings per common share at April 23, 2005 and April 24, 2004 (amounts in thousands, except per share data):