FORM 10-K
(Mark One)
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 29, 2001 |
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.
Georgia
58-2582379
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1919 Flowers Circle
Thomasville, Georgia
(Address of principal executive
offices)
31757
(Zip Code)
Registrants telephone number, including area
code:
(229) 226-9110
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class
on which registered
Common Stock, $.01 per share, together
with Preferred Share Purchase Rights
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated herein by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Based on the closing sales price on the New York Stock Exchange on March 15, 2002, the aggregate market value of the voting and non-voting common stock held by nonaffiliates of the registrant was $744,043,899.61.
On March 15, 2002, the number of shares outstanding of the registrants Common Stock, $.01 par value, was 29,797,513.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants Proxy Statement for the 2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or prior to April 28, 2002, have been incorporated by reference in Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.
FORM 10-K REPORT
TABLE OF CONTENTS
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Item 1.
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Business
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1 | ||||
Item 2.
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Properties
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11 | ||||
Item 3.
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Legal Proceedings
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11 | ||||
Item 4.
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Submission of Matters to a Vote of Security
Holders
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11 | ||||
Item 5.
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Market for the Registrants Common Stock and
Related Stockholder Matters
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12 | ||||
Item 6.
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Selected Financial Data
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12 | ||||
Item 7.
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Managements Discussion and Analysis of
Results of Operations and Financial Condition
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14 | ||||
Item 7A.
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Quantitative and Qualitative Disclosures About
Market Risk
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27 | ||||
Item 8.
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Financial Statements and Supplementary Data
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27 | ||||
Item 9.
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Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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27 | ||||
Item 10.
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Directors and Executive Officers of the Registrant
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28 | ||||
Item 11.
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Executive Compensation
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28 | ||||
Item 12.
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Security Ownership of Certain Beneficial Owners
and Management of Flowers Foods
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28 | ||||
Item 13.
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Certain Relationships and Related Transactions
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28 | ||||
Item 14.
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Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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28 |
i
PART I
Item 1.
Business
Corporate Information
Flowers Foods, Inc. was incorporated in Georgia in October, 2000
and, prior to March 26, 2001, was a wholly-owned subsidiary
of Flowers Industries, Inc. (FII). On
October 26, 2000, FII and Kellogg Company
(Kellogg) entered into an agreement and plan of
restructuring and merger pursuant to which a wholly-owned
subsidiary of Kellogg merged with FII on March 26, 2001. As
a condition to the merger, FII agreed to transfer its frozen and
non-frozen bakery operations, and certain other corporate assets
and liabilities, to Flowers Foods and distribute all of the
outstanding shares of Flowers Foods common stock to FII
shareholders on March 26, 2001.
As used herein, references to we, our,
us, the company or Flowers
Foods include the historical operating results and
activities of the business operations which comprise Flowers
Foods as of the date hereof.
The Company
Flowers Foods is one of the largest producers and marketers of
frozen and non-frozen bakery and dessert products in the United
States. Flowers Foods consists of the following businesses:
Our core strategy is to be one of the nations leading
producers and marketers of frozen and non-frozen bakery products
available to customers through multiple channels of
distribution. Our strategy focuses on responding to current
market trends for our products and changing consumer
preferences. To assist in accomplishing our core strategy, we
have aggressively invested capital to modernize and expand our
production and distribution capacity and efficiency and have
expanded our nationally branded Mrs. Smiths Bakeries
business, which complements our traditional strengths.
We have established a presence in all distribution channels
where bakery and dessert products are sold, including
traditional supermarkets and their in-store deli/bakeries,
foodservice distributors, convenience stores, mass
merchandisers, club stores, wholesalers, restaurants, fast food
outlets, schools, hospitals and vending machines.
Our Flowers Bakeries business focuses on the production and
marketing of bakery products to customers in the super-regional
16 state area in and surrounding the southeastern United States.
We have devoted significant resources to modernizing production
facilities, improving our distribution capabilities and
enhancing our information technology. Over the course of our
history, we have acquired numerous local bakery operations that
are generally within or contiguous to our existing region and
which can be served with our extensive direct store delivery
(DSD) system. This system utilizes approximately
3,100 independent distributors who own the rights to sell our
branded bakery products within their respective territories. Our
strategy is to continue to enable these independent distributors
to better serve new and existing customers, principally by using
information technology to enhance the productivity and
efficiency of our production facilities and our DSD system.
Our Mrs. Smiths Bakeries business produces and
markets frozen desserts as well as bread, rolls, buns and snack
cakes for sale to retail and foodservice customers. Retail
frozen pie sales are heavily concentrated in the third and
fourth fiscal quarters, which is attributable to the holiday
season. In an effort to enhance sales outside of the holiday
season, we focus on expanding non-seasonal sales in the frozen
dessert product line and frozen breads and rolls by extending
the well-recognized
Mrs. Smiths
brand name to
existing and related retail and foodservice products. Examples
of significant product line extensions include
Mrs. Smiths Restaurant Classics
and
Mrs. Smiths Cookies and Cream
frozen pies in
the retail channel,
Grand Finales
frozen pies in the
foodservice channel and
Mrs. Freshleys
fresh
snack cakes in the vending channel.
1
We have a leading presence in each of the major product
categories in which we compete. Collectively, our Flowers
Bakeries brands rank first in fresh packaged branded sales
measured both in dollars and units in each of the 22 major
metropolitan markets we serve. Our Mrs. Smiths
Bakeries business is one of the leading frozen dessert and
frozen bread and roll producers and marketers in the United
States, and our
Mrs. Smiths
pies are the
leading national brand of frozen pies sold at retail. Our major
branded products include, among others, the following:
We are committed to producing high quality products at the
lowest cost in all of our operations, and we have made
significant capital investments in recent years to modernize,
automate and expand our production and distribution capabilities
and enhance our information technology. Capital spending has
been primarily directed toward expanding and modernizing
existing production facilities and enhancing our technology. The
most recent major production facility expenditure in our Flowers
Bakeries business was the fiscal 2000 installation of a fully
automated wrapping system for three production lines in a new
32,400 square foot facility in Goldsboro, North Carolina.
Production capabilities at our Mrs. Smiths Bakeries
business were significantly realigned at an approximate cost of
$173.3 million over the last three years. This realignment
included the relocation and upgrading of 25 production lines at
seven of our eight operating facilities, which offers us
significantly more capacity at fewer locations. We believe these
facilities will give us the ability to exploit many
opportunities in the foodservice channel and continue our growth
in the retail channel.
In order to provide prompt and responsive service to customers,
we tailor our distribution systems to the marketing and
production aspects of our major product lines. Flowers Bakeries
distributes its baked foods through its DSD system of
approximately 3,100 independent distributors who, as owners of
their territories, are motivated by financial incentives to
maintain and build retail brand shelf space and to monitor
product quality and assortment, which is essential in the
marketing of short shelf life products such as fresh bread,
rolls and buns. Mrs. Smiths Bakeries distributes its
frozen foods through two strategically-located frozen
distribution facilities, as well as through additional
commercial frozen warehouse space throughout the United States
in order to accommodate demands in the retail channel for
seasonal products and to provide staging to expedite
distribution throughout the year. We also utilize a centralized
distribution facility for Mrs. Smiths Bakeries
snack cake products.
Industry Overview
The United States food industry is comprised of a number of
distinct product lines and distribution channels for frozen and
non-frozen bakery products and desserts. Consumer preferences
for food purchases continue to move away from the traditional
grocery store aisles to supermarket in-store deli/bakeries or to
non-supermarket channels, such as mass merchandisers,
convenience stores, club stores, restaurants and other
convenience channels. Non-supermarket channels of distribution
are increasingly important throughout the food industry.
2
Non-Frozen Bakery Products
Retail sales of bakery products continue to experience modest
growth, with expansion within the category occurring in a
variety of premium and specialty breads. However, foodservice
sales of bakery products continue to grow at a faster rate than
retail sales as consumers who demand convenience increasingly
are purchasing food products from non-retail distribution
channels. In addition to Flowers Foods, several large baking and
diversified food companies market bakery products in the United
States. Competitors in this category include Interstate, Sara
Lee, Weston and Pepperidge Farm. There are also a number of
smaller, regional companies. We believe that the larger
companies enjoy several competitive advantages over smaller
operations due principally to greater brand awareness and
economies of scale in areas such as purchasing, distribution,
production, information technology, advertising and marketing.
Consolidation has been a significant trend in the baking
industry over the last several years. It continues to be driven
by factors such as capital constraints on smaller companies that
limit their ability to avoid technological obsolescence, to
increase productivity or to develop new products, generational
changes at family-owned businesses, and the need to serve the
consolidated retail customers and the foodservice channel. We
believe that the consolidation trend in the baking, food
retailing and foodservice industries will continue to present
opportunities for strategic acquisitions that complement our
existing businesses and that extend our super-regional presence.
Frozen Bakery Products
Sales of frozen desserts, breads and rolls to foodservice
institutions and other distribution channels, including
restaurants and in-store bakeries, have grown at a rate faster
than sales to retail channels. We are a preferred supplier of
frozen dessert products to certain leading foodservice
distributors in the United States. While retail sales of frozen
desserts have experienced stable sales,
Mrs. Smiths
remains the leading brand in the
frozen pie category. Primary competitors in the frozen dessert
market include Sara Lee, Pepperidge Farm, Edwards and Pillsbury.
We believe the increase in foodservice sales of frozen desserts
provides us with additional revenue opportunities.
Strategy
Our core strategy is to be one of the nations leading
producers and marketers of bakery products available to
customers through frozen and non-frozen channels of
distribution. Our Flowers Bakeries and Mrs. Smiths
Bakeries businesses each develop strategies based on the
production, distribution and marketing requirements of their
particular food categories. We employ the following five overall
strategies:
3
Products
We produce fresh packaged bakery, frozen dessert and frozen
bakery products.
Flowers Bakeries
We market our fresh packaged bakery products in the
super-regional 16 state area in and surrounding the southeastern
United States under numerous brand names, including
Natures Own
and
Cobblestone Mill
. We also
market fresh bread under regional franchised brands such as
Sunbeam, Roman Meal, Evangeline Maid
and
Bunny
.
Natures Own
is the best selling brand by volume of
soft variety bread in the United States, despite being marketed
solely in the super-regional 16 state area. Pastries, doughnuts,
bakery snacks, cakes and english muffins are sold through our
DSD system primarily under the
BlueBird
brand, as well as
under the
ButterKrust, Sunbeam
and
Holsum
trademarks. Flowers Bakeries branded products account for
approximately 70% of its sales.
In addition to our branded products, we also produce and
distribute fresh packaged bakery products under private labels
for retailers such as Winn-Dixie and Kroger. While private label
products carry lower margins than our branded products, we use
our private label offerings to expand our total shelf space and
to effectively utilize production and distribution capacity.
We utilize our DSD system to supply bakery products to
foodservice companies, including Burger King, Krystal, Hardees,
Whataburger and Outback Steakhouse. In addition, we supply
frozen bakery products to Wendys.
Mrs. Smiths
Bakeries
Mrs. Smiths Bakeries frozen desserts are
marketed throughout the United States. Our frozen pies were the
number one retail frozen pie brand in the United States for
2001. Mrs. Smiths Bakeries frozen desserts are
sold at retail under the
Mrs. Smiths
and
Oronoque Orchard
brand names. Frozen desserts in the
foodservice channel are sold under the
Grand Finales
brand and under private labels for foodservice customers.
We produce and distribute frozen bakery products such as bread,
rolls and buns for sale to foodservice customers. We also
produce pastries, doughnuts and bakery snack products for
distribution by Flowers Bakeries DSD system under the
BlueBird
brand. In addition, we produce pastries,
doughnuts and bakery snack products under the
Mrs. Freshleys
brand for sale through the
vending channel and under various private labels for sale
through the retail channel.
Production and Distribution
We design our production facilities and distribution systems to
meet the marketing and production demands of our major product
lines. Through a significant program of capital improvements and
careful planning of plant locations, which, among other things,
allows us to establish reciprocal baking or product transfer
arrangements among our bakeries, we seek to remain a low cost
producer and marketer of a full line of frozen and non-frozen
bakery and dessert products on a national and super-regional
basis. In addition to the independent distributor system for our
fresh baked products, we also use both owned and public
warehouses
4
Flowers Bakeries
We operate 25 fresh packaged bakery product facilities in ten
states. We have invested $117.0 million over the past three
years, primarily to upgrade existing product lines in nine of
our facilities, as well as to enhance our information technology
through the implementation of an enterprise-wide information
system. During this period, we also installed a fully automated
wrapping system for three production lines in our new 32,400
square foot distribution facility in Goldsboro,
North Carolina. We believe that these investments have made
us the most efficient major producer of packaged bakery products
in the United States. We believe that our capital investment
yields long-term benefits in the form of more consistent product
quality, highly sanitary processes, and greater production
volume at a lower cost per unit. We intend to continue to invest
in our production facilities and equipment to maintain high
levels of efficiency.
Distribution of fresh packaged bakery products involves
determining appropriate order levels, delivering the product
from the plant to the independent distributor for direct store
delivery to the customer, stocking the product on the shelves,
visiting the customer daily to ensure that inventory levels
remain adequate, and removing stale goods. We utilize a network
of approximately 3,100 independent distributors who own the
rights to distribute our fresh packaged bakery products in their
geographic territories. The company has sold the majority of its
territories to independent distributors under long-term
financing arrangements, managed and serviced by the company.
The company leases hand-held computer hardware, which contains
our proprietary software, and charges independent distributors
an administrative fee for its use. The software permits
distributors to track and communicate inventory data to the
production facilities and to calculate recommended order levels
based on historical sales data and recent trends. These orders
are electronically transmitted to the appropriate production
facility on a nightly basis. This system is designed to ensure
that the distributor has an adequate supply of product, and the
right mix of products, available to meet the retail and
foodservice customers immediate needs. We believe our
system minimizes returns of unsold goods. In addition to the
hand-held computers, we have a software system that permits
tracking of sales, product returns and profitability by selling
location, plant, day and other bases. This provides real-time,
on-line access to sales and gross margin reports on a daily
basis, allowing prompt operational adjustments when appropriate.
We believe the independent distributor system is unique in the
industry both as to its size, with approximately 3,100
distributors, and with respect to its geographic coverage. The
system is designed to provide retail and foodservice customers
with superior service because distributors, highly motivated by
financial incentives from their route ownership, strive to
increase sales by maximizing service. In turn, distributors have
the opportunity to benefit directly from the enhanced value of
their routes resulting from higher branded sales volume.
Mrs. Smiths
Bakeries
We operate eight production facilities for our frozen desserts,
frozen bakery products and packaged bakery products. We
significantly realigned our production capabilities over the
last three years, at a cost of approximately $173.3 million.
This realignment included the relocation and upgrading of 25
production lines at seven of our eight operating facilities,
which offers us significantly more capacity at fewer locations.
We believe the production realignment will give us the ability
to exploit many opportunities in the retail and foodservice
channels.
Our distribution facilities are strategically located near our
production facilities to simplify distribution logistics. Our
plant in Stilwell, Oklahoma was the focus of a $60.0 million
capital spending project in 1999 to add production capacity and
is our primary producer of frozen fruit and custard pies. This
facility also serves as a principal point of distribution for
our frozen desserts. Our Suwanee, Georgia facility is located on
a major interstate corridor near four of our frozen dessert
production facilities. This facility contains such innovations
as five 78-foot tall, laser-guided cranes specifically designed
for the facility, a six million cubic foot freezer and
5
In addition to our two strategically-located freezer and
distribution facilities in Suwanee and Stilwell, we own and
lease additional freezer and distribution facilities throughout
the United States to facilitate distribution of our products
nationwide. These owned and leased facilities allow us to build
and store necessary inventory of raw materials and finished
dessert products and to expedite the national distribution of
both our seasonal and non-seasonal products.
We distribute our packaged bakery products from a centralized
distribution facility located near Knoxville, Tennessee.
Centralized distribution allows us to achieve both production
and distribution efficiencies. The production facilities are
able to operate longer, more efficient production runs of a
single product, which are then shipped to the centralized
distribution facility. Products coming from different production
facilities are then cross-docked and shipped directly to
customer warehouses.
Customers
Our top 10 customers in fiscal 2001 accounted for 41% of
sales. During fiscal 2001, no sales to a single customer
accounted for more than 10% of the companys sales.
Flowers Bakeries
Our fresh baked foods have a highly diversified customer base,
which includes grocery retailers, restaurants, fast-food chains,
food wholesalers, institutions and vending companies. We also
sell returned and surplus product through a system of thrift
outlets. We supply numerous restaurants, institutions and
foodservice companies with bakery products, including buns for
outlets such as Burger King, Wendys, Krystal, Hardees,
Whataburger and Outback Steakhouse. We also sell packaged bakery
products to wholesale distributors for ultimate sale to a wide
variety of food outlets.
Mrs. Smiths
Bakeries
Our frozen desserts are marketed to traditional retail outlets,
such as grocery stores, as well as non-traditional outlets,
ranging from club stores and mass merchandisers to wholesalers,
foodservice distributors and restaurants. Our branded frozen
desserts are sold primarily through grocery retailers. Our
frozen bakery products are sold to foodservice distributors,
institutions, retail in-store bakeries and restaurants.
Our packaged bakery products under the
Mrs. Freshleys
brand are sold primarily
through vending outlets. We produce packaged bakery products for
our own distribution under our
BlueBird
brand. In certain
circumstances, we enter into co-packing arrangements with some
of our competitors. Through co-packing, we have produced
packaged bakery products for popular brands such as
Weight
Watchers, Stouffer, Lance, Pepperidge Farm
and
Little
Debbie
.
Marketing
Our marketing and advertising campaigns are conducted through
targeted television and radio advertising and printed media
coupons. We also incorporate promotional tie-ins with other
sponsors, on-package promotional offers and sweepstakes into our
marketing efforts. Additionally, we focus our marketing and
advertising campaigns on specific products throughout the year,
such as buns for Memorial Day, Independence Day and Labor Day
and pies during the Thanksgiving and Christmas holiday season.
6
Competition
Flowers Bakeries
The United States packaged bakery category is intensely
competitive and is comprised of large food companies, large
independent bakeries with national distribution, and smaller
regional and local bakeries. Primary national competitors
include Interstate, Sara Lee, Pepperidge Farm and Weston.
We also face competition from private label brands. Competition
is based on product availability, product quality, brand
loyalty, price effective promotions and the ability to target
changing consumer preferences. Customer service, including
frequent delivery and well-stocked shelves, is an increasingly
important competitive factor. While we experience price pressure
from time to time, primarily as a result of competitors
promotional efforts, we believe that our customer relationships
and the consumers brand loyalty, as well as our diversity
within our region in terms of geographic markets, products, and
sales channels, limit the effects of such competition. Recent
consolidation in the industry has further enhanced the ability
of the larger firms to compete with small regional bakeries. We
believe we have significant competitive advantages over smaller
regional bakeries due to greater brand awareness and economies
of scale in areas such as purchasing, distribution, production,
information technology, advertising and marketing.
Mrs. Smiths
Bakeries
Mrs. Smiths Bakeries, Sara Lee, Pepperidge Farm and
Pillsbury lead the frozen dessert category. Other significant
competitors in the frozen baked dessert category include Edwards
and private label brands. Competitors for packaged bakery
products produced by Mrs. Smiths Bakeries include
Interstate (
Hostess
) and McKee (
Little Debbie
).
Competition for frozen desserts depends primarily on brand
recognition and loyalty, perceived product quality, effective
promotions and, to a lesser extent, price. For the frozen bakery
and packaged bakery products manufactured by
Mrs. Smiths Bakeries, competition is based upon the
ability to meet production and distribution demands of
foodservice and vending customers at a competitive price.
Intellectual Property
We own a number of trademarks and trade names, as well as
certain patents and licenses. Such trademarks and trade names
are considered to be important to our business since they have
the effect of developing brand identification and maintaining
consumer loyalty. We are not aware of any fact that would
negatively impact the continued use of any of our trademarks,
trade names, patents or licenses to any material extent.
Raw Materials
Our primary baking ingredients are flour, sugar, shortening,
fruits and dairy products. We also use paper products, such as
corrugated cardboard, aluminum products, such as pie plates, and
films and plastics to package our baked foods. In addition, we
are dependent upon natural gas and propane as fuel for firing
ovens as well as gasoline and diesel as fuel for distribution
vehicles. On average, baking ingredients constitute
approximately 10% to 15%, and packaging represents approximately
1% to 5% of the wholesale selling price of our baked foods. We
maintain diversified sources for all of our baking ingredients
and packaging products.
Commodities, such as our baking ingredients, periodically
experience price fluctuations and, for that reason, we
continually monitor the market for these commodities. From time
to time, we enter into forward purchase agreements and
derivative financial instruments to reduce the impact of
volatility in raw material prices.
Research and Development
Although not material to our operations, we engage in research
and development activities that principally involve developing
new products, improving the quality of existing products and
improving and modernizing production processes. We also develop
and evaluate new processing techniques for both current and
proposed product lines.
7
Regulation
As a producer and marketer of food items, our operations are
subject to regulation by various federal governmental agencies,
including the Food and Drug Administration, the Department of
Agriculture, the Federal Trade Commission, the Environmental
Protection Agency and the Department of Commerce, as well as
various state agencies, with respect to production processes,
product quality, packaging, labeling, storage and distribution.
Under various statutes and regulations, these agencies prescribe
requirements and establish standards for quality, purity, and
labeling. Failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including
monetary fines or compulsory withdrawal of products from store
shelves.
In addition, advertising of our businesses is subject to
regulation by the Federal Trade Commission, and we are subject
to certain health and safety regulations, including those issued
under the Occupational Safety and Health Act.
Our operations, like those of similar businesses, are subject to
various federal, state, and local laws and regulations with
respect to environmental matters, including air and water
quality and underground fuel storage tanks, as well as other
regulations intended to protect public health and the
environment. Our operations and products also are subject to
state and local regulation through such measures as licensing of
plants, enforcement by state health agencies of various state
standards and inspection of facilities. We believe that we are
currently in material compliance with applicable laws and
regulations.
Employees
We employ approximately 8,000 persons, approximately 530 of whom
are covered by collective bargaining agreements. We believe that
we have good relations with our employees.
Executive Offices
The address and telephone number of our principal executive
offices are 1919 Flowers Circle, Thomasville,
Georgia 31757, (229) 226-9110.
8
Executive Officers of Flowers Foods
The following table sets forth certain information regarding the
persons who currently serve as the executive officers of Flowers
Foods. Our Board of Directors elects all executive officers for
one-year terms with the exception of the positions of President
and Chief Operating Officer, Flowers Bakeries and President and
Chief Operating Officer, Mrs. Smiths Bakeries, which
are appointed by the Chairman of the Board of Directors and
Chief Executive Officer to serve until they resign or are
removed.
EXECUTIVE OFFICERS
9
Forward Looking Statements
Certain statements made in this discussion are
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the
Reform Act). These statements are subject to the
safe harbor provisions of the Reform Act. Such forward-looking
statements include, without limitation, statements about:
When used in this discussion, the words anticipate,
believe, estimate and similar
expressions are generally intended to identify forward-looking
statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could
cause actual results to differ materially from those expressed
or implied by such forward-looking statements, including but not
limited to:
Financial Information about Segments
Refer to Note 16 of Notes to Consolidated Financial Statements
for financial information about Flowers Bakeries and
Mrs. Smiths Bakeries.
10
Item 2.
Properties
Currently 32 of our production facilities are owned and one
facility is leased. We consider that our properties are well
maintained and sufficient for our present operations. Our
production plant locations are:
Item 3.
Legal
Proceedings
On March 25, 2002, in
Trans American Brokerage, Inc. vs.
Mrs. Smiths Bakeries, Inc.,
an arbitration
brought before the American Arbitration Association, an
arbitrator found against Mrs. Smiths Bakeries and
issued an interim award for damages. In the dispute, the
claimant alleges breach of a sales brokerage agreement by
Mrs. Smiths Bakeries and seeks lost profits as well
as attorneys fees and costs. As a result of the award, the
company recorded a $10.0 million charge ($6.2 million
net of tax) to its results for the fiscal year ended
December 29, 2001, as required by Generally Accepted
Accounting Principles (GAAP). The charge represents
the companys estimate of the total costs (including
attorneys fees and expenses) which it could incur in
connection with this dispute. The company disagrees with the
arbitrators award and intends to continue to vigorously
contest it, including a request that the arbitrator reconsider
the interim award.
In addition to the arbitration described above, we are engaged
in various legal proceedings that arise in the ordinary course
of our business. We believe that the amount of the ultimate
liability with respect to those proceedings will not be material
to our financial position or results of operations.
Item 4.
Submission of
Matters to a Vote of Security Holders
Not applicable.
11
Flowers Bakeries, LLC (Flowers Bakeries); and
Mrs. Smiths Bakeries, LLC
(Mrs. Smiths Bakeries).
Mrs. Smiths Bakeries
Mrs. Smiths
Mrs. Freshleys
Oregon Farms
European Bakers
Stilwell
Our Special Touch
Oronoque Orchard
Danish Kitchen
Pour a Quiche
Grand Finales
Pet-Ritz
Strong Brand Recognition.
We intend to capitalize on the
success of our well-recognized brand names, which communicate
product consistency and quality, by extending those brand names
to additional products and channels of distribution. Many of our
brands, including
Natures Own
bread,
Cobblestone
Mill
bread and
Mrs. Smiths
retail frozen
baked pies, are the top-selling brands in their categories.
Efficient Production and Distribution Facilities.
We
intend to maintain a continuing level of capital improvements
that will permit us to fulfill our commitment to remaining among
the most modern and efficient frozen and non-frozen bakery and
dessert producers in the United States.
Customer Service-Oriented Distribution.
We intend to
expand and refine our distribution systems to respond quickly
and efficiently to changing customer service needs, consumer
preferences and seasonal demands. We have distribution systems
that are tailored to the nature of each of our food product
categories and are designed to provide the highest levels of
service to our retail and foodservice customers. We have a DSD
system of approximately 3,100 independent distributors for
delivery of our Flowers Bakeries products. Our Mrs. Smiths
Bakeries business utilizes a network of strategically located
storage and distribution facilities for our frozen bakery and
dessert products and a centralized distribution facility for our
snack cake products.
Broad Range of Products Sold Through Multiple Distribution
Channels.
We intend to continue to expand our product lines
and distribution channels. Our product lines now include
virtually every category of frozen and non-frozen bakery and
dessert products. These products generally can be found in
traditional supermarkets and in-store deli/bakeries, convenience
stores, mass merchandisers, club stores, wholesalers,
restaurants, fast food outlets, schools, hospitals and vending
machines.
Strategic Acquisitions.
We have consistently pursued
growth in sales, geographic markets and products through
strategic acquisitions. We intend to pursue growth through
strategic acquisitions and investments that will complement and
expand our existing markets, product lines and product
categories.
Name, Age and Office
Business Experience
Age, 64
Chairman of the Board and Chief Executive Officer
Mr. McMullian has been Chairman of the Board
of Directors and Chief Executive Officer of Flowers Foods since
November 2000. Mr. McMullian previously served as Chairman
of the Board of Directors of Flowers Industries from 1985 to
March 2001 and as its Chief Executive Officer from 1981 to March
2001. Mr. McMullian also previously served as a director of
Keebler Foods Company from 1996 to March 2001.
Age, 41
Vice President and Chief Financial Officer
Mr. Woodward has been Vice President and
Chief Financial Officer of Flowers Foods since November 2000.
Mr. Woodward previously served in that capacity at Flowers
Industries from March 2000 to March 2001. Mr. Woodward also
served as Treasurer and Chief Accounting Officer of Flowers
Industries from October 1997 to March 2000 and Assistant
Treasurer of Flowers Industries for more than five years prior
to that time. Mr. Woodward previously served as a director
of Keebler Foods Company from 1998 to March 2001.
Age, 56
President and Chief Operating Officer, Flowers Bakeries
Mr. Deese has been President and Chief Operating
Officer of Flowers Bakeries since January 1997. He previously
served as President and Chief Operating Officer, Baked Products
Group of Flowers Industries from 1983 to January 1997, Regional
Vice President, Baked Products Group of Flowers Industries from
1981 to 1983 and President of Atlanta Baking Company from 1980
to 1981.
Age, 47
President and Chief Operating Officer, Mrs. Smiths
Bakeries
Mr. Strenglis has been President and Chief
Operating Officer of Mrs. Smiths Bakeries since
January 2002. Mr. Strenglis previously served as Executive
Vice President of Mrs. Smiths Bakeries from October
1999 to January 2002 and as Division Vice President from January
1999 to October 1999. Prior to that time Mr. Strenglis
served in various executive positions at Mrs. Smiths
Bakeries primarily focusing on foodservice sales, marketing and
logistics from 1991 to January 1999.
Age, 45
Secretary and General Counsel
Mr. Avera has been Secretary and General
Counsel of Flowers Foods since February 2002. Mr. Avera
previously served as Vice President and General Counsel of
Flowers Bakeries from July 1998 to February 2002. Mr. Avera
also previously served as an associate and assistant general
counsel of Flowers Industries from February 1986 to July 1998.
Age, 48
Vice President of Communications and Investor Relations
Ms. Turner has been Vice President of
Communications and Investor Relations of Flowers Foods since
November 2000. Ms. Turner previously served as Vice
President of Communications and Investor Relations at Flowers
Industries from January 2000 to March 2001. She also served as
Vice President of Public Affairs of Flowers Industries from
September 1997 until January 2000 and Director of Public Affairs
of Flowers Industries for more than five years prior to that
time.
the competitiveness of the baking industry;
the future availability and prices of raw and packaging
materials;
potential regulatory obligations;
our strategies; and
other statements that are not historical facts.
changes in general economic or business conditions (including in
the baking industry);
actions of competitors;
our ability to retain or procure capital on terms acceptable to
us;
our ability to recover material costs in the pricing of our
products;
the extent to which we are able to develop new products and
markets for our products;
the time required for such development;
the level of demand for such products; and
changes in our business strategies.
Flowers Bakeries
Lafayette, Louisiana
New Orleans, Louisiana
Goldsboro, North Carolina
Jamestown, North Carolina
Morristown, Tennessee
El Paso, Texas
Houston, Texas
San Antonio, Texas
Tyler, Texas
Lynchburg, Virginia
Norfolk, Virginia
Bluefield, West Virginia
Mrs. Smiths Bakeries
London, Kentucky
Stilwell, Oklahoma
Spartanburg, South Carolina
Crossville, Tennessee
PART II
Item 5.
Market for the
Registrants Common Stock and Related Stockholder
Matters
Shares of Flowers Foods common stock have been quoted on the New
York Stock Exchange under the symbol FLO since
March 28, 2001. The following table sets forth for the
quarters indicated the high and low closing sale prices of the
companys common stock on the New York Stock Exchange as
reported in published sources.
On November 16, 2001, the Board of Directors declared a 3
for 2 stock split payable on January 2, 2002, which
resulted in the issuance of 9.9 million shares of our
common stock. All references to number of shares (other than the
amounts of common stock shown as issued on the December 30,
2000 Consolidated Balance Sheet and the Consolidated Statements
of Changes in Stockholders Equity and Comprehensive Income
for fiscal years ended December 30, 2000 and
January 1, 2000) or per share amounts herein, unless
otherwise noted, have been adjusted to reflect the 3 for 2
stock split on a retroactive basis.
As of March 15, 2002, there were approximately 5,389
holders of record of our common stock.
Dividends
We do not currently pay cash dividends on our shares of common
stock. The payment of dividends is subject to the discretion of
our Board of Directors. The Board of Directors bases its
decisions regarding dividends on, among other things, general
business conditions, our financial results, contractual, legal
and regulatory restrictions regarding dividend payments and any
other factors the Board may consider relevant. Under the terms
of our credit agreement we were restricted from paying dividends
during fiscal 2001. For fiscal years commencing after 2001, the
maximum amount of dividends paid on our common stock cannot
exceed $5.0 million unless certain conditions are met.
Item 6.
Selected
Financial Data
The selected consolidated historical financial data presented
below as of and for the fiscal years 2001, 2000, 1999, 1998,
transition period 1998 and fiscal year 1997 have been derived
from the consolidated financial statements of the company which
have been audited by PricewaterhouseCoopers LLP, independent
accountants. The results of operations presented below are not
necessarily indicative of results that may be expected for any
future period and should be read in conjunction with
Matters Affecting Analysis included in Item 7,
Managements Discussion and Analysis of Results of
Operations and Financial Condition, and our Consolidated
Financial Statements and the accompanying Notes to Consolidated
Financial Statements in this Form 10-K.
12
[Additional columns below]
[Continued from above table, first column(s) repeated]
13
Item 7.
Managements
Discussion and Analysis of Results of Operations and Financial
Condition
The following discussion should be read in conjunction with
Selected Financial Data included herein and the
companys Consolidated Financial Statements and the related
Notes to Consolidated Financial Statements incorporated by
reference or included elsewhere. The following information
contains forward-looking statements which involve certain risks
and uncertainties. See Forward-Looking Statements.
Overview
General
The company produces and markets fresh baked breads, rolls and
snack foods and frozen baked breads and desserts. Sales are
principally affected by pricing, quality, brand recognition, new
product introductions and product line extensions, marketing and
service. The company manages these factors to achieve a sales
mix favoring its higher-margin branded products, while using
high-volume products to control overhead costs and maximize use
of production capacity.
The principal elements comprising the companys production
costs are ingredients, packaging materials, labor and overhead.
The major ingredients used in the production of the
companys products are flour, sugar, shortening, fruits and
dairy products. The company also uses paper products, such as
corrugated cardboard, aluminum products, such as pie plates, and
plastic to package its products. The prices of these materials
are subject to significant volatility. The company has mitigated
the effects of such price volatility in the past through its
hedging programs, but may not be successful in protecting itself
from fluctuations in the future. In addition to the foregoing
factors, production costs are affected by the efficiency of
production methods and capacity utilization.
The companys selling, marketing and administrative
expenses are comprised mainly of distribution, logistics and
advertising expenses. Distribution and logistics costs represent
the largest component of the companys cost structure,
other than production costs, and are principally influenced by
changes in sales volume.
Depreciation and amortization expenses for the company are
comprised of depreciation of property, plant and equipment and
amortization of costs in excess of net tangible assets
associated with acquisitions.
Critical Accounting
Policies and Estimates
The companys discussion and analysis of its financial
condition and results of operations are based upon the
Consolidated Financial Statements of the company, which have
been prepared in accordance with generally accepted accounting
principles in the United States. The preparation of these
financial statements requires the company to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses
during the reporting period. On an on-going basis, the company
evaluates its estimates, including those related to customer
programs and incentives, bad debts, raw materials, inventories,
long-lived assets, intangible assets, income taxes,
restructuring, pensions and other post-retirement benefits and
contingencies and litigation. The company bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The company believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its Consolidated Financial Statements:
14
The company recognizes revenue from the sale of product at the
time of delivery when title and risk of loss pass to the
customer. The company records estimated reductions to revenue
for customer programs and incentive offerings, including special
pricing agreements, price protection, promotions and other
volume-based incentives at the time the incentive is offered or
at the time of revenue recognition for the underlying
transaction that results in progress by the customer towards
earning the incentive. If market conditions were to decline, the
company may take actions to increase incentive offerings,
possibly resulting in an incremental reduction of revenue.
Independent distributors receive a percentage of the wholesale
price of product sold to retailers and other customers. The
company records such amounts as selling, marketing and
administrative expenses. If market conditions were to decline,
the company may take actions to increase distributor discounts,
possibly resulting in an incremental increase in selling,
marketing and administrative expenses at the time the discount
is offered.
The company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. Our top ten customers in 2001
accounted for 41% of sales. During fiscal 2001, no sales to a
single customer accounted for more than 10% of the
companys sales. If the financial condition of our
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
The companys pricing of primary raw materials is highly
correlated to the commodities markets. Commodities, such as our
baking ingredients, periodically experience price fluctuations.
From time to time, we enter into forward purchase agreements and
derivative financial instruments to reduce the impact of
volatility in raw material prices. If actual market conditions
are significantly different than those anticipated, raw material
prices could increase significantly, adversely affecting the
margins from the sale of our products.
The company writes down its inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the
cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
The company records an impairment charge to long-lived assets
and the related unamortized goodwill when, based on certain
indicators of impairment, it believes a long-lived asset or the
related unamortized goodwill has experienced a decline in value
that is other than temporary. Future adverse changes in market
conditions or poor operating results of underlying long-lived
assets and the related unamortized goodwill could result in
losses or an inability to recover the carrying value of the
long-lived assets or related unamortized goodwill that may not
be reflected in the assets or related unamortized
goodwills current carrying value, thereby possibly
requiring an impairment charge in the future.
The company records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be
realized. While the company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the
company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise,
should the company determine that it would not be able to
realize all or part of its net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.
Matters Affecting
Analysis
On March 26, 2001, FII shareholders approved a transaction
that resulted in the spin-off of Flowers Foods and the merger of
FII with a wholly-owned subsidiary of Kellogg. In the
transaction, FII transferred the stock of its two wholly-owned
subsidiaries, Flowers Bakeries, Inc. and Mrs. Smiths
Bakeries, Inc. and all
15
The result of the spin-off and merger transaction described
above was the disposal of a segment of a business, Keebler.
Accordingly, at December 30, 2000, the company was
presented as the continuing entity that included the historical
financial information of Flowers Bakeries and
Mrs. Smiths Bakeries with Keebler presented as a
discontinued operation. As such, the company classified all
balance sheet information relating to the spin-off and merger
transaction for the fiscal year ended December 30, 2000
under the captions Net Assets of Discontinued
Operations and Liabilities to be settled by
others in the Consolidated Balance Sheet as appropriate,
and all income and expense activity (including amortization of
Keebler goodwill and other intangible assets recorded at FII) of
Keebler for the fiscal years ended December 30, 2000 and
January 1, 2000 under the caption Income from
discontinued operations, less applicable taxes of $59,822 and
$40,246 in the Consolidated Statement of Income. In addition,
costs related to the transaction, less all estimated income and
expense activity of Keebler from the period December 31,
2000 through March 26, 2001, is included under the caption
Transaction costs less phase-out income, less applicable
taxes in the Consolidated Statement of Income. For further
information, see Note 3 of Notes to Consolidated Financial
Statements.
In accordance with the transaction described above, Net
Assets of Discontinued Operations and Liabilities to
be settled by others at March 26, 2001 of $567.4
million and $662.4 million, respectively, were relieved from the
Consolidated Balance Sheet with a corresponding adjustment to
capital in excess of par value.
In addition, in connection with the spin-off and merger
transaction, various separation and other contractual payments
under FIIs stock and incentive programs of $39.0 million
were paid to executive and non-executive officers and employees.
Of this amount, $5.7 million was accrued at March 26, 2001,
and $5.3 million was amortized to earnings prior to
March 26, 2001. Accordingly, in the first quarter of fiscal
2001, a charge of $28.0 million was recorded as an unusual
charge to the companys continuing operations, with a
corresponding credit to capital in excess of par value, as a
result of payments being settled from the proceeds of the
spin-off and merger transaction.
On March 26, 2001, the company completed a tender offer for
the $200 million aggregate principal amount of 7.15% Debentures
due 2028 (the debentures) and repurchased
substantially all the debentures at a discount. Accordingly, in
the first quarter of fiscal 2001, the company recorded an
extraordinary gain of $5.0 million, net-of-tax, related to the
early extinguishment of these debentures. The discount of
$12.3 million was partially offset by $4.2 million in debt
issuance costs and $3.1 million in taxes.
On March 26, 2001, the company entered into a credit
agreement that provided for total borrowings of up to $380.0
million, consisting of Term Loan A of $100.0 million, Term Loan
B of $150.0 million and a revolving loan facility of $130.0
million. In December 2001, the company made a voluntary debt
payment of $50.0 million which, in combination with
contractually required debt reductions during fiscal 2001 of
$10.8 million, resulted in a total permanent reduction of Term
Loan A and Term Loan B borrowings of $58.0 million and $2.8
million, respectively. As a result of the voluntary debt
payment, the company reduced its unamortized financing costs
resulting in an early extinguishment debt charge of $1.1
million, net of tax, which was recorded in the fourth quarter of
fiscal 2001 as an extraordinary loss. Also on March 26,
2001, the company purchased the notes receivable (the
distributor notes) from the independent distributors
which had previously been owned by a third party financial
institution and serviced by the company or a wholly-owned
subsidiary of the company. The principal balance of the
distributor notes at that date was $77.6 million.
16
The company maintains insurance for property damage, mechanical
breakdown, product liability, product contamination and business
interruption applicable to its production facilities. During
fiscal 1999, Mrs. Smiths Bakeries incurred
substantial costs related to mechanical breakdown and product
contamination at certain plants. Mrs. Smiths Bakeries
filed claims under the companys insurance policies for a
portion of these costs that it believed to be insured. During
fiscal 2000, Mrs. Smiths Bakeries recovered net
insurance proceeds of $17.2 million. During the first half of
fiscal 2001, the company finalized these insurance claims and
received additional net proceeds of $7.5 million.
Information on Unusual
Charges
On March 25, 2002, in
Trans American Brokerage, Inc vs.
Mrs. Smiths Bakeries, Inc.,
an arbitration
brought before the American Arbitration Association, an
arbitrator found against Mrs. Smiths Bakeries and
issued an interim award for damages. In the dispute, the
claimant alleges breach of a sales brokerage agreement by
Mrs. Smiths Bakeries and seeks lost profits as well
as attorneys fees and costs. As a result of the award, the
company recorded a $10.0 million charge ($6.2 million after
tax) to its results for the fiscal year ended December 29,
2001, as required by GAAP. The charge represents the
companys estimate of the total costs (including
attorneys fees and expenses) which it could incur in
connection with this dispute. The company disagrees with the
arbitrators award and intends to continue to vigorously
contest it, including a request that the arbitrator reconsider
the interim award.
During the fourth quarter of fiscal 2001, Mrs. Smiths
Bakeries recorded an unusual charge of $2.6 million to close the
Pembroke, North Carolina production facility. The facility was
closed in order to rationalize production efforts. Production
for this facility was transferred to the Spartanburg, South
Carolina and Stilwell, Oklahoma facilities. This charge
consisted of $2.0 million in accelerated depreciation to
write-off certain machinery and equipment that was used in
production during the fourth quarter of fiscal 2001 but was
planned for abandonment at December 29, 2001 and $0.6
million in severance for 172 employees and other related exit
costs of closing the facility. Additionally, costs of moving
equipment to the other production facilities and the write-down
of certain machine parts of $1.0 million were expensed as
incurred in materials, supplies, labor and other production
costs in fiscal 2001. This plan was substantially complete in
February 2002.
During the second quarter of fiscal 2001, Flowers Bakeries
recorded an unusual charge of $3.1 million as a result of
the decision to close its Memphis, Tennessee production
facility. In the fourth quarter of 2001, an increase of
$0.3 million was made to this charge as a result of more
accurate information regarding the fair value of certain assets.
The facility was closed in order to rationalize production
efforts in this geographical area. The area is served from other
production facilities. Severance costs of $1.4 million
provided for the termination of 123 employees. Asset
impairment charges of $1.0 million and $0.6 million,
respectively, were recorded to write-off certain fixed assets
and reduce goodwill. Additionally, other related exit costs of
$0.4 million were recorded. This plan was substantially
complete at the end of fiscal 2001.
During the fourth quarter of fiscal 2000, Mrs. Smiths
Bakeries recorded an asset impairment charge of
$17.4 million representing the impairment of goodwill and
other identifiable intangible assets relating to the
Pet-Ritz
and
Banquet
lines, both of which were acquired in
fiscal 1998. The impairment of these intangible assets is a
result of the companys decision to discontinue certain
products under the
Banquet
product line and the decreased
forecasted sales volumes for the
Pet-Ritz
and
Banquet
product lines. This plan was substantially complete at the
end of fiscal 2001.
During the fourth quarter of fiscal 2000, Mrs. Smiths
Bakeries implemented a plan to transfer production from its
facility in Forest Park, Georgia to an existing facility in
Spartanburg, South Carolina. This decision was made to take
advantage of more highly automated production capacities at the
Spartanburg plant. As a direct result, Mrs. Smiths
Bakeries recorded a charge of $1.5 million, which consisted
of $1.0 million of noncash asset impairments and
$0.5 million of severance and other employee costs. This
plan was substantially complete at the end of fiscal 2001.
17
During fiscal 2000, Flowers Bakeries recorded a
$1.2 million adjustment to the fiscal 1998 restructuring
reserve. This adjustment was the result of Flowers
Bakeries decision to reopen a closed bakery located in
Norfolk, Virginia in order to meet the demands of our growing
foodservice business. This bakery was operational in the spring
of fiscal 2001.
The companys results of operations, expressed as a
percentage of sales, are set forth below:
Fifty-Two Weeks Ended December 29, 2001 Compared to
Fifty-Two Weeks Ended December 30, 2000
Consolidated and Segment Results
Sales.
For the fiscal year ended December 29, 2001,
sales were $1,629.0 million, or 3.8% higher than sales in the
prior year, which were $1,568.9 million.
Flowers Bakeries sales for fiscal year 2001, were $1,055.9
million, an increase of 3.9% over sales of $1,016.2 million
reported for fiscal 2000. Branded and private label products
distributed through the companys DSD system to
supermarkets, convenience stores, mass merchandisers and club
stores represent approximately 82% of Flowers Bakeries
sales. These sales, driven by the companys
Natures Own
brand of soft variety breads, increased approximately 3.9%
over fiscal 2000. This increase is primarily attributable to
increased selling prices and a favorable product mix. The
balance of Flowers Bakeries sales is primarily to
foodservice customers. Foodservice sales increased approximately
4.3% over fiscal 2000. This increase is primarily due to
favorable pricing.
Mrs. Smiths Bakeries sales for fiscal year
2001, excluding intersegment sales of $61.8 million, were
$573.1 million, an increase of 3.7% over sales of $552.7
million, excluding intersegment sales of $62.4 million,
reported during fiscal 2000. Branded and private label products
distributed frozen and non-frozen to supermarkets, convenience
stores, mass merchandisers, club stores and the vending trade
represent approximately 60% of Mrs. Smiths
Bakeries sales. These sales increased approximately 5.8%
over the prior year. This increase is primarily due to favorable
pricing and volume. Sales to foodservice customers represent
approximately 30% of Mrs. Smiths Bakeries
sales. Foodservice sales decreased approximately 1.5% over the
prior year. This decrease is primarily attributable to decreased
volume due to economic conditions in the foodservice industry.
The balance of Mrs. Smiths Bakeries sales is
primarily to non-affiliated food companies under contract
production arrangements. These sales increased approximately
6.1% over the prior year. This increase is primarily due to
volume increases.
Gross Margin (defined as net sales less materials, supplies,
labor and other production costs).
Gross margin for fiscal
2001 was $740.2 million, or 10.7% higher than gross margin
reported a year ago of $668.7 million. As a percent of sales,
gross margin was 45.4% for fiscal 2001, compared to 42.6% for
fiscal 2000.
Flowers Bakeries gross margin increased to 56.3% of sales
for fiscal 2001, compared to 54.3% of sales for fiscal 2000.
This increase can be attributed to improved pricing and lower
packaging and ingredient costs as well as a more favorable
product mix. Additionally, there were significant reductions in
lease costs due to the buyout of certain leases as a part of the
spin-off and merger transaction. These improvements were
partially offset by higher labor and energy costs. The increase
in labor costs can primarily be attributed to increases in
insurance expenses.
18
Mrs. Smiths Bakeries gross margin increased to
26.4% of sales for fiscal 2001, compared to 22.5% of sales for
fiscal 2000. This increase is attributable to lower ingredient
costs due to improved scrap rates at our highly automated
facilities and a reduction in labor costs due to the use of
fewer temporary employees as a result of the correction of the
mechanical problems at the Stilwell plant.
Selling, Marketing and Administrative Expenses.
During
fiscal 2001, selling, marketing and administrative expenses were
$624.1 million, or 38.3% of sales, as compared to $591.5
million, or 37.7% of sales reported for fiscal 2000.
Flowers Bakeries selling, marketing and administrative
expenses were $480.0 million, or 45.5% of sales during fiscal
2001 as compared to $450.3 million, or 44.3% during fiscal 2000.
The increase in absolute terms as well as a percent of sales was
comprised of increases in labor and distribution costs. These
increases were partially offset by decreases in expenses as
compared to the prior year associated with the rollout of an
enterprise-wide information system, which is nearing completion.
Mrs. Smiths Bakeries selling, marketing and
administrative expenses were $125.8 million, or 21.9% of sales
during fiscal 2001 as compared to $123.8 million, or 22.4% of
sales during fiscal 2000. This decrease in percentage is a
result of lower distribution expenses and lower trade
promotional expenses. Trade promotional expenses decreased
primarily as a result of higher costs incurred in the prior year
related to the introduction of
Mrs. Smiths Cookies
and Cream
pies. Partially offsetting this decrease was an
increase in advertising expense of $6.8 million in fiscal
2001 resulting from television promotions run during the fiscal
2001 pie season.
Depreciation and Amortization.
Depreciation and
amortization expense was $73.8 million for fiscal 2001, an
increase of 10.0% over the prior year, which was
$67.1 million.
Flowers Bakeries depreciation and amortization expense
increased to $45.6 million in fiscal 2001 from
$38.2 million in fiscal 2000. The increase is primarily
attributable to the depreciation of costs capitalized in prior
years associated with information technology projects and
increased depreciation as a result of the purchase of assets
that were leased in the prior year.
Mrs. Smiths Bakeries depreciation and
amortization expense in fiscal 2001 was $28.1 million as
compared to $28.4 million in fiscal 2000. The decrease in
amortization was a result of the write-down of goodwill and
other identifiable intangible assets related to the
Pet-Ritz
and
Banquet
brands which was recorded in the fourth
quarter of fiscal 2000. Partially offsetting this decrease was
an increase in depreciation, primarily as a result of an
increase in capital expenditures and the purchase of assets that
were leased in the prior year.
Proceeds From Insurance Policies.
The company maintains
insurance for property damage, mechanical breakdown, product
liability, product contamination and business interruption
applicable to its production facilities. During fiscal 1999,
Mrs. Smiths Bakeries incurred substantial costs
related to mechanical breakdown and product contamination at
certain plants. Mrs. Smiths Bakeries filed claims
under the companys insurance policies for a portion of
these costs that it believed to be insured.
Mrs. Smiths Bakeries recovered net insurance proceeds
of $7.5 million and $17.2 million in fiscal 2001 and
2000, respectively.
Unusual Charges.
On March 25, 2002, in
Trans American
Brokerage, Inc vs. Mrs. Smiths Bakeries, Inc.,
an
arbitration brought before the American Arbitration Association,
an arbitrator found against Mrs. Smiths Bakeries and
issued an interim award for damages. In the dispute, the
claimant alleges breach of a distribution agreement by
Mrs. Smiths Bakeries and seeks lost profits as well
as attorneys fees and costs. As a result of the award, the
company recorded a $10.0 million charge ($6.2 million
net of tax) to its results for the fiscal year ended
December 29, 2001, as required by GAAP. The charge
represents the companys estimate of the total costs
(including attorneys fees and expenses) which it could
incur in connection with this dispute. The company disagrees
with the arbitrators award and intends to continue to
vigorously contest it, including a request that the arbitrator
reconsider the interim award.
During the fourth quarter of fiscal 2001, Mrs. Smiths
Bakeries recorded an unusual charge of $2.6 million to
close the Pembroke, North Carolina production facility. The
facility was closed in order to rationalize production efforts.
Production for this facility was transferred to the Spartanburg,
South Carolina
19
During the second quarter of fiscal 2001, Flowers Bakeries
recorded a unusual charge of $3.1 million as a result of
the decision to close its Memphis, Tennessee production
facility. In the fourth quarter of 2001, an increase of
$0.3 million was made to this charge as a result of more
accurate information regarding the fair value of certain assets.
The facility was closed in order to rationalize production
efforts in this geographical area. The area is served from other
production facilities. Severance costs of $1.4 million
provided for the termination of 123 employees. Asset impairment
charges of $1.0 million and $0.6 million,
respectively, were recorded to write off certain fixed assets
and reduce goodwill. Additionally, other related exit costs of
$0.4 million were recorded. This plan was substantially
complete at the end of fiscal 2001.
During the first quarter of fiscal 2001, in connection with the
spin-off and merger transaction, various separation and other
contractual payments under FIIs stock and incentive
programs of $39.0 million were paid to executive and
non-executive officers and employees. Of this amount,
$5.7 million was accrued at March 26, 2001 and
$5.3 million was previously amortized to earnings prior to
March 26, 2001. Accordingly, a charge of $28.0 million
was recorded in the companys continuing operations in the
first quarter of fiscal 2001.
Interest Expense.
For fiscal 2001, net interest expense
was $32.2 million, a decrease of $36.2 million from the prior
year, which was $68.4 million. The decrease is due to a
reduction in debt that resulted from the spin-off and merger
transaction.
(Loss) Before Income Taxes, Extraordinary Gain and
Discontinued Operations.
The loss before income taxes,
extraordinary gain and discontinued operations for fiscal 2001
was $26.4 million, an improvement of $32.3 million from the
$58.7 million loss reported in fiscal 2000.
The improvement is primarily a result of significant
improvements in the operating results of Mrs. Smiths
Bakeries of $25.7 million and a decrease in interest
expense of $36.2 million as a result of the decrease in
debt resulting from the spin-off and merger transaction. In
addition, Flowers Bakeries operating income increased by
$6.3 million as the result of improved pricing and
decreased ingredient and packaging costs. Partially offsetting
these positive items were increases in labor, distribution and
advertising costs, increases in unusual charges of $26.2 million
and a decrease in insurance proceeds of $9.7 million.
Extraordinary Loss/Gain on the Early Extinguishment of
Debt.
During December 2001, the company made a
$50.0 million voluntary debt payment which, in combination
with contractually required debt reductions during fiscal 2001
of $10.8 million, resulted in a total permanent reduction of
Term Loan A and Term Loan B borrowings of
$58.0 million and $2.8 million, respectively. As a
result of the voluntary debt payment, the company reduced its
unamortized loan costs resulting in an early extinguishment of
debt charge, net of tax, of $1.1 million which was recorded
in the fourth quarter of fiscal 2001 as an extraordinary loss.
On March 26, 2001, the company completed a tender offer for
the debentures and repurchased substantially all the debentures
at a discount. Accordingly, the company recorded an
extraordinary gain of approximately $5.0 million, net of
tax, related to the early extinguishment of these debentures.
The discount of $12.3 million was partially offset by
$4.2 million in debt issuance costs and $3.1 million
in taxes.
Discontinued Operations.
As a result of the spin-off and
merger transaction, FII, whose assets and liabilities then
consisted of its holding of Keebler common stock and certain
debt and other liabilities, was acquired by Kellogg on
March 26, 2001. For accounting purposes, the company is
presented as the continuing entity that includes the historical
financial information of Flowers Bakeries and
Mrs. Smiths Bakeries with Keebler presented as a
discontinued operation. FIIs share of Keeblers net
income from December 30, 2000 through March 26, 2001
was included in phase-out income from discontinued operations in
fiscal 2000. The
20
Income Taxes.
The income tax benefit during fiscal 2001
was provided for at an estimated effective rate of 31%. The
effective rate differs from the statutory rate due to
non-deductible expenses, principally amortization of
intangibles, including trademarks, trade names, other
intangibles and goodwill.
Fifty-Two Weeks Ended December 30, 2000 Compared to
Fifty-Two Weeks Ended January 1, 2000
Consolidated and Segment
Results
Sales.
For the fiscal year ended December 30, 2000,
sales were $1,568.9 million, or 3.8%, higher than sales for the
prior year of $1,511.4 million.
Flowers Bakeries sales increased $54.5 million, or
5.7%, to $1,016.2 million in fiscal 2000 from
$961.7 million in fiscal 1999. This increase was
attributable to a 3.5% increase from acquisitions and a 2.2%
increase from same bakery sales. Branded retail sales, which
account for 65.1% of Flowers Bakeries total sales,
increased $44.3 million. This increase is primarily attributable
to price increases. Private label sales, which account for 15.7%
of Flowers Bakeries sales, increased $9.2 million. This
increase is primarily due to Flowers Bakeries acquisition
of the Memphis, Tennessee bakery from the Kroger Company in
fiscal 2000. Foodservice sales, which account for 19.0% of
Flowers Bakeries sales, increased $3.0 million. This
increase is primarily attributable to the acquisition of Home
Baking Company in Birmingham, Alabama in fiscal 1999.
Mrs. Smiths Bakeries sales increased $3.0
million, or 0.5%, to $552.7 million in fiscal 2000 from
$549.7 million in fiscal 1999. Branded and private label
products distributed frozen and non-frozen to supermarkets,
convenience stores, mass merchandisers, club stores and the
vending trade represent approximately 60% of
Mrs. Smiths Bakeries sales. These sales
decreased approximately 1.5% over the prior year. This decrease
was primarily due to the implementation of a plan to reduce the
number of non-strategic items produced. Sales to foodservice
customers represent approximately 30% of Mrs. Smiths
Bakeries sales. Foodservice sales increased approximately
4.4% over the prior year. This increase is primarily due to
favorable pricing trends and slight volume increases. The
balance of Mrs. Smiths Bakeries sales is
primarily to non-affiliated food companies under contract
production arrangements. These sales increased approximately
2.2% over the prior year. This increase is primarily due to
volume increases.
Gross Margin (defined as net sales less materials, supplies,
labor and other production costs).
Gross margin was 42.6% in
fiscal 2000 as compared to 41.5% in fiscal 1999.
Flowers Bakeries gross margin increased to 54.3% of sales
in fiscal 2000 from 53.6% of sales in fiscal 1999. The increase
is primarily the result of increased pricing as well as a
decrease in ingredient costs that resulted from changes in
product mix. These increases were partially offset by increased
energy costs and inadequate bun capacity in the Northern region.
This issue was resolved by the reopening of the Norfolk,
Virginia bakery in the spring of 2001. In addition, the
Texarkana and Pine Bluff bakeries were temporarily shut down due
to severe weather in fiscal 2000, negatively affecting their
margins.
Mrs. Smiths Bakeries gross margin improved to
22.5% in fiscal 2000 from 21.0% in fiscal 1999. This increase is
attributable to lower ingredient costs due to improved scrap
rates at our new, highly automated facilities and a reduction in
labor costs due to the use of fewer temporary employees as a
result of the correction of the mechanical problems at the
Stilwell plant. This increase was partially offset by increased
costs during the first half of fiscal 2000 associated with the
continuing efforts to correct the mechanical breakdown which
occurred during the production realignment in fiscal 1999.
Selling, Marketing and Administrative Expenses.
Selling,
marketing and administrative expenses in fiscal 2000 increased
$4.9 million, or 0.8%, from fiscal 1999. These expenses
decreased as a percent of sales to 37.7% in fiscal 2000 from
38.8% in fiscal 1999.
Flowers Bakeries selling, marketing and administrative
expenses increased to 44.3% of sales in fiscal 2000 from 43.2%
of sales in fiscal 1999. Distribution costs increased for a
second straight year due to higher fuel costs. Flowers Bakeries
also incurred increased logistics costs associated with shipping
product to the
21
Mrs. Smiths Bakeries selling, marketing and
administrative costs decreased to 22.4% of sales in fiscal 2000
from 27.0% of sales in fiscal 1999. In fiscal 1999,
Mrs. Smiths Bakeries performed an extensive review of
its business operations and recognized higher reserves due to
customer deductions and promotional expenses. These costs were
not incurred to the same extent in fiscal 2000. Distribution
expenses also decreased as a result of the correction of
production difficulties which forced us to underutilize our
distribution carriers. Decreases in these expenses were
partially offset by increased slotting fees related to the
introduction of our
Cookies and Cream
products.
Depreciation and Amortization Expense.
Depreciation and
amortization expense was $67.1 million for fiscal 2000, an
increase of 24.5% over $53.9 million for fiscal 1999.
Flowers Bakeries depreciation and amortization expense
increased to $38.2 million in fiscal 2000 from $32.9 million in
fiscal 1999. The increase is primarily attributable to a full
year of depreciation from capital expenditures incurred in
fiscal 1999 and the purchase of Krogers Memphis bakery in
fiscal 2000.
Mrs. Smiths Bakeries depreciation and
amortization expense increased to $28.4 million in fiscal 2000
from $20.1 million in fiscal 1999. The increase is primarily
attributable to a full year of depreciation from capital
expenditures incurred in the production realignment in fiscal
1999.
Unusual Charges.
During the fourth quarter of fiscal
2000, Mrs. Smiths Bakeries recorded an asset
impairment of $17.4 million representing the impairment of
goodwill and other identifiable intangible assets relating to
the
Pet-Ritz
and
Banquet
lines, both of which were
acquired in fiscal 1998. The impairment of these intangible
assets is a result of the companys decision to discontinue
certain products under the
Banquet
product line and the
decreased forecasted sales volumes for the
Pet-Ritz
and
Banquet
product lines. This plan was substantially
complete at the end of fiscal 2001.
During the fourth quarter of fiscal 2000, Mrs. Smiths
Bakeries implemented a plan to transfer production from its
facility in Forest Park, Georgia to an existing facility in
Spartanburg, South Carolina. This decision was made to take
advantage of more highly automated production capacities at the
Spartanburg plant. As a result, Mrs. Smiths Bakeries
recorded a charge of $1.5 million which consisted of $1.0
million of noncash asset impairments and $0.5 million of
severance and other employee costs. This plan was substantially
complete at the end of fiscal 2001.
During fiscal 2000, Flowers Bakeries recorded a $1.2 million
adjustment to the fiscal 1998 restructuring reserve. This
adjustment was the result of Flowers Bakeries decision to
reopen a closed bakery located in Norfolk, Virginia in order to
meet the demands of our growing foodservice business. This
bakery was operational in the spring of 2001.
Interest Expense.
For fiscal 2000, net interest expense
was $68.4 million, an increase of 53.0% over fiscal 1999
interest expense of $44.7 million. The increase was due to an
increase in loan borrowing margins and facility fees as a result
of amendments made to the revolving line of credit in fiscal
1999 and fiscal 2000.
Loss from Continuing Operations Before Income Taxes.
Losses from continuing operations before income taxes were $58.7
million for fiscal 2000, an increase of $7.0 million compared to
a loss of $51.7 million reported in fiscal 1999.
Flowers Bakeries operating income decreased $4.1 million
to $62.9 million in fiscal 2000 from $67.0 million in fiscal
1999. This decrease is primarily attributable to increased
distribution costs as well as start up costs associated with the
integration of the Memphis Bakery. These decreases were
partially offset by increased margins attributable to favorable
pricing and production efficiencies.
22
Mrs. Smiths Bakeries operating loss decreased
by $25.3 million to $28.0 million in fiscal 2000 from $53.3
million in fiscal 1999. This improved performance is the result
of a reduction in labor and ingredient costs and expenses
incurred to correct the production realignment problems in
fiscal 1999.
Other operating losses decreased by $2.0 million and interest
expense increased by $23.7 million. In addition, fiscal 2000
included insurance proceeds of $17.2 million which were not
present in fiscal 1999, and unusual charges increased $23.7
million.
Income from Discontinued Operations.
Income from
discontinued operations increased $45.8 million to $87.8 million
in fiscal 2000 from $42.0 million in fiscal 1999. The increase
is primarily due to an increase in sales and gross margins at
Keebler as a result of the purchase of Austin Quality Foods on
March 6, 2000, as well as a decrease in unusual charges of
$67.3 million. A gain on the sale of the value brands business
and the Sayreville facility also added to the increase.
Offsetting those increases were higher marketing expenses
associated with the roll out of the new
Sesame Street
line of products and higher distribution costs related to
fuel price increases. Depreciation and amortization also
increased as a result of capital spending and acquisitions.
Income from discontinued operations also included transaction
costs less phase-out income for the period from fiscal
2000 year-end through the merger and spin-off transaction
which culminated on March 26, 2001.
Income Taxes.
The income tax benefit on the losses from
continuing operations were provided at an effective rate of
28.0% in fiscal 2000 and 32.7% in fiscal 1999.
Net Income.
For fiscal 2000, net income was $5.0 million,
a decrease of $2.3 million as compared to $7.3 million net
income reported in fiscal 1999. Fiscal 2000 included an increase
in the loss from continuing operations of $7.0 million. Fiscal
2000 also included a loss from transaction costs less phase-out
income of $40.5 million which was not present in fiscal 1999.
Partially offsetting these decreases was an increase in income
from discontinued operations of $45.8 million.
Liquidity and Capital Resources
Flowers Foods cash and cash equivalents increased to $12.3
million at December 29, 2001 from $11.8 million at
December 30, 2000. The increase resulted primarily from
$79.9 million and $53.1 million provided by operating activities
and financing activities, respectively, offset in part by $132.6
million used in investing activities.
Net cash of $79.9 million provided by operating activities
consisted primarily of a $14.3 million net loss adjusted for
certain non-cash items of $82.4 million and working capital and
other activities of $11.8 million. Net cash provided from
working capital and other activities resulted from decreases in
accounts receivable and other assets of $13.0 million and $13.9
million, respectively. Operating net cash flows were negatively
affected by a decrease in accounts payable and other accrued
liabilities of $6.9 million.
Net cash disbursed for investing activities for fiscal 2001 of
$132.6 million included capital expenditures of $49.5 million.
Capital expenditures at Flowers Bakeries and
Mrs. Smiths Bakeries were $24.8 million and $24.7
million, respectively. In addition, $77.6 million was used to
repurchase the distributor notes, which had previously been
owned by a third-party financial institution. Additionally, $6.5
million was used for acquisitions. Partially offsetting these
items was a dividend of $5.2 million received from FIIs
ownership in Keebler before the spin-off and merger transaction
on March 26, 2001.
Net cash provided by financing activities of $53.1 million
consisted primarily of $251.0 million of proceeds from a new
credit agreement and $73.1 million of proceeds related to
changes in debt and other liabilities in connection with the
spin-off and merger transaction. These items were partially
offset by the companys tender offer and repurchase of the
debentures for $193.8 and $67.6 million of debt repayments.
The repurchases of the debentures and distributor notes were
financed primarily from the proceeds of a new credit agreement
entered into on March 26, 2001. The credit agreement
provides for total borrowings of up to $380.0 million consisting
of Term Loan A of $100.0 million and Term Loan B of $150.0
million and a revolving loan facility of $130.0 million.
23
The credit agreement includes certain restrictions, which, among
other things, require maintenance of financial covenants,
restrict encumbrance of assets and creation of indebtedness and
limit capital expenditures, purchases of common shares and
dividends that can be paid. Restrictive financial covenants
include such ratios as a consolidated interest coverage ratio, a
consolidated fixed charge coverage ratio and a maximum leverage
ratio. Annual capital expenditures are restricted between $50.0
million and $57.5 million during the periods beginning in fiscal
2001 and ending with fiscal 2005. No dividends were paid in
fiscal 2001. Commencing in fiscal 2002, the maximum amount of
dividends that can be paid cannot exceed $5.0 million unless
certain conditions are met. Loans under the credit agreement are
collateralized by substantially all of the assets of the
company, excluding real property. As of December 29, 2001,
the company was in compliance with all covenants and believes
that, given its current cash position, its cash flow from
operating activities, and its available credit facilities, it
can comply with the current terms of its credit facilities and
can meet presently foreseeable financial requirements.
Interest is due quarterly on outstanding borrowings under the
new credit agreement at the eurodollar rate or base rate plus
applicable margin. This underlying rate is defined as either
rates offered in the interbank eurodollar market or the higher
of the prime rate or federal funds rate plus 0.5%. The
applicable margin is based on the companys leverage ratio
and can range from 2.5% 0.5% for Term Loan A
and the revolving loan facility and 2.75% 1.75% for
Term Loan B. In addition, a commitment fee of
0.5% 0.375% is due quarterly on all commitments not
utilized under the credit agreement. At December 29, 2001,
the interest rates for Term Loan A and Term Loan B
were 4.25% and 4.75%, respectively. At December 29, 2001,
the outstanding balances of Term Loan A and Term
Loan B were $42.0 million and $147.3 million,
respectively. No amounts were outstanding under the revolving
loan facility.
From March 26, 2001 to December 29, 2001, the company
made contractually determined debt payments of $10.8 million on
its term loans. In addition, during that period the company made
a voluntary debt prepayment of $50.0 million. These payments
resulted in a permanent debt reduction of $58.0 million in Term
Loan A and $2.8 million in Term Loan B. As a result of
the voluntary payment, the unamortized financing costs
associated with this portion of the debt were written off.
Accordingly, in the fourth quarter of fiscal 2001, the company
recorded an extraordinary loss of approximately $1.1 million,
net of tax, related to the early extinguishment of this debt. As
discussed above, on March 26, 2001, the company completed a
tender offer for the debentures and repurchased substantially
all the debentures at a discount. Accordingly, the company
recorded an extraordinary gain of $5.0 million, net of tax,
related to the early extinguishment of these debentures in the
first quarter of fiscal 2001.
The company directly offers long-term financing to its
independent distributors for the purchase of their territories,
and substantially all of the independent distributors use this
financing. Prior to March 26, 2001, purchases of these
territories were financed by a third-party financial institution
that had purchased the distributor notes from the company. In
the future, the company may pursue similar arrangements with
third-party financing sources. The distributor notes carry
maximum terms of ten years, and the distributor is required to
pay interest monthly on the outstanding balance. Under the terms
of the purchase agreement for the territory, the independent
distributor has the right to require the company to repurchase
the territory at the original price in the six-month period
following the sale. Should the distributor wish to sell the
territory after the six-month period has expired, the company
has a right of first refusal. Furthermore, in the event the
company decides to exit a territory, it is obligated to
repurchase the territory from the independent distributor for
the greater of the original purchase price or a multiple of
average weekly branded sales calculated over the six-month
period prior to the repurchase. In the event the independent
distributor exercises its put right or the company exercises its
right of first refusal, the company, through its employees,
operates the territory until it can be resold. The company has
not incurred, and does not expect to incur, material charges
related to these arrangements in the future because historically
the company has been able to resell the repurchased territories
within a reasonable period. At December 29, 2001, the
company held $80.9 million outstanding in distributor notes and
approximately $15.0 million in assets held for sale as a result
of territories repurchased and routes acquired that had not been
resold.
Certain of the independent distributors lease their trucks
through third-party finance companies. In certain instances, the
company has guaranteed repayment of such leases. At
December 29, 2001, the company
24
At December 29, 2001 and December 30, 2000, the
company did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities,
which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
The following table summarizes the companys contractual
obligations at December 29, 2001, and the effect such
obligations are expected to have on its liquidity and cash flow
in future periods (amounts in thousands):
New Accounting Pronouncements
In May 2000, the Emerging Issues Task Force (EITF)
reached consensus on Issue No. 00-14, Accounting for
Certain Sales Incentives (EITF 00-14).
This issue addresses the recognition, measurement, and income
statement classification of sales incentives offered by vendors
(including manufacturers) that have the effect of reducing the
price of a product or service to a customer at the point of
sale. For cash sales incentives within the scope of this
issuance, costs are generally recognized at the date on which
the related revenue is recorded by the vendor and are to be
classified as a reduction of revenue. For noncash sales
incentives, such as package inserts, costs are to be classified
within cost of sales. This issuance is effective for the first
quarter of fiscal 2002. The company currently records coupon
expenses as selling, marketing and administrative expenses.
Coupon expenses were $2.8 million, $2.6 million and $2.2 million
for fiscal 2001, 2000 and 1999, respectively. Upon adoption of
EITF 00-14, the company will record coupon expenses as a
reduction to arrive at net sales. This issuance will not affect
net income.
In April 2001, the EITF reached consensus on Issue
No. 00-25, Vendor Income Statement Characterization
of Consideration to a Purchaser of the Vendors Products or
Services (EITF 00-25). This issuance
provides guidance primarily on income statement classification
of consideration from a vendor to a purchaser of the
vendors products. Generally, cash consideration is to be
classified as a reduction of revenue, unless specific criteria
are met regarding goods or services that the vendor may receive
in return for this
25
In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS
No. 141, which replaces Accounting Principles Board
(APB) Opinion No. 16, Business
Combinations, requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase
method of accounting and broadens the criteria for recording
intangible assets separate from goodwill. SFAS 142, which
replaces, APB Opinion No. 17, Intangible
Assets, requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a
non-amortization approach, goodwill and certain intangibles will
not be amortized into results of operations, but instead would
be reviewed for impairment and written down when appropriate
under the criteria of SFAS 142.
The company will adopt the provisions of SFAS 142 in the
first quarter of fiscal 2002. The company is in the process of
determining its reporting units, as defined by SFAS 142,
and what amounts of assets and liabilities should be allocated
to those reporting units. In connection with the adoption of
SFAS 142, the company expects that it will no longer record
$4.7 million of amortization expense per fiscal year
relating to its existing goodwill and indefinite-lived
intangibles.
SFAS 142 requires that goodwill be tested annually for
impairment using a two-step process. The first step is to
identify a potential impairment and, in transition, this step
must be measured as of the beginning of the fiscal year.
However, the company has six months from the date of adoption to
complete the first step. The company expects to complete this
first step of the goodwill impairment test within the required
timeframe. The second step of the impairment test measures the
amount of the impairment loss (measured as of the beginning of
the year), if any, and must be completed by the end of the
companys 2002 fiscal year. Intangible assets deemed to
have an indefinite life will be tested for impairment using a
one-step process that compares the fair value of the asset to
the carrying amount of the asset as of the date of adoption (the
beginning of the fiscal year). Pursuant to the requirements of
SFAS 142, this process will be completed during the first
quarter of fiscal 2002. Any impairment loss resulting from the
goodwill or indefinite-lived intangible asset impairment tests
will be recorded as a cumulative effect of a change in
accounting principle in the first quarter of fiscal 2002. The
company has not yet determined what effect these impairment
tests will have on the companys results of operations and
financial position.
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations which
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement is
effective for the company beginning in the first quarter of
fiscal 2003. Management does not expect the adoption of this
statement to have a material impact on the companys
results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144,
Accounting for Impairment or Disposal of Long-lived
Assets which supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of and the
accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions for the disposal of a segment of a business.
SFAS No. 144 clarifies and revises existing guidance on
accounting for impairment of plant, property, and equipment,
amortized intangibles and other long-lived assets not
specifically addressed in other accounting literature. SFAS
No. 144 also broadens the presentation of discontinued
operations to include a component of an entity rather than only
a segment of a business. This statement will be effective for
the company on a prospective basis, beginning the first quarter
of fiscal 2002. Management does not expect the adoption of this
statement to have a material impact on the companys
results of operations or financial position.
26
Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
In the normal course of business, the company is exposed to
commodity price risks and interest rate risks, primarily related
to the purchase of raw materials and packaging supplies and
changes in interest rates. The company manages its exposure to
these risks through the use of various financial instruments,
none of which are entered into for trading or speculative
purposes. The company has established policies and procedures
governing the use of financial instruments, specifically as it
relates to the type and volume of financial instruments entered
into. Financial instruments can only be used to hedge an
economic exposure, and speculation is prohibited. The
companys accounting policy related to financial
instruments is further described in Note 5 of Notes to
Consolidated Financial Statements.
Commodity Price Risk
The company enters into commodity forward, futures and option
contracts and swap agreements for wheat and, to a lesser extent,
other commodities in an effort to provide a predictable and
consistent commodity price and thereby reduce the impact of
volatility in its raw material and packaging prices. At
December 29, 2001, the fair market value of the
companys commodity derivative portfolio was
$(2.9) million. Of this fair value, $(0.1) million is
based on quoted market prices and $(2.8) million is based
on models and other valuation methods. Additionally, of this
fair value, $(2.2) million, $(0.8) million and
$.1 million, relate to instruments that will be utilized in
fiscal 2002, 2003 and 2004, respectively. A sensitivity analysis
has been prepared to estimate the companys exposure to
commodity price risk. Based on the companys derivative
portfolio as of December 29, 2001, a hypothetical ten
percent adverse change in commodity prices under normal market
conditions could potentially have a $(3.5) million effect
on the fair value of the derivative portfolio. The analysis
disregards changes in the exposures inherent in the underlying
hedged item; however, the company expects that any loss in fair
value of the portfolio would be substantially offset by
reductions in raw material and packaging prices.
Interest Rate Risk
The company enters into interest rate swap agreements in order
to reduce its overall interest rate risk. At December 29,
2001, the fair market value of the companys interest rate
swap was $(5.8) million. The fair value of the swap is based on
a valuation model using quoted market prices. The swap agreement
expires in December 2003. A sensitivity analysis has been
prepared to estimate the companys exposure to interest
rate risk. Assuming a ten percent increase in market price, the
fair value of the companys interest rate swap agreement at
December 29, 2001, with a notional amount of $150.0
million, would increase by $1.0 million, while the impact of a
ten percent decrease in market price would reduce the fair value
by $1.0 million.
Based on the companys floating rate debt at
December 29, 2001, including the effect of the interest
rate swap agreement, assuming a ten percent increase in interest
rates, the companys interest expense would increase by
$0.2 million, while the impact of a ten percent decrease in
interest rates would reduce interest expense by
$0.2 million.
Item 8.
Financial
Statements and Supplementary Data
Refer to the Index to Financial Statements and the Financial
Statement Schedule for the required information.
Item 9.
Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
27
Market Price
FY 2001
Quarter
High
Low
$
15.33
$
12.97
23.87
14.98
27.83
20.83
28.96
22.47
For the 52 Weeks Ended
December 29, 2001
December 30, 2000
January 1, 2000
January 2, 1999
(Amounts in thousands)
$
1,629,004
$
1,568,934
$
1,511,386
$
1,486,980
888,824
900,198
883,882
795,084
624,132
591,489
586,578
531,445
73,815
67,102
53,890
53,544
43,898
17,704
(5,994
)
64,461
(7,473
)
(17,193
)
36,466
68,373
44,691
42,225
(4,278
)
(26,380
)
(58,739
)
(51,661
)
221
(8,137
)
(16,457
)
(16,915
)
1,429
(18,243
)
(42,282
)
(34,746
)
(1,208
)
87,809
42,040
46,238
(40,482
)
(18,243
)
5,045
7,294
45,030
3,950
(3,131
)
$
(14,293
)
$
5,045
$
7,294
$
41,899
continuing operations
per diluted common share
(.61
)
(1.41
)
(1.16
)
(.04
)
per common share
1.74
1.68
1.59
$
1,099,691
$
1,562,646
$
1,566,963
$
1,382,877
$
242,057
$
247,847
$
303,955
$
215,233
$
621,637
$
502,460
$
538,754
$
572,961
For the
For the
27 Weeks
52 Weeks
Ended
Ended
January 3, 1998
June 28, 1997
(Amounts in thousands)
$
769,489
$
1,412,942
418,926
787,799
286,818
509,514
26,930
45,970
11,796
25,109
43,244
25,019
87,794
9,632
33,191
15,387
54,603
18,061
7,721
33,448
62,324
(9,888)
$
23,560
$
62,324
continuing operations
per diluted common share
.58
2.06
per common share
.74
1.37
$
898,880
$
898,187
$
276,211
$
275,247
$
348,567
$
340,012
(1)
Includes net assets of discontinued operations of $567.4
million, $496.7 million and $461.1 million at December 30,
2000, January 1, 2000 and January 2, 1999,
respectively.
(2)
Excludes amounts settled by others of $540.0 million , $486.0
million and $282.0 million at December 30, 2000,
January 1, 2000 and January 2, 1999, respectively.
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 allowance.
For the 52 Weeks Ended
December 29, 2001
December 30, 2000
January 1, 2000
100.00
%
100.00
%
100.00
%
45.44
42.62
41.52
38.31
37.70
38.81
4.53
4.28
3.57
1.98
4.36
2.96
(1.62
)
(3.74
)
(3.42
)
(.88
)
0.32
0.48
Payments Due by Fiscal Year
2006 and
2002
2003
2004
2005
thereafter
$
10,354
$
20,347
$
20,339
$
57,752
$
88,524
5,294
5,292
4,563
4,284
40,956
17,632
14,912
13,223
12,025
33,500
48,181
11,681
$
81,461
$
52,232
$
38,125
$
74,061
$
162,980
(1)
Does not include approximately $9.0 million $13.0
million of lease payments expected to be incurred in fiscal year
2002 related to distributor vehicles and other short-term or
cancelable operating leases.
PART III
Item 10.
Directors and
Executive Officers of the Registrant
The information required by this item with respect to directors
of the company is incorporated herein by reference to the
information set forth under the captions Election of
Directors and Section 16(a) Beneficial
Ownership Reporting Compliance in the companys
definitive proxy statement for the 2002 Annual Meeting of
Shareholders expected to be filed with the Securities and
Exchange Commission on or prior to April 28, 2002. The
information required by this item with respect to executive
officers of the company is set forth in Part I of this
Form 10-K.
Item 11.
Executive
Compensation
The information required by this item is incorporated herein by
reference to the information set forth under the caption
Executive Compensation in the companys
definitive proxy statement for the 2002 Annual Meeting of
Shareholders expected to be filed with the Securities and
Exchange Commission on or prior to April 28, 2002.
Item 12.
Security
Ownership of Certain Beneficial Owners and Management of Flowers
Foods
The information required by this item is incorporated herein by
reference to the information set forth under the captions
Principal Shareholders and Security Ownership
of Management in the companys definitive proxy
statement for the 2002 Annual Meeting of Shareholders expected
to be filed with the Securities and Exchange Commission on or
prior to April 28, 2002.
Item 13.
Certain
Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the information set forth under the caption
Transactions with Management and Others in the
companys definitive proxy statement for the 2002 Annual
Meeting of Shareholders expected to be filed with the Securities
and Exchange Commission on or prior to April 28, 2002.
PART IV
Item 14.
Exhibits,
Financial Statement Schedule and Reports on Form 8-K
(a)
List of documents filed as part of this report.
1.
Financial Statements of the Registrant
2. Financial Statement Schedule of the Registrant
Schedule II Valuation and Qualifying Accounts for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000. |
28
3.
Exhibits.
The following documents are filed as
exhibits hereto:
Exhibit
No.
Name of Exhibit
2.1
Distribution Agreement by and between Flowers
Industries, Inc. and Flowers Foods, Inc., dated as of
October 26, 2000 (Incorporated by reference to Flowers
Foods Registration Statement on Form 10, dated
February 9, 2001, File No. 1-16247).
2.2
Amendment No. 1 to Distribution Agreement, dated
as of March 12, 2001, between Flowers Industries, Inc. and
Flowers Foods, Inc. (Incorporated by reference to Flowers
Foods Annual Report on Form 10-K, dated
March 30, 2001, File No. 1-16247).
3.1
Restated Articles of Incorporation of Flowers
Foods, Inc. (Incorporated by reference to Flowers Foods
Annual Report on Form 10-K, dated March 30, 2001, File
No. 1-16247).
3.2
Restated Bylaws of Flowers Foods, Inc.
(Incorporated by reference to Flowers Foods Annual Report
on Form 10-K, dated March 30, 2001, File
No. 1-16247).
4.1
Share Certificate of Common Stock of Flowers
Foods, Inc. (Incorporated by reference to Flowers Foods
Annual Report on Form 10-K, dated March 30, 2001, File
No. 1-16247).
4.2
Rights Agreement between Flowers Foods, Inc. and
First Union National Bank, as Rights Agent, dated March 23,
2001 (Incorporated by reference to Flowers Foods Annual
Report on Form 10-K, dated March 30, 2001, File
No. 1-16247).
10.1
Employee Benefits Agreement by and between
Flowers Industries, Inc. and Flowers Foods, Inc., dated as of
October 26, 2000 (Incorporated by reference to Flowers
Foods Registration Statement on Form 10, dated
February 9, 2001, File No. 1-16247).
10.2
First Amendment to Employee Benefits Agreement by
and between Flowers Industries, Inc. and Flowers Foods, Inc.,
dated as of February 6, 2001 (Incorporated by reference to
Flowers Foods Registration Statement on Form 10,
dated February 9, 2001, File No. 1-16247).
10.3
Flowers Foods, Inc. Retirement Plan No. 1
(Incorporated by reference to Flowers Foods Annual Report
on Form 10-K, dated March 30, 2001, File
No. 1-16247).
10.4
Flowers Foods, Inc. 2001 Equity and Performance
Incentive Plan (Incorporated by reference to Flowers Foods
Annual Report on Form 10-K, dated March 30, 2001, File
No. 1-16247).
10.5
Credit Agreement, dated as of March 26, 2001,
among Flowers Foods, Inc., the Lenders party thereto from time
to time, SunTrust Bank, as Syndication Agent and Bankers Trust
Company, as Administrative Agent (Incorporated by reference to
Flowers Foods Annual Report on Form 10-K, dated
March 30, 2001, File No. 1-16247).
10.6
Debenture Tender Agreement, dated as of March 12,
2001, by and among Flowers Industries, Inc., Flowers Foods, Inc.
and the Holders (Incorporated by reference to Flowers
Foods Annual Report on Form 10-K, dated
March 30, 2001, File No. 1-16247).
*10.7
Employment Agreement, effective as of
December 31, 2001, by and between Flowers Foods, Inc. and
G. Anthony Campbell.
*10.8
Flowers Foods, Inc. Stock Appreciation Rights
Plan.
*10.9
Flowers Foods, Inc. Annual Executive Bonus Plan.
*10.1
0
Flowers Foods, Inc. Supplemental Executive
Retirement Plan.
*21
Subsidiaries of Flowers Foods, Inc.
(b) Reports on Form 8-K :
None.
29
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, Flowers Foods, Inc. has duly
caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized on this 27th day of
March, 2002.
30
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-K has been signed below by the following
persons on behalf of Flowers Foods, Inc. and in the capacities
and on the dates indicated.
31
FLOWERS FOODS, INC. AND SUBSIDIARIES
F-1
FLOWERS FOODS, INC.
/s/ AMOS R. MCMULLIAN
Amos R. McMullian
Chairman of the Board and
Chief Executive Officer
/s/
JIMMY M. WOODWARD
Jimmy M. Woodward
Vice President, Chief Financial
Officer and Chief Accounting Officer
Signature
Title
Date
/s/ AMOS R. MCMULLIAN
Amos R. McMullian
March 27, 2002
/s/ JIMMY M. WOODWARD
Jimmy M. Woodward
March 27, 2002
/s/ JOE E. BEVERLY
Joe E. Beverly
March 27, 2002
/s/ FRANKLIN L. BURKE
Franklin L. Burke
March 27, 2002
/s/ ROBERT P. CROZER
Robert P. Crozer
March 27, 2002
/s/ LANGDON S. FLOWERS
Langdon S. Flowers
March 27, 2002
/s/ JOSEPH L. LANIER, JR.
Joseph L. Lanier, Jr.
March 27, 2002
/s/ J.V. SHIELDS, JR.
J.V. Shields, Jr.
March 27, 2002
/s/ JACKIE M. WARD
Jackie M. Ward
March 27, 2002
/s/ C. MARTIN WOOD III
C. Martin Wood III
March 27, 2002
Page
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Stockholders of Flowers Foods, Inc.:
In our opinion, the Consolidated Financial Statements listed in
the index appearing under Item 14(a)(1) on page 28
present fairly, in all material respects, the financial position
of Flowers Foods, Inc. and its subsidiaries at December 29,
2001 and December 30, 2000, and the results of their
operations and their cash flows for each of the three fiscal
years in the period ended December 29, 2001 in conformity
with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under
Item 14(a)(2) on page 28 presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and the financial
statement schedule are the responsibility of the companys
management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 5 of the Consolidated Financial
Statements, on December 31, 2000, the company adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
F-2
FLOWERS FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the 52 Weeks Ended
December 29,
December 30,
January 1,
2001
2000
2000
(Amounts in thousands, except per share data)
$
1,629,004
$
1,568,934
$
1,511,386
888,824
900,198
883,882
624,132
591,489
586,578
73,815
67,102
53,890
(7,473
)
(17,193
)
43,898
17,704
(5,994
)
5,808
9,634
(6,970
)
(4,278
)
36,466
68,373
44,691
(26,380
)
(58,739
)
(51,661
)
(8,137
)
(16,457
)
(16,915
)
(18,243
)
(42,282
)
(34,746
)
87,809
42,040
(40,482
)
(18,243
)
5,045
7,294
3,950
$
(14,293
)
$
5,045
$
7,294
$
(0.61
)
$
(1.41
)
$
(1.16
)
1.58
1.40
0.13
$
(0.48
)
$
0.17
$
0.24
29,798
30,036
30,033
$
(0.61
)
$
(1.41
)
$
(1.16
)
1.58
1.40
0.13
$
(0.48
)
$
0.17
$
0.24
29,798
30,036
30,033
See accompanying Notes to Consolidated Financial Statements.
F-3
FLOWERS FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 29, 2001
December 30, 2000
(Amounts in thousands, except share data)
ASSETS
$
12,280
$
11,845
104,104
113,099
18,593
26,643
13,942
12,048
56,466
50,254
89,001
88,945
20,981
20,255
18,025
19,077
8,149
14,079
252,540
267,300
33,324
33,386
267,184
264,889
656,727
567,682
67,797
64,596
8,570
1,081
1,033,602
931,634
(423,170
)
(362,160
)
610,432
569,474
16,084
15,207
22,015
13,754
72,940
567,449
174,913
170,344
(49,233
)
(40,882
)
125,680
129,462
$
1,099,691
$
1,562,646
LIABILITIES AND STOCKHOLDERS
EQUITY
$
15,648
$
7,515
83,980
100,775
4,830
5,465
81,756
68,612
186,214
182,367
242,057
247,847
25,466
22,331
11,571
13,891
584,198
12,746
9,552
49,783
629,972
298
199
476,401
351,506
149,842
164,135
(4,904
)
(13,380
)
621,637
502,460
$
1,099,691
$
1,562,646
See accompanying Notes to Consolidated Financial Statements.
F-4
FLOWERS FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY
Common Stock
Accumulated
Capital
Other
Number of
in Excess
Comprehensive
Shares
Par
of Par
Retained
Income
Issued
Value
Value
Earnings
(loss)
(Amounts in thousands, except share data)
100,202,414
$
62,627
$
274,255
$
262,531
$
0
7,294
2,907
(750
)
1,043
1,917
673,800
420
12,376
(12,366
)
(7
)
(371
)
(50,546
)
100,863,848
$
63,040
$
291,377
$
219,279
$
0
5,045
3,752
(1,658
)
(325,541
)
(204
)
(3,652
)
22,500
14
255
(36,595
)
(22
)
(1,022
)
102
(52,372
)
(80,658,248
)
(62,629
)
62,352
(7,817
)
19,865,964
$
199
$
351,506
$
164,135
$
0
(567,449
)
662,368
27,952
2,152
9,931,549
99
(128
)
(4,904
)
(14,293
)
29,797,513
$
298
$
476,401
$
149,842
$
(4,904
)
[Additional columns below]
[Continued from above table, first column(s) repeated]
Treasury Stock
Stock
Number of
Compensation
Shares
Cost
Adjustments
Total
(Amounts in thousands, except share data)
(381,366
)
$
(6,762
)
$
(19,690
)
$
572,961
7,294
2,907
78,044
1,494
744
(91,547
)
(2,161
)
1,025
(93
)
(121,078
)
(2,497
)
1,666
1,086
(15,053
)
(335
)
(335
)
(12,796
)
0
(36,160
)
(333
)
450
(261
)
4,997
4,997
(50,546
)
(567,160
)
$
(10,594
)
$
(24,348
)
$
538,754
5,045
3,752
188,709
3,488
1,830
(33,685
)
(659
)
7,446
2,931
(2,810
)
(41
)
(41
)
(270
)
(1
)
(28,945
)
(288
)
940
(392
)
2,852
2,954
(52,372
)
443,891
8,094
0
0
$
0
$
(13,380
)
$
502,460
(567,449
)
662,368
13,380
41,332
2,152
(29
)
(4,904
)
(14,293
)
(19,197
)
0
$
0
$
0
$
621,637
See accompanying Notes to Consolidated Financial Statements.
F-5
FLOWERS FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 Weeks Ended
December 29, 2001
December 30, 2000
January 1, 2000
(Amounts in thousands)
$
(14,293
)
$
5,045
$
7,294
(3,950
)
(47,327
)
(42,040
)
73,815
67,102
53,890
5,923
17,704
(5,994
)
(7,496
)
(19,328
)
(7,724
)
2,634
3,273
(217
)
(569
)
408
3,709
2,558
6,312
3,910
3,353
10,230
6,665
2,808
3,657
13,037
4,435
(13,055
)
(3,764
)
12,076
20,402
13,875
22,465
(19,554
)
(6,938
)
1,400
43,516
(4,353
)
(4,316
)
(14,748
)
79,923
70,040
45,867
(49,514
)
(39,925
)
(213,328
)
(80,892
)
(6,506
)
(22,070
)
(10,772
)
558
17,983
285
5,197
20,788
(1,451
)
(1,389
)
(493
)
(132,608
)
(24,613
)
(224,308
)
(52,372
)
(50,546
)
(41
)
(338
)
337
4,567
2,147
251,000
(193,776
)
(9,978
)
(74,870
)
(67,562
)
(4,401
)
289,686
73,099
53,120
(52,247
)
166,079
435
(6,820
)
(12,362
)
11,845
18,665
31,027
$
12,280
$
11,845
$
18,665
$
$
2,972
$
4,658
$
59,665
$
$
47,406
$
43,233
$
65,182
$
52,011
$
870
$
(14,772
)
$
(11,319
)
See accompanying Notes to Consolidated Financial Statements.
F-6
FLOWERS FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
On March 26, 2001, Flowers Industries, Inc. (FII) shareholders approved a transaction that resulted in the spin-off of the company and the merger of FII with a wholly-owned subsidiary of Kellogg Company (Kellogg). In the transaction, FII transferred the stock of its two wholly-owned subsidiaries, Flowers Bakeries, Inc. (Flowers Bakeries) and Mrs. Smiths Bakeries, Inc. (Mrs. Smiths Bakeries) and all other assets and liabilities directly held by FII (except for its majority interest in Keebler Foods Company (Keebler) and certain debt and other liabilities and transaction costs) to a new corporation, Flowers Foods, Inc. (Flowers Foods). FII distributed all of the outstanding shares of common stock of Flowers Foods to existing FII shareholders such that FII shareholders received one share of Flowers Foods common stock for every five shares of FII they owned. FII, which consisted solely of its majority interest in Keebler and the aforementioned liabilities, was simultaneously merged with a wholly-owned subsidiary of Kellogg. The cash purchase price paid by Kellogg, less the aforementioned liabilities and certain other transaction costs, resulted in net proceeds paid directly to FII shareholders of $1,241.6 million.
The result of the spin-off and merger transaction described above was the disposal of a segment of a business, Keebler. Accordingly, at December 30, 2000, the company was presented as the continuing entity that included the historical financial information of Flowers Bakeries and Mrs. Smiths Bakeries with Keebler presented as a discontinued operation. As such, the company classified all balance sheet information relating to the spin-off and merger transaction for the fiscal year ended December 30, 2000 under the captions Net Assets of Discontinued Operations and Liabilities to be settled by others in the Consolidated Balance Sheet as appropriate, and all income and expense activity (including amortization of Keebler goodwill and other intangible assets recorded at FII) of Keebler for the fiscal years ended December 30, 2000 and January 1, 2000 under the caption Income from discontinued operations, less applicable taxes of $59,822 and $40,246 in the Consolidated Statement of Income. In addition, costs related to the transactions, less all estimated income and expense activity of Keebler from the period December 31, 2000 through March 26, 2001, is included under the caption Transaction costs less phase-out income, less applicable taxes in the Consolidated Statement of Income. For further information, see Note 3 of Notes to Consolidated Financial Statements.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Flowers Foods and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
Fiscal Year End
The companys fiscal year end is the Saturday nearest December 31.
Reclassifications
Certain reclassifications of prior year information were made to conform with the current presentation.
Revenue Recognition
The company recognizes revenue from the sale of product at the time of delivery when title and risk of loss pass to the customer. The company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing agreements, price protection, promotions and other volume-based incentives at the time the incentive is offered or at the time of revenue recognition for the underlying transaction that results in progress by the customer towards earning the incentive. Independent distributors receive a percentage of the wholesale price of product sold to retailers and other customers. The company
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
records such amounts as selling, marketing and administrative expenses. During fiscal 2000 and 2001, no sales to a single customer accounted for more than 10% of the companys sales. During fiscal 1999, sales to the companys largest customer were 10.5% of the consolidated companys sales with 8.3% attributable to Flowers Bakeries and 2.2% attributable to Mrs. Smiths Bakeries.
Shipping and Handling
The company recognizes shipping and handling costs as a part of selling, marketing and administrative expense. Shipping and handling expense was $31.1 million, $27.1 million and $31.2 million, in fiscal 2001, 2000 and 1999, respectively.
Cash and Cash Equivalents
The company considers deposits in banks, certificates of deposits and short-term investments with original maturities of three months or less as cash and cash equivalents.
Accounts Receivable
Accounts receivable consists of trade receivables, current portions of notes receivable and miscellaneous receivables. The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Allowances of $1.3 million and $1.3 million were recorded at December 29, 2001 and December 30, 2000, respectively. If the financial condition of the companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Concentration of Credit Risk
The company performs periodic credit evaluations and grants credit to customers, who are primarily in the grocery and foodservice markets, and generally does not require collateral.
Inventories
Inventories at December 29, 2001 and December 30, 2000, are valued using the first-in-first-out method. The company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. At December 29, 2001 and December 30, 2000, inventories are shown net of reserves for estimable obsolescence and unmarketable product of $1.9 million and $3.1 million, respectively. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Property, Plant and Equipment and Depreciation
Property, plant and equipment is stated at cost. Depreciation expense is computed using the straight-line method based on the estimated useful lives of the depreciable assets. Certain equipment held under capital leases are classified as property, plant and equipment and the related obligations are recorded as liabilities. Amortization of assets held under capital leases is included in depreciation expense. Total accumulated depreciation for leased assets was $22.1 million and $16.2 million at December 29, 2001 and December 30, 2000, respectively.
Buildings are depreciated over ten to forty years, machinery and equipment over three to twenty-five years, and furniture, fixtures and transportation equipment over three to fifteen years. Property under capital leases is amortized over the shorter of the lease term or the estimated useful life of the property. Capitalized interest at December 29, 2001 and December 30, 2000, was $0.5 million and $1.0 million, respectively.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation expense for fiscal 2001, 2000 and 1999 was $65.5
million, $59.7 million and $48.6 million, respectively.
Cost in Excess of Net Tangible Assets
December 29, 2001
December 30, 2000
(Amounts in thousands)
$
92,446
$
97,980
33,234
31,482
$
125,680
$
129,462
Costs in excess of the net tangible assets acquired are, in the opinion of management, attributable to long-lived intangibles having continuing value. Goodwill related to the purchases of businesses are amortized over twenty to forty years from the acquisition date using the straight-line method. Costs of purchased trademark and trade name rights are amortized over the period of expected future benefit, ranging from ten to forty years. Amortization expense for fiscal 2001, 2000 and 1999 was $8.4 million, $7.4 million and $5.3 million, respectively.
Impairment of Long-Lived Assets
The company determines whether there has been an impairment of long-lived assets, including goodwill, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the assets carrying amount to determine if a write-down to market value is required. Future adverse changes in market conditions or poor operating results of underlying long-lived assets could result in losses or an inability to recover the carrying value of the long-lived assets that may not be reflected in the assets current carrying value, thereby possibly requiring an impairment charge in the future. See New Accounting Pronouncements.
Derivative Financial Instruments
The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forward, futures, swap and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices. The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions are less favorable than those anticipated, raw material prices could increase significantly, adversely affecting the margins from the sale of our products.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The standard, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of SFAS No. 133, an amendment of SFAS No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133 (referred to hereafter as SFAS 133), was adopted by the company on December 31, 2000 (the first day of fiscal 2001).
In accordance with SFAS 133, all derivatives are recognized on the Consolidated Balance Sheet in current or other assets or other accrued liabilities or other liabilities at their fair value. On the date the company enters into a derivative contract, it designates the derivative as (1) a hedge of the fair value of (a) a recognized asset or liability or (b) an unrecognized firm commitment (a fair value hedge) or (2) a hedge of the variability of cash flows that are to be received or paid in connection with (a) a forecasted transaction or (b) a recognized asset or liability (a cash flow hedge). Changes in the fair value of a derivative that is
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
highly effective as, and that is designated and qualifies as, a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g., until periodic settlements of a variable-rate asset or liability are recorded in earnings or when the underlying commodity being hedged is used in production and recorded to earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceeds the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings in selling, marketing and administrative expenses. Changes in the fair value of derivative instruments that do not qualify for hedge accounting are also reported in current-period earnings in selling, marketing and administrative expenses.
While SFAS 133 provides a significant change in the accounting guidance related to derivative instruments and hedging activities, the company has determined that the more stringent accounting and documentation requirements under SFAS 133 does not cause any significant changes in its overall risk management strategy and in its overall hedging activities.
The cash effects of the companys commodity derivatives and interest rate swap are included in the Consolidated Statement of Cash Flows as cash flow from operating activities.
Customer Program Incentives
In January 2001, the Emerging Issues Task Force (EITF) reached a consensus on how a vendor should account for an offer to a customer to rebate or refund a specified amount of cash only if the customer completes a specified cumulative level of revenue transactions or remains a customer for a specified time period. This issue is one of many issues contained in EITF 00-22, Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future (EITF 00-22). This consensus states that a vendor should recognize a liability for the rebate at the point of revenue recognition for the underlying revenue transactions that result in progress by the customer toward earning the rebate. Measurement of the liability should be based on the estimated number of customers that will ultimately earn and claim rebates or refunds under the offer. The vendor should classify the cost of the rebate as a reduction of net sales in the income statement. This consensus became effective and was implemented by the company in the first quarter of fiscal 2001.
The company recognizes a liability for such sales incentives at the time the incentive is offered or at the time of revenue recognition for the underlying transaction that results in progress by the customer towards earning the incentive. Prior to fiscal 2001, the company recorded such sales incentives as selling, marketing and administrative expenses. In connection with the implementation of EITF 00-22 in fiscal 2001, these expenses have been reclassified as a reduction of net sales. Such sales incentives presented as reduction of net sales were $51.5 million, $51.1 million and $56.9 million for fiscal 2001, 2000 and 1999, respectively. The adoption of this consensus did not affect net income.
If market conditions were to decline, Flowers Foods may take actions to increase such customer incentive offerings, possibly resulting in an incremental reduction of revenue.
Coupons
In May 2000, the EITF reached consensus on Issue No. 00-14, Accounting for Certain Sales Incentives (EITF 00-14). This issuance addresses the recognition, measurement, and income statement classification of sales incentives offered by vendors (including manufacturers) that have the effect of reducing the price of a product or service to a customer at the point of sale. For cash sales incentives within the scope of this issuance,
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
costs are generally recognized at the date on which the related revenue is recorded by the vendor and are to be classified as a reduction of net sales. For non-cash sales incentives, such as package inserts, costs are to be classified within cost of sales. This issuance is effective for the first quarter of fiscal 2002. The company currently records coupon expenses as selling, marketing and administrative expenses. Coupon expenses were $2.8 million, $2.6 million and $2.2 million for fiscal 2001, 2000 and 1999, respectively. Upon adoption of EITF 00-14, the company will record coupon expenses as a reduction to arrive at net sales. This issuance will not affect net income.
Slotting Costs
In April 2001, the EITF reached consensus on Issue No. 00-25, Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendors Products or Services (EITF 00-25). This issuance provides guidance primarily on income statement classification of consideration from a vendor to a purchaser of the vendors products. Generally, cash consideration is to be classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the vendor may receive in return for this consideration. This issuance is effective for the first quarter of fiscal 2002. The company has historically classified certain costs covered by the provisions of EITF 00-25 as selling expenses. These expenses were $0.0 million, $3.4 million and $1.8 million for fiscal 2001, 2000 and 1999, respectively. Upon adoption, these expenses will be reclassified as a reduction to arrive at net sales. This issuance will not affect net income.
Treasury Stock
The company records acquisitions of its common stock for treasury at cost. Differences between proceeds for reissuances of treasury stock and average cost are credited or charged to capital in excess of par value to the extent of prior credits and thereafter to retained earnings.
Advertising and Consumer Promotion
Advertising and consumer promotion costs are generally expensed as incurred or no later than when the advertisement appears or the event is run. Advertising and consumer promotion expense was approximately $29.9 million, $16.3 million and $23.9 million for fiscal 2001, 2000 and 1999, respectively.
Stock-Based Compensation
The company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) in accounting for its stock-based compensation plans. The excess of the market price of the companys common stock at the date of grant over the exercise price to be paid by the grantee, if any, is recognized ratably by the company, as compensation expense, over the vesting period. The company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-based Compensation (SFAS 123) and continues to apply the intrinsic value-based method of accounting as described above.
Software Development Costs
The company expenses software development costs incurred in the preliminary project stage, and thereafter, capitalizes costs incurred in developing or obtaining internally used software. Certain costs, such as maintenance and training, are expensed as incurred. Capitalized costs are amortized over a period of three to eight years and are subject to impairment evaluation. The net balance of capitalized software development costs was $25.0 million and $28.2 million at December 29, 2001 and December 30, 2000, respectively. Amortization expense of capitalized software development costs was $4.3 million, $3.4 million and $0.8 million in fiscal years 2001, 2000 and 1999, respectively.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes
The company accounts for income taxes using an asset and liability approach which is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
Net Income Per Common Share
Basic net income per share is computed by dividing net income by weighted average common shares outstanding for the period. Diluted net income per share is computed by dividing net income by weighted average common and common equivalent shares outstanding for the period. Common stock equivalents consist of the incremental shares associated with the companys stock option plans, as determined under the treasury stock method. Basic weighted average shares outstanding are the same as diluted weighted average shares outstanding for all periods presented because the effect of the common stock equivalents is anti-dilutive. Common stock equivalents amounted to 210,895, 48,167 and 69,323 in fiscal 2001, 2000 and 1999, respectively.
Comprehensive Income
Comprehensive income equals net income plus other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses which are reflected in stockholders equity but excluded from net income. The component comprising other comprehensive income is the effect of accounting for derivative financial instruments in accordance with SFAS 133. This component of the companys comprehensive income for the fifty-two weeks ended December 29, 2001, is detailed in the companys accompanying Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income.
Use of 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.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS No. 141, which replaces APB Opinion No. 16, Business Combinations, requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. SFAS 142, which replaces APB Opinion No. 17, Intangible Assets, requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down when appropriate under the criteria of SFAS 142.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The company will adopt the provisions of SFAS 142 in the first quarter of fiscal 2002. The company is in the process of determining its reporting units, as defined by SFAS 142, and what amounts of assets and liabilities should be allocated to those reporting units. In connection with the adoption of SFAS 142, the company expects that it will no longer record $4.7 million of amortization expense per fiscal year relating to its existing goodwill and indefinite-lived intangibles.
SFAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. However, the company has six months from the date of adoption to complete the first step. The company expects to complete this first step of the goodwill impairment test within the required timeframe. The second step of the impairment test measures the amount of the impairment loss (measured as of the beginning of the year), if any, and must be completed by the end of the companys 2002 fiscal year. Intangible assets deemed to have an indefinite life will be tested for impairment using a one-step process that compares the fair value of the asset to the carrying amount of the asset as of the date of adoption (the beginning of the fiscal year). Pursuant to the requirements of SFAS 142, this process will be completed during the first quarter of fiscal 2002. Any impairment loss resulting from the goodwill or indefinite lived intangible asset impairment tests will be recorded as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2002. The company has not yet determined what effect these impairment tests will have on the companys results of operations or financial position.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for the company beginning in the first quarter of fiscal 2003. Management does not expect the adoption of this statement to have a material impact on the companys results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for Impairment or Disposal of Long-lived Assets which supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions for the disposal of a segment of a business. SFAS 144 clarifies and revises existing guidance on accounting for impairment of plant, property, and equipment, amortizable intangibles and other long-lived assets not specifically addressed in other accounting literature. SFAS 144 also broadens the presentation of discontinued operations to include a component of an entity rather than only a segment of a business. This statement will be effective for the company on a prospective basis, beginning the first quarter of fiscal 2002. Management does not expect the adoption of this statement to have a material impact on the companys results of operations or financial position.
Note 3. Discontinued Operations
On March 26, 2001, FII completed a transaction that resulted in the spin-off to its existing shareholders of the stock of a new corporation, Flowers Foods. FII, whose assets and liabilities then consisted solely of its majority interest in Keebler common stock and certain debt and other liabilities, was simultaneously acquired by Kellogg.
For accounting purposes, Flowers Foods is presented as the continuing entity that includes the historical financial information of Flowers Bakeries and Mrs. Smiths Bakeries, with Keebler presented as a discontinued operation as of December 30, 2000. Accordingly, the operations (including amortization of Keebler goodwill and other intangible assets of $7.4 million and $6.6 million for fiscal 2000 and 1999, respectively) of Keebler are included in Income from discontinued operations, less applicable taxes of $59,822 and $40,246 in the Consolidated Statement of Income. In addition, costs related to the transaction less all estimated
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
income and expense activity of Keebler from the period
December 31, 2000 through March 26, 2001 are included
under the caption Transaction costs less phase-out income,
less applicable taxes in the Consolidated Statement of
Income.
Transaction Costs Less Phase-out Income
A reconciliation of the caption Transaction costs less
phase-out income, less applicable taxes included in the
Consolidated Statement of Income for the year ended
December 30, 2000 is presented as follows (amounts in
thousands):
$
(51,282
)
10,800
$
(40,482
)
In connection with the spin-off and merger transaction, various
transaction costs were incurred by FII and Keebler. These costs
are included in discontinued operations, net of tax, at
December 30, 2000 with a corresponding credit to
Liabilities to be settled by others (amounts in
thousands):
Net Assets of Discontinued Operations
At December 30, 2000, net assets of discontinued operations
was comprised of (amounts in thousands):
$
32,374
11,480
4,861
2,567
$
51,282
$
270,185
(257,086
)
(8,324
)
4,775
328,819
629,548
814,521
(431,483
)
(778,731
)
562,674
$
567,449
Liabilities to be Settled by Others
In connection with the spin-off and merger transaction, approximately $662.4 million of debt and other liabilities were settled by other parties on March 26, 2001. The debt and liabilities settled include certain amounts outstanding at December 30, 2000 as well as amounts incurred subsequent to December 30, 2000. The amounts as of December 30, 2000 are set forth below. Additional liabilities settled related primarily to
F-14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
additional borrowings subsequent to December 30, 2000 and
payments under compensation plans (amounts in thousands):
$
(405,000
)
(125,000
)
(9,990
)
(539,990
)
(35,732
)
(5,997
)
(2,479
)
(44,208
)
$
(584,198
)
In accordance with the transaction described above, Net Assets of Discontinued Operations and Liabilities to be settled by others at March 26, 2001, of $567.4 million and $662.4 million, respectively, were relieved from the Consolidated Balance Sheet with a corresponding adjustment to capital in excess of par value.
Separation and Other Contractual Payments
In addition, in connection with the spin-off and merger transaction, various separation and other contractual payments under FIIs stock and incentive programs of $39.0 million were paid to executive and non-executive officers and employees. Of this amount, $5.7 million was accrued at March 26, 2001 and $5.3 million was previously amortized to earnings prior to March 26, 2001. Accordingly, in the first quarter of fiscal 2001, a charge of $28.0 million was recorded as an unusual charge to the companys continuing operations, with a corresponding credit to capital in excess of par value as a result of the payments being settled from the proceeds of the spin-off and merger transaction.
Note 4. Notes Receivable
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. Pursuant to an agreement, the company or a wholly owned consolidated subsidiary of the company, acted as the servicing agent for the financial institution and received a fee for those services. These amounts, recorded as a reduction of selling, marketing and administrative costs, were $3.4 million and $3.8 million in fiscal years 2000 and 1999, respectively. In conjunction with the spin-off and merger transaction, on March 26, 2001, the company purchased the aggregate outstanding distributor note balance of $77.6 million from the third party financial institution. Accordingly, beginning March 26, 2001, the company provides direct financing to independent distributors for the purchase of the distributors territories and records the notes receivable on the Consolidated Balance Sheet. Generally, under the terms of these arrangements, the territory is financed over a maximum period of ten years bearing an interest rate of 12.0%. A portion of this amount is recorded as a reduction of selling, marketing and administrative expense representing the companys cost of servicing the loan; the remaining amount is recorded as interest income. In fiscal 2001, $3.8 million was recorded as a reduction of selling, marketing and administrative expense and $4.3 million was recorded as interest income. The independent distributor has the right to require the company to repurchase the territory at the original price within the six-month period following the sale of the territory. Should the distributor wish to sell the territory after the six-month period has expired, the company has the right of first refusal. As such, the company either records a gain on the sale of a territory to the independent distributor
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
after the six-month period, spread over the term of the respective purchase arrangement or records a loss in current period earnings at the time of the sale. In the event the company decides to exit a territory, it is obligated to repurchase the territory from the independent distributor for the greater of the original purchase price or a multiple of average weekly branded sales calculated over the six-month period prior to the repurchase. The distributor notes are collateralized by the independent distributors territories. At December 29, 2001, the outstanding balance of the distributor notes was $80.9 million, of which $8.0 million is recorded in accounts and notes receivable.
Note 5. 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 companys primary raw materials are flour, sugar, shortening, fruits and dairy products, along with pulp and paper, aluminum and petroleum based packaging products. The company also enters into interest rate derivatives to hedge exposure to changes in interest rates.
In accordance with the transition provisions of SFAS 133, the
company recorded the following net-of-tax cumulative-effect
transition adjustment to other comprehensive income on
December 31, 2000 (amounts in thousands):
Dr./(Cr.)
$
(454
)
6,283
5,829
(2,332
)
$
3,497
During fiscal 2001, the company reclassified this transition adjustment to earnings in materials, labor and other production costs, which represented the usage of raw materials under previously designated commodity hedging instruments.
During fiscal 2001, changes to other comprehensive income, net
of tax, resulting from hedging activities were as follows
(amounts in thousands):
Dr./(Cr.)
Total cumulative effect of adoption on other
comprehensive income at December 31, 2000
$
3,497
(85
)
(3,685
)
5,177
$
4,904
Of the $4.9 million in other comprehensive income, approximately $3.8 million and $1.1 million were related to instruments expiring in fiscal 2002 and 2003, respectively, and an immaterial amount was related to deferred gains and losses on cash flow hedge positions.
As of December 29, 2001, the companys hedge portfolio contained commodity derivatives with a fair value of ($2.9) million. The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix or limit increases in prices for a period of time extending into fiscal year 2004. Under SFAS 133, instruments with a fair value of ($2.5) million on December 29, 2001 are designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
each period in other comprehensive income, and any ineffective portion of the change in fair value is recorded to current period earnings in selling, marketing and administrative expenses. The remaining ($.4) million in fair value of commodity derivatives at December 29, 2001 is related to hedge instruments that do not qualify for hedge accounting under SFAS 133. For these instruments, changes in fair value are recorded each period in selling, marketing and administrative expense. During fiscal 2001, $0.1 million was recorded to current earnings due to changes in fair value of these instruments.
In April 2001, the company entered into an interest rate swap transaction with a notional amount of $150.0 million, expiring on December 31, 2003, in order to effectively convert a designated portion of its borrowings under its credit agreement dated March 26, 2001 to a fixed rate instrument. The interest rate swap agreement results in the company paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amounts. The interest rate differential to be paid or received is accrued as interest rates change and is recorded as interest expense. Under SFAS 133, this swap transaction is designated as a cash-flow hedge. Accordingly, the effective portion of the change in the fair value of the swap transaction is recorded each period in other comprehensive income. The ineffective portion of the change in fair value is recorded to current period earnings in selling, marketing and administrative expenses. The fair value of the interest rate swap on December 29, 2001 was ($5.8) million. During fiscal 2001, $2.6 million of additional interest expense was recognized due to periodic settlements of the swap. There was no ineffectiveness recorded to current earnings related to the interest rate swap.
The companys various commodity purchase agreements, which meet the normal purchases exception under SFAS 133, effectively commit the company to purchase raw materials of approximately $59.9 million at December 29, 2001. Of these commitments, approximately $48.2 million and $11.7 million are expected to be used in production in 2002 and 2003, respectively.
Note 6. Acquisitions
In September 2001, Flowers Bakeries acquired The Kotarides Baking Companys business in the Norfolk, Virginia area and certain other assets for a purchase price, including acquisition costs, of $6.5 million. The acquisition involved the purchase of approximately 70 Kotarides sales routes that supplied fresh breads, buns, and snack cakes to customers in the Virginia area, two Kotarides distribution centers in Norfolk and the Mary Jane brand name and certain other intangibles. Under the agreement, Flowers Bakeries Norfolk, Virginia bakery will operate the routes and will produce and market breads and buns under the Mary Jane brand. This acquisition was recorded under the purchase method of accounting and, therefore, the purchase price has been allocated to assets acquired based on a preliminary assessment of their fair values. The results of operations from this acquisition are included in the fiscal year results from the date of acquisition and are not significantly different from the results that would have been reported had the operations been included from December 31, 2000.
F-17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 7. Other Accrued
Liabilities
Other accrued liabilities consist of:
Note 8. Debt and Lease
Commitments
Long-term debt consisted of the following at December 29,
2001 and December 30, 2000:
December 29,
December 30,
2001
2000
(Amounts in thousands)
$
26,659
$
18,005
739
7,191
2,967
2,982
7,042
1,011
12,708
9,886
1,946
6,001
10,000
19,695
23,536
$
81,756
$
68,612
Interest
rate at
December 29,
Final
December 29,
December 30,
2001
Maturity
2001
2000
(Amounts in thousands)
7.15
%
2028
$
$
200,000
4.64
%
2007
189,250
4.66
%
2008
60,389
45,282
7.48
%
2004
8,066
10,080
257,705
255,362
15,648
7,515
$
242,057
$
247,847
At December 30, 2000, in addition to the amounts shown above, FII had long-term debt outstanding consisting of $405 million of borrowings under a syndicated loan facility with a final maturity date of 2003, $125 million of senior notes due 2016 and certain industrial revenue bonds aggregating $9.9 million. On March 26, 2001, this aggregate outstanding debt balance was retained by FII and settled in connection with the transaction discussed in Note 3. Accordingly, these amounts, are included in Liabilities to be settled by others in the Consolidated Balance Sheet at December 30, 2000.
Subsequent to December 30, 2000, the company purchased certain fixed assets which were previously leased under operating leases. In addition, on March 26, 2001, the company purchased the distributor notes. On March 26, 2001, the company completed a tender offer for the $200 million aggregate principal amount of 7.15% Debentures due 2028 (the debentures) and repurchased substantially all the debentures at a discount. Accordingly, in the first quarter of fiscal 2001, the company recorded an extraordinary gain of approximately $5.0 million, net of tax, related to the early extinguishment of these debentures.
The purchases of the fixed assets, distributor notes and debentures were financed primarily from the proceeds of a credit agreement entered into by the company on March 26, 2001. The credit agreement provides for total borrowings of up to $380 million, consisting of Term Loan A of $100 million and Term Loan B of $150 million and a revolving loan facility of $130 million (the revolving loan facility).
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Term Loan A requires quarterly principal payments of $5.0 million which began on September 30, 2001. Beginning March 31, 2002, the principal payments will decrease to $2.6 million as a result of the prepayment discussed below. Beginning March 31, 2003 through maturity on March 26, 2005, the quarterly principal payments are scheduled to be $3.5 million. Term Loan B requires quarterly principal payments of $0.375 million which began September 30, 2001. Beginning March 31, 2005 and through maturity on March 26, 2007, the quarterly payments are scheduled to be $13.6 million with a final payment of $34.3 million at maturity. Under the revolving loan facility the company may borrow up to $130.0 million through March 26, 2005.
Interest is due quarterly on outstanding borrowings under the new credit agreement at the eurodollar rate or base rate plus applicable margin. This underlying rate is defined as either rates offered in the interbank eurodollar market or the higher of the prime rate or federal funds rate plus 0.5%. The applicable margin is based on the companys leverage ratio and can range from 2.5% 0.5% for Term Loan A and the revolving loan facility and 2.75% 1.75% for Term Loan B. In addition, a commitment fee of 0.5% 0.375% is due quarterly on all commitments not utilized under the credit agreement. At December 29, 2001, the interest rates for Term Loan A and Term Loan B were 4.25% and 4.75%, respectively. At December 29, 2001, the outstanding balances of Term Loan A and Term Loan B were $42.0 million and $147.3 million, respectively. There were no amounts outstanding under the revolving loan facility at December 29, 2001.
The credit agreement includes certain restrictions, which, among other things, require maintenance of financial covenants, restrict encumbrance of assets and creation of indebtedness and limit capital expenditures, repurchase of common shares and dividends that can be paid. Restrictive financial covenants include such ratios as a consolidated interest coverage ratio, a consolidated fixed charge coverage ratio and a maximum total leverage ratio. Capital expenditures cannot exceed $50.0 million in either fiscal 2001 or fiscal 2002. No dividends were allowed to be paid in fiscal 2001. Commencing in fiscal 2002, the maximum amount of dividends that can be paid cannot exceed $5.0 million, unless certain conditions are met. Loans under the credit agreement are collateralized by substantially all of the assets of the company, excluding real property. At December 29, 2001, the company was in compliance with these restrictive financial covenants.
The company paid financing costs of $9.9 million in connection with the new credit agreement. These costs were deferred on the balance sheet and are being amortized over the term of the agreement using the effective interest method.
During the fourth quarter of fiscal 2001, the company made a voluntary debt payment of $50.0 million. As a result, unamortized financing costs of $1.7 million associated with this portion of the debt were written off. Accordingly, the company recorded an extraordinary loss of approximately $1.1 million, net of tax, related to the early extinguishment of this debt in the fourth quarter of fiscal 2001.
The company has also guaranteed, through their respective terms, approximately $6.8 million in leases that its independent distributors have entered into with third party financial institutions related to distribution vehicle financing. In the ordinary course of business, when an independent distributor terminates his relationship with the company, the company operates the territory as a company-owned territory until it is resold.
The company held and operated 429 such independent distributor territories for sale at December 29, 2001. The company uses the former independent distributors vehicle to operate these territories and makes the lease payments to the third party financial institution in place of the former distributor. These payments are recorded as selling, marketing and administrative expenses and amounted to $0.8 million, $0.5 million and $0.7 million for fiscal years 2001, 2000 and 1999, respectively. Assuming the company does not resell the territories to new independent distributors, the maximum obligation for the vehicles being used by the company at December 29, 2001 is approximately $13.7 million. No liability is recorded on the Consolidated Balance Sheet at December 29, 2001 and December 30, 2000.
F-19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets recorded under capital lease agreements included in
property, plant and equipment consist of machinery and equipment.
Aggregate maturities of debt outstanding, including capital
leases as of December 29, 2001, are as follows (amounts in
thousands):
$
15,648
25,639
24,902
62,036
58,512
70,968
$
257,705
Leases
The company leases certain property and equipment under various
operating and capital lease arrangements that expire over the
next 25 years. Most of the operating leases provide the
company with the option, after the initial lease term, either to
purchase the property at the then fair value or renew its lease
at the then fair value for periods from one month to ten years.
The capital leases provide the company with the option to
purchase the property at fair value at the end of the lease
term. The majority of the capital lease agreements contain cross
default provisions to restrictions under the companys
credit agreement. Future minimum lease payments under scheduled
leases that have initial or remaining noncancelable terms in
excess of one year are as follows (amounts in thousands):
Capital Leases
Operating Leases
$
8,179
$
17,632
9,015
14,912
8,335
13,223
7,902
12,025
7,637
8,319
40,507
25,181
$
81,575
$
91,292
(21,186
)
60,389
5,294
$
55,095
Rent expense for all operating leases amounted to $28.5 million for fiscal 2001, $52.2 million for fiscal 2000 and $46.1 million for fiscal 1999.
Note 9. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts and notes receivable and short-term debt approximates fair value, because of the short-term maturity of the instruments. The fair value of the companys long-term debt at December 29, 2001 approximates the recorded value due to the variable nature of the stated interest rates. The fair value of the companys outstanding derivative financial instruments, based on the stated market value as of December 29, 2001 and December 30, 2000, was $(8.7) million and $.3 million, respectively.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10. Unusual Charges
On March 25, 2002, in Trans American Brokerage, Inc. vs. Mrs. Smiths Bakeries, Inc., an arbitration brought before the American Arbitration Association, an arbitrator found against Mrs. Smiths Bakeries and issued an interim award for damages. In the dispute, the claimant alleges breach of a sales brokerage agreement by Mrs. Smiths Bakeries and seeks lost profits as well as attorneys fees and costs. As a result of the award, the company recorded a $10.0 million charge ($6.2 million after tax) to its results for the fiscal year ended December 29, 2001. The charge represents the companys estimate of the total costs (including attorneys fees and expenses) which it could incur in connection with this dispute. The company disagrees with the arbitrators award and intends to continue to vigorously contest it, including a request that the arbitrator reconsider the interim award.
During the fourth quarter of fiscal 2001, Mrs. Smiths Bakeries recorded an unusual charge of $2.6 million to close the Pembroke, North Carolina production facility. The facility was closed in order to rationalize production efforts. Production for this facility was transferred to the Spartanburg, South Carolina and Stilwell, Oklahoma facilities. This charge consisted of $2.0 million in accelerated depreciation to write off certain machinery and equipment that was used in production during the fourth quarter of fiscal 2001 but was planned for abandonment at December 29, 2001, and $0.6 million in severance for 172 employees and other related exit costs of closing the facility. This plan was substantially complete in February 2002.
During the second quarter of fiscal 2001, Flowers Bakeries recorded an unusual charge of $3.1 million as a result of the decision to close its Memphis, Tennessee production facility. In the fourth quarter of 2001, an increase of $0.3 million was made to this charge as a result of more accurate information regarding the fair value of certain assets. The facility was closed in order to rationalize production efforts in this geographical area. The area is served from other production facilities. Severance costs of $1.4 million provided for the termination of 123 employees. Asset impairment charges of $1.0 million and $0.6 million, respectively, were recorded to write off certain fixed assets and to reduce goodwill. Additionally, other related exit costs of $0.4 million were recorded. This plan was substantially complete at the end of fiscal 2001.
During the fourth quarter of fiscal 2000, Mrs. Smiths Bakeries recorded an asset impairment of $17.4 million representing the impairment of goodwill and other identifiable intangible assets relating to the Pet-Ritz and Banquet lines, both of which were acquired in fiscal 1998. The impairment of these intangible assets is a result of the companys decision to discontinue certain products under the Banquet product line and the decreased forecasted sales volumes for the Pet-Ritz and Banquet product lines. This plan was substantially complete at the end of fiscal 2001.
During the fourth quarter of fiscal 2000, Mrs. Smiths Bakeries implemented a plan to transfer production from its facility in Forest Park, Georgia to an existing facility in Spartanburg, South Carolina. This decision was made to take advantage of more highly automated production capacities at the Spartanburg plant. As a result, Mrs. Smiths Bakeries recorded a charge of $1.5 million, which consisted of $1.0 million of non-cash asset impairments and $0.5 million of severance and other employee costs. This plan was substantially complete at the end of fiscal 2001.
During fiscal 2000, Flowers Bakeries recorded a $1.2 million adjustment to the fiscal 1998 restructuring reserve. This adjustment was the result of Flowers Bakeries decision to reopen a closed bakery located in Norfolk, Virginia in order to meet the demands of our growing foodservice business. This bakery was operational in the spring of 2001.
F-21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The company has continuing obligations in connection with
certain plant closings completed in the current and prior fiscal
years (primarily regarding payments on a $27.6 million
obligation associated with Mrs. Smiths Bakeries
noncancelable leased equipment and facility and other ongoing
exit costs recorded in fiscal 1996). Activity with respect to
these obligations is as follows (amounts in thousands):
Balance at
Balance at
December 30,
Non-cash
December 29,
2000
Provision
Reductions
Spending
2001
$
16,801
$
160
$
$
(3,472
)
$
13,489
1,652
(1,413
)
239
3,471
(3,471
)
2,555
640
(522
)
2,673
$
19,356
$
5,923
$
(3,471
)
$
(5,407
)
$
16,401
Balance at
Balance at
January 1,
Non-cash
December 30,
2000
Provision
Adjustments
Reductions
Spending
2000
$
20,450
$
180
$
$
$
(3,829
)
$
16,801
18,423
(1,154
)
(17,269
)
3,221
255
(921
)
2,555
$
23,671
$
18,858
$
(1,154
)
$
(17,269
)
$
(4,750
)
$
19,356
Note 11. Insurance Proceeds
The company maintains insurance for property damage, mechanical breakdown, product liability, product contamination and business interruption applicable to its production facilities. During fiscal 1999, Mrs. Smiths Bakeries incurred substantial costs related to mechanical breakdown and product contamination at certain plants. Mrs. Smiths Bakeries filed claims under the companys insurance policies for a portion of these costs that it believed to be insured. Mrs. Smiths Bakeries recovered insurance proceeds of $7.5 million and $17.2 million in fiscal 2001 and 2000, respectively. The payments received in fiscal 2001 represented the final settlement of this insurance claim.
Note 12. Stockholders Equity
Flowers Foods articles of incorporation provide that its authorized capital consist of 100,000,000 shares of common stock having a par value of $.01 per share and 1,000,000 shares of preferred stock of which (a) 100,000 shares have been designated by the Board of Directors as Series A Junior Participating Preferred Stock, having a par value per share of $100 and (b) 900,000 shares of preferred stock, having a par value per share of $.01, have not been designated by the Board of Directors. No shares of preferred stock have been issued by Flowers Foods.
Common Stock
The holders of Flowers Foods common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Subject to preferential rights of any issued and outstanding preferred stock, including the Series A Preferred Stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors of the company out of funds legally available. In the event of a liquidation, dissolution or winding-up of the company, holders of common stock are entitled to share ratably in all assets of the company, if any, remaining after payment of liabilities and the liquidation preferences of any issued and outstanding preferred stock, including the Series A Preferred
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock. Holders of common stock have no preemptive rights, no cumulative voting rights and no rights to convert their shares of common stock into any other securities of the company or any other person.
On November 16, 2001, the Board of Directors declared a 3 for 2 stock split payable on January 2, 2002, which resulted in the issuance of 9.9 million shares of our common stock along with a corresponding decrease of $0.1 million in capital in excess of par value. Capital in excess of par value was also decreased by $0.03 million for the payment of fractional shares to shareholders. All references to the number of shares (other than the amounts of common stock shown as issued on the December 30, 2000 Consolidated Balance Sheet and the Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for fiscal years 2000 and 1999), per share amounts and any other reference to shares in the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements, unless otherwise noted, have been adjusted to reflect the 3 for 2 stock split on a retroactive basis.
Preferred Stock
The Board of Directors has the authority to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the designations, relative powers, preferences, rights, qualifications, limitations and restrictions of all shares of each such series, including without limitation, dividend rates, conversion rights, voting rights, redemption and sinking fund provisions, liquidation preferences and the number of shares constituting each such series, without any further vote or action by the holders of Flowers Foods common stock. Pursuant to such authority, the Board of Directors has designated 100,000 shares of preferred stock as Series A Junior Participating Preferred Stock in connection with the adoption of the rights plan described below. Although the Board of Directors does not presently intend to do so, it could issue from the 900,000 undesignated preferred shares, additional series of preferred stock, with rights that could adversely affect the voting power and other rights of holders of Flowers Foods common stock without obtaining the approval of Flowers Foods shareholders. In addition, the issuance of preferred shares could delay or prevent a change in control of Flowers Foods without further action by its shareholders.
Dividend Received
In the first quarter of fiscal 2001, the company received a dividend of $5.2 million as a result of its ownership position in Keebler. This dividend had no impact on the Consolidated Statement of Income.
Shareholder Rights Plan
The Flowers Foods Board of Directors has approved and adopted a shareholder rights plan that provides that one right will be issued for each share of Flowers Foods common stock held by shareholders of record on March 26, 2001. Under the plan, the rights will initially trade together with the common stock and will not be exercisable. In the absence of further board action the rights generally will become exercisable, and allow the holder to acquire additional common stock, if a person or group acquires 15 percent or more of the outstanding shares of Flowers Foods common stock. Rights held by persons who exceed the applicable threshold will be void. Flowers Foods Board of Directors may, at its option, redeem all rights for $.01 per right generally at any time prior to the rights becoming exercisable. The rights will expire on March 26, 2011, unless earlier redeemed, exchanged or amended by the Board of Directors.
Stock Incentive Plans
Flowers Foods has one stock incentive plan that authorizes the compensation committee of the Board of Directors to grant to eligible employees and non-employee directors stock options, restricted stock, deferred stock and performance stock and performance units. The Flowers Foods, Inc. 2001 Equity and Performance Incentive Plan (EPIP) is authorized to grant to eligible employees and non-employee directors up to 3,000,000 shares of common stock. No option under this plan may be exercised later than ten-years after the
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
date of grant. Employee options are generally exercisable four years from the date of grant and generally fully vest at that date or upon a change in control of Flowers Foods. Non-employee options are generally exercisable one year from the date of grant and vest at that time.
During fiscal 2001, non-qualified stock options (NQSOs) to purchase 1,531,200 shares of Flowers Food common stock were granted to eligible employees. Pursuant to the EPIP, the NQSOs vest at the end of four years and expire ten years after the date of grant. Additionally, NQSOs to purchase 135,000 shares of Flowers Foods common stock were granted to non-employee directors. The optionees are required to pay the market value, determined as of the grant date, which was $14.22 on the grant date of April 6, 2001. As of December 29, 2001, there were 1,666,200 NQSOs outstanding.
During fiscal 2001, the stock option activity pursuant to the
EPIP is set forth below:
For the 52 Weeks Ended
December 29, 2001
Weighted Average
Options
Exercise Price
(Amounts in thousands,
except per share data)
1,666
$
14.22
1,666
$
14.22
$
14.22
As of December 29, 2001, all options outstanding under the EPIP had an average exercise price of $14.22 and a weighted average remaining contractual life of 9.25 years.
Because the company applies APB 25 in accounting for the EPIP, and the option exercise price is the market price of the companys common stock at the date of grant, no compensation expense has been recognized for options granted under the EPIP.
Had compensation expense for the options granted under the EPIP
been determined based on the fair value at the grant dates for
the awards consistent with the methodology presented under SFAS
No. 123, Accounting for Stock Based
Compensation, the companys net income and the net
income per share would have been reduced to the pro-forma
amounts indicated below:
For the 52 Weeks Ended
December 29, 2001
(Amounts in thousands,
except per share data)
$
(14,293
)
(0.48
)
(0.48
)
$
(16,179
)
(0.54
)
(0.54
)
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For option awards granted during fiscal 2001, the following weighted average assumptions were used to determine fair value using the Black-Scholes option-pricing model: dividend yield 0%, expected volatility 35.5%-41.5%, risk-free interest rate 5.65% and an expected option life of 10 years.
Effects of Merger and Spin-off Transaction
On March 26, 2001, in conjunction with the transactions described in Note 3 of Notes to Consolidated Financial Statements, Flowers Foods issued one share of its common stock for each five shares of FII common stock outstanding. For accounting purposes, this has been treated as a one for five reverse stock split. The split resulted in the retirement of 80,658,248 shares of common stock and is reflected in the December 30, 2000 financial statements as a decrease of $62.6 million in common stock at par value with a corresponding increase in capital in excess of par value.
In addition to the transactions described in Note 3 of Notes to Consolidated Financial Statements, all FII treasury shares were cancelled. This cancellation is reflected in the December 30, 2000 financial statements as a decrease in common stock at par value of $0.3 million representing the par value of the treasury shares. The remainder of $7.8 million represents treasury shares at cost over par value and is recorded as a decrease to retained earnings at December 30, 2000.
Note 13. Retirement Plans
Defined Benefit Plans
The company has trusteed, noncontributory defined benefit pension plans covering certain employees. The benefits are based on years of service and the employees career earnings. The plans are funded at amounts deductible for income tax purposes but not less than the minimum funding required by the Employee Retirement Income Security Act of 1974 (ERISA). As of December 29, 2001 and December 30, 2000, the assets of the plans included certificates of deposit, marketable equity securities, mutual funds, corporate and government debt securities and annuity contracts. The marketable equity securities include 364,806 and 274,875 shares of the companys common stock with a fair value of approximately $14.5 and $14.4 million at December 29, 2001 and December 30, 2000, respectively. In addition to the pension plans, the company also has an unfunded supplemental retirement plan for certain highly compensated employees. Benefits provided by this supplemental plan are reduced by benefits provided under the defined benefit pension plan.
The net periodic pension cost for the companys plans that
are not fully funded include the following components:
For the 52 Weeks Ended
December 29,
December 30,
January 1,
2001
2000
2000
(Amounts in thousands)
$
6,835
$
6,988
$
7,698
13,853
12,909
11,900
(14,791
)
(13,565
)
(13,844
)
(841
)
(841
)
(841
)
47
48
47
(149
)
(25
)
53
$
4,954
$
5,514
$
5,013
F-25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The funding status and the amounts recognized in the
Consolidated Balance Sheet for the companys plans that are
not fully funded are as follows:
December 29, 2001
December 30, 2000
(Amounts in thousands)
$
170,065
$
162,805
6,835
6,988
13,853
12,909
7,474
(4,914
)
(8,595
)
(7,723
)
189,632
170,065
168,050
153,939
(2,544
)
21,834
2,496
(8,595
)
(7,723
)
159,407
168,050
(30,225
)
(2,015
)
6,667
(18,293
)
339
386
(792
)
(1,633
)
$
(24,011
)
$
(21,555
)
Assumptions used in accounting for the companys plans that
are not fully funded at each of the respective period-ends are
as follows:
December 29,
December 30,
January 1,
2001
2000
2000
9/30/2001
9/30/2000
9/30/1999
7.50
%
8.00
%
7.75
%
9.00
%
9.00
%
9.00
%
5.00
%
5.50
%
5.25
%
Other Plans
The company contributes to various multiemployer, union-administered defined benefit and defined contribution pension plans. Benefits provided under the multiemployer pension plans are generally based on years of service and employee age. Expense under these plans was $0.8 million for fiscal 2001, $1.0 million for fiscal 2000 and $0.5 million for fiscal 1999.
The Flowers Foods 401(k) Retirement Savings Plan covers substantially all of the companys employees who have completed certain service requirements. Generally, the cost and contributions for those employees who also participate in the defined benefit pension plan is 25% of the first $400 contributed by the employee. Effective April 1, 2001, the costs and contributions for employees who do not participate in the defined benefit pension plan is 2% of compensation and 50% of the employees contributions, up to 6% of compensation. Prior to April 1, 2001, costs and contributions for employees who do not participate in the defined benefit plan were 2% of compensation and 25% of the employees contributions, up to 6% of compensation. During fiscal 2001, 2000 and 1999, the total cost and contributions were $3.9 million, $2.1 million and $1.9 million, respectively.
F-26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 14. Income Taxes
The companys provision for income taxes consists of the
following:
For the 52 Weeks Ended
December 29,
December 30,
January 1,
2001
2000
2000
(Amounts in thousands)
$
$
$
(11,655
)
(641
)
2,871
2,464
(641
)
2,871
(9,191
)
(5,998
)
(18,131
)
(6,391
)
(1,498
)
(1,197
)
(1,333
)
(7,496
)
(19,328
)
(7,724
)
$
(8,137
)
$
(16,457
)
$
(16,915
)
Deferred tax (assets) are comprised of the following:
December 29,
December 30,
2001
2000
(Amounts in thousands)
$
82,848
$
80,356
8,616
6,639
91,464
86,995
(4,998
)
(3,807
)
(12,491
)
(15,252
)
(15,255
)
(10,027
)
(6,205
)
(5,532
)
(61,389
)
(60,638
)
(6,660
)
(6,660
)
(8,848
)
(7,033
)
(115,846
)
(108,949
)
8,298
6,747
$
(16,084
)
$
(15,207
)
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net increase in the valuation allowance for deferred tax assets of $1.6 million relates to state net operating losses. It is not certain whether or not separate company state net operating losses may be utilized in the future. Should the company determine at a later date that certain of these losses may be utilized, a benefit may be recognized in the Consolidated Statement of Income. Likewise, should the company determine at a later date that certain of these net operating losses for which a deferred tax asset has been recorded may not be utilized, a charge to the Consolidated Statement of Income may be necessary.
The provision for income taxes differs from the amount computed
by applying the U.S. federal income tax rate (35%) because of
the effect of the following items:
For the 52 Weeks Ended
December 29,
December 30,
January 1,
2001
2000
2000
(Amounts in thousands)
$
(9,233
)
$
(20,558
)
$
(18,081
)
(3,126
)
(1,528
)
(501
)
1,551
3,735
1,053
1,191
468
532
981
1,455
499
(29
)
82
$
(8,137
)
$
(16,457
)
$
(16,915
)
The amount of federal net operating loss to be carried forward by Flowers Foods is $130.0 million with expiration dates through fiscal year 2020. The company does not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. Various subsidiaries have state net operating loss carryforwards of $346.5 million with expiration dates through fiscal 2015.
During fiscal 2000 and 2001, the company was under examination by the Internal Revenue Service (IRS) with respect to fiscal years 2000, 1999 and 1998, the twenty-seven weeks ended January 3, 1998 and fiscal year 1997. The company reached a preliminary settlement with the IRS during the fourth quarter of fiscal 2001. The results of the audit have been reflected in the 2001 Consolidated Financial Statements. The significant issues raised by the IRS are temporary in nature and do not have a material effect on the Consolidated Statement of Income. The company expects to make a cash payment of approximately $5.0 million related to alternative minimum tax and interest and has provided for such on its 2001 Consolidated Balance Sheet.
Note 15. Contingencies
The company is subject to legal proceedings and other claims which arise and are being managed and defended in the ordinary course of business. While the company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any of these pending matters will have a material adverse effect on the companys overall financial position or results of operations. However, adverse developments could negatively impact earnings in a particular period.
On March 25, 2002, in Trans American Brokerage, Inc. vs. Mrs. Smiths Bakeries, Inc ., an arbitration brought before the American Arbitration Association, an arbitrator found against Mrs. Smiths Bakeries and issued an interim award for damages. For further information, see Note 10 of Notes to Consolidated Financial Statements.
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16. Segment Reporting
The company has two reportable segments: Flowers Bakeries and Mrs. Smiths Bakeries. Flowers Bakeries produces fresh breads and rolls. Mrs. Smiths Bakeries produces frozen and non-frozen baked desserts, snacks, breads and rolls. The segments are managed as strategic business units due to their distinct production processes and marketing strategies.
The accounting policies of the segments are substantially the
same as those described in Note 2. The company evaluates each
segments performance based on income or loss before
interest and income taxes, excluding corporate and other
unallocated expenses and unusual charges. Information regarding
the operations in these reportable segments is as follows:
For the Fifty Two Weeks Ended
December 29, 2001
December 30, 2000
January 1, 2000
(Amounts in thousands)
$
1,055,867
$
1,016,235
$
961,700
634,945
615,124
616,279
(61,808
)
(62,425
)
(66,593
)
$
1,629,004
$
1,568,934
$
1,511,386
$
45,569
$
38,224
$
32,865
28,058
28,392
20,127
188
486
898
$
73,815
$
67,102
$
53,890
$
11,575
$
(1,154
)
$
(1,120
)
19,198
18,858
(4,874
)
13,125
$
43,898
$
17,704
$
(5,994
)
$
(7,473
)
$
(17,193
)
$
$
69,249
$
62,919
$
66,995
(2,303
)
(28,032
)
(53,254
)
(24,713
)
(24,742
)
(26,705
)
7,473
17,193
(43,898
)
(17,704
)
5,994
$
5,808
$
9,634
$
(6,970
)
$
32,188
$
68,373
$
44,691
$
(26,380
)
$
(58,739
)
$
(51,661
)
F-29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the Fifty Two Weeks Ended
December 29, 2001
December 30, 2000
January 1, 2000
(Amounts in thousands)
$
24,779
$
18,686
$
73,553
24,723
21,212
127,340
12
27
12,435
$
49,514
$
39,925
$
213,328
$
591,589
$
499,227
$
491,396
452,392
507,366
506,586
55,710
556,053
568,981
$
1,099,691
$
1,562,646
$
1,566,963
(1) | Primarily represents elimination of intersegment sales from Mrs. Smiths Bakeries to Flowers Bakeries. |
(2) | Represents Flowers Foods corporate head office amounts. |
Note 17. Unaudited Quarterly Financial Information
Results of operations for each of the four quarters in the respective fiscal years are as follows (each quarter represents a period of twelve weeks, except the first quarter, which includes sixteen weeks):
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||
|
|
|
|
|||||||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||||||
Net sales
|
2001 | $ | 467,239 | $ | 368,938 | $ | 385,589 | $ | 407,238 | |||||||||||
2000 | $ | 450,101 | $ | 353,523 | $ | 369,094 | $ | 396,216 | ||||||||||||
Gross margin (defined as net sales less
materials, supplies, labor and other production costs)
|
2001 | $ | 213,747 | $ | 172,943 | $ | 180,063 | $ | 173,427 | |||||||||||
2000 | $ | 205,756 | $ | 149,051 | $ | 154,873 | $ | 159,056 | ||||||||||||
(Loss) income from continuing operations before
net gain on early extinguishment of debt
|
2001 | $ | (25,679 | ) | $ | 3,702 | $ | 8,476 | $ | (4,742 | ) | |||||||||
2000 | $ | (7,296 | ) | $ | (10,971 | ) | $ | (7,400 | ) | $ | (16,615 | ) | ||||||||
Net (loss) income
|
2001 | $ | (20,679 | ) | $ | 3,702 | $ | 8,476 | $ | (5,792 | ) | |||||||||
2000 | $ | 16,757 | $ | 5,529 | $ | 12,958 | $ | (30,199 | ) | |||||||||||
Basic net (loss) income per common share
|
2001 | $ | (0.69 | ) | $ | 0.12 | $ | 0.29 | $ | (0.20 | ) | |||||||||
2000 | $ | 0.56 | $ | 0.18 | $ | 0.43 | $ | (1.00 | ) | |||||||||||
Diluted net (loss) income per common share
|
2001 | $ | (0.69 | ) | $ | 0.12 | $ | 0.29 | $ | (0.20 | ) | |||||||||
2000 | $ | 0.56 | $ | 0.18 | $ | 0.43 | $ | (1.00 | ) | |||||||||||
Effect of discontinued operations
|
2001 | | | | | |||||||||||||||
2000 | $ | 24,053 | $ | 16,500 | $ | 20,358 | $ | (13,584 | ) |
F-30
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading
Selected Financial Data in Item 6 of this
Report on Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
F-31
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Those valuation and qualifying accounts which are deducted in
the balance sheet from the assets to which they apply:
Beginning
Additions Charged
Additions Charged
Ending
Balance
to Expenses
to Other Accounts
Deductions
Balance
(Amounts in thousands)
$
1,261
$
3,910
$
3,900
$
1,271
$
3,146
3,709
4,959
$
1,896
$
6,747
1,551
$
8,298
$
3,955
3,353
6,047
$
1,261
$
6,312
2,558
5,724
$
3,146
$
3,012
3,735
$
6,747
$
10,230
6,275
$
3,955
$
6,312
$
6,312
$
1,959
1,053
$
3,012
F-32
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), effective as of December 31, 2001, is made and entered into by and between FLOWERS FOODS, INC., a Georgia corporation ("Flowers") and G. ANTHONY CAMPBELL, an individual resident of Georgia (herein referred to as the "Employee"):
WITNESSETH:
WHEREAS, Flowers desires to retain Employee to serve in the capacity of Director of Governmental Affairs to Flowers, upon the terms and conditions hereinafter set forth; and
WHEREAS, Employee desires to enter into this Agreement with respect to Employee's services upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, Flowers and Employee agree as follows:
1. Resignation. Flowers and Employee agree that Employee has voluntarily resigned as Secretary and General Counsel and director of Flowers and in all other officer positions relating to any affiliate of Flowers as of December 31, 2001 (the "Effective Date"). After the Effective Date, Employee's employment with Flowers shall be governed solely by this Agreement.
2. Termination of Prior Agreements. Flowers and Employee mutually agree that any and all employment, separation or similar agreements between Flowers and Employee (and/or any of their respective affiliates) prior to the date hereof are hereby terminated effective on the Effective Date, it being understood that the 2001 Nonqualified Stock Option Agreement by and between Flowers and Employee (the "Option Agreement") continues in full force and effect.
3. Employment. Flowers agrees to retain Employee, and Employee agrees to serve Flowers, for a period commencing on the Effective Date and terminating on April 30, 2005 (the "Employment Period"). Employee agrees during the Employment Period to make himself available by telephone and in person at the offices of Flowers or any other reasonable location for advice and consultation with management of Flowers on governmental affairs. Such services shall be provided at such times during normal business hours as may be mutually agreed upon by Flowers and Employee consistent with Employee's other commitments and schedule. Employee will not, during the Employment Period, engage in activities which are detrimental to the business of Flowers, and will use his best efforts to promote good relations between Flowers and the employees, shareholders, brokers, suppliers, contractors, and customers of Flowers.
4. Compensation.
(a) In consideration of the services to be rendered by Employee during the Employment Period under this Agreement, Employee shall be entitled to compensation pursuant to the attached Schedule A.
(b) In addition, Flowers shall pay or reimburse Employee, in accordance with Flowers' standard policies and procedures, for reasonable travel and other business related expenses, if any, incurred solely in the performance of his duties as an Employee.
(c) From the Effective Date through the date of the Employee's termination on April 30, 2005, or earlier death, Employee shall have the status of a full-time salaried employee and Flowers shall provide to Employee medical, dental and life benefits (but not disability benefits) on the same basis as provided to other full-time salaried employees at the time in question. Employee shall be responsible for and pay the cost (which, to the extent practicable, shall be the cost generally applicable to similarly situated employees of Flowers) of all premiums due under such plans attributable to any covered dependents and shall promptly reimburse Flowers for any premiums paid on behalf of such dependents.
5. Relationship Between Parties. During the Employment Period, Employee's relation to Flowers shall be that of an employee, but he shall be free to dispose of such portion of his time, energy, and skill, to the extent not obligated to devote same to Flowers pursuant to Section 3 above, as he sees fit, and to such persons, firms or corporations as he deems advisable, subject to the terms of this Agreement. During the Employment Period, Employee is not required to observe any regular hours of work for Flowers or attend any regular conferences with any personnel of Flowers, except as requested by Flowers in accordance with the terms of Section 3 of this Agreement.
6. Company Stock Transactions. Flowers and Employee recognize and agree that any and all warrants, options or derivative securities involving Flowers common stock will remain outstanding during the Employment Period, in accordance with the respective terms of agreements covering such warrants, options or derivative securities. Furthermore, for purposes of the Option Agreement under the Flowers Foods, Inc. 2001 Equity and Performance Incentive Plan, Flowers hereby confirms that its Compensation Committee has determined that Employee's position under this Agreement is not a "demotion from the position of employment held" by the Employee prior to the date of this Agreement, and Employee agrees with such determination.
7. Termination. The following provisions relate solely to termination of the Employee's employment during the Employment Period:
(a) Death. Subject to Section 8 below, this Agreement shall terminate automatically upon the Employee's death.
(b) Cause. Flowers may terminate the Employee's employment for
"Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of
dishonesty, moral turpitude or willful misconduct taken by the Employee and
intended to result in substantial personal enrichment of the Employee at the
expense of Flowers or any of its affiliates or which have a material adverse
impact on the business or reputation of Flowers or any of its affiliates, or
(ii) repeated violations by the Employee of the Employee's obligations under
Section 3 of this Agreement which are demonstrably willful and deliberate on the
Employee's part and which have a material adverse impact on the business or
reputation of Flowers or any of its affiliates.
(c) Notice of Termination. Any termination by the Employer for Cause shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 17 of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated, and
(iii) if the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 15 days after
the giving of such notice).
(d) Date of Termination. "Date of Termination" means the date of receipt of the Notice of Termination by the Employee or any later date specified therein, as the case may be. If the Employee's employment is terminated by Flowers in breach of this Agreement, the Date of Termination shall be the date on which Flowers notifies the Employee of such termination.
8. Obligations of Flowers Upon Termination. The following provisions apply only in the event the Employee is terminated during the Employment Period:
(a) Death. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligation to the Employee's legal representatives under this Agreement other than those payment amounts accrued and payable hereunder at the date of the Employee's death.
(b) Cause. If the Employee's employment shall be terminated for Cause, Flowers shall pay the Employee any amounts then accrued and payable hereunder through the Date of Termination and shall provide the Employee, through the Date of Termination, such welfare benefits, fringe benefits, and other perquisites as were provided to the Employee immediately prior to delivery to Employee of the Notice of Termination. Flowers shall have no further obligation to the Employee under this Agreement.
(c) Other Than for Cause. If Flowers shall terminate the Employee's employment with Flowers other than for Cause,
(i) Flowers shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination any amounts then accrued and payable hereunder through the Date of Termination; and
(ii) Flowers shall, promptly upon submission by the Employee of supporting documentation, pay or reimburse to the Employee any business-related costs and expenses paid or incurred by Employee on or before the Date of Termination or within 30 days after the Date of Termination which would have been payable under Section 4(b) if the Employee's employment had not terminated.
9. Standstill; Voting of Capital Stock.
(a) Employee covenants and agrees that for the duration of the Employment Period, Employee shall not without the prior specific written consent of Flowers (i) make, or in any way participate in any solicitation of proxies with respect to any securities of Flowers, whether equity or debt securities or any direct or indirect options or other rights to acquire any such securities ("Securities") (including by the execution of action by written consent), become a participant in
any election contest with respect to Flowers, seek to influence any person with
respect to any Securities or demand a copy of Flowers' list of its stockholders
or other books and records; (ii) participate in or encourage the formation of
any partnership, syndicate, or other group which owns or seeks or offers to
acquire beneficial ownership of any Securities or which seeks to effect control
of Flowers or for the purpose of circumventing any provision of this Agreement;
(iii) otherwise act, alone or in concert with others (including by providing
financing for another person), to seek or to offer to control or influence, in
any manner, the management, Board of Directors or policies of Flowers, or any
affiliate of Flowers, or (iv) propose or publicly announce or otherwise disclose
an intent to propose, or enter into or agree to enter into, singly or with any
other person or directly or indirectly, (1) any form of business combination,
acquisition or other transaction relating to Flowers or any affiliate thereof,
(2) any form of restructuring, recapitalization or similar transaction with
respect to Flowers or any such affiliate, or (3) any demand, request or proposal
to amend, waive or terminate any provision of this Section.
(b) Employee covenants and agrees that for the duration of the Employment Period, at all annual or special meetings of shareholders of Flowers or any written consent action to be taken by the shareholders of Flowers, Employee shall take all actions necessary to vote all shares of Flowers common stock currently owned of record or beneficially owned or hereafter directly or indirectly acquired (of record or beneficially) by Employee in a manner consistent with the recommendation of the Board of Directors of Flowers with respect to any proposal (including nominees for election of directors).
(c) As used in this Agreement, (a) the terms or phrases "affiliate," "beneficial owner," "election contest," "equity security," "group," "participant," "person," "proxy," and "security," (and the plurals thereof) will be ascribed meanings no less broad than the broadest definition or meaning of such terms under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and the rules and regulations promulgated thereunder and (b) the term "immediate family" shall mean the spouse, lineal descendant, father, mother, brother or sister of Employee.
10. Confidentiality.
(a) Each of the parties to this Agreement represents and agrees that it will keep the terms, amount and facts of this Agreement completely confidential, and that it will not hereafter disclose any information concerning this Agreement to anyone other than, in the case of the Employee, his immediate family and professional representatives and, in the case of Flowers, its professional representatives, who, in each case, will be informed of and bound by this confidentiality clause; provided, however, that Employee shall be free to disclose to others any information relating to the terms, amount and facts of this Agreement to the extent Flowers discloses any such information to the public, including, without limitation, any information disclosed in Flowers' filings with the Securities and Exchange Commission and Flowers shall be permitted to disclose such information as it shall deem appropriate in its filings with the Securities and Exchange Commission.
(b) Employee shall maintain in confidence and shall not, either during or at any time after the Employment Period, communicate or disclose to, or use for the benefit of Employee or any other person, firm, association or corporation any proprietary or confidential information, trade secret or know-how belonging to Flowers (together, the "Proprietary Information"), whether or
not such information is in written or permanent form. Such Proprietary Information includes, but is not limited to, techniques, processes, plans, or methods of Flowers in the manufacturing, distribution, marketing and sale of bakery products, pies, bread, or bread-type rolls, and technical and business information relating to Flowers' inventions or products, research and development, finances, existing and potential customers and suppliers, marketing, and future business plans. Notwithstanding the foregoing, the term Proprietary Information shall not include any information that was in the public domain at the time it was disclosed or subsequently becomes in the public domain, including information that is publicly known or generally utilized by others engaged in the same business or activities as that in the course of which Flowers utilized, developed or otherwise acquired such information, other than as a result of a disclosure by Employee in violation of this Agreement. Employee hereby acknowledges and agrees that the prohibitions against disclosure of Proprietary Information recited herein are in addition to, and not in lieu of, any rights or remedies that Flowers may have available pursuant to the laws of any jurisdiction or common law or judicial precedent to prevent the disclosure of trade secrets or proprietary information, and the enforcement by Flowers of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any other rights or available remedies that it may possess in law or equity absent this Agreement.
(c) All Proprietary Information consisting of records, reports, notes, compilations or other recorded matter, and copies or reproductions thereof, relating to Flowers' operations, activities or business, made or received by Employee during the Employment Period are and shall be Flowers' exclusive property, and Employee shall keep the same at all times in his custody and subject to his control, and will surrender the same to Flowers at the termination of the Employment Period, if not before.
11. Non-competition Covenant.
(a) Covenant Not to Compete. The Employee covenants and agrees that he will not compete with Flowers, directly or indirectly, by engaging in or carrying on a business that is substantially similar to the Business (as defined below) anywhere in the fifty states of the United States and the District of Columbia (the "Proscribed Territory") for the term of the Employment Period plus a period of two (2) years.
(b) "Compete" Defined. For purposes of this Section, the term
"compete" shall mean, in each case with respect to "carrying on a business that
is substantially similar to the Business": (i) entering into or attempting to
enter into any business substantially similar to the Business in the Proscribed
Territory; (ii) calling on, soliciting, or actively taking away as a customer -
- or attempting to call on, solicit, or actively take away as a customer -- any
individual, partnership, corporation, or association that was a customer of
Flowers immediately prior to the date hereof for purpose of a business
substantially similar to the Business; (iii) hiring, soliciting, actively taking
away - - or attempting to hire, solicit or actively take away - - either on the
Employee's behalf or on behalf of any other person or entity, any person serving
immediately prior to the date hereof as an employee, or, to the extent not an
employee, any person providing substantial services as a director or officer of
Flowers, in connection with the Business; or (iv) entering into or attempting to
enter into any business substantially similar to or competing in any way with
the Business, either alone or with any individual, partnership, corporation,
limited liability company, or other legal entity.
(c) "Directly or Indirectly" Defined. For purposes this Section,
the words "directly or indirectly" as they modify the word "compete" shall mean:
(i) acting as an agent, representative, consultant, officer, director,
independent contractor, or employee of any entity or enterprise that is
competing (as defined above) with the Business; (ii) participating in any entity
or enterprise that is competing with the Business as an owner, partner, limited
partner, member, manager, joint venturer, creditor, or shareholder (except as a
shareholder holding less than a five-percent (5%) interest in a corporation
whose shares are actively traded on a regional or national securities exchange
or in the over-the-counter market); and (iii) communicating to any entity or
enterprise that is competing with the Business the names or addresses or any
other information concerning any past, present, or currently identified
prospective client or customer of Flowers.
(d) "Business" Defined. For purposes of this Agreement, the term "Business" shall mean the operations of Flowers, as conducted on the Effective Date of this Agreement, including, without limitation, the manufacturing, distribution, marketing and sale of bakery products, pies, bread, or bread-type rolls.
12. Future Cooperation. During the term of this Agreement and with the exception of litigation wherein Employee is an individually-named and properly served defendant and wishes to take such actions as he deems appropriate to defend himself, Employee shall, upon request by and at the expense of Flowers, assist and cooperate with Flowers in any complaints brought or threatened by any party (other than Employee) against Flowers or any affiliate, successor or subsidiary thereof in any lawsuits, disputes, differences, grievances, claims, charges, or complaints brought or threatened by any party or brought by Flowers or any affiliate, successor or subsidiary thereof, against any party
13. Successors Bound; Assignability. This Agreement shall be binding upon Employee, Flowers and their respective successors in interest, including without limitation, any corporation into which Flowers may be merged or by which it or all or any substantial portion of its assets or business may be acquired. This Agreement is non-assignable except that the rights, duties and obligations of Flowers under this Agreement may be assigned to any affiliate of it and to any acquiror of the business conducted by Flowers, in the event Flowers is merged, liquidated, acquired or sells substantially all of the assets used in such business.
14. Severability. In the event that any one or more of the provisions of this Agreement or any word, phrase, clause, sentence, or other portion thereof shall be deemed to be illegal or unenforceable for any reasons, such provision or portion thereof shall be modified or deleted in such a manner as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws.
15. Entire Agreement. This Agreement constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof and supersedes all other agreements relating to the subject matter hereof. There are no agreements, understandings, specific restrictions, warranties or representations relating to said subject matter between the parties other than those set forth herein or herein provided.
16. Counterparts. This Agreement may be executed in two or more counterparts, each of which will take effect as an original, and all of which shall evidence one and the same Agreement.
17. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand or mailed by registered or certified mail, return receipt requested, first class postage prepaid, or sent by Federal Express or similarly recognized overnight delivery service with receipt acknowledged, addressed as follows:
If to Employee:
G. Anthony Campbell, Esq.
101 Winslow Drive
Thomasville, GA 31792
If to Flowers:
Flowers Foods, Inc.
1919 Flowers Circle
Thomasville, Georgia 31757
Attn: General Counsel
with a copy to:
Lizanne Thomas, Esq.
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made and, if delivered by mail or by overnight delivery service, the date on which such notice, request, instruction or document is received shall be the date of delivery. In the event any such notice, request, instruction or document is mailed or shipped by overnight delivery service to a party in accordance with this Section and is returned to the sender as nondeliverable, then such notice, request, instruction or document shall be deemed to have been delivered or received on the fifth day following the deposit of such notice, request, instruction, or document in the United States mails or the delivery to the overnight delivery service. Any party may change its address specified for notices herein by designating a new address by notice in accordance with this Section.
18. Remedies. Each party acknowledges that a breach by any party of the covenants contained in this Agreement cannot reasonably or adequately be compensated in damages in an action at law; and that a breach by any party of any of his or its covenants contained in this Agreement will cause the other party and their respective businesses irreparable injury and damage. By reason thereof, each party shall be entitled, in addition to any other remedies he, she
or it may have under this Agreement or otherwise, to preliminary and permanent injunctive and other equitable relief, without the necessity of providing any proof that monetary damages would be inadequate, to prevent or curtail any breach of this Agreement by the other party; provided, however, that no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies in the event of such a breach.
19. Amendment and Modification. This Agreement may only be amended, modified or terminated prior to the end of its term by the mutual agreement of the parties.
20. Governing Law. The terms of this Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
"EMPLOYEE"
/s/ G. Anthony Campbell ------------------------------------------- G. ANTHONY CAMPBELL |
FLOWERS FOODS, INC.
By: /s/ Jimmy M. Woodward --------------------------------------- Name: Jimmy M. Woodward ------------------------------------- V. P. and CFO |
SCHEDULE A
COMPENSATION SCHEDULE
Compensation for the period from the Effective Date through October 5, 2002, is to be paid consistent with Flowers' then applicable payroll practices, including, without limitation, applicable withholding, and is to be based upon a per annum salary of $265,200, payable on the following dates:
PERIOD END DATE PAY DATE ------------------------------- 1/12/2002 01/17/02 1/26/2002 01/31/02 2/9/2002 02/14/02 2/23/2002 02/28/02 3/9/2002 03/14/02 3/23/2002 03/28/02 4/6/2002 04/11/02 4/20/2002 04/25/02 5/4/2002 05/09/02 5/18/2002 05/23/02 6/1/2002 06/06/02 6/15/2002 06/20/02 6/29/2002 07/05/02 7/13/2002 07/18/02 7/27/2002 08/01/02 8/10/2002 08/15/02 8/24/2002 08/29/02 9/7/2002 09/12/02 9/21/2002 09/26/02 10/5/2002 10/10/02 (this check will include 1 weeks pay for last week in Sept. & 1 weeks pay for first week in Oct.) |
For the period commencing October 6, 2002 and ending on April 5, 2005, compensation of $1,000 per annum shall be paid on the following dates:
October 1, 2003 - $1,000.00 October 1, 2004 - $1,000.00 April 1, 2005 - $500.00 |
EXHIBIT 10.8
FLOWERS FOODS, INC.
STOCK APPRECIATION RIGHTS PLAN
1. Purpose. The purposes of this Stock Appreciation Rights Plan
(the "PLAN") are to provide a means by which Flowers Foods, Inc. (the "COMPANY")
and its subsidiaries will be able to attract and retain officers, key employees,
and nonemployee directors, and to provide to such employees and directors an
opportunity to participate in increased values of shares of the Company's common
stock, par value $.01 per share, ("COMMON Stock") which their efforts,
initiative, and skills have helped to create.
2. Administration. The Plan shall be administered by the Compensation Committee, or any successor thereto, of the Board of Directors of the Company (the "COMMITTEE"). Each interpretation or construction by the Committee of any provision of the Plan or of any award made hereunder and each determination made by the Committee pursuant to any such provision shall be final and conclusive. No member of the Committee (a "DIRECTOR") shall have any liability for any such interpretation, construction or determination made in good faith.
3. Participants. The Committee may from time to time select for participation in the Plan such key employees (including officers of the Company) whose efforts are deemed by the Committee to have an effect on the values of the Common Stock or the Company's long-term performance and profitability ("PARTICIPANTS"). In addition, nonemployee members of the Company's Board of Directors may elect, in advance, to convert their retainers from the Company into Appreciation Rights, as described in paragraph 4(f) below. Said Directors will also be Participants in the Plan.
4. Operation. (a) The Committee may from time to time make awards of Appreciation Rights ("AWARDS") to Participants. Each Appreciation Right shall represent a right of the Participant to receive (in the form and manner and subject to the terms and conditions hereinafter set forth) the increase, if any, in the Fair Market Value (as defined below) of one share of Common Stock from the date of Award ("AWARD DATE") to the first date on which all terms and conditions to payment of such Award have been satisfied ("PAYMENT DATE").
(b) The "FAIR MARKET VALUE" means (i) the average of the highest and the lowest quoted selling price of a share of Common Stock as reported on the composite tape for securities listed on the New York Stock Exchange, or such other national securities exchange as may be designated by the Committee, or, in the event that the Common Stock is not listed for trading on a national securities exchange but is quoted on an automated system, on such automated system, in any such case on the valuation date (or, if there were no sales on the valuation date, the average of the highest and the lowest quoted selling prices as reported on said composite tape or automated system for the most recent day during which a sale occurred), or (ii), if clause (i) does not apply, the fair market value of the Common Stock as determined by the Committee.
(c) The Payment Date for each Award shall be not less than one (1) years following the Award Date.
(d) An Award shall be entered on the Company's books as a grant of contingent deferred compensation to the Participant (the "ACCOUNT") and shall not constitute the Participant as the owner or holder of the number of shares of Common Stock that are covered by such Award. The initial entry in the Participant's Account shall be equal to the Fair Market Value of the shares of Common Stock covered by the Award as of the Award Date, and the value of the Participant's Account shall be adjusted upward or downward subsequent to that date to reflect increases or decreases in Fair Market Value subsequent to the Award Date.
(e) Although the Company may, in its discretion, make such provision as it deems advisable for funding the ultimate payment of such Award, no assets of the Company shall be segregated for that purpose or held in trust for the benefit of the Participant, it being the intention of the Plan that all Awards shall constitute at all times general unsecured obligations of the Company.
(f) Nonemployee members of the Company's Board of Directors may elect, in advance, to convert their retainers from the Company into Appreciation Rights, in which event there will be an automatic grant of Appreciation Rights, as of the date on which the retainer would otherwise be paid to the Director.
5. Dividend Credits. If, between the Award Date and the Payment Date of any Award, any cash dividend shall be declared on the Common Stock, there shall be credited to the Participant's Account on the record date for such dividend an amount equal to the per-share dividend multiplied by the number of shares of Common Stock represented by such Award.
6. Vesting. (a) The Committee may determine in connection with each Award the terms and conditions on which such Award shall be earned out by the Participant. Such terms
and conditions may include requirements for continued employment by the Participant with the Company and its subsidiaries for specified periods of time, the maximum term for which such Award is to remain outstanding, the vesting schedule (if any) applicable to such Awards, and/or achievement of economic or financial goals specified by the Committee and may provide for the earlier vesting of such Awards in the event of a Change in Control (as defined below) or in the event of Retirement, Disability or death of the Participant.
(b) For purposes of this Plan, (i) "RETIREMENT" means termination of employment on or after attainment of age 65; and (ii) "DISABILITY" means disability as determined under procedures established by the Committee for purposes of this Plan.
7. Payment of Awards Earned Out. (a) The "PAYMENT VALUE" of an Award shall equal the excess (if any) of the Fair Market Value of the shares of Common Stock represented by such Award on the Payment Date over the Fair Market Value of such shares on the Award Date, plus dividends credited to the Participant's Account in respect of such shares prior to the Payment Date.
(b) The Payment Value of each Award earned in accordance with the vesting schedule (if any) as determined by the Committee shall be paid to the Participant in cash on the Payment Date, or as soon as practicable thereafter.
8. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Committee) may include relinquishment of a portion of such benefit. Benefits shall not be withheld in excess of the minimum number required for such tax withholding.
9. Adjustments. The Committee may make or provide for such adjustments in the numbers of shares of Common Stock covered by outstanding Awards granted hereunder, as the Committee, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event,
the Committee, in its discretion, may provide in substitution for any or all outstanding awards under this Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all Awards so replaced.
10. For purposes of this Plan, except as may be otherwise prescribed by the Committee in an agreement evidencing a grant of an Award made under the Plan, a "CHANGE IN CONTROL" shall mean the occurrence during the term of any of the following events, subject to the provisions of Section 11(f) hereof:
(a) the Company merges into itself, or is merged or consolidated with, another entity and as a result of such merger or consolidation less than 51% of the voting power of the then-outstanding voting securities of the surviving or resulting entity immediately after such transaction are directly or indirectly beneficially owned in the aggregate by the former shareholders of the Company immediately prior to such transaction; or
(b) all or substantially all the assets accounted for on the consolidated balance sheet of the Company are sold or transferred to one or more entities or persons, and as a result of such sale or transfer less than 51% of the voting power of the then-outstanding voting securities of such entity or person immediately after such sale or transfer is directly or indirectly beneficially held in the aggregate by the former shareholders of the Company immediately prior to such transaction or series of transactions; or
(c) a person, within the meaning of Section 3(a)(9) or
13(d)(3) (as in effect on the Effective Date of this Plan) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") becomes the beneficial
owner (as defined in Rule 13d-3 of the Securities and Exchange Commission
pursuant to the Exchange Act) of (i) 15% or more but less than 35% of the voting
power of the then-outstanding voting securities of the Company without prior
approval of the Committee, or (ii) 35% or more of the voting power of the
then-outstanding voting securities of the Company; provided, however, that the
foregoing does not apply to any such acquisition that is made by (w) any
subsidiary; (x) any employee benefit plan of the Company or any subsidiary; or
(y) any person or group of which employees of the Company or of any subsidiary
control a greater than 25% interest unless the Committee determines that such
person or group is making a "hostile acquisition;" or (z) any person or group of
which the Company is an affiliate; or
(d) a majority of the members of the Committee are not Continuing Directors, where a "CONTINUING DIRECTOR" is any member of the Committee who (x) was a member of the Committee on the Effective Date of this Plan or (y) was nominated for election or elected to such Committee with the affirmative vote of a majority of the Continuing Directors who were members of such Committee at the time of such nomination or election; or
(e) The Board determines that (A) any particular actual or proposed merger, consolidation, reorganization, sale or transfer of assets, accumulation of shares of the Company or other transaction or event or series of transactions or events will, or is likely to, if carried out,
result in a Change in Control falling within Subsections (a), (b), (c) or (d) and (B) it is in the best interests of the Company and its shareholders, and will serve the intended purposes of this Section 11, if the provisions of awards which provide for earlier exercise or earlier lapse of restrictions or conditions upon a Change in Control shall thereupon become immediately operative.
(f) Notwithstanding the foregoing provisions of this
Section (11):
(i) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender offer or other
transaction or event or series of transactions or events mentioned in
Section (11)(e) shall be abandoned, or any such accumulations of shares
shall be dispersed or otherwise resolved, the Board may, by notice to
the Participant, nullify the effect thereof and reinstate the Award as
previously in effect, but without prejudice to any action that may have
been taken prior to such nullification.
(ii) Unless otherwise determined in a specific case by the Board, a "Change in Control" shall not be deemed to have occurred for purposes of Section (11)(c) solely because (X) the Company, (Y) a subsidiary, or (Z) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company or any subsidiary either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act disclosing beneficial ownership by it of shares of the then-outstanding voting securities of the Company, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has occurred or will occur in the future by reason of such beneficial ownership.
11. General Provisions. (a) The interests of Participants in outstanding Awards may not be transferred except by will or the laws of descent and distribution.
(b) No employee shall have any right to be granted an Award under the Plan. Nothing in the Plan shall be construed as conferring any right of continued employment on any Participant or as curtailing the rights of the Company to terminated such employment.
(c) The Committee may at any time amend or terminate the Plan in whole or in part. No such amendment or termination shall, however, adversely effect the rights of any Participant in respect of any outstanding Award without the consent of such Participant.
(d) The Plan shall become effective upon adoption by the Board (the "EFFECTIVE DATE") and shall continue in effect until termination by the Board.
EXHIBIT 10.9
FLOWERS FOODS, INC.
ANNUAL EXECUTIVE BONUS PLAN
THIS ANNUAL EXECUTIVE BONUS PLAN (the "Plan") is entered into by Flowers Foods, Inc. (the "Company"), a Georgia corporation, for the purpose of providing annual cash incentive bonuses to certain designated executives in order to encourage and reward their efforts toward the growth and economic success of the Company. The terms of the Plan are as follows, effective April 1, 2001:
1. Participants. The Participants in this Plan shall be those key executive employees of the Company or any subsidiary of the Company who have been designated as participants with respect to a fiscal year of the Company by the Compensation Committee of the Board of Directors of the Company.
2. Calculation of Bonus. Each Participant is eligible to receive a Bonus, payable in cash, which is a percentage of his Base Compensation for the Plan Year, which shall be the fiscal year of the Company, except that the first Plan Year will commence April 1, 2001, and end December 29, 2001. The amount of said Bonus shall be determined by multiplying a x b x c where
a = the Participants' Base Compensation as established by the Compensation Committee prior to the commencement of the Plan Year; b = the incentive guideline percentage ("Target Bonus Percentage") appropriate to the Participant's salary grade on the first day of the Plan Year according to the following |
schedule:
Incentive Salary Guideline Grade --------- ----- 75% 39 50% 32 50% 31 40% 30 |
c = a percentage determined by the relationship of the Company's actual earnings before interest, taxes, depreciation and amortization ("Actual EBITDA") for the Plan Year compared with the earnings before interest, taxes, depreciation and amortization goal ("EBITDA Goal") for the Plan Year established by the Compensation Committee no later than 90 days following the beginning of said Plan Year; for these purposes, if the Actual EBITDA is equal to the EBITDA Goal, the resulting percentage is 100%; if Actual EBITDA is less than the EBITDA Goal, the applicable percentage will drop by 5% for every 1% by which the EBITDA Goal exceeds the Actual EBITDA; and if Actual EBITDA exceeds the EBITDA Goal, the applicable percentage shall increase by 10% for every 1% by which the Actual EBITDA exceeds the EBITDA Goal. Notwithstanding the foregoing, the Compensation Committee may determine that a goal |
2 other than EBITDA is appropriate for certain executives whose responsibilities pertain more specifically to discrete elements of the Company's business; in such cases, the Committee may prescribe a goal based on the performance of a product group, division, subsidiary or other management reporting unit, or any combination of the above. In no event, however, shall the applicable percentage exceed 200%, and in no event shall the Bonus paid to any Participant for a Plan Year exceed $1,500,000. 3. Payment of Bonus. The Bonus shall be paid to all Participants |
no later than 90 days after the close of the Plan Year, in cash, unless the Participant has made a valid election to defer said Bonus pursuant to the terms of any applicable deferred compensation plan maintained by the Company. Payment shall be made from the Company's general assets; no trust fund shall be established for purposes of funding said payments. The Bonus may not be assigned, transferred, mortgaged or hypothecated prior to actual receipt, except for any assignment to secure a debt to the Company itself, and any such attempt will be null and void.
4. Termination of Employment Prior to Year End; Change of Control. The Bonus will not be paid for a Participant who voluntarily terminates employment, or whose employment is terminated by the Company, prior to the end of the Plan Year; provided, however, that a pro rata Bonus will nonetheless be paid if termination is a consequence of the Participant's death, disability (as determined by the Committee) or retirement pursuant to The Flowers Foods, Inc. Retirement Plan No. 1 or The Flowers Foods, Inc. 401(k) Retirement Savings Plan, or follows a Change of Control as discussed below. Said prorated Bonus will be calculated by inserting the actual amount of Base Compensation received by the Participant during the Plan Year in which termination occurs in the formula contained in paragraph 2 above.
In the event of a Change of Control of the Company, as said phrase is defined in Section 12 of the Company's 2001 Equity Performance Incentive Plan (as the same exists on March 26, 2001), any Bonus for the Plan Year (or portion thereof during which a Participant remains employed, if applicable) in which said Change of Control occurs will be paid to the Participant regardless of whether he remains employed by the Company on the last day of said Plan Year, subject to any separation agreement which may exist between the Company and the Participant. This provision of the Plan may not be amended during the Plan Year in which a Change of Control occurs. The authority to amend the definition of Change of Control provided for in said Section 12 shall be exercised, for purposes of this Plan only, by the Compensation Committee.
5. Administration. This Plan shall be administered by the Compensation Committee of the Company's Board of Directors. Said Committee shall have the authority to interpret the provisions of this Plan, direct the calculation and payment of Bonuses in accordance with the terms hereof, and make final decisions with respect to the entitlement of any Participant to a Bonus. Notwithstanding the foregoing, the Committee shall have no discretion to change the elements of the formula described in paragraph 2 above by which Bonuses are calculated. The Committee's actions may be reflected in the minutes of its meetings.
6. Payment Upon Death. In the event that the Participant dies before payment of his Bonus, said amount shall be paid to his estate.
7. Qualification as Performance-Based Compensation. It is intended that Bonuses paid pursuant to this Plan will constitute performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.
8. Shareholder Approval; Duration. Commencing with the Company's 2002 fiscal year, this Plan is subject to the approval of a majority of the Company's shareholders present and entitled to vote at a duly constituted meeting thereof. In the absence of such approval for the 2002 and subsequent fiscal years, no Bonuses may be paid hereunder. This Plan shall continue indefinitely; provided, however, that the Board of Directors of the Company may terminate this Plan at any time on a prospective basis, and may provide that proportionate Bonuses will be paid for the Plan Year during which termination occurs.
9. Amendment. The Compensation Committee may amend the Plan at any time. To the extent that any amendment to the Plan would require shareholder approval in order for Bonuses paid thereunder to continue to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, such amendment shall not be effective until shareholder approval is received. To the extent that any amendment of the Plan is retroactive or affects Bonuses to be paid for the Plan Year in which adopted, and would reduce the amount of any Bonus, and unless said amendment is necessary for purposes of complying with the provisions of said Section 162(m), the consent of a Participant shall be required with respect to the effect of the amendment on his own Bonus.
10. Miscellaneous. This Plan shall be interpreted according to the laws of the State of Georgia. Any reference herein to the singular shall be deemed to include the plural where appropriate.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of the day and year first above referenced.
EXHIBIT 10.10
FLOWERS FOODS, INC
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE AS OF MARCH 26, 2001
FLOWERS FOODS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(EFFECTIVE MARCH 26, 2001)
WHEREAS, Flowers Foods, Inc. ("Company") has, effective as of March 26, 2001, assumed the sponsorship of, and adopted for the benefit of certain employees of the controlled group of corporations of which Flowers Foods, Inc. is the common parent corporation, the Flowers Foods, Inc. Retirement Plan No. 1 ("Pension Plan"); and
WHEREAS, certain provisions of the Internal Revenue Code of 1986, as amended, place limitations on the amount of benefits that would otherwise be made available under the Pension Plan for certain participants; and
WHEREAS, the Company desires to provide the benefits which would otherwise have been payable to such participants under the Pension Plan except for such limitations, in consideration of services performed and to be performed by such participants for the Company and certain related corporations.
NOW, THEREFORE, the Company hereby adopts the following Supplemental Executive Retirement Plan ("Plan") to provide such benefits:
ARTICLE I
PREAMBLE
SECTION 1.1. Effective Date. The effective date of this Plan is March 26, 2001.
SECTION 1.2. Purpose of the Plan. The purpose of this Plan is to provide additional retirement benefits for certain management and highly compensated employees of the Company (and other participating Employers).
SECTION 1.3. Governing Law. This Plan shall be regulated, construed and administered under the laws of the State of Georgia, except when preempted by federal law.
SECTION 1.4. Gender and Number. For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural, unless otherwise clearly required by the context.
SECTION 1.5. Severability. If any provision of this Plan or the application thereof to any circumstances(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby.
ARTICLE II
DEFINITIONS
SECTION 2.1. Words and phrases used herein with initial capital letters which are defined in the Pension Plan are used herein as so defined, unless otherwise specifically defined herein or the context clearly indicates otherwise. The following words and phrases when used in this Plan with initial capital letters shall have the following respective meanings, unless the context clearly indicates otherwise:
SECTION 2.1(1). "Actual Pension Plan Benefit" shall mean the amount of the monthly benefit in fact payable to the Participant or his Beneficiary under the Pension Plan.
SECTION 2.1(2). "Beneficiary".
(a) In General. The term "Beneficiary" shall mean the person who is entitled to receive part or all of a pension or other benefit payable with respect to the Participant under the Pension Plan.
(b) Change of Beneficiaries. Notwithstanding the foregoing, each Participant may at any time and from time to time, before and after retirement, change his Beneficiary hereunder without the consent of any existing Beneficiary or any other person. Therefore, the Beneficiary under the Plan need not be the same as the Beneficiary under the Pension Plan. However, as described in Subsection (c) of this Section, the Beneficiary under the Pension Plan shall be used as the "measuring life" for purposes of the amount and duration of the Supplemental Pension Benefits payable to any Beneficiary hereunder. The change of a Beneficiary under the Plan may be made, and may be revoked, only by an instrument (in form acceptable to the Company) signed by the Participant and filed with the Company prior to the Participant's death. If two or more persons designated as a Participant's Beneficiary are in existence, the amount of any payment to the Beneficiary under this Plan shall be divided equally among such persons unless the Participant's designation specifically provides to the contrary.
(c) Effect of Change of Beneficiary. Supplemental Pension Benefits shall be payable to a Beneficiary hereunder only so long as Actual Pension Plan Benefits are being paid to the Beneficiary under the Pension Plan. In the event that the Beneficiary hereunder is different than the Beneficiary under the Pension Plan, (i) if the Beneficiary hereunder dies after the Participant but while the Beneficiary under the Pension Plan is still living, any remaining payments hereunder shall be payable, as they come due, to the estate of the Beneficiary hereunder or, if applicable, to the contingent Beneficiary designated hereunder by the Participant, (ii) if the Beneficiary hereunder predeceases the Beneficiary under the Pension Plan and the Participant, the Beneficiary hereunder shall revert to the Beneficiary last effectively designated under the Pension Plan unless and until the Participant again makes a change of Beneficiary pursuant to Subsection (b) above, and (iii) if the Beneficiary under the Pension Plan predeceases the Beneficiary hereunder, Supplemental Pension Benefits to the Beneficiary under this Plan shall cease.
SECTION 2.1(3). "Change in Control" with respect to the Company shall mean the occurrence of any of the following events:
(i) the Company becomes a subsidiary of another corporation or entity or is merged with or consolidated into another corporation or entity (other than a corporation wholly owned by the Company) or sells substantially all of the assets of the Company to another corporation or entity;
(ii) any person, corporation, partnership or other entity, either alone or in conjunction with its "affiliates" as that term is defined in Rule 405 of the General Rules and Regulations under the Securities Act of 1933, as amended, or any other group of persons, corporations, partnerships or other entities who are not "affiliates" as defined but who are acting in concert, are determined to own of record or beneficially securities of the Company which represent twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities entitled to vote for the election of directors, if such ownership was not approved in advance by a vote of at least three-quarters of the Continuing Directors; provided, however, that for purposes of determining the ownership of any group as described above or any member thereof, no such group or member shall be deemed to be the beneficial owner of shares of Company common stock:
(1) which were beneficially owned by a member on March 26, 2001 and continue to be beneficially owned by any member or any affiliate or associate thereof as of the date of the formation of the group;
(2) initially acquired by a member or an affiliate or associate thereof by bona fide gift, inheritance, or as a result of a stock dividend, split or in a similar transaction in which no consideration was exchanged;
(3) initially acquired by a member or an affiliate or associate thereof pursuant to the exercise of any options, rights or warrants granted to such person by the Company; or
(4) beneficially owned by a member or an affiliate or associate thereof pursuant to any employee benefit plan of the Company or any subsidiary of the Company;
(iii) the first to occur of (x) the Board of Directors' actual knowledge of, or (y) the reporting to the Securities and Exchange Commission of, the tender, pursuant to a tender offer or exchange offer other than by the Company, of shares representing twenty-five percent (25%) or more of the Company's then outstanding securities entitled to vote for the election of directors, whether or not such percentage of tendered securities is subsequently reduced;
(iv) the Board of Directors of the Company adopts a resolution approving the liquidation or dissolution of the Company;
(v) Continuing Directors at any time fail to constitute a majority of the Board of Directors of the Company; or
(vi) any other event that a majority of the Continuing Directors determines would be required to be reported in response to Item 6(e) [Voting Securities and Principal Holders Thereof - change in control] of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor provision thereof.
For purposes of this Section 2.1(3), the term "Continuing Directors" means the then current members of the Company's Board of Directors who were also members of the Company's Board of Directors on March 26, 2001, plus any new directors whose nominations were approved by at least three quarters of the Continuing Directors in office at the time of the election of any such new directors, other than a nomination of an individual whose initial assumption of office is in connection with an actual or threatened solicitation with respect to the "election or removal of the Board of Directors," as such terms are used in Rule 14a-11 of the Exchange Act.
SECTION 2.1(4). "Code" shall mean the Internal Revenue Code of 1986, as it has been and may be amended from time to time.
SECTION 2.1(5). "Compensation." Compensation shall mean "Compensation" as defined in Article I of the Pension Plan, except that Compensation shall not be subject to the dollar limitation imposed by Code Section 401(a)(17).
SECTION 2.1(6). "Controlled Group" shall mean the Company and any other entity which is required to be aggregated with the Company pursuant to Code sections 414(b), (c), (m) or (o).
SECTION 2.1(7). "Employer(s)" shall mean the Company and/or any other member of the Controlled Group which is a participating employer in the Pension Plan.
SECTION 2.1(8). "Participant" shall mean each person who shall be eligible to receive benefits from the Plan, as follows: those individuals who are or have been active participants in the Pension Plan on and after March 26, 2001 (i.e., individuals who have continued to accrued benefits on and after March 26, 2001) and who are entitled, pursuant to the provisions of the Pension Plan, to a pension benefit which is less than the pension benefit that would be payable under the Pension Plan if such pension benefit were computed without regard to:
(1) the provisions of the Pension Plan that limit benefits to the maximum amount permitted under Code section 415;
(2) the terms of the Pension Plan which limit the maximum amount of compensation permitted to be taken into account in any plan year in accordance with the provisions of Code section 401(a)(17), as adjusted pursuant to Code section 415(d); or
(3) the provisions of the Pension Plan which limit the benefit accruals of certain Highly Compensated Employees so that the Pension Plan will meet the nondiscrimination test of Code section 410(b).
The determination of said eligibility shall be made as of the date that said person commences to receive benefits from the Pension Plan, or for purposes of Section 6.3, at the time of a Change in Control of the Company.
SECTION 2.1(9). "Pension Plan" shall mean the Flowers Foods, Inc. Retirement Plan No. 1.
SECTION 2.1(10). "Plan" shall mean the Flowers Foods, Inc. Supplemental Executive Retirement Plan, as set forth herein, and as it may be amended from time to time.
SECTION 2.1(11). "Supplemental Pension Benefit" shall mean the pension benefits determined under Article III.
ARTICLE III
SUPPLEMENTAL PENSION BENEFIT
SECTION 3.1. Amount of Supplemental Pension Benefit.
(1) In General. Each Participant or Beneficiary of a deceased Participant whose benefits under the Pension Plan are payable on or after the Effective Date shall be entitled to a Supplemental Pension Benefit, which shall be determined as hereinafter provided.
(2) Amount. The Supplemental Pension Benefit shall be a monthly retirement benefit determined in accordance with the following formula:
A minus B minus C where
"A" equals the amount of the monthly benefit to which the Participant would have been entitled, based upon the form in which said benefit is to be paid under the Pension Plan and the nature thereof, at the time benefits commence to be paid to such person, pursuant to the provisions of the Pension Plan if such benefit were computed without regard to:
(1) the limitation on the maximum amount of said benefits imposed by Code section 415;
(2) the limitation imposed by Code section
401(a)(17) (as adjusted pursuant to Code section
415(d)) on the maximum amount of compensation
permitted to be taken into account in any plan year;
(3) any limitation on the benefit accruals of certain Highly Compensated Employees applied so that the Pension Plan will meet the nondiscrimination test of Code section 410(b); and
(4) without regard to the reduction in pensionable compensation equal to the amount of compensation deferred by said Eligible Person pursuant to the Flowers Industries, Inc. 1993 Executive
Deferred Compensation Plan or to the Company's Executive Deferred Compensation Plan; and
as if any amounts of compensation deferred by such Participant under the Executive Deferred Compensation Plan in a Plan Year of the Pension Plan were taken into account in computing benefits accrued under the Pension Plan for such Plan Year, and
"B" is the Actual Pension Plan Benefit and is equal to the amount of the monthly benefit payable in said form, to which the Eligible Person is in fact entitled (i) at the time benefits commence to be paid to said person pursuant to the provisions of the Pension Plan or (ii) from time to time hereafter as said benefit may increase from time to time thereafter because of adjustments to the limitations described below, taking into consideration:
(1) the limitations on the maximum
amount of said benefits imposed by Code
Section 415;
(2) the limitation imposed by Code section 401(a)(17) (as adjusted pursuant to Code section 415(d)) on the maximum amount of compensation taken into account in any plan year;
(3) any limitation on the benefit accruals of certain Highly Compensated Employees applied so that the Pension Plan will meet the nondiscrimination test of Code section 410(b); and
(4) the reduction in pensionable compensation resulting from any deferral of income made by said Eligible Person pursuant to the Flowers Industries, Inc. 1993 Executive Deferred Compensation Plan or the Company's Executive Deferred Compensation Plan;
"C" equals the amount of the monthly benefit payable (in the form payable under the Pension Plan) attributable to the monthly accrued benefit under the Flowers Industries, Inc., Supplemental Executive Retirement Plan ("FII SERP") as of March 26, 2001, that was paid to the Participant in a lump sum in connection with the termination of the FII SERP. The monthly accrued benefit amounts under the FII SERP as of March 26, 2001 for purposes of this "C" are set forth for each applicable Participant in Exhibit A.
(3) Effect of QDRO. In the event that any portion of a Participant's benefit under the Pension Plan is allocated to an alternate payee pursuant to the terms of a qualified domestic relations order, the Participant's Supplemental Pension Benefit hereunder shall be calculated without taking into account such allocation. In no event may an alternate payee receive a distribution or an allocation of any portion of a Supplemental Pension Benefit hereunder.
(4) Withholding/Taxes. To the extent required by applicable law, the Employers shall withhold from the Supplemental Pension Benefits (or, if applicable, any other payments due to the Participant or Beneficiary) any taxes required to be withheld with respect to the Supplemental Pension Benefits by any federal, state or local government.
SECTION 3.2. Time and Manner of Payment.
(1) In General. A Participant's (or Beneficiary's) Supplemental Pension Benefit shall commence at the same time and under the same conditions as the benefits payable to the Participant (or Beneficiary) under the Pension Plan. The Supplemental Pension Benefit shall be payable in the same form and for the same duration as the benefits payable to the Participant (or Beneficiary) under the Pension Plan.
(2) Cash-Out of Small Benefits. Notwithstanding the foregoing, if the present value of a Participant's or Beneficiary's Supplemental Pension Benefit hereunder at the time of the Participant's termination of employment with the Flowers Foods, Inc. Controlled Group is $10,000 or less, such Benefit shall be paid as soon as practicable following such termination in a lump sum that is the Actuarial Equivalent of such Benefit. Such $10,000 amount shall be calculated using the provisions of the Pension Plan relating to the determination of Actuarially Equivalent amounts.
SECTION 3.3. Liability for Payment.
(1) The Employer by which the Participant was employed at the time of his termination of employment with the Controlled Group shall pay the Supplemental Pension Benefit to the Participant and/or his Beneficiary, but such Employer's liability hereunder shall be limited to its proportionate share of such Supplemental Pension Benefit, determined as hereinafter provided. If the benefits payable to the Participant and/or his Beneficiary under the Pension Plan are based on the Participant's employment with more than one Employer, the amount of the Supplemental Pension Benefit shall be shared by all such Employers (by reimbursement to the Employer making such payment) as may be agreed to between them in good faith, taking into consideration the Participant's Years of Benefit Service and Compensation paid by each such Employer and as will permit the deduction (for purposes of federal income taxes) by each such Employer of its portion of the payments made and to be made hereunder.
(2) The liabilities of the Employers hereunder shall be several liabilities and no Employer shall be liable for the default of any other Employer hereunder, even though it has, for convenience of administration, agreed to pay directly to the Participant or Beneficiary the entire Supplemental Pension Benefit as provided in Subsection (1) of this Section.
ARTICLE IV
VESTING
SECTION 4.1. Vesting. A Participant shall become vested in his Supplemental Pension Benefit in accordance with the vesting provisions set forth in Article III of the Pension Plan.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Limitation on Rights of Participants and Beneficiaries - No Lien. This Plan is an unfunded, nonqualified plan and the entire cost of this Plan shall be paid from the general assets of one or more of the Employers. No trust has been established for the Participants or Beneficiaries. No liability for the payment of benefits under the Plan shall be imposed upon any officer, director, employee, or stockholder of an Employer. Nothing contained herein shall be deemed to create a lien in favor of any Participant or Beneficiary on any assets of any Employer. The Employers shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Employers for use in connection with the Plan. Each Participant and Beneficiary shall have the status of a general unsecured creditor of the Employers and shall have no right to, prior claim to, or security interest in, any assets of the Company or any Employer.
SECTION 5.2. Nonalienation. No right or interest of a Participant or his Beneficiary under this Plan shall be anticipated, assigned (either at law or in equity) or alienated by the Participant or his Beneficiary, nor shall any such right or interest be subject to attachment, garnishment, levy, execution or other legal or equitable process or in any manner be liable for or subject to the debts of any Participant or Beneficiary. If any Participant or Beneficiary shall attempt to or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefits under the Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him, then the Company may terminate his interest in any such benefit and hold or apply it to or for his benefit or the benefit of his spouse, children or other person or persons in fact dependent upon him, or any of them, in such a manner as the Company may deem proper; provided, however, that the provisions of this sentence shall not be applicable to the surviving Spouse of any deceased Participant if the Company consents to such inapplicability, which consent shall not unreasonably be withheld.
SECTION 5.3. Employment Rights. Employment rights shall not be enlarged or affected hereby. The Employers shall continue to have the right to discharge a Participant, with or without cause.
SECTION 5.4. Participating Affiliates. Any member of the Controlled Group that has adopted the Pension Plan shall be an Employer hereunder if it has employees who are Participants in this Plan. An Employer that ceases to exist or that is no longer a member of the Controlled Group shall automatically cease being a participating Employer hereunder.
SECTION 5.5. Administration of Plan.
(1) The Administrative Committee designated under the Pension Plan (the "Committee") shall be responsible for the general administration of the Plan and for carrying out the provisions hereof and, for purposes of the Employee Retirement Income Security Act of 1974, as amended, the Company shall be the plan sponsor and the plan administrator. The Committee shall interpret where necessary, in its reasonable and good faith judgment, the provisions of the Plan and, except as otherwise provided in the Plan, shall determine the rights
and status of Participants and Beneficiaries hereunder (including, without limitation, the amount of any Supplemental Pension Benefit to which a Participant or Beneficiary may be entitled under the Plan).
(2) Notwithstanding the foregoing, the Board of Directors of the Company and the Company each may, from time to time, delegate all or part of the administrative powers, duties and authorities delegated to it under this Plan to such person or persons, office or committee as it shall select.
SECTION 5.6. Expenses. The Employers shall pay all expenses incurred in the administration and operation of the Plan.
SECTION 5.7. Claims Procedure.
(1) Whenever there is denied, whether in whole or in part, a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant"), the Committee shall transmit a written notice of such decision to the Claimant, within 90 days after such claim was filed (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the Claimant within the first 90 day period), which notice shall be written in a manner calculated to be understood by the Claimant and shall contain the specific reasons for the denial of the claim, specific references to the provisions of the Plan upon which the denial is based, a description of any additional information necessary for the Claimant to perfect the claim and an explanation of the review procedures hereinafter set forth. If a Claimant does not receive any such notice within 90 days after the date of filing the claim, his claim shall be deemed to have been denied.
(2) Within 60 days after the denial of his claim, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Committee a written request therefor. If such an appeal is so filed within such 60 day period, the Committee shall designate a named fiduciary to conduct a full and fair review of the decision denying the Claimant's claim for benefits. Within 60 days after the date the request for review was filed (plus an additional period of 60 days if required for processing, provided that notice of the extension of time is given to the Claimant within the first 60 day period), the named fiduciary shall render its written decision on review, written in a manner calculated to be understood by the Claimant, specifying the reasons and Plan provisions upon which its decision was based. Such decision shall, to the extent permitted by law, be final and binding on all interested persons. During such review, the Claimant shall be given the opportunity to review documents that are pertinent to his claim and to submit issues and comments in writing. If the decision on review is not furnished within such 60-day or 120-day period, as the case may be, the claim shall be deemed to have been denied on review.
SECTION 5.8. Effect on other Benefits. Benefits payable to or with respect to a Participant under the Pension Plan or any other Employer sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Plan, except as specifically provided in such other plans.
SECTION 5.9. Payment to Guardian. If a benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Employers from all liability with respect to such benefit.
ARTICLE VI
AMENDMENT AND TERMINATION
SECTION 6.1. Amendment. Subject to the requirements of Section 6.4(1), the Committee does hereby reserve the right to amend, at any time, any or all of the provisions of the Plan for all Employers, without the consent of any other Employer or any Participant, Beneficiary or any other person. Any such amendment shall be expressed in an instrument executed by a member of the Committee and shall become effective as of the date designated in such instrument or, if no such date is specified, on the date of its execution.
SECTION 6.2. Termination.
(1) Subject to the requirements of Section 6.4(1), the Company does hereby reserve the right to terminate the Plan at any time for any or all Employers, without the consent of any other Employer or of any Participant, Beneficiary or any other person. Such termination shall be expressed in an instrument executed by an officer of the Company and shall become effective as of the date designated in such instrument, or if no date is specified, on the date of its execution. Any other Employer which shall be a participating Employer in the Plan may, with the written consent of the Company, elect separately to withdraw from the Plan and such withdrawal shall constitute a termination of the Plan as to it, but it shall continue to be an Employer for the purposes hereof as to Participants or Beneficiaries to whom it owes obligations hereunder. Any such withdrawal and termination shall be expressed in an instrument executed by an officer of the terminating Employer and shall become effective as of the date designated in such instrument or, if no date is specified, on the date of its execution. Notwithstanding the foregoing, if an Employer ceases to exist or is no longer a member of the Controlled Group, such action shall automatically constitute a termination of the Plan as to such Employer. Subject to Section 6.4(2), upon any termination of the Plan, each affected Participant's Supplemental Pension Benefit shall be determined and distributed to him (or his Beneficiary) as otherwise provided in Article III.
SECTION 6.3. Change in Control. Notwithstanding any provision of this Plan to the contrary, in the event of a Change in Control of the Company, the Accumulated Benefits of each Participant shall be immediately payable in an Actuarially Equivalent lump sum distribution. For purposes of this Section 6.3, the term "Accumulated Benefit" shall mean, as of any date of determination, the Actuarial Equivalent lump sum of the benefit that would be payable to a Participant under this Plan if such person (or, in the case of a designated Beneficiary, the Pension Plan participant) had separated from service with the Company on the date of determination (or as of his actual date of separation, if earlier), and had elected to receive benefits of separation, if earlier), and had elected to receive benefits in the normal form under
said Pension Plan as of the later of the date of determination or the first date on which he would be entitled to benefits from the Pension Plan. In the event that the Participant has already commenced to receive benefits under this Plan, said Actuarial Equivalent shall pertain to those benefits which remain to be paid herefrom.
SECTION 6.4. Effect of Amendment and Termination.
(1) No amendment or termination of the Plan shall, without the consent of the Participant (or, in the case of his death, his Beneficiary), adversely affect the amount of the accrued vested Supplemental Pension Benefit under the Plan of the affected Participant or Beneficiary as such Benefit exists on the date of such amendment or termination.
(2) Notwithstanding any provision of the Plan to the contrary, in the event of a termination of the Plan, the Company, in its sole and absolute discretion, shall have the right to change the time and/or manner of distribution of Supplemental Pension Benefits, including, without limitation, by providing for the payment of a single lump sum payment to each Participant or Beneficiary then entitled to a Supplemental Pension Benefit in an amount equal to the Actuarial Equivalent of such Benefit, calculated in accordance with the provisions of Section 3.2(2).
IN WITNESS WHEREOF, the Company has executed this Supplemental Pension Plan this 9th day of November, 2001.
FLOWERS FOODS, INC.
By: /s/ Jimmy M. Woodward ------------------------------ Name Jimmy M. Woodward ----------------------------- Title: Vice President and Chief Financial Officer ----------------------------- |
EXHIBIT 21
SUBSIDIARIES OF
FLOWERS FOODS, INC.
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION OR ORGANIZATION ------------------ --------------------------------------------- Flowers Finance, LLC Delaware Flowers Bakeries, LLC Georgia Flowers Bakeries Brands, Inc. Delaware Flowers Baking Co. of Opelika, LLC Alabama Hardin's Bakery, LLC Alabama Bailey Street Bakery, LLC Alabama Home Baking Company, LLC Alabama Flowers Baking Co. of Texarkana, LLC Arkansas Holsum Baking Company, LLC Arkansas Shipley Baking Company, LLC Arkansas Flowers Baking Co. of Florida, LLC Florida Flowers Baking Co. of Miami, LLC Florida Flowers Baking Co. of Jacksonville, LLC Florida Flowers Baking Co. of Bradenton, LLC Florida Flowers Baking Co. of Thomasville, LLC Georgia Flowers Baking Co. of Villa Rica, LLC Georgia Flowers Baking Co. of Tyler, LLC Georgia Table Pride, LLC Georgia Huval Bakery, LLC Louisiana Bunny Bread, LLC Louisiana Flowers Baking Co. of Baton Rouge, LLC Louisiana Flowers Baking Co. of Jamestown, LLC North Carolina |
Franklin Baking Company, LLC North Carolina Flowers Baking Co. of Memphis, LLC Tennessee Flowers Baking Co. of Morristown, LLC Tennessee East Tennessee Baking Co., LLC Tennessee West Tennessee Baking Co., LLC Tennessee Schott's Bakery, LLC Texas Flowers Baking Co. of Texas, LLC Texas Butterkrust Bakery, LLC Texas El Paso Baking Co., LLC Texas El Paso Baking Company de Mexico, S.A. de C.V. Mexico San Antonio Baking Co., LLC Texas Austin Baking Co., LLC Texas Corpus Christi Baking Co., LLC Texas Hampton Roads Baking Company, LLC Virginia Flowers Baking Co. of Norfolk, LLC Virginia Flowers Baking Co. of Lynchburg, LLC Virginia Flowers Baking Co. of West Virginia, LLC West Virginia The Donut House, LLC West Virginia Storck Baking Company, LLC West Virginia Mrs. Smith's Bakeries, LLC Georgia Mrs. Smiths Bakery of Montgomery, LLC Alabama Mrs. Smith's Bakeries Sales Support Group, LLC Georgia Mrs. Smith's Foil Company, LLC Georgia Dan-co Bakery, LLC Georgia Mrs. Smith's Bakery of Pembroke, LLC North Carolina Mrs. Smith's Bakeries Frozen Distributors, LLC Georgia Mrs. Smith's Bakery of Tucker, LLC Georgia Mrs. Smith's Bakery of Atlanta, LLC Georgia |
Mrs. Smith's Bakery of Suwanee, LLC Georgia Mrs. Smith's Bakeries of Pennsylvania, LLC Georgia Mrs. Smith's Bakery of London, LLC Kentucky Mrs. Smith's Bakery of Stilwell, LLC Oklahoma Flowers Baking Co. of Fountain Inn, LLC South Carolina Mrs. Smith's Bakery of Spartanburg, LLC South Carolina Mrs. Smith's Brands, Inc. South Carolina Mrs. Smith's Bakery of Crossville, LLC Tennessee Mrs. Smith's Fresh Bakery Distributors, Inc. Tennessee |