SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 12, 2014 (August 7, 2014)
FLOWERS FOODS, INC.
(Exact name of registrant as specified in its charter)
Georgia | 1-16247 | 58-2582379 | ||
(State or other jurisdiction
of incorporation) |
(Commission
File Number) |
(IRS Employer
Identification No.) |
1919 Flowers Circle, Thomasville, GA | 31757 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (229) 226-9110
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 Entry into a Material Definitive Agreement.
On August 7, 2014, Flowers Foods, Inc. (the Company) and Flowers Finance II, LLC (the Borrower), a special purpose vehicle that is owned indirectly by the Company, entered into an amendment (the Amendment) to the Companys existing $150 million receivables loan, security and servicing agreement, dated July 17, 2013, with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch, as administrative agent and facility agent, and certain financial institutions from time to time party thereto (the Loan and Security Agreement). The Amendment (i) increases the revolving commitments to $200,000,000; (ii) extends the term by one year and (iii) makes certain other conforming amendments.
The Company has other relationships, including financial advisory and banking, with some parties to the Loan and Security Agreement and the Asset Securitization Facility.
A copy of the Amendment is filed as Exhibit 10.1 hereto. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is incorporated by reference.
Item 2.02. Results of Operations and Financial Condition.
On August 12, 2014, Flowers Foods, Inc. issued a press release announcing its financial condition and results of operations as of and for the 12 weeks ended July 12, 2014. A copy of the press release is furnished with this Report as Exhibit 99.1.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) | Exhibits. |
Exhibit
|
Description |
|
10.1 | Amendment to Receivables Loan, Security and Servicing Agreement, dated as of August 7, 2014, among Flowers Finance II, LLC, Flowers Foods, Inc. and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch, as administrative agent and facility agent, and certain financial institutions from time to time party thereto | |
99.1 | Press Release of Flowers Foods, Inc. dated August 12, 2014 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FLOWERS FOODS, INC. | ||||||
By: |
/s/ R. Steve Kinsey |
|||||
Name: R. Steve Kinsey | ||||||
Title: Executive Vice President and Chief Financial Officer |
Date: August 12, 2014
EXHIBIT INDEX
Exhibit
|
Description |
|
10.1 | Amendment to Receivables Loan, Security and Servicing Agreement, dated as of August 7, 2014, among Flowers Finance II, LLC, Flowers Foods, Inc. and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch, as administrative agent and facility agent, and certain financial institutions from time to time party thereto | |
99.1 | Press Release of Flowers Foods, Inc. dated August 12, 2014 |
Exhibit 10.1
EXECUTION COPY
FIRST AMENDMENT TO
RECEIVABLES LOAN, SECURITY AND SERVICING AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES LOAN, SECURITY AND SERVICING AGREEMENT dated as of August 7, 2014 (this Amendment ) is entered into among FLOWERS FINANCE II, LLC, a Delaware limited liability company (the Borrower), FLOWERS FOODS, INC., a Georgia corporation (the Servicer ), NIEUW AMSTERDAM RECEIVABLES CORPORATION, a Delaware corporation, COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., RABOBANK NEDERLAND, NEW YORK BRANCH, as facility agent for the Nieuw Amsterdam Lender Group and as a Committed Lender, and COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., RABOBANK NEDERLAND, NEW YORK BRANCH, as administrative agent (the Administrative Agent ) for each of the Lenders (as defined below).
RECITALS
WHEREAS, the parties refer to that certain Receivables Loan, Security and Servicing Agreement dated as of July 17, 2013 (the Existing Loan Agreement and, as amended by this Amendment and as otherwise amended, supplemented or modified from time to time, the Loan Agreement ) among the parties to this Amendment. Unless otherwise provided elsewhere herein, capitalized terms used herein shall have the respective meanings assigned thereto in the Loan Agreement; and
WHEREAS, the parties to this Amendment have agreed to amend the Existing Loan Agreement on the terms and conditions set forth in this Amendment;
NOW, THEREFORE, the parties to this Amendment hereby agree as follows:
SECTION 1. Amendments to Existing Loan Agreement . Effective as of the Effective Date (as defined below), subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Existing Loan Agreement is hereby amended as follows:
(a) The first sentence of Section 2.10(a) of the Existing Loan Agreement is hereby amended and restated as follows:
All payments made by any Company Party hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 2.10(b) or Section 10.16(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding U.S. taxes imposed pursuant to FATCA and, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the Laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) (all such non-excluded Taxes being referred to collectively as Withholding Taxes ).
(b) Section 2.10(b) is hereby amended by (i) deleting the parenthetical appearing in the second sentence thereof and (ii) replacing the phrase lapse in with the phrase passage of where it appears in the third sentence thereof.
(c) Section 2.10(c) is hereby amended by replacing the phrase such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such Tax Benefit with the phrase such Lender shall pay to the Borrower an amount that the Lender shall, in its reasonable discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such Tax Benefit where it appears in the first sentence thereof.
(d) Section 2.11 of the Existing Loan Agreement is hereby amended by replacing the a with an an where it appears at the beginning of clause (i) thereof.
(e) The definition of Commitment in Annex I to the Existing Loan Agreement is hereby amended and restated as follows:
Commitment means, as of any date of determination during the Revolving Period, (a) with respect to Rabobank, in its capacity as a Committed Lender, $200,000,000, and (b) with respect to any Person who becomes a Committed Lender pursuant to an Assignment and Assumption Agreement, the commitment of such Person to fund any Advance to the Borrower in an amount not to exceed the amount set forth in such Assignment and Assumption Agreement, in either case as such amount may be increased or reduced from time to time pursuant to Assignment and Assumption Agreements. After the Revolving Period, for each Committed Lender, the Commitment shall at all times mean the Outstanding Borrowings then funded by such Committed Lender (as such amount may be increased or reduced from time to time pursuant to Assignment and Assumption Agreements) and shall automatically reduce concurrently with each reduction in such Outstanding Borrowings.
(f) The table set forth in the definition of Concentration Limit in Annex I to the Existing Loan Agreement is hereby amended and restated as follows:
Category |
S&P Short Term Rating |
S&P Long Term Rating |
Moodys Short Term Rating |
Moodys Long Term Rating |
Concentration
Limit |
|||||
I | A-1+/ A-1 | AAA to A | P-1 | Aaa to A2 | 15.0% | |||||
II | A-2 | A- to BBB+ | P-2 | A3 to Baa1 | 7.5% | |||||
III | A-3 | BBB to BBB- | P-3 | Baa2 to Baa3 | 5.0% |
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Category |
S&P Short Term Rating |
S&P Long Term Rating |
Moody s Short Term Rating |
Moodys Long Term Rating |
Concentration Limit |
|||||
IV |
Below A-3 or Not Rated by S&P |
Below BBB-
or Not Rated by S&P |
Below P-3 or Not Rated by Moodys | Below Baa3 or Not Rated by Moodys | 3.75% for the two largest Obligors * in this category and 2.5% for all other Obligors in this category |
* | Obligors with the two highest Outstanding Balances of Eligible Receivables as of the last day of most recently ended Fiscal Period (for such purpose, each Obligor and its Affiliated Obligors, if any, being treated as a single Obligor) |
(g) The following definitions appearing in Annex I to the Existing Loan Agreement are hereby amended and restated as follows:
Facility Termination Date means the earlier to occur of July 17, 2016 and the Early Termination Date.
FATCA means Sections 1471 through 1474 of the Code, as enacted on the Closing Date (and any amended or successor version thereof), and any current or future regulations promulgated thereunder or published administrative guidance implementing such Sections and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
(h) In order to add a Special Concentration Limit for Publix Supermarkets Inc., Schedule I to the Existing Loan Agreement is hereby amended and restated as attached hereto.
SECTION 2. Conditions Precedent . The amendments set forth in Section 1 above shall become effective as of the date hereof (the Effective Date ) upon the receipt by the Administrative Agent of:
(a) counterpart signature pages to this Amendment executed by each of the parties to this Amendment;
(b) an executed copy of Amendment No. 1 to Receivables Sale and Distribution Agreement and Joinder dated as of the date hereof among the parties thereto (the Sale Agreement Amendment );
(c) all other agreements, documents and instruments contemplated by this Amendment, the Sale Agreement Amendment and described in the list of documents attached hereto as Exhibit A ; and
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(d) the upfront fee as set forth in the Upfront Fee Letter dated as of the date hereof among the Borrower, the Servicer and the Administrative Agent.
SECTION 3. Representations and Warranties of the Borrower . Each of the Borrower and the Servicer hereby represents and warrants to each Lender, each Facility Agent and the Administrative Agent that, on and as of the date hereof:
(a) This Amendment has been duly executed and delivered by it, and this Amendment and the Existing Loan Agreement as amended hereby constitute, the legal, valid and binding obligations of it enforceable against it in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and to general equitable principles (regardless of whether considered in a proceeding in equity or at law); and
(b) the representations and warranties of it contained in the Loan Agreement or in the other Transaction Documents to which it is a party are true and correct in all material respects as of the date hereof, with the same effect as though made on such date (after giving effect to this Amendment), except to the extent such representation or warranty expressly relates only to a prior date.
SECTION 4. Miscellaneous .
(a) This Amendment may be amended, modified, terminated or waived only as provided in Section 10.05 of the Loan Agreement.
(b) Except as expressly modified as contemplated hereby, the Loan Agreement is hereby confirmed to be in full force and effect in accordance with its terms and is hereby ratified and confirmed. This Amendment is intended by the parties to constitute an amendment and modification to, and otherwise to constitute a continuation of, the Loan Agreement, and is not intended by any party and shall not be construed to constitute a novation thereof or of any obligation of any party thereunder. This Amendment shall constitute a Transaction Document.
(c) This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns under the Loan Agreement.
(d) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed signature page to this Amendment by facsimile transmission or other electronic image scan transmission shall be effective as delivery of a manually signed counterpart of this Amendment.
(e) The provisions of this Amendment are intended to be severable. If any provision of this Amendment shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions hereof in any jurisdiction.
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(f) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Amendment, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(g) EACH OF THE BORROWER, THE SERVICER, THE ADMINISTRATIVE AGENT, THE FACILITY AGENTS AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.
[Signature pages follow]
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., RABOBANK NEDERLAND, NEW YORK BRANCH, as Administrative Agent, Committed Lender and Nieuw Amsterdam Facility Agent |
||
By: | /s/ Raymond Dizon | |
Name: Raymond Dizon | ||
Title: Executive Director | ||
By: | /s/ Stephen G. Adams | |
Name: Stephen G. Adams | ||
Title: Managing Director |
[Signature Page to First Amendment to Receivables Loan, Security and Servicing Agreement]
NIEUW AMSTERDAM RECEIVABLES CORPORATION | ||
By: | /s/ Damian Perez | |
Name: Damian Perez | ||
Title: Vice President |
[Signature Page to First Amendment to Receivables Loan, Security and Servicing Agreement]
FLOWERS FOODS, INC., as Servicer |
||
By: | /s/ Stephen R. Avera | |
Name: Stephen R. Avera | ||
Title: Vice President and General Counsel |
[Signature Page to First Amendment to Receivables Loan, Security and Servicing Agreement]
FLOWERS FINANCE II, LLC, | ||
as Borrower | ||
By: | /s/ Ryals McMullian | |
Name: Ryals McMullian | ||
Title: Secretary |
[Signature Page to First Amendment to Receivables Loan, Security and Servicing Agreement]
Exhibit 99.1
August 12, 2014 Company Press Release Flowers Foods (NYSE: FLO)
Flowers Foods, Inc. Announces Second Quarter Fiscal 2014 Results; Revises 2014 Guidance
THOMASVILLE, GAFlowers Foods, Inc. (NYSE: FLO), the nations second-largest producer and marketer of fresh packaged bakery foods, today reported results for its 12-week second quarter ended July 12, 2014.
Summary
For the 12 Weeks Ended | ||||||||||||
07/12/14 | 07/13/13 | % Decrease | ||||||||||
(Dollars in millions, except per share data) | ||||||||||||
Sales |
$ | 877.4 | $ | 898.2 | (2.3 | )% | ||||||
Income from operations (EBIT) * |
$ | 69.9 | $ | 80.5 | (13.3 | )% | ||||||
% of sales |
8.0 | % | 9.0 | % | ||||||||
Net income * |
$ | 45.0 | $ | 50.1 | (10.3 | )% | ||||||
% of sales |
5.1 | % | 5.6 | % | ||||||||
Net income per diluted share * |
$ | 0.21 | $ | 0.24 | (12.5 | )% |
* | The twelve weeks ended July 12, 2014 has been adjusted for an asset impairment and the twelve weeks ended July 13, 2013 has been adjusted for acquisition-related costs. See reconciliations of non-GAAP measures in the financial statements following this release. |
Percentages may not compute due to rounding.
Second Quarter Highlights
| Second quarter sales decreased 2.3% compared to the second quarter last year, reflecting positive net price/mix of 0.6% and decreased volume of 2.9%. |
| Direct-Store-Delivery (DSD) segment sales were flat as compared to last year as a 3.1% branded bread/roll increase was offset by lower volume in cake and store brand sales. Warehouse segment sales were down 13.3%, impacted by lower cake and frozen foodservice sales. |
| Adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) for the quarter was 11.4% of sales, excluding an asset impairment related to Leos Foods, our Fort Worth, Texas tortilla operation. |
| Adjusted income from operations (EBIT) was 8.0% of sales, excluding an asset impairment. |
| Net income for the quarter was $42.1 million, or $0.20 per diluted share, including the negative impacts of $0.02 per share of acquired facilities carrying costs and interest expense and $0.01 per share due to an asset impairment. |
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| Generated $ 51.1 million in cash flow from operations. |
| Paid down $14.8 million of debt in quarter and $95.9 million since the beginning of 2014. |
| Sales of the acquired bread brands - Wonder , Home Pride , Merita , and Butternut - increased approximately 34.5% from sales of those brands in the first quarter. |
| New markets sales doubled from last years second quarter, contributing 5.9% to DSD sales, driven by the reintroduction of acquired brands and success of Natures Own and Tastykake . |
| Opened a bun line in Henderson, Nev., and a bakery in Knoxville, Tenn. |
| Recorded an asset impairment of $4.5 million, or $0.01 per diluted share, related to the expected sale of certain assets of our Leos operation. |
| Full-year guidance for 2014 revised downward to sales in the range of $3.88 billion to $3.94 billion, an increase of 3.5% to 5.0% over 2013, and adjusted earnings per share (EPS) in the range of $0.92 to $0.98, excluding the asset impairment, reflecting growth of 1.1% to 7.7% over last years adjusted results. |
Allen L. Shiver, president and chief executive officer, said, Although the second quarter was challenging, we remain confident in our long-term growth strategies. We are particularly encouraged by the traction we are continuing to see in our new markets, where sales doubled since last year. We also are seeing strong sequential growth in our acquired bread brands. As a team, we are working to control those issues within our reach while maintaining a strong, flexible financial position to weather near-term challenges.
Sales were lower in the quarter due primarily to high promotional activity across most food categories, Hostess return to the market, and reduced sales of low-margin store brand and foodservice products. Sales of our branded breads, buns, and rolls in the DSD segment were up 3.1%, driven by the ongoing success of our acquired brands and Natures Own , especially in new markets. Those increases were offset by lower sales of cake and store brand items in both segments. Hostess further penetration into the cake market impacted our business by approximately $20.7 million in the quarter. Warehouse segment sales decreased due to the competitive dynamics in the cake and foodservice categories. We continue to strategically exit low margin business in both the foodservice and store brand categories to improve future earnings.
Earnings for the quarter were lower than expected and slightly below last years second quarter earnings, excluding the carrying costs and interest expense related to the Hostess acquisition and the impairment charge. Higher costs for added production capacity, promotional allowances, and higher-than-normal returned products (stales), impacted the quarters results. Product returns were impacted by new markets and promotional allowances. Gross margin improved slightly in the quarter despite those costs and the acquired facilities carrying costs. This is an indication of Flowers Foods underlying strengths, Shiver said. Our manufacturing
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efficiencies and our Lepage operation continue to improve. Even though costs weve incurred over the past year for acquisitions, new markets, new production capacity, and new products negatively impacted first half results and our outlook for the year, our team remains confident that these investments will help us reach our long-term goals.
Not including the asset impairment, the Leos operation negatively impacted operating earnings in the quarter by $0.01 per share. We have exited the low-margin foodservice tortilla business at Leos, and we are moving tortilla production equipment to another bakery to focus on opportunities for retail branded tortillas. Additionally, we have entered into a contract to sell certain assets of the Leos operation. We expect the transaction to close in the third quarter. We are pleased to have a resolution to this issue, which has been a distraction from growth opportunities in other areas. The sale of Leos is expected to improve earnings going forward.
Looking ahead, Shiver said, Our revised guidance takes into account the expected impact of current competitive dynamics as well as the effect of costs we have incurred to expand our geographic footprint, add production capacity to serve expansion markets, and enhance the strength of our brands. For the remainder of 2014, our team will focus on improving sales and earnings in our existing bakeries and in the markets we have entered. Our success in new markets, the strength of our brands, the efficiencies of our bakeries, and the experience of our team give me confidence in the future of Flowers Foods. We are firm in our belief that over time Flowers Foods team and our proven strategies will deliver growth in line with our long-term objectives.
Second Quarter 2014 Results
For the 12-week second quarter of 2014, sales decreased 2.3% to $877.4 million. In last years second quarter, sales were $898.2 million. This decrease was attributable to positive net price/mix of 0.6% and decreased volume of 2.9%. The positive price/mix was due primarily to a favorable mix shift from cake and store branded products to branded bread and rolls, partially offset by a competitive pricing environment. Overall volume declines were driven primarily by decreases in the cake business and to a lesser extent decreases in store-branded bread and rolls and foodservice.
Net income for the quarter was $42.1 million, or $0.20 per diluted share, compared to last years second quarter of $46.5 million, or $0.22 per diluted share. Adjusted for the asset impairment this quarter, net income per diluted share was $0.21, as compared to $0.24 in last years second quarter, which was adjusted for acquisition-related costs. Carrying costs for the acquired Hostess facilities and interest expense related to funding of the acquisition negatively affected EPS by $0.02 in the second quarter of this year.
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Gross margin (excluding depreciation and amortization) as a percent of sales was 47.8%, up 30 basis points compared to 47.5% in last years second quarter. Decreased ingredient costs as a percent of sales drove the gross margin increase, as prices for several of our major ingredients were lower this year as compared to last year. Increased manufacturing efficiencies also contributed to the increase. Partially offsetting these positive items were carrying costs associated with the acquired Hostess facilities and start-up costs for the opening of new production lines.
For the quarter, selling, distribution, and administrative (SD&A) costs as a percent of sales were 36.4%, up 10 basis points from 36.3% of sales in the second quarter of 2013. Distributor fees and costs associated with new market expansion were the primary drivers of the increase. Acquisition-related costs of $5.7 million negatively impacted SD&A as a percent of sales by 60 basis points during the second quarter of 2013.
Depreciation and amortization expenses as a percent of sales for the quarter increased 50 basis points compared to last years second quarter. This increase was due primarily to the acquired Hostess assets. Net interest expense decreased for the quarter compared to last years second quarter primarily due to increased interest income associated with an increase in outstanding distributor notes receivable. The effective tax rate for the quarter was 33.9% compared to 35.6% in last years second quarter. This decrease is due to positive discrete items in the quarter for state tax benefits and incentives.
EBIT was $65.4 million, or 7.5% of sales, compared to last years second quarter of $74.9 million, or 8.3% of sales. Adjusted for the asset impairment this quarter, EBIT was $69.9 million, or 8.0% of sales, compared to last years second quarter of $80.5 million, or 9.0% of sales, adjusted for acquisition-related costs incurred. During the second quarter of this year, carrying costs of $4.5 million related to the acquired Hostess facilities negatively affected EBIT margin by 50 basis points.
EBITDA was $95.3 million, or 10.9% of sales, compared to last years second quarter of $100.6 million, or 11.2% of sales. Adjusted for the asset impairment this quarter, EBITDA was $99.8 million, or 11.4% of sales, compared to last years second quarter of $106.3 million, or 11.8% of sales adjusted for acquisition-related costs incurred last year. During the second quarter of this year, carrying costs of $2.5 million related to the acquired Hostess facilities negatively affected EBITDA margin by 30 basis points.
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Segment Results
The segment results reflect shifting the companys tortilla operation from the warehouse segment to the DSD segment at the beginning of 2014. For comparison purposes, prior year information has been recast to reflect this change.
DSD (84% of Q2 sales) : During the quarter, the companys DSD sales were relatively flat as compared to the prior year quarter, reflecting volume gains of 0.3% and negative net price/mix of 0.3%. The volume increase was primarily the result of increases in the branded white bread and branded buns and rolls categories, partially offset by decreases in branded cake and store brand products, primarily white and variety breads and buns and rolls. Sales of branded breads, buns, and rolls increased by 3.1%, offset by lower sales of cake and store brand items. The negative net price/mix was primarily driven by a competitive pricing environment, partially offset by a shift in mix from store brand to branded bread and rolls.
Income from operations for the DSD segment was $62.4 million, or 8.4% of sales, compared to last years second quarter of $75.9 million, or 10.3% of sales. Adjusted for the asset impairment this quarter, income from operations was $66.9 million, or 9.0% of sales. During the second quarter of this year, carrying costs of $4.5 million related to the acquired Hostess facilities negatively affected income from operations margin by 60 basis points. Increased promotional activity also negatively impacted DSDs income from operations.
Warehouse (16% of Q2 sales) : Sales through warehouse delivery decreased 13.3%, reflecting volume decreases of 11.5% and negative net price/mix of 1.8%. The volume decreases were the result of decreases in branded and store brand cake, foodservice and vending. The negative net price/mix was driven by the foodservice category.
Income from operations for the warehouse segment was $13.5 million, or 9.9% of sales for the quarter compared to $15.7 million, or 10.0% of sales in last years second quarter. This decrease was due primarily to a decline in sales volumes.
Cash Flow
During the second quarter, cash flow from operating activities was $51.1 million. The company paid down its debt by $14.8 million in the quarter and $95.9 million during the first half of the year. The company invested $21.4 million in capital improvements and paid dividends of $25.3 million to shareholders during the quarter. The company did not acquire any of its shares of common stock during the quarter. The company has acquired 59.0 million shares of its common stock under its 67.5 million share repurchase plan since the inception of the plan.
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Outlook for 2014
The company gave revised guidance for fiscal 2014. Sales for the year are now expected to be in the range of $3.88 billion to $3.94 billion, an increase of 3.5% to 5.0% over 2013. Adjusted earnings per share for the companys 53-week 2014, excluding the asset impairment, are now expected to be in the range of $0.92 to $0.98, reflecting growth of 1.1% to 7.7% over last years adjusted results. Previously, guidance was for 2014 sales of $3.976 billion to $4.126 billion, or 6.0% to 10.0% increase, and earnings per share of $0.98 to $1.05, reflecting growth of 7.7% to 15.4%. Capital expenditures for 2014 are forecasted to be from $95.0 million to $100.0 million.
Dividend
The board of directors will review the dividend at its next regularly scheduled meeting. Any action taken will be announced following that meeting.
Conference Call
Flowers Foods will broadcast its second quarter 2014 earnings conference call over the Internet at 8:30 a.m. (Eastern) on August 12, 2014. The call will be broadcast live on Flowers Web site, www.flowersfoods.com, and can be accessed by clicking on the webcast link on the home page. The call also will be archived on the companys Web site.
About Flowers Foods
Headquartered in Thomasville, Ga., Flowers Foods, Inc. (NYSE: FLO) is one of the largest producers of fresh packaged bakery foods in the United States with 2013 sales of $3.8 billion. Flowers operates bakeries across the country that produce a wide range of bakery products. Among the companys top brands are Natures Own and Tastykake. Learn more at www.flowersfoods.com .
Forward-Looking Statements
Statements contained in this press release that are not historical facts are forward-looking statements. Forward-looking statements relate to current expectations regarding our future financial condition, performance and results of operations, planned capital expenditures, long-term objectives of management, supply and demand, pricing trends and market forces, and integration plans and expected benefits of transactions and are often identified by the use of words and phrases such as anticipate, believe, continue, could, estimate, expect, intend, may, plan, predict, project, should, will, would, is likely to, is expected to or will continue, or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the companys prospects in general include, but are not limited to, (a) competitive conditions in the baked foods industry, including promotional and price competition, (b) changes in consumer demand for our products, including changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products, (c) the success of productivity improvements and new product introductions, (d) a significant reduction in business with any of our major customers including a reduction from adverse developments in any of our customers business, (e) fluctuations in commodity pricing, (f) energy and raw material costs and availability and hedging and counterparty risk, (g) our ability to fully integrate recent acquisitions into our business, (h) our ability to achieve cash flow from capital expenditures and acquisitions and the availability of new acquisitions that build shareholder value; (i) consolidation within the baking industry and related industries; and (j) the failure of our information technology systems to perform adequately, including any interruptions, intrusions or
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security breaches of such systems. The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the company, including the risk factors included in our most recently filed Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and disclosures made in other filings with the SEC and company press releases, for other factors that may cause actual results to differ materially from those projected by the company. We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law.
Information Regarding Non-GAAP Financial Measures
The company prepares its consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). However, from time to time, the company may present in its public statements, press releases and SEC filings, non-GAAP financial measures such as, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, adjusted EBIT, adjusted EBIT margin, gross margin excluding depreciation and amortization, and adjusted income from operations for the DSD segment to measure the performance of the company and its operating divisions.
EBITDA is used as the primary performance measure in the companys Annual Executive Bonus Plan. The company defines EBITDA as earnings from continuing operations before interest, income taxes, depreciation, amortization and income attributable to non-controlling interest. The company believes that EBITDA is a useful tool for managing the operations of its business and is an indicator of the companys ability to incur and service indebtedness and generate free cash flow. Furthermore, pursuant to the terms of our credit facility, EBITDA is used to determine the companys compliance with certain financial covenants. The company also believes that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a companys operating performance and debt servicing ability because EBITDA measures assist in comparing performance on a consistent basis without regard to depreciation or amortization, which can vary significantly depending upon accounting methods and non-operating factors (such as historical cost). EBITDA is also a widely-accepted financial indicator of a companys ability to incur and service indebtedness.
Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, adjusted EBIT, adjusted EBIT margin and adjusted income from operations for the DSD segment exclude additional costs that we consider important to present to investors. These include, but are not limited to, the costs of closing a plant or costs associated with acquisition-related activities. We believe that financial information excluding certain transactions not considered to be part of the ongoing business improves the comparability of earnings results. We believe investors will be able to better understand our earnings results if these transactions are excluded from the results. These non-GAAP financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures. EBITDA should not be considered an alternative to (a) income from operations or net income (loss) as a measure of operating performance; (b) cash flows provided by operating, investing and financing activities (as determined in accordance with GAAP) as a measure of the companys ability to meet its cash needs; or (c) any other indicator of performance or liquidity that has been determined in accordance with GAAP. Our method of calculating EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, adjusted EBIT, adjusted EBIT margin, and adjusted income from operations for the DSD segment may differ from the methods used by other companies, and, accordingly, may not be comparable to similarly titled measures used by other companies.
Gross margin excluding depreciation and amortization is used as a performance measure to provide additional transparent information regarding our results of operations on a consolidated and segment basis. Changes in depreciation and amortization are separately discussed and include depreciation and amortization for materials, supplies, labor and other production costs and operating activities. Presentation of gross margin includes depreciation and amortization in the materials, supplies, labor and other production costs according to GAAP. Our method of presenting gross margin excludes the depreciation and amortization components, as discussed above. This presentation may differ from the methods used by other companies and may not be comparable to similarly titled measures used by other companies.
The reconciliations attached provide a reconciliation of our net income, the most comparable GAAP financial measure to EBITDA and adjusted EBITDA, a reconciliation of adjusted EBITDA to cash flow from operations, a reconciliation of our gross margin excluding depreciation and amortization to GAAP gross margin, a reconciliation of EBIT to adjusted EBIT, a reconciliation of net income to adjusted net income, a reconciliation of net income per diluted common share to adjusted net income per diluted common share and a reconciliation of income from operations from the DSD segment to adjusted income from operations for the DSD segment.
Investor Contact: Marta Jones Turner (229) 227-2348
Media Contact: Mary A. Krier (229) 227-2333
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Flowers Foods, Inc.
Consolidated Statement of Income
(000s omitted, except per share data)
For the 12 Week
Period Ended |
For the 12 Week
Period Ended |
For the 28 Week
Period Ended |
For the 28 Week
Period Ended |
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07/12/14 | 07/13/13 | 07/12/14 | 07/13/13 | |||||||||||||
Sales |
$ | 877,378 | $ | 898,153 | $ | 2,037,138 | $ | 2,028,963 | ||||||||
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) |
458,019 | 471,614 | 1,053,896 | 1,056,912 | ||||||||||||
Selling, distribution and administrative expenses |
319,582 | 325,946 | 745,972 | 737,385 | ||||||||||||
Depreciation and amortization |
29,907 | 25,743 | 69,199 | 59,932 | ||||||||||||
Asset Impairment |
4,489 | 0 | 4,489 | 0 | ||||||||||||
Gain on acquisition |
0 | 0 | 0 | (50,071 | ) | |||||||||||
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Income from operations (EBIT) |
65,381 | 74,850 | 163,582 | 224,805 | ||||||||||||
Interest expense, net |
(1,734 | ) | (2,700 | ) | (4,906 | ) | (7,255 | ) | ||||||||
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Income before income taxes (EBT) |
63,647 | 72,150 | 158,676 | 217,550 | ||||||||||||
Income tax expense |
21,583 | 25,690 | 55,546 | 59,064 | ||||||||||||
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Net income |
$ | 42,064 | $ | 46,460 | $ | 103,130 | $ | 158,486 | ||||||||
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Net income per diluted common share |
$ | 0.20 | $ | 0.22 | $ | 0.48 | $ | 0.75 | ||||||||
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Diluted weighted average shares outstanding |
212,919 | 211,892 | 212,906 | 211,444 | ||||||||||||
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Flowers Foods, Inc.
Segment Reporting
(000s omitted)
For the 12 Week
Period Ended |
For the 12 Week
Period Ended |
For the 28 Week
Period Ended |
For the 28 Week
Period Ended |
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07/12/14 | 07/13/13 | 07/12/14 | 07/13/13 | |||||||||||||
Sales: |
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Direct-Store-Delivery |
$ | 740,951 | $ | 740,709 | $ | 1,709,916 | $ | 1,663,471 | ||||||||
Warehouse Delivery |
136,427 | 157,444 | 327,222 | 365,492 | ||||||||||||
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$ | 877,378 | $ | 898,153 | $ | 2,037,138 | $ | 2,028,963 | |||||||||
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EBITDA: |
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Direct-Store-Delivery (1) |
$ | 88,900 | $ | 98,015 | $ | 220,466 | $ | 278,663 | ||||||||
Warehouse Delivery |
16,984 | 19,196 | 35,749 | 42,457 | ||||||||||||
Unallocated Corporate |
(10,596 | ) | (16,618 | ) | (23,434 | ) | (36,383 | ) | ||||||||
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$ | 95,288 | $ | 100,593 | $ | 232,781 | $ | 284,737 | |||||||||
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Depreciation and Amortization: |
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Direct-Store-Delivery |
$ | 26,487 | $ | 22,082 | $ | 61,271 | $ | 51,234 | ||||||||
Warehouse Delivery |
3,524 | 3,529 | 8,180 | 8,387 | ||||||||||||
Unallocated Corporate |
(104 | ) | 132 | (252 | ) | 311 | ||||||||||
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$ | 29,907 | $ | 25,743 | $ | 69,199 | $ | 59,932 | |||||||||
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EBIT: |
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Direct-Store-Delivery (1) |
$ | 62,413 | $ | 75,933 | $ | 159,195 | $ | 227,429 | ||||||||
Warehouse Delivery |
13,460 | 15,667 | 27,569 | 34,070 | ||||||||||||
Unallocated Corporate |
(10,492 | ) | (16,750 | ) | (23,182 | ) | (36,694 | ) | ||||||||
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$ | 65,381 | $ | 74,850 | $ | 163,582 | $ | 224,805 | |||||||||
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(1) | The 12 and 28 week periods ended July 12, 2014 include an asset impairment charge of $4.5 million and the 28 week period ended July 13, 2013 includes a bargain purchase gain on acquisition of $50.1 million. |
NOTE: At the beginning of fiscal 2014, we reclassified our tortilla facility from the Warehouse Delivery segment to the Direct-Store-Delivery segment and restated the prior year information.
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Flowers Foods, Inc.
Condensed Consolidated Balance Sheet
(000s omitted)
07/12/14 | ||||
Assets |
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Cash and Cash Equivalents |
$ | 8,532 | ||
Other Current Assets |
472,556 | |||
Property, Plant & Equipment, net |
824,302 | |||
Distributor Notes Receivable (includes $19,725 current portion) |
175,811 | |||
Other Assets |
75,110 | |||
Cost in Excess of Net Tangible Assets, net |
927,776 | |||
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Total Assets |
$ | 2,484,087 | ||
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Liabilities and Stockholders Equity |
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Current Liabilities |
$ | 304,870 | ||
Long-term Debt and Capital Leases (includes $34,272 current portion) |
826,063 | |||
Other Liabilities |
207,138 | |||
Stockholders Equity |
1,146,016 | |||
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Total Liabilities and Stockholders Equity |
$ | 2,484,087 | ||
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Flowers Foods, Inc.
Condensed Consolidated Statement of Cash Flows
(000s omitted)
For the 12 Week
Period Ended |
For the 28 Week
Period Ended |
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07/12/14 | 07/12/14 | |||||||
Cash flows from operating activities: |
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Net income |
$ | 42,064 | $ | 103,130 | ||||
Adjustments to reconcile net income to net cash from operating activities: |
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Total non-cash adjustments |
43,179 | 95,128 | ||||||
Pension contributions and changes in assets and liabilities |
(34,153 | ) | (25,347 | ) | ||||
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Net cash provided by operating activities |
51,090 | 172,911 | ||||||
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
(21,428 | ) | (45,008 | ) | ||||
Other |
4,439 | 14,120 | ||||||
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Net cash disbursed for investing activities |
(16,989 | ) | (30,888 | ) | ||||
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Cash flows from financing activities: |
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Dividends paid |
(25,315 | ) | (49,271 | ) | ||||
Exercise of stock options, including windfall tax benefit |
2,697 | 11,958 | ||||||
Stock repurchases |
0 | (9,459 | ) | |||||
Proceeds from debt borrowings |
322,900 | 679,200 | ||||||
Debt and capital lease obligation payments |
(337,674 | ) | (775,137 | ) | ||||
Other |
3,022 | 688 | ||||||
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Net cash used for financing activities |
(34,370 | ) | (142,021 | ) | ||||
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Net (decrease) increase in cash and cash equivalents |
(269 | ) | 2 | |||||
Cash and cash equivalents at beginning of period |
8,801 | 8,530 | ||||||
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Cash and cash equivalents at end of period |
$ | 8,532 | $ | 8,532 | ||||
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Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(000s omitted, except per share data)
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Flowers Foods, Inc.
Sales Bridge
For the 12 Week Period Ended 7/12/14 |
Volume |
Net
Price/Mix |
Acquisition |
Total Sales
Change |
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Direct-Store-Delivery |
0.3 | % | -0.3 | % | 0.0 | % | 0.0 | % | ||||||||
Warehouse Delivery |
-11.5 | % | -1.8 | % | 0.0 | % | -13.3 | % | ||||||||
Total Flowers Foods |
-2.9 | % | 0.6 | % | 0.0 | % | -2.3 | % |
For the 28 Week Period Ended 7/12/14 |
Volume |
Net
Price/Mix |
Acquisition |
Total Sales
Change |
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Direct-Store-Delivery |
1.4 | % | 0.6 | % | 0.8 | % | 2.8 | % | ||||||||
Warehouse Delivery |
-11.2 | % | 0.7 | % | 0.0 | % | -10.5 | % | ||||||||
Total Flowers Foods |
-2.2 | % | 1.9 | % | 0.7 | % | 0.4 | % |
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