BASIS OF ACCOUNTING — The accompanying unaudited Condensed Consolidated Financial Statements of Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) have been prepared by the company’s management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the unaudited Condensed Consolidated Financial Statements included herein contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the company’s financial position, results of operations and cash flows. The results of operations for the sixteen weeks ended April 23, 2022 and April 24, 2021 are not necessarily indicative of the results to be expected for a full fiscal year. The Condensed Consolidated Balance Sheet at January 1, 2022 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 1, 2022 (the “Form 10-K”).

COVID-19 AND OTHER MACROECONOMIC FACTORS — We continue to monitor the impacts of the COVID-19 pandemic, the inflationary economic environment, supply chain disruptions and labor shortages, and the conflict between Russia and Ukraine on our business. The positive shift in sales mix to our branded retail products that we have experienced as a result of the pandemic persisted into the first quarter of Fiscal 2022. We have experienced significant input cost inflation, for commodities and transportation, and to a lesser extent, for labor in the current year quarter. We implemented additional price increases at the beginning of Fiscal 2022 to mitigate these cost pressures in future quarters.

In light of COVID-19, the company has taken actions to safeguard its capital position. We continue to maintain higher levels of cash on hand compared to pre-pandemic levels and, in the first quarter of Fiscal 2021, we issued $500.0 million of 2.400% senior notes due 2031 (the “2031 notes”) and used the net proceeds to redeem in full the $400.0 million of 4.375% senior notes due 2022 (the “2022 notes”), extending the earliest maturity date of our non-revolving debt to 2026. Additionally, we repaid the outstanding balances on both the accounts receivable securitization facility (the “facility”) and the credit facility (the “credit facility”) with proceeds from the issuance of the 2031 notes and from cash flows from operations. As of April 23, 2022, the company had available liquidity of $896.7 million consisting of the available balances on its debt facilities and cash on hand.

ESTIMATES — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The company believes the following critical accounting estimates affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: revenue recognition, derivative financial instruments, valuation of long-lived assets, goodwill and other intangible assets, leases, self-insurance reserves, income tax expense and accruals, postretirement plans, stock-based compensation, and commitments and contingencies. These estimates are summarized in the Form 10-K.

REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2022 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 23, 2022 (sixteen weeks), second quarter ending July 16, 2022 (twelve weeks), third quarter ending October 8, 2022 (twelve weeks) and fourth quarter ending December 31, 2022 (twelve weeks).

REPORTING SEGMENT — The company has one operating segment based on the nature of products the company sells, intertwined production and distribution model, the internal management structure and information that is regularly reviewed by the chief executive officer (“CEO”), who is the chief operating decision maker, for the purpose of assessing performance and allocating resources.

SIGNIFICANT CUSTOMER — Below is the effect that our largest customer, Walmart/Sam’s Club, had on the company’s sales for the sixteen weeks ended April 23, 2022 and April 24, 2021. Walmart/Sam’s Club is the only customer to account for greater than 10% of the company’s sales.


	For the Sixteen Weeks Ended
	April 23, 2022		April 24, 2021
	(% of Sales)
Total		21.1		21.3

Walmart/Sam’s Club is our only customer with greater than 10% of outstanding trade receivables, representing 21.6% and 19.8%, on a consolidated basis, as of April 23, 2022 and January 1, 2022, respectively, of our trade receivables.

BUSINESS PROCESS IMPROVEMENT COSTS – In the second half of Fiscal 2020, we launched initiatives to transform how we operate our business, which includes upgrading our information system to a more robust platform, as well as investments in e-commerce, autonomous planning, and our “bakery of the future” initiative. In the first quarter of Fiscal 2022, we launched the digital logistics and digital sales initiatives. These costs may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract. The expensed portion of the consulting costs related to the transformation strategy initiatives incurred was $9.1 million and $5.0 million for the sixteen weeks ended April 23, 2022 and April 24, 2021, respectively. These costs are reflected in the selling, distribution and administrative expenses line item of the Condensed Consolidated Statements of Income.