1. BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS — 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. Accordingly, they do not include all of 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 accruals) necessary to present fairly the company’s financial position, the results of its operations and its cash flows. The results of operations for the twelve and twenty-eight week periods ended July 13, 2013 and July 14, 2012 are not necessarily indicative of the results to be expected for a full fiscal year. The balance sheet at December 29, 2012 has been derived from the audited financial statements at that date but does not include all of 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 the company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

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 instruments, valuation of long-lived assets, goodwill and other intangibles, self-insurance reserves, income tax expense and accruals and pension obligations. These estimates are summarized in the company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2013 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 20, 2013 (sixteen weeks), second quarter ended July 13, 2013 (twelve weeks), third quarter ending October 5, 2013 (twelve weeks) and fourth quarter ending December 28, 2013 (twelve weeks).

STOCK SPLIT — On May 22, 2013, the board of directors declared a 3-for-2 stock split of the company’s common stock. The record date for the split was June 5, 2013, and new shares were issued on June 19, 2013. All share and per share information has been restated for all prior periods presented giving retroactive effect to the stock split in the accompanying footnotes.

SEGMENTS — Flowers Foods currently operates two business segments: a direct-store-delivery segment (“DSD segment”) and a warehouse delivery segment (“warehouse segment”). The DSD segment (82% of total sales) operates 36 bakeries that market a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes. These products are sold through a DSD route delivery system to retail and foodservice customers in the Southeast, Mid-Atlantic, New England, and Southwest as well as in select markets in California and Nevada. The warehouse segment (18% of total sales) operates 9 bakeries that produce snack cakes and breads and rolls for national retail, foodservice, vending, and co-pack customers and deliver through customers’ warehouse channels. The warehouse segment also operates one mix facility.

SIGNIFICANT CUSTOMER — Following is the effect our largest customer, Walmart/Sam’s Club, had on the company’s sales for the twelve and twenty-eight weeks ended July 13, 2013 and July 14, 2012. Walmart is the only customer to account for 10% or more of the company’s sales.


	For the Twelve Weeks Ended						For the Twenty-Eight Weeks Ended
	July 13, 2013			July 14, 2012			July 13, 2013			July 14, 2012
	(Percent of Sales)						(Percent of Sales)
DSD segment		17.3	%		18.4	%		17.0	%		17.9	%
Warehouse segment		3.0			3.3			3.3			3.6

Total		20.3	%		21.7	%		20.3	%		21.5	%

SIGNIFICANT ACCOUNTING POLICIES — There were no significant changes to our critical accounting policies for the quarter ended July 13, 2013 from those disclosed in the company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

ACQUISITIONS — On February 25, 2013, the company announced the completion of its acquisition from BBU, Inc., a subsidiary of Grupo Bimbo S.A.B. de C.V. (“BBU”), of (1) the perpetual, exclusive, and royalty-free licenses to the Sara Lee and Earthgrains brands for sliced breads, buns, and rolls in the state of California and (2) a closed bakery in Stockton, California for a total cash payment of $50.0 million. Additional disclosure regarding the acquisition is included in Note 4, Acquisitions.

On January 11, 2013, the company announced that it had signed two asset purchase agreements with Hostess Brands, Inc. (“Hostess”), as the “stalking horse bidder” for certain Hostess assets. One of the agreements provided for the purchase by the company of Hostess’ Wonder, Nature’s Pride, Merita, Home Pride and Butternut bread brands, 20 bakeries, and approximately 38 depots (the “Acquired Hostess Assets”) for a purchase price of $360.0 million. We received approval for the Acquired Hostess Assets bid on January 25, 2013. The company paid $18.0 million as a deposit for the Acquired Hostess Assets bid that is recorded in other current assets on the condensed consolidated balance sheet as of July 13, 2013. On July 19, 2013, after the end of the company’s second quarter of fiscal 2013, the company completed the Acquired Hostess Assets acquisition for $355.0 million as a result of a purchase price adjustment related to the Butternut trademark. Also, the company purchased 36 depots as opposed to the 38 depots included in the original bid. Please see Note 16, Subsequent Events, for additional information regarding the acquisition of the Acquired Hostess Assets. The second Hostess asset purchase agreement provided for the purchase of the Beefsteak brand for $30.0 million, but was topped by another bidder, and, as a result, the agreement terminated and we received a break-up fee of $0.9 million during the first quarter of 2013.