-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfkClMuJq9Q2dTBZpxr5Bl+pcIf+nioKU0xE/lck6hXEMoICHSyw4SplN6vTz7f/ KODr4Kt56NkY8MfzNUrbng== 0000907098-96-000074.txt : 19960819 0000907098-96-000074.hdr.sgml : 19960819 ACCESSION NUMBER: 0000907098-96-000074 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960816 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLOWERS INDUSTRIES INC /GA CENTRAL INDEX KEY: 0000826227 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 580244940 STATE OF INCORPORATION: GA FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09787 FILM NUMBER: 96616721 BUSINESS ADDRESS: STREET 1: US HWY 19 STREET 2: P O BOX 1338 CITY: THOMASVILLE STATE: GA ZIP: 31792 BUSINESS PHONE: 9122269110 MAIL ADDRESS: STREET 1: PO BOX 1338 200 US HIGHWAY 19 S CITY: THOMASVILLE STATE: GA ZIP: 31792 FORMER COMPANY: FORMER CONFORMED NAME: FLOWERS INDUSTRIES OF GEORGIA INC DATE OF NAME CHANGE: 19871220 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION (Mark One) Washington, D. C. 20549 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 29, 1996 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 1-9787 Flowers Industries, Inc. (Exact name of registrant as specified in its charter) Georgia 58-0244940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) U.S. Highway 19, P. O. Box 1338, Thomasville, Georgia 31792 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (912) 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, $.625 Par Value, 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 preceeding 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 [check mark] No __ Aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price on the New York Stock Exchange on August 9, 1996: $1,034,140,854. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Title of Each Class Outstanding at August 9, 1996 Common Stock, $.625 Par Value 58,437,031 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the annual meeting of shareholders on October 18, 1996 are incorporated by reference into Part III. 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [box] FORM 10-K REPORT Sequential Table of Contents Page Part I Item No. 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1. Executive Officers of the Registrant. . . . . . . . . . . . . . . . .2 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . .3 4. Submission of Matters to a Vote of Security Holders . . . . . . . . .3 Part II Item No. 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . .4 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . .4 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . .5 8. Financial Statements and Supplementary Data . . . . . . . . . . . . .7 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (Not Applicable). . . . . . . . . Part III Item No. 10. Directors and Executive Officers of the Registrant. . . . . . . . . 26 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 26 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 13. Certain Relationships and Related Transactions. . . . . . . . . . . 26 Part IV Item No. 14. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 27 Financial Statement Schedule. . . . . . . . . . . . . . . . . . . . 27 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 27 PART I ITEM 1. BUSINESS Flowers Industries, Inc. (the "Company") was incorporated in the state of Delaware in 1968 as a successor by merger to Flowers Baking Company, Inc., a Georgia corporation which began business in 1919. In December 1987, the Company changed its state of incorporation from Delaware to Georgia. The Company operates in the highly competitive packaged foods industry principally serving the grocery, foodservice, restaurant and fast-food markets. The primary methods of competition are pricing, quality, service and variety of the product lines. Sales to Winn-Dixie Stores, Inc. accounted for more than 10% of consolidated sales during fiscal year 1996. The loss of this customer could have a materially adverse effect on the Company's business. At the end of the fiscal year, the Company and its subsidiaries had approximately 7,600 employees. Approximately 17% of these employees are covered by collective bargaining agreements, scheduled to expire at various times over the next three years. The Company produces a full line of breads, rolls, snack cakes, sweet goods, doughnuts, cakes, pies, frozen fruit and vegetables and batter-dipped and breaded vegetables. These food products are distributed primarily in the Southeast, Central and Western United States through a distribution system of approximately 2,900 independent distributor and company-owned territories, leased and company-owned tractor-trailer trucks and common carriers. These products are sold by distributors, salesmen and food brokers primarily to restaurants, fast-food chains, foods wholesalers, institutions, supermarkets and vending companies. The Company also sells returned and surplus product through a system of independently operated and company-owned thrift outlets. The Company's products are marketed under a variety of trademarks including both trademarks owned by the Company and certain franchised trademarks. Company-owned trademarks consist primarily of Flowers, BeeBo, Nature's Own, Stilwell, Breads International, Cobblestone Mill, Rich Grain, Evangeline Maid, Buttermaid, Dandee, Purity, Betsy Ross, Ideal, Holsum, Griffin, Bamby, Aunt Hannah, Jubilee, Our Special Touch, BlueBird, Oregon Farms and Mrs. Smith's. Franchised trademarks are primarily Sunbeam and Bunny. The Company operates forty-two production facilities. The primary raw materials are flour, sugar and processed agricultural products. Commodities periodically experience price fluctuations and, for that reason, the market for these commodities is continuously monitored. The vegetable products are purchased under contract from an outside supplier. Inventories, which consist mainly of finished goods and have a modest aggregate dollar value in relation to sales, experience seasonal fluctuations associated primarily with harvest cycles. As discussed in Note 13 of Notes to Consolidated Financial Statements, in January 1996, the Company acquired, for $62,000,000, an interest in INFLO Holdings Corporation, a newly formed joint venture between the Company and Artal Luxembourg S.A., which owns the Keebler Corporation. 1 Executive Officers of the Registrant The following table sets forth the names and ages of the Company's Executive Officers, together with all offices held with the Company by such Executive Officers. Name, Age and Office Business Experience AMOS R. McMULLIAN Chairman of the Board since Age 59 January, 1985; Chairman of the Chairman of the Board, Chairman Executive Committee since of the Executive Committee and January, 1984; Chief Executive Chief Executive Officer Officer since April, 1981; Vice Chairman of the Board (1984 - 1985); Co-Chairman of the Executive Committee (1983 - 1984); President and Chief Operating Officer (1976 - 1984); joined the Company in 1963. ROBERT P. CROZER Vice Chairman of the Board Age 49 since January, 1989; Vice Vice Chairman of the Board President-Marketing (1985 - 1989); President and Chief Operating Officer, Convenience Products Group (1979 - 1989); Corporate Director of Marketing Planning (1979 - 1985); joined the Company in 1973. HEETH VARNEDOE III President and Chief Operating Age 59 Officer since January, 1986; President and Chief Operating Officer Executive Vice President (1983 - 1986); President and Chief Operating Officer, Baked Products Group (1976 - 1983); joined the Company in 1960. C. MARTIN WOOD III Senior Vice President and Age 53 Chief Financial Officer since Senior Vice President September, 1978; Vice and Chief Financial Officer President-Finance (1976 - 1978); joined the Company in 1970. RUSSELL M. FRYAR Vice President, Treasurer and Age 57 Chief Accounting Officer since Vice President, Treasurer and April, 1986; Treasurer, Chief Accounting Officer Controller and Chief Accounting Officer (1974 - 1986); Controller (1972 - 1974); joined the Company in 1972. G. ANTHONY CAMPBELL Secretary and General Counsel Age 44 since January, 1985; Assistant Secretary and General Counsel General Counsel (1983 - 1985); joined the Company in 1983. GEORGE E. DEESE President and Chief Operating Age 50 Officer, Baked Products Group, President and Chief Operating Officer, since January, 1983; Regional Baked Products Group Vice President, Baked Products Group (1981 - 1983); President of Atlanta Baking Company, Atlanta, Georgia (1980 - 1981); joined the Company in 1964. GARY L. HARRISON President and Chief Operating Age 58 Officer, Specialty Foods President and Chief Operating Officer, Group, since November, 1989; Specialty Foods Group Executive Vice President, Baked Products Group (1987 - 1989); Regional Vice President, Baked Products Group (1977 - 1987); President of Flowers Baking Company of Thomasville, Thomasville, Georgia (1976 - 1977); joined the Company in 1954. All Executive Officers are elected by the Board of Directors for one year terms with the exception of the positions of President, Baked Products Group and President, Specialty Foods Group, which are appointed offices. 2 Item 2. PROPERTIES Thirty-five of the Company's production facilities are owned, three facilities are leased and four facilities are owned by local industrial development authorities under terms of Industrial Revenue Bond (IRB) financing agreements. The leased properties are leased for terms of ten to fifteen years with certain renewal options. Under the terms of the IRB financing agreements, title to these properties passes back to the Company at maturity for little or no consideration. Production plant locations are: Montgomery, Alabama Opelika, Alabama Tuscaloosa, Alabama Pine Bluff, Arkansas Texarkana, Arkansas Fresno, California (Leased) Bradenton, Florida Jacksonville, Florida Miami, Florida (IRB financed) Atlanta, Georgia Chamblee, Georgia Forest Park, Georgia Rome, Georgia Thomasville, Georgia Tucker, Georgia (Leased) Villa Rica, Georgia (IRB financed) London, Kentucky Baton Rouge, Louisiana Lafayette, Louisiana New Orleans, Louisiana Chaska, Minnesota (IRB financed) Jamestown, North Carolina Pembroke, North Carolina Columbus, Ohio Stilwell, Oklahoma North East, Pennsylvania Pottstown, Pennsylvania (Leased) Fountain Inn, South Carolina Spartanburg, South Carolina (IRB financed) Crossville, Tennessee Morristown, Tennessee Corpus Christi, Texas El Paso, Texas Houston, Texas San Antonio, Texas (2) Tyler, Texas Lynchburg, Virginia Norfolk, Virginia Bluefield, West Virginia Charleston, West Virginia Parkersburg, West Virginiaa Management considers that its properties are well maintained and sufficient for its present operations. Item 3. LEGAL PROCEEDINGS The Company is engaged in various legal proceedings which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to those proceedings will not be material to the Company's financial position or results of operations. A reserve of $4,935,000 was recorded during fiscal 1996, which represents the anticipated costs of final settlement of certain pending litigation involving subsidiary operations in Texas. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of fiscal 1996 to a vote of security holders, through the solicitation of proxies or otherwise. 3 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Quarterly Common Stock Price Ranges and Dividends 1996 1995(1) Quarter High Low Dividend High Low Dividend 1st..................................... 14 1\2 12 1\8 .1400 12 1\8 10 5\8 .1333 2nd..................................... 15 3\8 12 3\8 .1425 12 3\8 11 1\8 .1350 3rd..................................... 15 12 3\8 .1450 12 1\2 11 3\4 .1367 4th..................................... 18 12 3\4 .1475 13 1\8 11 1\4 .1383
(1) Restated to give effect to the three-for-two stock split effected in the form of a stock dividend paid on November 17, 1995. Equity Security Holders Number of Shareholders of Title of Class Record at August 9, 1996 Common Stock $.625 par value, together with Preferred Share Purchase Rights........................... 6,087 The preceding table presents the high and low market and dividend information for each fiscal quarter as it relates to the Company's common stock, $.625 par value. Flowers common stock is traded on the New York Stock Exchange. Cash dividends have been paid on these shares every quarter since December, 1971. Long-term debt agreements include certain restrictive covenants. These, among other things, prohibit certain aggregate amounts of the Company's dividends and distributions on its stock from exceeding specified levels. The most restrictive provision, contained in a long-term debt agreement, permitted $113,135,000 of consolidated earnings retained in the business at June 29, 1996 to be available for cash dividends. ITEM 6. SELECTED FINANCIAL DATA (Amounts in Thousands except Per Share Data) 1996 1995 1994 1993 1992 Operating Results: Sales............................................... $1,238,564 $1,129,203 $989,782 $962,132 $879,193 Net income.......................................... 30,768 42,301 29,496 39,161 31,665 Net income per common share (1)..................... .54 .75 .53 .71 .61 Cash dividends paid per common share (1)............ .5750 .5433 .5167 .4900 .4633 At Year End: Total assets........................................ 849,443 655,921 559,682 490,948 462,113 Long-term notes payable............................. 254,355 99,251 77,422 22,307 32,495 Industrial revenue bonds............................ 17,770 17,895 11,564 13,508 15,661 Convertible subordinated debentures................. 47,241
(1) Years prior to fiscal 1996 have been restated to give effect to the three-for-two stock split effected in the form of a stock dividend paid on November 17, 1995. 4 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash and temporary investments decreased during fiscal 1996 from $31,836,000 to $25,039,000, and working capital increased during the year from $42,380,000 to $48,479,000. The working capital increase is primarily due to the building of inventories, particularly in the frozen food area of the Specialty Foods Group as a result of increases in existing locations, and the new Mrs. Smith's business acquired during the fourth quarter of fiscal 1996. Increased receivables as a result of sales increases was also a contributing factor to the working capital increase. Cash flow from operating activities decreased in fiscal 1996 to $59,359,000 from $93,536,000 due to decreased profits and increased working capital. During fiscal 1996, the Company spent approximately $76,000,000 for capital expenditures to expand production facilities and increase efficiencies in both production and distribution. Over the past five years, expenditures have totaled approximately $299,000,000 with an additional $44,000,000 of expenditures attributable to acquisitions during that period. Major projects initiated at the Company's Jamestown, North Carolina and Miami, Florida facilities during fiscal 1995 were completed during fiscal 1996. Two ground-up construction projects initiated during fiscal 1995 were also completed during fiscal 1996. First was the construction of a bakery in Villa Rica, Georgia, which was financed with a local industrial revenue bond issue, and second was the construction of a frozen distribution center in Suwanee, Georgia. Major projects at the Company's Jacksonville, Florida; London, Kentucky; Forest Park, Georgia and Stilwell, Oklahoma facilities were initiated and completed during fiscal 1996. Major projects at the Company's Thomasville, Georgia; El Paso, Texas and San Antonio, Texas facilities were initiated during fiscal 1996 with completion anticipated during fiscal 1997. This capital spending, with the exception of the Villa Rica, Georgia facility, was funded during fiscal 1996 from cash flow from operating activities and the Company's revolving-term loan agreements. Capital expenditures for fiscal 1997 are expected to be less than the fiscal 1996 expenditures. These expenditures will not only improve the efficiency of production and distribution but will also continue to provide the Company with facilities to supply our markets with high quality food products at a lower cost. The Company has sold a majority of its territories to independent distributors under long-term financing arrangements. The amounts receivable under this program at June 29, 1996 total $67,239,000. During fiscal 1996, the Company had three $60,000,000 revolving-term loan agreements and a $10,000,000 revolving-term loan agreement, for an aggregate available credit under these agreements of $190,000,000. During fiscal 1996, the Company borrowed varying amounts totaling $231,625,000, of which $214,990,000 was repaid, thus adding $16,635,000 to the $86,740,000 outstanding at July 1, 1995 for a total outstanding at June 29, 1996 of $103,375,000. These borrowings were primarily used to partially fund fiscal 1996 capital spending, acquisitions of businesses, and an investment in an unconsolidated affiliate as discussed in Note 13 of Notes to Consolidated Financial Statements. Subsequent to fiscal year-end, the Company paid off these borrowings from proceeds borrowed under a five-year $300,000,000 syndicated loan facility with seven different banks. This agreement was closed on July 10, 1996, replacing the three $60,000,000 revolving term-loan agreements. During fiscal 1996, the Company completed a private placement of $125,000,000 of long-term Senior Notes. A portion of the proceeds was used to pay off $114,150,000 outstanding at that time under the revolving credit and term loan agreements. The remaining proceeds were used for working capital and for other general corporate purposes. Also outstanding at June 29, 1996 are long-term borrowings of $15,000,000 scheduled to mature in equal instalments over the next three years. During fiscal 1996, the Company completed a $50,000,000 ten-year master lease agreement to finance the automated production lines at several of its facilities. Cash dividends have grown at a compound annual rate of 6% for the past five years, increasing from an annual payout of $.437 in 1991 to $.575 in 1996. The Company believes that, in light of its current cash position, its cash flow from operating activities and its credit arrangements, it can adequately meet presently foreseeable financing requirements. 5 RESULTS OF OPERATIONS 1996 as compared with 1995 - Sales for 1996 increased 10% to $1,238,564,000 from $1,129,203,000 in 1995. Acquisitions consummated during the last three quarters of fiscal 1995 and during fiscal 1996 contributed approximately one-half of the increase. Increased volume of 10%, exclusive of the acquisitions and the divestiture of the Company's McAllen, Texas facility during the fourth quarter of fiscal 1995, along with selling price increases and the addition of 160 new routes were also factors in the sales increase. Other income decreased during fiscal 1996 from fiscal 1995 primarily due to gains on the sale of certain fixed assets during fiscal 1995. Income before income taxes decreased 29% to $48,340,000 in fiscal 1996 from the $68,015,000 reported in fiscal 1995. Income before income taxes as a percent of sales was 4% in fiscal 1996 as compared to 6% in fiscal 1995. The profit decrease was primarily the result of increased raw material and packaging costs, particularly flour, the Company's primary raw material, which was at a 21-year high during the year. Over the past several years the quality and quantity of baking-quality wheat has been low due to poor weather conditions, thus increasing the cost of flour. Start-up costs associated with the addition of 160 new sales routes in Georgia, Alabama, Mississippi and North Carolina also contributed to the profit decrease. Additionally, poor winter weather all along the eastern seaboard had a negative impact on the Company's sales and distribution costs in this region. Two other factors had an impact on pre-tax profit during fiscal 1996. First, as discussed in Note 13 of Notes to Consolidated Financial Statements, the Company recorded a gain of $4,111,000 on the issuance of Keebler stock to G. F. Industries, Inc. shareholders as part of the Sunshine Biscuit transaction. Secondly, as discussed in Note 11 of Notes to Consolidated Financial Statements, the Company recorded a reserve of $4,935,000 representing the anticipated costs of a final settlement of certain pending litigation involving subsidiary operations in Texas. 1995 as compared with 1994 - Sales for 1995 increased 14% to $1,129,203,000 from $989,782,000 in 1994. Acquisitions consummated during fiscal 1995 contributed approximately one-half of the increase, while increased volume of 3% (exclusive of the acquisitions), product mix changes and selling price increases were also factors in the sales increase. Other income increased in 1995 primarily due to the gain on the sale of certain fixed assets sold during 1995. Income before income taxes increased 44% to $68,015,000 in fiscal 1995 from the $47,240,000 reported in fiscal 1994. Income before income taxes as a percent of sales was 6% in fiscal 1995 compared to 5% in fiscal 1994. The profit increase was primarily the result of selling price increases obtained during fiscal 1995, broadened and strengthened product lines, increased volume and the Company's ongoing cost containment program where unnecessary expenses were eliminated and a measure of control was gained over other escalating costs. The profit increase was partially offset by the overall escalation of raw material costs. The supply of baking-quality wheat, one of the Company's primary raw materials, was critically low, therefore increasing the cost of flour. During the second quarter of fiscal 1995, the Company recognized an after-tax gain of $912,000, or $.02 per share, relating to a reduction in the number of Company employees as a result of the sale of a portion of the Company's route territories to independent distributors. The gain was calculated in accordance with Statement of Financial Accounting Standards No. 88 -- "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." 6 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Index to Financial Statements Report of independent accountants. . . . . . . . . . . . . . . . . . . . .8 Management responsibility for financial statements . . . . . . . . . . . .9 Consolidated balance sheet at June 29, 1996 and July 1, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Consolidated statement of income for the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994 . . . . . . . . . 11 Consolidated statement of changes in common stockholders' equity for the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994. . . . . . . . . . . . . . . . . . . . 12 Consolidated statement of cash flows for the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994 . . . . . . . . . 13 Notes to consolidated financial statements . . . . . . . . . . . . . . . 14 7 Report of Independent Accountants To the Board of Directors and Stockholders of Flowers Industries, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in common stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Flowers Industries, Inc. and its subsidiaries at June 29, 1996 and July 1, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 29, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 the opinion expressed above. /s/ Price Waterhouse LLP Atlanta, Georgia July 31, 1996 8 Management Responsibility for Financial Statements July 31, 1996 The consolidated financial statements included in this report were prepared by the Company in conformity with generally accepted accounting principles. Management's best estimates and judgments were used, where appropriate. Management is responsible for the integrity of the financial statements and for other financial information included in this report. The financial statements have been audited by the Company's independent accountants, Price Waterhouse LLP. As set forth in their report, their audit was conducted in accordance with generally accepted auditing standards and formed the basis for their opinion on the accompanying financial statements. They evaluate the system of internal accounting control and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements. The Company maintains a system of internal accounting controls which is designed to provide a reasonable assurance that assets are safeguarded and that the financial records reflect the authorized transactions of the Company. As a part of this process, the Company has an internal audit function which evaluates the adequacy and effectiveness of internal accounting controls. The Audit Committee of the Board of Directors consists of directors who are neither officers nor employees of the Company. The Committee meets periodically with management, internal auditors and the independent accountants to discuss auditing, internal accounting control and financial reporting matters. The Director of Internal Audit and the independent accountants have full and free access to meet with the Audit Committee with and without management being present. /s/ C. M. Wood III /s/ Russell M. Fryar Senior Vice President and Vice President, Treasurer Chief Financial Officer and Chief Accounting Officer 9 Consolidated Balance Sheet (Amounts in Thousands except Share Data) June 29, July 1, 1996 1995 Assets Current Assets: Cash and temporary investments....................................................... $ 25,039 $ 31,836 Accounts receivable.................................................................. 120,301 93,134 Inventories.......................................................................... 68,576 53,634 Prepaid expenses..................................................................... 5,319 3,675 Deferred income taxes................................................................ 10,992 6,755 230,227 189,034 Property, Plant and Equipment: Land................................................................................. 23,386 21,439 Buildings............................................................................ 183,502 153,947 Machinery and equipment.............................................................. 393,319 371,869 Furniture, fixtures and transportation equipment..................................... 21,365 22,264 Construction in progress............................................................. 63,005 60,865 684,577 630,384 Less: accumulated depreciation....................................................... (264,107) (255,919) 420,470 374,465 Other Assets and Deferred Charges: Notes receivable from distributors................................................... 61,236 55,699 Investment in unconsolidated affiliate............................................... 68,326 Other long-term assets............................................................... 24,567 27,442 154,129 83,141 Cost in Excess of Net Tangible Assets.................................................... 45,962 10,337 Less: accumulated amortization....................................................... (1,345) (1,056) 44,617 9,281 $ 849,443 $ 655,921 Liabilities and Stockholders' Equity Current Liabilities: Current portion of long-term debt.................................................... $ 6,593 $ 6,243 Obligations under capital leases..................................................... 1,988 1,677 Accounts payable..................................................................... 98,796 66,159 Accrued taxes other than income taxes................................................ 5,369 4,599 Income taxes......................................................................... 1,264 3,321 Accrued compensation, interest and other liabilities................................. 67,738 64,655 181,748 146,654 Long-Term Notes Payable.................................................................. 254,355 99,251 Obligations Under Capital Leases......................................................... 2,573 3,798 Industrial Revenue Bonds................................................................. 17,770 17,895 Deferred Income Taxes.................................................................... 47,270 39,538 Deferred Income.......................................................................... 40,403 44,804 Commitments and Contingencies............................................................ Common Stockholders' Equity: Common stock--$.625 par value, authorized 100,000,000 shares, issued 59,090,726 shares............................................................. 36,932 36,932 Capital in excess of par value....................................................... 58,783 55,306 Retained earnings................................................................... 234,069 236,645 Less: Common stock in treasury, 506,749 and 1,478,006 shares, respectively........... (6,493) (17,763) Restricted Stock Award and Executive Incentive Award.............................. (17,967) (7,139) 305,324 303,981 $ 849,443 $ 655,921
(See Accompanying Notes to Consolidated Financial Statements) 10 Consolidated Statement of Income (Amounts in Thousands except Per Share Data) For the year ended June 29, July 1, July 2, 1996 1995 1994 Sales.................................................................. $1,238,564 $1,129,203 $989,782 Other income........................................................... 7,909 10,751 4,690 Gain on issuance of additional stock of unconsolidated affiliate....... 4,111 1,250,584 1,139,954 994,472 Materials, supplies, labor and other manufacturing costs............... 674,762 599,416 525,731 Selling, delivery and administrative expenses.......................... 468,695 428,833 383,073 Depreciation and amortization.......................................... 40,848 36,604 34,110 Interest............................................................... 13,004 7,086 4,318 Accrual for settlement of pending litigation........................... 4,935 1,202,244 1,071,939 947,232 Income before income taxes............................................. 48,340 68,015 47,240 Federal and state income taxes......................................... 18,185 25,714 17,744 Equity in net income of unconsolidated affiliate....................... 613 Net income............................................................. $ 30,768 $ 42,301 $ 29,496 Net income per common share............................................ $ .54 $ .75 $ .53 Weighted average number of shares outstanding used in calculation of net income per common share......................... 57,449 56,868 55,611
(See Accompanying Notes to Consolidated Financial Statements) 11 Consolidated Statement of Changes in Common Stockholders' Equity (Amounts in Thousands except Share Data) Restricted Stock Capital Award and Common Stock in excess Treasury Stock Executive Number Par of par Retained Number Incentive of shares value value earnings of shares Cost Award Balances at July 3, 1993, as previously reported. 38,342,075 $23,964 $ 51,183 $225,207 (643,480) $(10,577) $ (9,623) Three-for-two common stock split............ 19,171,038 11,982 (11,982) (323,044) Balances at July 3, 1993 as adjusted............ 57,513,113 35,946 39,201 225,207 (966,524) (10,577) (9,623) Stock issued for acquisition (115) 293,526 3,540 Exercise of employee stock options.......... (359) 52,545 372 Purchase of treasury stock. 2 (767,900) (9,799) Net income for the year.... 29,496 Stock issued into escrow in connection with Restricted Stock Award............ 227 209,300 2,294 (2,445) Exercise of Executive Incentive Award........ 100 (82,703) (1,030) 610 Amortization of Restricted Stock Award and Executive Incentive Award........ 1,786 Dividends paid - $.5167 per common share (29,102) Balances at July 2, 1994... 57,513,113 35,946 39,056 225,601 (1,261,756) (15,200) (9,672) Stock issued for acquisitions 1,577,613 986 16,365 132,393 1,594 Exercise of employee stock options.......... (178) 69,636 841 Purchase of treasury stock. (369,830) (4,426) Net income for the year.... 42,301 Exercise of Restricted Stock Award............ 63 (49,754) (572) 708 Amortization of Restricted Stock Award and Executive Incentive Award........ 1,825 Dividends paid - $.5433 per common share (31,257) Balances at July 1, 1995... 59,090,726 36,932 55,306 236,645 (1,479,311) (17,763) (7,139) Stock issued for acquisitions 180 91,335 1,119 Exercise of employee stock options.......... (764) 190,244 2,337 Purchase of treasury stock. (96,560) (1,303) Net income for the year.... 30,768 Exercise of Restricted Stock Award............ 769 (125,064) (1,650) 1,526 Exercise of Executive Incentive Award........ 301 (113,287) (1,830) 1,434 Stock issued into escrow in connection with Restricted Stock Award............ 2,286 786,863 9,640 (11,918) Stock issued into escrow in connection with Executive Incentive Award........ 705 239,031 2,957 (3,662) Amortization of Restricted Stock Award and Executive Incentive Award........ 1,792 Dividends paid - $.5750 per common share (33,344) Balances at June 29, 1996.. 59,090,726 $36,932 $ 58,783 $234,069 (506,749) $ (6,493) $(17,967)
(See Accompanying Notes to Consolidated Financial Statements) 12 Consolidated Statement of Cash Flows (Amounts in Thousands) For the year ended June 29, July 1, July 2, 1996 1995 1994 Cash flows from operating activities: Cash received from customers.................................... $1,232,963 $1,117,262 $984,133 Interest received............................................... 7,741 7,159 2,890 Other........................................................... 5,416 5,890 3,646 Cash provided by operating activities............................... 1,246,120 1,130,311 990,669 Cash paid to suppliers and employees............................. 1,161,431 1,009,931 919,332 Interest paid................................................... 8,582 6,465 3,753 Income taxes paid............................................... 16,748 20,379 21,805 Cash disbursed for operating activities............................. 1,186,761 1,036,775 944,890 Net cash provided by operating activities (See Schedule 1).......... 59,359 93,536 45,779 Cash flows from investing activities: Purchase of property, plant and equipment....................... (75,542) (73,466) (63,929) Acquisition of businesses....................................... (28,118) (17,018) (383) Divestiture of business......................................... 1,061 22,679 Decrease in divestiture receivables............................. 173 2,359 Investment in unconsolidated affiliate.......................... (61,352) Escrow funds.................................................... 4,835 Other........................................................... (6,485) (1,845) 2,064 Net cash disbursed for investing activities......................... (170,263) (64,815) (59,889) Cash flows from financing activities: Dividends paid.................................................. (33,344) (31,257) (29,102) Purchase of treasury stock...................................... (1,303) (4,426) (9,799) Increase in long-term notes payable............................. 356,625 151,391 74,619 Payments of long-term notes payable............................. (217,871) (132,351) (19,012) Net cash received from (disbursed for) financing activities......... 104,107 (16,643) 16,706 Net (decrease) increase in cash and temporary investments........... $ (6,797) $ 12,078 $ 2,596 Schedule 1. Schedule Reconciling Earnings to Net Cash Provided by Operating Activities Net income..................................................... $ 30,768 $ 42,301 $ 29,496 Noncash expenses, revenues, losses and gains included in income: Depreciation and amortization.................................. 40,848 36,604 34,110 Deferred income taxes........................................... 3,494 2,847 853 Gain on issuance of additional stock of unconsolidated affiliate.................................................... (4,111) Equity in net income of unconsolidated affiliate................ (613) Changes in assets and liabilities, net of acquisitions and divestitures: (Increase) in accounts receivable.............................. (17,742) (5,510) (7,723) (Increase) in inventories...................................... (12,821) (4,651) (10,696) (Increase) in prepaid expenses................................. (1,650) (86) (678) Increase in accounts payable.................................. 28,029 5,859 6,947 (Decrease) increase in accrued taxes and other liabilities..... (6,843) 16,172 (6,530) $ 59,359 $ 93,536 $ 45,779 Schedule 2. Schedule of Noncash Investing and Financing Activities Common stock received in connection with the exercise of employee stock options.......................................... $ 1,573 $ 663 $ 15 Stock issued and held in escrow in connection with Restricted Stock Award and Executive Incentive Award............ 15,588 3,299 Stock issued for acquisitions................................... 1,299 18,946 3,425 Note receivable from divestiture of business.................... 2,500 Note payable issued in acquisition of business.................. 15,000 Undisbursed escrow funds available.............................. 2,165 Exercise of Restricted Stock Award and Executive Incentive Award..................................... 3,480 535
(See Accompanying Notes to Consolidated Financial Statements) 13 Notes to Consolidated Financial Statements Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Flowers Industries, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Investments in affiliated companies 50% or less owned are accounted for using the equity method. Revenue Recognition Revenue from sale of products is recognized at the time of shipment to the customer. Sales to a single customer accounted for $150,000,000, or 12% of total consolidated sales during fiscal 1996, $142,000,000, or 13% of total consolidated sales during fiscal 1995 and $136,000,000, or 14% of total consolidated sales during fiscal 1994. Cash and Temporary Investments 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 for the purposes of the statement of cash flows. The major components of cash and temporary investments are as follows (Amounts in Thousands): June 29, July 1, 1996 1995 Cash........................ $10,484 $10,456 Time deposits............... 14,555 21,380 Total................... $25,039 $31,836
Accounts Receivable Accounts receivable consists of trade receivables, the current portion of distributor notes receivable and miscellaneous receivables. When a receivable balance is determined to be uncollectible, it is charged directly to expense. Concentration of Credit Risk The Company grants credit to its customers, who are primarily in the grocery, foodservice, restaurant and fast-food markets. The Company's sales are made primarily to customers in the Southeastern, Central and Western United States, with a majority of sales occurring in the Southeast. Inventory Inventories are carried at the lower of cost (primarily first-in, first-out) or market. Hedging Transactions-Raw Material Costs The Company's primary raw materials are flour, sugar, shortening and raw fruits and vegetables. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into various forward purchase agreements and derivative financial instruments to reduce the impact of volatility in raw materials ingredients prices. Amounts payable or receivable under the agreements which qualify as hedges are recognized as deferred gains or losses and included in other assets or other liabilities. These deferred amounts are charged or credited to cost of sales as the related raw materials costs are charged to operations. Gains and losses on agreements which do not qualify as hedges are recognized immediately as other income or expense. At June 29, 1996, the Company had no material commitments outstanding relating to derivative financial instruments. 14 Property, Plant and Equipment and Depreciation The Company provides depreciation for financial reporting purposes over the estimated useful lives of fixed assets using the straight-line method. Upon retirement or sale of fixed assets, the book value is removed from the accounts and the difference between such net book value and salvage value received is recorded in income. Expenditures for maintenance and repairs are charged to income; renovations and improvements are capitalized. The approximate annual rates of depreciation are 2.5% to 5% for buildings, 8.33% for machinery and equipment and 10% to 25% for furniture, fixtures and transportation equipment. Notes Receivable and Deferred Income The Company has sold a majority of its territories to independent distributors. The income from these sales is recognized as the cash payments are received after the Company's contractual obligation under a repurchase option granted to the distributor expires. The sales of the territories are financed with ten year notes which have remaining balances of $67,239,000 and $60,943,000 at June 29, 1996 and July 1, 1995, respectively. Amortization of Intangible Assets Costs in excess of the net tangible assets acquired are, in the opinion of management, attributable to long-lived intangibles having continuing value. Excess amounts related to the purchases of businesses are being amortized over forty years from the acquisition date using the straight-line method. Costs of purchased trademark rights are amortized over the period of expected future benefit, which is forty years for Mrs. Smith's, Inc. and ten years for Oregon Farms. At each balance sheet date, the Company evaluates the realizability of goodwill and other intangible assets. Treasury Stock The Company records acquisitions of its capital stock for treasury at cost. Differences between proceeds for reissuances of treasury stock and average cost are credited to capital in excess of par value or charged to capital in excess of par value to the extent of prior credits and thereafter to retained earnings. Pension Plans The Company accounts for pensions in accordance with Statement of Financial Accounting Standards No. 87 -- "Employers' Accounting for Pensions." Pension accounting information is disclosed in Note 8 to the consolidated financial statements. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 -- "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Income tax accounting information is disclosed in Note 9 to the consolidated financial statements. Net Income Per Common Share Net income per common share is computed by dividing (a) net income plus interest and other costs on Convertible Subordinated Debentures outstanding prior to fiscal 1994, net of applicable income taxes, by (b) common and common equivalent shares outstanding plus shares which would be issued upon conversion of the subordinated debentures. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. 15 Business Segments The Company's only business is to provide quality food products to grocery, foodservice, restaurant and fast-food markets. Note 2. INVENTORIES The major components of inventories are as follows (Amounts in Thousands): June 29, July 1, 1996 1995 Ingredients and raw materials.......................... $14,951 $15,936 Packaging materials.................................... 10,988 11,856 Finished goods......................................... 25,527 12,530 Supplies............................................... 17,110 13,312 Total.............................................. $68,576 $53,634
Note 3. FINANCIAL INSTRUMENTS FAIR VALUE Statement of Financial Accounting Standards No. 107 -- "Disclosure about Fair Value of Financial Instruments" (SFAS 107) requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The carrying value of cash and temporary investments, notes receivable from distributors, other notes receivable, industrial revenue bonds and long-term debt payable to financial institutions approximates fair value at June 29, 1996 and July 1, 1995. Note 4. LONG-TERM DEBT Long-Term Notes Payable In July, August and November of 1995, the Company renegotiated three of its three-year revolving-term loan agreements with three separate banks increasing them from $50,000,000 each to $60,000,000 each. The Company also has a $10,000,000 revolving-term loan agreement entered into in March of 1993. At June 29, 1996, the Company had a total of $103,375,000 borrowed under three of these agreements. On July 10, 1996, the Company paid off these borrowings from proceeds under a new five-year $300,000,000 syndicated loan facility. This agreement replaced the three $60,000,000 revolving-term loan agreements discussed above. In January, 1996, the Company completed a private placement of $125,000,000 of long-term Senior Notes. These notes are due in three tranches: $100,000,000 due January 5, 2008; $20,000,000 due January 5, 2011; and $5,000,000 due January 5, 2016. A portion of the proceeds was used to pay off $114,150,000 outstanding at that time under the revolving credit and term loan agreements. The remaining proceeds were used for working capital and for other general corporate purposes. Also outstanding at June 29, 1996 are long-term borrowings of $15,000,000 scheduled to mature in equal instalments over the next three years. Several loan agreements of the Company contain restrictions which, among other things, require maintenance of certain financial ratios, restrict encumbrance of assets and creation of indebtedness, and limit the payment of dividends. At June 29, 1996, the Company was in compliance with these financial ratio requirements. At June 29, 1996, $113,135,000 of the Company's retained earnings of $234,069,000 was unrestricted and available for the payment of dividends under the most restrictive terms of the agreements. 16 Long-term notes payable consist of (Amounts in Thousands): June 29, July 1, 1996 1995 Private placement long-term Senior Notes with interest from 6.80% to 7.08% payable in instalments from 2004 through 2016................................................... $125,000 Borrowings under revolving-term loan agreements.................. 103,375 $ 86,740 Various industrial revenue bonds with interest from 3.75% to 8.50% or a percentage of prime (60% to 71% with a minimum of 5.5%) payable in instalments through 2014 secured by escrowed funds, construction in progress and property......................................... 18,170 18,970 Borrowings scheduled to mature in equal instalments over the next three years with interest ranging from 4.98% to 6.49% (Federal Funds rate plus 20 to 35 basis points)........................................ 15,000 15,000 Various unsecured notes payable with interest from 3.0% to 8.0% payable in instalments through 2004.............. 17,173 2,679 278,718 123,389 Due within one year.............................................. 6,593 6,243 Due after one year............................................... $272,125 $117,146
Annual maturities of long-term debt for each of the five years following June 29, 1996 are $6,593,000, $6,737,000, $8,887,000, $3,366,000 and $1,424,000, respectively. Note 5. COMMITMENTS AND CONTINGENCIES Description of Operating Lease Arrangements The Company leases certain property and equipment, including warehouses and certain distribution and other equipment, under operating leases which expire over the next twenty years. Most of these 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 rental value for periods of one month to ten years. Generally, management expects that leases will be renewed or replaced by other leases in the normal course of business. Payments for certain truck rentals are based on a minimum rental plus additional rent based on mileage. Minimum payments for operating leases having initial or remaining noncancelable terms in excess of one year are as follows (Amounts in Thousands): Fiscal Year(s) 1997................................ $ 16,598 1998................................ 14,081 1999................................ 12,821 2000................................ 10,942 2001................................ 8,982 2002 to termination (aggregate)..... 39,848 Total minimum lease payments........ $103,272 Total rent expense for all operating leases amounted to $30,863,000 for 1996, $23,487,000 for 1995 and $22,021,000 for 1994. Other Commitments The Company's various commodity purchase agreements effectively commit the Company to purchase raw materials in amounts totaling approximately $69,365,000, at June 29, 1996, which will be used in production in future periods. 17 Note 6. ACCRUED COMPENSATION, INTEREST AND OTHER LIABILITIES Accrued compensation, interest and other liabilities consist of (Amounts in Thousands): June 29, July 1, 1996 1995 Compensation........................................ $ 7,518 $15,657 Vacation cost....................................... 10,030 8,117 Pension cost........................................ 8,729 5,483 Workers' compensation insurance..................... 10,881 12,136 Other insurance..................................... 5,013 5,010 Interest............................................ 6,041 1,619 Other............................................... 19,526 16,633 Total............................................. $67,738 $64,655
Note 7. COMMON STOCKHOLDERS' EQUITY General On October 20, 1995, the Board of Directors declared a three-for-two split of the Company's common stock, effected in the form of a stock dividend paid on November 17, 1995 to shareholders of record on November 3, 1995. All agreements concerning stock options and other commitments payable in shares of the Company's common stock provide for the issuance of additional shares due to the declaration of the stock split. An amount equal to the par value of the common shares issued plus cash paid in lieu of fractional shares was transferred from capital in excess of par value to the common stock account. This transfer has been reflected in the Consolidated Statement of Changes in Common Stockholders' Equity at July 3, 1993. All references to number of shares, except shares authorized, and to per share information in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis. Shareholder Rights Plan On March 17, 1989, the Company's Board of Directors declared a dividend of one preferred share purchase right (collectively, the "Rights") for each share of common stock held of record on April 3, 1989. Under certain circumstances, a Right may be exercised to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock (the "Preferred Stock") at an exercise price of $50. The Rights become exercisable 10 days after (i) a person or group acquires 10% or more of the Company's outstanding common stock, or (ii) an announcement of a tender offer for 30% or more of the Company's outstanding common stock. If the Rights become exercisable, each Right will entitle the holder thereof to purchase one one-thousandth of a share of the Preferred Stock. If a person or group acquires 10% or more of the outstanding common stock of the Company, the holder of each Right not owned by the 10% or more shareholder would be entitled to purchase for $50 (the exercise price of the Right) common stock of the Company having market value equal to $100. If the Company is a party to certain mergers or business combination transactions or transfers 50% or more of its assets or earning power, each Right will entitle its holder to buy a number of shares of common stock of the acquiring or surviving entity (or of the Company in certain instances) having a market value of twice the exercise price of the Right, or $100. If the Rights are fully exercised, the shares issued thereby would have a dilutive effect on the shares previously outstanding. The Rights expire April 2, 1999, and may be redeemed by the Company for $.01 per Right at any time prior to the close of business on the tenth day after a public announcement of an acquisition of 10% or more of the common stock of the Company. The principal terms of the Rights are set forth in a registration statement on Form 8-A filed with the Securities and Exchange Commission and dated as of March 20, 1989. 18 Stock Option Plan The Company has 546,474 shares of common stock authorized for issuance to key employees under the Company's Stock Option Plan. Option prices must be 100% of the market value of the common stock at the time of the grant. The Plan expired on October 15, 1992, therefore no additional grants will be made pursuant to this Plan. During fiscal 1991 this Plan was amended to provide for the issuance of "non-qualified options" in addition to "incentive stock options" under the applicable provisions of the Internal Revenue Code. Changes in the Stock Option Plan are as follows: Number of Shares Granted and Authorized Outstanding Available Balance at July 3, 1993.............................................. 1,053,990 1,053,990 0 Exercised ..................................................... (239,498) (239,498) Balance at July 2, 1994.............................................. 814,492 814,492 0 Exercised...................................................... (72,076) (72,076) Balance at July 1, 1995.............................................. 742,416 742,416 0 Exercised...................................................... (195,942) (195,942) Balance at June 29, 1996............................................. 546,474 546,474 0
At June 29, 1996 the options yet to be exercised are as follows (Amounts in Thousands except Share Data): Number Option Price of Shares Per Share Total Value Granted in fiscal 1991............................................... 311,474 $8.25 $2,570 Granted in fiscal 1991............................................... 235,000 $9.08 $2,134
Information with respect to options exercised at the date of exercise is as follows (Amounts in Thousands except Share Data): Per Share Number Option Price Average Quoted of Shares Per Share Total Market Price For the year ended July 2, 1994 Granted in fiscal 1985.......................... 3,074 $6.00 $ 18 $12.72 Granted in fiscal 1986.......................... 4,611 $8.00 $ 37 $12.72 Granted in fiscal 1991.......................... 188,913 $8.25 $1,559 $12.72 Granted in fiscal 1991.......................... 42,900 $9.08 $ 390 $12.72 For the year ended July 1, 1995 Granted in fiscal 1985.......................... 4,577 $6.00 $ 27 $12.13 Granted in fiscal 1991.......................... 67,500 $8.25 $ 557 $12.13 For the year ended June 29, 1996 Granted in fiscal 1986.......................... 11,885 $8.00 $ 95 $13.58 Granted in fiscal 1991.......................... 149,058 $8.25 $1,230 $13.58 Granted in fiscal 1991.......................... 35,000 $9.08 $ 318 $13.58
Proceeds received from the exercise of stock options are credited to the Company's capital accounts. 19 Executive Stock Incentive Plan The Company has 5,700,000 shares of common stock authorized for issuance to eligible employees under the Executive Stock Incentive Plan (ESIP). The ESIP authorizes the Compensation Committee of the Board of Directors to grant to eligible participants of the Company and its subsidiaries, through October 1999, stock options, stock appreciation rights, restricted or deferred stock awards, stock purchase rights and other stock-based awards. During fiscal 1996 and 1994, 780,043 and 209,300 shares, respectively, of the Company's common stock were granted as restricted stock awards (RSA). These shares are held in escrow by the Company and will be released to the grantee upon the grantee's satisfaction of continued employment at the same or a higher level during the restriction periods, which end June 15, 1999, May 20, 2000 and June 18, 2000, for the fiscal 1996 awards, and June 15, 1997 for the fiscal 1994 award, and upon payment of the purchase price of $6.33, $7.66, $8.83 and $6.02 per share, respectively. The purchase price is fifty percent of the mean of the high and low market value of the Company's common stock at the date of grant. The difference between the market price at the date of grant and the purchase price to be paid by the grantee is recognized ratably by the Company as compensation expense over the restriction period. This expense for fiscal 1996, 1995 and 1994 was $1,299,000, $901,000 and $862,000, respectively. During fiscal 1996 and 1992, 239,031 and 478,068 shares, respectively, of the Company's common stock were granted as executive incentive awards (EIA). These shares are held in escrow by the Company and may be released ratably to the grantee upon the grantee's satisfaction of continued employment at the same or a higher level during the restriction periods which end May 20, 2000 and November 15, 1996, respectively, and upon payment of the purchase price of $7.66 and $4.67 per share, respectively. The purchase price is fifty percent of the mean of the high and low market value of the Company's common stock at the date of grant. The difference between the market value at the date of grant and the purchase price to be paid by the grantee is recognized ratably by the Company as compensation expense over the restriction period. This expense for fiscal 1996 was $493,000 and for 1995 and 1994 was $924,000 in each year. During fiscal 1996, 562,500 shares of the Company's common stock were granted as non-qualified stock options (NQSOs). The NQSOs are exercisable at any time, commencing on the first anniversary of the grant date, until the year 2005. The optionees are required to pay the market value of the shares, determined as of the grant date, which was $12.67. As of fiscal year end June 29, 1996, all NQSOs granted remained outstanding. Information as to activity under the ESIP is as follows: Number of Shares Authorized Granted Reserved Available Balance at July 3, 1993..................... 2,700,000 1,320,820 239,035 1,140,145 Granted (RSA)............................. 209,300 (209,300) Reserved (RSA)............................ 209,300 (209,300) Terminated (RSA).......................... (7,062) (1,659) 8,721 Balance at July 2, 1994..................... 2,700,000 1,523,058 446,676 730,266 Terminated (RSA).......................... (3,563) (3,522) 7,085 Balance at July 1, 1995..................... 2,700,000 1,519,495 443,154 737,351 Authorized................................ 3,000,000 3,000,000 Granted (NQSO)............................ 562,500 (562,500) Granted (RSA)............................. 780,043 (170,602) (609,441) Granted (EIA)............................. 239,031 (239,031) Terminated (RSA).......................... (26,400) (33,521) 59,921 Balance at June 29, 1996.................... 5,700,000 3,074,669 0 2,625,331
20 Note 8. PENSION PLANS The Company has noncontributory defined benefit pension plans covering certain employees who have completed prescribed service requirements. The benefits are based on years of service and the employee's career earnings. The Company also has a supplemental defined benefit pension plan covering certain Company employees which provides benefits to participants commencing at retirement calculated according to the formula contained in the Company's tax-qualified retirement plan, but without regard to statutory limitations on the maximum amount of compensation which may be taken into account by, nor the maximum benefits which may be paid from such plans. In addition, certain executive employees at Flowers Industries, Inc. are subject to provisions of the tax-qualified plan which limit their benefits to an even greater degree if necessary to permit the tax-qualified plan to meet the nondiscrimination requirements of the Internal Revenue Code; the supplemental plan will also restore any benefits which are reduced as a consequence of this new provision. Benefits provided by this supplemental plan are reduced by benefits provided by the noncontributory defined benefit pension plans. Pension expense was $5,660,000, $5,003,000 and $5,974,000 in fiscal 1996, 1995 and 1994, respectively. Pension 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 June 29, 1996 and July 1, 1995, the assets of the plans include certificates of deposit, marketable equity securities, mutual funds, corporate and government debt securities and annuity contracts. The marketable equity securities include 337,500 shares of common stock of the Company with a fair value of approximately $5,442,000 and $4,388,000 at June 29, 1996 and July 1, 1995, respectively. During the second quarter of fiscal 1995 and the fourth quarter of fiscal 1994, the Company recognized after-tax curtailment gains of $912,000 or $.02 per share and $831,000 or $.02 per share, respectively, in accordance with Statement of Financial Accounting Standards No. 88 -- "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." These gains arose from the sale of a portion of the Company's territories to independent distributors and the consequent termination of participation in the Flowers Industries, Inc. Retirement Plans of certain employees. Net periodic pension cost of these plans for fiscal 1996, 1995 and 1994 included the following components (Amounts in Thousands): June 29, July 1, July 2, 1996 1995 1994 Service cost-benefit earned during the period........................... $ 5,765 $ 5,538 $ 6,104 Interest cost on projected benefit obligation........................... 9,341 8,261 7,849 Reduction of pension costs due to actual return on plan assets.......... (9,073) (8,593) (5,914) Net amortization and deferral........................................... (373) (203) (2,065) $ 5,660 $ 5,003 $ 5,974
Assumptions used to determine net periodic pension cost for these plans for fiscal 1996, 1995 and 1994 are as follows (measurement dates are June 29, 1996, July 1, 1995 and July 2, 1994, respectively): June 29, July 1, July 2, 1996 1995 1994 Discount rate........................................................... 8.00% 8.25% 8.00% Rate of increase in compensation levels................................. 5.50% 5.75% 5.50% Expected long-term rate of return on assets............................. 9.00% 9.00% 9.00%
21 The Company's main pension plan, Flowers Industries, Inc. Retirement Plan No. 01, has plan assets that exceed accumulated benefit obligations. There are certain plans, however, with accumulated benefit obligations which exceed plan assets. The following table summarizes the funded status of the Company's pension plans and the related amounts that are recognized in the Company's balance sheet at June 29, 1996 and July 1, 1995 (Amounts in Thousands): Plans for Plans for Plans for Plans for Which Which Which Which Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets June 29, 1996 June 29, 1996 July 1, 1995 July 1, 1995 Actuarial present value of benefit obligation Accumulated benefit obligations: Vested . . . . . . . . . . . . . . . . . . . . . . $ (98,543) $(4,615) $(78,597) $(13,115) Nonvested. . . . . . . . . . . . . . . . . . . . . (1,937) (136) (2,118) (266) $(100,480) $(4,751) $(80,715) $(13,381) Plan assets at fair value. . . . . . . . . . . . . . . . $ 114,508 $ 2,047 $ 86,558 $ 12,375 Projected benefit obligations. . . . . . . . . . . . . . (117,730) (6,932) (98,379) (15,401) Plan assets (less than) projected benefit obligations. . (3,222) (4,885) (11,821) (3,026) Items not yet recognized in earnings: Unrecognized net asset at transition. . . . . . . . (5,207) (6,154) 106 Unrecognized prior service cost . . . . . . . . . . (110) 348 (222) 869 Unrecognized net loss . . . . . . . . . . . . . . . 2,929 1,417 14,369 396 Contribution payable. . . . . . . . . . . . . . . . . . . $ (5,610) $(3,120) $ (3,828) $ (1,655)
The Company made contributions of approximately $271,000 in fiscal 1996, $441,000 in fiscal 1995 and $432,000 in fiscal 1994 to collectively bargained, multiemployer pension plans based on specific rates per hour worked by participating employees. Note 9. INCOME TAXES The provision for income taxes consists of the following (Amounts in Thousands): For the year ended June 29, July 1, July 2, 1996 1995 1994 Current taxes: Federal............................................................. $13,915 $21,886 $15,754 State............................................................... 2,621 2,723 2,643 16,536 24,609 18,397 Deferred taxes: Federal............................................................. 1,636 1,358 801 State............................................................... 347 854 63 1,983 2,212 864 Tax credits............................................................. (33) Benefit of operating loss carryforwards................................. (334) (1,107) (1,484) (334) (1,107) (1,517) Provision for income taxes.............................................. $18,185 $25,714 $17,744
22 Deferred tax liabilities (assets) are comprised of the following (Amounts in Thousands): For the year ended June 29, July 1, 1996 1995 Depreciation......................................................................... $47,999 $41,776 Other................................................................................ 7,902 7,267 Gross deferred tax liabilities................................................... 55,901 49,043 Self-insurance accrual............................................................... (5,926) (6,587) Vacation accrual..................................................................... (2,554) (2,184) Pension accrual...................................................................... (2,547) (371) Loss carryforwards................................................................... (3,805) (3,329) Other................................................................................ (7,565) (5,448) Gross deferred tax assets........................................................ (22,397) (17,919) Deferred tax assets valuation allowance.............................................. 2,774 1,659 $36,278 $32,783
The net change in the valuation allowance for deferred tax assets was an increase of $1,115,000, related to operating loss carryforwards. The provision for income taxes on income differs from the amount computed by applying the U.S. federal income tax rate (35%) because of the effect of the following items (Amounts in Thousands): For the year ended June 29, July 1, July 2, 1996 1995 1994 Tax at U.S. federal income tax rate..................................... $16,919 $23,805 $16,534 State income taxes, net of U.S. federal income tax benefit.............. 1,929 2,325 1,759 Benefit of operating loss carryforwards................................. (334) (1,107) (1,484) Tax credits............................................................. (33) Retroactive rate increase............................................... 894 Other................................................................... (329) 691 74 Provision for income taxes .......................................... $18,185 $25,714 $17,744
The Omnibus Budget Reconciliation Act of 1993 (the "1993 Act"), enacted on August 10, 1993, increased the Company's statutory federal tax rate from 34% to 35% and further limited the deductibility of meals and entertainment expense. These changes resulted in a $1,356,000, or $.02 per share, charge for the year ended July 2, 1994, of which $894,000, or $.01 per share, was due to an increase of the Company's deferred tax liability account balance and the retroactive provision of the increase in the statutory federal tax rate. The amount of federal operating loss carryforwards generated by certain subsidiaries prior to their acquisition is $4,523,000 with expiration dates through the fiscal year 2009. The use of pre-acquisition operating losses and tax credit carryforwards is subject to limitations imposed by the Internal Revenue Code. The Company does not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. Various subsidiaries have state operating loss carryforwards of $62,889,000 with expiration dates through the fiscal year 2011. The Company's fiscal 1993, 1994 and 1995 federal income tax returns are presently under examination by the Internal Revenue Service. In the opinion of management, any additional tax liability resulting from this matter would not have a material adverse impact on the consolidated financial position or operating results of the Company. Note 10. OTHER EMPLOYEE BENEFIT PLANS Under the Company's Bonus Plan, approved annually by the Compensation Committee, certain key employees may receive bonus compensation based on attainment of specified income goals. Total compensation under the Bonus Plan was approximately $877,000, $6,157,000 and $387,000 for fiscal 1996, 1995 and 1994, respectively. 23 The Company's Employee Stock Ownership Plan (the "Plan"), which established accounts for substantially all employees who completed certain service requirements and to which were credited shares of the Company's common stock purchased by the Plan, was terminated during fiscal l995. The total stock purchased was based on a percentage of payroll for eligible employees and the stock was allocated equally to all participants. The shares of stock were held in a trust and were distributed to the employees upon termination of the Plan. The Company's contributions to the Plan amounted to approximately $450,000 in fiscal 1994. During fiscal 1995, the Company established the Flowers Industries, Inc. 401(k) Retirement Savings Plan ("FIRST"). FIRST covers substantially all employees who have completed certain service requirements. The cost and contributions for employees who participate in the defined benefit pension plan is 25% of the first $400 contributed by the employee. The costs and contributions for employees who do not participate in the defined benefit pension plan is 2% of compensation and 25% of the employees contributions up to 6% of compensation. During fiscal 1996 and fiscal 1995, the total cost and contributions was $1,268,000 and $265,000, respectively. Note 11. LEGAL MATTERS AND CONTINGENCIES The Company is engaged in various legal proceedings which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to those proceedings will not be material to the Company's financial position or results of operations. A reserve of $4,935,000 was recorded during fiscal 1996, which represents the anticipated costs of final settlement of certain pending litigation involving subsidiary operations in Texas. Note 12. ACQUISITIONS On May 31, 1996, the Company acquired certain assets of Mrs. Smith's, Inc. including its brand name and trademarks from The J. M. Smucker Company. Mrs. Smith's, Inc. primarily manufactures and distributes frozen pies. Under the terms of the acquisition agreement, the Company paid $30,000,000, consisting of $15,000,000 in cash at closing and a $15,000,000 note payable. In addition, the Company entered into ten year leases for the property, plant and equipment used in the business. The acquisition has been accounted for as a purchase, and, accordingly, the results of operations of the acquired business is included in the consolidated statement of income from the date of acquisition. The following unaudited condensed consolidated combined pro forma results of operations assume the acquisition occurred as of the beginning of each fiscal year: For the year ended June 29, 1996 July 1, 1995 Sales................... $1,351,769 $1,249,461 Net income.............. 33,056 45,057 Earnings per share...... .58 .79
The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the beginning of the fiscal year, nor are they necessarily indicative of future operating results. In addition, the Company acquired certain other businesses during fiscal 1996 which have been accounted for as purchases. These acquisitions are immaterial to the results of operations of the Company. 24 Note 13. INVESTMENT IN UNCONSOLIDATED AFFILIATE In January 1996, the Company acquired, for $62,000,000, a 49.6% interest in INFLO Holdings Corporation (INFLO), a newly formed joint venture between the Company and Artal Luxembourg S.A. On January 26, 1996, INFLO acquired 100% of Keebler Corporation (Keebler) for an aggregate consideration of $454,900,000. Prior to the acquisition by INFLO, Keebler was an indirect wholly owned subsidiary of United Biscuits (Holdings) plc. Keebler is the second largest cookie and cracker manufacturer in the United States. The acquisition of Keebler was financed through the equity of INFLO and bank borrowings. The Company accounts for its investment in INFLO using the equity method of accounting. Condensed financial information of INFLO is as follows (amounts in thousands): April 20, 1996 Current assets.................................................... $252,791 Total assets...................................................... 867,429 Current liabilities............................................... 384,635 Total liabilities................................................ 741,174 Partners' capital................................................. 126,255 Total liabilities and Partners' capital........................... 867,429 For the period from inception through April 20, 1996 Sales............................................................. $345,600 Gross profit...................................................... 177,900 Net income........................................................ 1,255
The Company recorded $613,000 as its share of INFLO's earnings through April 20, 1996, which is the joint venture's first quarter end. On June 4, 1996, Keebler acquired 100% of Sunshine Biscuits, Inc. from G. F. Industries, Inc. (GFI) for an aggregate purchase price of $171,600,000. The acquisition was funded by Keebler's working capital, bank financing and the issuance to GFI of $23,600,000 of INFLO common stock and warrants. The Company recognized a pre-tax gain on the shares issued to GFI of $4,111,000. Note 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION Results of operations for each of the four quarters of the fiscal years ended June 29, 1996 and July 1, 1995 follow (each quarter represents a period of twelve weeks except the fourth quarter, which includes sixteen weeks): (Amounts in Thousands except Per Share Data) Quarter First Second Third Fourth 1996 1996 1996 1996 1995 1995 1995 1995 Sales...................................................... $269,674 $290,538 $275,013 $403,339 233,491 269,987 256,553 369,172 Gross profit............................................... 125,893 130,676 125,398 181,835 109,700 127,098 119,661 173,328 Income before income taxes................................. 12,696 12,749 9,135 13,760 9,983 17,001 14,553 26,478 Net income................................................. 7,897 7,930 5,682 9,259 6,239 10,626 9,096 16,340 Net income per common share ............................... .14 .14 .10 .16 .11 .19 .16 .29
25 PART III Item 10. Directors and Executive Officers of the Registrant is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on October 18, 1996, except that a description of the Executive Officers of the Registrant is set forth in Item 1 hereof. Item 11. Executive Compensation is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on October 18, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on October 18, 1996. Item 13. Certain Relationships and Related Transactions is incorporated herein by reference from the Company's definitive proxy statement for the annual meeting of shareholders on October 18, 1996. 26 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Sequential Page a. List of documents filed as part of this report 1. Financial Statements* Report of independent accountants. . . . . . . . . . . . . . . . .8 Consolidated balance sheet at June 29, 1996 and July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 10 Consolidated statement of income for the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 11 Consolidated statement of changes in common stockholders' equity for the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 . . . . . . . . . 12 Consolidated statement of cash flows for the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 . . . . . . . . . . . . . . . . . . . . . . . 13 Notes to consolidated financial statements . . . . . . . . . . . 14 2. Financial Statement Schedules Report of Independent Accountants on Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . 28 Schedule -- for the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 II Valuation and qualifying accounts. . . . . . . . . . . 31 3. Exhibits 3(a) Second Restated Articles of Incorporation, as corrected (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1992, File No. 1-9787). . . . . . . . . . . . . . . . . . . . . . . . . 3(b) Restated By-Laws, as of October 20, 1989 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1992, File No. 1-9787) . . . . . . . 4(a) Rights Agreement dated as of March 17, 1989 between the Company and the Rights Agent (Incorporated by reference to the Company's Registration Statement on Form 8-A filed March 21, 1989, as amended, File No. 1-9787). . . . . . . . . . . . . . . . . . . . . . . . . 4(a)(1) First Addendum to Rights Agreement dated as of June 6, 1992 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1992, File No. 1-9787) 10(a) Flowers Industries, Inc. Annual Executive Bonus Plan dated August 4, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1995, File No. 1-9787)**. . . . . . . . . . . . . . . . . . . . . . 10(b) Flowers Industries, Inc. 401(k) Retirement Savings Plan (Incorporated by reference to the Company's Registration Statement on Form S-8 filed April 13, 1995, File No. 33-91198)** . . . . . . . 10(c) Severance Policy (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1989, File No. 1-9787)**. . . . . . . . . . . . . . . . . . . . . . . . 10(d) 1982 Incentive Stock Option Plan, as amended (Incorporated by reference to the Company's Registration Statement on Form S-3/S-8 filed May 18, 1990, File No. 33-34855)** . . . . . . . . . . . 10(e) 1989 Executive Stock Incentive Plan (Incorporated by reference to the Company's Registration Statement on Form S-3/S-8 filed May 18, 1990, File No. 33-34855)** . . . . . . . . . . . . . 10(e)(1) Amendment to the 1989 Executive Stock Incentive Plan, dated as of August 4, 1995 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1995, File No. 1-9787)**. . . . . . . . . . . . . . . . . . . . . . 10(f) Flowers Industries, Inc. 1990 Supplemental Executive Retirement Plan (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 1-9787)** . . . . . . . . . . . . . . . . 10(g) Stock Purchase Agreement dated as of November 5, 1995, between INFLO Holdings Corporation and UB Investments (Netherlands) BV, as amended by agreement dated January 26, 1996 (Incorporated by reference to the Company's Current Report on Form 8-K(A) dated April 10, 1996, File No. 1-9787 . . . . . . . . . . . . . . . . . . . . . . . . . 10(h) Acquisition Agreement dated as of May 1, 1996, among Flowers Industries, Inc., Mrs. Smith's Bakeries, a wholly-owned subsidiary of Flowers Industries, Inc., The J.M. Smucker Company, and Mrs. Smith's, Inc., a wholly-owned subsidiary of The J. M. Smucker Company (Incorporated by reference to the Company's Current Report on Form 8-K dated June 13, 1996, File No. 1-9787 . . . . . . . . . . . . . . . . . . . . . . . . . 11 Statement re computation of per share earnings . . . . . . . . . . . . . . . . . . . . . . 32 22 Subsidiaries of the Registrant . . . . . . . . . . . . 33 23 Consent of Independent Accountants . . . . . . . . . . 35 b. Reports on Form 8-K On June 13, 1996, the Company filed a Form 8-K containing certain information relating to the acquisition of certain assets of Mrs. Smith's Inc. from Mrs. Smith's Inc. and its parent company, The J.M. Smucker Company. This Form 8-K was amended on August 14, 1996 by a Form 8-K(A) containing certain historical and proforma financial information. * The individual financial statements of the Registrant have been omitted since the Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the Registrant or its consolidated subsidiaries in amounts which exceed 5 percent of total consolidated assets at June 29, 1996, excepting indebtedness incurred in the ordinary course of business which is not overdue and which matures within one year from the date of its creation. ** Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K. 27 Report of Independent Accountants On Financial Statement Schedule To the Board of Directors and Stockholders of Flowers Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated July 31, 1996 of this Annual Report on Form 10-K also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP Atlanta, Georgia July 31, 1996 28 For purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-3/S-8, File No. 33-34855; and on Form S-8, File No. 33-91198. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Flowers Industries, Inc. has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. FLOWERS INDUSTRIES, INC. /s/Heeth Varnedoe III /s/C. Martin Wood III /s/Russell M. Fryar By: Heeth Varnedoe III By: C. Martin Wood III By: Russell M. Fryar President and Senior Vice President and Vice President Chief Operating Chief Financial Officer and Treasurer, Officer Chief Accounting Officer Date: August 9, 1996 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 the Company and in the capacities and on the dates indicated: /s/Amos R. McMullian Chairman of the Board, August 9, 1996 Amos R. McMullian Chairman of the Executive Committee and Chief Executive Officer /s/Robert P. Crozer Vice Chairman of the Board August 9, 1996 Robert P. Crozer and a Director /s/Edward L. Baker Director August 9, 1996 Edward L. Baker /s/Joe E. Beverly Director August 9, 1996 Joe E. Beverly /s/Franklin L. Burke Director August 9, 1996 Franklin L. Burke /s/G. Anthony Campbell General Counsel and August 9, 1996 G. Anthony Campbell Secretary and a Director /s/John B. Ellis Director August 9, 1996 John B. Ellis /s/Langdon S. Flowers Director August 9, 1996 Langdon S. Flowers /s/Russell M. Fryar Vice President and August 9, 1996 Russell M. Fryar Treasurer, Chief Accounting Officer and a Director /s/Joseph L. Lanier, Jr. Director August 9, 1996 Joseph L. Lanier, Jr. /s/J. V. Shields, Jr. Director August 9, 1996 J. V. Shields, Jr. /s/Heeth Varnedoe III President and a Director August 9, 1996 Heeth Varnedoe III /s/C. Martin Wood III Senior Vice President and August 9, 1996 C. Martin Wood III Chief Financial Officer and a Director 30 Valuation and Qualifying Accounts (Schedule II) CLASSIFICATION (Amounts in Thousands) Balance at Beginning Additions Balance at of Year at Cost Deductions End of Year Year Ended June 29, 1996 Amortization of Cost in Excess of Net Tangible Assets......... $9,281 $35,625 $(289) $44,617 Year Ended July 1, 1995 Amortization of Cost in Excess of Net Tangible Assets......... $9,618 $ 393 $(730) $ 9,281 Year Ended July 2, 1994 Amortization of Cost in Excess of Net Tangible Assets......... $7,429 $ 2,362 $(173) $ 9,618
See Note 1 of Notes to Consolidated Financial Statements for accounting policy for capitalization and amortization of intangible assets. 31 EX-11 2 Exhibit 11. Computation of Net Income Per Common Share (Amounts in Thousands except Share Data) For the Year Ended June 29, 1996 July 1, 1995 July 2, 1994 July 3, 1993 June 27, 1992 Net income............................. $ 30,768 $ 42,301 $ 29,496 $ 39,161 $ 31,665 Add - Interest and other costs of convertible subordinated debentures, net of applicable income taxes......... 444 2,536 Net income for net income per common share................................. $ 30,768 $ 42,301 $ 29,496 $ 39,605 $ 34,201 Number of shares used in calculation of per common share data: Weighted average number of common shares outstanding during the year. 57,955,348 57,486,165 56,347,376 55,481,502 51,098,004 Add (deduct) incremental shares composed of: Shares issuable upon conversion of 8.25% subordinated debentures..... 949,038 4,428,845 Shares issuable upon exercise of employee stock options based on year-end market price............. 204,347 143,570 179,400 294,768 352,014 Shares issuable upon award of performance shares and restricted stock award based on year-end market price...................... (710,204) (762,444) (915,174) (976,235) 109,889 Weighted average number of shares used in calculation of net income per common share................................ 57,449,491 56,867,291 55,611,602 55,749,073 55,988,752 Net income per common share.............. $ .54 $ .75 $ .53 $ .71 $ .61
32 EX-22 3 Exhibit 22. Subsidiaries of the Registrant There is no parent of Registrant. The Registrant owns 100% of the voting securities of each subsidiary listed below, expect that each subsidiary marked with an asterisk owns 100% of the voting securities of the subsidiary or subsidiaries indented immediately below such marked subsidiary. All subsidiaries listed below are included in the consolidated financial statements of the Registrant. State of Subsidiary Incorporation *Flowers Family Bakeries, Inc. . . . . . . . . . . . . . . . . . . Delaware *Flowers Baking Co. of Alabama, Inc. . . . . . . . . . . . . Alabama Flowers Distributing Company of Birmingham, Inc. . . . . . . Alabama Flowers Baking Co. of Opelika, Inc.. . . . . . . . . . . . . Alabama Hardin's Bakery, Incorporated. . . . . . . . . . . . . . . . Alabama Flowers Specialty Foods of Montgomery, Inc.. . . . . . . . . Alabama *Flowers Baking Co. of Arkansas, Inc.. . . . . . . . . . . . Arkansas Flowers Baking Co. of Texarkana, Inc.. . . . . . . . . . . . Arkansas Holsum Baking Company. . . . . . . . . . . . . . . . . . . . Arkansas *Flowers Baking Co. of California, Inc.. . . . . . . . . . . California Flowers Baking Co. of Fresno, Inc. . . . . . . . . . . . . . California Flowers Baking Co. of Chattanooga, Inc.. . . . . . . . . . Tennessee *Flowers Baking Co. of Florida, Inc. . . . . . . . . . . . . Florida Flowers Baking Co. of Bradenton, Inc.. . . . . . . . . . . . Florida Flowers Baking Co. of Jacksonville, Inc. . . . . . . . . . . Florida Flowers Baking Co. of Miami, Inc.. . . . . . . . . . . . . . Florida *Flowers Baking Co. of Georgia, Inc. . . . . . . . . . . . . Georgia Atlanta Baking Company, Incorporated . . . . . . . . . . . . Georgia European Bakers, Ltd . . . . . . . . . . . . . . . . . . . . Georgia Dan-Co Bakery, Inc.. . . . . . . . . . . . . . . . . . . . . Georgia Flowers Baking Co. of Thomasville, Inc.. . . . . . . . . . . Georgia Flowers Specialty Baked Foods, Inc.. . . . . . . . . . . . . Georgia Table Pride, Inc.. . . . . . . . . . . . . . . . . . . . . . Georgia *Flowers Baking Co. of Villa Rica, Inc.. . . . . . . . . . . Georgia Flowers Baking Co. of Gadsden, Inc.. . . . . . . . . . . . . Alabama Flowers Specialty of Suwanee, Inc. . . . . . . . . . . . . . Georgia Flowers Frozen Bakery Distributors, Inc. . . . . . . . . . . Georgia Aunt Fanny's Bakery, Inc.. . . . . . . . . . . . . . . . . . Georgia Aunt Fanny's Bakery of Rome, Inc.. . . . . . . . . . . . . . Georgia *Flowers Baking Co. of North Carolina, Inc.. . . . . . . . . North Carolina Flowers Baking Co. of Jamestown, Inc.. . . . . . . . . . . . North Carolina Daniels Home Bakery of North Carolina, Inc.. . . . . . . . . North Carolina Flowers Baking Co. of Ohio, Inc. . . . . . . . . . . . . . Ohio *Flowers Holding Co. of S. C., Inc.. . . . . . . . . . . . . South Carolina FBC, Inc. (d/b/a Flowers Snack Distributors) . . . . . . . . South Carolina Flowers Baking Co. of Fountain Inn, Inc. . . . . . . . . . . South Carolina Flowers Baking Company of South Carolina, Inc. . . . . . . . South Carolina South Carolina Banking Co., Inc. . . . . . . . . . . . . . . South Carolina *Flowers Baking Co. of Tennessee, Inc. . . . . . . . . . . . Tennessee Flowers Baking Co. of Morristown, Inc. . . . . . . . . . . . Tennessee Flowers Fresh Bakery Distributors, Inc.. . . . . . . . . . . Tennessee *Flowers Baking Co. of Texas, Inc. . . . . . . . . . . . . . Texas El Paso Baking Co., Inc. . . . . . . . . . . . . . . . . . . Texas Flowers Baking Co. of Tyler, Inc.. . . . . . . . . . . . . . Georgia Richter's Bakery of San Antonio, Inc.. . . . . . . . . . . . Texas Richter's Bakery of Austin, Inc. . . . . . . . . . . . . . . Texas Richter's Bakery of Corpus Christi, Inc. . . . . . . . . . . Texas Colonial Cake Company, Inc.. . . . . . . . . . . . . . . . . Texas San Angelo Distributing Co., Inc.. . . . . . . . . . . . . . Texas *Flowers Baking Co. of Virginia, Inc.. . . . . . . . . . . . Virginia 33 Flowers Baking Co. of Lynchburg, Inc.. . . . . . . . . . . . Virginia Flowers Baking Co. of Norfolk, Inc.. . . . . . . . . . . . . Virginia Flowers Baking Co. of West Virginia, Inc.. . . . . . . . . . . West Virginia Allegheny Bakery Distributing Co., Inc.. . . . . . . . . . . . West Virginia Storck Baking Company. . . . . . . . . . . . . . . . . . . . . West Virginia Columbus Baking Company, Inc.. . . . . . . . . . . . . . . . . Ohio Aunt Fanny's Bakery of Pennsylvania, Inc.. . . . . . . . . . . Pennsylvania Griffin Pie Company, Inc.. . . . . . . . . . . . . . . . . . . Kentucky *Huval Bakery, Incorporated . . . . . . . . . . . . . . . . . . Louisiana *Bunny Bread, Inc.. . . . . . . . . . . . . . . . . . . . Louisiana Flowers Baking Co. of Baton Rouge, Inc. . . . . . . . Louisiana Schott's Bakery, Inc. . . . . . . . . . . . . . . . . . . . . Texas Pies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Minnesota Pies, Inc. Foodservice Sales Co. . . . . . . . . . . . . . . . Minnesota *Stilwell Foods, Inc.. . . . . . . . . . . . . . . . . . . . . . . Oklahoma Stilwell Foods of Texas, Inc.. . . . . . . . . . . . . . . . Oklahoma Mrs. Smith's Bakeries, Inc.. . . . . . . . . . . . . . . . . . . Georgia 34 EX-23 4 Exhibit 23. Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 and Form S-3 (No. 33-34855) of the Flowers Industries, Inc. 1982 Incentive Stock Option Plan and the Flowers Industries, Inc. 1989 Executive Stock Incentive Plan and in the Registration Statement on Form S-8 (No. 33-91198) of the Flowers Industries, Inc. 401(k) Retirement Savings Plan of our report dated July 31, 1996 in this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule in this Form 10-K. /s/ Price Waterhouse LLP Atlanta, Georgia August 14, 1996 35 -----END PRIVACY-ENHANCED MESSAGE-----