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EX-32 - EX-32 - FLOWERS FOODS INCflo-ex32_9.htm
EX-31.3 - EX-31.3 - FLOWERS FOODS INCflo-ex313_8.htm
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EX-31.1 - EX-31.1 - FLOWERS FOODS INCflo-ex311_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 21, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-16247

 

FLOWERS FOODS, INC.

(Exact name of registrant as specified in its charter)

 

 

GEORGIA

 

58-2582379

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA

(Address of principal executive offices)

31757

(Zip Code)

(229)-226-9110

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

TITLE OF EACH CLASS

 

OUTSTANDING AT MAY 11, 2018

Common Stock, $.01 par value

 

210,813,687

 

 

 

 


 

FLOWERS FOODS, INC.

INDEX

 

 

PAGE

NUMBER

PART I. Financial Information

 

 

Item 1.

Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of April 21, 2018 and December 30, 2017

3

 

 

Condensed Consolidated Statements of Operations For the Sixteen Weeks Ended April 21, 2018 and April 22, 2017

4

 

 

Condensed Consolidated Statements of Comprehensive Income For the Sixteen Weeks Ended April 21, 2018 and April 22, 2017

5

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity For the Sixteen Weeks Ended April 21, 2018

6

 

 

Condensed Consolidated Statements of Cash Flows For the Sixteen Weeks Ended April 21, 2018 and April 22, 2017

7

 

 

Notes to Condensed Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

 

Item 4.

Controls and Procedures

53

PART II. Other Information

 

 

Item 1.

Legal Proceedings

53

 

Item 1A.

Risk Factors

53

 

Item 2.

Unregistered Sales of Securities and Use of Proceeds

54

 

Item 3.

Defaults Upon Senior Securities

55

 

Item 4.

Mine Safety Disclosures

55

 

Item 5.

Other Information

55

 

Item 6.

Exhibits

55

Signatures

56

 

 

 


Forward-Looking Statements

Statements contained in this filing and certain other written or oral statements made from time to time by Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) and its representatives that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to current expectations regarding our future financial condition and results of operations and are often identified by the use of words and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” “is likely to,” “is expected to” or “will continue,” or the negative of these terms or other comparable terminology. These forward-looking statements are based upon assumptions we believe are reasonable.

Forward-looking statements are based on current information and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Certain factors that may cause actual results, performance, liquidity, and achievements to differ materially from those projected are discussed in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and may include, but are not limited to:

 

unexpected changes in any of the following: (i) general economic and business conditions; (ii) the competitive setting in which we operate, including advertising or promotional strategies by us or our competitors, as well as changes in consumer demand; (iii) interest rates and other terms available to us on our borrowings; (iv) energy and raw materials costs and availability and hedging counter-party risks; (v) relationships with or increased costs related to our employees and third-party service providers; and (vi) laws and regulations (including environmental and health-related issues), accounting standards or tax rates in the markets in which we operate;

 

the loss or financial instability of any significant customer(s);

 

changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products;

 

the level of success we achieve in developing and introducing new products and entering new markets;

 

our ability to implement new technology and customer requirements as required;

 

our ability to operate existing, and any new, manufacturing lines according to schedule;

 

our ability to execute our business strategies, including those strategies we have initiated under Project Centennial, which may involve, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology,  and (iii) an enhanced organizational structure;

 

consolidation within the baking industry and related industries;

 

changes in pricing, customer and consumer reaction to pricing actions, and the pricing environment among competitors within the industry;

 

disruptions in our direct-store-delivery distribution model, including litigation or an adverse ruling by a court or regulatory or governmental body that could affect the independent contractor classifications of the independent distributors;

 

increasing legal complexity and legal proceedings that we are or may become subject to;

 

increases in employee and employee-related costs, including funding of pension plans;

 

the credit, business, and legal risks associated with independent distributors and customers, which operate in the highly competitive retail food and foodservice industries;

 

any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters, labor strikes or work stoppages, technological breakdowns, product contamination, product recalls or safety concerns related to our products, or the responses to or repercussions from any of these or similar events or conditions and our ability to insure against such events;

 

the failure of our information technology systems to perform adequately, including any interruptions, intrusions or security breaches of such systems; and

 

regulation and legislation related to climate change that could affect our ability to procure our commodity needs or that necessitate additional unplanned capital expenditures.

1


 

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the company (such as in our other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Refer to Part I, Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 30, 2017 (the “Form 10-K”) for additional information regarding factors that could affect the company’s results of operations, financial condition and liquidity.

We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law. You are advised, however, to consult any further public disclosures by the company (such as in our filings with the SEC or in company press releases) on related subjects.

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. Solely for convenience, some of the trademarks, trade names and copyrights referred to in this Form 10-Q are listed without the  © , ®  and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, trade names and copyrights.

 

 

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited) 

 

 

 

April 21, 2018

 

 

December 30, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,216

 

 

$

5,129

 

Accounts and notes receivable, net of allowances of $3,669 and $3,154,

   respectively

 

 

292,840

 

 

 

280,050

 

Inventories, net:

 

 

 

 

 

 

 

 

Raw materials

 

 

43,181

 

 

 

41,710

 

Packaging materials

 

 

21,200

 

 

 

19,638

 

Finished goods

 

 

46,916

 

 

 

49,697

 

Inventories, net

 

 

111,297

 

 

 

111,045

 

Spare parts and supplies

 

 

62,298

 

 

 

61,330

 

Other

 

 

32,569

 

 

 

49,637

 

Total current assets

 

 

533,220

 

 

 

507,191

 

Property, plant and equipment, net:

 

 

 

 

 

 

 

 

Property, plant and equipment, gross

 

 

1,929,108

 

 

 

1,906,979

 

Less: accumulated depreciation

 

 

(1,207,465

)

 

 

(1,174,953

)

Property, plant and equipment, net

 

 

721,643

 

 

 

732,026

 

Notes receivable from independent distributor partners

 

 

199,876

 

 

 

187,737

 

Assets held for sale

 

 

8,184

 

 

 

15,323

 

Other assets

 

 

8,082

 

 

 

10,228

 

Goodwill

 

 

464,777

 

 

 

464,777

 

Other intangible assets, net

 

 

734,475

 

 

 

742,442

 

Total assets

 

$

2,670,257

 

 

$

2,659,724

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt and capital lease obligations

 

$

11,806

 

 

$

12,095

 

Accounts payable

 

 

209,639

 

 

 

181,388

 

Other accrued liabilities

 

 

152,359

 

 

 

200,468

 

Total current liabilities

 

 

373,804

 

 

 

393,951

 

Long-term debt:

 

 

 

 

 

 

 

 

Total long-term debt and capital lease obligations

 

 

818,141

 

 

 

820,141

 

Other liabilities:

 

 

 

 

 

 

 

 

Postretirement/post-employment obligations

 

 

36,206

 

 

 

60,107

 

Deferred taxes

 

 

96,259

 

 

 

82,976

 

Other long-term liabilities

 

 

54,316

 

 

 

51,872

 

Total other long-term liabilities

 

 

186,781

 

 

 

194,955

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock — $100 stated par value, 200,000 authorized shares and none issued

 

 

 

 

 

 

Preferred stock — $.01 stated par value, 800,000 authorized shares and none issued

 

 

 

 

 

 

Common stock — $.01 stated par value and $.001 current par value,

   500,000,000 authorized shares and 228,729,585 shares and 228,729,585

   shares issued, respectively

 

 

199

 

 

 

199

 

Treasury stock — 17,915,898 shares and 18,203,381 shares, respectively

 

 

(232,707

)

 

 

(235,493

)

Capital in excess of par value

 

 

649,763

 

 

 

650,872

 

Retained earnings

 

 

953,469

 

 

 

919,658

 

Accumulated other comprehensive loss

 

 

(79,193

)

 

 

(84,559

)

Total stockholders’ equity

 

 

1,291,531

 

 

 

1,250,677

 

Total liabilities and stockholders’ equity

 

$

2,670,257

 

 

$

2,659,724

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

3


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

For the Sixteen Weeks Ended

 

 

 

April 21, 2018

 

 

April 22, 2017

 

Sales

 

$

1,206,453

 

 

$

1,187,649

 

Materials, supplies, labor and other production costs (exclusive of

   depreciation and amortization shown separately below)

 

 

625,122

 

 

 

608,068

 

Selling, distribution and administrative expenses

 

 

454,463

 

 

 

463,066

 

Depreciation and amortization

 

 

44,189

 

 

 

47,188

 

Impairment of assets

 

 

2,483

 

 

 

 

Multi-employer pension plan withdrawal costs

 

 

2,322

 

 

 

 

Restructuring charges

 

 

1,259

 

 

 

 

Gain on divestiture

 

 

 

 

 

(28,875

)

Income from operations

 

 

76,615

 

 

 

98,202

 

Interest expense

 

 

10,996

 

 

 

11,625

 

Interest income

 

 

(8,095

)

 

 

(6,577

)

Pension plan settlement loss

 

 

4,668

 

 

 

 

Other components of net periodic pension and postretirement benefits credit

 

 

(735

)

 

 

(1,923

)

Income before income taxes

 

 

69,781

 

 

 

95,077

 

Income tax expense

 

 

18,534

 

 

 

34,659

 

Net income

 

$

51,247

 

 

$

60,418

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.24

 

 

$

0.29

 

Weighted average shares outstanding

 

 

210,888

 

 

 

209,123

 

Diluted:

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.24

 

 

$

0.29

 

Weighted average shares outstanding

 

 

211,311

 

 

 

210,275

 

Cash dividends paid per common share

 

$

0.1700

 

 

$

0.1600

 

 

 

 

 

 

 

 

 

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

 

4


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

 

 

 

For the Sixteen Weeks Ended

 

 

 

April 21, 2018

 

 

April 22, 2017

 

Net income

 

$

51,247

 

 

$

60,418

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Pension and postretirement plans:

 

 

 

 

 

 

 

 

Settlement loss

 

 

3,490

 

 

 

 

Net gain for the period

 

 

8,813

 

 

 

 

Amortization of prior service cost included in net income

 

 

26

 

 

 

33

 

Amortization of actuarial loss included in net income

 

 

1,076

 

 

 

1,110

 

Pension and postretirement plans, net of tax

 

 

13,405

 

 

 

1,143

 

Derivative instruments:

 

 

 

 

 

 

 

 

Net change in fair value of derivatives

 

 

10,470

 

 

 

(3,518

)

Loss reclassified to net income

 

 

297

 

 

 

474

 

Derivative instruments, net of tax

 

 

10,767

 

 

 

(3,044

)

Other comprehensive income (loss), net of tax

 

 

24,172

 

 

 

(1,901

)

Comprehensive income

 

$

75,419

 

 

$

58,517

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

 

5


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Capital in

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Excess

 

 

 

 

 

 

Other

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

Issued

 

 

Par

Value

 

 

of Par

Value

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Number of

Shares

 

 

Cost

 

 

Total

 

Balances at December 30, 2017

 

 

228,729,585

 

 

$

199

 

 

$

650,872

 

 

$

919,658

 

 

$

(84,559

)

 

 

(18,203,381

)

 

$

(235,493

)

 

$

1,250,677

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51,247

 

Derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,767

 

 

 

 

 

 

 

 

 

 

 

10,767

 

Pension and postretirement

   plans, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,405

 

 

 

 

 

 

 

 

 

 

 

13,405

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

(151

)

 

 

 

 

 

 

 

 

 

 

72,785

 

 

 

942

 

 

 

791

 

Amortization of share-based

   compensation awards

 

 

 

 

 

 

 

 

 

 

3,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,375

 

Issuance of deferred compensation

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

 

 

2,864

 

 

 

37

 

 

 

 

Performance-contingent restricted

   stock awards issued (Note 17)

 

 

 

 

 

 

 

 

 

 

(4,062

)

 

 

 

 

 

 

 

 

 

 

313,906

 

 

 

4,062

 

 

 

 

Issuance of deferred stock awards

 

 

 

 

 

 

 

 

 

 

(234

)

 

 

 

 

 

 

 

 

 

 

18,075

 

 

 

234

 

 

 

 

Stock repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120,147

)

 

 

(2,489

)

 

 

(2,489

)

Dividends paid on vested share-based

   payment awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(405

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(405

)

Dividends paid — $.1700 per

   common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,837

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,837

)

Reclassification of stranded income tax

   effects to retained earnings (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,806

 

 

 

(18,806

)

 

 

 

 

 

 

 

 

 

 

 

 

Balances at April 21, 2018

 

 

228,729,585

 

 

$

199

 

 

$

649,763

 

 

$

953,469

 

 

$

(79,193

)

 

 

(17,915,898

)

 

$

(232,707

)

 

$

1,291,531

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

 

6


 

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

 

 

For the Sixteen Weeks Ended

 

 

 

April 21, 2018

 

 

April 22, 2017

 

CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

51,247

 

 

$

60,418

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

3,375

 

 

 

5,975

 

Impairment of assets

 

 

2,483

 

 

 

 

Gain on divestiture

 

 

 

 

 

(28,875

)

Loss reclassified from accumulated other comprehensive income to net income

 

 

353

 

 

 

727

 

Depreciation and amortization

 

 

44,189

 

 

 

47,188

 

Deferred income taxes

 

 

5,132

 

 

 

2,045

 

Provision for inventory obsolescence

 

 

2,073

 

 

 

1,939

 

Allowances for accounts receivable

 

 

976

 

 

 

695

 

Pension and postretirement plans cost (income)

 

 

4,309

 

 

 

(1,612

)

Other

 

 

(706

)

 

 

(1,862

)

Qualified pension plan contributions

 

 

(10,000

)

 

 

 

Changes in operating assets and liabilities, net of acquisitions and disposals:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(12,072

)

 

 

(14,534

)

Inventories, net

 

 

(2,325

)

 

 

(1,401

)

Hedging activities, net

 

 

16,001

 

 

 

(9,057

)

Other assets

 

 

3,945

 

 

 

1,707

 

Accounts payable

 

 

28,540

 

 

 

14,998

 

Other accrued liabilities

 

 

(40,408

)

 

 

3,570

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

97,112

 

 

 

81,921

 

CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(26,550

)

 

 

(17,465

)

Proceeds from sale of property, plant and equipment

 

 

499

 

 

 

329

 

Repurchase of independent distributor territories

 

 

(1,135

)

 

 

(3,032

)

Cash paid at issuance of notes receivable

 

 

(8,642

)

 

 

(6,641

)

Principal payments from notes receivable

 

 

8,171

 

 

 

7,370

 

Proceeds from sale of mix plant

 

 

 

 

 

41,230

 

Other investing activities

 

 

228

 

 

 

641

 

NET CASH (DISBURSED FOR) PROVIDED BY INVESTING ACTIVITIES

 

 

(27,429

)

 

 

22,432

 

CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Dividends paid, including dividends on share-based payment awards

 

 

(36,243

)

 

 

(33,885

)

Exercise of stock options

 

 

791

 

 

 

6,249

 

Stock repurchases, including accelerated stock repurchases

 

 

(2,489

)

 

 

(2,151

)

Change in bank overdrafts

 

 

(1,405

)

 

 

(10,513

)

Proceeds from debt borrowings

 

 

1,000

 

 

 

304,100

 

Debt and capital lease obligation payments

 

 

(2,250

)

 

 

(368,050

)

NET CASH DISBURSED FOR FINANCING ACTIVITIES

 

 

(40,596

)

 

 

(104,250

)

Net increase in cash and cash equivalents

 

 

29,087

 

 

 

103

 

Cash and cash equivalents at beginning of period

 

 

5,129

 

 

 

6,410

 

Cash and cash equivalents at end of period

 

$

34,216

 

 

$

6,513

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

 

7


 

FLOWERS FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1. BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS — The accompanying unaudited Condensed Consolidated Financial Statements of Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) have been prepared by the company’s management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the unaudited Condensed Consolidated Financial Statements included herein contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the company’s financial position, results of operations and cash flows. The results of operations for the sixteen weeks ended April 21, 2018 and April 22, 2017 are not necessarily indicative of the results to be expected for a full fiscal year. The Condensed Consolidated Balance Sheet at December 30, 2017 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Form 10-K.

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

REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2018 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 21, 2018 (sixteen weeks), second quarter ending July 14, 2018 (twelve weeks), third quarter ending October 6, 2018 (twelve weeks) and fourth quarter ending December 29, 2018 (twelve weeks).

SEGMENTS — Flowers Foods currently operates two business segments: a direct-store-delivery (“DSD”) segment (“DSD Segment”) and a warehouse delivery segment (“Warehouse Segment”). The DSD Segment (84% of total year to date sales) currently operates 39 plants that produce a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes. These products are sold through a DSD route delivery system to retail and foodservice customers in the East, South, Southwest, California, and select markets in the Midwest, Pacific Northwest, Nevada, and Colorado. The Warehouse Segment (16% of total year to date sales) currently operates eight plants that produce snack cakes, breads and rolls for national retail, foodservice, vending, and co-pack customers and deliver through customers’ warehouse channels.

On May 3, 2017, the company announced an enhanced organizational structure designed to provide greater focus on the company’s strategic objectives, emphasize brand growth and innovation in line with a national branded food company, drive enhanced accountability, reduce costs, and strengthen long-term strategy.  The new organizational structure establishes two business units (“BUs”), Fresh Packaged Bread and Snacking/Specialty, and realigns key leadership roles.  The new structure also provides for centralized marketing, sales, supply chain, shared-services/administrative, and corporate strategy functions, each with clearly defined roles and responsibilities.  The company intends to transition to the new structure over the next several months with full implementation expected to be completed at the beginning of fiscal 2019. Management will continue to review financial information for the DSD Segment and Warehouse Segment until the new organizational structure is fully implemented.

SIGNIFICANT CUSTOMER — Following is the effect that our largest customer, Walmart/Sam’s Club, had on the company’s sales for the sixteen weeks ended April 21, 2018 and April 22, 2017. Walmart/Sam’s Club is the only customer to account for greater than 10% of the company’s sales.

 

 

 

For the Sixteen Weeks Ended

 

 

 

April 21, 2018

 

 

April 22, 2017

 

 

 

(% of Sales)

 

DSD Segment

 

 

17.6

 

 

 

17.3

 

Warehouse Segment

 

 

2.4

 

 

 

2.5

 

Total

 

 

20.0

 

 

 

19.8

 

8


 

Walmart/Sam’s Club is our only customer with a balance greater than 10% of outstanding trade receivables.  Its percentage of trade receivables was 19.2% and 23.6%, on a consolidated basis, as of April 21, 2018 and December 30, 2017, respectively.  No other customer accounted for greater than 10% of the company’s outstanding trade receivables.

SIGNIFICANT ACCOUNTING POLICIES — Significant changes to our critical accounting policies for the quarter ended April 21, 2018 from those disclosed in the Form 10-K are presented below.  The policy changes for revenue, derivative financial instruments, and taxes are a result of adopting new guidance issued by the Financial Accounting Standards Board (the “FASB”) during the first quarter of our fiscal 2018.  See Note 3, Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for details on the new guidance.  

Revenue.  Revenue is recognized when obligations under the terms of a contract with our customers are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  The company records both direct and estimated reductions to gross revenue for customer programs and incentive offerings at the time the incentive is offered or at the time of revenue recognition for the underlying transaction that results in progress by the customer towards earning the incentive. These allowances include price promotion discounts, coupons, customer rebates, cooperative advertising, and product returns. Consideration payable to a customer is recognized at the time control transfers and is a reduction to revenue.  Price promotion discount expense is recorded as a reduction to gross sales when the discounted product is sold to the customer.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in our selling, distribution, and administration expense line item on the Condensed Consolidated Statements of Operations.

The company’s production facilities deliver products to independent distributor partners (“IDP” or “IDPs”), who sell and deliver those products to outlets of retail accounts that are within the IDPs’ defined geographic territory. The IDPs sell products using either scan-based trading (“SBT”) technology, authorized charge tickets, or cash sales.  

SBT technology allows the retailer to take ownership of our goods when the consumer purchases the goods rather than at the time they are delivered to the retailer. Control of the inventory does not transfer upon delivery to the retailer because the company controls the risks and rights until the product is scanned at the reseller’s register.  Each of the company’s products are a distinct good since the resellers expect each item to be a performance obligation.  The company’s performance obligations are satisfied at the point in time when the end consumer purchases the product because each product is considered a separate performance obligation. Consequently, revenue is recognized at a point in time for each scanned item.  The company has concluded that we are the principal.

SBT is utilized primarily in certain national and regional retail accounts (“SBT Outlet”). Generally, revenue is not recognized by the company upon delivery of our products by the company to the IDP or upon delivery of our products by the IDP to a SBT Outlet, but when our products are purchased by the end consumer. Product inventory in the SBT Outlet is reflected as inventory on the Condensed Consolidated Balance Sheets.

The IDP performs a physical inventory of products at each SBT Outlet weekly and reports the results to the company. The inventory data submitted by the IDP for each SBT Outlet is compared with the product delivery data. Product delivered to a SBT Outlet that is not recorded in the product delivery data has been purchased by the consumer/customer of the SBT Outlet and is recorded as sales revenue by the company.

Non-SBT sales are classified as either authorized charged sales or cash sales.  The company provides marketing support to the IDP for authorized charged sales, but does not provide marketing support to the IDP for cash sales.  Marketing support includes providing a dedicated account representative, resolving complaints, and accepting responsibility for product quality which collectively define how to manage the relationship.  Revenue is recognized at a point in time for non-SBT sales.  

The company retains inventory risk, establishes negotiated special pricing, and fulfills the contractual obligations for authorized charged sales.  The company is the principal, the IDP is the agent, and the reseller is the customer.  Revenue is recognized for authorized charge sales when the product is delivered to the customer because the company has satisfied its performance obligations.

Cash sales occur when the IDP is the end customer.  The IDP maintains accounts receivable, inventory and fulfillment risk for cash sales.  The IDP also controls pricing for the resale of cash sale products.  The company is the principal and the IDP is the customer, and an agent relationship does not exist.  The discount paid to the IDP for cash sales is recorded as a reduction to revenue.  Cash sales are recognized when the company’s products are delivered to the IDP because the company has satisfied its performance obligations.  

9


 

Sales in the Warehouse Segment are under contracts and include a formal ordering system.  Orders are placed primarily using purchase orders (“PO”) or electronic data interchange (“EDI”) information.  Each PO, together with the applicable master supply agreement, is determined to be a separate contract.  Product is delivered via contract carriers engaged by either the company or the customer with shipping terms provided on the PO.

Each unit sold, for all product categories, is a separate performance obligation.  Each unit is considered distinct because the customer can benefit from each unit by selling each one to the end consumer.  Additionally, each unit is separately identifiable in the PO.  Products are delivered either freight-on-board (“FOB”) shipping or destination.  The company’s right to payment is at the time our products are obtained from our warehouse for FOB shipping deliveries.  The right to payment for FOB destination deliveries occurs after the products are delivered to the customer.  Revenue is recognized at a point in time when control transfers.  The company pays commissions to brokers who obtain contracts with customers.  Commissions are paid on the total value of the contract, which is determined at contract inception and is based on expected future activity.  Broker commissions will not extend beyond a one-year term because each product is considered a separate order in the PO.

The company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the company otherwise would have recognized is one year or less.  These costs are included in selling, distribution, and administrative expense line item on the Condensed Consolidated Statements of Operations.

The company disaggregates revenue by sales channel for each reportable segment.  Our sales channels are branded retail, store branded retail, and non-retail and other.  The non-retail and other channel includes foodservice, restaurants, and contract manufacturing.  The company does not disaggregate revenue by geographic region, customer type, or contract type.  All revenues are recognized at a point in time.  The disclosures for segment revenues by sales channel are in Note 20, Segment Reporting, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.  

Derivative Financial Instruments.  New guidance updates the disclosure requirements for derivatives and hedging activities with the intent to provide investors with an enhanced understanding of: (a) how and why an entity uses derivative instruments and related hedged items, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the company’s objectives and strategies for using derivative instruments, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required, the company records all derivatives on the Condensed Consolidated Balance Sheets at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedged item with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  The company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the company elects not to apply hedge accounting.

Income taxes.  The company releases the income tax effect from accumulated other comprehensive income (loss) (“AOCI”) in the period when the underlying transaction impacts earnings.  We adopted new accounting requirements that provide the option to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from AOCI to retained earnings. We elected to reclassify the stranded income tax effects of the Act of $18.8 million from AOCI to retained earnings. This reclassification consists of deferred taxes originally recorded in AOCI that exceed the newly enacted federal corporate tax rate.

2. FINANCIAL STATEMENT REVISIONS

The company identified an error in reporting the cash flow impacts of certain repurchases and sales of territories.  Cash receipts and payments for the repurchase and sale of territories and cash paid at the issuance of notes receivable were previously reported net when these transactions should have been disaggregated.    The company has evaluated the impact of this error and determined it is not material to previously issued annual and interim financial statements.  These corrections did not impact our previously reported Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), and Condensed Consolidated Statements of Changes in Stockholders’ Equity.

 

10


 

The table below presents the revisions to the applicable Condensed Consolidated Statements of Cash Flows line item to correct the errors for the sixteen weeks ended April 22, 2017 (amounts in thousands):

 

 

 

Condensed Consolidated Statements of Cash Flows

 

 

 

Sixteen Weeks Ended April 22, 2017

 

Impacted Condensed Consolidated Statements of Cash Flows Line Item

 

As Previously

Reported

 

 

Revisions

 

 

As Revised

 

Other assets

 

$

(4,702

)

 

$

6,409

 

 

$

1,707

 

Other accrued liabilities

 

$

4,052

 

 

$

(482

)

 

$

3,570

 

Net cash provided by operating activities

 

$

75,994

 

 

$

5,927

 

 

$

81,921

 

Repurchase of independent distributor territories

 

$

(3,161

)

 

$

129

 

 

$

(3,032

)

Cash paid at issuance of notes receivable

 

$

 

 

$

(6,641

)

 

$

(6,641

)

Other investing activities

 

$

56

 

 

$

585

 

 

$

641

 

Net cash provided by investing activities

 

$

28,359

 

 

$

(5,927

)

 

$

22,432

 

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance for recognizing revenue in contracts with customers. This guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. There are five steps outlined in the guidance to achieve this core principle. This guidance was adopted on December 31, 2017, the first day of our fiscal 2018.  The company applied the guidance at adoption on the modified retrospective transition method.  This guidance was applied to all contracts not completed at the adoption date.  The adoption of this guidance did not impact our financial statements; however, updated disclosures are included in Note 1, Basis of Presentation, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.  Changes were made to our internal control over financial reporting processes to ensure all contracts are reviewed for each of the five revenue recognition steps.  Additionally, the company’s revenue disclosures changed beginning in fiscal 2018.  The new disclosures require more granularity into our sources of revenue, as well as the assumptions about recognition timing, and include our selection of certain practical expedients and policy elections.  

In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statements of cash flows. This guidance was adopted on December 31, 2017, the first day of our fiscal 2018, and it did not impact the prior or current period presentation.

In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This guidance was adopted on December 31, 2017, the first day of our fiscal 2018. This guidance will impact the company’s assessment of a future acquisition of either an asset or a business in future transactions beginning in our fiscal 2018.

11


 

In March 2017, the FASB issued guidance that requires all employers to separately present the service cost component from the other pension and postretirement benefit cost components in the income statements.  Service cost will now be presented with other employee compensation costs in operating income or capitalized in assets, as appropriate.  The other components reported in the income statements will be reported separate from the service cost and outside of income from operations.  This guidance was adopted on December 31, 2017, the first day of our fiscal 2018.  The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost, and on a prospective basis for the capitalization of only the service cost component of net benefit cost.  The company has elected to use the practical expedient option and presented the amounts disclosed in our prior pension and postretirement footnote for the comparative prior period for the retrospective presentation requirement.  The company did not capitalize pension cost.   The impact (including defined benefit and postretirement plans) for the sixteen weeks ended April 22, 2017 is presented in the table below (amounts in thousands):

 

 

 

For the Sixteen Weeks Ended

 

 

 

Previously Filed

 

 

Post-adoption

 

 

 

April 22, 2017

 

 

April 22, 2017

 

Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately)

 

$

607,941

 

 

$

608,068

 

Selling, distribution and administrative expenses

 

$

461,270

 

 

$

463,066

 

Income from operations

 

$

100,125

 

 

$

98,202

 

Other components of net periodic pension and postretirement benefits credit

 

$

 

 

$

(1,923

)

 

In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice for changes to the terms and conditions of a share-based payment award.  This guidance clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.  This guidance was adopted on December 31, 2017, the first day of our fiscal 2018. This guidance will impact any modified share-based payment awards beginning in our fiscal 2018.

In August 2017, the FASB amended the guidance for hedge accounting.  This guidance makes more financial and nonfinancial hedging strategies eligible for hedge accounting.  It also amends the presentation and disclosure requirements and changes the requirements for companies to separately measure ineffectiveness.  It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.  We elected to early adopt this guidance as of December 31, 2017, the first day of our fiscal 2018.  All transition requirements and elections were applied to hedging relationships existing on the date of adoption.  The amended presentation and disclosure requirements must be applied prospectively.  The guidance requires a modified retrospective transition method in which companies recognize the cumulative effect of the change on the opening balance of each affected component of equity on the balance sheet as of the date of adoption.  There was no cumulative effect change to the company at adoption of this amended guidance.

In February 2018, the FASB issued guidance to allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Act.   We elected to early adopt this guidance as of December 31, 2017, the first day of our fiscal 2018.  The table below presents the impact of this reclassification on December 31, 2017 (amounts in thousands) (positive value denotes a debit balance):

 

 

 

Impacted Line Item (Dr (Cr))

 

 

 

Retained Earnings

 

 

AOCI

 

Pension and postretirement plans

 

 

(17,097

)

 

 

17,097

 

Hedged financial instruments

 

 

(1,709

)

 

 

1,709

 

Total reclassification of stranded income tax effects to retained earnings from AOCI

 

$

(18,806

)

 

$

18,806

 

 

 

 

 

 

 

 

 

 

 

Accounting pronouncements not yet adopted

In February 2016, the FASB issued guidance that requires an entity to recognize lease liabilities and a right-of-use asset for virtually all leases (other than those that meet the definition of a short-term lease) on the balance sheet and to disclose key information about the entity’s leasing arrangements.  This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods, with earlier adoption permitted.  This guidance must be adopted using a modified retrospective approach for all leases existing at, or entered into after, the date of initial adoption, with an option to elect to use certain transition relief.  The company intends to adopt the updated standard in the first quarter of fiscal 2019.  We have selected a new software tool to assist us in the abstracting process of our leases.  This process began in our first quarter of fiscal 2018 and is

12


 

anticipated to be complete in the second half of fiscal 2018.  The company expects a significant impact to our Consolidated Financial Statements because of this guidance. The company currently has significant operating leases with our fiscal 2017 lease expense totaling $95.0 million.  

In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment.  The guidance removed Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.  A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  Companies will still have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.  This guidance will be applied prospectively.  Companies are required to disclose the nature of and reason for the change in accounting principle upon transition.  That disclosure shall be provided in the first annual reporting period and in the interim period within the first annual reporting period when the company adopts this guidance.  This change to the guidance is effective for fiscal years beginning after December 15, 2019.  Early adoption is permitted after January 1, 2017.  The company is currently evaluating when this guidance will be adopted and the impact on our Consolidated Financial Statements.

We have reviewed other recently issued accounting pronouncements and concluded that either they are not applicable to our business or that no material effect is expected upon future adoption.

4. RESTRUCTURING ACTIVITIES

On August 10, 2016, we announced the launch of Project Centennial, a comprehensive business and operational review.  We identified opportunities to enhance revenue growth, streamline operations, improve efficiencies, and make investments that strengthen our competitive position and improve margins over the long term.   We began Project Centennial with an evaluation of our brands, product mix, and organizational structure.  We then developed strategic priorities to help us capitalize on retail and consumer changes.  The primary objective is to improve margins and profitably grow the top-line over time.  These priorities are as follows:

Reduce costs to fuel growth.  The company is focusing on reducing costs in our purchased goods and services initiative and our supply chain optimization plan.  Purchased goods and services operations will be centralized to create standardization, continuously improve, and develop consistent policies and specifications.  Supply chain optimization intends to reduce operational complexity and capitalize on scale.  This initiative includes, and will continue to include, consulting and other third-party costs as we finalize the organizational structure.  We incurred $6.4 million and $15.4 million for these non-restructuring consulting costs during the sixteen weeks ended April 21, 2018 and April 22, 2017, respectively.

Develop leading capabilities.  As of April 21, 2018, we report our financial results in either the DSD Segment or the Warehouse Segment.  On May 3, 2017, the company announced an enhanced organizational structure designed to provide greater focus on the company’s strategic objectives, emphasize brand growth and innovation in line with a national branded food company, drive enhanced accountability, reduce costs, and strengthen long-term strategy.  The new organizational structure will establish two BUs, Fresh Packaged Bread and Snacking/Specialty, and realigns key leadership roles.  The new structure also provides for centralized marketing, sales, supply chain, shared-services/administrative, and corporate strategy functions, each with more clearly defined roles and responsibilities.  The company intends to transition to the new structure over the next several months with full implementation expected to be completed at the beginning of fiscal 2019.  We began relocating certain employees during the third quarter of fiscal 2017 as we transition to the enhanced organizational structure.  Reorganization costs of $1.5 million for relocating employees were incurred during the first quarter of fiscal 2018 in the restructuring charges line item on the Condensed Consolidated Statements of Operations.  We anticipate incurring additional reorganization costs as we continue implementing the enhanced organizational structure.  The current DSD and warehouse segmentation will remain until the new structure is in place.

On July 17, 2017, the company commenced a voluntary employee separation incentive plan (the “VSIP”).  The VSIP was implemented as part of our effort to restructure, streamline operations, and better position the company for profitable growth.  The VSIP election period closed on September 25, 2017 and resulted in approximately 325 employees accepting the offer.  The separations began on September 7, 2017, and were substantially complete by the end of fiscal 2017.  We recorded an aggregate charge of $29.1 million for the VSIP which includes a credit of $0.6 million when we estimated our VSIP liabilities during the sixteen weeks ended April 21, 2018.  These charges consist primarily of employee severance and benefits-related costs and are recorded in the restructuring charges line item on our Condensed Consolidated Statements of Operations.

13


 

Reinvigorate core business.  This objective is to invest in our brands to align brands to consumers to maximize our return on investment.  We expect to incur significant incremental marketing costs annually for brand development.  These costs will not be restructuring and will be recognized as incurred.  Project Centennial also included a brand rationalization study to identify high-potential and established brands to focus on innovation and cash flow, respectively.  The study, which concluded in our third quarter of fiscal 2017, changed the outlook for several brands and resulted in the recognition of an impairment on certain of these finite-lived and indefinite-lived intangible trademark assets in our third quarter of fiscal 2017.  The total intangible asset impairment charges, which were recorded in the restructuring charges line item in our Condensed Consolidated Statements of Operations, were $66.2 million.  Project Centennial is expected to be completed by our fiscal 2021.

On August 9, 2017, the company announced the closure of a Warehouse Segment snack cake plant in Winston-Salem, North Carolina.  The bakery closed in November 2017.  The closure costs were $4.4 million and consisted of $3.4 million for property, plant and equipment impairments and $1.0 million for employee termination benefits.  These amounts are recorded in the restructuring and related impairment charges line item on our Condensed Consolidated Statements of Operations.  The company continues to explore additional opportunities to streamline our core operations but as of April 21, 2018, we cannot estimate the additional costs to be incurred for this initiative.

Capitalize on product adjacencies.  This initiative will focus on growing share in underdeveloped markets.  Adjacencies are geographic and/or product categories that will allow us to leverage our competitive advantages.  This can be done either organically with our high-potential brands or through strategic acquisitions.  As of April 21, 2018, we cannot estimate the costs to be incurred for this initiative.

See Note 20, Segment Reporting, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for the allocation of restructuring charges to each of our segments.  The table below presents the components of costs associated with Project Centennial (amounts in thousands):

 

 

 

For the Sixteen Weeks Ended

 

 

For the Sixteen Weeks Ended

 

 

 

April 21, 2018

 

 

April 22, 2017

 

Restructuring and related impairment charges:

 

 

 

 

 

 

 

 

Reorganization costs

 

$

1,512

 

 

$

 

VSIP

 

 

(597

)

 

 

 

Employee termination benefits

 

 

344

 

 

 

 

Restructuring and related impairment charges (1)

 

 

1,259

 

 

 

 

Project Centennial implementation costs (2)

 

 

6,432

 

 

 

15,406

 

Total Project Centennial restructuring and implementation costs

 

$

7,691

 

 

$

15,406

 

 

(1)

Presented on our Condensed Consolidated Statements of Operations.

(2)

Costs are recorded in the selling, distribution, and administrative expenses line item of our Condensed Consolidated Statements of Operations.

The table below presents the components of, and changes in, our restructuring accruals (amounts in thousands):

 

 

 

VSIP

 

 

Employee

Termination

Benefits(1)

 

 

Reorganization

Costs(2)

 

 

Total

 

Liability balance at December 30, 2017

 

$

25,022

 

 

$

468

 

 

$

 

 

$

25,490

 

Charges

 

 

(597

)

 

 

344

 

 

 

1,512

 

 

 

1,259

 

Cash payments

 

 

(23,912

)

 

 

(608

)

 

 

(1,512

)

 

 

(26,032

)

Non-cash settlements

 

 

 

 

 

 

 

 

 

 

 

 

Liability balance (3) at April 21, 2018

 

$

513

 

 

$

204

 

 

$

 

 

$

717