Edgar Filing: FLOWERS FOODS INC

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000

[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)

1919 FLOWERS CIRCLE 31757
THOMASVILLE, GEORGIA (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (229) 226-9110

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 per share, together New York Stock Exchange
with Preferred Share Purchase Rights

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 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 [X]

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 herein by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]

Based on the closing sales price on the New York Stock Exchange on March
28, 2001, the aggregate market value of the voting and non-voting common stock
held by nonaffiliates of the registrant was $341,128,389.

On March 28, 2001, the number of shares outstanding of the registrant's
Common Stock, $.01 par value, was 19,865,968.

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FORM 10-K REPORT

TABLE OF CONTENTS

PAGE
----

Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Results of
Operations
and Financial Condition..................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure........................................ 21
Item 10. Directors and Executive Officers of the Registrant.......... 22
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management of Flowers Foods................................. 31
Item 13. Certain Relationships and Related Transactions.............. 32
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 32

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PART I

ITEM 1. BUSINESS

CORPORATE INFORMATION

Flowers Foods, Inc. was incorporated in Georgia in October, 2000 and, prior
to March 26, 2001, was a wholly-owned subsidiary of Flowers Industries, Inc.
("FII"). On October 26, 2000, FII and Kellogg Company ("Kellogg") entered into
an agreement and plan of restructuring and merger pursuant to which a wholly-
owned subsidiary of Kellogg merged with FII on March 26, 2001. As a condition to
the merger, FII transferred its traditional fresh and frozen bakery operations,
and certain other corporate assets and liabilities, to Flowers Foods and
distributed all of the outstanding shares of Flowers Foods common stock to FII
shareholders on March 26, 2001.

As used herein, references to "we," "us," "the company" or "Flowers Foods"
include the historical operating results and activities of the business
operations which comprise Flowers Foods as of the date hereof.

THE COMPANY

Flowers Foods is one of the largest producers and marketers of frozen and
non-frozen bakery and dessert products in the United States. Flowers Foods
consists of the following businesses:

- Flowers Bakeries; and

- Mrs. Smith's Bakeries.

Our core strategy is to be one of the nation's leading producers and
marketers of bakery products available to customers through fresh and frozen
channels of distribution. Our strategy focuses on responding to current market
trends for our products and changing consumer preferences, which increasingly
favor purchases of ready-made convenience food products as opposed to
traditional foods to be prepared at home. To assist in accomplishing our core
strategy, we have aggressively invested capital to modernize and expand our
production and distribution capacity and have expanded a nationally branded
business which complements our traditional strengths.

We have established a presence in all distribution channels where bakery
and dessert products are sold, including traditional supermarkets and their
in-store deli/bakeries, foodservice distributors, convenience stores, mass
merchandisers, club stores, wholesalers, restaurants, fast food outlets,
schools, hospitals and vending machines.

Our Flowers Bakeries business focuses on the production and marketing of
bakery products to customers in the super-regional 16 state area in and
surrounding the southeastern United States. We have devoted significant
resources to modernizing production facilities, improving our distribution
capabilities and enhancing our information technology. We have acquired numerous
local bakery operations that are generally within or contiguous to our existing
region and which can be served with our extensive direct store door delivery
system. Our strategy is to continue to better serve new and existing customers,
principally by using information technology to enhance the productivity and
efficiency of our production facilities and by extending our direct store door
delivery system. This system utilizes approximately 3,200 independent
distributors who own the right to sell our bakery products within their
respective territories.

Our Mrs. Smith's Bakeries business produces and markets frozen desserts as
well as bread, rolls and buns for sale to retail and foodservice customers.
Traditionally, retail frozen pie sales are heavily concentrated in the year-end
holiday season. In an effort to enhance sales outside of the holiday season, we
launched "Operation 365," a strategy aimed at significantly expanding
non-seasonal sales in the frozen dessert product line by extending the
well-recognized Mrs. Smith's brand name to existing and related retail and
foodservice products. Examples of significant product line extensions include
the introduction of Mrs. Smith's Restaurant Classics and Mrs. Smith's Cookies
and Cream frozen pies in the retail channel and Grand Finales frozen pies in the
foodservice channel.

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We have a leading presence in each of the major product categories in which
we compete. Collectively, our Flowers Bakeries' brands rank first in branded
sales measured in dollars and units in the 22 major metropolitan markets we
serve. Our Mrs. Smith's Bakeries business is one of the leading frozen dessert
producers and marketers in the United States, and our Mrs. Smith's pies are the
leading national brand of frozen pies sold at retail. Our major branded products
include, among others, the following:

FLOWERS BAKERIES MRS. SMITH'S BAKERIES
Flowers Mrs. Smith's
Nature's Own Mrs. Freshley's
Cobblestone Mill Oregon Farms
BlueBird European Bakers
ButterKrust Stilwell

REGIONAL FRANCHISED BRANDS: Our Special Touch
Sunbeam Danish Kitchen
Roman Meal Pour a Quiche
Evangeline Maid Grand Finales
Bunny Pet-Ritz
Oronoque Orchard

We are committed to producing high quality products at the lowest price in
all of our operations, and we have made significant capital investments in
recent years to modernize, automate and expand our production and distribution
capabilities and enhance our information technology. Capital spending has been
primarily directed toward expanding and modernizing existing production
facilities. The most recent major production facility expenditure in our Flowers
Bakeries business was the installation of a fully automated wrapping system for
three production lines in a new 6,000 square foot facility in Goldsboro, North
Carolina. Production capabilities at our Mrs. Smith's Bakeries business were
significantly realigned at an approximate cost of $183.2 million over the last
three years. This realignment included the relocation and upgrading of 25
production lines at seven of our nine operating facilities, which offers us
significantly more capacity at fewer locations. We believe these facilities will
give us the ability to exploit many opportunities in the foodservice segment and
continue our growth in the retail market.

In order to provide prompt and responsive service to customers, we tailor
our distribution systems to the marketing and production aspects of our major
product lines. Flowers Bakeries distributes its baked foods through an extensive
direct store door delivery system of approximately 3,200 independent
distributors who, as owners of their territories, are motivated to maintain and
build retail brand shelf space and to monitor product freshness, which is
essential in the marketing of short shelf life products such as fresh bread,
rolls and buns. Mrs. Smith's Bakeries distributes its frozen foods through two
strategically-located frozen distribution facilities, as well as through
additional commercial frozen warehouse space throughout the United States in
order to accommodate demands in the retail channel for seasonal products and to
provide staging to expedite distribution throughout the year.

INDUSTRY OVERVIEW

The United States food industry is comprised of a number of distinct
product lines and distribution channels for frozen and non-frozen bakery
products and desserts. Changes in consumer preferences have shifted food
purchases away from the traditional grocery store aisles for home preparation
and consumption and toward home meal replacement purchases, either in
supermarket in-store deli/bakeries or in non-supermarket channels, such as mass
merchandisers, convenience stores, club stores, restaurants and other
convenience channels. Non-supermarket channels of distribution are extremely
important throughout the food industry.

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Non-Frozen and Frozen Bakery Products

Retail sales of bakery products continue to experience modest growth, with
expansion within the category occurring in a variety of premium and specialty
breads. However, foodservice sales of bakery products continue to grow at a
faster rate than retail sales as consumers who demand convenience increasingly
are purchasing food products from non-retail distribution channels. In addition
to Flowers Foods, several large baking and diversified food companies market
bakery products in the United States. Competitors in this category include
Interstate, Earthgrains, Bestfoods and Pepperidge Farm. There are also a number
of smaller, regional companies. We believe that the larger companies enjoy
several competitive advantages over smaller operations due principally to
economies of scale in areas such as information technology, purchasing,
production, advertising, marketing and distribution, as well as through greater
brand awareness.

A significant trend in the baking industry over the last several years has
been the consolidation of smaller bakeries into larger baking businesses.
Consolidation continues to be driven by factors such as capital constraints on
smaller companies that limit their ability to avoid technological obsolescence,
to increase productivity or to develop new products, generational changes at
family-owned businesses, and the need to serve the consolidated retail customers
and the foodservice channel. We believe that the consolidation trend in the
baking, food retailing and foodservice industries will continue to present
opportunities for strategic acquisitions that complement our existing businesses
and that extend our super-regional presence.

Frozen Dessert Products

Sales of frozen desserts to foodservice institutions and other distribution
channels, including restaurants and in-store bakeries, have grown at a rate
faster than sales to retail channels. We are a preferred supplier of frozen
dessert products to the leading foodservice distributors in the United States.
While retail sales of frozen desserts have experienced declining sales, Mrs.
Smith's remains the leading brand in the frozen pie category. Primary
competitors in the frozen dessert market include Sara Lee, Pepperidge Farm,
Edwards and Pillsbury. We believe the increase in foodservice sales in the
frozen dessert industry will provide us with additional revenue opportunities.

STRATEGY

Our core strategy is to be one of the nation's leading producers and
marketers of bakery products available to customers through fresh and frozen
channels of distribution. Our Flowers Bakeries and Mrs. Smith's Bakeries
businesses each develop strategies based on the production, distribution and
marketing requirements of their particular food categories. We employ the
following five overall strategies:

- Strong Brand Recognition. We intend to capitalize on the success of our
well-recognized brand names, which communicate product consistency and
quality, by extending those brand names to additional products and
channels of distribution. Many of our brands, including Nature's Own
bread, Cobblestone Mill bread and Mrs. Smith's retail frozen baked pies,
are the top-selling brands in their categories.

- Efficient Production and Distribution Facilities. We intend to maintain
a continuing level of capital improvements that, while substantially
lower than our level of capital improvements in recent years, will permit
us to fulfill our commitment to remaining among the most modern and
efficient frozen and non-frozen bakery and dessert producers in the
United States.

- Customer Service-Oriented Distribution. We intend to expand and refine
our distribution systems to respond quickly and efficiently to changing
customer service needs, consumer preferences and seasonal demands. We
have distribution systems that are tailored to the nature of each of our
food product categories and are designed to provide the highest levels of
service to our retail and foodservice customers. We have developed a
direct store door delivery network of approximately 3,200 independent
distributors for our Flowers Bakeries bakery products. Our Mrs. Smith's
Bakeries business utilizes a network of strategically located storage and
distribution facilities for our frozen bakery and dessert products and a
centralized distribution facility for our snack cake products.

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- Broad Range of Products Sold Through Multiple Distribution
Channels. Recognizing that consumers are increasingly seeking home meal
replacements and other convenience food products, we intend to continue
to emphasize expansion of our product lines and distribution channels to
meet those preferences. Our product lines now include virtually every
category of fresh and frozen bakery and dessert products. These products
generally can be found in traditional supermarkets and in-store deli/
bakeries, convenience stores, mass merchandisers, club stores,
wholesalers, restaurants, fast food outlets, schools, hospitals and
vending machines.

- Strategic Acquisitions. We have consistently pursued growth in sales,
geographic markets and products through strategic acquisitions. We intend
to pursue growth through strategic acquisitions and investments that will
complement and expand our existing markets, product lines and product
categories.

PRODUCTS

We produce packaged bakery, frozen dessert and frozen bakery products.

Flowers Bakeries

We market our packaged bakery products in the super-regional 16 state area
in and surrounding the southeastern United States under numerous brand names,
including Nature's Own and Cobblestone Mill. We also market fresh bread under
regional franchised brands such as Sunbeam, Roman Meal, Evangeline Maid and
Bunny. Nature's Own is the best selling brand by volume of soft variety bread in
the United States, despite being marketed solely in the super-regional 16 state
area. Pastries, doughnuts, bakery snacks, cakes and english muffins are sold
through our direct store door distribution system primarily, under the BlueBird
brand, as well as under the ButterKrust, Sunbeam and Holsum trademarks. Our
branded products account for approximately 65% of sales by Flowers Bakeries.

In addition to our branded products, we also produce and distribute
packaged bakery products under private labels for such retailers as Winn-Dixie
and Kroger. While private label products carry lower margins than our branded
products, we use our private label offerings to expand our total shelf space and
to effectively utilize production and distribution capacity.

We utilize our direct store door distribution system to supply foodservice
companies, including Burger King, Krystal, Hardees, Whataburger and Outback
Steakhouse, with bakery products. In addition, we supply frozen bakery products
to Wendy's.

Mrs. Smith's Bakeries

Mrs. Smith's frozen desserts are marketed throughout the United States, and
our frozen pies were the number one retail frozen pie brand in the United States
for 2000. Mrs. Smith's frozen desserts are sold at retail under the Mrs.
Smith's, Pet-Ritz, Oregon Farms and Oronoque Orchard brand names. Frozen
desserts in the foodservice channel are sold under the Grand Finales brand and
under private labels for foodservice customers, such as Sysco. Our branded
products account for approximately 41% of sales by Mrs. Smith's Bakeries.

We produce and distribute frozen bakery products such as bread, rolls and
buns, for sale to foodservice customers. We also produce packaged bakery
products for distribution by Flowers Bakeries' direct store door distribution
network under the BlueBird brand. In addition, we produce packaged bakery
products under the Mrs. Freshley's brand for sale to the vending channel and
under various private labels for sale through the retail channel.

PRODUCTION AND DISTRIBUTION

We design our production facilities and distribution systems to meet the
marketing and production demands of our major product lines. Through a
significant program of capital improvements and careful planning of plant
locations, which, among other things, allows us to establish reciprocal baking
or product
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transfer arrangements among our bakeries, we seek to remain a low cost producer
and marketer of a full line of frozen and non-frozen bakery and dessert products
on a national and super-regional basis. In addition to the independent
distributor system for our fresh baked products, we also use both owned and
public warehouses and distribution centers in central locations for the
distribution of certain of our Mrs. Smith's products.

Flowers Bakeries

We operate 27 packaged bakery product facilities in 10 states. We have
invested approximately $130.8 million over the past three years, primarily to
build new state-of-the-art baking facilities and to significantly upgrade
existing facilities. During this period, we also added 13 new highly-automated
production lines in eight of our facilities, and a fully automated wrapping
system for three production lines was installed in our new 6,000 square foot
facility in Goldsboro, North Carolina. We believe that these investments have
made us the most efficient major producer of packaged bakery products in the
United States. We believe that our capital investment yields long-term benefits
in the form of more consistent product quality, highly sanitary processes, and
greater production volume at a lower cost per unit. While our major capital
improvement program is largely complete, we intend to continue to invest in our
production facilities and equipment to maintain high levels of efficiency.

Distribution of packaged bakery products involves determining appropriate
order levels, delivering the product from the plant to the independent
distributor for direct store door delivery to the customer, stocking the product
on the shelves, visiting the customer daily to ensure that inventory levels
remain adequate, and removing stale goods. We utilize a network of approximately
3,200 independent distributors who own the rights to distribute our packaged
bakery products in their geographic territory. Distributor purchase arrangements
historically have been made directly with a financial institution, and, pursuant
to an agreement, we manage and service these arrangements. Commencing late March
2001, we will provide financing arrangements directly to the distributors for
the purchase of their routes.

The Company leases hand-held computers, which contain our proprietary
software, and charges independent distributors an administrative fee for their
use. The software permits distributors to track and communicate inventory data
to the production facilities and to calculate recommended order levels based on
historical sales data and recent trends. These orders are electronically
transmitted to the appropriate production facility on a nightly basis. This
system, which we believe is more sophisticated than comparable tracking programs
currently used in the industry, is designed to ensure that adequate product, and
the right mix of products, are available to meet the retail and foodservice
customers' immediate needs. We believe our system minimizes returns of unsold
goods. In addition to the hand-held distributor units, our main computer system
permits tracking of sales, product returns and profitability by customer
location, plant, day and other bases. Managers receive sales and profitability
reports on a weekly basis, allowing prompt operational adjustments when
appropriate.

We believe the independent distributor system is unique in the industry as
to its size, with approximately 3,200 distributors, and with respect to its
geographic coverage. The program is designed to provide retail customers with
superior service because distributors, highly motivated by route ownership,
strive to increase sales by maximizing service. In turn, distributors have the
opportunity to benefit directly from the enhanced value of their routes
resulting from higher sales volume.

Mrs. Smith's Bakeries

We operate nine production facilities with 43 production lines for our
frozen desserts, frozen bakery products and packaged bakery products. We
significantly realigned our production capabilities over the last three years,
spending approximately $183.3 million. This realignment included the relocation
and upgrading of 25 production lines at seven of our nine operating facilities,
which offers us significantly more capacity at fewer locations. We believe
product realignment will give us the ability to exploit many opportunities in
the retail and foodservice channels.

Our distribution facilities are strategically located near our production
facilities to simplify distribution logistics. Our plant in Stilwell, Oklahoma
was the focus of a $60.0 million capital spending project in 1999 to
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add production capacity and is the primary producer of frozen fruit and custard
pies. This facility also serves as a principal point of distribution for our
frozen desserts. Our Suwanee, Georgia facility is located on a major interstate
corridor near three of our frozen dessert production facilities. This facility
contains such innovations as five 78-foot tall, laser-guided cranes specifically
designed for the facility, a six million cubic foot freezer, and
computer-controlled bar-coding and inventorying. The automation of this facility
enables us to move extremely large volumes of product without a significant
labor component and enables the facility to operate with extremely cold
temperatures that preserve high product quality. These features allow our
Suwanee facility to better serve customers by processing customer orders much
more quickly than conventional freezer facilities. Production capacity was added
to this facility as part of the overall realignment project, enhancing operating
efficiencies by having contiguous production and frozen storage and
distribution.

In addition to our two strategically-located freezer and distribution
facilities in Suwanee and Stilwell, we own and lease additional freezer and
distribution facilities throughout the United States to facilitate distribution
of our products nationwide. These owned and leased facilities allow us to build
and store necessary inventory of raw materials and finished dessert products and
to expedite the national distribution of both our seasonal and non-seasonal
products.

We distribute our packaged bakery products from a centralized distribution
facility located near Knoxville, Tennessee. Centralized distribution allows us
to achieve both production and distributing efficiencies. The production
facilities are able to operate longer, more efficient production runs of a
single product, which are then shipped to the centralized distribution facility.
Products coming from different production facilities are then cross-docked and
shipped directly to customer warehouses.

CUSTOMERS

Our top 10 customers in 2000 accounted for 35.5% of sales. Winn-Dixie
accounted for approximately 8.5% of sales during 2000. Pursuant to an agreement
with Winn-Dixie, which is terminable at the option of either party, we are the
exclusive supplier of its private label fresh bakery products and are afforded
preferred supplier status and preferential space allocation in Winn-Dixie store
locations.

Flowers Bakeries

Our fresh baked foods have a highly diversified customer base, which
includes grocery retailers, restaurants, fast-food chains, food wholesalers,
institutions and vending companies. We also sell returned and surplus product
through a system of thrift outlets. We supply numerous restaurants, institutions
and foodservice companies with bakery products, including buns for outlets such
as Burger King, Wendy's, Krystal, Hardees, Whataburger and Outback Steakhouse.
We also sell packaged bakery products to wholesale distributors for ultimate
sale to a wide variety of food outlets.

Mrs. Smith's Bakeries

Our frozen desserts are marketed to traditional retail outlets, such as
grocery stores, as well as non-traditional outlets, ranging from club stores and
mass merchandisers to wholesalers, foodservice distributors and restaurants. Our
branded frozen desserts are sold primarily through grocery retailers. Our frozen
bakery products are sold to foodservice distributors, institutions, retail
in-store bakeries and restaurants.

Our packaged bakery products under the Mrs. Freshley's brand are sold
primarily through vending outlets. We produce packaged bakery products for our
own distribution under our BlueBird brand. In certain circumstances, we enter
into co-packing arrangements with some of our competitors. Through co-packing,
we have produced packaged bakery products for popular brands such as Weight
Watchers, Stouffer, Lance, Pepperidge Farm and Little Debbie.

MARKETING

Our marketing and advertising campaigns are conducted through targeted
television and radio advertising and coupons placed in printed media. We also
incorporate promotional tie-ins with other sponsors, on-package

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promotional offers and sweepstakes into our marketing efforts. Additionally, we
focus our marketing and advertising campaigns on specific products throughout
the year, such as buns for Memorial Day, Independence Day and Labor Day and
fruit cakes and pies during the Thanksgiving and Christmas holiday season.

COMPETITION

Flowers Bakeries

The United States packaged bakery category is intensely competitive and is
comprised of large food companies, large independent bakeries with national
distribution, and smaller regional and local bakeries. Primary national
competitors include Interstate, Earthgrains and Bestfoods. We also face
competition from private label brands. Competition is based on product
availability, product quality, brand loyalty, price effective promotions and the
ability to target changing consumer preferences. Customer service, including
frequent delivery and well-stocked shelves, is an increasingly important
competitive factor. While we experience price pressure from time to time,
primarily as a result of competitors' promotional efforts, we believe that our
customer relationships and the consumers' brand loyalty, as well as our
diversity within our region in terms of geographic markets, products, and sales
channels, limit the effects of such competition. Recent consolidation in the
industry has further enhanced the ability of the larger firms to compete with
small regional bakeries. We believe we have significant competitive advantages
over smaller regional bakeries due to economies of scale in areas such as
information technology, purchasing, production, advertising, marketing and
distribution as well as greater brand awareness.

Mrs. Smith's Bakeries

Mrs. Smith's Bakeries, Sara Lee, Pepperidge Farm and Pillsbury lead the
frozen dessert category. Other significant competitors in the frozen baked
dessert category include Edwards and private label brands. Competitors for
packaged bakery products produced by Mrs. Smith's Bakeries include Interstate
(Hostess) and McKee (Little Debbie). Competition for frozen desserts depends
primarily on brand recognition and loyalty, perceived product quality, effective
promotions and, to a lesser extent, price. For the frozen bakery and packaged
bakery products manufactured by Mrs. Smith's Bakeries, competition is based upon
the ability to meet production and distribution demands of foodservice and
vending customers at a competitive price.

INTELLECTUAL PROPERTY

We own a number of trademarks and trade names, as well as certain licenses.
Such trademarks and trade names are considered to be important to our business
since they have the effect of developing brand identification and maintaining
consumer loyalty. We are not aware of any fact that would negatively impact the
continuing use of any of our trademarks, trade names or licenses.

RAW MATERIALS

Our primary baking ingredients are flour, sugar, shortening and fruit. We
also use paper products, such as corrugated cardboard, aluminum products, such
as pie plates, and films and plastics to package our baked foods. In addition,
we are also dependent upon natural gas and propane as fuel for firing ovens as
well as gasoline and diesel as fuel for distribution vehicles. On average,
baking ingredients constitute approximately 10% to 15%, and packaging represents
approximately 1% to 5% of the wholesale selling price of our baked foods. We
maintain diversified sources for all of our baking ingredients and packaging
products.

Commodities, such as our baking ingredients, periodically experience price
fluctuations and, for that reason, the market for these commodities is
continuously monitored. From time to time, we enter into forward purchase
agreements and derivative financial instruments to reduce the impact of
volatility in raw materials prices.

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RESEARCH AND DEVELOPMENT

We engage in research and development activities that principally involve
developing new products, improving the quality of existing products and
improving and modernizing production processes. We also develop and evaluate new
processing techniques for both current and proposed product lines.

REGULATION

As a producer and marketer of food items, our operations are subject to
regulation by various federal governmental agencies, including the Food and Drug
Administration, the Department of Agriculture, the Federal Trade Commission, the
Environmental Protection Agency and the Department of Commerce, as well as
various state agencies, with respect to production processes, product quality,
packaging, labeling, storage and distribution. Under various statutes and
regulations, such agencies prescribe requirements and establish standards for
quality, purity, and labeling. The finding of a failure to comply with one or
more regulatory requirements can result in a variety of sanctions, including
monetary fines or compulsory withdrawal of products from store shelves.

In addition, advertising of our businesses is subject to regulation by the
Federal Trade Commission, and we are subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act.

Our operations, like those of similar businesses, are subject to various
federal, state, and local laws and regulations with respect to environmental
matters, including air and water quality and underground fuel storage tanks, as
well as other regulations intended to protect public health and the environment.
Our operations and products also are subject to state and local regulation
through such measures as licensing of plants, enforcement by state health
agencies of various state standards and inspection of facilities. We believe
that we are currently in material compliance with applicable laws and
regulations.

EMPLOYEES

We employ approximately 7,300 persons, approximately 535 of whom are
covered by collective bargaining agreements. We believe that we have good
relations with our employees.

EXECUTIVE OFFICES

The address and telephone number of our principal executive offices are
1919 Flowers Circle, Thomasville, Georgia 31757, (229) 226-9110.

FORWARD LOOKING STATEMENTS

Certain statements made in this annual report on Form 10-K are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). These statements are subject
to the safe harbor provisions of the Reform Act. Such forward-looking statements
include, without limitation, statements about:

- the competitiveness of the baking industry;

- the future availability and prices of raw and packaging materials;

- potential regulatory obligations;

- our strategies; and

- other statements that are not historical facts.

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When used in this report, the words "anticipate," "believe," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements, including but not limited to:

- changes in general economic or business conditions (including in the
baking industry);

- actions of competitors;

- our ability to retain or procure capital on terms acceptable to us;

- our ability to recover material costs in the pricing of our products;

- the extent to which we are able to develop new products and markets for
our products;

- the time required for such development;

- the level of demand for such products; and

- changes in our business strategies.

FINANCIAL INFORMATION ABOUT SEGMENTS

Refer to Note 13 of Notes to Consolidated Financial Statements for
financial information about Flowers Bakeries and Mrs. Smith's Bakeries.

ITEM 2. PROPERTIES

Currently 34 of our production facilities are owned and two facilities are
leased. We consider that our properties are well maintained and sufficient for
our present operations. Our production plant locations are:

FLOWERS BAKERIES
Birmingham, Alabama Lafayette, Louisiana
Opelika, Alabama New Orleans, Louisiana
Tuscaloosa, Alabama Goldsboro, North Carolina
Ft. Smith, Arkansas Jamestown, North Carolina
Pine Bluff, Arkansas Memphis, Tennessee
Texarkana, Arkansas Morristown, Tennessee
Bradenton, Florida El Paso, Texas
Jacksonville, Florida Houston, Texas
Miami, Florida San Antonio, Texas
Atlanta, Georgia Tyler, Texas
Thomasville, Georgia Lynchburg, Virginia
Villa Rica, Georgia Norfolk, Virginia
Baton Rouge, Louisiana Bluefield, West Virginia
Charleston, West Virginia

MRS. SMITH'S BAKERIES
Montgomery, Alabama London, Kentucky
Atlanta, Georgia Pembroke, North Carolina
Suwanee, Georgia Stilwell, Oklahoma
Tucker, Georgia Spartanburg, South Carolina
Crossville, Tennessee

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ITEM 3. LEGAL PROCEEDINGS

We are engaged in various legal proceedings that arise in the ordinary
course of our business. We believe that the amount of the ultimate liability
with respect to those proceedings will not be material to our financial position
or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 28, 2000, FII, as sole shareholder of Flowers Foods, adopted a
resolution by written consent in lieu of a special meeting electing our initial
Board of Directors and setting the number of directors. The initial Board of
Directors consisted of Amos R. McMullian, Robert P. Crozer and G. Anthony
Campbell.

Except as provided above, during the fourth quarter of the fiscal year
covered by this Annual Report on Form 10-K, no matter was submitted to a vote of
shareholders.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

RECENT SALES OF UNREGISTERED SECURITIES

On October 19, 2000, we issued 500 shares of our common stock to FII, our
direct parent, for consideration of $500.00. No underwriter was involved in this
sale, and, in the opinion of Flowers Foods, this transaction is exempt from
registration under the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof in that such transaction did not involve any public offering.

MARKET PRICE OF FLOWERS FOODS COMMON STOCK

Flowers Foods was formed as a wholly-owned subsidiary of FII, a publicly
held company whose shares of common stock traded on the New York Stock Exchange
under the symbol "FLO." Prior to March 26, 2001, the effective date of the
spin-off of Flowers Foods from FII, there was no established trading market for
shares of Flowers Foods common stock. Shares of Flowers Foods common stock began
regular trading on the New York Stock Exchange under the symbol "FLO" on March
28, 2001.

As of March 28, 2001, there were approximately 6,241 holders of record of
our common stock.

DIVIDENDS

We do not currently pay cash dividends on our shares of common stock. The
payment of dividends on our common stock is subject to the discretion of our
Board of Directors. The Board of Directors bases its decisions regarding
dividends on, among other things, general business conditions, our financial
results, contractual, legal and regulatory restrictions regarding dividend
payments and any other factors the Board may consider relevant. Under the terms
of our credit agreement we are restricted from paying dividends during fiscal
2001. For fiscal years commencing after 2001, the maximum amount of dividends
paid on our common stock cannot exceed $5.0 million unless certain requirements
are met. See Note 3 of Notes to Consolidated Financial Statements.

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ITEM 6. SELECTED FINANCIAL DATA

FLOWERS FOODS, INC.

SELECTED FINANCIAL DATA

FOR THE 52 WEEKS ENDED FOR THE 27 FOR THE 52 WEEKS ENDED
----------------------------------------------------- WEEKS ENDED -----------------------------
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996
----------------- --------------- --------------- --------------- ------------- -------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

STATEMENT OF INCOME
DATA:
Sales................ $1,619,980 $1,568,240 $1,538,887 $784,097 $1,437,713 $1,250,584
Materials, supplies,
labor and other
production costs... 900,198 883,882 795,084 418,926 787,799 674,762
Selling, marketing
and administrative
expenses........... 642,535 643,432 583,352 301,426 534,285 473,630
Depreciation and
amortization....... 67,102 53,890 53,544 26,930 45,970 40,848
Non-recurring charge
(credit)........... 17,704 (5,994) 64,461 -- -- --
Insurance proceeds... (17,193) -- -- -- -- --
Interest expense..... 68,373 44,691 42,225 11,796 25,109 13,004
Gain on sale of
distributor
notes.............. -- -- -- -- 43,244 --
(Loss) income from
continuing
operations before
income taxes and
cumulative effect
of changes in
accounting
principles......... (58,739) (51,661) 221 25,019 87,794 48,340
Income taxes......... (16,457) (16,915) 1,429 9,632 33,191 18,185
(Loss) income from
continuing
operations before
cumulative effect
of changes in
accounting
principles......... (42,282) (34,746) (1,208) 15,387 54,603 30,155
Income from
discontinued
operations, less
applicable taxes... 87,809 42,040 46,238 18,061 7,721 613
Transaction costs
less phaseout
income, less
applicable taxes... (40,482) -- -- -- -- --
Income before
cumulative effect
of changes in
accounting
principles......... 5,045 7,294 45,030 33,448 62,324 30,768
Cumulative effect of
changes in
accounting
principles, net of
tax benefit........ -- -- (3,131) (9,888) -- --
Net income........... $ 5,045 $ 7,294 $ 41,899 $ 23,560 $ 62,324 $ 30,768
BALANCE SHEET DATA:
Total assets(1)...... $1,562,646 $1,566,963 $1,382,877 $898,880 $ 898,187 $ 849,443
Long-term debt(2).... $ 247,847 $ 303,955 $ 215,233 $276,211 $ 275,247 $ 274,698
Shareholders'
equity............. $ 502,460 $ 538,754 $ 572,961 $348,567 $ 340,012 $ 305,324

---------------

(1) Includes net assets of discontinued operations of $569.3 million, $496.7
million and $461.1 at December 30, 2000, January 1, 2000 and January 2,
1999, respectively.
(2) Excludes amounts settled by others of $540.0 million, $486.0 million and
$282.0 at December 30, 2000, January 1, 2000 and January 2, 1999,
respectively.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

The following discussion should be read in conjunction with "Selected
Financial Data" included herein and the consolidated financial statements and
the related notes thereto of the company incorporated by reference or included
elsewhere. The following information contains forward-looking statements which
involve certain risks and uncertainties. See "Forward-Looking Statements."

OVERVIEW

General

The company produces and markets fresh baked breads, rolls and snack foods
and frozen baked breads, desserts and snack foods. Sales are principally
affected by pricing, quality, brand recognition, new product introductions and
product line extensions, marketing and service. The company manages these
factors to achieve a sales mix favoring its higher-margin branded products while
using high-volume products to control overhead costs and maximize use of
production capacity.

The principal elements comprising the company's production costs are
ingredients, packaging materials, labor and overhead. The major ingredients used
in the production of the company's products are flour, sugar, shortening, fruits
and dairy products. The company also uses paper products, such as corrugated
cardboard, aluminum products, such as pie plates, and plastic to package its
products. The prices of these materials are subject to significant volatility.
The company has mitigated the effects of such price volatility in the past
through its hedging programs, but may not be successful in protecting itself
from fluctuations in the future. In addition to the foregoing factors,
production costs are affected by the efficiency of production methods and
capacity utilization.

The company's selling, marketing and administrative expenses are comprised
mainly of distribution, logistics and advertising expenses. Distribution and
logistics costs represent the largest component of the company's cost structure,
other than production costs, and are principally influenced by changes in sales
volume.

Depreciation and amortization expenses for the company are comprised of
depreciation of property, plant and equipment and amortization of costs in
excess of net tangible assets associated with acquisitions. The company's
interest expense related to its outstanding debt is discussed in Notes to
Consolidated Financial Statements.

Matters Affecting Analysis

On March 26, 2001, FII shareholders approved a transaction that resulted in
the spin-off of Flowers Foods and the merger of FII with a wholly-owned
subsidiary of Kellogg. In the transaction, FII transferred the stock of its two
wholly-owned subsidiaries, Flowers Bakeries and Mrs. Smith's Bakeries, and all
other assets and liabilities directly held by FII (except for its majority
interest in Keebler and certain debt and other liabilities and transaction costs
totaling $698.7 million), to Flowers Foods. FII distributed all of the
outstanding shares of common stock of Flowers Foods to existing FII shareholders
such that each shareholder received one share of Flowers Foods stock for every
five shares of FII they owned. FII, which consisted solely of its majority
interest in Keebler and the aforementioned liabilities, was simultaneously
merged with a wholly-owned subsidiary of Kellogg. The cash purchase price paid
by Kellogg, less the aforementioned liabilities and certain other transaction
costs, resulted in proceeds paid directly to FII shareholders of $1,241.6
million.

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of Keebler goodwill and other intangible assets recorded at FII) of Keebler for
the fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999
under the caption "Income from discontinued operations, less applicable taxes"
in the Consolidated Statement of Income. In addition, costs related to the
transactions, less all estimated income and expense activity of Keebler from the
period December 31, 2000 through March 26, 2001, is included under the caption
"Transaction costs less phase-out income, less applicable taxes," in the
Consolidated Statement of Income. For further information, see Note 3 of Notes
to Consolidated Financial Statements.

The company maintains insurance for property damage, mechanical breakdown,
product liability, product contamination and business interruption applicable to
its production facilities. During fiscal 1999, Mrs. Smith's Bakeries incurred
substantial costs related to mechanical breakdown and product contamination at
certain plants. Mrs. Smith's Bakeries filed claims under the company's insurance
policies for a portion of these costs that it believed to be insured. During
fiscal 2000, Mrs. Smith's Bakeries recovered net insurance proceeds of $17.2
million related to product contamination, mechanical breakdown and business
interruption coverage. Subsequent to year end, the company finalized these
insurance claims and received an additional $10.0 million of the $10.7 million
final settlement. Amounts collected will be reported in a separate line item in
the Consolidated Statement of Income when received.

The company enters into commodity future and option contracts and swap
agreements for wheat and, to a lesser extent, other commodities, in an effort to
provide a predictable and consistent commodity price, and thereby reduce the
impact and volatility of its raw material and packaging prices. In fiscal 2000
and 1999, the company recorded negative mark-to-market adjustments of $1.3
million and $3.5 million, respectively. In fiscal 1998, the company recorded a
positive mark-to-market adjustment of $1.1 million. These adjustments are
recorded as corporate transactions and do not affect the results of operations
on a segment basis at Flowers Bakeries or Mrs. Smith's Bakeries.

Information on Non-recurring Charges

During the fourth quarter of fiscal 2000, Mrs. Smith's Bakeries recorded an
asset impairment of $17.4 million representing the impairment of goodwill and
other identifiable intangible assets relating to the Pet-Ritz and Banquet lines,
both of which were acquired in fiscal 1998. The impairment of these intangible
assets is a result of the company's decision to discontinue certain products
under the Banquet product line and decreased forecasted sales volumes for the
Pet-Ritz and Banquet product lines.

During the fourth quarter of fiscal 2000, Mrs. Smith's Bakeries implemented
a plan to transfer production from its facility in Forest Park, Georgia to an
existing facility in Spartanburg, South Carolina. This decision was made to take
advantage of our more highly automated production capacities at the Spartanburg
plant. As a direct result, Mrs. Smith's Bakeries recorded a charge of $1.5
million which consisted of $1.0 million of noncash asset impairments and $0.5
million of related exit costs. This plan is expected to be substantially
complete by the second quarter of fiscal 2001.

During the fourth quarter of fiscal 1998, the Board of Directors of FII
approved a plan to realign production and distribution at Flowers Bakeries and
Mrs. Smith's Bakeries in order to enhance efficiency. The company recorded a
pre-tax non-recurring charge of $64.5 million ($32.2 million and $32.3 million
for Flowers Bakeries and Mrs. Smith's Bakeries, respectively). The charge
included $55.6 million of non-cash asset impairments, $3.6 million of severance
costs and $5.3 million of other related exit costs. The plan involved closing
six less efficient facilities of Flowers Bakeries and Mrs. Smith's Bakeries and
shifting their production and distribution to highly automated facilities. As a
direct result of management's decision to implement production line
rationalizations, asset impairments were recorded to write-down the closed
facilities to net realizable value, less cost to sell, based on management's
estimate of fair value, and the related cost in excess of net tangible assets.
Also, as part of this plan, asset impairments were recorded to write-off certain
duplicate machinery and equipment designated for disposal. The plan included
severance costs for 695 employees, and, as of January 1, 2000, all such
employees had been terminated. During fiscal 2000, Flowers Bakeries recorded
adjustments to the fiscal 1998 restructuring reserve of $1.2 million. This
adjustment was the result of Flowers Bakeries' decision to reopen a closed
bakery located in Norfolk, Virginia in order to meet the

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demands of our growing foodservice business. This bakery will be operational in
the spring of 2001. During fiscal 1999, Flowers Bakeries and Mrs. Smith's
Bakeries recorded adjustments to the fiscal 1998 restructuring reserve of $1.1
million and $4.9 million, respectively. These adjustments were the result of
reduced carrying costs of plants held for sale, an adjustment to the value of
these assets due to the identification of a buyer and changes in estimates of
severance and other employee termination costs. As of January 1, 2000, all
significant actions related to the plans had been completed. The remaining exit
costs are insignificant. Management expects the charges to result in operating
savings of approximately $40.0 million over five years, principally from reduced
depreciation of approximately $13.0 million and increased efficiencies and
reduced employee expense of approximately $27.0 million.

As part of the acquisition of the business of Mrs. Smith's in 1996, the
company recorded a purchase accounting reserve of $37.1 million in order to
realign production and distribution at Mrs. Smith's Bakeries to reduce
inefficiencies. The realignment involved the shutdown of a leased production
facility. The reserve included $27.6 million of noncancelable lease obligations
and building maintenance costs, $2.1 million of severance costs, and $7.4
million of other exit costs, including health insurance, incremental workers'
compensation costs and the costs associated with dismantling and disposing of
equipment, at the closed facility. Under the plan, approximately 300 employees
were to be and have been terminated. With the exception of noncancelable lease
obligations and building maintenance costs that continue through fiscal 2006,
this plan was substantially complete as of the end of fiscal 1998. Spending
against the reserve totaled $4.2 million, $6.8 million and $4.0 million, in
fiscal 2000, 1999 and 1998, respectively.

The company's results of operations, expressed as a percentage of sales,
are set forth below:

FOR THE 52 WEEKS ENDED
-----------------------------------------------------
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------

Sales...................................... 100.00% 100.00% 100.00%
Gross margin............................... 44.43 43.64 48.33
Selling, marketing, and administrative
expenses................................. 39.66 41.03 37.91
Depreciation and amortization.............. 4.14 3.44 3.48
Interest................................... 4.22 2.85 2.74
(Loss) income from continuing operations
before taxes............................. (3.63) (3.29) 0.00%
Net income................................. 0.31% 0.47% 2.72%

FIFTY-TWO WEEKS ENDED DECEMBER 30, 2000 COMPARED TO FIFTY-TWO WEEKS ENDED
JANUARY 1, 2000

CONSOLIDATED AND SEGMENT RESULTS

Sales. For the fiscal year ended December 30, 2000, sales were $1,620.0
million or 3.2%, higher than sales for the prior year of $1,568.2 million.

Flowers Bakeries' sales increased $54.5 million or 5.7% to $1,016.2 million
in fiscal 2000 from $961.7 million in fiscal 1999. This increase was
attributable to a 3.5% increase from acquisitions and a 2.2% increase from same
bakery sales. Branded retail sales, which account for 65.1% of Flowers Bakeries'
total sales, increased $44.3 million. This increase is primarily attributable to
price increases. Private label sales, which account for 15.7% of Flowers
Bakeries' sales, increased $9.2 million. This increase is primarily due to the
Kroger acquisition. Foodservice sales, which account for 19.0% of Flowers
Bakeries' total sales, increased $3.0 million. This increase is primarily
attributable to the acquisition of Home Baking Company in Birmingham, Alabama in
fiscal 1999.

Mrs. Smith's Bakeries' sales, excluding inter-segment sales, decreased $2.8
million or 0.5% to $603.7 million in fiscal 2000 from $606.5 million in fiscal
1999. Non-branded retail sales, which account for 4.0% of Mrs. Smith's Bakeries'
total sales decreased $10.3 million. This decrease was primarily due to the
implementation of a plan to reduce the number of non-strategic SKU's produced
and was partially offset by increases in branded retail sales of $6.2 million.
Branded retail sales represent 41.0% of Mrs. Smith's total sales.

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Gross Margin. Gross margin was 44.4% in fiscal 2000 as compared to 43.6%
in fiscal 1999.

Flowers Bakeries' gross margin increased to 54.3% of sales in fiscal 2000
from 53.6% of sales in fiscal 1999. The increase is primarily the result of
increased pricing as well as an increase in units sold. A decrease in ingredient
costs as a result of changes in product mix also contributed to the increase in
margin. These increases were partially offset by increased energy costs. Flowers
Bakeries also experienced higher production costs due to inadequate bun capacity
in the northern region which negatively affected margins. This issue is expected
to be resolved by the reopening of the Norfolk, Virginia bakery in the spring of
2001. In addition, two of our bakeries were temporarily idled due to severe
weather which negatively affected margins.

Mrs. Smith's Bakeries' gross margin improved slightly to 29.0% in fiscal
2000 from 28.4% in fiscal 1999. This increase is attributable to lower
ingredient costs due to improved scrap rates and a reduction in labor costs due
to the use of fewer temporary employees. This increase was partially offset by
increased costs during the first half of fiscal 2000 associated with the efforts
to correct the mechanical breakdown which occurred during the production
realignment in fiscal 1999.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses decreased $0.90 million or 0.10% from fiscal 1999. These
expenses were 39.7% of sales in fiscal 2000 as compared to 41.0% in fiscal 1999.

Flowers Bakeries' selling, marketing and administrative expenses increased
to 44.3% of sales in fiscal 2000 from 43.2% of sales in fiscal 1999.
Distribution costs increased for a second straight year due to higher fuel
costs. Flowers Bakeries also incurred increased logistics costs associated with
shipping product to the northern region to alleviate inadequate bun production.
As mentioned above, this issue is expected to be resolved by the reopening of
the Norfolk bakery in the spring of 2001. Ongoing implementation costs
associated with the rollout of the enterprise-wide information system, SAP,
including installation, consulting, training and travel, increased as a result
of the rollout to seven plants in fiscal 2000. Additionally, Flowers Bakeries
incurred start up costs related to the integration and market expansion of the
Memphis, Tennessee bakery it acquired from the Kroger Company in the first
quarter of fiscal 2000.

Mrs. Smith's Bakeries' selling, marketing and administrative costs
decreased to 29.0% of sales in fiscal 2000 from 33.8% of sales in fiscal 1999.
In fiscal 1999, Mrs. Smith's Bakeries performed an extensive review of its
business operations and recognized higher reserves due to customer deductions
and promotional expenses. These costs were not incurred to the same extent in
fiscal 2000. Distribution expenses also decreased as a result of the correction
of production difficulties which caused under-utilization of our distribution
carriers. Decreases in these expenses were partially offset by increased
slotting fees related to the introduction of our Cookies and Cream products.

Depreciation and Amortization Expense. Depreciation and amortization
expense was $67.1 million for fiscal 2000, an increase of 24.5% over $53.9
million for fiscal 1999.

Flowers Bakeries' depreciation and amortization expense increased to $38.2
million in fiscal 2000 from $32.9 million in fiscal 1999. The increase is
primarily attributable to a full year of depreciation from capital expenditures
incurred in fiscal 1999 and the purchase of Kroger's Memphis bakery in fiscal
2000. The expense also increased due to the depreciation of SAP costs
capitalized in fiscal 1999.

Mrs. Smith's Bakeries' depreciation and amortization expense increased to
$28.4 million in fiscal 2000 from $20.1 million in fiscal 1999. The increase is
primarily attributable to a full year of depreciation from capital expenditures
incurred in the production realignment in fiscal 1999.

Non-Recurring Charge. See discussion under the heading "Matters Affecting
Analysis" above.

Interest Expense. For fiscal 2000, net interest expense was $68.4 million,
an increase of 53.0% over fiscal 1999 interest expense of $44.7 million. The
increase was due to an increase in loan borrowing margins and facility fees as a
result of amendments made to the revolving line of credit in fiscal 1999 and
fiscal 2000. As a result of the reduction in outstanding debt in connection with
the spin-off and merger transaction, interest expense will be substantially
lower in fiscal 2001.

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Loss from Continuing Operations Before Income Taxes. Losses from
continuing operations before income taxes were $58.7 million for fiscal 2000, an
increase of $7.0 million compared to a loss of $51.7 million reported in fiscal
1999.

Flowers Bakeries' operating income decreased $4.1 million to $62.9 million
in fiscal 2000 from $67.0 million in fiscal 1999. This decrease is primarily
attributable to increased distribution costs as well as start up costs
associated with the integration of the Memphis bakery and related market
expansion. This decrease was partially offset by increased margins attributable
to favorable pricing and production efficiencies.

Mrs. Smith's Bakeries' operating loss decreased by $25.3 million to $28.0
million in fiscal 2000 from $53.3 million in fiscal 1999. This improved
performance is a result of a reduction in labor and ingredient costs and
expenses incurred to correct the production realignment problems incurred in
fiscal 1999.

Other operating losses decreased by $2.0 million and interest expense
increased by $23.7 million. In addition, fiscal 2000 included insurance proceeds
of $17.2 million which were not present in fiscal 1999 and non-recurring charges
increased $23.7 million.

Income from Discontinued Operations. Income from discontinued operations
increased $45.8 million to $87.8 million in fiscal 2000 from $42.0 million in
fiscal 1999. The increase is primarily due to an increase in sales and gross
margins at Keebler as a result of the purchase of Austin Quality Foods on March
6, 2000, as well as a decrease in non-recurring charges of $67.3 million. A gain
on the sale of the value brands business and the Sayreville facility also added
to the increase. Partially offsetting those increases were higher marketing
expenses associated with the roll out of the new Sesame Street line of products
and higher distribution costs related to fuel price increases. Depreciation and
amortization also increased as a result of capital spending and acquisitions.
Income from discontinued operations also includes a loss from transaction costs
less phase-out income of $40.5 million for the period from fiscal 2000 year end
through the merger transactions which culminated on March 26, 2001. This net
loss is discussed in detail in Note 3 of Notes to the Consolidated Financial
Statements.

Income Taxes. The income tax benefit on the losses from continuing
operations were provided at an effective rate of 28.0% in fiscal 2000 and 32.7%
in fiscal 1999.

Net Income. For fiscal 2000, net income was $5.0 million, a decrease of
$2.3 million as compared to $7.3 million net income reported in fiscal 1999.
Fiscal 2000 included an increase in the loss from continuing operations of $7.1
million. Fiscal 2000 also included a loss from transaction costs less phase-out
income of $40.5 million which was not present in fiscal 1999. Partially
offsetting these decreases was an increase in income from discontinued
operations of $45.8 million.

FIFTY-TWO WEEKS ENDED JANUARY 1, 2000 COMPARED TO FIFTY-TWO WEEKS ENDED JANUARY
2, 1999

CONSOLIDATED AND SEGMENT RESULTS

Sales. For the fiscal year ended January 1, 2000, sales were $1,568.2
million, or 1.9%, higher than sales for the prior year of $1,538.9 million.

Flowers Bakeries' sales for fiscal 1999 were $961.7 million, an increase of
$22.6 million and 2.4% over sales of $939.1 million reported a year ago.
Acquisitions, net of divestitures, accounted for 0.5% of the increase. The total
sales increase was attributable to increases of 2.2% and 8.7% in branded and
foodservice sales, respectively, slightly offset by a decrease of 7.0% in
private label sales. Exclusive of the effect of acquisitions, the overall sales
increase was a result of an increase of 4.5% in overall pricing offset by a
decrease in volume of 2.2%.

Mrs. Smith's Bakeries' sales for fiscal 1999, after excluding inter-segment
sales, increased 1.1% to $606.5 million from $599.8 million reported a year ago.
This increase was primarily driven by increases of 6.7%, 8.5% and 1.2% in
foodservice, in-store bakery and branded retail sales, respectively, partially
offset by a reduction of 7.8% in non-branded retail and co-pack fresh snack
products. The disappointing sales increase is attributable to production
difficulties, as discussed below, resulting in product shortages.

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19

Gross Margin. Gross margin was 43.6% in fiscal 1999 as compared to 48.3%
in fiscal 1998.

Flowers Bakeries' gross margin increased to $515.1 million and 53.6% of
sales for fiscal 1999 compared to $498.3 million and 53.1% of sales in fiscal
1998. This increase represents a combination of increased pricing partially
offset by increased operating costs. While the cost of ingredients decreased
during the year, the shift to sponge and dough production methods and the
accompanying change in product formulation somewhat offset these savings.
Flowers Bakeries believes that the sponge and dough process produces a better
tasting product that will be valued in the market. Additional incremental costs
were incurred due to the production disruption at the Goldsboro facility during
construction of a new bun line.

Mrs. Smith's Bakeries' gross margin for fiscal 1999 was $172.0 million and
28.4% of sales compared to $246.4 million and 41.1% reported a year ago. This
decrease is primarily the result of costs associated with a massive production
realignment project that included the installation and start-up of 25 new or
relocated and upgraded production lines. Mrs. Smith's Bakeries experienced
start-up costs, product damage, spoilage and unabsorbed overhead at seven of its
nine production facilities primarily in the third and fourth quarters of fiscal
1999. This project fell behind due to the delay in the receipt and installation
of production equipment, and in the programming of production control software
and the hiring and training of additional production employees. Traditionally,
the third and fourth quarters are Mrs. Smith's Bakeries' highest volume
quarters. However, product shortages in these quarters hurt overall sales,
especially in the higher margin retail segment.

Selling, Marketing and Administrative Expenses. Selling, marketing and
administrative expenses increased $60.1 million or 10.3% over fiscal 1998. These
expenses were 41.0% of sales in fiscal 1999 as compared to 37.9% in fiscal 1998.

Flowers Bakeries' selling, marketing and administrative expenses increased
6.7% and $26.2 million to $415.3 million and 43.2% of sales in fiscal 1999 from
$389.1 million and 41.4% of sales in fiscal 1998. Distribution costs in fiscal
1999 were higher due to rising fuel costs, additional miles incurred throughout
the route system and incremental distribution cost due to severe hurricanes and
flooding in Florida and North Carolina. Administrative costs increased as a
result of incremental costs associated with realigning the northern region to
consolidate the Goldsboro, North Carolina facility (acquired in 1998) and
incremental costs associated with the consolidation of the accounts receivable
and accounts payable functions to a central Shared Services Center.

Mrs. Smith's Bakeries' selling, marketing and administrative expenses were
$205.1 million and 33.8% of sales in fiscal 1999 as compared to $181.8 million
and 30.3% of sales in fiscal 1998. These costs increased primarily due to
increased administrative and distribution costs associated with Mrs. Smith's
Bakeries' production realignment and increased promotional expenses which were
committed to the retail market based on higher expected sales. As a result of
lower production, sales volume was lower than anticipated during the seasonally
high sales period of the third and fourth quarters. Also, following a review of
Mrs. Smith's Bakeries' business operations after the end of the second quarter
of fiscal 1999, the company determined to recognize higher reserves for customer
deductions, previously believed to be collectible, and trade promotions. At the
same time, the company also revised estimates of the recoverable amount of
certain out of code, damaged or discontinued inventory. The conclusions reached
by the company relative to the ultimate realization of certain accounts
receivable were based upon recent trends associated with Mrs. Smith's Bakeries'
promotional and discount programs.

Depreciation and Amortization Expense. Depreciation and amortization
expense was $53.9 million for fiscal 1999, an increase of 0.6% over $53.5
million for fiscal 1998.

Flowers Bakeries' depreciation and amortization expense was $32.9 million
for fiscal 1999, a decrease of 1.8% from $33.5 million for fiscal 1998. The
decrease is a result of the asset impairments recorded as a part of the
non-recurring charge and write-off of start-up costs recorded in the prior year,
partially offset by increased depreciation associated with capital improvements.

Mrs. Smith's Bakeries' depreciation and amortization expense was $20.1
million for fiscal 1999, an increase of 7.5% over $18.7 million for fiscal 1998.
This increase is related to capital spending during the

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20

period partially offset by decreases in depreciation and amortization that
resulted from the asset impairments recorded as a part of the non-recurring
charge recorded in fiscal 1998.

Non-Recurring Charge. See discussion under the heading "Matters Affecting
Analysis" above.

Interest Expense. For fiscal 1999, net interest expense was $44.7 million,
an increase of 5.8% over fiscal 1998 interest expense of $42.2 million. The
increase was due to higher borrowings required to fund capital expenditures at
Flowers Bakeries and Mrs. Smith's Bakeries.

Loss from Continuing Operations Before Income Taxes. Losses from
continuing operations before income taxes were $51.7 million for fiscal 1999, a
decrease of $51.9 million compared to income of $0.2 million reported in fiscal
1998.

Flowers Bakeries' operating income was $67.0 million in fiscal 1999, a
decrease of $8.8 million and 11.6% from fiscal 1998 operating income of $75.8
million.

Mrs. Smith's Bakeries' operating loss, excluding non-recurring charge
credits, was $53.3 million in fiscal 1999, a decrease of $99.2 million from
operating income, excluding non-recurring charges, of $45.9 million in fiscal
1998. As discussed above, the primary cause of this decrease was the costs
associated with the production realignment and the related effect on sales.

Other operating losses increased by $12.0 million and interest expense
increased by $2.5 million. Partially offsetting these losses was a decrease in
non-recurring charges of $70.5 million from fiscal 1998 to fiscal 1999.

Income from Discontinued Operations. Income from discontinued operations
decreased $4.2 million to $42.0 million in fiscal 1999 from $46.2 million in
fiscal 1998. The decrease was primarily due to increases in non-recurring
charges of $62.5 million. This decrease was partially offset by decreases in
selling, marketing and administrative costs as a percent of sales which resulted
from increased efficiencies gained by the restructuring program. Income was also
positively affected by the inclusion of the President business, acquired in
September 1998, for a full year.

Income Taxes. The tax benefit on the loss from continuing operations was
provided at an effective rate of 32.7% in fiscal 1999. The tax on income from
continuing operations in fiscal 1998 differs from the statutory rate primarily
due to non-deductible goodwill.

Net Income. For fiscal 1999, net income was $7.3 million, a decrease of
$34.6 million as compared to $41.9 million net income reported in fiscal 1998.
The decrease in net income can primarily be attributed to the production
realignment difficulties incurred at Mrs. Smith's Bakeries in fiscal 1999 as
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for fiscal 2000 was $70.0
million. Operating cash flows were positively affected by decreases in accounts
receivable, inventories and other assets as well as increases in accounts
payable. Operating cash flows were negatively affected by a decrease in facility
closing costs reserve.

Net cash disbursed for investing activities for fiscal 2000 was $24.6
million. This amount primarily consisted of $22.1 million for acquisitions and
$39.9 million for capital expenditures. The $22.1 million represents Flowers
Bakeries' acquisition of Kroger's Memphis, Tennessee bakery. The $39.9 million
represents capital expenditures of $18.7 million at Flowers Bakeries and $21.2
million at Mrs. Smith's Bakeries which were made primarily to update and enhance
production and distribution facilities. In addition, the company received
dividends of $20.8 million from its investment in Keebler.

In fiscal 2000, net cash disbursed for financing activities was $52.2
million. Debt decreased by $4.4 million and dividends paid were $52.4 million.
These items were partially offset by $4.6 million received from the exercise of
stock options.

In fiscal 2000, the company's predecessor, FII, paid dividends per share of
$.530, an increase of 2.9% from $.515 paid in the prior year. Flowers Foods paid
no dividends in fiscal 2000. Dividends are declared at the

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discretion of the Board of Directors based on an assessment of the company's
financial position and other considerations. The company's ability to pay
dividends is restricted by the terms of its credit agreement.

On March 26, 2001, the company effected a complete refinancing of its
credit facilities and extinguished certain financing leases and other facilities
as part of that refinancing. In addition, the company purchased certain fixed
assets which were previously leased and outstanding notes payable to SunTrust
Bank from the company's independent distributors in connection with the
distributors' purchase of routes.

On March 26, 2001 the company completed a tender offer for the $200 million
aggregate principle amount of 7.15% Debentures due 2028 (the "debentures") and
repurchased substantially all of the debentures at a discount. Accordingly, in
the first quarter of fiscal 2001 the company will record an extraordinary gain
of approximately $5.8 million, net of tax, related to the early extinguishment
of these debentures.

The purchase of the fixed assets, distributor notes and debentures was
financed primarily from the proceeds of a new credit agreement entered into on
March 26, 2001. The new credit agreement provides for total borrowings of up to
$380 million consisting of term loans of $100 million ("Term Loan A") and $150
million ("Term Loan B") and a revolving loan facility of $130 million (the
"revolving loan facility").

As a result of the transactions discussed in the preceding paragraph, the
company's total debt outstanding (in thousands) at March 27, 2001 consisted of:

Revolving loan facility..................................... $ 11,190
Term Loan A................................................. 100,000
Term Loan B................................................. 150,000
Capitalized leases.......................................... 60,850
Other....................................................... 10,395
----------
$ 332,435
==========

Term Loan A requires quarterly principal payments of $5.0 million beginning
September 30, 2001, increasing to $5.6 million beginning March 31, 2002 and to
$7.5 million beginning March 31, 2003 through maturity, March 26, 2005. Term
Loan B requires quarterly principal payments of $0.38 million beginning
September 30, 2001, increasing to $13.8 million beginning March 31, 2005 with a
final payment of $34.8 million at maturity, March 26, 2007.

Interest is due quarterly on outstanding borrowings under the new credit
agreement at the eurodollar rate or base rate plus applicable margin. This
underlying rate is defined as either rates offered in the interbank eurodollar
market or the higher of the prime rate or federal funds rate plus 0.5%. The
applicable margin is based on the company's leverage ratio and can range from
2.5% - 0.5% for Term Loan A and the revolving loan facility and 3.00% - 1.75%
for Term Loan B. The current rate is approximately 7.75% for Term Loan A and the
revolving loan facility and 8.25% for Term Loan B. In addition, a commitment fee
of 0.5% - .375% is due quarterly on all commitments not utilized under the new
credit agreement.

The new credit agreement includes certain restrictions, which, among other
things, require maintenance of financial covenants, restrict encumbrance of
assets and creation of indebtedness and limit capital expenditures, repurchases
of common stock and dividends that can be paid. Restrictive financial covenants
include such ratios as a consolidated interest coverage ratio, a consolidated
fixed charge coverage ratio and a maximum leverage ratio. Capital expenditures
cannot exceed $50.0 million in fiscal 2001 and 2002. No dividend can be paid in
fiscal 2001. Commencing in fiscal 2002, the maximum amount of dividends that can
be paid cannot exceed $5.0 million, unless certain requirements are met. Loans
under the credit agreement are secured by substantially all assets of the
company, excluding real property.

Based on its current cash position, its cash flow from operating activities
and its existing credit agreement, the company believes it can meet presently
foreseeable financial requirements.

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NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The standard, as amended by Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133, and Statement of Financial Accounting
Standards No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133 (referred to
hereafter as "FAS 133"), is effective for the company on December 31, 2000 (the
first day of fiscal year 2001). FAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or in other
comprehensive income, depending on whether a derivative is designated as part of
a hedging relationship and, if it is, depending on the type of hedging
relationship.

While FAS 133 provides a significant change in the accounting guidance
related to derivative instruments and hedging activities, the company has
determined that the more stringent accounting and documentation requirements
under FAS 133 will not cause any significant changes in its overall risk
management strategy and in its overall hedging activities.

In accordance with the transition provisions of FAS 133, the company
recorded on December 31, 2000 a net-of-tax cumulative-effect-type adjustment of
$(0.5) million in accumulated other comprehensive income to recognize at fair
value all derivative instruments that had previously been designated in a
hedging relationship of the variable cash flow exposure of a forecasted
(anticipated) transaction. Related gains of $6.0 million, deferred on the
balance sheet, were reclassified to shareholders' equity through a net-of-tax
cumulative-effect-type adjustment in other comprehensive income.

On May 18, 2000, the Emerging Issues Task Force ("EITF") of the FASB
reached consensus on Issue No. 00-14 Accounting for Certain Sales Incentives.
This issue addresses the recognition, measurement, and income statement
classification of sales incentives offered by vendors (including manufacturers)
that have the effect of reducing the price of a product or service to a customer
at the point of sale. For cash sales incentives within the scope of this issue,
costs are generally recognized at the date on which the related revenue is
recorded by the vendor and are to be classified as a reduction of revenue. For
non-cash sales incentives, such as package inserts, costs are to be classified
within cost of sales. This issue is effective for the company for the second
quarter of fiscal 2001. Management has assessed the impact of this guidance and
determined that adoption will not result in a material reclassification between
sales and selling, general, and administrative expense. The company currently
records coupon expenses as selling, marketing and administrative expenses.
Coupon expenses were $2.6 million, $2.2 million and $2.1 million for the fiscal
years 2000, 1999 and 1998, respectively. Upon adoption of EITF 00-14, the
company will record coupon expense as a reduction to arrive at sales. This
issuance will not affect net income.

In January 2001, the EITF reached a consensus on how a vendor should
account for an offer to a customer to rebate or refund a specified amount of
cash only if the customer completes a specified cumulative level of revenue
transactions or remains a customer for a specified time period. This issue is
one of many issues contained in EITF 00-22, Accounting for "Points" and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future. This consensus states that a
vendor should recognize a liability for the rebate at the point of revenue
recognition for the underlying revenue transactions that result in progress by
the customer toward earning the rebate. Measurement of the liability should be
based on the estimated number of customers that will ultimately earn and claim
rebates or refunds under the offer. The vendor should classify the cost of the
rebate as a reduction of revenue in the income statement. This consensus is
effective for the company in the first quarter of fiscal 2001. The company
currently records such sales incentives as selling, marketing and administrative
expenses. Such expenses were $51.4 million, $56.9 million and $51.9 million for
fiscal years 2000, 1999 and 1998, respectively. Upon adoption of this consensus,
the company will record such expenses as reductions to arrive at sales. This
consensus will not affect net income.

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In December 1999, the SEC released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The company is
required to apply the accounting principles and disclosures described in this
bulletin in the fourth quarter of fiscal 2000. SAB 101 had no material effect on
the company's sales or net income.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the company is exposed to commodity
risks, primarily related to the purchase of raw materials and packaging
supplies. The company manages its exposure to this risk through the use of
various financial instruments, none of which are entered into for trading
purposes. The company has established policies and procedures governing the use
of financial instruments, specifically as it relates to the type and volume of
financial instruments entered into. Financial instruments can only be used to
hedge an economic exposure, and speculation is prohibited. The company's
accounting policy related to financial instruments is further described in Notes
to Consolidated Financial Statements.

Commodity Price Risk

The company enters into commodity future and option contracts and swap
agreements for wheat and, to a lesser extent, other commodities in an effort to
provide a predictable and consistent commodity price and thereby reduce the
impact of volatility in its raw material and packaging prices. A sensitivity
analysis has been prepared to estimate the company's exposure to commodity price
risk. Based on the company's derivative portfolio as of December 30, 2000, a
hypothetical ten percent adverse change in commodity prices under normal market
conditions could potentially have a $3.8 million effect on the fair value of the
derivative portfolio. The analysis disregards changes in the exposures inherent
in the underlying hedged item; however, the company expects that any loss in
fair value of the portfolio would be substantially offset by reductions in raw
material and packaging prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to the Index to Financial Statements and Financial Statement
Schedules for the required information.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the persons
who currently serve as the executive officers of Flowers Foods. Our Board of
Directors elects all executive officers for one-year terms with the exception of
the positions of President and Chief Operating Officer, Flowers Bakeries and
President and Chief Operating Officer, Mrs. Smith's Bakeries, which are
appointed by the Chairman of the Board of Directors and Chief Executive Officer
to serve until they resign or are removed.

EXECUTIVE OFFICERS

NAME AGE POSITION
---- --- --------

Amos R. McMullian......................... 63 Chairman of the Board of Directors and
Chief Executive Officer
G. Anthony Campbell....................... 49 Secretary and General Counsel
Jimmy M. Woodward......................... 40 Vice President and Chief Financial Officer
George E. Deese........................... 55 President and Chief Operating Officer,
Flowers Bakeries
Gary L. Harrison.......................... 63 President and Chief Operating Officer,
Mrs. Smith's Bakeries
Marta Jones Turner........................ 47 Vice President of Communications and
Investor Relations

Our directors are divided into three classes so that only one class is
elected each year. The table below sets forth the members of our current Board
of Directors and indicates when each director's term expires. Commencing with
the annual meeting of shareholders to be held after the end of fiscal 2002,
directors for each class will be elected at the annual meeting of shareholders
held in the year in which the term for such class expires and thereafter will
serve for a term of three years.

DIRECTORS

NAME AGE TERM EXPIRES
---- --- ------------

Amos R. McMullian........................................... 63 2003
G. Anthony Campbell......................................... 49 2002
Edward L. Baker............................................. 66 2002
Joe E. Beverly.............................................. 59 2003
Franklin L. Burke........................................... 59 2004
Robert P. Crozer............................................ 54 2004
Langdon S. Flowers.......................................... 79 2004
Joseph L. Lanier, Jr........................................ 69 2004
J.V. Shields, Jr............................................ 63 2003
Jackie M. Ward.............................................. 62 2002
C. Martin Wood III.......................................... 57 2002

Amos R. McMullian has been Chairman of the Board of Directors and Chief
Executive Officer of Flowers Foods since November 2000. Mr. McMullian previously
served as Chairman of the Board of Directors of Flowers Industries from 1985 to
March 2001 and as its Chief Executive Officer from 1981 to March 2001. Mr.
McMullian also previously served as a director of Keebler from 1996 to March
2001.

G. Anthony Campbell has been General Counsel and Secretary and a director
of Flowers Foods since November 2000. Mr. Campbell served as General Counsel and
Secretary of Flowers Industries from January

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1985 to March 2001. He previously served as a director of Flowers Industries
from 1991 to March 2001 and as a director of Keebler from 1998 to March 2001.

Jimmy M. Woodward has been Vice President and Chief Financial Officer of
Flowers Foods since November 2000. Mr. Woodward previously served in that
capacity at Flowers Industries from March 2000 to March 2001. Mr. Woodward also
served as Treasurer and Chief Accounting Officer of Flowers Industries from
October 1997 to March 2000 and Assistant Treasurer of Flowers Industries for
more than five years prior to that time. Mr. Woodward previously served as a
director of Keebler from 1998 to March 2001. Mr. Woodward serves as a director
of Integrity, Inc. (Nasdaq).

George E. Deese has been President and Chief Operating Officer of Flowers
Bakeries since January 1997. He previously served as President and Chief
Operating Officer, Baked Products Group of Flowers Industries from 1983 to
January 1997, Regional Vice President, Baked Products Group of Flowers
Industries from 1981 to 1983 and President of Atlanta Baking Company from 1980
to 1981.

Gary L. Harrison has been President and Chief Operating Officer of Mrs.
Smith's Bakeries since January 1997. He previously served as President and Chief
Operating Officer, Specialty Foods Group of Flowers Industries from 1989 to
January 1997, Executive Vice President, Baked Products Group of Flowers
Industries from 1987 to 1989, Regional Vice President, Baked Products Group of
Flowers Industries from 1977 to 1987 and President of Flowers Baking Company of
Thomasville from 1976 to 1977.

Marta Jones Turner is Vice President of Communications and Investor
Relations of Flowers Foods. Ms. Turner has served in that capacity at Flowers
Foods since November 2000. Ms. Turner previously served as Vice President of
Communications and Investor Relations at Flowers Industries from January 2000 to
March 2001. She also served as Vice President of Public Affairs of Flowers
Industries from September 1997 until January 2000 and Director of Public Affairs
of Flowers Industries for more than five years prior to that time.

Edward L. Baker has been Chairman of the Board of Directors of Florida Rock
Industries, Inc. (NYSE) since 1989. He has also served as Chairman of the Board
of Directors of Patriot Transportation Holding, Inc. (OTC) (formerly FRP
Properties, Inc.) since 1989. Mr. Baker was elected as a director of Flowers
Foods in March 2001. He previously served as a director of Flowers Industries
from 1992 to March 2001.

Joe E. Beverly has been Chairman of the Board of Commercial Bank in
Thomasville, Georgia, a wholly-owned subsidiary of Synovus Financial Corp.
(NYSE) since 1989. He is also the former Vice Chairman of the Board of Synovus
Financial Corp, and a director of Synovus Financial Corp. He was President of
Commercial Bank from 1973 to 1989. Mr. Beverly was elected as a director of
Flowers Foods in March 2001. Mr. Beverly previously served as a director of
Flowers Industries from August 1996 to March 2001.

Franklin L. Burke, a private investor since 1991, is the former Senior
Executive Vice President and Chief Operating Officer of Bank South Corp.,
Atlanta, Georgia, and the former Chairman and Chief Executive Officer of Bank
South, N.A., the principal subsidiary of Bank South Corp. Mr. Burke was elected
as a director of Flowers Foods in March 2001. Mr. Burke previously served as a
director of Keebler from 1998 to March 2001 and as a director of Flowers
Industries from 1994 to March 2001.

Robert P. Crozer served as Vice Chairman of the Board of Directors of
Flowers Foods from November 2000 to March 2001. Mr. Crozer was elected as a
director of Flowers Foods in November 2000. He previously served as Vice
Chairman of the Board of Flowers Industries from 1989 to March 2001. Mr. Crozer
also served as a director of Keebler from 1996 to March 2001 and as Chairman of
the Board of Keebler from 1998 to March 2001.

Langdon S. Flowers retired as Chairman of the Board of Directors of Flowers
Industries in 1985. He served as a director of Flowers Industries from 1968 to
March 2001. Mr. Flowers was elected as a director of Flowers Foods in March
2001.

Joseph L. Lanier, Jr. has been Chairman of the Board of Directors and Chief
Executive Officer of Dan River Inc. (NYSE), Danville, Virginia, a textile
company, since 1989. He is also Chairman of the Board of
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Directors of Dimon, Inc. (NYSE) and a director of SunTrust Banks, Inc. (NYSE),
Torchmark Corp. (NYSE) and Waddell & Reed Financial, Inc. (NYSE). Mr. Lanier was
elected as a director of Flowers Foods in March 2001. Mr. Lanier served as a
director of Flowers Industries from 1977 to March 2001.

J.V. Shields, Jr. has been Chairman of the Board of Directors and Chief
Executive Officer of Shields & Company, New York, New York, a diversified
financial services company and member of the New York Stock Exchange, Inc. since
1982. Mr. Shields also is the Chairman of the Board of Directors and Chief
Executive Officer of Capital Management Associates, Inc., a registered
investment advisor, and the Chairman of the Board of Trustees of The 59 Wall
Street Trust, the Brown Brothers Harriman mutual funds group. Mr. Shields was
elected as a director of Flowers Foods in March 2001. He previously served as a
director of Flowers Industries from 1989 to March 2001.

Jackie M. Ward has been Chairman of the Board of Directors of Computer
Generation Incorporated, a telecommunications company based in Atlanta, Georgia
since 1968. She is also a director of Bank of America Corporation (NYSE),
Equifax, Inc. (NYSE), Matria Healthcare, Inc. (Nasdaq), PTEK Holdings, Inc.
(Nasdaq), Profit Recovery Group International, Inc. (Nasdaq), SCI Systems, Inc.
(NYSE), and Trigon Healthcare, Inc. (NYSE). Ms. Ward was elected as a director
of Flowers Foods in March 2001. She previously served as a director of Flowers
Industries from March 1999 to March 2001.

C. Martin Wood III retired as Senior Vice President and Chief Financial
Officer of Flowers Industries on January 1, 2000, a position that he had held
since 1978. Mr. Wood served on Flowers Industries' Board of Directors from 1975
until March 2001. Mr. Wood also served as a director of Keebler from 1996 to
March 2001. Mr. Wood was elected as a director of Flowers Foods in March 2001.

Robert P. Crozer, J.V. Shields, Jr. and C. Martin Wood III are married to
sisters, all of whom are nieces of Langdon S. Flowers.

COMMITTEES OF THE BOARD OF DIRECTORS

The Flowers Foods Board of Directors has established certain standing
committees, which include the audit, nominating, compensation, executive,
pension and finance and banking committees. The functions and responsibilities
of the standing committees of our Board of Directors are described below.

The members of the audit committee are: Edward L. Baker, chairman, Joe E.
Beverly, Franklin L. Burke and Jackie M. Ward. The functions of the audit
committee are: (a) recommending to the Board of Directors the engagement or
discharge of independent auditors; (b) reviewing investigations into matters
relating to audit functions; (c) reviewing with independent auditors the plan
for and results of the audit engagement; (d) reviewing the scope and results of
our internal auditing procedures; (e) reviewing the independence of the
auditors; (f) considering the range of audit and non-audit fees; (g) reviewing
the adequacy of our system of internal accounting controls; and (h) reviewing
related party transactions.

The members of the nominating committee are: Jackie M. Ward, chairman, Amos
R. McMullian, Edward L. Baker and Joseph L. Lanier, Jr. The functions of the
nominating committee are: (a) selecting or recommending to the Board of
Directors nominees for election as directors; and (b) considering the
performance of incumbent directors in determining whether to nominate them for
re-election. The nominating committee will consider nominations for directors at
the annual meeting that are submitted by shareholders in the manner provided in
the bylaws of the company.

The members of the compensation committee are: Joseph L. Lanier, Jr.,
chairman, Edward L. Baker, Franklin L. Burke and Jackie M. Ward. The functions
of the compensation committee are: (a) approving or recommending to the Board of
Directors approval of compensation plans for officers and directors; (b)
approving, or recommending to the Board of Directors approval of, remuneration
arrangements for directors and senior management; and (c) granting benefits
under compensation plans.

The members of the executive committee are: Amos R. McMullian, chairman, G.
Anthony Campbell, Langdon S. Flowers and Joseph L. Lanier, Jr. The function of
the executive committee is to exercise the

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powers of the Board of Directors in the management and control of the business
of the company during the intervals between meetings of the Board of Directors.

The members of the pension and finance committee are: C. Martin Wood III,
chairman, Franklin L. Burke, J. V. Shields, Jr., Joe E. Beverly and Robert P.
Crozer. The functions of the pension and finance committee are: (a) recommending
to the Board of Directors in regard to the company's planning with respect to
its capital structure and raising of its long-term capital and with regard to
dividend actions and (b) review the performance and management of the company in
regard to contributions to any pension plan, profit sharing, retirement or
savings plan, or any proposed changes in the funding method or interest
assumption or in amortization of liabilities in connection with funding any
plan.

The members of the banking committee are Amos R. McMullian, chairman, and
G. Anthony Campbell. The functions of banking committee are: (a) designating
officers of the company to open bank accounts and enter into letters of credit
and other debt instruments and (b) authorize additional signatories to the
company's bank accounts.

DIRECTORS' FEES

Flowers Foods was formed in October 2000. None of the directors of Flowers
Foods received compensation from Flowers Foods during fiscal year 2000.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

We were formed in October 2000 and remained a wholly-owned subsidiary of
FII until March 26, 2001. Consequently, none of our executive officers received
compensation or grants of stock options or other awards of securities by Flowers
Foods during fiscal 2000. Accordingly, the information in this section relates
to compensation paid by FII to certain of its executive officers who became
executive officers of Flowers Foods for the periods presented. Compensation of
executive officers of Flowers Foods for the periods following the spin-off will
be determined by Flowers Foods' Board of Directors or the compensation committee
thereof and can be expected to take into account factors such as the size and
operating performance of Flowers Foods.

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The following table provides certain summary information for the periods
indicated concerning compensation of the Chief Executive Officer and each of the
four other most highly compensated executive officers of FII, all of whom,
except Mr. Crozer, became executive officers of Flowers Foods as of March 26,
2001.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION(1)
ANNUAL COMPENSATION --------------------
------------------------------------ RESTRICTED
OTHER STOCK OPTION
FISCAL SALARY BONUS COMP. AWARDS AWARDS
NAME AND PRINCIPAL POSITION AT FLOWERS INDUSTRIES YEAR $ $ $ $ #
------------------------------------------------- ------ -------- -------- ----- ---------- -------

Amos R. McMullian............................ 2000 850,000 0 0 0 198,000
Chairman of the Board and 1999 850,000 0 0 908,392 0
Chief Executive Officer 1998 736,000 552,000 0 730,509 198,000
Robert P. Crozer............................. 2000 725,000 0 0 0 146,000
Vice Chairman of the Board 1999 725,000 0 0 531,160 0
1998 579,616 405,731 0 279,399 146,000
Jimmy M. Woodward............................ 2000 265,000 0 0 0 28,000
Vice President and 1999 260,000 25,000 0 123,576 0
Chief Financial Officer 1998 238,462 90,769 0 39,200 28,000
George E. Deese.............................. 2000 353,600 0 0 0 47,500
President and Chief 1999 353,600 0 0 1,413,044 0
Operating Officer, Flowers 1998 345,700 156,900 0 192,249 47,500
Bakeries
Gary L. Harrison............................. 2000 353,600 0 0 0 47,500
President and Chief 1999 353,600 0 0 1,413,044 0
Operating Officer, 1998 345,700 0 0 192,249 47,500
Mrs. Smith's Bakeries

---------------

(1) Reflects dollar value of restricted stock awards at the date of grant and
options to acquire that number of shares of FII common stock granted
pursuant to Flowers Industries 1989 Executive Stock Incentive Plan. No FII
options remain outstanding.

FLOWERS FOODS 2001 EQUITY AND PERFORMANCE INCENTIVE PLAN

Flowers Foods has established an equity performance and incentive plan in
order to encourage ownership of Flowers Foods common stock by its executives and
to more closely align the interests of our executives with those of Flowers
Foods' shareholders. A summary of the plan is set forth below. Certain key
employees and officers of Flowers Foods and any of its subsidiaries who are
selected by the Board and the nonemployee directors of Flowers Foods are
eligible to receive awards under the plan. References in this discussion to
actions that are to be taken by or are the responsibility of the Board will
generally be taken by or be the responsibility of the compensation committee.

Principal Features of the Plan

General. Under the plan, Flowers Foods' Board is authorized to make awards
of (1) options to purchase shares of Flowers Foods common stock, (2) performance
stock and performance units, (3) restricted stock and (4) deferred stock.
Flowers Foods' compensation committee is authorized to oversee the plan and to
make awards and grants under the plan.

Shares Available Under the Plan. The number of shares of Flowers Foods
common stock that may be issued or transferred (1) upon the exercise of options,
(2) as restricted stock and released from all substantial risks of forfeiture,
(3) as deferred stock, (4) in payment of performance stock or performance units
that have

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been earned, (5) in payment of dividend equivalents paid with respect to awards
made under the plan, or (6) in payment of appreciation rights, may not exceed a
total of 2,000,000, subject to some adjustments pursuant to the terms of the
plan. These shares of common stock may be original issue or treasury shares or a
combination of both.

Eligibility. Officers, key employees and nonemployee directors of Flowers
Foods, as well as any person who has agreed to begin serving in such capacity
within 30 days of the date of the grant are eligible to be selected by Flowers
Foods' Board to receive benefits under the plan. Flowers Foods' Board selects
those who will receive grants on the basis of management objectives.

Options. Options entitle the optionee to purchase shares of Flowers Foods
common stock at a predetermined price per share (which may not be less than the
market value at the date of grant). Each grant specifies whether the option
price will be payable (1) in cash at the time of exercise, (2) by the transfer
to Flowers Foods of shares of common stock owned by the optionee for at least
six months, having a value at the time of exercise equal to the option price,
(3) if authorized by Flowers Foods' Board, the delivery of shares of restricted
stock or other forfeitable shares, deferred stock, performance stock, other
vested options, or performance units, or (4) a combination of those payment
methods. Grants may provide for deferred payment of the option price from the
proceeds of sale through a broker on the date of exercise of some or all of the
shares of Flowers Foods common stock to which the exercise relates. No options
are exercisable more than ten years from the date of grant. Each grant must
specify the period of continuous employment with Flowers Foods that is required
before the options become exercisable. Grants may provide for earlier exercise
of an option in the event of retirement, disability, death or a "change in
control" of Flowers Foods so defined in the plan, or other similar transactions
or events. Grants may also specify management objectives that must be achieved
as a condition to the exercise of the option. Successive grants may be made to
the same optionee whether or not previously granted options remain unexercised.

Restricted Stock. An award of restricted stock involves the immediate
transfer of ownership of a specific number of shares of Flowers Foods common
stock by Flowers Foods to a participant in consideration of the performance of
services. The participant is immediately entitled to voting, dividend and other
ownership rights in such shares. The transfer or later elimination of
restrictions may be made without additional consideration or in consideration of
a payment by the participant that is less than current market value, as Flowers
Foods' Board may determine. Flowers Foods' Board may condition the award on the
achievement of specified management objectives. Restricted stock must be subject
to a "substantial risk of forfeiture" within the meaning of Section 83 of the
Internal Revenue Code for a period to be determined by Flowers Foods' Board in
order for the award to avoid immediate taxation. An example would be a provision
that the restricted stock would be forfeited if the participant ceased to serve
as an officer or key employee of Flowers Foods during a specified period of
years. If service alone is the criterion for non-forfeiture, the period of
service must be at least three years; if other management objectives are
included, non-forfeiture may occur one year from the date of grant. In order to
enforce these forfeiture provisions, the transferability of restricted stock
will be prohibited or restricted in a manner and to the extent prescribed by
Flowers Foods' Board for the period during which the forfeiture provisions are
to continue. Flowers Foods' Board may provide for a shorter period during which
the forfeiture provisions are to apply in the event of retirement, disability,
death or a change in control of Flowers Foods or other similar transaction or
event.

Deferred Stock. An award of deferred stock constitutes an agreement by
Flowers Foods to deliver shares of its common stock to the participant in the
future in consideration of the performance of services. However, the deferred
stock award may be subject to the fulfillment of certain conditions, such as
management objectives, during the deferral period specified by Flowers Foods'
Board. During the deferral period, the participant cannot transfer any rights in
the award and has no right to vote the shares of deferred stock, but Flowers
Foods' Board may, on or after the date of the award, authorize the payment of
dividend equivalents on such shares on a current, deferred or contingent basis,
either in cash or in additional shares of Flowers Foods common stock. Awards of
deferred stock can be made without additional consideration or in consideration
of a payment by the participant that is less than the market value per share on
the date of award. Deferred stock must be subject to performance of services for
at least three years; provided that if management objectives are included, the
performance of services must be for at least one year. Flowers Foods' Board
determines the
27
30

deferral period at the date of the award, and may provide for a deferral period
of less than three years in the event of retirement, disability, death or a
change in control of Flowers Foods or other similar transaction or event.

Performance Stock and Performance Units. Performance stock and performance
units involve awards that become payable upon the achievement of specified
management objectives during a designated performance period. This performance
period may be subject to early termination in the event of retirement,
disability or death or a change in control of Flowers Foods or other similar
transaction or event. A minimum level of acceptable achievement may also be
established by Flowers Foods' Board. If, by the end of the performance period,
the participant has achieved the specified management objectives, the
participant will be deemed to have fully earned the performance stock and/or
performance units. If the participant has not achieved the management
objectives, but has attained or exceeded the predetermined minimum, the
participant will be deemed to have partly earned the performance stock and/or
performance units (such part to be determined in accordance with a formula). To
the extent earned, the performance stock and/or performance units are paid to
the participant at the time and in the manner determined by Flowers Foods' Board
in cash, shares of Flowers Foods common stock or in any combination of those
methods. Each award of performance stock or performance units may be subject to
adjustment to reflect changes in compensation or other factors, so long as no
adjustment would result in the loss of an available exemption for the award
under Section 162(m) of the Internal Revenue Code. Flowers Foods' Board or its
compensation committee may provide for the payment of dividend equivalents to
the holder on a current, deferred or contingent basis, either in cash or in
additional Flowers Foods common stock.

Management Objectives. Under the plan, Flowers Foods' Board is required to
establish performance goals for purposes of performance stock and performance
units. In addition, if Flowers Foods' Board so chooses, options, restricted
stock and deferred stock may also specify management objectives. Management
objectives may be described either in terms of firm-wide objectives, individual
participant objectives, or objectives related to performance of the division,
subsidiary, department or function within Flowers Foods in which the participant
is employed. Management objectives applicable to any award may include specified
levels of and/or growth in (1) cash flow, (2) earnings per share, (3) earnings
before interest and taxes, (4) earnings per share growth, (5) net income, (6)
return on assets, (7) return on assets employed, (8) return on equity, (9)
return on invested capital, (10) return on total capital, (11) revenue growth,
(12) stock price, (13) total return to shareholders, (14) economic value added,
(15) operating profit growth, or any combination of those methods. If Flowers
Foods' Board determines that a change in the business, operations, corporate
structure or capital structure of Flowers Foods, or the manner in which it
conducts its business, or other events or circumstances render the management
objectives unsuitable, Flowers Foods' Board may modify the performance goals or
the related minimum acceptable level of achievement, in whole or in part, as
Flowers Foods' Board deems appropriate and equitable, unless the result would be
to make an award otherwise eligible for an exemption under Section 162(m) of the
Internal Revenue Code ineligible for such an exemption.

Transferability. Except as otherwise determined by Flowers Foods' Board,
no option or other award under the plan is transferable by a participant other
than by will or the laws of descent and distribution, or (except for incentive
stock options) to the participant's immediate family or trusts established
solely for the benefit of one or more members of the immediate family. Except as
otherwise determined by Flowers Foods' Board, options are exercisable during the
optionee's lifetime only by him or her. The Board of Directors may specify at
the date of grant that part or all of the shares of Flowers Foods common stock
that are (1) to be issued or transferred by Flowers Foods upon exercise of
options, upon termination of the deferral period applicable to deferred stock or
upon payment under any grant of performance stock or performance units or (2) no
longer subject to the substantial risk of forfeiture and restrictions on
transfer referred to in the plan, shall be subject to further restrictions on
transfer.

Adjustments. The plan provides that the number of shares available for
awards will be adjusted to account for (a) shares relating to awards that expire
or are forfeited under the plan, or (b) shares that are transferred, surrendered
or relinquished in payment of the option exercise price for satisfaction of
withholding rules for the exercise or receipt of awards under the plan. This
permits the grant of additional awards equal to
28
31

the number of shares turned in by award recipients. The maximum number of shares
of Flowers Foods common stock covered by outstanding options, deferred stock,
performance stock and restricted stock granted under the plan, and the prices
per share applicable to those shares, are subject to adjustment in the event of
stock dividends, stock splits, combinations of shares, recapitalizations,
mergers, consolidations, spin-offs, reorganizations, liquidations, issuances of
rights or warrants, and similar events. In the event of any such transaction,
Flowers Foods' Board is given discretion to provide a substitution of
alternative consideration for any or all outstanding awards under the plan, as
it in good faith determines to be equitable under the circumstances, and may
require the surrender of all awards so replaced. Flowers Foods' Board may also
make or provide for adjustments in the numerical limitations under the plan as
Flowers Foods' Board may determine appropriate to reflect any of the foregoing
transactions or events. Flowers Foods' Board is authorized to interpret the plan
and related agreements and other documents. Flowers Foods' Board may make awards
to employees under any or a combination of all of the various categories of
awards that are authorized under the plan, or in its discretion, make no awards.
The plan may be amended from time to time by Flowers Foods' Board. However, any
amendment that must be approved by the shareholders of Flowers Foods in order to
comply with applicable law or the rules of the principal national securities
exchange or quotation system upon which Flowers Foods common stock is traded or
quoted will not be effective unless and until such approval has been obtained in
compliance with those applicable laws or rules. These amendments would include
any increase in the number of shares issued or certain other increases in awards
available under the plan (except for increases caused by adjustments made
pursuant to the plan). Presentation of the plan or any amendment of the plan for
shareholder approval is not to be construed to limit Flowers Foods' authority to
offer similar or dissimilar benefits through plans that are not subject to
shareholder approval.

Flowers Foods' Board may provide for special terms for awards to
participants who are foreign nationals or who are employed by Flowers Foods
outside the United States of America as Flowers Foods' Board may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom.

The plan provides that awards representing no more than 3% of the shares
available under the plan may not be required to meet certain restrictions
otherwise applicable to restricted stock, deferred stock and performance stock
awards under the plans. Flowers Foods' Board may not, without further approval
of its shareholders, authorize the amendment of any outstanding option to reduce
the option price. Furthermore, no option may be canceled and replaced with
awards having a lower option price without further approval of the shareholders
of Flowers Foods. The plan does not confer on any participant a right to
continued employment with Flowers Foods.

SEVERANCE POLICY

We intend to adopt a severance policy that will pay an amount of
compensation proportionate to service rendered to Flowers Foods and to its
predecessor FII and their respective subsidiaries to any employee (including
those who are members of a collective bargaining unit and bargain to be included
in the policy) who is actually or constructively terminated, other than for good
cause, following a change in control, as defined in our benefit plans.

RETIREMENT PLAN

We have adopted the Flowers Foods Retirement Plan No. 1, which provides a
pension benefit upon retirement on or after age 65 to qualified employees of our
adopting subsidiaries but not to employees of Flowers Foods. However, the plan
credits all employees who were eligible under the Flowers Industries Retirement
Plan No. 1 prior to the spin-off for each year of service with FII. The pension
is the sum of annual credits earned during employment. The basic annual credit
is 1.35 percent of the first $10,000 of W-2 earnings, subject to certain
exclusions, for each year of service and 2 percent of W-2 earnings, subject to
certain exclusions, in excess of $10,000 each year for each year of service.
Certain additional credits are provided for a limited group of participants in
the retirement plan. The table below includes the estimated amounts which are
payable to the persons indicated upon their retirement at age 65 under the
provisions of the retirement plan and assuming that payment is made in the form
of a 50% joint and survivor annuity. Effective

29
32

as of the date of the spin-of, the individuals listed in the table below have
accrued certain benefits under Retirement Plan No. 1 but will not earn
additional benefits.

DISCLOSURE FOR CERTAIN INDIVIDUALS

CREDITED
YEARS OF PROJECTED ANNUAL
SERVICE BENEFIT
-------- ----------------

Amos R. McMullian........................................... 37 $137,946
Robert P. Crozer............................................ 27 $112,219
Jimmy M. Woodward........................................... 15 $ 36,383
George E. Deese............................................. 36 $ 98,051
Gary L. Harrison............................................ 44 $ 94,361

SEPARATION AGREEMENTS

We intend to enter into separation agreements with certain of our executive
officers as such term is defined under the Securities Exchange Act of 1934, as
amended. These agreements will serve as memoranda of the change in control
provisions that have been authorized by us in our benefit plans, and provide
additional benefits, including relocation benefits and certain welfare benefits
in the event of termination of employment following a change in control, except
that these benefits are to be reduced to the extent benefits are received under
the severance policy described above. The agreements will also provide for
gross-up payments to neutralize any excise taxes imposed on payments subject to
Section 4999 of the Internal Revenue Code, or additional income taxes on those
payments. The compensation committee may select, in its sole discretion, the
executives to be offered such separation agreements.

PERFORMANCE GRAPH

Our common stock did not commence regular way trading on the New York Stock
Exchange until the completion of our spin-off from FII on March 26, 2001. Prior
to March 26, 2001 our common stock was not publicly traded. Therefore, the stock
performance graph for the fiscal year ended December 30, 2000 has been omitted.

30
33

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
FLOWERS FOODS

The following table sets forth the number of shares of Flowers Foods common
stock beneficially owned by each director and each executive officer of Flowers
Foods and by all directors and executive officers as a group, consisting of 15
persons, as of March 28, 2001.

SHARES BENEFICIALLY OWNED
--------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ ----------- ---------

Edward L. Baker............................................. 11,192(1) *
Joe E. Beverly.............................................. 17,246(2) *
Franklin L. Burke........................................... 2,492(3) *
G. Anthony Campbell......................................... 74,316 *
Robert P. Crozer............................................ 721,979(4) 3.63%
George E. Deese............................................. 38,301(5) *
L.S. Flowers................................................ 121,799(6) *
Gary L. Harrison............................................ 44,987(7) *
Joseph L. Lanier, Jr........................................ 16,101(8) *
Amos R. McMullian........................................... 160,640 *
J.V. Shields, Jr............................................ 1,076,899(9) 5.42%
Marta J. Turner............................................. 2,074 *
Jackie M. Ward.............................................. 1,250 *
C. Martin Wood III.......................................... 686,464(10) 3.46%
Jimmy M. Woodward........................................... 2,684 *
All directors and executive officers as a group (15
persons).................................................. 2,978,424 15.00%

---------------

* Represents beneficial ownership of less than 1% of Flowers Foods common
stock.

(1) Includes 4,660 shares held by a family trust for which Mr. Baker is a
co-trustee.
(2) Includes 9,196 shares owned by the spouse of Mr. Beverly, as to which
shares Mr. Beverly disclaims any beneficial ownership.
(3) Includes 750 shares owned by the spouse of Mr. Burke, over which shares Mr.
Burke has investment authority.
(4) Includes 196,556 shares held by limited partnerships in which Mr. Crozer
and his spouse are the general partners. Also includes the following shares
as to which Mr. Crozer disclaims any beneficial ownership: (i) 1,518 shares
held by Mr. Crozer and his spouse as custodians for their minor son; (ii)
58,554 shares held by trusts for the benefit of Mr. Crozer's minor
children; and (iii) 371,253 shares owned by the spouse of Mr. Crozer.
(5) Includes the following shares as to which Mr. Deese disclaims any
beneficial ownership: (i) 4,416 shares owned by the spouse of Mr. Deese;
and (ii) 242 shares held by Mr. Deese as custodian for his minor
grandchildren.
(6) Includes 61,368 shares owned by the spouse of Mr. Flowers, as to which Mr.
Flowers disclaims any beneficial ownership.
(7) Includes 6,000 shares held by a limited partnership in which Mr. Harrison
is a general partner. Also includes 8,000 shares owned by the spouse of Mr.
Harrison, as to which Mr. Harrison disclaims any beneficial ownership.
(8) Includes 4,778 shares owned by the spouse of Mr. Lanier, as to which Mr.
Lanier disclaims any beneficial ownership.
(9) Includes: (i) 426,599 shares held by investment advisory clients of Capital
Management Associates, Inc., of which Mr. Shields is chairman of the board
of directors and chief executive officer, and (ii) 646,300 shares owned by
the spouse of Mr. Shields, as to which Mr. Shields disclaims beneficial
ownership. Mr. Shields' business address is Shields & Company, 140
Broadway, New York, NY 10005.
(10) Includes 10,260 shares held by a trust of which Mr. Wood is co-trustee and
the following shares, as to which Mr. Wood disclaims beneficial ownership:
(i) 1,118 shares held by a trust for which Mr. Wood

31
34

serves as a trustee; (ii) 575,539 shares owned by the spouse of Mr. Wood;
and (iii) 5,130 shares held by Mr. Wood as custodian for his nephew.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) List of documents filed as part of this report.

1. Financial Statements of the Registrant

Report of Independent Accountants

Consolidated Statement of Income for the fifty-two weeks ended December
30, 2000, January 1, 2000, and January 2, 1999.

Consolidated Balance Sheet at December 30, 2000 and January 1, 2000.

Consolidated Statement of Changes in Shareholders' Equity for the
fifty-two weeks ended December 30, 2000, January 1, 2000 and January 2,
1999.

Consolidated Statement of Cash Flows for the fifty-two weeks ended
December 30, 2000, January 1, 2000 and January 2, 1999.

Notes to Consolidated Financial Statements

2. Financial Statement Schedules of the Registrant

Schedule II -- Valuation and Qualifying Accounts -- for the fiscal years
ended December 30, 2000, January 1, 2000 and January 2, 1999

3. Exhibits. The following documents are filed as exhibits hereto:

EXHIBIT
NO. NAME OF EXHIBIT
------- ---------------

2.1 -- Distribution Agreement by and between Flowers Industries,
Inc. and Flowers Foods, Inc., dated as of October 26, 2000
(Incorporated by reference to Flowers Foods' Registration
Statement on Form 10, dated February 9, 2001, File No.
1-16247).
2.2 -- Amendment No. 1 to Distribution Agreement, dated as of March
12, 2001, between Flowers Industries, Inc. and Flowers
Foods, Inc.
3.1 -- Restated Articles of Incorporation of Flowers Foods, Inc.
3.2 -- Restated Bylaws of Flowers Foods, Inc.
4.1 -- Share Certificate of Common Stock of Flowers Foods, Inc.
4.2 -- Rights Agreement between Flowers Foods, Inc. and First Union
National Bank, as Rights Agent, dated March 23, 2001.
10.1 -- Employee Benefits Agreement by and between Flowers
Industries, Inc. and Flowers Foods, Inc., dated as of
October 26, 2000 (Incorporated by reference to Flowers
Foods' Registration Statement on Form 10, dated February 9,
2001, File No. 1-16247).
10.2 -- First Amendment to Employee Benefits Agreement by and
between Flowers Industries, Inc. and Flowers Foods, Inc.,
dated as of February 6, 2001 (Incorporated by reference to
Flowers Foods' Registration Statement on Form 10, dated
February 9, 2001, File No. 1-16247).
10.3 -- Flowers Foods, Inc. Retirement Plan No. 1.

32
35

EXHIBIT
NO. NAME OF EXHIBIT
------- ---------------

10.4 -- Flowers Foods, Inc. 2001 Equity and Performance Incentive
Plan.
10.5 -- Credit Agreement, dated as of March 26, 2001, among Flowers
Foods, Inc., the Lenders party thereto from time to time,
SunTrust Bank, as Syndication Agent and Bankers Trust
Company, as Administrative Agent.
10.6 -- Debenture Tender Agreement, dated as of March 12, 2001, by
and among Flowers Industries, Inc., Flowers Foods, Inc. and
the Holders.
21 -- Subsidiaries of Flowers Foods, Inc.

(b) Reports on Form 8-K:

None.

33
36

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, Flowers Foods, Inc. has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized on this 30th
day of March, 2001.

FLOWERS FOODS, INC.

/s/ AMOS R. MCMULLIAN
--------------------------------------
Amos R. McMullian
Chairman of the Board and
Chief Executive Officer

/s/ JIMMY M. WOODWARD
--------------------------------------
Jimmy M. Woodward
Vice President, Chief Financial
Officer and
Chief Accounting Officer

34
37

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 Flowers
Foods, Inc. and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ AMOS R. MCMULLIAN Chairman of the Board and March 30, 2001
--------------------------------------------------- Chief Executive Officer
Amos R. McMullian

/s/ JIMMY M. WOODWARD Vice President, Chief March 30, 2001
--------------------------------------------------- Financial Officer and
Jimmy M. Woodward Chief Accounting Officer

/s/ EDWARD L. BAKER Director March 30, 2001
---------------------------------------------------
Edward L. Baker

/s/ JOE E. BEVERLY Director March 30, 2001
---------------------------------------------------
Joe E. Beverly

/s/ FRANKLIN L. BURKE Director March 30, 2001
---------------------------------------------------
Franklin L. Burke

/s/ G. ANTHONY CAMPBELL Secretary and General Counsel March 30, 2001
--------------------------------------------------- and Director
G. Anthony Campbell

/s/ ROBERT P. CROZER Director March 30, 2001
---------------------------------------------------
Robert P. Crozer

/s/ LANGDON S. FLOWERS Director March 30, 2001
---------------------------------------------------
Langdon S. Flowers

/s/ JOSEPH L. LANIER, JR. Director March 30, 2001
---------------------------------------------------
Joseph L. Lanier, Jr.

/s/ J.V. SHIELDS, JR. Director March 30, 2001
---------------------------------------------------
J.V. Shields, Jr.

/s/ JACKIE M. WARD Director March 30, 2001
---------------------------------------------------
Jackie M. Ward

/s/ C. MARTIN WOOD III Director March 30, 2001
---------------------------------------------------
C. Martin Wood III

35
38

FLOWERS FOODS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of independent accountants........................... F-2
Consolidated statement of income for the fifty-two weeks
ended December 30, 2000, January 1, 2000 and January 2,
1999...................................................... F-3
Consolidated balance sheet at December 30, 2000 and January
1, 2000................................................... F-4
Consolidated statement of changes in shareholders' equity
for the fifty-two weeks ended December 30, 2000, January
1, 2000 and January 2, 1999............................... F-5
Consolidated statement of cash flows for the fifty-two weeks
ended December 30, 2000, January 1, 2000 and January 2,
1999...................................................... F-6
Notes to consolidated financial statements.................. F-7

F-1
39

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Shareholders of Flowers Foods, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Flowers Foods, Inc. and its subsidiaries at December 30, 2000, and
January 1, 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 30, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) on page 30 present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, 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 our opinion.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia
March 27, 2001

F-2
40

FLOWERS FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

FOR THE 52 WEEKS ENDED
--------------------------------------------
DECEMBER 30, JANUARY 1, JANUARY 2,
2000 2000 1999
-------------- ------------ ------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

Sales................................................... $1,619,980 $1,568,240 $1,538,887
Materials, supplies, labor and other production costs... 900,198 883,882 795,084
Selling, marketing and administrative expenses.......... 642,535 643,432 583,352
Depreciation and amortization........................... 67,102 53,890 53,544
Insurance proceeds...................................... (17,193) -- --
Non-recurring charge (credit)........................... 17,704 (5,994) 64,461
---------- ---------- ----------
Income (loss) from operations........................... 9,634 (6,970) 42,446
---------- ---------- ----------
Interest expense........................................ 68,373 44,691 42,225
(Loss) income from continuing operations before income
taxes and cumulative effect of a change in accounting
principle............................................. (58,739) (51,661) 221
Income taxes............................................ (16,457) (16,915) 1,429
---------- ---------- ----------
(Loss) from continuing operations before cumulative
effect of a change in accounting principle............ (42,282) (34,746) (1,208)
---------- ---------- ----------
Discontinued operations (Note 3):
Income from discontinued operations, less applicable
taxes of $59,822, $40,246 and $40,129.............. 87,809 42,040 46,238
Transaction costs less phase-out income, less
applicable taxes................................... (40,482) -- --
---------- ---------- ----------
Income from discontinued operations..................... 47,327 42,040 46,238
---------- ---------- ----------
Income before cumulative effect of a change in
accounting principle.................................. 5,045 7,294 45,030
Cumulative effect of a change in accounting principle,
net of tax benefit of $2,237.......................... -- -- (3,131)
---------- ---------- ----------
Net income.............................................. $ 5,045 $ 7,294 $ 41,899
========== ========== ==========
Net Income (Loss) Per Common Share:
Basic:
(Loss) from continuing operations before cumulative
effect of a change in accounting principle......... $ (2.11) $ (1.74) $ (0.06)
Income from discontinued operations................... 2.36 2.10 2.40
Cumulative effect of a change in accounting principle,
net of tax benefit................................. -- -- (0.16)
---------- ---------- ----------
Net income per share.................................. $ .25 $ 0.36 $ 2.18
========== ========== ==========
Weighted average shares outstanding................... 20,024 20,022 19,279
========== ========== ==========
Diluted:
(Loss) from continuing operations before cumulative
effect of a change in accounting principle......... $ (2.11) $ (1.73) $ (0.06)
Income from discontinued operations................... 2.36 2.09 2.39
Cumulative effect of a change in accounting principle,
net of tax benefit................................. -- -- (0.16)
---------- ---------- ----------
Net income per share.................................. $ .25 $ 0.36 $ 2.17
========== ========== ==========
Weighted average shares outstanding................... 20,066 20,084 19,360
========== ========== ==========

See accompanying notes to consolidated financial statements.

F-3
41

FLOWERS FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 30, 2000 JANUARY 1, 2000
------------------- -----------------
(AMOUNTS IS THOUSANDS, EXCEPT SHARE DATA)

ASSETS
Current Assets:
Cash and cash equivalents................................. $ 11,845 $ 18,665
Accounts and notes receivable, net........................ 113,099 120,887
Inventories, net:
Raw materials........................................... 26,583 34,230
Packaging materials..................................... 12,048 15,973
Finished goods.......................................... 49,276 50,991
Other................................................... 2,524 3,451
---------- ----------
90,431 104,645
---------- ----------
Other..................................................... 51,925 85,516
---------- ----------
267,300 329,713
---------- ----------
Property, Plant and Equipment:
Land...................................................... 33,386 33,322
Buildings................................................. 264,889 247,909
Machinery and equipment................................... 567,682 521,144
Furniture, fixtures and transportation equipment.......... 64,596 51,610
Construction in progress.................................. 1,081 59,389
---------- ----------
931,634 913,374
Less: accumulated depreciation.............................. (362,160) (316,766)
---------- ----------
569,474 596,608
---------- ----------
Deferred Income Taxes....................................... 15,207 --
Other Assets................................................ 17,856 15,209
---------- ----------
Net Assets of Discontinued Operations....................... 567,449 496,678
---------- ----------
Cost in Excess of Net Tangible Assets:
Cost in excess of net tangible assets..................... 166,242 154,828
Less: accumulated amortization............................ (40,882) (26,073)
---------- ----------
125,360 128,755
---------- ----------
$1,562,646 $1,566,963
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 7,515 $ 9,783
Accounts payable.......................................... 100,775 100,291
Facility closing costs and severance...................... 5,465 5,546
Other accrued liabilities................................. 68,612 59,941
---------- ----------
182,367 175,561
---------- ----------
Long-Term Debt and Capital Leases........................... 247,847 303,955
---------- ----------
Other Liabilities:
Deferred income taxes..................................... -- 7,012
Postretirement/postemployment obligations................. 22,331 12,287
Facility closing costs and severance...................... 13,891 18,126
Liabilities to be Settled by Others....................... 584,198 496,368
Other..................................................... 9,552 14,900
---------- ----------
629,972 548,693
---------- ----------
Shareholders' Equity:
Preferred Stock -- $100 par value, authorized 100,000
shares and none issued..................................
Preferred Stock -- $.01 par value, authorized 900,000
shares and none issued..................................
Common stock $.01 par value, authorized 100,000,000
shares, 19,865,964 issued............................... 199 63,040
Capital in excess of par value............................ 351,506 291,377
Retained earnings......................................... 164,135 219,279
Common stock in treasury.................................. -- (10,594)
Stock compensation adjustments............................ (13,380) (24,348)
---------- ----------
502,460 538,754
---------- ----------
$1,562,646 $1,566,963
========== ==========

See accompanying notes to consolidated financial statements.

F-4
42

FLOWERS FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

TREASURY STOCK
COMMON STOCK --------------------
------------------------- STOCK
NUMBER OF CAPITAL IN RETAINED NUMBER OF COMPENSATION
SHARES ISSUED PAR VALUE EXCESS OF PAR EARNINGS SHARES COST ADJUSTMENTS
------------- --------- ------------- -------- --------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

Balances at January 3, 1998 88,636,089.. $ 55,398 $ 45,200 $266,734 (207,670) $ (2,452) $(16,313)
Common stock offering................ 9,000,000 5,625 182,305 -- -- -- --
Stock issued for acquisition......... 2,000,000 1,250 38,750 -- -- -- --
Exercise of employee stock options... 225,000 141 2,797 -- (61,424) (2,419) --
Exercise of Equity Incentive Award... -- -- 452 -- (44,263) (982) 524
Purchase of treasury stock........... -- -- -- -- (24,414) (532) --
Net income for the year.............. -- -- -- 41,899 -- -- --
Adjustment for Keebler stock
transactions....................... -- -- (3,677) -- -- -- --
Stock issued into escrow in
connection with Restricted Stock
Award.............................. 345,973 216 8,653 -- -- -- (8,869)
Restricted Stock Award reversions.... (4,648) (3) (225) -- (43,595) (377) 513
Amortization of Restricted Stock
Award
and Equity Incentive Award......... -- -- -- -- -- -- 4,455
Dividends paid -- $.4750 per common
share.............................. -- -- -- (46,102) -- -- --
----------- -------- -------- -------- --------- -------- --------
Balances at January 2, 1999.......... 100,202,414 $ 62,627 $274,255 $262,531 (381,366) $ (6,762) $(19,690)
Net income for the year.............. -- -- -- 7,294 -- -- --
Adjustment for Keebler stock
transactions....................... -- -- 2,907 -- -- -- --
Exercise of employee stock options... -- -- (750) -- 78,044 1,494 --
Exercise of Equity Incentive Award... -- -- 1,043 -- (91,547) (2,161) 1,025
Exercise of Restricted Stock Award... -- -- 1,917 -- (121,078) (2,497) 1,666
Purchase of treasury stock........... -- -- -- -- (15,053) (335) --
Stock issued into escrow in
connection with Restricted Stock
Award.............................. 673,800 420 12,376 -- -- -- (12,796)
Restricted Stock Award reversions.... (12,366) (7) (371) -- (36,160) (333) 450
Amortization of Restricted Stock
Award and Equity Incentive Award... -- -- -- -- -- -- 4,997
Dividends paid -- $.515 per common
share.............................. -- -- -- (50,546) -- -- --
----------- -------- -------- -------- --------- -------- --------
Balances at January 1, 2000.......... 100,863,848 $ 63,040 $291,377 $219,279 (567,160) $(10,594) $(24,348)
Net income for the year.............. -- -- -- $ 5,045 -- -- --
Adjustment for Keebler stock
transactions....................... -- -- 3,752 -- -- -- --
Exercise of employee stock options... -- -- (1,658) -- 188,709 3,488 --
Exercise and expiration of Restricted
Stock Award........................ (325,541) (204) (3,652) -- (33,685) (659) 7,446
Purchase of treasury stock........... -- -- -- -- (2,810) (41) --
Stock issued into escrow in
connection with Restricted Stock
Award.............................. 22,500 14 255 -- -- -- (270)
Restricted Stock Award reversions.... (36,595) (22) (1,022) -- (28,945) (288) 940
Amortization of Restricted Stock
Award.............................. -- -- 102 -- -- -- 2,852
Dividends paid -- $.530 per common
share.............................. -- -- -- (52,372) -- -- --
Adjustment for merger and spin-off
transaction, including 1 for 5
stock split........................ (80,658,248) (62,629) 62,352 (7,817) 443,891 8,094 --
----------- -------- -------- -------- --------- -------- --------
Balances at December 30, 2000........ 19,865,964 $ 199 $351,506 $164,135 -- $ -- (13,380)
=========== ======== ======== ======== ========= ======== ========

See accompanying notes to consolidated financial statements.

F-5
43

FLOWERS FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE 52 WEEKS ENDED
-----------------------------------------------------
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
(AMOUNTS IN THOUSANDS)

Cash flows provided by operating activities:
Net income............................................. $ 5,045 $ 7,294 $ 41,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations, net of taxes.... (47,327) (42,040) (46,238)
Depreciation and amortization........................ 67,102 53,890 53,544
Non-recurring charge (credit)........................ 17,704 (5,994) 64,461
Deferred income taxes................................ (19,328) (7,724) (13,815)
Income tax benefit related to stock options
exercised.......................................... 2,634 3,273 2,504
Cumulative effect of a change in accounting
principles......................................... -- -- 5,368
(Gain) loss on sale of property, plant and
equipment.......................................... (569) 408 (1,051)
Provision for inventory obsolescence................. 2,558 6,312 --
Allowances for account receivable.................... 5,875 13,413 --
Other................................................ 2,808 3,657 (1,127)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net................... 1,913 (16,238) (6,248)
Inventories, net..................................... 12,076 20,402 (21,998)
Other assets......................................... 22,465 (19,554) (39,529)
Accounts payable and other accrued liabilities....... 1,400 43,516 23,970
Facility closing costs and severance................. (4,316) (14,748) (4,425)
-------- --------- --------
Net cash provided by operating activities....... 70,040 45,867 57,315
-------- --------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment.............. (39,925) (213,328) (73,477)
Acquisition of majority interest in Keebler............ -- -- (312,391)
Acquisition of businesses.............................. (22,070) (10,772) (37,650)
Proceeds from property sales........................... 17,983 285 7,741
Dividends received..................................... 20,788 -- --
Other.................................................. (1,389) (493) 1,378
-------- --------- --------
Net cash disbursed for investing activities..... (24,613) (224,308) (414,399)
-------- --------- --------
Cash flows from financing activities:
Dividends paid......................................... (52,372) (50,546) (46,102)
Treasury stock purchases............................... (41) (338) 546
Stock awards exercised................................. 4,567 2,147 167
Common stock offering proceeds, net.................... -- -- 187,930
Debenture proceeds, net................................ -- -- 197,667
Increase (decrease) in commercial paper................ -- (74,870) 21,364
Increase (decrease) in debt and capital leases......... (4,401) 289,686 24,539
-------- --------- --------
Net cash (disbursed for) provided by financing
activities.................................... (52,247) 166,079 386,111
-------- --------- --------
Net increase (decrease) in cash and cash equivalents..... (6,820) (12,362) 29,027
Cash and cash equivalents at beginning of period......... 18,665 31,027 2,000
-------- --------- --------
Cash and cash equivalents at end of period............... $ 11,845 $ 18,665 $ 31,027
======== ========= ========
Schedule of noncash investing and financing activities:
Stock compensation transactions........................ $ 2,972 $ 4,658 $ 20,431
Stock issued for acquisitions.......................... $ -- $ -- $ 40,000
Capital lease obligations.............................. $ -- $ 47,406 $ --
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest, net of amounts capitalized................. $ 65,182 $ 52,011 $ 35,439
Income taxes......................................... $(14,772) $ (11,319) $ 19,963

See accompanying notes to consolidated financial statements.

F-6
44

FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

On March 26, 2001, FII shareholders approved a transaction that resulted in
the spin-off of Flowers Foods and the merger of FII with a wholly-owned
subsidiary of Kellogg. In the transaction, FII transferred the stock of its two
wholly-owned subsidiaries, Flowers Bakeries and Mrs. Smith's Bakeries, and all
other assets and liabilities directly held by FII (except for its majority
interest in Keebler and certain debt and other liabilities and transaction costs
totaling $698.7 million) to Flowers Foods. FII distributed all of the
outstanding shares of common stock of Flowers Foods to existing FII shareholders
such that each shareholder received one share of Flowers Foods stock for every
five shares of FII they owned. FII, which consisted solely of its majority
interest in Keebler and the aforementioned liabilities, was simultaneously
merged with a wholly-owned subsidiary of Kellogg. The cash purchase price paid
by Kellogg, less the aforementioned liabilities and certain other transaction
costs, resulted in proceeds paid directly to FII shareholders of $1,241.6
million.

The result of the spin-off and merger transaction described above is the
disposal of a segment of a business, Keebler. Accordingly, for accounting
purposes, Flowers Foods is presented as the continuing entity that includes the
historical financial information of Flowers Bakeries and Mrs. Smith's Bakeries
with Keebler presented as a discontinued operation as of December 30, 2000. As
such, Flowers Foods has classified all balance sheet information relating to the
spin-off and merger transaction for the years ended December 30, 2000 and
January 1, 2000 under the captions "Net Assets of Discontinued Operations" and
"Liabilities to be Settled by Others" in the Consolidated Balance Sheet, as
appropriate, and all income and expense activity (including amortization of
Keebler goodwill and other intangible assets recorded at FII) of Keebler for the
fiscal years ended December 30, 2000, January 1, 2000, and January 2, 1999 under
the caption "Income from discontinued operations, less applicable taxes" in the
Consolidated Statement of Income. In addition, costs related to the
transactions, less all estimated income and expense activity of Keebler from the
period December 31, 2000 through March 26, 2001, is included under the caption
"Transaction costs less phase-out income, less applicable taxes in the
Consolidated Statement of Income. For further information, see Note 3 of Notes
to Consolidated Financial Statements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Flowers Foods
which represent the historical financial information of Flowers Bakeries and
Mrs. Smith's Bakeries with Keebler presented as a discontinued operation.
Intercompany transactions and balances are eliminated in consolidation.

FISCAL YEAR END

Flowers Foods fiscal year end is the Saturday nearest December 31.

RECLASSIFICATIONS

Certain reclassifications of prior year information were made to conform
with the current presentation.

REVENUE RECOGNITION

Revenue from the sale of product is recognized at the time of delivery when
title and risk of loss pass to the customer. Discounts to independent
distributors are included in selling, marketing and administrative expense.
During fiscal 2000 and 1998 no sales to a single customer accounted for more
than 10% of the company's sales. Sales to one customer (Winn-Dixie) were 10.2%
of the company's sales in fiscal 1999.

F-7
45
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SHIPPING AND HANDLING

The company recognizes shipping and handling costs as a part of selling,
marketing and administrative costs. Shipping and handling expense was $27.1
million, $31.2 million and $26.0 million, in fiscal 2000, 1999 and 1998,
respectively.

CASH AND CASH EQUIVALENTS

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.

ACCOUNTS RECEIVABLE

Accounts receivable consists of trade receivables, current portion of notes
receivable and miscellaneous receivables. Allowances of $19.3 million and $13.4
million were recorded at December 30, 2000 and January 1, 2000, respectively.

CONCENTRATION OF CREDIT RISK

The company grants credit to its customers who are primarily in the grocery
and foodservice markets.

INVENTORIES

Inventories are carried at the lower of cost or market. Inventories at
December 30, 2000 and January 1, 2000, respectively, are valued using the
first-in-first-out method ("FIFO"). At December 30, 2000 and January 1, 2000,
inventories are shown net of allowances for slow-moving and aged inventory of
$3.1 million and $6.3 million, respectively.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

Property, plant and equipment is stated at cost. Depreciation expense is
computed using the straight-line method based on the estimated useful lives of
the depreciable assets. Certain facilities and equipment held under capital
leases are classified as property, plant and equipment and the related
obligations are recorded as liabilities. Lease amortization is included in
depreciation expense.

Buildings are depreciated over ten to forty years, machinery and equipment
over three to twenty-five years, and furniture, fixtures and transportation
equipment over three to fifteen years. Property under capital leases is
amortized over the lease term. Capitalized interest at December 30, 2000 and
January 1, 2000, was $1.0 million and $3.4 million, respectively. Depreciation
expense for fiscal 2000, 1999 and 1998 was $59.7 million, $48.6 million and
$49.3 million, respectively.

SERVICING INCOME

Prior to March 26, 2001, Flowers Foods' independent distributor loans were
made directly between the distributor and a financial institution and, pursuant
to an agreement, Flowers Foods acted as the servicing agent for the financial
institution and received a fee for these services which is classified as other
income in selling, general and administrative costs. Commencing late March 2001,
the company will provide financing arrangements for the purchase of routes
directly to the distributors.

F-8
46
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COST IN EXCESS OF NET TANGIBLE ASSETS

DECEMBER 30, 2000 JANUARY 1, 2000
----------------- ---------------
(AMOUNTS IN THOUSANDS)

Goodwill, net............................................... $ 97,980 $100,269
Trademarks and trade names, net............................. 27,380 28,486
-------- --------
$125,360 $128,755
======== ========

Costs in excess of the net tangible assets acquired are, in the opinion of
management, attributable to long-lived intangibles having continuing value.
Goodwill related to the purchases of businesses are amortized over twenty to
forty years from the acquisition date using the straight-line method. Costs of
purchased trademark and trade name rights are amortized over the period of
expected future benefit, ranging from ten to forty years. Amortization expense,
included in income from continuing operations, for fiscal 2000, 1999 and 1998
was $7.4 million, $5.3 million and $4.2 million, respectively. The carrying
value of goodwill is evaluated periodically in relation to the operating
performance and future undiscounted cash flows of the underlying businesses.

DERIVATIVE FINANCIAL INSTRUMENTS

The company uses derivative financial instruments as part of an overall
strategy to manage market risk. The company uses forward commodity futures and
options contracts to hedge existing or future exposure to changes in commodity
prices. The company does not enter into these derivative financial instruments
for trading or speculative purposes.

In accordance with the transition provisions of FAS 133, on December 31,
2000, the company recorded a net-of-tax cumulative-effect-type adjustment of
$(0.5) million in accumulated other comprehensive income to recognize at fair
value all derivative instruments that had previously been designated in a
hedging relationship of the variable cash flow exposure of a forecasted
(anticipated) transaction. Related gains of $6.0 million, deferred on the
balance sheet, were reclassified to shareholders' equity through a net-of-tax
cumulative-effect-type adjustment in other comprehensive income.

COUPONS

F-9
47
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

income statement classification of sales incentives offered by vendors
(including manufacturers) that have the effect of reducing the price of a
product or service to a customer at the point of sale. For cash sales incentives
within the scope of this issue, costs are generally recognized at the date on
which the related revenue is recorded by the vendor and are to be classified as
a reduction of revenue. For non-cash sales incentives, such as package inserts,
costs are to be classified within cost of sales. This issue is effective for the
company for the second quarter of fiscal 2001. Management has assessed the
impact of this guidance and determined that adoption will not result in a
material reclassification between sales and selling, general, and administrative
expense. The company currently records coupon expenses as selling, marketing and
administrative expenses. Coupon expenses were $2.6 million, $2.2 million and
$2.1 million, for the fiscal years 2000, 1999 and 1998, respectively. Upon
adoption of EITF 00-14, the company will record coupon expense as a reduction to
arrive at sales. This issuance will not affect net income.

CUSTOMER INCENTIVES

TREASURY STOCK

The company records acquisitions of its common stock for treasury at cost.
Differences between proceeds for reissuances of treasury stock and average cost
are credited or charged to capital in excess of par value to the extent of prior
credits and thereafter to retained earnings.

ADVERTISING AND CONSUMER PROMOTION

Advertising and consumer promotion costs are generally expensed as incurred
or no later than when the advertisement appears or the event is run. Advertising
and consumer promotion expense was approximately $16.3 million for fiscal 2000,
$23.9 million for fiscal 1999 and $21.2 million for fiscal 1998.

STOCK-BASED COMPENSATION

The company applies Accounting Principles Board Opinion No.
25 -- Accounting for Stock Issued to Employees ("APB 25") in accounting for its
plans. The excess of the market price at the date of grant over the purchase
price to be paid by the grantee, if any, is recognized ratably by the company,
as compensation expense, over the vesting period.

IMPAIRMENT OF LONG-LIVED ASSETS

The company determines whether there has been an impairment of long-lived
assets and the related unamortized goodwill, based on whether certain indicators
of impairment are present. In the event that facts
F-10
48
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and circumstances indicate that the cost of any long-lived assets and the
related unamortized goodwill may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future gross,
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.

SOFTWARE DEVELOPMENT COSTS

The company expenses software development costs incurred in the preliminary
project stage, and thereafter, capitalizes costs incurred in developing or
obtaining internally used software.

Certain costs, such as maintenance and training, are expensed as incurred.
Capitalized costs are amortized over a period of not more than five years and
are subject to impairment evaluation. The Company capitalized software
development costs of $5.1 million and $14.7 million in fiscal 2000 and fiscal
1999, respectively.

NET INCOME PER COMMON SHARE

Basic net income per share is computed by dividing net income by weighted
average common shares outstanding for the period. Diluted net income per share
is computed by dividing net income by weighted average common and common
equivalent shares outstanding for the period. Common stock equivalents consist
of the incremental shares associated with the company's stock option plans, as
determined under the treasury stock method.

CHANGES IN ACCOUNTING PRINCIPLES

On April 3, 1998, the Accounting Standards Executive Committee, a
subcommittee of the American Institute of Certified Public Accountants, issued
SOP 98-5 -- Reporting on the Costs of Start-Up Activities. SOP 98-5 requires
costs of start-up activities and organizational costs to be expensed as
incurred. As a result of adopting SOP 98-5, the company recorded a cumulative
after-tax charge of $3.1 million, or $0.16 per share, in fiscal 1998.

COMPREHENSIVE INCOME

During fiscal 2000 and the prior periods presented, total comprehensive
income equaled net income.

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.

NOTE 3. DISCONTINUED OPERATIONS

On March 26, 2001, FII completed a transaction that resulted in the
spin-off to its existing shareholders of the stock of a new corporation, Flowers
Foods. FII, whose assets and liabilities then consisted of its holding of
Keebler common stock and certain debt and other liabilities, was simultaneously
acquired by Kellogg.

For accounting purposes, Flowers Foods is presented as the continuing
entity that includes the historical financial information of Flowers Bakeries
and Mrs. Smith's Bakeries with Keebler presented as a discontinued operation as
of December 30, 2000. Accordingly, the operations (including amortization of
Keebler goodwill and other intangible assets of $7.4 million, $6.6 million and
$6.1 million for fiscal 2000, 1999 and 1998,

F-11
49
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively) of Keebler are included in "Income from discontinued operations,
less applicable taxes" in the Consolidated Statement of Income. In addition,
costs related to the transactions less all estimated income and expense activity
of Keebler from the period December 31, 2000 through March 26, 2001 is included
under the caption "Transaction costs less phase-out income, less applicable
taxes" in the Consolidated Statement of Income.

The spin-off and merger transaction consisted of the following:

- FII transferred the stock of its two wholly-owned subsidiaries, Flowers
Bakeries and Mrs. Smith's Bakeries, and all other assets and liabilities
directly held by FII, except for its majority interest in Keebler and
certain other liabilities, to the newly formed company, Flowers Foods. At
that point FII's sole asset was its majority interest in Keebler and
$698.7 million in debt and certain other liabilities not transferred to
Flowers Foods.

- All of the outstanding shares of Flowers Foods common stock were
distributed to existing FII shareholders such that each shareholder
received one share of Flowers Foods stock for every five shares of FII
stock they owned.

- Kellogg then acquired all of the outstanding common stock of FII by way
of a merger, immediately after the spin-off.

- Cash paid by Kellogg for FII less the $698.7 million of liabilities,
transaction costs, separation agreement payments and other contractual
payments under benefit programs, was distributed to the FII shareholders.
The amount of the distribution paid directly to FII shareholders was
$1,241.6 million.

Keebler's sales for fiscal 2000, 1999 and 1998 were $2,757.0 million,
$2,667.8 million and $2,226.5 million, respectively.

TRANSACTION COSTS LESS PHASE-OUT INCOME

A reconciliation of the caption "Transaction costs less phase-out income,
less applicable taxes" included in the Consolidated Statement of Income for the
year ended December 30, 2000 is presented as follows:

Transaction costs........................................... $(51,282)
Estimated Keebler income and expense activity from the
period December 31, 2000 through March 26, 2001, less
applicable taxes of $6,619................................ $ 10,800
--------
$(40,482)
========

In connection with the spin-off and merger transactions, various
transaction costs were incurred by FII and Keebler. These costs are included in
discontinued operations, net of tax, at December 30, 2000 with a corresponding
credit to "Liabilities to be Settled by Others" (see below).

Financial advisor fees...................................... $32,374
Early debt repayments penalties............................. 11,480
Legal, accounting, and other................................ 4,861
Deferred financing costs.................................... 2,567
-------
$51,282
=======

In the first quarter of fiscal year 2001, these amounts will be recorded in
capital in excess of par value.

F-12
50
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NET ASSETS OF DISCONTINUED OPERATIONS

At December 30, 2000 and January 1, 2000, net assets of discontinued
operations is comprised of:

DECEMBER 30, 2000 JANUARY 1, 2000
----------------- ---------------

FLOWERS INDUSTRIES:
Goodwill and other intangible assets.................... $ 270,185 $ 276,764
Minority interest....................................... (257,086) (183,578)
Deferred taxes.......................................... (8,324) (5,823)
--------- ---------
4,775 87,363
--------- ---------
KEEBLER:
Current assets.......................................... 328,819 335,579
Property and equipment, net............................. 629,548 553,031
Other assets............................................ 814,521 639,573
Current liabilities..................................... (431,483) (457,485)
Other liabilities....................................... (778,731) (661,383)
--------- ---------
562,674 409,315
--------- ---------

Net assets of discontinued operations................... $ 567,449 $ 496,678
========= =========

LIABILITIES TO BE SETTLED BY OTHERS

In connection with the spin-off and merger transaction, approximately
$698.7 million of debt and other liabilities were settled by other parties on
March 26, 2001. The debt and liabilities settled included certain amounts
outstanding at December 30, 2000 as well as amounts incurred subsequent to
December 30, 2000. The amounts as of December 30, 2000 and corresponding
balances at January 1, 2000 are set forth below. Additional liabilities settled
relate primarily to additional borrowings subsequent to December 30, 2000 (See
Note 5) and payments under compensation plans.

DECEMBER 30, 2000 JANUARY 1, 2000
----------------- ---------------

DEBT SETTLED BY KELLOGG:
Syndicated loan facility................................ $(405,000) $(350,000)
Senior notes............................................ (125,000) (125,000)
Other................................................... (9,990) (11,015)
--------- ---------
(539,990) (486,015)
--------- ---------
OTHER LIABILITIES:
Transaction costs less phase out income, less applicable
taxes................................................. (35,732) --
Accrued obligations under stock and incentive
programs.............................................. (5,997) (9,234)
Accrued interest on debt assumed........................ (2,479) (1,119)
--------- ---------
(44,208) (10,353)
--------- ---------

Liabilities to be settled by others..................... $(584,198) $(496,368)
========= =========

SEPARATION AND OTHER CONTRACTUAL PAYMENTS

In connection with the spin-off and merger transaction, various separation
and other contractual payments under FII stock and incentive programs of $38.7
million were paid to executive officers and non-executive officers and
employees. Of this amount, $6.0 million was accrued at December 30, 2000 and

F-13
51
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$10.1 million will be recorded to stock compensation adjustments in
shareholders' equity. Accordingly, a charge of $22.6 million will be recorded in
Flowers Foods' continuing operations with a corresponding credit to capital in
excess of par value in the first quarter of 2001.

NOTE 4. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of:

DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
(AMOUNTS IN THOUSANDS)

Employee compensation....................................... $18,005 $16,566
Rent........................................................ 7,191 1,550
Insurance................................................... 9,886 9,002
Interest.................................................... 6,001 3,144
Other....................................................... 27,529 29,679
------- -------
Total............................................. $68,612 $59,941
======= =======

NOTE 5. DEBT AND LEASE COMMITMENTS

Long-term debt consisted of the following at December 30, 2000 and January
1, 2000:

INTEREST FINAL DECEMBER 30, JANUARY 1,
RATE MATURITY 2000 2000
-------- --------- ------------ ----------
(AMOUNTS IN THOUSANDS)

Debentures.................................. 7.15% 2028 $200,000 $200,000
Commercial Paper............................ -- 2000 -- 25,027
Capital Lease Obligations................... 8.38% Various 45,282 51,317
Other....................................... 6.24% 2004-2017 10,080 37,394
-------- --------
255,362 313,738
-------- --------
Due within one year......................... 7,515 9,783
-------- --------
Due after one year.......................... $247,847 $303,955
======== ========

At December 30, 2000, in addition to the amounts shown above, FII had
long-term debt outstanding consisting of $405 million of borrowings under a
syndicated loan facility with a final maturity date of 2003, $125 million of
senior notes due 2016 and certain Industrial Revenue Bonds aggregating $9.9
million. On March 26, 2001, this aggregate outstanding debt balance was retained
by FII and settled in connection with the transaction discussed in Note 3.
Accordingly, these amounts, as well as the corresponding amounts outstanding at
January 1, 2000 ($486 million aggregate), are included in "Liabilities to be
Settled by Others" in the Balance Sheet.

Subsequent to December 30, 2000, the company purchased certain fixed assets
which were previously leased. In addition, the company purchased outstanding
notes payable to SunTrust Bank from certain of the company's independent
distributors in connection with the independent distributors' purchase of
routes. On March 26, 2001, the company completed a tender offer for the $200
million aggregate principle amount of 7.15% Debentures due 2028 (the
"debentures") and repurchased substantially all the debentures at a discount.
Accordingly, in the first quarter of fiscal 2001 the company will record an
extraordinary gain of approximately $5.0 million, net of tax, related to the
early extinguishment of these debentures.

F-14
52
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

total borrowings of up to $380 million consisting of term loans of $100 million
("Term Loan A") and $150 million ("Term Loan B") and a revolving loan facility
of $130 million (the "revolving loan facility").

As a result of the transaction discussed in the preceding paragraph, total
debt outstanding (in thousands) at March 27, 2001 consisted of:

The new credit agreement includes certain restrictions, which, among other
things, require maintenance of financial covenants, restrict encumbrance of
assets and creation of indebtedness and limit capital expenditures, repurchases
of common shares and dividends that can be paid. Restrictive financial covenants
include such ratios as a consolidated interest coverage ratio, a consolidated
fixed charge coverage ratio and a maximum leverage ratio. Capital expenditures
cannot exceed $50.0 million in fiscal 2001 and 2002. No dividend can be paid in
fiscal 2001. Commencing in fiscal 2002, the maximum amount of dividends that can
be paid cannot exceed $5.0 million, unless certain requirements are met. Loans
under the credit agreement are secured by substantially all assets of the
company, excluding real property.

The company paid financing costs of $9.4 million in connection with the new
credit agreement. These costs will be deferred on the balance sheet and
amortized over the term of the agreement using the interest method.

Assets recorded under capital lease agreements included in property, plant
and equipment consist of machinery and equipment.

The company has also guaranteed approximately $10.0 million of loans of its
independent distributors, relating to distribution vehicle financing obtained by
certain distributors from a third party.

F-15
53
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate maturities of debt outstanding, including capital leases, as of
March 27, 2001 are as follows:

2001.................................................. $ 15,867
2002.................................................. 30,192
2003.................................................. 37,465
2004.................................................. 40,611
2005.................................................. 77,954
2006 and thereafter................................... 130,346
--------
Total....................................... $332,435
========

LEASES

The company leases certain property and equipment under various operating
and capital lease arrangements that expire over the next 25 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 value for periods from one month to ten years. Future minimum
lease payments under scheduled operating leases that have initial or remaining
noncancelable terms in excess of one year, at March 27, 2001, are as follows
(amounts in thousands):

2001........................................................ $17,632
2002........................................................ 14,253
2003........................................................ 12,355
2004........................................................ 10,958
2005........................................................ 9,887
2006 and thereafter......................................... 26,578
-------
Total minimum payments...................................... $91,663
=======

Rent expense for all operating leases amounted to $52.2 million for fiscal
2000, $46.1 million for fiscal 1999 and $22.6 million for fiscal 1998.

NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair market value of short and long-term borrowings was estimated using
discounted cash flow analysis based on current interest rates which would be
obtained for similar financial instruments. The carrying value of cash and cash
equivalents and short-term debt approximates fair value, because of the
short-term maturity of the instruments. The fair value of the company's
long-term debt at March 27, 2001 approximated recorded value. The fair value of
the company's outstanding commodity derivative financial instruments, based on
the stated market value as of December 30, 2000 and January 1, 2000, was $.3
million and $43.3 million, respectively.

NOTE 7. COMMODITY PURCHASE AGREEMENTS

The company's primary raw materials are flour, sugar, shortening, fruits
and dairy products. Amounts payable or receivable under the commodity agreements
which qualify as hedges are recognized as deferred gains or losses when the
positions are closed, and are charged or credited to cost of sales as the
related raw materials are used in production. To qualify as a hedge, a commodity
agreement must reduce the exposure of the company to price risk and must show
high correlation of changes in value with the value of the hedged item. For
fiscal 2000, 1999 and 1998, losses of $5.5 million, $2.7 million and $.3
million, respectively, were recorded. As of December 30, 2000 and January 1,
2000, deferred losses on closed contracts accounted for as hedges were $6.0
million and $5.8 million, respectively. Gains and losses on agreements which do
not qualify as hedges are marked to market and recorded immediately as other
income or expense. For fiscal 2000 and

F-16
54
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1999, losses of $1.3 million and $3.5 million were recorded, respectively. For
fiscal 1998, a gain of $1.1 million was recorded.

The company's various commodity purchase agreements effectively commit the
company to purchase raw materials in amounts approximating $41.0 million at
December 30, 2000, which will be used in production in future periods.

NOTE 8. FACILITY CLOSING COSTS AND SEVERANCE

NON-RECURRING CHARGES

During the fourth quarter of fiscal 2000, Mrs. Smith's Bakeries implemented
a plan to transfer production from its facility in Forest Park, Georgia to an
existing facility in Spartanburg, South Carolina. This decision was made to take
advantage of more highly automated production capacities at the Spartanburg
plant. As a direct result, Mrs. Smith's Bakeries recorded a charge of $1.5
million which consisted of $1.0 million of noncash asset impairments and $0.5
million of related exit costs. This plan is expected to be substantially
complete by the second quarter of fiscal 2001.

During the fourth quarter of fiscal 1998, the Board of Directors of FII
approved a plan to realign production and distribution at Flowers Bakeries and
Mrs. Smith's Bakeries in order to enhance efficiency. The company recorded a
pre-tax non-recurring charge of $64.5 million ($32.2 million and $32.3 million
for Flowers Bakeries and Mrs. Smith's Bakeries, respectively). The charge
included $55.6 million of noncash asset impairments, $3.6 million of severance
costs and $5.3 million of other related exit costs. The plan involved closing
six less efficient facilities of Flowers Bakeries and Mrs. Smith's Bakeries and
shifting their production and distribution to highly automated facilities. As a
direct result of management's decision to implement production line
rationalizations, asset impairments were recorded to write-down the closed
facilities to net realizable value, less cost to sell, based on management's
estimate of fair value, and the related cost in excess of net tangible assets.
Also, as part of this plan, asset impairments were recorded to write-off certain
duplicate machinery and equipment designated for disposal. The plan included
severance costs for 695 employees, and, as of January 1, 2000, all such
employees had been terminated. During fiscal 2000, Flowers Bakeries recorded
adjustments to the fiscal 1998 restructuring reserve of $1.2 million. This
adjustment was the result of Flowers Bakeries' decision to reopen a closed
bakery located in Norfolk, Virginia in order to meet the demands of our growing
foodservice business. This bakery will be operational in the spring of 2001.
During fiscal 1999, Flowers Bakeries and Mrs. Smith's Bakeries recorded
adjustments to the fiscal 1998 restructuring reserve of $1.1 million and $4.9
million, respectively. These adjustments are the result of reduced carrying
costs of plants held for sale, an adjustment to the value of these assets due to
the identification of a buyer and changes in estimates of severance and other
employee termination costs. As of January 1, 2000, all significant actions
related to the plans have been completed. The remaining exit costs are
insignificant.

PURCHASE ACCOUNTING RESERVES

As part of the acquisition of the business of Mrs. Smith's in 1996, Flowers
Foods recorded a purchase accounting reserve of $37.1 million in order to
realign production and distribution at Mrs. Smith's Bakeries. With the exception
of noncancelable lease obligations and building maintenance costs that continue
through fiscal 2006, this plan was substantially complete as of the end of
fiscal 1998.

F-17
55
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity with respect to the non-recurring charges and purchase accounting
reserves was as follows (amounts in thousands):

Non-Recurring Charges:

BALANCE AT BALANCE AT
JANUARY 2, PROVISION/ NONCASH JANUARY 1,
1999 ADJUSTMENTS REDUCTIONS SPENDING 2000
---------- ----------- ---------- -------- ----------

Noncash impairments.................. $ -- $(3,375) $3,375 $ -- $ --
Severance............................ 1,435 (102) -- (1,333) --
Noncancelable lease obligations and
facility closure costs............. 2,836 (1,645) -- (927) 264
Other................................ 1,981 (871) -- (365) 745
------ ------- ------ ------- ------
Total...................... $6,252 $(5,993) $3,375 $(2,625) $1,009
====== ======= ====== ======= ======

BALANCE AT BALANCE AT
JANUARY 1, PROVISION/ NONCASH DECEMBER 30,
2000 ADJUSTMENTS REDUCTIONS SPENDING 2000
---------- ----------- ---------- -------- ------------

Noncash impairments................ $ -- $17,269 $(17,269) $ -- $ --
Noncancelable lease obligations and
facility closure costs........... 264 180 -- (264) 180
Other.............................. 745 255 -- (252) 748
------ ------- -------- ----- ----
Total.................... $1,009 $17,704 $(17,269) $(516) $928
====== ======= ======== ===== ====

Purchase Accounting Reserves:

BALANCE AT BALANCE AT
JANUARY 2, PROVISION/ JANUARY 1,
1999 ADJUSTMENTS SPENDING 2000
---------- ----------- -------- ----------

Severance..................................... $ 1,347 $ -- $(1,347) $ --
Noncancelable lease obligations and other
facility closure costs...................... 25,799 (1,405) (4,208) 20,186
Other......................................... 3,761 -- (1,285) 2,476
------- ------- ------- -------
Total............................... $30,907 $(1,405) $(6,840) $22,662
======= ======= ======= =======

BALANCE AT BALANCE AT
JANUARY 1, PROVISION/ DECEMBER 30,
2000 ADJUSTMENTS SPENDING 2000
---------- ----------- -------- ------------

Noncancelable lease obligations and other
facility closure costs.................... $20,186 $ -- $(3,565) $16,621
Other....................................... 2,476 -- (669) 1,807
------- -------- ------- -------
Total............................. $22,662 $ -- $(4,234) $18,428
======= ======== ======= =======

NOTE 9. INSURANCE PROCEEDS

F-18
56
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proceeds of $17.2 million related to product contamination, mechanical breakdown
and business interruption coverage. Subsequent to year end, the company
finalized these insurance claims and received an additional $10.0 million of the
$10.7 million final settlement. This additional amount will be reported in the
first quarter of fiscal 2001 as a separate line item in the Consolidated
Statement of Income.

NOTE 10. SHAREHOLDERS' EQUITY

The Balance Sheet at December 30, 2000 reflects total equity at December
30, 2000 reclassified for the capital structure of Flowers Foods based on the
transaction completed on March 26, 2001.

The following briefly describes the capital structure of FII prior to March
26, 2001.

FII's articles of incorporation provided that the authorized capital of FII
consist of 350,000,000 shares of common stock of $.625 par value per share,
10,467 shares of preferred stock, par value $100 per share, convertible into FII
common stock, and 249,533 shares of preferred stock, par value $100 per share
that, at the discretion of the FII board of directors, could be either
convertible or non-convertible, of which 100,000 shares were designated as
Series A Junior Participating Preferred Stock.

On March 19, 1999, the FII board of directors adopted a shareholder rights
plan. Under that plan, each holder of FII common stock received a dividend of
one preferred-share-purchase right for each share of FII common stock held, to
become exercisable if a person or group acquired 15 percent or more of the
outstanding FII common stock. On October 26, 2000, the FII board of directors
amended the plan to render the rights inapplicable to the merger of FII with
Kellogg and the rights were extinguished in connection with the merger.

FII's 1989 executive stock incentive plan and nonemployee director's equity
plan contained change-of-control provisions that accelerated vesting of
outstanding options to acquire FII stock as a result of the completion of the
merger with Kellogg. Unexercised options held by a current or former employee or
director were cancelled in exchange for cash payment by Flowers Foods. See Note
3 for further information.

The following describes the capital structure of Flowers Foods.

Flowers Foods' articles of incorporation provide that the authorized
capital of Flowers Foods consist of 100,000,000 shares of common stock having a
par value of $.01 per share and 1,000,000 shares of preferred stock, of which
(a) 100,000 shares have been designated by the Board of Directors as Series A
Junior Participating Preferred Stock, having a par value per share of $100 and
(b) 900,000 shares of preferred stock, having a par value per share of $.01,
have not been designated by the Board of Directors. No shares of preferred stock
have been issued by Flowers Foods.

Common Stock

The holders of Flowers Foods common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. Subject
to preferential rights of any issued and outstanding preferred stock, including
the Series A Preferred Stock, holders of Flowers Foods common stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding-up of Flowers Foods, holders of Flowers
Foods common stock are entitled to share ratably in all assets of Flowers Foods,
if any, remaining after payment of liabilities and the liquidation preferences
of any issued an outstanding preferred stock, including the Series A Preferred
Stock. Holders of Flowers Foods common stock have no preemptive rights, no
cumulative voting rights and no rights to convert their shares of Flowers Foods
common stock into any other securities of Flowers Foods or any other person.

F-19
57
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock

The Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the designations, relative
powers, preferences, rights, qualifications, limitations and restrictions of all
shares of each such series, including without limitation, dividend rates,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the holders of Flowers Foods common stock.
Pursuant to such authority, the Board of Directors has designated 100,000 shares
of preferred stock as Series A Junior Participating Preferred Stock in
connection with the adoption of the rights plan described below. Although the
Board of Directors does not presently intend to do so, it could issue from the
900,000 undesignated preferred shares, additional series of preferred stock,
with rights that could adversely affect the voting power and other rights of
holders of Flowers Foods common stock without obtaining the approval of Flowers
Foods shareholders. In addition, the issuance of preferred shares could delay or
prevent a change in control of Flowers Foods without further action by its
shareholders.

Shareholder Rights Plan

The Flowers Foods Board of Directors has approved and adopted a shareholder
rights plan that provides that one right will be issued for each share of
Flowers Foods common stock held by shareholders of record on March 26, 2001.
Under the plan, the rights will initially trade together with the common stock
and will not be exercisable. In the absence of further Board action, the rights
generally will become exercisable, and allow the holder to acquire additional
common stock, if a person or group acquired 15 percent or more of the
outstanding shares of Flowers Foods' common stock. Rights held by persons who
exceed the applicable threshold will be void. Flowers Foods' Board of Directors
may, at its option, redeem all rights for $.01 per right generally at any time
prior to the rights becoming exercisable. The rights will expire on March 26,
2011, unless earlier redeemed, exchanged or amended by the Board of Directors.

Stock Incentive Plans

Flowers Foods has established an equity performance and incentive plan
which authorizes the Board of Directors to make awards of (1) options to
purchase shares of Flowers Foods common stock, (2) performance stock and
performance units, (3) restricted stock and (4) deferred stock. The Board of
Directors has authorized its compensation committee to oversee the plan and to
make awards and grants under the plan. No options or awards have been granted as
of March 27, 2001.

Effects of Merger and Spinoff Transaction

On March 26, 2001, in conjunction with the transaction described in Note 3,
Flowers Foods issued one share of its common stock for each five shares of FII
common stock outstanding. For accounting purposes, this has been treated as a
one for five stock split. This split resulted in the retirement of 80,658 shares
of common stock and is reflected in the December 30, 2000 financial statements
as a decrease of $62.6 million in common stock at par value with a corresponding
increase in capital in excess of par value. All references to the number of
shares, per share amounts and any other reference to shares in the Consolidated
Financial Statements and the accompanying Notes to Consolidated Financial
Statements, have been adjusted to reflect the stock split on a retroactive
basis.

In addition to the transaction described in Note 3, all FII treasury shares
were cancelled. This cancellation is reflected in the December 30, 2000
financial statements as a decrease in common stock at par value of $0.3 million
representing the par value of the treasury shares. The remainder of $7.8 million
represents treasury shares at cost over par value and is recorded as a decrease
to retained earnings at December 30, 2000.

F-20
58
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. RETIREMENT PLANS

DEFINED BENEFIT PLANS

In connection with the spin-off and merger transaction on March 26, 2001,
all FII postretirement and postemployment plans were transferred to Flowers
Foods.

The company has a trusteed, noncontributory defined benefit pension plan
covering certain employees. The benefits are based on years of service and the
employee's career earnings. The plan is 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 December 30, 2000 and
January 1, 2000, the assets of the plan included certificates of deposit,
marketable equity securities, mutual funds, corporate and government debt
securities and annuity contracts. The marketable equity securities include
shares of the company's common stock, with a fair value of approximately $ 14.4
and $14.6 million at December 30, 2000 and January 1, 2000, respectively. In
addition to the pension plan, the company also has an unfunded supplemental
retirement plan for certain highly compensated employees. Benefits provided by
this supplemental plan are reduced by benefits provided under the defined
benefit pension plan.

The net periodic pension cost for the company plans that are not fully
funded include the following components:

FOR THE 52 WEEKS ENDED
--------------------------------------
DECEMBER 30, JANUARY 1, JANUARY 2,
2000 2000 1999
------------ ---------- ----------
(AMOUNTS IN THOUSANDS)

Service cost......................................... $ 6,988 $ 7,698 $ 6,108
Interest cost........................................ 12,909 11,900 10,819
Expected return on plan assets....................... (13,565) (13,844) (13,635)
Amortization of transition assets.................... (841) (841) (841)
Prior service cost................................... 48 47 48
Recognized net actuarial gain........................ (25) 53 (346)
-------- -------- --------
Net periodic pension cost............................ $ 5,514 $ 5,013 $ 2,153
======== ======== ========

F-21
59
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The funding status and the amounts recognized in the consolidated balance
sheet for the company plans that are not fully funded are as follows:

DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
(AMOUNTS IN THOUSANDS)

Change in benefit obligation:
Benefit obligation at beginning of year................... $162,805 $172,424
Service cost.............................................. 6,988 7,698
Interest cost............................................. 12,909 11,900
Actuarial (gain).......................................... (4,914) (21,854)
Benefits paid............................................. (7,723) (7,363)
-------- --------
Benefit obligation at end of year......................... 170,065 162,805
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year............ 153,939 146,659
Actual return on plan assets.............................. 21,834 14,428
Employer contribution..................................... 214
Benefits paid............................................. (7,723) (7,362)
-------- --------
Fair value of plan assets at end of year.................. 168,050 153,939
-------- --------
Funded status............................................. (2,015) (8,866)
Unrecognized net actuarial gain........................... (18,293) (5,134)
Unrecognized prior service cost........................... 386 433
Unrecognized net transition asset......................... (1,633) (2,472)
-------- --------
Net amount recognized at end of year...................... $(21,555) $(16,039)
======== ========

Assumptions used in accounting for the company's plans that are not fully
funded at each of the respective period-ends are as follows:

DECEMBER 30, JANUARY 1, JANUARY 2,
2000 2000 1999
------------ ---------- ----------

Weighted average assumptions:
Measurement date................................ 9/30/2000 9/30/1999 9/30/1998
Discount rate................................... 8.00% 7.75% 6.75%
Expected return on plan assets.................. N/A N/A N/A
Rate of compensation increase................... 5.50% 5.25% 4.25%

OTHER PLANS

The company contributes to various multiemployer, union-administered
defined benefit and defined contribution pension plans. Benefits provided under
the multiemployer pension plans are generally based on years of service and
employee age. Expense under these plans was $1.0 million for fiscal 2000, $.5
million for fiscal 1999 and $.3 million for fiscal 1998.

The Flowers Foods 401(k) Retirement Savings Plan covers substantially all
of the company's employees who have completed certain service requirements.
Generally, 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 2000, 1999 and 1998, the
total cost and contributions were $2.1 million, $1.9 million and $1.3 million,
respectively.

F-22
60
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. INCOME TAXES

The company's provision for income taxes consists of the following:

FOR THE 52 WEEKS ENDED
--------------------------------------
DECEMBER 30, JANUARY 1, JANUARY 2,
2000 2000 1999
------------ ---------- ----------
(AMOUNTS IN THOUSANDS)

Current Taxes:
Federal................................................... $ -- $(11,655) $13,852
State..................................................... 2,871 2,464 1,392
-------- -------- -------
2,871 (9,191) 15,244
-------- -------- -------
Deferred Taxes:
Federal................................................... (18,131) (6,391) (11,840)
State..................................................... (1,197) (1,333) (1,975)
-------- -------- -------
(19,328) (7,724) (13,815)
-------- -------- -------
Provision for income taxes.................................. $(16,457) $(16,915) $ 1,429
-------- -------- -------

Deferred tax liabilities (assets) are comprised of the following:

DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
(AMOUNTS IN THOUSANDS)

Depreciation and amortization............................... $ 80,356 $ 62,597
Other....................................................... 6,639 10,540
-------- --------
Gross deferred tax liabilities.................... 86,995 73,137
-------- --------
Self insurance.............................................. (3,807) (3,375)
Compensation and employee benefits.......................... (15,252) (15,866)
Accrued reserves............................................ (10,027) (10,849)
Deductible goodwill......................................... (5,532) --
Loss carryforwards.......................................... (60,638) (26,596)
Purchase accounting reserve................................. (6,660) (8,396)
Other....................................................... (7,033) (4,055)
-------- --------
Gross deferred tax assets......................... (108,949) (69,137)
Deferred tax assets valuation allowance..................... 6,747 3,012
-------- --------
$(15,207) $ 7,012
-------- --------

The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate (35%) because of the effect of the following
items:

FOR THE 52 WEEKS ENDED
--------------------------------------
DECEMBER 30, JANUARY 1, JANUARY 2,
2000 2000 1999
------------ ---------- ----------

Tax at U.S. federal income tax rate......................... $(20,558) $(18,081) $ 73
State income taxes, net of U.S. federal income tax
benefit................................................... 2,741 1,074 (515)
Benefit of operating loss carryforwards..................... (534) (522) --
Intangible amortization..................................... 468 532 1,621
Dividends received from majority owned subsidiary........... 1,455 -- --
Other....................................................... (29) 82 250
-------- -------- -------
Provision for income taxes........................ $(16,457) $(16,915) $ 1,429
======== ======== =======

F-23
61
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amount of federal net operating losses to be carried forward by Flowers
Foods is $109.0 million with expiration dates through fiscal year 2019. The
company does not anticipate any limitations on the utilization of these
carryforwards prior to their expiration. Various subsidiaries have state net
operating loss carryforwards of $308.0 million with expiration dates through
fiscal 2014.

NOTE 13. SEGMENT REPORTING

The company has two reportable segments: Flowers Bakeries and Mrs. Smith's
Bakeries. Flowers Bakeries produces fresh breads and rolls, Mrs. Smith's
Bakeries produces fresh and frozen baked desserts, snacks, breads and rolls.

The accounting policies of the segments are substantially the same as those
described in Note 2. The company evaluates each segment's performance based on
income or loss before interest and income taxes, excluding corporate and other
unallocated expenses and non-recurring charges. Information regarding the
operations in these reportable segments is as follows:

FOR THE 52 WEEKS ENDED
-----------------------------------------------------
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
(AMOUNTS IN THOUSANDS)

Sales:
Flowers Bakeries......................... $ 1,016,235 $ 961,700 $ 939,119
Mrs. Smith's Bakeries.................... 666,170 673,133 672,821
Eliminations(1).......................... (62,425) (66,593) (73,053)
----------- ---------- ----------
$ 1,619,980 $1,568,240 $1,538,887
=========== ========== ==========
Depreciation and Amortization:
Flowers Bakeries......................... $ 38,224 $ 32,865 $ 33,487
Mrs. Smith's Bakeries.................... 28,392 20,127 18,676
Other.................................... 486 898 1,381
----------- ---------- ----------
$ 67,102 $ 53,890 $ 53,544
=========== ========== ==========
Non-Recurring (Credit) Charge:
Flowers Bakeries......................... $ (1,154) $ (1,120) $ 32,161
Mrs. Smith's Bakeries.................... 18,858 (4,874) 32,300
----------- ---------- ----------
$ 17,704 $ (5,994) $ 64,461
=========== ========== ==========
Insurance Proceeds:
Mrs. Smith's Bakeries.................... $ (17,193) $ -- $ --
=========== ========== ==========
Income (Loss) from Operations:
Flowers Bakeries......................... $ 62,919 $ 66,995 $ 75,779
Mrs. Smith's Bakeries.................... (28,032) (53,254) 45,855
Other.................................... (24,742) (26,705) (14,727)
Insurance proceeds....................... 17,193 -- --
Non-recurring (charge) credit............ (17,704) 5,994 (64,461)
----------- ---------- ----------
$ 9,634 $ (6,970) $ 42,446
=========== ========== ==========
Interest Expense, net...................... $ 68,373 $ 44,691 $ 42,225
=========== ========== ==========
(Loss) Income From Continuing Operations
Before Income Taxes...................... $ (58,739) $ (51,661) $ 221
=========== ========== ==========

F-24
62
FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOR THE 52 WEEKS ENDED
-----------------------------------------------------
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
(AMOUNTS IN THOUSANDS)

Capital Expenditures:
Flowers Bakeries......................... 18,686 73,553 38,573
Mrs. Smith's Bakeries.................... 21,212 127,340 34,711
Other.................................... 27 12,435 193
----------- ---------- ----------
$ 39,925 $ 213,328 $ 73,477
=========== ========== ==========
Assets:
Flowers Bakeries......................... 499,227 491,396 458,966
Mrs. Smith's Bakeries.................... 507,366 506,586 459,652
Other.................................... 556,053 568,981 464,259
----------- ---------- ----------
$ 1,562,646 $1,566,963 $1,382,877
=========== ========== ==========

---------------

(1) Primarily represents elimination of intersegment sales from Mrs. Smith's
Bakeries to Flowers Bakeries.

NOTE 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION

Results of operations for each of the four quarters in the respective
fiscal years are as follows (each quarter represents a period of twelve weeks,
except the first quarter, which includes sixteen weeks):

FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

Sales......................... 2000 461,553 363,514 380,764 414,149
1999 449,662 352,487 367,379 398,712
Gross margin.................. 2000 217,208 159,042 166,543 176,989
1999 213,216 158,102 132,145 180,895
Net income (loss)............. 2000 16,757 5,529 12,958 (30,199)
1999 24,836 (27,735) (9,103) 19,296
Basic net income (loss) per
common share................ 2000 0.84 0.29 0.64 (1.52)
1999 1.26 (1.40) (0.45) 0.95
Diluted net income (loss) per
common share................ 2000 0.84 0.29 0.64 (1.52)
1999 1.26 (1.40) (0.45) 0.95
Discontinued operations, less
applicable taxes............ 2000 24,053 16,500 20,358 (13,584)
1999 15,993 (13,312) 16,194 23,165

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FLOWERS FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Those valuation and qualifying accounts which are deducted in the balance
sheet from the assets to which they apply:

BEGINNING ADDITIONS CHARGED ADDITIONS CHARGED ENDING
BALANCE TO EXPENSES TO OTHER ACCOUNTS DEDUCTIONS BALANCE
--------- ----------------- ----------------- ---------- -------

Classification:
Year Ended December 30, 2000
Discounts and doubtful
accounts..................... $13,413 $53,943 $48,068 $19,288
Inventory reserves............. $ 6,312 2,558 -- 5,724 $ 3,146
Year Ended January 1, 2000
Discounts and doubtful
accounts..................... $ -- 60,281 -- 46,868 $13,413
Inventory reserves............. $ -- 6,312 -- -- $ 6,312
Year Ended January 2, 1999
Discounts and doubtful
accounts..................... $ -- -- -- -- $ --
Inventory reserves............. $ -- -- -- -- $ --

F-26