UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission file number 1-16247

FLOWERS FOODS, INC.

GEORGIA		58-2582379
(State or other jurisdiction		(I.R.S. Employer Identification
of incorporation or organization)		Number)

     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 þ No o

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

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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

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

TITLE OF EACH CLASS		OUTSTANDING AT AUGUST 14, 2009
Common Stock, $.01 par value with		91,980,380
Preferred Share Purchase Rights

 

 

		PAGE
		NUMBER
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of July 18, 2009 and January 3, 2009			4
Condensed Consolidated Statements of Income for the Twelve and Twenty-Eight Weeks Ended July 18, 2009 and July 12, 2008			5
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Twenty-Eight Weeks Ended July 18, 2009			6
Condensed Consolidated Statements of Cash Flows for the Twenty-Eight Weeks Ended July 18, 2009 and July 12, 2008			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			39
PART II. Other Information
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 4. Submission of Matters to a Vote of Security Holders			40
Item 6. Exhibits			40
Signatures			41
Exhibit index			42
EX-21
EX-31.1
EX-31.2
EX-31.3
EX-32

FORWARD-LOOKING STATEMENTS

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

Forward-looking statements are based on current information and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Certain factors that may cause actual results, performance, and achievements to differ materially from those projected are discussed in this report and may include, but are not limited to:

•		unexpected changes in any of the following: (i) general economic and business conditions; (ii) the competitive setting in which we operate, including changes in pricing, advertising or promotional strategies by us or our competitors, as well as changes in consumer demand; (iii) interest rates and other terms available to us on our borrowings; (iv) energy and raw materials costs and availability and hedging counter-party risks; (v) relationships with our employees, independent distributors and third party service providers; and (vi) laws and regulations (including environmental and health-related issues), accounting standards or tax rates in the markets in which we operate;
•		the loss or financial instability of any significant customer(s);
•		our ability to execute our business strategy, which may involve integration of recent acquisitions or the acquisition or disposition of assets at presently targeted values;
•		our ability to operate existing, and any new, manufacturing lines according to schedule;
•		the level of success we achieve in developing and introducing new products and entering new markets;
•		changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products;
•		our ability to implement new technology as required;
•		the credit and business risks associated with our independent distributors and customers which operate in the highly competitive retail food and foodservice industries, including the amount of consolidation in these industries;
•		customer and consumer reaction to pricing actions; and
•		any business disruptions due to political instability, armed hostilities, incidents of terrorism, natural disasters or the responses to or repercussions from any of these or similar events or conditions and our ability to insure against such events.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the company (such as in our other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Please refer to Part I, Item 1A., Risk Factors, of the company’s Form 10-K filed on March 4, 2009 for additional information regarding factors that could affect the company’s results of operations, financial condition and liquidity.

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

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
(Unaudited)

		JULY 18, 2009				JANUARY 3, 2009
ASSETS
Current Assets:
Cash and cash equivalents		$	20,100			$	19,964
Accounts and notes receivable, net of allowances of $2,656 and $378, respectively			182,520				178,077
Inventories, net:
Raw materials			22,006				18,032
Packaging materials			12,809				12,162
Finished goods			28,309				23,984
			63,124				54,178
Spare parts and supplies			34,225				32,541
Deferred taxes			28,728				38,745
Other			42,753				28,738
Total current assets			371,450				352,243
Property, Plant and Equipment, net of accumulated depreciation of $633,012 and $601,931, respectively			582,189				587,196
Notes Receivable			94,422				94,652
Assets Held for Sale — Distributor Routes			7,017				7,995
Other Assets			4,449				4,830
Goodwill			200,035				200,035
Other Intangible Assets, net			105,898				106,293
Total assets		$	1,365,460			$	1,353,244
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt and capital leases		$	20,357			$	22,538
Accounts payable			120,143				116,818
Other accrued liabilities			120,060				125,713
Total current liabilities			260,560				265,069
Long-Term Debt and Capital Leases			245,960				263,879
Other Liabilities:
Post-retirement/post-employment obligations			79,021				78,897
Deferred taxes			54,092				55,510
Other			43,363				45,835
Total other liabilities			176,476				180,242
Commitments and Contingencies
Flowers Foods, Inc. Stockholders’ Equity:
Preferred stock — $100 par value, 100,000 authorized and none issued			—				—
Preferred stock — $.01 par value, 900,000 authorized and none issued			—				—
Common stock — $.01 par value, 500,000,000 authorized shares, 101,659,924 shares and 101,659,924 shares issued, respectively			1,017				1,017
Treasury stock — 9,679,544 shares and 8,913,142 shares, respectively			(177,118	)			(157,799	)
Capital in excess of par value			525,801				524,383
Retained earnings			407,063				369,397
Accumulated other comprehensive loss			(84,440	)			(102,279	)
Total Flowers Foods, Inc. stockholders’ equity			672,323				634,719
Noncontrolling interest			10,141				9,335
Total stockholders’ equity			682,464				644,054
Total liabilities and stockholders’ equity		$	1,365,460			$	1,353,244

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(Unaudited)

		FOR THE TWELVE WEEKS ENDED								FOR THE TWENTY-EIGHT WEEKS ENDED
		JULY 18, 2009				JULY 12, 2008				JULY 18, 2009				JULY 12, 2008
Sales		$	614,448			$	540,656			$	1,421,455			$	1,217,363
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below)			333,339				293,594				762,801				643,564
Selling, marketing and administrative expenses			216,602				197,662				510,624				449,337
Depreciation and amortization			18,656				16,032				42,933				36,945
Gain on acquisition			3,013				—				3,013				—
Gain on sale of assets			—				2,306				—				2,306
Gain on insurance recovery			—				686				—				686
Income from operations			48,864				36,360				108,110				90,509
Interest expense			(2,806	)			(494	)			(6,401	)			(1,173	)
Interest income			2,986				3,151				7,040				7,327
Income before income taxes			49,044				39,017				108,749				96,663
Income tax expense			17,947				13,931				39,819				34,493
Net income			31,097				25,086				68,930				62,170
Less: net income attributable to noncontrolling interest			(756	)			(1,137	)			(1,208	)			(2,438	)
Net income attributable to Flowers Foods, Inc.		$	30,341			$	23,949			$	67,722			$	59,732
Net Income Per Common Share:
Basic:
Net income attributable to Flowers Foods, Inc. common shareholders		$	0.33			$	0.26			$	0.73			$	0.65
Weighted average shares outstanding			92,141				92,156				92,474				92,112
Diluted:
Net income attributable to Flowers Foods, Inc. common shareholders		$	0.33			$	0.26			$	0.73			$	0.65
Weighted average shares outstanding			92,630				92,746				92,979				92,580
Cash dividends paid per common share		$	0.175			$	0.15			$	0.325			$	0.275

(See Accompanying Notes to Condensed Consolidated Financial Statements)

														Capital
						Common Stock								in								Accumulated
						Number of								Excess								Other				Treasury Stock
		Comprehensive				shares				Par				of Par				Retained				Comprehensive				Number of								Noncontrolling
		Income (Loss)				issued				Value				Value				Earnings				Income (Loss)				shares				Cost				interest				Total
Balances at January 3, 2009							101,659,924			$	1,017			$	524,383			$	369,397			$	(102,279	)			(8,913,142	)		$	(157,799	)		$	9,335			$	644,054
Net income		$	68,930																67,722																1,208				68,930
Derivative instruments			16,815																				16,815																16,815
Amortization of prior service costs			110																				110																110
Amortization of actuarial loss			914																				914																914
Comprehensive income			86,769
Comprehensive income attributable to noncontrolling interests			(1,208	)
Comprehensive income attributable to Flowers Foods, Inc.		$	85,561
Exercise of stock options															(1,568	)											189,724				3,392								1,824
Deferred stock vesting															(352	)											19,450				352								—
Issuance of deferred stock award															(146	)											6,135				146								—
Issuance of restricted stock award															(4,416	)											248,680				4,416								—
Amortization of deferred and restricted stock awards															3,614																								3,614
Stock option compensation															2,661																								2,661
Conversion of deferred compensation															95																								95
Tax benefits related to share based payment awards															1,530																								1,530
Stock repurchases																											(1,230,391	)			(27,625	)							(27,625	)
Distributions from noncontrolling interest to owners																																			(402	)			(402	)
Dividends paid — $0.325 per common share																			(30,056	)																			(30,056	)
Balances at July 18, 2009							101,659,924			$	1,017			$	525,801			$	407,063			$	(84,440	)			(9,679,544	)		$	(177,118	)		$	10,141			$	682,464

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

		FOR THE TWENTY-EIGHT WEEKS ENDED
		JULY 18, 2009				JULY 12, 2008
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Net income		$	68,930			$	62,170
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation			6,041				6,678
Loss reclassified from accumulated other comprehensive income to net income			32,995				426
Depreciation and amortization			42,933				36,945
Gain on acquisition			(3,013	)			—
Deferred income taxes			(2,569	)			(2,232	)
Provision for inventory obsolescence			338				492
Allowances for accounts receivable			2,099				901
Pension and postretirement plans expense (benefit)			2,753				(3,259	)
Other			247				(2,467	)
Changes in assets and liabilities:
Accounts and notes receivable, net			(6,164	)			(27,586	)
Pension contributions			(450	)			—
Inventories, net			(6,375	)			(5,324	)
Other assets			(3,473	)			(2,834	)
Accounts payable and other accrued liabilities			(17,933	)			(7,829	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			116,359				56,081
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(28,183	)			(41,964	)
Increase of notes receivable			(148	)			(3,363	)
Acquisitions, net of cash acquired			(8,842	)			—
Other			(373	)			3,603
NET CASH DISBURSED FOR INVESTING ACTIVITIES			(37,546	)			(41,724	)
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Dividends paid			(30,056	)			(25,358	)
Exercise of stock options			1,824				2,439
Income tax benefit related to stock awards			1,352				1,713
Stock repurchases			(27,625	)			(5,829	)
Change in book overdraft			(3,708	)			8,989
Proceeds from debt borrowings			456,000				30,000
Debt and capital lease obligation payments			(476,062	)			(26,757	)
Other			(402	)			—
NET CASH DISBURSED FOR FINANCING ACTIVITIES			(78,677	)			(14,803	)
Net increase (decrease) in cash and cash equivalents			136				(446	)
Cash and cash equivalents at beginning of period			19,964				19,978
Cash and cash equivalents at end of period		$	20,100			$	19,532

(See Accompanying Notes to Condensed Consolidated Financial Statements)

     INTERIM FINANCIAL STATEMENTS — The accompanying unaudited condensed consolidated financial statements of Flowers Foods, Inc. (“the company”) have been prepared by the company’s management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the company’s financial position, the results of its operations and its cash flows. The results of operations for the twelve and twenty-eight week periods ended July 18, 2009 and July 12, 2008 are not necessarily indicative of the results to be expected for a full fiscal year. The balance sheet at January 3, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

     ESTIMATES — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The company believes the following critical accounting estimates affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: revenue recognition, derivative instruments, valuation of long-lived assets, goodwill and other intangibles, self-insurance reserves, income tax expense and accruals and pension obligations. These estimates are summarized in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

     REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2009 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 25, 2009 (sixteen weeks), second quarter ended July 18, 2009 (twelve weeks), third quarter ending October 10, 2009 (twelve weeks) and fourth quarter ending January 2, 2010 (twelve weeks).

     SEGMENTS — The company consists of two business segments: direct-store-delivery (“DSD”) and warehouse delivery. The DSD segment focuses on the production and marketing of bakery products to U.S. customers in the Southeast, Mid-Atlantic, and Southwest as well as select markets in California and Nevada primarily through its direct-store-delivery system. The warehouse delivery segment produces snack cakes for sale to retail, vending and co-pack customers as well as frozen bread, rolls and buns for sale to retail and foodservice customers primarily through warehouse distribution.

     SIGNIFICANT CUSTOMER — Following is the effect our largest customer, Wal-Mart/Sam’s Club, had on the company’s sales for the twelve and twenty-eight weeks ended July 18, 2009 and July 12, 2008. No other customer accounted for 10% or more of the company’s sales.

		FOR THE TWELVE WEEKS ENDED								FOR THE TWENTY-EIGHT WEEKS ENDED
		JULY 18, 2009				JULY 12, 2008				JULY 18, 2009				JULY 12, 2008
		(Percent of Sales)								(Percent of Sales)
DSD			18.8	%			18.3	%			18.2	%			18.1	%
Warehouse delivery			2.8				2.8				2.9				2.5
Total			21.6	%			21.1	%			21.1	%			20.6	%

     Other comprehensive income (loss) results from derivative financial instruments and amortization of prior service costs and actuarial loss related to the company’s defined benefit and postretirement plans pursuant to Statement of Financial Accounting Standard (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS 158”). Total comprehensive income attributable to Flowers Foods, Inc., determined as net income adjusted by other comprehensive income (loss) and net income attributable to noncontrolling interest, was $41.0 million and $85.6 million for the twelve and twenty-eight weeks ended July 18, 2009, respectively. Total comprehensive income attributable to Flowers Foods, Inc. was $1.4 million and $53.6 million for the twelve and twenty-eight weeks ended July 12, 2008, respectively.

     During the twenty-eight weeks ended July 18, 2009, changes to accumulated other comprehensive loss, net of income tax, were as follows (amounts in thousands):

Accumulated other comprehensive loss, January 3, 2009		$	(102,279	)
Derivative transactions:
Net deferred gains (losses) on closed contracts, net of income tax of $(2,691)			(4,299	)
Reclassified to earnings, net of income tax of $12,703			20,292
Effective portion of change in fair value of hedging instruments, net of income tax of $514			822
Amortization of actuarial loss, net of income tax of $572			914
Amortization of prior service costs, net of income tax of $69			110
Accumulated other comprehensive loss, July 18, 2009		$	(84,440	)

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. The implementation of SFAS No. 157 for financial assets and financial liabilities, effective December 30, 2007, did not have a material impact on our consolidated financial position and results of operations. Please refer to Note 7., Derivative Financial Instruments, for a detailed discussion.

     In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS No. 141R”), which changed the accounting for business acquisitions. SFAS No. 141R, as amended by FSP No. 141-1 issued in April 2009, requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS No. 141R, as amended, was effective to the company for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after January 3, 2009. The company applied the provisions of SFAS 141R to the acquisition it made during the second quarter of fiscal 2009.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than the company (sometimes called “minority interests”) be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in unconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The company adopted SFAS No. 160 as of January 4, 2009. As a result, upon adoption, the company has classified the “Minority Interest in Variable Interest Entity” balance to a new component of equity with respect to noncontrolling interests. The adoption also impacted certain captions previously used on the consolidated statement of income by separately identifying net income, net income attributable to noncontrolling interests and net income attributable to Flowers Foods, Inc. Prior period information presented in this Form 10-Q has been reclassified where required.

     In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 was effective for the company as of January 4, 2009. The additional disclosures required by this standard are included in Note 7, Derivative Financial Instruments.

     In December 2008, the FASB issued FSP No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. This FSP requires additional disclosures about plan assets for sponsors of defined benefit pension and postretirement plans including expanded information regarding investment strategies, major categories of plan assets, and concentrations of risk within plan assets. Additionally, this FSP requires disclosures similar to those required under SFAS No. 157 with respect to the fair value of plan assets such as the inputs and valuation techniques used to measure fair value and information with respect to classification of plan assets in terms of the hierarchy of the source of information used to determine their value. The disclosures under this FSP are required for annual periods ending after December 15, 2009. The company is currently evaluating the requirements of these additional disclosures.

     In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the FSP requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. These additional disclosures are included in Note 6., Fair Value of Financial Instruments, below.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have an impact on our condensed consolidated balance sheet and condensed consolidated statements of income. The company has evaluated subsequent events through August 20, 2009, the date of the filing of this Form 10-Q.

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective for fiscal years beginning after November 15, 2009. The company is currently assessing the impact of SFAS 167 on its condensed consolidated balance sheet and statements of income.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

4. ACQUISITIONS

     On May 15, 2009, the company acquired substantially all the assets of a bakery mix operation in Cedar Rapids, Iowa for $9.4 million of consideration. Based on the preliminary purchase price allocation, the fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration paid. As a result, we recognized a gain of $3.0 million which is included in the line item “Gain on acquisition” to derive income from operations in the condensed consolidated statements of income for the twelve and twenty-eight weeks ended July 18, 2009. The gain on acquisition resulted due to the seller’s strategic intent to exit a non-core business operation. This acquisition is recorded in the company’s warehouse delivery segment.

     On August 4, 2008, the company acquired 100% of the outstanding shares of capital stock of the parent company of ButterKrust Bakery (“ButterKrust”). ButterKrust manufactures fresh breads and rolls in Lakeland, Florida and its products are available throughout Florida under the Country Hearth, Rich Harvest, and Sunbeam brands, as well as store brands. The results of ButterKrust’s

operations have been included in the consolidated financial statements since August 4, 2008 and are included in the company’s DSD operating segment. As a result of the acquisition, the company has added additional production capacity in the Florida market.

     The aggregate purchase price was $91.3 million in cash, including the payoff of certain indebtedness and other payments and acquisition costs. The following table presents the allocation of the acquisition cost, including professional fees and other related costs, to the assets acquired and liabilities assumed, based on their fair values (amounts in thousands):

At August 4, 2008

Purchase price:
Cash, including acquisition costs		$	91,258
Total consideration						$	91,258
Allocation of purchase price:
Current assets, including cash of $1.2 million and a current deferred tax asset of $1.0 million		$	8,039
Property, plant, and equipment			36,920
Other assets			1,323
Intangible assets			22,600
Goodwill			57,566
Total assets acquired						$	126,448
Current liabilities		$	10,542
Long-term debt and other			5,161
Long-term pension and postretirement liabilities			9,081
Deferred tax liabilities			10,406
Total liabilities assumed						$	35,190
Net assets acquired						$	91,258

     The following table presents the allocation of the intangible assets subject to amortization (amounts in thousands, except for amortization periods):

						Weighted
						Average
						Amortization
		Amount				Years
Trademarks		$	2,200				22.0
Customer relationships			18,900				25.0
Total intangible assets subject to amortization		$	21,100				24.7

     Acquired intangible assets not subject to amortization include trademarks of $1.5 million. Goodwill of $57.6 million is allocated to the DSD operating segment. None of the intangible assets, including goodwill, are deductible for tax purposes.

     On August 11, 2008, a wholly owned subsidiary of the company merged with Holsum Holdings, LLC (“Holsum”). Holsum operates two bakeries in the Phoenix, Arizona area and serves customers in Arizona, New Mexico, southern Nevada and southern California with fresh breads and rolls under the Holsum, Aunt Hattie’s, and Roman Meal brands. The results of Holsum’s operations are included in the company’s consolidated financial statements as of August 11, 2008 and are included in the company’s DSD operating segment. As a result of the merger, the company has expanded into new geographic markets.

     The aggregate purchase price was $143.9 million, consisting of $80.0 million in cash, including the payoff of certain indebtedness, 1,998,656 shares of company common stock, contingent consideration, a working capital adjustment and acquisition costs. The value of the shares issued was determined based on application of Emerging Issues Task Force Issue 97-15, Accounting for Contingency Arrangements Based on Security Prices in a Purchase Business Combination. The contingent consideration payment of up to $5.0 million is payable to the sellers in cash should the company’s common stock not trade over a target price for ten consecutive trading days during the two year period beginning February 11, 2009. Any future contingent payment made will affect the company’s equity and not goodwill.

     The following table presents the allocation of the acquisition cost, including professional fees and other related costs, to the assets acquired and liabilities assumed, based on their fair values (amounts in thousands):

Purchase price:
Cash, including acquisition costs		$	80,026
Common stock			64,377
Working capital adjustment			(476	)
Total consideration						$	143,927
Allocation of purchase price:
Current assets, including a current deferred tax asset of $0.3 million		$	18,626
Property, plant, and equipment			54,019
Other assets			330
Intangible assets			64,900
Goodwill			66,131
Total assets acquired						$	204,006
Current liabilities		$	17,972
Deferred taxes			33,623
Long-term liabilities			8,484
Total liabilities assumed						$	60,079
Net assets acquired						$	143,927

     The following table presents the allocation of the intangible assets subject to amortization (amounts in thousands, except for amortization periods):

						Weighted
						Average
						Amortization
		Amount				Years
Trademarks		$	19,200				20.0
Customer relationships			43,100				20.0
Distributor relationships			2,600				15.0
Total intangible assets subject to amortization		$	64,900				19.8

     Goodwill of $66.1 million is allocated to the DSD operating segment. None of the intangible assets, including goodwill, are deductible for tax purposes.

     The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of ButterKrust and Holsum occurred at the beginning of the first quarter of fiscal 2008 (amounts in thousands, except per share data):

						For the
		For the				Twenty-eight weeks
		Twelve weeks ended				ended
		July 12, 2008				July 12, 2008
Sales		$	598,626			$	1,346,423
Net income		$	22,648			$	59,002
Net income per share — Basic		$	0.24			$	0.63
Net income per share — Diluted		$	0.24			$	0.62

     These amounts have been calculated after adjusting the results of ButterKrust and Holsum to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and amortizable intangible assets had been applied from the beginning of the period presented. In addition, pro forma adjustments have been made for the common shares issued for Holsum and the interest incurred for financing the acquisitions. Taxes have also been adjusted for the effect of the items discussed.

     During fiscal 2008, the company acquired ButterKrust and Holsum, which are included in the DSD operating segment. In addition, the company acquired certain assets from affiliates of General Mills during the twenty-eight weeks ended July 18, 2009 that are included in the warehouse delivery operating segment. See Note 4 for goodwill and amortizable intangible asset increases related to the ButterKrust and Holsum acquisitions during fiscal 2008.

     The changes in the carrying amount of goodwill for the twenty-eight weeks ended July 18, 2009, are as follows (amounts in thousands):

		DSD				Warehouse delivery				Total
Balance as of January 3, 2009		$	195,558			$	4,477			$	200,035
Goodwill acquired during the year			—				—				—
Balance as of July 18, 2009		$	195,558			$	4,477			$	200,035

     As of July 18, 2009 and January 3, 2009, the company had the following amounts related to amortizable intangible assets (amounts in thousands):

		July 18, 2009												January 3, 2009
						Accumulated												Accumulated
Asset		Cost				Amortization				Net Value				Cost				Amortization				Net Value
Trademarks		$	35,268			$	2,442			$	32,826			$	33,608			$	1,633			$	31,975
Customer relationships			75,434				7,895				67,539				75,434				5,784				69,650
Non-compete agreements			1,874				1,277				597				1,874				1,239				635
Distributor relationships			2,600				160				2,440				2,600				67				2,533
Supply agreement			1,050				54				996				—				—				—
Total		$	116,226			$	11,828			$	104,398			$	113,516			$	8,723			$	104,793

     There is an additional $1.5 million of indefinite life intangible assets from the ButterKrust acquisition separately identified from goodwill, as discussed in Note 4.

     Net amortization expense for the twelve weeks ended July 18, 2009 and July 12, 2008 were as follows (amounts in thousands):

		2009				2008
Amortizable intangible assets expense		$	1,391			$	393
Amortizable intangible liabilities (income)			(10	)			(22	)
Total, net		$	1,381			$	371

     Net amortization expense for the twenty-eight weeks ended July 18, 2009 and July 12, 2008 were as follows (amounts in thousands):

		2009				2008
Amortizable intangible assets expense		$	3,105			$	873
Amortizable intangible liabilities (income)			(24	)			(219	)
Total, net		$	3,081			$	654

     Estimated net amortization of intangibles for the remainder of fiscal 2009 and the next four years is as follows (amounts in thousands):

		Amortization of
		Intangibles, net
Remainder of 2009		$	2,797
2010		$	6,003
2011		$	5,948
2012		$	5,677
2013		$	5,488

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of cash and cash equivalents, accounts receivable and short-term debt approximates fair value because of the short-term maturity of the instruments. SFAS No. 107, Disclosures about Fair Value of Financial Instruments, states that the appropriate interest rate that should be used to estimate the fair value of the distributor notes should be the current market rate at which similar loans would be made to distributors with similar credit ratings and for the same maturities. However, the company

utilizes approximately 3,610 independent distributors all with varied financial histories and credit risks. Considering the diversity of credit risks among the independent distributors, the company has no method to accurately determine a market interest rate. The territories are financed over ten years bearing an interest rate of 12%. During the twelve week periods ending July 18, 2009 and July 12, 2008, $3.0 million and $3.1 million, respectively, were recorded as interest income relating to the distributor notes. During the twenty-eight week periods ending July 18, 2009 and July 12, 2008, $7.0 million and $6.8 million, respectively, were recorded as interest income relating to the distributor notes. The distributor notes are collateralized by the independent distributors’ territories. At July 18, 2009 and January 3, 2009, the carrying value of the distributor notes was $106.9 million and $106.8 million, respectively, of which the current portion of $12.5 million and $12.1 million, respectively, is recorded in accounts and notes receivable, net. At July 18, 2009 and January 3, 2009, the company has evaluated the collectibility of the distributor notes and determined that a reserve is not necessary. Payments on these distributor notes are collected by the company weekly in the distributor settlement process. The fair value of the company’s long-term debt at July 18, 2009 approximates the recorded value.

7. DERIVATIVE FINANCIAL INSTRUMENTS

     In the first quarter of fiscal 2008, the company began measuring the fair value of the derivative portfolio using common definitions under SFAS No. 157, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability. Under SFAS No. 157, measurements are classified into a hierarchy by the inputs used to perform the fair value calculation as follows:

Level 1:		Fair value based on unadjusted quoted prices for identical assets or liabilities in active markets
Level 2:		Modeled fair value with model inputs that are all observable market values
Level 3:		Modeled fair value with at least one model input that is not an observable market value

This change in measurement technique had no material impact on the reported value of our derivative portfolio.

COMMODITY PRICE RISK

     The company enters into commodity derivatives, designated as cash-flow hedges of existing or future exposure to changes in commodity prices. The company’s primary raw materials are flour, sweeteners and shortening, along with pulp, paper and petroleum-based packaging products. Natural gas, which is used as oven fuel, is also an important commodity input to production.

     As of July 18, 2009, the company’s hedge portfolio contained commodity derivatives with a fair value of $(22.0) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):

		Level 1				Level 2				Level 3				Total
Assets:
Other current		$	—			$	—			$	—			$	—
Other long-term			0.2				—				—				0.2
Total			0.2				—				—				0.2
Liabilities:
Other current			(16.5	)			(5.1	)			—				(21.6	)
Other long-term			—				(0.6	)			—				(0.6	)
Total			(16.5	)			(5.7	)			—				(22.2	)
Net Fair Value		$	(16.3	)		$	(5.7	)		$	—			$	(22.0	)

     The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix the price, or limit increases in prices, for a period of time extending into fiscal 2010. Under SFAS No. 133, these instruments are designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded each period in other comprehensive income (loss) and is amortized to materials, supplies, labor, and other production costs as inventory is sold. The ineffective portion of the change in fair value is recorded to current period earnings in selling, marketing and administrative expenses. The company held no commodity derivatives at July 18, 2009 or January 3, 2009 that did not qualify for hedge accounting under SFAS No. 133.

     As of July 18, 2009, the balance in accumulated other comprehensive loss related to commodity derivative transactions was $19.7 million. Of this total, approximately $8.1 million and $5.5 million were related to open contracts that expire in fiscal 2009 and 2010, respectively, and $6.1 million was related to deferred losses not yet amortized to materials, supplies, labor, and other production costs on expired contracts.

INTEREST RATE RISK

     On July 9, 2008 and August 13, 2008, the company entered interest rate swaps with notional amounts of $85.0 million, and $65.0 million, respectively, to fix the interest rate on the $150.0 million term loan secured on August 1, 2008 to fund the acquisitions of ButterKrust and Holsum. On October 27, 2008, the company entered an interest rate swap with a notional amount of $50.0 million to fix the interest rate on borrowings outstanding under the company’s unsecured credit facility.

     The interest rate swap agreements results in the company paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amount. The interest rate differential to be paid or received will be recorded as interest expense. Under SFAS No. 133, these swap transactions are designated as cash-flow hedges. Accordingly, the effective portion of changes in the fair value of the swaps is recorded each period in other comprehensive income. Any ineffective portions of changes in fair value are recorded to current period earnings in selling, marketing and administrative expenses.

     As of July 18, 2009, the fair value of the interest rate swaps was $(7.1) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):

		Level 1				Level 2				Level 3				Total
Assets:
Other current		$	—			$	—			$	—			$	—
Other long-term			—				—				—				—
Total			—				—				—				—
Liabilities:
Other current			—				(4.5	)			—				(4.5	)
Other long-term			—				(2.6	)			—				(2.6	)
Total			—				(7.1	)			—				(7.1	)
Net Fair Value		$	—			$	(7.1	)		$	—			$	(7.1	)

     During the twelve weeks ended July 18, 2009, interest expense of $1.2 million was recognized due to periodic settlements of the swaps. During the twenty-eight weeks ended July 18, 2009, interest expense of $2.7 million was recognized due to periodic settlements of the swaps.

     As of July 18, 2009, the balance in accumulated other comprehensive loss related to interest rate derivative transactions was $4.4 million. Of this total, approximately $1.4 million, $2.1 million, $0.8 million, $0.1 million and $(0.1) million was related to instruments expiring in fiscal 2009, 2010, 2011, 2012 and 2013, respectively.

     The company has the following derivative instruments located on the consolidated balance sheet, utilized for risk management purposes detailed above (amounts in thousands):

		Derivative Assets																Derivative Liabilities
		July 18, 2009								January 3, 2009								July 18, 2009								January 3, 2009
Derivatives designated as		Balance								Balance								Balance								Balance
hedging		Sheet				Fair				Sheet				Fair				Sheet				Fair				Sheet				Fair
instruments under SFAS No. 133		location				Value				location				Value				location				Value				location				Value
Interest rate contracts			—			$	—				—			$	—			Other current liabilities				$	4,485			Other current liabilities				$	4,311
Interest rate contracts			—				—				—				—			Other long term liabilities					2,591			Other long term liabilities					5,137
Commodity contracts		Other long term assets					196			Other long term assets					249			Other current liabilities					21,607			Other current liabilities					20,668
Commodity contracts			—				—				—				—			Other long term liabilities					632			Other long term liabilities					618
Total						$	196							$	249							$	29,315							$	30,734

     The company has the following derivative instruments located on the consolidated statements of income, utilized for risk management purposes detailed above (amounts in thousands):

		Amount of Gain or (Loss)										Amount of Gain or (Loss) Reclassified
Derivatives in SFAS No.		Recognized in OCI on								Location of Gain or (Loss)		from Accumulated OCI into Income
133		Derivative (Effective Portion)								Reclassified from AOCI into		(Effective Portion)
Cash Flow Hedge		For the twelve weeks ended								Income		For the twelve weeks ended
Relationships		July 18, 2009				July 12, 2008				(Effective Portion)		July 18, 2009				July 12, 2008
Interest rate contracts		$	794			$	(50	)		Interest expense (income)		$	—			$	—
Commodity contracts			—				—			Selling, marketing and administrative			(353	)			—
Commodity contracts			(2,675	)			(19,428	)		Production costs(1)			(12,768	)			(76	)
Total		$	(1,881	)		$	(19,478	)				$	(13,121	)		$	(76	)

		Amount of Gain or (Loss)										Amount of Gain or (Loss) Reclassified
Derivatives in SFAS No.		Recognized in OCI on								Location of Gain or (Loss)		from Accumulated OCI into Income
133		Derivative (Effective Portion)								Reclassified from AOCI into		(Effective Portion)
Cash Flow Hedge		For the twenty-eight weeks ended								Income		For the twenty-eight weeks ended
Relationships		July 18, 2009				July 12, 2008				(Effective Portion)		July 18, 2009				July 12, 2008
Interest rate contracts		$	1,460			$	(50	)		Interest expense (income)		$	—			$	—
Commodity contracts			—				—			Selling, marketing and administrative			(875	)			—
Commodity contracts			(638	)			(4,981	)		Production costs(1)			(19,417	)			(291	)
Total		$	822			$	(5,031	)				$	(20,292	)		$	(291	)

				Amount of Gain or (Loss)
				Recognized in Income on
				Derivative (Ineffective Portion
		Location of Gain or (Loss) Recognized		and Amount Excluded from
		in Income on Derivative (Ineffective		Effectiveness Testing)
Derivatives in SFAS No. 133 Cash		Portion and Amount Excluded from		For the twelve weeks ended
Flow Hedge Relationships		Effectiveness Testing)		July 18, 2009				July 12, 2008
Interest rate contracts		Selling, marketing and administrative expenses		$	—			$	—
Commodity contracts		Selling, marketing and administrative expenses			—				—
Total				$	—			$	—

				Amount of Gain or (Loss)
				Recognized in Income on
				Derivative (Ineffective Portion
		Location of Gain or (Loss) Recognized		and Amount Excluded from
		in Income on Derivative (Ineffective		Effectiveness Testing)
Derivatives in SFAS No. 133 Cash		Portion and Amount Excluded from		For the twenty-eight weeks ended
Flow Hedge Relationships		Effectiveness Testing)		July 18, 2009				July 12, 2008
Interest rate contracts		Selling, marketing and administrative expenses		$	—			$	—
Commodity contracts		Selling, marketing and administrative expenses			(617	)			—
Total				$	(617	)		$	—

     As of July 18, 2009, the company had the following outstanding financial contracts that were entered to hedge commodity and interest rate risk:

		Notional amount
Derivative in Statement 133 Cash Flow Hedge Relationship		(millions)
Interest rate contracts		$	68.0
Wheat contracts			128.9
Soybean Oil contracts			25.8
Natural gas contracts			13.4
Diesel contracts			2.0
Total		$	238.1

     The company’s derivative instruments contain no credit-risk-related contingent features at July 18, 2009.

     Long-term debt and capital leases consisted of the following at July 18, 2009 and January 3, 2009 (amounts in thousands):

		JULY 18, 2009				JANUARY 3, 2009
Unsecured credit facility		$	98,000			$	110,000
Unsecured term loan			138,750				146,250
Capital lease obligations			25,402				24,978
Other notes payable			4,165				5,189
			266,317				286,417
Less current maturities			20,357				22,538
Total long-term debt and capital leases		$	245,960			$	263,879

     On August 1, 2008, the company entered into a Credit Agreement (“term loan”) with various lending parties for the purpose of completing the ButterKrust and Holsum acquisitions. The term loan provides for amortizing $150.0 million of borrowings through the maturity date of August 4, 2013. The term loan includes certain customary restrictions, which, among other things, require maintenance of financial covenants and limit encumbrance of assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the term loan and can meet presently foreseeable financial requirements. As of July 18, 2009 and January 3, 2009, the company was in compliance with all financial covenants under the term loan. As of July 18, 2009 and January 3, 2009, the amounts outstanding under the term loan were $138.8 million and $146.3 million, respectively.

     Interest is due quarterly in arrears on outstanding borrowings at a customary Eurodollar rate or the base rate plus the applicable margin. The underlying rate is defined as the rate offered in the interbank Eurodollar market or the higher of the prime lending rate or federal funds rate plus 0.5%. The applicable margin ranges from 0.0% to 1.375% for base rate loans and from 0.875% to 2.375% for Eurodollar loans and is based on the company’s leverage ratio. Principal payments are due quarterly under the term loan beginning on December 31, 2008 at an annual amortization of 10% of the principal balance for the first two years, 15% during the third year, 20% during the fourth year, and 45% during the fifth year. The company paid financing costs of $0.8 million in connection with the term loan, which are being amortized over the life of the term loan.

     The company has a five-year, $250.0 million unsecured revolving loan facility (the “credit facility”) expiring October 5, 2012. The company may request to increase its borrowings under the credit facility up to an aggregate of $350.0 million upon the satisfaction of certain conditions. Proceeds from the credit facility may be used for working capital and general corporate purposes, including acquisition financing, refinancing of indebtedness and share repurchases. The credit facility includes certain customary restrictions, which, among other things, require maintenance of financial covenants and limit encumbrance of assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the credit facility and can meet presently foreseeable financial requirements. As of July 18, 2009 and January 3, 2009, the company was in compliance with all financial covenants under its credit facility.

     Interest is due quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus the applicable margin. The underlying rate is defined as rates offered in the interbank Eurodollar market or the higher of the prime lending rate or federal funds rate plus 0.5%. The applicable margin ranges from 0.0% to 0.30% for base rate loans and from 0.40% to 1.275% for Eurodollar loans. In addition, a facility fee ranging from 0.10% to 0.35% is due quarterly on all commitments under the credit facility. Both the interest margin and the facility fee are based on the company’s leverage ratio. Financing costs of $0.9 million were deferred and are being amortized over the term of the credit facility. There were $98.0 million and $110.0 million in outstanding borrowings under the credit facility at July 18, 2009 and January 3, 2009, respectively.

     Included in accounts payable in the condensed consolidated balance sheets are book overdrafts of $15.1 million and $18.9 million as of July 18, 2009 and January 3, 2009, respectively.

     The company maintains a transportation agreement with a thinly capitalized entity. This entity transports a significant portion of the company’s fresh bakery products from the company’s production facilities to outlying distribution centers. The company represents a significant portion of the entity’s revenue. This entity qualifies as a Variable Interest Entity (“VIE”), but not a Special Purpose Entity and under FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, the company is the

primary beneficiary. In accordance with FIN 46, the company consolidates this entity. The VIE has collateral that is sufficient to meet its capital lease and other debt obligations, and the owner of the VIE personally guarantees the obligations of the VIE. The VIE’s creditors have no recourse against the general credit of the company.

     Following is the effect of the VIE during the twelve and twenty-eight weeks ended July 18, 2009 and July 12, 2008:

		TWELVE WEEKS ENDED																TWENTY-EIGHT WEEKS ENDED
		JULY 18, 2009								JULY 12, 2008								JULY 18, 2009								JULY 12, 2008
						% OF								% OF								% OF								% OF
		VIE				TOTAL				VIE				TOTAL				VIE				TOTAL				VIE				TOTAL
		(Dollars in thousands)
Assets as of respective quarter ends		$	34,349				2.5	%		$	33,421				3.3	%		$	34,349				2.5	%		$	33,421				3.3	%
Sales		$	3,088				0.5	%		$	2,698				0.5	%		$	4,616				0.3	%		$	5,498				0.5	%
Income before income taxes		$	756				1.5	%		$	1,137				2.9	%		$	1,208				1.1	%		$	2,438				2.5	%

     The assets consist primarily of $24.0 million and $23.0 million as of July 18, 2009 and July 12, 2008, respectively, of transportation equipment recorded as capital lease obligations.

10. LITIGATION

     The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings, including personal injury, commercial, contract, environmental, antitrust, product liability, health and safety and employment matters, which are being handled and defended in the ordinary course of business. While the company is unable to predict the outcome of these matters, it believes, based upon currently available facts, that it is remote that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows in the future. However, adverse developments could negatively impact earnings in future fiscal periods.

     On July 23, 2008, a wholly-owned subsidiary of the company filed a lawsuit against Interstate Bakeries Corporation (“IBC”) in the United States District Court for the Northern District of Georgia. The complaint alleges that IBC is infringing upon Flowers’ Nature’s Own trademarks by using the Nature’s Pride trademark. The company asserts that IBC’s sale of baked goods under the Nature’s Pride trademark is likely to cause confusion with, and likely to dilute the distinctiveness of, the Nature’s Own mark. The company is seeking actual damages, an accounting of IBC’s profits, and injunctive relief. IBC has asserted a counterclaim for the cancellation of two of the four federal trademark registrations of Nature’s Own asserted by the company. However, the company denies the allegations and believes that the claims are without factual or legal bases.

11. EARNINGS PER SHARE

     Effective January 4, 2009, the company adopted FSP No. EITF 03-6-1. We have retrospectively adjusted earnings per common share for all prior periods presented. We now use the “two-class” method of computing earnings per share. The “two-class” method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security as if all earnings for the period had been distributed. As concluded in FSP No. EITF 03-6-1, unvested restricted share awards that earn non-forfeitable dividend rights qualify as participating securities under SFAS No. 128, Earnings Per Share, and accordingly, are now included in the basic computation as such. The company’s unvested restricted shares participate on an equal basis with common shares; therefore, there is no difference in undistributed earnings allocated to each participating security. Accordingly, the presentation below is prepared on a combined basis and is presented as earnings per common share. Previously, such unvested restricted shares were not included as outstanding within basic earnings per common share and were included in diluted earnings per common share pursuant to the treasury stock method. The following is a reconciliation of net income attributable to Flowers Foods, Inc. and weighted average shares for calculating basic and diluted earnings per common share for the twelve and twenty-eight weeks ended July 18, 2009 and July 12, 2008 (amounts in thousands, except per share data):

		FOR THE TWELVE WEEKS ENDED								FOR THE TWENTY-EIGHT WEEKS ENDED
		JULY 18, 2009				JULY 12, 2008				JULY 18, 2009				JULY 12, 2008
Net income attributable to Flowers Foods, Inc.		$	30,341			$	23,949			$	67,722			$	59,732
Dividends on restricted shares not expected to vest*			—				—				—				—
Net income attributable to common and participating shareholders		$	30,341			$	23,949			$	67,722			$	59,732
Basic Earnings Per Common Share:
Weighted average shares outstanding for common stock			91,727				91,724				92,061				91,710
Weighted average shares outstanding for participating securities			414				432				413				402
Basic weighted average shares outstanding per common share			92,141				92,156				92,474				92,112
Basic earnings per common share attributable to Flowers Foods, Inc. common shareholders		$	0.33			$	0.26			$	0.73			$	0.65
Diluted Earnings Per Common Share:
Basic weighted average shares outstanding per common share			92,141				92,156				92,474				92,112
Add: Shares of common stock assumed issued upon exercise of stock options and vesting of restricted stock			489				590				505				468
Diluted weighted average shares outstanding per common share			92,630				92,746				92,979				92,580
Diluted earnings per common share attributable to Flowers Foods, Inc. common shareholders		$	0.33			$	0.26			$	0.73			$	0.65