10-Q 1 flo-10q_20171007.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 7, 2017

OR

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

For the transition period from to

Commission file number 1-16247

FLOWERS FOODS, INC.

(Exact name of registrant as specified in its charter)

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

1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA

(Address of principal executive offices)

31757

(Zip Code)

(229)-226-9110

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐
Emerging growth company | ☐ |  |

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

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

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

TITLE OF EACH CLASS |  | OUTSTANDING AT NOVEMBER 3, 2017
Common Stock, $.01 par value |  | 209,609,731

FLOWERS FOODS, INC.

INDEX

| PAGE NUMBER
PART I. Financial Information |
| Item 1. | Financial Statements (unaudited) | 3
|  | Condensed Consolidated Balance Sheets as of October 7, 2017 and December 31, 2016 | 3
|  | Condensed Consolidated Statements of Operations For the Twelve and Forty Weeks Ended October 7, 2017 and October 8, 2016 | 4
|  | Condensed Consolidated Statements of Comprehensive Income (Loss) For the Twelve and Forty Weeks Ended October 7, 2017 and October 8, 2016 | 5
|  | Condensed Consolidated Statement of Changes in Stockholders’ Equity For the Forty Weeks Ended October 7, 2017 | 6
|  | Condensed Consolidated Statements of Cash Flows For the Forty Weeks Ended October 7, 2017 and October 8, 2016 | 7
|  | Notes to Condensed Consolidated Financial Statements | 8
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 40
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 60
| Item 4. | Controls and Procedures | 60
PART II. Other Information |
| Item 1. | Legal Proceedings | 61
| Item 1A. | Risk Factors | 61
| Item 2. | Unregistered Sales of Securities and Use of Proceeds | 61
| Item 3. | Defaults Upon Senior Securities | 62
| Item 4. | Mine Safety Disclosures | 62
| Item 5. | Other Information | 62
| Item 6. | Exhibits | 62
Signatures | 63

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q and certain other written or oral statements made from time to time by Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) and its representatives that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to current expectations regarding our future financial condition and results of operations and are often identified by the use of words and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” “is likely to,” “is expected to” or “will continue,” or the negative of these terms or other comparable terminology. These forward-looking statements are based upon assumptions we believe are reasonable.

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

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

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

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

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

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

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

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

| • | consolidation within the baking industry and related industries;

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

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

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

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

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

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

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

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

1

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other public disclosures made by the company (such as in our oth er filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Refer to Part I, Item 1A., Risk Factors, of our Annual Re port on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”) for additional information regarding factors that could affect the company’s results of operations, financial condition and liquidity.

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

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

2

PART 1. FINA NCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)

|  | October 7, 2017 |  |  | December 31, 2016 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 7,074 |  |  | $ | 6,410 |
Accounts and notes receivable, net of allowances of $2,922 and $1,703, respectively |  |  | 294,438 |  |  |  | 271,913 |
Inventories, net: |  |  |  |  |  |  |  |
Raw materials |  |  | 40,920 |  |  |  | 41,830 |
Packaging materials |  |  | 20,523 |  |  |  | 20,354 |
Finished goods |  |  | 49,192 |  |  |  | 48,698 |
Inventories, net |  |  | 110,635 |  |  |  | 110,882 |
Spare parts and supplies |  |  | 60,736 |  |  |  | 59,509 |
Other |  |  | 51,138 |  |  |  | 28,128 |
Total current assets |  |  | 524,021 |  |  |  | 476,842 |
Property, plant and equipment, net: |  |  |  |  |  |  |  |
Property, plant and equipment, gross |  |  | 1,898,963 |  |  |  | 1,891,487 |
Less: accumulated depreciation |  |  | (1,163,036 | ) |  |  | (1,110,461 | )
Property, plant and equipment, net |  |  | 735,927 |  |  |  | 781,026 |
Notes receivable |  |  | 179,124 |  |  |  | 154,924 |
Assets held for sale |  |  | 20,742 |  |  |  | 36,976 |
Other assets |  |  | 9,561 |  |  |  | 9,758 |
Goodwill |  |  | 464,777 |  |  |  | 465,578 |
Other intangible assets, net |  |  | 748,527 |  |  |  | 835,964 |
Total assets |  | $ | 2,682,679 |  |  | $ | 2,761,068 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Current maturities of long-term debt and capital lease obligations |  | $ | 12,469 |  |  | $ | 11,490 |
Accounts payable |  |  | 184,076 |  |  |  | 173,102 |
Other accrued liabilities |  |  | 211,987 |  |  |  | 156,032 |
Total current liabilities |  |  | 408,532 |  |  |  | 340,624 |
Long-term debt: |  |  |  |  |  |  |  |
Total long-term debt and capital lease obligations |  |  | 843,639 |  |  |  | 946,667 |
Other liabilities: |  |  |  |  |  |  |  |
Post-retirement/post-employment obligations |  |  | 63,532 |  |  |  | 69,601 |
Deferred taxes |  |  | 125,613 |  |  |  | 145,854 |
Other long-term liabilities |  |  | 49,389 |  |  |  | 48,242 |
Total other long-term liabilities |  |  | 238,534 |  |  |  | 263,697 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Stockholders’ equity: |  |  |  |  |  |  |  |
Preferred stock — $100 stated par value, 200,000 authorized shares and none issued |  |  | — |  |  |  | — |
Preferred stock — $.01 stated par value, 800,000 authorized shares and none issued |  |  | — |  |  |  | — |
Common stock — $.01 stated par value and $.001 current par value, 500,000,000 authorized shares and 228,729,585 shares and 228,729,585 shares issued, respectively |  |  | 199 |  |  |  | 199 |
Treasury stock — 19,125,029 shares and 20,306,784 shares, respectively |  |  | (247,419 | ) |  |  | (261,812 | )
Capital in excess of par value |  |  | 648,396 |  |  |  | 644,456 |
Retained earnings |  |  | 876,900 |  |  |  | 910,520 |
Accumulated other comprehensive loss |  |  | (86,102 | ) |  |  | (83,283 | )
Total stockholders’ equity |  |  | 1,191,974 |  |  |  | 1,210,080 |
Total liabilities and stockholders’ equity |  | $ | 2,682,679 |  |  | $ | 2,761,068 |

(See Accompanying Notes to Condensed Consolidated Financial Statements)

3

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

(Unaudited)

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Sales |  | $ | 932,822 |  |  | $ | 918,791 |  |  | $ | 3,047,110 |  |  | $ | 3,058,168 |
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) |  |  | 476,170 |  |  |  | 476,760 |  |  |  | 1,552,263 |  |  |  | 1,575,905 |
Selling, distribution and administrative expenses |  |  | 355,599 |  |  |  | 341,538 |  |  |  | 1,171,062 |  |  |  | 1,124,473 |
Depreciation and amortization |  |  | 32,972 |  |  |  | 32,530 |  |  |  | 114,288 |  |  |  | 108,595 |
Restructuring and related impairment charges |  |  | 100,549 |  |  |  | — |  |  |  | 100,549 |  |  |  | — |
Gain on divestiture |  |  | — |  |  |  | — |  |  |  | (28,875 | ) |  |  | — |
Multi-employer pension plan withdrawal costs |  |  | 18,268 |  |  |  | — |  |  |  | 18,268 |  |  |  | — |
Pension plan settlement loss |  |  | 3,030 |  |  |  | 1,832 |  |  |  | 3,030 |  |  |  | 6,473 |
Income (loss) from operations |  |  | (53,766 | ) |  |  | 66,131 |  |  |  | 116,525 |  |  |  | 242,722 |
Interest expense |  |  | 8,194 |  |  |  | 9,440 |  |  |  | 28,255 |  |  |  | 26,157 |
Interest income |  |  | (5,464 | ) |  |  | (4,757 | ) |  |  | (17,199 | ) |  |  | (15,686 | )
Income (loss) before income taxes |  |  | (56,496 | ) |  |  | 61,448 |  |  |  | 105,469 |  |  |  | 232,251 |
Income tax expense (benefit) |  |  | (22,925 | ) |  |  | 21,232 |  |  |  | 33,882 |  |  |  | 81,517 |
Net income (loss) |  | $ | (33,571 | ) |  | $ | 40,216 |  |  | $ | 71,587 |  |  | $ | 150,734 |
Net income (loss) per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) per common share |  | $ | (0.16 | ) |  | $ | 0.19 |  |  | $ | 0.34 |  |  | $ | 0.72 |
Weighted average shares outstanding |  |  | 209,606 |  |  |  | 207,402 |  |  |  | 209,376 |  |  |  | 208,649 |
Diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) per common share |  | $ | (0.16 | ) |  | $ | 0.19 |  |  | $ | 0.34 |  |  | $ | 0.72 |
Weighted average shares outstanding |  |  | 209,606 |  |  |  | 208,944 |  |  |  | 210,231 |  |  |  | 210,564 |
Cash dividends paid per common share |  | $ | 0.1700 |  |  | $ | 0.1600 |  |  | $ | 0.5000 |  |  | $ | 0.4650 |

(See Accompanying Notes to Condensed Consolidated Financial Statements)

4

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Net income (loss) |  | $ | (33,571 | ) |  | $ | 40,216 |  |  | $ | 71,587 |  |  | $ | 150,734 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pension and postretirement plans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Settlement loss |  |  | 1,863 |  |  |  | 1,127 |  |  |  | 1,863 |  |  |  | 3,981 |
Net loss for the period |  |  | (2,707 | ) |  |  | (1,714 | ) |  |  | (2,707 | ) |  |  | (38,121 | )
Amortization of prior service cost included in net income |  |  | 21 |  |  |  | 29 |  |  |  | 79 |  |  |  | 79 |
Amortization of actuarial loss included in net income |  |  | 769 |  |  |  | 1,273 |  |  |  | 2,712 |  |  |  | 2,939 |
Pension and postretirement plans, net of tax |  |  | (54 | ) |  |  | 715 |  |  |  | 1,947 |  |  |  | (31,122 | )
Derivative instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in fair value of derivatives |  |  | (9,652 | ) |  |  | 3,433 |  |  |  | (5,932 | ) |  |  | 2,496 |
Loss reclassified to net income |  |  | 372 |  |  |  | 742 |  |  |  | 1,166 |  |  |  | 2,688 |
Derivative instruments, net of tax |  |  | (9,280 | ) |  |  | 4,175 |  |  |  | (4,766 | ) |  |  | 5,184 |
Other comprehensive income (loss), net of tax |  |  | (9,334 | ) |  |  | 4,890 |  |  |  | (2,819 | ) |  |  | (25,938 | )
Comprehensive income (loss) |  | $ | (42,905 | ) |  | $ | 45,106 |  |  | $ | 68,768 |  |  | $ | 124,796 |

(See Accompanying Notes to Condensed Consolidated Financial Statements)

5

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)

|  | Common Stock |  |  | Capital in |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Number of |  |  |  |  |  |  | Excess |  |  |  |  |  |  | Other |  |  | Treasury Stock |  |  |  |  |
|  | shares issued |  |  | Par Value |  |  | of Par Value |  |  | Retained Earnings |  |  | Comprehensive Income (Loss) |  |  | Number of Shares |  |  | Cost |  |  | Total |
Balances at December 31, 2016 |  |  | 228,729,585 |  |  | $ | 199 |  |  | $ | 644,456 |  |  | $ | 910,520 |  |  | $ | (83,283 | ) |  |  | (20,306,784 | ) |  | $ | (261,812 | ) |  | $ | 1,210,080 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 71,587 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 71,587 |
Derivative instruments, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,766 | ) |  |  |  |  |  |  |  |  |  |  | (4,766 | )
Pension and postretirement plans, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,947 |  |  |  |  |  |  |  |  |  |  |  | 1,947 |
Exercise of stock options |  |  |  |  |  |  |  |  |  |  | (1,702 | ) |  |  |  |  |  |  |  |  |  |  | 851,801 |  |  |  | 10,998 |  |  |  | 9,296 |
Amortization of share-based compensation awards |  |  |  |  |  |  |  |  |  |  | 11,708 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 11,708 |
Issuance of deferred compensation |  |  |  |  |  |  |  |  |  |  | (37 | ) |  |  |  |  |  |  |  |  |  |  | 2,788 |  |  |  | 37 |  |  |  | — |
Performance-contingent restricted stock awards issued (Note 14) |  |  |  |  |  |  |  |  |  |  | (4,240 | ) |  |  |  |  |  |  |  |  |  |  | 328,947 |  |  |  | 4,240 |  |  |  | — |
Issuance of deferred stock awards |  |  |  |  |  |  |  |  |  |  | (1,789 | ) |  |  |  |  |  |  |  |  |  |  | 138,354 |  |  |  | 1,789 |  |  |  | — |
Stock repurchases |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (140,135 | ) |  |  | (2,671 | ) |  |  | (2,671 | )
Dividends paid on vested share-based payment awards |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (553 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (553 | )
Dividends paid — $.5000 per common share |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (104,654 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (104,654 | )
Balances at October 7, 2017 |  |  | 228,729,585 |  |  | $ | 199 |  |  | $ | 648,396 |  |  | $ | 876,900 |  |  | $ | (86,102 | ) |  |  | (19,125,029 | ) |  | $ | (247,419 | ) |  | $ | 1,191,974 |

(See Accompanying Notes to Condensed Consolidated Financial Statements)

6

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

|  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income |  | $ | 71,587 |  |  | $ | 150,734 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Restructuring and related impairment charges |  |  | 100,549 |  |  |  | — |
Stock-based compensation |  |  | 11,708 |  |  |  | 15,005 |
Gain on divestiture |  |  | (28,875 | ) |  |  | — |
Loss reclassified from accumulated other comprehensive income to net income |  |  | 1,785 |  |  |  | 4,174 |
Depreciation and amortization |  |  | 114,288 |  |  |  | 108,595 |
Deferred income taxes |  |  | (18,476 | ) |  |  | (1,094 | )
Provision for inventory obsolescence |  |  | 1,535 |  |  |  | 937 |
Allowances for accounts receivable |  |  | 3,022 |  |  |  | 3,164 |
Pension and postretirement plans income |  |  | (879 | ) |  |  | 2,728 |
Other |  |  | (3,608 | ) |  |  | (422 | )
Qualified pension plan contributions |  |  | (1,605 | ) |  |  | (1,000 | )
Changes in operating assets and liabilities, net of acquisitions and disposals: |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | (26,457 | ) |  |  | (17,154 | )
Inventories, net |  |  | (7,241 | ) |  |  | (3,877 | )
Hedging activities, net |  |  | (14,814 | ) |  |  | 7,239 |
Other assets |  |  | (29,833 | ) |  |  | (812 | )
Accounts payable |  |  | 13,780 |  |  |  | 9,078 |
Other accrued liabilities |  |  | 24,786 |  |  |  | 8,528 |
NET CASH PROVIDED BY OPERATING ACTIVITIES |  |  | 211,252 |  |  |  | 285,823 |
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  |  | (51,213 | ) |  |  | (67,400 | )
Proceeds from sale of property, plant and equipment |  |  | 1,694 |  |  |  | 2,945 |
Repurchase of independent distributor territories |  |  | (11,187 | ) |  |  | (8,449 | )
Principal payments from notes receivable |  |  | 18,923 |  |  |  | 17,048 |
Proceeds from sale of mix plant |  |  | 41,230 |  |  |  | — |
Other investing activities |  |  | 523 |  |  |  | 358 |
NET CASH DISBURSED FOR INVESTING ACTIVITIES |  |  | (30 | ) |  |  | (55,498 | )
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Dividends paid, including dividends on share-based payment awards |  |  | (105,207 | ) |  |  | (97,808 | )
Exercise of stock options |  |  | 9,296 |  |  |  | 18,862 |
Payments for financing fees |  |  | (100 | ) |  |  | (3,508 | )
Stock repurchases, including accelerated stock repurchases |  |  | (2,671 | ) |  |  | (126,298 | )
Change in bank overdrafts |  |  | (10,626 | ) |  |  | (5,558 | )
Proceeds from debt borrowings |  |  | 585,200 |  |  |  | 1,916,592 |
Debt and capital lease obligation payments |  |  | (686,450 | ) |  |  | (1,939,450 | )
NET CASH DISBURSED FOR FINANCING ACTIVITIES |  |  | (210,558 | ) |  |  | (237,168 | )
Net increase (decrease) in cash and cash equivalents |  |  | 664 |  |  |  | (6,843 | )
Cash and cash equivalents at beginning of period |  |  | 6,410 |  |  |  | 14,378 |
Cash and cash equivalents at end of period |  | $ | 7,074 |  |  | $ | 7,535 |

(See Accompanying Notes to Condensed Consolidated Financial Statements)

7

FLOWERS FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

INTERIM FINANCIAL STATEMENTS — The accompanying unaudited Condensed Consolidated Financial Statements of Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) have been prepared by the company’s management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the unaudited Condensed Consolidated Financial Statements included herein contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the company’s financial position, results of operations and cash flows. The results of operations for the twelve and forty weeks ended October 7, 2017 and October 8, 2016 are not necessarily indicative of the results to be expected for a full fiscal year. The Condensed Consolidated Balance Sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Form 10-K”).

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

REPORTING PERIODS — The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2017 consists of 52 weeks, with the company’s quarterly reporting periods as follows: first quarter ended April 22, 2017 (sixteen weeks), second quarter ended July 15, 2017 (twelve weeks), third quarter ended October 7, 2017 (twelve weeks) and fourth quarter ending December 30, 2017 (twelve weeks).

SEGMENTS — Flowers Foods currently operates two business segments: a direct-store-delivery (“DSD”) segment (“DSD Segment”) and a warehouse delivery segment (“Warehouse Segment”). The DSD Segment (85% of total year to date sales) currently operates 39 plants that produce a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes. These products are sold through a DSD route delivery system to retail and foodservice customers in the East, South, Southwest, California, and select markets in the Midwest, Pacific Northwest, Nevada, and Colorado. The Warehouse Segment (15% of total year to date sales) currently operates nine plants that produce snack cakes, breads and rolls for national retail, foodservice, vending, and co-pack customers and deliver through customers’ warehouse channels.

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

SIGNIFICANT CUSTOMER — Following is the effect that our largest customer, Walmart/Sam’s Club, had on the company’s sales for the twelve and forty weeks ended October 7, 2017 and October 8, 2016. Walmart/Sam’s Club is the only customer to account for greater than 10% of the company’s sales.

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
|  | (% of Sales) |  |  | (% of Sales) |
DSD Segment |  |  | 17.6 |  |  |  | 17.2 |  |  |  | 17.7 |  |  |  | 17.0 |
Warehouse Segment |  |  | 2.5 |  |  |  | 2.6 |  |  |  | 2.4 |  |  |  | 2.7 |
Total |  |  | 20.1 |  |  |  | 19.8 |  |  |  | 20.1 |  |  |  | 19.7 |

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Walmart/Sam’s Club is our only customer with a balance greater than 10% of outstanding trade receivables. Its percentage of trade receivables was 18.2% and 18.8%, on a consolidated basis, as of October 7, 2017 and December 31, 2016, respectively. No othe r customer accounted for greater than 10% of the company’s outstanding trade receivables.

SIGNIFICANT ACCOUNTING POLICIES — There were no significant changes to our critical accounting policies for the quarter ended October 7, 2017 from those disclosed in the Form 10-K.

2. FINANCIAL STATEMENT REVISIONS

The company previously reported non-cash amounts as payments from notes receivable and payments for the repurchase of territories that should have been disclosed as non-cash transactions. The error impacted the Condensed Consolidated Statements of Cash Flows for the first, second, and third quarters of fiscal year 2016. These corrections did not impact our previously reported Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), and Condensed Consolidated Statements of Changes in Stockholders’ Equity.

The table below presents the revisions to the applicable Condensed Consolidated Statements of Cash Flows line item to correct the errors for the forty weeks ended October 8, 2016 (amounts in thousands):

|  | Condensed Consolidated Statements of Cash Flows |
|  | Forty Weeks Ended October 8, 2016 |
Impacted Condensed Consolidated Statements of Cash Flows line item |  | As Previously Reported |  |  | Revisions |  |  | As Revised* |
Other assets |  | $ | (1,925 | ) |  | $ | 1,113 |  |  | $ | (812 | )
Other accrued liabilities |  | $ | 11,393 |  |  | $ | (2,865 | ) |  | $ | 8,528 |
Net cash provided by operating activities |  | $ | 285,009 |  |  | $ | 814 |  |  | $ | 285,823 |
Repurchase of independent distributor territories |  | $ | (12,626 | ) |  | $ | 4,177 |  |  | $ | (8,449 | )
Principal payments from notes receivable |  | $ | 19,830 |  |  | $ | (2,782 | ) |  | $ | 17,048 |
Other investing activities |  | $ | — |  |  | $ | 358 |  |  | $ | 358 |
Net cash disbursed for investing activities |  | $ | (57,251 | ) |  | $ | 1,753 |  |  | $ | (55,498 | )

* | The “As revised” column in the table above presents the amounts inclusive of the recently adopted accounting pronouncements discussed in Note 3, Recent Accounting Pronouncements, below.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued guidance that entities should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The company adopted this guidance as of January 1, 2017 (the first day of our fiscal 2017) and the guidance was applied on a prospective basis. The impact since adoption has been immaterial.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. A summary at adoption is presented below:

| • | Accounting for income taxes. The new guidance eliminates the additional paid-in capital pool concept and requires that excess tax benefits and tax deficiencies be recorded in the income statement as a component of income tax expense when awards are settled. The recognition of excess tax benefits and deficiencies in the income statement will be applied prospectively. The company adopted the presentation of excess tax benefits on the statements of cash flows under the retrospective transition method. This is presented as a change from a financing activity to a reconciling cash flow item for operating activities for the forty weeks ended October 8, 2016. The net impact during the twelve weeks ended October 7, 2017 for all exercised and vested awards was a $0.5 million tax benefit. The net impact during the forty weeks ended October 7, 2017 for all exercised and vested awards was a $1.1 million tax expense.

| • | Accounting for share-based payment forfeitures. The new guidance permits entities to make a company-wide accounting policy election to either estimate forfeitures each period, as was required, or to account for forfeitures as they occur. The company’s forfeitures, before adoption, were immaterial and had been recorded as they occurred. At adoption, the company will continue to recognize forfeitures as they occur.

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| • | Accounting for statutory tax withholding requirements. The new guidance permits co mpanies to withhold an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction, without resulting in liability classification of the award. The company currently withholds the statutory minimum and will continue to do so until we complete an analysis of the required system changes which will allow the company to change its withholding practices in accordance with the new guidance. This amendment did not impact the company. Amendments related to the presentation of employee ta xes paid on the statement of cash flows when the employer withholds shares to meet the minimum statutory did not impact the company since we already reported cash flows in accordance with the new guidance.

The table below presents the impact to the Condensed Consolidated Statements of Cash Flows at adoption (amounts in thousands):

|  | For the Forty Weeks Ended |
|  |  |  |  |  | Post-adoption* |
|  | October 8, 2016 |  |  | October 8, 2016 |
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Other |  | $ | (2,988 | ) |  | $ | (422 | )
Net cash provided by operating activities |  |  | 285,009 |  |  |  | 285,823 |
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Excess windfall tax benefit related to share-based payment awards |  |  | 2,567 |  |  |  | — |
Net cash disbursed for financing activities |  | $ | (234,601 | ) |  | $ | (237,168 | )

* | The “Post-adoption” column in the table above presents the amounts inclusive of the revisions discussed in Note 2, Financial Statement Revisions.

See Note 14, Stock-Based Compensation, for details of our awards.

Accounting pronouncements not yet adopted

In May 2014, the FASB issued guidance for recognizing revenue in contracts with customers. This guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. There are five steps outlined in the guidance to achieve this core principle. This guidance was originally effective January 1, 2017, the first day of our fiscal 2017. In July 2015, the FASB issued a deferral for one year, making the effective date December 31, 2017, the first day of our fiscal 2018. In March 2016, the FASB amended the initial guidance to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB amended the initial guidance to clarify the identification of performance conditions and the licensing implementation guidance. In May 2016, the FASB amended the initial guidance to update certain narrow scopes within the revenue recognition guidance. In December 2016, the FASB amended the initial guidance for technical corrections and improvements. Early application is permitted, but not before January 1, 2017. Entities will have the option to apply the final standard retrospectively or use a modified retrospective method, recognizing the cumulative effect of the standards in retained earnings at the date of initial application. An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the standard as compared to the guidance in effect prior to the change, as well as reasons for significant changes. The company intends to report revenue under the updated standard in its first quarter filing of fiscal 2018. The company has selected the modified retrospective transition method.

The company has completed its study on the impact that implementing this standard will have on its financial statements, related disclosures and our internal control over financial reporting as well as whether the effect will be material to our revenue. The standard will not be material to our revenue at adoption. Changes will need to be made to our current internal control over financial reporting processes to ensure all contracts are reviewed for each of the five revenue recognition steps. Additionally, the company’s revenue disclosures will change in fiscal 2018 and beyond. The new disclosures will require more granularity into our sources of revenue, as well as the assumptions about recognition timing, and include our selection of certain practical expedients and policy elections. We are developing draft disclosures to ensure all of the requirements can be met with our current technology platforms. We do not believe our technology platforms require a material change. The study included how to account for pay-by-scan sales and estimated stale charges, whether revenue for a transaction involving a third party is reported net or gross, and the timing of income recognition on the sale of territories. These are not intended to be a complete inventory of the potentially impacted types of transactions. More impacted revenue sources may be discovered as we continue updating our internal control over financial reporting processes and preparing the draft disclosures.

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In Fe bruary 2016, the FASB issued guidance that requires an entity to recognize lease liabilities and a right-of-use asset for virtually all leases (other than those that meet the definition of a short-term lease) on the balance sheet and to disclose key inform ation about the entity’s leasing arrangements. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods, with earlier adoption permitted. This guidance must be adopted using a modified retrospective approach for all leases existing at, or entered into after, the date of initial adoption, with an option to elect to use certain transition relief. The company intends to adopt the updated standard in the first quarter of fiscal 2019. The company currently has significant operating leases with our fiscal 2016 lease expense totaling $97.4 million. We are in the final stages of selecting a new software tool to assist us in the abstracting process of our leases. This process will begin in our fourth quarter of fiscal 2017 and is anticipated to be complete in the second half of fiscal 2018. The company expects a significant impact to our Consolidated Financial Statements as a result of this guidance.

In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statements of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. The adoption of this new guidance will not be material to our Consolidated Financial Statements.

In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those period. Early application is allowed for transactions that have not been reported in financial statements that have been issued or made available for issuance. This guidance shall be applied prospectively at adoption. This guidance will impact the company’s assessment of the acquisition of either an asset or a business in future transactions beginning in our fiscal 2018.

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

In March 2017, the FASB issued guidance that requires all employers to separately present the service cost component from the other pension and postretirement benefit cost components in the income statement. Service cost will now be presented with other employee compensation costs in operating income or capitalized in assets, as appropriate. The other components reported in the income statement will be reported separate from the service cost and outside of income from operations. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. Early adoption was permitted as of the beginning of an annual reporting period for which financial statements were not issued or made available for issuance. However, early adoption is only allowed in the first interim period presented in a fiscal year; therefore, early adoption was only permitted in our first quarter of fiscal 2017. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost, and on a prospective basis for the capitalization of only the service cost component of net benefit cost. The company currently does not capitalize our pension cost. This guidance will impact the company. The company plans to adopt this standard in the first quarter of fiscal 2018. Our plan costs (including defined benefit and post-retirement plans) for the twelve and forty weeks ended October 7, 2017 are presented in the table below (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 7, 2017 |
Service cost to be reported in operating income |  | $ | 233 |  |  | $ | 778 |
Components to be reported outside of operating income |  |  | 1,709 |  |  |  | (1,658 | )
Total pension cost (income) |  | $ | 1,942 |  |  | $ | (880 | )

In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice for changes to the terms and conditions of a share-based payment award. This amendment provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments to this guidance are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is

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permitted, including adoption in any interim per iod, for reporting periods for which financial statements have not yet been issued. The amendments shall be applied prospectively to an award modified on or after the adoption date. The company intends to adopt this guidance in our first quarter of fisca l 2018. This guidance will impact any modified share-based payment awards beginning in our fiscal 2018.

In August 2017, the FASB issued guidance to hedge accounting. The new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The amendments in this guidance are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the guidance. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. The amended presentation and disclosure guidance are required prospectively. An entity may make certain transition elections upon adoption of the amendments. We are still assessing the impact of the guidance at adoption. The company intends to early adopt this guidance beginning in our first quarter of fiscal 2018. Certain transition elections will be made upon adoption of the amendments.

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

4. RESTRUCTURING ACTIVITIES

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

Reduce costs to fuel growth. The company is focusing on reducing costs in our purchased goods and services initiative and our supply chain optimization plan. Purchased goods and services operations will be centralized to create standardization, continuously improve, and develop consistent policies and specifications. Supply chain optimization intends to reduce operational complexity and capitalize on scale. This initiative includes, and will continue to include, consulting and other third-party costs as we finalize the organizational structure. We incurred $31.8 million for these non-restructuring consulting costs during the forty weeks ended October 7, 2017.

Develop leading capabilities. Today, we report our financial results in either the DSD Segment or the Warehouse Segment. On May 3, 2017, the company announced an enhanced organizational structure designed to provide greater focus on the company’s strategic objectives, emphasize brand growth and innovation in line with a national branded food company, drive enhanced accountability, reduce costs, and strengthen long-term strategy. The new organizational structure will establish two BUs, Fresh Bakery and Specialty/Snacking, and realigns key leadership roles. The new structure also provides for centralized marketing, sales, supply chain, shared-services/administrative, and corporate strategy functions, each with clearly defined roles and responsibilities. The company intends to transition to the new structure over the next several months with full implementation expected to be completed at the beginning of fiscal 2019. We began relocating certain employees during the third quarter of fiscal 2017 as we transition to the enhanced organizational structure. Reorganization costs of $0.5 million for relocating employees were incurred during the third quarter of fiscal 2017 in the restructuring and related impairment charges line item on the Condensed Consolidated Statements of Operations. We anticipate incurring additional reorganization costs as we continue implementing the enhanced organizational structure. The current DSD and warehouse segmentation will remain until the new structure is in place.

On July 17, 2017, the company commenced a voluntary employee separation incentive plan (the “VSIP”). The VSIP was implemented as part of our effort to restructure, streamline operations, and better position the company for profitable growth. The VSIP election period closed on September 25, 2017 and resulted in 323 employees accepting the offer. The separations began on September 7, 2017, with the remaining separations expected to occur primarily throughout the remainder of fiscal 2017. We recorded an aggregate charge of $29.0 million in the third quarter of fiscal 2017. Approximately 25% of this amount will be paid during the remainder of fiscal 2017, and the balance will be paid during the first quarter of fiscal 2018. These charges consist primarily of employee severance and benefits-related costs and are recorded in the restructuring and related impairment charges line item on our Condensed Consolidated Statements of Operations.

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Reinvigorate core business. This objective is to invest in our brands to align brands to consumers to maximize our return on investment. We expect to incur significant incremental marketing costs annually for brand development. These costs will not be restructuring and will be recognized as incurred. Project Centennial also included a brand rationalization study to identify high-potential and established brands to focus on innovation and cash flow, respec tively. The study, which concluded in our third quarter of fiscal 2017, changed the outlook for several brands and resulted in the recognition of an impairment on certain of these finite-lived and indefinite-lived intangible trademark assets in our third quarter of fiscal 2017. The total intangible asset impairment charges, which are recorded in the restructuring and related impairment charges line item in our Condensed Consolidated Statements of Operations, were $66.2 million. See Note 7, Goodwill and O ther Intangible Assets, for more information on these charges. Project Centennial is expected to be completed by our fiscal 2021. We were not able to estimate the timing or cost of these activities until this quarter.

On August 9, 2017, the company announced the closure of a Warehouse Segment snack cake plant in Winston-Salem, North Carolina. The bakery will close in November 2017. The closure costs were $4.4 million and consisted of $3.4 million for property, plant and equipment impairments and $1.0 million for employee termination benefits. These amounts are recorded in the restructuring and related impairment charges line item on our Condensed Consolidated Statements of Operations. The company continues to explore additional opportunities to streamline our core operations but as of October 7, 2017, we cannot estimate the additional costs to be incurred for this initiative.

Capitalize on product adjacencies. This initiative will focus on growing share in underdeveloped markets. Adjacencies are geographic and product categories that will allow us to leverage our competitive advantages. This can be done either organically with our high-potential brands or through strategic acquisitions. As of October 7, 2017, we cannot estimate how much this initiative will cost for restructuring.

See Note 17, Segment Reporting, for the allocation of restructuring charges to each of our segments. The table below presents the components of costs associated with Project Centennial (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 7, 2017 |
Restructuring and related impairment charges: |  |  |  |  |  |  |  |
Reorganization costs |  | $ | 516 |  |  | $ | 516 |
VSIP |  |  | 28,982 |  |  |  | 28,982 |
Impairment of assets |  |  | 69,651 |  |  |  | 69,651 |
Employee termination benefits |  |  | 1,400 |  |  |  | 1,400 |
Restructuring and related impairment charges (1) |  |  | 100,549 |  |  |  | 100,549 |
Project Centennial implementation costs (2) |  |  | 7,050 |  |  |  | 31,845 |
Total Project Centennial restructuring and implementation costs |  | $ | 107,599 |  |  | $ | 132,394 |

(1) | Presented on our Condensed Consolidated Statements of Operations.

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

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

|  | VSIP |  |  | Employee termination benefits(1) |  |  | Impairment of assets(2) |  |  | Reorganization costs(3) |  |  | Total |
Liability balance at December 31, 2016 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Charges |  |  | 28,982 |  |  |  | 1,400 |  |  |  | 69,651 |  |  |  | 516 |  |  |  | 100,549 |
Cash payments |  |  | (892 | ) |  |  | (147 | ) |  |  | — |  |  |  | (516 | ) |  |  | (1,555 | )
Non-cash settlements |  |  | — |  |  |  | — |  |  |  | (69,651 | ) |  |  | — |  |  |  | (69,651 | )
Liability balance (4) at October 7, 2017 |  | $ | 28,090 |  |  | $ | 1,253 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,343 |

(1) | Employee termination benefits are not related to the VSIP.

(2) | Asset impairments are a non-cash expense recorded as a reduction to intangible assets and property, plant, and equipment. These transactions did not impact the liability balance.

(3) | Reorganization costs include employee relocation expenses.

(4) | Recorded in the other accrued current liabilities line item of our Condensed Consolidated Balance Sheets.

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5. DIVESTITURE

On January 14, 2017, the company completed the sale of a non-core mix manufacturing business located in Cedar Rapids, Iowa for $44.0 million, an amount reduced by a working capital adjustment of $2.8 million, resulting in net proceeds of $41.2 million. This resulted in a gain on sale of $28.9 million, which was recognized in the first quarter of fiscal 2017. The gain on the sale is presented on the Condensed Consolidated Statements of Operations on the ‘Gain on divestiture’ line item. The mix manufacturing business was a small component of our Warehouse Segment and the disposal of this business does not represent a strategic shift in the segment’s operations or financial results. The table below presents a computation of the gain on divestiture (amounts in thousands):

Cash consideration received | $ | 41,230 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |
Property, plant, and equipment recorded as assets held for sale |  | 3,824 |
Goodwill |  | 801 |
Financial assets |  | 7,730 |
Net derecognized amounts of identifiable assets sold |  | 12,355 |
Gain on divestiture | $ | 28,875 |

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6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (“AOCI”)

The company’s total comprehensive income (loss) presently consists of net income, adjustments for our derivative financial instruments accounted for as cash flow hedges, and various pension and other postretirement benefit related items.

During the twelve and forty weeks ended October 7, 2017 and October 8, 2016, reclassifications out of AOCI were as follows (amounts in thousands):

|  | Amount Reclassified from AOCI |  |  |
|  | For the Twelve Weeks Ended |  |  | Affected Line Item in the Statement
Details about AOCI Components (Note 2) |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Where Net Income (Loss) is Presented
Gains and losses on cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (33 | ) |  | $ | (62 | ) |  | Interest expense
Commodity contracts |  |  | (571 | ) |  |  | (1,144 | ) |  | Cost of sales, Note 3
Total before tax |  |  | (604 | ) |  |  | (1,206 | ) |  | Total before tax
Tax benefit |  |  | 232 |  |  |  | 464 |  |  | Tax benefit
Total net of tax |  |  | (372 | ) |  |  | (742 | ) |  | Net of tax
Amortization of defined benefit pension items: |  |  |  |  |  |  |  |  |  |
Prior-service (cost) credits |  |  | (34 | ) |  |  | (47 | ) |  | Note 1
Settlement loss |  |  | (3,030 | ) |  |  | (1,832 | ) |  | Note 1
Actuarial losses |  |  | (1,251 | ) |  |  | (2,070 | ) |  | Note 1
Total before tax |  |  | (4,315 | ) |  |  | (3,949 | ) |  | Total before tax
Tax benefit |  |  | 1,662 |  |  |  | 1,520 |  |  | Tax benefit
Total net of tax |  |  | (2,653 | ) |  |  | (2,429 | ) |  | Net of tax
Total reclassifications |  | $ | (3,025 | ) |  | $ | (3,171 | ) |  | Net of tax
|  | Amount Reclassified from AOCI |  |  |
|  | For the Forty Weeks Ended |  |  | Affected Line Item in the Statement
Details about AOCI Components (Note 2) |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Where Net Income (Loss) is Presented
Gains and losses on cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (110 | ) |  | $ | (197 | ) |  | Interest expense
Commodity contracts |  |  | (1,785 | ) |  |  | (4,174 | ) |  | Cost of sales, Note 3
Total before tax |  |  | (1,895 | ) |  |  | (4,371 | ) |  | Total before tax
Tax benefit |  |  | 729 |  |  |  | 1,683 |  |  | Tax benefit
Total net of tax |  |  | (1,166 | ) |  |  | (2,688 | ) |  | Net of tax
Amortization of defined benefit pension items: |  |  |  |  |  |  |  |  |  |
Prior-service (cost) credits |  |  | (128 | ) |  |  | (128 | ) |  | Note 1
Settlement loss |  |  | (3,030 | ) |  |  | (6,473 | ) |  | Note 1
Actuarial losses |  |  | (4,410 | ) |  |  | (4,779 | ) |  | Note 1
Total before tax |  |  | (7,568 | ) |  |  | (11,380 | ) |  | Total before tax
Tax benefit |  |  | 2,914 |  |  |  | 4,381 |  |  | Tax benefit
Total net of tax |  |  | (4,654 | ) |  |  | (6,999 | ) |  | Net of tax
Total reclassifications |  | $ | (5,820 | ) |  | $ | (9,687 | ) |  | Net of tax

Note 1: | These items are included in the computation of net periodic pension cost. See Note 15, Post-retirement Plans, for additional information.

Note 2: | Amounts in parentheses indicate debits to determine net income (loss).

Note 3: | Amounts are presented as an adjustment to reconcile net income (loss) to net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

15

During the forty weeks ended October 7, 2017, changes to AOCI, net of income tax, by component were as follows (amounts in thousands and parentheses denote a debit balance):

|  | Gains/Losses on Cash Flow Hedges |  |  | Defined Benefit Pension Plan Items |  |  | Total |
AOCI at December 31, 2016 |  | $ | (1,061 | ) |  | $ | (82,222 | ) |  | $ | (83,283 | )
Other comprehensive income before reclassifications |  |  | (5,932 | ) |  |  | (2,707 | ) |  |  | (8,639 | )
Reclassified to earnings from AOCI |  |  | 1,166 |  |  |  | 4,654 |  |  |  | 5,820 |
AOCI at October 7, 2017 |  | $ | (5,827 | ) |  | $ | (80,275 | ) |  | $ | (86,102 | )

During the forty weeks ended October 8, 2016, changes to AOCI, net of income tax, by component were as follows (amounts in thousands and parentheses denote a debit balance):

|  | Gains/Losses on Cash Flow Hedges |  |  | Defined Benefit Pension Plan Items |  |  | Total |
AOCI at January 2, 2016 |  | $ | (10,190 | ) |  | $ | (86,610 | ) |  | $ | (96,800 | )
Other comprehensive income before reclassifications |  |  | 2,496 |  |  |  | (38,121 | ) |  |  | (35,625 | )
Reclassified to earnings from AOCI |  |  | 2,688 |  |  |  | 6,999 |  |  |  | 9,687 |
AOCI at October 8, 2016 |  | $ | (5,006 | ) |  | $ | (117,732 | ) |  | $ | (122,738 | )

Amounts reclassified out of AOCI to net income that relate to commodity contracts are presented as an adjustment to reconcile net income to net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. The following table presents the net of tax amount of the loss reclassified from AOCI for our commodity contracts (amounts in thousands and positive value indicates debits to determine net income):

|  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |
Gross loss reclassified from AOCI into income |  | $ | 1,785 |  |  | $ | 4,174 |
Tax benefit |  |  | (687 | ) |  |  | (1,607 | )
Net of tax |  | $ | 1,098 |  |  | $ | 2,567 |

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The table below summarizes our goodwill and other intangible assets at October 7, 2017 and December 31, 2016, respectively, each of which is explained in additional detail below (amounts in thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Goodwill |  | $ | 464,777 |  |  | $ | 465,578 |
Amortizable intangible assets, net of amortization |  |  | 541,927 |  |  |  | 592,964 |
Indefinite-lived intangible assets |  |  | 206,600 |  |  |  | 243,000 |
Total goodwill and other intangible assets |  | $ | 1,213,304 |  |  | $ | 1,301,542 |

The changes in the carrying amount of goodwill, by segment, during the forty weeks ended October 7, 2017, were as follows (amounts in thousands):

|  | DSD Segment |  |  | Warehouse Segment |  |  | Total |
Outstanding at December 31, 2016 |  | $ | 424,563 |  |  | $ | 41,015 |  |  | $ | 465,578 |
Change in goodwill related to divestiture |  |  | — |  |  |  | (801 | ) |  |  | (801 | )
Outstanding at October 7, 2017 |  | $ | 424,563 |  |  | $ | 40,214 |  |  | $ | 464,777 |

16

As of October 7, 2017 and December 31, 2016, respectively, the company had the following amounts related to amortizable intangible assets (amounts i n thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Asset |  | Cost |  |  | Accumulated Amortization |  |  | Net Value |  |  | Cost |  |  | Accumulated Amortization |  |  | Net Value |
Trademarks |  | $ | 372,480 |  |  | $ | 33,502 |  |  | $ | 338,978 |  |  | $ | 402,327 |  |  | $ | 25,129 |  |  | $ | 377,198 |
Customer relationships |  |  | 281,621 |  |  |  | 80,561 |  |  |  | 201,060 |  |  |  | 281,621 |  |  |  | 68,163 |  |  |  | 213,458 |
Non-compete agreements |  |  | 4,874 |  |  |  | 4,874 |  |  |  | — |  |  |  | 4,874 |  |  |  | 4,666 |  |  |  | 208 |
Distributor relationships |  |  | 4,123 |  |  |  | 2,234 |  |  |  | 1,889 |  |  |  | 4,123 |  |  |  | 2,023 |  |  |  | 2,100 |
Total |  | $ | 663,098 |  |  | $ | 121,171 |  |  | $ | 541,927 |  |  | $ | 692,945 |  |  | $ | 99,981 |  |  | $ | 592,964 |

Aggregate amortization expense for the twelve and forty weeks ended October 7, 2017 and October 8, 2016 was as follows (amounts in thousands):

|  | Amortization Expense |
For the twelve weeks ended October 7, 2017 |  | $ | 6,218 |
For the twelve weeks ended October 8, 2016 |  | $ | 5,586 |
For the forty weeks ended October 7, 2017 |  | $ | 21,190 |
For the forty weeks ended October 8, 2016 |  | $ | 18,979 |

Estimated amortization of intangibles for each of the next five years is as follows (amounts in thousands):

|  | Amortization of Intangibles |
Remainder of 2017 |  | $ | 6,005 |
2018 |  | $ | 25,780 |
2019 |  | $ | 25,288 |
2020 |  | $ | 24,795 |
2021 |  | $ | 24,230 |

During the twelve and forty weeks ended October 7, 2017, the company recognized intangible asset impairments of $66.2 million that are recorded in the restructuring and related impairment charges line item of our Condensed Consolidated Statements of Operations. The company is currently undergoing an enterprise-wide business and operational review as discussed in Note 4, Restructuring Activities, above. The review included a brand rationalization study that impacted certain trademarks’ future use. The study was completed in the third quarter of fiscal 2017. The study concluded that brands should be classified as either national or regional and brands that did not fit into those categories were to be discontinued. National brands would have more marketing support than the de-emphasized remaining regional brands and in many cases would shift sales from regional brands as certain regional brand bread products are discontinued. As a result of these actions, a triggering event occurred and we examined several trademarks for potential impairment. One of the trademarks was an indefinite-lived trademark asset and was tested by comparing the fair value of the brand to its carrying value. Three finite-lived trademark assets were tested using an undiscounted cash flow test. As a result of this test, the projected cash flows for these brands did not exceed the carrying value. The second step of the test determined the fair value of the asset and the difference between the fair value and the carrying value was recorded as an impairment. The impairment charge also consisted of six brands that either are being discontinued or will have limited future benefits to the company. These brands were fully impaired. All of these impairments were attributed to regional brands. Following the impairments, we evaluated the classification of the impaired indefinite-lived asset and determined that it should be reassigned as finite-lived with an estimated useful life of 30 years. The table below presents the impairments, by reporting segment, that were recognized during the twelve weeks ended October 7, 2017 (amounts in thousands):

|  | DSD Segment |  |  | Warehouse Segment |  |  | Total |
Indefinite-lived trademark asset impairments |  | $ | 18,500 |  |  | $ | — |  |  | $ | 18,500 |
Finite-lived trademark asset impairments |  |  | 36,612 |  |  |  | 11,135 |  |  |  | 47,747 |
Total |  | $ | 55,112 |  |  | $ | 11,135 |  |  | $ | 66,247 |

17

The remaining useful life for each of the impaired intangible assets was also reviewed at the time of the recoverability test. These brands will not be emphasized beyond the ir respective territories. We believe that these assets will continue to be recovered over a long period of time since the remaining regional brands are very strong and are long, well established brands in their territories. One finite-lived intangible a sset was concluded to have about half the original estimated useful life and will be amortized over the shorter term. The remaining assets will continue to be amortized under their remaining terms ranging from eleven to thirty-eight years.

There were $206.6 million and $243.0 million of indefinite-lived intangible trademark assets separately identified from goodwill at October 7, 2017 and December 31, 2016, respectively. These trademarks are classified as indefinite-lived because we believe they are well established brands, many older than forty years old, with a long history and well defined markets. In addition, we are continuing to use these brands both in their original markets and throughout our expansion territories. We believe these factors support an indefinite-life. We perform an annual impairment analysis, or on an interim basis if the facts and circumstances change, to determine if the trademarks are realizing their expected economic benefits.

8. 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. Notes receivable are entered into in connection with the purchase of independent distributors’ distribution rights by independent distributors. These notes receivable are recorded in the Condensed Consolidated Balance Sheets at carrying value, which represents the closest approximation of fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a result, the appropriate interest rate that should be used to estimate the fair value of the distributor notes receivable is the prevailing market rate at which similar loans would be made to independent distributors with similar credit ratings and for the same maturities. However, the company finances approximately 3,870 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 to apply to the notes receivable. The distribution rights are generally purchased with a 5% down payment with the remainder financed for up to ten years. The distributor notes receivable are collateralized by the independent distributors’ distribution rights. The company maintains a wholly-owned subsidiary to assist in financing the distribution rights purchase activities if requested by new independent distributors, using the distribution rights and certain associated assets as collateral. These notes receivable earn interest at a fixed rate.

Interest income for the distributor notes receivable was as follows (amounts in thousands):

|  | Interest Income |
For the twelve weeks ended October 7, 2017 |  | $ | 5,464 |
For the twelve weeks ended October 8, 2016 |  | $ | 4,757 |
For the forty weeks ended October 7, 2017 |  | $ | 17,199 |
For the forty weeks ended October 8, 2016 |  | $ | 15,686 |

At October 7, 2017 and December 31, 2016, respectively, the carrying value of the distributor notes receivable was as follows (amounts in thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Distributor notes receivable |  | $ | 201,589 |  |  | $ | 175,984 |
Current portion of distributor notes receivable recorded in accounts and notes receivable, net |  |  | 22,465 |  |  |  | 21,060 |
Long-term portion of distributor notes receivable |  | $ | 179,124 |  |  | $ | 154,924 |

At October 7, 2017 and December 31, 2016, respectively, the company has evaluated the collectability of the distributor notes receivable and determined that a reserve is not necessary. Payments on these distributor notes receivable are collected by the company weekly in conjunction with the distributor settlement process.

18

The fair value of the company’s variable rate debt at October 7, 2017 approximates the recorded value. The fair value of the company’s 3.5% senior notes due 2026 (“2026 notes”) and 4.375% senior notes due 2022 (“2022 notes”), as discussed in Note 10, Debt and Other Obligations, are estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements and are considered a Level 2 val uation. The fair value of the 2026 notes and 2022 notes are presented in the table below (amounts in thousands, except level classification):

|  | Carrying Value |  |  | Fair Value |  |  | Level
2026 notes |  | $ | 394,847 |  |  | $ | 395,472 |  |  | 2
2022 notes |  | $ | 397,828 |  |  | $ | 426,188 |  |  | 2

For fair value disclosure information about our derivative assets and liabilities see Note 9, Derivative Financial Instruments.

9. DERIVATIVE FINANCIAL INSTRUMENTS

The company measures the fair value of its derivative portfolio by using 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. These 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 at the measurement date

Level 2: | Modeled fair value with model inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: | Modeled fair value with unobservable model inputs that are used to estimate the fair value of the asset or liability

Commodity 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 for production.

As of October 7, 2017, the company’s hedge portfolio contained commodity derivatives, which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):

|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 277 |  |  | $ | — |  |  | $ | — |  |  | $ | 277 |
Other long-term |  |  | 176 |  |  |  | — |  |  |  | — |  |  |  | 176 |
Total |  |  | 453 |  |  |  | — |  |  |  | — |  |  |  | 453 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (9,533 | ) |  |  | — |  |  |  | — |  |  |  | (9,533 | )
Other long-term |  |  | (8 | ) |  |  | — |  |  |  | — |  |  |  | (8 | )
Total |  |  | (9,541 | ) |  |  | — |  |  |  | — |  |  |  | (9,541 | )
Net Fair Value |  | $ | (9,088 | ) |  | $ | — |  |  | $ | — |  |  | $ | (9,088 | )

As of December 31, 2016, the company’s hedge portfolio contained commodity derivatives, which are recorded in the following accounts with fair values measured as indicated (amounts in thousands):

|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  | $ | 1,576 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,576 |
Other long-term |  |  | 35 |  |  |  | — |  |  |  | — |  |  |  | 35 |
Total |  |  | 1,611 |  |  |  | — |  |  |  | — |  |  |  | 1,611 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current |  |  | (2,435 | ) |  |  | — |  |  |  | — |  |  |  | (2,435 | )
Total |  |  | (2,435 | ) |  |  | — |  |  |  | — |  |  |  | (2,435 | )
Net Fair Value |  | $ | (824 | ) |  | $ | — |  |  | $ | — |  |  | $ | (824 | )

19

The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix, or limit increases in, prices for a period of time extending primarily into fiscal 2019. These instruments are designated as cash-flow hedges. The effective portion o f changes in the fair value for these derivatives is reported in AOCI, and any ineffective portion of changes in the fair value for such derivatives is recorded in current period earnings in selling, distribution and administrative expenses. All of the com pany-held commodity derivatives at October 7, 2017 and December 31, 2016, respectively, qualified for hedge accounting.

Interest Rate Risk

The company entered into treasury rate locks on August 5, 2016 and August 8, 2016 to fix the interest rate for the 2026 notes issued on September 28, 2016. The derivative positions were closed when the debt was priced on September 23, 2016 with a net cash receipt of $1.0 million that offset changes in the benchmark treasury rate between execution of the treasury rate locks and the debt pricing date. These rate locks were designated as a cash flow hedge. During fiscal 2016, the company recognized $0.1 million of ineffectiveness due to issuing the debt earlier than the settlement date of the treasury locks. The ineffectiveness amount was reported as a selling, distribution, and administrative expense in our Condensed Consolidated Statements of Operations.

The company entered into a treasury rate lock on March 28, 2012 to fix the interest rate for the 2022 notes issued on April 3, 2012. The derivative position was closed when the debt was priced on March 29, 2012 with a cash settlement of $3.1 million that offset changes in the benchmark treasury rate between the execution of the treasury rate lock and the debt pricing date. This treasury rate lock was designated as a cash flow hedge.

The following table outlines the company’s derivatives, which were hedging the risk of changes in forecasted interest payments on forecasted issuance of long-term debt (amounts in thousands, before tax, and an asset is a positive value and a liability is a negative value):

Terminated |  | Description |  | Aggregate Notional Amount |  |  | Fair Value When Terminated |  |  | Fair Value Deferred in AOCI(1) |  |  | Ineffective Portion at Termination |
April/2012 |  | Treasury lock |  | $ | 500,000 |  |  | $ | (3,137 | ) |  | $ | 2,510 |  |  | $ | 627 |
September/2016 |  | Treasury lock |  | $ | 200,000 |  |  | $ | 1,298 |  |  | $ | (1,298 | ) |  | $ | — |
September/2016 |  | Treasury lock |  | $ | 150,000 |  |  | $ | (323 | ) |  | $ | 215 |  |  | $ | 108 |

(1) | The amount reported in AOCI is reclassified to interest expense as interest payments are made on the related notes through the maturity date.

Derivative Assets and Liabilities

The company has the following derivative instruments located on the Condensed Consolidated Balance Sheets, which are utilized for the risk management purposes detailed above (amounts in thousands):

|  | Derivative Assets |  |  | Derivative Liabilities |
|  | October 7, 2017 |  |  | December 31, 2016 |  |  | October 7, 2017 |  |  | December 31, 2016 |
Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Commodity contracts |  | Other current assets |  | $ | 277 |  |  | Other current assets |  | $ | 1,576 |  |  | Other current accrued liabilities |  | $ | 9,533 |  |  | Other current accrued liabilities |  | $ | 2,435 |
Commodity contracts |  | Other assets |  |  | 176 |  |  | Other assets |  |  | 35 |  |  | Other long-term liabilities |  |  | 8 |  |  | Other long-term liabilities |  |  | — |
Total |  |  |  | $ | 453 |  |  |  |  | $ | 1,611 |  |  |  |  | $ | 9,541 |  |  |  |  | $ | 2,435 |

20

Derivative AOCI transactions

The company had the following derivative instruments for deferred gains and (losses) on closed contracts and the effective portion for changes in fair value recorded in AOCI (no amounts were excluded from the effectiveness test), all of which are utilized for the risk management purposes detailed above (amounts in thousands and net of tax):

|  | Amount of Gain or (Loss) |  |  |  |  | Amount of (Gain) or Loss |
|  | Recognized in AOCI on Derivatives |  |  |  |  | Reclassified from AOCI |
|  | (Effective Portion) |  |  | Location of (Gain) or Loss |  | into Income (Effective Portion) |
Derivatives in Cash Flow |  | For the Twelve Weeks Ended |  |  | Reclassified from AOCI |  | For the Twelve Weeks Ended |
Hedge Relationships(1) |  | October 7, 2017 |  |  | October 8, 2016 |  |  | into Income (Effective Portion)(2) |  | October 7, 2017 |  |  | October 8, 2016 |
Interest rate contracts |  | $ | — |  |  | $ | 666 |  |  | Interest expense |  | $ | 21 |  |  | $ | 38 |
Commodity contracts |  |  | (9,652 | ) |  |  | 2,767 |  |  | Production costs(3) |  |  | 351 |  |  |  | 704 |
Total |  | $ | (9,652 | ) |  | $ | 3,433 |  |  |  |  | $ | 372 |  |  | $ | 742 |
|  | Amount of Gain or (Loss) |  |  |  |  | Amount of (Gain) or Loss |
|  | Recognized in AOCI on Derivatives |  |  |  |  | Reclassified from AOCI |
|  | (Effective Portion) |  |  | Location of (Gain) or Loss |  | into Income (Effective Portion) |
Derivatives in Cash Flow |  | For the Forty Weeks Ended |  |  | Reclassified from AOCI |  | For the Forty Weeks Ended |
Hedge Relationships(1) |  | October 7, 2017 |  |  | October 8, 2016 |  |  | into Income (Effective Portion)(2) |  | October 7, 2017 |  |  | October 8, 2016 |
Interest rate contracts |  | $ | — |  |  | $ | 666 |  |  | Interest expense |  | $ | 68 |  |  | $ | 121 |
Commodity contracts |  |  | (5,932 | ) |  |  | 1,830 |  |  | Production costs(3) |  |  | 1,098 |  |  |  | 2,567 |
Total |  | $ | (5,932 | ) |  | $ | 2,496 |  |  |  |  | $ | 1,166 |  |  | $ | 2,688 |

1. | Amounts in parentheses indicate debits to determine net income (loss).

2. | Amounts in parentheses, if any, indicate credits to determine net income (loss).

3. | Included in materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately).

There was no hedging ineffectiveness, and no amounts were excluded from the ineffectiveness testing, during the twelve and forty weeks ended October 7, 2017 and October 8, 2016, respectively, related to the company’s commodity risk hedges.

At October 7, 2017, the balance in AOCI related to commodity price risk and interest rate risk derivative transactions that closed or will expire over the following years are as follows (amounts in thousands and net of tax) (amounts in parenthesis indicate a debit balance):

|  | Commodity price risk derivatives |  |  | Interest rate risk derivatives |  |  | Totals |
Closed contracts |  | $ | (142 | ) |  | $ | (95 | ) |  | $ | (237 | )
Expiring in 2018 |  |  | (5,620 | ) |  |  | — |  |  |  | (5,620 | )
Expiring in 2019 |  |  | 2 |  |  |  | — |  |  |  | 2 |
Expiring in 2020 |  |  | 28 |  |  |  | — |  |  |  | 28 |
Total |  | $ | (5,732 | ) |  | $ | (95 | ) |  | $ | (5,827 | )

Derivative Transactions Notional Amounts

As of October 7, 2017, the company had the following outstanding financial contracts that were entered to hedge commodity risk (amounts in thousands):

|  | Notional amount |
Wheat contracts |  | $ | 128,682 |
Soybean oil contracts |  |  | 17,066 |
Natural gas contracts |  |  | 13,260 |
Total |  | $ | 159,008 |

21

The company’s derivative instruments contain no credit-risk related contingent features at October 7, 2017. As of October 7, 2017 and December 31, 2016, the company had $15.7 million and $3.0 million, respectively, in other current assets representing collateral for hedged positions. There were no amounts representing collateral recorded in other current accrued liabilities for hedged p ositions as of October 7, 2017 and December 31, 2016.

10. DEBT AND OTHER OBLIGATIONS

Long-term debt and capital leases (net of issuance costs and debt discounts excluding line-of-credit arrangements) consisted of the following at October 7, 2017 and December 31, 2016, respectively (amounts in thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Unsecured credit facility |  | $ | 6,500 |  |  | $ | 24,000 |
2026 notes |  |  | 394,847 |  |  |  | 394,406 |
2022 notes |  |  | 397,828 |  |  |  | 397,458 |
Accounts receivable securitization facility |  |  | 15,000 |  |  |  | 95,000 |
Capital lease obligations |  |  | 28,577 |  |  |  | 30,427 |
Other notes payable |  |  | 13,356 |  |  |  | 16,866 |
|  |  | 856,108 |  |  |  | 958,157 |
Current maturities of long-term debt and capital lease obligations |  |  | 12,469 |  |  |  | 11,490 |
Total long-term debt and capital lease obligations |  | $ | 843,639 |  |  | $ | 946,667 |

Bank overdrafts occur when checks have been issued but have not been presented to the bank for payment. Certain of our banks allow us to delay funding of issued checks until the checks are presented for payment. The delay in funding results in a temporary source of financing from the bank. The activity related to bank overdrafts is shown as a financing activity in our Condensed Consolidated Statements of Cash Flows. Bank overdrafts are included in other current accrued liabilities on our Condensed Consolidated Balance Sheets. As of October 7, 2017 and December 31, 2016, the bank overdraft balance was $9.3 million and $19.9 million, respectively.

The company also had standby letters of credit (“LOCs”) outstanding of $8.7 million and $9.1 million at October 7, 2017 and December 31, 2016, respectively, which reduce the availability of funds under the credit facility (as defined below). The outstanding LOCs are for the benefit of certain insurance companies and lessors. None of the outstanding LOCs are recorded as a liability on the Condensed Consolidated Balance Sheets.

2026 Notes, Accounts Receivable Securitization Facility, 2022 Notes, and Credit Facility

2026 Notes. On September 28, 2016, the company issued $400.0 million of senior notes. The company pays semiannual interest on the 2026 notes on each April 1 and October 1 and the 2026 notes will mature on October 1, 2026. The notes bear interest at 3.500% per annum. The 2026 notes are subject to interest rate adjustments if either Moody’s or S&P downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the 2026 notes. On any date prior to July 1, 2026, the company may redeem some or all of the notes at a price equal to the greater of (1) 100% of the principal amount of the notes redeemed and (2) a “make-whole” amount plus, in each case, accrued and unpaid interest. The make-whole amount is equal to the sum of the present values of the remaining scheduled payments of principal and interest on the 2026 notes to be redeemed that would be due if such notes matured July 1, 2026 (exclusive of interest accrued to, but not including, the date of redemption), discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate (as defined in the indenture governing the notes), plus 30 basis points, plus in each case accrued and unpaid interest. At any time on or after July 1, 2026, the company may redeem some or all of the 2026 notes at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest. If the company experiences a “change of control triggering event” (which involves a change of control of the company and the related rating of the notes below investment grade), it is required to offer to purchase the notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest thereon unless the company exercised its option to redeem the notes in whole. The 2026 notes are also subject to customary restrictive covenants for investment grade debt, including certain limitations on liens and sale and leaseback transactions.

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The face value of the 2026 notes is $400.0 million. There was a debt discount representing the difference between the net proceeds, after ex penses, received upon issuance of debt and the amount repayable at its maturity. The company also paid issuance costs of $3.6 million (including underwriting fees and legal fees) on the 2026 notes. Debt issuance costs and the debt discount are being amorti zed to interest expense over the term of the 2026 notes. As of October 7, 2017, and December 31, 2016, respectively, the company was in compliance with all restrictive covenants under the indenture governing the 2026 notes. The table below presents the de bt discount, underwriting fees and the legal and other fees for issuing the 2026 notes (amounts in thousands):

|  | Amount at Issuance |
Debt discount |  | $ | 2,108 |
Underwriting, legal, and other fees |  |  | 3,634 |
Total fees |  | $ | 5,742 |

Accounts Receivable Securitization Facility. On July 17, 2013, the company entered into an accounts receivable securitization facility (the “facility”). On August 7, 2014, the company entered into an amendment to the facility. The amendment (i) increased the revolving commitments under the facility to $200.0 million from $150.0 million, (ii) extended the term one year to July 17, 2016, and (iii) made certain other conforming changes. On December 17, 2014, the company executed a second amendment to the facility to add a bank to the lending group. The original commitment amount was split between the original lender and the new lender in the proportion of 62.5% for the original lender and 37.5% for the new lender. This modification, which was accounted for as an extinguishment of the debt, resulted in a charge of $0.1 million, or 37.5%, of the unamortized financing costs. On August 20, 2015, the company executed a third amendment to the facility to extend the term to August 11, 2017 and to add a leverage pricing grid. This amendment was accounted for as a modification. On September 30, 2016, the company executed a fourth amendment to the facility to extend the term to September 28, 2018. This amendment was accounted for as a modification. On September 28, 2017, the company executed a fifth amendment to the facility to extend the term to September 28, 2019. This amendment was accounted for as a modification and $0.1 million was paid for financing costs.

Under the facility, a wholly-owned, bankruptcy-remote subsidiary purchases, on an ongoing basis, substantially all trade receivables. As borrowings are made under the facility, the subsidiary pledges the receivables as collateral. In the event of liquidation of the subsidiary, its creditors would be entitled to satisfy their claims from the subsidiary’s pledged receivables prior to distributions of collections to the company. We include the subsidiary in our Condensed Consolidated Financial Statements. The facility contains certain customary representations and warranties, affirmative and negative covenants, and events of default. There was $15.0 million and $95.0 million outstanding under the facility as of October 7, 2017 and December 31, 2016, respectively. As of October 7, 2017 and December 31, 2016, respectively, the company was in compliance with all restrictive covenants under the facility. The company currently has $185.0 million available under its facility for working capital and general corporate purposes. Amounts available for withdrawal under the facility are determined as the lesser of the total commitments and a formula derived amount based on qualifying trade receivables.

Optional principal repayments may be made at any time without premium or penalty. Interest is due two days after our reporting periods end in arrears on the outstanding borrowings and is computed as the cost of funds rate plus an applicable margin of 85 basis points. An unused fee of 30 basis points is applicable on the unused commitment at each reporting period. Financing costs paid at inception of the facility and at the time amendments are executed are being amortized over the life of the facility. The balance of unamortized financing costs was $0.2 million on October 7, 2017 and December 31, 2016 and are recorded in other assets on the Condensed Consolidated Balance Sheets.

2022 Notes. On April 3, 2012, the company issued $400.0 million of senior notes. The company pays semiannual interest on the 2022 notes on each April 1 and October 1 and the 2022 notes will mature on April 1, 2022. The 2022 notes bear interest at 4.375% per annum. On any date prior to January 1, 2022, the company may redeem some or all of the 2022 notes at a price equal to the greater of (1) 100% of the principal amount of the notes redeemed and (2) a “make-whole” amount plus, in each case, accrued and unpaid interest. The make-whole amount is equal to the sum of the present values of the remaining scheduled payments of principal thereof (not including any interest accrued thereon to, but not including, the date of redemption), discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate (as defined in the indenture governing the notes), plus 35 basis points, plus in each case, unpaid interest accrued thereon to, but not including, the date of redemption. At any time on or after January 1, 2022, the company may redeem some or all of the 2022 notes at a price equal to 100% of the principal amount of the 2022 notes redeemed plus accrued and unpaid interest. If the company experiences a “change of control triggering event” (which involves a change of control of the company and the related rating of the notes below investment grade), it is required to offer to purchase the 2022 notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest thereon unless the company exercised its option to redeem the 2022 notes in whole. The 2022 notes are also subject to customary restrictive covenants for investment grade debt, including certain limitations on liens and sale and leaseback transactions.

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The face value of the 2022 notes is $400.0 million and the debt discount on the 2022 notes at issuance was $1.0 million. The company paid issuance costs (including underwriting fee s and legal fees) on the 2022 notes of $3.9 million. The issuance costs and the debt discount are being amortized to interest expense over the term of the 2022 notes. As of October 7, 2017 and December 31, 2016, the company was in compliance with all restr ictive covenants under the indenture governing the 2022 notes.

Credit Facility. On April 19, 2016, the company amended its senior unsecured credit facility (the “credit facility”), which was accounted for as a modification of the debt, that addressed changes in law affecting the terms of the existing agreement. In addition, the amendment increases the highest applicable margin applicable to base rate loans to 0.75% and the Eurodollar rate loans to 1.75%, in each case, based on the leverage ratio of the company. It also increases the highest applicable facility fee to 0.50%, due quarterly on all commitments under the credit facility. Previously, on April 21, 2015, the company amended the credit facility to extend the term to April 21, 2020, reduce the applicable margin on base rate and Eurodollar loans and reduce the facility fees, described below. The April 21, 2015 amendment was accounted for as a modification of the debt. The credit facility is a five-year, $500.0 million senior unsecured revolving loan facility. The credit facility contains a provision that permits us to request up to $200.0 million in additional revolving commitments, for a total of up to $700.0 million, subject to the satisfaction of certain conditions. Proceeds from the credit facility may be used for working capital and general corporate purposes, including capital expenditures, acquisition financing, refinancing of indebtedness, dividends 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 (4.50 times computed interest expense) and a maximum leverage ratio (3.75 times computed earnings). As of October 7, 2017 and December 31, 2016, respectively, the company was in compliance with all restrictive covenants under the credit facility.

Interest is due either monthly or quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus applicable margin, respectively. The underlying rate is defined as rates offered in the interbank Eurodollar market, or the higher of the prime lending rate or the federal funds rate plus 0.50%, with a floor rate defined by the one-month interbank Eurodollar market rate plus 1.00%. The applicable margin ranges from 0.0% to 0.75% for base rate loans and from 0.70% to 1.75% for Eurodollar loans. In addition, a facility fee ranging from 0.05% to 0.50% 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 paid at inception of the credit facility and at the time amendments are executed are being amortized over the life of the credit facility. The balance of unamortized financing costs was $0.9 million and $1.1 million on October 7, 2017 and December 31, 2016, respectively, and are recorded in other assets on the Condensed Consolidated Balance Sheets.

Amounts outstanding under the credit facility vary daily. Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions, which are part of the company’s overall risk management strategy as discussed in Note 9, Derivative Financial Instruments. The table below presents the borrowings and repayments under the credit facility during the forty weeks ended October 7, 2017.

|  | Amount (thousands) |
Balance at December 31, 2016 |  | $ | 24,000 |
Borrowings |  |  | 421,200 |
Payments |  |  | (438,700 | )
Balance at October 7, 2017 |  | $ | 6,500 |

The table below presents the net amount available under the credit facility as of October 7, 2017:

|  | Amount (thousands) |
Gross amount available |  | $ | 500,000 |
Outstanding |  |  | (6,500 | )
Letters of credit |  |  | (8,698 | )
Available for withdrawal |  | $ | 484,802 |

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The table below presents the highest and lowest outstanding balance under the credit facility during the forty weeks ended October 7, 2017:

|  | Amount (thousands) |
High balance |  | $ | 47,500 |
Low balance |  | $ | — |

The company paid off two term loans during the third quarter of fiscal 2016 at issuance of the 2026 notes. A total of $1.9 million was recognized as an extinguishment of debt cost at payoff. The loss on extinguishment was recorded as interest expense.

Aggregate maturities of debt outstanding, including capital leases and the associated interest, as of October 7, 2017, are as follows (excluding unamortized debt discount and issuance costs) (amounts in thousands):

Remainder of 2017 |  | $ | 2,676 |
2018 |  |  | 12,095 |
2019 |  |  | 25,623 |
2020 |  |  | 11,844 |
2021 |  |  | 3,598 |
2022 and thereafter |  |  | 807,991 |
Total |  | $ | 863,827 |

Debt discount and issuance costs are being amortized straight-line (which approximates the effective method) over the term of the underlying debt outstanding. The table below reconciles the debt issuance costs and debt discounts to the net carrying value of each of our debt obligations (excluding line-of-credit arrangements) at October 7, 2017 (amounts in thousands):

|  |  |  |  |  | Debt issuance costs |  |  |  |  |
|  | Face Value |  |  | and debt discount |  |  | Net carrying value |
2026 notes |  | $ | 400,000 |  |  | $ | 5,153 |  |  | $ | 394,847 |
2022 notes |  |  | 400,000 |  |  |  | 2,172 |  |  |  | 397,828 |
Other notes payable |  |  | 13,750 |  |  |  | 394 |  |  |  | 13,356 |
Total |  | $ | 813,750 |  |  | $ | 7,719 |  |  | $ | 806,031 |

The table below reconciles the debt issuance costs and debt discounts to the net carrying value of each of our debt obligations (excluding line-of-credit arrangements) at December 31, 2016 (amounts in thousands):

|  |  |  |  |  | Debt issuance costs |  |  |  |  |
|  | Face Value |  |  | and debt discount |  |  | Net carrying value |
2026 notes |  | $ | 400,000 |  |  | $ | 5,594 |  |  | $ | 394,406 |
2022 notes |  |  | 400,000 |  |  |  | 2,542 |  |  |  | 397,458 |
Other notes payable |  |  | 17,500 |  |  |  | 634 |  |  |  | 16,866 |
Total |  | $ | 817,500 |  |  | $ | 8,770 |  |  | $ | 808,730 |

The company also leases certain property and equipment under various operating and capital lease arrangements. During the forty weeks ended October 7, 2017, the company terminated certain operating lease contracts prior to the maturity date, which resulted in net termination costs. The net termination costs consisted of $1.2 million of lease termination gain recognized in the selling, distribution and administrative line item and $1.8 million of lease termination costs recognized in the depreciation and amortization line item of our Condensed Consolidated Statements of Operations.

11. VARIABLE INTEREST ENTITIES

Transportation agreement variable interest entity (the “VIE”) analysis

The company maintains a transportation agreement with an entity that 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 VIE, but the company has determined it is not the primary beneficiary of the VIE because the company does not (i) have the ability to direct the significant activities of the VIE that would affect its ability to

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operate its business and (ii) provide the VIE any implicit or explicit guarantees or other financial support to the VIE for specific return or performance benchmarks. In addition, we do not, nor do we intend to, provide financial or other supp ort to the VIE.

The company has concluded that certain of the trucks and trailers used by the VIE to distribute our products from the production facilities to outlying distribution centers qualify as right to use leases. As of October 7, 2017 and December 31, 2016, there was $28.6 million and $30.4 million, respectively, in net property, plant and equipment and capital lease obligations associated with the right to use leases.

Distribution rights agreement VIE analysis

The incorporated independent distributors (“IDs”) in the DSD Segment qualify as VIEs. The independent distributors who are formed as sole proprietorships are excluded from the following VIE accounting analysis and discussion.

IDs acquire distribution rights and enter into a contract with the company to sell the company’s products in the IDs’ defined geographic territory. The IDs have the option to finance the acquisition of their distribution rights with the company. They can also pay cash or obtain external financing at the time they acquire the distribution rights. The combination of the company’s loans to the IDs and the ongoing distributor arrangements with the IDs provide a level of funding to the equity owners of the various IDs that would not otherwise be available. As of October 7, 2017 and December 31, 2016, there was $123.5 million and $84.3 million, respectively, in gross distribution rights notes receivable outstanding for IDs.

The company is not considered to be the primary beneficiary of the VIEs because the company does not (i) have the ability to direct the significant activities of the VIEs that would affect their ability to operate their respective businesses and (ii) provide any implicit or explicit guarantees or other financial support to the VIEs, other than the financing described above, for specific return or performance benchmarks. The activities controlled by the IDs that are deemed to most significantly impact the ultimate success of the ID entities relate to those decisions inherent in operating the distribution business in the territory, including acquiring trucks and trailers, managing fuel costs, employee matters and other strategic decisions. In addition, we do not, nor do we intend to, provide financial or other support to the IDs. The IDs are responsible for the operations of their respective territories.

The company’s maximum contractual exposure to loss for the IDs relates to the distribution rights note receivable for the portion of the territory the IDs financed at the time they acquired the distribution rights. The IDs remit payment on their distribution rights note receivable each week during the settlement process of their weekly activity. The company will operate a territory on behalf of an ID in situations where the ID has abandoned its distribution rights. Any remaining balance outstanding on the distribution rights note receivable is relieved once the distribution rights have been sold on the IDs behalf. The company’s collateral from the territory distribution rights mitigates potential losses.

12. COMMITMENTS AND CONTINGENCIES

Self-insurance reserves and other commitments and contingencies

The company has recorded current liabilities of $38.8 million and $28.0 million related to self-insurance reserves, excluding the distributor litigation discussed below, at October 7, 2017 and December 31, 2016, respectively. The reserves include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on the company’s assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and current cost trends. The amount of the company’s ultimate liability in respect of these matters may differ materially from these estimates.

In the event the company ceases to utilize the independent distribution model of doing business or exits a geographic market, the company is contractually required to purchase the distribution rights from the independent distributor. The company expects to continue operating under this model and the possibility of a loss is remote.

The company’s facilities are subject to various federal, state and local laws and regulations regarding the discharge of material into the environment and the protection of the environment in other ways. The company is not a party to any material proceedings arising under these laws and regulations. The company believes that compliance with existing environmental laws and regulations will not materially affect the consolidated financial condition, results of operations, cash flows or the competitive position of the company. The company believes it is currently in substantial compliance with all material environmental laws and regulations affecting the company and its properties. On August 9, 2016, the U.S. Department of Labor (the “DOL”) notified the company that it was scheduled for a compliance review under the Fair Labor Standards Act (“FLSA”). The company is cooperating with the DOL.

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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 consolidated financial condition, results of operations or cash flows in the future. However, adverse developments could negatively impact earnings in a particular future fiscal period.

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At this time, the company is defending 32 complaints filed by distributors alleging that such distributors were m isclassified as independent contractors. Twenty-two of these lawsuits seek class and/or collective action treatment. The remaining ten cases either allege individual claims or do not seek class or collective action treatment or, in cases in which class tr eatment was sought, the court denied class certification. The respective courts have ruled on plaintiffs’ motions for class certification in 14 of the pending cases, each of which is discussed below and in each case where a class has been conditionally cer tified under the FLSA, the company has the ability to petition the court to decertify that class at a later date:

Case |  | Status
Martinez et al. v. Flowers Foods, Inc., Flowers Bakeries Brands, Inc., Flowers Baking Co. of California, LLC, and Flowers Baking Co. of Henderson, LLC | On July 7, 2015, Giovanni Martinez and certain other plaintiffs filed various California state law wage claims against the company and certain of its subsidiaries in the U.S. District Court for the Central District of California. On February 1, 2016, the court denied a motion to certify these claims as a class action. This lawsuit was settled on confidential terms, and dismissed with prejudice on July 7, 2016. The denial of the class certification is currently on appeal to the U.S. Court of Appeals for the Ninth Circuit.
Rosinbaum et al. v. Flowers Foods, Inc. and Franklin Baking Co., LLC | On December 1, 2015, Bobby Jo Rosinbaum and certain other plaintiffs filed a complaint against the company and one of its subsidiaries, which is currently pending in the U.S. District Court for the Eastern District of North Carolina. On March 1, 2017, the court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Franklin Baking Co., LLC since November 4, 2013. Plaintiff also alleges in his complaint a North Carolina state law wage claim and an unfair and deceptive trade practices claim.
Coyle v. Flowers Foods, Inc. and Holsum Bakery, Inc. | On July 20, 2015, Terry Coyle filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the District of Arizona. On August 30, 2016, the court conditionally certified under the FLSA a collective action consisting of all individuals who entered into a distributor agreement with Holsum Bakery, Inc. since August 30, 2013. The court limited the conditionally certified class to distributors operating within the State of Arizona. Plaintiff also alleges in his complaint Arizona state law wage claims. On October 4, 2017, the parties filed with the court a Motion for Preliminary Approval of Class Action Settlement informing the court that the parties reached an agreement to settle this matter for a payment of $4.3 million, comprised of $1.2 million in settlement funds, $2.9 million in attorneys’ fees, and $0.2 million as an incentive for class members who are active distributors not to opt out of certain portions of the new distributor agreement. This settlement charge has been recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Operations during the third quarter of fiscal 2017. The settlement also contains certain non-economic terms that are included to strengthen and enhance the independent contractor model, which remains in place. The parties are working to obtain final court approval of the settlement.
McCurley v. Flowers Foods, Inc. and Derst Baking Co., LLC | On January 20, 2016, Paul McCurley filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the District of South Carolina. On October 24, 2016, the Court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Derst Baking Co., LLC since January 20, 2013. Plaintiff also alleges in his complaint a South Carolina state law wage claim.
Neff et al. v. Flowers Foods, Inc., Lepage Bakeries Park Street, LLC, and CK Sales Co., LLC | On December 2, 2015, Nick Neff and certain other plaintiffs filed a complaint against the company and certain of its subsidiaries in the U.S. District Court for the District of Vermont. On November 7, 2016, the court conditionally certified under the FLSA a collective action consisting of all individuals who entered into a distributor agreement with Lepage Bakeries Park Street, LLC or CK Sales Co., LLC since December 2, 2012. The court excluded from the class distributors operating in the State of Maine. Plaintiffs also allege in their complaint Vermont state law wage and consumer fraud claims.
Noll v. Flowers Foods, Inc., Lepage Bakeries Park Street, LLC, and CK Sales Co., LLC | On December 3, 2015, Timothy Noll filed a complaint against the company and certain of its subsidiaries in the U.S. District Court for the District of Maine. On January 20, 2017, the court conditionally certified under the FLSA a collective action consisting of all individuals who entered into a distributor agreement with Lepage Bakeries Park Street, LLC or CK Sales Co., LLC since December 3, 2012. The court limited the class to distributors operating within the State of Maine. Plaintiff also alleges in his complaint Maine state law wage claims.

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Zapata et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Houston, LLC | On March 14, 2016, Raul Zapata and certain other plaintiffs filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the Southern District of Texas. On December 20, 2016, the court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Flowers Baking Co. of Houston, LLC since December 13, 2013. The court limited the class to distributors in the State of Texas who hired helpers.
Rodriguez et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Houston, LLC | On January 28, 2016, David Rodriguez and certain other plaintiffs filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the Southern District of Texas. On December 13, 2016, the court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Flowers Baking Co. of Houston, LLC since December 13, 2013. The court limited the class to distributors in the State of Texas who did not hire helpers.
Richard et al. v. Flowers Foods, Inc., Flowers Baking Co. of Lafayette, LLC, Flowers Baking Co. of Baton Rouge, LLC, Flowers Baking Co. of Tyler, LLC and Flowers Baking Co. of New Orleans, LLC | On October 21, 2015, Antoine Richard and certain other plaintiffs filed a complaint against the company and certain of its subsidiaries in the U.S. District Court for the Western District of Louisiana. On November 28, 2016, the court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Flowers Baking Co. of Lafayette, LLC, Flowers Baking Co. of Baton Rouge, LLC, and Flowers Baking Co. of Tyler, LLC since June 23, 2013. The court limited the class to distributors operating within the State of Louisiana. Plaintiffs also allege in their complaint a Louisiana state law wage claim. On February 15, 2017, the court allowed Plaintiffs to reassert claims against Flowers Baking Co. of New Orleans, LLC that previously had been dismissed from the case. On March 20, 2017, the court expanded the previously conditionally certified collective class to include individuals who entered into distributor agreements with Flowers Baking Co. of New Orleans, LLC and operated within the State of Louisiana.
Carr et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Oxford, LLC |  | On December 1, 2015, Matthew Carr and certain other plaintiffs filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the Eastern District of Pennsylvania. On January 26, 2017, the Court conditionally certified under the FLSA a collective action consisting of all individuals who entered into a distributor agreement with Flowers Baking Co. of Oxford, LLC since January 26, 2014. Plaintiffs also allege in their complaint New York, Pennsylvania, and Maryland state law wage claims.
Boulange v. Flowers Foods, Inc. and Flowers Baking Co. of Oxford, LLC |  | On March 24, 2016, Luke Boulange filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the District of New Jersey. On June 30, 2016, this case was transferred to the U.S. District Court for the Eastern District of Pennsylvania and consolidated with the Carr litigation described above.
Soares et al. v. Flowers Foods, Inc., Flowers Bakeries Brands, Inc., Flowers Baking Co. of California, LLC, and Flowers Baking Co. of Modesto, LLC |  | On October 26, 2015, Mark Soares and certain other plaintiffs filed various California state law wage claims against the company and certain of its subsidiaries in the U.S. District Court for the Northern District of California. On June 28, 2017, the court denied a motion to certify these claims as a class action.
Medrano v. Flowers Foods, Inc. and Flowers Baking Co. of El Paso, LLC |  | On April 27, 2016, Paul Medrano filed a complaint against the company and one of its subsidiaries in the U.S. District Court for the District of New Mexico. On July 3, 2017, the Court conditionally certified under the FLSA a collective action consisting of all individuals operating under a distributor agreement with Flowers Baking Co. of El Paso, LLC since July 3, 2014. Plaintiffs also allege in their complaint a New Mexico state law wage claim.
Schucker et al. v. Flowers Foods, Inc., Lepage Bakeries Park St., LLC, and C.K. Sales Co., LLC |  | On May 9, 2016, Ross Schucker and certain other plaintiffs filed a complaint against the company and certain of its subsidiaries in the U.S. District Court for the Southern District of New York. On August 24, 2017, the court denied a motion for conditional certification of a class under the Fair Labor Standards Act.

The company and/or its respective subsidiaries are vigorously defending all of these lawsuits. Given the stage of the complaints and the claims and issues presented, except for lawsuits disclosed herein that have reached a settlement or agreement in principle, a

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loss is reasonably possible but the company cannot reasonably estimate at this time the possible loss or range of loss that may arise from the unresolved lawsuits.

On December 9, 2016, Flowers Foods and Flowers Baking Co. of Jamestown, LLC reached an agreement to settle a lawsuit that asserted claims under the FLSA and a North Carolina state wage law which had been certified as a collective and class action (Rehberg et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Jamestown, LLC) for a payment of $9.0 million, comprised of $5.2 million in settlement funds and $3.8 million in attorneys’ fees. The settlement also includes certain non-economic terms that are intended to strengthen and enhance the independent contractor model. On June 30, 2017, the court approved this agreement, which includes approximately 270 class members, and dismissed the lawsuit with prejudice. This settlement charge was recorded as a selling, distribution and administrative expense in our Consolidated Statements of Operations during the fourth quarter of fiscal 2016. The lawsuit was originally filed on September 12, 2012, by Scott Rehberg and certain other plaintiffs in the U.S. District Court for the Western District of North Carolina. The company paid the settlement during the third quarter of our fiscal 2017.

On November 8, 2016, Flowers Foods' subsidiary, Lepage Bakeries, reached an agreement to settle a lawsuit seeking class action treatment (Bokanoski et al. v. Lepage Bakeries Park Street, LLC and CK Sales Co., LLC), originally filed by Bart Bokanoski and certain other plaintiffs in the U.S. District Court for the District of Connecticut on January 6, 2015, for $1.25 million, including attorneys' fees. The settlement also includes certain non-economic terms which are intended to strengthen and enhance the independent contractor model. On March 13, 2017, the court approved this agreement, which includes 49 territories, and dismissed the lawsuit with prejudice. This settlement was recorded in selling, distribution and administrative expenses in our Consolidated Statements of Operations during the third quarter of our fiscal 2016 and was paid during the first quarter of fiscal 2017.

On February 28, 2017, Flowers Foods and Flowers Baking Co. of Batesville, LLC reached an agreement to settle a lawsuit that had been conditionally certified as a collective action under the FLSA (Stewart v. Flowers Foods, Inc. and Flowers Baking Co. of Batesville, LLC), originally filed by Jacky Stewart and one other plaintiff in the U.S. District Court for the Western District of Tennessee, for $250,000, including attorneys’ fees. The settlement also includes certain non-economic terms which are intended to strengthen and enhance the independent contractor model. On April 10, 2017, the court approved this agreement, which resolves the claims of sixteen distributors, and dismissed the lawsuit with prejudice. This settlement was recorded in selling, distribution and administrative expenses in our Condensed Consolidated Statements of Operations and paid during the first quarter of fiscal 2017.

On August 12, 2016, a class action complaint was filed in the U.S. District Court for the Southern District of New York by Chris B. Hendley (the “Hendley complaint”) against the company and certain senior members of management (collectively, the “defendants”). On August 17, 2016, another class action complaint was filed in the U.S. District Court for the Southern District of New York by Scott Dovell, II (the “Dovell complaint” and together with the Hendley complaint, the “complaints”) against the defendants. Plaintiffs in the complaints are securities holders that acquired company securities between February 7, 2013 and August 10, 2016. The complaints generally allege that the defendants made materially false and/or misleading statements and/or failed to disclose that (1) the company’s labor practices were not in compliance with applicable federal laws and regulations; (2) such non-compliance exposed the company to legal liability and/or negative regulatory action; and (3) as a result, the defendants’ statements about the company’s business, operations, and prospects were false and misleading and/or lacked a reasonable basis. The counts of the complaints are asserted against the defendants pursuant to Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 under the Exchange Act. The complaints seek (1) class certification under the Federal Rules of Civil Procedure, (2) compensatory damages in favor of the plaintiffs and all other class members against the defendants, jointly and severally, for all damages sustained as a result of wrongdoing, in an amount to be proven at trial, including interest, and (3) awarding plaintiffs and the class their reasonable costs and expenses incurred in the actions, including counsel and expert fees. On October 21, 2016, the U.S. District Court for the Southern District of New York consolidated the complaints into one action captioned “In re Flowers Foods, Inc. Securities Litigation” (the “consolidated action”), appointed Walter Matthews as lead plaintiff (“lead plaintiff”), and appointed Glancy Prongay & Murray LLP and Johnson & Weaver, LLP as co-lead counsel for the putative class. On November 21, 2016, the court granted defendants’ and lead plaintiff’s joint motion to transfer the consolidated action to the U.S. District Court for the Middle District of Georgia. Lead plaintiff filed his Consolidated Class Action Complaint on January 12, 2017, raising the same counts and general allegations and seeking the same relief as the Dovell and Hendley complaints. On March 13, 2017, the company filed a motion to dismiss the lawsuit which remains pending before the court at this time. The company and/or its respective subsidiaries are vigorously defending these lawsuits. Given the stage of the complaints and the claims and issues presented, the company cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from the unresolved lawsuits.

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13. EARNINGS (LOSS) PER SHARE

The following is a reconciliation of net income and weighted average shares for calculating basic and diluted earnings per common share for the twelve and forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts and shares in thousands, except per share data):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Net income (loss) |  | $ | (33,571 | ) |  | $ | 40,216 |  |  | $ | 71,587 |  |  | $ | 150,734 |
Basic Earnings (Loss) Per Common Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted average shares outstanding for common stock |  |  | 209,606 |  |  |  | 207,402 |  |  |  | 209,376 |  |  |  | 208,649 |
Basic earnings (loss) per common share |  | $ | (0.16 | ) |  | $ | 0.19 |  |  | $ | 0.34 |  |  | $ | 0.72 |
Diluted Earnings (Loss) Per Common Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted average shares outstanding for common stock |  |  | 209,606 |  |  |  | 207,402 |  |  |  | 209,376 |  |  |  | 208,649 |
Add: Shares of common stock assumed issued upon exercise of stock options and vesting of restricted stock |  |  | — |  |  |  | 1,542 |  |  |  | 855 |  |  |  | 1,915 |
Diluted weighted average shares outstanding for common stock |  |  | 209,606 |  |  |  | 208,944 |  |  |  | 210,231 |  |  |  | 210,564 |
Diluted earnings (loss) per common share |  | $ | (0.16 | ) |  | $ | 0.19 |  |  | $ | 0.34 |  |  | $ | 0.72 |

There were 1,682,086 and 792,136, respectively, of anti-dilutive shares during the twelve and forty weeks ended October 7, 2017 and there were no anti-dilutive shares during the twelve and forty weeks ended October 8, 2016.

14. STOCK-BASED COMPENSATION

On March 5, 2014, our Board of Directors approved and adopted the 2014 Omnibus Equity and Incentive Compensation Plan (“Omnibus Plan”). The Omnibus Plan was approved by our shareholders on May 21, 2014. The Omnibus Plan authorizes the compensation committee of the Board of Directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other awards for the purpose of providing our officers, key employees, and non-employee directors’ incentives and rewards for performance. The Omnibus Plan replaced the Flowers Foods’ 2001 Equity and Performance Incentive Plan, as amended and restated as of April 1, 2009 (“EPIP”), the stock appreciation right plan, and the bonus plan. All outstanding equity awards that were made under the EPIP will continue to be governed by the EPIP; however, all equity awards granted after May 21, 2014 are governed by the Omnibus Plan. No additional awards will be issued under the EPIP. Awards granted under the Omnibus Plan are limited to the authorized amount of 8,000,000 shares.

The EPIP authorized the compensation committee of the Board of Directors to make awards of options to purchase our common stock, restricted stock, performance stock and units and deferred stock. The company’s officers, key employees and non-employee directors (whose grants are generally approved by the full Board of Directors) were eligible to receive awards under the EPIP. Over the life of the EPIP, the company issued stock options, restricted stock and deferred stock.

The following is a summary of stock options, restricted stock, and deferred stock outstanding under the plans described above. Information relating to the company’s stock appreciation rights, which were issued under a separate stock appreciation right plan, is also described below.

Stock Options

The company issued non-qualified stock options (“NQSOs”) during fiscal years 2011 and prior that have no additional service period remaining. All outstanding NQSOs have vested and are exercisable on October 7, 2017.

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The stock option activity for the forty weeks ended October 7, 2017 pursuant to the EPIP is set forth below (amounts in thousands, except price data):

|  | Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value |
Outstanding at December 31, 2016 |  |  | 1,846 |  |  | $ | 10.89 |  |  |  |  |  |  |  |  |
Exercised |  |  | (852 | ) |  | $ | 10.91 |  |  |  |  |  |  |  |  |
Outstanding at October 7, 2017 |  |  | 994 |  |  | $ | 10.87 |  |  |  | 0.34 |  |  | $ | 7,835 |
Exercisable at October 7, 2017 |  |  | 994 |  |  | $ | 10.87 |  |  |  | 0.34 |  |  | $ | 7,835 |

As of October 7, 2017, compensation expense related to the NQSOs was fully amortized. The cash received, the windfall tax benefit, and intrinsic value from stock option exercises for the forty weeks ended October 7, 2017 and October 8, 2016, respectively, were as follows (amounts in thousands):

|  | October 7, 2017 |  |  | October 8, 2016 |
Cash received from option exercises |  | $ | 9,296 |  |  | $ | 18,862 |
Tax benefit at exercise, net |  | $ | 2,004 |  |  | $ | 2,462 |
Intrinsic value of stock options exercised |  | $ | 7,197 |  |  | $ | 10,503 |

Performance-Contingent Restricted Stock Awards

Performance-Contingent Total Shareholder Return Shares (“TSR Shares”)

Certain key employees have been granted performance-contingent restricted stock under the Omnibus Plan in the form of TSR Shares. The awards vest approximately two years from the date of grant (after the filing of the company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date the vesting conditions are satisfied. The total shareholder return (“TSR”) is the percent change in the company’s stock price over the measurement period plus the dividends paid to shareholders. The performance payout is calculated at the end of each of the last four quarters (averaged) in the measurement period. Once the TSR is determined for the company (“Company TSR”), it is compared to the TSR of our food company peers (“Peer Group TSR”). The Company TSR compared to the Peer Group TSR will determine the payout as set forth below:

Percentile |  | Payout as % of Target |
90th |  |  | 200 | %
70th |  |  | 150 | %
50th |  |  | 100 | %
30th |  |  | 50 | %
Below 30th |  |  | 0 | %

For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2015 award, which vested in fiscal 2017, did not meet the performance condition and no shares were issued. The 2014 award, which vested in fiscal 2016, vested at 27% of target.

The TSR shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55 with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of shares based upon the retirement date and measured at the actual performance for the entire performance period. In addition, if the company undergoes a change in control, the TSR shares will immediately vest at the target level, provided that if 12 months of the performance period have been completed, vesting will be determined based on Company TSR as of the date of the change in control without application of four-quarter averaging. During the vesting period, the grantee has none of the rights of a shareholder. Dividends declared during the vesting period will accrue and will be paid at vesting on the TSR shares that ultimately vest. The fair value estimate was determined using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability of the company achieving the market condition discussed above. Inputs into the model included the following for the company and comparator companies: (i) TSR from the beginning of the performance cycle through the measurement date; (ii) volatility; (iii) risk-free interest rates; and (iv) the correlation of the comparator companies’ TSR. The inputs are based on historical capital market data.

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The following performance-contingent TSR Shares have been granted under the Omnibus Plan and have service period remaining (amounts in thousands, except price data):

Grant date |  | January 1, 2017 |  |  | January 3, 2016 |
Shares granted |  |  | 426 |  |  |  | 401 |
Vesting date |  | 3/1/2019 |  |  | 2/21/2018 |
Fair value per share |  | $ | 23.31 |  |  | $ | 24.17 |

Performance-Contingent Return on Invested Capital Shares (“ROIC Shares”)

Certain key employees have been granted performance-contingent restricted stock under the Omnibus Plan in the form of ROIC Shares. The awards generally vest approximately two years from the date of grant (after the filing of the company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date, the vesting conditions are satisfied. Return on Invested Capital (“ROIC”) is calculated by dividing our profit, as defined, by the invested capital. Generally, the performance condition requires the company’s average ROIC to exceed its average weighted cost of capital (“WACC”) by between 1.75 to 4.75 percentage points (the “ROI Target”) over the two fiscal year performance period. If the lowest ROI Target is not met, the awards are forfeited. The ROIC shares can be earned based on a range from 0% to 125% of target as defined below:

| • | ROIC above WACC by less than 1.75 percentage points pays 0% of ROI Target;

| • | ROIC above WACC by 1.75 percentage points pays 50% of ROI Target; or

| • | ROIC above WACC by 3.75 percentage points pays 100% of ROI Target; or

| • | ROIC above WACC by 4.75 percentage points pays 125% of ROI Target.

For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2015 award, which vested in fiscal 2017, actual attainment was 87% of ROI Target. The 2014 award, which vested in fiscal 2016, actual attainment was 96% of ROI Target.

The ROIC Shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55 with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of ROIC shares based upon the retirement date and actual performance for the entire performance period. In addition, if the company undergoes a change in control, the ROIC Shares will immediately vest at the target level. During the vesting period, the grantee has none of the rights of a shareholder. Dividends declared during the vesting period will accrue and will be paid at vesting on the ROIC shares that ultimately vest. The fair value of this type of award is equal to the stock price on the grant date. Since these awards have a performance condition feature the expense associated with these awards may change depending on the expected ROI Target attained at each reporting period. The 2016 and 2017 awards are being expensed at 65% and 100% of ROI Target, respectively. The following performance-contingent ROIC Shares have been granted under the Omnibus Plan and have service period remaining (amounts in thousands, except price data):

Grant date |  | January 1, 2017 |  |  | January 3, 2016 |
Shares granted |  |  | 426 |  |  |  | 401 |
Vesting date |  | 3/1/2019 |  |  | 2/21/2018 |
Fair value per share |  | $ | 19.97 |  |  | $ | 21.49 |

Performance-Contingent Restricted Stock Summary

The table below presents the TSR modifier share adjustment, ROIC modifier share adjustment, accumulated dividends on vested shares, and the tax benefit/(expense) at vesting of the performance-contingent restricted stock awards (amounts in thousands, except per share data). The shortfall at vesting of 2015 award was recorded as tax expense. The tax impact on the 2014 award at vesting was treated as a shortfall for reporting purposes.

Award granted |  |  | Fiscal year vested |  |  | TSR modifier increase/(decrease) shares |  |  | ROIC modifier increase/(decrease) shares |  |  | Dividends at vesting (thousands) |  |  | Tax benefit/(expense) |  |  | Fair value at vesting |
| 2015 |  |  |  | 2017 |  |  |  | (378,219 | ) |  |  | (49,272 | ) |  | $ | 392 |  |  | $ | (3,099 | ) |  | $ | 6,316 |
| 2014 |  |  |  | 2016 |  |  |  | (248,872 | ) |  |  | (13,637 | ) |  | $ | 441 |  |  | $ | (3,090 | ) |  | $ | 7,173 |

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Performance-Contingent Restricted Stock

The company’s performance-contingent restricted stock activity for the forty weeks ended October 7, 2017 is presented below (amounts in thousands, except price data):

|  | Shares |  |  | Weighted Average Grant Date Fair Value |
Nonvested shares at December 31, 2016 |  |  | 1,543 |  |  | $ | 21.53 |
Initial grant at target |  |  | 855 |  |  | $ | 21.64 |
Grant reduction for not achieving the ROIC modifier |  |  | (49 | ) |  | $ | 19.14 |
Grant reduction for not achieving the TSR modifier |  |  | (378 | ) |  | $ | 21.21 |
Vested |  |  | (329 | ) |  | $ | 19.14 |
Forfeited |  |  | (47 | ) |  | $ | 21.09 |
Nonvested shares at October 7, 2017 |  |  | 1,595 |  |  | $ | 22.21 |

As of October 7, 2017, there was $14.1 million of total unrecognized compensation cost related to nonvested restricted stock granted under the Omnibus Plan. That cost is expected to be recognized over a weighted-average period of 1.21 years. The total intrinsic value of shares vested during the twelve and forty weeks ended October 7, 2017 was $6.3 million.

Deferred and Restricted Stock

Non-employee directors may convert their annual board retainers into deferred stock equal in value to 100% of the cash payments directors would otherwise receive and the vesting period is a one-year period to match the period of time that cash would have been received if no conversion existed. Accumulated dividends are paid upon delivery of the shares. During fiscal 2017, non-employee directors elected to receive an aggregate of 10,020 common shares for board retainer deferrals pursuant to the Omnibus Plan.

Non-employee directors also receive annual grants of deferred stock. This deferred stock vests one year from the grant date. The deferred stock will be distributed to the grantee at a time designated by the grantee at the date of grant. Compensation expense is recorded on this deferred stock over the one-year minimum vesting period. During fiscal 2017, non-employee directors received an aggregate of 77,220 shares for their annual grant pursuant to the Omnibus Plan.

On May 31, 2013, the company’s Chief Executive Officer (“CEO”) received a time-based restricted stock award of approximately $1.3 million of restricted stock pursuant to the EPIP. This award vested at 100% on the fourth anniversary of the date of the grant. Dividends accrued on the award and were paid to the CEO on the vesting date. There were 58,500 shares issued for this award at a fair value of $22.25 per share. This award vested at a price of $18.48 and the shares were issued in our second quarter of fiscal 2017.

The deferred stock activity for the forty weeks ended October 7, 2017 is set forth below (amounts in thousands, except price data):

|  | Shares |  |  | Weighted Average Fair Value |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value |
Nonvested shares at December 31, 2016 |  |  | 149 |  |  | $ | 20.39 |  |  |  |  |  |  |  |  |
Vested |  |  | (149 | ) |  | $ | 20.39 |  |  |  |  |  |  |  |  |
Granted |  |  | 87 |  |  | $ | 18.70 |  |  |  |  |  |  |  |  |
Nonvested shares at October 7, 2017 |  |  | 87 |  |  | $ | 18.70 |  |  |  | 0.61 |  |  | $ | 1,531 |

As of October 7, 2017, there was $1.0 million of total unrecognized compensation cost related to deferred stock awards granted under the Omnibus Plan that will be recognized over a weighted-average period of 0.61 years. The total intrinsic value of shares vested during the twelve and forty weeks ended October 7, 2017 was $2.8 million.

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Stock-Based Payments Compensation Expense Summary

The following table summarizes the company’s stock-based compensation expense for the twelve and forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Performance-contingent restricted stock awards |  | $ | 2,638 |  |  | $ | 3,220 |  |  | $ | 10,321 |  |  | $ | 13,335 |
Deferred and restricted stock |  |  | 380 |  |  |  | 479 |  |  |  | 1,387 |  |  |  | 1,682 |
Stock appreciation rights |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (12 | )
Total stock-based compensation |  | $ | 3,018 |  |  | $ | 3,699 |  |  | $ | 11,708 |  |  | $ | 15,005 |

15. POST-RETIREMENT PLANS

The following summarizes the company’s balance sheet related pension and other post-retirement benefit plan accounts at October 7, 2017 as compared to accounts at December 31, 2016 (amounts in thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Current liability |  | $ | 979 |  |  | $ | 979 |
Noncurrent liability |  | $ | 63,532 |  |  | $ | 69,601 |
Accumulated other comprehensive loss, net of tax |  | $ | 80,275 |  |  | $ | 82,222 |

Defined Benefit Plans and Nonqualified Plan

The company amended our qualified defined benefit plans in October 2015 to allow pension plan participants not yet receiving benefit payments the option to elect to receive their benefit as a single lump sum payment. This amendment was effective as of January 1, 2016. This change supports our long-term pension risk management strategy.

Settlement accounting, which accelerates recognition of a plan’s unrecognized net gain or loss, is triggered if the lump sums paid during a year exceeds the sum of the plan’s service and interest cost. Since the lump sums paid or expected to be paid in 2017 exceed that threshold, the company recognized a settlement charge of $3.0 million in the third quarter of fiscal 2017. An additional settlement charge will be recognized in the fourth quarter of fiscal 2017. The amount of those charges will depend on the amount settled and the plan’s unrecognized net gain or loss at the end of each quarter. The lump sum settlement charge during the third quarter of fiscal 2017 related to the VSIP was immaterial; however, there will be a lump sum settlement charge related to the VSIP during the fourth quarter of fiscal 2017.

The company used a measurement date of December 31, 2016 for the defined benefit and post-retirement benefit plans described below (excluding Plan No. 1, which has a measurement date of September 30, 2017 due to the settlement). The decrease in the actuarial loss from December 31, 2016 to October 7, 2017 is primarily due to better than expected asset returns during fiscal 2017 offset slightly by a decrease in the discount rate reflected in the re-measurement. This resulted in the decrease to the noncurrent liability in the table above.

The company voluntarily contributed $1.6 million to one of our qualified pension plans during our third quarter. We do not anticipate making additional contributions to our qualified pension plans during the remainder of fiscal 2017.

The net periodic pension cost (income) for the company’s plans include the following components (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Service cost |  | $ | 174 |  |  | $ | 192 |  |  | $ | 581 |  |  | $ | 639 |
Interest cost |  |  | 2,779 |  |  |  | 3,140 |  |  |  | 9,792 |  |  |  | 10,557 |
Expected return on plan assets |  |  | (5,437 | ) |  |  | (6,325 | ) |  |  | (19,191 | ) |  |  | (20,394 | )
Settlement loss |  |  | 3,030 |  |  |  | 1,832 |  |  |  | 3,030 |  |  |  | 6,473 |
Amortization of prior service cost |  |  | 83 |  |  |  | 96 |  |  |  | 291 |  |  |  | 291 |
Amortization of net loss |  |  | 1,365 |  |  |  | 2,175 |  |  |  | 4,792 |  |  |  | 5,128 |
Total net periodic pension cost (income) |  | $ | 1,994 |  |  | $ | 1,110 |  |  | $ | (705 | ) |  | $ | 2,694 |

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Post-retirement Benefit Plan

The company provides certain medical and life insurance benefits for eligible retired employees covered under the active medical plans. The plan incorporates an up-front deductible, coinsurance payments and retiree contributions at various premium levels. Eligibility and maximum period of coverage is based on age and length of service.

The net periodic post-retirement benefit (income) cost for the company includes the following components (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Service cost |  | $ | 59 |  |  | $ | 93 |  |  | $ | 197 |  |  | $ | 308 |
Interest cost |  |  | 52 |  |  |  | 71 |  |  |  | 174 |  |  |  | 237 |
Amortization of prior service credit |  |  | (49 | ) |  |  | (49 | ) |  |  | (163 | ) |  |  | (163 | )
Amortization of net gain |  |  | (114 | ) |  |  | (105 | ) |  |  | (383 | ) |  |  | (349 | )
Total net periodic post-retirement (income) cost |  | $ | (52 | ) |  | $ | 10 |  |  | $ | (175 | ) |  | $ | 33 |

401(k) Retirement Savings Plan

The Flowers Foods, Inc. 401(k) Retirement Savings Plan (“401(k) plan”) covers substantially all of the company’s employees who have completed certain service requirements. During the twelve weeks ended October 7, 2017 and October 8, 2016, the total cost and employer contributions were $6.5 million and $6.4 million, respectively. During the forty weeks ended October 7, 2017 and October 8, 2016, the total cost and employer contributions were $22.0 million and $21.2 million, respectively.

The company acquired Dave’s Killer Bread and Alpine Valley Bread Company during fiscal 2015, at the time of each acquisition we assumed sponsorship of a 401(k) savings plan. We merged these two plans into the 401(k) plan on April 1, 2016.

Multi-employer Pension Plan

On August 18, 2017, the union participants of the Bakery and Confectionary Union and Industry International Pension Fund (the “Fund”) at our Lakeland, Florida plant voted to withdraw from the Fund in the most recent collective bargaining agreement. The withdrawal will be effective, and the union participants will be eligible to participate in the 401(k) plan, on November 1, 2017. During the twelve weeks ended October 7, 2017, the company recorded a liability of $15.2 million related to the withdrawal from the Fund. The withdrawal liability was computed as the net present value of 20 years of monthly payments derived from the company’s share of unfunded vested benefits. While this is our best estimate of the ultimate cost of the withdrawal from this Fund, additional withdrawal liability may be incurred based on the final fund assessment or in the event of a mass withdrawal, as defined by statute, occurring anytime within the next three years following our complete withdrawal. Transition payments, including related tax payments, were made on November 3, 2017 to, and for the benefit of, union participants as part of the collective bargaining agreement. An additional $3.1 million was recorded for these transition payments. The withdrawal liability charge and the transition payments are recorded in the multi-employer pension plan withdrawal costs line item on our Condensed Consolidated Statements of Operations and are in the DSD Segment. The liability is recorded in other accrued current liabilities on the Condensed Consolidated Balance Sheets.

16. INCOME TAXES

The effective tax rate for the twelve weeks ended October 7, 2017 was 40.6% compared to 34.6% in the third quarter of the prior year. The increase in the rate from the prior year primarily relates to tax credits recorded in the current quarter, and an adjustment to the year to date tax expense to reflect a reduction in the estimated annualized effective tax rate for 2017. Tax benefits in the current quarter resulted in an increase to the tax rate due to negative earnings before tax. Tax benefits in the third quarter of the prior year reduced the effective tax rate on positive earnings before tax. The most significant differences in the effective rate and the statutory rate were related to state income taxes and the Section 199 qualifying production activities deduction.

The company’s effective tax rate for the forty weeks ended October 7, 2017 and October 8, 2016 was 32.1% and 35.1%, respectively. The decrease in the rate from the prior year primarily relates to a greater benefit from the Section 199 tax deduction and larger state tax incentives and federal credits in the current year. During the forty weeks ended October 7, 2017, the primary differences in the effective rate and the statutory rate are state income taxes and the Section 199 qualifying production activities deduction.

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During the forty weeks ended October 7, 2017, the com pany’s activity with respect to its uncertain tax positions and related interest expense accrual was insignificant. At this time, we do not anticipate significant changes to the amount of gross unrecognized tax benefits over the next twelve months.

The company adopted guidance discussed in Note 3, Recent Accounting Pronouncements, and retrospectively adjusted our Condensed Consolidated Statements of Cash Flows.

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17. SEGMENT REPORTING

The company currently operates two business segments: the DSD Segment and the Warehouse Segment. The DSD Segment produces a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes, which are sold through a DSD route delivery system to retail and foodservice customers in the East, South, Southwest, California, and select markets in the Midwest, Pacific Northwest, Nevada and Colorado. The Warehouse Segment produces snack cakes, breads and rolls for national retail, foodservice, vending, and co-pack customers and delivers through customers’ warehouse channels.

The company evaluates each segment’s performance based on income or loss before interest and income taxes, excluding unallocated expenses and charges, which the company’s management deems to be an overall corporate cost or a cost not reflective of the segment’s core operating businesses. Information regarding the operations in these reportable segments is as follows (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |
Sales: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 803,153 |  |  | $ | 784,768 |  |  | $ | 2,628,365 |  |  | $ | 2,603,006 |
Warehouse Segment |  |  | 185,219 |  |  |  | 182,706 |  |  |  | 596,740 |  |  |  | 615,798 |
Eliminations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales from Warehouse Segment to DSD Segment |  |  | (39,652 | ) |  |  | (32,835 | ) |  |  | (129,637 | ) |  |  | (111,320 | )
Sales from DSD Segment to Warehouse Segment |  |  | (15,898 | ) |  |  | (15,848 | ) |  |  | (48,358 | ) |  |  | (49,316 | )
|  | $ | 932,822 |  |  | $ | 918,791 |  |  | $ | 3,047,110 |  |  | $ | 3,058,168 |
Gain on divestiture: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warehouse Segment |  | $ | — |  |  | $ | — |  |  | $ | 28,875 |  |  | $ | — |
|  | $ | — |  |  | $ | — |  |  | $ | 28,875 |  |  | $ | — |
Multi-employer pension plan withdrawal costs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |  |  | $ | — |
|  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |  |  | $ | — |
Restructuring and related impairment charges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 76,625 |  |  | $ | — |  |  | $ | 76,625 |  |  | $ | — |
Warehouse Segment |  |  | 20,091 |  |  |  | — |  |  |  | 20,091 |  |  |  | — |
Unallocated corporate costs |  |  | 3,833 |  |  |  | — |  |  |  | 3,833 |  |  |  | — |
|  | $ | 100,549 |  |  | $ | — |  |  | $ | 100,549 |  |  | $ | — |
Depreciation and amortization: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 28,286 |  |  | $ | 27,852 |  |  | $ | 98,703 |  |  | $ | 92,906 |
Warehouse Segment |  |  | 4,769 |  |  |  | 4,585 |  |  |  | 15,841 |  |  |  | 15,462 |
Unallocated corporate costs(1) |  |  | (83 | ) |  |  | 93 |  |  |  | (256 | ) |  |  | 227 |
|  | $ | 32,972 |  |  | $ | 32,530 |  |  | $ | 114,288 |  |  | $ | 108,595 |
Income (loss) from operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | (20,239 | ) |  | $ | 66,331 |  |  | $ | 146,719 |  |  | $ | 238,415 |
Warehouse Segment |  |  | (9,082 | ) |  |  | 12,311 |  |  |  | 47,202 |  |  |  | 46,762 |
Unallocated corporate costs(2) |  |  | (24,445 | ) |  |  | (12,511 | ) |  |  | (77,396 | ) |  |  | (42,455 | )
|  | $ | (53,766 | ) |  | $ | 66,131 |  |  | $ | 116,525 |  |  | $ | 242,722 |
Interest expense |  | $ | (8,194 | ) |  | $ | (9,440 | ) |  | $ | (28,255 | ) |  | $ | (26,157 | )
Interest income |  | $ | 5,464 |  |  | $ | 4,757 |  |  | $ | 17,199 |  |  | $ | 15,686 |
Income (loss) before income taxes |  | $ | (56,496 | ) |  | $ | 61,448 |  |  | $ | 105,469 |  |  | $ | 232,251 |

The table below presents the assets by segment (amounts in thousands):

Assets: | October 7, 2017 |  |  | December 31, 2016 |
DSD Segment | $ | 2,281,198 |  |  | $ | 2,344,616 |
Warehouse Segment |  | 303,756 |  |  |  | 330,006 |
Other (3) |  | 97,725 |  |  |  | 86,446 |
Total assets | $ | 2,682,679 |  |  | $ | 2,761,068 |

(1) | Represents costs allocated to the company’s corporate head office.

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(2) | Represents costs allocated to the company’s corporate head office and pension settlement losses.

(3) | Represents the company’s corporate head office assets including primarily cash and cash equivalents and deferred taxes.

Sales by product category in each reportable segment are as follows for the twelve and forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts in thousands):

|  | For the Twelve Weeks Ended |  |  | For the Twelve Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |
|  | DSD Segment |  |  | Warehouse Segment |  |  | Total |  |  | DSD Segment |  |  | Warehouse Segment |  |  | Total |
Branded retail |  | $ | 514,556 |  |  | $ | 36,242 |  |  | $ | 550,798 |  |  | $ | 496,361 |  |  | $ | 38,366 |  |  | $ | 534,727 |
Store branded retail |  |  | 110,822 |  |  |  | 27,790 |  |  |  | 138,612 |  |  |  | 110,625 |  |  |  | 26,476 |  |  |  | 137,101 |
Non-retail and other |  |  | 161,877 |  |  |  | 81,535 |  |  |  | 243,412 |  |  |  | 161,934 |  |  |  | 85,029 |  |  |  | 246,963 |
Total |  | $ | 787,255 |  |  | $ | 145,567 |  |  | $ | 932,822 |  |  | $ | 768,920 |  |  | $ | 149,871 |  |  | $ | 918,791 |

|  | For the Forty Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 7, 2017 |  |  | October 8, 2016 |
|  | DSD Segment |  |  | Warehouse Segment |  |  | Total |  |  | DSD Segment |  |  | Warehouse Segment |  |  | Total |
Branded retail |  | $ | 1,675,246 |  |  | $ | 117,623 |  |  | $ | 1,792,869 |  |  | $ | 1,646,840 |  |  | $ | 137,908 |  |  | $ | 1,784,748 |
Store branded retail |  |  | 368,265 |  |  |  | 86,788 |  |  |  | 455,053 |  |  |  | 360,102 |  |  |  | 94,023 |  |  |  | 454,125 |
Non-retail and other |  |  | 536,496 |  |  |  | 262,692 |  |  |  | 799,188 |  |  |  | 546,748 |  |  |  | 272,547 |  |  |  | 819,295 |
Total |  | $ | 2,580,007 |  |  | $ | 467,103 |  |  | $ | 3,047,110 |  |  | $ | 2,553,690 |  |  | $ | 504,478 |  |  | $ | 3,058,168 |

18. ASSETS HELD FOR SALE

The company purchases distribution rights from and sells distribution rights to independent distributors from time to time. The company repurchases distribution rights from independent distributors in circumstances when the company decides to exit a territory or, in some cases, when the independent distributor elects to terminate its relationship with the company. In the majority of the distributor agreements, if the company decides to exit a territory or stop using the independent distribution model in a territory, the company is contractually required to purchase the distribution rights from the independent distributor. In the event an independent distributor terminates its relationship with the company, the company, although not legally obligated, may repurchase and operate those distribution rights as a company-owned territory. The independent distributors may also sell their distribution rights to another person or entity. Distribution rights purchased from independent distributors and operated as company-owned territories are recorded on the Condensed Consolidated Balance Sheets in the line item “Assets held for sale” while the company actively seeks another independent distributor to purchase the distribution rights for the territory. Distributions rights held for sale and operated by the company are sold to independent distributors at fair market value pursuant to the terms of a distributor agreement. There are multiple versions of the distributor agreement in place at any given time and the terms of such distributor agreements vary.

Additional assets recorded in assets held for sale are for property, plant and equipment. The carrying values of assets held for sale are not amortized and are evaluated for impairment as required at the end of the reporting period. The table below presents the assets held for sale as of October 7, 2017 and December 31, 2016, respectively (amounts in thousands):

|  | October 7, 2017 |  |  | December 31, 2016 |
Distributor territories |  | $ | 19,988 |  |  | $ | 31,897 |
Property, plant and equipment |  |  | 754 |  |  |  | 5,079 |
Total assets held for sale |  | $ | 20,742 |  |  | $ | 36,976 |

19. SUBSEQUENT EVENTS

The company has evaluated subsequent events since October 7, 2017, the date of these financial statements. We believe there were no material events or transactions discovered during this evaluation that require recognition or disclosure in the financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the company as of and for the twelve and forty weeks ended October 7, 2017 should be read in conjunction with the Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is segregated into four sections, including:

| • | Executive overview — provides a summary of our business, operating performance and cash flows, and strategic initiatives.

| • | Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our financial condition and results of operations. There have been no changes to this section from the Form 10-K.

| • | Results of operations — an analysis of the company’s consolidated results of operations for the two comparative periods presented in our Condensed Consolidated Financial Statements.

| • | Liquidity and capital resources — an analysis of cash flow, contractual obligations, and certain other matters affecting the company’s financial position.

Matters Affecting Comparability

Detailed below are expense (gain) items affecting comparability that will provide additional context while reading this discussion:

| For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |  |  | Footnote
| October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Disclosure
| (Amounts in thousands) |  |  |
Project Centennial consulting costs | $ | 7,050 |  |  | $ | 1,219 |  |  | $ | 31,845 |  |  | $ | 2,475 |  |  | Note 4
Gain on divestiture |  | — |  |  |  | — |  |  |  | (28,875 | ) |  |  | — |  |  | Note 5
Restructuring and related impairment charges |  | 100,549 |  |  |  | — |  |  |  | 100,549 |  |  |  | — |  |  | Note 4
Legal settlements and related tax liabilities |  | 4,253 |  |  |  | 1,250 |  |  |  | 4,503 |  |  |  | 1,250 |  |  | Note 12
Lease termination costs |  | — |  |  |  | — |  |  |  | 565 |  |  |  | — |  |  | Note 10
Loss on extinguishment of debt |  | — |  |  |  | 1,900 |  |  |  | — |  |  |  | 1,900 |  |  | Note 10
Pension plan settlement loss |  | 3,030 |  |  |  | 1,832 |  |  |  | 3,030 |  |  |  | 6,473 |  |  | Note 15
Multi-employer pension plan withdrawal costs |  | 18,268 |  |  |  | — |  |  |  | 18,268 |  |  |  | — |  |  | Note 15
| $ | 133,150 |  |  | $ | 6,201 |  |  | $ | 129,885 |  |  | $ | 12,098 |  |  |

| • | Project Centennial consulting costs — During the second quarter of fiscal 2016, we partnered with a globally recognized consulting firm and launched Project Centennial, an enterprise-wide business and operational review. As of the end of fiscal 2016, we had completed the diagnostic phase and entered the implementation phase of the project. Key initiatives of the project are outlined in the “Executive Overview” section below. Consulting costs associated with the project are presented in the table above and are reflected in the selling, distribution and administrative expenses line item of the Condensed Consolidated Statements of Operations. We anticipate incurring additional consulting costs of approximately $5.5 million to $6.5 million during the fourth quarter of fiscal 2017 as compared to $3.8 million incurred in the same period in the prior year. In fiscal 2018, we currently expect to incur approximately $10.0 million to $12.0 million of Project Centennial consulting costs.

| • | Gain on divestiture of the non-core mix manufacturing business – On January 14, 2017, we completed the sale of our non-core mix manufacturing business located in Cedar Rapids, Iowa and received proceeds, net of a working capital adjustment, of $41.2 million and recognized a gain on divestiture of $28.9 million in our results of operations for the forty weeks ended October 7, 2017. The mix manufacturing business was included in the Warehouse Segment.

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| • | Restructuring and related impairment charges associated with Project Centennial – The following table details charges recorded by segment during the third quarter of fiscal 2017 (amounts in thousands):

| DSD Segment |  |  | Warehouse Segment |  |  | Unallocated Corporate |  |  | Total |
| (Amounts in thousands) |
VSIP and other cash charges | $ | 21,513 |  |  | $ | 5,552 |  |  | $ | 3,833 |  |  | $ | 30,898 |
Trademark impairments |  | 55,112 |  |  |  | 11,135 |  |  |  | — |  |  |  | 66,247 |
Property, plant and equipment impairments |  | — |  |  |  | 3,404 |  |  |  | — |  |  |  | 3,404 |
Total restructuring and related impairment charges | $ | 76,625 |  |  | $ | 20,091 |  |  | $ | 3,833 |  |  | $ | 100,549 |

The VSIP was made available to certain employees who met the VSIP’s age, length-of-service, and business function criteria. Employees who elected to participate in the VSIP accrued enhanced separation benefits. Approximately 25% of these benefits will be paid in fiscal 2017 with the remainder to be paid in the first quarter of fiscal 2018 and will be funded with amounts available under our debt facilities. We completed the brand rationalization study in the third quarter of fiscal 2017, which resulted in impairment charges for certain trademarks that we either no longer intend to use or plan to use on a more limited basis. Additionally, on August 9, 2017, the company announced the closure of a Warehouse Segment snack cake plant in Winston-Salem, North Carolina as part of its supply chain optimization initiative under Project Centennial. The facility is expected to close in November of fiscal 2017 and a portion of the production will be transitioned to other facilities. Closure costs include the recognition of impairments related to property, plant and equipment and $1.0 million of severance costs. The severance costs are included in the VSIP and other cash charges line item in the table above. Currently, we anticipate incurring additional reorganization costs of approximately $1.5 million in the fourth quarter of fiscal 2017 and approximately $7.0 million to $8.0 million in fiscal 2018.

| • | Legal settlements – In the third quarter of fiscal 2017, we reached an agreement to settle the Coyle v. Flowers Foods, Inc. and Holsum Bakery, Inc. lawsuit for $4.25 million, including attorney’s fees. On February 28, 2017, we reached an agreement to settle the Stewart v. Flowers Foods, Inc. and Flowers Baking Co. of Batesville, LLC lawsuit for $0.25 million, including attorney’s fees. In the prior year quarter, we recorded a $1.25 million legal settlement. These amounts were recorded in selling, distribution and administrative expenses in our results of operations, all in the DSD Segment.

| • | Lease termination costs – During the first quarter of fiscal 2017, we terminated certain lease contracts of the DSD Segment prior to the maturity date of the leases, resulting in net lease termination costs of $0.6 million.

| • | Pension risk mitigation plan – In accordance with our long-term pension risk mitigation plan, at the beginning of fiscal 2016, the company began offering pension plan participants not yet receiving their benefit payments the option to elect to receive their benefit as a single lump sum payment. Settlement charges are triggered depending on the level of lump sum payment options elected by the eligible plan participants during a given year. As detailed in the table above, settlement charges were triggered in both the current and prior year periods and are included as an unallocated corporate expense.

| • | Multi-employer pension plan withdrawal costs (“MEPP costs”) – On August 18, 2017, the union participants of the Fund at our Lakeland, Florida plant voted to withdraw from the Fund in the most recent collective bargaining agreement. This resulted in the recognition of a pension plan withdrawal liability (including transition payments) in the DSD Segment. The transition payments were made on November 3, 2017, and we anticipate the withdrawal liability to be paid in fiscal 2018.

Executive Overview

Business

Flowers is the second largest producer and marketer of packaged bakery foods in the U.S. We operate in the highly competitive fresh bakery market and our product offerings include fresh breads, buns, rolls, snack cakes and tortillas, as well as frozen breads and rolls. We are focused on opportunities for growth within the baked foods category and seek to have our products available wherever bakery foods are consumed or sold — whether in homes, restaurants, fast food outlets, institutions, supermarkets, convenience stores, or vending machines. Currently, our business is managed based on delivery method of our products and we have two operating segments as outlined below.

DSD Segment

| • | Produces fresh breads, buns, rolls, tortillas and snack cakes sold primarily by a network of independent distributors to retail and foodservice customers in the following areas of the U.S.: East, South, Southwest, California, and select markets in the Midwest, Pacific Northwest, Nevada and Colorado.

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| • | Has a 39-bakery network with a highly developed reciprocal baking system (where bakeries can produce for its market and that of other bakeries), which results in long and efficient production runs.

| • | The DSD Segment currently has access to more than 85% of the U.S. population for fresh bakery foods.

| • | Major DSD Segment brands include Nature’s Own, Wonder, Cobblestone Bread Company, Tastykake and Dave’s Killer Bread (“DKB”).

Warehouse Segment

| • | Produces fresh snack cakes and frozen breads and rolls.

| • | Delivers its products fresh or frozen to customers’ warehouses nationwide via contract carriers.

| • | Operates nine production facilities.

| • | Major brands include Mrs. Freshley’s, Alpine Valley Bread and European Bakers.

Summary of Operating Results, Cash Flows and Financial Condition

Sales increased 1.5% for the twelve weeks ended October 7, 2017 compared to the same period in the prior year primarily due to volume gains as a result of growth of branded organic sales and, to a lesser extent, the impact of hurricanes Harvey and Irma during the third quarter of fiscal 2017, partially offset by the impact of the divestiture of the mix manufacturing business in January of fiscal 2017. Year to date, sales declined 0.4% primarily as a result of the divestiture of the mix manufacturing business and overall softness in the bakery category, partially offset by significant sales growth for our branded organic products.

For the third quarter of fiscal 2017, we recorded a net loss of $33.6 million compared to net income of $40.2 million in the prior year quarter due to the items detailed above in “Matters Affecting Comparability”, partially offset by improved sales. Year to date, net income was $71.6 million compared to $150.7 million in the same period in the prior year. Restructuring and related impairment charges, MEPP costs and higher consulting costs associated with Project Centennial were partially offset by the gain on divestiture of the mix manufacturing business in the current year.

During the forty weeks ended October 7, 2017, we generated net cash flows from operations of $211.3 million compared to $285.8 million in the prior year period. We received net proceeds of $41.2 million from the divestiture of our mix manufacturing business and invested $51.2 million in capital expenditures. We paid $105.2 million in dividends to our shareholders and reduced our total indebtedness by $101.3 million. The decrease in net cash flows from operations, period over period, was principally due to an increase in Project Centennial consulting costs of $29.4 million and changes in hedging margin activity.

Project Centennial - Strategic Initiatives and Update on Progress

In June of 2016, the company launched Project Centennial, an enterprise-wide business and operational review to evaluate opportunities to streamline our operations, drive efficiencies, and invest in strategic capabilities that we believe will strengthen our competitive position and drive profitable revenue growth. Based upon the results of this review, Flowers has begun executing on four primary strategic initiatives:

| • | reinvigorate the core business – invest in the growth and innovation of our core brands, streamline our brand and product portfolio, improve trade promotion management, and strengthen our partnership with distributors so they can grow their businesses;

| • | capitalize on product adjacencies – greater focus on growing segments of the bakery category, such as foodservice, in-store bakery, impulse items, and healthy snacking;

| • | reduce costs to fuel growth – reduce complexity and better leverage scale to lower costs; and

| • | develop leading capabilities – invest in capabilities to become a more centralized and analytics-focused company.

The company implemented a plan to transition to these primary strategies beginning in fiscal 2017, with the transition intended to be completed by fiscal 2021. By executing on Project Centennial, the company expects to deliver on its stated long-term goals of sales growth in the range of 2% to 4% and EBITDA margins in the range of 12% to 14%. The company defines EBITDA as earnings from continuing operations before interest, income taxes, depreciation and amortization.

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Flowers' priorities for fiscal 2017 and 2018 are to simplify and streamline our brand assortment, provide additional tools to distributors to enable them to grow their businesses, reduce costs of purchased goods and services, and put in place a more efficient operating model for a national branded food company. During this phase of the project, Flowers expects sales growth to be in the range of flat to 2% and EBITDA margins in the range of 12% to 13%.

In 2019 and beyond, Flowers expects to fully realize the benefits of a stronger brand architecture and a lower-cost operating model. These benefits are expected to drive sales growth in the range of 3% to 4% and EBITDA margins in the range of 13% to 14%.

As of the end of the third quarter of fiscal 2017, the company made progress in key Project Centennial initiatives, including the following accomplishments:

| • | completed a major consumer survey to better understand evolving consumer preferences;

| • | formulated a strategy and began to identify specific opportunities to diversify our brand portfolio into attractive adjacent categories;

| • | made substantial progress on developing a streamlined brand assortment, which we expect to fully implement by the end of fiscal 2017;

| • | developed a specific strategy and timeline to reduce stales;

| • | utilized a third-party distribution platform to expand distribution of products in the Midwest;

| • | completed the first wave of continuous improvement pilot programs that validated opportunities for efficiency savings across our manufacturing network;

| • | announced the closure of a Warehouse Segment snack cake plant in Winston-Salem, North Carolina;

| • | made progress toward reaching the company’s goal of reducing purchased goods and services spending, relative to fiscal 2016, by at least $45 million by fiscal 2018;

| • | began to analyze data and formulate plans to optimize the company’s existing manufacturing and logistics network;

| • | began transitioning to the company’s new organizational structure, as more fully discussed below; and

| • | announced the hiring of a chief marketing officer and chief information officer.

In the second quarter of fiscal 2017, the company announced an enhanced organizational structure designed to emphasize brand growth and innovation in line with a national branded food company, drive enhanced accountability, reduce costs, strengthen long-term strategy and provide greater focus on the strategic initiatives under Project Centennial. The company intends to transition to the new structure over the next several months with full implementation expected to be completed at the beginning of fiscal 2019. Prior to that time, the company will continue to manage the business and report segment information based on our current segments, the DSD Segment and the Warehouse Segment.

The new organizational structure establishes two BUs, Fresh Bakery and Specialty/Snacking, and realigns key leadership roles. The new structure also provides for centralized marketing, sales, supply chain, shared-services/administrative, and corporate strategy functions. We continue to explore additional opportunities to streamline our core operations, but as of October 7, 2017, we cannot estimate the costs to be incurred related to these initiatives.

As discussed above, during the third quarter of fiscal 2017, the company announced the VSIP as part of its effort to restructure, streamline operations, and better position the company for profitable growth. Costs associated with the VSIP were recorded in the company’s results of operations during the third quarter of fiscal 2017 and the plan is expected to be substantially completed by the end of fiscal 2017.

In the third quarter of fiscal 2017, the company provided targets for gross cost savings associated with the primary cost savings programs under Project Centennial: the above-mentioned initiative to reduce spending on purchased goods and services, a supply chain optimization plan, and the new organizational structure described above. By the end of fiscal 2018, the company is targeting cumulative gross savings under these three initiatives of $70 million to $80 million, of which $25 million to $30 million is expected to be realized in fiscal 2017.

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Valuation of Intangible Assets

The company evaluates the recoverability of our indefinite-lived intangible assets that are not subject to amortization by comparing the fair value to the carrying value on an annual basis or at a time when events occur that indicate the carrying value may be impaired. In addition, the assets are evaluated to determine whether events and circumstances continue to support an indefinite life. The fair value is compared to the carrying value of the intangible asset, and if less than the carrying value, the intangible asset is written down to fair value. We are continually monitoring our indefinite-lived trademarks.

For trademarks and other intangible assets that we are amortizing, we evaluate these assets whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. We compare the undiscounted future cash flows of each intangible asset to the carrying amount, and if less than the carrying value, the intangible asset is written down to fair value.

For both amortizing and non-amortizing trademarks, there are certain inherent risks included in our expectations about their performance. If we are unable to implement our growth strategies for these acquired intangible assets as expected, it could adversely impact the carrying value of the brands. The implied fair value of the trademarks could be less than our carrying value if any of our four material assumptions in our fair value analysis do not meet our expectations: (a) weighted average cost of capital; (b) long-term sales growth rates; (c) forecasted operating margins; and (d) market multiples. As discussed above, during the third quarter of fiscal 2017, we completed the brand rationalization study as part of Project Centennial, which resulted in impairment charges of $66.2 million related to certain trademarks that we either no longer intend to use or plan to use on a more limited basis.

CRITICAL ACCOUNTING POLICIES:

Our financial statements are prepared in accordance with GAAP. These principles are numerous and complex. Our significant accounting policies are summarized in the Form 10-K. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. Please see the Form 10-K for a discussion of the areas where we believe that the estimates, judgments or interpretations that we have made, if different, could yield the most significant differences in our financial statements. There have been no significant changes to our critical accounting policies from those disclosed in the Form 10-K except as disclosed in Note 3, Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q which details recently adopted accounting pronouncements and accounting pronouncements not yet adopted.

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RESULTS OF OPERATIONS:

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twelve weeks ended October 7, 2017 and October 8, 2016, respectively, are set forth below (dollars in thousands):

|  | For the Twelve Weeks Ended |
|  |  |  |  |  |  |  |  |  | Percentage of Sales |  |  | Increase (Decrease) |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Dollars |  |  | % |
Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 787,255 |  |  | $ | 768,920 |  |  |  | 84.4 |  |  |  | 83.7 |  |  | $ | 18,335 |  |  |  | 2.4 |
Warehouse Segment |  |  | 145,567 |  |  |  | 149,871 |  |  |  | 15.6 |  |  |  | 16.3 |  |  |  | (4,304 | ) |  |  | (2.9 | )
Total |  | $ | 932,822 |  |  | $ | 918,791 |  |  |  | 100.0 |  |  |  | 100.0 |  |  | $ | 14,031 |  |  |  | 1.5 |
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 371,462 |  |  | $ | 368,564 |  |  |  | 47.2 |  |  |  | 47.9 |  |  | $ | 2,898 |  |  |  | 0.8 |
Warehouse Segment (1) |  |  | 104,708 |  |  |  | 108,196 |  |  |  | 71.9 |  |  |  | 72.2 |  |  |  | (3,488 | ) |  |  | (3.2 | )
Total |  | $ | 476,170 |  |  | $ | 476,760 |  |  |  | 51.0 |  |  |  | 51.9 |  |  | $ | (590 | ) |  |  | (0.1 | )
Selling, distribution and administrative expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 312,853 |  |  | $ | 306,173 |  |  |  | 39.7 |  |  |  | 39.8 |  |  | $ | 6,680 |  |  |  | 2.2 |
Warehouse Segment (1) |  |  | 25,081 |  |  |  | 24,779 |  |  |  | 17.2 |  |  |  | 16.5 |  |  |  | 302 |  |  |  | 1.2 |
Corporate (2) |  |  | 17,665 |  |  |  | 10,586 |  |  |  | — |  |  |  | — |  |  |  | 7,079 |  |  |  | 66.9 |
Total |  | $ | 355,599 |  |  | $ | 341,538 |  |  |  | 38.1 |  |  |  | 37.2 |  |  | $ | 14,061 |  |  |  | 4.1 |
Multi-employer pension plan withdrawal costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 18,268 |  |  | $ | — |  |  |  | 2.3 |  |  |  | — |  |  | $ | 18,268 |  |  | NM |
Total |  | $ | 18,268 |  |  | $ | — |  |  |  | 2.0 |  |  |  | — |  |  | $ | 18,268 |  |  | NM |
Pension plan settlement loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate (2) |  | $ | 3,030 |  |  | $ | 1,832 |  |  |  | — |  |  |  | — |  |  | $ | 1,198 |  |  | NM |
Total |  | $ | 3,030 |  |  | $ | 1,832 |  |  |  | 0.3 |  |  |  | 0.2 |  |  | $ | 1,198 |  |  | NM |
Restructuring and related impairment charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 76,625 |  |  | $ | — |  |  |  | 9.7 |  |  |  | — |  |  | $ | 76,625 |  |  | NM |
Warehouse Segment (1) |  |  | 20,091 |  |  |  | — |  |  |  | 13.8 |  |  |  | — |  |  |  | 20,091 |  |  | NM |
Corporate (2) |  |  | 3,833 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,833 |  |  | NM |
Total |  | $ | 100,549 |  |  | $ | — |  |  |  | 10.8 |  |  |  | — |  |  | $ | 100,549 |  |  | NM |
Depreciation and amortization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 28,286 |  |  | $ | 27,852 |  |  |  | 3.6 |  |  |  | 3.6 |  |  | $ | 434 |  |  |  | 1.6 |
Warehouse Segment (1) |  |  | 4,769 |  |  |  | 4,585 |  |  |  | 3.3 |  |  |  | 3.1 |  |  |  | 184 |  |  |  | 4.0 |
Corporate (2) |  |  | (83 | ) |  |  | 93 |  |  |  | — |  |  |  | — |  |  |  | (176 | ) |  | NM |
Total |  | $ | 32,972 |  |  | $ | 32,530 |  |  |  | 3.5 |  |  |  | 3.5 |  |  | $ | 442 |  |  |  | 1.4 |
Income (loss) from operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | (20,239 | ) |  | $ | 66,331 |  |  |  | (2.6 | ) |  |  | 8.6 |  |  | $ | (86,570 | ) |  |  | (130.5 | )
Warehouse Segment (1) |  |  | (9,082 | ) |  |  | 12,311 |  |  |  | (6.2 | ) |  |  | 8.2 |  |  |  | (21,393 | ) |  |  | (173.8 | )
Corporate (2) |  |  | (24,445 | ) |  |  | (12,511 | ) |  |  | — |  |  |  | — |  |  |  | (11,934 | ) |  |  | (95.4 | )
Total |  | $ | (53,766 | ) |  | $ | 66,131 |  |  |  | (5.8 | ) |  |  | 7.2 |  |  | $ | (119,897 | ) |  |  | (181.3 | )
Interest expense, net |  | $ | 2,730 |  |  | $ | 4,683 |  |  |  | 0.3 |  |  |  | 0.5 |  |  | $ | (1,953 | ) |  |  | (41.7 | )
Income taxes |  | $ | (22,925 | ) |  | $ | 21,232 |  |  |  | (2.5 | ) |  |  | 2.3 |  |  | $ | (44,157 | ) |  |  | (208.0 | )
Net income (loss) |  | $ | (33,571 | ) |  | $ | 40,216 |  |  |  | (3.6 | ) |  |  | 4.4 |  |  | $ | (73,787 | ) |  |  | (183.5 | )
Comprehensive income (loss) |  | $ | (42,905 | ) |  | $ | 45,106 |  |  |  | (4.6 | ) |  |  | 4.9 |  |  | $ | (88,011 | ) |  |  | (195.1 | )

(1) | As a percentage of revenue within the reporting segment.

(2) | The corporate segment has no revenues.

NM | Not meaningful.

Percentages may not add due to rounding.

45

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the forty weeks ended October 7, 2017 and October 8, 2016, respectively, are set forth below (dollars in thousands):

|  | For the Forty Weeks Ended |
|  |  |  |  |  |  |  |  |  | Percentage of Sales |  |  | Increase (Decrease) |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Dollars |  |  | % |
Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment |  | $ | 2,580,007 |  |  | $ | 2,553,690 |  |  |  | 84.7 |  |  |  | 83.5 |  |  | $ | 26,317 |  |  |  | 1.0 |
Warehouse Segment |  |  | 467,103 |  |  |  | 504,478 |  |  |  | 15.3 |  |  |  | 16.5 |  |  |  | (37,375 | ) |  |  | (7.4 | )
Total |  | $ | 3,047,110 |  |  | $ | 3,058,168 |  |  |  | 100.0 |  |  |  | 100.0 |  |  | $ | (11,058 | ) |  |  | (0.4 | )
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 1,220,307 |  |  | $ | 1,217,629 |  |  |  | 47.3 |  |  |  | 47.7 |  |  | $ | 2,678 |  |  |  | 0.2 |
Warehouse Segment (1) |  |  | 331,956 |  |  |  | 358,276 |  |  |  | 71.1 |  |  |  | 71.0 |  |  |  | (26,320 | ) |  |  | (7.3 | )
Total |  | $ | 1,552,263 |  |  | $ | 1,575,905 |  |  |  | 50.9 |  |  |  | 51.5 |  |  | $ | (23,642 | ) |  |  | (1.5 | )
Selling, distribution and administrative expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 1,019,385 |  |  | $ | 1,004,740 |  |  |  | 39.5 |  |  |  | 39.3 |  |  | $ | 14,645 |  |  |  | 1.5 |
Warehouse Segment (1) |  |  | 80,888 |  |  |  | 83,978 |  |  |  | 17.3 |  |  |  | 16.6 |  |  |  | (3,090 | ) |  |  | (3.7 | )
Corporate (2) |  |  | 70,789 |  |  |  | 35,755 |  |  |  | — |  |  |  | — |  |  |  | 35,034 |  |  |  | 98.0 |
Total |  | $ | 1,171,062 |  |  | $ | 1,124,473 |  |  |  | 38.4 |  |  |  | 36.8 |  |  | $ | 46,589 |  |  |  | 4.1 |
Gain on divestiture |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warehouse Segment (1) |  | $ | 28,875 |  |  | $ | — |  |  |  | 6.2 |  |  |  | — |  |  | $ | 28,875 |  |  | NM |
Total |  | $ | 28,875 |  |  | $ | — |  |  |  | 0.9 |  |  |  | — |  |  | $ | 28,875 |  |  | NM |
Multi-employer pension plan withdrawal costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 18,268 |  |  | $ | — |  |  |  | 0.7 |  |  |  | — |  |  | $ | 18,268 |  |  | NM |
Total |  | $ | 18,268 |  |  | $ | — |  |  |  | 0.6 |  |  |  | — |  |  | $ | 18,268 |  |  | NM |
Pension plan settlement loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate (2) |  | $ | 3,030 |  |  | $ | 6,473 |  |  |  | — |  |  |  | — |  |  | $ | (3,443 | ) |  | NM |
Total |  | $ | 3,030 |  |  | $ | 6,473 |  |  |  | 0.1 |  |  |  | 0.2 |  |  | $ | (3,443 | ) |  | NM |
Restructuring and related impairment charges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 76,625 |  |  | $ | — |  |  |  | 3.0 |  |  |  | — |  |  | $ | 76,625 |  |  | NM |
Warehouse Segment (1) |  |  | 20,091 |  |  |  | — |  |  |  | 4.3 |  |  |  | — |  |  |  | 20,091 |  |  | NM |
Corporate (2) |  |  | 3,833 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,833 |  |  | NM |
Total |  | $ | 100,549 |  |  | $ | — |  |  |  | 3.3 |  |  |  | — |  |  | $ | 100,549 |  |  | NM |
Depreciation and amortization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 98,703 |  |  | $ | 92,906 |  |  |  | 3.8 |  |  |  | 3.6 |  |  | $ | 5,797 |  |  |  | 6.2 |
Warehouse Segment (1) |  |  | 15,841 |  |  |  | 15,462 |  |  |  | 3.4 |  |  |  | 3.1 |  |  |  | 379 |  |  |  | 2.5 |
Corporate (2) |  |  | (256 | ) |  |  | 227 |  |  |  | — |  |  |  | — |  |  |  | (483 | ) |  | NM |
Total |  | $ | 114,288 |  |  | $ | 108,595 |  |  |  | 3.8 |  |  |  | 3.6 |  |  | $ | 5,693 |  |  |  | 5.2 |
Income from operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DSD Segment (1) |  | $ | 146,719 |  |  | $ | 238,415 |  |  |  | 5.7 |  |  |  | 9.3 |  |  | $ | (91,696 | ) |  |  | (38.5 | )
Warehouse Segment (1) |  |  | 47,202 |  |  |  | 46,762 |  |  |  | 10.1 |  |  |  | 9.3 |  |  |  | 440 |  |  |  | 0.9 |
Corporate (2) |  |  | (77,396 | ) |  |  | (42,455 | ) |  |  | — |  |  |  | — |  |  |  | (34,941 | ) |  |  | (82.3 | )
Total |  | $ | 116,525 |  |  | $ | 242,722 |  |  |  | 3.8 |  |  |  | 7.9 |  |  | $ | (126,197 | ) |  |  | (52.0 | )
Interest expense, net |  | $ | 11,056 |  |  | $ | 10,471 |  |  |  | 0.4 |  |  |  | 0.3 |  |  | $ | 585 |  |  |  | 5.6 |
Income taxes |  | $ | 33,882 |  |  | $ | 81,517 |  |  |  | 1.1 |  |  |  | 2.7 |  |  | $ | (47,635 | ) |  |  | (58.4 | )
Net income |  | $ | 71,587 |  |  | $ | 150,734 |  |  |  | 2.3 |  |  |  | 4.9 |  |  | $ | (79,147 | ) |  |  | (52.5 | )
Comprehensive income |  | $ | 68,768 |  |  | $ | 124,796 |  |  |  | 2.3 |  |  |  | 4.1 |  |  | $ | (56,028 | ) |  |  | (44.9 | )

(1) | As a percentage of revenue within the reporting segment.

(2) | The corporate segment has no revenues.

NM | Not meaningful.

Percentages may not add due to rounding.

46

CONSOLIDATED AND SEGMENT RESULTS

TWELVE WEEKS ENDED OCTOBER 7, 2017 COMPARED TO TWELVE WEEKS ENDED OCTOBER 8, 2016

Sales

Consolidated

|  | For the Twelve Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 550,798 |  |  |  | 59.0 |  |  | $ | 534,727 |  |  |  | 58.2 |  |  |  | 3.0 |
Store branded retail |  |  | 138,612 |  |  |  | 14.9 |  |  |  | 137,101 |  |  |  | 14.9 |  |  |  | 1.1 |
Non-retail and other |  |  | 243,412 |  |  |  | 26.1 |  |  |  | 246,963 |  |  |  | 26.9 |  |  |  | (1.4 | )
Total |  | $ | 932,822 |  |  |  | 100.0 |  |  | $ | 918,791 |  |  |  | 100.0 |  |  |  | 1.5 |

The change in sales was generally attributable to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | (0.6 | )
Volume |  |  | 2.7 |
Divestiture |  |  | (0.6 | )
Total percentage change in sales |  |  | 1.5 |

Continued sales growth from branded organic products and in our expansion markets, and to a much lesser extent, increased volume aided by hurricanes Harvey and Irma in the current quarter resulted in the sales increase, partially offset by the divestiture of our mix manufacturing business in January 2017 and a competitive marketplace. Sales of DKB branded products continue to increase, partly due to the introduction of breakfast items during the current fiscal year. The sales increase in the branded retail category resulted primarily from increased sales of branded organic products, partially offset by softer sales of branded buns and rolls. Store branded retail sales increased primarily as a result of volume increases in store branded buns and rolls. The impact of the divestiture of our mix manufacturing business in January 2017 resulted in the decrease of non-retail and other sales, which includes contract manufacturing, vending and foodservice, somewhat offset by volume growth in vending sales.

DSD Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 514,556 |  |  |  | 65.4 |  |  | $ | 496,361 |  |  |  | 64.6 |  |  |  | 3.7 |
Store branded retail |  |  | 110,822 |  |  |  | 14.1 |  |  |  | 110,625 |  |  |  | 14.4 |  |  |  | 0.2 |
Non-retail and other |  |  | 161,877 |  |  |  | 20.5 |  |  |  | 161,934 |  |  |  | 21.0 |  |  |  | — |
Total |  | $ | 787,255 |  |  |  | 100.0 |  |  | $ | 768,920 |  |  |  | 100.0 |  |  |  | 2.4 |

The change in sales was generally due to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | 1.4 |
Volume |  |  | 1.0 |
Total percentage change in sales |  |  | 2.4 |

Branded retail sales increased due to significant sales growth for branded organic products and, to a lesser extent, increased volume related to the impact of hurricanes Harvey and Irma during the third quarter of fiscal 2017, somewhat offset by declines in branded buns and rolls. Sales of DKB branded products continue to increase, driven by volume gains and the addition of DKB breakfast items during the current fiscal year. Store branded retail and non-retail and other sales were relatively unchanged quarter over quarter.

47

Warehouse Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 36,242 |  |  |  | 24.9 |  |  | $ | 38,366 |  |  |  | 25.6 |  |  |  | (5.5 | )
Store branded retail |  |  | 27,790 |  |  |  | 19.1 |  |  |  | 26,476 |  |  |  | 17.7 |  |  |  | 5.0 |
Non-retail and other |  |  | 81,535 |  |  |  | 56.0 |  |  |  | 85,029 |  |  |  | 56.7 |  |  |  | (4.1 | )
Total |  | $ | 145,567 |  |  |  | 100.0 |  |  | $ | 149,871 |  |  |  | 100.0 |  |  |  | (2.9 | )

The change in sales was generally attributable to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | (6.8 | )
Volume |  |  | 7.3 |
Divestiture |  |  | (3.4 | )
Total percentage change in sales |  |  | (2.9 | )

Branded retail sales decreased largely due to declines in branded cake and to a lesser extent warehouse-delivered branded organic bread. Branded cake sales were negatively impacted by increased competition quarter over quarter. Volume increases in store branded items due to a new customer resulted in the increase in store branded retail sales. The decrease in non-retail and other sales, which include contract manufacturing, vending and foodservice, was due primarily to the impact of the mix manufacturing business divestiture and to a lesser extent lost contract manufacturing business, partially offset by growth in vending volume.

Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

Consolidated

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 24.9 |  |  |  | 24.9 |  |  |  | — |
Workforce-related costs |  |  | 14.4 |  |  |  | 14.6 |  |  |  | (0.2 | )
Packaging |  |  | 4.4 |  |  |  | 4.4 |  |  |  | — |
Utilities |  |  | 1.5 |  |  |  | 1.6 |  |  |  | (0.1 | )
Other |  |  | 5.8 |  |  |  | 6.4 |  |  |  | (0.6 | )
Total |  |  | 51.0 |  |  |  | 51.9 |  |  |  | (0.9 | )

On a consolidated basis, improved sales volumes, reduced outside purchases of product, improved manufacturing efficiencies and lower repairs and maintenance costs resulted in the decrease in total costs as a percent of sales. The outside product purchases and repairs and maintenance costs are included in the other line item in the table above.

48

DSD Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 21.9 |  |  |  | 22.2 |  |  |  | (0.3 | )
Workforce-related costs |  |  | 12.5 |  |  |  | 12.8 |  |  |  | (0.3 | )
Packaging |  |  | 3.0 |  |  |  | 3.1 |  |  |  | (0.1 | )
Utilities |  |  | 1.4 |  |  |  | 1.5 |  |  |  | (0.1 | )
Other |  |  | 8.4 |  |  |  | 8.3 |  |  |  | 0.1 |
Total |  |  | 47.2 |  |  |  | 47.9 |  |  |  | (0.7 | )

Ingredients and workforce-related costs decreased due to sales increases on improved pricing/mix and increased intercompany product purchases from the Warehouse Segment (sales with no associated ingredient or workforce-related costs). The other line item in the table above reflects the increase in intercompany product purchases from the Warehouse Segment, partially offset by efficiency gains and lower repairs and maintenance costs.

Warehouse Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 41.0 |  |  |  | 38.8 |  |  |  | 2.2 |
Workforce-related costs |  |  | 24.9 |  |  |  | 24.2 |  |  |  | 0.7 |
Packaging |  |  | 11.8 |  |  |  | 11.0 |  |  |  | 0.8 |
Utilities |  |  | 1.7 |  |  |  | 2.0 |  |  |  | (0.3 | )
Other |  |  | (7.5 | ) |  |  | (3.8 | ) |  |  | (3.7 | )
Total |  |  | 71.9 |  |  |  | 72.2 |  |  |  | (0.3 | )

Ingredients, workforce-related and packaging costs increased as a percent of sales primarily due to increased intercompany sales of product to the DSD Segment (costs with no associated sales) and reduced outside purchases of product. The other line item in the table above mostly reflects the increase in intercompany sales of product to the DSD Segment, largely the DKB organic products, and the reduction in outside purchases of product, as well as reduced repairs and maintenance costs. Utilities expense decreased primarily due to the divestiture of the mix manufacturing business.

Selling, Distribution and Administrative Expenses (as a percent of sales)

Consolidated

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 17.0 |  |  |  | 17.7 |  |  |  | (0.7 | )
Distributor distribution fees |  |  | 13.6 |  |  |  | 12.6 |  |  |  | 1.0 |
Other |  |  | 7.5 |  |  |  | 6.9 |  |  |  | 0.6 |
Total |  |  | 38.1 |  |  |  | 37.2 |  |  |  | 0.9 |

In the current quarter, a larger portion of our sales were made through independent distributors resulting in increased distributor distribution fees as a percent of sales and decreased workforce-related costs as a percent of sales. As discussed in the “Matters Affecting Comparability” section above, during the twelve weeks ended October 7, 2017, the company incurred $7.1 million of consulting costs associated with Project Centennial compared to $1.2 million in the prior year quarter, an increase of approximately 60 basis points, and these costs are reflected in the other line item in the table above. We anticipate incurring additional consulting costs related to Project Centennial of approximately $5.5 million to $6.5 million during the fourth quarter of fiscal 2017 and approximately $10.0 million to $12.0 million during fiscal 2018. Additionally, the legal settlement recorded in the current quarter was $3.0 million higher than the settlement recorded in the prior year quarter and is reflected in the other line item in the table above. Cost savings initiatives that we have implemented and increased sales partially offset the overall increase in selling, distribution and administrative expenses.

49

DSD Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 16.9 |  |  |  | 17.8 |  |  |  | (0.9 | )
Distributor distribution fees |  |  | 16.1 |  |  |  | 15.1 |  |  |  | 1.0 |
Other |  |  | 6.7 |  |  |  | 6.9 |  |  |  | (0.2 | )
Total |  |  | 39.7 |  |  |  | 39.8 |  |  |  | (0.1 | )

A larger portion of our sales were made through independent distributors quarter over quarter, resulting in increased distributor distribution fees and decreased workforce-related costs as a percent of sales. Cost savings initiatives we have implemented more than offset higher legal settlements incurred in the quarter, both of which are reflected in the other line item in the table above.

Warehouse Segment

|  | For the Twelve Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 7.8 |  |  |  | 7.7 |  |  |  | 0.1 |
Freezer storage/rent |  |  | 2.2 |  |  |  | 2.1 |  |  |  | 0.1 |
Distribution costs (includes freight and shipping and hauling) |  |  | 2.0 |  |  |  | 2.1 |  |  |  | (0.1 | )
Other |  |  | 5.2 |  |  |  | 4.6 |  |  |  | 0.6 |
Total |  |  | 17.2 |  |  |  | 16.5 |  |  |  | 0.7 |

In the current quarter, the overall increase in selling, distribution and administrative expenses as a percent of sales was primarily driven by significantly lower sales which spread the costs over a smaller sales base, as well as increased marketing expenses. The decrease in distribution costs was mostly related to the divestiture of our mix manufacturing business.

Multi-employer Pension Plan Withdrawal Costs, Pension Plan Settlement Loss and Restructuring and Related Impairment Charges

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

Depreciation and Amortization Expense

As a percent of sales, depreciation and amortization expense in the current quarter was consistent with the prior year quarter.

Income (Loss) from Operations

The table below summarizes the percentage change in income (loss) from operations by segment and the change as a percent of sales for the twelve weeks ended October 7, 2017 compared to the twelve weeks ended October 8, 2016:

Operating income (loss) |  | % Favorable (Unfavorable) |  |  | Increase (Decrease) as a % of Sales |
DSD Segment |  |  | (130.5 | ) |  |  | (11.2 | )
Warehouse Segment |  |  | (173.8 | ) |  |  | (14.4 | )
Unallocated corporate |  |  | (95.4 | ) |  | NA |
Consolidated |  |  | (181.3 | ) |  |  | (13.0 | )

NA | Not applicable as the corporate segment has no revenues.

50

The change in the DSD Segment operating income (loss) as a percent of sales was primarily driven by $76.6 million of restructuring and related impairment charges and $18.3 million of MEPP costs incurred during the third quarter of fiscal 2017 and higher legal settlements, partially offset by lower production costs on improved sales. The change in the Warehouse Segment operating income (loss) as a percent of sales was primarily due to $20.1 million of restructuring and related impairment charges and sales declines. The unfavorable change in unallocated corporate expenses was primarily due to the $5.8 million increase in consulting costs associated with Project Centenni al, $3.8 million of restructuring and related impairment charges and a $1.2 million increase in pension settlement loss in the current quarter.

Net Interest Expense

Net interest expense was lower due to the recognition of an early extinguishment loss of $1.9 million in the prior year quarter.

Income Taxes

The effective tax rate for the twelve weeks ended October 7, 2017 was 40.6% compared to 34.6% in the prior year quarter. The increase in the rate was primarily related to tax credits recorded in the current quarter and an adjustment to the year to date tax expense to reflect a reduction in the estimated annualized effective rate for fiscal 2017. Tax benefits in the current quarter increased the tax rate due to a loss before income taxes. Conversely, tax benefits in the prior year quarter reduced the effective tax rate on earnings before income taxes. The most significant differences in the effective rate and the statutory rate were related to state income taxes and the Section 199 qualifying domestic production activities deduction.

Comprehensive Income (Loss)

The change in comprehensive income (loss) quarter over quarter resulted primarily from the change in net income (loss) and, to a lesser extent, net changes in the fair value of derivatives of $13.1 million.

FORTY WEEKS ENDED OCTOBER 7, 2017 COMPARED TO FORTY WEEKS ENDED OCTOBER 8, 2016

Sales

Consolidated

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 1,792,869 |  |  |  | 58.8 |  |  | $ | 1,784,748 |  |  |  | 58.4 |  |  |  | 0.5 |
Store branded retail |  |  | 455,053 |  |  |  | 14.9 |  |  |  | 454,125 |  |  |  | 14.8 |  |  |  | 0.2 |
Non-retail and other |  |  | 799,188 |  |  |  | 26.3 |  |  |  | 819,295 |  |  |  | 26.8 |  |  |  | (2.5 | )
Total |  | $ | 3,047,110 |  |  |  | 100.0 |  |  | $ | 3,058,168 |  |  |  | 100.0 |  |  |  | (0.4 | )

The change in sales was generally attributable to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | 0.4 |
Volume |  |  | (0.3 | )
Divestiture |  |  | (0.5 | )
Total percentage change in sales |  |  | (0.4 | )

Softness in the fresh bakery category, the divestiture of the mix manufacturing business and marketplace competition resulted in the overall sales decline mostly offset by the sales contribution from branded organic products. Sales of DKB branded products continue to grow driven by both volume, price and new product introductions even though the national rollout of the DKB brand on our DSD network occurred at the beginning of the second quarter of fiscal 2016. Branded retail sales increased due to significant growth in branded organic products, partially offset by volume declines in other branded retail products, most notably branded cake and branded buns and rolls. Branded soft variety bread experienced volume growth, but was more than offset by negative pricing/mix. The impact of the mix manufacturing business divestiture and decreased contract manufacturing and bakery outlet store sales resulted in lower non-retail and other sales, which includes contract manufacturing, vending and foodservice.

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DSD Segment

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 1,675,246 |  |  |  | 64.9 |  |  | $ | 1,646,840 |  |  |  | 64.5 |  |  |  | 1.7 |
Store branded retail |  |  | 368,265 |  |  |  | 14.3 |  |  |  | 360,102 |  |  |  | 14.1 |  |  |  | 2.3 |
Non-retail and other |  |  | 536,496 |  |  |  | 20.8 |  |  |  | 546,748 |  |  |  | 21.4 |  |  |  | (1.9 | )
Total |  | $ | 2,580,007 |  |  |  | 100.0 |  |  | $ | 2,553,690 |  |  |  | 100.0 |  |  |  | 1.0 |

The change in sales was generally due to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | 0.7 |
Volume |  |  | 0.3 |
Total percentage change in sales |  |  | 1.0 |

Branded retail sales increased due to significant sales growth of the DKB brand since its national rollout in our DSD markets, which occurred at the beginning of the second quarter of fiscal 2016, and new product introductions. Mostly offsetting this increase were declines in other branded items, with the largest decreases in branded buns and rolls and soft variety bread. Store branded retail sales increased primarily due to volume gains in store branded buns and rolls. Non-retail and other sales decreased primarily due to volume declines.

Warehouse Segment

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | % Increase |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | (Decrease) |
|  | (Amounts in thousands) |  |  |  |  |  |  | (Amounts in thousands) |  |  |  |  |  |  |  |  |
Branded retail |  | $ | 117,623 |  |  |  | 25.2 |  |  | $ | 137,908 |  |  |  | 27.3 |  |  |  | (14.7 | )
Store branded retail |  |  | 86,788 |  |  |  | 18.6 |  |  |  | 94,023 |  |  |  | 18.6 |  |  |  | (7.7 | )
Non-retail and other |  |  | 262,692 |  |  |  | 56.2 |  |  |  | 272,547 |  |  |  | 54.1 |  |  |  | (3.6 | )
Total |  | $ | 467,103 |  |  |  | 100.0 |  |  | $ | 504,478 |  |  |  | 100.0 |  |  |  | (7.4 | )

The change in sales was generally attributable to the following:

Percentage Point Change in Sales Attributed to: |  | Favorable (Unfavorable) |
Pricing/mix |  |  | (2.6 | )
Volume |  |  | (1.9 | )
Divestiture |  |  | (2.9 | )
Total percentage change in sales |  |  | (7.4 | )

Decreased sales of warehouse-delivered snack cakes and branded organic breads, and the impact of our mix manufacturing business divestiture, resulted in the significant sales decrease. The sales related to the mix manufacturing business were included in the non-retail and other category. Volume declines in branded organic bread and branded cake resulted in the decrease in branded retail sales. During the second quarter of fiscal 2016, the Warehouse Segment’s Mesa, Arizona plant significantly increased production of DKB organic breads for the DSD Segment and this trend has continued. These intercompany sales are not included in the amounts above, but are included in the DSD Segment. Increased competition in the current year negatively impacted branded cake sales. Store branded retail sales decreased mainly due to volume decreases in store branded cake. The decrease in non-retail and other sales, which include contract manufacturing, vending and foodservice, was due primarily to the mix manufacturing business divestiture, partially offset by increased foodservice sales.

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Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

Consolidated

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 24.3 |  |  |  | 24.5 |  |  |  | (0.2 | )
Workforce-related costs |  |  | 14.5 |  |  |  | 14.4 |  |  |  | 0.1 |
Packaging |  |  | 4.3 |  |  |  | 4.4 |  |  |  | (0.1 | )
Utilities |  |  | 1.4 |  |  |  | 1.5 |  |  |  | (0.1 | )
Other |  |  | 6.4 |  |  |  | 6.7 |  |  |  | (0.3 | )
Total |  |  | 50.9 |  |  |  | 51.5 |  |  |  | (0.6 | )

Overall, a reduction in outside purchases of products and improved manufacturing efficiency drove the decrease in total costs as a percent of sales. Ingredient costs decreased as a percent of sales primarily due to the impact of the mix manufacturing business divestiture, partially offset by increased purchases of higher priced organic ingredients. As of the beginning of fiscal 2017, we completed the transition from purchasing certain DKB bread products from co-manufacturers to producing these items ourselves as a result of added production capacity at our Tuscaloosa, Alabama and Mesa, Arizona plants. In the prior year, we incurred $2.2 million of start-up costs related to converting the Tuscaloosa plant to an all-organic plant. This decrease in outside product purchases is reflected in the other line item in the table above.

DSD Segment

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 21.6 |  |  |  | 21.6 |  |  |  | — |
Workforce-related costs |  |  | 12.5 |  |  |  | 12.5 |  |  |  | — |
Packaging |  |  | 3.0 |  |  |  | 3.1 |  |  |  | (0.1 | )
Utilities |  |  | 1.4 |  |  |  | 1.4 |  |  |  | — |
Other |  |  | 8.8 |  |  |  | 9.1 |  |  |  | (0.3 | )
Total |  |  | 47.3 |  |  |  | 47.7 |  |  |  | (0.4 | )

In the prior fiscal year, a significant portion of the DKB products were produced by co-manufacturers and in the current fiscal year, we are producing these products in two plants in the DSD Segment and the Mesa, Arizona plant in the Warehouse Segment. The other line item reflects this decrease in outside purchases of product, somewhat offset by increased intercompany purchases of product from the Warehouse Segment. Also, in the prior year, we incurred $2.2 million of start-up costs related to converting the Tuscaloosa, Alabama plant to an all-organic plant.

Warehouse Segment

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Ingredients |  |  | 39.4 |  |  |  | 38.9 |  |  |  | 0.5 |
Workforce-related costs |  |  | 25.2 |  |  |  | 23.7 |  |  |  | 1.5 |
Packaging |  |  | 11.7 |  |  |  | 11.0 |  |  |  | 0.7 |
Utilities |  |  | 1.7 |  |  |  | 1.8 |  |  |  | (0.1 | )
Other |  |  | (6.9 | ) |  |  | (4.4 | ) |  |  | (2.5 | )
Total |  |  | 71.1 |  |  |  | 71.0 |  |  |  | 0.1 |

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Ingredient costs increased as a percent of sales due to increased intercompany sales of organic products to the DSD Segment (ingredient costs with no associated sales) combined with decreased outside purchases of product (sales with no associated ingredient costs), partially offset by the impact of the mix manufacturing business divestiture. Workforce-related and packaging costs increased as a percent of sales due to increased intercompany sales of product to the DSD Segment (co sts with no associated sales) and significant sales declines. The other line item in the table above mostly reflects the increase in intercompany sales of product to the DSD Segment, largely the DKB organic products, and the decrease in outside purchases of product.

Selling, Distribution and Administrative Expenses (as a percent of sales)

Consolidated

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 17.4 |  |  |  | 17.5 |  |  |  | (0.1 | )
Distributor distribution fees |  |  | 13.4 |  |  |  | 12.6 |  |  |  | 0.8 |
Other |  |  | 7.6 |  |  |  | 6.7 |  |  |  | 0.9 |
Total |  |  | 38.4 |  |  |  | 36.8 |  |  |  | 1.6 |

The increase in distributor distribution fees as a percent of sales was due to the national rollout of the DKB brand in our DSD markets at the beginning of the second quarter of fiscal 2016 and converting territories from company-operated to independent distributors. Prior to the national rollout, the DKB products were sold mostly by warehouse delivery. Workforce-related costs were lower due to the shift to independent distributors, but were mostly offset by higher employee incentive costs on lower sales. As discussed in the “Matters Affecting Comparability” section above, consulting costs associated with Project Centennial increased $29.4 million in the current year as compared to the same period in the prior year, and we incurred higher legal costs and settlements, all of which are reflected in the other line item in the table above. See Note 12, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding the legal settlements. Cost savings programs that we have implemented and the benefit recognized related to the early lease terminations, as discussed in the DSD Segment below, partially offset the overall increase in selling, distribution and administrative expenses.

DSD Segment

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 17.3 |  |  |  | 17.6 |  |  |  | (0.3 | )
Distributor distribution fees |  |  | 15.8 |  |  |  | 15.0 |  |  |  | 0.8 |
Other |  |  | 6.4 |  |  |  | 6.7 |  |  |  | (0.3 | )
Total |  |  | 39.5 |  |  |  | 39.3 |  |  |  | 0.2 |

The increase in distributor distribution fees as a percent of sales was due to the national rollout of the DKB brand in our DSD markets at the beginning of the second quarter of fiscal 2016 and converting territories from company-owned to independent distributors. Prior to the national rollout, the DKB products were sold mostly by warehouse delivery. Workforce-related costs decreased due to the increase in independent distributors, somewhat offset by higher employee incentive costs. The decrease in the other line item as a percentage of sales in the table above resulted from the implementation of cost savings programs and the immediate recognition of deferred credits, net of lease termination costs, associated with the early termination of certain leases. Partially offsetting these items were higher legal costs and settlements. See Note 12, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information.

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Warehouse Segment

|  | For the Forty Weeks Ended |  |  |  |  |
Line item component |  | October 7, 2017 % of sales |  |  | October 8, 2016 % of sales |  |  | Increase (Decrease) as a % of sales |
Workforce-related costs |  |  | 8.0 |  |  |  | 7.8 |  |  |  | 0.2 |
Freezer storage/rent |  |  | 2.2 |  |  |  | 2.0 |  |  |  | 0.2 |
Distribution costs (includes freight and shipping and hauling) |  |  | 1.9 |  |  |  | 2.1 |  |  |  | (0.2 | )
Other |  |  | 5.2 |  |  |  | 4.7 |  |  |  | 0.5 |
Total |  |  | 17.3 |  |  |  | 16.6 |  |  |  | 0.7 |

Selling, distribution and administrative expenses increased as a percent of sales primarily from significantly lower sales which spread the costs over a smaller sales base. Distribution costs decreased due to the divestiture of the mix manufacturing business.

Gain on Divestiture, Multi-employer Pension Plan Withdrawal Costs, Pension Plan Settlement Loss, and Restructuring and Related Impairment Charges

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

Depreciation and Amortization Expense

Depreciation expense increased primarily due to the accelerated depreciation of certain leasehold improvements in conjunction with the early lease terminations as well as the retirement of certain right to use assets, all in the DSD Segment. Amortization expense was higher as we began amortizing certain trademarks of the DSD Segment in the current fiscal year which had previously been deemed indefinite-lived intangible assets.

Income from Operations

The table below summarizes the percentage change in income from operations by segment and the change as a percent of sales for the forty weeks ended October 7, 2017 compared to the same period in the prior year:

Operating income (loss) |  | % Favorable (Unfavorable) |  |  | Increase (Decrease) as a % of Sales |
DSD Segment |  |  | (38.5 | ) |  |  | (3.6 | )
Warehouse Segment |  |  | 0.9 |  |  |  | 0.8 |
Unallocated corporate |  |  | (82.3 | ) |  | NA |
Consolidated |  |  | (52.0 | ) |  |  | (4.1 | )

NA | Not applicable as the corporate segment has no revenues.

The significant decrease in the DSD Segment operating income as a percent of sales was primarily driven by $76.6 million of restructuring and related impairment charges, $18.3 million of MEPP costs and a $3.3 million increase in legal settlements, partially offset by sales increases and cost savings programs we have implemented. The increase in the Warehouse Segment operating income as a percent of sales was due to the gain on divestiture of the mix manufacturing business of $28.9 million in the current fiscal year, mostly offset by $20.1 million of restructuring and related impairment charges and sales declines in the current year. The unfavorable change in unallocated corporate expenses was primarily due to the $29.4 million increase in consulting costs associated with Project Centennial, restructuring charges of $3.8 million and higher legal costs in the current year, partially offset by a $3.4 million decrease in pension plan settlement losses in the current year.

Net Interest Expense

Net interest expense was relatively unchanged compared to the same period in the prior year. Higher average interest rates on debt outstanding due to converting certain variable rate debt to longer-term, fixed rate debt with the issuance of the 2026 notes in the third quarter of fiscal 2016 were mostly offset by lower average amounts outstanding under the company’s debt arrangements in the current fiscal year compared to the same period in the prior year and the $1.9 million loss on early extinguishment recorded in the prior year.

55

Income Taxes

The effective tax rate for the forty weeks ended October 7, 2017 was 32.1% compared to 35.1% in the prior year. The decrease in the rate was primarily related to greater benefit from the Section 199 tax deduction and larger state income tax incentives and federal credits recognized in the current year. The most significant differences in the effective rate and the statutory rate were related to state income taxes and the Section 199 qualifying domestic production activities deduction.

Comprehensive Income

The decrease in comprehensive income year over year resulted primarily from significantly lower net income, and, to a lesser extent, net changes in the fair value of derivatives of $8.4 million, partially offset by the changes in pension remeasurement loss of $35.4 million.

LIQUIDITY AND CAPITAL RESOURCES:

Strategy

We believe our ability to consistently generate cash flows from operating activities to meet our liquidity needs is one of our key financial strengths and we do not anticipate significant risks to these cash flows in the foreseeable future. Additionally, we strive to maintain a conservative financial position. We believe having a conservative financial position allows us flexibility to make investments and acquisitions and is a strategic competitive advantage. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, pension contributions and obligated debt repayments. We believe we currently have access to available funds and financing sources to meet our short and long-term capital requirements. The company’s strategy for use of its excess cash flows includes:

| • | implementing Project Centennial;

| • | paying dividends to our shareholders;

| • | repayment of indebtedness prior to the maturity date;

| • | making strategic acquisitions;

| • | repurchasing shares of our common stock; and

| • | making discretionary contributions to its qualified pension plans.

Liquidity discussion for the forty weeks ended October 7, 2017 and October 8, 2016

The Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 8, 2016 have been revised for the correction of errors and the adoption of new employee share-based payment transaction guidance. See Note 2, Financial Statement Revisions, and Note 3, Recent Accounting Pronouncements, for details on these revisions.

Cash and cash equivalents were $7.1 million at October 7, 2017 as compared to $6.4 million at December 31, 2016. The cash and cash equivalents were derived from the activities presented in the tables below (amounts in thousands):

|  | For the Forty Weeks Ended |  |  |  |  |
Cash flow component |  | October 7, 2017 |  |  | October 8, 2016 |  |  | Change |
Cash provided by operating activities |  | $ | 211,252 |  |  | $ | 285,823 |  |  | $ | (74,571 | )
Cash disbursed for investing activities |  |  | (30 | ) |  |  | (55,498 | ) |  |  | 55,468 |
Cash disbursed for financing activities |  |  | (210,558 | ) |  |  | (237,168 | ) |  |  | 26,610 |
Total change in cash |  | $ | 664 |  |  | $ | (6,843 | ) |  | $ | 7,507 |

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Cash Flows Provided by Operating Activities. The decrease in cash provided by operating activities period over period was principally due to the significant increase in costs incurred related to implementing Project Centennial. Net cash provided by operating activities consisted of the following items for non-cash adjustments to net income (amounts in thousands):

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | Change |
Depreciation and amortization |  | $ | 114,288 |  |  | $ | 108,595 |  |  | $ | 5,693 |
Gain on divestiture |  |  | (28,875 | ) |  |  | — |  |  |  | (28,875 | )
Restructuring and related impairment charges |  |  | 100,549 |  |  |  | — |  |  |  | 100,549 |
Stock-based compensation |  |  | 11,708 |  |  |  | 15,005 |  |  |  | (3,297 | )
Deferred income taxes |  |  | (18,476 | ) |  |  | (1,094 | ) |  |  | (17,382 | )
Pension and postretirement plans expense |  |  | (879 | ) |  |  | 2,728 |  |  |  | (3,607 | )
Other non-cash items |  |  | 2,734 |  |  |  | 7,853 |  |  |  | (5,119 | )
Net non-cash adjustment to net income |  | $ | 181,049 |  |  | $ | 133,087 |  |  | $ | 47,962 |

| • | The change in depreciation and amortization was primarily due to accelerated depreciation of certain leasehold improvements and right to use assets and amortization of certain trademarks that had previously been indefinite-lived intangible assets.

| • | Refer to the Gain on Divestiture and Restructuring and Related Impairment Charges discussion in the “Matters Affecting Comparability” section above for additional information.

| • | Other non-cash items include non-cash interest expense for the amortization of debt discounts and deferred financing costs and gains or losses on the sale of assets.

Net changes in working capital and pension contributions consisted of the following items (amounts in thousands):

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | Change |
Changes in accounts receivable, net |  | $ | (26,457 | ) |  | $ | (17,154 | ) |  | $ | (9,303 | )
Changes in inventories, net |  |  | (7,241 | ) |  |  | (3,877 | ) |  |  | (3,364 | )
Changes in hedging activities, net |  |  | (14,814 | ) |  |  | 7,239 |  |  |  | (22,053 | )
Changes in other assets, net |  |  | (29,833 | ) |  |  | (812 | ) |  |  | (29,021 | )
Changes in accounts payable, net |  |  | 13,780 |  |  |  | 9,078 |  |  |  | 4,702 |
Changes in other accrued liabilities, net |  |  | 24,786 |  |  |  | 8,528 |  |  |  | 16,258 |
Qualified pension plan contributions |  |  | (1,605 | ) |  |  | (1,000 | ) |  |  | (605 | )
Net changes in working capital and pension contributions |  | $ | (41,384 | ) |  | $ | 2,002 |  |  | $ | (43,386 | )

| • | Hedging activities change from market movements that affect the fair value and the associated required collateral of positions and the timing and recognition of deferred gains or losses. These changes will occur as part of our hedging program.

| • | Changes in income tax receivables and in deferred gains recorded in conjunction with the sale of distribution rights to independent distributors primarily resulted in the change in other assets.

| • | Changes in employee compensation accruals, including employee termination benefits, accrued MEPP costs, income taxes payable and legal accruals resulted in the change in other accrued liabilities. Additionally, during the first quarter of fiscal 2017 and fiscal 2016, we paid $17.3 million and $25.6 million, respectively, including our share of employment taxes, in performance-based cash awards under our bonus plan. An additional $0.4 million was paid during the first quarter of fiscal 2017 and fiscal 2016 for our share of employment taxes on the vesting of the performance-contingent restricted stock awards in each respective year.

| • | During the second quarter of fiscal 2017, the court approved the $9.0 million settlement reached in the Rehberg et al v. Flowers Foods, Inc. and Flowers Baking Co. of Jamestown, LLC class action lawsuit, and it was paid during the third quarter of fiscal 2017. The settlement was accrued for in the fourth quarter of fiscal 2016. We accrued additional settlements related to other lawsuits of $4.5 million during the current fiscal year, which have not yet been paid.

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| • | During the third quarter of fiscal 2017, we made a voluntary contribution to our defined benefit pension plans of $1.6 million and we do not expect to make any additional contributions to these plans in fiscal 20 17. We expect to pay an additional $0.1 million in nonqualified pension benefits from corporate assets during the remainder of fiscal 2017. The company believes its cash flow and balance sheet will allow it to fund future pension needs without adversely affecting the business strategy of the company.

Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts in thousands):

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | Change |
Purchases of property, plant, and equipment |  | $ | (51,213 | ) |  | $ | (67,400 | ) |  | $ | 16,187 |
Principal payments from notes receivable, net of repurchases of independent distributor territories |  |  | 8,259 |  |  |  | 8,957 |  |  |  | (698 | )
Proceeds from divestiture |  |  | 41,230 |  |  |  | — |  |  |  | 41,230 |
Proceeds from sale of property, plant and equipment |  |  | 1,694 |  |  |  | 2,945 |  |  |  | (1,251 | )
Net cash disbursed for investing activities |  | $ | (30 | ) |  | $ | (55,498 | ) |  | $ | 55,468 |

| • | Capital expenditures for the DSD Segment and Warehouse Segment were $45.0 million and $3.2 million, respectively. This includes an intersegment reclassification of $1.8 million from unallocated corporate to the DSD Segment related to first quarter of fiscal 2017 capital expenditures. We currently anticipate capital expenditures of $85 million to $90 million for fiscal 2017.

| • | We received proceeds of $41.2 million, net of a working capital adjustment, from the divestiture of our Cedar Rapids, Iowa mix manufacturing business in the first quarter of fiscal 2017.

Cash Flows Disbursed for Financing Activities. The table below presents net cash disbursed for financing activities for the forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts in thousands):

|  | For the Forty Weeks Ended |  |  |  |  |
|  | October 7, 2017 |  |  | October 8, 2016 |  |  | Change |
Dividends paid |  | $ | (105,207 | ) |  | $ | (97,808 | ) |  | $ | (7,399 | )
Exercise of stock options |  |  | 9,296 |  |  |  | 18,862 |  |  |  | (9,566 | )
Payment of financing fees |  |  | (100 | ) |  |  | (3,508 | ) |  |  | 3,408 |
Stock repurchases, including accelerated stock repurchases |  |  | (2,671 | ) |  |  | (126,298 | ) |  |  | 123,627 |
Change in bank overdrafts |  |  | (10,626 | ) |  |  | (5,558 | ) |  |  | (5,068 | )
Net debt and capital lease obligations changes |  |  | (101,250 | ) |  |  | (22,858 | ) |  |  | (78,392 | )
Net cash disbursed for financing activities |  | $ | (210,558 | ) |  | $ | (237,168 | ) |  | $ | 26,610 |

| • | Our dividends paid increased due to an increased dividend payout rate compared to the prior year. While there are no requirements to increase the dividend payout we have shown a recent historical trend to do so. If this trend continues in the future, we will have additional cash needs to meet these expected dividend payouts. Our Board of Directors declared the following quarterly dividends during the forty weeks ended October 7, 2017 (amounts in thousands, except per share data):

|  |  |  |  |  | Dividend per |  |  | Dividends |
Date Declared |  | Record Date |  | Payment Date |  | Common Share |  |  | Paid |
August 18, 2017 |  | September 1, 2017 |  | September 15, 2017 |  | $ | 0.1700 |  |  | $ | 35,606 |
May 25, 2017 |  | June 9, 2017 |  | June 23, 2017 |  | $ | 0.1700 |  |  | $ | 35,587 |
February 17, 2017 |  | March 3, 2017 |  | March 17, 2017 |  | $ | 0.1600 |  |  | $ | 33,461 |

Additionally, we paid dividends of $0.6 million at the time of vesting of our performance-contingent restricted stock awards and at issuance of deferred compensation shares.

| • | Stock option exercises decreased due to fewer exercises in the current year as compared to the prior year. As of October 7, 2017, there were nonqualified stock option grants of 1.0 million shares that were exercisable. These have a remaining contractual life of approximately 0.34 years and a weighted average exercise price of $10.87 per share. At this time, it is expected that these shares will be exercised before the contractual term expires in early fiscal 2018 and such exercises may provide an increase to cash provided by financing activities.

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| • | Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given time. During the forty weeks ended October 7, 2017, we repurchased 0.1 million shares for $2.7 million under a share repurchase plan approved by our Board of Directors. During the forty weeks ended October 8, 2016, we repurchased 6.9 million shares of our common stock of which 6.5 million shares were repurchased under an accelerated share repurchase program.

Capital Structure

Long-term debt and capital lease obligations and stockholders’ equity were as follows at October 7, 2017 and December 31, 2016, respectively. For additional information regarding our debt and capital lease obligations, see Note 10, Debt and Other Obligations, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

|  | Balance at |  |  | Fixed or |  | Final
|  | October 7, 2017 |  |  | December 31, 2016 |  |  | Variable Rate |  | Maturity
Long-term debt and capital lease obligations |  | (Amounts in thousands) |  |  |  |  |
2026 notes |  | $ | 394,847 |  |  | $ | 394,406 |  |  | Fixed Rate |  | 2026
2022 notes |  |  | 397,828 |  |  |  | 397,458 |  |  | Fixed Rate |  | 2022
Unsecured credit facility (the "credit facility") |  |  | 6,500 |  |  |  | 24,000 |  |  | Variable Rate |  | 2020
Accounts receivable securitization (the "facility") |  |  | 15,000 |  |  |  | 95,000 |  |  | Variable Rate |  | 2019
Capital lease obligations |  |  | 28,577 |  |  |  | 30,427 |  |  |  |  | 2024
Other notes payable |  |  | 13,356 |  |  |  | 16,866 |  |  |  |  | 2020
|  |  | 856,108 |  |  |  | 958,157 |  |  |  |  |
Current maturities of long-term debt and capital lease obligations |  |  | 12,469 |  |  |  | 11,490 |  |  |  |  |
Long-term debt and capital lease obligations |  | $ | 843,639 |  |  | $ | 946,667 |  |  |  |  |
Total stockholders' equity |  |  |  |  |  |  |  |  |  |  |  |
Total stockholders' equity |  | $ | 1,191,974 |  |  | $ | 1,210,080 |  |  |  |  |

The facility and credit facility are generally used for short term liquidity needs. The company has historically entered into amendments and extensions approximately one year prior to the maturity of the facility and the credit facility. On September 28, 2017, we amended the facility to extend the maturity date to September 28, 2019. There is no current portion payable over the next year for these obligations. Amounts available for withdrawal under the facility are determined as the lesser of the total commitments and a formula derived amount based on qualifying trade receivables.

The following table details the amounts available under the facility and credit facility and the highest and lowest balances outstanding under these arrangements during the forty weeks ended October 7, 2017:

|  | Amount Available |  |  | For the Forty Weeks Ended |
|  | for Withdrawal at |  |  | Highest |  |  | Lowest |
Facility |  | October 7, 2017 |  |  | Balance |  |  | Balance |
|  | (Amounts in thousands) |
Facility |  | $ | 185,000 |  |  | $ | 95,000 |  |  | $ | — |
Credit facility (1) |  |  | 484,802 |  |  |  | 47,500 |  |  |  | — |
|  | $ | 669,802 |  |  |  |  |  |  |  |  |

(1) | Amount excludes a provision in the credit facility agreement which allows the company to request an additional $200.0 million in additional revolving commitments.

Amounts outstanding under the credit facility vary daily. Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions which are part of the company’s overall risk management strategy as discussed in Note 9, Derivative Financial Instruments, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. During the forty weeks ended October 7, 2017, the company borrowed $421.2 million in revolving borrowings under the credit facility and repaid $438.7 million in revolving borrowings. The amount available under the credit facility is reduced by $8.7 million for letters of credit.

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The facility and the credit facility are variable rate debt. In periods of rising interest rates, the cost of using the facility and the credit facility will become more expensive and increase our interest expense. Therefore, borrowings under these facilities provide us the greatest direct exposure to rising rates. In addition, if interest rates do increase, it will make the cost of funds more expensive.

Restrictive financial covenants for our borrowings can include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. Our debt may also contain certain customary representations and warranties, affirmative and negative covenants, and events of default. 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 debt agreements and can meet presently foreseeable financial requirements. As of October 7, 2017, the company was in compliance with all restrictive covenants under our debt agreements.

Under our share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions at such times and at such prices as determined to be in the company’s best interest. These repurchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. During the forty weeks ended October 7, 2017, 0.1 million shares, at a cost of $2.7 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through October 7, 2017, 67.9 million shares, at a cost of $633.1 million, have been repurchased.

Accounting Pronouncements Recently Adopted and Not Yet Adopted

See Note 3, Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for information regarding recently adopted accounting pronouncements and accounting pronouncements not yet adopted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forward, futures, swap and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices. The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions are less favorable than those anticipated, raw material prices could increase significantly, adversely affecting the margins from the sale of our products.

Commodity Price Risk

The company enters into commodity forward, futures 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 market volatility in its raw material and packaging prices. As of October 7, 2017, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of ($9.1) million, based on quoted market prices, which relate to instruments that will be primarily utilized in fiscal 2018.

A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to the derivative portfolio. Based on the company’s derivative portfolio as of October 7, 2017, a hypothetical ten percent increase (decrease) in commodity prices would increase (decrease) the fair value of the derivative portfolio by $15.0 million. The analysis disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase (decrease) in fair value of the portfolio would be substantially offset by increases (decreases) in raw material and packaging prices.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to ensure that material information relating to the company, which is required to be timely disclosed by us in reports that we file or submit under the Exchange Act, is accumulated and communicated to management in a timely fashion and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

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Under the supervision and with the participation of our management, including our CEO, Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the CEO, CFO and CAO concluded that the company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the company files or submits to the SEC under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended October 7, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of all material pending legal proceedings, see Note 12, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Refer to Part I, Item 1A., Risk Factors, in the Form 10-K for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition, or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our Board of Directors has approved a plan that authorizes share repurchases of up to 74.6 million shares. Under the share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated share repurchase program at such times and at such prices as determined to be in the company’s best interest. These purchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors.

During the forty weeks ended October 7, 2017, 0.1 million shares, at a cost of $2.7 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through October 7, 2017, 67.9 million shares, at a cost of $633.1 million, have been repurchased. There were no repurchases of our common stock by the company during the third quarter of fiscal 2017.

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ITEM 3. DEFAULTS UP ON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

The following documents are filed as exhibits hereto:

Exhibit |  |  |  | Name of Exhibit
No |  |  |  |
3.1 |  | — |  | Restated Articles of Incorporation of Flowers Foods, Inc., as amended through June 5, 2015 (Incorporated by reference to Exhibit 3.1 to Flowers Foods’ Current Report on Form 8-K, dated June 10, 2015, File No. 1-16247).
3.2 |  | — |  | Amended and Restated Bylaws of Flowers Foods, Inc., as amended through June 5, 2015 (Incorporated by reference to Exhibit 3.2 to Flowers Foods’ Current Report on Form 8-K, dated June 10, 2015, File No. 1-16247).
10.1 | * | — |  | Fifth Amendment to Receivables Loan, Security and Servicing Agreement, dated as of September 28, 2017, by and among Flowers Finance II, LLC, Flowers Foods, Inc., as servicer, Nieuw Amsterdam Receivables Corporation and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank,” New York Branch, as administrative agent and facility agent.
31.1 | * | — |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 | * | — |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 | * | — |  | Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 | * | — |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Allen L. Shiver, President and Chief Executive Officer, R. Steve Kinsey, Chief Financial Officer and Chief Administrative Officer, and Karyl H. Lauder, Senior Vice President and Chief Accounting Officer for the Quarter Ended October 7, 2017.
101.INS | * | — |  | XBRL Instance Document.
101.SCH | * | — |  | XBRL Taxonomy Extension Schema Linkbase.
101.CAL | * | — |  | XBRL Taxonomy Extension Calculation Linkbase.
101.DEF | * | — |  | XBRL Taxonomy Extension Definition Linkbase.
101.LAB | * | — |  | XBRL Taxonomy Extension Label Linkbase.
101.PRE | * | — |  | XBRL Taxonomy Extension Presentation Linkbase.

* | Filed herewith

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SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FLOWERS FOODS, INC.
By: |  | /s/ ALLEN L. SHIVER
Name: |  | Allen L. Shiver
Title: |  | President and Chief Executive Officer

By: |  | /s/ R. STEVE KINSEY
Name: |  | R. Steve Kinsey
Title: |  | Chief Financial Officer and Chief Administrative Officer

By: |  | /s/ KARYL H. LAUDER
Name: |  | Karyl H. Lauder
Title: |  | Senior Vice President and Chief Accounting Officer

Date: November 8, 2017

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