UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 25, 2009

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

For the transition period from                      to                     

FLOWERS FOODS, INC.

GEORGIA		58-2582379
(State or other jurisdiction		(I.R.S. Employer Identification
of incorporation or organization)		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 þ     No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o     No o

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

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

TITLE OF EACH CLASS		OUTSTANDING AT MAY 29, 2009
Common Stock, $.01 par value with		92,242,875
Preferred Share Purchase Rights

 

 

FLOWERS FOODS, INC.

INDEX

		PAGE
		NUMBER
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of April 25, 2009 and January 3, 2009			4
Condensed Consolidated Statements of Income for the Sixteen Weeks Ended April 25, 2009 and April 19, 2008			5
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Sixteen Weeks Ended April 25, 2009			6
Condensed Consolidated Statements of Cash Flows for the Sixteen Weeks Ended April 25, 2009 and April 19, 2008			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II. Other Information			32
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 6. Exhibits			33
SIGNATURES			34
EX-3.1
EX-21
EX-31.1
EX-31.2
EX-31.3
EX-32

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

FLOWERS FOODS, INC.

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

		APRIL 25, 2009				JANUARY 3, 2009
ASSETS
Current Assets:
Cash and cash equivalents		$	18,517			$	19,964
Accounts and notes receivable, net of allowances of $2,309 and $378, respectively			179,710				178,077
Inventories, net:
Raw materials			20,166				18,032
Packaging materials			12,593				12,162
Finished goods			29,283				23,984
			62,042				54,178
Spare parts and supplies			32,900				32,541
Deferred taxes			34,581				38,745
Other			29,743				28,738
Total current assets			357,493				352,243
Property, Plant and Equipment, net of accumulated depreciation of $622,729 and $601,931, respectively			578,764				587,196
Notes Receivable			94,359				94,652
Assets Held for Sale — Distributor Routes			7,395				7,995
Other Assets			5,433				4,830
Goodwill			200,035				200,035
Other Intangible Assets, net			104,579				106,293
Total assets		$	1,348,058			$	1,353,244
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt and capital leases		$	21,481			$	22,538
Accounts payable			123,855				116,818
Other accrued liabilities			110,552				125,713
Total current liabilities			255,888				265,069
Long-Term Debt and Capital Leases			250,759				263,879
Other Liabilities:
Post-retirement/post-employment obligations			79,000				78,897
Deferred taxes			54,515				55,510
Other			47,012				45,835
Total other liabilities			180,527				180,242
Flowers Foods, Inc. Stockholders’ Equity:
Preferred stock — $100 par value, 100,000 authorized and none issued			—				—
Preferred stock — $.01 par value, 900,000 authorized and none issued			—				—
Common stock — $.01 par value, 500,000,000 authorized shares, 101,659,924 shares and 101,659,924 shares issued, respectively			1,017				1,017
Treasury stock — 9,417,049 shares and 8,913,142 shares, respectively			(171,568	)			(157,799	)
Capital in excess of par value			523,384				524,383
Retained earnings			392,818				369,397
Accumulated other comprehensive loss			(94,466	)			(102,279	)
Total Flowers Foods, Inc. stockholders’ equity			651,185				634,719
Noncontrolling interest			9,699				9,335
Total stockholders’ equity			660,884				644,054
Total liabilities and stockholders’ equity		$	1,348,058			$	1,353,244

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

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

		FOR THE SIXTEEN WEEKS ENDED
		APRIL 25, 2009				APRIL 19, 2008
Sales		$	807,007			$	676,707
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below)			429,462				349,971
Selling, marketing and administrative expenses			294,022				251,675
Depreciation and amortization			24,277				20,912
Income from operations			59,246				54,149
Interest expense			(3,595	)			(679	)
Interest income			4,054				4,176
Income before income taxes			59,705				57,646
Income tax expense			21,872				20,562
Net income			37,833				37,084
Less: net income attributable to noncontrolling interest			(452	)			(1,301	)
Net income attributable to Flowers Foods, Inc.		$	37,381			$	35,783
Net Income Per Common Share:
Basic:
Net income attributable to Flowers Foods, Inc. common shareholders		$	0.40			$	0.39
Weighted average shares outstanding			92,723				92,079
Diluted:
Net income attributable to Flowers Foods, Inc. common shareholders		$	0.40			$	0.39
Weighted average shares outstanding			93,238				92,542
Cash dividends paid per common share		$	0.150			$	0.125

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(Amounts in thousands, except share data)
(Unaudited)

														Capital
						Common Stock								in								Accumulated
						Number of								Excess								Other				Treasury Stock
		Comprehensive				shares				Par				of Par				Retained				Comprehensive				Number of								Noncontrolling
		Income (Loss)				issued				Value				Value				Earnings				Income (Loss)				shares				Cost				interest				Total
Balances at January 3, 2009							101,659,924			$	1,017			$	524,383			$	369,397			$	(102,279	)			(8,913,142	)		$	(157,799	)		$	9,335			$	644,054
Net income		$	37,833																37,381																452				37,833
Derivative instruments			7,227																				7,227																7,227
Amortization of prior service costs																							63																63
Amortization of actuarial loss																							523																523
Comprehensive income			45,060
Comprehensive income attributable to noncontrolling interests			(452	)
Comprehensive income attributable to Flowers Foods, Inc.		$	44,608
Exercise of stock options															(1,569	)											186,874				3,340								1,771
Deferred stock issuance															(91	)											5,130				91								—
Issuance of restricted stock award															(4,416	)											248,680				4,416								—
Amortization of deferred and restricted stock awards															2,060																								2,060
Stock option compensation															1,457																								1,457
Tax benefits related to share based payment awards															1,560																								1,560
Stock repurchases																											(944,591	)			(21,616	)							(21,616	)
Distributions from noncontrolling interest to owners																																			(88	)			(88	)
Dividends paid — $0.15 per common share																			(13,960	)																			(13,960	)
Balances at April 25, 2009							101,659,924			$	1,017			$	523,384			$	392,818			$	(94,466	)			(9,417,049	)		$	(171,568	)		$	9,699			$	660,884

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

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

		FOR THE SIXTEEN WEEKS ENDED
		APRIL 25, 2009				APRIL 19, 2008
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Net income		$	37,833			$	37,084
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation			3,527				3,399
Loss reclassified from accumulated other comprehensive income to net income			9,144				—
Depreciation and amortization			24,277				20,912
Deferred income taxes			(1,723	)			1,873
Provision for inventory obsolescence			325				305
Allowances for accounts receivable			1,614				322
Pension and postretirement plans expense (benefit)			1,573				(1,863	)
Other			76				(120	)
Changes in assets and liabilities:
Accounts and notes receivable, net			(2,994	)			(14,118	)
Pension contributions			(225	)			—
Inventories, net			(8,189	)			(4,420	)
Other assets			3,951				3,765
Accounts payable and other accrued liabilities			(10,848	)			14,464
NET CASH PROVIDED BY OPERATING ACTIVITIES			58,341				61,603
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(14,889	)			(23,324	)
Proceeds (Increase) of notes receivable			41				(2,084	)
Other			696				(102	)
NET CASH DISBURSED FOR INVESTING ACTIVITIES			(14,152	)			(25,510	)
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Dividends paid			(13,960	)			(11,534	)
Exercise of stock options			1,397				2,405
Income tax benefit related to stock awards			1,382				1,598
Stock repurchases			(21,616	)			(5,829	)
Change in book overdraft			1,440				1,675
Proceeds from debt borrowings			243,500				3,500
Debt and capital lease obligation payments			(257,779	)			(5,408	)
NET CASH DISBURSED FOR FINANCING ACTIVITIES			(45,636	)			(13,593	)
Net (decrease) increase in cash and cash equivalents			(1,447	)			22,500
Cash and cash equivalents at beginning of period			19,964				19,978
Cash and cash equivalents at end of period		$	18,517			$	42,478

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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”) have been prepared by the company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the company’s financial position, the results of its operations and its cash flows. The results of operations for the sixteen week periods ended April 25, 2009 and April 19, 2008 are not necessarily indicative of the results to be expected for a full year. The balance sheet at January 3, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

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

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

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

SIGNIFICANT CUSTOMER — Following is the effect our largest customer, Wal-Mart/Sam’s Club, had on the company’s sales for the sixteen weeks ended April 25, 2009 and April 19, 2008. No other customer accounted for 10% or more of the company’s sales.

		FOR THE SIXTEEN WEEKS ENDED
		APRIL 25, 2009				APRIL 19, 2008
		(Percent of Sales)
DSD			17.8	%			17.9	%
Warehouse delivery			3.0				2.4
Total			20.8	%			20.3	%

SIGNIFICANT ACCOUNTING POLICIES — The following discussion provides the significant changes to our critical accounting policies from those disclosed in our Form 10-K filed for the year ended January 3, 2009.

     Earnings Per Share. In June 2008, the FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP 03-6-1”). FSP 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, Earnings Per Share. The FSP 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend

equivalents as a separate class of securities in calculating earnings per share. The FSP 03-6-1 is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. The company adopted this standard as of January 4, 2009. See Note 10 for the required disclosures and the impact upon adoption of this standard.

     Derivatives and other Financial Instruments. In February 2008, the FASB issued Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”) which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities that are recognized or disclosed in the financial statements at fair value on a nonrecurring basis only. These include nonfinancial assets and liabilities not measured at fair value on an ongoing basis but subject to fair value adjustments in certain circumstances, for example, assets that have been deemed to be impaired. The company adopted this standard as of January 4, 2009 and it had no impact upon adoption.

2. COMPREHENSIVE INCOME

     Other comprehensive income results from derivative financial instruments and amortization of prior service costs related to the company’s defined benefit and postretirement plans pursuant to Statement of Financial Accounting Standard (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS 158”). Total comprehensive income attributable to Flowers Foods, Inc., determined as net income adjusted by other comprehensive income and net income attributable to noncontrolling interest, was $44.6 million and $53.4 million for the sixteen weeks ended April 25, 2009 and April 19, 2008, respectively.

     During the sixteen weeks ended April 25, 2009, changes to accumulated other comprehensive loss, net of income tax, were as follows (amounts in thousands):

		2009
Accumulated other comprehensive loss, January 3, 2009		$	(102,279	)
Derivative transactions:
Net deferred (loss) on closed contracts, net of income tax of $(1,655)			(2,647	)
Reclassified to earnings, net of income tax of $4,489			7,171
Effective portion of change in fair value of hedging instruments, net of income tax of $1,692			2,703
Amortization of prior service costs, net of income tax of $39			63
Amortization of actuarial loss, net of income tax of $327			523
Accumulated other comprehensive loss, April 25, 2009		$	(94,466	)

3. GOODWILL AND OTHER INTANGIBLES

     There were no changes in the carrying amount of goodwill for the sixteen weeks ended April 25, 2009. The balance as of April 25, 2009 is as follows (amounts in thousands):

DSD		$	195,558
Warehouse delivery			4,477
Total		$	200,035

     As of April 25, 2009 and January 3, 2009, the company had the following amounts related to amortizable intangible assets (amounts in thousands):

		April 25, 2009												January 3, 2009
						Accumulated												Accumulated
Asset		Cost				Amortization				Net Value				Cost				Amortization				Net Value
Trademarks		$	33,608			$	2,082			$	31,526			$	33,608			$	1,633			$	31,975
Customer relationships			75,434				6,974				68,460				75,434				5,784				69,650
Non-compete agreements			1,874				1,261				613				1,874				1,239				635
Distributor relationships			2,600				120				2,480				2,600				67				2,533
Total		$	113,516			$	10,437			$	103,079			$	113,516			$	8,723			$	104,793

     There is an additional $1.5 million in indefinite life intangible assets from the ButterKrust Bakery (“ButterKrust”) acquisition separately identified from goodwill, as discussed in Note 5.

     Aggregate amortization expense for the sixteen weeks ending April 25, 2009 and April 19, 2008 was as follows (amounts in thousands):

		2009				2008
Amortizable intangible assets expense		$	1,714			$	481
Amortizable intangible liabilities (income)			(14	)			(199	)
Total		$	1,700			$	282

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

		Amortization of
		Intangibles
Remainder of 2009		$	3,912
2010		$	5,570
2011		$	5,515
2012		$	5,460
2013		$	5,405

4. RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. The implementation of SFAS No. 157 for financial assets and financial liabilities, effective December 30, 2007, did not have a material impact on our consolidated financial position and results of operations. Please refer to Note 6 Derivative Financial Instruments for a detailed discussion.

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

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

     In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 was effective for the company as of January 4, 2009. The additional disclosures required by this standard are included in Note 6.

     In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not anticipate that the adoption of SFAS 162 will materially impact the company.

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

     In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the FSP requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. These additional disclosures will be required beginning with the quarter ending July 18, 2009. The company is currently evaluating the requirements of these additional disclosures.

5. ACQUISITIONS

     On August 4, 2008, the company acquired 100% of the outstanding shares of capital stock of the parent company of ButterKrust. ButterKrust manufactures fresh breads and rolls in Lakeland, Florida and its products are available throughout Florida under the Country Hearth, Rich Harvest, and Sunbeam brands, as well as store brands. The results of ButterKrust’s operations have been included in the consolidated financial statements since August 4, 2008 and are included in the company’s DSD operating segment. As a result of the acquisition, the company has added additional production capacity in the Florida market.

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

At August 4, 2008

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

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

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

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

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

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

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

At August 11, 2008

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

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

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

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

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

		For the
		quarter ended
		April 19, 2008
Sales		$	747,797
Net income		$	36,354
Net income per share — Basic		$	0.39
Net income per share — Diluted		$	0.38

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

6. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

     COMMODITY PRICE RISK

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

     As of April 25, 2009, the company’s hedge portfolio contained commodity derivatives with a fair value of $(17.7) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):

		Level 1				Level 2				Level 3				Total
Assets:
Other current		$	—			$	—			$	—			$	—
Other long-term			1.0				—				—				1.0
Total			1.0				—				—				1.0
Liabilities:
Other current			(10.3	)			(7.3	)			—				(17.6	)
Other long-term			—				(1.1	)			—				(1.1	)
Total			(10.3	)			(8.4	)			—				(18.7	)
Net Fair Value		$	(9.3	)		$	(8.4	)		$	—			$	(17.7	)

     The positions held in the portfolio are used to hedge economic exposure to changes in various raw material prices and effectively fix the price, or limit increases in prices, for a period of time extending into fiscal 2010. Under SFAS 133, these instruments are designated as cash-flow hedges. The effective portion of changes in fair value for these derivatives is recorded each period in other comprehensive income (loss), and any ineffective portion of the change in fair value is recorded to current period earnings in selling, marketing and administrative expenses. The company held no commodity derivatives at April 25, 2009 or January 3, 2009 that did not qualify for hedge accounting under SFAS 133.

     As of April 25, 2009, the balance in accumulated other comprehensive loss related to commodity derivative transactions was $28.4 million. Of this total, approximately $10.7 million and $0.2 million were related to instruments expiring in 2009 and 2010, respectively, and $17.5 million was related to deferred losses on cash flow hedge positions.

     INTEREST RATE RISK

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

     The interest rate swap agreements results in the company paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amount. The interest rate differential to be paid or received will be recorded as interest expense. Under SFAS 133, these swap transactions are designated as cash-flow hedges. Accordingly, the effective portion of changes in the fair value of the swaps is recorded each period in other comprehensive income. Any ineffective portions of changes in fair value are recorded to current period earnings in selling, marketing and administrative expenses.

     As of April 25, 2009, the fair value of the interest rate swaps was $(8.4) million, which is recorded in the following accounts with fair values measured as indicated (amounts in millions):

		Level 1				Level 2				Level 3				Total
Assets:
Other current		$	—			$	—			$	—			$	—
Other long-term			—				—				—				—
Total			—				—				—				—
Liabilities:
Other current			—				(4.3	)			—				(4.3	)
Other long-term			—				(4.1	)			—				(4.1	)
Total			—				(8.4	)			—				(8.4	)
Net Fair Value		$	—			$	(8.4	)		$	—			$	(8.4	)

     During the sixteen weeks ended April 25, 2009, interest expense of $1.5 million was recognized due to periodic settlements of the swaps.

     As of April 25, 2009, the balance in accumulated other comprehensive loss related to interest rate derivative transactions was $5.2 million. Of this total, approximately $1.9 million, $1.8 million, $1.0 million, $0.4 million and $0.1 million was related to instruments expiring in 2009, 2010, 2011, 2012 and 2013, respectively.

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

		Derivative Assets													Derivative Liabilities
		April 25, 2009						January 3, 2009							April 25, 2009						January 3, 2009
		Balance						Balance							Balance						Balance
Derivatives designated as hedging		Sheet		Fair				Sheet		Fair					Sheet		Fair				Sheet		Fair
instruments under Statement 133		location		Value				location		Value					location		Value				location		Value
Interest rate contracts		—		$	—			—		$	—				Other current liabilities		$	4,227			Other current liabilities		$	4,311
Interest rate contracts		—			—			—			—				Other long term liabilities			4,138			Other long term liabilities			5,137
Commodity contracts		Other long term assets			1,043			Other long term assets			249				Other current liabilities			17,650			Other current liabilities			20,668
Commodity contracts		—			—			—			—				Other long term liabilities			1,117			Other long term liabilities			618
Total				$	1,043					$	249						$	27,132					$	30,734

     The company has the following derivative instruments located on the consolidated statement of income, utilized for risk management purposes detailed above:

		Amount of Gain or (Loss)										Amount of Gain or (Loss) Reclassified
		Recognized in OCI on										from Accumulated OCI into Income
Derivatives in Statement 133		Derivative (Effective Portion)								Location of Gain or (Loss)		(Effective Portion)
Cash Flow Hedge		For the sixteen weeks ended								Reclassified from AOCI into Income		For the sixteen weeks ended
Relationships		April 25, 2009				April 19, 2008				(Effective Portion)		April 25, 2009				April 19, 2008
Interest rate contracts		$	666			$	—			Interest expense (income)		$	—			$	—
Commodity contracts			—				—			Selling, marketing and administrative			(522	)			—
Commodity contracts			2,037				14,447			Production costs1			(6,649	)			(215	)
Total		$	2,703			$	14,447					$	(7,171	)		$	(215	)

				Amount of Gain or (Loss)
				Recognized in Income on
				Derivative (Ineffective Portion
		Location of Gain or (Loss) Recognized		and Amount Excluded from
		in Income on Derivative (Ineffective		Effectiveness Testing)
Derivatives in Statement 133 Cash		Portion and Amount Excluded from		For the sixteen weeks ended
Flow Hedge Relationships		Effectiveness Testing)		April 25, 2009				April 19, 2008
Interest rate contracts		Selling, marketing and administrative expenses		$	—		$	—
Commodity contracts		Selling, marketing and administrative expenses			(617	)		—
Total				$	(617	)	$	—

     As of April 25, 2009, the company had the following outstanding financial contracts that were entered to hedge commodity and interest rate risk:

Derivative in Statement 133 Cash Flow Hedge Relationship		Notional amount (millions)
Interest rate contracts		$	77.3
Wheat contracts			77.6
Soybean Oil contracts			28.0
Natural gas contracts			16.4
Diesel contracts			3.0
Total		$	202.3

     The company’s derivative instruments contain no credit-risk-related contingent features at April 25, 2009.

7. DEBT AND OTHER OBLIGATIONS

     Long-term debt and capital leases consisted of the following at April 25, 2009 and January 3, 2009 (amounts in thousands):

		APRIL 25, 2009				JANUARY 3, 2009
Unsecured credit facility		$	100,500			$	110,000
Unsecured term loan			142,500				146,250
Capital lease obligations			24,590				24,978
Other notes payable			4,650				5,189
			272,240				286,417
Less current maturities			21,481				22,538
Total long-term debt and capital leases		$	250,759			$	263,879

     On August 1, 2008, the company entered into a Credit Agreement (“term loan”) with various lending parties for the purpose of completing acquisitions. The term loan provides for amortizing $150.0 million of borrowings through the maturity date of August 4, 2013. The term loan includes certain customary restrictions, which, among other things, require maintenance of financial covenants and limit encumbrance of assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the term loan and can meet presently foreseeable financial requirements. As of April 25, 2009 and January 3, 2009, the company was in compliance with all restrictive financial covenants under the term loan. As of April 25, 2009 and January 3, 2009, the amounts outstanding under the term loan were $142.5 million and $146.3 million, respectively.

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

     The company has a five-year, $250.0 million unsecured revolving loan facility (the “credit facility”) expiring October 5, 2012. The company may request to increase its borrowings under the credit facility up to an aggregate of $350.0 million upon the satisfaction of certain conditions. Proceeds from the credit facility may be used for working capital and general corporate purposes, including acquisition financing, refinancing of indebtedness and share repurchases. The credit facility includes certain customary restrictions, which, among other things, require maintenance of financial covenants and limit encumbrance of assets and creation of indebtedness. Restrictive financial covenants include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the credit facility and can meet presently foreseeable financial requirements. As of April 25, 2009 and January 3, 2009, the company was in compliance with all restrictive financial covenants under its credit facility.

     Interest is due quarterly in arrears on any outstanding borrowings at a customary Eurodollar rate or the base rate plus the applicable margin. The underlying rate is defined as rates offered in the interbank Eurodollar market or the higher of the prime lending rate or federal funds rate plus 0.5%. The applicable margin ranges from 0.0% to 0.30% for base rate loans and from 0.40% to 1.275% for Eurodollar loans. In addition, a facility fee ranging from 0.10% to 0.35% is due quarterly on all commitments under the credit facility. Both the interest margin and the facility fee are based on the company’s leverage ratio. Financing costs of $0.9 million were deferred and are being amortized over the term of the credit facility. There were $100.5 million and $110.0 million in outstanding borrowings under the credit facility at April 25, 2009 and January 3, 2009, respectively.

8. VARIABLE INTEREST ENTITY

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

its capital lease and other debt obligations, and the owner of the VIE personally guarantees the obligations of the VIE. The VIE’s creditors have no recourse against the general credit of the company.

     Following is the effect of the VIE during the sixteen weeks ended April 25, 2009 and April 19, 2008:

		SIXTEEN WEEKS								SIXTEEN WEEKS
		ENDED APRIL 25, 2009								ENDED APRIL 19, 2008
						% OF								% OF
		VIE				TOTAL				VIE				TOTAL
		(Dollars in thousands)
Assets as of respective quarter ends		$	33,268				2.5	%		$	34,432				3.2	%
Sales		$	1,528				0.2	%		$	2,800				0.4	%
Income before income taxes		$	452				0.8	%		$	1,301				2.3	%

     The assets consist primarily of $22.9 million and $23.6 million as of April 25, 2009 and April 19, 2008, respectively, of transportation equipment recorded as capital lease obligations.

9. LITIGATION

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

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

10. EARNINGS PER SHARE

     As discussed in Note 4, effective January 4, 2009, the company adopted FSP No. EITF 03-6-1. We have retrospectively adjusted earnings per common share for all prior periods presented. We now use the “two-class” method of computing earnings per share. The “two-class” method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security as if all earnings for the period had been distributed. As concluded in FSP No. EITF 03-6-1, unvested restricted share awards that earn non-forfeitable dividend rights qualify as participating securities under SFAS No. 128, Earnings Per Share, and accordingly, are now included in the basic computation as such. The company’s unvested restricted shares participate on an equal basis with common shares; therefore, there is no difference in undistributed earnings allocated to each participating security. Accordingly, the presentation below is prepared on a combined basis and is presented as earnings per common share. Previously, such unvested restricted shares were not included as outstanding within basic earnings per common share and were included in diluted earnings per common share pursuant to the treasury stock method. The following is a reconciliation of net income attributable to Flowers Foods, Inc. and weighted average shares for calculating basic and diluted earnings per common share for the sixteen weeks ended April 25, 2009 and April 19, 2008 (amounts in thousands, except per share data):

		FOR THE SIXTEEN WEEKS ENDED
		APRIL 25, 2009				APRIL 19, 2008
Net income attributable to Flowers Foods, Inc.		$	37,381			$	35,783
Dividends on restricted shares not expected to vest*			—				—
Net income attributable to common and participating shareholders		$	37,381			$	35,783
Basic Earnings Per Common Share:
Weighted average shares outstanding for common stock			92,311				91,700
Weighted average shares outstanding for participating securities			412				379
Basic weighted average shares outstanding			92,723				92,079
Basic earnings per common share attributable to Flowers Foods, Inc. common shareholders		$	0.40			$	0.39

		FOR THE SIXTEEN WEEKS ENDED
		APRIL 25, 2009				APRIL 19, 2008
Diluted Earnings Per Common Share:
Basic weighted average shares outstanding per common share			92,723				92,079
Add: Shares of common stock assumed upon vesting and exercise of stock awards			515				463
Diluted weighted average shares outstanding per common share			93,238				92,542
Diluted earnings per common share attributable to Flowers Foods, Inc. common shareholders		$	0.40			$	0.39

     Stock options to purchase 1,841,417 shares and 850,200 shares of common stock were not included in the computation of diluted earnings per share for the sixteen weeks ended April 25, 2009 and April 19, 2008, respectively, because their effect would have been anti-dilutive.

     We have retrospectively adjusted the prior period to reflect the results that would have been reported had we applied the provisions of FSP No. EITF 03-6-1 for computing earnings per common share for all periods presented. The adoption of this FSP did not change basic or diluted EPS for the sixteen weeks ended April 19, 2008.

11. STOCK BASED COMPENSATION

     The company accounts for its stock-based compensation in accordance with SFAS 123R, Share-Based Payment (“SFAS 123R”).

     Flowers Foods’ 2001 Equity and Performance Incentive Plan as amended and restated as of February 11, 2005 (“EPIP”) authorizes the compensation committee of the Board of Directors to make awards of options to purchase our common stock, restricted stock, performance stock and performance units and deferred stock. Our officers, key employees and non-employee directors (whose grants are generally approved by the full board of directors) are eligible to receive awards under the EPIP. The aggregate number of shares that may be issued or transferred under the EPIP is 14,625,000 shares. Over the life of the EPIP, the company has only issued options, restricted stock and deferred stock. Options granted prior to January 1, 2006 may not be exercised later than ten years after the date of grant and become exercisable four years from the date of grant and generally vest at that time or upon death, disability or retirement of the optionee or upon change in control of Flowers Foods. Options granted on January 3, 2006 and thereafter may not be exercised later than seven years after the date of grant and become exercisable three years from the date of grant and generally vest at that time or upon death, disability or retirement of the optionee or upon change in control of Flowers Foods. In order to exercise these options the optionees are required to pay the market value calculated as the average high/low trading value at date of grant for pre-2007 awards and the closing market price on the date of grant for post-2006 awards. Non-employee director options generally become exercisable one year from the date of grant and vest at that time. The following is a summary of stock options, restricted stock, and deferred stock outstanding under the EPIP. Information relating to the company’s stock appreciation rights which are not issued under the EPIP is also disclosed below.

Stock Options

     The following non-qualified stock options (“NQSOs”) have been granted under the EPIP with service period remaining. The Black-Scholes option-pricing model was used to estimate the grant date fair value (amounts in thousands, except price data and as indicated):

Grant date		2/9/2009				2/4/2008				2/5/2007
Shares granted			993				850				831
Exercise price($)			23.84				24.75				19.57
Vesting date			2/9/2012				2/4/2011				2/5/2010
Fair value per share($)			5.87				5.80				6.30
Dividend yield(%)(1)			2.20				1.90				1.70
Expected volatility(%)(2)			31.80				27.30				33.90
Risk-free interest rate(%)(3)			2.00				2.79				4.74
Expected option life (years)(4)			5.00				5.00				5.00
Outstanding at April 25, 2009			993				848				824

3.		Risk-free interest rate — United States Treasury Constant Maturity rates as of the grant date over the expected term.
4.		Expected option life — for the 2006 and 2007 grants the assumption is based on the simplified formula determined in accordance with Staff Accounting Bulletin No. 107. The 2008 and 2009 grant assumptions are based on the simplified formula determined in accordance with Staff Accounting Bulletin No. 110. The company does not have sufficient historical exercise behavior data to reasonably estimate the expected option life and the terms of the awards issued in 2008 and 2009 are different from the awards that have fully vested.

     The stock option activity for the sixteen weeks ended April 25, 2009 pursuant to the EPIP is set forth below (amounts in thousands, except price data):

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Options				Price				Term				Value
Outstanding at January 3, 2009			2,975			$	18.46
Granted			993			$	23.84
Exercised			(187	)		$	9.47
Forfeited			(2	)		$	18.68
Outstanding at April 25, 2009			3,779			$	20.31				5.23			$	13,588
Exercisable at April 25, 2009			1,114			$	14.35				3.76			$	10,651

     As of April 25, 2009, all options outstanding under the EPIP had an average exercise price of $20.31 and a weighted average remaining contractual life of 5.2 years.

     During the sixteen weeks ended April 25, 2009 and April 19, 2008, the company recorded stock-based compensation expense of $1.5 million and $1.3 million, respectively, relating to NQSOs using the Black-Scholes option-pricing model.

     As of April 25, 2009, there was $9.5 million of total unrecognized compensation expense related to nonvested stock options. This cost is expected to be recognized on a straight-line basis over a weighted-average period of 2.2 years.

     The cash received, the windfall tax benefits, and intrinsic value from stock option exercises for the sixteen weeks ended April 25, 2009 and April 19, 2008 were as follows (amounts in thousands):

		April 25,				April 19,
		2009				2008
Cash received from option exercises		$	1,397			$	2,405
Cash tax windfall benefit		$	921			$	1,239
Intrinsic value of stock options exercised		$	2,700			$	3,650

     Generally, if the employee dies, becomes disabled or retires, the nonqualified stock options immediately vest and must be exercised within two years. In addition, nonqualified stock options will vest if the company undergoes a change in control.

Performance-Contingent Restricted Stock

     Certain key employees have been granted performance-contingent restricted stock. The 2008 and 2009 awards generally vest two years from the date of grant and require the “return on invested capital” to exceed the weighted average “cost of capital” by 2.5% (the “ROI Target”) over the two fiscal years immediately preceding the vesting date. If the ROI Target is not met, the awards are forfeited. Furthermore, each grant of performance-contingent restricted stock will be adjusted as set forth below:

•

if the ROI Target is satisfied, then the performance-contingent restricted stock grant may be adjusted based on the company’s total return to shareholders (“Company TSR”) percent rank as compared to the total return to shareholders of the S&P Packaged Food & Meat Index (“S&P TSR”) in the manner set forth below:

	•		If the Company TSR rank is equal to the 50th percentile of the S&P TSR, then no adjustment;
	•		If the Company TSR rank is less than the 50th percentile of the S&P TSR, the grant shall be reduced by 1.3% for each percentile below the 50th percentile that the Company TSR is less than the 50th percentile of S&P TSR, but in no event shall the reduction exceed 20%; or

•

If the Company TSR rank is greater than the 50th percentile of the S&P TSR, the grant shall be increased by 1.3% for each percentile above the 50th percentile that Company TSR is greater than the 50th percentile of S&P TSR, but in no event shall such increase exceed 20%.

     In connection with the vesting of 222,525 shares of restricted stock granted in February 2007, during the sixteen weeks ended April 25, 2009, an additional 44,505 common shares were issued in the aggregate to these certain key employees because the company exceeded the S&P TSR by the maximum amount.

     For grants prior to 2009, if the grantee dies, becomes disabled or retires, the performance-contingent restricted stock generally vests immediately. For the 2009 grant, if the grantee dies or becomes disabled the performance-contingent restricted stock generally vests immediately. However, at retirement grantees under the 2009 grant will receive a pro-rata number of shares through the grantee’s retirement date at the normal vesting date. In addition, the performance-contingent restricted stock will immediately vest at the grant date award level without adjustment if the company undergoes a change in control. During the vesting period, the grantee is treated as a normal shareholder with respect to dividend and voting rights on the restricted shares. The fair value estimate was determined using a Monte Carlo simulation model, which utilizes multiple input variables to determine 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) total stockholder return 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’ total stockholder return. The inputs are based on historical capital market data.

     The following restricted stock awards have been granted under the EPIP since fiscal 2007 (amounts in thousands, except price data):

Grant date		2/5/2007				2/4/2008				2/9/2009
Shares granted			224				210				204
Vesting date			2/5/2009				2/4/2010				2/9/2011
Fair value per share		$	20.98			$	27.03			$	24.96
Expense during the sixteen weeks ended April 19, 2008		$	679			$	655			$	—
Expense during the sixteen weeks ended April 25, 2009		$	170			$	873			$	588

     A summary of the status of the company’s nonvested shares as of April 25, 2009, and changes during the quarter ended April 25, 2009, is presented below (amounts in thousands, except price data):

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Nonvested at January 3, 2009			432			$	23.92
Granted			204			$	24.96
Vested			(222	)		$	20.98
Forfeited			—			$	—
Nonvested at April 25, 2009			414			$	26.01

     As of April 25, 2009, there was $6.7 million of total unrecognized compensation cost related to nonvested restricted stock granted by the EPIP. That cost is expected to be recognized over a weighted-average period of 1.3 years. The total fair value of shares vested during the period ended April 25, 2009 was $5.3 million.

Stock Appreciation Rights

     Prior to 2007, the company allowed non-employee directors to convert their retainers and committee chairman fees into rights. These rights vest after one year and can be exercised over nine years. The company records compensation expense for these rights at a measurement date based on changes between the grant price and an estimated fair value of the rights using the Black-Scholes option-pricing model.

     The fair value of the rights at April 25, 2009 ranged from $10.25 to $20.66. The following assumptions were used to determine fair value of the rights discussed above using the Black-Scholes option-pricing model at April 25, 2009: dividend yield 2.3%; expected volatility 32.0%; risk-free interest rate 1.97% and expected life of 1.20 years to 3.55 years. During the sixteen weeks ended April 25, 2009 and April 19, 2008 the company recorded expense of $0.01 million and $0.4 million, respectively, related to these rights.

     The rights activity for the sixteen weeks ended April 25, 2009 is set forth below (amounts in thousands except price data):

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Rights				Price				Term				Value
Outstanding at January 3, 2009			231			$	11.14
Rights exercised			—				—
Rights forfeited			—				—
Outstanding at April 25, 2009			231			$	11.14				4.61			$	2,967

Deferred Stock

     Pursuant to the EPIP, the company allows non-employee directors to convert their retainers into deferred stock. The deferred stock has a minimum two year vesting period and will be distributed to the individual after that time at a designated time selected by the individual at the date of conversion. During the first quarter of fiscal 2008 an aggregate of 22,160 were converted. During the fourth quarter of fiscal 2008 an additional 12,630 shares were converted. The company records compensation expense for this deferred stock over the two-year minimum vesting period based on the closing price of the company’s common stock on the date of conversion.

     Pursuant to the EPIP, during the second quarter of fiscal 2008, non-employee directors were granted an aggregate of 35,800 shares of deferred stock with a one year vesting period. The deferred stock will be distributed to the grantee at a designated time selected by the grantee at the date of grant. Compensation expense is recorded on this deferred stock over the one year minimum vesting period. During the second quarter of fiscal 2008 a total of 24,025 shares were exercised.

     The deferred stock activity for the sixteen weeks ended April 25, 2009 is set forth below (amounts in thousands, except price data):

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Grant				Contractual				Intrinsic
		Shares				Price				Term				Value
Outstanding at January 3, 2009			101			$	23.30
Deferred stock issued			—				—
Deferred stock exercised			(5	)		$	19.57
Outstanding at April 25, 2009			96			$	23.49				0.93			$	135