Edgar Filing: FLOWERS FOODS INC

flo-10q_20170422.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 22, 2017

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

For the transition period from to

Commission file number 1-16247

FLOWERS FOODS, INC.

(Exact name of registrant as specified in its charter)

GEORGIA

58-2582379

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1919 FLOWERS CIRCLE, THOMASVILLE, GEORGIA

(Address of principal executive offices)

31757

(Zip Code)

(229)-226-9110

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Emerging growth company	☐

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

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

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

TITLE OF EACH CLASS		OUTSTANDING AT MAY 12 , 2017
Common Stock, $.01 par value		209,231,354

FLOWERS FOODS, INC.

INDEX

			PAGE NUMBER
PART I. Financial Information
	Item 1.	Financial Statements (unaudited)	3
		Condensed Consolidated Balance Sheets as of April 22, 2017 and December 31, 2016	3
		Condensed Consolidated Statements of Income For the Sixteen Weeks Ended April 22, 2017 and April 23, 2016	4
		Condensed Consolidated Statements of Comprehensive Income For the Sixteen Weeks Ended April 22, 2017 and April 23, 2016	5
		Condensed Consolidated Statement of Changes in Stockholders’ Equity For the Sixteen Weeks Ended April 22, 2017	6
		Condensed Consolidated Statements of Cash Flows For the Sixteen Weeks Ended April 22, 2017 and April 23, 2016	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 4.	Controls and Procedures	47
PART II. Other Information
	Item 1.	Legal Proceedings	48
	Item 1A.	Risk Factors	48
	Item 2.	Unregistered Sales of Securities and Use of Proceeds	48
	Item 3.	Defaults Upon Senior Securities	49
	Item 4.	Mine Safety Disclosures	49
	Item 5.	Other Information	49
	Item 6.	Exhibits	49
Signatures			50
Exhibit index			51

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 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, liquidity, 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 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 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.

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 other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Refer to Part I, Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 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.

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)

	April 22, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	6,513		$	6,410
Accounts and notes receivable, net of allowances of $2,080 and $1,703, respectively		283,946			271,913
Inventories, net:
Raw materials		36,725			41,830
Packaging materials		20,076			20,354
Finished goods		47,591			48,698
Inventories, net		104,392			110,882
Spare parts and supplies		60,173			59,509
Other		32,493			28,128
Total current assets		487,517			476,842
Property, plant and equipment, net:
Property, plant and equipment, gross		1,888,978			1,891,487
Less: accumulated depreciation		(1,132,500	)		(1,110,461	)
Property, plant and equipment, net		756,478			781,026
Notes receivable		159,468			154,924
Assets held for sale		31,504			36,976
Other assets		9,572			9,758
Goodwill		464,777			465,578
Other intangible assets, net		827,409			835,964
Total assets	$	2,736,725		$	2,761,068
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations	$	10,511		$	11,490
Accounts payable		184,528			173,102
Other accrued liabilities		157,892			156,032
Total current liabilities		352,931			340,624
Long-term debt:
Total long-term debt and capital lease obligations		881,787			946,667
Other liabilities:
Post-retirement/post-employment obligations		65,692			69,601
Deferred taxes		146,709			145,854
Other long-term liabilities		44,821			48,242
Total other long-term liabilities		257,222			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 — 19,498,231 shares and 20,306,784 shares, respectively		(252,091	)		(261,812	)
Capital in excess of par value		644,808			644,456
Retained earnings		937,053			910,520
Accumulated other comprehensive loss		(85,184	)		(83,283	)
Total stockholders’ equity		1,244,785			1,210,080
Total liabilities and stockholders’ equity	$	2,736,725		$	2,761,068

(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 22, 2017			April 23, 2016
Sales	$	1,187,649		$	1,204,352
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below)		607,941			621,190
Selling, distribution and administrative expenses		461,270			444,539
Gain on divestiture		(28,875	)		—
Depreciation and amortization		47,188			43,467
Income from operations		100,125			95,156
Interest expense		11,625			9,068
Interest income		(6,577	)		(6,290	)
Income before income taxes		95,077			92,378
Income tax expense		34,659			33,015
Net income	$	60,418		$	59,363
Net income per common share:
Basic:
Net income per common share	$	0.29		$	0.28
Weighted average shares outstanding		209,123			210,662
Diluted:
Net income per common share	$	0.29		$	0.28
Weighted average shares outstanding		210,275			212,836
Cash dividends paid per common share	$	0.1600		$	0.1450

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	For the Sixteen Weeks Ended
	April 22, 2017			April 23, 2016
Net income	$	60,418		$	59,363
Other comprehensive income, net of tax:
Pension and postretirement plans:
Amortization of prior service cost included in net income		33			33
Amortization of actuarial loss included in net income		1,110			1,020
Pension and postretirement plans, net of tax		1,143			1,053
Derivative instruments:
Net change in fair value of derivatives		(3,518	)		2,588
Loss reclassified to net income		474			1,143
Derivative instruments, net of tax		(3,044	)		3,731
Other comprehensive income (loss), net of tax		(1,901	)		4,784
Comprehensive income	$	58,517		$	64,147

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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									60,418												60,418
Derivative instruments, net of tax												(3,044	)								(3,044	)
Pension and postretirement plans, net of tax												1,143									1,143
Exercise of stock options						(1,123	)								571,568			7,372			6,249
Amortization of share-based compensation awards						5,975															5,975
Issuance of deferred compensation						(35	)								2,675			35			—
Performance-contingent restricted stock awards issued (Note 13)						(4,240	)								328,947			4,240			—
Issuance of deferred stock awards						(225	)								17,448			225			—
Stock repurchases															(112,085	)		(2,151	)		(2,151	)
Dividends paid on vested share-based payment awards									(424	)											(424	)
Dividends paid — $.1600 per common share									(33,461	)											(33,461	)
Balances at April 22, 2017		228,729,585	$	199	$	644,808		$	937,053		$	(85,184	)		(19,498,231	)	$	(252,091	)	$	1,244,785

(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 22, 2017			April 23, 2016
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Net income	$	60,418		$	59,363
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		5,975			7,779
Gain on divestiture		(28,875	)		—
Loss reclassified from accumulated other comprehensive income to net income		727			1,782
Depreciation and amortization		47,188			43,467
Deferred income taxes		2,045			(2,387	)
Provision for inventory obsolescence		1,939			449
Allowances for accounts receivable		695			1,785
Pension and postretirement plans income		(1,612	)		(1,894	)
Other		(1,862	)		(2,736	)
Changes in operating assets and liabilities, net of acquisitions and disposals:
Accounts receivable, net		(14,534	)		(16,146	)
Inventories, net		(1,401	)		(4,866	)
Hedging activities, net		(9,057	)		11,646
Other assets		(4,702	)		4,243
Accounts payable		14,998			11,162
Other accrued liabilities		4,052			5,098
NET CASH PROVIDED BY OPERATING ACTIVITIES		75,994			118,745
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(17,465	)		(23,912	)
Proceeds from sale of property, plant and equipment		329			1,530
Repurchase of independent distributor territories		(3,161	)		(4,845	)
Principal payments from notes receivable		7,370			7,221
Proceeds from sale of mix plant		41,230			—
Other investing activities		56			66
NET CASH PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES		28,359			(19,940	)
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Dividends paid, including dividends on share-based payment awards		(33,885	)		(31,237	)
Exercise of stock options		6,249			1,124
Payments for financing fees		—			(605	)
Stock repurchases, including accelerated stock repurchases		(2,151	)		(126,297	)
Change in bank overdrafts		(10,513	)		(5,699	)
Proceeds from debt borrowings		304,100			1,079,200
Debt and capital lease obligation payments		(368,050	)		(1,018,200	)
NET CASH (DISBURSED FOR) FINANCING ACTIVITIES		(104,250	)		(101,714	)
Net increase (decrease) in cash and cash equivalents		103			(2,909	)
Cash and cash equivalents at beginning of period		6,410			14,378
Cash and cash equivalents at end of period	$	6,513		$	11,469

(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”, “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 sixteen weeks ended April 22, 2017 and April 23, 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 company’s 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 ending July 15, 2017 (twelve weeks), third quarter ending 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 (84% of total year to date sales) currently operates 39 plants that produce a wide variety of fresh bakery foods, including fresh breads, buns, rolls, tortillas, and snack cakes. These products are sold through a DSD route delivery system to retail and foodservice customers in the East, South, Southwest, California, and select markets in the Midwest, Pacific Northwest, Nevada, and Colorado. The Warehouse Segment (16% of total year to date sales) currently operates ten plants that produce snack cakes, breads and rolls for national retail, foodservice, vending, and co-pack customers and deliver through customers’ warehouse channels.

SIGNIFICANT CUSTOMER — Following is the effect that our largest customer, Walmart/Sam’s Club, had on the company’s sales for the sixteen weeks ended April 22, 2017 and April 23, 2016. Walmart/Sam’s Club is the only customer to account for greater than 10% of the company’s sales.

	For the Sixteen Weeks Ended
	April 22, 2017		April 23, 2016
	(% of Sales)
DSD Segment		17.3		16.4
Warehouse Segment		2.5		2.7
Total		19.8		19.1

Walmart/Sam’s Club is our only customer with a balance greater than 10% of outstanding trade receivables. Its percentage of trade receivables was 18.9% and 18.8%, on a consolidated basis, as of April 22, 2017 and December 31, 2016, respectively. No other 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 April 22, 2017 from those disclosed in the company’s 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 Income, Condensed Consolidated Statements of Comprehensive Income, 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 sixteen weeks ended April 23, 2016 (amounts in thousands):

	Consolidated
	Sixteen Weeks Ended April 23, 2016
Impacted Condensed Consolidated Statements of Cash Flows line item	As Previously Reported			Revisions			As Revised
Other assets	$	8,591		$	(4,348	)	$	4,243
Other accrued liabilities	$	2,912		$	2,186		$	5,098
Net cash provided by operating activities	$	120,707		$	(1,962	)	$	118,745
Repurchase of independent distributor territories	$	(8,042	)	$	3,197		$	(4,845	)
Principal payments from notes receivable	$	8,322		$	(1,101	)	$	7,221
Other investing activities	$	—		$	66		$	66
Net cash disbursed for investing activities	$	(22,102	)	$	2,162		$	(19,940	)

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 upon adoption was 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 sixteen weeks ended April 23, 2016. The net impact during the sixteen weeks ended April 22, 2017 for all exercised and vested awards was $1.6 million as 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.

•

Accounting for statutory tax withholding requirements. The new guidance permits companies 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 taxes 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 Sixteen Weeks Ended
				Post-adoption*
	April 23, 2016			April 23, 2016
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Other	$	(2,936	)	$	(2,736	)
Net cash provided by operating activities		120,707			118,745
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Excess windfall tax benefit related to share-based payment awards		200			—
Net cash disbursed for financing activities	$	(101,514	)	$	(101,714	)

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

See Note 13, 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. 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 adopt the updated standard in the first quarter of fiscal 2018. The company is currently in the process of assessing the adoption methodology to apply and, as of April 22, 2017, has not selected a transition method.

The company is currently evaluating the impact that implementing this standard will have on its financial statements and disclosures and whether the effect will be material to our revenue. Our initial review found four areas that will continue to be studied through fiscal 2017. The areas include how to account for pay-by-scan inventory, estimated stale charges, whether an item is reported at 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 impactful types of revenue, but we have identified these for further study. More impactful revenue sources may be discovered as we continue our review. The company does not typically enter into long-term revenue contracts and does not anticipate those areas to be material. The company does not anticipate significant changes to our systems or processes upon adoption.

In February 2016, the FASB issued guidance that requires an entity to recognize lease liabilities and a right-of-use asset for virtually all leases (other than those that meet the definition of a short-term lease) on the balance sheet and to disclose key information about the entity’s leasing arrangements. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those periods, with earlier adoption permitted. This guidance must be adopted using a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The company intends to adopt the updated standard in the first quarter of fiscal 2019. The company currently has significant operating leases with our fiscal 2016 lease expense totaling $97.4 million. The company is evaluating the potential impact of this guidance on our Consolidated Financial Statements.

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 company is currently evaluating the impact that the new guidance will have on 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 periods. 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 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 will be permitted as of the beginning of an annual reporting period for which financial statements have not been 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 is 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. Our service costs for the sixteen weeks ended April 22, 2017 and April 23, 2016, were $0.3 million and $0.4 million, respectively. The components that exclude service cost, and which will be reported outside of income from operations, were $1.9 million and $2.3 million as of April 22, 2017 and April 23, 2016, respectively, and are income. The company plans to adopt this standard in the first quarter of fiscal 2018.

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 permitted, including adoption in any interim period, 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 is currently evaluating when this guidance will be adopted and the impact on our Consolidated Financial Statements.

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

4. 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, for 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 Income 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

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

The company’s total comprehensive income 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 sixteen weeks ended April 22, 2017 and April 23, 2016, reclassifications out of accumulated other comprehensive loss were as follows (amounts in thousands):

	Amount Reclassified from AOCI
	For the Sixteen Weeks Ended						Affected Line Item in the Statement
Details about AOCI Components (Note 2)	April 22, 2017			April 23, 2016			Where Net Income is Presented
Gains and losses on cash flow hedges:
Interest rate contracts	$	(44	)	$	(77	)	Interest expense
Commodity contracts		(727	)		(1,782	)	Cost of sales, Note 3
Total before tax		(771	)		(1,859	)	Total before tax
Tax benefit		297			716		Tax benefit
Total net of tax		(474	)		(1,143	)	Net of tax
Amortization of defined benefit pension items:
Prior-service (cost) credits		(54	)		(54	)	Note 1
Actuarial losses		(1,805	)		(1,658	)	Note 1
Total before tax		(1,859	)		(1,712	)	Total before tax
Tax benefit		716			659		Tax benefit
Total net of tax		(1,143	)		(1,053	)	Net of tax
Total reclassifications	$	(1,617	)	$	(2,196	)	Net of tax

Note 1:

These items are included in the computation of net periodic pension cost. See Note 14, Post-retirement Plans, for additional information.

Note 2:

Amounts in parentheses indicate debits to determine net income.

Note 3:

Amounts are presented as an adjustment to reconcile net income to net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

During the sixteen weeks ended April 22, 2017, changes to accumulated other comprehensive loss, 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
Accumulated other comprehensive loss at December 31, 2016	$	(1,061	)	$	(82,222	)	$	(83,283	)
Other comprehensive income before reclassifications		(3,518	)		—			(3,518	)
Reclassified to earnings from accumulated other comprehensive loss		474			1,143			1,617
Accumulated other comprehensive loss at April 22, 2017	$	(4,105	)	$	(81,079	)	$	(85,184	)

During the sixteen weeks ended April 23, 2016, changes to accumulated other comprehensive loss, 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
Accumulated other comprehensive loss at January 2, 2016	$	(10,190	)	$	(86,610	)	$	(96,800	)
Other comprehensive income before reclassifications		2,588			—			2,588
Reclassified to earnings from accumulated other comprehensive loss		1,143			1,053			2,196
Accumulated other comprehensive loss at April 23, 2016	$	(6,459	)	$	(85,557	)	$	(92,016	)

Amounts reclassified out of accumulated other comprehensive loss 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 Sixteen Weeks Ended
	April 22, 2017			April 23, 2016
Gross loss reclassified from AOCI into income	$	727		$	1,782
Tax benefit		(280	)		(686	)
Net of tax	$	447		$	1,096

6. GOODWILL AND OTHER INTANGIBLE ASSETS

The table below summarizes our goodwill and other intangible assets at April 22, 2017 and December 31, 2016, respectively, each of which is explained in additional detail below (amounts in thousands):

	April 22, 2017		December 31, 2016
Goodwill	$	464,777	$	465,578
Amortizable intangible assets, net of amortization		584,409		592,964
Indefinite-lived intangible assets		243,000		243,000
Total goodwill and other intangible assets	$	1,292,186