Notes to Financial
Statements
December 31, 2016 and 2015
1.
|
Description of the Plan
|
The following description of the Flowers Foods, Inc. 401(k)
Retirement Savings Plan (the Plan) provides general information. Participants should refer to the Plan document for a more complete description of the Plans provisions.
General
The Plan is a
defined contribution plan covering all eligible employees of Flowers Foods, Inc. (the Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Empower Retirement,
Great-West Trust Company LLC (Empower) is the trustee and record-keeper of the Plan.
Transfer of Assets from Mergers
The Plan Sponsor elected to merge the Daves Killer Break Bakery, Inc. 401(k) (the DKB plan) and Alpine Valley
Bakery, Inc. 401(k) (the Alpine plan) plans into the Plan effective on April 1, 2016, and the merger was effected on that date. DKB plan assets in the amount of $3,248,285 are recorded as plan merger assets transferred in as
presented on the statement of changes in net assets available for benefits. An additional $804,344 was received in the Plan from the Alpine plan effective on April 1, 2016. The former participants of the DKB plan and Alpine plan became
participants of the Plan and have full rights and privileges thereof on April 1, 2016, as provided in the Plan documents.
Eligibility for Participation
Employees are eligible to participate in the Plan starting with the first pay period following a
90-day
waiting period from the date of hire. Thirty days following the completion of the
90-day
waiting period, employees are automatically enrolled in the Plan with a 3% employee contribution rate. The employee
contribution rate automatically increases by 1% each year after the first full calendar year at 3% until the employee contribution rate is 6%. Effective January 1, 2017 the auto escalation percentage increased to 10%. If the employee does not
want to make employee contributions to the Plan, they can opt out of the automatic enrollment. If the employee wants to contribute a different percentage they can change the initial automatic contribution percentage. These changes can be
made at any time, even before the automatic deduction begins, but no sooner than 30 days prior to the eligibility date.
Contributions
Allowable
employee contributions can be up to 100% of the participants available pay, up to the Internal Revenue Service (IRS) maximum amount of $18,000 in 2016. Participants direct the investment of their contributions and the
Companys contributions on their behalf into various investment options offered by the Plan.
The Company provides matching
contributions generally equal to 50% of the first 1% to 6% of the participants elective contributions with a maximum match of 3%. Also, the Company makes a basic contribution, as described in the Plan, of 3% whether or not the employee makes
employee contributions. Participants who have attained age 50 before the end of the Plan year are eligible to make $6,000 of
catch-up
contributions in 2016.
Participant Accounts
Each participants account is credited with the participants contributions, the Company contributions and an allocation of Plan
earnings. Plan earnings are allocated based on the investments within each participants account.
The Plan accepts rollovers from
other
tax-qualified
and
tax-advantaged
plans.
Vesting
Participants vest immediately in their employee contributions plus allocated earnings thereon. The vesting period for the Company
contributions is two years of service for basic contributions and three years of service for matching contributions. The benefit to which a participant is entitled is the vested benefit that can be provided from the participants account.
Participants are immediately vested in their participant account upon death, total disability or upon reaching the normal retirement age of 65.
6
Notes Receivable from Participants
Participants may borrow from their elective contribution account and rollover contribution account. The minimum loan amount is $1,000 and the
maximum loan amount is the lesser of $50,000 or 50% of their vested account balance. Loan transactions are treated as a transfer to (from) the investment fund from (to) the Participant Loan fund. Loan terms range from
1-5
years or up to 15 years for a home loan. The loans are secured by the balance in the participants account and bear interest at a rate commensurate with the interest rate charged by persons in the
business of lending money for loans which would be made under similar circumstances. For purposes of this Plan, the Wall Street Journals Prime Interest Rate plus two percentage points is used. Principal and interest is paid ratably through
payroll deductions. The interest rates ranged from 3.25% to 11.5% for outstanding participant loans as of December 31, 2016. The interest rates ranged from 3.25% to 11.5% for outstanding participant loans as of December 31, 2015. The
applicable rate for any loans issued on December 31, 2016 was 5.50%.
Administrative Expenses
Administrative fees charged by the trustee relating to notes receivable from participants and in service distributions for hardship withdrawal
purposes are paid by the affected participants and are presented as administrative expenses in the statement of changes in net assets available for benefits. Fees paid to the trustee, a related party, were $57,969 and $58,225 for the years ended
December 31, 2016 and December 31, 2015, respectively. All other administrative expenses of the Plan are paid by the Company and are not reflected in the Plans financial statements.
Distribution of Benefits
Upon termination of service for any reason, a participant may elect to receive the value of the vested interest in his or her account as a lump
sum distribution. However, a lump sum distribution is required if the vested balance is $5,000 or less. Balances in excess of $5,000 can remain in the plan until the participant reaches the required minimum distribution age of 70
1/2
. Once a terminated vested participant reaches age 70
1/2
, they are required to begin receiving minimum distributions beginning on April 1 of
the year following the year they attained age 70
1/2
.
2.
|
Summary of Significant Accounting Policies
|
Basis of Accounting
The financial statements for the Plan are prepared using the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America.
Investment Valuation and Income Recognition
The Plans investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. See Note 6,
Fair
Value
Measurements
, for discussion of fair value measurements.
The Plan invests in investment contracts through a collective trust.
Purchases and sales of investments, including gains or losses, are recorded on a trade-date basis. Dividends are recorded on the
ex-dividend
date. Net appreciation in fair value of investments includes the Plans gains and losses on investments sold during the year, as well as those that were held at the end of the year.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid
interest. Interest income on notes receivable from participants is recorded when earned; related fees are recorded as administrative expenses and are expensed when incurred. If a participant ceases to make loan repayments and the Plan administrator
deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Contributions
Participant and Company contributions are recorded in the period during which the Company makes payroll deductions from the Plan
participants compensation.
7
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
the Plans 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.
Payment of Benefits
Benefits are recorded when paid.
On March 28, 2016, the Plan was amended for the purpose of
providing for the merger with and into the Plan of the Daves Killer Bread 401(k) Retirement Savings Plan (DKB) and the Alpine Valley Bread 401(k) Profit Sharing Plan (Alpine), effective as of April 1, 2016.
On November 21, 2016, the Plan was amended for the purpose of revising the provisions of the Plan relating to automatic enrollment of
employees in the Plan, and automatic increases in the rate of employee salary deferral contributions to the Plan. The Plan originally increased automatic deferral rates to 6% and this amendment increases the deferral rate to 10% effective on
January 1, 2017.
On January 20, 2017, the Plan was amended for the purpose of revising the provision of the Plan related to the
vesting of contributions.
4.
|
Recent Accounting Pronouncements
|
In February 2017, the FASB issued Accounting Standards
Update
No. 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965), Employee Benefit Plan Master
Trust Reporting. The amendments in this Update clarify presentation requirements for a plans interest in a master trust and require more detailed disclosures of the plans interest in the master trust. The Plan does not have an interest
in a master trust and, as a result, this Update is not applicable.
5.
|
Investment in Flowers Foods, Inc. Common Stock Fund
|
The Plan held investments in the
Company at December 31, 2016 and December 31, 2015 as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Number of common shares held
|
|
|
2,903,303
|
|
|
|
2,793,156
|
|
Fair value of common shares held (at $19.97 and $21.49 per common share, respectively)
|
|
$
|
57,978,961
|
|
|
$
|
60,024,922
|
|
Common shares as a percentage of the Plans total investments at fair value
|
|
|
10.21
|
%
|
|
|
11.55
|
%
|
Common shares as a percentage of Flowers Foods, Inc.
|
|
|
1.39
|
%
|
|
|
1.32
|
%
|
Cash held
|
|
$
|
722,084
|
|
|
$
|
1,200,997
|
|
With regard to the Flowers Foods, Inc. Common Stock Fund, the Plan utilizes a unit value method for tracking
the market value of assets invested in the fund option. As of December 31, 2016 there were approximately 2,900,249 units outstanding with a market value of approximately $20.24 per unit related to the Flowers Foods, Inc. Common Stock Fund. As
of December 31, 2015 there were approximately 2,793,156 units outstanding with a market value of approximately $21.92 per unit related to the Flowers Foods, Inc. Common Stock Fund. At December 31, 2016 and December 31, 2015, the Flowers Foods,
Inc. Common Stock Fund held cash in the Invesco Funds Short Term Investments Government and Agency Fund and the Federated Government Obligation Fund, respectively.
8
6.
|
Fair Value Measurements
|
The Plan measures the fair value of Plan assets as the price
that would be received to sell an asset in the principal market for that asset. These measurements are classified into a hierarchy framework by the inputs used to perform the fair value calculation. The hierarchy prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The
three levels of the fair value hierarchy are described below:
|
|
|
Level 1
|
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets in active markets that the Plan has the ability to access.
|
|
|
Level 2
|
|
Inputs to the valuation methodology include:
|
|
|
|
Quoted prices for similar assets in active markets;
|
|
|
|
Quoted prices for identical or similar assets in inactive markets;
|
|
|
|
Inputs, other than quoted prices, that are observable for the asset;
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset.
|
|
|
Level 3
|
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The assets fair value measurement level within the fair value hierarchy is based on the lowest level of
the input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following is a description of the valuation methodologies used for these items, as well as the general classification of such items
pursuant to the fair value hierarchy:
Mutual
funds
Valued at the net asset value (NAV) of shares held by the Plan at
year end and are classified within Level 1 in the fair value hierarchy tables below.
Flowers
Foods,
Inc.
Common
Stock
Fund
Valued at the closing price reported on the active market on which the security is traded plus any short term investment held by the fund and is classified within Level 1 in the fair value hierarchy
tables below.
Collective
investment
trust
The investments include a stable value fund. The fair values of
participation units held in the stable value fund are based on NAV to reflect all fund investments at fair value, including direct and indirect interests in fully benefit-responsive contracts. The stable value fund generally permits redemptions
daily. If the fund experiences periods of insufficient liquidity then the stable value fund may defer honoring any payment request until liquidity is sufficient. The Plan is permitted to redeem investment units at NAV on the measurement date.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future
fair values. Furthermore, while the Plan Sponsor believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
9
The following tables present the fair value of the Plan assets recorded at fair value on a
recurring basis segregated among the appropriate levels within the fair value hierarchy as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2016
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth objective
|
|
$
|
116,954,573
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,954,573
|
|
Asset allocation objective
|
|
|
88,731,584
|
|
|
|
|
|
|
|
|
|
|
|
88,731,584
|
|
Value objective
|
|
|
170,755,959
|
|
|
|
|
|
|
|
|
|
|
|
170,755,959
|
|
Income objective
|
|
|
81,402,268
|
|
|
|
|
|
|
|
|
|
|
|
81,402,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds
|
|
|
457,844,384
|
|
|
|
|
|
|
|
|
|
|
|
457,844,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flowers Foods, Inc. Common Stock
Fund
(1)
|
|
|
58,701,045
|
|
|
|
|
|
|
|
|
|
|
|
58,701,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset value
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,421,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
516,545,429
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
567,967,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2015
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth objective
|
|
$
|
109,970,259
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109,970,259
|
|
Asset allocation objective
|
|
|
75,855,502
|
|
|
|
|
|
|
|
|
|
|
|
75,855,502
|
|
Value objective
|
|
|
149,754,014
|
|
|
|
|
|
|
|
|
|
|
|
149,754,014
|
|
Income objective
|
|
|
73,739,045
|
|
|
|
|
|
|
|
|
|
|
|
73,739,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds
|
|
|
409,318,820
|
|
|
|
|
|
|
|
|
|
|
|
409,318,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flowers Foods, Inc. Common Stock
Fund
(3)
|
|
|
61,225,979
|
|
|
|
|
|
|
|
|
|
|
|
61,225,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset value
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,296,270
|
|
Total investments at fair value
|
|
$
|
470,544,799
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
519,841,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes 722,084 shares of the Invesco Short Term Investments Government and Agency Fund valued at $722,084.
|
(2)
|
In accordance with Subtopic
820-10,
certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statement of net assets available for benefits.
|
(3)
|
Includes 1,200,997 shares of the Federated Government Obligation Fund valued at $1,200,997.
|
The following table summarizes investments measured at fair value based on NAV per share as of December 31, 2016 and 2015, respectively.
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fair
Value
|
|
|
Unfunded
Commitments
|
|
|
Redemption
Frequency
|
|
|
Redemption
Notice Period
|
|
Putnam Stable Value Fund
|
|
$
|
51,421,819
|
|
|
|
N/A
|
|
|
|
Daily
|
|
|
|
7-30 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fair
Value
|
|
|
Unfunded
Commitments
|
|
|
Redemption
Frequency
|
|
|
Redemption
Notice Period
|
|
Putnam Stable Value Fund
|
|
$
|
49,296,270
|
|
|
|
N/A
|
|
|
|
Daily
|
|
|
|
7-30 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
7.
|
Related Party Transactions
|
Certain Plan investments are shares of a collective
investment trust and mutual funds managed by Empower, and shares of Flowers Foods, Inc. Common Stock Fund. At December 31, 2016 and 2015, the Plan held 2,900,249 shares and 2,793,156 shares of Flowers Foods, Inc. Common Stock Fund with a market
value of $58,701,045 and $61,225,979, respectively. The fair value of the Flowers common stock in the Flowers Foods, Inc. Common Stock Fund was $57,978,961 and $60,024,922 as of December 31, 2016 and December 31, 2015, respectively.
There were purchases and sales of shares in the Flowers Foods, Inc. Common Stock Fund of $8,789,267 and $7,124,996, respectively, during 2016. There were purchases and sales of shares in the Flowers Foods, Inc. Common Stock Fund of $7,542,759
and $7,872,067, respectively, during 2015. Income from the Flowers Foods, Inc. Common Stock Fund was $1,804,229 and $1,605,574 respectively, during 2016 and 2015.
Empower is the trustee as defined by the Plan, and Flowers Foods, Inc. is the Plan Sponsor. Therefore, certain transactions such as
contributions from the Plan Sponsor and dividends, purchases, and sales involving funds managed by Empower qualify as
party-in-interest
transactions, which are exempt
from the prohibited transaction rules. Fees paid to the trustee were $71,992 and $58,225 for the years ended December 31, 2016 and December 31, 2015, respectively. In addition, notes receivable from participants qualify as
party-in-interest
transactions, which are exempt from the prohibited transaction rules. There were purchases and sales of the Putnam Stable Value Fund of $14,163,177 and
$12,118,356, respectively. There were purchases and sales of the George Putnam Balanced Fund of $16,960,564 and $14,188,651, respectively.
Although it has expressed no intent to do so, the Company reserves the
right to change or terminate the Plan at any time subject to the provisions of ERISA. In the event of termination of the Plan, the value of each participants account as of the date of termination shall immediately become nonforfeitable and
fully vested.
At December 31, 2016 and 2015, forfeited nonvested accounts totaled
$226,928 and $146,200, respectively. These accounts will be used to reduce future Company contributions. Also, during 2016 Company contributions were reduced by $701,757 from forfeited nonvested accounts.
The IRS has determined and informed the Company by letter dated May 12,
2015, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. However, the Plan Administrator and the
Plans tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable provisions of the IRC.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan
and recognize a tax liability (or asset) if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and
has concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits
by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2014.
11.
|
Risks and Uncertainties
|
The Plan invests in various investment securities. Investment
securities, in general, are exposed to various risks such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the statements of net assets available for benefits.
The Plan Administrator has evaluated subsequent events through the
date the financial statements were available to be issued. There were no events or transactions discovered during this evaluation that require recognition or disclosure in the financial statements.
11