Summary of FLOWERS FOODS INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of the company as of and for the twelve and twenty-eight week periods ended July 18, 2009 should be read in conjunction with the company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009.
OVERVIEW:
Flowers Foods, Inc. (the "company") is one of the nation's leading producers and marketers of packaged bakery foods for retail and foodservice customers. The company produces breads, buns, rolls, snack cakes and pastries that are distributed fresh in the Southeast, Mid-Atlantic, and Southwest as well as select markets in California and Nevada and frozen to customers nationwide. Our businesses are organized into two reportable segments. The direct-store-delivery ("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 nationwide as well as frozen bread, rolls and buns for sale to retail and foodservice customers nationwide primarily through warehouse distribution. This organizational structure is the basis of the operating segment data presented in this report.
We aim to achieve consistent and sustainable growth in sales and earnings by focusing on improvement in the operating results of our existing businesses and, after detailed analysis, acquiring businesses and properties that add value to the company. We believe this consistent and sustainable growth will build value for our shareholders. In August 2008, the company acquired ButterKrust Bakery ("ButterKrust") in Lakeland, Florida, adding additional production capacity in the Florida market and the company acquired Holsum Holdings, LLC ("Holsum"), which operates two bakeries in the Phoenix, Arizona area and expands the company into new geographic markets. The company introduced the Nature's Own brand during the fourth quarter of fiscal 2008 in the Holsum territory. In May 2009, the company acquired substantially all the assets of a bakery mix operation in Cedar Rapids, Iowa. Also, in May 2009 the company began bread production at its new bakery in Bardstown, Kentucky which will produce fresh breads and buns for markets in Tennessee, Kentucky, Ohio, and Indiana.
Sales are principally affected by pricing, quality, brand recognition, new product introductions and product line extensions, marketing and service. The company manages these factors to achieve a sales mix favoring its higher-margin branded products, while using private label products to absorb overhead costs and maximize use of production capacity. Sales for the twelve weeks ended July 18, 2009 increased 13.6% as compared to the twelve weeks ended July 12, 2008. Contributing to this increase were favorable pricing/mix and the ButterKrust and Holsum acquisitions, partially offset by volume declines. Sales for the twenty-eight weeks ended July 18, 2009 increased 16.8% as compared to the twenty-eight weeks ended July 12, 2008. Contributing to this increase were favorable pricing/mix and the ButterKrust and Holsum acquisitions, partially offset by volume declines. We will lap the effect of the Holsum and ButterKrust acquisitions in early third quarter of fiscal 2009.
For the twelve weeks ended July 18, 2009, diluted net income per share was $0.33 as compared to $0.26 per share for the twelve weeks ended July 12, 2008, a 26.9% increase. For the twelve weeks ended July 18, 2009, net income attributable to Flowers Foods, Inc. was $30.3 million, a 26.7% increase over $23.9 million reported for the twelve weeks ended July 12, 2008.
For the twenty-eight weeks ended July 18, 2009, diluted net income per share was $0.73 as compared to $0.65 per share for the twenty-eight weeks ended July 12, 2008, a 12.3% increase. For the twenty-eight weeks ended July 18, 2009, net income attributable to Flowers Foods, Inc. was $67.7 million, a 13.4% increase over $59.7 million reported for the twenty-eight weeks ended July 12, 2008.
CRITICAL ACCOUNTING POLICIES:
Our financial statements are prepared in accordance with generally accepted accounting principles ("GAAP"). These principles are numerous and complex. Our significant accounting policies are summarized in the company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. In our Form 10-K for the fiscal year ended January 3, 2009, we discuss the areas where we believe that the estimates, judgments or interpretations that we have made, if different, would

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have yielded the most significant differences in our financial statements and we urge you to review that discussion. 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 11 of Notes to Condensed Consolidated Financial Statements of this Form 10-Q 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.

RESULTS OF OPERATIONS:
   Results of operations, expressed as a percentage of sales and the dollar and
percentage change from period to period, for the twelve week periods ended
July 18, 2009 and July 12, 2008, are set forth below (Dollars in Thousands):

                                                                                    For the twelve weeks ended
                                                                                             Percentage of Sales                        Increase (Decrease)
                                    July 18, 2009           July 12, 2008           July 18, 2009            July 12, 2008            Dollars               %
Sales
DSD                                $       507,475         $       440,802                    82.6                     81.5         $    66,673             15.1
Warehouse delivery                         106,973                  99,854                    17.4                     18.5               7,119              7.1

Total                              $       614,448         $       540,656                   100.0                    100.0         $    73,792             13.6

Gross margin(1)
DSD (2)                            $       251,453         $       221,460                    49.5                     50.2         $    29,993             13.5
Warehouse delivery(2)                       29,656                  25,602                    27.7                     25.6               4,054             15.8

Total                              $       281,109         $       247,062                    45.7                     45.7         $    34,047             13.8

Selling, marketing and
administrative expenses
DSD(2)                             $       190,808         $       173,606                    37.6                     39.4         $    17,202              9.9
Warehouse delivery(2)                       16,900                  17,791                    15.8                     17.8                (891 )           (5.0 )
Corporate(3)                                 8,894                   6,265                       -                        -               2,629             42.0

Total                              $       216,602         $       197,662                    35.3                     36.6         $    18,940              9.6

Depreciation and
Amortization
DSD(2)                             $        14,952         $        12,153                     2.9                      2.8         $     2,799             23.0
Warehouse delivery(2)                        3,661                   3,656                     3.4                      3.7                   5              0.1
Corporate(3)                                    43                     223                       -                        -                (180 )          (80.7 )

Total                              $        18,656         $        16,032                     3.0                      3.0         $     2,624             16.4

Gain on acquisition
DSD(2)                             $             -         $             -                       -                        -         $         -                -
Warehouse delivery (2)                       3,013                       -                     2.8                        -               3,013                -
Corporate (3)                                    -                       -                       -                        -                   -                -

Total                              $         3,013         $             -                     0.5                        -         $     3,013                -

Gain on sale of assets
DSD(2)                             $             -         $             -                       -                        -         $         -                -
Warehouse delivery (2)                           -                   2,306                       -                      2.3              (2,306 )              -
Corporate (3)                                    -                       -                       -                        -                   -                -

Total                              $             -         $         2,306                       -                      0.4         $    (2,306 )              -

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                                                                                    For the twelve weeks ended
                                                                                             Percentage of Sales                        Increase (Decrease)
                                    July 18, 2009           July 12, 2008           July 18, 2009            July 12, 2008            Dollars               %
Gain on insurance recovery
DSD(2)                             $             -         $           686                       -                      0.2         $      (686 )              -
Warehouse delivery (2)                           -                       -                       -                        -                   -                -
Corporate (3)                                    -                       -                       -                        -                   -                -

Total                              $             -         $           686                       -                      0.1         $      (686 )              -

Income from operations
DSD(2)                             $        45,693         $        36,387                     9.0                      8.3         $     9,306             25.6
Warehouse delivery(2)                       12,108                   6,461                    11.3                      6.5               5,647             87.4
Corporate(3)                                (8,937 )                (6,488 )                     -                        -              (2,449 )          (37.7 )

Total                              $        48,864         $        36,360                     8.0                      6.7         $    12,504             34.4

Interest income, net               $           180         $         2,657                     0.0                      0.5         $    (2,477 )          (93.2 )
Income taxes                       $        17,947         $        13,931                     2.9                      2.6         $     4,016             28.8
Net income                         $        31,097         $        25,086                     5.1                      4.6         $     6,011             24.0
Net income attributable to
noncontrolling interest            $          (756 )       $        (1,137 )                  (0.1 )                   (0.2 )       $       381             33.5

Net income attributable to
Flowers Foods, Inc.                $        30,341         $        23,949                     4.9                      4.4         $     6,392             26.7

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the twenty-eight week periods ended July 18, 2009 and July 12, 2008, are set forth below (Dollars in Thousands):

                                                                                 For the twenty-eight weeks ended
                                                                                             Percentage of Sales                        Increase (Decrease)
                                    July 18, 2009           July 12, 2008           July 18, 2009            July 12, 2008            Dollars               %
Sales
DSD                                $     1,175,750         $       994,683                    82.7                     81.7         $    181,067            18.2
Warehouse delivery                         245,705                 222,680                    17.3                     18.3               23,025            10.3

Total                              $     1,421,455         $     1,217,363                   100.0                    100.0         $    204,092            16.8

Gross margin(1)
DSD (2)                            $       587,101         $       512,843                    49.9                     51.6         $     74,258            14.5
Warehouse delivery(2)                       71,553                  60,956                    29.1                     27.4               10,597            17.4

Total                              $       658,654         $       573,799                    46.3                     47.1         $     84,855            14.8

Selling, marketing and
administrative expenses
DSD(2)                             $       449,989         $       395,639                    38.3                     39.8         $     54,350            13.7
Warehouse delivery(2)                       39,927                  40,164                    16.2                     18.0                 (237 )          (0.6 )
Corporate(3)                                20,708                  13,534                       -                        -                7,174            53.0

Total                              $       510,624         $       449,337                    35.9                     36.9         $     61,287            13.6

Depreciation and
Amortization
DSD(2)                             $        34,489         $        28,111                     2.9                      2.8         $      6,378            22.7
Warehouse delivery(2)                        8,307                   8,378                     3.4                      3.8                  (71 )          (0.8 )
Corporate(3)                                   137                     456                       -                        -                 (319 )         (70.0 )

Total                              $        42,933         $        36,945                     3.0                      3.0         $      5,988            16.2

Gain on acquisition
DSD(2)                             $             -         $             -                       -                        -         $          -               -
Warehouse delivery (2)                       3,013                       -                     1.2                        -                3,013               -
Corporate (3)                                    -                       -                       -                        -                    -               -

Total                              $         3,013         $             -                     0.2                        -         $      3,013               -

Gain on sale of assets
DSD(2)                             $             -         $             -                       -                        -         $          -               -
Warehouse delivery (2)                           -                   2,306                       -                      1.0               (2,306 )             -
Corporate (3)                                    -                       -                       -                        -                    -               -

Total                              $             -         $         2,306                       -                      0.2         $     (2,306 )             -

Gain on insurance recovery
DSD(2)                             $             -         $           686                       -                      0.1         $       (686 )             -
Warehouse delivery (2)                           -                       -                       -                        -                    -               -
Corporate (3)                                    -                       -                       -                        -                    -               -

Total                              $             -         $           686                       -                      0.1         $       (686 )             -

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                                                                                 For the twenty-eight weeks ended
                                                                                             Percentage of Sales                        Increase (Decrease)
                                    July 18, 2009           July 12, 2008           July 18, 2009            July 12, 2008            Dollars               %
Income from operations
DSD(2)                             $       102,623         $        89,779                     8.7                      9.0         $    12,844             14.3
Warehouse delivery(2)                       26,332                  14,720                    10.7                      6.6              11,612             78.9
Corporate(3)                               (20,845 )               (13,990 )                     -                        -              (6,855 )          (49.0 )

Total                              $       108,110         $        90,509                     7.6                      7.4         $    17,601             19.4

Interest income, net               $           639         $         6,154                     0.1                      0.5         $    (5,515 )          (89.6 )
Income taxes                       $        39,819         $        34,493                     2.8                      2.8         $     5,326             15.4
Net income                         $        68,930         $        62,170                     4.8                      5.1         $     6,760             10.9
Net income attributable to
noncontrolling interest            $        (1,208 )       $        (2,438 )                  (0.1 )                   (0.2 )       $     1,230             50.5

Net income attributable to
Flowers Foods, Inc.                $        67,722         $        59,732                     4.8                      4.9         $     7,990             13.4

1. Gross margin is defined as sales less materials, supplies, labor and other production costs, excluding depreciation, amortization and distributor discounts.

2. As a percentage of revenue within the reporting segment.

3. The corporate segment has no revenues.

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CONSOLIDATED AND SEGMENT RESULTS
TWELVE WEEKS ENDED JULY 18, 2009 COMPARED TO TWELVE WEEKS ENDED JULY 12, 2008
   Consolidated Sales.

                                             For the Twelve Weeks Ended                  For the Twelve Weeks Ended
                                                   July 18, 2009                               July 12, 2008
                                               $                     %                     $                     %              % Increase
                                          (Amounts in                                 (Amounts in
                                          thousands)                                  thousands)
Branded Retail                          $       323,888                 52.7 %      $       292,490                 54.1 %             10.7 %
Store Branded Retail                            102,428                 16.7                 76,848                 14.2               33.3 %
Foodservice and Other                           188,132                 30.6                171,318                 31.7                9.8 %

Total                                   $       614,448                100.0 %      $       540,656                100.0 %             13.6 %

The 13.6% increase in sales was attributable to the following:

                                                              Favorable
         Percentage Point Change in Sales Attributed to:    (Unfavorable)
         Pricing/Mix                                                4.7 %
         Volume                                                    (1.7 )%
         Acquisitions                                              10.6 %

         Total Percentage Change in Sales                          13.6 %

The increase in branded retail sales was due primarily to the acquisitions and increased sales of branded soft variety. The company's Nature's Own products and its branded white bread labels were the key components of these sales. The increase in store branded retail sales was primarily due to the acquisitions. The increase in foodservice and other sales was primarily due to the acquisitions. Excluding the acquisitions, there was a decrease in foodservice and other sales volume due to lower foodservice and vending. We will lap the effect of the Holsum and ButterKrust acquisitions in early third quarter of fiscal 2009.
Direct-Store-Delivery Sales.

                                             For the Twelve Weeks Ended                  For the Twelve Weeks Ended
                                                   July 18, 2009                               July 12, 2008
                                               $                     %                     $                     %              % Increase
                                          (Amounts in                                 (Amounts in
                                          thousands)                                  thousands)
Branded Retail                          $       292,389                 57.6 %      $       264,569                 60.0 %             10.5 %
Store Branded Retail                             89,620                 17.7                 63,835                 14.5               40.4 %
Foodservice and Other                           125,466                 24.7                112,398                 25.5               11.6 %

Total                                   $       507,475                100.0 %      $       440,802                100.0 %             15.1 %

The 15.1% increase in sales was attributable to the following:

                                                              Favorable
         Percentage Point Change in Sales Attributed to:    (Unfavorable)
         Pricing/Mix                                                3.4 %
         Volume                                                    (0.4 )%
         Acquisitions                                              12.1 %

         Total Percentage Change in Sales                          15.1 %

The increase in branded retail sales was due primarily to the acquisitions and, to a lesser extent, growth in branded soft variety. Nature's Own products and branded white bread labels were the key components of these sales. The increase in store branded retail sales was primarily due to the acquisitions. The increase in foodservice and other sales was primarily due to the acquisitions. Excluding the acquisitions, there was a decrease in foodservice and other sales volume due to lower foodservice. We will lap the effect of the Holsum and ButterKrust acquisitions in early third quarter of fiscal 2009.

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   Warehouse Delivery Sales.

                                             For the Twelve Weeks Ended                 For the Twelve Weeks Ended
                                                   July 18, 2009                               July 12, 2008                   % Increase
                                               $                     %                    $                     %              (Decrease)
                                          (Amounts in                                (Amounts in
                                          thousands)                                  thousands)
Branded Retail                          $        31,499                 29.4 %      $       27,921                 28.0 %             12.8 %
Store Branded Retail                             12,808                 12.0                13,013                 13.0               (1.6 )%
Foodservice and Other                            62,666                 58.6                58,920                 59.0                6.4 %

Total                                   $       106,973                100.0 %      $       99,854                100.0 %              7.1 %

The 7.1% increase in sales was attributable to the following:

                                                              Favorable
. . .