FLOWERS FOODS INC Income Taxes Disclosure
Note 22. Income Taxes
The company’s provision for income tax expense (benefit) consists of the following for Fiscal 2025, 2024, and 2023 (amounts in thousands):
|
|
Fiscal 2025 |
|
|
Fiscal 2024 |
|
|
Fiscal 2023 |
|
|||
Current Taxes: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
9,143 |
|
|
$ |
41,406 |
|
|
$ |
63,351 |
|
State |
|
|
7,941 |
|
|
|
8,466 |
|
|
|
13,680 |
|
|
|
|
17,084 |
|
|
|
49,872 |
|
|
|
77,031 |
|
Deferred Taxes: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
16,057 |
|
|
|
24,029 |
|
|
|
(36,474 |
) |
State |
|
|
(1,898 |
) |
|
|
6,925 |
|
|
|
(6,866 |
) |
|
|
|
14,159 |
|
|
|
30,954 |
|
|
|
(43,340 |
) |
Income tax expense |
|
$ |
31,243 |
|
|
$ |
80,826 |
|
|
$ |
33,691 |
|
Income tax expense differs from the amount computed by applying the applicable U.S. federal income tax rate of 21% because of the effect of the following items for Fiscal 2025, 2024 and 2023 (amounts in thousands, expect percentages):
|
|
Fiscal 2025 |
|
|
Fiscal 2024 |
|
|
Fiscal 2023 |
|
||||||||||||
|
|
Dollars |
|
% |
|
|
Dollars |
|
% |
|
|
Dollars |
|
% |
|
||||||
Tax at U.S. federal income tax rate |
|
$ |
24,164 |
|
|
21.0 |
|
|
$ |
69,078 |
|
|
21.0 |
|
|
$ |
32,992 |
|
|
21.0 |
|
State income taxes, net of federal income tax benefit (a), (b), (c) |
|
|
4,774 |
|
|
4.2 |
|
|
|
12,158 |
|
|
3.7 |
|
|
|
5,383 |
|
|
3.4 |
|
Tax credits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development tax credit |
|
|
(2,200 |
) |
|
(1.9 |
) |
|
|
(2,200 |
) |
|
(0.7 |
) |
|
|
(2,200 |
) |
|
(1.4 |
) |
Other federal tax credits |
|
|
(671 |
) |
|
(0.6 |
) |
|
|
(492 |
) |
|
(0.1 |
) |
|
|
(455 |
) |
|
(0.3 |
) |
|
|
|
(2,871 |
) |
|
(2.5 |
) |
|
|
(2,692 |
) |
|
(0.8 |
) |
|
|
(2,655 |
) |
|
(1.7 |
) |
Nontaxable or nondeductible items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Excess executive compensation |
|
|
1,514 |
|
|
1.3 |
|
|
|
3,175 |
|
|
1.0 |
|
|
|
1,950 |
|
|
1.2 |
|
Net share-based payments shortfalls (windfalls) |
|
|
2,617 |
|
|
2.3 |
|
|
|
97 |
|
|
0.0 |
|
|
|
(1,960 |
) |
|
(1.2 |
) |
Acquisition costs |
|
|
2,002 |
|
|
1.7 |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
Other |
|
|
(957 |
) |
|
(0.8 |
) |
|
|
(990 |
) |
|
(0.3 |
) |
|
|
(2,019 |
) |
|
(1.3 |
) |
|
|
|
5,176 |
|
|
4.5 |
|
|
|
2,282 |
|
|
0.7 |
|
|
|
(2,029 |
) |
|
(1.3 |
) |
Income tax expense |
|
$ |
31,243 |
|
|
27.2 |
|
|
$ |
80,826 |
|
|
24.6 |
|
|
$ |
33,691 |
|
|
21.4 |
|
In Fiscal 2025, 2024 and 2023, the most significant difference in the effective rate and the statutory rate was state income taxes.
Deferred tax assets (liabilities) are comprised of the following (amounts in thousands):
|
|
January 3, 2026 |
|
|
December 28, 2024 |
|
||
Self-insurance |
|
$ |
8,317 |
|
|
$ |
7,593 |
|
Compensation and employee benefits |
|
|
11,167 |
|
|
|
10,844 |
|
Deferred income |
|
|
1,689 |
|
|
|
1,976 |
|
Loss and credit carryforwards |
|
|
18,414 |
|
|
|
13,065 |
|
Equity-based compensation |
|
|
7,976 |
|
|
|
7,554 |
|
Legal accrual |
|
|
82 |
|
|
|
5,855 |
|
Pension and postretirement benefits |
|
|
1,342 |
|
|
|
— |
|
Financing and operating lease right-of-use liabilities |
|
|
81,096 |
|
|
|
79,868 |
|
Capitalized software and research and development costs |
|
|
14,270 |
|
|
|
32,484 |
|
Other |
|
|
13,482 |
|
|
|
12,579 |
|
Valuation allowance |
|
|
(4,071 |
) |
|
|
(3,387 |
) |
Deferred tax assets |
|
|
153,764 |
|
|
|
168,431 |
|
Depreciation |
|
|
(75,452 |
) |
|
|
(72,503 |
) |
Intangibles |
|
|
(237,086 |
) |
|
|
(132,506 |
) |
Financing and operating lease right-of-use assets |
|
|
(80,027 |
) |
|
|
(78,723 |
) |
Hedging |
|
|
(1,290 |
) |
|
|
(2,371 |
) |
Pension and postretirement benefits |
|
|
— |
|
|
|
(137 |
) |
Other |
|
|
(6,868 |
) |
|
|
(6,424 |
) |
Deferred tax liabilities |
|
|
(400,723 |
) |
|
|
(292,664 |
) |
Net deferred tax liability |
|
$ |
(246,959 |
) |
|
$ |
(124,233 |
) |
In Fiscal 2023, the company recorded a deferred tax asset, in the amount of $33.4 million, related to an accrued legal settlement related to the repurchase of distribution rights. During Fiscal 2025 and 2024 a significant portion of this deferred tax asset has reversed, and the remaining balance is expected to reverse during 2026. See Note 23, Commitments and Contingencies, for details of this settlement.
During Fiscal 2025, new tax legislation was enacted under the One Big Beautiful Bill Act (the “Act”). The Act includes a wide range of tax provisions that impact the company’s financial results in 2025 and future periods. Significant impacts stemming from the Act include 2025 and future expensing of U.S. based research and development expenditures under Internal Revenue Code Section 174, coupled with the option to deduct previously capitalized research and development expenditures. The company has accounted for this change in legislation by electing to deduct the previously capitalized U.S. based research and development expenditures over Fiscal 2025 and 2026, resulting in an approximate $23.0 million deferred tax asset reversal each year. The Act also reestablished elective 100% initial-year bonus depreciation.
The company has a deferred tax asset of $3.6 million related to a federal net operating loss carryforward which we expect to fully utilize before expiration. Additionally, the company and various subsidiaries have a deferred tax asset of $8.1 million related to state net operating loss carryforwards with expiration dates from Fiscal through Fiscal , and $6.7 million for credit carryforwards with expiration dates from Fiscal through Fiscal . The utilization of a portion of these state carryforwards could be limited in the future; therefore, a valuation allowance of $4.1 million has been recorded. Should the company determine at a later date that certain of these losses which have been reserved for may be utilized, a benefit may be recognized in the Consolidated Statements of Income. Likewise, should the company determine at a later date that certain of these net operating losses for which a deferred tax asset has been recorded may not be utilized, a charge to the Consolidated Statements of Income may be necessary. See Note 2, Summary of Significant Accounting Policies, for the deferred tax asset valuation allowance analysis.
During Fiscal 2025, income taxes paid, net of refunds, totaled $29.0 million. The income taxes paid to a jurisdiction that represent greater than 5% of the total income taxes paid are as follows (amounts in thousands):
|
|
Fiscal 2025 |
|
|
Fiscal 2024 |
|
|
Fiscal 2023 |
|
|||
Income taxes paid: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
19,976 |
|
|
$ |
37,000 |
|
|
$ |
79,118 |
|
California |
|
|
1,971 |
|
|
|
— |
|
|
|
— |
|
Texas |
|
|
1,557 |
|
|
|
— |
|
|
|
— |
|
Other (individually below 5% of total income taxes paid) |
|
|
5,539 |
|
|
|
9,379 |
|
|
|
20,000 |
|
Income taxes paid, net of refunds |
|
$ |
29,043 |
|
|
$ |
46,379 |
|
|
$ |
99,118 |
|
The company did not have any unrecognized tax benefits for fiscal years 2025, 2024, and 2023. At this time, we do not anticipate significant changes to the amount of gross unrecognized tax benefits over the next twelve months.
The company accrues interest expense and penalties related to income tax liabilities as a component of income before taxes. No accrual of penalties is reflected on the company’s balance sheet as the company believes the accrual of penalties is not necessary based upon the merits of its income tax positions. The company had no accrued interest balance at January 3, 2026 and December 28, 2024.
The company defines the federal jurisdiction as well as various state jurisdictions as “major” jurisdictions. The company is no longer subject to federal examinations for years prior to 2022, and with limited exceptions, for years prior to 2021 in state jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Feb 25, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 23, 2022 | |
| 2021 | Feb 24, 2021 | |
| 2019 | Feb 19, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 23, 2017 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.