- The Washington Times - Wednesday, September 22, 2004

Twinkies maker Interstate Bakeries Corp., the nation’s largest wholesale baker, filed for bankruptcy protection yesterday after failing to meet auditor deadlines for financial reports.

The Kansas City, Mo., maker of Hostess and Wonder Bread products said yesterday the Chapter 11 protection was necessary for the company to restructure its management and subsidiaries.

Spokeswoman Sandra Sternberg would not provide further details.

Interstate Bakeries, the latest victim of the popular low-carb diets, listed its midnight, electronic filing to the U.S. Bankruptcy Court for the Western District of Missouri in Kansas City. The filing listed assets of $1.62 billion and liabilities of $1.32 billion.

The company said it has secured a commitment from JPMorgan Chase Bank for $200 million in debtor-in-possession financing. That commitment, which is subject to bankruptcy court approval, is expected to fund operating expenses and supplier and employee obligations.

Interstate Bakeries also named turnaround specialists Tony Alvarez as the new chief executive officer and John Suckow as the chief restructuring officer. Former Chairman and Chief Executive Officer James R. Elsesser resigned, effective yesterday.

Chief Financial Officer Ronald Hutchinson said in court papers that increased interest in low-carb diets reduced demand for the company’s products. The trend “increased during the last fiscal year as a result of popularity of diets such as the Atkins and South Beach diets,” he said.

Company shares on the New York Stock Exchange closed yesterday at $2.05, down $1.22 or 37 percent. The stock had traded at $15.84 six months earlier.

Dan Malovany, editor for trade publication Snack Food & Wholesale Bakery, said Interstate Bakeries has a chance to emerge from bankruptcy protection.

“What they will need to do is a complete reorganization,” which includes adjusting their product mix. Mr. Malovany said the company’s white bread, a leader in the bread market, has been hurt by the low-carb craze that forbids high-starch foods.

“You can say Atkins had a role to play in this, but the craze has already peaked,” he said, adding there were other factors for the company’s filing.

Those included soft sales for snack cakes and bread, rising operating expenses and problems with its financial information systems.

Several analysts covering Interstate Bakeries, with $3.5 billion in annual sales, suspended their ratings because of the company’s unpredictable outlook as it delves into a major structural overhaul.

“They haven’t filed [quarterly earnings results] in quite a while, so I’m not sure what their financial position is,” said food analyst Mitchell Pinheiro, with Philadelphia investment bank Janney Montgomery Scott LLC, who halted his rating.

The most recent quarterly results were in April for the company’s third quarter ended March 6. The company reported a 3 percent dip in sales of $1.01 billion from $1.04 billion a year earlier. The quarterly loss narrowed to $6.6 million (15 cents per share) from $6.74 million (15 cents) a year ago.

Mr. Pinheiro said he expected the company to sell off some of its regional brands and close bakeries in areas where its bread products were not profitable on supermarket shelves.

Interstate Bakeries has more than 50 bakeries and 34,000 employees.

“If one market is not profitable as others, they don’t have to be there because closing one bakery down does not affect overall manufacturing operations,” he said. Mr. Pinheiro does not own any stock in, and Janney Montgomery has no banking relationship with, Interstate.

Leonard Tietelbaum, an analyst at Merrill Lynch, put the company under review in late August, prohibiting him from discussing or rating the stock.

Other analysts refused to comment.

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