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Interstate Bakeries Files for Chapter 11

September 23, 2004|From Bloomberg News

Interstate Bakeries Corp., whose cream-filled Twinkies have graced the lunchboxes of American schoolchildren since 1933, filed for bankruptcy protection Wednesday, a casualty of rising costs and lower demand for carbohydrate-rich foods.

The company said it replaced Chief Executive James R. Elsesser with turnaround specialist Antonio C. Alvarez, 56, whose New York-based consulting firm has also assisted HealthSouth Corp., Spiegel Inc. and Warnaco Group Inc.

Kansas City, Mo.-based Interstate, which bought its biggest rival in 1995 to become the largest U.S. wholesale baker, said diet trends, rising employee pension obligations and energy costs had forced it to reorganize under court supervision. The company plans to continue operating its 54 bakeries and 1,200 retail outlets after getting a loan for $200 million from banks led by J.P. Morgan Chase & Co., pending court approval.

Interstate listed $1.63 billion of assets and $1.32 billion of debt in the filing in U.S. Bankruptcy Court in Kansas City.

Interstate, with 32,000 workers, plans to close a bakery in Buffalo, N.Y., in October after closing bakeries in Louisiana, California and Michigan since last year. It suspended its dividend in March as losses mounted.

Shares of Interstate Bakeries, which did not trade Wednesday, fell $1.22 to $2.05 before the open of the New York Stock Exchange. The shares had fallen 86% this year.

Elsesser was slower to introduce low-carbohydrate breads and snacks than rival companies Sara Lee Corp. and Flowers Foods Inc.

"Consumer interest in low-carbohydrate diets has contributed to the reduced demand for" Interstate's products, Chief Financial Officer Ronald Hutchison said in court papers. The trend has "increased during the last fiscal year as a result of the popularity of diets such as the Atkins and South Beach diets," he said.

The company, which makes breads and cakes under names including Home Pride, Sunbeam, Dolly Madison and Drake's, follows New World Pasta Co. and Jays Foods Inc. into filing for bankruptcy protection this year as low-carbohydrate diets erode sales.

Founded in Kansas City in 1930 by Ralph Leroy Nafziger, Interstate grew through buying smaller competitors. It merged in 1937 with local rival, Schulze Baking, and acquired Supreme Baking of Los Angeles in 1943, and O'Rourke Baking of Buffalo in 1950, according to Hoover's Inc.

In 1995, Interstate Bakeries bought Purina's Continental Baking unit for $510 million. Three years later it acquired John J. Nissen Baking and Drake's from Canada's Culinar, adding names such as Devil Dogs, Ring Dings and Yodels to the company's product line.

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