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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended May 29, 2004
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-11165
 
 INTERSTATE BAKERIES CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    43-1470322(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)12 East Armour Boulevard,Kansas City, Missouri
    
    64111(Address of principal executive offices)
    
    (Zip Code)
 (816) 502-4000
Registrants telephone number, including area code
 
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value Preferred Stock Purchase Rights
 
 o þ
 o þ
 o þ
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE: None




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EXPLANATORY NOTE
      2




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##### 



INDEX
 Page NumberFORWARD-LOOKING STATEMENTS
    
    4PART I
    
    7ITEM 1. BUSINESS
    
    7ITEM 1A. RISK FACTORS
    
    13ITEM 1B. UNRESOLVED STAFF COMMENTS.
    
    23ITEM 2. PROPERTIES
    
    23ITEM 3. LEGAL PROCEEDINGS
    
    24ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    29PART II
    
    29ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    29ITEM 6. SELECTED FINANCIAL DATA
    
    31ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    31ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
    
    49ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    95ITEM 9A. CONTROLS AND PROCEDURES
    
    95ITEM 9B. OTHER INFORMATION
    
    99PART III
    
    99ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    99ITEM 11. EXECUTIVE COMPENSATION
    
    102ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    110ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    112ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    113PART IV
    
    115ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
    
    115Amendment to the Consulting AgreementAmended and Restated Supplemental Retirement PlanEmployment AgreementManagement Continuity AgreementLetter AgreementLetter AgreementKey Employee Retention PlanSubsidiariesCertificationCertificationCertificationCertification
  3




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FORWARD-LOOKING STATEMENTS
  
    
    our ability to continue as a going concern;
    
    our ability to obtain court approval with respect to motions filed by us from time to
time in the Chapter 11 proceeding (as described below);
    
    our ability to operate pursuant to the covenants, terms and
certifications of the Revolving Credit Agreement, or DIP
facility, (as described in Item 1 below);
    
    our ability to negotiate an extension (if necessary) or refinance our DIP facility,
which, pursuant to an extension, expires on June 2, 2007;
    
    our ability to develop, propose, confirm and consummate one or more plans of
reorganization with respect to the Chapter 11 proceeding;
    
    risks associated with failing to obtain court approval for one or more extensions to
the exclusivity period for us to propose and confirm one or more plans of reorganization
or with third parties seeking and obtaining court approval to terminate or shorten any
such exclusivity period, for the appointment of a Chapter 11 trustee or to convert the
Chapter 11 proceeding to a Chapter 7 proceeding;
    
    risks associated with our restructuring process, including the risks associated with
achieving the desired savings in connection with our profit center restructuring and
bakery and route consolidations (as described below);
    
    potential adverse publicity;
    
    our ability to obtain and maintain adequate terms with vendors and service providers;
    
    the potential adverse impact of the Chapter 11 proceeding on our liquidity or results
of operations;
    
    risks associated with product price increases, including the risk that such actions
will not effectively offset inflationary cost pressures and may adversely impact sales of
our products;
    
    the effectiveness of our efforts to hedge our exposure to price increases with respect
to various ingredients and energy;
    
    our ability to finalize, fund and execute a going-forward business plan;
    
    our ability to attract, motivate and/or retain key executives and employees;
    
    changes in our relationship with employees and the unions that represent them;
    
    increased costs and uncertainties related to periodic renegotiation of union contracts;
    
    the results of a Securities and Exchange Commission, or SEC, investigation concerning
our financial statements following our announcement that the Audit Committee of our Board
of Directors had retained independent counsel to investigate our manner of setting its
workers compensation and other reserves;
    
    the delayed filing with the SEC of our Annual Reports on Form 10-K and of our
Quarterly Reports on Form 10-Q;
    
    successful resolution of material weaknesses in our internal controls;
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
    
    resolution of any deficiencies and implementation of software updates with respect to
our financial reporting systems;
    
    changes to dietary guidelines;
    
    the continuing effects of a low carbohydrate diet trend;
    
    the performance of our recent new product introductions, including the success of such
new products in achieving and retaining market share;
    
    commodity and energy costs; and
    
    the outcome of legal proceedings to which we are or may become a party.
  Bankruptcy-Related Factors
 
    
    our ability to evaluate various alternatives including, but not limited to, the sale
of some or all of our assets, infusion of capital, debt restructuring and the filing and
ultimate approval of a plan of reorganization with the Bankruptcy Court (as described
below), or any combination of these options;
    
    our ability to develop and implement a successful plan of reorganization in the
Chapter 11 process;
    
    our ability to operate our business under the restrictions imposed by the Chapter 11
process and in compliance with the limitations contained in the debtor-in-possession
credit facility;
    
    the instructions, orders and decisions of the bankruptcy court and other effects of
legal and administrative proceedings, settlements, investigations and claims;
    
    changes in our relationships with suppliers and customers, including the ability to
maintain these relationships and contracts that are critical to our operations, in light
of the Chapter 11 process;
    
    the significant time that will be required by management to structure and implement a
plan of reorganization as well as to evaluate various alternatives including, but not
limited to, the sale of some or all of our assets, infusion of capital and debt
restructuring or any combination of these options, as well as our restructuring plan;
    
    our reliance on key management personnel, including the effects of the Chapter 11
process on our ability to attract and retain key management personnel;
    
    our ability to successfully reject unfavorable contracts and leases; and
    
    the duration of the Chapter 11 process.
 General Factors
 
    
    the availability of capital on acceptable terms in light of the various factors
discussed herein, including our reorganization under the Chapter 11 process;
    
    the availability and cost of raw materials, packaging, fuels and utilities, and the
ability to recover these costs in the pricing of products, improved efficiencies and
other strategies;
    
    increased pension, health care, workers compensation and other employee costs;
    
    actions of competitors, including pricing policy and promotional spending;
    
    increased costs, delays or deficiencies related to restructuring activities;
    
    the effectiveness of advertising and marketing spending;
    
    changes in general economic and business conditions (including in the bread and sweet
goods markets);
    
    the effectiveness and adequacy of our information and data
systems;
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
    
    costs associated with increased contributions to single employer, multiple employer or
multi-employer pension plans;
    
    any inability to protect and maintain the value of our intellectual property rights;
    
    future product recalls or food safety concerns;
    
    further consolidation in the retail food industry;
    
    changes in consumer tastes or eating habits;
    
    costs associated with environmental compliance and remediation;
    
    increased costs and uncertainties related to periodic renegotiation of union contracts;
    
    obligations and uncertainties with respect to the American Bakers Association
Retirement Plan;
    
    the impact of any withdrawal liability arising under our multi-employer pension plans
as a result of prior actions or current consolidations;
    
    actions of governmental entities, including regulatory requirements;
    
    acceptance of new product offerings by consumers and our ability to expand existing
brands;
    
    the performance of our recent new product introductions;
    
    the effectiveness of hedging activities;
    
    expenditures necessary to carry out cost-saving initiatives and savings derived from
these initiatives;
    
    changes in our business strategies;
    
    unexpected costs or delays incurred in connection with our previously announced and
other future facility closings;
    
    bankruptcy filings by customers;
    
    changes in our relationship with employees and the unions that represent them;
    
    the outcome of legal proceedings to which we are or may become a party, including any
litigation stemming from our restatement of the first, second and third quarters of
fiscal 2004, our sale of convertible notes on August 12, 2004 or events leading up to our
filing of a voluntary petition for protection under Chapter 11 of the Bankruptcy Code;
    
    business disruption from terrorist acts, our nations response to such acts and acts
of war; and
    
    other factors.
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PART I
 
 ITEM 1. BUSINESS
 General
 ® ® ® ® ® ® ® ® ® ® ® ® ® ®
   Proceedings Under Chapter 11 of the Bankruptcy Code
    7




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
    
    authorize us to pay pre-petition and post-petition employee wages and salaries and
related benefits during our restructuring under Chapter 11;
    
    authorize us to pay trust fund taxes in the ordinary course of business, including
pre-petition amounts; and
    
    authorize the continued use of our cash management systems.
       8




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
    
    with respect to each impaired class of creditors and equity holders, each holder in
such class has accepted the plan or will, pursuant to the plan, receive at least as much
as such holder would receive in a liquidation;
    
    each impaired class of creditors and equity holders has accepted the plan by the
requisite vote (except as described in the following sentence); and
    
    confirmation of the plan is not likely to be followed by a liquidation or the need for
further financial reorganization unless the plan proposes such liquidation or
reorganization.
    Changes in Management
   Company History
  ® ®
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® ® ® ®
 Products and Brands
  Category
    
    Our National Brands
    
    Our Regional BrandsBreads, Rolls and Buns(White, variety, crusty, reduced-calorie and bagels)
    
    Wonder
    
    Bunny*Home Pride
    
    ButternutBakers Inn
    
    MeritaBread du Jour
    
    MillbrookBeefsteak
    
    EddysCottons Holsum*Holsum*J.J. NissenSunbeam*SweetheartDi CarloColomboRoman Meal*Sun-Maid*Fresh Baked Sweet Goods
    
    Hostess
    
    Dolly Madison(Donuts, sweet rolls, snack pies and snack cakes)
    
    Twinkies
    
    DrakesDing Dongs
    
    Devil DogsHoHos
    
    Ring DingsSuzy-Qs
    
    YodelsYankee DoodlesZingersOther
    
    Mrs. Cubbisons(Croutons and stuffing mix)
    
    Marie Callenders*
 
 *
    
    Licensed brands ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®
  10




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® ® TM ® ®
 Marketing and Distribution
     Sources and Availability of Raw Materials
   11




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Employees
  Competition
  Governmental Regulation; Environmental Matters
    12




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Availability of Reports; Website Access
  
 ITEM 1A. RISK FACTORS
  We face significant challenges and uncertainties in connection with our bankruptcy
reorganization.
  13




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We face uncertainty regarding the adequacy of our capital resources, including liquidity, and
have limited access to additional financing.
      14




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Our potential inability to implement our restructuring plan, or to realize its anticipated
benefits, could adversely affect our results of operations and financial condition.
      Terms of collective bargaining agreements and labor disruptions could adversely impact our
results of operations.
  15




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The Chapter 11 process and the DIP Facility impose restrictions on the conduct of our
business.
     Our financial statements assume we can continue as a going concern.
   16




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We are no longer listed on the New York Stock Exchange and the market in our common stock is
highly speculative and may not continue.
   We
may face deregistration proceedings under Section 12(j) of the
Exchange Act.
  Our
internal control over financial reporting was not effective as of
May 28, 2005 or June 3, 2006 and
weaknesses in our internal controls and procedures could adversely affect our financial condition.
   17




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Our reorganization will require substantial effort by management and may impact our ability to
attract, retain and compensate key employees.
  Declining demand for our products could have adverse effects on our financial results.
  Dietary
Guidelines for Americans
  We may have difficulty in maintaining relationships and material contracts with our suppliers.
  An investigation by the SEC regarding the restatement of our financial statements and related
potential litigation could adversely impact our business.
  18




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Increases in employee and employee-related costs could have adverse effects on our financial
results.
  Increases in prices and shortages of raw materials, fuels and utilities could cause our costs
to increase.
   Price increases could reduce demand for our products.
  Competition could adversely impact our results of operations.
 19




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We may be obligated to make additional contributions or incur withdrawal liability, to
multi-employer pension plans.
    20




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Future cash contribution obligations to the American Bakers Association Retirement Plan, or
the ABA Plan, are expected to significantly exceed previous contributions to the ABA Plan.
  We rely on the value of our brands, and the costs of maintaining and enhancing the awareness
of our brands are increasing.
  Economic downturns could cause consumers to shift their food purchases from our branded
products to lower priced items.
  21




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Inability to anticipate changes in consumer preferences may result in decreased demand for
products.
  Our intellectual property rights are valuable and any inability to protect them could dilute
our brand image and adversely affect our business.
  Further consolidation in the retail food industry may adversely impact profitability.
  Future product recalls or safety concerns could adversely impact our business and financial
condition and results of operations.
    22




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Costs associated with environmental compliance and remediation could adversely impact our
operations.
    Government regulation could adversely impact our operations.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES
 Bakeries
  Birmingham, Alabama
    
    Columbus, Indiana
    
    Charlotte, North Carolina *Anchorage, Alaska
    
    Indianapolis, Indiana
    
    Rocky Mount, North CarolinaGlendale, California
    
    Davenport, Iowa *
    
    Akron, OhioLos Angeles, California (3)
    
    Waterloo, Iowa
    
    Cincinnati, OhioOakland, California
    
    Emporia, Kansas
    
    Columbus, OhioPomona, California
    
    Lenexa, Kansas
    
    Defiance, OhioSacramento, California
    
    Alexandria, Louisiana
    
    Northwood, OhioSan Diego, California
    
    Monroe, Louisiana *
    
    Tulsa, OklahomaSan Francisco, California (2) *
    
    Biddeford, Maine
    
    Philadelphia, Pennsylvania
 23




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Denver, Colorado
    
    New Bedford, Massachusetts *
    
    Florence, South Carolina *Jacksonville, Florida
    
    Boonville, Missouri
    
    Knoxville, TennesseeMiami, Florida *
    
    Springfield, Missouri
    
    Memphis, TennesseeOrlando, Florida
    
    St. Louis, Missouri
    
    Ogden, UtahColumbus, Georgia
    
    Billings, Montana
    
    Salt Lake City, UtahDecatur, Illinois
    
    Henderson, Nevada
    
    Lakewood, Washington *Hodgkins, Illinois
    
    Wayne, New Jersey
    
    Seattle, WashingtonPeoria, Illinois
    
    Buffalo, New York *Schiller Park, Illinois
    
    Jamaica, New York
  Other Properties
  
 ITEM 3. LEGAL PROCEEDINGS
   24




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Accounting for Contingencies
 28




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    Stock Price
 Fiscal Year
    
    Quarter
    
    High
    
    Low
    
    Cash Dividends2004
    
    
    1
    
    
    $
    13.60
    
    
    $
    10.16
    
    
    $
    0.072
    
    
    
    15.85
    
    
    
    12.60
    
    
    
    0.073
    
    
    
    15.91
    
    
    
    13.35
    
    
    
    0.074
    
    
    
    15.96
    
    
    
    10.26
    
    
    
    2003
    
    
    1
    
    
    $
    29.10
    
    
    $
    24.35
    
    
    $
    0.072
    
    
    
    27.00
    
    
    
    22.75
    
    
    
    0.073
    
    
    
    24.88
    
    
    
    9.27
    
    
    
    0.074
    
    
    
    12.98
    
    
    
    9.03
    
    
    
    0.07
   29




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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Issuer Purchases of Equity Securities
 Total Number of
    
    
    Maximum Number (orShares (or Units)
    
    
    Approximate DollarPurchased as Part
    
    
    Value) of Shares (orTotal Number of
    
    
    Average Price
    
    
    of Publicly
    
    
    Units) that May Yet BeShares (or Units)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs
    
    
    Plans or ProgramsPeriod 1

June 1-June 28, 2003
    
    
    79
    
    
    $
    13.12
    
    
    
    79
    
    
    
    7,429,077Period 2

June 29-July 26, 2003
    
    
    111
    
    
    $
    11.18
    
    
    
    111
    
    
    
    7,428,966Period 3

July 27-Aug 23, 2003
    
    
    777
    
    
    $
    12.65
    
    
    
    777
    
    
    
    7,428,189Period 4

Aug 24-Sept 20, 2003
    
    
    136
    
    
    $
    13.68
    
    
    
    136
    
    
    
    7,428,053Period 5

Sept 21-Oct 18, 2003
    
    
    157
    
    
    $
    15.19
    
    
    
    157
    
    
    
    7,427,896Period 6

Oct 19-Nov 15, 2003
    
    
    167
    
    
    $
    15.14
    
    
    
    167
    
    
    
    7,427,729Period 7

Nov 16-Dec 13, 2003
    
    
    76
    
    
    $
    15.03
    
    
    
    76
    
    
    
    7,427,653Period 8

Dec 14, 2003-Jan 10, 2004
    
    
    36
    
    
    $
    14.17
    
    
    
    36
    
    
    
    7,427,617Period 9

Jan 11-Feb 7, 2004
    
    
    33
    
    
    $
    14.39
    
    
    
    33
    
    
    
    7,427,584Period 10

Feb 8-March 6, 2004
    
    
    48
    
    
    $
    15.37
    
    
    
    48
    
    
    
    7,427,536Period 11

March 7-April 3, 2004
    
    
    29
    
    
    $
    13.51
    
    
    
    29
    
    
    
    7,427,507Period 12

April 4-May 1, 2004
    
    
    6
    
    
    $
    11.96
    
    
    
    6
    
    
    
    7,427,501Period 13

May 2-May 29, 2004
    
    
    2,905
    
    
    $
    10.51
    
    
    
    2,905
    
    
    
    7,424,596Total
    
    
    4,560
    
    
    $
    11.56
    
    
    
    4,560
    
    
    
    7,424,596
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ITEM 6. SELECTED FINANCIAL DATA
 INTERSTATE BAKERIES CORPORATION
FIVE-YEAR SUMMARY OF FINANCIAL DATA
 (Restated) (6)Fifty-ThreeFifty-Two Weeks Ended
    
    Weeks EndedMay 29,
    
    May 31,
    
    June 1,
    
    June 2,
    
    June 3,2004(1)(3)
    
    2003(2)(3)
    
    2002(3)(4)
    
    2001
    
    2000(in thousands, except per share data)Statements of OperationsNet sales
    
    $
    3,467,562
    
    
    $
    3,525,780
    
    
    $
    3,531,623
    
    
    $
    3,474,643
    
    
    $
    3,503,759Operating income (loss)
    
    
    (18,326
    )
    
    
    70,276
    
    
    
    143,838
    
    
    
    142,394
    
    
    
    167,012% of net sales
    
    
    (0.5
    )%
    
    
    2.0
    %
    
    
    4.0
    %
    
    
    4.1
    %
    
    
    4.8
    %Net income (loss)
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100
    
    
    $
    57,843
    
    
    $
    86,981% of net sales
    
    
    (1.0
    )%
    
    
    0.5
    %
    
    
    1.9
    %
    
    
    1.7
    %
    
    
    2.5
    %Earnings (loss) per share:Basic
    
    $
    (0.74
    )
    
    $
    0.42
    
    
    $
    1.34
    
    
    $
    1.07
    
    
    $
    1.28Diluted
    
    
    (0.74
    )
    
    
    0.41
    
    
    
    1.31
    
    
    
    1.07
    
    
    
    1.27Common stock dividends per share
    
    
    0.21
    
    
    
    0.28
    
    
    
    0.28
    
    
    
    0.28
    
    
    
    0.28Weighted average common shares outstanding:Basic
    
    
    44,868
    
    
    
    44,599
    
    
    
    50,091
    
    
    
    54,110
    
    
    
    68,156Diluted
    
    
    44,868
    
    
    
    45,185
    
    
    
    51,299
    
    
    
    54,296
    
    
    
    68,356Balance SheetsTotal assets
    
    $
    1,673,797
    
    
    $
    1,697,349
    
    
    $
    1,654,716
    
    
    $
    1,673,818
    
    
    $
    1,698,140Long-term debt, excluding current maturities(5)
    
    
    10,362
    
    
    
    536,788
    
    
    
    588,610
    
    
    
    561,661
    
    
    
    387,872Stockholders equity
    
    
    261,708
    
    
    
    290,430
    
    
    
    274,343
    
    
    
    368,607
    
    
    
    570,761
 
 (1)
    
    Fiscal 2004 operating income includes restructuring charges of
approximately $12.1 million, or $0.17 per diluted share, relating to
the closures of three bakeries, severance costs in connection with the
centralization of certain finance and data maintenance administrative
functions and the relocation of certain key management employees in
conjunction with our new more centralized organizational structure and
settlement of class action litigation of approximately $3.0 million,
or $0.04 per diluted share.(2)
    
    Fiscal 2003 operating income includes restructuring charges of
approximately $9.9 million, or $0.14 per diluted share, relating to
certain closings and restructurings of bakeries and bakery outlets and
other charges of approximately $3.6 million, or $0.05 per diluted
share, relating to the common stock award made on October 1, 2002 to
IBCs retiring Chief Executive Officer.(3)
    
    Fiscal 2004, 2003 and 2002 results include the effect of adopting
Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, which eliminated the amortization of
purchased goodwill and other intangible assets with indefinite useful
lives.(4)
    
    Fiscal 2002 operating income includes other charges of $25.7 million,
amounting to $0.31 per diluted share, related to the closure of a
bakery and the settlement of employment discrimination litigation.(5)
    
    In fiscal 2004, we have reflected the total amount due under our
senior secured credit facility agreement as amounts payable within one
year due to our uncertainty that we would be able to comply with the
covenants under this facility. See Note 1. Voluntary Chapter 11 Filing
to our consolidated financial statements regarding going concern
considerations.(6)
    
    See Note 2. Restatement to our consolidated financial statements. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  31




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COMPANY OVERVIEW
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RECENT DEVELOPMENTS
    Review of Treatment of American Bakers Association Retirement Plan
  Calculation of Workers Compensation Claims
   33




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Profit Center Review
        34




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Labor Union Negotiations
  OVERVIEW OF CERTAIN TRENDS AND EVENTS AFFECTING OPERATIONS, FINANCIAL POSITION AND LIQUIDITY
    35




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   37




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Reserves for self-insurance and postretirement benefits.
  Pension obligations.
  Long-lived assets.
 Goodwill and
Other Intangible Assets
   38




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##### Table of Contents



Derivative instruments.
 Restructuring charges.
  Income taxes.
 Legal reserves.
 Environmental liabilities.
 NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity
 39




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##### Table of Contents



Effective Date, Disclosures,
and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity
 Amendment of Statement 133 on Derivative Instruments
and Hedging Activities Accounting for Derivative Instruments and Hedging Activities
 Consolidation of Variable
Interest Entities  an interpretation of ARB No. 51 Consolidated Financial Statements
 Accounting for Asset Retirement Obligations Accounting for Conditional Asset Retirement Obligations
 an interpretation of FASB Statement No. 143 .
 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for Rental Costs Incurred during a
Construction Period
 40




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##### Table of Contents



Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143
 Share-Based Payment Accounting
for Stock Issued to Employees
 Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction and Qualified Production Activities Provided by the American
Jobs Creation Act of 2004
 Exchanges of Nonmonetary Assets  An Amendment of
APB Opinion No. 29
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003
 Employers Disclosures about Pensions and
Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106
 41




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##### Table of Contents



RESULTS OF OPERATIONS
  Fifty-Two Weeks EndedMay 29,
    
    May 31,
    
    June 1,2004
    
    2003
    
    2002Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold
    
    
    50.0
    
    
    
    49.3
    
    
    
    47.5Selling, delivery and administrative expenses
    
    
    47.4
    
    
    
    45.5
    
    
    
    45.0Restructuring and other charges
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.7Depreciation and amortization
    
    
    2.6
    
    
    
    2.7
    
    
    
    2.7Loss on sale or abandonment of assets
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Operating income (loss)
    
    
    (0.5
    )
    
    
    2.0
    
    
    
    4.0Interest expense  net
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.0Income (loss) before income taxes
    
    
    (1.6
    )
    
    
    0.8
    
    
    
    3.0Provision (benefit) for income taxes
    
    
    (0.6
    )
    
    
    0.3
    
    
    
    1.1Net income (loss)
    
    
    (1.0
    )%
    
    
    0.5
    %
    
    
    1.9
    %
 Fiscal 2004 Compared to Fiscal 2003
 Net sales.
 Gross profit.
 Selling, delivery and administrative expenses.
 42




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##### Table of Contents



Restructuring and other charges.
  Operating income (loss).
 Interest expense.
 Provision for income taxes.
 Fiscal 2003 Compared to Fiscal 2002
 Net sales.
 Gross profit.
 Selling, delivery and administrative expenses.
 43




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##### Table of Contents



Restructuring and other charges.
    Operating income.
 Interest expense.
 Provision for income taxes.
 CASH RESOURCES AND LIQUIDITY
 CASH FLOWS
  Cash from operating activities.
 Cash used in investing activities.
 44




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##### Table of Contents



Cash used in financing activities.
 SOURCES OF LIQUIDITY AND CAPITAL
     Voluntary Chapter 11 Bankruptcy Filing.
  45




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46




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##### Table of Contents



Contractual Obligations.
 (In Thousands)Payments Due By Fiscal Year Under Certain Contractual Obligations (a)Revolving
    
    
    Long-
    
    
    
    
    
    
    
    
    
    
    UnconditionalCredit
    
    
    Term
    
    
    Capital
    
    
    Operating
    
    
    PurchaseFiscal Years
    
    Total
    
    
    Line(b)
    
    
    Debt(b)
    
    
    Leases
    
    
    Leases(c)
    
    
    Obligations(d)2005
    
    $
    335,785
    
    
    $
    
    
    
    $
    58,501
    
    
    $
    6,239
    
    
    $
    56,713
    
    
    $
    214,3322006
    
    
    231,919
    
    
    
    
    
    
    
    156,937
    
    
    
    3,690
    
    
    
    41,112
    
    
    
    30,1802007
    
    
    325,400
    
    
    
    60,000
    
    
    
    208,500
    
    
    
    1,940
    
    
    
    27,617
    
    
    
    27,3432008
    
    
    97,118
    
    
    
    
    
    
    
    53,688
    
    
    
    757
    
    
    
    16,006
    
    
    
    26,6672009
    
    
    32,301
    
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    8,225
    
    
    
    23,334Thereafter
    
    
    32,483
    
    
    
    
    
    
    
    
    
    
    
    2,069
    
    
    
    7,657
    
    
    
    22,757Total
    
    $
    1,055,006
    
    
    $
    60,000
    
    
    $
    477,626
    
    
    $
    15,437
    
    
    $
    157,330
    
    
    $
    344,613
 47




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##### Table of Contents



(a)
    
    The commitments listed herein include significant pre-petition
obligations. Under the Bankruptcy Code, actions to collect
pre-petition indebtedness are stayed and our other contractual
obligations may not be enforced against us. Therefore, the
commitments shown above may not reflect actual cash outlays in
future periods. In addition, under the Bankruptcy Code, we may
reject certain executory contracts and leases, thus eliminating
all or part of those future obligations.(b)
    
    Borrowings under our variable rate senior secured credit facility
are secured by all of our accounts receivable and a majority of
our owned real property, intellectual property and equipment. The
revolving credit line has a total capacity of $300.0 million and
allows up to $215.0 million for letters of credit. We had
borrowings outstanding of $60.0 million under the revolving credit
line and approximately $152.6 million in letters of credit
outstanding as of May 29, 2004. As of September 21, 2004, the date
preceding our Chapter 11 filing, we had borrowings outstanding of
$40.0 million under the revolving credit line and approximately
$173.2 million in letters of credit outstanding. In addition, on
September 21, 2004, we had $100.0 million aggregate principal
amount of 6.0% senior subordinated convertible notes outstanding.
The payment schedule above presents our variable rate senior
secured facility in accordance with its contractual terms. We have
presented this facility in our May 29, 2004 financial statements
as amounts payable within one year due to our default under this
facility.(c)
    
    At May 29, 2004, we had in place various operating leases for
equipment on which we have guaranteed the buyout price. Some of
these leases were entered into on dates from June 15, 1999 through
December 16, 2002 and expire on dates from June 14, 2004 through
December 15, 2007. Our maximum potential obligations under these
guarantees are approximately $10.6 million. In accordance with FIN
No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Othersan interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34(FIN 45), these
guarantees have not been recorded on our consolidated balance
sheet as of May 29, 2004, as they were in existence prior to the
effective date of the interpretation. However, in fiscal 2004, we
entered into new operating leases for equipment with five-year
terms and for which we have guaranteed the buyout price. Our
maximum potential obligations under these guarantees for these
leases are approximately $6.1 million. The fair value of these
guarantees as of May 29, 2004 was approximately $0.3 million.
Each of these will be amortized over the term of the respective
leases.(d)
    
    The unconditional purchase obligations represent obligations as of
May 29, 2004. This includes items such as ingredients, packaging,
third party agreements to perform certain functions and other
obligations. See Note 15. Subsequent Events to the consolidated
financial statements included herein for information regarding the
revision of the third party agreements.
 OFF-BALANCE SHEET FINANCING
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity prices.
 Interest rates.
 48




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 INDEX TO FINANCIAL STATEMENTS
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    50Consolidated Balance Sheets (Restated) at May 29, 2004 and May 31, 2003
    
    
    51Consolidated Statements of Operations (Restated) for the 52 weeks ended May 29, 2004, May 31, 2003 and June 1, 2002
    
    
    52Consolidated Statements of Cash Flows (Restated) for the 52 weeks ended May 29, 2004, May 31, 2003 and June 1, 2002
    
    
    53Consolidated Statements of Stockholders Equity and Comprehensive Operations (Restated) for the 52 weeks ended May 29, 2004, May 31, 2003 and June 1, 2002
    
    
    54Notes to Consolidated Financial Statements:1. Voluntary Chapter 11 Filing
    
    
    562. Restatement
    
    
    583. Description of Business and Significant Accounting Policies
    
    
    634. Debt
    
    
    715. Derivative Instruments
    
    
    736. Commitments and Contingencies
    
    
    747. Income Taxes
    
    
    798. Employee Benefit Plans
    
    
    809. Stock-Based Compensation
    
    
    8610. Goodwill and Other Intangible Assets
    
    
    8711. Accrued Expenses and Other Liabilities
    
    
    8712. Restructuring and Other Charges
    
    
    8813. Stock Repurchases
    
    
    9014. Stockholder Rights Plan
    
    
    9015. Subsequent Events
    
    
    9116. Quarterly Financial Information (Unaudited)
    
    
    93
 49




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50




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INTERSTATE BAKERIES CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (Restated, See Note 2)May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)AssetsCurrent assets:Cash
    
    $
    39,728
    
    
    $
    44,961Accounts receivable, less allowance for doubtful accounts of $3,700,000 ($4,000,000 at May 31, 2003)
    
    
    182,060
    
    
    
    182,738Inventories
    
    
    71,901
    
    
    
    74,681Assets held for sale
    
    
    452
    
    
    
    Other current assets
    
    
    108,577
    
    
    
    93,289Total current assets
    
    
    402,718
    
    
    
    395,669Property and equipment:Land and buildings
    
    
    462,668
    
    
    
    463,361Machinery and equipment
    
    
    1,088,985
    
    
    
    1,103,5241,551,653
    
    
    
    1,566,885Less accumulated depreciation
    
    
    (738,728
    )
    
    
    (708,864
    )Net property and equipment
    
    
    812,925
    
    
    
    858,021Goodwill
    
    
    215,346
    
    
    
    215,346Other intangible assets
    
    
    190,416
    
    
    
    191,995Other assets
    
    
    52,392
    
    
    
    36,318Total assets
    
    $
    1,673,797
    
    
    $
    1,697,349Liabilities and Stockholders EquityCurrent liabilities:Long-term debt payable within one year
    
    $
    542,701
    
    
    $
    57,420Accounts payable
    
    
    158,754
    
    
    
    145,525Accrued expenses
    
    
    275,354
    
    
    
    273,938Total current liabilities
    
    
    976,809
    
    
    
    476,883Long-term debt
    
    
    10,362
    
    
    
    536,788Other liabilities
    
    
    311,183
    
    
    
    283,280Deferred income taxes
    
    
    113,735
    
    
    
    109,968Total long-term liabilities
    
    
    435,280
    
    
    
    930,036Stockholders equity:Preferred stock, par value $0.01 per share; authorized  1,000,000 shares; issued  none
    
    
    
    
    
    
    Common stock, par value $0.01 per share; authorized  120,000,000 shares; issued  81,579,000 shares
    
    
    816
    
    
    
    816Additional paid-in capital
    
    
    586,616
    
    
    
    588,950Retained earnings
    
    
    364,886
    
    
    
    407,735Treasury stock, at cost  36,198,000 shares (36,298,000 at May 31, 2003)
    
    
    (679,016
    )
    
    
    (680,913
    )Treasury stock held in rabbi trust, at cost  none (477,000 shares at May 31, 2003)
    
    
    
    
    
    
    (8,946
    )Unearned restricted stock compensation
    
    
    (6,982
    )
    
    
    Accumulated other comprehensive loss
    
    
    (4,612
    )
    
    
    (17,212
    )Total stockholders equity
    
    
    261,708
    
    
    
    290,430Total liabilities and stockholders equity
    
    $
    1,673,797
    
    
    $
    1,697,349
  51




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INTERSTATE BAKERIES CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Restated, See Note 2)Fifty-Two Weeks EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Net sales
    
    $
    3,467,562
    
    
    $
    3,525,780
    
    
    $
    3,531,623Cost of products sold (exclusive of items shown below)
    
    
    1,733,303
    
    
    
    1,739,746
    
    
    
    1,676,963Selling, delivery and administrative expenses
    
    
    1,643,757
    
    
    
    1,605,512
    
    
    
    1,588,631Restructuring charges
    
    
    12,066
    
    
    
    9,910
    
    
    
    Other charges
    
    
    
    
    
    
    3,591
    
    
    
    25,700Depreciation and amortization
    
    
    91,024
    
    
    
    94,400
    
    
    
    94,511Loss on sale or abandonment of assets
    
    
    5,738
    
    
    
    2,345
    
    
    
    1,9803,485,888
    
    
    
    3,455,504
    
    
    
    3,387,785Operating income (loss)
    
    
    (18,326
    )
    
    
    70,276
    
    
    
    143,838Other income
    
    
    (331
    )
    
    
    (87
    )
    
    
    (335
    )Interest expense
    
    
    37,543
    
    
    
    41,226
    
    
    
    38,04937,212
    
    
    
    41,139
    
    
    
    37,714Income (loss) before income taxes
    
    
    (55,538
    )
    
    
    29,137
    
    
    
    106,124Provision (benefit) for income taxes
    
    
    (22,168
    )
    
    
    10,410
    
    
    
    39,024Net income (loss)
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100Earnings (loss) per share:Basic
    
    $
    (0.74
    )
    
    $
    0.42
    
    
    $
    1.34Diluted
    
    $
    (0.74
    )
    
    $
    0.41
    
    
    $
    1.31
  52




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INTERSTATE BAKERIES CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Restated, See Note 2)Fifty-Two Weeks EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100Depreciation and amortization
    
    
    91,024
    
    
    
    94,400
    
    
    
    94,511Provision for deferred income taxes
    
    
    (5,336
    )
    
    
    (12,764
    )
    
    
    2,307Non-cash interest expense  deferred debt fees
    
    
    2,461
    
    
    
    1,778
    
    
    
    3,310Non-cash interest on swap agreements
    
    
    (3,217
    )
    
    
    3,872
    
    
    
    Non-cash common stock award
    
    
    
    
    
    
    3,591
    
    
    
    Non-cash restricted stock and deferred share compensation expense
    
    
    2,146
    
    
    
    899
    
    
    
    Loss on sale/write-down or abandonment of assets
    
    
    7,146
    
    
    
    2,997
    
    
    
    9,815Income tax benefit on employee stock transactions
    
    
    4
    
    
    
    2,113
    
    
    
    2,589Change in operating assets and liabilities:Accounts receivable
    
    
    678
    
    
    
    14,345
    
    
    
    749Inventories
    
    
    2,780
    
    
    
    358
    
    
    
    (4,028
    )Other current assets
    
    
    (15,354
    )
    
    
    (9,331
    )
    
    
    (3,901
    )Accounts payable and accrued expenses
    
    
    25,817
    
    
    
    13,117
    
    
    
    25,675Long-term portion of self insurance reserves
    
    
    33,870
    
    
    
    5,381
    
    
    
    5,752Other
    
    
    3,650
    
    
    
    16,113
    
    
    
    (3,281
    )Cash from operating activities
    
    
    112,299
    
    
    
    155,596
    
    
    
    200,598Cash flows used in investing activities:Purchases of property and equipment
    
    
    (55,266
    )
    
    
    (100,737
    )
    
    
    (77,197
    )Proceeds from sale of assets
    
    
    4,701
    
    
    
    6,475
    
    
    
    7,473Acquisition of other intangible assets
    
    
    (198
    )
    
    
    (4,670
    )
    
    
    (306
    )Acquisition and development of software assets
    
    
    (14,758
    )
    
    
    (7,487
    )
    
    
    (96
    )Other
    
    
    (245
    )
    
    
    62
    
    
    
    14Cash used in investing activities
    
    
    (65,766
    )
    
    
    (106,357
    )
    
    
    (70,112
    )Cash flows used in financing activities:Reduction of long-term debt
    
    
    (41,145
    )
    
    
    (46,495
    )
    
    
    (612,373
    )Addition to long-term debt
    
    
    
    
    
    
    
    
    
    
    650,000Common stock dividends paid
    
    
    (9,479
    )
    
    
    (12,539
    )
    
    
    (14,442
    )Stock option exercise proceeds
    
    
    776
    
    
    
    10,299
    
    
    
    13,771Acquisition of treasury stock
    
    
    (53
    )
    
    
    (189
    )
    
    
    (158,325
    )Debt fees
    
    
    (1,865
    )
    
    
    (2,199
    )
    
    
    (8,850
    )Cash used in financing activities
    
    
    (51,766
    )
    
    
    (51,123
    )
    
    
    (130,219
    )Change in cash
    
    
    (5,233
    )
    
    
    (1,884
    )
    
    
    267Cash:Beginning of period
    
    
    44,961
    
    
    
    46,845
    
    
    
    46,578End of period
    
    $
    39,728
    
    
    $
    44,961
    
    
    $
    46,845Cash payments (received) for:Interest
    
    $
    39,453
    
    
    $
    36,619
    
    
    $
    31,146Income taxes
    
    
    (2,339
    )
    
    
    23,800
    
    
    
    33,404Non-cash investing and financing activities excluded above:Issuance of restricted stock
    
    
    7,840
    
    
    
    
    
    
    
    Accrued deferred share award liability settled through equity issuance
    
    
    
    
    
    
    7,061
    
    
    
    Equipment purchases financed with capital lease obligations
    
    
    
    
    
    
    11,688
    
    
    
    Real estate financed with capital lease obligations
    
    
    
    
    
    
    1,888
    
    
    
    2,237
  53




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INTERSTATE BAKERIES CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE OPERATIONS
 (in thousands, except per share data)
 Treasury StockCommon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Held in Rabbi
    
    
    Unearned
    
    
    AccumulatedStock Issued
    
    
    Additional
    
    
    
    
    
    
    Treasury Stock
    
    
    Trust
    
    
    Restricted
    
    
    Other
    
    
    TotalNumber
    
    
    Par
    
    
    Paid-in
    
    
    Retained
    
    
    Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Stock
    
    
    Comprehensive
    
    
    Stockholdersof Shares
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Cost
    
    
    Shares
    
    
    Cost
    
    
    Compensation
    
    
    Loss
    
    
    EquityBalance June 2, 2001(as previously reported)
    
    
    79,851
    
    
    $
    799
    
    
    $
    551,963
    
    
    $
    373,087
    
    
    
    (29,495
    )
    
    $
    (533,044
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    392,805Cumulative effect of restatement on prior years 
(See Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,198
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,198
    )Balance
June 2, 2001 (Restated, See Note 2)
    
    
    79,851
    
    
    
    799
    
    
    
    551,963
    
    
    
    348,889
    
    
    
    (29,495
    )
    
    
    (533,044
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368,607Comprehensive income (a) (Restated, See Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,957
    )
    
    
    62,143Stock options exercised and related income tax benefit
    
    
    833
    
    
    
    8
    
    
    
    16,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,360Dividends paid  $0.28 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,442
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,442
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,363
    )
    
    
    (158,325
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (158,325
    )Balance June 1, 2002 (Restated, See Note 2)
    
    
    80,684
    
    
    
    807
    
    
    
    568,315
    
    
    
    401,547
    
    
    
    (36,858
    )
    
    
    (691,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,957
    )
    
    
    274,343Comprehensive income (a) (Restated, See Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,255
    )
    
    
    6,472Deferred share award and related income tax effect
    
    
    213
    
    
    
    2
    
    
    
    6,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,430Share award and related income tax effect
    
    
    133
    
    
    
    1
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,501Stock options exercised and related income tax benefit
    
    
    549
    
    
    
    6
    
    
    
    10,707
    
    
    
    
    
    
    
    90
    
    
    
    1,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,412Dividends paid  $0.28 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,539
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,539
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Transfer of treasury stock to rabbi trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    477
    
    
    
    8,946
    
    
    
    (477
    )
    
    
    (8,946
    )
    
    
    
    
    
    
    
    
    
    
    Balance May 31, 2003 (Restated, See Note 2)
    
    
    81,579
    
    
    
    816
    
    
    
    588,950
    
    
    
    407,735
    
    
    
    (36,298
    )
    
    
    (680,913
    )
    
    
    (477
    )
    
    
    (8,946
    )
    
    
    
    
    
    
    (17,212
    )
    
    
    290,430Comprehensive loss (a) (Restated, See Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,370
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,600
    
    
    
    (20,770
    )Restricted share award
    
    
    
    
    
    
    
    
    
    
    (2,098
    )
    
    
    
    
    
    
    530
    
    
    
    9,938
    
    
    
    
    
    
    
    
    
    
    
    (7,840
    )
    
    
    
    
    
    
    Restricted share compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    800Restricted share forfeitures and other
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (4
    )
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    (14
    )Stock options exercised and related income tax benefit
    
    
    
    
    
    
    
    
    
    
    (238
    )
    
    
    
    
    
    
    55
    
    
    
    1,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    794Dividends paid  $0.21 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,479
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,479
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Transfer of treasury stock from rabbi trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )
    
    
    (8,946
    )
    
    
    477
    
    
    
    8,946
    
    
    
    
    
    
    
    
    
    
    
    Balance May 29, 2004
    
    
    81,579
    
    
    $
    816
    
    
    $
    586,616
    
    
    $
    364,886
    
    
    
    (36,198
    )
    
    $
    (679,016
    )
    
    
    
    
    
    $
    
    
    
    $
    (6,982
    )
    
    $
    (4,612
    )
    
    $
    261,708
 
 (a)
    
    Reconciliations of net income (loss) to comprehensive income (loss) are as follows: 54




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##### Table of Contents



2004
    
    
    2003
    
    
    2002Net income (loss) (Restated, See Note 2)
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100Other comprehensive income (loss):Change in fair value of cash flow hedges, net of income taxes of $2,410, $6,630 and
$8,360, respectively
    
    
    4,017
    
    
    
    (11,049
    )
    
    
    (13,934
    )Losses on interest rate swaps reclassified to interest expense, net of income taxes of
$3,380, $5,383 and $2,652, respectively
    
    
    5,634
    
    
    
    8,971
    
    
    
    4,421Commodity derivative (gains) losses reclassified to cost of products sold, net of income
taxes of $2,537, $774 and $2,734, respectively
    
    
    (4,229
    )
    
    
    1,290
    
    
    
    4,556Minimum pension liability adjustment, (Restated, See Note 2) net of income taxes of $4,316
and $6,912, respectively
    
    
    7,178
    
    
    
    (11,467
    )
    
    
    Other comprehensive income (loss) total (Restated, See Note 2)
    
    
    12,600
    
    
    
    (12,255
    )
    
    
    (4,957
    )Comprehensive income (loss) (Restated, See Note 2)
    
    $
    (20,770
    )
    
    $
    6,472
    
    
    $
    62,143
  May 29,
    
    
    May 31,2004
    
    
    2003(dollars in thousands)Derivative instruments
    
    $
    (324
    )
    
    $
    (5,746
    )Minimum pension liability adjustment (Restated, See Note 2)
    
    
    (4,288
    )
    
    
    (11,466
    )Total (Restated, See Note 2)
    
    $
    (4,612
    )
    
    $
    (17,212
    )
  55




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##### Table of Contents



INTERSTATE BAKERIES CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1. Voluntary Chapter 11 Filing
    
    
    authorize us to pay pre-petition and post-petition employee wages and salaries and
related benefits during our restructuring under Chapter 11;
    
    authorize us to pay trust fund taxes in the ordinary course of business, including
pre-petition amounts; and
    
    authorize the continued use of our cash management systems.
   56




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##### Table of Contents



Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code
 57




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##### Table of Contents



2. Restatement
  Workers Compensation Reserve
  ABA Plan
  Leases
  Depreciation
  Supplemental Executive Retirement Plans
  58




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##### Table of Contents



Cash
  Income
Taxes
   Fifty-Two Weeks EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Net income (loss) as previously reported
    
    $
    (25,678
    )
    
    $
    27,450
    
    
    $
    69,789Adjustments net of taxWorkers compensation reserves
    
    
    (5,009
    )
    
    
    
    
    
    
    ABA Plan
    
    
    (2,737
    )
    
    
    (7,858
    )
    
    
    (2,280
    )Leases
    
    
    (149
    )
    
    
    (214
    )
    
    
    (193
    )Depreciation
    
    
    355
    
    
    
    (301
    )
    
    
    (216
    )SERP
    
    
    (152
    )
    
    
    (350
    )
    
    
    Net income (loss) as restated
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100
  Consolidated Statement of Operations
 Fifty-Two Weeks EndedMay 29, 2004As Previously
    
    
    Effect ofConsolidated Statement of Operations
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands, except per share data)Cost of products sold
    
    $
    1,728,191
    
    
    $
    5,112
    
    
    $
    1,733,303Selling, delivery and administrative expenses
    
    
    1,637,944
    
    
    
    5,813
    
    
    
    1,643,757Depreciation and amortization
    
    
    96,040
    
    
    
    (5,016
    )
    
    
    91,024Loss on sale or abandonment of assets
    
    
    
    
    
    
    5,738
    
    
    
    5,738Operating loss
    
    
    (6,679
    )
    
    
    (11,647
    )
    
    
    (18,326
    )Other income
    
    
    (33
    )
    
    
    (298
    )
    
    
    (331
    )Interest expense
    
    
    36,583
    
    
    
    960
    
    
    
    37,543Loss before income taxes
    
    
    (43,229
    )
    
    
    (12,309
    )
    
    
    (55,538
    )Provision for income taxes
    
    
    (17,551
    )
    
    
    (4,617
    )
    
    
    (22,168
    )Net loss
    
    $
    (25,678
    )
    
    $
    (7,692
    )
    
    $
    (33,370
    )Loss per share:Basic
    
    $
    (0.57
    )
    
    $
    (0.17
    )
    
    $
    (0.74
    )Diluted
    
    $
    (0.57
    )
    
    $
    (0.17
    )
    
    $
    (0.74
    )
 59




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##### Table of Contents



Fifty-Two Weeks EndedMay 31, 2003As Previously
    
    
    Effect ofConsolidated Statement of Operations
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands, except per share data)Cost of products sold
    
    $
    1,734,494
    
    
    $
    5,252
    
    
    $
    1,739,746Selling, delivery and administrative expenses
    
    
    1,599,340
    
    
    
    6,172
    
    
    
    1,605,512Depreciation and amortization
    
    
    95,177
    
    
    
    (777
    )
    
    
    94,400Loss on sale or abandonment of assets
    
    
    
    
    
    
    2,345
    
    
    
    2,345Operating income
    
    
    83,268
    
    
    
    (12,992
    )
    
    
    70,276Interest expense
    
    
    40,262
    
    
    
    964
    
    
    
    41,226Income before income taxes
    
    
    43,093
    
    
    
    (13,956
    )
    
    
    29,137Provision for income taxes
    
    
    15,643
    
    
    
    (5,233
    )
    
    
    10,410Net income
    
    $
    27,450
    
    
    $
    (8,723
    )
    
    $
    18,727Earnings per share:Basic
    
    $
    0.62
    
    
    $
    (0.20
    )
    
    $
    0.42Diluted
    
    $
    0.61
    
    
    $
    (0.20
    )
    
    $
    0.41
 Fifty-Two Weeks EndedJune 1, 2002As Previously
    
    
    Effect ofConsolidated Statement of Operations
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands, except per share data)Cost of products sold
    
    $
    1,675,504
    
    
    $
    1,459
    
    
    $
    1,676,963Selling, delivery and administrative expenses
    
    
    1,587,719
    
    
    
    912
    
    
    
    1,588,631Depreciation and amortization
    
    
    95,343
    
    
    
    (832
    )
    
    
    94,511Loss on sale or abandonment of assets
    
    
    
    
    
    
    1,980
    
    
    
    1,980Operating income
    
    
    147,357
    
    
    
    (3,519
    )
    
    
    143,838Interest expense
    
    
    37,266
    
    
    
    783
    
    
    
    38,049Income before income taxes
    
    
    110,426
    
    
    
    (4,302
    )
    
    
    106,124Provision for income taxes
    
    
    40,637
    
    
    
    (1,613
    )
    
    
    39,024Net income
    
    $
    69,789
    
    
    $
    (2,689
    )
    
    $
    67,100Earnings per share:Basic
    
    $
    1.39
    
    
    $
    (0.05
    )
    
    $
    1.34Diluted
    
    $
    1.36
    
    
    $
    (0.05
    )
    
    $
    1.31
 Consolidated Balance Sheets
 May 29, 2004As Previously
    
    
    Effect ofConsolidated Balance Sheets
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Cash
    
    $
    
    
    
    $
    39,728
    
    
    $
    39,728Assets held for sale
    
    
    
    
    
    
    452
    
    
    
    452Other current assets
    
    
    106,402
    
    
    
    2,175
    
    
    
    108,577Total current assets
    
    
    360,363
    
    
    
    42,355
    
    
    
    402,718Land and buildings
    
    
    453,161
    
    
    
    9,507
    
    
    
    462,668Machinery and equipment
    
    
    1,098,984
    
    
    
    (9,999
    )
    
    
    1,088,985Less accumulated depreciation
    
    
    (742,753
    )
    
    
    4,025
    
    
    
    (738,728
    )Net property and equipment
    
    
    809,392
    
    
    
    3,533
    
    
    
    812,925Other assets
    
    
    50,908
    
    
    
    1,484
    
    
    
    52,392Total assets
    
    $
    1,626,425
    
    
    $
    47,372
    
    
    $
    1,673,797Long-term debt payable within one year
    
    $
    541,373
    
    
    $
    1,328
    
    
    $
    542,701Accounts payable
    
    
    119,027
    
    
    
    39,727
    
    
    
    158,754Accrued expenses
    
    
    270,303
    
    
    
    5,051
    
    
    
    275,354Total current liabilities
    
    
    930,703
    
    
    
    46,106
    
    
    
    976,809
 60




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##### Table of Contents



May 29, 2004As Previously
    
    
    Effect ofConsolidated Balance Sheets
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Long-term debt
    
    
    3,399
    
    
    
    6,963
    
    
    
    10,362Other liabilities
    
    
    240,118
    
    
    
    71,065
    
    
    
    311,183Deferred income taxes
    
    
    147,493
    
    
    
    (33,758
    )
    
    
    113,735Total long-term liabilities
    
    
    391,010
    
    
    
    44,270
    
    
    
    435,280Retained earnings
    
    
    408,188
    
    
    
    (43,302
    )
    
    
    364,886Accumulated other comprehensive loss
    
    
    (4,910
    )
    
    
    298
    
    
    
    (4,612
    )Total stockholders equity
    
    
    304,712
    
    
    
    (43,004
    )
    
    
    261,708Total liabilities and stockholders equity
    
    $
    1,626,425
    
    
    $
    47,372
    
    
    $
    1,673,797
 May 31, 2003As Previously
    
    
    Effect ofConsolidated Balance Sheets
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Cash
    
    $
    
    
    
    $
    44,961
    
    
    $
    44,961Other current assets
    
    
    92,476
    
    
    
    813
    
    
    
    93,289Total current assets
    
    
    349,895
    
    
    
    45,774
    
    
    
    395,669Land and buildings
    
    
    451,999
    
    
    
    11,362
    
    
    
    463,361Less accumulated depreciation
    
    
    (702,050
    )
    
    
    (6,814
    )
    
    
    (708,864
    )Net property and equipment
    
    
    853,473
    
    
    
    4,548
    
    
    
    858,021Other assets
    
    
    34,982
    
    
    
    1,336
    
    
    
    36,318Total assets
    
    $
    1,645,691
    
    
    $
    51,658
    
    
    $
    1,697,349Long-term debt payable within one year
    
    $
    56,259
    
    
    $
    1,161
    
    
    $
    57,420Accounts payable
    
    
    100,564
    
    
    
    44,961
    
    
    
    145,525Accrued expenses
    
    
    268,758
    
    
    
    5,180
    
    
    
    273,938Total current liabilities
    
    
    425,581
    
    
    
    51,302
    
    
    
    476,883Long-term debt
    
    
    528,771
    
    
    
    8,017
    
    
    
    536,788Other liabilities
    
    
    225,103
    
    
    
    58,177
    
    
    
    283,280Deferred income taxes
    
    
    140,479
    
    
    
    (30,511
    )
    
    
    109,968Total long-term liabilities
    
    
    894,353
    
    
    
    35,683
    
    
    
    930,036Retained earnings
    
    
    443,345
    
    
    
    (35,610
    )
    
    
    407,735Accumulated other comprehensive loss
    
    
    (17,495
    )
    
    
    283
    
    
    
    (17,212
    )Total stockholders equity
    
    
    325,757
    
    
    
    (35,327
    )
    
    
    290,430Total liabilities and stockholders equity
    
    $
    1,645,691
    
    
    $
    51,658
    
    
    $
    1,697,349
 61




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##### Table of Contents



Consolidated Statement of Cash Flows
 Fifty-Two Weeks EndedMay 29, 2004As Previously
    
    
    Effect ofConsolidated Statement of Cash Flows
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Cash flows from operating activities:Net loss
    
    $
    (25,678
    )
    
    $
    (7,692
    )
    
    $
    (33,370
    )Depreciation and amortization
    
    
    96,040
    
    
    
    (5,016
    )
    
    
    91,024Provision for deferred income taxes
    
    
    (720
    )
    
    
    (4,616
    )
    
    
    (5,336
    )Loss on sale/write-down of property and equipment
    
    
    1,265
    
    
    
    5,881
    
    
    
    7,146Change in operating assets and liabilities:Other current assets
    
    
    (15,361
    )
    
    
    7
    
    
    
    (15,354
    )Accounts payable and accrued expenses
    
    
    31,180
    
    
    
    (5,363
    )
    
    
    25,817Long-term portion of self insurance reserves
    
    
    25,855
    
    
    
    8,015
    
    
    
    33,870Other
    
    
    (1,069
    )
    
    
    4,719
    
    
    
    3,650Cash from operating activities
    
    
    116,364
    
    
    
    (4,065
    )
    
    
    112,299Cash flows used in investing activities:Other
    
    
    36
    
    
    
    (281
    )
    
    
    (245
    )Cash used in investing activities
    
    
    (65,485
    )
    
    
    (281
    )
    
    
    (65,766
    )Cash flows used in financing activities:Reduction of long-term debt
    
    
    (40,258
    )
    
    
    (887
    )
    
    
    (41,145
    )Cash used in financing activities
    
    
    (50,879
    )
    
    
    (887
    )
    
    
    (51,766
    )Change in cashCash
    
    
    
    
    
    
    (5,233
    )
    
    
    (5,233
    )Beginning of period
    
    
    
    
    
    
    44,961
    
    
    
    44,961End of period
    
    $
    
    
    
    $
    39,728
    
    
    $
    39,728
 Fifty-Two Weeks EndedMay 31, 2003As Previously
    
    
    Effect ofConsolidated Statement of Cash Flows
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Cash flows from operating activities:Net income
    
    $
    27,450
    
    
    $
    (8,723
    )
    
    $
    18,727Depreciation and amortization
    
    
    95,177
    
    
    
    (777
    )
    
    
    94,400Provision for deferred income taxes
    
    
    (7,531
    )
    
    
    (5,233
    )
    
    
    (12,764
    )Loss on sale/write-down of property and equipment
    
    
    652
    
    
    
    2,345
    
    
    
    2,997Change in operating assets and liabilities:Other current assets
    
    
    (9,469
    )
    
    
    138
    
    
    
    (9,331
    )Accounts payable and accrued expenses
    
    
    13,451
    
    
    
    (334
    )
    
    
    13,117Other
    
    
    4,626
    
    
    
    11,487
    
    
    
    16,113Cash from operating activities
    
    
    156,693
    
    
    
    (1,097
    )
    
    
    155,596Cash flows used in investing activities:Additions to property and equipment
    
    
    (98,849
    )
    
    
    (1,888
    )
    
    
    (100,737
    )Cash used in investing activities
    
    
    (104,469
    )
    
    
    (1,888
    )
    
    
    (106,357
    )Cash flows used in financing activities:Reduction of long-term debt
    
    
    (47,596
    )
    
    
    1,101
    
    
    
    (46,495
    )Cash used in financing activities
    
    
    (52,224
    )
    
    
    1,101
    
    
    
    (51,123
    )Change in cashCash
    
    
    
    
    
    
    (1,884
    )
    
    
    (1,884
    )Beginning of period
    
    
    
    
    
    
    46,845
    
    
    
    46,845End of period
    
    $
    
    
    
    $
    44,961
    
    
    $
    44,961
 Fifty-Two Weeks EndedJune 1, 2002As Previously
    
    
    Effect ofConsolidated Statement of Cash Flows
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Cash flows from operating activities:Net income
    
    $
    69,789
    
    
    $
    (2,689
    )
    
    $
    67,100Depreciation and amortization
    
    
    95,343
    
    
    
    (832
    )
    
    
    94,511Provision for deferred income taxes
    
    
    3,920
    
    
    
    (1,613
    )
    
    
    2,307Loss on sale/write-down of property and equipment
    
    
    7,835
    
    
    
    1,980
    
    
    
    9,815Change in operating assets and liabilities:Accounts payable and accrued expenses
    
    
    23,628
    
    
    
    2,047
    
    
    
    25,675
 62




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##### Table of Contents



Fifty-Two Weeks EndedJune 1, 2002As Previously
    
    
    Effect ofConsolidated Statement of Cash Flows
    
    Reported
    
    
    Restatement
    
    
    As Restated(in thousands)Other
    
    
    (5,203
    )
    
    
    1,922
    
    
    
    (3,281
    )Cash from operating activities
    
    
    199,783
    
    
    
    815
    
    
    
    200,598Cash flows used in investing activities:Additions to property and equipment
    
    
    (74,960
    )
    
    
    (2,237
    )
    
    
    (77,197
    )Cash used in investing activities
    
    
    (67,875
    )
    
    
    (2,237
    )
    
    
    (70,112
    )Cash flows used in financing activities:Reduction of long-term debt
    
    
    (614,062
    )
    
    
    1,689
    
    
    
    (612,373
    )Cash used in financing activities
    
    
    (131,908
    )
    
    
    1,689
    
    
    
    (130,219
    )Change in cashCash
    
    
    
    
    
    
    267
    
    
    
    267Beginning of period
    
    
    
    
    
    
    46,578
    
    
    
    46,578End of period
    
    $
    
    
    
    $
    46,845
    
    
    $
    46,845
 
 3. Description of Business and Significant Accounting Policies
 Description of business
 Fiscal year end
 Principles of consolidation
 Use of estimates
 Cash and cash equivalents
 Inventories
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Ingredients and packaging
    
    $
    48,936
    
    
    $
    51,827Finished goods
    
    
    22,965
    
    
    
    22,854$
    71,901
    
    
    $
    74,681
 Property and equipment
 63




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##### Table of Contents



Assets held for sale 
 Lease obligations  Accounting for Leases
 Software costs
 Goodwill and other intangible assets
 Goodwill and Other Intangible
Assets
 64




---



##### Table of Contents



Impairment of long-lived assets
 Environmental liabilities
 Pension obligations
  Reserves for self-insurance and postretirement benefits
 Derivative instruments Accounting for Derivative Instruments and Hedging Activities
  65




---



##### Table of Contents



Other comprehensive income (loss)
 Revenue recognition
 Major customer
 Cost of products sold 
 Advertising and promotion costs
 Sales incentives
 Consideration given to a customer
 Shipping and handling costs
 Restructuring charges
  Income taxes
 66




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##### Table of Contents



Stock-based compensation Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation-Transition and Disclosure
  2004
    
    2003
    
    2002Expected dividend yield
    
    
    2.0
    %
    
    
    2.2
    %
    
    
    1.0
    %Expected volatility
    
    
    46.4
    %
    
    
    43.8
    %
    
    
    42.6
    %Risk-free interest rate
    
    
    2.4
    %
    
    
    2.9
    %
    
    
    4.1
    %Expected term in years
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
  52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Net income (loss), as reported
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects
    
    
    1,341
    
    
    
    2,860
    
    
    
    Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (6,415
    )
    
    
    (10,791
    )
    
    
    (4,184
    )Pro forma net income (loss)
    
    $
    (38,444
    )
    
    $
    10,796
    
    
    $
    62,916Basic earnings (loss) per share:As reported
    
    $
    (0.74
    )
    
    $
    0.42
    
    
    $
    1.34Pro forma
    
    
    (0.86
    )
    
    
    0.24
    
    
    
    1.26Diluted earnings (loss) per share:As reported
    
    
    (0.74
    )
    
    
    0.41
    
    
    
    1.31Pro forma
    
    
    (0.86
    )
    
    
    0.24
    
    
    
    1.23
  Earnings (loss) per share Earnings per Share
 67




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52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Basic weighted average common shares outstanding
    
    
    44,868
    
    
    
    44,599
    
    
    
    50,091Effect of dilutive stock compensation
    
    
    
    
    
    
    586
    
    
    
    1,208Diluted weighted average common shares outstanding
    
    
    44,868
    
    
    
    45,185
    
    
    
    51,299
   Reclassifications
 Contingencies
 Newly Adopted Accounting Pronouncements Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests under FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
 Amendment of Statement 133 on Derivative Instruments
and Hedging Activities
 68




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Accounting for Derivative Instruments and Hedging Activities
 Consolidation of Variable
Interest Entities  an interpretation of ARB No. 51 Consolidated Financial Statements
 Accounting for Asset Retirement Obligations Accounting for Conditional Asset Retirement Obligations
 an interpretation of FASB Statement No. 143
 Recently Issued Accounting Pronouncements Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for Rental Costs Incurred during a
Construction Period
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143
 Share-Based Payment Accounting for Stock Issued to Employees
 69




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Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction and Qualified Production Activities Provided by
the American Jobs Creation Act of 2004 Accounting for Income Taxes
 Exchanges of Nonmonetary Assets  An Amendment of
APB Opinion No. 29
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003
 Employers Disclosures about Pensions and
Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106
 
 70




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4. Debt
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Senior secured credit facility:Term loans
    
    $
    477,626
    
    
    $
    531,438Revolving credit line
    
    
    60,000
    
    
    
    44,000Capital leases
    
    
    15,437
    
    
    
    18,770553,063
    
    
    
    594,208Amounts payable within one year
    
    
    (542,701
    )
    
    
    (57,420
    )$
    10,362
    
    
    $
    536,788
    RevolvingTerm
    
    
    Term
    
    
    Term
    
    
    Credit
    
    
    CapitalFiscal Years Ending
    
    Loan A (1)
    
    
    Loan B (1)
    
    
    Loan C (1)
    
    
    Line (1)
    
    
    Leases
    
    
    Total(in thousands)2005
    
    $
    56,251
    
    
    $
    1,250
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    6,239
    
    
    $
    64,7402006
    
    
    154,687
    
    
    
    1,250
    
    
    
    1,000
    
    
    
    
    
    
    
    3,690
    
    
    
    160,6272007
    
    
    46,875
    
    
    
    89,375
    
    
    
    72,250
    
    
    
    60,000
    
    
    
    1,940
    
    
    
    270,4402008
    
    
    
    
    
    
    29,688
    
    
    
    24,000
    
    
    
    
    
    
    
    757
    
    
    
    54,4452009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    742Thereafter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,069
    
    
    
    2,069$
    257,813
    
    
    $
    121,563
    
    
    $
    98,250
    
    
    $
    60,000
    
    
    $
    15,437
    
    
    $
    553,063
 
 (1)
    
    All amounts classified to short-term due to the uncertainty that we will be able to comply
with the covenants under this facility.    71




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72




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5. Derivative Instruments
          73




---



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6. Commitments and Contingencies
  Fiscal Years Ending
    
    (in thousands)2005
    
    $
    56,7132006
    
    
    41,1122007
    
    
    27,6172008
    
    
    16,0062009
    
    
    8,225Thereafter
    
    
    7,657$
    157,330
  Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Othersan interpretation of FASB Statements No. 5, 57, and
107 and rescission of FASB Interpretation No. 34
   74




---



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75




---



##### Table of Contents



76




---



##### Table of Contents



77




---



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78




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7. Income Taxes
  52 Weeks
    
    52 Weeks
    
    52 WeeksEnded
    
    Ended
    
    EndedMay 29,
    
    May 31,
    
    June 1,2004
    
    2003
    
    2002Statutory federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net
    
    
    1.8
    
    
    
    1.6
    
    
    
    2.6Adjustments to estimates for prior year tax accruals
    
    
    1.8
    
    
    
    
    
    
    
    Refundable state tax credits for prior years
    
    
    1.4
    
    
    
    
    
    
    
    Other
    
    
    (0.1
    )
    
    
    (0.9
    )
    
    
    (0.8
    )39.9
    %
    
    
    35.7
    %
    
    
    36.8
    %
   52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Current:Federal
    
    $
    (14,023
    )
    
    $
    20,954
    
    
    $
    32,956State
    
    
    (2,809
    )
    
    
    2,220
    
    
    
    3,761(16,832
    )
    
    
    23,174
    
    
    
    36,717Deferred:Federal
    
    
    (4,785
    )
    
    
    (11,285
    )
    
    
    1,698State
    
    
    (551
    )
    
    
    (1,479
    )
    
    
    609(5,336
    )
    
    
    (12,764
    )
    
    
    2,307$
    (22,168
    )
    
    $
    10,410
    
    
    $
    39,024
 79




---



##### Table of Contents



May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Current deferred tax assets, net (included in other current assets):Payroll and benefits accruals
    
    $
    24,368
    
    
    $
    27,155Self-insurance reserves
    
    
    28,650
    
    
    
    21,000Other
    
    
    11,792
    
    
    
    15,108$
    64,810
    
    
    $
    63,263Long-term deferred tax liabilities, net:Property and equipment
    
    $
    151,510
    
    
    $
    147,754Intangibles
    
    
    64,431
    
    
    
    57,059Payroll and benefits accruals
    
    
    (62,644
    )
    
    
    (62,165
    )Self-insurance reserves
    
    
    (36,172
    )
    
    
    (24,825
    )Other
    
    
    (3,390
    )
    
    
    (7,855
    )$
    113,735
    
    
    $
    109,968
    
 8. Employee Benefit Plans
 American Bakers Association Retirement Plan
   80




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##### Table of Contents



52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Service cost
    
    $
    2,512
    
    
    $
    2,152
    
    
    $
    1,805Interest cost
    
    
    2,870
    
    
    
    2,739
    
    
    
    2,524Expected return on negative plan assets
    
    
    257
    
    
    
    159
    
    
    
    77Recognition ofPrior service cost
    
    
    1,358
    
    
    
    757
    
    
    
    1,071Actuarial (gain) loss
    
    
    (1,061
    )
    
    
    8,546
    
    
    
    21Total pension expense
    
    $
    5,936
    
    
    $
    14,353
    
    
    $
    5,498
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Benefit obligation at beginning of year
    
    $
    49,118
    
    
    $
    37,633Service cost
    
    
    2,512
    
    
    
    2,152Interest cost
    
    
    2,870
    
    
    
    2,739Benefit and expense payments
    
    
    (3,225
    )
    
    
    (2,953
    )Plan amendment
    
    
    1,358
    
    
    
    757Actuarial (gain) loss
    
    
    (1,170
    )
    
    
    8,790Benefit obligation at end of year
    
    
    51,463
    
    
    
    49,118Fair value of plan assets at beginning of year
    
    
    (2,253
    )
    
    
    (1,166
    )Employer contributions
    
    
    1,554
    
    
    
    1,780Benefits and expense payments
    
    
    (3,225
    )
    
    
    (2,953
    )Actual return on plan assets
    
    
    (365
    )
    
    
    86Fair value of plan assets at end of year
    
    
    (4,289
    )
    
    
    (2,253
    )Net benefit obligation liability at end of year
    
    $
    55,752
    
    
    $
    51,371Weighted average actuarial assumptionsDiscount rate
    
    
    6.5
    %
    
    
    6.0
    %Expected return on plan assets
    
    
    7.5
    %
    
    
    7.5
    %
 81




---



##### Table of Contents



Employee Stock Purchase Plan
  Defined Contribution Retirement Plan
  Negotiated Multi-Employer Pension Plans
   Defined Benefit Pension Plan
  52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Service cost
    
    $
    704
    
    
    $
    653
    
    
    $
    700Interest cost
    
    
    3,715
    
    
    
    3,794
    
    
    
    3,765Expected return on plan assets
    
    
    (3,354
    )
    
    
    (4,434
    )
    
    
    (4,291
    )Recognition ofPrior service cost
    
    
    177
    
    
    
    (9
    )
    
    
    31Actuarial loss
    
    
    1,441
    
    
    
    
    
    
    
    Net pension expense
    
    $
    2,683
    
    
    $
    4
    
    
    $
    205
  82




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##### Table of Contents



May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Benefit obligation at beginning of year
    
    $
    63,237
    
    
    $
    53,673Service cost
    
    
    704
    
    
    
    653Interest cost
    
    
    3,715
    
    
    
    3,794Amendments
    
    
    
    
    
    
    1,820Actuarial loss
    
    
    466
    
    
    
    7,616Employee contributions
    
    
    67
    
    
    
    106Benefits and expenses paid
    
    
    (4,669
    )
    
    
    (4,425
    )Benefit obligation at end of year
    
    
    63,520
    
    
    
    63,237Fair value of plan assets at beginning of year
    
    
    43,648
    
    
    
    57,156Actual return on plan assets
    
    
    13,998
    
    
    
    (10,042
    )Employer contributions
    
    
    1,429
    
    
    
    853Employee contributions
    
    
    67
    
    
    
    106Benefits and expenses paid
    
    
    (4,669
    )
    
    
    (4,425
    )Fair value of plan assets at end of year
    
    
    54,473
    
    
    
    43,648Plan assets less than benefit obligation
    
    
    9,047
    
    
    
    19,589Unrecognized prior service cost
    
    
    (1,450
    )
    
    
    (1,627
    )Unrecognized net loss
    
    
    (8,229
    )
    
    
    (19,847
    )Additional minimum pension liability
    
    
    8,123
    
    
    
    20,006Net benefit obligation liability at end of year
    
    $
    7,491
    
    
    $
    18,121Intangible asset at end of year
    
    $
    1,450
    
    
    $
    1,627Weighted average actuarial assumptions (using a measurement date of March 31):Discount rate
    
    
    6.0
    %
    
    
    6.0
    %Expected return on plan assets
    
    
    8.0
    %
    
    
    8.0
    %Rate of compensation increase
    
    
    4.5
    %
    
    
    4.5
    %
    Postretirement Health and Life Plans
   83




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52 Weeks
    
    
    52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended
    
    
    EndedMay 29,
    
    
    May 31,
    
    
    June 1,2004
    
    
    2003
    
    
    2002(in thousands)Service cost
    
    $
    4,988
    
    
    $
    4,854
    
    
    $
    3,319Interest cost
    
    
    8,330
    
    
    
    12,982
    
    
    
    10,364Amortization:Unrecognized prior service cost (benefit)
    
    
    (3,473
    )
    
    
    (945
    )
    
    
    322Unrecognized net loss
    
    
    4,386
    
    
    
    4,926
    
    
    
    2,014Net postretirement benefit expense
    
    $
    14,231
    
    
    $
    21,817
    
    
    $
    16,019
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)APBO at beginning of year
    
    $
    202,221
    
    
    $
    141,555Service cost
    
    
    4,988
    
    
    
    4,854Interest cost
    
    
    8,330
    
    
    
    12,982Participant contributions
    
    
    3,620
    
    
    
    2,236Plan amendment
    
    
    (72,268
    )
    
    
    Prior service cost (benefit)
    
    
    16,579
    
    
    
    (15,477
    )Actuarial (gain) loss
    
    
    (72,345
    )
    
    
    71,311Benefits paid
    
    
    (14,758
    )
    
    
    (15,240
    )APBO at end of year
    
    
    76,367
    
    
    
    202,221Unrecognized prior service benefit
    
    
    64,552
    
    
    
    12,811Unrecognized net loss
    
    
    (31,446
    )
    
    
    (108,652
    )Accrued postretirement benefit
    
    
    109,473
    
    
    
    106,380Less current portion in accrued expenses
    
    
    (11,100
    )
    
    
    (14,500
    )APBO included in other liabilities
    
    $
    98,373
    
    
    $
    91,880
   Supplemental Executive Retirement Plan (SERP)
  84




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52 Weeks
    
    
    52 WeeksEnded
    
    
    EndedMay 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Service cost
    
    $
    1,066
    
    
    $
    834Interest cost
    
    
    1,508
    
    
    
    1,396Recognition ofPrior service cost
    
    
    2,729
    
    
    
    2,729Actuarial loss
    
    
    103
    
    
    
    $
    5,406
    
    
    $
    4,959
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)SERP obligation at beginning of year
    
    $
    24,258
    
    
    $
    Liability associated with establishment of plan
    
    
    
    
    
    
    19,102Service cost
    
    
    1,066
    
    
    
    834Interest cost
    
    
    1,508
    
    
    
    1,396Actuarial loss
    
    
    538
    
    
    
    3,147Benefits paid
    
    
    (442
    )
    
    
    (221
    )SERP obligation at end of year
    
    
    26,928
    
    
    
    24,258Fair value of SERP assets at beginning of year
    
    
    
    
    
    
    Employer contributions
    
    
    442
    
    
    
    221Benefits paid
    
    
    (442
    )
    
    
    (221
    )Fair value of SERP assets at end of year
    
    
    
    
    
    
    Unfunded status
    
    
    26,928
    
    
    
    24,258Unrecognized prior service cost
    
    
    (13,644
    )
    
    
    (16,373
    )Unrecognized net actuarial loss
    
    
    (3,583
    )
    
    
    (3,147
    )Additional minimum liability
    
    
    13,865
    
    
    
    16,226SERP liability included in other liabilities
    
    $
    23,566
    
    
    $
    20,964Intangible asset included in other long-term assets
    
    $
    13,644
    
    
    $
    16,226Weighted average actuarial assumptions (using a measurement date of March 31):Discount rate
    
    
    6.0
    %
    
    
    6.0
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
  85




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9. Stock-Based Compensation
   WeightedAverageShares
    
    Exercise PriceUnder Option
    
    Per Share(in thousands)Balance June 2, 2001
    
    
    8,063
    
    
    $
    22.33Issued
    
    
    44
    
    
    
    22.75Surrendered
    
    
    (102
    )
    
    
    27.19Exercised
    
    
    (833
    )
    
    
    16.53Balance June 1, 2002
    
    
    7,172
    
    
    
    22.93Issued
    
    
    3,610
    
    
    
    19.32Surrendered
    
    
    (559
    )
    
    
    24.15Exercised
    
    
    (639
    )
    
    
    16.11Balance May 31, 2003
    
    
    9,584
    
    
    
    21.96Issued
    
    
    20
    
    
    
    13.59Surrendered
    
    
    (4,477
    )
    
    
    29.26Exercised
    
    
    (55
    )
    
    
    14.09Balance May 29, 2004
    
    
    5,072
    
    
    
    15.57
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    RemainingRange of Exercise
    
    Shares
    
    
    Price
    
    
    ContractualPrices
Per Share
    
    Under Option
    
    
    Per Share
    
    
    Life In Years(in thousands)Outstanding:$6.25 - $8.63
    
    
    93
    
    
    $
    8.00
    
    
    
    1.010.00 - 13.88
    
    
    1,763
    
    
    
    10.12
    
    
    
    8.414.10 - 18.50
    
    
    2,166
    
    
    
    15.44
    
    
    
    5.422.45 - 27.72
    
    
    940
    
    
    
    24.68
    
    
    
    5.233.91
    
    
    110
    
    
    
    33.91
    
    
    
    3.3$6.25 - $33.91
    
    
    5,072
    
    
    
    15.57
    
    
    
    6.3Exercisable:$6.25 - $8.63
    
    
    93
    
    
    
    8.0010.00 - 13.88
    
    
    727
    
    
    
    10.2514.10 - 18.50
    
    
    2,157
    
    
    
    15.4422.45 - 27.72
    
    
    933
    
    
    
    24.6933.91
    
    
    110
    
    
    
    33.91$6.25 - $33.91
    
    
    4,020
    
    
    
    16.98
  86




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10. Goodwill and Other Intangible Assets
  May 29, 2004
    
    May 31, 2003Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    Amortization(in thousands)Goodwill
    
    $
    215,346
    
    
    $
    
    
    
    $
    215,346
    
    
    $
    Intangible assets with indefinite
lives (generally trademarks and
trade names)
    
    
    180,662
    
    
    
    
    
    
    
    180,464
    
    
    
    Intangible assets with finite lives
    
    
    19,484
    
    
    
    (9,730
    )
    
    
    19,788
    
    
    
    (8,257
    )
  
 11. Accrued Expenses and Other Liabilities
  May 29,
    
    May 31,2004
    
    2003(in thousands)Self-insurance reserves
    
    $
    92,949
    
    
    $
    79,442Payroll, vacation and other compensation
    
    
    80,880
    
    
    
    87,067Pension and welfare
    
    
    36,420
    
    
    
    50,128Taxes other than income
    
    
    25,519
    
    
    
    19,726
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Accumulated postretirement benefit obligation
    
    $
    98,373
    
    
    $
    91,880Self-insurance reserves
    
    
    101,920
    
    
    
    68,050
 87




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12. Restructuring and Other Charges
  May 29,
    
    
    May 31,2004
    
    
    2003(in thousands)Severance costs
    
    $
    3,617
    
    
    $
    3,658Asset impairments
    
    
    1,170
    
    
    
    2,200Other exit costs
    
    
    7,279
    
    
    
    4,052Total
    
    $
    12,066
    
    
    $
    9,910
       88




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##### Table of Contents



May 29,2004Restructuring
    
    
    Cash
    
    
    LiabilityCharges
    
    
    Payments
    
    
    Balance(in thousands)Second quarter 2004 plan:Severance costs
    
    $
    658
    
    
    $
    541
    
    
    $
    117Other exit costs
    
    
    731
    
    
    
    731
    
    
    
    Fourth quarter 2004 plan:Severance costs
    
    
    2,313
    
    
    
    1,070
    
    
    
    1,243Other exit costs
    
    
    4,101
    
    
    
    992
    
    
    
    3,109Subtotal
    
    
    7,803
    
    
    $
    3,334
    
    
    $
    4,469Second quarter 2004 plan asset impairments
    
    
    517Third quarter 2004 plan asset impairments
    
    
    1,200Fourth quarter 2004 plan asset impairments
    
    
    407Total
    
    $
    9,927
     May 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 29,2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004Liability
    
    
    Restructuring
    
    
    Cash
    
    
    
    
    
    
    LiabilityBalance
    
    
    Charges
    
    
    Payments
    
    
    Adjustment
    
    
    Balance(in thousands)Second quarter 2003 plan:Severance costs
    
    $
    39
    
    
    $
    
    
    
    $
    53
    
    
    $
    14
    
    
    $
    Other exit costs
    
    
    37
    
    
    
    410
    
    
    
    429
    
    
    
    (18
    )
    
    
    Third quarter 2003 plan:Severance costs
    
    
    1,166
    
    
    
    
    
    
    
    1,798
    
    
    
    632
    
    
    
    Other exit costs
    
    
    2,002
    
    
    
    1,716
    
    
    
    2,763
    
    
    
    339
    
    
    
    1,294$
    3,244
    
    
    
    2,126
    
    
    $
    5,043
    
    
    $
    967
    
    
    $
    1,294Second quarter 2003 plan asset impairments
    
    
    
    
    
    
    (1,700
    )Third quarter 2003 plan asset impairments
    
    
    
    
    
    
    746Total
    
    
    
    
    
    $
    1,172
 89




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##### Table of Contents



Other Charges 
 
 13. Stock Repurchases
      
 14. Stockholder Rights Plan
  90




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##### Table of Contents



15. Subsequent Events
   Accounting for the Impairment or Disposal of
Long-Lived Assets
     91




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92




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16. Quarterly Financial Information (Unaudited)
  93




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(Restated, See Note 2)First
    
    Second
    
    Third
    
    Fourth(in thousands, except per share data)2004Net sales
    
    $
    831,015
    
    
    $
    813,798
    
    
    $
    1,019,711
    
    
    $
    803,038Cost of products sold
    
    
    407,305
    
    
    
    418,045
    
    
    
    505,571
    
    
    
    402,382Operating income (loss)
    
    
    25,674
    
    
    
    (31,201
    )
    
    
    (3,741
    )
    
    
    (9,058
    )Net income (loss)
    
    
    10,514
    
    
    
    (24,795
    )
    
    
    (7,486
    )
    
    
    (11,603
    )Earnings (loss) per share:Basic
    
    
    0.23
    
    
    
    (0.55
    )
    
    
    (0.17
    )
    
    
    (0.26
    )Diluted
    
    
    0.23
    
    
    
    (0.55
    )
    
    
    (0.17
    )
    
    
    (0.26
    )2003Net sales
    
    $
    838,974
    
    
    $
    823,213
    
    
    $
    1,045,574
    
    
    $
    818,019Cost of products sold
    
    
    400,616
    
    
    
    400,153
    
    
    
    524,091
    
    
    
    414,886Operating income
    
    
    48,746
    
    
    
    25,165
    
    
    
    (2,258
    )
    
    
    (1,377
    )Net income (loss)
    
    
    25,273
    
    
    
    9,772
    
    
    
    (9,216
    )
    
    
    (7,102
    )Earnings (loss) per share:Basic
    
    
    0.57
    
    
    
    0.22
    
    
    
    (0.21
    )
    
    
    (0.16
    )Diluted
    
    
    0.56
    
    
    
    0.21
    
    
    
    (0.21
    )
    
    
    (0.16
    )
    First
    
    Second
    
    Third
    
    Fourth(in thousands, except per shared data)2004Net sales
    
    $
    831,015
    
    
    $
    813,798
    
    
    $
    1,019,711
    
    
    $
    803,038Cost of products sold
    
    
    406,901
    
    
    
    413,641
    
    
    
    505,032
    
    
    
    402,617Operating income (loss)
    
    
    26,507
    
    
    
    (20,369
    )
    
    
    (2,572
    )
    
    
    (10,245
    )Net income (loss)
    
    
    11,190
    
    
    
    (17,873
    )
    
    
    (6,607
    )
    
    
    (12,388
    )Earnings (loss) per share:Basic
    
    
    0.25
    
    
    
    (0.40
    )
    
    
    (0.15
    )
    
    
    (0.28
    )Diluted
    
    
    0.25
    
    
    
    (0.40
    )
    
    
    (0.15
    )
    
    
    (0.28
    )2003Net sales
    
    $
    838,974
    
    
    $
    823,213
    
    
    $
    1,045,574
    
    
    $
    818,019Cost of products sold
    
    
    399,456
    
    
    
    398,993
    
    
    
    522,543
    
    
    
    413,502Operating income
    
    
    51,491
    
    
    
    27,900
    
    
    
    1,444
    
    
    
    2,433Net income (loss)
    
    
    27,131
    
    
    
    11,636
    
    
    
    (6,749
    )
    
    
    (4,568
    )Earnings (loss) per share:Basic
    
    
    0.61
    
    
    
    0.26
    
    
    
    (0.15
    )
    
    
    (0.10
    )Diluted
    
    
    0.60
    
    
    
    0.26
    
    
    
    (0.15
    )
    
    
    (0.10
    )
 94




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Control and Procedures
  Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
    
    provide reasonable assurance that the transactions are recorded as necessary to permit
the preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
     95




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##### Table of Contents




    
    implementation of a new financial data reporting system and related organizational
realignments at the beginning of the fiscal year;
    
    changes in management and other personnel during fiscal 2005;
    
    failure to prepare and plan for a timely completion of managements assessment,
including adding the necessary additional resources;
    
    diversion of resources to internal and external accounting and reporting
investigations, including investigations into our manner of establishing self-insurance
reserves and the proper accounting treatment for the ABA Plan; and
    
    our efforts during the Chapter 11 proceedings, including the associated additional
accounting and financial reporting requirements and the PC review and consolidation
process that resulted in significant bakery closings and route, depot and thrift store
consolidations, which required the time of personnel that would otherwise have been
available for the assessment process.
  Ineffective Control Environment
 
    
    historically, a company-wide attitude of control consciousness did not permeate
throughout the organization;
    
    due to ineffective corporate oversight and accountability, information was not
consistently communicated to the appropriate levels of the organization;
    
    there was not sufficient documentation and communication of our accounting policies and
procedures to ensure the proper and consistent application of GAAP throughout the
organization;
    
    there was a pervasive shortage of resources in key control areas such as finance and
accounting, benefits and information technology functions;
    
    our internal audit function was inadequately staffed to plan or perform routine
internal audits in addition to assisting with managements assessment of the effectiveness
of internal control over financial reporting;
    
    we did not have formal processes in place that covered self-assessments, independent
testing or reporting of the adequacy or effectiveness of our internal control procedures
over financial reporting;
    
    our planning, management and execution was inadequate to enable us to complete
managements assessment of the effectiveness of internal control over financial reporting
to comply with Section 404 of the Sabanes-Oxley Act of 2002 and conclude that we had
effective controls on a timely basis.
 Accounting for Pension Plan Obligations
 Establishing Self-Insurance Reserves
 96




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##### Table of Contents



Accrued Compensated Absences Liabilities
 Lease Capitalization
 Property and Equipment
 Recording Purchases and Processing Expenditures
 Information Technology Access Controls
 Use of Third Party Specialists
 Third Party Service Providers
 Review and Approval of Contracts
   97




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
    
    we have substantially completed the design, documentation, evaluation and communication
of standardized policies and procedures pertaining to all of the processes that are part
of our internal control over financial reporting;
    
    management has communicated its endorsement and reinforced its commitment to
maintaining sound and effective internal controls over financial reporting;
    
    formal self-assessments of substantially all of the companys internal controls over
financial reporting have been completed throughout the organization and results have been
summarized and reported to management;
    
    the Companys internal audit department has substantially completed testing of the
effectiveness of defined internal controls over financial reporting at all levels of the
organization;
    
    we have hired or otherwise obtained the necessary audit resources to enable the
internal audit department to fulfill its responsibilities and report to management and the
Audit Committee of the Board of Directors on the results of its work;
    
    additional personnel have been hired and service providers have been engaged on a
temporary basis to address shortfalls in staffing and assist us with accounting, finance,
internal audit and information technology responsibilities;
    
    pension accounting has been reviewed for all plans to ensure the accounting and
valuation of our obligations are correct. In addition, we have added controls to monitor
activity and changes to individual plan provisions to ensure that they are approved and
appropriately reflected in our financial statements;
    
    we have made substantial progress in establishing adequate controls related to employee
accrued compensated absences liabilities;
    
    procedures have been documented, centralized controls have been added and a formal
policy document relating to the accounting for plant and equipment has been substantially
completed;
    
    our controls over the recording of purchases and the processing of expenditures have
been improved through the documentation and communication of formalized procedures and
the hiring of experienced personnel and management;
    
    policies have been issued and controls have been added or are in the process of being
added to appropriately restrict and monitor access to information technology programs and
systems;
    
    we have established improved controls over the completeness and accuracy of data
provided to third party specialists;
    
    third party service providers have been identified and we are in the process of
evaluating the significance of their individual impact on our financial statements, the
extent of the evaluation of their controls that will be required; and
 98




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##### Table of Contents




    
    contracting authority for the review and approval of new contracts and other
commitments has been defined, communicated and redistributed and a database is being
maintained and distributed to improve appropriate communication, accounting and
disclosure.
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Board of Directors
  DirectorName
    
    Age
    
    Since
    
    Principal Occupation or Employment for the Last Five Years and DirectorshipsMichael J. Anderson
1,3,4
    
    
    55
    
    
    
    1998
    
    
    President and Chief
Executive Officer
of The Andersons,
Inc., a diversified
agribusiness and
retailing company,
since September
1990. Mr. Anderson
is a director of
The Andersons, Inc.
and Fifth Third
BancCorp of
Northwest Ohio.Robert B. Calhoun
2,3
    
    
    63
    
    
    
    1991
    
    
    Managing Director
of Monitor Clipper
Partners, a private
equity investment
firm, since August
1997. Mr. Calhoun
is a director of
Avondale Mills,
Inc. and The Lord
Abbett Family of
Funds.Frank E. Hortonl,2
    
    
    67
    
    
    
    1992
    
    
    Principal
Associate, Horton &
Associates,
Consultants in
Higher Education,
Bayfield, Colorado,
since 1999;
Executive
Consultant to the
Provost, University
of Missouri 
Kansas City, July
2003 to June 2004;
Interim Dean of
Biological
Sciences,
University of
Missouri  Kansas
City, August 2002
to February 2003;
Interim President,
Southern Illinois
University,
February 2000 to
October 2000.G. Kenneth Baum 3
    
    
    76
    
    
    
    1988
    
    
    Chairman of the
Board of George K.
Baum Group, Inc.,
an investment
company, since April
1994. Mr. Baum is a
director of H & R
Block, Inc.Ronald L. Thompson
1,4
    
    
    57
    
    
    
    2003
    
    
    Retired October
2005; Chairman of
the Board and Chief
Executive Officer
of Midwest Stamping
Company, a
manufacturer of
stamped metal
components and
assemblies for the
automotive
industry, March
1993 to October
2005. Mr. Thompson
is a Trustee of the
Teachers Insurance
and Annuity
Association.Leo Benatar 4
    
    
    76
    
    
    
    1991
    
    
    Chairman of the
Board of IBC;
Principal for
Benatar &
Associates, a
consulting firm,
since July 1996.
Mr. Benatar is a
director of Mohawk
Industries, Inc.,
PAXAR Corporation
and Aaron Rents,
Inc.Richard L. Metrick
2,4
    
    
    65
    
    
    
    2000
    
    
    Senior Managing
Director in the
Investment Banking
Department of Bear Stearns & Co., Inc. since February 1989.
 99




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##### Table of Contents

accounting firm, from September 1992 to June 2002.

DirectorName
    
    Age
    
    Since
    
    Principal Occupation or Employment for the Last Five Years and DirectorshipsDavid N. Weinstein
    
    
    47
    
    
    
    2006
    
    
    Chairman of the
Board of Pioneer
Companies, Inc.,
January 2002 to
December 2005;
Chairman of the
Board of York
Research
Corporation,
November 2002 to
June 2004; Managing
Director and Head
of High Yield
Origination and
Capital Markets of
BNP Paribas, March
2000 to February
2002.William P. Mistretta
    
    
    50
    
    
    
    2006
    
    
    Vice President of
Operations for a
division of Compass
Group PLCs U.S.
operations since
March 2006.
 
 1
    
    Member of the Audit Committee2
    
    Member of the Compensation Committee3
    
    Member of the Nominating/Corporate Governance Committee4
    
    Member of the Executive Committee  Audit Committee
 www.interstatebakeriescorp.com
 Executive Officers
  Name
    
    Age
    
    Present Principal Occupation or Employment and Five-Year Employment HistoryAntonio C. Alvarez II 1
    
    
    58
    
    
    Chief Executive Officer of IBC since September 2004; and Managing
Director of Alvarez & Marsal LLC, a professional services firm,
since September 1983.James R. Elsesser2
    
    
    62
    
    
    Chief Executive Officer of IBC from October 2002 to September
2004; Financial Consultant from March 2002 through September
2002; and Vice President and Chief Financial Officer of Ralston
Purina Company for more than two years prior thereto.Michael D. Kafoure
    
    
    57
    
    
    President and Chief Operating
Officer of IBC since September 1995.John K. Suckow 1
    
    
    47
    
    
    Executive Vice President and Chief Restructuring Officer of IBC
since September 2004; Managing Director of Alvarez & Marsal LLC,
a professional services firm, since July 2002; and Partner at
Arthur Andersen LLP, a public accounting firm, from September 1992 to June 2002.
 100




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##### Table of Contents



Name
    
    Age
    
    Present Principal Occupation or Employment and Five-Year Employment HistoryThomas S. Bartoszewski3
    
    
    63
    
    
    Executive Vice President  Wholesale Business Unit, Eastern
Region of IBC from October 2003 to January 2005; Executive Vice
President  Eastern Division of IBC from August 2002 to October
2003; and Senior Vice President of the North Central Region of
IBC from May 1999 to August 2002.Ronald B. Hutchison
    
    
    56
    
    
    Executive Vice President and Chief Financial Officer of IBC since
July 2004; Executive Vice President of Aurora Foods, a branded
food manufacturing company, from June 2003 to March 2004;
Executive Vice President of Kmart Corporation, an operator of
consumer retail stores, from January 2002 to May 2003; and
Executive Vice President and Chief Financial Officer of Advantica
Restaurant Group, Inc., parent company of the Dennys Corporation
restaurant chain from January 1998 to November 2001.Kent B. Magill
    
    
    53
    
    
    Executive Vice President, General Counsel and Corporate Secretary
of IBC since August 2005; Vice President, General Counsel and
Corporate Secretary of IBC from June 2002 to August 2005; and
Associate General Counsel of IBC from November 2000 to June 2002.Robert P. Morgan
    
    
    50
    
    
    Executive Vice President  Wholesale Business Unit, Upper Midwest
and Northeast PCs of IBC since October 2005; Executive Vice
President  Sales and Trade Marketing Strategy from October 2003
to October 2005; Executive Vice President  Eastern Division
from February 2000 to August 2002; Executive Vice President  Central Division from
April 1999 to October 2003.Steven V. Proscino
    
    
    51
    
    
    Executive Vice President  Wholesale Business Unit, Southeast,
Mid-Atlantic and Florida PCs of IBC since October 2005; Executive
Vice President  Wholesale Business Unit, Eastern Region of IBC
from January 2005 to October 2005; Partner at Q6, LLC, a company
specializing in the design and implementation of performance
improvement programs for Fortune 500 companies, from January 2003
to January 2005; and Executive Vice President of Earthgrains/Sara
Lee Corporation, a company engaged in the manufacture and
distribution of wholesale baked goods, from January 1994 to
January 2003.Jacques Roizen 1,4
    
    
    37
    
    
    Chief Marketing Officer of IBC from November 2004 to August 2005;
Director of Alvarez & Marsal, a professional services firm, from
March 2003 until present; Consultant with McKinsey & Companys
Retail and Consumer Goods Consulting Practice from October 2000
until March 2003; Director of Business Development at Online
Retail Partners, an e-commerce venture capital and management
firm, from June 2000 until October 2000; and attended Columbia
Business School from August 1998 until graduation in May 2000.Richard C. Seban
    
    
    54
    
    
    Executive Vice President and Chief Marketing Officer of IBC since
August 2005; President and Chief Operating Officer of High Liner
Foods, Inc., a Nova Scotia based processor and marketer of frozen
seafood and pasta products, from July 2000 to March 2005.Richard D. Willson
    
    
    58
    
    
    Executive Vice President 
Wholesale Business Unit, Western Region
of IBC since June 2004; and Executive Vice President of the
Western Division of IBC from June 1999 through May 2004.J. Randall Vance
    
    
    46
    
    
    Senior Vice President  Finance and Treasurer of IBC since
September 2004; Vice President and Treasurer of Farmland
Industries, Inc., a diversified agribusiness cooperative, from
July 2002 to January 2004; Assistant Treasurer of Farmland
Industries, Inc. from 2000 to July 2002; and Director, Corporate
Finance of Farmland Industries, Inc. for more than 2 years prior
thereto.
 101




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##### Table of Contents



Name
    
    Age
    
    Present Principal Occupation or Employment and Five-Year Employment HistoryLaura D. Robb
    
    
    48
    
    
    Vice President and Corporate Controller of IBC since July 2002
and Assistant Corporate Controller of IBC for a period of more
than 2 years prior thereto.Paul E. Yarick5
    
    
    67
    
    
    Senior Vice President  Finance and Treasurer of IBC from April
2003 to September 2004; and Vice President and Treasurer of IBC
for more than three years prior thereto.Melvin H. Ghearing
    
    
    57
    
    
    Vice President  Bakery Outlet Business Unit since June 2004 and
Vice President  Retail Operations from July 1995 through May,
2004.
 
 1
    
    Messrs. Alvarez, Roizen and Suckow, as employees of A&M, were designated as officers of
IBC pursuant to an amended and restated letter agreement dated as of September 21, 2004,
further amended and restated as of October 14, 2004 and amended on July 18, 2005 and
elected by the Board of Directors in September 2004, April 2005, and March 2006.2
    
    Mr. Elsesser resigned as Chief Executive Office of IBC on September 21, 2004.3
    
    Mr. Bartoszewski retired on January 7, 2005.4
    
    As Interim Chief Marketing Officer, Mr. Roizen stepped down from his position when Mr.
Seban was hired on August 1, 2005.5
    
    Mr. Yarick retired on September 10, 2004. Involvement in Prior Bankruptcy Proceedings and/or Restructurings
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION
 Summary Compensation Table
  102




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##### Table of Contents



Long Term CompensationAwards
    
    PayoutsAnnual Compensation
    
    
    
    
    
    SecuritiesOther annual
    
    Restricted stock
    
    Underlying
    
    
    
    All otherSalary
    
    Bonus
    
    compensation
    
    award(s)
    
    Options/SARs
    
    LTIP payouts
    
    Compensation1Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)
    
    ($)Name and principal position (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)James R. Elsesser 2
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman of the Board and CEO
    
    
    2005
    
    
    
    228,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    489,969
    5,62004
    
    
    
    716,634
    
    
    
    
    
    
    
    
    
    
    
    784,700
    3
    
    
    
    
    
    
    
    
    
    
    23,6272003
    
    
    
    468,461
    
    
    
    245,000
    
    
    
    
    
    
    
    
    
    
    
    340,000
    
    
    
    
    
    
    
    6,6232002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael D. Kafoure
    
    
    2006
    
    
    
    496,313
    
    
    
    219,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,151
    7President and Chief Operating Officer
    
    
    2005
    
    
    
    486,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,687
    52004
    
    
    
    480,537
    
    
    
    
    
    
    
    
    
    
    
    399,578
    3
    
    
    
    
    
    
    
    
    
    
    22,7872003
    
    
    
    461,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    21,9262002
    
    
    
    443,385
    
    
    
    506,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,274Kent B. Magill
    
    
    2006
    
    
    
    272,274
    
    
    
    110,745
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,660
    8VP, General Counsel and Secretary
    
    
    2005
    
    
    
    228,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,751
    102004
    
    
    
    225,196
    
    
    
    30,000
    
    
    
    
    
    
    
    170,894
    3
    
    
    
    
    
    
    
    
    
    
    23,6782003
    
    
    
    215,662
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    23,2152002
    
    
    
    175,672
    
    
    
    145,704
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,795Robert P. Morgan
    
    
    2006
    
    
    
    221,160
    
    
    
    54,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,754
    9Executive VP, Central Division
    
    
    2005
    
    
    
    216,987
    
    
    
    27,123
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,645
    112004
    
    
    
    212,497
    
    
    
    
    
    
    
    
    
    
    
    201,234
    3
    
    
    
    
    
    
    
    
    
    
    23,3902003
    
    
    
    204,538
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    22,6342002
    
    
    
    197,538
    
    
    
    213,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,484Paul E. Yarick 4
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior VP  Finance and Treasurer
    
    
    2005
    
    
    
    93,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,603
    122004
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    89,297
    3
    
    
    
    
    
    
    
    
    
    
    24,8302003
    
    
    
    177,237
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    
    
    
    
    23,0522002
    
    
    
    166,508
    
    
    
    106,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,560
 
 1
    
    All other compensation for the fiscal year ended May 29, 2004, includes our Companys
contributions in the amounts of $23,450, $23,450, $23,450, $23,300, and $22,850, which accrued
during such fiscal year for the accounts of Messrs. Elsesser, Kafoure, Magill, Morgan, and
Yarick, respectively, under our Companys Retirement Income Plan and the imputed income for
term life insurance provided by our Company for the benefit of Messrs. Elsesser, Kafoure,
Magill, Morgan, and Yarick in the amounts of $1,806, $966, $828, $540, and $1,980,
respectively.2
    
    Mr. Elsesser became Chief Executive Officer on October 1, 2002 and resigned subsequent to the
end of fiscal 2004.3
    
    On January 23, 2004, the Company exchanged outstanding options to purchase shares of our
Common Stock with exercise prices of $25.00 or greater held by certain eligible employees for
shares of restricted stock. The restricted stock, which will vest ratably over a four-year
term, and the eligible options were granted under our 1996 Plan. The value was calculated
based on the closing price of the common stock on January 23, 2004 of $14.75 per share.
Subsequent to the exchange of options for restricted stock, Mr. Kafoure and the Company agreed
to a rescission of the exchange and Mr. Kafoure returned the
restricted stock grant. Messrs. Magill and Morgan have elected to
disclaim ownership of the vested portion of their restricted stock
and have surrendered all rights thereunder.4
    
    Mr. Yarick retired from his position subsequent to the end of fiscal 2004.5
    
    Includes $4,228 and $7,001 for use of a company car for Messrs. Elsesser and Kafoure respectively.6
    
    Includes $477,736 for a Deferred Share Award of 53,200 common shares. 103




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##### Table of Contents



7
    
    All other compensation for Mr. Kafoure for the fiscal year ended June 3, 2006 includes our
Companys contribution in the amount of $7,560, which accrued during such fiscal year for the
account of Mr. Kafoure under our Companys Retirement Income Plan, and $5,591 for the use of a
company car.8
    
    All other compensation for Mr. Magill for the fiscal year ended June 3, 2006 includes our
Companys contribution in the amount of $7,560, which accrued during such fiscal year for the
account of Mr. Magill under our Companys Retirement Income Plan, $556 for the use of a
company car, $3,307 for Company provided financial advisory services and the imputed income
for term life insurance provided by our Company for the benefit of Mr. Magill in the amount of
$236.9
    
    All other compensation for Mr. Morgan for the fiscal year ended June 3, 2006 includes our
Companys contribution in the amount of $7,560, which accrued during such fiscal year for the
account of Mr. Morgan under our Companys Retirement Income Plan, and $5,194 for the use of a
company car.10
    
    All other compensation for Mr. Magill for the fiscal year ended May 28, 2005 includes our
Companys contribution in the amount of $7,380, which accrued during such fiscal year for the
account of Mr. Magill under our Companys Retirement Income Plan, $135 for Company provided
financial advisory services and the imputed income for term life insurance provided by our
Company for the benefit of Mr. Magill in the amount of $236.11
    
    All other compensation for Mr. Morgan for the fiscal year ended May 28, 2005 includes our
Companys contribution in the amount of $7,380, which accrued during such fiscal year for the
account of Mr. Morgan under our Companys Retirement Income Plan, $5,093 for the use of a
company car and the imputed income for term life insurance provided by our Company for the
benefit of Mr. Morgan in the amount of $172.12
    
    All other compensation for Mr. Yarick for the fiscal year ended May 28, 2005 includes our
Companys contribution in the amount of $6,120, which accrued during such fiscal year for the
account of Mr. Yarick under our Companys Retirement Income Plan, $808 for Company provided
financial advisory services and the imputed income for term life insurance provided by our
Company for the benefit of Mr. Yarick in the amount of $1,675. Stock Options
  Option Grants in the Fiscal Year Ended May 29, 2004
  Aggregated Option Exercises in Fiscal 2004 and Option Values at May 29, 2004
 Number of securities underlyingunexercised options at fiscal
    
    Value of unexercised in-the-Shares
    
    Value
    
    year end
    
    money options at fiscal year endacquired on
    
    Realized
    
    (#)
    
    ($)exercise (#)
    
    ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableName (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)James E. Elsesser 1
    
    
    0
    
    
    
    0
    
    
    
    116,667
    
    
    
    53,333
    
    
    
    13,334
    
    
    
    26,667Michael D. Kafoure
    
    
    0
    
    
    
    0
    
    
    
    290,073
    
    
    
    33,333
    
    
    
    24,095
    
    
    
    16,667Kent B. Magill
    
    
    0
    
    
    
    0
    
    
    
    40,000
    
    
    
    20,000
    
    
    
    5,000
    
    
    
    10,000Robert P. Morgan
    
    
    0
    
    
    
    0
    
    
    
    90,000
    
    
    
    20,000
    
    
    
    5,000
    
    
    
    10,000Paul E. Yarick 1
    
    
    0
    
    
    
    0
    
    
    
    61,351
    
    
    
    13,333
    
    
    
    40,500
    
    
    
    6,667
 
 1
    
    Mr. Elsesser resigned and Mr. Yarick retired subsequent to the end of fiscal
2004. Long Term Incentive Plan Awards in the Fiscal Year Ended May 29, 2004
  104




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IBC Supplemental Executive Retirement Plan
      SERP Table
 Annual Average Earnings Over the
    Years of ServiceLast 60 Months of Employment
    
    5
    
    
    10
    
    
    15
    
    
    20$100,000
    
    $
    9,000
    
    
    $
    18,000
    
    
    $
    27,000
    
    
    $
    36,000$200,000
    
    $
    18,000
    
    
    $
    36,000
    
    
    $
    54,000
    
    
    $
    72,000$300,000
    
    $
    27,000
    
    
    $
    54,000
    
    
    $
    81,000
    
    
    $
    108,000$400,000
    
    $
    36,000
    
    
    $
    72,000
    
    
    $
    108,000
    
    
    $
    144,000$500,000
    
    $
    45,000
    
    
    $
    90,000
    
    
    $
    135,000
    
    
    $
    180,000$600,000
    
    $
    54,000
    
    
    $
    108,000
    
    
    $
    162,000
    
    
    $
    216,000$700,000
    
    $
    63,000
    
    
    $
    126,000
    
    
    $
    189,000
    
    
    $
    252,000$800,000
    
    $
    72,000
    
    
    $
    144,000
    
    
    $
    216,000
    
    
    $
    288,000
  105




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##### Table of Contents



KERP PLAN
   Retention Bonuses
  Restructuring Performance Bonuses
    Participation of Named Executive Officers
  106




---



##### Table of Contents



Compensation of Directors
  James R. Elsesser Employment Agreement
  Other Employment Agreements
  107




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##### Table of Contents



Alvarez and Marsal Agreement
    108




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##### Table of Contents



Management Continuity Agreements
  
    
    an amount equal to two years of the executives salary (based on the executives
monthly base salary immediately prior to the change in control or the employment
termination date, whichever is greater) and bonus (equal to the target bonus under the IC
Plan or the most recent annual bonus received by the executive, whichever is greater);
    
    continued life, health, accident and disability benefits for two years following the
employment termination date;
    
    immediate and full vesting under our SERP and at least two additional years of credited
service under the SERP (except that the adjustment cannot result in the years of credited
service exceeding 20 years); and
    
    up to $15,000 of outplacement counseling services.
    Compensation Committee Interlocks and Insider Participation
  Option Exchange
  109




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Equity Compensation Plan Information
  Equity Compensation Plan Information as of May 29, 2004
 Number of securitiesWeighted-
    
    
    remaining available foraverage exercise
    
    
    future issuance underNumber of securities to be
    
    
    price of
    
    
    equity compensationissued upon exercise of
    
    
    outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants
    
    
    securities reflected inwarrants and rights
    
    
    and rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity
compensation plans
approved by
security holders
    
    
    5,072,000
    
    
    $
    15.57
    
    
    
    7,132,000Equity compensation
plans not approved
by security holders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    5,072,000
    
    
    $
    15.57
    
    
    
    7,132,000
 Holdings of Principal Stockholders
  (3)Amount andnature of(1)
    
    (2)
    
    beneficial
    
    (4)Title of Class
    
    Name and address of beneficial owner
    
    ownership
    
    Percent of ClassCommon
    
    EagleRock Capital Management, L.L.C. 1551 Fifth Avenue, 34th Floor
    
    
    4,013,176
    
    
    
    8.8
    %New York, NY 10176Common
    
    Brencourt Advisors, LLC1600 Lexington Avenue 8th Floor
    
    
    3,879,937
    
    
    
    8.5
    %New York, NY 10022Common
    
    Glenview Capital Management, LLC1399 Park Avenue, Floor 39
    
    
    3,782,781
    
    
    
    8.3
    %New York, NY 10022Common
    
    QVT Financial LP 1527 Madison Avenue, 8th Floor
    
    
    3,322,495
    
    
    
    7.32
    %New York, NY 10022Common
    
    Brandes Investment Partners, L.P.111988 El Camino Real, Suite 500
    
    
    2,958,045
    
    
    
    6.5
    %San Diego, CA 92130
 110




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##### Table of Contents



(3)Amount andnature of(1)
    
    (2)
    
    beneficial
    
    (4)Title of Class
    
    Name and address of beneficial owner
    
    ownership
    
    Percent of ClassCommon
    
    Fidelity Management & Research Co. 182 Devonshire Street
    
    
    2,848,716
    
    
    
    6.277
    %Boston, MA 02109Common
    
    Ore Hill Partners LLC1C/o Butterfield Fund Services (Cayman) Ltd.
    
    
    2,811,400
    
    
    
    6.19
    %PO Box 705GTButterfield House68 Fort StreetGrand Cayman, Cayman Islands
 
 1
    
    The information concerning beneficial ownership was obtained from Schedule 13G reports of
EagleRock Capital Management, L.L.C., Glenview Capital Management, LLC, QVT Financial LP,
Brandes Investment Partners, L.P., Fidelity Management & Research Co., and Ore Hill Partners
LLC filed with the Securities and Exchange Commission (SEC) on February 14, 2006, February
14, 2006, February 14, 2005, February 14, 2006, February 14, 2006, and February 14, 2006,
respectively and a Schedule 13D report of Brencourt Advisors, LLC filed with the SEC on July
21, 2006. Holdings of Officers and Directors
  (3)Amount and nature(1)
    
    (2)
    
    of beneficial
    
    (4)Title of Class
    
    Name of beneficial owner
    
    ownership
    
    Percent of ClassCommon
    
    Michael J. Anderson
    
    
    64,095
    1,2
    
    
    
    *Common
    
    G. Kenneth Baum
    
    
    230,837
    1,2,3
    
    
    
    *Common
    
    Leo Benatar
    
    
    109,330
    1,2
    
    
    
    *Common
    
    Robert B. Calhoun
    
    
    107,257
    1,2
    
    
    
    *Common
    
    Frank E. Horton
    
    
    70,525
    1,2
    
    
    
    *Common
    
    Michael D. Kafoure
    
    
    515,844
    1,2
    
    
    1.09
    %Common
    
    Kent B. Magill
    
    
    66,294
    1,2
    
    
    
    *Common
    
    Richard L. Metrick
    
    
    54,525
    1,2
    
    
    
    *Common
    
    Robert P. Morgan
    
    
    121,821
    1,2
    
    
    
    *Common
    
    Ronald L. Thompson
    
    
    9,525
    1,2
    
    
    
    *Common
    
    All Named Executive
Officers, directors and
executive officers as a group (19 persons)
    
    
    1,523,172
    1,2,4
    
    
    3.19
    %
 
 *
    
    Less than 1%1
    
    Of the shares indicated, 58,000 (Mr. Anderson), 100,000 (Mr. Baum), 100,000 (Mr.
Benatar), 100,000 (Mr. Calhoun) 60,000 (Dr. Horton), 510,000 (Mr. Kafoure), 60,000 (Mr.
Magill), 40,000 (Mr. Metrick), 110,000 (Mr. Morgan), 5,000 (Mr. Thompson) and 1,297,000 (all
directors, Named Executive Officers and executive officers as a group) are attributable to
currently exercisable employee stock options or stock options exercisable within 60 days.2
    
    Of the shares indicated, 0 (Mr. Kafoure), 4,525 (Messrs. Anderson, Baum, Benatar,
Calhoun, Horton, Metrick and Thompson), 5,792 (Mr. Magill), 6,821 (Mr. Morgan) and 60,485 (all
directors, Named Executive Officers and executive officers as a group) are attributable to
shares of restricted stock.3
    
    Mr. Baum is a director and Chairman of the Board of George K. Baum Group, Inc. Mr.
Baum is also the majority stockholder of George K. Baum Group, Inc. Of the 230,837 shares
indicated, 77,858 are held by George K. Baum Group, Inc. Mr. Baum may be deemed to
beneficially own all 77,858 shares of the Common Stock held by George K. Baum Group, Inc.4
    
    James R. Elsesser, Paul E. Yarick and Charles A. Sullivan retired from their positions
with IBC subsequent to the end of fiscal year 2004. Accordingly, any shares of our common
stock beneficially owned by these individuals have not been included in the preceding table. 111




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
      112




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees Paid to our Independent Registered Public Accounting Firm
 Audit Fees
 Audit Related Fees
 Tax Fees
 All Other Fees
 Audit Committee Pre-Approval Policy
 Audit
 Audit-Related
 113




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##### Table of Contents



Tax
 Other Fees
   114




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
 (a)
    
    Financial Statements and Schedules:
 1.
    
    Financial StatementsThe following consolidated financial statements are set forth in Part II, Item 8:
       2.
    
    Financial Statement ScheduleSchedule II on page 126 is filed as part of this Annual Report.All other schedules have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements or the notes
thereto.3.
    
    Exhibits
 115




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit3.1
    
    Restated Certificate of Incorporation of
Interstate Bakeries Corporation, as
amended (incorporated herein by reference
to Exhibit 3.1 to Interstate Bakeries
Corporations Amendment No. 1 to its
Quarterly Report on Form 10-Q for the
quarter ended March 9, 2002, filed on
April 19, 2002).3.2
    
    Restated Bylaws of Interstate Bakeries
Corporation (incorporated herein by
reference to Exhibit 3.1 to Interstate
Bakeries Corporations Quarterly Report
on Form 10-Q for the quarter ended
November 15, 2003 filed on December 22,
2003).4.1
    
    Preferred Stock Purchase Rights Agreement
effective as of May 8, 2000 (incorporated
herein by reference to the Current Report
on Form 8-K of Interstate Bakeries
Corporation filed on May 16, 2000).10.1
    
    Employment Agreement, dated as of
September 4, 2002, by and among
Interstate Bakeries Corporation,
Interstate Brands Corporation and James
R. Elsesser (incorporated herein by
reference to Exhibit 10.1 to the Current
Report on Form 8-K of Interstate Bakeries
Corporation filed on October 3, 2002).#10.2
    
    Deferred Share Award Notice dated as of
October 1, 2002 by and between Interstate
Bakeries Corporation and James R.
Elsesser (incorporated herein by
reference to Exhibit 10.2 to the Current
Report on Form 8-K of Interstate Bakeries
Corporation filed on October 3, 2002).#10.3
    
    Consulting Agreement dated as of October
2, 2002 and effective as of September 30,
2002 by and among Interstate Bakeries
Corporation, Interstate Brands
Corporation, Interstate Brands West
Corporation and Charles A. Sullivan
(incorporated herein by reference to
Exhibit 10.3 to the Current Report on
Form 8-K of Interstate Bakeries
Corporation filed on October 3, 2002).#10.3.1
    
    Amendment to the Consulting Agreement
dated as of June 24, 2004, by and among
Interstate Bakeries Corporation,
Interstate Brands Corporation, Interstate
Brands West Corporation and Charles A.
Sullivan.*#10.4
    
    Employment Agreement dated as of March 8,
2003 by and between Michael D. Kafoure
and Interstate Brands West Corporation
(incorporated herein by reference to
Exhibit 10.2 to Interstate Bakeries
Corporations Quarterly Report on Form
10-Q for the quarter ended March 8, 2003,
filed April 22, 2003).#10.5
    
    Employment Agreement dated as of March 7,
2003 by and between Robert P. Morgan and
Interstate Brands Corporation
(incorporated herein by reference to
Exhibit 10.3 to Interstate Bakeries
Corporations Quarterly Report on Form
10-Q for the quarter ended March 8, 2003,
filed April 22, 2003).#10.6
    
    Employment Agreement dated as of March
18, 2003 by and between Richard D.
Willson and Interstate Brands West
Corporation (incorporated herein by
reference to Exhibit 10.4 to Interstate
Bakeries Corporations Quarterly Report
on Form 10-Q for the quarter ended March
8, 2003, filed April 22, 2003).#10.7
    
    Employment Agreement dated as of March 7,
2003 by and between Thomas S.
Bartoszewski and Interstate Brands
Corporation (incorporated herein by
reference to Exhibit 10.5 to Interstate
Bakeries Corporations Quarterly Report
on Form 10-Q for the quarter ended March
8, 2003, filed April 22, 2003).#
 116




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##### Table of Contents



Exhibit No.
    
    Exhibit10.8
    
    Management Continuity Agreement effective
as of February 3, 2003 by and between
James R. Elsesser and Interstate Bakeries
Corporation (incorporated herein by
reference to Exhibit 10.6 to Interstate
Bakeries Corporations Quarterly Report
on Form 10-Q for the quarter ended March
8, 2003, filed April 22, 2003).#10.9
    
    Form of Management Continuity Agreement
effective as of February 3, 2003 by and
between Interstate Bakeries Corporation
and Paul E. Yarick, Michael D. Kafoure,
Kent B. Magill, Robert P. Morgan, Richard
D. Willson and Thomas S. Bartoszewski
(incorporated herein by reference to
Exhibit 10.7 to Interstate Bakeries
Corporations Quarterly Report on Form
10-Q for the quarter ended March 8, 2003,
filed April 22, 2003).#10.10
    
    Amended and Restated Credit Agreement
among Interstate Bakeries Corporation, as
a Guarantor, Interstate Brands
Corporation and Interstate Brands West
Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent, dated as of April
25, 2002 (incorporated herein by
reference to Exhibit 10.3 to Interstate
Bakeries Corporations Amendment No. 2 to
its Registration Statement on Form S-3,
File No. 333-86560, filed May 8, 2002).10.10.1
    
    First Amendment, dated as of April 21,
2003, to the Amended and Restated Credit
Agreement among Interstate Bakeries
Corporation, as a Guarantor, Interstate
Brands Corporation and Interstate Brands
West Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 10.1 to
Interstate Bakeries Corporations
Quarterly Report on Form 10-Q for the
quarter ended March 8, 2003, filed April
22, 2003).10.10.2
    
    Second Amendment, dated as of May 7,
2004, to the Amended and Restated Credit
Agreement among Interstate Bakeries
Corporation, as a Guarantor, Interstate
Brands Corporation and Interstate Brands
West Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Interstate
Bakeries Corporation filed on August 12,
2004).10.10.3
    
    Third Amendment, dated as of May 27,
2004, to the Amended and Restated Credit
Agreement among Interstate Bakeries
Corporation, as a Guarantor, Interstate
Brands Corporation and Interstate Brands
West Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Interstate
Bakeries Corporation filed on August 12,
2004).10.10.4
    
    Fourth Amendment, dated as of June 17,
2004, to the Amended and Restated Credit
Agreement among Interstate Bakeries
Corporation, as a Guarantor, Interstate
Brands Corporation and Interstate Brands
West Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 10.3 to the
Current Report on Form 8-K of Interstate
Bakeries Corporation filed on August 12,
2004).10.10.5
    
    Fifth Amendment, dated as of August 12,
2004, to the Amended and Restated Credit
Agreement among Interstate Bakeries
Corporation, as a Guarantor, Interstate
Brands Corporation and Interstate Brands
West Corporation, each as a Borrower, the
several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent (incorporated herein
by reference to Exhibit 10.4 to the
Current Report on Form 8-K of Interstate
Bakeries Corporation filed on August 12,
2004).
 117




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Exhibit No.
    
    Exhibit10.10.6
    
    Sixth Amendment, dated as of September 7,
2004, to the Amended and Restated Credit
Agreement, dated April 25, 2002, among
Interstate Bakeries Corporation, as a
Guarantor, Interstate Brands Corporation
and Interstate Brands West Corporation,
each as a Borrower, the several Lenders
from time to time parties thereto, The
Bank of Nova Scotia, BNP Paribas,
Cooperatieve Central
Raiffeisen-Boerenleenbank B.A., Rabobank
International, New York Branch, and
SunTrust Bank, each as a co-documentation
agent, Bank of America, N.A., as
syndication agent and JPMorgan Chase
Bank, as administrative agent
(incorporated herein by reference to
Exhibit 10.1 to the Current Report on
Form 8-K of Interstate Bakeries
Corporation filed on September 13, 2004).10.10.7
    
    Seventh Amendment to the Amended and
Restated Credit Agreement dated as of
March 18, 2005, by and among the
Interstate Bakeries Corporation,
Interstate Brands Corporation (the
Borrower), the several banks and other
financial institutions or entities from
time to time parties thereto (the
Lenders), The Bank of Nova Scotia, BNP
Paribas, Cooperatieve Central
Raiffeisen-Boerenleenbank B.A., Rabobank
International, New York Branch, and
SunTrust Bank, each as a co-documentation
agent (the Co-Documentation Agents),
Bank of America, N.A., as syndication
agent (the Syndication Agent) and
JPMorgan Chase Bank (JPMorgan), as
administrative agent (incorporated herein
by reference to the Current Report on
Form 8-K of Interstate Bakeries
Corporation filed on March 22, 2005).10.11
    
    Guarantee and Collateral Agreement made
by Interstate Bakeries Corporation,
Interstate Brands Corporation, Interstate
Brands West Corporation and certain of
their Subsidiaries, in favor of The Chase
Manhattan Bank, as Administrative Agent,
dated as of July 19, 2001 (incorporated
herein by reference to Exhibit 10.4 to
the Annual Report on Form 10-K of
Interstate Bakeries Corporation filed on
August 24, 2001).10.12
    
    Amended and Restated Interstate Bakeries
Corporation 1996 Stock Incentive Plan
(incorporated herein by reference to
Exhibit 10.1 to Interstate Bakeries
Corporations Quarterly Report on Form
10-Q for the quarter ended March 6, 2004
filed on April 19, 2004).#10.13
    
    Interstate Bakeries Corporation Incentive Compensation Plan (incorporated herein by
reference to Interstate Bakeries Corporation Amendment No. 2 to its Registration
Statement on Form S-3, File No. 333-86560, filed on May 8, 2002).#10.14
    
    Interstate Bakeries Corporation 1993 Non-Qualified Deferred Compensation Plan
(incorporated herein by reference to Interstate Bakeries Corporation Amendment No. 2 to
its Registration Statement on Form S-3, File No. 333-86560, filed on May 8, 2002).#10.14.1
    
    First Amendment to Interstate Brands Corporation 1993 Non-Qualified Deferred Compensation
Plan (incorporated herein by reference to Exhibit 10.1 to Interstate Bakeries
Corporations Quarterly Report on Form 10-Q for the quarter ended November 15, 2003 filed
on December 22, 2003).#10.15
    
    Interstate Bakeries Corporation Amended and Restated Supplemental Retirement Plan.*#10.16
    
    Interstate Bakeries Corporation Rabbi Trust Agreement (incorporated herein by reference
to Exhibit 10.8 to the Annual Report on Form 10-K of Interstate Bakeries Corporation
filed on August 23, 2002).#10.16.1
    
    First Amendment to the IBC Rabbi Trust Agreement effective August 8, 2003 (incorporated
herein by reference to Exhibit 10.19.1 to Interstate Bakeries Corporations Annual Report
on Form 10-K filed on August 23, 2003).#
 118




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Exhibit No.
    
    Exhibit10.17
    
    Form of Award Notice and Non-Qualified Stock Option Agreement pursuant to the Interstate
Bakeries Corporation 1996 Stock Incentive Plan (incorporated herein by reference to
Exhibit 10.9 to the Annual Report on Form 10-K of Interstate Bakeries Corporation filed
on August 23, 2002).#10.18
    
    Form of Award Notice and Incentive Stock Option Agreement pursuant to the Interstate
Bakeries Corporation 1996 Stock Incentive Plan (incorporated herein by reference to
Exhibit 10.10 to the Annual Report on Form 10-K of Interstate Bakeries Corporation filed
on August 23, 2002).#10.19
    
    Employment Agreement dated as of July 13, 2004 by and between Ronald B. Hutchison and
Interstate Bakeries Corporation.*#10.20
    
    Management Continuity Agreement dated as of July 13, 2004 by and between Ronald B.
Hutchison and Interstate Bakeries Corporation.*#10.21
    
    Form of Indenture for 6.0% Senior Subordinated Convertible Notes Due 2014 (incorporated
herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Interstate
Bakeries Corporation filed on August 12, 2004).10.22
    
    Form of Purchase Agreement for 6.0% Senior Subordinated Convertible Notes Due 2014
(incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of
Interstate Bakeries Corporation filed on August 12, 2004).10.23
    
    Form of Registration Rights Agreement for 6.0% Senior Subordinated Convertible Notes Due
2014 (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K
of Interstate Bakeries Corporation filed on August 12, 2004).10.24
    
    Letter Agreement, dated as of August 27, 2004, amended and restated as of September 21,
2004 and further amended and restated on October 14, 2004, by and between Alvarez and
Marsal, Inc. and Interstate Bakeries Corporation, Armour & Main Redevelopment
Corporation, Bakers Inn Quality Baked Goods, LLC, IBC Sales Corporation, IBC Services,
LLC, IBC Trucking LLC, Interstate Brands Corporation, New England Bakery Distributors,
LLC and Mrs. Cubbisons Foods, Inc.*#10.24.1
    
    Letter Agreement, dated as of July 18, 2005, by and between Alvarez and Marsal, Inc. and
Interstate Bakeries Corporation, Armour & Main Redevelopment Corporation, Bakers Inn
Quality Baked Goods, LLC, IBC Sales Corporation, IBC Services, LLC, IBC Trucking LLC,
Interstate Brands Corporation, New England Bakery Distributors, LLC and Mrs. Cubbisons
Foods, Inc.*#
 119




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Exhibit No.
    
    Exhibit10.25
    
    Revolving Credit Agreement, dated as of September 23, 2004, among Interstate Bakeries
Corporation (Parent Borrower), a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, and each of the direct and indirect subsidiaries
of the Parent Borrower party to this Agreement (each individually a Subsidiary Borrower
and collectively the Subsidiary Borrowers; and together with the Parent Borrower, the
Borrowers), each of which is a debtor and debtor-in-possession in a case pending under
Chapter 11 of the Bankruptcy Code (the cases of the Borrowers, each a Case and
collectively, the Cases), JPMorgan Chase Bank (JPMCB), and each of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party hereto (together with JPMCB, the Lenders), J.P. Morgan
Securities Inc., as lead arranger and book runner, JPMorgan Chase Bank, as administrative
agent (in such capacity, the Administrative Agent) for the Lenders, and JPMorgan Chase
Bank, as collateral agent (in such capacity, the Collateral Agent) for the Lenders
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Interstate Bakeries Corporation filed on September 27, 2004).10.25.1
    
    First Amendment, dated as of November 1, 2004, to the Revolving Credit Agreement) dated
as of September 23, 2004, among Interstate Bakeries Corporation (Parent Borrower), a
debtor and debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy
Code, and each of the direct and indirect subsidiaries of the Parent Borrower party to
this Agreement (each individually a Subsidiary Borrower and collectively the
Subsidiary Borrowers; and together with the Parent Borrower, the Borrowers), each of
which is a debtor and debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code (the cases of the Borrowers, each a Case and collectively, the
Cases), JPMorgan Chase Bank (JPMCB), and each of the other commercial banks, finance
companies, insurance companies or other financial institutions or funds from time to time
party hereto (together with JPMCB, the Lenders), J.P. Morgan Securities Inc., as lead
arranger and book runner, JPMorgan Chase Bank, as administrative agent (in such capacity,
the Administrative Agent) for the Lenders, and JPMorgan Chase Bank, as collateral agent
(in such capacity, the Collateral) for the Lenders (incorporated herein by reference to
the Current Report on Form 8-K of Interstate Bakeries Corporation filed on November 5,
2004).10.25.2
    
    Second Amendment, effective as of January 20, 2005, to the Revolving Credit Agreement,
dated as of September 23, 2004, among Interstate Bakeries Corporation (Parent
Borrower), a debtor and debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code, and each of the direct and indirect subsidiaries of the Parent Borrower
party to this Agreement (each individually a Subsidiary Borrower and collectively the
Subsidiary Borrowers; and together with the Parent Borrower, the Borrowers), each of
which is a debtor and debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code (the cases of the Borrowers, each a Case and collectively, the
Cases), JPMorgan Chase Bank (JPMCB), and each of the other commercial banks, finance
companies, insurance companies or other financial institutions or funds from time to time
party hereto (together with JPMCB, the Lenders), J.P. Morgan Securities Inc., as lead
arranger and book runner, JPMorgan Chase Bank, as administrative agent (in such capacity,
the Administrative Agent) for the Lenders, and JPMorgan Chase Bank, as collateral agent
(in such capacity, the Collateral) for the Lenders (incorporated herein by reference to
the Current Report on Form 8-K of Interstate Bakeries Corporation filed on February 1,
2005).
 120




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Exhibit No.
    
    Exhibit10.25.3
    
    Third Amendment and Waiver, dated as of May 26, 2005, to the Revolving Credit Agreement,
dated as of September 23, 2004, as amended, among Interstate Bakeries Corporation, a
Delaware corporation (Parent Borrower), a debtor and debtor-in-possession in a case
pending under Chapter 11 of the Bankruptcy Code, each of the direct and indirect
subsidiaries of the Parent Borrower (each individually a Subsidiary Borrower and
collectively the Subsidiary Borrowers; and together with the Parent Borrower, the
Borrowers), each of which is a debtor and debtor-in-possession in a case pending under
Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a national banking
association (formerly known as JPMorgan Chase Bank) (JPMCB), and each of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party to the Credit Agreement (together with JPMCB, the
Lenders), JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as administrative agent (the Administrative Agent) for the
Lenders, and JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as collateral agent (the Collateral Agent) for the Lenders
(incorporated herein by reference to the Current Report on Form 8-K of Interstate
Bakeries Corporation filed on May 27, 2005).10.25.4
    
    Fourth Amendment and Waiver, dated as of November 30, 2005, to the Revolving Credit
Agreement, dated as of September 23, 2004, as amended, among Interstate Bakeries
Corporation, a Delaware corporation (Parent Borrower), a debtor and
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, each of
the direct and indirect subsidiaries of the Parent Borrower (each individually a
Subsidiary Borrower and collectively the Subsidiary Borrowers; and together with the
Parent Borrower, the Borrowers), each of which is a debtor and debtor-in-possession in
a case pending under Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a
national banking association (formerly known as JPMorgan Chase Bank) (JPMCB), and each
of the other commercial banks, finance companies, insurance companies or other financial
institutions or funds from time to time party to the Credit Agreement (together with
JPMCB, the Lenders), JPMorgan Chase Bank, N.A., a national banking association
(formerly known as JPMorgan Chase Bank), as administrative agent (the Administrative
Agent) for the Lenders, and JPMorgan Chase Bank, N.A., a national banking association
(formerly known as JPMorgan Chase Bank), as collateral agent (the Collateral Agent) for
the Lenders (incorporated herein by reference to the Current Report on Form 8-K of
Interstate Bakeries Corporation filed on December 5, 2005).10.25.5
    
    Fifth Amendment, dated as of December 27, 2005, to the Revolving Credit Agreement, dated
as of September 23, 2004, as amended, among Interstate Bakeries Corporation (Parent
Borrower), a Delaware corporation, a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, each of the direct and indirect subsidiaries of
the Parent Borrower, each of which is a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a national banking
association (formerly known as JPMorgan Chase Bank) (JPMCB), and each of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party to the Credit Agreement (together with JPMCB, the
Lenders), JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as administrative agent for the Lenders, and JPMorgan Chase Bank,
N.A., a national banking association (formerly known as JPMorgan Chase Bank), as
collateral agent for the Lenders (incorporated herein by reference to the Current Report
on Form 8-K of Interstate Bakeries Corporation filed on December 30, 2005).
 121




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Exhibit No.
    
    Exhibit10.25.6
    
    Sixth Amendment, dated as of March 29, 2006, to the Revolving Credit Agreement, dated as
of September 23, 2004, as amended, among Interstate Bakeries Corporation (Parent
Borrower), a Delaware corporation, a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, each of the direct and indirect subsidiaries of
the Parent Borrower, each of which is a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a national banking
association (formerly known as JPMorgan Chase Bank) (JPMCB), and certain of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party to the Credit Agreement (together with JPMCB, the
Lenders), JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as administrative agent for the Lenders, and JPMorgan Chase Bank,
N.A., a national banking association (formerly known as JPMorgan Chase Bank), as
collateral agent for the Lenders (incorporated herein by reference to the Current Report
on Form 8-K of Interstate Bakeries Corporation filed on March 29, 2006).10.25.7
    
    Seventh Amendment, dated as of June 28, 2006, to the Revolving Credit Agreement, dated
as of September 23, 2004, as amended, among Interstate Bakeries Corporation (Parent
Borrower), a Delaware corporation, a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, each of the direct and indirect subsidiaries of
the Parent Borrower, each of which is a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a national banking
association (formerly known as JPMorgan Chase Bank) (JPMCB), and each of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party to the Credit Agreement (together with JPMCB, the
Lenders), JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as administrative agent for the Lenders, and JPMorgan Chase Bank,
N.A., a national banking association (formerly known as JPMorgan Chase Bank), as
collateral agent for the Lenders (incorporated herein by reference to the Current Report
on Form 8-K of Interstate Bakeries Corporation filed on June 30, 2006).10.25.8
    
    Eighth Amendment, dated as of August 24, 2006, to the Revolving Credit Agreement, dated
as of September 23, 2004, as amended, among Interstate Bakeries Corporation (Parent
Borrower), a Delaware corporation, a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, each of the direct and indirect subsidiaries of
the Parent Borrower, each of which is a debtor and debtor-in-possession in a case pending
under Chapter 11 of the Bankruptcy Code, JPMorgan Chase Bank, N.A., a national banking
association (formerly known as JPMorgan Chase Bank) (JPMCB), and each of the other
commercial banks, finance companies, insurance companies or other financial institutions
or funds from time to time party to the Credit Agreement (together with JPMCB, the
Lenders), JPMorgan Chase Bank, N.A., a national banking association (formerly known as
JPMorgan Chase Bank), as administrative agent for the Lenders, and JPMorgan Chase Bank,
N.A., a national banking association (formerly known as JPMorgan Chase Bank), as
collateral agent for the Lenders (incorporated herein by reference to the Current Report
on Form 8-K of Interstate Bakeries Corporation filed on August 30, 2006).10.26
    
    Offer of Employment dated July 13, 2005 between Interstate Bakeries Corporation and Mr.
Richard C. Seban (incorporated herein by reference to the Current Report on Form 8-K of
Interstate Bakeries Corporation filed on August 5, 2005).#10.27
    
    Interstate Bakeries Corporation Key Employee Retention Plan.*21.1
    
    Subsidiaries of Interstate Bakeries Corporation.*24.1
    
    Power of Attorney (included on signature page).31.1
    
    Certification of Antonio C. Alvarez II pursuant to Rule 13a-14(a)/15d-14(a)*31.2
    
    Certification of Ronald B. Hutchison pursuant to Rule 13a-14(a)/15d-14(a)*
 122




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Exhibit No.
    
    Exhibit32.1
    
    Certification of Antonio C. Alvarez II pursuant to 18 U.S.C. Section 1350*32.2
    
    Certification of Ronald B. Hutchison pursuant to 18 U.S.C. Section 1350*
 
 #
    
    Management contracts or compensatory plans or arrangements required to be identified by Item
15(a).*
    
    Filed herewith 123




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SIGNATURES
  INTERSTATE BAKERIES CORPORATIONDated:
October 6, 2006
    
    By:
    
    /s/ Antonio C. Alvarez IIAntonio C. Alvarez IIChief Executive Officer(Principal Executive Officer)
   Name of Signatory
    
    Capacities In Which Signing
    
    Date/s/
Antonio C. Alvarez II
    
    Chief Executive Officer (Principal Executive Officer)
    
    October 6, 2006Antonio C. Alvarez II/s/ Ronald B. Hutchison
    
    Executive Vice President  Chief Financial
    
    October 6, 2006Ronald B. Hutchison
    
    Officer
(Principal Financial and
Accounting Officer)/s/ Leo Benatar
    
    Non-Executive Chairman of the Board
    
    October 6, 2006Leo Benatar/s/ Michael J. Anderson
    
    Director
    
    October 6, 2006Michael J. Anderson/s/ G. Kenneth Baum
    
    Director
    
    October 6, 2006G. Kenneth Baum/s/ Robert B. Calhoun
    
    Director
    
    October 6, 2006Robert B. Calhoun
 124




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##### Table of Contents



Name of Signatory
    
    Capacities In Which Signing
    
    Date/s/ Frank E. Horton
    
    Director
    
    October 6, 2006Frank E. Horton/s/ Richard L. Metrick
    
    Director
    
    October 6, 2006Richard L. Metrick/s/ Ronald L. Thompson
    
    Director
    
    October 6, 2006Ronald L. Thompson
 125




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INTERSTATE BAKERIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FIFTY-TWO WEEKS ENDED MAY 29, 2004, MAY 31, 2003 AND JUNE 1, 2002  (in thousands)
 Balance at
    
    
    
    
    
    
    Accounts
    
    
    Balancebeginning
    
    
    Adjustments
    
    
    charged
    
    
    at end ofDescription
    
    of period
    
    
    to expense
    
    
    off
    
    
    period2004:Reserve for discounts and allowances on accounts receivable
    
    $
    4,486
    
    
    $
    (647
    )
    
    $
    3⁄4
    
    
    $
    3,839Allowance for doubtful accounts
    
    
    4,000
    
    
    
    1,427
    
    
    
    (1,727
    )
    
    
    3,700$
    8,486
    
    
    $
    780
    
    
    $
    (1,727
    )
    
    $
    7,5392003:Reserve for discounts and allowances on accounts receivable
    
    $
    4,468
    
    
    $
    18
    
    
    $
    
    
    
    $
    4,486Allowance for doubtful accounts
    
    
    4,200
    
    
    
    3,226
    
    
    
    (3,426
    )
    
    
    4,000$
    8,668
    
    
    $
    3,244
    
    
    $
    (3,426
    )
    
    $
    8,4862002:Reserve for discounts and allowances on accounts receivable
    
    $
    3,517
    
    
    $
    951
    
    
    $
    
    
    
    $
    4,468Allowance for doubtful accounts
    
    
    4,069
    
    
    
    5,104
    
    
    
    (4,973
    )
    
    
    4,200$
    7,586
    
    
    $
    6,055
    
    
    $
    (4,973
    )
    
    $
    8,668
 126