##### 



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 June 3, 2006
 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
(State or other jurisdiction 
of incorporation or organization)
    
    43-1470322
(I.R.S. Employer
Identification No.)12 East Armour Boulevard, 
Kansas City, Missouri
(Address of principal executive offices)
    
    64111
(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
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE: None
   1




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EXPLANATORY NOTE
  2




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INDEX
 Page NumberFORWARD-LOOKING STATEMENTS
    
    
    4PART I
    
    
    8ITEM 1. BUSINESS
    
    
    8ITEM 1A. RISK FACTORS
    
    
    16ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    26ITEM 2. PROPERTIES
    
    
    27ITEM 3. LEGAL PROCEEDINGS
    
    
    27ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31PART II
    
    
    31ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
    
    
    31ITEM 6. SELECTED FINANCIAL DATA
    
    
    34ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    35ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    54ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    106ITEM 9A. CONTROLS AND PROCEDURES
    
    
    106ITEM 9B. OTHER INFORMATION
    
    
    113PART III
    
    
    114ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    114ITEM 11. EXECUTIVE COMPENSATION
    
    
    117ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    123ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    125ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    126PART IV
    
    
    128ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
    
    
    128Subsidiaries
of Interstate Bakeries CorporationCertification of Antonio C. Alvarez II pursuant to Rule 13a-14(a)/15d-14(a)Certification of Ronald B. Hutchison pursuant to Rule 13a-14(a)/15d-14(a)Certification of Antonio C. Alvarez II pursuant to 18 U.S.C. Section 1350Certification of
Ronald B. Hutchison pursuant to 18 U.S.C. Section 1350
  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 obtain any necessary relief from the minimum
EBITDA covenant under our DIP Facility,
as described herein;
    
    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 inflationary cost increases in materials, ingredients, energy, and employee
wages and benefits;
    
    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;
    
    risks associated with a stockholder action to compel an annual meeting for the purpose of effecting
a change in
 4




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control of the Company;
    
    increased costs and uncertainties with respect to the American Bakers Association Retirement Plan,
or ABA Plan;
    
    the Securities and Exchange Commissions, or SECs, acceptance of the recommendation from the staff
of the SECs Division of Enforcement to accept the proposed settlement of the previously announced
investigation relating to the establishment of our workers compensation and other reserves;
    
    the delayed filing with the SEC of our fiscal 2006 Form 10-K and of our fiscal 2006 and 2007 Forms
10-Q;
    
    successful resolution of material weaknesses in our internal controls;
    
    resolution of any deficiencies and implementation of software updates
with respect to our financial reporting systems;
    
    changes to dietary guidelines;
    
    the continuing effects of changes in consumers eating habits;
    
    the performance of our recent new product introductions, including the
success of such new products in achieving and retaining market share;
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;
    
    our ability to maintain adequate liquidity and working capital under our DIP Facility, as well as
our ongoing ability to purchase from vendors on satisfactory terms throughout the reorganization.
    
    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;
 5




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
    
    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;
    
    the effectiveness and adequacy of our information and data systems;
    
    changes in general economic and business conditions (including in the bread and sweet goods markets);
    
    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;
    
    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 ABA 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, including the success of such new products in
achieving and retaining market share;
    
    the effectiveness of hedging activities;
    
    expenditures necessary to carry out cost-saving initiatives and savings derived from these initiatives;
 6




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
    
    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 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.
   7




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PART I
 
 ITEM 1. BUSINESS
 General
    Proceedings Under Chapter 11 of the Bankruptcy Code
   8




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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.
      9




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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.
  
 Company History
   10




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Financial Information about Segments
  Wholesale Operations
 Retail Operations
   11




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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*Pillsbury*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  TM TM
 12




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Marketing and Distribution
     Sources and Availability of Raw Materials
   13




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Employees
  Competition
  Governmental Regulation; Environmental Matters
   14




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Availability of Reports; Website Access
  15




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##### 



ITEM 1A. RISK FACTORS
  We face significant challenges and uncertainties in connection with our bankruptcy
reorganization.
    We face uncertainty regarding the adequacy of our capital resources, including liquidity, and
have limited access to additional financing.
    16




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We face uncertainty due to an action commenced by a stockholder seeking to compel us to hold an
annual meeting of stockholders.
    17




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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.
  18




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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.
    19




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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 June 3, 2006 and
weaknesses in our internal controls and procedures could adversely affect our financial condition.
   20




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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.
  21




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An investigation by the SEC regarding the restatement of our fiscal 2004 financial statements
and related potential litigation could adversely impact our business.
   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.
   22




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##### 



Price increases could reduce demand for our products.
  Competition could adversely impact our results of operations.
   We may be obligated to make additional contributions, or incur withdrawal liability, to
multi-employer pension plans.
    23




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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.
  24




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Economic downturns could cause consumers to shift their food purchases from our branded
products to lower priced items.
  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.
   25




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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.
  26




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##### 



ITEM 2. PROPERTIES
 Bakeries
  Birmingham, Alabama
    
    Schiller Park, Illinois
    
    Rocky Mount, North CarolinaAnchorage, Alaska
    
    Columbus, Indiana
    
    Akron, OhioGlendale, California
    
    Indianapolis, Indiana
    
    Cincinnati, OhioLos Angeles, California (3)
    
    Waterloo, Iowa
    
    Columbus, OhioOakland, California
    
    Emporia, Kansas
    
    Defiance, OhioPomona, California
    
    Lenexa, Kansas
    
    Northwood, OhioSacramento, California
    
    Alexandria, Louisiana
    
    Tulsa, OklahomaSan Diego, California
    
    Biddeford, Maine
    
    Philadelphia, PennsylvaniaDenver, Colorado
    
    Boonville, Missouri
    
    Knoxville, TennesseeJacksonville, Florida
    
    Springfield, Missouri
    
    Memphis, TennesseeOrlando, Florida
    
    St. Louis, Missouri
    
    Ogden, UtahColumbus, Georgia
    
    Billings, Montana
    
    Salt Lake City, UtahDecatur, Illinois
    
    Henderson, Nevada
    
    Seattle, WashingtonHodgkins, Illinois
    
    Wayne, New JerseyPeoria, Illinois
    
    Jamaica, New York
 Other Properties
  
 ITEM 3. LEGAL PROCEEDINGS
   27




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28




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29




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30




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##### 



Accounting for Contingencies
 
 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
  31




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Stock Price
 Fiscal Year
    
    Quarter
    
    High
    
    Low
    
    Cash Dividends2006
    
    
    1
    
    
    $
    11.85
    
    
    $
    5.95
    
    
    
    2
    
    
    
    11.95
    
    
    
    8.55
    
    
    
    3
    
    
    
    8.40
    
    
    
    6.45
    
    
    
    4
    
    
    
    9.80
    
    
    
    7.14
    
    
    
    2005
    
    
    1
    
    
    $
    11.05
    
    
    $
    7.50
    
    
    
    2
    
    
    
    8.19
    
    
    
    2.05
    
    
    
    3
    
    
    
    6.75
    
    
    
    4.05
    
    
    
    4
    
    
    
    6.63
    
    
    
    4.75
    
    
    
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  32




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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(A)
    
    

    (or Unit)
    
    or Programs
    
    
    Plans or ProgramsPeriod 1
May 29-June 25, 2005
    
    
    7
    
    
    $
    6.30
    
    
    
    7
    
    
    
    7,396,835Period 2
June 26-July 23, 2005
    
    
    17
    
    
    $
    7.83
    
    
    
    17
    
    
    
    7,396,818Period 3
July 24-Aug 20, 2005
    
    
    11
    
    
    $
    11.12
    
    
    
    11
    
    
    
    7,396,807Period 4
Aug 21-Sept 17, 2005
    
    
    24
    
    
    $
    10.64
    
    
    
    24
    
    
    
    7,396,783Period 5
Sept 18-Oct 15, 2005
    
    
    22
    
    
    $
    9.72
    
    
    
    22
    
    
    
    7,396,761Period 6
Oct 16-Nov 12, 2005
    
    
    5
    
    
    $
    9.00
    
    
    
    5
    
    
    
    7,396,756Period 7
Nov 13-Dec 10, 2005
    
    
    9
    
    
    $
    8.15
    
    
    
    9
    
    
    
    7,396,747Period 8
Dec 11, 2005-Jan 7, 2006
    
    
    13
    
    
    $
    7.44
    
    
    
    13
    
    
    
    7,396,734Period 9
Jan 8-Feb 4, 2006
    
    
    5
    
    
    $
    7.00
    
    
    
    5
    
    
    
    7,396,729Period 10
Feb 5-March 4, 2006
    
    
    12
    
    
    $
    7.12
    
    
    
    12
    
    
    
    7,396,717Period 11
March 5-April 1, 2006
    
    
    9
    
    
    $
    7.70
    
    
    
    9
    
    
    
    7,396,708Period 12
April 2-April 29, 2006
    
    
    4
    
    
    $
    8.15
    
    
    
    4
    
    
    
    7,396,704Period 13
April 30-June 3, 2006
    
    
    16
    
    
    $
    8.72
    
    
    
    16
    
    
    
    7,396,688Total
    
    
    154
    
    
    $
    8.72
    
    
    
    154
    
    
    
    7,396,688
 
 A)
    
    Repurchases resulted from the repurchase of fractional shares upon
issuance of certificates representing stock held in the Employee
Stock Purchase Plan. This plan was terminated in conjunction with
the Bankruptcy filing in September 2004. 33




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ITEM 6. SELECTED FINANCIAL DATA
 INTERSTATE BAKERIES CORPORATION
FIVE-YEAR SUMMARY OF FINANCIAL DATA
 Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,
    
    
    May 31,
    
    
    June 1,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(1)
    
    
    (4) (5)
    
    
    (6)
    
    
    (7)
    
    
    (8)(dollars and shares in thousands, except per share data)Statements of OperationsNet sales
    
    $
    3,060,473
    
    
    $
    3,403,505
    
    
    $
    3,467,562
    
    
    $
    3,525,780
    
    
    $
    3,531,623Cost of products sold (exclusive of
depreciation and amortization) (3)
    
    
    1,552,731
    
    
    
    1,724,054
    
    
    
    1,733,303
    
    
    
    1,739,746
    
    
    
    1,676,963Operating income (loss)
    
    
    (56,368
    )
    
    
    (335,536
    )
    
    
    (18,326
    )
    
    
    70,276
    
    
    
    143,838% of net sales
    
    
    (1.8
    )%
    
    
    (9.8
    )%
    
    
    (0.5
    )%
    
    
    2.0
    %
    
    
    4.0
    %Income (loss) before cumulative effect of
accounting change
    
    $
    (127,300
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100Cumulative effect of accounting change (2)
    
    
    (1,017
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (128,317
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )
    
    $
    18,727
    
    
    $
    67,100% of net sales
    
    
    (4.2
    )%
    
    
    (11.1
    )%
    
    
    (1.0
    )%
    
    
    0.5
    %
    
    
    1.9
    %Earnings (loss) per share before cumulative
effect of accounting change:Basic
    
    $
    (2.82
    )
    
    $
    (8.43
    )
    
    $
    (0.74
    )
    
    $
    0.42
    
    
    $
    1.34Diluted
    
    
    (2.82
    )
    
    
    (8.43
    )
    
    
    (0.74
    )
    
    
    0.41
    
    
    
    1.31Common stock dividends per share
    
    
    
    
    
    
    
    
    
    
    0.21
    
    
    
    0.28
    
    
    
    0.28Weighted average common shares outstanding:Basic
    
    
    45,124
    
    
    
    45,010
    
    
    
    44,868
    
    
    
    44,599
    
    
    
    50,091Diluted
    
    
    45,124
    
    
    
    45,010
    
    
    
    44,868
    
    
    
    45,185
    
    
    
    51,299Balance SheetsTotal assets
    
    $
    1,253,055
    
    
    $
    1,398,650
    
    
    $
    1,673,797
    
    
    $
    1,697,349
    
    
    $
    1,654,716Long-term debt, excluding current maturities (9)
    
    
    
    
    
    
    
    
    
    
    10,362
    
    
    
    536,788
    
    
    
    588,610Stockholders equity (deficit)
    
    
    (240,583
    )
    
    
    (116,924
    )
    
    
    261,708
    
    
    
    290,430
    
    
    
    274,343
 
 (1)
    
    Fiscal 2006 operating loss includes net restructuring credits of
approximately $27.2 million, or $0.60 per diluted share, relating to
gains realized on the sale of the restructuring related assets
partially offset by costs related to certain closings and
restructurings of bakeries, depots and bakery outlets; and a machinery
and equipment impairment of approximately $4.8 million, or $0.11 per
diluted share.(2)
    
    In Fiscal 2006, as a result of adopting FIN 47, we recorded a
cumulative effect of an accounting change of approximately $1.0
million, $0.02 per share, and a liability of the same amount as the
related asset values were fully depreciated as of June 3, 2006.(3)
    
    Depreciation and amortization excluded from cost of products sold
amounted to approximately $59.7 million, $70.2 million, $71.6 million,
$72.7 million, and $72.8 million in fiscal 2006, 2005, 2004, 2003, and
2002, respectively.(4)
    
    Fiscal 2005 operating loss includes goodwill and other intangible
asset impairments of approximately $229.5 million, or $5.10 per
diluted share; restructuring charges of approximately $54.3 million,
or $1.21 per diluted share, relating to the closures of five bakeries,
a general workforce reduction and other cost reductions; settlement of
class action litigation of approximately $8.7 million, or $0.19 per
diluted share; and a curtailment loss from the suspension of our
Supplemental Employee Retirement Plan of $12.4 million or $0.28 per
diluted share.(5)
    
    Fiscal 2005 net loss includes a tax valuation allowance adjustment of
$5.6 million, or $0.13 per diluted share, related to deferred tax
assets originating in prior years.(6)
    
    Fiscal 2004 operating loss 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 34




---



##### 



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.(7)
    
    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.(8)
    
    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.(9)
    
    In fiscal 2006, 2005, and 2004, we have reflected the total amount due
under our senior secured credit facility agreement as amounts payable
within one year due to our default under this facility. See Note 1.
Voluntary Chapter 11 Filing to our consolidated financial statements
regarding going concern considerations. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 COMPANY OVERVIEW
        35




---



##### 



RECENT DEVELOPMENTS
   Profit Center Review
    36




---



##### 



Labor Union Negotiations
  Stockholder Action
   37




---



##### 



OVERVIEW OF CERTAIN TRENDS AND EVENTS AFFECTING OPERATIONS, FINANCIAL POSITION AND LIQUIDITY
     38




---



##### 



39




---



##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    Reserves for self-insurance and postretirement benefits.
  40




---



##### 



Pension obligations.
  Long-lived assets.
      Restructuring (credits) charges.
  41




---



##### 



Income taxes.
 Legal reserves.
 Environmental liabilities.
 Liabilities subject to compromise.
 Reorganization charges.
 NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets  An Amendment of APB
Opinion No. 29(SFAS 153). SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153 is effective for the first fiscal
period beginning after June 15, 2005, and was effective for us in the second quarter of fiscal
2006. The implementation of SFAS 153 did not have a significant impact on our consolidated
results of operations, cash flows, and financial position.
 Accounting for Rental Costs
Incurred during a Construction Period
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143 Accounting for Asset Retirement Obligations
 42




---



##### 



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans
 Fair Value Measurements
 43




---



##### 



Quantifying Financial Misstatements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109
 How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation)
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Share-Based Payment Accounting for Stock Issued to Employees
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 44




---



##### 



RESULTS OF OPERATIONS
  Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold (exclusive of items shown below)
    
    
    50.7
    
    
    
    50.7
    
    
    
    50.0Selling, delivery and administrative expenses
    
    
    49.1
    
    
    
    47.9
    
    
    
    47.4Restructuring (credits) charges
    
    
    (0.9
    )
    
    
    1.6
    
    
    
    0.3Depreciation and amortization
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.6Loss on sale or abandonment of assets
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2Property and equipment impairment
    
    
    0.2
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    6.3
    
    
    
    Other intangible assets impairment
    
    
    
    
    
    
    0.4
    
    
    
    Operating loss
    
    
    (1.8
    )
    
    
    (9.8
    )
    
    
    (0.5
    )Interest expense
    
    
    1.7
    
    
    
    1.2
    
    
    
    1.1Reorganization charges
    
    
    1.2
    
    
    
    1.2
    
    
    
    Other income
    
    
    
    
    
    
    
    
    
    
    Loss before income taxes and cumulative effect of accounting change
    
    
    (4.7
    )
    
    
    (12.2
    )
    
    
    (1.6
    )Provision (benefit) for income taxes
    
    
    (0.5
    )
    
    
    (1.1
    )
    
    
    (0.6
    )Loss before cumulative effect of accounting change
    
    
    (4.2
    )
    
    
    (11.1
    )
    
    
    (1.0
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (4.2
    )%
    
    
    (11.1
    )%
    
    
    (1.0
    )%
 Fiscal 2006 Compared to Fiscal 2005
 Net Sales
 (dollars in thousands)Fifty-Three Weeks Ended
    
    
    Fifty-Two Weeks EndedJune 3, 2006
    
    
    May 28, 2005Increase/Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    (Decrease)Wholesale operations
    
    $
    2,701,751
    
    
    
    88.3
    %
    
    $
    2,995,481
    
    
    
    88.0
    %
    
    
    (9.8
    )%Retail operations
    
    
    358,722
    
    
    
    11.7
    
    
    
    408,024
    
    
    
    12.0
    
    
    
    (12.1
    )Total net sales
    
    $
    3,060,473
    
    
    
    100.0
    %
    
    $
    3,403,505
    
    
    
    100.0
    %
    
    
    (10.1
    )
 Consolidated net sales.
 45




---



##### 



Wholesale operations net sales.
 Retail operations net sales.
 Gross profit (exclusive of depreciation and amortization).
 Selling, delivery and administrative expenses.
 Restructuring charges.
 Property and equipment impairment.
 Goodwill and other intangible assets impairment.
 46




---



##### 



Operating Loss
 (dollars in thousands)Fifty-Three Weeks Ended
    
    
    Fifty-Two Weeks EndedJune 3, 2006
    
    
    May 28, 2005Increase/Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    (Decrease)Wholesale operations
    
    $
    (7,353
    )
    
    
    13.0
    %
    
    $
    43,874
    
    
    
    (13.1
    )%
    
    
    (116.8
    )%Retail operations
    
    
    10,682
    
    
    
    (18.9
    )
    
    
    7,264
    
    
    
    (2.1
    )
    
    
    47.13,329
    
    
    
    (5.9
    )
    
    
    51,138
    
    
    
    (15.2
    )
    
    
    (93.5
    )Corporate
    
    
    (59,697
    )
    
    
    105.9
    
    
    
    (386,674
    )
    
    
    115.2
    
    
    
    84.6Total operating loss
    
    $
    (56,368
    )
    
    
    100.0
    %
    
    $
    (335,536
    )
    
    
    100.0
    %
    
    
    83.2
 Consolidated operating loss.
 Wholesale operating loss .
 Retail operating income.
 Reorganization charges.
 Interest expense.
 Provision (benefit) for income taxes.
 47




---



##### 



Fiscal 2005 Compared to Fiscal 2004
 Net sales.
 Gross profit (exclusive of depreciation and amortization).
 Selling, delivery and administrative expenses.
 Restructuring and other charges.
  Goodwill and other intangible assets impairment.
 Operating loss.
 48




---



##### 



Reorganization charges.
 Interest expense.
 Provision for income taxes.
 CASH RESOURCES AND LIQUIDITY
 CASH FLOWS
  Cash
from (used in) operating activities.
 Cash used in investing activities.
 Cash
from (used in) financing activities.
 49




---



##### 



SOURCES OF LIQUIDITY AND CAPITAL
     Voluntary Chapter 11 Bankruptcy Filing.
    50




---



##### 



51




---



##### 



Contractual Obligations.
 Payments Due By Fiscal Year Under Certain Contractual Obligations (a) (g)(dollars in thousands)Senior Secured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnconditionalFiscal Years
    
    
    
    
    
    DIP
    
    
    Credit Facility
    
    
    Subordinated
    
    
    Capital
    
    
    Operating
    
    
    PurchaseEnding
    
    Total
    
    
    Facility (b)
    
    
    (c)
    
    
    Notes (d)
    
    
    Leases
    
    
    Leases (e)
    
    
    Obligations (f)2007
    
    $
    744,499
    
    
    $
    
    
    
    $
    489,817
    
    
    $
    100,000
    
    
    $
    5,065
    
    
    $
    28,914
    
    
    $
    120,7032008
    
    
    33,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,122
    
    
    
    18,0172009
    
    
    21,808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,918
    
    
    
    13,8902010
    
    
    8,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,820
    
    
    
    5,0252011
    
    
    6,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,569
    
    
    
    3,873Thereafter
    
    
    5,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,176
    
    
    
    7Total
    
    $
    819,916
    
    
    $
    
    
    
    $
    489,817
    
    
    $
    100,000
    
    
    $
    5,065
    
    
    $
    63,519
    
    
    $
    161,515
 
 (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)
    
    On September 23, 2004, we entered into a debtor-in-possession
Revolving Credit Agreement (the DIP Facility) which provides for a
$200.0 million commitment (the Commitment) of financing to fund our
post-petition operating expenses, supplier and employee obligations.
The DIP Facility, as amended from time to time, provides for a secured
revolving line of credit through June 2, 2007. The Commitment also may
be used, with certain restrictions, for the issuance of letters of
credit in the aggregate amount of $125.0 million, increased to $150.0
million by amendment in August 2006, of which $91.3 million was
utilized at June 3, 2006. As of June 3, 2006, there were no
borrowings outstanding under the revolving credit facility and we had
$90.1 million available under the DIP Facility (of which up to $33.7
million could be used for additional letters of credit).(c)
    
    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 had a total capacity of $207.7 million of which $122.3
million was utilized to support the issuance of letters of credit and
$85.3 million was borrowed. At June 3, 2006, there was no availability
under the revolving credit line for additional borrowings or letters
of credit. At June 3, 2006, we also had an aggregate $404.5 million
borrowed under the Tranche A, B, and C term loans provided under the
variable rate senior secured credit facility. We have presented this
facility in our June 3, 2006 financial statements as amounts payable
within one year due to our default under this facility.(d)
    
    On August 12, 2004, we issued $100.0 million aggregate principal
amount of our 6.0% Senior Subordinated Convertible Notes due August
15, 2014 in a private placement. The notes are convertible at the
option of the holder under certain circumstances into shares of our
common stock at an initial conversion rate of 98.9854 shares per
$1,000 principal amount of notes (an initial conversion price of
$10.1025 per share), subject to adjustment. As these notes are
unsecured, they are included in liabilities subject to compromise and
the accrual of interest has been suspended. See Note 7. Debt and Note
10. Liabilities Subject to Compromise to the accompanying consolidated
financial statements.(e)
    
    At June 3, 2006, we had in place various operating leases for
equipment on which at the end of the lease term we had guaranteed a
buyout price, or residual value. FIN No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others, on its effective date required
us to disclose the undiscounted maximum potential liability of all
guaranteed lease residual values and to record a liability for the
fair value of such guarantees. The effective date of this
pronouncement was for all leases entered into or modified after
December 31, 2002. At June 3, 2006, the maximum potential liability
for all lease residual values guaranteed prior and subsequent to the
effective date was $3.8 million and $3.6 million, respectively. At
June 3, 2006, we had an unamortized liability for the fair value of
all guaranteed lease residual values that were entered into or
modified subsequent to the effective date of $0.2 million. 52




---



##### 



(f)
    
    The unconditional purchase obligations represent obligations as of
June 3, 2006. This includes items such as ingredients, packaging,
third party agreements to perform certain functions and other
obligations.(g)
    
    We have not included estimated interest payments as a component of
this contractual obligations table since interest on the senior
secured credit facility is dependent upon the timing of emergence from
bankruptcy, as well as the ultimate treatment of this type of
obligation under any reorganization plan. See Note (d) above for a
discussion of interest obligations related to the 6.0% senior
subordinated convertible notes. OFF-BALANCE SHEET FINANCING
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity prices.
 53




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 INDEX TO FINANCIAL STATEMENTS
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    55Consolidated Balance Sheets at June 3, 2006 and May 28, 2005
    
    
    57Consolidated Statements of Operations for the 53 weeks ended June 3, 2006 and 52 weeks ended May 28, 2005 and May 29, 2004
    
    
    58Consolidated Statements of Cash Flows for the 53 weeks ended June 3, 2006 and 52 weeks ended May 28, 2005 and May 29, 2004
    
    
    59Consolidated Statements of Stockholders Equity (Deficit) for the 53 weeks ended June 3, 2006 and 52 weeks ended May 28, 2005 and May 29, 2004
    
    
    61Notes to Consolidated Financial Statements
    
    
    621. Voluntary Chapter 11 Filing
    
    
    622. Description of Business and Significant Accounting Policies
    
    
    643. Property and Equipment
    
    
    714. Assets Held for Sale
    
    
    725. Lease Obligations
    
    
    726. Goodwill and Other Intangible Assets
    
    
    737. Debt
    
    
    758. Accrued Expenses and Other Liabilities
    
    
    779. Derivative Instruments
    
    
    7710. Liabilities Subject to Compromise
    
    
    7811. Employee Benefit Plans
    
    
    7912. Supplemental Executive Retirement Plan
    
    
    8613. Key Employee Retention Plan
    
    
    8714. Stock-Based Compensation
    
    
    8715. Restructuring (Credits) Charges
    
    
    8916. Reorganization Charges
    
    
    9317. Income Taxes
    
    
    9418. Commitments and Contingencies
    
    
    9519. Stock Repurchases
    
    
    10120. Stockholder Rights Plan
    
    
    10121. Earnings (Loss) per Share
    
    
    10122. Comprehensive Loss
    
    
    10223. Segment Information
    
    
    10324. Subsequent Events
    
    
    10425. Quarterly Financial Information (Unaudited)
    
    
    104
 54




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     55




---



##### 



Accounting for Conditional Asset Retirement Obligations  an
interpretation of FASB Statement No. 143,
   
 56




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED BALANCE SHEETS  (dollars in thousands, except share data)
 June 3,
    
    
    May 28,2006
    
    
    2005ASSETSCurrent assetsCash
    
    $
    78,178
    
    
    $
    151,558Restricted cash
    
    
    86,353
    
    
    
    Accounts receivable, less allowance for doubtful accounts of $3,400 and $3,492, respectively
    
    
    150,507
    
    
    
    176,781Inventories
    
    
    65,431
    
    
    
    69,431Assets held for sale
    
    
    11,931
    
    
    
    10,582Other current assets
    
    
    67,637
    
    
    
    83,850Total current assets
    
    
    460,037
    
    
    
    492,202Property and equipment, net
    
    
    601,101
    
    
    
    705,373Other intangible assets
    
    
    161,128
    
    
    
    162,043Other assets
    
    
    30,789
    
    
    
    39,032Total assets
    
    $
    1,253,055
    
    
    $
    1,398,650LIABILITIES AND STOCKHOLDERS DEFICITLiabilities not subject to compromiseCurrent liabilitiesLong-term debt
    
    $
    494,882
    
    
    $
    482,199Accounts payable
    
    
    117,044
    
    
    
    101,141Accrued expenses
    
    
    244,166
    
    
    
    260,442Total current liabilities
    
    
    856,092
    
    
    
    843,782Other liabilities
    
    
    272,647
    
    
    
    299,391Deferred income taxes
    
    
    77,819
    
    
    
    90,172Total liabilities not subject to compromise
    
    
    1,206,558
    
    
    
    1,233,345Liabilities subject to compromise
    
    
    287,080
    
    
    
    282,229Stockholders deficitPreferred stock, $0.01 par value, 1,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 120,000,000 shares authorized, 81,579,000 shares issued,
45,295,000 and 45,337,000 shares outstanding, respectively
    
    
    816
    
    
    
    816Additional paid-in capital
    
    
    585,631
    
    
    
    586,089Accumulated deficit
    
    
    (142,711
    )
    
    
    (14,394
    )Treasury stock, 36,284,000 and 36,242,000 shares at cost, respectively
    
    
    (678,572
    )
    
    
    (678,379
    )Unearned restricted stock compensation
    
    
    (1,869
    )
    
    
    (3,521
    )Accumulated other comprehensive loss
    
    
    (3,878
    )
    
    
    (7,535
    )Total stockholders deficit
    
    
    (240,583
    )
    
    
    (116,924
    )Total liabilities and stockholders deficit
    
    $
    1,253,055
    
    
    $
    1,398,650
  57




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  (dollars in thousands, except per share data)
 Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    3,060,473
    
    
    $
    3,403,505
    
    
    $
    3,467,562Cost of products sold (exclusive of items shown below)
    
    
    1,552,731
    
    
    
    1,724,054
    
    
    
    1,733,303Selling, delivery and administrative expenses
    
    
    1,504,038
    
    
    
    1,630,921
    
    
    
    1,643,757Restructuring (credits) charges
    
    
    (27,187
    )
    
    
    54,293
    
    
    
    12,066Depreciation and amortization
    
    
    77,795
    
    
    
    89,486
    
    
    
    91,024Loss on sale or abandonment of assets
    
    
    4,671
    
    
    
    10,744
    
    
    
    5,738Property and equipment impairment
    
    
    4,793
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    215,346
    
    
    
    Other intangible assets impairment
    
    
    
    
    
    
    14,197
    
    
    
    3,116,841
    
    
    
    3,739,041
    
    
    
    3,485,888Operating loss
    
    
    (56,368
    )
    
    
    (335,536
    )
    
    
    (18,326
    )Other (income) expenseInterest expense (excluding unrecorded contractual interest expense
of $6,033, $4,150, and $0, respectively)
    
    
    52,504
    
    
    
    41,430
    
    
    
    37,543Reorganization charges, net
    
    
    37,015
    
    
    
    39,206
    
    
    
    Other income
    
    
    (2,994
    )
    
    
    (353
    )
    
    
    (331
    )86,525
    
    
    
    80,283
    
    
    
    37,212Loss before income taxes and cumulative effect of accounting change
    
    
    (142,893
    )
    
    
    (415,819
    )
    
    
    (55,538
    )Provision (benefit) for income taxes
    
    
    (15,593
    )
    
    
    (36,539
    )
    
    
    (22,168
    )Loss before cumulative effect of accounting change (See Note 2)
    
    
    (127,300
    )
    
    
    (379,280
    )
    
    
    (33,370
    )Cumulative effect of accounting change, net of income taxes of $0
    
    
    (1,017
    )
    
    
    
    
    
    
    Net loss
    
    $
    (128,317
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )Basic and diluted loss per shareLoss before cumulative effect of accounting change
    
    $
    (2.82
    )
    
    $
    (8.43
    )
    
    $
    (0.74
    )Cumulative effect of accounting change
    
    
    (0.02
    )
    
    
    
    
    
    
    Total
    
    $
    (2.84
    )
    
    $
    (8.43
    )
    
    $
    (0.74
    )
  58




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (dollars in thousands)
 Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004Operating activitiesNet loss
    
    $
    (128,317
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )Depreciation and amortization
    
    
    77,795
    
    
    
    89,486
    
    
    
    91,024Provision (benefit) for deferred income taxes
    
    
    (1,681
    )
    
    
    7,750
    
    
    
    (5,336
    )Reorganization charges, net
    
    
    37,015
    
    
    
    39,206
    
    
    
    Cash reorganization items
    
    
    (35,384
    )
    
    
    (26,473
    )
    
    
    Non-cash bankruptcy-related credits
    
    
    (713
    )
    
    
    
    
    
    
    Non-cash interest expense  deferred debt fees
    
    
    6,724
    
    
    
    5,616
    
    
    
    2,461Non-cash interest on swap agreements
    
    
    
    
    
    
    (655
    )
    
    
    (3,217
    )Non-cash restricted stock and deferred share compensation expense
    
    
    944
    
    
    
    1,762
    
    
    
    2,146Non-cash cumulative effect of accounting change
    
    
    1,017
    
    
    
    
    
    
    
    (Gain) loss on sale, write-down or abandonment of assets
    
    
    (30,473
    )
    
    
    34,302
    
    
    
    7,146Write-off of goodwill and other intangibles
    
    
    
    
    
    
    242,410
    
    
    
    Write-down of software assets
    
    
    
    
    
    
    4,424
    
    
    
    Write-off prior service cost asset
    
    
    
    
    
    
    12,384
    
    
    
    Income tax benefit on employee stock transactions
    
    
    
    
    
    
    
    
    
    
    4Change in operating assets and liabilitiesAccounts receivable
    
    
    26,274
    
    
    
    5,279
    
    
    
    678Inventories
    
    
    4,000
    
    
    
    2,470
    
    
    
    2,780Other current assets
    
    
    5,541
    
    
    
    (6,586
    )
    
    
    (15,354
    )Accounts payable and accrued expenses
    
    
    (22,313
    )
    
    
    51,490
    
    
    
    25,817Long-term portion of self insurance reserves
    
    
    15,591
    
    
    
    19,439
    
    
    
    33,870Other
    
    
    (13,743
    )
    
    
    13,332
    
    
    
    3,650Net cash from (used in) operating activities
    
    
    (57,723
    )
    
    
    116,356
    
    
    
    112,299Investing activitiesPurchases of property and equipment
    
    
    (32,328
    )
    
    
    (29,175
    )
    
    
    (55,266
    )Proceeds from sale of assets
    
    
    90,367
    
    
    
    4,156
    
    
    
    4,701Restricted cash deposit
    
    
    (85,458
    )
    
    
    
    
    
    
    Acquisition of other intangible assets
    
    
    
    
    
    
    
    
    
    
    (198
    )Acquisition and development of software assets
    
    
    
    
    
    
    (6,206
    )
    
    
    (14,758
    )Other
    
    
    56
    
    
    
    513
    
    
    
    (245
    )Net cash used in investing activities
    
    
    (27,363
    )
    
    
    (30,712
    )
    
    
    (65,766
    )Financing activitiesReduction of long-term debt
    
    
    (1,067
    )
    
    
    (75,647
    )
    
    
    (41,145
    )Increase in revolving credit facility
    
    
    13,415
    
    
    
    11,902
    
    
    
    Issuance of convertible bonds
    
    
    
    
    
    
    100,000
    
    
    
    Common stock dividends paid
    
    
    
    
    
    
    
    
    
    
    (9,479
    )Stock option exercise proceeds
    
    
    101
    
    
    
    
    
    
    
    776Acquisition of treasury stock
    
    
    (1
    )
    
    
    (192
    )
    
    
    (53
    )Cash reorganization items
    
    
    
    
    
    
    (398
    )
    
    
    Debt fees
    
    
    (742
    )
    
    
    (9,479
    )
    
    
    (1,865
    )Net cash from (used in) financing activities
    
    
    11,706
    
    
    
    26,186
    
    
    
    (51,766
    )Net increase (decrease) in cash
    
    
    (73,380
    )
    
    
    111,830
    
    
    
    (5,233
    )Cash at the beginning of period
    
    
    151,558
    
    
    
    39,728
    
    
    
    44,961Cash at the end of period
    
    $
    78,178
    
    
    $
    151,558
    
    
    $
    39,728Cash payments (received)Interest
    
    $
    47,260
    
    
    $
    41,587
    
    
    $
    39,453Income taxes
    
    
    (15,705
    )
    
    
    (41,506
    )
    
    
    (2,339
    )
 59




---



##### 



Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004Non-cash investing and financing activitiesIssuance of restricted stock
    
    $
    
    
    
    $
    221
    
    
    $
    7,840Accrued deferred share award liability settled through equity issuance
    
    
    
    
    
    
    1,371
    
    
    
    Equipment purchases financed with capital lease obligations
    
    
    
    
    
    
    409
    
    
    
    Long-term debt reduction from lease rejections
    
    
    890
    
    
    
    1,560
    
    
    
    Asset disposals from lease rejections
    
    
    705
    
    
    
    1,189
    
    
    
    Interest
income earned on restricted cash deposit
    
    
    895
    
    
    
    
    
    
    
    
  60




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)  (dollars and shares in thousands, except per share data)
 Treasury StockCommon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Held in RabbiStock Issued
    
    
    
    
    
    Retained
    
    
    Treasury Stock
    
    
    Trust
    
    
    Unearned
    
    
    Accumulated
    
    
    TotalAdditional

    
    
    Earnings

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted

    
    
    Other
    
    
    StockholdersNumber
    
    
    Par
    
    
    Paid-in

    
    
    (Accumulated

    
    
    Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    Stock

    
    
    Comprehensive

    
    
    Equityof Shares
    
    
    Value
    
    
    Capital

    
    
    Deficit)

    
    
    Shares
    
    
    Cost
    
    
    Shares
    
    
    Cost
    
    
    Compensation

    
    
    Loss

    
    
    (Deficit)Balance May 31, 2003
    
    
    81,579
    
    
    $
    816
    
    
    $
    588,950
    
    
    $
    407,735
    
    
    
    (36,298
    )
    
    $
    (680,913
    )
    
    
    (477
    )
    
    $
    (8,946
    )
    
    $
    
    
    
    $
    (17,212
    )
    
    $
    290,430Comprehensive loss (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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
    )
    
    
    261,708Comprehensive loss (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (379,280
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,923
    )
    
    
    (382,203
    )Restricted share award
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    
    
    
    
    20
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    (221
    )
    
    
    
    
    
    
    (1
    )Deferred share award
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    51
    
    
    
    965
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,372Restricted share
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,978
    
    
    
    
    
    
    
    2,978Restricted share
forfeitures and other
    
    
    
    
    
    
    
    
    
    
    (779
    )
    
    
    
    
    
    
    (87
    )
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    704
    
    
    
    
    
    
    
    (586
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    (192
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192
    )Balance May 28, 2005
    
    
    81,579
    
    
    
    816
    
    
    
    586,089
    
    
    
    (14,394
    )
    
    
    (36,242
    )
    
    
    (678,379
    )
    
    
    
    
    
    
    
    
    
    
    (3,521
    )
    
    
    (7,535
    )
    
    
    (116,924
    )Comprehensive loss (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (128,317
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,657
    
    
    
    (124,660
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    10
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101Restricted share
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,486
    
    
    
    
    
    
    
    1,486Restricted share forfeitures
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    
    
    
    
    (52
    )
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    (585
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Balance June 3, 2006
    
    
    81,579
    
    
    $
    816
    
    
    $
    585,631
    
    
    $
    (142,711
    )
    
    
    (36,284
    )
    
    $
    (678,572
    )
    
    
    
    
    
    $
    
    
    
    $
    (1,869
    )
    
    $
    (3,878
    )
    
    $
    (240,583
    )
 
 (a)
    
    See Note 22. Comprehensive Loss to these consolidated financial statements for the
reconciliations of net loss to comprehensive loss.  61




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 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.
   62




---



##### 



Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code
 63




---



##### 



2. Description of Business and Significant Accounting Policies
 Description of business
 Fiscal year end
 Principles of consolidation
 Use of estimates
 Cash and cash equivalents
 Inventories
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Ingredients and packaging
    
    $
    44,540
    
    
    $
    47,617Finished goods
    
    
    20,891
    
    
    
    21,814$
    65,431
    
    
    $
    69,431
 Property and equipment
 Assets held for sale 
 Lease obligations  Accounting for Leases
 64




---



##### 



Software costs
  Other intangible assets
   Impairment of long-lived assets
 Environmental liabilities
 Liabilities subject to compromise
 65




---



##### 



Pension obligations
  Reserves for self-insurance and postretirement benefits
 Derivative instruments Accounting for Derivative Instruments and Hedging Activities
 Other comprehensive income (loss)
 Revenue recognition
 Cost of products sold 
 Advertising and promotion costs
 Sales incentives
 66




---



##### 



Consideration given to a customer
 Shipping and handling costs
 Restructuring (credits) charges
  Reorganization charges
 Income taxes
 Stock-based compensation Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure
  2004Expected dividend yield
    
    
    2.0
    %Expected volatility
    
    
    46.4
    %Risk-free interest rate
    
    
    2.4
    %Expected term in years
    
    
    4.0
 67




---



##### 



Fifty-Three
    
    
    Fifty-TwoWeeks
    
    
    WeeksEnded
    
    
    EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands, except per share data)Net loss, as reported
    
    $
    (128,317
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects
    
    
    944
    
    
    
    2,670
    
    
    
    1,341Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (1,375
    )
    
    
    (4,157
    )
    
    
    (6,415
    )Pro forma net loss
    
    $
    (128,748
    )
    
    $
    (380,767
    )
    
    $
    (38,444
    )Basic and diluted loss per shareAs reported
    
    $
    (2.84
    )
    
    $
    (8.43
    )
    
    $
    (0.74
    )Pro forma
    
    
    (2.85
    )
    
    
    (8.46
    )
    
    
    (0.86
    )
  Earnings per share
 Related party transactions
   68




---



##### 



Contingencies Accounting for Contingencies
 Newly Adopted Accounting Pronouncements Exchanges of Nonmonetary Assets  An Amendment of APB
Opinion No. 29
 Accounting for Rental Costs
Incurred during a Construction Period
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143 Accounting for Asset Retirement Obligations
   69




---



##### 



Recently Issued Accounting Pronouncements Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 Fair Value Measurements
 Quantifying Financial Misstatements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109
 70




---



##### 



How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation)
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Share-Based Payment Accounting for Stock Issued to Employees
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 
 3. Property and Equipment
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Land and buildings (lives ranging from 10 to 35 years)
    
    $
    390,573
    
    
    $
    440,164Machinery and equipment (lives ranging from 4 to 15 years)
    
    
    931,408
    
    
    
    1,023,5271,321,981
    
    
    
    1,463,691Less accumulated depreciation
    
    
    (720,880
    )
    
    
    (758,318
    )$
    601,101
    
    
    $
    705,373
 71




---



##### 



4. Assets Held for Sale
   
 5. Lease Obligations
  Fiscal Years Ending
    
    Capital Leases
    
    
    Operating Leases(dollars in thousands)2007
    
    $
    1,446
    
    
    $
    28,9142008
    
    
    1,333
    
    
    
    15,1222009
    
    
    1,081
    
    
    
    7,9182010
    
    
    945
    
    
    
    3,8202011
    
    
    748
    
    
    
    2,569Thereafter
    
    
    1,245
    
    
    
    5,176Total minimum lease payments
    
    
    6,798
    
    
    $
    63,519Amounts representing interest
    
    
    (1,733
    )Present value of minimum lease payments
    
    
    5,065Less: Capital lease obligations, short-term
    
    
    (5,065
    )Capital lease obligations, long-term
    
    $
    
  72




---



##### 



Guarantors Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others
   
 6. Goodwill and Other Intangible Assets
  Goodwill and Other Intangible
Assets
  73




---



##### 



June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)GoodwillGross carrying amount
    
    $
    
    
    
    $
    215,346Impairment charge
    
    
    
    
    
    
    (215,346
    )Net carrying amount
    
    $
    
    
    
    $
    Intangible assets with indefinite lives(generally trademarks and trade names)Gross carrying amount
    
    $
    157,471
    
    
    $
    180,662Impairment charge
    
    
    
    
    
    
    (23,191
    )Net carrying amount
    
    $
    157,471
    
    
    $
    157,471Intangible assets with finite livesGross carrying amount
    
    $
    13,854
    
    
    $
    19,484Less:Accumulated amortization
    
    
    (10,197
    )
    
    
    (11,040
    )Impairment charge
    
    
    
    
    
    
    (3,872
    )Net carrying amount
    
    $
    3,657
    
    
    $
    4,572
  Fifty-Two Weeks EndedMay 28, 2005(dollars in thousands)Intangible assets with indefinite lives impairment
    
    $
    23,191Intangible assets with finite lives impairment
    
    
    3,872Total impairment
    
    
    27,063Restructuring charges (A)
    
    
    (12,866
    )Other intangible assets impairment
    
    $
    14,197
   74




---



##### 



7. Debt
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)SecuredPost-petition credit agreement
    
    $
    
    
    
    $
    Senior secured credit facility  pre-petition
    
    
    489,817
    
    
    
    476,402Unsecured6% senior subordinated convertible notes  pre-petition
    
    
    100,000
    
    
    
    100,000Capital leasesReal estate
    
    
    5,065
    
    
    
    5,797Capital lease converted to pre-petition debt
    
    
    6,125
    
    
    
    5,717601,007
    
    
    
    587,916Less:Current portion
    
    
    (494,882
    )
    
    
    (482,199
    )Pre-filing date claims included in liabilities subject to compromise
    
    
    (106,125
    )
    
    
    (105,717
    )Long-term debt
    
    $
    
    
    
    $
    
 Post-Petition Credit Agreement
    75




---



##### 



Senior Secured Credit Facility
    6% Senior Subordinated Convertible Notes
  76




---



##### 



Other Matters
   Debtors Accounting for a
Modification or Exchange of Debt Instruments.
 
 8. Accrued Expenses and Other Liabilities
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Self-insurance reserves
    
    $
    74,882
    
    
    $
    91,170Payroll, vacation and other compensation
    
    
    66,560
    
    
    
    73,267Current portion of postretirement benefit plan obligations
    
    
    43,245
    
    
    
    19,301Pension and welfare accruals
    
    
    15,869
    
    
    
    21,378Taxes other than income
    
    
    25,509
    
    
    
    30,262
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Accumulated postretirement benefit obligation
    
    $
    87,955
    
    
    $
    94,522Self-insurance reserves
    
    
    131,421
    
    
    
    118,758
 
 9. Derivative Instruments
   77




---



##### 



10. Liabilities Subject to Compromise
   78




---



##### 



June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Accounts payable
    
    $
    129,951
    
    
    $
    129,294Taxes payable
    
    
    7,966
    
    
    
    10,264Retirement obligations (SERP and deferred compensation)
    
    
    14,598
    
    
    
    13,821Legal reserve
    
    
    12,910
    
    
    
    12,931Interest bearing debt and capital leases
    
    
    106,125
    
    
    
    105,717Other
    
    
    15,530
    
    
    
    10,202$
    287,080
    
    
    $
    282,229
   
 11. Employee Benefit Plans
 American Bakers Association Retirement Plan
   79




---



##### 



Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    1,579
    
    
    $
    2,051
    
    
    $
    2,512Interest cost
    
    
    3,208
    
    
    
    3,252
    
    
    
    2,870Expected return on negative plan assets
    
    
    248
    
    
    
    398
    
    
    
    257Recognition ofPrior service cost
    
    
    
    
    
    
    423
    
    
    
    1,358Actuarial (gain) loss
    
    
    (5,555
    )
    
    
    7,708
    
    
    
    (1,061
    )Total periodic pension (credit) cost
    
    
    (520
    )
    
    
    13,832
    
    
    
    5,936Curtailment gain
    
    
    (1,176
    )
    
    
    (2,641
    )
    
    
    Net pension (credit) expense
    
    $
    (1,696
    )
    
    $
    11,191
    
    
    $
    5,936
 80




---



##### 



June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Benefit obligation at beginning of year
    
    $
    59,806
    
    
    $
    51,463Service cost
    
    
    1,579
    
    
    
    2,051Interest cost
    
    
    3,208
    
    
    
    3,252Benefit and expense payments
    
    
    (3,405
    )
    
    
    (3,308
    )Plan amendment
    
    
    
    
    
    
    423Actuarial (gain) loss
    
    
    (4,469
    )
    
    
    8,566Curtailment gain
    
    
    (1,176
    )
    
    
    (2,641
    )Benefit obligation at end of year
    
    
    55,543
    
    
    
    59,806Fair value of plan assets at beginning of year
    
    
    (2,444
    )
    
    
    (4,289
    )Employer contributions
    
    
    2,261
    
    
    
    4,694Benefits and expense payments
    
    
    (3,405
    )
    
    
    (3,308
    )Actual return on plan assets
    
    
    838
    
    
    
    459Fair value of plan assets at end of year
    
    
    (2,750
    )
    
    
    (2,444
    )Net benefit obligation liability at end of year
    
    $
    58,293
    
    
    $
    62,250Weighted average actuarial assumptions (using a measurement date of May 31):Discount rate
    
    
    6.3
    %
    
    
    5.5
    %Expected return on plan assets
    
    
    7.5
    %
    
    
    7.5
    %
     Fiscal Years Ending
    
    (dollars in thousands)Benefit payments2007
    
    $
    3,4362008
    
    
    3,4612009
    
    
    3,5092010
    
    
    3,5922011
    
    
    3,6702012-2016
    
    
    19,728
 81




---



##### 



Defined Benefit Pension Plan
  Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    904
    
    
    $
    673
    
    
    $
    704Interest cost
    
    
    4,038
    
    
    
    3,728
    
    
    
    3,715Expected return on plan assets
    
    
    (4,885
    )
    
    
    (4,347
    )
    
    
    (3,354
    )Recognition ofPrior service cost
    
    
    285
    
    
    
    173
    
    
    
    177Actuarial loss
    
    
    542
    
    
    
    200
    
    
    
    1,441Net pension expense
    
    $
    884
    
    
    $
    427
    
    
    $
    2,683
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Benefit obligation at beginning of year
    
    $
    68,722
    
    
    $
    63,520Service cost
    
    
    904
    
    
    
    673Interest cost
    
    
    4,038
    
    
    
    3,728Amendments
    
    
    
    
    
    
    998Actuarial loss
    
    
    1,812
    
    
    
    4,560Employee contributions
    
    
    61
    
    
    
    58Benefits and expenses paid
    
    
    (5,047
    )
    
    
    (4,815
    )Benefit obligation at end of year
    
    
    70,490
    
    
    
    68,722Fair value of plan assets at beginning of year
    
    
    59,174
    
    
    
    54,473Actual return on plan assets
    
    
    10,500
    
    
    
    5,256Employer contributions
    
    
    1,283
    
    
    
    4,202Employee contributions
    
    
    61
    
    
    
    58Benefits and expenses paid
    
    
    (5,047
    )
    
    
    (4,815
    )Fair value of plan assets at end of year
    
    
    65,971
    
    
    
    59,174Plan assets less than benefit obligation
    
    
    4,519
    
    
    
    9,548Unrecognized prior service cost
    
    
    (1,990
    )
    
    
    (2,275
    )Unrecognized net loss
    
    
    (7,335
    )
    
    
    (11,680
    )Additional minimum pension liability
    
    
    8,668
    
    
    
    13,086Net benefit obligation liability at end of year
    
    $
    3,862
    
    
    $
    8,679Intangible asset at end of year
    
    $
    1,990
    
    
    $
    2,275Accumulated benefit obligation
    
    $
    69,833
    
    
    $
    67,853Weighted average actuarial assumptions (using a measurement date of March 31):Discount rate
    
    
    5.8
    %
    
    
    6.0
    %Expected return on plan assets
    
    
    8.5
    %
    
    
    8.5
    %Rate of compensation increase
    
    
    4.5
    %
    
    
    4.5
    %
 82




---



##### 



Fiscal Years Ending
    
    (dollars in thousands)Employer contributions2007
    
    $
    Benefit payments2007
    
    $
    4,4302008
    
    
    4,4832009
    
    
    4,5422010
    
    
    4,5882011
    
    
    4,6672012-2016
    
    
    24,739
 Postretirement Health and Life Plans
      83




---



##### 



Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    1,444
    
    
    $
    2,773
    
    
    $
    4,988Interest cost
    
    
    3,391
    
    
    
    4,840
    
    
    
    8,330Amortization:Unrecognized prior service benefit
    
    
    (7,392
    )
    
    
    (6,644
    )
    
    
    (3,473
    )Unrecognized net loss
    
    
    1,308
    
    
    
    1,619
    
    
    
    4,386Total postretirement benefit (credit) expense
    
    
    (1,249
    )
    
    
    2,588
    
    
    
    14,231Curtailment gain included in restructuring
charges (See Note 15. Restructuring (Credits)
Charges)
    
    
    
    
    
    
    (4,272
    )
    
    
    Net postretirement benefit (credit) expense
    
    $
    (1,249
    )
    
    $
    (1,684
    )
    
    $
    14,231
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)APBO at beginning of year
    
    $
    63,213
    
    
    $
    76,367Service cost
    
    
    1,444
    
    
    
    2,773Interest cost
    
    
    3,391
    
    
    
    4,840Participant contributions
    
    
    2,134
    
    
    
    5,071Plan amendment
    
    
    
    
    
    
    (9,152
    )Plan curtailment
    
    
    
    
    
    
    (2,870
    )Actuarial gain
    
    
    (4,113
    )
    
    
    (1,495
    )Benefits paid
    
    
    (7,724
    )
    
    
    (12,321
    )APBO at end of year
    
    
    58,345
    
    
    
    63,213Unrecognized prior service benefit
    
    
    55,872
    
    
    
    63,264Unrecognized net loss
    
    
    (20,517
    )
    
    
    (25,937
    )Accrued postretirement benefit
    
    
    93,700
    
    
    
    100,540Less current portion
    
    
    (5,745
    )
    
    
    (6,018
    )APBO included in other liabilities
    
    $
    87,955
    
    
    $
    94,522
  84




---



##### 



Fiscal Years Ending
    
    (dollars in thousands)Employer contributions (reduced by expected participant contributions)2007
    
    $
    5,745Benefit payments2007
    
    $
    7,5002008
    
    
    6,9842009
    
    
    6,5732010
    
    
    6,2212011
    
    
    6,2132012-2016
    
    
    29,763
 Employee Stock Purchase Plan
  Defined Contribution Retirement Plan
  Negotiated Multi-Employer Pension Plans
   85




---



##### 



Multi-Employer Postretirement Health Care Benefit Plans
  
 12. Supplemental Executive Retirement Plan
    Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    
    
    
    $
    462
    
    
    $
    1,066Interest cost
    
    
    1,354
    
    
    
    1,494
    
    
    
    1,508Recognition ofPrior service cost
    
    
    
    
    
    
    1,259
    
    
    
    2,729Actuarial loss
    
    
    
    
    
    
    58
    
    
    
    103Net periodic pension cost
    
    
    1,354
    
    
    
    3,273
    
    
    
    5,406Net curtailment loss related to plan suspension
    
    
    
    
    
    
    10,341
    
    
    
    Total SERP expense
    
    $
    1,354
    
    
    $
    13,614
    
    
    $
    5,406
 86




---



##### 



June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)SERP obligation at beginning of year
    
    $
    22,573
    
    
    $
    26,928Service cost
    
    
    
    
    
    
    462Interest cost
    
    
    1,354
    
    
    
    1,494Plan amendment
    
    
    
    
    
    
    (3,511
    )Actuarial (gain) loss
    
    
    (105
    )
    
    
    (2,619
    )Benefits paid
    
    
    
    
    
    
    (181
    )SERP obligation at end of year
    
    
    23,822
    
    
    
    22,573Fair value of SERP assets at beginning of year
    
    
    
    
    
    
    Employer contributions
    
    
    
    
    
    
    181Benefits paid
    
    
    
    
    
    
    (181
    )Fair value of SERP assets at end of year
    
    
    
    
    
    
    Unfunded status
    
    
    23,822
    
    
    
    22,573Unrecognized net actuarial gain
    
    
    666
    
    
    
    561Total SERP liability
    
    
    24,488
    
    
    
    23,134SERP liability classified as liabilities subject to compromise
    
    
    (10,621
    )
    
    
    (9,918
    )Net SERP liability included in other liabilities
    
    $
    13,867
    
    
    $
    13,216Weighted average discount rate assumptions (using a measurement date of March 31)
    
    
    5.8
    %
    
    
    6.0
    %
  
 13. Key Employee Retention Plan
   
 14. Stock-Based Compensation
  87




---



##### 



WeightedAverageShares
    
    
    Exercise PriceUnder Option
    
    
    Per Share(in thousands)Balance May 31, 2003
    
    
    9,584
    
    
    $
    21.96Issued
    
    
    20
    
    
    
    13.59Surrendered
    
    
    (4,477
    )
    
    
    29.26Exercised
    
    
    (55
    )
    
    
    14.09Balance May 29, 2004
    
    
    5,072
    
    
    
    15.57Options reinstated due to rescinds
    
    
    312
    
    
    
    31.82Surrendered
    
    
    (866
    )
    
    
    16.90Exercised
    
    
    
    
    
    
    Balance May 28, 2005
    
    
    4,518
    
    
    
    16.43Issued
    
    
    
    
    
    
    Surrendered
    
    
    (409
    )
    
    
    16.81Exercised
    
    
    (10
    )
    
    
    10.10Balance June 3, 2006
    
    
    4,099
    
    
    
    16.41
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    RemainingRange of Exercise
    
    Shares
    
    
    Price
    
    
    ContractualPrices Per Share
    
    Under Option
    
    
    Per Share
    
    
    Life In Years(in thousands)Outstanding:$10.00
    
    
    1,498
    
    
    $
    10.00
    
    
    
    6.7311.80  $14.50
    
    
    1,120
    
    
    
    14.22
    
    
    
    4.5614.98    23.75
    
    
    925
    
    
    
    20.87
    
    
    
    2.0024.19    33.91
    
    
    556
    
    
    
    30.66
    
    
    
    3.03$10.00 - $33.91
    
    
    4,099
    
    
    
    16.41
    
    
    
    4.57Exercisable:$10.00
    
    
    1,498
    
    
    
    10.0011.80  14.50
    
    
    1,120
    
    
    
    14.2214.98  23.75
    
    
    924
    
    
    
    20.8824.19  33.91
    
    
    556
    
    
    
    30.66$10.00  $33.91
    
    
    4,098
    
    
    
    16.41
  88




---



##### 



15. Restructuring (Credits) Charges
  Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Severance costs
    
    $
    6,101
    
    
    $
    12,754
    
    
    $
    3,617Long-lived asset (credits) charges
    
    
    (38,570
    )
    
    
    43,745
    
    
    
    1,170Curtailment gain on a benefit plan
    
    
    (706
    )
    
    
    (6,913
    )
    
    
    Other exit costs
    
    
    5,988
    
    
    
    4,707
    
    
    
    7,279Total
    
    $
    (27,187
    )
    
    $
    54,293
    
    
    $
    12,066
 Fiscal 2006 Restructuring
   89




---



##### 



Fiscal 2005 Restructuring
       Fiscal 2004 Restructuring
  90




---



##### 



Fiscal 2003 Restructuring
   Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (Credits)
    
    
    Other
    
    
    Total(dollars in thousands)Fiscal 2003 PlanBalance May 31, 2003
    $
    
    1,205
    
    $
    
    
    
    $
    
    2,039
    
    $
    
    3,244Expenses in Fiscal 2004
    
    
    646
    
    
    
    (954
    )
    
    
    2,447
    
    
    
    2,139Cash Paid in Fiscal 2004
    
    
    (1,851
    )
    
    
    
    
    
    
    (3,192
    )
    
    
    (5,043
    )Noncash Utilization in 2004
    
    
    
    
    
    
    954
    
    
    
    
    
    
    
    954Balance May 29, 2004
    
    
    
    
    
    
    
    
    
    
    1,294
    
    
    
    1,294Expensed in Fiscal 2005
    
    
    
    
    
    
    262
    
    
    
    294
    
    
    
    556Cash Paid in Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    (555
    )
    
    
    (555
    )Noncash Utilization in 2005
    
    
    
    
    
    
    (262
    )
    
    
    (1,033
    )
    
    
    (1,295
    )Balance May 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2006
    
    
    
    
    
    
    (34
    )
    
    
    32
    
    
    
    (2
    )Cash Paid in Fiscal 2006
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Noncash Utilization in 2006
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    34Balance June 3, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2004 PlanBalance May 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expenses in Fiscal 2004
    
    
    2,971
    
    
    
    2,124
    
    
    
    4,832
    
    
    
    9,927Cash Paid in Fiscal 2004
    
    
    (1,611
    )
    
    
    
    
    
    
    (1,723
    )
    
    
    (3,334
    )Noncash Utilization in 2004
    
    
    
    
    
    
    (2,124
    )
    
    
    
    
    
    
    (2,124
    )Balance May 29, 2004
    
    
    1,360
    
    
    
    
    
    
    
    3,109
    
    
    
    4,469Expensed in Fiscal 2005
    
    
    (434
    )
    
    
    429
    
    
    
    2,267
    
    
    
    2,262Cash Paid in Fiscal 2005
    
    
    (871
    )
    
    
    
    
    
    
    (5,376
    )
    
    
    (6,247
    )Noncash Utilization in 2005
    
    
    
    
    
    
    (429
    )
    
    
    
    
    
    
    (429
    )Balance May 28, 2005
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Expensed in Fiscal 2006
    
    
    
    
    
    
    (10,636
    )
    
    
    (97
    )
    
    
    (10,733
    )Cash Paid in Fiscal 2006
    
    
    (55
    )
    
    
    
    
    
    
    97
    
    
    
    42Noncash Utilization in 2006
    
    
    
    
    
    
    10,636
    
    
    
    
    
    
    
    10,636Balance June 3, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 91




---



##### 



Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (Credits)
    
    
    Other
    
    
    Total(dollars in thousands)Fiscal 2005
Consolidation &
RIF PlanBalance May 29, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expensed in Fiscal 2005
    
    
    5,575
    
    
    
    6,119
    
    
    
    2,145
    
    
    
    13,839Cash Paid in Fiscal 2005
    
    
    (4,779
    )
    
    
    
    
    
    
    (1,534
    )
    
    
    (6,313
    )Noncash Utilization in 2005
    
    
    
    
    
    
    (6,119
    )
    
    
    (611
    )
    
    
    (6,730
    )Balance May 28, 2005
    
    
    796
    
    
    
    
    
    
    
    
    
    
    
    796Expensed in Fiscal 2006
    
    
    
    
    
    
    270
    
    
    
    438
    
    
    
    708Cash Paid in Fiscal 2006
    
    
    (597
    )
    
    
    
    
    
    
    (438
    )
    
    
    (1,035
    )Noncash Utilization in 2006
    
    
    
    
    
    
    (270
    )
    
    
    
    
    
    
    (270
    )Balance June 3, 2006
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    199Fiscal 2005 PC Review PlanBalance May 29, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2005
    
    
    7,613
    
    
    
    32,426
    
    
    
    (6,912
    )
    
    
    33,127Cash Paid in Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Noncash Utilization in 2005
    
    
    
    
    
    
    (32,426
    )
    
    
    6,913
    
    
    
    (25,513
    )Balance May 28, 2005
    
    
    7,613
    
    
    
    
    
    
    
    
    
    
    
    7,613Expensed in Fiscal 2006
    
    
    (407
    )
    
    
    (13,769
    )
    
    
    1,884
    
    
    
    (12,292
    )Cash Paid in Fiscal 2006
    
    
    (6,313
    )
    
    
    
    
    
    
    (2,492
    )
    
    
    (8,805
    )Noncash Utilization in 2006
    
    
    
    
    
    
    13,769
    
    
    
    706
    
    
    
    14,475Balance June 3, 2006
    
    
    893
    
    
    
    
    
    
    
    98
    
    
    
    991Software Write-offBalance May 29, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2005
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509Cash Paid in Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncash Utilization in 2005
    
    
    
    
    
    
    (4,509
    )
    
    
    
    
    
    
    (4,509
    )Balance May 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2006 PC Review PlanBalance May 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2006
    
    
    6,163
    
    
    
    (14,401
    )
    
    
    3,025
    
    
    
    (5,213
    )Cash Paid in Fiscal 2006
    
    
    (5,163
    )
    
    
    
    
    
    
    (2,980
    )
    
    
    (8,143
    )Noncash Utilization in 2006
    
    
    
    
    
    
    14,401
    
    
    
    
    
    
    
    14,401Balance June 3, 2006
    
    
    1,000
    
    
    
    
    
    
    
    45
    
    
    
    1,045Accounting Office ClosingsBalance May 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2006
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345Cash Paid in Fiscal 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncash Utilization in 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance June 3, 2006
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345ConsolidatedBalance May 31, 2003
    
    
    1,205
    
    
    
    
    
    
    
    2,039
    
    
    
    3,244Expenses in Fiscal 2004
    
    
    3,617
    
    
    
    1,170
    
    
    
    7,279
    
    
    
    12,066Cash Paid in Fiscal 2004
    
    
    (3,462
    )
    
    
    
    
    
    
    (4,915
    )
    
    
    (8,377
    )Noncash Utilization in 2004
    
    
    
    
    
    
    (1,170
    )
    
    
    
    
    
    
    (1,170
    )Balance May 29, 2004
    
    
    1,360
    
    
    
    
    
    
    
    4,403
    
    
    
    5,763Expensed in Fiscal 2005
    
    
    12,754
    
    
    
    43,745
    
    
    
    (2,206
    )
    
    
    54,293Cash Paid in Fiscal 2005
    
    
    (5,650
    )
    
    
    
    
    
    
    (7,466
    )
    
    
    (13,116
    )Noncash Utilization in 2005
    
    
    
    
    
    
    (43,745
    )
    
    
    5,269
    
    
    
    (38,476
    )Balance May 28, 2005
    
    
    8,464
    
    
    
    
    
    
    
    
    
    
    
    8,464Expensed in Fiscal 2006
    
    
    6,101
    
    
    
    (38,570
    )
    
    
    5,282
    
    
    
    (27,187
    )Cash Paid in Fiscal 2006
    
    
    (12,128
    )
    
    
    
    
    
    
    (5,845
    )
    
    
    (17,973
    )Noncash Utilization in 2006
    
    
    
    
    
    
    38,570
    
    
    
    706
    
    
    
    39,276Balance June 3, 2006
    
    $
    2,437
    
    
    $
    
    
    
    $
    143
    
    
    $
    2,580
 92




---



##### 



Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (Credits)
    
    
    Other
    
    
    TotalFiscal 2003 Plan
    
    $
    4,304
    
    
    $
    1,474
    
    
    $
    6,825
    
    
    $
    12,603Fiscal 2004 Plan
    
    
    2,537
    
    
    
    (8,083
    )
    
    
    7,002
    
    
    
    1,456Fiscal 2005 Consolidation & RIF Plan
    
    
    5,575
    
    
    
    6,389
    
    
    
    2,583
    
    
    
    14,547Fiscal 2005 PC Review Plan
    
    
    7,206
    
    
    
    18,657
    
    
    
    (5,028
    )
    
    
    20,835Software Write-off
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509Fiscal 2006 PC Review Plan
    
    
    6,163
    
    
    
    (14,401
    )
    
    
    3,025
    
    
    
    (5,213
    )Accounting Office Closings
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    345
   Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (1)
    
    
    Other
    
    
    TotalFiscal 2005 Consolidation & RIF Plan
    
    $
    
    
    
    $
    
    
    
    $
    374
    
    
    $
    374Fiscal 2005 PC Review Plan
    
    
    
    
    
    
    1,135
    
    
    
    1,037
    
    
    
    2,172Fiscal 2006 PC Review Plan
    
    
    
    
    
    
    
    
    
    
    1,248
    
    
    
    1,248Accounting Office Closings
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    400
   
 16. Reorganization Charges
  Fifty-Three Weeks Ended
    
    
    Fifty-Two Weeks EndedJune 3, 2006
    
    
    May 28, 2005Reorganization
    
    Cash
    
    Reorganization
    
    CashCharges
    
    
    Payments
    
    
    Charges
    
    
    Payments(dollars in thousands)Professional fees
    
    $
    35,089
    
    
    $
    35,211
    
    
    $
    33,184
    
    
    $
    27,269Employee retention expenses (See Note 13)
    
    
    6,047
    
    
    
    4,332
    
    
    
    5,641
    
    
    
    1,934Lease rejections
    
    
    937
    
    
    
    
    
    
    
    (427
    )
    
    
    (140
    )Interest income
    
    
    (4,461
    )
    
    
    (3,562
    )
    
    
    (537
    )
    
    
    (537
    )Gain on sale of assets
    
    
    (597
    )
    
    
    (597
    )
    
    
    (1,655
    )
    
    
    (1,655
    )Write-off of debt fees
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    Reorganization charges, net
    
    $
    37,015
    
    
    $
    35,384
    
    
    $
    39,206
    
    
    $
    26,871
 93




---



##### 



17. Income Taxes
  Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004Statutory federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net
    
    
    1.1
    
    
    
    2.6
    
    
    
    1.8Non-deductible goodwill impairment
    
    
    
    
    
    
    (15.8
    )
    
    
    Valuation allowance increase
    
    
    (25.9
    )
    
    
    (14.7
    )
    
    
    Adjustments to prior year tax reserve and refundable credits
    
    
    1.8
    
    
    
    2.0
    
    
    
    3.2Other
    
    
    (1.1
    )
    
    
    (0.3
    )
    
    
    (0.1
    )10.9
    %
    
    
    8.8
    %
    
    
    39.9
    %
    Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)CurrentFederal
    
    $
    (9,759
    )
    
    $
    (38,534
    )
    
    $
    (14,023
    )State
    
    
    (4,153
    )
    
    
    (5,755
    )
    
    
    (2,809
    )(13,912
    )
    
    
    (44,289
    )
    
    
    (16,832
    )DeferredFederal
    
    
    (1,508
    )
    
    
    6,953
    
    
    
    (4,785
    )State
    
    
    (173
    )
    
    
    797
    
    
    
    (551
    )(1,681
    )
    
    
    7,750
    
    
    
    (5,336
    )$
    (15,593
    )
    
    $
    (36,539
    )
    
    $
    (22,168
    )
 94




---



##### 



June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Deferred tax liabilities:Property and equipment
    
    $
    (127,815
    )
    
    $
    (143,426
    )Intangibles
    
    
    (43,415
    )
    
    
    (41,849
    )Other
    
    
    (9,908
    )
    
    
    (6,190
    )Gross deferred tax liabilities
    
    
    (181,138
    )
    
    
    (191,465
    )Deferred tax asset:Payroll and benefits accruals
    
    
    87,189
    
    
    
    96,509Self-insurance reserves
    
    
    79,835
    
    
    
    78,503Net operating loss carryforwards
    
    
    41,302
    
    
    
    16,945Other
    
    
    16,010
    
    
    
    4,997Gross deferred tax assets
    
    
    224,336
    
    
    
    196,954Less: Valuation allowance
    
    
    (98,193
    )
    
    
    (62,165
    )Net deferred tax asset
    
    
    126,143
    
    
    
    134,789Net deferred tax liability
    
    $
    (54,995
    )
    
    $
    (56,676
    )
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Other current assets
    
    $
    22,824
    
    
    $
    33,496Deferred income taxes (non-current)
    
    
    (77,819
    )
    
    
    (90,172
    )Net deferred tax liability
    
    $
    (54,995
    )
    
    $
    (56,676
    )
    
 18. Commitments and Contingencies
  95




---



##### 



96




---



##### 



97




---



##### 



98




---



##### 



99




---



##### 



100




---



##### 



19. Stock Repurchases
  
 20. Stockholder Rights Plan
    
 21. Earnings (Loss) per Share
 Earnings per
Share
  Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(in thousands)Weighted average common shares outstanding:Basic and diluted
    
    
    45,124
    
    
    
    45,010
    
    
    
    44,868
  101




---



##### 



22. Comprehensive Loss
  Fifty-Three
    
    
    Fifty-TwoWeeks
    
    
    WeeksEnded
    
    
    EndedJune 3,
    
    
    May 28,
    
    
    May 29,2006
    
    
    2005
    
    
    2004(dollars in thousands)Net loss
    
    $
    (128,317
    )
    
    $
    (379,280
    )
    
    $
    (33,370
    )Other comprehensive income (loss):Change in fair value of cash flow
hedges, net of income taxes
of $0, $0, and $2,410, respectively
    
    
    
    
    
    
    (96
    )
    
    
    4,017Loss on interest rate swaps
reclassified to interest expense, net
of income taxes of $0, $0, and
$3,380, respectively
    
    
    
    
    
    
    816
    
    
    
    5,634Commodity derivative (gains) losses
reclassified to cost of products
sold, net of income taxes of $0, $0,
and $2,537, respectively
    
    
    (671
    )
    
    
    275
    
    
    
    (4,229
    )Minimum pension liability adjustment,
net of income taxes of $0, $0, and
$4,316, respectively
    
    
    4,328
    
    
    
    (3,918
    )
    
    
    7,1783,657
    
    
    
    (2,923
    )
    
    
    12,600Comprehensive loss
    
    $
    (124,660
    )
    
    $
    (382,203
    )
    
    $
    (20,770
    )
  June 3,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Derivative instruments
    
    $
    
    
    
    $
    671Minimum pension liability adjustment
    
    
    (3,878
    )
    
    
    (8,206
    )Total
    
    $
    (3,878
    )
    
    $
    (7,535
    )
 102




---



##### 



23. Segment Information
 Disclosures about Segments of an Enterprise and Related Information
  Wholesale operations
 Retail operations
        103




---



##### 



Fifty-Three
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJune 3, 2006
    
    
    May 28, 2005(dollars in thousands)Net SalesWholesale operations
    
    $
    2,701,751
    
    
    $
    2,995,481Retail operations
    
    
    358,722
    
    
    
    408,024Total net sales
    
    $
    3,060,473
    
    
    $
    3,403,505Operating Income (Loss)Wholesale operations
    
    $
    (7,353
    )
    
    $
    43,874Retail operations
    
    
    10,682
    
    
    
    7,2643,329
    
    
    
    51,138Corporate
    
    
    (59,697
    )
    
    
    (386,674
    )Total operating loss
    
    
    (56,368
    )
    
    
    (335,536
    )Interest expense
    
    
    52,504
    
    
    
    41,430Reorganization charges
    
    
    37,015
    
    
    
    39,206Other income
    
    
    (2,994
    )
    
    
    (353
    )86,525
    
    
    
    80,283Loss before income taxes and cumulative effect of accounting change
    
    
    (142,893
    )
    
    
    (415,819
    )Provision (benefit) for income taxes
    
    
    (15,593
    )
    
    
    (36,539
    )Loss before cumulative effect of accounting change
    
    
    (127,300
    )
    
    
    (379,280
    )Cumulative effect of accounting change
    
    
    (1,017
    )
    
    
    Net Loss
    
    $
    (128,317
    )
    
    $
    (379,280
    )
 
 24. Subsequent Events
   104




---



##### 



25. Quarterly Financial Information (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth(dollars in thousands, except per share data)2006Net sales
    
    $
    744,649
    
    
    $
    702,381
    
    
    $
    874,809
    
    
    $
    738,634Cost of products sold (exclusive of depreciation and amortization)
    
    
    370,413
    
    
    
    357,022
    
    
    
    455,740
    
    
    
    369,556Operating loss
    
    
    9,504
    
    
    
    (41,928
    )
    
    
    (19,859
    )
    
    
    (4,085
    )Loss before cumulative effect of accounting change
    
    
    (6,987
    )
    
    
    (53,325
    )
    
    
    (42,634
    )
    
    
    (24,354
    )Net loss
    
    
    (6,987
    )
    
    
    (53,325
    )
    
    
    (42,634
    )
    
    
    (25,371
    )Basic and diluted loss per share before cumulative effect of
accounting change
    
    
    (0.15
    )
    
    
    (1.18
    )
    
    
    (0.94
    )
    
    
    (0.54
    )
 First
    
    
    Second
    
    
    Third
    
    
    Fourth(dollars in thousands, except per share data)2005Net sales
    
    $
    811,977
    
    
    $
    798,711
    
    
    $
    1,003,075
    
    
    $
    789,742Cost of products sold (exclusive of depreciation and amortization)
    
    
    413,078
    
    
    
    412,883
    
    
    
    506,101
    
    
    
    391,992Operating loss
    
    
    (248,408
    )
    
    
    (17,978
    )
    
    
    (27,496
    )
    
    
    (41,654
    )Net loss
    
    
    (243,466
    )
    
    
    (34,011
    )
    
    
    (45,327
    )
    
    
    (56,476
    )Basic and diluted loss per share
    
    
    (5.42
    )
    
    
    (0.76
    )
    
    
    (1.01
    )
    
    
    (1.25
    )
   105




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Control and Procedures
   Managements Annual Report on 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.
     106




---



##### 



Ineffective
Control Environment  Insufficient Resources:
 Financial
Statement Closing Process:
 Accrued Compensated Absences
 Recording Purchases and Processing Expenditures
 Information Technology Access Controls
 Use of Third Party Specialists
 Third Party Service Providers
 Review and Approval of Contracts
 Recording Restructuring and Reorganization Expenses and Liabilities
  107




---



##### 



Changes in Internal Control over Financial Reporting
   
    
    Ineffective Control EnvironmentTone at the Top: Our control environment did not
sufficiently promote effective internal control over financial
reporting throughout the organization. We have 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. In addition, management has assessed the effectiveness of
designed internal controls over financial reporting at all levels of
the organization.
    
    Accounting for Pension Plan Obligations: We did not maintain effective
controls over the existence, accuracy, completeness, valuation and
disclosure of our non-company sponsored pension plans to which the
company makes contributions on behalf of certain of its employees.
Specifically, effective controls were not designed and in place to
ensure that the Companys participation in such pension plans were
accounted for properly, and the amount of the Companys obligations
under such plans were properly recorded. Pension accounting has been
reviewed for all plans to determine that the accounting and valuation
of our obligations is appropriate. In addition, we have added controls
to monitor activity and determine that changes to individual plan
provisions are approved and appropriately reflected in our financial
statements.
    
    Establishing Self-Insurance Reserves: We did not maintain effective
controls over the completeness, valuation and disclosure of our
workers compensation liability risks and related expense accounts.
Specifically, effective controls were not designed and in place to
ensure that estimation of these self-insurance liabilities were
reviewed and approved by appropriate personnel and that personnel had
access to appropriate information to assess such reserves. Internal
controls have been implemented to determine the completeness,
valuation and disclosure of our workers compensation liability,
including the appropriate management review of established reserves.
    
    Lease Capitalization: We did not maintain effective controls over the
existence, accuracy, completeness and accounting for leases.
Specifically, effective controls were not designed and in place to
ensure that leases were properly accounted for or disclosed as either
capital or operating leases. Management has performed a review of
existing leases and has implemented appropriate internal controls
related to any new leasing activity to determine proper accounting
classification and disclosure.
    
    Property and Equipment: We did not maintain effective controls in our
accounting for property and equipment. Specifically, we did not have a
comprehensive formal policy regarding property and equipment. As a
result, asset retirements or potentially idle or obsolete assets were
not identified and their values were not appropriately assessed and
adjusted.
 108




---



##### 



Procedures have been documented and centralized
internal controls have been added to enhance the proper accounting for
property and equipment. In addition, management has performed a
physical inventory of a substantial portion of the companys fixed
assets to determine proper accounting and financial statement
disclosure.
  
    
    additional personnel have been hired and service
providers continue to be utilized to address shortfalls
in staffing and assist us with accounting, finance and
benefits responsibilities;
    
    we have filed our consolidated financial statements
contained in our quarterly and annual reports for the
fiscal years ended May 29, 2004, May 28, 2005 and June
3, 2006, and continue to address the requirements
associated with the Chapter 11 proceedings and the
shortage of resources which have affected the timely
filing of our required SEC reports;
    
    we have made progress in automating controls related to
employee accrued compensated absences;
    
    our controls over the recording of purchases and the
processing of expenditures are being improved through
the documentation and communication of formalized
procedures for the authorization and approval of
purchases and expenditures;
    
    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;
    
    we are in the process of evaluating the significance of
third party service providers and their individual
impact on our financial statements and the extent of the
evaluation of their controls that is required;
    
    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; and
    
    we are in the process of establishing improved controls
over the accurate and timely identification of ongoing
restructuring and reorganization activities associated
with the bankruptcy.
  109




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    110




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##### 



Ineffective Control Environment  Insufficient Resources:
 Financial Statement Closing Process:
 Accrued Compensated Absences:
 Recording Purchases and Processing Expenditures:
 Information Technology Access Controls:
 Use of Third Party Specialists:
 111




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##### 



Third Party Service Providers:
 Review and Approval of Contracts:
 Recording Restructuring and Reorganization Expenses and Liabilities:
  Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 112




---



##### 



ITEM 9B. OTHER INFORMATION
  113




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##### 



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, for more than five years. Mr. Anderson
is a director of The Andersons, Inc. and Fifth Third BancCorp of Northwest
Ohio.G. Kenneth Baum 3
    
    
    76
    
    
    
    1988
    
    
    Chairman of the Board of George K. Baum Group, Inc., an investment company,
for more than five years.Leo Benatar 4
    
    
    76
    
    
    
    1991
    
    
    Chairman of the Board of IBC since September 2004; Principal for Benatar &
Associates, a consulting firm, for more than five years. Mr. Benatar is a
director of Mohawk Industries, Inc., PAXAR Corporation and Aaron Rents,
Inc.Robert B. Calhoun 2,3
    
    
    64
    
    
    
    1991
    
    
    Managing Director of Monitor Clipper Partners, a private equity investment
firm, for more than five years. 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, for more than five years; Executive Consultant to the
Provost, University of Missouri  Kansas City, July 2003 to June 2004; and
Interim Dean of Biological Sciences, University of Missouri  Kansas City,
August 2002 to February 2003.Richard L. Metrick 2,4
    
    
    65
    
    
    
    2000
    
    
    Senior Managing Director in the Investment Banking Department of Bear
Stearns & Co., Inc. for more than five years.William P. Mistretta1
    
    
    50
    
    
    
    2006
    
    
    Senior Operations Executive for a division of the U.S. operations of
Compass Group PLC, a company specializing in providing food, vending and
related services, since March 2006; Vice President of Operations of Aramark
Uniform and Career Apparel, Inc., a company that provides both rental and
direct marketing of uniforms and career apparel, May 2004 to April 2005;
Senior Vice President of Operations of The B. Manishewitz Company, the
nations largest manufacturer of processed kosher food products, May 2003
to May 2004; Co-Founder of American Baked Ingredients, LLC, January 2001 to
May 2003.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, for more than four years prior
thereto. Mr. Thompson is a Trustee of the Teachers Insurance and Annuity
Association.David N. Weinstein2
    
    
    47
    
    
    
    2006
    
    
    Chairman of the Board of Pioneer Companies, Inc., a company that
manufactures and markets chlorine, caustic soda and related products in
North America, January 2002 to December 2005; Chairman of the Board of York
Research Corporation, a company that develops, owns and markets
environmentally friendly projects and products, November 2002 to June 2004;
Managing Director and Head of High Yield Origination and Capital Markets of
BNP Paribas, a company specializing in corporate, retail and investment
banking, March 2000 to February 2002.
 
 1
    
    Member of the Audit Committee2
    
    Member of the Compensation Committee3
    
    Member of the Nominating/Corporate Governance Committee4
    
    Member of the Executive Committee 114




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##### 



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, for more than three years
prior thereto.Michael D. Kafoure
    
    
    57
    
    
    President and Chief Operating Officer of IBC for more than the past five years.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, for more than one year prior thereto.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, for more than one year prior thereto.Kent B. Magill
    
    
    54
    
    
    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
    
    
    51
    
    
    Executive Vice President  Wholesale Business Unit, Upper Midwest, North
Central 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
    
    
    52
    
    
    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, for more than two years prior thereto.
 115




---



##### 



Name
    
    Age
    
    Present Principal Occupation or Employment and Five-Year Employment HistoryRichard 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, for more
than four years prior thereto.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
for more than three years prior thereto.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; and Assistant
Treasurer of Farmland Industries, Inc. from 2000 to July 2002.Laura D. Robb
    
    
    48
    
    
    Vice President and Corporate Controller of IBC since July 2002 and Assistant
Corporate Controller of IBC for more than 2 years prior thereto.Melvin H. Ghearing
    
    
    57
    
    
    Vice President  Bakery Outlet Business Unit since June 2004 and Vice
President  Retail Operations for more than three years prior thereto.
 
 1
    
    Messrs. Alvarez 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. Involvement in Prior Bankruptcy Proceedings and/or Restructurings
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
  116




---



##### 



ITEM 11. EXECUTIVE COMPENSATION
 Summary Compensation Table
  Long-Term CompensationAnnual Compensation

    


    Awards
    

    PayoutsRestricted
    
    SecuritiesOther annual
    
    stock
    
    Underlying
    
    LTIP
    
    All otherBonus
    
    compensation
    
    award(s)
    
    Options/SARs
    
    payouts
    
    Compensation1Year
    
    Salary ($)
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    ($)
    
    ($)Name and principal position (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)Antonio C.
Alvarez II 2
    
    
    2006
    
    
    
    1,800,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Executive Officer
    
    
    2005
    
    
    
    1,274,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael D. Kafoure
    
    
    2006
    
    
    
    496,313
    
    
    
    219,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,151President and Chief
    
    
    2005
    
    
    
    486,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,687Operating Officer
    
    
    2004
    
    
    
    480,537
    
    
    
    
    
    
    
    
    
    
    
    399,578
    3
    
    
    
    
    
    
    
    
    
    
    22,787Ronald B. Hutchison
    
    
    2006
    
    
    
    356,731
    
    
    
    157,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,564EVP and
Chief
    
    
    2005
    
    
    
    313,653
    
    
    
    
    
    
    
    
    
    
    
    221,000
    4
    
    
    
    
    
    
    
    
    
    
    54,715Financial Officer
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John K. Suckow 2
    
    
    2006
    
    
    
    1,482,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EVP and Chief
    
    
    2005
    
    
    
    1,117,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring Officer
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kent B. Magill
    
    
    2006
    
    
    
    272,274
    
    
    
    110,745
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,660EVP, General
Counsel and Corporate
    
    
    2005
    
    
    
    228,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,751Secretary
    
    
    2004
    
    
    
    225,196
    
    
    
    30,000
    
    
    
    
    
    
    
    170,894
    3
    
    
    
    
    
    
    
    
    
    
    23,678Jacques E. Roizen 2,5
    
    
    2006
    
    
    
    431,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former EVP and Chief
    
    
    2005
    
    
    
    733,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing Officer
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 1
    
    All other compensation for the fiscal year ended June 3, 2006, includes the Companys contributions in the amounts of $7,560 and $7,560, which accrued during such fiscal year for the
accounts of Messrs. Kafoure and Magill, respectively, under our Companys Retirement Income Plan; the imputed income for term life insurance provided by the Company for the benefit of
Messrs. Hutchison and Magill in the amounts of $966 and $236, respectively; the imputed income for use of a Company car by Messrs. Kafoure, Hutchison and Magill in the amounts of
$5,591, $6,240 and $556, respectively; and taxable income of $3,307 for Mr. Magill related to financial advisory services and $2,358 for Mr. Hutchison related to moving expenses.2
    
    Messrs. Alvarez, Suckow and Roizen, as employees of A&M, were designated as officers of IBC pursuant to an amended and restated letter agreement dated 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 except for Mr. Roizen (see note 5),
March 2006.3
    
    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 vests 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. Mr. Magill has elected to disclaim ownership of the vested portion of his restricted stock grant and
has surrendered all rights thereunder.4
    
    Mr. Hutchison was granted a restricted stock award of 20,000 shares on July 13, 2004. The restricted stock, which vests ratably over a three-year term, was granted under our 1996
Plan. The value was calculated based on 117




---



##### 



the closing price of the common stock on July 13, 2004 of $11.05 per share. Mr. Hutchison has elected to disclaim ownership of the vested
portion of his restricted stock grant and has surrendered all rights thereunder.5
    
    As Interim Chief Marketing Officer, Mr. Roizen stepped down from his position when Mr. Seban was hired on August 1, 2005. Stock Options
  Option Grants in the Fiscal Year Ended June 3, 2006
  Aggregated Option Exercises in Fiscal 2006 and Option Values at June 3, 2006
 (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)Number of securities
    
    
    Value of unexercised in-the-underlying unexercised options
    
    
    money options at fiscal yearShares
    
    
    
    
    
    
    at fiscal year end (#)
    
    
    end ($)Acquired
    
    
    Valueon exercise
    
    
    RealizedName
    
    (#)
    
    
    ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableAntonio C. Alvarez II
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0John K. Suckow
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Michael D. Kafoure
    
    
    0
    
    
    
    0
    
    
    
    510,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Ronald B. Hutchison
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Kent B. Magill
    
    
    0
    
    
    
    0
    
    
    
    60,000
    
    
    
    0
    
    
    
    0
    
    
    
    0Jacques E. Roizen
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 Long Term Incentive Plan Awards in the Fiscal Year Ended June 3, 2006
  IBC Supplemental Executive Retirement Plan
   118




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##### 



SERP Table
 Years of ServiceAnnual Average Earnings Over the Last 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
  KERP PLAN
   Retention Bonuses
  119




---



##### 



Restructuring Performance Bonuses
    Participation of Named Executive Officers
  Compensation of Directors
  120




---



##### 



Employment Agreements
   Alvarez and Marsal Agreement
   121




---



##### 



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.
    122




---



##### 



Compensation Committee Interlocks and Insider Participation
  Option Exchange
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Equity Compensation Plan Information
  Equity Compensation Plan Information as of June 3, 2006
 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
    
    
    4,099,000
    
    
    $
    16.41
    
    
    
    8,076,000Equity compensation
plans not approved
by security holders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    4,099,000
    
    
    $
    16.41
    
    
    
    8,076,000
 123




---



##### 



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.    1
551 Fifth Avenue, 34th Floor
New York, NY 10176
    
    4,013,176
    
    8.8%Common
    
    Brencourt Advisors, LLC    1
600 Lexington Avenue, 8   th Floor
New York, NY 10022
    
    3,799,520
    
    8.4%Common
    
    Glenview Capital Management, LLC   1
399 Park Avenue, Floor 39
New York, NY 10022
    
    3,782,781
    
    8.3%Common
    
    QVT Financial LP    1
527 Madison Avenue, 8th Floor
New York, NY 10022
    
    3,322,495
    
    7.32%Common
    
    Brandes Investment Partners, L.P.   1
11988 El Camino Real, Suite 500
San Diego, CA 92130
    
    2,958,045
    
    6.5%Common
    
    Fidelity Management & Research Co.   1
82 Devonshire Street
Boston, MA 02109
    
    2,848,716
    
    6.277%Common
    
    Ore Hill Partners LLC   1
C/o Butterfield Fund Services (Cayman) Ltd.
PO Box 705GT
Butterfield House
68 Fort Street
Grand Cayman, Cayman Islands
    
    2,811,400
    
    6.19%
 
 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 November 7, 2006. 124




---



##### 



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
    
    
    210,837
    1,2,3
    
    *Common
    
    Leo Benatar
    
    
    89,330
    1,2
    
    *Common
    
    Robert B. Calhoun
    
    
    87,257
    1,2
    
    *Common
    
    Frank E. Horton
    
    
    70,525
    1,2
    
    *Common
    
    Ronald B. Hutchison
    
    
    6,666
    2
    
    *Common
    
    Michael D. Kafoure
    
    
    415,844
    ,2
    
    *Common
    
    Kent B. Magill
    
    
    66,294
    1,2
    
    *Common
    
    Richard L. Metrick
    
    
    54,525
    1,2
    
    *Common
    
    Ronald L. Thompson
    
    
    9,525
    1,2
    
    *Common
    
    All Named Executive
Officers, directors and
executive officers as a
group (21 persons)
    
    
    1,325,172
    ,2
    
    2.9%
 
 *
    
    Less than 1%1
    
    Of the shares indicated, 58,000 (Mr.
Anderson), 80,000 (Mr. Baum), 80,000 (Mr.
Benatar), 80,000 (Mr. Calhoun) 60,000 (Dr.
Horton), 410,000 (Mr. Kafoure), 60,000 (Mr.
Magill), 40,000 (Mr. Metrick), 5,000 (Mr.
Thompson) and 1,099,000 (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, 4,525 (Messrs.
Anderson, Baum, Benatar, Calhoun, Horton,
Metrick and Thompson), 6,666 (Mr.
Hutchison), 5,792 (Mr. Magill) 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 210,837 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. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   125




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##### 



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees Paid to our Independent Registered Public Accounting Firm
  Audit
Fees
 126




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##### 



Audit-Related
Fees
 Tax Fees
 All
Other Fees
 Audit Committee Pre-Approval Policy
  Audit
 Audit-Related
 Tax
 Other Fees
   127




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##### 



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:Consolidated Balance Sheets at June 3, 2006 and May 28, 2005For the 53 weeks ended June 3, 2006, the 52 weeks ended May 28, 2005 and the 52 weeks
ended May 29, 2004:Consolidated Statements of OperationsConsolidated Statements of Cash FlowsConsolidated Statements of Stockholders Equity (Deficit)Notes to Consolidated Financial Statements2. Financial Statement ScheduleSchedule II
on page 138 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
 128




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##### 



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 (incorporated herein
by reference to Exhibit 10.3.1 to Interstate Bakeries
Corporations Annual Report on Form 10-K for the year
ended May 29, 2004, filed October 6, 2006).#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).#
 129




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##### 



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).
 130




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##### 



Exhibit No.
    
    Exhibit10.10.5
    
    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).10.10.6
    
    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 (incorporated herein by reference to Exhibit
10.15 to Interstate Bakeries Corporations Annual Report on Form 10-K for the year ended May 29, 2004, filed October 6, 2006).#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).#
 131




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##### 



Exhibit No.
    
    Exhibit10.16.1
    
    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).#10.17
    
    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
(incorporated herein by reference to Exhibit 10.19 to Interstate Bakeries Corporations Annual Report on Form 10-K for the year
ended May 29, 2004, filed October 6, 2006).#10.20
    
    Management Continuity Agreement dated as of July 13, 2004 by and between Ronald B. Hutchison and Interstate Bakeries Corporation
(incorporated herein by reference to Exhibit 10.20 to Interstate Bakeries Corporations Annual Report on Form 10-K for the year
ended May 29, 2004, filed October 6, 2006).#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 (incorporated herein by reference to Exhibit
10.24 to Interstate Bakeries Corporations Annual Report on Form 10-K for the year ended May 29, 2004, filed October 6, 2006).#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 (incorporated herein by
reference to Exhibit 10.24.1 to Interstate Bakeries Corporations Annual Report on Form 10-K for the year ended May 29, 2004,
filed October 6, 2006).#10.25
    
    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
 132




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##### 



Exhibit No.
    
    Exhibitcases 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).10.25.3
    
    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).
 133




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##### 



Exhibit No.
    
    Exhibit10.25.4
    
    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).10.25.6
    
    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
 134




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##### 



Exhibit No.
    
    ExhibitReport
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 (incorporated herein by reference to Exhibit 10.27 to
Interstate Bakeries Corporations Annual Report on Form 10-K for the year ended May 29, 2004, filed October 6, 2006).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)*32.1
    
    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 135




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##### 



SIGNATURES
  INTERSTATE BAKERIES CORPORATIONDated: December 20, 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
Antonio C. Alvarez II
    
    Chief Executive Officer (Principal Executive Officer)
    
    December 20, 2006/s/ Ronald B. Hutchison
Ronald B. Hutchison
    
    Executive Vice President  Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    December 20, 2006/s/ Leo Benatar
Leo Benatar
    
    Non-Executive Chairman of the Board
    
    December 20, 2006/s/ Michael J. Anderson
Michael J. Anderson
    
    Director
    
    December 20, 2006Director
    
    December 20, 2006/s/ G. Kenneth Baum
G. Kenneth Baum/s/ Robert B. Calhoun
Robert B. Calhoun
    
    Director
    
    December 20, 2006/s/ Frank E. Horton
Frank E. Horton
    
    Director
    
    December 20, 2006
 136




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##### 



Name of Signatory
    
    Capacities In Which Signing
    
    DateDirector
    
    December 20, 2006/s/ Richard L. Metrick
Richard L. Metrick/s/ Ronald L. Thompson
Ronald L. Thompson
    
    Director
    
    December 20, 2006
 137




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##### 



INTERSTATE BAKERIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FIFTY-THREE WEEKS ENDED JUNE 3, 2006,
FIFTY-TWO WEEKS ENDED MAY 28, 2005, AND MAY 29, 2004  (dollars in thousands)
 Balance at
    
    
    
    
    
    
    Accounts
    
    
    Balance atbeginning
    
    
    Adjustments to
    
    
    charged
    
    
    endDescription
    
    of period
    
    
    expense
    
    
    off
    
    
    of period2006Reserve for discounts and allowances on accounts receivable
    
    $
    6,510
    
    
    $
    2,404
    
    
    $
    
    
    
    $
    8,914Allowance for doubtful accounts
    
    
    3,492
    
    
    
    387
    
    
    
    (479
    )
    
    
    3,400$
    10,002
    
    
    $
    2,791
    
    
    $
    (479
    )
    
    $
    12,3142005Reserve for discounts and allowances on accounts receivable
    
    $
    3,839
    
    
    $
    2,671
    
    
    $
    
    
    
    $
    6,510Allowance for doubtful accounts
    
    
    3,700
    
    
    
    2,032
    
    
    
    (2,240
    )
    
    
    3,492$
    7,539
    
    
    $
    4,703
    
    
    $
    (2,240
    )
    
    $
    10,0022004Reserve for discounts and allowances on accounts receivable
    
    $
    4,486
    
    
    $
    (647
    )
    
    $
    
    
    
    $
    3,839Allowance for doubtful accounts
    
    
    4,000
    
    
    
    1,427
    
    
    
    (1,727
    )
    
    
    3,700$
    8,486
    
    
    $
    780
    
    
    $
    (1,727
    )
    
    $
    7,539
 138