##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Quarterly Report
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 4, 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)
 o þ
  o þ o
 o þ




---



##### 



EXPLANATORY NOTE
  2




---



##### 



INTERSTATE BAKERIES CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 4, 2006
 Description
    

    PagePART I
 FINANCIAL INFORMATION (UNAUDITED)
    
    
    4ITEM
1.
    
    Financial
Statements
    
    
    4Condensed
Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Condensed Consolidated Statement of Stockholders Deficit
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    9ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    36Forward-Looking Statements
    
    
    41ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    44ITEM 4.
    
    Controls and Procedures
    
    
    44PART II  OTHER INFORMATION
    
    
    46ITEM 6.
    
    Exhibits and Reports on Form 8-K
    
    
    46Signatures
    
    
    47CertificationCertificationSection 1350 CertificationSection 1350 Certification
 3




---



##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)  (dollars in thousands, except share data)
 March 4,
    
    
    May 28,2006
    
    
    2005ASSETSCurrent assetsCash
    
    $
    98,614
    
    
    $
    151,558Restricted cash
    
    
    74,681
    
    
    
    Accounts receivable, less allowance for doubtful accounts of $3,745 and $3,492 respectively
    
    
    154,379
    
    
    
    176,781Inventories
    
    
    58,352
    
    
    
    69,431Assets held for sale
    
    
    14,668
    
    
    
    10,582Other current assets
    
    
    77,044
    
    
    
    83,850Total current assets
    
    
    477,738
    
    
    
    492,202Property and equipment, net
    
    
    620,710
    
    
    
    705,373Other intangible assets
    
    
    161,338
    
    
    
    162,043Other assets
    
    
    33,050
    
    
    
    39,032Total assets
    
    $
    1,292,836
    
    
    $
    1,398,650LIABILITIES AND STOCKHOLDERS DEFICITLiabilities not subject to compromiseCurrent liabilitiesLong-term debt
    
    $
    495,090
    
    
    $
    482,199Accounts payable
    
    
    112,420
    
    
    
    101,141Accrued expenses
    
    
    255,079
    
    
    
    260,442Total current liabilities
    
    
    862,589
    
    
    
    843,782Other liabilities
    
    
    281,725
    
    
    
    299,391Deferred income taxes
    
    
    80,908
    
    
    
    90,172Total liabilities not subject to compromise
    
    
    1,225,222
    
    
    
    1,233,345Liabilities subject to compromise
    
    
    287,263
    
    
    
    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
    
    
    (117,340
    )
    
    
    (14,394
    )Treasury stock, 36,284,000 and 36,242,000 shares at cost, respectively
    
    
    (678,572
    )
    
    
    (678,379
    )Unearned restricted stock compensation
    
    
    (2,172
    )
    
    
    (3,521
    )Accumulated other comprehensive loss
    
    
    (8,012
    )
    
    
    (7,535
    )Total stockholders deficit
    
    
    (219,649
    )
    
    
    (116,924
    )Total liabilities and stockholders deficit
    
    $
    1,292,836
    
    
    $
    1,398,650
  4




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (dollars in thousands, except per share data)
 Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    874,809
    
    
    $
    1,003,075
    
    
    $
    2,321,839
    
    
    $
    2,613,763Cost of products sold (exclusive of items shown below)
    
    
    455,740
    
    
    
    506,101
    
    
    
    1,183,175
    
    
    
    1,332,062Selling, delivery and administrative expenses
    
    
    447,546
    
    
    
    481,346
    
    
    
    1,151,793
    
    
    
    1,261,276Restructuring (credits) charges
    
    
    (33,332
    )
    
    
    6,902
    
    
    
    (21,677
    )
    
    
    20,227Depreciation and amortization
    
    
    23,531
    
    
    
    27,507
    
    
    
    59,082
    
    
    
    68,688Loss on sale or abandonment of assets
    
    
    1,183
    
    
    
    8,583
    
    
    
    1,749
    
    
    
    9,914Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,346Other intangible assets impairment
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    132894,668
    
    
    
    1,030,571
    
    
    
    2,374,122
    
    
    
    2,907,645Operating loss
    
    
    (19,859
    )
    
    
    (27,496
    )
    
    
    (52,283
    )
    
    
    (293,882
    )Other (income) expenseInterest expense (excluding unrecorded contractual
interest expense of $1,867, $1,867, $4,550, and $2,717,
respectively)
    
    
    16,529
    
    
    
    12,872
    
    
    
    39,020
    
    
    
    31,182Reorganization charges, net
    
    
    10,255
    
    
    
    12,623
    
    
    
    28,402
    
    
    
    25,065Other (income) expense
    
    
    (82
    )
    
    
    (32
    )
    
    
    (2,917
    )
    
    
    9726,702
    
    
    
    25,463
    
    
    
    64,505
    
    
    
    56,344Loss before income taxes
    
    
    (46,561
    )
    
    
    (52,959
    )
    
    
    (116,788
    )
    
    
    (350,226
    )Provision (benefit) for income taxes
    
    
    (3,927
    )
    
    
    (7,632
    )
    
    
    (13,842
    )
    
    
    (27,422
    )Net loss
    
    $
    (42,634
    )
    
    $
    (45,327
    )
    
    $
    (102,946
    )
    
    $
    (322,804
    )Loss per shareBasic
    
    $
    (0.94
    )
    
    $
    (1.01
    )
    
    $
    (2.28
    )
    
    $
    (7.18
    )Diluted
    
    $
    (0.94
    )
    
    $
    (1.01
    )
    
    $
    (2.28
    )
    
    $
    (7.18
    )
  5




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (dollars in thousands)
 Forty Weeks EndedMarch 4,
    
    
    March 5,2006
    
    
    2005Operating activitiesNet loss
    
    $
    (102,946
    )
    
    $
    (322,804
    )Depreciation and amortization
    
    
    59,082
    
    
    
    68,688Provision (benefit) for deferred income taxes
    
    
    (1,260
    )
    
    
    13,775Reorganization charges, net
    
    
    28,402
    
    
    
    25,065Cash reorganization items
    
    
    (28,094
    )
    
    
    (15,756
    )Non-cash bankruptcy-related credits
    
    
    (294
    )
    
    
    Non-cash interest expense  deferred debt fees
    
    
    5,247
    
    
    
    4,047Non-cash interest on swap agreements
    
    
    
    
    
    
    (655
    )Non-cash restricted stock and deferred share
compensation expense
    
    
    641
    
    
    
    1,371(Gain) loss on sale, write-down or abandonment of assets
    
    
    (31,217
    )
    
    
    15,062Write-off of goodwill and other intangibles
    
    
    
    
    
    
    215,478Write-down of software assets
    
    
    
    
    
    
    4,424Write-off prior service cost asset
    
    
    
    
    
    
    12,384Change in operating assets and liabilities:Accounts receivable
    
    
    22,402
    
    
    
    12,620Inventories
    
    
    11,079
    
    
    
    2,155Other current assets
    
    
    (1,198
    )
    
    
    (24,716
    )Accounts payable and accrued expenses
    
    
    (15,096
    )
    
    
    56,170Long-term portion of self insurance reserves
    
    
    15,049
    
    
    
    12,398Other
    
    
    (7,095
    )
    
    
    4,482Net cash from (used in) operating activities
    
    
    (45,298
    )
    
    
    84,188Investing activitiesPurchases of property and equipment
    
    
    (25,225
    )
    
    
    (24,882
    )Proceeds from sale of assets
    
    
    79,839
    
    
    
    2,993Restricted cash deposit
    
    
    (74,276
    )
    
    
    Acquisition and development of software assets
    
    
    
    
    
    
    (5,838
    )Other
    
    
    51
    
    
    
    81Net cash used in investing activities
    
    
    (19,611
    )
    
    
    (27,646
    )Financing activitiesReduction of long-term debt
    
    
    (800
    )
    
    
    (75,357
    )Increase in long-term debt
    
    
    13,415
    
    
    
    11,651Issuance of convertible bonds
    
    
    
    
    
    
    100,000Stock option exercise proceeds
    
    
    101
    
    
    
    Acquisition of treasury stock
    
    
    (1
    )
    
    
    (45
    )Cash reorganization items
    
    
    
    
    
    
    (326
    )Debt fees
    
    
    (750
    )
    
    
    (9,282
    )Net cash from financing activities
    
    
    11,965
    
    
    
    26,641Net
increase (decrease) in cash
    
    
    (52,944
    )
    
    
    83,183Cash at the beginning of period
    
    
    151,558
    
    
    
    39,728Cash at the end of period
    
    $
    98,614
    
    
    $
    122,911Cash payments (received)Interest
    
    $
    35,234
    
    
    $
    30,434Income taxes
    
    
    (15,486
    )
    
    
    (21,260
    )
 6




---



##### 



Forty Weeks EndedMarch 4,
    
    
    March 5,2006
    
    
    2005Non-cash investing and financing activitiesIssuance of restricted stock
    
    $
    
    
    
    $
    221Equipment purchases financed with capital lease obligations
    
    
    
    
    
    
    409Long-term debt reduction from lease rejections
    
    
    890
    
    
    
    1,365Asset disposals from lease rejections
    
    
    705
    
    
    
    1,039Interest
earned on restricted cash deposit
    
    
    405
    
    
    
    
  7




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 (UNAUDITED)
 (dollars and shares in thousands)
 Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    AccumulatedStock Issued
    
    
    Additional
    
    
    
    
    
    
    Treasury Stock
    
    
    Restricted
    
    
    Other
    
    
    TotalNumber
    
    
    Par
    
    
    Paid-in
    
    
    Accumulated
    
    
    Number of
    
    
    
    
    
    Stock
    
    
    Comprehensive
    
    
    Stockholdersof Shares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Shares
    
    
    Cost
    
    
    Compensation
    
    
    Loss
    
    
    DeficitBalance May 28, 2005
    
    
    81,579
    
    
    $
    816
    
    
    $
    586,089
    
    
    $
    (14,394
    )
    
    
    (36,242
    )
    
    $
    (678,379
    )
    
    $
    (3,521
    )
    
    $
    (7,535
    )
    
    $
    (116,924
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,946
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )
    
    
    (103,423
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    10
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    101Restricted share
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,183
    
    
    
    
    
    
    
    1,183Restricted share
forfeitures
    
    
    
    
    
    
    
    
    
    
    (372
    )
    
    
    
    
    
    
    (52
    )
    
    
    (379
    )
    
    
    166
    
    
    
    
    
    
    
    (585
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Balance March 4, 2006
    
    
    81,579
    
    
    $
    816
    
    
    $
    585,631
    
    
    $
    (117,340
    )
    
    
    (36,284
    )
    
    $
    (678,572
    )
    
    $
    (2,172
    )
    
    $
    (8,012
    )
    
    $
    (219,649
    )
  8




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 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.
   9




---



##### 



Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code
 10




---



##### 



2. Description of Business and Significant Accounting Policies
 Description of Business
    Significant Accounting Policies
 Significant Accounting Policies
 Fiscal year end
 Principles of consolidation
 Use of estimates
 Cash and cash equivalents
 Stock-based compensation Accounting for Stock Issued to Employees Accounting for
Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure
 11




---



##### 



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Net loss, as reported
    
    $
    (42,634
    )
    
    $
    (45,327
    )
    
    $
    (102,946
    )
    
    $
    (322,804
    )Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects
    
    
    11
    
    
    
    316
    
    
    
    641
    
    
    
    1,371Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (138
    )
    
    
    (722
    )
    
    
    (989
    )
    
    
    (2,575
    )Pro forma net loss
    
    $
    (42,761
    )
    
    $
    (45,733
    )
    
    $
    (103,294)
    )
    
    $
    (324,008
    )Basic and diluted loss per shareAs reported
    
    $
    (0.94
    )
    
    $
    (1.01
    )
    
    $
    (2.28
    )
    
    $
    (7.18
    )Pro forma
    
    
    (0.95
    )
    
    
    (1.02
    )
    
    
    (2.29
    )
    
    
    (7.20
    )
   Contingencies Accounting for Contingencies
 Newly Adopted Accounting Pronouncements Exchanges of Nonmonetary Assets  An Amendment of APB Opinion No.
29
 Recently Issued Accounting Pronouncements Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 12




---



##### 



Fair Value Measurements
 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 for Rental Costs
Incurred during a Construction Period
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes
in Interim Financial Statements
 13




---



##### 



Accounting for Conditional Asset Retirement Obligations
 an interpretation of FASB Statement No. 143
 Share-Based Payment Accounting for Stock Issued to Employees
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 3. Inventories
  March 4,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Ingredients and packaging
    
    $
    41,429
    
    
    $
    47,617Finished goods
    
    
    16,923
    
    
    
    21,814$
    58,352
    
    
    $
    69,431
 14




---



##### 



4. Property and Equipment
  March 4,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Land and buildings (lives ranging from 10 to 35 years)
    
    $
    393,300
    
    
    $
    440,164Machinery and equipment (lives ranging from 4 to 15 years)
    
    
    980,090
    
    
    
    1,023,5271,373,390
    
    
    
    1,463,691Less accumulated depreciation
    
    
    (752,680
    )
    
    
    (758,318
    )$
    620,710
    
    
    $
    705,373
  5. Assets Held for Sale
  6. Lease Obligations
  Guarantors Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others
 7. Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
 15




---



##### 



March 4,
    
    
    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
    
    
    (9,987
    )
    
    
    (11,040
    )Impairment charge
    
    
    
    
    
    
    (3,872
    )Net carrying amount
    
    $
    3,867
    
    
    $
    4,572
  8. Debt
  March 4,
    
    
    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
leases  pre-petition
    
    
    11,398
    
    
    
    11,514601,215
    
    
    
    587,916Less:Current portion
    
    
    (495,090
    )
    
    
    (482,199
    )Pre-filing date claims included in liabilities subject to compromise
    
    
    (106,125
    )
    
    
    (105,717
    )Long-term debt
    
    $
    
    
    
    $
    
 16




---



##### 



Post-Petition Credit Agreement
    17




---



##### 



Senior Secured Credit Facility
  6% Senior Subordinated Convertible Notes
  Other Matters
   9. Derivative Instruments
     18




---



##### 



10. Liabilities Subject to Compromise
    19




---



##### 



March 4,
    
    
    May 28,2006
    
    
    2005(dollars in thousands)Accounts payable
    
    $
    129,690
    
    
    $
    129,294Taxes payable
    
    
    8,959
    
    
    
    10,264Retirement obligations (SERP and deferred compensation)
    
    
    13,862
    
    
    
    13,821Legal reserve
    
    
    12,931
    
    
    
    12,931Interest bearing debt and capital leases
    
    
    106,125
    
    
    
    105,717Other
    
    
    15,696
    
    
    
    10,202$
    287,263
    
    
    $
    282,229
   11. Employee Benefit Plans
 American Bakers Association Retirement Plan
    20




---



##### 



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Service cost
    
    $
    486
    
    
    $
    631
    
    
    $
    1,214
    
    
    $
    1,577Interest cost
    
    
    987
    
    
    
    1,001
    
    
    
    2,467
    
    
    
    2,501Expected return on negative plan assets
    
    
    76
    
    
    
    122
    
    
    
    190
    
    
    
    306Recognition ofPrior service cost
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    326Actuarial (gain) loss
    
    
    (1,709
    )
    
    
    2,372
    
    
    
    (4,271
    )
    
    
    5,930Total periodic pension (credit) cost
    
    
    (160
    )
    
    
    4,256
    
    
    
    (400
    )
    
    
    10,640Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (1,176
    )
    
    
    Net pension (credit) expense
    
    $
    (160
    )
    
    $
    4,256
    
    
    $
    (1,576
    )
    
    $
    10,640
 Defined Benefit Pension Plan
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Service cost
    
    $
    278
    
    
    $
    207
    
    
    $
    696
    
    
    $
    517Interest cost
    
    
    1,242
    
    
    
    1,147
    
    
    
    3,106
    
    
    
    2,867Expected return on plan assets
    
    
    (1,503
    )
    
    
    (1,338
    )
    
    
    (3,757
    )
    
    
    (3,344
    )Recognition ofPrior service cost
    
    
    88
    
    
    
    53
    
    
    
    220
    
    
    
    133Actuarial loss
    
    
    167
    
    
    
    62
    
    
    
    415
    
    
    
    154Net pension expense
    
    $
    272
    
    
    $
    131
    
    
    $
    680
    
    
    $
    327
 21




---



##### 



Postretirement Health and Life Plans
     Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Service cost
    
    $
    445
    
    
    $
    899
    
    
    $
    1,111
    
    
    $
    2,247Interest cost
    
    
    1,043
    
    
    
    1,510
    
    
    
    2,609
    
    
    
    3,774AmortizationUnrecognized prior service cost (benefit)
    
    
    (2,274
    )
    
    
    (2,015
    )
    
    
    (5,686
    )
    
    
    (5,037
    )Unrecognized net loss
    
    
    402
    
    
    
    498
    
    
    
    1,006
    
    
    
    1,246Net postretirement benefit (credit) expense
    
    $
    (384
    )
    
    $
    892
    
    
    $
    (960
    )
    
    $
    2,230
 22




---



##### 



12. Supplemental Executive Retirement Plan
    Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    462Interest cost
    
    
    417
    
    
    
    414
    
    
    
    1,041
    
    
    
    1,184Recognition ofPrior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,259Actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Net periodic pension cost
    
    
    417
    
    
    
    414
    
    
    
    1,041
    
    
    
    2,963Net curtailment loss related to plan suspension
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,341Total SERP expense
    
    $
    417
    
    
    $
    414
    
    
    $
    1,041
    
    
    $
    13,304
 13. Restructuring (Credits) Charges
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Severance costs
    
    $
    1,252
    
    
    $
    2,758
    
    
    $
    5,756
    
    
    $
    5,046Long-lived asset (credits) charges
    
    
    (36,381
    )
    
    
    3,243
    
    
    
    (32,094
    )
    
    
    11,145Curtailment gain on a benefit plan
    
    
    
    
    
    
    
    
    
    
    (706
    )
    
    
    Other exit costs
    
    
    1,797
    
    
    
    901
    
    
    
    5,367
    
    
    
    4,036Total
    
    $
    (33,332
    )
    
    $
    6,902
    
    
    $
    (21,677
    )
    
    $
    20,227
 23




---



##### 



Fiscal 2006 Activity
     24




---



##### 



Long-LivedSeverance
    
    Assetand Related
    
    ChargesBenefits
    
    (Credits)
    
    Other
    
    Total(dollars in thousands)Fiscal 2003 PlanBalance May 28, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expensed in Fiscal 2006
    
    
    
    
    
    
    (34
    )
    
    
    32
    
    
    
    (2
    )Cash Paid in Fiscal 2006
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    34Balance March 4, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2004 PlanBalance May 28, 2005
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Expensed in Fiscal 2006
    
    
    
    
    
    
    (10,636
    )
    
    
    63
    
    
    
    (10,573
    )Cash Paid in Fiscal 2006
    
    
    (55
    )
    
    
    
    
    
    
    (63
    )
    
    
    (118
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    10,636
    
    
    
    
    
    
    
    10,636Balance March 4, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2005 Consolidation
& RIF PlanBalance May 28, 2005
    
    
    796
    
    
    
    
    
    
    
    
    
    
    
    796Expensed in Fiscal 2006
    
    
    
    
    
    
    16
    
    
    
    370
    
    
    
    386Cash Paid in Fiscal 2006
    
    
    (568
    )
    
    
    
    
    
    
    (370
    )
    
    
    (938
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Balance March 4, 2006
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    228Fiscal 2005 PC Review PlanBalance May 28, 2005
    
    
    7,613
    
    
    
    
    
    
    
    
    
    
    
    7,613Expensed in Fiscal 2006
    
    
    (407
    )
    
    
    (11,278
    )
    
    
    1,398
    
    
    
    (10,287
    )Cash Paid in Fiscal 2006
    
    
    (5,747
    )
    
    
    
    
    
    
    (1,957
    )
    
    
    (7,704
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    11,278
    
    
    
    706
    
    
    
    11,984Balance March 4, 2006
    
    
    1,459
    
    
    
    
    
    
    
    147
    
    
    
    1,606Fiscal 2006 PC Review PlanBalance May 28, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expensed in Fiscal 2006
    
    
    6,163
    
    
    
    (10,162
    )
    
    
    2,798
    
    
    
    (1,201
    )Cash Paid in Fiscal 2006
    
    
    (4,567
    )
    
    
    
    
    
    
    (2,747
    )
    
    
    (7,314
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    10,162
    
    
    
    
    
    
    
    10,162Balance March 4, 2006
    
    
    1,596
    
    
    
    
    
    
    
    51
    
    
    
    1,647ConsolidatedBalance May 28, 2005
    
    
    8,464
    
    
    
    
    
    
    
    
    
    
    
    8,464Expensed in Fiscal 2006
    
    
    5,756
    
    
    
    (32,094
    )
    
    
    4,661
    
    
    
    (21,677
    )Cash Paid in Fiscal 2006
    
    
    (10,937
    )
    
    
    
    
    
    
    (5,169
    )
    
    
    (16,106
    )Noncash Utilization in
Fiscal 2006
    
    
    
    
    
    
    32,094
    
    
    
    706
    
    
    
    32,800Balance March 4, 2006
    
    $
    3,283
    
    
    $
    
    
    
    $
    198
    
    
    $
    3,481
 Fiscal 2005 Activity
   25




---



##### 



Long-LivedSeverance
    
    Assetand Related
    
    ChargesBenefits
    
    (Credits)
    
    Other
    
    TotalFiscal 2003 Plan
    
    $
    4,304
    
    
    $
    1,474
    
    
    $
    6,825
    
    
    $
    12,603Fiscal 2004 Plan
    
    
    2,537
    
    
    
    (8,083
    )
    
    
    7,162
    
    
    
    1,616Fiscal 2005 Consolidation
& RIF Plan
    
    
    5,575
    
    
    
    6,135
    
    
    
    2,515
    
    
    
    14,225Fiscal 2005 PC Review Plan
    
    
    7,206
    
    
    
    21,148
    
    
    
    (5,514
    )
    
    
    22,840Software Write-off
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509Fiscal 2006 PC Review Plan
    
    
    6,163
    
    
    
    (10,161
    )
    
    
    2,798
    
    
    
    (1,200
    )
 26




---



##### 



Severance
    
    Long-Livedand Related
    
    AssetBenefits
    
    Charges (1)
    
    Other
    
    TotalFiscal 2005 Consolidation
& RIF Plan
    
    $
    
    
    
    $
    254
    
    
    $
    442
    
    
    $
    696Fiscal 2005 PC Review Plan
    
    
    
    
    
    
    1,556
    
    
    
    1,523
    
    
    
    3,079Fiscal 2006 PC Review Plan
    
    
    
    
    
    
    142
    
    
    
    1,475
    
    
    
    1,617
 
  14. Reorganization Charges
  March 4, 2006Sixteen Weeks
    
    
    Forty WeeksEnded
    
    
    EndedReorganization
    
    
    Reorganization
    
    
    CashCharges
    
    
    Charges
    
    
    Payments(dollars in thousands)Professional fees
    
    $
    10,136
    
    
    $
    25,901
    
    
    $
    27,165Employee retention expenses
    
    
    1,347
    
    
    
    5,753
    
    
    
    4,323Lease rejection charges
    
    
    618
    
    
    
    547
    
    
    
    Interest income
    
    
    (1,846
    )
    
    
    (3,202
    )
    
    
    (2,797
    )Gain on sale of assets
    
    
    
    
    
    
    (597
    )
    
    
    (597
    )Reorganization charges, net
    
    $
    10,255
    
    
    $
    28,402
    
    
    $
    28,094
 March 5, 2005Sixteen Weeks
    
    
    Forty WeeksEnded
    
    
    EndedReorganization
    
    
    Reorganization
    
    
    CashCharges
    
    
    Charges
    
    
    Payments(dollars in thousands)Professional fees
    
    $
    12,784
    
    
    $
    23,160
    
    
    $
    17,792Employee retention expenses
    
    
    1,066
    
    
    
    1,066
    
    
    
    Lease rejection charges (credits)
    
    
    482
    
    
    
    (444
    )
    
    
    Interest income
    
    
    (294
    )
    
    
    (294
    )
    
    
    (295
    )Gain on sale of assets
    
    
    (1,415
    )
    
    
    (1,415
    )
    
    
    (1,415
    )Write-off of debt fees
    
    
    
    
    
    
    2,992
    
    
    
    Reorganization charges, net
    
    $
    12,623
    
    
    $
    25,065
    
    
    $
    16,082
 27




---



##### 



15. Income Taxes
  Forty Weeks EndedMarch 4,
    
    March 5,2006
    
    2005Statutory federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net
    
    
    1.1
    
    
    
    2.7Non-deductible goodwill impairment
    
    
    
    
    
    
    (18.7
    )Valuation allowance increase
    
    
    (26.6
    )
    
    
    (13.2
    )Adjustments to prior year accruals and refundable credits
    
    
    3.5
    
    
    
    2.3Other
    
    
    (1.1
    )
    
    
    (0.3
    )11.9
    %
    
    
    7.8
    %
    16. Commitments and Contingencies
   28




---



##### 



29




---



##### 



30




---



##### 



31




---



##### 



32




---



##### 



17. Earnings (Loss) per Share
 Earnings per
Share
  Sixteen Weeks Ended
    
    Forty Weeks EndedMarch 4,
    
    March 5,
    
    March 4,
    
    March 5,2006
    
    2005
    
    2006
    
    2005(in thousands)Weighted average common shares outstanding:Basic and diluted
    
    
    45,129
    
    
    
    45,045
    
    
    
    45,111
    
    
    
    44,984
   33




---



##### 



18. Comprehensive Loss
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Net loss
    
    $
    (42,634
    )
    
    $
    (45,327
    )
    
    $
    (102,946
    )
    
    $
    (322,804
    )Other comprehensive income (loss):Change in fair value of cash flow hedges, net of income taxes of $0
    
    
    
    
    
    
    1,063
    
    
    
    
    
    
    
    (365
    )Loss on interest rate swaps reclassified to interest expense, net
of income taxes of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    816Commodity derivative (gains) losses reclassified to cost of
products sold, net of income taxes of $0
    
    
    
    
    
    
    (159
    )
    
    
    (477
    )
    
    
    852Minimum pension liability adjustment, net of income taxes of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    904
    
    
    
    (477
    )
    
    
    1,524Comprehensive loss
    
    $
    (42,634
    )
    
    $
    (44,423
    )
    
    $
    (103,423
    )
    
    $
    (321,280
    )
 19. Segment Information
 Disclosures about Segments of an Enterprise and Related Information
  Wholesale operations
 Retail operations
   34




---



##### 



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 4,
    
    
    March 5,
    
    
    March 4,
    
    
    March 5,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Net SalesWholesale operations
    
    $
    774,564
    
    
    $
    887,770
    
    
    $
    2,049,747
    
    
    $
    2,297,013Retail operations
    
    
    100,245
    
    
    
    115,305
    
    
    
    272,092
    
    
    
    316,750Total net sales
    
    $
    874,809
    
    
    $
    1,003,075
    
    
    $
    2,321,839
    
    
    $
    2,613,763Operating Income (Loss)Wholesale operations
    
    $
    (28,589
    )
    
    $
    12,017
    
    
    $
    (19,048
    )
    
    $
    38,072Retail operations
    
    
    (199
    )
    
    
    458
    
    
    
    6,883
    
    
    
    1,579(28,788
    )
    
    
    12,475
    
    
    
    (12,165
    )
    
    
    39,651Corporate
    
    
    8,929
    
    
    
    (39,971
    )
    
    
    (40,118
    )
    
    
    (333,533
    )Total operating loss
    
    
    (19,859
    )
    
    
    (27,496
    )
    
    
    (52,283
    )
    
    
    (293,882
    )Interest expense
    
    
    16,529
    
    
    
    12,872
    
    
    
    39,020
    
    
    
    31,182Reorganization charges
    
    
    10,255
    
    
    
    12,623
    
    
    
    28,402
    
    
    
    25,065Other (income) expense
    
    
    (82
    )
    
    
    (32
    )
    
    
    (2,917
    )
    
    
    97Loss before income taxes
    
    
    (46,561
    )
    
    
    (52,959
    )
    
    
    (116,788
    )
    
    
    (350,226
    )Provision (benefit) for income taxes
    
    
    (3,927
    )
    
    
    (7,632
    )
    
    
    (13,842
    )
    
    
    (27,422
    )Net loss
    
    $
    (42,634
    )
    
    $
    (45,327
    )
    
    $
    (102,946
    )
    
    $
    (322,804
    )
 20. Subsequent Events
    35




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Managements
Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
  OVERVIEW OF CERTAIN TRENDS AND EVENTS AFFECTING OPERATIONS, FINANCIAL POSITION AND LIQUIDITY
 Overview of Certain Trends and Events Affecting Operations, Financial Position and
Liquidity
 CRITICAL ACCOUNTING POLICIES
 Critical Accounting Policies
 RESULTS OF OPERATIONS
  Sixteen Weeks Ended
    
    Forty Weeks EndedMarch 4,
    
    March 5,
    
    March 4,
    
    March 5,2006
    
    2005
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold (exclusive of items
shown below)
    
    
    52.1
    
    
    
    50.4
    
    
    
    51.0
    
    
    
    51.0Selling, delivery and administrative expenses
    
    
    51.2
    
    
    
    48.0
    
    
    
    49.6
    
    
    
    48.3Restructuring (credits) charges
    
    
    (3.8
    )
    
    
    0.7
    
    
    
    (0.9
    )
    
    
    0.8Depreciation and amortization
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.5
    
    
    
    2.6Loss on sale or abandonment of assets
    
    
    0.1
    
    
    
    0.9
    
    
    
    0.1
    
    
    
    0.4Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.2Operating loss
    
    
    (2.3
    )
    
    
    (2.7
    )
    
    
    (2.3
    )
    
    
    (11.3
    )Interest expense
    
    
    1.9
    
    
    
    1.3
    
    
    
    1.7
    
    
    
    1.2Reorganization charges, net
    
    
    1.1
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    0.9Other
(income) expense
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Loss before income taxes
    
    
    (5.3
    )
    
    
    (5.3
    )
    
    
    (5.0
    )
    
    
    (13.4
    )Provision (benefit) for income taxes
    
    
    (0.4
    )
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (1.0
    )Net loss
    
    
    (4.9
    )%
    
    
    (4.5
    )%
    
    
    (4.4
    )%
    
    
    (12.4
    )%
 36




---



##### 



Net
Sales(dollars in thousands)
 Sixteen Weeks Ended
    
    Forty Weeks EndedMarch 4,
    
    
    
    
    
    March 5,
    
    
    
    
    
    Increase/
    
    March 4,
    
    
    
    
    
    March 5,
    
    
    
    
    
    Increase/2006
    
    %
    
    2005
    
    %
    
    (Decrease)
    
    2006
    
    %
    
    2005
    
    %
    
    (Decrease)Wholesale operations
    
    $
    774,564
    
    
    
    88.5
    %
    
    $
    887,770
    
    
    
    88.5
    %
    
    
    (12.8
    )%
    
    $
    2,049,747
    
    
    
    88.3
    %
    
    $
    2,297,013
    
    
    
    87.9
    %
    
    
    (10.8
    )%Retail operations
    
    
    100,245
    
    
    
    11.5
    
    
    
    115,305
    
    
    
    11.5
    
    
    
    (13.1
    )
    
    
    272,092
    
    
    
    11.7
    
    
    
    316,750
    
    
    
    12.1
    
    
    
    (14.1
    )Total net sales
    
    $
    874,809
    
    
    
    100.0
    %
    
    $
    1,003,075
    
    
    
    100.0
    %
    
    
    (12.8
    )%
    
    $
    2,321,839
    
    
    
    100.0
    %
    
    $
    2,613,763
    
    
    
    100.0
    %
    
    
    (11.2
    )%
 Consolidated net sales.
 Wholesale operations net sales.
 Retail operations net sales.
 Gross profit (exclusive of depreciation and amortization).
   37




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##### 



Selling, delivery and administrative expenses.
   Restructuring charges.
  Goodwill impairment.
 38




---



##### 



Operating Loss
(dollars in thousands)
 Sixteen Weeks Ended
    
    Forty Weeks EndedMarch 4,
    
    
    
    
    
    March 5,
    
    
    
    
    
    March 4,
    
    
    
    
    
    March 5,2006
    
    %
    
    2005
    
    %
    
    2006
    
    %
    
    2005
    
    %Wholesale operations
    
    $
    (28,589
    )
    
    
    144.0
    %
    
    $
    12,017
    
    
    
    (43.7
    )%
    
    $
    (19,048
    )
    
    
    36.4
    %
    
    $
    38,072
    
    
    
    (13.0
    )%Retail operations
    
    
    (199
    )
    
    
    1.0
    
    
    
    458
    
    
    
    (1.7
    )
    
    
    6,883
    
    
    
    (13.1
    )
    
    
    1,579
    
    
    
    (0.5
    )(28,788
    )
    
    
    145.0
    
    
    
    12,475
    
    
    
    (45.4
    )
    
    
    (12,165
    )
    
    
    23.3
    
    
    
    39,651
    
    
    
    (13.5
    )Corporate
    
    
    8,929
    
    
    
    (45.0
    )
    
    
    (39,971
    )
    
    
    145.4
    
    
    
    (40,118
    )
    
    
    76.7
    
    
    
    (333,533
    )
    
    
    113.5Total operating loss
    
    $
    (19,859
    )
    
    
    100.0
    %
    
    $
    (27,496
    )
    
    
    100.0
    %
    
    $
    (52,283
    )
    
    
    100.0
    %
    
    
    (293,882
    )
    
    
    100.0
    %
 Consolidated operating loss
 Wholesale operating income (loss).
 Retail operating income (loss).
 Reorganization charges.
 Interest expense.
  39




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##### 



Provision for income taxes.
 CASH RESOURCES AND LIQUIDITY
 Sources of Liquidity and Capital Cash Resources and Liquidity
 CASH FLOWS
  Cash
from (used in) operating activities.
 Cash
used in investing activities.
 Cash from financing activities.
 OFF-BALANCE SHEET FINANCING
  40




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##### 



FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
  RECENT ACCOUNTING PRONOUNCEMENTS
  
 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;
    
    our ability to operate pursuant to the covenants, terms and certifications of the DIP Facility;
    
    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
to achieve the desired results;
    
    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
 41




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##### 



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 retain, motivate and/or attract 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 of control of the
Company;
    
    increased costs and uncertainties with respect to the ABA Plan;
    
    the 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 related 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, 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.
 42




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##### 




    
    the significant time that will be required by management to structure and implement a plan of
reorganization as well as to evaluate various alternatives including, but not limited to, the sale
of some or all of our assets, infusion of capital and debt restructuring or any combination of
these options, as well as our restructuring plan;
    
    our reliance on key management personnel, including the effects of the Chapter 11 process on our
ability to attract and retain key management personnel;
    
    our ability to successfully reject unfavorable contracts and leases; and
    
    the duration of the Chapter 11 process.
 General Factors
 
    
    the availability of capital on acceptable terms in light of the various factors discussed herein,
including our reorganization under the Chapter 11 process;
    
    the availability and cost of raw materials, packaging, fuels and utilities, and the ability to recover
these costs in the pricing of products, improved efficiencies and other strategies;
    
    increased pension, health care, workers compensation and other employee costs;
    
    actions of competitors, including pricing policy and promotional spending;
    
    increased costs, delays or deficiencies related to restructuring activities;
    
    the effectiveness of advertising and marketing spending;
    
    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
 43




---



##### 



achieving and retaining market share;
 
    
    the effectiveness of hedging activities;
    
    expenditures necessary to carry out cost-saving initiatives and savings derived from these initiatives;
    
    changes in our business strategies;
    
    unexpected costs or delays incurred in connection with our previously announced and other future
facility closings;
    
    bankruptcy filings by customers;
    
    changes in our relationship with employees and the unions that represent them;
    
    the outcome of legal proceedings to which we are or may become a party, including any litigation
stemming from our 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.
   
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Commodity prices.
 
 Item 4. Controls and Procedures
   44




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##### 



45




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##### 



PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 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).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*
 
 *
    
    Filed herewith 46




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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)Dated: December 20, 2006
    
    By:
    
    /s/ Ronald B. HutchisonRonald B. HutchisonExecutive Vice President and ChiefFinancial Officer(Principal Financial Officer)
 47