##### Table of Contents



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 5, 2005
 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




---



##### Table of Contents



EXPLANATORY NOTE
  2




---



##### 



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
FORM 10-Q
QUARTER ENDED MARCH 5, 2005
 Description
    
    PagePART I  FINANCIAL INFORMATION (UNAUDITED)
    
    
    4ITEM 1. Financial Statements
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statement of Stockholders Equity (Deficit)
    
    
    7Notes to Consolidated Financial Statements
    
    
    8ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Forward-Looking Statements
    
    
    41ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44ITEM 4. Controls and Procedures
    
    
    44PART II  OTHER INFORMATION
    
    
    45ITEM 6. Exhibits
    
    
    45Signatures
    
    
    46CertificationCertificationSection 1350 CertificationSection 1350 Certification
  3




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 (dollars in thousands, except share data)
 March 5,
    
    
    May 29,2005
    
    
    2004ASSETSCurrent assetsCash
    
    $
    122,911
    
    
    $
    39,728Accounts receivable, less allowance for doubtful accounts of $4,054 and $3,700, respectively
    
    
    169,440
    
    
    
    182,060Inventories
    
    
    69,746
    
    
    
    71,901Assets held for sale
    
    
    9,995
    
    
    
    452Other current assets
    
    
    108,032
    
    
    
    108,577Total current assets
    
    
    480,124
    
    
    
    402,718Property and equipment, net
    
    
    742,540
    
    
    
    812,925Goodwill
    
    
    
    
    
    
    215,346Other intangible assets
    
    
    189,239
    
    
    
    190,416Other assets
    
    
    40,058
    
    
    
    52,392Total assets
    
    $
    1,451,961
    
    
    $
    1,673,797LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Liabilities not subject to compromiseCurrent liabilitiesLong-term debt payable within one year
    
    $
    482,352
    
    
    $
    542,701Accounts payable
    
    
    103,445
    
    
    
    158,754Accrued expenses
    
    
    252,917
    
    
    
    275,354Total current liabilities
    
    
    838,714
    
    
    
    976,809Long-term debt
    
    
    
    
    
    
    10,362Other liabilities
    
    
    287,096
    
    
    
    311,183Deferred income taxes
    
    
    102,249
    
    
    
    113,735Total liabilities not subject to compromise
    
    
    1,228,059
    
    
    
    1,412,089Liabilities subject to compromise
    
    
    281,439
    
    
    
    Stockholders equity (deficit)Preferred 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,
45,309,000 and 45,381,000 shares outstanding, respectively
    
    
    816
    
    
    
    816Additional paid-in capital
    
    
    585,682
    
    
    
    586,616Retained earnings
    
    
    42,082
    
    
    
    364,886Treasury stock, 36,270,000 and 36,198,000 shares at cost, respectively
    
    
    (679,197
    )
    
    
    (679,016
    )Unearned restricted stock compensation
    
    
    (3,832
    )
    
    
    (6,982
    )Accumulated other comprehensive loss
    
    
    (3,088
    )
    
    
    (4,612
    )Total stockholders equity (deficit)
    
    
    (57,537
    )
    
    
    261,708Total liabilities and stockholders equity (deficit)
    
    $
    1,451,961
    
    
    $
    1,673,797
  4




---



##### Table of Contents



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (dollars in thousands, except per share data)
 Sixteen Weeks Ended
    
    
    Forty Weeks Ended(Restated, See
    
    
    
    
    
    
    (Restated,Note 2)
    
    
    
    
    
    
    See Note 2)March 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    1,003,075
    
    
    $
    1,019,711
    
    
    $
    2,613,763
    
    
    $
    2,664,524Cost of products sold (exclusive of items shown below)
    
    
    506,101
    
    
    
    505,571
    
    
    
    1,332,062
    
    
    
    1,330,921Selling, delivery and administrative expenses
    
    
    481,346
    
    
    
    483,905
    
    
    
    1,261,276
    
    
    
    1,262,716Restructuring charges
    
    
    6,902
    
    
    
    1,463
    
    
    
    20,227
    
    
    
    4,155Depreciation and amortization
    
    
    27,507
    
    
    
    27,548
    
    
    
    68,688
    
    
    
    70,262Loss on sale or abandonment of assets
    
    
    8,583
    
    
    
    4,965
    
    
    
    9,914
    
    
    
    5,738Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    215,346
    
    
    
    Other intangible assets impairment
    
    
    132
    
    
    
    
    
    
    
    132
    
    
    
    1,030,571
    
    
    
    1,023,452
    
    
    
    2,907,645
    
    
    
    2,673,792Operating loss
    
    
    (27,496
    )
    
    
    (3,741
    )
    
    
    (293,882
    )
    
    
    (9,268
    )Other (income) expenseInterest expense (excluding unrecorded contractual
interest expense of $1,867, $0, $2,717, and $0,
respectively)
    
    
    12,872
    
    
    
    11,172
    
    
    
    31,182
    
    
    
    28,927Reorganization charges, net
    
    
    12,623
    
    
    
    
    
    
    
    25,065
    
    
    
    Other (income) expense
    
    
    (32
    )
    
    
    (10
    )
    
    
    97
    
    
    
    (26
    )25,463
    
    
    
    11,162
    
    
    
    56,344
    
    
    
    28,901Loss before income taxes
    
    
    (52,959
    )
    
    
    (14,903
    )
    
    
    (350,226
    )
    
    
    (38,169
    )Provision (benefit) for income taxes
    
    
    (7,632
    )
    
    
    (7,417
    )
    
    
    (27,422
    )
    
    
    (16,402
    )Net loss
    
    $
    (45,327
    )
    
    $
    (7,486
    )
    
    $
    (322,804
    )
    
    $
    (21,767
    )Loss per shareBasic
    
    $
    (1.01
    )
    
    $
    (0.17
    )
    
    $
    (7.18
    )
    
    $
    (0.49
    )Diluted
    
    $
    (1.01
    )
    
    $
    (0.17
    )
    
    $
    (7.18
    )
    
    $
    (0.49
    )
  5




---



##### Table of Contents



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (dollars in thousands)
 Forty Weeks Ended(Restated, SeeNote 2)March 5,
    
    
    March 6,2005
    
    
    2004Operating activitiesNet income (loss)
    
    $
    (322,804
    )
    
    $
    (21,767
    )Depreciation and amortization
    
    
    68,688
    
    
    
    70,262Provision for deferred income taxes
    
    
    13,775
    
    
    
    (20,086
    )Reorganization charges, net
    
    
    25,065
    
    
    
    Cash reorganization items
    
    
    (15,756
    )
    
    
    Non-cash interest expense  deferred debt fees
    
    
    4,047
    
    
    
    1,703Non-cash interest on swap agreements
    
    
    (655
    )
    
    
    (2,154
    )Non-cash restricted stock and deferred share compensation
expense
    
    
    1,371
    
    
    
    1,305Loss on sale, write-down or abandonment of assets
    
    
    15,062
    
    
    
    6,582Write-off of goodwill and other intangibles
    
    
    215,478
    
    
    
    Write-down of software assets
    
    
    4,424
    
    
    
    Write-off prior service cost asset
    
    
    12,384
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    12,620
    
    
    
    2,700Inventories
    
    
    2,155
    
    
    
    8,250Other current assets
    
    
    (24,716
    )
    
    
    3,157Accounts payable and accrued expenses
    
    
    56,170
    
    
    
    1,661Long-term portion of self insurance reserves
    
    
    12,398
    
    
    
    36,590Other
    
    
    4,482
    
    
    
    5,666Net cash from operating activities
    
    
    84,188
    
    
    
    93,869Investing activitiesPurchases of property and equipment
    
    
    (24,882
    )
    
    
    (39,867
    )Proceeds from sale of assets
    
    
    2,993
    
    
    
    4,160Acquisition of other intangible assets
    
    
    
    
    
    
    (12
    )Acquisition and development of software assets
    
    
    (5,838
    )
    
    
    (10,639
    )Other
    
    
    81
    
    
    
    (22
    )Net cash used in investing activities
    
    
    (27,646
    )
    
    
    (46,380
    )Financing activitiesReduction of long-term debt
    
    
    (75,357
    )
    
    
    (45,664
    )Increase in revolving credit facility
    
    
    11,651
    
    
    
    Issuance of convertible bonds
    
    
    100,000
    
    
    
    Common stock dividends paid
    
    
    
    
    
    
    (9,479
    )Stock option exercise proceeds
    
    
    
    
    
    
    776Acquisition of treasury stock
    
    
    (45
    )
    
    
    (22
    )Cash reorganization items
    
    
    (326
    )
    
    
    Debt fees
    
    
    (9,282
    )
    
    
    (30
    )Net cash from (used in) financing activities
    
    
    26,641
    
    
    
    (54,419
    )Net increase (decrease) in cash
    
    
    83,183
    
    
    
    (6,930
    )Cash at the beginning of period
    
    
    39,728
    
    
    
    44,961Cash at the end of period
    
    $
    122,911
    
    
    $
    38,031Cash payments (received)Interest
    
    $
    30,434
    
    
    $
    29,188Income taxes
    
    
    (21,260
    )
    
    
    967Non-cash investing and financing activitiesIssuance of restricted stock
    
    
    221
    
    
    
    7,839Equipment purchases financed with capital lease obligations
    
    
    409
    
    
    
    Long-term debt reduction from lease rejections
    
    
    1,365
    
    
    
    Asset disposals from lease rejections
    
    
    1,039
    
    
    
    
  6




---



##### Table of Contents



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
 (UNAUDITED)
 (dollars in thousands, except per share data )
 Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Accumulated
    
    
    TotalStock Issued
    
    
    Additional
    
    
    
    
    
    
    Treasury Stock
    
    
    Restricted
    
    
    Other
    
    
    StockholdersNumber
    
    
    Par
    
    
    Paid-in
    
    
    Retained
    
    
    Number of
    
    
    
    
    
    
    Stock
    
    
    Comprehensive
    
    
    Equityof Shares
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Cost
    
    
    Compensation
    
    
    Loss
    
    
    (Deficit)Balance May 29, 2004
    
    
    81,579
    
    
    $
    816
    
    
    $
    586,616
    
    
    $
    364,886
    
    
    
    (36,198
    )
    
    $
    (679,016
    )
    
    $
    (6,982
    )
    
    $
    (4,612
    )
    
    $
    261,708Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322,804
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,524
    
    
    
    (321,280
    )Restricted share award
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    
    
    
    
    20
    
    
    
    375
    
    
    
    (221
    )
    
    
    
    
    
    
    (1
    )Restricted share
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,667
    
    
    
    
    
    
    
    2,667Restricted share
forfeitures and other
    
    
    
    
    
    
    
    
    
    
    (779
    )
    
    
    
    
    
    
    (87
    )
    
    
    (511
    )
    
    
    704
    
    
    
    
    
    
    
    (586
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (45
    )Balance March 5, 2005
    
    
    81,579
    
    
    $
    816
    
    
    $
    585,682
    
    
    $
    42,082
    
    
    
    (36,270
    )
    
    $
    (679,197
    )
    
    $
    (3,832
    )
    
    $
    (3,088
    )
    
    $
    (57,537
    )
  7




---



##### Table of Contents



INTERSTATE BAKERIES CORPORATION
(DEBTOR-IN-POSSESSION)
 
 NOTES TO 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.
   8




---



##### Table of Contents



Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code
 9




---



##### Table of Contents



2. Restatement
  Workers Compensation Reserve
  ABA Plan
  Leases
  Depreciation
  Supplemental Executive Retirement Plans
  Cash
  Income
Taxes
   10




---



##### Table of Contents



Consolidated Statement of Operations
 Sixteen Weeks EndedMarch 6, 2004As Previously
    
    
    Effect ofConsolidated Statement of Operations
    
    Reported
    
    
    Restatement
    
    
    As Restated(dollars in thousands, except per share data)Cost of products sold
    
    $
    505,032
    
    
    $
    539

    
    
    $
    505,571Selling, delivery and administrative expenses
    
    
    483,558
    
    
    
    347

    
    
    
    483,905Depreciation and amortization
    
    
    32,230
    
    
    
    (4,682
    )
    
    
    27,548Loss on sale or abandonment of assets
    
    
    
    
    
    
    4,965
    
    
    
    4,965Operating loss
    
    
    (2,572
    )
    
    
    (1,169
    )

    
    
    (3,741
    )Interest expense
    
    
    10,935
    
    
    
    237
    
    
    
    11,172Loss before income taxes
    
    
    (13,497
    )
    
    
    (1,406
    )
    
    
    (14,903

    )Provision for income taxes
    
    
    (6,890
    )
    
    
    (527
    )
    
    
    (7,417

    )Net loss
    
    $
    (6,607
    )
    
    $
    (879
    )
    
    $
    (7,486
    )Loss per share:Basic
    
    $
    (0.15
    )
    
    $
    (0.02
    )
    
    $
    (0.17

    )Diluted
    
    $
    (0.15
    )
    
    $
    (0.02
    )
    
    $
    (0.17

    )
 Forty Weeks EndedMarch 6, 2004As Previously
    
    
    Effect ofConsolidated Statement of Operations
    
    Reported
    
    
    Restatement
    
    
    As Restated(dollars in thousands, except per share data)Cost of products sold
    
    $
    1,309,574
    
    
    $
    21,347
    
    
    $
    1,330,921Selling, delivery and administrative expenses
    
    
    1,232,078
    
    
    
    30,638
    
    
    
    1,262,716Depreciation and amortization
    
    
    75,151
    
    
    
    (4,889
    )

    
    
    70,262Loss on sale or abandonment of assets
    
    
    
    
    
    
    5,738
    
    
    
    5,738Operating income (loss)
    
    
    43,566
    
    
    
    (52,834
    )
    

    
    (9,268
    )Interest expense
    
    
    28,198
    
    
    
    729

    
    
    
    28,927Income (loss) before income taxes
    
    
    15,394
    
    
    
    (53,563
    )
    
    
    (38,169
    )Provision for income taxes
    
    
    3,684
    
    
    
    (20,086
    )
    
    
    (16,402

    )Net income (loss)
    
    $
    11,710
    
    
    $
    (33,477
    )
    
    $
    (21,767

    )Earnings (loss) per share:Basic
    
    $
    0.26
    
    
    $
    (0.75
    )
    
    $
    (0.49

    )Diluted
    
    $
    0.26
    
    
    $
    (0.75
    )
    
    $
    (0.49

    )
 11




---



##### Table of Contents



Consolidated Statement of Cash Flows
 Forty Weeks EndedMarch 6, 2004As Previously
    
    
    Effect ofConsolidated Statement of Cash Flows
    
    Reported
    
    
    Restatement
    
    
    As Restated(dollars in thousands)Operating activitiesNet income
    
    $
    11,710
    
    
    $
    (33,477
    )
    
    $
    (21,767
    )Depreciation and amortization
    
    
    75,151
    
    
    
    (4,889
    )
    
    
    70,262Provision for deferred income taxes
    
    
    
    
    
    
    (20,086
    )
    
    
    (20,086
    )Loss on sale, write-down or abandonment
of assets
    
    
    844
    
    
    
    5,738
    
    
    
    6,582Change in operating assets and liabilitiesInventories
    
    
    8,152
    
    
    
    98
    
    
    
    8,250Other current assets
    
    
    3,255
    
    
    
    (98
    )
    
    
    3,157Accounts payable and accrued expenses
    
    
    (1,129
    )
    
    
    2,790
    
    
    
    1,661Long-term portion of self insurance
reserves
    
    
    (1,410
    )
    
    
    38,000
    
    
    
    36,590Other
    
    
    16
    
    
    
    5,650
    
    
    
    5,666Net cash from operating activities
    
    
    100,143
    
    
    
    (6,274
    )
    
    
    93,869Financing activitiesReduction of long-term debt
    
    
    (45,008
    )
    
    
    (656
    )
    
    
    (45,664
    )Net cash used in financing activities
    
    
    (53,763
    )
    
    
    (656
    )
    
    
    (54,419
    )Net decrease in cash
    
    
    
    
    
    
    (6,930
    )
    
    
    (6,930
    )Cash at the beginning of period
    
    
    
    
    
    
    44,961
    
    
    
    44,961Cash at the end of period
    
    $
    
    
    
    $
    38,031
    
    
    $
    38,031
 3. Description of Business and Significant Accounting Policies
 Description of Business
    Significant Accounting Policies
 Significant Accounting Policies
 12




---



##### Table of Contents



Fiscal year end
 Principles of consolidation
 Use of estimates
 Cash and cash equivalents
 Assets held for sale 
 Liabilities subject to compromise.
 Reorganization charges.
 Stock-based compensation Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands, except per share data)Net loss, as reported
    
    $
    (45,327
    )
    
    $
    (7,486
    )
    
    $
    (322,804
    )
    
    $
    (21,767
    )Add: Stock-based
employee compensation
expense included in
reported net income, net
of related tax effects
    
    
    316
    
    
    
    413
    
    
    
    1,371
    
    
    
    807Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects
    
    
    (722
    )
    
    
    (1,884
    )
    
    
    (2,575
    )
    
    
    (5,431
    )Pro forma net loss
    
    $
    (45,733
    )
    
    $
    (8,957
    )
    
    $
    (324,008
    )
    
    $
    (26,391
    )Basic loss per share:As reported
    
    $
    (1.01
    )
    
    $
    (0.17
    )
    
    $
    (7.18
    )
    
    $
    (0.49
    )Pro forma
    
    
    (1.02
    )
    
    
    (0.20
    )
    
    
    (7.20
    )
    
    
    (0.59
    )Diluted loss per share:As reported
    
    
    (1.01
    )
    
    
    (0.17
    )
    
    
    (7.18
    )
    
    
    (0.49
    )Pro forma
    
    
    (1.02
    )
    
    
    (0.20
    )
    
    
    (7.20
    )
    
    
    (0.59
    )
 13




---



##### Table of Contents



Contingencies Accounting for Contingencies
 Newly Adopted Accounting Pronouncements Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction and Qualified Production Activities Provided by
the American Jobs Creation Act of 2004 Accounting for Income Taxes
 Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003
 Employers Disclosures about
Pensions and Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106
 14




---



##### Table of Contents



Recently Issued Accounting Pronouncements Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Accounting for Rental Costs
Incurred during a Construction Period
 Accounting for Conditional Asset Retirement Obligations
 an interpretation of FASB Statement No. 143
 Share-Based Payment Accounting for Stock Issued to Employees
 Exchanges of Nonmonetary Assets  An Amendment of
APB Opinion No. 29
 Inventory Costs  An Amendment of ARB No. 43,
Chapter 4 .
 15




---



##### Table of Contents



4. Inventories
  March 5,
    
    
    May 29,2005
    
    
    2004(dollars in thousands)Ingredients and packaging
    
    $
    49,153
    
    
    $
    48,936Finished goods
    
    
    20,593
    
    
    
    22,965$
    69,746
    
    
    $
    71,901
 5. Property and Equipment
 Property
  March 5,
    
    
    May 29,2005
    
    
    2004(dollars in thousands)Land and buildings
    
    $
    444,999
    
    
    $
    462,668Machinery and equipment
    
    
    1,051,736
    
    
    
    1,088,9851,496,735
    
    
    
    1,551,653Less accumulated depreciation
    
    
    (754,195
    )
    
    
    (738,728
    )$
    742,540
    
    
    $
    812,925
 6. Assets Held for Sale
   7. Lease Obligations
  16




---



##### Table of Contents



Guarantors Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others
 8. Goodwill and Other Intangible Assets
    March 5,
    
    
    May 29,2005
    
    
    2004(dollars in thousands)GoodwillGross carrying amount
    
    $
    215,346
    
    
    $
    215,346Impairment charge
    
    
    (215,346
    )
    
    
    Net carrying amount
    
    $
    
    
    
    $
    215,346Intangible assets with indefinite livesGross carrying amount
    
    $
    180,662
    
    
    $
    180,662Intangible assets with finite livesGross carrying amount
    
    $
    19,484
    
    
    $
    19,484Less:Accumulated amortization
    
    
    (10,775
    )
    
    
    (9,730
    )Impairment charge
    
    
    (132
    )
    
    
    Net carrying amount
    
    $
    8,577
    
    
    $
    9,754
  17




---



##### Table of Contents



9. Debt
  March 5,
    
    
    May 29,2005
    
    
    2004(dollars in thousands)Secured:Post-petition credit agreement
    
    $
    
    
    
    $
    Senior secured credit facility  pre-petition
    
    
    476,152
    
    
    
    537,626Unsecured:6% senior subordinated convertible notes  pre-petition
    
    
    100,000
    
    
    
    Capital leases  pre-petition
    
    
    11,927
    
    
    
    15,437588,079
    
    
    
    553,063Less:Current portion
    
    
    (482,352
    )
    
    
    (542,701
    )Pre-filing date claims included in liabilities subject to compromise
    
    
    (105,727
    )
    
    
    Long-term debt
    
    $
    
    
    
    $
    10,362
 Post-Petition Credit Agreement
    18




---



##### Table of Contents



Senior Secured Credit Facility
  6% Senior Subordinated Convertible Notes
  Other Matters
   10. Derivative Instruments
 Accounting for
Derivative Instruments and Hedging Activities
  19




---



##### Table of Contents



11. Liabilities Subject to Compromise
     March 5, 2005(dollars in thousands)Accounts payable
    
    $
    128,877Taxes payable
    
    
    10,283Retirement obligations (SERP and deferred compensation)
    
    
    13,497Legal reserve
    
    
    12,931Interest bearing debt
    
    
    105,727Other
    
    
    10,124$
    281,439
 12. Employee Benefit Plans
 American Bakers Association Retirement Plan
  20




---



##### Table of Contents



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    631
    
    
    $
    773
    
    
    $
    1,577
    
    
    $
    1,933Interest cost
    
    
    1,001
    
    
    
    883
    
    
    
    2,501
    
    
    
    2,207Expected return on negative plan assets
    
    
    122
    
    
    
    79
    
    
    
    306
    
    
    
    197Recognition ofPrior service cost
    
    
    130
    
    
    
    418
    
    
    
    326
    
    
    
    1,044Actuarial (gain) loss
    
    
    2,372
    
    
    
    (326
    )
    
    
    5,930
    
    
    
    (816
    )Net pension expense
    
    $
    4,256
    
    
    $
    1,827
    
    
    $
    10,640
    
    
    $
    4,565
 Defined Benefit Pension Plan
  21




---



##### Table of Contents



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    207
    
    
    $
    217
    
    
    $
    517
    
    
    $
    541Interest cost
    
    
    1,147
    
    
    
    1,143
    
    
    
    2,867
    
    
    
    2,857Expected return on plan assets
    
    
    (1,338
    )
    
    
    (1,032
    )
    
    
    (3,344
    )
    
    
    (2,580
    )Recognition ofPrior service cost
    
    
    53
    
    
    
    54
    
    
    
    133
    
    
    
    136Actuarial loss
    
    
    62
    
    
    
    443
    
    
    
    154
    
    
    
    1,109Net pension expense
    
    $
    131
    
    
    $
    825
    
    
    $
    327
    
    
    $
    2,063
 Postretirement Health and Life Plans
   Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    899
    
    
    $
    1,535
    
    
    $
    2,247
    
    
    $
    3,837Interest cost
    
    
    1,510
    
    
    
    2,563
    
    
    
    3,774
    
    
    
    6,407AmortizationUnrecognized prior service cost (benefit)
    
    
    (2,015
    )
    
    
    (1,069
    )
    
    
    (5,037
    )
    
    
    (2,671
    )Unrecognized net loss
    
    
    498
    
    
    
    1,350
    
    
    
    1,246
    
    
    
    3,374Net postretirement benefit expense
    
    $
    892
    
    
    $
    4,379
    
    
    $
    2,230
    
    
    $
    10,947
  13. Supplemental Executive Retirement Plan
  22




---



##### Table of Contents



Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Service cost
    
    $
    
    
    
    $
    328
    
    
    $
    462
    
    
    $
    820Interest cost
    
    
    414
    
    
    
    464
    
    
    
    1,184
    
    
    
    1,160Recognition ofPrior service cost
    
    
    
    
    
    
    840
    
    
    
    1,259
    
    
    
    2,100Actuarial loss
    
    
    
    
    
    
    32
    
    
    
    58
    
    
    
    80Net periodic pension cost
    
    
    414
    
    
    
    1,664
    
    
    
    2,963
    
    
    
    4,160Net curtailment loss related to plan suspension
    
    
    
    
    
    
    
    
    
    
    10,341
    
    
    
    Total SERP expense
    
    $
    414
    
    
    $
    1,664
    
    
    $
    13,304
    
    
    $
    4,160
 14. Key Employee Retention Plan
  .
 15. Restructuring Charges
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Severance costs
    
    $
    2,758
    
    
    $
    101
    
    
    $
    5,046
    
    
    $
    1,314Long-lived asset charges
    
    
    3,243
    
    
    
    300
    
    
    
    11,145
    
    
    
    650Other exit costs
    
    
    901
    
    
    
    1,062
    
    
    
    4,036
    
    
    
    2,191Total
    
    $
    6,902
    
    
    $
    1,463
    
    
    $
    20,227
    
    
    $
    4,155
 23




---



##### Table of Contents



Fiscal 2005 Activity
        24




---



##### Table of Contents



Long-LivedSeverance
    
    Assetand Related
    
    ChargesBenefits
    
    (Credits)
    
    Other
    
    Total(dollars in thousands)Third Quarter 2003 PlanBalance May 29, 2004
    
    $
    
    
    
    $
    
    
    
    $
    1,294
    
    
    $
    1,294Expensed in Fiscal 2005
    
    
    
    
    
    
    187
    
    
    
    219
    
    
    
    406Cash Paid in Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    (480
    )
    
    
    (480
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (187
    )
    
    
    (1,033
    )
    
    
    (1,220
    )Balance, March 5, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Second Quarter 2004 PlanBalance May 29, 2004
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    117Expensed in Fiscal 2005
    
    
    (28
    )
    
    
    124
    
    
    
    999
    
    
    
    1,095Cash Paid in Fiscal 2005
    
    
    (67
    )
    
    
    
    
    
    
    (999
    )
    
    
    (1,066
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (124
    )
    
    
    
    
    
    
    (124
    )Balance, March 5, 2005
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Fourth Quarter 2004 PlanBalance May 29, 2004
    
    
    1,243
    
    
    
    
    
    
    
    3,109
    
    
    
    4,352Expensed in Fiscal 2005
    
    
    (478
    )
    
    
    280
    
    
    
    1,136
    
    
    
    938Cash Paid in Fiscal 2005
    
    
    (758
    )
    
    
    
    
    
    
    (4,245
    )
    
    
    (5,003
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (280
    )
    
    
    
    
    
    
    (280
    )Balance, March 5, 2005
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Monroe, LA Bakery ClosingExpensed in Fiscal 2005
    
    
    328
    
    
    
    354
    
    
    
    307
    
    
    
    989Cash Paid in Fiscal 2005
    
    
    (146
    )
    
    
    
    
    
    
    (307
    )
    
    
    (453
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (354
    )
    
    
    
    
    
    
    (354
    )Balance, March 5, 2005
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    182Buffalo, NY Bakery Closing & Outlet ClosingsExpensed in Fiscal 2005
    
    
    1,377
    
    
    
    2,937
    
    
    
    766
    
    
    
    5,080Cash Paid in Fiscal 2005
    
    
    (1,206
    )
    
    
    
    
    
    
    (610
    )
    
    
    (1,816
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (2,937
    )
    
    
    (156
    )
    
    
    (3,093
    )Balance, March 5, 2005
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    171Pacific NorthwestExpensed in Fiscal 2005
    
    
    677
    
    
    
    30
    
    
    
    557
    
    
    
    1,264Cash Paid in Fiscal 2005
    
    
    (561
    )
    
    
    
    
    
    
    (102
    )
    
    
    (663
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (30
    )
    
    
    (455
    )
    
    
    (485
    )Balance, March 5, 2005
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Florence, SC Bakery ClosingExpensed in Fiscal 2005
    
    
    1,571
    
    
    
    2,724
    
    
    
    52
    
    
    
    4,347Cash Paid in Fiscal 2005
    
    
    (1,097
    )
    
    
    
    
    
    
    (52
    )
    
    
    (1,149
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (2,724
    )
    
    
    
    
    
    
    (2,724
    )Balance, March 5, 2005
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    474Companywide Reduction-in-ForceExpensed in Fiscal 2005
    
    
    1,599
    
    
    
    
    
    
    
    
    
    
    
    1,599Cash Paid in Fiscal 2005
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    
    (212
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, March 5, 2005
    
    
    1,387
    
    
    
    
    
    
    
    
    
    
    
    1,387Software Write-OffExpensed in Fiscal 2005
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509Cash Paid in Fiscal 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (4,509
    )
    
    
    
    
    
    
    (4,509
    )Balance, March 5, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedBalance, May 29, 2004
    
    
    1,360
    
    
    
    
    
    
    
    4,403
    
    
    
    5,763Expensed in Fiscal 2005
    
    
    5,046
    
    
    
    11,145
    
    
    
    4,036
    
    
    
    20,227Cash Paid in Fiscal 2005
    
    
    (4,047
    )
    
    
    
    
    
    
    (6,795
    )
    
    
    (10,842
    )Noncash Utilization in
Fiscal 2005
    
    
    
    
    
    
    (11,145
    )
    
    
    (1,644
    )
    
    
    (12,789
    )Balance, March 5, 2005
    
    $
    2,359
    
    
    $
    
    
    
    $
    
    
    
    $
    2,359
 25




---



##### Table of Contents



Fiscal 2004 Activity
        Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (Credits)
    
    
    Other
    
    
    TotalSecond Quarter 2003 Plan
    
    $
    1,464
    
    
    $
    (1,396
    )
    
    $
    1,747
    
    
    $
    1,815Third Quarter 2003 Plan
    
    
    2,840
    
    
    
    2,829
    
    
    
    4,971
    
    
    
    10,640Second Quarter 2004 Plan
    
    
    630
    
    
    
    641
    
    
    
    1,730
    
    
    
    3,001Third Quarter 2004 Plan
    
    
    
    
    
    
    1,200
    
    
    
    
    
    
    
    1,200Fourth Quarter 2004 Plan
    
    
    1,835
    
    
    
    687
    
    
    
    5,237
    
    
    
    7,759Monroe, LA Bakery Closing
    
    
    328
    
    
    
    354
    
    
    
    307
    
    
    
    989Buffalo, NY Bakery
Closing & Outlet
Closings
    
    
    1,377
    
    
    
    2,937
    
    
    
    766
    
    
    
    5,080Pacific Northwest
    
    
    677
    
    
    
    30
    
    
    
    557
    
    
    
    1,264Florence, SC Bread and
Roll Bakery
    
    
    1,571
    
    
    
    2,724
    
    
    
    52
    
    
    
    4,347Companywide
Reduction-in-Force
    
    
    1,599
    
    
    
    
    
    
    
    
    
    
    
    1,599Software Write-Off
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509
 26




---



##### Table of Contents



Long-LivedSeverance
    
    
    Assetand Related
    
    
    ChargesBenefits
    
    
    (Credits) (1)
    
    
    Other
    
    
    TotalThird Quarter 2003 Plan
    
    $
    
    
    
    $
    192
    
    
    $
    172
    
    
    $
    364Second Quarter 2004 Plan
    
    
    4
    
    
    
    208
    
    
    
    64
    
    
    
    276Fourth Quarter 2004 Plan
    
    
    68
    
    
    
    15
    
    
    
    (17
    )
    
    
    66Monroe, LA Bakery Closing
    
    
    (112
    )
    
    
    24
    
    
    
    50
    
    
    
    (38
    )Buffalo, NY Bakery
Closing & Outlet
Closings
    
    
    (3
    )
    
    
    68
    
    
    
    622
    
    
    
    687Florence, SC Bakery
Closing
    
    
    93
    
    
    
    172
    
    
    
    376
    
    
    
    641Companywide
Reduction-in-Force
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45
 
 (1)
    
    Excludes gains realized on subsequent sales of real property. 16. Reorganization Charges
  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 rejections
    
    
    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




---



##### Table of Contents



17. Income Taxes
  Forty Weeks EndedMarch 5,
    
    
    March 6,2005
    
    
    2004Statutory federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net
    
    
    2.7
    
    
    
    2.7Non-deductible goodwill impairment
    
    
    (18.7
    )
    
    
    Valuation allowance increase
    
    
    (13.2
    )
    
    
    Adjustments to prior year accruals and refundable credits
    
    
    2.3
    
    
    
    5.1Other
    
    
    (0.3
    )
    
    
    0.27.8
    %
    
    
    43.0
    %
    18. Commitments and Contingencies
   28




---



##### Table of Contents



29




---



##### Table of Contents



30




---



##### Table of Contents



31




---



##### Table of Contents



19. Earnings (Loss) per Share
 Earnings per
Share
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Weighted average common shares outstanding:Basic
    
    
    45,045
    
    
    
    44,903
    
    
    
    44,984
    
    
    
    44,878Effect of dilutive stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    45,045
    
    
    
    44,903
    
    
    
    44,984
    
    
    
    44,878
  32




---



##### Table of Contents



20. Comprehensive Income (Loss)
  Sixteen Weeks Ended
    
    
    Forty Weeks EndedMarch 5,
    
    
    March 6,
    
    
    March 5,
    
    
    March 6,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollars in thousands)Net loss
    
    $
    (45,327
    )
    
    $
    (7,486
    )
    
    $
    (322,804
    )
    
    $
    (21,767
    )Other comprehensive income (loss):Change in fair value of cash flow hedges, net of income taxes
of $0, $330, $0, and $1,762, respectively
    
    
    1,063
    
    
    
    (549
    )
    
    
    (365
    )
    
    
    2,937Losses on interest rate swaps reclassified to interest
expense, net of income taxes of $0, $978, $0, and $2,772,
respectively
    
    
    
    
    
    
    1,630
    
    
    
    816
    
    
    
    4,621Commodity derivative (gains) losses reclassified to cost of
products sold, net of income taxes of $0, $1,437, $0, and
$1,867, respectively
    
    
    (159
    )
    
    
    (2,395
    )
    
    
    852
    
    
    
    (3,111
    )Minimum pension liability adjustment, net of income taxes of $0
    
    
    
    
    
    
    
    
    
    
    221
    
    
    
    904
    
    
    
    (1,314
    )
    
    
    1,524
    
    
    
    4,447Comprehensive loss
    
    $
    (44,423
    )
    
    $
    (8,800
    )
    
    $
    (321,280
    )
    
    $
    (17,320
    )
 21. Segment Information
 Disclosures about Segments of an Enterprise and Related Information
  Wholesale Operations
 33




---



##### Table of Contents



Retail Operations
     Sixteen Weeks
    
    
    Forty WeeksEnded
    
    
    EndedConsolidated
    
    March 5, 2005
    
    
    March 5, 2005(dollars in thousands)Net SalesWholesale Operations
    
    $
    887,770
    
    
    $
    2,297,013Retail Operations
    
    
    115,305
    
    
    
    316,750Total net sales
    
    $
    1,003,075
    
    
    $
    2,613,763Operating Income (Loss)Wholesale Operations
    
    $
    12,017
    
    
    $
    38,072Retail Operations
    
    
    458
    
    
    
    1,57912,475
    
    
    
    39,651Corporate
    
    
    (39,971
    )
    
    
    (333,533
    )Total operating loss
    
    
    (27,496
    )
    
    
    (293,882
    )Interest expense
    
    
    12,872
    
    
    
    31,182Reorganization charges
    
    
    12,623
    
    
    
    25,065Other (income) expense
    
    
    (32
    )
    
    
    9725,463
    
    
    
    56,344Loss before income taxes
    
    
    (52,959
    )
    
    
    (350,226
    )Provision (benefit) for income taxes
    
    
    (7,632
    )
    
    
    (27,422
    )Net loss
    
    $
    (45,327
    )
    
    $
    (322,804
    )
 22. Subsequent Events
  34




---



##### Table of Contents



35




---



##### Table of Contents



36




---



##### Table of Contents



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
 RESTATEMENT OF FINANCIAL STATEMENTS
  RESULTS OF OPERATIONS
  Sixteen Weeks Ended
    
    Forty Weeks Ended(Restated)
    
    
    
    
    
    (Restated)March 5,
    
    March 6,
    
    March 5,
    
    March 6,2005
    
    2004
    
    2005
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold
    
    
    50.4
    
    
    
    49.6
    
    
    
    51.0
    
    
    
    49.9Selling, delivery and administrative expenses
    
    
    48.0
    
    
    
    47.5
    
    
    
    48.3
    
    
    
    47.4Restructuring charges
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.8
    
    
    
    0.2Depreciation and amortization and loss on sale
or abandonment of assets
    
    
    3.6
    
    
    
    3.2
    
    
    
    3.0
    
    
    
    2.8Goodwill and other intangible assets impairment
    
    
    
    
    
    
    
    
    
    
    8.2
    
    
    
    Operating loss
    
    
    (2.7
    )
    
    
    (0.4
    )
    
    
    (11.3
    )
    
    
    (0.3
    )Reorganization charges
    
    
    1.3
    
    
    
    
    
    
    
    0.9
    
    
    
    Interest expense  net
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.1Loss before income taxes
    
    
    (5.3
    )
    
    
    (1.5
    )
    
    
    (13.4
    )
    
    
    (1.4
    )Income taxes
    
    
    (0.8
    )
    
    
    (0.7
    )
    
    
    (1.0
    )
    
    
    (0.6
    )Net loss
    
    
    (4.5
    )%
    
    
    (0.8
    )%
    
    
    (12.4
    )%
    
    
    (0.8
    )%
 37




---



##### Table of Contents



Net sales.
 Gross profit.
 Selling, delivery and administrative expenses.
 Restructuring charges.
 Goodwill impairment. Goodwill and Other Intangible Assets
 38




---



##### Table of Contents



Operating loss.
 Reorganization charges.
  Interest expense.
 Provision for income taxes.
 CASH RESOURCES AND LIQUIDITY
 Sources of Liquidity and Capital Cash Resources and Liquidity
 CASH FLOWS
  Cash from operating activities.
 39




---



##### Table of Contents



Cash used in investing activities.
 Cash used in financing activities.
 OFF-BALANCE SHEET FINANCING
  CONTRACTUAL OBLIGATIONS
     FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
  RECENT ACCOUNTING PRONOUNCEMENTS
  40




---



##### Table of Contents



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 negotiate an extension (if necessary) or refinance our DIP facility,
which, pursuant to an extension, expires on June 2, 2007;
    
    our ability to develop, propose, confirm and consummate one or more plans of
reorganization with respect to the Chapter 11 proceeding;
    
    risks associated with failing to obtain court approval for one or more extensions
to the exclusivity period for us to propose and confirm one or more plans of
reorganization or with third parties seeking and obtaining court approval to terminate
or shorten any such exclusivity period, for the appointment of a Chapter 11 trustee or
to convert the Chapter 11 proceeding to a Chapter 7 proceeding;
    
    risks associated with our restructuring process, including the risks associated
with achieving the desired savings in connection with our profit center restructuring
and bakery and route consolidations 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 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 recognize, 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;
 41




---



##### Table of Contents




    
    the results of a Securities and Exchange Commission, or SEC, investigation
concerning our financial statements following our announcement that the audit
committee of our board of directors had retained independent counsel to investigate
our manner of setting its workers compensation and other reserves;
    
    the delayed filing with the SEC of our Annual Reports on Form 10-K and of our
Quarterly Reports on Form 10-Q;
    
    successful resolution of material weaknesses in our internal controls;
    
    resolution of any deficiencies and implementation of software updates with respect
to our financial reporting systems;
    
    changes to dietary guidelines;
    
    the continuing effects of a low carbohydrate diet trend;
    
    the performance of our recent new product introductions, including the success of
such new products in achieving and retaining market share;
    
    commodity and energy costs;
    
    risks associated with price increases; 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;
    
    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.
 42




---



##### Table of Contents



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 efficiency 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 rights;
    
    future product recalls or food safety concerns;
    
    further consolidation in the retail food industry;
    
    changes in consumer tastes or eating habits;
    
    costs associated with environmental compliance and remediation;
    
    increased costs and uncertainties related to periodic renegotiation of union contracts;
    
    obligations and uncertainties with respect to the American Bakers Association Retirement Plan;
    
    the impact of any withdrawal liability arising under our multi-employer pension
plans as a result of prior actions or current consolidations;
    
    actions of governmental entities, including regulatory requirements;
    
    acceptance of new product offerings by consumers and our ability to expand existing brands;
    
    the performance of our recent new product introductions;
    
    the effectiveness of hedging activities;
    
    expenditures necessary to carry out cost-saving initiatives and savings derived
from these initiatives;
    
    changes in our business strategies;
    
    unexpected costs or delays incurred in connection with our previously announced and
other future facility closings;
 43




---



##### Table of Contents




    
    bankruptcy filings by customers;
    
    changes in our relationship with employees and the unions that represent them;
    
    the outcome of legal proceedings to which we are or may become a party, including
any litigation stemming from our restatement of the first, second and third quarters
of fiscal 2004, our sale of convertible notes on August 12, 2004 or events leading up
to our filing of a voluntary petition for protection under Chapter 11 of the
Bankruptcy Code;
    
    business disruption from terrorist acts, our nations response to such acts and acts of war; and
    
    other factors.
   
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Commodity prices.
 Interest rates.
 
 Item 4. Controls and Procedures
   44




---



##### Table of Contents



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 45




---



##### Table of Contents



SIGNATURES
  INTERSTATE BAKERIES CORPORATIONDated: October 6, 2006
    By:
/s/
Antonio C. Alvarez IIAntonio C. Alvarez IIChief Executive Officer
(Principal Executive Officer)Dated: October 6, 2006
    By:

/s/
Ronald B. HutchisonRonald B. HutchisonExecutive Vice President and Chief
Financial Officer 
(Principal Financial Officer) 46