Accounting & Tax

SEC Upgrades Interstate Bakeries Probe

Last July, the company began taking a closer look at how it sets its reserves for workers' compensation and other purposes.
Stephen TaubFebruary 1, 2005

Interstate Bakeries Corp. announced that the Securities and Exchange Commission has upgraded its informal probe to a formal order of investigation.

The company, best known for its Drake’s, Wonder, and Hostess brands, added that the investigation appears to concern matters related to the company’s manner for setting its reserves, especially those for workers’ compensation.

Interstate said it will continue to cooperate fully with the SEC. The company added that it does not plan to comment further on the matter and won’t issue updates.

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Last July, the company announced that its audit committee had retained Skadden, Arps, Slate, Meagher & Flom LLP to investigate how the company sets its reserves for workers’ compensation and other purposes; later that month, Interstate announced that the SEC was conducting an informal inquiry. The company’s audit committee eventually decided that a $40 million charge should be reflected in its second fiscal quarter.

In September, after missing an extended deadline to file its annual report, Interstate filed for Chapter 11 bankruptcy protection to give itself more time to complete its restructuring. In addition, chairman and chief executive officer James R. Elsesser resigned both positions.

Interstate’s board of directors named two new executives brought on from corporate advisory and turnaround management services firm Alvarez & Marsal Inc.: chief executive officer Tony Alvarez and as chief restructuring officer John Suckow. In addition, board member Leo Benatar was elected non-executive chairman.