Interstate Bakeries Corporation (IBC) said, as part of its continuing efforts to address its revenue declines and high cost structure, it plans to consolidate operations in its Northern California Profit Center (PC) by closing two bakeries in San Francisco and consolidating production, routes, depots and thrift stores. Interstate Bakeries expects to complete the consolidation by August 22, 2005, subject to bankruptcy court approval. The consolidation is expected to affect approximately 650 workers.
"In order to ensure a long and successful future for IBC and to save as many jobs as possible, the company must continue making these difficult decisions. I appreciate the years of dedicated service and hard work by our employees and deeply regret the impact this news may have on them. We will make every reasonable effort to make this transition as smooth as possible," said Tony Alvarez II, chief executive of IBC and co-founder and co-chief executive of Alvarez & Marsal, the global corporate advisory and turnaround management services firm.
The company's preliminary estimate of charges to be incurred in connection with the Northern California PC consolidation is approximately $13.5 million, including approximately $6.0 million of severance charges, approximately $2.5 million of asset impairment charges and approximately $5.0 million in other charges. IBC further estimates that approximately $11 million of such costs will result in future cash expenditures. In addition, the company intends to spend approximately $3 million in capital expenditures and accrued expenses to effect the consolidation. In addition to the asset impairment charges discussed above, IBC also expects to recognize charges to intangible assets related to trademarks and trade names that will be impaired as a result of the consolidation of operations announced. IBC says it is not able to provide an estimate of these changes currently.
The two bakeries to close as a result of this announcement are the 77-year-old Wonder/Hostess bakery and the 49-year-old Parisian San Francisco bakery. Distribution of IBC's branded products to supermarkets in the Northern California PC will be unaffected by the closure.
In addition, IBC is cutting 150 production jobs from its J.J. Nissen plant in Biddeford, Maine, as part of a regional consolidation by the bankrupt company, officials said.
The layoffs will be effective 60 days from now and will leave the bakery with roughly 500 employees, said company spokeswoman Maya Pogoda. IBC closed a bakery in New Bedford, Mass., late last month as part of the consolidation and announced an overall reduction of 1,400 jobs in the region. The cuts in Biddeford are part of that 1,400.
Pogoda said the Northeast is the third area to see consolidation, and that the Biddeford cuts are the last for the region. Pogoda said IBC eliminated several production lines at the bakery.
Interstate Bakeries said it is reviewing each of its 10 "profit centers" around the country for savings.
The moves are expected to be complete by mid-August, pending approval from the U.S. Bankruptcy Court in Kansas City.
Company officials said they expect the Northeast closing and consolidation to cost about $17 million, including severance payments, losses to the value of assets and other expenses.
In financial reports filed in May, Interstate reported losing $6.35 million during the four weeks that ended April 2, its smallest monthly loss since November. The U.S. Bankruptcy Court has required the monthly reports since the company filed for Chapter 11 protection in September 2004, blaming low sales and fixed operational costs.