In New York on January 11, the all-American tasty treat baking company, Hostess Brands, Inc., filed for bankruptcy under Chapter 11. This isn’t the first bankruptcy for the baker of Twinkies and Ding Dongs. After filing a previous bankruptcy as Interstate Bakeries Corporation in 2004, Hostess Brands emerged from that Chapter 11 in February 2009. Well, as Ronald Reagan would say, “there you go again…”
Heavily Unionized – Hostess with the Mostest Debts
In listing the debts that forced the company to seek federal bankruptcy relief, Hostess Brands cited increasing operational expenses and secured debts of $860 million. Although Hostess is making money, it isn’t making enough money to pay its obligations. Annual net revenue for FY ending May 28, 2011, was $2.5 billion, with assets of $1 billion and liabilities of $1.4 billion. Hostess reported its net loss of approximately $341 million for FY 2011.
Among the company’s largest creditors are labor unions and employee pensions. More specifically, payments to worker pensions, worker medical benefits, and “restrictive work rules” are choking profitability at Hostess. (For instance, in the FY ending in 2011, Hostess paid $52 million in workers compensation alone.) With 83% of its 19,000 employees unionized, Hostess negotiates with a 12 different union organizations. The top two being the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union and the International Brotherhood of Teamsters.
Brian J. Driscoll, Hostess Brands CEO, hopes that the company can “reach an agreement that will allow us to amend our labor contracts so that [Hostess] can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees.” For Hostess to emerge from bankruptcy as a competitive force in the food industry it must “achieve dramatic change to [its] labor agreements.” Driscoll says Hostess needs to extricate itself completely from multi-employer pension plans in an effort to regain control of the worker benefits that are crippling the company’s competitiveness. (Hostess Brands’ largest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, owed $944 million.)
Speaking for the Teamsters, Dennis Raymond wants the financial sacrifice to be shared by everyone, not just the union employees. “Our members have already given at the well, and this time it will take sacrifices among all parties [including] management, lenders, equity holders, and employees,” said the Teamsters Bakery & Laundry Conference director.
What are the labor options? Hostess Brands – an Irving, Texas, privately held organization – says it will seek a new deal with labor, but if those talks fail, then it will ask the court to stop implementation of the existing agreement.
No Deprivation for Consumers of Hostess Goodies
Hostess Brands was quick to assure its loyal customers that there will be no dieting imposed – the company will continue to bake and sell its goods without interruption. A financing commitment of $75 million from various lenders will keep the Hostess products on the shelves during the bankruptcy restructuring.
Are You Familiar with Hostess Brands?
Hostess was founded in 1930, so there’s a very good chance you’ll recognize a few of the company’s treasured brands: Butternut, Ding Dongs, Dolly Madison, Drake’s, Home Pride, Ho Hos, Hostess, Merita, Nature’s Pride, Twinkies, and Wonder.
Who invented the Twinkie? It was the golden sponge cake with a creamy filling invented in 1930 by James “Jimmy” Dewar, a baker at the Continental Baking Company in Schiller Park, Illinois.
Chapter 11 Affidavit of Brian J. Driscoll (2012)