Milling & Baking News - September 25, 2007 - 1

THE NEWS WEEKLY OF GRAIN-BASED FOODS
SEPTEMBER 25, 2007

bakingbusiness.com / foodbusinessnews.net

FEATURE

I.B.C. viability increasingly in
doubt after labor talks collapse

Balancing needs
Seeking trans-fat-free alternatives that
perform like 'hard' fats, formulators
must weigh saturated content
against desired finished product
characteristics.
Story on Page 27

LATE NEWS

Johanns resigns,
Conner to take over
as acting secretary
WASHINGTON - Secretary of Agriculture Mike Johanns resigned his
post last week, a move that opens
the door for him to return home to
Nebraska and potentially run for
the U.S. Senate. Sworn in as the 28th
Secretary of Agriculture on Jan. 21,
2005, Mr. Johanns was born in Iowa
as the son of a dairy farmer and went
on to serve as Nebraska's 38th governor before coming to his post at
the U.S.D.A. "He brought focus and
energy to the department," President
Bush said. "He was a champion of
Continued on Page 8

KANSAS CITY - The prospect that Interstate Bakeries Corp. will not emerge
intact from bankruptcy grew more
likely last week as the company's share
price plunged toward worthlessness.
Following a week
of breakdowns in
union talks and the
introduction of contingency plans for liquidation, the market
value of Kansas Citybased I.B.C. sunk as
low as $16 million, or
a share price at 35c, down 93% from the
52-week high and down 77% from a share
price of $1.50 as recently as Aug. 17. At its
peak after its September 2004 bankruptcy filing, Interstate's market value was
$455 million.
The decline suggested it was increasingly unlikely equity holders
would receive any value from their
I.B.C. holdings and also increasingly
raised questions about whether debt-

holders would "come out whole."
The precipitous fall of the nation's
largest wholesale baker coincides
with the company's three-year anniversary since filing for bankruptcy
in September 2004.
Now, the company
finds itself considering selling off its
assets.
Things have not
always looked so
bleak for I.B.C. in
the past three years.
Despite acknowledging the difficulties
associated with climbing out of bankruptcy, the company appeared optimistic it would be able to do just that.
Tony Alvarez II, who on Sept. 22,
2004, was named chief executive officer
of I.B.C., was among those who felt the
circumstances at I.B.C. were not too dire.
With extensive experience at the helm of
troubled companies, Mr. Alvarez said at
Continued on Page 12

Milling experiences high interest
costs even as Fed lowers rate
KANSAS CITY - While dramatically
higher wheat prices stand as the principal contributor to rapidly escalating
bakery flour costs, another force having
an unprecedented impact on the flour
business is surging interest expense.
Last week's stimulative cut by the
Federal Reserve Board in the federal
funds rate (to 4.75% from 5.25%), followed by cuts in the banks' prime lending rate (to 7.75% from 8.25%) offered

some relief. Yet interest paid on wheat
inventories valued at $8 a bu was dramatically higher for milling companies
than in the past.
At their peaks, wheat prices were more
than double levels prevailing a year ago
and more than triple the decade's low of
just over $2.50 a bu.
"The impact has been amazing,"
said Paul Maass, president and general manager, ConAgra Mills, part of
ConAgra Foods, Inc., Omaha. "In just
this quarter versus last quarter, the
wheat price has required a tremendous increase in working capital for
the flour milling business."
On the income sheet, Mr. Maass said
the higher wheat prices have a significant impact on the net sales line offset by
Continued on Page 10

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Milling & Baking News - September 25, 2007

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