make WWAY your homepage  Become a fan on facebook  Follow us on twitter  Receive RSS Newsfeeds  MEMBERS: Register | Login

facts to go along with the hysteria

Testimony of expert witness Harry J. Wilson in the latest bankruptcy proceeding of Hostess by

I have been asked to give my expert analysis of the causes of Hostess’s current financial condition, what steps would be required for the Company to reorganize and what a
prudent investor, including a labor union investing through granted concessions, would require
to invest in a reorganized Hostess. Through working with my MAEVA colleagues, I have
determined that Hostess’ financial challenges are a result of a number of problems, largely of
its own making – years of underinvestment in products, facilities and equipment; long-term
neglect of once-dominant brands; a hollowing-out of a distribution system that once provided a
competitive advantage only a few short years ago when Hostess was the largest baking
business in the US; a failure to innovate and develop compelling products in newer, highergrowth
product segments, leaving them dangerously over-represented in the declining legacy
segments; management missteps and a Board that allowed these mistakes to continue for far
too long; a failure to compete effectively to acquire niche products and expand its product
offering to improve its competitive position; and a grossly overleveraged capital structure
imposed in the first Chapter 11 case.

13. While Hostess’ labor costs are higher than some of its competitors, roughly half
of its largest competitors operate under similar union contracts and thus have similar (and, in
many cases, higher) labor cost structures. In fact, of the 20 largest baking companies (as
categorized by Hoover’s), 16 of these companies have some unionized employees and 9 of the
16 have roughly comparable IBT representation to Hostess. It is my understanding that many of
these contracts actually have better compensation and benefits than the Hostess IBT contracts
as most of these other companies did not receive the concessions which Hostess received
during its first bankruptcy. Furthermore, the Company’s labor costs and multi-employer
pension plan contributions since its exit from bankruptcy in early 2009 have been more or less
as anticipated, highlighting the fact that its current labor costs are not the primary cause of its
current financial problems.

14. During its first Chapter 11 restructuring, unionized employees provided two
rounds of concessions to the Company, with Hostess’ Teamster-represented work force
providing over $60 million in annualized savings (total labor savings were approximately $110
million). Labor costs and MEPP contributions since emergence have been right in line with
what the Company projected in its five year business plan in February 2009.

In other words, had the Company met its own projections (as it, in fact, did for its labor costs),
the Company would be generating substantial positive operating cash flow and would not have
needed to file Chapter 11.


The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

More information about formatting options

To prevent automated spam submissions leave this field empty.
Please re-enter the code shown in the image below.