SEC reserve inquiry of Interstate Bakeries intensifies

February 1st, 2005 by Julie Ferguson

Roberto Ceniceros of Business Insurance reports that the SEC intensified its probe of Interstate Bakeries, moving from an informal to a formal investigation of its workers comp reserves. The company employs more than 30,000 workers and is the nation’s largest wholesale baker. Think Twinkies, Hostess, Drakes, and Wonderbread.
According to Columbus Business First, the inquiry began last July when the Kansas City-based company said it might have incorrectly accounted for reserves. More recently, the company filed for Chapter 11 and ousted executive staff:
“Interstate Bakeries in December removed its treasurer and senior vice president of finance after identifying a “material weakness” that allowed the $40 million workers’ comp charge to go unreported for two quarters.
According to unaudited financials the company recently released, the $40 million charge accounted for most of the company’s swing from a $27.5 million profit in fiscal year 2003 to a $25.8 million loss in fiscal year 2004.”

$40 million is a lot of cupcakes. Reserves have been the demise of more than one company, let’s hope this large employer will be able to weather the challenge. We recently discussed reserve problems in the context of a Kentucky self-insurance group (SIG) that was grossly under-reserved, and also discussed what happens to workers comp claims when an insurer defaults. This bears watching.

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