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November 16, 2012

Twinkie maker Hostess reaches the end of the line

(Continued)

NEW YORK —

As larger competitors inundated supermarket shelves with an array of new snacks and variations on popular brands, Hostess cakes seemed caught in a bygone time. The company took small stabs at keeping up with Americans' movement toward healthier foods, such as the introduction of its 100-calorie packs of cupcakes.

But the efforts did little to change its image as a purveyor of empty calories with a seemingly unlimited shelf life: Twinkies, for instance, have 150 calories and 4.5 grams of fat. Meanwhile, a Ding Dong chocolate cake with filling has 368 calories and 19.4 grams of fat.

Even taking into account changing tastes and competition, Hostess' problems were ultimately rooted in its financials. The company filed for Chapter 11 bankruptcy protection in January— the company's second in less than a decade. Its predecessor company, Interstate Bakeries, filed for bankruptcy protection in 2004 and changed its name to Hostess after emerging in 2009.

Hostess, based in Irving, Texas, had been saddled with high pension, wage and medical costs related to its unionized workforce. The company had been contributing $100 million a year in pension costs; the new contract offer would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits.

Tensions between management and workers were also an ongoing problem. Hostess came under fire this year after it was revealed that nearly a dozen executives received pay hikes of up to 80 percent in 2011 even as the company was struggling. Although some of those executives later agree to reduced salaries, others — including the former CEO Brain Driscoll — had left the company by the time the pay hikes came to light.

Hostess filed a motion to liquidate Friday with U.S. Bankruptcy Court after it said striking workers across the country crippled its ability to maintain production. The shuttering means the loss of about 18,500 jobs. Hostess said employees at its 33 factories were sent home and operations suspended Friday. Its roughly 500 bakery outlet stores will stay open for several days to sell remaining products.

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