IRVING, TEXAS — Hostess Brands, Inc. considered the possibility of a forced liquidation or orderly breakup more than a year before the company actually ceased operations, according to a 32-page document filed Dec. 27 in the U.S. Bankruptcy Court for the Southern District of New York.

According to the document, titled “Hostess Brands Inc.: Forced liquidation and orderly breakup analysis,” Hostess in July-August 2011 hired FTI Consulting to examine potential proceeds and costs of a forced liquidation of the company’s assets. Several months later, in November 2011, Hostess engaged FTI to prepare an analysis that showed potential proceeds under an orderly breakup of the company through the sale of certain Hostess brands and assets as going concerns followed by a liquidation of all remaining assets.

FTI said it completed a detailed review of Hostess’ unaudited accounting and financial records as of April 28, 2012, and in making its analysis assumed a liquidation commencing on or around July 7, 2012.

The full report is dated Aug. 30, 2012.

FTI indicated that total proceeds from the sale of assets in an orderly breakup had a liquidation value ranging from a low of $438,618,000 to a high of $521,687,000. Of the “high” total, approximately $410,342,000 was forecast to be available for distribution, FTI said.

“The sales process for all brands will be completed via a single 363 auction (with stalking horse bidders),” FTI noted in its report. “This process is anticipated to take approximately three months to get to a sale hearing, with closing to follow thereafter as negotiated.”

A 363 auction refers to sales of corporate assets under Section 363 of the Bankruptcy Code. The law allows a bankruptcy trustee or debtor-in-possession to sell the assets "free and clear of any interest in such property." The sale may be made to a “stalking horse” bidder -- a prospective buyer who will present with the seller a fully negotiated asset purchase agreement for approval by the Court.

Advantages of a 363 sale for the bidder, who could lose out to higher bidders, is a provision for a breakup fee for the bidder’s costs if a higher bidder is ultimately accepted.

While it was anticipated that all brands would be offered for sale in an auction process, FTI said Hostess management and advisers identified the brands and assets that they felt had the highest likelihood of being sold as a going concern or on a stand-alone basis.

Meanwhile, the FTI indicated that total proceeds from the sale of assets in a forced liquidation had a value ranging from $376,812,000 to $450,334,000. Of the “high” total, approximately $336,000,000 was forecast to be available for distribution, FTI said.

“The forced liquidation analysis assumes that when the company commences the liquidation, operations would immediately cease and that only a limited number of personnel would be retained to administer the liquidation,” FTI noted in its report. “The forced liquidation analysis assumes that the majority of the assets are sold within a one-year period. Based on the size and complexity of the company, the claim resolution and final disbursement could be longer than one year.”

Also as part of the review, FTI estimated incremental wind-down expenses due to an employee strike to be approximately $1.6 million.

The FTI report noted that as of July-August 2011, Hostess had 264 real estate properties totaling approximately 8.9 million square feet, including bakeries, depots, depot/stores, stores and other property located in 43 states. FTI estimated fair market value of the company’s bakeries at $86,051,000; premium bakeries (defined as bakery locations for which Hostess had received multiple unsolicited expressions of interest) at $74,944,000; depots at $26,491,000; depots/stores at $83,373,000; and “other” property at $20,417,000.

Machinery and equipment for the company was assigned a net book value of $67,637,000 by FTI, while vehicles were assigned a value of $23,213,000.

Hostess, which abruptly began winding down operations in late November 2012, said last month that it is narrowing down the bids it has received for its brands and expects to sell its snack cakes and bread brands to separate buyers. Joshua Scherer of Perella Weinberg Partners told the U.S. Bankruptcy Court for the Southern District of New York that Hostess expects to file binding “stalking horse” bids for many of its brands in January, followed by a four-week auction process to allow competing bids. Closings for many brands may come as soon as mid-March, Mr. Scherer said.