Lucky Stores, Inc. and Subsidiaries - Page 4

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          price of the contributed bakery inventory at the time of                    
          contribution.                                                               
               Petitioner is a Delaware corporation.  At the time it filed            
          its petition, its principal place of business was Dublin,                   
          California.                                                                 
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated.                                
               During the years in issue, petitioner operated bakeries in             
          northern and southern California that baked several varieties of            
          white and wheat bread, muffins and buns, and other bakery                   
          products.  Petitioner sold these private label products in its              
          retail stores under the "Harvest Day" label.  In addition,                  
          petitioner's bakeries purchased from unrelated bakeries other               
          bakery products, including tortillas, fried pies, doughnuts, and            
          dinner, gourmet, and brown and serve rolls, and other items, for            
          sale in its stores.                                                         
               Commercial bakers generally use one of three processes for             
          preparing commercially baked bread:  the sponge dough method, the           
          liquid sponge method and the liquid brew method.  These methods             
          differ significantly in terms of ingredients and baking times.              
          The method used affects the aroma, keeping quality, and texture             
          of the bread.  Petitioner used the sponge dough method during the           
          tax years at issue.  The sponge dough method is the most time-              
          consuming baking process of the three general methods.                      





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