Accounting & Tax

Krispy Kreme Out of the Hole?

The doughnut-maker announces it is looking to expand coast-to-coast.
Stephen TaubMay 14, 2007

The “Hot Now” sign is back on at the corporate headquarters of Krispy Kreme Doughnuts. The doughnut chain, which suffered under the weight of a massive accounting scandal, says in a filing that it now wants to offer franchises in all 50 states.

“Krispy Kreme is able to file this document because it has become current with its audited financial statements,” said CEO Daryl Brewster in a press release. “This is another step in the turnaround of Krispy Kreme.”

The announcement came as part of its Uniform Franchise Offering Circular (UFOC), a disclosure document that contains detailed information to help potential franchisees evaluate a franchise opportunity.

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On Wall Street, accounting was just one of Krispy Kreme’s woes — critics also carped about the company’s decision to widely distribute doughnuts that had once had glazed crazed fans lining up for hours.

Last August, a report filed by a special board committee accused former Krispy Kreme executives of intentionally managing earnings, adding that the company “failed to meet its accounting and financial reporting obligations to its shareholders and the public.”

The report also asserted that “Krispy Kreme and its shareholders have paid dearly for those failures, as measured by the loss in market value of the company’s shares, a loss in confidence in the credibility and integrity of the company’s management and the considerable costs required to address those failures.”

In November, the company settled a $75 million shareholder lawsuit. As part of the agreement former CFO Randy Casstevens agreed to shell out $100,000 in cash, as did ex-Chief Operating Officer, John Tate.

As part of a derivative settlement, Tate also agreed to cancel his interest in 6,000 shares of Krispy Kreme common stock, and he and Casstevens agreed to limit to specified amounts their claims for indemnity from the company in connection with future proceedings before the SEC and U.S. Attorney’s office. Under the settlement, the company and the individuals did not admit to fault or wrongdoing.

The accounting scandal knocked down the company’s stock, which traded at nearly $50 in 2003, to a low of less than five dollars in 2005.