Risk Management

Krispy Kreme Files 10-K, Settles Lawsuit

Embattled Krispy Kreme Doughnuts, its chief executive happy to even be able to even file a 2006 10-K, reported a net loss of $136 million that incl...
Stephen TaubNovember 1, 2006

Embattled Krispy Kreme Doughnuts, its chief executive happy to even be able to even file a 2006 10-K, reported a net loss of $136 million that included non-cash impairment charges of $54 million and a non-cash charge of $36 million tied to the settlement of litigation. Separately, the company announced that it had agreed to pay $75 million to settle a class-action lawsuit.

“The filing of the Form 10-K for fiscal 2006 represents another significant step in the turnaround of Krispy Kreme,” said president and CEO Daryl Brewster. Still, the company hasn’t filed its financials for the first three quarters of fiscal 2006, the third quarter of fiscal 2005 and the first two quarters of fiscal 2007 and is being investigated by the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York.

Trying to recover from a major accounting scandal, the company reported that nearly $35 million of the $75 million legal settlement will come from a cash payment from its directors’ and officers’ liability insurer, which it did not name. Another $36 million or so will come from a company issuance of common stock and stock warrants, and $4 million will paid by its independent auditor, which the company didn’t identify.

As part of the agreement former CFO Randy Casstevens will shell out $100,000 in cash, as will 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 like Casstevens agreed to limit to specified amounts their claims for indemnity from the company in connection with future proceedings before the Securities and Exchange Commission or the U.S. Attorney for the Southern District of New York. All claims against them will be dismissed with prejudice, according to the announcement.

However, claims against former chairman and CEO Scott Livengood “are expressly preserved,” according to the company. Under the settlement, the company and the individuals did not admit to fault or wrongdoing.