Krispy Kreme responds to concerns over accounting methods

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Posted 8:35AM on Wednesday, February 13, 2002

RALEIGH, N.C. - Krispy Kreme Doughnuts Inc. said Tuesday it would change its method of financing construction of an Illinois dough-mixing plant, in response to investor concerns of questionable accounting methods. The snack purveyor will use conventional financing that will show up on its balance sheet, dropping a method criticized in a Forbes magazine article. The magazine's description of a synthetic lease for the $35 million mixing plant in Effingham, Ill. as an "off-balance-sheet trick" led to a brief 10 percent drop in Krispy Kreme's stock on Feb. 5. The company's shares have since recovered their value and traded at $36.46 in midday trading Tuesday, down 52 cents. The change in financing method was made in deference to investor perceptions after the Enron Corp. bankruptcy, Krispy Kreme chairman and chief executive Scott Livengood said. "In the current economic climate, investors understandably are paying closer attention to the financial strength of their companies. There is no reason for us to do anything that could be misinterpreted, regardless of how legal and acceptable it may be," he said. "The perception and confidence of our investors and customers is more important than the propriety of accounting vehicles." Chief operating officer John Tate said switching to a mortgage will raise the cost of building the plant by about $4,000 or $5,000 - too little to alter the project's finances. Still, the company decided on Tuesday to increase its estimate of the price from its pre-construction figure of $30 million to $35 million. "We thought as long as we were talking about it, we should put in our best information," Tate said. The manufacturing and distribution center will finish on schedule in April, the company said, and will produce doughnut mix and other supplies for stores in the West, Midwest and Canada. Krispy Kreme also said Tuesday that preliminary results indicated company revenues increased 40.3 percent to $114.9 million in the fourth quarter of its fiscal year. Revenues were up 30.4 percent to $392.2 million for the full year, the company said. Krispy Kreme reports its fourth quarter results on March 8. The company said previously it expects to earn 44 cents a share in fiscal 2002 and 61 cents a share in fiscal 2003.