1. Auditors Go Nuts Over DoughnutsWe're getting a mite worried about Krispy Kreme Doughnuts (KKD - Get Report). At the rate the company is going, its life expectancy as a going concern will be not much longer than the shelf life of its signature product.
The latest holes in the doughnut company's books emerged Tuesday, when Krispy Kreme announced that the company's financial statements covering the three quarters ended Feb. 1, 2004, should be restated.
As the company explained in a Securities and Exchange Commission filing, there are a bunch of things either probably or definitely wrong with those filings, related to matters such as franchise purchases and rent expenses. Furthermore, the company's continuing inability to file periodic financial statements could put it in default with its lenders as early as next week, and could get it delisted from the New York Stock Exchange.
But our favorite portion of the announcement is Krispy Kreme's admission that it will be adjusting how it has accounted for the "disproportionate consideration" paid to a former owner of a Michigan franchise when KKD bought the franchise. That owner was the franchise's operating manager and subsequently worked for KKD for "a short period of time," says KKD.That "disproportionate consideration" for the Michigan seller amounted to between $3.4 million and $4.8 million, implies KKD, based on the subsequent employment and/or the price he received compared with that received by other sellers. Whoa. Disproportionate consideration: that's a fancy, bureaucratic-sounding way of saying "sweetheart deal." Once again, we learn that when you're trying to minimize the outcry over iffy accounting, never say in three syllables what you can say in 10.