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Krispy Kreme Franchisee Files Chapter 11

The doughnut maker will provide funding to Freedom Rings during the restructuring.
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Updated from 9 a.m.

Krispy Kreme Doughnuts


said Freedom Rings LLC, its majority-owned unit and franchisee around Philadelphia, has filed for Chapter 11 bankruptcy protection.

Early Monday, Krispy Kreme said it will provide funding to Freedom Rings during the restructuring process. The company added in a midday press release that the franchisee operates six stores and owes Krispy Kreme $24 million.

Krispy Kreme said it had owned 70% of Freedom Rings but disclosed Monday that before the Chapter 11 filing it acquired the balance for what it called a nominal sum. Krispy Kreme also noted some accounting implications from the filing.

"To date, for financial reporting purposes, amounts owed by Freedom Rings to Krispy Kreme have been eliminated in consolidation," Krispy said. "As a result of the bankruptcy filing, Krispy Kreme expects to deconsolidate Freedom Rings. As part of its previously announced review of the financial difficulties of certain of its franchisees, Krispy Kreme will determine the amount of impairment charge necessary in connection with Freedom Rings."

The update came as Krispy Kreme shares remained halted after closing Friday at $4.86. The stock was quoted 10% lower early Monday in third-market trading.

"This is a difficult but necessary process for Freedom Rings and we believe it is in the best interest of the Krispy Kreme brand in the Philadelphia region in the long term," Steve Cooper, CEO of the doughnut maker, said in a press release.

Krispy Kreme, based in Winston-Salem, N.C., saw its shares sink after a delayed opening. Lately, the stock was down 42 cents, or 9%, to $4.44.

A former Wall Street darling, Krispy Kreme has so far been unable to regain shareholder confidence following an accounting scandal that led to the departure of former CEO Scott Livengood and a broad restatement of its results. A report recently prepared by two independent directors recommended a host of corporate governance reforms at the company.