Krispy Kreme Internal Probe Finds No Intentional Misconduct

Krispy Kreme Doughnuts Inc. (KKD) said Thursday a law firm it hired found no intentional misconduct by the company and its employees concerning an accounting error in an acquisition in fiscal 2004.

But depending on legal judgments regarding certain accounting adjustments, earnings for fiscal 2004, which ended in January, could be cut by as much as 7.6 percent, the company said.

Krispy Kreme shares were up 3 percent Thursday on the New York Stock Exchange (search).

The doughnut shop chain, which on Wednesday said it was delaying its quarterly report with regulators, saw its share lose about 70 percent of its value this year.

In an SEC filing dated Thursday, the company also laid out other proposed adjustments to its financial reports for fiscal year 2004.

Other proposed adjustments, primarily related to franchise repurchases, would reduce net income for fiscal 2004 by 2.7 percent, with reductions of 1.9 percent, 2.1 percent and 6 percent in the second, third and fourth quarters, respectively, the company said.

Two of the proposed adjustments would treat part of the purchase prices paid to a former operating manager of a Michigan franchise and a former operating manager of a Northern California franchise as compensation, rather than as a purchase price for the franchise.

But, if it is determined that all of the "disproportionate amounts" of the purchase prices should be considered as compensation expenses, net income for 2004 would be cut by 7.6 percent, with a 23 percent reduction in the fourth quarter, the company said in the SEC filing.

Krispy Kreme shares were up 41 cents at $11.04 on Thursday on the New York Stock Exchange.