Krispy Kreme to Keep Illinois Plant Debt on Books (Update3)
By Steve Matthews and Shade Elam
Winston-Salem, North Carolina, Feb. 12 (Bloomberg) -- Krispy Kreme Doughnuts Inc. said debt used to finance a $35 million plant in Illinois will be listed on the doughnut maker's books to avoid investor speculation that there was an attempt to hide the financing.
The operator of 218 donut stores was financing the plant under an agreement with Wachovia Corp. in which lease payments were accounted for as current expenses like salaries, while debt and capital expenditures didn't appear on its books. The accord, called a ``synthetic lease,'' was in compliance with generally accepted accounting principles, the company said in a statement.
The bankruptcy of Enron in December has increased investor concern about such accounting practices as synthetic leases and off-book partnerships that aren't listed on financial statements. The Wachovia agreement was no longer appropriate given investors' focus on companies' financial strength, Krispy Kreme said.
``A synthetic lease effectively hides assets and liabilities related to this plant off the balance sheet,'' said Robin Rodriguez, an analyst with Anglo-American Investor Service, who rates the stock as ``short sell.'' ``You don't know what guarantees go with it.''
Rodriguez has a short position in the stock, meaning he has sold the stock he has borrowed with the expectation of buying at a lower price and profiting on its decline.
Shares of Krispy Kreme fell 42 cents to $36.56 in late morning trading. They have fallen 17 percent this year on concern that the doubling of the stock price in 2001 was too much.
Rodriguez called the stock ``grotesquely overvalued.''
The Winston-Salem, North Carolina-based company also said it expects earnings of 44 cents a share for the fiscal year. That matches the average estimate of seven analysts surveyed by Thomson Financial/First Call.
Fourth-quarter sales rose 40 percent to $114.9 million, the company said. |
