DOW JONES NEWSWIRES (2/11/05) -- Krispy Kreme CEO: Corporate Jet Was A 'Nutty' Perk ....................................
February 11, 2005 1:10 p.m.
Krispy Kreme CEO: Corporate Jet Was A 'Nutty' Perk
By PETER LOFTUS
Of DOW JONES NEWSWIRES
PHILADELPHIA -- Corporate turnaround-specialist Stephen Cooper has found that top executives at troubled companies don't like to give up their perquisites.
A case in point: the head of a doughnut maker flying around in a corporate jet.
One of Cooper's first moves since being named chief executive of Krispy Kreme Doughnuts Inc. (KKD) last month was to get rid of the company's Dassault Falcon 900EX. The jet was used primarily by ex-CEO Scott Livengood, who was pushed out on the heels of weakened sales and accounting woes at the retailer.
"And you know, (the jet) was just used by a couple of people in the company," Cooper, who is also chief executive of Enron Corp. (ENE), told students Friday at the Wharton School at the University of Pennsylvania. "I mean, it's just nutty. But you can get used to that kind of stuff, nutty or otherwise, and you don't want to let go of it."
Krispy Kreme said earlier this week its divestiture of the jet, which was subject to an operating lease, would save about $3 million annually but also would result in a $300,000 charge in the first fiscal quarter. The company also reduced its work force to cut costs. Pharmaceutical Product Development Inc. (PPDI) said it paid $30.5 million cash for the jet.
In his comments at a Wharton conference on restructuring, Cooper, a Wharton graduate, didn't provide many details about his plans for Krispy Kreme, whose stock price has plummeted this week. He declined to answer a reporter's questions afterwards.
Krispy Kreme shares plunged 16% Thursday after the company disclosed terms of its agreement with Cooper and his turnaround firm, Kroll Zolfo Cooper LLC. The company said it is paying the firm $400,000 a month for services of Cooper and some colleagues. Cooper himself is being paid $760 an hour for his services, the company previously disclosed.
Shares in Krispy Kreme, of Winston-Salem, N.C., traded recently at $6.05, down 4 cents, or 0.7%.
Cooper did say Friday that Krispy Kreme continued to develop a "comprehensive, focused business plan. Our hope then is to marry that business plan with the right liquidity structure and liquidity facility with our bank groups, so that the company can be fixed in a rational, reasonable way."
Analysts have speculated that Krispy Kreme will close some of its more than 400 stores and might eventually go private.
Cooper said Krispy Kreme's brand "has a lot of legs. It just hasn't been managed." He said the problem was that Krispy Kreme doughnuts lost their cult status because the company expanded so rapidly but didn't adjust its marketing and merchandising accordingly.
"But we're going to see if we can fix it," Cooper said.
Perhaps ominously, though, Cooper said it can be difficult to turn around troubled retailers.
"If you lose your franchise and you lose your market, the cost of trying to get that back is unbelievably high...," he said.
"When you see a really distressed retailer, I think there's a much lower probability of a successful fix there, particularly if it's on the merchandising, marketing and operational side," he added.
He didn't say whether that gloomy outlook applied to Krispy Kreme. He did say that retail sectors threatened by looming competition from Wal-Mart Stores Inc. (WMT) were likely candidates for restructuring in the future.
Separately, Cooper said it is sometimes wise for distressed companies to hold on to certain assets, even when creditors are pressuring them to sell. For example, he said Enron's creditors were pushing the company to sell its pipelines in 2002, soon after it filed for bankruptcy protection.
If Enron had sold its pipelines in 2002, it would only have gotten about $1 billion, Cooper said. Instead, the company waited and sold its pipelines in late 2004 for about $2 billion, he said.
-By Peter Loftus, Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com
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