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Krispy Kreme alters deal
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February 12, 2002: 2:29 p.m. ET
Doughnut maker dumps off-balance-sheet financing in wake of Enron.
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NEW YORK (CNN/Money) - Amid ever-widening concern about accounting scandals, investors are even questioning doughnut makers about possible holes in their balance sheets, prompting Krispy Kreme Doughnuts to back out of a controversial lease deal.
Krispy Kreme (KKD: down $0.50 to $36.48, Research, Estimates) said it decided not to use an off-balance-sheet financing deal to build a new $35 million manufacturing facility in Effingham, Ill., instead opting to finance the work on the books, a move it hopes calms investors jarred by the accounting scandals at Enron Corp.
At least one analyst agreed that the company's balance sheet is clean with little or no debt, and that switching to more conventional financing was a smart move.
"It's not a smoking gun. There's nothing corrupting any of their significant financial reporting," said Andrew Wolf, an analyst with BB&T Capital Markets.
The company also reaffirmed 2002 earnings guidance, saying it remains comfortable with Wall Street estimates of 44 cents a share for the period and 61 cents a share for fiscal 2003.according to earnings tracker First Call.
Separately, the company reported fourth-quarter sales at stores open at least a year, a key gauge known as same-store sales, increased 13.1 percent.
That's slightly below some analysts' forecasts for a 14 percent increase.
Krispy Kreme's stock tumbled 57 cents in Tuesday afternoon trading.
Krispy Kreme said it planned to build its manufacturing and distribution facility with a synthetic lease, a common off-balance-sheet financing tool used by many retailers, according to one analyst. But in light of concern about the Enron accounting scandal, which involved shady off-balance-sheet transactions, the doughnut maker opted to go with more traditional financing.
The company plans to use the new facility to supply doughnut mix and other supplies to its expanding base of stores in the Midwest, West, and Canada.
The company said that as of Feb. 3, it had cash and investments on hand in excess of $45 million, $8.3 million in outstanding debt and a $32 million available line of credit.
"Fortunately, Krispy Kreme's balance sheet and cash generation ability is very strong, and close scrutiny by investors works to our advantage," CEO Scott Livengood said in a statement. 
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