An independent committee has finished its report into accounting practices at Krispy Kreme Doughnuts Inc., and the country's second-largest doughnut chain has announced plans to reduce past income statements by more than $25 million.
A total of $22.2 million in reductions will be taken between the 2001 and 2004 fiscal years and another $3.4 million will be reduced from earlier years.
In a statement released from the committee, the group wrote, "While some may see the accounting errors ... as relatively small in magnitude, they were critical in a corporate culture driven by a narrowly focused goal of exceeding projected earnings by a penny each quarter."
Established by Krispy Kreme's board of directors in October 2004, the committee was co-chaired by Michael H. Sutton, a former chief accountant at the Securities and Exchange Commission, and Lizanne Thomas, a senior corporate partner at the Atlanta law office of Jones Day. In addition to other legal counsel, a forensic accounting team from Navigant Consulting Inc. also assisted.
"The company and its board of directors embrace the directives of the special committee and are committed to ensuring that the highest standards of business conduct, financial reporting and internal controls are maintained," said Krispy Kreme board chairman James H. Morgan, in a statement.
The entire report has not been publicly disclosed, but in a joint statement released by the committee, primary responsibility for the accounting discrepancies were assigned to former board chairman and chief executive Scott A. Livengood, and former chief operating officer John W. Tate. The committee said that all employees believed to have had responsibility for the errors have left the company. Livengood left the company earlier this year, and in June another six top executives were forced out.
In May 2004, Krispy Kreme issued an earnings warning and saw its stock price fall. Several lawsuits have since been filed against the company, including one alleging workers lost millions of dollars in retirement savings because executives hid evidence of declining sales and profits.
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