Krispy Kreme

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QUESTION 6: GIVEN YOUR ASSESSMENT OF KRISPY KREME 'S HEALTH, WHY DID IT 'S STOCK PRICE DROP BY 80% BETWEEN 2003 AND 2004? The question is what they do wrong for the business that is nearly more than 70 years, what makes them fall so quickly especially in year 2003 and 2004, there are at least 2,300 franchised businesses in Unites States, many that are successful, but there are difficulties in the franchise model, and Krispy Kreme with the combination of ambitions, greed, and inexperience in managed to stumble into most of them. As Krispy Kreme pursued its ambitious growth strategy, it was making mistakes in its finance department as well, except for the company 's plan to finance a $35 million mixing plant in Illinois…show more content…
Krispy Kreme also rolled into the price the costs of closing stores and compensating the operating manager and principal owner of the Michigan franchise to stay on as a consultant. Both of these expenses became part of the intangible reacquired franchise rights asset on the company 's balance sheet, rather than costs that would have reduced the company 's reported earnings. Krispy Kreme announced in a December 2004 8-K filing that it will need to make an adjustment of between $3.4 million and $4.8 million to properly record the compensation as an expense. A second adjustment of some $500,000 will reverse the improper recording of interest income. In its December 2004 8-K, Krispy Kreme revealed that there would need to be adjustments made to the accounting for the Golden Gate Doughnuts purchase as well a total of $3.5 million to correct improperly recorded compensation expenses and management fees that had been included in the purchase price. The company will also make a similar correction to fix errors made in the acquisition of a franchise in Charlottesville, Virginia. The following month, the company announced that the United States Attorney 's Office of the Southern District of New York was also joining the fray a move indicating concern about possible criminal misconduct. In April, Cooper shored up the business by securing $225

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