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Krispy Kreme Doughnuts, Inc. Message Board

  • perspicuator perspicuator Feb 26, 2005 9:49 AM Flag

    Black swan?

    Actually, here might be the black swan.

    What if the SEC investigation has focused on the selling of KKD stock on the way up, and not on the accounting? That would be consistent with the case being referred to the southern district of New York, which has jurisdiction over crimes on Wall Street, rather than the local US Attorney.

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    • <Not sure why it would be so dilutive.

      They likely only need $25 - $50 million to skate through...>

      I think they'll likely need a lot more than that over the next couple of years. They need to sharply reduce royalty rates and markups paid by franchisees to give them any hope of surviving; that would result in a big hit to KKD's ongoing cash flow, but the alternative of letting franchisees go under is worse. They need cash to get out of leases for the worst stores (as do the franchisees). They will likely need cash to pay some guarantees for franchisees who are likely to go under even if KKD cuts royalties and markups. Both KKD and franchisees will likely experience declining operating cash flow for at least another couple of years based on the large percentage of stores that are relatively new and will almost certainly continue to see continued sales declines and a largely fixed cost structure.

      If KKD gets $25-$50 million in additional borrowing I think they'll be looking for more in a few months.

    • Not sure why it would be so dilutive.

      They likely only need $25 - $50 million to skate through...

      Anyway, I thinkn you make the point well that the equity certainly isn't worth $10 a share!!

    • I think what happened with interstate was the stock was largely held by insiders, thus lightly traded and did not drop. It looks like the same stock. For all the bankruptcy pros out there, I'm curious how the insiders could keep the stock and still declare bankruptcy...
      For those who see KKD as a potential IBD, watch out. Interstate did not have the SEC investigating, potential fraud, and tons of lawsuits and questionable ponzi-like buyback schemes.
      Also interstate was much more diversified than some other stocks.. ahem, and management did not seem like a bunch of crooks... ahem

    • I believe it's the original stock. The bankruptcy filing was last September:

      Here's the price history on the stock from August to present:

    • MSTEWA, you forgot one variable, if KKD avoids bk and gets financing, you can be guaranteed that the financing will be highly dilutive to current shares, somewhere in the range of 30-50%. Given that, I think any current equity survival scenario shouldn't price the stock at more than $2-3.

    • Ah, ok.

      Interstate Bakeries original shares are worth ZIPPO....Look at the chart and the SEC filings for this company.

      Only last year did they re-issue shares for Interstate Bakeries...but these are new stock separate from the original shares can be found on OTC.

      Therefore, original shares of Interstate are gone....newly re-issued on OTC...thats what your seeing right now.

      Samething will happen to KKD: declare BK, shares eventually goes to "Zipppo" and new shares are re-issued again. THATS WHEN YOU GET BACK IN IF YOU BELIEVE KRISPY KREME IS WORTH IT.


      Good luck!

    • Did I suggest that KKD was like Interstate Bakeries? No, I cited it as an example that stocks aren't ALWAYS worthless in bankruptcy, which is the question that was asked.

    • Ur right but Interstate Bakeries didnt have to borrow $150M in cash to keep operatins going.

      Also, books at Intertate Bakeries were not cooked unlike KKD.

      The problem with KKD is the business model is flawed....(rapid expansion) and the books were cooked!!!!

      Again, let me repeat, KKD accounting was sooooo cooked that we might see ENRON junior from KKD.

      I promise you KKD will become a case study for B school next year.

    • In most bankruptcies there's not enough to pay off all the creditors so the equity holders get wiped out. But that isn't always the case. Interstate Bakeries stock is trading for $5.80/share after a bankruptcy filing.

    • Shares will trade actively once BK is declared. Shares will have a certain value like $1.25, $0.99, $0.50, $0.25 and get delisted to the OTC board.

      Eventually, as BK is being processed, shares will be wiped out to "0".

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