Krispy Kreme Lied

Krispy Kreme Doughnuts Inc. (NYSE:KKD - News) on
Tuesday said it would restate financial statements for its 2004
fiscal year due to errors in how it accounted for the
repurchase of franchises, which could reduce earnings more than
the company had previously forecast.

Krispy Kreme, whose shares slumped 9.5 percent, said the
restatement for its fiscal year ended Feb. 1, 2004, would
reduce net income by between about $3.8 million and $4.9
million, or between 6.6 percent and 8.6 percent. The company in
December had said it expected earnings to be reduced by as much
as 7.6 percent as a result of the accounting errors.

Krispy Kreme, which faces a Securities and Exchange
Commission investigation into its accounting practices, said
the move could cause it to default on its credit agreement.

The company also said it would restate its financial
statements for the last three quarters of fiscal year 2004.

The restatements involve the manner in which the company
accounted for the repurchase of three franchise restaurants.

The largest adjustment, of between $3.4 million and $4.8
million pre-tax, is "...to record as compensation expense
rather than as purchase price, some or all of the
disproportionate consideration paid to a former owner of the
Michigan franchise...," Krispy Kreme said in a statement.

The company said the restatements would reduce fiscal year
2004 earnings by 7 cents to 8 cents a share.

Krispy Kreme shares were off $1.17 to $11.11 in morning
trade on the New York Stock Exchange, after falling as low as
$10.85.