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Krispy Kreme Doughnuts, Inc. announced it is reducing the number of employees in its corporate, mix plant, equipment manufacturing, and distribution facilities by approximately 25 percent. It is estimated that these actions will result in annual pre-tax savings of approximately $7.4 million and a cash restructuring charge of approximately $600,000 in the first fiscal quarter.
The company also recently divested a corporate airplane that was subject to an operating lease. It is estimated that this action will result in annual pre-tax savings of approximately $3 million but will involve a cash charge of approximately $300,000 in the first fiscal quarter related to the divestiture.
As previously disclosed, the lenders under the company's Credit Facility have agreed to defer until March 25, 2005 the date on which an event of default would occur because of the company's failure to deliver financial statements to the lenders for the quarter ended October 31, 2004. Also, as previously disclosed, the Company is currently unable to borrow funds under the Credit Facility. Krispy Kreme presently is working on a business plan and intends to conduct discussions with its lending banks regarding amendments to its Credit Facility.
The cash from operations continues to be impacted adversely by previously disclosed unfavorable sales trends, and by the substantial costs and expenses associated with ongoing litigation, regulatory and restructuring matters. In light of the foregoing, Krispy Kreme believes it will need to obtain, by the end of the waiver period, additional credit to fund its operations and required capital expenditures. There can be no assurance that the Company will be able to reach any agreement with the banks or that funding will be available when and in the amounts needed.
“Krispy Kreme is a great brand, and we are working very hard to help the Company rediscover its potential,” says Steve Panagos, president and COO of Krispy Kreme.
Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme currently operates more than 400 stores in 45 U.S. states, Australia, Canada, Mexico, the Republic of South Korea, and the United Kingdom.
Also in the headlines, Krispy Kreme has dropped a suit against Entenmann’s alleging that the bakery chain engaged in unauthorized use of the term “original glazed,” according to company officials. The complaint, filed in U.S. District Court last year, was quietly withdrawn last week.