September 19, 2003

When a stock’s done as well as Krispy Kreme (KKD) has been doing, few investors bother to ask questions. But there were some interesting disclosures in the company’s recent 10-Q regarding some of the company’s joint-ventures. Among them was that the company paid $67.5 million to a partnership owned by former CEO Joseph A. McAleer and Steven D. Smith, a former director to acquire 6 stores in Dallas and Shreveport, La. as well as the rights to open additional stores in those markets. It’s not clear from the public filings how much Mssrs. McAleer and Smith paid to acquire those markets in the first place. But based on other prices paid for Krispy Kreme stores — the company spent $1.6 million to acquire 3 stores in New Orleans and the rights to develop 10 additional stores — it sure seems high. Both men stepped down from the board in April, when Krispy Kreme took steps to add more independent directors. In the past, the company has been criticized for crafting sweetheart deals that allow officers and directors to invest in new markets. Although Krispy Kreme announced the Dallas purchase in a press release in June, the company failed to disclose a price or that they were purchasing the stores from the former directors.

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