‘not a meaningful figuee. mnt CASE] 7 rispy Kreme Doughnuts, Inc. |As the millennium began, the future for Krispy Kreme Doughnuts, Inc., smelled sweet. Not only could the company boast iconic status and a nearly cultlike follow- ing, it had quickly become a darling of Wall Street. Less than a year after Set eae see ee digine pnts which its stock price sank From its peak for fiscal-years 2000 through 2004, Was this a healthy company’) What had happened wae" Company Background Krispy Kreme began as a single doughnut RU SreTa eR So in 1937, when Vernon Rudolph, who had aci ’s special doug! ut tarted making and selling dough- ruts wholesale time, Rudolph’s products became so popular that he cut a hole in his factory's wall to sell directly to customers— thus was born the central Krispy Kreme retail concept: the factory store. By the late 1950s, Krispy Kreme had 29 shops in 12 states, many of which were operated by franchisees. “This case was prepared by Sean Carr (MBA °03), under the direction of Robert F Bruner ofthe Darden Grahate School of Business Adminstration, It was writen a bass or elas discussion rather than oMlusate ‘flective or infective handing of am ainisratise station, Copyright © 200 hy the University of Virginia Darden School Foundation, Chiriotesile, VA. All ights reserved. To order copes, end a e-mail t0 sales @ dardenbusineseoblshing com. No par of his publication may be reproduced. sored ina retrieval ‘pstem used ina spreadaheel, or traneined in ay form or by ans means—elecronic. mechanical photocopying, reconting, or otherwise without the permission ofthe Darden School Foundation, wo _—1 Pat Two Financial Analysis and Forecasting Afier Rudolph’s death, in 1973, Beatrice Foods bought the company and quickly expanded it to more than 100 locations. Beatrice introduced other products, such as soups and sandwiches, and cut costs by changing the appearance of the stores and substituting cheaper ingredients in the doughnut mixture. The business languishe: however, and by the early 1980s, Beatrice put the company up for sale. A group of fianchisces led by Joseph McAleer, who had been the first Krispy Kreme franchisee, completed a leveraged buyout of the company for $24 million in 1982. McAleer brought back the original doughnut formula and the company’s traditional logo. It was also around this time that the company introduced the “Hot Doughnuts Now’ neon sign, which told customers when fresh doughnuts were coming off the line. The company still struggled for a while, but by 1989, Krispy Kreme had become debt- free and had slowly begun to expand. The company focused on is signature dough- nuts and added branded coffee in 1996. Scott Livengood, who became CEO in 1998 and chair the following year, took the company public in April 2000 in what was one of the largest initial public offerings (IPO) in recent years; one day afier the offe Krispy Kreme’s share price was $40.63, giving the firm a market capitalization of nearly $500 million, Krispy Kreme’s Business After the company’s IPO, Krispy Kreme announced an aggressive strategy to expand the number of stores from 144 to 500 over the next five years. In addition, the com- pany planned to grow intemationally, with 32 locations planned for Canada and more for the United Kingdom, Mexico, and Australia, Exhibit 3 provides an overview of the company’s store openings. Krispy Kreme Doughnuts generated revenues through four primary sources: on-premises retail sales at company-owned stores (accounting for 27% of rev- enues); off-premises sales to grocery and convenience stores (40%); manufactur- ing and distribution of product mix and machinery (29%); and franchisee royalties and fees (4%). In addition to the traditional domestic retail locations, the company sought growth through smaller “satellite concepts,” which relied on factory stores to provide doughnuts for reheating, as well as the development of the international market. + On-premises sales: Each factory store allowed consumers to see the production of doughnuts: Krispy Kreme’s custom machinery and doughnut-viewing areas cre- sted what the company called a “doughnut theater.” In that way, Krispy Kreme attempted to differentiate itself from its competition by offering customers an ex- perience rather than simply a product. Each factory store could produce between 4,000-dozen and 10,000-dozen doughnuts a day, which were sold both on- and off-premises + Off premises sales: About 60% of off-premises sales were to grocery stores, both in stand-alone cases and on store shelves. The remainder were sold to convenience stores (a small percentage were also sold as private label). The company m tained a fleet of delivery trucks for offpremises sales.(Case 7 Krispy Kreme Doughnuts, Ine, 103 : yy Kreme’s Manufacturing and Distribution ison provided the proprietary doughnut mixes and doughnu making equipment to every company-owned and franchised factory store. This vertical integration allowed the company to maintain quality control and prod uct consistency throughout the system. The company maintained its own manu- facturing facilities for its mixes and machines, and it provided quarterly service forall system units. All franchisees were required to buy mix and equipment from Krispy Kreme. KKMA&D also included the company’s coffee-roasting ‘operation, which supplied branded drip coffee to both company-owned and franchised stores : a ae en its ese fee and annual . franchisees received assistance from Krispy Kreme with operations, advertising and marketing. accounting, and other information-management systems welopers, an 5 de- ul building in markets with high potential. Area Developers typically paid $20,000 to $50,000 in intial franchise fees and between 4.5% and 6% in royalties. Franchisees also contributed 1% of their annual total sales to the corporate advertising fund, Roughly 60% of sales at a Krispy Kreme store were derived from the company's signature product, the glazed doughnut. This differed from Dunkin’ Donuts, the com- pany’s largest competitor, for which the majority of sales came from coffee. Holes in the Krispy Kreme Story ‘On May 7, 2004, for the first time in its history as a public company, Krispy Kreme announced adverse results. The company told investors to expect earnings to be 10% lower than anticipated, claiming that the recent low-carbohydrate diet trend in the United States had hurt wholesale and retail sales. The company also said it planned to divest Montana Mills, a chain of 28 bakery cafés acquired in January 2003 for S40 ion in stock, and would take a charge of $35 million to $40 million in the first quarter, In addition, Krispy Kreme indicated that its new Hot Doughnut and Coffee Shops were falling short of expectations and that it had plans to close three of them (resulting in a charge of $7 million to $8 million). Krispy Kreme’s shares closed down 30%, at $22.51 a share, Then, on May 25, the Wall Street Journal published a story describing aggressive "Mark Maremont and Rick Brooks, “Ki Storet Journal. 28 May 2008, py Krome Franchise Buybacks May Spar New Concer” Wal!104 Pa Two ‘Financial Analysis and Forecasting the article, in 2003, Krispy Kreme had begun negotiating to purchase a struggling even: store Michigan franchise. The franchisee owed the company several million dol- jams for equipment, ingredients, and franchise fees and, as part of the dcal, Krispy Kreme inked the franchisee to close two underperforming stores and to pay Krispy Kreme the eorued interest on past-due loans, In return for those moves, Krispy Kreme promised to raise its purchase price on the franchi "According to the Joumal, Krispy Kreme recorded the interest paid by the fran- hisee as interest income and, thus, as immediate profit; however, the company booked the purchase cost of the franchise as an intangible asset, under reacqured franchise tights, which the company’ did not amortize. Krispy Kreme also allowed the Michigan ftanchise’s top executive to remain employed at the company after the deal, but shortly er the deal was completed, that executive eft. In accordance with a severance agree iment, this foreed Krispy Kreme to pay the executive an additional SS million, an ‘apense the company also rolled into the unamortized-asset category as reacquired franchise rights. “The company denied any wrongdoing with this practice, maintaining it had accounted for its franchise acquisitions in accordance with generally accepted accounting principles (GAAP). On July 29, however, the company disclosed that the US. Securities and Exchange Commission (SEC) had launched an informal investigation related to “franchise reacquisitions and the company’s previously innounced reduction in earings guidance.” Observers remained skeptical. “Krispy Kreme's accounting for franchise acquisitions is the most aggressive we have found.” said one analyst at the time. “We surveyed 18 publicly traded companies with franchise operations, four of which had reacquired franchises, and they had Gmortized them. That clearly seems like the right thing to do.” Over the previous three years, Krispy Kreme had recorded $174.5 million as intangible assets (reac- {quired franchise righs), which the company was not required to amortize. On the date of the SEC announcement, Krispy Kreme’s shares fell another 15% closing at $15.71 a share Analysts’ Reactions Since the heady days of 2001, when 80% of the equity analysts following Krispy Kreme were making buy recommendations for the company’s shares, the conventional wisdom about the company had changed. By the time the Wall Street Journal pub- lished the article about Krispy Kreme’s franchise-reacquisition accounting practices in May 2004, only 25% of the analysts following Krispy Kreme were recommending the company’ as a buy; another $0% had downgraded the stock to a hold. Exhibits 4 tnd 3 provide tables of aggregate analysts’ recommendations and EPS (earnings per ‘share) estimates, As Krispy Kreme’s troubles mounted during the second half of 2004, ‘analysis became increasingly pessimistic about the stock: Tapia Someone Say Doughnuts? Yes, the SEC” New York Times; 30 July 2008 ‘Analyst John ivan ‘JP. Morga Securities, nathan Wate, KeyBane ¢ Markets Jon $. 6 (ciBc Wor Markets ‘Glenn M. Legg Mas(case 7 Kiepy Kreme Doughnuts, Ine. 105 ‘Comment Date In adation tothe possibilty ofan earnings restatement, we believe many July 29, 2004 ‘fundamental problems persist, exclusive of any low-carb” impact. Declining new-store volumes aro indicative ofa worsening investment ‘model, and wa believe restructured store-development contracts, a smaller store format, and reduced fees charged for equipment and Ingredients sod to tranchises are necessary ‘We beiove thatthe challenges KKO faces, including margin compression, Oct. 12. 2004 lower returns, an SEC investigation, and product saturation, currentiy ‘outweigh the company's posive drivers. In adition, shares of KKD are trading at 16.6% CYOS earings versus its 15% growth rate. As such, we rate KKD shares HOLD. Krispy Kreme’s balance sheet became bloated over the past wo years by Nov. 8, 2004 ‘acquisition gooduil that wil Ikely need to be writton down. As a result, KKD's return on invested capital has plunged to about 10% versus 48% two years ago prior to these acquisitions, We'd view a balance sheet write-down, including eliminating a significant portion ofthe {$170+ millon in “acquired franchise rights as a frst step inthe right direction, In our opinion, management was not focused on operations the wayit Nov. 23, 2004 ‘should have been. AS a result, too many units were opened in poor locations asthe company tripled is unit base since 2000. Adtionaly, ‘we baleve tha ranchisoes wore not rained properly as to how best to run their oll-premises business. AS a result, we belive many units are losing money oft premises, and franchisees are not motivated to grow that business It also appears to us that basic blocking and tacking, execution, and cost decline were seriously lacking in both the company and franchise systems, resulting in inefficiencies. As the headlines about the SEC investigation and Krispy Kreme’s other man- agement issues continued (e.g., Krispy Kreme’s chief operating oflicer stepped down fon August 16, 2004), observers looked more critically at the fundamentals of Krispy Kreme’s business. In September, the Wall Sireer Journal published an article that focused attention on the company’s growth: “The biggest problem for Krispy Kreme may be that the company grew too quickly and di- uted its cult status by selling its doughnuts in too many outlets, while tying to impress ‘Wall Street. The number of Krispy Kreme shops has nearly tripled since early 2000, with 427 stores in 45 states and four foreign countries. Some 20,000 supermarkets, convenience stores, truck stops, and other outside locations also sell the company’s doughnuts ‘nove issue is that Krispy Kreme has relied for a significant chunk of profits on high rofit-margin equipment that it requires franchisees to buy for each new store. Is profits have also been tied to growth inthe number of franchised stores, because ofthe upfront Fee ‘each must pay.” SSiky Situation,” Wal Srect Journal, 3 September 2008,106 Pur TWo Financial Analysis and Focecasting In September 2004, Krispy Kreme announced that it would reduce its number of new stores for the year to about 60 from the previously announced. 120, Restatement Announced (On January 4, 2005, Krispy Kreme's board of directors announced thatthe company's previously issued financial statements for the fiscal year ended February 1, 2004 (FY2004) would be restated to “eorect certain eros.” The board determined thatthe adjustments, which principally related to the company’s “accounting forthe acquisitions ; of certain franchisees,” would reduce pretax income for FY2004 by between $6.2 mi ; Hion and $8.1 million, The company also expected to restate its financial statements for the first and second quarters of FY2005. Krispy Kreme also said it would delay the filing of its financial reports until the SEC’s investigation had been resolved and the company’s own internal inquiry Was complete. However, the failure of the company to provide its lenders with finan- cial statements by January 14, 2005, could constitute a default under the company’s $8150-million credit facility. In the event of such a default, Krispy Kreme’s banks had the right to terminate the facility and to demand immediate payment for any out- standing amounts. Krispy Kreme’s failure to file timely reports also placed the company at risk of having its stock delisted from the New York Stock Exchange (NYSE). By the end of the next day, Krispy Kreme’s shares were trading at less than $10 a share. Most analysts felt that Krispy Kreme’s lenders would grant the company a waiver oon its eredit-facility default, and few felt the company was truly at risk of being delisted from the NYSE. The board’s announcement, however, served only to raise ‘more questions about the company. Since August 2003, the company had lost nearly $82.5 billion in its market value of equity. Exhibit 6 illustrates the stock-price patterns for Krispy Kreme relative to the S&P S00 Composite Index. Were the revelations ‘about the company’s franchise accounting practices sufficient to drive that much value ‘out of the stock? Were there decper issues at Krispy Kreme that deserved scrutiny? Exhibits 7, 8, and 9 provide analytical financial ratios for Krispy Kreme and a group of comparable companies in the franchise food-service industry. [Income Statements ii atl ee ne EXHIBIT 4(eo) you's s00'e:-@er've) one «ses © uv'os c'est ses ‘awout on oy eer ser'r P0'6 oso'e ze azz 9096 pub (oro) ise @ia) (cee) (208) (Goes) (268) (szs') szz soz 262 ores Z00'sz 68°01 suone0do wor awoou) 2008's ‘1800 Buys} (ses) (ses) su0'8 ero es} eek» eaviek «kuz asetz Ss ush's one Sra’ 90's ran'ol zoe zisxe §= caves © cesee «| gue «(gaat eev'srl —euS'0zt eRE'Lnl © oBH'zL oBe'Z0s © Gar'see © oFe'oLE © osa'osz ends BP'LLL —SLI'8GL —9SE'PB —OBBBPL—zeS'SGDGrSTey PST EL © SILOOr eH OZE Cn nn a rd ‘ony ‘ery chem ‘sAON —“hges'2'Ge4 ‘Egos ‘eeuer or ue PepuS S\RUOPY COIL POPU suRLOWY eam, {(swunowe eveys-ied ydeox ‘spuesnow srs) ‘suuowsyg euoou |} AISIMXa108 Par Two Financial Analysis and Forecasting EXHIBIT 2 | Balance Shoots EXMBIT 2 Fiscal Year ‘Three Months: Ended Ended vJan.30, Jan.28, Fob.3,Feb.2, Fob.t, May2, Aug.t, (thousands) 000° "2001" 2002 20032008” 2004" 2004 (in tnovsandd aes LIABILITIES Curent Assets: Current Lia Cash andcash equnalonts «3,183 7.028 21,004 92203 20.900 19715 19.900 ‘Accounts pat Short-term investments 0 18,103 15.282 22.978 Book ove Accrued expa ‘Accounts reeehabie 17.905 19.855 25.804 94.373 45.282 4744 44.009 ‘xbiation aw Accounts recevabie, alates 11608-2599 9.017062 20.482 © 20.740 10.888 Revolving ne Other ecoivablos 7e4 22792771 Bh 23633694. 808 Curent matt Notes ecevable,atiates 0 ° ° 0458 dos 5440 tong teem dat Inventories 9973 12031 16,159 24,365 28.873 a9 33,076, Shorter de Propaid expenses 3148 1190925913478 500846756749 Income taxes income tax refundable ‘61 2534 196979487449 8.109 Deleted income taxes 3500 3.809 4.607 246.453 13,280 20,005 Total cur Assots held fe sala 36855 3374 3.305 Dotered ince Total current assets 41,098 67.611 _101,769__141,128 174.113 151.214 185.173 cone Property and equipment, net 60,588 78,340 112,97 202868 201,103 901,160 297.154 Longton dd Detorod income taxes 1,398 0 ° ° ° ue Long-term investments 0 17877 12700 4aa4 ° beerved real Long tm nots receivable, Other long to | affiliates o ° 0 1,000 7,608 «2,988 2,925, i Investments in unconsolidated Total on pint ventures 2927 9400687112426 10,728.92 Minority inten Reaccuited franchise righ, ood, other intangibles ° 0 16621 49,354 175.957 176.078 176045 SHAREHOLL Other assets 1908 4838 8.300 8252 9.456 12815 10.290 Corre. Total assets 104,988 171,498 255,378 410,487 960,664 654,403 661,600 nuded SS SS SS Soe Gomeon toe 1,000 shares issued and 0 Paicin capita neared cot Notes receive Nonguaitied) plan assels Nnquaiied) plan habity ‘ecumlated comeranensi tained ean Total shi Tota ial share! ‘Source of tacase 7 Krispy Kreme Dowghouts Inc, 109 2 | Balance Sheets (continued) Fiscal Year Ended ‘Jan.30, Jan.28, Feb.3, Feb.2, Fob.1, May2, Aug. 1, ‘200° 200120022003 «200420082008 12085 15,055 18,764 18,965 «18.617 9107 11975 «812312670 13,107 2o.729 20981 23.744 27,107 92.249 o 0 9075 0 sari 0 ° 0 73139012842 4.063 5.886 ° 0 900 ° taxes payable 1 ° ° ° otal currentliabities «29.586 38.188 52,599 _59.657 _53.493 69,906 _69,739 income taxes, 3990 9849 6.374 16,408 (25,564 sation delorred (unpaid) —990——1,106 ° ° 0 ing nes of crect 0 ° 0 7.288 © €7,000 72,000 62.000 farm debi, net of curent 20.502 © 3012 49.900 48,056 58.468 50,195 restructuring expenses 4,259 3109 ° ° ° long-term obigations ie66«1.735«4843«5.218 HNN 10.774 12.078 otal long-term liablities 27,617 6,529 12,685 72,265 _ 182,641 _157,711_149,777 iy interest 47 24o1—«5,198 «528-2815 2.503, {EHOLDERS' EQUI stock, no par value, shares authorized; Jand outstanding 195.060 121,052 173,112 204,477 206,812 200,065 stock, 10 par value, shares authorizod; 4670 10,805 jeompensation (a8) 19) THY ecoivable, employees (2.547) (2,349) (2.680) (558) (383) (983) (989) ualfied employee Deneft (126) (138) (838) (969) (24) (284) nn a eos 456 (1,486) (1,315) (783) (768) 927 42,547 68,925 102,403 159490 195,052 140.816 ‘Total shareholders’ equity 47,755 125,679 187,667 279,952 452,207 430,651 439,499 Total liabilities and ‘shareholders’ equity 104,958 171,499 255,976 410,487 660,664 654,469 661,608 ol dala: Company figs wh the Secures and Exchange Commission (SEC).110 PartTWwo Financial Analysis and Forecasting EXHIBIT 3. | Store Growth ‘Store growth 2000 2001 ‘2003 2008 ‘Total company factory stores Beginning of period 61 58 63 7 99 ‘Stores openings, 2 8 7 14 28 Store closings. 6 ° @ o @ ‘Stores acquied from franchisees ° 0 7 13 16 End of period 58 6 75 tat [Net change @ 5 2 24 42 8 year-over-year growth 9% «19% Sa ‘Total franchised factory stores Beginning of period cy em ast Unit openings 19 23 4“ 49 58 Unit closings | ® @ a @ 8 Stores transfered to company ° o m3) 8) End of period 88 mt 4377 Net change 16 25 2 39 1% year-overyoar growth ee ee Total factory stores Beginning of period 131 1440017428 Store openings 21 38 48 3 86 Store closings @ © « © © End of period 148 74 28s 87 Net change 13 30 4 58 Bt % year-over-year growth 21% 25% Bm 20% ‘Sof total stores ‘Company-owned 409% 82% B44 BHO 395% Franchised 597% 638% 656% 641% 605% ‘Source of dats: Company reports, case witer’s analysis.(Case 7 Kespy Krome Doughnuts Ine. NL EXHIBIT 4 | _Anaiysis' Recommendiations Percentage Recommending: Period Buy Sell Hold ‘4un-o1 800% 200% 0.0% ‘Slut 80.0% 200% 0.0% 16-Aug-01 80.0% 200% 0.0% 20-Sep-01 60.0% 200% © O.0%. 180ct01 800% 20.0% = a.0%. 15Novol 80.0% 200% = oom 200801 80.0% 200% = 0.0%. Ylan02 65.7% =O. 14Fob02 57.1% 286% © 3 ‘4Maro2 714% = 28.6% = Om 1BAprO2 687% = 3% OO 1eMay-02 66.7% = 33% Om, 20Jun02 71.8% «= BBB =m tewo2 714% = 286% 0% 1-Augo2 714% = BBS om 19Sep02 6am = RK =O. 17-Oct-02 ST 1% 2B 18. T4Novoe 57.1% 286% 43 19Dec02 500% © t25% © a7.5% t6len-03 50.0% = 125% «= S75 20Fb03 625% «= i25m 50% 20Maro3 625% «= 125% 25.0% 17-Apr-03 «625% 125% BOM 1SMay03 556% = 111% = Sag 19Wun03 86.7% 00% 38.3% ¥7u-03 80.0% 00% — 200% 14-Aug-03 83.35 00% 16.7% 18S0p03 687% = 18.7% 18.7% 16003 667% 6TH 187% 2ONovOs 66.7% = 6.7% «18.7% 18Dec0s 429% «= tage 2.9% 1Svan0s 429% = tga 2.0% 19Feb0¢ 286% = 14.3% ST Im 1eMar0s 286% = 14.3% SI 15:Apr0s «375% 250% 37.5% 2-May04 = 25.0% 25.0% 50.0% Yetun-Os —25.0% 250% 50.0% TSuul0s 833% HHA 86% 19-Aug0s 286% = 28bR az 16Sep0s 250% = a75% 75% M40c04 149% = a9 a.m 1BNovod 143% aga 16Decos 143% s.1% a8. 20-Jan-05 14% «71% 286%. ————— ee Source of data: VES (Thomson Fnancial/Fist Cah112 PartTwo Financial Analysis and Forecasting EXHIBIT 5 | Consensus EPS Estimates Sena ee som =a ma ee sol us press = fe $062 ‘8-Mar-02 : sou staat § 0o|— sos eves ¥ 200 a se ton cere Mi $0.63 8-Oct-02 1.00) = ac wal s ee x8 sos? 20-Mar-03 ty a ine $090 30-Jul-03, nao = ae a se on mcs ed noe re rae 2 = icc sos ed oe is a wast io — ss ~ ia atest ‘Source of data: REIS (Thomson FnariaVst Cal).Cae 7 Krispy Kreme Dowhouts, Inc. 3 EXHIBIT 6 | Stock-Price Patterns Relative to the S&P 500 Composite Index 6.00 Krispy Krome CAAA EAP PD ESTEE of data: Datastroam,(36) vassunuco abueyoxg pur sag usdog “189 9a!Nog mere “alee 699 oer MOL wsreu woud aN spe sk kev es VOL UBL HOE w6seu oid Bunes0d fynbe sieproyoreysjeuiooulyeu —iz9zZ1 ET} GOL CLL eke nb uo winiay Sjesseewooulieu — SUB SOE secol «= ese LS 9680 Uo Ura, somes Kyaeiyord ‘sjusjennba yseo pue yseorsows — BLZE ses ovat osze creo san0uin se, ‘SESE CYSORS §— ITT oz ws srk ove faoqwanwypjes $9008 01609 ALL sot lst veo a ‘serjeneoas syuncooeysojes 06 190; Brot over bol ‘ynbo swepjouoseyssiesse rah ost se eck oze ‘susdxs 19 svez esee ev | eree be swevoL == wezaL SL ovo = slvee weet ore adhe 000 88 see sez ve uw er oes wong we 26 cot or sot os (88-228) 0 sone Aypinbry ‘suomuyep oney ‘002 ‘0002 “aed ‘oe wer wary Adsp>} 10) SONY joueuig jeowreuy | 2 L1GIHXS ns bearers seeeeemeemememmemestatataae ee)Wu aseosay $004 9 prpuES BDO 210 “25 mfuyeou eu — wee ore ese sete eae (Ce) Sina od on we wy avert eres re oe ons wo eszttoek caskets) sete oon ore Snow gee tass) ear sone Ange r09 fely eae zieyk soe eee oat aroun 09 a s90 otek eyes sown wose ed zis see pees eek cues wey aces oreeh “neu Kean cor ee ize eek Sega hse ag scum sorgeneooes somes Ayioy 2s fz mt ose es ort ‘indo wove eo es a rc rd (600) 669 xe asojeqsbesann cami v9 wer zo, eee Sr2_ 9S (endea eine oreo see wu we ae woe 18 (0) fanboy 1 sone 966:0N07 so sco see ewer one wang, 80 oro me zw 2181380 sone Aupinbry owe'es Weis 999s es0zs ees elvis o8is (aucun) evsons sung SpreuccoM swe xog _soumeg ~BND SeeID ‘oun howe ‘un braved osu eu. yo0P S08: Jo pug 1B SiuEINEISoY SONeSAEINO ‘SoNey POUEUG woouY Te20 "Samk00H ep anos SSS ee inssecons uovax ew ‘soeauauey fa pojsedo are suaneo0 et ‘no Ateuneexsdy soins se mode w sj60 axe Oz ue zou im Seo you Bupeyo) Sores Supuerani wor Bu "Wisner nso yond ou Jpsa| Bs Pema ievEg :Auedwoo peal eieueg, oenauny oe wou Jo az neg epHoVOM SEIS: 6 AE. L's ONE are ‘810885 a ELD sfinqu cH 9 8 8 AA 79 TeUCewIA = APLON, ‘sonpovd eBe1enoa pu p00, 901) pun 6 soso ut ‘sos fied. YBa Boj) BEL SHEN ‘10g sas pojun oi su-onUP SO/IOSND p LD ee aL PAOD Wes “suoneoo 9 02 nog seeds "Pouve-Aveduoo eve suo989) 80 0 ue sno 6. wor ede soyou eUONBUERA Z| 4 PUES pabun ou o80178 Ss {us sot] pesktueH pus pauwo RZ ven DW YI {EINES BoOH ED, onus jo oResedo 4 28 Soy2049 "Ou “UES U-anO BODEN “2226 000 € wim LD ezz6 be 8 SEF Bde Uy uoUaR S aYor eed ‘Suul4 aigexedwiod Jo suonduoseq | (ponunuos) 8 LIGIHXa(Case 7 Krispy Kreme Doughnuts, In 7 EXHIBIT 9 | Common-Sized Financial Statements: Limited-Service Restaurant Averages and Krispy Kreme (KKD) 2003 KKD 2003 Bolance Sheet: Assets (%) Gash & equivalents Trade receivables (net) Inventory All other current Total current Fhoed assets (net) Intangibtes (net) {Aller noncurrent Total assets Balance Shot: Liabiltios & Equity (%) Notes payable, shor-cm Current maturity, long-term debt “rade payables Income taxes payable Allother current Total current LLongrterm debt Doterrd taxes All other non-current ‘Shareholders’ equity “otal fablites & equity Income Statement (%) Not sales Operating expanses Operating profit All other expenses (net) Prof before taxes 20012002 2B 124 18 09 49° 33 28 (26 210192 547 570 133142 1098 1000 1000 4786 61 60 92 74 02 © o2 9169 sat 36.1 402 © 456 01 02 478s. 29 © 99 100.0 1000 1009 1000 3556 400047 1318 2730 137 14 38 as 4 550 126 100 1000 58 68 93 03 1490 264 a9 oa a7 129 1000 1000 58.1 40 15 25 31 104 43 36 264 425 265 45 1000 00 o4 28 00 4a aa 73 10 49 684 1000 1000 762 153 14 142 Source of data: Annual Statament Sides: 2004-2006; The Rsk Management Asbo