University of the Philippines College of Business Administration

Case # 3: Krispy Kreme

In Partial Fulfillment Of the requirements of BA 141

Submitted by: Ebol, Trixia Marie Gamad, Bryan Rovic Lee, Nigel Williamson Lopez, Haila Samas, Mary Rose Tongco, Nadaine Zapata, Kristel August 4, 2010

Diliman, Quezon City

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Krispy Kreme Honey-glazed Doughnuts

As of the year 2002 Point of View: Investor

Executive Summary
Krispy Kreme Doughnuts, once only a hole-in-the-wall doughnut maker, made a very successful IPO on April 2000. This was followed by very strong growth for the following two years. In light of this, we are tasked to decide as investors whether or not we should buy shares of Krispy Kreme Doughnuts. To do this, we analyzed various aspects of the financial information of the company to see if we would agree with the given forecasts of the experts. Krispy Kreme sales have steadily increased in the past years, besides that, revenues from franchise operations have also expanded along with the active opening of new stores using two franchise models: the associate franchisers and area developers. More so, even more stores are expected to be opened; and management is exploring more markets locally as well as internationally which are expected to yield a high return in performance as indicated by past trends. Even better, management has taken steps to increase efficiency and decrease operating costs as evidenced by a trend and common-size analysis of the expenses of the company. The overall health of the company is also in good standing with more than two times of a current ratio in the recent year and a quick ratio of about two times. Even the average collection period has improved constantly 29 days to 21 days in two years. As far as capital structure is concerned, it is to be noted that management has opted to use more equity than debt financing to cover the expansions. However, we have little worry that it will affect future growth in stockholder wealth. All in all, we agree that indeed, Krispy Kreme is poised to have a better performance in the coming years which will reflect in an increase in stock price. As investors, we have decided to buy Krispy Kreme shares as they are a good investment opportunity.

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Case Context
Important events that triggered the problem or issue: Stock sky-rocket: During its IPO on April 5, 2000, Krispy Kremes stock valued initially at $5.50 increased by 76% to $9.25. This eventually turned into $45.66 (a 394% increase) in December 2001, merely a year and a half after its IPO. Eventually, the stock was trading at $37 in May 2002. In comparison to the S&P 500, Krispy Kreme has been consistently performing higher in terms of stock price.

Multiple Sources of Revenue: KKD (Krispy Kreme Doughnuts) has three major sources of revenue: (1) Doughnut sales from its company-owned stores, as well as sales to supermarkets and groceries with the KKD brand and other retailers brand. (2) Royalties from the sales of franchisers, called franchise associates (3% from on-premises sales; 1% on other sales), and area developers (4.5% on all sales). (3) Sale of doughnut mixes and machinery to associates and area developers.

Growth Plans: There are 62 new stores expected to open in 2003 mostly under the franchise model and 200 stores from area developers within the four years of 2003 to 2006. Besides that, management is also exploring possibilities of international investment in places such as the UK, Australia, Spain, South Korea, and Japan.

New products to be offered: KKD has also acquired a coffee company called Digital Java in February 2001. As such, it plans to expand its product offerings of coffee and thus, added sources of revenue and possibly a bigger market share.

Efficiency and New Opportunity: The company has also been developing smaller equipment and machinery so as to provide freshly made hot doughnuts to areas with smaller spaces such as dense cities and malls. Not only will KKD penetrate a larger market, its costs for store space will also decrease. The company has also invested $37M for new factory stores, machine-making factories, coffee-making facilities, and doughnut & coffee shops.

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Capitalization: Aside from KKDs first IPO, the company has prepared financing for its activities by further using equity and debt in 2002. A stock offering of 10.4M shares acquired $17.2M and a bank loan gave KKD additional funds of $35M. Management is confident that its financial needs for the next 24 months will be sufficiently covered by the steps it has taken so far. A line credit of $40M is also available for any additional financing needed.

Fragmented Industry and competitors: The biggest competitor of KKD is Dunkin Doughnuts with 4,736 franchises in 43 states and 20 countries with sales of 1.6B per year. Then, there are numerous doughnut chains in specific regions such as Winchells in the west coast with 200 stores, Donut Connection in the Mid-Atlantic (140 stores in 13 states), and Honeydew Donuts in New England (100 stores).

Problem Definition
In the view of a potential investor, Krispy Kremes highly successful initial public offering followed by a growth of more than 300% in stock price within two years is not something to be overlooked for a potential profit in the investment portfolio. As such, the problem is whether or not Krispy Kreme will be able to sustain its growth in stock price given its previous track record, the new stores scheduled to open, and managements plans of investing in its equipment and possible areas of expansion internationally. As an investor, our target is to yield a return of at least 20% to our investment in KKD within the span of a year and 50% in two years. This papers purpose is to therefore use the forecasted performance of Krispy Kreme in two years to determine whether or not KKD is a good investing opportunity, and as a result, whether or not we should invest in Krispy Kreme stocks.

Framework for Analysis

To predict the future stock price of Krispy Kreme, it is important to remember what drives stock prices which is the perception of the market to the stocks of the company. This is in turn affected by the performance of the company. A good performance of the company (i.e. an increase in sales and profit) translates into more investors and a higher stock price. In other words, with the use of data given which includes predicted performance of Krispy Kreme for the next two years, we can find out the future price of KKD stocks and therefore know if we will reach our investment goal within that span of time.

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Take note that we will not be using our own forecasts for KKD as the needed data for our purpose has already been provided within the exhibits of the case. Just as well, it was noted that there has already been virtually identical consensus predictions for all analysts covering Krispy Kreme. With that in mind, one more individual forecast would make no difference. To achieve an accurate measure of the performance of Krispy Kreme, it is first important to understand the industry. First and foremost, KKD sells consumer goodscoffee and doughnuts. Intuitively, the more doughnuts you sell, the more money you make. Getting more sales and revenue is essential. Having said that, the question of how to increase sales arises. USA Today.com as of May 2003 states that the doughnut industry is worth 3.6B. Experts say that the growth of the industry is due to three reasons: (1) doughnuts as an indulgence when stressed, (2) the fastpaced lifestyle of Americans, and (3) the bum economy. In addition, doughnuts are cheap. As it was said in the same article from USA Today, A dozen donuts for $5 is not a lot of money to feed a family. To put it simply, everyone is buying doughnutsthe stressed executive, as well as the struggling single parent. Therefore, to increase sales, KKD only has to make doughnuts available. For this, we look at how KKD is investing for expansion into markets they havent penetrated yet. Considering that the number of products sold is important, how you produce those products, meaning efficiency, becomes just as important. To measure this, efficiency and profitability ratios are a good tool to find out if the company is operating at an optimum level. Liquidity is not as critical since KKD deals with mainly cash from its sales and operations as a doughnut selling company. In comparison, capitalization is much more significant to consider in light of managements purposes of investment and expansion. How its decision of taking funds from debt and equity will affect its position must be reviewed. Finally, after properly assessing the performance of the company, the next thing to be evaluated is the relationship of its performance and KKDs stock price. For this purpose, a financial tool such as the P/E ratio is good way to measure that relationship and project that for the upcoming years.

Analysis
*Important data to note for our purpose of determining the future value of KKDs stock is highlighted in the following section. A complete trend analysis, ratio analysis, as well as

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common-size relationship derived from the exhibits presented in the case can be found in the appendix.

62 new associates and 200 area developer stores coming soon: With 63 franchise stores and 200 other new stores expected, this ensures a steady growth for future years. Given that the rate of revenues increases or at least stays at its current level of $72k for company-owned stores and $53k, an increase in revenues and profits from these new stores is assured. In fact, the forecasts of Glass and Farmer indicate that EPS will increase to $0.63 and $0.84 in 2003 and 2004 respectively which are a 40% and 87% increase from 2002 levels. Besides domestic growth, potential international ventures will also contribute to the overall performance and therefore, worth of the company.

Sales Increase: The trend analysis of the statement of operations (Exhibit 2) shows a good sign of growth in total revenues of about 30% a year. This is in direct relation to KKDs opening of new stores via company-owned and franchise operations. It is expected by experts that KKDs future expansions will result to further increase in revenues by more than 20% in 2003 and 2004 as shown by a trend analysis of Exhibit 5. This stable growth is something that will convert into stronger company standing which will most probably reflect positively in the coming years stock prices.

Very Strong Growth in Franchise Operations: The contributions of franchise operations to KKDs total revenues have become more significant over two years showing an increase of more than two times from the year 2000 (found in the trend analysis of business segments in Exhibit 3). This positive return in expansion investments is a reassuring sign of managements decision to continue to open stores with the area developer and franchise models. As such, it is expected that the 63 store openings of franchise associates and 200 of area developers will yield a good return.

Expenses Decreased in relation to Revenue: Note also that though revenues have doubled, expenses have increased a relatively smaller amount of 50% (company stores) and 20% (franchise operations) in two years (Refer to the trend analysis of Exhibit 3). Needless to say, decreased cost and better efficiency is a good sign for investors.

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Steady increase in Profitability: In two years 2000 to 2002, the operating profit margin derived from exhibit 2 has increased two-fold from 5% to 11%. This is a good sign that the company is efficiently keeping costs low. As indicated by exhibit 5, factors that have contributed to this is the new distribution facility of KKM&D (Krispy Kreme Manufacturing & Distribution). This is expected to further improve with the opening of a new manufacturing facility. In light of this, Net Profit Margin has also steadily increased. A constantly improving profitability is a good sign of health of the company which will attract investors leading to an increase in the price of KKDs stocks.

ROA Increase: Ratio analysis will also show that ROA has steadily increased over the years. Given that management plans to further expand its business, thus increasing total assets, this trend implies a good increasing return in the investment in assets. The strong position of KKDs ROA is definitely a good sign for investment.

ROE increase: This steady growth in ROE, though not very big, is important to take note. One has to take into account that KKD has relied a lot on its equity financing for its expansion. The increase in ROE between the years 2000 and 2001 despite the increase in equity during those years is a good sign for investors that more income is being generated and thus, their share wont be corroded by the increase in equity.

Collection Efficiency increase: Using the average collection period ratio, we can see that the average time for KKD to collect its receivables has decrease over the past years from about 30 days to around 21 days. This is a good sign that KKD has taken steps to shorten its operating cycle which means cash circulates faster and thus, more resources can be expected to be available in case there are very short-term requirements. This short-term liquidity is good for investors that are averse to risk.

High Equity Ratio: Leverage-wise, it seems that KKD has focused more on equity than debt financing. This is good in the view that the companys income wont be degraded by constant payments of interest. However, for the purpose of an investor that wants to take advantage of the expected growth in stock price, this is not a good sign. The Equity ratio has increased from

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0.45 in the year 2000 to 0.73 in 2002. If the trend of increase continues, this means that more stocks of KKD will flow to the market, it will decrease the overall market price of stocks which is bad for trading.

EPS expected to significantly increase: Most of the data listed above such as increase in sales and decrease in cost translate into the EPS. From 2002, the EPS level from $0.49 is expected to increase almost twice to $0.84. Using a P/E ratio we can estimate the stock price in the 2004. Given that the EPS in the 2002 was $0.45 (Exhibit 5) and a stock price of $37 on the same year, it would give a P/E of 82.2. Using the same relationship and the projected EPS on 2004 of $0.84, we get a stock price of $69. This estimates an 86% increase of stock price in two years. The same approach is used to show that in one year from 2002, the stock price will increase by 41%.

Other Information Days in Inventory: This particular ratio could not be properly calculated as the Cost of goods sold is not properly segregated as a line item in the statement of operations. Instead, expenses were aggregated to a single account of company operating expense. Although one can assume that inventory of a doughnut company would have a cycle of less than a day, as an investor, it would be more advantageous to know if the company has been efficiently monitoring its inventory. Honeymoon Phenomena: This is the name for the observed trend that newly opened KKD stores produce sales so high above the normalized sales. We have no worry about this because doughnuts are consumer products and just as USA today said, everybody eats doughnutsthe rich and poor.

Decision
Given the data and forecasted amount of experts, we conclude that Krispy Kreme Doughnuts is indeed a good investment opportunity for investors, and we should therefore invest in Krispy Kreme stocks.

Justification
The determining factor of our decision to invest or not in KKD stocks is measured by the estimated price of Krispy Kreme shares in the coming two years. We based our estimation of the future price using the P/E ratio (the relationship between stock price and EPS). Given that with

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the forecast of the experts, KKD would yield and increase of about 40% and 80% by 2003 and 2004, the financial goal of our group was reached. Thus, our main endeavor was to agree or not with the experts forecast of KKDs EPS for 2003 and 2004 by analyzing components such as profitability, leverage, and efficiency.

Total revenues have increased by 30% a year while expenses have grown far less in relation to revenues. Given the fact that more stores and franchises are expected to be opened in the future such as the 62 associates and 200 area developer stores, revenues are expected to increase further the coming years. With the increase in operations, KKD has opted to invest in more facilities the will enable it to lessen its logistics costs and even infiltrate new markets such as malls and the coffee industry. Historical data also shows that ROA has increased as well. If trends will sustain, the investments of KKD will give a positive return. In fact, the only concern is Krispy Kremes high equity ratio. If KKD will opt to offer more shares in the future, the stock price may be affected. However, the expansion plans of the management give a confident statement that the significant increase in revenues from the expansion will increase the stock price more than another public offering can.

All of these give a concrete expectation that revenues and total profitability will grow in the future which will definitely increase EPS and the stock price of KKD in the coming years.

Operationalized Decision
Recommendations Krispy Kreme is expected to further grow in the coming years. Given the successful IPO, strong financial health, and future investments expected to yield a good return, this is a good time to invest in Krispy Kreme. We recommend calling your broker now and invest in shares.

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Exhibit 2 Krispy Kreme Doughnuts Fiscal Year ends: Jan 30, 2000 Consolidated Balance Sheet (in thousands) Year ended 30-Jan-00 Assets CURRENT ASSETS Cash and cash equivalents Short-term investements A/R net A/R affiliates Other Receivables Inventories Prepaid Expenses Income taxes refundable Deferred Income taxes TOTAL CURRENT ASSETS 28-Jan-01 3-Feb-02 Quarter Ended 29-Apr-01 5-May-02 LIABS AND EQUITY CURRENT LIABS 3,183.00 0.00 17,965.00 1,608.00 794.00 9,979.00 3,148.00 861.00 3,500.00 41,038.00 7,026.00 18,103.00 19,855.00 2,599.00 2,279.00 12,031.00 1,909.00 0.00 3,809.00 67,611.00 21,904.00 15,292.00 26,894.00 9,017.00 2,771.00 16,159.00 2,591.00 2,534.00 4,607.00 101,769.00 21,326.00 24,738.00 20,202.00 5,028.00 2,498.00 11,511.00 1,796.00 34.00 4,775.00 91,908.00 21,601.00 22,073.00 29,232.00 8,443.00 1,919.00 21,118.00 2,700.00 0.00 5,741.00 112,827.00 A/P Book Overdraft Accrued Expenses Revolving line of credit Current maturities of long-term debt Income Taxes Payable TOTAL CURRENT LIABS 13,106.00 0.00 14,080.00 0.00 2,400.00 0.00 29,586.00 8,211.00 5,147.00 21,243.00 3,526.00 0.00 41.00 38,168.00 12,095.00 9,107.00 26,729.00 3,871.00 731.00 0.00 52,533.00 15,671.00 0.00 16,941.00 4,400.00 0.00 0.00 37,012.00 14,763.00 8,074.00 20,832.00 4,171.00 2,382.00 303.00 50,525.00

NONCURRENT LIABS Deferred income taxes Compensation deferred (unpaid) Long-term debt , net of current portion Accrued restructuring expenses Other long-term obligations TOTAL LONG-TERM LIABS Minority Interest 0.00 990.00 20,502.00 4,259.00 1,866.00 27,617.00 0.00 579.00 1,106.00 0.00 3,109.00 1,735.00 6,529.00 1,117.00 3,930.00 727.00 3,912.00 1,919.00 2,197.00 12,685.00 2,491.00 2,113.00 954.00 0.00 2,855.00 1,641.00 7,563.00 1,059.00 727.00 35,133.00 5,957.00 1,653.00 2,883.00 46,353.00 2,703.00

NON CURRENT ASSETS PPE, net Deferred Income taxes Long-term Investments Investment in unconsolidated joint ventures Intangible Assets Other Assets TOTAL NONCURRENT ASSETS TOTAL ASSETS 60,584.00 1,398.00 0.00 78,340.00 0.00 17,877.00 112,577.00 0.00 12,700.00 85,464.00 0.00 11,319.00 151,152.00 0.00 6,058.00

0.00 0.00 1,938.00 63,920.00 104,958.00

2,827.00 0.00 4,838.00 103,882.00 171,493.00

3,400.00 16,621.00 8,309.00 153,607.00 255,376.00

4,921.00 0.00 6,578.00 108,282.00 200,190.00

4,382.00 16,508.00 7,387.00 185,487.00 298,314.00

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STOCKHOLDER'S EQUITY C/S, no par, 100,000 shares authorized, issued and outstanding: 51,832 (2001) and 54,271 (2002) C/S, $10 par, 1,000 shares authorized; issued and outstanding: 467 (2000) and 0 (2001) Unearned compensation N/R, employees Nonqualified employee benefit plan assets Nonqualified employee benefit plan liability Accumulated other comprehensive income Retained Earnings TOTAL SHE TOTAL LIABS AND SHE

0.00

85,060.00

121,052.00

108,741.00

123,777.00

15,475.00 0.00 (2,547.00) 0.00 0.00 0.00 34,827.00 47,755.00 104,958.00

0.00 (188.00) (2,349.00) (126.00) 126.00 609.00 42,547.00 125,679.00 171,493.00

0.00 (186.00) (2,580.00) (138.00) 138.00 456.00 68,925.00 187,667.00 255,376.00

0.00 (176.00) (2,958.00) (126.00) 126.00 683.00 48,266.00 154,556.00 200,190.00

0.00 (169.00) (2,556.00) (339.00) 339.00 (105.00) 77,786.00 198,733.00 298,314.00 Equity loss in joint ventures Monority interest Loss on sale of property and equipment Income (loss) before income taxes Provision (benefit) for income taxes Net income (loss) 5-May-02 111,059.00 86,362.00 7,623.00 2,546.00 14,528.00 (495.00) (198.00) Shares used in calculation of net income (loss) per share: Basic Diluted Net income (loss) per share Basic Diluted 0.00 0.00 9,606.00 3,650.00 5,956.00 716.00 0.00 23,783.00 9,058.00 14,725.00 1,147.00 0.00 42,546.00 16,168.00 26,378.00 (175.00) (39.00) 9,223.00 3,504.00 5,719.00 (533.00) 0.00 14,292.00 5,431.00 8,861.00

Exhibit 2 Statement of Operations (in thousands, except per share data) Year Ended 30-Jan-00 Total Revenues Operating Expenses General and administrative expenses Depreciation and amortization expenses Income (loss) from operations Interest expense (income), net, and other 220,243.00 190,003.00 14,856.00 4,546.00 10,838.00 1,232.00 0.00 28-Jan-01 300,715.00 250,690.00 20,061.00 6,457.00 23,507.00 (1,698.00) 706.00 3-Feb-02 394,354.00 316,946.00 27,562.00 7,959.00 41,887.00 (2,408.00) 602.00 Quarter Ended 29-Apr-01 87,921.00 71,195.00 6,222.00 1,872.00 8,632.00 (976.00) (171.00)

0.16 0.15

0.30 0.27

0.49 0.45

0.11 0.10

0.16 0.15

37,360.00 39,280.00

49,184.00 53,656.00

53,703.00 58,443.00

51,991.00 57,190.00

55,381.00 59,073.00

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Exhibit 2 Consolidated Statement of Cash Flows (in thousands) Year ended 30-Jan-00 CASH FLOW FROM OP. ACTIVITIES Net Income Items not requiring (providing) cash: Depreciation and amortization Deferred income taxes Loss on disposal of property and equipment, net Compensation expense related to restricted stock awards Tax benefit from exercise of nonqualified stock options Provision for restructuring Provision for store closings and impairment Minority interest Equity loss in joint ventures Change in assets and liabilities: Receivables Inventories Prepaid expenses Income taxes, net A/P Accrued expenses Deferred compensation and other long-term obligations (4760) (93) (1619) (2016) 540 4329 345 (3434) (2052) 1239 902 2279 7966 (15) (13317) (3977) (682) (2575) 3884 4096 83 (2127) 520 113 (75) (450) (3165) (246) (912) (4846) (109) 2837 2668 (6255) 319 28-Jan-01 3-Feb-02 Quarter Ended 29-Apr-01 5-May-02

NET CASH PROVIDED BY OP. ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment Proceeds from disposal of property and equipment Proceeds from disposal of assets held for sale Acquisition of associate and area developer markets, net of cash acquired Investments in unconsolidated joint ventures (increase) decrease in other assets (purchase) sale of investments, net NET CASH USED FOR INVESTING ACTIVITIES:

8498

32112

36210

6070

8439

(11335) 0

(25655) 1419

(37310) 3196

(8965) 9

(40954) 0

5956

14725

26378

5719

8861

830

4546 258 0

6457 1668 20

7959 2533 235

1872 568 39

2546 893 0

(20571)

0 479 0 (10026)

(4465) (3216) (35371) (67288)

(1218) (4237) 7877 (52263)

(1265) (3696) (3) (13911)

(1187) 755 (235) (41621)

22

52

12

17

0 (127) 1139 0 0

595 0 318 716 706

9772 0 0 1147 602

2944 0 0 175 171

1689 0 0 533 198

CASH FLOW FROM FINANCING ACTIVITIES Repayment of long-term debt Net (repayments)borrowings from revolving line of credit Borrowings of long-term debt Proceeds from stock offering Proceeds from exercise of stock options Minority Interest Book overdraft Cash dividends paid (2400) 0 4282 0 0 0 482 (1518) (3600) (15775) 0 65637 104 401 (941) (7005) 0 345 4643 17202 3906 227 3960 0 0 874 0 17202 2656 (233) 1372 0 (128) 300 33000 0 1036 (321) (1033) 0

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Issuance of notes receivable Collection of notes receivable Net cash provided by financing activities

(674) 226 398

0 198 39019

0 648 30931

0 270 22141

0 25 TREND ANALYSIS 32879 NET CASH PROVIDED BY OP. ACTIVITIES 30-Jan-00 1.00 1.00 Year ended 28-Jan-01 3.78 6.71 3-Feb-02 4.26 5.21 Quarter Ended 29-Apr-01 0.71 1.39 5-May-02 0.99 4.15

Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

(1130)

3843

14878

14300

(303)

NET CASH USED FOR INVESTING ACTIVITIES: Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents

4313

3183

7026

7026

21904

1.00

98.04

77.72

55.63

82.61

3183

7026

21904

21326

21601

1.00

(3.40)

(13.17)

(12.65)

0.27

Supplemental schedule of noncash investing and financing activities Issuance of stock to Krispy Kreme Profit-Sharing Stock Ownership Plan Issuance of restricted common shares Issuance of stock in conjunction with acquisition of associate market Issuance of stock in exchange for employee notes receivable Unrealized gain (loss) on investments Foreign currency translation adjustment Change in fair value of cash flow hedge

0 0 0

3039 210 0

0 50 4183

0 0 0

0 0 0

0 0 0 0

0 609 0 0

879 (111) 0 0

0 74 0 0

0 (94) (8) 459

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Exihibit 3 Business Segment data for Krispy Kreme Doughnuts for fiscal years ended Jan 30, 2000 to Feb 2, 2002 (in thousands) Year Ended 30-Jan-00 REVENUES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL REVENUES OPERATING EXPENSES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL OPERATING EXPENSES 142,925.00 4,012.00 43,066.00 190,003.00 181,470.00 3,642.00 65,578.00 250,690.00 217,419.00 4,896.00 94,631.00 316,946.00 164,230.00 5,529.00 50,484.00 220,243.00 213,677.00 9,445.00 77,593.00 300,715.00 266,209.00 14,008.00 114,137.00 394,354.00 28-Jan-01 3-Feb-02

COMMONSIZE 30-Jan-00 REVENUES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL REVENUES OPERATING EXPENSES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL OPERATING EXPENSES 0.65 0.02 0.20 0.86 0.75 0.03 0.23 1.00

Year Ended 28-Jan-01 3-Feb-02

0.71 0.03 0.26 1.00

0.68 0.04 0.29 1.00

0.60 0.01 0.22 0.83

0.55 0.01 0.24 0.80

TREND ANALYSIS 30-Jan-00 REVENUES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL REVENUES OPERATING EXPENSES BY BUSINESS SEGMENT Company Store Operations Franchise Operations KKM&D TOTAL OPERATING EXPENSES 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Year Ended 28-Jan-01 3-Feb-02

1.30 1.71 1.54 1.37

1.62 2.53 2.26 1.79

1.27 0.91 1.52 1.32

1.52 1.22 2.20 1.67

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Exhibit 4 Operating data for Krispy Kreme Doughnuts for fiscal years ended Feb 1, 1998 to Feb 3, 2002 Year ended 1-Feb-98 Systemwide sales ($000) Number of stores at the end of the period Company Franchised Systemwide Average weekly sales per store ($000) Company Franchised Operating Cash flow/store revenues 42.00 23.00 NA 47.00 28.00 0.20 54.00 38.00 0.23 69.00 43.00 0.26 72.00 53.00 0.29 58.00 62.00 120.00 61.00 70.00 131.00 58.00 86.00 144.00 63.00 111.00 174.00 75.00 143.00 218.00 203,439.00 31-Jan-99 240,316.00 30-Jan-00 318,854.00 28-Jan-01 448,129.00 3-Feb-02 621,665.00 Sales Ratios Operating Expenses Contribution Profit (Bef. G&A) D&A General Administrative Exp. Operating Income Tax rate Net Income 83.36% 16.64% 2.15% 6.67% 9.96% 35.10% 4.89% 80.37% 19.63% 2.02% 6.99% 10.62% 38.00% 6.69% 78.87% 21.13% 2.05% 6.86% 12.22% 38.00% 7.58% 78.17% 21.83% 1.99% 6.75% 13.09% 38.00% 8.22%

Year-Over-Year % Change Systemwide Sales Company Sales Operating Expenses Selling General & Admin. Expense Operating Profit 40.60% 36.50% 29.60% 27.50% 167.50% 147.00% 81.10% 38.70% 31.20% 26.50% 37.40% 39.80% 79.30% 64.60% 34.70% 25.50% 23.10% 23.20% 44.40% 42.20% 40.40% 33.10% 22.50% 21.40% 20.50% 31.20% 32.30% 31.90%

TREND ANALYSIS 1-Feb-98 Systemwide sales ($000) Number of stores at the end of the period Company Franchised Systemwide Average weekly sales per store ($000) Company Franchised Operating Cash flow/store revenues 1.00 1.00 NA 1.12 1.22 0.20 1.00 1.00 1.00 1.05 1.13 1.09 1.00 31-Jan99 1.18

Year ended 30-Jan00 1.57 28-Jan01 2.20 3-Feb-02 3.06

Net Income EPS

1.00 1.39 1.20

1.09 1.79 1.45

1.29 2.31 1.82

1.29 1.65 0.23

1.64 1.87 0.26

1.71 2.30 0.29

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Exhibit 5 Krispy Kreme Income Statement TREND ANALYSIS Fiscal Year ends: January Company Stores Franchised Stores Systemwide Sales Company Stores Franchise Operations Support Sales NET SALES Company Store Expenses Franchise Expenses Support Operations Expenses Operating Expenses D&A General & Admin. Expense OPERATING PROFIT Interest/Other Expense (Income) Joint Venture Income (loss) Minority Interest Earnings Before Taxes Income Taxes NET INCOME EPS Avg. Shs. Outs. (FD) FY2001 213,677.00 234,452.00 448,129.00 213,677.00 9,445.00 77,516.00 300,638.00 181,469.00 3,643.00 65,512.00 250,624.00 6,458.00 20,061.00 29,953.00 (1,593.00) (600.00) (717.00) 23,771.00 9,058.00 14,713.00 0.27 53,656.00 FY2002 266,209.00 355,456.00 621,655.00 266,209.00 14,963.00 114,137.00 394,354.00 217,418.00 4,896.00 94,631.00 316,946.00 7,959.00 27,562.00 41,887.00 (2,408.00) (602.00) (1,147.00) 42,546.00 16,168.00 26,378.00 0.45 58,434.00 FY2003E 303,206.00 533,968.00 837,174.00 303,206.00 22,615.00 169,507.00 494,818.00 245,065.00 6,771.00 138,413.00 390,249.00 10,121.00 33,959.00 60,489.00 (1,395.00) (198.00) (1,183.00) 60,503.00 22,991.00 37,512.00 0.63 59,174.00 FY2004E 334,624.00 779,888.00 1,114,512.00 334,624.00 32,128.00 239,445.00 606,197.00 270,026.00 9,780.00 194,058.00 473,864.00 12,081.00 40,918.00 79,334.00 (1,400.00) 450.00 (850.00) 80,334.00 30,527.00 49,807.00 0.84 59,574.00 Fiscal Year ends: January Company Stores Franchised Stores Systemwide Sales Company Stores Franchise Operations Support Sales NET SALES Company Store Expenses Franchise Expenses Support Operations Expenses Operating Expenses D&A General & Admin. Expense OPERATING PROFIT Interest/Other Expense (Income) Joint Venture Income (loss) Minority Interest Earnings Before Taxes Income Taxes NET INCOME EPS Avg. Shs. Outs. (FD) FY2001 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 FY2002 1.25 1.52 1.39 1.25 1.58 1.47 1.31 1.20 1.34 1.44 1.26 1.23 1.37 1.40 1.51 1.00 1.60 1.79 1.78 1.79 1.67 1.09 FY2003E 1.42 2.28 1.87 1.42 2.39 2.19 1.65 1.35 1.86 2.11 1.56 1.57 1.69 2.02 0.88 0.33 1.65 2.55 2.54 2.55 2.33 1.10 FY2004E 1.57 3.33 2.49 1.57 3.40 3.09 2.02 1.49 2.68 2.96 1.89 1.87 2.04 2.65 0.88 (0.75) 1.19 3.38 3.37 3.39 3.11 1.11

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COMMONSIZE Fiscal Year ends: January Company Stores Franchised Stores Systemwide Sales Company Stores Franchise Operations Support Sales NET SALES Company Store Expenses Franchise Expenses Support Operations Expenses Operating Expenses D&A General & Admin. Expense OPERATING PROFIT Interest/Other Expense (Income) Joint Venture Income (loss) Minority Interest Earnings Before Taxes Income Taxes NET INCOME EPS Avg. Shs. Outs. (FD) FY2001 0.71 0.78 1.49 0.71 0.03 0.26 1.00 0.60 0.01 0.22 0.83 0.02 0.07 0.10 (0.01) (0.00) (0.00) 0.08 0.03 0.05 0.00 0.18 FY2002 0.68 0.90 1.58 0.68 0.04 0.29 1.00 0.55 0.01 0.24 0.80 0.02 0.07 0.11 (0.01) (0.00) (0.00) 0.11 0.04 0.07 0.00 0.15 FY2003E 0.61 1.08 1.69 0.61 0.05 0.34 1.00 0.50 0.01 0.28 0.79 0.02 0.07 0.12 (0.00) (0.00) (0.00) 0.12 0.05 0.08 0.00 0.12 FY2004E 0.55 1.29 1.84 0.55 0.05 0.39 1.00 0.45 0.02 0.32 0.78 0.02 0.07 0.13 (0.00) 0.00 (0.00) 0.13 0.05 0.08 0.00 0.10

Krispy Kreme balance sheet (FY2000 - FY 2002) Fiscal Year Ended: January Assets Cash / S-T investments Receivables (net) Inventory Other Total Current Assets Net Plant,Property, & Equipment Other Assets Total Long-term assets Total Assets Liabilities & Stockholders' Equity Accounts Payable Accrued Liabilities Current Mat. Of Debt Other Total current liabilities Long-term debt Other long-term liabilities Total liabilities Minority interest Total Stockholders' Equity TOTAL LIABILITIES & EQUITY $21,202 26,729 0 4,602 52,533 3,912 8,773 12,685 65,218 2,491 1,876,667 $255,376 $37,196 38,628 16,159 9,732 101,769 112,577 41,030 153,607 $255,376 FY 2002A

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Appendix: Ratio Analysis & Trend Analysis

Year ended 30-Jan-00 Liquidity Current Ratio Quick Ratio Efficiency Ratio Receivables Turnover Average Collection Period Inventory Turnover Days in Inventory Profitability Net Income Margin Operating Profit Margin Grossprofit Margin Return on Assets Return on Equity Leverage Debt Ratio Times Interest Earned Debt-Equity Equity Ratio 0.55 8.80 1.20 0.45 0.26 13.84 0.36 0.73 0.26 17.39 0.35 0.73 0.22 8.84 0.29 0.77 0.32 29.35 0.49 0.67 0.03 0.05 NA 0.10 0.12 0.05 0.08 NA 0.17 0.17 0.07 0.11 NA 0.20 0.17 0.07 0.10 NA 0.09 0.07 0.08 0.13 NA 0.06 0.05 12.26 29.36 14.32 25.14 15.90 22.64 16.49 21.83 16.87 21.34 15.43 23.34 8.70 41.36 NA NA 4.49 80.12 NA NA 1.39 0.80 1.77 1.31 1.94 1.44 2.48 1.99 2.23 1.65 28-Jan-01 3-Feb-02 Quarter Ended 29-Apr-01 5-May-02

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Bibliography Horovitz, Bruce. Jumpin' jelly! Doughnuts dominate dining growth. Usa Today. 27 May 2003. 24 July 2010. <http://www.usatoday.com/money/industries/food/2003-05-27-doughnutgrowth_x.htm>.

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