Kkd Financial Report

Financial Report of

Siemens - Fujitsu

A Panasonic Company

By: John Pierce

Fire 371 Section 02

11/02/2005

Professor Jamdee

Table of Contents

Page 3 Company & Industry Background

Page 4 - 5 Financial Analysis

Page 6 - 7 Recommendations

Page 8 Krispy Kreme Consolidated B.S.

Page 9 Krispy Kreme Consolidated I.S.

Page 10 Krispy Kreme Up-to-Date Ratio's

Page 11 Ratio Analysis

Page 12 Standard Deviation Graphs

Page 13 KDD & ^DJI Avg. and Performance

Page 14 Beta Graph & Early Pics

Page 15 References

Company & Industry Background

Krispy Kreme opened its doors on July 13th, 1937. Vermon Rudolph whom bought a secret yeast-raised doughnut recipe from a French chef in New Orleans founded Krispy Kreme. Vermon then rented a building in Winston-Salem, North Carolina, and began selling his Krispy Kreme doughnuts to local grocery stores. People soon began stopping by to ask if they could buy hot doughnuts, so he cut a hole in the wall and started selling Hot Original Glazed doughnuts directly to customers who came to his place.

Once the 1940's and 50's came around there were a small chain of Krispy Kreme stores which were mostly family-owned. They all used the original Krispy Kreme recipe, but each made their doughnuts from scratch. Krispy Kreme always had good results for their doughnuts, but not consistent enough. So Krispy Kreme built there own mix plant and developed a distribution system that delivered the perfect dry doughnut mix to each Krispy Kreme store. Then they invented and built their own doughnut-making equipment to go along with the dry doughnut mix. From the 1950s on, Rudolph and his equipment engineers focused on improving and automating the whole Krispy Kreme doughnut making process.

During the 1960s, Krispy Kreme enjoyed steady growth throughout the Southeast and began expanding outside its traditional roots. The design of Krispy Kreme stores became consistent including the hallmark green tilt roofs and heritage road signs. In 1973 Vermon Rudolph died, and growth slowed as the company was reorganized for sale to Beatrice Foods Company in 1976.

In 1982, a small group of associates, bought Krispy Kreme back from Beatrice foods. A renewed focus on the hot doughnut experience became a priority for the company. Krispy Kreme began to expand outside the Southeast and opened their first store in New York City in 1996. Soon afterward, in 1999, Krispy Kreme opened their first store in California and the national expansion of Krispy Kreme was well underway. When the Franchise turned 60 years old in 1997, their place as a 20th century American icon was recognized by the donation of company artifacts to the Smithsonian Institution's National Museum of American History.

As we enter into the 21st Century, Krispy Kreme is not slowing down. In April 2000, Krispy Kreme held an initial public offering of common stock. They opened their first international store in Canada just outside of Toronto in December 2001 and plan to expand into other countries very soon. They have improved their coffee program and introduced new Hot Doughnut Machine technology, which will allow Krispy Kreme to bring the hot doughnut experience to more people throughout the world. Krispy Kreme is very excited about the future and will continue to grow as a World Wide Company.

Financial Analysis

The financial condition of Krispy Kreme is superior to that of its competitors but does have some areas that need improvement. Krispy Kreme's young management is showing that they want to be cautious and have employed an almost zero tolerance policy regarding debt. Through their IPO and large secondary offering a year later, Krispy Kreme effectively paid off all of their long-term debt. This seems to be a goal of management to keep the company liquid and flexible. With the fast paced growth they have experienced debt is not yet needed to lever results. Their times interest earned is far above the industry average, while their debt to equity ratio is far below.

They have a higher ratio of accounts payable to sales than other businesses in the restaurant industry. With debt seemingly under control, it seems the Krispy Kreme is holding too much cash, with a current ratio over 2, far above industry average. Their day's sales outstanding are much higher than the rest of the restaurant industry because they also sell their product off premises, and are owed money by convenience stores and supermarkets. If the off premises sales start to expand it could increase their dependence on fixed assets; warehousing and distribution, which will lower their already industry low asset turnover ratios, and increase operating leverage. Krispy Kreme's superiority comes in the area of profitability, which is driven by above industry average profit margins, almost double the competition. These profit margins are increasing and should continue to increase into the future as more of Krispy Kreme's revenues are derived from the growth in franchising and therefore the KKMD division with its higher margins. Return on equity is an area where Krispy Kreme trails the industry, especially the industry leaders. This is because Krispy Kreme's low asset turnover combined with their lack of financial leverage. It would be wise to increase the use of debt, where at the lower levels 10 - 30%, risk is not increased proportionally to the increase in financial results that will come about through: 1) Debt's relative discount to equity 2) Writing off interest but not being able to write off the cost of equity & 3) The leverage gained from using debt (increased equity multiplier). Compliments will need to be found as doughnut sales flatten out and competition enters the market. The same store sales from 2000 to 2001 increased only 13% so when the market begins to become saturated in the next few years'