Strategic Management MEI

KRISPY KREME DOUGHNUTS, INC.—2004 Cynthia Duff

Francis Marion University Ticker Symbol: KKD
www.krispykreme.com

The neon sign "Hot Doughnuts Now," when illuminated, lures hungry customers into the local Krispy Kreme
stores. The sign signals that Krispy Kreme's signature product, Hot Original Glazed doughnuts, are right now
rolling under the glazing process and are ready to be devoured by anxiously waiting customers. There's nothing
better than a hot, fresh, fluffy glazed doughnut that melts in your mouth to satisfy your sweet tooth.
Krispy Kreme Doughnuts went public on April 5, 2000, allowing its customers to have their doughnuts and eat
them too. It opened a test doughnut-making store in a Wal-Mart Super center in October 2003.

HISTORY
Vernon Rudolph opened a doughnut company, Krispy Kreme, on July 13, 1937, in Winston-Salem, North
Carolina. The company started out by selling doughnuts to local grocery stores. People walking in front of the
bakery soon began stopping by to ask if they could purchase the doughnuts hot. Rudolph decided to cut a hole in
the wall of the bakery so that his Hot Original Glazed doughnuts could be sold directly to the customer, marking
the introduction of Krispy Kreme's retail service. During the 1950’s the doughnut-making process was
mechanized with the new Krispy Kreme automat. doughnut cutter. Hand-cut doughnuts became a thing of the
past. All processes in the bakery became entirely automatic. This was the initial version of Krispy Kreme's
continuous yeast doughnut-making equipment.

The year 1962 saw new innovation for Krispy Kreme. Doughnuts were no longer cut; they were extruded by air
pressure from a dough hopper directly to trays. On May 28, 1976, Krispy Kreme Doughnut Corporation became
a wholly owned subsidiary of Beatrice Foods Company of Chicago, Illinois. The headquarters for Krispy Kreme
remained in Winston-Salem, North Carolina. Krispy Kreme was then purchased back from Beatrice Foods
Company on February 28, 1982, by; group of Krispy Kreme franchisees, led by Joseph A. Mc Aleer Sr. Krispy
Kreme made history when a contribution of Krispy Kreme artifacts was donated to the Smithsonian Institution's
National Museum of American History in Washington D.C. on July 17, 1997.

Krispy Kreme sought to enhance and broaden its beverage offerings to customers and therefore acquired Digital
Java, Inc., in 2001. Digital Java was a small of fee roaster and brewing-equipment fabricator located in Chicago.
Also in 2001, Krispy Kreme's common stock transferred to the New York Stock Exchange under the new ticker
symbol KKD. On December 11, 2001, Krispy Kreme opened its first store out side the United States, in Canada.
Then on June 19, 2003, it opened its first store outside of North America, in Australia.

PRESENT CONDITIONS
Krispy Kreme produces approximately 7.5 million doughnuts a day, serving customers in 302 stores operating in
41 states in the United States, and also in Cam: and Australia. Exhibit 1 is a map of the locations of Krispy
Kreme stores by including the stores currently in Canada and Australia. Exhibit 2 provides locations listed by
major metropolitan areas. Krispy Kreme doughnuts and snacks are also sold at thousands of supermarkets,
convenience stores, and other retail outlets throughout the United States.

KKD acquired Montana Mills Bread Co., in early 2003. Under the terms of the merger agreement, the shares of
Montana Mills common stock will be converted to Krispy Kreme stock. Krispy Kreme has plans to develop a
bakery-cafe strategy with Montana Mills' product and brand as a basis for this new concept. Montana Mill' offers
more than eighty types of bread, muffins, rolls, scones, cookies, brownies, ant cakes, which are sold through its
twenty-two retail stores located primarily in suburban areas in New York, Ohio, Pennsylvania, and Connecticut.
The stores cater to upscale customers, offering baked goods, ready-made sandwiches, specialty coffee, and gift
items. Montana Mills went public in June 2002 and trades on the American Stock Exchange under the symbol

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MMX.

Number of Stores ▲Company ■ Area Developers ● Associates

Sane Kripsy Kreme Doughnuts, Inc. 2003 Annual Report, p. 73.

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COMPANY PROFILE AND PHILOSOPHY

The principle business of KKD is high-volume sales and production of over twenty varieties of the finest quality
doughnuts; including the signature Hot Original Glazed Krispy Kreme's commitment to quality and consistency
has created a long-standing devoted customer base. The doughnut-making stores, quality ingredients, and
vertical integration are part of what makes Krispy Kreme capable of differentiating itself from competitors.
Krispy Kreme is dedicated to a strategic philosophy, which includes the following beliefs:
• All products will have a taste and quality that are second to none.
• Control product quality and freshness of the ingredients.
• Be thoroughly prepared to execute growth initiatives when they become needed.
• The keys to creating and maintaining a competitive advantage include observing that quality, service,
and innovation are second to none.
• Instill the belief that the company is a set of capabilities, not just a product or brand.
• Have a passion that growth and success as a company is a natural result of the growth and success of our
people.

BUSINESS STRUCTURE
Krispy Kreme is a vertically integrated company with three reportable segment Company Store Operations,
Franchise Operations, and Krispy Kreme Manufacturing and Distribution (KKM&D) unit. KKD company stores
are owned by the KKD Company and are consolidated joint ventures; there are 114 units in this division. There
are 188 franchise stores that are owned by either area developers or associates. These stores pay royalties to
Krispy Kreme. Company stores and franchise stores both make and sell doughnuts and complementary products
through on-premises and off-premises sales channels. The KKM&D division provides all supplies including
foodstuffs, equipment, signage, and uniforms to all KKD locations.

KKD's company stores have both on- and off-premises sales. On-premises sale: include direct in-store sales to
customers visiting inside or at the drive-through window. Discounted sales for community organization
fundraising purposes are also included in on-premises sales. Off-premises sales include fresh-doughnut
distributions of branded, unbranded, and/or private-label doughnuts to grocery and convenience stores. These
doughnuts are sold packaged or unpackaged from a retailer's display case.

KKD Inc. offers franchise opportunities. Franchisees pay royalties to Krispy Kreme Doughnuts, Inc., in return,
for the use of the Krispy Kreme name. Two franchise programs are offered. First, in the Associate Program,
which is the original program, franchisees pay royalties of 3 percent of on-premises sales and 1 percent of all
other sales with the exception of private labels. Second is the Area Developer Program developed in the mid-
1990s, in which royalties of 4.5 percent of all sales are paid along with franchise fees ranging from $20,000 to
$40,000 per store? Almost all area developers and associates contribute 1 percent of all sales to the national
advertising and brand development fund. Krispy Kreme offers franchises in the U.S. market as well as the global
market. Franchise stores and company stores are required to purchase all supplies from KKM&D.

The KKM&D unit buys and processes all ingredients used in the doughnut mixes and manufactures the
doughnut-making equipment that all stores are required to purchase. KKM&D also includes the coffee roasting
operations. KKM&D ships all food ingredients, juices, display cases, uniforms, and other items to Krispy Kreme
locations on a weekly basis by common carrier.

Exhibit 3 provides a segmented account of revenues and expenses for Krispy Kreme. The largest segment of
total revenue and total operating expenses is derived from Company Store Operations followed by KKM&D.
Franchise Operations make up only 3 to 4 percent of total revenue and 1 to 2 percent of total operating expenses.
Exhibits 4 and 5 provide the company's consolidated Income Statement and Balance Sheet.

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EXHIBIT 2 Geographic Distributions of Stores by Ownership Category

Locations listed by major metropolitan areas
UNITED STATES
Alabama Augusta (3) New Mexico Kingsport
Birmingham (3) Macon Albuquerque Knoxville(3)
Dothan Savannah (2) New York Memphis (2)
Huntsville Hawaii Buffalo (2) Nashville (4)
Mobile (2) Maui Fast Meadow Texas
Montgomery Idaho New York City (5) Amarillo
Tuscaloosa Meridian Rochester (2) Austin (3)
Arizona Illinois North Carolina Beaumont
Phoenix (4) Chicago (12) Asheville Dallas (5)
Tucson Fairvicw Heights Charlotte (5) Ft. Worth
California Indiana Fayetteville Houston (6)
Bakersfield Fort Wayne Coldsboro San Antonio
I'resno Indianapolis (3) Greensboro (2) Utah
Los Angeles (17) Schererville Greenville Salt Lake City (4)
Modesto Iowa Hickory Virginia
Oxnard Cedar Rapids High Point Alexandria (2)
Sacramento (2) Davenport Raleigh Ashland
San Diego (3) Des Moines Rocky Mount Bristol
San Francisco (7) Kansas Wilmington (Charlottesville
Santa Rosa Kansas City (2) Winston Salem 1 lampion
Stockton Wichita North Dakota Richmond
Colorado Kentucky Fargo Roanoke
Colorado Springs Florence Ohio Virginia Beach
Denver(4) Louisville (2) Akron (2) Washington
Connecticut Louisiana Cincinnati (2) Seattle (3)
Milford Baton Rouge (2) Cleveland Spokane
Newington Lafayette Columbus (3) West Virginia
Delaware New Orleans (2) Dayton Charleston
Wilmington Maryland Toledo Wisconsin
Florida Baltimore (5) Oklahoma Milwaukee (3)
Clearwater Michigan Oklahoma City (3) AUSTRALIA
Daytona Beach Detroit (4) Tulsa Sydney
Fort Lauderdale (2) Grand Rapids Pennsylvania CANADA
I lainesville Minnesota Pittsburgh (4) Ontario
lacksonville (3) Minneapolis/St. Paul (4) Philadelphia (3) Toronto (4)
Melbourne (2) Mississippi Scranton (2) Windsor
Miami Gulfporl Rhode Island
Orlando (2) lackson Cranston
Panama City Missouri South Carolina
Pensacola (2) Kansas City Charleston
Tallahassee (2) Springfield Columbia
Tampa (3) St. Louis (5) Florence (2)
West Palm Beach Nebraska Greenville
Georgia Omaha (2) Myrtle Beach (3)
Albany Nevada Spartanburg
Alliens Las Vegas (5) Tennessee
Atlanta (8) Reno Chattanooga

EXHIBIT 3 KKD Segmented Revenues and Expenses

Krispy Kreme Doughnuts, Inc.
SEGMENTED REVENUES AND EXPENSES (IN THOUSANDS)
YEAR ENDED JAN. 28,2001 FEB. 3,2002 FEB. 2,2003
REVENUES BY BUSINESS SEGMENT:
Company Store Operations $213,677 $266,209 $319,592
Franchise Operations 9,445 14,008 19,304
KKM&D 77,593 114,137 152,653
Total revenues $300,715 $394,354 $491,549
OPERATING EXPENSES BY BUSINESS
SEGMENT:
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Company Store Operations $181,470 $217,419 $252,524

Franchise Operations 3,642 4,896 4,877
KKM&D 65,578 94,631 124,088
Total operating expenses $250,690 $316,946 $381,489
Depreciation and Amortization Expenses:
Company Store Operations $ 4,838 $ 5,859 $ 8,854
Franchise Operations 72 72 108
KKM&D 303 507 1,723
Corporate administration 1,244 1,521 1,586
Total depreciation and amortization expenses $ 6,457 $ 7,959 $ 12,271

EXHIBIT 4 Krispy Kreme Doughnuts, Inc. (KKD)—Income Statement

IN MILLIONS OF U.S. DOLLARS (EXCEPT FOR PER SHARE ITEMS) 52 WEEKS ENDING 02/02/03
52 WEEKS ENDING 02/02/03 2003 2002 2001
Revenue $491.5 $394.4 $300.7
Other Revenue — — —
Total Revenue 491.5 394.4 300.7
Cost of Revenue 381.5 316.9 250.7
Gross Profit 110.1 77.4 50.0
Selling/General/Administrative 28.9 27.6 8.0 20.1 6.5
Expenses 12.3 0.0
Research and Development 9.1
Depreciation/Amortization
Interest Expense Expenses
Other Operating (Income),Total
Net 431.7 352.5 277.2
Operating Expense
Operating Income 59.8 41.9 23.5
Interest Expense, Net Non-Operating (1.8) (0.0) (0.3) 2.4 (0.6)
Interest/Investment Income 1.6
Interest Income (Expense) Gain (1.8) (0.9) 2.0 (0.2) 1.0
(Loss) on Sale of Assets (0.0)
Other, Net (2.3) (1-1) (0.7)
Income Before Tax 54.8 42.5 23.8
Income Tax 21.3 16.2 9.1
Income After Tax 33.5 26.4 14.7
Minority Interest — — —
Equity In Affiliates — — —
Net Income Before Extra Items 33.5 26.4 14.7
Accounting Change Discontinued — — —
Operations
Extraordinary Item Net Income 33.5 26.4 14.7
Preferred Dividends — — —
Income Available 33.5 26.4 14.7
Basic/Primary Weighted Average 55.1 53.7 49.2
Shares

Exhibit 5 Krispy Kreme Doughnuts, Inc. (KKD)—Balance Sheet

IN MILLIONS OF U.S. DOLLARS
(EXCEPT FOR PER SHARE ITEMS)
AS OF 02/02/03 2003 2002 2001
Cash and Equivalents $ 32.2 $ 21.9 $ 7.0
Short Term Investments 23.0 15.3 18.1
Cash and Short Term Investments 55.2 37.2 .25.1
Trade Accounts Receivable. Net 45.4 35.9 22.5
Other Receivables 0.9 2.8 2.3
Total Receivables, Net 46.3 38.7 24.7
Total Inventory 24.4 16.2 12.0
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Prepaid Expenses 3.5 2.6 1.9

Other Current Assets 11.8 7.1 3.8
Total Current Assets 141.1 101.8 67.6
Property/Plant/Equipment—Gross — — —
Accumulated Depreciation (50.2) (43.9) (38.6)
Property/Plant/Equipment, Net 202.6 112.6 78.3
Goodwill, Net — — —
Intangibles, Net 48.7 16.6 —
Long Term Investments 11.2 16.1 20.7
Other Long Term Assets 6.9 8.3 4.8
Total Assets 410.5 255.4 171.5
Accounts Payable 14.1 12.1 8.2
Accrued Expenses 21.0 26.7 21.2
Notes Payable/Short Term Debt 0.9 3.9 3.5
Current Port. IT Debt/Capital Leases 3.3 0.7 0.0
Other Current Liabilities 20.5 9.1 5.2
Total Current Liabilities 59.7 52.5 38.2
Long Term Debt 57.2 3.9 0.0
Capital Lease Obligations — — —
Total Long Term Debt 57.2 3.9 0.0
Total Debt 61.4 8.5 3.5
Deferred Income Tax 9.8 3.9 0.6
Minority Interest 5.2 2.5 1.1
Other Liabilities 5.2 4.8 0.0
Total Liabilities 137.1 67.7 45.8
Redeemable Preferred Stock — — —
Preferred Stock--Non Redeemable, — — —
Common Stock 173.1 121.1 85.1
Additional Paid-in Capital — — 0.0
Retained Earnings (Accum. Deficit) 102.4 68.9 42.5
Treasury Stock—Common — — —
Other Equity (2.2) (2.3) (1.9)
Total Equity 273.4 187.7 125.7
Total Liability and Shareholders' 410.5 255.4 171.5
Equity Outstanding—Common Stock
Shares 56.3 54.3 51.8
Total Common Shares Outstanding 56.3 54.3 51.8
Total Preferred Stock Shares — — —
Outstanding
Employees (actual figures) 3,913.0 3,371.0 3,200.0
Number of Common Shareholders — — —

COMPETITION
The number-one competitor of Krispy Kreme is Dunkin' Donuts. Dunkin' Donuts is owned by Allied Domecq
PLC, which is an international company whose core businesses are in spirits and wine, and quick-service
restaurants. Dunkin' Donuts has 5,438 stores; 1,602 stores outside the United States and 3,836 located in the
United States. Bill Rosenberg founded Dunkin' Donuts in Quincy, Massachusetts, and KKD has recently
expanded into its home territory.

Sizing up the competition, one glazed doughnut from Dunkin' Donuts has 180 calories, while one Hot Original
Glazed doughnut from Krispy Kreme has 200 calories. Dunkin' Donuts carries 25 varieties of doughnuts as well
as beverages, bagels, and breakfast sandwiches. Krispy Kreme sells coffee espresso, frozen blends, plain or
flavored milk, and has 25 varieties of doughnuts; in addition it has special flavors such as the Pumpkin Spice
doughnut offered during the fall months. Dunkin' Donuts celebrated its fiftieth anniversary in 2000. In 2001,
Dunkin' Donuts introduced a new beverage, Vanilla Chai, a creamy combination of tea, vanilla, honey, and
spices. It also introduced a new logo the same year and then launched its new advertising tagline, JUST THE
THING™ in 2002.

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Since KKD sells drip coffee, espresso, frozen beverages, and plain or flavored milk, the company now considers
Starbucks Corp. as a key competitor. Starbucks purchases and roasts high-quality whole bean coffees, which it
sells, together with fresh, rich-brewed coffees, primarily through approximately 6,800 retail stores located in the
United States, Asia-Pacific, Europe, the Middle East, Africa, and Latin America. Starbucks offers a wide
selection of pastries and confections in addition to coffee and coffee-making equipment and accessories.

INDUSTRY OUTLOOK
The Standard 8c Poor's (S8cP) Restaurants Index was up 22.08 percent year-to-date through August 22, 2003
versus a 13.6 percent rise in the S8eP 1500. Shares in (he Quick Service Restaurant (QSR) industry have begun
to rebound from a recent drop caused by an aggressively competitive environment, including significant price
discounts by industry leaders McDonald's and Burger King. Stable same-store sales growth and positive
operating conditions may have contributed to the surge in casual-dining industry stocks.
The casual-dining sector continues to gain share from fast-food chains, as an older, wealthier population favors
dining in full-service restaurants. This trend is estimated to continue. Food product price inflation remained
modest through 2003, but began increasing in 2004. Major industry themes will likely incorporate an emphasis
on lowering development costs of new restaurants and slowing expansion in the over stored U.S. fast-food
market. Reducing the cost of new units should enhance companies' returns on investment and improve entry into
smaller markets. Some fast-food companies are looking to international expansion for growth, while others are
investigating new formulas to find ways to grow. There is a new trend toward providing "healthy" choices.
During the past two decades, an ever-increasing percentage of U.S. food dollars has gone to eating out. With a
greater percentage of Americans working, there has been less time available for at-home food preparation.
Krispy Kreme believes that this trend along with growth in two-income households will increase snack-food
consumption and further growth of doughnut sales.

INTERNAL FACTORS
Marketing
On-premises KKD sales include counter sales and drive-through window sales. Krispy Kreme is involved in
community organization fundraiser events in which it offers doughnuts at a discounted price for community
fundraising projects. Off-premises sales include branded, unbranded, and private-label sales to grocery stores
and convenience stores. Krispy Kreme entices customers with its doughnut-making "theaters," which are stores
that have glass viewing areas that allow customers to watch the actual doughnut-making process. Generations of
loyal customers have grown to love the one-of-a kind taste of Krispy Kreme doughnuts.
Production

Each Krispy Kreme Doughnut store is a doughnut factory which has the capacity to produce from 4,(X)0 dozen
to over 10,000 dozen doughnuts daily. KKM&D manufactures the doughnut-making equipment and produces
the doughnut mixes that all stores are required to purchase. KKD relocated the Chicago-based Digital Java to its
hometown—Winston Salem, North Carolina. The full beverage program was implemented in approximately
seventy KKD locations. It is anticipated that the remaining stores will receive the new beverage program,
primarily espresso and frozen beverages, in the next twelve to eighteen months.
Management

KKD's upper management structure is comprised of eight officers, including the president and chief executive
officer, and seven senior vice presidents. Exhibit 6 provides a graphic representation of the company's
management structure.

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EXHIBIT 6 Organizational Chart

GLOBAL ISSUES
Krispy Kreme currently has international locations in Ontario, Canada, and British Columbia, Quebec, and
Sydney, Australia, and has plans to open stores in Britain and Mexico in early 2004; over the next five years, it
plans to open twenty-five stores outside the U.S. Krispy Kreme has teamed up with Harrod's department store as
the place to debut doughnuts in Britain. The United States and Britain differ in eating habits and office etiquette.
Brits are accustomed to their traditional English breakfast of eggs, bacon, and milk. KKD plans to convince the
Brits to replace the biscuit, which is a cookie, with a doughnut for their snack food. Another concern for Krispy
Kreme is persuading people to buy doughnuts by the dozen to take to the office. Most people in Britain do not
have cars; therefore they cannot stop by the drive-through on their way to work. Office etiquette is more formal
in Britain and a dozen Krispy Kreme Hot Glazed Original doughnuts would cost about five British pounds,
which is about $8.00. Krispy Kreme will also offer the tea-drinking British its own custom brews of coffee.

KKD's largest competitor, Dunkin' Donuts, can be found throughout the world. Dunkin' Donuts currently has
locations in Aruba, the Bahamas, Brazil, Brunei, Bulgaria, Canada, Chile, Colombia, the Dominican Republic,
Ecuador, Germany, Greece, Guam, Guatemala, Indonesia, Korea, Lebanon, Malaysia, Mexico, New Zealand,
Pakistan, Peru, the Philippines, Puerto Rico, Qatar, Saudi Arabia, Spain, Thailand, Turkey, the United States,
and the UAE.

E-COMMERCE ISSUES
Krispy Kreme's Chief Information Officer, Frank Hood, has teamed up with Network Appliance to provide
network storage solutions for KKD. Krispy Kreme's intranet, mykrispykreme.com, allows store operators and
franchise owners access to real-time company information, including inventory updates, equipment
maintenance, and store directories, dramatically improving communications between owners and the home
office.

Krispy Kreme teamed up with Productivity Point International to provide the tools and knowledge necessary to
help train employees to reach their top potential. Knowledge Publisher from Productivity Point allows
employees to interact with trainers via real-time chat and e-mail. Training is conveyed visually, not just in
words, creating an environment where specific techniques can be demonstrated.

Krispy Kreme Doughnuts can be found on the web at www.krispykreme.com and Dunkin' Donuts can be found
at www.dunkindonuts.com. KKD's Web site is not as user friendly as Dunkin' Donuts.' Dunkin' Donuts offers
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online ordering of its coffee and gift baskets; KKD has no online ordering.

FUTURE OUTLOOK
Krispy Kreme plans to soon open stores in Japan, Mexico, South Korea, and Spain. But will other cultures love
the same sweet, caloric-laden snacks that we Americans enjoy? One way for Krispy Kreme to balance its sweet
bakery offerings is to consider developing healthier snack-food alternatives. According to the experts at the
Centers for Disease Control and Prevention, based in Atlanta, one out of three adult Americans is overweight.
Fast-food institutions, which are a major contributor to obesity, can be found anywhere in the United States,
even in hospitals. Krispy Kreme has a doughnut counter located inside Atlanta's St. Joseph's Hospital. Most fast-
food restaurants are revising their menus to include "healthier" choices. Krispy Kreme continues to look for
ways to integrate a complete range of products and services; perhaps it should develop a new "low-calorie"
doughnut selection.

Exhibits 7 and 8 provide Montana Mills' Income Statement and Balance Sheet. Information for the fiscal year
ending January 2003 was not available. For the year ending January 2002, Montana Mills had a negative net
income. Further integration into the bakery and cafe concept could lead KKD to consider acquiring companies
such as Atlanta Bread Company. Montana Mills had a net loss of approximately S2.6 million for the 39-week
period ending in October 2002; Krispy Kreme may have paid too much for it. The acquisition of Montana Mills
has extended KKD's breadth of competitors and Atlanta Bread Company is a bakery much like Montana Mills,
except that it is a privately owned company.

Exhibit 7 (All amounts in millions) Montana Mills Income Statement

INCOME STATEMENT JAN. 02 JAN. 01
Revenue 10.8 7.6
Cost of Goods Sold 5.3 3.5
Gross Profit 5.5 4.1
Gross Profit Margin — 54.1%
SG&A Expense 5.9 3.9
Depreciation & Amortization 0.6
Operating Income (1.0) 0.J
Operating Margin — 3.0%
Non-Operating Income 0.2 0.2
Non-Operating Expenses 0.8 0,1
Income Ik-fore Taxes (1.6) 0.0
Income Taxes (0.6) 0.0
Net Income After Taxes (1.0) 0.0
Continuing Operations (1.0) 0.0
Discontinued Operations 0.0 0.0
Total Operations (1.0) 0.0
Total Net Income (1.0) 0.0
Net Profit Margin — 0.4%
Diluted EPS from Continuing Operations ($) (0.25) —
Diluted EPS from Discontinued Operations 0.00 —
Diluted EPS from Total [$) (0.25) -
Diluted EPS from Total Net ($) (0.25) —
Dividends per Share 0.00 —

EXHIBIT 8 (All amounts in millions) Montana Mills Balance Sheet

BALANCE SHEET |AN. 02 JAN. 01
Assets
Current Assets
Cash 0.2 5.8
Net Receivables 0.3 0.0
Inventories 0.4 0.2
Other Current Assets 1.0 0.4
Total Current Assets 2.0 6.4
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Net Fixed Assets 6.6 3.5

Other Noncurrent Assets 0.9 0.7
Total Assets 9.5 10.6
Liabilities and Equity
Current Liabilities
Accounts Payable 0.8 0.6
Short-Term Debt 0.0 0.0
Other Current Liabilities 0.3 0.2
Total Current Liabilities 1.2 0.9
Long-Term Debt 6.6 6.6
Other Noncurrent 0.0 0.1
Total Liabilities 10.2 7.6
Shareholders' Equity
Preferred Stock Equity 0.0 2.5
Common Stock Equity (0.8) 0.4
Total Equity (0.8) 2.9
Shares Outstanding (mil.) 5.0 —

Sales for Atlanta Bread Company in 2002 were $15 million; it has 150 stores in 24 stales and covers some
territory that is not covered by Montana Mills. Atlanta Bread Company is worth about $75 million, and
acquiring it may be a good strategy for Krispy Kreme. Krispy Kreme also should accelerate its plans for the
global market, which includes opening locations in the United Kingdom, Japan, Mexico, South Korea, and
Spain.

Determine whether you think KKD paid too much for Montana Mills. Determine whether you think KKD should
expand globally, and if so, where and how fast, or should the firm be expanding further domestically? Develop a
three-year strategic plan for KKD, which is in a real fight with Dunkin' Donuts for market share.

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