Krispy Kreme Doughnuts Inc

Krispy Kreme started as a single doughnut shop in 1937 when Vernon Rudolph acquired the special recipe from a French chef. Very quickly, the doughnuts rose in popularity and the number of shops expanded. By April 2000, after the IPO Krispy Kreme shares were selling for 62 times earnings. Krispy Kreme had a share price of $40.63, which gave the firm a market capitalization of about $500 million. Since the IPO the company had announced an aggressive growth strategy, in which they planned to increase the number of stores from 144 to 500 over five years and also grow internationally. In order to generate revenue, Krispy Kreme Doughnuts had four primary sources: On-premises sale (27%), Off-premises sales (40%), manufacturing and distribution (29%) and franchise royalties and fees (4%). Krispy Kreme, once known as the “hottest brand in America,” had taken a turn for the worse when they announced adverse results in May 2004. This could have been potentially attributed to the recent low-carbohydrate diet trend in the U.S. Following this downturn, things got even worse for KKD when the Wall Street Journal published a story about the companies aggressive accounting strategies in regards to their franchise acquisitions. Krispy Kreme recorded the interest paid by the franchise as interest income, which was immediate profit. The company booked the cost of the franchise as an intangible asset, which the company did not amortize, but other companies who had reacquired franchises had in fact amortized them and it seemed like the right thing to do according the SEC. Looking at the historical financial statements, we are able to gain insight on the current condition of Krispy Kreme Doughnuts. Based on their total revenues, net income and earnings per share the company seems to be showing constant growth from 2000 to 2004. Continuing to analyze to income statement, we see that the equity loss in joint ventures is increasing throughout the years. This can be attributed to other