Case Study KRISPY KREME DOUGHNUTS

Strategic Management

KRISPY KREME DOUGHNUTS, INC.—2004 Cynthia

MEI

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 www.masterei.com

Page 1 of 10

Strategic Management

MEI

MMX.

Number of Stores ▲Company ■ Area Developers ● Associates

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

www.masterei.com

Page 2 of 10

Strategic Management

MEI

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 mid1990s, 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.

www.masterei.com

Page 3 of 10

Strategic Management

MEI

EXHIBIT 2 Geographic Distributions of Stores by Ownership Category Locations listed by major metropolitan areas UNITED STATES

Alabama Birmingham (3) Dothan Huntsville Mobile (2) Montgomery Tuscaloosa Arizona Phoenix (4) Tucson California Bakersfield I'resno Los Angeles (17) Modesto Oxnard Sacramento (2) San Diego (3) San Francisco (7) Santa Rosa Stockton Colorado Colorado Springs Denver(4) Connecticut Milford Newington Delaware Wilmington Florida Clearwater Daytona Beach Fort Lauderdale (2) I lainesville lacksonville (3) Melbourne (2) Miami Orlando (2) Panama City Pensacola (2) Tallahassee (2) Tampa (3) West Palm Beach Georgia Albany Alliens Atlanta (8)

Augusta (3) Macon Savannah (2) Hawaii Maui Idaho Meridian Illinois Chicago (12) Fairvicw Heights Indiana Fort Wayne Indianapolis (3) Schererville Iowa Cedar Rapids Davenport Des Moines Kansas Kansas City (2) Wichita Kentucky Florence Louisville (2) Louisiana Baton Rouge (2) Lafayette New Orleans (2) Maryland Baltimore (5) Michigan Detroit (4) Grand Rapids Minnesota Minneapolis/St. Paul (4) Mississippi Gulfporl lackson Missouri Kansas City Springfield St. Louis (5) Nebraska Omaha (2) Nevada Las Vegas (5) Reno

New Mexico Albuquerque New York Buffalo (2) Fast Meadow New York City (5) Rochester (2) North Carolina Asheville Charlotte (5) Fayetteville Coldsboro Greensboro (2) Greenville Hickory High Point Raleigh Rocky Mount Wilmington Winston Salem North Dakota Fargo Ohio Akron (2) Cincinnati (2) Cleveland Columbus (3) Dayton Toledo Oklahoma Oklahoma City (3) Tulsa Pennsylvania Pittsburgh (4) Philadelphia (3) Scranton (2) Rhode Island Cranston South Carolina Charleston Columbia Florence (2) Greenville Myrtle Beach (3) Spartanburg Tennessee Chattanooga

Kingsport Knoxville(3) Memphis (2) Nashville (4) Texas Amarillo Austin (3) Beaumont Dallas (5) Ft. Worth Houston (6) San Antonio Utah Salt Lake City (4) Virginia Alexandria (2) Ashland Bristol (Charlottesville 1 lampion Richmond Roanoke Virginia Beach Washington Seattle (3) Spokane West Virginia Charleston Wisconsin Milwaukee (3) AUSTRALIA Sydney CANADA Ontario Toronto (4) Windsor

EXHIBIT 3 KKD Segmented Revenues and Expenses Krispy Kreme Doughnuts, Inc. SEGMENTED REVENUES AND EXPENSES (IN THOUSANDS)

YEAR ENDED REVENUES BY BUSINESS SEGMENT: Company Store Operations Franchise Operations KKM&D Total revenues OPERATING EXPENSES BY BUSINESS SEGMENT: www.masterei.com

JAN. 28,2001

FEB. 3,2002

FEB. 2,2003

$213,677 9,445 77,593 $300,715

$266,209 14,008 114,137 $394,354

$319,592 19,304 152,653 $491,549 Page 4 of 10

Strategic Management

MEI

Company Store Operations Franchise Operations KKM&D Total operating expenses Depreciation and Amortization Expenses: Company Store Operations Franchise Operations KKM&D Corporate administration Total depreciation and amortization expenses EXHIBIT

$181,470 3,642 65,578 $250,690

$217,419 4,896 94,631 $316,946

$252,524 4,877 124,088 $381,489

$ 4,838 72 303 1,244 $ 6,457

$ 5,859 72 507 1,521 $ 7,959

$ 8,854 108 1,723 1,586 $ 12,271

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 Revenue Other Revenue Total Revenue Cost of Revenue Gross Profit Selling/General/Administrative Expenses Research and Development Depreciation/Amortization Interest Expense Expenses (Income),Total Net Other Operating Operating Expense Operating Income Interest Expense, Net Non-Operating Interest/Investment Income Interest Income (Expense) Gain (Loss) on Sale of Assets Other, Net Income Before Tax Income Tax Income After Tax Minority Interest Equity In Affiliates Net Income Before Extra Items Accounting Change Discontinued Operations Extraordinary Item Net Income

2003 $491.5 — 491.5 381.5 110.1 28.9 12.3 9.1

2002 $394.4 — 394.4 316.9 77.4 27.6 8.0

2001 $300.7 — 300.7 250.7 50.0 20.1 6.5 0.0

431.7

352.5

277.2

59.8 41.9 (1.8) (0.0) (0.3) 2.4

(2.3) 54.8 21.3 33.5 — — 33.5 —

(1-1) 42.5 16.2 26.4 — — 26.4 —

23.5 (0.6) 1.6 1.0 (0.0) (0.7) 23.8 9.1 14.7 — — 14.7 —

33.5

26.4

14.7

Preferred Dividends Income Available

— 33.5

— 26.4

— 14.7

Basic/Primary Weighted Average Shares

55.1

53.7

49.2

(1.8) (0.9) 2.0 (0.2)

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 Cash and Equivalents Short Term Investments Cash and Short Term Investments Trade Accounts Receivable. Net Other Receivables Total Receivables, Net Total Inventory www.masterei.com

2003 $ 32.2 23.0 55.2 45.4 0.9 46.3 24.4

2002 $ 21.9 15.3 37.2 35.9 2.8 38.7 16.2

2001 $ 7.0 18.1 .25.1 22.5 2.3 24.7 12.0 Page 5 of 10

Strategic Management

MEI

Prepaid Expenses

3.5

2.6

1.9

Other Current Assets Total Current Assets Property/Plant/Equipment—Gross Accumulated Depreciation Property/Plant/Equipment, Net Goodwill, Net Intangibles, Net Long Term Investments Other Long Term Assets Total Assets Accounts Payable Accrued Expenses Notes Payable/Short Term Debt Current Port. IT Debt/Capital Leases Other Current Liabilities Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt Total Debt Deferred Income Tax Minority Interest Other Liabilities Total Liabilities Redeemable Preferred Stock Preferred Stock--Non Redeemable, Common Stock Additional Paid-in Capital Retained Earnings (Accum. Deficit) Treasury Stock—Common Other Equity Total Equity Total Liability and Shareholders' Equity Outstanding—Common Stock Shares Total Common Shares Outstanding Total Preferred Stock Shares Outstanding

11.8 141.1 — (50.2) 202.6 — 48.7 11.2 6.9 410.5 14.1 21.0 0.9 3.3 20.5 59.7 57.2 — 57.2 61.4 9.8 5.2 5.2 137.1 — — 173.1 — 102.4 — (2.2) 273.4 410.5 56.3 56.3 —

7.1 101.8 — (43.9) 112.6 — 16.6 16.1 8.3 255.4 12.1 26.7 3.9 0.7 9.1 52.5 3.9 — 3.9 8.5 3.9 2.5 4.8 67.7 — — 121.1 — 68.9 — (2.3) 187.7 255.4 54.3 54.3 —

3.8 67.6 — (38.6) 78.3 — — 20.7 4.8 171.5 8.2 21.2 3.5 0.0 5.2 38.2 0.0 — 0.0 3.5 0.6 1.1 0.0 45.8 — — 85.1 0.0 42.5 — (1.9) 125.7 171.5 51.8 51.8 —

Employees (actual figures) Number of Common Shareholders

3,913.0 —

3,371.0 —

3,200.0 —

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. www.masterei.com

Page 6 of 10

Strategic Management

MEI

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.

www.masterei.com

Page 7 of 10

Strategic Management

MEI

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 www.masterei.com

Page 8 of 10

Strategic Management

MEI

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 fastfood 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 Cost of Goods Sold Gross Profit Gross Profit Margin SG&A Expense Depreciation & Amortization Operating Income Operating Margin Non-Operating Income Non-Operating Expenses Income Ik-fore Taxes Income Taxes Net Income After Taxes Continuing Operations Discontinued Operations Total Operations Total Net Income Net Profit Margin Diluted EPS from Continuing Operations ($) Diluted EPS from Discontinued Operations Diluted EPS from Total [$) Diluted EPS from Total Net ($) Dividends per Share

10.8 5.3 5.5 — 5.9 0.6 (1.0) — 0.2 0.8 (1.6) (0.6) (1.0) (1.0) 0.0 (1.0) (1.0) — (0.25) 0.00 (0.25) (0.25) 0.00

7.6 3.5 4.1 54.1% 3.9 0.J 3.0% 0.2 0,1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4% — — — —

EXHIBIT 8 (All amounts in millions) Montana Mills Balance Sheet BALANCE SHEET |AN. 02 JAN. 01 Assets Current Assets Cash Net Receivables Inventories Other Current Assets Total Current Assets www.masterei.com

0.2 0.3 0.4 1.0 2.0

5.8 0.0 0.2 0.4 6.4 Page 9 of 10

Strategic Management

Net Fixed Assets Other Noncurrent Assets Total Assets Liabilities and Current Liabilities Accounts Payable Short-Term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Noncurrent Total Liabilities Shareholders' Equity Preferred Stock Equity Common Stock Equity Total Equity Shares Outstanding (mil.)

MEI

6.6 0.9 9.5 Equity

3.5 0.7 10.6

0.8 0.0 0.3 1.2 6.6 0.0 10.2

0.6 0.0 0.2 0.9 6.6 0.1 7.6

0.0 (0.8) (0.8) 5.0

2.5 0.4 2.9 —

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.

www.masterei.com

Page 10 of 10