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Executive Summary

Being one of the sweetest and fastest growing corporation in
America in the early 2000s, Krispy Kreme Doughnuts, Inc. has been considered by
wall street the hottest brand in America. By early 2003, 276 Krispy Kreme stores
have been set up out which 270 are located in the U.S and each of them has their
own doughnut factory to produce their 10 different varietys including the signature
original glaze. Although with many future goals and plans, the doughnut brand at
the end of 2004 has started to see a series of unfortunate events forcing the market
value of equity to dropping which will later effect the company from not only the
investors point of view, but from the customers as well. This report will look at how
Krispy Kreme success has started to decline with accounting revelations. The stock
price has gone down 80% from August 2003 to December 2004. There will be focus
on Krispy Kremes financial statements from 2000 through 2004 and some
explanation of why it has gone from being the fastest growing corporation to seeing
investors and analysts flee. Reasons for the challenges being faced and questions
on why competitors in the same industry are taking the business away from Krispy
Kreme will be addressed along with steps required to implement strategies for the
History & Background

Not only are the doughnuts sweet and rich, but the history of this marvelous corporation is
as well. Krispy Kreme is an American global coffee house and doughnut chain, found by Vernon
Rudolph in 1937 based in Winston-Salem, North Carolina because his favorite brand of
cigarettes was headquartered in North Carolina. Before opening his own store in 1937 located in
a rented building on South Main which is now an historic piece called Old Salem, Mr. Rudolph
began working for his uncle Ishmael Armstrong in Paducah Kentucky in 1933. Vernon and his
uncle purchased a secret recipe for yeast-raised doughnuts and Rudolph began to sell the yeast
doughnuts in Kentucky. Although business was struggling during the great depression, they
decided to move to a bigger city where their success started to rise and began to expand outside
North Carolina in 1939.
In 1939 Krispy Kreme expanded outside the south for the first time in Akron Ohio seeing a lot of
potential for the company that by the late 1950s had 29 shops in 12 states which were all

operated by franchisees. Beatrice Foods bought the company in 1973 after Rudolphs death who
didnt hesitate to expand it to more than 100 locations. With Beatrice Foods in charge they
decided to expand their menu with sandwiches and soups as well as remolding the store to cut
costs, which didnt turn out well and by the early 1980s Beatrice put the company for sale.

Joseph McAleer, leader of a group of franchisees decided to take Beatrices offer and completed
a leverage buyout for $24 million in 1982. Bringing back the original recipe and the companys
traditional doughnut left Krispy Kremes future looking bright. By 1989 it became debt free and
began to expand even more. By 1998 Scott Livengood became the new CEO and decided to take
the company public in April 2000 which was one of the largest public offering in recent years
with a share price of $40.63 and a capitalization of nearly $500 million.