The following selected information was taken from the financial statements of Krispy Kreme Doughnuts, Inc.

KRISPY KREME DOUGHNUTS, INC.

Balance Sheet (partial)

(in thousands)

Fe1b, 2.00 4 Fe2b,2 .00 3 Total current assets $138,644 $141,128 Capital assets and other long-term assets 522,020 269,359

$660,664 $410,487 Current liabilities $ 53,493 $ 59,687 Long-term liabilities 154,964 77,448 Total liabilities 208,457 137135 Shareholders’ equity 452,207 273,352 Total liabilities and shareholders’ equity $660,664 $410,487 Other information:

2004 2003 Interest expense $ 4,409 $ 1,781 Tax expense 37,590 21,295 Net income 33,478 57,087 Cash provided by operations 95,553 51,036 Capital expenditures 79,649 83,196 Cash dividends ae ROS Note 8. Lease Commitments The Company conducts some of its operations from leased facilities and, additionally, leases certain equipment under operating leases. Generally, these have initial terms of 3 to 20 years and contain provisions for renewal options of 5 to 10 years.

Problems: Set B 523 At February 1, 2004, future minimum annual rental commitments, gross, under noncancelable operating leases, including lease commitments on consolidated joint ventures, are as follows:

Amount Fiscal Year Ending in (in thousands)

2005 $ 21,119 2006 18,560 2007 15,657 2008 13,099 2009 11,692 Thereafter 75,599

$155,726 Rental expense, net of rental income, totaled $10,576,000 in fiscal 2002, $13,169,000 in fiscal 2003 and $19,574,000 in fiscal 2004.

Instructions

(a) Calculate each of the following ratios for 2004 and 2003.

(1) Current ratio.

(2) Free cash flow.

(3) Debt to total assets ratio.

(4) Times interest earned ratio.

(b) Comment on Krispy Kreme’s liquidity and solvency.

(c) Read the company’s note on leases (Note 8). If the operating leases had instead been accounted for like a purchase, assets and liabilities would have increased by approximately $110,000,000. Recalculate the debt to total assets ratio for 2004 and discuss the implications for analysis.