UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 4,~~October 3, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-04321

Krispy Kreme, Inc.

(Exact name of registrant as specified in its charter)

_________________________


Delaware			37-1701311
(State or other jurisdiction of incorporation)			(IRS Employer Identification No.)

2116 Hawkins Street, Charlotte, North Carolina 28203

(Address of principal executive offices)

(800) 457-4779

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

_________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.01 par value per share

DNUT

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐☒ Yes ☒☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had outstanding ~~167,112,953~~167,250,735 shares of common stock as of ~~August 10,~~November 2, 2021.

Table of ~~Contents~~Content

Table of Contents


PART I. FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Statements of Operations (Unaudited)	1
		Condensed Consolidated Statements of Comprehensive ~~Income~~/Income/(Loss) (Unaudited)	2
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	4542
	Item 4	Controls and Procedures	4542
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	4644
	Item 1A.	Risk Factors	4644
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4644
	Item 3.	Defaults upon Senior Securities	4644
	Item 4.	Mine Safety Disclosures	4644
	Item 5.	Other Information	4644
	Item 6.	Exhibits	4645

Signatures			4846

Table of ~~Contents~~Content

~~Part~~PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Krispy Kreme, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(Inin thousands, except per share amounts and number of shares)


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
		July 4, 2021 (13 weeks)		June 28, 2020 (13 weeks)		July 4, 2021 (26 weeks)		June 28, 2020 (26 weeks)			October 3, 2021 (13 weeks)		September 27, 2020 (13 weeks)		October 3, 2021 (39 weeks)		September 27, 2020 (39 weeks)
Net revenues	Net revenues									Net revenues
Product sales	Product sales	$	341,223	$	236,608	$	654,808	$	488,144	Product sales	$	334,324	$	281,317	$	989,132	$	769,461
Royalties and other revenues	Royalties and other revenues	7,963		8,364		16,187		18,044		Royalties and other revenues	8,475		8,916		24,662		26,960
Total net revenues	Total net revenues	349,186		244,972		670,995		506,188		Total net revenues	342,799		290,233		1,013,794		796,421
Product and distribution costs	Product and distribution costs	85,017		68,958		165,014		137,106		Product and distribution costs	92,152		85,303		257,166		222,409
Operating expenses	Operating expenses	157,877		104,221		305,418		220,000		Operating expenses	157,315		121,792		462,733		341,792
Selling, general and administrative expense	Selling, general and administrative expense	60,930		41,487		110,467		82,569		Selling, general and administrative expense	52,950		46,521		163,417		129,090
Marketing expenses	Marketing expenses	10,052		8,575		19,559		16,689		Marketing expenses	12,062		8,015		31,621		24,704
Pre-opening costs	Pre-opening costs	1,752		2,863		3,143		6,300		Pre-opening costs	1,192		3,368		4,335		9,668
Other (income)/expenses, net	Other (income)/expenses, net	(761)		1,339		(4,006)		2,510		Other (income)/expenses, net	(359)		4,667		(4,365)		7,177
Depreciation and amortization expense	Depreciation and amortization expense	25,194		18,097		48,595		37,184		Depreciation and amortization expense	25,663		20,435		74,258		57,619
Operating income/(loss)		9,125		(568)		22,805		3,830
Operating income										Operating income	1,824		132		24,629		3,962
Interest expense, net	Interest expense, net	9,793		9,711		18,042		18,355		Interest expense, net	7,186		7,908		25,228		26,263
Interest expense — related party	Interest expense — related party	4,821		5,566		10,387		11,132		Interest expense — related party	—		5,566		10,387		16,698
Other non-operating income, net		(416)		(2,660)		(858)		(112)
Other non-operating expense/(income), net										Other non-operating expense/(income), net	732		(357)		(126)		(469)
Loss before income taxes	Loss before income taxes	(5,073)		(13,185)		(4,766)		(25,545)		Loss before income taxes	(6,094)		(12,985)		(10,860)		(38,530)
Income tax expense/(benefit)		9,923		(1,500)		10,608		(2,912)
Income tax (benefit)/expense										Income tax (benefit)/expense	(2,342)		499		8,266		(2,413)
Net loss	Net loss	(14,996)		(11,685)		(15,374)		(22,633)		Net loss	(3,752)		(13,484)		(19,126)		(36,117)
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	2,146		945		4,829		1,512		Net income attributable to noncontrolling interest	1,907		1,368		6,736		2,880
Net loss attributable to Krispy Kreme, Inc.	Net loss attributable to Krispy Kreme, Inc.	$	(17,142)	$	(12,630)	$	(20,203)	$	(24,145)	Net loss attributable to Krispy Kreme, Inc.	$	(5,659)	$	(14,852)	$	(25,862)	$	(38,997)
Net loss per share:	Net loss per share:									Net loss per share:
Common stock — Basic	Common stock — Basic	$	(0.13)	$	(0.10)	$	(0.16)	$	(0.19)	Common stock — Basic	$	(0.04)	$	(0.12)	$	(0.20)	$	(0.31)
Common stock — Diluted	Common stock — Diluted	$	(0.13)	$	(0.10)	$	(0.16)	$	(0.19)	Common stock — Diluted	$	(0.04)	$	(0.12)	$	(0.20)	$	(0.31)
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	132,351,087		124,987,370		128,669,228		124,987,370		Basic	166,033,539		124,987,370		141,123,999		124,987,370
Diluted	Diluted	132,351,087		124,987,370		128,669,228		124,987,370		Diluted	166,033,539		124,987,370		141,123,999		124,987,370

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

Krispy Kreme, Inc.

Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)

(Inin thousands)


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
		July 4, 2021 (13 weeks)		June 28, 2020 (13 weeks)		July 4, 2021 (26 weeks)		June 28, 2020 (26 weeks)			October 3, 2021 (13 weeks)		September 27, 2020 (13 weeks)		October 3, 2021 (39 weeks)		September 27, 2020 (39 weeks)
Net loss	Net loss	$	(14,996)	$	(11,685)	$	(15,374)	$	(22,633)	Net loss	$	(3,752)	$	(13,484)	$	(19,126)	$	(36,117)
Other comprehensive (loss)/income, net of income taxes:	Other comprehensive (loss)/income, net of income taxes:									Other comprehensive (loss)/income, net of income taxes:
Foreign currency translation adjustment	Foreign currency translation adjustment	(1,457)		17,416		(3,721)		(29,007)		Foreign currency translation adjustment	(9,823)		10,839		(13,544)		(18,168)
Unrealized income/(loss) on cash flow hedges, net of income taxes(1)	Unrealized income/(loss) on cash flow hedges, net of income taxes(1)	1,131		(1,893)		6,233		(17,328)		Unrealized income/(loss) on cash flow hedges, net of income taxes(1)	1,398		1,066		7,631		(16,262)

Total other comprehensive (loss)/income, net of income taxes	Total other comprehensive (loss)/income, net of income taxes	(326)		15,523		2,512		(46,335)		Total other comprehensive (loss)/income, net of income taxes	(8,425)		11,905		(5,913)		(34,430)
Comprehensive (loss)/income		(15,322)		3,838		(12,862)		(68,968)
Comprehensive loss										Comprehensive loss	(12,177)		(1,579)		(25,039)		(70,547)
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	2,146		945		4,829		1,512		Net income attributable to noncontrolling interest	1,907		1,368		6,736		2,880
Foreign currency translation adjustment attributable to noncontrolling interest										Foreign currency translation adjustment attributable to noncontrolling interest	(414)		—		(414)		—
Total comprehensive income attributable to noncontrolling interest	Total comprehensive income attributable to noncontrolling interest	2,146		945		4,829		1,512		Total comprehensive income attributable to noncontrolling interest	1,493		1,368		6,322		2,880
Comprehensive (loss)/income attributable to Krispy Kreme, Inc.		$	(17,468)	$	2,893	$	(17,691)	$	(70,480)
Comprehensive loss attributable to Krispy Kreme, Inc.										Comprehensive loss attributable to Krispy Kreme, Inc.	$	(13,670)	$	(2,947)	$	(31,361)	$	(73,427)

1.Net of income tax ~~benefit/~~(expense)/benefit of ($~~0.4~~0.5 million) and ($~~2.1~~2.6 million) for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively, and ~~$0.6 million~~($0.4 million) and ~~$5.8~~$5.4 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively.

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

Krispy Kreme, Inc.

Condensed Consolidated Balance Sheets

(Inin thousands, except ~~number of shares)~~per share data)


		As of					As of
		(Unaudited) July 4, 2021		January 3, 2021			(Unaudited) October 3, 2021		January 3, 2021
ASSETS	ASSETS					ASSETS
Current Assets:
Current assets:						Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	37,377	$	37,460	Cash and cash equivalents	$	44,895	$	37,460
Marketable securities	Marketable securities	744		1,048		Marketable securities	614		1,048
Restricted cash	Restricted cash	82		23		Restricted cash	193		23
Accounts receivable, net	Accounts receivable, net	49,207		74,351		Accounts receivable, net	60,069		74,351
Inventories	Inventories	38,500		38,519		Inventories	36,141		38,519
Prepaid expense and other current assets	Prepaid expense and other current assets	20,911		12,692		Prepaid expense and other current assets	22,068		12,692
Total current assets	Total current assets	146,821		164,093		Total current assets	163,980		164,093
Property and equipment, net	Property and equipment, net	415,319		395,255		Property and equipment, net	423,547		395,255
Goodwill	Goodwill	1,095,369		1,086,546		Goodwill	1,089,914		1,086,546
Other intangible assets, net	Other intangible assets, net	1,003,948		998,014		Other intangible assets, net	993,440		998,014
Operating lease right of use asset, net	Operating lease right of use asset, net	414,096		399,688		Operating lease right of use asset, net	414,612		399,688
Other assets	Other assets	18,027		17,399		Other assets	17,165		17,399
Total assets	Total assets	$	3,093,580	$	3,060,995	Total assets	$	3,102,658	$	3,060,995
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current liabilities:						Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	538,985	$	41,245	Current portion of long-term debt	$	38,608	$	41,245
Current operating lease liabilities	Current operating lease liabilities	46,763		45,675		Current operating lease liabilities	42,637		45,675
Accounts payable	Accounts payable	156,564		148,645		Accounts payable	170,780		148,645
Accrued liabilities	Accrued liabilities	165,826		124,951		Accrued liabilities	132,638		124,951
Structured payables	Structured payables	139,748		137,319		Structured payables	108,969		137,319
Total current liabilities	Total current liabilities	1,047,886		497,835		Total current liabilities	493,632		497,835
Long-term debt, less current portion	Long-term debt, less current portion	626,417		785,810		Long-term debt, less current portion	682,676		785,810
Related party notes payable	Related party notes payable	0		344,581		Related party notes payable	—		344,581
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	390,962		376,099		Noncurrent operating lease liabilities	397,640		376,099
Deferred income taxes, net	Deferred income taxes, net	150,687		144,866		Deferred income taxes, net	155,982		144,866
Other long-term obligations and deferred credits	Other long-term obligations and deferred credits	55,822		63,445		Other long-term obligations and deferred credits	53,008		63,445
Total liabilities	Total liabilities	2,271,774		2,212,636		Total liabilities	1,782,938		2,212,636
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Shareholders’ Equity:
Common stock, $0.01 par value; 300,000,000 and 174,500,000 shares authorized as of July 4, 2021 and January 3, 2021, respectively; 163,595,516 and 124,987,370 shares issued and outstanding as of July 4, 2021 and January 3, 2021, respectively		1,636		1,250
Shareholders’ equity:						Shareholders’ equity:
Common stock, $0.01 par value; 300,000,000 and 174,500,000 shares authorized as of October 3, 2021 and January 3, 2021, respectively; 167,112,953 and 124,987,370 shares issued and outstanding as of October 3, 2021 and January 3, 2021, respectively						Common stock, $0.01 par value; 300,000,000 and 174,500,000 shares authorized as of October 3, 2021 and January 3, 2021, respectively; 167,112,953 and 124,987,370 shares issued and outstanding as of October 3, 2021 and January 3, 2021, respectively	1,671		1,250
Additional paid-in capital	Additional paid-in capital	1,362,875		845,499		Additional paid-in capital	1,410,724		845,499
Subscription receivable		(471,250)		0

Shareholder note receivable	Shareholder note receivable	(3,827)		(18,660)		Shareholder note receivable	(4,216)		(18,660)
Accumulated other comprehensive income/(loss), net of income tax		1,304		(1,208)
Accumulated other comprehensive loss, net of income tax						Accumulated other comprehensive loss, net of income tax	(6,707)		(1,208)
Retained deficit	Retained deficit	(162,399)		(142,197)		Retained deficit	(173,911)		(142,197)
Total shareholders’ equity attributable to Krispy Kreme, Inc.	Total shareholders’ equity attributable to Krispy Kreme, Inc.	728,339		684,684		Total shareholders’ equity attributable to Krispy Kreme, Inc.	1,227,561		684,684
Noncontrolling interest	Noncontrolling interest	93,467		163,675		Noncontrolling interest	92,159		163,675
Total shareholders’ equity	Total shareholders’ equity	821,806		848,359		Total shareholders’ equity	1,319,720		848,359
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	3,093,580	$	3,060,995	Total liabilities and shareholders’ equity	$	3,102,658	$	3,060,995

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

Krispy Kreme, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Inin thousands, except ~~number~~per share data)


	Common Stock			Additional Paid-in Capital		Subscription Receivable		Shareholder Note Receivable		Accumulated Other Comprehensive (Loss)/Income						Retained (Deficit) Earnings		Noncontrolling Interest		Total
	Shares Outstanding	Amount								Foreign Currency Translation Adjustment		Unrealized Loss on Cash Flow Hedges		Unrealized Loss on Employee Benefit Plans
Balance at January 3, 2021	124,987,370	$	1,250	$	845,499	$	—	$	(18,660)	$	23,508	$	(24,610)	$	(106)	$	(142,197)	$	163,675	$	848,359
Net (loss)/income for the quarter ended April 4, 2021	—	—		—		—		—		—		—		—		(3,061)		2,683		(378)
Other comprehensive income/(loss) for the quarter ended April 4, 2021 before reclassifications	—	—		—		—		—		(2,264)		2,572		—		—		—		308
Reclassification from AOCI	—	—		—		—		—		—		2,530		—		—		—		2,530
Share-based compensation	—	—		2,368		—		—		—		—		—		—		—		2,368
Purchase of shares by noncontrolling interest	—	—		—		—		139		—		—		—		—		12,048		12,187
Distribution to shareholders	—	—		—		—		—		—		—		—		—		—		—
Distribution to noncontrolling interest	—	—		—		—		363		—		—		—		—		(2,239)		(1,876)
Other	—	—		(26)		—		(70)		—		—		—		2		(1)		(95)
Balance at April 4, 2021	124,987,370	$	1,250	$	847,841	$	—	$	(18,228)	$	21,244	$	(19,508)	$	(106)	$	(145,256)	$	176,166	$	863,403
Net (loss)/income for the quarter ended July 4, 2021	—	—		—		—		—		—		—		—		(17,142)		2,146		(14,996)
Other comprehensive loss for the quarter ended July 4, 2021 before reclassifications	—	—		—		—		—		(1,457)		(1,430)		—		—		—		(2,887)
Reclassification from AOCI	—	—		—		—		—		—		2,561		—		—		—		2,561
Capital contribution from shareholders	6,997,450	70		120,862		—		—		—		—		—		—		—		120,932
Share-based compensation	—	—		8,290		—		—		—		—		—		—		—		8,290
Purchase of shares by noncontrolling interest	—	—		—		—		14,421		—		—		—		—		26,648		41,069
Distribution to shareholders	—	—		(42,334)		—		—		—		—		—		—		—		(42,334)
Distribution to noncontrolling interest	—	—		—		—		—		—		—		—		—		(4,142)		(4,142)
Conversion of noncontrolling interest to additional paid-in capital in connection with the Merger	9,370,881	93		107,258		—		—		—		—		—		—		(107,351)		—
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs	29,411,765	294		459,391		(471,250)		—		—		—		—		—		—		(11,565)
Issuance of common stock upon settlement of RSUs, net of shares withheld	1,267,491	13		(15,507)		—		—		—		—		—		—		—		(15,494)
Repurchase of common stock	(8,439,441)	(84)		(122,922)		—		—		—		—		—		—		—		(123,006)
Other	—	—		(4)		—		(20)		—		—		—		(1)		—		(25)
Balance at July 4, 2021	163,595,516	$	1,636	$	1,362,875	$	(471,250)	$	(3,827)	$	19,787	$	(18,377)	$	(106)	$	(162,399)	$	93,467	$	821,806
Net (loss)/income for the quarter ended October 3, 2021	—	—		—		—		—		—		—		—		(5,659)		1,907		(3,752)
Other comprehensive loss for the quarter ended October 3, 2021 before reclassifications	—	—		—		—		—		(9,409)		(1,215)		—		—		(414)		(11,038)
Reclassification from AOCI	—	—		—		—		—		—		2,613		—		—		—		2,613
Capital contribution from shareholders	—	—		(17)		—		(383)		—		—		—		—		—		(400)
Share-based compensation	—	—		6,315		—		—		—		—		—		—		—		6,315
Dividends declared on common stock and equivalents ($0.035 per share)(1)	—	—		—		—		—		—		—		—		(5,853)		—		(5,853)
Purchase of shares by noncontrolling interest	—	—		—		—		—		—		—		—		—		81		81

Distribution to noncontrolling interest	—	—		(13,413)		—		—		—		—		—		—		(2,882)		(16,295)
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs	3,500,000	35		55,151		471,250		—		—		—		—		—		—		526,436
Issuance of common stock upon settlement of RSUs, net of shares withheld	17,437	—		(188)		—		—		—		—		—		—		—		(188)

Other	—	—		1		—		(6)		—		—		—		—		—		(5)
Balance at October 3, 2021	167,112,953	$	1,671	$	1,410,724	$	—	$	(4,216)	$	10,378	$	(16,979)	$	(106)	$	(173,911)	$	92,159	$	1,319,720

1. Includes a $0.035 cash dividend per common share declared in the third quarter of ~~shares)~~fiscal 2021 and expected to be paid in the fourth quarter of fiscal 2021.

Common Stock Additional
Paid-in
Capital Subscription Receivable Shareholder
Note
Receivable Accumulated Other Comprehensive
Income/(Loss) Retained
(Deficit)
Earnings Noncontrolling
Interest Total
Shares
Outstanding Amount Foreign
currency
translation
adjustment Unrealized
loss on
cash flow
hedges Unrealized loss on employee
benefit plans
Balance at January 3, 2021 124,987,370 $ 1,250 $ 845,499 $ 0 $ (18,660) $ 23,508 $ (24,610) $ (106) $ (142,197) $ 163,675 $ 848,359
Net (loss)/income for the quarter ended April 4, 2021 — — — — — — — — (3,061) 2,683 (378)
Other comprehensive income/(loss) for the quarter ended April 4, 2021 before reclassifications — — — — — (2,264) 2,572 — — — 308
Reclassification from AOCI — — — — — — 2,530 — — — 2,530
Share-based compensation — — 2,368 — — — — — — — 2,368
Purchase of shares by noncontrolling interest — — — — 139 — — — — 12,048 12,187
Distribution to shareholders — — — — — — — — — — 0
Distribution to noncontrolling interest — — — — 363 — — — — (2,239) (1,876)
Other — — (26) — (70) — — — 2 (1) (95)
Balance at April 4, 2021 124,987,370 $ 1,250 $ 847,841 $ 0 $ (18,228) $ 21,244 $ (19,508) $ (106) $ (145,256) $ 176,166 $ 863,403
Net (loss)/income for the quarter ended July 4, 2021 — — — — — — — — (17,142) 2,146 (14,996)
Other comprehensive (loss)/income for the quarter ended July 4, 2021 before reclassifications — — — — — (1,457) (1,430) — — — (2,887)
Reclassification from AOCI — — — — — — 2,561 — — — 2,561
Capital contribution from shareholders 6,997,450 70 120,862 — — — — — — — 120,932
Share-based compensation — — 8,290 — — — — — — — 8,290
Purchase of shares by noncontrolling interest — — — — 14,421 — — — — 26,648 41,069
Distribution to shareholders — — (42,334) — — — — — — — (42,334)
Distribution to noncontrolling interest — — — — — — — — — (4,142) (4,142)
Conversion of noncontrolling interest to additional paid-in capital in connection with the Merger 9,370,881 93 107,258 — — — — — — (107,351) 0
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs 29,411,765 294 459,391 (471,250) — — — — — — (11,565)
Issuance of common stock upon settlement of RSUs, net of shares withheld 1,267,491 13 (15,507) — — — — — — — (15,494)
Repurchase of common stock (8,439,441) (84) (122,922) — — — — — — — (123,006)
Other — — (4) — (20) — — — (1) — (25)
Balance at July 4, 2021 163,595,516 $ 1,636 $ 1,362,875 $ (471,250) $ (3,827) $ 19,787 $ (18,377) $ (106) $ (162,399) $ 93,467 $ 821,806

See accompanying notes to Condensed Consolidated Financial Statements

Table of Contents

Krispy Kreme, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(Inin thousands, except ~~number of shares)~~per share data)


		Common Stock			Additional Paid-in Capital				Subscription Receivable			Shareholder Note Receivable		Accumulated Other Comprehensive Income/(Loss)						Retained (Deficit) Earnings			Noncontrolling Interest				Total					Common Stock								Additional Paid-in Capital					Subscription Receivable					Shareholder Note Receivable					Accumulated Other Comprehensive (Loss)/Income															Retained (Deficit) Earnings					Noncontrolling Interest					Total
		Shares Outstanding	Amount								Foreign currency translation adjustment			Unrealized loss on cash flow hedges		Unrealized loss on employee benefit plans						Shares Outstanding								Amount													Foreign Currency Translation Adjustment										Unrealized Loss on Cash Flow Hedges					Unrealized Loss on Employee Benefit Plans
Balance at December 29, 2019	Balance at December 29, 2019	124,987,370	$	1,250			$	834,233				$	0	$	(17,232)	$	4,629	$	(10,180)	$	0				$	(77,880)			$	148,597			$	883,417		Balance at December 29, 2019		124,987,370				$	1,250				$	834,233				$	—				$	(17,232)				$	4,629				$	(10,180)				$	—				$	(77,880)				$	148,597	$	883,417
Net (loss)/income for the quarter ended March 29, 2020	Net (loss)/income for the quarter ended March 29, 2020	—	—		—				—			—		—		—		—		(11,515)			567				(10,948)			Net (loss)/income for the quarter ended March 29, 2020		—				—					—					—					—					—					—					—					(11,515)					567					(10,948)
Other comprehensive (loss)/income for the quarter ended March 29, 2020 before reclassifications		—	—		—				—			—		(46,423)		(16,130)		—		—			—				(62,553)
Other comprehensive loss for the quarter ended March 29, 2020 before reclassifications																													Other comprehensive loss for the quarter ended March 29, 2020 before reclassifications		—				—				—					—					—					(46,423)					(16,130)					—					—					—					(62,553)
Reclassification from AOCI	Reclassification from AOCI	—	—		—				—			—		—		695		—		—			—				695			Reclassification from AOCI		—				—				—					—					—					—					695					—					—					—					695
Share-based compensation	Share-based compensation	—	—		3,167				—			—		—		—		—		—			—				3,167			Share-based compensation		—				—				3,167					—					—					—					—					—					—					—					3,167
Purchase of shares by noncontrolling interest	Purchase of shares by noncontrolling interest	—	—		—				—			—		—		—		—		—			17,562				17,562			Purchase of shares by noncontrolling interest		—				—				—					—					—					—					—					—					—					17,562					17,562
Distribution to shareholders	Distribution to shareholders	—	—		(15)				—			—		—		—		—		—			—				(15)			Distribution to shareholders		—				—				(15)					—					—					—					—					—					—					—					(15)
Distribution to noncontrolling interest	Distribution to noncontrolling interest	—	—		—				—			—		—		—		—		—			(2,506)				(2,506)			Distribution to noncontrolling interest		—				—				—					—					—					—					—					—					—					(2,506)					(2,506)
Other	Other	—	—		—				—			(76)		—		—		—		—			(1)				(77)			Other		—				—				—					—					(76)					—					—					—					—					(1)					(77)
Balance at March 29, 2020	Balance at March 29, 2020	124,987,370	$	1,250	$	837,385			$	0		$	(17,308)	$	(41,794)	$	(25,615)	$	0	$	(89,395)		$	164,219			$	828,742		Balance at March 29, 2020		124,987,370				$	1,250			$	837,385				$	—				$	(17,308)				$	(41,794)				$	(25,615)				$	—				$	(89,395)				$	164,219				$	828,742
Net (loss)/income for the quarter ended June 28, 2020	Net (loss)/income for the quarter ended June 28, 2020	—	—		—				—			—		—		—		—		(12,630)			945				(11,685)			Net (loss)/income for the quarter ended June 28, 2020		—				—				—					—					—					—					—					—					(12,630)					945					(11,685)
Other comprehensive income/(loss) for the quarter ended June 28, 2020 before reclassifications	Other comprehensive income/(loss) for the quarter ended June 28, 2020 before reclassifications	—	—		—				—			—		17,416		(3,855)		—		—			—				13,561			Other comprehensive income/(loss) for the quarter ended June 28, 2020 before reclassifications		—				—				—					—					—					17,416					(3,855)					—					—					—					13,561
Reclassification from AOCI	Reclassification from AOCI	—	—		—				—			—		—		1,962		—		—			—				1,962			Reclassification from AOCI		—				—				—					—					—					—					1,962					—					—					—					1,962
Share-based compensation	Share-based compensation	—	—		2,974				—			—		—		—		—		—			—				2,974			Share-based compensation		—				—				2,974					—					—					—					—					—					—					—					2,974
Purchase of shares by noncontrolling interest	Purchase of shares by noncontrolling interest	—	—		—				—			—		—		—		—		—			30				30			Purchase of shares by noncontrolling interest		—				—				—					—					—					—					—					—					—					30					30
Distribution to shareholders	Distribution to shareholders	—	—		—				—			—		—		—		—		(4)			—				(4)			Distribution to shareholders		—				—				—					—					—					—					—					—					(4)					—					(4)
Distribution to noncontrolling interest	Distribution to noncontrolling interest	—	—		—				—			178		—		—		—		—			(3,284)				(3,106)			Distribution to noncontrolling interest		—				—				—					—					178					—					—					—					—					(3,284)					(3,106)
Other	Other	—	—		—				—			(18)		—		—		—		1			1				(16)			Other		—				—				—					—					(18)					—					—					—					1					1					(16)
Balance at June 28, 2020	Balance at June 28, 2020	124,987,370	$	1,250	$	840,359			$	0		$	(17,148)	$	(24,378)	$	(27,508)	$	0	$	(102,028)		$	161,911			$	832,458		Balance at June 28, 2020		124,987,370				$	1,250			$	840,359				$	—				$	(17,148)				$	(24,378)				$	(27,508)				$	—				$	(102,028)				$	161,911				$	832,458
Net (loss)/income for the quarter ended September 27, 2020																													Net (loss)/income for the quarter ended September 27, 2020		—				—				—					—					—					—					—					—					(14,852)					1,368					(13,484)
Other comprehensive income/(loss) for the quarter ended September 27, 2020 before reclassifications																													Other comprehensive income/(loss) for the quarter ended September 27, 2020 before reclassifications		—				—				—					—					—					10,839					(1,402)					—					—					—					9,437
Reclassification from AOCI																													Reclassification from AOCI		—				—				—					—					—					—					2,468					—					—					—					2,468
Share-based compensation																													Share-based compensation		—				—				3,095					—					—					—					—					—					—					—					3,095
Distribution to noncontrolling interest																													Distribution to noncontrolling interest		—				—				—					—					—					—					—					—					—					(941)					(941)
Other																													Other		—				—				(5)					—					(77)					—					—					—					(12)					(1)					(95)
Balance at September 27, 2020																													Balance at September 27, 2020		124,987,370				$	1,250			$	843,449				$	—				$	(17,225)				$	(13,539)				$	(26,442)				$	—				$	(116,892)				$	162,337				$	832,938

See accompanying notes to Condensed Consolidated Financial Statements

Table of Contents

Krispy Kreme, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Inin thousands)


		Two Quarters Ended					Three Quarters Ended
		July 4, 2021 (26 weeks)		June 28, 2020 (26 weeks)			October 3, 2021 (39 weeks)		September 27, 2020 (39 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	Net loss	$	(15,374)	$	(22,633)	Net loss	$	(19,126)	$	(36,117)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	48,595		37,184		Depreciation and amortization expense	74,258		57,619
Deferred income taxes	Deferred income taxes	7,995		(2,601)		Deferred income taxes	9,168		(4,623)
Loss on extinguishment of debt	Loss on extinguishment of debt	1,700		0		Loss on extinguishment of debt	1,700		—
Impairment and lease termination charges	Impairment and lease termination charges	1,126		1,693		Impairment and lease termination charges	854		3,287
Loss/(gain) on disposal of property and equipment		148		(1,164)
Loss on disposal of property and equipment						Loss on disposal of property and equipment	157		773
Share-based compensation	Share-based compensation	10,658		6,141		Share-based compensation	16,973		9,236
Change in accounts and notes receivable allowances	Change in accounts and notes receivable allowances	110		717		Change in accounts and notes receivable allowances	133		700
Inventory write-off	Inventory write-off	776		0		Inventory write-off	2,983		34
Other	Other	(425)		(76)		Other	(315)		276
Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments:		1,536		(5,325)
Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments						Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments	12,003		(433)
Net cash provided by operating activities	Net cash provided by operating activities	56,845		13,936		Net cash provided by operating activities	98,788		30,752
CASH FLOWS USED FOR INVESTING ACTIVITIES:	CASH FLOWS USED FOR INVESTING ACTIVITIES:					CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment	Purchase of property and equipment	(52,842)		(44,133)		Purchase of property and equipment	(83,485)		(69,437)
Proceeds from disposals of assets	Proceeds from disposals of assets	147		2,793		Proceeds from disposals of assets	202		2,793
Acquisition of shops and franchise rights from franchisees, net of cash acquired	Acquisition of shops and franchise rights from franchisees, net of cash acquired	(33,888)		212		Acquisition of shops and franchise rights from franchisees, net of cash acquired	(33,888)		(59,658)
Principal payments received from loans to franchisees	Principal payments received from loans to franchisees	45		362		Principal payments received from loans to franchisees	67		519
Purchases of held-to-maturity debt securities	Purchases of held-to-maturity debt securities	0		(55)		Purchases of held-to-maturity debt securities	—		(56)
Maturities of held-to-maturity debt securities	Maturities of held-to-maturity debt securities	277		116		Maturities of held-to-maturity debt securities	388		517
Net cash used for investing activities	Net cash used for investing activities	(86,261)		(40,705)		Net cash used for investing activities	(116,716)		(125,322)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt	Proceeds from the issuance of debt	540,000		263,097		Proceeds from the issuance of debt	670,000		263,097
Repayment of long-term debt and lease obligations	Repayment of long-term debt and lease obligations	(541,353)		(97,496)		Repayment of long-term debt and lease obligations	(1,115,910)		(206,966)
Payment of financing costs	Payment of financing costs	(1,700)		0		Payment of financing costs	(1,700)		—
Proceeds from structured payables	Proceeds from structured payables	140,598		135,222		Proceeds from structured payables	194,927		211,892
Payments on structured payables	Payments on structured payables	(138,100)		(97,530)		Payments on structured payables	(223,063)		(155,951)
Payment of contingent consideration related to a business combination						Payment of contingent consideration related to a business combination	—		(506)
Capital contribution by shareholders	Capital contribution by shareholders	120,932		0		Capital contribution by shareholders	120,532		—
Proceeds from IPO, net of underwriting discounts (excluding unpaid issuance costs)						Proceeds from IPO, net of underwriting discounts (excluding unpaid issuance costs)	527,329		—
Proceeds from sale of noncontrolling interest in subsidiary	Proceeds from sale of noncontrolling interest in subsidiary	53,256		17,592		Proceeds from sale of noncontrolling interest in subsidiary	53,337		17,592
Distribution to shareholders	Distribution to shareholders	(34,364)		(19)		Distribution to shareholders	(42,334)		(19)
Payments for repurchase and retirement of common stock	Payments for repurchase and retirement of common stock	(102,698)		0		Payments for repurchase and retirement of common stock	(138,501)		—
Distribution to noncontrolling interest	Distribution to noncontrolling interest	(6,018)		(5,612)		Distribution to noncontrolling interest	(17,257)		(6,553)
Net cash provided by financing activities	Net cash provided by financing activities	30,553		215,254		Net cash provided by financing activities	27,360		122,586
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,161)		249		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,827)		759
Net (decrease)/increase in cash, cash equivalents and restricted cash		(24)		188,734
Net increase in cash, cash equivalents and restricted cash						Net increase in cash, cash equivalents and restricted cash	7,605		28,775
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	37,483		35,450		Cash, cash equivalents and restricted cash at beginning of period	37,483		35,450
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	37,459	$	224,184	Cash, cash equivalents and restricted cash at end of period	$	45,088	$	64,225
Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Accrual for property and equipment	Accrual for property and equipment	$	1,381	$	6,105	Accrual for property and equipment	$	3,137	$	11,280
Stock issuance under shareholder notes	Stock issuance under shareholder notes	446		0		Stock issuance under shareholder notes	446		—
Common stock issuance under subscription receivable in connection with initial public offering, net of underwriting discounts and issuance costs		459,685		0
Accrual for distribution to noncontrolling interest						Accrual for distribution to noncontrolling interest	(5,056)		—
Accrual for distribution to shareholders	Accrual for distribution to shareholders	(7,970)		0		Accrual for distribution to shareholders	(5,853)		—
Accrual for repurchase and retirement of common stock	Accrual for repurchase and retirement of common stock	(35,803)		0		Accrual for repurchase and retirement of common stock	(188)		—
Reconciliation of cash, cash equivalents and restricted cash at end of period:	Reconciliation of cash, cash equivalents and restricted cash at end of period:					Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	Cash and cash equivalents	$	37,377	$	224,050	Cash and cash equivalents	$	44,895	$	64,154
Restricted cash	Restricted cash	82		134		Restricted cash	193		71
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	37,459	$	224,184	Total cash, cash equivalents and restricted cash	$	45,088	$	64,225

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

Krispy Kreme, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, unless otherwise specified)

Note 1 — Description of Business and Summary of Significant Accounting Policies

Description of Business

Krispy Kreme, Inc. (“KKI”) and its subsidiaries (collectively, the “Company” or “Krispy Kreme”) operates through its omni-channel business model to provide doughnut experiences and produce doughnuts for Doughnut Shops, Delivered Fresh Daily (“DFD”) outlets, Ecommerce and delivery, and Krispy Kreme branded sweet treats (“Branded Sweet Treat Line”) channels, expanding consumer access to the Krispy Kreme brand.

The Company has 3 reportable operating segments: 1) U.S. and Canada, which includes all Krispy Kreme Company-owned operations in the U.S. and Canada, ~~Insomnia-branded cookie~~Insomnia Cookies shops and ~~our~~the Branded Sweet Treat Line; 2) International, which includes all Krispy Kreme Company-owned operations in the United Kingdom, Ireland, Australia, New Zealand and Mexico; and 3) Market Development, which includes franchise operations across the globe, as well as Krispy Kreme Company-owned shops in Japan. Unallocated corporate costs are excluded from the Company’s measurement of segment performance.

Initial Public Offering

The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on June 30, 2021 and the Company’s common stock began trading on the Nasdaq Global Select Market on July 1, 2021. On July 1, 2021, the Company completed its IPO, in which the Company sold 29.4 million shares of common stock at a price to the public of $17.00 per share. The Company received aggregate net proceeds of ~~$459.7~~$458.8 million after deducting underwriting discounts and commissions of $28.7 million and offering expenses of ~~$11.6~~$12.5 million. The net proceeds were received subsequent to quarter end on July 6, 2021 and, therefore, are recorded as Stock subscription receivable within Shareholders’ equity on the Condensed Consolidated Balance Sheet as of July 4, 2021.

In connection with the IPO, the Company and its affiliates completed the following transactions:

•On June 10, 2021, the Company's ~~wholly-owned~~wholly owned (excluding certain management equity interests) subsidiary, Krispy Kreme Holdings, Inc. (“KKHI”), entered into a term loan credit agreement, as borrower, which provided for term loans in an initial aggregate principal amount of $500.0 million (the “Term Loan Facility”). On June 17, 2021, KKHI borrowed $500.0 million under the Term Loan Facility, with debt issuance costs of $1.7 million which were included in Interest expense, net on the Condensed Consolidated Statements of Operations during the quarter ended July 4, 2021. The borrowings bore an all-in interest rate of 2.68175%. On June 28, 2021, following the Merger (as defined below), KKI assumed all of the obligations of KKHI as borrower under the Term Loan Facility. On July 7, 2021, the Company repaid in full and terminated the Term Loan Facility with a cash outflow of $500.7 million, which included $0.7 million of accrued interest. The Term Loan Facility would have matured on the earlier of (i) June 10, 2022 and (ii) within four business days following the consummation of the IPO.

•On June 28, 2021, KKHI merged into KKI (the “Merger”). As a result of the Merger, the Company eliminated $107.4 million of noncontrolling interest at KKHI as of the merger date. The management equity interests at KKHI were exchanged for common shares in KKI. Restricted stock units (“RSUs”) and stock options held at KKHI were exchanged for RSUs and stock options held at KKI at a rate of 317.24 KKI shares to 1 KKHI share.

•On June 30, 2021, the Company effected a 1,745-for-1 split of each outstanding share of common stock (the “Stock Split”). All share and per share information has been retroactively adjusted to effect the Stock Split for all periods presented.

Table of Contents

In connection with the IPO, the Company used the proceeds from the Term Loan Facility for the following: (1) repay the related party notes payable (including accrued interest of $17.8 million) of $355.0 million during the quarter ended July 4, 2021, (2) redeem certain common stock of $102.7 million held by Krispy Kreme, G.P. (“KK GP”) during the quarter ended July 4, 2021 and (3) pay a pro rata dividend to members of its management who, prior to the Merger, held equity interests in KKHI in an aggregate amount of $42.3 million ($34.4 million of which was paid during the quarter ended July 4, 2021 and $7.9 million of which was paid atduring the ~~beginning of the third~~ quarter ~~of fiscal~~ended October 3, 2021). Additionally, at the beginning of the third quarter of fiscal 2021, the Company paid $20.3 million to repurchase approximately 1.3 million shares of common stock from certain of the Company’s executive officers at the price paid by the underwriters and $15.5 million to repurchase approximately 1.0 million shares of common stock from certain of its executive officers for payment of their withholding taxes with respect to the RSUs vesting or for which vesting was accelerated in connection with the offering.

~~As a result of the above and the timing of certain payments across quarters, the Company’s Condensed Consolidated Balance Sheet as of July 4, 2021 reflected the following amounts:~~

•~~The $500.0 million Term Loan Facility principal outstanding as Current portion of long-term debt, and~~

•~~The cumulative $43.7 million unpaid equity distributions and share repurchases as Accrued liabilities.~~

On August 2, 2021, the underwriters exercised their over-allotment option and purchased an additional 3.5 million shares of common stock at the IPO price less the underwriting discounts and commissions. The net proceeds received on August 2, 2021 were $56.1 million after deducting underwriting discounts and commissions of $3.4 million. ~~As the option was exercised subsequent~~This brought total net IPO proceeds to ~~the end of the quarter ended July 4, 2021, the shares will be reflected as outstanding beginning in the third quarter of fiscal 2021.~~$514.9 million.

Basis of Presentation and Consolidation

The Company operates and reports financial information on a 52 or 53-week year with the fiscal year ending on the Sunday closest to December 31. The data periods contained within fiscal years 2020 and 2021 reflect the results of operations for the 53-week period ended January 3, 2021 and the 52-week period ended January 2, 2022, respectively. The quarters ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020 were both 13-week periods.

The unaudited Condensed Consolidated Financial Statements include the accounts of KKI and subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these interim financial statements do not include all information and footnotes required under U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented. All significant intercompany balances and transactions among KKI and subsidiaries have been eliminated in consolidation. Investments in entities over which the Company has the ability to exercise significant influence but which it does not control and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method.

These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto as of and for the year ended January 3, 2021, included in the IPO Prospectus. The Condensed Consolidated Balance Sheet as of January 3, 2021 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The results of operations for the ~~second~~third quarter ended ~~July 4,~~October 3, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 2, 2022.

Noncontrolling interest in the Company’s Condensed Consolidated Financial Statements represents the interest in subsidiaries held by joint venture partners and employee shareholders. The joint venture partners hold noncontrolling interests in the Company’s consolidated subsidiaries, Awesome Doughnut, LLC (“Awesome Doughnut”) and W.K.S. Krispy Kreme, LLC (“WKS Krispy Kreme”). Employee shareholders hold noncontrolling interests in the consolidated subsidiaries Krispy Kreme Holding UK Ltd. (“KKUK”), Krispy Kreme Holdings Pty ~~Ltd~~Ltd. (“KK Australia”), Krispy Kreme Mexico S. de R.L. de C.V. (“KK Mexico”) and Insomnia Cookies Holdings, LLC (“Insomnia Cookies”). Since the Company consolidates the financial statements of these subsidiaries, the noncontrolling owners’ share of each subsidiary’s net assets and results of operations are deducted and reported as noncontrolling interest on the Condensed Consolidated Balance Sheets and as net income attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and comprehensive income attributable to noncontrolling interest in the Condensed Consolidated Statements of Comprehensive Income/(Loss).

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Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for the year ended January 3, 2021 included in the IPO Prospectus. There have been no material changes to the significant accounting policies during the quarter ended ~~July 4,~~October 3, 2021.

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Reclassifications

OnAs previously disclosed in the ~~Condensed Consolidated Statements~~Quarterly Report on Form 10-Q issued for the second quarter of ~~Operations,~~fiscal 2021, Marketing expenses have been reclassified (formerly presented within Selling, general and administrative expense) to be consistent with the current quarter presentation. This reclassification does not have a significant impact on the reported financial position and does not impact the results of operations or cash flows.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions in Topic 740 and clarifying and amending existing guidance. The Company adopted ASU 2019-12 at the beginning of fiscal year 2021, and the adoption had no material impact to the Company’s Condensed Consolidated Financial Statements.

In ~~June~~September 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. It is effective for all entities as of March 12, 2020 through December 31, 2022. A company may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the effect of the new guidance on its Condensed Consolidated Financial Statements and related disclosures.

Note 2 — Acquisitions

2021 Acquisitions

In the quarter ended ~~July 4,~~October 3, 2021, there were no acquisitions. The Company acquired 10 franchise shops in Canada subsequent to the quarter ended October 3, 2021; see Note 15, Subsequent Events.

In the first quarter of fiscal 2021, the Company acquired the business and operating assets of 2 franchisees, collectively consisting of 17 Krispy Kreme shops in the United States. The Company paid total consideration of $38.1 million, consisting of $33.9 million of cash, $0.9 million of consideration payable to the sellers within 12 months of the respective acquisition dates, and $3.3 million settlement of amounts related to pre-existing relationships, to acquire substantially all of the shops’ assets. Consideration payable of $0.9 million was withheld to cover indemnification claims that could arise after closing. Absent any claims, these amounts are payable within 12 months of the respective acquisition dates.

The settlement of pre-existing relationships included in the purchase consideration includes the write-off of accounts and notes receivable, net of deferred revenue, of $0.6 million. It also includes the disposal of the franchise intangible asset related to the 2 franchisees recorded at time of the acquisition of Krispy Kreme by ~~JAB Holding Company (“JAB”).~~JAB. The cumulative net book value of the franchise intangible assets was $2.7 million at the acquisition dates. The Company accounted for the transactions as business combinations.

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The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition for the acquisitions above.


	KK U.S. Shops
Assets acquired:
Cash and cash equivalents ~~and restricted cash~~	$	40
~~Other~~Prepaid expense and other current assets	474
Property and equipment, net	3,829
Other intangible assets, net	23,906
Operating lease right of use asset, net	19,292
Other assets	115
Total identified assets acquired	47,656
Liabilities assumed:
Accrued liabilities	(334)
Current operating lease liabilities	(2,093)
Noncurrent operating lease liabilities	(17,199)
Total liabilities assumed	(19,626)
Goodwill	10,036
Purchase consideration, net	$	38,066
Transaction costs in 2021	$	~~1,225~~1,252
Transaction costs in 2020	184
Reportable segment	U.S. and Canada

During the measurement period, the Company will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from these preliminary estimates. Measurement period adjustments, if applicable, will be applied in the reporting period in which the adjustment amounts are determined. Measurement period changes for the 2021 acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the ~~second~~ quarter ofended October 3, 2021.

2020 Acquisitions

In the second half of fiscal year 2020, the Company acquired all equity interests in Krispy Kreme Doughnut Japan Co., Ltd. (“KK Japan”) and the business and operating assets of an additional 8 franchisees in the United States. The valuation for the acquisitions requires significant estimates and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. Measurement period changes for the 2020 acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the quarter ended ~~July 4,~~October 3, 2021.

Note 3 — Inventories

The components of Inventories are as follows:


		July 4, 2021		January 3, 2021			October 3, 2021		January 3, 2021
Raw materials	Raw materials	$	15,915	$	16,263	Raw materials	$	15,052	$	16,263
Work in progress	Work in progress	603		871		Work in progress	393		871
Finished goods and purchased merchandise	Finished goods and purchased merchandise	21,982		21,385		Finished goods and purchased merchandise	20,696		21,385
Total Inventories	Total Inventories	$	38,500	$	38,519	Total Inventories	$	36,141	$	38,519

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Note 4 — Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by reportable segment are as follows:


		U.S. and Canada		International		Market Development		Total			U.S. and Canada		International		Market Development		Total
Balance as of January 3, 2021	Balance as of January 3, 2021	$	642,704	$	290,872	$	152,970	$	1,086,546	Balance as of January 3, 2021	$	642,704	$	290,872	$	152,970	$	1,086,546
Acquisitions	Acquisitions	27,560		0		(17,524)		10,036		Acquisitions	27,560		—		(17,524)		10,036
Measurement periods adjustments related to fiscal year 2020 acquisitions	Measurement periods adjustments related to fiscal year 2020 acquisitions	186		0		0		186		Measurement periods adjustments related to fiscal year 2020 acquisitions	186		—		—		186
Foreign currency impact	Foreign currency impact	0		(1,399)		0		(1,399)		Foreign currency impact	—		(6,854)		—		(6,854)
Balance as of July 4, 2021		$	670,450	$	289,473	$	135,446	$	1,095,369
Balance as of October 3, 2021										Balance as of October 3, 2021	$	670,450	$	284,018	$	135,446	$	1,089,914

Acquisitions of franchises result in a reclassification of goodwill between segments.

Other intangible assets

Other intangible assets consist of the following:


		July 4, 2021						January 3, 2021							October 3, 2021						January 3, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Amount		Gross Carrying Amount		Accumulated Amortization		Net Amount			Gross Carrying Amount		Accumulated Amortization		Net Amount		Gross Carrying Amount		Accumulated Amortization		Net Amount
Intangible assets with indefinite lives	Intangible assets with indefinite lives													Intangible assets with indefinite lives
Trade name	Trade name	$	657,900	$	—	$	657,900	$	657,900	$	—	$	657,900	Trade name	$	657,900	$	—	$	657,900	$	657,900	$	—	$	657,900
Intangible assets with definite lives	Intangible assets with definite lives													Intangible assets with definite lives
Franchise agreements	Franchise agreements	32,961		(7,697)		25,264		36,254		(7,519)		28,735		Franchise agreements	32,961		(8,090)		24,871		36,254		(7,519)		28,735
Customer relationships	Customer relationships	15,000		(4,251)		10,749		15,000		(3,819)		11,181		Customer relationships	15,000		(4,467)		10,533		15,000		(3,819)		11,181
Reacquired franchise rights	Reacquired franchise rights	381,782		(72,197)		309,585		358,095		(59,432)		298,663		Reacquired franchise rights	377,836		(77,700)		300,136		358,095		(59,432)		298,663
Website development costs	Website development costs	6,500		(6,050)		450		6,500		(4,965)		1,535		Website development costs	6,500		(6,500)		—		6,500		(4,965)		1,535
Total intangible assets with definite lives	Total intangible assets with definite lives	436,243		(90,195)		346,048		415,849		(75,735)		340,114		Total intangible assets with definite lives	432,297		(96,757)		335,540		415,849		(75,735)		340,114
Total intangible assets	Total intangible assets	$	1,094,143	$	(90,195)	$	1,003,948	$	1,073,749	$	(75,735)	$	998,014	Total intangible assets	$	1,090,197	$	(96,757)	$	993,440	$	1,073,749	$	(75,735)	$	998,014

Amortization expense related to intangible assets included in depreciation and amortization expense was ~~$7.6~~$7.5 million and ~~$15.1~~$22.6 million for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively and ~~$6.2~~$6.6 million and ~~$12.6~~$19.1 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively.

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Note 5 — Leases

The Company included the following amounts related to operating and finance lease assets and liabilities within the Condensed Consolidated Balance Sheets:


			As of						As of
			July 4, 2021		January 3, 2021				October 3, 2021		January 3, 2021
Assets	Assets	Classification					Assets	Classification
Operating lease	Operating lease	Operating lease right of use asset, net	$	414,096	$	399,688	Operating lease	Operating lease right of use asset, net	$	414,612	$	399,688
Finance lease	Finance lease	Property and equipment, net	24,236		23,556		Finance lease	Property and equipment, net	23,499		23,556
Total leased assets	Total leased assets		$	438,332	$	423,244	Total leased assets		$	438,111	$	423,244
Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating lease	Operating lease	Current operating lease liabilities	$	46,763	$	45,675	Operating lease	Current operating lease liabilities	$	42,637	$	45,675
Finance lease	Finance lease	Current portion of long-term debt	3,985		6,245		Finance lease	Current portion of long-term debt	3,608		6,245
Noncurrent	Noncurrent						Noncurrent
Operating lease	Operating lease	Noncurrent operating lease liabilities	390,962		376,099		Operating lease	Noncurrent operating lease liabilities	397,640		376,099
Finance lease	Finance lease	Long-term debt, less current portion	22,293		19,979		Finance lease	Long-term debt, less current portion	21,906		19,979
Total leased liabilities	Total leased liabilities		$	464,003	$	447,998	Total leased liabilities		$	465,791	$	447,998

Lease costs were as follows:


			Quarter Ended				Two Quarters Ended						Quarter Ended				Three Quarters Ended
			July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020				October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Lease cost	Lease cost	Classification									Lease cost	Classification
Operating lease cost	Operating lease cost	Selling, general and administrative expense	$	609	$	755	$	1,319	$	1,573	Operating lease cost	Selling, general and administrative expense	$	648	$	752	$	1,967	$	2,325
Operating lease cost	Operating lease cost	Operating expenses	21,368		16,110		41,706		33,599		Operating lease cost	Operating expenses	21,201		17,149		62,910		50,748
Short-term lease cost	Short-term lease cost	Operating expenses	792		797		1,564		1,429		Short-term lease cost	Operating expenses	233		693		1,797		2,122
Variable lease costs	Variable lease costs	Operating expenses	4,218		676		7,297		3,888		Variable lease costs	Operating expenses	4,015		2,497		11,309		6,385
Sublease income	Sublease income	Royalties and other revenues	(97)		(130)		(177)		(239)		Sublease income	Royalties and other revenues	(108)		(140)		(285)		(380)
Finance lease cost:	Finance lease cost:										Finance lease cost:
Amortization of right of use assets	Amortization of right of use assets	Depreciation and amortization expense	850		331		1,648		1,331		Amortization of right of use assets	Depreciation and amortization expense	727		586		2,375		1,917
Interest on lease liabilities	Interest on lease liabilities	Interest expense, net	$	481	$	836	$	1,074	$	1,062	Interest on lease liabilities	Interest expense, net	$	466	$	484	$	1,540	$	1,545

Supplemental disclosures of cash flow information related to leases were as follows:


		Two Quarters Ended					Three Quarters Ended
		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020
Other information	Other information					Other information
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	45,889	$	35,638	Operating cash flows from operating leases	$	67,129	$	54,031
Operating cash flows from finance leases	Operating cash flows from finance leases	984		971		Operating cash flows from finance leases	1,458		1,452
Financing cash flows from finance leases	Financing cash flows from finance leases	1,705		1,899		Financing cash flows from finance leases	2,512		2,619
Right-of-use assets obtained in exchange for new lease liabilities:	Right-of-use assets obtained in exchange for new lease liabilities:					Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	Operating leases	39,473		6,296		Operating leases	48,770		33,427
Finance leases	Finance leases	$	1,788	$	6,827	Finance leases	$	1,788	$	6,827

The Company did 0tnot record any lease termination costs in the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021. Lease termination charges included in Other (income)/expenses, net were ~~$1.7~~$1.6 million and $3.3 million in the quarter and ~~two~~three quarters ended ~~June 28, 2020.~~September 27, 2020, respectively.

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Note 6 — Fair Value Measurements

The following table presents assets and liabilities that are measured at fair value on a recurring basis as of ~~July 4,~~October 3, 2021 and January 3, 2021:


		July 4, 2021							October 3, 2021
		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Assets:	Assets:							Assets:
401(k) mirror plan assets	401(k) mirror plan assets	$	215	$	0	$	0	401(k) mirror plan assets	$	215	$	—	$	—
Foreign currency derivatives								Foreign currency derivatives	—		238		—
Commodity derivatives	Commodity derivatives	0		1,890		0		Commodity derivatives	—		1,776		—
Total Assets	Total Assets	$	215	$	1,890	$	0	Total Assets	$	215	$	2,014	$	—
Liabilities:	Liabilities:							Liabilities:
Foreign currency derivative		0		393		0
Interest rate derivative		0		24,503		0
Interest rate derivatives								Interest rate derivatives	—		22,638		—
Total Liabilities	Total Liabilities	$	0	$	24,896	$	0	Total Liabilities	$	—	$	22,638	$	—


		January 3, 2021							January 3, 2021
		Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Assets:	Assets:							Assets:
401(k) mirror plan assets	401(k) mirror plan assets	$	237	$	0	$	0	401(k) mirror plan assets	$	237	$	—	$	—
Foreign currency derivative		0		131		0
Foreign currency derivatives								Foreign currency derivatives	—		131		—
Commodity derivatives	Commodity derivatives	0		420		0		Commodity derivatives	—		420		—
Total Assets	Total Assets	$	237	$	551	$	0	Total Assets	$	237	$	551	$	—
Liabilities:	Liabilities:							Liabilities:
Interest rate derivative		0		32,813		0
Interest rate derivatives								Interest rate derivatives	—		32,813		—
Total Liabilities	Total Liabilities	$	0	$	32,813	$	0	Total Liabilities	$	—	$	32,813	$	—

There were no transfers of financial assets or liabilities among the levels within the fair value hierarchy during the quarter ended ~~July 4,~~October 3, 2021 and fiscal year ended January 3, 2021. The Company’s derivatives are valued using discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates.

Note 7 — Derivative Instruments

Commodity Price Risk

The Company uses forward contracts to protect against the effects of commodity price fluctuations in the cost of ingredients of its products, of which flour, sugar and shortening are the most significant, and the cost of gasoline used by its delivery vehicles. Management has not designated these forward contracts as hedges. As of ~~July 4,~~October 3, 2021 and January 3, 2021, the total notional amount of commodity derivatives was ~~2.3~~1.9 million and 3.0 million gallons of gasoline, respectively. They were scheduled to mature between ~~July 5,~~October 4, 2021 and December 31, 2022 and January 4, 2021 and December 1, 2022, respectively. As of ~~July 4,~~October 3, 2021 and January 3, 2021, the Company recorded an asset of ~~$1.9~~$1.8 million and $0.4 million, respectively, related to the fair market values of its commodity derivatives. The settlement of commodity derivative contracts is reported in the Condensed Consolidated Statements of Cash Flows as a cash flow from operating activities.

Interest Rate Risk

The Company is exposed to interest rate risk related to its borrowing obligations. From time to time, the Company enters into interest rate swap arrangements to manage the risk. Management has designated the swap agreements as cash flow hedges and recognized the changes in the fair value of these swaps in other comprehensive income. As of ~~July 4,~~October 3, 2021 and January 3, 2021, the Company has recorded liabilities of ~~$24.5~~$22.6 million and $32.8 million, respectively, related to the fair market values of its interest rate derivatives. The cash flows associated with the interest rate swaps are reflected in ~~the~~ operating activities in the Condensed Consolidated Statements of Cash Flows, which is consistent with the classification as operating activities of the interest payments on the term loan.

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Foreign Currency Exchange Rate Risk

The Company is exposed to foreign currency risk primarily from its investments in consolidated subsidiaries that operate in the United Kingdom, Ireland, Australia, New Zealand, Mexico and Japan. In order to mitigate foreign exchange fluctuations, the Company enters into foreign exchange forward contracts. Management has not designated these forward contracts as hedges. As of ~~July 4,~~October 3, 2021 and January 3, 2021, the total notional amount of foreign exchange derivatives was ~~$44.3~~$31.3 million and $26.7 million, respectively. They were scheduled to mature between ~~July~~October 2021 and ~~September~~November 2021, and in January 2021, respectively. The Company recorded ~~a liability of $0.4 million and~~ an asset of $0.2 million and $0.1 million as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively, related to the fair market values of its foreign exchange derivatives.

Quantitative Summary of Derivative Positions and Their Effect on Results of Operations

The following tables present the fair values of derivative instruments included in the Condensed Consolidated Balance Sheets as of ~~July 4,~~October 3, 2021 and January 3, 2021, for derivatives not designated as hedging instruments and derivatives designated as hedging instruments, respectively. The Company only has cash flow hedges that are designated as hedging instruments.


		Derivatives Fair Value						Derivatives Fair Value
Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments	July 4, 2021		January 3, 2021		Balance Sheet Location	Derivatives Not Designated as Hedging Instruments	October 3, 2021		January 3, 2021		Balance Sheet Location
Foreign currency derivatives	Foreign currency derivatives	$	0	$	131	Prepaid expense and other current assets	Foreign currency derivatives	$	238	$	131	Prepaid expense and other current assets
Commodity derivatives	Commodity derivatives	1,890		420		Prepaid expense and other current assets	Commodity derivatives	1,776		420		Prepaid expense and other current assets
		$	1,890	$	551			$	2,014	$	551
Foreign currency derivatives		$	393	$	0	Accrued liabilities
		$	393	$	0


		Derivatives Fair Value						Derivatives Fair Value
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments	July 4, 2021		January 3, 2021		Balance Sheet Location	Derivatives Designated as Hedging Instruments	October 3, 2021		January 3, 2021		Balance Sheet Location
Interest rate derivatives	Interest rate derivatives	$	9,935	$	10,235	Accrued liabilities	Interest rate derivatives	$	10,046	$	10,235	Accrued liabilities
Interest rate derivatives	Interest rate derivatives	14,568		22,578		Other long-term obligations and deferred credits	Interest rate derivatives	12,592		22,578		Other long-term obligations and deferred credits
		$	24,503	$	32,813			$	22,638	$	32,813

The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020 is as follows:


		Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Two Quarters Ended						Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Three Quarters Ended
Derivatives Designated as Hedging Instruments	Derivatives Designated as Hedging Instruments	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020		Location of Derivative Gain/(Loss) Recognized in Income	Derivatives Designated as Hedging Instruments	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		Location of Derivative Gain/(Loss) Recognized in Income
Loss on interest rate derivatives	Loss on interest rate derivatives	$	(2,561)	$	(1,962)	$	(5,091)	$	(2,657)	Interest expense, net	Loss on interest rate derivatives	$	(2,613)	$	(2,468)	$	(7,704)	$	(5,125)	Interest expense, net
		$	(2,561)	$	(1,962)	$	(5,091)	$	(2,657)			$	(2,613)	$	(2,468)	$	(7,704)	$	(5,125)


		Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Two Quarters Ended						Derivative Gain/(Loss) Recognized in Income for the Quarter Ended				Derivative Gain/(Loss) Recognized in Income for the Three Quarters Ended
Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020		Location of Derivative Gain/(Loss) Recognized in Income	Derivatives Not Designated as Hedging Instruments	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		Location of Derivative Gain/(Loss) Recognized in Income
Gain/(loss) on foreign currency derivatives	Gain/(loss) on foreign currency derivatives	$	235	$	(294)	$	(375)	$	185	Other non-operating income, net	Gain/(loss) on foreign currency derivatives	$	632	$	(258)	$	256	$	(73)	Other non-operating expense/(income), net
Gain/(loss) on commodity derivatives		477		1,419		1,470		(874)		Other non-operating income, net
(Loss)/gain on commodity derivatives											(Loss)/gain on commodity derivatives	(114)		530		1,356		(345)		Other non-operating expense/(income), net
		$	712	$	1,125	$	1,095	$	(689)			$	518	$	272	$	1,612	$	(418)

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Note 8 — Share-based Compensation

Restricted Stock Units (“RSUs”)

The Company and certain of its subsidiaries issue time-vested RSUs under their respective executive ownership plans and long-term incentive plans. The time-vested RSUs are awarded to eligible employees and non-employee directors and entitle the grantee to receive shares of common stock at the end of a vesting period. Certain RSUs vest in 54 months from the date of grant and include a minimum holding period of six months before the shareholder may redeem the shares. Certain RSUs granted during the second quarter of 2021 vest over a 60-month period subsequent to the grant date (with 60% vesting during the third year following the grant date, 20% vesting during the fourth year, and 20% vesting at the end of the 60-month term). Throughout the vesting period and the holding period, shareholders are subject to the market risk on the value of their shares.

RSU activity under the Company’s various plans during the periods presented is as follows:


		Non-vested shares outstanding at January 3, 2021		Granted	RSU Dividend Equivalents	Vested	Forfeited	Non-vested shares outstanding at July 4, 2021			Non-vested shares outstanding at January 3, 2021		Granted	RSU Dividend Equivalents(1)	Vested	Forfeited	Non-vested shares outstanding at October 3, 2021
KKI~~(1)~~	KKI~~(1)~~									KKI~~(1)~~
RSUs	RSUs	4,649,551		2,772,199	1,018,629	2,389,567	224,675	5,826,137		RSUs	4,649,551		3,283,065	1,018,629	2,417,395	326,975	6,206,875
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	11.37	18.39	0	9.41	13.17	$	13.46	Weighted Average Grant Date Fair Value	$	11.37	18.13	—	9.42	13.72	$	13.71
KKUK	KKUK									KKUK
RSUs	RSUs	404,568		0	—	351,500	0	53,068		RSUs	404,568		—	—	351,500	—	53,068
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	12.45	0	—	12.22	0	$	13.98	Weighted Average Grant Date Fair Value	$	12.45	—	—	12.22	—	$	13.98
Insomnia Cookies	Insomnia Cookies									Insomnia Cookies
RSUs	RSUs	29,279		15,173	—	0	3,488	40,964		RSUs	29,279		15,173	—	—	9,224	35,228
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	68.87	97.77	—	0	78.31	$	78.77	Weighted Average Grant Date Fair Value	$	68.87	97.77	—	—	75.68	$	79.54
KK Australia	KK Australia									KK Australia
RSUs	RSUs	1,844,241		78,534	—	0	0	1,922,775		RSUs	1,844,241		78,534	—	—	26,042	1,896,733
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	1.48	1.45	—	0	0	$	1.48	Weighted Average Grant Date Fair Value	$	1.48	1.45	—	—	1.36	$	1.48
KK Mexico	KK Mexico									KK Mexico
RSUs	RSUs	25,055		167	—	0	0	25,222		RSUs	25,055		32,963	—	—	—	58,018
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	29.21	28.69	—	0	0	$	29.21	Weighted Average Grant Date Fair Value	$	29.21	35.64	—	—	—	$	32.86

1.For KKI RSU holders that did not vest upon IPO, dividend equivalent shares were granted after the IPO at a weighted average grant date fair value of 0.zero. The vesting terms for the dividend equivalent shares are the same as the underlying RSUs. The KKI shares presented have been retroactively adjusted to give effect to the Stock Split and the Merger.

The Company recorded total non-cash compensation expense related to RSUs under the plans of ~~$7.4~~$5.1 million and ~~$9.8~~$14.9 million for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively, and ~~$3.0~~$3.1 million and ~~$6.2~~$9.3 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively.

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The unrecognized compensation cost related to the unvested RSUs and the weighted-average period over which such cost is expected to be recognized are as follows:


	As of ~~July 4,~~October 3, 2021
	Unrecognized compensation cost Compensation Cost		Recognized ~~over~~Over a ~~weighted-average~~Weighted-Average ~~period~~Period of
KKI	$	~~62,542~~64,500	~~3.4~~3.3 years
KKUK	~~327~~278		~~0.9~~1.6 years
Insomnia Cookies	~~2,426~~1,983		~~3.4~~3.3 years
KK Australia	~~944~~755		~~1.2~~1.3 years
KK Mexico	$	~~654~~1,760	~~4.0~~4.2 years

The estimated fair value of restricted stock is calculated using a market approach (i.e. market multiple is used for the KKUK and Insomnia ~~Cookies’~~Cookies plans and an agreed-upon EBITDA buyout multiple is used for KK Australia and KK Mexico plans).

Time-Vested Stock Options

KKI issues time-vested stock options under its Omnibus Incentive Plan. The stock options are awarded to eligible employees and entitle the grantee to purchase shares of common stock at the respective exercise price at the end of a vesting period. Stock options vest over a 60-month period subsequent to the grant date (with 60% vesting during the third year following the grant date, 20% vesting during the fourth year, and 20% vesting at the end of the 60-month term), and as such are subject to a service condition. The maximum contractual term of the stock options is 10 years.

~~The~~ fair value of time-vested stock options was estimated on the date of grant using the Black-Scholes option pricing model. This model is impacted by the Company’s stock price and certain assumptions related to the Company’s stock and employees’ exercise behavior. The expected term for stock options granted during fiscal year 2021 was estimated utilizing the simplified method. We utilized the simplified method because the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate assumption was based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the expected term. Expected volatility was estimated based on the Company’s historical volatility, and also considering historical volatility of peer companies over a period equivalent to the expected term. Additionally, the dividend yield was estimated based on dividends currently being paid on the underlying common stock at the date of grant. Estimated and actual forfeitures have not had a material impact on share-based compensation expense.

~~The following weighted-average assumptions were utilized in determining the fair value of the time-vested stock options granted during fiscal year 2021:~~

Quarter Ended Year Ended
July 4,
2021 January 3,
2021
KKI
Risk-free interest rate 1.3 % 0 %
Expected volatility 34.4 % 0 %
Dividend yield 1.0 % 0 %
Expected term (years) 6.8 years —

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A summary of the status of the time-vested stock options as of January 3, 2021 and changes during fiscal year 2021 is presented below:


		Share options outstanding at								Share options outstanding at			Share Options Outstanding At								Share Options Outstanding At
		January 3, 2021		Granted		Exercised		Forfeited or expired		July 4, 2021			January 3, 2021		Granted		Exercised		Forfeited or Expired		October 3, 2021
KKI	KKI											KKI
Options	Options	0		2,817,398		0		0		2,817,398		Options	—		2,817,398		—		—		2,817,398
Weighted Average Grant Date Fair Value	Weighted Average Grant Date Fair Value	$	0	$	6.10	$	0	$	0	$	6.10	Weighted Average Grant Date Fair Value	$	—	$	6.10	$	—	$	—	$	6.10
Weighted Average Exercise Price	Weighted Average Exercise Price	$	0	$	14.61	$	0	$	0	$	14.61	Weighted Average Exercise Price	$	—	$	14.61	$	—	$	—	$	14.61
Weighted Average Remaining Contractual Term (years)		—								9.8 years
Aggregate Intrinsic Value (in thousands)		$	0							$	12,714

The Company recorded total non-cash compensation expense related to the time-vested stock options of ~~$0.9~~$1.2 million and $2.1 million for the quarter and ~~two~~three quarters ended ~~July 4, 2021.~~October 3, 2021, respectively.

The unrecognized compensation cost related to the unvested stock options and the weighted-average period over which such cost is expected to be recognized are as follows:


	As of ~~July 4,~~October 3, 2021
	Unrecognized ~~compensation cost~~Compensation Cost		Recognized ~~over~~Over a ~~weighted-average period~~ Weighted-Average Period of
KKI	$	~~16,313~~15,071	~~3.4~~3.3 years

~~NaN~~No time-vested stock options under the KKI plan vested 0rnor were exercised during the fiscal periods presented.

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Note 9 — Income Taxes

For interim tax reporting, the Company estimates a worldwide annual effective tax rate and applies that rate to the year-to-date ordinary income/(loss). The tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

The Company’s effective income tax rates were ~~(195.60)%~~38.43% and ~~(222.58)~~(76.11)% for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively and ~~11.38%~~(3.84)% and ~~11.40%~~6.26% for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively. The Company’s effective income tax rate for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021 differed from the respective statutory rates primarily due to the revaluation of U.K. deferred taxes as a result of the increase in the corporate tax rate from 19.0% to 25.0% beginning in 2023 and disallowed executive compensation expense in connection with the IPO. The Company’s effective income tax rates were also impacted by the mix of income and taxes attributable to foreign jurisdictions.

Note 10 — Commitments and Contingencies

Pending Litigation

K2 Asia litigation

On April 7, 2009, a Cayman Islands corporation, K2 Asia Ventures and its owners filed a lawsuit in Forsyth County, North Carolina Superior Court against the Company, the Company’s franchisee in the Philippines and other persons associated with the franchisee. The suit alleges that the Company and the other defendants conspired to deprive the plaintiffs of claimed “exclusive rights” to negotiate franchise and development agreements with prospective franchisees in the Philippines and sought at least $3.0 million. The ~~Company believes that these allegations lack merit~~case was dismissed by the North Carolina Superior Court on November 9, 2018. As of August 10, 2021, all levels of appellate review were exhausted and ~~continues to vigorously defend against the lawsuit. The Company does not believe it is probable that a~~denied. No loss has been incurred with respect to this matter, and accordingly no liability related to it has been reflected in the accompanying Condensed Consolidated Financial Statements.

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Insomnia Cookies litigation related to employee wages

Insomnia Cookies is currently a party to a class action lawsuit alleging violations of unfair competition, unpaid minimum wages, unpaid overtime, meal and rest period violations and unpaid premiums, failure to reimburse for business expenses, untimely paid wages, and violation of the California Private Attorneys General Act. Insomnia Cookies vigorously disputes these claims. On March 11, 2021, the parties participated in a mediation and reached a class wide settlement and release of claims in principle for $0.4 ~~million, expected to be paid during the quarter ended October 3, 2021.~~million. The parties have executed a memorandum of understanding memorializing the key settlement terms and are in the process of finalizing long form settlement documents and seeking preliminary court approval of the settlement.

TSW Food, LLC litigation

On November 13, 2020, TSW Foods, LLC (“TSW”), a reseller of certain Krispy Kreme packaged products, filed a demand for arbitration and statement of claim alleging Anticipatory Repudiation of the Master Reseller Agreement, Breach of the Master Reseller Agreement, and Breach of the Implied Covenant of Good Faith and Fair Dealing. The Company intends to vigorously defend against TSW’s claims and prosecute its counterclaims. The parties have scheduled a voluntary, non-binding mediation for November 11, 2021. At this time the Company is unable to predict the outcome of this matter, the potential loss or range of loss, if any, associated with the resolution of this matter or any potential effect it may have on the Company or its operations.

Other Legal Matters

The Company also is engaged in various legal proceedings arising in the normal course of business. The Company maintains insurance policies against certain kinds of such claims and suits, including insurance policies for workers’ compensation and personal injury, all of which are subject to deductibles. While the ultimate outcome of these matters could differ from management’s expectations, management currently does not believe their resolution will have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.

Other Commitments and Contingencies

One of the Company’s primary banks issued letters of credit on its behalf totaling $8.5 million and $14.0 million as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively, a majority of which secure the Company’s reimbursement obligations to insurers under its self-insurance arrangements.

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Note 11 — Related Party Transactions

As of ~~July 4,~~October 3, 2021 and January 3, 2021, the Company had an equity ownership in 2 franchisees, KremeWorks USA, LLC (20% ownership) and KremeWorks Canada, L.P. (25% ownership), with an aggregate carrying value of $0.7 million and $0.9 million as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively. Revenues from sales of ingredients and equipment to these franchisees were $1.9 million and ~~$3.8~~$5.7 million for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively, and ~~$1.7~~$1.5 million and ~~$3.4~~$4.9 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively. Royalty revenues from these franchisees were ~~$0.4~~$0.3 million and ~~$0.7~~$1.0 million for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively, and $0.3 million and ~~$0.6~~$0.9 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020. Trade receivables from these franchisees are included in Accounts receivable, net on the Condensed Consolidated Balance Sheets, which were $0.4 million and $0.4 million as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively.

Keurig Dr Pepper Inc. (“KDP”), an affiliated company of JAB, licenses the Krispy Kreme trademark for the Company in the manufacturing of portion packs for the Keurig brewing system. KDP also sells beverage concentrates and packaged beverages to Krispy Kreme for resale through Krispy Kreme’s shops. Licensing revenues from KDP were ~~$0.5~~$0.4 million and ~~$1.0~~$1.4 million for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively, and ~~$0.3~~$0.5 million and ~~$0.8~~$1.3 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively.

The Company had service agreements with BDT Capital Partners, LLC (“BDT”), a minority investor in KKI, to provide advisory services to the Company, including valuation services related to certain acquisitions. The Company recognized expenses of $0.6 million related to the service agreements with BDT for the ~~two~~three quarters ended ~~July 4,~~October 3, 2021, and ~~$0.1~~$0.9 million and ~~$0.6~~$1.6 million for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020, respectively. ~~NaN~~No related expenses were incurred for the quarter ended ~~July 4,~~October 3, 2021.

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In connection with valuation assistance provided by BDT in preparation for the IPO, the Company incurred costs of $6.3 million that are capitalized in additional paid-in capital for the ~~quarter and two~~three quarters ended ~~July 4,~~October 3, 2021. ~~NaN~~No related costs were incurred for the quarter ended October 3, 2021, nor for the quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020.

In connection with tax sharing arrangements with JAB and other JAB portfolio companies, the Company had a $7.4 million related party receivable from JAB and a $15.3 million related party payable to the other JAB portfolio companies offset by a $15.3 million income tax receivable due from taxing authorities as of January 3, 2021. ~~NaN~~No related party receivable ornor related party payable was due to JAB or other JAB portfolio companies as of ~~July 4, 2021, as these amounts were settled.~~October 3, 2021. The related party receivable amounts were presented within Accounts receivable, net on the Condensed Consolidated Balance Sheet as of January 3, 2021.

The Company was party to a senior unsecured note agreement (the “original agreement”) with KK GP. In the original agreement, which was outstanding prior to fiscal year ended December 30, 2018, the aggregate principal amount was $283.1 million. In April 2019, the Company entered into an additional unsecured note with KK GP for $54.0 million (the “additional agreement”). As of January 3, 2021, the outstanding amount of principal and interest was $344.6 million. The note was paid off in full during the quarter ended July 4, 2021. The interest expense was ~~$4.8~~$10.4 million for the three quarters ended October 3, 2021, and $5.6 million and ~~$10.4~~$16.7 million for the quarter and ~~two~~three quarters ended ~~July 4, 2021, respectively, and $5.6 million and $11.1 million~~September 27, 2020. No interest expense was incurred for the quarter ~~and two quarters~~ ended ~~June 28, 2020.~~October 3, 2021.

The Company granted loans to employees of KKI, KKUK, KK Australia, KK Mexico and Insomnia Cookies for the purchase of shares in those subsidiaries. The loan balance was ~~$3.8~~$4.2 million and $18.7 million as of ~~July 4,~~October 3, 2021 and January 3, 2021, respectively, and it is presented as a reduction from Shareholders’ equity on the Condensed Consolidated Balance Sheet.

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Note 12 — Revenue Recognition

Disaggregation of Revenues

Revenues are disaggregated as follows:


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Company shops, Branded Sweet Treat Line and DFD		$	329,775	$	218,336	$	630,270	$	448,950
Company Shops, DFD and Branded Sweet Treat Line										Company Shops, DFD and Branded Sweet Treat Line	$	322,410	$	265,554	$	952,680	$	714,504
Mix and equipment revenue from franchisees	Mix and equipment revenue from franchisees	11,448		18,272		24,538		39,194		Mix and equipment revenue from franchisees	11,914		15,763		36,452		54,957
Franchise royalties and other	Franchise royalties and other	7,963		8,364		16,187		18,044		Franchise royalties and other	8,475		8,916		24,662		26,960
Total net revenues	Total net revenues	$	349,186	$	244,972	$	670,995	$	506,188	Total net revenues	$	342,799	$	290,233	$	1,013,794	$	796,421

Other revenues include advertising fund contributions, rental income, development and franchise fees and licensing royalties from Keurig related to Krispy Kreme brands coffee sales.

Contract Balances

Deferred revenue subject to Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and related receivables are as follows:


		July 4, 2021		January 3, 2021		Balance Sheet Classification		October 3, 2021		January 3, 2021		Balance Sheet Location
Trade receivables, net of allowances of $954 and $1,437, respectively		$	38,344	$	39,624	Accounts receivables, net
Deferred revenue
Trade receivables, net of allowances of $796 and $1,437, respectively							Trade receivables, net of allowances of $796 and $1,437, respectively	$	37,476	$	39,624	Accounts receivables, net
Deferred revenue:							Deferred revenue:
Current	Current	17,341		16,045		Accrued liabilities	Current	15,901		16,045		Accrued liabilities
Noncurrent	Noncurrent	2,824		2,838		Other long-term obligations and deferred credits	Noncurrent	2,889		2,838		Other long-term obligations and deferred credits
Total deferred revenue	Total deferred revenue	$	20,165	$	18,883		Total deferred revenue	$	18,790	$	18,883

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Note 13 — Net Loss per Share

The following table presents the calculations of basic and diluted EPS:


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
(In thousands, except share and per share amounts)		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
(in thousands, except share and per share amounts)										(in thousands, except share and per share amounts)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net loss attributable to Krispy Kreme, Inc.	Net loss attributable to Krispy Kreme, Inc.	$	(17,142)	$	(12,630)	$	(20,203)	$	(24,145)	Net loss attributable to Krispy Kreme, Inc.	$	(5,659)	$	(14,852)	$	(25,862)	$	(38,997)
Adjustment to net loss attributable to common shareholders	Adjustment to net loss attributable to common shareholders	(424)		(253)		(417)		(150)		Adjustment to net loss attributable to common shareholders	(522)		34		(1,815)		(121)
Net loss attributable to common shareholders - Basic	Net loss attributable to common shareholders - Basic	$	(17,566)	$	(12,883)	$	(20,620)	$	(24,295)	Net loss attributable to common shareholders - Basic	$	(6,181)	$	(14,818)	$	(27,677)	$	(39,118)
Additional income attributed to noncontrolling interest due to subsidiary potential common shares	Additional income attributed to noncontrolling interest due to subsidiary potential common shares	(120)		(18)		(145)		(27)		Additional income attributed to noncontrolling interest due to subsidiary potential common shares	(88)		(22)		(237)		(48)
Net loss attributable to common shareholders - Diluted	Net loss attributable to common shareholders - Diluted	$	(17,686)	$	(12,901)	$	(20,765)	$	(24,322)	Net loss attributable to common shareholders - Diluted	$	(6,269)	$	(14,840)	$	(27,914)	$	(39,166)
Basic weighted average common shares outstanding	Basic weighted average common shares outstanding	132,351,087		124,987,370		128,669,228		124,987,370		Basic weighted average common shares outstanding	166,033,539		124,987,370		141,123,999		124,987,370
Dilutive effect of outstanding common stock options and RSUs	Dilutive effect of outstanding common stock options and RSUs	0		0		0		0		Dilutive effect of outstanding common stock options and RSUs	—		—		—		—
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	132,351,087		124,987,370		128,669,228		124,987,370		Diluted weighted average common shares outstanding	166,033,539		124,987,370		141,123,999		124,987,370
Loss per share attributable to common shareholders:	Loss per share attributable to common shareholders:									Loss per share attributable to common shareholders:
Basic	Basic	$	(0.13)	$	(0.10)	$	(0.16)	$	(0.19)	Basic	$	(0.04)	$	(0.12)	$	(0.20)	$	(0.31)
Diluted	Diluted	$	(0.13)	$	(0.10)	$	(0.16)	$	(0.19)	Diluted	$	(0.04)	$	(0.12)	$	(0.20)	$	(0.31)

Potential dilutive shares consist of unvested RSUs, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes certain unvested RSUs granted under certain subsidiaries’ executive ownership plans and long-term incentive plans, because their inclusion would have been antidilutive. ~~Refer to~~ ~~Note 8, Share-based Compensation, to the Condensed Consolidated Financial Statements for further information about the plans.~~

The following table summarizes the gross number of potential dilutive unvested RSUs excluded due to ~~antidilution:~~antidilution (unadjusted for the treasury stock method):


		Quarter Ended		Two Quarters Ended			Quarter Ended		Three Quarters Ended
		July 4, 2021	June 28, 2020	July 4, 2021	June 28, 2020		October 3, 2021	September 27, 2020	October 3, 2021	September 27, 2020
KKI	KKI	5,317,943	4,426,789	5,237,844	4,356,259	KKI	6,206,875	4,556,675	6,206,875	4,556,675
KKUK	KKUK	3,258	416,068	3,258	416,068	KKUK	—	404,568	—	412,235
Insomnia Cookies	Insomnia Cookies	0	24,069	0	26,175	Insomnia Cookies	—	16,200	—	13,365
KK Australia	KK Australia	0	0	0	0	KK Australia	—	—	—	—
KK Mexico	KK Mexico	0	0	0	0	KK Mexico	—	—	—	—

The 2,817,398 KKI time-vested stock options were also excluded from the computations for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021 due to antidilution.

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Note 14 — Segment Reporting

The Company conducts business through the 3 reportable segments: U.S. and Canada, International, and Market Development. Unallocated corporate costs are excluded from the Company’s measurement of segment performance. These costs include general corporate expenses.

The reportable segment results are as follows:

~~Table of~~ ~~Contents~~


	Quarter Ended				Three Quarters Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net revenues:
U.S. and Canada	$	225,807	$	202,575	$	679,195	$	557,280
International	87,262		63,504		243,005		158,575
Market Development	29,730		24,154		91,594		80,566
Total net revenues	$	342,799	$	290,233	$	1,013,794	$	796,421

Quarter Ended Two Quarters Ended
July 4,
2021 June 28,
2020 July 4,
2021 June 28,
2020
Net revenues:
U.S. and Canada $ 230,918 $ 184,255 $ 453,388 $ 354,705
International 89,237 34,412 155,743 95,071
Market Development 29,031 26,305 61,864 56,412
Total net revenues $ 349,186 $ 244,972 $ 670,995 $ 506,188


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020			October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Segment adjusted EBITDA:
Segment Adjusted EBITDA:										Segment Adjusted EBITDA:
U.S. and Canada	U.S. and Canada	$	28,285	$	27,551	$	55,848	$	49,188	U.S. and Canada	$	19,912	$	20,028	$	75,760	$	69,216
International	International	23,673		1,618		39,021		12,811		International	21,655		15,098		60,676		27,909
Market Development	Market Development	9,858		7,880		20,749		18,585		Market Development	9,033		9,374		29,782		27,959
Corporate	Corporate	(9,423)		(7,580)		(16,822)		(14,671)		Corporate	(9,183)		(6,715)		(26,005)		(21,386)
		52,393		29,469		98,796		65,913			41,417		37,785		140,213		103,698
Interest expense, net	Interest expense, net	9,793		9,711		18,042		18,355		Interest expense, net	7,186		7,908		25,228		26,263
Interest expense — related party(1)	Interest expense — related party(1)	4,821		5,566		10,387		11,132		Interest expense — related party(1)	—		5,566		10,387		16,698
Income tax expense/(benefit)		9,923		(1,500)		10,608		(2,912)
Income tax (benefit)/expense										Income tax (benefit)/expense	(2,342)		499		8,266		(2,413)
Depreciation and amortization expense	Depreciation and amortization expense	25,194		18,097		48,595		37,184		Depreciation and amortization expense	25,663		20,435		74,258		57,619
Share-based compensation	Share-based compensation	8,290		2,970		10,658		6,141		Share-based compensation	6,315		3,095		16,973		9,236
Employer payroll taxes related to share-based compensation	Employer payroll taxes related to share-based compensation	841		0		841		0		Employer payroll taxes related to share-based compensation	1,171		—		2,012		—
Other non-operating income, net(2)		(416)		(2,660)		(858)		(112)
Other non-operating expense/(income), net(2)										Other non-operating expense/(income), net(2)	732		(357)		(126)		(469)
New York City flagship Hot Light Theater Shop opening(3)	New York City flagship Hot Light Theater Shop opening(3)	0		1,667		0		4,239		New York City flagship Hot Light Theater Shop opening(3)	—		2,190		—		6,429
Strategic initiatives(4)	Strategic initiatives(4)	0		5,661		0		9,274		Strategic initiatives(4)	—		4,649		—		13,923
Acquisition and integration expenses(5)	Acquisition and integration expenses(5)	223		812		2,375		4,423		Acquisition and integration expenses(5)	1,288		4,274		3,663		8,697
Shop closure expenses(6)	Shop closure expenses(6)	0		2,786		0		2,786		Shop closure expenses(6)	—		2,058		—		4,844
Restructuring and severance expenses(7)	Restructuring and severance expenses(7)	1,336		0		1,336		0		Restructuring and severance expenses(7)	57		—		1,393		—
IPO-related expenses(8)	IPO-related expenses(8)	6,727		0		10,203		0		IPO-related expenses(8)	4,018		206		14,221		206
Other(9)	Other(9)	657		(1,956)		1,983		(1,964)		Other(9)	1,081		746		3,064		(1,218)
Net Loss	Net Loss	$	(14,996)	$	(11,685)	$	(15,374)	$	(22,633)	Net Loss	$	(3,752)	$	(13,484)	$	(19,126)	$	(36,117)

1.Consists of interest expense related to the Related Party Notes which were paid off in full during the quarter ended July 4, 2021.

2.Primarily foreign translation gains and losses in each period.

3.Consists of pre-opening costs related to our New York City flagship Hot Light Theater Shop opening, including shop design, rent, and additional consulting and training costs incurred and reflected in selling, general and administrative expenses.

4.The quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020 consists mainly of consulting and advisory fees, personnel transition costs, and network conversion and set-up costs related to the transformation of the Company’s legacy wholesale business in the United States.

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5.Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, consulting and advisory fees incurred in connection with acquisition-related activities for the applicable period.

6.Includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment.

7.Consists of severance and related benefits costs associated with the Company’s realignment of the Company ~~shop~~Shop organizational structure to better support the DFD and Branded Sweet Treat Line businesses.

8.Includes consulting and advisory fees incurred in connection with preparation for and execution of the Company’s IPO. Due to the timing of the IPO, certain costs were incurred in the quarter ended October 3, 2021 that are not expected to recur in future quarters.

9.The quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021 consist primarily of legal expenses incurred on matters described in Note 10, Commitments and Contingencies. The quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020 consists primarily of fixed asset and lease impairment expenses, net of a gain on the sale of land.

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Note 15 — Subsequent Events

The Company evaluated subsequent events and transactions for potential recognition or disclosure in the Condensed Consolidated Financial Statements through ~~August 17,~~November 9, 2021, the date the Condensed Consolidated Financial Statements were available to be issued. All subsequent events requiring recognition and disclosure have been incorporated into these Condensed Consolidated Financial Statements.

On ~~July 7,~~October 4, 2021, the Company ~~repaid~~acquired a 60% controlling ownership interest in ~~full~~10 franchise shops in Canada for total consideration of approximately $14.7 million, consisting of approximately $14.4 million in cash and ~~terminated~~approximately $0.3 million related to settlement of pre-existing relationships. The acquisition provides the ~~Term Loan Facility with~~opportunity to expand the Company’s omni-channel strategy in Canada, and will be accounted for as a ~~cash outflow~~business combination. The results of ~~$500.7 million, which included $0.7 million~~the acquired franchise business were reported within the Market Development segment as of ~~accrued interest.~~

~~During July 2021, the Company took a drawdown of $100.0 million on the 2019 Facility’s (as defined below) revolving credit facility in part to fund IPO-related items discussed in~~ ~~Note 1, Description of Business and Summary of Significant Accounting Policies to the Condensed Consolidated Financial Statements. Subsequent to~~ the quarter ended ~~July 4,~~October 3, 2021 and ~~through August 9, 2021~~will be reported within the U.S. and Canada segment beginning at the acquisition date in the fourth quarter of fiscal 2021. As of the date of issuance of this Quarterly Report on Form 10-Q, the Company ~~also repaid a cumulative~~ ~~$65.0 million on~~has not completed the ~~2019 Facility’s revolving credit facility, to reduce the outstanding balance on the revolving credit facility to $40.0 million~~ ~~as of August 9, 2021. This repayment activity in part was funded by the underwriters’ exercise of the over-allotment option discussed in~~ ~~Note 1~~.

~~During August 2021, the Company granted 431,115 RSUs to certain employees. The estimated fair value of the RSUs was $6.9 million.~~initial accounting for this business combination.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes included in our Annual Report included in our IPO Prospectus for the year ended January 3, 2021, and in other reports filed subsequently with the SEC. This discussion contains forward-looking statements that involve risks and uncertainties. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “strive” or similar words, or the negative of these words, identify forward-looking statements. Such forward-looking statements are based on certain assumptions and estimates that we consider reasonable but are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial conditions, business, prospects, growth strategy and liquidity. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results could differ materially from the forward-looking statements included herein. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statement to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

Overview

Krispy Kreme is one of the most beloved and well-known sweet treat brands in the world. Our iconic Original Glazed® doughnut is universally recognized for its hot-off-the-line, melt-in-your-mouth experience. Krispy Kreme operates in 3031 countries through its unique network of fresh Doughnut Shops, partnerships with leading retailers, and a rapidly growing Ecommerce and delivery business. Our purpose of touching and enhancing lives through the joy that is Krispy Kreme guides how we operate every day and is reflected in the love we have for our people, our communities, and the planet.

~~Our second quarter ended July 4, 2021 demonstrated powerful momentum and illustrates the continued and successful execution of our strategy:~~

•~~Increasing purchase frequencythrough marketing, innovation, and Ecommerce. Year to date, our marketing and innovation generated approximately~~ ~~16.3 billion media impressions, largely driven by the success of our vaccine program and innovative product rollouts around the world. In addition, Ecommerce drove 19% of global company shop sales, representing strong progress as we continue to expand our Ecommerce platforms.~~

•~~Increasing availability~~ of our fresh doughnuts through new points of access as we execute on our omni-channel strategy. In the first half of the year alone, we have added 1,300 points of access, driven by the transition from our legacy wholesale business to DFD.

•~~Increasing profitability~~, largely driven by broader application of the Hub and Spoke model. During our second quarter ended July 4, 2021 we grew our Adjusted EBITDA margin by 300 basis points to 15.0%, and we are investing in additional labor and delivery routes in order to expand our points of access through DFD and other channels.

The following table presents a summary of our financial results for the periods presented:


		Quarter Ended						Two Quarters Ended							Quarter Ended						Three Quarters Ended
(in thousands except percentages)	(in thousands except percentages)	July 4, 2021		June 28, 2020		% Change		July 4, 2021		June 28, 2020		% Change		(in thousands except percentages)	October 3, 2021		September 27, 2020		% Change		October 3, 2021		September 27, 2020		% Change
Total Net Revenues	Total Net Revenues	$	349,186	$	244,972	42.5	%	$	670,995	$	506,188	32.6	%	Total Net Revenues	$	342,799	$	290,233	18.1	%	$	1,013,794	$	796,421	27.3	%
Net Loss	Net Loss	(14,996)		(11,685)		-28.3	%	(15,374)		(22,633)		32.1	%	Net Loss	(3,752)		(13,484)		72.2	%	(19,126)		(36,117)		47.0	%
Adjusted Net Income	Adjusted Net Income	20,469		5,780		254.1	%	38,095		16,891		125.5	%	Adjusted Net Income	12,616		11,782		7.1	%	50,711		28,673		76.9	%
Adjusted EBITDA	Adjusted EBITDA	52,393		29,469		77.8	%	98,796		65,913		49.9	%	Adjusted EBITDA	41,417		37,785		9.6	%	140,213		103,698		35.2	%

We generated ~~22.5%~~6.2% and ~~15.2%~~11.9% organic revenue growth for the quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021, respectively.

Executing on our Transformation Strategy

We continue to add quality points of access across our network as we convert markets into fully implemented Hub and Spoke models, surpassing 10,000 points of access as of the end of the third quarter of fiscal 2021. The primary driver of the increased points of access from the second quarter of fiscal 2021 was the continued expansion of our DFD network in alignment with our transformation strategy, as we added 393 DFD Doors globally, including 153 DFD Doors to the U.S. and Canada segment (including expansion in major markets such as Chicago, Dallas, Phoenix, Los Angeles, and Denver), 151 to the International segment, and 89 to the Market Development segment.

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The increase in DFD Doors is the result of our focus on executing our omni-channel strategy to drive our transformation. As highlighted by the more developed model within the International segment, which has experienced a quick recovery from the impacts of the COVID-19 pandemic, the capital-efficient Hub and Spoke distribution model provides a route to market and powers profitability. As of the end of the third quarter of fiscal 2021, our Krispy Kreme U.S. and Canada business has completed the conversion of the last few designated market areas from our legacy wholesale business to DFD, allowing us to focus on DFD expansion in priority areas. We ~~operate~~expect DFD growth to continue to be one of our most significant drivers of profitability growth, through both increased door count and ~~report financial information on a 52 or 53-week year with~~growth in average revenue per door per week (“APD”) which has risen over 50% in the third quarter of fiscal ~~year ending on the Sunday closest to December 31. The additional week in a 53-week fiscal year is added~~2021 compared to the third quarter of fiscal 2020. Additionally, we expect further global expansion of points of access to come in the near-term as we acquired ten franchise shops in Canada at the beginning of the fourth quarter of fiscal ~~quarter, resulting~~2021, providing opportunity to expand our omni-channel strategy in ~~a 14-week quarter. The quarters ended July 4, 2021 and June 28, 2020 were both 13-week periods.~~Canada.

~~We conduct our business through the following three reported segments:~~COVID-19 Update

•As of the end of the third quarter of fiscal 2021, approximately 98% of global system-wide shops (includes Company-owned and franchise shops) were operational. In the U.S. and Canada,~~: reflects~~ all ~~of our Company-owned operations~~Krispy Kreme and all Insomnia Cookies shops were operational with certain locations still limiting lobby dining based on local regulations throughout the quarter.

The International segment continued to perform strongly with all shops in the United ~~States~~Kingdom, Ireland, and ~~Canada, including our Krispy Kreme~~Mexico operational as of the end of the third quarter of fiscal 2021. Australia and ~~Insomnia Cookies shops, DFD and our Branded Sweet Treat Line.~~

•~~International: reflects all of our Krispy Kreme Company-owned operations in the U.K. and Ireland (“U.K./Ireland”), Australia,~~ New Zealand were more heavily impacted by COVID-19 restrictions during the quarter, experiencing temporary shop closures and ~~Mexico, including their respective DFD operations.~~with lobby dining currently not allowed at certain locations.

•Certain international franchise markets within the Market Development segment were more heavily impacted by COVID-19 restrictions during the third quarter of fiscal 2021, with 2~~: reflects our franchise operations across~~3% of shops operating at reduced hours and 13% with lobby dining closed as of the ~~globe. It also includes our Company-owned operations in Japan, which belonged~~end of the quarter. This still represented an improvement from conditions as of the end of the second quarter of fiscal 2021, contributing to a ~~franchise that we acquired in December 2020. Our franchise operations include franchisee royalties and sales~~continued trend of ~~doughnut mix, other ingredients, supplies and doughnut-making equipment to franchisees.~~growth for Market Development.

All of our segments offer Hot Light Theater Shops, Fresh Shops, and DFD. Hot Light Theater Shops feature our famous glaze waterfalls and “Hot Now” light, with 87% of U.S. locations featuring drive-thru capability. Fresh Shops are smaller Doughnut Shops and kiosks, without manufacturing capabilities, selling fresh doughnuts delivered daily from Hub (as defined below) locations. DFD represents Krispy Kreme branded product within high traffic grocery and convenience locations, selling fresh doughnuts delivered daily from Hub locations.

Only our U.S. and Canada segment offers Insomnia Cookies and our Branded Sweet Treat Line. Our Branded Sweet Treat Line was launched in mid-2020 and is our line of Krispy Kreme-branded packaged sweet treats intended to extend our consumer reach with shelf-stable, high quality products available through grocery, mass merchandise, and convenience locations.

Key Performance Indicators and Non-GAAP Measures

We monitor the key business metrics and non-GAAP metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.

Throughout this Quarterly Report on Form 10-Q, we utilize “global points of access” as a key performance indicator. Global points of access reflect all locations at which fresh doughnuts or cookies can be purchased. We define global points of access to include all Hot Light Theater Shops, Fresh Shops, Carts and Food Trucks, DFD ~~doors and~~Doors, Cookie Shops, and other defined points at both Company-owned and franchise locations as of the end of the respective reporting period. We monitor global points of access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments and by asset type.

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The following table presents our global points of access, by segment and type, as of the end of the ~~second~~third quarter of 2021, ~~second~~third quarter of 2020 and fiscal 2020, respectively:


		Global Points of Access (1)				Global Points of Access (1)
		Quarter Ended		Fiscal Year Ended		Quarter Ended		Fiscal Year Ended
		July 4, 2021	June 28, 2020	January 3, 2021		October 3, 2021	September 27, 2020	January 3, 2021
U.S. and Canada: (2)	U.S. and Canada: (2)				U.S. and Canada: (2)
Hot Light Theater Shops	Hot Light Theater Shops	237	176	229	Hot Light Theater Shops	238	206	229
Fresh Shops	Fresh Shops	56	45	47	Fresh Shops	57	48	47
Cookie Shops	Cookie Shops	199	175	184	Cookie Shops	206	178	184
DFD doors (3)		5,067	1,923	4,137
DFD Doors (3)					DFD Doors (3)	5,220	2,846	4,137
Total	Total	5,559	2,319	4,597	Total	5,721	3,278	4,597
International:	International:				International:
Hot Light Theater Shops	Hot Light Theater Shops	28	27	28	Hot Light Theater Shops	30	28	28
Fresh Shops	Fresh Shops	354	354	348	Fresh Shops	352	353	348
DFD doors		2,264	1,657	1,986
Carts, Food Trucks, and Other (4)					Carts, Food Trucks, and Other (4)	12	10	11
DFD Doors (3)					DFD Doors (3)	2,415	1,833	1,986
Total	Total	2,646	2,038	2,362	Total	2,809	2,224	2,373
Market Development: (4)
Market Development: (5)					Market Development: (5)
Hot Light Theater Shops	Hot Light Theater Shops	113	168	119	Hot Light Theater Shops	113	144	119
Fresh Shops	Fresh Shops	739	705	732	Fresh Shops	761	716	732
DFD doors (3)		518	405	465
Carts, Food Trucks, and Other (4)					Carts, Food Trucks, and Other (4)	30	30	30
DFD Doors (3)					DFD Doors (3)	607	470	465
Total	Total	1,370	1,278	1,316	Total	1,511	1,360	1,346
Total global (as defined)		9,575	5,635	8,275
Total global points of access (as defined)					Total global points of access (as defined)	10,041	6,862	8,316
Total Hot Light Theater Shops	Total Hot Light Theater Shops	378	371	376	Total Hot Light Theater Shops	381	378	376
Total Fresh Shops	Total Fresh Shops	1,149	1,104	1,127	Total Fresh Shops	1,170	1,117	1,127
Total Cookie Shops	Total Cookie Shops	199	175	184	Total Cookie Shops	206	178	184
Total Shops	Total Shops	1,726	1,650	1,687	Total Shops	1,757	1,673	1,687
Total Carts, Food Trucks, and Other					Total Carts, Food Trucks, and Other	42	40	41
Total DFD Doors	Total DFD Doors	7,849	3,985	6,588	Total DFD Doors	8,242	5,149	6,588
Total global points of access (as defined)	Total global points of access (as defined)	9,575	5,635	8,275	Total global points of access (as defined)	10,041	6,862	8,316

1.Excludes Branded Sweet Treat Line distribution points and legacy wholesale business doors.

2.Includes points of access that were acquired from franchisees in the United States during the first quarter of fiscal 2021 and the second half of fiscal 2020. These points of access were previously included in the Market Development segment. See Note 2, Acquisitions, to our Condensed Consolidated Financial Statements for further information.

3.DFD ~~doors~~Doors for both the U.S. and Canada and Market Development segments exclude legacy wholesale doors, which have been declining consistent with our strategy to evolve our legacy wholesale business to focus on the new DFD model and our new Branded Sweet Treat Line. As of July 4, 2021 legacy wholesale doors for the U.S. and Canada and the Market Development segments were substantially eliminated.

4.Beginning in the quarter ended October 3, 2021, the Company includes Carts and Food Trucks in its calculation of global points of access. Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory. They are primarily found in international locations, in airports, train stations, etc. Comparative data has been included in all periods presented above.

5.Includes locations in Japan, which were acquired in December 2020 and are now Company-owned. As of the end of July 4, 2021, there were three Hot Light Theater Shops, 46 Fresh Shops and 53 DFD doors in Japan operating. As of the end of January 3, 2021, there were three Hot Light Theater Shops, 40 Fresh Shops and 24 DFD doors in Japan operating. All remaining points of access in the Market Development segment relate to our ~~franchisee~~franchise business.

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As of ~~July 4,~~October 3, 2021, we had ~~9,575~~10,041 global points of access, with ~~1,726~~1,757 Krispy Kreme and Insomnia Cookies branded shops, 42 Carts and ~~7,849~~Food Trucks, and 8,242 DFD ~~doors.~~Doors. During the third quarter of fiscal 2021, we added a net 31 additional shops globally, including three Hot Light Theater Shops, 21 Fresh Shops, and seven Insomnia Cookie Shops. The Hot Light Theater Shop openings included expansion in Lakeland, FL for the U.S. and Canada segment, Boca del Rio, Mexico for the International segment, and Cairo, Egypt for the Market Development segment which represents our first franchise shop in Egypt, increasing our global presence to 31 countries. We plan to continue adding new locations and expanding our Ecommerce and delivery platform in order to extend the availability of our products.

We also utilize “Hubs” as a key performance indicator. Our transformation is driven by the implementation of an omni-channel strategy to reach more ~~customers~~consumers where they are and drive revenue growth, and this strategy is supported by a capital-efficient Hub and Spoke distribution model that provides a route to market and powers profitability. Our Hot Light Theater shops and Doughnut Factories serve as centralized production facilities (“Hubs”). From these Hubs, we deliver doughnuts to our ~~fresh shops~~Fresh Shops, Carts and Food Trucks, and DFD ~~doors~~Doors (“Spokes”) through an integrated network of company-operated delivery routes, ensuring quality and freshness.

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		Hubs				Hubs
		Quarter Ended		Fiscal Year Ended		Quarter Ended		Fiscal Year Ended
		July 4, 2021	June 28, 2020	January 3, 2021		October 3, 2021	September 27, 2020	January 3, 2021
U.S. and Canada:	U.S. and Canada:				U.S. and Canada:
Hot Light Theater Shops (1)	Hot Light Theater Shops (1)	233	175	226	Hot Light Theater Shops (1)	234	203	226
Doughnut Factories	Doughnut Factories	5	7	5	Doughnut Factories	4	7	5
Total	Total	238	182	231	Total	238	210	231
Hubs with Spokes	Hubs with Spokes	114	88	113	Hubs with Spokes	121	112	113
International:	International:				International:
Hot Light Theater Shops (1)	Hot Light Theater Shops (1)	25	27	27	Hot Light Theater Shops (1)	25	27	27
Doughnut Factories	Doughnut Factories	12	9	9	Doughnut Factories	10	9	9
Total	Total	37	36	36	Total	35	36	36
Hubs with Spokes	Hubs with Spokes	37	36	36	Hubs with Spokes	35	36	36
Market Development:	Market Development:				Market Development:
Hot Light Theater Shops (1)	Hot Light Theater Shops (1)	112	165	116	Hot Light Theater Shops (1)	111	141	116
Doughnut Factories	Doughnut Factories	26	25	26	Doughnut Factories	26	26	26
Total	Total	138	190	142	Total	137	167	142
Total Hubs	Total Hubs	413	408	409	Total Hubs	410	413	409

1.Includes only Hot Light Theater Shops and excludes Mini Theaters. A Mini Theater is a spoke location that produces hot doughnuts.

Total Hubs increased by 5 from the second quarter of fiscal 2020 to the second quarter of fiscal 2021 driven by our development activity globally, which included new Hubs opened in the U.S., the U.K., and Mexico, among other locations. Hubs with Spokes for the U.S. and Canada segment increased by 26 from the second quarter of fiscal 2020 to the second quarter of fiscal 2021 driven by both acquisition of franchisee Hubs and our efforts to add points of access to existing Hubs.

For the U.S. and Canada segment, the average number of Spokes per Hub with Spokes was 44.9 and 22.4 as of July 4, 2021 and June 28, 2020, respectively, with growth driven primarily by the DFD transformation. For the International segment, the average number of Spokes per Hub with Spokes was 70.8 and 55.9 as of July 4, 2021 and June 28, 2020, respectively, with growth driven primarily by new customer listings.

Non-GAAP Measures

We report our financial results in accordance with generally accepted accounting principles in the United States (“GAAP”); however, management evaluates our results of operations using, among other measures, organic revenue growth, adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), and Adjusted Net Income as we believe these non-GAAP measures are useful in evaluating our operating performance.

These non-GAAP financial measures are not universally consistent calculations, limiting their usefulness as comparative measures. Other companies may calculate similarly titled financial measures differently than we do or may not calculate them at all. Additionally, these non-GAAP financial measures are not measurements of financial performance under GAAP. In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical Condensed Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q.

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Organic Revenue Growth

We define “organic revenue growth” as the growth in revenues, excluding (i) acquired shops owned by us for less than twelve months following their acquisition, (ii) the impact of foreign currency exchange rate changes, and (iii) the impact of revenues generated during the 53rd week for those fiscal years that have a 53rd week based on our fiscal calendar defined in the “Overview” section. See “Results of Operations” for our organic growth calculations for the periods presented.

Adjusted EBITDA and Adjusted Net Income

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We define “Adjusted EBITDA” as earnings before interest expense, net (including interest payable to related parties), income tax expense/(benefit), and depreciation and amortization, with further adjustments for share-based compensation, certain strategic initiatives, acquisition and integration expenses, and other certain non-recurring, infrequent or non-core income and expense items. Adjusted EBITDA enables operating performance to be reviewed across reporting periods on a consistent basis and is one of the principal measures used by management to evaluate and monitor our operating performance.

We define “Adjusted Net Income” as net loss adjusted for interest expense – related party, share-based compensation, certain strategic initiatives, acquisition and integration expenses, amortization of acquisition-related intangibles, the tax impact of adjustments and other certain non-recurring, infrequent or non-core income and expense items.

Adjusted EBITDA and Adjust Net Income have certain limitations, including adjustments for income and expense items that are required by GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as share-based compensation. Our presentation of Adjusted EBITDA and Adjusted Net Income should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA and Adjusted Net Income supplementally.

The following tables present a reconciliation of net loss to Adjusted EBITDA and net loss to Adjusted Net Income for the periods presented:


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
(in thousands)	(in thousands)	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020		(in thousands)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net income/(loss)		$	(14,996)	$	(11,685)	$	(15,374)	$	(22,633)
Net loss										Net loss	$	(3,752)	$	(13,484)	$	(19,126)	$	(36,117)
Interest expense, net	Interest expense, net	9,793		9,711		18,042		18,355		Interest expense, net	7,186		7,908		25,228		26,263
Interest expense — related party(1)	Interest expense — related party(1)	4,821		5,566		10,387		11,132		Interest expense — related party(1)	—		5,566		10,387		16,698
Income tax expense/(benefit)		9,923		(1,500)		10,608		(2,912)
Income tax (benefit)/expense										Income tax (benefit)/expense	(2,342)		499		8,266		(2,413)
Depreciation and amortization expense	Depreciation and amortization expense	25,194		18,097		48,595		37,184		Depreciation and amortization expense	25,663		20,435		74,258		57,619
Share-based compensation	Share-based compensation	8,290		2,970		10,658		6,141		Share-based compensation	6,315		3,095		16,973		9,236
Employer payroll taxes related to share-based compensation	Employer payroll taxes related to share-based compensation	841		—		841		—		Employer payroll taxes related to share-based compensation	1,171		—		2,012		—
Other non-operating income, net(2)		(416)		(2,660)		(858)		(112)
Other non-operating expense/(income), net(2)										Other non-operating expense/(income), net(2)	732		(357)		(126)		(469)
New York City flagship Hot Light Theater Shop opening(3)	New York City flagship Hot Light Theater Shop opening(3)	—		1,667		—		4,239		New York City flagship Hot Light Theater Shop opening(3)	—		2,190		—		6,429
Strategic initiatives(4)	Strategic initiatives(4)	—		5,661		—		9,274		Strategic initiatives(4)	—		4,649		—		13,923
Acquisition and integration expenses(5)	Acquisition and integration expenses(5)	223		812		2,375		4,423		Acquisition and integration expenses(5)	1,288		4,274		3,663		8,697
Shop closure expenses(6)	Shop closure expenses(6)	—		2,786		—		2,786		Shop closure expenses(6)	—		2,058		—		4,844
Restructuring and severance expenses(7)	Restructuring and severance expenses(7)	1,336		—		1,336		—		Restructuring and severance expenses(7)	57		—		1,393		—
IPO-related expenses(8)	IPO-related expenses(8)	6,727		—		10,203		—		IPO-related expenses(8)	4,018		206		14,221		206
Other(9)	Other(9)	657		(1,956)		1,983		(1,964)		Other(9)	1,081		746		3,064		(1,218)
Adjusted EBITDA	Adjusted EBITDA	$	52,393	$	29,469	$	98,796	$	65,913	Adjusted EBITDA	$	41,417	$	37,785	$	140,213	$	103,698

Table of Contents


		Quarter Ended				Two Quarters Ended					Quarter Ended				Three Quarters Ended
(in thousands)	(in thousands)	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020		(in thousands)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net income/(loss)		$	(14,996)	$	(11,685)	$	(15,374)	$	(22,633)
Net loss										Net loss	$	(3,752)	$	(13,484)	$	(19,126)	$	(36,117)
Interest expense — related party(1)	Interest expense — related party(1)	4,821		5,566		10,387		11,132		Interest expense — related party(1)	—		5,566		10,387		16,698
Share-based compensation	Share-based compensation	8,290		2,970		10,658		6,141		Share-based compensation	6,315		3,095		16,973		9,236
Employer payroll taxes related to share-based compensation	Employer payroll taxes related to share-based compensation	841		—		841		—		Employer payroll taxes related to share-based compensation	1,171		—		2,012		—
Other non-operating income, net(2)		(416)		(2,660)		(858)		(112)
Other non-operating expense/(income), net(2)										Other non-operating expense/(income), net(2)	732		(357)		(126)		(469)
New York City flagship Hot Light Theater Shop opening(3)	New York City flagship Hot Light Theater Shop opening(3)	—		1,667		—		4,239		New York City flagship Hot Light Theater Shop opening(3)	—		2,190		—		6,429
Strategic initiatives(4)	Strategic initiatives(4)	—		5,661		—		9,274		Strategic initiatives(4)	—		4,649		—		13,923
Acquisition and integration expenses(5)	Acquisition and integration expenses(5)	223		812		2,375		4,423		Acquisition and integration expenses(5)	1,288		4,274		3,663		8,697
Shop closure expenses(6)	Shop closure expenses(6)	—		2,786		—		2,786		Shop closure expenses(6)	—		2,058		—		4,844
Restructuring and severance expenses(7)	Restructuring and severance expenses(7)	1,336		—		1,336		—		Restructuring and severance expenses(7)	57		—		1,393		—
IPO-related expenses(8)	IPO-related expenses(8)	6,727		—		10,203		—		IPO-related expenses(8)	4,018		206		14,221		206
Other(9)	Other(9)	657		(1,956)		1,983		(1,964)		Other(9)	1,081		746		3,064		(1,218)
Amortization of acquisition related intangibles(10)	Amortization of acquisition related intangibles(10)	7,627		6,192		15,076		12,572		Amortization of acquisition related intangibles(10)	7,497		6,566		22,573		19,138
KKI Term Loan Facility interest and debt issuance costs(11)	KKI Term Loan Facility interest and debt issuance costs(11)	2,341		—		2,341		—		KKI Term Loan Facility interest and debt issuance costs(11)	107		—		2,448		—
Tax impact of adjustments(12)	Tax impact of adjustments(12)	(798)		(3,573)		(4,820)		(8,967)		Tax impact of adjustments(12)	(5,784)		(5,702)		(10,604)		(14,669)
Tax specific adjustments(13)	Tax specific adjustments(13)	3,816		—		3,947		—		Tax specific adjustments(13)	(114)		1,975		3,833		1,975
Adjusted net income	Adjusted net income	$	20,469	$	5,780	$	38,095	$	16,891	Adjusted net income	$	12,616	$	11,782	$	50,711	$	28,673

1.Consists of interest expense related to the Related Party Notes which were paid off in full during the quarter ended July 4, 2021.

2.Primarily foreign translation gains and losses in each period.

6.Includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment.

9.The quarter and ~~two~~three quarters ended ~~July 4,~~October 3, 2021 consist primarily of legal expenses incurred on matters described in Note 10, Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements. The quarter and ~~two~~three quarters ended ~~June 28,~~September 27, 2020 consists primarily of fixed asset and impairment expenses, net of a gain on the sale of land.

10.Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the consolidated statements of operations.

11.Includes interest expense ~~of $0.6 million~~ and debt issuance costs ~~of $1.7 million~~ incurred and recognized as expenses ~~in the quarter ended July 4, 2021~~ in connection with the extinguishment of the KKI Term Loan Facility within four business days of receipt of the net proceeds from the IPO.

12.Tax impact of adjustments calculated applying the applicable statutory rates. The ~~quarter and two~~three quarters ended ~~July 4,~~October 3, 2021 also ~~include~~includes the impact of disallowed executive compensation expense incurred in connection with the IPO.

13.The ~~quarter and two~~three quarters ended ~~July 4,~~October 3, 2021 ~~consist~~consists primarily of the effect of the U.K. 2023 statutory tax rate change from 19.0% to 25.0% on existing temporary differences.

Table of Contents

Sales Per Hub

In order to measure the effectiveness of our Hub and Spoke model, we use “Sales per Hub” on a trailing ~~twelve month~~four-quarter basis, which includes all revenue generated from a Hub and its associated Spokes. Sales per Hub ~~also known as Fresh Revenues per Average Hub with Spokes,~~ equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period. Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line. It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. The Average Hub with Spokes for a period is calculated as the ~~simple~~ average of the number of Hubs with Spokes at the end of the ~~current period and the number of Hubs with Spokes at the end of the comparative period.~~five most recent quarters.

Sales per Hub was as follows for each of the periods below:


		Trailing Four Quarters Ended		Fiscal Year Ended					Trailing Four Quarters Ended		Fiscal Year Ended
(in thousands, unless otherwise stated)	(in thousands, unless otherwise stated)	July 4, 2021		January 3, 2021		December 29, 2019		(in thousands, unless otherwise stated)	October 3, 2021		January 3, 2021		December 29, 2019
U.S. and Canada:	U.S. and Canada:							U.S. and Canada:
Revenues	Revenues	$	881,400	$	782,717	$	587,522	Revenues	$	904,633	$	782,717	$	587,522
Non-Fresh Revenues (1)	Non-Fresh Revenues (1)	(82,271)		(128,619)		(112,051)		Non-Fresh Revenues (1)	(53,719)		(128,619)		(112,051)
Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)	Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)	(389,762)		(323,079)		(271,067)		Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2)	(414,186)		(323,079)		(271,067)
Sales from Hubs with Spokes	Sales from Hubs with Spokes	409,367		331,019		204,404		Sales from Hubs with Spokes	436,728		331,019		204,404
Sales per Average Hub with Spokes (millions)		3.6		3.5		3.2
Sales per Hub (millions)								Sales per Hub (millions)	3.8		3.5		3.2

International:	International:							International:
Sales from Hubs with Spokes (3)	Sales from Hubs with Spokes (3)	$	290,857	$	230,185	$	223,115	Sales from Hubs with Spokes (3)	$	314,615	$	230,185	$	223,115
Sales per Average Hub with Spokes (millions)		8.0		6.4		8.3
Sales per Hub (millions)								Sales per Hub (millions)	8.6		6.4		8.3

1.Includes legacy wholesale business revenues and Branded Sweet Treat Line revenues.

2.Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes.

3.Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment.

In our International segment, where the Hub and Spoke model is most developed, Sales per Hub reached $8.6 million, up from $6.4 million in the full fiscal year 2020, and also up from pre-pandemic levels in the full fiscal year 2019. International illustrates the benefits of leveraging our Hub and Spoke model in the most efficient way to grow the business, as shown by the International segment’s quick recovery from the impacts of the COVID-19 pandemic and growth in profit margins. In the U.S. and Canada, we reached ~~average~~ Sales per Hub of ~~$3.6~~$3.8 million, up from $3.5 million in the full fiscal year 2020 and up from $3.2 million at the beginning of our transformation in 2019. InU.S. and Canada growth was driven by our ~~International markets, where~~efforts to increase the ~~Hub~~number of DFD Doors served by our Hubs and ~~Spoke~~to increase APD for the DFD Door portfolio, as the segment makes progress toward optimizing the model ~~is most developed, Sales per Hub reached $8.0 million, up from $6.4 million the previous year.~~to look more like International. As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow.

~~Significant Events and Transactions~~

~~COVID-19~~

From the onset of the COVID-19 pandemic, our first priority has been ensuring the health and safety of our employees, partners, and consumers, and compliance with applicable health and safety regulations. The COVID-19 pandemic has, to date, impacted our business both positively and negatively.

The COVID-19 pandemic resulted in the temporary closure of certain Krispy Kreme shops beginning in the first quarter of fiscal 2020, with the most significant temporary closures occurring internationally, including the U.K./Ireland, Australia, New Zealand and Mexico. Our U.S. and Canada segment began its recovery in April 2020, fueled by consumer adoption of Ecommerce channels and promotions. Sales were slower to recover in our International segment, with the most significant impact in Europe being in the second quarter of fiscal 2020, as our entire U.K./Ireland market was heavily impacted by shop closures over a ten week period, leading to substantial lost revenue and profits.

Table of ~~Contents~~

~~As of the end of the second quarter of 2021, approximately 98% of global system-wide shops were operational. All Krispy Kreme shops in the U.S. and Canada were operational~~. All but one Insomnia Cookies shops were also operational throughout the second quarter of fiscal 2021, with the one temporary shop closure not relating to COVID-19 impacts. The International segment experienced a strong recovery during the second quarter of fiscal 2021, with the U.K. seeing a return to in-shop dining during the quarter. All shops within Australia, New Zealand, and Mexico were also operational as of the end of the quarter, with reduced impact related to in-shop dining limitations and operating hours. We continue to monitor situations in these countries for potential impacts in future quarters due to new COVID-19 cases and related imposed restrictions.

Certain international franchise markets within the Market Development segment were more heavily impacted by COVID-19 restrictions during the second quarter of fiscal 2021, with 45% of shops operating at reduced hours and only 50% with lobby dining open as of the end of the quarter. However, other markets saw a rebound in performance during the second quarter due to the lifting of restrictions, leading to an overall trend of improved performance for Market Development.

~~Executing on our Transformation Strategy~~

Our omni-channel strategy continues to perform well, which is evident in our strong organic growth through the first two quarters of fiscal 2021. This strategy is underpinned by the growth of our Hub and Spoke model, which is how we operate our fresh doughnut network. Our Hot Light Theater Shops and Doughnut Factories serve as our Hubs. From these Hubs, we deliver doughnuts to our Fresh Shops, DFD doors, and Ecommerce channels through an integrated network of company-operated delivery routes, ensuring quality and freshness.

In the second half of fiscal 2019, we implemented a DFD model that is enabled by our Hot Light Theater Shops and Doughnut Factories. The net increase of 1,261 DFD doors globally from the end of fiscal 2020 contributed to organic revenue growth during the second quarter of fiscal 2021. We plan to continue adding new DFD doors to expand the availability of our products to consumers, regardless of where they shop. Due to the highly incremental off-site fresh doughnut revenues leveraging the production capacity of our existing Hubs, we believe the strategy of DFD expansion to reach new consumers is important to the long-term penetration of our brand and products in new markets, as demonstrated by the strong historical performance of our business in the International segment.

~~Continued Strength of Insomnia Cookies~~

Insomnia Cookies’ digital-first approach continues to drive strong performance, supporting meaningful organic revenue growth in the second quarter of fiscal 2021. In the quarter, Insomnia Cookies opened its CookieLab flagship shop in Philadelphia, which is an extension of Insomnia’s research and development lab designed for sweet treat lovers of all ages to enjoy cookie innovation and customization.

~~Growing the Branded Sweet Treat Line~~

Our Branded Sweet Treat Line continues to gain momentum as production ramps up, in-store merchandising improves, and store count grows. Our Branded Sweet Treat Line is available at approximately 6,300 locations across 17 different retailers. Branded Sweet Treats in the second quarter demonstrated strong sequential growth as we brought to market three new varieties: S’mores Bites, Key Lime Crullers and Chocolate Crullers. Branded Sweet Treat item velocities are strong, leading to the addition of new grocery customers and expansion of shelf-spaces, number of items carried, and increased merchandising opportunities with current customers. In addition, higher volumes create production efficiencies that further our ability to sell into new channels and customers, and this virtuous cycle makes us confident in the line’s continued growth in the quarters ahead.

~~Strategic Franchise Acquisitions~~

From the start of fiscal 2018 through the end of the second quarter of 2021, we have invested $465.6 million to acquire a significant number of our franchised Krispy Kreme shops, completing transactions with 24 franchisees to acquire control of 165 shops in the United States and 304 shops internationally. In the second quarter of fiscal 2021, we did not acquire any franchised Krispy Kreme shops, however we will continue to assess individual markets in determining whether franchise acquisitions would be accretive to continued sales and profitability growth. We believe increasing control in our system has allowed us to more rapidly and efficiently deploy our omni-channel model. Internationally, we have generally focused on acquiring franchise shops in our largest and most strategic growth markets, including the U.K./Ireland, Australia, New Zealand and Mexico, among others, which we believe provide a strong base for future organic growth.

~~Table of~~ ~~Contents~~

~~Components of Revenues and Expenses~~

~~Product sales~~

Product sales include revenues derived from (1) the sale of doughnuts, cookies and complementary products on-premises and to DFD and Branded Sweet Treat Line customers and (2) the sale of doughnut mix, other ingredients and supplies and doughnut-making equipment to our franchisees.

~~Royalties and other revenues~~

Royalties and other revenues are derived primarily from ongoing royalties and advertising fees charged to franchisees, which are based on a percentage of franchisee net sales, development fees and initial franchise fees relating to franchise rights and new shop openings, and other revenue, including licensing revenues from our arrangement with Keurig for use in the manufacturing of portion packs for the Keurig brewing system.

~~Product and distribution costs~~

Product and distribution costs includes mainly raw material (principally sugar, flour, wheat, oil and their derivatives) and production costs (including labor) related to doughnuts, cookies, other sweet treats, doughnut mix, packaging, and logistics costs related to raw materials.

~~Operating expenses~~

Operating expenses consist of expenses primarily related to Company-operated shops including payroll and benefit costs for service employees at Company-operated locations, Hub & Spoke driver and delivery costs, rent and utilities, expenses associated with Company operations, costs associated with procuring materials from vendors and other shop-level operating cost. Based on current macroeconomic trends, operating expenses relating to certain commodity prices (for example, fuel) and shop labor are expected to increase in the second half of fiscal 2021.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses, or “SG&A”, include management and support personnel (including field personnel in corporate support functions), including salaries and benefits (including share-based compensation), travel, compliance, information technology and professional fees. We expect our SG&A expenses to increase in future periods, particularly as we continue to expand our operations globally, develop new products and enhancements for existing products and as we begin to operate as a public company, including as a result of costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, increased share based compensation expense related to grants of options to purchase shares of our common stock and restricted stock units to certain of our employees and directors, and increased expenses for insurance, investor relations and accounting expense.

~~Marketing expenses~~

~~Marketing expenses include costs associated with marketing our products, including advertising and other brand promotional activities.~~

~~Pre-opening costs~~

Pre-opening costs include labor, rent, utilities and other expenses that are required as part of the setup and use of a new shop, prior to generating sales. Pre-opening costs also include costs to integrate acquired franchises back into the Company-owned model, which typically occur with the relevant shop closed over a one to three-day period subsequent to acquisition. Pre-opening costs do not include expenses related to strategic planning (for example, new site lease negotiations), which are recorded in SG&A.

~~Other expenses, net~~

~~Other expenses, net include asset impairment charges, shop closing costs, gain or loss on disposal of assets, and other miscellaneous expenses and income.~~

~~Table of~~ ~~Contents~~

~~Depreciation and amortization expense~~

~~Depreciation and amortization expense includes depreciation of fixed assets and amortization of intangible assets which do not have indefinite lives.~~

~~Income taxes~~

We utilize the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Potential accrued interest and penalties related to unrecognized tax benefits within operations are recognized as a component of interest expense and other expenses.

~~Table of~~ Contents

Results of Operations

The following comparisons are historical results and are not indicative of future results which could differ materially from the historical financial information presented.

Quarter ended ~~July 4,~~October 3, 2021 compared to the Quarter ended ~~June 28,~~September 27, 2020

The following table presents our unaudited condensed consolidated results of operations for the quarter ended ~~July 4,~~October 3, 2021 and the quarter ended ~~June 28,~~September 27, 2020:


		Quarter Ended													Quarter Ended
		July 4, 2021				June 28, 2020				Change					October 3, 2021				September 27, 2020				Change
(in thousands except percentages)	(in thousands except percentages)	Amount		% of Revenue		Amount		% of Revenue		$		%		(in thousands except percentages)	Amount		% of Revenue		Amount		% of Revenue		$		%
Net revenues	Net revenues													Net revenues
Product sales	Product sales	$	341,223	97.7	%	$	236,608	96.6	%	$	104,615	44.2	%	Product sales	$	334,324	97.5	%	$	281,317	96.9	%	$	53,007	18.8	%
Royalties and other revenues	Royalties and other revenues	7,963		2.3	%	8,364		3.4	%	(401)		-4.8	%	Royalties and other revenues	8,475		2.5	%	8,916		3.1	%	(441)		-4.9	%
Total net revenues	Total net revenues	349,186		100.0	%	244,972		100.0	%	104,214		42.5	%	Total net revenues	342,799		100.0	%	290,233		100.0	%	52,566		18.1	%
Product and distribution costs	Product and distribution costs	85,017		24.3	%	68,958		28.1	%	16,059		23.3	%	Product and distribution costs	92,152		26.9	%	85,303		29.4	%	6,849		8.0	%
Operating expenses	Operating expenses	157,877		45.2	%	104,221		42.5	%	53,656		51.5	%	Operating expenses	157,315		45.9	%	121,792		42.0	%	35,523		29.2	%
Selling, general and administrative expense	Selling, general and administrative expense	60,930		17.4	%	41,487		16.9	%	19,443		46.9	%	Selling, general and administrative expense	52,950		15.4	%	46,521		16.0	%	6,429		13.8	%
Marketing expenses	Marketing expenses	10,052		2.9	%	8,575		3.5	%	1,477		17.2	%	Marketing expenses	12,062		3.5	%	8,015		2.8	%	4,047		50.5	%
Pre-opening costs	Pre-opening costs	1,752		0.5	%	2,863		1.2	%	(1,111)		-38.8	%	Pre-opening costs	1,192		0.3	%	3,368		1.2	%	(2,176)		-64.6	%
Other (income)/expenses, net	Other (income)/expenses, net	(761)		-0.2	%	1,339		0.5	%	(2,100)		-156.8	%	Other (income)/expenses, net	(359)		-0.1	%	4,667		1.6	%	(5,026)		-107.7	%
Depreciation and amortization expense	Depreciation and amortization expense	25,194		7.2	%	18,097		7.4	%	7,097		39.2	%	Depreciation and amortization expense	25,663		7.5	%	20,435		7.0	%	5,228		25.6	%
Operating income/(loss)		9,125		2.6	%	(568)		-0.2	%	9,693		1706.5	%
Operating income														Operating income	1,824		0.5	%	132		—	%	1,692		1281.8	%
Interest expense, net	Interest expense, net	9,793		2.8	%	9,711		4.0	%	82		0.8	%	Interest expense, net	7,186		2.1	%	7,908		2.7	%	(722)		-9.1	%
Interest expense – related party	Interest expense – related party	4,821		1.4	%	5,566		2.3	%	(745)		-13.4	%	Interest expense – related party	—		—	%	5,566		1.9	%	(5,566)		-100.0	%
Other non-operating income, net		(416)		-0.1	%	(2,660)		-1.1	%	2,244		84.4	%
Other non-operating expense/(income), net														Other non-operating expense/(income), net	732		0.2	%	(357)		-0.1	%	1,089		305.0	%
Loss before income taxes	Loss before income taxes	(5,073)		-1.5	%	(13,185)		-5.4	%	8,112		61.5	%	Loss before income taxes	(6,094)		-1.8	%	(12,985)		-4.5	%	6,891		53.1	%
Income tax expense/(benefit)		9,923		2.8	%	(1,500)		-0.6	%	11,423		761.5	%
Income tax (benefit)/expense														Income tax (benefit)/expense	(2,342)		-0.7	%	499		0.2	%	(2,841)		-569.3	%
Net loss	Net loss	(14,996)		-4.3	%	(11,685)		-4.8	%	(3,311)		-28.3	%	Net loss	(3,752)		-1.1	%	(13,484)		-4.6	%	9,732		72.2	%
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	2,146		0.6	%	945		0.4	%	1,201		127.1	%	Net income attributable to noncontrolling interest	1,907		0.6	%	1,368		0.5	%	539		39.4	%
Net loss attributable to Krispy Kreme, Inc.	Net loss attributable to Krispy Kreme, Inc.	$	(17,142)	-4.9	%	$	(12,630)	-5.2	%	$	(4,512)	-35.7	%	Net loss attributable to Krispy Kreme, Inc.	$	(5,659)	-1.7	%	$	(14,852)	-5.1	%	$	9,193	61.9	%

Product sales: Product sales increased ~~$104.6~~$53.0 million, or ~~44.2%~~18.8%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021. Approximately ~~$37.9~~$32.5 million of the increase in product sales was attributable to shops acquired from franchisees. ~~Sales growth was also partially driven by adverse COVID-19 impacts in the comparative period.~~

Royalties and other revenues: Royalties and other revenues decreased $0.4 million, or ~~4.8%~~4.9%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, reflecting the impact of the ~~acquisition~~acquisitions of KK Japan inand U.S. franchises made during the ~~fourth~~second half of fiscal 2020 and the first quarter of ~~2020.~~fiscal 2021.

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Table of Contents

The following table presents a further breakdown of total net revenue and organic revenue growth by segment for the quarter ended ~~July 4,~~October 3, 2021 and the quarter ended ~~June 28,~~September 27, 2020:


(in thousands except percentages)	(in thousands except percentages)	U.S. and Canada			International			Market Development			Total Company			(in thousands except percentages)	U.S. and Canada			International			Market Development			Total Company
Total net revenues in second quarter of fiscal 2021		$	230,918		$	89,237		$	29,031		$	349,186
Total net revenues in second quarter of fiscal 2020		184,255			34,412			26,305			244,972
Total net revenues in third quarter of fiscal 2021														Total net revenues in third quarter of fiscal 2021	$	225,807		$	87,262		$	29,730		$	342,799
Total net revenues in third quarter of fiscal 2020														Total net revenues in third quarter of fiscal 2020	202,575			63,504			24,154			290,233
Total Net Revenues Growth	Total Net Revenues Growth	46,663			54,825			2,726			104,214			Total Net Revenues Growth	23,232			23,758			5,576			52,566
Total Net Revenues Growth %	Total Net Revenues Growth %	25.3		%	159.3		%	10.4		%	42.5		%	Total Net Revenues Growth %	11.5		%	37.4		%	23.1		%	18.1		%
Impact of acquisitions	Impact of acquisitions	(39,429)			—			1,750			(37,679)			Impact of acquisitions	(27,928)			—			(1,195)			(29,123)
Impact of foreign currency translation	Impact of foreign currency translation	—			(11,499)			—			(11,499)			Impact of foreign currency translation	—			(5,305)			—			(5,305)
Organic Revenue Growth	Organic Revenue Growth	$	7,234		$	43,326		$	4,476		$	55,036		Organic Revenue Growth	$	(4,696)		$	18,453		$	4,381		$	18,138
Organic Revenue Growth %	Organic Revenue Growth %	3.9		%	125.9		%	17.0		%	22.5		%	Organic Revenue Growth %	-2.3		%	29.1		%	18.1		%	6.2		%

Total net revenue growth of ~~$104.2~~$52.6 million, or approximately ~~42.5%~~18.1%, and organic revenue growth of ~~$55.0~~$18.1 million, or approximately ~~22.5%~~6.2%, was driven by increasing availability through new points of access and the omni-channel model, particularly the expansion of spokes, including DFD ~~doors,~~Doors, for existing Hubs with Spokes during the ~~second~~third quarter of fiscal 2021.

U.S. and Canada segment net revenue growth was driven by a combination of franchise acquisitions (17 shops in the first quarter of fiscal 2021 and 51 shops in the second half of fiscal 2020) and ~~by strong organic revenue growth.~~continued execution of our omni-channel strategy. U.S. and Canada net revenue grew ~~$46.7~~$23.2 million, or approximately ~~25.3%~~11.5%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021 ~~and~~while U.S. and Canada organic revenue ~~grew $7.2~~decreased $4.7 million, or approximately ~~3.9%~~2.3%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021. ~~Our strategic expansion of the Krispy Kreme DFD programs contributed to~~The decrease in organic revenue growth with added points of access and continued growth at existing DFD doors. Additionally, the launch of our Branded Sweet Treat Line in June of 2020, as well as the addition of new customers in the second quarter of fiscal 2021, provided additional organic revenue growth which we expect to continue to grow as we expand this business to new customers and channels. Insomnia Cookies also contributed to the organic revenue growth in the second quarter of fiscal 2021, with strong saleswas driven by ~~limited time offers and promotions as compared to~~ a ~~comparative quarter in 2020 heavily impacted by COVID-19 and college campus closures. Organic growth for the second quarter of fiscal 2021 was partially offset by a $27.1~~$22.8 million withdrawal in revenue from our legacy wholesale business, reflecting the evolution of the DFD business and the discontinuance of certain legacy extended shelf-life products sold through that channel. ~~Throughout 2021, we expect to continue to see expansion~~Excluding the impact of ~~new fresh points of access, but they will be partially offset by the exit of~~exiting the legacy wholesale business, ~~which occurred mostly through~~U.S. and Canada organic growth was 8.9% and was driven by the ~~back half~~expansion of our points of access, particularly our DFD network, higher DFD APD, and the strong performance of Insomnia Cookies. As we continue our transformation and implementation of the Hub and Spoke model, the transition to DFD from our legacy wholesale business continues to drive strong results with record APD established in the quarter and substantial growth versus 2020 and 2019 driven by the quality of new DFD Doors (including expansion in major markets such as Chicago, Dallas, Phoenix, Los Angeles, and Denver) and consumer convenience. This growth was partially offset by declines in revenues from our early-stage Branded Sweet Treat Line as we lapped the substantial revenues associated with shipments for the initial launch in 2020. However, we continue to expand production and the customer base and revenues increased when compared to the second quarter of fiscal 2021.

~~Our~~Our International segment net revenue grew ~~$54.8~~$23.8 million, or approximately ~~159.3%~~37.4%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021 and International organic revenue grew ~~$43.3~~$18.5 million, or approximately ~~125.9%~~29.1%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021. Organic growth in the quarter was driven by ~~restrictions being lifted~~successful limited time offerings, substantial expansion of DFD, and while lapping a previous period which was negatively impacted by COVID-19. Our businesses in the United Kingdom, ~~where COVID-19 had led to a nearly complete closure of the business, as well as a strong DFD and ecommerce performance. Australia, New Zealand,~~ Ireland, and Mexico in particular saw strong organic growth during the third quarter, with traffic returning stronger than prior to the pandemic, while our businesses in Australia and New Zealand also contributed to organic growth ~~while lapping the second quarter of 2020, which was heavily impacted by~~even with heavier impacts from COVID-19 ~~disruptions.~~restrictions and temporary shop closures.

Our Market Development net revenue grew ~~$2.7~~$5.6 million, or approximately ~~10.4%~~23.1%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, driven mainly by the acquisition of KK Japan in the final quarter of 2020. Market Development organic revenue grew ~~$4.5~~$4.4 million, or approximately ~~17.0%~~18.1%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, driven mainly by improved market conditions for international franchise locations as COVID-19 restrictions in certain key markets continued to ease.

Product and distribution costs (exclusive of depreciation and amortization): Product and distribution costs increased ~~$16.1~~$6.8 million, or ~~23.3%~~8.0%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, largely in line with and attributable to the same factors as our revenue growth.

Product and distribution costs as a percentage of revenue decreased by approximately ~~380~~250 basis points from ~~28.1%~~29.4% in the ~~second~~third quarter of fiscal 2020 to ~~24.3%~~26.9% in the ~~second~~third quarter of fiscal 2021. This ~~decrease~~margin improvement was primarily driven by ~~our International~~the U.S. and Canada segment, which ~~experienced strong top-line revenue growth for~~benefited from higher margins from its DFD business due to the ~~second~~shift to fresh doughnut sales from the legacy wholesale business. In addition, margins improved as a result of the sales mix shift due to the impact of franchise acquisitions. These factors more than offset the impact of commodity cost pressure in the third quarter of fiscal ~~2021 as COVID-19 restrictions were lifted, out-pacing expenses. The U.S. and Canada business also contributed to the basis point improvement as~~2021.

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~~in the second quarter of fiscal 2020 we had one time costs associated with launching our Branded Sweet Treat Line that was not yet operational at the beginning of that quarter.~~

Operating expenses: Operating expenses increased ~~$53.7~~$35.5 million, or ~~51.5%~~29.2%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, driven mainly by franchise acquisitions ~~new shop openings,~~and labor ~~investments, and lower operating expenses incurred during~~ ~~the second quarter of fiscal~~ ~~2020 as a result of COVID-19 with lower than normal labor costs a result of temporary shop closures.~~investments.

Operating expenses as a percentage of revenue increased approximately ~~270~~390 basis points, from ~~42.5%~~42.0% in the ~~second~~third quarter of fiscal 2020 to ~~45.2%~~45.9% in the ~~second~~third quarter of fiscal 2021, driven ~~mainly~~in part by the impact of ~~franchisee~~franchise acquisitions, such as KK Japan, which resulted in additional operating expenses that are needed to run ~~company-owned~~Company-owned operations versus franchises. ~~This was particularly evident in the Market Development segment where the acquisition of KK Japan contributed to an increase of approximately $5.6 million of operating expenses.~~ Additionally, we ~~have invested~~incurred higher labor costs in part due to labor needed to ~~drive expansion of DFD points of access~~support the Hub and ~~to accommodate staffing for our post-COVID-19 recovery. As COVID-19 restrictions lift, the business is incurring more overtime~~Spoke model transformation and ~~training costs compared to~~ ~~the second quarter of fiscal~~ ~~2020 when many shops were operating with reduced staffing. The increase in operating expenses~~labor investments as a ~~percentage~~result of ~~revenue was partially offset by~~ the ~~COVID-19 impacts on our International businesses in~~ current labor markets around the ~~second quarter of fiscal~~ ~~2020. In~~ ~~the second quarter of fiscal~~ ~~2020, International markets continued to incur fixed cost despite shutdowns.~~world.

Selling, general and administrative expense: Selling, general and administrative (“SG&A”) expenses increased ~~$19.4~~$6.4 million, or ~~46.9%~~13.8%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021. The increase was driven ~~mainly~~ by higher costs related to ~~the preparation for our IPO ($6.7 million),~~operating as a public company, increased share-based compensation expense, ~~related to the accelerated vesting of certain employee restricted stock units in conjunction with the IPO (as well as the re-loading of executive units and stock options during~~ ~~the second quarter of fiscal~~ ~~2021),~~ and by SG&A expenses incurred by franchise shops acquired subsequent to the ~~second~~third quarter of fiscal ~~2020 ($3.9 million).~~2020. As a percentage of revenue, SG&A expenses ~~increased~~decreased approximately 5060 basis points, from ~~16.9%~~16.0% in the ~~second~~third quarter of fiscal 2020 to ~~17.4% in~~ ~~the second quarter~~15.4% due to economies of ~~fiscal~~ ~~2021 primarily because of the impacts described prior, which were somewhat offset by~~scale from our top-line revenue ~~growth in the International segment out-pacing expenses.~~growth.

Marketing expenses: Marketing expenses increased ~~$1.5~~$4.0 million, or ~~17.2%~~50.5%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, primarily driven by spend associated with the increased revenues during the quarter. ~~As a percentage of revenue, marketing expenses decreased approximately 60 basis points, from 3.5% in~~ ~~the second quarter of fiscal~~ ~~2020 to 2.9% in~~ ~~the second quarter of fiscal~~ ~~2021 driven by heavier spend related to our Acts of Joy marketing initiative at the beginning of~~ ~~the second quarter of fiscal~~ ~~2020 in response to the COVID-19 pandemic.~~

Pre-opening costs: Pre-opening costs decreased ~~$1.1~~$2.2 million, or ~~38.8%~~64.6%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, primarily driven by costs associated with our expansion in NYC in the ~~second~~third quarter of fiscal 2020, including expenses incurred as we prepared for the opening of our NYC flagship Hot Light Theater Shop ~~later~~near the end of the third quarter of fiscal 2020.

Other (income)/expenses, net: Other expenses, net of $4.7 million in ~~2020.~~the third quarter of fiscal 2020 were primarily driven by lease termination costs, impairment charges, and losses on disposal of property and equipment, a majority of which were related to shop closures driven by impacts of COVID-19.

Depreciation and amortization expense: Depreciation and amortization expense increased ~~$7.1~~$5.2 million, or ~~39.2%~~25.6%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, primarily driven by the impact of acquired franchises and depreciation resulting from increased capital expenditures.

Interest expense - related party: Interest expense with related parties decreased ~~$0.7~~$5.6 million or ~~13.4%~~100.0%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, driven by paying off our Related Party Notes in full with KK GP during the ~~quarter.~~second quarter of fiscal 2021.

Income tax ~~expense/~~(benefit):/expense: ~~Income~~The tax ~~expense~~benefit of ~~$9.9~~$2.3 million in the ~~second~~third quarter ~~ended~~ of fiscal 2021 was driven by pre-tax results and tax benefits related to the ~~revaluation~~vesting of U.K. deferred taxes as a result of the increase in the corporate tax rate from 19.0% to 25.0% beginning in 2023 and disallowed executive compensation expense in connection with the IPO. The Company’sRSUs. Our tax expense was also impacted by the mix of income between the U.S. and foreign jurisdictions.

Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest for the ~~second~~third quarter of fiscal 2021 increased ~~$1.2~~$0.5 million, or ~~127.1%~~39.4%, from the ~~second~~third quarter of fiscal 2020, reflecting stronger earnings allocated to the shareholders of consolidated subsidiaries, particularly Insomnia ~~Cookies and the U.K./Ireland.~~Cookies.

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Results of Operations by Segment – Quarter ended ~~July 4,~~October 3, 2021 compared to the Quarter ended ~~June 28,~~September 27, 2020

The following table presents Adjusted EBITDA by segment for the periods indicated:


		Quarter Ended				Change					Quarter Ended				Change
(in thousands except percentages)	(in thousands except percentages)	July 4, 2021		June 28, 2020		$		%		(in thousands except percentages)	October 3, 2021		September 27, 2020		$		%
Adjusted EBITDA	Adjusted EBITDA									Adjusted EBITDA
U.S. and Canada	U.S. and Canada	$	28,285	$	27,551	$	734	2.7	%	U.S. and Canada	$	19,912	$	20,028	$	(116)	-0.6	%
International	International	23,673		1,618		22,055		1363.1	%	International	21,655		15,098		6,557		43.4	%
Market Development	Market Development	9,858		7,880		1,978		25.1	%	Market Development	9,033		9,374		(341)		-3.6	%
Corporate	Corporate	(9,423)		(7,580)		(1,843)		24.3	%	Corporate	(9,183)		(6,715)		(2,468)		-36.8	%
Total Adjusted EBITDA (1)	Total Adjusted EBITDA (1)	$	52,393	$	29,469	$	22,924	77.8	%	Total Adjusted EBITDA (1)	$	41,417	$	37,785	$	3,632	9.6	%

1. Refer to “Key Performance Indicators and Non-GAAP Measures” above for a reconciliation of Adjusted EBITDA to net loss.

U.S. and Canada Adjusted EBITDA ~~increased $0.7~~decreased $0.1 million, or ~~2.7%~~0.6%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021. Efficiency benefits of DFD expansion as we execute our Hub and Spoke transformation were offset by short-term supply challenges related to the Branded Sweet Treat line as well as commodity cost and labor pressures. At the end of the third quarter of fiscal 2021, ~~primarily driven by~~we increased prices on fresh doughnuts to help mitigate these cost pressures as well as the ~~sales increase~~growing impact of ~~25.3%.~~ ~~In particular,~~wage inflation in the ~~Insomnia Cookies business saw significant EBITDA margin expansion compared to~~ ~~the second quarter of fiscal~~ ~~2020 due to the top-line revenue growth. We also saw efficiency benefits of our DFD expansion and improving traffic in NYC.~~ When compared to the second quarter of 2020, at the height of the pandemic when our lobbies were sometimes closed, labor costs have increased, impacting overall EBITDA growth. As we continue to expand our Hub and Spoke model in more cities, we are also hiring more employees or “Krispy Kremers” than ever before, as we take on newly-acquired shops, add routes and transition to DFD.marketplace.

International Adjusted EBITDA increased ~~$22.1~~$6.6 million, or ~~1,363.1%~~43.4%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021, primarily driven by revenue growth of ~~159.3%~~37.4% due to DFD expansion and the adverse impacts of the COVID-19 pandemic on our international markets during the ~~second~~third quarter of fiscal 2020. Revenue growth significantly out-paced expense growth, leading to higher margins consistent with these more established Hub and Spoke markets. We expect the International segment to continue to contribute to strong EBITDA performance as the markets have rebounded well to match or exceed their performance prior to the pandemic.

Market Development Adjusted EBITDA ~~increased $2.0~~decreased $0.3 million, or ~~25.1%~~3.6%, from the ~~second~~third quarter of fiscal 2020 to the ~~second~~third quarter of fiscal 2021 driven mainly by ~~improved market conditions for~~the impact of U.S. and Canada franchise acquisitions, which more than offset EBITDA growth in the international franchise ~~locations~~markets.

Corporate Adjusted EBITDA decreased $2.5 million, or 36.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 driven by an increase in costs associated with our operation as ~~COVID-19 restrictions in certain key markets continued to ease~~.a public company.

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~~Two~~Three Quarters ended ~~July 4,~~October 3, 2021 compared to the ~~Two~~Three Quarters ended ~~June 28,~~September 27, 2020

The following table presents our unaudited condensed consolidated results of operations for the ~~two~~three quarters ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020:


		Two Quarters Ended													Three Quarters Ended
		July 4, 2021				June 28, 2020				Change					October 3, 2021				September 27, 2020				Change
(in thousands except percentages)	(in thousands except percentages)	Amount		% of Revenue		Amount		% of Revenue		$		%		(in thousands except percentages)	Amount		% of Revenue		Amount		% of Revenue		$		%
Net revenues	Net revenues													Net revenues
Product sales	Product sales	$	654,808	97.6	%	$	488,144	96.4	%	$	166,664	34.1	%	Product sales	$	989,132	97.6	%	$	769,461	96.6	%	$	219,671	28.5	%
Royalties and other revenues	Royalties and other revenues	16,187		2.4	%	18,044		3.6	%	(1,857)		-10.3	%	Royalties and other revenues	24,662		2.4	%	26,960		3.4	%	(2,298)		-8.5	%
Total net revenues	Total net revenues	670,995		100.0	%	506,188		100.0	%	164,807		32.6	%	Total net revenues	1,013,794		100.0	%	796,421		100.0	%	217,373		27.3	%
Product and distribution costs	Product and distribution costs	165,014		24.6	%	137,106		27.1	%	27,908		20.4	%	Product and distribution costs	257,166		25.4	%	222,409		27.9	%	34,757		15.6	%
Operating expenses	Operating expenses	305,418		45.5	%	220,000		43.5	%	85,418		38.8	%	Operating expenses	462,733		45.6	%	341,792		42.9	%	120,941		35.4	%
Selling, general and administrative expense	Selling, general and administrative expense	110,467		16.5	%	82,569		16.3	%	27,898		33.8	%	Selling, general and administrative expense	163,417		16.1	%	129,090		16.2	%	34,327		26.6	%
Marketing expenses	Marketing expenses	19,559		2.9	%	16,689		3.3	%	2,870		17.2	%	Marketing expenses	31,621		3.1	%	24,704		3.1	%	6,917		28.0	%
Pre-opening costs	Pre-opening costs	3,143		0.5	%	6,300		1.2	%	(3,157)		-50.1	%	Pre-opening costs	4,335		0.4	%	9,668		1.2	%	(5,333)		-55.2	%
Other (income)/expenses, net	Other (income)/expenses, net	(4,006)		-0.6	%	2,510		0.5	%	(6,516)		-259.6	%	Other (income)/expenses, net	(4,365)		-0.4	%	7,177		0.9	%	(11,542)		-160.8	%
Depreciation and amortization expense	Depreciation and amortization expense	48,595		7.2	%	37,184		7.3	%	11,411		30.7	%	Depreciation and amortization expense	74,258		7.3	%	57,619		7.2	%	16,639		28.9	%
Operating income	Operating income	22,805		3.4	%	3,830		0.8	%	18,975		495.4	%	Operating income	24,629		2.4	%	3,962		0.5	%	20,667		521.6	%
Interest expense, net	Interest expense, net	18,042		2.7	%	18,355		3.6	%	(313)		-1.7	%	Interest expense, net	25,228		2.5	%	26,263		3.3	%	(1,035)		-3.9	%
Interest expense – related party	Interest expense – related party	10,387		1.5	%	11,132		2.2	%	(745)		-6.7	%	Interest expense – related party	10,387		1.0	%	16,698		2.1	%	(6,311)		-37.8	%
Other non-operating income, net	Other non-operating income, net	(858)		-0.1	%	(112)		—	%	(746)		-666.1	%	Other non-operating income, net	(126)		—	%	(469)		-0.1	%	343		73.1	%
Loss before income taxes	Loss before income taxes	(4,766)		-0.7	%	(25,545)		-5.0	%	20,779		81.3	%	Loss before income taxes	(10,860)		-1.1	%	(38,530)		-4.8	%	27,670		71.8	%
Income tax expense/(benefit)	Income tax expense/(benefit)	10,608		1.6	%	(2,912)		-0.6	%	13,520		464.3	%	Income tax expense/(benefit)	8,266		0.8	%	(2,413)		-0.3	%	10,679		442.6	%
Net loss	Net loss	(15,374)		-2.3	%	(22,633)		-4.5	%	7,259		32.1	%	Net loss	(19,126)		-1.9	%	(36,117)		-4.5	%	16,991		47.0	%
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	4,829		0.7	%	1,512		0.3	%	3,317		219.4	%	Net income attributable to noncontrolling interest	6,736		0.7	%	2,880		0.4	%	3,856		133.9	%
Net loss attributable to Krispy Kreme, Inc	Net loss attributable to Krispy Kreme, Inc	$	(20,203)	-3.0	%	$	(24,145)	-4.8	%	$	3,942	16.3	%	Net loss attributable to Krispy Kreme, Inc	$	(25,862)	-2.6	%	$	(38,997)	-4.9	%	$	13,135	33.7	%

Product sales: Product sales increased ~~$166.7~~$219.7 million, or ~~34.1%~~28.5%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021. Approximately ~~$72.3~~$104.8 million of the increase in product sales was attributable to shops acquired from franchisees.

Royalties and other revenues: Royalties and other revenues decreased ~~$1.9~~$2.3 million, or ~~10.3%~~8.5%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, reflecting the impact of ~~franchise~~the acquisitions ~~mainly~~of KK ~~Japan.~~Japan and U.S. franchises made during the second half of fiscal 2020 and the first quarter of fiscal 2021.

Table of Contents

The following table presents a further breakdown of total net revenue and organic revenue growth by segment for the ~~two~~three quarters ended ~~July 4,~~October 3, 2021 and ~~June 28,~~September 27, 2020:

(in thousands except percentages) U.S. and Canada International Market Development Total Company
Total net revenues in first two quarters of fiscal 2021 $ 453,388 $ 155,743 $ 61,864 $ 670,995
Total net revenues in first two quarters of fiscal 2020 354,705 95,071 56,412 506,188
Total Net Revenues Growth 98,683 60,672 5,452 164,807
Total Net Revenues Growth % 27.8 % 63.8 % 9.7 % 32.6 %
Impact of acquisitions (71,134) — (390) (71,524)
Impact of foreign currency translation — (16,462) — (16,462)
Organic Revenue Growth $ 27,549 $ 44,210 $ 5,062 $ 76,821
Organic Revenue Growth % 7.8 % 46.5 % 9.0 % 15.2 %

~~Table of~~ ~~Contents~~


(in thousands except percentages)	U.S. and Canada			International			Market Development			Total Company
Total net revenues in first three quarters of fiscal 2021	$	679,195		$	243,005		$	91,594		$	1,013,794
Total net revenues in first three quarters of fiscal 2020	557,280			158,575			80,566			796,421
Total Net Revenues Growth	121,915			84,430			11,028			217,373
Total Net Revenues Growth %	21.9		%	53.2		%	13.7		%	27.3		%
Impact of acquisitions	(99,062)			—			(1,584)			(100,646)
Impact of foreign currency translation	—			(21,767)			—			(21,767)
Organic Revenue Growth	$	22,853		$	62,663		$	9,444		$	94,960
Organic Revenue Growth %	4.1		%	39.5		%	11.7		%	11.9		%

Total net revenue growth of ~~$164.8~~$217.4 million, or approximately ~~32.6%~~27.3%, and organic revenue growth of ~~$76.8~~$95.0 million, or approximately ~~15.2%~~11.9%, was driven by the continued and successful execution of our growth strategy and transformation deploying our omni-channel approach globally. We have continued to increase availability through new points of access and the omni-channel model, particularly the expansion of spokes, including DFD ~~doors,~~Doors, for existing Hubs with Spokes during the first ~~two~~three quarters of fiscal 2021.

U.S. and Canada segment net revenue growth, which reflects franchise acquisitions (17 shops in the first quarter of fiscal 2021 and 51 shops in the second half of fiscal 2020), was also driven by strong organic revenue growth. U.S. and Canada net revenue grew ~~$98.7~~$121.9 million, or approximately ~~27.8%~~21.9% from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021 and U.S. and Canada organic revenue grew ~~$27.5~~$22.9 million, or approximately ~~7.8%~~4.1%, for the period, ~~primarily~~ driven by significant expansion of the DFD business in strategic markets, our adaptation to changing consumer behavior in response to the COVID-19 pandemic ~~as well as new~~(which heavily impacted the segment during the first fiscal quarter of 2020), including increased leverage of Ecommerce and delivery channels, Krispy Kreme and Insomnia Cookies shop openings, ~~strong DFD growth,~~ and successful limited time offers. Our strategic expansion of the DFD programs contributed to net revenue and organic revenue growth with added points of access. Additionally, the Krispy Kreme U.S. and Canada business was more heavily impacted by COVID-19 temporary closures during the first fiscal quarter of 2020, aiding the organic growth for the first two quarters of fiscal 2021. U.S. and Canada segment net revenue growth was also driven by the expansion of our Ecommerce and delivery channels, particularly compared to the first fiscal quarter of 2020. Organic growth was partially offset by ~~a $57.9~~an $80.7 million withdrawal in revenue from our legacy wholesale business, reflecting the evolution of the DFD business and the discontinuance of certain legacy extended shelf-life products sold through that channel.

Our International segment net revenue grew ~~$60.7~~$84.4 million, or approximately ~~63.8%~~53.2%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021. International organic revenue grew ~~$44.2~~$62.7 million, or approximately ~~46.5%~~39.5%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, driven mainly by successfully leveraging our Hub and Spoke model with added points of access and by COVID-19 restrictions being lifted compared to 2020. Despite certain ongoing COVID-19 restrictions in place during the first fiscal quarter of 2021, our international markets experienced a strong rebound in the second and third fiscal ~~quarter~~quarters of 2021, helped by our continued increase in global Ecommerce penetration, the expansion of DFD ~~doors,~~Doors, and successful leverage of limited time offers and promotions.

Our Market Development segment net revenue grew ~~$5.5~~$11.0 million, or approximately ~~9.7%~~13.7%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, driven mainly by the acquisition of KK Japan in the final quarter of fiscal 2020. Market Development organic revenue grew ~~$5.1~~$9.4 million, or approximately ~~9.0%~~11.7%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, driven mainly by improved market conditions for international franchise locations as COVID-19 restrictions in certain key markets began to ease.

Product and distribution costs (exclusive of depreciation and amortization): Product and distribution costs increased ~~$27.9~~$34.8 million, or ~~20.4%~~15.6%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, largely in line with and attributable to the same factors as our revenue growth.

Product and distribution costs as a percentage of revenue decreased by approximately 250 basis points from ~~27.1%~~27.9% in the first ~~two~~three quarters of fiscal 2020 to ~~24.6%~~25.4% in the first ~~two~~three quarters of fiscal 2021. ~~The~~This margin improvement was primarily driven by the U.S. and Canada segment, which benefited from higher margins from its DFD business ~~contributed~~due to the ~~basis point improvement~~shift to fresh doughnut sales from the legacy wholesale business. In addition, margins improved as ~~in the first two quarters of fiscal 2020 we had one time costs associated with launching our Branded Sweet Treat Line that was not yet operational at the beginning~~a result of the ~~second quarter~~sales mix shift due to the impact of ~~fiscal 2020.~~franchise acquisitions.

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Operating expenses: Operating expenses increased ~~$85.4~~$120.9 million, or ~~38.8%~~35.4%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, driven mainly by franchise acquisitions and ~~new shop openings.~~labor investments.

Operating expenses as a percentage of revenue increased approximately ~~200~~270 basis points, from ~~43.5%~~42.9% in the first ~~two~~three quarters of fiscal 2020 to ~~45.5%~~45.6% in the first ~~two~~three quarters of fiscal 2021 driven mainly by the impact of ~~franchisee~~franchise acquisitions, such as KK Japan, which resulted in additional operating expenses ~~which~~which are needed to run ~~company-owned~~Company-owned operations versus franchises. ~~This was particularly evident in the Market Development segment where the acquisition of KK Japan contributed to an increase of approximately $11.6 million of operating expenses.~~ Additionally, we ~~have invested~~incurred higher labor costs in labor to drive expansion of DFD points of access and to accommodate staffing for our post-COVID-19 recovery. As COVID-19 restrictions lift, the business is incurring more overtime costs and training costs ~~as the shops work to meet the demand driven by the increase in foot traffic. This is contrasted with a first two quarters of fiscal 2020 which saw labor reductions~~part due to ~~temporary shop closures.~~

~~Table~~labor needed to support the Hub and Spoke model transformation and labor investments as a result of ~~Contents~~the current labor markets around the world.

Selling, general and administrative expense: Selling, general and administrative expenses increased ~~$27.9~~$34.3 million, or ~~33.8%~~26.6%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021. The increase was driven mainly by an increase in costs related to the ~~preparation for~~completion of our IPO ($~~10.2~~14.2 million), increased sha~~increased share-based~~re-based compensation expense related to the accelerated vesting of certain employee restricted stock units in conjunction with the IPO (as well as the re-loading of executive units and stock options during the second quarter of fiscal 2021), and by SG&A expenses incurred ~~by franchise shops acquired subsequent~~related to the ~~second quarter~~impact of ~~fiscal 2020 ($7.6 million).~~franchise acquisitions. As a percentage of revenue, SG&A expenses ~~increased~~decreased approximately 2010 basis points, from ~~16.3%~~16.2% in the first ~~two~~three quarters of fiscal 2020 to ~~16.5%~~16.1% in the first ~~two~~three quarters of fiscal 2021 primarily ~~because~~due to economies of ~~the impacts described prior, which were offset by~~scale from our top-line revenue ~~growth for Insomnia Cookies and the International segment out-pacing expenses.~~growth.

Marketing expenses: Marketing expenses increased ~~$2.9~~$6.9 million, or ~~17.2%~~28.0%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, primarily driven by spend associated with the increased revenues during the ~~two~~three quarters.

Pre-opening costs: Pre-opening costs decreased ~~$3.2~~$5.3 million, or ~~50.1%~~55.2%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, primarily driven by ~~$2.4~~$3.6 million ~~pre-opening expenses~~costs associated with our expansion in NYC in the second half of fiscal 2020, including expenses incurred as we prepared for the opening of our NYC flagship Hot Light Theater Shop ~~later in~~near the end of the third quarter of fiscal 2020.

Other (income)/expenses, net: Other income, net of ~~$4.0~~$4.4 million in the first ~~two~~three quarters of fiscal 2021 was primarily driven by one-time COVID-19 related business interruption insurance proceeds of approximately $3.5 million ~~in the U.K./Ireland~~for KKUK in the first quarter of fiscal 2021.

Depreciation and amortization expense: Depreciation and amortization expense increased ~~$11.4~~$16.6 million, or ~~30.7%~~28.9%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, primarily driven by the impact of acquired franchises and depreciation resulting from increased capital expenditures.

Interest expense - related party: Interest expense with related parties decreased ~~$0.7~~$6.3 million, or ~~6.7%~~37.8% from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, driven by paying off our Related Party Notes in full with KK GP during the second quarter of fiscal 2021.

Income tax expense/(benefit): Income tax expense of ~~$10.6~~$8.3 million in the first ~~two~~three quarters of fiscal 2021 was driven by the revaluation of U.K. deferred taxes as a result of the increase in the corporate tax rate from 19.0% to 25.0% beginning in 2023 and disallowed executive compensation in connection with the IPO. ~~The Company’s~~Our tax expense was also impacted by the mix of income between the U.S. and foreign jurisdictions.

Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest for the first ~~two~~three quarters of fiscal 2021 increased ~~$3.3~~$3.9 million, or ~~219.4%~~133.9%, from the first ~~two~~three quarters of fiscal 2020, reflecting stronger earnings allocated to the shareholders of consolidated subsidiaries, particularly, Insomnia Cookies, WKS Krispy Kreme and ~~the U.K./Ireland.~~

KKUK.

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Results of Operations by Segment – ~~Two~~Three Quarters ended ~~July 4,~~October 3, 2021 compared to the ~~Two~~Three Quarters ended ~~June 28,~~September, 27 2020

The following table presents Adjusted EBITDA by segment for the periods indicated:


		Two Quarters Ended				Change					Three Quarters Ended				Change
(in thousands except percentages)	(in thousands except percentages)	July 4, 2021		June 28, 2020		$		%		(in thousands except percentages)	October 3, 2021		September 27, 2020		$		%
Adjusted EBITDA	Adjusted EBITDA									Adjusted EBITDA
U.S. and Canada	U.S. and Canada	$	55,848	$	49,188	$	6,660	13.5	%	U.S. and Canada	$	75,760	$	69,216	$	6,544	9.5	%
International	International	39,021		12,811		26,210		204.6	%	International	60,676		27,909		32,767		117.4	%
Market Development	Market Development	20,749		18,585		2,164		11.6	%	Market Development	29,782		27,959		1,823		6.5	%
Corporate	Corporate	(16,822)		(14,671)		(2,151)		14.7	%	Corporate	(26,005)		(21,386)		(4,619)		-21.6	%
Total Adjusted EBITDA (1)	Total Adjusted EBITDA (1)	$	98,796	$	65,913	$	32,883	49.9	%	Total Adjusted EBITDA (1)	$	140,213	$	103,698	$	36,515	35.2	%

1. Refer to “Key Performance Indicators and Non-GAAP Measures” above for a reconciliation of Adjusted EBITDA to net loss.

U.S. and Canada Adjusted EBITDA increased ~~$6.7~~$6.5 million, or ~~13.5%~~9.5%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, primarily driven by the revenue growth of ~~27.8%~~21.9%. Our strategic expansion of the DFD programs contributed to this growth with added points of access. As the DFD business continues to grow it will become even more impactful on profitability in future quarters. The Insomnia Cookies business saw significant EBITDA margin expansion compared to the first ~~two~~three quarters of fiscal 2020 due to the top-line revenue ~~growth.~~growth aided by a return of activity to college campuses. This offset some margin decline for the Krispy Kreme U.S. and Canada business which was impacted by increased near-term costs, primarily related to a challenging labor and ~~training, as well as our investments in labor to drive expansion of our DFD points of access.~~commodity environment. The Krispy Kreme U.S. and Canada business also saw increased occupancy costs as a percentage of revenue in part due to NYC rents (including Times Square), and incremental costs from our Branded Sweet Treat Line (initiatives ~~which~~that currently have higher operational expenses compared to the prior comparative period that have not yet been absorbed by the sales generated). ~~Towards the end of~~ ~~the second quarter of fiscal~~ ~~2021 we began to see improved margins~~Overall for ~~the Krispy Kreme~~ U.S. and Canada, ~~business related to the NYC market along with the Branded Sweet Treats Line which, coupled with continued growth of the DFD business should contribute to~~we believe our long-term EBITDA margin ~~expansion~~outlook remains strong as ~~these businesses mature.~~we see the efforts of our transformation emerging.

International Adjusted EBITDA increased ~~$26.2~~$32.8 million, or ~~204.6%~~117.4%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021, primarily driven by revenue growth of ~~63.8%~~53.2% due to strong DFD performance as well as widespread impacts of the COVID-19 pandemic on our international markets during 2020, particularly in the ~~U.K./~~United Kingdom and Ireland. ~~The U.K. government eased COVID-19 restrictions during~~As of the ~~second~~end of the third quarter of fiscal 2021 ~~allowing for in-shop dining.~~all shops in the United Kingdom, Ireland, and Mexico were operational. We expect the International segment to continue to contribute to strong EBITDA performance as the markets have rebounded well to match (or exceed) their performance prior to the pandemic. Additionally, during the first quarter of fiscal 2021, ~~the U.K./Ireland~~KKUK received one-time insurance proceeds of $3.5 million which helped to offset continued COVID-19 ~~impacts during the first quarter of fiscal 2021.~~impacts.

Market Development Adjusted EBITDA increased ~~$2.2~~$1.8 million, or ~~11.6%~~6.5%, from the first ~~two~~three quarters of fiscal 2020 to the first ~~two~~three quarters of fiscal 2021 driven mainly by improved market conditions for international franchise locations as COVID-19 restrictions in certain key markets continued to ease.

Capital Resources and Liquidity

Our principal sources of liquidity to date have included cash from operating activities, cash on hand, amounts available under our credit facility, and commercial trade financing including our ~~SCF Program (as defined below).~~“Supply Chain Financing Program” or the “SCF Program.” Our primary use of liquidity is to fund the cash requirements of our business operations, including working capital needs, capital expenditures, acquisitions and other commitments.

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Our future obligations primarily consist of our debt and lease obligations, as well as commitments under ingredient and other forward purchase contracts. As of January 3, 2021, we had the following future obligations:

• An aggregate principal amount of $806.3 million outstanding under the 2019 Facility;

• An aggregate principal amount of $337.1 million outstanding under the Related Party Notes;

• Non-cancellable future minimum operating lease payments totaling $645.0 million;

• Non-cancellable future minimum finance lease payments totaling $43.7 million; and

• Purchase commitments under ingredient and other forward purchase contracts of $48.3 million.

As of ~~July 4,~~October 3, 2021, our outstanding principal amount under the 2019 Facility was ~~$643.8~~$700.0 million. The reduction from the balance as of January 3, 2021 included a net paydown of ~~$145.0~~$80.0 million on the revolving credit facility and cumulative quarterly term loan repayments of ~~$17.5~~$26.3 million, which were funded mainly by capital contributions from shareholders and other minority interests in the ~~second quarter of fiscal 2021.~~

On June 10, 2021, we entered into the Term Loan Facility. On June 17, 2021, we borrowed $500.0 million under the Term Loan Facility. The borrowings under the Term Loan Facility bore an all-in interest rate of 2.68175%. As of July 4, 2021, our outstanding principal amount under the Term Loan Facility was $500.0 million. The Term Loan Facility was subsequently paid off in full and terminated on July 7, 2021, primarily using the net IPO proceeds with the difference being partially funded by a drawdown of $100.0 million on the 2019 Facility’s revolving credit facility. The Term Loan Facility would have matured on the earlier of (i) June 10, 2022 and (ii) within four business days following consummation of the IPO. The principal outstanding under the Term Loan Facility is presented within Current portion of long-term debt on the Condensed Consolidated Balance Sheet as of July 4, 2021.

~~As of July 4, 2021, we had no outstanding amount payable under the Related Party Notes as the balance was paid off in full in the second quarter~~first three quarters of fiscal 2021.

We had cash and cash equivalents of $37.5 million as of January 3, 2021 and ~~$37.4~~$44.9 million as of ~~July 4,~~October 3, 2021. We believe that our existing cash and cash equivalents and debt facilities will be sufficient to fund our operating and capital needs for at least the next twelve months. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on, many factors, including our growth rate, the timing and extent of spending to acquire franchises, the growth of our presence in new markets and the expansion of our omni-channel model in existing markets. We may enter into arrangements in the future to acquire or invest in complementary businesses, services and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected.

Cash Flows

We generate significant cash from operations and have substantial credit availability and capacity to fund operating and discretionary spending such as capital expenditures and debt repayments. Our requirement for working capital is not significant because our ~~customers~~consumers pay us in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the vendor of such items. The following table and discussion present, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities:

Two Quarters Ended
(in thousands) July 4,
2021 June 28,
2020
Net cash provided by operating activities $ 56,845 $ 13,936
Net cash used for investing activities (86,261) (40,705)
Net cash provided by financing activities 30,553 215,254

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	Three Quarters Ended
(in thousands)	October 3, 2021		September 27, 2020
Net cash provided by operating activities	$	98,788	$	30,752
Net cash used for investing activities	(116,716)		(125,322)
Net cash provided by financing activities	27,360		122,586

Cash Flows Provided by Operating Activities

Cash provided by operations totaled ~~$56.8~~$98.8 million for the first ~~two~~three quarters of fiscal 2021, an increase of ~~$42.9~~$68.0 million compared with the amount for the first ~~two~~three quarters of fiscal 2020. Cash provided by operations increased primarily due to operating results producing a smaller net loss in the first ~~two~~three quarters of fiscal 2021 due in part to impacts on business operations during the COVID-19 pandemic in the first ~~two~~three quarters of fiscal 2020. The increase also reflected an improvement of approximately ~~$6.9~~$12.4 million from working capital management primarily as a result of changes in accounts receivable and inventories balances.

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We have undertaken broad efforts to improve our working capital position and cash generation, in part by negotiating longer payment terms with vendors. We have an agreement with a third-party administrator which allows participating vendors to track our payments, and if voluntarily elected by the vendor, to sell payment obligations from us to financial institutions ~~(the “Supply Chain Financing Program” or the “SCF Program”).~~as part of our SCF Program. Our typical payment terms for trade payables range up to 180 days outside of the SCF Program, depending on the type of vendors and the nature of the supplies or services. For vendors under the SCF Program, we have established payable terms ranging up to, but not exceeding, 360 days. When participating vendors elect to sell one or more of our payment obligations, our rights and obligations to settle the payables on their contractual due date are not impacted. We have no economic or commercial interest in a vendor’s decision to enter into these agreements and the financial institutions do not provide us with incentives such as rebates or profit sharing under the SCF Program. We agree on commercial terms with vendors for the goods and services procured, which are consistent with payment terms observed at other peer companies in the industry, and as the terms are not impacted by the SCF Program, such obligations are classified as trade payables. Our increased use of the SCF programs has continued through the ~~two~~three quarters ended ~~July 4,~~October 3, 2021.

Cash Flows Used for Investing Activities

Cash used for investing activities totaled ~~$86.3~~$116.7 million for the first ~~two~~three quarters of fiscal 2021, ~~an increase~~a decrease in investment of ~~$45.6~~$8.6 million compared with the first ~~two~~three quarters of fiscal 2020. The ~~increase~~decrease is primarily due to ~~$33.9~~$59.7 million cash used for acquisitions of franchised shops in the first ~~two~~three quarters of fiscal ~~2021~~2020 (compared to no$33.9 million cash used for acquisitions completed in the first ~~two~~three quarters of fiscal ~~2020) and~~2021), offset by an incremental ~~$8.7~~$14.1 million of property and equipment ~~purchases.~~purchases in the first three quarters of fiscal 2021.

Cash Flows Provided by Financing Activities

Cash provided by financing activities totaled ~~$30.6~~$27.4 million for the first ~~two~~three quarters of fiscal 2021, a decrease of ~~$184.7~~$95.2 million compared with the first ~~two~~three quarters of fiscal 2020. The decrease was mainly driven by a ~~$260.0~~variance of $84.1 million ~~draw down on the revolving credit facility during the first quarter of fiscal 2020, which was~~cash flows related to ~~cash preservation at the onset~~structured payables programs (net payments on structured payables of ~~the COVID-19 pandemic, offset by a combined $97.5~~$28.1 million ~~repayment of long-term debt and lease obligations~~ in the ~~first two~~three quarters ended October 3, 2021 compared to net proceeds from structured payables of ~~fiscal 2020. As described above,~~$55.9 million in the ~~first two~~three quarters ~~of fiscal 2021,~~ended September 27, 2020), as we ~~had a net $162.5 million outflow relating~~utilized excess cash to ~~the 2019 Facility and paid~~pay off ~~the entire $337.1 million~~ outstanding principal balance of the Related Party Notes. Additionally, shareholders and noncontrolling interests contributed $174.2 million of capital, partially offset by $40.4 million of distributions and $102.7 million of share repurchases. We also entered into the $500.0 million Term Loan Facility agreement, which was subsequently paid off in full on July 7, 2021 using the IPO proceeds and additional funding under the 2019 Facility.

balances. We utilize various card products issued by financial institutions to facilitate purchases of goods and services. By using these products, we may receive differing levels of rebates based on timing of repayment. The payment obligations under these cards products are classified as structured payables on our Condensed Consolidated Balance Sheets and the associated cash flows are included in the financing section of our Condensed Consolidated Statement of Cash Flows. ~~During~~

Other highlights from the ~~two~~three quarters ended ~~July 4, 2021, and June 28, 2020, the cash generated under the various purchase cards was $2.5 million and $37.7 million, respectively.~~

~~Debt~~

~~Related Party Notes~~

• Repayments of long-term debt and lease obligations (net of proceeds from the ~~outstanding amount~~issuance of ~~principal and interest was $344.6 million. The~~debt) of $447.6 million, which included the extinguishment of the Related Party Notes ~~were paid off in full during~~and the ~~second~~Term Loan Facility described further below;

• Proceeds from investments by shareholders of $701.2 million, including receipt of $527.3 million IPO proceeds net of underwriting discounts (but excluding $12.5 million capitalized offering expenses unpaid as of the end of the third quarter of fiscal ~~2021. The interest expense was $4.8 million~~2021); and ~~$10.4 million~~

• Distributions to shareholders and payments for the ~~quarter~~repurchase and ~~two quarters ended July 4, 2021, respectively, and $5.6 million and $11.1 million for the quarter and two quarters ended June 28, 2020, respectively.~~retirement of common stock of $198.1 million.

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~~Term Loan Facility~~Debt

On June 10, 2021, we entered into the Term Loan Facility. On June 17, 2021, we borrowed $500.0 million under the Term Loan Facility. The borrowings under the Term Loan Facility bore an all-in interest rate of 2.68175%. As of July 4, 2021, our outstanding principal amount under the Term Loan Facility was $500.0 million. The Term Loan Facility was subsequently paid off in full and terminated on July 7, 2021, primarily using the net IPO proceeds with the difference being partially funded by a drawdown of $100.0 million on the 2019 Facility’s revolving credit facility. The Term Loan Facility would have matured on the earlier of (i) June 10, 2022 and (ii) within four business days following consummationOur long-term debt obligations consist of the ~~IPO. The interest expense was $2.3 million for the quarter and two quarters ended July 4, 2021, which included $1.7 million of debt issuance costs incurred and recognized as expenses.~~following:


(in thousands)	October 3, 2021		January 3, 2021
2019 Facility - term loan	$	630,000	$	656,250
2019 Facility - revolving credit facility	70,000		150,000
Less: Debt issuance costs	(4,229)		(5,419)
Financing obligations	25,513		26,224
Total long-term debt	721,284		827,055
Less: Current portion of long-term debt	(38,608)		(41,245)
Long-term debt, less current portion	682,676		785,810
Related party notes payable (excluding accrued interest)	—		337,148
Total debt and related party notes payable	$	682,676	$	1,122,958

2019 Facility

On June 13, 2019, we entered into a credit agreement (the “2019 Facility”). The 2019 Facility provides for senior secured credit facilities in the form of $700.0 million in aggregate principal of term loans and $300.0 million of revolving capacity. Borrowings under the 2019 Facility are subject to an interest rate of one-month LIBOR plus 2.25% if our Total Net Leverage Ratio (as defined in the 2019 Facility) equals or exceeds 4.00 to 1.00, 2.00% if our Total Net Leverage Ratio is less than 4.00 to 1.00 but greater than or equal to 3.00 to 1.00 or 1.75% if our Total Net Leverage Ratio is less than 3.00 to 1.00, as determined under the 2019 Facility. We are required to make equal installments of 1.25% of the aggregate closing date principal amount of the term loans on the last business day of each fiscal quarter. All remaining term loan and revolving loan balances are to be due five years from the initial closing date.

Under the terms of the 2019 Facility, we are subject to a requirement to maintain a Total Net Leverage Ratio of less than 5.50 to 1.00 as of ~~July 4,~~October 3, 2021, which reduces to 5.00 to 1.00 by April 2, 2023. The Total Net Leverage Ratio under the 2019 Facility is defined as the ratio of (a) Total Indebtedness (as defined in the 2019 Facility, which includes all debt and finance lease obligations) minus unrestricted cash and cash equivalents to (b) a defined calculation of ~~adjusted~~Adjusted EBITDA (“2019 Facility Adjusted EBITDA”) for the most recently ended Test Period (as defined in the 2019 Facility). The 2019 Facility Adjusted EBITDA for purposes of these restrictive covenants includes incremental adjustments beyond those included in our Adjusted EBITDA non-GAAP measure. Specifically, the 2019 Facility Adjusted EBITDA definition includes pro forma impact of EBITDA to be received from new shop openings and acquisitions for periods not yet in operation, certain acquisition related synergies and cost optimization activities and incremental add-backs for pre-opening costs and for COVID-19 expenses and lost profits. Our Total Net Leverage Ratio was 3.19 to 1.00 as of the end of the third quarter of fiscal 2021 compared to 2.92 to 1.00 as of the end of the second quarter of fiscal 2021, ~~compared to 3.98 to 1.00 as of the end of fiscal 2020,~~ primarily due to certain IPO-related costs which were paid during the ~~favorable impact~~third quarter of ~~capital contributions from shareholders in 2021.~~fiscal 2021, including share repurchases and distributions to shareholders.

We were in compliance with the financial and other covenants related to the 2019 Facility as of ~~July 4,~~October 3, 2021 and expect to remain in compliance over the next 12 months. If we are unable to meet the 2019 Facility financial or other covenants in future periods, it may negatively impact our liquidity by limiting our ability to draw on the revolving credit facility, could result in the lenders accelerating the maturity of such indebtedness and foreclosing upon the collateral pledged thereunder, and could require the replacement of the 2019 Facility with new sources of financing, which there is no guaranty we could secure.

AtRelated Party Notes

We were previously party to a senior unsecured note agreement with KK GP for an aggregate principal amount of $283.1 million. In April 2019, we entered into an additional unsecured note with KK GP for $54.0 million (such notes together, the ~~beginning~~“Related Party Notes”). As of January 3, 2021, the ~~third~~outstanding amount of principal and interest was $344.6 million. The Related Party Notes were paid off in full during the second quarter of fiscal 2021. The interest expense was $10.4 million for the quarter and three quarters ended October 3, 2021, and $5.6 million and $16.7 million for the quarter and three quarters ended September 27, 2020. No interest expense was incurred for the quarter ended October 3, 2021.

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Term Loan Facility

On June 10, 2021, we ~~amended~~entered into the Term Loan Facility. On June 17, 2021, we borrowed $500.0 million under the Term Loan Facility. The borrowings under the Term Loan Facility bore an all-in interest rate of 2.68175%. As of October 3, 2021, there was no outstanding principal amount under the Term Loan Facility, as it was paid off in full and terminated on July 7, 2021, primarily using the net IPO proceeds with the difference being partially funded by a drawdown of $100.0 million on the 2019 Facility’s revolving credit facility. The Term Loan Facility ~~to allow for financial reporting at~~would have matured on the ~~KKI legal entity level~~earlier of (i) June 10, 2022 and ~~to allow for KKI to be guarantor~~(ii) within four business days following consummation of the ~~obligations~~IPO. The interest expense was $0.1 million and $2.4 million for the quarter and three quarters ended October 3, 2021, respectively, which included $1.7 million of ~~its subsidiary KKDI under~~debt issuance costs incurred and recognized as expenses in the ~~2019 Facility.~~second quarter of fiscal 2021.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q have been prepared in conformity with U.S. GAAP. The preparation of the Condensed Consolidated Financial Statements requires the use of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our Condensed Consolidated Financial Statements. Actual results could differ from the estimates made by management.

There have been no material changes to our critical accounting policies and estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our IPO Prospectus.

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New Accounting Pronouncements

Refer to Note 1 to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, for a detailed description of recent accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Effects of Changing Prices – Inflation

We are exposed to the effects of commodity price fluctuations in the cost of ingredients of our products, of which flour, sugar and shortening are the most significant. During the third quarter of fiscal 2021 we have experienced headwinds from commodity inflation globally. We have ~~demonstrated an ability~~undertaken efforts to effectively manage inflationary cost increases ~~effectively due to~~through rapid inventory turnover and reduced inventory waste, increased focus on resiliency of our supply chains, and an ability to adjust pricing of our products ~~and~~(including price increases taking effect at the end of the third quarter of fiscal 2021). Additionally, from time to time we may enter into forward contract for supply through our vendors for raw materials which are ingredients of our products or which are components of such ingredients, including wheat and soybean oil.

We are also exposed to the effects of commodity price fluctuations in the cost of gasoline used by our delivery vehicles. To mitigate the risk of fluctuations in the price of our gasoline purchases, we may directly purchase commodity futures contracts.

Interest Rate Risk

We are exposed to changes in interest rates on any borrowings under our debt facilities, which bear interest based on the one-month LIBOR (with a floor of zero). Generally, interest rate changes could impact the amount of our interest paid and, therefore, our future earnings and cash flows, assuming other factors are held constant. To mitigate the impact of changes in LIBOR on interest expense for a portion of our variable rate debt, we have entered into interest rate swaps on $505.0 million notional of our ~~$643.8~~$700.0 million of outstanding debt under the 2019 Facility as of ~~July 4,~~October 3, 2021, which we account for as cash flow hedges. Based on the ~~$138.8~~$195.0 million of unhedged outstanding as of ~~July 4,~~October 3, 2021, a 100 basis point increase in the one-month LIBOR would result in a ~~$1.4~~$2.0 million increase in interest expense for a twelve-month period, while a 100 basis point decrease would result in the floor of zero and thus a decrease in interest expense of $0.2 million for a twelve-month period based on the daily average of the one-month LIBOR through the fiscal quarter ended ~~July 4,~~October 3, 2021.

The Financial Conduct Authority in the U.K. intends to phase out LIBOR by the end of 2023. We have negotiated terms in consideration of this discontinuation and do not expect that the discontinuation of the LIBOR rate, including any legal or regulatory changes made in response to its future phase out, will have a material impact on our liquidity or results of operations.

Foreign Currency Risk

We are exposed to foreign currency translation risk on the operations of our subsidiaries that have functional currencies other than the U.S. dollar, whose revenues accounted for approximately ~~23%~~27% of our total net revenues ~~for fiscal 2020.~~through the three quarters ended October 3, 2021. A substantial majority of these revenues, or approximately ~~$230.2~~$275.1 million through the three quarters ended October 3, 2021, were attributable to subsidiaries whose functional currencies are the British pound sterling, the Australian dollar, the Mexican peso, and the ~~Mexican peso.~~Japanese yen. A 10% increase or decrease in the average fiscal ~~2020~~2021 exchange rate of the British pound sterling, the Australian dollar, ~~and~~ the Mexican peso and the Japanese yen against the U.S. dollar would have resulted in a decrease or increase of approximately ~~$23.0~~$27.5 million in our ~~fiscal 2020~~ total net ~~revenues.~~revenues through the three quarters ended October 3, 2021.

From time to time, we engage in foreign currency exchange and credit transactions with our non-U.S. subsidiaries, which we typically hedge. To date, the impact of such transactions, including the cost of hedging, has not been material. We do not engage in foreign currency or hedging transactions for speculative purposes.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of ~~July 4,~~October 3, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

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There were no changes during the fiscal quarter ended ~~July 4,~~October 3, 2021 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of conducting our business, we have in the past and may in the future become involved in various legal actions and other claims. We may also become involved in other judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Some of these matters may involve claims of substantial amounts. These legal proceedings may be subject to many uncertainties and there can be no assurance of the outcome of any individual proceedings. We do not presently anticipate any material legal proceedings that, if determined adversely to us, would have a material adverse effect on our financial position, results of operations or cash flows. See Note 1 010, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for information regarding certain legal proceedings in which we are involved.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in our IPO Prospectus for the year ended January 3, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 1, 2021 we completed the IPO of our Class A common stock, $0.01 par value, pursuant to our Registration Statement on Form S-1, as amended (No. 333-256664) that was declared effective on June 30, 2021. We sold 29,411,765 shares in the offering at a price to the public of $17.00 per share. The lead book-running managers in the offering were J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, BofA Securities, Inc. and Citigroup Global Markets Inc.

The net proceeds received by us in the offering were ~~$459.7~~$458.8 million.

None of the underwriting discounts and commissions or offering expenses were incurred or paid to our directors or officers or their associates or to persons owning 10% or more of our common stock or to any affiliates of ours. ~~Subsequent to~~In the quarter ended ~~July 4,~~October 3, 2021 we used the net proceeds of the offering along with additional borrowings under our 2019 Facility revolving credit facility as follows: (i) $500.0 million to repay all of the outstanding indebtedness under the Term Loan Facility, (ii) $20.3 million to repurchase approximately 1.3 million shares of common stock from certain of our executive officers at the price to be paid by the underwriters and (iii) $15.5 million to repurchase approximately 1.0 million shares of common stock from certain of our executive officers for payment of their withholding taxes with respect to the RSUs vesting or for which vesting was accelerated in connection with the offering.

On August 2, 2021 the underwriters exercised their over-allotment option and purchased an additional 3,500,000 shares of common stock at the IPO price less the underwriting discounts and commissions. The net proceeds received on August 2, 2021 were $56.1 million after deducting underwriting discounts and commissions of $3.4 million. This brought total net IPO proceeds to ~~$515.8~~$514.9 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

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Exhibit No.						Description of Exhibit

3.1*3.1						Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q, File number 001-40573, filed on August 18, 2021, and ~~RestatedCertificate~~of ~~Incorporation~~of th e ~~Registrant~~ incorporated by reference herein).

3.2*3.2						Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q, File number 001-40573, filed on August 18, 2021, and ~~RestatedBylaws~~of ~~theRegistrant~~ incorporated by reference herein).

10.1						~~Term Loan Agreement,~~Master Amendment No. 1, dated ~~June 10,~~as of July 8, 2021, among Cotton Parent, Inc., Krispy Kreme ~~Holdings,~~Doughnuts, Inc., ~~as borrower,~~the other guarantors party thereto, the lenders party thereto ~~JPMorgan Chase Bank,~~and Citibank, N.A., as administrative agent ~~and Morgan Stanley Senior Funding, Inc. and Santander Bank, N.A., as joint lead arrangers and joint bookrunners~~ (filed as Exhibit ~~10.~~4 10.1 to the Registrant’s ~~Registration Statement~~Current Report on Form ~~S-1/A,~~8-K, File number ~~333-256664~~,001-40573, filed on ~~June 22,~~July 1 3 , 2021, and incorporated by reference herein).

10.2						~~Form~~Joinder to Credit Agreement, dated as of ~~Share Repurchase Agreement~~July 8, 2021, between Krispy Kreme, Inc. and Citibank, N.A., as administrative agent (filed as Exhibit ~~10.7~~10.2 to the Registrant’s ~~Registration Statement~~Current Report on Form ~~S-1/A,~~8-K, File number ~~333-256664,~~001-40573, filed on ~~June 22,~~July 1 3 , 2021, and incorporated by reference herein).

~~10.3~~						Krispy Kreme, Inc. 2021 Omnibus Incentive Plan (filed as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1/A, File number 333-256664, filed on June 22, 2021, and incorporated by reference herein).

~~10.4~~						~~Employee Stock Purchase Plan (filed as Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1/A, File number 333-256664, filed on June 22, 2021, and incorporated by reference herein).~~

31.1*						Certification of Chief Executive Officer of Krispy Kreme, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.

31.2*						Certification of Chief Financial Officer of Krispy Kreme, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.

32.1**						Certifications of Chief Executive Officer and Chief Financial Officer of Krispy Kreme, Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~July 4,~~October 3, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income/(Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).



*			Filed herewith.
**			Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North Carolina on ~~August 17,~~November 9, 2021.


Krispy Kreme, Inc.

By:			/s/ Josh Charlesworth
Name:			Josh Charlesworth
Title:			Chief Financial Officer

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	Quarter Ended		Year Ended
	July 4, 2021		January 3, 2021
KKI
Risk-free interest rate	1.3	%	0	%
Expected volatility	34.4	%	0	%
Dividend yield	1.0	%	0	%
Expected term (years)	6.8 years		—