Washington, D.C. 20549
______________
Form 10-K/A
(Mark one) | |||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) | ||
OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the fiscal year ended January 31, 2010 | |||
OR | |||
o | 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 001-16485
KRISPY KREME DOUGHNUTS, INC.
(Exact name of registrant as specified in its charter)
KRISPY KREME DOUGHNUTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina | 56-2169715 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
370 Knollwood Street, | 27103 |
Winston-Salem, North Carolina | (Zip Code) |
(Address of principal executive offices) | |
Registrant’s telephone number, including area code: | |
(336) 725-2981 | |
Securities registered pursuant to Section 12(b) of the Act: | |
Name of | |
Each Exchange | |
On Which | |
Title of Each Class | Registered |
Common Stock, No Par Value | New York Stock Exchange |
Preferred Share Purchase Rights | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of voting and non-voting common equity of the registrant held by nonaffiliates of the registrant as of August 2, 2009 was $205.5 million.
Number of shares of Common Stock, no par value, outstanding as of June 25, 2010: 67,440,796.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement for the registrant’s 2010 Annual Meeting of Shareholders to be held on June 22, 2010 are incorporated by reference into Part III hereof.
EXPLANATORY NOTE
This Form 10-K/A (“Amendment No. 1”) amends the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2010, filed with the Securities and Exchange Commission on April 15, 2010 (the “Original Report”). The purpose of this Amendment No. 1 is to amend the following items in the Original Report:
1. | Item 6, “Selected Financial Data,” is amended to correct the caption “Income (loss) before income taxes,” which was erroneously labeled “Income (loss) from continuing operations before income taxes” in the Original Report. | ||
2. | Item 15(a)(3), “Exhibits,” is amended to provide the consent of KPMG Cardenas Dosal, S.C. | ||
3. | Item 15(c)(2), “Separate Financial Statements of 50 Percent or Less Owned Persons,” is amended to provide the consolidated financial statements of Krispy Kreme Mexico, S. de R. L. de C. V. as of December 31, 2009 and 2008, and for each of the years in the three-year period ended December 31, 2009, together with the report thereon of KPMG Cardenas Dosal, S.C. on such consolidated financial statements as of and for the year ended December 31, 2009. |
This Amendment No. 1 has no effect on the Registrant’s consolidated financial statements. Except as described above, this amendment does not amend, update or change any other items or disclosures contained in the Original Report or otherwise reflect events that occurred subsequent to the filing of the Original Report.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Original Report, have been amended, restated and re-executed as of the date of this Amendment No. 1 and are included as Exhibits 31.1, 31.2, 32.1 and 32.2 hereto.
Item 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Company’s consolidated financial statements appearing elsewhere herein.
Year Ended | ||||||||||||||||||||
Jan. 31, | Feb. 1, | Feb. 3, | Jan. 28, | Jan. 29, | ||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands, except per share and number of stores data) | ||||||||||||||||||||
STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||
Revenues | $ | 346,520 | $ | 385,522 | $ | 430,370 | $ | 461,195 | $ | 543,361 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct operating expenses (exclusive of | ||||||||||||||||||||
depreciation shown below) | 297,185 | 346,545 | 381,065 | 389,379 | 474,591 | |||||||||||||||
General and administrative expenses | 22,728 | 23,458 | 26,303 | 48,860 | 67,727 | |||||||||||||||
Depreciation and amortization expense | 8,191 | 8,709 | 18,433 | 21,046 | 28,920 | |||||||||||||||
Impairment charges and lease termination costs | 5,903 | 548 | 62,073 | 12,519 | 55,062 | |||||||||||||||
Settlement of litigation | — | — | (14,930 | ) | 15,972 | 35,833 | ||||||||||||||
Other operating (income) and expenses, net | 739 | 1,501 | 13 | 1,916 | (1,741 | ) | ||||||||||||||
Operating income (loss) | 11,774 | 4,761 | (42,587 | ) | (28,497 | ) | (117,031 | ) | ||||||||||||
Interest income | 93 | 331 | 1,422 | 1,627 | 1,110 | |||||||||||||||
Interest expense | (10,685 | ) | (10,679 | ) | (9,796 | ) | (20,334 | ) | (20,211 | ) | ||||||||||
Loss on extinguishment of debt | — | — | (9,622 | ) | — | — | ||||||||||||||
Equity in losses of equity method franchisees | (488 | ) | (786 | ) | (933 | ) | (842 | ) | (4,337 | ) | ||||||||||
Other non-operating income and (expense), net | (276 | ) | 2,815 | (3,211 | ) | 7,021 | (248 | ) | ||||||||||||
Income (loss) before income taxes | 418 | (3,558 | ) | (64,727 | ) | (41,025 | ) | (140,717 | ) | |||||||||||
Provision for income taxes (benefit) | 575 | 503 | 2,324 | 1,211 | (776 | ) | ||||||||||||||
Net loss | ( | 157 | ) | ( | 4,061 | ) | ( | 67,051 | ) | ( | 42,236 | ) | ( | 139,941 | ) | |||||
Net loss attributable to noncontrolling interests | — | — | — | — | 4,181 | |||||||||||||||
Net loss attributable to Krispy Kreme Doughnuts, Inc. | ($ | 157 | ) | ($ | 4,061 | ) | ($ | 67,051 | ) | ($ | 42,236 | ) | ($ | 135,760 | ) | |||||
Net loss per common share: | ||||||||||||||||||||
Basic | $ | — | ($ | .06 | ) | ($ | 1.05 | ) | ($ | .68 | ) | ($ | 2.20 | ) | ||||||
Diluted | $ | — | ($ | .06 | ) | ($ | 1.05 | ) | ($ | .68 | ) | ($ | 2.20 | ) | ||||||
BALANCE SHEET DATA (AT END OF YEAR): | ||||||||||||||||||||
Working capital (deficit)(1) | $ | 21,550 | $ | 36,190 | $ | 32,862 | ($ | 3,052 | ) | ($ | 6,894 | ) | ||||||||
Total assets | 165,276 | 194,926 | 202,351 | 349,492 | 410,855 | |||||||||||||||
Long-term debt, less current maturities | 42,685 | 73,454 | 75,156 | 105,966 | 118,241 | |||||||||||||||
Total shareholders’ equity | 62,767 | 57,755 | 56,624 | 78,962 | 108,671 | |||||||||||||||
Number of stores at end of year: | ||||||||||||||||||||
Company | 83 | 93 | 105 | 113 | 133 | |||||||||||||||
Franchise | 499 | 430 | 344 | 282 | 269 | |||||||||||||||
Systemwide | 582 | 523 | 449 | 395 | 402 | |||||||||||||||
(1) | Reflects a liability, net of amounts recoverable from insurance companies, of approximately $51.8 million and $35.8 million as of January 28, 2007 and January 29, 2006, respectively, related to the settlement of certain litigation. This liability was satisfied in March 2007 through the issuance of shares of common stock and warrants to acquire shares of common stock as described in Note 12 to the consolidated financial statements appearing elsewhere herein. |
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | Financial Statements and Schedules | |||||
1. | Financial Statements. See Item 8, “Financial Statements and Supplementary Data.” | |||||
2. | Financial Statement Schedules. | |||||
Schedule I — Condensed Financial Information of Registrant | F-1 | |||||
Schedule II — Valuation and Qualifying Accounts and Reserves | F-4 | |||||
3. | Exhibits. |
Exhibit | |||||
Number | Description of Exhibits | ||||
3.1 | * | — | Amended Articles of Incorporation of the Registrant | ||
3.2 | — | Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 15, 2008) | |||
4.1 | — | Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No. 4 to Registration Statement on Form S-1 (Commission File No. 333-92909), filed on April 3, 2000) | |||
4.2 | — | Shareholder Protection Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, dated as of January 14, 2010 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 19, 2010) | |||
4.3 | — | Warrant to Purchase Common Stock issued by Krispy Kreme Doughnuts, Inc. in favor of Kroll Zolfo Cooper LLC, dated July 31, 2005 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on October 26, 2005) | |||
4.4 | — | Warrant Agreement, dated as of March 2, 2007, between Krispy Kreme Doughnuts, Inc. and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 8, 2007) | |||
10.1 | — | Trademark License Agreement, dated May 27, 1996, between HDN Development Corporation and Krispy Kreme Doughnut Corporation (incorporated by reference to Exhibit 10.22 to the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 (Commission File No. 333-92909), filed on February 22, 2000) | |||
10.2 | — | 1998 Stock Option Plan dated August 6, 1998 (incorporated by reference to Exhibit 10.23 to the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 (Commission File No. 333-92909), filed on February 22, 2000)** | |||
10.3 | — | Employment Agreement, dated as of April 23, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Douglas R. Muir (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 27, 2007)** | |||
10.4 | — | Amendment, dated November 8, 2007, to Employment Agreement, dated as of April 23, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Douglas R. Muir (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 13, 2007)** | |||
10.5 | — | Second Amendment, dated December 15, 2008, to Employment Agreement, dated as of April 23, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Douglas R. Muir (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 19, 2008)** | |||
10.6 | — | Employment Agreement, dated as of February 27, 2008, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and James H. Morgan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 5, 2008)** | |||
10.7 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of February 27, 2008, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and James H. Morgan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 19, 2008)** |
10.8 | — | Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Kenneth J. Hudson (incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2008)** | ||
10.9 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Kenneth J. Hudson (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 19, 2008)** | ||
10.10 | — | Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Jeffrey B. Welch (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2008)** | ||
10.11 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Jeffrey B. Welch (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on December 19, 2008)** | ||
10.12 | — | Employment Agreement, dated as of October 3, 2008, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Darryl R. Marsch (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on December 11, 2008)** | ||
10.13 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of October 3, 2008, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Darryl R. Marsch** | ||
10.14 | — | Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and M. Bradley Wall (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on December 11, 2008)** | ||
10.15 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and M. Bradley Wall** | ||
10.16 | — | Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Steven A. Lineberger (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on December 11, 2008)** | ||
10.17 | — | Amendment, dated December 15, 2008, to Employment Agreement, dated as of November 7, 2007, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Steven A. Lineberger** | ||
10.18 | — | Employment Agreement, dated as of September 14, 2009, among Krispy Kreme Doughnuts, Inc., Krispy Kreme Doughnut Corporation and Cynthia A. Bay (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on December 7, 2009)** | ||
10.19 | — | 2000 Stock Incentive Plan, as amended as of June 16, 2009 (incorporated by reference Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 22, 2007)** | ||
10.20 | — | Fifth Amendment to the Krispy Kreme Doughnuts, Inc. 2000 Stock Incentive Plan dated December 10, 2008, and effective January 1, 2005 to the extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended and otherwise effective December 31, 2008** | ||
10.21 | — | Krispy Kreme Doughnut Corporation Nonqualified Deferred Compensation Plan, effective October 1, 2000 (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for fiscal 2005)** | ||
10.22 | — | Credit Agreement, dated as of February 16, 2007, by and among Krispy Kreme Doughnut Corporation, Krispy Kreme Doughnuts, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto and Credit Suisse, Cayman Islands Branch, as administrative agent, collateral agent, issuing lender and swingline lender (the “Credit Agreement”) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 23, 2007) | ||
10.23 | — | Security Agreement, dated as of February 16, 2007, by and among Krispy Kreme Doughnut Corporation, Krispy Kreme Doughnuts, Inc., the Subsidiary Guarantors party thereto and Credit Suisse, Cayman Islands Branch, as collateral agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 23, 2007) | ||
10.24 | — | Amendment No. 1, dated as of June 21, 2007, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 27, 2007) | ||
10.25 | — | Amendment No. 2, dated as of January 23, 2008, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 25, 2008) | ||
10.26 | — | Amendment No. 3, dated as of April 9, 2008, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 15, 2008) |
10.27 | — | Amendment No. 4, dated as of April 15, 2009, to the Credit Agreement (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2009) | ||
10.28 | — | Form of Indemnification Agreement entered into between Krispy Kreme Doughnuts, Inc. and Lizanne Thomas and Michael Sutton (incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K filed on October 8, 2004)** | ||
10.29 | — | Form of Indemnification Agreement entered into between Krispy Kreme Doughnuts, Inc. and members of the Registrant’s Board of Directors (other than Lizanne Thomas and Michael Sutton) (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for fiscal 2005)** | ||
10.30 | — | Form of Indemnification Agreement entered into between Krispy Kreme Doughnuts, Inc. and Officers of the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 18, 2007) | ||
10.31 | — | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 17, 2009)** | ||
10.32 | — | Annual Incentive Plan (incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2008)** | ||
10.33 | — | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2009) ** | ||
10.34 | — | Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 17, 2009)** | ||
10.35 | — | Form of Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 17, 2009)** | ||
10.36 | — | Compensation Recovery Policy (incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed on April 17, 2009)** | ||
21 | * | — | List of Subsidiaries | |
23.1 | * | — | Consent of PricewaterhouseCoopers LLP | |
23.2 | * | — | Consent of Ballman Kallick, LLP | |
23.3 | *** | — | Consent of KPMG Cardenas Dosal, S.C. | |
24 | * | — | Powers of Attorney of certain officers and directors of the Company (included on the signature page of the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2010) | |
31.1 | *** | — | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
31.2 | *** | — | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended | |
32.1 | *** | — | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | *** | — | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2010 under the same exhibit number. | ||
** | Identifies management contracts and executive compensation plans or arrangements required to be filed as exhibits pursuant to Item 15(b), “Exhibits and Financial Statement Schedules — Exhibits,” of the Registrant’s Annual Report on Form 10-K. | ||
*** | Filed herewith. |
(c) | Separate Financial Statements of 50 Percent or Less Owned Persons | |||||
1. | Financial Statements of Kremeworks, LLC | |||||
Index to Financial Statements | F-5 | |||||
2. | Financial Statements of Krispy Kreme Mexico, S. de R. L. de C.V. and Subsidiary | |||||
Index to Financial Statements | F-24 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Krispy Kreme Doughnuts, Inc. | ||
By: | /s/ Douglas R. Muir | |
Name: | Douglas R. Muir | |
Title: | Executive Vice President and Chief | |
Financial Officer |
Date: June 30, 2010
KRISPY KREME MEXICO, S. DE R. L. DE C.V. AND SUBSIDIARY
Page | |
Index to Financial Statements: | |
Independent auditors’ report | F-25 |
Consolidated balance sheets as of December 31, 2009 and December 31, 2008 | F-26 |
Consolidated statements of operations for each of the years in the three-year period | |
ended December 31, 2009 | F-27 |
Consolidated statement of changes in partners’ equity for each of the years in the three-year period | |
ended December 31, 2009 | F-28 |
Consolidated statements of cash flows for each of the years in the three-year period | |
ended December 31, 2009 | F-29 |
Notes to consolidated financial statements | F-30 |
F-24
Independent Auditors’ Report
The Partners
Krispy Kreme México, S. de R. L. de C. V. and subsidiary:
Krispy Kreme México, S. de R. L. de C. V. and subsidiary:
We have audited the accompanying consolidated balance sheet of Krispy Kreme México, S. de R. L. de C. V. and subsidiary as of December 31, 2009 and the related consolidated statements of operations, partners’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Krispy Kreme México, S. de R. L. de C. V. and subsidiary as of December 31, 2009 and the results of its operations, the changes in its partners’ equity, and its cash flows for the year then ended, in conformity with Mexican Financial Reporting Standards.
Mexican Financial Reporting Standards vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in note 18 to the consolidated financial statements.
As mentioned in notes 3(l) and 6 to the consolidated financial statements, the Company carried out significant transactions with related parties.
KPMG CARDENAS DOSAL, S. C.
Luís Alejandro Bravo Limón
Mexico, D.F.
June 28, 2010.
Mexico, D.F.
June 28, 2010.
F-25
KRISPY KREME MEXICO, S. DE R. L. DE C. V. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2009 and 2008
(Mexican pesos)
Assets | 2009 | 2008 | |||||
Unaudited | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 14,883,291 | 8,907,963 | ||||
Accounts receivable (note 5) | 1,599,120 | 1,773,782 | |||||
Related parties (note 6) | 975,175 | 744,003 | |||||
Other receivables, mainly VAT (note 7) | 12,570,827 | 12,284,994 | |||||
Inventories (note 8) | 4,729,240 | 6,745,049 | |||||
Prepaid expenses | 58,275 | 321,022 | |||||
Total current assets | 34,815,928 | 30,776,813 | |||||
Improvements, machinery and equipment, net (note 9) | 76,733,467 | 85,119,429 | |||||
Other assets, net (note 10) | 14,694,347 | 12,322,774 | |||||
$ | 126,243,742 | 128,219,016 | |||||
Liabilities and Partners' Equity | 2009 | 2008 | |||||
Unaudited | |||||||
Current liabilities: | |||||||
Current installments of notes payable to banks and long-term debt (note 12) | $ | 9,810,153 | 18,686,086 | ||||
Operadora de Servicios Mega, S. A. de C. V. Sofom, E. R. N. (note 13) | 12,572,695 | 12,707,475 | |||||
Trade accounts payable | 4,992,368 | 12,920,247 | |||||
Other liabilities | 162,291 | 825,463 | |||||
Accruals (note 11) | 3,865,676 | 3,407,511 | |||||
Income taxes payable | - | 3,256,090 | |||||
Related parties (note 6) | 25,118,707 | 16,078,788 | |||||
Total current liabilities | 56,521,890 | 67,881,660 | |||||
Notes payable to banks and long-term (note 12) | 4,130,415 | 5,370,184 | |||||
Deferred income taxes (note 14) | 2,052,020 | 4,480,890 | |||||
Total liabilities | 62,704,325 | 77,732,734 | |||||
Partners' equity (note 15): | |||||||
Controlling interest: | |||||||
Capital stock | 77,248,807 | 77,248,807 | |||||
Accumulated deficit | (13,718,687 | ) | (26,733,715 | ) | |||
Total controlling interest | 63,530,120 | 50,515,092 | |||||
Non-controlling interest | 9,297 | (28,810 | ) | ||||
Total Partners' equity | 63,539,417 | 50,486,282 | |||||
Commitments and contingent liabilities (note 16) | |||||||
$ | 126,243,742 | 128,219,016 | |||||
See accompanying notes to consolidated financial statements.
F-26
KRISPY KREME MEXICO, S. DE R. L. DE C. V. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2009, 2008 and 2007
(Mexican pesos)
2009 | 2008 | 2007 | ||||||||
Unaudited | Unaudited | |||||||||
Sales (note 6) | $ | 205,848,768 | 199,681,170 | 158,474,198 | ||||||
Sales commissions | (7,000,315 | ) | (7,280,082 | ) | (5,284,648 | ) | ||||
Net sales | 198,848,453 | 192,401,088 | 153,189,550 | |||||||
Cost of goods sold (note 6) | 76,014,940 | 76,955,719 | 66,110,674 | |||||||
Gross profit | 122,833,513 | 115,445,369 | 87,078,876 | |||||||
Expenses (note 6): | ||||||||||
Operating (mainly royalties) | 10,408,795 | 11,727,821 | 10,079,379 | |||||||
Selling | 65,546,752 | 81,272,733 | 58,937,618 | |||||||
Administrative | 30,759,101 | 23,582,782 | 18,300,644 | |||||||
Total expenses | 106,714,648 | 116,583,336 | 87,317,641 | |||||||
Operating income (loss) | 16,118,865 | (1,137,967 | ) | (238,765 | ) | |||||
Other income, net: | ||||||||||
Gain (loss) on sale of property and equipment | 31,489 | (8,419 | ) | 3,686 | ||||||
Other expenses, net | (468,158 | ) | (2,675,071 | ) | (1,745,564 | ) | ||||
Other expenses, net | (436,669 | ) | (2,683,490 | ) | (1,741,878 | ) | ||||
Comprehensive financial results (notes 3(m) and 6): | ||||||||||
Interest income | 178,002 | 136,332 | 141,425 | |||||||
Interest expense | (2,739,998 | ) | (3,018,531 | ) | (3,782,391 | ) | ||||
Foreign exchange gain (loss), net | 1,840,993 | (4,416,073 | ) | (732,465 | ) | |||||
Monetary position gain | - | - | 1,893,406 | |||||||
Comprehensive financial results, net | (721,003 | ) | (7,298,272 | ) | (2,480,025 | ) | ||||
Income (loss) before income taxes | 14,961,193 | (11,119,729 | ) | (4,460,668 | ) | |||||
Income taxes (note 14): | ||||||||||
Current | 4,336,928 | 3,256,089 | 317,625 | |||||||
Deferred | (2,428,870 | ) | 895,735 | 1,175,615 | ||||||
Total income taxes | 1,908,058 | 4,151,824 | 1,493,240 | |||||||
Net income (loss) | 13,053,135 | (15,271,553 | ) | (5,953,908 | ) | |||||
Non-controlling interest | (38,107 | ) | 28,840 | - | ||||||
Net controlling interest income (loss) | $ | 13,015,028 | (15,242,713 | ) | (5,953,908 | ) | ||||
See accompanying notes to consolidated financial statements.
F-27
KRISPY KREME MEXICO, S. DE R. L. DE C. V. AND SUBSIDIARY
Consolidated Statement of Partners' Equity
Years ended December 31, 2009, 2008 and 2007
(Mexican pesos)
Total | Total | ||||||||||||||
Capital | Accumulated | controlling | Non-controlling | partners' | |||||||||||
stock | (deficit) | interest | interest | equity | |||||||||||
Balances as of January 1, 2007 (Unaudited) | $ | 77,248,807 | (5,537,094 | ) | 71,711,713 | - | 71,711,713 | ||||||||
Net comprehensive loss (note 15) (Unaudited) | - | (5,953,908 | ) | (5,953,908 | ) | - | (5,953,908 | ) | |||||||
Balances as of December 31, 2007 (Unaudited) | $ | 77,248,807 | (11,491,002 | ) | 65,757,805 | - | 65,757,805 | ||||||||
Non-controlling interest (Unaudited) | - | - | - | 30 | 30 | ||||||||||
Net comprehensive loss (note 15) (Unaudited) | - | (15,242,713 | ) | (15,242,713 | ) | (28,840 | ) | (15,271,553 | ) | ||||||
Balances as of December 31, 2008 (Unaudited) | 77,248,807 | (26,733,715 | ) | 50,515,092 | (28,810 | ) | 50,486,282 | ||||||||
Net comprehensive income (note 15) | - | 13,015,028 | 13,015,028 | 38,107 | 13,053,135 | ||||||||||
Balances as of December 31, 2009 | $ | 77,248,807 | (13,718,687 | ) | 63,530,120 | 9,297 | 63,539,417 | ||||||||
See accompanying notes to consolidated financial statements.
F-28
KRISPY KREME MEXICO, S. DE R. L. DE C. V. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
(Mexican pesos)
2009 | 2008 | 2007 | ||||||||
Unaudited | Unaudited | |||||||||
Cash flows from operating activities: | ||||||||||
Income (loss) before income taxes | $ | 14,961,193 | (11,119,729 | ) | (4,460,668 | ) | ||||
Items relating to investing activities: | ||||||||||
Depreciation and amortization | 12,881,478 | 14,933,971 | 18,284,875 | |||||||
Interest income | (178,002 | ) | (136,332 | ) | (113,379 | ) | ||||
Loss on sale of equipment | (31,489 | ) | (8,419 | ) | 3,686 | |||||
Items relating to financing activities: | ||||||||||
Interest expense | 2,739,998 | 3,018,531 | 3,372,407 | |||||||
Subtotal | 30,373,178 | 6,688,022 | 17,086,921 | |||||||
Accounts receivable | 174,662 | (649,703 | ) | 447,570 | ||||||
Accounts receivable from related parties | (231,172 | ) | 1,434,359 | (105,886 | ) | |||||
Other receivables | (285,833 | ) | 1,477,390 | 7,396,768 | ||||||
Inventories | 2,015,809 | (3,095,729 | ) | 1,870,748 | ||||||
Prepaid expenses | 262,747 | (321,022 | ) | 756,651 | ||||||
Trade accounts payable, accruals and other liabilities | (8,267,666 | ) | 349,894 | 1,644,672 | ||||||
Income taxes paid | (7,593,017 | ) | (2,501,249 | ) | 1,451,045 | |||||
Accounts payable to related parties | 9,039,919 | 6,796,005 | 1,750,217 | |||||||
Net cash provided by operating activities | 25,488,627 | 10,177,967 | 32,298,706 | |||||||
Cash flows from investing activities: | ||||||||||
Acquisition of machinery, furniture and equipment | (3,432,398 | ) | (17,255,186 | ) | (17,826,881 | ) | ||||
Proceeds from sale of equipment | 120,000 | - | 9,374 | |||||||
Increase in other non-current assets | (3,523,203 | ) | 952,124 | 447,612 | ||||||
Cash loans granted | - | (1,820,000 | ) | - | ||||||
Interest received | 178,002 | 136,332 | 113,379 | |||||||
Net cash used in investing activities | (6,657,599 | ) | (17,986,730 | ) | (17,256,516 | ) | ||||
Cash flows from financing activities: | ||||||||||
Proceeds from loans | 5,000,000 | 21,985,793 | - | |||||||
Interest paid | (2,739,998 | ) | (3,018,531 | ) | (3,372,407 | ) | ||||
Payments on loans | (15,115,702 | ) | (10,937,581 | ) | (6,701,273 | ) | ||||
Net cash used in provided by financing activities | (12,855,700 | ) | 8,029,681 | (10,073,680 | ) | |||||
Net increase in cash and cash equivalents | 5,975,328 | 220,918 | 4,968,510 | |||||||
Cash and cash equivalents: | ||||||||||
At beginning of year | 8,907,963 | 8,687,045 | 3,718,535 | |||||||
At end of year | $ | 14,883,291 | 8,907,963 | 8,687,045 | ||||||
See accompanying notes to consolidated financial statements.
F-29
KRISPY KREME MEXICO, S. DE R. L. DE C. V. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2009
(With comparative figures for 2008 and 2007)
(With comparative figures for 2008 and 2007)
(Mexican pesos)
(1) | Financial statements authorization and presentation- | |
On June 11, 2010, Ignacio Cortina, Director General (CEO), authorized the issuance of the statutory financial statements and related notes thereto. On June 28, 2010, the accompanying financial statements and related notes thereto were authorized. | ||
In accordance with the General Corporations Law and the bylaws of Krispy Kreme México, S. de R. L. de C. V., the partners are empowered to modify the financial statements after issuance. The accompanying financial statements will be submitted to the next Partners Meeting for approval. | ||
The accompanying consolidated financial statements at December 31, 2009 and 2008 include Krispy Kreme México, S. de R. L. de C. V. and its subsidiary Krispy Kreme de Occidente, S. de R. L. de C. V. Krispy Kreme de Occidentes, S. de R.L. de C.V. was incorporated in October 2008 and as such the 2007 financial statements solely include the financial position, results of operations, and cash flows of Krispy Kreme México, S. de R.L. de C.V. | ||
The accompanying consolidated financial statements have been prepared in accordance with Mexican Financial Reporting Standards (FRS) in effect as of the balance sheet date. | ||
(2) | Description of business and significant transactions- | |
Description of business- | ||
The principal activity of Krispy Kreme México, S. de R. L de C. V. and subsidiary (the Company) is to produce and sell glazed doughnuts branded “Krispy Kreme”. The Company is a subsidiary of Controladora Topolaris, S. A. de C. V., 70% owner, and Krispy Kreme Doughnut Corporation, 30% owner, with which it carries out certain transactions, as described in note 6. | ||
The Company has no employees and, therefore, is not subject to labor obligations. Administrative services are provided by an affiliated company for a fee (note 6). |
F-30
Significant transactions- | ||
During 2009, the company opened 3 points of sale denominated Kiosks, in several retail stores. | ||
On October 10, 2008, a new entity, Krispy Kreme de Occidente, S. de R. L. de C. V. was incorporated. Krispy Kreme México, S. de R. L. de C. V. holds 99% of capital stock, equivalent to $2,970 represented by one social part. | ||
In 2008, the Company entered into a one-year agreement with Concesionaria Vuela Compañía de Aviación, S. A. de C. V. (Volaris, related party, as defined in note 3(l)) for an amount of $3,977,319, to provide glazed doughnuts in exchange of advertising services for an equal amount (see note 6). In 2009, the agreement was renewed for a fifteen-month term ending on March 2010. During 2009, the Company carried out transactions for $3,231,258 (see note 6) of which only $1,226,856 were carried out in accordance to the aforementioned agreement. | ||
During 2008, the Company opened 8 Kiosks, in retail stores, including Liverpool and Wal-Mart stores. | ||
(3) | Summary of significant accounting policies- | |
The preparation of consolidated financial statements requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of improvements, machinery and equipment; valuation allowances for account receivables, inventories, and deferred income tax. Actual results could differ from those estimates and assumptions. | ||
For purposes of disclosure, “pesos” or “$” means Mexican pesos, and “dollars” or “US$” means U.S. dollars. |
F-31
Significant accounting policies applied in the preparation of the accompanying financial statements follow: | ||||
(a) | Recognition of the effects of inflation- | |||
The accompanying consolidated financial statements have been prepared in accordance with Mexican Financial Reporting Standards (FRS) in effect as of the balance sheet date and include the recognition of the effects of inflation on the financial information through December 31, 2007, based on the Mexican National Consumer Price Index (NCPI) published by Banco de México (Central Bank). Cumulative inflation percentage of the three preceding years and the indexes used in recognizing inflation through such years are as follows: |
Inflation | ||||||||
December 31 | NCPI | Yearly | Cumulative | |||||
2009 | 138.541 | 3.57% | 14.48% | |||||
2008 | 133.761 | 6.52% | 15.01% | |||||
2007 | 125.564 | 3.75% | 11.56% |
(b) | Principles of consolidation- | |||
The consolidated financial statements include Krispy Kreme México, S. de R. L. de C. V. and its 99%-owned subsidiary Krispy Kreme de Occidente, S. de R. L. de C. V. All significant inter-company balances and transactions have been eliminated in consolidation. | ||||
(c) | Cash equivalents- | |||
Cash equivalents consist of checking accounts, foreign currency and other highly liquid instruments. At the date of the consolidated financial statements, interest income and foreign exchange gains and losses are included in the statements of operations. |
F-32
(d) | Inventories and cost of sales- | |||
Inventories are stated at the lower of historical cost determined by the average cost method or market (replacement cost), provided that replacement cost is not greater than net realizable value. | ||||
Cost of sales represents the replacement cost of inventories at the time of sale, increased, as applicable, for reductions in the replacement cost or net realizable value of inventories during the year. | ||||
The Company records the necessary allowances arising from damaged, obsolete, or slow-moving inventories. | ||||
(e) | Improvements, machinery and equipment- | |||
Improvements, machinery and equipment are initially recorded at acquisition cost and through December 31, 2007, were adjusted for inflation by applying NCPI factors. | ||||
Amortization and depreciation on improvements, machinery and equipment is calculated on the straight-line method over the estimated useful lives of the assets, determined by management. The annual amortization and depreciation rates of the principal asset classes are as follows: |
Rates | |||||||
Leasehold improvements | 5 | % | |||||
Machinery | 20 | % | |||||
Restaurant equipment | 20 | % | |||||
Office furniture and fixtures | 10 | % | |||||
Computer equipment | 30 | % | |||||
Transportation equipment | 25 | % | |||||
Communications equipment | 10 | % | |||||
Forklifts | 25 | % | |||||
Minor repairs and maintenance costs are expensed as incurred. |
F-33
(f) | Other assets- | |||
Other assets include mainly franchise licenses and deposits for leased properties and are stated at cost and, through December 31, 2007, adjusted for inflation based on factor derived from the NCPI factors. | ||||
Franchise licenses are amortized using the straight-line method over their estimated useful lives of 15 years. | ||||
(g) | Impairment of improvements, machinery and equipment and other assets- | |||
The Company reviews the carrying amounts of long-lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amount of the asset exceeds the greater of the amounts mentioned above. Impairment charges and asset write-downs are presented in other expenses in our consolidated financial statements. | ||||
(h) | Accruals- | |||
Based on management’s estimates, the Company recognizes accruals for present obligations in which the transfer of assets or the rendering of services is virtually assured and arises as a consequence of past events, principally expenditures. | ||||
(i) | Income tax (IT) and income taxes (flat rate business tax (IETU))- | |||
IT and IETU payable for the year are determined in conformity with the tax provisions in effect. | ||||
Deferred IT and IETU, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and in the case of IT, for operating loss carry forward and other recoverable tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in consolidated income statement in the period that includes the enactment date. |
F-34
(j) | Inflation adjustment of capital stock and retained earnings- | |||
Through December 31, 2007, the inflation adjustment of capital stock and retained earnings, was determined by multiplying partner contributions and retained earnings (deficit) by factors derived from the NCPI, which measure accumulated inflation from the dates such contributions were made or such retained earnings (deficit) arose through 2007 year end, date on which change was effected to a non-inflationary economy in accordance with FRS B-10 "Effects of Inflation". The amounts thus obtained represented the constant value of Partners’ equity. | ||||
(k) | Revenue recognition- | |||
The Company recognizes revenue from the sale of its products when they are sold and the related risks and rewards are transferred to the final customer. | ||||
(l) | Business and credit concentrations- | |||
The Company’s products are sold to a large number of customers without significant concentration with any of them. | ||||
The Company acquired from its non-controlling interest investor Krispy Kreme Doughnut Corporation, 30%, 49% and 53% of its raw material purchases in 2009, 2008 and 2007 respectively (note 6). | ||||
Furthermore, the Company carries out transactions with certain entities, considered related parties as they have common stockholders with Controladora Topolaris, S. A. de C. V. | ||||
(m) | Comprehensive financial results (CFR)- | |||
The CFR includes interest, foreign exchange, and through 2007, monetary position. | ||||
Transactions in foreign currency are recorded at the exchange rate prevailing on the date of execution or settlement. Foreign currency assets and liabilities are translated at the exchange rate in force at the balance sheet date. Exchange differences arising from assets and liabilities denominated in foreign currencies are reported in operations for the year. |
F-35
Monetary position gain and losses for 2007 were determined by multiplying the difference between monetary assets and liabilities at the beginning of each month including deferred taxes, by inflation factor though year end. The aggregate of these results represent the monetary gain or loss for the year arising from inflation, which is reported in operations for the year. | ||||
(n) | Contingencies- | |||
Liabilities for loss contingencies are recorded when it is probable that a liability has been incurred and the amount thereof can be reasonably estimated. When a reasonable estimation cannot be made, qualitative disclosure is provided in the notes to the consolidated financial statements. Contingent revenues, earnings or assets are not recognized until realization is assured. | ||||
(4) | Foreign currency exposure and translation- | |||
Monetary assets and liabilities denominated in dollars translated into the reporting currency, as of December 31, 2009 and 2008 were as follows: |
Mexican pesos | ||||||||
2009 | 2008 | |||||||
Assets: | ||||||||
Current | $ | 2,493,963 | 125,405 | |||||
Liabilities: | ||||||||
Current | (24,217,763 | ) | (20,166,966 | ) | ||||
Long-term | - | (4,422,500 | ) | |||||
(24,217,763 | ) | (24,589,466 | ) | |||||
Net liabilities, net | $ | (21,723,800 | ) | (24,464,061 | ) | |||
F-36
The exchange rates used in the translation process to the reporting currency at December 31, 2009 and the date on which the financial statements were issued were as follows: | ||||||||
Exchange rate | ||||||||
Country of origin | Currency | Closing | Issue | |||||
United States | USD | 13.0437 | 13.5380 |
At December 31, 2009 the Company did not have foreign exchange hedging instruments. | ||
(5) | Accounts receivable- | |
Accounts receivable consist of the following: |
2009 | 2008 | ||||||
Distribuidora Liverpool, S. A. de C. V. | $ | 1,599,120 | 1,732,851 | ||||
Other | - | 40,931 | |||||
$ | 1,599,120 | 1,773,782 | |||||
(6) | Related-party transactions and balances- | |
Transactions carried out with related parties (see note 3(l)) during the years ended December 31, 2009, 2008 and 2007, are as follows: |
2009 | 2008 | 2007 | ||||||
Sales: | ||||||||
Concesionaria Vuela Compañía de Aviación, | ||||||||
S. A. de C. V. | $ | 3,231,258 | 3,977,319 | 3,238 | ||||
Purchases: | ||||||||
Krispy Kreme Doughnut Corporation | $ | 14,627,370 | 30,354,871 | 18,241,094 | ||||
Baseco, S. A. de C. V. | - | 989,148 | - | |||||
$ | 14,627,370 | 31,344,019 | 18,241,094 | |||||
F-37
2009 | 2008 | 2007 | ||||||
Services rendered: | ||||||||
Ledery de México, S. A. de C. V. | $ | - | 5,237 | - | ||||
Services received: | ||||||||
Servicios Axo, S. A. de C. V. | $ | 32,873,460 | 37,433,040 | 28,064,331 | ||||
Sempresa, S. A. de C. V. | 19,966,294 | 26,152,110 | 19,493,285 | |||||
Krispy Kreme Doughnuts Inc: | ||||||||
Royalties | 9,908,741 | 11,261,132 | 9,492,706 | |||||
Franchise and Development fees | 3,159,795 | 954,444 | - | |||||
Advertising | 500,054 | 466,689 | 395,529 | |||||
Grupo Axo, S. C. | 1,409,303 | 1,016,862 | 665,142 | |||||
Concesionaria Vuela Compañía de Aviación, | ||||||||
S. A. de C. V. | 1,226,856 | 3,977,319 | - | |||||
Baseco, S. A. de C. V. | 386,491 | 373,443 | - | |||||
Servicios a Tiendas y Comisariato, S. A. de | ||||||||
C. V. | - | - | 1,368,066 | |||||
Servicios Administrativos Monda, S. A. de C. V. | - | 161,022 | 1,303,874 | |||||
$ | 69,430,994 | 81,796,061 | 60,782,933 | |||||
Interest income: | ||||||||
Servicios a Tiendas y Comisariato, S. A. de C. V. | $ | 25,175 | - | - | ||||
Servicios Axo, S. A. de C. V. | - | - | 60,530 | |||||
Controladora Topolaris, S. A. de C. V. | 11,038 | - | - | |||||
$ | 36,213 | - | 60,530 | |||||
Interest expense: | ||||||||
Servicios a Tiendas y Comisariato, S. A. de C. V. | $ | - | 96,255 | - | ||||
Proud, S. A. de C. V. | 26,151 | 2,952 | - | |||||
Baseco, S. A. de C. V. | - | - | 223,896 | |||||
Servicios Axo, S. A. de C. V. | - | - | 173,109 | |||||
$ | 26,151 | 99,207 | 397,005 | |||||
F-38
2009 | 2008 | 2007 | |||||
Loans granted: | |||||||
Servicios a Tiendas y Comisariato, S. A. de C. V. | $ | 21,499 | 1,820,000 | - | |||
Controladora Topolaris, S.A. de C.V. | 11,389 | - | - | ||||
$ | 32,888 | 1,820,000 | |||||
Loans received: | |||||||
Servicios a Tiendas y Comisariato, S. A. de C. V. | $ | - | 1,692,500 | - | |||
Proud, S. A. de C. V. | - | 353,395 | - | ||||
$ | - | 2,045,895 | - | ||||
Balances receivable from and payable to related parties as of December 31, 2009 and 2008 are as follows:
2009 | 2008 | ||||
Receivable: | |||||
Sempresa, S. A. de C. V. | $ | 342,974 | - | ||
Servicios a Tiendas y Comisariato, S. A. de C. V. | 299,437 | 248,987 | |||
Controladora Topolaris, S. A. de C. V. | 132,696 | 108,612 | |||
Concesionaria Vuela Compañía de Aviación S.A. de C.V. | 192,845 | - | |||
Ledery México, S. A. de C. V. | 7,223 | - | |||
Servicios AXO, S. A. de C. V. | - | 365,338 | |||
Others | - | 21,066 | |||
$ | 975,175 | 744,003 | |||
F-39
Amounts receivable from related parties corresponds to current account transactions which do not bear interest, nor have a specified maturity date, except for Servicios a Tiendas y Comisariato, S. A. de C. V. and Controladora Topolaris, S. A. de C. V., bearing interest at the rate of TIIE plus 4 points per annum. | |
Payables: | |||||
Krispy Kreme Doughnut Corporation | $ | 17,647,398 | 11,803,910 | ||
Baseco, S. A. de C. V. | 4,041,456 | 3,596,992 | |||
Servicios AXO, S. A. de C. V. | 2,324,433 | - | |||
Grupo AXO, S. C. | 431,740 | 68,747 | |||
Proud, S. A. de C. V. | 383,469 | 353,395 | |||
TWF, S. A. de C. V. | 162,693 | 162,693 | |||
STC Servicios, S. A. de C. V. de C. V. | 127,518 | - | |||
Sempresa, S. A. de C. V. | - | 93,051 | |||
$ | 25,118,707 | 16,078,788 | |||
Amounts payable to related-parties correspond to current account transactions which do not bear interest, nor have a specified maturity date, except for Proud, S.A. de C. V., bearing interest at the rate of TIIE plus 2.5 points per annum. | ||
(7) | Other receivables- | |
Other receivables consist of the following: |
2009 | 2008 | ||||
Recoverable value-added tax | $ | 10,811,525 | 10,304,873 | ||
Recoverable income taxes | 738,088 | 378,159 | |||
Tax on cash deposits | 292,204 | 818,742 | |||
Sundry debtors | 729,010 | 590,639 | |||
Others | - | 192,581 | |||
$ | 12,570,827 | 12,284,994 | |||
F-40
(8) | Inventories- | |
Inventories are comprised as follows: |
2009 | 2008 | ||||
Raw materials | $ | 4,678,314 | 6,694,123 | ||
Advances to suppliers | 50,926 | 50,926 | |||
$ | 4,729,240 | 6,745,049 | |||
(9) | Improvements, machinery and equipment- | |
Improvements, machinery and equipment comprise the following: |
2009 | 2008 | ||||
Leasehold improvements | $ | 51,899,526 | 49,709,597 | ||
Machinery and equipment | 39,649,340 | 39,628,381 | |||
Restaurant equipment | 19,950,458 | 19,905,038 | |||
Office furniture and fixtures | 20,619,641 | 19,525,200 | |||
Computer equipment | 8,438,564 | 8,259,268 | |||
Transportation equipment | 2,793,849 | 2,992,227 | |||
Communications equipment | 661,945 | 634,674 | |||
Forklift trucks | 467,346 | 501,586 | |||
144,480,669 | 141,155,971 | ||||
Less: | |||||
Accumulated depreciation | 67,747,202 | 56,036,542 | |||
$ | 76,733,467 | 85,119,429 | |||
F-41
(10) | Other assets - | |
Other assets consist of: |
2009 | 2008 | ||||
Franchise licenses | $ | 15,518,090 | 12,358,295 | ||
Security deposits and others | 2,584,296 | 2,236,978 | |||
Software | 484,784 | 468,694 | |||
18,587,170 | 15,063,967 | ||||
Less accumulated amortization | 3,892,823 | 2,741,193 | |||
$ | 14,694,347 | 12,322,774 | |||
(11) | Accruals- | |
Accruals include the following: |
Professional | Administrative | ||||||||||||||
Electricity | fees | Water | services | Total | |||||||||||
Balances at December 31, 2008 | $ | 2,243,755 | - | 745,004 | 418,752 | 3,407,511 | |||||||||
Increases charged to operations | 1,566,075 | 150,000 | 394,295 | 326,450 | 2,436,820 | ||||||||||
Payments and/or Cancellations | (1,077,558 | ) | - | (482,345 | ) | (418,752 | ) | (1,978,655 | ) | ||||||
Balances at December 31, 2009 | $ | 2,732,272 | 150,000 | 656,954 | 326,450 | 3,865,676 | |||||||||
F-42
(12) | Notes payable to banks - | |
The long-term debt consists of the following: |
2009 | 2008 | |||||
Credit line in pesos granted by IXE BANCO, S.A. Institución de Banca Múltiple (IXE) to Krispy Kreme México, S. de R. L. de C. V. (debtor) and BASECO, S. A. de C. V. (Guarantor); dated October 7, 2009, for up to $8,000,000, to finance its working capital. Payable in 36 months and bearing interest at the rate TIIE plus 4.5 points per annum, maturing in October, 2011. As of December 31, 2009, the Company has withdrawn $5,000,000 of the available credit line and paid off $416,664. | $ | 4,583,336 | - | |||
Promissory note with HSBC bearing interest at Libor plus 3 points (5.91% average in 2009 and 8.25% average in 2008), maturing in August 2010. | 4,357,232 | 11,056,270 | ||||
Unsecured credit in pesos granted by BBVA Bancomer, bearing interest at the TIIE rate plus 3.25% on the due balance (9.16% average in 2009 and 11.52% average in 2008) dated August 2006, for up to $15,000,000 payable in 60 monthly, maturing in august 2011. | 5,000,000 | 8,000,000 | ||||
Revolving credit line in pesos granted by BBVA Bancomer, bearing interest at the TIIE rate plus 2.75%, for up to $ 5,000,000, matured in august 2009. | - | 5,000,000 | ||||
Total long-term debt, brought forward | 13,940,568 | 24,056,270 | ||||
Less current installments | 9,810,153 | 18,686,086 | ||||
Long-term debt, excluding current installments | $ | 4,130,415 | 5,370,184 | |||
Yearly maturities of long-term debt are as follows: | ||||||
2011 | 2,880,391 | |||||
2012 | 1,250,024 | |||||
4,130,415 | ||||||
Interest expense on loans for the years ended December 31, 2009, 2008, and 2007 aggregated $1,438,518, $2,479,643 and $3,479,731 respectively. | ||||||
Bank loans establish certain affirmative and negative covenants, the most significant of which refer to compliance with certain financial ratios, comprehensive insurance, safekeeping and preservation of pledged assets, as well as acquiring direct or contingent liabilities or any other contractual debts. As of December 31, 2009 and as of the date these financial statements were issued, the Company was in compliance with all these covenants. |
F-43
(13) | Operadora de Servicios Mega, S. A. de C. V. Sofom, E. N. R. (MEGA)- | |
The account payable to MEGA, results from an unsecured loan in pesos bearing interest at 10% per annum, which does not include a specific maturity date. Interest expense on loans for the years ended December 31, 2009 and 2008, amount to $1,263,448 and $244,791, respectively. | ||
(14) | Tax on earnings (income tax (IT) and flat rate business tax (IETU)- | |
The consolidated financial statement at December 31, 2009 reflects the income taxes of each entity within the consolidation calculated on a separate company basis. | ||
Under the current tax legislation, companies must pay the greater of IT or IETU. If IETU is payable, the payment will be considered final i.e. not subject to recovery in subsequent years. The IT Law in effect as of December 31, 2009 provides for an IT rate of 28%, while in accordance with the tax reforms effective as of January 1, 2010, the IT rate for fiscal years 2010 to 2012 is 30%, for 2013 the rate shall be 29% and 2014 and thereafter, the rate is 28%. The IETU rate is 17% for 2009 and 17.5% for 2010 and thereafter. | ||
Because management estimates that the tax payable in future years will be IT, deferred tax effects as of December 31, 2009 and 2008 have been recorded on the IT basis. The subsidiary company estimates that the tax payable in future years will be IETU. Consequently, deferred tax of the subsidiary was recorded on IETU basis and it is presented separately. | ||
The income tax expense is as follows: |
2009 | 2008 | |||||
Current IETU | $ | 2,588,161 | 2,794,839 | |||
Current IT | 1,748,767 | 461,250 | ||||
Deferred IETU | (3,117,403 | ) | 895,735 | |||
Deferred IT | 688,533 | - | ||||
$ | 1,908,058 | 4,151,824 |
F-44
Income tax attributable to loss from income taxes differed from the amounts computed by applying the Mexican statutory rates of 28% for it and / or 17% for IETU to income (loss), as a result of the items are as follows: | |
2009 | 2008 | |||||||||
IETU | ISR | IETU | ||||||||
Computed “expected” expense (benefit) | $ | 2,074,732 | 1,849,819 | (1,834,755 | ) | |||||
Increase (reduction) resulting from: | ||||||||||
Non-deductible expenses for IT purposes | - | 90,441 | 482,133 | |||||||
Effect of inflation, net | - | 108,339 | - | |||||||
Interest, net | 181,566 | - | 429,045 | |||||||
Royalties paid to related parties | 1,313,502 | - | 2,412,314 | |||||||
Collection of balances dating back to 2007 | - | - | (212,697 | ) | ||||||
Payments dating back to 2007 balances | - | - | 1,053,166 | |||||||
Enacted changes in tax laws and rates effect | - | - | (109,798 | ) | ||||||
Deferred IETU | (3,733,090 | ) | - | - | ||||||
Equity method | (632,841 | ) | - | 471,099 | ||||||
Foreign exchange | (316,467 | ) | - | 727,852 | ||||||
IT expense deferred | 688,532 | - | 461,250 | |||||||
Others, net | (32,331 | ) | (299,832 | ) | 272,215 | |||||
Computed IETU- IT | (456,397 | ) | 1,748,767 | 4,151,824 | ||||||
Effect of IETU | - | 615,688 | - | |||||||
IETU expense (benefit) | $ | (456,397 | ) | 2,364,455 | 4,151,824 | |||||
F-45
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities, at December 31, 2009 and 2008 are presented as follows: | |
2009 | 2008 | |||||||
ISR | IETU | IETU | ||||||
Deferred tax assets: | ||||||||
Suppliers | $ | - | 84,372 | 2,870,986 | ||||
Accruals | 1,051,702 | 63,000 | 579,277 | |||||
Related parties | - | 1,058,254 | 2,098,045 | |||||
Net operating loss carry forwards | 75,037 | - | - | |||||
Total gross deferred tax assets | 1,126,739 | 1,205,626 | 5,548,308 | |||||
Deferred tax liabilities: | ||||||||
Accounts receivable and others accounts receivable | - | 1,029 | 915,774 | |||||
Related parties | - | - | 1,127,697 | |||||
Inventories | - | 61,283 | 596,808 | |||||
Improvements, machinery and equipment and other assets | 1,815,272 | 2,506,801 | 7,395,984 | |||||
Total gross deferred tax liabilities | 1,815,272 | 2,569,113 | 10,036,263 | |||||
Deferred tax liability | 688,533 | 1,363,487 | 4,487,955 | |||||
Insufficient provision | - | - | (7,065 | ) | ||||
Net deferred tax liability | $ | 688,533 | 1,363,487 | 4,480,890 | ||||
F-46
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. | ||||
The IETU Law establishes a rate of 16.5% for 2008, 17% for 2009 and 17.5% for 2010 and thereafter. As a result of this change in rates, during the year ended December 31, 2009 and 2008 the Company recognized an increase in net deferred tax liabilities of $109,798, which was recorded in the income statement in 2008. | ||||
(15) | Partners’ equity- | |||
The principal characteristics of Partners’ equity are described below: | ||||
(a) | Structure of capital stock- | |||
The capital stock at December 31, 2009, consists of 66,813,211 common, registered social parts, with par value of one peso each, divided into two series; 3,000 social parts of series "A", representative of the fixed portion of Partners’ equity and 66,810,211 social parts, Series "B" representative of the variable portion of Partners’ equity. | ||||
(b) | Comprehensive income (loss)- | |||
The comprehensive income (loss) reported on the statements of Partners' equity represents the results of the total performance of the Company during the year. During the years ended December 31, 2009 and 2008 no items met the requirements of Mexican FRS to be recognized directly to stockholders’ equity; therefore, comprehensive income (loss) is equivalent to net income presented on the income consolidated statements. | ||||
(c) | Restrictions on stockholders’ equity- | |||
Five percent of net income for the year must be appropriated to the statutory reserve, until it reaches one- fifth of capital stock. As of December 31, 2009, the Company has not established a statutory reserve. | ||||
Partners contributions restated as provided for by the tax law, may be refunded to partners tax-free, to the extent that such contributions equal or exceed partners’ equity. | ||||
No dividends may be paid while the Company has a deficit. | ||||
F-47
(16) | Commitments and contingent liabilities | |||
(a) | The Company leases the premises occupied by its stores, under defined term lease agreements. Total rental expense, reported under cost of goods sold, aggregated $18,469,308 in 2009, $15,585,352 in 2008 and $12,171,808 in 2007. Total rents payable through 2013 under these agreements are as follows: | |||
Pesos | Dollars | |||||
2010 | $ | 5,529,385 | 349,416 | |||
2011 | 2,081,701 | - | ||||
2012 and more | 1,119,937 | - | ||||
$ | 8,731,023 | 349,416 | ||||
(b) | The Company has entered into service agreements with related parties, under which these companies provide Administrative and operating services, necessary for the Company’s operation. These agreements are for an undefined period. Total expense under these agreements, reported under cost of goods sold and expenses in the income statements were $54,635,548 in 2009, $65,136,477 in 2008 and $50,894,698 in 2007. | ||
(c) | The Company entered into franchising and development agreements with Krispy Kreme Doughnut Corporation (the Corporation). The agreements grant to the company the right to use and sub-franchise to the “Krispy Kreme” brand in the Mexican Republic for a royalty. The Royalties are estimated at a 6% rate over monthly gross sales. The total royalty expense under this contract was $9,908,741 in 2009, and $11,261,132 in 2008 and $9,492,706 in 2007, and is included in operating expenses in the income statements. According to the agreement, the Company has to pay advertising service equivalent to 0.25% of the sales of each year. Total payments under these agreements are reported under “operating expenses” (See note 6). | ||
F-48
(d) | The Company signed a fifteen-month term agreement with Volaris (related party) for $1,226,856 in 2009 and $3,977,319 in 2008 to provide glazed donuts in exchange for advertising in an equivalent amount. | |||
(e) | In accordance with Mexican tax law, the tax authorities are entitled to examine transactions carried out during the five years prior to the most recent income tax return filed. | |||
(f) | In accordance with the Income Tax Law, companies carrying out transactions with related parties are subject to certain requirements as to the determination of prices, which should be similar to those that would be used in arm’s-length transactions. | |||
Should the tax authorities examine the transactions and reject the related-party prices, they could assess additional taxes plus the related inflation adjustment and interest, in addition to penalties of up to 100% of the omitted taxes. | ||||
(17) | Recently issued accounting standards- | |||
(a) | The CINIF has issued the FRS C-1 “Cash and cash equivalents” – FRS C-1 supersedes Bulletin C-1 “Cash” and is effective as of January 1, 2010. The principal changes with respect to the former standard include the following: |
- FRS C-1 requires the presentation of cash and cash equivalents, restricted, within the balance sheet caption of "Cash and cash equivalents".
- The term “demand temporary investments” is replaced by “available demand investments”.
- To be identified as cash equivalents, the investments should be highly liquid, for example those with original maturities of three months or less when purchased.
- FRS C-1 includes the definition of the terms: acquisition cost, restricted cash and cash equivalents, highly liquid investments, net realizable value, nominal value and fair value.
Management estimates that the initial effects of this new FRS will not be material.
F-49
(18) | Summary of Significant Differences between Accounting Principles Followed by the Company and Generally Accepted Accounting Principles in the United States of America- | |||
The Company’s consolidated financial statements are prepared in accordance with Mexican FRS, which generally differ in certain significant respects from U.S. GAAP. As described in Note 3(a) to these consolidated financial statements, until December 31, 2007, the Company recognized the effects of inflation on its financial information in accordance with FRS B-10, the guidelines of which are applied prospectively and do not require any adjustments for periods prior to January 1, 2008. For periods prior to January 1, 2008, all of the related U.S. GAAP adjustments have also been restated to reflect the effects of inflation. None of the adjustments to the financial statements for the effects of inflation required under Mexican FRS have been eliminated in determining our U.S. GAAP results for such periods as these adjustments represent a comprehensive measure of the effects of price level changes in the Mexican economy and, as such, were considered a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. GAAP purposes. | ||||
While conceptual differences in certain areas between Mexican FRS and U.S. GAAP are in place, as they relate to the Company and further described below, none of which were deemed significant, individually or in the aggregate, to required adjusting our Mexican FRS partner’s equity as of December 31 2009 and 2008 and our net income (loss) for the years ended December 31 2009, 2008 and 2007 for them to conform with U.S. GAAP. As such, our U.S. GAAP partner’s equity as of December 31 2009 and 2008 and our U.S.-GAAP net income (loss) for each of the years ended December 31, 2009, 2008 and 2007 equal those determined pursuant to Mexican FRS. | ||||
(a) | Loss on impairment of long-lived assets- | |||
For U.S. GAAP purposes, in accordance with SFAS No. 144, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of an asset is not recoverable when the estimated future undiscounted cash flows expected to result from the use of the asset are less than the carrying value of the asset. Impairment is recorded when the carrying amount of the asset exceeds its fair value. Impairment charges and asset write-downs are presented in selling, general and administrative expenses in operating expenses in our U.S. GAAP consolidated financial statements. | ||||
F-50
For Mexican FRS purposes, in accordance with Bulletin C-15, the Company reviews the carrying amounts of long-lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amount of the asset exceeds the greater of the amounts mentioned above. Impairment charges and asset write-downs are presented in other expenses in our Mexican FRS consolidated financial statements. | |||
In 2009, 2008 and 2007, for Mexican FRS purposes, while performing its annual impairment test using its best estimates based on reasonable and supportable assumptions and projections, the Company did not record any impairment charge, respectively as the carrying amount of the long-lived assets did not exceed the present value of their future discounted cash flows. For U.S. GAAP purposes no impairment charge was recorded as the assets were considered to be recoverable given that the estimated undiscounted cash flows expected to result from the use of the assets were greater then the carrying value of the asset. | |||
(b) | Deferred income taxes- | ||
Under Mexican FRS as required by Bulletin D-4, “Income Taxes” income taxes are charged to results as they are incurred and the Company recognizes deferred income tax assets and liabilities for the future consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective income tax bases, measured using enacted rates. The effects of changes in the statutory rates are accounted for in the period that includes the enactment date. Deferred income tax assets are also recognized for the estimated future effects of tax loss carry forwards and asset tax credit carry forwards. Under Mexican FRS, the effects of inflation on the deferred tax balance generated by monetary items are recognized in the result of monetary position. | |||
Under U.S. GAAP, as required by SFAS No. 109, “Accounting for Income Taxes”, the Company recognizes deferred income tax assets and liabilities for the future consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective income tax bases, measured using enacted rates. The effects of changes in the statutory rates are accounted for in the period that includes the enactment date. Deferred income tax assets are also recognized for the estimated future effects of tax loss carry forwards and asset tax credit carry forwards. | |||
F-51
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, projections of future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies that would be taken to prevent an operating loss or tax credit carry forward from expiring unused, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2009. | |||
For U.S. GAAP purposes the Company recognizes deferred taxes each period for the changes in the taxable portions of its distributable stockholders’ equity. The Company’s policy is to compare the deferred tax balance that would be required if all of the stockholders’ equity were distributed. This amount is compared to the total deferred tax balance recorded prior to any adjustment. The difference between the amount recorded and the amount calculated from the stockholders’ equity taxable accounts is recorded as an adjustment to deferred taxes as of the balance sheet date. | |||
Except for a difference in the short and long-term balance sheet classification of deferred income taxes, there is no material difference in the Company’s deferred income taxes between U.S. GAAP and Mexican FRS. | |||
(c) | Recently adopted accounting standards- | ||
The Codification is the single source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the U.S. Securities and Exchange Commission (the "SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification became effective for interim and annual periods ending after September 15, 2009 and superseded all previously existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included the Codification is non-authoritative. All of the Company references to GAAP now use the Codification's specific Accounting Standards Update ("ASU"), Topic or Subtopic, rather than prior accounting and reporting standard. The Codification did not change existing GAAP and, therefore, did not affect the Company financial position a results of operations. | |||
F-52
Assets | FRS | Reconciliation | USGAAP | |||
2009 | effect | 2009 | ||||
Total current assets | $ | 34,815,928 | 2,270,053 | 37,085,981 | ||
Improvements, machinery and equipment, net | 76,733,467 | - | 76,733,467 | |||
Other non-current assets, net | 14,694,347 | - | 14,694,347 | |||
$ | 126,243,742 | 2,270,053 | 128,513,795 | |||
Liabilities and Partners' Equity | ||||||
Total current liabilities | $ | 56,521,890 | - | 56,521,890 | ||
Long-term debt | 4,130,415 | - | 4,130,415 | |||
Deferred income taxes | 2,052,020 | 2,270,053 | 4,322,073 | |||
Total liabilities | 62,704,325 | 2,270,053 | 64,974,378 | |||
Partners' equity: | ||||||
Total controlling interest | 63,530,120 | - | 63,530,120 | |||
Non-controlling interest | 9,297 | - | 9,297 | |||
Total Partners' equity | 63,539,417 | - | 63,539,417 | |||
Commitments and contingent liabilities | ||||||
$ | 126,243,742 | 2,270,053 | 128,513,795 | |||
F-53
Assets | FRS | Reconciliation | USGAAP | |||||
2008 | effect | 2008 | ||||||
Unaudited | Unaudited | Unaudited | ||||||
Total current assets | $ | 30,776,813 | 2,915,094 | 33,691,907 | ||||
Improvements, machinery and equipment, net | 85,119,429 | - | 85,119,429 | |||||
Other non-current assets, net | 12,322,774 | - | 12,322,774 | |||||
$ | 128,219,016 | 2,915,094 | 131,134,110 | |||||
Liabilities and Partners' Equity | ||||||||
Total current liabilities | $ | 67,881,660 | - | 67,881,660 | ||||
Long-term debt | 5,370,184 | - | 5,370,184 | |||||
Deferred income taxes | 4,480,890 | 2,915,094 | 7,395,984 | |||||
Total liabilities | 77,732,734 | 2,915,094 | 80,647,828 | |||||
Partners' equity | ||||||||
Total controlling interest | 50,515,092 | - | 50,515,092 | |||||
Non-controlling interest | (28,810 | ) | - | (28,810 | ) | |||
Total Partners' equity | 50,486,282 | - | 50,486,282 | |||||
Commitments and contingent liabilities | ||||||||
$ | 128,219,016 | 2,915,094 | 131,134,110 | |||||
F-54
(19) | Recently issued financial reporting standards- | |
In December 2007, the FASB issued ASC 805 “Business Combinations”, and ASC 810 “Consolidation”, an amendment to ARB No. 51. Statements ASC 805 and ASC 810 require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both Statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited. Statement ASC 805 will be applied to business combinations occurring after the effective date. Statement ASC 810 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. All of the Company’s subsidiaries are wholly owned, so the adoption of Statement ASC 810 is not expected to impact its financial position and results of operations. The Company did not have any material effect on its overall financial position or results of operations. | ||
In May 2009 the FASB issued ASC 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 becomes effective to interim or annual financial periods ending after June 15, 2009. The adoption of ASC 855 did not have any impact on the Company’s financial or results of operations. | ||
In June 2009, the FASB issued ASC 810, “Consolidation”, which improves financial reporting by enterprises involved with variable interest entities. The Board developed this pronouncement to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in ASC 860, “Transfers and Servicing”, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. We are currently evaluating the impact of adoption of ASC 810 on our consolidated financial position or results of operations. | ||
F-55