10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________ 

Form 10-Q

(Mark one)
	þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended July 29, 2012
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)

North Carolina	56-2169715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
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

     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  þ No  o

     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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 Exchange Act). Yes  o No  þ

Number of shares of Common Stock, no par value, outstanding as of August 20, 2012: 65,001,705.

1

TABLE OF CONTENTS

		Page
FORWARD-LOOKING STATEMENTS		3
PART I - FINANCIAL INFORMATION		4
Item 1.	FINANCIAL STATEMENTS	4
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	RESULTS OF OPERATIONS	23
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	53
Item 4.	CONTROLS AND PROCEDURES	53
PART II - OTHER INFORMATION		53
Item 1.	LEGAL PROCEEDINGS	53
Item 1A.	RISK FACTORS	53
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	54
Item 3.	DEFAULTS UPON SENIOR SECURITIES	54
Item 4.	MINE SAFETY DISCLOSURES	54
Item 5.	OTHER INFORMATION	54
Item 6.	EXHIBITS	54
	SIGNATURES	55
	EXHIBIT INDEX	56

2

     As used herein, unless the context otherwise requires, “Krispy Kreme,” the “Company,” “we,” “us” and “our” refer to Krispy Kreme Doughnuts, Inc. and its subsidiaries. References to fiscal 2013 and fiscal 2012 mean the fiscal years ending February 3, 2013 and January 29, 2012, respectively.

FORWARD-LOOKING STATEMENTS

     This quarterly report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that relate to our plans, objectives, estimates and goals. Statements expressing expectations regarding our future and projections relating to products, sales, revenues, expenditures, costs and earnings are typical of such statements, and are made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions and expectations of our future economic performance, considering the information currently available to management. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. 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. Factors that could contribute to these differences include, but are not limited to:

• the quality of Company and franchise store operations;

• our ability, and our dependence on the ability of our franchisees, to execute on our and their business plans;

• our relationships with our franchisees;

• our ability to implement our international growth strategy;

• our ability to implement our new domestic small shop operating model;

• political, economic, currency and other risks associated with our international operations;

• the price and availability of raw materials needed to produce doughnut mixes and other ingredients, and the price of motor fuel;

• our relationships with wholesale customers;

• our ability to protect our trademarks and trade secrets;

• changes in customer preferences and perceptions;

• risks associated with competition;

• risks related to the food service industry, including food safety and protection of personal information;

• compliance with government regulations relating to food products and franchising;

• increased costs or other effects of new government regulations relating to healthcare benefits; and

• other factors discussed in Krispy Kreme’s periodic reports and other information filed with the United States Securities and Exchange Commission (the “SEC”), including under Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29,2012 (the “2012 Form 10-K”).

     All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

We caution you that any forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from the facts, results, performance or achievements we have anticipated in such forward-looking statements except as required by the federal securities laws.

3

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

	Page
Index to Financial Statements
Consolidated statement of income for the three and six months ended July 29, 2012 and July 31, 2011	5
Consolidated statement of comprehensive income for the three and six months ended July 29, 2012 and July 31, 2011	6
Consolidated balance sheet as of July 29, 2012 and January 29, 2012	7
Consolidated statement of cash flows for the six months ended July 29, 2012 and July 31, 2011	8
Consolidated statement of changes in shareholders’ equity for the six months ended July 29, 2012 and July 31, 2011	9
Notes to financial statements	10

4

KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

	Three Months Ended						Six Months Ended
	July 29,			July 31,			July 29,			July 31,
	2012			2011			2012			2011
	(In thousands, except per share amounts)
Revenues	$	102,115		$	97,952		$	210,611		$	202,552
Operating expenses:
Direct operating expenses (exclusive of depreciation
expense shown below)		85,657			85,697			174,348			172,680
General and administrative expenses		4,770			4,930			11,228			10,574
Depreciation expense		2,399			2,087			4,881			4,025
Impairment charges and lease termination costs		55			301			86			545
Operating income		9,234			4,937			20,068			14,728
Interest income		61			56			88			101
Interest expense		(420	)		(414	)		(818	)		(891	)
Equity in income (losses) of equity method franchisees		(53	)		12			(103	)		3
Gain on sale of interest in equity method franchisee		-			6,198			-			6,198
Other non-operating income and (expense), net		79			86			157			172
Income before income taxes		8,901			10,875			19,392			20,311
Provision for income taxes		3,972			2,036			8,437			2,301
Net income	$	4,929		$	8,839		$	10,955		$	18,010
Earnings per common share:
Basic	$	0.07		$	0.13		$	0.16		$	0.26
Diluted	$	0.07		$	0.12		$	0.16		$	0.25

The accompanying notes are an integral part of the financial statements.

5

KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

	Three Months Ended						Six Months Ended
	July 29,			July 31,			July 29,			July 31,
	2012			2011			2012			2011
	(In thousands)
Net income	$	4,929		$	8,839		$	10,955		$	18,010
Other comprehensive income (loss):
Foreign currency translation adjustment		-			(27	)		-			57
Less income taxes		-			10			-			(23	)
		-			(17	)		-			34
Unrealized loss on cash flow hedge		(16	)		(183	)		(14	)		(381	)
Less income taxes		6			73			5			151
		(10	)		(110	)		(9	)		(230	)
Total other comprehensive loss		(10	)		(127	)		(9	)		(196	)
Comprehensive income	$	4,919		$	8,712		$	10,946		$	17,814

The accompanying notes are an integral part of the financial statements.

6

KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED BALANCE SHEET
(Unaudited)

	July 29,			January 29,
	2012			2012
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	41,002		$	44,319
Receivables		22,376			21,616
Receivables from equity method franchisees		756			655
Inventories		15,704			16,497
Deferred income taxes		17,723			10,540
Other current assets		7,319			3,613
Total current assets		104,880			97,240
Property and equipment		75,628			75,466
Investments in equity method franchisees		-			-
Goodwill and other intangible assets		23,776			23,776
Deferred income taxes		107,172			129,053
Other assets		11,044			9,413
Total assets	$	322,500		$	334,948
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	2,181		$	2,224
Accounts payable		11,901			10,494
Accrued liabilities		25,833			28,800
Total current liabilities		39,915			41,518
Long-term debt, less current maturities		24,283			25,369
Other long-term obligations		23,247			18,935
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value		-			-
Common stock, no par value		352,522			377,539
Accumulated other comprehensive loss		(345	)		(336	)
Accumulated deficit		(117,122	)		(128,077	)
Total shareholders’ equity		235,055			249,126
Total liabilities and shareholders’ equity	$	322,500		$	334,948

The accompanying notes are an integral part of the financial statements.

7

KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

	Six Months Ended
	July 29,			July 31,
	2012			2011
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,955		$	18,010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		4,881			4,025
Deferred income taxes		7,524			128
Accrued rent expense		257			315
Loss on disposal of property and equipment		389			213
Gain on sale of interest in equity method franchisee		-			(6,198	)
Share-based compensation		2,148			1,806
Provision for doubtful accounts		(73	)		(399	)
Amortization of deferred financing costs		202			218
Equity in (income) losses of equity method franchisees		103			(3	)
Other		(1,258	)		1,283
Change in assets and liabilities:
Receivables		(693	)		199
Inventories		793			(3,921	)
Other current and non-current assets		(1,968	)		(1,093	)
Accounts payable and accrued liabilities		(1,859	)		(351	)
Other long-term obligations		1,592			(1,540	)
Net cash provided by operating activities		22,993			12,692
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(5,233	)		(4,146	)
Proceeds from disposals of property and equipment		49			19
Proceeds from sale of interest in equity method franchisee		-			7,723
Escrow deposit recovery		-			1,000
Other investing activities		(24	)		13
Net cash provided by (used for) investing activities		(5,208	)		4,609
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt		(1,100	)		(7,846	)
Deferred financing costs		(11	)		(12	)
Proceeds from exercise of stock options		-			1,036
Proceeds from exercise of warrants		9			-
Repurchase of common shares		(20,000	)		(125	)
Net cash used for financing activities		(21,102	)		(6,947	)
Net increase (decrease) in cash and cash equivalents		(3,317	)		10,354
Cash and cash equivalents at beginning of period		44,319			21,970
Cash and cash equivalents at end of period	$	41,002		$	32,324

The accompanying notes are an integral part of the financial statements.

8

KRISPY KREME DOUGHNUTS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

						Accumulated
	Common					Other
	Shares		Common			Comprehensive			Accumulated
	Outstanding		Stock			Income (Loss)			Deficit			Total
	(In thousands)
Balance at January 29, 2012	68,092		$	377,539		$	(336	)	$	(128,077	)	$	249,126
Comprehensive income (loss) for the six months
ended July 29, 2012							(9	)		10,955			10,946
Write-off of deferred tax asset related to the
expiration of unexercised stock warrants	-			(7,174	)								(7,174	)
Exercise of warrants	1			9									9
Share-based compensation	22			2,148									2,148
Repurchase of common shares	(3,113	)		(20,000	)								(20,000	)
Balance at July 29, 2012	65,002		$	352,522		$	(345	)	$	(117,122	)	$	235,055
Balance at January 30, 2011	67,527		$	370,808		$	(34	)	$	(294,346	)	$	76,428
Comprehensive income (loss) for the six months
ended July 31, 2011							(196	)		18,010			17,814
Exercise of stock options	397			1,036									1,036
Cancelation of restricted shares	(8	)		-									-
Share-based compensation	28			1,806									1,806
Repurchase of common shares	(16	)		(125	)								(125	)
Balance at July 31, 2011	67,928		$	373,525		$	(230	)	$	(276,336	)	$	96,959

The accompanying notes are an integral part of the financial statements.

9

KRISPY KREME DOUGHNUTS, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Accounting Policies

     Krispy Kreme Doughnuts, Inc. (“KKDI”) and its subsidiaries (collectively, the “Company”) are engaged in the sale of doughnuts and complementary products through Company-owned stores. The Company also derives revenue from franchise and development fees and royalties from franchisees. Additionally, the Company sells doughnut mix, other ingredients and supplies and doughnut-making equipment to franchisees.

Significant Accounting Policies

BASIS OF PRESENTATION. The consolidated financial statements contained herein should be read in conjunction with the Company’s 2012 Form 10-K. The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 10 of Regulation S-X and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with the Company’s accounting practices described in the 2012 Form 10-K, but have not been audited. In management’s opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company’s results of operations for the periods presented. The consolidated balance sheet data as of January 29, 2012 were derived from the Company’s audited financial statements but do not include all disclosures required by GAAP.

BASIS OF CONSOLIDATION. The financial statements include the accounts of KKDI and its subsidiaries, the most significant of which is KKDI’s principal operating subsidiary, Krispy Kreme Doughnut Corporation.

Investments in entities over which the Company has the ability to exercise significant influence but which the Company does not control, and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method. These entities typically are 25% to 35% owned and are hereinafter sometimes referred to as “Equity Method Franchisees.”

EARNINGS PER SHARE. The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued, computed using the treasury stock method. Such potential common shares consist of shares issuable upon the exercise of stock options and warrants and the vesting of currently unvested shares of restricted stock and restricted stock units.

The following table sets forth amounts used in the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	July 29,		July 31,		July 29,		July 31,
	2012		2011		2012		2011
	(In thousands)
Numerator: net income	$	4,929	$	8,839	$	10,955	$	18,010
Denominator:
Basic earnings per share - weighted average shares outstanding		67,461		68,900		68,511		68,827
Effect of dilutive securities:
Stock options and warrants		1,488		2,080		1,635		1,868
Restricted stock and restricted stock units		483		726		514		743
Diluted earnings per share - weighted average shares
outstanding plus dilutive potential common shares		69,432		71,706		70,660		71,438

The sum of the quarterly earnings per share amounts does not necessarily equal earnings per share for the year to date.

Stock options and warrants with respect to 4.3 million and 6.5 million shares for the three months ended July 29, 2012 and July 31, 2011, respectively, as well as 174,000 unvested shares of restricted stock and unvested restricted stock units for the three months ended July 29, 2012, have been excluded from the computation of the number of shares used to compute diluted earnings per share because their inclusion would be antidilutive.

10

     Stock options and warrants with respect to 3.3 million and 7.3 million shares, as well as 87,000 and 67,000 unvested shares of restricted stock and unvested restricted stock units, have been excluded from the computation of the number of shares used to compute diluted earnings per share for the six months ended July 29, 2012 and July 31, 2011, respectively, because their inclusion would be antidilutive.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) related to fair value measurements. The ASU clarifies some existing concepts, eliminates wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between GAAP and IFRS. The ASU also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The Company adopted the new standards in the first quarter of fiscal 2013; such adoption had no effect on the Company’s financial condition or results of operations.

In June 2011, the FASB issued new accounting standards which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The Company adopted the new standards in the first quarter of fiscal 2013 by presenting a separate consolidated statement of comprehensive income in addition to the consolidated statement of income.

Note 2 — Segment Information

The Company’s reportable segments are Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. The Company Stores segment is comprised of the stores operated by the Company. These stores sell doughnuts and complementary products through both on-premises and wholesale sales channels, although some stores serve only one of these distribution channels. The Domestic Franchise and International Franchise segments consist of the Company’s franchise operations. Under the terms of franchise agreements, domestic and international franchisees pay royalties and fees to the Company in return for the use of the Krispy Kreme name and ongoing brand and operational support. Expenses for these segments include costs to recruit new franchisees, to assist in store openings, to support franchisee operations and marketing efforts, as well as allocated corporate costs. The majority of the ingredients and materials used by Company stores are purchased from the KK Supply Chain segment, which supplies doughnut mix, other ingredients and supplies and doughnut making equipment to both Company and franchisee-owned stores.

All intercompany sales by the KK Supply Chain segment to the Company Stores segment are at prices intended to reflect an arms-length transfer price and are eliminated in consolidation. Operating income for the Company Stores segment does not include any profit earned by the KK Supply Chain segment on sales of doughnut mix and other items to the Company Stores segment; such profit is included in KK Supply Chain operating income.

11

The following table presents the results of operations of the Company’s operating segments for the three and six months ended July 29, 2012 and July 31, 2011. Segment operating income is consolidated operating income before unallocated general and administrative expenses and impairment charges and lease termination costs.

	Three Months Ended						Six Months Ended
	July 29,			July 31,			July 29,			July 31,
	2012			2011			2012			2011
	(In thousands)
Revenues:
Company Stores	$	69,338		$	65,992		$	142,679		$	135,467
Domestic Franchise		2,430			2,349			5,063			4,718
International Franchise		5,781			5,352			11,808			10,988
KK Supply Chain:
Total revenues		51,465			50,341			105,250			104,224
Less – intersegment sales elimination		(26,899	)		(26,082	)		(54,189	)		(52,845	)
External KK Supply Chain revenues		24,566			24,259			51,061			51,379
Total revenues	$	102,115		$	97,952		$	210,611		$	202,552
Operating income (loss):
Company Stores	$	338		$	(1,049	)	$	3,286		$	1,125
Domestic Franchise		1,329			216			2,898			1,363
International Franchise		4,162			3,409			8,656			7,580
KK Supply Chain		8,392			7,745			16,869			16,087
Total segment operating income		14,221			10,321			31,709			26,155
Unallocated general and administrative expenses		(4,932	)		(5,083	)		(11,555	)		(10,882	)
Impairment charges and lease termination costs		(55	)		(301	)		(86	)		(545	)
Consolidated operating income	$	9,234		$	4,937		$	20,068		$	14,728
Depreciation expense:
Company Stores	$	1,944		$	1,689		$	4,041		$	3,226
Domestic Franchise		55			55			110			110
International Franchise		3			2			6			4
KK Supply Chain		235			188			397			377
Corporate administration		162			153			327			308
Total depreciation expense	$	2,399		$	2,087		$	4,881		$	4,025

     Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources among segments.

Note 3 — Income Taxes

The Company recognizes deferred income tax assets and liabilities based upon management’s expectation of the future tax consequences of temporary differences between the income tax and financial reporting bases of assets and liabilities. Deferred tax liabilities generally represent tax expense recognized for which payment has been deferred, or expenses which have been deducted in the Company’s tax returns but which have not yet been recognized as an expense in the financial statements. Deferred tax assets generally represent tax deductions or credits that will be reflected in future tax returns for which the Company has already recorded a tax benefit in its consolidated financial statements.

The Company establishes valuation allowances for deferred income tax assets in accordance with GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not.

The Company had valuation allowances against deferred tax assets of $10.7 million at July 29, 2012 and January 29, 2012, representing the portion of such deferred tax assets which, as of such dates, management estimated would not be realized in future periods. Under GAAP, future realization of deferred tax assets is evaluated under a “more likely than not” standard. Realization of net deferred tax assets generally is dependent on generation of taxable income in future periods. From fiscal 2005 until the fourth quarter of fiscal 2012, the Company maintained valuation allowances on deferred tax assets equal to the entire excess of those assets over the Company’s deferred income tax liabilities because of the uncertainty surrounding the realization of those assets. Such uncertainty arose principally from the substantial losses incurred by the Company from fiscal 2005 through fiscal 2009.

12

     The Company reported a pretax profit of $418,000 in fiscal 2010 and $8.9 million in fiscal 2011. In fiscal 2012, the Company’s pretax profit increased to $30.4 million, inclusive of a $6.2 million non-recurring gain on the Company’s sale of its 30% interest in Krispy Kreme Mexico, S. de R.L. de C.V. (“KK Mexico”), the Company’s franchisee in Mexico. After considering all relevant factors and objectively verifiable evidence having an impact on the likelihood of future realization of the Company’s deferred tax assets, in the fourth quarter of fiscal 2012 management concluded that it was more likely than not that a substantial portion of the Company’s deferred tax assets will be realized in future years. Accordingly, the Company reversed $139.6 million of the valuation allowance on deferred tax assets, with an offsetting credit to the provision for income taxes, in the fourth quarter of fiscal 2012.

The remaining valuation allowance of $10.7 million at July 29, 2012 and January 29, 2012 represents the portion of the Company’s deferred tax assets management estimates will not be realized in the future. Such assets are associated principally with state net operating loss and state credit carryforwards having relatively short carryforward periods which are forecasted to expire unused, as well as federal foreign tax credits and federal jobs credit carryforwards forecasted to expire unused.

The realization of deferred income tax assets is dependent on future events. While management believes its forecast of future taxable income is reasonable, actual results inevitably will vary from management’s forecasts. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements.

In fiscal 2008, the Company issued warrants to acquire shares of the Company’s common stock at a price of $12.21 per share in connection with the settlement of certain litigation. Such warrants expired worthless in March 2012 and, accordingly, the Company will not receive any income tax deduction related to them. Deferred tax assets at January 29, 2012 included approximately $7.2 million related to these warrants. In accordance with GAAP, the write-off of this deferred tax asset was charged to common stock in the first quarter of fiscal 2013 and reduced the Company’s pool of windfall tax benefits.

Note 4 — Receivables

The components of receivables are as follows:

	July 29,			January 29,
	2012			2012
	(In thousands)
Receivables:
Wholesale customers	$	9,804		$	10,169
Unaffiliated franchisees		11,526			11,405
Other receivables		995			1,015
Current portion of notes receivable		212			185
		22,537			22,774
Less — allowance for doubtful accounts:
Wholesale customers		(125	)		(349	)
Unaffiliated franchisees		(36	)		(809	)
		(161	)		(1,158	)
	$	22,376		$	21,616
Receivables from Equity Method Franchisees (Note 6):
Trade	$	756		$	655

13

The changes in the allowance for doubtful accounts are summarized as follows:

	Six Months Ended
	July 29,			July 31,
	2012			2011
	(In thousands)
Allowance for doubtful accounts related to receivables:
Balance at beginning of period	$	1,158		$	1,334
Provision for doubtful accounts		(14	)		13
Net recoveries (chargeoffs)		(983	)		(40	)
Balance at end of period	$	161		$	1,307
Allowance for doubtful accounts related to receivables from Equity Method Franchisees:
Balance at beginning of period	$	-		$	-
Provision for doubtful accounts		(59	)		-
Net recoveries (chargeoffs)		59			-
Balance at end of period	$	-		$	-
The Company also has notes receivable from franchisees which are summarized in the following table. These balances are included in “Other assets” in the accompanying consolidated balance sheet.
	July 29,			January 29,
	2012			2012
	(In thousands)
Notes receivable:
Notes receivable from franchisees	$	586		$	777
Less — portion due within one year included in receivables		(212	)		(185	)
Less — allowance for doubtful accounts		(68	)		(68	)
	$	306		$	524
The changes in the allowance for doubtful accounts related to notes receivable are summarized as follows:
	Six Months Ended
	July 29,			July 31,
	2012			2011
	(In thousands)
Balance at beginning of period	$	68		$	538
Provision for doubtful accounts		-			(412	)
Net recoveries (chargeoffs)		-			(58	)
Balance at end of period	$	68		$	68

     In addition to the foregoing notes receivable, the Company had promissory notes totaling approximately $3.3 million at July 29, 2012 and January 29, 2012 representing principally royalties and fees due to the Company which, as a result of doubt about their collection, the Company had not yet recorded as revenues. No payments were required to be made currently on any of these amounts. During the quarter ended May 1, 2011, the Company recognized approximately $375,000 of previously unrecognized revenues related to KK Mexico which were received on May 5, 2011 in connection with the Company’s sale of its 30% equity interest in the franchisee, as more fully described in Note 6. During the quarter ended May 1, 2011, the Company also reversed an allowance for doubtful notes receivable of $391,000 related to KK Mexico; such note also was paid in full on May 5, 2011.

14

Note 5 — Inventories

The components of inventories are as follows:

	July 29,		January 29,
	2012		2012
	(In thousands)
Raw materials	$	5,331	$	5,306
Work in progress		38		89
Finished goods and purchased merchandise		10,335		11,102
	$	15,704	$	16,497

Note 6 — Investments in Franchisees

     As of July 29, 2012, the Company had investments in three franchisees. These investments have been made in the form of capital contributions and, in certain instances, loans evidenced by promissory notes. These investments are reflected as “Investments in equity method franchisees” in the consolidated balance sheet.

The Company’s financial exposures related to franchisees in which the Company has an investment are summarized in the tables below.

	July 29, 2012
	Company		Investment
	Ownership		and					Loan
	Percentage		Advances			Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0	%	$	900		$	297	$	593
Kremeworks Canada, LP	24.5	%		-			22		-
Krispy Kreme of South Florida, LLC	35.3	%		-			437		1,789
				900			756	$	2,382
Less: reserves and allowances				(900	)		-
			$	-		$	756
	January 29, 2012
	Company		Investment
	Ownership		and					Loan
	Percentage		Advances			Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0	%	$	900		$	308	$	739
Kremeworks Canada, LP	24.5	%		-			20		-
Krispy Kreme of South Florida, LLC	35.3	%		-			327		1,946
				900			655	$	2,685
Less: reserves and allowances				(900	)		-
			$	-		$	655

     The Company has guaranteed loans from third-party financial institutions on behalf of certain Equity Method Franchisees, primarily to assist the franchisees in obtaining third-party financing. The loans are collateralized by certain assets of the franchisee, generally the Krispy Kreme store and related equipment. The loan guarantee amounts represent the portion of the principal amount outstanding under the related loan that is subject to the Company’s guarantee.

The Company has a 25% interest in Kremeworks, LLC (“Kremeworks”), and has guaranteed 20% of the outstanding principal balance of certain of Kremeworks’ bank indebtedness, which, as amended, matures in October 2012. The aggregate amount of such indebtedness was approximately $3.0 million at July 29, 2012.

15

     Current liabilities at July 29, 2012 and January 29, 2012 include accruals for potential payments under loan guarantees of approximately $1.8 million and $1.9 million, respectively, related to Krispy Kreme of South Florida, LLC (“KKSF”). The underlying indebtedness related to approximately $1.6 million of the Company’s KKSF guarantee exposure matured by its terms in October 2009. Such maturity has been extended on a month-to-month basis pursuant to an informal agreement between KKSF and the lender. There was no liability reflected in the financial statements for the guarantee of Kremeworks’ debt because the Company did not believe it was probable that the Company would be required to perform under that guarantee.

On May 5, 2011, the Company sold its 30% equity interest in KK Mexico to KK Mexico’s majority shareholder. The Company received cash proceeds of approximately $7.7 million in exchange for its equity interest and, after deducting costs of the transaction, realized a gain of approximately $6.2 million on the disposition. After provision for payment of Mexican income taxes related to the sale of approximately $1.5 million, the Company reported an after tax gain on the disposition of approximately $4.7 million in the quarter ending July 31, 2011. The net after tax proceeds of the sale of approximately $6.2 million were used to prepay a portion of the outstanding balance of the 2011 Term Loan.

In connection with the Company’s sale of its KK Mexico interest, KK Mexico paid approximately $765,000 of amounts due to the Company which were evidenced by promissory notes, relating principally to past due royalties and fees due to the Company. As a consequence of this payment, in the quarter ended May 1, 2011, the Company reversed an allowance for doubtful notes receivable of $391,000 and recorded royalty and franchise fee income of approximately $280,000 and $95,000 respectively. The reserve had previously been established, and the royalties and fees had not previously been recognized as revenue, because of uncertainty surrounding the collection of these amounts.

Note 7 — Shareholders’ Equity

Share-Based Compensation for Employees and Directors

On June 12, 2012, the Company’s shareholders approved the Krispy Kreme Doughnuts, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan, the term of which expires on June 11, 2022, replaces the Company’s 2000 Stock Incentive Plan, which expired on June 30, 2012. The 2012 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock awards, performance unit awards, performance share awards, stock appreciation rights, and phantom stock awards.

The 2012 Plan limits the issuance of shares of Company common stock under the 2012 Plan to approximately 3,550,000 shares. Any shares that are subject to options or stock appreciation rights awarded under the 2012 Plan will be counted against the 2012 Plan limit as one share for every one share granted, and any shares that are subject to 2012 Plan awards other than options or stock appreciation rights will be counted against this limit as one and thirty three-hundredths (1.33) shares for every one share granted. The 2012 Plan provides that options may be granted with exercise prices not less than the closing sale price of the Company’s common stock on the date of grant.

The Company measures and recognizes compensation expense for share-based payment (“SBP”) awards based on their fair values. The fair value of SBP awards for which employees and directors render the requisite service necessary for the award to vest is recognized over the related vesting period.

The aggregate cost of SBP awards charged to earnings for the three and six months ended July 29, 2012 and July 31, 2011 is set forth in the following table. The Company did not realize any excess tax benefits from the exercise of stock options or the vesting of restricted stock or restricted stock units during any of the periods.

	Three Months Ended				Six Months Ended
	July 29,		July 31,		July 29,		July 31,
	2012		2011		2012		2011
	(In thousands)
Costs charged to earnings related to:
Stock options	$	234	$	395	$	1,061	$	770
Restricted stock and restricted stock units		537		518		1,087		1,036
Total costs	$	771	$	913	$	2,148	$	1,806
Costs included in:
Direct operating expenses	$	357	$	483	$	727	$	965
General and administrative expenses		414		430		1,421		841
Total costs	$	771	$	913	$	2,148	$	1,806

16

Repurchases of Common Stock

     On March 27, 2012, the Company’s Board of Directors authorized the repurchase of up to $20 million of the Company’s common stock. The Company’s lenders consented to such repurchases through June 30, 2013, subject to certain conditions, as described in Note 12 to the Company’s consolidated financial statements included in the 2012 Form 10-K.

The Company generally permits holders of restricted stock and restricted stock unit awards to satisfy their obligations to reimburse the Company for the minimum required statutory withholding taxes arising from the vesting of such awards by surrendering vested common shares in lieu of reimbursing the Company in cash.

The following table summarizes repurchases of common stock for the three and six months ended July 29, 2012 and July 31, 2011:

	Three Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	2,858	$	18,146	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	3		68
	2,858	$	18,146	3	$	68
	Six Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	3,113	$	20,000	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	16		125
	3,113	$	20,000	16	$	125

     The Company completed the share repurchase during the second quarter of fiscal 2013, purchasing 2,858,000 shares at an average cost of $6.35. For the six months ended July 29, 2012, the Company purchased 3,113,000 shares at an average cost of $6.42 per share, for a total cost of $20 million.

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Note 8 — Impairment Charges and Lease Termination Costs

     The components of impairment charges and lease termination costs are as follows:

	Three Months Ended				Six Months Ended
	July 29,		July 31,		July 29,		July 31,
	2012		2011		2012		2011
	(In thousands)
Impairment of long-lived assets	$	-	$	-	$	-	$	-
Lease termination costs		55		301		86		545
Total impairment charges and lease termination costs	$	55	$	301	$	86	$	545

The Company tests long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of the Company’s annual budgeting process. When the Company concludes that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), the Company records impairment charges to reduce the carrying value of those assets to their estimated fair values.

Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which the Company ceases use of the leased property. The fair value of these liabilities are estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords.

The transactions reflected in the accrual for lease termination costs are summarized as follows:

	Three Months Ended						Six Months Ended
	July 29,			July 31,			July 29,			July 31,
	2012			2011			2012			2011
	(In thousands)
Balance at beginning of period	$	694		$	1,290		$	709		$	1,995
Provision for lease termination costs:
Adjustments to previously recorded provisions resulting
from settlements with lessors and adjustments of previous estimates		47			280			70			492
Accretion of discount		8			21			16			53
Total provision		55			301			86			545
Payments on unexpired leases, including settlements with lessors		(70	)		(439	)		(116	)		(1,388	)
Balance at end of period	$	679		$	1,152		$	679		$	1,152

Note 9 — Fair Value Measurements

The accounting standards for fair value measurements define fair value as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

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The accounting standards for fair value measurements establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
   
• Level 2 - Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
   
• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at July 29, 2012 and January 29, 2012.

	July 29, 2012
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
401(k) mirror plan assets	$	1,601	$	-	$	-
Agricultural commodity futures contracts		57		-		-
Interest rate derivative		-		30		-
Total assets	$	1,658	$	30	$	-
	January 29, 2012
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
401(k) mirror plan assets	$	1,039	$	-	$	-
Agricultural commodity futures contracts		21		-		-
Interest rate derivative		-		53		-
Total assets	$	1,060	$	53	$	-

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

     There were no nonrecurring fair value measurements recorded during the three and six months ended July 29, 2012 and July 31, 2011.

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Fair Values of Financial Instruments at the Balance Sheet Dates

The carrying values and approximate fair values of certain financial instruments as of July 29, 2012 and January 29, 2012 were as follows:

	July 29, 2012				January 29, 2012
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(In thousands)
Assets:
Cash and cash equivalents	$	41,002	$	41,002	$	44,319	$	44,319
Receivables		22,376		22,376		21,616		21,616
Receivables from Equity Method Franchisees		756		756		655		655
Agricultural commodity futures contracts		57		57		21		21
Interest rate derivatives		30		30		53		53
Liabilities:
Accounts payable		11,901		11,901		10,494		10,494
Long-term debt (including current maturities)		26,464		26,464		27,593		27,593

     The fair value of the term loan is estimated based on an indicative bid price. As such, the term loan is classified within Level 2, as defined under GAAP.

Note 10 — Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. The Company does not hold or issue derivative instruments for trading purposes.

The Company is exposed to credit-related losses in the event of non-performance by the counterparties to its derivative instruments. The Company mitigates this risk of nonperformance by dealing with highly rated counterparties.

Additional disclosure about the fair value of derivative instruments is included in Note 9.

Commodity Price Risk

The Company is exposed to the effects of commodity price fluctuations in the cost of ingredients of its products, of which flour, sugar and shortening are the most significant. In order to bring greater stability to the cost of ingredients, from time to time the Company purchases exchange-traded commodity futures contracts, and options on such contracts, for raw materials which are ingredients of its products or which are components of such ingredients, including wheat and soybean oil. The Company is also exposed to the effects of commodity price fluctuations in the cost of gasoline used by its delivery vehicles. To mitigate the risk of fluctuations in the price of its gasoline purchases, the Company may purchase exchange-traded commodity futures contracts and options on such contracts. The difference between the cost, if any, and the fair value of commodity derivatives is reflected in earnings because the Company has not designated any of these instruments as hedges. Gains and losses on these contracts are intended to offset losses and gains on the hedged transactions in an effort to reduce the earnings volatility resulting from fluctuating commodity prices. The settlement of commodity derivative contracts is reported in the consolidated statement of cash flows as a cash flow from operating activities. At July 29, 2012, the Company had commodity derivatives with an aggregate contract volume of 30,000 bushels of wheat. Other than the requirement to meet minimum margin requirements with respect to the commodity derivatives, there are no collateral requirements related to such contracts.

Interest Rate Risk

All of the borrowings under the Company’s secured credit facilities bear interest at variable rates based upon either the lenders’ prime rate, the Fed funds rate or LIBOR. The interest cost of the Company’s debt may be affected by changes in these short-term interest rates and increases in those rates may adversely affect the Company’s results of operations.

On March 3, 2011, the Company entered into an interest rate derivative contract having an aggregate notional principal amount of $17.5 million. The derivative contract entitles the Company to receive from the counterparty the excess, if any, of the three-month LIBOR rate over 3.00% for each of the calendar quarters in the period beginning April 2012 and ending December 2015. The Company is accounting for this derivative contract as a cash flow hedge.

20

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

The following table presents the fair values of derivative instruments included in the consolidated balance sheet as of July 29, 2012 and January 29, 2012:

		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	2012		2012
		(In thousands)
Agricultural commodity futures contracts	Other current assets	$	57	$	21
		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Designated as a Cash Flow Hedge	Balance Sheet Location	2012		2012
		(In thousands)
Interest rate derivative	Other assets	$	30	$	53

21

The effect of derivative instruments on the consolidated statement of income for the three and six months ended July 29, 2012 and July 31, 2011, was as follows:

		Amount of Derivative Gain or (Loss)
		Recognized in Income
		Three Months Ended					Six Months Ended
Derivatives Not Designated as Hedging	Location of Derivative Gain or (Loss)	July 29,		July 31,			July 29,		July 31,
Instruments	Recognized in Income	2012		2011			2012		2011
		(In thousands)
Agricultural commodity futures        contracts	Direct operating expenses	$	1,066	$	(129	)	$	1,117	$	(598	)
Gasoline commodity futures        contracts	Direct operating expenses		-		(22	)		-		(9	)
Total		$	1,066	$	(151	)	$	1,117	$	(607	)

		Amortization of Derivative Asset
		Recognized in Income
		Three Months Ended					Six Months Ended
Derivatives Designated as a Cash Flow	Location of Amortization of Derivative	July 29,			July 31,		July 29,			July 31,
Hedge	Asset Recognized in Income	2012			2011		2012			2011
		(In thousands)
Interest rate derivative	Interest expense	$	(7	)	$	-	$	(9	)	$	-

		Amount of Derivative Gain or (Loss) Recognized in Income
		Three Months Ended						Six Months Ended
Derivatives Designated as a Cash Flow	Location of Derivative Gain or (Loss)	July 29,			July 31,			July 29,			July 31,
Hedge	Recognized in OCI	2012			2011			2012			2011
		(In thousands)
Interest rate derivative	Change in fair value of derivative	$	(16	)	$	(183	)	$	(14	)	$	(381	)
	Less - income tax effect		6			73			5			151
	Net change in amount recognized in OCI	$	(10	)	$	(110	)	$	(9	)	$	(230	)

22

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein.

Comparability of Results of Operations

The Company’s net income and earnings per share for the second quarter and the first six months of fiscal 2013 are not comparable to the corresponding amounts for the second quarter and the first six months of fiscal 2012 as a result of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012 and the resulting increase in income tax expense in periods after the reversal. See “Results of Operations - Three Months Ended July 29, 2012 Compared to Three Months Ended July 31, 2011 - Provision for Income Taxes” and “Results of Operations - Six Months Ended July 29, 2012 Compared to Six Months Ended July 31, 2011 - Provision for Income Taxes” below.

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Results of Operations

The following table sets forth operating metrics for the three and six months ended July 29, 2012 and July 31, 2011.

	Three Months Ended								Six Months Ended
	July 29,				July 31,				July 29,				July 31,
	2012				2011				2012				2011
Change in Same Store Sales (on-premises sales only):
Company stores		5.4		%		2.5		%		3.7		%		4.2		%
Domestic Franchise stores		6.7		%		6.3		%		6.2		%		5.4		%
International Franchise stores		(12.7	)	%		(3.1	)	%		(10.3	)	%		(3.7	)	%
International Franchise stores, in constant dollars(1)		(10.0	)	%		(11.7	)	%		(8.7	)	%		(10.7	)	%
Change in Same Store Customer Count - Company stores
(retail sales only)		6.6		%		(2.9	)	%		3.8		%		0.0		%
Average guest check - Company stores (retail sales only)	$	7.43			$	7.49			$	7.27			$	7.28
Wholesale Metrics (Company stores only):
Average weekly number of doors served:
Grocery/mass merchants		5,586				5,876				5,595				5,871
Convenience stores		4,470				4,846				4,535				4,996
Average weekly sales per door:
Grocery/mass merchants	$	322			$	297			$	319			$	294
Convenience stores		246				227				247				221
Systemwide Sales (in thousands):(2)
Company stores	$	68,710			$	65,476			$	141,515			$	134,503
Domestic Franchise stores		69,532				64,829				141,504				131,526
International Franchise stores		102,437				95,669				207,357				187,260
International Franchise stores, in constant dollars(3)		102,437				92,484				207,357				183,679
Average Weekly Sales Per Store (in thousands):(4) (5)
Company stores:
Factory stores:
Commissaries — wholesale	$	179.9			$	203.2			$	180.9			$	200.8
Dual-channel stores:
On-premises		30.4				28.9				32.9				31.9
Wholesale		45.6				46.7				45.5				46.6
Total		76.0				75.6				78.4				78.5
On-premises only stores		32.9				30.1				34.2				32.0
All factory stores		68.5				67.8				70.5				69.8
Satellite stores		18.5				19.3				19.9				19.8
All stores		57.6				58.1				59.5				60.3
Domestic Franchise stores:
Factory stores	$	46.7			$	43.0			$	47.3			$	43.9
Satellite stores		16.6				15.3				17.3				15.0
International Franchise stores:
Factory stores	$	39.8			$	44.0			$	40.6			$	45.0
Satellite stores		11.1				11.0				11.4				10.4

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(1)	Represents the change in International Franchise same store sales computed by reconverting franchise store sales in each foreign currency to U.S. dollars at a constant rate of exchange for each period.
(2)	Excludes sales among Company and franchise stores.
(3)	Represents International Franchise store sales computed by reconverting International Franchise store sales for the three and six months ended July 31, 2011 to U.S. dollars based upon the weighted average of the exchange rates prevailing in the three and six months ended July 29, 2012.
(4)	Includes sales between Company and franchise stores.
(5)	Metrics for the three and six months ended July 29, 2012 and July 31, 2011 include only stores open at the respective period end.

The change in “same store sales” is computed by dividing the aggregate on-premises sales (including fundraising sales) during the current year period for all stores which had been open for more than 56 consecutive weeks during the current year (but only to the extent such sales occurred in the 57^th or later week of each store’s operation) by the aggregate on-premises sales of such stores for the comparable weeks in the preceding year. Once a store has been open for at least 57 consecutive weeks, its sales are included in the computation of same store sales for all subsequent periods. In the event a store is closed temporarily (for example, for remodeling) and has no sales during one or more weeks, such store’s sales for the comparable weeks during the earlier or subsequent period are excluded from the same store sales computation. The change in same store customer count is similarly computed, but is based upon the number of retail transactions reported in the Company’s point-of-sale system.

For wholesale sales, “average weekly number of doors” represents the average number of customer locations to which product deliveries were made during a week, and “average weekly sales per door” represents the average weekly sales to each such location.

Systemwide sales, a non-GAAP financial measure, include sales by both Company and franchise stores. The Company believes systemwide sales data are useful in assessing the overall performance of the Krispy Kreme brand and, ultimately, the performance of the Company. The Company’s consolidated financial statements appearing elsewhere herein include sales by Company stores, sales to franchisees by the KK Supply Chain business segment, and royalties and fees received from franchise stores based on their sales, but exclude sales by franchise stores to their customers.

The following table sets forth data about the number of systemwide stores as of July 29, 2012 and July 31, 2011.

	July 29,	July 31,
	2012	2011
Number of Stores Open At Period End:
Company stores:
Factory:
Commissaries	7	6
Dual-channel stores	36	35
On-premises only stores	30	29
Satellite stores	20	18
Total Company stores	93	88
Domestic Franchise stores:
Factory stores	101	103
Satellite stores	40	45
Total Domestic Franchise stores	141	148
International Franchise stores:
Factory stores	118	111
Satellite stores	359	322
Total International Franchise stores	477	433
Total systemwide stores	711	669

25

       The following table sets forth data about the number of store operating weeks for the three and six months ended July 29, 2012 and July 31, 2011.

	Three Months Ended		Six Months Ended
	July 29,	July 31,	July 29,	July 31,
	2012	2011	2012	2011
Store Operating Weeks:
Company stores:
Factory stores:
Commissaries	91	78	182	156
Dual-channel stores	468	455	936	910
On-premises only stores	384	377	761	754
Satellite stores	260	226	520	425
Domestic Franchise stores:(1)
Factory stores	1,309	1,321	2,610	2,634
Satellite stores	520	542	1,039	1,063
International Franchise stores:(1)
Factory stores	1,323	1,157	2,623	2,302
Satellite stores	4,494	4,043	8,723	7,897

(1) Metrics for the three and six months ended July 29, 2012 and July 31, 2011 include only stores open at the respective period end.

The following table sets forth the types and locations of Company stores as of July 29, 2012.

	Number of Company Stores
	Factory
State	Stores	Hot Shops	Fresh Shops	Total
Alabama	3	-	-	3
District of Columbia	-	1	-	1
Florida	4	-	-	4
Georgia	6	4	-	10
Indiana	3	1	-	4
Kansas	3	-	-	3
Kentucky	3	1	-	4
Louisiana	1	-	-	1
Maryland	2	-	-	2
Michigan	3	-	-	3
Mississippi	1	-	-	1
Missouri	4	-	-	4
New York	-	-	1	1
North Carolina	12	4	-	16
Ohio	6	-	-	6
South Carolina	3	3	-	6
Tennessee	9	3	-	12
Texas	3	-	-	3
Virginia	6	2	-	8
West Virginia	1	-	-	1
Total	73	19	1	93

26

Changes in the number of Company stores during the three and six months ended July 29, 2012 and July 31, 2011 are summarized in the table below.

	Number of Company Stores
	Factory
	Stores	Hot Shops		Fresh Shops	Total
Three months ended July 29, 2012
April 29, 2012	72	19		1	92
Opened	1	-		-	1
Closed	-	-		-	-
July 29, 2012	73	19		1	93
Six months ended July 29, 2012
January 29, 2012	72	19		1	92
Opened	1	-		-	1
Closed	-	-		-	-
July 29, 2012	73	19		1	93
Three months ended July 31, 2011
May 1, 2011	69	16		1	86
Opened	-	2		-	2
Closed	-	-		-	-
Change in store type	1	(1	)	-	-
July 31, 2011	70	17		1	88
Six months ended July 31, 2011
January 30, 2011	69	15		1	85
Opened	-	3		-	3
Closed	-	-		-	-
Change in store type	1	(1	)	-	-
July 31, 2011	70	17		1	88

27

The following table sets forth the types and locations of domestic franchise stores as of July 29, 2012.

	Number of Domestic Franchise Stores
	Factory
State	Stores	Hot Shops	Fresh Shops	Total
Alabama	5	3	-	8
Arizona	1	-	-	1
Arkansas	2	-	-	2
California	14	1	4	19
Colorado	2	-	-	2
Connecticut	1	-	3	4
Florida	12	6	1	19
Georgia	6	4	-	10
Hawaii	1	-	-	1
Idaho	1	-	-	1
Illinois	4	-	-	4
Iowa	1	-	-	1
Louisiana	3	-	-	3
Mississippi	2	1	-	3
Missouri	2	1	-	3
Nebraska	1	-	1	2
Nevada	3	-	2	5
New Jersey	-	1	-	1
New Mexico	1	-	1	2
North Carolina	7	1	-	8
Oklahoma	3	-	-	3
Oregon	2	-	-	2
Pennsylvania	4	3	1	8
South Carolina	6	2	1	9
Tennessee	1	-	-	1
Texas	7	2	-	9
Utah	2	-	-	2
Washington	6	-	-	6
Wisconsin	1	1	-	2
Total	101	26	14	141

28

Changes in the number of domestic franchise stores during the three and six months ended July 29, 2012 and July 31, 2011 are summarized in the table below.

	Number of Domestic Franchise Stores
	Factory
	Stores		Hot Shops		Fresh Shops		Total
Three months ended July 29, 2012
April 29, 2012	102		26		14		142
Opened	-		-		-		-
Closed	(1	)	-		-		(1	)
July 29, 2012	101		26		14		141
Six months ended July 29, 2012
January 29, 2012	102		25		15		142
Opened	1		2		-		3
Closed	(2	)	(1	)	(1	)	(4	)
July 29, 2012	101		26		14		141
Three months ended July 31, 2011
May 1, 2011	101		19		25		145
Opened	2		3		-		5
Closed	-		-		(2	)	(2	)
July 31, 2011	103		22		23		148
Six months ended July 31, 2011
January 30, 2011	102		17		25		144
Opened	2		6		1		9
Closed	(1	)	(1	)	(3	)	(5	)
July 31, 2011	103		22		23		148

29

The types and locations of international franchise stores as of July 29, 2012 are summarized in the table below.

	Number of International Franchise Stores
	Fiscal
	Year First	Factory
Country	Store Opened	Stores	Hot Shops	Fresh Shops	Kiosks	Total
Australia	2004	5	1	7	6	19
Bahrain	2009	1	-	1	-	2
Canada	2002	4	-	2	-	6
China	2010	2	-	1	-	3
Dominican Republic	2011	1	-	1	-	2
Indonesia	2007	3	-	3	6	12
Japan	2007	16	-	21	-	37
Kuwait	2007	3	-	5	10	18
Lebanon	2009	2	-	6	1	9
Malaysia	2010	2	1	1	4	8
Mexico	2004	7	1	24	45	77
Philippines	2007	5	3	22	4	34
Puerto Rico	2009	4	-	-	-	4
Qatar	2008	2	-	-	-	2
Saudi Arabia	2008	9	-	63	20	92
South Korea	2005	33	-	27	-	60
Thailand	2011	3	2	-	-	5
Turkey	2010	1	-	9	4	14
United Arab Emirates	2008	2	-	14	5	21
United Kingdom	2004	13	3	27	9	52
Total		118	11	234	114	477

30

     Changes in the number of international franchise stores during the three and six months ended July 29, 2012 and July 31, 2011 are summarized in the table below.

	Number of International Franchise Stores
	Factory
	Stores		Hot Shops	Fresh Shops		Kiosks		Total
Three months ended July 29, 2012
April 29, 2012	115		11	223		109		458
Opened	4		-	14		6		24
Closed	-		-	(4	)	(1	)	(5	)
Change in store type	(1	)	-	1		-		-
July 29, 2012	118		11	234		114		477
Six months ended July 29, 2012
January 29, 2012	118		11	226		105		460
Opened	4		-	28		12		44
Closed	(3	)	-	(14	)	(10	)	(27	)
Change in store type	(1	)	-	(6	)	7		-
July 29, 2012	118		11	234		114		477
Three months ended July 31, 2011
May 1, 2011	109		11	223		78		421
Opened	3		-	9		5		17
Closed	(1	)	-	(3	)	(1	)	(5	)
July 31, 2011	111		11	229		82		433
Six months ended July 31, 2011
January 30, 2011	106		11	222		78		417
Opened	7		-	16		10		33
Closed	(2	)	-	(9	)	(6	)	(17	)
July 31, 2011	111		11	229		82		433

Three months ended July 29, 2012 compared to three months ended July 31, 2011

Overview

Total revenues rose by 4.3% to $102.1 million for the three months ended July 29, 2012 compared to $98.0 million for the three months ended July 31, 2011.

Consolidated operating income increased to $9.2 million in the three months ended July 29, 2012 from $4.9 million in the three months ended July 31, 2011. Consolidated net income was $4.9 million in the three months ended July 29, 2012 compared to $8.8 million in the three months ended July 31, 2011. The Company’s net income and earnings per share for the second quarter of fiscal 2013 are not comparable to the corresponding amounts for the second quarter of fiscal 2012 as a result of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012 and the resulting increase in income tax expense after the reversal; see “Provision for Income Taxes” below.

Revenues by business segment (expressed in dollars and as a percentage of total revenues) are set forth in the table below (percentage amounts may not add to totals due to rounding).

31

	Three Months Ended
	July 29,				July 31,
	2012				2011
	(Dollars in thousands)
Revenues by business segment:
Company Stores	$	69,338			$	65,992
Domestic Franchise		2,430				2,349
International Franchise		5,781				5,352
KK Supply Chain:
Total revenues		51,465				50,341
Less - intersegment sales elimination		(26,899	)			(26,082	)
External KK Supply Chain revenues		24,566				24,259
Total revenues	$	102,115			$	97,952
Segment revenues as a percentage of total revenues:
Company Stores		67.9		%		67.4		%
Domestic Franchise		2.4				2.4
International Franchise		5.7				5.5
KK Supply Chain (external sales)		24.1				24.8
		100.0		%		100.0		%
Operating income (loss):
Company Stores	$	338			$	(1,049	)
Domestic Franchise		1,329				216
International Franchise		4,162				3,409
KK Supply Chain		8,392				7,745
Total segment operating income		14,221				10,321
Unallocated general and administrative expenses		(4,932	)			(5,083	)
Impairment charges and lease termination costs		(55	)			(301	)
Consolidated operating income	$	9,234			$	4,937

     A discussion of the revenues and operating results of each of the Company’s four business segments follows, together with a discussion of income statement line items not associated with specific segments.

32

Company Stores

The components of Company Stores revenues and expenses (expressed in dollars and as a percentage of total revenues) are set forth in the table below (percentage amounts may not add to totals due to rounding).

						Percentage of Total Revenues
	Three Months Ended					Three Months Ended
	July 29,		July 31,			July 29,		July 31,
	2012		2011			2012		2011
	(In thousands)
Revenues:
On-premises sales:
Retail sales	$	29,062	$	26,374		41.9	%	40.0		%
Fundraising sales		2,651		2,569		3.8		3.9
Total on-premises sales		31,713		28,943		45.7		43.9
Wholesale sales:
Grocery/mass merchants		23,014		22,468		33.2		34.0
Convenience stores		13,752		13,800		19.8		20.9
Other wholesale		859		781		1.2		1.2
Total wholesale sales		37,625		37,049		54.3		56.1
Total revenues		69,338		65,992		100.0		100.0
Operating expenses:
Cost of sales:
Food, beverage and packaging		26,624		25,680		38.4		38.9
Shop labor		12,743		12,484		18.4		18.9
Delivery labor		5,876		5,797		8.5		8.8
Employee benefits		5,093		4,567		7.3		6.9
Total cost of sales		50,336		48,528		72.6		73.5
Vehicle costs(1)		4,144		4,426		6.0		6.7
Occupancy(2)		2,389		2,323		3.4		3.5
Utilities expense		1,540		1,500		2.2		2.3
Depreciation expense		1,944		1,689		2.8		2.6
Other operating expenses		4,602		4,268		6.6		6.5
Total store level costs		64,955		62,734		93.7		95.1
Store operating income		4,383		3,258		6.3		4.9
Other segment operating costs(3)		2,970		3,182		4.3		4.8
Allocated corporate overhead		1,075		1,125		1.6		1.7
Segment operating income (loss)	$	338	$	(1,049	)	0.5	%	(1.6	)	%

(1)	Includes fuel, maintenance and repairs, rent, taxes and other costs of operating the delivery fleet, exclusive of depreciation.
(2)	Includes rent, property taxes, common area maintenance charges, insurance, building maintenance and other occupancy costs, exclusive of utilities and depreciation.
(3)	Includes marketing costs not charged to stores, segment management costs, wholesale selling expenses and support functions.

     A reconciliation of Company Stores segment sales from the second quarter of fiscal 2012 to the second quarter of fiscal 2013 follows:

	On-Premises		Wholesale		Total
	(In thousands)
Sales for the three months ended July 31, 2011	$	28,943	$	37,049	$	65,992
Increase in sales at mature stores (open stores only)		1,707		576		2,283
Increase in sales at stores opened in fiscal 2012		671		-		671
Sales at stores opened in fiscal 2013		392		-		392
Sales for the three months ended July 29, 2012	$	31,713	$	37,625	$	69,338

Sales at Company Stores increased 5.1% in the second quarter of fiscal 2013 from the second quarter of fiscal 2012 due to an increase in sales from existing stores and stores opened in fiscal 2012 and fiscal 2013.

33

     The following table presents sales metrics for Company stores:

	Three Months Ended
	July 29,				July 31,
	2012				2011
On-premises:
Change in same store sales		5.4		%		2.5		%
Change in same store customer count (retail sales only)		6.6		%		(2.9	)	%
Average guest check (retail sales only)	$	7.43			$	7.49
Wholesale:
Grocery/mass merchants:
Change in average weekly number of doors		(4.9	)	%		3.2		%
Change in average weekly sales per door		8.4		%		12.9		%
Convenience stores:
Change in average weekly number of doors		(7.8	)	%		(5.7	)	%
Change in average weekly sales per door		8.4		%		10.2		%

On-premises sales

The components of the change in same store sales at Company stores are as follows:

	Three Months Ended
	July 29,			July 31,
	2012			2011
Change in same store sales:
Retail pricing	0.0		%	8.3		%
Guest check average (exclusive of the effects of pricing)	(0.7	)		(2.7	)
Customer count	5.9			(2.6	)
Other	0.2			(0.5	)
Total	5.4		%	2.5		%

On-premises sales increased 9.6% to $31.7 million in the second quarter of fiscal 2013 from $28.9 million in the second quarter of fiscal 2012. The increase was driven by higher customer traffic. The Company is developing and implementing new and enhanced marketing programs designed to increase guest visit frequency.

The Company believes that the expected cannibalization and honeymoon effects of new stores in expansion markets adversely affected same store customer count in the second quarter of fiscal 2013. “Cannibalization effect” means the tendency for new stores to become successful, in part or in whole, by “shifting” sales from existing stores in the same market. “Honeymoon effect” means the common pattern for many start-up restaurants in which a flurry of activity due to start-up publicity and natural curiosity is followed by a decline during which a steady repeat customer base develops.

Wholesale distribution

Sales to wholesale accounts increased 1.6% to $37.6 million in the second quarter of fiscal 2013 from $37.0 million in the second quarter of fiscal 2012. Higher unit volumes accounted for the majority of the increase.

Sales to grocers and mass merchants increased 2.4% to $23.0 million, with an 8.4% increase in average weekly sales per door partially offset by a 4.9% decline in the average number of doors served. The Company believes that average weekly sales per door in the grocery/mass merchant channel have grown as a result of, among other things, improved customer service, introduction of additional price points, a redesign of product packaging to improve its shelf appeal, and the addition of new relatively higher volume doors. The decline in the average number of doors served in the grocery/mass merchant channel reflects store closures by a regional grocery store customer as well as the elimination of loose doughnut sales at another regional grocer, although the Company continues to sell packaged products to this customer. Sales of loose unpackaged products comprised approximately 2% of sales to grocery/mass merchant customers for the three months ended July 29, 2012, with the balance comprised of package products.

Convenience store sales were unchanged at $13.8 million, reflecting an 8.4% increase in the average weekly sales per door, partially offset by a 7.8% decline in the average number of doors served. The decline in the average number of doors served in the convenience store channel reflects the Company’s efforts to improve route management and route consolidation including the elimination of and reduction in the number of stops at relatively low volume doors. These actions are intended to increase average per door sales and reduce costs in the convenience store channel. Sales of loose unpackaged products comprised approximately 80% of sales to convenience store customers for the three months ended July 29, 2012, with the balance comprised of sales of packaged products.

34

Costs and expenses

     Total cost of sales as a percentage of revenues decreased by 0.9 percentage points from the second quarter of fiscal 2012 to 72.6% of revenues in the second quarter of fiscal 2013.

The cost of food, beverage and packaging decreased by 0.5% in the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012. The cost of doughnut mixes, shortening and packaging declined slightly reflecting lower input costs at KK Supply Chain. The cost of sugar rose approximately 11% year-over-year in the second quarter of fiscal 2013. This cost increase was partially mitigated by changes in production equipment designed to reduce the consumption of sugar in the doughnut-making process.

KK Supply Chain has fixed the prices on substantially all of its major raw materials for the remainder of fiscal 2013. Except for sugar, the Company currently anticipates the cost of doughnut mix, shortening and other ingredients to be slightly lower for the balance of fiscal 2013 compared to the second half of fiscal 2012. The Company has entered into contracts covering substantially all of its estimated sugar requirements for fiscal 2013 at average prices somewhat lower than its prices for the second half of fiscal 2012, but higher than its average price for fiscal 2012 as a whole. In addition, the Company has entered into contracts for substantially all of its estimated sugar requirements for both fiscal 2014 and fiscal 2015 at prices slightly higher than expected for fiscal 2013.

Shop labor as a percentage of revenues declined by 0.5 percentage points from the second quarter of fiscal 2012 to 18.4% of revenues in the second quarter of fiscal 2013, principally due to higher revenues and improved labor cost management.

Vehicle costs as a percentage of revenues decreased from 6.7% of revenues in the second quarter of fiscal 2012 to 6.0% of revenues in the second quarter of fiscal 2013, principally as a result of lower fuel costs due to a decrease in fuel prices and a reduction in mileage due to route rationalization.

Many segment operating costs are fixed or semi-fixed in nature and accordingly, segment profit margins are sensitive to changes in sales volumes.

The Company is self-insured for workers’ compensation, vehicle and general liability claims, but maintains stop-loss coverage for individual claims exceeding certain amounts. The Company provides for claims under these self-insured programs using actuarial methods as described in the 2012 Form 10-K, and periodically updates actuarial valuations of its self-insurance reserves. Such periodic actuarial valuations result in changes over time in the estimated amounts which ultimately will be paid for claims under these programs to reflect the Company’s actual claims experience for each policy year as well as trends in claims experience over multiple years. Such claims, particularly workers’ compensation claims, often are paid over a number of years following the year in which the insured events occur, and the estimated ultimate cost of each year’s claims accordingly is adjusted over time as additional information becomes available. As a result of the Company’s periodic update of its actuarial valuation, the Company recorded favorable adjustments to its self-insurance claims liabilities related to prior policy years of approximately $370,000 in the second quarter of fiscal 2013 and $500,000 in the second quarter of fiscal 2012. The $370,000 favorable adjustment recorded in the second quarter of fiscal 2013 includes an unfavorable adjustment relating to workers’ compensation liability claims of approximately $20,000 included in employee benefits in the table above, a favorable adjustment relating to vehicle liability claims of approximately $210,000 included in vehicle costs, and a favorable adjustment relating to general liability claims of approximately $180,000 included in other operating costs. Substantially all of the $500,000 in favorable adjustments recorded in the second quarter of fiscal 2012 relates to workers’ compensation liability claims.

On June 28, 2012, the United States Supreme Court rejected constitutional challenges to the Patient Protection and Affordable Care Act (the “Act”). Among other things, the Act requires businesses employing fifty or more full-time equivalent employees to offer health care benefits to those full-time employees beginning in January 2014, or be subject to an annual penalty. Those benefits must be provided under a health care plan which provides a certain minimum scope of health care services. The Act limits the portion of the cost of the benefits which the Company can require employees to pay.

The Company currently employs approximately 1,300 persons (approximately 35% of the Company’s total number of employees) to whom the Company does not currently provide health care benefits but who could be entitled to receive health care benefits under the Act. The Company does not know the amount by which its costs will increase assuming the above provisions of the Act are implemented in January 2014 because, among other reasons, many of the specifics relating to implementation, including many of the specifics of the coverage required to be offered, are to be contained in regulations which have not yet been drafted. In addition, the Company does not know how many of the potentially newly-eligible employees will elect to obtain coverage under the Act.

35

     However, based on information currently available to the Company and the Company’s analyses to-date and its current cost estimates, management currently does not expect that the aggregate incremental cost of providing health care coverage prescribed by the Act will exceed its current costs by more than approximately $5 million annually. The Company currently believes its incremental costs will be less than such amount, and may be substantially less. Such estimate does not reflect any mitigating actions the Company might take in order to reduce the cost of the benefits required to be offered or reduce the number of employees subject to the new requirements. The Company is continuing to study and evaluate the requirements of the Act, and the Company’s estimate of the additional cost of providing benefits mandated by the Act is expected to change as the Company gains additional information and makes decisions affecting its implementation of the Act’s requirements.

Domestic Franchise

	Three Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Revenues:
Royalties	$	2,321	$	2,136
Development and franchise fees		-		105
Other		109		108
Total revenues		2,430		2,349
Operating expenses:
Segment operating expenses		946		1,978
Depreciation expense		55		55
Allocated corporate overhead		100		100
Total operating expenses		1,101		2,133
Segment operating income	$	1,329	$	216

Domestic Franchise revenues increased 3.4% to $2.4 million in the second quarter of fiscal 2013 from $2.3 million in the second quarter of fiscal 2012. The increase reflects higher domestic royalty revenues resulting from an increase in sales by domestic franchise stores from $65 million in the second quarter of fiscal 2012 to $70 million in the second quarter of fiscal 2013. Domestic Franchise same store sales rose 6.7% in the second quarter of fiscal 2013.

Domestic Franchise operating expenses include costs to recruit new domestic franchisees, to assist in domestic store openings, and to monitor and aid in the performance of domestic franchise stores, as well as allocated corporate costs. The decrease in Domestic Franchise operating expenses in the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012 reflects a provision of $820,000 recorded in the second quarter of fiscal 2012 for payments under a lease guarantee associated with a franchisee whose franchise agreements the Company terminated during the second quarter of fiscal 2012, as well as a decrease in legal costs in the second quarter of fiscal 2013.

As of July 29, 2012, existing development and franchise agreements for territories in the United States provide for the development of approximately 50 additional stores through fiscal 2018. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

36

International Franchise

	Three Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Revenues:
Royalties	$	5,491	$	5,129
Development and franchise fees		290		223
Total revenues		5,781		5,352
Operating expenses:
Segment operating expenses		1,316		1,616
Depreciation expense		3		2
Allocated corporate overhead		300		325
Total operating expenses		1,619		1,943
Segment operating income	$	4,162	$	3,409

     International Franchise royalties increased 7.1%, driven by an increase in sales by international franchise stores from $96 million in the second quarter of fiscal 2012 to $102 million in the second quarter of fiscal 2013. Changes in the rates of exchange between the U.S. dollar and the foreign currencies in which the Company’s international franchisees do business decreased sales by international franchisees measured in U.S. dollars by approximately $3.5 million in the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012, which negatively affected international royalty revenues by approximately $210,000.

International Franchise same store sales, measured on a constant currency basis to remove the effects of changing exchange rates between foreign currencies and the U.S. dollar (“constant dollar same store sales”), fell 10.0%. The decline in International Franchise same store sales reflects, among other things, waning honeymoon effects from the large number of new stores opened internationally in recent years and the cannibalization effects on initial stores in new markets of additional store openings in those markets.

Constant dollar same store sales in established markets increased 0.9% in the second quarter of fiscal 2013 and fell 18.7% in new markets. “Established markets” means countries in which the first Krispy Kreme store opened before fiscal 2007. Sales at stores in established markets comprised approximately 50% of aggregate constant dollar same store sales for the second quarter of fiscal 2013. While the Company considers countries in which Krispy Kreme first opened before fiscal 2007 to be established markets, franchisees in those markets continue to develop their businesses; these franchisees opened 219 of the 555 international stores opened since the beginning of fiscal 2007.

International Franchise operating expenses include costs to recruit new international franchisees, to assist in international store openings, and to monitor and aid in the performance of international franchise stores, as well as allocated corporate costs. International Franchise operating expenses decreased in the second quarter of fiscal 2013 to $1.3 million compared to $1.6 million in the second quarter of fiscal 2012. International Franchise operating expenses reflect a decrease in legal fees associated with certain litigation and lower share-based compensation expense in the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012.

International franchisees opened 24 stores and closed five stores in the second quarter of fiscal 2013. As of July 29, 2012, existing development and franchise agreements for territories outside the United States provide for the development of approximately 390 additional stores through fiscal 2019. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

37

KK Supply Chain

The components of KK Supply Chain revenues and expenses (expressed in dollars and as a percentage of total revenues before intersegment sales elimination) are set forth in the table below (percentage amounts may not add to totals due to rounding).

						Percentage of Total Revenues
						Before Intersegment
						Sales Elimination
	Three Months Ended					Three Months Ended
	July 29,			July 31,		July 29,			July 31,
	2012			2011		2012			2011
	(In thousands)
Revenues:
Doughnut mixes	$	16,617		$	16,562	32.3		%	32.9	%
Other ingredients, packaging and supplies		31,595			30,795	61.4			61.2
Equipment		2,631			2,356	5.1			4.7
Fuel surcharge		622			628	1.2			1.2
Total revenues before intersegment sales elimination		51,465			50,341	100.0			100.0
Operating expenses:
Cost of sales:
Cost of goods produced and purchased		35,854			34,379	69.7			68.3
(Gain) loss on agricultural derivatives		(1,066	)		129	(2.1	)		0.3
Inbound freight		1,512			1,043	2.9			2.1
Total cost of sales		36,300			35,551	70.5			70.6
Distribution costs		3,422			3,720	6.6			7.4
Other segment operating costs		2,816			2,862	5.5			5.7
Depreciation expense		235			188	0.5			0.4
Allocated corporate overhead		300			275	0.6			0.5
Total operating costs		43,073			42,596	83.7			84.6
Segment operating income	$	8,392		$	7,745	16.3		%	15.4	%

     KK Supply Chain revenues before intersegment sales elimination increased 2.2% in the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012.

Sales of doughnut mixes were flat year-over-year in the second quarter of fiscal 2013, reflecting higher unit volumes offset by lower selling prices resulting from a reduction in raw materials costs.

Sales of other ingredients, packaging and supplies, made principally to Company and Domestic Franchise stores, rose 2.6% year-over-year in the second quarter of fiscal 2013 due to higher selling prices of sugar and slightly higher unit volumes. While systemwide sales at Company and Domestic Franchise stores rose in the second quarter of fiscal 2013 compared to the second quarter of the preceding fiscal year, a greater percentage of such sales was to on-premises customers compared to wholesale customers. On-premises sales at Company and Domestic Franchise stores generate proportionately lower KK Supply Chain sales than do sales to wholesale customers. In addition, the Company outsourced distribution to its International Franchise stores in fiscal 2012, which resulted in a reduction in sales of non-mix products to those franchisees.

The Company utilizes a fuel surcharge program to recoup additional freight costs resulting from increases in fuel costs. Charges under the program are based upon the price of diesel fuel.

KK Supply Chain input costs increased to 69.7% of revenues in second quarter of fiscal 2013 compared to 68.3% of revenues in the second quarter of the preceding fiscal year, principally as a result of an approximate 15% year-over-year increase in the cost of sugar. While the Company raised selling prices to recover higher sugar costs, the Company did not mark up such higher costs, which resulted in an increase in the overall cost of goods produced and purchased as a percentage of revenues.

Inbound freight increased 0.8 percentage points from the second quarter of fiscal 2012 to 2.9% of revenues in the second quarter of fiscal 2013 as a result of outsourcing product distribution for stores east of the Mississippi to a third party provider beginning in fiscal 2012. These increased inbound freight costs were substantially offset by a reduction in distribution costs and other segment operating costs, which include segment management, purchasing, customer service and support, laboratory and quality control costs, and research and development expenses, associated with the outsourcing of product distribution.

38

     Franchisees opened 24 stores and closed 6 stores in the second quarter of fiscal 2013. A substantial portion of KK Supply Chain’s revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

An increasing percentage of franchise store sales is attributable to sales by franchisees outside North America. The Company sells doughnut mixes and concentrates to its international franchisees. These franchisees purchase substantially all other ingredients, packaging and supplies from vendors approved by the Company. Accordingly, KK Supply Chain revenues are less correlated with sales by international franchisees than with sales by domestic franchisees.

General and Administrative Expenses

General and administrative expenses decreased slightly to $4.8 million, or 4.7% of total revenues in the second quarter of fiscal 2013 compared to $4.9 million, or 5.0% of total revenues in the second quarter of fiscal 2012. The Company is seeking to minimize general and administrative expenses in order to gain operating leverage as its revenues rise.

Impairment Charges and Lease Termination Costs

Impairment charges and lease termination costs were $55,000 in the second quarter of fiscal 2013 compared to $301,000 in the second quarter of fiscal 2012. The components of these charges are set forth in the following table:

	Three Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Impairment of long-lived assets	$	-	$	-
Lease termination costs		55		301
	$	55	$	301

The Company tests long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of the Company’s annual budgeting process. Impairment charges generally relate to Company stores expected to be closed or refranchised, as well as to stores management believes will not generate sufficient future cash flows to enable the Company to recover the carrying value of the stores’ assets, but which management has not yet decided to close. When the Company concludes that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), the Company records impairment charges to reduce the carrying value of those assets to their estimated fair values. The fair values of these assets are estimated based on the present value of estimated future cash flows, on independent appraisals and, in the case of assets the Company currently is negotiating to sell, based on the Company’s negotiations with unrelated third-party buyers.

Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which the Company ceases use of the leased property. The fair value of these liabilities were estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords.

In the second quarter of fiscal 2013 and 2012, the Company recorded lease termination charges of $55,000 and $301,000, respectively, principally reflecting a change in estimated sublease rentals and settlements with landlords on stores previously closed.

The Company intends to refranchise certain geographic markets, expected to consist principally of, but not necessarily limited to, markets outside the Company’s traditional base in the Southeastern United States. The franchise rights and other assets in many of these markets were acquired by the Company in business combinations in prior years.

Since the beginning of fiscal 2009, the Company has refranchised a total of 11 stores and received consideration totaling $2.5 million in connection with those transactions. During this period, the Company recorded impairment charges totaling approximately $490,000 related to completed and anticipated refranchisings. The Company cannot predict the likelihood of refranchising any additional stores or markets or the amount of proceeds, if any, which might be received therefrom, including the amounts which might be realized from the sale of store assets and the execution of any related franchise agreements. Asset dispositions associated with future refranchisings could result in the recognition of impairment losses on the related assets.

39

Interest Expense

The components of interest expense are as follows:

	Three Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Interest accruing on outstanding term loan indebtedness	$	176	$	202
Letter of credit and unused revolver fees		74		89
Amortization of cost of interest rate derivatives		7		-
Amortization of deferred financing costs		99		116
Other		64		7
	$	420	$	414

Equity in Income (Losses) of Equity Method Franchisees

The Company recorded equity in the losses of equity method franchisees of $53,000 in the second quarter of fiscal 2013 compared to earnings of $12,000 in the second quarter of fiscal 2012. This caption represents the Company’s share of operating results of equity method franchisees which develop and operate Krispy Kreme stores. On May 5, 2011, the Company sold its 30% equity interest in Krispy Kreme Mexico, S. de R.L. de C.V. (“KK Mexico”), the Company’s franchisee in Mexico, to KK Mexico’s majority shareholder, as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein. The Company’s equity in earnings of KK Mexico was approximately $70,000 for the three months ended July 31, 2011.

Gain on Sale of Interest in Equity Method Franchisee

In the second quarter of fiscal 2012, the Company realized a gain of approximately $6.2 million arising from the sale of the Company’s investment in KK Mexico as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein.

Provision for Income Taxes

The provision for income taxes was $4.0 million in the second quarter of fiscal 2013 compared to $2.0 million in the second quarter of fiscal 2012.

The Company establishes valuation allowances for deferred tax assets in accordance with GAAP, which provides that such valuation allowances shall be established unless realization of the deferred tax assets is more likely than not. From fiscal 2005 until the fourth quarter of fiscal 2012, the Company maintained a valuation allowance on deferred tax assets equal to the entire excess of those assets over the Company’s deferred tax liabilities because of the uncertainty surrounding the realization of those assets. Such uncertainty arose principally from the substantial losses incurred by the Company from fiscal 2005 though fiscal 2009.

Realization of net deferred tax assets generally is dependent on generation of taxable income in future periods. The Company reported a pretax profit of $418,000 in fiscal 2010 and $8.9 million in fiscal 2011. In fiscal 2012, the Company’s pretax profit increased to $30.4 million, inclusive of a $6.2 million non-recurring gain on the Company’s sale of its 30% interest in KK Mexico. After considering all relevant factors and objectively verifiable evidence having an impact on the likelihood of future realization of the Company’s deferred tax assets, in the fourth quarter of fiscal 2012 management concluded that it was more likely than not that a substantial portion of the Company’s deferred tax assets will be realized in future years. Accordingly, in the fourth quarter of fiscal 2012, the Company reversed $139.6 million of the valuation allowance on deferred tax assets, with an offsetting credit to the provision for income taxes, representing the amount of deferred tax assets management believes is more likely than not to be realized.

While the reversal of a portion of the valuation allowances increased the Company’s earnings by $139.6 million in fiscal 2012, the reversal has the effect of increasing the provision for income taxes, and therefore decreasing net income, beginning in fiscal 2013. This negative effect on earnings occurs because the reversal of the valuation allowances resulted in the recognition in fiscal 2012 of income tax benefits expected to be realized in later years. Absent the reversal of the valuation allowances, such tax benefits would have been recognized when realized in future periods upon the generation of taxable income. Accordingly, beginning in fiscal 2013, the Company’s effective income tax rate, which in fiscal 2012 and earlier years bore little or no relationship to pretax income, more closely reflects the blended federal and state income tax rates in jurisdictions in which the Company operates. The reversal of the valuation allowance had no effect on the Company’s cash payments for income taxes.

40

     Because of the increase in the Company’s effective income tax rate as described above, the Company’s income tax expense in the second quarter of fiscal 2013 is not comparable to income tax expense in the second quarter of fiscal 2012. In addition, until such time as the Company’s net operating loss carryforwards are exhausted or expire, GAAP income tax expense is expected to substantially exceed the amount of cash income taxes payable by the Company, which are expected to remain insignificant for the foreseeable future.

The portion of the income tax provision representing taxes estimated to be payable currently was approximately $680,000 and $2.0 million in the second quarter of fiscal 2013 and fiscal 2012, respectively, consisting principally of foreign withholding taxes related to royalties and franchise fees paid to the Company by international franchisees and, in fiscal 2012, $1.5 million of Mexican income taxes payable on the KK Mexico gain.

The Company’s estimated effective income tax rate on GAAP ordinary income for fiscal 2013 is 45%. That estimate is subject to revision in subsequent quarters as additional information becomes available.

The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding (1) the effect of the fiscal 2012 reversal of the valuation allowance on the Company’s results of operations for fiscal 2013, and (2) the effect of the non-recurring gain on the sale of the interest in KK Mexico on the Company’s results of operations for fiscal 2012. The non-GAAP information is intended to facilitate comparisons of fiscal 2013 results with the Company’s results for fiscal 2012, and to illustrate the material difference between the Company’s income tax expense and income taxes currently payable. Adjusted net income and adjusted earnings per common share reflect income tax expense only to the extent such expense is currently payable in cash and, in fiscal 2012, exclude the gain on the sale of the equity interest in KK Mexico. These non-GAAP performances measures are consistent with other measurements made by management in the operation of the business which do not consider income taxes except to the extent to which those taxes currently are payable, for example, capital allocation decisions and incentive compensation measurements that are made on a pretax basis.

	Three Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands, except per share amounts)
Net income, as reported	$	4,929	$	8,839
Provision for deferred income taxes		3,290		83
Gain on sale of interest in KK Mexico
(net of income taxes of $1,492)		-		(4,706	)
Adjusted net income	$	8,219	$	4,216
Adjusted earnings per common share:
Basic	$	0.12	$	0.06
Diluted	$	0.12	$	0.06
Weighted average shares outstanding:
Basic		67,461		68,900
Diluted		69,432		71,706

Six months ended July 29, 2012 compared to six months ended July 31, 2011

   Overview

     Total revenues rose by 4.0% to $210.6 million for the six months ended July 29, 2012 compared to $202.6 million for the six months ended July 31, 2011.

41

     Consolidated operating income increased to $20.1 million in the six months ended July 29, 2012 from $14.7 million in the six months ended July 31, 2011. Consolidated net income was $11.0 million in the six months ended July 29, 2012 compared to $18.0 million in the six months ended July 31, 2011. The Company’s net income and earnings per share for the six months ended July 29, 2012 are not comparable to the corresponding amounts for the six months ended July 31, 2011 as a result of the reversal of valuation allowances on deferred tax assets in the fourth quarter of fiscal 2012 and the resulting increase in income tax expense after the reversal; see “Provision for Income Taxes” below.

       Revenues by business segment (expressed in dollars and as a percentage of total revenues) are set forth in the table below (percentage amounts may not add to totals due to rounding).

	Six Months Ended
	July 29,				July 31,
	2012				2011
	(Dollars in thousands)
Revenues by business segment:
Company Stores	$	142,679			$	135,467
Domestic Franchise		5,063				4,718
International Franchise		11,808				10,988
KK Supply Chain:
Total revenues		105,250				104,224
Less - intersegment sales elimination		(54,189	)			(52,845	)
External KK Supply Chain revenues		51,061				51,379
Total revenues	$	210,611			$	202,552
Segment revenues as a percentage of total revenues:
Company Stores		67.7		%		66.9		%
Domestic Franchise		2.4				2.3
International Franchise		5.6				5.4
KK Supply Chain (external sales)		24.2				25.4
		100.0		%		100.0		%
Operating income (loss):
Company Stores	$	3,286			$	1,125
Domestic Franchise		2,898				1,363
International Franchise		8,656				7,580
KK Supply Chain		16,869				16,087
Total segment operating income		31,709				26,155
Unallocated general and administrative expenses		(11,555	)			(10,882	)
Impairment charges and lease termination costs		(86	)			(545	)
Consolidated operating income	$	20,068			$	14,728

       A discussion of the revenues and operating results of each of the Company’s four business segments follows, together with a discussion of income statement line items not associated with specific segments.

42

   Company Stores

       The components of Company Stores revenues and expenses (expressed in dollars and as a percentage of total revenues) are set forth in the table below (percentage amounts may not add to totals due to rounding).

					Percentage of Total Revenues
	Six Months Ended				Six Months Ended
	July 29,		July 31,		July 29,		July 31,
	2012		2011		2012		2011
	(In thousands)
Revenues:
On-premises sales:
Retail sales	$	59,658	$	54,530	41.8	%	40.3	%
Fundraising sales		7,531		7,274	5.3		5.4
Total on-premises sales		67,189		61,804	47.1		45.6
Wholesale sales:
Grocery/mass merchants		45,754		44,481	32.1		32.8
Convenience stores		28,074		27,679	19.7		20.4
Other wholesale		1,662		1,503	1.2		1.1
Total wholesale sales		75,490		73,663	52.9		54.4
Total revenues		142,679		135,467	100.0		100.0
Operating expenses:
Cost of sales:
Food, beverage and packaging		54,421		51,975	38.1		38.4
Shop labor		25,525		25,085	17.9		18.5
Delivery labor		11,783		11,651	8.3		8.6
Employee benefits		10,091		9,173	7.1		6.8
Total cost of sales		101,820		97,884	71.4		72.3
Vehicle costs(1)		8,630		8,807	6.0		6.5
Occupancy(2)		4,803		4,585	3.4		3.4
Utilities expense		2,954		2,839	2.1		2.1
Depreciation expense		4,041		3,226	2.8		2.4
Other operating expenses		9,364		8,812	6.6		6.5
Total store level costs		131,612		126,153	92.2		93.1
Store operating income		11,067		9,314	7.8		6.9
Other segment operating costs(3)		5,631		5,939	3.9		4.4
Allocated corporate overhead		2,150		2,250	1.5		1.7
Segment operating income	$	3,286	$	1,125	2.3	%	0.8	%

(1)	Includes fuel, maintenance and repairs, rent, taxes and other costs of operating the delivery fleet, exclusive of depreciation.
(2)	Includes rent, property taxes, common area maintenance charges, insurance, building maintenance and other occupancy costs, exclusive of utilities and depreciation.
(3)	Includes marketing costs not charged to stores, segment management costs, wholesale selling expenses and support functions.

     A reconciliation of Company Stores segment sales from the six months ended July 31, 2011 to the six months ended July 29, 2012 follows:

	On-Premises		Wholesale		Total
	(In thousands)
Sales for the six months ended July 31, 2011	$	61,804	$	73,663	$	135,467
Increase in sales at mature stores (open stores only)		2,380		1,827		4,207
Increase in sales at stores opened in fiscal 2012		2,613		-		2,613
Sales at stores opened in fiscal 2013		392		-		392
Sales for the six months ended July 29, 2012	$	67,189	$	75,490	$	142,679

     Sales at Company Stores increased 5.3% in the first six months of fiscal 2013 from the first six months of fiscal 2012 due to an increase in sales from existing stores and stores opened in fiscal 2012 and 2013. Selling price increases in the on-premises and wholesale distribution channels accounted for approximately 2.4 percentage points of the increase in sales, exclusive of the effects of higher pricing on unit volumes; such effects are difficult to measure reliably. As with all consumer products, however, higher prices may negatively affect sales. The Company believes this phenomenon is more pronounced in the wholesale channel where competing products are merchandised alongside those of the Company.

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     The following table presents sales metrics for Company stores:

	Six Months Ended
	July 29,				July 31,
	2012				2011
On-premises:
Change in same store sales		3.7		%		4.2		%
Change in same store customer count (retail sales only)		3.8		%		0.0		%
Average guest check (retail sales only)	$	7.27			$	7.28
Wholesale:
Grocery/mass merchants:
Change in average weekly number of doors		(4.7	)	%		4.9		%
Change in average weekly sales per door		8.5		%		11.8		%
Convenience stores:
Change in average weekly number of doors		(9.2	)	%		(1.9	)	%
Change in average weekly sales per door		11.8		%		6.8		%

   On-premises sales

     The components of the change in same store sales at Company stores are as follows:

	Six Months Ended
	July 29,			July 31,
	2012			2011
Change in same store sales:
Retail pricing	1.4		%	7.0		%
Guest check average (exclusive of the effects of pricing)	(1.2	)		(2.5	)
Customer count	3.3			0.0
Other	0.2			(0.3	)
Total	3.7		%	4.2		%

     On-premises sales increased 8.7% to $67.2 million in the first six months of fiscal 2013 from $61.8 million in the first six months of fiscal 2012. The increase was principally driven by higher customer traffic. The Company is developing and implementing new and enhanced marketing programs designed to increase guest visit frequency. Additionally, approximately 1.4 percentage points of the sales increase reflects retail price increases implemented in the first quarter of fiscal 2012. On March 7, 2011, the Company implemented price increases at substantially all its stores designed to help offset the rising costs of doughnut mixes, other ingredients and fuel resulting from higher commodity prices. These price increases affected items comprising approximately 60% of on-premises sales, and the average price increase on these items was approximately 14%.

Higher customer traffic and retail price increases implemented in fiscal 2012 contributed to the improvement in same store sales, partially offset by coffee and doughnut promotional pricing which reduced the average guest check compared to last year. Also, the Company believes that the expected cannibalization and honeymoon effects of new stores in expansion markets adversely affected same store customer count in the first half of fiscal 2013.

   Wholesale sales

Sales to wholesale accounts increased 2.5% to $75.5 million in the first six months of fiscal 2013 from $73.7 million in the first six months of fiscal 2012. Approximately 2.7% of the increase in wholesale sales is due to price increases. The Company began implementing price increases for some products offered in the wholesale channel late in the first quarter of fiscal 2012, and substantially completed implementing the increases during the second quarter. Those price increases affected products comprising approximately 60% of wholesale sales, and the average price increase on those products was approximately 11%. The effects of higher selling prices was partially offset by lower unit volumes in the first six months of fiscal 2013 compared to the first six months of fiscal 2012.

44

     Sales to grocers and mass merchants increased 2.9% to $45.8 million, with an 8.5% increase in average weekly sales per door, partially offset by a 4.7% decline in the average number of doors served. In addition to pricing, the Company believes that average weekly sales per door in the grocer/mass merchant channel have grown as a result of, among other things, improved customer service, introduction of additional price points, a redesign of product packaging to improve its shelf appeal and the addition of new relatively higher volume doors. The decline in the average number of doors served in the grocery/mass merchant channel reflects store closures by a regional grocery store customer as well as the decline reflects the elimination of loose doughnut sales at another regional grocer, although the Company continues to sell packaged products to this customer. Sales of loose unpackaged products comprised approximately 2% of sales to grocery/mass merchant customers for the six months ended July 29, 2012, with the balance comprised of sales of packaged products.

Convenience store sales rose 1.4% to $28.1 million, reflecting an 11.8% increase in the average weekly sales per door, partially offset by a 9.2% decline in the average number of doors served. The decline in the average number of doors served in the convenience store channel reflects the Company’s efforts to improve route management and route consolidation including the elimination of and reduction in the number of stops at relatively low volume doors. These actions are intended to increase average per door sales and reduce costs in the convenience store channel. Sales of loose unpackaged products comprised approximately 80% of sales to convenience store customers for the six months ended July 29, 2012, with the balance comprised of sales of packaged products.

   Costs and expenses

Total cost of sales as a percentage of revenues decreased by 0.9 percentage points from the first six months of fiscal 2012 to 71.4% of revenues in the first six months of fiscal 2013.

The cost of food, beverage and packaging decreased by 0.3% in the first six months of fiscal 2013 compared to the first six months of fiscal 2012. The cost of doughnut mixes, shortening and packaging was relatively unchanged in the first six months of fiscal 2013 compared to the first six months of fiscal 2012. The cost of sugar rose approximately 16% year-over-year in the first six months of fiscal 2013. This cost increase was partially mitigated by higher selling prices and by changes in production equipment designed to reduce the consumption of sugar in the doughnut-making process.

KK Supply Chainhas fixed the prices on substantially all of its major raw materials for the remainder of fiscal 2013. Except for sugar, the Company currently anticipates the cost of doughnut mix, shortening and other ingredients to be slightly lower for the balance of fiscal 2013 compared to the second half of fiscal 2012. The Company has entered into contracts covering substantially all of its estimated sugar requirements for fiscal 2013 at average prices somewhat lower than its prices for the second half of fiscal 2012, but higher than its average price for fiscal 2012 as a whole. In addition, the Company has entered into contracts for substantially all of its estimated sugar requirements for both fiscal 2014 and fiscal 2015 at prices slightly higher than expected for fiscal 2013.

Shop labor as a percentage of revenues declined by 0.6 percentage points from the first six months of fiscal 2012 to 17.9% of revenues in the first six months of fiscal 2013, principally due to higher revenues and improved labor cost management.

Vehicle costs as a percentage of revenues decreased from 6.5% of revenues in the first six months of fiscal 2012 to 6.0% of revenues in the first six months of fiscal 2013, principally due to higher sales resulting from price increases and lower fuel costs due to a reduction in mileage due to route rationalization.

Many segment operating costs are fixed or semi-fixed in nature and accordingly, segment profit margins are sensitive to changes in sales volumes.

The Company is self-insured for workers’ compensation, vehicle and general liability claims, but maintains stop-loss coverage for individual claims exceeding certain amounts. The Company provides for claims under these self-insured programs using actuarial methods as described in the 2012 Form 10-K, and periodically updates actuarial valuations of its self-insurance reserves. Such periodic actuarial valuations result in changes over time in the estimated amounts which ultimately will be paid for claims under these programs to reflect the Company’s actual claims experience for each policy year as well as trends in claims experience over multiple years. Such claims, particularly workers’ compensation claims, often are paid over a number of years following the year in which the insured events occur, and the estimated ultimate cost of each year’s claims accordingly is adjusted over time as additional information becomes available. As a result of the Company’s periodic update of its actuarial valuation, the Company recorded favorable adjustments to its self-insurance claims liabilities related to prior policy years of approximately $370,000 in the second quarter of fiscal 2013 and $500,000 in the second quarter of fiscal 2012. The $370,000 favorable adjustment recorded in the second quarter of fiscal 2013 includes an unfavorable adjustment relating to workers’ compensation liability claims of approximately $20,000 included in employee benefits in the table above, a favorable adjustment relating to vehicle liability claims of approximately $210,000 included in vehicle costs, and a favorable adjustment relating to general liability claims of approximately $180,000 included in other operating costs. Substantially all of the $500,000 in favorable adjustments recorded in the second quarter of fiscal 2012 relates to workers’ compensation liability claims.

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     Depreciation expense increased in the first six months of fiscal 2013 to 2.8% of revenues from 2.4% in the first six months of fiscal 2012 due to capital expenditures including construction of new stores, store refurbishment efforts on existing stores and investments in information technology systems.

   Domestic Franchise

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Revenues:
Royalties	$	4,758	$	4,322
Development and franchise fees		88		180
Other		217		216
Total revenues		5,063		4,718
Operating expenses:
Segment operating expenses		1,855		3,045
Depreciation expense		110		110
Allocated corporate overhead		200		200
Total operating expenses		2,165		3,355
Segment operating income	$	2,898	$	1,363

     Domestic Franchise revenues increased 7.3% to $5.1 million in the first six months of fiscal 2013 from $4.7 million in the first six months of fiscal 2012. The increase reflects higher domestic royalty revenues resulting from an increase in sales by domestic franchise stores from approximately $132 million in the first six months of fiscal 2012 to $142 million in the first six months of fiscal 2013. Domestic Franchise same store sales rose 6.2% in the first six months of fiscal 2013.

Domestic Franchise operating expenses include costs to recruit new domestic franchisees, to assist in domestic store openings, and to monitor and aid in the performance of domestic franchise stores, as well as allocated corporate costs. The decrease in Domestic Franchise operating expenses in the first six months of fiscal 2013 compared to the first six months of fiscal 2012 reflects a provision of $820,000 recorded in the second quarter of fiscal 2012 for payments under a lease guarantee associated with a franchisee whose franchise agreements the Company terminated during the second quarter, as well as a decrease in legal costs in the first six months of fiscal 2013.

Domestic franchisees opened three stores and closed four stores in the first six months of fiscal 2013. As of July 29, 2012, existing development and franchise agreements for territories in the United States provide for the development of approximately 50 additional stores through fiscal 2018. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

46

   International Franchise

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Revenues:
Royalties	$	11,233	$	10,417
Development and franchise fees		575		571
Total revenues		11,808		10,988
Operating expenses:
Segment operating expenses		2,546		2,754
Depreciation expense		6		4
Allocated corporate overhead		600		650
Total operating expenses		3,152		3,408
Segment operating income	$	8,656	$	7,580

     International Franchise royalties rose 7.8% driven by an increase in sales by international franchise stores from $187 million in the first six months of fiscal 2012 to $207 million in the first six months of fiscal 2013. Changes in the rates of exchange between the U.S. dollar and the foreign currencies in which the Company’s international franchisees do business decreased sales by international franchisees measured in U.S. dollars by approximately $4.0 million in the first six months of fiscal 2013 compared to the first six months of fiscal 2012, which negatively affected international royalty revenues by approximately $240,000.

Royalties and franchise fees for the first six months of fiscal 2012 include approximately $280,000 and $95,000, respectively, of amounts relating to the Company’s franchisee in Mexico which accrued in prior periods but which had not previously been reported as revenue because of uncertainty surrounding their collection. Such amounts were reported as revenue in recognition of the payment of such amounts to the Company on May 5, 2011, in connection with the Company’s sale of its 30% equity interest in the franchisee as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein.

International Franchise same store sales, measured on a constant currency basis to remove the effects of changing exchange rates between foreign currencies and the U.S. dollar, fell 8.7%. The decline in International Franchise same store sales reflects, among other things, waning honeymoon effects from the large number of new stores opened internationally in recent years and the cannibalization effects on initial stores in new markets of additional store openings in those markets.

Constant dollar same store sales in established markets fell 0.2% in the first six months of fiscal 2013 and fell 15.3% in new markets. Sales at stores in established markets comprised approximately 48% of aggregate constant dollar same store sales for the first six months of fiscal 2013. While the Company considers countries in which Krispy Kreme first opened before fiscal 2007 to be established markets, franchisees in those markets continue to develop their business; these franchisees opened 219 of the 555 international stores opened since the beginning of fiscal 2007.

International Franchise operating expenses include costs to recruit new international franchisees, to assist in international store openings, and to monitor and aid in the performance of international franchise stores, as well as allocated corporate costs. International Franchise operating expenses decreased in the first six months of fiscal 2013 to $2.5 million compared to $2.8 million in the first six months of fiscal 2012. International Franchise operating expenses reflect decreases in legal fees associated with certain litigation and lower share-based compensation expense in the first six months of fiscal 2013 compared to the first six months of fiscal 2012. In addition, in the first six months of fiscal 2012, the Company recorded a credit of $391,000 to the bad debt provision principally related to the Mexican franchisee discussed above.

International franchisees opened 44 stores and closed 27 stores in the first six months of fiscal 2013. Management does not believe that the number of international closures experienced in the first half of fiscal 2013 is indicative of the number of closures that will be experienced in the second half of the year. As of July 29, 2012, existing development and franchise agreements for territories outside the United States provide for the development of approximately 390 additional stores through fiscal 2019. Royalty revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

47

   KK Supply Chain

The components of KK Supply Chain revenues and expenses (expressed in dollars and as a percentage of total revenues before intersegment sales elimination) are set forth in the table below (percentage amounts may not add to totals due to rounding).

						Percentage of Total Revenues
						Before Intersegment
						Sales Elimination
	Six Months Ended					Six Months Ended
	July 29,			July 31,		July 29,		July 31,
	2012			2011		2012		2011
	(In thousands)
Revenues:
Doughnut mixes	$	35,824		$	34,930	34.0	%	33.5	%
Other ingredients, packaging and supplies		64,245			63,651	61.0		61.1
Equipment		3,835			4,427	3.6		4.2
Fuel surcharge		1,346			1,216	1.3		1.2
Total revenues before intersegment sales elimination		105,250			104,224	100.0		100.0
Operating expenses:
Cost of sales:
Cost of goods produced and purchased		72,820			71,160	69.2		68.3
(Gain) loss on agricultural derivatives		(1,117	)		598	(1.1	)	0.6
Inbound freight		2,978			2,096	2.8		2.0
Total cost of sales		74,681			73,854	71.0		70.9
Distribution costs		7,049			7,389	6.7		7.1
Other segment operating costs		5,654			5,967	5.4		5.7
Depreciation expense		397			377	0.4		0.4
Allocated corporate overhead		600			550	0.6		0.5
Total operating costs		88,381			88,137	84.0		84.6
Segment operating income	$	16,869		$	16,087	16.0	%	15.4	%

     KK Supply Chain revenues before intersegment sales elimination increased 1.0% in the first six months of fiscal 2013 compared to the first six months of fiscal 2012.

Sales of doughnut mixes rose year-over-year in the first six months of fiscal 2013 reflecting higher unit volumes partially offset by lower selling prices resulting from a reduction in raw materials costs.

Sales of other ingredients, packaging and supplies, made principally to Company and Domestic Franchise stores, rose 0.9% year-over-year in the first six months of fiscal 2013 due to higher selling prices of sugar partially offset by lower unit volumes. While systemwide sales at Company and Domestic Franchise stores rose in the first six months of fiscal 2013 compared to the first six months of the preceding fiscal year, a greater percentage of such sales was to on-premises customers compared to wholesale customers. On-premises sales at Company and Domestic Franchise stores generate proportionately lower KK Supply Chain sales than do sales to wholesale customers. In addition, the Company outsourced distribution to its International Franchise stores in fiscal 2012, which resulted in a reduction in sales of non-mix products to those franchisees.

The Company utilizes a fuel surcharge program to recoup additional freight costs resulting from increases in fuel costs. Charges under the program are based upon the price of diesel fuel.

KK Supply Chain input costs increased to 69.2% of revenues in the first six months of fiscal 2013 compared to 68.3% of revenues in the first six months of the preceding fiscal year, principally as a result of an approximate 21% increase in the cost of sugar. While the Company raised selling prices to recover higher sugar costs, the Company did not mark up such higher costs, which resulted in an increase in the overall cost of goods produced and purchased as a percentage of revenues.

Inbound freight increased 0.8 percentage points from the first six months of fiscal 2012 to 2.8% of revenues in the first six months of fiscal 2013 as a result of outsourcing product distribution for stores east of the Mississippi to a third party provider beginning in fiscal 2012. These increased inbound freight costs were substantially offset by a reduction in distribution costs and other segment operating costs, which include segment management, purchasing, customer service and support, laboratory and quality control costs, and research and development expenses, associated with the outsourcing of product distribution.

48

     Franchisees opened 47 stores and closed 31 stores in the first six months of fiscal 2013. A substantial portion of KK Supply Chain’s revenues are directly related to sales by franchise stores and, accordingly, the success of franchisees’ operations has a direct effect on the Company’s revenues, results of operations and cash flows.

An increasing percentage of franchise store sales is attributable to sales by franchisees outside North America. The Company sells doughnut mixes and concentrates to its international franchisees. These franchisees purchase substantially all other ingredients, packaging and supplies from vendors approved by the Company. Accordingly, KK Supply Chain revenues are less correlated with sales by international franchisees than with sales by domestic franchisees.

   General and Administrative Expenses

General and administrative expenses increased to $11.2 million, or 5.3% of total revenues in the first six months of fiscal 2013 compared to $10.6 million or 5.2% of total revenues in the first six months of fiscal 2012. The increase in general and administrative expenses in the first six months of fiscal 2013 compared to the first six months of fiscal 2012 is due principally to an increase in share-based compensation as a result of a grant to an executive officer who attained retirement eligibility during the first quarter of fiscal 2013 and the resulting acceleration in the recognition of share-based compensation expense.

   Impairment Charges and Lease Termination Costs

Impairment charges and lease termination costs were $86,000 in the first six months of fiscal 2013 compared to $545,000 in the first six months of fiscal 2012.

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Impairment of long-lived assets	$	-	$	-
Lease termination costs		86		545
	$	86	$	545

The Company tests long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of the Company’s annual budgeting process. Impairment charges generally relate to Company stores expected to be closed or refranchised, as well as to stores management believes will not generate sufficient future cash flows to enable the Company to recover the carrying value of the stores’ assets, but which management has not yet decided to close. When the Company concludes that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), the Company records impairment charges to reduce the carrying value of those assets to their estimated fair values. The fair values of these assets are estimated based on the present value of estimated future cash flows, on independent appraisals and, in the case of assets the Company currently is negotiating to sell, based on the Company’s negotiations with unrelated third-party buyers

Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which the Company ceases use of the leased property. The fair value of these liabilities were estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords.

In the first six months of fiscal 2013 and 2012, the Company recorded lease termination charges of $86,000 and $545,000, respectively, principally reflecting a change in estimated sublease rentals and settlements with landlords on stores previously closed.

The Company intends to refranchise certain geographic markets, expected to consist principally of, but not necessarily limited to, markets outside the Company’s traditional base in the Southeastern United States. The franchise rights and other assets in many of these markets were acquired by the Company in business combinations in prior years.

49

     Since the beginning of fiscal 2009, the Company has refranchised a total of 11 stores and received consideration totaling $2.5 million in connection with those transactions. During this period, the Company recorded impairment charges totaling approximately $490,000 related to completed and anticipated refranchisings. The Company cannot predict the likelihood of refranchising any additional stores or markets or the amount of proceeds, if any, which might be received therefrom, including the amounts which might be realized from the sale of store assets and the execution of any related franchise agreements. Asset dispositions associated with future refranchisings could result in the recognition of impairment losses on the related assets.

   Interest Expense

The components of interest expense are as follows:

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Interest accruing on outstanding term loan indebtedness	$	363	$	444
Letter of credit and unused revolver fees		149		203
Amortization of cost of interest rate derivatives		9		-
Amortization of deferred financing costs		202		218
Other		95		26
	$	818	$	891

Equity in Income (Losses) of Equity Method Franchisees

The Company recorded equity in the losses of equity method franchisees of $103,000 in the first six months of fiscal 2013 compared to earnings of $3,000 in the first six months of fiscal 2012. This caption represents the Company’s share of operating results of equity method franchisees which develop and operate Krispy Kreme stores. On May 5, 2011, the Company sold its 30% equity interest in KK Mexico, the Company’s franchisee in Mexico, to KK Mexico’s majority shareholder as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein. The Company’s equity in earnings of KK Mexico was approximately $110,000 for the six months ended July 31, 2011.

Gain on Sale of Interest in Equity Method Franchisee

In the first six months of fiscal 2012, the Company realized a gain of approximately $6.2 million arising from the sale of the Company’s investment in KK Mexico as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein.

   Provision for Income Taxes

The provision for income taxes was $8.4 million in the first six months of fiscal 2013 compared to $2.3 million in the first six months of fiscal 2012.

The Company establishes valuation allowances for deferred tax assets in accordance with GAAP, which provides that such valuation allowances shall be established unless realization of the deferred tax assets is more likely than not. From fiscal 2005 until the fourth quarter of fiscal 2012, the Company maintained a valuation allowance on deferred tax assets equal to the entire excess of those assets over the Company’s deferred tax liabilities because of the uncertainty surrounding the realization of those assets. Such uncertainty arose principally from the substantial losses incurred by the Company from fiscal 2005 though fiscal 2009.

Realization of net deferred tax assets generally is dependent on generation of taxable income in future periods. The Company reported a pretax profit of $418,000 in fiscal 2010 and $8.9 million in fiscal 2011. In fiscal 2012, the Company’s pretax profit increased to $30.4 million, inclusive of a $6.2 million non-recurring gain on the Company’s sale of its 30% interest in KK Mexico. After considering all relevant factors and objectively verifiable evidence having an impact on the likelihood of future realization of the Company’s deferred tax assets, in the fourth quarter of fiscal 2012 management concluded that it was more likely than not that a substantial portion of the Company’s deferred tax assets will be realized in future years. Accordingly, in the fourth quarter of fiscal 2012, the Company reversed $139.6 million of the valuation allowance on deferred tax assets, with an offsetting credit to the provision for income taxes, representing the amount of deferred tax assets management believes is more likely than not to be realized.

50

       While the reversal of a portion of the valuation allowances increased the Company’s earnings by $139.6 million in fiscal 2012, the reversal has the effect of increasing the provision for income taxes, and therefore decreasing net income, beginning in fiscal 2013. This negative effect on earnings occurs because the reversal of the valuation allowances resulted in the recognition in fiscal 2012 of income tax benefits expected to be realized in later years. Absent the reversal of the valuation allowances, such tax benefits would have been recognized when realized in future periods upon the generation of taxable income. Accordingly, beginning in fiscal 2013, the Company’s effective income tax rate, which in fiscal 2012 and earlier years bore little or no relationship to pretax income, more closely reflects the blended federal and state income tax rates in jurisdictions in which the Company operates. The reversal of the valuation allowance had no effect on the Company’s cash payments for income taxes.

       Because of the increase in the Company’s effective income tax rate as described above, the Company’s income tax expense in the first six months of fiscal 2013 is not comparable to income tax expense in the first six months of fiscal 2012. In addition, until such time as the Company’s net operating loss carryforwards are exhausted or expire, GAAP income tax expense is expected to substantially exceed the amount of cash income taxes payable by the Company, which are expected to remain insignificant for the foreseeable future.

       The portion of the income tax provision representing taxes estimated to be payable currently was approximately $910,000 and $2.2 million in the first six months of fiscal 2013 and fiscal 2012, respectively, consisting principally of foreign withholding taxes related to royalties and franchise fees paid to the Company by international franchisees and, in fiscal 2012, $1.5 million of Mexican income taxes payable on the KK Mexico gain, partially offset by reversals of liabilities for uncertain tax positions and related interest and penalties due principally to the expiration of statutes of limitation.

       The Company’s estimated effective income tax rate on GAAP ordinary income for fiscal 2013 is 45%. That estimate is subject to revision in subsequent quarters as additional information becomes available.

       The following non-GAAP financial information and related reconciliation to GAAP measures are provided to assist the reader in understanding (1) the effect of the fiscal 2012 reversal of the valuation allowance on the Company’s results of operations for fiscal 2013, and (2) the effect of the non-recurring gain on the sale of the interest in KK Mexico on the Company’s results of operations for fiscal 2012. The non-GAAP information is intended to facilitate comparisons of fiscal 2013 results with the Company’s results for fiscal 2012, and to illustrate the material difference between the Company’s income tax expense and income taxes currently payable. Adjusted net income and adjusted earnings per common share reflect income tax expense only to the extent such expense is currently payable in cash and, in fiscal 2012, exclude the gain on the sale of the equity interest in KK Mexico. These non-GAAP performances measures are consistent with other measurements made by management in the operation of the business which do not consider income taxes except to the extent to which those taxes currently are payable, for example, capital allocation decisions and incentive compensation measurements that are made on a pretax basis.

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands, except per share amounts)
Net income, as reported	$	10,955	$	18,010
Provision for deferred income taxes		7,524		128
Gain on sale of interest in KK Mexico
(net of income taxes of $1,492)		-		(4,706	)
Adjusted net income	$	18,479	$	13,432
Adjusted earnings per common share:
Basic	$	0.27	$	0.20
Diluted	$	0.26	$	0.19
Weighted average shares outstanding:
Basic		68,511		68,827
Diluted		70,660		71,438

51

LIQUIDITY AND CAPITAL RESOURCES

       The following table presents a summary of the Company’s cash flows from operating, investing and financing activities for the first six months of fiscal 2013 and fiscal 2012.

	Six Months Ended
	July 29,			July 31,
	2012			2011
	(In thousands)
Net cash provided by operating activities	$	22,993		$	12,692
Net cash provided by (used for) investing activities		(5,208	)		4,609
Net cash used for financing activities		(21,102	)		(6,947	)
Net increase (decrease) in cash and cash equivalents	$	(3,317	)	$	10,354

Cash Flows from Operating Activities

       Net cash provided by operating activities was $23.0 million and $12.7 million in the first six months of fiscal 2013 and fiscal 2012, respectively. Higher operating income accounted for a majority of the improvement. Cash provided by operating activities in the first six months of fiscal 2012 was adversely affected by a temporary increase in inventories associated with the outsourcing of distribution of doughnut mixes and other KK Supply Chain products for international and certain domestic stores to a third party vendor. In addition, payments on leases related to closed stores were approximately $1.3 million higher in the in the first six months of fiscal 2012 than in the first six months of fiscal 2013, principally due to settlements with landlords on terminated leases in the fiscal 2012 period. The balance in the change in cash flows from operating activities principally reflects normal fluctuations in working capital.

Cash Flows from Investing Activities

       Net cash used for investing activities was $5.2 million in the first six months of fiscal 2013 and compared to net cash provided by investing activities of $4.6 million in the first six months of fiscal 2012.

       Cash used for capital expenditures increased to approximately $5.2 million in the first six months of fiscal 2013 from $4.1 million in the first six months of fiscal 2012. The Company currently expects capital expenditures to range from $10 to $15 million in the second half of fiscal 2013. The Company intends to fund these capital expenditures from cash provided by operating activities, from existing cash balances and, to a lesser extent, through leases.

       In the first six months of fiscal 2012, the Company received proceeds of approximately $7.7 million from the sale of the Company’s 30% equity interest in KK Mexico as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein.

       In connection with the refinancing of the Company’s Secured Credit Facilities in January 2011 as more fully described in Note 12 to the consolidated financial statements in the 2012 Form 10-K, the Company deposited into escrow $1.8 million related to properties with respect to which the Company agreed to furnish to the lenders certain documentation on or before January 31, 2012, with amounts to be released from escrow upon the Company’s furnishing such documentation. In fiscal 2012, the entire $1.8 million was released from escrow, including $1.0 million in the first six months of fiscal 2012.

Cash Flows from Financing Activities

       Net cash used by financing activities was $21.1 million in the first six months of fiscal 2013, compared to $6.9 million in the first six months of fiscal 2012.

       During the first six months of fiscal 2013, the Company repaid approximately $1.1 million of scheduled principal amortization of outstanding term loan and capitalized lease indebtedness.

       During the first six months of fiscal 2012, the Company repaid approximately $7.8 million of outstanding term loan and capitalized lease indebtedness, consisting of approximately $1.1 million of scheduled principal amortization, $6.2 million of prepayments from the sale of the Company’s interest in KK Mexico as more fully described in Note 6 to the consolidated financial statements appearing elsewhere herein, and $520,000 of prepayments from the proceeds of the exercise of stock options.

52

       On March 27, 2012, the Company’s Board of Directors authorized the repurchase of up to $20 million of the Company’s common stock. The Company completed the share repurchase during the second quarter of fiscal 2013, purchasing 3,113,000 shares in the first six months of fiscal 2013 at an average cost of $6.42 per share, for a total cost of $20 million.

Recent Accounting Pronouncements

       In May 2011, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) related to fair value measurements. The ASU clarifies some existing concepts, eliminates wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between GAAP and IFRS. The ASU also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The Company adopted the new standards in the first quarter of fiscal 2013; such adoption had no effect on the Company’s financial condition or results of operations.

       In June 2011, the FASB issued new accounting standards which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The Company adopted the new standards in the first quarter of fiscal 2013 by presenting a separate consolidated statement of comprehensive income in addition to the consolidated statement of income.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       There have been no material changes from the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the 2012 Form 10-K.

Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

       As of July 29, 2012, the end of the period covered by this Quarterly Report on Form 10-Q, management performed, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer, an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. Based on this evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of July 29, 2012, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

       During the quarter ended July 29, 2012, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

       There have been no material changes from the disclosures contained in Part 1, Item 3, “Legal Proceedings,” in the 2012 Form 10-K.

Item 1A. RISK FACTORS.

       There have been no material changes from the risk factors disclosed in Part I, Item 1A, “Risk Factors,” in the 2012 Form 10-K.

53

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

					Maximum Number
					(or Approximate
				Total Number of	Dollar Value) of
				Shares (or units)	Shares (or Units)
				Purchased as Part	that May Yet Be
	Total Number of			of Publicly	Purchased Under
	Shares (or units)	Average Price Paid		Announced Plans	the Plans or
	Purchased	per Share (or unit)		or Programs	Programs
Period	(a)(1)	(b)		(c)	(d)(2)
April 30, 2012 through May 27, 2012	1,257,622	$	6.52	1,257,622	$	9,944,000
May 28, 2012 through June 24, 2012	1,496,137		6.21	1,496,137		652,000
June 25, 2012 through July 29, 2012	104,169		6.27	104,169		-
Total	2,857,928	$	6.35	2,857,928	$	-

(1)	Due to the Company’s incorporation in North Carolina, which does not recognize treasury shares, the shares repurchased are canceled at the time of repurchase.
(2)	On March 27, 2012, the Company’s Board of Directors authorized the repurchase of up to $20 million of the Company’s common stock.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

       None.

Item 4. MINE SAFETY DISCLOSURES.

       Not applicable.

Item 5. OTHER INFORMATION.

       None.

Item 6. EXHIBITS.

       The exhibits filed with this Quarterly Report on Form 10-Q are set forth in the Exhibit Index on page 56 and are incorporated herein by reference.

54

SIGNATURES

       Pursuant to the requirements 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.
Date: September 7, 2012	By:	/s/ Douglas R. Muir
	Name:	Douglas R. Muir
	Title:	Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

55

Exhibit Index

3.1	—	Amended Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K filed on April 15, 2010)
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 December 15, 2008)
10.1	—	Krispy Kreme Doughnuts, Inc. 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 14, 2012)*
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
101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended July 29, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statement of Income for the three and six months ended July 29, 2012, and July 31, 2011; (ii) the Consolidated Statement of Comprehensive Income for the three and six months ended July 29, 2012, and July 31, 2011; (iii) the Consolidated Balance Sheet as of July 29, 2012 and January 29, 2012; (iv) the Consolidated Statement of Cash Flows for the six months ended July 29, 2012 and July 31, 2011; (v) the Consolidated Statement of Changes in Shareholders’ Equity for the six months ended July 29, 2012 and July 31, 2011; and (vi) the Notes to the Condensed Consolidated Financial Statements**

* Executive compensation plan or agreement,

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-16485

56

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

       I, James H. Morgan, certify that:

       1. I have reviewed this Quarterly Report on Form 10-Q of Krispy Kreme Doughnuts, Inc.;

       2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

       3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

       4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

       a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

       b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

       c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

       d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

       5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

       a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

       b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 7, 2012

/s/ James H. Morgan

James H. Morgan

Chief Executive Officer

57

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

       I, Douglas R. Muir, certify that:

       1. I have reviewed this Quarterly Report on Form 10-Q of Krispy Kreme Doughnuts, Inc.;

       2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

       3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

       4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

       a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

       b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

       c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

       d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

       5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

       a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

       b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 7, 2012

/s/ Douglas R. Muir

Douglas R. Muir

Chief Financial Officer

58

EX-32.1

EXHIBIT 32.1

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

       I, James H. Morgan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the accompanying Quarterly Report on Form 10-Q of Krispy Kreme Doughnuts, Inc. (the “Company”) for the fiscal quarter ended July 29, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James H. Morgan

James H. Morgan

Chief Executive Officer

Date: September 7, 2012

       This certification shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

       A signed original of this written statement required by Section 906 has been provided to Krispy Kreme Doughnuts, Inc. and will be retained by Krispy Kreme Doughnuts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

59

EX-32.2

EXHIBIT 32.2

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

       I, Douglas R. Muir, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the accompanying Quarterly Report on Form 10-Q of Krispy Kreme Doughnuts, Inc. (the “Company”) for the fiscal quarter ended July 29, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Douglas R. Muir

Douglas R. Muir

Chief Financial Officer

Date: September 7, 2012

       This certification shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.

       A signed original of this written statement required by Section 906 has been provided to Krispy Kreme Doughnuts, Inc. and will be retained by Krispy Kreme Doughnuts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

60

XML

Shareholders' Equity (Share-based compensation) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Share Based Compensation Arrangement By Share Based Payment Award And Income Statement Location [Line Items]
Share-based compensation	$ 771	$ 913	$ 2,148	$ 1,806
Direct Operating Expense [Member]
Share Based Compensation Arrangement By Share Based Payment Award And Income Statement Location [Line Items]
Share-based compensation	357	483	727	965
General and Administrative Expense [Member]
Share Based Compensation Arrangement By Share Based Payment Award And Income Statement Location [Line Items]
Share-based compensation	414	430	1,421	841
Stock Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award And Income Statement Location [Line Items]
Share-based compensation	234	395	1,061	770
Restricted Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award And Income Statement Location [Line Items]
Share-based compensation	$ 537	$ 518	$ 1,087	$ 1,036

XML

Derivative (Effect of Derivative Instruments by Balance Sheet locations) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
Derivative [Line Items]
Interest Rate Cash Flow Hedge Asset at Fair Value	$ 30	$ 53
Agricultural Commodity Futures Contracts [Member]
Derivative [Line Items]
Derivative Instruments Not Designated as Hedging Instruments, Asset, at Fair Value	57	21
Other Current Assets [Member] | Agricultural Commodity Futures Contracts [Member]
Derivative [Line Items]
Derivative Instruments Not Designated as Hedging Instruments, Asset, at Fair Value	57	21
Other Assets [Member]
Derivative [Line Items]
Interest Rate Cash Flow Hedge Asset at Fair Value	$ 30	$ 53

XML

Receivables (Doubtful accounts summary) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance	$ 1,158
Provision for doubtful accounts	(73)	(399)
Balance	161
Trade Accounts Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance	1,158	1,334
Provision for doubtful accounts	(14)	13
Net chargeoffs	(983)	(40)
Balance	161	1,307
Equity Method Franchisees Receivables [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance	0	0
Provision for doubtful accounts	(59)	0
Net chargeoffs	59	0
Balance	0	0
Notes Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance	68	538
Provision for doubtful accounts	0	(412)
Net chargeoffs	0	(58)
Balance	$ 68	$ 68

XML

Fair Value Measurement (Tables)

6 Months Ended

Jul. 29, 2012

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

		July 29, 2012
		Level 1		Level 2		Level 3
		(In thousands)
Assets:
	401(k) mirror plan assets	$	1,601	$	-	$	-
	Agricultural commodity futures contracts		57		-		-
	Interest rate derivative		-		30		-
	Total assets	$	1,658	$	30	$	-
		January 29, 2012
		Level 1		Level 2		Level 3
		(In thousands)
Assets:
	401(k) mirror plan assets	$	1,039	$	-	$	-
	Agricultural commodity futures contracts		21		-		-
	Interest rate derivative		-		53		-
	Total assets	$	1,060	$	53	$	-

Fair Value, by Balance Sheet Grouping [Table Text Block]

		July 29, 2012				January 29, 2012
		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
		(In thousands)
Assets:
	Cash and cash equivalents	$	41,002	$	41,002	$	44,319	$	44,319
	Receivables		22,376		22,376		21,616		21,616
	Receivables from Equity Method Franchisees		756		756		655		655
	Agricultural commodity futures contracts		57		57		21		21
	Interest rate derivatives		30		30		53		53
Liabilities:
	Accounts payable		11,901		11,901		10,494		10,494
	Long-term debt (including current maturities)		26,464		26,464		27,593		27,593

XML

Impairment Charges and Lease Termination Costs (accrual for lease termination costs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Impairment Charges And Lease Termination Costs Disclosure [Abstract]
Balance	$ 694	$ 1,290	$ 709	$ 1,995
Adjustments to previously recorded provisions resulting from settlements with lessors and adjustments of previous estimates	47	280	70	492
Accretion of discount	8	21	16	53
Total provision	55	301	86	545
Payments on unexpired leases, including settlements with lessors	(70)	(439)	(116)	(1,388)
Balance	$ 679	$ 1,152	$ 679	$ 1,152

XML

Investment in Franchisees (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012	May 05, 2011
Schedule of Equity Method Investments [Line Items]
Investments in equity method franchisees	0	0
Receivables from equity method franchisees	756	655
Guarantor Obligations, Maximum Exposure, Undiscounted	2,382	2,685
Kremeworks Llc [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	25.00%	25.00%
Investments in equity method franchisees	900	900
Receivables from equity method franchisees	297	308
Guarantor Obligations, Maximum Exposure, Undiscounted	593	739
Kremeworks Canada LP [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	24.50%	24.50%
Investments in equity method franchisees	0	0
Receivables from equity method franchisees	22	20
Guarantor Obligations, Maximum Exposure, Undiscounted	0	0
Krispy Kreme South Florida Llc [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	35.30%	35.30%
Investments in equity method franchisees	0	0
Receivables from equity method franchisees	437	327
Guarantor Obligations, Maximum Exposure, Undiscounted	1,789	1,946
Krispy Kreme Mexico [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	0.00%	0.00%	30.00%
Gross Amount Before Reserve [Member]
Schedule of Equity Method Investments [Line Items]
Investments in equity method franchisees	900	900
Receivables from equity method franchisees	756	655
Reserves And Allowances [Member]
Schedule of Equity Method Investments [Line Items]
Investments in equity method franchisees	(900)	(900)
Receivables from equity method franchisees	0	0

XML

Derivative Instruments(Effect of Derivative Instuments by Income Statement Location) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Derivative Instruments, Gain (Loss) Recognized in Income, Net [Abstract]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ 1,066	$ (151)	$ 1,117	$ (607)
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net [Abstract]
Unrealized loss on cash flow hedge, net of income taxes	(10)	(110)	(9)	(230)
Gain Loss In Fair Value Of Derivative Gross [Member]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net [Abstract]
Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges, Pretax, Accumulated Other Comprehensive Income (Loss)	(16)	(183)	(14)	(381)
Income Tax Effect [Member]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net [Abstract]
Other Comprehensive Income Loss Derivatives Qualifying As Hedges Tax	6	73	5	151
Direct Operating Expense [Member] | Agricultural Commodity Futures Contracts [Member]
Derivative Instruments, Gain (Loss) Recognized in Income, Net [Abstract]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	1,066	(129)	1,117	(598)
Direct Operating Expense [Member] | Gasoline Commodity Future Contracts [Member]
Derivative Instruments, Gain (Loss) Recognized in Income, Net [Abstract]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	0	(22)	0	(9)
Interest Expense [Member]
Derivative Instruments, Gain (Loss) Recognized in Income, Net [Abstract]
Derivative Instruments, Gain (Loss) Recognized in Income, Net	$ (7)	$ 0	$ (9)	$ 0

XML

Income taxes

6 Months Ended

Jul. 29, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 3 — Income Taxes

The Company recognizes deferred income tax assets and liabilities based upon management's expectation of the future tax consequences of temporary differences between the income tax and financial reporting bases of assets and liabilities. Deferred tax liabilities generally represent tax expense recognized for which payment has been deferred, or expenses which have been deducted in the Company's tax returns but which have not yet been recognized as an expense in the financial statements. Deferred tax assets generally represent tax deductions or credits that will be reflected in future tax returns for which the Company has already recorded a tax benefit in its consolidated financial statements.

The Company establishes valuation allowances for deferred income tax assets in accordance with GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not.

The Company had valuation allowances against deferred tax assets of $10.7 million at July 29, 2012 and January 29, 2012, representing the portion of such deferred tax assets which, as of such dates, management estimated would not be realized in future periods. Under GAAP, future realization of deferred tax assets is evaluated under a “more likely than not” standard. Realization of net deferred tax assets generally is dependent on generation of taxable income in future periods. From fiscal 2005 until the fourth quarter of fiscal 2012, the Company maintained valuation allowances on deferred tax assets equal to the entire excess of those assets over the Company's deferred income tax liabilities because of the uncertainty surrounding the realization of those assets. Such uncertainty arose principally from the substantial losses incurred by the Company from fiscal 2005 through fiscal 2009.

The Company reported a pretax profit of $418,000 in fiscal 2010 and $8.9 million in fiscal 2011. In fiscal 2012, the Company's pretax profit increased to $30.4million, inclusive of a $6.2 million non-recurring gain on the Company's sale of its 30% interest in Krispy Kreme Mexico, S. de R.L. de C.V. (“KK Mexico”), the Company's franchisee in Mexico. After considering all relevant factors and objectively verifiable evidence having an impact on the likelihood of future realization of the Company's deferred tax assets, in the fourth quarter of fiscal 2012 management concluded that it was more likely than not that a substantial portion of the Company's deferred tax assets will be realized in future years. Accordingly, the Company reversed $139.6 million of the valuation allowance on deferred tax assets, with an offsetting credit to the provision for income taxes, in the fourth quarter of fiscal 2012.

The remaining valuation allowance of $10.7 million at July 29, 2012 and January 29, 2012 represents the portion of the Company's deferred tax assets management estimates will not be realized in the future. Such assets are associated principally with state net operating loss and state credit carryforwards having relatively short carryforward periods which are forecasted to expire unused, as well as federal foreign tax credits and federal jobs credit carryforwards forecasted to expire unused.

The realization of deferred income tax assets is dependent on future events. While management believes its forecast of future taxable income is reasonable, actual results inevitably will vary from management's forecasts. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements.

In fiscal 2008, the Company issued warrants to acquire shares of the Company's common stock at a price of $12.21 per share in connection with the settlement of certain litigation. Such warrants expired worthless in March 2012 and, accordingly, the Company will not receive any income tax deduction related to them. Deferred tax assets at January 29, 2012 included approximately $7.2 million related to these warrants. In accordance with GAAP, the write-off of this deferred tax asset was charged to common stock in the first quarter of fiscal 2013 and reduced the Company's pool of windfall tax benefits.

XML

Fair Value Measurement (Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate derivative	$ 30	$ 53
Agricultural Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Commodity future contracts - Assets	57	21
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
401(k) mirror plan assets	1,601	1,039
Interest rate derivative	0	0
Total Assets	1,658	1,060
Fair Value, Measurements, Recurring [Member] | Level 1 [Member] | Agricultural Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Commodity future contracts - Assets	57	21
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
401(k) mirror plan assets	0	0
Interest rate derivative	30	53
Total Assets	30	53
Fair Value, Measurements, Recurring [Member] | Level 2 [Member] | Agricultural Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Commodity future contracts - Assets	0	0
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
401(k) mirror plan assets	0	0
Interest rate derivative	0	0
Total Assets	0	0
Fair Value, Measurements, Recurring [Member] | Level 3 [Member] | Agricultural Commodity Futures Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Commodity future contracts - Assets	$ 0	$ 0

XML

Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Segment Reporting Information [Line Items]
Revenues	$ 102,115	$ 97,952	$ 210,611	$ 202,552
Segment Reporting Information, Revenue for Reportable Segment	51,465	50,341	105,250	104,224
Segment Reporting Information, Intersegment Revenue	(26,899)	(26,082)	(54,189)	(52,845)
Segment Operating Income Loss	14,221	10,321	31,709	26,155
Segment Reporting Gen And Admin Expense	(4,932)	(5,083)	(11,555)	(10,882)
Impairment charges and lease termination costs	(55)	(301)	(86)	(545)
Operating income	9,234	4,937	20,068	14,728
Depreciation expense	2,399	2,087	4,881	4,025
Company Stores [Member]
Segment Reporting Information [Line Items]
Revenues	69,338	65,992	142,679	135,467
Segment Operating Income Loss	338	(1,049)	3,286	1,125
Depreciation expense	1,944	1,689	4,041	3,226
Domestic Franchise [Member]
Segment Reporting Information [Line Items]
Revenues	2,430	2,349	5,063	4,718
Segment Operating Income Loss	1,329	216	2,898	1,363
Depreciation expense	55	55	110	110
International Franchise [Member]
Segment Reporting Information [Line Items]
Revenues	5,781	5,352	11,808	10,988
Segment Operating Income Loss	4,162	3,409	8,656	7,580
Depreciation expense	3	2	6	4
KK Supply Chain [Member]
Segment Reporting Information [Line Items]
Revenues	24,566	24,259	51,061	51,379
Segment Operating Income Loss	8,392	7,745	16,869	16,087
Depreciation expense	235	188	397	377
Corporate Administration [Member]
Segment Reporting Information [Line Items]
Depreciation expense	$ 162	$ 153	$ 327	$ 308

XML

Accounting Policies (Earnings Per Share) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Earnings Per Share Reconciliation [Abstract]
Net income	$ 4,929	$ 8,839	$ 10,955	$ 18,010
Weighted Average Number of Shares Outstanding, Basic	67,461	68,900	68,511	68,827
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Weighted Average Number of Shares Outstanding, Diluted	69,432	71,706	70,660	71,438
Stock Options [Member]
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Incremental Common Shares Attributable to Share-based Payment Arrangements	1,488	2,080	1,635	1,868
Restricted Stock [Member]
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Incremental Common Shares Attributable to Share-based Payment Arrangements	483	726	514	743

XML

Fair Value Measurement (Assets and Liabilities Measured at Fair Value and carrying value) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012	Jul. 31, 2011	Jan. 30, 2011
Assets:
Cash and cash equivalents	$ 41,002	$ 44,319	$ 32,324	$ 21,970
Receivables	22,376	21,616
Interest rate derivatives	30	53
Receivables from equity method franchisees	756	655
Liabilities:
Accounts payable	11,901	10,494
Debt and Capital Lease Obligations	26,464	27,593
Fair Values By Balance Sheet Grouping [Abstract]
Cash and Cash Equivalents, Fair Value Disclosure	41,002	44,319
Accounts Receivable, Fair Value Disclosure	22,376	21,616
Due From Related Parties Current Fair Value Disclosure	756	655
Interest Rate Cash Flow Hedge Asset at Fair Value	30	53
Accounts Payable, Fair Value Disclosure	11,901	10,494
Long-term Debt, Fair Value	26,464	27,593
Agricultural Commodity Futures Contracts [Member]
Assets:
Commodity future contracts - Assets	57	21
Fair Values By Balance Sheet Grouping [Abstract]
Derivative Instruments Not Designated as Hedging Instruments, Asset, at Fair Value	$ 57	$ 21

XML

Income taxes (Narratives) (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011	Jan. 29, 2012	Jan. 30, 2011	Jan. 31, 2010	Jul. 29, 2012 Krispy Kreme Mexico [Member]	Jan. 29, 2012 Krispy Kreme Mexico [Member]	May 05, 2011 Krispy Kreme Mexico [Member]
Income Tax Disclosure [Abstract]
Deferred Tax Assets, Valuation Allowance	$ 10,700,000		$ 10,700,000		$ 10,700,000
Income Loss Before Income Taxes From Continuing Operations	8,901,000	10,875,000	19,392,000	20,311,000	30,400,000	8,900,000	418,000
Equity Method Investment Realized Gain Loss On Disposal	0	6,198,000	0	6,198,000
Valuation Allowance Deferred Taxes Asset Change In Amount					139,600,000
Warrants issue stock price	$ 12.21		$ 12.21
Warrants Expiration Date			March 2012
DeferredTaxAssetsWarrants			$ 7,200,000
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage								0.00%	0.00%	30.00%

XML

Receivables (Narratives) (Details) (USD $)						3 Months Ended
	Jul. 29, 2012	Jan. 29, 2012	Jul. 29, 2012 Krispy Kreme Mexico [Member]	Jan. 29, 2012 Krispy Kreme Mexico [Member]	May 05, 2011 Krispy Kreme Mexico [Member]	May 01, 2011 Sale Of Interest In KK Mexico [Member]
Receivables [Abstract]
Notes Receivable Unrecognized Franchise Revenue	$ 3,300,000	$ 3,300,000
Schedule of Equity Method Investments [Line Items]
Franchise Revenue						375,000
Equity Method Investment, Ownership Percentage			0.00%	0.00%	30.00%
Allowance For Doubtful Accounts Receivable Recoveries						$ 391,000

XML

Segment Information

6 Months Ended

Jul. 29, 2012

Segment Reporting Disclosure [Abstract]

Segment Reporting Disclosure Text Block

Note 2 — Segment Information

The Company's reportable segments are Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. The Company Stores segment is comprised of the stores operated by the Company. These stores sell doughnuts and complementary products through both on-premises and wholesale sales channels, although some stores serve only one of these distribution channels. The Domestic Franchise and International Franchise segments consist of the Company's franchise operations. Under the terms of franchise agreements, domestic and international franchisees pay royalties and fees to the Company in return for the use of the Krispy Kreme name and ongoing brand and operational support. Expenses for these segments include costs to recruit new franchisees, to assist in store openings, to support franchisee operations and marketing efforts, as well as allocated corporate costs. The majority of the ingredients and materials used by Company stores are purchased from the KK Supply Chain segment, which supplies doughnut mix, other ingredients and supplies and doughnut making equipment to both Company and franchisee-owned stores.

All intercompany sales by the KK Supply Chain segment to the Company Stores segment are at prices intended to reflect an arms-length transfer price and are eliminated in consolidation. Operating income for the Company Stores segment does not include any profit earned by the KK Supply Chain segment on sales of doughnut mix and other items to the Company Stores segment; such profit is included in KK Supply Chain operating income.

The following table presents the results of operations of the Company's operating segments for the three and six months endedJuly 29, 2012 and July 31, 2011. Segment operating income is consolidated operating income before unallocated general and administrative expenses and impairment charges and lease termination costs.

					Three Months Ended				Six Months Ended
					July 29,		July 31,		July 29,		July 31,
					2012		2011		2012		2011
					(In thousands)
Revenues:
	Company Stores				$	69,338	$	65,992	$	142,679	$	135,467
	Domestic Franchise					2,430		2,349		5,063		4,718
	International Franchise					5,781		5,352		11,808		10,988
	KK Supply Chain:
		Total revenues				51,465		50,341		105,250		104,224
		Less – intersegment sales elimination				(26,899)		(26,082)		(54,189)		(52,845)
			External KK Supply Chain revenues			24,566		24,259		51,061		51,379
				Total revenues	$	102,115	$	97,952	$	210,611	$	202,552
Operating income (loss):
	Company Stores				$	338	$	(1,049)	$	3,286	$	1,125
	Domestic Franchise					1,329		216		2,898		1,363
	International Franchise					4,162		3,409		8,656		7,580
	KK Supply Chain					8,392		7,745		16,869		16,087
		Total segment operating income				14,221		10,321		31,709		26,155
	Unallocated general and administrative expenses					(4,932)		(5,083)		(11,555)		(10,882)
	Impairment charges and lease termination costs					(55)		(301)		(86)		(545)
		Consolidated operating income			$	9,234	$	4,937	$	20,068	$	14,728
Depreciation expense:
	Company Stores				$	1,944	$	1,689	$	4,041	$	3,226
	Domestic Franchise					55		55		110		110
	International Franchise					3		2		6		4
	KK Supply Chain					235		188		397		377
	Corporate administration					162		153		327		308
		Total depreciation expense			$	2,399	$	2,087	$	4,881	$	4,025

Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources among segments.

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Receivables (Receivables by categories) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other Receivables, Gross, Current	$ 995	$ 1,015
Current portion of notes receivables	212	185
Accounts Notes And Loans Receivable Gross Current	22,537	22,774
Allowance for Doubtful Accounts Receivable, Current	(161)	(1,158)
Receivables, Net, Current, Total	22,376	21,616
Receivables from equity method franchisees	756	655
Wholesale Customers [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts Receivable, Gross, Current	9,804	10,169
Allowance for Doubtful Accounts Receivable, Current	(125)	(349)
Unaffiliated Franchisees [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts Receivable, Gross, Current	11,526	11,405
Allowance for Doubtful Accounts Receivable, Current	$ (36)	$ (809)

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Shareholders' Equity (Share Repurchase) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Equity Disclosure [Line Items]
Repurchase of common shares			20,000	125
Common Shares Outstanding [Member]
Equity Disclosure [Line Items]
Stock Repurchased Authorized During Period Shares	2,858	0	3,113	0
Shares surrendered in reimbursement for withholding taxes	0	3	0	16
Repurchase of common shares	2,858	3	3,113	16
Common Stock
Equity Disclosure [Line Items]
Shares repurchased under share repurchase authorization	18,146	0	20,000	0
Shares surrendered in reimbursement for withholding taxes	0	68	0	125
Repurchase of common shares	18,146	68	20,000	125

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CONSOLIDATED STATEMENT OF INCOME (USD $)	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
CONSOLIDATED STATEMENT OF INCOME
Revenues	$ 102,115,000	$ 97,952,000	$ 210,611,000	$ 202,552,000
Operating expenses:
Direct operating expenses (exclusive of depreciation expense shown below)	85,657,000	85,697,000	174,348,000	172,680,000
General and administrative expenses	4,770,000	4,930,000	11,228,000	10,574,000
Depreciation expense	2,399,000	2,087,000	4,881,000	4,025,000
Impairment charges and lease termination costs	55,000	301,000	86,000	545,000
Operating income	9,234,000	4,937,000	20,068,000	14,728,000
Interest income	61,000	56,000	88,000	101,000
Interest Expense	(420,000)	(414,000)	(818,000)	(891,000)
Equity in income (losses) of equity method franchisees	(53,000)	12,000	(103,000)	3,000
Gain on sale of interest in equity method franchisee	0	6,198,000	0	6,198,000
Other non-operating income and (expense), net	79,000	86,000	157,000	172,000
Income before income taxes	8,901,000	10,875,000	19,392,000	20,311,000
Provision for income taxes	3,972,000	2,036,000	8,437,000	2,301,000
Net income	$ 4,929,000	$ 8,839,000	$ 10,955,000	$ 18,010,000
Earnings per common share:
Basic	$ 0.07	$ 0.13	$ 0.16	$ 0.26
Diluted	$ 0.07	$ 0.12	$ 0.16	$ 0.25

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Derivative (Narratives) (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jul. 29, 2012
Derivative [Line Items]
Derivative, Inception Date	Mar. 03, 2011
Notional Amount of Interest Rate Cash Flow Hedge Derivatives	$ 17.5
Derivative, Description of Variable Rate Basis	three-month LIBOR rate over 3.00%
Derivative Effective Dates	Apr. 01, 2012
Derivative, Maturity Date	Dec. 01, 2015
Derivative, Description of Terms	The derivative contract entitles the Company to receive from the counterparty the excess, if any, of the three-month LIBOR rate over 3.00% for each of the calendar quarters in the period beginning April 2012 and ending December 2015. The Company is accounting for this derivative contract as a cash flow hedge.
Agricultural Commodity Futures Contracts [Member]
Derivative [Line Items]
Derivative Nonmonetary Notional Amount	30,000

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands	Total USD ($)	Common Shares Outstanding [Member]	Common Stock USD ($)	Accumulated Other Comprehensive Income (Loss) USD ($)	Accumulated Deficit USD ($)
Beginning Balance at Jan. 30, 2011	$ 76,428		$ 370,808	$ (34)	$ (294,346)
Beginning Balance at Jan. 30, 2011		67,527
Total comprehensive income	17,814			(196)	18,010
Exercise of stock options	1,036		1,036
Exercise of stock options		397
Cancelation of restricted shares	0		0
Cancelation of restricted shares		(8)
Exercise of warrants	0
Share-based compensation	1,806		1,806
Share-based compensation		28
Repurchase of common shares	(125)		(125)
Repurchase of common shares		(16)
Ending Balance at Jul. 31, 2011	96,959		373,525	(230)	(276,336)
Ending Balance at Jul. 31, 2011		67,928
Beginning Balance at Jan. 29, 2012	249,126		377,539	(336)	(128,077)
Beginning Balance at Jan. 29, 2012		68,092
Total comprehensive income	10,946			(9)	10,955
Write Off of deferred tax asset related to expiration of warrants	(7,174)		(7,174)
Exercise of stock options	0
Exercise of warrants	9		9
Exercise of warrants		1
Share-based compensation	2,148		2,148
Share-based compensation		22
Repurchase of common shares	(20,000)		(20,000)
Repurchase of common shares		(3,113)
Ending Balance at Jul. 29, 2012	$ 235,055		$ 352,522	$ (345)	$ (117,122)
Ending Balance at Jul. 29, 2012		65,002

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
Inventory Disclosure [Abstract]
Raw materials	$ 5,331	$ 5,306
Work in progress	38	89
Finished goods and purchased merchandise	10,335	11,102
Inventories, Net, Total	$ 15,704	$ 16,497

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Investment in Franchisee (Tables)

6 Months Ended

Jul. 29, 2012

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments In Franchisees [Table Text Block]

	July 29, 2012
	Company	Investment
	Ownership	and				Loan
	Percentage	Advances		Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0%	$	900	$	297	$	593
Kremeworks Canada, LP	24.5%		-		22		-
Krispy Kreme of South Florida, LLC	35.3%		-		437		1,789
			900		756	$	2,382
Less: reserves and allowances			(900)		-
		$	-	$	756
	January 29, 2012
	Company	Investment
	Ownership	and				Loan
	Percentage	Advances		Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0%	$	900	$	308	$	739
Kremeworks Canada, LP	24.5%		-		20		-
Krispy Kreme of South Florida, LLC	35.3%		-		327		1,946
			900		655	$	2,685
Less: reserves and allowances			(900)		-
		$	-	$	655

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Investments in Franchisees (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended												3 Months Ended	6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011	Jan. 29, 2012	Jul. 29, 2012 Kremeworks Llc [Member]	Jan. 29, 2012 Kremeworks Llc [Member]	Jul. 29, 2012 Kremeworks Canada LP [Member]	Jan. 29, 2012 Kremeworks Canada LP [Member]	Jul. 29, 2012 Krispy Kreme South Florida Llc [Member]	Jan. 29, 2012 Krispy Kreme South Florida Llc [Member]	Jul. 29, 2012 Krispy Kreme Mexico [Member]	Jan. 29, 2012 Krispy Kreme Mexico [Member]	May 05, 2011 Krispy Kreme Mexico [Member]	May 01, 2011 Sale Of Interest In KK Mexico [Member]	Jul. 31, 2011 Sale Of Interest In KK Mexico [Member]
Schedule of Equity Method Investments [Line Items]
Number Of Investments In Franchisees	three		three
Guarantor Obligations, Maximum Exposure, Undiscounted	$ 2,382,000		$ 2,382,000		$ 2,685,000	$ 593,000	$ 739,000	$ 0	$ 0	$ 1,789,000	$ 1,946,000
Potential Guarantee Obligation Exposure										1,600,000
Equity Method Investment, Ownership Percentage						25.00%	25.00%	24.50%	24.50%	35.30%	35.30%	0.00%	0.00%	30.00%
Guarantee Obligations Maximum Exposure Percentage						20.00%
Underlying Indebtedness Of Guaranteed Obligations Amount						3,000,000
Proceeds from sale of interest in equity method franchisee			0	7,723,000
Equity Method Investment Realized Gain Loss On Disposal	0	6,198,000	0	6,198,000
Income Taxes Paid On Disposal Of Equity Method Franchisee																1,500,000
After Tax Gain On Equity Method Investment Disposal																4,700,000
Equity Method Investment, Net Sales Proceeds																6,200,000
Payment Received In Conjunction With Sale															765,000
Allowance For Doubtful Accounts Receivable Recoveries															391,000
Royalty Revenue															280,000
Initial Franchise Fees															$ 95,000

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Impairment Charges and Lease Termination Costs (Tables)

6 Months Ended

Jul. 29, 2012

Impairment Charges And Lease Termination Costs Disclosure [Abstract]

Schedule Of Impairment Charges And Lease Termination Costs [TableTextBlock]

		Three Months Ended				Six Months Ended
		July 29,		July 31,		July 29,		July 31,
		2012		2011		2012		2011
		(In thousands)
Impairment of long-lived assets		$	-	$	-	$	-	$	-
Lease termination costs			55		301		86		545
	Total impairment charges and lease termination costs	$	55	$	301	$	86	$	545

Rollforward Of Lease Termination Costs [TableText Block]

					Three Months Ended				Six Months Ended
					July 29,		July 31,		July 29,		July 31,
					2012		2011		2012		2011
				(In thousands)
Balance at beginning of period				$	694	$	1,290	$	709	$	1,995
	Provision for lease termination costs:
		Adjustments to previously recorded provisions resulting from
			settlements with lessors and adjustments of previous estimates		47		280		70		492
		Accretion of discount			8		21		16		53
			Total provision		55		301		86		545
	Payments on unexpired leases, including settlements with
		lessors			(70)		(439)		(116)		(1,388)
Balance at end of period				$	679	$	1,152	$	679	$	1,152

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Accounting Policies

6 Months Ended

Jul. 29, 2012

Accounting Policies [Abstract]

Basis Of Presentation And Significant Accounting Policies [Text Block]

Note 1 — Accounting Policies

Krispy Kreme Doughnuts, Inc. (“KKDI”) and its subsidiaries (collectively, the “Company”) are engaged in the sale of doughnuts and complementary products through Company-owned stores. The Company also derives revenue from franchise and development fees and royalties from franchisees. Additionally, the Company sells doughnut mix, other ingredients and supplies and doughnut-making equipment to franchisees.

Significant Accounting Policies

BASIS OF PRESENTATION. The consolidated financial statements contained herein should be read in conjunction with the Company's 2012 Form 10-K. The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 10 of Regulation S-X and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with the Company's accounting practices described in the2012 Form 10-K, but have not been audited. In management's opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company's results of operations for the periods presented. The consolidated balance sheet data as of January 29, 2012 were derived from the Company's audited financial statements but do not include all disclosures required by GAAP.

BASIS OF CONSOLIDATION. The financial statements include the accounts of KKDI and its subsidiaries, the most significant of which is KKDI's principal operating subsidiary, Krispy Kreme Doughnut Corporation.

Investments in entities over which the Company has the ability to exercise significant influence but which the Company does not control, and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method. These entities typically are 25% to 35% owned and are hereinafter sometimes referred to as “Equity Method Franchisees.”

EARNINGS PER SHARE. The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued, computed using the treasury stock method. Such potential common shares consist of shares issuable upon the exercise of stock options and warrants and the vesting of currently unvested shares of restricted stock and restricted stock units.

The following table sets forth amounts used in the computation of basic and diluted earnings per share:

			Three Months Ended				Six Months Ended
			July 29,		July 31,		July 29,		July 31,
			2012		2011		2012		2011
			(In thousands)
Numerator: net income			$	4,929	$	8,839	$	10,955	$	18,010
Denominator:
	Basic earnings per share - weighted average shares outstanding			67,461		68,900		68,511		68,827
	Effect of dilutive securities:
		Stock options and warrants		1,488		2,080		1,635		1,868
		Restricted stock and restricted stock units		483		726		514		743
	Diluted earnings per share - weighted average shares
		outstanding plus dilutive potential common shares		69,432		71,706		70,660		71,438

The sum of the quarterly earnings per share amounts does not necessarily equal earnings per share for the year to date.

Stock options and warrants with respect to 4.3million and 6.5million sharesfor the three months ended July 29, 2012 and July 31, 2011, respectively,as well as 174,000 unvestedshares of restricted stock and unvested restricted stock unitsfor the three months ended July 29, 2012,have been excluded from the computation of the number of shares used to compute diluted earnings per share because their inclusion would be antidilutive.

Stock options and warrants with respect to 3.3million and 7.3million shares, as well as 87,000 and67,000 unvested shares of restricted stock and unvested restricted stock units, have been excluded from the computation of the number of shares used to compute diluted earnings per share for the six months ended July 29, 2012 and July 31, 2011, respectively, because their inclusion would be antidilutive.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) related to fair value measurements. The ASU clarifiessome existing concepts, eliminates wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between GAAP and IFRS. The ASU also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level3)inputs. The Company adopted the new standards in the first quarter of fiscal 2013; such adoption had no effect on the Company's financial condition or results of operations.

In June 2011, the FASB issued new accounting standards which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. The Company adopted the new standards in the first quarter of fiscal 2013 by presenting a separate consolidated statement of comprehensive income in addition to the consolidated statement of income.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Statement of Income and Comprehensive Income [Abstract]
Net income	$ 4,929	$ 8,839	$ 10,955	$ 18,010
Other comprehensive income (loss):
Foreign currency translation adjustment	0	(27)	0	57
Less income taxes	0	10	0	(23)
Foreign currency translation adjustment, net of income taxes	0	(17)	0	34
Unrealized loss on cash flow hedge	(16)	(183)	(14)	(381)
Less income taxes	6	73	5	151
Unrealized loss on cash flow hedge, net of income taxes	(10)	(110)	(9)	(230)
Total other comprehensive loss	(10)	(127)	(9)	(196)
Comprehensive income	$ 4,919	$ 8,712	$ 10,946	$ 17,814

XML

Accounting Policies (Policies)

6 Months Ended

Jul. 29, 2012

Accounting Policies [Abstract]

Basis Of Presentation [Policy Text Block]

BASIS OF PRESENTATION. The consolidated financial statements contained herein should be read in conjunction with the Company's 2012 Form 10-K. The accompanying interim consolidated financial statements are presented in accordance with the requirements of Article 10 of Regulation S-X and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) with respect to annual financial statements. The interim consolidated financial statements have been prepared in accordance with the Company's accounting practices described in the2012 Form 10-K, but have not been audited. In management's opinion, the financial statements include all adjustments, which consist only of normal recurring adjustments, necessary for a fair statement of the Company's results of operations for the periods presented. The consolidated balance sheet data as of January 29, 2012 were derived from the Company's audited financial statements but do not include all disclosures required by GAAP.

Consolidation, Policy [Policy Text Block]

BASIS OF CONSOLIDATION. The financial statements include the accounts of KKDI and its subsidiaries, the most significant of which is KKDI's principal operating subsidiary, Krispy Kreme Doughnut Corporation.

Investments in entities over which the Company has the ability to exercise significant influence but which the Company does not control, and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method. These entities typically are 25% to 35% owned and are hereinafter sometimes referred to as “Equity Method Franchisees.”

Earnings Per Share, Policy [Policy Text Block]

EARNINGS PER SHARE. The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued, computed using the treasury stock method. Such potential common shares consist of shares issuable upon the exercise of stock options and warrants and the vesting of currently unvested shares of restricted stock and restricted stock units.

The following table sets forth amounts used in the computation of basic and diluted earnings per share:

The sum of the quarterly earnings per share amounts does not necessarily equal earnings per share for the year to date.

Stock options and warrants with respect to 4.3million and 6.5million sharesfor the three months ended July 29, 2012 and July 31, 2011, respectively,as well as 174,000 unvestedshares of restricted stock and unvested restricted stock unitsfor the three months ended July 29, 2012,have been excluded from the computation of the number of shares used to compute diluted earnings per share because their inclusion would be antidilutive.

Stock options and warrants with respect to 3.3million and 7.3million shares, as well as 87,000 and67,000 unvested shares of restricted stock and unvested restricted stock units, have been excluded from the computation of the number of shares used to compute diluted earnings per share for the six months ended July 29, 2012 and July 31, 2011, respectively, because their inclusion would be antidilutive.

New Accounting Pronouncements Policy Policy [Text Block]

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”) related to fair value measurements. The ASU clarifiessome existing concepts, eliminates wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between GAAP and IFRS. The ASU also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level3)inputs. The Company adopted the new standards in the first quarter of fiscal 2013; such adoption had no effect on the Company's financial condition or results of operations.

In June 2011, the FASB issued new accounting standards which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. The Company adopted the new standards in the first quarter of fiscal 2013 by presenting a separate consolidated statement of comprehensive income in addition to the consolidated statement of income.

XML

Document and Entity Information	6 Months Ended
	Jul. 29, 2012	Aug. 20, 2012
Document and Entity Information [Abstract]
Document Type	10-Q
Document Period End Date	Jul. 29, 2012
Amendment Flag	false
Entity Registrant Name	KRISPY KREME DOUGHNUTS INC
Entity Central Index Key	0001100270
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--02-03
Entity Filer Category	Accelerated Filer
Entity Well Known Seasoned Issuer	Yes
Entity Common Stock Shares Outstanding		65,001,705
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Accounting Policies (Tables)

6 Months Ended

Jul. 29, 2012

Accounting Policies [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block]

			Three Months Ended				Six Months Ended
			July 29,		July 31,		July 29,		July 31,
			2012		2011		2012		2011
			(In thousands)
Numerator: net income			$	4,929	$	8,839	$	10,955	$	18,010
Denominator:
	Basic earnings per share - weighted average shares outstanding			67,461		68,900		68,511		68,827
	Effect of dilutive securities:
		Stock options and warrants		1,488		2,080		1,635		1,868
		Restricted stock and restricted stock units		483		726		514		743
	Diluted earnings per share - weighted average shares
		outstanding plus dilutive potential common shares		69,432		71,706		70,660		71,438

XML

CONSOLIDATED BALANCE SHEET (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
CURRENT ASSETS:
Cash and cash equivalents	$ 41,002	$ 44,319
Receivables	22,376	21,616
Receivables from equity method franchisees	756	655
Inventories	15,704	16,497
Deferred income taxes	17,723	10,540
Other current assets	7,319	3,613
Total current assets	104,880	97,240
Property and equipment	75,628	75,466
Investments in equity method franchisees	0	0
Goodwill and other intangible assets	23,776	23,776
Deferred income taxes	107,172	129,053
Other assets	11,044	9,413
Total assets	322,500	334,948
CURRENT LIABILITIES:
Current maturities of long-term debt	2,181	2,224
Accounts payable	11,901	10,494
Accrued liabilities	25,833	28,800
Total current liabilities	39,915	41,518
Long-term debt, less current maturities	24,283	25,369
Other long-term obligations	23,247	18,935
Commitments and contingencies	0	0
SHAREHOLDERS EQUITY:
Preferred stock, no par value	0	0
Common stock, no par value	352,522	377,539
Accumulated other comprehensive loss	(345)	(336)
Accumulated deficit	(117,122)	(128,077)
Total shareholders equity	235,055	249,126
Total liabilities and shareholders equity	$ 322,500	$ 334,948

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Investment in Franchisees

6 Months Ended

Jul. 29, 2012

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments Disclosure Text Block

Note 6 — Investments in Franchisees

As of July 29, 2012, the Company had investments in three franchisees. These investments have been made in the form of capital contributions and, in certain instances, loans evidenced by promissory notes. These investments are reflected as “Investments in equity method franchisees” in the consolidated balance sheet.

The Company's financial exposures related to franchisees in which the Company has an investment are summarized in the tables below.

	July 29, 2012
	Company	Investment
	Ownership	and				Loan
	Percentage	Advances		Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0%	$	900	$	297	$	593
Kremeworks Canada, LP	24.5%		-		22		-
Krispy Kreme of South Florida, LLC	35.3%		-		437		1,789
			900		756	$	2,382
Less: reserves and allowances			(900)		-
		$	-	$	756
	January 29, 2012
	Company	Investment
	Ownership	and				Loan
	Percentage	Advances		Receivables		Guarantees
	(Dollars in thousands)
Kremeworks, LLC	25.0%	$	900	$	308	$	739
Kremeworks Canada, LP	24.5%		-		20		-
Krispy Kreme of South Florida, LLC	35.3%		-		327		1,946
			900		655	$	2,685
Less: reserves and allowances			(900)		-
		$	-	$	655

The Company has guaranteed loans from third-party financial institutions on behalf of certain Equity Method Franchisees, primarily to assist the franchisees in obtaining third-party financing. The loans are collateralized by certain assets of the franchisee, generally the Krispy Kreme store and related equipment. The loan guarantee amounts represent the portion of the principal amount outstanding under the related loan that is subject to the Company's guarantee.

The Company has a 25% interest in Kremeworks, LLC (“Kremeworks”), and has guaranteed 20% of the outstanding principal balance of certain of Kremeworks' bank indebtedness, which, as amended, matures in October 2012. The aggregate amount of such indebtedness was approximately $3.0million atJuly 29, 2012.

Current liabilities at July 29, 2012 and January 29, 2012 include accruals for potential payments under loan guarantees of approximately$1.8 million and $1.9 million, respectively, related to Krispy Kreme of South Florida, LLC (“KKSF”). The underlying indebtedness related to approximately $1.6 million of the Company's KKSF guarantee exposure matured by its terms in October 2009. Such maturity has been extended on a month-to-month basis pursuant to an informal agreement between KKSF and the lender.There was no liability reflected in the financial statements for the guarantee of Kremeworks' debt because the Company did not believe it was probable that the Company would be required to perform under that guarantee.

On May 5, 2011, the Company sold its 30% equity interest in KK Mexicoto KK Mexico's majority shareholder. The Company received cash proceeds of approximately $7.7 million in exchange for its equity interest and, after deducting costs of the transaction, realized a gain of approximately $6.2 million on thedisposition. After provision for payment of Mexican income taxes related to the sale of approximately $1.5 million, the Company reported an after tax gain on the disposition of approximately $4.7million in the quarter ending July 31, 2011.The net after tax proceeds of the sale of approximately $6.2 million were used to prepay a portion of the outstanding balance of the 2011 Term Loan.

In connection with the Company's sale of its KK Mexico interest, KK Mexico paid approximately $765,000 of amounts due to the Company which were evidenced by promissory notes, relating principally to past due royalties and fees due to the Company. As a consequence of this payment, in the quarter ended May 1, 2011, the Company reversed an allowance for doubtful notes receivable of $391,000 and recorded royalty and franchise fee income of approximately $280,000 and $95,000 respectively. The reserve had previously been established, and the royalties and fees had not previously been recognized as revenue, because of uncertainty surrounding the collection of these amounts.

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Inventories

6 Months Ended

Jul. 29, 2012

Inventory Disclosure [Abstract]

Inventory Disclosure Text Block

Note 5 — Inventories

The components of inventories are as follows:

	July 29,		January 29,
	2012		2012
	(In thousands)
Raw materials	$	5,331	$	5,306
Work in progress		38		89
Finished goods and purchased merchandise		10,335		11,102
	$	15,704	$	16,497

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Shareholders' Equity (Tables)

6 Months Ended

Jul. 29, 2012

Disclosure Of Compensation Related Costs Share Based Payments And Repurchase Of Shares [Abstract]

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

			Three Months Ended				Six Months Ended
			July 29,		July 31,		July 29,		July 31,
			2012		2011		2012		2011
			(In thousands)
Costs charged to earnings related to:
	Stock options		$	234	$	395	$	1,061	$	770
	Restricted stock and restricted stock units			537		518		1,087		1,036
		Total costs	$	771	$	913	$	2,148	$	1,806
Costs included in:
	Direct operating expenses		$	357	$	483	$	727	$	965
	General and administrative expenses			414		430		1,421		841
		Total costs	$	771	$	913	$	2,148	$	1,806

Schedule of Repurchase of Stock [Table Text Block]

	Three Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	2,858	$	18,146	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	3		68
	2,858	$	18,146	3	$	68
	Six Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	3,113	$	20,000	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	16		125
	3,113	$	20,000	16	$	125

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Segment (Tables)

6 Months Ended

Jul. 29, 2012

Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

					Three Months Ended				Six Months Ended
					July 29,		July 31,		July 29,		July 31,
					2012		2011		2012		2011
					(In thousands)
Revenues:
	Company Stores				$	69,338	$	65,992	$	142,679	$	135,467
	Domestic Franchise					2,430		2,349		5,063		4,718
	International Franchise					5,781		5,352		11,808		10,988
	KK Supply Chain:
		Total revenues				51,465		50,341		105,250		104,224
		Less – intersegment sales elimination				(26,899)		(26,082)		(54,189)		(52,845)
			External KK Supply Chain revenues			24,566		24,259		51,061		51,379
				Total revenues	$	102,115	$	97,952	$	210,611	$	202,552
Operating income (loss):
	Company Stores				$	338	$	(1,049)	$	3,286	$	1,125
	Domestic Franchise					1,329		216		2,898		1,363
	International Franchise					4,162		3,409		8,656		7,580
	KK Supply Chain					8,392		7,745		16,869		16,087
		Total segment operating income				14,221		10,321		31,709		26,155
	Unallocated general and administrative expenses					(4,932)		(5,083)		(11,555)		(10,882)
	Impairment charges and lease termination costs					(55)		(301)		(86)		(545)
		Consolidated operating income			$	9,234	$	4,937	$	20,068	$	14,728
Depreciation expense:
	Company Stores				$	1,944	$	1,689	$	4,041	$	3,226
	Domestic Franchise					55		55		110		110
	International Franchise					3		2		6		4
	KK Supply Chain					235		188		397		377
	Corporate administration					162		153		327		308
		Total depreciation expense			$	2,399	$	2,087	$	4,881	$	4,025

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Fair Value Measurements

6 Months Ended

Jul. 29, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures Text Block

Note 9 — Fair Value Measurements

The accounting standards for fair value measurements define fair value as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

The accounting standards for fair value measurements establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
• Level 2 - Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis at July 29, 2012 and January 29, 2012.

		July 29, 2012
		Level 1		Level 2		Level 3
		(In thousands)
Assets:
	401(k) mirror plan assets	$	1,601	$	-	$	-
	Agricultural commodity futures contracts		57		-		-
	Interest rate derivative		-		30		-
	Total assets	$	1,658	$	30	$	-
		January 29, 2012
		Level 1		Level 2		Level 3
		(In thousands)
Assets:
	401(k) mirror plan assets	$	1,039	$	-	$	-
	Agricultural commodity futures contracts		21		-		-
	Interest rate derivative		-		53		-
	Total assets	$	1,060	$	53	$	-

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

There were no nonrecurring fair value measurements recorded during the three and six months ended July 29, 2012 and July 31, 2011.

Fair Values of Financial Instruments at the Balance Sheet Dates

The carrying values and approximate fair values of certain financial instruments as of July 29, 2012 and January 29, 2012 were as follows:

		July 29, 2012				January 29, 2012
		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
		(In thousands)
Assets:
	Cash and cash equivalents	$	41,002	$	41,002	$	44,319	$	44,319
	Receivables		22,376		22,376		21,616		21,616
	Receivables from Equity Method Franchisees		756		756		655		655
	Agricultural commodity futures contracts		57		57		21		21
	Interest rate derivatives		30		30		53		53
Liabilities:
	Accounts payable		11,901		11,901		10,494		10,494
	Long-term debt (including current maturities)		26,464		26,464		27,593		27,593

The fair value of the term loan is estimated based on an indicative bid price. As such, the term loan is classified within Level 2, as defined under GAAP.

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Shareholders' Equity

6 Months Ended

Jul. 29, 2012

Disclosure Of Compensation Related Costs Share Based Payments And Repurchase Of Shares [Abstract]

Disclosure Of Compensation Related Costs Share Based Payments And Repurchase Of Shares[TextBlock]

Note 7 — Shareholders' Equity

Share-Based Compensation for Employees and Directors

On June 12, 2012, the Company's shareholders approved the Krispy Kreme Doughnuts, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan, the term of which expires on June 11, 2022, replaces the Company's 2000 Stock Incentive Plan, which expired on June 30, 2012. The 2012 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock awards, performance unit awards, performance share awards, stock appreciation rights, and phantom stock awards.

The 2012 Plan limits the issuance of shares of Company common stock under the 2012 Plan to approximately 3,550,000 shares. Any shares that are subject to options or stock appreciation rights awarded under the 2012 Plan will be counted against the 2012 Plan limit as one share for every one share granted, and any shares that are subject to 2012 Plan awards other than options or stock appreciation rights will be counted against this limit as one and thirty three-hundredths (1.33) shares for every one share granted. The 2012 Plan provides that options may be granted with exercise prices not less than the closing sale price of the Company's common stock on the date of grant.

The Company measures and recognizes compensation expense for share-based payment (“SBP”) awards based on their fair values. The fair value of SBP awards for which employees and directors render the requisite service necessary for the award to vest is recognized over the related vesting period.

The aggregate cost of SBP awards charged to earnings for the three and six months ended July 29, 2012 and July 31, 2011 is set forth in the following table. The Company did not realize any excess tax benefits from the exercise of stock options or the vesting of restricted stock or restricted stock units during any of the periods.

			Three Months Ended				Six Months Ended
			July 29,		July 31,		July 29,		July 31,
			2012		2011		2012		2011
			(In thousands)
Costs charged to earnings related to:
	Stock options		$	234	$	395	$	1,061	$	770
	Restricted stock and restricted stock units			537		518		1,087		1,036
		Total costs	$	771	$	913	$	2,148	$	1,806
Costs included in:
	Direct operating expenses		$	357	$	483	$	727	$	965
	General and administrative expenses			414		430		1,421		841
		Total costs	$	771	$	913	$	2,148	$	1,806

Repurchases of Common Stock

On March 27, 2012, the Company's Board of Directors authorized the repurchase of up to $20 million of the Company's common stock. The Company's lenders consented to such repurchases through June 30, 2013, subject to certain conditions, as described in Note 12 to the Company's consolidated financial statements included in the 2012 Form 10-K.

The Company generally permits holders of restricted stock and restricted stock unit awards to satisfy their obligations to reimburse the Company for the minimum required statutory withholding taxes arising from the vesting of such awards by surrendering vested common shares in lieu of reimbursing the Company in cash.

The following table summarizes repurchases of common stock for the three and six months ended July 29, 2012 and July 31, 2011:

	Three Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	2,858	$	18,146	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	3		68
	2,858	$	18,146	3	$	68
	Six Months Ended
	July 29,			July 31,
	2012			2011
		Common			Common
	Shares	Stock		Shares	Stock
	(In thousands)
Shares repurchased under share repurchase authorization	3,113	$	20,000	-	$	-
Shares surrendered in reimbursement for withholding taxes	-		-	16		125
	3,113	$	20,000	16	$	125

The Company completed the share repurchase during the second quarter of fiscal 2013, purchasing 2,858,000 shares at an average cost of $6.35. For the six months ended July 29, 2012, the Company purchased 3,113,000 sharesat an average cost of $6.42 per share, for a total cost of $20 million.

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Impairment Charges and Lease Termination Costs

6 Months Ended

Jul. 29, 2012

Impairment Charges And Lease Termination Costs Disclosure [Abstract]

Impairment Charges And Lease Termination Costs Disclosure [Text Block]

Note 8 — Impairment Charges and Lease Termination Costs

The components of impairment charges and lease termination costs are as follows:

		Three Months Ended				Six Months Ended
		July 29,		July 31,		July 29,		July 31,
		2012		2011		2012		2011
		(In thousands)
Impairment of long-lived assets		$	-	$	-	$	-	$	-
Lease termination costs			55		301		86		545
	Total impairment charges and lease termination costs	$	55	$	301	$	86	$	545

The Company tests long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of the Company's annual budgeting process. When the Company concludes that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), the Company records impairment charges to reduce the carrying value of those assets to their estimated fair values.

Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which the Company ceases use of the leased property. The fair value of these liabilities are estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords.

The transactions reflected in the accrual for lease termination costs are summarized as follows:

					Three Months Ended				Six Months Ended
					July 29,		July 31,		July 29,		July 31,
					2012		2011		2012		2011
				(In thousands)
Balance at beginning of period				$	694	$	1,290	$	709	$	1,995
	Provision for lease termination costs:
		Adjustments to previously recorded provisions resulting from
			settlements with lessors and adjustments of previous estimates		47		280		70		492
		Accretion of discount			8		21		16		53
			Total provision		55		301		86		545
	Payments on unexpired leases, including settlements with
		lessors			(70)		(439)		(116)		(1,388)
Balance at end of period				$	679	$	1,152	$	679	$	1,152

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Derivative Instruments

6 Months Ended

Jul. 29, 2012

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Activities Disclosure Text Block

Note 10 — Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. The Company does not hold or issue derivative instruments for trading purposes.

The Company is exposed to credit-related losses in the event of non-performance by the counterparties to its derivative instruments. The Company mitigates this risk of nonperformance by dealing with highly rated counterparties.

Additional disclosure about the fair value of derivative instruments is included in Note 9.

Commodity Price Risk

The Company is exposed to the effects of commodity price fluctuations in the cost of ingredients of its products, of which flour, sugar and shortening are the most significant. In order to bring greater stability to the cost of ingredients, from time to time the Company purchases exchange-traded commodity futures contracts, and options on such contracts, for raw materials which are ingredients of its products or which are components of such ingredients, including wheat and soybean oil. The Company is also exposed to the effects of commodity price fluctuations in the cost of gasoline used by its delivery vehicles. To mitigate the risk of fluctuations in the price of its gasoline purchases, the Company may purchase exchange-traded commodity futures contracts and options on such contracts. The difference between the cost, if any, and the fair value of commodity derivatives is reflected in earnings because the Company has not designated any of these instruments as hedges. Gains and losses on these contracts are intended to offset losses and gains on the hedged transactions in an effort to reduce the earnings volatility resulting from fluctuating commodity prices. The settlement of commodity derivative contracts is reported in the consolidated statement of cash flows as a cash flow from operating activities. At July 29, 2012, the Company had commodity derivatives with an aggregate contract volume of30,000bushels of wheat. Other than the requirement to meet minimum margin requirements with respect to the commodity derivatives, there are no collateral requirements related to such contracts.

Interest Rate Risk

All of the borrowings under the Company's secured credit facilities bear interest at variable rates based upon either the lenders' prime rate, the Fed funds rate or LIBOR. The interest cost of the Company's debt may be affected by changes in these short-term interest rates and increases in those rates may adversely affect the Company's results of operations.

On March 3, 2011, the Company entered into an interest rate derivative contract having an aggregate notional principal amount of $17.5 million. The derivative contract entitles the Company to receive from the counterparty the excess, if any, of the three-month LIBOR rate over 3.00% for each of the calendar quarters in the period beginning April 2012 and ending December 2015. The Company is accounting for this derivative contract as a cash flow hedge.

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

The following table presents the fair values of derivative instruments included in the consolidated balance sheet as of July 29, 2012 and January 29, 2012:

		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	2012		2012
		(In thousands)
Agricultural commodity futures contracts	Other current assets	$	57	$	21
		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Designated as a Cash Flow Hedge	Balance Sheet Location	2012		2012
		(In thousands)
Interest rate derivative	Other assets	$	30	$	53

The effect of derivative instruments on the consolidated statement of income for the three and six months ended July 29, 2012 and July 31, 2011, was as follows:

				Amount of Derivative Gain or (Loss)
				Recognized in Income
				Three Months Ended							Six Months Ended
Derivatives Not Designated as Hedging Instruments			Location of Derivative Gain or (Loss) Recognized in Income	July 29,			July 31,				July 29,			July 31,
						2012			2011				2012			2011
				(In thousands)
Agricultural commodity futures
	contracts		Direct operating expenses	$	1,066		$	(129)		$	1,117		$	(598)
Gasoline commodity futures
	contracts		Direct operating expenses		-			(22)			-			(9)
		Total		$	1,066		$	(151)		$	1,117		$	(607)
				Amortization of Derivative Asset
				Recognized in Income
				Three Months Ended							Six Months Ended
Derivatives Designated as a Cash Flow Hedge			Location of Amortization of Derivative Asset Recognized in Income	July 29,			July 31,				July 29,			July 31,
						2012			2011				2012			2011
				(In thousands)
Interest rate derivative			Interest expense	$	(7)		$	-		$	(9)		$	-
				Amount of Derivative Gain or (Loss)
				Recognized in Income
				Three Months Ended						Six Months Ended
Derivatives Designated as a Cash Flow Hedge			Location of Derivative Gain or (Loss) Recognized in OCI	July 29,			July 31,			July 29,			July 31,
						2012			2011			2012			2011
					(In thousands)
Interest rate derivative			Change in fair value of derivative	$	(16)		$	(183)		$	(14)		$	(381)
			Less - income tax effect		6			73			5			151
			Net change in amount recognized in OCI	$	(10)		$	(110)		$	(9)		$	(230)

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Receivables (Notes Receivables from Franchisees) (Details) (USD $) In Thousands, unless otherwise specified	Jul. 29, 2012	Jan. 29, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes And Loans Receivable Gross	$ 586	$ 777
Current portion of notes receivables	(212)	(185)
Allowance for Notes, Loans and Financing Receivable, Current	(68)	(68)
Net Notes Receivable	$ 306	$ 524

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Inventory (Tables)

6 Months Ended

Jul. 29, 2012

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	July 29,		January 29,
	2012		2012
	(In thousands)
Raw materials	$	5,331	$	5,306
Work in progress		38		89
Finished goods and purchased merchandise		10,335		11,102
	$	15,704	$	16,497

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Derivative Instruments (Tables)

6 Months Ended

Jul. 29, 2012

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	2012		2012
		(In thousands)
Agricultural commodity futures contracts	Other current assets	$	57	$	21

		Asset Derivatives
		Fair Value
		July 29,		January 29,
Derivatives Designated as a Cash Flow Hedge	Balance Sheet Location	2012		2012
		(In thousands)
Interest rate derivative	Other assets	$	30	$	53

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

				Amount of Derivative Gain or (Loss)
				Recognized in Income
				Three Months Ended							Six Months Ended
Derivatives Not Designated as Hedging Instruments			Location of Derivative Gain or (Loss) Recognized in Income	July 29,			July 31,				July 29,		July 31,
						2012			2011			2012		2011
				(In thousands)
Agricultural commodity futures
	contracts		Direct operating expenses	$	1,066		$	(129)		$	1,117	$	(598)
Gasoline commodity futures
	contracts		Direct operating expenses		-			(22)			-		(9)
		Total		$	1,066		$	(151)		$	1,117	$	(607)
				Amortization of Derivative Asset
				Recognized in Income
				Three Months Ended							Six Months Ended
Derivatives Designated as a Cash Flow Hedge			Location of Amortization of Derivative Asset Recognized in Income	July 29,			July 31,				July 29,		July 31,
						2012			2011			2012		2011
				(In thousands)
Interest rate derivative			Interest expense	$	(7)		$	-		$	(9)	$	-

Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) [Table Text Block]

		Amount of Derivative Gain or (Loss)
		Recognized in Income
		Three Months Ended						Six Months Ended
Derivatives Designated as a Cash Flow Hedge	Location of Derivative Gain or (Loss) Recognized in OCI	July 29,			July 31,			July 29,			July 31,
				2012			2011			2012			2011
			(In thousands)
Interest rate derivative	Change in fair value of derivative	$	(16)		$	(183)		$	(14)		$	(381)
	Less - income tax effect		6			73			5			151
	Net change in amount recognized in OCI	$	(10)		$	(110)		$	(9)		$	(230)

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Impairment Charges and Lease Termination Costs (components of impairment charges and lease termination costs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Impairment Charges And Lease Termination Costs Disclosure [Abstract]
Impairment charges	$ 0	$ 0	$ 0	$ 0
Lease Termination Costs Net	55	301	86	545
Total impairment charges and lease termination costs	$ 55	$ 301	$ 86	$ 545

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CONSOLIDATED STATEMENT OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 10,955	$ 18,010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	4,881	4,025
Deferred income taxes	7,524	128
Accrued rent expense	257	315
Loss on disposal of property and equipment	389	213
Gain on sale of interest in equity method franchisee	0	(6,198)
Share-based compensation	2,148	1,806
Provision for doubtful accounts	(73)	(399)
Amortization of deferred financing costs	202	218
Equity in (income) losses of equity method franchisees	103	(3)
Other	(1,258)	1,283
Change in assets and liabilities:
Receivables	(693)	199
Inventories	793	(3,921)
Other current and non-current assets	(1,968)	(1,093)
Accounts payable and accrued liabilities	(1,859)	(351)
Other long-term obligations	1,592	(1,540)
Net cash provided by operating activities	22,993	12,692
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(5,233)	(4,146)
Proceeds from disposals of property and equipment	49	19
Proceeds from sale of interest in equity method franchisee	0	7,723
Escrow deposit recovery	0	1,000
Other investing activities	(24)	13
Net cash provided by (used for) investing activities	(5,208)	4,609
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt	(1,100)	(7,846)
Deferred financing costs	(11)	(12)
Proceeds from exercise of stock options	0	1,036
Proceeds from exercise of warrants	9	0
Repurchase of common shares	(20,000)	(125)
Net cash used for financing activities	(21,102)	(6,947)
Net increase (decrease) in cash and cash equivalents	(3,317)	10,354
Cash and cash equivalents at beginning of period	44,319	21,970
Cash and cash equivalents at end of period	$ 41,002	$ 32,324

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Receivables

6 Months Ended

Jul. 29, 2012

Receivables [Abstract]

Loans Notes Trade And Other Receivables Disclosure Text Block

Note 4 — Receivables

The components of receivables are as follows:

			July 29,		January 29,
			2012		2012
			(In thousands)
Receivables:
	Wholesale customers		$	9,804	$	10,169
	Unaffiliated franchisees			11,526		11,405
	Other receivables			995		1,015
	Current portion of notes receivable			212		185
				22,537		22,774
	Less — allowance for doubtful accounts:
		Wholesale customers		(125)		(349)
		Unaffiliated franchisees		(36)		(809)
				(161)		(1,158)
			$	22,376	$	21,616
Receivables from Equity Method Franchisees (Note 6):
	Trade		$	756	$	655

The changes in the allowance for doubtful accounts are summarized as follows:

		Six Months Ended
		July 29,		July 31,
		2012		2011
		(In thousands)
Allowance for doubtful accounts related to receivables:
	Balance at beginning of period	$	1,158	$	1,334
	Provision for doubtful accounts		(14)		13
	Net recoveries (chargeoffs)		(983)		(40)
	Balance at end of period	$	161	$	1,307
Allowance for doubtful accounts related to receivables from Equity Method Franchisees:
	Balance at beginning of period	$	-	$	-
	Provision for doubtful accounts		(59)		-
	Net recoveries (chargeoffs)		59		-
	Balance at end of period	$	-	$	-

The Company also has notes receivable from franchisees which are summarized in the following table. These balances are included in “Other assets” in the accompanying consolidated balance sheet.

		July 29,		January 29,
		2012		2012
		(In thousands)
Notes receivable:
	Notes receivable from franchisees	$	586	$	777
	Less — portion due within one year included in receivables		(212)		(185)
	Less — allowance for doubtful accounts		(68)		(68)
		$	306	$	524

The changes in the allowance for doubtful accounts related to notes receivable are summarized as follows:

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Balance at beginning of period	$	68	$	538
Provision for doubtful accounts		-		(412)
Net recoveries (chargeoffs)		-		(58)
Balance at end of period	$	68	$	68

In addition to the foregoing notes receivable, the Company had promissory notes totaling approximately $3.3million at July 29, 2012 and January 29, 2012representing principally royalties and fees due to the Company which, as a result of doubt about their collection, the Company had not yet recorded as revenues. No payments were required to be made currently on any of these amounts. During the quarter ended May 1, 2011, the Company recognized approximately $375,000 of previously unrecognized revenues related to KK Mexico which were received on May 5, 2011 in connection with the Company's sale of its 30% equity interest in the franchisee, as more fully described in Note 6.During thequarter ended May 1, 2011, the Company also reversed an allowance for doubtful notes receivable of $391,000 related to KK Mexico; such note also was paid in full on May 5, 2011.

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Accounting Policies (Narratives) (Details)	3 Months Ended		6 Months Ended
	Jul. 29, 2012	Jul. 31, 2011	Jul. 29, 2012	Jul. 31, 2011
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,300,000	6,500,000	3,300,000	7,300,000
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	174,000		87,000	67,000
Maximum [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	35.00%		35.00%
Minimum [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	25.00%		25.00%

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Shareholders' Equity (Narrative) (Details) (USD $)	3 Months Ended	6 Months Ended
	Jul. 29, 2012	Jul. 29, 2012
Disclosure of share repurchase [Abstract]
Stock Repurchase Program, Authorized Amount		$ 20,000,000
Stock Repurchase Program Period In Force		Jun. 30, 2013
Stock Acquired Average Cost Per Share	$ 6.35	$ 6.42
Stock Incentive 2000 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement Plan Expiration Date		Jun. 30, 2012
Stock Incentive 2012 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Description		On June 12, 2012, the Company’s shareholders approved the Krispy Kreme Doughnuts, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan, the term of which expires on June 11, 2022, replaces the Company’s 2000 Stock Incentive Plan, which expired on June 30, 2012. The 2012 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock awards, performance unit awards, performance share awards, stock appreciation rights, and phantom stock awards. The 2012 Plan limits the issuance of shares of Company common stock under the 2012 Plan to approximately 3,550,000 shares. Any shares that are subject to options or stock appreciation rights awarded under the 2012 Plan will be counted against the 2012 Plan limit as one share for every one share granted, and any shares that are subject to 2012 Plan awards other than options or stock appreciation rights will be counted against this limit as one and thirty three-hundredths (1.33) shares for every one share granted. The 2012 Plan provides that options may be granted with exercise prices not less than the closing sale price of the Company’s common stock on the date of grant.
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	3,550,000	3,550,000
Share-based Compensation Arrangement Plan Expiration Date		Jun. 11, 2022

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Receivables (Tables)

6 Months Ended

Jul. 29, 2012

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

			July 29,		January 29,
			2012		2012
			(In thousands)
Receivables:
	Wholesale customers		$	9,804	$	10,169
	Unaffiliated franchisees			11,526		11,405
	Other receivables			995		1,015
	Current portion of notes receivable			212		185
				22,537		22,774
	Less — allowance for doubtful accounts:
		Wholesale customers		(125)		(349)
		Unaffiliated franchisees		(36)		(809)
				(161)		(1,158)
			$	22,376	$	21,616
Receivables from Equity Method Franchisees (Note 6):
	Trade		$	756	$	655

		July 29,		January 29,
		2012		2012
		(In thousands)
Notes receivable:
	Notes receivable from franchisees	$	586	$	777
	Less — portion due within one year included in receivables		(212)		(185)
	Less — allowance for doubtful accounts		(68)		(68)
		$	306	$	524

Allowance for Credit Losses on Financing Receivables [Table Text Block]

		Six Months Ended
		July 29,		July 31,
		2012		2011
		(In thousands)
Allowance for doubtful accounts related to receivables:
	Balance at beginning of period	$	1,158	$	1,334
	Provision for doubtful accounts		(14)		13
	Net recoveries (chargeoffs)		(983)		(40)
	Balance at end of period	$	161	$	1,307
Allowance for doubtful accounts related to receivables from Equity Method Franchisees:
	Balance at beginning of period	$	-	$	-
	Provision for doubtful accounts		(59)		-
	Net recoveries (chargeoffs)		59		-
	Balance at end of period	$	-	$	-

	Six Months Ended
	July 29,		July 31,
	2012		2011
	(In thousands)
Balance at beginning of period	$	68	$	538
Provision for doubtful accounts		-		(412)
Net recoveries (chargeoffs)		-		(58)
Balance at end of period	$	68	$	68