10q10k10q10k.net

What changed in Krispy Kreme, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Krispy Kreme, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+287 added−297 removedSource: 10-K (2023-03-02) vs 10-K (2022-03-11)

Top changes in Krispy Kreme, Inc.'s 2023 10-K

287 paragraphs added · 297 removed · 195 edited across 6 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

93 edited+43 added−48 removed78 unchanged
Biggest changeAdditionally, a significant theft, loss, disclosure, modification or misappropriation of, or access to, guests’, employees’, third parties’ or other proprietary data or other breach of our information technology systems could result in fines, legal claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from guests and employees, any of which could have a material adverse effect on our financial condition and results of operations. 21 Table of Contents The techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, may take many forms (including phishing, social engineering, denial, or degradation of service attacks, malware, or ransomware), change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.
Biggest changeAdditionally, a significant theft, loss, disclosure, modification, or misappropriation of, or access to, guests’, employees’, third parties’, or other proprietary data or other breach of our information technology systems could result in fines, legal claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation, and expose us to claims from guests and employees, any of which could have a material adverse effect on our financial condition and results of operations.
As we continue to expand our global footprint the above risks may be exacerbated as we encounter supply shortages, logistical hurdles and other costs associated with operating and supplying a global network of shops. We are the only manufacturer of substantially all of our doughnut-making equipment.
As we continue to expand our global footprint the above risks may be exacerbated as we encounter supply shortages, logistical hurdles, and other costs associated with operating and supplying a global network of shops. We are the only manufacturer of substantially all our doughnut-making equipment.
Our ability to successfully execute such an expansion may be influenced by factors beyond our and our franchisees’ control, which may slow shop development and impair our growth strategy. We may also be limited by logistical or other operational concerns, including an inability to source product components or logistical services.
Our ability to successfully execute such an expansion strategy may be influenced by factors beyond our and our franchisees’ control, which may slow shop development and impair our growth strategy. We may also be limited by logistical or other operational concerns, including an inability to source product components or logistical services.
If our practices are not consistent, or are viewed as not consistent, with changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations, and standards, we may also become subject to fines, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, lawsuits, loss of export privileges, severe criminal or civil sanctions, or other penalties.
If our practices are not consistent, or are viewed as not consistent, with changes in laws, regulations, standards, or new interpretations or applications of existing laws, regulations, and standards, we may also become subject to fines, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, lawsuits, loss of export privileges, severe criminal or civil sanctions, or other penalties.
The sale by JAB’s affiliate of a substantial number of our shares, or a perception that such sales could occur, could significantly reduce the market price of our common stock. A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities.
The sale by JAB’s affiliate of a substantial number of our shares, or a perception that such sales would occur, could significantly reduce the market price of our common stock. A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities.
Although we believe we currently generally enjoy a positive relationship with our franchisees, there is no assurance that future developments, some of which may be outside our control, may significantly harm our future relationships with existing and new franchisees.
Although we believe we currently generally enjoy a positive relationship with our franchisees, there is no assurance that future developments, some of which may be outside our control, may not significantly harm our future relationships with existing and new franchisees.
If any of the following risks or uncertainties actually occur, our business, financial condition, prospects, results of operations and cash flows could be materially and adversely affected . The risks discussed below are not the only risks we face.
If any of the following risks or uncertainties occur, our business, financial condition, prospects, results of operations, and cash flows could be materially and adversely affected . The risks discussed below are not the only risks we face.
We could be forced to expend significant financial and operational resources in responding to a security breach, including investigating and remediating any information security vulnerabilities, defending against and resolving legal and regulatory claims and complying with notification obligations, all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business, financial condition and results of operations.
We could be forced to expend significant financial and operational resources in protecting against or responding to a security breach, including investigating and remediating any information security vulnerabilities, defending against and resolving legal and regulatory claims, and complying with notification obligations, all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business, financial condition, and results of operations.
In addition to the above, our omni-channel business approach, especially our Insomnia Cookies brand, which emphasizes delivery as a key component, competes with local and international indulgence brands in a highly competitive space. While we control and operate our Ecommerce platform, we rely on third-party food delivery services, including DoorDash, for last-mile delivery of our products.
In addition to the above, our omni-channel business approach, especially our Insomnia Cookies brand, which emphasizes delivery as a key component, competes with local and international indulgence brands in a highly competitive space. While we control and operate our Ecommerce platform, we rely on third-party food delivery services for last-mile delivery of our products.
In addition, under our amended and restated certificate of incorporation, our Board of Directors has the authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our shareholders.
In addition, under our certificate of incorporation, our Board of Directors has the authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences, and rights of any such series of preferred stock, all without approval of our shareholders.
Nothing in our amended and restated certificate of incorporation will preclude future issuances without shareholder approval of the authorized but unissued shares of our common stock. These factors could have the effect of making the replacement of incumbent directors more time consuming and difficult.
Nothing in our certificate of incorporation will preclude future issuances without shareholder approval of the authorized but unissued shares of our common stock. These factors could have the effect of making the replacement of incumbent directors more time consuming and difficult.
Past and potential future strategic transactions may involve various inherent risks, including, without limitation: • Expenses, delays or difficulties in integrating acquired Krispy Kreme franchised shops, strategic partnerships or investments into our organization, including the failure to realize expected synergies and/or the inability to retain key personnel; • Diversion of management’s attention from other initiatives and/or day-to-day operations to effectively execute our growth strategy; • Inability to generate sufficient revenue, profit, and cash flows from acquired Krispy Kreme franchised shops, companies, strategic partnerships or investments; • The possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions or other strategic transactions; and • The possibility that investments we have made may decline significantly in value, which could lead to the potential impairment of the carrying value of goodwill associated with acquired businesses.
Past and potential future strategic transactions may involve various inherent risks, including, without limitation: • Expenses, delays, or difficulties in integrating acquired Krispy Kreme franchised shops, Points of Access, strategic partnerships, or investments into our organization, including the failure to realize expected synergies and/or the inability to retain key personnel; • Diversion of management’s attention from other initiatives and/or day-to-day operations to effectively execute our growth strategy; 17 Table of Contents • Inability to generate sufficient revenue, profit, and cash flows from acquired Krispy Kreme franchised shops, Points of Access, companies, strategic partnerships or investments; • The possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions or other strategic transactions; and • The possibility that investments we have made may decline significantly in value, which could lead to the potential impairment of the carrying value of goodwill associated with acquired businesses.
Further, certain international markets of ours are heavily reliant on our franchisees and there can be no assurance that our franchisees will successfully develop or operate their shops in a manner consistent with our concepts and standards, or will have the business abilities or access to financial resources necessary to open and maintain the shops required by their agreements.
Further, certain international markets of ours are heavily reliant on our franchisees and there can be no assurance that our franchisees will successfully develop or operate their shops in a manner consistent with our brand standards, or will have the business abilities or access to financial resources necessary to open, operate, and maintain the shops required by their agreements and our brand requirements.
Any disruptions, delays or deficiencies in the design and/or implementation of any of these systems, or our inability to accurately predict the costs of such initiatives or our failure to generate revenue and corresponding profits from such activities and investments, could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, results of operations and financial condition.
Any disruptions, delays, or deficiencies in the design and/or implementation of any of these systems, or our inability to accurately predict the costs of such initiatives or our failure to generate revenue and corresponding profits from such activities and investments, could 15 Table of Contents impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, results of operations, and financial condition.
While JAB remains subject to applicable U.S. securities laws regarding the trading of our securities while in possession of material non-public 25 Table of Contents information, it will nonetheless have a better view as to our business and financial condition than you for so long as its information rights continue under the Investors’ Rights Agreement.
While JAB remains subject to applicable U.S. securities laws regarding the trading of our securities while in possession of material non-public information, it will nonetheless have a better view as to our business and financial condition than you for so long as its information rights continue under the Investors’ Rights Agreement.
The full realization of our deferred tax assets may be affected by a number of factors, including future earnings and the feasibility of on-going planning strategies. We have deferred tax assets including federal, state and foreign net operating loss carryforwards, accruals not yet deductible for tax purposes, tax credits and other items.
The full realization of our deferred tax assets may be affected by a number of factors, including future earnings and the feasibility of ongoing planning strategies. We have deferred tax assets including federal, state, and foreign net operating loss carryforwards, accruals not yet deductible for tax purposes, tax credits, and other items.
We cannot guarantee that we have entered into such agreements with each party and any of these parties may breach the agreements and disclose our proprietary information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is 26 Table of Contents difficult, expensive, and time-consuming, and the outcome is unpredictable.
We cannot guarantee that we have entered into such agreements with each party and any of these parties may breach the agreements and disclose our proprietary information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable.
In addition, in the event that any of our relationships with our raw material suppliers terminate unexpectedly, even where we have multiple suppliers for the same ingredient, we may not be able to obtain adequate quantities of the same high-quality ingredients at competitive prices.
In addition, if any of our relationships with our raw material suppliers terminate unexpectedly, even where we have multiple suppliers for the same ingredient, we may not be able to obtain adequate quantities of the same high-quality ingredients at competitive prices.
The integrity and protection of that guest and employee data is critical to us. Any failure to comply with legal and industry rules and/or requirements could significantly harm our brand, reputation, business, and results of operations. We also rely on independent 20 Table of Contents service providers for payment processing, including credit and debit cards.
The integrity and protection of that data is critical to us. Any failure to comply with legal and industry rules and/or requirements could significantly harm our brand, reputation, business, and results of operations. We also rely on independent service providers for 16 Table of Contents payment processing, including credit and debit cards.
If our credit ratings were to be downgraded as a result of changes in our capital structure, changes in the credit rating agencies’ methodology in assessing our credit strength, the credit agencies’ perception of the impact of credit market conditions on our current or future results of operations and financial position or for any other reason, our cost of borrowing could increase.
If our credit ratings were to be downgraded because of changes in our capital structure, changes in the credit rating agencies’ methodology in assessing our credit strength, the credit agencies’ perception of the impact of credit market conditions on our current or future results of operations and financial position, or for any other reason, our cost of borrowing could increase.
Social and digital media increase the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands, or our products on social or digital media, whether or not valid, could seriously damage our brands and reputation.
Social and digital media increase the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands, or our products on social or digital media could seriously damage our brands and reputation.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures, or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Our cybersecurity insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures, or other data security related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
As a result, JAB can exercise significant influence over all matters requiring a shareholder vote, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our amended and restated bylaws; and our winding up and dissolution.
As a result, JAB can exercise significant influence over all matters requiring a shareholder vote, including: the election of directors; mergers, 26 Table of Contents consolidations, and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our certificate of incorporation and our bylaws; and our winding up and dissolution.
State laws are changing rapidly and there is discussion in Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted, which may add additional complexity, variation in requirements, restrictions and potential legal risks, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs or changes in business practices and policies.
Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted, which may add additional complexity, variation in requirements, restrictions, and potential legal risks, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and could result in increased compliance costs or changes in business practices and policies.
If we have any problems producing this equipment, our shops’ ability to make doughnuts could be negatively affected. We manufacture our custom doughnut-making equipment in one facility in Winston-Salem, North Carolina. Although we have limited backup sources for the production of our equipment, obtaining new equipment quickly in the event of a loss of our Winston-Salem facility would be difficult.
If we have any problems producing this equipment, our shops’ ability to make doughnuts could be negatively affected. We manufacture our custom doughnut-making equipment in one facility in Winston-Salem, North Carolina. Although we have limited back-up sources to produce our equipment, obtaining new equipment quickly in the event of a loss of our Winston-Salem facility would be difficult.
Food service businesses can be adversely affected by litigation, by regulation and by complaints from consumers or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one shop or a limited number of shops, including shops operated by our franchisees, or as we introduce new products or increase distribution channels, such as our Branded Sweet Treat Line or DFD business channels.
As a food service business, we may be adversely affected by litigation, regulation, and complaints from consumers or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one shop or a limited number of shops, including shops operated by our franchisees, or as we introduce new products or increase distribution channels, such as our DFD business channels.
Certain provisions of Delaware Law, our amended and restated certificate of incorporation and our amended and restated bylaws will contain provisions that could make it more difficult for a third-party to acquire us without the consent of our Board of Directors or JAB, as the largest beneficial owner of our common stock.
Certain provisions of Delaware Law, our certificate of incorporation, and our bylaws will contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors or JAB Holdings B.V. (“JAB”), as the largest beneficial owner of our common stock.
Risks Related to Our Business and Industry Public health outbreaks, epidemics, or pandemics, including the global COVID-19 outbreak, have disrupted and may continue to disrupt, our business, and could materially affect our business, financial condition, and results of operations.
Risks Related to Crises, Catastrophic Events, and Business Continuity Public health outbreaks, epidemics, or pandemics, including the global COVID-19 outbreak, have disrupted and may continue to disrupt, our business, and could materially affect our business, financial condition, and results of operations.
Moreover, many of our competitors offer consumers a wider range of products. Many of our competitors or potential competitors have substantially greater financial and other resources than we do which may allow them to react to changes in pricing, marketing, and the quick service restaurant industry better than we can. As competitors expand their operations, competition may intensify.
Many of our competitors or potential competitors have substantially greater financial and other resources than we do which may allow them to react to changes in pricing, marketing, and the quick service restaurant industry better than we can. As competitors expand their operations, competition may intensify.
As of January 2, 2022 and excluding Doughnut Factories, there were 1,227 Krispy Kreme shops operated outside of the U.S. and Canada, representing 68% of our total shop count. Of this total, 773 shops were owned and operated by franchisees. Our revenues from international operations and business segments are exposed to risks associated with doing business in foreign countries.
As of January 1, 2023 and excluding Doughnut Factories, there were 1,346 Krispy Kreme shops operated outside of the U.S. and Canada, representing 69% of our total shop count. Of this total, 862 shops were owned and operated by franchisees. Our revenues from international operations and business segments are exposed to risks associated with doing business in foreign countries.
While we endeavor to keep all systems current, within two revisions of the most current software and firmware versions, there can be no guarantee that we can reliably update and maintain our systems. In instances where we are unable to do so, the mitigating controls we put in place to reduce the risk may fail.
While we endeavor to keep all systems current, there can be no guarantee that we can reliably update and maintain our systems. In instances where we are unable to do so, the mitigating controls we put in place to reduce the risk may fail.
Certain provisions of Delaware Law, the Investors’ Rights Agreement, our amended and restated certificate of incorporation and our amended and restated bylaws could hinder, delay or prevent a change in control of us, which could adversely affect the price of our common stock.
Risks Related to an Investment in Us Certain provisions of Delaware Law, the Investors’ Rights Agreement, our certificate of incorporation, and our bylaws could hinder, delay, or prevent a change in control of us, which could adversely affect the price of our common stock.
Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts.
Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international, or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. State laws are changing rapidly and there is discussion in the U.S.
If we or our franchisees or licensees are unable to protect our consumers’ payment card data and other regulated, protected or personally identifiable information, we or our franchisees could be exposed to data loss, litigation, and liability, and our reputation could be significantly harmed.
If we or our franchisees or licensees are unable to protect our consumer and employee data and other regulated, protected, or personally identifiable information, we or our franchisees could be exposed to data loss, litigation, regulatory fines, and other liability, and our reputation could be significantly harmed.
Our systems, which in some cases rely on third-party providers, may experience service interruptions, degradation or other performance problems because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events.
Service interruptions, degradation, or other performance problems may occur because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events.
In certain circumstances, our past and existing franchisees may retain a minority stake in the franchise shops we acquire and continue to participate in the operation of the applicable shops. Such arrangements are entered into on a case-by-case basis.
Such transactions may include strategic opportunities to acquire or partner with our domestic and international franchisees. In certain circumstances, our past and existing franchisees may retain a minority stake in the franchise shops we acquire and continue to participate in the operation of the applicable shops. Such arrangements are entered into on a case-by-case basis.
Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism because of criminal third parties (including state-sponsored organizations with significant financial and technological resources), third parties we do business with and our and our franchisees’ employees.
Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism because of criminal third parties (including state-sponsored organizations with significant financial and technological resources), third parties we do business with, and our franchisees’ employees. In addition, we must effectively respond to changing guest expectations and new technological developments.
Risks arising from our international operations include, but are not limited to: • Recessionary or expansive trends in international markets; • Import or other business licensing requirements; • Limitations on the repatriation of funds and foreign currency exchange restrictions due to current or new U.S. and international regulations; • Difficulty in staffing, developing and managing foreign operations and supply chain logistics, including ensuring the consistency of our product quality and service; • Disputes with our franchisees, or failures by our franchisees to operate successfully, to develop or finance new shops or build them on suitable sites or open them on schedule; • Local laws that make it more expensive and complex to negotiate with, retain or terminate employees; • Competition with entrenched competitors as we expand our international operations; and • Increase in anti-American sentiment and the identification of the brand as an American brand.
Risks arising from our international operations include, but are not limited to: • Recessionary or expansive trends in international markets; • Ongoing government regulatory reform, including relating to public health, food safety, tariffs and tax, sustainability, and responses to climate change, which result in regulatory uncertainty as well as potential significant increases in compliance costs; • Food safety related matters, including compliance with food safety regulations and ability to ensure product quality and safety; • Import or other business licensing requirements; • Limitations on the repatriation of funds and foreign currency exchange restrictions due to current or new U.S. and international regulations; • Difficulty in staffing, developing, and managing foreign operations and supply chain logistics, including ensuring the consistency of our product quality and service; • Disputes with our franchisees, or failures by our franchisees to operate successfully, to develop or finance new shops or build them on suitable sites or open them on schedule; • Local laws that make it more expensive and complex to negotiate with, retain, or terminate employees; • Competition with entrenched competitors as we expand our international operations; and • Increase in anti-American sentiment and the identification of the brand as an American brand.
It may also create competitive disadvantages for us relative to other companies with lower debt levels. If our financial performance does not meet current expectations, our ability to service our indebtedness may be adversely impacted.
It may also create competitive disadvantages for us relative to other companies with lower debt levels. If our financial performance does not meet current expectations, our ability to service our indebtedness may be adversely impacted. We may incur additional indebtedness, guarantees, commitments, or other liabilities in the future.
Systems failures and resulting interruptions could adversely affect our omni-channel business strategy. Our omni-channel approach will in large part rely on our information technology systems to operate successfully, including the implementation of our delivery strategy. As we expand our DFD and delivery business channels, our exposure to such risks will increase.
Our omni-channel approach relies, in large part, on our information technology systems to operate successfully, including the implementation of our delivery strategy. As we expand our business channels, our exposure to such risks will increase.
Economic and social trends beyond our control, such as labor shortages or the continuing effects of the global COVID-19 pandemic, may make it difficult to recruit and retain talented Krispy Kremers, including our senior management and other key personnel.
Economic and social trends beyond our control, such as labor shortages, may make it difficult to recruit and retain talented Krispy Kremers, including our senior management and other key personnel.
In the U.S., various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security and have prioritized privacy and information security violations for enforcement actions.
In the U.S., various federal and state regulators have adopted, or are considering adopting, laws and regulations concerning personal information and data security and have prioritized privacy and information security violations for enforcement actions.
Royalties from our franchisees are based on a percentage of net sales (as defined in our franchise agreements) generated by our foreign franchisees’ operations. Royalties payable to us by our international franchisees are based on a conversion of local currencies to U.S. dollars using the prevailing exchange rate, and changes in exchange rates could adversely affect our revenues.
Royalties payable to us by our international franchisees are based on a conversion of local currencies to U.S. dollars using the prevailing exchange rate, and changes in exchange rates could adversely affect our revenues.
In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant shareholders.
In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant shareholders. The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.
If we are unable to successfully compete, we may be unable to sustain or increase our revenues and profitability as well as leverage the growth we expect to achieve through our omni-channel business model. We are the exclusive supplier of doughnut mixes or mix concentrates to all Krispy Kreme shops worldwide.
If we are unable to successfully compete, we may be unable to sustain or increase our revenues and profitability as well as leverage the growth we expect to achieve through our omni-channel business model.
Health epidemics or pandemics can adversely affect consumer spending and confidence levels and supply availability and costs in the markets in which we and our franchisees operate, all of which can affect our business, financial condition, and results of operations. In December 2019, a novel strain of coronavirus, referred to as 2019-ncov, COVID-19 coronavirus epidemic, or COVID-19, was identified.
Health epidemics or pandemics can adversely affect consumer spending and confidence levels and supply availability and costs in the markets in which we and our franchisees operate, all of which can affect our business, financial condition, and results of operations.
Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition and results of operations.
Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition and results of operations. 23 Table of Contents Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax.
A key portion of our growth strategy depends on opening new Krispy Kreme shops both domestically and internationally. A core part of our business strategy is expansion of our shops, DFD and Ecommerce to new geographies, markets and consumers, nationally and internationally.
Risks Related to Our Global Expansion and Growth A key portion of our growth strategy depends on opening new Krispy Kreme shops and Points of Access both domestically and internationally. A core part of our business strategy is expansion of our Global Points of Access, through the addition of shops, DFD doors, and Ecommerce in existing and new geographies.
We utilize a sole supplier for our glaze flavoring and glaze base. In addition, all the cookie dough used by our Insomnia Cookies brand is supplied by a single supplier. Unless and until we can secure alternative suppliers for such components, our dependence on such supplier will subject us to the possible risks of shortages, interruptions, and price fluctuations.
Although we own the recipe for our glaze flavoring and glaze base, we rely on a single supplier. Additionally, all the cookie dough used by our Insomnia Cookies brand is supplied by a single supplier. Our dependence on such suppliers subjects us to the possible risks of shortages, interruptions, and price fluctuations.
Successful implementation of this transition relied and will continue to rely on our ability to capitalize and realize certain goals, including identifying retail partners, expanding the geographies we serve and developing and maintaining the manufacturing and logistical capacity to service our DFD and Branded Sweet Treat Line business channels.
Successful implementation will continue to rely on our ability to capitalize and realize certain goals, including identifying retail partners, expanding the geographies we serve and developing and maintaining the manufacturing and logistical capacity to meet our delivery needs.
We compete with many well-established food service companies. At the shop level, we compete with other indulgence retailers and bakeries, specialty coffee retailers, bagel shops, quick service restaurants, delicatessens, take-out food service companies, convenience stores and supermarkets.
At the shop level, we compete with other indulgence retailers and bakeries, specialty coffee retailers, bagel shops, quick service restaurants, delicatessens, take-out food service companies, convenience stores, and supermarkets. Our Branded Sweet Treat Line competes primarily with grocery store bakeries and packaged snack foods.
Our Branded Sweet Treat Line and DFD business channels depend on key customers and are subject to risks if such key customers reduce the amount of products they purchase from us or terminate their relationships with us . Sales to retail customers through both our Branded Sweet Treat Line and DFD channels represent a substantial portion of our revenue.
Our DFD business channels depend on key customers and are subject to risks if such key customers reduce their purchases or terminate their relationships with us. Sales to retail customers through our DFD channels represent a substantial portion of our revenue. The infrastructure necessary to support this business line requires significant fixed and semi-fixed costs.
To the extent that the portion of our revenues generated from international operations increases in the future, our exposure to changes in foreign political and economic conditions and currency fluctuations will increase. We also are subject to governmental regulations throughout the world that impact the way we do business with our international franchisees and vendors.
To the extent that the portion of our revenues generated from international operations increases in the future, our exposure to changes in foreign political and economic conditions and currency fluctuations will increase.
While we have enacted protections, we may nonetheless be subject to COVID-19 outbreaks in our shops and other facilities, resulting in a significant percentage of our workforce or the workforce of our business partners being unable to work.
While we have enacted protections to manage large scale public health risks, we may nonetheless be affected by future outbreaks in our shops and other facilities, resulting in a significant percentage of our workforce or the workforce of our business partners being unable to work. In addition, our business is affected by consumer preferences and perceptions.
For example, the General Data Protection Regulation (“GDPR”), which was adopted by the European Union effective May 2018, includes obligations and restrictions concerning data transparency and consent, the overall rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area (“EEA”) or the U.K., security breach notifications and the security and confidentiality of personal data.
These laws include obligations and restrictions concerning data transparency and consent, the overall rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area (“EEA”) or the U.K., security breach notifications, and the security and confidentiality of personal data.
Our success depends on our ability to maintain our brand image, extend our products to new markets and channels, expand our brand image with new product offerings and deliver consistently high-quality, delicious products to our consumers.
Krispy Kreme is one of the most beloved and well-known sweet treat brands in the world. Our success depends on our and our franchisees’ ability to maintain our brand image, extend our products to new markets and channels, expand our brand image with new product offerings, and deliver consistently high-quality, delicious products to our consumers.
We are also subject to international laws, regulations and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
We are also subject to international laws, regulations, and standards in many jurisdictions, which apply broadly to the collection, use, retention, security, disclosure, transfer, and other processing of personal information. For example, we are subject to the General Data Protection Regulation (“GDPR”), which was adopted by the European Union effective May 2018, and the U.K. GDPR and U.K.
There is no guarantee that we will achieve the benefits we anticipate or achieve the costs savings, revenue generation and other positive effects necessary to offset the costs and risks discussed here. In addition, our Branded Sweet Treat Line has thus far been unprofitable and has only been deployed domestically.
There is no guarantee that we will achieve the benefits we anticipate or achieve the costs savings, revenue generation and other positive effects necessary to offset the costs and risks discussed here. Our failure to improve the performance of our Branded Sweet Treat Line could materially and adversely affect our results of operations.
Past and potential future strategic transactions may not create the intended value for us and may harm our reputation and materially, adversely affect our business, financial condition, and results of operations. We will face risks as we continue to focus on expansion of the DFD business and our Branded Sweet Treat Line.
Past and potential future strategic transactions may not create the intended value for us and may harm our reputation and materially, adversely affect our business, financial condition, and results of operations. Our franchisees may affect our operating results and reputation.
As a result, if we experience any outsized material impacts from a failure of our systems, our business, results of operations and financial condition could be materially and adversely effected.
As a result, if we experience any outsized material impacts from a failure of our systems, our business, results of operations, and financial condition could be materially and adversely effected. Breaches or failures of our information technology systems or other cybersecurity or data security-related incidents may have an adverse impact on our business, financial condition, and results of operations.
In such an event, we would be forced to rely on third-party manufacturers or shift production to another manufacturing facility, and we could face significant delays in manufacturing and increased costs, which would jeopardize our ability to supply equipment to new shops or new parts for the maintenance of existing equipment in established shops on a timely basis. 18 Table of Contents Our profitability is sensitive to changes in the cost of raw materials.
In such an event, we would be forced to rely on third-party manufacturers or shift production to another manufacturing facility, and we could face significant delays in manufacturing and increased costs, which would jeopardize our ability to supply equipment to new shops or new parts for the maintenance of existing equipment in established shops on a timely basis. 21 Table of Contents We have limited suppliers for many of the product components and services that we rely on and any interruption in supply could impair our ability to make and deliver our signature products, adversely affecting our business, financial condition, and results of operations.
Our franchisees could take actions that could harm our business. Franchisees are independently owned and operated, and they are not our employees. Although we provide certain training and support to franchisees, our franchisees operate their shops as independent businesses. Consequently, the quality of franchised shop operations may be diminished by any number of factors beyond our control.
We have limited control over how our franchisees’ businesses are run, and their inability to operate successfully could adversely affect our operating results. Although we provide certain training and support to franchisees, our franchisees are independently owned and operated businesses. Consequently, the quality of franchised shop operations may be diminished by any number of factors beyond our control.
Changes in weather could result in 16 Table of Contents construction delays, interruptions to the availability of utilities, and shortages or interruptions in the supply of food items and other supplies, which could increase our costs. We may not realize the anticipated benefits from past or potential future acquisitions, investments, or other strategic transactions.
Changes in weather could result in construction delays, interruptions to the availability of utilities, and shortages or interruptions in the supply of food items and other supplies, which could increase our costs.
If we are unable to adapt to changes in consumer preferences and trends, or if regulatory changes are implemented that impact any of our markets, our operating results could be negatively impacted. Maintaining, extending, and expanding our reputation and brand image are essential to our business success.
If we are unable to adapt to changes in consumer preferences and trends, or if regulatory changes are implemented that impact any of our markets, our operating results could be negatively impacted. Risks Related to Cybersecurity, Data Privacy, and Information Technology We rely on information technology in our operations.
We manufacture all our concentrates at our manufacturing facility located in Winston-Salem, North Carolina and produce doughnut mix domestically at our Winston-Salem plant and a third-party facility in Pico Rivera, California. We distribute doughnut mixes and other key ingredients and flavors using independent contract distributors for Krispy Kreme shops domestically and internationally.
We produce doughnut mix domestically at our Winston-Salem plant and a third-party facility in Pico Rivera, California. We distribute doughnut mixes and other key ingredients and flavors using independent contract distributors for Krispy Kreme shops domestically and internationally. Without an adequate alternative source, any shutdown or disruption of our mix and concentrate production would disrupt our entire global supply chain.
These risks may be increased as we introduce new products or increase distribution channels, such as our Branded Sweet Treat Line or DFD business channels. Food safety issues could also adversely affect the price and availability of affected ingredients, which could result in disruptions in our supply chain or lower margins for us and our franchisees.
Food safety issues could also adversely affect the price and availability of affected ingredients, which could result in disruptions in our supply chain or lower margins for us and our franchisees.
Our Branded Sweet Treat Line competes primarily with grocery store bakeries and packaged snack foods. 17 Table of Contents In both our shop and Branded Sweet Treat Line business channels, aggressive pricing by our competitors or the entrance of new competitors into our markets could reduce our sales and profit margins.
In both our shop and Branded Sweet Treat Line business channels, aggressive pricing by our competitors or the entrance of new competitors into our markets could reduce our sales and profit margins. Moreover, many of our competitors offer consumers a wider range of products.
If we are unable to recruit, retain and motivate Krispy Kremers sufficiently to support the projected growth and initiatives of our business, there could be materially adverse effects on our operations. We have incurred significant indebtedness, which could adversely affect us, including decreasing our business flexibility and increasing our interest expense.
If we are unable to recruit, retain and motivate Krispy Kremers sufficiently to support the projected growth and initiatives of our business, there could be materially adverse effects on our operations. Changes in the availability or cost of labor could adversely affect our business. Our business could be adversely impacted by increases in labor costs, including wages and benefits.
Many consumer behaviors have changed during the COVID-19 pandemic and may persist or continue to change beyond the end of the pandemic.
Many consumer behaviors have changed during the COVID-19 pandemic and may persist or continue to change beyond the end of the pandemic. These changes have and could continue to negatively impact consumer traffic and our and our franchisees’ sales. Adverse weather conditions could adversely affect our business.
Risks Related to Our Intellectual Property Our failure or inability to obtain, maintain, protect, and enforce our trademarks, service marks and other intellectual property rights could adversely affect our business, including the value of our brands.
Our effective tax rate would increase if we were required to increase our valuation allowances against our deferred tax assets. Risks Related to Our Intellectual Property Our failure or inability to obtain, maintain, protect, and enforce our trademarks or other intellectual property could adversely affect our business and the value of our brands.
We own certain common-law trademark rights in the U.S., as well as numerous trademark and service mark registrations in the U.S. and in other jurisdictions. We believe that our trademarks and other intellectual property rights are important to our success and our competitive position.
We own certain common-law trademark rights in the U.S., as well as numerous trademark and service mark registrations in the U.S. and in other jurisdictions. We possess intellectual property that includes ingredient formulas, trademarks, copyrights, patents, business processes, and other trade secrets.
We have entered into the Investors’ Rights Agreement with JAB which provides them certain information rights pursuant to which the Company shall provide JAB the following, which shall be treated as confidential information by JAB: (w) copies of the Company’s management’s monthly financial review reports, (x) the consolidated financial results of the Company for each fiscal year, (y) the unaudited consolidated financial results of the Company for each fiscal quarter and (z) such other information related to the Company’s financial condition, business, prospects or corporate affairs as JAB may reasonably request from time to time.
We have entered into the Investors’ Rights Agreement with JAB that provides them rights to certain Company information, which JAB must treat as confidential, including management’s monthly financial review reports, the consolidated financial results for each fiscal quarter, and other information as JAB may reasonably request from time to time.
These risks are especially pronounced in light of our reliance on our social-media presence to promote our brand and maintain consumer loyalty and engagement. In addition, increasing regulatory or legal action against us, product recalls or other adverse publicity could damage our reputation and brand image, undermine our consumers’ confidence, and reduce long-term demand for our products.
Regulatory or legal action against us, product recalls, or other adverse publicity could damage our reputation and brand image, undermine our consumers’ confidence, and reduce long-term demand for our products.
We could also incur significant liabilities if such a lawsuit or claim results in a decision against us or because of litigation costs, regardless of the result. Adverse weather conditions could adversely affect our business.
We could also incur significant liabilities if such a lawsuit or claim results in a decision against us or because of litigation costs, regardless of the result. We are subject to franchise laws and regulations that govern our status as a franchisor and regulate some aspects of our franchise relationships.
Such efforts have entailed significant costs and uncertainties arising from, among other things, building manufacturing capability, our transition to an omni-channel business model, building and developing our information technology and logistics systems and adapting our corporate organization and talent.
We will face risks as we continue to focus on expansion of our omni-channel business model. Continued expansion of our omni-channel business model will entail significant costs and uncertainties arising from, among other things, expanding Points of Access, increasing our manufacturing capability, developing our information technology and logistics systems, and adapting our corporate organization and talent.
In addition, others may independently discover our trade secrets and confidential information, and in such cases, we could not assert any trade secret rights against such parties.
In addition, others may independently discover our trade secrets and confidential information, and in such cases, we could not assert any trade secret rights against such parties. Risks Related to Macroeconomic Conditions Adverse economic conditions or disruptions in the markets where we operate could adversely impact our business, results of operations, and financial condition.
Our reliance on third-parties increases our exposure to such risks as we exercise a lesser degree of control over such persons. Our business interruption insurance may not be sufficient to cover all our losses that may result from interruptions in our service as a result of systems failures and similar events.
Any such failure could lead to Ecommerce downtime, disruptions to our information technology systems, and expose vulnerabilities to cyber-criminals. Our business interruption insurance may not be sufficient to cover all our losses that may result from interruptions in our service as a result of systems failures and similar events.
Our and our franchisees’ systems may not be able to satisfy changing requirements and guest and employee expectations or may require significant additional investments or time to do so.
Our failure to adhere to or successfully implement appropriate processes to adhere to international data privacy requirements could expose us and our franchisees to financial penalties and legal liability. Our and our franchisees’ systems may not be able to satisfy changing requirements or may require significant additional investments or time to do so.
Losses 23 Table of Contents in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate.
However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate.
Our Krispy Kremers are essential for continued operation of our retail and manufacturing facilities as well as our delivery logistics. They enable us to ensure that we provide a consistent product to our consumers, whether it is in our Hot Light Theater Shops or one of our DFD access points.
They enable us to ensure that we provide a consistent product to our consumers, whether it is in our Hot Light Theater Shops or one of our DFD access points. Our future success also depends upon the continued contributions of senior management and other key personnel and the ability to retain and motivate them.

… 104 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Biggest changeIn addition, we also work with and oversee a co-manufacturer production facility located in Burlington, Iowa. After manufacturing, packaging, and palletizing our Branded Sweet Treat Line products, we transport the products to a third-party warehousing and distribution vendor. This vendor warehouses, consolidates, and provides direct shipments to our retail partners’ supply networks.
Biggest changeIn addition, at the end of fiscal 2022, we began to transition manufacturing capacity of Branded Sweet Treat Line products to our mix plant in Winston-Salem, North Carolina (after exiting the co-manufacturer production facility located in Burlington, Iowa). After manufacturing, packaging, and palletizing our Branded Sweet Treat Line products, we transport the products to a third-party warehousing and distribution vendor.
Internationally, for our equity markets, we operate 13 Doughnut Factories. Each Doughnut Factory manufactures daily to provide finished products to shops and to support our DFD routes. The majority of our Doughnut Factories are leased. Additionally, as of January 2, 2022, Krispy Kreme, Inc. had 971 Company-owned shops globally, a majority of which are leased.
Internationally, for our equity markets, we operate 14 Doughnut Factories. Each Doughnut Factory manufactures daily to provide finished products to shops and to support our DFD routes. The majority of our Doughnut Factories are leased. Additionally, as of January 1, 2023, Krispy Kreme, Inc. had 1,021 Company-owned shops globally, a majority of which are leased.
We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business. 28 Table of Contents
This vendor warehouses, consolidates, and provides direct shipments to our retail partners’ supply networks. We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business. 28 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−5 removed4 unchanged
Biggest changeThe plaintiff alleges that the members of the Company’s Board breached their fiduciary duty by allowing the JAB Entities to conduct a creeping takeover of the Company and that the JAB Entities aided and abetted those breaches.
Biggest changeThe plaintiff alleged that the members of the Company’s Board breached their fiduciary duty by allowing the JAB Entities to conduct a creeping takeover of the Company and that the JAB Entities aided and abetted those breaches.
Removed
TSW Foods, LLC Litigation On November 13, 2020, TSW Foods, LLC (“TSW”), a reseller of certain Krispy Kreme packaged products, filed a demand for arbitration and statement of claim alleging Anticipatory Repudiation of the Master Reseller Agreement, Breach of the Master Reseller Agreement, and Breach of the Implied Covenant of Good Faith and Fair Dealing.
Added
On October 31, 2022, the Company paid $0.2 million as its share of the full resolution of this matter, for which the related payment has been reflected in the accompanying Consolidated Financial Statements. Item 4. Mine Safety Disclosures Not applicable. 29 Table of Contents PART II
Removed
The Company intends to vigorously defend against TSW’s claims and prosecute its counterclaims. The parties held a voluntary, non-binding mediation on November 11, 2021. The case is expected to proceed through arbitration pursuant to an existing arbitration agreement.
Removed
At this time the Company is unable to predict the outcome of this matter, the potential loss or range of loss, if any, associated with the resolution of this matter or any potential effect it may have on the Company or its operations.
Removed
On December 16, 2021, the court denied the plaintiff’s request for an emergency temporary restraining order to prohibit further acquisitions of the Company’s stock by the JAB Entities.
Removed
At this time the Company is unable to predict the outcome of this matter, the potential loss or range of loss, if any, associated with the resolution of this matter or any potential effect it may have on the Company or its operations. Item 4. Mine Safety Disclosures Not applicable. 29 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−6 removed2 unchanged
Biggest changeDividend Policy For the fiscal quarters ending October 3, 2021 and January 2, 2022, we paid quarterly cash dividends on our common stock of $0.035 per share, which were paid in November 2021 and February 2022, respectively.
Biggest changeDividend Policy For the fiscal quarters ending April 3, 2022, July 3, 2022, October 2, 2022, and January 1, 2023, we paid quarterly cash dividends on our common stock of $0.035 per share, which were paid in May 2022, August 2022, November 2022, and February 2023, respectively. We expect to pay a dividend after the close of each quarter.
See “Risk Factors – Risks Relating to our Common Stock – We may be unable to pay dividends on our common stock.” Under Delaware law, dividends may be payable only out of surplus, which is calculated as our net assets less our liabilities and our capital, or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
See “Risk Factors — Risks Relating to an Investment in Us – We may be unable to pay dividends on our common stock.” Under Delaware law, dividends may be payable only out of surplus, which is calculated as our net assets less our liabilities and our capital, or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
All indices shown in the graph have been reset to a base of 100 as of July 1, 2021 and assume an investment of $100 on that date and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
All indices shown in the graph have been reset to a base of 100 as of July 1, 2021 and 30 Table of Contents assume an investment of $100 on that date and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
Performance Graph The following graph depicts the total return to shareholders from the IPO on July 1, 2021 through our fiscal year end date of January 2, 2022, relative to the performance of the Russell 2000 Index, the NASDAQ Composite Index and the Standard & Poor’s Consumer Discretionary Sector.
Performance Graph The following graph depicts the total return to shareholders from the IPO on July 1, 2021 through our fiscal year end date of January 1, 2023, relative to the performance of the Russell 2000 Index, the NASDAQ Composite Index and the Standard & Poor’s Consumer Discretionary Sector.
The timing, manner, price, and amount of repurchases will be determined at our discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. As of January 2, 2022, all outstanding shares remained available for repurchase under current authorizations .
The timing, manner, price, and amount of repurchases will be determined at our discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. As of January 1, 2023, all outstanding shares remained available for repurchase under current authorizations .
July 1, 2021 January 2, 2022 Krispy Kreme, Inc. $ 100.00 $ 111.29 Russell 2000 100.00 96.39 NASDAQ Composite 100.00 107.73 S&P Consumer Discretionary 100.00 112.01 Item 6. [Reserved] 31 Table of Contents
July 1, 2021 January 2, 2022 January 1, 2023 Krispy Kreme, Inc. $ 100.00 $ 111.29 $ 60.71 Russell 2000 100.00 96.39 75.61 NASDAQ Composite 100.00 107.73 72.07 S&P Consumer Discretionary 100.00 112.01 69.92 Item 6. [Reserved] 31 Table of Contents
Holders The approximate number of shareholders of record of our common stock as of March 4, 2022 was 243. This does not include persons whose stock is in nominee or “street name” accounts through brokers.
Holders The approximate number of shareholders of record of our common stock as of February 17, 2023 was 217. This does not include persons whose stock is in nominee or “street name” accounts through brokers.
This brought total net IPO proceeds to $514.9 million. 30 Table of Contents Issuer Purchases of Equity Securities Shares under our ongoing share repurchase program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended, or through privately negotiated transactions.
Issuer Purchases of Equity Securities Shares under our ongoing share repurchase program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended, or through privately negotiated transactions.
Removed
On February 9, 2022 the Company’s Board of Directors declared a $0.035 per share cash dividend payable on May 11, 2022, to shareholders of record on April 27, 2022. We expect to pay a dividend after the close of each quarter.
Removed
Use of Proceeds from Sale of Registered Securities On July 1, 2021 we completed the IPO of our Class A common stock, $0.01 par value, pursuant to our Registration Statement on Form S-1, as amende d (No. 333-256664) that w as declared effective on June 30, 2021.
Removed
We sold 29,411,765 shares in the offering at a price to the public of $17.00 per share. The lead book-running managers in the offering were J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, BofA Securities, Inc., and Citigroup Global Markets Inc. The net proceeds received by us in the offering were $458.8 million.
Removed
None of the underwriting discounts and commissions or offering expenses were incurred or paid to our directors or officers or their associates or to persons owning 10% or more of our common stock or to any affiliates of ours.
Removed
In the quarter ended October 3, 2021 we used the net proceeds of the offering along with additional borrowings under our 2019 Facility revolving credit facility as follows: (i) $500.0 million to repay all of the outstanding indebtedness under the Term Loan Facility, (ii) $20.3 million to repurchase approximately 1.3 million shares of common stock from certain of our executive officers at the price to be paid by the underwriters and (iii) $15.5 million to repurchase approximately 1.0 million shares of common stock from certain of our executive officers for payment of their withholding taxes with respect to the RSUs vesting or for which vesting was accelerated in connection with the offering.
Removed
On August 2, 2021 the underwriters exercised their over-allotment option and purchased an additional 3,500,000 shares of common stock at the IPO price less the underwriting discounts and commissions. The net proceeds received on August 2, 2021 were $56.1 million after deducting underwriting discounts and commissions of $3.4 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

82 edited+48 added−43 removed73 unchanged
Biggest changeThe following tables present a reconciliation of net loss to Adjusted EBITDA and net loss to Adjusted Net Income for the periods presented: Fiscal Years Ended (in thousands) January 2, 2022 January 3, 2021 December 29, 2019 Net loss $ (14,843) $ (60,940) $ (34,001) Interest expense, net 32,622 34,741 38,085 Interest expense — related party (1) 10,387 22,468 21,947 Income tax expense 10,745 9,112 12,577 Depreciation and amortization expense 101,608 80,398 63,767 Share-based compensation 22,923 11,601 10,741 Employer payroll taxes related to share-based compensation 2,044 — — Other non-operating expense/(income), net (2) 2,191 (1,101) (609) New York City flagship Hot Light Theater Shop opening (3) — 6,513 3,784 Strategic initiatives (4) — 20,517 4,059 Acquisition and integration expenses (5) 5,255 12,679 20,433 Shop closure expenses (6) 2,766 6,269 629 Restructuring and severance expenses (7) 1,733 — 583 IPO-related expenses (8) 14,534 3,184 — Gain on sale-leaseback (8,673) — — Other (9) 4,653 (7) 4,389 Adjusted EBITDA $ 187,945 $ 145,434 $ 146,384 36 Table of Contents Fiscal Years Ended (in thousands) January 2, 2022 January 3, 2021 December 29, 2019 Net loss $ (14,843) $ (60,940) $ (34,001) Interest expense — related party (1) 10,387 22,468 21,947 Share-based compensation 22,923 11,601 10,741 Employer payroll taxes related to share-based compensation 2,044 — — Other non-operating expense/(income), net (2) 2,191 (1,101) (609) New York City flagship Hot Light Theater Shop opening (3) — 6,513 3,784 Strategic initiatives (4) — 20,517 4,059 Acquisition and integration expenses (5) 5,255 12,679 20,433 Shop closure expenses (6) 2,766 6,269 629 Restructuring and severance expenses (7) 1,733 — 583 IPO-related expenses (8) 14,534 3,184 — Gain on sale-leaseback (8,673) — — Other (9) 4,653 (7) 4,389 Amortization of acquisition related intangibles (10) 29,803 26,328 21,318 KKI Term Loan Facility interest and debt issuance costs (11) 2,448 — — Loss on extinguishment of debt (12) — — 1,567 Tax impact of adjustments (13) (12,434) (27,629) (19,960) Tax specific adjustments (14) 3,936 22,464 4,869 Adjusted net income $ 66,723 $ 42,346 $ 39,749 1.
Biggest changeThe following tables present a reconciliation of net loss to Adjusted EBITDA and net loss to Adjusted Net Income for the periods presented: Fiscal Years Ended (in thousands) January 1, 2023 January 2, 2022 January 3, 2021 Net loss $ (8,775) $ (14,843) $ (60,940) Interest expense, net 34,102 32,622 34,741 Interest expense — related party (1) — 10,387 22,468 Income tax expense 612 10,745 9,112 Depreciation and amortization expense 110,261 101,608 80,398 Share-based compensation 18,170 22,923 11,601 Employer payroll taxes related to share-based compensation 312 2,044 — Other non-operating expense/(income), net (2) 3,036 2,191 (1,101) New York City flagship Hot Light Theater Shop opening (3) — — 6,513 Strategic initiatives (4) 2,841 — 20,517 Acquisition and integration expenses (5) 2,333 5,255 12,679 New market penetration expenses (6) 1,511 — — Shop closure expenses (7) 19,465 2,766 6,269 Restructuring and severance expenses (8) 7,125 1,733 — IPO-related expenses (9) — 14,534 3,184 Gain on sale-leaseback (6,549) (8,673) — Other (10) 6,285 4,653 (7) Adjusted EBITDA $ 190,729 $ 187,945 $ 145,434 37 Table of Contents Fiscal Years Ended (in thousands) January 1, 2023 January 2, 2022 January 3, 2021 Net loss $ (8,775) $ (14,843) $ (60,940) Interest expense — related party (1) — 10,387 22,468 Share-based compensation 18,170 22,923 11,601 Employer payroll taxes related to share-based compensation 312 2,044 — Other non-operating expense/(income), net (2) 3,036 2,191 (1,101) New York City flagship Hot Light Theater Shop opening (3) — — 6,513 Strategic initiatives (4) 2,841 — 20,517 Acquisition and integration expenses (5) 2,333 5,255 12,679 New market penetration expenses (6) 1,511 — — Shop closure expenses (7) 19,715 2,766 6,269 Restructuring and severance expenses (8) 7,125 1,733 — IPO-related expenses (9) — 14,534 3,184 Gain on sale-leaseback (6,549) (8,673) — Other (10) 6,285 4,653 (7) Amortization of acquisition related intangibles (11) 28,456 29,803 26,328 KKI Term Loan Facility interest and debt issuance costs (12) — 2,448 — Tax impact of adjustments (13) (14,609) (12,434) (27,629) Tax specific adjustments (14) (2,876) 3,936 22,464 Adjusted net income $ 56,975 $ 66,723 $ 42,346 (1) Consists of interest expense related to the Related Party Notes which were paid off in full during the second quarter of fiscal 2021.
U.S. and Canada growth was driven by our efforts to increase the number of DFD Doors served by our Hubs and to increase APD for the DFD Door portfolio, as the segment makes progress toward optimizing the model to look more like International.
U.S. and Canada growth was driven by our efforts to increase the number of DFD Doors served by our Hubs and to increase APD for the DFD Door portfolio, as the segment makes progress toward optimizing the model to look more like the International segment.
As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow. 38 Table of Contents Results of Operations The following comparisons are historical results and are not indicative of future results which could differ materially from the historical financial information presented.
As we further extend the Hub and Spoke model into existing and new markets around the world, we expect to see this measure continue to grow. 39 Table of Contents Results of Operations The following comparisons are historical results and are not indicative of future results which could differ materially from the historical financial information presented.
If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new shop concepts, as 46 Table of Contents well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate.
If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new shop concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate.
We establish reserves for uncertain tax positions for material, known tax exposures in accordance with ASC 740 relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item.
We establish reserves for uncertain tax positions for material, known tax exposures in accordance with ASC 740, Income Taxes relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item.
We believe that our critical accounting estimates are: 45 Table of Contents Self-Insurance Risks and Receivables from Insurers We are subject to workers’ compensation, vehicle and general liability claims and are self-insured for a significant portion of our workers’ compensation, vehicle and general liability claims up to the amount of stop-loss insurance coverage purchased from commercial insurance carriers.
We believe that our critical accounting estimates are: Self-Insurance Risks and Receivables from Insurers We are subject to workers’ compensation, vehicle and general liability claims and are self-insured for a significant portion of our workers’ compensation, vehicle and general liability claims up to the amount of stop-loss insurance coverage purchased from commercial insurance carriers.
This section of the Annual Report on Form 10-K generally discusses fiscal 2021 and fiscal 2020 items and year-to-year comparisons of fiscal 2021 to fiscal 2020.
This section of the Annual Report on Form 10-K generally discusses fiscal 2022 and fiscal 2021 items and year-to-year comparisons of fiscal 2022 to fiscal 2021.
We may adjust these reserves when our judgment changes as a result of the evaluation of new information not previously available and will be reflected in the period in which the new information is available.
We may adjust these reserves when our judgment changes as a result of the evaluation of new information not previously available and will be reflected in the period in which the new information is 46 Table of Contents available.
In fiscal 2022, we expect to use our available cash to support and invest in the growth of our core businesses, including investing in new ways to serve our consumers and support our shop partners, increasing our omnichannel presence as we increase the expansion of DFD Doors in priority areas, as well as investing in new shop openings and new market penetration within the U.S. and internationally.
In fiscal 2023, we expect to use our available cash to support and invest in the growth of our core businesses, including investing in new ways to serve our consumers and support our shop partners, increasing our omni-channel presence as we increase the expansion of DFD Doors in priority areas, as well as investing in new shop openings and new market penetration within the U.S. and internationally.
We were in compliance with the financial and other covenants related to the 2019 Facility as of January 2, 2022 and as of the date of this filing of our Annual Report on Form 10-K, and expect to remain in compliance over the next 12 months.
We were in compliance with the financial and other covenants related to the 2019 Facility as of January 1, 2023 and as of the date of this filing of our Annual Report on Form 10-K, and expect to remain in compliance over the next 12 months.
Total capital expenditures for fiscal 2022 are expected to be in the range of $115 million to $120 million, with our focus on deploying the capital-efficient Hub and Spoke model to reduce capital expenditures as a percentage of revenues.
Total capital expenditures for fiscal 2023 are expected to be in the range of $105 million to $115 million, with our focus on deploying the capital-efficient Hub and Spoke model to reduce capital expenditures as a percentage of revenues.
For the fiscal years 2021, 2020 and 2019, there were no goodwill impairment charges.
For the fiscal years 2022, 2021 and 2020, there were no goodwill impairment charges.
As of January 2, 2022 and January 3, 2021, the Company had approximately $14.7 million and $14.4 million, respectively, reserved for such programs. Inclusive of the receivables from the stop-loss insurance policies, the Company’s limited liability balance was $7.5 million and $7.7 million as of January 2, 2022 and January 3, 2021, respectively.
As of January 1, 2023 and January 2, 2022, the Company had approximately $17.7 million and $14.7 million, respectively, reserved for such programs. Inclusive of the receivables from the stop-loss insurance policies, the Company’s limited liability balance was $8.4 million and $7.5 million as of January 1, 2023 and January 2, 2022, respectively.
Consists mainly of consulting and advisory fees, personnel transition costs, and network conversion and set-up costs related to the transformation of the Company’s legacy wholesale business in the U.S. 5.
Fiscal 2020 consists mainly of consulting and advisory fees, personnel transition costs, and network conversion and set-up costs related to the evolution of the Company’s legacy wholesale business in the U.S.
Our Total Net Leverage Ratio was 2.99 to 1.00 as of the end of fiscal 2021 compared to 3.98 to 1.00 as of the end of fiscal 2020.
Our Total Net Leverage Ratio was 3.41 to 1.00 as of the end of fiscal 2022 compared to 2.99 to 1.00 as of the end of fiscal 2021.
Includes legacy wholesale business revenues and Branded Sweet Treat Line revenues. 2. Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes. 3. Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment.
(2) Includes Insomnia Cookies revenues and Fresh Revenues generated by Hubs without Spokes. (3) Total International net revenues is equal to Fresh Revenues from Hubs with Spokes for that business segment.
In our International segment, where the Hub and Spoke model is most developed, Sales per Hub reached $9.1 million, up from $6.4 million in the fiscal year 2020, and also up from pre-pandemic levels of $8.3 million in the fiscal year 2019.
In our International segment, where the Hub and Spoke model is most developed, Sales per Hub reached $9.8 million, up from $9.1 million in the fiscal year 2021, and also up from $6.4 million in the fiscal year 2020.
Excludes Branded Sweet Treat Line distribution points and legacy wholesale business doors. 2. Includes points of access that were acquired from franchisees in the U.S. and Canada. These points of access were previously included in the Market Development segment prior to the respective acquisition dates. See Note 2 , Acquisitions, to the audited Consolidated Financial Statements for further information. 3.
(2) Includes Points of Access that were acquired from franchisees in the U.S. and Canada. These Points of Access were previously included in the Market Development segment prior to the respective acquisition dates. See Note 2 , Acquisitions, to the audited Consolidated Financial Statements for further information.
In April 2019, we entered into an additional unsecured note with KK GP for $54.0 million (such notes together, the “Related Party Notes”). As of January 3, 2021, the outstanding amount of principal and interest was $344.6 million. The Related Party Notes were paid off in full during the second quarter of fiscal 2021.
In April 2019, we entered into an additional unsecured note with KK GP for $54.0 million (such notes together, the “Related Party Notes”). The Related Party Notes were paid off in full during the second quarter of fiscal 2021.
C onsists of pre-opening costs related to our New York City flagship Hot Light Theater Shop opening, including shop design, rent, and additional consulting and training costs incurred and reflected in selling, general and administrative expenses. 4.
(2) Primarily foreign translation gains and losses in each period. (3) C onsists of pre-opening costs related to our New York City flagship Hot Light Theater Shop opening, including shop design, rent, and additional consulting and training costs incurred and reflected in selling, general and administrative expenses.
We agree on commercial terms with vendors for the goods and services procured, which are consistent with payment terms observed at other 43 Table of Contents peer companies in the industry, and as the terms are not impacted by the SCF Program, such obligations are classified as trade payables.
We agree on commercial terms with vendors for the goods and services procured, which are consistent with payment terms observed at other peer companies in the industry, and as the terms are not impacted by the SCF Program, such obligations are classified as trade payables. Our increased use of the SCF Program has continued through the end of fiscal 2022.
In the U.S. and Canada, we reached Sales per Hub of $4.0 million, up from $3.5 million in the fiscal year 2020 and up from $3.2 million at the beginning of our transformation in 2019.
In the U.S. and Canada, we reached Sales per Hub of $4.6 million, up from $4.0 million in the fiscal year 2021 and up from $3.5 million in the fiscal year 2020.
Product and distribution costs (exclusive of depreciation and amortization) : Product and distribution costs increased $43.2 million, or 13.9%, from fiscal 2020 to fiscal 2021, largely in line with and attributable to the same factors as our revenue growth.
Product and distribution costs (exclusive of depreciation and amortization) : Product and distribution costs increased $52.1 million, or 14.7%, from fiscal 2021 to fiscal 2022, largely in line with and attributable to the same factors as our revenue growth.
We have recently signed new franchise agreements with plans to open Krispy Kreme-branded shops in Costa Rica, Jordan and Switzerland in fiscal 2022 or 2023, and we expect to have further announcements throughout the year as we grow our global business.
We have signed new franchise agreements with plans to open Krispy Kreme-branded shops in Chile, Costa Rica, Switzerland, Ecuador, Jamaica, and Kazakhstan and we expect to have further announcements in fiscal 2023 as we grow our global business.
Other (income)/expenses, net: Other income, net of $10.1 million in fiscal 2021 was primarily driven by a gain on a sale-leaseback transaction in the fourth quarter of fiscal 2021 of $8.7 million described in Note 8 , Leases, to the audited Consolidated Financial Statements, as well as $3.5 million related to one-time COVID-19 related business interruption insurance proceeds for KKUK in the first quarter of fiscal 2021.
Other income, net of $10.1 million in fiscal 2021 was primarily driven by a gain on a sale-leaseback transaction, as well as $3.5 million related to one-time COVID-19 related business interruption insurance proceeds for KKUK.
Sales per Hub was as follows for each of the periods below: Fiscal Years Ended (in thousands, unless otherwise stated) January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) December 29, 2019 (52 weeks) U.S. and Canada: Revenues $ 928,413 $ 782,717 $ 587,522 Non-Fresh Revenues (1) (37,311) (128,619) (112,051) Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2) (415,768) (323,079) (271,067) Sales from Hubs with Spokes 475,334 331,019 204,404 Sales per Hub (millions) 4.0 3.5 3.2 International: Sales from Hubs with Spokes (3) $ 332,995 $ 230,185 $ 223,115 Sales per Hub (millions) 9.1 6.4 8.3 1.
Sales per Hub was as follows for each of the periods below: Fiscal Years Ended (in thousands, unless otherwise stated) January 1, 2023 (52 weeks) January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) U.S. and Canada: Revenues $ 1,033,125 $ 928,413 $ 782,717 Non-Fresh Revenues (1) (38,380) (37,311) (128,619) Fresh Revenues from Insomnia Cookies and Hubs without Spokes (2) (407,558) (415,768) (323,079) Sales from Hubs with Spokes 587,187 475,334 331,019 Sales per Hub (millions) 4.6 4.0 3.5 International: Sales from Hubs with Spokes (3) $ 365,916 $ 332,995 $ 230,185 Sales per Hub (millions) 9.8 9.1 6.4 (1) Includes legacy wholesale business revenues and Branded Sweet Treat Line revenues.
The following table presents our Hubs, by segment and type, as of the end of fiscal 2021, fiscal 2020, and fiscal 2019, respectively: Hubs Fiscal Years Ended January 2, 2022 January 3, 2021 December 29, 2019 U.S. and Canada: Hot Light Theater Shops (1) 238 226 174 Doughnut Factories 4 5 6 Total 242 231 180 Hubs with Spokes 126 113 76 International: Hot Light Theater Shops (1) 25 27 27 Doughnut Factories 11 9 9 Total 36 36 36 Hubs with Spokes 36 36 36 Market Development: Hot Light Theater Shops (1) 106 116 163 Doughnut Factories 27 26 26 Total 133 142 189 Total Hubs 411 409 405 1.
The following table presents our Hubs, by segment and type, as of the end of fiscal 2022, fiscal 2021, and fiscal 2020, respectively: Hubs Fiscal Years Ended January 1, 2023 January 2, 2022 January 3, 2021 U.S. and Canada: Hot Light Theater Shops (1) 232 238 226 Doughnut Factories 4 4 5 Total 236 242 231 Hubs with Spokes 137 126 113 Hubs without Spokes 99 116 118 International: Hot Light Theater Shops (1) 28 25 27 Doughnut Factories 11 11 9 Total 39 36 36 Hubs with Spokes 39 36 36 Market Development: Hot Light Theater Shops (1) 106 106 116 Doughnut Factories 27 27 26 Total 133 133 142 Total Hubs 408 411 409 (1) Includes only Hot Light Theater Shops and excludes Mini Theaters.
The following table and discussion present, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities: Fiscal Years Ended (in thousands) January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) Net cash provided by operating activities $ 141,224 $ 28,675 Net cash used for investing activities (153,407) (168,128) Net cash provided by financing activities 16,096 139,441 Cash Flows Provided by Operating Activities Cash provided by operations totaled $141.2 million for fiscal 2021, an increase of $112.5 million compared with fiscal 2020.
The following table and discussion present, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities: Fiscal Years Ended (in thousands) January 1, 2023 (52 weeks) January 2, 2022 (52 weeks) Net cash provided by operating activities $ 139,818 $ 141,224 Net cash used for investing activities (121,474) (153,407) Net cash (used for)/provided by financing activities (16,838) 16,096 Cash Flows Provided by Operating Activities Cash provided by operations totaled $139.8 million for fiscal 2022, a decrease of $1.4 million compared with fiscal 2021.
We monitor global points of access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments and by asset type. 33 Table of Contents The following table presents our global points of access, by segment and type, as of the end of fiscal 2021, fiscal 2020, and fiscal 2019: Global Points of Access (1) Fiscal Years Ended January 2, 2022 January 3, 2021 December 29, 2019 U.S. and Canada: (2) Hot Light Theater Shops 241 229 175 Fresh Shops 66 47 45 Cookie Shops 210 184 168 Carts, Food Trucks, and Other (3) 2 — — DFD Doors (4) 5,204 4,137 2,288 Total 5,723 4,597 2,676 International: Hot Light Theater Shops 32 28 27 Fresh Shops 370 359 375 Carts, Food Trucks, and Other (3) 1 — — DFD Doors (4) 2,488 1,986 1,849 Total 2,891 2,373 2,251 Market Development: (5) Hot Light Theater Shops. 109 119 166 Fresh Shops 782 732 693 Carts, Food Trucks, and Other (3) 31 30 30 DFD Doors (4) 891 465 264 Total 1,813 1,346 1,153 Total global points of access (as defined) 10,427 8,316 6,080 Total Hot Light Theater Shops 382 376 368 Total Fresh Shops 1,218 1,138 1,113 Total Cookie Shops 210 184 168 Total Shops 1,810 1,698 1,649 Total Carts, Food Trucks, and Other 34 30 30 Total DFD Doors 8,583 6,588 4,401 Total global points of access (as defined) 10,427 8,316 6,080 1.
We monitor Global Points of Access as a metric that informs the growth of our omni-channel presence over time and believe this metric is useful to investors to understand our footprint in each of our segments and by asset type. 34 Table of Contents The following table presents our Global Points of Access, by segment and type, as of the end of fiscal 2022, fiscal 2021, and fiscal 2020: Global Points of Access (1) Fiscal Years Ended January 1, 2023 January 2, 2022 January 3, 2021 U.S. and Canada: (2) Hot Light Theater Shops 238 241 229 Fresh Shops 68 66 47 Cookie Shops 231 210 184 Carts, Food Trucks, and Other (3) — 2 — DFD Doors 5,741 5,204 4,137 Total 6,278 5,723 4,597 International: Hot Light Theater Shops 37 32 28 Fresh Shops 388 370 359 Carts, Food Trucks, and Other (3) 14 1 — DFD Doors 3,032 2,488 1,986 Total 3,471 2,891 2,373 Market Development: (4) Hot Light Theater Shops. 111 109 119 Fresh Shops 867 782 732 Carts, Food Trucks, and Other (3) 27 31 30 DFD Doors 1,083 891 465 Total 2,088 1,813 1,346 Total Global Points of Access (as defined) 11,837 10,427 8,316 Total Hot Light Theater Shops 386 382 376 Total Fresh Shops 1,323 1,218 1,138 Total Cookie Shops 231 210 184 Total Shops 1,940 1,810 1,698 Total Carts, Food Trucks, and Other 41 34 30 Total DFD Doors 9,856 8,583 6,588 Total Global Points of Access (as defined) 11,837 10,427 8,316 (1) Excludes Branded Sweet Treat Line distribution points.
We are required to make equal installments of 1.25% of the aggregate closing date principal amount of the term loans on the last day of each fiscal quarter.
We are required to make equal installments of 1.25% of the aggregate closing date principal amount of the term loans on the last day of each fiscal quarter. All remaining term loan and revolving loan balances are to be due five years from the initial closing date.
We expect DFD growth to continue to be one of our most significant drivers of profitability growth, through both increased door count and growth in average revenue per door per week (“APD”) which has risen over 55% for the Krispy Kreme U.S. and Canada business in the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020.
We expect DFD growth to continue to be one of our most significant drivers of earnings growth, through both increased door count and growth in average revenue per door per week (“APD”), which rose by 9.9% in the U.S. and Canada in fiscal 2022 compared to fiscal 2021.
Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, consulting and advisory fees incurred in connection with acquisition-related activities for the applicable period. 6. Includes lease termination costs, impairment charges, and loss on disposal of property, plant and equipment. 7.
(5) Consists of acquisition and integration-related costs in connection with the Company’s business and franchise acquisitions, including legal, due diligence, consulting and advisory fees incurred in connection with acquisition-related activities for the applicable period.
Includes only Hot Light Theater Shops and excludes Mini Theaters. A Mini Theater is a Spoke location that produces hot doughnuts. Non-GAAP Measures We report our financial results in accordance with generally accepted accounting principles in the U.S.
A Mini Theater is a Spoke location that produces some doughnuts for itself and also receives doughnuts from another producing location. Non-GAAP Measures We report our financial results in accordance with generally accepted accounting principles in the U.S.
Discussions of fiscal 2019 items and year-to-year comparisons of fiscal 2020 and fiscal 2019 are not included in this Annual Report on Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on our IPO Prospectus dated June 30, 2021 filed with the U.S. Securities and Exchange Commission.
Discussions of fiscal 2020 items and year-to-year comparisons of fiscal 2021 and fiscal 2020 are not included in this Annual Report on Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 2, 2022.
We had cash and cash equivalents of $38.6 million and $37.5 million as of January 2, 2022 and January 3, 2021, respectively. We believe that our existing cash and cash equivalents and debt facilities will be sufficient to fund our operating and capital needs for at least the next twelve months.
We believe that our existing cash and cash equivalents and debt facilities will be sufficient to fund our operating and capital needs for at least the next twelve months.
On June 17, 2021, we borrowed $500.0 million under the Term Loan Facility. The borrowings under the Term Loan Facility bore an all-in interest rate of 2.68175%.
The borrowings under the Term Loan Facility bore an all-in interest rate of 2.68175%.
As of January 3, 2021, there were three Hot Light Theater Shops, 40 Fresh Shops and 24 DFD Doors in Japan operating. 34 Table of Contents As of January 2, 2022, we had 10,427 global points of access, with 1,810 Krispy Kreme and Insomnia Cookies-branded shops, 34 Carts and Food Trucks, and 8,583 DFD Doors.
As of January 2, 2022, there were four Hot Light Theater Shops, 48 Fresh Shops, and 105 DFD Doors in Japan operating. 35 Table of Contents As of January 1, 2023, we had 11,837 Global Points of Access, with 1,940 Krispy Kreme and Insomnia Cookies-branded shops, 41 Carts and Food Trucks, and 9,856 DFD Doors.
During fiscal 2021, we added a net 2,111 global points of access, with a net 112 additional shops globally, including six Hot Light Theater Shops, 80 Fresh Shops, and 26 Insomnia Cookie Shops.
During fiscal 2022, we added a net 1,410 Global Points of Access, with a net 130 additional shops globally, including four Hot Light Theater Shops, 105 Fresh Shops, and 21 Insomnia Cookie Shops.
We plan to continue adding new locations and expanding our Ecommerce and delivery platform in order to extend the availability of our products. We also utilize “Hubs” as a key performance indicator.
These additions were offset by the strategic exit of Hot Light Theater Shops in the U.S. discussed in “Significant Events and Transactions.” We plan to continue adding new locations and expanding our Ecommerce and delivery platform in order to extend the availability of our products. We also utilize “Hubs” as a key performance indicator.
See “ Capital Resources and Liquidity .” Interest expense – related party : Interest expense with related parties decreased $12.1 million, or 53.8%, from fiscal 2020 to fiscal 2021, driven by paying off our Related Party Notes in full with KK GP during the second quarter of fiscal 2021.
Interest expense – related party : Interest expense with related parties decreased $10.4 million, or 100.0%, from fiscal 2021 to fiscal 2022, driven by paying off our Related Party Notes in full with KK GP during the second quarter of fiscal 2021. Income tax expense: Income tax expense decreased $10.1 million, or 94.3%, from fiscal 2021 to fiscal 2022.
All remaining term loan and revolving loan balances are to be due five years from the initial closing date. 44 Table of Contents Under the terms of the 2019 Facility, we are subject to a requirement to maintain a Total Net Leverage Ratio of less than 5.50 to 1.00 as of January 2, 2022, which reduces to 5.00 to 1.00 by April 2, 2023.
Under the terms of the 2019 Facility, we are subject to a requirement to maintain a Total Net Leverage Ratio of less than 5.25 to 1.00 as of January 1, 2023, which reduces to 5.00 to 1.00 by April 2, 2023.
Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the Consolidated Statements of Operations. 11. Includes interest expense and debt issuance costs incurred and recognized as expenses in connection with the extinguishment of the KKI Term Loan Facility within four business days of receipt of the net proceeds from the IPO. 12.
(12) Includes interest expense and debt issuance costs incurred and recognized as expenses in connection with the extinguishment of the KKI Term Loan Facility within four business days of receipt of the net proceeds from the IPO. (13) Tax impact of adjustments calculated applying the applicable statutory rates.
We have an agreement with a third-party administrator which allows participating vendors to track our payments, and if voluntarily elected by the vendor, to sell payment obligations from us to financial institutions (the “Supply Chain Financing Program” or the “SCF Program”).
We have undertaken broad efforts to improve our working capital position and cash generation, in part by negotiating longer payment terms with vendors. We have an agreement with a third-party administrator which allows participating vendors to track our payments, and if voluntarily elected by the vendor, to sell payment obligations from us to financial institutions (the SCF Program).
It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business. The average number of Hubs with Spokes for a period is calculated as the average of the number of Hubs with Spokes at the end of the five most recent quarters.
The Average Hub with Spokes for a period is calculated as the average of the number of Hubs with Spokes at the end of the five most recent quarters.
Cash Flows Provided by Financing Activities Cash provided by financing activities totaled $16.1 million for fiscal 2021, a decrease of $123.3 million compared with fiscal 2020.
Cash Flows (Used for)/Provided by Financing Activities Cash used for financing activities totaled $16.8 million for fiscal 2022, a reduction in financing of $32.9 million compared with fiscal 2021.
We utilize various card products issued by financial institutions to facilitate purchases of goods and services. By using these products, we may receive differing levels of rebates based on timing of repayment.
By using these products, we may receive differing levels of rebates based on timing of repayment.
Fiscal 2021 consists of severance and related benefits costs associated with the Company’s realignment of the Company Shop organizational structure to better support the DFD and Branded Sweet Treat Line businesses. Fiscal 2019 consists of severances and related benefits costs associated with our hiring of a new global management team. 8.
Fiscal 2021 consists of severance and related benefits costs associated with the Company’s realignment of the Company Shop organizational structure to better support the DFD and Branded Sweet Treat Line businesses. (9) Includes consulting and advisory fees incurred in connection with preparation for and execution of the Company’s IPO.
The following table presents a summary of our financial results for the periods presented: Fiscal Years Ended (in thousands except percentages) January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) % Change Total Net Revenues $ 1,384,391 $ 1,122,036 23.4 % Net Loss (14,843) (60,940) 75.6 % Adjusted Net Income (1) 66,723 42,346 57.6 % Adjusted EBITDA (1) 187,945 145,434 29.2 % 1.
The following table presents a summary of our financial results for the periods presented: Fiscal Years Ended (in thousands, except percentages) January 1, 2023 (52 weeks) January 2, 2022 (52 weeks) % Change Total Net Revenues (1) $ 1,529,898 $ 1,384,391 10.5 % Net Loss (8,775) (14,843) 40.9 % Adjusted Net Income (2) 56,975 66,723 -14.6 % Adjusted EBITDA (2) 190,729 187,945 1.5 % (1) We generated 12.1% and 12.5% organic revenue growth in fiscal 2022 and fiscal 2021, respectively.
Corporate Adjusted EBITDA decreased $12.1 million, or 40.7% from fiscal 2020 to fiscal 2021, primarily driven by an increase in costs associated with our operation as a public company.
Corporate expenses within Adjusted EBITDA increased $5.8 million, or 13.9% from fiscal 2021 to fiscal 2022, primarily driven by an increase in costs associated with our operation as a public company. Corporate expenses within Adjusted EBITDA as a percentage of revenue remained essentially flat from fiscal 2021 to fiscal 2022.
Cash Flows We generate significant cash from operations and have substantial credit availability and capacity to fund operating and discretionary spending such as capital expenditures and debt repayments.
We do not expect any cash flows associated with our 2019 Facility and its potential refinancing to inhibit our expected use of cash for operations and investments discussed above. Cash Flows We generate significant cash from operations and have substantial credit availability and capacity to fund operating and discretionary spending such as capital expenditures and debt repayments.
New Accounting Pronouncements Refer to Note 1 , Description of Business and Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements for a detailed description of recent accounting pronouncements. 47 Table of Contents
We did not have any impairment charges of indefinite-lived intangible assets during any of the periods presented, and we do not anticipate incurring significant impairment charges in the next 12 months. 47 Table of Contents New Accounting Pronouncements Refer to Note 1 , Description of Business and Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements for a detailed description of recent accounting pronouncements. 48 Table of Contents
Includes consulting and advisory fees incurred in connection with preparation for and execution of the Company’s IPO. 9. Fiscal 2021 consists primarily of legal expenses incurred outside the ordinary course of business on matters described in Note 14 , Commitments and Contingencies, to the audited Consolidated Financial Statements.
(10) Fiscal 2022 and fiscal 2021 consist primarily of legal expenses incurred outside the ordinary course of business on matters described in Note 14 , Commitments and Contingencies, to the audited Consolidated Financial Statements, including the net settlement of approximately $3.3 million negotiated with TSW in fiscal 2022.
Fiscal Year ended January 2, 2022 compared to the Fiscal Year ended January 3, 2021 The following table presents our audited consolidated results of operations for fiscal 2021 and fiscal 2020: Fiscal Years Ended January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) Change (in thousands except percentages) Amount % of Revenue Amount % of Revenue $ % Net revenues Product sales $ 1,353,466 97.8 % $ 1,085,110 96.7 % $ 268,356 24.7 % Royalties and other revenues 30,925 2.2 % 36,926 3.3 % (6,001) -16.3 % Total net revenues 1,384,391 100.0 % 1,122,036 100.0 % 262,355 23.4 % Product and distribution costs 354,093 25.6 % 310,909 27.7 % 43,184 13.9 % Operating expenses 630,239 45.5 % 488,061 43.5 % 142,178 29.1 % Selling, general and administrative expense 222,394 16.1 % 182,317 16.2 % 40,077 22.0 % Marketing expenses 39,489 2.9 % 34,000 3.0 % 5,489 16.1 % Pre-opening costs 5,568 0.4 % 11,583 1.0 % (6,015) -51.9 % Other (income)/expenses, net (10,102) -0.7 % 10,488 0.9 % (20,590) -196.3 % Depreciation and amortization expense 101,608 7.3 % 80,398 7.2 % 21,210 26.4 % Operating income 41,102 3.0 % 4,280 0.4 % 36,822 860.3 % Interest expense, net 32,622 2.4 % 34,741 3.1 % (2,119) -6.1 % Interest expense – related party 10,387 0.8 % 22,468 2.0 % (12,081) -53.8 % Other non-operating expense/(income), net 2,191 0.2 % (1,101) -0.1 % 3,292 299.0 % Loss before income taxes (4,098) -0.3 % (51,828) -4.6 % 47,730 92.1 % Income tax expense 10,745 0.8 % 9,112 0.8 % 1,633 17.9 % Net loss (14,843) -1.1 % (60,940) -5.4 % 46,097 75.6 % Net income attributable to noncontrolling interest 9,663 0.7 % 3,361 0.3 % 6,302 187.5 % Net loss attributable to Krispy Kreme, Inc. $ (24,506) -1.8 % $ (64,301) -5.7 % $ 39,795 61.9 % Product sales : Product sales increased $268.4 million, or 24.7%, from fiscal 2020 to fiscal 2021.
Fiscal Year ended January 1, 2023 compared to the Fiscal Year ended January 2, 2022 The following table presents our audited consolidated results of operations for fiscal 2022 and fiscal 2021: Fiscal Years Ended January 1, 2023 (52 weeks) January 2, 2022 (52 weeks) Change (in thousands, except percentages) Amount % of Revenue Amount % of Revenue $ % Net revenues Product sales $ 1,497,882 97.9 % $ 1,353,466 97.8 % $ 144,416 10.7 % Royalties and other revenues 32,016 2.1 % 30,925 2.2 % 1,091 3.5 % Total net revenues 1,529,898 100.0 % 1,384,391 100.0 % 145,507 10.5 % Product and distribution costs 406,227 26.6 % 354,093 25.6 % 52,134 14.7 % Operating expenses 704,287 46.0 % 630,239 45.5 % 74,048 11.7 % Selling, general and administrative expense 223,198 14.6 % 222,394 16.1 % 804 0.4 % Marketing expenses 42,566 2.8 % 39,489 2.9 % 3,077 7.8 % Pre-opening costs 4,227 0.3 % 5,568 0.4 % (1,341) -24.1 % Other expenses/(income), net 10,157 0.7 % (10,102) -0.7 % 20,259 200.5 % Depreciation and amortization expense 110,261 7.2 % 101,608 7.3 % 8,653 8.5 % Operating income 28,975 1.9 % 41,102 3.0 % (12,127) -29.5 % Interest expense, net 34,102 2.2 % 32,622 2.4 % 1,480 4.5 % Interest expense – related party — — % 10,387 0.8 % (10,387) -100.0 % Other non-operating expense, net 3,036 0.2 % 2,191 0.2 % 845 38.6 % Loss before income taxes (8,163) -0.5 % (4,098) -0.3 % (4,065) -99.2 % Income tax expense 612 — % 10,745 0.8 % (10,133) -94.3 % Net loss (8,775) -0.6 % (14,843) -1.1 % 6,068 40.9 % Net income attributable to noncontrolling interest 6,847 0.4 % 9,663 0.7 % (2,816) -29.1 % Net loss attributable to Krispy Kreme, Inc. $ (15,622) -1.0 % $ (24,506) -1.8 % $ 8,884 36.3 % Product sales : Product sales increased $144.4 million, or 10.7%, from fiscal 2021 to fiscal 2022.
Fiscal year 2021 reflects our results of operations for the 52-week period ended January 2, 2022. Fiscal year 2020 reflects our results of operations for the 53-week period ended January 3, 2021. The additional week in a 53-week fiscal year is added to the fourth fiscal quarter, resulting in a 14-week quarter.
Fiscal year 2022 reflects our results of operations for the 52-week period ended January 1, 2023. Fiscal year 2021 reflects our results of operations for the 52-week period ended January 2, 2022.
Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period. Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line.
Fresh Revenues include product sales generated from our Doughnut Shop business (including Ecommerce and delivery), as well as DFD sales, but excluding sales from our legacy wholesale business and our Branded Sweet Treat Line. It also excludes all Insomnia Cookies revenues as the measure is focused on the Krispy Kreme business.
In order to facilitate a clear understanding of our consolidated historical operating results, you should examine our non-GAAP financial measures in conjunction with our historical Consolidated Financial Statements and notes thereto included in this Annual Report on Form 10-K. 35 Table of Contents Organic Revenue Growth We define “organic revenue growth” as the growth in revenues, excluding (i) acquired shops owned by us for less than twelve months following their acquisition, (ii) the impact of foreign currency exchange rate changes, and (iii) the impact of revenues generated during the 53 rd week for those fiscal years that have a 53 rd week based on our fiscal calendar defined in the “Overview” section.
We define “organic revenue growth” as the growth in revenues, excluding (i) acquired shops owned by us for less than 12 months following their acquisition, (ii) the impact of foreign currency exchange rate changes, (iii) shop closures related to restructuring programs such as the shop portfolio optimization program initiated for Krispy Kreme U.S. and Canada during fiscal 2022, and (iv) the impact of revenues generated during the 53 rd week for those fiscal years that have a 53 rd week based on our fiscal calendar defined in the “Overview” section.
Beginning in the third quarter of fiscal 2021, we include Carts and Food Trucks in our calculation of global points of access. Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory.
(3) Carts and Food Trucks are non-producing, mobile (typically on wheels) facilities without walls or a door where product is received from a Hot Light Theater Shop or Doughnut Factory. Other includes a vending machine. Points of Access in this category are primarily found in international locations, in airports, train stations, etc. (4) Includes locations in Japan, which are Company-owned.
Due in part to the DFD growth efforts, International Sales per Hub grew 42% in fiscal 2021, while U.S. and Canada Sales per Hub grew 14%. Increasing Our Global Presence Another of our key strategic initiatives is to increase our global presence as we become the most loved sweet treat brand in the world.
We will continue to assess the Krispy Kreme U.S. and Canada portfolio and business lines heading into fiscal 2023. 33 Table of Contents Increasing Our Global Presence Another of our key strategic initiatives is to increase our global presence as we become the Most Loved Sweet Treat Brand in the World.
Fiscal 2021 consists primarily of the effect of tax law changes on existing temporary differences.
Fiscal 2022 also includes the effect of discrete adjustments to the Company’s deferred tax liabilities that are unrelated to the Company’s ongoing operations. Fiscal 2021 consists primarily of the effect of tax law changes on existing temporary differences.
Fiscal 2020 and fiscal 2019 include valuation allowances of $20.5 million and $6.6 million, respectively, associated with tax attributes primarily attributable to incremental costs removed from the calculation of Adjusted Net Income. 37 Table of Contents Sales Per Hub In order to measure the effectiveness of our Hub and Spoke model, we use “Sales per Hub” on a trailing four-quarter basis, which includes all revenue generated from a Hub and its associated Spokes.
Sales Per Hub In order to measure the effectiveness of our Hub and Spoke model, we use “Sales per Hub” on a trailing four-quarter basis, which includes all revenue generated from a Hub and its associated Spokes. Sales per Hub equals Fresh Revenues from Hubs with Spokes, divided by the average number of Hubs with Spokes during the period.
Refer to “ Key Performance Indicators and Non-GAAP Measures ” below for more information as to how we define and calculate Adjusted EBITDA and Adjusted Net Income and for a reconciliation of Adjusted EBITDA and Adjusted Net Income to net loss, the most comparable GAAP measure.
(2) Refer to “ Key Performance Indicators and Non-GAAP Measures ” below for more information as to how we define and calculate Adjusted EBITDA and Adjusted Net Income and for a reconciliation of Adjusted EBITDA and Adjusted Net Income to net loss, the most comparable GAAP measure. 32 Table of Contents Significant Events and Transactions Executing on our Transformation Strategy We made strong progress on the execution of our omni-channel strategy in fiscal 2022, where we focus on being able to deliver fresh doughnuts and cookies to where our consumers are located.
Fiscal 2020 consists primarily of fixed asset and impairment expenses, net of a gain on the sale of land, as well as $1.2 million of management fees paid to JAB. Fiscal 2019 includes $3.1 million lease impairment expenses related to our Winston-Salem office location incurred in connection with our corporate headquarters relocation to Charlotte, North Carolina. 10.
Fiscal 2020 consists primarily of fixed asset and impairment expenses, net of a gain on the sale of land, as well as $1.2 million of management fees paid to JAB. (11) Consists of amortization related to acquired intangible assets as reflected within depreciation and amortization in the Consolidated Statements of Operations.
U.S. and Canada segment growth, which reflects franchise acquisitions (51 shops in the second half of fiscal 2020, 17 shops in the first quarter of fiscal 2021, and ten shops in the fourth quarter of fiscal 2021), was also driven by strong organic revenue growth.
U.S. and Canada segment growth was driven by a combination of continued execution of our omni-channel strategy as well as franchise acquisitions (17 shops in the first quarter of fiscal 2021, ten shops in the fourth quarter of fiscal 2021, and six shops in the third quarter of fiscal 2022).
Organic revenue growth of $137.5 million, or approximately 12.5%, was driven by the continued and successful execution of our growth strategy and transformation deploying our omni-channel approach globally. We have continued to increase availability through new points of access, particularly the expansion of Spokes, including DFD Doors, for existing Hubs with Spokes during fiscal 2021.
We have continued to increase availability through new Global Points of Access, particularly the expansion of Spokes, including DFD Doors, for existing Hubs with Spokes during fiscal 2022.
As of January 2, 2022, we had the following future obligations: • An aggregate principal amount of $696.3 million outstanding under the 2019 Facility; • Non-cancellable future minimum operating lease payments totaling $722.6 million; • Non-cancellable future minimum finance lease payments totaling $39.9 million; and • Purchase commitments under ingredient and other forward purchase contracts of $132.4 million. 42 Table of Contents Refer to Note 7 , Long-Term Debt, Note 8 , Leases, and Note 14 , Commitments and Contingencies, to the audited Consolidated Financial Statements for more information.
As of January 1, 2023, we had the following future obligations: • An aggregate principal amount of $748.8 million outstanding under the 2019 Facility; • Non-cancellable future minimum operating lease payments totaling $680.8 million; • Non-cancellable future minimum finance lease payments totaling $47.1 million; and • Purchase commitments under ingredient and other forward purchase contracts of $118.5 million.
Debt Our long-term debt obligations consist of the following: (in thousands) January 2, 2022 January 3, 2021 2019 Facility - term loan $ 621,250 $ 656,250 2019 Facility - revolving credit facility 75,000 150,000 Less: Debt issuance costs (3,833) (5,419) Financing obligations 24,473 26,224 Total long-term debt 716,890 827,055 Less: Current portion of long-term debt (36,583) (41,245) Long-term debt, less current portion 680,307 785,810 Related party notes payable (excluding accrued interest) — 337,148 Total debt and related party notes payable $ 680,307 $ 1,122,958 2019 Facility On June 13, 2019, we entered into a credit agreement (the “2019 Facility”).
The payment obligations under these card products are classified as structured payables on our Consolidated Balance Sheets and the associated cash flows are included in the financing section of our Consolidated Statements of Cash Flows. 44 Table of Contents Debt Our long-term debt obligations consist of the following: (in thousands) January 1, 2023 January 2, 2022 2019 Facility - term loan $ 586,250 $ 621,250 2019 Facility - revolving credit facility 162,500 75,000 Less: Debt issuance costs (2,247) (3,833) Financing obligations 32,583 24,473 Total long-term debt 779,086 716,890 Less: Current portion of long-term debt (40,034) (36,583) Long-term debt, less current portion $ 739,052 $ 680,307 2019 Facility On June 13, 2019, we entered into a credit agreement (the “2019 Facility”).
The interest expense for the fiscal years ended January 2, 2022, January 3, 2021, and December 29, 2019 was $10.4 million, $22.5 million and $21.9 million, respectively. See Note 15 , Related Party Transactions, to the audited Consolidated Financial Statements for more information. Term Loan Facility On June 10, 2021, we entered into the Term Loan Facility.
See Note 15 , Related Party Transactions, to the audited Consolidated Financial Statements for more information. 45 Table of Contents Term Loan Facility On June 10, 2021, we entered into the Term Loan Facility. On June 17, 2021, we borrowed $500.0 million under the Term Loan Facility.
Approximately $126.2 million of the increase in product sales was attributable to shops acquired from franchisees.
Approximately $20.3 million of the increase in product sales was attributable to shops acquired from franchisees. However, product sales growth was partially offset by $37.3 million attributable to foreign currencies weakening against the U.S. dollar.
The Hot Light Theater Shop openings included expansion in Hilliard, OH and Lakeland, FL for the U.S. and Canada segment, Boca del Rio, Mexico for the International segment, and Cairo, Egypt for the Market Development segment which represents our first franchise shop in Egypt, increasing our global presence to 31 countries.
Hot Light Theater Shop openings during the year included expansion in Staten Island, New York and Indianapolis, Indiana for the U.S. and Canada segment, Dublin, Ireland and Queretaro, Mexico for the International segment, and Amman, Jordan for the Market Development segment which represents our first franchise shop in Jordan.
As a percentage of revenue, SG&A decreased by approximately 10 basis points, from 16.2% in fiscal 2020 to 16.1% in fiscal 2021, primarily due to economies of scale from our top-line revenue growth. Marketing expenses: Marketing expenses increased $5.5 million, or 16.1%, primarily driven by spend associated with the increased revenues during the year.
As a percentage of revenue, SG&A decreased by approximately 150 basis points, from 16.1% in fiscal 2021 to 14.6% in fiscal 2022, primarily due to a decrease in advisory service fees as we completed our IPO in fiscal 2021. The decrease was also due to lower share-based compensation expenses, as well as economies of scale from our top-line revenue growth.
Our strategic expansion of the DFD business as part of the Hub and Spoke transformation contributed to this growth with over 1,000 added points of access during fiscal 2021. The increase in EBITDA was also driven by our Insomnia Cookies business which had a strong year aided by the return of activity to college campuses compared to fiscal 2020.
U.S. and Canada Adjusted EBITDA increased $10.9 million, or 10.1%, from fiscal 2021 to fiscal 2022, primarily driven by the revenue growth of 11.3%. Our strategic expansion of the DFD business as part of the Hub and Spoke transformation contributed to this growth with 555 added Points of Access during fiscal 2022.
We generated 12.5% and 1.2% organic revenue growth in fiscal 2021 and fiscal 2020, respectively. 32 Table of Contents Significant Events and Transactions Executing on our Transformation Strategy As a key component of our strategy to convert markets into fully implemented Hub and Spoke models, we continue to add quality points of access across our global network.
We continued to add quality Global Points of Access across our network as we convert markets into fully implemented Hub and Spoke models, including a net total of 1,410 new Global Points of Access in fiscal 2022 to surpass 11,800 Global Points of Access.
Additionally, in October 2021 we initiated our Company-owned expansion strategy in Canada by acquiring a 60% ownership interest in ten franchise shops. Going forward, we expect to open in at least three new countries a year, with a key focus in Western Europe and select Asian and South American countries.
We continue to grow the percentage of our revenues and Adjusted EBITDA generated outside the U.S. We expect to open in at least three new countries a year, with a key focus in Western Europe and select Asian and South American countries.
Net income attributable to noncontrolling interest: Net income attributable to noncontrolling interest increased $6.3 million, or 187.5%, from fiscal 2020 to fiscal 2021, reflecting stronger earnings allocated to the shareholders of consolidated subsidiaries, particularly Insomnia Cookies, WKS Krispy Kreme, and KKUK. 41 Table of Contents Results of Operations by Segment – Fiscal Year ended January 2, 2022 compared to the Fiscal Year ended January 3, 2021 The following table presents Adjusted EBITDA by segment for the periods indicated: Fiscal Years Ended Change (in thousands except percentages) January 2, 2022 (52 weeks) January 3, 2021 (53 weeks) $ % Adjusted EBITDA U.S. and Canada $ 107,571 $ 91,574 $ 15,997 17.5 % International 81,422 44,554 36,868 82.7 % Market Development 40,824 39,060 1,764 4.5 % Corporate (41,872) (29,754) (12,118) (40.7) % Total Adjusted EBITDA (1) $ 187,945 $ 145,434 $ 42,511 29.2 % 1.
Results of Operations by Segment – Fiscal Year ended January 1, 2023 compared to the Fiscal Year ended January 2, 2022 The following table presents Adjusted EBITDA by segment for the periods indicated: Fiscal Years Ended Change (in thousands, except percentages) January 1, 2023 (52 weeks) January 2, 2022 (52 weeks) $ % Adjusted EBITDA U.S. and Canada $ 118,483 $ 107,571 $ 10,912 10.1 % International 75,512 81,422 (5,910) -7.3 % Market Development 44,421 40,824 3,597 8.8 % Corporate (47,687) (41,872) (5,815) -13.9 % Total Adjusted EBITDA (1) $ 190,729 $ 187,945 $ 2,784 1.5 % (1) Refer to “ Key Performance Indicators and Non-GAAP Measures ” above for a reconciliation of Adjusted EBITDA to net loss.
As of January 2, 2022, there were four Hot Light Theater Shops, 48 Fresh Shops and 105 DFD Doors in Japan operating.
All remaining Points of Access in the Market Development segment relate to our franchise business. As of January 1, 2023, there were five Hot Light Theater Shops, 54 Fresh Shops, and 166 DFD Doors in Japan operating.
Product and distribution costs as a percentage of revenue decreased by approximately 210 basis points from 27.7% in fiscal 2020 to 25.6% in fiscal 2021. This margin improvement was primarily driven by the U.S. and Canada segment, which benefited from higher margins from its DFD business due to the shift to fresh doughnut sales from the legacy wholesale business.
Product and distribution c osts as a percentage of revenue increased by approximately 100 basis points from 25.6% in fiscal 2021 to 26.6% in fiscal 2022. This increase was primarily driven by inflationary pressures on commodities and logistics costs in fiscal 2022, as well as increased promotional activity in the U.S. and Canada such as the “Beat the Pump” promotion.
U.S. and Canada net revenue grew $145.7 million, or approximately 18.6% from fiscal 2020 to fiscal 2021 while organic revenue grew $41.9 million, or approximately 5.5%, from fiscal 2020 to fiscal 2021, driven by our omni-channel model, primarily the strength of DFD, as well as strong growth from Insomnia Cookies.
U.S. and Canada net revenue grew $104.7 million, or approximately 11.3% from fiscal 2021 to fiscal 2022 while organic revenue grew $84.0 million, or approximately 9.1%, from fiscal 2021 to fiscal 2022. Organic growth was driven by significant expansion of the low capital DFD business, with DFD Doors increasing by 537 and APD up 9.9% compared to fiscal 2021.
Market Development organic revenue grew $11.8 million, or approximately 11.0%, from fiscal 2020 to fiscal 2021, primarily driven by improved market conditions for international franchise locations as COVID-19 restrictions in certain key markets began to ease.
When adjusted for the impacts of acquisitions and foreign currency, Market Development organic revenue grew $23.8 million, or approximately 19.3%, from fiscal 2021 to fiscal 2022, driven by focused growth in Japan and international franchise markets, including benefits from DFD expansion.
In fiscal 2021, we added over 2,000 points of access from the fiscal year ended January 3, 2021, with 386 points of access added in the fourth quarter of fiscal 2021 alone. The primary driver of the increased points of access from fiscal 2020 was the continued expansion of our DFD network in alignment with our transformation strategy.
The primary driver of the increased Points of Access during the year was the continued expansion of our low capital DFD network in alignment with our transformation strategy, as we added 1,273 DFD Doors globally, including 537 DFD Doors to the U.S. and Canada segment, 544 to the International segment, and 192 to the Market Development segment.
The decrease was mainly driven by a variance of $88.2 million cash flows related to structured payables programs (net payments on structured payables of $20.8 million in fiscal 2021 compared to net proceeds from structured payables of $67.4 million in fiscal 2020), as we utilized excess cash to pay off outstanding balances.
The reductions in financing were partially offset by $8.3 million change in cash flows related to structured payables programs (net payments on structured payables of $12.4 million in fiscal 2022 compared to net payments on structured payables of $20.8 million in fiscal 2021). We utilize various card products issued by financial institutions to facilitate purchases of goods and services.

… 93 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed5 unchanged
Biggest changeBased on the $191.3 million of unhedged outstanding as of January 2, 2022, a 100 basis point increase in the one-month LIBOR would result in a $1.9 million increase in interest expense for a twelve-month period, while a 100 basis point decrease would result in the floor of zero and thus a decrease in interest expense of $0.2 million for a twelve-month period based on the daily average of the one-month LIBOR for the fiscal quarter ended January 2, 2022.
Biggest changeBased on the $243.8 million of unhedged outstanding as of January 1, 2023, a 100 basis point increase or decrease in the one-month LIBOR would result in a $2.4 million increase or decrease, respectively, in interest expense for a 12-month period, based on the daily average of the one-month LIBOR for the fiscal year ended January 1, 2023.
From time to time, we engage in foreign currency exchange and credit transactions with our non-U.S. subsidiaries, which we typically hedge. To date, the impact of such transactions, including the cost of hedging, has not been material. We do not engage in foreign currency or hedging transactions for speculative purposes. 48 Table of Contents
From time to time, we engage in foreign currency exchange and credit transactions with our non-U.S. subsidiaries, which we typically hedge. To date, the impact of such transactions, including the cost of hedging, has not been material. We do not engage in foreign currency or hedging transactions for speculative purposes. 49 Table of Contents
Foreign Currency Risk We are exposed to foreign currency translation risk on the operations of our subsidiaries that have functional currencies other than the U.S. dollar, whose revenues accounted for approximately 28% of our total net revenues through the fiscal year ended January 2, 2022.
Foreign Currency Risk We are exposed to foreign currency translation risk on the operations of our subsidiaries that have functional currencies other than the U.S. dollar, whose revenues accounted for approximately 28% of our total net revenues through the fiscal year ended January 1, 2023.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Effects of Changing Prices – Inflation We are exposed to the effects of commodity price fluctuations in the cost of ingredients of our products, of which flour, sugar and shortening are the most significant. During the second half of fiscal 2021 we have experienced headwinds from commodity inflation globally.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Effects of Changing Prices – Inflation We are exposed to the effects of commodity price fluctuations in the cost of ingredients of our products, of which flour, sugar and shortening are the most significant. Throughout fiscal 2022 we have experienced headwinds from commodity inflation globally.
A 10% increase or decrease in the average fiscal 2021 exchange rate of the Canadian dollar, the British pound sterling, the Euro, the Australian dollar, the New Zealand dollar, the Mexican peso, and the Japanese yen against the U.S. dollar would have resulted in a decrease or increase of approximately $38.5 million in our total net revenues through the fiscal year ended January 2, 2022.
A 10% increase or decrease in the average fiscal 2022 exchange rate of the Canadian dollar, the British pound sterling, the Euro, the Australian dollar, the New Zealand dollar, the Mexican peso, and the Japanese yen against the U.S. dollar would have resulted in a decrease or increase of approximately $43.6 million in our total net revenues through the fiscal year ended January 1, 2023.
A substantial majority of these revenues, or approximately $384.8 million through the fiscal year ended January 2, 2022, were attributable to subsidiaries whose functional currencies are the Canadian dollar, the British pound sterling, the Euro, the Australian dollar, the New Zealand dollar, the Mexican peso, and the Japanese yen.
A substantial majority of these revenues, or approximately $435.7 million through the fiscal year ended January 1, 2023, were attributable to subsidiaries whose functional currencies are the Canadian dollar, the British pound sterling, the Euro, the Australian dollar, the New Zealand dollar, the Mexican peso, and the Japanese yen.
To mitigate the impact of changes in LIBOR on interest expense for a portion of our variable rate debt, we have entered into interest rate swaps on $505.0 million notional of our $696.3 million of outstanding debt as of January 2, 2022, which we account for as cash flow hedges.
To mitigate the impact of changes in LIBOR on interest expense for a portion of our variable rate debt, we have entered into interest rate swaps on $505.0 million notional of our $748.8 million of outstanding debt as of January 1, 2023, which we account for as cash flow hedges.
We have undertaken efforts to effectively manage inflationary cost increases through rapid inventory turnover and reduced inventory waste, increased focus on resiliency of our supply chains, and an ability to adjust pricing of our products (including price increases taking effect in the second half of fiscal 2021).
We have undertaken efforts to effectively manage inflationary cost increases through rapid inventory turnover and reduced inventory waste, increased focus on resiliency of our supply chains, and an ability to adjust pricing of our products.

Other DNUT 10-K year-over-year comparisons