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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________

FORM 10-Q
_________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number: 001-04321

dnut-20210704_g1.jpg
Krispy Kreme, Inc.
(Exact name of registrant as specified in its charter)
_________________________

Delaware37-1701311
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
2116 Hawkins Street, Charlotte, North Carolina 28203
(Address of principal executive offices)

(800) 457-4779
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)
_________________________

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

Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.01 par value per share
DNUT
Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had outstanding 167,112,953 shares of common stock as of August 10, 2021.


Table of Contents
Table of Contents
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Table of Contents
Part I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Krispy Kreme, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts and number of shares)
Quarter EndedTwo Quarters Ended
July 4,
2021 (13 weeks)
June 28,
2020 (13 weeks)
July 4,
2021 (26 weeks)
June 28,
2020 (26 weeks)
Net revenues
Product sales$341,223 $236,608 $654,808 $488,144 
Royalties and other revenues7,963 8,364 16,187 18,044 
Total net revenues349,186 244,972 670,995 506,188 
Product and distribution costs85,017 68,958 165,014 137,106 
Operating expenses157,877 104,221 305,418 220,000 
Selling, general and administrative expense60,930 41,487 110,467 82,569 
Marketing expenses10,052 8,575 19,559 16,689 
Pre-opening costs1,752 2,863 3,143 6,300 
Other (income)/expenses, net(761)1,339 (4,006)2,510 
Depreciation and amortization expense25,194 18,097 48,595 37,184 
Operating income/(loss)9,125 (568)22,805 3,830 
Interest expense, net9,793 9,711 18,042 18,355 
Interest expense — related party4,821 5,566 10,387 11,132 
Other non-operating income, net(416)(2,660)(858)(112)
Loss before income taxes(5,073)(13,185)(4,766)(25,545)
Income tax expense/(benefit)9,923 (1,500)10,608 (2,912)
Net loss(14,996)(11,685)(15,374)(22,633)
Net income attributable to noncontrolling interest2,146 945 4,829 1,512 
Net loss attributable to Krispy Kreme, Inc.$(17,142)$(12,630)$(20,203)$(24,145)
Net loss per share:
Common stock — Basic$(0.13)$(0.10)$(0.16)$(0.19)
Common stock — Diluted$(0.13)$(0.10)$(0.16)$(0.19)
Weighted average shares outstanding:
Basic132,351,087 124,987,370 128,669,228 124,987,370 
Diluted132,351,087 124,987,370 128,669,228 124,987,370 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)
(In thousands)
 Quarter EndedTwo Quarters Ended
 July 4,
2021 (13 weeks)
June 28,
2020 (13 weeks)
July 4,
2021 (26 weeks)
June 28,
2020 (26 weeks)
Net loss$(14,996)$(11,685)$(15,374)$(22,633)
Other comprehensive (loss)/income, net of income taxes:
Foreign currency translation adjustment(1,457)17,416 (3,721)(29,007)
Unrealized income/(loss) on cash flow hedges, net of income taxes(1)
1,131 (1,893)6,233 (17,328)
Total other comprehensive (loss)/income, net of income taxes(326)15,523 2,512 (46,335)
Comprehensive (loss)/income(15,322)3,838 (12,862)(68,968)
Net income attributable to noncontrolling interest2,146 945 4,829 1,512 
Total comprehensive income attributable to noncontrolling interest2,146 945 4,829 1,512 
Comprehensive (loss)/income attributable to Krispy Kreme, Inc.$(17,468)$2,893 $(17,691)$(70,480)
1.Net of income tax benefit/(expense) of ($0.4 million) and ($2.1 million) for the quarter and two quarters ended July 4, 2021, respectively, and $0.6 million and $5.8 million for the quarter and two quarters ended June 28, 2020, respectively.
See accompanying notes to Condensed Consolidated Financial Statements.
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 Krispy Kreme, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except number of shares)
As of
 (Unaudited) July 4,
2021
January 3,
2021
ASSETS  
Current Assets:  
Cash and cash equivalents$37,377 $37,460 
Marketable securities744 1,048 
Restricted cash82 23 
Accounts receivable, net49,207 74,351 
Inventories38,500 38,519 
Prepaid expense and other current assets20,911 12,692 
Total current assets146,821 164,093 
Property and equipment, net415,319 395,255 
Goodwill1,095,369 1,086,546 
Other intangible assets, net1,003,948 998,014 
Operating lease right of use asset, net414,096 399,688 
Other assets18,027 17,399 
Total assets$3,093,580 $3,060,995 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt$538,985 $41,245 
Current operating lease liabilities46,763 45,675 
Accounts payable156,564 148,645 
Accrued liabilities165,826 124,951 
Structured payables139,748 137,319 
Total current liabilities1,047,886 497,835 
Long-term debt, less current portion626,417 785,810 
Related party notes payable 344,581 
Noncurrent operating lease liabilities390,962 376,099 
Deferred income taxes, net150,687 144,866 
Other long-term obligations and deferred credits55,822 63,445 
Total liabilities2,271,774 2,212,636 
Commitments and contingencies
Shareholders’ Equity:
Common stock, $0.01 par value; 300,000,000 and 174,500,000 shares authorized as of July 4, 2021 and January 3, 2021, respectively; 163,595,516 and 124,987,370 shares issued and outstanding as of July 4, 2021 and January 3, 2021, respectively
1,636 1,250 
Additional paid-in capital1,362,875 845,499 
Subscription receivable(471,250) 
Shareholder note receivable(3,827)(18,660)
Accumulated other comprehensive income/(loss), net of income tax1,304 (1,208)
Retained deficit(162,399)(142,197)
Total shareholders’ equity attributable to Krispy Kreme, Inc.728,339 684,684 
Noncontrolling interest93,467 163,675 
Total shareholders’ equity821,806 848,359 
Total liabilities and shareholders’ equity$3,093,580 $3,060,995 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In thousands, except number of shares)
 
Common Stock
Additional
Paid-in
Capital
Subscription Receivable
Shareholder
Note
Receivable
Accumulated Other Comprehensive
Income/(Loss)  
Retained
(Deficit)
Earnings
Noncontrolling
Interest
Total
 
Shares
Outstanding
Amount
Foreign
currency
translation
adjustment
Unrealized
loss on
cash flow
hedges
Unrealized  loss on employee
benefit plans
Balance at January 3, 2021124,987,370 $1,250 $845,499 $ $(18,660)$23,508 $(24,610)$(106)$(142,197)$163,675 $848,359 
Net (loss)/income for the quarter ended April 4, 2021— — — — — — — — (3,061)2,683 (378)
Other comprehensive income/(loss) for the quarter ended April 4, 2021 before reclassifications— — — — — (2,264)2,572 — — — 308 
Reclassification from AOCI— — — — — — 2,530 — — — 2,530 
Share-based compensation— — 2,368 — — — — — — — 2,368 
Purchase of shares by noncontrolling interest— — — — 139 — — — — 12,048 12,187 
Distribution to shareholders— — — — — — — — — —  
Distribution to noncontrolling interest— — — — 363 — — — — (2,239)(1,876)
Other— — (26)— (70)— — — 2 (1)(95)
Balance at April 4, 2021124,987,370 $1,250 $847,841 $ $(18,228)$21,244 $(19,508)$(106)$(145,256)$176,166 $863,403 
Net (loss)/income for the quarter ended July 4, 2021— — — — — — — — (17,142)2,146 (14,996)
Other comprehensive (loss)/income for the quarter ended July 4, 2021 before reclassifications— — — — — (1,457)(1,430)— — — (2,887)
Reclassification from AOCI— — — — — — 2,561 — — — 2,561 
Capital contribution from shareholders6,997,450 70 120,862 — — — — — — — 120,932 
Share-based compensation— — 8,290 — — — — — — — 8,290 
Purchase of shares by noncontrolling interest— — — — 14,421 — — — — 26,648 41,069 
Distribution to shareholders— — (42,334)— — — — — — — (42,334)
Distribution to noncontrolling interest— — — — — — — — — (4,142)(4,142)
Conversion of noncontrolling interest to additional paid-in capital in connection with the Merger9,370,881 93 107,258 — — — — — — (107,351) 
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs29,411,765 294 459,391 (471,250)— — — — — — (11,565)
Issuance of common stock upon settlement of RSUs, net of shares withheld1,267,491 13 (15,507)— — — — — — — (15,494)
Repurchase of common stock(8,439,441)(84)(122,922)— — — — — — — (123,006)
Other— — (4)— (20)— — — (1)— (25)
Balance at July 4, 2021163,595,516 $1,636 $1,362,875 $(471,250)$(3,827)$19,787 $(18,377)$(106)$(162,399)$93,467 $821,806 
See accompanying notes to Condensed Consolidated Financial Statements
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In thousands, except number of shares)
 
Common Stock
Additional
Paid-in
Capital
Subscription Receivable
Shareholder
Note
Receivable
Accumulated Other Comprehensive
Income/(Loss)  
Retained
(Deficit)
Earnings
Noncontrolling
Interest
Total
 
Shares
Outstanding
Amount
Foreign
currency
translation
adjustment
Unrealized
loss on
cash flow
hedges
Unrealized  loss on employee
benefit plans
Balance at December 29, 2019124,987,370 $1,250 $834,233 $ $(17,232)$4,629 $(10,180)$ $(77,880)$148,597 $883,417 
Net (loss)/income for the quarter ended March 29, 2020— — — — — — — — (11,515)567 (10,948)
Other comprehensive (loss)/income for the quarter ended March 29, 2020 before reclassifications— — — — — (46,423)(16,130)— — — (62,553)
Reclassification from AOCI— — — — — — 695 — — — 695 
Share-based compensation— — 3,167 — — — — — — — 3,167 
Purchase of shares by noncontrolling interest— — — — — — — — — 17,562 17,562 
Distribution to shareholders— — (15)— — — — — — — (15)
Distribution to noncontrolling interest— — — — — — — — — (2,506)(2,506)
Other— — — — (76)— — — — (1)(77)
Balance at March 29, 2020124,987,370 $1,250 $837,385 $ $(17,308)$(41,794)$(25,615)$ $(89,395)$164,219 $828,742 
Net (loss)/income for the quarter ended June 28, 2020— — — — — — — — (12,630)945 (11,685)
Other comprehensive income/(loss) for the quarter ended June 28, 2020 before reclassifications— — — — — 17,416 (3,855)— — — 13,561 
Reclassification from AOCI— — — — — — 1,962 — — — 1,962 
Share-based compensation— — 2,974 — — — — — — — 2,974 
Purchase of shares by noncontrolling interest— — — — — — — — — 30 30 
Distribution to shareholders— — — — — — — — (4)— (4)
Distribution to noncontrolling interest— — — — 178 — — — — (3,284)(3,106)
Other— — — — (18)— — — 1 1 (16)
Balance at June 28, 2020124,987,370 $1,250 $840,359 $ $(17,148)$(24,378)$(27,508)$ $(102,028)$161,911 $832,458 
See accompanying notes to Condensed Consolidated Financial Statements
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Two Quarters Ended
 July 4, 2021 (26 weeks)June 28, 2020 (26 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(15,374)$(22,633)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense48,595 37,184 
Deferred income taxes7,995 (2,601)
Loss on extinguishment of debt1,700  
Impairment and lease termination charges1,126 1,693 
Loss/(gain) on disposal of property and equipment148 (1,164)
Share-based compensation10,658 6,141 
Change in accounts and notes receivable allowances110 717 
Inventory write-off776  
Other(425)(76)
Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments:1,536 (5,325)
Net cash provided by operating activities56,845 13,936 
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment(52,842)(44,133)
Proceeds from disposals of assets147 2,793 
Acquisition of shops and franchise rights from franchisees, net of cash acquired(33,888)212 
Principal payments received from loans to franchisees45 362 
Purchases of held-to-maturity debt securities (55)
Maturities of held-to-maturity debt securities277 116 
Net cash used for investing activities(86,261)(40,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt540,000 263,097 
Repayment of long-term debt and lease obligations(541,353)(97,496)
Payment of financing costs(1,700) 
Proceeds from structured payables140,598 135,222 
Payments on structured payables(138,100)(97,530)
Capital contribution by shareholders120,932  
Proceeds from sale of noncontrolling interest in subsidiary53,256 17,592 
Distribution to shareholders(34,364)(19)
Payments for repurchase and retirement of common stock(102,698) 
Distribution to noncontrolling interest(6,018)(5,612)
Net cash provided by financing activities30,553 215,254 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,161)249 
Net (decrease)/increase in cash, cash equivalents and restricted cash(24)188,734 
Cash, cash equivalents and restricted cash at beginning of period37,483 35,450 
Cash, cash equivalents and restricted cash at end of period$37,459 $224,184 
Supplemental schedule of non-cash investing and financing activities:
Accrual for property and equipment$1,381 $6,105 
Stock issuance under shareholder notes446  
Common stock issuance under subscription receivable in connection with initial public offering, net of underwriting discounts and issuance costs459,685  
Accrual for distribution to shareholders(7,970) 
Accrual for repurchase and retirement of common stock(35,803) 
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents$37,377 $224,050 
Restricted cash82 134 
Total cash, cash equivalents and restricted cash$37,459 $224,184 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise specified)
Note 1 — Description of Business and Summary of Significant Accounting Policies
Description of Business
Krispy Kreme, Inc. (“KKI”) and its subsidiaries (collectively, the “Company” or “Krispy Kreme”) operates through its omni-channel business model to provide doughnut experiences and produce doughnuts for Doughnut Shops, Delivered Fresh Daily (“DFD”) outlets, Ecommerce and delivery, and Krispy Kreme branded sweet treats (“Branded Sweet Treat Line”) channels, expanding consumer access to the Krispy Kreme brand.
The Company has three reportable operating segments: 1) U.S. and Canada, which includes all Krispy Kreme Company-owned operations in the U.S. and Canada, Insomnia-branded cookie shops and our Branded Sweet Treat Line; 2) International, which includes all Krispy Kreme Company-owned operations in the United Kingdom, Ireland, Australia, New Zealand and Mexico; and 3) Market Development, which includes franchise operations across the globe, as well as Krispy Kreme Company-owned shops in Japan. Unallocated corporate costs are excluded from the Company’s measurement of segment performance.
Initial Public Offering
The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on June 30, 2021 and the Company’s common stock began trading on the Nasdaq Global Select Market on July 1, 2021. On July 1, 2021, the Company completed its IPO, in which the Company sold 29.4 million shares of common stock at a price to the public of $17.00 per share. The Company received aggregate net proceeds of $459.7 million after deducting underwriting discounts and commissions of $28.7 million and offering expenses of $11.6 million. The net proceeds were received subsequent to quarter end on July 6, 2021 and, therefore, are recorded as Stock subscription receivable within Shareholders’ equity on the Condensed Consolidated Balance Sheet as of July 4, 2021.
In connection with the IPO, the Company and its affiliates completed the following transactions:
On June 10, 2021, the Company's wholly-owned (excluding certain management equity interests) subsidiary, Krispy Kreme Holdings, Inc. (“KKHI”), entered into a term loan credit agreement, as borrower, which provided for term loans in an initial aggregate principal amount of $500.0 million (the “Term Loan Facility”). On June 17, 2021, KKHI borrowed $500.0 million under the Term Loan Facility, with debt issuance costs of $1.7 million which were included in Interest expense, net on the Condensed Consolidated Statements of Operations during the quarter ended July 4, 2021. The borrowings bore an all-in interest rate of 2.68175%. On June 28, 2021, following the Merger (as defined below), KKI assumed all of the obligations of KKHI as borrower under the Term Loan Facility. On July 7, 2021, the Company repaid in full and terminated the Term Loan Facility with a cash outflow of $500.7 million, which included $0.7 million of accrued interest. The Term Loan Facility would have matured on the earlier of (i) June 10, 2022 and (ii) within four business days following the consummation of the IPO.
On June 28, 2021, KKHI merged into KKI (the “Merger”). As a result of the Merger, the Company eliminated $107.4 million of noncontrolling interest at KKHI as of the merger date. The management equity interests at KKHI were exchanged for common shares in KKI. Restricted stock units (“RSUs”) and stock options held at KKHI were exchanged for RSUs and stock options held at KKI at a rate of 317.24 KKI shares to 1 KKHI share.
On June 30, 2021, the Company effected a 1,745-for-1 split of each outstanding share of common stock (the “Stock Split”). All share and per share information has been retroactively adjusted to effect the Stock Split for all periods presented.
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In connection with the IPO, the Company used the proceeds from the Term Loan Facility for the following: (1) repay the related party notes payable (including accrued interest of $17.8 million) of $355.0 million during the quarter ended July 4, 2021, (2) redeem certain common stock of $102.7 million held by Krispy Kreme, G.P. (“KK GP”) during the quarter ended July 4, 2021 and (3) pay a pro rata dividend to members of its management who, prior to the Merger, held equity interests in KKHI in an aggregate amount of $42.3 million ($34.4 million of which was paid during the quarter ended July 4, 2021 and $7.9 million of which was paid at the beginning of the third quarter of fiscal 2021). Additionally, at the beginning of the third quarter of fiscal 2021, the Company paid $20.3 million to repurchase approximately 1.3 million shares of common stock from certain of the Company’s executive officers at the price paid by the underwriters and $15.5 million to repurchase approximately 1.0 million shares of common stock from certain of its executive officers for payment of their withholding taxes with respect to the RSUs vesting or for which vesting was accelerated in connection with the offering.
As a result of the above and the timing of certain payments across quarters, the Company’s Condensed Consolidated Balance Sheet as of July 4, 2021 reflected the following amounts:
The $500.0 million Term Loan Facility principal outstanding as Current portion of long-term debt, and
The cumulative $43.7 million unpaid equity distributions and share repurchases as Accrued liabilities.
On August 2, 2021, the underwriters exercised their over-allotment option and purchased an additional 3.5 million shares of common stock at the IPO price less the underwriting discounts and commissions. The net proceeds received on August 2, 2021 were $56.1 million after deducting underwriting discounts and commissions of $3.4 million. As the option was exercised subsequent to the end of the quarter ended July 4, 2021, the shares will be reflected as outstanding beginning in the third quarter of fiscal 2021.
Basis of Presentation and Consolidation
The Company operates and reports financial information on a 52 or 53-week year with the fiscal year ending on the Sunday closest to December 31. The data periods contained within fiscal years 2020 and 2021 reflect the results of operations for the 53-week period ended January 3, 2021 and the 52-week period ended January 2, 2022, respectively. The quarters ended July 4, 2021 and June 28, 2020 were both 13-week periods.
The unaudited Condensed Consolidated Financial Statements include the accounts of KKI and subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these interim financial statements do not include all information and footnotes required under U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented. All significant intercompany balances and transactions among KKI and subsidiaries have been eliminated in consolidation. Investments in entities over which the Company has the ability to exercise significant influence but which it does not control and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto as of and for the year ended January 3, 2021, included in the IPO Prospectus. The Condensed Consolidated Balance Sheet as of January 3, 2021 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The results of operations for the second quarter ended July 4, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 2, 2022.
Noncontrolling interest in the Company’s Condensed Consolidated Financial Statements represents the interest in subsidiaries held by joint venture partners and employee shareholders. The joint venture partners hold noncontrolling interests in the Company’s consolidated subsidiaries, Awesome Doughnut, LLC (“Awesome Doughnut”) and W.K.S. Krispy Kreme, LLC (“WKS Krispy Kreme”). Employee shareholders hold noncontrolling interests in the consolidated subsidiaries Krispy Kreme Holding UK Ltd. (“KKUK”), Krispy Kreme Holdings Pty Ltd (“KK Australia”), Krispy Kreme Mexico S. de R.L. de C.V. (“KK Mexico”) and Insomnia Cookies Holdings, LLC (“Insomnia Cookies”). Since the Company consolidates the financial statements of these subsidiaries, the noncontrolling owners’ share of each subsidiary’s net assets and results of operations are deducted and reported as noncontrolling interest on the Condensed Consolidated Balance Sheets and as net income attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and comprehensive income attributable to noncontrolling interest in the Condensed Consolidated Statements of Comprehensive Income/(Loss).
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Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for the year ended January 3, 2021 included in the IPO Prospectus. There have been no material changes to the significant accounting policies during the quarter ended July 4, 2021.
Reclassifications
On the Condensed Consolidated Statements of Operations, Marketing expenses have been reclassified (formerly presented within Selling, general and administrative expense) to be consistent with the current quarter presentation. This reclassification does not have a significant impact on the reported financial position and does not impact the results of operations or cash flows.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions in Topic 740 and clarifying and amending existing guidance. The Company adopted ASU 2019-12 at the beginning of fiscal year 2021, and the adoption had no material impact to the Company’s Condensed Consolidated Financial Statements.
In June 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. It is effective for all entities as of March 12, 2020 through December 31, 2022. A company may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the effect of the new guidance on its Condensed Consolidated Financial Statements and related disclosures.
Note 2 — Acquisitions
2021 Acquisitions
In the quarter ended July 4, 2021, there were no acquisitions.
In the first quarter of fiscal 2021, the Company acquired the business and operating assets of two franchisees, collectively consisting of 17 Krispy Kreme shops in the United States. The Company paid total consideration of $38.1 million, consisting of $33.9 million of cash, $0.9 million of consideration payable to the sellers within 12 months of the respective acquisition dates, and $3.3 million settlement of amounts related to pre-existing relationships, to acquire substantially all of the shops’ assets. Consideration payable of $0.9 million was withheld to cover indemnification claims that could arise after closing. Absent any claims, these amounts are payable within 12 months of the respective acquisition dates.
The settlement of pre-existing relationships included in the purchase consideration includes the write-off of accounts and notes receivable, net of deferred revenue, of $0.6 million. It also includes the disposal of the franchise intangible asset related to the two franchisees recorded at time of the acquisition of Krispy Kreme by JAB Holding Company (“JAB”). The cumulative net book value of the franchise intangible assets was $2.7 million at the acquisition dates. The Company accounted for the transactions as business combinations.
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The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition for the acquisitions above.
 
KK U.S. Shops
Assets acquired: 
Cash, cash equivalents and restricted cash$40 
Other current assets474 
Property and equipment, net3,829 
Other intangible assets23,906 
Operating lease right of use asset19,292 
Other assets115 
Total identified assets acquired47,656 
Liabilities assumed:
Accrued liabilities(334)
Current operating lease liabilities(2,093)
Noncurrent operating lease liabilities(17,199)
Total liabilities assumed(19,626)
Goodwill10,036 
Purchase consideration, net$38,066 
Transaction costs in 2021 $1,225 
Transaction costs in 2020 184 
Reportable segmentU.S. and Canada
During the measurement period, the Company will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from these preliminary estimates. Measurement period adjustments, if applicable, will be applied in the reporting period in which the adjustment amounts are determined. Measurement period changes for the 2021 acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the second quarter of 2021.
2020 Acquisitions
In the second half of fiscal year 2020, the Company acquired all equity interests in Krispy Kreme Doughnut Japan Co., Ltd. (“KK Japan”) and the business and operating assets of an additional eight franchisees in the United States. The valuation for the acquisitions requires significant estimates and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. Measurement period changes for the 2020 acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the quarter ended July 4, 2021.
Note 3 — Inventories
The components of Inventories are as follows:
July 4, 2021January 3, 2021
Raw materials$15,915 $16,263 
Work in progress603 871 
Finished goods and purchased merchandise21,982 21,385 
Total Inventories$38,500 $38,519 
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Note 4 — Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by reportable segment are as follows:
U.S. and Canada
International
Market Development
Total
Balance as of January 3, 2021$642,704 $290,872 $152,970 $1,086,546 
Acquisitions
27,560