The following selected information was taken from the financial statements of Krispy Kreme Doughnuts, Inc.

Note 10. Lease Commitments
The Company conducts some of its operations from leased facilities and, additionally, leases certain equipment under operating leases. Generally, these have initial terms of 3 to 20 years and contain provisions for renewal options of 5 to 10 years. At January 28, 2007, future minimum annual rental commitments, gross, under non-cancelable operating leases, including lease commitments on consolidated joint ventures, are as follows:

Rent expense, net of rental income, totaled $24.2 million in fiscal 2005, $23.5 million in fiscal 2006 and $17.7 million in fiscal 2007.
Instructions
(a) Calculate each of the following ratios for 2007 and 2006.
(1) Current ratio.
(2) Free cash flow.
(3) Debt to total assets ratio.
(b) Comment on Krispy Kreme's liquidity and solvency.
(c) Read the company's note on leases (Note 10). If the operating leases had instead been accounted for like a purchase, assets and liabilities would have increased by approximately $135,000,000. Recalculate the debt to total assets ratio for 2007 and discuss the implications foranalysis.

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KRISPY KREME DOUGHNUTS, INC. Balance Sheet (partial) (in thousands) Jan. 28, 2007 $131,818 217,674 $349,492 Jan. 29, 2006 $147,025 263,830 $410,855 Total current assets Capital assets and other long-term assets Current liabilitics Long-term liabilities $134,870 135,660 270,530 $153,919 148,265 302,184 108,671 $410,855 Total liabilitics Sharcholders' equity 78,962 Total liabilities and sharcholders equity $349,492 Other information: 2007 2006 20,334 1,211 (42,236) 22,108 4,005 20,211 Interest expensc Tax expense (benefit) Net loss Cash provided by operations Capital expenditures Cash dividends (776) (135,760) 1,865 10,381 Amount Fiscal Year Ending in 2008 2009 2010 2011 2012 Thereafter (in thousands) $ 11,436 10,137 9,767 9,752 9,676 138,725 $189,493