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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 29, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 000-32233
PEET'S COFFEE & TEA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Washington 91-0863396
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1400 Park Avenue
Emeryville, California 94608-3520
(Address of Principal Executive Offices) (Zip Code)
(510) 594-2100
(Registrant's Telephone Number, Including Area Code)
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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Securities Exchange Act Rule 12b-2). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value 12,794,346
(Class) (Outstanding at August 8, 2003)
1
PEET'S COFFEE & TEA, INC.
-------------------------
INDEX
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PART I . . . FINANCIAL INFORMATION 3
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Item 1.. . . Financial Statements 3
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Item 2.. . . Management's Discussion and Analysis of Financial Condition and Results of Operations 10
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Item 3.. . . Quantitative and Qualitative Disclosures About Market Risk 17
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Item 4.. . . Controls and Procedures 18
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PART II. . . OTHER INFORMATION 19
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Item 1.. . . Legal Proceedings 19
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Item 4.. . . Submission of Matters to a Vote of Security Holders 19
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Item 6.. . . Exhibits and Reports on Form 8-K 19
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Signatures 20
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEET'S COFFEE & TEA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 29, 2003 DECEMBER 29, 2002
-------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 22,809 $ 19,672
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 2,780 2,210
Income tax receivable 1,117
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,684 11,007
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 1,919 1,803
-------------- ------------------
Total current assets. . . . . . . . . . . . . . . . . . . . 39,192 35,809
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 30,787 27,929
Intangible and other assets, net . . . . . . . . . . . . . . . . . . . 3,226 3,305
Long-term U.S. Government and Agency securities. . . . . . . . . . . . 27,356 28,102
-------------- ------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,561 $ 95,145
============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,469 $ 6,463
Accrued compensation and benefits. . . . . . . . . . . . . . . . . . 3,728 3,741
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 3,741 2,638
Current portion of long-term borrowings. . . . . . . . . . . . . . . 444 468
-------------- ------------------
Total current liabilities . . . . . . . . . . . . . . . . . 13,382 13,310
Long-term borrowings, less current portion . . . . . . . . . . . . . . 201 424
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 163 181
Deferred lease credits . . . . . . . . . . . . . . . . . . . . . . . . 775 726
-------------- ------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 14,521 14,641
-------------- ------------------
Shareholders' equity:
Common stock, no par value; authorized 50,000,000 shares; issued and
outstanding: 12,536,000 and 12,103,000 shares . . . . . . . . . . 80,761 78,014
Accumulated other comprehensive income, net of tax . . . . . . . . . 233 265
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 5,046 2,225
-------------- ------------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . 86,040 80,504
-------------- ------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . $ 100,561 $ 95,145
============== ==================
See notes to condensed consolidated financial statements.
3
PEET'S COFFEE & TEA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 29, 2003 JUNE 30, 2002 JUNE 29, 2003 JUNE 30, 2002
-------------- -------------- -------------- --------------
Net revenue . . . . . . . . . . . . . . . . . . . . . . . $ 29,080 $ 24,889 $ 56,478 $ 49,345
-------------- -------------- -------------- --------------
Operating expenses:
Cost of sales and related occupancy expenses. . . . . . 13,273 11,493 25,989 23,068
Operating expenses. . . . . . . . . . . . . . . . . . . 9,546 7,939 18,757 15,917
Marketing and advertising expenses. . . . . . . . . . . 1,289 1,246 2,399 2,270
General and administrative expenses . . . . . . . . . . 1,493 2,054 2,862 4,031
Depreciation and amortization expenses. . . . . . . . . 1,181 1,133 2,319 2,230
-------------- -------------- -------------- --------------
Total operating costs and expenses . . . . . . 26,782 23,865 52,326 47,516
-------------- -------------- -------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . 2,298 1,024 4,152 1,829
Interest income, net. . . . . . . . . . . . . . . . . . . 225 117 473 87
-------------- -------------- -------------- --------------
Income before income taxes. . . . . . . . . . . . . . . . 2,523 1,141 4,625 1,916
Income tax provision. . . . . . . . . . . . . . . . . . . 984 423 1,804 709
-------------- -------------- -------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 1,539 $ 718 $ 2,821 $ 1,207
============== ============== ============== ==============
Net income per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . $ 0.12 $ 0.06 $ 0.23 $ 0.12
Diluted. . . . . . . . . . . . . . . . . . . . . . . $ 0.12 $ 0.06 $ 0.22 $ 0.11
Shares used in calculation of net income per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . 12,412 11,155 12,320 9,831
Diluted. . . . . . . . . . . . . . . . . . . . . . . 13,100 11,992 12,948 10,587
See notes to condensed consolidated financial statements.
4
PEET'S COFFEE & TEA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
TWENTY-SIX WEEKS ENDED
JUNE 29, 2003 JUNE 30, 2002
--------------- ---------------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,821 $ 1,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 2,724 2,568
Amortization of investment interest purchased . . . . . . . . . . . . . . . . . 66 0
Amortization of stock based compensation. . . . . . . . . . . . . . . . . . . . 39 158
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) 237
Reclassification of hedging losses from OCI . . . . . . . . . . . . . . . . . . (19) 356
Ineffective portion of hedges . . . . . . . . . . . . . . . . . . . . . . . . . 0 (49)
Gain on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . (1) (2)
Gain on sale of long-term investments . . . . . . . . . . . . . . . . . . . . . (12) 0
Changes in other assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547 402
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (677) (523)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . (147) 106
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) (1,813)
Accounts payable, accrued liabilities and other liabilities . . . . . . . . . . 145 1,547
--------------- ---------------
Net cash provided by operating activities. . . . . . . . . . . . . . . . 5,442 4,194
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . (5,473) (2,724)
Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . . . . 3 0
Additions to intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . 0 (35)
Purchases of long term U.S. government & agency securities. . . . . . . . . . . . (6,999) 0
Sales of long term U.S. government & agency securities. . . . . . . . . . . . . . 7,702 0
--------------- ---------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . (4,767) (2,759)
--------------- ---------------
Cash flows from financing activities:
Repayments of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (246) (2,223)
Net proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . 2,708 44,216
--------------- ---------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . 2,462 41,993
--------------- ---------------
Change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 3,137 43,428
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . . . 19,672 2,718
--------------- ---------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . $ 22,809 $ 46,146
=============== ===============
See notes to condensed consolidated financial statements.
5
PEET'S COFFEE & TEA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Peet's
Coffee & Tea, Inc. and its subsidiaries (collectively, the "Company") for the 13
and 26 weeks ended June 29, 2003 and June 30, 2002 are unaudited and, in the
opinion of management, contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the financial position and results
of operations for such periods. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the year
ended December 29, 2002. The results of operations for the 13 and 26 weeks
ended June 29, 2003 are not necessarily indicative of the results expected for
the full year.
The balance sheet information as of December 29, 2002, presented herein,
has been derived from the audited consolidated financial statements of the
Company included in the Annual Report on Form 10-K for the year ended December
29, 2002.
Certain reclassifications of prior year balances have been made to conform
to the current presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STOCK BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principle Board No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized for the stock option awards granted at
fair market value. Through 2001, the Company granted options at 85% of fair
value and recorded compensation expense equal to the intrinsic value over the
vesting period. Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), "Accounting for Stock-Based Compensation", requires the disclosure of pro
forma net income and earning per share as if the Company had adopted the fair
value method. Had compensation cost for the Company's stock option plans and
employee stock purchase plan been determined based on the fair value at the
grant date consistent with the provisions of SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below (in
thousands):
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 29, 2003 JUNE 30, 2002 JUNE 29, 2003 JUNE 30, 2002
--------------- --------------- --------------- ---------------
Net income - as reported. . . . . . . . . . . . $ 1,539 $ 718 $ 2,821 $ 1,207
Stock-based employee compensation included in
reported net income, net of tax. . . . . . (0) 44 24 100
Stock-based compensation expense determined
under fair value based method, net of tax. (1,185) (832) (1,950) (1,448)
--------------- --------------- --------------- ---------------
Net income (loss) - pro forma . . . . . . . . . $ 354 ($70) $ 895 ($141)
=============== =============== =============== ===============
Basic net income per share - as reported. . . . $ 0.12 $ 0.06 $ 0.23 $ 0.12
Basic net income (loss) per share - pro forma . $ 0.03 $ ($0.01) $ 0.07 $ ($0.01)
Diluted net income per share - as reported. . . $ 0.12 $ 0.06 $ 0.22 $ 0.11
Diluted net income (loss) per share - pro forma $ 0.03 $ ($0.01) $ 0.07 $ ($0.01)
6
The Company uses the Black-Scholes option-pricing model for determining the
fair value of options, which requires the input of certain estimates that may
affect what is deemed fair value. The existing model may not necessarily
provide a reliable single measure of the value of its stock options. Management
will continue to evaluate alternative methodologies that may more appropriately
reflect pro forma compensation expense.
The fair value of each option grant and ESPP award is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions:
OPTIONS GRANTED FOR THE PERIOD ENDED
------------------------------------
JUNE 29, 2003 JUNE 30, 2002
-------------- --------------
Expected dividend rate . 0% 0%
Expected volatility
- Options . . . . . . . 50.65% 68.10%
- ESPP awards . . . . . 50.65% 68.10%
Risk free interest rate
- Options . . . . . . . 2.57% 3.79%
- ESPP awards . . . . . 1.11% 1.87%
Expected lives (years)
- Options . . . . . . . 5 5
- ESPP awards . . . . . 0.5 0.5
COMPREHENSIVE INCOME
For the thirteen week period ended June 29, 2003 and June 30, 2002,
comprehensive income was $1,568,000 and $771,000, respectively. Comprehensive
income was $2,789,000 and $1,580,000 for the twenty-six weeks ended June 29,
2003 and June 30, 2002, respectively. Comprehensive income consists of net
income, the effect of accounting for hedges under SFAS No. 133, and net
unrealized gains on investments. See Notes 4 and 5.
NET INCOME PER SHARE
The following table summarizes the differences between basic weighted
average shares outstanding and diluted weighted average shares outstanding used
to compute diluted net income per share (in thousands):
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 29,2003 JUNE 30, 2002 JUNE 29,2003 JUNE 30, 2002
------------ ------------- ------------ -------------
Basic weighted average shares outstanding . 12,412 11,155 12,320 9,831
Incremental shares from assumed exercise
of stock options . . . . . . . . . . . 688 767 628 756
------------ ------------- ------------ -------------
Diluted weighted average shares outstanding 13,100 11,922 12,948 10,587
============ ============= ============ =============
The number of incremental shares from the assumed exercise of stock options
was calculated applying the treasury stock method.
Options with an exercise price greater than the average market price of
common shares were 110,494 and 85,000 for the thirteen week period ended June
29, 2003 and June 30, 2002, respectively, and 237,262 and 959,656 for the
twenty-six week period ended June 29, 2003 and June 30, 2002, respectively, and
were not included in the computation of diluted earnings per share.
7
3. BORROWINGS
The Company maintains a credit facility with General Electric Capital
Corporation that expires in September 2005 and provides for a revolving line of
credit of up to $15,000,000, including the issuance of up to $3,000,000 in
letters of credit. Total availability under the revolving line of credit is
determined by subtracting the Company's funded debt from its trailing twelve
month earnings before interest, taxes, depreciation and amortization, or EBITDA,
multiplied by 2.5. As of June 29, 2003, there was no outstanding balance and
$14,303,000 was available under the Company's revolving line of credit.
Borrowings under the credit facility are secured by a lien on substantially
all of the Company's assets. The credit facility contains covenants restricting
the Company's ability to make capital expenditures, incur additional
indebtedness and lease obligations, open retail stores, make restricted
payments, merge into or with other companies and sell all or substantially all
of its assets and requiring the Company to meet certain financial tests. The
credit facility was amended most recently in February 2003 to relax financial
covenants, reflecting our current cash and capital requirements.
4. HEDGING ACTIVITIES
The Company is exposed to price risk related to price-to-be-fixed coffee
purchase commitments and anticipated coffee purchases. The Company uses coffee
futures and options to manage price increase and designates these derivative
instruments as cash-flow hedges of its price-to-be-fixed coffee purchase
commitments and anticipated coffee purchases. These derivative instruments
qualify for hedge accounting under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not hold or issue
derivative instruments for trading purposes.
In April 2003, the remaining open hedging contracts were closed and a gain
of $7,700 was recorded in cost of sales during the thirteen week period ended
June 29, 2003. Other comprehensive loss related to hedging, net of tax, was
$1,000 and $34,000 as of June 29, 2003 and June 29, 2002, respectively, all of
which is expected to be reclassified into cost of goods sold over the next 12
months as the related inventory is sold. During the thirteen and twenty-six
weeks ended June 29, 2003, respectively, $7,000 (net of $4,000 tax) of coffee
futures gains and $19,000 (net of $11,000 tax) of coffee futures gains, included
in other comprehensive income (loss), were reclassified into cost of goods sold.
During the thirteen weeks and twenty-six weeks ended June 30, 2002,
respectively, $90,000 (net of $60,000 tax) and $356,000 (net of $236,000 tax),
of coffee futures losses included in other comprehensive loss were reclassified
into cost of goods sold. As of June 29, 2003, there were no open futures
contracts.
5. INVESTMENTS
The Company invests in U.S. government and agency securities. At June 29,
2003, the Company maintained long-term investments classified as available for
sale of $27,356,000. The long-term investments are comprised of United States
Treasury notes and bonds and federal agency notes and bonds that mature within
five years. Gross unrealized holding gains of $372,000 at June 29, 2003 were
attributable to long-term investments.
During the thirteen week period ended June 29, 2003, the Company did not
sell any securities and did not realize any gains or losses. During the
twenty-six weeks ended June 29, 2003, the Company sold securities for net
proceeds of $7,702,000 and realized gains of $12,000, computed using the
specific identification method. For the thirteen and twenty-six weeks ended
June 29, 2003, net unrealized gains of $37,000 (net of $23,000 tax) and net
unrealized gains of $7,000 (net of $4,000 tax), respectively, were recorded in
other comprehensive income. For the prior year thirteen and twenty-six week
periods ended June 30, 2002, there were no unrealized gains or losses.
6. SEGMENT INFORMATION
The Company operates in two reportable segments: retail and specialty
sales. Retail store operations consist of sales of whole bean coffee,
beverages, tea and related products through Company-operated retail stores.
Specialty sales consists of online and mail order sales of whole bean coffee
shipped directly to the consumer and whole bean coffee sales through grocery,
wholesale and office coffee accounts.
8
The following table presents certain financial information for each
segment. Segment income before taxes excludes unallocated marketing expenses and
general and administrative expenses. Unallocated assets include cash, coffee
inventory in the warehouse, corporate headquarter assets and intangibles and
other assets.
SPECIALTY
RETAIL SALES UNALLOCATED TOTAL
------- ---------- ------------- --------
THIRTEEN WEEKS ENDED JUNE 29, 2003
Net revenue . . . . . . . . . . . . $21,057 $ 8,023 $ 29,080
Operating expenses. . . . . . . . . 7,375 2,171 9,546
Depreciation and amortization . . . 833 232 $ 116 1,181
Segment operating income (loss) . . 3,350 1,788 (2,840) 2,298
Interest income, net 225 225
Income before income taxes 2,523
Total assets. . . . . . . . . . . . 20,600 6,656 73,305 100,561
Capital expenditures. . . . . . . . 1,806 803 549 3,158
THIRTEEN WEEKS ENDED JUNE 30, 2002
Net revenue . . . . . . . . . . . . $19,183 $ 5,706 $ 24,889
Operating expenses. . . . . . . . . 6,740 1,199 7,939
Depreciation and amortization . . . 811 214 $ 108 1,133
Segment operating income (loss) . . 2,875 1,516 (3,367) 1,024
Interest income, net 117 117
Income before income taxes 1,141
Total assets. . . . . . . . . . . . 18,280 3,361 64,971 86,612
Capital expenditures. . . . . . . . 583 181 1,166 1,930
TWENTY-SIX WEEKS ENDED JUNE 29, 2003
Net revenue . . . . . . . . . . . . $41,088 $ 15,390 $ 56,478
Operating expenses. . . . . . . . . 14,595 4,162 18,757
Depreciation and amortization . . . 1,638 456 $ 225 2,319
Segment operating income (loss) . . 6,155 3,371 (5,374) 4,152
Interest income, net 473 473
Income before income taxes 4,625
Capital expenditures. . . . . . . . 3,353 1,115 1,005 5,473
TWENTY-SIX WEEKS ENDED JUNE 30, 2002
Net revenue . . . . . . . . . . . . $38,273 $ 11,072 $ 49,345
Operating expenses. . . . . . . . . 13,469 2,448 15,917
Depreciation and amortization . . . 1,593 424 $ 213 2,230
Segment operating income (loss) . . 6,120 2,875 (7,166) 1,829
Interest income, net 87 87
Income before income taxes 1,916
Capital expenditures. . . . . . . . 1,103 270 1,351 2,724
7. CONTINGENCIES
In the ordinary course of our business, we may from time to time become
involved in certain legal proceedings. On February 25, 2003 and March 7, 2003,
two lawsuits were filed against the Company entitled Brian Taraz, et al vs.
Peet's Coffee & Tea, Inc., and Tracy Coffee, et al. vs. Peet's Coffee & Tea,
Inc. Each was filed in Superior Court of the State of California, County of
Orange, and seeks class action certification. These suits were filed by one
former and one current store manager alleging misclassification of employment
position and seeking damages, restitution, reclassification and attorneys fees
and costs. We are investigating and intend to vigorously defend this
litigation, but because the cases are in their early stages, the financial
impact to the Company, if any, cannot be predicted.
9
8. RECENT ACCOUNTING PRONOUNCEMENTS
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The guidance should be applied prospectively. We do not expect the
adoption of SFAS No. 149 to have a significant impact on our operating results
or financial position.
During May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity."
SFAS No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. We do not expect the adoption of SFAS No.
150 to have a significant impact on our operating results or financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes included elsewhere in this report.
Except for historical information, the discussion in this report contains
certain forward-looking statements that involve risks and uncertainties. We
have based these forward-looking statements on our current expectations and
assumptions about future events. In some cases, you can identify
forward-looking statements by terminology, such as "may," "will," "should,"
"could," "predict," "potential," "continue, "expect," "anticipate," "future,"
"intend," "plan," "believe," "estimate" and similar expressions (or the negative
of such expressions). These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual future results and trends may differ materially depending
on a variety of factors including but not limited to, coffee and other raw
material prices and availability, successful execution of strategies and plans
for expansion, competition, general economic conditions, economic or political
instability related to recent or potential terrorist attacks, the popularity of
specialty coffee due to consumer trends, labor relations, health factors or
other issues, as well as other risk factors as described more fully in our
Annual Report on Form 10-K for the year ended December 29, 2002.
Forward-looking statements speak only as of the date of this report and we
assume no obligation to update any forward-looking statements.
COMPANY OVERVIEW AND INDUSTRY OUTLOOK
Peet's is a specialty coffee roaster and marketer of branded fresh roasted
whole bean coffee sold through multiple channels of distribution. Since the
founding of our business in 1966, we have established a customer base and brand
recognition in California. Our national expansion strategy is based on the sale
of whole bean coffee through multiple channels of distribution. While we intend
to continue the sale of whole bean coffee through strategically located retail
stores, we expect our revenue in our other distribution channels, namely grocery
stores, online and mail order and office, restaurant and food service accounts,
to increase at a more rapid rate.
We expect the specialty coffee industry to continue to grow. We believe
that this growth will be fueled by continued consumer interest in high quality
coffee and related products.
Our operations are vertically integrated. We purchase Arabica coffee beans
from countries around the world, apply our artisan-roasting techniques and ship
fresh coffee daily to customers within 24 hours of roasting. We believe that
control of purchasing, roasting, packaging and distribution of our coffee allows
us to maintain our commitment to freshness, is cost effective and enhances our
margins and profit potential.
10
Our coffee and related items are sold through two segments as defined under
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segment of Enterprise and Related Information." These
segments are Company-operated retail outlets and specialty sales (consisting of
online and mail order, grocery, food service, and office). We evaluate segment
performance primarily based on revenue and segment operating income.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the appropriate application of certain
accounting policies, many of which require us to make estimates and assumptions
about future events and their impact on amounts reported in our financial
statements and related notes. Since future events and their impact cannot be
determined with certainty, the actual results will inevitably differ from our
estimates. Such differences could be material to our financial statements.
We believe our application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting policies and
estimates are constantly reevaluated, and adjustments are made when facts and
circumstances dictate a change. Historically, we have found our application of
accounting policies to be appropriate and actual results have not differed
materially from those determined using necessary estimates.
Our accounting policies are more fully described in Note 2 in the "Notes to
the Consolidated Financial Statements," included in our Annual Report on Form
10-K for the year ended December 29, 2002. We have identified the following
critical accounting policies:
- -Inventory. Raw materials consist primarily of green bean coffee. Finished
goods consist primarily of roasted coffee, tea, accessory products, spices and
packaged foods. All products are valued at the lower of cost or market using
the first-in, first-out method, except green bean and roasted coffee, which is
valued at the average cost. We continually evaluate the composition of our
coffee related merchandise and mark down such inventory as needed. Our
historical inventory write-offs have been immaterial.
- -Intangibles and other assets. During 2002, we entered into a contractual
agreement with Safeway Inc., a national grocery chain, to sell Peet's coffee
through its grocery stores. We began shipping during the third quarter of 2002.
The agreement included an upfront payment to Safeway Inc. that we recorded in
intangibles and other assets and is being amortized as a reduction of revenue
based upon estimated sales during the contract period.
- -Long-lived assets. In evaluating the fair value and future benefits of
long-lived assets, we perform an analysis of the anticipated undiscounted future
net cash flows of the related long-lived asset and reduce their carrying value
by the excess, if any, of the result of such calculation. We believe at this
time that the long-lived assets' carrying values and useful lives continue to be
appropriate.
- -Accrued compensation. In March 2002, we modified our workers' compensation
insurance policy to a high deductible insurance program with an overall program
ceiling to minimize exposure. We began recording an estimated liability for
self-insured portion of the workers' compensation claims in our condensed
consolidated financial statements. The self-insurance liability is determined
actuarially, based on claims paid, filed and reserved for, and projected using
an industry loss development factor, as well as using historical experience
ratings. As of June 29, 2003, we had $838,000 accrued for workers'
compensation. Should a greater amount of claims occur compared to what is
estimated or the medical costs increase beyond what was anticipated, the
recorded liability may not be sufficient.
- -Hedge accounting. We use coffee futures and options to hedge price increases
in price-to-be-fixed coffee purchase commitments and anticipated coffee
purchases. These derivative instruments qualify for hedge accounting under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." Hedge
accounting is permitted if the hedging relationship is expected to be highly
effective. Effectiveness is determined by how closely the changes in the fair
value of the derivative instrument offset the changes in the fair value of the
hedged item. If the derivative is determined to qualify for hedge accounting,
the effective portion of the change in the fair value of the derivative
11
instrument is recorded in other comprehensive income and recognized in earnings
when the related hedged item is sold. The ineffective portion of the change in
the fair value of the derivative instrument is recorded directly to earnings.
If these derivative instruments do not qualify for hedge accounting, we would
have to record the changes in the fair value of the derivative instruments
directly to earnings. As of June 29, 2003, we have no outstanding hedging
contracts. See "Item 3. Quantitative and Qualitative Disclosures about Market
Risk" and Note 4 in the "Notes to Condensed Consolidated Financial Statements,"
included elsewhere in this report.
We have also chosen certain accounting policies when options are available,
including the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees,"
to account for our stock option awards. These accounting policies are applied
consistently for all years presented.
12
RESULTS OF OPERATIONS
The following discussion of results of operations should be read in
conjunction with our financial statements and accompanying notes and other
financial data included elsewhere in this report. The following table sets
forth certain financial data for the periods indicated.
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 29, 2003 JUNE 30, 2002 JUNE 29, 2003 JUNE 30, 2002
-------------- -------------- -------------- --------------
STATEMENT OF OPERATIONS DATA AS A PERCENT OF NET REVENUE:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales and related occupancy expenses. . . . . . . 45.6 46.2 46.0 46.7
Operating expenses. . . . . . . . . . . . . . . . . . . . 32.8 31.9 33.2 32.3
Marketing and advertising expenses. . . . . . . . . . . . 4.4 5.0 4.2 4.6
General and administrative expenses . . . . . . . . . . . 5.1 8.3 5.1 8.2
Depreciation and amortization expenses. . . . . . . . . . 4.2 4.5 4.1 4.5
-------------- -------------- -------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . 7.9 4.1 7.4 3.7
Interest income, net. . . . . . . . . . . . . . . . . . . 0.8 0.5 0.8 0.2
-------------- -------------- -------------- --------------
Income before income taxes. . . . . . . . . . . . . . . . 8.7 4.6 8.2 3.9
Income tax provision. . . . . . . . . . . . . . . . . . . 3.4 1.7 3.2 1.5
-------------- -------------- -------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . 5.3% 2.9% 5.0% 2.4%
============== ============== ============== ==============
PERCENT OF NET REVENUE BY BUSINESS SEGMENT:
Retail stores . . . . . . . . . . . . . . . . . . . . . . 72.4% 77.1% 72.8% 77.6%
Specialty sales . . . . . . . . . . . . . . . . . . . . . 27.6 22.9 27.2 22.4
PERCENT OF NET REVENUE BY BUSINESS CATEGORY:
Whole bean coffee and related products. . . . . . . . . . 58.7% 58.0% 59.3% 58.2%
Beverages and pastries. . . . . . . . . . . . . . . . . . 41.3 42.0 40.7 41.8
OPERATING EXPENSES AS A PERCENT OF SEGMENT REVENUE:
Retail stores . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.1% 35.5% 35.2%
Specialty sales . . . . . . . . . . . . . . . . . . . . . 27.1 21.0 27.0 22.1
PERCENT INCREASE (DECREASE) FROM PRIOR YEAR:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . 16.8% 14.5%
Retail stores. . . . . . . . . . . . . . . . . . . . 9.8 7.4
Specialty sales. . . . . . . . . . . . . . . . . . . 40.6 39.0
Cost of sales and related occupancy expenses. . . . . . . 15.5 12.7
Operating expenses. . . . . . . . . . . . . . . . . . . . 20.2 17.8
Marketing and advertising expenses. . . . . . . . . . . . 3.5 5.7
General and administrative expenses . . . . . . . . . . . (27.3) (29.0)
Depreciation and amortization expenses. . . . . . . . . . 4.2 4.0
SELECTED OPERATING DATA:
Number of retail stores in operation:
Beginning of the period. . . . . . . . . . . . . . . 69 60 65 60
Store openings . . . . . . . . . . . . . . . . . . . 0 0 4 0
-------------- -------------- -------------- --------------
End of period. . . . . . . . . . . . . . . . . . . . 69 60 69 60
============== ============== ============== ==============
13
THIRTEEN WEEKS ENDED JUNE 29, 2003 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30,
2002
NET REVENUE
Net revenue for the second quarter increased versus the same prior year
period primarily as a result of the continued expansion of our retail and
specialty sales segments.
In the retail segment our revenue increased by $1.9 million primarily as a
result of increased sales from the nine stores we opened since August 2002 and
existing stores. Sales of whole bean coffee and related products in the retail
segment increased by 3.4%, to $9.3 million, while sales of beverages and
pastries increased by 15.4% to $11.7 million. The increase in beverage and
pastry sales is primarily due to the introduction of new iced drinks and a
revamped bar menu that emphasizes many of our customer favorites. The slower
growth in whole bean and related products was due to cannibalization of bean
sales in retail stores as we increase the availability of Peet's coffee in
grocery stores, and the slower maturation of whole bean sales in new stores. We
did not open any new stores during this quarter. Since July 2003, we have opened
two new stores and signed leases in three other locations, all of which are
expected to open in third and fourth quarter of this year.
In the specialty sales segment, revenue increased as the result of our
continued focus on the grocery and foodservice channel. The $2.3 million
increase consisted primarily of a $1.7 million increase in grocery sales, and
$0.6 million increase in sales to restaurants and foodservice companies. Sales
from other channels including online and mail order, office, and kiosks were
flat. The increase in the grocery channel sales was primarily due to sales to
approximately 1,200 Safeway stores, which started in July of last year, and the
addition of approximately 690 new stores such as Albertson's and Whole Foods
Markets, during the past twelve months. The increased sales were also driven by
the transition to a direct store delivery system, where our own route sales
representatives deliver to stores weekly, from warehouse distribution in the
first quarter. We believe the direct store delivery system ensures freshness
through proper rotation and weekly delivery, optimizes store specific item
assortments, achieves proper shelf space and improves free-standing display
levels. In the restaurant and foodservice area, the sales increase was
primarily due to new accounts such as Omni Hotels, as well as continued strong
volume growth in accounts such as Wolfgang Puck restaurants and Anton Airfoods.
COST OF SALES AND RELATED OCCUPANCY EXPENSES
Cost of sales and related occupancy expenses consist of product costs,
including hedging costs, and manufacturing costs, rent and other occupancy
costs. Cost of sales decreased as a percent of net revenue primarily due to the
introduction of new iced drinks that have higher price points and better cost
management through standardization of bar coffee rotation.
OPERATING EXPENSES
Operating expenses as a percent of net revenue for the second quarter of
2003 increased as compared to the same prior year period primarily due to the
higher operating expenses of the direct store delivery system with our own route
sales representatives. Specialty sales operating expenses as a percent of
segment revenue was 27.1% compared to 21.0% in prior year. Of the 6.1 point
increase from prior year, 4.8 points were due to the increased operating
expenses of the direct store delivery system. The remainder of the increase is
primarily due to investment in infrastructure and systems to grow the different
channels within this segment. Retail operating expenses were in line with prior
year as higher operating expenses from new stores were offset by improved
operation of our existing stores.
MARKETING AND ADVERTISING EXPENSES
Marketing and advertising expenses was 4.4% of net revenue, slightly lower
than prior year. The marketing spending level reflects our normal number of
initiatives within each channel. The second quarter spending also falls in line
with our full year marketing spending expectation of 4.0% to 4.5% of
revenue.
14
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the second quarter of 2003 were $0.6
million lower than the same prior year period. The decrease is primarily due to
a restructure of the executive bonus program and lower public company related
expenses, such as the in-house preparation of required regulatory filings and
the reduced compensation expense related to stock options granted at a discount
in periods prior to becoming a public company.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expenses increased in the second quarter as
compared to the same prior year period due primarily to the nine stores we
opened during the last twelve months. The expenses were partially offset by
older assets becoming fully depreciated.
INTEREST INCOME, NET
Interest income was generated from the investment of our secondary public
offering proceeds in short-term and long-term interest-bearing, U.S. government
and agency securities. We received thirteen weeks of interest income this
quarter as compared to only six weeks in the prior year quarter due to the
completion of the secondary offering in April 2002.
PROVISION FOR INCOME TAXES
Our effective tax rate for the first quarter of 2003 was 39.0% compared to
37.0% in the same prior year period. The prior year rate reflected the
utilization of tax carryforwards. Management expects the tax rate to remain at
39.0% for the remainder of fiscal 2003.
TWENTY-SIX WEEKS ENDED JUNE 29, 2003 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30,
2002
NET REVENUE
Net revenue for the twenty-six weeks ended June 29, 2003 increased for the
specialty sales and retail segments as compared to same period in 2002. Whole
bean and related sales increased 18.2% and beverage and pastries sales increased
14.9%.
In the retail segment, sales increased by 7.4% primarily as a result of
increased sales from existing stores, and sales from nine new stores we opened
since August 2002, and the introduction of new iced drinks and menu. In the
specialty sales segment, sales increased by 39.0% primarily due to new accounts
added in the grocery channel and strong volume growth in the restaurant and
foodservice areas.
COST OF SALES AND RELATED OCCUPANCY EXPENSES
Cost of sales and related occupancy expenses increased by 12.7% as a result
of increased sales volume. Cost of sales as a percent of net revenue decreased
primarily due to the same factors affecting the second quarter of 2003 as
discussed above.
OPERATING EXPENSES
Operating expenses increased as compared to the same prior year period as
we grew our business. As a percent of net revenue, operating expenses increased
primarily due to the nine new stores we opened during the last twelve months and
the conversion to a direct store delivery method of distribution for our grocery
business.
MARKETING AND ADVERTISING EXPENSES
Marketing and advertising expenses increased 5.7% as compared to the same
prior year period. As a percent of net revenue, marketing and advertising
expenses decreased due to the leverage gained from marketing across multiple
channels of distribution.
15
GENERAL AND ADMINISTRATIVE EXPENSES
The decrease in general and administrative expenses as compared to the same
prior year period is primarily due to the restructuring of the executive bonus
program and reduced expenses in the areas of stock plan administration and proxy
related activities.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 2003, we had $22.8 million in total cash and cash equivalents,
of which $14.9 million is invested in short-term U.S. government and agency
securities. We also had $27.4 million of long-term U.S. government and agency
securities. Working capital was $25.8 million at June 29, 2003.
Net cash provided by operations was $5.4 million during the first
twenty-six weeks of 2003 compared to $4.2 million in the same prior year period.
Operating cash flows were positively impacted by net income, adjusted for
depreciation and amortization, and partially offset by a slight decrease in
working capital.
Net cash used in investing activities was $4.8 million during the first
twenty-six weeks of 2003. Investing activities primarily consisted of the
purchase of $5.5 million of property, plant and equipment for new stores,
support systems upgrades and plant packaging equipment to support the growth in
specialty sales. This was offset by net proceeds from sale of long-term
investments.
Net cash provided by financing activities was $2.5 million during the first
twenty-six weeks of 2003. Financing activities during the period consisted
primarily of the exercise of stock options and sales of our common stock to our
employees through our employee stock purchase plan.
We have a credit facility with General Electric Capital Corporation, which
provides for a revolving line of credit of $15.0 million through September 2005.
Total availability under the revolving line of credit is determined by
subtracting our funded debt from its trailing twelve month earnings before
interest, taxes, depreciation and amortization, or EBITDA, multiplied by 2.50.
As of June 29, 2003, there was no outstanding balance and we had $14.3 million
available under the revolving line of credit with other senior funded debt of
$0.7 million. The credit facility was last amended on February 2003 allowing
for the relaxation of financial covenants, reflecting our updated cash and
capital requirements.
In December 1995, we obtained financing under industrial development
revenue bonds issued by California Statewide Communities Development Authority.
Outstanding amounts under the bonds bear interest based on a floating rate
determined by prevailing market conditions for comparable tax-exempt obligations
until maturity on December 1, 2006. Interest is payable monthly and principal of
$0.1 million is payable quarterly each February, May, August, and November. As
of June 29, 2003, we have an outstanding standby letter of credit of $0.9
million backing this long-term borrowing. The reducing standby letter of credit
bears an annual interest charge of 1.25% payable monthly.
Our 2003 capital expenditure requirements consist primarily of expenditures
relating to new store openings, remodeling of existing stores, upgrade of our
packaging system and continued improvement of our data processing capabilities.
During the first half of 2003, we spent $5.5 million. Our remaining 2003
capital expenditures are expected to be between $3.5 and $4.5 million.
Approximately $2.0 million is expected to be used for the opening of the
remaining new retail stores scheduled for 2003 and expenditures for new stores
in progress for 2004. Approximately $0.5 million is expected to be used for
plant capacity upgrades. The remaining $1.5 million is expected to be used for
the remodeling of existing stores, equipment for the grocery channel and
information technology enhancements.
16
The following table set forth below reflects our contractual cash
obligations and our other commercial commitments as of June 29, 2003.
PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
--------------
LESS THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- --------------------------------------- ------- ---------- ---------- ---------- --------------
Industrial development revenue bonds. . $ 640 $ 440 $ 200
Capital lease obligations . . . . . . . 6 4 2
Equipment leases. . . . . . . . . . . . 309 65 130 $ 114
Retail store operating leases . . . . . 26,505 5,657 10,127 6,156 $ 4,565
Fixed-price coffee purchase commitments 15,466 11,470 3,803 193
------- ---------- ---------- ---------- --------------
Total contractual cash obligations $42,926 $ 17,636 $ 14,262 $ 6,463 $ 4,565
======= ========== ========== ========== ==============
We expect cash flows from operations and the borrowing capacity under our
current line of credit to be sufficient for our operating requirements for at
least the next twelve months and to meet our contractual obligations as they
come due.
RECENT ACCOUNTING PRONOUNCEMENTS
During April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The guidance should be applied prospectively. We do not expect the
adoption of SFAS No. 149 to have a significant impact on our operating results
or financial position.
During May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity."
SFAS No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. We do not expect the adoption of SFAS No.
150 to have a significant impact on our operating results or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although we have no borrowings on our credit facility, if we chose to, our
cost for financing would be exposed to market risk from changes in interest
rates on any outstanding bank debt. Our revolving line of credit bears interest
at certain applicable margin levels contingent upon our leverage ratio on a
quarterly basis. The interest rate, which is either the Index rate (the higher
of prime or 50 basis points over the average of rates for overnight federal
funds transactions) plus a range from 0.00% to 0.25% or a rate equal to LIBOR
plus a range from 2.00% to 2.50%, increases as our leverage ratio increases.
Adjustments to the applicable margin level are implemented quarterly on a
prospective basis. The interest cost of our bank debt is affected by changes in
either prime, federal funds rates, or LIBOR. Such changes could adversely
impact the cost of our borrowings.
The supply and price of coffee are subject to volatility and can be
affected by multiple factors in the producing countries, including weather,
political and economic conditions. In addition, green coffee prices have been
affected in the past, and may be affected in the future, by the actions of
certain organizations and associations that have historically attempted to
influence commodity prices of green coffee through agreements establishing
export quotas or restricting coffee supplies worldwide. With this in mind, we
purchase coffee from three distinct regions and many countries around the world.
17
Our hedging strategy is intended to limit the cost exposure of the main
commodity used in our business, green coffee beans. We use the following
instruments to manage coffee supply and price risk:
- - Fixed-price purchase commitments;
- - Coffee futures; and
- - Coffee futures options.
From time to time, we may use coffee futures and coffee futures options
depending on market conditions to reduce the price risk of our coffee purchase
requirements that we cannot make or have not made through contractual
commitments to purchase physical lots of coffee. These coffee futures and coffee
futures options are traded on the New York Coffee, Sugar & Cocoa Exchange. We
may use these futures and options solely for financial hedging purposes and
never take actual delivery of the coffee traded on the exchange. We have no
outstanding hedging contracts as of June 29, 2003.
As of June 29, 2003, we had approximately $15.5 million in open
fixed-priced purchase commitments with delivery dates ranging from July 2003
through November 2006. We believe, based on relationships established with our
suppliers in the past that the risk of non-delivery on such purchase commitments
is remote.
There have been no substantial changes in the nature of our risks since
December 29, 2002. Please refer to our Annual Report on Form 10-K for the year
ended December 29, 2002.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
(the "CEO") and Chief Financial Officer (the "CFO"), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of
1934, as amended) as of June 29, 2003. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective. There have been no material changes in
the Company's internal controls or in other factors that could materially affect
internal controls.
18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we may from time to time become
involved in certain legal proceedings. On February 25, 2003 and March 7, 2003,
two lawsuits were filed against the Company entitled Brian Taraz, et al vs.
Peet's Coffee & Tea, Inc., and Tracy Coffee, et al. vs. Peet's Coffee & Tea,
Inc. Each was filed in Superior Court of the State of California, County of
Orange, and seeks class action certification. These suits were filed by one
former and one current store manager alleging misclassification of employment
position and seeking damages, restitution, reclassification and attorneys fees
and costs. We are investigating and intend to vigorously defend this
litigation, but because the cases are in their early stages, the financial
impact to the Company, if any, cannot be predicted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2003 Annual Meeting of Stockholders of the Company was held on May 23,
2003. The two persons named below were elected as proposed in the proxy
statement pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, to serve as directors until the Company's Annual Meeting in 2006 and
until their successors are elected and qualified. There were 10,775,045 votes
cast in the election of directors. The voting regarding each nominee was as
follows: Gerald Baldwin (for: 7,914,673 / withheld: 2,860,372); and Hilary
Billings (for: 10,692,668 / withheld: 82,377). The following directors' term of
office as a director continued after the meeting: Christopher P. Mottern,
Patrick O'Dea, Gordon Bowker, H. William Jesse, Jr., Jean-Michel Valette.
Further, the selection of Deloitte & Touche LLP as independent auditors for
the fiscal year was ratified. The matter was approved with 10,630,458 votes
for, 129,413 votes withheld, and 15,174 votes abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number Description
- -------------- -------------------------------------------------------------------------
Peet's Coffee & Tea, Inc. Key Employment Agreement for Vice President
10.17 dated as of June 9, 2003. (1)
- -------------- -------------------------------------------------------------------------
Certification of the Company's Chief Executive Officer, Patrick O'Dea,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
31.1 amended.
- -------------- -------------------------------------------------------------------------
Certification of the Company's Chief Financial Officer, Thomas Cawley,
pursuant to Rule 13a-15(a) under the Securities Exchange Act of 1934, as
31.2 amended.
- -------------- -------------------------------------------------------------------------
Certification of the Company's Chief Executive Officer, Patrick O'Dea,
32.1 pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
- -------------- -------------------------------------------------------------------------
Certification of the Company's Chief Financial Officer, Thomas Cawley,
32.2 pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
- -------------- -------------------------------------------------------------------------
(1) Management contract.
b. Reports on Form 8-K
Current Report on Form 8-K filed on April 30, 2003 to furnish under Item 12 a
press release dated April 30, 2003.
Current Report on Form 8-K filed on July 30, 2003 to furnish under Item 12 a
press release dated July 30, 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2003 PEET'S COFFEE & TEA, INC.
----------------- By: /s/ Thomas Cawley
-------------------
Thomas Cawley
Vice President, Chief Financial Officer,
and Secretary
20